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For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb CHAPTER 13 NON-FINANCIAL AND CURRENT LIABILITIES SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 2 E 10. 3 E 19. 4 H 28. 8 M 2. 2 E 11. 3 M 20. 4 M 29. 8 M 3. 2 M 12. 3 E 21. 4 M 30. 8 M 4. 3 E 13. 3 M 22. 5 M 31. 9 M 5. 3 M 14. 3 E 23. 5 E 32. 9 M 6. 3 M 15. 3,7 M 24. 5 M 33. 9 M 7. 3 E 16. 4 M 25. 7 M 34. 10 E 8. 3 M 17. 4 M 26. 7 M 35. 10 M 9. 3 M 18. 4 M 27. 7 M 36. 10 H Multiple Choice–Computational 37. 3 E 43. 3 H 49. 5 M 55. 7 M 38. 3 H 44. 3 M 50. 5 M 56. 8 M 39. 3 M 45. 4 M 51. 6 M 57. 8 M 40. 3 M 46. 4 M 52. 7 M 58. 9 M 41. 3 H 47. 4 H 53. 7 H 59. 9 E 42. 3 M 48. 4 H 54. 7 H 60. 9 H Multiple Choice–CPA Adapted 61. 3 M 64. 3 E 67. 5 M 70. 7 H 62. 3 M 65. 4 M 68. 6 M 71. 8 M 63. 3 M 66. 4 M 69. 6 M Exercises 72. 3 M 74. 4 M 76. 5 M 78. 7 H 73. 3 M 75. 4 H 77. 7 H 79. 8 M Problems 80. 2 E 83. 4 M 86. 7 M 81. 3 M 84. 5,8 H 87. 7 H 82. 3 H 85. 7 H 88. 8 M Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 13- 2 Test Bank for Intermediate Accounting, Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 2 1. MC 2. MC 3. MC 80. Pr Learning Objective 3 4. MC 9. MC 14. MC 40. MC 61. MC 73. Ex 5. MC 10. MC 15. MC 41. MC 62. MC 81. Pr 6. MC 11. MC 37. MC 42. MC 63. MC 82. Pr 7. MC 12. MC 38. MC 43. MC 64. MC 8. MC 13. MC 39. MC 44. MC 72. Ex Learning Objective 4 16. MC 19. MC 45. MC 48. MC 74. Ex 17. MC 20. MC 46. MC 65. MC 75. Ex 18. MC 21. MC 47. MC 66. MC 83. Pr Learning Objective 5 22. MC 24. MC 50. MC 76. Ex 23. MC 49. MC 67. MC 84. Pr Learning Objective 6 51. MC 68. MC 69. MC Learning Objective 7 15. MC 27. MC 54. MC 77. Ex 86. Pr 25. MC 52. MC 55. MC 78. Ex 87. Pr 26. MC 53. MC 70. MC 85. Pr Learning Objective 8 28. MC 30. MC 57. MC 79. Ex 88. Pr 29. MC 56. MC 71. MC 84. Pr Learning Objective 9 31. MC 32. MC 33. MC 58. MC 59. MC 60. MC Learning Objective 10 34. MC 35. MC 36. MC Note: MC = Multiple Choice Ex = Exercise Pr = Problem Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13- 3 CHAPTER STUDY OBJECTIVES 1. Understand the importance of non-financial and current liabilities from a business perspective. Cash flow management is a key control factor for most businesses. Taking advantage of supplier discounts for prompt payment is one step companies can take. Control of expenses and related accounts payable can improve the efficiency of a business, and can be particularly important during economic downturns. 2. Define liabilities, distinguish financial liabilities from other liabilities, and identify how they are measured. Liabilities are defined as present obligations of an entity arising from past transactions or events that are settled through a transfer of economic resources in the future. They must be enforceable on the entity. Financial liabilities are a subset of liabilities. They are contractual obligations to deliver cash or other financial assets to another party, or to exchange financial instruments with another party under conditions that are potentially unfavourable. Financial liabilities are initially recognized at fair value, and subsequently either at amortized cost or fair value. ASPE does not specify how non-financial liabilities are measured. However, unearned revenues are generally measured at the fair value of the goods or services to be delivered in the future, while others are measured at the best estimate of the resources needed to settle the obligation. Under IFRS, non-financial liabilities other than unearned revenues are measured at the best estimate of the amount the entity would rationally pay at the date of the statement of financial position to settle the present obligation. 3. Define current liabilities and identify and account for common types of current liabilities. Current liabilities are obligations that are payable within one year from the date of the statement of financial position or within the operating cycle if the cycle is longer than a year. IFRS also includes liabilities held for trading and any obligation where the entity does not have an unconditional right to defer settlement beyond 12 months after the date of the statement of financial position. There are several types of current liabilities. The most common are accounts and notes payable, and payroll-related obligations. 4. Identify and account for the major types of employee-related liabilities. Employee- related liabilities include (1) payroll deductions, (2) compensated absences, and (3) profit- sharing and bonus agreements. Payroll deductions are amounts that are withheld from employees and result in an obligation to the government or other party. The employer’s matching contributions are also included in this obligation. Compensated absences earned by employees are company obligations that are recognized as employees earn an entitlement to them, as long as they can be reasonably measured. Bonuses based on income are accrued as an expense and liability as the income is earned. 5. Explain the recognition, measurement, and disclosure requirements for decommissioning and restoration obligations. A decommissioning, restoration, or asset retirement obligation (ARO) is an estimate of the costs a company is obliged to incur when it retires certain assets. It is recorded as a liability and is usually long-term in nature. Under ASPE, only legal obligations are recognized. They are measured at the best estimate of the cost to settle them at the date of the statement of financial position, and the associated cost is included Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 13- 4 Test Bank for Intermediate Accounting, Tenth Canadian Edition as part of the cost of property, plant, and equipment. Under IFRS, both legal and constructive obligations are recognized. They are measured at the amount the entity would rationally pay to be relieved of the obligation, and are capitalized as part of PP&E or to inventory, if due to production activities. Over time, the liability is increased for the time value of money and the asset costs are amortized to expense. Entities disclose information about the nature of the obligation and how it is measured, with more disclosures required under IFRS than ASPE. 6. Explain the issues and account for unearned revenues. When an entity receives proceeds in advance or for multiple deliverables, unearned revenue is recognized to the extent the entity has not yet performed. This is measured at the fair value of the remaining goods or services that will be delivered. When costs remain to be incurred in revenue transactions where the revenue is considered earned and has been recognized, estimated liabilities and expenses are recognized at the best estimate of the application of the matching concept. 7. Explain the issues and account for product guarantees and other customer program obligations. Historically, an expense approach has been used to account for the outstanding liability, but some recent standards have moved toward the revenue approach. Under the expense approach, the outstanding liability is measured at the cost of the economic resources needed to meet the obligation. The assumption is that along with the liability that is required to be recognized at the reporting date, the associated expense needs to be measured and matched with the revenues of the period. Under the revenue approach, the outstanding liability is measured at the value of the obligation. The proceeds received for any goods or services yet to be delivered or performed are considered to be unearned at the point of sale. Until the revenue is earned, the obligation—the liability—is reported at its sales or fair value. The liability is then reduced as the revenue is earned. 8. Explain and account for contingencies and uncertain commitments, and identify the accounting and reporting requirements for guarantees and commitments. Under existing standards, a loss is accrued and a liability recognized if (1) information that is available before the issuance of the financial statements shows that it is likely (or more likely than not under IFRS) that a liability has been incurred at the date of the financial statements, and (2) the loss amount can be reasonably estimated (under IFRS, it would be a rare situation where this could not be done). An alternative approach likely to be required in new standards being developed by the IASB is described in the Looking Ahead section of the chapter. Guarantees in general are accounted for similarly to contingencies. Commitments, or contractual obligations, do not usually result in a liability at the date of the statement of financial position. Information about specific types of outstanding commitments is reported at the date of the statement of financial position. 9. Indicate how non-financial and current liabilities are presented and analyzed. Current liability accounts are commonly presented as the first classification in the liability section of the statement of financial position, although under IFRS, a common presentation is to present current assets and liabilities at the bottom of the statement. Within the current liability section, the accounts may be listed in order of their maturity or in order of their liquidation preference. IFRS requires information about and reconciliations of any provisions. Additional information is provided so that there is enough to meet the requirement of full disclosure. Information about unrecognized loss contingencies is reported in notes to the financial statements, including their Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13- 5 nature and estimates of possible losses. Commitments at year end that are significant in size, risk, or time are disclosed in the notes to the financial statements, with significantly more information required under IFRS. Three common ratios used to analyze liquidity are the current, acid-test, and days payables outstanding ratios. 10. Identify differences in accounting between IFRS and ASPE and what changes are expected in the near future. Private enterprise and international standards are substantially the same. However, there are some classification differences. ASPE does not address “provisions,” and there are differences related to which decommissioning and restoration liabilities are recognized and how the costs are capitalized, and how the probability and measurement criteria are applied to contingencies. In addition, requires considerably more disclosure. Looking ahead, revisions to the existing standards are being proposed by the IASB and FASB that will likely be applied, at least in part, under CICA Handbook, Part II in the future. The major changes relate to the recognition and measurement standards for non-financial liabilities. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 13- 6 Test Bank for Intermediate Accounting, Tenth Canadian Edition MULTIPLE CHOICE—Conceptual Answer No. Description c 1. Essential characteristics of liabilities c 2. Constructive obligation b 3. Recognition and accounting for financial liabilities a 4. Classification of notes payable d 5. Zero-interest-bearing notes c 6. Refinancing of long-term debts b 7. Identify item that is not a current liability. c 8. Identify the current liability. d 9. Classification of stock dividends distributable a 10. Goods and Services Tax b 11. Identify current liability. c 12. Accounting for GST a 13. Provincial Sales Tax b 14. Corporation income tax d 15. Current liabilities in general - determine false statement c 16. Determine employer’s payroll costs b 17. Accumulating rights to benefits c 18. Accrual of liability for compensated absences b 19. Non-accumulating rights to benefits d 20. Methods of calculating employee bonuses c 21. Definition of a provision d 22. Recognition of an asset retirement obligation c 23. Recognition of an asset retirement obligation a 24. Recording accretion expense for ARO c 25. Revenue approach for product guarantees d 26. Determine false statement regarding warranties b 27. Accounting for premiums and coupons c 28. Recognition of contingencies (ASPE) a 29. Recognition of contingencies (IFRS) d 30. Accrual of contingent liability c 31. Disclosure of commitments d 32. Acid-test ratio elements c 33. Days payable outstanding elements b 34. Essential characteristics of liabilities c 35. Proposed amendments regarding provisions and contingencies d 36. IFRS re customer loyalty programs Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13- 7 MULTIPLE CHOICE—Computational Answer No. Description b 37. Adjusting entry for zero-interest-bearing note d 38. Journal entry for payment of interest-bearing note b 39. Determine amount of short-term debt to be reported. d 40. Determine amount of short-term debt to be reported. b 41. Calculate accounts receivable including sales taxes. c 42. Calculate cost of purchase for own use. d 43. Payment of GST c 44. Adjusting entry for corporate income tax b 45. Calculate payroll tax expense. b 46. Calculate vacation pay expense to be reported. c 47. Calculate accrued vacation pay liability. b 48. Calculate net pay. d 49. Entry for asset retirement obligation b 50. Entry for asset retirement obligation accretion c 51. Adjusting entry for unearned revenue a 52. Expense approach to warranty a 53. Revenue approach to warranty c 54. Calculate warranty liability (expense approach). a 55. Calculate liability for unredeemed coupons. b 56. Determine amount to accrue as a loss contingency. d 57. Determine amount to accrue as a gain contingency. c 58. Calculate quick (acid-test) ratio. d 59. Calculate current ratio. a 60. Calculate days payables outstanding. MULTIPLE CHOICE—CPA Adapted Answer No. Description a 61. Knowledge of accounts payable d 62. Determine amount of short-term debt to be reported. c 63. Calculate accrued interest payable. c 64. Calculate HST collected. a 65. Calculate accrued salaries payable. b 66. Accrual of payroll taxes b 67. Calculate asset retirement obligation. b 68. Determine current and long-term portions of debt. b 69. Calculate unearned service contract revenue. c 70. Calculate liability from unredeemed trading stamps. d 71. Determine range of loss accrual. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 13- 8 Test Bank for Intermediate Accounting, Tenth Canadian Edition EXERCISES Item Description E13-72 Notes payable E13-73 Sales taxes E13-74 Payroll entries E13-75 Compensated absences E13-76 Asset retirement obligation E13-77 Premiums E13-78 Premiums E13-79 Contingent liabilities PROBLEMS Item Description P13-80 Common types of current liabilities P13-81 Accounts and notes payable P13-82 Refinancing of short-term debt P13-83 Employee related liabilities P13-84 Asset retirement obligation P13-85 Premiums P13-86 Warranties P13-87 Unredeemed coupons P13-88 Contingences Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited c. After acquisition. they continue to be accounted for at fair value. Among Oslo Corp. but before the financial statements are released. Regarding zero-interest-bearing notes. Under IFRS. any interest is never recognized until the note is repaid. b.9 MULTIPLE CHOICE—Conceptual 1. even if the entity plans to refinance long term debt. on its most recent statement of financial position date. past or present company practice reveals the entity acknowledges a potential economic burden. 5. b. the debtor receives the present value of the note and pays back the future value. For more Ebook's . long-term liabilities. d. Unauthorized copying. 2. These are 90-day notes. b. d. shareholders’ equity. Copyright © 2013 John Wiley & Sons Canada. the entity is legally obligated to honour the obligation. current liabilities. are usually recorded at their maturity value. renewable for another 90-day period. A constructive obligation arises when a.needbook1. d. b.com/ or contact us at Ebooksmtb@hotmail. deferred charges. The obligation is enforceable on the obligor entity. After acquisition. a. The entity has little or no discretion to avoid the duty. d.Solution Manual Please visit our website : http://www. It embodies a duty or responsibility. which of the following is NOT an essential characteristic of a liability? a. c. b.Test Bank . 3. long term financing has been completed after the statement of financial position date. c.’s short-term obligations. The transaction or event that obliges the entity has occurred. the debtor receives the future value of the note and pays back the present value. distribution. d. Ltd. 6.000 with the Provincial Bank. They are initially recognized at their fair value.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13. such as accounts payable. According to the existing IFRS and the CICA Handbook Part II guidelines. or transmission of this page is prohibited . c. are notes payable totalling $250. These notes should be classified on Oslo’s statement of financial position as a. 4. the current portion must be reported as a current liability UNLESS a. Which of the following statements is NOT true about recognition and subsequent accounting for financial liabilities? a. they are generally accounted for at amortized cost. Short term liabilities. c. they do not have an interest component. the entity makes an unconditional promise to pay money in the future. the entity has a conditional obligation which becomes unconditional if an uncertain future event occurs. distribution. debiting GST Payable to record GST collected from customers. Stock dividends distributable should be classified on the a. at statement of financial position date. short-term zero-interest-bearing notes payable d.needbook1. Which of the following is a current liability? a. trade accounts payable b. Tenth Canadian Edition b. management intends to discharge the debt by issuing shares. statement of financial position as an item of shareholders' equity. 7. tenant’s rent deposit not returnable until the end of a long-term lease 12. and the decision is solely at its discretion. Unauthorized copying. b. For more Ebook's . c. Regarding Provincial Sales Tax (PST) Copyright © 2013 John Wiley & Sons Canada. 13. a liability due on demand (callable debt) 8.Test Bank . the entity expects to refinance under an existing agreement for at least a year. d. d. c. b. stock dividends distributable c.10 Test Bank for Intermediate Accounting. d. crediting GST Recoverable to record GST collected from customers. is a value added tax. b. current portion of long term debt to be retired by non-current assets c. debiting GST Recoverable to record GST paid to suppliers. stock splits 9. c.Solution Manual Please visit our website : http://www. stock dividends distributable b. Accounting for GST includes a. is an income tax. income statement as an expense.com Also you can contact us on Skype: Ebooksmtb 13. statement of financial position as a liability. d. 11. Ltd. preferred dividends in arrears b. crediting GST Payable to record GST paid on inventory for resale. Goods and Services Tax (GST) a. Which of the following may be classified as a current liability? a. is a sales tax charged by each province on all taxable goods. c. Which of the following should NOT be included in the current liabilities section of the statement of financial position? a. or transmission of this page is prohibited . preferred cash dividends payable d. losses expected to be incurred within the next twelve months in excess of the company's insurance coverage d. accounts receivable credit balances c. statement of financial position as an asset. management intends to refinance the debt on a long-term basis. 10. must be collected by all businesses in Canada. in some provinces.com/ or contact us at Ebooksmtb@hotmail. 16.com/ or contact us at Ebooksmtb@hotmail. A liability for compensated absences such as vacations. b. employer portion of CPP/QPP and EI. 14. are rarely mandated by provincial labour law. include vested rights that do not depend on the employee’s continued service. union dues. also apply to proprietorships and partnerships. Copyright © 2013 John Wiley & Sons Canada. are generally accounted for by a. for which it is expected that employees will be paid.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13. d. employer portion of CPP/QPP and EI b. and employee income tax deducted 17. must always be approved by an external auditor. Under IFRS. are rights that do not accrue with employee service. b. employer portion of EI. the entity expects to refinance under an existing agreement for at least a year. a PST registrant “nets” any PST paid against any PST collected from customers. c. at statement of financial position date. or transmission of this page is prohibited . the purchaser includes any PST paid in the cost of the goods or services. the event accrual method. distribution. employer portion of CPP/QPP and EI only d. d. Cash dividends should be recorded as a liability when they are declared by the board of directors. Federal income taxes withheld from employees' payroll cheques should be recorded as a long-term liability. are reviewed and approved by Canada Revenue Agency (CRA). are not accrued as an expense in the period earned.Test Bank . Under the cash basis method. such as parental leave. for statement of financial position presentation. should a. d. 19. Accumulating rights to benefits (for employees) a. For more Ebook's . all PST paid is recorded in a “PST Recoverable” account. b. b. b. c.11 a. c. not be accrued unless a written contractual obligation exists. b. Ltd. Which of the following statements is FALSE? a. 15. d. 18. are always the same under GAAP and Canadian tax laws. Which of the following are included in the employer's “Payroll Tax Expense”? a. a company may exclude a short-term obligation from current liabilities if. the full accrual method. Non-accumulating rights to benefits. d. Corporation income taxes payable a. and the decision is solely at its discretion. union dues c. c. Unauthorized copying.needbook1. c. be accrued during the period when earned.Solution Manual Please visit our website : http://www. employee income tax deducted. all PST paid is recorded in a “PST Expense” account. be accrued during the period when the compensated time is expected to be used by employees. be accrued during the period following vesting. warranty costs are charged to expense as they are paid. a percentage of the employees’ regular pay rates b. a provision is a.needbook1. the cash method. operation of an asset has resulted in an additional obligation such as the cost of cleaning up an oil spill. d. At the time of recognition of an asset retirement obligation. Under ASPE. gross sales 21. added to the related asset cost and recorded as an asset retirement obligation. d. d. b. a liability of uncertain timing or amount. c. Under ASPE. expensed and recorded as an asset retirement obligation. the liability is measured at the value of the services to be provided. c. an asset retirement obligation should be recognized when a. the present value should be a. Using the revenue approach of accounting for product guarantees and warranty obligations a. c. unearned revenue. Unauthorized copying. b. the company’s pre-tax income c. c. there is no effect on future income. financial statement note disclosure only. Ltd. b. d. distribution.Solution Manual Please visit our website : http://www. productivity increases d. an asset is impaired and is available for sale. Under IFRS. it is recognized as a borrowing cost. a special fund set aside to pay long-term debt. but there is no effect on future income. Copyright © 2013 John Wiley & Sons Canada. For more Ebook's . Under IFRS. Tenth Canadian Edition c. it is recognized as an operating expense (but not as interest expense). c. 25. b.com/ or contact us at Ebooksmtb@hotmail. recorded as a separate long-term asset and as an asset retirement obligation. 23. Which of the following statements is INCORRECT regarding the recording of the related increase or accretion in the carrying amount of an asset retirement obligation (ARO)? a. Under ASPE. it is recognized as interest expense. the liability is measured at the estimated cost of meeting the obligation.12 Test Bank for Intermediate Accounting. 22. the company has an obligation to purchase a long-lived asset. 24. d. or transmission of this page is prohibited . expensed to “Asset Retirement Expense” in the period actually paid. b. there is a legal obligation to restore the site of the asset at the end of its useful life. d. Which of the following is generally NOT used as a basis for calculating bonuses or profit sharing amounts? a.com Also you can contact us on Skype: Ebooksmtb 13.Test Bank . 20. the liability is measured at the value of the services to be provided. an allowance for future dividends to be paid. The amount should be calculated using the same discount (interest rate) as was used to calculate the initial present value of the ARO. c. potential income tax refunds 31. the outcome of which can be reliably measured. commitments involving significant risk Copyright © 2013 John Wiley & Sons Canada. it is certain that funds are available to settle the contingency. threat of expropriation of assets b. c. 27. it relates to an asset recognized as impaired after the statement of financial position date. d. d. 30. b. the amount of the loss cannot be measured reliably but it is probable that an asset has been impaired or a liability incurred as of the financial statement date.com/ or contact us at Ebooksmtb@hotmail. distribution. plant and equipment expenditures b. not be recorded at all. the warranty costs may be accounted for using the cash basis.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13. Using the revenue approach. b. large purchases of materials in the normal course of business d. b. it relates to a lawsuit commenced after the statement of financial position date. pending or threatened litigation c. 29. 28. be recorded at the total estimated redemption cost in the year of the related sales. or transmission of this page is prohibited . c. an asset may have been impaired. Unauthorized copying.13 26. Which of the following statements is INCORRECT concerning warranties? a.Test Bank . Ltd. the amount of the loss can be reasonably estimated and it is likely that an asset has been impaired or a liability incurred as of the financial statement date. the amount of the loss can be reliably measured and it is probable that an asset has been impaired or a liability incurred as of the financial statement date. the warranty is provided with the product or service with no additional fee.needbook1. it is likely that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated. The revenue approach must be used for income tax purposes. b. Where warranty costs are immaterial or when the warranty period is quite short. d. d.Solution Manual Please visit our website : http://www. a provision is recognized if a. Using the expense approach. a contingent liability is recognized if a. Under current IFRS requirements. major property. c. Which of the following commitments would NOT require disclosure in the financial statement notes? a. be recorded in the year(s) that the redemption is expected to occur. be recorded at the maximum possible redemption cost in the year of the related sales. d. payments under non-cancellable operating leases c. The current (commonly used) accounting treatment for premiums and coupons requires that the costs should a. the warranty is a separate deliverable from the related product or service. Under ASPE. guarantees of indebtedness of other. Which of the following may NOT be accrued as a contingent liability? a. For more Ebook's . which of the following is NOT an essential characteristic of a liability? a. According to the IASB current proposed definition. d. total current assets. or transmission of this page is prohibited . The numerator of the acid-test ratio consists of a. b. d. For more Ebook's . c. distribution. average trade accounts receivable. The denominator of the days payable outstanding ratio can be a. only conditional obligations are recorded. Ltd.needbook1. c. c. a conditional obligation related to an unconditional obligation is not recognized. b.Test Bank . They are not explicitly addressed. average daily sales. b. and net receivables. b. the term “contingent liabilities” is eliminated.14 Test Bank for Intermediate Accounting. cash and net receivables. Provisions. average daily cost of goods sold.Solution Manual Please visit our website : http://www. There is certainty about the amount of future outflows. 34. 36. Tenth Canadian Edition 32. 33. They are recognized only in the financial statement notes. d.com/ or contact us at Ebooksmtb@hotmail. cash. cash and marketable securities. average trade accounts payable. marketable securities. 35. It represents an economic burden or obligation. liabilities must have measurement certainty. c. What are the current International Financial Reporting Standards regarding customer loyalty programs (such as frequent flyer points)? a. c. b. It exists in the present time. d. The current proceeds are to be split between the original transaction and the award credits (as unearned revenue). The obligation is enforceable on the obligor entity. According to the Exposure Draft of Proposed Amendments to IAS 37. They are recognized only when customers redeem their points. Copyright © 2013 John Wiley & Sons Canada. Unauthorized copying. Contingent Liabilities and Contingent Assets a. d.com Also you can contact us on Skype: Ebooksmtb 13. b 17. b 9. a 35. Item Ans.com/ or contact us at Ebooksmtb@hotmail. b 5. d 36. d 11. d 32. a 30. b 25. c 6. c 2. For more Ebook's . c 7. c 4. d 26.Solution Manual Please visit our website : http://www. b 23. a 19. c 12. Item Ans. c 22. b 33. c 34. Ltd. Item Ans. d Copyright © 2013 John Wiley & Sons Canada. c 29. c 31. d 15.Test Bank .com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13. 1. b 13. a 16. a 10. d 3. Item Ans. c 27. c 24. Unauthorized copying. distribution. b 20.needbook1. c 8. d 21.15 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. Item Ans. c 18. or transmission of this page is prohibited . c 14. d 28. $0. 2015. credit to Note Payable of $270.000 of notes payable with Provincial Bank maturing March 15.300.250.Solution Manual Please visit our website : http://www. credit to Interest Expense for $800. on the December 31. allowing Diogenes Corp. Street borrowed $1. $300.725. debit to Interest Payable of $1.000 of inventory. On December 1. On November 1. Ltd. The adjusting entry prepared on December 31. the amount of the short-term notes payable that should be reported as current liabilities on Street’s December 31. 2015.000. b. the journal entry to record payment of this note on April 1. b. which allows Street to borrow up to $1. 40. has $2.000. 39.750. c. d. debit to Interest Payable of $4.000.000 of the short-term notes payable.000 additional cash to liquidate $1.16 Test Bank for Intermediate Accounting. Street Ltd. b. The maturity value of the note was $81. after issuance of its financial statements for calendar 2013. 2015) is a. Diogenes Corp.000 in short-term notes payable due on February 14.000. debit to Note Payable for $800.250. 2014. On February 2.000.000 at 1% above the prime rate for three years. d. d.needbook1. 2013 statement of financial position is a.com Also you can contact us on Skype: Ebooksmtb 13. $2. borrowed $270.000.000 from Regal Bank and used $500.200. 2014.000 and prohibits the payment of dividends on common shares without prior approval by Gigantic. The agreement with Gigantic also requires Diogenes to maintain a working capital level of $9. Street arranged a line of credit with Regal Bank. zero-interest-bearing note for the purchase of $80. or transmission of this page is prohibited . to borrow up to $6.700. $6. Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of the loan. Assuming Corby has a December 31 year end and does NOT use reversing entries. On December 31. 2014 in connection with this note will include a a.Test Bank . Unauthorized copying. signed a three-month. 2014.000 under the agreement with Gigantic and pay off the notes payable to Provincial. b. entered into a financing agreement with Gigantic Bank. based on the bank’s discount rate of 6%. c. Assuming Street adheres to IFRS.000. Diogenes presently has $2. distribution. From the above information only. $3. c. For more Ebook's . debit to Interest Expense of $6. the total short-term debt of Diogenes Corp. 2014.000. Corby Ltd.575.200. debit to Interest Expense for $1. $0.000. c. by signing a four- month.000 at any time through 2016.com/ or contact us at Ebooksmtb@hotmail. Tenth Canadian Edition MULTIPLE CHOICE—Computational 37. $1. 2015 will include a a.200. The company intends to borrow $3. On February 10.000 from their bank. On January 10. 7% interest bearing note. 38. 2014 statement of financial position (to be issued on March 5.500. 2015.000. Copyright © 2013 John Wiley & Sons Canada.000. 2015. credit to Note Payable for $800.200. Best Corp. 80 d. b. 41.750 b. or transmission of this page is prohibited . d. $78. GST Recoverable. Based on the above information.960 c. Manganese Corp. For more Ebook's .028. $39. $1.725 c. The total payroll of Carbon Company for the month of October was $240.750. The employer matches the employee deductions and contributes 1.500 worth of Office Supplies for their own use. Ye Olde Shoppe sold $90. Cr Income Taxes Payable $21. $59. $488.17 d. At year end. $2. What amount will be debited to the Office Supplies account as a result of this transaction? a. $600.000. The purchase is subject to 8% PST and 5% GST.needbook1. Unauthorized copying.750. Dec 31. has made a total of $23.085 43. $24.028. what is the total debit to Accounts Receivable for the month of May? a.Solution Manual Please visit our website : http://www.000 worth of goods to customers. $4. Ye Olde Shoppe operates in a province with a 6% PST. At December 31. Dr Current Income Tax Expense $21.95% and EI deductions of 1. Dr Income Taxes Receivable $1. What amount should Carbon record as employer payroll tax expense for October? a. Cr Current Income Tax Expense $1. credit to GST Recoverable of $488.750 d. $36.000.500.750 c.250 in instalments for corporate income tax for calendar 2014.500 45. 60% of which were cash sales and the balance being on account. $16.00 b. Dr Income Taxes Payable.500. As well.000 in federal income taxes and $6. all subject to CPP deductions of 4.028.83%. $625. Aluminum Ltd. credit to Cash of $600.800 d.4 times the employee EI deductions. Cr Income Taxes Payable $1. buys $4.500 b. credit to GST Payable of $600. a GST registrant.000 of union dues were withheld. $37. $4. $60. For the month of May. all of which have been debited to Current Income Tax Expense.272. GST Payable.80 c. debit to GST Payable of $112.Test Bank .860 d.’s records show the following balances. 2014.750. The journal entry to record this payment will include a a. Cr Current Income Tax Expense $1. Dr Current Income Tax Expense $1. $18. the accountant has calculated that the corporation’s actual tax liability is only $21.000 42. all of which are normal: PST Payable. In January 2015. 44.com/ or contact us at Ebooksmtb@hotmail. The store must also collect 5% GST on all sales. distribution.000. Zircon Ltd.80 Copyright © 2013 John Wiley & Sons Canada.. What is the correct adjusting entry to reflect this fact? a. 2014.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13. Ltd.940 b. Manganese pays the Federal Government the net amount owing regarding GST owing from December. c. $5. $4. ..Solution Manual Please visit our website : http://www.83% Employee income tax .... d.... $39.. 5% of gross salaries and wages Union dues deducted . distribution... 2014......... $34.. the NET pay for this period is a... $ 72.... Ltd...460 d. $66.... Antimony Inc...... $37..25 10 10 Silver has chosen to accrue the liability for compensated absences (vacation pay) at the current rates of pay in effect when the vacation pay is earned.......... On January 1.....Test Bank ...... $47. For more Ebook's ......... $67. Therefore.. the company began a program of granting its employees 10 days paid vacation each year............420........18 Test Bank for Intermediate Accounting....900 b.........needbook1.. What is the amount of the Vacation Wages Payable that should be reported at December 31. 2016? a. b.. deducted $20.. $100.. has 35 employees who work 8-hour days and are paid hourly.... $68.. $45.... 2015.. 4.. Unauthorized copying.....50 10 8 2016 14....440 d. or transmission of this page is prohibited .’s payroll for the period ending March 22 follows: Gross salaries and wages ... Information regarding Oxygen Inc...................... Information relative to these employees is as follows: Hourly Vacation Days Earned Vacation Days Used Year Wages by Each Employee by Each Employee 2014 $12....com Also you can contact us on Skype: Ebooksmtb 13. Use the following information for questions 49–50.420 c. Tenth Canadian Edition Use the following information for questions 46–47...... $47. and is required by provincial law to Copyright © 2013 John Wiley & Sons Canada.........com/ or contact us at [email protected]% EI rate ........ Vacation days earned in 2014 may be taken starting on January 1.... What is the amount of vacation pay expense that should be reported on Silver’s income statement for 2014? a...880 48.800 b...220.90 10 0 2015 13.... $36..............120 c........... Silver Ltd. developed a new gold mine during 2014.......690.. $ 0 47... 1.000 Company pension deducted ...... $ 800 Assume 100% of the gross salaries and wages are subject to CPP and EI..360 c.. 46..000 CPP rate . .......000 Asset Retirement Obligation ............. Cr Accounting Revenue $1.. c...000 50........................ 2014........ The required adjusting entry at December 31............ $120........ the car is returned for warranty repairs... To the nearest dollar.......Test Bank ...540 Asset Retirement Obligation .... 1...............540 c..... Potassium Corp.............. Cr Accounting Revenue $3.... Unauthorized copying........ 93..500.............com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13....... 250........... the entry to record the asset retirement obligation is a........540 d.... Gold Mine . Ltd........ Accretion Expense .... 250............. 250..... CGA.... Dr Unearned Revenue $1.......... Zero... To the nearest dollar.....540 51............ 93..................... Gold Mine ..... On March 12.. 93....................................559......... 49.000.000 b. 1...... 93..................................000...................................000 Asset Retirement Obligation ....19 restore the site to its previous condition once mining operations are completed...... c.. Dr Accounting Revenue $3... received $5. 93...... They sell a used car for $30... Cr Unearned Revenue $3......500.................500............. Antimony uses a 6% discount rate...000.................................. Platinum Corp.....000 c... The payment was credited to Accounting Revenue. Platinum would debit Warranty Expense with a. and the appropriate adjusting entry is recorded at Dec 31......500..... Warranty expense is estimated at 2% of the selling price...... distribution......541 Asset Retirement Obligation ..... When recording the March 12........ 53.......... with the rest to be done in January 2015............... 93. 2014.............540 Asset Retirement Obligation .000.... at which time the customer will be billed.......... Interest Expense .............. d..... Restoration Expense .......541 b.............................................. Accretion Expense ...... the adjusting entry to record accretion at the end of year one is a........................ The company estimates that the mine will close in 20 years and that the land restoration will cost $5.....com/ or contact us at Ebooksmtb@hotmail.............. On Dec 12...... 2015 transaction. 2014...... $200.. Cr Unearned Revenue $1......... uses the revenue approach to account for warranties........ Dr Accounting Revenue $1.......000 from a customer as an advance payment for accounting work to be done............ 93..... or transmission of this page is prohibited ..... 250.. with a one year warranty covering parts and labour.500.......... 52.......... 93................... During 2014.........540 Asset Retirement Obligation ...... b. This cost Platinum $200 in parts and $120 in labour. Gold Mine .. the Copyright © 2013 John Wiley & Sons Canada........ Restoration Expense ..................559..................................Solution Manual Please visit our website : http://www..500... Dr Unearned Revenue $3. Ivory Coast.000 Asset Retirement Obligation ....000 Asset Retirement Obligation ..... For more Ebook's ................ d.000 on Oct 25. 5......... 5.......... b.needbook1............ 2014 (year end) is a........... 2015....................500.............. $320......500......000 d................................ Thirty percent of the work was performed in December 2014...... uses the expense approach to account for warranties... Unauthorized copying. $28. using ASPE.700 d.Test Bank . distribution. c.Solution Manual Please visit our website : http://www.com Also you can contact us on Skype: Ebooksmtb 13. Krypton Foods distributes coupons to consumers which may be presented.000. $0. began selling a new line of products that carry a two-year warranty against defects. Assuming that Potassium incurred costs of $3.000. 56.000 Hydrogen uses the expense approach to account for warranties. Asbestos's lawyer states that it is likely the corporation will lose the suit and be found liable for a judgement which may cost Asbestos anywhere from $300.000 to $1. Asbestos Corp. or transmission of this page is prohibited . d. In 2014.000 30. b.000 54.000.000 Jul 1/14 360. In Krypton's experience. what is the net warranty revenue (revenue minus warranty costs) for 2015? a. During 2014.000 55. What is the estimated warranty liability at the end of 2015? a.500 b.000 Actual warranty expenditures 15. Hydrogen Corp. $4. $1.300 c.700 to service the warranties in 2015. Ltd.500 d. Tenth Canadian Edition company sold $500. $43.500. $180. As a result of the above facts. Based upon past experience with other products.000 $600. on or before a stated expiry date. to grocery stores for discounts on certain Krypton products.000. 2014 statement of financial position should include a liability for unredeemed coupons of a. It was estimated that 2% of the selling price represented the warranty portion. However. $30. and 40% to 2015. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals. $62. Krypton issued two separate series of coupons as follows: Coupon Amounts Reimbursed Issued On Total Value Expiry Date as of Dec 31/14 Jan 1/14 $250.needbook1.000. Their December 31. and that 60% of this related to 2014. only about 50% of these coupons are redeemed. the lawyer states that the most likely cost is $900. For more Ebook's . $3.com/ or contact us at Ebooksmtb@hotmail. the estimated warranty costs related to dollar sales are as follows: First year of warranty 2% Second year of warranty 5% Sales and actual warranty expenditures for 2014 and 2015 are presented below: 2014 2015 Sales $450. $300 b.000 Krypton’s only journal entries for 2014 recorded debits to coupon expense.000 Jun 30/14 $118. $12. $73. Copyright © 2013 John Wiley & Sons Canada.500 c.000 Dec 31/14 150. and credits to cash of $268. The stores are reimbursed when they send the coupons in to Krypton.000.20 Test Bank for Intermediate Accounting.000 worth of products. all of which carried a two year warranty (included in the price). .. a loss contingency of $900......... 2014.. a loss contingency of $900..... 59.... d... To two decimals............ has a current ratio of a....com/ or contact us at Ebooksmtb@hotmail....... 122..000........ no loss contingency but disclose a contingency of $300. 220...........000 Inventories .............500..000 Total current assets... 2014....... c....Solution Manual Please visit our website : http://www.....................000 to $1....... estimated residual value was $6...... At January 1..700 Accounts payable .. 14......... At December 31.............. 60. and fair value was $160......000 but not disclose any additional contingency.. $160....................000 Common shares ....000 Prepaid expenses ..000 against Argon in favour of Neon....27........300 Plant and equipment (net) .000 d.000 c... uncertain...... Lee Kim Inc..500 Accounts receivable .....000.Test Bank .. $0 58..48....000 Accounts receivable ... 57............. d.000 b.... 10.000....... b. 20....... 150......000 Marketable securities ....... what amount should Neon accrue for this gain contingency? a..... the final outcome of this case was awaiting appeal and was....... On January 4.000 and disclose an additional contingency of up to $1.... Neon Corp....................000 Inventory . Ltd...200........ owned a machine that had cost $100. $560..........’s actions and was written off as worthless... 50..........000 and disclose an additional contingency of up to $600........ Copyright © 2013 John Wiley & Sons Canada........ in the opinion of Neon's attorney.... or transmission of this page is prohibited . a court awarded damages of $160.... ... Lee Kim Inc.... 5......'s most recent statement of financial position includes Cash ...... 2014.......60.. $130.......... 20..63.....com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13...000 Retained earnings .30.80.... $100.000.... . c.... For more Ebook's ... Argon's appeal will be denied... $7......000 Total current liabilities are $100... c.....000...... At December 31.......: Current Assets Cash ....... In October 2014......needbook1...... 2.... Radon’s acid-test ratio is a. 1. 5......... 13.....500 To two decimals.. The accumulated depreciation to date was $60.. Unauthorized copying....... a loss contingency of $300...... ... b.000 Long term bonds payable ... this machine suffered major damage due to Argon Corp... b... 2014.000.36....000......... However............. $ 8. distribution......21 Asbestos should accrue a.. therefore.. Presented below is information available for Radon Corp...... 73............000...... . Ltd.....6 days.............000 79......... provides the following information for 2014 and 2015: .... 46....000 Sales ............. d.... Helium’s days payable outstanding for 2015 is a.. 48.Test Bank ................... 2014 2015 Current assets .. Helium Corp... 2. 75.. 50. Tenth Canadian Edition d...... Unauthorized copying.000 62..600 To one decimal......20. c....000 Cost of goods sold ...needbook1.............2 days.. b.............2 days.....7 days........... or transmission of this page is prohibited ............Solution Manual Please visit our website : http://www. $23........... 5..com/ or contact us at [email protected] Accounts payable ....com Also you can contact us on Skype: Ebooksmtb 13. 47.. 125.. Copyright © 2013 John Wiley & Sons Canada......000 Other current liabilities ................ distribution............. 60..........000 $27.... 43..22 Test Bank for Intermediate Accounting. 9..............000 Non-current liabilities .....000 10... For more Ebook's ..000 135.........000 4....... b $2. Ltd.600 ÷ 365 Copyright © 2013 John Wiley & Sons Canada.000 (no agreement in place at year end) 40.000 x 40% x 1.120 47.000 x (.000 and $600.500 x 1. c $4. a $500. Item Ans.000 60. Item Ans. c ————————————— = 2.000 × . a 57. For more Ebook's . d 38.000 56.559.000 – $30. d $2.5) – $150. b $80.25 × 8 × 10 × 35) + ($13. Item Ans. d To clear GST Recoverable account 44.20 14.000 + 13.000 + 9. d 42. gain contingencies are not accrued 58. Answer Derivation 37.000 = $28. distribution. b $100.6 days 79.000) ÷ 2 = 43.000 × 4. b 45.0495 + .000 + $122. Unauthorized copying.000 8000 + $150. b 52.83% × 1.540 51.860 43.000 – $800 = $67. d 53.000 x 2% x 40% = $4.420 49. c 39.50 × 8 × 2 × 35) = $47.028. c [$450.80 46.250 – $21.000 x 6% x 2 ÷ 12 = $800 38.960 42.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13.250.559.05)) – $20. c ($14.000 – (100.90 × 8 × 10 × 35 = $36. a ($360.300. b $900. = 2.700 costs = $300 54. Item Ans.23 MULTIPLE CHOICE ANSWERS—Computational Item Ans.Test Bank .000 57. c Remove 70% of revenue and transfer to liability 52. d 7. a Debit is to the liability account.000 – $3.000 × 1. a DERIVATIONS—Computational No. d 40.80 $100.95%) + ($240. b 41. c 48. c 46.575. not the expense acct 53.500 55.000 x 6% = $93.000. c 55. b 54. d 44.com/ or contact us at [email protected] = $30.000 x 7% x 1 ÷ 12 = $1.11 = $39. c 58. c 51.08 = $4. b $1. c $23. b $90. Item Ans.000 59.460 48.needbook1. b 49. 39. 37. b 43. b 60.000 × .4) = $18.Solution Manual Please visit our website : http://www.750 overpaid = Income Taxes Receivable 45. b $12. d $0.000 (no agreement in place at year end) 41. d 47. d Interest payable that would have been recorded at Dec 31/14 $278.07] – $15. b ($240.000 50. a (10.500 = $1.000 + $600. b 50.500 + 10. a 56. a 59.0183 + . d 20 N 6 I 5000000 FV CPT PV => $1. or transmission of this page is prohibited . b. $48. 63. or transmission of this page is prohibited . d. Coffee should record accrued interest payable of a. on which 70% were charged 13% HST.000 beginning April 1.000. Ltd. payable in six equal annual instalments of $100. b. for some they only have to charge 5% HST. d. $250. were the following: 4% note payable issued October 1. Included in Harrison Inc.700. 2014. No Yes c. Jordan Corp. maturing September 30. 2015. $18.000 6% note payable issued April 1. $72. The total amount of HST collected in June was a. Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted 61. while a very few are tax exempt.Solution Manual Please visit our website : http://www. On this date. b. payable in three equal annual principal payments of $600.’s account balances at December 31.000. 25% were charged only 5% HST.000. 2014.000 Harrison’s December 31. 2014 financial statements were to be issued on March 31. 2014 statement of financial position. In addition. $0. 2015. the amount of the notes payable that Harrison should classify as current liabilities is a.000. $44. Harrison made arrangements to refinance the 4% note on a long-term basis. Copyright © 2013 John Wiley & Sons Canada. selling a variety of goods.24 Test Bank for Intermediate Accounting. During June of this year. Which of the following is generally associated with current liabilities classified as accounts payable? Periodic Payment Secured of Interest by Collateral a. 2015 600. 2014. c. $350. Unauthorized copying. and the rest were tax exempt sales.000. $100.000. on the December 31.needbook1.200. At December 31. on March 10.com Also you can contact us on Skype: Ebooksmtb 13.000. For most of these goods. 2015 $250. Yes Yes 62. $26.com/ or contact us at Ebooksmtb@hotmail. operates in Ontario. 64. the company reported sales of $200. distribution.000.000. the bank's prime rate was 11%. 12% note to Humungous Bank. Yes No d. For more Ebook's . d. 2015. Under IFRS. Coffee Ltd.000. issued a $1. On September 1. c. 2015. the entire $600. 2015.000. Jordan must charge 13% HST. $20. 2014. No No b. $10.Test Bank . The first payment for interest and principal was made on September 1.800. On January 15.000 balance of the 6% note was refinanced by issuance of a long-term note to be repaid in 2015.000. $66. c. .. $135..95% each Employment Insurance 1...000. Canuck Oil estimates this asset retirement obligation (ARO) will cost $200.com/ or contact us at Ebooksmtb@hotmail. 2014. 875..000 $90.000.. For more Ebook's .. Assuming a 5% discount rate.000 covering the first two years rent of $180..000 $22.. $120.Solution Manual Please visit our website : http://www. $ 6.. $126. leased a building to Candle Corp... What portion of the $360.000 2. 2014..com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13.000 $66... 91.... 68.... for a ten-year term at an annual rental of $90. $ 5. 2014. Browning Company's salaried employees are paid biweekly.83% for employee 1. This deposit will NOT be returned to Candle upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. 2014 statement of financial position? Current Liability Long-term Liability Copyright © 2013 John Wiley & Sons Canada. $295..000 3..Test Bank . or transmission of this page is prohibited . On January 1. to the nearest dollar.25 65.070 67..102 d.... Ltd. purchased an oil tanker depot for $1. what amount should Willow accrue as its share of payroll taxes in its October 31.4 times employee premium for employer To the nearest dollar. At the inception of the lease..000 Office 18. in Wick's December 31. at which time they will be legally required to dismantle the structure and remove the underground storage tanks. Wick Ltd...000 At December 31. 2014 is summarized as follows: Amount of Wages Subject Department Total Income Tax to Payroll Taxes Payroll Wages Withheld CPP/QPP EI Factory $ 75... 910.'s payroll for the period ended October 31. Wick received $360... Unauthorized copying.000 cash..000 Salaries expense for 2014 .. what amount should Browning report for accrued salaries payable? a. $150..000 — $115.....200.000 16...000 b. d..000 2.000 c.368. c... The company expects to operate this depot for eight years. $91. b.needbook1.000. $ 25. Canuck Oil Corp..000 $10.000 8.000. Information relating to salaries for the calendar year 2014 is as follows: Accrued salaries payable . distribution.000.. Willow Corp.000 $15.000 Salaries paid during 2014 (gross) . On April 30. $35..000 Sales 22... $ 4..070 c. the amount to be recorded as the ARO is a..491.000 d.000 $24... $20.000 should be shown as a current and long- term liability..000 66.000 and a security deposit of $180. respectively.894 b. 2014 statement of financial position? a.000 Assume the following payroll tax rates: CPP/QPP for employer and employee 4.... .000 c. records trading stamp revenue and provides for the cost of redemptions in the year stamps are sold to licensees. This account had a balance of $600..000 $90.750.. the mean of the range. zero. Tenth Canadian Edition a. No single amount within the range is a better estimate than any other amount.650... the loss accrual should be a.000. Service contract costs are charged as incurred to the service contract expense account. $2.. $300..000 d.....000 b.000 Cost of redemptions .000 at December 31. or transmission of this page is prohibited . b..350... $415. What amount should Jackpine report as a liability for stamp redemptions at December 31.650.000 $ 90.. Jackpine Trading Stamp Co. Additional information for 2014 is as follows: Stamp revenue from stamps sold to licensees ...000 What amount should be reported as unearned service contract revenues in Woodwards’ December 31..400...000 70.. $ 90. $180. Jackpine's liability for stamp redemptions was $3. 1. two-year. 2014.000 at December 31..Solution Manual Please visit our website : http://www.com Also you can contact us on Skype: Ebooksmtb 13. c...com/ or contact us at [email protected] d... the maximum of the range..... $2........ $275. Under ASPE.. 2013. 2013 before year-end adjustment... the redemption cost would be $1. which had a balance of $150.000 c. d... $180.000 b.... Outstanding service contracts at December 31.000 71.Test Bank ...needbook1.. Harriet Ltd....000 If all the stamps sold in 2014 were presented for redemption in 2015.. $3... $2. Unauthorized copying.000 at December 31.. Jackpine's past experience indicates that only 75% of the stamps sold to licensees will be redeemed.. has a likely loss that can only be reasonably estimated within a range of outcomes. $1.000.. the minimum of the range..... The service contracts are for a one-year. 2013 expire as follows: During 2014 During 2015 During 2016 $125. 2014? a.000 c. Ltd.000.. $ 0 $360..26 Test Bank for Intermediate Accounting.000...... Cash receipts from contracts are credited to unearned service contract revenues. 2013 statement of financial position? a.000 $180..... or three-year period.000 $180. distribution.000 69. $450... Copyright © 2013 John Wiley & Sons Canada.000 b...000 $200.... For more Ebook's ..000 d. Woodwards Store sells major household appliance service contracts for cash.. 000.000 × .000.0495) + ($24.4) = $5. 61. c ($1.Test Bank .000 + $200.700 65.000 × . Ltd. c DERIVATIONS—CPA Adapted No.000 64.000 70. b 69.000 = $126. c $3. a 67.000 x 5% x 25%) = $20.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13.000 – ($1. Item Ans. 62. Item Ans. b $125.000 – $600.350. b $90.000 = $350. a Conceptual—accounts payable generally are zero-interest-bearing and unsecured. d 64.000 63. b 68.000 (50% to be earned in 2015) and $180.000 x 75%) = $2.000.000 + 100. c ($200.400.Solution Manual Please visit our website : http://www. Item Ans. Unauthorized copying. b 71. c 66. For more Ebook's .070 67. distribution.000 – $875. a 63. d Conceptual Copyright © 2013 John Wiley & Sons Canada.000 71.000 x 13% x 70%) + ($200. a $910.needbook1.12 × 4 ÷ 12 = $48. or transmission of this page is prohibited .000 = $415.000 + ($2. d 250.com/ or contact us at [email protected] × 1. b 8 N 5 I/Y 200000 FV CPT PV => $135. b ($90.800. c 65.000 66.000 + $90.000 × 75%) – $1.000) × .27 MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.000 (security deposit) 69. b 70. d 62. Answer Derivation 61.000 + $91. Item Ans. Item Ans.368 68. .... Tenth Canadian Edition EXERCISES Ex... Prepare the entry to record the refinancing............... The EI rate is 1.. 14............... Solution 13-73 Accounts Receivable (280... by paying $180.. Instructions a... Ltd..11 x 40%) ..........11 x 60%) .....000 interest.. 52.......000...............320 Cash (280..83% for the employee and 1...................................000 Interest Expense ..600 x 9% x 4 ÷ 12) ... Parry Sound Sales Ltd....needbook1..400 b.. Kamloops Corp.....000 PST Payable (280..... Notes Payable .... if necessary) a............... the bank deducted 9% from the $160.......................Test Bank .........000)......000 plus $18.. Interest Expense ($145...95% for both the employee and employer...............000 GST Payable (280..................... The company is required to charge 6% PST and 5% GST on all sales.000 in sales...368 Ex...........000 x 6%) ........000 x 91%) . 2013).com Also you can contact us on Skype: Ebooksmtb 13........... Instructions (Round all values to the nearest dollar... 145...........368 Notes Payable ...... Prepare the entry to record the employer payroll taxes.... 13-72 Notes payable On August 31....... The CPP/QPP contributions are 4.................. 124..... 2014........................ 4.......................... 4....... Kamloops used $52............400 cash and signed a new one- year..................Solution Manual Please visit our website : http://www....... b........ 18..000 Notes Payable ($160. Unauthorized copying............... paid the Regal Bank part of an outstanding $300........ 16.. 40% of which were on account (terms N30)........000 x 5%) .....480 Sales Revenue ......... 2014 in connection with the new zero-interest- bearing note.... 180... 13-74 Payroll entries The total payroll of Lyndon Inc...............600 Cash ..................4 times the employee premium for the employer...................000 long-term 10% note payable obtained one year earlier (August 31. Prepare the adjusting entry at December 31... For more Ebook's .....000 note discounted at 9% by Regal (i...... b..............000 x 1. In order to do this.....28 Test Bank for Intermediate Accounting... Copyright © 2013 John Wiley & Sons Canada........................... zero-interest-bearing $160............... Income taxes withheld were $55....... 186..com/ or contact us at Ebooksmtb@hotmail........... Prepare the journal entry for the wages and salaries paid.......... 280..000.... was $230..... distribution............ and 60% of which were cash sales....13-73 Sales taxes For the month of November...... Solution 13-72 a............. Instructions Prepare one journal entry to record the company’s sales for November...............800 Ex..e.......... recorded $280. or transmission of this page is prohibited .000 x 1.. .................................29 Solution 13-74 a......... 14....... For more Ebook's .....................400 1 15 × 8 × $12.........75 × 9 = $13...... 11......385 Cash ......... Unauthorized copying.... the Grouse Mine.............4) ................................... 11.. Vacation days may be taken after January 10 of the year following the year in which they are earned.......... 2014.. 12.........................................960 3 15 × 8 × $12................00 × 10 = $14......... and began production on January 1..................406 b........... The company employs 15 people who work 8-hour days.................. Payroll Tax Expense .....................75 x 10 = $15.. 13-75 Compensated absences Sycamore Ltd. 15.... distribution..............................209 × 1.400. 4.....com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13................ The average number of vacation days used by each employee in 2015 was 9...........95%) . or transmission of this page is prohibited ........13-76 Asset Retirement Obligation Tin Mines International Ltd... 2015 Wages Expense ............... 159.......................... Ltd...............00 in 2014 and $12...Solution Manual Please visit our website : http://www........................................ Wages and Salaries Expense .... The average hourly wage rate was $12.........000 x 4......................... 5...300 2 $14.. 15... 55.................... began operations on January 2....... Instructions Copyright © 2013 John Wiley & Sons Canada.. at which time it will cost $25..........000 x 1............ 2014... 810 2 Vacation Wages Payable ................................. The province requires mining companies to return the land to its natural state at the end of mining activity... Sycamore accrues the cost of compensated absences at rates of pay in effect when earned...........com/ or contact us at [email protected] CPP/QPP Payable ($230......................960 3 Cash ............... Tin Mines International uses an 8% discount rate..770 4 $15 × 8 x $12................................................. Solution 13-75 2014 1 Wages Expense ... 230.........385 Ex...needbook1....000 Employee Income Tax Deductions Payable .....Test Bank ..278 EI Payable ($4........ 17.. 13...000 EI Payable ($230.........300 Vacation Wages Payable ..... Instructions Prepare journal entries to record the transactions related to paid vacation days during 2014 and 2015........................83%) ........... Tin Mines International estimates that it will operate the mine for 25 years................ Each employee earns 10 paid vacation days annually.............400 ÷ 10 × 9 = $12.000 for the land restoration project.....75 in 2015.300 Ex........................893 CPP/QPP Contributions Payable .. 14.............. and follows ASPE.....400 Vacation Wages Payable ...................................770 4 Wages Expense ......................................000... discovered a new iron ore deposit.. ..... distribution...Solution Manual Please visit our website : http://www.000 Asset Retirement Obligation ...... assuming all the coupons expected to be redeemed from Year One were redeemed by the end of Year Two.... 292.. 2014.....00 cash.........000 $3.. 13-77 Premiums Modern Music gives its customers coupons which are redeemable for a poster plus a Hens and Chicks DVD. Modern estimates that 80% of the coupons will be presented for redemption...500 Asset Retirement Obligation ...Test Bank .80) – 510....650.... and 30. and 1... Entry Year One Year Two —————————————————————————————————————————— a... On presentation of 100 coupons and $5....50 Copyright © 2013 John Wiley & Sons Canada.. 3.250 Premium Expense [(510.. Modern bought 30... Sales for Year One were $1.. Record any entry required related to this obligation at December 31....com Also you can contact us on Skype: Ebooksmtb 13........ b..750 *23.. Estimated Liability for Premiums 8..275...250 1.. To record estimated liability —————————————————————————————————————————— Solution 13-77 Entry Year One Year Two —————————————————————————————————————————— a.. or transmission of this page is prohibited .275. 2014 Accretion Expense ....050... 2014 Grouse Mine ........000 ÷ 100) x ($7.275.750 Inventory of Premium Posters and DVDs 38.. One coupon is issued for each dollar of sales.....500 b....050.. Instructions Prepare the following entries for both years..... For more Ebook's . Ltd...000 posters at $2..575 Estimated Liability for Premiums 8.. Record any obligation for land restoration at January 1...000...30 Test Bank for Intermediate Accounting...... Solution 13-76 a...000..50 – $5)] 12...........000 DVDs at $5......00 each..000 ÷ 100) x $5 ————————————————————————————————————— b.650... Sales for Year Two were $1..000 ÷ 100) × $5 25....250 95..625 Cash (510..needbook1.000] ÷ 100 × $2... the customer receives the poster and DVD........250 1.. Tenth Canadian Edition a.......... 3........ and 510...000 x .500 **63............000 coupons were redeemed.575 *[(1....650. Premium Expense *8.......250 **(1..50 – $5)] – 8.000 coupons were redeemed...625 *[(1........... 2014.500 x 8% = 292......... 292.....com/ or contact us at [email protected] ÷ 100) x (7.........000 Ex... Unauthorized copying... December 31.650............... January 1.........260...... To record coupons redeemed —————————————————————————————————————————— b....50 each...500 25 N 8 I 25000000 FV CPT PV => $3.. 20 = $6. a lawsuit for breach of contract seeking damages of $2.31 Ex. 2014.000 × $1. not probable (as required by IFRS). the existence of a possible contingent liability related to the law suit. the reason for the accrual. On October 4. During 2015.Test Bank . 12. The worker has sued his employer. the nature of the contingency.800 (4) (1) 100. customers receive a dog toy that the company purchases for $1.000 (2) 45.000 was filed by an author against Queen Corp.000 = 9.000. Ltd. Queen should disclose the following in the notes to the financial statements: the amount of the suit. During 2014. distribution.000 toys were purchased. for each situation. 3. 120. The note should indicate the range of the possible loss.20 = $24. includes one coupon in each bag of dog food it sells. and the range of the possible loss.000 ÷ 3 = 24.000 to $400. 20.000 ÷ 3 = 15.000.000 and $1. Prince should disclose.6 = 72.000. 20.800 Ex. Solution 13-78 2014 2015 Premium expense $24. 24.000 – 20. or transmission of this page is prohibited . A reliable measurement of the award to the plaintiff is between $600.000 ÷ 3 = 20. The likely award should be accrued by a debit to an estimated loss account and a credit to an estimated liability using the expected value method. a worker was injured in the factory in an accident partially the result of his own negligence.20 each.000 + 24.Solution Manual Please visit our website : http://www.000 × . Instructions Determine the premium expense to be reported in the income statement and the estimated liability for premiums on the statement of financial position for 2014 and 2015.000 coupons were redeemed. and 45. 100. and 60.000.800 (4) 60.000 × $1. The contingent liability should not be accrued because the loss is only possible. 13-78 Premiums Fido Corp.000.000 = 5. is involved in a pending court case. 72.20 = $10. Queen's legal counsel believes that an unfavourable outcome is more likely than not. 2014.000 – 15. 13-79 Contingent liabilities Below are three independent situations: 1. King's lawyers believe it is likely that King will be awarded damages of $700. in the notes to the financial statements. Unauthorized copying.000 (2) 10. Copyright © 2013 John Wiley & Sons Canada.000 (1) $28. In return for three coupons. 2.000 (3) 120.800 (3) Estimated liability for premiums 6. Instructions Discuss the proper accounting treatment.000 toys were purchased. 5. Prince’s legal counsel believes it is possible that the outcome of the suit will be unfavourable and that the settlement would cost the company from $150. Assume all companies involved use IFRS.needbook1.000 × .. for $500.000 ÷ 3 = 20.000 bags of dog food were sold. Prince Corp.6 = 60.800. 60. King Ltd.000 bags of dog food were sold. For more Ebook's .com/ or contact us at [email protected] coupons were redeemed.000.000. 2.000.400. 5.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13.000 × $1. 9.000 × $1.000. In August. Solution 13-79 1.000. 16. Give the rationale for your answers.20 = $28. Fido's experience indicates that 60% of the coupons will be redeemed.000.000. including any required disclosures. needbook1. distribution. or transmission of this page is prohibited . Ltd. Copyright © 2013 John Wiley & Sons Canada.000 gain contingency should be disclosed only if the likelihood that it will be realized is very high.com Also you can contact us on Skype: Ebooksmtb 13. King should not record the gain contingency until it is realized.Test Bank . For more Ebook's .Solution Manual Please visit our website : http://www. gain contingencies are neither accrued nor disclosed. 3. Tenth Canadian Edition The accrual is made because it is more likely than not (probable) that a liability has been incurred and the amount of the loss can be measured reliably. Usually.com/ or contact us at [email protected] Test Bank for Intermediate Accounting. Unauthorized copying. The $700. b... distribution.... 2014 Purchases/Inventory ($60................ Solution 13-81 a......... The invoice was paid on May 18...... Prepare the journal entries necessary to record the transactions above using appropriate dates..... 58.. Unauthorized copying................. the company borrowed $162...... 180.................. the company purchased goods from Jay Corp............ 2014 Equipment .......000 from the Second National Bank by signing a one year........ liabilities should be measured at the present value of the future outlay of cash required to liquidate them............ On September 30......... zero-interest-bearing note for $180....... sales taxes payable........000 Cash ..... and payroll related obligations.. Pr...................com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13........... 2.. For more Ebook's ........................000... for $60............ On June 1......... Indicate the manner in which the above transactions should be reflected in the Current Liabilities section of Blackbird's December 31... n/30.. Purchases and accounts payable are recorded at net amounts.... 2014 statement of financial position.000 in cash and giving a one-year... 58....... paying $60. c..... May 10..33 PROBLEMS Pr 13-80 Common types of current liabilities Define and identify common types of current liabilities and how they are valued..800 May 18. current liabilities other than borrowings are usually recorded in accounting records and reported in financial statements at their full maturity value............ the most common being accounts and notes payable........ There are several types of current liabilities... The bank’s discount rate was 10%.....com/ or contact us at [email protected] Notes Payable .....Solution Manual Please visit our website : http://www..............000..............000 x 98%) ...... Theoretically......... 58................ 3............. Solution 13-80 Current liabilities are obligations due within one year or the operating cycle where this is longer than one year from the statement of financial position date......... for 2014: 1......... The liquidation of a current liability is reasonably expected to require the use of current assets or the creation of other current liabilities............ the company purchased equipment for $180.... 60.........needbook1........ Instructions a. In practice.................000 from Seagull Ltd............ terms 2/10............... 58...................000 Copyright © 2013 John Wiley & Sons Canada.. Prepare the adjusting entries necessary at December 31........800 Accounts Payable .....Test Bank ............. 120...800 Cash ....... or transmission of this page is prohibited ......800 June 1.............. Ltd.............. 2014 in order to properly report interest expense related to the above transactions.. 8% note for the balance...... 13-81 Accounts and Notes Payable Below are selected transactions of Blackbird Ltd........... On May 10... 2014 Accounts Payable ... .......... due January 20....... and any appropriate note disclosure should be included......... or transmission of this page is prohibited ...... included the following: 1..... the liabilities outstanding of Copper Corp...000 × 8% × 7 ÷ 12) ............................000 common shares were issued for $300....050 $291.......600 Interest Expense ....000 b.. distribution............................ payable on January 15....... February 1: The financial statements for 2014 were issued...... 2014.... $ 100.. Unauthorized copying................................... The corporation immediately borrowed $800.....000 of the proceeds was used to pay off the note payable to Ontario Bank........050) ..needbook1.... $2............ Instructions Prepare a partial statement of financial position for Copper Corp.....34 Test Bank for Intermediate Accounting............... 5.......................................Solution Manual Please visit our website : http://www.....Test Bank .................000............ Serial bonds.......050 Notes Payable ($162.. 162......... January 26: 40..................................... enabling it to borrow up to $1... due January 27........000 matures during 2015 4.... 2015 The following transactions occurred early in 2015: January 15: The cash dividends were paid... .000. Note payable to Manitoba Bank............................ 5...600 Interest Payable ($120.com/ or contact us at [email protected] Copyright © 2013 John Wiley & Sons Canada..... The liabilities should be properly classified between current and long-term.000 x 10% x 3 ÷ 12).650 Pr.... Tenth Canadian Edition September 30.... December 31.... 162........... Cash dividends on common shares... 2014 under IFRS...... $200.....................000 Notes payable—Manitoba Bank ..........000.... Solution 13-82 Current liabilities: Dividends payable on common shares ....... For more Ebook's . Note payable to Ontario Bank. $200... 200..........050 c. $ 5... Ltd......... $100. of which $500...........000.. 2015 3....000......... $850................... 2015 2........ 4..000 to replace the cash used in paying its January 20 note to Manitoba Bank...com Also you can contact us on Skype: Ebooksmtb 13...................600 Note payable—Seagull Ltd........ 166.......... January 25: Copper entered into a financing agreement with Saskatchewan Bank. 120............... Interest Expense .......000 Note payable—Ontario Bank—Note 1 ...... Current Liabilities Interest payable ... 4.........000 at any time through the end of 2014.....000................ January 20: The note payable to Manitoba Bank was paid......000.......... 850.. showing the manner in which the above liabilities should be presented at December 31.......000 Note payable—Second Provincial Bank (162............ Amounts borrowed under the agreement would bear interest at 1% above the bank's prime rate and would mature 3 years from the date of the loan..000 + 4............. 13-82 Refinancing of short-term debt At their last year end.......000 Notes Payable . 2014 Cash ....... . EFL estimates this will cost $2... $1.000.... 2010. The rights cost $15...e............. d.. Show the amounts and accounts reported on the classified statement of financial position at December 31..500. 13-83 Employee related liabilities Identify and account for the major types of employee-related liabilities Solution 13-83 Employee-related liabilities include (1) payroll deductions.......... distribution. Instructions (Round all values to the nearest dollar...... Ltd. b.... i... of which $200...... 2014..... c......... It prides itself for following high environmental standards in the extraction process. Prepare the journal entries to be recorded on December 31. Bonuses based on income should be accrued as an expense and liability as the income is earned..000 Note 1: On January 26... On January 1.. Show the amounts and accounts to be reported on the classified statement of financial position at December 31... students may want to draw a timeline of events before solving the questions given below. EFL expects to extract the ore evenly over the contract period.......... EFL purchased the rights to use a parcel of land from the province of New Brunswick...... it was sued by the province of New Brunswick for not following the contract’s requirements........... Compensated absences earned by employees are company obligations that should be recognized as the employees earn the entitlement to them.... (2) compensated absences and (3) bonus agreements.... 13-84 Asset Retirement Obligation Extraction Friendly Ltd....000 Long-term debt: Serial bonds not maturing currently .........needbook1......Solution Manual Please visit our website : http://www.......Test Bank ...... 2010. Unauthorized copying........ 1.... judgment Copyright © 2013 John Wiley & Sons Canada. 2014.000 common shares and received proceeds totalling $300.. EFL uses straight-line depreciation method......... EFL uses a discounted cash flow method to calculate the fair value of this obligation and believes that 8% is the appropriate discount rate.. Prepare the journal entries to be recorded on January 1..... Pr... the corporation issued 40........... Pr...... 2015... Payroll deductions are amounts withheld from employees along with the employer’s required contributions that have not yet been remitted to the government.... 2010............com/ or contact us at [email protected] Total liabilities ... EFL has one year to clean up and restore the land....com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13...) a........150..000 and allowed the company to extract ore for five years.. 500.... (EFL) specializes in extracting ore.500.................. As a helpful suggestion.... 2010.... provided they can be reasonably measured.... 2015......... 2014...... After 2014.......... At the end of the contract..35 Currently maturing portion of serial bonds . EFL was supposed to clean up and restore the land.....000 was used to liquidate a note payable that matured on January 27.000. 2016.... or transmission of this page is prohibited ......000.. Even though the company spent a considerable amount of money on restoration..000 Total long-term debt . On February 3.. Prepare the journal entries to be recorded on December 31.... $3.......... For more Ebook's .. 1...000 Total current liabilities ....... EFL uses the calendar year as its fiscal year and follows IFRS.. until Dec 31.000. ..... the journal entry is the same every year......... the interest expense is 1....................088..000 Cash .Test Bank .. 108.....361... or transmission of this page is prohibited ................851........233 For the accretion (interest) costs.. Discuss how EFL should report this matter on its financial statements for the year ended December 31..................000......... 2014 and then to calculate the expense....... 148..............272................................232 = 13.361.......361............160 x 8%) Asset retirement obligation......160 Asset retirement obligation............928 **1.. December 31......................000......000...000......................................361. the debit is to Accretion Expense Statement of financial position amounts: Account Amount Classification Extraction rights net of accumulated depreciation 13...... 3..851 x 8% = 148.500.............851.. 3........................272....000.......000.................. first you need to find the carrying value of the ARO at January 1..000 being the probable amount............................232 Interest expense** ..............160) ÷ 5) Accumulated depreciation .....com/ or contact us at Ebooksmtb@hotmail.......... Interest expense ....000........................272.needbook1.000+1........ EFL has not yet released its 2015 financial statements...... 2010 Extraction rights ..... For the depreciation of the extraction rights..893 (1......160 b...928* Long-term assets Asset retirement obligation 1..............000 + 1........893 = 1.................. 1.... Since the carrying value at January 1...... December 31...............149 Copyright © 2013 John Wiley & Sons Canada................. Ltd.........000....000.. with $1........... 