Questions and Answers of Financial Reporting

The journal entry to record the utilisation of the Investment Risk Reserve (IRR) to maintain the base amount of investment funds attributable to the investment account holders would be:a. Debit
The Islamic bank should derecognise the investment accounts from its books when:a. It pays the annual profit to its investors.b. It returns the investment amount to the investors.c. The investment
Under IFRS, deposits of investment account holders are treated by the Islamic bank as:a. Equityb. Assetc. Quasi-equityd. Liability
Which of the following is not a characteristic of Sukuk?a. The returns are generated from the underlying assets in the Sukuk.b. In the sale of Sukuk, a particular share of an asset is sold.c. There
Which of the following is incorrect regarding the parties involved in Sukuk?a. The originator is the party that needs the money for its operations or expansion.b. SPV is a temporary legal entity that
Under Sukuk Ijarah, the originator:a. Does not transfer the underlying assets to the SPVb. Pays an amount equivalent to the initial financing obtained from the investors to buy back the asset from
Sukuk based on sales agreements:a. Are also called liability-based Sukukb. Are not designed to replicate conventional bondsc. Focus on the creditworthiness of the originatord. Involve proportionate
Common examples of equity-based Sukuk are:a. Musharakah and Mudaraba Sukukb. Ijarah and Salam Sukukc. Murabaha and Ijarah Sukukd. Musharakah and Wakalah Sukuk
FAS 34 “Financial Reporting for Sukuk-Holders”:a. Applicable to both Shariah and non-Shariah-compliant Sukuk instrumentsb. Applicable only to two-party Sukukc. Applicable to both the two-party
An institution is said to control an asset or business when:a. It has substantially all the risks and rewards associated with ownership of such asset.b. It is not exposed to variable returns from its
Sukuk-holders receive returns in the form of:a. Interest paymentsb. Dividendsc. Profit-sharingd. Principal repayment
Which of the following is not a type of Sukuk classification in the books of the Sukuk-holder?a. Amortised costb. Fair value through equityc. Fair value through income statementd. Sukuk based on
In a non-business Sukuk:a. The underlying assets must be measured at fair value at each reporting date following initial recognition.b. The required set of financial reports comprises statement of
Which of the following is not a condition for liability to pay Zakah?a. Full ownershipb. Attainment of Zakahc. No change in the value of the assetsd. Passing of the hawl (year)
Under which case(s) is an IFI required to pay Zakah?a. When the law orders the IFI to satisfy the Zakah obligationb. When the shareholders have collectively passed a resolution requiring the IFI to
What will be the entry for the Zakah payment made by the IFI?a. Dr. Cash/Bank Cr. Zakah payableb. Dr. Zakah payable Cr. Cash/Bankc. Dr. Zakah expense Cr. Cash/Bankd. Dr. Cash/Bank Cr. Zakah expense
What is the required entry for unpaid Zakah by the IFI?a. Dr. Zakah expense Cr. Zakah payableb. Dr. Zakah payable Cr. Zakah expensec. Dr. Zakah expense Cr. Cash/Bankd. None of the above
What is the entry for Zakah payment made by the IFI on behalf of the shareholders?a. Dr. Zakah expense Cr. Cash/Bankb. Dr. Dividends payable Cr. Cash/Bankc. Dr. Cash/Bank Cr. Dividends payabled. Dr.
