ACC 530 Practice Questions

Merry Co purchased a machine cost $125,000 for its manufacturing operations and paid shipping cost of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine $155,000 $145,000 $135,000 $125,000

155,000

•After a wedding in 2020, 10 people died as a result of food poisoning from food prepared by Kiss Catering (KCI) • •12/31/2020 •The company's lawyers advised that it was 60% probable that the company would be found liable of an estimated liability of 2.5 million dollars. • •12/31/2021 •Lawyers advised that, owing to developments in the case, it was 85% probable that the company would be found liable of an estimated liability of 5 million dollars. • •Should KCI recognize a provision in 2020? in 2021?

2020 US GAAP- no IFRS - yes 2021 US GAAP - yes IFRS yes

On December 31, an entity that reports using IFRSanalyzed a patent with a net carrying value (book value) of $500,000. The entity determined the following: •Fair value = $480,000 •Estimated cost to sell = $15,000 •Value in Use = $475,000. What is the impairment loss that the entity will report? A.$0 B.$20,000 C.$25,000 D.$ 35,000

25,000

Alexander Inc. acquired a trademark on April 1, 2015. The trademark cost $500,000. Alexander reports under IFRS and revalues its trademarks. On December 31, 2020, the fair value of the trademark is $520,000. On December 31, 2021, the fair value of the trademark is $450,000. After the journal entry on December 31, 2021, which is correct? A) Balance of revaluation surplus = $0, and the carrying value of the trademark = $450,000. B) Balance of revaluation surplus = $20,000, and the carrying value of the trademark = $520,000. C) Balance of revaluation surplus = $0, and the carrying value of the trademark = $500,000.

A

An entity sells webcams with a warranty and repair costs are estimated to range from $2 million to $4 million. Assuming all other criteria are met, what journal entry would the entity make for warranty repairs? A.Debit warranty expense and credit warranty liability B.Debit warranty liability and credit warranty expense C.No journal entry is required, only a memorandum.

A

Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring PP&E, which of the following statements is correct? A) When an asset is revalued, the entire class of PP&E to which that asset belongs must be revalued. B) When an asset is revalued, the entire class of PP&E to which that asset belongs may be revalued. C) Revaluations of PP&E must be made at least every 3 years.] D) Increases in an asset's carrying amount as a result of the first revaluation must be recognized as a component of profit or loss. (We haven't covered this yet, but "D" is not correct.)

A

Using IFRS, limited-life intangibles, indefinite-lived intangibles and goodwill are reviewed for impairment: a. Limited-life intangibles must check for impairment indicators at least annually and if they exist, must be reviewed for impairment, and, unlimited life intangibles including goodwill, must be reviewed for impairment at least annually. b. Whenever impairment indicators exist, whenever impairment indicators exist and annually, respectively. c. Annually, whenever impairment indicators exist and whenever impairment indicators exist, respectively. d. Periodically.

A

What is the inventory write down journal entry for US GAAP? A.Debit CGS and credit Inventory for the write-down amount B.Debit Inventory and credit CGS for the write-down amount C.Debit Inventory write-down expense and credit Inventory valuation allowance for the write-down amount D.Debit Inventory valuation allowance and credit Inventory write-down expense for the write-down amount

A

Which of the following is not a formal part of the International Accounting Standards Board and its supporting structure? A) The Financial Accounting Foundation (FAF) B) The International Financial Reporting Interpretations Committee (IFRIC) C) The IFRS Advisory Council D) The IFRS Foundation

A

Which of the following is not true for SEC reporting? a) U.S. publicly-listed companies are permitted to use U.S. GAAP or home-country GAAP with reconciliation to U.S. GAAP or IFRS with no reconciliation. b) Non-U.S. Foreign Private Issuers (FPIs) are permitted to use U.S. GAAP or home-country GAAP with reconciliation to U.S. GAAP or IFRS with no reconciliation. c) U.S. publicly-listed companies must use U.S. GAAP d) The 2012 SEC document entitled Work Plan - Final Staff Report does not answer the question of whether IFRSs should be adopted for U.S. issuers.

A

Which of the following is true? A) The IFRS Framework was developed from the FASB Concept Statements. B) The FASB Concept Statements were developed from the IFRS Framework. C) The FASB Concept Statements and the IFRS Framework are identical. D) The FASB Concept Statements and the IFRS Framework are very different.

