488669444 Intermediate Accounting 2 Theory Reviewer PDF

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CHAPTER 47: LIABILITIESQUESTION 47-8 Multiple choice (IAA) The most common type of liability a. One that comes into existence due to a loss contingency. b. One that must be estimated. c. One that comes into existence due to a gain contingency. d. One to be paid in cash and for which the amount and t...

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CHAPTER 47: LIABILITIES QUESTION 47-8 Multiple choice (IAA) 1. The most common type of liability a. One that comes into existence due to a loss contingency. b. One that must be estimated. c. One that comes into existence due to a gain contingency. d. One to be paid in cash and for which the amount and timing are known. 2. Which is not a characteristic of a liability? a. It represents a transfer of an economic resource. b. It must be payable in cash. c. It arises from present obligation to other entity. d. It results from past event. 3. Classifying liabilities as either current or noncurrent helps creditors assess a. Profitability b. The relative risk of an entity's liabilities c. The degree of an entity's liabilities d. The amount of an entity's liabilities 4. Short-term obligations are reported as noncurrent if a. The entity has a long-term line of credit. b. The entity has tentative plan to issue long-term bonds payable. c. The entity has the discretion to refinance as long-term. d. The entity has the ability to refinance on a long-term basis. 5. Which situation would not require that noncurrent liabilities be reported as current? a. The long-term debt is callable by the creditor. b. The creditor has the right to demand payment due to a contractual violation. c. The long-term debt matures within the upcoming year. d. All of these require the current classification. 6. Which of the following represents a liability? a. The obligation to pay for goods that an entity expects to order from suppliers next year b. The obligation to provide goods that customers have ordered and paid for during the current year c. The obligation to pay interest on a five-year note payable that was issued the last day of the year d. The obligation to distribute an entity's own shares 7. Which does not meet the definition of a liability? a. The signing of a an employment contract at fixed salary b. An obligation to provide goods or services in the c. A note payable with no specified maturity date d. An obligation that is estimated in amount future 8. Which of the following is a characteristic of a current liability but not a noncurrent liability? a. Unavoidable obligation

b. Present obligation to transfer an economic resource c. Settlement is expected within the normal operating cycle or within 12 months, whichever is longer d. The obligating event has already occurred 9. Which is not a characteristic of a liability? a. Present obligation b. Arises from past event c. Results in a transfer of economic resource d. Liquidation is reasonably expected to require use of current assets 10. Which of the following is not an acceptable presentation of current liabilities? a. Listing current liabilities in the order of maturity b. Listing current liabilities according to amount c. Offsetting current liabilities against current assets d. Showing current liabilities in the order of liquidation QUESTION 47-9 Multiple choice (IAA) 1. Among the short-term obligations at year-end are notes, renewable for another 90-day period. What day classification of the notes payable? 90-day a. Current liabilities b. Deferred credits c. Noncurrent liabilities d. Intermediate debt 2. At year-end, an entity has 120-day note payable outstanding. The entity has followed the policy of replacing the note rather than repaying it over the last three years The entity's treasurer says that this policy is expected to continue indefinitely, and the arrangement is acceptable to the bank to which the note was issued. What is the proper classification of the note in the year-end statement of financial position? a. Dependent on the intention of management b. Dependent on the actual ability to refinance c. Current liability, unless specific refinancing criteria are met d. Noncurrent liability 3. An entity had a note payable due next year. After the end of reporting period and before the issuance of the current year financial statements, the entity issued long-term bonds payable. Proceeds from the bonds were used to repay the note when due. How should the entity classify the note payable at current year-end? a. Current liability with separate disclosure of the note refinancing b. Current liability with no disclosure required c. Noncurrent liability with separate disclosure of the note refinancing d. Noncurrent liability with no separate disclosure required 4. An entity has a loan due for repayment in six months' time, but the entity has the option to refinance for repayment two years later. The entity plans to refinance this loan. In which section of the statement of financial position should this loan be presented? a. Current liability b. Current asset c. Noncurrent liability d. Noncurrent asset