Which account is debited by the IFI when the amount of shareholders’ Zakah exceeds their distributable profits?a. Cash/Bankb. Payablesc. Receivablesd. Zakah expense
Which item is not included in the net assets method to calculate Zakah?a. Mudaraba financingb. Investments for tradingc. Fixed assetsd. Receivables
Which of the following is NOT a category of wealth subject to Zakah?a. Gold and silverb. Cash and bank balancesc. Business investmentsd. Personal belongings
When calculating Zakah according to the lunar calendar, the following rate is used:a. 2.6%b. 2.5%c. 2.5775%d. 2.55%
When calculating Zakah according to the solar calendar, the following rate is used:a. 2.6%b. 2.5%c. 2.5775%d. 2.55%
Which approach is used for the revaluation of on-balance sheet receivables?a. NRV approachb. Provision accountsc. Credit lossesd. None of the above
FAS 30 has classified the assets into three main categories for the purpose of revaluation. A different revaluation technique is applied to each category of assets.a. Credit loss approach for other
TRK Pharma Co. estimated the net realisable value of its inventory stock to be USD 56,000. The inventory was initially recorded by the company at a cost of USD 60,000. What will be the loss or gain,
If the carrying value of a fixed asset is USD 2,500, and its value in use is USD 2,200, which of the following is false? (Note: value-inuse is greater than its fair value less cost to sell)a. USD
Which component is not present on the balance sheet?a. Net realisable valueb. Allowance for credit lossesc. Cumulative impairmentd. Provision accounts
GRE Tire Corporation tests its machine for impairment at the end of the financial year 2023. The carrying value of the machine is USD 3,000. The firm estimates its value in use to be USD 2,800 and
In July 2023, JFI Islamic Bank booked receivables of USD 5,000 from Paragon Parks Limited which were to be received in five equal instalments. The first payment was due on Dec 15, 2023. By the end of
Stage-2 receivables are those in which the payment is delayed by:a. Less than 30 daysb. More than 30 days but less than 90 daysc. More than 60 daysd. More than 90 days
Which of the following will be used to determine the amount of credit losses?a. The total amount of receivable at riskb. Any change in the credit loss of a receivable due to a decline of credit
Which of the following is the correct accounting treatment to record the provision for onerous contracts?a. Debit Provision for Onerous Contracts (Contra-Asset), Credit Provision for Onerous
Explain the role of analysts in increasing capital market efficiency.
The Coca-Cola Company is a global soft drink beverage company (ticker: KO) that is a primary and direct competitor with Starbucks. The data in Chapter 12’s Exhibits 12.14, 12.15, and 12.16 include
Suppose the following hypothetical data represent total assets, book value, and market value of common shareholders’ equity (dollar amounts in millions) for Microsoft, Intel, and Dell, three firms
Suppose the following hypothetical data represent total assets, book value, and market value of common shareholders’ equity (dollar amounts in millions) for Abbott Labs, IBM, and Target Stores.
Suppose you are applying the residual income valuation model to value a firm with extremely conservative accounting. Suppose, for example, the firm is following U.S. GAAP or IFRS, but the firm does
At the end of Year 5, Experian Information Solutions, Inc. (Experian), has total assets of $555,443, long-term debt of $1,839, and common equity at book value of $402,759 (amounts in thousands).
The chapter describes valuation using free cash flows for all debt and equity stakeholders as well as free cash flows for equity shareholders. For each approach, give one example of valuation
Intel is a global leader in manufacturing microprocessors, which is very capital-intensive. The production processes in microprocessor manufacturing require sophisticated technology, and the
Kentucky Gold (KG) holds 10,000 gallons of whiskey in inventory on October 31, 2017, that costs $225 per gallon. KG contemplates selling the whiskey on March 31, 2018, when it completes the aging
Kentucky Gold (KG) holds 10,000 gallons of whiskey in inventory on October 31, 2017, that costs $225 per gallon. KG contemplates selling the whiskey on March 31, 2018, when it completes the aging
Lynn Construction enters into a firm purchase commitment for equipment to be delivered on June 30, 2017, for a price of 10,000 GBP. It simultaneously signs a forward foreign exchange contract for
A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of 2017. The manufacturer has been in operation for almost 40 years, and
The notes to a firm’s financial statements reveal that the obligations for postretirement health care benefits at the end of 2017 total $2.1 billion. The fair value of plan assets for these
Given the following information, compute December 31, 2017, projected benefit obligation (PBO) and fair market value (FMV) of plan assets for Lee Company. What amount of asset or liability will be
Refer to Problem 8.25 for Stebbins Corporation for Year 1, its first year of operations. Exhibit 8.31 shows the amounts for the Canadian subsidiary for Year 2. The average exchange rate during Year 2
Foreign Sub is a wholly owned subsidiary of U.S. Domestic Corporation. U.S. Domestic Corporation acquired the subsidiary several years ago. The financial statements for Foreign Sub for 2017 in its
Exhibit 8.26 presents the separate financial statements at December 31, 2018, of Prestige Resorts and its 80%-owned subsidiary Booking, Inc. Two years earlier on January 1, 2017, Prestige acquired
Ormond Co. acquired all of the outstanding common stock of Daytona Co. on January 1, 2017. Ormond Co. gave shares of its common stock with a fair value of $312 million in exchange for 100% of the
Bed and Breakfast (B&B), an Italian company operating in the Tuscany region, follows IFRS and has made the choice to remeasure long-lived assets at fair value. B&B purchased land in 2016 for
Lexington Corporation acquired all of the outstanding common stock of Chalfont, Inc., on January 1, 2016. Lexington gave shares of its no par common stock with a market value of $504 million in
Exhibit 8.21 presents selected financial statement data for three chemical companies: Monsanto Company, Olin Corporation, and NewMarket Corporation. (NewMarket was formed from a merger of Ethyl
U.S. GAAP requires firms to account for equity investments in which ownership is between 20% and 50% using the equity method. Ace Corporation owns 35% of Spear Corporation during 2017. Spear
Financial accounting rules require firms to assess whether they will recover carrying amounts of long-lived assets and, if not, to write down the assets to their fair value and recognize an
Identify conditions that would lead an analyst to expect that management might attempt to manage earnings upward.
