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Unformatted text preview: CGA-CANADA FINANCIAL ACCOUNTING 4 EXAMINATION June 2004 Marks Time: 4 Hours Notes: 1. All calculations must be shown in an orderly manner to obtain part marks. 2. Round all calculations to the nearest dollar. 3. Narratives for journal entries are not required unless specifically asked for. 4. Assume a December 31 fiscal year-end unless specifically stated otherwise. 5. Assume all amounts are material unless directed otherwise. 6. Assume all companies are public companies unless otherwise noted. 7. Assume no companies use differential reporting unless otherwise noted. 30 Question 1 Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if (1) is the best answer for item (a), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations. Note: 2 marks each a. When consolidated financial statements are prepared, the fair value increment for equipment is amortized over the useful life of this equipment. Which of the following reporting objectives best supports this accounting practice? 1) Earnings prediction 2) Stewardship 3) Adequate disclosure 4) Income tax planning b. When preparing consolidated financial statements, profit on the sale of land from the parent to the subsidiary is eliminated. Which of the following financial statement concepts best supports this accounting practice? 1) Materiality 2) Full disclosure 3) Matching 4) Historical cost Continued... EFA4J04 CGA-Canada, 2004 Page 1 of 10 Note: Use the following information to answer parts (c) and (d). On January 1, 2003, Orange Technologies Inc. issued $1,000,000 face-value, 15-year bonds, convertible into common shares at the rate of 100 shares per $1,000 bond. The bonds had a stated interest rate of 10%, payable annually. The bonds were issued for proceeds of $900,000. The bonds would have been issued for $850,000 if they did not have the conversion feature. c. What is the effective annual interest rate on these bonds? 1) It is less than 10%. 2) It is 10%. 3) It is greater than 10%. 4) It cannot be determined based on the information given. d. What net amount would be reported in the liability section of the balance sheet at January 1, 2003, under the predominant component approach and under the split accounting approach? Predominant Split Component Accounting 1) $ 850,000 $ 900,000 2) $ 900,000 $ 850,000 3) $ 1,000,000 $ 850,000 4) $ 1,000,000 $ 900,000 e. Under the differential reporting section of the CICA Handbook , qualifying enterprises are allowed to use alternative accounting policies for specified transactions. The decision to use the alternative accounting policies will likely be made on the basis of which of the following financial statement concepts?...
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