Accounting Theory and Practice
Final Exam Questions
Course Introduction
This course offers an in-depth exploration of the conceptual foundations and practical applications of accounting. Students will examine major accounting theories, frameworks, and contemporary issues in financial reporting and measurement. The curriculum covers the development and application of accounting standards, ethical considerations, and the influence of economic, social, and regulatory factors on accounting practices. Through case studies and practical exercises, students will apply theoretical concepts to real-world scenarios, enhancing their analytical and decision-making skills relevant to the accounting profession.
Recommended Textbook
Intermediate Accounting 2nd Edition Volume II by Kin Lo George Fisher
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10 Chapters
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Page 2
Chapter 11: Current Liabilities and Contingencies
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Sample Questions
Q1) Which statement is correct?
A)Contingencies arise from future events.
B)The amount to be paid for contingencies is known or reasonably estimable.
C)Current liabilities arise from future events.
D)The amount to be paid for current liabilities is known or reasonably estimable.
Q2) Explain the meaning of the following terms: "financial guarantee" contract and "onerous" contract
Q3) Which of the following characteristic is required for a liability under IFRS Framework?
A)A past obligation.
B)A present obligation.
C)An unknown obligation.
D)A future obligation.
Q4) Which is true about lines of credit?
A)The company generally must repay the credit line in full monthly.
B)The borrower can borrow up to an agreed upon limit.
C)Interest is charged on the full amount of the agreed upon limit.
D)Lines of credit are particularly useful for steady income businesses that have very little volatility in revenue.
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Chapter 12: Non-Current Financial Liabilities
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Sample Questions
Q1) What is the market rate?
A)Yield on the issue date.
B)Amount to be repaid at maturity.
C)Rate of return earned by the investor.
D)Interest rate specified in the bond indenture.
Q2) Why do bonds often include covenants?
A)To reduce information asymmetry.
B)To reduce moral hazard.
C)To compensate for value-added services.
D)To ensure repayment of the bond.
Q3) Contrast the two methods used by investment banks when selling bonds on behalf of a company,their client?
Q4) What are the qualitative considerations in determining a safe level of debt?
Q5) A company is required to disclose information that enables users to evaluate the significance of financial liabilities on its financial position and performance.
Required: List 8 essential aspects that disclosure over financial liabilities should cover:
Q6) Explain 3 instances when the fair value of the non-current liability will not equal the cash proceeds.
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Chapter 13: Equities
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Sample Questions
Q1) Assume that a company issued 10,000 shares for $30/share.What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?
A)Credit to common shares for $28,000
B)Credit to common shares for $30,000
C)Credit to contributed surplus for $29,000
D)Credit to contributed surplus for $2,000
Q2) Which statement about dividends is correct?
A)Dividends on cumulative preferred shares are not discretionary payments.
B)Dividends are mandatory payments required for both common and preferred shares.
C)Dividends are discretionary payments that can be made for common and preferred shares.
D)Dividends must be paid on common shares before dividends can be paid on preferred shares.
Q3) Supply Company Ltd.issues a $60 million bond due in 10 years,and the bond indenture specifies that the company must set aside $6 million per year in a sinking fund so that the company will have funds to repay the bondholders at the end of 10 years.Assuming that the company complies with the contractual requirements,what would the journal entry be for each of the next 10 years?
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5
Chapter 14: Complex Financial Instruments
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Sample Questions
Q1) O'Neil Motor Parts issued 110,000 stock options to its employees.The company granted the stock options at-the-money,when the share price was $40.These options have no vesting conditions.By year-end,the share price had increased to $42.O'Neil's management estimates the value of these options at the grant date to be $1.60 each.
Required:
Record the issuance of the stock options.
Q2) O'Neil Manufacturing issued 200,000 stock options to its employees.The company granted the stock options at-the-money,when the share price was $40.These options have no vesting conditions.By year-end,the share price had increased to $42.O'Neil's management estimates the value of these options at the grant date to be $1.75 each. Required:
Record the issuance of the stock options.
Q3) Explain the conceptual meaning of the difference between the book value and market value methods of recording the conversion of bonds into common shares.
Q4) Give 4 examples of cash flow hedges:
Q5) List three common stock compensation plans and describe them.
Q6) What are the similarities and differences between forwards and futures?
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Page 6
Chapter 15: Earnings Per Share
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Sample Questions
Q1) Explain how the dividends on cumulative preferred shares are adjusted in the EPS calculation.What is the underlying logic for this adjustment?
Q2) For the year ended December 31,2017,Jovial Productions Inc.earned $13,000,000.Outstanding preferred shares included $1,500,000 in 9% cumulative preferred shares issued on January 1,2014 and 32,000 $160 non-cumulative preferred shares issued on January 1,2016 that are each entitled to dividends of $7 per annum.Dividends were neither declared nor paid on either class of the preferred shares in 2015 or 2016.On December 15,2017,the company declared and paid $140,000 of the dividends in arrears on the 9% cumulative preferred shares.
Required:
Determine the net income available to ordinary shareholders for the year ended December 31,2017.
Q3) What is the meaning of "weighted average number of ordinary shares outstanding"?