Sunbeam Corporation manufactures and sells a variety of small household appliances, including toasters, food processors, and waffle grills. Exhibit 3.21 presents a statement of cash flows for Sunbeam
Alfa Romeo incurs direct cash costs of $30,000 in manufacturing a red convertible automobile during 2016. Assume that it incurs all of these costs in cash. Alfa Romeo sells this automobile to you on
Assume Walmart acquires a tract of land on January 1, 2016, for $100,000 cash. On December 31, 2016, the current market value of the land is $150,000. On December 31, 2017, the current market value
A firm’s income tax return shows income taxes for 2017 of $35,000. The firm reports deferred tax assets before any valuation allowance of $24,600 at the beginning of 2017 and $27,200 at the end of
A firm’s income tax return shows $50,000 of income taxes owed for 2017. For financial reporting, the firm reports deferred tax assets of $42,900 at the beginning of 2017 and $38,700 at the end of
Go to the website of the International Accounting Standards Board (www.ifrs.org). Search for the International Financial Reporting Standards (IFRS) summaries. Identify the most recently issued
Go to the website of the Financial Accounting Standards Board (www.fasb.org). Identify the most recently issued financial reporting standard and summarize briefly (in one paragraph) its principal
Exhibit 14.10 presents data on market-to-book (MB) ratios, ROCE, the cost of equity capital, and price-earnings (PE) ratios for seven pharmaceutical companies. (Note that PE ratios for these firms
Problem 13.18 and Exhibit 13.6 in Chapter 13 present selected hypothetical data from projected financial statements for Steak 'n Shake for Year +1 to Year +11. The amounts for Year +11 reflect a
Using the evidence presented in Exhibit 14.8, describe the extent to which the market is efficient with respect to quarterly earnings surprises during the 60 trading days prior to quarterly earnings
In Integrative Case 10.1, we projected financial statements for Walmart Stores for Years +1 through +5. The data in Chapter 12, Exhibits 12.17 through 12.19 include the actual amounts for 2015 and
The Coca-Cola Company is a global soft drink beverage company (ticker symbol = KO) that is a primary and direct competitor with Starbucks. The data in Exhibits 12.14 to 12.16 (pages 806-809) include
Holmes Corporation is a leading designer and manufacturer of material handling and processing equipment for heavy industry in the United States and abroad. Its sales have more than doubled, and its
In Integrative Case 10.1, we projected financial statements for Walmart Stores, Inc. (Walmart), for Years +1 through +5. In this portion of the Walmart Integrative Case, we use the projected
The Coca-Cola Company is a global soft drink beverage company (ticker: KO) that is a primary and direct competitor with Starbucks. The following data for Coca-Cola include the actual amounts for 2015
The data in Exhibit 11.3 on industry median betas suggest that firms in the following three sets of related industries have different degrees of systematic risk. Median Beta during 2006-2015
Explain why analysts and investors use risk adjusted expected rates of return as discount rates in valuation. Why do investors expect rates of return to increase with risk?
