NINJA MCQ - Specific Transactions, Events and Disclosures

Question 1

If a contingent loss is “reasonably possible” is it accrued?

Answer 1

No, a reasonably possible loss, for example losing a lawsuit, is only disclosed if “reasonably possible”. It is accrued of “probable”.

Question 2

A 70%-owned subsidiary company declares and pays a cash dividend. What effect does the dividend have on the retained earnings and noncontrolling (minority) interest balances in the parent company’s consolidated balance sheet?

Answer 2

No effect on retained earnings and a decrease in noncontrolling interest

Question 3

A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected future cash flows of $100,000, and a market value of $105,000. What amount of impairment loss should be reported?

Answer 3

$0 - because the sum of undiscounted estimated future cash flows ($130,000) are not less than the carrying value ($120,000), no impairment loss must be recognized.

Question 4

The carrying amount of the loading dock is $400,000. The undiscounted present value of the future cash flows related to the loading dock is $410,000. The discounted present value of the future cash flows related to the loading dock is $380,000. The loading dock could be sold for $401,000 right now, less a broker’s commission of $6,000. If A. A. Corporation applies IFRS, does it need to recognize an impairment loss?

Answer 4

Yes, because the carrying value is not recoverable (but no under GAAP).

Question 5

Are leasehold improvements on a leased building categorized as an operating lease still capitalized?

Answer 5

Yes.

Question 6

Wood Co.’s dividends on noncumulative preferred stock have been declared but not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has reported a net loss in the current year. For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated?

Answer 6

The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.