108...361.......893 ** If the company were using ASPE..........470..................272...160 + 108.. 15...... Unauthorized copying...088............ Tenth Canadian Edition was rendered against EFL for $3.160 – 3... 15................ 3........... distribution.... it plans to appeal the judgment and expects the ruling to be reduced to anywhere between $1.... To depreciate the extraction rights over 5 years and also record accretion (interest) expense on the obligation........000 Extraction rights ... 2015.. Solution 13-84 a....... 3.149 Asset retirement obligation...................... 2010 Depreciation expense .... For more Ebook's ................................. 148........................... The company claims that because the language in the contract was misleading regarding the restoration costs.........................36 Test Bank for Intermediate Accounting.... To record the purchase of the rights and the ARO: January 1..000 and $2....... 2014 Depreciation expense .470.149...851...160 5N 8 I 2000000 FV CPT PV => 1..com Also you can contact us on Skype: Ebooksmtb 13..Solution Manual Please visit our website : http://www.... 2014 is $1........361........053 c.....053** Long-term liabilities *15....232 ((15...233 Accumulated depreciation ...272................361.............. 1. ..500.000 and $3.800...500....com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13..... 2014 Inventory of Premium Mugs (480.... Prepare the general journal entries that should be made in 2014 and 2015 related to the above plan by Creamy Candy................ then EFL should record a loss of $3..000.. 1..needbook1. There are two legitimate approaches to this issue......000 Cash .......37 Statement of financial position amounts: Account Amount Classification Extraction rights net of accumulated depreciation 0 Asset retirement obligation 2.........000) .....Solution Manual Please visit our website : http://www......... and classifications of the items related to the premium plan that would appear on the statement of financial position and income statement at the end of 2014 and 2015...........................000..000 × $.................875......000 for 2015 and provide full disclosure on the possible contingent gain... in addition it costs 60 cents to mail each mug. 432.000..... Because losses are recorded immediately and contingent gains are not.....900......00. Pr........... 1.. 1.. 480.........000 400............ Ltd....500... b..000 and expects a contingent gain of $1..............000 Candy bars sold ..750...Test Bank ..... d............................000 Instructions a...... This is a somewhat complicated situation..000 for 2015 (since this amount is deemed probable) and to provide full disclosure in the notes about the ruling and the expected appeal.000 Copyright © 2013 John Wiley & Sons Canada.............000................ distribution...... 1... Unauthorized copying. it should be classified as a current liability....750.. or transmission of this page is prohibited ....800....000 Wrappers redeemed ...... 13-85 Premiums Creamy Candy Company offers a coffee mug as a premium for every ten 50-cent candy bar wrappers presented by customers together with $1............com/ or contact us at [email protected] × $......50 = $1...........000............ The first approach is to record a loss of $1.......... The results of the premium plan for the years 2014 and 2015 are as follows (assume all purchases and sales are for cash): 2014 2015 Coffee mugs purchased ............000 2.... Indicate the account names.000 Sales (3............90 = $432...300......... The purchase price of each mug to the company is 90 cents............. while the reduction in the loss is uncertain..... However.000 Cash ...000).. Solution 13-85 a.000 4.875.. 3.000................. For more Ebook's ................... 432...............000........000 Current liabilities Since by the end of 2014 the liability is due to be discharged within a year. The second approach is that the firm has incurred a contingent loss of $3..000 judgment has already been rendered against them...... 1...000 2014 wrappers expected to be redeemed in 2015 .......875...000 2015 wrappers expected to be redeemed in 2016 ........... amounts....500... Clearly EFL is expecting a contingent loss of anywhere between $1............... a $3....... 000).......... create what balance under current liabilities in the 2014 statement of financial position? Copyright © 2013 John Wiley & Sons Canada..... 95.......com Also you can contact us on Skype: Ebooksmtb 13.000 Inventory of Premium Mugs (280..000 Estimated Liability for Premiums ............ prepare the entries to reflect the above transactions (accrual method) for 2014 and 2015.....000 × $............50 = $65..800.......300. 171........ b. Based on past experience.000 Estimated Liability for Premiums ....... 252..50 = $90...000 for parts and $12............000 × $........ 112.. 360....... 65..00 – $.............000).......000 for labour...................... Using the expense warranty approach..000 ÷ 10 = 280.................. 90............ the company has estimated the total 3-year warranty costs at $80 for parts and $100 for labour....000] ..........900... Tenth Canadian Edition Cash [1.......000 (1.. Statement of financial position Name Classification 2014 2015 Inventory of Premium Mugs Current Asset $261...000 each................. Ltd....500.. which includes a 3-year warranty that requires the company to perform periodic services and to replace defective parts......250. For more Ebook's ....... 90. 65................000) ......000 ÷ 10 = 130....000) ..................000] ......60) = $76...................250.... 2014......000 Estimated Liability for Premiums . or transmission of this page is prohibited ...90 = $171.........000 ÷ 10 = 180.000 ÷ 10 = 190............... During 2014..........000 Cash ...... distribution..000 Estimated Liability for Premiums Current Liability 65........... 2........000 × ($1.................. 2........com/ or contact us at Ebooksmtb@hotmail.. 13-86 Warranties Alaska Computer Company sells computers for $2........000 Premium Expense ...000 165... 65...000 Premium Expense ...000 Income Statement Name Classification 2014 2015 Premium Expense Operating Expense 160...........000).....Solution Manual Please visit our website : http://www..000 Inventory of Premium Mugs (190. 75........ 76......... The transactions of part a............000 2015 Inventory of Premium Mugs (400.90 = $360...000 Premium Expense (1.000) b.... Instructions a.. Alaska Computer Company incurred actual warranty costs relative to 2014 computer sales of $10... Unauthorized copying..000 × $................250.50 = $2................. (Assume sales all occur at December 31....) In 2015.................000 Sales (4.......000 × $...........000 Cash ......000 × ($1.................000 90..60) = $112...38 Test Bank for Intermediate Accounting......000 × $.... what are the Warranty Expense balances for 2014 and 2015? c...............90 = $252....000 × $..000 Pr.needbook1. Using the cash basis method........000 Premium Expense .Test Bank ...000 Cash [2........ 360..000 $369....................... Alaska sold 500 computers on account..00 – $.....800........... ...............com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13......000 b......... 12........................... distribution. 2014 $0 2015 $20..........Solution Manual Please visit our website : http://www..................... The number of coupons expected to be processed is 200.......... Prepare any necessary 2014 journal entries related to the promotion program........................... d.......................... Solution 13-87 a..... 50.. 12...... Promotion expense = (120.......000..000 coupons were processed....... The company estimates that 60% of the coupons will be redeemed even though only 50.......000 tickets to be purchased.......... b...000...... 22..000 2015 Estimated Liability Under Warranties ..000 Copyright © 2013 John Wiley & Sons Canada.......000 Cash . c.................. Each ticket contains one coupon........needbook1....000 x 60% = 120.... or transmission of this page is prohibited ................000....................000 Inventory . 90. sold 200..... What amount should Red Deer report as a liability for unredeemed coupons on December 31.................000 Sales ........ Unauthorized copying............000 Estimated Liability Under Warranties ......000 x $60) ...000 more are expected to be processed and accordingly 35........... 640.....000 tickets (any tickets not used in 2014 can be used in 2015)... 10........................000 Cash (200..000 liability is a long-term liability............. Red Deer pays $8.000) ÷ 2 x 6 = 360...........000 Warranty Expense 500 x ($80 + $100) .... 2014 should be 35........000 (The remainder of the $90.......................00 per football ticket and at the beginning of 2014 had purchased 80.. For more Ebook's ....000 c. 1...... 2014 Current Liabilities—Estimated Liability Under Warranties $30. 2014 Accounts Receivable .... 2014? b.................................. In 2014.000 coupons had been processed during 2014......... What amount of expense will Red Deer report on its 2014 income statement as a result of the promotional program? c.................000 tickets for hockey games for $60 each under a new sales promotion program............................ Any person who presents 2 coupons can receive a ticket to an Edmonton Flames football game for only $2.........000 x 6 = $210..Test Bank .. so 70....000 Accrued Payroll . 13-87 Unredeemed coupons During 2014.com/ or contact us at [email protected].............. The additional net cost per ticket is $6 and therefore the liability for unredeemed coupons at December 31....000...............000 x $8) . Inventory of Premium Tickets (80........... Instructions a.. Ltd..39 Solution 13-86 a.000........ 90.... 1. Red Deer Corp. 640.............. Explain how the accounting treatment for this promotion is treated under IFRS................) Pr.............. 000 in 2014) will double in 2015.... the company believes that an agreement will soon be reached for a 4% wage increase retroactive for one year.............000 and the company’s insurance policy has maximum coverage of $15...... Pr.. Ltd.. since the event is likely to happen but cannot be reasonably estimated..... Solution 13-88 Event 1: The event is more likely than not to happen and the cost can be reasonably estimated....... 12.......40 Test Bank for Intermediate Accounting.. Unauthorized copying.... Copyright © 2013 John Wiley & Sons Canada....000 Premium Expense .. Yew considers it very likely........000 Estimated Liability for Premiums . 13-88 Contingencies You have been hired by Yew Corp............ Event 1: The Division A employees union has been negotiating a new contract with Yew Corp. but there is no guarantee that this will be the outcome of the negotiations.000......... should accrue an additional expense for 2014 based on the most likely outcome of a 4% wage increase retroactive for one year. Be specific.. Instructions For each of the above events... At this point it is difficult to assess the economic consequences of the potential strike..... to advise them on how to reflect the events below in their financial statements for the year ended December 31.. If they do not. So far there has not been much progress and management is pessimistic about a quick resolution.............. The damage is estimated to be $8.... In the notes to the financial statements..........000...000..........000 ÷ 2 x $2) .Test Bank ............. 2014 under ASPE....needbook1.............. The company is concerned that during 2015 the Division B employees will decide to go on strike..000 d.... For more Ebook's .....Solution Manual Please visit our website : http://www............. Event 2: If Yew Corp..... and give your rationale..... then no disclosure is required......... or transmission of this page is prohibited ...................... these negotiations are proving to be very tough.... 1-2 years).......... 360.000....000 Estimated Liability for Premiums ........................com/ or contact us at [email protected] ÷ 2 x $8) .000 Inventory of Premium Tickets (50..000 for this... The deductible on the policy is $300....com Also you can contact us on Skype: Ebooksmtb 13................. While the negotiations are still ongoing.... Event 3: Towards the end of 2014......... The union is requesting a 5% wage increase retroactive for two years... Red Deer is selling two separate products (the hockey tickets and the football tickets).. in fact.000 Cash (50. a fire destroyed one of Yew’s plants...... with the selling price of the hockey tickets inflated to encourage the ticket purchasers to also purchase football tickets... Under IFRS... 360.. 150.. 50.. they should provide the range for the potential expense (2-5%. 200.. Tenth Canadian Edition Sales .. Yew Corp..... An estimated amount should be deferred to 2015 when the remaining coupons will be redeemed........ this promotion would be considered a multiple deliverables arrangement....... Yew’s management has offered the union a 2% wage increase retroactive for one year.. However. note disclosure only would be appropriate.. Event 2: The Division B employees union is also negotiating a new contract with Yew Corp..... Therefore some of the revenue from the sale of each hockey ticket should be deferred and allocated to the delivery of the football tickets.......... The company is concerned that the insurance premium ($200.... considers this to be a contingent liability. distribution.... state the accounting treatment you believe is most appropriate.... Full disclosure of the event and of the expected cost increase for next year is appropriate.41 Event 3: The $300. Copyright © 2013 John Wiley & Sons Canada. unless the amount is immaterial.com/ or contact us at Ebooksmtb@hotmail. Alternatives the company could consider: 1. Shop around for a better deal on insurance. Avoid the potential premium increase by choosing to self-insure. the cost relates to future periods and therefore no expense should be accrued for 2014. Ltd. For more Ebook's .Solution Manual Please visit our website : http://www.000 deductible payment should be accrued in 2014 as a loss from fire. 2. or transmission of this page is prohibited . Unauthorized copying.Test Bank . While the premium is likely to increase and can be reasonably measured.com Also you can contact us on Skype: Ebooksmtb Non-Financial and Current Liabilities 13.needbook1. distribution. electronic. made available on a network. scanning. stored in a retrieval system.Test Bank . recording. Ltd. The data contained in these files are protected by copyright.needbook1. This manual is furnished under licence and may be used only in accordance with the terms of such licence. or transmitted in any form or by any means. Unauthorized copying. or otherwise without the prior written permission of John Wiley & Sons Canada. reproduced.Solution Manual Please visit our website : http://www. or related companies. Ltd.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 13. used to create derivative works. mechanical. or transmission of this page is prohibited . All rights reserved. photocopying. Copyright © 2013 John Wiley & Sons Canada. distribution. modified. The material provided herein may not be downloaded. Ltd. Tenth Canadian Edition LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada.42 Test Bank for Intermediate Accounting. For more Ebook's . 1. 2. 1 E 10. 6 E 4. 6 H 34. 3 E Problems 72. 3 M 32. 2 M 23. 2 M 76. 3 M 47. Ltd. 2 M 24. 2 M 65. 2 M 26. 2 M 17.6 H 74.3 H 68. 2 H 25. 2. 3 H 71. 3 M 35. 2 M 67.3 M 69. or transmission of this page is prohibited . 2 E 22. 3 M 57. 3 M 51. 1 E 12. 2. 2 M 15. 2 M 38. 2 H 43. 3 E Multiple Choice–Computational 31. 3 H 56. 6 M 6.2. 2 M 52. 1 E 13. 3 H 44.com Also you can contact us on Skype: Ebooksmtb CHAPTER 14 LONG-TERM FINANCIAL LIABILITIES SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 3 M Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada. 2 M 77. 3 M 60. 3 M 46. 6 M 5. 2 E 21. 3 M 2.4.3 H 78. 2 M 36. 2 M 18. For more Ebook's . 6 M 33. 2 M 75. 3 H 45. 2 M 64. 3 M 70. 1 E 11. 2 M 53. 2. 2 M 42.2. 3 H 8.3 H 79. 5 E 3. 3 M 28. 3 H 59. 2 M 66. 2 M 37. 3 M 27.Solution Manual Please visit our website : http://www. distribution. 3 M 50.com/ or contact us at Ebooksmtb@hotmail. 3 M 30. 6 M 7.Test Bank . 1 E 62. 2 M 16. 3 M 48. 2 M 41. 3 M Multiple Choice–CPA Adapted 49. 1. Unauthorized copying. 2 M 20. 2 M 39. 3 H Exercises 58. 2 M 55.3 H 73. 3 M 29.needbook1. 3 M 61. 2. 1 E 9.6 M 63. 2 M 40. 2 E 14. 2 M 54. 2 M 19. Pr Note: MC = Multiple Choice Ex = Exercise Pr = Problem Copyright © 2013 John Wiley & Sons Canada. MC 16. Pr 9. MC 55. MC Learning Objective 6 27. For more Ebook's . Ex 78. MC 36. MC 46. Pr Learning Objective 2 6. MC 37. Ex 76. Ltd. MC 59. MC 50. MC 53. MC 61. Ex 28.Test Bank . MC 58. Pr 21. distribution. MC 35. MC 49. MC 38. Pr 12.needbook1. Ex 78. MC 29. Pr Learning Objective 5 26. MC 54. MC 72. MC 33. MC 51. Pr 8. MC 62.com Also you can contact us on Skype: Ebooksmtb 14. MC 66. MC 56. Unauthorized copying. MC 69. MC 64. MC 59. MC 31. MC 42. MC 3. MC 39. MC 47.2 Test Bank for Intermediate Accounting. Ex 74. Ex 79. Ex 75. Pr 20. Pr 10. Ex 2. MC 44. MC 30. MC 43. Ex 76. Ex 71. or transmission of this page is prohibited . MC 4.Solution Manual Please visit our website : http://www. Ex 73. MC 57. MC 59. Pr 7. MC 13. Ex 72. Pr Learning Objective 3 19. MC 34. MC 32. MC 41. Ex 22. MC 5. Pr 24. MC 48. Ex 72. MC 40. Pr Learning Objective 4 72. MC 17. MC 25. MC 14. MC 68. MC 45. MC 18. MC 65. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 1 1. MC 63. MC 52. Ex 23. MC 65. Ex 77. MC 60. Ex 77. MC 15. Pr 11. MC 67. MC 64. Ex 70.com/ or contact us at Ebooksmtb@hotmail. Measurement of the bonds and the consideration must reflect the underlying substance of the transaction. Capital- intensive industries often have higher levels of debt. the unamortized premium or discount and any costs of issue that apply to the debt must be amortized up to the reacquisition date. Long-term debt is measured at fair value on initial recognition. The amount that is paid on extinguishment or redemption before maturity. or maturity value. The investment community values a bond at the present value of its future cash flows. under the fair value option. the instruments are measured at amortized cost or. ASPE allows a choice and often smaller private entities use the straight-line method. Bonds and notes may be issued with zero interest or for a non-monetary consideration. or nominal rate. The covenants and other terms of the agreement between the borrower and the lender are stated in the bond indenture or note agreement. Ltd.com/ or contact us at Ebooksmtb@hotmail. External credit rating agencies rate bonds and assign a credit rating based on the riskiness. including any call premium and expense of reacquisition. which consist of interest and principal. This rate. reasonable interest rates must be imputed. Corporation bylaws usually require the approval of the board of directors and the shareholders before bonds can be issued or other long-term debt arrangements can be contracted. In a defeasance arrangement. Understand when long-term debt is recognized and derecognized. The difference between the bond’s face value and the present value is either a discount or a premium. fair value. The variety of types of bonds and notes is a result of attempts to attract capital from different investors and risk takers and to satisfy the issuers’ cash flow needs. is expressed as a percentage of the bond’s face value. On any Copyright © 2013 John Wiley & Sons Canada. Generally. Understand how long-term debt is measured and accounted for. For more Ebook's . In particular. which is also called the par value.Solution Manual Please visit our website : http://www. The interest rate written in the terms of the bond indenture and ordinarily appearing on the bond certificate is the stated. 2. distribution. Unauthorized copying.Test Bank .3 CHAPTER STUDY OBJECTIVES 1. Understand the nature of long-term debt financing arrangements.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. principal amount. The discount (premium) is amortized and charged (credited) to interest expense over the period of time that the bonds are outstanding. including transaction costs where the instruments will subsequently be valued at amortized cost. At the time of reacquisition. Subsequently. which is set by the issuer of the bonds. The credit rating helps investors decide whether to invest in a particular bond. The rate that is used to calculate the present value of these cash flows is the interest rate that provides an acceptable return on an investment that matches the issuer’s risk characteristics. 3. is the reacquisition price. in certain limited situations. If the rate used by the buyers differs from the stated rate.needbook1. Continued access to low-cost debt is important for maximizing shareholder value. however. Companies sometimes extinguish debt early using a defeasance arrangement. The fair value of the debt and of the non-monetary consideration should be used to value the transaction. Notes are similar in substance to bonds but do not trade as readily in capital markets. if at all. coupon. By using debt financing. or transmission of this page is prohibited . Incurring long-term debt is often a formal procedure. funds are deposited into a trust and the trust continues to make the regularly scheduled payments until maturity. companies can maximize income through the use of leverage. IFRS requires the effective interest method. long-term debt has various covenants or restrictions. including how to account for troubled debt restructurings. the bond’s present value calculated by the buyers will differ from the bond’s face value. interest rates. the debt’s net carrying amount is the amount that is payable at maturity. adjusted for unamortized premium or discount and the cost of issuance. For more Ebook's . Identify major differences in accounting standards between IFRS and ASPE. If the debt is to be refinanced.com Also you can contact us on Skype: Ebooksmtb 14. or retired from a bond retirement fund. it should continue to be reported as noncurrent and accompanied by a note explaining the method to be used in its liquidation unless certain conditions are met. Note disclosures are significant and generally indicate the nature of the liabilities. 7. and what changes are expected in the near future. including a size test. Explain how long-term debt is presented on the statement of financial position. Debt to total assets and times interest earned are two ratios that provide information about debt-paying ability and long-term solvency. In-substance defeasance does not. Calculate and interpret key ratios related to solvency and liquidity.needbook1.Solution Manual Please visit our website : http://www. 5. unless it will be retired without using current assets.Test Bank . including the conceptual framework and financial instruments with the characteristics of equity. maturity dates. ASPE has measurement standards for related- party transactions. Tenth Canadian Edition specified date. or transmission of this page is prohibited . it is treated as a settlement where the terms of the agreements are substantially different. Legal defeasance results in derecognition of the liability. Unauthorized copying. One type of off–balance sheet financing involves the use of certain variable interest entities. Where debt is settled by exchanging the old debt with new debt (generally in troubled debt situations). Any excess of the net carrying amount over the reacquisition price is a gain from extinguishment. conversion privileges. and where the new debt is with a new lender. converted into shares. Copyright © 2013 John Wiley & Sons Canada. Identify disclosure requirements. whereas the excess of the reacquisition price over the net carrying amount is a loss from extinguishment. Long-term debt that matures within one year should be reported as a current liability. For example. distribution. Accounting standard setters are studying this area with the objective of coming up with a new definition of what constitutes the reporting entity. If not treated as a settlement. restrictions imposed by the creditors. IFRS and ASPE are largely converged as they relate to long-term debt.com/ or contact us at Ebooksmtb@hotmail. The standard setters are working on several large projects. it is treated as a modification of the old debt and a new interest rate is imputed. Off–balance sheet financing is an attempt to borrow funds in such a way that the obligations are not recorded.4 Test Bank for Intermediate Accounting. call provisions. Ltd. Companies that have large amounts and many issues of long-term debt often report only one amount in the SFP and support this with comments and schedules in the accompanying notes. and assets designated or pledged as security as well as other details. 4. 6. Small differences relate to whether the debt is presented as current or noncurrent and in measurement. Bond vocabulary b 4. or transmission of this page is prohibited . Description a 1. Ltd.com/ or contact us at Ebooksmtb@hotmail. Bond premium and interest rates a 8. Bond vocabulary d 6.Test Bank . Effective interest amortization method d 10. Bonds issued between interest dates d 12. Bond face value c 15. Unauthorized copying. Long-term debt disclosures c 27.Solution Manual Please visit our website : http://www. Gain/loss on troubled debt restructuring b 22. Debt to total assets ratio d 29. Creditor's calculations for modification of terms a 24.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. Times interest earned ratio a. Debt refunding c 20. In-substance defeasance d 25.5 MULTIPLE CHOICE—Conceptual Answer No. Notes with zero interest or non-monetary consideration d 17. distribution. For more Ebook's . Off balance sheet financing b 26. Callable bonds b 16.needbook1. Liability identification b 2. or services a 19. Times interest earned ratio b 30. Bonds issued between interest dates b 13. 28. Restrictions in restricted covenants d 3. Interest and discount amortization b 9. goods. Note issued for property. Bond vocabulary c 5. Valuation of bonds d 14. Fair value option d 18. Rate of interest earned by bondholders b 7. Impact of effective interest method c 11. Debt to total assets ratio Copyright © 2013 John Wiley & Sons Canada. Gain/loss on troubled debt restructuring c 23. Modification of terms in troubled debt restructuring d 21. Calculate balance of note payable. Transfer of equipment in debt restructure d 45. Calculate proceeds from bond issue. a 54. Recognizing gain on debt restructure b 46.needbook1. c 41. b 42. Interest on instalment note payable a 38. Calculate balance in bonds payable account. Tenth Canadian Edition MULTIPLE CHOICE—Computational Answer No. Calculate gain or loss on retirement of bonds. a 40. Interest expense using effective interest method c 35. Calculate balance in bonds payable account. a 33. Ltd. Description a 31. Calculate the issue price of bonds. distribution.com/ or contact us at Ebooksmtb@hotmail. Interest and troubled debt restructuring d 47. Calculate loss on retirement of bonds. Calculate loss on retirement of bonds. b 32. Calculate debt to total assets ratio. Calculate the present value of bond interest. c 51. Bond retirement with call premium b 43. b 52. c 56.6 Test Bank for Intermediate Accounting. Classification of gains from troubled debt restructuring Copyright © 2013 John Wiley & Sons Canada. MULTIPLE CHOICE—CPA Adapted Answer No. b 44. Calculate loss on retirement of bonds.com Also you can contact us on Skype: Ebooksmtb 14.Solution Manual Please visit our website : http://www. Calculate bond interest expense. c 48. Unauthorized copying. Calculate gain or loss on retirement of bonds. Calculate the present value of bond principal. Calculate loss on retirement of bonds. Calculate times interest earned ratio. Calculate gain on retirement of bonds. Calculate gain or loss on retirement of bonds. b 53. Interest expense using effective interest method a 36. Interest on noninterest-bearing note c 37. b 55. Description c 49. b 39.Test Bank . b 34. For more Ebook's . b 50. or transmission of this page is prohibited . d 57. needbook1. debt covenants P14-73 Bond interest and discount amortization P14-74 Bond interest and discount amortization P14-75 Fair value option P14-76 Entries for bonds payable P14-77 Entries for bonds payable P14-78 Accounting for bond issuance and retirement P14-79 Accounting for a troubled debt settlement Copyright © 2013 John Wiley & Sons Canada. For more Ebook's . Ltd.Test Bank .com/ or contact us at Ebooksmtb@hotmail. distribution. Unauthorized copying. ratios. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14.7 EXERCISES Item Description E14-58 Underwriting for bond issues E14-59 Terms related to long-term debt E14-60 Amortization of discount or premium E14-61 Bond issue price and discount amortization E14-62 Note issued for cash and other rights E14-63 Note issued for non-cash consideration E14-64 Entries for bonds payable E14-65 Sale and subsequent buyback of bonds E14-66 Retirement of bonds E14-67 Early extinguishment of debt E14-68 Accounting for a troubled debt settlement E14-69 Accounting procedures for bond redemptions E14-70 Accounting for troubled debt restructuring E14-71 Accounting for troubled debt PROBLEMS Item Description P14-72 Bond accounting.Solution Manual Please visit our website : http://www. d. b. the market rate was higher than the stated rate. issued ten year bonds with a maturity value of $400. Restrictions included in restricted covenants do NOT generally include a. c. limitations on incurring additional debt. dividend restrictions. c. b. the stated rate was higher than the market rate. long term note payable. limits on executive compensation. effective yield or market rate. callable bonds. d.needbook1. this indicates that a.com Also you can contact us on Skype: Ebooksmtb 14. Tenth Canadian Edition MULTIPLE CHOICE—Conceptual 1.000. d. A contract representing the covenants and other terms of the agreement between the issuer of bonds and the lender is known as a a. b. or transmission of this page is prohibited . convertible bonds. 3. Unauthorized copying. c. Copyright © 2013 John Wiley & Sons Canada. bond indenture. Bonds frequently used by schools and municipalities that mature in instalments are called a. bond debenture. b. coupon rate. working capital restrictions. stock dividends distributable b. c. debenture bonds. The rate of interest actually earned by bondholders is called the a. b.com/ or contact us at Ebooksmtb@hotmail. convertible bonds. Mars Corp. 5. d. 6. 7. The term used for bonds that are backed by collateral is a. c. stated rate. mortgages payable d. 4. lease liabilities 2.Test Bank . d. registered bond. For more Ebook's . secured bonds. callable bonds. b. If the bonds were issued at a premium. serial bonds.8 Test Bank for Intermediate Accounting. revenue bonds.Solution Manual Please visit our website : http://www. Ltd. Which of the following is NOT generally classified as a long-term liability? a. dividend rate. distribution. pension liabilities c. stated rate multiplied by the beginning-of-period carrying value of the bonds. c. 9. c. c. b. Using the effective interest method of bond discount or premium amortization. the market and stated rates were the same. How should a long term bond initially be valued? a. decreased by accrued interest from May 1 to June 1. 12. d. the same as it would have been had the effective interest method of amortization been used. For more Ebook's .needbook1. c. increased by accrued interest from June 1 to November 1. d. credit to Interest Expense. market rate multiplied by the beginning-of-period carrying value of the bonds. at the present value of the interest to be paid Copyright © 2013 John Wiley & Sons Canada. b. distribution. c. the amount of cash received by the issuer will be a. d. d. d. If bonds are initially sold at a discount and the straight-line method of amortization is used. Unauthorized copying. d. 13. 10. at the future value of the future cash flows b.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. When the interest payment dates of a bond are May 1 and November 1. b. the periodic interest expense is equal to the a. credit to Unearned Interest. higher than it would have been had the effective interest method of amortization been used. the periodic amortization will a. the entry on the books of the issuing corporation could include a a. increased by accrued interest from May 1 to June 1. increase if the bonds were issued at a premium. When the effective interest method is used to amortize bond premium or discount. market rate multiplied by the face value of the bonds. If bonds are issued between interest dates.com/ or contact us at Ebooksmtb@hotmail. at the present value of the future cash flows c. decreased by accrued interest from June 1 to November 1. no relationship exists between the two rates. stated rate multiplied by the face value of the bonds. credit to Interest Receivable.Solution Manual Please visit our website : http://www.9 c. and a bond issue is sold on June 1. Ltd. debit to Interest Payable. increase if the bonds were issued at a discount. less than it would have been had the effective interest method of amortization been used. 8. or transmission of this page is prohibited . b. interest expense in the earlier years will be a. decrease if the bonds were issued at a premium. less than the stated rate of interest. 11.Test Bank . b. increase if the bonds were issued at either a discount or a premium. the old debt is derecognized. Ltd. 20. The amount of bond liability removed from the accounts in 2016 would be the a. Tenth Canadian Edition d. c. the present value of the note should preferably be measured by a. 16. face amount plus unamortized discount. c. call price. b. 17. the fair value of the property. a. A ten-year bond was issued in 2014 at a discount with a call provision to retire the bonds. the debtor must first try to value the non-monetary asset(s) involved in the transaction. 15. goods. Unauthorized copying.com Also you can contact us on Skype: Ebooksmtb 14. the fair value of the debt instrument. the carrying value of the bond was less than the call price. b.Test Bank . the principal amount or the present value.10 Test Bank for Intermediate Accounting. b. the debtor always tries to create a gain with such a transaction. c. a gain or loss is recorded. d. b. a reasonable interest rate must be imputed. d. c. carrying value. 18. When the bond issuer exercised the call provision on an interest date in 2016. a new effective interest rate is calculated. d. the present value of the debt instrument. at the maturity value of the bond 14. the par value or the present value. the par value or the maturity value. the present value of the property. c. or services. c. b. For more Ebook's .Solution Manual Please visit our website : http://www. maturity value. or transmission of this page is prohibited .needbook1. the note is a non-monetary liability. distribution. IFRS requires that this option be used only where fair value does not result in more relevant information. IFRS allows this for all financial instruments. a. the future value or the maturity value. d. b. ASPE allows this option only for certain financial instruments. goods. then a. A bond’s face value is also called a. In a troubled debt restructuring in which the debt is continued with modified terms and the Copyright © 2013 John Wiley & Sons Canada. d. there is no change in the accounting for the debt. When valuing financial instruments at fair value (the fair value option). d. If a long-term note is issued with zero interest or for non-monetary consideration. If a debt refunding is viewed as a modification or renegotiation.com/ or contact us at Ebooksmtb@hotmail. IFRS requires that non-performance risk be included in the fair value measurement. When a note payable is issued for property. goods or services. or services. 19. When the debtor sets aside money in a trust such that the investment and any return will be sufficient to pay the principal and the interest to the creditor. calculate a new effective interest rate. this type of arrangement is known as a. b. d. d. c. loss by both the debtor and the creditor. b. b. recognize a gain on the settlement. d.Solution Manual Please visit our website : http://www. calculate its loss using the current effective rate of the loan. 25.11 carrying amount of the debt is less than the total future cash flows. 22. capital or financing leases 26. b. a gain should be recognized by the debtor. calculate its loss using the historical effective rate of the loan. 21. 23. the debtor would a. legal defeasance. recognize a loss on the settlement. Which of the following arrangements would NOT represent a possible example of “off- balance-sheet financing”? a. b. gain by the debtor and a loss by the creditor. not recognize a loss. Ltd. c.needbook1. substantive repayment. not recognize a gain or loss on the settlement. c. A troubled debt restructuring will generally result in a a. In a troubled debt restructuring in which the debt is settled by a transfer of assets with a fair market value less the carrying amount of the debt. operating leases d. loss by the debtor and a gain by the creditor. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows. b. names of specific creditors. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. d. d. Copyright © 2013 John Wiley & Sons Canada. 24. gain by both the debtor and the creditor. c. only record a memo in the general ledger. assets pledged as security. in-substance defeasance. the creditor should a. non-consolidated subsidiaries b. distribution. c. an extraordinary gain should be recognized by the debtor. in-substance refunding. a new effective interest rate must be calculated. variable interest entities c. Note disclosures for long-term debt generally include all of the following EXCEPT a.com/ or contact us at Ebooksmtb@hotmail. but the creditor does NOT release the company from the primary obligation to settle the debt.Test Bank . restrictions imposed by creditors. For more Ebook's . c. Unauthorized copying. no interest expense or revenue should be recognized in the future. a. 27. 29. the percentage of total assets financed by creditors. Unauthorized copying.needbook1. c. the amount of debt related to interest expense. For more Ebook's . call provisions and conversion privileges. b. total assets by total liabilities. b. d. d. or transmission of this page is prohibited . long-term liabilities by total assets. the likelihood an enterprise will default on its obligations. income before income taxes and interest expense by interest expense. b. The times interest earned ratio is calculated by dividing a. c. Copyright © 2013 John Wiley & Sons Canada. 30. the percentage of total assets financed by creditors. Ltd. 28. c. income before taxes by interest expense. Tenth Canadian Edition d.com/ or contact us at [email protected] Bank . d. b. The times interest earned ratio measures a. distribution. an enterprise’s ability to meet interest payments as they come due. The debt to total assets ratio is calculated by dividing a.com Also you can contact us on Skype: Ebooksmtb 14. c. d. current liabilities by total assets. the profitability of an enterprise.12 Test Bank for Intermediate Accounting. The debt to total assets earned ratio measures a. total liabilities by total assets.Solution Manual Please visit our website : http://www. the profitability of an enterprise. the amount of interest expense related to long term debt. net income by interest expense. net income and interest expense by interest expense. Unauthorized copying.Solution Manual Please visit our website : http://www.needbook1. b 27. b Copyright © 2013 John Wiley & Sons Canada. b 14.13 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. b 7. c 3. Item Ans. b 12. a 4. b 2. d 23. d 5. c 16. d 26.com/ or contact us at Ebooksmtb@hotmail. d 30. Ltd. or transmission of this page is prohibited . d 11. distribution. a 6. Item Ans. a 29. d 19. b 21. Item Ans. c 10. c 20. b 9. d 17. d 8. For more Ebook's . 1. a 24. Item Ans. a 13. b 18.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. Item Ans. c 25. c 28. d 15. d 22.Test Bank . 500 to yield 10%. $441.000. 33. $442.540 Present value of 1 for 16 periods at 3% . Tenth Canadian Edition MULTIPLE CHOICE—Computational Use the following information for questions 31–33. c.300. 12% bonds with a face value of $500. $174.415. d. Copyright © 2013 John Wiley & Sons Canada.850.780. Muslin Ltd. b. interest expense for 2014 is a. 35. c. The present value of the interest is a.000. $186. Interest will be paid semi-annually on June 30 and December 31. sold five year. On January 2. $60. Satin Corp.780.com/ or contact us at Ebooksmtb@hotmail. d.696. sold five year. $188. with interest payable semi-annually on June 30 and December 31.652 31. or transmission of this page is prohibited .14 Test Bank for Intermediate Accounting. $313. $499.800. For more Ebook's .623 Present value of 1 for 16 periods at 4% . $311. Unauthorized copying. 2014.500.561 Present value of annuity for 16 periods at 4% 11.627 Present value of 1 for 8 periods at 8% . b. $444.000.Test Bank . c. $50. d.410. $53. The issue price of the bonds is a.780.000. 8% bonds with a face value of $900. issued eight-year 6% bonds with a face value of $500.534 Present value of annuity for 8 periods at 6% 6. c. $53. On January 1.747 Present value of annuity for 16 periods at 3% 12. b. Using the effective interest method of amortization of bond discount or premium. distribution.needbook1. 2014. Ltd. Table values are: Present value of 1 for 8 periods at 6% . b. Lace Ltd.500. $267.Solution Manual Please visit our website : http://www. The bonds were sold to yield 8%. The bonds were sold for $538. 34. d. 2014.000.000. $270.410.000. The present value of the principal is a.210 Present value of annuity for 8 periods at 8% 5. 32. $172. On January 1.com Also you can contact us on Skype: Ebooksmtb 14. On January 1. $ 0 b. zero-interest-bearing note payable in five equal annual instalments of $600.606 d.000. sold property to King Company. sold property to Marvin Ltd.900 The bonds have a face value of $700. c. $2. To the nearest dollar. Ltd. Unauthorized copying.030 d. how much interest revenue should Alvin recognize in 2014? a. no other rights or privileges were exchanged. The present value of a $900. for which Alvin had originally paid $570. with the first payment due December 31.Solution Manual Please visit our website : http://www.832 b. 2014.000. d.000. with the first payment due December 31. 2023 $718. zero-interest-bearing note. $80.000. There was no established exchange price for the property.000. assuming that the note is recorded at net and the effective interest method is used? (round to the nearest dollar.000. 2016. $74.com/ or contact us at [email protected] d. The note also has no ready market. The December 31. To the nearest dollar. The bonds were sold for $830. 2014 adjusted trial balance. 2013.040.333. $83. $3. Alvin Corp.000. and were issued on December 31.000 at 10% is $746. and King gave Queen a $3.000 38.. Using the effective interest method of amortization of bond discount or premium. $1.000 39.000. A zero-interest-bearing note (face amount. at 103. $83. $90. with Copyright © 2013 John Wiley & Sons Canada. 2014.000. For more Ebook's . Susan Hong lent $60. $72. 36.15 Interest will be paid semi-annually on June 30 and December 31.333. $18.needbook1. if necessary) a. 2014.400 to yield 10%. The market rate of interest for a loan of this type is 10%. 2014.791 c.316. $90. Marvin gave Alvin a $900. The note is to be repaid on December 31.010 b. $ 6. and using the effective interest method. On January 1. Hong recognize in 2014? a. and using the effective interest method. b. What should be the balance of the Note Payable to Queen Ltd. The market rate of interest for a note of this type is 10%. statement of financial position of Cotton Corporation includes the following: 9% bonds payable due December 31. 2014. The market rate of interest for a note of this type is 9%. $ 8. $2.000 c. On January 1.Test Bank . or transmission of this page is prohibited .000) was exchanged solely for cash.000 37. $30. $24.104 to Ben Bachu. distribution. interest expense for 2014 is a. 2014. how much interest revenue should Ms.000. payable in three equal annual instalments of $300. account on King’s December 31.000 c.791 at January 1. Queen Ltd.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. 2014.943. The present value of the note at 9% was $2.400. There was no established exchange price for this property.000 note payable in three equal annual instalments of $300. 900 c. Amortize $225. Tenth Canadian Edition interest payable on July 1 and December 31 of each year. 2014. $56. The amortization of the bond discount had been recorded using the effective interest method. Linen has recorded amortization of the bond premium by the straight-line method.000. At that time there was an unamortized discount of $150.000 over four years or record a $225.160 d.000 (face value). ten-year bonds at 103. Ignoring income taxes.000 of the bonds in the open market at 96.100 d. $14. a loss of $4. b. Bond interest expense and premium amortization have been recorded for 2020. Ltd.000 of these bonds at 98 plus accrued interest. how should these amounts be treated for accounting purposes? a. Linen repurchased $100. whichever management selects. On January 1. Interest is paid on June 30 and December 31. had a carrying value of $312.900 b. a loss of $6.000 b. $ 7. the 12% bonds payable of Leather Corp. The bonds are callable at 105.000. The bonds.000.16 Test Bank for Intermediate Accounting. Cotton retired $280. were issued at a discount to yield 12%. On March 1. Ignoring income taxes. 2015 interest payment and discount amortization had been correctly recorded.000. Interest was being paid on January 1 and July 1 of each year. what is the loss or gain arising from this reacquisition? a.800 c. distribution.Test Bank . The July 1. which had a face value of $300. a gain of $6.000 loss immediately.400 d.com Also you can contact us on Skype: Ebooksmtb 14.000 loss in the year of extinguishment and amortize $150. called an outstanding bond obligation four years before maturity. or transmission of this page is prohibited . $13. To extinguish this debt. had a carrying value of $760. were issued at a premium to yield 10%. Record a $75. Record a $225. At December 31. Unauthorized copying. a gain of $4. The bonds. 2015. issued $450. $16.000 loss in the year of extinguishment. 43.com/ or contact us at Ebooksmtb@hotmail. what is the loss that should be recorded on the early retirement of the bonds? a. Suede had to pay a call premium of $75. Either amortize $225. 2020.560 b.000 42. Ignoring income taxes.000. 2014.000 over four years. 10%. 2015.needbook1.100 41.000 over four years. 2015.000. Paisley retired the bonds at 102. what should Cotton record as a gain on retirement of these bonds? a. c.Solution Manual Please visit our website : http://www. the 10% bonds payable of Paisley Inc. $44. which had a face value of $800. For more Ebook's . On July 2. Suede Corp. On June 30. d. On December 31. Leather retired the bonds at 104 plus Copyright © 2013 John Wiley & Sons Canada. 2014. Cotton uses straight-line amortization to amortize bond premium or discount. $13. Ignoring income tax considerations. Leather uses the effective interest method of amortization of bond premium.000 40. $50. At December 31. Linen Corp.020 c. 8 times. 44. Diaz Corp.000 Interest expense 20. is a.. Granger Ltd.000. 47. Use the following information for questions 44–46.500.000 Net income 160. b. d. 46. 45. $ 0.400. c. Diaz should recognize a gain or loss on the transfer of the equipment of a.500. c. which is now due. reported the following information on their most recent statement of financial position: Copyright © 2013 John Wiley & Sons Canada. The loss on retirement.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. $0. b. b. 48. d.000 gain. $0. d.720. $45. $112.000 gain.000 loss.000.Solution Manual Please visit our website : http://www.500.000. c. d. c. 13 times. 2017. b.000. $ 2. d. 2014. $90. is in financial difficulty and cannot pay a $900. 12 times.000.500. $12.com/ or contact us at Ebooksmtb@hotmail. with interest payable at the end of each year. Cameron agrees to accept from Diaz equipment that has a fair value of $435. $0.Test Bank . extends the maturity date to December 31. an original cost of $720. Ltd. Diaz should record interest expense for 2017 of a.000 note with $90. $ 3.000 accrued interest payable to Cameron Ltd. distribution. $22. $285. Continental Company’s 2014 financial statements contain the following selected data: Income tax expense $80. $180. $60. Cameron also forgives the accrued interest.17 accrued interest.000. Diaz should recognize a gain on the partial settlement and restructure of the debt of a. $67. reduces the face amount of the note to $375. or transmission of this page is prohibited . On December 31. c. and accumulated depreciation of $345. 11 times.needbook1. For more Ebook's . ignoring taxes. Unauthorized copying. and reduces the interest rate to 6%.000.000 Continental’s times interest earned for 2014 is a. $22. b. Solution Manual Please visit our website : http://www. what is Granger’s debt to total assets? a. or transmission of this page is prohibited .com/ or contact us at Ebooksmtb@hotmail. Tenth Canadian Edition Current assets $200. distribution. 80% Copyright © 2013 John Wiley & Sons Canada.000 Total equity 350.Test Bank .000 Total assets 797.000 Current liabilities 160.com Also you can contact us on Skype: Ebooksmtb 14. 56% d. Unauthorized copying. Ltd.000 To the nearest percent. 20% b.18 Test Bank for Intermediate Accounting.needbook1. For more Ebook's . 44% c. 900 (CV of retired bonds) $100.000 – $26.02) = $50.600 (CV of bonds) $765.780 34. b $435.400 × . c Interest June 30 $830.000 × . b 45. a 34.900 – ($100.425 Interest Dec 31 $535.925 = $3. d ($900. or transmission of this page is prohibited .05 = 41.98) = $13.333.920 Interest Dec 31 $835. c DERIVATIONS—Computational No.10 = $74. 31.041.000 × .000 × . b Interest June 30 $538.104 × . b 46.000 × . a 41. c 38.791 – $389. a $267.420 (CV of retired bonds) ë è 6 øû $287.420 – ($280.000) – ($435.000 = 13 times Copyright © 2013 John Wiley & Sons Canada.500 47. b $375. b 37.000) = $60.000 – $345.796 Total interest for 2014 $83.000 – [($300. Unauthorized copying. a [($450.needbook1. distribution.000 × .03) × 11. c 40.400 + $5.056 × .520 CV is now $830.696 35.900 .000 – $210.000 – ($720.06) – ($800.Test Bank . a 39.600 (CV of bonds) ($300. b ($500.959.05) = $765. Item Ans.4 = $287.$36.96) = $4.606 38. a 36. Item Ans.900 gain 41. Item Ans. b 35.Solution Manual Please visit our website : http://www. d ($160.000 x .771 Total interest for 2014 $53.000) = $180.com/ or contact us at [email protected] = $2.000 = $5.425 × .041 = $389.05 = $41.000 46.791 x 9% = $210.000 × 1.900 2 öù 39. b $150.075 = $535.652 = $174.000 + $20. c 44.075 CV is now $538.05 = $26.ç 18 ´ ÷ú × .780 = $441. For more Ebook's . c $746. b ê$718. Answer Derivation 31. é æ $18. d 33. a Interest portion of Dec 31 pmt = $2.000 x 1.000 32. d 48. b ($312.000 × 1.500 x .03) – ($13.05 = $26. a $500.316 36.000 + $375. a $60.06) – ($312. therefore principal reduction is $600. Item Ans.400 44.520 .959 = $1.10 = $6.780 33.010 37.500 – $3.333.000 + $174.943. and carrying value of note is $2. Item Ans.000) ÷ $20.400 42. b 32.000 45. a 43.600 – ($800.520 = $835.920 × .06 = $22.925 Amortization of premium $30.000 × 1.000 + $90.19 MULTIPLE CHOICE ANSWERS—Computational Item Ans. Ltd.000 loss 43.020 40.04) – $309.500 × 7/10)] x 100/450 = $100.534 = $267.000 + $80.000 = $225. b 47.05)] = $309. b 42.520 Amortization of discount $41.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14.000 × . c ($760.832.000 × .000 + $75. 000 – $350.000 ÷ $797.000 Debt to total assets = $447. Ltd.com Also you can contact us on Skype: Ebooksmtb 14.needbook1.000 x 100 = 56% Copyright © 2013 John Wiley & Sons Canada. c Total liabilities = $797. Unauthorized copying. Tenth Canadian Edition 48.000 = $447. distribution.com/ or contact us at Ebooksmtb@hotmail. or transmission of this page is prohibited . For more Ebook's .Test Bank .Solution Manual Please visit our website : http://www.20 Test Bank for Intermediate Accounting. Ltd.000. c.000. $471.595.000. Bass Inc.000 d.com/ or contact us at Ebooksmtb@hotmail. $30. Interest is payable annually on December 31. b.559 c. 2014.000 50. 2014. redeemed its 15-year. $14. distribution. which mature on January 1.000. $600. issued $4. d. d. For more Ebook's .21 MULTIPLE CHOICE—CPA Adapted 49. Ignoring income taxes.000 d.Test Bank .486. 10% bonds. What amount should Trout report as interest expense for the six months ended June 30.000. or transmission of this page is prohibited . 8% bonds at 99 plus accrued interest. At December 31.000 to yield 8%. issued $500. How much did Salmon receive from the bond issuance? a.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. On July 1.500 to yield 10%. $4. 2014.000 d. 2017. $22. Pike uses the effective interest method of amortizing bond discount.000.600 c. 2014. $500. c.needbook1. $32. $4. $493.400 Copyright © 2013 John Wiley & Sons Canada. 2024.000. b.000 c. 2014. 2014 and mature on April 1.540. Unauthorized copying. 9% bonds. Interest is payable annually on June 30. Interest is payable semi-annually on January 1 and July 1.Solution Manual Please visit our website : http://www. 2014. which mature on July 1. $4. On January 1.450. $25. On July 1. 2014? a. On January 1. They were originally issued on January 1. Salmon Corp.000 b. Varden Ltd. 52. 2024. Bass amortizes bond discounts and premiums using the straight-line method. 2002 at 98 with a maturity date of January 1.133 53.503. $26. 10% bonds for $442.000. 2016. On January 1. Varden uses the effective interest method of amortizing bond premium.540. $4.200. The bonds were issued for $4. 51. Pike Inc. what amount of loss should Bass recognize on the redemption of these bonds? a.400 b. $594. $606.648 to yield 12%. The bonds are dated April 1.000 par value bonds at 102. the adjusted balance in the Bonds Payable account should be a. Trout uses the effective interest method of amortizing bond discount. issued $600. $473. $21.000 b.900. At June 30. sold $500. the adjusted balance in the Bonds Payable account should be a. The bonds were issued for $469.000. Interest is payable semi-annually on April 1 and October 1. 2024. $618. Trout Corp. $18.000. $900. c. Codfish Ltd. The bonds had been issued at par. 2014.000 d.000 loss. $105. Dole agrees to settle the note plus the accrued interest for land that Pineapple owns.needbook1.000. what amount should Codfish report on its 2015 income statement as loss on extinguishment of debt? a. Unauthorized copying. Ignoring income taxes. $105. issued $1.000. Codfish retired one half of the outstanding bonds at 103 plus a call premium of $35.000 b.com/ or contact us at [email protected] gain. $8. on December 31. 2014. $15.000 loss 57. 12%. $10. three-year note dated December 31. The carrying value of the bond at June 30.000 d. Bond premium was amortized on a straight-line basis. On July 1. Pineapple's original cost of the land is $435.000 $60.000 $132. $237. Assume all appropriate entries had been prepared and posted at June 30.000. 56. Pineapple has been experiencing financial difficulties. On January 2. On July 1. $8.000. d. Ltd. $25. $60.040. 2014 was $965. had outstanding 8%. distribution. On January 1. 2012. For more Ebook's . 2024 but were callable at 101 any time after December 31.000 on this note at December 31.000 gain d.000.000.000 gain.000. $25. $0 55.com Also you can contact us on Skype: Ebooksmtb 14. 15-year bonds maturing on June 30. Interest was payable semi-annually on July 1 and January 1.000 c.000 loss c. These bonds were to mature on January 1. $35. $50.000. and still owes accrued interest of $72. $165.000 $0 c. 2014 statement of financial position.000 loss. or transmission of this page is prohibited . which has a fair value of $540. what should Pineapple report as a result of the troubled debt restructuring? Gain on Gain on Disposition of Land Restructuring of Debt a.000. $12. 10% bonds for $1. At this time.22 Test Bank for Intermediate Accounting. Halibut Corp. 2014. b.Test Bank . 2015. $35.000.000.000 $0 b. Ignoring income taxes.000 gain b. 2014. Interest is payable semi-annually on June 30 and December 31. $1.000 Copyright © 2013 John Wiley & Sons Canada. Tilapia Corp. Under a troubled debt restructuring.Solution Manual Please visit our website : http://www. 2014. Pineapple owes Dole a $600. 2014. On its December 31. on its 2014 income statement. What is the gain or loss on this early extinguishment of debt? a. Halibut called all of the bonds and retired them. 2019. Ignoring income taxes. reported bonds payable of $1. Tenth Canadian Edition 54. 2024. Tilapia purchased all the bonds at 94 and retired them. Halibut's gain or loss in 2019 on this early extinguishment of debt was a. 000 + ($18.540. c $965.000 x 11/20)] – ($1.450 2015–2016: CV is $471.000 Copyright © 2013 John Wiley & Sons Canada.000) = $473.000 – ($40.1) – $45.Test Bank . b Amortization of premium $400. or transmission of this page is prohibited . b 57.06 = $26. Unauthorized copying. distribution.000. Item Ans. c DERIVATIONS—CPA Adapted No. c 51.000. For more Ebook's .450 + [($471.02) – [ $882.000] = $471. Item Ans.23 MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.559 53. b 52. c ($600. b [$1.800 = $4. a 56.000 × ½] = $50. b 54.000 – ($4.450 x .000 ($600.503.000 = $132.08)] = $36.000 = $105.000) – $540.600 54.000 – $435.500 × . Answer Derivation 49.com/ or contact us at [email protected] + [($469.1) – $45. 49.99) + ($600.000)] – [($1.000 – ($1. b $442.200 51. Item Ans.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14.Solution Manual Please visit our website : http://www. Ltd.01) = $8.800 CV is $4.000 x .648 × .000 × 1. d $540. Item Ans. a [($500.000 55.08 × 3 ÷ 12) = $606.540. c 53.000 x 12 ÷ 15)] = $21. b ($900.000 × . c 2014–2015: CV is $469.040.000 × 1.000 + $72.000.000 × .000 50.03) + $35.000 – $36.needbook1.000 x 1. d 50.000 gain 57.94 = $25.000 56.595 52. b 55.000 × . Maturity value of bonds less any discount or plus any premium at any given date. c. Solution 14-58 With firm underwriting. Market rate a. Bonds not recorded in the holder’s name. g. k. c Copyright © 2013 John Wiley & Sons Canada. The practice of using other peoples’ money to maximize returns to shareholders.com/ or contact us at Ebooksmtb@hotmail. On the other hand. e. b. Term bonds 3. Rate of interest actually earned by the bondholders. d. or transmission of this page is prohibited . g 3.24 Test Bank for Intermediate Accounting. Income bonds 8. i. Debenture 6. Tenth Canadian Edition EXERCISES Ex. distribution. Carrying value 9. Unsecured debt instruments not backed by collateral. h. Debt to total assets ratio 2. Bonds that pay no interest unless the issuer is profitable. l. an investment bank or brokerage will underwrite a bond issue by guaranteeing a specified amount to the bond issuer. Solution 14-59 1. f. For more Ebook's . Results when bonds are sold below par. Ltd. the agent (broker) will sell the bond issue for a commission that will be deducted from the sale proceeds. Callable bonds 5. Rate set by party issuing the bonds which appears on the bond indenture.com Also you can contact us on Skype: Ebooksmtb 14. k 2. with best efforts underwriting.Solution Manual Please visit our website : http://www. m. Bearer bonds 7. Ratio of current assets to current liabilities. Stated rate 10. Leverage 4.Test Bank . j. 14-58 Underwriting for bond issues Explain the difference between firm underwriting and best efforts underwriting. Ex. can be easily transferred from one party to another. 1. Bonds that mature on a single date. Give the issuer the right to call in and retire bonds before maturity.needbook1. Indicates the company’s ability to meet interest payments as they come due. Unauthorized copying. 14-59 Terms related to long-term debt Place the letter of the best matching phrase before each term. Measures the percentage of total assets provided by creditors. Thus the broker assumes the risk of selling the bonds for whatever they can get. 000 $ 8. assume that the issue price was $442. The maturity date on these bonds is November 1. 8% bonds and received cash proceeds of $1. Round values to the nearest dollar.000. 2014. Instructions a.252 May 1/15 89. Show calculations and round values to the nearest dollar.25 4. issued ten-year. 10% bonds with a face value of $500. l 7. with interest payable semi-annually on June 30 and December 31.792. Salinas Industries Ltd.774.. or transmission of this page is prohibited . a 8. The bonds pay interest semi-annually on May 1 and November 1. Use your calculator to calculate the issue price of the bonds. Round the answer to the nearest dollar. Instructions Calculate the total dollar amount of discount or premium amortization during the first year that these bonds were outstanding. At the time.000.needbook1. Salinas uses the effective interest method of amortizing bond discounts and premiums.163 1.774.000.650 Copyright © 2013 John Wiley & Sons Canada.000 9. Solution 14-60 Interest Cash Discount Carrying Date Expense Paid Amortization Value of Bonds May 1/14 $1. f 9.526 Nov 1/14 $88.000 PMT 25000 CPT PV => $442. 2014. issued $2. distribution.com/ or contact us at Ebooksmtb@hotmail. Ltd.526. 14-60 Amortization of discount or premium On May 1.726 $80. For more Ebook's .783. i 5. h 10.Test Bank .com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. d Ex. the market rate was 12%. Oxnard Corp. b 6.163 80.415 Total $17. Independent of your solution to part a. N 20 %i 6 FV 500. Prepare the amortization table for 2014. b. 2026.889 Ex. Solution 14-61 a. The bonds were sold to yield an effective interest rate of 10%.000.Solution Manual Please visit our website : http://www. 14-61 Bond issue price and discount amortization On January 1. Unauthorized copying.726 1. ........ 1............000 26.. For more Ebook's ...... Solution 14-63 Operating (consulting) Expense .. issued a $50.393 Notes Payable .. Modesto Holdings Ltd.................583 Unearned Revenue (Rent) ........417 Cash .........000 x 4%) CPT PV => 40................. Date Cash Interest Discount Carrying Paid Expense Amortized Value of Bonds Jan 1/14 $442................520 Dec 31/14 25.........000 Jun 30/14 $25............ Use your calculator and round values to the nearest dollar...000 Notes Payable .... for $1........ zero-interest-bearing note with a $1......417 Lindsay Notes Receivable ....com Also you can contact us on Skype: Ebooksmtb 14. 319................000... 14-63 Note issued for non-cash consideration On July 1...needbook1......000 face value note due June 30........520 443... *680..... 2014...................611 445............. *680.131 Ex.............Solution Manual Please visit our website : http://www........26 Test Bank for Intermediate Accounting.......................................520 $1...............583 Prepaid Rent .. distribution......... 14-64 Entries for bonds payable Copyright © 2013 John Wiley & Sons Canada........... issued a 5-year...... 40.... 319...........000............ 1.......000......... Interest rates for notes of this type were 8% at the time of issue... On the basis of a credit analysis........... 2017 with a stated interest rate of 4% to Modern Consultants in return for consulting services provided in 2014....... a reasonable imputed interest rate would be 12%................................393 Ex.......... Solution 14-62 Rebecca Cash .000 * N 5 %i 8 1000000 FV CPT PV => 680........Test Bank .. 40....com/ or contact us at Ebooksmtb@hotmail....... Instructions Prepare the journal entries to record the issuance of the note by (1) Rebecca and (2) Lindsay.000 $26.... Instructions Prepare the journal entry to record the issuance of the note by Modesto......... 14-62 Note issued for cash and other rights Rebecca Land Corp...........000 cash............... Use your calculator and round values to the nearest dollar........................................................... or transmission of this page is prohibited ..... Rebecca also gave Lindsay the right to use a parcel of land for equipment storage for 5 years. Tenth Canadian Edition b.611 1...393 N 3 %i 12 FV 50000 PMT 2000 (50...000....583 Ex...................000 face value to Lindsay Inc.............. Ltd................ The value of the consulting services is not readily determinable and the note is not readily marketable............. Unauthorized copying.. ......Test Bank ........ which is 8%..........203 3... PV 908722 N 20 PMT (40000) CPT %i => 8% Interest Interest Premium Carrying Date Payment Expense Amortization Value Jul 1/14 908......... 2014... 3.......... Prepare the adjusting entry at December 31.... the end of the fiscal year. Davis Corp.... Prepare the entry to record the retirement of the bonds on January 2........... Chico uses straight-line amortization......942 Interest Expense ($600..000 36. Interest is payable annually on January 1.. 2024............ On July 1.. issued $800...... On April 1.609 Bonds Payable ($31...........651 905. distribution.... 13. d..... Prepare the journal entry to record the bond issuance...442 including accrued interest.... b....722. Solution 14-65 First you need to solve for the yield...949 897..071 Jul 1/15 40..... 2015.........27 Prepare journal entries to record the following transactions related to Chico Ltd........371 Ex... Davis offered to buy back the bonds at 103.....000 x 30% × 9% × 6 ÷ 12) ....com/ or contact us at Ebooksmtb@hotmail................... b...........com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14.... Prepare the entry for the interest payment on January 1..............000 x 30% x 1.......000 par value... Chico retired 30% of the bonds at 102 plus accrued interest.442 Bonds Payable ....349 3.......942 x 30% x 90 ÷ 117 = $7......... 8..942 × 30% × 6 ÷ 117) .......000.. Forty percent of the bondholders accepted the offer...........797 901....... For more Ebook's ...............600 Gain on Redemption of Bonds ..... 2014. c. with interest payable semi-annually on January 1 and July 1... 645........722 Jan 1/15 40. 9% bonds (dated January 1.. 10%..371 Cash ($600......... Ltd.............................. 14-65 Sale and subsequent buyback of bonds On July 1............... Cash .................. Unauthorized copying.... 2016.. The bonds were issued for $908.......000 36.......... 2014. Davis uses the effective interest method of amortizing premium or discount......... 183......000 plus unamortized Premium of ($31..needbook1...Solution Manual Please visit our website : http://www.................000 × 9% × 3 ÷ 12) ....051 3........ 631............. Solution 14-64 a.... and the bonds mature on January 1... 491 Cash ($600....... 2016....’s long-term bonds: a.274 Jan 1/16 40....371) = $187.02)... 10-year bonds.100 Bonds Payable ...... On January 2. 2014) for $645.. Chico issued $600..................................000 36..... Interest Expense ...........325 Copyright © 2013 John Wiley & Sons Canada....500 b. 2016...... Instructions a...... *187.. 7........ Round all values to the nearest dollar..771 *$180......... or transmission of this page is prohibited ... ............................................................................000 d........... The company decides to refund the bonds by selling a new 6% bond issue to mature in five years...............325 x 40%)……......................000.......Test Bank .. the market rate of interest has declined........................ 329........................... 121.. Interest is payable semi-annually on June 30 and December 31...000.............................................. Tenth Canadian Edition a... Solution 14-66 Interest Expense . sold 8%........ 36............ 908... LaBrea retired 20% of these bonds at 101 plus accrued interest..........000 x 1.......... Interest Expense . Instructions Prepare journal entries to record the retirement.. Ltd..000 worth Copyright © 2013 John Wiley & Sons Canada. Bonds Payable (897...................... Interest on the bonds is payable semi-annually on August 1 and February 1.......... and the market price of Fresno's bonds has increased to 102.... 2014.................... five year bonds with a maturity value of $2........000 for $1......28 Test Bank for Intermediate Accounting.com Also you can contact us on Skype: Ebooksmtb 14................250 Bonds Payable ($30...... 14-66 Retirement of bonds On December 31....... Cash…………………………………………………… ........... 29....................651 Interest Payable ..... 358..000 × 20% × 3 ÷ 120) ....................... distribution.... 40. LaBrea uses straight-line amortization..........03 x 40% = 329...... 908..............................................5% × 3 ÷ 12) .000 The bonds have a face value of $600.......................... LaBrea Corp.................000 Cash .......5% bonds payable...Solution Manual Please visit our website : http://www.............. 2............... 3............ Show calculations and round values to the nearest dollar... 2021 $576..650) = $115................ On April 1...... By October 1............... 150 Bonds Payable .........600 Gain on Redemption of Bonds .needbook1................ or transmission of this page is prohibited .......964. For more Ebook's ....... 40.350 Ex........ 2014.....600 Ex..000............000 x 20% x 93 ÷ 120 = $4............... 2...722 b............... 2013..000 (Interest expense: $908........................................850 Cash ...200 *$120..................000 less unamortized discount of ($30..... 2014.....330 Bond retirement price = 800..................... 2011 at 95......’s statement of financial position included the following: 7....... Unauthorized copying.......400 Cash ($600................349 Bonds Payable ... and were issued on December 31....... 5.............. due December 31............. Fresno begins to reacquire its 8% bonds in the market and is able to purchase $600.....930 Cash .........722 Bonds Payable .............350 Loss on Redemption of Bonds ................ The bonds are callable at 104 at any time after August 1...349) c......... *115.....................................................000 × 20% x 7..com/ or contact us at [email protected] × 8% × ½ = $36....... 40........ 14-67 Early extinguishment of debt On August 1.. Interest Payable . 2012...... .................... Fresno Inc...... ...000 Book value 322......000 Copyright © 2013 John Wiley & Sons Canada.... Solution 14-67 Reacquisition price: $600.... d...979. 98...000 Equipment .04 = 1........000 Gain on Settlement of Debt ..000 Fair value of equipment 285...........068.................. 420.. Wilde agrees to accept from Oscar equipment with a fair value of $285.. 37............ 27..... Cost $420... and accumulated depreciation to date of $98. Instructions Calculate Fresno’s total gain or loss in reacquiring the 8% bonds..400 1.......29 at 102. c. b..000 Fair value of equipment 285..... To settle the debt. 14-68 Accounting for a troubled debt settlement At December 31......000............ for a $300.......000 $1.......600 Loss on redemption $ 88..000 Accumulated depreciation 98.............................000 Interest payable 27.............. Show calculations... Oscar is now in financial difficulty and cannot repay Wilde.... 300........ Note payable $300..............000............ 42........ Assume the company uses straight-line amortization.. Calculate the gain or loss to Oscar on the settlement of the debt.....................Solution Manual Please visit our website : http://www.000 b......com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. Prepare the journal entry on Oscar's books to record the settlement of the debt.000 × 1.needbook1.....000 Unamortized discount ($36...........000 Loss on disposal of equipment $ 37.400.000 Interest Payable ...000 Accumulated Depreciation ..400 Ex......000... Prepare the journal entry on Wilde's books to record the settlement of the receivable.000.... owes Wilde Corp.02 = $612..................com/ or contact us at [email protected]......... 2014...........Test Bank ....000 note payable.000 Gain on settlement of debt $ 42..000 Loss on Disposal of Equipment ........ an original cost of $420...............................000 Less carrying value: Face value 2...000 $2.......................... The remainder of the outstanding bonds are acquired by exercising the bond call feature.... For more Ebook's ... plus accrued interest of $27.. or transmission of this page is prohibited .. Unauthorized copying.. Solution 14-68 a... Calculate the gain or loss to Oscar on the transfer of the equipment... Instructions a.... Ltd......000 c.000 × 1. distribution....456...000 × 34 ÷ 60) = 20. Oscar Ltd..... Notes Payable .............000 Carrying value of debt 327... ... 300.... distribution.... 2016.......... 37......000 Interest Receivable .....500 ÷ $385.................................................... 85.000 Notes Payable .....500 Interest Receivable . Imputed interest rate FV 350000 PV 299500 PMT (14000) ($350.. 2014.................................... 2015 c. 42...................... Solution 14-69 At the time of redemption...... 285.....000 accrued interest payable) to Stockton Corp...000 Copyright © 2013 John Wiley & Sons Canada..500 The new debt differs by more than 10%: $85....500 Notes Receivable ......000 New debt: PV (given) = $299...61%) ...............000 Notes Receivable ...........000 = $385... Any excess of the carrying value over the reacquisition price is a gain from redemption...com/ or contact us at Ebooksmtb@hotmail................ 85............................ or transmission of this page is prohibited ..........needbook1.... any unamortized premium or discount must be amortized up to the reacquisition date.......................... The present value of the restructured cash flows is $299..............................000 Interest Payable .......................500 Gain on Restructuring ........................................... while any excess of the reacquisition price over the carrying value is a loss from redemption.. 35............... Tenth Canadian Edition d...... including any call premium and expense of reacquisition......... the restructure on Stockton’s books.... the restructure on Riverside's books b................. Instructions Prepare entries for the following: a.. Equipment ....................... 23.............767 Cash ...... 27..000 Ex.....500 × 12.................Test Bank ................................. 14........ Loss on Restructuring .... Old debt: PV = $350..........30 Test Bank for Intermediate Accounting............500 b....000 note (with $35......... Unauthorized copying........com Also you can contact us on Skype: Ebooksmtb 14.... 14-69 Accounting procedures for bond redemptions Describe the accounting procedures for the early redemption of bonds................ 35...... is the reacquisition price................ and reduce the interest rate to 4%... 350.......000 + $35.. Ex.......767 c......................... Riverside Inc.............. Solution 14-70 a....................................500............61% Interest Expense ($299........................................... extend the maturity date to December 31....................................... 14-70 Accounting for a troubled debt restructuring On December 31. 299.......... Stockton agrees to forgive the accrued interest.........................000 Notes Payable (new) ... is in financial difficulty and cannot pay a $350.......................................2% Notes Payable (old) ......000 Loss on Settlement of Debt .......................... Ltd............ For more Ebook's ........ The amount paid on early redemption... 50.....000 = 22........... the payment of interest on December 31.................000 x 4%) CPT %i => 12.....Solution Manual Please visit our website : http://www.................. com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14.Test Bank .31 Ex. a gain is measured by the debtor as the difference between the fair value of the assets transferred and the carrying amount of the debt. If the carrying amount of the payable is greater than the discounted total future cash flows. Future payments are used to reduce the principal and record interest expense. the gain is measured as the difference between the carrying amount and the discounted future cash flows. What are the general rules for measuring and recognizing a gain and for recording future payments by the debtor in a troubled debt restructuring? Solution 14-71 a.needbook1. based on currently prevailing interest rates.Solution Manual Please visit our website : http://www. The debtor also recognizes a gain or loss on the disposal of assets as the difference between the fair value of the assets transferred and their book value.com/ or contact us at Ebooksmtb@hotmail. What are the general rules for measuring and recognizing gain or loss by the debtor on a settlement of troubled debt. For more Ebook's . b. which includes the transfer of noncash assets? b. Copyright © 2013 John Wiley & Sons Canada. distribution. 14-71 Accounting for troubled debt a. Ltd. If the settlement of debt includes the transfer of noncash assets. or transmission of this page is prohibited . The gain is separately classified in the income statement and the nature of the restructuring is disclosed if the amount of the gain is material. The same treatment is given if a loss results. including accrued interest. Unauthorized copying. 2014. 2014. 2011. You are under pressure from the Board of Directors to show improvement in the bottom line.com/ or contact us at [email protected]. and many distributors have placed large orders for Superior’s equipment.465. For more Ebook's .000 Additional information: Copyright © 2013 John Wiley & Sons Canada. Superior issued a 12%.000. In recent months however.000 Operating income before interest expense 2. Ltd.needbook1. or transmission of this page is prohibited . Tenth Canadian Edition PROBLEMS Pr. and you have just met with the company’s CFO. ratios.000 Gross profit 8.000 Bond interest expense ? Income before income tax ? Income tax (35%) ? Net income ? Statement of financial position Current assets 14.000.000 Current liabilities 9. You have been on the job for a year after the previous CEO was fired for missing earnings targets. You are the CEO of Superior. 2014. Interest is payable semi-annually on June 30 and December 31. Below is a summary of those statements: Income Statement $ Sales 28. $10.000.000. Ms. Delivery of the equipment is expected in 2015 and 2016. distribution.300.Solution Manual Please visit our website : http://www.000 Non-current assets 22.000. she has prepared forecasted financial statements.Test Bank . It is now November 30.000 bond.700. debt covenants Superior Equipment Corporation is a public Canadian company manufacturing high-precision equipment. the bond had a carrying value of $9. but has not included the effects of the $10.000 Bonds payable ? Shareholders’ equity ? Total liabilities and equity 36. Superior’s business is cyclical and the last two years have been tough. The bond carries covenants that call for the firm’s debt to total assets ratio to be no higher than 50% and their times interest earned ratio to be at least 2. Unauthorized copying. there have been signs of recovery in the industry. The company uses the straight-line method of amortizing any bond premium or discount. Grimm. You are a McGill University grad with a major in Accounting.com Also you can contact us on Skype: Ebooksmtb 14.000 Total assets 36. maturing in ten years. On January 1. In preparation for the coming year end on December 31. At January 1.000. 14-72 Bond accounting.000.000 COGS 20.700.000 Operating expenses 5.000 bond issue.700.32 Test Bank for Intermediate Accounting.000. .....000.000 On December 31............000 = 1..Solution Manual Please visit our website : http://www. Complete the forecasted financial statements for December 31....750 1 Interest expense = (10..........235..........235....... 