A

Why are some standards titled IFRS while others are IAS? A) Standards promulgated by the IASC (former standard setting body) are titled IAS while standards promulgated by the IASB are titled IFRS. B) IFRS are higher in the hierarchy than IAS. C) IAS are higher in the hierarchy than IFRS. D) IFRS pertain to large public entities while IAS pertain to smaller entities.

A

•2019, the company wrote down an inventory item from its original cost of $1,000 to $900. •The same item was still in inventory at December 31, 2020, but its net realizable value had increased to $1,100. •What is the amount of write-down reversal using US GAAP and IFRS? A.Nothing under US GAAP (reversal not allowed) and $100 under IFRS B.Nothing under US GAAP (reversal not allowed) and $200 under IFRS C.Nothing under US GAAP (reversal not allowed) and nothing under IFRS

A IFRS journal entry to record write-down reversal : Inventory valuation allowance $100 Inventory write-down expense $100

The Banks Company reports using IFRS and uses fair value for its valuation method under IAS 16. Company acquired a $50,000 sailboat on 1/1/2010. (Expected useful life 10 years and an estimated $0 residual value). Company uses straight-line depreciation and the depreciation-elimination method for revaluations. On 12/31/2012, depreciation expenses is recorded as a debit to Depreciation Expense $5,000 and credit Accumulated Depreciation $5,000 . If the fair value of the boat was $31,500, what are the revaluation-related entries for 12/31/2012? a. Debit Accumulated Depreciation $15,000, debit Loss on Revaluation $3,500, and credit Sailboat account $18,500. b.Debit Accumulated Depreciation $15,000, debit Revaluation Surplus $3,500, and credit Sailboat account $18,500. c.Debit Accumulated Depreciation $15,000 and credit Sailboat account $15,000.

A.Is correct. It could be done as 2 entries, debt Acc. Dep 15000 and credit sailboat 15000, then debit Loss $3,500 and credit Sailboat $3,500. The $3,500 loss is calculated as $35,000 carrying value before revaluationminus $31,500 fair value. B.Is incorrect because reduction goes through P&L not revaluation surplus account. C.Is incorrect because it only eliminates the accumulated depreciation and does not record new fair value of boat.

The Banks Company reports using IFRS and uses fair value for its valuation method under IAS 16. Company acquired a $50,000 sailboat on 1/1/2010. (Expected useful life 10 years and an estimated $0 residual value). Company uses straight-line depreciation and the depreciation-elimination method for revaluations. On 12/31/2012, depreciation expenses is recorded as a debit to Depreciation Expense $5,000 and credit Accumulated Depreciation $5,000 . If the fair value of the boat was $31,500, what are the revaluation-related entries for 12/31/2012? a. Debit Accumulated Depreciation $15,000, debit Loss on Revaluation $3,500, and credit Sailboat account $18,500. b.Debit Accumulated Depreciation $15,000, debit Revaluation Surplus $3,500, and credit Sailboat account $18,500. c.Debit Accumulated Depreciation $15,000 and credit Sailboat account $15,000.

A.Is correct. It could be done as 2 entries, debt Acc. Dep 15000 and credit sailboat 15000, then debit Loss $3,500 and credit Sailboat $3,500. The $3,500 loss is calculated as $35,000 carrying value before revaluationminus $31,500 fair value. B.Is incorrect because reduction goes through P&L not revaluation surplus account. C.Is incorrect because it only eliminates the accumulated depreciation and does not record new fair value of boat.

A company that reports using IFRS acquired weight-lifting equipment on January 1, 2009, at a cost of $10,000. This is the company's only equipment. The company uses fair value for its equipment using IAS 16. On December 31, 2010, the net book value is $8,000 (cost of $10,000 less accumulated depreciation of $2,000), while the fair value is determined to be $8,800. Prepare the journal entries to record the revaluations in 2010?

Accumulated depreciation 2,000 Equipment 2,000 (To eliminate accumulated depreciation.) Equipment 800 Revaluation Surplus - Equipment (OCI) 800 (To write equipment up to fair value.) OR Accumulated Depreciation 2,000 Equipment 1,200 Revaluation Surplus - Equipment (OCI) 800 (To eliminate accumulated depreciation and write equipment up to fair value.)

