AFA100 Quiz 1

On January 1, Manitoba Bank lent $100,000 to Saskatchewan Ltd. at an interest rate of 6%. Both the loan and all the interest are to be repaid after two years. At the end of the first year what is the entry required on Manitoba's books? (Dr.=Debit and Cr.=Credit)

• no entry is required until the amount becomes due.

• Dr. Interest receivable $6,000, Cr. Interest revenue $6,000

• Dr. Interest expense $6,000, Cr. Interest payable $6,000

• Dr. Interest revenue $6,000, Cr. Interest payable $6,000

The statement of financial position and statement of changes in equity are related because

• the ending amount on the statement of changes in equity is transferred to the statement of cash flows.

• the ending amount on the statement of changes in equity is reported on the statement of financial position

• the total assets on the statement of financial position is reported on the statement of changes in equity.

• both contain information for the corporation.

The Pioneer Company has provided the following account balances:

Cash $38,900;

Short-term investments $4,900;

Accounts receivable $6,900;

Supplies $52,500;

Long-term notes receivable $2,900;

Equipment $100,500;

Factory Building $189,000;

Intangible assets $6,900;

Accounts payable $29,100;

Accrued liabilities $3,550;

Short-term notes payable $15,800;

Long-term notes payable $96,500;

Contributed capital $189,000;

Retained earnings $68,550.

What are Pioneer's total current liabilities?

• $48,450

• $32,650

• $44,900

• $144,950

Which of the following activities does not violate the revenue recognition principle?

• Recording revenue in December 20X6 for units manufactured but not yet sold to customers.

• Not recording interest earned in 20X6 until the cash is received in 20X7.

• Recording cash received in advance from customers as a liability when the product is not yet shipped.

• Recording cash received in advance from customers as revenue when the product is not yet shipped.

During 2022, Baltic Company incurred operating expenses amounting to $250,000, of which $156,000 was paid in cash; the balance will be paid during 2023. Which of the following is correct for the 2022 year-end statement of financial position?

• Shareholders' equity decreases $250,000, assets decrease $156,000, and liabilities increase $94,000.

• Shareholders' equity decreases $156,000 and assets decrease $156,000.

• Assets decrease $250,000, liabilities increase $94,000, and shareholders' equity decreases $250,000.

• Assets decrease $250,000 and shareholders' equity decreases $250,000.

The adoption of International Financial Reporting Standards can be viewed as an application of which of the following quality enhancing characteristics?

• Timeliness

• Verifiability

• Comparability

• Representational faithfulness

Retained earnings at the end of the period is equal to

• retained earnings at the beginning of the period plus net earnings minus dividends.

• net earnings for the period plus shares issued for the period and net earnings minus dividends

• retained earnings at the beginning of the period plus net earnings minus liabilities.

• assets plus liabilities

Under the accrual basis of accounting

• events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.

• cash must be received before revenue is recognized.

• the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared.

• profit is calculated by matching cash outflows against cash inflows.

On July 1, Rawling Store paid $6,000 to Iceberg Realty for six months' rent, starting July 1. Prepaid rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Rawling Store is

• debit prepaid rent, $6,000; credit rent expense, $6,000

• debit rent expense, $1,000; credit prepaid rent, $1,000

• debit prepaid rent, $1,000; credit rent expense, 1000

• debit rent expense, $6,000; credit prepaid rent, $6,000.

What is the primary purpose of the statement of financial position?

• To report the difference between cash inflows and cash outflows for the period.

• To report assets at their current market value at a particular point in time.

• To measure the net earnings of a business up to a particular point in time.

• To report the financial position of the reporting entity at a particular point in time.