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Corporate Financial Reporting A Global Perspective 1st Edition Herve Stolowy, Michel J Lebas - Solutions
9 When a provision (allowance) is no longer necessary (a) An expense account is decreased (credited) (b) A revenue account is increased (credited) (e) Both solutions are possible, it depends on the country (d) None of these
8 When a note receivable is discounted (a) The note is removed from the assets (b) The note is maintained in the assets and a liability is recorded (c) The note is removed from the assets or maintained in the assets with a liability recorded, depending on the national GAAP (d) None of these
7 An accounts receivable with a 100% probability of being collected is a cash equivalent (a) True (b) False
6 Given the following information, determine the accounts receivable turnover (two possible answers) Beginning accounts receivable 20 Ending accounts receivable Beginning cash Ending cash Cash sales Credit sales Net income 40 50 60 40 300 35 (a) 15 1 (b) 7.5 (h) 2 (c) 10 (i) 2.5 (d) 17 (i) 3 (e)
5 Accounts receivable are generally valued at the (a) Amounts invoiced to customers (b) Net realizable value (c) Present value of future cash flows (d) None of these
4 The direct write-off method is consistent with the matching accounting principle while the allowance method is not (a) True (b) False
3 A bank overdraft should be (a) Included in the financial fixed assets (b) Reported as a current asset (c) Reported as a current liability (d) Netted against positive cash balances at other banks (e) None of these
2 Accounts receivable is equivalent to (several answers possible) (a) Trade creditors (b) Trade debtors (c) Trade accounts payable (d) Trade accounts receivable (e) All of these (f) Note of these
1 Doubtful debts represent (a) Liabilities which are challenged by one of the parties (b) Receivables which might not be collected (c) All of these (d) None of these
3 Compare and contrast the figures obtained.
2 Compute the average days' inventory available for each company.
1 Compute the inventory turnover for each company.
2 Provide at least three arguments in favor of perpetual and three for periodic inventory accounting methods.
1 Give at least three arguments in favor of each of the three basic methods of inventory valuation (FIFO, LIFO and weighted average cost).
10 The average day's inventory available is defined as: (Cost of goods sold/Average inventory) x 365 (a) True (b) False
9 In periods of steadily decreasing prices, the following method will give the highest ending inventory value (assuming purchases exceed withdrawals) (a) FIFO (b) LIFO (c) Weighted average cost (WAC)
8 Beginning inventory on 1 January 20X1 was overstated by 1,000 CU and the ending inventory was overstated by 400 CU. As a consequence, the cost of goods sold for 20X1 was (a) Overstated by 1,000 (b) Understated by 1,000 (e) Overstated by 400 (d) Understated by 400 (e) Overstated by 1,400 (f)
7 The following inventory costing method provides a value for cost of goods sold which approximates most closely the current cost (a) FIFO (b) LIFO (c) Neither of these
6 The following inventory costing method provides a value for ending inventory which approximates most closely the current cost (a) FIFO (b) LIFO (c) Neither of these
5 In the balance sheet, the item "inventories" may be subject to (a) Depreciation (b) Amortization (c) Depletion (d) Provision (e) None of these
4 In the income statement by nature, change in inventory of merchandise is reported (a) In the revenues, under the sales of merchandise (b) In the expenses, under the purchases of merchandise (c) Both solutions are possible (d) None of these
3 In the income statement by nature, change in inventory of finished products is reported (a) In the revenue, under the sales of finished products (b) In the expenses, under the purchases of raw materials (c) Both solutions are possible (d) None of these
2 Ending inventory is reported in the liabilities side of the balance sheet (a) True (b) False
1 Raw materials and merchandise are included in (a) Expenses (b) Fixed assets (c) Cash (d) Current assets (e) None of these