5. At year-end, an entity classified a note payable as current liability. Under what condition could the entity reclassify the note payable from current to noncurrent? a. If the entity has the intent and ability to reclassify the note before the end of reporting period. b. If the entity has executed an agreement to refinance the note before issuance of the financial statements. c. If the entity has the intent and ability to reclassify the note before the issuance of the financial statements. d. If the entity has executed an agreement to refinance the note before the end of reporting period. QUESTION 47-10 Multiple choice (AICPA Adapted) 1. The most relevant measurement of liabilities at initial recognition should always reflect a. The expectation of the management b. Historical cost c. The credit standing of the entity d. The single most likely minimum possible amount 2. Which statement best describes the term liability? a. An excess of equity over current assets b. Resources to meet financial commitments when due c. The residual interest in the assets of the entity d. A present obligation arising from past event 3. What is the relationship between present value and liability? a. Present value is used to measure certain liabilities. b. Present value is not used to measure liabilities. c. Present value is used to measure all liabilities. d. Present value is used to measure current liabilities. 4. If a long-term debt becomes callable due to the violation of a loan covenant a. The debt may continue to be classified as noncurrent. b. The debt should be reclassified as current. c. Cash must be reserved to pay the debt. d. Retained earnings must be restricted. 5. What is the classification of debt callable by the creditor? a. Noncurrent liability b. Current liability c. Current liability if the creditor intends to call the debt within one year d. Current liability if it is probable that the creditor will call the debt within one year QUESTION 47-11 Multiple choice (IAA) 1. Advance payments from customers represent a. Liabilities until the product is provided. b. A component of shareholders' equity. c. Assets until the product is provided. d. Revenue upon receipt of the advance payment. 2. Revenue associated with gift card sales is recognized

a. When the gift card is sold. b. No later than the last day of the reporting period. c. When the probability of gift card redemption is viewed as remote. d. Under no circumstances 3. All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period? a. Large increase in future revenue b. Large decrease in future revenue c. No effect d. Large decrease because unearned revenue indicates collection problems 4. When a customer advance has been previously received, the appropriate journal entry includes a. A debit to revenue and credit to liability b. A debit to revenue and credit to asset c. A debit to asset and credit to revenue d. A debit to liability and credit to revenue 5. When refundable deposit is received, cash is increased with a corresponding increase in a. Current liability b. Revenue c. Shareholders' equity d. Noncurrent liability QUESTION 47-12 Multiple choice (AICPA Adapted) 1. A department store received cash and issued a gift certificate that is redeemable in merchandise. When the gift certificate was issued a. Deferred revenue account should be decreased b. Deferred revenue account should be increased c. Revenue account should be decreased d. Revenue account should be increased 2. A retail store received cash and issued gift certificates that are redeemable in merchandise. How would the deferred revenue account be affected by the redemption and no redemption of certificates, respectively? a. Decrease and No effect b. Decrease and Decrease c. No effect and No effect d. No effect and Decrease 3. An entity received an advance payment for special order goods that are to be manufactured and delivered within six months. How should the advance payment be reported? a. Deferred charge b. Contra asset account c. Current liability d. Noncurrent liability