Walmart Stores, Inc. (Walmart) is the largest retailing firm in the world. Building on a base of discount stores, Walmart has expanded into warehouse clubs and Supercenters, which sell traditional
Assume that on December 31, 2017, The Coca-Cola Company borrows money from a consortium of banks by issuing a $900 million promissory note. The note matures in four years on December 31, 2021, and
The first decade of the 21st century witnessed a flurry of losses, bankruptcies, acquisitions, and strategic partnerships in the airline industry. The heavily levered firms in the industry are
Sunbeam Corporation manufactures and sells a variety of small household appliances, including toasters, food processors, and waffle grills. Exhibit 6.17 presents a statement of cash flows for Sunbeam
Arbortech, a designer, manufacturer, and marketer of PC cards for computers, printers, telecommunications equipment, and equipment diagnostic systems, was the darling of Wall Street during Year 6.
Citigroup Inc. (Citi) is a leading global financial services company with over 200 million customer accounts and operations in more than 140 countries. Its operating units Citicorp and Citi Holdings
Exhibits 1.26??1.28 of Integrative Case 1.1 (Chapter 1) present the financial statements for Walmart for 2012 to 2015. In addition, the website for this text contains Walmart??s December 31, 2015,
VF Corporation is an apparel company that owns recognizable brands like Timberland, Vans, Reef, and 7 For All Mankind. Exhibit 5.18 and 5.19 present balance sheets and income statements,
Douglas C. Mather, founder, chair, and chief executive of Fly-by-Night International Group (FBN), lived the fast-paced, risk-seeking life that he tried to inject into his company. Flying the
Massachusetts Stove Company manufactures wood-burning stoves for the heating of homes and businesses. The company has approached you, as chief lending officer for the Massachusetts Regional Bank,
Part AWalmart Stores (Walmart) is the world's largest retailer. It employs an ''everyday low price'' strategy and operates stores as three business segments: Walmart Stores U.S., International, and
Components of the deferred tax asset of Biosante Pharmaceuticals, Inc., are shown in Exhibit 2.10. The company had no deferred tax liabilities.At December 31, 2008, the company had approximately
Effective financial statement analysis requires an understanding of a firm€™s economic characteristics. The relations between various financial statement items provide evidence of many of
The Coca-Cola Company is a global soft-drink beverage company that is a direct competitor with Starbucks. The data in Chapter 12, Exhibits 12.14 through 12.16 (pages 806-809), include the actual
Exhibit 5.26 presents risk ratios for Walmart for 2014 and 2013. Exhibits 1.19, 1.20, and 1.21 in Chapter 1 present the financial statements for Walmart.REQUIREDa. Compute the values of each of the
Microsoft Corporation (Microsoft) and Oracle Corporation (Oracle) engage in the design, manufacture, and sale of computer software. Microsoft sells and licenses a wide range of systems and
Nojiri Pharmaceutical Industries develops, manufactures, and markets pharmaceutical products in Japan. The Japanese economy experienced recessionary conditions in recent years. In response to these
Sunbeam Corporation manufactures and sells a variety of small household appliances, including toasters, food processors, and waffle grills. Exhibit 3.21 presents a statement of cash flows for Sunbeam
Exhibit 1.18 represents common-size income statements and balance sheets for seven firms that operate at various stages in the value chain for the pharmaceutical industry. These common-size
Effective financial statement analysis requires an understanding of a firm€™s economic characteristics. The relations between various financial statement items provide evidence of many of
In this chapter, we evaluated shares of common equity in Starbucks using the value-to-book approach, market multiples, and reverse engineering. The Coca-Cola Company competes directly with Starbucks.
The 3M Company is a global diversified technology company active in the following product markets: consumer and office; display and graphics; electronics and communications; health care; industrial;
Dick's Sporting Goods is a chain of fullline sporting goods retail stores offering a broad assortment of brand name sporting goods equipment, apparel, and footwear. Dick's Sporting Goods had its
In Integrative Case 10.1, we projected financial statements for Walmart Stores, Inc. (Walmart), for Years +1 through +5. The data in Chapter 12's Exhibits 12.17, 12.18, and 12.19 include the actual
Exhibit 13.6 presents selected hypothetical data from projected financial statements for Steak 'n Shake for Year +1 to Year +11. The amounts for Year +11 reflect a long-term growth assumption of 3%.
The Coca-Cola Company is a global soft drink beverage company (ticker: KO) that is a primary and direct competitor with Starbucks. The data in Chapter 12's Exhibits 12.14, 12.15, and 12.16 include

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