Alexander Inc. acquired a trademark on April 1, 2015. The trademark cost $500,000. Alexander reports under IFRS and revalues its trademarks. On December 31, 2020, the fair value of the trademark is $520,000. On December 31, 2021, the fair value of the trademark is $450,000. What is the journal entry for the revaluation on December 31, 2021? A) Debit loss on trademark revaluation $50,000. Credit trademark $50,000 B) Debit revaluation surplus $20,000, Debit loss on trademark revaluation $50,000, and Credit trademark $70,000 C) Debit loss on trademark revaluation $70,000, Credit trademark $50,000, and credit revaluation surplus $20,000. D) No entry.

B

The Banks Company reports using IFRS and uses fair value for its valuation method under IAS 16. Company acquired a $50,000 sailboat on 1/1/2010. (Expected useful life 10 years and an estimated $0 residual value). Company uses straight-line depreciation and the depreciation-elimination method for revaluations. The depreciation entries for 12/31/2010 and 12/31/2011 would be: A. No entry. B.12/31/2010: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000. AND 12/31/2011: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000 C.12/31/2010: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000. AND 12/31/2011: Debit depreciation expense $5,000 and credit Accumulated Depreciation $10,000 D. 12/31/2010: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000. AND 12/31/2011: Debit depreciation expense $10,000 and credit Accumulated Depreciation $10,000

B

What would be included in a complete set of IFRS financial statements? a. Balance sheet, statement of comprehensive income, a statement of changes in equity and statement of cash flows. b. Balance sheet, statement of comprehensive income, a statement of changes in equity, statement of cash flows and notes comprising a summary of significant accounting policies and other explanatory notes. c. Balance sheet, statement of comprehensive income, a statement of changes in equity, statement of cash flows, financial review by management and notes comprising a summary of significant accounting policies and other explanatory notes. d. A balance sheet, statement of comprehensive income, a statement of changes in equity, statement of cash flows, financial review by management, value-added statements and notes comprising a summary of significant accounting policies and other explanatory notes.

B

Which of the following standards allows a company to revalue its PP&E after acquisition? a. US GAAP b. IFRS c. Both US GAAP and IFRS. d. None of the above.

B

Transaction costs associated with the issuance of debt should be expensed as incurred using IFRS. a. True b.False

B False. Transaction costs and issuance costs are NOT expensed as incurred. Transaction costs associated with the issuance of debt should directly reduce the carrying value of the debt using IFRS and using US GAAP.

Under IFRS, which is true regarding write-downs to LCNRV? A.Write-downs must be recorded in cost of goods sold. B.Write-downs must be recorded as an expense but IFRS does not specify a particular account. C.Write-downs must be recorded in inventory write down expense. D.Write-down should not be recorded in cost of goods sold.

B IFRS does not specify a particular expense account for the write-down. US GAAP is more explicit in specifying where the write-down should be included on the income statement.

In Year 5, an entity which uses IFRS revalued an indefinite life intangible to its fair value of $150,000 and recorded a revaluation surplus of $30,000. On December 31, Year 6, the intangible asset had a fair value of $130,000. In its December 31, Year 6 financial statements, the entity will report: A.A $20,000 revaluation loss on the income statement. B.A $20,000 revaluation loss in other comprehensive income C.A $10,000 revaluation loss in accumulated other comprehensive income. D.A $30,000 revaluation surplus in accumulated other comprehensive income.

B is correct. revaluation loss = $20,000 (=$130,000 revalued amount minus $150,000 carrying value.) Because there is $30,000 in revaluation surplus (AOCI), the loss is reported as OCI. Thus the remaining AOCI is $10,000 surplus. A is incorrect because the $20000 loss will not be reported in income. It reverses AOCI. C is incorrect because the company will report a $10000 revaluation surplus, not loss, in AOCI. D is incorrect because the company will report a $10000 revaluation surplus. The amount is Year 5 surplus $30000 minus Year 6 $20000 revaluation loss.

Which of the following standards allows a company to reverse an impairment loss? a. US GAAP b. IFRS c. Both US GAAP and IFRS. d. None of the above.

