Statement 1: Depreciation expense error will self correct in the next year after the moment of erroneous entry. Statement 2: Failure to record the accrued salaries at the end of reporting period results in overstated retained earnings Statement 3: Combined Financial Statements provide information about assets, liabilities, equity, income and expenses of both the parent and its subsidiaries as a single reporting entity. one statement is true one statement is false all statements are false all statements are true

Statement 1: Depreciation expense error will self correct in the next year after the moment of erroneous entry. Statement 2: Failure to record the accrued salaries at the end of reporting period results in overstated retained earnings Statement 3: Combined Financial Statements provide information about assets, liabilities, equity, income and expenses of both the parent and its subsidiaries as a single reporting entity. one statement is true one statement is false all statements are false all statements are true

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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6-An audit of an entity records for its first year of operations determined that the following errors were made at the balance sheet date. Failed to accrue 50000 interest expenses failed to record depreciation expense on office equipment of 80000 failed to amortize prepaid rent expense of 100000 failed to defer recognition of prepaid advertising expense of 60000. The net effect of these errors was to overstate net profit by A. 130000 B. 170000 C. 230000 D. 290000
State the accounting principle or assumption that is most applicable in the following situations: 1. A company prepares consolidated financial statements for a subsidiary that it owns. 2. The decision to remove an asset from the balance sheet 3. A large sale on account is not recognized as revenue because collectability is an issue. 4. Disclosure of the liability from a lawsuit in the financial statements 5. Preparation of monthly financial statements 6. Using the Canadian dollar in financial statements 7. An energy company includes detailed information about its reserves in its notes to the financial statements.
1(a) State with reason whether the following statements are true or false (i) Change in Method of Depreciation is regarded as change in Accounting Policy of the entity. (ii) Depreciation is non-cash and non- operating expense which is to be provided for whether there are profits/losses. (iii) Net Profit is reflected in higher cash balances and net loss is reflected in lower net worth. (iv) Contingent liability is an ascertained liability but its amount and due date are indeterminate. (v) Fundamental Assumptions are always required to be disclosed in the financial statements.
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A company fails to record accrued wages for the current year. Which of the following statement is true? O Retained earnings for the current year is overstated. O Net income for the current year is correct. O Retained earnings for the current year is understated. O Net income for the current year is understated.
True or False 6. Entities may apply a simplified approach when recognizing impairment losses on trade receivables7. When there is a significant increase in the credit risk of a financial asset since its initial recognition but there is no objective evidence of impairment, interest revenue is computed on the net carrying amount of the financial asset (i.e. gross carrying amount less loss allowance)8. an entity recognizes impairment gain when there is an improvement in the credit quality of a previously impaired financial asset9.According to IFRS 9, expected credit losses are weighted average of credit losses with the respective risks of a default occurring as the weights10. a financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occured
Which of the following is FALSE regarding the financial statements?
13. When the estimate used for bad debt expense is changed, bad debt expense for all past periods must be recalculated. there is no change in the amount of bad debt expense recorded for future years. bad debt expense for current and future years is affected. The company must change its write-off policy as well. 14. Which of the following methods of determining bad debt expense does not generally (assuming materiality) provide a level of matching of expense and revenue that is acceptable following GAAP? Debiting bad debt expense with a percentage of sales under the allowance method. Debiting bad debt expense as accounts are written off as uncollectible. Debiting bad debt expense with an amount derived from aging accounts receivable under the allowance method. Debiting bad debt expense with a percentage of accounts receivable under the allowance method.
According to IAS 8, how should prior period errors that are discovered in a subsequent reporting period be recognized in the financial statements? a. As an adjustment to beginning retained earnings for the reporting period in which the error was discovered. b. As a note in the financial statements that the error was previously made but has since been corrected. c. In the statement of comprehensive income. d. Retroactively for all periods presented.
Misappropriation of assets: Select one: a. causes harm to stockholders because the assets are no longer available to their rightful owners b. causes the financial statements to be misstated since the misappropriation usually involves material amounts c. is generally committed by company management d. harms the users of the financial statements by providing them incorrect financial data for their decision making
What is the relationship between current liabilities and a company's operating cycle? Select one: Current liabilities can't exceed the amount incurred in one operating cycle. Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). There is no relationship between the two. Current liabilities are the result of operating transactions.
i Scenarios - a. Company A increases the allowance for doubtful accounts (ADA). Using the old estimate, ADA would have been $40,000. The new estimate is $45,000. X b. Company B omitted to record an invoice for a(n) $8,000 sale made on credit at the end of the previous year and incorrectly recorded the sale in the current year. The related inventory sold has been accounted for. c. Company C changes its revenue recognition to a more conservative policy. The result is a decrease in prior-year revenue by $3,000 and a decrease in current-year revenue by $4,000 relative to the amounts under the old policy.