Reference no: EM132578973

Question 1. Gretta Cat Co. (GCC) has assets at January 1, 20X4, which consist of $8,000 in inventory. It did not have any liabilities at that date. During the year ended December 31, 20X4, GCC sold the inventory for $10,000 cash and distributed $1,000 to the owners by way of dividends. GCC replaced the inventory on December 31, 20X4, at a cost of $8,300. It did not have any other transactions during the year. The inflation rate during 20X4 was 5%. How much profit did GCC make according to the physical (productive capacity) concept of capital maintenance?

A)$1,000

b) $1,600

c) $1,700

d) $2,000

Question 2. The primary objectives of financial reporting are to provide useful, relevant information that faithfully represents an entity's financial position. However, in meeting these objectives, an entity is limited by which of the following?

a) The cost-benefit constraint

b) The going-concern assumption

c) The capital maintenance concept

d) The materiality characteristic 3.

You have been given the following information for Spector Inc.:

• Retained earnings as at January 1, 20X7, were $50,000.
• The statement of comprehensive income for the year ended December 31, 20X7, reported comprehensive income of $12,000 comprising net income of $5,000 and other comprehensive income of $7,000.
• Spector paid out $30,000 in cash dividends during the 20X7 fiscal year. Its dividend payable account increased by $3,000.

What is the balance in Spector Inc.'s retained earnings account as at December 31, 20X7?

a) $22,000

b) $25,000

c) $28,000

d) $29,000

Question 3. Fortsman Inc. began operations on January 1, 20X4. It prepares financial statements in accordance with IFRS. The following is a summary of selected financial information for the year ended December 31, 20X4:

• Equipment was purchased and brought into use on March 1, 20X4, at a cost of $300,000. Fortsman paid $80,000 cash and signed a 3% note for the balance payable in full on March 1, 20X6.
• Fortsman received a $250,000 shareholder loan that was advanced on May 1, 20X4. Interest is payable annually at 5%.
• Fortsman received $150,000 in proceeds from a bank loan that was advanced on June 1, 20X4. Interest is payable monthly on the first of the month at 4% per annum, starting July 1, 20X4.
• Fortsman made interest payments of $8,000 during the 20X4 year.

What amount should Fortsman have reported as interest expense for the year ended December 31, 20X4? For ease of computation, base your interest calculations on whole months outstanding, rather than number of days outstanding.

a) $ 8,000

b) $ 9,333

c) $17,333

d) $19,333

Question 4. You have been given the following information for Zane Corp.:

• Equipment was purchased at a cost of $525,000 on March 1, 20X8, and was ready for use on April 1, 20X8. Zane paid a cash deposit of $25,000 and signed a 7% note for the balance payable in full on March 1, 20X9. The interest rate in the note was the market rate of interest for obligations of this nature. The equipment is estimated to have a seven-year useful life and a $50,000 residual value.
• Zane's depreciation policy is to use the straight-line method to depreciate all equipment, prorating the expense to the nearest full month.

What is the net book value of the equipment held by Zane as at December 31, 20X8? Round each calculation to the nearest whole dollar.

a) $457,140

b) $468,450

c) $468,750

d) $474,105