600........ is Superior forecasted to be in violation of the debt covenants? If yes.. 2014....000 Bond payable .... 2014 is $600...............000 x 12%) + 100.....000 b.......................... Given your calculations in part c......000 Gross profit 8......250 Copyright © 2013 John Wiley & Sons Canada........000 Bond interest payable ...000 for the fourth quarter....... The last time entries were recorded for the bond was at the end of the third quarter (September 30.. Superior should post the following entry: Interest expense .............535.300.............. or transmission of this page is prohibited ... c..465........ Prepare the journal entries related to the bond payable for the last quarter of 2014.. Income Statement Sales 28........... $25...... what action(s) would you recommend? Discuss the advantages/disadvantages of each recommendation.. 325..000..... Instructions a................ Unauthorized copying.....2502 Net Income 802......... On September 30.....com/ or contact us at Ebooksmtb@hotmail.. at the end of the third quarter..... 25...... d.000.000...000 Bond interest payable ......... calculate the times interest earned and debt to total assets ratios. the company did not incur any other interest expense.... For more Ebook's .. distribution.......000 x 35% = 432... The entries should reflect the payment of interest and related amortization of the premium or discount......... 300.................. 300. 2014 by including the effects of the bond payable........... Amortization of the premium is $100.......300................. Half of this is to be recorded as interest expense for this quarter.000 per year............... Ltd...000 Income tax (35%) 432..........000 2 Income tax = 1.......000 COGS 20... when adjusting entries were prepared.000 Bond interest expense 1..000 Bond payable ......... b..........000 Operating expenses 5......... the following entry would have been posted: Interest expense .... 2014).....000.000 Operating income before interest expense 2. 2.......000 x12% x 6 ÷ 12)..... Except for the bond. 2014.....0001 Income before income tax 1.......com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14............000 ($10.... Using the financial statements from part b........ 325..............................................................000 Cash .. The interest to be paid on December 31.Test Bank . Solution 14-72 a........needbook1......................... 25.......33 1....... 000) = 18.400. For example.Test Bank . Ltd. or possibly run the risk of a negative stock-market reaction for being in violation of the covenants.95 Interest Expense 1. Superior is forecasted to be in violation of the debt covenant.000 = 0. Apply earnings management techniques to increase earnings and total assets.000 (face value) bonds for $438.com Also you can contact us on Skype: Ebooksmtb 14.700.com/ or contact us at [email protected] = 14.34 Test Bank for Intermediate Accounting. For more Ebook's .000 36.000. cut back on discretionary expenses such as advertising.400.300. buy some of them back to extinguish some of the debt.000 x 12%) + 100. sold 10 year. Meet the creditors. the ratios are very close to the minimum requirements. Renegotiate with the creditors.100. Unauthorized copying. Tenth Canadian Edition Statement of financial position Current assets 14. The above options might be challenging given the need to convince many creditors and the possible market reaction.400.535.000 = 1. which will also reduce the related interest expense.235. Santa Ana Corp.needbook1.000 Current Liabilities 8. 14-73 Bond interest and discount amortization On June 1.000 c. Pr. might help to avoid the debt to total assets ratio violation.000 (plug number) Total liabilities and equity 36.000 = 9.000 x 35% = 432.000 4 Bonds payable = carrying value Jan 1/11 + 2014 amortization = 9.000. present your case of expected economic recovery and ask them to wait one more quarter before acting or to waive the covenants for a short period.800.5014 Total assets 36. 5.700.000 Total assets 36. As CEO. 2014.100. 4.300.000 2 Income tax = 1.100.Solution Manual Please visit our website : http://www.000 + 9. $500. you could recommend one of the following: 1.000 +100. Times Interest Earned = Income before income taxes and interest = 2.000 Debt to Total Assets = Total debt = (8. etc. but might be too late to avoid interest expense and the violation of the times Interest earned ratio violation. and pay interest annually on May 31 of each year. repairs & maintenance.000 d. using the proceeds to pay your suppliers earlier may improve relations if a potential debt restructuring is to be negotiated. The bonds have a stated interest rate of 8% and a yield of 10%. 3.000 Bonds payable 9. 2. Do nothing and run the risk of a default on the bond. 6.100.0003 Non-current assets 22. promotion.100. Sell some operating assets that will yield a gain and use the proceeds to lower debt. The bonds are to be accounted for using the effective interest method.000 = 1.700.300. If these are callable bonds or they can be purchased on the open market. or transmission of this page is prohibited . Option 4.0004 Shareholders’ equity 18.250 3 Current assets = 14.100.000. distribution.000 1 Interest expense = (10. However. Copyright © 2013 John Wiley & Sons Canada. For example.000 – 600.100. Calculate the interest expense to be reported in the income statement for the year ended Copyright © 2013 John Wiley & Sons Canada. Instructions a... 2016... due on October 1... Irvine Corp..695 (from Table) = $26..000 due in 10 years at 10%. issued $400.. (3) Add (1) and (2) to obtain the present value of the principal and the interest payments. (1) Find the present value of $500. Solution 14-73 a........000 $43........com/ or contact us at Ebooksmtb@hotmail. Unauthorized copying.. 2.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14..000 at 10%........ The bonds were sold to yield 10% effective annual interest.643 May 31/18 40.......... 2019.. Calculator: N 10 %I 5 PMT 40000 FV 500000 CPT PV c. Ltd.Solution Manual Please visit our website : http://www. For more Ebook's ..... Explain how one would determine the price using present value tables..... **23...880 $3...000 8% bonds. or by using a calculator........000 44... Discount Carrying Cash Paid Interest Expense Amortization Amount of Bonds Oct 1/14 $369....... c...........948 May 31/17 40..35 Instructions a.... Assuming that interest and discount amortization are recorded each May 31... Interest Expense ........072 ** 7 ÷ 12 × 8% × $500.... Irvine has a calendar year end... Prepare the adjusting entry required for these bonds at December 31.000 45..... b.... or transmission of this page is prohibited ..... Include only the first four years........ Construct a bond amortization table for this bond to indicate the amount of interest expense and discount amortization at each May 31.072 Interest Payable ....880 442.... and round to the nearest dollar. Discount Carrying Date Cash Paid Interest Expense Amortization Amount of Bonds Jun 1/14 $438... *26. 14-74 Bond interest and discount amortization On October 1..739 *7 ÷ 12 × $44... Use the effective interest method. distribution..... Make sure all columns and rows are properly labelled. Interest is to be paid semi-annually on April 1 and October 1.807 b.......800 was determined from present value tables.. c............164 5.Test Bank ..... 2014...333 Bonds Payable ....268 446.. (2) Find the present value of 10 annual payments of $40..695 451..........800 May 31/15 $40.......... Round all answers to the nearest dollar.............. Complete the following amortization schedule for the dates indicated... 2016 (fiscal year end).000 44..695 4.... Round values to the nearest dollar...680 May 31/16 40...needbook1........ The sales price of $438.112 Apr 1/15 Oct 1/15 b..164 456.....268 4.. prepare the adjusting entry at December 31..000 = $23.333 Pr.. June 1 Paid semi-annual interest on the bonds.....needbook1... December 1 Paid semi-annual interest on the bonds. including accrued interest.354 c.112 Apr 1/15 $16... Pr. with all changes in fair value recognized in net income.. Interest is payable semi-annually on December 1 and June 1 with the bonds maturing 10 years from the previous December 1.... if the credit risk is deemed to be high.. However. $ 9. the carrying value of the debt should be reduced (e.... an option encouraged by standard setters.160 Pr.. 9..000 (face value) 8% bonds for $218.. Show calculations and round to the nearest dollar..Solution Manual Please visit our website : http://www. Ltd.. although the requirements differ...456 $2...36 Test Bank for Intermediate Accounting. Tenth Canadian Edition December 31.......... Dr Bond Payable) and a gain recognized.......000 $18..... Interest Expense ($374.. Any such gain is booked to Other Comprehensive Income. This gives rise to a peculiar situation..228 (1/2 of $18.578 2.578 374..... whereby financial instruments are carried at fair (market) value. 2016...000 face value bonds at the Copyright © 2013 John Wiley & Sons Canada.. since... 8. 14-75 Fair value option Explain the fair value option for accounting for long-term debt.....568 Oct 1/15 16....000).. The bonds are callable at 102..456) 18..578 9..g. 14-76 Entries for bonds payable Prepare the necessary journal entries to record the following transactions relating to the long- term issuance of bonds by Glendale Corp..354 $37... Solution 14-74 a.com Also you can contact us on Skype: Ebooksmtb 14. As well..000 Bonds Payable ($9.000) .. March 1 Issued $200......354 Interest Payable (1/2 × $16..456 371...000 18..146 b..040.146 × 10% × 3 ÷ 12) . distribution. IFRS explicitly requires that the option be used only where fair value results in more relevant information.......Test Bank ... Discount Carrying Cash Paid Interest Expense Amortization Amount of Bonds Oct 1/14 $369. IFRS 13 requires that non-performance risk (including credit risk) be included in the fair value measurement. Solution 14-75 Long-term debt is usually accounted for at amortized cost.. both ASPE and IFRS allow the use of the fair value option.... Use straight-line amortization for any premium or discount. 1... For more Ebook's .com/ or contact us at Ebooksmtb@hotmail..... and then purchased $100....354 – $8.. ASPE allows the use of the fair value option for all financial instruments... including both the ASPE approach and the IFRS requirements.. Unauthorized copying............ or transmission of this page is prohibited . 4...000 Bonds Payable ($16....... 7.......... 12.................... 8........000 + $840)....................280 Cash .............. Solution 14-77 a........ c.........000 × 8% × 3 ÷ 12) ................000 Bonds Payable ...640 Bonds Payable ($14..........000................ 14-77 Entries for bonds payable Prepare journal entries to record the following transactions relating to long-term bonds of Lancaster Inc................ For more Ebook's .....................................000 × 6% × 6 ÷ 12) + $280 ................. using straight-line amortization.......... The bonds are callable at 102................................840 Cash ...... 4.................. 2014................ Assume that a reversing entry was made on January 1.. 12....................................................................................... or transmission of this page is prohibited ..................................... 218........240 × 2 ÷ 116) ..........000 of the bonds at the call price.......................... Lancaster Inc. 360 Cash ............. 391...........................760 Interest Expense ($400................................. 214.............................. On June 1.. and interest is payable semi- annually on February 1 and August 1 with the bonds maturing on February 1........... a...................Solution Manual Please visit our website : http://www.................040 × 6/117) ......................................................... 8...................... Cash . Interest Expense ($400.........Test Bank ......com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14..... 102..........480 Cash . including accrued interest...........280 Bonds Payable ($14............................040 x 108/117 x 50% = $6..............000 × 6% × 4 ÷ 12) .......... On August 1..................... Unauthorized copying................ 7................ 720 Cash ........... 280 c........ distribution........240 × 6 ÷ 116) ..........................040 Bonds Payable ....000 plus unamortized Premium ($14... d......040 Interest Expense ($200................................................................... 2016...................... 2016.................480 Pr........000 Bonds Payable ($16................ 8............. On February 1....needbook1......480) = 106.37 call price in accordance with the provisions of the bond indenture... 12.................................. 383....................480 Gain on Redemption of Bonds ................com/ or contact us at Ebooksmtb@hotmail......................... b....760...000 *$100................ Solution 14-76 March 1 Cash ......................760 Bonds Payable .... Lancaster paid the semi-annual interest and recorded amortization of the discount or premium... 12...... Lancaster paid the semi-annual interest and recorded the amortization of the discount or premium..................040 × 3 ÷ 117) .. The bonds were dated February 1......................... *106... 6% bonds for $391......... 2014.............. The company then purchased $240............000 June 1 Interest Expense ................................. 2014......... 2024......... Ltd.... Show calculations and round to the nearest dollar......................000 December 1 Interest Expense . Interest Expense ($12..000 b............. 840 Copyright © 2013 John Wiley & Sons Canada........ issued $400................... .936 Pr........... On June 1.... Ltd..........................689 Bonds payable .. Cash .........................884 439.com/ or contact us at [email protected] in long-term bonds..... Prepare the journal entries to record the partial retirement on June 1. At that time the bonds were selling at 98...Test Bank ........811 Interest expense for 2014 = 21..181 445.......... 12..... For more Ebook's ..... etc.........181 2..................078 2... 14-78 Accounting for bond issuance and retirement Twilight Corp..979 441...........689 b.. Twilight sold $500... Interest Discount Carrying Value Date Cash Expense Amortization of Bonds Jun 1/14 437. Calculate the gain or loss on the partial retirement of the bonds on June 1..000 21..936 Loss on Bond Redemption . Other bonds that Twilight has issued with identical terms are traded based on a market rate of 10%....38 Test Bank for Intermediate Accounting......... d..689 a. 437..884 1..... or transmission of this page is prohibited ................ The bonds will mature in 10 years and have a stated interest rate of 8%.800 *$240...........000 21.. b. an audit firm.needbook1................ desired to raise cash to fund its expansion by issuing long-term bonds.........240 x 96 ÷ 116 x 60% = $8...548 c...979) = 25.......000 22......... distribution..... The bonds are to be accounted for using the effective interest method.... The bonds pay interest semi-annually on May 31 and November 30...... 2016. e. Solution 14-78 PV of bonds (i.....................979 1... 2016 Twilight decided to retire 20% of the bonds..... The corporation hired an investment banker to manage the issue (best efforts underwriting) and also hired the services of a lawyer...078 443....... Instructions (Round all values to the nearest dollar) a....e........ 437... Tenth Canadian Edition d...........Solution Manual Please visit our website : http://www.000 less unamortized Discount ($16.573 May 31/15 20.064) = $231.........884 + (1 ÷ 6 x 21. On June 1...000 22............... Copyright © 2013 John Wiley & Sons Canada. 2014.....com Also you can contact us on Skype: Ebooksmtb 14... selling price) N 20 %i 5 PMT 20000 (500....689 Nov 30/14 20.. 2016. Prepare all entries from after the issue of the bond till December 31...630 May 31/16 20... Prepare the journal entry for the issuance of the bonds on June 1..... Bonds Payable .. 2014.......... Unauthorized copying... 2014............ 244. *231..864 Cash ...........000x 4%) FV 500000 CPT PV => $437.......... What was the interest expense related to these bonds that would be reported on Twilight’s calendar 2014 income statement? c......552 Nov 30/15 20.......... .........811..................884 Dec 31/14 Interest expense (1 ÷ 6 x $21............ distribution...Test Bank .com/ or contact us at [email protected] Bonds payable ....... who owes Claus Corp...........000 and a recorded cost of $340......... the carrying value of the bond as of May 31........................... Calculate the amount of gain or loss to Santa on the transfer (disposition) of the land...com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14............ b.... 3..................979) ........000 Cost of land to Santa 340.....000 c............... Claus agrees to accept from Santa land having a fair value of $455..........................000 Pr................................. 600.......000 Copyright © 2013 John Wiley & Sons Canada.................. Calculate the gain or loss to Claus from settlement of the receivable from Santa.884 Cash ........................Solution Manual Please visit our website : http://www...39 Nov 30/14 Interest expense ......... Fair value of land 455..........................................................................000 Gain on disposition of land $ 115............................... Carrying amount of debt $600................... Per the amortization table in part b....000 x 20% x.....000 Gain on settlement of debt $ 145. $98..... 115............... 98................. 145..........838 Cash ......... Prepare the journal entry on Claus's books to record the settlement of the receivable..838) e.............. 89...............................98) ............. d....... Unauthorized copying.000 Bond carrying value ($445............................... $600.................. Solution 14-79 a..........000 in notes payable.......... Calculate the amount of gain or loss to Santa on the settlement of the debt.. Carrying amount of receivable $600... Cost to repurchase ($500............................... c................... Instructions a............................000 Land .... $ (8......000 Fair value of land given 455............... Note Payable ..162 Loss on bond redemption ............................000 Bonds payable ........... For more Ebook's ..... 340....................000 Gain on Disposition of Land ...811 x 20%) .................... 3............ 8... Prepare the journal entry on Santa's books to record the settlement of the debt.. 20............ is in financial difficulty................................000) ..................000 Gain on Settlement of Debt .000........needbook1.................... To eliminate the debt. 89..... 21........ 14-79 Accounting for a troubled debt settlement Santa Ltd.....162 Loss on bond redemption ........................ 2016 is $445.........000 d........... 1................................. Bonds payable ....663 Interest payable (1 ÷ 6 x $20........................... or transmission of this page is prohibited .................................000 b........... Ltd........ e........ 330 d.............. ........ 145........000 Note Receivable .........com/ or contact us at Ebooksmtb@hotmail................ For more Ebook's .000 e............ 600......needbook1........Test Bank ...........40 Test Bank for Intermediate Accounting........ Ltd.. 455....... Land .... distribution.............000 Loss on Settlement of Debt .........Solution Manual Please visit our website : http://www....................... Unauthorized copying....................................... or transmission of this page is prohibited ......000 Loss on settlement of debt $145....... Tenth Canadian Edition Land received in settlement 455...............com Also you can contact us on Skype: Ebooksmtb 14....................000 Copyright © 2013 John Wiley & Sons Canada........... All rights reserved. Ltd. Copyright © 2013 John Wiley & Sons Canada. For more Ebook's . mechanical. made available on a network. This manual is furnished under licence and may be used only in accordance with the terms of such licence. The data contained in these files are protected by copyright.com Also you can contact us on Skype: Ebooksmtb Long-Term Financial Liabilities 14. The material provided herein may not be downloaded. or transmission of this page is prohibited . Ltd. reproduced. stored in a retrieval system.41 LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. scanning. or transmitted in any form or by any means. distribution.Test Bank . electronic. Ltd. or otherwise without the prior written permission of John Wiley & Sons Canada. modified.Solution Manual Please visit our website : http://www. recording. photocopying.needbook1. used to create derivative works. Unauthorized copying. or related companies.com/ or contact us at Ebooksmtb@hotmail. com Also you can contact us on Skype: Ebooksmtb CHAPTER 15 SHAREHOLDERS’ EQUITY SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 2 H *90. or transmission of this page is prohibited . 8 M 69. 2 M 38. 2 M *57. 2 M 115. 2 M 119. 2. 5 M 5. 8 M 11. 7 M 108. 5 H *100. 2 M *54. 2 M 26. 2 H 37. 1 M 25. 2 M 30. 2 M 76. 7 M 61.needbook1. 2 H *51. 2 M 72. 2 M 28. 5 H *98. 2 M *124.3 M *95. 7 H 10. 2 H *91. 2 E 118. For more Ebook's . 2 M 88. 5 H *99. 4 M Multiple Choice–Computational 59. 5 M *96.Solution Manual Please visit our website : http://www. 2 M 79. 2 E 77. 2 E *123.Test Bank . 8 M 70. 2 H 82. 5 M *97. 7 M 66. 7 M 64. 2 M 112. 2 M 39. 2 M *55. 1 E 17. 2 M 81. 2 E 111. 1 E 20. 2 H 86. 2 M 113. 7 M *102. 5 M 4. 8 H 12. 7 M 8. 2 M 35. 7 M 65. 7 H *104. 7 M *103. 1 M 24. distribution. 2 M 33. 2 M 44.com/ or contact us at Ebooksmtb@hotmail. 2 M 83. 2 M 87. 2 M 71. 7 M 62. 2 M 50. 2 M *121. 5 M 3. 2 M 48. 2 M *56. 2 E 41. 2 M 80. 7 M 107. 2 M 43. 2 M 45. Unauthorized copying. 7 H 63. 2 M *122. 2 M 73. 8 H 14. 3 E 15. 8 M 110. 2 M 114. 2 M 27. 2 M *52. 1 M 22. 2 E 116. 2 H 78. 8 H 13. 1 E 23. 2 M 89. 2 M 49. 5 H *101. 2 M *53. 2 M 75. 2 M 74. 5 H 6. 2 M 29. 2 M 117. 2 M 34. 2 M *94. 2 H 36. 1 M 21. 7 H 9. 7 H Multiple Choice–CPA Adapted 106. 2 M 47. 2 M *93. 2 M 84. 2 M *92. 2 M 40. 1 E 19. Ltd. 2 H 32. 8 M 68. 1 E 16. 4 M 2. 2 M 31. 7 M 109. 7 H *105. 7 M Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada. 2 M 42. 7 M 60. 7 H 67. 2 M 46. 7 M 7. 1 E 18. 2 M *58. 2 M 85. 2 M *120. 3 H *153. 2 M 131. 2 H 152. 2 M *143. 2 M 148. 2 M 132.needbook1. 3 M 147. 2 M 137.com/ or contact us at [email protected] H 130. 3. For more Ebook's . 2 M 150. 2 M *144.Solution Manual Please visit our website : http://www.Test Bank . 2 M 149. 2 M 136. 8 M 127. 2.2 Test Bank for Intermediate Accounting. 2 M 135.3 M 129. 2 M 134. Tenth Canadian Edition SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY (CONTINUED) Item LO LOD Item LO LOD Item LO LOD Item LO LOD Exercises 125. 2 H 151. 8 H 128. or transmission of this page is prohibited . 2 H *142. 7 H 126. distribution. 2 M 133. Ltd. 2 M 140. 2 M *141. 2 M 138. 7 M Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada.5. 7 M Problems 146. Unauthorized copying. 2 M 139.com Also you can contact us on Skype: Ebooksmtb 15. 2. 2 M *145. Pr Learning Objective 8 *55. MC 33. MC 42. Ex 146.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. Pr 25. Ex 151. MC *93. MC 116. MC *121. Ex 16. MC 130. MC 118. MC 80. For more Ebook's . MC 138. MC 87. Ex 12. MC 29. MC 31. MC 28. MC 63. Ex 150. MC 77. MC *94. MC 126. Ex Note: MC = Multiple Choice Ex = Exercise Pr = Problem Copyright © 2013 John Wiley & Sons Canada. MC *100. MC *99. MC 83. MC 72. MC *145. Ex *56. Ex 15. MC 65. MC 62. MC 132. MC Learning Objective 7 *51. Pr 20. Ex *54. MC *92. MC 30. MC 127. Ex Learning Objective 3 44. MC *144. Ex 48. MC 2.Solution Manual Please visit our website : http://www. MC 108. MC 78. MC 50. MC 49. MC 117. MC 64. MC 131. MC 129. MC *142. MC 134. MC 74. MC 89. MC *103. MC *91. Pr 24. MC 113. MC 46. MC Learning Objective 2 11. MC 41. MC 111. MC 71. MC *95. MC 9. MC 139. Ex 148. MC 84. MC *153. MC Learning Objective 5 47. Ex 17. Ex *90. MC 133. Ex 13. MC 85. MC 114. MC *102. MC 67. Ex 19. MC 106. MC 76. MC *101. Ex 26. MC 60. MC 112. MC *97. MC 39. MC 32. MC 119. MC 3. Ex Learning Objective 4 45. Unauthorized copying. MC 109. Pr 22. MC 73. MC 68. MC *57. Ex 14. MC 82. MC *143. Pr 23. MC 34.Test Bank . MC 135. MC 86.3 SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 1 1. MC 38. MC 140. MC 107. MC 140. Ex *53. MC 6. MC 75. MC 5. MC 115. MC *58. Ex 18. MC 36. Pr 21. Ex 149. MC *123. MC 7. MC *104.com/ or contact us at Ebooksmtb@hotmail. MC 141. MC *52. MC *120. MC 136. MC 88. MC *141. MC 10. MC 37. MC 110. Ex 147. MC 61. MC *124. MC 27. MC 70. MC 137. MC 128. MC *98. MC 40. MC 69. MC 35. MC 43. MC *122. Ltd. or transmission of this page is prohibited . MC 81. MC 66. MC 83.needbook1. MC 59. MC 4. Ex 141. MC *96. MC 79. MC 8. MC 125. distribution. MC *105. 2. Contributed Surplus. (2) to share proportionately in management (the right to vote for directors). A stock split results in an increase or decrease in the number of shares outstanding. Incorporation gives shareholders protection against claims on their personal assets and allows greater access to capital markets. in which case they are not considered legally issued until they are paid up. and fully participating. and Accumulated Other Comprehensive Income.4 Test Bank for Intermediate Accounting. each share carries the following rights: (1) to share proportionately in profits and losses.Solution Manual Please visit our website : http://www. A statement of changes in shareholders’ equity is required under IFRS. If the reacquisition cost of the shares is greater than the original cost. The total shareholders’ equity remains unchanged with a stock dividend. or transmission of this page is prohibited . in which case the cost must be allocated between the securities. rights of shareholders. and retirement of shares. Preferred shareholders give up some or all of the rights normally attached to common shares. Dividends paid to shareholders are affected by the dividend preferences of the preferred shares. An additional right to share proportionately in any new issues of shares of the same class (called the preemptive right) may also be attached to the share. Ltd. then contributed surplus. Understand the components of shareholders’ equity and how they are presented. If there are no restrictive provisions. and corporation. and then retained earnings. the acquisition cost is allocated to share capital. Discuss the characteristics of the corporate form of organization.com/ or contact us at [email protected]. Tenth Canadian Edition CHAPTER STUDY OBJECTIVES 1.com Also you can contact us on Skype: Ebooksmtb 15. Many other preferences may be attached to specific shares. no accounting entry is required. partially participating. Preferred shares are a special class of share that possess certain preferences or features that common shares do not have. Copyright © 2013 John Wiley & Sons Canada. The three main forms of organization are the proprietorship. distribution. or non-participating.Test Bank . Retained Earnings. The residual or relative fair value methods (sometimes referred to as the incremental or proportional methods) may be used to allocate the cost. Accumulated other comprehensive income is accumulated non-shareholder income that has not been booked through net income. Most often. and different types of shares. reacquisition. upon liquidation. the cost is allocated to share capital (to stated or assigned cost) and to contributed surplus. The shareholders’ equity section of a balance sheet includes Share Capital. However. Explain how to account for the issuance. Shares are recognized and measured at net cost when issued. ASPE does not discuss this concept. Contributed surplus is additional surplus coming from shareholder transactions. partnership. and dividend distribution. 3. A stock dividend is a capitalization of retained earnings that generally results in a reduction in retained earnings and a corresponding increase in certain contributed capital accounts. these features are a preference over dividends and a preference over assets in the event of liquidation. If the cost is less. Shares may also be issued as a bundle with other securities. Unauthorized copying. For more Ebook's . stock splits. Preferred shares can be cumulative or non-cumulative. Shares may be issued on a subscription basis. IFRS requires a statement of changes in shareholders’ equity. This generally involves a change in control and a comprehensive revaluation of assets and liabilities.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. For more Ebook's . A corporation that has accumulated a large debit balance (deficit) in retained earnings may enter into a process known as a financial reorganization. Where there are restrictions on retained earnings or dividends.com/ or contact us at Ebooksmtb@hotmail. Copyright © 2013 John Wiley & Sons Canada. price earnings ratio.Test Bank . During a reorganization.5 4. this should also be disclosed. payout ratio. 7. The single-transaction method is used when treasury shares are purchased. (3) All assets and liabilities are comprehensively revalued at current values so that the company will not be burdened with having to complete inventory or fixed asset valuations in following years. Explain how to account for par value and treasury shares. Ltd. This method treats the purchase and subsequent resale or cancellation as part of the same transaction. Rights attached to shares should be presented.Solution Manual Please visit our website : http://www. Identify the major differences in accounting between ASPE and IFRS. 8. as noted in the comparison chart. and what changes are expected in the near future. the par value is removed from the common or preferred share accounts and any excess or deficit is booked to contributed surplus or retained earnings. companies must also disclose information about their objectives. creditors and shareholders negotiate a deal to put the company on a new footing. Explain how to account for a financial reorganization. they remain outstanding. and processes for managing capital and show summary quantitative information regarding what the company considers its capital. as was discussed for no par shares. Common ratios used in this area are the rate of return on common shareholders’ equity. and where dividends are in arrears. In several cases. The IASB and FASB are continuing to work on a financial statements project as well as a liability and equity project. (2) The change in control is recorded. and book value per share. that is. Basic disclosure requirements include authorized and issued share capital and changes during the period. On a repurchase or cancellation. 5. ASPE provides more guidance. The procedure consists of the following steps: (1) The deficit is reclassified so that the ending balance in Retained Earnings is zero.needbook1. distribution. whereas ASPE requires a statement of changes in retained earnings (with additional note disclosure regarding the changes in equity). Treasury shares are created when a company repurchases its own shares and does not cancel or retire them at the same time. These shares may only be valued at par value in the common or preferred share accounts. Under IFRS. policies. or transmission of this page is prohibited . 6. Understand capital disclosure requirements. The excess goes to contributed surplus. Unauthorized copying. this should be disclosed. Calculate and interpret key ratios relating to equity. Transactions causing a decrease in retained earnings b 22.com/ or contact us at [email protected] Test Bank for Intermediate Accounting. distribution. Effects of a stock split c 41. For more Ebook's . Unauthorized copying. Ltd. Legality of dividend distributions b 24. Direct costs of issuing shares c 15. Entry to record a liquidating dividend b 39. Effects of stock dividends and stock splits a 40. Cumulative preferred shares dividend provisions b 7. Determine false statement regarding property dividends d 28. Total shareholders' equity b 9. Reasons for issuing preferred shares c 10. Knowledge of what shares receive dividends b 43. Retirement of preferred shares c 21. REITs a 3. Allocation methods for a lump sum issuance a 14. Callable preferred shares c 8. Reacquisition of shares at greater than original issue price b 18. Common shares subscribed d 12. Tenth Canadian Edition MULTIPLE CHOICE—Conceptual Answer No. or transmission of this page is prohibited . Reporting of Common Stock Dividend Distributable a 37. Retirement of shares c 19. Large stock dividend b 36. Classification of subscriptions receivable b 13. Shares entitled to receive a cash dividend a 26. Features of cumulative preferred shares c 6.needbook1. Reacquisition of shares d 16. Timing of entry to record dividends c 25. Valid reasons for stock splits c 42. Effect of large stock dividend a 33. Noncumulative preferred dividends in arrears d 44. Significance of par value d 11. Classification of shareholders' equity Copyright © 2013 John Wiley & Sons Canada. Residual interest b 2.Test Bank . Knowledge of dividend declarations b 31. Reacquisition of shares at less than average share value c 17. Transactions causing an increase in retained earnings d 23. Knowledge of dividend declarations d 32. Description c 1. Effect of a stock dividend b 30.com Also you can contact us on Skype: Ebooksmtb 15. Preemptive right d 4. Shareholders’ liability b 5. Retirement of shares b 20.Solution Manual Please visit our website : http://www. Accounting for stock dividend c 35. Definition of a property dividend c 27. Fair value of a property dividend a 29. Liquidating dividend b 38. Accounting for stock split b 34. Rate of return on common shareholders’ equity b 49. Financial reorganization requirements b *58. Entry to record stock dividend c 68. Entry to record share subscriptions b 65. Reissuance of treasury shares at less than acquisition cost c *53. Balance of retained earnings after a financial reorganization b *57. Calculation of cash dividend allocation c 79. ASPE guidance *This topic is dealt with in an Appendix to the chapter. distribution. Effect of stock dividend on retained earnings a 72. Reporting treasury shares in the balance sheet c *54. IFRS vs.com/ or contact us at Ebooksmtb@hotmail. Cumulative preferred dividends in arrears c 46. Statement of Changes in Shareholders’ Equity (IFRS) b 47. Calculation of retained earnings after stock dividend c 70.7 Answer No. or transmission of this page is prohibited . Calculation of price earnings ratio d 50. Calculation of cash dividend allocation d 77. Calculation of contributed capital b 61. Book value per common shares a *51. outstanding d *55. Calculation of cash dividend allocation b 81. Calculation of cash dividends paid (given payout ratio) a 85.Test Bank . Effect of share cancellation on equity accounts d 75. Entry to record share subscriptions a 64. Calculation of price earnings ratio Copyright © 2013 John Wiley & Sons Canada. Calculation of cash dividend allocation a 83. Effect of share cancellation on equity accounts d 74.needbook1. Calculation of contributed surplus b 63. Determining occurrence of financial reorganization a *56. Share subscriptions a 66. Unauthorized copying. Calculation of share account balance a 62. Effect of stock dividend on retained earnings b 73. Description d 45. Calculation of cash dividend allocation b 76. Common shares issued vs.Solution Manual Please visit our website : http://www. Calculation of total equity a 84. MULTIPLE CHOICE—Computational Answer No. Property dividend c 67. Calculation of cash dividend allocation b 80. Calculation of share account after stock dividend a 69. Calculation of cash dividend allocation b 82. Sale of treasury shares a *52. Ltd. Description b 59.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. For more Ebook's . Calculation of payout ratio c 48. Calculation of cash dividend allocation b 78. Calculation of contributed surplus c 60. Effect on equity accounts after dividend declarations b 71. Effect of financial reorganization on retained earnings *This topic is dealt with in an Appendix to the chapter.Solution Manual Please visit our website : http://www. Calculation of rate of return on common shareholders’ equity b 88. Allocation of cash dividend to common and preferred shares c 113. Recording retirement of shares b *99. Calculation of book value a *90. Effect on deficit from revaluation of assets in a financial reorganization d *105. Calculate amount to credit preferred shares in lump sum issue. Accounting for share subscriptions c 110. Accounting effects of property dividends d 115. For more Ebook's .needbook1.Test Bank . Effect of reissuance of treasury shares c *123. Common shares issued in payment of services b 107. Description b 106. Calculate contributed surplus from retirement of shares.com Also you can contact us on Skype: Ebooksmtb 15. Retained earnings balance with treasury shares transactions a *100. Effect of reissuance of treasury shares c *122. *This topic is dealt with in an Appendix to the chapter. Calculate balance in retained earnings b *121. Cancellation of treasury shares c *95. Description b 86. Valuation of a property dividend a 114. Ltd. d 109. Copyright © 2013 John Wiley & Sons Canada. Calculation of contributed surplus with treasury shares transactions d *98. a 111. Effect of a stock dividend on total equity d 119. Calculation of rate of return on common shareholders’ equity c 87. Effect of stock dividend on retained earnings (with treasury shares) a *103. c 108. Tenth Canadian Edition Answer No. or transmission of this page is prohibited . Retained earnings balance with treasury shares transactions c *102. Total equity with treasury shares exchange c *97. Effect of treasury shares on number of shares outstanding c *124. Determine entry to incorporate a proprietorship. Effect of a liquidating dividend on equity accounts c 117. Adjustment of common shares in a financial reorganization b *104. Effect on income statement of sale of treasury shares c *91. Effect of a stock dividend on equity accounts d 118. Sale of treasury shares a *94. MULTIPLE CHOICE—CPA Adapted Answer No. Determine false statement regarding financial reorganizations. Effect of treasury shares on equity d *96. Retained earnings balance with cancelled shares b *101. Entry to record declaration of property dividend b 116. Cash dividend dates c 112. Calculation of price earnings ratio d 89. Effect of stock dividend and stock split a *120. Recording par value shares d *92. Retirement of par value shares c *93. Unauthorized copying.com/ or contact us at [email protected] Test Bank for Intermediate Accounting. distribution. 9 EXERCISES Item Description E15-125 Lump sum issuance of shares E15-126 Shareholders' equity E15-127 Share subscriptions E15-128 Shares issued in noncash transactions E15-129 Reacquisition of shares E15-130 Reacquisition of shares E15-131 Determination of dividend amount E15-132 Items affecting retained earnings E15-133 Stock dividends E15-134 Stock dividends and stock splits E15-135 Dividends on preferred shares E15-136 Dividends on preferred shares E15-137 Dividends on preferred shares E15-138 Dividends on preferred shares E15-139 Lump sum issuance of par value shares E15-140 True or false questions * E15-141 Calculation of selected financial ratios *E15-142 Treasury shares *E15-143 Treasury shares *E15-144 Financial reorganization *E15-145 Financial reorganization *This topic is dealt with in an Appendix to the chapter. Copyright © 2013 John Wiley & Sons Canada. non-cash consideration.Solution Manual Please visit our website : http://www. and by subscription P15-148 Allocation of cash dividends P15-149 Share retirement and stock dividends P15-150 Dividend distribution P15-151 Equity transactions P15-152 Statement of Shareholders’ Equity *P15-153 Treasury share transactions *This topic is dealt with in an Appendix to the chapter. PROBLEMS Item Description P15-146 Issuance of shares for cash. Unauthorized copying. For more Ebook's . Ltd.Test Bank . and by subscription P15-147 Issuance of shares for cash.needbook1.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. non-cash consideration. or transmission of this page is prohibited . distribution.com/ or contact us at Ebooksmtb@hotmail. Ltd. equal to an amount sufficient to satisfy all creditors. 6. receive the same amount of dividends on a percentage basis as the preferred shareholders. Dividends on cumulative preferred shares a. receive cash dividends before other classes of shares without the preemptive right.Solution Manual Please visit our website : http://www. 5.needbook1. For more Ebook's . limited to their property or service invested in the corporation. The liability of shareholders is a. 4. d. must be paid each year. Which statement is correct regarding real estate income or investment trusts? a. 3. distribution. accumulate over the life of the shares and are paid on retirement. enables a preferred shareholder to accumulate dividends until they equal the stated value of the shares and receive the shares in place of the cash dividends. They are often set up as unlimited purpose trust funds. The preemptive right enables a shareholder to a.com/ or contact us at Ebooksmtb@hotmail. c. c. c. must be calculated like compound interest. preferred shareholders. The residual interest in a corporation belongs to the a. d. c. management. c. sell shares back to the corporation at the option of the shareholder. d. must be paid before dividends may be paid on common shares. at which time they can be converted into common shares. Copyright © 2013 John Wiley & Sons Canada. b. c. common shareholders. They are considered to be special purpose entities. means that the shareholder can accumulate preferred shares until they are equal to the stated value of common shares. b. share proportionately in any new issues of shares in the same class. similar to the liability of the owner of a proprietorship. limits the amount of cumulative dividends to the par value of the preferred shares. b. similar to the liability of the owners of a partnership. The unitholders have unlimited liability. The unitholders (investors) do not pay tax on the cash received from the trust. b. d.Test Bank . Unauthorized copying. b. creditors. The cumulative feature of preferred shares a. b. d. d. Tenth Canadian Edition MULTIPLE CHOICE—Conceptual 1.10 Test Bank for Intermediate Accounting. if in arrears. 2. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb 15. The accounting problem in a lump sum sale of shares is the allocation of the proceeds between the classes of securities. may be redeemed at any time at the shareholder’s option. c. 8. to require the corporation to pay dividends. distribution. The Common Shares account should be credited when the a. Ltd.Solution Manual Please visit our website : http://www. to establish the maximum responsibility of a shareholder in the event of insolvency. Preferred shares are often issued instead of debt a. indirect method. b. b. direct method. or transmission of this page is prohibited . have rights to participate in any new share issuance. sells common shares on a subscription basis. b. In jurisdictions where par value shares are legally allowed. a noncurrent asset. pro forma method. usually have voting rights. b. Copyright © 2013 John Wiley & Sons Canada. Aye Corp. to avoid paying dividends to the common shareholders. may be called or redeemed at the option of the issuing corporation. b. d.11 7. c. One acceptable method of allocation is the a. 11. Unauthorized copying. b. d. last payment is made.needbook1. 10. For more Ebook's . either a current asset or a deduction from shareholders' equity. shares are subscribed for. last payment is made and the shares are issued. c. to establish the maximum price at which the shares can be sold. d. Callable preferred shares a. only the amount of earnings that have been retained in the corporation.Test Bank . to enable the shares to be callable or convertible. a current asset. d. c. a claim against a portion of the total assets of the corporation. relative fair value method. to decrease the market value of the shares. the only real significance of par value is a. b. because a corporation’s debt-to-equity ratio has become too high. c. a deduction from shareholders' equity. 9. first payment is made. 12. Total shareholders' equity represents a. the maximum amount that can be borrowed by the corporation. c. a claim to specific assets contributed by the owners.com/ or contact us at Ebooksmtb@hotmail. d. 13. d. to increase the market value of the shares. d. c. Subscriptions Receivable are reported as a.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. For more Ebook's . increase net income if a gain is recognized. the share account for the total cost b. the amount paid is deducted from the share class to which they belong. Assuming a corporation has no contributed surplus booked. distribution. a Contributed Surplus account created from a previous reacquisition of the same class of shares b. 17. Retained Earnings d. the share account for the average per share amount and a loss account for the additional amount 18. the excess of purchase price over cost is a loss. an expense of the period in which the shares are issued. b. Contributed Surplus. guidelines have been established for the sequence of accounts to adjust when allocating the cost. A possible result of the reacquisition and cancellation of shares by a corporation is that this may a. Gain on Reacquisition of Shares.Test Bank . when shares are reacquired at a cost greater than their original issue price and cancelled. directly decrease but not increase retained earnings. when a company purchases its own shares on the market a. d.Solution Manual Please visit our website : http://www.needbook1. the difference is credited to a. a reduction of share capital. Unauthorized copying. 15. c. they must be cancelled. 16. the Share Capital account c. what account(s) should be debited? a. Copyright © 2013 John Wiley & Sons Canada. b. Accumulated Other Comprehensive Income 19. Direct incremental costs incurred to sell shares such as underwriting costs should be accounted for as a. When shares are reacquired at a cost less than the average per share value. they are recorded with a debit to Repurchased Shares. decrease but not increase net income. the share account for the original issue price and contributed surplus for the additional amount c. Ltd. d. or transmission of this page is prohibited . Retained Earnings. the appropriate share capital account. directly increase but not decrease retained earnings. Which of the following is the first account to be adjusted? a. b. c. Tenth Canadian Edition 14. c. the share account for the average per share amount and retained earnings for the additional amount d.com Also you can contact us on Skype: Ebooksmtb 15. an intangible asset. According to the CBCA. d. When shares are purchased or redeemed and cancelled.12 Test Bank for Intermediate Accounting. b.com/ or contact us at Ebooksmtb@hotmail. c. d. a reduction of retained earnings. correction of an error in which depreciation expense was understated in a prior period 22. Ltd. 2014. reported income for the period.Solution Manual Please visit our website : http://www.13 20. date of record. 21. No amounts may be distributed unless the corporate capital is left intact. d. This is an example of a a. property dividend. outstanding. earning of net income for the period 23. reacquisition of shares for less than the original issue price d. b. incurrence of a net loss for the period c. Accumulated Other Comprehensive Income. stock dividend.needbook1. date of declaration. 26.000. Which of the following transactions would NOT result in an increase to retained earnings? a. declaration and issuance of a stock dividend b. authorized. issued.000 shares of James Corp. A corporation may not pay dividends that are higher than their legally available retained earnings. Which of the following statements is NOT generally true about the legality of dividend distributions? a.com/ or contact us at Ebooksmtb@hotmail. the contributed capital of the common shareholders. An entry for dividends is NOT made on the a. c. outstanding less the number of treasury shares. date of distribution (stock dividends). the amount of dividends available to common shareholders. c. reacquisition of shares for less than the original issue price d. 25. d. b. d. d. On December 31. date of payment (cash dividends). The corporation must still be able to pay its liabilities when they become due. c. Jesse Corp. Unauthorized copying. accounting for the retirement increases a. or transmission of this page is prohibited . b. correction of an error in which expenses were overstated in a previous year b. Jesse distributed these shares as a dividend to its shareholders. 24. When all outstanding preferred shares are purchased and retired by the issuing corporation for less than the original issue price. c. Cash dividends are paid on the basis of the number of shares a. Copyright © 2013 John Wiley & Sons Canada. Dividends do not need to be formally approved by the Board of Directors. For more Ebook's .com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. distribution. issuance of a 3-for-1 stock split c. Which of the following transactions would NOT result in a decrease to retained earnings? a. owns 4.Test Bank . b. b. decreases the amount of working capital. cash dividend.14 Test Bank for Intermediate Accounting. c. increases the current ratio. The shares had been originally issued at $10 per share. cash dividend. stock dividend. decreases total shareholders' equity. d. arbitrary values assigned by the Board of Directors. estimated realizable values in cash transactions involving similar assets. c. or shareholders' equity. A property dividend is a nonreciprocal transfer of nonmonetary assets. d. it may issue a a. The fair value of a property dividend should NOT be determined by a. property dividends d. At what amount should retained earnings be capitalized for the Copyright © 2013 John Wiley & Sons Canada.needbook1. c. b. d. liquidating dividends 32. Which of the following statements about property dividends is FALSE? a. b. d. stock dividends c. b. c. The accounting for a property dividend should be based on the fair value of the nonmonetary assets transferred. 30. Which type of dividends do NOT reduce total shareholders' equity? a. d. Pryor Corporation issued a 2-for-1 common stock split. 33. decreases retained earnings but does not change total shareholders' equity. b. 28.com Also you can contact us on Skype: Ebooksmtb 15. Tenth Canadian Edition c. increases common shares outstanding and increases total shareholders' equity.Solution Manual Please visit our website : http://www. If a corporation wishes to "capitalize" part of their earnings. For more Ebook's . liquidating dividend. The declaration and issuance of a stock dividend larger than 25% generally a. or transmission of this page is prohibited . The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. cash dividends b. b. property dividend. Unauthorized copying. liquidating dividend. d. may increase or decrease common shares but does not change total shareholders' equity. c. Ltd. 27. quoted market prices. 29. liabilities.Test Bank . 31. distribution. has no effect on total assets. A property dividend is also called a dividend in kind. increases retained earnings and increases total shareholders' equity. independent appraisals. Declaration and issuance of a stock dividend a.com/ or contact us at Ebooksmtb@hotmail. c. c. or transmission of this page is prohibited . c. par or stated value of the shares issued.needbook1. cash dividend. $10 per share c. For more Ebook's . Ltd. d. b. d. no less than 45% to 50% 36. deduction from the Common Shares account. 38. b. participating dividend. The issuer of a 5% common stock dividend to common shareholders should transfer from retained earnings to contributed capital an amount equal to the a. Contributed Capital. A mining company declared a liquidating dividend.Test Bank . Unauthorized copying. contra-asset. no less than 2% to 5% b. A feature common to both stock splits and stock dividends is a. market value on the declaration date d. that there is no effect on total shareholders' equity. As a minimum. addition to contributed capital.com/ or contact us at Ebooksmtb@hotmail. d. an increase in total liabilities of a corporation. c. d. Copyright © 2013 John Wiley & Sons Canada. liquidating dividend. 35. 39. how large in relation to total outstanding shares may a stock distribution be before it should be accounted for as a large stock dividend instead of as a small stock dividend? a. minimum legal requirements. distribution. b. property dividend. current liability. 37.Solution Manual Please visit our website : http://www. a transfer to earned capital of a corporation. b. A dividend which is a return to shareholders of a portion of their original capital investments is known as a a.15 additional shares issued? a. book value of the shares issued. c. The balance in the Common Stock Dividend Distributable account should be reported as a(n) a. Dividend Payable. Accumulated Other Comprehensive Income. b. market value on the payment date 34. The journal entry to record the declaration must include a debit to a. there should be no capitalization of retained earnings b. no less than 20% to 25% d. market value of the shares issued. no less than 10% to 15% c.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. Retained Earnings. as an increase in current liabilities for the amount expected to be declared within the next year. the Statement of Changes in Shareholders’ Equity must include Copyright © 2013 John Wiley & Sons Canada.Solution Manual Please visit our website : http://www. to reduce the market price of the shares to make the stock more attractive 42. 40. Ltd. by note disclosure only 46.com/ or contact us at Ebooksmtb@hotmail. b. c. or transmission of this page is prohibited . No effect No effect b. earned capital and contributed capital 45. are disclosed as a liability until paid. c. to increase the market price of the shares to make the stock more attractive d. d. For more Ebook's . b. as an increase in shareholders' equity b. Which of the following is NOT a valid reason for a stock split? a. Shareholders' equity is generally classified into two major categories: a. treasury shares. to reduce the market price of the shares so that more individuals can afford to invest in the shares c. Under IFRS. retained earnings and accumulated other comprehensive income. contributed surplus and retained earnings. must be paid before any other cash dividends can be distributed. as an increase in current liabilities c. What effect does the issuance of a 2-for-1 stock split have on each of the following? Common Shares Retained Earnings a. Increase No effect c. d. Dividends are NOT paid on a. are paid to preferred shareholders if sufficient funds remain after payment of the current preferred dividend. non-participating preferred shares. non-cumulative preferred shares. Noncumulative preferred dividends in arrears a. d. and as an increase in long-term liabilities for the balance d. Decrease No effect d. How should cumulative preferred dividends in arrears be shown on the balance sheet? a. Unauthorized copying. a reduction in the contributed capital of a corporation. are not paid or disclosed. distribution. non-voting common shares. Tenth Canadian Edition d. to increase the shareholder base by increasing the number of shares outstanding and making them more marketable b. c. 43. 44. b.needbook1.16 Test Bank for Intermediate Accounting.Test Bank .com Also you can contact us on Skype: Ebooksmtb 15. Decrease Decrease 41. contributed capital and donated capital. and retained earnings. 48. dividing cash dividends by net income less preferred dividends. share capital. The $8. The shares were subsequently sold for $12.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. d. c. b. c.Test Bank . b.com/ or contact us at [email protected] a. Hamilton Ltd. *51. The payout ratio can be calculated by a. retained earnings. distribution. Unauthorized copying. to retained earnings. dividing dividends per share by earnings per share. 47. c. purchased its own shares on January 1. 50. c. dividing cash dividends by market price per share. Gupta Corp. d. or transmission of this page is prohibited . Contributed Surplus to the extent that previous net "gains" from sales or retirements of the same class of shares are included therein. b. Ltd.000. d. b. dividing the market price of the share by earnings per share. *52. otherwise. contributed surplus. A “gain" on the sale of treasury shares should be credited to a. Contributed Surplus regardless of whether there have been previous net "gains" from Copyright © 2013 John Wiley & Sons Canada. c. how many dollars of net income were earned for each dollar invested by the owners. dividing net income by cash dividends per share. the payment of a previously declared cash dividend on the common shares. the share capital account. The price earnings (P/E) ratio is calculated by a.needbook1. contributed surplus.000 difference between the cost and sales price should be recorded as a debit to a. share capital. 49. share capital and retained earnings only. dividing cash dividends per share by earnings per share. the declaration of a common stock dividend when the market price of the common is equal to its issue price. d. non-cumulative preferred shares outstanding. d. c. dividing net income by cash dividends per share. b.000 and debited Treasury Shares for the purchase price. b.Solution Manual Please visit our website : http://www. The rate of return on common shareholders’ equity shows a. For more Ebook's . d. b. 2014 for $20. dividing cash dividends paid by the market price per share. The book value per common share is NOT affected by a. the amount of leverage the corporation employs. the amount that each common shareholder would receive if the company were liquidated. accumulated other comprehensive income. share capital and contributed surplus only. retained earnings. other income. a 2-for-1 split of the common shares. how the market value of the shares relates to the current earnings per share. the declaration of a preferred stock dividend. and accumulated other comprehensive income. has both common shares and non-participating. payment in full of subscribed shares. from the disclosure of the reorganization in the notes to the financial statements *56. remains the same as it was before the financial reorganization. b. ASPE does not give guidelines for accounting for financial reorganizations. is frozen and dated. Tenth Canadian Edition sales or retirements of the same class of shares included therein. b. b. c. For a two-year period following a properly implemented financial reorganization. Which of the following statements is FALSE concerning the requirements that must be fulfilled under a financial reorganization? a. How could one determine that the financial reorganization had occurred? a. c. b. The corporation may have additional contributed surplus arising from the financial reorganization. d. and subsequent transactions will be shown separately. Common shares issued would exceed common shares outstanding as a result of the a. Which of the following statements is correct? a. *57.or understate assets or liabilities. d. from the shareholders’ equity section c. *53. purchase of treasury shares.needbook1.18 Test Bank for Intermediate Accounting. *54. An acceptable method of reporting Treasury Shares in the balance sheet is a. Copyright © 2013 John Wiley & Sons Canada. as an account with a debit balance after retained earnings. declaration of a cash dividend. could not unless comparative statements of financial position were presented b. c. d.Test Bank . c. or transmission of this page is prohibited . IFRS gives specific guidance for reacquisition of shares.Solution Manual Please visit our website : http://www. has a zero balance. distribution. c. The corporation’s shareholders must approve the financial reorganization. IFRS does not give explicit guidance for accounting for financial reorganizations. d. Loss from Sale of Treasury Shares. *55. the retained earnings account a. b. c. the corporation must have a credit balance in retained earnings. as a current asset. and that changes in capital accounts are given in the notes. Immediately after a financial reorganization. For more Ebook's . Ltd. IFRS requires that changes in retained earnings are presented in a retained earnings statement. Grant Corporation operated profitably and paid dividends equal to 10% of its net income in each year. as a contra to the share capital account.com/ or contact us at Ebooksmtb@hotmail. declaration of a stock dividend.com Also you can contact us on Skype: Ebooksmtb 15. by the conservative dividend policy d. Unauthorized copying. d. has a debit balance equal to the writedown of the assets which were overstated. *58. New asset valuations should not deliberately over. Immediately after the financial reorganization. as a contra to contributed surplus. Retained Earnings. d. a 39. c 18. b 10. b 17. distribution.19 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans.Solution Manual Please visit our website : http://www. c 35. a 43. a 2. d 14. d Copyright © 2013 John Wiley & Sons Canada. b 8.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15.Test Bank . b 41. d 38. d 26. b 30. a 36. b 23. b 32. c 27. a 47. c 37. b *57. b 46. b 19. 1. c *56. d 33. b 15. b 49. c *58. c 20.com/ or contact us at Ebooksmtb@hotmail. c *52. Item Ans. Item Ans. a 50. a 3. Ltd. b 48. d *55. d 42. c 4. d 21. c 31. Item Ans. a 24. d *54. c 11. b 44. For more Ebook's . b 40. c 29. Unauthorized copying. a 7. b 28. d 6. b 9. c 45. Item Ans. c 5. Item Ans. d 22.needbook1. c 25. or transmission of this page is prohibited . b 12. b 34. b *53. a 13. c *51. c 16. Copyright © 2013 John Wiley & Sons Canada. 2014.000.000.250.000 c.com/ or contact us at [email protected] shares at $10 per share Apr 6 Issued 50. $1.000 b. with 300. $ 4.com Also you can contact us on Skype: Ebooksmtb 15. no par value 6.Solution Manual Please visit our website : http://www. 2014. $2.000 shares at $14 per share Jul 28 Purchased 20. 2014.000 shares at $11 per share and cancelled them Dec 31 Issued 20.Test Bank . balance sheet? a.000 no par value common shares authorized.000 common shares.000 common shares for $350. b.016. Berlin Corporation was organized on January 1. During 2014. $ 0. $2. Berne Ltd. cumulative preferred shares.000 shares at $14 per share 61. was organized on January 1. no par value During 2014. Tenth Canadian Edition MULTIPLE CHOICE—Computational 59. The total amount in the Common Shares account at December 31. Rome Corp. $440.000 shares at $13 per share Aug 27 Issued 10. d.000 and 5. Ltd.000 shares at $12 per share and cancelled them Jul 6 Issued 30. $470. 2014 is a.05.000.007.000 c. distribution. 2015. $450. The total amount of contributed surplus at December 31.000 d. Unauthorized copying. What should Rome report as total contributed capital on its December 31. c.20 Test Bank for Intermediate Accounting. 2014.000 shares at $10 per share Mar 8 Issued 40. 2014 is a. or transmission of this page is prohibited .000 shares at $18 per share What is the total amount of contributed surplus at December 31. with 400.000 60. 2014.990. $500.000 d. $ 0 b. $2. $.250.000 shares at $11 per share May 17 Purchased 15. the corporation issued 10. subscriptions for 1.000 no par value common shares authorized.000 preferred shares were taken at a purchase price of $30. These subscribed shares were paid for on January 2.needbook1. the corporation had the following share transactions: Jan 5 Issued 150. During 2014. was organized on January 1. $ 20.170. the corporation had the following share transactions: Jan 4 Issued 120. 62. 2014? a. $220. with the following authorized share capital: 20.000 shares at $12 per share Jun 8 Issued 50.000 preferred shares at $24 per share. For more Ebook's .000 Use the following information to answer questions 61–62. On December 20. .000.... Scrooge had originally paid $8 for each share.. $153.....Test Bank ... $360.. 240...000 Retained Earnings ...000... common shares. Assume that subscribers agree to purchase 50.000... Unauthorized copying... b... b.. d... On December 15............ d. Ignoring income taxes. d.... 64.......000 shares and make the required down payment... The journal entry to record receipt of the subscriptions includes a a... 65...000....000.440...000 shares of Marley Ltd....... 1. c.21 b.. credit to Common Shares for $525... credit to Subscriptions Receivable for $525... which are being accounting for by the equity method...........810...000 b. Marley has 1.000 Common Shares... 63. no par value .. Use the following information to answer questions 63–64.. 66....... cannot be determined from the information given. debit to Subscriptions Receivable for $525. what would be the reduction in Scrooge's shareholders' equity as a result of the above transactions? a. credit to Common Shares for $225. $180... For more Ebook's .. Subscribers agree to purchase shares at $15 per share with a 30% down payment.. debit to Common Shares Subscribed for $750.....000... for which the quoted market price was $7 per share on the declaration date and $9 per share on the distribution date. Scrooge Ltd..... $500.000 $4 Preferred Shares. 2014..000.000 Copyright © 2013 John Wiley & Sons Canada. to be distributed on December 31." account has a carrying value of $5 per share. c.000 shares issued and outstanding.....000 Common Shares Subscribed ..Solution Manual Please visit our website : http://www....250.. $ 120.. Presented below is information related to Madrid Corporation: Subscriptions Receivable. Common Shares .com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. credit to Common Shares Subscribed for $750. d.. when Scrooge's "Investment in Common Shares of Marley Ltd.... $120.. debit to Common Shares Subscribed for $750.... or transmission of this page is prohibited .....000...000.. 3.... The journal entry to record the issuance of the shares upon receipt of the final instalment includes a a...750.. 900..000... $700.. owns 100.000.... Scrooge declares all these shares to its shareholders as a property dividend. 2014.... no par value ..000 no par value common shares....000... Prague Corp. credit to Common Shares for $225.... c. distribution. b..needbook1.. $ 26........000.com/ or contact us at Ebooksmtb@hotmail... Ltd. is authorized to issue 400... $240. c.000 The total amount that will be added to the Common Shares account when the final subscriptions are received will be a.... .. 400........... b.... should Lisbon make to record this dividend declaration? a. 400......... 350...000.........000 70. $162. has 1..................000 d...... $ 50.. 69.......000 c..... $180.............. Retained Earnings..... $198.. c...........needbook1........ Lisbon declared a 10% stock dividend..22 Test Bank for Intermediate Accounting.... 200.......000 b..................... What amount should Zagreb report as retained earnings at February 28...... Zagreb reported a net loss of $20.000 Common Stock Dividend Distributable ...... its capital accounts were as follows: Common Shares........... Stock Dividend Payable ..........000 $250..... 2014........000 If a 5% stock dividend were declared and distributed.. and accordingly 1.......000 shares issued and outstanding ..000...... issued and outstanding 10..... or transmission of this page is prohibited ........................ $2.500 additional shares were issued....... $2...000....000 Retained Earnings . d..... 2014...............000 Retained earnings ................ Cash dividends declared on the no par value common shares of Athens Corp............400.........000 d...... 2014? a. The shareholders' equity section of Zagreb Corp..... at December 31..... were as follows: 1st quarter of 2014 . no par.............................600.000 3rd quarter of 2014 ....... the board of directors declared a 15% stock dividend..... What entry.....000 On February 28.....000 Copyright © 2013 John Wiley & Sons Canada....000 2nd quarter of 2014 ... 450........... When the market value was $10 per share.......... when Vienna Inc.. $900.............Solution Manual Please visit our website : http://www..... if any.. Ltd.000 no par common shares authorized... On June 30........000.......... Unauthorized copying.. No entry b........ For the two months ended February 28.............Test Bank .. authorized 20......... when the market value of Zagreb’s shares was $12 per share. Lisbon Corp. 800........com Also you can contact us on Skype: Ebooksmtb 15.......000 c... 420..000 shares .... 2014.............205...................000 shares...000 Common Stock Dividend Distributable ... $2............ distribution... $330..... 2013 was: Common shares.000 d........ 800. $2...... Retained Earnings. $3....com/ or contact us at [email protected] Common Stock Dividend Distributable ......... $800....595.000 67......... 800..........000.... $182..400........... of which 800.. The average carrying value of the shares is $5 per share.....000 4th quarter of 2014 ..... 800. Tenth Canadian Edition c........... 60..... the Common Shares account balance would be a.600.......... For more Ebook's .....000 shares are outstanding.........'s shares were selling at $65 per share.000... 3............ no par value.000 68. ..000 shares issued and outstanding.. $400..000 shares .... 2014..000.... $4. issued and outstanding 120..000 decrease c...400.000 credit $2........... 2014..000 debit 71.. $ 760.............. 2014... when there were 400....000 What was the effect on Belgrade’s retained earnings as a result of the stock dividend? a. Ltd.740.. $640...190....000 debit b.. What was the effect on Athens' shareholders' equity accounts during 2014 as a result of the above transactions? Common Shares Retained Earnings a................ $ 400.. If 10.....650.000 decrease d. declared a 10% common stock dividend...... to be distributed on September 15... no par value. issued. Copyright © 2013 John Wiley & Sons Canada.... Retained earnings are $120...000........Solution Manual Please visit our website : http://www.... distribution. and the market value of the common shares was $16 per share...... the board of directors declared a 10% stock dividend.... contributed surplus would increase $20...... a. $480. to shareholders of record on December 31.. $3.950...........000 debit c..... and outstanding.. c....000 credit $1. $240..000 decrease b..000 decrease 73..000.... $800.......000 credit $1. The shares were issued on December 21.. $1... issued and outstanding 200. 2014.....000 no par value common shares authorized. Warsaw Ltd. Unauthorized copying.... $1...000 shares.... 2014....... 1..... $300....... 2014 is presented below: Common shares. to be paid on January 9.000.. The shareholders' equity of Tirana Ltd.....000 common shares were reacquired at $6 and cancelled....000 72....000 d.. Shareholders' equity before the stock dividend was declared was: Common shares.000 Total shareholders’ equity .050. For more Ebook's ..............000........810..550. 2... 2015..000 b...... authorized 200.23 The 4th quarter cash dividend was declared on December 20... d. Athens declared a 10% common stock dividend on December 1. $1.700..000 shares were issued at $8 per share....000 debit d......000 Retained earnings ... What is the debit to retained earnings as a result of the declaration and distribution of this stock dividend? a........ On January 1.......350..... b.... 2014........ Belgrade Inc. retained earnings would decrease $10.. $ 700. $6... when the market value of their common shares was $20 per share... no par value..............needbook1.... or transmission of this page is prohibited ...... contributed surplus would decrease $20...160.... $540.........000 Total shareholders' equity ............. $ -0.. at July 31.... The market price of Tirana's common shares was $35 on August 1 and $38 on September 15..000 Retained earnings .000 c..Test Bank ..000 shares... In addition.. has 100.. All 100......com/ or contact us at Ebooksmtb@hotmail. authorized 400...com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15......000 shares . shareholders' equity would decrease $80.000 On August 1.......... 000.000 c.000 d. and the preferred shares are also fully participating.000 no par value common shares. 2014.000 b. or transmission of this page is prohibited .000 c. If 2. $26. $180.000 shares were reacquired at $98 and cancelled. preferred shares issued at $5 each.000 d. $16.000 c. The Common Shares account currently shows a balance of $200.000.000 no par value common shares authorized. shareholders' equity would decrease by a. $196. $ 8. $42. has outstanding 100. b. All 100.000 no par.000 will be distributed as a dividend in the current year.000 no par value. issued and outstanding.needbook1. how much will the common shareholders receive? a. c.000 $6. Assuming that $50.com/ or contact us at [email protected] no par common shares and 20. Vilnius Corporation has 100.40. Ltd.000 will be distributed as a dividend in the current year. 76.000 Use the following information for questions 76–78.24 Test Bank for Intermediate Accounting. $21. $37. Cash dividends declared in 2015 totalled $30. $6. dividends in arrears on the preferred shares were $6. cumulative preferred shares and 30.000 will be distributed as a dividend in the current year.com Also you can contact us on Skype: Ebooksmtb 15.000 shares were issued at $90 per share. Unauthorized copying. $ 16. Assuming that $61. $16.000 $24. Assuming that $21. The amounts paid to each class of shares were Preferred Shares Common Shares a. how much will the preferred shareholders receive? a. $18. $ 0. $ 0 b.000 77. had outstanding 2. $34.000 d. On December 31.000.000 78.Solution Manual Please visit our website : http://www. $6. $0.000. how much will the common shareholders receive? a.000. Riga Ltd. $24.000 b.000 c.000 d. At this time.Test Bank .000 b. For more Ebook's . Tenth Canadian Edition 74. The preferred shares are cumulative and non-participating.000. distribution. 75. Dividends have been paid every year except the past two years and the current year.000 $18. $24.000 Copyright © 2013 John Wiley & Sons Canada. $31.000. $12. Retained earnings are $250. d. $30. Monaco Ltd.000 $12. For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15- 25 79. Sarajevo Ltd. currently has outstanding 20,000 no par value common shares with a carrying value of $200,000, and 10,000 no par value, $0.60, cumulative, fully participating preferred shares with a carrying value of $100,000. Dividends on the preferred shares are one year in arrears. Assuming that Sarajevo wishes to distribute $54,000 in dividends, the common shareholders will receive a. $12,000. b. $22,000. c. $32,000. d. $42,000. Use the following information for questions 80–82. Instanbul Corp. has outstanding 20,000 no par value, $0.80, preferred shares and 100,000 no par value common shares. Dividends have been paid every year except last year and the current year. The carrying value of the preferred shares is $200,000 and of the common shares is $300,000. 80. If the preferred shares are cumulative and non-participating and $100,000 is distributed as a dividend, the common shareholders will receive a. $0. b. $68,000. c. $84,000. d. $100,000. 81. If the preferred shares are non-cumulative and fully participating and $70,000 is distributed as a dividend, the common shareholders will receive a. $0. b. $42,000. c. $46,000. d. $54,000. 82. If the preferred shares are cumulative and fully participating and $101,000 is distributed as a dividend, the common shareholders will receive a. $0. b. $51,000. c. $61,000. d. $69,000. 83. Presented below is information related to Madrid Corporation: Subscriptions Receivable, Common Shares .................................. $ 120,000 Common Shares, no par value ...................................................... 3,810,000 Common Shares Subscribed ......................................................... 240,000 $4 Preferred Shares, no par value ................................................. 1,440,000 Retained Earnings ......................................................................... 900,000 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 15- 26 Test Bank for Intermediate Accounting, Tenth Canadian Edition The total shareholders' equity of Madrid Corporation is a. $6,270,000. b. $6,300,000. c. $6,390,000. d. $6,510,000. 84. Sofia Ltd. reported net income of $5,300,000 for 2014, and earnings per share of $5.00. Included in the net income was $750,000 of bond interest expense related to its long-term debt. The income tax rate for 2014 was 30%. Dividends paid on preferred shares were $1,000,000. The payout ratio on common shares was 25%. What were the dividends paid on common shares in 2014? a. $1,075,000 b. $1,325,000 c. $1,206,250 d. $1,612,500 85. For calendar 2014, Budapest Corp. reported net income of $29,280 and earnings per share of $2.46. There were 12,000 common shares outstanding during 2014. On Dec 31, 2014, the market price for Budapest's common shares was $32. To the nearest whole number, what is Budapest's price earnings ratio at Dec 31, 2014? a. 13 b. 32 c. 375 d. 915 86. Presented below is information reported by Kiev Ltd. for their last two fiscal years: Dec 31, 2015 Dec 31, 2014 Common shares .................................................................... $ 75,000 $ 60,000 6% preferred shares, no par value, cumulative .................... 350,000 350,000 Retained earnings (post closing) .......................................... 90,000 75,000 Net income for year ............................................................... 60,000 32,000 What is Kiev’s rate of return on common shareholders’ equity for 2015? a. 48.8% b. 26% c. 25% d. 22.4% Use the following information for questions 87–89. The following data are provided for Croatia Corp.’s last two fiscal years: Dec 31, 2015 Dec 31, 2014 Cumulative preferred shares, $5, no par value, 4,000 shares outstanding ............................................... $200,000 $200,000 Common shares, no par, 24,000 shares outstanding ........... 400,000 310,000 Retained earnings (post closing) .......................................... 480,000 430,000 Net income ............................................................................ 180,000 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15- 27 Additional information: On May 1, 2015, 6,000 common shares were issued. Although dividends had been declared regularly up to December 31, 2014, preferred dividends were NOT declared during 2015. The market price of the common shares was $100 at December 31, 2015. 87. To the nearest percent, the rate of return on common shareholders’ equity for 2015 is a. 23%. b. 22%. c. 20%. d. 18%. 88. The price earnings ratio for 2015 is a. 12.22. b. 13.76. c. 14.99. d. 15.55. 89. The book value per common share at December 31, 2015 is a. $16.67. b. $18.18. c. $27.50. d. $35.83. *90. Minsk Corporation's shareholders' equity section at December 31, 2013 was: Common shares, $5 par value, authorized 1,200,000 shares; issued 900,000 shares; outstanding 800,000 shares;......... $4,500,000 Contributed surplus .................................................................... 3,250,000 Retained earnings ...................................................................... 5,240,000 12,990,000 Less treasury shares, at cost, 100,000 shares .......................... 