4 What should you do to restate the balance sheet figure to obtain the other amount (gross or net)?
3 Is the amount reported in the balance sheet a gross or a net amount?
2 What does the item "Amounts utilized and other movements" represent?
1 What does the item "Profit and loss account charge" represent?
10 In IAS 38 of IASC (Intangible Assets), the limit of 20 years for amortization is a strict limit (a) True (b) False
9 Deferred assets are equivalent to (a) Prepaid revenues (b) Prepaid expenses (c) Deferred tax assets (d) Deferred revenues (e) None of these
8 Training costs are (a) Capitalized and amortized over 40 years (b) Capitalized and not amortized (c) Not capitalized and expensed (d) Capitalized and amortized over 20 years (e) None of these
7 Same question as (5) but Albeniz purchased the trademark and applies US GAAP (a) Capitalized and amortized over 40 years (b) Capitalized and not amortized (c) Not capitalized and expensed in 20X1 (d) Capitalized and amortized over 20 years (e) None of these
6 Same question as (5) but Albeniz applies US GAAP (a) Capitalized and amortized over 40 years (b) Capitalized and not amortized (c) Not capitalized and expensed in 20X1 (d) Capitalized and amortized over 20 years (e) None of these
5 Albeniz company spent internally 500 (000 of CU) throughout 20X1 in promoting a not well-known trademark. This trademark is supposed to have an indefinite life. The company applies IAS GAAP in its financial statements. It should be (a) Capitalized and amortized over 40 years (b) Capitalized and
4 All recorded intangible assets are amortized (a) True (b) False:
3 Albeniz company bought a patent for 100 (000 of CU) on 2 January 20X5. The legal life of the patent is 17 years. Albeniz estimated that the economic life of the patent is 5 years. What amount should be recognized for the year ended 31 December 20X5? (a) Depreciation expense for 20 (b)
2 An example of a trademark which is capitalized is (a) The logo of a business school designed and created by the school (b) The Orangina trademark acquired by Pernod Ricard within the purchase of the whole Orangina company (c) The name "Oneworld", a group of airlines including American Airlines,
1 An example of an item that is not an intangible asset is 1 (a) Patent 2 (b) Goodwill (c) Computer (d) Computer software (e) Trademark
7 Determine the book value of fixed assets sold during the year.
6 Explain why, in the column "Disposals" (depreciation), the signs are positive.
5 Explain and provide an illustration of what happens in the column "Transfers" (gross value).
4 Explain what might the figure -46 represent under the heading "Depreciation" for "Land".
3 Explain the figure -75 under the heading "Construction in progress" in the column "Changes in composition of the group".
2 Reconcile the balance sheet figures and the statement of Note 5.
1 Explain the meaning of each column of the table in Note 5. NB. Although the topic of business combinations (see Chapter 13) has not been developed yet, we can deduct that the column "Changes in composition of the group" represents the impact of acquisitions and sales of companies and the column
4 Does the acquisition of a tangible asset influence net income?
3 Give some arguments in favor of each method of reporting the sale of tangible assets.
2 Does depreciation provide or consume cash?
1 Give some arguments in favor of at least four different methods of depreciation.
10 The share of a natural resource deposit's cost of acquisition that is expensed each year is called (a) Depreciation (b) Amortization (c) Depletion (d) Exhaustion (e) None of these
9 When using the double declining balance method, the depreciation rate is multiplied by the (a) Purchase cost of the asset (b) Fair value of the asset at beginning of the period (c) Depreciable amount (d) Net book value at beginning of each year (e) None of these
8 The Houston Company acquired a building for its new head office. The following cash outlays were associated with the acquisition: Amount paid for the building 300,000 Legal fees Property title search Realtor's commissions 30,000 3,000 10,000 How should the Houston Company record the acquisition?
