1. A factory was constructed directly in the pathway of frequent tornadoes. So far, the facility has escaped any damage. Should this be reported, disclosed or NOT reported?

• A :

  No disclosure is required because the amount cannot be reasonably estimated.

• B :

  Risks arising from acts of nature do not require disclosure.

• C :

  Even though there has been no damage in the past, recurrence is likely. It should be disclosed in the notes to the financial statements.

• D :

  If damage is likely to disrupt business significantly it should be reported by setting up a provision.

2. A company sells a chandelier for $1,000 that costs them $300 to manufacture. The light fixture comes with a two-year replacement warranty, no questions asked. Based on previous experience, they expect about 20% of their customers to request a replacement. If sales for the year were 10,000 fixtures, what was the estimated warranty expense for the year?

• A :

  cannot be determined without the per unit warranty cost

• B :

  $600,000

• C :

  $2,000,000

• D :

  $60,000

3. An employee works for a company that pays time and one-half overtime and has a standard work day of 8 hours. Regular wages are $20 per hour. What would be the gross pay for an employee that worked 11 days and accumulated 6 hours of overtime?

• A :

  $1,820

• B :

  $400

• C :

  $1,940

• D :

  $1,880

4. The following current assets and current liabilities were reported by a small company on December 31, their year-end.

Accounts payable		$6,000
Accrued liabilities		3,000
Accounts receivable		10,000
Cash and equivalents		8,000
CPP payable		600
Current portion:
Notes payable		10,000
Provisions		5,000
E I payable		1,100
Income tax payable		2,500
Inventories		18,000
Prepaid Expenses		3,000
Short-term investments		4,000

What is their acid-test ratio on December 31?

• A :

  1.52

• B :

  0.64

• C :

  0.78

• D :

  1.67