Deck 11: Other Measurement and Disclosure Issues

Question 1

Which of the following items found in an annual report is NOT subject to GAAP?

A) financial statements
B) management discussion and analysis
C) inventory methods
D) accounting policies

Answer 1

B

Question 2

Presented below are four segments that have been identified by Mango Corp.: $\begin{array}{cccc}&&\text { Operating }\\\text { Segments } & \text { Total Revenue } & \text { Profit (Loss) } & \text { Assets } \\\text { A } & \$ 300,000 & \$ 40,000 & \$ 1,200,000 \\\text { B } & 800,000 & (70,000) & 1,200,000 \\\text { C } & 300,000 & 6,000 & 600,000 \\\text { D } & 120,000 & 8,000 & 300,000\end{array}$ According to IFRS, which segments would be considered reportable segments?

A) Segments A, B, and C
B) Segments A, B, C, and D
C) Segments A and B
D) Segments A and D

Answer 2

Segments A, B, C, and D

Question 3

Which of the following facts concerning property, plant and equipment should be included in the Summary of Significant Accounting Policies?

Answer 3

C

Question 4

IFRS requires that all of the following information about each reportable segment must be provided EXCEPT

A) total liabilities.
B) interest revenue.
C) cost of goods sold.
D) income tax expense or benefit.

Question 5

According to IFRS, an operating segment is a reportable segment if

A) its operating profit is 10% or more of the combined operating profit of profitable segments only.
B) its operating loss is 10% or more of the combined operating losses of segments that incurred an operating loss.
C) the absolute amount of its operating profit or loss is 10% or more of the greater, in absolute amount, of (a) the combined reported operating profit of all operating segments that incurred a loss, and (b) the combined reported profit of all operating segments that did report a profit.
D) the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of (a) the combined reported operating profit of all operating segments that did not incur a loss, or (b) the combined reported loss of all operating segments that did report a loss.

Question 6

The following information pertains to Freeman Corp. and its various divisions for the year ended December 31, 2020: $\begin{array}{llr} \text {Sales to external customers. } &\$2,250,000\\ \text { Intersegment sales of products similar to those sold to } &\\ \text { external customers } &675,000\\ \text { Interest earned onloans to other operating segments } &45,000\\\end{array}$
According to IFRS, Freeman has a reportable segment if that segment's revenue equals or exceeds

A) $ 297,000.
B) $ 292,500.
C) $ 229,500.
D) $ 225,000.

Question 7

Gooseberry Corp. is a multidivisional corporation that has both intersegment sales and sales to external customers. Gooseberry should report segmented financial information for each division meeting which of the following IFRS criteria?

A) segment profit or loss is 10% or more of consolidated profit or loss
B) segment profit or loss is 10% or more of combined profit or loss of all company segments
C) segment revenue is 10% or more of combined revenue of all the company segments
D) segment revenue is 10% or more of consolidated net income

Question 8

Which of the following does NOT need be disclosed in a Summary of Significant Accounting Policies?

A) inventory valuation method(s)
B) revenue recognition method(s)
C) depreciation and amortization method(s)
D) claims of shareholders

Question 9

Which of the following statements is INCORRECT regarding IFRS requirements for interim reporting?

A) Only a statement of financial position and statement of comprehensive income are required.
B) The same accounting policies should be used as for the annual statements.
C) When an accounting change is applied retrospectively, the enterprise must present a statement of financial position for the beginning of the earliest comparative period.
D) Condensed financial statements are permitted.

Question 10

Problems with interim reporting include

A) how to record depreciation.
B) inventory valuation.
C) how to present a change in accounting policy/principle.
D) revenue recognition.

Question 11

According to IFRS, a segment of a business is to be reported separately when its reporting revenue (including both sales to external customers and intersegment sales or transfers) exceeds 10% of the

A) total domestic sales only.
B) combined revenues of all the enterprise's operating segments.
C) combined revenues of all the enterprise's profitable operating segments.
D) combined net income of all the enterprise's profitable operating segments.

Question 12

For interim reporting, IFRS does NOT require a

A) comprehensive income statement.
B) statement of shareholders' equity.
C) statement of cash flows.
D) detailed statement of financial position.

