Question 1ISTQ 1. Which of the following statem... [FREE SOLUTION]

Chapter 5: Question 1ISTQ (page 262)

1. Which of the following statements about IFRS and GAAP accounting and reporting requirements for the balance sheet is not correct?
(a) Both IFRS and GAAP distinguish between current and non-current assets and liabilities.
(b) The presentation formats required by IFRS and GAAP for the balance sheet are similar.
(c) Both IFRS and GAAP require that comparative information be reported.
(d) One difference between the reporting requirements under IFRS and those of the GAAP balance sheet is that an IFRS balance sheet may list long-term assets first.

Short Answer

Expert verified

The correct option is (b) The presentation format required by IFRS and GAAP for balance sheet are similar.

Step by step solution

Definition of GAAP

GAAP defines the principles and rules that must be followed in reporting financial information of the business entity in financial statements. It fully expanded as a generally accepted accounting principle.

The explanation for the correct options

The balance sheet format is different under IFRS and GAAP because GAAP requires current assets to be reported first while business entity using IFRS reports non-current assets first.

The explanation for incorrect options

(a) Yes, balance sheet prepared either under GAAP or IFRS, the assets and liabilities are classified as current and non-current.

(d) Yes, under IFRS, the sequence of reporting items is reversed. Under IFRS, long-term assets are reported first, and under GAAP, current assets are reported first.

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(a) Current assets	(f) Current liabilities
(b) Investments	(g) Noncurrent liabilities
(c) Property, plant, and equipment	(h) Capital stock
(d) Intangible assets	(i) Additional paid-in capital
(e) Other assets	(j) Retained earnings

1. Preferred stock	11. Cash surrender value of life insurance
2. Goodwill	12. Note payable
3. Salaries and wages payable	13. Supplies
4. Account payable	14. Common stock
5. Building	15. Land
6. Equity investment (trading)	16. Bond sinking fund
7. Current maturity of long-term debt	17. Inventory
8. Premium on bond payable	18. Prepaid insurance
9. Allowance for doubtful accounts	19. Bond payable
10. Accounts receivable	20. Income tax payable

Particular	Debit	Credit
Cash	\(197,000
Sales Revenue		\)8,100,000
Debt investment (trading) (at cost \(145,000)	153,000
Cost of goods sold	4,800,000
Debt investment (long-term)	299,000
Equity Investment (long-term)	277,000
Notes payable (Short-term)		90,000
Account payable		455,000
Selling expenses	2,000,000
Investment revenue		63,000
Land	260,000
Buildings	1,040,000
Dividend payable		136,000
Accrued Liabilities		96,000
Accounts Receivable	435,000
Accumulated depreciation 鈥� Building		152,000
Allowance for doubtful accounts		25,000
Administrative expenses	900,000
Interest expenses	211,000
Inventory	597,000
Gain		80,000
Notes payable		900,000
Equipment	600,000
Bonds payable		1,000,000
Accumulated depreciation 鈥� Equipment		60,000
Franchises	160,000
Common stock		1,000,000
Treasury stock	191,000
Patents	195,000
Retained Earnings		78,000
Paid-in-capital in excess of par		80,0000
Total	\)12,315,000	$12,315,000

Inventory	\(52,000	Cost of goods sold	2,100,000
Unearned service revenue	90,000	Note receivable	40,000
Equipment	253,000	Account receivable	161,000
Inventory (Work-in-process)	34,000	Inventory (raw material)	207,000
Cash	37,000	Supplies Expenses	60,000
Debt investment (Short-term)	31,000	Allowance for doubtful accounts	12,000
Customer advances	36,000	License	18,000
Restricted cash for plant expansion	50,000	Additional paid-in-capital	88,000
		Treasury stock	22,000

FONZARELLI CORPORATION
BALANCE SHEET (PARTIAL)
DECEMBER 31, 2018
Assets
Cash		\(100,000
Unclaimed payroll check		27,500
Debt investment (trading) (fair value \)30,000) at cost		37,000
Accounts receivables (less bad debt reserves)		75,000
Inventory鈥攁t lower-of-cost (determined by the next-in, first-out method) or net realizable value		240,000
Total current assets		479,500

Tangible assets
Land (less accumulated depreciation)		80,000
Building and equipment	\(800,000
Less: Accumulated depreciation	(250,000)	550,000
Net tangible assets		630,000

Long-term investment
Stock and bonds		100,000
Treasury stock		70,000
Total long-term investment		170,000

Other assets
Discount on bonds payable		19,400
Sinking funds		975,000
Total other assets		994,400
Total assets		\)2,273,900

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Short Answer

Step by step solution

Definition of GAAP

The explanation for the correct options

The explanation for incorrect options

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