7 Companies can only use one method of depreciation for all of its depreciable assets (a) True (b) False
6 (a) True (b) False All tangible assets are charged to expense over a period of years in some systematic and rational manner (a) True (b) False
5 Examples of tangible assets include land, buildings and equipment
4 Which of the following items would not be considered a tangible asset? Land Trademark 1. 2. 3. 4. Oil well 5. Software Building (a) 1, 3, and 4 (b) 2 and 4 (c) 2 and 5(d) 2, 3, 4, and 5 (e) 3 and 5
3 At the end of the useful life of a tangible asset originally purchased for 100 CU and fully depreciated over 5 years, the gross value is (a) 0 (b) 100 (c) 20 (d) None of these
2 Depreciation will directly generate (a) An increase in cash (b) An increase in liabilities (c) A decrease in liabilities (d) A decrease in assets (e) A decrease in cash
1 The most appropriate method of depreciation of land is (a) The straight-line method (b) The declining balance method (c) Either method (d) None of these
6 Warranty costs are provisioned at the level of 1.5% of sales. The corresponding amount has been included in the expenses mentioned. Actual expenses incurred during year 1 for services and repairs included in the warranty contract amounted to 15 CU.
5 Part of the liquidity of Nielsen Co. is invested in tax-free municipal bonds. During year 1 these yielded a return of 40 CU.
4 During year 1 a fine for an accidental pollution occurrence was paid for a total amount of 10 CU
3 Nielsen Co. uses an accelerated method of depreciation for certain assets. The depreciation allowance for year 1 for tax purposes exceeds that reported to shareholders by 250 CU.
2 The company accrued interest due on a bank loan for 16 CU. This interest (included in the expenses mentioned) will be tax deductible only when paid (which will be the case in year 2).
1 Marketable securities held by Nielsen Co. have a market value at the end of the year which exceeds their book value by an amount of 8 CU. This potential gain is taxable as pertaining to year 1, but will be reported to shareholders only at the time of the sale.
4. A seller (shipper) sells goods to a buyer (recipient) who undertakes to sell the goods on behalf of the seller (consignment sales). The shipper recognizes the revenue at the time of delivery to the buyer.
3. A bridge club invoices a membership fee to its members who receive in return the magazine Bridge Forever and are entitled to special prices on other magazines. The club, in order to simplify its recording of the fees, spreads the fees on a straight-line basis over the period of membership.
2. The Commercial Times is a newspaper which receives payment for subscriptions. Commercial Times has a circulation of 750,000 copies and sells over three-quarters of these by subscription. Readers subscribe at any time during the year and there seems to be no clear seasonality in new subscriptions
1. DPS Business School Inc. invoices its students at the beginning of each quarter for the quarterly tuition fees. DPSBS Inc. recognizes revenue only when tuition is actually paid by the students (or whomever, on their behalf). The first quarter 20X2 tuition invoices were mailed on 1 December 20X1
4. The Olympic Sports Club is a membership-only club. The yearly admission fee allows the member to enter the premises. Members have the possibility of paying the membership fee in installments for a small surcharge. All services within the club are billed to the members at about 20% below the open
3. Boticcelli Markets is specialized in home delivery of groceries, fruit, and produce. It expects cash on delivery. It recognizes revenue at the time of payment.
2. Atrium Auditorium Inc. (AA Inc.) sells subscription packages to several series of concerts to be held between October 20X1 and September 20X2. Most concerts will take place in the fall and the spring and a sprinkling of events will take place during the summer. Customers are expected to pay cash
1. An advertising agency records as revenue the full commission as soon as the advertisement campaign has been fully prepared.