4. At year-end, an entity sold refundable merchandise coupons. The entity received a certain amount for each coupon redeemable next year for merchandise with a certain retail price. At year-end, how should the entity report these coupon transactions? a. Unearned revenue at the merchandise's retail price b. Unearned revenue at the cash received c. Revenue at the merchandise's price d. Revenue at the cash received 5. How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the statement of financial position before the performance? a. Revenue for the entire proceeds b. Revenue to the extent of related costs expanded c. Unearned revenue to the extent of related costs expended d. Unearned revenue for the entire proceeds 6. Magazine subscriptions collected in advance should be accounted for as a. A contra account to magazine subscriptions receivable b. Deferred revenue in the liability section c. Deferred revenue in the shareholders' equity section d. Magazine subscription revenue in the income statement in the period collected 7. Under a royalty agreement with another entity, an entity will receive royalties from the assignment of a patent for four years. The royalties received in advance should be reported as revenue a. In the period received b. In the period earned c. Evenly over the life of the agreement royalty d. At the date of the royalty agreement 8. An entity is a retailer of home appliances and offers a service contract on each appliance sold. Collections received for service contracts should be recorded as an increase in a a. Deferred revenue account b. Sales contracts receivable valuation account c. Shareholders' equity valuation account d. Service revenue account 9. An entity sells appliances that include a warranty. Service calls under the warranty are three-year performed by an independent mechanic under a contract with the entity. Based on experience, warranty costs are expected to be incurred for each machine sold. When should the entity recognize the warranty costs? a. Evenly over the life of the warranty b. When the service calls are performed c. When payments are made to the mechanic d. When the machines are sold 10. At the end of the current year, an entity received an advance payment of 60% of the sales price for special order goods to be manufactured and delivered within five months. At the same time, the entity subcontracted for production of the special order goods at a price equal to 40% of the main contract price. What liabilities should be reported in the year-end statement of financial position?

a. None b. Deferred revenue equal to 60% of the main contract price and payable to subcontractor equal to 40% of the main contract price c. Deferred revenue equal to 60% of the main contract price and no payable to subcontractor d. No deferred revenue but payable to subcontractor is reported at 40% of the main contract price QUESTION 47-13 Multiple choice (IAA) 1. The cost of customer premium offer should be charged to expense a. When the related product is sold. b. When the premum offer expires. c. Over the life cycle of the product. d. When the premium is claimed. 2. The accounting concept that requires recognition of a liability for customer premium offer is a. Time period b. Prudence c. Historical cost d. Matching principle 3. Accounting for cost of incentive program for frequent customer purchases involves a. Recording an expense and a liability each period. b. Recording a liability and a reduction of revenue. c. Recording an expense and an asset reduction. d. Recording an expense and revenue each period. 4. Accounting for cost of customer incentive program a. Requires probability estimation. b. Follows the matching principle. c. Is a loss contingency situation. d. All of these are correct. 5. Providing a monetary rebate program a. Is accounted for similarly to a premium offer b. Creates an expense for the seller in the period of sale. c. Creates a liability for the seller at the time of sale. d. All of these are correct. QUESTION 47-14 Multiple choice (IAA) 1. The accrual approach in accounting for warranty a. Is required for income tax reporting. b. Is frequently justified on the basis of expediency. c. Finds the expense account being charged when the seller performs in compliance with the warranty. d. Should be used whenever the warranty is an integral and inseparable part of the sale.

2. Which of the following best describes the accrual approach of accounting for warranty cost? a. Expensed when paid b. Expensed when warranty claims are certain c. Expensed based on estimate in year of sale d. Expensed when incurred 3. Which of the following best describes the expense as incurred approach of accounting for warranty cost? a. Expensed based on estimate in year of sale b. Expensed when liability is accrued c. Expensed when warranty claims are certain d. Expensed when incurred 4. What is the classification of the estimated warranty liability in a three-year warranty? a. Noncurrent b. Current c. Partly current and partly noncurrent d. No need for disclosure 5. Which of the following is a characteristic of the accrual of warranty but not the sale of warranty? a. Warranty liability b. Warranty expense c. Unearned warranty revenue d. Warranty revenue

CHAPTER 48: PROVISION QUESTION 48-10 Multiple Choice (PAS 37) 1. Which is the correct definition of a provision? a. A possible obligation arising from past event b. A liability of uncertain timing or amount c. A liability which cannot be easily measured d. An obligation to transfer funds to an entity 2. A provision shall be recognized as liability when a. An entity has a present obligation as a result of a past event. b. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. c. The amount of the obligation can be measured reliably. d. All of these are required for the recognition of a provision as liability. 3. A legal obligation is an obligation that is derived from all of the following, except a. b. c. d.