Question 13

Although ASPE does NOT offer guidance for reporting segmented information, IFRS requires that

A) financial statements include selected information on a single basis of segmentation.
B) financial statements include selected information on multiple bases of segmentation.
C) financial statements disclose results for every segment, regardless of how many there are.
D) management segment the enterprise on a geographical basis only.

Question 14

Errors and irregularities are defined as intentional distortions of facts. Yes or No?

Question 15

Mason Corp. has estimated that total depreciation expense for the 2020 calendar year will be $ 240,000, and that 2020 year-end bonuses to employees will be $ 480,000. In Mason's interim income statement for the six months ended June 30, 2020, what total expense relating to these two items should be reported?

A) $ 0
B) $ 120,000
C) $ 360,000
D) $ 720,000

Question 16

Melon Corp. is engaged in manufacturing operations in various industries. The following data pertain to the industries in which operations were conducted for the year ended December 31, 2020. $\begin{array}{cccc}&&&\text { Assets }\\\text { Industry } & \text { Revenue } & \text { Profit } & 12 / 31 / 20 \\\hline \text { A } & \$10,000,000 & \$ 1,650,000 & \$ 20,000,000 \\ \text { B } & 8,000,000 & 1,400,000 & 17,500,000 \\ \mathrm{C} & 6,000,000 & 1,200,000 & 12,500,000 \\\text { D } & 3,000,000 & 550,000 & 6,500,000 \\ \text { E } & 4,250,000 & 675,000 & 7,000,000 \\ \mathrm{F} & 1,500,000 & 225,000 & 3,000,000 \\& \$ 32,750,000 & \$ 5,700,000 & \$ 66,500,000 \\\end{array}$ According to IFRS, how many reportable segments does Melon have?

A) three
B) four
C) five
D) six

Question 17

When using the discrete view to prepare interim statements, two exceptions that are permitted deal with the calculation of

A) depreciation and income tax expense.
B) income tax expense and employer's payroll tax expense.
C) depreciation and unearned revenue.
D) unearned revenue and employer's payroll tax expense.

Question 18

Reasons for increased disclosure requirements do NOT include

A) the current government trend toward reducing income taxes.
B) the necessity for timely information.
C) the complexity of the business environment.
D) accounting as a control and monitoring device.

Question 19

On January 15, 2020, Link Corp. paid $ 480,000 in property taxes on its factory building for the calendar year 2020. In the first week of April 2020, the corporation made unanticipated repairs to its plant equipment at a cost of $ 1,200,000. How should these expenses be reflected in Link's quarterly income statements? $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Three Months Ended }$
$\quad \quad 3 / 31 / 20 \quad 6 / 30 / 20 \quad 9 / 30 / 20 \quad 12 / 31 / 20$

A) $\begin{array}{lccc}\$ 120,000 & \$ 520,000 & \$ 520,000 & \$ 520,000 \\\end{array}$
B) $\begin{array}{lccc}\$ 120,000 & \$ 1,320,000 & \$ 120,000 & \$ 120,000 \\\end{array}$
C) $\begin{array}{lccc}\$ 480,000 & \$ 1,200,000 & \$-0- &\quad \$-0- \\\end{array}$
D) $\begin{array}{lccc}\$ 420,000 & \$ 420,000 & \$ 420,000 & \$ 420,000\end{array}$

Question 20

In January 2020, Ricardo Ltd. estimated that its year-end bonuses to executives for calendar 2020 would be $ 960,000. In February 2020, $ 870,000 was paid in bonuses for the 2019 year-end. The estimate for 2020 is subject to year-end adjustment. How much bonus expense should be reflected in Ricardo's interim income statement for the three months ended March 31, 2020?

A) $ 960,000
B) $ 870,000
C) $ 240,000
D) $ 217,500

Question 21

When an auditor expresses an unmodified opinion about a company's financial statements, it means that the financial statements

A) are free from error.
B) present fairly the financial position, results of operations, and cash flows in accordance with GAAP.
C) indicate that the company is doing well and would make a good investment.
D) contain exceptions due to a departure from GAAP.

Question 22

To two decimals, Power Corp.'s profit margin on sales for 2020 is

A) 7.56%.
B) 168.48%.
C) 13.23%.
D) 59.35%.

