FRA Quiz 3

For a company reporting under IFRS, which of the following events most likely represents low financial reporting quality? The company:

• A. included gains from foreign exchange rate changes in its cost of goods sold.
• B. entered a long-term lease for a customized piece of equipment and classified it as a finance lease.
• C. reported an increase in EPS as a result of the sale of a subsidiary.

• A. Year 1.
• B. Year 2.
• C. Year 3.

• A. Value investors
• B. Growth investors
• C. Market-oriented investors

Penben Corporation has a defined benefit pension plan. At 31 December, its pension obligation is €10 million and pension assets are €9 million. Under either IFRS or US GAAP, the reporting on the balance sheet would be closest to which of the following?

• A. €10 million is shown as a liability, and €9 million appears as an asset.
• B. €1 million is shown as a net pension obligation.
• C. Pension assets and obligations are not required to be shown on the balance sheet but only disclosed in footnotes.

On 1 January, a corporation issues ten-year notes with a face value of €10,000,000 and with annual interest payments made each 31 December. The coupon rate is 2.0 percent, and the effective interest rate is 3.0 percent. Using the effective interest rate method, the amortized discount at the end of year 1 is closest to:

• A. €74,409.
• B. €274,409.
• C. €82,035.

• A. $1,250.
• B. $950.
• C. $1,050.

Which of the following concerns would most likely motivate a manager to make conservative accounting choices?

• A. Attention to future career opportunities
• B. Expected weakening in the business environment
• C. Debt covenant violation risk in the current period

Compared to using a finance lease, a lessee that makes use of an operating lease will most likely report higher:

• A. debt.
• B. rent expense.
• C. cash flow from operating activity.

Which of the following is most likely a lessee’s disclosure about operating leases?

• A. Lease liabilities.
• B. Future obligations by maturity.
• C. Net carrying amounts of leased assets.

• A. $600,000.
• B. $620,000.
• C. $670,000.