800,000 Total shareholders' equity .......................................................... $12,190,000 During 2014, Minsk sold 30,000 treasury shares at $10 per share. No other similar transactions occurred during 2014. What amount should be reported for this transaction on the 2014 income statement? a. $0 b. $60,000 gain from sale c. $60,000 comprehensive income d. $20,000 gain from sale and $40,000 contributed surplus *91. Stockholm Corp. was organized on January 1, 2014, with 100,000 common shares authorized, par value $10. On January 2, 2014, the corporation issued 15,000 of these shares for $190,000 cash. The entry to record this sale would be a. Cash ........................................................................................ 190,000 Common Shares .............................................................. 190,000 b. Cash ........................................................................................ 190,000 Common Shares .............................................................. 150,000 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 15- 28 Test Bank for Intermediate Accounting, Tenth Canadian Edition Retained Earnings............................................................ 40,000 c. Cash ........................................................................................ 190,000 Common Shares .............................................................. 150,000 Contributed Surplus ......................................................... 40,000 d. Cash ........................................................................................ 100,000 Contributed Surplus ................................................................ 90,000 Common Shares .............................................................. 190,000 *92. Nicosia Corp. was organized on January 1, 2014, with 50,000 common shares authorized, par value $15, and immediately sold 10,000 shares for $20 each. Later, Nicosia bought back 1,000 of these shares at $23 each and cancelled them. The entry to record the purchase would be a. Common Shares ..................................................................... 23,000 Cash ................................................................................. 23,000 b. Common Shares ..................................................................... 15,000 Retained Earnings................................................................... 8,000 Cash ................................................................................. 23,000 c. Common Shares ..................................................................... 20,000 Contributed Surplus ................................................................ 3,000 Cash ................................................................................. 23,000 d. Common Shares ..................................................................... 15,000 Contributed Surplus ................................................................ 8,000 Cash ................................................................................. 23,000 Use the following information for questions *93–*94. When Oslo Ltd. was organized last year, they issued 100,000 no par value common shares for $1,200,000. Earlier this year, the corporation purchased 4,000 of these shares at $15 per share, to be held in the treasury, and three months later, sold 2,000 treasury shares at $19 per share. There were no other treasury share transactions. *93. To record the sale of the 2,000 treasury shares, Oslo should credit a. Treasury Shares for $38,000. b. Treasury Shares for $20,000 and Contributed Surplus for $18,000. c. Treasury Shares for $30,000 and Contributed Surplus for $8,000. d. Treasury Shares for $30,000 and Retained Earnings for $8,000. *94. If, instead of holding the 4,000 shares as treasury shares, Oslo had decided to cancel them, Oslo should debit a. Common Shares for $48,000 and Retained Earnings for $12,000. b. Contributed Surplus for $48,000 and Retained Earnings for $12,000. c. Contributed Surplus for $60,000. d. Common Shares for $60,000. *95. London Corporation has 50,000 no par value common shares authorized, issued and outstanding. All 50,000 shares were issued at $40 per share. Retained earnings are $40,000. If Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15- 29 3,000 of these shares were reacquired at $50 and were held as treasury shares, a. shareholders' equity would increase by $150,000. b. contributed surplus would decrease by at least $30,000. c. shareholders’ equity would decrease by $150,000. d. common shares would increase by $150,000. *96. On December 1, 2014, Dublin Ltd. exchanged 10,000 of its no par value common shares (being held in the treasury) for a used machine. The treasury shares were acquired by Dublin for $35 per share. On the date of the exchange, the common shares, which had originally been issued at $30 per share, had a market value of $55 per share. As a result of this exchange, Dublin's total shareholders' equity will increase by a. $300,000. b. $350,000. c. $400,000. d. $550,000. Use the following information for questions *97–*98. Galba Corp.'s shareholders' equity at January 1, 2014 was: Common shares, no par value; authorized 200,000 shares; outstanding 75,000 shares .................................................. $ 1,050,000 Retained earnings ...................................................................... 730,000 Total .................................................................................. $1,780,000 During 2014, Galba had the following share transactions: Acquired 2,000 treasury shares for $90,000 Sold 1,200 treasury shares at $50 a share Retired the remaining treasury shares No other share transactions occurred during 2014. *97. The total contributed surplus at December 31, 2014 is a. $24,800. b. $11,200. c. $ 6,000. d. $ 0. *98. Instead, assume Galba cancelled the 2,000 shares when it acquired them for $90,000. The journal entry to record the retirement would be a. Dr. Common Shares, $90,000; Cr. Cash, $90,000. b. Dr. Treasury Shares, $90,000; Cr. Cash, $90,000. c. Dr. Common Shares, $28,000; Dr. Contributed Surplus, $62,000; Cr. Cash, $90,000. d. Dr. Common Shares, $28,000; Dr. Retained Earnings, $62,000; Cr. Cash, $90,000. Use the following information for questions *99–*100. At December 31, 2013, the balance in Helsinki Ltd.’s retained earnings account was $420,000. During 2014, Helsinki had the following transactions: Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 15- 30 Test Bank for Intermediate Accounting, Tenth Canadian Edition Acquired 5,000 treasury shares at $27 a share. The shares are no par and had originally been issued for $24 per share. There had been no previous treasury shares transactions. Sold the 5,000 treasury shares at $32 a share. Reported net income of $150,000. *99. The balance in retained earnings at December 31, 2014 would be a. $555,000. b. $570,000. c. $585,000. d. $610,000. *100. Instead, assume Helsinki cancelled the 5,000 shares when it acquired them. The balance in retained earnings at December 31, 2014 would then be a. $555,000. b. $570,000. c. $585,000. d. $610,000. *101. At December 31, 2013, the balance of Glasgow Ltd.’s retained earnings account was $450,000. During 2014, the company had the following transactions: Acquired 5,000 treasury shares at $75 per share. The shares are no par value and had originally been issued for $65 per share. There had been no previous treasury share transactions. Net income for 2014 was $400,000. Sold the 5,000 treasury shares at $80 per share. What is the balance in retained earnings at December 31, 2014? a. $900,000 b. $850,000 c. $775,000 d. $762,500 *102. On January 1, 2014, Bratislava Corporation had 110,000 no par value common shares outstanding, which had been issued at $5 each. On June 1, the corporation acquired 10,000 shares to be held in the treasury. On December 1, when the market price of the shares was $4, the corporation declared a 10% stock dividend to be issued to shareholders of record on December 16. What was the impact of the 10% stock dividend on the retained earnings account? a. $50,000 decrease b. $44,000 decrease c. $40,000 decrease d. no effect Use the following information for questions *103–*105. The balances in Belfast Inc.’s shareholders’ equity accounts at December 31, 2014 are: Common shares, no par, 50,000 authorized, 40,000 outstanding .... $1,300,000 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15- 31 Retained earnings (deficit) ................................................................ (364,000) At this, time, a financial reorganization was approved. Equipment was written down $101,800, and inventory increased $5,800. *103. As the first step of the reorganization, how much should the Common Shares account be adjusted by? a. $364,000 b. $400,000 c. $460,000 d. $1,000,000 *104. What is the net increase in the deficit from revaluation of assets? a. $ 0 b. $96,000 c. $101,800 d. $107,600 *105. What will the balance in retained earnings be after the reorganization? a. $936,000 b. $(460,000) c. $(268,000) d. $ 0 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 15- 32 Test Bank for Intermediate Accounting, Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Computational Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. 59. b 66. a 73. b 80. b 87. c *94. a *101. b 60. c 67. c 74. d 81. b 88. b *95. c *102. c 61. b 68. c 75. d 82. b 89. d *96. d *103. a 62. a 69. a 76. b 83. a *90. a *97. c *104. b 63. b 70. c 77. d 84. a *91. c *98. d *105. d 64. a 71. b 78. b 85. a *92. d *99. b 65. b 72. a 79. c 86. b *93. c *100 a DERIVATIONS—Computational No. Answer Derivation 59. b (150,000 × $10) + (50,000 × $12) + (50,000 × $14) = $2,800,000 $2,800,000 ÷ 250,000 = $11.20; $11.20 × 20,000 = $224,000 $11.00 × 20,000 = $220,000; $224,000 – $220,000 = $4,000. 60. c $350,000 + (5,000 × $24) = $470,000. (The Subscriptions Receivable and Common Shares Subscribed accounts should preferably both be in contributed capital, so they would cancel each other out.) 61. b [(120,000 × $10) + (40,000 × $11)] ÷ 160,000 = $10.25 (120,000 × $10) + (40,000 ×$11) – (15,000 × $10.25) + (30,000 × $13) +(10,000 ×$14) = $2,016,250 62. a $-0. Paid more than carrying value of the shares, therefore difference Dr to Retained Earnings. 63. b 50,000 × $15 = $750,000 64. a 50,000 × $15 = $750,000 65. b $240,000, the subscription price 66. a (100,000 × $7) value of dividend – [100,000 x ($7 – $5)] gain on appreciation = $500,000 67. c 800,000 × $10 = $8,000,000 68. c $2,400,000 + (60,000 x 5% x $65) = $2,595,000 69. a $200,000 – $20,000 – (1,500 × $12) = $162,000 70. c 400,000 x 10% x $16 = $640,000 Cr. (common shares, i.e. stock dividend) $330,000 + $350,000 + $420,000 + $450,000 + $640,000 = $2,190,000 Dr. (retained earnings) 71. b 200,000 × 10% × $35 = $700,000 72. a 120,000 × 10% × $20 = $240,000 decrease 73. b 10,000 × ($8 – $6) = $20,000 74. d 2,000 × $98 = $196,000 75. d $6,000 + (2,000 × $6) = $18,000 (preferred shares) $30,000 – $18,000 = $12,000 (common shares) Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15- 33 76. b $50,000 – (20,000 × $0.40 × 3) = $26,000 77. d 20,000 × $0.40 × 3 = $24,000 > $21,000 78. b 8% × $200,000 = $16,000 (equivalent dividend) *2 ÷ 3 × $21,000 = 14,000 (participation) $30,000 *20,000 × $0.40 × 3 = $24,000(preferred dividends) $0.40 ÷ $5 = 8% dividend $200,000 × 8% = $16,000 (equivalent common dividend) Balance left = $61,000 – $24,000 – $16,000 = $21,000 Shared $200,000: $100,000 C:P i.e. 2:1 79. c Common Shares $200,000 × 6% = $12,000 (current year) $200,000 × 10%* = 20,000 (participating) $32,000 *$54,000 – $12,000 – (10,000 × $0.60 × 2) = $30,000 $30,000 ———— = 10% $300,000 80. b $100,000 – (20,000 × $0.80 × 2) = $68,000 81. b Common Shares $300,000 × 8% = $24,000 (current year) $300,000 × 6%* = 18,000 (participating) $42,000 *$70,000 – $24,000 – (20,000 × $0.80) = $30,000 $30,000 ———— = 6%. $500,000 82. b Common Shares $300,000 × 8% = $24,000 (current year) $300,000 × 9%* = 27,000 (participating) $51,000 *$101,000 – $24,000 – (20,000 × .8 × 2) = $45,000 $45,000 ÷ $500,000 = 9% 83. a $3,810,000 + $240,000 + $1,440,000 + $900,000 – $120,000 = $6,270,000 X 84. a = .25, X = $1,075,000 ($5,300,000 - $1,000,000) 85. a $32 ÷ $2.46 = 13 $60,000 - (.06 ´ $350,000) 86. b = 26% [($60,000 + $75,000) + ($75,000 + $90,000)] ¸ 2 Note: preferred shares are not included in denominator 87. c $180,000 – (4,000 x $5) = 20% ($400,000 + $480,000 + $310,000 + $430,000) ÷ 2 Note: preferred shares are not included in denominator é $180,000 - $20,000 ù 88. b $100 ¸ ê ú = $100 ¸ ($160 ¸ 22) = 13.76 ë18,000 + (6,000 ´ 8 ¸ 12) û 89. d ($400,000 + $480,000 – $20,000 pfd div in arrears) ÷ 24,000 = $35.83 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 15- 34 Test Bank for Intermediate Accounting, Tenth Canadian Edition *90. a 30,000 × $2 = $60,000, recorded as contributed surplus (not an income statement item) *91. c Common shares 15,000 x $10 par = $150,000, bal to contributed surplus *92. d Common shares 1,000 × $15 par = $15,000; bal to contributed surplus *93. c 2,000 × $15 = $30,000; 2,000 × $4 = $8,000 *94. a Common shares 4,000 × $12 (average issue price)= $48,000; R/E 4,000 × $3 = $12,000 *95. c 3,000 × $50 = $150,000 (cost of treasury shares) *96. d 10,000 × $55 = $550,000 *97. c 1,200 × $5 = $6,000 *98. d avg issue price $1,050,000 ÷ 75,000 = $14, Dr C/S 2,000 x $14 = $28,000 *99. b $420,000 + $150,000 = $570,000 *100. a $420,000 – (5,000 × $3) + $150,000 = $555,000 *101. b $450,000 + $400,000 = $850,000. Sale of treasury shares above cost has no effect on R/E. *102. c (110,000 – 10,000) x 10% x $4 = $40,000 decrease *103. a $364,000, the amount of the deficit *104. b $101,800 – $5,800 = $96,000 *105. d RE should always have a $0 balance after reorganization Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15- 35 MULTIPLE CHOICE—CPA Adapted 106. Aye Corp. was organized in January 2014 with authorized capital of 1,000,000 no par value common shares. On February 1, 2014, shares were issued at $10 per share. On March 1, 2014, the corporation's lawyer accepted 7,000 common shares with a fair value of $85,000 in settlement for legal services. Total shareholders’ equity would increase on February 1, 2014 March 1, 2014 a. Yes No b. Yes Yes c. No No d. No Yes 107. The December 31, 2014 condensed balance sheet of Bee Services, a proprietorship, follows: Current assets .............................................................. $140,000 Property, plant and equipment (net) ............................ 130,000 $270,000 Liabilities ...................................................................... $ 70,000 Betty Bee, Capital ........................................................ 200,000 $270,000 Fair values at December 31, 2014, are as follows: Current assets .............................................................. $160,000 Equipment .................................................................... 210,000 Liabilities ...................................................................... 70,000 On January 1, 2015, Bee Services was incorporated as Bee-Line Ltd., with 10,000 no par value common shares issued. How much should be credited to Common Shares? a. $370,000 b. $300,000 c. $270,000 d. $200,000 108. On July 1, 2014, Cee Corp. issued 1,000 of its no par common shares and 2,000 of its no par preferred shares for a lump sum of $100,000. At this date Cee's common shares were selling for $48 per share and the preferred shares for $36 per share. Using the relative fair value method, the amount of the proceeds allocated to the preferred shares account should be a. $50,000. b. $55,000. c. $60,000. d. $72,000. 109. On December 1, 2014, Dee Ltd. agreed to sell 40,000 of their no par common shares on a subscription basis. On that day, 25% of the subscription price was collected as a down payment, with the remaining 75% due in 2015. On the December 31, 2014 statement of financial position, the shareholders' equity section would report Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 15- 36 Test Bank for Intermediate Accounting, Tenth Canadian Edition a. common shares issued for 25% of the subscription price. b. common shares issued for 100% of the subscription price less a subscription receivable for 75% of the subscription price. c. common shares subscribed for 75% of the subscription price. d. common shares subscribed for 100% of the subscription price less a subscription receivable for 100% of the subscription price 110. Eff Ltd. was organized on January 2, 2014, with 100,000 no par value common shares authorized. During 2014, Eff had the following capital transactions: Jan 5 Issued 75,000 shares at $14 per share Jul 27 Purchased and retired 5,000 shares at $10 per share Nov 25 Issued 4,000 shares at $13 per share What would be the balance in the Contributed Surplus account at December 31, 2014? a. $ 0 b. $10,000 c. $20,000 d. $50,000 111. The dollar amount of a cash dividend to be paid is determined on the date of a. record. b. declaration. c. declaration or date of record, whichever is earlier. d. payment. 112. At December 31, 2013 and 2014, Gee Corp. had outstanding 3,000 no par value, $8, cumulative preferred shares and 10,000 no par value common shares. At December 31, 2013, dividends in arrears on the preferred shares were $12,000. Cash dividends declared in 2014 totalled $45,000. What amounts were payable on each class of shares? Preferred Shares Common Shares a. $24,000 $21,000 b. $33,000 $12,000 c. $36,000 $9,000 d. $45,000 $0 113. An investment in marketable securities was distributed to shareholders as a property dividend. The dividend should be recorded at the a. fair value of the asset transferred or the book value of the asset transferred, whichever is higher. b. fair value of the asset transferred or the book value of the asset transferred, whichever is lower. c. fair value of the asset transferred. d. book value of the asset transferred. 114. Emily Corp. owned shares in Carr Ltd. On December 1, 2014, Emily declared and distributed a property dividend of Carr shares when their fair value exceeded the carrying amount. As a consequence of the dividend declaration and distribution, the accounting effects Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15- 37 would be Property Dividends Recorded At Retained Earnings a. Fair value Decreased b. Fair value Increased c. Cost Increased d. Cost Decreased 115. Eye Corp. owned 20,000 shares of Lash Corp., which had been purchased in 2010 for $300,000. On December 15, 2014, Eye declared a property dividend of all of its Lash Corp. shares. The property dividend was distributed on January 15, 2015. On the declaration date, the fair value of Eye’s investment in Lash was $400,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of a. $ 0. b. $100,000. c. $300,000. d. $400,000. 116. A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following? Contributed Surplus Retained Earnings a. Decrease No effect b. Decrease Decrease c. No effect Decrease d. No effect No effect 117. How would the declaration of a 15% stock dividend affect each of the following? Total Retained Earnings Shareholders' Equity a. No effect No effect b. No effect Decrease c. Decrease No effect d. Decrease Decrease 118. On May 1, 2014, when the market value of Jay Ltd.'s common shares was $15 per share, the corporation had 100,000 no par value common shares issued and outstanding. On this day, Jay declared and issued a 15% common stock dividend. As a result of this stock dividend, Jay's total shareholders' equity a. increased by $225,000. b. decreased by $225,000. c. decreased by $15,000. d. did not change. 119. How would total shareholders' equity be affected by the declaration of each of the following? Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited 000 shares. these shares were sold at $12 per share. was as follows: Common shares.. On December 31... The reacquisition of issued and outstanding shares will cause the number of shares outstanding to decrease if they are accounted for As Treasury Shares By Retirement a.000 Total shareholders' equity . $42.... the shareholders' equity section of Kay Inc. $216. In 2015... Subsequently. The balance of Kay’s retained earnings at March 31.000 On March 31.... Decrease No effect d.... Emm Inc........ Elle Corp.... *121...000 Retained earnings .. For more Ebook's ....000....600....000 of its $10 par common shares at $11 per share..000 c... Decrease No effect d.000 $42....Test Bank . $213.... should be a... At its date of incorporation.... to be held in the treasury..000 b.800 additional shares were issued.. Decrease Decrease b... issued and outstanding 9......Solution Manual Please visit our website : http://www...... Elle sold 6.. $108.........000 $42. What accounts and what amounts should Elle credit in 2015 to record this sale? Treasury Contributed Retained Common Shares Surplus Earnings Shares a. 2013.400... Kay reported a net loss of $48.. when the market value of Kay’s shares was $27 per share... $108.... Yes No b... Decrease Decrease c.... Ltd...... the corporation declared a 20% stock dividend.. acquired 9.... Emm acquired 20... In 2014... During the current year..... Unauthorized copying.000 of these common shares at $16 per share to hold as treasury shares... $108..600. No effect No effect *123. d......... No effect Decrease c..38 Test Bank for Intermediate Accounting... Tenth Canadian Edition Stock dividend Stock split a.. No effect Increase b. No effect No effect *120..... $164..... distribution. c.... 2014.. 261. Yes Yes Copyright © 2013 John Wiley & Sons Canada. $261..000 *122...000 d...needbook1... What effect does the sale of the treasury shares have on the following accounts? Retained Earnings Contributed Surplus a..000.. $467..000 $108. No No c.. 2014..com Also you can contact us on Skype: Ebooksmtb 15....000 of its own no par value common shares at $18 per share... $206..000 of these shares at $25 per share.. For the three months ended March 31..... Emm has had no other sales or acquisitions of its common shares....com/ or contact us at Ebooksmtb@hotmail.... or transmission of this page is prohibited ....000 $ 42.... 2014..000 shares ... and accordingly 1.. b. no par value: authorized 30.. sold 100. the corporation must have a zero balance in the Retained Earnings account. distribution. Subsequent to the financial reorganization. d. No Yes *124.39 d. Ltd.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. b.Test Bank . or transmission of this page is prohibited . The new asset and liability valuations should be fair. After the reorganization. Unauthorized copying. Which statement is FALSE regarding financial reorganizations? a. For more Ebook's .Solution Manual Please visit our website : http://www. Copyright © 2013 John Wiley & Sons Canada.needbook1. no disclosures are required in subsequent periods. The proposed reorganization should receive the approval of the corporation’s shareholders before it is put into effect. c. 400 *121.000 109.needbook1. 106. c 116. Item Ans. c Conceptual 114. or transmission of this page is prohibited . c 107.000 = $60. c (3.800 × $27) = $164.000 113. a 115.000 111.000 (market value) 116. b Conceptual 117. b $160.000 = $300. Item Ans. d Conceptual 119.Solution Manual Please visit our website : http://www. c Conceptual Copyright © 2013 John Wiley & Sons Canada. c 5.000 – $36. Unauthorized copying. a Conceptual 112. d 119.com/ or contact us at [email protected] × $7) = $42.000 + $210. c 112. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.000 ———— × $100. c ($48 × 1. c 109.000 × 4 = $20. distribution.000 – 1.Test Bank . b 111. For more Ebook's . Item Ans. d $400. Item Ans. c Conceptual *123. d Conceptual *120. Ltd. d *123. b (6. Item Ans. b 110. a Conceptual 115.000 = $9. c Conceptual 118. a 118.com Also you can contact us on Skype: Ebooksmtb 15.000 × $18) = $108.000 *122.000 108.000) + ($36 × 2.000) = $120.000 × $8) + $12. Answer Derivation 106. b *120. c 114.000 $72.000 – $70.000 $45. d Conceptual 110. c 117.000 $120. a *124. c *121.40 Test Bank for Intermediate Accounting. d *122. c Conceptual *124. c 108. d 113. b DERIVATIONS—CPA Adapted No. (6.000 – $48. b Conceptual 107. a $261.000.000 = $36. ... Not declaring a dividend on cumulative preferred shares....500 Calculations: Common ($2... or transmission of this page is prohibited ...... 15-126 Shareholders’ Equity Indicate the effect of each of the following transactions on total shareholders' equity by placing an "X" in the appropriate column... the corporation sold 50 common shares and 75 preferred shares for a lump sum of $18..... Payment of a cash dividend.... Ltd........... ________ ________ ________ 3. Increase Decrease No Effect 1.... ________ ________ ________ Solution 15-126 Increase Decrease No Effect 1....... Declaration of a stock dividend..........41 EXERCISES Ex.000 Common Shares .. Exchanging common shares for machinery.. For more Ebook's ....500 ÷ $10... ________ ________ ________ 5......... Conversion of bonds into common shares.... Show calculations.........needbook1...... ________ ________ ________ 7.000..... ________ ________ ________ 8.. Declaration of a cash dividend.. distribution....com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15..500 Preferred Shares ....000) × $18....... Declaration of a cash dividend...500 Preferred ($7.....Solution Manual Please visit our website : http://www.... Retirement of bonds at more than carrying value. Solution 15-125 Cash..... 4. ________ ________ ________ 6................... is authorized to issue 15....... ________ ________ ________ 4.. Instructions Using the relative fair value method...............500 Ex..... prepare the entry to record the sale for cash........com/ or contact us at [email protected] = $4. 2014................ On January 16............ 13........... Unauthorized copying.... 18..............500 ÷ $10. 15-125 Lump sum issuance of shares Bertram Corp.000 no par value common shares and 5.... Operating loss for the period........... ________ ________ ________ 2. The common were selling at $50 and the preferred at $100....000 no par value preferred shares..000 = $13......Test Bank ...000) × $18. X Copyright © 2013 John Wiley & Sons Canada.......... ..................... 450... Declaration of a stock dividend..... X 7.......... Sweden Inc. 450. Instructions a........ Payment of a cash dividend............................000 Ex....000 Cash ($450.............000 Subscriptions Receivable ........... Exchanging common shares for machinery...........com Also you can contact us on Skype: Ebooksmtb 15......000 x 40%) ........ If neither is readily determinable..... 270. Solution 15-127 a.....000 of its no par value common shares... X 3.....com/ or contact us at [email protected] Subscriptions Receivable ........ Operating loss for the period.. X Ex........ 450.................... Prepare the journal entries required on April 28. or transmission of this page is prohibited ......... Conversion of bonds into common shares. 2014. 450.....42 Test Bank for Intermediate Accounting. Prepare the journal entries required on October 28.. Subscriptions Receivable (10...... X 6.000 x $45) ............................................... X 8.... 180....... 2014.............. b................... whichever is more clearly determinable............ For more Ebook's . Not declaring a dividend on cumulative preferred shares... 15-127 Share subscriptions On April 28.......................Test Bank .........needbook1...... At this time............ Retirement of bonds at more than carrying value............000 b.......................................... 2014........ distribution............... Cash .. 2014 the balance of the subscription price was received and the shares were issued...... Ltd.. Unauthorized copying.. the shares were selling for $45 each.. the value to be assigned is generally established by the board of directors.................. Tenth Canadian Edition 2........ X 4......000 Common Shares Subscribed ...000 Common Shares .Solution Manual Please visit our website : http://www........... accepted subscriptions for 10...000 Common Shares Subscribed ... Copyright © 2013 John Wiley & Sons Canada.. A 40% down payment was received with the remainder due in six months... X 5. 15-128 Shares issued in noncash transactions What are the different bases for share valuation when assets other than cash are received for issued shares? Solution 15-128 The general rule to be applied when shares are issued for services or assets other than cash is that the shares be recorded at either their fair value or the fair value of the services or assets.... 270.... On October 28. 180.......... ... a corporation may reacquire its own shares.... If the acquisition cost is greater than the carrying value of the shares... Ex...... in an amount equal to the par. Ltd.... iv....000 of its no par common shares at $13 a share..com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15.. To share capital.000 x $17) .....Test Bank ....... There is no effect on net income as a result of the reacquisition and cancellation of shares.needbook1....... Norway bought back 6. 24...... The effect on net income Solution 15-130 a................. Copyright © 2013 John Wiley & Sons Canada..43 Ex...... If the acquisition cost is less than the carrying value of the shares. originally sold 1... Solution 15-129 Common Shares (6......... to contributed surplus...... c.... Instructions Explain how a corporation would account for each of the following: a.... the CBCA requires that the purchased shares be cancelled....000...........000 Cash (6. 15-129 Reacquisition of shares Norway Corp.... Purchase of shares at a price greater than the carrying value of the shares c..000 shares of these shares at $17 a share..... or transmission of this page is prohibited . Instructions Record the retirement of the shares. Unauthorized copying........... in the same class of shares....... 78...Solution Manual Please visit our website : http://www. above.. For more Ebook's . Any excess to retained earnings......... or average value of the shares.com/ or contact us at Ebooksmtb@hotmail.... Purchase of shares at a price less than the carrying value of the shares b. the acquisition cost should be allocated as follows: i. Later. other than those in b...... stated.. in an amount equal to the par. the acquisition cost should be allocated as follows: i. 15-130 Reacquisition of shares For numerous reasons......000 Retained Earnings ...... or average value of the shares... Any excess...000 x $13) ....... Any excess.. distribution.. The difference to contributed surplus... to the extent that contributed surplus was created by any excess of proceeds over cost on cancellation or resale of shares of the same class.. to contributed surplus in an amount equal to the pro rata share of the portion of contributed surplus that arose from transactions........... ii...... b..... stated.. To share capital. When a corporation does this.. 102..... 15-131 Determination of dividend amount Describe some of the factors that a board of directors may consider when determining the amount of cash dividends to declare............ iii...000 Ex.. Norway is incorporated under the CBCA and therefore retired these shares. ii..... If. it is called a large stock dividend. property and most stock dividends. or transmission of this page is prohibited . financial reorganization. it can choose to account for it like a small stock dividend. it is considered a small stock dividend. cash. however. 15-132 Items affecting retained earnings What are the items that increase or decrease retained earnings? Solution 15-132 Items that increase retained earnings are net incomes. and if the issuing corporation is not incorporated under the CBCA. Unauthorized copying. Ex. If the dividend is less than 20–25%. Retained Earnings is debited for the total amount transferred. but measure at either the market value or the par or stated value of the shares. For more Ebook's . the stock dividend is greater than 20–25%. In Canada.. Respond in the spaces as follows: "C" for change. distribution. OR it can treat it as a stock split (memo entry only). 15-133 Stock dividends Describe the accounting treatment for the declaration of a common stock dividend. and certain changes in accounting principle. Ex.Solution Manual Please visit our website : http://www. desire to have a smooth dividend stream even if income stream is not smooth 4. 15-134 Stock dividends and stock splits Indicate the principal effects of a stock dividend versus a stock split as they affect the issuing corporation. and certain changes in accounting principle. Items that decrease retained earnings are net losses. Tenth Canadian Edition Solution 15-131 Some factors are: 1. desire to use profits to reinvest in and expand the business 3. the SEC supports treating a large stock dividend as a split.Test Bank . prior period adjustments (error corrections). Ltd. there is no specific guidance. and would be treated this way. some treasury shares transactions. prior period adjustments (error corrections).com/ or contact us at Ebooksmtb@hotmail. Solution 15-133 If the issuing corporation is incorporated under the CBCA.S. "NC" for no change. Stock dividend Stock split Legal capital ________ ________ Number of shares outstanding ________ ________ Total shareholders’ equity ________ ________ Retained earnings ________ ________ Composition of shareholders' equity ________ ________ Copyright © 2013 John Wiley & Sons Canada. thus professional judgement must be used. Common Stock Dividend Distributable is credited for the same amount. desire to build up a safety margin for losses or errors 5. agreements (bond and loan covenants) with creditors that require the retention of retained earnings 2. although there may be legal constraints to consider. In the U.needbook1.com Also you can contact us on Skype: Ebooksmtb 15. availability of cash to pay the dividend (liquidity) Ex.44 Test Bank for Intermediate Accounting. the declaration would result in the transfer from retained earnings to contributed capital of an amount equal to the market value of each new share issued. ....000 Current year's dividends (1:2) 48.... Unauthorized copying.. no dividends were declared in 2012 or 2013..000 shares outstanding .............000 $ — $ 48..440.000 Total shareholders' equity .. the preferred shareholders received an $80..... which are cumulative and fully participating... the board of directors wants to distribute $125.. At December 31... distribution... 2012....000........... At December 31.000 shares outstanding ....000 Assume that preferred dividends were last paid on December 31... 8... or transmission of this page is prohibited . $62.. it is assumed that the corporation has outstanding 20. Although dividends have been paid regularly up to 2011.Solution Manual Please visit our website : http://www.. $48. with a carrying value of $200.000 $240.....000 $112.. 15-135 Dividends on preferred shares On December 31. no par. Ltd.000 Common shares—no par.... On December 31...000 144...000 dividend on their shares........com/ or contact us at Ebooksmtb@hotmail..... 60.......Test Bank .000 2.......000 Participating dividend (1:2) 16.000 in dividends..80.....45 Solution 15-134 Stock dividend Stock split Legal capital C NC Number of shares outstanding C C Total shareholders’ equity NC NC Retained earnings C NC Composition of shareholders' equity C NC Ex... 2014...000 Copyright © 2013 John Wiley & Sons Canada. with a carrying value of $800... 2014..... the shareholders' equity of Finland Corporation shows the following: Preferred shares—$6.. $1.000) $48.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. How much will the preferred shareholders receive if their shares are cumulative and participating up to 15% in total? 3.. and 80. 15-136 Dividends on preferred shares In each of the following independent cases.. 2014........... 1.000..000 Retained earnings ......000 48..000 common shares.. and that all of the company's retained earnings are to be paid out in dividends on December 31.....needbook1......000 $128...000 32. For more Ebook's ...... 240.. the board of directors wants to distribute $200..... $0. $ 400... How much money was distributed in total for dividends? Solution 15-136 1.000 in dividends.. Instructions If the preferred shares are cumulative and fully participating... how much should each class of shares receive? Solution 15-135 Preferred Common Total Dividends in arrears ($6 × 8..... How much will the preferred shareholders receive if their shares are cumulative and non- participating? 2.. 800.. 2014. preferred shares.000 Ex... 2014.000.000 96.... 000 $66. $6... no par value preferred shares with a carrying value of $200..000 Current year's dividends (1:4) 24... cumulative and fully participating preferred shares and 100..20 × 2) $32.000 48.Test Bank . $ 400. The corporation now desires to distribute $120..... $3...000 Common shares.000 to preferred) Ex.. and 40... Tenth Canadian Edition 3....com/ or contact us at [email protected] $106.. distribution.000 Ex.... Instructions a. 1.000 $120....000 $113.com Also you can contact us on Skype: Ebooksmtb 15.000 shares outstanding .. 4. Instructions Calculate how much the preferred and common shareholders will receive if the preferred shares are cumulative and fully participating.. No dividends have been paid since December 31.400 $280.000 ($192..000 in dividends.20... 60..000 × $3... $272.000 $ — $ 32. Instructions Calculate how much the preferred and common shareholders will receive.needbook1. For more Ebook's . Unauthorized copying.000 No dividends have been paid since December 31.000 no par value. 15-137 Dividends on preferred shares At December 31.. 2010.. has been authorized to issue 20.000 $54..000 no par value common shares.000 cash.000 no par value common shares with a carrying value of $600.000 shares outstanding . The account balances at December 31.400 88..000.000 64..000 24..000.... 2014.000 Ex... Solution 15-138 Preferred Common Total Dividends in arrears (4.000 common shares and 400 preferred shares to an investor for $72... assuming the par value of the common shares Copyright © 2013 John Wiley & Sons Canada.000 $ — $ 72.Solution Manual Please visit our website : http://www.000 to common and $80. 2014 are: $6 Preferred shares..000 Current year's dividends (5. Ltd. 2011.000 in dividends. 15-139 Lump sum issuance of par value shares Chile Corp..000 × $6 x 3) $72.....600..000 96.000 × $3. 15-138 Dividends on preferred shares Lithuania Corp.000. The corporation now desires to pay $280. or transmission of this page is prohibited .000 Participating dividend (1:4) 17. Russia Inc. issued 2. Solution 15-137 Preferred Common Total Dividends in arrears (5...46 Test Bank for Intermediate Accounting..20) 1:3 ratio 16. Prepare the journal entry for the issuance..000 18.000 Participating dividend (1:3) 6. has outstanding the following shares: 5.000 120..600 70. 000 x $5)...000) ....Solution Manual Please visit our website : http://www............... 8... Use relative fair value method.......000 x $5)..000 Preferred shares (400 x $40) ............com/ or contact us at Ebooksmtb@hotmail... ____ f....................... distribution.........000 $80..................... ____ a.................... but follows the date of record. Bad debt expense is recognized on defaulted subscriptions.000 = 18.... Retained earnings is part of contributed capital....000 b.....000 common $30 × 2... Cash ......... 2............000) .......000 Contributed surplus—preferred (balance) ... Prepare the journal entry for the issuance... 15-140 True or false questions Indicate True or False by writing T or F in the space provided..000 common 20 ÷ 80 × $72...... 72.. 10.......................... 16.. Unauthorized copying... 10. 38. ____ d... Copyright © 2013 John Wiley & Sons Canada..... except the preferred shares have no ready market and the common shares have a market value of $24... or transmission of this page is prohibited ..000 – $10..... b....... A stock split does not require a formal journal entry............000 Preferred shares (400 x $40) ...000 preferred $72. ____ e........ assuming the same facts as a............000 – $16........ Cash ...000 Ex.......... Solution 15-139 a.000 = $60......000 preferred $50 × 400 = 20..............com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15..... 44..... 72.......000 Contributed surplus—common ($48.............................. ____ g.........000 Contributed surplus—common ($54.... 16.....................000 Common shares (2................ Stock dividends always involve the transfer of some per-share amount of retained earnings to share capital.000 = $54.... For more Ebook's ...Test Bank ............... Ltd.. The date of declaration for a dividend precedes the date of payment. Use residual method..000 – $10............... Common Shares Subscribed is a current asset.........needbook1........000 Contributed surplus—preferred ($18....... Stock dividends distributable should be classified as a current liability............ ____ b. and the par value of the preferred shares was $40 and the market value was $50..... ____ c..000) ............000 market value 60 ÷ 80 × $72.....000 Common shares (2......47 was $5 and the market value was $30. ........... callable: Call price per share .................. T h.............48 Test Bank for Intermediate Accounting.. 2014 statement of financial position b...... provides the following information for 2014: Preferred shares.. $125......000 Instructions Calculate the following (assume no changes in share account balances during 2014): a...... F e..................... Solution 15-140 a......................Test Bank ... $800........ Ltd....000 + $175.. 60....... T c..000 Retained earnings (after closing) .........000 Copyright © 2013 John Wiley & Sons Canada..... F d..000 × $100) + $800........................... At one time a nationally known distillery annually distributed a bottle of "its finest" to its shareholders for every 10 shares outstanding......................... $260....................... 8%.. or transmission of this page is prohibited ....................000 = $1....................................... Unauthorized copying.......... $1.. Tenth Canadian Edition ____ h..............000 – $125.................Solution Manual Please visit our website : http://www..... none Common shares. (5.000 Dividends paid per share ....000 Dividends in arrears .......... F f.......................................00 Carrying value ........... 5.................. Price earnings ratio of common shares d.............................. Payout ratio of common shares e.............. $175............... 5. 15-141 Calculation of selected financial ratios Cuba Corp........ cumulative....350........60 Market price per share ........ Earnings per share c........needbook1.................... $36... $105 Shares outstanding ................. distribution.... F g.... Total amount of shareholders’ equity on the December 31..... this was a property dividend...000 Number of treasury shares held ...... par value $100................................................... T *Ex.....000 Net income for 2014 ................... For more Ebook's ...............com Also you can contact us on Skype: Ebooksmtb 15....... no par value: Shares issued ............................................. Book value per common share *Solution 15-141 a...000 Treasury shares (common) .... F b.....com/ or contact us at Ebooksmtb@hotmail....... ........840 Treasury shares (120 x $30) ......................000 ÷ 55........... 43.......500 Cash ........000 Retained earnings ................. Treasury shares (140 x $30) ..000 shares outstanding....000 no par value common shares outstanding.. Ukraine Ltd....500 common shares at $29 per share... Sold 120 treasury shares at $32 per share 3.......... 460 Contributed surplus ..............’s statement of financial position reported the following: Common shares.......000) ÷ ($260. 200............... 600 *Ex......000 = $15 *Ex..60 × 55......... $115........................................ currently has 150.. Purchased 140 common shares at $30 per share....000)] = $825........ with a carrying value of $3............000 × $100 × 8%)] ÷ (60...................... Sold 800 treasury shares at $30 a share c. 140 Treasury shares (20 x $30) ....... *Solution 15-142 1...... Cash (120 x $32) ....... to be held as treasury shares 2............ Purchased 1...................................... to be held as treasury shares b................000) = $220........500 x $29) .... no par value.........Solution Manual Please visit our website : http://www.......... or transmission of this page is prohibited .000 x $105) ÷ (60....com/ or contact us at [email protected] Contributed surplus ....... 5..............200 Cash .......350....com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15..........000 The following transactions occurred during 2014: 1.......... Unauthorized copying...........000 ÷ 55............49 b.......... 4.000)] = 40% OR dividend per share divided by EPS $1.............................. Common shares 20 x ($115......... 4....900....60 ÷ $4 = 40% e..... [($1............000.. Instructions Record the following transactions: a...........000 ÷ 5. 3............ 3........................... 15-143 Treasury shares Zambia Ltd..000 – (5............ 2013.....000 – 5............................ [$260...... Treasury shares (1.00 c...............needbook1. 240 3....000 – 5.....500 Copyright © 2013 John Wiley & Sons Canada.000 – $40.. distribution.............000)............................ Ltd..200 2............. Retired the rest of the treasury shares *Solution 15-143 a....... 43................. For more Ebook's .Test Bank .. $36 ÷ $4 = 9 d........ 15-142 Treasury shares At December 31............000 = $4......000 – (5............. [($1. Retired the remaining treasury shares Instructions Prepare journal entries for these transactions..... .................. 1..... The difference between the carrying values prior to the reorganization and the new values after is known as a revaluation adjustment...................... 5........200 Contributed surplus ...300 *Ex. 15-145 Financial reorganization Describe the accounting steps involved in a financial reorganization............. or transmission of this page is prohibited ........................................Solution Manual Please visit our website : http://www............ (247.......200 Contributed surplus (maximum) ..... Instructions Prepare the required journal entries for the financial reorganization.....200 Equipment ....... 10... 62...........................Test Bank ........... Tenth Canadian Edition b................... *Solution 15-144 Common shares ........................000 ÷ 150.000 Common shares .................000) A financial reorganization was approved....000 Retained earnings (deficit) .. 18............ Ltd... at December 31....200....... The new costs of the identifiable assets and liabilities must not exceed the fair value of the entity if known.... 15-144 Financial reorganization The following shareholders’ equity accounts were reported by India Inc....................... Unauthorized copying.....................................................................000 *Ex.............needbook1.900......... Common shares......................................................................................... Cash (800 x $30) ..... 247........000 Retained earnings (deficit) ..... 3...... 800 c.............. 2014.. *Solution 15-145 A financial reorganization consists of the following steps: 1............................................. Any asset writedowns or impairments that existed prior to the reorganization should be recorded first.com/ or contact us at Ebooksmtb@hotmail...... The revaluation adjustment and any costs incurred to carry out the financial reorganization are accounted for as capital transactions and are closed to Share Capital.... and inventory increased by $5....... For more Ebook's ......................50 Test Bank for Intermediate Accounting......................... Often debt is exchanged for equity.... 68..000 shares outstanding.000..... distribution........... resulting in a change in control.... Contributed Surplus or a separately identified account within Shareholders’ Equity.................... 247........................ 20........................ The assets and liabilities are comprehensively revalued...000) .. Equipment is to be written down by $68..... Copyright © 2013 John Wiley & Sons Canada.................. no par value. 2................ 23..........................com Also you can contact us on Skype: Ebooksmtb 15........................ Common shares [(700 x ($3....... 24................................... This step assigns appropriate fair values to all assets and liabilities as per the negotiations......300 Treasury shares (700 x $29) ...... The changes in debt and equity as negotiated are recorded....... 800 Retained earnings (difference) ........000 Treasury shares (800 x $29) ........... $720..800 Inventory ..... needbook1. Contributed Surplus or a separately identified account within Shareholders’ Equity. Copyright © 2013 John Wiley & Sons Canada.com/ or contact us at Ebooksmtb@hotmail. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15.Solution Manual Please visit our website : http://www. The deficit is reclassified to Common Shares. For more Ebook's . Unauthorized copying.Test Bank . Ltd.51 4. distribution. The deficit balance (retained earnings) is brought to zero. ...................................... 6...... giving each subscriber the right to purchase 300 common shares at a price of $65 per share...................500 Subscriptions Receivable ..... 975..000 3. Rhodesia issues shares on a subscription basis.... 5.......... non-cash consideration. 975.............000 Pr.......... Unauthorized copying................... 97...........500) x 1 ÷ 3] ........ Subscriptions Receivable (50 x 300 x $65) ..............000 5.......... Tenth Canadian Edition PROBLEMS Pr.... 3...................... is authorized to issue an unlimited number of no par common shares...............000 Common Shares Subscribed .com/ or contact us at [email protected]) .. 97.... 10. 2...000.com Also you can contact us on Skype: Ebooksmtb 15............000 shares for $10 cash each.............000 Preferred Shares . 330. 292. and by subscription Dahomey Corp.... 2.....000 Cash (10% x $975........ the common shares are selling at $60 per share................. Rhodesia is granted a charter that authorizes issuance of 100....: 1.. Copyright © 2013 John Wiley & Sons Canada.000 Common Shares . Instructions Prepare the required general journal entries to record these transactions......000 cash in total payment for a piece of land..........000 common shares are issued for land with a fair value of $400.. 975..Solution Manual Please visit our website : http://www...... 4................... Rhodesia issues 100 common shares to its lawyer for costs associated with starting the company................................................ 15-147 Issuance of shares for cash.............500 Common Shares Subscribed .................... 15-146 Issuance of shares for cash........ non-cash consideration............... Ltd.........000 Common Shares ......... distribution.... and by subscription Presented below is information related to Rhodesia Corp.. 2..........................................................needbook1........................ 292.500 Subscriptions Receivable ...000 4..... The final instalment payment (for the subscriptions) is received and the shares are issued. Cash [($975.. Issued 80................52 Test Bank for Intermediate Accounting... 400........Test Bank ... Fifty individuals accept the company's offer and agree to pay 10% down and the remainder in three equal instalments...000 preferred shares are sold for cash at $110 per share......500 6..... 3. 330.. At this time............. or transmission of this page is prohibited ..................000 shares and paid $140...... Prepare the journal entries for the following transactions: 1......................... For more Ebook's .... 6. 6...........................000 x $110) .............................................. Organization Expense (100 x $60) ................. The market value of the shares had not changed.........................000 – $97.. Sold 600...........................000 Common Shares ................ No entry necessary................... Land ...... Solution 15-146 1...... which was the fair market value of the shares. Cash (3............... 400........... 975.......000 no par value preferred shares and an unlimited number of no par value common shares........... ......................................... 720. Received the balance of the subscriptions receivable.000..000 in dividends..............000 x $18) .........000 $ — $ 64...... b...... The preferred is non-cumulative and non-participating... 268........... Solution 15-147 1........com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15...........000 $32................ No dividends have been declared since December 31.............Test Bank .......000 $204.000 Subscriptions Receivable........................................... Solution 15-148 a..................... and the board of directors wants to distribute $204........000 Copyright © 2013 John Wiley & Sons Canada.....000 Common Shares Subscribed .... 720.....000 x 2 $64... 720.000 $172...... 2014.............000 4......80 × 40.... no par value preferred shares $400............... 6................000..........000 2................. Received subscriptions for 40. 800...............000 3......80..................................... Cash ($720........000 $ — $ 32..000 172.needbook1. distribution.000 Remainder to common 172..000 Cash ($720...... Cash (600........ $0.............. Instructions Calculate how much the preferred and common shareholders will receive under each of the following assumptions: a..53 3.. Preferred Common Total Dividends in arrears.................000 Subscriptions Receivable.............................000 All shares were sold for $100 each... 432....... 432...... received 60% of the subscription price in cash.........................000.......000 Common Shares .....................000 x 60%) ..... 6...... The preferred is cumulative and non-participating...........000 Cash.............000 Pr.................. The preferred is cumulative and fully participating......... c...000 60........Solution Manual Please visit our website : http://www............. 940. 720............ Ltd.. Land .................... 2011.............000 Common Shares Subscribed ....... 268.................. Preferred Common Total Current year's dividend $.................... The preferred is cumulative and participating to 12% total... Subscriptions Receivable (40...com/ or contact us at [email protected] Common Shares ...............000 no par value common shares $600.......000 shares at $18 per share.... 4. Unauthorized copying.....000 b.000 $32........................... 140.................... d...... or transmission of this page is prohibited .......... 15-148 Allocation of cash dividends Togo Inc.....000 x $10) . has the following shares outstanding: 40...... It is now December 31.................000 x 40%) ....... For more Ebook's .... $.............000 x $10) ...80 × 40...000 Common Shares (80.... . Preferred Common Total Dividends in arrears...000 ÷ $1.........50..... Instructions Prepare journal entries for the 2014 transactions...........600.....000 $112.....000 shares ......................needbook1.... 100..........000 ....... Feb 28 Retired 8.... issued and outstanding....000 $ — $ 64..... 120.000 common shares at $12 per share.000 c..000 $120.... callable at $107 plus dividends in arrears..........000.... 100.000 * basic PFD dividend is $..........000 $92.000 preferred shares at the call price............000 40...000 d...000 80.......000) × 1....000 36...000 Retained earnings .... The market value of the shares at that time was $11......... There were no dividends in arrears.. 640...... 107..................000 ÷ 20.... $. Use separate accounts for each class of dividends........ 20.........000 Participating dividend 6% ($60.000 *Participating dividend (additional 4% – max) 16. Ltd...000 $ — $ 64.. 102.000 $108.............000 Contributed surplus (retirement of common shares) ..........80 × 40..000 20. For more Ebook's .......000 Copyright © 2013 John Wiley & Sons Canada.....040..54 Test Bank for Intermediate Accounting.... 15-149 Share retirement and stock dividends Sudan Enterprises Inc.......000 Current year's dividend 2:3 ratio 32.....000 shares authorized... 2013: Contributed Capital Preferred shares....................... $1...000 108.. cumulative.....000 Common shares............................ 80.80 × 40............000 in dividends.......000 issued and outstanding .......................000 The following transactions took place in 2014: Jan 20 Redeemed 1...........com/ or contact us at [email protected] $204....80 ÷ $100 = 8% Pr.........000 Cash ($107 × 1.000) . or transmission of this page is prohibited ................ Jan 28 Declared $100. no par......Test Bank .000 $96...000 60...000 shares authorized...000 Remainder to common 108.Solution Manual Please visit our website : http://www...........000 Jan 28: Retained earnings ..000 — 32..... 100...... reported the following shareholder’s equity at December 31..000 x 2 $ 64... $....... no par value... 5....com Also you can contact us on Skype: Ebooksmtb 15....000 x 2 $ 64.......000 $84....000 $204...000 × $1) ... Tenth Canadian Edition Current year's dividend 32...000 Current year's dividend 2:3 ratio 32. Preferred Common Total Dividends in arrears.. 1.........000) 24.....000 80....... Solution 15-149 Jan 20: Preferred shares ($2..000 48.040. Unauthorized copying.000 Remainder to common — 20............... Mar 2 Declared and distributed a 3% common stock dividend.000 24.........................000 Retained earnings ........000 48.....000 $204......... $2....000 Preferred dividends payable (19.. distribution. 19. ........... 3............ One day your CFO reminds you that next week you will have to make recommendations to the board of directors regarding this year’s annual dividend..000 ÷ 80.........................................................600.... 1.......................000 Accrued liabilities ..........000 Net income ............................. 5.........................000 Statement of Financial Position: Current Assets Cash ............................................. 64........... 44...300.....................000 × $12) ........................................300..........................................700........................................................000 Total Current Liabilities ...........000 Long term investments ..........................000.000 Accounts receivable ................55 Common dividends payable ($100.......Test Bank ..................needbook1........................700............................000 Income tax (30%) ..000 Contributed surplus (retirement of common shares) .... 6................................840 Pr....... For more Ebook's ............... 5.. Unauthorized copying.... plant and equipment (net) ................... Ltd............................................................000.50) ...........400.. distribution.... 4. 24..............................................................000 Gross profit .................................................................000 Non-current liabilities ........... Income Statement: Sales ......................................000 Other ..................................... 2.................. Luckily..................... 4.000... 16.........................000...................................000 Inventory ..........000............000 × 3% × $11.......................000 Current Liabilities Accounts payable ..000..............................000 Total Assets ..000.............................000..........................................................Solution Manual Please visit our website : http://www................000.......................600...... 7..................................000 Other ...........000...........................000 – $19...............................000 Mar 2: Retained earnings (72............................. a wholesale distributor of magic supplies............................................... 2........... 14........................... 8........................................................000........ 96....... 81..... 15-150 Dividend distribution You have recently been appointed CEO of Dumbledore Ltd..........000 Income before tax ........ or transmission of this page is prohibited ..........................................000. without the effect of any dividend declaration.............. 9...000 Operating expenses ....600......... 29................... 3......000 Total Current Assets ......... 2..... This catches you totally by surprise..........................com/ or contact us at Ebooksmtb@hotmail.......700.........................................000 Copyright © 2013 John Wiley & Sons Canada..com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15........ 38.............000 COGS ............... 24..000) .........000 Feb 28: Common shares (8.. 32........................000 Property................... the CFO was kind enough to provide you with some additional information........000 Operating income before interest ..... 17..........................000 Cash (8....... 14.........000......000)) ................840 Common shares .....000 Interest expense ......... He shows you the projected income statement and balance sheet.000 × ($640................... 7........ .... so the actual dividend you can pay is lower...........000 in retained earnings. What factors will limit the amount to be distributed as dividends? b...... 4.... and $3. 2) Dumbledore has two debt agreements that call for the corporation to maintain at least $2..000.000.000...... It is the end of November... 38... and historically the corporation has declared dividends five days before the end of the year.900.000 Total Shareholders’ Equity ..... ii) Even if you are not constrained.. This will bring the ratio to 70% = 25 ÷ 35..700... and Copyright © 2013 John Wiley & Sons Canada..6% as total debt is $25.... the ratio is 64.000..... The debt covenant requires that Dumbledore must maintain $2.........000.500......000 in dividends last year..000 Other information: 1) Last year......800.... Some of the main considerations are: i) Since Dumbledore distributed $3. so the dividend would be a maximum of $4. Instructions a...... but if you distribute all the income as a dividend........... Solution 15-150 a..........000.. What are important considerations in your decision? What would you recommend? Provide any journal entry that is related to your decision....... You can distribute dividends only to the point that this ratio does not exceed 70%..7.. a dividend of “only” $3. However...000 and total assets are $38.... 1....Test Bank . the net income was $3... theoretically you could distribute all your cash on hand.. 7. and there is no single correct answer..........com Also you can contact us on Skype: Ebooksmtb 15.....700.. You need to ascertain how much can be distributed in dividends. so distributing $3.... 3) There has been no change in the number of shares outstanding during the year..000.needbook1....... or transmission of this page is prohibited ........000 Total Liabilities and Equity ..000.300...000 Retained earnings (includes this year’s net income)...... this year the firm fared well.....com/ or contact us at [email protected] in retained earnings....Solution Manual Please visit our website : http://www. Ltd... the firm must maintain a certain level of cash for its day-to-day operations...500.....000 may not be good for shareholder relations or your image in the marketplace............ so the maximum dividend is $5. distribution...... i) Retained earnings constraint.. The balance in retained earnings is currently $7.... For more Ebook's ....000 will imply a dividend reduction....000 Contributed surplus . There are many considerations involved in this decision. Unauthorized copying......... ii) Cash on hand constraint... As long as you do not decide to borrow additional cash..700....000..500... you might not want to make the dividend too large...000. 13.... Firms are usually reluctant to lower dividends......000. You start to think about the recommendations you are going to make....800...... Tenth Canadian Edition Shareholders’ Equity Common shares ...000.....300.... True.. Look at all your constraints..56 Test Bank for Intermediate Accounting....... You are limited to distributing at most $3... b........ Currently...000 cash dividends were paid. as well as maintain a debt-to-total-assets ratio of no more than 70%.300...... iii) Debt-to-total assets constraint............ for practical purposes. 000..5)............000 Total contributed capital .... Pr. 15-151 Equity transactions Congo Corp.....000..16. or transmission of this page is prohibited .000.. and cash is increased to $6.. given other constraints are satisfied. So if you declare a cash dividend of $3. Suppose you sell a $4...94... However.needbook1.700.. 810.....000 of the proceeds to reduce debt. which will relax the debt-to- total........ since the stock dividend does not give cash to the shareholders. The change to the balance sheet amounts is: Cash plus $2.. Ltd.. If the business does not have such projects. This will allow Dumbledore to increase the overall dividends and not violate any of the constraints... and some to distribute as dividends.........000 shares issued and outstanding .. viii) Since Dumbledore has $7.57 next year’s income is lower. they might not appreciate it.. no par value. 40.... maintaining a high payout ratio might create the problems already mentioned. then you do not want to send the wrong message.800.... 6. has the following capital structure at the beginning of this year: Preferred shares.000........ you would have to lower your dividend......... it is better off to distribute the earnings..000..840.... distribution.....000..... enough resources are available to pay current liabilities. vi) Another solution would be to distribute a cash dividend of $3. For more Ebook's ..000..... which again is not desirable...000 Common shares.....Solution Manual Please visit our website : http://www...3 ÷ 3......000. the corporation could issue more shares.Test Bank .. 60.assets ratio and the cash constraint...000 and then a stock dividend (e...000).000..000.400....... A business should limit dividends..... for $1.000 shares issued and outstanding .. Current ratio excluding cash = 10...000 Liabilities minus $2.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15.000 asset at no gain and use $2...000 ÷ 9.... v) You need to make sure that after you distribute cash dividends.000 Non-current assets minus $4. 510. if the retained capital can be invested in projects with high returns. If the business still has good investment opportunities... vii) To be able to pay more cash dividends........000.3% (3.000 shares authorized.. you are able to increase the dividend but still satisfy all constraints. no par value.000 = 1. iii) Another reason to not distribute a high dividend is that it might suggest the firm does not have future growth opportunities..000 and you will have plenty of cash to do so. total assets are down to $36. Unauthorized copying.. iv) Last year’s payout ratio was very high .000..000 in investments.... $3. another consideration is a property dividend..g.000 Copyright © 2013 John Wiley & Sons Canada.000.. so the firm does seem to be able to meet its short-term obligations even if it distributes all its cash.. $ 300....com/ or contact us at [email protected]......... The-debt-to-total-assets constraint allows you to distribute dividends of up to $3... you need to take some action..... ix) If time allows....000 shares authorized. cumulative. However..000 Debt is down to $23... You could sell some non-current assets and use some of the proceeds to pay down on debt... 20...000.. For more Ebook's .. Current year's dividend.000 Total shareholders' equity .......000 Dividends Payable—Common ...400 32... 60......... 40...............000* $18..150.................................. $1...000 Retained Earnings...000 Common Stock Dividend Distributable ...........Test Bank .000 shares issued and outstanding ...000 b.000 $30.....................000 Common shares... Show all calculations...000 Total contributed capital . The current market value of the common shares is $16 a share....... 64..................58 Test Bank for Intermediate Accounting.......... $1.............. b................ distribution.....000 – $90............ construct the shareholders' equity............ i...... iii..000 + $180.....000 $90.. Record the closing entry.................. $3 × 6........... 30.....000 shares authorized..... 90........ Shareholders' equity Preferred shares...................com Also you can contact us on Skype: Ebooksmtb 15...........000 iii.............000 9................... Solution 15-151 a...... 60.....600 Participating dividend 4% 12........ Incorporating all the above information................... Tenth Canadian Edition Retained earnings .000 Pr..........000 Retained Earnings ............... Income Summary .................... 366...... 64...................... $3................400 Remainder to common 9.....................000 Retained earnings*** ... $ 300.. or transmission of this page is prohibited ..000 ii..... 180.......000...000 $30...000 Instructions a. Unauthorized copying... The preferred shares are participating to a maximum of 10%............... cumulative........000 *basic div is $3 ÷ $50 = 6% **6% x $510............................... 874................... A total cash dividend of $90.000 Total shareholders' equity .......................... no par value..............000 shares authorized.......... 180.com/ or contact us at Ebooksmtb@hotmail. 340.........240.............. Preferred Common Total i.............................................. 6........000 – $64........................ A 10% common stock dividend was declared. 64.. no par value.......000 20. There are no dividends in arrears. ii......................... Record the following transactions which occurred consecutively this year..000 was declared........................... Ltd... Record dividends payable to common and preferred shares in separate accounts.needbook1............. 510.................000 Dividends Payable—Preferred ........ Net income for the year was $180. 20....000 = $366...000 shares issued and outstanding ......................................000 x 10% x $16 = $64.............000 Retained Earnings .............000 Common stock dividend distributable ....... 15-152 Statement of Shareholders’ Equity Copyright © 2013 John Wiley & Sons Canada....600** $48.................Solution Manual Please visit our website : http://www.............................000 $60.................. 40.........000 ***$340............... .000 $90.000 ?? Other Comprehensive Income for year (unrealized 30..... 80 Copyright © 2013 John Wiley & Sons Canada.... 9...income 30..com/ or contact us at [email protected] b....... to be held as treasury shares b......000 30... no par value $300. Statement of Shareholders’ Equity For the year ended December 31.......000 Net income 110........000 Other compre..........000 ?? Common shares sold during year $50...... For more Ebook's ..400 Retained Earnings ..000 $600..59 Following is information provided by Timbuktu Inc..000 $160... Sold 40 treasury shares at $34 d..... Retired the rest of the treasury shares *Solution 15-153 a...000 110........ Cash (80 x $30) ..............000 110..... 9.. 15-153 Treasury share transactions Algeria Corp..........000 Accumulated Other Comprehensive Income 60.000 $50.000 $410. 2.... 2014...............000 *Pr..... with a book value of $150...Test Bank ...... 2014 Accumulated Total Common Comprehensive Retained Other Shareholders’ Shares Income Earnings Comprehensive Equity Income Beginning balances $300...... Instructions Record the share transactions given below: a.....000 ?? Net income for year 110......... 2013 Dec 31. Solution 15-152 TIMBUKTU INC.... for their last two year ends: Balances at Balances at Dec 31....... 2014 Common Shares... Unauthorized copying.........000 30............ distribution............. after tax) Retained Earnings 50...........needbook1... Bought 300 common shares at $31 each..........000 no par value common shares outstanding. income 140.....000 holding gain........ Sold 80 treasury shares at $30 c.........000 Common shares sold 50.000............ Ltd...000 50............ or transmission of this page is prohibited .................000 Ending balances $350...000 $60..com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15... prepare a Statement of Shareholder’s Equity for the year ended December 31...000 Instructions In good format. Treasury Shares (300 x $31) ... currently has 5.....000 Compre..Solution Manual Please visit our website : http://www.300 Cash .... ..........000 ÷ 5...360 Treasury Shares (40 x $31) ..........................000) x (300 – 80 – 40)].. Ltd..........................................com Also you can contact us on Skype: Ebooksmtb 15............com/ or contact us at Ebooksmtb@hotmail................ 2...................................................480 c.................................................................. 5................. or transmission of this page is prohibited ..60 Test Bank for Intermediate Accounting...............Test Bank .................240 Contributed Surplus ................ 60 Treasury Shares (180 x $31) ... 1............................................ 120 Retained Earnings (balance) ........ For more Ebook's ............Solution Manual Please visit our website : http://www...... distribution..400 Contributed Surplus (maximum) ... Tenth Canadian Edition Treasury Shares (80 x $31) ....................580 Copyright © 2013 John Wiley & Sons Canada.. 120 d. Common Shares [($150.................................... 1.needbook1... 5.. Cash (40 x $34) . Unauthorized copying. used to create derivative works.com Also you can contact us on Skype: Ebooksmtb Shareholders’ Equity 15. All rights reserved. This manual is furnished under licence and may be used only in accordance with the terms of such licence.Test Bank . distribution. Unauthorized copying. or related companies.Solution Manual Please visit our website : http://www. Ltd. reproduced. scanning.needbook1. or otherwise without the prior written permission of John Wiley & Sons Canada. or transmission of this page is prohibited . electronic. mechanical.61 LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. or transmitted in any form or by any means. Ltd. photocopying.com/ or contact us at Ebooksmtb@hotmail. Ltd. The data contained in these files are protected by copyright. Copyright © 2013 John Wiley & Sons Canada. made available on a network. stored in a retrieval system. modified. The material provided herein may not be downloaded. For more Ebook's . recording. 2 E 52. 4 M 62. 2 H 89. 6 M 80.com Also you can contact us on Skype: Ebooksmtb CHAPTER 16 COMPLEX FINANCIAL INSTRUMENTS SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 4 E *31. 1 E 13. 4 M *34. 6 H 45. 10 M 9. 1 E 19. or transmission of this page is prohibited . 4 M 27. Ltd. 6 M *38. 1 M 16. 1 E 11. 6 M 44.5 H *90.com/ or contact us at Ebooksmtb@hotmail. 4 M 58. 8 E 2. 3. 10 H 10. 2 M 82.Solution Manual Please visit our website : http://www. 4 M 85. 4 M 76.Test Bank . 5 M Exercises 78. 4 M *71. 6 M *40. 3 H 83. 1 E 17. 2 E 21. 6 M 46. 6 M *39. 4 M *32. 4 M *70. 4 E 28. 10 H Multiple Choice–Computational 41. 10 H Problems 87. 9 M 4. 2 M 49. 4 E *33. 2 M 23. For more Ebook's .4 M *91. 2 M 50. 1 E 15. 4 M *35. 2 M 55. 4 H 64. 5 M 79. 10 M Multiple Choice–CPA Adapted 73. 4 M 75. 4 H 63. 9 M 3. 4 M 66. 1 E 12. 9 M Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada. 9 H 88. 2 M 56. 2 E 54. 2 E 20. 2 E 53. 4 M *77.needbook1. 4 H 67. 10 M 8. 10 M 48. 1 M 81. 4 M 69. 4 M 30. 4 H 60. 2 E 24. 5 H *37. 10 M 47. 4 M 65. 9 M 5. 4 H *72. 2 M 25. 4 M 59. 1 E 18. 10 M 7. 3 E 26. 4 M *86. distribution. 2 M 22. 2 H 51. 1 M 14. 4 M 61. 4 H 68. 2. 4 H 43. 4 M 29. Unauthorized copying. 4 H 42. 10 M 74. 2 M 57. 4 M *36. 9 M 6. 4 H 84. MC 5. MC 7. MC 60. MC 15. Ltd. MC 23. MC 13. MC Learning Objective 5 27. MC 54. Pr Learning Objective 6 28. MC 64. MC 87. MC *39. MC 47. MC 9.Test Bank . MC 73. MC 68. MC 24. MC 81. Ex 88. MC 82. Pr Learning Objective 10 *36. MC 76. MC 85.needbook1. MC 49. MC 83. MC 74. MC 75. MC 26. MC 65. MC 55. MC 63. MC 41. MC 42. MC 14. Ex 89. MC Learning Objective 9 *32. MC *71. Ex 29. MC 69. MC 30. MC 4. MC 44. MC *34. MC *90. MC 3. MC *70. MC *37. MC *33. MC 53. MC *86. MC 46. Unauthorized copying. MC 62. Ex 18. MC *38. MC 89. MC *72. or transmission of this page is prohibited . MC 25. For more Ebook's . Pr 21. MC 78. Pr *91. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 1 1. MC 50. MC 56. MC 2. Pr 12.com Also you can contact us on Skype: Ebooksmtb 16. Ex 19. MC 59. MC 84. MC 43. MC 79. MC 52. MC 45. MC 61. MC 66. MC 6. MC *77. MC 58. MC 8. Pr Learning Objective 3 16. MC 80.com/ or contact us at Ebooksmtb@hotmail. Ex 20. MC 48. MC *35. MC 51. MC 22. MC *40. MC 57. MC Learning Objective 8 *31. distribution. Ex 11.Solution Manual Please visit our website : http://www. Pr Learning Objective 4 17. Ex Learning Objective 2 10. MC 67.2 Test Bank for Intermediate Accounting. Ex Note: MC = Multiple Choice Ex = Exercise Pr = Problem Copyright © 2013 John Wiley & Sons Canada. MC 88. Derivatives are recognized on the SFP on the date that the contract is initiated. Ltd. gains. The economic substance dictates the accounting. 3. market. If an instrument has both debt and equity components. dividends. derivatives that are settleable in the entity’s own equity instruments are accounted for as equity (or contra-equity) if they will be settled by exchanging a fixed number of equity instruments for a fixed amount of cash or other assets and they do not create an obligation to deliver cash or other assets. They are attractive since they transfer risks and rewards without having to necessarily invest directly in the underlying instrument.needbook1. Under IFRS. Currency and interest rate risk are the risk of a change in value and cash flows due to currency or interest rate changes. Derivatives are financial instruments that derive (get) their value from an underlying instrument.3 CHAPTER STUDY OBJECTIVES 1. Otherwise.Test Bank . or both. they most often do not meet the criteria for equity presentation and are therefore financial assets/liabilities. Credit risk is the risk that the other party to a financial instrument contract will fail to deliver. 2. Special hedge accounting may affect how derivatives are accounted for. Exchange-traded derivatives relating to commodities are generally accounted for as derivatives under ASPE.com/ or contact us at Ebooksmtb@hotmail. Futures contracts require the company to deposit a portion of the contracts’ value with the broker/exchange. Complex instruments include compound and hybrid instruments where the legal form may differ from the economic substance. Analyze whether a hybrid/compound instrument issued for financing purposes represents a liability. on each SFP date. and losses are treated in a way that is consistent with the SFP presentation. or transmission of this page is prohibited . Written options create liabilities. The contracts are marked to market by the broker/exchange daily and the company may have to deposit additional funds to cover deficiencies in the margin account. The main issue is that of presentation: should the instrument be presented as debt or equity? The definitions of debt and equity are useful in analyzing this. Liquidity risk is the risk that the company itself will not be able to honour the contract due to cash problems. The related gains and losses are recorded through net income. Purchase commitments that are net settleable and are not “expected use” contracts are accounted for as derivatives under IFRS. Related interest. Financial risks include credit. currency. It is also important to understand what gives the instruments their value from a finance or economic perspective. In general. For more Ebook's . interest rate. Finally. IFRS provides significantly more guidance with respect to the accounting for these instruments. Copyright © 2013 John Wiley & Sons Canada.Solution Manual Please visit our website : http://www. to their fair value. liquidity. equity. Understand what derivatives are and how they are used to manage risk. purchase commitments are never accounted for as derivatives because they are not exchange-traded futures contracts. distribution. market risk is the risk of a change in value and/or cash flows related to market forces. if the instruments are net settleable or have settlement options. they are financial assets/liabilities. Unauthorized copying. They are remeasured. There are differences in measuring compound financial instruments under IFRS versus ASPE. Under ASPE.