B. IFRS

•Equipment •Book value $30,000 (cost $50,000,less accumulated depreciation of $20,000) •Impairment indicators exist •The expected net future undiscounted cash flows are $31,000 •The expected net future discounted cash flows are $28,000 •The net fair value of the equipment is $25,000 What is the impairment loss for the company using US GAAP and IFRS? A.$5,000 for US GAAP and $5,000 for IFRS B.$2,000 for US GAAP and $2,000 for IFRS C.$5,000 for US GAAP and $2,000 for IFRS D.$0 for US GAAP and $5,000 for IFRS E.$0 for US GAAP and $2,000 for IFRS F.$5,000 for US GAAP and $0 for IFRS G.$2,000 for US GAAP and $0 for IFRS H.None of these.

BV = 30,000 US GAAP - CFs higher than book value so - 0 IFRS - higher or 25 or 28 and compare to 30 so 2000 E

A company has two inventory items of a similar nature and use. One item is held at the company's headquarters in Spain and one is held in France. Using IFRS: A.The company can use different cost flow assumptions for the inventory. B.The company must use different cost flow assumptions for the inventory. C.The company must use the same cost flow assumptions for the inventory. D.IFRS does not have a rule relating to inventory items in different locations.

C

Alexander Inc. acquired a trademark on April 1, 2015. The trademark cost $500,000. Alexander reports under IFRS and revalues its trademarks. On December 31, 2020, the fair value of the trademark is $520,000. What is the journal entry for the revaluation on December 31, 2020? A) Debit trademark $500,000. Credit cash $500,000 B) Debit trademark $20,000. Credit gain on revaluation $20,000. C) Debit trademark $20,000. Credit revaluation surplus $20,000. D) No entry.

C

At the end of 2019, Elizabeth Company wrote down one of the fur coats in its ending inventory from its original cost of $1,000 to $900. The same coat was still in inventory atDecember 31, 2020, but its net realizable value had increased to $1,100. What is the journal entry for IFRS? A.Debit CGS and credit Inventory for the write-down amount B.Debit Inventory and credit CGS for the write-down amount C.Debit Inventory write-down expense and credit Inventory valuation allowance for the write-down amount D.Debit Inventory valuation allowance and credit Inventory write-down expense for the write-down amount

C

Under US GAAP, on the SCF companies classify interest and dividends paid or received as: a. Operating cash flows. b. Interest and dividends paid as financing cash flows and interest and dividends received as investing cash flows. c. Interest received and paid and dividends received classified as operating cash flows and dividends paid as financing cash flows. d. a. or b. e. b. or c.

C

What is the inventory write down journal entry for IFRS? A.Debit CGS and credit Inventory for the write-down amount B.Debit Inventory and credit CGS for the write-down amount C.Debit Inventory write-down expense and credit Inventory valuation allowance for the write-down amount D.Debit Inventory valuation allowance and credit Inventory write-down expense for the write-down amount

C

A FIFO inventory item is currently on the books at its historical cost of $5,000. It would cost $4,200 to replace the item. The company could sell it for $4,500 and the costs to sell are insignificant, and the normal profit margin would be 10%. What are the write-down amounts for US GAAP and IFRS? A.$950 for US GAAP and $500 for IFRS B.$800 for US GAAP and $500 for IFRS C.$500 for US GAAP and $500 for IFRS D.$0 for US GAAP and $500 for IFRS

C is correct under the new US GAAP regulations Prior to the new rules, or for LIFO or Retail Inventory Method inventores: Original cost $5,000 Replacement cost $4,200 Selling price $4,500 NRV $4,500 NRV - NPM = $4,050 US market value = $4,200 US GAAP LCM = $4,200 The write-down calculation is the original cost of $5,000 less the US market value of $4,200 (Rcost is within the range of the floor ($4,050) and ceiling ($4,500)). IFRS LCNRV $4,500 US GAAP journal entry: CGS $800 Inventory $800 The write-down calculation is the original cost of $5,000 less the US market value of $4,200 (market is within the range of the floor ($4,050) and ceiling ($4,500)). IFRS journal entry: Inventory write-down expense $500 Inventory valuation allowance $500 The write-down calculation is the original cost of $5,000 less the NRV of $4,500.

