QUESTIONS. PART 1, MULTIPLE-CHOICE THEORY INSTRUCTIONS: Read and understand each question and choose the BEST answer among the choices given, Write the CAPITAL LETTER of your chosen answer. 1/0 SCORING. 1.A longsterm debt falling due within one year should be reported as noncurrent ifthe following conditions are met (choose the incorrect one) ‘A. The original term is for a period of more than one year 8, The enterprise intends to refinance the obligation on a long-term basis C. The intent to refinance is supported by an agreement to refinance which is completed before the issuance of the financial statements D. The intent o-refinance is supported by an agreement to refinance which is completed after the Issuance of the financial statements, 2. Covenants are often attached to long-term barrowing agreements which represent undertakings by the borrower. Under these covenants, if certain, conditions related to the borrowers financial position are breached, the liabilly becomes payable on demand. This liability can stil be classified as noncurrent ‘A. When the lender has agreed, prior to the issuance of the statements, not to demand payment B. When itis probable that further breaches or violations will not occur within one year from balance sheet date ©. When the lender has agreed prior to the issuance of the statements nol to demand payment and it ts probable that further breaches will not occur within one year from balance sheet date D. With no conditions. E, None of these 3. Ifa long-term debt becomes callable due to the violation of a loan covenant ‘A. Cash must be reserved to pay the debt B, The dabt must be reclassified as current C. Retained earnings must be restricted in the amount of the debt D. The debt may continue to be classified as long-term if the entity believes the covenant can be renegotiated E, None of these 4. Current liabilities include ‘A. Only obligations which are expected to be settled within the normal operating cycle B. Only obligations which are due to be seltied within one year from balance sheet date C. Obligations which are expected to be settled within the normal operating cycle and obligations Which are due to be settied within one year from balance sheet date D. Refinanced long-term debt falling due within one year from balance sheet E, None of these 5. A present obligation should be accrued when ‘A. {tis probable at the date of the financial statements that a llablity has been incurred and the amount can be reasonably estimated B, The obligation has been incurred on the date of the financial statements and the amount may be material . Itis probable that the obligation will be incurred in a future period and the amount can be reasonably estimated D. Itis probable at the date of the financial statements that an obligation has. been incurred and the ‘amount may be material E, None of these 6. An outflow of resources embodying future econamic benefits itis regarded as "probable" when ‘A. The event is more likely than not to occur, meaning, 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 nat occur is greater than the probability that the event will occur C. The probability that the event wil occur is the as the probability that the event will not occur D, The probability that the event wil occur is 90% likely E, None of these 7. Which of the following items would be excluded from current liabilities? ‘A. Normal accounts payable which had been assigned by the creditor to a finance company B, Long-term debt callable within one year or less because the debtor violated a debt provision C. Ashortterm debt which at the discretion of the entity can be rolled over at laast twelve months, after the balance sheet date D. A long-term liabiity callable or due on demand by the creditor even though the creditor has. given no indication that the debt will be called E, None of these 8, Which item is not a current liability? ‘A. Unearned revenue B. Stock dividends distributable C. The currently maturing portion of long-term debt D, Trade accounts payable E, None of these9. An entity that acquired an intangible asset may use the revaluation model for subsequent ‘measurement only when, A. The useful life of the intangible asset can be reliably determined, B. An active market exists for the intangible asset C. The cost af the intangible asset can be measured reliably D. The intangible asset is a monetary asset. E. None of these 10. Which of the following statements is incorrect concerning the equity method of accounting for investments in associate? A. The investment in associate is initially recorded at cost, B, The investment in associate is increased or decreased by the investor's share of the profit or loss of the invastee after the date of acquisition C. The investor's share of the profit or loss of the investee is recognized in the investor's profit or loss. D, Dividends received from the associate are accaunted for as income. E, None of these 411. Which of the following provides the best theoretical support for accelerated depreciation? A. Assets are more efficient in early years and inially generate more revenue, B. Expenses should be allocated in a manner that “smooths” earnings. C. Repairs and maintenance costs probably would increase later periods so depreciation should decrease. D. Accelerated depreciation provides easier replacement because of the time value of money. E. None of these: 112. Which of the following is correct regarding accounting for investments? ‘A. Any current or non-current investment acquired should be recorded at “cost or market” whichever is lower on date of acquisition. B. Allowances for decline in value of investments are not necessary to be disclosed in the body of the financial statements or in the accompanying notes. C. Sinking fund assets consisting of cash and securities held for the redemption of bonds or stocks ate normally classified as investments. D. A debt instrument may be classified as financial asset measured at amortized cost provided the entity can demonstrate its ability to hold the instrument up to its maturity. 13. The cash surrender value of the insurance policy on the corporation's president would be presented on the balance sheet as: A.Cash B. Marketable Securities C. Long-Term Investment D. Prepai Expense 14. In accordance with PFRS7 Financial instruments: disclosures, which of the following best describe credit risk? ‘A. The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation B. The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities C. The risk that the fair value associated with an instrument will vary due to changes in the counterparty's credit rating D. The risk that an entity's credit facilities will be withdrawn due to cash flow sensitivities E. None of these. 45. Dividends received on investment in equity securities accounted for under PFRS 9 are elther treated as returh of capital or return on capital, Which of the following types of dividends are treated as return on capital? ‘A. Cash and property dividends B. Share dividends . Liquidating dividends D. Cash dividends received in lieu of share dividends E. None of these. 16. Bonds were issued at a discount. in the bond amortization schedule, ‘A. the interest expense is less with each successive interest payment B. the total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid , the outstanding balance (book value) of the bonds declines eventually to face value . the reduction in the discount is less with each successive interest payment E, None of these: 17. Zero coupon bonds ‘A. offer a retum in the form of a deep discount off the face value B, result in zero interest expense for the issuer C. result in zero interest revenue for the investor D. are reported as shareholders equity by the issuer E, None of these:18. Assuming an asset is used evenly over a four-year service life, which method of depreciation will always result in the largest amount of depreciation in the first year? A. straight-line 6. units-of-production C. double-declining balance D. sum-of-the-years"-digits E. None of these 19. Donated assets are recorded at A. zero (memo entry only) B. the donor's book value ©. the donee's stated value D. fair value E. None of these 20. Assets acquired under multiyear deferred payment contracts are A. valued at their fair value on the date of the final payment 8. valued al the present valve of the payments required by the contract C. valued at the sum of the payments required by the contract 1D. none of these 21. Asset retirement obligations: A. increase the balance in the related asset account B. are measured at fair value in the balance sheet C. are abilities associated with the restoration of a long-term asset D. all of these E. none of these 22. The acquisition costs of property, plant, and equipment do not include A. the ordinary and necessary costs to bring the asset to its desired condition and location for use B. the net invoice price C. legal fees, delivery charges, Installation, and any applicable sales tax D, maintenance costs during the first 30 days of use E. None of these 23. An asset acquired using a long-term note payable always will be recorded at the face amount of the note under which scenario? A. The note payable explicitly requires the payment of interest at a realistic interest rate B, The note is a noninterest-bearing note. C. The company expects to use the asset for its entire physical life, D. Interest on the note is not payable until the note is due. E. None of these 24. Goodwill is : A. amortized over the greater of its estimated life or 40 years 8, only recorded by the seller of a business C. the excess of the fair value of a business over the fair value of all nat identifiable assets. D, All of these E. None of these 25. Interest expense is A. the effective interest rate times the amount of the debt outstanding during the interest period 8. the stated interest rate times the amount of the debt outstanding during the interest period C. the effective interest rate times the principal amount of the debt O. the stated interest rate times the principal amount of the debt E. None of these