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. use of the proportional and incremental methods will help in allocating the carrying value between the two components. and other price risks. Understand how to account for derivatives. They are used for both speculative purposes (to expose a company to increased risks in the hope of increased returns) and for hedging purposes (to reduce existing risk). For more Ebook's . the IASB is currently working on several projects relating to financial instruments including defining equity versus liabilities and hedging. 7. Any discount or premium that results from the issuance of convertible bonds is amortized.com/ or contact us at [email protected]. As the instrument is a compound instrument and contains both debt and equity components. The book value method is often used in practice. or transmission of this page is prohibited . SARs and performance-type plans are discussed in Appendix 16B. Stock compensation includes direct awards of stock (when a company gives the shares to an employee as compensation).Test Bank . If bonds are converted into other securities. distribution.4 Test Bank for Intermediate Accounting. and what changes are expected in the near future. the principal accounting problem is to determine the amount at which to record the securities that have been exchanged for the bond. CSOPs and direct awards of stock are measured at fair value (using an options pricing model) at the grant date. these must be measured separately and presented as debt and equity. Identify the major differences in accounting between ASPE and IFRS. assuming the bonds will be held to maturity. The differences are noted in the comparison chart. respectively. however. The stock-based compensation standards are largely converged and stable. Compensatory stock option plans are operating transactions since they are meant to compensate the employee for service provided. They are therefore capital transactions. compensatory stock option plans whereby an employee is given stock options in lieu of salary. The method for recording convertible bonds at the date of issuance is different from the method that is used to record straight debt issues.com Also you can contact us on Skype: Ebooksmtb 16. Tenth Canadian Edition 4. and performance-type plans. 5. 6. Ltd. Explain the accounting for hybrid/compound instruments. Employee stock option plans are meant to motivate employees and raise capital for the company. The cost is then allocated to expense over the period that the employee provides service. Describe the accounting for share-based compensation. Describe the various types of stock compensation plans.Solution Manual Please visit our website : http://www. Copyright © 2013 John Wiley & Sons Canada. As noted above. ASPE allows an entity to value the equity portion of compound instruments at $0. SARs and performance-type plans are discussed in Appendix 16B. Unauthorized copying. share appreciation rights (SARs). Characteristics of convertible bonds a 22. Classification of options on convertible securities a 26. Valuation of derivatives b 8. Description b 1. Measurement date for a compensatory stock option plan c 30. Intrinsic value of an option b 13. Recording of convertible debt a 24. Unauthorized copying. Hedge accounting c *35.com/ or contact us at Ebooksmtb@hotmail. Classification of hybrid/compound instruments b 19. Classification of term preferred shares under IFRS d 21. Arbitrageur’s objective c 7. Types of market risks d 5.5 MULTIPLE CHOICE—Conceptual Answer No. Recognition of compensation expense for a stock option plan b *31. Recording gains on derivatives b 9. Reasons for issuing convertible bonds c 23. SAR and timing of valuation a *37. Hedge accounting b *34. Accounting for a non-compensatory stock option plan a 29. Characteristics of a non-compensatory stock option plan c 28. distribution. or transmission of this page is prohibited . Characteristics of a forward contract d 15. For more Ebook's . Presentation of high/low preferred shares under ASPE a 20.Solution Manual Please visit our website : http://www. Characteristics of a futures contract b 16.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. Compensation expense in a SAR plan a *40. Recording conversion of bonds d 25. Speculator’s objective a 6. Definition of a put option a 12. Meaning of writing an option d 10. Definition of hedging c *32. Advantages of issuing debt b 17. Characteristics of derivatives d 2. Performance-type plan d *38. Time value of an option c 14. Definition of credit risk c 4. Ltd. Basis of performance-type plan *This topic is dealt with in an Appendix to the chapter. Definition of a call option c 11. Copyright © 2013 John Wiley & Sons Canada.Test Bank . Swap contract a *36. Purpose of derivatives c 3. Fair value hedge d *33.needbook1. Measurement of hybrid/compound instruments c 18. Executive compensation plans c *39. Recording dividends on term preferred shares d 27. Settlement of a call option d 42. Bonds issued with detachable stock warrants d 61. Calculating interest expense on bonds sold between interest dates c 56. Calculating the intrinsic value of an option b 45. Recording a forward contract b 43. Conversion of convertible bonds b 51. Bonds issued with detachable stock warrants c 64. Bonds issued with detachable stock warrants a 62. Compensation expense recognized in second year of a SAR plan c *72. Calculating the time value of an option a 46. Ltd.com Also you can contact us on Skype: Ebooksmtb 16. Determine compensation expense in a stock option plan a 69. Unauthorized copying. Bonds issued with detachable stock warrants b 65. Compensation expense recognized in first year of a SAR plan b *71. Calculating unamortized bond discount on converted bonds d 57.Test Bank . Description a 41. Bonds issued with detachable stock warrants c 60. or transmission of this page is prohibited . Copyright © 2013 John Wiley & Sons Canada. Compensation expense recognized in third year of a SAR plan *This topic is dealt with in an Appendix to the chapter. Determine compensation expense in a stock option plan b 68. Valuation of convertible bonds (IFRS) c 67. Bonds issued with detachable stock warrants d 59.com/ or contact us at Ebooksmtb@hotmail. Preferred shares with detachable stock warrants d 66. Conversion of convertible bonds a 52.needbook1. Conversion of convertible bonds b 53. Settlement of a forward contract a 44. For more Ebook's . Recording expiry of a call option c 49. Tenth Canadian Edition MULTIPLE CHOICE—Computational Answer No. Conversion of convertible bonds b 54. Recording the adjusting entry for a forward contract a 50. Effective interest rate on convertible bonds c 55.Solution Manual Please visit our website : http://www.6 Test Bank for Intermediate Accounting. distribution. Conversion of preferred shares a 58. Recording a call option b 47. Bonds issued with detachable stock warrants d 63. Recording the adjusting entry for a call option d 48. Determine compensation expense in a stock option plan c *70. Allocation of proceeds from issuance of convertible bonds b 74.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16.needbook1. PROBLEMS Item Description P16-87 Forward contract P16-88 Employee stock options P16-89 Convertible bonds and warrants *P16-90 Interest rate swap *P16-91 Hedging (forward contract) *This topic is dealt with in an Appendix to the chapter. Recognition of gains/losses on bond conversion d 75. Copyright © 2013 John Wiley & Sons Canada.7 MULTIPLE CHOICE—CPA Adapted Answer No. Unauthorized copying. EXERCISES Item Description E16-78 Definition of derivative instruments E16-79 Put options E16-80 Convertible debt and debt with warrants E16-81 Convertible bonds E16-82 Convertible bonds E16-83 Redeemable preferred shares and succession planning E16-84 Stock options E16-85 Employee share ownership plans *E16-86 Stock appreciation rights *This topic is dealt with in an Appendix to the chapter. Ltd. Compensation expense in a stock option plan b *77. Bond issue with detachable stock warrants c 76.Solution Manual Please visit our website : http://www.com/ or contact us at [email protected] Bank . distribution. Description c 73. Compensation expense recognized in a SAR plan *This topic is dealt with in an Appendix to the chapter. or transmission of this page is prohibited . For more Ebook's . distribution. the company itself will not be able to fulfill its obligation. reduce pre-existing risks. differing credit risks. are settled at the date of issuance. fair value. 3. 7. currency.Test Bank . b.com/ or contact us at Ebooksmtb@hotmail. Copyright © 2013 John Wiley & Sons Canada. c. one of the parties to the contract will fail to fulfill its obligation and cause the other party loss. cash flow will change over time. manage risks. an instrument’s price or value will change. hide financial irregularities.Solution Manual Please visit our website : http://www.com Also you can contact us on Skype: Ebooksmtb 16. require significant investments. The three types of market risk are a. d. Tenth Canadian Edition MULTIPLE CHOICE—Conceptual 1. historical cost. Derivatives should be valued at a. hedging opportunities between markets. and other price risks. Credit risk is the risk that a. fair value or historical cost. and credit risks. interest rate. Derivative instruments a. or transmission of this page is prohibited . transfer financial risks. d. Ltd. c. Derivatives exist to help companies a. b. d. d. and other price risks. c. differing liquidity risks. and liquidity risks. b. interest rate.needbook1. transfer primary instruments. interest rate.8 Test Bank for Intermediate Accounting. c. currency. For more Ebook's . maximize potential returns by being exposed to greater risks. b. 5. reduce interest expense. c. b. manage cash flows. c. take advantage of information asymmetry. take delivery of the underlying. d. c. An arbitrageur depends on a. A speculator’s objective is to a. other price. 6. 2. information asymmetry between markets. d. b. Unauthorized copying. 4. currency. liquidity. b. option premium value. c. force another party to buy the underlying security. For more Ebook's . value due to expectations that the price of the underlying security will rise above the strike price. 8. b. difference between the price of the underlying security and the strike price. c. therefore has a ready market value. d. Ltd. c. The intrinsic value of an option is the a. repurchase a previously sold underlying security. sell the underlying security. not be recorded. charges a fee and gives the holder a right. buy the underlying security. 11. repurchase a previously sold underlying security. c.needbook1. b. value due to expectations that the price of the underlying security will rise above the strike price. Copyright © 2013 John Wiley & Sons Canada. d. Gains on derivatives should a. Unauthorized copying. be booked through other comprehensive income. 14. A forward contract a.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. c. b. commits the contracting parties upfront to do something in the future.9 d. distribution. creates a right but not an obligation. b. option premium value. it a. be booked through net income.Test Bank . force another party to buy the underlying security. minimum value of the option. c. b. buy the underlying security 12. be recorded as deferred revenue. charges a fee for handling option transactions. d. minimum value of the option. d. b. pays a fee and gains a right. c. 13. d. 10. sell the underlying security. difference between the price of the underlying security and the strike price. or transmission of this page is prohibited . discounted cost. is generally exchange traded. The time value of an option is the a. If a company writes an option. endorses an option over to another party. A put option is a right to a. d. 9. b. A call option is a right to a.Solution Manual Please visit our website : http://www. a liability. c. equity.10 Test Bank for Intermediate Accounting. Ltd. b. d. b. 20. c. c. b. either equity or long-term debt. have priority over all other types of bonds. is not exchange traded. Which of the following would be classified as a hybrid/compound financial instrument? a. b. IFRS requires the use of the residual method. c.Solution Manual Please visit our website : http://www. mandatorily redeemable preferred shares (term preferred shares) are treated as a. mandatorily redeemable preferred shares c. IFRS requires the use of the relative fair value method. 18. 17. is standardized as to amounts and dates. ASPE does not allow the equity component to be valued at zero. 21. debt with detachable warrants d. does not require a margin account to be established. d. long-term debt. exposes the contracting party to credit risk. a. Tenth Canadian Edition d. b. Under IFRS. a contra-asset. After the initial measurement. c.Test Bank . Convertible bonds a. d. equity. 16. Copyright © 2013 John Wiley & Sons Canada.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 16. the debt portion is always measured at fair value. has no locked in time period. 15. b. perpetual debt b. d. c. Unauthorized copying. may usually be exchanged for common shares. regardless of earnings. d. distribution. d. a contra-asset. ASPE requires that high/low (redeemable) preferred shares be presented as a. therefore does not have a ready market value. pay interest only in the event earnings are sufficient to cover the interest. With regard to the measurement of hybrid/compound instruments. interest must be paid. are usually secured by a first or second mortgage. the interest is tax deductible.needbook1. either a liability or a contra-asset. or transmission of this page is prohibited . An advantage of issuing debt instead of equity is that a. no leverage is possible. it increases solvency or liquidity risks. A futures contract a. For more Ebook's . puttable shares 19. For more Ebook's . reduction of contributed surplus. contributed surplus. When convertible debt is converted to common shares. c. Stock Option Payable. to give the purchaser the option of buying preferred shares.needbook1. residual method. b. 24. the employer debits Cash and credits a. The plan is accounted for as compensation expense. Which of the following is NOT a characteristic of a non-compensatory employee stock option plan (ESOP)? a. the portion relating to the option should be classified as a(n) a. market value method. 25. with the conversion component credited to the Common Shares account. to reduce the debt-to-total assets ratio. b. to obtain debt financing at cheaper rates. Unauthorized copying. 27.com/ or contact us at Ebooksmtb@hotmail. The plan is generally available to all employees.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. b. asset. or transmission of this page is prohibited . d. IFRS requires that this is recorded by the a. Under a (non-compensatory) employee stock option plan (ESOP). when an option is sold to an employee. and an equity component. Dividends on term preferred shares. d. 23. There is only a small discount from the market price.Solution Manual Please visit our website : http://www. book value method. d. Ltd. For convertible securities. c. with the equity feature described in a note. relative fair value method. 26. other comprehensive income. d. c. 28. b. liability.Test Bank . A common reason for issuing convertible bonds is a. d. Copyright © 2013 John Wiley & Sons Canada. interest expense. a convertible debt security is recorded as a debt instrument a. should be debited to a. c.11 22. with the equity feature ignored. addition to contributed surplus. d. c. b. to avoid paying dividends on common shares. b. Under IFRS. where the shares have been recorded as a liability. c. The plan requires the employee to pay an up-front premium. b. retained earnings. Common Shares. distribution. not be booked until the hedge closes.12 Test Bank for Intermediate Accounting. Ltd.com/ or contact us at Ebooksmtb@hotmail. c. at the grant date. A fair value hedge protects the company against a. Contributed Surplus – Stock Options. b. b. d. has fulfilled all the conditions required to exercise the option. *32. derivatives or other instruments to increase returns. distribution. c. d. or transmission of this page is prohibited . Using IFRS. Hedge accounting is a. *31. *35. The date on which to measure the compensation element in a compensatory stock option plan (CSOP) is normally the date on which the employee a. 30. d. b. optional. fluctuations in exchange rates. be booked through other comprehensive income. debt to offset risks. Stock Option Revenue. d. in the periods in which the employee performs the service. actually exercises the option. forward contracts. is granted the option. d. b. not be booked. d. optional until December 2015 and mandatory thereafter. derivatives or other instruments to offset risks. mandatory.Solution Manual Please visit our website : http://www. d. c. Hedging is the use of a. c. over the periods of the employee's service life to retirement. c.Test Bank . c. 29. For more Ebook's . an existing exposure related to an existing asset or liability. b.com Also you can contact us on Skype: Ebooksmtb 16. by the end of the contract the interest rate incurred by the company will equal a. a future transaction that has not yet been recognized. b. Compensation expense resulting from a compensatory stock option plan (CSOP) is generally recognized a. may first exercise the option. Copyright © 2013 John Wiley & Sons Canada. errors in valuation of derivative instruments. *33. be booked through net income. *34. in the period of exercise. hedge accounting allows the gain or loss on the hedge transaction to a. Unauthorized copying. If a company enters into a hedging contract to swap a floating interest rate for a fixed rate. Tenth Canadian Edition c.needbook1. the difference between the fixed and the floating rate. mandatory if specified criteria are met. The date on which to measure the compensation in a stock appreciation rights plan is the a. b. Compensation expense resulting from a performance-type plan is generally a. sales. c. grant date and revalued at exercise date. the fixed rate. *36. c. c.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. An executive compensation plan in which the executive may receive compensation in cash. exercise date. *40. Unauthorized copying. return on assets (investment). d. or transmission of this page is prohibited . Copyright © 2013 John Wiley & Sons Canada. d. distribution. recognized in the period of exercise. c. c. allocated to the periods subsequent to the measurement date.com/ or contact us at Ebooksmtb@hotmail. shares. *38.needbook1. *39. b. Ltd. c. a performance-type plan. date of grant. a nonqualified shares option plan. whichever rate is highest.Test Bank . b. both a performance-type and a stock appreciation rights plan. d. recognized in the period of the grant. market price of the common shares. a stock appreciation rights plan. is known as a. each interim date. d. The payment to executives from a performance-type plan is NEVER based on the a. grant date and not revised at subsequent interim dates. return on common shareholders' equity.Solution Manual Please visit our website : http://www. *37. b. d. date that the market price exceeds the option price. the floating rate.13 b. d. date of exercise. b. determined at the measurement date. For more Ebook's . or a combination of both. it would be valued at a. end of each interim period up to the date of exercise. If an SAR is determined to be an equity instrument. c 6. b 14. c *36. c 24. Item Ans.needbook1. c 17. Item Ans. c *34. d 8. or transmission of this page is prohibited . Item Ans. c 10. d *33. For more Ebook's . b 23. c *38. c 20. 1. b *37. Ltd. d *31. Unauthorized copying. a 2. d *39. a Copyright © 2013 John Wiley & Sons Canada. d 16.Test Bank .Solution Manual Please visit our website : http://www. a *35. a *32.14 Test Bank for Intermediate Accounting. d 3. b 7. c 29. b 15. d 11. b *40. Item Ans.com Also you can contact us on Skype: Ebooksmtb 16. a 30. c 9. a 26. Item Ans. d 21. Item Ans. b 19.com/ or contact us at Ebooksmtb@hotmail. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. a 18. a 28. b 22. b 25. d 27. a 12. c 4. c 13. a 5. distribution. . 300 Gain...................... 300 Derivatives—Financial Assets/Liabilities . 2...................................................................................... 12...................... 300 Copyright © 2013 John Wiley & Sons Canada........... 12.................................................. Derivatives—Financial Assets/Liabilities .......... 300 Cash ....................com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16.............................. 2014 is a.............000 Use the following information for questions 42–43...... Cash ... purchased a call option for $2................... 12.. On August 31....... The entry on Alpha’s books to record the settlement is a. no entry..................... 12.................... 800 b........................000 Derivatives—Financial Assets/Liabilities ..... 300 Cash . Derivatives—Financial Assets/Liabilities . 2014.. Derivatives—Financial Assets/Liabilities ..............400 Gain............................ 2014.. 200 Gain............................................. Omega settles the option for cash..............600 b............................................... 2014.................... 9..................17 CAD.... Alpha Corp...needbook1................. 500 Gain.......................................... 50... 300 d.................................................000 Gain.............. 300 Derivatives—Financial Assets/Liabilities ............. the KRB is trading at $0......com/ or contact us at Ebooksmtb@hotmail................................ 2. 500 c.....................................000 Krubles (KRB) for $8. 100 d............ On September 5.................. On August 25........................... On August 18....000... 2014....... 200 Gain...... For more Ebook's ........................ giving it the right to buy 1.................400....................................................................... Beta Inc............. On July 5.... Cash ........... 12................................................................ 500 Derivatives—Financial Assets/Liabilities .............. for $40 per share........................ The entry to record the settlement of the contract is a..................................................000 KRB can be purchased for $8..000 CAD............................................... 300 c... Derivatives—Financial Assets/Liabilities ...........................400 Cash ......................................................... Cash .............. 2014....15 MULTIPLE CHOICE—Computational 41....................................................... 12............ distribution.........600 Gain...............Test Bank .. Derivatives—Financial Assets/Liabilities ....................... b.............................................000 c.. On September 5............ 42..................... The entry to record the change in value of the contract on August 31................... Cash ............................................... 9.......300 Canadian (CAD) on September 5....... Unauthorized copying...............000 Derivatives—Financial Assets/Liabilities ............000 d.......... 2014................................ Loss .................000 shares of Omega Corp..... Ltd........................... 300 Cash .. Beta settles the contract but does NOT take delivery of the KRB........................ or transmission of this page is prohibited ....Solution Manual Please visit our website : http://www..................... Other Comprehensive Loss ....... 300 43...... entered into a forward contract to buy 50.. when the option value is $12..... ......................... $ 500... the adjusting entry would be a..... $ 0................... 500 Cash ..................... On April 1..... b.. 4... c.................. purchases a call option for $500.................... 4..............000 shares of Delta Inc....... Investments—Held-To-Maturity ........300 Copyright © 2013 John Wiley & Sons Canada.............. Gamma Corp....... 4.... Loss . Unauthorized copying.............800 48........ $ 4... shares are currently trading for $30........ No entry required.......300 c........................ 2014 is a..... 45...300 Derivatives—Financial Assets...... 4................................. 2014....... 500 c. or transmission of this page is prohibited ..................com/ or contact us at Ebooksmtb@hotmail....... the options are trading at $4............... No entry required...........000....... 4.. Loss ..... No entry required.needbook1..000. Ltd........ 4.......... Delta Inc.....300 Gain............000 Derivatives—Financial Assets................................800....800................. 2............. for $30 each until December 1...... 500 b............................300 Other Comprehensive Income .............. which gives Gamma the right to buy 1.....000 c...... 44................... 2014....... At June 30... Derivatives—Financial Assets... $ 500.Solution Manual Please visit our website : http://www. 2014.......... Derivatives—Financial Assets....... b...................... 2014 is a........... Gamma’s quarter end............. $30... Tenth Canadian Edition Gain............ The entry to record the purchase of the call option is a..................... The intrinsic value of the option at April 1...................................... 46.... 2....... Derivatives—Financial Assets...... At December 1........ 200 Use the following information for questions 44–48...... d................com Also you can contact us on Skype: Ebooksmtb 16.. At June 30..............................16 Test Bank for Intermediate Accounting.............. The time value of the option at April 1. $4.... b. d...... b................................... 500 Derivatives—Financial Assets. Gamma’s entry would be a... the options expire with no value......................................................... c........ For more Ebook's ... 500 d............. $1........... At December 1. 2014.................... 2014......................................................... distribution..800 Gain............................... Cash ............... 4...................... 4......... 500 Cash .... Derivatives—Financial Assets............................Test Bank .......300 d...... $ 0..800 and the shares at $32 each...................... 47. 2014.......... .... Using the book value method.. the equity portion of the bond was valued at $1... d... 2014. b...800 49.... The adjusting entry at December 31................... bonds were converted into 3. The total unamortized bond premium at the date of conversion was $210....000 (par value). a debit of $135........200.... 400 Gain.... an $171.... Derivatives—Financial Assets/Liabilities ...... has $3.......700....100 increase in Common Shares.......... 8% convertible bonds outstanding. d.... 400 d..... For more Ebook's ... Dakar should record as a result of this conversion a..Solution Manual Please visit our website : http://www.............. On July 1.. a credit of $63..000 to Contributed Surplus—Conversion Rights..... The bonds pay interest on January 31 and July 31.... a loss of $9...... Dakar Inc... 2014......... Each $1..... On July 31.. When the bonds were originally issued...600 of their no par common shares..... 52..000...04 per metre......... c....... Unauthorized copying.. Loss ....... Lusaka would record a..... 4... d. or transmission of this page is prohibited .... c..800 Derivatives—Financial Assets..... 4.000 to Bonds Payable....... Using the book value method.. good until February 1.......000......... distribution...... Copyright © 2013 John Wiley & Sons Canada.000............ On that date the market price of the bonds was 105.. 400 Unrealized Gain (OCI) ....000.... 2014........com/ or contact us at Ebooksmtb@hotmail... a gain of $18.......500 increase in Common Shares... No entry required................... the carrying value of the common shares was $18 and the Contributed Surplus—Conversion Rights account balance was $450.. a credit of $135......... 2014. Loss ...... On October 5...........com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16............ a debit of $210... enters into a forward contract to purchase 10.. 50.. other comprehensive income of $9.. c..... Kappa Cloth Ltd.. an $172..... b...... 400 Derivatives—Financial Assets/Liabilities .. an $174... Derivatives—Financial Assets/Liabilities .000.......000 metres of cotton fabric at $1 per metre.... 2014 would be a..... At this time.....800 increase in Common Shares.......... $180..... b.........17 d.. b...000 worth of bonds exercised the conversion privilege. Dakar should record as a result of this conversion a..... no gain or loss..Test Bank . 400 Use the following information for questions 50–51... 400 c.......000.... Ltd.....needbook1. the holders of $900........ an interest payment date......................... 51.. no change to Contributed Surplus.000 bond is convertible into thirty no par value common shares... Using the book value method.....000 to Contributed Surplus—Conversion Rights.......... 2015. At December 31. the forward price for February 2015 delivery of cotton fabric has increased to $1... the market price of the common shares was $36.000 to Bonds Payable...............000 (par value) of Lusaka Corp.... the unamortized discount on the bonds was $7...... The value of the equity portion of the bond issue is $60.400 57. the holders of $1.200. If Interest Payable were credited when the bonds were issued. $1.000. The total unamortized bond discount at the date of conversion is $500.18 Test Bank for Intermediate Accounting. $143.200 d. above 9% c. ten-year convertible bonds at 98 plus accrued interest.000 (par value).100 per bond and the market price of the common shares is $35.000 of these bonds were converted into 500 no par common shares.800 c. Accrued interest was paid in cash at the time of conversion. 2014.000 c. what is the debit to Interest Expense on October 1. $64. Bond interest payment dates are June 30 and December 31. On July 1.Test Bank . Unauthorized copying. If the bonds had NOT been convertible. In 2013.com/ or contact us at Ebooksmtb@hotmail. Casablanca Ltd. The bonds were dated April 1. or transmission of this page is prohibited . below 9% d. The conversion clause in the bond indenture entitles the bondholders to receive 40 common shares in exchange for each $1.246 b.000 bond. $141.needbook1.000 par value bonds exercise the conversion privilege. Tenth Canadian Edition 53. issued $6. $44. distribution. 2014? a.1 plus accrued interest.000. 2014. what amount should Johannesburg credit to Common Shares as a result of this conversion? a. 2015.000 d. One preferred share can be converted into three shares of Algiers' no par value common shares Copyright © 2013 John Wiley & Sons Canada.000 no par value convertible preferred shares for $103 each. issued 10. $43. $1. On June 30. In applying the book value method.116.000 c. they would have sold for 96.Solution Manual Please visit our website : http://www. On April 1. 9% b. What is the amount of the unamortized bond discount on April 1.000.000 b. $135. For more Ebook's .000 Use the following information for questions 54–56. cannot determine from the information given 55. 9%. The market price of the bonds on that date is $1. 2014 with interest payable on April 1 and October 1. 2015 relating to the bonds that were converted? a. $46.000. $1. $1.000 b. Johannesburg Corp. has two issues of securities outstanding: no par value common shares and 8% convertible bonds with a par value of $8.134.000 d. The bond discount is amortized on a straight-line basis. 54.200.000. Ltd.125. Algiers Inc. $129.923 56.284. What was the effective interest rate on the bonds when they were issued? a. $1.com Also you can contact us on Skype: Ebooksmtb 16. and the market value of each warrant was $50.000 c. $384. $416. c. Cairo Ltd. distribution. $15.360 d.19 at the option of the shareholder. Ltd. the amount of the proceeds from the issuance that should be credited to Bonds Payable would be a. Each $1. the market value of Rabat’s common shares was $40 per share and the market value of each warrant was $2. $12. issued four hundred $1. $1. At the time of the sale.000.600 c. was 95.030.000.00. $ 500. was 96. For more Ebook's .Solution Manual Please visit our website : http://www.000 b.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. Attached to each bond was one detachable warrant entitling the holder to purchase ten of Cairo's common shares. Using the residual method. On April 7.000 d. d. Soweto's securities had the following market values: Each $1. the market value of the bonds. 59. 2014. without the warrants.006 Warrants $21 Common shares $27 Assuming that Soweto adheres to IFRS.Test Bank . what entry should the corporation make to record the Copyright © 2013 John Wiley & Sons Canada.000 bonds at 104.000.600 60.000. $ 900. The bonds without the warrants would normally sell at 95.000 61.000 (par value). What amount should be credited to Common Shares as a result of this conversion? a. $400. sold a $1. 2014. Using the relative fair value method.800 b. $515. On March 1. 8% bonds at 104. The market value of each warrant was $40. $10.000 (par value). the market value of the bonds. In August 2014. 20 year. Rabat Corp. what amount should Khartoum credit to Bonds Payable from the proceeds? a. Khartoum Corp. what amount should Rabat record on March 1. At this time.000 b. One detachable warrant.000 58. At the date of issuance. Using the relative fair value method. $1. 20 year. entitling the holder to purchase 15 of Khartoum’ common shares. On December 1. During 2014. 2014. $500. issued 500 of its 9%. $15.com/ or contact us at Ebooksmtb@hotmail. $489. or transmission of this page is prohibited . Each $1. sold $300.250.000 bond has two detachable warrants.060. Each warrant permits the purchase one of Soweto's no par value common shares for $30. $ 300. Soweto Corp. without the warrants. b. 8% bond issue for $1. was attached to each bond. At this time. all of the preferred shares were converted into common shares. $399. each of which entitled the bondholder to purchase for $50 one of Rabat’s no par value common shares. Unauthorized copying.000.needbook1.000 bonds at 103.000 bond without warrants $1. The market value of the common shares at the date of the conversion was $30 per share.000 d.000 c. $475.000 bond was issued with 25 detachable warrants. 2014 as Contributed Surplus—Stock Warrants? a. . $7 non-cumulative.. b. issued bonds with detachable warrants for $5....... 1.Test Bank .. 1..... 7% bonds at 103....006.050......... At this time.060........000.. Twenty detachable warrants were attached to each $1........ 1.. $ 65.....400. 2014....... For more Ebook's . Cash . which entitled the holder to purchase one of Durban’s no par value common shares for $40........000.. $213.....000.. 42.... no par value preferred shares for $1... At this time.......... 2014..000......... Ltd...... On May 1........... Durban should credit Contributed Surplus—Stock Warrants for a......... $35.. d.....200 c..... issued 10. $211.....000 bond...000 Bonds Payable .... $20........ issued $500...needbook1....................... or transmission of this page is prohibited ...934........................000 Contributed Surplus—Stock Warrants ....000 Bonds Payable . Cash . 1................... On May 1......Solution Manual Please visit our website : http://www....... Using the relative fair value method........... It was determined that the fair value of Durban’s common shares was $35.... 64......com Also you can contact us on Skype: Ebooksmtb 16..............000 Contributed Surplus—Stock Warrants ............. 1... c..000............. similar bonds without warrants were selling at 96...000........ Lagos Inc....060... how much of the issue price should be allocated to the warrants? a...... distribution..... Cash .. 1........060......... $480.000 Use the following information for questions 62–63......... Attached to each share was one detachable warrant....000. On July 1.. giving the holder the right to purchase one of Juba’s no par value common shares for $30... 2014.....com/ or contact us at Ebooksmtb@hotmail................. Tenth Canadian Edition sale of the bonds? a.........000 b. but the value of the warrants was NOT determinable......000 Contributed Surplus—Stock Warrants ........... The bonds have a present value of $4................ 54......060...... 63......... Juba Inc... b........000 65........018. 1..... Durban Ltd.600 b..........000 Bonds Payable ............ Durban should credit Bonds Payable for a....... the shares without Copyright © 2013 John Wiley & Sons Canada..........20 Test Bank for Intermediate Accounting.... c.000 c................. $15.... 1.......................... $220................. d.........................000. but does NOT use the residual method. Durban is a private corporation that follows ASPE.............. Unauthorized copying................... $ 0.....000 (par value).................. 2014................ Cash ................. On May 1.000...............000.....000 Bonds Payable ...... $500....000.... 62.............500 d.. cannot be determined from the information given..000......000 d....060. 10 year.......... $515.. The fair value of the warrants is determined to be $220. 60. ........... On that date... 8% convertible bonds at par.... the market price of the common shares was $23................ the market price of the common shares was $32... $303..000. all 50.....500.. 2012...............000.000.... Cash ..... On January 2......com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. 2012........ distribution........................ 10..........000 options were exercised.......000..... 120.................... Tunis Inc.. The amount of compensation expense Kinshasa should have recorded for calendar 2014 is a.... 120.................. granted stock options for 30...000 66..Solution Manual Please visit our website : http://www. The options are exercisable beginning January 1..........000 options were exercised.... when the market price of the common shares was $19 and the market value of the warrants was $3...... $120............... or transmission of this page is prohibited .000. at an option price of $36..............000 Common Shares . 120.... all 30........000 of its no par value common shares to key employees.. providing the key employees are still employed by Tunis at the time the options are exercised.. 2016....21 the warrants would normally sell for $1.......................000 Contributed Surplus—Stock Warrants ...000 Contributed Surplus—Stock Warrants .... Cash .......... The options expire on June 30... the value to be recorded for the conversion option is a..............................Test Bank ...000 bond is convertible to 200 of Bissau’s no par value common shares..... Each $1.......... 2014............000...000 of its no par value common shares to key employees.... 68.........000................ $ 5. 2016...000 Common Shares ........... 25..... 130.... $100...........00. 2015................ The options expire on January 1... On that date............ $ 0................... providing the key employees are still employed by Kinshasa at the time the options are exercised............ d.. The Black-Scholes option pricing model determined total compensation expense to be $375......025........ at an option price of $25.. 2015. $187..............000 c. The amount of compensation expense Tunis should have recorded for calendar 2013 is a....... what journal entry would Juba make? a.... 120...000..000 Common Shares ..... 4........... 15........ c.000 Common Shares .... The Black-Scholes option pricing model determined total compensation expense to be $720........ Assuming Bissau adheres to IFRS............ $ 0.... 120...... when the market price of the shares was $42........... Juba adheres to IFRS..... c.........com/ or contact us at Ebooksmtb@hotmail... Kinshasa Corp. Bissau Ltd...........000 warrants were exercised...000 d.. 67...... when the market price of the shares was $29 per share.. Copyright © 2013 John Wiley & Sons Canada. d........... On January 2........ The options are exercisable beginning January 1... The current market rate for similar non-convertible bonds is 10%........ issued $4.................. Cash . 5-year... As a result of the exercise of the warrants and the issuance of the related common shares............. For more Ebook's ......... On June 30.....needbook1.000 Contributed Surplus—Stock Warrants .... $ 50. 135. On January 1..000 b. b.........267....... Cash ..... b....... while the market price of the warrants was $2..... $125....... which are currently trading at $25 each.. 145... 2015.........000.. Unauthorized copying...000. On October 31............ granted stock options for 50..50 each.... 2015.... Ltd.... Ltd. For more Ebook's .000. Entebbe Corporation granted them stock options. The amount of compensation expense Entebbe should have recorded for calendar 2014 is a. Market prices of the shares are as follows: January 1.com/ or contact us at Ebooksmtb@hotmail. $250. $250. What amount of compensation expense should Luanda recognize for calendar 2014? a. b.Solution Manual Please visit our website : http://www. $288. On December 31. 2015 $33 per share Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1.000. $ 65. *70. 2013 $35 per share December 31. 2014 $39 per share The options were granted as compensation for services to be rendered over a two-year period beginning January 1.000. Use the following information for questions *70–*72. Luanda Ltd.000. 2013. 8. Unauthorized copying.000.500 c. On December 31.000 SARs.000 d.000 c.needbook1. 25. or transmission of this page is prohibited . in order to retain certain key executives.000 *72. 2014 $30 per share December 31.000.Test Bank . 2015. $150.000 d. $720. 2013. $1. On January 1. $125. $187.000. d. 69. This plan entitles them to receive cash at any time during the next four years for the difference between the market price of its common shares and a pre-established price of $20. on 50.000. What amount of compensation expense should Luanda recognize for calendar 2015? a. $ 25. 2013 $35 per share December 31. Market prices of the shares were as follows: December 31. $500. $ 0 b. established a stock appreciation rights plan for its executives.000 *71. The Black-Scholes option pricing model determined total compensation expense to be $500. d.000 options were granted at an option price of $40 per share.22 Test Bank for Intermediate Accounting. 2013 $38 per share December 31.com Also you can contact us on Skype: Ebooksmtb 16.000 Copyright © 2013 John Wiley & Sons Canada. 2013. $875. 2012. What amount of compensation expense should Luanda recognize for calendar 2013? a. c. distribution.000 SARs are exercised by executives. c. $360. $900. Tenth Canadian Edition b.000 b.000. $225. distribution.500 d.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16.500 c.500 Copyright © 2013 John Wiley & Sons Canada. Unauthorized copying.needbook1. or transmission of this page is prohibited . Ltd.com/ or contact us at [email protected] b. For more Ebook's .Test Bank . $237.Solution Manual Please visit our website : http://www. $487. $162. 000 Copyright © 2013 John Wiley & Sons Canada.880.04 = $312. b 60.000 × 98% = $5.95 = $475.000 x .09 × 3 ÷ 12) = $6. b 49. d ($300. Item Ans. balance to contrib surplus 59.000) × $60.500 – $8. a 52. b *71.04 – $1. b $4. b $450.000.500 $8.000 × ($1. b 45.000 = $114.000. Unauthorized copying.000 ÷ $6.700 = $174.000.com/ or contact us at [email protected] loss 49.000 × 96. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Computational Item Ans. therefore effective (market) rate > stated rate 55. b 50. distribution.200.000 KRB @.000. b Bonds issued at a discount. d 65.000 = $1. Item Ans. a 50.000 $6.1% = $5.000 – $5. a 56.000 + $9. a 68.200. c $6.000 52.000 – $2.000. $300. For more Ebook's .200 57.000 × . d Agreed payment $8. d 69. b $500 – $0 = $500 46. b ($1.000 current cost = $300 loss 43.000 ÷ 8.000.800 = $4. d 63.300 gain 48. Item Ans.000 × 1.400 = $9. d $0 – $4.000.000 + ($6.880.000 (cash rec’d) $6. d 48. b 59.needbook1.030. 41.600 gain 42. a Conceptual 51. a 46. c 55. c 43.Test Bank .134.000 ÷ 8. c $234. b 53.000 = $400 gain 50.000 = $1.200.300 settlement amount = $200 gain overall $200 gain + $300 loss previously recorded = $500 gain 44. b 51. a 64. c 61.766. a $12. c *70. c DERIVATIONS—Computational No. a 500 x $1.000 = $9.766.09 × 3 ÷ 12) + ($234.000 56. c ($1. surplus) $5.000 = $135.000 (unamortized discount) ($1.015. a 58. a $30 – $30 = $0 45. Answer Derivation 41.00) × 10.24 Test Bank for Intermediate Accounting. Ltd.880.000) × $500.800 fair value less $500 recorded cost = $4. b 57.000 (bond discount) ($6. d *72.000.95) + (300 × 25 × $2) = $300. a Conceptual 47.Solution Manual Please visit our website : http://www.000) × (108 ÷ 117) = $43.200. b 42. d 54. surplus) $1.766.000 – $7.000.000 × . d $103 × 10.$17 = $8.000 x 900 ÷ 3.300 – $8.000 (cont. Item Ans.000.000 × 3 ÷ 117) = $141.000 × .000 = $234.000– $5.000 58. c 66. a $180.com Also you can contact us on Skype: Ebooksmtb 16.500 53.000 $5.000 = $75.200 + $1.000 (cont.000 54.000 – $75. c 62. a 47. c 44. or transmission of this page is prohibited . Item Ans. d 67. 73% Warrants 220.000 66.Solution Manual Please visit our website : http://www. $250. c $375.000 x $416. d IFRS requires residual method $1. c ($400.000 Cr.600 $300. 1.000 – $3. a Under ASPE.000 = $15.27% Total $5. $487.696.213.000 Dr.053 Total $3.000 = 1.000 × 4 ÷ 10 = $10.733 = $303.006.000 × $30 = $120. Ltd. balance to cont. Unauthorized copying.400 95. surplus 62.5 = $250.000 4. Contributed Surplus—Stock Warrants: $25.000/year.000 + $10.000. Cash: 4.000.500 65.000 60.96) + (400 × $40) = $400.000 ÷ $1.000 × 1.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16.500 Copyright © 2013 John Wiley & Sons Canada. c ($33 – $20) × 50.934.500 – $250.000 credited to Bonds Payable 63. distribution.000 × . a $500.000 = $399.000 ÷ 3 = $125.000 ÷ 2 = $250.04 = $416.000.000 *70.000 *71.267 value of option 67.000 = $25. 10% = 1.000. b Dr.000.needbook1. Common Shares: $120.000 61. $400.000 = $130. b $720.696. 5 years.000 × .000 69.000 x 1.000.25 $15. For more Ebook's . c ($38 – $20) × 50.Test Bank .03 = $515.27% = $213. can assign zero to equity component. if not using residual method.000 × .000 x 12 ÷ 30 = $288.006 = $1.500.400 100% $5.733 Issue price of $4.com/ or contact us at Ebooksmtb@hotmail. d see Q 62 64.000 *72.000.000 × .000 bonds sold.000 – $225.000 × $312. 5 years.154. c Bonds $4.000. or transmission of this page is prohibited .000 = $237.75 = $487.000 x $1.25 = $225.000 $384. therefore entire proceeds of $500.360 $400. d PV $4. b ($30 – $20) × 50.10% = $2.680 PV $320.483.000/year 68.000 issue price × 4. 2015 $52 For calendar 2015. Stock Warrants Distributable. $ 50. the par value of the bonds plus the balance in the contributed surplus account. Antigone Corp.Test Bank . Ltd. for past services rendered. Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted Use the following information for questions 73–74.26 Test Bank for Intermediate Accounting. distribution. During 2015.com Also you can contact us on Skype: Ebooksmtb 16. 73. 2014 $40 December 31. Other Comprehensive Income. after the employee completed two years of service. its Copyright © 2013 John Wiley & Sons Canada. b. The Black-Scholes option pricing model determined total compensation expense to be $220. the market price of Perseus's common shares was 50% above its average carrying value. Perseus would credit the Common Shares account with a. Perseus adheres to IFRS. At conversion. the value attributable to the warrants is reported as a. contributed surplus for the portion of the proceeds attributable to the conversion feature and as a liability for the balance. Contributed Surplus—Stock Warrants. Common Shares Subscribed. On conversion. On January 1.com/ or contact us at Ebooksmtb@hotmail. At issuance. $ 0. granted Joanna Wood. Orion should recognize compensation expense of a. the cash proceeds from the issuance of these bonds should be reported as a. 76.000. b. *77. The option became exercisable on December 31. Unauthorized copying. contributed surplus for the entire proceeds. a liability for the entire proceeds. $250. Orion Corp. b. Zeus Corp. or transmission of this page is prohibited . d. 2014.needbook1. Perseus Corp. Using the residual method. Only the bonds had a known market value. the carrying value of the bonds plus the balance in the contributed surplus account. the carrying value of the bonds minus the balance in the contributed surplus account. On January 2.Solution Manual Please visit our website : http://www. The market prices of Orion's shares were as follows: January 1. On January 2. c.000. a liability for the present value of the bonds and contributed surplus for the balance. For more Ebook's . granted an employee an option to purchase 5. d. c. 2014. all the bonds were converted into common shares having a total value equal to the total face amount of the bonds.000. d. 75. b. c. the market value of the bonds plus the balance in the contributed surplus account. c. $110. 2015. issued 10-year convertible bonds at 105. issued bonds with detachable common stock warrants. 74.000.000 of Orion's no par value common shares at $50 per share. 2014. d. 18. $810. c.27 president.000.000 stock appreciation rights that are exercisable immediately and expire on January 2.Test Bank .Solution Manual Please visit our website : http://www. Unauthorized copying. 2015. For more Ebook's .needbook1. On exercise. and $45 on December 31.000. b. d. Copyright © 2013 John Wiley & Sons Canada. 2014. Wood did NOT exercise any of the rights during 2014. $180. 2014. $630. distribution. $ 0.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. As a result of the stock appreciation rights. The market price of Zeus's shares was $35 on January 2. Ltd.000. Wood is entitled to receive cash for the excess of the market price of the shares on the exercise date over the market price on the grant date. Zeus should recognize compensation expense for 2014 of a.com/ or contact us at Ebooksmtb@hotmail. or transmission of this page is prohibited . 000 *77. Answer Derivation 73. For more Ebook's .com/ or contact us at Ebooksmtb@hotmail. c $220. d Conceptual 76. c *77. Item Ans. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb 16. Unauthorized copying. b ($45 – $35) × 18.needbook1.Test Bank . 73. d 76.Solution Manual Please visit our website : http://www.28 Test Bank for Intermediate Accounting.000 = $180. b 75. Item Ans. Item Ans. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans. b Conceptual 75. distribution.000 ÷ 2 = $110. c Conceptual 74. c 74.000 Copyright © 2013 John Wiley & Sons Canada. Ltd. b DERIVATIONS—CPA Adapted No. Item Ans. ..............000....000............. distribution.000 Gain ......29 EXERCISES Ex...... ASPE allows a zero value to be assigned to the equity component........000 Loss .000 Derivatives—Financial Assets/Liabilities ... or by the residual method.000 – $250.......... At December 31.... 2014...... 5.. IFRS also requires the use of the residual method: the value of the debt component is determined........ and the balance is assigned to the equity component (as contributed surplus)........ After issue..... 5.. The conversion feature makes the bond more valuable to an investor and therefore the convertible feature has value.......... and they are settled at a future date......com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16.. the investment is valued at $255....... Instructions Record any adjusting entries required at December 31........ Under IFRS......... 16-79 Put options On November 15.. or transmission of this page is prohibited ....... Copyright © 2013 John Wiley & Sons Canada......... 5............ When debt is issued with stock warrants...... purchases a held-for-trading investment for $250....needbook1.... Solution 16-79 Investment—HFT ($255........000) . The proceeds may be allocated to the two elements based on the relative fair values of the debt security without the warrants and the warrants at the time of issue. 2014. the warrants are also given separate recognition............... 16-78 Definition of derivative instruments Define and explain derivative instruments.. the debt and the detachable warrants trade separately... Rowena also enters into a put option to sell the shares for $250.........Test Bank .. Raleigh Inc...Solution Manual Please visit our website : http://www. Ex.......com/ or contact us at Ebooksmtb@hotmail.................. Unauthorized copying. their values change in response to the underlying instrument. Solution 16-78 Derivatives are financial instruments................ which create rights and obligations that have the effect of transferring between parties to the instrument one or more of the financial risks inherent in an underlying primary instrument without having to transfer the underlying instrument..........000 Ex....... 2014 in connection with the above transactions.. The proceeds allocated to the warrants should also be accounted for as contributed surplus......... 16-80 Convertible debt and debt with warrants What accounting treatment is required for convertible debt? Why? What accounting treatment is required for debt issued with stock warrants? Why? Solution 16-80 Convertible debt is a hybrid/compound financial instrument and is generally treated as having both a debt component and an equity component. For more Ebook's .... Ltd... Derivative instruments require little or no initial investment..... 5.... compound instruments must be split into their components and presented separately in the financial statements..000...... or the use of the residual method..... .. If the bonds had NOT been convertible..... 577 Premium remaining*.... they would have sold for $5.........000 + $2...... 2................. Instructions a................ distribution...............................000 Common Shares ............ 10..000 Months remaining...000 Calculations: Issuance price ........ Assume that interest payable was credited when the bonds were issued (round to nearest dollar)............. $6........ October 1.............026..........000 Contributed surplus-conversion ......006.. Ltd...............................006....... 12%..... 16-82 Convertible bonds Atlanta Ltd................................ Unauthorized copying....... Bond premium/discount is amortized each interest period on a straight-line basis......... Tenth Canadian Edition Ex..................... 2015.............. $2...... 2015. Prepare the entry to record the interest expense at April 1........540 Bonds Payable .................................... Use the book value method.. Accrued interest was paid in cash at the time of conversion..............needbook1.000) .........423 Ex......... Prepare the entry to record the conversion on October 1..000 plus accrued interest................. Boston does NOT value the equity component at zero......... 460 Cash .......423*) ....000 Less premium already amortized [($6...................... $ 20.... $3..000 x 50%) ....... On October 1................Solution Manual Please visit our website : http://www.000 x 10 ÷ 52) ÷ 2] ..423 Contributed Surplus—Conversion Rights ($20......................................... 199............ The bonds were dated April 1.... Solution 16-81 a..........30 Test Bank for Intermediate Accounting.......... April 1......... or transmission of this page is prohibited .........................000 – $5....000 Price without conversion ..000......................................... 100.. 2015 Bonds Payable ($2... $115 Premium amortized (4 × $115) ...000 (par value)..000............................................. Copyright © 2013 John Wiley & Sons Canada..........................000 Interest Expense ......... half of these bonds were converted into 35..com Also you can contact us on Skype: Ebooksmtb 16.000 ÷ 2). 300............ Boston Corp....... Interest is paid on May 31 and November 30....................... b..... 52 Premium per month.... $460 b.....000 no par common shares...........Test Bank ...........000 Premium ($5.. 5............ 2015 Interest Payable ......... 2015................. 2014 with interest payable April 1 and October 1.................502.......... sold convertible bonds at a premium... 2........423 Calculations: Premium related to 1/2 of the bonds ($6......... $5..... 5-year convertible bonds for $5......... Assume that the entry to record amortization of the bond premium/discount and interest payment has been made............com/ or contact us at Ebooksmtb@hotmail.......... 2014.......... issued $5............. Boston’s fiscal year end is September 30.......512..006.... 16-81 Convertible bonds On December 1.................................026.000... For more Ebook's ....500.. The amount to be recorded for the shares is equal to the carrying value of the bonds plus the balance of the Contributed Surplus—Conversion Rights that was recorded when the convertible bonds were first issued. On February 1. 16-83 Redeemable preferred shares and succession planning Explain how redeemable preferred shares are used in succession planning for small business corporations. The Black-Scholes option pricing model determined total compensation expense to be $390. Solution 16-84 1. Instructions How should Atlanta account for the conversion of the bonds under the book value method? Discuss the rationale for this method.needbook1. or transmission of this page is prohibited . For more Ebook's . which therefore were forfeited. where each could receive rights to purchase up to 3. The next generation of the family receives the new common shares which will result in any future increase in value of the business accruing to them. It is assumed that the options were for services performed equally in 2014 and 2015. it is advantageous to use high/low redeemable preferred shares. Unauthorized copying. four executives exercised their options. The rationale for the book value method is that the conversion is the completion of the transaction initiated when the bonds were issued. write "No entry necessary. the shares were trading for $32 per share.000. 2014. The common shares of the existing company are transferred to a new company on a tax deferred basis.Solution Manual Please visit our website : http://www. Ltd. 16-84 Stock options Prepare the necessary entries from January 1.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. The fifth executive chose not to exercise her options. which were currently trading at $50 per share. all the bonds were converted into 3." 1. the entire amount of Contributed Surplus—Conversion Rights should be removed (debited) and Common Shares should be credited for the total of these two amounts. On February 1.com/ or contact us at Ebooksmtb@hotmail. 2016. Ex. 2016. Bonds Payable should be debited for the current carrying value. 3. the shareholders of Musetta Inc. Solution 16-82 To account for the conversion of bonds under the book value method. No gain or loss on conversion is recorded. Ex. 2. no gain or loss should be recognized. after the required interest was paid. At this date.000 no par value common shares.31 On May 31.000 shares each. 2016 for the following events. Since this is viewed as a transaction with shareholders. The current market value of the shares is irrelevant. January 1. On January 1. adopted a stock option plan for its top executives. Solution 16-83 In succession planning for a small business. 2014. The options expire on February 1. 2014 Copyright © 2013 John Wiley & Sons Canada. If no entry is needed. 2014 to February 1.Test Bank . Note that both ASPE and IFRS require the use of the book value method. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. These shares may be redeemed over time.000 common shares at $40 per share. options were granted to five executives to purchase 3. The retiring family member receives new redeemable preferred shares that will freeze his/her interest at the current value of the business. distribution. ...... 2014 Cash (12..000 3........................ 312........000 Contributed Surplus—Stock Options ($390..... set up an ESOP under which employees may purchase shares of the company for $20 per share...............com/ or contact us at Ebooksmtb@hotmail................ 78........50) ......needbook1.......... 2015—$18 Dec 31.000 – $312...... Unauthorized copying...000 Common Shares .. 246...Solution Manual Please visit our website : http://www...... 78..32 Test Bank for Intermediate Accounting.............. 6.... 195........000 Contributed Surplus—Stock Options ................000) ........................... 6... 2014............... February 1........ distribution................000 Contributed Surplus—Stock Options ... or transmission of this page is prohibited ..com Also you can contact us on Skype: Ebooksmtb 16... On January 1.000 Ex............ Tenth Canadian Edition No entry necessary..... Instructions Prepare the journal entries to record the above events..000 SARs................ 16-86 Stock appreciation rights On January 1........................ 2016 Cash (4 × 3..000 options are purchased by employees.................. established a stock appreciation rights (SAR) plan for its executives. Ltd................................. 792. 480.............................000 × $40) .......... Hay Ltd........................................ 2014 No entry necessary.000 × 4 ÷ 5) .................... 2014—$21 Dec 31.... 2017—$20 Copyright © 2013 John Wiley & Sons Canada..... 6.......... The market prices are: Dec 31... 2014.........Test Bank ....................000 December 31.. 195..... 195................ 240................ 2015 Compensation Expense .....000 × $. all 12....... 2016—$19 Dec 31..... They could receive cash at any time during the next four years equal to the difference between the market price of the common shares and a pre-established price of $16 for 180.........000 *Ex.. 2014........000 December 1... February 1.....000 Contributed Surplus—Stock Options .......50 per share and Lilly set aside 20......... 2014 Cash (12..... 195...........000 ÷ 2).....000 Common Shares ..........000 × $20) ............. On December 1... For more Ebook's .000 Contributed Surplus—Stock Options ($380.000 Contributed Surplus—Stock Options ............ Solution 16-85 January 1..000 Contributed Surplus—Expired Stock Options ..000 shares. 2................000 options are exercised................................. The option premium is $....... December 31....... 2014 Compensation Expense ($390... 16-85 Employee share ownership plans Lilly Inc............ 12.............. . Instructions a..000) Dec..........Test Bank .... 31.000 Cash . 560....... For more Ebook's ... Schedule of Compensation Expense 180.000 155.. c. Prepare the journal entry at December 31........000 SARs are exercised.........33 On December 31......000 ($4 × 140.......... 2017 20 16 560.needbook1.... 45...... 2016........ 45.....com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16.........000 225... 2015 $21 $16 $900..... or transmission of this page is prohibited ..... Ltd...000) b..000 Copyright © 2013 John Wiley & Sons Canada.... Prepare the journal entry at December 31...... Prepare a schedule that shows the amount of compensation expense for each of the four years............. 40... 2015 18 16 360.000 c.... 2015 to record compensation expense... b. Liability Under Share Appreciation Rights Plan . 2016 19 16 540..000 SARs Market Set Value Percent Accrued Date Price Price of SARs Accrued to Date Expense Dec...000 155...... Liability Under Share Appreciation Rights Plan ...Solution Manual Please visit our website : http://www.. *Solution 16-86 a..000 (45... 560.000 25% $225....000 75% 405.... 31...... 31..000 100% 560......000 (45... 2017. Unauthorized copying..... 2017 to record the exercise of the remaining SARs.... distribution..... starting with 2014.000 Compensation Expense ....... 31.000) 225.....com/ or contact us at [email protected] Dec.........000 Dec....000 $225.. and the remaining SARs are exercised on December 31....000 50% 180... ........000 Cash ($0. Year end is December 31........ The market value of the shares at that date was $32... December 31....... At January 2....... and were exercisable four years after the grant date (Jan 2..... b.......... On March 5.... 2014.000 board feet of lumber at $0.........25 x 1........ 2014.Solution Manual Please visit our website : http://www. The options were granted on January 2.......500. Instructions a.... At December 31......... the market price for March delivery is $0..25 and settled the forward contract..000 Derivatives—Financial Assets/Liabilities .....28 × 1..... Calculate the intrinsic value and the time value of the stock option..... the total compensation expense was estimated to be $510. 2015.000... Hudson Bay enters into a forward contract for 1...... 2012........ 2017).. All the remaining options were exercised during 2017: 17........ b. 2014 No entry...... 420.........000) ......com/ or contact us at [email protected]) × 1... Assume that the employees perform services equally from 2013 through 2016. Discuss the advantages and disadvantages of offering stock options to employees as a means of compensation....... 3..needbook1.. 2015 Settlement of futures contract Inventory ($0..500. uses fir 2x6 lumber as its framing material............. and 10.. c..... using an option pricing model to value the options... 375... 30......26 – $0.. Hudson Bay took delivery of 1...000 options were terminated (forfeited) when an employee left the company...25 per board foot for March 2015 delivery. London Corp. the market price of the shares was $50.... 15.. 15.com Also you can contact us on Skype: Ebooksmtb 16........... November 15..Test Bank ... March 5.000).. Prepare journal entries relating to the stock option plan for the years 2013 through 2017.............................000 Gain ........ On January 1..... 2013... adopted a stock option plan allowing certain of their executives to purchase a total of 30....000 common shares..... Copyright © 2013 John Wiley & Sons Canada.. Ltd.000 c..... 2014 Record gain to date Derivatives—Financial Assets/Liabilities ... distribution.. Tenth Canadian Edition PROBLEMS Pr..26.. 2014... Solution 16-87 a...000 on January 3 when the market price was $62.. The options expire eight years from the grant date. Unauthorized copying.. The exercise price was set at $46 and........000 Gain ($0...000 Pr....... as long as the executives were still employees.. Instructions Record any required entries related to this contract. 15...500....34 Test Bank for Intermediate Accounting....500. 16-87 Forward contract Hudson Bay Builders Ltd.... 16-88 Employee stock options On November 1......500.....000 board feet for $0. For more Ebook's . On November 15.000 on May 1 when the market price was $77... or transmission of this page is prohibited ...000 .... 2013........ The market rate on this date was $0.28 per board foot... ...........Solution Manual Please visit our website : http://www............... 114.35 Solution 16-88 a.....750 Jan 3/17 Dr to Cash: 17...........500 Jan 1/14 Contributed Surplus—Stock Options .....000 x 17 ÷ 27 = $289........ 114...........................000 ÷ 30. Since the total value of the options is $510.. 289...................750 For 2014.......needbook1... Ltd...........................750 or $127.000 Common Shares ..........Test Bank .000 x $46 = $782...... 127...000 = $120....750 Contributed Surplus—Stock Options ................................com/ or contact us at [email protected] Dec 31/14 Compensation Expense ......................000 Common Shares ... The intrinsic value of the option is the difference between the market price and the strike (exercise) price...................................000 ÷ 4) – $12...................... 114............000........000 – $120....500 2014: Jan 1 – remove compensation expense related to employee who left $127..........................500 x 3.....000 = $12...000 Dr to Contributed Surplus: $459.............com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16.......750 Contributed Surplus—Stock Options .. 782......................................... Unauthorized copying........000 May 1/17 Copyright © 2013 John Wiley & Sons Canada...000 The time value of the option is the remaining value of the options......... 12..............................000 ÷ 4 = $127. Calculation of compensation expense 2013: $510... 12............................................ distribution........ then the difference between the total value and the intrinsic value should be the time value component......... 1........ 170........ Time value component: $510...750 Jan 3/17 Cash . Intrinsic value component: ($50 – $46) x 30...........................500 Contributed Surplus—Stock Options .500 x 90% = $114.000 b... 114..... For more Ebook's ....071...750 Dec 31/15 Compensation Expense ..000 May 1/17 Cash ....... 127....... 114........ 460...............750 Compensation Expense ..................000 = $390...000 Contributed Surplus—Stock Options ..........000 b..................... In this case the market price is $50 and the strike price is $46. Jan 2/13 No entry required Dec 31/13 Compensation Expense ......................... 2015 & 2016: New annual compensation expense: ($510........................000 Contributed Surplus—Stock Options .........750 Dec 31/16 Compensation Expense . or transmission of this page is prohibited ...750 Contributed Surplus—Stock Options ..... 630............. 14... .000 Bonds Payable ($1. and the market value of the common shares was $20 per share... On August 1.000 + $350............ 2... Bonds Payable ($4. At the time of issuance.................. issues 10% convertible bonds....... Tenth Canadian Edition Dr to Cash: 10.................. Ignore all interest payments. This ensures that they will act in the best interests of the company.000 Common Shares ................ The company records the conversion using the book value method. 3... 2014.... Advantages · This type of compensation is tied to performance which should motivate employees to work hard. 150. Ltd....... there was $350... 8% bonds..... they will not consider it a benefit and might ask for additional pay instead...... Cash ..... 1...000. Unauthorized copying..... Gamma Ltd.... distribution. To help the sale. · The mandatory service period helps to retain employees..Test Bank ...000 bond sold... 2...000. Contributed Surplus—Conversion Rights was credited for $150..... at 97........ Beta Inc.... The $4....... 4. 940....................000 Contributed Surplus—Conversion Rights . · If employees do not understand the value of the options.. as they become more experienced.....000.... The investment banker indicates that if the bonds had not been convertible they would have sold at 94. which represented the equity portion of the convertible bonds.....000 x $46 = $460......000 of unamortized premium applicable to the bonds.......000 par value bonds were converted into 160...........000...000 3..... · Employees have limited ability to affect the stock price.. Use the residual method...Solution Manual Please visit our website : http://www.... 4...needbook1..000 x 94%)........ Alpha Corporation called its 10% convertible bonds for conversion..... Cash ($2.....000 and the value of the warrants is $126.... · Employees become shareholders if they exercise the options....000 no par common shares.......000 2.000.000 par value....000 x 10 ÷ 27 = $170......000) ....... so the firm will end up paying them more...000 Copyright © 2013 John Wiley & Sons Canada.020. detachable stock warrants are issued at the rate of ten warrants for each $1............ For more Ebook's ...com/ or contact us at Ebooksmtb@hotmail........ There are several advantages and disadvantages to the use of stock options as compensation.... Disadvantages · Employees might be low risk tolerant and therefore not like the risk inherent in stock options. If employees become more productive over time......000.000.. 16-89 Convertible bonds and warrants For each of the unrelated situations described below............................ or transmission of this page is prohibited ... Solution 16-89 1...000 x 101%) ..000 Dr to Contributed Surplus: $459....000....... so the stock options might not motivate them to work hard.... then the firm benefits...... The bonds with the warrants sold at 101. 30....36 Test Bank for Intermediate Accounting....350...... On August 1.000 Contributed Surplus—Conversion Rights ..........com Also you can contact us on Skype: Ebooksmtb 16... Pr.974.... 970......... issues $2....000.... Use the residual method. prepare the entries required to record the transactions.....500.. par $1..000 c..... · Employees will benefit from any appreciation of the stock price. It is estimated that the value of the bonds without the warrants is $1.. ..... Assume all prices are in Canadian dollars (CAD)........ Ltd..... the company took delivery of the coffee..... 2014.........980.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16...000 × 8%) .... the corporation enters into an interest rate swap whereby it agrees to pay interest on $500.000 Cash ....940 and the future price for five month delivery was $2. and the value of the swap contract is $40. The contract further calls for a net cash settlement..............................needbook1......... It designated the contract as a cash flow hedge. Unauthorized copying....Test Bank ................ and the future (forward) price for September 30...... Startrek decided to enter into a forward contract for six tons of coffee at $2.....000 ....400 per ton cash... 2014.. 16-91 Hedging (forward contract) On May 1... paid its supplier and settled the forward contract.. or transmission of this page is prohibited ....... when the spot price was $2....................000......... At December 31......000 at 10% (the current interest rate) and to receive payments based on the floating rate... On September 30...........com/ or contact us at [email protected]....... distribution....... At this time...000 *Pr. 2014....... At the same time...37 Bonds Payable .. Startrek sold three tons of coffee from this delivery to Java Unlimited for $3.. Instructions Prepare any journal entries required related to the swap agreement and the interest payment on the bond..900.. placed an order with its supplier for six tons of coffee....... and the future price for five month delivery was $2..000 Derivatives—Financial Assets/Liabilities ..........000 Cash ..... For more Ebook's ... 2014 delivery............... Record swap contract liability Unrealized Gain or Loss—OCI .............. 1.... 2014... Startrek Corp.. 10.......000 d...........000 to the counterparty’s benefit... Montreal Ltd............... Thus......................... 2014 No entry (memorandum entry only) b.850. December 31.... 40.... January 1..... At that date the spot price was $2. 2014..974..... 40.....000 *Pr............... 2014 Payment of bond interest Interest Expense ($500..000 c.. issues a floating rate bond for $500.........000 Contributed Surplus—Stock Warrants ..Solution Manual Please visit our website : http://www.... 2014......... On October 31............ *Solution 16-90 a......... Startrek’s year end is June 30.. to be delivered and paid for on September 30. 16-90 Interest rate swap On January 1... 10......880........... Instructions Copyright © 2013 John Wiley & Sons Canada...........000. 40.... 40. the spot (current) price for one ton of coffee is $3...900 per ton for September 30..... 46...000 x 10%) – $40............. a coffee wholesaler....... 2014.......... the future price for three month delivery was $2......... Payment of swap interest (net) Interest Expense ($500..... 2014 delivery is $2... the floating interest rate is 8%. ................................................................200 Sales Revenue ................... For more Ebook's .... 120 Cost of Goods Sold .........needbook1........................ should Startrek have hedged this transaction? Why? Would your answer be different if the future price were $3....... 120 Derivatives—Financial Assets/Liabilities ..... Because Startrek is not a currency speculator...... The future price will affect the decision only in case the company has different expectations than the market about the future price...... September 30 and October 31................................Solution Manual Please visit our website : http://www......................... Startrek is a publicly traded corporation and follows IFRS requirements................38 Test Bank for Intermediate Accounting.......... distribution.................640 Oct 31 (sale of coffee) Cash ($3..................................................... Prepare journal entries for the following dates in 2014: May 1......................................880 – $2................................ Unauthorized copying....200 Cost of Goods Sold ($2..... 8..........................940 x 6 – spot price) ......... it would make sense for this company to lower its market risk and hedge the transaction......... 120 Unrealized Gain or Loss—OCI... 240 Derivatives—Financial Assets/Liabilities ... 880) = 360 Inventory ($2..com/ or contact us at Ebooksmtb@hotmail...... 8.......... Tenth Canadian Edition a............Test Bank ......................... but makes its profits from selling coffee......com Also you can contact us on Skype: Ebooksmtb 16.. Memo entry only.640 Cash ......... The decision as to whether or not to hedge this transaction should depend on whether the company desires to eliminate the market risk associated with the fluctuations in the price of coffee.................... *Solution 16-91 a....... There is an optimal level of risk a firm desires to take on.... Ltd........................... 10.... The contract value is zero.... Given the information above............................ 17.......... 17..........................................820 Unrealized Gain or Loss—OCI ..900) = 120 Sep 30 (settlement of contract) Cash .. The future price should not affect the decision as it represents the market expectations of the price at the time the company will take delivery and pay for the coffee.......... b..940 – $2..400 x 3) ...................... Jun 30 (year end) Unrealized Gain or Loss—OCI ......... May 1: No entry..........940 x 3) ................ 360 6 x ($2....820 Inventory ................ 120 6 x ($2........................ 10............... or transmission of this page is prohibited ...........100? b.............................................. 120 Gain/Loss (360 – 120) x 1 ÷ 2 Copyright © 2013 John Wiley & Sons Canada.......... June 30... and accordingly a decision should be made. electronic.Solution Manual Please visit our website : http://www. mechanical. or transmission of this page is prohibited . photocopying. recording.com Also you can contact us on Skype: Ebooksmtb Complex Financial Instruments 16. Ltd. For more Ebook's . or otherwise without the prior written permission of John Wiley & Sons Canada. All rights reserved.needbook1. used to create derivative works. Copyright © 2013 John Wiley & Sons Canada. distribution.com/ or contact us at Ebooksmtb@hotmail. modified. Ltd. Ltd. or transmitted in any form or by any means. Unauthorized copying. scanning. reproduced. made available on a network.Test Bank . The material provided herein may not be downloaded. This manual is furnished under licence and may be used only in accordance with the terms of such licence. or related companies. stored in a retrieval system. The data contained in these files are protected by copyright.39 LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. distribution. 