Cisco
CompTIA
ISC
EC-Council
EXIN
Fortinet
ITIL
Juniper
Microsoft
VMware
Avaya
SAP
Google
NVIDIA
Salesforce
Amazon
Palo Alto Networks
ISC2
Splunk
ServiceNow
All Vendors
  2. Home
  3. Exams
  4. IIA
  5. CIA

IIA CIA Exam
Certified Internal Auditor Exam (Page 63 )

Updated On: 12-Jan-2026
Page 63 of 342
PDF with 1702 Questions

.Debtor Bank on a 10-year, 15% note in the amount of US $100, 000, plus US $30, 000 accrued interest_ Because
·-if financial difficulty. Debtor has been unable to make annual interest payments for the past 2 years. and the n-ate is due today. Accordingly. Bank legally agreed to restructure Debtor's debt as follows:
· The US $30.000 of accrued interest was forgiven. · Debtor was given 3 more years to pay off the debt at 8% interest. Payments are to be made annually at year-end. The present value of the payments using the prevailing rate for similar instruments of an issuer with a similar credit rating is US $84.018. At the date of the restructuring. Debtor properly records

  1. A loss of US $30.000.
  2. A gain of US $30.000_
  3. A gain of US $45, 982.
  4. No gain or loss because no extinguishments occurred.

Answer(s): C

Explanation:

Derecognition of a financial liabilityor a part) occurs only by means of extinguishment. This condition is satisfied only when the debtor pays the creditor or is legally released from primary responsibility either by the creditor or through the legal process. An extinguishment and derecognition of the old debt and recognition of new debt occurs when the borrower and lender exchange debt instruments with substantially different terms, that is, when the respective discounted cash flows differ by at least 10%. A substantial modification of terms is also accounted for as an extinguishment. The difference between the carrying amountincluding unamortized costs) of a liabilityor part) that has been extinguished or transferred and the amount paid is included in profit or loss. This transaction qualifies as an extinguishment based on a substantial modification of terms because the discounted cash flow from the old debtUS $130.000 due immediately) and the new debtgiven as US $84.018) differ by at least 10%. Hence, the amount included by Debtor in profit or loss at the date of the restructuring is a US $45, 982 gain$130.000 - $84.018). that is. the difference between the carrying amount extinguished and the amount paidthe present value of the new debt instrument determined by discounting the cash outflows at the prevailing rate for similar instruments of an issuer with a similar credit rating). The entry is to debit the extinguished liability for accrued interest and principalUS $130.000), debit discount on note payableUS $15, 982), credit note payableUS $100.000). and credit gainUS $45, 982).



An entity has a US $100, 000 liability on the books. In 12 months, US $110.000 will be
due. including 10% interest. The entity negotiates settlement of the debt today by exchanging customer receivables with a carrying amount of US $90, 000. What is the journal entry today?

  1. Liability US $110.000
    Receivables US $99.000
    Gain 11.000
  2. Liability US $100.000
    Receivables US $99.000
    Gain 1.000
  3. Liability US $110.000
    Receivables US $90, 000
    Gain 20, 000
  4. Liability US $100, 000
    Receivables US $90, 000
    Gain 10.000

Answer(s): D

Explanation:

An entity may derecognize a financial liability when it is extinguished_ This condition is met when the debtor discharges the debt by paying the creditor, such as with cash. other financial assetse.g.. receivables). goods. or services. Consequently, the liability should be debited for its US $100.000 balance Receivables with a US $90.000 balance are given up. so that account should be credited. The difference is again.



An entity most likely may derecoginize a financial liability if it

  1. Transfers amounts to a trust to be used to repay the obligation.
  2. Exchanges debt instruments with the lender with substantially similar terms.
  3. Exchanges debt instruments with the lender with substantially different terms.
  4. Transfers amounts in a transaction that meets the requirements of an in-substance defeasance.

Answer(s): C

Explanation:

Derecognition of a financial liabilityor a part) occurs only by means of extinguishment_ This condition is satisfied only when the debtor pays the creditor or is legally released from primary responsibility either by the creditor or through the legal process. An extinguishments and derecognition of the old debt and recognition of new debt occurs when the borrower and lender exchange debt instruments with II substantially different terms, that is, when the respective discounted cash flows differ by at least 10%.



If bonds payable with a carrying amount equal to par value are refunded by use of a call provision, the call premium of the refunded issue should be

  1. Amortized over the remaining original life of the extinguished issue.
  2. Amortized over the life of the new issue.
  3. Recognized currently in profit or loss as an extraordinary item_
  4. Recognized currently in profit or loss.

Answer(s): D

Explanation:

An entity should remove a financial liability from its balance sheet only when it is extinguished, for example. when the creditor is paid. The difference between the carrying amount and the amount paid should be included in profit or loss for the period.



Assuming an available-for-sale financial asset that is not part of a hedge is remeasured to fair value at the balance sheet, the gain or loss not arising from foreign exchange transactions or impairment

  1. Must be recognized in profit or loss.
  2. Must be recognized directly in equity.
  3. May be recognized in profit or loss or directly in equity.
  4. Must be recognized in profit or loss if the result is a loss and directly in equity if the result is a gain.

Answer(s): B

Explanation:

A gain or loss on an available-for-sale financial asset that is not part of a hedge is recognized directly in equity through the statement of changes in equity except for impairment losses and foreign exchange gains and losses. The accumulated remeasurement gain or loss is included in profit or loss when the asset is derecognized.



Viewing page 63 of 342
Viewing questions 311 - 315 out of 1702 questions



Post your Comments and Discuss IIA CIA exam prep with other Community members:

Join the CIA Discussion