Chapter 11: Current Liabilities and Contingencies
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Q1) For the following transaction,provide all of the required journal entries from inception to liquidation.Assume a December 31 year end and that the company does not prepare interim statements.Round all amounts to nearest dollar. \(\begin{array}{lr}
\text { Face value of note payable } & \$ 200,000 \\
\text { Date of issue for note } & \text { May } 1,2016 \\
\text { Due date for note } & \text { May } 1,2017 \\
\text { Interest rate in the note } & 5 \% \\ & \text { (interest due at maturity) } \\
\text { Market rate of interest } & 5 \% \\
\text { Consideration received } & \text { Cash } \end{array}\)
Q2) Which statement about deferred revenue is correct?
A)Deferred revenue is always a non-current liability.
B)Deferred revenue could arise from loyalty programs.
C)Deferred revenue is measured using expected values.
D)Deferred revenue arises when the goods are shipped.
Q3) List three reasons why the recording of sales taxes is not straightforward.
Q4) List three characteristics of a franchise arrangement.
Q5) Explain the difference between "probable," "possible," and "remote" under IFRS.
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Chapter 12: Non-Current Financial Liabilities
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Q1) What is the effective interest rate?
A)Yield on the issue date.
B)Amount to be repaid at maturity.
C)Rate of return earned by the investor.
D)Interest rate specified in the bond indenture.
Q2) On November 1,2017,FastCare sold $5,000,000 of three-year bonds for $4,750,325.
From the proceeds,the company paid accounting fees of 50,000.Interest of 5% is payable annually.What is the effective rate of interest to 2 decimal places?
A)7.30%
B)5.00%
C)4.69%
D)3.63%
Q3) What are "stripped bonds"?
A)Bonds that pay the market rate of interest.
B)Bonds that are unsecured.
C)Bonds that pay no interest and are sold at a discount.
D)Bonds that are sold at a premium.
Q4) Explain how non-current liabilities are measured after initial recognition.
Q5) Why do lenders avoid lending large amounts of money to one borrower?
Q6) What are the qualitative considerations in determining a safe level of debt?
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Chapter 14: Complex Financial Instruments
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Q1) Which of the following is an example of a "future"?
A)Right to buy 100 shares of CIBC over the next 5 years.
B)Commitment to buy 100 barrels of oil next month at $125/barrel.
C)Commitment to buy $100,000 US dollars in 120 days at US$=1.10.
D)Pay interest at prime +3% in exchange for receiving interest at 5%.
Q2) A company issues convertible bonds with face value of $10,000,000 and receives proceeds of $10,500,000.Each $1,000 bond can be converted,at the option of the holder,into 800 common shares.The underwriter estimated the market value of the bonds alone,excluding the conversion rights,to be approximately $8,300,000.
Required:
Record the journal entry for the issuance of these bonds based on IFRS.
Q3) A company pays $5,000 to purchase futures contracts to buy 50 oz of silver at $40/oz.At the company's year-end,the price of silver rose and the value of the company's futures contracts increased to $6,000.
Required:
Record the journal entries related to these futures.
Q4) What is hedging?
Q5) Give 4 examples of cash flow hedges:
Q6) Briefly describe a compound financial instrument and its advantages.
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Chapter 15: Earnings Per Share
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Q1) Which statement is correct?
A)A complex capital structure includes potentially dilutive securities.
B)A complex capital structure excludes potentially dilutive securities.
C)EPS applies only to a company with a complex capital structure.
D)A company with a complex capital structure calculates only basic EPS.
Q2) Which statement is correct?
A)Out of the money stock options are the most dilutive.
B)Convertible bonds are the most dilutive.
C)Convertible preferred shares are the most dilutive.
D)In the money stock options are the most dilutive.
Q3) Summer Surprise Ltd.(SSL)was incorporated on January 1,2018.At that time,it issued 210,000 ordinary shares;95,000,$65,2% preferred shares "A";and 85,000,$65,4% preferred shares "B." Net income for the year ended December 31,2018 was $500,000.SSL neither declares nor pays dividends during the year.The series A preferred shares are cumulative and the series B preferred shares are non-cumulative.Series A must be fully paid their current entitlement before any monies are paid to the Series B shareholders. Required:
Compute basic BPS.
Q4) Explain the purpose of incremental EPS.
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Chapter 16: Accounting for Income Taxes
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Q1) A large public company reported that its provision for income taxes was $500 million and that it has a deferred tax liability of 2 billion.A Member of Parliament calls you and says,I see hundreds of companies who have these huge deferred tax liabilities on their balance sheets.If the government could get even half of what's owed,it could cut the public deficit down to size in a hurry.
Required:
Write a memo to the Member of Parliament explaining the issues.
Q2) In the first year of operations,a company reports taxable income of $225,000 and paid a tax rate of 28%.It is now the end of the second year,and the company has a loss of $375,000 for tax purposes.The company's management believes it is probable the company will be able to use up its tax losses.The tax rate is currently 32%.
Required:
Compute the amounts of income tax receivable and/ or deferred income tax asset in the current (second)year.
Q3) What is the accepted method of accounting for taxes under IFRS and ASPE? Accrual method or taxes payable method?
Q4) Describe what is meant by a permanent difference.
Q5) Why does the tax system appear to treat profits and losses asymmetrically?
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Chapter 17: Pensions and Other Employee Future Benefits
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Q1) A company has a defined benefit pension asset of $750,000 at the beginning of the year.The company contributes $2,500,000 to the pension during the year and records a pension expense of $2,200,000.
Required:
Determine the value of the defined benefit pension liability at year-end.
Q2) Which statement is correct?
A)The plan sponsor of a defined benefit plan never needs to increase its contributions to the pension trust.
B)A defined contribution plan is a pension plan that places investment risk on the employers.
C)Inadequate contributions to a defined benefit plan by the plan sponsor or poor investment returns will result in an underfunded pension.
D)A defined contribution plan specifies the fixed benefits that future retirees will receive.
Q3) What is the key objective in the accounting for defined benefit plans that is achieved by estimating and recording current service cost?
Q4) Discuss why accounting for "defined benefit plans" is so complex and the types of estimates required.
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Chapter 19: Statement of Cash Flows
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Q1) Why are "cash and cash equivalents" treated as a single unit on the cash flow statement?
Q2) Which of the following is an investing activity?
A)Payment of salaries.
B)Purchase of inventory.
C)Sale of held for trading investment.
D)Collection of loan receivable.
Q3) If a company has gaps between the change in cash and the net income for the year:
A)the income statement provides sufficient explanation for the sources of these changes.
B)the financial statement notes provide explanation for the sources of these changes.
C)the statement of cash flow provides explanation of the sources of these changes.
D)the statement of cash flow and balance sheet provide explanation for these changes.
Q4) Explain the options for recording interest and dividends received and interest and dividends paid on the cash flow statement according to IAS 7.
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