Question

In: Accounting

1. Which of the following entities appears not to be a going concern? a. Company M’s...

1. Which of the following entities appears not to be a going concern?
a. Company M’s management is unable to extend its long-term loan, and, given its losses
in recent years, it is unlikely that it will be able to raise funds through other means to
pay for the loan.
b. Company K’s management intends to liquidate the entity.
c. Company L’s management is being forced to cease the entity’s operations due to a major
change in government policies.
d. None of the three companies is likely to be a going concern.
2. When the classification of items in its financial statements is changed, the entity:
a. Must not reclassify the comparative amounts unless absolutely necessary.
b. Must reclassify comparative amounts, unless it is impractical to do so.
c. Has an unrestricted choice whether to reclassify the comparative amount or not.
d. Must preserve consistency in reporting, and no new reclassification should be allowed.

3. An entity’s equity may decrease during a financial period because:
a. Other comprehensive income was lower than net profit.
b. There was a new share issuance.
c. Total comprehensive income was higher than net profit.
d. Prior-period errors resulted from overstatement of the previous year’s profits.
4. The notes to the accounts can be used for the following, except for:
a. Explaining why a certain accounting standard was not followed.
b. Providing disclosures of items not shown on the face of financial statements.
c. Providing additional breakdown of line items on the face of financial statements.
d. Explaining the accounting policies used.

My answers are b, a, d, d

anything wrong, please correct me.

Solutions

Expert Solution

  • Answer 1

Correct answer = Option ‘D’ None of the three companies is likely to be a going concern.

Company loses its ‘going concern’ status when there exists a doubt that the said the company will no longer exist in the long run. Going concern assumptions assumes that the company will run for indefinite period of time.

All the three companies mentioned are suffering from the doubt that the company will no longer exist in the long run.

Your answer: Option ‘b’

Correct answer: Option ‘d’

  • Answer 2

Correct answer = Option ‘B’ Must reclassify comparative amounts, unless it is impractical to do so.

The disclosure requirement states that when an items is re-classified, comparative amounts are also re classified. This is to facilitates the comparability of financial data.

Your answer = Option ‘a’
Correct answer = Option ‘b’

  • Answer 3

Correct answer = Option ‘d’ Prior period errors resulted from over statement of the previous years’ profits.

This is because when this previous year error is rectified, the retained earnings balance will be reduced. This will reduce the Total stockholder’s equity.

Your answer = Option ‘d’

Correct answer = Option ‘d’

  • Answer 4

Correct answer = Option ‘a’ Explaining why a certain accounting standard was not followed.

When a certain accounting standard was not followed, this is to be mentioned separately. Notes to accounts are used in reference to the amount mentioned on the face of financial statements.

Your answer = Option ‘d’

Correct answer = Option ‘a’


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