Intermediate
Accounting (Volume
2), 8th Canadian
edition, 8e Beechy,
Davidson-Conrod,
Farrell, McLeod-
Dick, Tomulka, Sevel
(Test Bank all Chapters)
(Answers at the end
of each Chapter)
,Chapter 12
Student name:__________
1) A brewing company operating in an Ontario city experiencing water shortages received
its water bill for December 2023, on December 31, 2023. The bill ($8,000) represents the cost of
water used in December to make its product. The company will not publish the 2023 financial
statements until February 2024. Therefore, the adjusting entry as of December 31, 2023 includes
which of the following?
A) cr. utilities payable $8,000
B) cr. cash $8,000
C) cr. utilities expense $8,000
D) no adjusting entry needed because the bill will not be paid until January 2024
2) A short-term note payable may include all of the following except:
A) Trade notes payable.
B) Non trade notes payable.
C) A current portion of a long-term liability.
D) Unearned revenue.
3) Which of the following statements is correct?
A) Under IFRS, contingencies may be accrued, but not under ASPE.
B) Litigation for which the company will probably be found guilty would normally be
accrued as a provision.
C) Under IFRS, content gains should be recognized if they are reasonably certain to
occur.
D) A contingency is more likely to require an accrual than a provision.
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,4) A firm sold $100,000 worth of goods during 2024. The firm extends warranty coverage
on these goods. Historically, warranty costs have averaged 2% of total sales. During 2024, the
firm incurred $1,000 to service goods sold in 2023 and $200 to service goods sold in 2024. What
is warranty expense for 2024?
A) $200
B) $1,200
C) $2,000
D) $3,200
5) You are an investor and have just purchased a bond on July 1 which pays interest every
March 1 and September 1. When you receive your first interest cheque, you will receive and
have earned how many months interest?
Received Earned
1 6 6
2 6 2
3 2 2
4 4 4
5 6 4
A) Choice 1
B) Choice 2
C) Choice 3
D) Choice 4
E) Choice 5
6) On November 7, 2024 local residents sued Brimley Corporation for excess chemical
emissions that caused some of them to seek medical attention. The total lawsuit is $8,000,000.
Brimley Corporation's lawyers believe that the lawsuit will be successful and that the amount to
be paid to the residents will be $4,000,000. On its December 31, 2024 financial statements
Brimley should:
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, A) Accrue a provision loss of $8,000,000 with no financial statement disclosure
necessary.
B) Accrue a provision loss of $4,000,000 and note disclose.
C) Do nothing as the lawsuit has not yet ended.
D) Simply disclose the details regarding the lawsuit in a note.
7) ABC Inc. has 50 pending lawsuits for which it may be found liable. The expected value
(sum of the probabilities of the outcomes multiplied by their respective payouts) amounts to
$100,000. However, the company's controller believes that the most likely outcome will be a
payout of $120,000. Which of the following statements pertaining to the accrual of the provision
is correct?
A) There is a large population of lawsuits, so a provision of $100,000 must be accrued.
B) There is a large population of lawsuits, so a provision of $120,000 must be accrued.
C) There is a small population of lawsuits, so a provision of $100,000 must be accrued.
D) There is a small population of lawsuits, so a provision of $120,000 must be accrued.
8) Which one of the following items is not a liability?
A) Accrued estimated warranty costs
B) Dividends payable in shares
C) Advances from customers on contracts
D) The portion of long-term debt due within one year
9) A company has commenced work on a non-cancellable fixed price construction contract
in the amount of $6 million. Costs of $4 million have been incurred to date, and it is expected
that $3.2 million in additional costs will have to be incurred to complete the contract. The
company adheres to IFRS. Which of the following statements with respect to the contract are
correct?
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