Under IFRS, there exists an account referred to as the "revaluation surplus" account. What type of account is this and what is it used for? A.Asset account. Used to report asset's value. B.Gain account included in Income. Used to report increase in asset's value. C.OCI account. Used to revalue PPE.

C is correct. OCI account. Used to revalue PPE.

A company acquired equipment on January 1, 2009, at a cost of $10,000. The equipment has a useful life of 10 years and estimated salvage value of $0. Using straight-line depreciation, what is the net book value (carrying value) of the equipment on December 31, 2010? A.$0 B.$5,000 C.$8,000 D.$9,000 E. $10,000

C. $10,000 minus 2 years depreciation at $1000 per year.

The Banks Company reports using IFRS and uses fair value for its valuation method under IAS 16. Company acquired a $50,000 sailboat on 1/1/2010. (Expected useful life 10 years and an estimated $0 residual value). Company uses straight-line depreciation and the depreciation-elimination method for revaluations. On 12/31/2012, depreciation expenses is recorded as a debit to Depreciation Expense $5,000 and credit Accumulated Depreciation $5,000 . The boat was revalued to $31,500 on 12/31/2012. Company's policy is to reverse a portion of revaluation surplus related to any increased depreciation expense due to revaluation. What are the entries for 12/31/2013 and 12/31/2014? a.Debit Depreciation Expense $5,000 and Credit Accumulated Depreciation $5,000. b.Debit Depreciation Expense $4,500 and Credit Accumulated Depreciation $4,500, AND Debit Revaluation Surplus $500 and Credit Retained Earnings $500. c.Debit Depreciation Expense $4,500 and Credit Accumulated Depreciation $4,500.

C. Is correct. $31,500 divided by remaining life of 7 years = $4,500 A.Is incorrect because the expense wasn't changed B.Is incorrect because there is no revaluation surplus.

Information as above: $50,000 sailboat acquired 1/1/2010 with expected useful life 10 years and an estimated $0 residual value. On December 31, 2012, the fair value of the boat was $31,500. On 12/31/2015, depreciation expenses is recorded as a debit to Depreciation Expense $4,500 and credit Accumulated Depreciation $4,500 . If the fair value of the boat is $25,000, what are the revaluation-related entries for 12/31/2015? A.Debit Accumulated Depreciation $13,500 and Credit Sailboat $13,500. B.Debit Accumulated Depreciation $13, 500, Credit Sailboat $6,500, Credit Gain on Revaluation $3,500, and Credit Revaluation Surplus $3,500. C.Debit Accumulated Depreciation $13, 500, Credit Sailboat $6,500, Credit Gain on Revaluation $7,000. D.Debit Accumulated Depreciation $13, 500, Credit Sailboat $6,500, Credit Revaluation Surplus $7,000.

Carrying value of boat on 12/31/2012 was $31,500. Prior to revaluationon 12/31/2015, carrying value is $31,500 minus (3 years X $4500 = $13,500) = $18,000. Revaluation will increase carrying value by $7,000 (=$25,000 new fair value minus $18,000). Of that amount, $3,500 can be treated as a gain, so $3,500 will go to revaluation surplus. B. Is Correct. Could have been made as 2 entries): Debit Acc Dep $13,500 and Credit Sailboat $13,500 (à then sailboat account would = $18,000.) AND THEN Debit sailboat $7,000, Credit gain $3,500 and Credit revaluation surplus $3,500. (a credit to Sailboat $13,500 less a debit to sailboat $7,000 is netted as a credit of $6,500)

•The Corporate Protection Company (CPC) has a patent on new fingerprint security technology. • •Book value of the patent = $20 million. •Fair value of the patent =$18 million •Selling costs would = $3 million. •Present value of future cash flows = $16 million. •Sum of the undiscounted future cash flows = $19 million. Prepare impairment journal entries under US GAAP and IFRS?

Combine fair value and selling costs - 15 million US GAAP - recoverability test failed (BV 20 > FCF 19) 5 M Impairment Loss Asset IFRS - 4 M Impairment Loss Accumulated Amortization

Using IFRS, on the statement of cash flow, companies classify interest and dividends paid or received as: a. Operating cash flows. b. Interest and dividends paid as financing cash flows and interest and dividends received as investing cash flows. c. Interest received and paid and dividends received classified as operating cash flows and dividends paid as financing cash flows. d. a. or b.