4 M Exercises 43. 3. 4 M 3. 4 M 38. 4 M Problems 49. 4 M 4. 3 H 51. 3 E 23. 3 E 39. 4 H 19. or transmission of this page is prohibited . 4 M 21. 4 M 15. 4 M 44. 3.4 M 56.4 H 54. 3 M 9.Solution Manual Please visit our website : http://www.4 M 47. 4 M 2.4 H 53. 4 M 42.com Also you can contact us on Skype: Ebooksmtb CHAPTER 17 EARNINGS PER SHARE SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 4 M 33.Test Bank .com/ or contact us at Ebooksmtb@hotmail. 3. 3. 3. 3. 3 M 52.4 M 30. 4 M 12.4 H 48.4 H 50. 4 M 16. 4 M 22. 3 E 24.needbook1. 4 E 14. 3 M 8.4 M 29. For more Ebook's . Unauthorized copying. 3 E 26.4 H Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada.4 H 55. 4 M 17. 3 E 40. 3 E 27. 3 M 7. 4 M 34. 3 E 41.4 M 46. Ltd. 4 E 5. 3. 4 M 35. 3 M 11. 3.4 H 31. 4 M 32. 3. 3 M 25. 4 M Multiple Choice–CPA Adapted 37. 3 M 45. 4 E 13. 3. 3 E 10. 3 E 6. 3 M 28. 3. 4 H Multiple Choice–Computational 18. 4 H 20. 4 M 36. 3. 2 Test Bank for Intermediate Accounting. Ex 54. MC 24. MC 25. MC 37. MC 47. MC 51. Pr 4. Pr 12. MC 23. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 3 1. Ex 56. MC 6. Ex 52. MC 42. MC 43.com Also you can contact us on Skype: Ebooksmtb 17 . MC 52. MC 33. MC 45. MC 46. MC 26.com/ or contact us at Ebooksmtb@hotmail. MC 29. MC 16. MC 19. Ex 53.Test Bank . MC 14. MC 45. MC 15. MC 22. Pr 55. MC 27. Ex 53. MC 41. Unauthorized copying. MC 31. MC 38. MC 49. MC 25. Pr 10. MC 28. MC 39. Ex 50. Ex 11. Pr 8. Pr 5. Pr 3. Pr 54. MC 44. MC 21.needbook1. Pr 13. MC 32. MC 48. Pr 2. MC 35. Pr 56. distribution. MC 36. Ltd. MC 26. MC 18. MC 30. Pr Learning Objective 4 7. MC 40. MC 24. Pr Note: MC = Multiple Choice Ex = Exercise Pr = Problem Copyright © 2013 John Wiley & Sons Canada. MC 44. or transmission of this page is prohibited . Ex 55. MC 46. Pr 9. MC 20. MC 34. Ex 51. MC 17. For more Ebook's .Solution Manual Please visit our website : http://www. 2. Earnings per share numbers give common shareholders an idea of the amount of earnings that can be attributed to each common share. The treasury stock method looks at the impact of written call options on EPS numbers. but it can be shown either on the face of the income statement or in the notes. the per share impact of these items must also be shown. ASPE does not prescribe accounting standards for Copyright © 2013 John Wiley & Sons Canada. Under IFRS. Ltd.com/ or contact us at Ebooksmtb@hotmail. 4.3 CHAPTER STUDY OBJECTIVES 1. Calculate earnings per share for companies with a complex capital structure. This information is often used to predict future cash flows from the shares and to value companies. Calculate earnings per share for companies with a simple capital structure. contingently issuable shares.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 . and other instruments that may result in additional common shares being issued by the company. They are relevant because they may cause the present interests of the common shareholders to become diluted. Basic earnings per share is an actual calculation that takes income available to common shareholders and divides it by the weighted average number of common shares outstanding during the period. Unauthorized copying. It assumes that the options are exercised at the beginning of the year and that the money from the exercise is used to buy back shares in the open market at the average common share price. Diluted EPS must show the worst possible EPS number. including related disclosures. Antidilutive potential common shares are irrelevant since they would result in diluted EPS calculations that are higher than the basic EPS. For more Ebook's . Understand when and how earnings per share must be presented.needbook1. The reverse treasury stock method looks at the impact of written put options. It assumes that the options are exercised at the beginning of the year and that the company first issues shares in the market (at the average share price) to obtain sufficient funds to buy the shares under the option. or transmission of this page is prohibited . The if-converted method considers the impact of convertible securities such as convertible debt and preferred shares. Note that purchased options and written options that are not in the money are ignored for purposes of calculating diluted EPS because they are either antidilutive or will not be exercised. Diluted earnings per share is a “what if” calculation that considers the impact of potential common shares. Understand why earnings per share (EPS) is an important number. When there are discontinued operations. Comparative calculations must also be shown. if later) and that any related interest or dividend is thus avoided.Test Bank . 3. options and warrants. 5. and what changes are expected in the near future.Solution Manual Please visit our website : http://www. Potential common shares include convertible debt and preferred shares. distribution. EPS must be presented for all public companies or companies that are intending to go public. Identify the major differences in accounting between ASPE and IFRS. The calculations must be presented on the face of the income statement for net income from continuing operations and net income (for both basic EPS and diluted EPS in the case of complex capital structures). It assumes that the instruments are converted at the beginning of the year (or issue date. Solution Manual Please visit our website : http://www.com/ or contact us at Ebooksmtb@hotmail. Ltd. Unauthorized copying. distribution.com Also you can contact us on Skype: Ebooksmtb 17 . work on the project was paused. For more Ebook's .needbook1. Copyright © 2013 John Wiley & Sons Canada. Tenth Canadian Edition EPS.4 Test Bank for Intermediate Accounting. or transmission of this page is prohibited . At the time of writing. The IASB and FASB were working on a revised plan of action to study the issues.Test Bank . b 17. Calculate basic EPS. or transmission of this page is prohibited .com/ or contact us at Ebooksmtb@hotmail. b 20. Calculate basic EPS with non-convertible preferred shares.5 MULTIPLE CHOICE—Conceptual Answer No. a 26. Choose correct statement. Contingently issuable shares a 5. EPS calculation with two dilutive convertible securities b 16. Calculate denominator for diluted EPS with outstanding stock options. Treasury stock method b 13. Calculate basic EPS. For more Ebook's .Solution Manual Please visit our website : http://www. Calculate diluted EPS with convertible bonds and convertible preferred shares. Treasury stock method a 12. d 35. Unauthorized copying. b 33. Treasury stock method d 14. IFRS nomenclature d 6. c 23.Test Bank . Calculating basic EPS d 3. Calculate weighted average of common shares outstanding. Weighted average of common shares outstanding c 4. b 25. Antidilutive securities d 15. b 21. Diluted EPS b 9. c 7. Description c 18. Simple capital structure a 2. Choose incorrect statement. Effect of treasury shares on EPS d 8. Calculate diluted EPS with convertible bonds. c 30. Use of treasury stock method with outstanding warrants b 36. Ltd. Description c 1. Calculate diluted EPS with convertible bonds. Calculate denominator for basic and diluted EPS with convertible bonds. Calculate diluted EPS with convertible preferred shares and convertible bonds. Calculate diluted EPS with convertible bonds. distribution. b 24. c 22. Calculate basic EPS. Reverse treasury stock method. Cumulative convertible preferred shares effect on EPS d 11.needbook1. Calculate denominator for basic and diluted EPS with convertible bonds. Dilutive convertible securities a 10. MULTIPLE CHOICE—Computational Answer No. Calculate denominator for basic and diluted EPS with convertible bonds. c 28. b 27.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 . Calculate basic EPS. Copyright © 2013 John Wiley & Sons Canada. c 31. b 32. b 34. Calculate diluted EPS with convertible preferred shares. c 19. b 29. Calculate diluted EPS with convertible preferred shares. Calculate diluted EPS with convertible bonds. b 38.com Also you can contact us on Skype: Ebooksmtb 17 . "If-converted" method EXERCISES Item Description E17-43 Weighted average of common shares outstanding E17-44 Earnings per share (definitions) E17-45 Basic and diluted earnings per share E17-46 Basic and diluted earnings per share E17-47 Effect of dilutive securities on earnings per share calculations E17-48 Diluted earnings per share PROBLEMS Item Description P17-49 Weighted average calculations P17-50 Basic earnings per share P17-51 Diluted earnings per share P17-52 Basic and diluted earnings per share P17-53 Basic and diluted earnings per share P17-54 Basic and diluted earnings per share P17-55 Basic and diluted earnings per share P17-56 Basic and diluted earnings per share Copyright © 2013 John Wiley & Sons Canada. Effect of dividends on non-convertible preferred shares b 40.Solution Manual Please visit our website : http://www.com/ or contact us at Ebooksmtb@hotmail. Calculate diluted EPS.Test Bank . Ltd. distribution. Description b 37. Calculate basic EPS. d 41. Unauthorized copying. For more Ebook's . or transmission of this page is prohibited . Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted Answer No.needbook1. Calculate denominator for diluted EPS with call options. a 42.6 Test Bank for Intermediate Accounting. Calculate basic EPS. b 39. b.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 . distribution.needbook1.Solution Manual Please visit our website : http://www. Under IFRS. Options that are out of the money are ignored in earnings per share calculations. weighted by the number of months outstanding. b. such shares are known as a. or transmission of this page is prohibited . d. the additional shares are a. non-dilutive shares. In calculating the weighted average of common shares outstanding. d. potential common shares. c. For more Ebook's . which of the following would suggest a simple capital structure? a. ordinary shares. Unauthorized copying. b. contingently issuable shares. considered outstanding at the beginning of the year.com/ or contact us at Ebooksmtb@hotmail. common shares are also called a. In calculating basic earnings per share. 6. Ltd. treasury shares. Which of the following statements is INCORRECT? a. Contingently issuable shares are never included in diluted earnings per share calculations. Copyright © 2013 John Wiley & Sons Canada. Corporations that have only antidilutive securities are not permitted to increase their earnings per share and are required to report only basic earnings per share. potential shares. With respect to the calculation of earnings per share. preferred dividends in arrears. potential treasury shares. considered outstanding at the beginning of the earliest year reported. common shares and convertible preferred shares 2. common shares and convertible bonds b. When a corporation agrees to issue common shares if some specific future event occurs. annual preferred dividend times (one minus the income tax rate). ignored. 4. 5. b. annual preferred dividend. c. d. the amount that should be deducted as an adjustment to the numerator is the a.7 MULTIPLE CHOICE—Conceptual 1. d. d. The treasury stock method is used for written call options. if the preferred shares are cumulative. preferred dividends in arrears times (one minus the income tax rate). b. c. when a stock dividend or stock split occurs. 3. common shares and non-convertible preferred shares d. convertible common shares. c.Test Bank . c. earnings derived from one primary line of business c. In calculating diluted earnings per share. annual preferred dividend divided by the income tax rate 11. d. diluted earnings per share only. convertible bonds are a. annual preferred dividend times the income tax rate d. Dilutive convertible securities must be used in the calculation of a. 12. reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share. respectively? Shareholders equity Basic EPS a. are added. Increase No effect c. ignored. Tenth Canadian Edition 7. If the exercise price of the options or warrants exceeds the average market price.needbook1. to the numerator of the calculation for diluted earnings per share. are used to calculate the number of common shares repurchased at the average market price. silly question: such securities are never included.8 Test Bank for Intermediate Accounting. the treasury stock method is used for written call options and equivalents to reflect assumed reacquisition of common shares at the average market price during the period. annual preferred dividend b. basic earnings per share only. What effect will the acquisition of treasury shares have on shareholders' equity and basic earnings per share. fairly present the maximum potential dilution of diluted earnings per share on a prospective basis. net of tax. the equivalent number of convertible preferred shares is added as an adjustment to the denominator. be antidilutive. c. Decrease No effect b. the calculation would a. In applying the treasury stock method to determine the dilutive effect of options and warrants. assumed converted whether they are dilutive or antidilutive. c. which amount should then be added as an adjustment to the numerator? a.com/ or contact us at Ebooksmtb@hotmail. If the preferred shares are cumulative. Decrease Increase d.Test Bank .com Also you can contact us on Skype: Ebooksmtb 17 . d. Copyright © 2013 John Wiley & Sons Canada. fairly present diluted earnings per share on a prospective basis. b. diluted and basic earnings per share.Solution Manual Please visit our website : http://www. 10. or transmission of this page is prohibited . b. When calculating diluted earnings per share. 9. annual preferred dividend times (one minus the income tax rate) c. For more Ebook's . Increase Decrease 8. distribution. b. the proceeds assumed to be received upon exercise of the options and warrants a. assumed converted only if they are dilutive. when calculating diluted earnings per share. assumed converted only if they are antidilutive. In calculating diluted earnings per share. Ltd. d. Unauthorized copying. c. b. smaller earnings adjustment. convertible bonds. written call options. c. For more Ebook's . Options that are in the money are ignored in earnings per share calculations. greater earnings adjustment. market price at the beginning of the year. d. are not included in the calculation.9 c.Test Bank . Copyright © 2013 John Wiley & Sons Canada. 14. d. b. average market price during the year. b.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 . Ltd. market price at the end of the year. Contingently issuable shares are never included in diluted earnings per share calculations. 16. The reverse treasury stock method is used for a.Solution Manual Please visit our website : http://www. b. d.needbook1. d. 15. Unauthorized copying. Options that are out of the money are ignored in earnings per share calculations. b. 13. Assume a corporation has two potentially dilutive convertible securities outstanding. smaller earnings per share adjustment. c. The one that should be used first to calculate diluted earnings per share is the security with the a. c. are disregarded in the calculation of earnings per share if the exercise price of the options and warrants is less than the ending market price of common shares. Antidilutive securities a. d. are those whose inclusion in earnings per share calculations would cause basic earnings per share to exceed diluted earnings per share. c.com/ or contact us at Ebooksmtb@hotmail. The treasury stock method is used for written put options. market price at the time the options or warrants were granted. When applying the treasury stock method. 17. d. should be ignored in all earnings per share calculations. b. convertible preferred shares. written put options. Which of the following statements is correct? a. distribution. include call options and warrants whose exercise price is less than the average market price of common shares. or transmission of this page is prohibited . greater earnings per share adjustment. should be included in the calculation of diluted earnings per share but not basic earnings per share. c. the price of the common shares used for the assumed repurchase is the a. a 5.needbook1. d 17.com Also you can contact us on Skype: Ebooksmtb 17 . a 8. d 9.Test Bank . c 10. b 2. b 16. d 11. Item Ans. d Copyright © 2013 John Wiley & Sons Canada. Item Ans. d 14. For more Ebook's . 1. d 6. a 15. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. Unauthorized copying. c 7. Item Ans. c 4.Solution Manual Please visit our website : http://www. distribution.com/ or contact us at Ebooksmtb@hotmail. Item Ans. a 13. Item Ans. or transmission of this page is prohibited . Ltd. b 3.10 Test Bank for Intermediate Accounting. b 12. 11 MULTIPLE CHOICE—Computational 18. Basic earnings per share for 2014 would be a.Solution Manual Please visit our website : http://www.000 common shares outstanding (no preferred shares issued).000 treasury shares on September 1. During 2014. Corgi issued 84. Afghan Corp. b. d.00 per share to the preferred shares. $3. $0. Ltd. 22. $2.35. and $1.000.000 10% convertible bonds outstanding. was $255. and reported net income of $630.500.57. 2014. $4. There are no preferred shares issued.000 to the preferred shares.000.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 . non-convertible preferred shares. At January 1.000. At December 31. and issued 36. had 500. 30. 20. $1.000 non-cumulative convertible preferred shares.000. Rottweiler Corp. d. Malamute Ltd. On July 1. The weighted average of common shares outstanding for 2014 is a.000 common shares outstanding (no preferred shares issued).000 for calendar 2014. c. Rottweiler paid cash dividends of $180. or transmission of this page is prohibited . 400. had 300. For more Ebook's .75. At December 31.000 shares.000 non-cumulative. 2013. c. The net income for 2014 was $900. Corgi Ltd had 600.000 of which were issued on October 1. 676. was $480. c. had 200. $0. b.needbook1. c. $4. d.000 bond is convertible into 45 common shares.000 common shares. d.64. Rottweiler issued 400. b.000 common shares. 2014. Basset Corp. Unauthorized copying.000 more shares on November 1. On January 1.50. Net income for calendar 2014. 2014. $1. The preferred shares are convertible into 40. 19. 648.Test Bank .000. $0. During 2014.000 and the income tax rate was 30%.com/ or contact us at [email protected]. At January 1. $4.000 common shares outstanding. Malamute paid dividends of $1. purchased 42. distribution.000 to the common shares and $150.000 shares on May 1.84. 634. Basic earnings per share for 2014 is a.40. During 2014. Basic earnings per share for 2014 would be a. 2014. b.20 per share to the common shares and $2.20. 2014. Net income for calendar 2014. $0. During 2014.000 of which were issued and outstanding throughout the year and 100. the corporation issued 450. Their income tax rate is 40%. Each $1. 662.000 common shares outstanding.51. had 300.60. $0. 21. No additional common shares were issued during 2014. Basic earnings per share for 2014 is Copyright © 2013 John Wiley & Sons Canada. 2014.20.000. 2014.000 b. No bonds have been converted yet. 2014. 2013.000 d.33. b.000.000 25.155. respectively? a.000 c. Samoyed issued 10. $4.000 and 7. b.125.000.500.65. An additional 100. 1. On October 1. Poodle Corp.000 common shares outstanding. 2013.00. 23.155.000 $2.60.000. 8% convertible bonds.000 and 1.000.000. Tenth Canadian Edition a.12 Test Bank for Intermediate Accounting.000. $0.000 and 7.000.000 common shares. $3. An additional 1. 1. Assume the income tax rate is 30%.000. Each bond is convertible into 20 common shares. 2014. and 240. Unauthorized copying.000 During 2014.com Also you can contact us on Skype: Ebooksmtb 17 . Net income for calendar 2014 was $500. or transmission of this page is prohibited . 7. 1. and 500.000 bond is convertible into 40 common shares.000 par value.000. distribution. The 9% convertible bonds are convertible into 50.50 per preferred share. 2014. had 1. 2014. b. Ltd. No bonds were converted in 2014. Information concerning the capital structure of Shepherd Corporation follows: December 31.000. For more Ebook's .000 common shares outstanding (no preferred shares issued). 26. The preferred shares are non-cumulative. Basic earnings per share for 2014 is a. At December 31.000 more on September 1.000 shares 10.155. $1.000 and 1.000. On October 1. 2014. 2014. $1. Mastiff Inc.000 (par value) 9% convertible bonds. What is the number of shares to be used in calculating 2014 basic earnings per share and diluted earnings per share. $1. c.Test Bank .000 more on October 1.000.540.00.10.000 shares 9% convertible bonds $2. d.000 common shares were issued on April 1.000 and 1.000. Copyright © 2013 John Wiley & Sons Canada.000 common shares were issued on July 1.275. Shepherd paid dividends of $1. d. At December 31.000 shares 100.660. and convertible into 20.000 more on July 1. 7. At December 31.000 common shares outstanding (no preferred shares issued).000 and 8. 1. 2013. $1.000 common shares.needbook1. Mastiff issued 25. Each $1.500.000.000.185. $5.75. c.00 per common share and $2.000 shares were issued on April 1. Poodle issued $3.000 and 7. 2014 2013 Common shares outstanding 100. $3. and 500.000 shares Convertible preferred shares outstanding 10.Solution Manual Please visit our website : http://www.000. The number of shares to be used in calculating basic earnings per share and diluted earnings per share for 2014 is a. Samoyed Limited had 4. 7. An additional 250. 24.000 and 1.46. had 6.000.155. on April 1. c. d. As well.000.500.com/ or contact us at Ebooksmtb@hotmail. 7. com/ or contact us at Ebooksmtb@hotmail. Unauthorized copying. c.750. 4. $3. Foxhound Ltd. Each $1.000 and 5. $3.000 and their income tax rate was 30%.000 common shares were issued. No bonds were converted in 2014.000 and the income tax rate was 40%. no bonds were converted during 2014. Diluted earnings per share for 2014 is a.650. b. For more Ebook's . b.050. Dalmatian's 2014 net income was $6. 8% convertible bonds.26. $3. $3. however. 2013. an additional 100. $2. On January 2.000. What is the number of shares to be used in calculating basic earnings per share and diluted earnings per share.000 of their common shares. had 800. No potentially dilutive securities other than the convertible bonds were outstanding during 2014. Dalmatian had 1.250. 2014. Labrador Ltd. b. Husky Ltd.000.40.50. Husky's 2014 net income was $160. Each bond is convertible into 40 common shares.42.Test Bank . $3.000 27.000 face value.71. Foxhound had $5.000 common shares outstanding. the diluted earnings per share for 2014 would be a. 4. 30.250. 4. Ltd. 28.000 bond is convertible into 30 shares.00. 29.21.250.00. 2014.000 6% bonds convertible into 1.000.000 to the common shares and $200. In addition.000 non-cumulative preferred shares outstanding.000 and 4.000 c. d. At December 31.000 and 4. 6% convertible bonds outstanding at December 31. $1. and their income tax rate is 30%. the corporation had 300.needbook1. $2. During 2014.000 d.000 common shares. which are convertible into 225. No bonds were converted during 2014.250.000 to the preferred shares. Dalmatian Inc. Labrador paid cash dividends of $300. c. for 2014? a. $6. respectively. Throughout 2014. b. c.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 .000 common shares outstanding (no preferred shares issued). On October 1.000.000 common shares outstanding during 2014 (no preferred shares issued).40.000 common shares. had 500.03.500. 2013. In addition.30. issued at par $300. 4. Husky's diluted earnings per share for 2014 would be a. Net income for 2014 was $1. No bonds were converted during 2014.28. d. Net income for calendar 2014 was $1. $2. $2. At December 31. 2013. Dalmatian's diluted earnings per share for 2014 would be a.Solution Manual Please visit our website : http://www. d.20. distribution. $3. Assuming the income tax rate was 30%.58.550. which were convertible into 500. $3. $2. There were 50.13 $1. Copyright © 2013 John Wiley & Sons Canada. 9% convertible bonds.000. 2014. or transmission of this page is prohibited .000 b.000 common shares outstanding (no preferred shares issued). On January 2. issued at par $10.200.000 and 4. d. distribution. $3.500.000.000 During 2014. At December 31. No bonds were converted in 2014.50 per preferred share.00 per common share and $2.00 per share to the preferred shares.com Also you can contact us on Skype: Ebooksmtb 17 . Copyright © 2013 John Wiley & Sons Canada.000 shares 10. $1.000 $2.92.000 common shares were issued.61.41.000. During 2014. an additional 300.00. On January 1. d. had 2.14 Test Bank for Intermediate Accounting.72. Information concerning the capital structure of Shepherd Corporation follows: December 31.000 to the common shares and $300. Retriever Ltd. Net income for calendar 2014 was $500.80.000 common shares. $3.000 common shares.000 common shares.000 to the preferred shares. Assume the income tax rate is 30%. $3. Shepherd paid dividends of $1.000.80.000 common shares. Ltd.000. Net income for calendar 2014 was $3.000 bond is convertible into 45 common shares. 2013. $3.000.com/ or contact us at [email protected] per share to the common shares and $2. The preferred shares are non-cumulative. $0. b. In addition. The 9% convertible bonds are convertible into 50.38. Jack Russell Ltd. and convertible into 20. 32.000 common shares. 31. and $1.000 shares Convertible preferred shares outstanding 10.000. 33.000 (par value) 6% convertible bonds outstanding at December 31. or transmission of this page is prohibited . Each $1.75.98.750. which are convertible into 600.needbook1. Malamute Ltd. $3. 2014. 2014.000. 30. 2013. which were convertible into 1. $2. During 2014. Retriever paid cash dividends of $900. During 2014. $2. Tenth Canadian Edition c.Test Bank . The preferred shares are convertible into 40.000 common shares. 34. Net income for calendar 2014. Jack Russell had $10. On September 1. d.000 common shares outstanding. had 900.000 10% convertible bonds outstanding. Retriever issued 500. Assuming the income tax rate is 30%.000 shares 100. b.000 common shares outstanding (no preferred shares issued).55. had 200.000 non-cumulative preferred shares. c. the diluted earnings per share for 2014 is a.000. $2. At December 31. Unauthorized copying.35. d. c.000. For more Ebook's . Malamute paid dividends of $1. b.000 non-cumulative convertible preferred shares. the diluted earnings per share for 2014 is a. 2014 2013 Common shares outstanding 100. c. $2. $0. Assuming an income tax rate of 30%.27. The net income for 2014 was $900.00. was $6. $2. $2. Diluted earnings per share for 2014 is a. 2013.000 shares 9% convertible bonds $2.000 and the income tax rate was 30%.Solution Manual Please visit our website : http://www. 000 stock options to certain executives. c. the corporation had granted 90. None of these options have yet been exercised. $2. What is the number of shares that should be used in calculating diluted earnings per share for 2014? a.15 Diluted earnings per share for 2014 is a. d. For more Ebook's .com/ or contact us at [email protected]. or transmission of this page is prohibited .94.000 common shares outstanding (no preferred shares issued). Spaniel Inc. 40. 50.54.000 common shares were outstanding during a period when the average market price of the common shares was $25. 35. 366. b. 300.622 d. Warrants exercisable at $20 each to obtain 50.600 Copyright © 2013 John Wiley & Sons Canada. c. 36.000. Unauthorized copying. Ltd.00.500. $4. 2014. 10. $3. 331.000 b.Test Bank .40. d. 323. The average market price of Spaniel's common shares during 2014 was $50. 12. $3. In addition. b.Solution Manual Please visit our website : http://www. At December 31. had 300.000. c. Application of the treasury stock method in calculating diluted earnings per share will increase the weighted average number of outstanding shares by a.000. distribution. and which gave them the right to purchase Spaniel's shares at the option price of $37 per share.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 .needbook1. 000 25.000 x $2)÷ 200.000 + ($1. Item Ans.000 + (100.000 ´ . Answer Derivation 18.000 + 1.000 × 9/12) + (500. b = $3.000 + ($5. $500. Unauthorized copying.000 × 4 ÷ 12) + (36.500. a 29. b 6.000 26.00 0 ´ .000 × 2 ÷ 12) = 648.7) 28.000 ) ´ 30] 30.Test Bank . c $255.000 + 20.09 ´ .00 0 ´ .200.7) 29.000.000 ¸ $1.09 ´ . c 25.000 Copyright © 2013 John Wiley & Sons Canada.000.20 19.000 ´ .10 ´ . b 27.000 + (10.000.7) 31.000 $500.00 $3. c 22.750.50) 23.000 32.000 – $150.000 + ç100.000 + 1.000 ÷ 300. b 32.000 × 40 × 9 ÷ 12) = 4.000 × 6 ÷ 12) = 7.000 ) ´ 40 ´ 3 ÷ 12] = 1.000 + (250.000 35. c 26. b 1.000.500. 18.000 + 50. b $900.00 0 ´ .com Also you can contact us on Skype: Ebooksmtb 17 .000 ´ $2. c 33.000 50. c $480.550.000 ÷ (800. Item Ans.000. For more Ebook's .000 + ($10.250.185. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Computational Item Ans.000. b = $3. b = $3. b 30.06 ´ .000 + (300.03 50.61 900.125.000 = $1.21 1.92 $900.000.000 ´ 4 ÷ 12) + 600.000.000 7.000 × 20 × 3 ÷ 12) = 7.000 + (100. Item Ans.70) 27. c 34.20 22.7) 33.16 Test Bank for Intermediate Accounting. d DERIVATIONS—Computational No. c $1.000 × 8 ÷ 12) – (42.000 x 6 ÷ 12) = $1.needbook1.28 æ 3 ö 500.000 + ($2.000 $1. b 35.06 ´ .000 1.000 ÷ 400.68 100.06 ´ . b 36. a 4.000 .75 100.000 ¸ $1.000 – 40.000 = 10.000.000. c = $2.000 ÷ 300. b $6.000 ´ ÷ + 225.000 $6. Item Ans.000 × 6 ÷ 12) + (500.000 + [($3.000 x 3 ÷ 12) = $0.000) = $2.000 è 12 ø $160.000 + (450.Solution Manual Please visit our website : http://www. c = $4. Item Ans.000 × $20 ÷ $25 = 40.000 + (1.000.155.000 + (25.000 ÷ (2.000 24. b 23.com/ or contact us at [email protected] + (84.000 + ($300.7) 34.000 + [($300.000) = $0.000 + 67. c 31.60 20.000 – (30.27 200. b 24. b 20.000 21.000 × 3 ÷ 12) = 4.000 × 9 ÷ 12) + (240. c = $3. or transmission of this page is prohibited .000 4.000 + 500. c 21.000.155.000 + ($10.(10.000 × 4 ÷ 12) = 1. Item Ans. b 28. b 600.000 ´ .000 = $4. b 19. b = $2. d 50. distribution. Ltd.000.500 + 40. c $630. distribution.17 36. For more Ebook's .Solution Manual Please visit our website : http://www.400 300. Ltd. or transmission of this page is prohibited .Test Bank .needbook1.000 × $37 ÷ $50) = 23.000 – (90. b 90.400 = 323. Unauthorized copying.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 .400 Copyright © 2013 John Wiley & Sons Canada.000 + 23. 2013.000. to the former owners of the subsidiary. At December 31.100. Boxer is required to issue 50. b.000. 2014.00. $1.000.000 additional common shares on July 1. Unauthorized copying. $4. 2013 and 2014.73. c. no par value cumulative preferred shares outstanding.Solution Manual Please visit our website : http://www. Skye also had unexercised call options to purchase 40. As well. dividends on non-convertible cumulative preferred shares should be a. 2013. Terrier issued 200. Skye Inc. b. had 100.08.000 common shares outstanding (no preferred shares issued). had 1. No dividends were declared in 2013 or 2014. 525.67. b. d. distribution. Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted 37. Basic earnings per share for 2014 would be a. 535. on January 1. At December 31. In connection with the acquisition of a subsidiary company in June 2013. b.67. $2. $4. Net income for calendar 2014 was $300.000. 41. $1. For more Ebook's . At December 31. had 500. No common shares were issued during 2014.00. Terrier paid cash dividends of $100.needbook1.com/ or contact us at Ebooksmtb@hotmail. $0. c. During 2014.000 to the common shareholders and $80.200. basic earnings per share would be a. 40. d. On July 1.18 Test Bank for Intermediate Accounting. $3. d.000.000. $0. Ltd. Net income for 2014 was $400. $3. an additional 50. ignored.000 common shares at $15 per share outstanding throughout 2014.000 non- cumulative.000 common shares and 10. however.000 in preferred dividends and reported net income of $5.com Also you can contact us on Skype: Ebooksmtb 17 . non-convertible preferred shares. Great Dane Corp. Copyright © 2013 John Wiley & Sons Canada. 565. c. In calculating diluted earnings per share.50. Boxer's diluted earnings per share for 2014 should be a. Boxer Ltd. deducted from net income only if declared. the corporation paid $300. or transmission of this page is prohibited . 2015. deducted from net income whether declared or not.25. The average market price of Skye's common shares was $20 during 2014.00. 39.000 to the preferred shareholders. Terrier Corp. 2014. The number of shares that should be used in calculating diluted earnings per share for 2014 is a.000 common shares outstanding.000.000 common shares were issued. Throughout 2014.000 for 2014. added back to net income whether declared or not. For 2014. c. b. d.00. $4. 38. 560.000 common shares outstanding.Test Bank . $5. had 300. 19 c. Copyright © 2013 John Wiley & Sons Canada. 42. $4. d.00. Ltd.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 . distribution.Solution Manual Please visit our website : http://www. beginning of the earliest period reported (regardless of time of issuance). if later).com/ or contact us at Ebooksmtb@hotmail. The if-converted method of calculating earnings per share data assumes conversion of convertible securities as of the a.needbook1. ending of the earliest period reported (regardless of time of issuance). For more Ebook's . b.Test Bank .84. $3. c. d. middle of the earliest period reported (regardless of time of issuance). beginning of the earliest period reported (or at time of issuance. Unauthorized copying. or transmission of this page is prohibited . Solution Manual Please visit our website : http://www.000 = $0. b = $3.00) 38. 37.50 100.(10. a Conceptual Copyright © 2013 John Wiley & Sons Canada. a DERIVATIONS—CPA Adapted No. b 39. b 40.com/ or contact us at [email protected] 41.$300. Item Ans.000 × 6 ÷ 12) + 40.000 42.84 1. distribution.needbook1.200.com Also you can contact us on Skype: Ebooksmtb 17 .000 – (40. b Conceptual 40. Item Ans. d 42. Answer Derivation 37. b 500.Test Bank .73 $400.000 . Ltd. For more Ebook's .000 ´ $5. Item Ans. d = $3. Item Ans.000 × $15 ÷ $20) = 535. b 38. Unauthorized copying. or transmission of this page is prohibited .20 Test Bank for Intermediate Accounting.000 $5.000 .000 + (50. Item Ans.000/ 300.000 + 50. b 41. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans. b $300.000 39.000 – $80. or transmission of this page is prohibited . the corporation purchased on the open market 180. the corporation declared and issued a 2 for 1 stock split. Solution 17-43 Increase Shares Portion of yr Stock (Decrease) Outstanding Outstanding Split Jan 1 300. 20-year. The calculation of earnings per share b. Instructions Calculate the weighted average number of common shares outstanding to be used in calculating earnings per share for 2014. On July 1. 2014.500 Oct 1 (180.Test Bank . Earnings per share is calculated by dividing net income less preferred dividends by the weighted average number of common shares outstanding.000 690.21 EXERCISES Ex. Collie Corporation has 400. plus all potentially dilutive common shares that were outstanding during the period.000 common shares outstanding (no preferred issued).000 3/12 127. On March 1.000) 510. d. On October 1. options. For more Ebook's .000. 17-45 Basic and diluted earnings per share Throughout the calendar year 2014. distribution. c.000 bond is convertible into 20 common shares Copyright © 2013 John Wiley & Sons Canada. Complex capital structure c. 17-43 Weighted average of common shares outstanding At January 1. the corporation issued 45. A complex capital structure exists when a corporation has convertible securities. issued at par in 2012. Akita Corporation had 300. Collie has 5.Solution Manual Please visit our website : http://www. or other rights that upon conversion or exercise could dilute earnings per share. Unauthorized copying.000 Jul 1 345.500 Weighted average of common shares 630. Diluted earnings per share is calculated based on the weighted average number of shares outstanding during the period. Ltd.com/ or contact us at Ebooksmtb@hotmail. Each $1.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 .000 common shares outstanding (no preferred shares issued).000 345.000 new shares to raise additional capital. Ex.000 of its own shares at $35 each and retired them. In addition. Basic earnings per share d.000 4/12 x2 230. 17-44 Earnings per share Define the following: a. Diluted earnings per share Solution 17-44 a. 7% bonds outstanding.000 Ex.000 3/12 172.000 2/12 x2 100.000 Mar 1 45.needbook1. warrants. Basic earnings per share is calculated based on the weighted average number of shares outstanding during the period. b. distribution.000 in the next five years. 2012 at a $18.000 ($350. Tenth Canadian Edition after June 30.000 Therefore the bonds are antidilutive.600.000).600.800) ————————————————— = $3. 9% convertible bonds on January 1.000 × .Test Bank .000 + $1.000 for calendar 2014. 17-46 Basic and diluted earnings per share Bulldog Inc. or transmission of this page is prohibited .000 Net income + Interest after taxes Diluted earnings per share: Assumed outstanding shares $600. Unauthorized copying. and basic and diluted earnings per share of $1.7($180. 17-47 Effect of dilutive securities on earnings per share calculations A publicly accountable enterprise is planning on issuing the following two securities in the coming year: 1. Solution 17-45 Net income $600.000 common shares outstanding during the year.000.50 should be reported. reported net income (30% tax rate) of $1. Instructions Calculate basic and diluted earnings per share for 2014.600.000 + $245. Collie reported net income of $600. Ltd. Copyright © 2013 John Wiley & Sons Canada.08 500. 2015.com Also you can contact us on Skype: Ebooksmtb 17 .000 ÷ 500.000 Ex. Ex. Convertible debt where mandatory conversion will take place five years after issue.000 Basic earnings per share: = = $1.000 common shares.com/ or contact us at Ebooksmtb@hotmail. 2.needbook1.000 + . The warrants can be exercised if profits exceed $1.000 + 100. Bulldog issued $2. 10-year. For more Ebook's .20 Diluted earnings per share $1.000 + 60.69 400.000 par value.50 Outstandin g shares 400. Solution 17-46 Basic earnings per share ($1. Bulldog uses the straight-line method for amortizing the bond discount.Solution Manual Please visit our website : http://www.000.7 = $245. The bonds are convertible into 60. Debt with detachable warrants.000 discount. Instructions Calculate basic and diluted earnings per share for 2014.45 Assumed incrementa l shares 100.000 Incremental effect of conversion of bonds: Bond interest after taxes $245.000 for calendar 2014. and an average of 500. = $1.22 Test Bank for Intermediate Accounting. Their income tax rate is 30%.000 = = $2.000 shares) = $3. which require a $40 cash payment upon exercise (options were granted in 2012)..........com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 ....... Solution 17-47 1..... if the condition has not been met. The average market price of the common shares during 2014 was $50..... (40. then the shares must be treated as if they are issued. Unauthorized copying.. The second instrument is an example of contingently issuable shares... However.000 for the shares to be issued.. then these shares should not be included in the EPS calculation until the condition has been met...000 Add: Assumed issuance of stock options ...Test Bank .... 300..000.. it is assumed the conversion has already taken place for calculating earnings per share...........000) Number of shares to use for diluted EPS . Solution 17-48 Shares outstanding (given) ... In addition..000...23 Instructions Discuss how these two securities will affect the earnings per share calculation. Ltd.. 310.......... Basenji Corp.... had 300......Solution Manual Please visit our website : http://www. 2014. 17-48 Diluted earnings per share During 2014....000 Copyright © 2013 John Wiley & Sons Canada. at December 31... 2..000 350...... For more Ebook's .. The common shares should be treated as if they were outstanding and included in the weighted average of common shares calculation........000 ÷ $50) . 50....com/ or contact us at [email protected] Deduct: Proceeds/Average market price ($2...........000 common shares outstanding. contingent on profits exceeding $1.... 50...needbook1........ distribution...... If this condition is already met... The convertible debt is an example of an instrument that is mandatorily convertible....... or transmission of this page is prohibited .. As a result.... Instructions Calculate the number of shares to be used in determining diluted earnings per share for 2014..000 shares were issuable upon exercise of executive stock options... Ex. 000 common shares outstanding. The corporation uses the calendar year as its fiscal year. had 200.000 Shares outstanding. Jan 1 300.000 Pr. Unauthorized copying. Jul 1. On April 1. Solution 17-49 2012: (200.25 x 6 ÷ 12) + (300.000 240. Apr 2012 40.000 200. 2014. has been operating successfully for the past fifteen years. Bernard bought back 30. 17-51 Diluted earnings per share On January 1. 17-49 Weighted average calculations Calculate the weighted average number of shares outstanding for each year. Copyright © 2013 John Wiley & Sons Canada.000 x 3 ÷ 12) = 625.000 common shares were issued and on September 1.000 Earnings per share $1.000 treasury shares.000 $598. However.com/ or contact us at Ebooksmtb@hotmail. calculate EPS for each year based on your calculations in Pr 17-49. For more Ebook's . 17-49–17-50.000 2013: (300. 2014. or transmission of this page is prohibited .000 240.000 Shares sold.000 Net Income $ 750. 2014 100. Alternate calculation: (240.000 300. The corporation’s income tax rate is 40%.24 Test Bank for Intermediate Accounting.000 x 3 ÷ 12) + (700. The market price of the common shares averaged $50 during 2014. Tenth Canadian Edition PROBLEMS Use the following information to answer Pr.20 $2. its common shares outstanding changed as shown below.20 $2.000 Shares sold. 20.com Also you can contact us on Skype: Ebooksmtb 17 .000 300. Dec 31 700.000 25% stock dividend.000 x 6 ÷ 12) 2014: (300. 17-50 Basic earnings per share Assuming there were no preferred shares outstanding. during recent years.000 598. Oct 1.needbook1.000 x 2 x 6 ÷ 12) + (600.Solution Manual Please visit our website : http://www.60 Pr.000 Pr.000 $660. Golden Corp.000 230.000 x 3 ÷ 12) + (240.000 660. distribution.000 x 1. Ltd. 2013 60.000 x 12 ÷ 12) = 300. Jul 1.000 Average shares outstanding (including stock dividend and stock split) 625. 2014 2013 2012 Shares outstanding.000 Stock dividend is weighted back to the beginning of the period. 2014 300.000 x 9 ÷ 12) = 230.000 2-for-1 stock split. Bernard Corp.Test Bank . Solution 17-50 2014 2013 2012 Net income $750. 2014. ..25 During 2014........000 2.... $1...08 × .000 Copyright © 2013 John Wiley & Sons Canada..000 2....6 = $96.000c 846...000 $(140....000 Mar 1 purchase of treasury shares (60.000 311.000 205...400.needbook1.000 $2...000 SA c $96...000 6...98 Options 610...000 = $2...com/ or contact us at [email protected] SA b 30. 17-52 Basic and diluted earnings per share Bloodhound Corp. $7....Solution Manual Please visit our website : http://www.000 60. the corporation had issued $2.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 .. cumulative and convertible preferred shares outstanding...000.000 96.000 call options to buy common shares at $40 a share outstanding.000) $610. The corporation reported $750... Complete the schedule below and show all calculations. provides the following data for calendar 2014: Net Income.000 271.. no par value.000) (or) [(50 – 40) ÷ 50] × 30...000 140...000 net income for calendar 2014...000 SA 6....000 ÷ $50 = (24.. Unauthorized copying. Each preferred share is convertible into three common shares...33 40......40 = $2...89 Preferred 610...000) 5..000 $1.000) 940. For more Ebook's .72 a 20.000 $2........000..000 common shares adjusted for split on June 1.000 5.000....880..000a 205.. and there were 20.77 Bonds 750.000 60.000 8% Cumulative Convertible Preferred Shares (no par) Convertible into 200.000 Nov 1 issuance of new shares 120.000 1. $2.. .000 Pr..000.000.000 × 3 ÷ 4 = 15.000 2.000 211...Test Bank ..000 271..000 750.... Net Adjust Adjusted Adjust Adjusted Security Income -ment Net Income Shares -ment Shares EPS Solution 17-51 Net Adjust Adjusted Adjust Adjusted Security Income -ment Net Income Shares -ment Shares EPS Com. Shares $750.. distribution..000 2...000 30..000 bond is convertible into 20 common shares...000b 211...... Each $1.000 Jun 1 shares split 2 for 1 940.000 × 1 ÷ 3 = (10.. or transmission of this page is prohibited .000 200.000 × .....000 $140. there were 30. During 2013.200.000 of 8% convertible bonds at face value.000 40. Ltd.000 Transactions in Common Shares Change Cumulative Jan 1 beginning 1..000..000 = 6.. Instructions Calculate diluted earnings per share for 2014...... $1.. For more Ebook's ....000 c...13 1.. Diluted earnings per share: = $1....Test Bank .. On October 1. Average market price in 2014 was $30 (market price and option price adjusted for split)..... provides the following information for calendar 2014: 1...... 50....... One of the terms of the purchase was that if Lhasa's net income for 2013 or subsequent years is $400..000 No dividends were declared during 2014.. no par value....000 Stock options Proceeds from exercise of 60.May 31 940.. Unauthorized copying.. Capital Structure: a.000 shares outstanding $600...000.....880... Solution 17-52 Calculation of weighted average shares outstanding during the year: Jan 1..needbook1.. On January 2.... cumulative.. 76.... $1.............. 200.000...... Lhasa purchased Apso Corporation......000 × $25) ...920.. 17-53 Basic and diluted earnings per share Lhasa Ltd.000 Additional shares for purposes of diluted earnings per share: Potentially dilutive securities 8% convertible preferred shares . On April 1.........920...21 1.500. Tenth Canadian Edition Stock Options Exercisable at the option price of $25 per share..........000 x 5/12= 783....000 shares were purchased and retired...... Net income $420....000.......333 1. ...000 Less: treasury shares purchasable with proceeds ($1.....000 10.......400. 6. Ltd....000 additional common shares would be issued to Apso shareholders...400...... distribution.. Common shares.Dec 31 2.000 ÷ $30) .000 Dilutive securities—additional shares ....... Copyright © 2013 John Wiley & Sons Canada. Calculate basic earnings per share for 2014...000 Jun 1.. Basic earnings per share: = $1.500.... 16.....000 options (60........... 60............000 b.333 Nov 1.000 Pr..Oct 31 1.$80.000 x 2/12 x 2= 333 333 Mar 1....26 Test Bank for Intermediate Accounting.000 or more.....000 a.... $8 preferred shares........com/ or contact us at [email protected] 2..000 + 210...000 $2.000 Shares issued upon exercise of options .... or transmission of this page is prohibited .000 x 2/12= 333. 2013.000 shares outstanding on January 1.....000 ...000 x 3/12 x 2= 470. b. 50..000 shares Instructions a... 40..... 210....Solution Manual Please visit our website : http://www......com Also you can contact us on Skype: Ebooksmtb 17 ..920.000 shares were issued for cash. 60..... b.....Feb 29 1.000 $2. Calculate diluted earnings per share for 2014. 100. For more Ebook's ....000) Ending Balance ... 17-54 Basic and diluted earnings per share Satsuma Ltd...... Stock options exercised during 2014 None Instructions Calculate basic and diluted earnings per share for 2014..........000 ........000 * Since they are cumulative.............. $372....... Capital structure: a......000 shares issued and outstanding during the entire year 2........27 Instructions Calculate basic and diluted earnings per share for 2014.....000) Income available to common (numerator) ................. Unauthorized copying...................000.....000 ÷ (102..000 x $8) ..............000 x 3/12= 25..... Bonds converted during 2014 None b...000 *Less preferred dividends ($6........... Share Changes: Jan 1 ...000 102.Solution Manual Please visit our website : http://www... 76....000 x 6/12= 58...........000 bonds is convertible into 50 common shares for the next 10 years 300............000 Apr 1...........000 c...45 Pr...... Each of the 300..000 b. 40....com/ or contact us at Ebooksmtb@hotmail......... Copyright © 2013 John Wiley & Sons Canada........000 common shares at $20 per share.... PFD dividends are deducted from NI........000 + 50............ 3............ Income tax rate 30% c.000 Weighted average shares outstanding: Jan 1..000 Oct 1..... retirement 16....000 2....... (16.....Sep 30 116.. issuance 40........ Convertible 6% bonds.....000 = $3....................000 ÷ 102........... Average market price per common share during 2014 $32 e..000 Basic earnings per share: $372. Convertible debt was outstanding the entire year d. Common shares................... Net income $560..000 .. or transmission of this page is prohibited ....000) = $2. Stock options were outstanding the entire year f.........Dec31 100...... 200.......000 x 3/12= 19....000 116.............Test Bank ....65 Diluted earnings per share: $372.. Stock options outstanding to buy 16......Mar 31 76..000 Oct 1....... Ltd... distribution....................needbook1..............com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 ..... $420............... (48..... $1...................................... The fact dividends were not declared is irrelevant.. Other information: a... provides the following information for 2014: 1....000 Apr 1...................... Solution 17-53 Net income ........ Instructions Treating each part independently.000) Copyright © 2013 John Wiley & Sons Canada.com/ or contact us at Ebooksmtb@hotmail. $2.667 = $8. Part B On August 1.Test Bank . Two preferred shares are convertible into one common share.000.000 — 200.000 — 560. convertible preferred shares.7 = $12.000 — $560.80 Net Adjust Adjusted Adjust Adjusted Diluted Security Income -ment Net Income Shares -ment Shares EPS Com.000 2. For more Ebook's .28 Test Bank for Intermediate Accounting.000 $2. has a July 31 year end. 2013 100.000) 32 6.000 × .000 Pr.000 = $2. = $.600 $300. 2014 was $950. No bonds were converted in 2013. on March 31.72 Conv. cumulative.000 2. Deering issued 100.667 Basic EPS = $950. Each $1.000 320. a publicly accountable corporation. 2013.000 $12. calculate basic and diluted earnings per share for fiscal 2014.000 200. however. Deering issued at par a 5% convertible bond.667 Mar 31. 2013. Their income tax rate is 30%. there were 100. 50% of the bonds were converted into common shares. distribution.84 15.000.com Also you can contact us on Skype: Ebooksmtb 17 .600. Shares $560. 20% of these preferred shares were converted to common shares.000 x 5% $250. On September 30. Solution 17-55 Part A Weighted average common shares and basic EPS: Date # shares Fraction of year Aug 1.000 200.000 ÷ 116. Unauthorized copying.600b 572.80 Options 560. 2014 150.000.000 ÷ 200.000. face value $5.600 206.14 Diluted EPS Calculation: Effect of conversion rights Interest expense for year on convertible bond—$5. For the 2014 fiscal year. 2014. Bonds 560.000 = (10.000 6.000 bond is convertible into 20 common shares.000 common shares outstanding all year. Tenth Canadian Edition Solution 17-54 Basic EPS = $560.Solution Manual Please visit our website : http://www. Part A During the 2013 fiscal year.000 SA b $12. The preferred share dividend was declared and paid on June 15.000 8/12 66.needbook1. Ltd. 17-55 Basic and diluted earnings per share Deering Inc.000 221.06 × . 2014.. Net income for the year ended July 31.000.000 Income tax reduction due to interest—30% (75. or transmission of this page is prohibited .000 Total 116.000a 206.000 4/12 50.000 15.59 a 16. 000 Number of common shares issued assuming conversion on Aug 1 100.com/ or contact us at Ebooksmtb@hotmail. convertible into 105.500.000 Per share effect = 160.000 ÷ 148.needbook1.000 = $5. for calendar 2014: Net income $4.000 10 ÷ 12 91.000 83. distribution.63 Part B Weighted average common shares and basic EPS: Date # shares Fraction of year WACS Aug 1.000 ÷ 200.000 8% convertible bonds. 1.40 Pr 17-56 Basic and diluted earnings per share The following data are presented by Waxman Ltd. or transmission of this page is prohibited .000 200. potentially dilutive Recalculate EPS: Income available to common shareholders WACS Basic EPS $950.333 Total 1.29 Diluted EPS Calculation: Effect of conversion rights Preferred share dividend for year avoided $160.000 Less: Portion actually converted on Mar 31 (16. 2013 100.667 Total 108.000 Common shares outstanding.000 Number of common shares issued assuming conversion on Aug 1 (100.000 2 ÷ 12 16.000 common shares $1.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 .500.29 Interest expense avoided.000 call options exercisable at $25 per share Copyright © 2013 John Wiley & Sons Canada.600.333 2.000 Total 950.000 – ($2 x 80.000. convertible into 120.000 ÷ 40.000 108.000 360.125.000 40.125. net of tax 175.000 Therefore.000)) ÷ 108.667 Sep 30.Solution Manual Please visit our website : http://www. diluted EPS is $1.000 = 4.000 ÷ 2) 50.000 Less: Portion actually converted on Sep 30/13 (10.000 ÷ 83. diluted EPS is $950.00 Therefore. Unauthorized copying.333 = $7. 2013 110.333 Convertible preferred shares 160.333 Basic EPS = ($950.000 common shares $7.333 = $6.000 shares 10%.333 Therefore.000 148.667 5% convertible bond 175.Test Bank .667) Incremental effect of conversion option 83. potentially dilutive Recalculate EPS: Income available to common shareholders WACS Basic EPS $790. Ltd.333 Per share effect = $175. cumulative preferred shares.10 Therefore.000) Incremental effect of conversion option 40.000 116. For more Ebook's . Instructions a.000 dividend was declared and distributed.000) ÷ 1.81 c.Solution Manual Please visit our website : http://www.340. For more Ebook's .000 ** ($7.000 – 160. which will lower the current shareholder’s share of the earnings.000 $4.30) = 420.500. b. Calculate basic EPS.000 160.com/ or contact us at Ebooksmtb@hotmail. The stock price was $27 on January 1.000 ÷ 1.000 3. The convertible bonds were sold at par. however. The average market price of the common shares in 2014 was $30. and $35 on December 31. Ltd. 2014.000 × .180. Calculate diluted EPS.Test Bank .000 4.34 b.000 $4. The common and preferred shares and the convertible bonds were outstanding from the beginning of the year. 3.000 1.920.000 4. Tenth Canadian Edition Additional information: 1.000 420.180. a $500.00 1.000 – (25 ÷ 30 × 360. c. EPS in general provides investors with the information on how much of the earnings each common share earned in the current year.000** 4.500. 4. but are likely to be converted into common shares.09 Convertible preferred shares 120.000) = 60. Unauthorized copying.33 EPS after step 2 1. Diluted EPS can also be viewed as a “worst case” scenario for the current shareholders. they are not included in the calculation.500. This informs investors how much of the firm’s earnings they “own” and will help them in predicting future dividend payouts. Denominator Numerator EPS Start 1.30 Test Bank for Intermediate Accounting.000. In 2014. What is the additional importance of reporting diluted EPS? Solution Pr 17-56 a. no dividends were declared in 2013.060. Copyright © 2013 John Wiley & Sons Canada. distribution. Diluted EPS provides shareholders with a more realistic picture of the future EPS as it also considers complex financial instruments that are not common shares yet.08) × (1 – . 5.000.000* 0 EPS after step 1 1. Basic EPS = (4. Briefly discuss the usefulness of the EPS measure in general.000 = $3. 2014. and diluted EPS = $4.000 = $4.000 4.com Also you can contact us on Skype: Ebooksmtb 17 . or transmission of this page is prohibited .000 Since the bonds are antidilutive.81 Convertible bonds 105.340.83 antidilutive! * 360.000 $4.34 Options 60. 2.285.500.000 3. The income tax rate for 2014 is 30%.needbook1. scanning.com/ or contact us at Ebooksmtb@hotmail. Unauthorized copying.com Also you can contact us on Skype: Ebooksmtb Earnings Per Share 17 . or transmission of this page is prohibited . For more Ebook's . Ltd. The data contained in these files are protected by copyright. used to create derivative works. Ltd. Ltd. distribution.Solution Manual Please visit our website : http://www. made available on a network. or transmitted in any form or by any means.needbook1. This manual is furnished under licence and may be used only in accordance with the terms of such licence. reproduced. or otherwise without the prior written permission of John Wiley & Sons Canada. Copyright © 2013 John Wiley & Sons Canada. photocopying. modified.31 LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. or related companies. The material provided herein may not be downloaded. mechanical. recording. electronic. stored in a retrieval system.Test Bank . All rights reserved. 10 H Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada.4. 7 M 26. 5 M 24. 4 M 19. 2 E 63. 6 M 4.4 M 43. 8 H 52.Solution Manual Please visit our website : http://www. 4 M 53. 4 M 40. or transmission of this page is prohibited . 2. 2 M 15. 6 M 5. 2.4 M 58. 2. 2. 2 M 55. distribution. 2. 3 M 36. For more Ebook's . 4 M 38. 3 M 33. 7 M 6.4. 10 M Multiple Choice–Computational 25. 5 M 23. 2–6 H 67.4 H 57. 2. 2 E 7. 2 M 12.3 M 49. 3 M 17.3 H 50. 3 M Exercises 51. 2 M 30. 3 H 35. 2. 2 M 54. 3 M 16.3. 3 H 42.com Also you can contact us on Skype: Ebooksmtb CHAPTER 18 INCOME TAXES SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 2. 2 E 9. Ltd.3. 5 M 2. 2.3. Unauthorized copying. 2 E 8.4 M 59.4 M 65. 2 H 31. 2 H 29.4 H 66. 2 E 11. 4 M 39.4 M 56.3.needbook1. 2. 4 M 21. 3. 8 H Problems 61. 2 E 14. 2 M 46. 2 E 13.Test Bank . 2 H 44. 4 M 20. 2 E 10.3.3 M 64. 5 M 3. 7 H 27.3.3 H 47. 2 H 45.10 H 62. 2. 3 M 18. 3 M 34. 5 M 22. 3 M 32. 4 M 37. 8 M Multiple Choice–CPA Adapted 41.3 M 48.6. 2.3.com/ or contact us at Ebooksmtb@hotmail. 2. 2.4 M 60. 7 M 28.3. MC 59. MC 9. Ex 62. Pr 5. Pr 67. MC 31. MC 41. Ex 65. Ex 64. MC 7. Pr Learning Objective 3 10. MC 53. MC Learning Objective 8 40.2 Test Bank for Intermediate Accounting. Pr 14.needbook1. Pr Learning Objective 5 16. MC 57. Pr 12. Pr 15. Pr Note: MC = Multiple Choice Ex = Exercise Pr = Problem Copyright © 2013 John Wiley & Sons Canada. MC 39. MC 45. Unauthorized copying. MC 38. Pr 3. MC 52.Test Bank . MC 65. MC 36. Ex 60. MC 65. Ex 65. For more Ebook's . MC 56. MC 20. MC 34. Ex 65. MC 56. or transmission of this page is prohibited . MC 50. MC 49. Pr 6. Pr 11. Pr 67. Ex 66. MC 42. MC 30. MC 48. MC 44. Pr 4. distribution. MC 46. Pr 28. Pr 29. MC 54. MC 55. MC 17. MC 55. MC 37. MC 48. MC 45. Ex 63. MC 54. Pr Learning Objective 4 13. Ltd. MC 46. Ex 66. MC 25. Pr 67. MC 26. MC 27. Ex 64. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 2 1. MC 53. MC 47. Ex 57. MC 18. Ex 64. MC 44. Pr Learning Objective 7 23. Ex 62.com Also you can contact us on Skype: Ebooksmtb 18. MC 32. Ex 63. MC 66. Ex Learning Objective 10 24. Pr 67. Pr 67. Pr Learning Objective 6 21.Solution Manual Please visit our website : http://www. Pr 33. MC 19. MC 35. MC 54. MC 22. Ex 61. MC 51. Ex 63. MC 53. MC 8. Ex 58.com/ or contact us at Ebooksmtb@hotmail. MC 55. Ex 66. MC 47. MC 43. Pr 2. MC 56. distribution. 4. (2) calculate the correct net deferred tax asset or liability balance at the end of the period. the combined federal and provincial tax rate declined from an average of approximately 43% to approximately 28% between 2000 and 2012. a major consideration is the tax rate that it will face on its profits. Copyright © 2013 John Wiley & Sons Canada. Unauthorized copying.com/ or contact us at Ebooksmtb@hotmail. determine its amount. For example. companies start with their accounting income and then add and deduct items to adjust the GAAP measure of income to what is actually taxable and tax deductible in the period. when the asset is recovered or the liability is settled in the able income of that future period will be reduced. The fact that corporate taxes can slow growth may help to explain why governments in Canada have steadily reduced corporate tax rates over time. When a company decides where to set up its operations. Because taxes are reduced in the future as a result of temporary differences that exist at the balance sheet date. 2. The following steps are taken: (1) identify all temporary differences between the carrying amounts and tax bases of assets and liabilities at the balance sheet date.3 CHAPTER STUDY OBJECTIVES 1.needbook1. Explain what a deductible temporary difference is. and calculate taxable income and current income taxes. accounting income and taxable income often differ. the taxable income of that future period will be increased. the future tax consequences of these deductible amounts are recognized in the current period as a deferred tax asset.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. or transmission of this page is prohibited . Taxable income is calculated in accordance with prescribed tax legislation and regulations. which is based on the change in the amount of the net deferred tax asset or liability. Because tax legislation and GAAP have different objectives. Because taxes increase in the future as a result of temporary differences that exist at the balance sheet date. determine its amount. A taxable temporary difference is the difference between the carrying amount of an asset or liability and its tax base with the consequence that. Ltd. Understand the importance of income taxes from a business perspective. and calculate deferred tax liabilities. A deductible temporary difference is the difference between the carrying amount of an asset or liability and its tax base with the consequence that. and calculate deferred tax assets. To calculate taxable income. Current tax expense and income taxes payable are determined by applying the current tax rate to taxable income. For more Ebook's . Accounting income is calculated in accordance with generally accepted accounting principles. the future tax consequences of these taxable amounts are recognized in the current period as a deferred tax liability. Explain the difference between accounting income and taxable income. when the asset is recovered or the liability is settled in the future for an amount equal to its carrying value. 3. 5.Test Bank . Explain what a taxable temporary difference is.Solution Manual Please visit our website : http://www. (3) compare the balance in the deferred tax asset or liability before the adjustment with the correct balance at the balance sheet date—the difference is the deferred tax expense/benefit. Prepare analyses of deferred tax balances and record deferred tax expense. and (4) make the journal entry. Ltd.com Also you can contact us on Skype: Ebooksmtb 18. but this approach is not envisaged under current IFRS. items in OCI. they are recognized in the period of the loss as a tax benefit on the income statement and as an asset (income tax receivable) on the balance sheet. If previously unrecorded tax losses are subsequently used to benefit a future period. These entries may be made directly to the deferred tax asset account or through a valuation allowance contra account. For more Ebook's .Test Bank . and other capital. ASPE also allows the use of a contra valuation allowance account. Other future tax accounts are classified according to when the temporary differences are expected to reverse. Separate disclosure is required of Copyright © 2013 John Wiley & Sons Canada. 8. Explain the effect of multiple tax rates and tax rate changes on income tax accounts. retained earnings. the income tax asset may have to be written down. future income tax assets and liabilities are classified as one net current amount and one net non-current amount based on the classification of the asset or liability to which the temporary difference relates. The economic benefit to be received from the deferred tax asset is a reduction in deferred taxes payable. 9. 7.Solution Manual Please visit our website : http://www. A post-2009 tax loss can be carried forward and applied against the taxable incomes of the next 20 years. A company may carry a taxable loss back three years and receive refunds to a maximum of the income taxes paid in those years. Tenth Canadian Edition 6. Current and deferred tax expense is reported separately with income before discontinued operations. Under all methods.needbook1. current income taxes payable or receivable are reported separately as a current liability or current asset. Otherwise. Disclosure is required of the amounts of tax loss carryforwards and their expiry dates. or transmission of this page is prohibited . Because the economic benefits related to the losses carried back are certain. Alternatively. Every asset must be assessed to ensure that it is not reported at an amount higher than the economic benefits that are expected to be received from the use or sale of the asset. The effects are reported as an adjustment to deferred tax expense in the period of the change. If it is unlikely that sufficient taxable income will be generated in the future to allow the future deductions. If the economic benefits related to the tax loss are more likely than not to be realized during the carryforward period. discontinued operations. distribution. When there is a change in the future tax rate. and calculate current and deferred tax amounts when there is a change in substantively enacted tax rates. Account for a tax loss carryforward. Deferred tax assets and liabilities are measured at the tax rate that applies to the specific future years in which the temporary difference is expected to reverse. a deferred tax asset is recognized. Under ASPE and assuming a single tax authority. Explain why the Deferred Tax Asset account is reassessed at the statement of financial position date. Unauthorized copying. including any note disclosures. they are not recognized in the financial statements. its effect on the future tax accounts is recognized immediately. Account for a tax loss carryback. they are recognized in the period of the loss as a deferred tax benefit in the income statement and as a deferred tax asset on the balance sheet. Tax rates other than the existing rates can be used only when the future tax rates have been enacted into legislation or substantively enacted.4 Test Bank for Intermediate Accounting. 10.com/ or contact us at Ebooksmtb@hotmail. and apply intraperiod tax allocation. and account for the deferred tax asset with and without a valuation allowance account. Under IFRS. Identify and apply the presentation and disclosure requirements for income tax assets and liabilities. If previously unrecognized amounts are now expected to be realizable. the benefit is recognized in that future period. the deferred tax accounts are all classified as non-current. com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. Copyright © 2013 John Wiley & Sons Canada. but under IFRS. (4) Make an adjusting entry to restate the deferred tax asset or liability amounts if a change in the future tax rates has been substantively enacted. 12. and the reasons for the difference between the statutory tax rate and the effective rate indicated on the income statement. Unauthorized copying. Identify the major differences between ASPE and IFRS for income taxes. (3) determine the deferred tax expense as the adjustment needed to the existing balance. ASPE allows an accounting policy choice—either the taxes payable method or the future income taxes method—while IFRS requires use of a method consistent with the future income taxes method.Solution Manual Please visit our website : http://www. the major components of income tax expense.needbook1. the temporary difference approach. and (5) Classify the net deferred/future tax asset or liability according to the accounting standards being applied. (1) Calculate the current tax expense and payable.Test Bank . In a comprehensive situation. distribution. additional disclosures are required about temporary differences and unused tax losses. Ltd. or transmission of this page is prohibited . calculate the correct balance of the deferred tax asset or liability account.com/ or contact us at Ebooksmtb@hotmail. use of a valuation allowance. and the amount of deductible temporary differences for which no deferred tax asset has been recognized. 11. the balance sheet classification of deferred/future tax assets and liabilities. (2) determine the taxable and deductible temporary differences as the difference between the carrying amounts and tax bases of the assets and liabilities. ASPE calls for limited disclosures. For more Ebook's . The current differences relate to terminology.5 the amounts and expiry dates of unused tax losses. Apply the temporary difference approach (future income taxes method) of accounting for income taxes in a comprehensive situation. and the extent of disclosure. take the following steps. ASPE income tax methods allowed c 4. Composition of total income tax expense b 13. Differences between taxable and accounting income a 20. IFRS terminology c 2. Result of interperiod tax allocation b 18. Definition of a temporary difference c 8. Recognition of tax benefits of a loss carryforward d 23. Identify incorrect statement a 10. or transmission of this page is prohibited . distribution. Definition of deferred tax asset c 15.needbook1. Tenth Canadian Edition MULTIPLE CHOICE—Conceptual Answer No.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 18. Definition of deferred tax liability a 12. AJE to credit deferred tax asset account a 16. Depreciation and temporary differences d 11.6 Test Bank for Intermediate Accounting. Ltd. Definition of the tax base of a liability b 7. IFRS statement of financial position presentation of deferred tax assets and liabilities Copyright © 2013 John Wiley & Sons Canada. For more Ebook's .Solution Manual Please visit our website : http://www. Identify reversible difference a 6. Financial statement presentation of a tax benefit from loss carryforward b 24. Appropriate tax rate for deferred income tax amounts b 22. Differences between taxable and accounting income d 3. Description b 1. Objective of interperiod tax allocation a 17. Calculation of effective tax rate b 19. Difference due to unrealized loss on short-term securities c 14.Test Bank . Identify a permanent difference b 9. Definition of intraperiod tax allocation c 21. IFRS income tax methods allowed d 5. Unauthorized copying. Calculate current income tax expense. MULTIPLE CHOICE—CPA Adapted Answer No. c 34. Calculate income tax refund following a loss carryback. b 35. Deferred tax asset from warranty expenses c 49. Ltd. Unauthorized copying. Calculate deferred tax asset. Calculate loss to be reported after loss carryback. c 38. For more Ebook's . b 40. Calculate current income tax payable for the year. b 37. Calculate loss to be reported after loss carryforward. d 33. d 39.com/ or contact us at Ebooksmtb@hotmail. Calculate deferred tax liability. d 29. or transmission of this page is prohibited . Calculate current income tax liability.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. a 45.7 MULTIPLE CHOICE—Computational Answer No. a 28. a 32. Deferred tax liability from reversible and permanent differences d 50. Calculate deferred tax liability with changing tax rates. Calculate instalment accounts receivable. Calculate loss to be reported after loss carryback. Deferred tax liability when using equity method of accounting Copyright © 2013 John Wiley & Sons Canada. d 42. a 30. a 31.needbook1. a 27.Solution Manual Please visit our website : http://www. Calculate deferred tax liability and current income taxes payable. b 26. d 36. b 43. Calculate income tax expense for the year. Calculate deferred tax liability. Deferred tax liability from instalment sales d 46. Calculate deferred tax asset. Description d 25. Deferred tax liability from depreciation and warranty differences c 48. Deferred tax liability from depreciation/CCA differences a 47. Calculate deferred tax asset or liability. Calculate current income tax liability. Calculate deferred tax asset or liability. Calculate CCA claimed. c 44. Calculate deferred tax liability. Description a 41. distribution.Test Bank . distribution. For more Ebook's . Ltd.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 18. Tenth Canadian Edition EXERCISES Item Description E18-51 Temporary differences E18-52 Permanent and reversible differences E18-53 Permanent and reversible differences E18-54 Reversible differences E18-55 Calculation of taxable income E18-56 Future income taxes E18-57 Deferred income taxes E18-58 Deferred tax asset E18-59 Taxable loss carryforward without valuation allowance (IFRS) E18-60 Taxable loss carryforward with valuation allowance (ASPE) PROBLEMS Item Description P18-61 Taxable income and accounting income P18-62 Taxable temporary difference P18-63 Differences between accounting and taxable income and effect on future income taxes P18-64 Multiple reversible differences P18-65 Interperiod tax allocation with change in enacted tax rates P18-66 Deferred tax asset P18-67 Comprehensive income tax situation with multiple differences (ASPE) Copyright © 2013 John Wiley & Sons Canada.8 Test Bank for Intermediate Accounting. Unauthorized copying.Solution Manual Please visit our website : http://www. or transmission of this page is prohibited .needbook1.Test Bank . No No b. c. the taxes payable method only. reduced by any amount that will be deductible for tax purposes in future periods. any method as long as the CRA approves it. Yes No 3. either the taxes payable method or the temporary difference approach. b. 4. For more Ebook's . b. product warranty liabilities b. Pre-tax profit Taxable income 2. 5. accounting income and taxable income are referred to as Accounting Income Taxable Income a. Unauthorized copying. Accounting profit Taxable profit c. For calculating income tax expense. Income before taxes Taxable profit d. Yes Yes d.Test Bank .9 NOTE TO INSTRUCTOR: Except where ASPE is specifically noted. the temporary difference approach only. less any amount that will not be taxable in the future. Accounting profit Income for tax purposes b. instalment sales d.com/ or contact us at Ebooksmtb@hotmail. Under IFRS. No Yes c. When calculating income tax expense. the future income taxes method only. Which of the following will NOT result in a reversible difference? a. any method as long as the CRA approves it. increased by any amount that will be deductible for tax purposes in future periods. fines and penalties 6. ASPE allows the use of a. c.needbook1. MULTIPLE CHOICE—Conceptual 1. Copyright © 2013 John Wiley & Sons Canada. Ltd. or transmission of this page is prohibited . distribution. the taxes payable method only. unrealized holding losses c. either the taxes payable method or the future income taxes method. taxable income of a corporation differs from pre-tax accounting income because of Permanent Reversible Differences Differences a. For calculating income tax expense. d. c.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. The tax base of a liability is its carrying amount on the statement of financial position a. b. IFRS requires the use of a.Solution Manual Please visit our website : http://www. it is assumed that all questions are to be solved using current IFRS pronouncements. d. b. a payment of the golf club dues for the president’s membership.'s taxable income differed from its accounting income for 2014. For more Ebook's . using CCA for tax purposes and straight-line depreciation for book purposes.10 Test Bank for Intermediate Accounting.com Also you can contact us on Skype: Ebooksmtb 18. current tax expense only. making instalment sales during the year. All differences between accounting income and taxable income are considered. Only reversible differences are considered. 12. current tax consequence of a deductible temporary difference. future income tax expense. Ltd. which of the following statements is INCORRECT? a. current tax expense and deferred tax expense. 7. Yes No c. distribution. c. future tax consequence of a deductible temporary difference. The deferred tax asset minus any deferred tax liability. Only those that result in temporary differences are considered when determining deferred tax amounts for the statement of financial position.com/ or contact us at Ebooksmtb@hotmail. or transmission of this page is prohibited . deferred tax expense only. An item that would create a permanent difference in accounting and taxable incomes for the corporation would be a. d. d. Machinery was acquired at the beginning of the year. No Yes d. 9. b. current tax consequence of a taxable temporary difference. c. Yes Yes b. future tax consequence of a taxable temporary difference.needbook1. d. c.Test Bank . c. Copyright © 2013 John Wiley & Sons Canada. b. Total income tax expense for a corporation consists of a. Permanent differences may be added back to or deducted from accounting income. permanent difference. 10. No No 11. In regard to reconciling income reported on the financial statements to taxable income. d. temporary difference. Alabama Corp. plus any amount that will not be taxable in the future. c.Solution Manual Please visit our website : http://www. A deferred tax liability is the a. b. d. a balance in the Unearned Rent account at year end. 8. Depreciation recorded during the life of the machinery could result in Taxable Temporary Deductible Temporary Differences Differences a. The difference between the tax base of an asset or liability and its reported amount on the statement of financial position is called a a. Tenth Canadian Edition d. b. Unauthorized copying. current difference. adjust income tax expense on the income statement to be in agreement with income taxes payable on the statement of financial position. Interperiod tax allocation causes a. total income tax expense by taxable income. Copyright © 2013 John Wiley & Sons Canada. current tax consequence of a taxable temporary difference.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. d. the income tax expense reported on the income statement to bear a normal relation to the tax liability.Test Bank .com/ or contact us at Ebooksmtb@hotmail. d. b. the reversal of a deferred tax benefit that originated in a prior year. d. b.Solution Manual Please visit our website : http://www. recognize a distribution of earnings to the shareholders. c. 18. Reversible Asset c. d. b. b. For more Ebook's . b. additional future income taxes payable. Unauthorized copying. Reversible Liability b. 16. future tax consequence of a taxable temporary difference. c. recognize the tax effects in the accounting period when the transactions and events are recognized for financial reporting purposes. the income tax expense reported on the income statement to equal the amount of income taxes payable for the current year plus or minus the change in the deferred tax asset or liability balances for the year. 15. This would result in what type of difference and in what type of deferred tax account? Type of Difference Deferred tax a. A deferred tax asset is the a. Ltd. the income tax expense reported on the income statement to be presented with the specific revenues causing the tax. this should represent a.needbook1. future tax consequence of a deductible temporary difference. the income tax liability reported on the statement of financial position to bear a normal relation to the income before tax reported on the income statement. reconcile the tax consequences of permanent and reversible differences appearing on the current year's financial statements. 