Question 23

When an auditor expresses a qualified opinion about a company's financial statements, it means that the financial statements

A) are free from error.
B) present fairly the financial position, results of operations, and cash flows in accordance with GAAP.
C) indicate that the company is doing well and would make a good investment.
D) contain exceptions due to a departure from GAAP.

Question 24

Accounting issues involved for unincorporated businesses include

A) the definition of the economic entity.
B) who owns the issued shares.
C) segregating the salaries expense for the owner(s) from the salaries expense for the employees.
D) provision for income taxes.

Question 25

Use the following data to answer questions 33-34.
Power Corp. reported the following data for calendar 2020: $\begin{array}{llr} \text { Total assets} &\$625,000\\ \text {Current assets } &325,000\\ \text { Total liabilities } &300,000\\ \text { Long-term liabilities} &145,000\\ \text { Inventories, Dec 31/19 } &110,000\\ \text { Inventories, Dec \( 31 / 20 \) } &100,000\\ \text { Net sales. } &1,550,000\\ \text { Gross profit} &920,000\\ \text { Net income} &205,000\end{array}$


-To two decimals, Power Corp.'s current ratio for 2020 is

A) 1.08.
B) 2.10.
C) 2.08.
D) 0.92.

Question 26

Which statement is INCORRECT regarding guidance given by IFRS and ASPE?

A) IFRS provides guidance for interim reporting, while ASPE does not.
B) ASPE provides guidance for segmented reporting, while IFRS does not.
C) IFRS provides guidance for segmented reporting, while ASPE does not.
D) IFRS does not provide guidance for reporting on unincorporated businesses.

Question 27

An auditor's adverse opinion

A) although very rare in the past, is frequently seen nowadays.
B) means the financial statements are prepared in accordance with GAAP.
C) is given when the auditor deems a qualified opinion is not justified.
D) means there are some minor exceptions due to a departure from GAAP.

Question 28

Regarding related-party transactions,

A) transactions between related parties are usually presumed to take place at arms length.
B) related parties do not include members of the immediate family of company management.
C) both IFRS and ASPE deal only with disclosure requirements for such transactions.
D) ASPE requires that some related-party transactions be remeasured.

Question 29

the seven key disclosure documents for public companies per the Ontario Securities Commission.
Instructions

Question 30

IASB issued "Management Commentary: A Framework for Presentation" as an IFRS Practice Statement in December 2010 to help guide companies and regulators. What three things should a company provide as suggested by the Practice Statement?

Question 31

Use the following data to answer questions 33-34.
Power Corp. reported the following data for calendar 2020: $\begin{array}{llr} \text { Total assets} &\$625,000\\ \text {Current assets } &325,000\\ \text { Total liabilities } &300,000\\ \text { Long-term liabilities} &145,000\\ \text { Inventories, Dec 31/19 } &110,000\\ \text { Inventories, Dec \( 31 / 20 \) } &100,000\\ \text { Net sales. } &1,550,000\\ \text { Gross profit} &920,000\\ \text { Net income} &205,000\end{array}$


-To two decimals, Power Corp.'s inventory turnover for 2020 is

A) 14.76.
B) 12.81.
C) 6.00.
D) 3.00.

Question 32

Prune Juice Corp. reported the following data on their 2020 financial statements: $\begin{array}{llr} \text { Net sales} &\$1,350,000\\ \text {Net income } &\$240,000\\ \text { Average net receivables } &\$185,000\end{array}$
To two decimals, the accounts receivable turnover for 2020 is

A) 5.63.
B) 7.30.
C) 8.59.
D) 0.14.

Question 33

Which of the following is NOT a limitation of financial statement analysis?

A) Financial statements report on the past.
B) Ratio and trend analyses will help identify strengths and weaknesses of a company.
C) A single ratio, by itself, is not likely to be very useful.
D) Financial statement analysis is not likely to reveal why things are as they are.

Question 34

In which order of preference are a company's creditors paid in the event of bankruptcy?

A) Secured first, then preferred, then unsecured
B) Preferred first, then secured, then unsecured
C) Secured first, then unsecured, then preferred
D) Any may be applied, according to agreements among the creditors.