D

What is the role of the Monitoring Board? A) To set international financial reporting standards (IFRS). B) To interpret IFRS. C) To oversee the International Accounting Standards Board (IASB). D) To assist in appointing individuals to the IFRS Foundation trustee positions and monitoring the Foundation. E) To provide strategic advice to the IASB.

D

When is a presentation of assets and liabilities in the order of their liquidity - as opposed to a classified balance sheet - allowed under IFRS? a. When it is done before the interim financial statements are issued. b. When it allows the company to measure assets against liabilities. c. When it provides working capital distinctions. d. When it provides more relevant and reliable information.

D

Which of the following standards will allow companies to choose between capitalizing and expensing borrowing costs incurred during the construction of a fixed asset? a. US GAAP b. IFRS c. Both US GAAP and IFRS. d. None of the above.

D

A company acquires a bulldozer for $500,000. The useful life of the bulldozer is 10 years. $0 salvage value. The treads with a value of $50,000 will need to be replaced every five years. The blade has a value of $20,000 and needs to be replaced every two years. At the end of year one what would be the difference in depreciation expense using composite depreciation under IFRS but not under US GAAP? a. Using a composite life of 10 years there would be no difference. Depreciation expense would be $50,000 using both US GAAP and IFRS. b. Based on conservatism the bulldozer would be depreciated over 2 years for IFRS and 10 years for US GAAP. Thus, the difference would be $200,000. c. The depreciation expense would be higher using US GAAP by $13,000. d. The depreciation would be higher using IFRS by $13,000. e. None of the above.

D. Is the answer. Component depreciation would be Bulldozer $43,000 = $430,000/10 years + Treads $10,000 (=$50,000/5 years) + Blade$10,000 (=$20,000/2 years) The $430 comes from allocating 50 and 20 of the total 500 to treads and blades, respectively. US GAAP Depreciation Expense would be Bulldozer $50,000 (=$500,000/10 years)

A company that reports using IFRS acquired an excavator on January 1, 2009, at a cost of $10,000. This excavator is the company's only equipment. The company uses fair value for its equipment using IAS 16. This excavator is being depreciated on a straight-line basis over its 10-year useful life. There is no residual value at the end of the 10-year period. In both 2009 and 2010, depreciation would be $1,000. On December 31, 2010, the fair value is determined to be $8,800. Assume the company uses the depreciation elimination method for accumulated depreciation. •Provide the journal entries for Dec 31, 2010.

December 31, 2010 Debit Credit Depreciation expense $1,000 Accumulated Depreciation $1,000 (To record the depreciation expense for 2010.) December 31, 2010 Accumulated Depreciation $2,000 Equipment $1,200 Revaluation Surplus $800 (To record the revaluation to $8800.) Note: For the revaluation, 2 separate entries could have been made - first to eliminate Accumulated Depreciation, and the second to record the revaluation.

A company that reports using IFRS acquired an excavator on January 1, 2009, at a cost of $10,000. ... 10-year useful life... no residual value...On 12/31/2010, the fair value was determined to be $8,800. .... Co.'s accounting policy is to reverse a portion of revaluation surplus related to the increased depreciation expense. •Now that you know the depreciation prior to the 2011 revaluation and •You know the annual depreciation beginning 2011 after the revaluation and •You know the increase in the annual depreciation expense due to the revaluation, •Prepare the journal entries for Dec. 31, 2011

December 31, 2011 Depreciation Expense $1,100 Acc. Depreciation $1,100 (To record the depreciation expense for 2011.) Revaluation Surplus $100 Retained Earnings $100 (To reverse the excess depreciation from the revaluation surplus.)