17. c. current tax consequence of a deductible temporary difference. The effective tax rate for a period is calculated by dividing a. Permanent Asset 14. the reversal of a deferred tax expense that originated in a prior year. or transmission of this page is prohibited . distribution.11 13. One objective of interperiod tax allocation is to a. If a corporation prepares an adjusting entry to credit the deferred tax asset account. Permanent Liability d. A corporation records an unrealized loss on short-term securities. a transfer to the deferred tax liability account. total income tax expense by the pre-tax income on the income statement. c. The refund claimed should be reported as a future charge and amortized over five years. d. Tax rates other than the current tax rate may be used to calculate the future income tax amount on the statement of financial position if a. c. how are deferred tax asset and liability accounts presented on the statement of financial position? a. Allocating income tax expense or benefit for the period (both current and deferred) to the income and other statements to reflect transactions that attract income tax is known as a. current tax allocation. The refund claimed should be shown as a reduction of the loss in 2014. Tenth Canadian Edition c. b. incurred an accounting and taxable loss for 2014. reconcilation approach. taxable income by the pre-tax income on the income statement. is reported on the corporation's income statement. c. Ltd. They must be segregated into current and noncurrent items. c. it appears likely that a future income tax rate will be higher than the current tax rate. c. 23. b. The refund claimed should be reported as revenue in the current year. b. b. 20. 22. 21. the establishment of an income tax receivable. Alaska Inc. d. distribution. The reduction of the loss should be reported as an adjustment to retained earnings.com Also you can contact us on Skype: Ebooksmtb 18. Recognition of tax benefits in a loss year due to a loss carryforward requires a.Solution Manual Please visit our website : http://www.needbook1. 19. taxable income by total income tax expense. c. Unauthorized copying. b. d.com/ or contact us at Ebooksmtb@hotmail. c.Test Bank . differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination. d. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. intraperiod tax allocation. The corporation therefore decided to use the carryback provisions as it had been profitable up to this year. interperiod tax allocation. the establishment of a deferred tax asset.12 Test Bank for Intermediate Accounting. For more Ebook's . How should the amounts related to the carryback be reported in the 2014 financial statements? a. or transmission of this page is prohibited . They must be shown as noncurrent assets or liabilities. Taxable income of a corporation a. Copyright © 2013 John Wiley & Sons Canada. They must be reported as a reduction of the related asset or liability accounts. it appears likely that a future income tax rate will be less than the current tax rate. the future income tax rates have been enacted or substantively enacted into law. d. b. d. is based on generally accepted accounting principles. it is probable that a future income tax rate change will occur. They must be shown as current assets or liabilities. Under IFRS. only a note to the financial statements. the establishment of a deferred tax liability. d. 24. b 5. a 21. Item Ans. c 6. d 4. b Copyright © 2013 John Wiley & Sons Canada. Item Ans. c 19. c 12. d 9. a 16.13 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. distribution.needbook1.com/ or contact us at Ebooksmtb@hotmail. Item Ans. 1.Test Bank . or transmission of this page is prohibited . a 10. d 15. b 13. Unauthorized copying. a 14. b 23. a 24. For more Ebook's . Ltd. d 7. Item Ans. a 20. b 22.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.Solution Manual Please visit our website : http://www. c 2. b 3. b 17. c 18. c 8. Item Ans. b 11. Solution Manual Please visit our website : http://www.000 Deferred 42. Assuming a 30% tax rate.000 Excess CCA for tax purposes (900. $200.$225. sells household furniture on an instalment basis. d.000 arising from the difference between accounting and tax treatment of the instalment sales. b. Tenth Canadian Edition MULTIPLE CHOICE—Computational 25.needbook1.000.$750. $560.000 Net income $1.com/ or contact us at [email protected]. For book purposes.$90. what amount was claimed for CCA on the corporation's tax return for the year? a. Connecticut Corp.000 will be deductible in 2015 when it is expected to be paid.000.000 Income tax expense Current $483. Customers make payments in equal monthly instalments over a two-year period. Georgia Inc. Ltd.000 c. $700.000 The estimated lawsuit expense of $400. b. prepared the following reconciliation between pre-tax accounting income and taxable income: Pre-tax accounting income $ 800. $ 0.000 525. sales revenue is recognized at the time the sale is made. however. The depreciation expense for the year was $700.000 Estimated lawsuit expense 400.Test Bank . The current income tax payable is a. and Georgia's income tax rate is 30%.000. At the end of 2014.000 26. $150. Connecticut adheres to IFRS requirements. $665. distribution. $840. there were no other differences between accounting income and taxable income.000 d.000. If Georgia's December 31.14 Test Bank for Intermediate Accounting. For more Ebook's .000 in each of the next three years.com Also you can contact us on Skype: Ebooksmtb 18.750. or transmission of this page is prohibited . Georgia's gross profit on instalment sales is 40% of the selling price. Arkansas Corp. 27. Use of the depreciable assets will result in taxable amounts of $300.000.'s partial income statement for its first year of operations is as follows: Income before income taxes $1.000. There are no other accounting and income tax accounting differences.000. $ 75. d. its first year of operations. The income tax rate is 25% for all years.000) Taxable income $ 300. Except for depreciation. Copyright © 2013 John Wiley & Sons Canada. with no down payment required. statement of financial position includes a deferred tax liability of $90.000 Arkansas uses straight-line depreciation for financial reporting purposes and CCA for tax purposes.000 b. Unauthorized copying. 2014. For income tax purposes.225. c. the instalment method is used. it should also include instalment accounts receivable of a. c.$300. or transmission of this page is prohibited . Colorado Corp.500. Ltd. $33. and 30% in both 2016 and 2017.000 Instalment sales (600.000.000) Taxable income $450.910.625. purchased a depreciable asset for $600.000 2017 28. Straight-line depreciation is being used for financial statement purposes but the following CCA amounts will be deducted for tax purposes: 2013 $150. should be a.000 will be deductible in 2016 when it is expected to be Copyright © 2013 John Wiley & Sons Canada. its first year of operations. The deferred tax liability to be recorded is a. 2013. prepared the following reconciliation between pre-tax accounting income and taxable income: Pre-tax accounting income $300. $30. 30.'s pre-tax accounting income with its taxable income for 2014. $28. For more Ebook's .com/ or contact us at [email protected] Estimated lawsuit expense 750.000. the deferred tax liability that should be reflected on Arizona's statement of financial position at December 31.000 Excess CCA (90. $180.needbook1. c.250 2014 225.000 Instalment sales (600. $ 67.000 2016 $56. The asset has an estimated 4 year life with no residual value. d. $ 90. 2014 is a.125 Assuming an income tax rate of 30% for all years. c. b.000. Unauthorized copying. its first year of operations.000 will be deductible in 2016 when it is expected to be paid. Colorado Corp. $31. its first year of operations.750. 29. The total deferred tax liability to be reported on California's statement of financial position at December 31. is as follows: Pre-tax accounting income $3.Solution Manual Please visit our website : http://www. Enacted tax rates are 40% in 2014.000. $22.000 Estimated lawsuit expense 750. At the end of 2014. c. On January 2. b.000 in each of the next two years. The instalment sales will be realized at $300.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. At the end of 2014.000) Taxable income $2. $50.500.500. 31. b. The income tax rate is 30% for all years.500. Arizona Corp.500 2018 28.Test Bank .000. A reconciliation of California Corp. d.000) Taxable income $450. $45.000 The estimated lawsuit expense of $750.15 28. $ 45. $36.000.000 The excess CCA will result in equal net taxable amounts in each of the next three years. prepared the following reconciliation between pre-tax accounting income and taxable income: Pre-tax accounting income $300.125 2015 112. 35% in 2015.000 The estimated lawsuit expense of $750. d.000. distribution.000. 2014. 000. d. $ 0. d. Ltd. Connecticut adheres to IFRS requirements. c. $150.000. The income tax rate is 25% for all years. The income tax rate is 25% for all years. The deferred tax asset to be recorded is a. its first year of operations.000 Excess CCA for tax purposes (900.000 in each of the next three years.Test Bank . The instalment sales will be realized at $300. Use of the depreciable assets will result in taxable amounts of $300. 34.16 Test Bank for Intermediate Accounting. $90. its first year of operations. b. Colorado Corp. $100. d. The deferred tax liability to be recorded is a. prepared the following reconciliation between pre-tax accounting income and taxable income: Pre-tax accounting income $ 800.Solution Manual Please visit our website : http://www.000.com/ or contact us at [email protected] in each of the next two years.000. $ 0.000. For more Ebook's .000. Connecticut Corp.000 The estimated lawsuit expense of $400.000 in each of the next two years.000.com Also you can contact us on Skype: Ebooksmtb 18. Unauthorized copying.000 Instalment sales (600.000) Taxable income $ 300.000) Taxable income $ 300. $300. $45.000 will be deductible in 2015 when it is expected to be paid.000. $90.000 Estimated lawsuit expense 400. prepared the following reconciliation between pre-tax accounting income and taxable income: Pre-tax accounting income $ 800.000) Taxable income $450. The deferred tax asset to be recorded is a. Connecticut adheres to IFRS requirements.000 will be deductible in 2016 when it is expected to be paid. 32.needbook1. At the end of 2014. $200. $225. The total income tax expense to be reported on the income statement is a. b. $135. At the end of 2014. c. 33. $225. $200. At the end of 2014.000.000 Excess CCA for tax purposes (900. The instalment sales will be realized at $300. Use of the depreciable assets will result in taxable amounts of $300.000 in each of the next three years. or transmission of this page is prohibited . Connecticut Corp. The income tax rate is 30% for all years.000. Tenth Canadian Edition paid. b. prepared the following reconciliation between pre-tax accounting income and taxable income: Pre-tax accounting income $300. c.000 Estimated lawsuit expense 400.000 The estimated lawsuit expense of $750.000 will be deductible in 2015 when it is expected to be paid. its first year of operations. Copyright © 2013 John Wiley & Sons Canada.000 The estimated lawsuit expense of $400. The income tax rate is 30% for all years.000.000 Estimated lawsuit expense 750. distribution. 000. 37. Assuming that the enacted tax rate is 25% in both 2014 and 2015. what income (loss) is reported for 2014? Copyright © 2013 John Wiley & Sons Canada.000.000 2014 loss (before income taxes) (360.500. or transmission of this page is prohibited .000 in income taxes in 2014.500 deferred tax asset c.17 b.500 liability. is a. $160. and 40% for 2015.$ 97.000 2013 80. Ltd. c. Assuming that the enacted tax rates in effect are 30% in 2014 and 25% in 2015.000. Delaware Corp. $45. d.$ 0. 38. c. should be a a.000. $37. In 2014. accrued.Solution Manual Please visit our website : http://www. d. $187. the amount reported as the deferred tax asset or liability on Florida's statement of financial position at December 31. b. 2014. d.000 in premiums for a two-year life insurance policy in which the company was the beneficiary. c. Idaho Inc. reported the following results for calendar 2014. $100.000 There were no permanent or reversible differences during these three years. Unauthorized copying. Florida Ltd. b. If Illinois elects to use the carryback provisions.000 Taxable income 400. and that any deferred tax asset recognized is more likely than not to be realized. Florida paid $50.000.500 deferred tax liability 36.$130.000) 2015 income (before income taxes) 400. $187. $37. For more Ebook's .000. estimated losses on disposal of unused plant facilities of $750. $175.000 asset.000 for 2014.needbook1. cannot be determined from the information given.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. Its pre-tax accounting income for the last two years was as follows: 2012 $60. $ 60. distribution. $45.$105. 35.000 deferred tax asset d.000 loss was recognized for tax purposes. Illinois Corporation reported the following results for its first three years of operations: 2013 income (before income taxes) $ 40. what amount should Delaware record as the deferred tax asset or liability for calendar 2014? a.000 deferred tax liability b. assuming that it uses the carryback provisions.500 asset. Assume an income tax rate of 30% for 2013 and 2014. and that the tax rate is 25% for all years involved.000 The difference between accounting income and taxable income is due to a temporary difference. The facilities were sold in March 2015 and a $750.com/ or contact us at Ebooksmtb@hotmail. for book purposes. its first year of operations: Pre-tax accounting income $250.Test Bank . reported a taxable and accounting loss of $130. which will reverse in 2015. and that Florida paid $390. Also in 2014.000 The amount that Idaho reports as a net loss for financial reporting purposes in 2014. The corporation's taxable and pre-tax accounting income and tax rates for the last two years were: 2012 $200. $30. Indiana Inc. $35. For more Ebook's .com/ or contact us at Ebooksmtb@hotmail. Assume an income tax rate of 30% for 2013 and 2014. $ 0 b.Solution Manual Please visit our website : http://www. or transmission of this page is prohibited .000 There were no permanent or reversible differences during these three years. If Illinois elects to use the carryforward provisions and NOT the carryback provisions. c.000 25% The 2014 tax rate is 30%.000 2014 loss (before income taxes) (360.000) d. d.000. what income (loss) is reported for 2014? a. $(360. and 40% for 2015.000) 2015 income (before income taxes) 400.000 for 2014. Tenth Canadian Edition a. $ 0 39.com Also you can contact us on Skype: Ebooksmtb 18. 40.000.needbook1. the amount that should be reported as income tax receivable for 2014 is a.000. $(216. $(232.000) d. If Indiana elects to use the carryback provisions. Ltd.000 20% 2013 200. Unauthorized copying. reports a taxable and pre-tax accounting loss of $150. distribution. $(348.000) b.000) c. $50. Illinois Corporation reported the following results for its first three years of operations: 2013 income (before income taxes) $ 40. $(220. $45.000) Copyright © 2013 John Wiley & Sons Canada.000.000) c. $(360. and that any deferred tax asset recognized is more likely than not to be realized.18 Test Bank for Intermediate Accounting.Test Bank . b. a 35.000. or transmission of this page is prohibited . d 30% × Temporary Difference = $42.000. d 36.000 33.000 34.000 – $225. a $90.000 × 25% = $225. d 39.500 30.000 Change in deferred tax liability = $600. $360. $700.000.needbook1.000 27.000 + $140. b 40. b 26.000. c $400.000 32.000 temporary difference $300.000 26. d $150. c 37. a 34. d $750.000 – (25% × $130.000 × 30% = $22.000 – $225. c 27. c $40. Item Ans. $360.000.000) = $97. a Income tax payable = $450.000 – $150.000 ÷ 40% = $750. b ($400.000 × 35%) + ($30. a ($600. $320. b 38.000 39. distribution.000 = $90.000 – $128.000 ÷ 30% = $140. Ltd.000 × 25% = $100.000 35. 25.000 40.000 × 25% = $75.500. Unauthorized copying. Item Ans. Item Ans.000 × 30% = $12.000) – ($600. Temporary Difference = $42.000) $75.000 – $150.000 = $216.500 37. d $750. For more Ebook's . Answer Derivation 25. 38. a 30.000) × 25% = $37. b $130.19 MULTIPLE CHOICE ANSWERS—Computational Item Ans.com/ or contact us at [email protected] ÷ 30% = $300.000 28.000 – $250.000 × 30%) = $28.000 × 30% = $225. d DERIVATIONS—Computational No.000 Copyright © 2013 John Wiley & Sons Canada. Item Ans.000 × 30%) + ($30.000 – $144. b 29.000 $135. a $600.000 = $840.000 – $150.000 × 30% = $180.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.Test Bank .000 – $12.000 × 30% = $180. d ($30.000 × 30% = $225.Solution Manual Please visit our website : http://www. a 31.000 × 25% = $187. d 28. a 33.000 = $220. b $300. Item Ans. d 32.000 × 40% = $128.500 36.000 × 30% = $135.000 × 20% = $30. b $360.500 29.000 × 40% = $144.000 + $180.000 31.000 Change in deferred tax asset = $750. a $900. reported pre-tax accounting income of $300. Ltd. the following data were considered: Non-taxable portion of capital gains $30.com Also you can contact us on Skype: Ebooksmtb 18. $75.000 b. To calculate the income tax liability.000 Enacted income tax rate for 2014 30% What amount should Kansas report as its current income tax liability on its December 31.com/ or contact us at [email protected] 44.000 CCA in excess of depreciation 20. $51. To calculate the income tax liability. $212. $26.000 b. $187.000) Taxable income $450. $112. Kansas Corp. For calendar 2014.000 Deduct reversible difference Depreciation expense.000 c.000 Add reversible difference Construction contract revenue which will reverse in 2015 100.000 42.000 Instalment tax payments made during 2014 25. distribution. $45. For calendar 2014.20 Test Bank for Intermediate Accounting.000 Louisiana's income tax rate is 25% for 2014. $48. $20. Kentucky Ltd.500 c.000 43. Unauthorized copying.Test Bank . $ 25. Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted 41. which will reverse in equal amounts in each of the next four years (400. prepared the following reconciliation of accounting income to taxable income: Pre-tax accounting income $750. reported pre-tax accounting income of $750.000. Kentucky uses CCA for tax purposes and straight-line depreciation for Copyright © 2013 John Wiley & Sons Canada. or transmission of this page is prohibited . 2014 statement of financial position? a.000 for calendar 2014.000 CCA in excess of depreciation 60.000 Enacted income tax rate for 2014 30% What amount should Iowa report as its current income tax liability on its December 31.needbook1. $198.000 d.000 b.000 Instalment tax payments made during 2014 150.000 for calendar 2014. reported pre-tax accounting income of $100. its first year of operations. For more Ebook's . $66.000 c. What amount should the corporation report in its 2014 income statement as current income tax expense? a.500 d. Louisiana Corp. the following data were considered: Life insurance proceeds on the death of the CEO $130.000 d.Solution Manual Please visit our website : http://www. 2014 statement of financial position? a. Iowa Corp. 000 annually for book purposes.000 45. Minnesota claimed CCA of $1.000 35% 2015 180. Instalment income of $930. $243. $ 0 47.com/ or contact us at Ebooksmtb@hotmail. $315. reported depreciation expense of $800. Minnesota Corp. 2014 statement of financial position.000 c.000 30% There are no other reversible differences. the asset is a Class 8 asset with a CCA rate of 20%.000 will be collected in the following years when the enacted tax rates are: Collection of Income Enacted Tax Rates 2014 $ 120.needbook1.000 b. purchased a machine for $270. $ 9. For calendar 2014. $ 8. Assume a present and future enacted income tax rate of 30%.000 30% 2016 270. What amount should be included as the deferred tax liability on their December 31. Unauthorized copying.000 $24. For income tax reporting. or transmission of this page is prohibited . the deferred tax liability and the current income taxes payable should be Deferred Current Income Tax Liability Taxes Payable a.21 financial reporting.000 46. 2014 statement of financial position? a. On January 1.000. $16. 2014.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.Solution Manual Please visit our website : http://www. and 24% for 2016 and 2017.000) 30% 2017 24. For more Ebook's .200.000 $28. $15. and the enacted tax rates for 2014 to 2018 are as follows: Depreciation Over (Under) CCA Tax Rates 2014 $(20. Massachusetts Inc. The depreciation difference and warranty expense will Copyright © 2013 John Wiley & Sons Canada.000 c.000 in accrued warranty expense that will be deducted for tax purposes when paid.000 30% 2018 28.000) 30% 2016 (6. $256.000 on its income statement.600 $28. subject to the half year rule for 2014. 2014? a.000 30% 2017 360.500 d.000) 35% 2015 (26. The 2014 income statement also included $150. $ 6. The differences between depreciation and CCA over the five-year life of their assets.600 $20. distribution. $ 6.000 25% The instalment income is Maryland's only reversible difference. but on its 2014 income tax return.000 which will be depreciated $27. uses the accrual method of accounting for financial reporting purposes and the instalment method of accounting for income tax purposes. $15. What amount should be added to Massachusetts's deferred tax liability for the difference between depreciation and CCA at December 31.000 c. Maryland Inc.100 d.200 b. $225. Minnesota's income tax rates are 30% for 2014 and 2015.000 b. On Kentucky's December 31.000 d.Test Bank . Ltd. com/ or contact us at [email protected] These were Minnesota's only reversible differences. c. and 25% for 2018. Ltd. $133. 30% for 2015.Solution Manual Please visit our website : http://www.000 b. b.000 d.000 The enacted income tax rates are 35% for 2014. At December 31. Minnesota’s deferred tax liability should be a. The deferred tax asset reported on Missouri’s December 31.000.800.000 2017 100. which are expected to be paid as follows: 2015 $90. purchased 40% of the common shares of Michigan Inc. Unauthorized copying.500. Maine Corp. On January 1. $99. 30% for 2015. or transmission of this page is prohibited . $100.com Also you can contact us on Skype: Ebooksmtb 18. it’s first year of operations.needbook1. 2014.000.000. b. $ 67. $94. 49.000. During 2014. reported pre-tax accounting income of $330. What amount should be included as the deferred tax liability on Maine's December 31. The difference in depreciation/CCA will reverse in equal amounts over the next three years. 2014. In its 2014 income statement. 2014 statement of financial position should be a.000.000 $150. a publicly accountable enterprise.000 70. d. Michigan reported earnings of $900. its first year of operations. distribution.500.000 $ 30.000 c. and 25% for both 2016 and 2017.. 2016 and 2017. For more Ebook's . $ 60. $80. $54. Lake Corp.000. c. b.000 2016 45.000.000 2017 45. 2014 statement of financial position? a. $76. Maine claimed CCA of $825. reported depreciation of $525. $75. Tenth Canadian Edition reverse over the next three years as follows: Depreciation Difference Warranty Expense 2015 $160. $120.000 50.22 Test Bank for Intermediate Accounting. 48.000 and taxable income of $600. and accounts for this investment by the equity method. The increase in Lake's deferred tax liability for this temporary difference is a.Test Bank .000. $ 73. c.000. Maine's income tax rates are 35% for 2014. For calendar 2014.000 and paid dividends of $300.000 50.800.000 2016 140. For 2014 income tax purposes. $90. Lake's current income tax rate is 25%.200.000.000 $400. Missouri Corp. Copyright © 2013 John Wiley & Sons Canada. $63.000 2018 90. The only reversible difference is accrued warranty costs.000 and interest revenue from a Canadian corporation of $105. d. Lake assumes that all of Michigan's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 20%. $ 75. com/ or contact us at [email protected]. distribution.Test Bank . or transmission of this page is prohibited . Unauthorized copying. Ltd.Solution Manual Please visit our website : http://www. $ 48. Copyright © 2013 John Wiley & Sons Canada. For more Ebook's .23 d.000.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. 000 × 25%) + ($100. Ltd. not income for tax purposes).000 × 35% = $28. a ($300.000 – $20. c $20.000 – $25.000 × 25%) = $80.000 × 30%) + ($360. a 49.000.600 + $7. There is no reversible difference in 2014.Test Bank . $198. For more Ebook's . or transmission of this page is prohibited .000 – $300. d DERIVATIONS—CPA Adapted No. Item Ans. d 48.$525. c 50.000 – $70.000.000.000.000 × 25% = $22. Answer Derivation 41.000 46.000 × 25%) = $225. $100.000) × 40% = $240. 47.200.Solution Manual Please visit our website : http://www.000 – $30.needbook1. b 45.200 = $67.000) × 30% = $45. a ($180.000 + $45.000) × 24% = $21.000 .000 + $22.000 + $21. $90. b $450.000 = $20.000 – $20. d ($750. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.000) × 30% = $39.800 48. Item Ans. c $825. a 43.000 × 20% = $48. $240.000 (earnings from associate.000 = $48.000 43.000 × 30%) + ($100.000 50. a 47.000) × 24% = $7.600.000 × 20% × 1 ÷ 2 = $27.500 49. ($100. c 46.500 = $76.000 – $130.000 45. $39.500 44.com Also you can contact us on Skype: Ebooksmtb 18.000 – $50. $54.000 = $300. Unauthorized copying.000 – $60.24 Test Bank for Intermediate Accounting.000. distribution.000 × 30%) + ($270.000 – $150.000 – $30.000 42.000) × 30% = $54. a ($160. Item Ans. d 44.000 × 30% = $6. c ($90.000 ($100.000 Copyright © 2013 John Wiley & Sons Canada.000.500.000 + $45. $45. c 42. ($140. Item Ans.000 × 25% = $112.000) × 30% = $198.com/ or contact us at Ebooksmtb@hotmail. d ($900. 41. d $270. For more Ebook's . while 100% of the dividends received were included as revenue for financial statement purposes. Ltd. This difference in pre-tax accounting income and taxable income will never reverse because present tax laws allow a corporation that owns shares in another Canadian corporation to exclude the dividends it receives from that corporation.com/ or contact us at Ebooksmtb@hotmail. Pre-tax accounting income and taxable income differ because dividends received from Canadian corporations were not included in Bee Corp. distribution. Aye Corp. For accounting purposes.25 EXERCISES Ex. 18-52 Permanent and reversible differences Explain whether each of the following independent situations should be treated as a reversible difference or a permanent difference. Cee Corp. Deductible temporary differences decrease taxable income in future years and cause a deferred tax asset to be recorded. which will result in taxable amounts or deductible amounts in future years. Reversible difference. the total amounts reported as gross profits for accounting purposes and for tax purposes will be equal over the life of a group of instalment receivables. Ex. Permanent difference. It is true such dividends are not subject to Part I (“regular” income tax) but they may be subject to Part IV tax] 3. 1. but deducted for income tax purposes only when paid.Solution Manual Please visit our website : http://www. [Note from author: this is not exactly correct. Assuming the estimate as to collectibility of instalment receivables is valid.’s taxable income. Taxable temporary differences increase taxable income in future years and cause a deferred tax liability to be recorded.’s estimated warranty costs (covering a three-year period) are expensed for accounting purposes at the time of sale. Solution 18-51 Temporary differences are differences between the tax base of an asset or liability and its reported amount in the financial statements. Unauthorized copying. even though they are recognized as income for accounting purposes. Reversible difference.Test Bank .needbook1. 2. 2. The deferred tax liability will be reduced as the receivables are collected. reports revenue from instalment sales on the accrual basis. For income tax purposes it reports the revenues by the instalment method. Solution 18-52 1. 18-51 Temporary differences Explain the difference between a taxable temporary difference and a deductible temporary difference. The time lag between the accrual for accounting purposes and the recognition for tax purposes will increase the deferred tax liability as long as instalment sales are level or increasing. The full estimated three years of warranty expense reduces the Copyright © 2013 John Wiley & Sons Canada.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18. but will not increase taxable income by the amount of future gross profits until cash is collected in subsequent years. This difference in the timing of revenue recognition between pre-tax accounting income and taxable income will initially increase pre-tax accounting income. 3. deferring recognition of gross profit until cash is collected. Thus there are no tax consequences for such dividends. or transmission of this page is prohibited . Premiums paid on life insurance of officers (company is the beneficiary) 11. deferred tax liability 6. Long-term construction contracts 10. deferred tax asset 3. the total amounts deducted for accounting and for tax purposes will be equal over the three-year period. reverses and reduces taxable income without affecting pre-tax accounting income. Reversible difference. 18-53 Permanent and reversible differences Listed below are items that are treated differently for accounting purposes than they are for tax purposes. Membership costs for executives at a local golf club 4. in later years. Reversible difference. deferred tax asset 5. deferred tax liability 8. Penalty assessed by CRA for late submission of income tax return Solution 18-53 1. This is an example of an expense that. Advance rental receipts 3.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 18. indicate whether they will create deferred tax assets or deferred tax liabilities. Permanent difference 11.Solution Manual Please visit our website : http://www. Reversible difference. Indicate whether the items are permanent differences or reversible differences. in the first year. Excess CCA over accounting depreciation 9. deferred tax liability 9. distribution. Instalment sales 8.Test Bank . Estimated future warranty costs 5. Reversible difference. Ltd. Permanent difference 4. Reversible difference. For more Ebook's . Assuming the warranty estimate is valid.needbook1. deferred tax liability 10. Investments accounted for by the equity method 2. Reversible difference. reduces pre-tax accounting income more than it does the taxable income and. Ex. deferred tax liability 2. Reversible difference. but will reduce taxable income in varying amounts each year as the costs are paid. Unauthorized copying. Excess of pension contributions over pension expense 6. Permanent difference Copyright © 2013 John Wiley & Sons Canada. Permanent difference 7. For reversible differences. Tenth Canadian Edition current year's pre-tax accounting income. Expenses incurred in obtaining tax-exempt revenue 7. 1. or transmission of this page is prohibited .26 Test Bank for Intermediate Accounting. . Montana uses straight-line depreciation over a ten-year life (no residual value)..000...000 Permanent differences Golf dues (add back) .... Solution 18-55 a..... They result in future deductible amounts... Revenues or gains taxable after they are recognized in pre-tax accounting income...000.. prepaid expenses............. b.. Ex..000... Montana uses CCA at 14% for 2014... Pre-tax accounting income is $250.Test Bank .. Unauthorized copying.. For tax purposes..... Prepare the required adjusting journal entries to record income taxes for 2014.. Expenses or losses deductible before they are recognized in pre-tax accounting income... Gross profit on instalment sales recorded on the books was $200....... (12.com/ or contact us at [email protected] Ex... (50. 3........ Machinery was acquired in January 2014 for $300.000 – $30..... The enacted income tax rate is 25%.000) Reversible differences Instalment sales ($200. Instructions a.... Warranty repair costs paid during 2014 were $13.................... For each type: indicate the cause of the difference.000.. give some examples.. 6.. Revenues or gains taxable before they are recognized in pre-tax accounting income..600.... 5............ Golf club dues were $3........ estimated lawsuit losses..needbook1..com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.......800 Dividends (deduct) ..000) ........... (9.000) CCA ($42. and the equity method of accounting for investments.......... Gross profit from collections of instalment receivables was $150.000) Warranty expense ($19... distribution... Examples are instalment sales........ Prepare a schedule (starting with pre-tax accounting income) to calculate taxable income...... They result in future deductible amounts................. The estimated warranty liability related to 2014 sales was $19. Examples are warranty expenses.Solution Manual Please visit our website : http://www.........000 Copyright © 2013 John Wiley & Sons Canada... 2.......000) .... $250...... Dividends received from a Canadian corporation were $9..... For more Ebook's . Expenses or losses deductible after they are recognized in pre-tax accounting income.. show the following data for calendar 2014: 1.. 2... Examples are subscriptions received in advance and rents received in advance........ long-term construction contracts.........800........... Ltd..000.. and pension funding in excess of pension expense... 6... Solution 18-54 1............ or transmission of this page is prohibited . 4........ 3.......600). 18-54 Reversible differences There are four types of reversible differences... They result in future taxable amounts.. Pre-tax financial income ...... 18-55 Calculation of taxable income The records for Montana Inc.. and unrealized losses on investments....... Examples are the use of CCA for tax purposes..............600 – $13.. The remainder will be paid in 2015... and indicate whether the difference will create a taxable or deductible amount in the future.. 4............ 3.. They result in future taxable amounts.000 – $150......600... ... Prepare a schedule of the future taxable and deductible amounts.....000 Income Tax Payable .000 will be deductible in 2015...........200 Income Tax Payable 25% × $188... Unauthorized copying..Test Bank ....... at the end of 2014...........000 Use of the depreciable assets will result in taxable amounts of $200........... Current Tax Expense ...........com Also you can contact us on Skype: Ebooksmtb 18...... 240. its first year of operations..........000 Taxable income $200....000 600......................000 x 30% ...... Instructions a..........com/ or contact us at [email protected] Excess CCA claimed for tax purposes (600....000 Deferred Tax Expense ............800 b...000 in 2016.....000) ........ at the end of 2014... and $70.. prepared a reconciliation between pre-tax accounting income and taxable income as follows: Pre-tax accounting income $300. $200.... distribution..000 Deferred Tax Asset 800............Solution Manual Please visit our website : http://www.......... 2015 2016 2017 Total Future taxable (deductible) amounts Warranties $(530......... Ltd............ 180......000 in each of the next three years....... Prepare the required adjusting journal entries to record income taxes for 2014..............................000 Ex.......... 60..........000 Estimated warranty expenses of $530............ Tenth Canadian Edition Taxable income ..........000 b..... 18-56 Future income taxes Nevada Corp.. The enacted tax rate is 30% and is not expected to change....000 Deferred Tax Asset 25% × $6......... 15.........000) $(70.000 in each of the next Copyright © 2013 John Wiley & Sons Canada... 150. 18-57 Deferred income taxes Nebraska Ltd.............000) Estimated expenses deductible when paid 500.............. 14...000 Estimated warranty expenses deductible when paid 800.............000) $(800......000) Taxable income $500..................... Solution 18-56 a... 150.needbook1..... 47.. 47....000 x 30% ..........000 .........200 Deferred Tax Expense . The use of the depreciable assets will result in taxable amounts of $200.......000 × 30% .....000 + $12.....000 in 2017. or transmission of this page is prohibited ........ prepared a reconciliation between pre-tax accounting income and taxable income as follows: Pre-tax accounting income $300.......800 ....000) Excess CCA 200.......000 Deferred Tax Liability $600. Current Tax Expense $500...500 Deferred Tax Liability 25% × ($50....... For more Ebook's ...... $188........000 200.. b.000) $(200.......................... 1... its first year of operations..........000 200......500 Ex..000 Excess CCA (600...............28 Test Bank for Intermediate Accounting.................................................. . Ltd...........000 will be deductible in 2017 when settlement is expected to be made.000 × 25% ....000 loss for tax purposes........ when should a deferred tax asset be recognized? Solution 18-58 a.........000 $600....... Assume that...000 × 25% .... 18-59 Taxable loss carryforward without valuation allowance (IFRS) In 2014..... Under IFRS.....Test Bank .... in 2015............ The enacted tax rate is 25% and is not expected to change.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18... Note that IFRS does not use a valuation account (although ASPE does).000) b. Solution 18-57 a..... 150.........000) (500. reported a $500. Hampshire’s management thought that it was probable that the loss carryforward would not be realized in the near future. 2015 2016 2017 Total Future taxable (deductible) amounts CCA $200............... Current Tax Expense $200...... However...000 Income Tax Payable .. Prepare the required adjusting journal entries to record income taxes for 2014........ However..... because it is a new company. Hampshire Inc.......000 Ex.. its first year of operations. b... The tax rate is 30%...000 Deferred Tax Liability $600. at the end of 2014......29 three years.......... Hampshire reports under IFRS.... b....... IFRS (IAS 12) permits a deferred tax asset to be recognized only to the extent that it is probable that it will be realized in the future...... For more Ebook's .. Instructions a.. management feels it is now probable that there will be future taxable incomes against which the 2014 loss could be applied. Hampshire reported $200.. What entries (if any) would be prepared in 2015 to record current and deferred taxes and to recognize the loss carryforward? Copyright © 2013 John Wiley & Sons Canada... b......000 $200............ distribution....... 50... or transmission of this page is prohibited ..... and is likely to remain at this rate for the foreseeable future.... What entries (if any) would be prepared in 2014 to record the loss carryforward? b.... Ex. Unauthorized copying.....Solution Manual Please visit our website : http://www.000 Deferred Tax Asset $500......000 Expenses (500. 18-58 Deferred tax asset a.. Prepare a schedule of the deferred taxable and deductible amounts.....000 Deferred Tax Expense .. 50.............000 $200.000 × 25% . Instructions a.......... by the end of 2015.com/ or contact us at [email protected].... A deferred tax asset is the future income tax consequences attributable to deductible temporary differences and loss carryforwards.000 taxable income.... The estimated expenses of $500. 125... 25... Describe a deferred tax asset... ........... its first year of operations............................000 Deferred Tax Benefit ....000 Ex................30 Test Bank for Intermediate Accounting..... reported a $200....................000 Future Income Tax Benefit .. that it is likely that the loss carryforward will not be realized in the near future............. What entries (if any) would be prepared in 2014 to record the loss carryforward? b........ in 2015.. 40.................. 90......................... 40.....com/ or contact us at [email protected] × 20%....................................................... However........000 × 30%) ................. Jersey chooses to use the valuation allowance method for loss carryforwards.......000 b........ Jersey reported $250................... at the end of 2014.....000 Future Income Tax Benefit ...000 Copyright © 2013 John Wiley & Sons Canada..... Tenth Canadian Edition Solution 18-59 a. 40........... Current Income Tax Expense $50....................................... Since management feels it is probable that the loss carryforward would not be realized in the near future.......000 Future Income Tax Expense ..... 60..000 Allowance to Reduce Future Income Tax: Asset to Expected Realizable Value .000 Future Income Tax Expense ..000 Allowance to Reduce Future Income Tax Asset to Expected Realizable Value .......................................000 Deferred Tax Asset ................000 Income Tax Payable .............. Jersey Inc....... Jersey is a private corporation reporting under ASPE................ b...... 90. 60.. 40............000 Deferred Tax Benefit ($300............ The tax rate is 20%...................000 Future Income Tax Asset .. 10..................Solution Manual Please visit our website : http://www.. Ltd................ 40. 40..... or transmission of this page is prohibited ...... Assume Jersey’s management thinks..... distribution................000 × 20% ...................................... Current Tax Expense ($200.... 10................... no journal entry is required.000 loss for tax purposes....000 × 30%) ......... Future Income Tax Asset $200. Unauthorized copying..... For more Ebook's ..............com Also you can contact us on Skype: Ebooksmtb 18..... Instructions a....... 40......................000 taxable income..................... What entries (if any) would be prepared in 2015 to record the current and future income taxes and to recognize the loss carryforward? Solution 18-60 a.............. 40..... and is likely to remain at this rate for the foreseeable future..needbook1...Test Bank ..... 18-60 Taxable loss carryforward with valuation allowance (ASPE) In 2014.. Pr. for calendar 2014. 18-61 Taxable income and accounting income Explain the difference between accounting income and taxable income. deferred taxes. It is estimated that the lawsuit accrual will be paid in 2018.31 PROBLEMS Pr. Calculate the net deferred tax expense (benefit).000) Taxable income $260.com/ or contact us at Ebooksmtb@hotmail. Because tax legislation and GAAP have different objectives. its first year of operations. When the asset is recovered or liability is settled in the future for an amount equal to its carrying value. 18-63 Differences between accounting and taxable income and the effect on future income taxes The following differences apply to the reconciliation of accounting income and taxable income of Mexico Inc. For more Ebook's . Unauthorized copying. Solution 18-62 A taxable temporary difference is the difference between the carrying value of an asset or liability and its tax base.Solution Manual Please visit our website : http://www.000 1. b. taxable income of that future period will be increased. Ltd. 18-62 Taxable temporary difference Explain what a taxable temporary difference is and why a deferred tax liability is recognized. Prepare the adjusting journal entries to record income tax expense. 2.000) Lawsuit accrual 35. Prepare a schedule of future taxable and deductible amounts. Unearned rent revenue will be recognized as earned equally over a four year period. distribution. Taxable income is calculated in accordance with prescribed tax legislation and regulations. 3.000 Excess CCA (240. Since this is the first year of operations.000 Dividend income from Canadian corporations (10. Excess CCA will reverse equally over a four-year period. accounting income and taxable income often differ. Instructions a. 2015–2018. Pr. Solution 18-61 Accounting income is calculated in accordance with generally accepted accounting principles. Pre-tax accounting income $450. there is no beginning deferred tax asset or liability. Prepare a schedule of any deferred tax asset and/or deferred tax liability. d. the future income tax consequences of these taxable amounts are recognized in the current period as a deferred tax liability.Test Bank . 2015– 2018.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.needbook1.000 Unearned rent revenue deferred on the books but correctly included in taxable income 25. The enacted income tax rate is 30% for all years. or transmission of this page is prohibited . Because taxes arise in the future as a result of reversible differences existing at the statement of financial position date. and Copyright © 2013 John Wiley & Sons Canada. c. .250) (25.. or transmission of this page is prohibited ..000) b..000 2016 200..... distribution.000) $72.......250) (6.... 3. Year Taxable Income 2014 $250.com/ or contact us at Ebooksmtb@hotmail... On January 2...000 Deferred Tax Asset ........... b.. 2015 2016 2017 2018 Total Future taxable (deductible) amounts: CCA $60.... Ltd..000 Income Tax Payable ... 2015.. On January 2........com Also you can contact us on Skype: Ebooksmtb 18.........250) (6.....000 Lawsuit (35.......000 Deferred Tax Liability .....000 was collected in advance for the rental of a building for three years....... The equipment had an estimated service life of 5 years and no residual value. Prepare a schedule comparing depreciation for book purposes with CCA for tax purposes....needbook1..000.......... but two-thirds of the $210... Current Tax Expense ($260...... 78......... Future Taxable (Deductible) Deferred Tax Reversible Differences Amounts Tax Rate Asset Liability CCA $240........000 $(18.....Solution Manual Please visit our website : http://www.. equipment was purchased for $500.000) (35...........000 Lawsuit (35.000 30% $72........000 x 30%) .... Deferred tax expense $72.Test Bank . d.000 Deferred Tax Expense . Determine the deferred tax asset or liability at the end of 2014. Instructions a.... 18-64 Multiple reversible differences The following information is available for the first three years of operations for York Corporation: 1... 18.... Unauthorized copying...... c....000 2015 180.....000) Net deferred tax expense $54.........500) Unearned rent (25.. 54.. 72.... For more Ebook's .....000 $60..... Tenth Canadian Edition income taxes payable for 2014. The enacted tax rate is 40% for all years......... 4...000 Pr...000 $60.............000 $240.000 was reported as unearned revenue at December 31. The entire $210......... Prepare a schedule of the deferred tax asset and/or liability at the end of 2015.. 2015 for book purposes..000) 30% ( 7..000) 30% $(10.000 2......500) Totals $180. 78............... Solution 18-63 a.................000 Deferred tax benefit (18... 2014......000 c.......000) Unearned rent (6......000 d... $210..000 was included in taxable income in 2015...... Prepare a schedule of future taxable and deductible amounts at the end of 2015...000 $60..32 Test Bank for Intermediate Accounting... Straight-line depreciation is used for book purposes and CCA at 30% is used for tax purposes (subject to the half year rule for the first year).. Copyright © 2013 John Wiley & Sons Canada...250) (6....... of 2015 (10.500) $10...042 (102...000 43.500) 2016 100.000) f.. Calculate the net deferred tax expense or benefit for 2015.. Ltd..267 ($102.. deferred taxes..000) d.... 72....... 2015 2016 2017 2018 Remainder Total Future taxable (deductible) amounts: CCA ($27...267 Remainder -0..000 Copyright © 2013 John Wiley & Sons Canada......000 127...525 $56.... Future Taxable (Deductible) Tax Deferred tax Reversible Differences Amounts Rate Asset Liability CCA $ 2..000) (140.Solution Manual Please visit our website : http://www. 72.000) Totals $ (137. c.000 Deferred tax asset: $25... 102....042) $500. Depreciation for Book CCA for Reversible Year Purposes Tax Purposes Difference 2014 $100...Test Bank . of 2015 -0- Deferred tax (benefit) $(56.. Prepare the adjusting journal entries to record income tax expense...500 Rent (70.000) Deferred tax expense $ 11.042) $2.000 89.000) Deferred tax liability at end of 2015 $ 1.. For more Ebook's .000) Deferred tax expense 11.000 $ -0- b..000 × 40% = $10...000 Income Tax Payable .733 56. and income tax payable for 2015.. or transmission of this page is prohibited ..750 $37...000 $ 75.525 $56.000 Net deferred tax (benefit) for 2015 $(45....com Also you can contact us on Skype: Ebooksmtb Income Taxes 18..000 Deferred tax asset at beg.. f.33 e......042) $25...525 2018 100. Current Tax Expense ($180..000 x 40%) ..000 e....000) (70...475 37. distribution..... Unauthorized copying..000 $500..750 2017 100...000 Deferred tax (benefit) $(56..000) 40% $(56..250 10..000 Rent (140....000 62. Deferred tax asset at end of 2015 $(56.000 at the end of 2014. Solution 18-64 a.....000) Deferred tax asset at beg...750 $37..500) $(56.needbook1.000) $1.. 2016 2017 2018 Remainder Total Future taxable (deductible) amounts: CCA $10..500 (27..000 $ 25......000 2015 100.500 40% $1.com/ or contact us at [email protected] ($102.. ..............000 Pr........000 174.........Test Bank ..... 42........ 7..000 on January 2... assuming that the enacted income tax rate for 2014 is 30% but that in the middle of 2015........ Pre-tax accounting incomes and taxable incomes are as follows: 2014 2015 2016 Pre-tax accounting income $124...000 Income Tax Payable ...... 18-65 Interperiod tax allocation with change in enacted tax rates Carolina Corp....000 CCA 84...000 $140. distribution...Solution Manual Please visit our website : http://www....................000 × 30%) ....34 Test Bank for Intermediate Accounting..... Instructions a........com/ or contact us at Ebooksmtb@hotmail......... Parliament raises the income tax rate to 35%.......000 140........... 2014.......000 Deferred Tax liability ....com Also you can contact us on Skype: Ebooksmtb 18.................................... etc. Prepare the adjusting journal entries to record income taxes for all three years (expense.. Tenth Canadian Edition Deferred Tax Asset .). 52.....000 x 30%) ............ retroactive to the beginning of 2015..200 Deferred Tax Liability ($24....................................................................000 Taxable income 100.000) $ -0. Prepare the adjusting journal entries to record income taxes for all three years (expense........ assuming that the enacted income tax rate for all three years is 30%.............000 $60........... or transmission of this page is prohibited .. Unauthorized copying...........................................000 Reversible difference $(24... etc.................... 42......000 x 30%) .. 45.......... 1...000 180......000 x 30%) .......000 The reversible difference between pre-tax accounting income and taxable income is due solely to the use of CCA for tax purposes........ 10....................................000 2016 Current Tax Expense ($174.. its first day of operations..200 2015 Current Tax Expense ($140.......200 Income Tax Payable .000 $60.........000 $180.............. 7..............................000 Income Tax Payable .............000 $150...... 56.............. b............. 30............... purchased equipment for $180............ For more Ebook's ......000 $ -0- 2014 Current Tax Expense ($100.. deferred tax assets/liabilities....000 60..........200 Copyright © 2013 John Wiley & Sons Canada...200 Deferred Tax Liability .............................. 7............... Ltd...000 36........ 52.... deferred tax assets/liabilities.......000 × 30%) ..... 2014 2015 2016 Total Book depreciation $ 60...........000 Deferred Tax Benefit ................000 Deferred Tax asset..........needbook1.............. the equipment will be depreciated straight-line over three years with no residual value........ For book purposes...000 Deferred Tax Expense ($24......)............... $24.. 30..... Solution 18-65 a. . The enacted tax rates at December 31..900 Deferred Tax Liability ($24...................... 2014 Current Tax Expense ($100.. 2014 are: 2014 30% 2016 40% 2015 35% 2017 40% Copyright © 2013 John Wiley & Sons Canada... 3..000 will be earned equally during 2015 and 2016.000 Income Tax Payable....000 × 30%) ...000 was included in taxable income in 2014......... Its pre-tax accounting income for the first two years was as follows: 2014 $ 80.......... 60... 30..000 severance pay... This will be paid $10........000 The following items caused the only differences between pre-tax accounting income and taxable income.....000 Deferred tax @ 30% 7.400 Adjustment required $ 1............. For more Ebook's ..... and adheres to IFRS............... 2.................. starting in 2015.............. 60.... The 2015 payment was made as scheduled...... 1...needbook1......000 Deferred Tax Expense ($24...400 Deferred Tax Expense .. 8......................................000 2015 150.................... For tax purposes........... 49. of this amount......200 Deferred Tax Liability ...... The full $75...........................200* *Future taxable amount $24..900 Income Tax Payable.... 30.. the company terminated a top executive and agreed to pay $30...... or transmission of this page is prohibited ............... distribution..000 was expensed in 2015 for book purposes.......................................... the company collected $75.200 Deferred Tax Liability ................ 1................... The entire $30..000 Income Tax Payable.200 2016 Current Tax Expense ($174..................Solution Manual Please visit our website : http://www....000 × 30%) ........000 × 35%) ................................. 7...000 Deferred Tax Expense .35 Deferred Tax Expense .....200 2015 Current Tax Expense ($140...000 × 35%) ............ Unauthorized copying.........000 each year for three years..................... 7...... 8.....000 in rental revenue....... In 2014................. 1..000 was earned in 2014..com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.............. the other $50.........000 a year for membership in a local golf club......... 7................................... Ltd......000 x 35%) ...200 b......................200 Deferred tax @ 35% 8............. In 2015...... began operations on January 1...... 18-66 Deferred tax asset Dakota Ltd.......400 Pr... The company pays $5.... $25...............com/ or contact us at [email protected] Bank .. 2014... the severance pay is deductible only when it is paid............. 49... .. Tenth Canadian Edition Instructions a..... Prepare the adjusting journal entries to record income taxes for 2015 (both current and deferred)...750) $(10.........000) $(10. 2014 2015 Pre-tax accounting income $80..needbook1....... 18...000 85.........750 c.......000 × 30%) ....000) Severance pay -0.000) (20....... or transmission of this page is prohibited .000) Tax rate 35% 40% Future income tax (asset) liability $ (8.. d.000 $150...000) Severance pay (10.000) Totals $(45..Solution Manual Please visit our website : http://www.000 b.000) $(18... Show how the deferred tax asset or liability should be reported on the statement of financial position at December 31....000 Permanent difference: Golf club membership 5......000) Deferred tax asset at beg..000 Reversible differences: Rent 50......... c. Calculate the deferred tax asset and/or liability at the end of 2014.........000) $(50......000) $(18......... 2016 2017 Total Future taxable (deductible) amounts: Rent $(25......... 18.....000) 40% (8... b... Prepare a schedule of future taxable and deductible amounts at the end of 2015................. 40... Calculate taxable income for 2014 and 2015. For more Ebook's .. g...000) 40% $(10.com/ or contact us at Ebooksmtb@hotmail... Solution 18-66 a....500 Deferred Tax Asset ..... Calculate the deferred tax expense (benefit) for 2015..............750) at end of 2014 Current Tax Expense ($135..000 (25.............. distribution.... 40..... Unauthorized copying....000) e.000 5... Prepare a schedule of the deferred tax asset and/or liability at the end of 2015.000 Taxable income $135..... e. 2015 2016 Total Future taxable (deductible) amounts: Rent $(25.Test Bank .com Also you can contact us on Skype: Ebooksmtb 18.500 Income Tax Payable ...000) d....36 Test Bank for Intermediate Accounting.... Ltd.000) $(25.. f.. 2015......000) $(25.. 20....000) Severance pay (20...... and prepare the adjusting journal entries to record income taxes for 2014.........000 155.750 Deferred Tax Benefit ...000 $150. Future Taxable (Deductible) Tax Deferred tax Reversible Difference Amounts Rate Asset Liability Rent $(25...... Deferred tax asset at end of 2015 $(18.... of 2015 (18.750) Copyright © 2013 John Wiley & Sons Canada... .. d.....000........ The accounting income before tax included $50. 6..000 Pr........... For more Ebook's ..... They expect that the adjusted warranty liability balance at the end of 2014 to be spent evenly over 2015 and 2016...... 1......... Prepare the bottom section of the 2014 income statement..... 750 g.....000....................... Unauthorized copying.. 500... Ohio sold 5. b... Instructions a.....000 Copyright © 2013 John Wiley & Sons Canada... beginning with income before income taxes................... Current Tax Expense ($150.............000........... At the end of 2013. 7................000 in entertainment expenses.......... of which only 50% can be deducted for income tax purposes...... the enacted income tax rate went down from 40% to 35%.. 5......000 × 35%) .. is in the process of preparing its financial statements for its second year of operations ending December 31..500.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.....000.........000 units of the product and paid out $200........ 4.......com/ or contact us at [email protected]...... Ltd. Pertinent information follows: 1....37 Deferred income tax (benefit) for 2015 $ (750) f....... Ohio sells a product with a 2-year warranty...... Reconcile accounting income before tax to taxable income for 2014.... 2014? Solution Pr 18-67 a. c....500 Income Tax Payable ....... At the beginning of 2014.....500.... 2.000 in warranty costs...000 × 40%) ......... 52. distribution.......... but which must be reported as 2014 revenue for income tax purposes. What are the amounts and the statement of financial position classifications of the future income tax asset and liability accounts at December 31.......... 52...... $18..200... The beginning balance of the future income tax asset account related to the warranty was $160.....500 Deferred Tax Expense .....................000 Add back 50% of entertainment expense .... On December 31.000 and CCA claimed will be $250.. the company received three years advance rent income (for 2015 through 2017) of $90......... 750 Deferred Tax Asset ..... Reconciliation: Accounting income before tax .. Prepare the required income tax related journal entries for 2014..... Depreciation on property.. 2014. the book value of the PPE was $1.. Accounting income before tax is $1..... 25........ 3.............. The estimated warranty cost is $100 per unit.needbook1. Ohio had also expected the adjusted warranty liability amount to be paid evenly over 2014 and 2015.. the balance in the warranty liability account was $400...........000. a private corporation which follows ASPE.... The beginning balance of the future income tax liability account related to the PPE was $60. At the beginning of 2014.. which was recorded as unearned revenue for book purposes. 18-67 Comprehensive income tax situation with multiple differences (ASPE) Ohio Ltd.... Noncurrent assets: Deferred Tax Asset ($45....Solution Manual Please visit our website : http://www. 2014..... plant and equipment (PPE) in the books is $150...000... During 2014......000 Warranty expense ...... or transmission of this page is prohibited .............. At the beginning of the year.......Test Bank ........ ........................................... Bottom section of the income statement for 2014: Income before tax ........... Ltd............................Test Bank ..........................000 CCA for tax purpose ....................000 Enacted tax rate in 2013 ..................................... 635......... 700........ 27............250 Income taxes payable ........................ 40% Reversible difference due to PPE in 2013 .............. 150.....................................................................250 Future ................. 300..... or transmission of this page is prohibited ............................................................................................................ 635................ $ 953......000 Increase in future income tax asset in 2014 .......... 250............................... 160....... Unauthorized copying...... 1................................................. 635.......... we need to calculate the change in deferred tax assets and liabilities........................................... Tenth Canadian Edition Warranty costs allowable .................................. 250................................250) Net income ......500 Future income taxes related to warranty Reversible difference due to warranty in 2013 ........................................ 1.000 300.......................................................... 90....................................................000 Current tax expense ........ 200...500 Future income tax liability............................................. For more Ebook's .............. Statement of financial position presentation of future income tax accounts: Copyright © 2013 John Wiley & Sons Canada.............................38 Test Bank for Intermediate Accounting..................................................000 Enacted tax rate in 2013 ....... 2014 ................................. 35% Increase in future income tax asset due to unearned rent . 35% Future income tax asset Dec 31....750 d.................. distribution........... 35% Future income tax liability Dec 31...................com Also you can contact us on Skype: Ebooksmtb 18..................... 100...........250 b......................................000 Depreciation expense ......................000 Income tax expense Current .............000 Accumulated reversible differences to end of 2014 .........250 c.... 116............000) (546........ 245......................................000) Rent received in advance ... Before recording the journal entries..................000 Tax payable ............................................000 (100...000 Taxable income for 2014 ..............000 Reversible difference due to warranty in 2014 .. 89........................ 2013 ................... Future income taxes related to PPE Future income tax liability Dec 31.....................000 Enacted tax rate .................000 Enacted tax rate in 2014 ... 40% Future income tax asset Dec 31...............000 Future income taxes related to unearned rent Rent received in advance .needbook1..500 Increase in future income tax liability in 2014 ...............500................................. 150....................000 Accumulated reversible differences to end of 2014 ............................................................................... 60............000 Enacted tax rate in 2014 ............... 90.................. 85.................. 31....... (89.500 Future income tax benefit.... 2014 ....000 Reversible difference due to PPE in 2014 .com/ or contact us at Ebooksmtb@hotmail.................. 27...................... 400......................................815.......................................................... 87........500 Journal entries: Future income tax asset ..................................................... 635............Solution Manual Please visit our website : http://www............................................................. 2013 .......................................... 000 Copyright © 2013 John Wiley & Sons Canada.500 Future income tax liability 87.com/ or contact us at [email protected] Current Assets Future income tax asset ((245.000 x ½) + (31.500 56.needbook1.500 x 1÷3)) = 133.Solution Manual Please visit our website : http://www.Test Bank . or transmission of this page is prohibited . Ltd.com Also you can contact us on Skype: Ebooksmtb Income Taxes 18.500 x 2÷3)) = 143.000 x ½) + (31.000 Non-Current Assets Future income tax asset ((245. Unauthorized copying. For more Ebook's . distribution. used to create derivative works. Copyright © 2013 John Wiley & Sons Canada. reproduced. Ltd.com/ or contact us at Ebooksmtb@hotmail. or transmission of this page is prohibited . recording. This manual is furnished under licence and may be used only in accordance with the terms of such licence. distribution.Test Bank . stored in a retrieval system. or related companies. modified.40 Test Bank for Intermediate Accounting. Ltd.needbook1. or otherwise without the prior written permission of John Wiley & Sons Canada. or transmitted in any form or by any means. photocopying. The data contained in these files are protected by copyright. The material provided herein may not be downloaded. made available on a network.Solution Manual Please visit our website : http://www. electronic. scanning. For more Ebook's . mechanical.com Also you can contact us on Skype: Ebooksmtb 18. Ltd. Unauthorized copying. Tenth Canadian Edition LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. All rights reserved. 12 M 33. 12 M 35.7 M *84. 4 M 18. 12 M Problems 81.4 E 10. 3 M 15. 7 M 25.9 M Multiple Choice–Computational 31. 7 M *78. 7 H 43. 8 M 2. 12 M *80.7 M 62. 3 M 13.Test Bank . 1. 7 M *76. Unauthorized copying. 7 M 42. 12 M 59. 12 H *55. 2 E 11. distribution. 7 M *66. 4 H 17.9 M 4. 7 E 60. 4 M 20. 4. 7 M 26. 11 M *53. 5 M 23. 12 H 70. 4. 4 M 61.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb CHAPTER 19 PENSIONS AND OTHER EMPLOYEE FUTURE BENEFITS SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 12 M 32. 1 M 9. 7 M *30.5 M 74. 4 M 72. 3 E 12. 12 M 82. For more Ebook's . or transmission of this page is prohibited . 5 M 39.7 M *75. 12 H 34. 12 M 69. 7 M 45. 7 M 8. 7 M 28. 4. 5 M 22. 7 M 41. 7 M *85. 12 M Exercises 68. 7 M *48. 7 M 27. 7. 12 M Note: E = Easy M = Medium H = Hard *This topic is dealt with in an Appendix to the chapter. 7 E *46. 12 M 36. 6 E 24. 4. 4. 7 M *29. 5 M 64. 4 M 19.Solution Manual Please visit our website : http://www. 7 M 40. 12 M 7. 12 M Multiple Choice–CPA Adapted 58. 12 M 6.7 M 83. 7 H *49. 12 H 37. 7 M *51. 12 H *54.5. 12 M *79. 4 M 21. 8 M 3. 7 E 65. 5 M 38. 9 H 5. 5 M 63. 4. 12 M 71. 7 H *47.5. 7 M *77. 3 H 16.5 M 73. 12 H *57. Copyright © 2013 John Wiley & Sons Canada. 7 M *67. 7 M *52. 8. 12 H *56. 7 E 44.6. Ltd. 3 M 14.needbook1. 7 M *50. MC 31. MC 60. Pr Learning Objective 7 17. Pr Learning Objective 8 25. Pr 18. Pr *48. MC 13. MC 11. MC Learning Objective 12 *29. Ex 81. MC 45. Pr 9. MC 5. MC 38. MC 34. MC 39. MC *54. Pr 19. MC *50. MC *77. Copyright © 2013 John Wiley & Sons Canada. MC 59. Ex 22. MC 65. MC Learning Objective 3 4. Ex Note: MC = Multiple Choice Ex = Exercise Pr = Problem *This topic is dealt with in an Appendix to the chapter. MC 74.com/ or contact us at Ebooksmtb@hotmail. Ex *79. MC 59. MC 62. MC *76. MC 43. Ex 83. MC 37. MC *78.Solution Manual Please visit our website : http://www. or transmission of this page is prohibited . Ex *85. MC 27. MC 35. MC 2. Pr 10. MC 44. MC *66. MC 42. MC 64. MC *51. MC 72. MC *49. Unauthorized copying.com Also you can contact us on Skype: Ebooksmtb 19. Ex 81. MC 70. MC 26. Ltd. Pr Learning Objective 6 16. Ex *80. MC 70. MC 73. MC *53. MC *55. For more Ebook's . MC 82. MC 68.2 Test Bank for Intermediate Accounting. Ex 15. MC Learning Objective 9 24. MC 58.Test Bank . Ex 71. MC 71. MC Learning Objective 11 46. MC 40. MC 63. MC 23. MC *57. MC 32. distribution. MC 69. MC Learning Objective 2 3. MC 61. MC 7. Pr *47.needbook1. MC Learning Objective 4 2. Ex *84. Ex 82. Ex 71. MC 36. MC 24. MC *56. Ex Learning Objective 5 14. MC *75. MC 6. Ex *30. MC 41. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 1 1. Ex 20. MC 69. MC *52. Ex 21. MC *67. MC 8. MC 82. MC 81. MC 12. MC 27. more and more companies are moving toward defined contribution plans. for pensions. They are accounted for similar to a cash basis. and are reduced by pension benefits paid to retirees. calculate it. Explain what a benefit plan’s funded status is. In general. Defined contribution plans are plans that specify how contributions are determined rather than what benefits the individual will receive. Defined benefit plans whose benefits vest or accumulate typically provide for the benefits to be a function of the employee’s years of service and. together with post-retirement health care. in terms of both the number of employees and cost of benefits. basing the calculation of the deferred compensation amount on both vested and non-vested service using future salaries. Explain what the employer’s benefit obligation is. Plan assets are increased by company and employee contributions and the actual return that is earned on fund assets (including realized and unrealized gains and losses). accumulated benefit method. All items that change the plan assets and DBO with the exception of the Copyright © 2013 John Wiley & Sons Canada. results of operations. A plan’s funded status is the difference between the defined benefit obligation and the plan assets at a point in time.needbook1. interest cost. 6. The size of these plans. and identify what transactions and events change its amount. An actuary usually determines the required amounts. 4. Understand the importance of pensions from a business perspective.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19. and cash flows. Identify and explain what a defined benefit plan is and the related accounting issues. and by actuarial losses. 3. is often part of an employee’s overall compensation package. Unauthorized copying. and projected benefit method are three methods that could be used to measure companies’ obligations. identify alternative measures for this obligation. With the vast majority of defined benefit plans being underfunded. and prepare a continuity schedule of transactions and events that change its balance. For more Ebook's . the employer’s obligation for such a plan and the associated cost is accrued as an expense as the employee provides the service.3 CHAPTER STUDY OBJECTIVES 1. The funding approach specified by legislation is the measurement of the obligation under ASPE’s immediate recognition approach. Identify transactions and events that change benefit plan assets. or transmission of this page is prohibited . Ltd. has made their costs very large (on average) in relation to companies’ financial position. The third method is the one used to determine the defined benefit obligation. 2. distribution. The DBO is increased by current service cost.Solution Manual Please visit our website : http://www. Defined benefit plans specify the benefits that the employee is entitled to. The employer’s benefit obligation is the actuarial present value of the benefits that have been earned by employees for services they have provided up to the date of the statement of financial position. and calculate the balance of the assets.com/ or contact us at [email protected] Bank . plan amendments that usually increase employee entitlements for prior services. compensation level. 5. The vested benefit method. A pension plan. This last method is used under both IFRS and the deferral and amortization approach under ASPE. Identify and account for a defined contribution benefit plan. It is reduced by payment of pension benefits and by actuarial gains. It tells you the extent to which a company has a net obligation (underfunded) or a surplus (overfunded) relative to the benefits that are promised. major changes made in the plans. the defined Copyright © 2013 John Wiley & Sons Canada. (2) interest on the liability. 11. but with options within it. changes in the liabilities related to these benefits should be reflected in income. Unauthorized copying. 9. 10. Other long-term benefits include items such as paid absences for long service. and account for a defined benefit pension plan under the immediate recognition approach. IFRS requires the same recognition and measurement for these long-term benefits as for pension plans.Solution Manual Please visit our website : http://www. ASPE permits a choice of the immediate recognition approach or the deferral and amortization approach. unrestricted sabbaticals. With recent changes to IAS 19. prepare basic schedules. At the present time. IFRS requires the cost of the benefits to be recognized at the earlier of when the company can no longer withdraw an offer of employment and when it recognizes the related restructuring costs. and be able to read and understand such disclosures.needbook1.4 Test Bank for Intermediate Accounting. past service. the ABO. For termination benefits. Identify the components of pension expense. distribution. and the funded status and how this relates to the balance sheet account. For more Ebook's . pension costs relating to current service. ASPE still allows companies to use the deferral and amortization approach. 8. Identify differences between the IFRS and ASPE accounting for employee future benefits and what changes are expected in the near future. and other information related to help determine cash flows. all are immediately included in current expense in their entirety. Specifically. IAS 19 is broader based and covers more employee benefits than does CICA Handbook. or transmission of this page is prohibited . and long-term disability plans. Under IFRS. whereas IFRS permits only the former approach. most companies are expected to recognize the net defined benefit liability (or asset) on the statement of financial position with items such as current service cost. Part II. (4) past service costs. Section 3461.Test Bank . Actuarial gains and losses. such as reconciliations of changes in the DBO and plan assets. details of amounts included in net income. 7. Under ASPE. past service cost and interest on the DBO and plan assets recognized in net income. ASPE requires a description of the plans. short-term employee benefits are generally recognized (without discounting) at the amount expected to be paid in exchange for the services provided. The pension obligation amount is determined under a funding basis measure. underlying assumptions and sensitivity analysis. Under IFRS.com Also you can contact us on Skype: Ebooksmtb 19.com/ or contact us at Ebooksmtb@hotmail. and any return on plan assets excluding amounts included in the net interest on the net defined benefit obligation (asset). Identify the types of information required to be presented and disclosed for defined benefit plans. the fair value of the plan assets. (3) actual return on plan assets. Tenth Canadian Edition payments to retirees change the funded status. are recognized in OCI. Pension expense under the immediate recognition approach is a function of: (1) service cost. although this option is expected to be eliminated eventually. Under ASPE. Explain and apply basic calculations to determine current service cost. dates of the actuarial valuations. and remeasurement changes and actuarial gains and losses reported in OCI. Ltd. and net interest on the net defined benefit obligation are included in pension expense. and (5) net actuarial gains or losses. any non-pension defined benefit plans with benefits that vest or accumulate are accounted for in the same way as defined benefit pension plans. IFRS requires substantial information. Account for defined benefit plans with benefits that vest or accumulate other than pension plans. Items (1) to (3) are included in current expense entirely. Copyright © 2013 John Wiley & Sons Canada.Solution Manual Please visit our website : http://www. determine the pension plan accounts reported in the financial statements and explain their relationship to the funded status of the plan. and (5) net actuarial gain or loss. 12. Identify the components of pension benefit cost. and past service cost for a one-person defined benefit pension plan. (3) expected return on plan assets. The pension expense is reported in the income statement. according to the pension formula and using projected salaries.5 benefit obligation. The defined benefit obligation is the present value of the accumulated benefits earned to a point in time. while items (4) and (5) are usually recognized through a process of amortization.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19. or transmission of this page is prohibited . Ltd.com/ or contact us at Ebooksmtb@hotmail. Pension cost under the deferral and amortization approach is a function of: (1) service cost.needbook1. An accrued benefit liability or asset is reported in the balance sheet. distribution. Under the deferral and amortization approach. The unamortized balances of items (4) and (5) are reported in the notes to the financial statements. (4) past service costs. and account for a defined benefit pension plan when using the deferral and amortization approach under ASPE. Unauthorized copying.Test Bank . The current service cost is a calculation of the present value of the benefits earned by employees that is attributable to the current period. (2) interest on the liability. Past service cost is the present value of the additional benefits granted to employees in the case of a plan amendment. For more Ebook's . the balance is equal to the funded status adjusted for any unamortized past service costs and unamortized actuarial gains and losses. Nature of return on plan assets b 16. Post-employment benefits c 26. Unrecognized actuarial gains/losses using deferral and amortization approach. or transmission of this page is prohibited .6 Test Bank for Intermediate Accounting. Nature of plan assets b 15. Pension funding and pension expense recognition c 3. Recording/disclosure of post-employment benefit obligations c 28.Solution Manual Please visit our website : http://www. Accounting problems in pension plans d 8. Objective of accounting for defined benefit plans c 6. Employee future benefits d 2. Nature of a defined benefit plan b 5. Ltd.com Also you can contact us on Skype: Ebooksmtb 19. Application of immediate recognition approach c 19. Meaning of funding a pension plan a 7. Rationale for expensing past service costs using immediate recognition a 23. Definition of attribution period d 13. b 25. Plan funded status a 17. Characteristics of vested benefits b 11.com/ or contact us at Ebooksmtb@hotmail. Description c 1. G/L accounts under immediate recognition approach c 22. Definition of defined benefit obligation d 10. distribution. Disclosure of post-employment benefits b *29. Identify correct statement. Advantage of immediate recognition approach c 24. Main purpose of an actuary a 9. Recognition of net defined benefit asset a 21. Post-employment benefits b 27. Adjustment for actuarial valuations c 18.Test Bank . Unauthorized copying. Recognition of past service costs using immediate recognition approach b 20. Copyright © 2013 John Wiley & Sons Canada.needbook1. Nature of a defined contribution plan b 4. Tenth Canadian Edition MULTIPLE CHOICE—Conceptual Answer No. Corridor amortization *This topic is dealt with in an Appendix to the chapter. Increase in defined/accrued benefit obligation c 12. d *30. Definition of experience gain or loss a 14. For more Ebook's . Calculate fair value of plan assets. Calculate actual return on plan assets. Copyright © 2013 John Wiley & Sons Canada. Description b 58. c 35. c *53. Calculate interest cost. Calculate pension expense. For more Ebook's . Calculate pension expense. c 64.