Question 35

Blueberry Corp. had the following transactions during the quarter ended March 31, 2020: $\begin{array}{llr} \text { Loss due to theft } &\$189,000\\ \text { Payment of fire insur ance for calendar year 2020 } &270,000\\\end{array}$
What amount should be included in Blueberry's income statement for the quarter ended March 31, 2020? $\begin{array}{ccc} &\text { Loss from Theft}&\text {Insurance Expense}\\\end{array}$

A) $\begin{array}{ccc} &\quad\quad \$ 0 &\quad\quad\quad\quad\quad \$ 270,000 \\\end{array}$
B) $\begin{array}{ccc} &\quad \$ 189,000 & \quad\quad\quad\$ 270,000 \\\end{array}$
C) $\begin{array}{ccc}&\quad \$ 31,500 &\quad\quad\quad\quad \$ 67,500 \\\end{array}$
D) $\begin{array}{ccc} &\quad \$ 189,000 &\quad\quad\quad\quad \$ 67,500\end{array}$

Question 36

Which of the following subsequent events (post-statement of financial position events) would generally require disclosure in the financial statement notes, but NOT adjustment of the accounts?

A) retirement of the company president
B) settlement of a lawsuit when the event that gave rise to the action occurred prior to the statement of financial position date
C) strike by the company's unionized workers
D) issue of a significant number of common shares

Question 37

The ratios that reflect financial strength are

A) liquidity and coverage ratios.
B) liquidity and profitability ratios.
C) profitability and activity ratios.
D) activity and coverage ratios.

Question 38

The ratios that assess management performance are

A) liquidity and coverage ratios.
B) liquidity and profitability ratios.
C) profitability and activity ratios.
D) activity and coverage ratios.

Question 39

Which of the following subsequent events (post-statement of financial position events) would require adjustment of the accounts before issuance of the financial statements?

A) major losses as a result of a fire in the company's plant
B) decline in the fair value of investments
C) loss on an account receivable (on the books at statement of financial position date) resulting from a customer's bankruptcy
D) lawsuit arising from a customer's injury due to a defective product

Question 40

Notes to financial statements
An article in Dun's Review made the following comments: "At least every other year, businesses should print the notes in big type and the financial figures in smaller ones."
Instructions
a) Are notes considered part of the financial statements and what basic purpose do they serve?
b) What are the general types of notes?

Question 41

Types of subsequent events
Identify the difference between the two types of subsequent events.

Question 42

and differentiate between the main types of creditors that are affected when a company faces bankruptcy and makes a proposal to pay their creditors a percentage of what is owed or a request for an extension of time to pay of their debt.

Question 43

the four sources of uncertainty when considering the usefulness of financial statement information to a decision-maker.

Question 44

the eight disclosures recommended for related party transactions under IFRS and ASPE.

Question 45

Segmented reporting (IFRS requirements)
A central issue in reporting on operating segments of a business enterprise is the determination of which segments are reportable under IFRS.
Instructions
a) According to IFRS, what are the tests to determine whether or not an operating segment is reportable?
b) What is the test to determine if enough operating segments have been separately reported upon, and what is the guideline on the maximum number of operating segments to be shown?

Question 46

Segmented reporting (IFRS requirements)
IFRS requires the reporting of segmented (disaggregated) financial data about operating segments and also about their products and services, the geographic areas in which they operate, and their major customers.
Instructions
Identify four of the items of segmented information IFRS requires an enterprise to report.

Question 47

ago, a publishing company reported a quarterly net profit figure that exceeded sales for that quarter. Such a situation suggests there are some difficult accounting issues involved in interim reporting.
Instructions
a) What are the major accounting problems related to interim reports?
b) What problem exists with income taxes in interim reports and how does IFRS recommend that income taxes should be reported?
c) Many academicians have attempted to predict the year's net income after the first quarter's income is reported. These attempts are generally unsuccessful, no matter how sophisticated the prediction model. What might be the reason for this inability to predict?