Same problem, same facts: On 12/31/2010, the fair value was determined to be $8,800. But now, on 12/31/2012, the fair value is determined to be $5,000. Co.'s accounting policy is to reverse a portion of revaluation surplus related to the increased depreciation expense. •Now that you know the carrying value (book value) of the equipment on 12/31/2012 prior to this latest revaluation and •Now that you know the carrying value (book value) be after revaluation and •Now that you know the amount in the Revaluation Surplus account prior to revaluation, •Prepare the journal entries for Dec. 31, 2012 (using the depreciation elimination method for accumulated depreciation)

December 31, 2012 Depreciation Expense 1,100 Acc. Depreciation 1,100 (To record the depreciation expense for 2012.) Revaluation Surplus 100 Retained Earnings 100 (To reverse the excess depreciation from the revaluation surplus.) Equipment $8,800 - 2011 Depreciation $1,100 - 2012 Depreciation $1,100 Book value= $6,600 December 31, 2012 Accumulated Depreciation 2,200 Equipment 2,200 Revaluation Surplus 600 Loss on Revaluation 1,000 Equipment 1,600 (To revalue equipment to $5,000.)

Company acquires a truck at a cost of $60,000. The service life is expected to be four years. Based on reliable historical data, the company believes the truck can be sold at the end of four years for $10,000. Additionally, the tires must be replaced every two years. The transmission must be replaced every three years. On the initial date of acquisition, the tires have a cost of $4,000 and the transmission has a cost of $6,000. •What is the depreciable base and service life using US GAAP and IFRS? Assume the company chooses not to use component depreciation using US GAAP. •Assume straight-line depreciation and compute the depreciation expense in year one using US GAAP and IFRS. Assume that all ofthe salvage value is assigned to the truck itself and none to the tires or transmission.

Depreciable Base US GAAP - 50,000 IFRS - 50,000 Depreciation expense US GAAP - 12,500 IFRS - 14,000 truck 10,000 tires 2000 transmission 2000

IFRS allows a single year presentation in certain circumstances and IEC rules require two years for the balance sheet and three years for all other statements. True False

False

IFRS prescribes the order or format in which items are to be presented in the balance sheet. True False

False

US GAAP requires the use of a classified balance sheet and prohibits the use of an unclassified balance sheet. True False

False

Under IFRS, a company using the Revaluation Model can postpone revaluing an asset that has declined in value. True False

False

Using IFRS, discounts and premiums on long-term debt are amortized using the straight-line method over the term debt compared to US GAAP, which amortizes these amounts using the effective-interest method. a. True b. False

False - Amortized using the effective-interest method for both US GAAP and IFRS

The following info is available for KCH&H Company's trademark as of December 31: Carrying value $750,000 Undiscounted future cash flows $760,000 Fair value $600,000 (The costs to sell the trademark would be insignificant.) Present value of the future cash flows $630,000 Prepare impairment journal entries under US GAAP and IFRS?

GAAP - no recoverability test not limited life intangible asset 150,000 Impairment loss TM IFRS - 120,000 Impairment Loss TM

A company that reports using IFRS acquired an excavator on January 1, 2009, at a cost of $10,000. This excavator is the company's only equipment. The company uses fair value for its equipment using IAS 16. This excavator is being depreciated on a straight-line basis over its 10-year useful life. There is no residual value at the end of the 10-year period. In both 2009 and 2010, depreciation would be $1,000. On December 31, 2010, the fair value is determined to be $8,800. Assume the company uses the depreciation elimination method for accumulated depreciation. •Provide the journal entries for Jan 1, 2009, Dec 31, 2009.

January 1, 2009 Equipment $10,000 Cash $10,000 (To record the purchase of the equipment.) December 31, 2009 Depreciation expense $1,000 Accumulated Depreciation $1,000 (To record the depreciation expense for 2009.)

•The normal account balance for the "revaluation surplus" account is a credit, and the account can never have a debit balance.

TRUE the revaluation surplus cannot have a debit balance. This is because downward revaluations are reported in net income and not OCI except to the extent that the devaluation is a reversal of a prior upward revaluation for the same asset.

Except for the statement of cash flows, both US GAAP and IFRS frameworks require financial statements to be prepared on an accrual basis except for rare circumstances. True False

True

US GAAP allows a single year presentation in certain circumstances and SEC rules require two years for the balance sheet and three years for all other statements. True False

True

•A company issued $1 million, 5- year, 5% bond for $908,000, for a discount of $92,000. • Prepare journal entries to record the issuance for US GAAP and IFRS

US GAAP Cash 908,000 Discount on Bonds Payable 92,000 Bond payable 1,000,000 IFRS Cash 908,000 Bond Payable 908,000

Ace Company sells webcams and warranty and repair costs are estimated to range from $2 million to $4 million. Assuming other recognition criteria are met, how much should the entity book related to warranty repairs?