A)This is not used in the EPS calculation.
B)This refers to the numerator of the EPS calculation.
C)This refers to the denominator of the basic EPS calculation.
D)This is the not used in the diluted EPS calculation.
Q4) Explain why only in-the-money options need be considered in the diluted EPS calculations.
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Chapter 16: Accounting for Income Taxes
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Sample Questions
Q1) Describe what is meant by a timing difference.
Q2) A company had taxable income of $12 million in fiscal 2016 and paid taxes of 4.8 million;the company incurred a loss of $7 million in fiscal 2017 when the tax rate is 50%.How much refund is the company entitled to?
A)Nil
B)$2.8 million
C)$3.5 million
D)$4.8 million
Q3) In the first two years of operations,a company reports taxable income of $115,000 and $165,000,respectively.In the first two years,the tax rates were 38% and 32% respectively.It is now the end of the third year,and the company has a loss of $160,000 for tax purposes.The company carries losses to the earliest year possible.The tax rate is currently 25%.
Required:
a.How much tax was paid in year 1 and year 2?
b.Compute the amount of income tax payable or receivable in the current (third)year.
Q4) What is the accepted method of accounting for taxes under IFRS and ASPE? Accrual method or taxes payable method?
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Page 8
Chapter 17: Pensions and Other Employee Future Benefits
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Sample Questions
Q1) What is an actuarial gain?
A)An unfavourable difference between actual and expected amounts for pension obligations.
B)A favourable difference between actual and expected amounts for pension plan obligations.
C)An unfavourable difference between actual and expected amounts for pension contributions.
D)A favourable difference between actual and expected amounts for pension contributions.
Q2) What amount is included in the pension reconciliation for the income statement?
A)Fair value of plan assets.
B)Pension expense.
C)Benefit paid.
D)Contributions paid.
Q3) In pension accounting,how are past service costs accounted for under ASPE?
A)Recognized in the balance sheet as a liability for the full amount.
B)Recognized in the income statement as an expense for the full amount.
C)Not recognized,but disclosed in a note.
D)Included as part of pension expense and may be amortized over a specified period.
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Page 9
Chapter 18: Accounting for Leases
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Sample Questions
Q1) Why do lessees generally prefer operating lease treatment? Explain.
Q2) Under IFRS,assuming all information is available,which rate is used by the lessee in the minimum lease calculation?
A)Implicit borrowing rate.
B)Lessee's incremental borrowing rate.
C)Lower of the incremental and implicit rate.
D)Either the incremental or implicit rate.
Q3) What are four examples of lease conditions that help mitigate agency costs?
Q4) Which factor would contribute toward the lessor classifying a lease as a financial lease?
A)Lessor retains risk of breakage to leased asset.
B)Lessor has reward of high resale value.
C)Lessor does not have risk of change in demand for the leased asset.
D)Lessor does not have guaranteed residual value.
Q5) Which statement is correct about the "guaranteed residual value"?
A)It is not included in the minimum lease payment calculation.
B)Lessee assumes the risk of the property falling below the guaranteed amount.
C)Lessor assumes the risk of the property falling below the guaranteed amount.
D)It is an executory cost in the lease arrangement.
Q6) What is meant by the agency cost of leasing?
Page 10
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Chapter 19: Statement of Cash Flows
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Sample Questions
Q1) Hoboken's activities for the year ended December 31,2018 included the following:
Sold a held-for-trading investment for $12,000.The book value was $10,000.
Sold an available-for-sale investment for $8,000.The book value was $9,000.
Using the direct method,how much would be presented as cash flow from operations for the "held for trading" investment?
A)Proceeds from sale of held for trading investment in the amount of 12,000.
B)Disposal of held for trading investment in the amount 10,000.
C)Gain on sale of held for trading investment in the amount 2,000.
D)Loss on sale of held for trading investment in the amount 2,000.
Q2) What is not a "non-cash" transaction?
A)Exchange of land with another company.
B)Conversion of preferred shares.
C)Payment of cash dividends.
D)Payment of stock dividends.
Q3) Which category is used on the cash flow statement?
A)Non-current.
B)Operating.
C)Non-operating.
D)Discontinued.
Q4) What are the two distinct components to investing activities?
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Chapter 20: Accounting Changes
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Sample Questions
Q1) For the following accounting changes,identify the appropriate treatment under IFRS. \[\begin{array} { | l | l | }
\hline { \text { Type of Accounting Change } } & { \text { Accounting Treatment } } \\
\hline \text { Change in estimate } & \\
\hline \text { Change in accounting policy } & \\
\hline \text { Correction of an error } & \\
\hline \end{array}\]
Q2) Define the term "prospective adjustment" and which type of accounting changes is it applied to?
Q3) Why are retrospective adjustments to past years' income and expenses recorded directly in retained earnings?
Q4) How should enterprises reflect changes in accounting standards?
Q5) A company changes the depreciation for a piece of equipment from 20% decliningbalance to units-of-production.Describe a plausible circumstance that would support this change as one of the following: (i)an error, (ii)a change in estimate,or (iii)a change in accounting policy.
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Page 12