Legislation A contract Other operation of law An established pattern of past practice

4. A constructive obligation is an obligation I. That is derived from an entity's action that the entity will accept certain responsibilities because of past practice, published policy or current statement.

II. The entity has created a valid expectation in other parties that it will discharge those responsibilities. a. I only b. II only

c. Both I and II d. Either I or I

5. It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation. a. Obligating event b. Past event

c. Subsequent event d. Current event

6. An outflow of resources embodying economic benefits is regarded as "probable" when a. The probability that the event will occur is greater than the probability that the event will not occur. b. The probability that the event will not occur is greater than the probability that the event will occur. c. The probability that the event will occur is the same as the probability that the event will not occur. d. The probability that the event will occur is 90% likely. 7. Where there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the range to be used is the a. Minimum b. Maximum

c. Midpoint d. Sum of the minimum and maximum

8. When the provision involves a large population of items, the estimate of the amount a. Reflects the weighting of all possible outcomes by their associated probabilities. b. Is determined as the individual most likely outcome. c. May be the individual most likely outcome adjusted for the effect of other possible outcomes. d. Midpoint of the possible outcomes. 9. When the provision arises from a single obligation, the estimate of the amount a. Reflects the weighting of all possible outcomes by their associated probabilities. b. Is determined as the individual most likely outcome. c. Is the individual most likely outcome adjusted for the effect of other possible outcomes. d. Midpoint of the possible outcomes. 10. Which statement is incorrect where the expenditure required to settle a provision is expected to be reimbursed by another party? a. The reimbursement shall be recognized only when it is virtually certain that the reimbursement would be received if the entity settles the obligation. b. The amount of the reimbursement shall not exceed the amount of the provision. c. In the income statement, the expense relating to the provision may be presented net of the reimbursement. d. The reimbursement shall not be treated as separate asset but “netted” against the estimated liability for the provision. QUESTION 48-11 Multiple Choice (PAS 37) 1. Which statement is not true in relation to the measurement of a provision?

a. a. b. b.

The risks and uncertainties that inevitably surround many events and circumstances Onerous contract Executed shall be taken into account in reaching the bestc.estimate of contract a provision. Executory Sale contract Where thecontract effect of the time value of money is d. material, the amount of a provision shall be the present value of the expenditure expected to settle the obligation. c. Future eventscosts that under may affect the amount required to settle obligation be 5. The unavoidable an onerous contract represent the the "least net costshall of exiting reflected in the amount of the provision where there is sufficient objective evidence from the contract" which is equal to that the future events will occur. d. Gains expected disposal of assets shall be taken into account in a. Cost of from fulfilling the contract measuring a provision. b. Penalty arising from failure to fulfill the contract c. Lower of the cost of fulfilling the contract or the penalty arising from failure 2. Provisions shall discounted if the effect of the time value of money is material. Which of to fulfill thebe contract the incorrect thecontract discount d. following Higher of is the cost of regarding fulfilling the orrate? the penalty arising from failure to fulfill the contract a. Reflects current market assessment of the time value of money QUESTION 48-12 Multiple Choice (PAS 37) b. Reflects risks specific to the liability c. 1. Does not risks futureprogram cash flowthat estimates have been adjusted by the This is reflect defined asfor a which structured is planned and controlled d. management Is a post-taxthat discount rate materially changes either the scope of a business of an entity or the manner in which that business is conducted. 3. Which statement is incorrect concerning recognition of a provision? a. Restructuring a. Liquidation Provisions shall be reviewed at the end of each reporting period and adjusted to reflect b. the current best estimate. c. Recapitalization b. A provision shall be used only for expenditures for which the provision was originally d. Corporate revamp recognized. c. 2. Provisions shall be as recognized forinclude futureall operating losses.except Events that qualify restructuring of the following, d. If an entity has an onerous contract, the present obligation under the contract shall be recognized and measured as a provision. a. Sale or termination of business b. Closure of business location in a region or r...