Chapter 12 Flashcards
- Conceptually, liabilities constitute a present obligation as a result of a past event.
true or false
true
Under IFRS, only legal obligations are recognized
true or false
false
A reasonable expectation on the part of a company’s stakeholders arising from a company’s past
practices or behaviour may constitute a constructive obligation in certain instances.
true or false
true
A contingency may become a provision if the likelihood of the contingent event greatly
increases
true or false
true
for a small population, the best estimate for the amount of a provision that must be recognized is the expected value of the possible outcomes
true or false
false
For a large population, the best estimate for the amount of a provision that must be
recognized is the most likely outcome with respect to the expected value and cumulative
probabilities
true or false
false
Discounting is not required when the time value of money is immaterial or if the amount
and timing of cash flows is highly uncertain.
true or false
true
For a small population, the best estimate for the amount of a provision that must be
recognized is the expected value of the possible outcomes
true or false
false
Contingencies must be both accrued and disclosed.
true or false
false
under proposed changes to current standards, amounts currently classified as contingencies may need to be accrued rather than simply disclosed
true or false
true
Contingencies must be both accrued and disclosed.
true or false
false
A lawsuit in progress wherein the defendant will probably be found guilty would likely
be accounted for as a provision.
true or false
true
Warranties provisions may arise from legal or constructive obligations.true or false
true
once a company has formally decided to restrucuture its operations, a provision must be made for the restructuring
true or false
false
loyalty points are provided (accrued) for and reversed once the points are redeemed
true or false
true
Self-insurance costs for expected losses must never be provided for
true or false
false
current liabilities are usually discounted
true or false
false
The carrying value of a bond from the issuing corporation’s standpoint will always move closer
to its face value, regardless of whether the bond is issued at a premium or a discount.
true or false
true
under the effective interest method, interest expense is calculated by multiplying the market interest rate by the carrying value of the bond
true or false
true
Assume that a company issues bonds at a discount. Under the effective interest method,
the company will record progressively less interest with the passage of time.
true of false
false
transaction costs are usually included in the carrying value of any financial liabilities
true or false
true
Long-term financial liabilities will usually be carried at amortized cost.
true or false
true
Adjustments to fair value relating to FVTPL liabilities will always flow through earnings
true
Loan guarantees must be provided for; the amount of the provision is the probability of
payout multiplied by the fair value o the loan guarantee
true or false
true
when the market rate exceeds the stated or nominal rate, a bond’s carrying value will be less than its fair value
true or false
true
the stated rate of interst is the interest rate used to determine the amount of cash interest that will be paid on the principal
true
a short-term payable may be the current portion of a long-term liabilitiy, which arises when the next payment on such a debt will be made out of current assets
true or false
true
Interest may be recognized on a note even though the note does not explicitly state an interest
rate.
true or false
true
the principal amount of a debt is the cash or cash equivalent amount borrowed
true or false
true
a company may reclassify a current financial liability to a long-term one only if there is a contractual agreement in place by the reporting date to replace the financing
true or false
true
debt issue costs may be expensed or included in the cost of debt
true or false
true
an administrative fee pertaining to a successful loan applicaton is to be immediately expensed
true or false
false
an administrative fee pertaining to an unsuccessful loan application is to be immediately expensed
true or false
true
capitalization of borrowing costs on qualifying assets will continue even if work on the asset has temporarily ceased
true or false
false
accounts payable should include only obligations directly related to the primary and continuing operations of an equity
true or false
true
captialization of borrowing costs on qualfiyng assets is mandatory under both IFRS and ASPE
true or false
false
use of the effective interest method for amortizingbond premiums and discounts is mandatory under IFRS but not under ASPE
true or false
true
borrowing costs can only be capitalized on non-financial assets
true or false
true
the cost of any equity financing is included when calculating the cost of generalized borrowings
true or false
false
Bonds are said to be redeemable when they can be prematurely retired at the discretion of
the issuing company and retractable when they can be prematurely retired at the
investor’s discretion.
true or false
true
Under IRS, a loss contingency must be credited to a liability account only if the occurrence of
the contingent event is probable and if the amount of loss can be reasonably estimated
true or false
false
a gain contingency will usually not be recorded in the accoutns and reported in the financial statements even though its occurrence is probable
true or false
true
under ASPE, disclosure in the footnotes to the financial statements is thhe only way to properly report contingent losses
true or false
false
when the maturity date of a bond issue is within one year or the operating cycle (whichever is longer) of the current balance sheet date, the bond liability should be reclassified as a current liability (assuming the payment will be made out of current assets)
true or false
true
callable bonds are callable at the option of the investor
true or false
false
A $1,000, 6%, 10-year bond purchased as a long-term investment at an effective rate at 7%, will
pay the investor $70 cash interest each year
true or false
false
When bonds are sold at a discount, interest-method amortization results in a schedule of interest
accruals, which increase in amount as maturity approaches
true of false
true
in substance defeasance means that a debtor irrevocably places cash or other monetary assets in a trust fund to pay interest on an outstanding debt. in such situations, the debt is always recorded as paid when the trust fund is set up
true or false
false
hedging is one method of minimizing foreign exchange risk
true or false
true
under IFRS, a continuity scheduled must be provided for both provisions and contingencies
true or false
false
(Appendix) Blended payments are payments where the interest rate is fixed at the beginning of
the loan term and there are regular equal payments of principal and interest made.
true or false
true
A brewing company operating in an Ontario city experiencing water shortages received its water
bill for December 1999, on December 31, 1999. The bill ($8,000) represents the cost of water
used in December to make its product. The company will not publish the 1999 financial
statements until February 2000. Therefore, the adjusting entry as of December 31, 1999 includes
which of the following?
A) cr. utilities payable $8,000
B) cr. cash $8,000
C) cr. utilities expense $8,000
D) no adjusting entry needed because the bill will not be paid until January 2000
a
Bonds payable (due 5 years from the balance sheet date) should be classified as follows: A) A contingent liability. B) An element of the owners' equity. C) A long-term liability. D) A current liability.
c
- A short-term note payable may include all of the following except:
A) Trade notes payable.
B) Nontrade notes payable.
C) A current portion of a long-term liability.
D) Unearned revenue.
d
- Which of the following statements is/are correct?
A) Under IFRS, contingencies may be accrued, but not under ASPE.
B) Litigation for which the company will probably be found guilty would normally be accrued
as a provision.
C) Under IFRS, contingencies should be disclosed but not accrued.
D) Both B & C are correct.
d
A firm sold $100,000 worth of goods during 1999. The firm extends warranty coverage on these
goods. Historically, warranty costs have averaged 2% of total sales. During 1999, the firm
incurred $1,000 to service goods sold in 1998 and $200 to service goods sold in 1999. What is
warranty expense for 1999?
A) $200
B) $1,200
C) $2,000
D) $3,200
c
You are an investor and have just purchased a bond on July 1 which pays interest every March 1 and September 1. When you receive your first interest cheque, you will receive and have earned how many months interest? Received Earned 1 6 6 2 6 2 3 2 2 4 4 4 5 6 4 A) Choice 1 B) Choice 2 C) Choice 3 D) Choice 4 E) Choice 5
b
