Financial Accounting: Liabilities & Equities (FA3) Exam Review

FA3 Exam Review notes Barbara Wyntjes, CGA, MBA, B.Sc.
b. Based on an annual review, CDF Company changed its amortization policy from
straight line to declining balance. How should this change in policy be applied, assuming
that CDF has all of the information required to make the change?
1) Prospectively
2) Retrospectively without restatement
3) Retrospectively with restatement
4) This change should not be allowed
c. Maluk Mining Ltd. spent $3,000,000 developing a silver mine. The $3,000,000 in
development costs was debited to an asset account ―Natural resources — Silver Mine‖.
Maluk estimated that the mine would yield 10,000,000 ounces of silver. Maluk
commenced operations in 2002. During 2002, 2,000,000 ounces of silver were mined.
Early in 2003, a new vein of ore was discovered that contained an estimated additional
4,000,000 ounces of silver. During 2003, 3,000,000 ounces of silver were mined. What is
the amount of depletion expense in 2003?
1) $471,429
2) $600,000
3) $642,857
4) $900,000
j. KYM Corporation discovered an error in its record keeping from the previous year.
Utilities for the month of December were recorded as $2,600 instead of the correct
amount of $6,200. Which of the following journal entries would be made to correct the
error in the current year? Ignore taxes.
1) Utilities expense .................................................................................3,600
Utilities payable .................................................................................. 3,600
2) Retained earnings .............................................................................. 3,600
Utilities payable .................................................................................. 3,600
3) Utilities payable ..................................................................................3,600
Retained earnings ................................................................................ 3,600
4) Utilities payable ..................................................................................3,600
Utilities expense .................................................................................. 3,600
Multiple Choice solutions:
a. 2 $100,000 – $100,000 (4/5) = $20,000; $20,000 / 4 = $5,000
b. 1
c. 2
3,000,000 × $0.20 1 = $600,000
1 Depletion rate in 2002 $3,000,000/10,000,000 ounces = $0.30 per ounce
Depletion base in 2003 $3,000,000 – $600,000 2 = $2,400,000
10,000,000 ounces – 2,000,000 ounces + 4,000,000 ounces = 12,000,000 ounces
Depletion rate in 2003 $2,400,000/12,000,000 ounces = $0.20 per ounce
2 2,000,000 × $0.30
j. 2
20