Question
1. Which of the following qualitative characteristics is NOT specifically addressed in IFRSs Conceptual Framework for Financial Reporting? (a) Conservatism (b) Timeliness (c) Materiality d)
1. Which of the following qualitative characteristics is NOT specifically addressed in IFRS’s Conceptual Framework for Financial Reporting?
(a) Conservatism
(b) Timeliness
(c) Materiality
d) Neutrality
Use the following information to answer questions 2 to 5.
Excerpts from Belinda’s Bagels Inc.’s (BBI) unadjusted trial balance for its December 31,
20X4, year-end financial statements are as follows:
Belinda’s Bagels Inc.
Unadjusted trial balance (excerpts)
December 31, 20X4
| DR | CR |
Prepaid expenses | $15,600 |
|
Inventory | 89,000 |
|
Land | 96,000 |
|
Buildings — net | 216,000 |
|
Equipment — net | 21,600 |
|
Unearned revenue |
| $1,820,000 |
Freight in — inventory | 6,000 |
|
Freight out — inventory | 8,000 |
|
Purchases | 354,000 |
|
Purchase discounts |
| 13,000 |
A partial list of BBI’s historical transactions includes the following:
- On March 1, 20X2, BBI prepaid $36,000 for a three-year rental lease with occupancy commencing on the payment date. The remaining balance in the prepaid expenses account pertains to a two-year fire insurance policy purchased on April 1, 20X4, which has been amortized correctly.
- On July 1, 20X3, BBI purchased and brought into use equipment at a total cost of $24,000.
BBI estimated the equipment would last four years and have a residual value of $4,800 at the end of its useful life.
- On June 1, 20X4, BBI paid $312,000 for land and buildings and brought them into use. At the time of purchase, the building was predicted to last 20 years and have a residual value of $24,000. No other land and buildings were purchased by the company prior to this date.
- On April 1, 20X2, BBI sold 1,000 36-month service contracts for $600 each. On November 1, 20X3, BBI sold another 1,200 36-month service contracts for $750 each. On May 1, 20X4, BBI sold an additional 800 36-month service contracts for $900 each. BBI starts providing the service as soon as the contract is sold. The company has determined that revenue should be recognized on a pro rata basis based on the number of months’ service provided.
Other relevant information follows:
- BBI prepares its financial results in accordance with IFRS.
- BBI only prepares adjusting entries at year end.
- BBI uses the straight-line method to amortize all depreciable assets, and records depreciation expense on an annual basis. In the years of acquisition and disposal, depreciation for the year is determined based on the number of months the asset was ready for use.
2. What will be BBI’s net adjustment to the prepaid expenses account on the adjusted trial balance as at December 31, 20X4?
(a) $3,000
(b) $12,000
(c) $12,600
(d) $12,800
3. What will be BBI’s December 31, 20X4, net adjustment to the depreciation expense account on the adjusted trial balance?
(a) $9,800
(b) $10,400
(c) $11,100
(d) $14,400
4. What will be the amount of unearned revenue reported on BBI’s December 31, 20X4, adjusted trial balance?
(a) $660,000
(b) $1,080,000
(c) $1,160,000
(d) $1,213,333
5. BBI’s physical count of inventory at December 31, 20X4, determined that the cost of the inventory on hand was $87,000 versus a net realizable value of $84,000. These values do not include $4,000 of inventory in transit to a customer of BBI that was sold FOB destination.
What will be the cost of goods sold balance reported on BBI’s December 31, 20X4, adjusted trial balance?
(a) $342,000
(b) $348,000
(c) $352,000
(d) $361,000
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