Question 48

Segmented reporting
Tangerine Corporation's most recent (condensed) income statement is presented below: $\begin{array}{llr} \text { Revenues.} &&\$2,500,000\\ \text { Expenses} &\\ \text {Cost of goods sold } &\$1,000,000\\ \text { Operating and administrative expenses } &500,000\\ \text {Depreciation expense } &100,000&1,600,000\\ \text { Income before taxes. } &&900,000\\\text { Income tax expense. } &&270,000\\ \text { Net income. } &&\$630,000\\\text { Earnings per share }(100,000 \text { shares }&&\$6.30\\\end{array}$

$\text { The following data relates to Tangerine's operating segments: }$

$\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Percent Identified with Segment }$
$\begin{array}{llll}&\text { Hotels } & \text { Grains } & \text { Candy }\\\text { Revenues } & 42 \% & 50 \% & 8 \% \\\text { Cost of goods sold } & 48 & 49 & 3 \\\text { Operating and administrative expenses } & 35 & 50 & 15 \\\text { Depreciation expense } & 46 & 42 & 12\end{array}$
Included in the amounts allocated to each segment on the above percentages are the following expenses, which relate to general corporate activities: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Operating Segment }$
$\begin{array}{lrrrr}&\text { Hotels }&\text { Grains } &\text { Candy }& \text { Totals }\\\text { Operating and administrative expenses } & \$ 30,000 & \$ 22,000 & \$ 8,000 & \$ 60,000 \\\text { Depreciation expense } & 4,000 & 5,000 & 3,000 & 12,000\end{array}$
Instructions
(Assume that the corporation adheres to IFRS)
a) Prepare a schedule showing the amounts distributed to each segment.
b) Based only on the above information, which segments must be reported and why?

Question 49

Internet financial reporting
Discuss some of the issues involved with corporations reporting their results on the internet rather than in paper based formats.

Question 50

Auditor's report
Identify the major disclosures found in the auditor's report.

Question 51

Ratio analysis
The following select information is taken from Blueberry Pie Corp.'s statements of financial position at December 31, 2019 and 2020, and their income statement for calendar 2020: $\begin{array}{llr}&2020&2019\\\\ \text { Assets: } &\\ \text {Cash } &\$18,000&\$22,000\\ \text { \( \mathrm{FV}-\mathrm{NI} \) investments } &25,000&-0-\\ \text { Accounts receivable } &38,000&42,000\\ \text { Inventory} &61,000&52,000\\ \text { Prepaid insurance } &6,000&9,000\\ \text { Long-term investments } &49,000&20,000\\ \text { Equipment (net) } &130,000&130,000\\ \text { Land } &33,000&33,000\\ \text { Goodwill } &55,000&55,000\\ \text {Total assets } &\$415,000&\$363,000\\\\ \text {Net income. } &\$62,250\\ \text { Sales (all on credit) } &305,000\\ \text {Cost of goods sold. } &123,000\\ \text { Interest expense.} &15,600\\ \text { Income tax expense } &17,450\\\end{array}$
Instructions
From the above information, to one decimal, calculate the following for 2020:
a) Inventory turnover
b) Receivables turnover
c) Rate of return on assets
d) Times interest earned.

Question 52

following select information is taken from Mercury Corp.'s statements of financial position at December 31, 2019 and 2020, and their income statement for calendar 2020: $\begin{array}{llr}&2020&2019\\ \text { Accounts receivable } &570,000&480,000\\ \text { Inventory } &195,000&217,500\\ \text {Total assets } &\$2,700,000&\$2,475,000\\\\ \text {Net income } &\$315,000\\ \text { Net Sales (all on credit).} &2,700,000\\ \text {Cost of goods sold. } &1,050,000\\\end{array}$
Instructions
From the above information, to one decimal, calculate the following for 2020:
a) Inventory turnover
b) Receivables turnover
c) Asset turnover

Question 53

Ratios for financial analysis
Discuss the four major types of ratios used for financial analysis, and give two examples of each. What would each type likely be used for?

Question 54

Income taxes at interim dates
Discuss how income taxes are handled at interim dates.

Question 55

are there fewer disclosure requirements under ASPE than under IFRS?

Question 56

Interim reporting
There is ongoing discussion as to the proper method of reflecting results of operations at interim dates. Accordingly, IFRS has made recommendations regarding interim financial reporting.
Instructions
a) Discuss generally how revenue should be recognized at interim dates and specifically how revenue should be recognized for industries subject to large seasonal fluctuations in revenue and for long-term contracts using the percentage-of-completion method.
b) Discuss generally how product and period costs should be recognized at interim dates. Also discuss how inventory values should be treated at interim dates.
c) Discuss how the provision for income taxes is calculated and reported in interim financial statements.