MUHASEBE II - Deneme Sınavı - 4

Periodically received interest is recorded as interest revenue of the period in income statement. Additionally, cumulative amount of unrealized gains or losses existing in equity section are transferred to income statement at the time the available for sale debt security is terminated. In other words, gains or losses incurred because of changes in fair value during the holding period, are reported in income statement only when they are realized.

• Ownership Percentage is less than 20% “Available for Sale” or “Trading Security”.

• Ownership Percentage is between 20% and 50% “Affiliate”.

• Ownership Percentage is more than 50% “Subsidiary”.

In an investment process, the investing party is called “investor” while invested company is called as “investee”.

In this case, Heat Corporation should, at first, examine the probability of losing the lawsuit. If it is probable, then the second criteria of measurement reliability is considered. There are three possible cases and three treatments by Heat Corporation;

a. Almost impossible to lose the lawsuit; so does not pay any indemnity – No Liability Reported

b. Probably will lose the lawsuit, however the amount of indemnity cannot be estimated reliably – Liability Disclosed in Footnotes

c. Probably will lose the lawsuit and the amount of indemnity can be estimated reliably – Journalized and Reported in Financial Statements

Suppose that the third option occurs and the experiences from other cases signals that company will pay approximately 30,000 TL as indemnity. Then company must record a liability of 30,000 TL in its balance sheet as well as an expense (for probable loss) in income statement.

The correct answer is D.

a. Almost impossible to lose the lawsuit; so does not pay any indemnity – No Liability Reported

b. Probably will lose the lawsuit, however the amount of indemnity cannot be estimated reliably – Liability Disclosed in Footnotes

c. Probably will lose the lawsuit and the amount of indemnity can be estimated reliably – Journalized and Reported in Financial Statements 

The correct answer is A.

Liabilities have three main characteristics:

• They occur because of a past transaction or event.

• They create a present obligation for future payment of cash or services.

• They are an unavoidable obligation.

The correct answer is B.