MCQ Review 11

Question 1

What is the proper accounting for losses when nonmonetary assets are exchanged for other nonmonetary assets?

Answer 1

• A loss is recognized immediately because assets received should not be valued at more than their cash equivalent price.
• In an exchange of nonmonetary assets, the full amount of any loss is recognized immediately regardless of whether the transaction lacks commercial substance or another exception to fair value accounting applies.
• Assets should not be initially measured in excess of their fair value.

Question 2

What are the methods to generate cash from accounts receivable?

Answer 2

• Methods of generating cash from accounts receivable include both assignment and factoring.
• Assignment occurs when specifically named accounts receivable are pledged as collateral for a loan.The accounts receivable remain those of the assignor. However, when cash is collected from these accounts receivable, the cash must be remitted to the assignee.
• Accounts receivable are factored when they are sold outright to a third party. This sale may be with or without recourse.

Question 3

When company make election of the fair value option (FVO),

Answer 3

• Results in recognition of unrealized gains and losses in earnings of a business entity
• A business measures at fair value the eligible items for which the FVO election was made at a specified election date. The unrealized gains and losses on those items are reported in earnings at each subsequent reporting date.

Question 4

Under IFRS, investment property accounted for in accordance with the fair value model is measured at the end of each reporting period at its…

Answer 4

• Fair Value
• An entity that chooses the fair value model as its accounting policy for investment property must measure all of its investment property at fair value at the end of the reporting period.
• The best evidence of fair value usually consists of current prices in an active market for similar property in the same location and condition.

Question 5

Shipping costs incurred by a consignor on transfer of goods to a consignee should be considered as..

Answer 5

• Inventory cost to the consignor.
• Inventoriable costs include all costs of making the inventory ready for sale. Costs incurred by a consignor on the transfer of goods to a consignee are costs necessary to prepare the inventory for sale. Consequently, they are inventoriable.

Question 6

In accordance with IFRS, in the statement of cash flows, where does the payment of cash dividends appear?

Answer 6

• Operating or Financing depends on the use
• According to IAS 7, dividends paid may be treated as a cash outflow from financing activities because they are a cost of obtaining resources from owners.
• However, they also may be treated as operating items to help determine the entity’s ability to pay dividends from operating cash flows.

Question 7

When Should a nongovernmental not-for-profit entity recognize a conditional promise to give?

Answer 7

• The possibility that the condition will not be met is remote.
• A conditional promise to give is recognized when the conditions on which it depends are substantially met, i.e., when the promise becomes unconditional. A promise is unconditional when the possibility that the condition will not be met is remote.

Question 8

Which capital assets must be depreciated in the government-wide financial statements?

Answer 8

• All capitalized collections that are exhaustible.
• If capitalized collections or individual items are exhaustible, for example, because their useful lives are reduced by display, educational, or research uses, they must be depreciated.

Question 9

When a purchase order is released, a commitment is made by a governmental unit to buy a computer to be manufactured to specifications for use in property tax administration. This commitment should be recorded in the general fund as a(n)

Answer 9

-Encumbrances are used for budgetary control purposes to record commitments to purchase goods or services. The entry is to debit encumbrances and credit encumbrances outstanding.

Question 10

The city accountant for a newly established municipality is setting up the new fund structure for the city’s accounting system. How many funds should the accountant establish for the city?

Answer 10

-The minimum number of funds consistent with legal requirements and sound financial administration.