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Chapter 13: Q3-1ISTQ (page 658)

Which statement is correct regarding IFRS?

(a) IFRS reverses the rules of debits and credits, that is,debits are on the right and credits are on the left.

(b) IFRS uses the same process for recording transactionsas GAAP.

(c) The chart of accounts under IFRS is different becauserevenues follow assets.

(d) None of the above statements are correct.

Short Answer

Expert verified

The correct option is 鈥渂鈥�.

Step by step solution

01

Explanation to correct option

The process of recording the transactions are similar under both GAAP and IFRS. In both the method journal, ledger and chart of accounts are similar.

It includes the following procedures.

  1. Record transactions in appropriate journals.
  2. Posting journals to ledgers.
  3. Prepare unadjusted trial balance
  4. Adjusting journal entries recording
  5. Prepare adjusted trial balance
  6. Prepare financial statements from adjusted trial balance
  7. Recording closing journal entries
  8. Prepare post-closing trial balance (Optional)
  9. Recording of reversing entries and posting it to ledgers (Optional)
02

Explanation to incorrect options

Option a) Under the IFRS, debits are on the left side and credits are on the right side.

Option c) The chart of accounts under IFRS are similar to GAAP.

Option d) Transactions recording procedures are similar under GAAP and IFRS, hence Option b is correct.

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Most popular questions from this chapter

(Fair Value Measurement) Presented below is information related to the purchases of common stock by Lilly

Company during 2017.

Cost Fair Value

(at purchase date) (at December 31)

Investment in Arroyo Company stock \(100,000 \) 80,000

Investment in Lee Corporation stock 250,000 300,000

Investment in Woods Inc. stock 180,000 190,000

Total \(530,000 \)570,000

Instructions

(Assume a zero balance for any Fair Value Adjustment account.)

(a) What entry would Lilly make at December 31, 2017, to record the investment in Arroyo Company stock if it chooses to

report this security using the fair value option?

(b) What entry(ies) would Lilly make at December 31, 2017, to record the investments in the Lee and Woods corporations,

assuming that Lilly did not select the fair value option for these investments?

(Available-for-Sale and Held-to-Maturity Debt Securities Entries) The following information relates to the debt

securities investments of Wildcat Company.

1. On February 1, the company purchased 10% bonds of Gibbons Co. having a par value of \(300,000 at 100 plus accrued interest.

Interest is payable on April 1 and October 1.

2. On April 1, semiannual interest is received

3. On July 1, 9% of bonds of Sampson, Inc. were purchased. These bonds with a par value of \)200,000 were purchased at 100

plus accrued interest. Interest dates are June 1 and December 1.

4. On September 1, bonds with a par value of $60,000, purchased on February 1, are sold at 99 plus accrued interest.

5. On October 1, semiannual interest is received.

6. On December 1, semiannual interest is received.

7. On December 31, the fair value of the bonds purchased February 1 and July 1 were 95 and 93, respectively.

Instructions

(a) Prepare any journal entries you consider necessary, including year-end entries (December 31), assuming these are

available-for-sale securities.

(b) If Wildcat classified these as held-to-maturity investments, explain how the journal entries would differ from those in part (a).

(Multiple-Step and Single-Step Statements) Two accountants for the firm of Elwes and Wright are arguing about the merits of presenting an income statement in a multiple-step versus a single-step format. The discussion involves the following 2017 information related to P. Bride Company (\(000 omitted).

Administrative expense

Officers鈥� salaries \)4,900

Depreciation of office furniture and equipment \(3,960

Cost of goods sold \)60,570

Rent revenue \(17,230

Selling expense

Delivery expense \)2,690

Sales commissions \(7,980

Depreciation of sales equipment \)6,480

Sales revenue \(96,500

Income tax \)9,070

Interest expense $1,860

Instructions

  1. Prepare an income statement for the year 2017 using the multiple-step form. Common shares outstanding for 2017 total 40,550 (000 omitted).
  2. Prepare an income statement for the year 2017 using the single-step form.
  3. Which one do you prefer? Discuss.

(Fair Value and Equity Methods) Brooks Corp. is a medium-sized corporation specializing in quarrying stonefor building construction. The company has long dominated the market, at one time achieving a 70% market penetration. Duringprosperous years, the company鈥檚 profits, coupled with a conservative dividend policy, resulted in funds available for outside

investment. Over the years, Brooks has had a policy of investing idle cash in equity securities. In particular, Brooks has made periodicinvestments in the company鈥檚 principal supplier, Norton Industries. Although the firm currently owns 12% of the outstandingcommon stock of Norton Industries, Brooks does not have significant influence over the operations of Norton Industries.

Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to prepare the 2017 year-endadjusting entries for the accounts that are valued by the 鈥渇air value鈥� rule for financial reporting purposes. Thomas has gatheredthe following information about Brooks鈥� pertinent accounts.

1. Brooks has equity securities related to Delaney Motors and Patrick Electric. During 2017, Brooks purchased 100,000 shares of

Delaney Motors for \(1,400,000; these shares currently have a fair value of \)1,600,000. Brooks鈥� investment in Patrick Electrichas not been profitable; the company acquired 50,000 shares of Patrick in April 2017 at \(20 per share, a purchase that currentlyhas a value of \)720,000.

2. Prior to 2017, Brooks invested \(22,500,000 in Norton Industries and has not changed its holdings this year. This investmentin Norton Industries was valued at \)21,500,000 on December 31, 2016. Brooks鈥� 12% ownership of Norton Industries has acurrent fair value of \(22,225,000 on December 2017.

Instructions

(a) Prepare the appropriate adjusting entries for Brooks as of December 31, 2017, to reflect the application of the 鈥渇airvalue鈥� rule for the securities described above.

(b) For the securities presented above, describe how the results of the valuation adjustments made in (a) would be reflectedin the body of Brooks鈥� 2017 financial statements.

(c) Prepare the entries for the Norton investment, assuming that Brooks owns 25% of Norton鈥檚 shares. Norton reportedincome of \)500,000 in 2017 and paid cash dividends of $100,000.

Within the current liabilities section, how do you believe the accounts be listed? Defend your position.
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