ExamName___________________________________MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1)By law, a fleet of aircraft must be subject to a major overhaul every 5 years as part of itsscheduled maintenance program. Which of the following statements is correct?1)A)The cost of the overhaul should be deferred and amortized.B)An accrual should be made in each of the 5 years preceding the overhaul.C)The estimated cost of the overhaul should be disclosed as part of a continuityschedule in the notes to the financial statements.D)The costs of the overhaul should be expensed as incurred.Answer:AExplanation:A)B)C)D)2)Which of the following statements is correct?2)A)Under IFRS, content gains should be recognized if they are reasonably certain tooccur.B)Under IFRS, contingencies may be accrued, but not under ASPE.C)A contingency is more likely to require an accrual than a provision.D)Litigation for which the company will probably be found guilty would normally beaccrued as a provision.Answer:DExplanation:A)B)C)D)3)Which of the following contingencies should be accrued in the accounts and reported inthe financial statements?3)A)The company is forcefully contesting a personal injury suit and a loss is possibleand reasonably estimable.B)The estimated expenses of a one-year product warranty.C)An accommodation endorsement involving a remote loss.D)It is probable that the company will receive $50,000 in settlement of a lawsuit.Answer:BExplanation:A)B)C)D)1

4)On January 1, 2014, DWW borrowed $400,000 cash and signed a one-year, 12 percentinterest-bearing note payable. Assuming a 40 percent average income tax rate for DWWCorporation, the net effective interest rate on this note was:4)A)4.8 percent.B)7.2 percent.C)6.0 percent.D)12.0 percent.Answer:BExplanation:A)B)C)D)5)A brewing company operating in an Ontario city experiencing water shortages receivedits water bill for December 2013, on December 31, 2013. The bill ($8,000) represents thecost of water used in December to make its product. The company will not publish the2013 financial statements until February 2014. Therefore, the adjusting entry as ofDecember 31, 2013 includes which of the following?5)A)cr. utilities expense $8,000B)cr. cash $8,000C)cr. utilities payable $8,000D)no adjusting entry needed because the bill will not be paid until January 2014Answer:CExplanation:A)B)C)D)6)Which of the following statements is correct?6)A)There is no guidance for self-insurance under IFRS.B)Contingent assets are only recorded when it is virtually certain that the benefitsrelating to the contingent assets will be received.C)Contingent assets are only recorded when it is reasonably certain that the benefitsrelating to the contingent assets will be received.D)For companies that are self-insured, a provision must be established for eventstaking place prior to the reporting period if known.Answer:BExplanation:A)B)C)D)2

7)Information obtained prior to the issuance of the current period's financial statements ofKG Company indicates that it is probable that, at the date of the financial statements, aliability will be incurred for obligations related to product warranties on products soldduring the current period. During the past three years, product warranty costs have beenapproximately 1 1/2 percent of annual sales revenue. An estimated loss contingencyshould be:7)A)Disclosed in the financial statements but not accrued.B)Neither accrued nor disclosed in the financial statements.C)Accrued in the accounts and reported in the financial statements.D)Recognized as an appropriation of retained earnings.Answer:CExplanation:A)B)C)D)8)Ryan Company borrow $45,000 US when the exchange rate for US $1.00 is Cdn. $1.46.When the debt was repaid the exchange rate changes to US $1.00 = Cdn. $1.38. RyanCompany records the amount on the date of exchange as:8)A)A foreign exchange loss of $3,600.B)A foreign exchange loss of $62,100.C)A foreign exchange gain of $3,600.D)A foreign exchange gain of $62,100.Answer:CExplanation:A)B)C)D)9)A firm sold $100,000 worth of goods during 2014. The firm extends warranty coverageon these goods. Historically, warranty costs have averaged 2% of total sales. During2014, the firm incurred $1,000 to service goods sold in 2013 and $200 to service goodssold in 2014. What is warranty expense for 2014?9)A)$1,200B)$2,000C)$200D)$3,200Answer:BExplanation:A)B)C)D)3

10)Constructive obligations may arise from:10)A)Warranty obligations.B)Accrued Liabilities resulting from operations.C)Unearned Revenues.D)Notes Payable.Answer:AExplanation:A)B)C)D)11)Long-term obligations (i.e., debts) that is callable for early payment:11)A)Must be reported as current liabilities by the debtor if callable on demand.B)Can be reported as current liabilities by the debtor only if callable because aprovision of the debt covenant has been violated.C)Must continue to be classified as a long-term liability in all situations.D)Must continue to be classified as a long-term liability by the debtor, if a provision ofthe debt covenant has been violated.Answer:AExplanation:A)B)C)D)12)You are an investor and have just purchased a bond on July 1 which pays interest everyMarch 1 and September 1. When you receive your first interest cheque, you will receiveand have earned how many months interest?ReceivedEarned16626232244456412)A)Choice 1B)Choice 2C)Choice 3D)Choice 4E)Choice 5Answer:BExplanation:A)B)C)D)E)4

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