4 Services rendered to other customers but not billed at 30 June totaled 1,500 currency units.
3 The note payable is dated 1 June. It is a 12-month, 10% note.
2 Prepaid insurance is the cost of a 9-month insurance policy, effective 1 June.
1 A customer paid 1,200 CU towards a yearly subscription to a service which started in June.
8 My last remark, that also leads me to be critical of our auditor, is to say that I strongly feel our financial statements are overly prudent, bordering on pessimism. I still do not understand why we are not allowed to build a provision for the cost of laying-off all or most of our personnel. Such
7 The chief accountant has told me that each year he chooses the best methods for depreciating the building and fixtures in order to minimize taxable income. This year I understand we used the straight-line method but last year we had used the declining balance method, a form of accelerated
6 Our tangible assets are essentially numerically controlled machines which still work magnificently well in the manufacturing of our products. These machines do not lose any of the potential they had when we bought them. However, I have had to reluctantly accept the demand by the CFO to depreciate
5 Our company's reputation and market share have been increasing significantly. I have been asking our external auditor repeatedly to allow us to recognize this increase in value of the firm due to both our name and the quality of our products and labor force in the larger sense. The auditor
4 As you know we capitalize the work (engineering and legal) that leads to our taking patents to protect our intellectual capital. In 20X1 we are valuing the new patents registered in our name for 160,000 CU, down from 340,000 in 20X0. I have been worried by this downward trend and have inquired to
3 You will observe that the balance sheet shows an asset called capitalized R&D which is lower this year, in comparison to last year. The R&D team is involved in a long-term project, a new-generation smartcard which we do not expect to see hitting the market for another year at least. The head
2 Further to this understatement of the 20X1 sales, our 20X1 purchases have been inflated because we accepted early delivery of about 3 months' worth of card readers we purchase from MG-Electronics. MG-Electronics is a subsidiary of Silver Electric International and the CEO of MG-E asked us, and we
1 Despite the figures you can observe in the comparative income statements, sales activity of 20X1 is significantly greater than that of period 20X0. Several major customers, essentially government and semi-government agencies with unused budget allowances in 20X0 had paid in advance in 20X0 for
4 The Dukas Company owns an interest bearing note receivable with a nominal value of 1,000 currency units. Interest at 8% per annum on the note receivable has accrued for 3 months and is expected to be collected when the note is due in July. What adjusting entry is necessary on 31 March, if the
3 Interest expense 300 300 100 100 300 300 The Dukas Company owns offices which are rented to other companies. On 1 February Dukas rented some office space and received 6 months' rent in advance, totaling 6,000 CU. At that time, the entire amount was recorded to increase unearned rent. What
2 The Dukas Company signed a 3,000 CU debit note to Bankix, their local bank on 1 September 20X3. At that time, the appropriate journal entry was made by the company. However, no other journal entry relating to the note has been made. Given that the bank is charging interest at a rate of 10%, what
1 On June 1, the Dukas Company paid 3 months' rent in advance, for a total cost of 900 CU. At the time of payment, prepaid rent was increased by this amount. What adjusting entry is necessary as of 30 June (if financial statements are prepared on this date)? (a) Prepaid rent 300 Rent expense 300
2 Is the income statement organized by nature or by function?
1 Reconstruct the income statement in a multiple-step format, showing separately gross profit, income from operations, income before taxes, net income before minority interests and net income. (Check figure: 518.)
10 An example of an item that is not a current asset is (a) Accounts receivable (b) Inventory (c) Equipment (d) Cash (f) None of these
9 The depreciation recorded in the balance sheet includes (a) Accumulated depreciation for past years (b) Depreciation for the current year (e) Both (d) None of these
8 Advance payments to suppliers are included in (a) Revenues (b) Assets (e) Liabilities (d) Shareholders' equity (e) Expenses (f) None of these
7 Advance payments received from customers are included in (a) Revenues (b) Assets (c) Liabilities (d) Shareholders' equity (e) Expenses (f) None of these
6 An income statement is presented (a) Only after profit appropriation (b) Only before profit appropriation (c) Before or after profit appropriation (d) None of these
5 A balance sheet is presented (a) Only after profit appropriation (b) Only before profit appropriation (c) Before or after profit appropriation (d) None of these
4 The document reporting all the expenses and revenues for a given period is the (a) Balance sheet (b) Cash flow statement (c) Income statement (d) Notes to financial statement (e) Statement of changes in equity (f) None of these.
3 Land, buildings, furniture, and computers are included in (a) Current assets (b) Fixed assets (c) Cash (d) Inventory (e) None of these
2 Obtaining a long-term loan affects which of the following accounts (a) Operating liabilities (b) Financial liabilities (c) Shareholders' equity (d) Retained earnings (e) None of these
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