2012 Sample Entrance Examination CMA Canada Page 48 41. Answer: d. The correct journal entry when recording an asset impairment under the Revaluation model would include a reduction of the Revaluation Surplus account (up to its original balance) with any remaining impairment being charged to an impairment loss account on the Statement of Comprehensive Income. Choice a) This choice incorrectly charges the entire impairment loss to Retained Earnings. Choice b) While this choice correctly charges $25,000 of the $60,000 impairment loss to Earnings, it does so by incorrectly charging this amount to Depreciation Expense instead of to an impairment loss account. Choice c) The Revaluation Surplus account cannot reflect a debit balance. Thus, the Revaluation Surplus account may be debited only to the extent of any prior credit balance, in this case, $35,000. 42. Answer: b. Net income = $50,000 + $8,000 accrued revenue + $6,000 prepaid advertising campaign - $2,000 interest expense - $7,000 amortization expense = $55,000 Choice a) Neglects to add back the advertising expense: $50,000 + $8,000 - $2,000 - $7,000 = $49,000 Choice c) Ignores the interest expense and accrued revenue, and deducts the advertising expense: $50,000 - $6,000 - $7,000 = $37,000 Choice d) Neglects to deduct the amortization: $50,000 + $8,000 + $6,000 - $2,000 + = $62,000 43. Answer: a. Under ASPE, if an amount is likely and measurable, then a contingent liability should be recorded. If there is a range of amounts and no amount is more reasonable than another within that range, the low range of the amount should be recorded and the range disclosed. Choice b) Incorrectly assumes that, because it is a range, the amount cannot be measured and therefore MOR should only disclose. Choice c) Ignores the fact that a range that is more likely has been presented and that this range should be used. Choice d) Incorrectly assumes that, because it is a range, the amount cannot be measured and therefore MOR should do nothing. 44. Answer: a. Note that this option is currently not “in the money” and therefore is currently of no value to the company. Thus, this option will be recorded at its cost of $1,000 until it is exercised or expires, at which point it will be expensed. Choice b) This choice values these options as a liability of $3 per share but excludes the $1,000 purchase cost of the option. Choice c) This choice values these options as a liability of $3 per share plus the $1,000 purchase cost of the option. Choice d) Options are only expensed once they are exercised or expired.