US GAAP 2M IFRS 3M

In conjunction with a bonds issuance, a company incurred: •bank fees of $100,000, •legal fees of $50,000 and •salaries of $25,000 for its employees handling the bonds. Show the journal entries to record the issuance/transaction costs using US GAAP and IFRS.

US GAAP: Discount or Premium on Bonds Pay 150,000 Cash 150,000 IFRS: Bonds payable 150,000 Cash 150,000 The transaction costs directly reduce the carrying value for IFRS and US GAAP. Using both US GAAP and IFRS, the company can capitalize the $100,000 of bank fees and $50,000 of legal fees. Salaries must be expensed as they are internal costs and are not direct and incremental.

A company owns a building with a net asset value of $120,000 at December 31, 2010. The building had a five-year remaining life at December 31, 2010. The company also has a revaluation surplus balance of $50,000 related to this building atDecember 31, 2010. The company sells this building on December 31, 2010, for $200,000. What is the gain to be recorded on this transaction? a. $80,000 b. $130,000 c. $200,000 d. None of the above.

a. The revaluation surplus is transferred to retained earnings and not through income. The gain is simply the $200,000 less $120,000.

A statement of stockholders' equity required to be presented using IFRS. a. True b. False

a. True for IFRS. US GAAP does not require this statement although it is predominantly used. The SEC does require this statement

The Banks Company reports using IFRS and uses fair value for its valuation method under IAS 16. Company acquired a $50,000 sailboat on 1/1/2010. (Expected useful life 10 years and an estimated $0 residual value). Company uses straight-line depreciation and the depreciation-elimination method for revaluations. Entries for 12/31/2010 and 12/31/2011? A. No entry. B.12/31/2010: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000. AND 12/31/2011: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000 C.12/31/2010: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000. AND 12/31/2011: Debit depreciation expense $5,000 and credit Accumulated Depreciation $10,000 D. 12/31/2010: Debit depreciation expense $5,000 and credit Accumulated Depreciation $5,000. AND 12/31/2011: Debit depreciation expense $10,000 and credit Accumulated Depreciation $10,000

b

Which of the following is not a component of the statement of changes in equity required by IFRS? a. Share capital b.Common stock c.Retained earnings

b. Under IFRS it is not called common stock, rather under IFRS it is called Share Capital - Ordinary.

A company acquires a bulldozer for $500,000. The useful life of the bulldozer is 10 years. The treads with a value of $50,000 will need to be replaced every five years. The blade has a value of $20,000 and needs to be replaced every two years. At the end of year one what would be the minimum difference in depreciation expense using US GAAP and IFRS? a. Using a composite life of 10 years there would be no difference. Depreciation expense would be $50,000 using both US GAAP and IFRS. b. Based on conservatism the bulldozer would be depreciated over 2 years for IFRS and 10 years for US GAAP. Thus, the difference would be $200,000. c. The depreciation expense would be higher using US GAAP by $13,000. d. The depreciation would be higher using IFRS by $13,000. e. None of the above.

e. Component depreciation is acceptable using US GAAP and required using IFRS, so there would be no difference.

A French company reporting using IFRS purchased its only building on January 1, 2018, for €20,000,000. The building has a 20-year useful life with no net salvage value. The building is being depreciated on a straight-line basis. Assume the company intends to revalue the building to its December 31, 2021, fair value of €17,000,000. What is the amount of the "gain" or loss entry and the account affected to reflect this revaluation? a. €0 - No gain should be recorded. b. €3,000,000 Loss - should be record as expense in the income statement. c. €3,000,000 Gain - should be recorded in the income statement. d. €1,000,000 Gain - should be recorded in the income statement. e. €1,000,000 Gain - should be recorded as credit through OCI to revaluation surplus.

e. Fair value of €17,000,000 less carrying value (€20,000,000 less €4,000,000 of accumulated depreciation = 16,000,000). The 1,000,000 revaluation gain flows through OCI with a credit to revaluation surplus and should not flow through income