Reference no: EM132511850

Question 1. On January 1, 20X2, Socan Inc. issued a five-year note payable for $200,000 and received $190,000 in cash. The note bears interest at 6%, which is paid annually on December 31. There were $5,000 in directly related legal costs which were also paid with respect to the note payable. Socan has classified the note as an "other financial liability." The company has a May 31 year end and reports under IFRS.

What amount of interest expense related to this financial liability will Socan recognize for its 20X2 fiscal year?

a) $4,592

b) $5,327

c) $5,681

d) $6,025

Question 2. On July 1, 20X4, Ritter Inc. issued 5%, 10-year bonds with a face value of $3,000,000. The bonds pay interest semi-annually on June 30 and December 31. At the time of issuance, the required market rate of return was 4%. Ritter paid costs directly related to issuing these bonds of $80,000. Ritter reports under IFRS and classifies the bonds as at amortized cost.

What amount of net proceeds is received on the issuance of these bonds?

a) $2,686,163

b) $3,163,327

c) $3,165,272

d) $3,245,272

Question 3. On January 1, 20X3, Batwana Inc. issued 6%, four-year bonds with a face value of $2,000,000. Interest is paid semi-annually on July 1 and December 31. At the time of issuance, the prevailing market rates for similar bonds was 5%. Transaction costs related to the issuance of this bond totalled $50,000. Batwana follows ASPE and uses the straight-line method to amortize discounts and premiums on its bonds payable. It has a June 30 year end.

What amount of interest expense related to this bond payable will Batwana report for its 20X3 fiscal year?

a) $50,543

b) $57,287

c) $57,538

d) $62,713

Question 4. Fridges Inc. provides a two-year warranty on all refrigerators that it manufactures. Based on expected values, Fridges has estimated that amounts related to the warranty claims for sales made in 20X4 will be $650,000 in the first year following the sale and $400,000 in the second year. During 20X4, Fridges incurred costs for parts and labour of $520,000 for actual warranty claims. Fridges follows IFRS and has a December 31 year end.

What amount of warranty expense will Fridges report for the year ended December 31, 20X4?

a) $ 520,000

b) $ 530,000

c) $ 650,000

d) $1,050,000

Question 5. On January 1, 20X3, BMY Inc. moved into new leased premises and completed significant renovations to meet its needs. At the end of the 10-year lease, the company will be required to remove all its leasehold improvements and bring the space back to what was originally there. BMY has assessed that it will cost $1,000,000 to remove all the improvements at the end of the lease. The appropriate discount rate for this obligation is 4%. The leasehold improvements will be depreciated over 10 years on a straight-line basis.

What is the balance of the decommissioning obligation as at December 31, 20X4, assuming BMY follows IFRS?

a) $ 622,599

b) $ 675,564

c) $ 730,690

d) $1,000,000