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.com/ or contact us at Ebooksmtb@hotmail. Calculate accrued benefit liability/asset.Test Bank . Calculate unexpected gain/loss. b 38. c *52. b *48. c 60. Calculate actuarial gain/loss. a 63. Calculate pension expense. b 33. Calculate defined benefit obligation. Description b 31. Calculate pension expense. Calculate unrecognized actuarial gain/loss to be amortized. b 39. Calculate pension expense. Unauthorized copying. b *54. a *55. c *50. MULTIPLE CHOICE—CPA Adapted Answer No. d 40. Calculate accrued benefit obligation. Calculate fair value of plan assets. d *49. b 61. Calculate actuarial gain/loss. d 36. Calculate pension expense. d 45. Calculate fair value of plan assets. a 65. Calculate fair value of plan assets. d *51. Calculate accrued pension liability/asset. Calculate defined benefit obligation. *This topic is dealt with in an Appendix to the chapter. a 37. Calculate pension expense. or transmission of this page is prohibited . Calculate net defined benefit liability/asset. Calculate accrued pension liability/asset. c *67.needbook1. a 32. b *57. Calculate net defined benefit liability/asset. c 43. Calculate defined benefit obligation. Nature of interest cost included in pension cost d 59. distribution. c 34. b 41. b *47. c *46. Calculate pension expense. Calculate fair value of plan assets. Calculate pension expense. Calculate net defined benefit liability/asset. Calculate corridor. Calculate pension expense. b *56. b 42. Calculate post-employment benefit expense. Calculate pension plan funded status. Calculate pension expense. b 44.Solution Manual Please visit our website : http://www. Reporting net defined benefit liability/asset d *66.7 MULTIPLE CHOICE—Computational Answer No. a 62. Ltd. P19-83 Preparation of a pension work sheet and pension entries *P19-84 Amortization of past service costs using EARSL *P19-85 Preparation of a pension work sheet and pension entries (deferral and amortization approach) *This topic is dealt with in an Appendix to the chapter. E19-74 Measuring the recording pension expense *E19-75 Corridor amortization *E19-76 Pension plan calculations and journal entries *E19-77 Corridor approach for amortization of actuarial gains and losses *E19-78 Pension reconciliation schedule *E19-79 Calculating and recording pension expense.8 Test Bank for Intermediate Accounting. P19-82 Calculating pension expense and funded status.Test Bank .needbook1. PROBLEMS Item Description P19-81 Measuring and recording pension expense.com Also you can contact us on Skype: Ebooksmtb 19. distribution. Ltd. *E19-80 Calculating accrued pension liability/asset. For more Ebook's .Solution Manual Please visit our website : http://www. Unauthorized copying. Tenth Canadian Edition EXERCISES Item Description E19-68 Pension accounting terminology E19-69 Pension asset terminology E19-70 Pension plan calculations E19-71 Pension plan calculations and journal entries E19-72 Approaches to accounting for pension expense E19-73 Measuring and recording pension expense. Copyright © 2013 John Wiley & Sons Canada. or transmission of this page is prohibited .com/ or contact us at Ebooksmtb@hotmail. d. d.9 MULTIPLE CHOICE—Conceptual 1. or less than the amount funded. c. c. The objective of accounting for defined benefit plans is to a. recognize the appropriate expense and liability over the accounting periods in which the related services are provided by the employees. pension expense must always equal the amount funded. The relationship between the amount funded and the amount reported for pension expense is that a.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19. For more Ebook's . calculate the actual amounts employees will receive at retirement. d. determine which employees’ rights have vested. Unauthorized copying. In a defined benefit plan. ensures that pension expense and the cash funding amount will be different.Test Bank . 5. the term “funding” refers to a. pension expense will be more than the amount funded. making periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims. b. or transmission of this page is prohibited . b. being responsible for the assets of the pension plan.Solution Manual Please visit our website : http://www. 3. c. 4. b. Ltd. c.needbook1. defines the benefits that the employee will receive at retirement. defines the benefits that the employee will receive at retirement. post-employment pension plans. for the employer. b. no promise is made concerning the ultimate benefits to be paid out to the employees. d. In a defined contribution plan. c. regular vacation pay. calculating the amount to report for pension expense. a formula is used that a. long-term severance benefits. 6. ensures that employers are at risk to make sure funds are available at retirement. defines the contribution the employer is to make. unrestricted sabbatical leaves. 2. c. distribution. requires that pension expense and the cash funding amount to be the same. determining the defined benefit obligation. pension expense will be less than the amount funded.com/ or contact us at Ebooksmtb@hotmail. a formula is used that a. b. b. equal to. pension expense may be greater than. d. requires an employer to contribute a certain sum each period based on the formula. In a defined benefit plan. calculate the current service cost. Employee future benefits do NOT include a. d. Copyright © 2013 John Wiley & Sons Canada. requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee. or transmission of this page is prohibited . additional contributions made to the pension fund by the employees.com Also you can contact us on Skype: Ebooksmtb 19. the defined benefit obligation for accounting purposes is a. calculate the current pension cost. Under IFRS. additional contributions made to the pension fund by the employer. d. current service cost and past service costs. the hire date and the date the employee reaches 65. 9. They are lost when the employee is terminated. For more Ebook's . b. distribution. b. the vesting date and the date the employee becomes eligible for full benefits. They usually require a certain minimum number of years of service. c. 10. b. 11.10 Test Bank for Intermediate Accounting. d. the actuary’s main purpose is to a. measuring the amount of pension obligation. Ltd. Accounting problems for all pension plans may include all the following EXCEPT a. ensure the employer has established an appropriate funding pattern to meet its pension obligations. Unauthorized copying. For defined benefit plans. the hire date and the vesting date. c. with the benefits measured using employees’ future salary levels. the present value of vested and non-vested benefits earned to the statement of financial position date. reduced payments made to retirees. Which statement is INCORRECT regarding vested benefits? a. They are not contingent upon additional service under the plan.Solution Manual Please visit our website : http://www. The defined benefit obligation (accrued benefit obligation under ASPE) is always increased by a. b.Test Bank . c. make predictions about mortality rates and employee turnover. the present value of vested benefits only earned to the statement of financial position date. the present value of vested and non-vested benefits earned to the statement of financial position date. 13. with the benefits measured using employees’ future salary levels. d. c. current service cost and interest cost. calculate the interest cost of the pension plan. interest cost and actuarial gains.com/ or contact us at Ebooksmtb@hotmail. d. allocating the cost of the plan to the proper periods. 12. Tenth Canadian Edition 7. 8. determining the level of individual premiums. the attribution period for employees is the time between a. the hire date and the date the employee becomes eligible for full benefits.needbook1. d. In pension accounting. c. c. with the benefits measured using employees’ future salary levels. An experience gain or loss is a. c. d. Copyright © 2013 John Wiley & Sons Canada. b. The employee is entitled to receive such benefits even if s/he is fired. with the benefits measured using employees’ current salary levels. reporting the status and effects of the plan in the financial statements. b. b. current service cost and payments to retirees. the present value of non-vested benefits only earned to the statement of financial position date. d. plus benefits paid to retirees.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19. b. a contra account to the net defined benefit liability/asset. includes interest. an accrued actuarial liability. Pension plan assets include a. c. 17. net income.Solution Manual Please visit our website : http://www. Ltd. For more Ebook's . Under IFRS. contributions made by the employer and the employees in a contributory pension plan. return on plan assets. d. c. and gains or losses from the sale of investments. any difference between the pension expense and the payments into the fund should be reflected in a. 15. less the actual return.com/ or contact us at [email protected]. funded status. Using the immediate recognition approach. the defined benefit obligation is adjusted to its most recent actuarial valuation. plan assets. 16. pension expense of the current period. a note to the financial statements only. either other comprehensive income or net income. c. the difference between what has occurred and the previous actuarial assumptions. In applying the immediate recognition approach under IFRS. is the change in the fair value of the plan assets during the year. or transmission of this page is prohibited . actual return. d. the net defined benefit liability/asset. pension expense of past periods. retained earnings. d. and the adjustment flows through a. The difference between the defined (accrued) benefit obligation and the pension assets’ fair value at any point in time is known as the plan’s a. d. plan assets under the control of the employer. does not include unrealized gains and/or losses on the assets in the plan. d. dividends. any past service costs should be included in the a. is the actual rate of return times the fair value of the plan assets at the beginning of the period. b. 14. other comprehensive income. Copyright © 2013 John Wiley & Sons Canada. b. c. only assets reported on the employer’s statement of financial position as the net defined benefit liability/asset. b. Unauthorized copying.Test Bank .11 d. 18. distribution. contribution by the employer/employees. c. pension expense of current and future periods. 19. experience gain or loss. The return on plan assets a. b. b. c. b. unrecognized past service costs are deferred and amortized over future periods. IFRS specifies how the components of pension benefit costs are to be reported on the income statement. Using the immediate recognition approach under IFRS. 24. the Net Defined Benefit Liability/Asset account reflects the actual funded status of the pension plan. distribution.12 Test Bank for Intermediate Accounting. c.com Also you can contact us on Skype: Ebooksmtb 19. Most pension plan employers report their pension assets or liabilities in the appropriate long-term classifications. c. CRA will not allow them to be deferred. d. d. c. An employer with two or more defined benefit plans is required to measure the benefit cost of each plan separately. d. The rationale for doing this is that a. Pension Expense is included in other comprehensive Income. b. legal and tax services. they are usually immaterial. are required to be disclosed. so there is no justification for deferring their recognition to future periods. Using the immediate recognition approach under IFRS. c. Ltd. d. Unauthorized copying. Copyright © 2013 John Wiley & Sons Canada. severance pay to laid-off employees. Underlying assumptions. For more Ebook's . they relate to past services. dental care.Test Bank . the vested benefits exceed the fair value of pension plan assets.needbook1. b. b. they relate to non-vested services. c. such as how the expected return on plan assets is determined. b. d. 23. all past service costs are expensed. there is a general ledger account called Pension Fund Assets. Which of the following statements is INCORRECT? a. the fair value of pension plan assets exceeds the defined benefit obligation. 21. or transmission of this page is prohibited . there is a general ledger account called defined benefit obligation. the pension expense for the period is the same as the contributions made to the pension plan for the same period. 22. the defined benefit obligation exceeds the fair value of pension plan assets. a net defined benefit asset is reported when a. Under the immediate recognition approach. 25. Tenth Canadian Edition 20. a. so there is no justification for deferring their recognition to future periods. An advantage of the immediate recognition approach (IFRS) is that a. there is a general ledger account called net defined benefit liability/asset. d.com/ or contact us at Ebooksmtb@hotmail. Post-employment benefits may include all of the following EXCEPT a. it does not recognize actuarial gains and losses. b.Solution Manual Please visit our website : http://www. it averages out the pension expense from year to year. tuition assistance. c. they are generally funded. disclosed in the notes to the financial statements only. *30. d.com/ or contact us at Ebooksmtb@hotmail. For more Ebook's . recorded currently and in the future by applying the corridor method which provides the amount to be amortized.13 26. c. b.needbook1. amortizes the net accumulated gain or loss when its balance is considered too large. c.Test Bank . Copyright © 2013 John Wiley & Sons Canada. the beneficiary is the retiree. Which of the following disclosures of post-employment benefits would NOT be required? a. c. recorded at their present value. benefits are payable monthly. Unauthorized copying. only applies when the immediate recognition approach is used. unrecognized net actuarial gains and losses should be a. the assumptions and rates used in calculating the benefit obligation *29. distribution. a description of the accounting and funding policies followed c. recorded currently as an adjustment to pension expense in the period incurred. not recognized in the financial statements. recorded in the same manner as pension benefit obligations. spouse. d. Ltd. is only used by the actuary. Corridor amortization for net actuarial gains and losses a. b. d. or transmission of this page is prohibited . a. and other dependents. the amount of the actuarial liability for short term benefits such as paternity leave d. Regarding post-employment health care benefits. d.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19. the cost of post-employment benefits during the period b. 27. 28. Using the deferral and amortization approach. c. b. Accrued post-employment benefit obligations are a. b. amortized over a 15-year period. recorded only if a loss is determined.Solution Manual Please visit our website : http://www. they are well-defined and level in dollar amount. can be used for either the immediate recognition approach or the deferral and amortization approach. Test Bank . c 17. a 14. Item Ans. Ltd. a 22. Item Ans. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. b 16. b 10.com/ or contact us at Ebooksmtb@hotmail. Item Ans. c 6. c 2. a 19. c 11. c 23. b 20.14 Test Bank for Intermediate Accounting. c 8. d 18. d 7. c 27. b 3. d 13. d 15. c 4. For more Ebook's . Unauthorized copying. distribution. c *29. b *30. b 25. a 26. b 5. 1. or transmission of this page is prohibited . b 21. Item Ans.Solution Manual Please visit our website : http://www. a 12. c 24.com Also you can contact us on Skype: Ebooksmtb 19.needbook1. d Copyright © 2013 John Wiley & Sons Canada. a 28. Item Ans. b 9. ... 700............ 33.. Copyright © 2013 John Wiley & Sons Canada....... Defined benefit obligation. for the calendar year 2014....000... c....... for the calendar year 2014.000................... $875.......000 Interest on accrued benefit obligation ...... Presented below is information related to Kiwi Ltd......................000............................... distribution......000........000................. For more Ebook's ............ $432..000.... $200.. 27...... The corporation uses the immediate recognition approach........... 216.000.............. The corporation uses the immediate recognition approach under IFRS...000 Current service cost .... b.000 Fair value of plan assets...... Jan 1 .......................... Presented below is information related to Peach Corporation’s defined benefit pension plan for calendar 2014.000.. 2014 is a..........................................000 Past service costs (effective Jan 1) ........ d......000 Interest (discount) rate ... $174... d..000 Interest (discount) rate ... $576...................needbook1............. 2014 is a....... Presented below is pension information related to Banana Inc.................. 90......... $648. b... 72.....000 Actual and expected return on plan assets .............000..000.....Test Bank ........ c........... 32........ 96............... $720.............. Presented below is pension information related to Apple Inc........... for calendar 2014. 56...............com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19..........................000 Actual and expected return on plan assets .... $187.......... or transmission of this page is prohibited ....................com/ or contact us at Ebooksmtb@hotmail..... $149. $165...........................000....... The corporation uses the immediate recognition approach under IFRS................ 9..... 10% The fair value of the plan assets at December 31.. Current service costs ..... Ltd.....000 Benefits paid to retirees .....000 Fair value of plan assets.. 180... $288.000 Current service cost ......... c..000 Benefits paid to retirees ...... 9% The fair value of the plan assets at December 31...000 Expected and actual return on plan assets ........ Defined benefit obligation......... Unauthorized copying.. 34...... Jan 1 ... d.. $805...............000 Past service costs ........................... $785... 10.......000 Contributions to plan ....... 40.... $819........... 48...15 MULTIPLE CHOICE—Computational 31...... $480......... b.000... Jan 1 ...000 The pension expense to be reported for 2014 is a...Solution Manual Please visit our website : http://www............000 Contributions to plan ........ Jan 1 ....... 125.................... 25. .000....................... $410.........000 Dr Defined benefit obligation.. $697.............................. $ 70..000....000............... 35...000 Accrued benefit obligation (beginning of year) ......000 Contributions to the plan ......com Also you can contact us on Skype: Ebooksmtb 19.......000 Actual return on plan assets .................... If the contribution to plan assets in 2014 is $410...000 Fair value of pension plan assets ..... $100....500..... b.................... $1..............000 Actual return on plan assets . distribution... At the end of 2014.......000 Cr Pension expense ..... For more Ebook's ..000 Fair value of plan assets (beginning of year) ...needbook1.. 360.... 324...... 82...............320.... Unauthorized copying........000 Copyright © 2013 John Wiley & Sons Canada........ Current service costs . 45. $450... $ 50.. c. 10% The pension expense to be reported for 2014 is a... for the calendar year 2014..000.500................. Assume the net defined benefit liability/asset account at January 1........... $ 50... end of year .16 Test Bank for Intermediate Accounting... $577.... d..... 55.. $110... c. The following information is available for Figgy Enterprises Ltd.............000 Contributions for year .... or transmission of this page is prohibited ..............000..500 The pension expense to be reported for 2014 is a....... $310................. The corporation uses the immediate recognition approach under ASPE..000............. 2014 was nil................. The corporation uses the immediate recognition approach under IFRS.................. Plan assets (at fair value)... the pension expense for 2014 is a............. d.......... 36......000 Interest on accrued benefit obligation ...........Solution Manual Please visit our website : http://www... $ 65.... d................... Tenth Canadian Edition The corporation uses the immediate recognition approach under ASPE..... 195........ 105................... end of year . 400....................000 Actuarial experience loss ..com/ or contact us at Ebooksmtb@hotmail..... Presented below is pension information related to Cantaloupe Ltd...920...... Use the following information for questions 37–38... b............. $1.... for calendar 2014.. has determined the following adjusted information related to its defined benefit pension plan: Defined benefit obligation .. 600.... $757........220....... Ltd.... Lime Inc... Current service costs .......500.000.. b.......000 Past service costs ..................000.........000 Interest cost on the obligation .800............. c.. 1....... $510...000 The corporation uses the immediate recognition approach under IFRS.........500........000............... 45................... $667.Test Bank ...... 1...... $220. b...000. d...... 50...........000 Benefits paid to retirees ............ $360. Current service cost .... $120... 10% Defined benefit obligation...... 41......... b............. 2........................... Presented below is pension information related to Watermelon Corp.....000 The amount to be reported as the net defined benefit liability at December 31.. For more Ebook's ... The corporation uses the immediate recognition approach under IFRS..........000 Past service cost (effective Jan 1) .....com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19...... $360. $ 900........ Jan 1 ...... 9% Defined benefit obligation....000............000 Dr Past service costs .......000 Discount (interest) rate ... $1... $266......17 37...000 asset.... b.... $192. 2014 is a...... 200.. 100. for the calendar year 2014.... d.. 38......000...................com/ or contact us at [email protected] Bank ..............000.... Presented below is pension information related to Mango Ltd.... The pension expense to be reported for 2014 is a.............000 Discount (interest) rate .. The corporation uses the immediate recognition approach under IFRS....... Jan 1 ..... $1. $3..... $416.000 Cr Plan assets (at fair value) .........800..... 2014 is a... 40............... Unauthorized copying.000 liability..... $120.... or transmission of this page is prohibited ..............000.. $126... 39................. c........ 28. b........... The net defined benefit liability/asset that should be reported at December 31.......000 Contributions to plan ....... b... d........000........500......... Copyright © 2013 John Wiley & Sons Canada...... d.........500. c..000.000 asset..000... $420...... $366...000 Actual & expected return on plan assets ............ c.... Presented below is pension information related to Squash Corp.000 The pension expense to be reported for 2014 is a..000....100. $346.................................. $900.......000 Actuarial loss ..... 2014...... $204...........000. 100.. for the calendar year 2014......... $324........... $1............000. $120................. $204.... $ 700................ Defined benefit obligation ......000.............. The corporation uses the immediate recognition approach under IFRS...........Solution Manual Please visit our website : http://www......... Current service cost ...000 liability. distribution.. at December 31. c..... Ltd....000 The pension expense to be reported for 2014 is a....000.........000. 24.................500............needbook1...... ...000 Contributions to plan ....... 10.........000....................... b....... Daikon Ltd........ The corporation uses the immediate recognition approach under IFRS..... 125.. or transmission of this page is prohibited .........000.....18 Test Bank for Intermediate Accounting.............. $187...000......... $231....................000 Interest (discount) rate .......000 Current service cost ....................000 Actual and expected return on plan assets .000.. Unauthorized copying.needbook1... c.. b.........000. For more Ebook's . Copyright © 2013 John Wiley & Sons Canada....... 2014 is a..... Tenth Canadian Edition c.000....... $207.... $109...000 Interest (discount) rate ........... received the following information from its pension plan trustee concerning their defined benefit pension plan for calendar 2014......000.000........ $140. d...000 $2.. $200...........com/ or contact us at Ebooksmtb@hotmail.... 180...........700.....000......com Also you can contact us on Skype: Ebooksmtb 19. 90.. Ltd......... $720....000 Benefits paid to retirees ... The interest rate on the liability is 10% and the actual rate of return on plan assets is 9%........000.................... $245. Presented below is information related to Peach Corporation’s defined benefit pension plan for calendar 2014.000........ 40...500... for calendar 2014..... 10% The balance of the defined benefit obligation at December 31............................ Jan 1 ......... 25...580... 56... 2014 Fair value of plan assets $2................. c. d.. Presented below is information related to Kiwi Ltd.... 700...... b. $164..... $130...... The pension expense to be reported for 2014 is a.000 Current service cost ..................... Jan 1 ....... 96... Jan 1. 9% 44..Test Bank ..........000 Fair value of plan assets...... 27............000 Actual and expected return on plan assets . $265...100.000 Accrued benefit obligation 2......250........ Use the following information for questions 44–45.... Defined benefit obligation..... the current service cost is $180.. $180............000 Contributions to plan ... distribution....... 42.. 43.. 9..000 Fair value of plan assets..........000 2...Solution Manual Please visit our website : http://www..........000 Benefits paid to retirees .. Defined benefit obligation.. $185......... $216....................... 2014 Dec 31.....000 Past service costs (effective Jan 1) .......400...................... The corporation uses the immediate recognition approach under ASPE. The corporation uses the immediate recognition approach under IFRS..........................000 For 2014... Jan 1 ... Jan 1 .............. The pension expense to be reported for 2014 is a............ d. ...000 loss.000... $420........ $60......... 2013 is a......... $630.. 2013 is a..Solution Manual Please visit our website : http://www..000 210.. b......000 gain... $600.... 285..... The following facts relate to the Tomato Inc.....000 Dr. 45.... d....000 gain........com/ or contact us at Ebooksmtb@hotmail..... 2014 (transitional amount) ...000 942.000 loss.... $612........ The corporation uses the deferral and amortization approach.. post-employment benefits plan for 2014. The amount of the actuarial gain/loss at December 31.. d...000 Average remaining service to full eligibility ....Test Bank . c.......000 Discount (interest) rate ....com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.. For more Ebook's . The following information relates to Gooseberry Corp..700.......000 Unrecognized past service costs .....000. d...... *46.700. *48...... 20 years Average remaining service to expected retirement .000 *47.... b...000 Accrued benefit obligation ....... The balance of the defined benefit obligation at December 31......000 Cr.. 2013 2014 Plan assets (at fair value) . $15.. $779... b.... $724...800.. 8% Accrued benefit obligation.... $ -0-. 240.....000.. $580. c....... $180. Use the following information for questions *47–*50......... Unauthorized copying........ The net amount to be recorded as accrued pension liability/asset at December 31... $ 60.... b.... 2014 is a...000 $912..000.... distribution........ $15. The company follows ASPE: Current service cost ... for their past two fiscal years...000 225..needbook1...800....... $2. Jan 1...................000...... c.. d..000 Dr.000.... 25 years The post-employment benefit expense for 2014 is a. d.. $789....000. Copyright © 2013 John Wiley & Sons Canada.000 Pension expense ....... 810.....19 c... $45.. c. $340. 300..000 Annual contribution to plan .... $45..... or transmission of this page is prohibited ..... Ltd.....000 225..... $40. $778. $108... .....000...000 gain......... $165..000... The corporation uses the deferral and amortization approach.. 90........ $30..20 Test Bank for Intermediate Accounting. 2014 is a... The balance of the accrued benefit obligation at December 31..000 *51.. $1..000 Benefits paid . Use the following information for questions *51–*52..com/ or contact us at Ebooksmtb@hotmail..... $15. $180......... 6...........353... 2014 is a..000.........263... d. $1.....400..... d...000...........000 Contributions ... Unauthorized copying.... The following information relates to the defined benefit pension plan for the employees of Raspberry Ltd.....000 The interest rate for the obligation and the plan assets is 10%. $1.......... 18... 2014 is a...000 gain...Solution Manual Please visit our website : http://www..... On January 1..177........... the amount reported as the accrued pension liability/asset at December 31....543...........000 gain........ $ 30........................... The amount of the actuarial gain/loss at December 31...... b......000....... Jan 1/13 Dec 31/13 Dec 31/14 Copyright © 2013 John Wiley & Sons Canada.000 Amortization of unrecognized past service costs ... Use the following information for questions *53–*57... The fair value of the plan assets at December 31..000 Fair value of plan assets . $1. c.. Other data related to the pension plan for 2014 are: Service cost ...... *50....... b............ $1...000. Assuming the amortization of past service costs is already included in the pension expense.... 2014..... d............524...... Quince Inc.530.... Ltd. $80. $195.... $ -0-........ $45.250...000....545.. Accrued benefit obligation ....Test Bank .000 Actual return on plan assets . c....... or transmission of this page is prohibited ... c.. 88...000. distribution.... The corporation uses the deferral and amortization approach...com Also you can contact us on Skype: Ebooksmtb 19.000 Amortization of unrecognized net actuarial gains . *52.. 2014 is a.. 75.. d..000... $1......needbook1.. c.. $1..000... 1.....000 gain..... For more Ebook's ... b. reported the following balances related to their defined benefit pension plan...........428..... b..000.. $1........ Tenth Canadian Edition *49. $1.... c.850.490. $333. $89. and the fund trustee paid $235.com/ or contact us at Ebooksmtb@hotmail. *55. The amount of unrecognized net actuarial gain amortized in 2014 is a. $190.000.Solution Manual Please visit our website : http://www.900.000.325. Unauthorized copying.500. $270. *57. d.600 gain. $366.000 400.000 2.Test Bank .21 Accrued benefit obligation 2. $260. d.400 gain.000 2. *54.needbook1.000.000 Interest cost on ABO 11% 11% Expected rate of return 8% 7% Raspberry estimates that the employee average remaining service life (EARSL) is 16 years.000 gain. b.000.100. $ 8.000 Unrecognized net actuarial gain -0. $258. $245.000 to the pension fund. *56. $16.250.844. $224.125.000 Fair value of plan assets 2.000 3. The unexpected gain or loss on plan assets in 2014 is a.157.000 2. d. c. $6. $6. 360. $282. The interest cost for 2014 is a. $4. *53.000.000.600.400 loss. c. For more Ebook's . b. $4.870. The corridor for 2014 is a. c. or transmission of this page is prohibited . Ltd. $253. $170. b. d.000. b.000 in benefits to retirees. c. d. distribution. The actual return on plan assets in 2014 is a. b.335. Copyright © 2013 John Wiley & Sons Canada. $273.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.375. $63. Raspberry contributed $315.500. In 2014. 700.000.000 = $207. *46.800.$56.000 + $225. c $340. d $15.000 *55.000 – $72. b $180. $410.000 = $174.700 45.500 41.353.000 x 10%) .000 + $90.000 + $27. b 38.000 liability 39.000 + $88.000 + $10.000 40. c *57. c 40.X = $1.600.500.000 = $420. a 37.000 – $75.com Also you can contact us on Skype: Ebooksmtb 19. Answer Derivation 31.000 × 9%) = $231. Unauthorized copying.000) x 9%] . distribution. b $180. c $1.000 x 10%) . c $912.000 .100.000 – $235.000 32.000 = $192.22 Test Bank for Intermediate Accounting.000 + [($720. b 43.000 = $1.000. c $200.000 *52. Item Ans.000 – $300.545.000) X 9%)] + $50.000 ×10%) = $1.000 *53.000 34. Item Ans.000 × 11% = $273. 31.000 (given) 38.000 . b $2. b 33.000 37.000 × 10%) – $45.000 – $15.000 ÷ 25) = $580.000 + ($600.000 *50.000 = $120. b ($2.Test Bank .000 gain *56.000 + $240.000 + ($1.490.000 Note: the actuarial loss is not part of pension expense.000 Copyright © 2013 John Wiley & Sons Canada. c *51.000 = $65.000 = $109. a DERIVATIONS—Computational No.600.com/ or contact us at [email protected] = $789. b $285.900 *54.920. Item Ans. Item Ans. b 36.000 debit *48.250.500 36.$40.500 – $105.000 + $210. d $1. For more Ebook's .000 *47.000 + $45. c $450. d 45.000 + ($200. b *52. b $1.000 .Solution Manual Please visit our website : http://www.000 × 10%) – ($2.000 + $82. c 34.220. d *56.000 + $195.$96.000 35.000 + $125. c *55.000 + $80. b 44. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Computational Item Ans. a $190. b *53. c *48.$96. a 42.000) – ($315. d $720.400.000 + ($2.000 – $2. b $3.000) x 9%] + $10. c $50. b *46.000 33. b $126. d 41.000 gain *49.800.000 = $165. d *54.000 – $75. a $700. c $2. b $90.$40.000 – $2.400.600. b $288.000 = $480.000 – $225. X = $510.000 + $56.000 gain *51.000 43.000 – $15.400. Ltd.000 + [($1.000 – $1.000 × 7%) = $8. Item Ans.320.000 = $15. or transmission of this page is prohibited . but is charged to OCI 42.000 + ($900. b *47. a $360.000 + $216.000 + $25.000 = $15.000 + $10. c 39.000.000 44.000 – $942.000 . d funding minus pension expense = accrued pension asset/liab.000 + $9.000 – ($2.$24.needbook1.500.000) = $190.000 – $810.000 X 8%) + ($2.870.000 + $90.000 = $45.000 = $667. d $204.000 + $50.$1.000 . b 35. b *49. b 32.000 = $785. d *50.000 + $48.000.000 + ($2. b $630.000 × 10%) = $260.000 = $1.000 + [($720.000 + $10. 000 – $260. Unauthorized copying. Ltd.000) ÷ 16 = $6. or transmission of this page is prohibited . distribution.23 *57.com/ or contact us at [email protected] Bank . For more Ebook's . b ($360.needbook1.250 Copyright © 2013 John Wiley & Sons Canada.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.Solution Manual Please visit our website : http://www. ... 59.24 Test Bank for Intermediate Accounting.......270........com/ or contact us at Ebooksmtb@hotmail. d.000.......... or transmission of this page is prohibited ...000.... $85.........000 Employer's contributions ..... For more Ebook's ... The following information pertains to Rembrandt Inc.....................000 to the plan...... The trustee administering the plan provided the following information for the year ended December 31.... 2014.. 60...000...000 Benefits paid retirees ..........000 Interest (discount) rate ...com Also you can contact us on Skype: Ebooksmtb 19.......... had a defined benefit obligation of $100..000........... Jan 1 ..... b........000 Defined benefit obligation. $109......... Unauthorized copying.......600.Solution Manual Please visit our website : http://www.. 360...000 d.............. and uses the immediate recognition approach under IFRS to account for it.... 300.. while the fair value of the plan assets was $120.........................000 The corporation uses the immediate recognition approach under IFRS.000 Actual and expected return .. 30.....’s defined benefit pension plan. b......... What is the fair value of the plan assets at December 31....... the plan's current service cost was $150........ 60..... $105... $1..... $205..................... 10% Current service costs ........... Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted 58...........needbook1. $144..... 2014: Fair value of plan assets. increase in the defined (accrued) benefit obligation due to the passage of time..000 61.... and benefits paid to retirees were $95.000..... Ltd...600............ Copyright © 2013 John Wiley & Sons Canada.......600.. If no change in actuarial estimates occurred during 2014.. $100. d... $96................. During 2014................ 8% The fair value of the plan assets at December 31.....000 c. Van Gogh Corp... distribution...... $1. the actual and expected return on the plan assets was $9....000... $24......200. for which they are using the immediate recognition approach under IFRS. provides a defined benefit pension plan for its employees...........000 Interest (discount) rate ......000. increase in the fair value of plan assets due to the passage of time... $135........235.......... $239. 1............. 325..... difference between the expected and actual return on plan assets... interest earned on the plan assets for the year.................000 Past service cost (at Jan 1) ............. The interest cost included in the annual pension cost recorded by an employer sponsoring a defined benefit pension plan represents the a. Rembrandt's defined benefit obligation at December 31.......'s pension plan for calendar 2014: Defined benefit obligation at Jan 1/14 ....... 2014 would be a.000 b................ Jan 1 .. past service costs were $80..000... Van Gogh contributed $110........ 2014? a...Test Bank .. 2014 would be a....... c... c...... Bateman Corp......000 Current service cost .. At January 1.. $20........000 Pension benefits paid retirees ................ . 24..... $1................. d....................000 Current service cost ...000....... The trustee administering the plan provided the following information for the year ended December 31.......... $5.....000...com/ or contact us at Ebooksmtb@hotmail. 8% The pension expense to be reported for 2014 is a...... $5......... 1.... 300..: Fair value of plan assets ..500.. $241...000 Expected and actual return on plan assets ..........000 Interest on defined benefit obligation . the following information was provided by the defined benefit pension plan administrator for Leonardo Corp...... 64..000 Past service costs .........000 Past service cost (at Jan 1) .. 60... $324.. Dec 31 .............000............500 Contributions to plan . $524.500. $1.. $374............................295....270..... c........Test Bank ......... 200........25 b.........000 liability b.. c......000.......needbook1.000 Defined benefit obligation .....000 asset 63...... provides a defined benefit pension plan for its employees.000 liability d............ b. Jan 1 ............ and uses the immediate recognition approach under IFRS to account for it......... provides a defined benefit pension plan for its employees..........000.... d.... Bateman Corp.. $6........335.200.. 62.... $434........................... $1........ Unauthorized copying.000............ 2014: Fair value of plan assets............. $1............ 6............... For more Ebook's ........ 2014: Defined benefit obligation..000 Interest (discount) rate ........000. b.200.................... 360..000.............000 Employer's contributions ............ At December 31...... 2014 statement of financial position? a..... 525........................... 2014.... distribution.....000 Actual and expected return ...... $1....... d........... $366..000 Defined benefit obligation.... 60. Jan 1 .................200............. 82...535........Solution Manual Please visit our website : http://www...... Ltd....200... 325........ 625. What is the net defined benefit liability/asset account that should be shown on Leonardo’s December 31........000 Benefits paid retirees ....................com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.000.... or transmission of this page is prohibited ..000...... The corporation's actuary has provided the following information for the year ended December 31......000 asset c............ and uses the immediate recognition approach under IFRS to account for it... c.............000 The pension expense to be reported for 2014 is a..........000 The corporation uses the immediate recognition approach under IFRS...200...................................... Dec 31 .... 30..... Copyright © 2013 John Wiley & Sons Canada.... $406.... $1......000........... 240.. Thomson Corp. $270....000 Fair value of plan assets....000 Current service cost ......... Solution Manual Please visit our website : http://www.000 Employer's contribution for year. Magritte should report a net defined benefit liability/asset of the a.. $105. the fair value of the plan assets is less than the defined benefit obligation..000 Pension expense for year ..... $105. Magritte Inc... how much would be reported as the plan’s funded status (liability)? a. $ 60..Test Bank ....335. $ 60..000 c. provides a defined benefit pension plan for its employees.. 2014...com/ or contact us at Ebooksmtb@hotmail....... c.... 2014.000 d.... 2014: Fair value of plan assets..... Tenth Canadian Edition 65. d... what is the amount of accrued benefit liability/asset? a... and uses the deferral and amortization approach to account for it......... Use the following information for questions *66–*67..... distribution... Lautrec Corp......000 b.000 d.. the accrued benefit liability/asset account had a debit balance of $45..26 Test Bank for Intermediate Accounting........needbook1. defined benefit obligation......com Also you can contact us on Skype: Ebooksmtb 19. $165... 300..000 Copyright © 2013 John Wiley & Sons Canada..... At December 31........000 b... excess of the defined benefit obligation over the fair value of the plan assets...... For more Ebook's .200.. 2013..... fair value of the plan assets. $1........000 c...... Dec 31 ... $135. In its statement of financial position at December 31...000...000 Unrecognized past service costs .........000 Accrued benefit obligation.. Dec 31 .. The trustee administering the plan provided the following information for the year ended December 31. Ltd. 1..... At December 31.....000 *67.. 2014. $ 15......000 On December 31... 30. or transmission of this page is prohibited .. provides a defined benefit pension plan for its employees (for which the corporation uses the immediate recognition approach).... $ 90... 2014 financial statements... *66... In the December 31. 360... excess of the plan assets over the defined benefit obligation........ Unauthorized copying............. b. 500 + $60.000 + $45.000 Copyright © 2013 John Wiley & Sons Canada. a $6.295.000 – $82. b Conceptual 59.000 = $374.$95. Answer Derivation 58.needbook1.000 + $24.000 = $135.000 . b $1. distribution.com/ or contact us at [email protected] + $110.500 64. b 60.000 + $24.600 60.000 + $30. c $300. c 62.000 61. b 63.000 = $109.335.000 + ($96. Item Ans. Item Ans.200.200.000 liability 63. Ltd.000 = $1. Item Ans. a 64. d $360.000 *67.000 65.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.000 + $360. a $240.Test Bank . d 61. c DERIVATIONS—CPA Adapted No.000 .000 = $105. For more Ebook's .000 – $5.000 + $60.200. a Conceptual *66.000 + $9. c *66. a 65.000 – $1.27 MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.000 = $1.000 – $300.200. or transmission of this page is prohibited .000.000 + [($1. a *67.$325. d $96.000 = $144. c $120. Item Ans.000 62. c $1. d 59.Solution Manual Please visit our website : http://www.000) x 8%] – $60.000 × 10%) – $20.000 + 30. Unauthorized copying. 58.000 = $241. b. The actual return earned on plan assets is the income generated on the assets being held by the trustee. distribution. credit that is given to employees for services provided before the date of initiation or amendment results in past service costs. and is usually the rate for high-quality corporate bonds. Tenth Canadian Edition EXERCISES Ex. An unexpected asset gain occurs when the actual return on plan assets is greater than the expected return on plan assets and an unexpected loss occurs when the actual return is less than the expected return.com/ or contact us at Ebooksmtb@hotmail. Interest cost c. This can vary considerably from year to year. 19-69 Pension asset terminology Discuss the following ideas related to pension assets: a. and is added/deducted to the beginning balance of the obligation for calculating the interest cost for the year. Actual return on plan assets. Expected return on plan assets. Solution 19-69 a. Past service costs d. The (current) service cost component of pension expense is the cost of the benefits to be provided in future in exchange for services provided in the current period. there is a decrease in in the defined (accrued) benefit obligation. To simplify the calculation.g. A long-term rate is used to smooth out short-term fluctuations in interest rates. For more Ebook's . The amount of the past service costs is calculated by an actuary. if his/her employment is terminated. b. the amount of interest is calculated by applying a single rate to the beginning balance of the obligation. d. The interest cost component of pension expense is the interest for the period on the defined (accrued) benefit obligation outstanding during the period. c. Copyright © 2013 John Wiley & Sons Canada. c. Unexpected gains and losses on plan assets. Ex. If there is a reduction in the benefit plan. Unauthorized copying. Under IFRS. 19-68 Pension accounting terminology Briefly explain the following terms: a. e. Vested benefits are those the employee is entitled to receive even if s/he provides no additional services under the plan. b.Test Bank .com Also you can contact us on Skype: Ebooksmtb 19.Solution Manual Please visit our website : http://www.28 Test Bank for Intermediate Accounting. The expected return on plan assets is the long-term rate of return (calculated by the actuary) multiplied by the fair value of the assets at the beginning of the period.needbook1. Vested benefits Solution 19-68 a. the same rate is used for interest on the defined benefit obligation and the plan assets. Service cost b. Ltd. c. When a defined benefit plan is initiated or amended. or transmission of this page is prohibited . less the cost of administering the fund. ....... 200............: Dec 31/13 Dec 31/14 Defined benefit obligation $2....................000.................000 Contributions ...................000 in benefits to retirees.000 Ex...000) Unexpected gain ................ Actual return (see b........640................................... $3................000 b........... $ 160..............000) 340........... Copyright © 2013 John Wiley & Sons Canada............000 Fair value of plan assets . Prune Ltd.................. the corporation contributed $390....... c.... (138... (2.....000 Actual return on plan assets ...........000 × 8% = $180...................Test Bank . $2........ 2014: a. Calculate pension expense for 2014......000 Interest rate 8% 8% Expected rate of return 7% 6% In 2014.. c..000 c............... Instructions a..000 $3.) ...... Ltd. Calculate the actual return on plan assets.29 Ex.. Solution 19-70 a............................ $ 22.. Calculate the unexpected gain or loss (if any)....300..... 2014....... 9% Prune uses the immediate recognition approach under ASPE...........000 Expected return ($2.....................................250............ 2014......com/ or contact us at Ebooksmtb@hotmail..... distribution.250..000 Actual return on plan assets ...................... Calculate the fair value of plan assets at December 31..000 Fair value of plan assets Dec 31/13 ... 204..............com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19..................000 Interest (discount) rate ..... Instructions For the year ended December 31.....000 Contributions to the plan .000) Benefits paid ... b.. Calculate the defined benefit obligation at December 31.. 140.. 19-71 Pension plan calculations and journal entries On January 1.............. 210.............. $ 160.......... 2014.200.. Strawberry Dale uses the immediate recognition approach under IFRS... $2....200.......640..000 2........... b....... 192.....................000 Benefits paid ... and the trustee paid $210...300.needbook1............. Unauthorized copying.......... (390............ 19-70 Pension plan calculations The following information relates to the defined benefit pension plan for Strawberry Dale Ltd..... Fair value of plan assets Dec 31/14 ........Solution Manual Please visit our website : http://www............................ Calculate the interest on the obligation.................. reported the following balances relating to their defined benefit pension plan: Defined benefit obligation ......000 to the plan..............000 × 6%) .......... or transmission of this page is prohibited ............. 3.300........000 Other data related to the pension plan for 2014 are: Current service cost ....000 Fair value of plan assets 2..... For more Ebook's ..... ......... net income)..................... 192.......................... Defined benefit obligation.000) Defined benefit obligation...000 Interest cost (9% × $3.............. if different)....................... Dec 31 .............396.. an advantage of this approach is that the actual funded status is disclosed on the statement of financial position via the net defined benefit liability/asset account........... pension expense includes current service costs.........000 b...... 236................... 204...............200............................................................... the recognition of past service costs and actuarial gains/losses can be deferred and amortized over current and future periods........ all such amounts must be fully disclosed in the notes.................Solution Manual Please visit our website : http://www............200....200......................000 Net Defined Liability/Asset ...................................000 Interest cost (9% × $3........... as the unrecognized past service costs and actuarial gains/losses are “off balance sheet. 19-72 Approaches to accounting for pension expense Discuss the difference between the immediate recognition approach and the deferral and amortization approach when accounting for annual pension expense. less expected return on assets (less the actual return... Tenth Canadian Edition d............................... but flow through OCI... 288....................com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 19......000) Fair value of plan assets....................000 Contributions ......... IFRS now requires the use of the immediate recognition approach only....... ASPE currently permits either approach...000 Cash .......... $236....... Current service cost .........” However. past service costs.. 204...................... 236......................... Solution 19-71 a............. $3... This may cause the annual pension expense to fluctuate significantly.............................. Copyright © 2013 John Wiley & Sons Canada..000 Benefits paid .......... and interest cost on the opening DBO..... (192. 204....... any actuarial gains or losses or remeasurement gains/losses on plan assets are not part of pension expense (i........ Jan 1 ........................needbook1.. For more Ebook's .....000 Benefits paid .....................000) ......... This tends to smooth out the pension expense..... Pension Expense ............000 c..428...... Note that under IFRS................000) Pension expense ................ Solution 19-72 Under the immediate recognition approach............... Unauthorized copying.. (200............. Ltd..... or transmission of this page is prohibited . Fair value of plan assets. $3.............. However.... $3....... but misstates the funded status on the statement of financial position...........000 Ex....... Jan 1 ........000 Current service cost ................ (200. Dec 31 ......................................... Prepare the journal entries to record the pension expense and the contributions for 2014... Under the deferral and amortization approach..Test Bank .....200.................000 Actual return ...... distribution.... $140... however the new Section 3462 of the Handbook will eliminate the use of the deferral and amortization approach..................... 140..... $3..e..............000 d.....000) ........... 288..000 Net Defined Benefit Liability/Asset ................000 Actual return on plan assets .........30 Test Bank for Intermediate Accounting.. ... The corporation uses the immediate recognition approach under IFRS...................000 Net Defined Benefit Liability/Asset . Solution 19-74 a.............. 250......000 For 2014.....000 Interest on defined benefit obligation ($240... 10% Expected & actual return on plan assets .....000 Fair value of plan assets 1.000 Instructions a. $260............. Current service cost ...750.....000 × 8%) ..................000) × 8%) ..................240... Jan 1 . Current service cost .........750.... Pumpkin contributed $595.. 288........... 9% Defined benefit obligation........................000 Net Defined Benefit Liability/Asset . Pension Expense ..000 2...................... Solution 19-73 a.000 × 10%) 24....... (16....................... 2014 December 31......000 + $100.needbook1......000 Contributions ........ Calculate the pension expense to be reported in 2014..000.....31 Ex................ Current service cost ...........000 × 9%) ........... 19-73 Measuring and recording pension expense Pumpkin Ltd..........................Solution Manual Please visit our website : http://www...................... 458.000 $3... (140....... Prepare the journal entries to record pension expense and the employer's contributions for 2014........ 595............000 Cash ....... 595.000 Interest on DBO ($3..............................................000) Past service costs ....... $267...............................000 Actual/Expected return on plan assets ($1.............800 Copyright © 2013 John Wiley & Sons Canada.000 to the plan.. 24.................. received the following information from its pension plan trustee concerning their defined benefit pension plan for the year ended December 31.....200) Pension expense—2014 ....... $260......000 Actuarial gain ....Test Bank . for 2014.. or transmission of this page is prohibited ..........500.......com/ or contact us at Ebooksmtb@hotmail.............. 19-74 Measuring and recording pension expense The following information relates to the defined benefit pension plan for Huckleberry Ltd.000 Ex. 100....000 b.500.......... Instructions a............................ The actual and expected return on plan assets is 8%....... b...................... 180.......................... distribution........ 2014: January 1............... the service cost is $210......... 240....000 Fair value of plan assets....... Prepare the journal entries to record the pension expense and the employer’s contribution for 2014.................000 $458............. $210...... Calculate the pension expense to be reported for 2014................ Ltd........... 2014 Defined benefit obligation $3................000 Expected return on plan assets ($180.................. Pumpkin uses the immediate recognition approach under IFRS......................... b........000 Interest rate for obligation ..................000 and past service cost (effective Jan 1) is $100.....com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.... Unauthorized copying............ For more Ebook's ...... Jan 1 ....................................... During 2014..................990..... 458. .....870.000 The corridor is the larger......com/ or contact us at Ebooksmtb@hotmail..... $ 15... but would be booked through OCI.. Prepare the entries for 2014 to record the pension expense and employer’s contribution........000 Unrecognized past service cost ....... 2014 .....800....000) .800 Net Defined Benefit Liability/Asset . IFRS requires the use of the immediate recognition approach.............. Unauthorized copying.com Also you can contact us on Skype: Ebooksmtb 19.. which does not use the corridor approach........000 Copyright © 2013 John Wiley & Sons Canada... Solution 19-75 The corridor approach for amortizing pension plan gains and losses is used when they get too large..000 $6...... 10% × $6..000 Fair value of plan assets . 19-76 Pension plan calculations and journal entries Information about the defined benefit pension plan of Olive Corp.........800 Net Defined Benefit Liability/Asset .. Jan 1.....870.......... Calculate the accrued pension liability at December 31...................530...... 2014.330...........Solution Manual Please visit our website : http://www.....400......... Note this is only used with the deferral and amortization approach................ b. c.... 250.. 19-75 Corridor amortization Explain corridor amortization.. 9% 8% The accrued pension liability was $15..................330..................... 10% × $6... Tenth Canadian Edition Note the actuarial gain is not part of pension expense.......690.....000 Cash ....000 6..... b....400. 2013 ...........000 Interest rate for ABO .310...... 245....000 Contribution for year .....310..000 1..000) ................32 Test Bank for Intermediate Accounting.000 = $640...000 – $1.000 at January 1.........000 185.........................Test Bank ....... 267..needbook1.. 20...................000 Pension expense . Accrued pension liability.. Solution 19-76 a... Instructions a............. Any systematic method of amortizing the excess unrecognized gain or loss may be used but it cannot be less than the amount calculated using the straight-line method over the average remaining service life of all active employees...... Pension Expense ...... Ltd... Calculate the corridor for 2014.......... For more Ebook's ............ 2014........000 – $1......... *Ex....000 at January 1..000 Accrued pension liability.............000......000........ Olive uses the deferral and amortization approach........000 1. b..... 1.......................... or transmission of this page is prohibited ............... 1.......640.. 70.... $6.800. 250....000 *Ex... $653........... Dec 31. $105...... 2013 and $35.530.. which is now only acceptable for ASPE... is as follows: Dec 31/13 Dec 31/14 Accrued benefit obligation ..000 Addition for 2014 ($1.....000 Addition for 2013 ($1............ distribution...... 6.... 267... The unrecognized net gain or loss gets too large when it exceeds the arbitrarily selected criterion of 10% of the larger of the beginning balances of the accrued benefit obligation or the fair value of the plan assets.........000 = $653. .....000 $ -0......000 $ 840..000 – $123..000 Accrued Benefit Liability/Asset .....000 ÷ 10 = $20........... Unauthorized copying....000 Unrecognized past service costs .... For more Ebook's .......000 2014 (297. has 200 employees who are expected to receive benefits under the company's defined benefit pension plan. 1..... Information about the company's accrued benefit obligation and plan asset values follows: As of January 1 2013 2014 2015 Accrued benefit obligation $1.Solution Manual Please visit our website : http://www.. provides the following information about its defined benefit pension plan for the year ended December 31.Test Bank ..000 330.. 1....230........... 2014........ which is accounted for using the deferral and amortization approach.000 123..470.170....000 20....com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.000 Instructions Based on the above information..700* 2015 1. Ltd.....275.com/ or contact us at [email protected]....................... distribution..000 1..000 Copyright © 2013 John Wiley & Sons Canada.000 147.............000 $105. $ -0- 2014 1........ 19-78 Pension reconciliation schedule Boysenberry Inc.....000 – $297... 19-77 Corridor approach for amortization of actuarial gains and losses Pineapple Corp..050......... Pension Expense ......000 Prior to 2013 there were no unrecognized actuarial gains or losses......... The actuary for the pension plan calculated the following net gains and losses: For the Year Ended December 31 (Gain) Or Loss 2013 $330..800..........700 = $12..000 1.170.870........... The total number of service-years of these employees is 2............000 $1......... Pineapple amortizes such unrecognized net gains or losses using the straight-line method over the expected average remaining service life (EARSL) of participating employees...470........000..needbook1.000 – $20.000 12.000 = $207..300** -0- Average Service Years = 2.....870.......300 *Ex.....800.000 1...000) 2015 495....... 1...........700 **$330..000 Fair value of plan assets 840..... 1... $ 30........ Solution 19-77 Corridor Test and Gain/Loss Amortization Schedule Beginning of Year Cumulative ABO Plan Assets Corridor (Gain) Or Loss Amortization 2013 $1..33 c..275.000 $1.................050..............000 *Ex........... 360....... and 2015..000 ÷ 200 = 10 years *$330....000 Cash ............000 1.... or transmission of this page is prohibited ....... 2014: Service cost for 2014 ..................000 Accrued Benefit Liability/Asset . prepare a schedule which reflects the amount of unrecognized net actuarial gain or loss to be amortized as a component of pension expense for the years 2013....... ............000) Unrecognized past service cost .800 Accrued Benefit Liability/Asset ....... 10% Amortization of past service cost .................000 Unrecognized actuarial gain ...000 Interest cost (10% × $480...... 168.................... 126............................. 870................ or transmission of this page is prohibited ................... 75...... 176.........800 Expected return on plan assets ...........................................................000 Amortization of past service cost .......... Jan 1 ....................000 Accrued benefit obligation .....800) Pension expense ............ 24............. 95................................. defined benefit pension plan for 2014: Accrued benefit obligation..................................000) Accrued pension liability ...............600 Actual return on plan assets .................... Pension Expense .........000 The corporation uses the deferral and amortization approach.000 Accrued benefit obligation in excess of plan assets ..... distribution.................000) Fair value of plan assets .............................com Also you can contact us on Skype: Ebooksmtb 19.............................. $480........000 Unrecognized actuarial gain ...... $176.....600 Expected return on plan assets ... Prepare the journal entries to record pension expense and the employer’s contributions for 2014.......000 The corporation uses the deferral and amortization approach.... (95............800 b............................. Instructions Prepare a schedule to reconcile the funded status of the pension plan with the amounts that would be reported on Boysenberry Inc.. $126............000 Service cost .. 19-79 Calculating and recording pension expense The following information is related to the Papaya Corp......needbook1......... Instructions a....... Solution 19-79 a................................................ (21...............................000 Interest on accrued benefit obligation .............................000) ..........................040...... 16........040. Tenth Canadian Edition Fair value of plan assets ...........34 Test Bank for Intermediate Accounting............. Pension Reconciliation Schedule Year Ended December 31.......................................... (170...... b. 24.....................800 Copyright © 2013 John Wiley & Sons Canada...................000 *Ex.......... 870..... 360..................... 1.........Test Bank ............... 48............. 21............'s statement of financial position at December 31....................Solution Manual Please visit our website : http://www..................... $(1................ 2014 Accrued benefit obligation ....................000 Interest rate on ABO .. 176............. Ltd................................. Service cost ................ $ 95.... Unauthorized copying...800 Contributions ........................................................ Calculate the pension expense for 2014......................................................... Solution 19-78 BOYSENBERRY INC...com/ or contact us at Ebooksmtb@hotmail. For more Ebook's ..... 2014.................. .........500.....................000) Plus actuarial gain .....Test Bank . Ltd...............Solution Manual Please visit our website : http://www..... (120........................................................340...... but that Satsuma had an actuarial gain of $20.........000) Accrued pension liability .....................000 in 2014......000 ABO in excess of plan assets .........000 Cash ........................000 Unrecognized past service costs .000 b..com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19..................................... Solution 19-80 a....................................000 The corporation uses the deferral and amortization approach. $4. 120...... Instructions a...................................500...000 Copyright © 2013 John Wiley & Sons Canada.... 20...... distribution............ 4.........needbook1..... or transmission of this page is prohibited .. 160................com/ or contact us at Ebooksmtb@hotmail................... Assume the same facts as in a............... $4.......................... $4..000 *Ex. 168...................... Unauthorized copying.............. Calculate the accrued pension liability or asset....340... For more Ebook's .................................... $ 60.... Recalculate the accrued pension asset or liability....... Accrued benefit obligation ..... Accrued benefit obligation ..... b................. provided the following balances regarding their defined benefit pension plan at December 31........ 4......... 4.....000 ABO in excess of plan assets .........................000 Less unrecognized past service cost ........................ 160.... 19-80 Calculating accrued pension liability/asset Satsuma Corp......000 Fair value of plan assets ..............................................35 Accrued Benefit Liability/Asset ........... 168..500...............340.......000 Fair value of plan assets ............000 Fair value of plan assets ......000 Accrued pension liability .............. (120......000 Less unrecognized past service cost ............ 2014: Accrued benefit obligation ... $ 40............ ..000 Instructions a........................36 Test Bank for Intermediate Accounting.... (250.000 + $25............................needbook1............................ Actuarial loss ........400 Net Defined Benefit Liability/Asset .....000 Interest (discount) rate ..........000 Fair value of plan assets.... d.............. 350.....................000 Current service cost .................................................. or transmission of this page is prohibited .............. Ltd......... Solution 19-81 a...... Prepare the journal entries to reflect the accounting for the company's pension plan for the year ending December 31.................... 290.................. Jan 1 ...........000 Payments to retirees ...... (31........ 290..... 19-81 Measuring and recording pension expense Presented below is information related to the defined benefit pension plan of Swiss Chard Ltd........................ $410.............................. Calculate the amount to be shown as OCI for 2014. Dec 31 .... For more Ebook's ..000 d...Test Bank ..com Also you can contact us on Skype: Ebooksmtb 19............. $26.....................000 Pension expense .....400 Net Defined Benefit Liability/Asset .......000) Fair value of plan assets............................................. 40....... 25................................................ 290....000 Expected & actual return on plan assets (9% × $350.. (11.............................500 Net Defined Benefit Liability/Asset .......... Jan 1 ....................... Calculate the pension expense to be reported on the income statement for 2014...................... Pension Expense ............... 2014. Tenth Canadian Edition PROBLEMS Pr.................. Calculate the fair value of the plan assets at December 31............... 26..................... Jan 1 ... Unauthorized copying.................................... 26......................................... 31.......... $350..............500) Past service cost .............. 250..Solution Manual Please visit our website : http://www.......................500 Amount to be shown as OCI (Dr) ................................... $333.................... Fair value of plan assets.000)] .... $375..................... 333......... $14....... distribution................................................000) ......... for the year 2014....................... 300......................................................400 c...........................000 Actuarial loss ... b..........500 b........900 Contributions to plan ..... Current service cost ........ The corporation uses the immediate recognition approach under IFRS...................... 333................................. 9% Past service cost (as of Jan 1) ...................com/ or contact us at [email protected] Remeasurement loss on plan assets .......500 Remeasurement loss on plan assets .. 14. $300........................ 2014..............000 Interest on DBO [(10% × ($375. 10% Expected & actual return on plan assets ..................000 Expected & actual return on plan assets ......000 Remeasurement loss on plan assets ................... 25..........500 Remeasurement Loss (OCI) .... 11..000 Copyright © 2013 John Wiley & Sons Canada................. Defined benefit obligation..................... c.............................500 Payments to retirees .................500) Contributions to plan .......... 11.............. ...................000 Payments to retirees ................000 Contributions .................................................. 94.............. distribution................................................... 120................ 2014........................ The plan’s trustee reports the following information for calendar 2014: Defined benefit obligation...000 Cash ............................ (120....000)] ...000 Pr......................................................................000 Pension expense .. 151.....37 Cash ................... 10% Past service costs (as of Jan 1) .......................................000 + $10......................... $ (235...................... 25..... ..... 70............................... 10................... Ltd...... 10............................... 94.................................... $240.... and prepare the required adjusting journal entries.....000 Actual & expected return on plan assets ..... Funded Status at December 31.....000 Net Defined Benefit Liability/Asset……....000 Interest costs ........ 70... 80.......... 2014: Defined Benefit Obligation (1) .000 b................ Instructions a..................................................................com/ or contact us at [email protected] Pension Expense............000 Fair value of plan assets.........Test Bank ......... 19-82 Calculating pension expense and pension plan funded status Fernando’s Furniture Inc....................... Solution 19-82 a.....Solution Manual Please visit our website : http://www......................000 Service costs ............000 Underfunded .. 70.............. Pension expense for 2014 Current service cost . For more Ebook's ....... 25......................................................... 180............. Jan 1 .... Jan 1 ........................................ ...........000) (1) Defined Benefit Obligation Beginning balance .....000 The corporation uses the immediate recognition approach under ASPE..... $240.... (21.....................000 Benefits paid to retirees ......... 10.......000 Net Defined Benefit Liability/Asset...................com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.......................000) Copyright © 2013 John Wiley & Sons Canada.000) Past service cost .............................................................................................................000 Actual & expected return on plan assets ...... 290............................ ...000 Interest on ABO [(10% x ($240...... 80..................000 Past service cost ...needbook1.... $ 80..000 Interest (discount) rate ......... Calculate the funded status of the plan on December 31........................ or transmission of this page is prohibited .. 21........................ $ (84................... sponsors a defined benefit pension plan for its employees................................... b... $ 94..............000 Current service cost ..................................................... Calculate the amount of pension expense for 2014............000) Plan assets (2) ................................ Unauthorized copying.. ............ CAMBERWELL LTD................ 2013 (1. CAMBERWELL LTD.........Solution Manual Please visit our website : http://www.. Tenth Canadian Edition Ending balance .....com Also you can contact us on Skype: Ebooksmtb 19........... 31........ $ 600......000 Service cost Interest cost Actual return Contributions Benefits paid Journal entry for 2014 ______ ______ ______ ______ ______ Bal...................000 Interest (discount) rate ..... or transmission of this page is prohibited ....................................000 Pr...........000) (4.......... Using the above information.......000 Actual return .......................................... Pension Work Sheet Copyright © 2013 John Wiley & Sons Canada.........Test Bank ....... e... $235....000 Payments to retirees .............. Dec.......................com/ or contact us at [email protected] Contributions ........ 10% The corporation uses the immediate recognition approach under ASPE.......... Dec...................... Unauthorized copying.........300....... b........ Pension Work Sheet for the year ended December 31.38 Test Bank for Intermediate Accounting... 31............. (120... 72. Indicate credit entries by parentheses...................... 2014............ Instructions a........................g......200....500. 2014 General Journal Entries Memo Entries —————————————————————————————————————————— Annual Net Defined Defined Pension Benefit Benefit Plan Expense Cash Asset/Liab Obligation Assets —————————————————————————————————————————— Bal.. 1..........080........................ For more Ebook's ...... complete the pension work sheet below for 2014.....................................000 Benefits paid to retirees ...................... distribution...000) Ending balance ... (72...........000 (2) Plan assets Beginning balance ...............needbook1..............000 Actual return on plan assets .......... 315........... 70................... has developed the following information regarding the company's defined benefit pension plan for calendar 2014: Service cost .. 19-83 Preparation of a pension worksheet and pension entries The accountant for Camberwell Ltd...........000)...000 Contributions ............ 2014 ______ ______ ______ ______ ______ Solution 19-83 a.... Prepare the journal entries to reflect the accounting for the company's pension plan for the year ended December 31........ 21. Ltd...... $151..000) 3. $180........ .200........000) (5....000) 3..........500............. 31...000 (450...500........... 2014 (855.. The personnel department provided the following information regarding expected employee retirements: Expected Retirements Number of Employees on Dec 31 each year 40 2014 120 2015 60 2016 160 2017 20 2018 400 Fudge plans to use the expected average remaining service life (EARSL) to calculate the amortization of unrecognized past service costs...Test Bank .080.......... 1... Pension Expense .000) Contribution entry (1.....000 in its accrued benefit obligation.000 Bal. which caused an increase of $3.........300..... or transmission of this page is prohibited ..000 (735....478............... Fudge Inc.......000 Benefits paid ________ 72..... The corporation uses the deferral and amortization approach....000) 1.......000 Service cost 600......000) Actual return (315.000 b.000 Contributions (1......080....... 2013 (1.000) 315...... Dec.........080.000 Net Defined Benefit Liability/Asset ......000 Cash ..000 (1) $4...needbook1...623..com/ or contact us at [email protected] (600.. 2014... 19-84 Amortization of past service costs using EARSL (Expected Average Remaining Service Life) On January 1..000) 1...... 735. 735.....000 4....000) (4... 1............600....... Dec........080.....000 (72...000 Net Defined Benefit Liability/Asset .080....000) Expense entry 735..com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.....080.. distribution...... Instructions Prepare a schedule showing the annual amortization of past service costs that Fudge will recognize as a component of pension expense from 2014 through 2018... Copyright © 2013 John Wiley & Sons Canada.............. The company has 400 employees who are expected to receive benefits under the plan.. For more Ebook's ..000) Interest cost (1) 450.39 for the year ended December 31...000 × 10% = $450.Solution Manual Please visit our website : http://www. amended its defined benefit pension plan. Unauthorized copying.000 *Pr. Ltd.......... 31... 2014 (immediate recognition approach) General Journal Entries Memo Entries —————————————————————————————————————————— Annual Net Defined Defined Pension Benefit Benefit Plan Expense Cash Asset/Liab Obligation Assets —————————————————————————————————————————— Bal..... ...080........000 ÷ 1........40 Test Bank for Intermediate Accounting..000 540. 10% Expected rate of return on plan assets .............200 = $3.... 1.....000 2016 240 3...... Camberwell uses the deferral and amortization approach........................ Fudge Inc.000 Actual return on plan assets ... 2014 (deferral and amortization approach) —————————————————————————————————————————— General Journal Entries Memo Entries —————————————————————————————————————————— Copyright © 2013 John Wiley & Sons Canada....000 Interest rate on ABO ............com Also you can contact us on Skype: Ebooksmtb 19.....600......000..000 Benefits paid to retirees .. 315.......... Ltd......000 1...... 126...........Solution Manual Please visit our website : http://www........... Prepare the journal entries to reflect the accounting for the company's pension plan for the year ending December 31..... 19-85 Preparation of a pension worksheet and pension entries The accountant for Camberwell Ltd. Calculation of Annual Past Service Costs Amortization Total Cost Per Annual Year Service-Years Service-Year Amortization 2014 400 $3......com/ or contact us at Ebooksmtb@hotmail. 72... Tenth Canadian Edition Solution 19-84 Calculation of Service Years Year Total 2014 40 120 60 160 20 400 2015 120 60 160 20 360 2016 60 160 20 240 2017 160 20 180 2018 20 20 40 240 180 640 100 1..........200 $3..... Indicate credit entries by parentheses....000 Contributions . has developed the following information regarding the company's defined benefit pension plan for 2014: Service cost ....000 60...g. distribution...200 Cost per Service Year: $3. Unauthorized copying.....needbook1.080..000 Amortization of unrecognized past service costs ....... or transmission of this page is prohibited ..000 2017 180 3........ $ 600....................... 2014........... Pension Work Sheet for the year ended December 31....000 *Pr............000 2018 20 3....... (72................ Camberwell Ltd............. 8% Instructions a...200.000 720.. e.. complete the pension work sheet below for 2014... For more Ebook's ... b.000 1..000 $1.. Using the above information.........000 2015 360 3...000)...600..........Test Bank . ...000) (1) $4....... distribution............000 Amortization of PSC 126....000) (4..000) 3....478..000 (600..000 Copyright © 2013 John Wiley & Sons Canada.....080.... Dec.... 2014 (282...000 (450..000 Accrued Pension Asset/Liability ..000 × 8%) = $51..000) 1....... Dec...080..000 750.........000 (72......500......000 (2) $315.300....000) Interest cost (1) 450..... 2014 (deferral and amortization approach) —————————————————————————————————————————— General Journal Entries Memo Entries —————————————————————————————————————————— Unrecog Unrecog Annual Accrued Accrued Past Net Pension Pension Benefit Plan Service (Gain) Expense Cash Asset/Liab Obligation Assets Cost or Loss —————————————————————————————————————————— Bal..........com/ or contact us at [email protected].... For more Ebook's .....000 Accrued Pension Asset/Liability .300...500.......000) Journal entry for 2014 912.000 ______ ______ ______ ______ Bal.......000) (4...000) Unrecog gain/loss (2) 51. 2011 (450.. 31..... Dec... 31..000 – ($3...000 624......000 Benefits paid 72..000 Service cost Interest cost Expected return Amortization of PSC Contributions Benefits paid Unrecognized gain/loss Journal entry for 2014 ______ ______ ______ ______ ______ ______ ______ Bal.... Unauthorized copying......300.......000 b....000 750..000) 264..........000) 4..080................000) 168.000) Expected return (264........... Dec..000 Cash . 31......000 (126.Test Bank ...... 2011 (450........000 Service cost 600.......41 Unrecog Unrecog Annual Accrued Accrued Past Net Pension Pension Benefit Plan Service (Gain) Expense Cash Asset/Liab Obligation Assets Cost or Loss —————————————————————————————————————————— Bal....... 912... 1...... 2014 ______ ______ ______ ______ ______ ______ ______ Solution 19-85 Camberwell Ltd.......000 (51.........needbook1. 1. Ltd.000 (1. or transmission of this page is prohibited ......000 (51...080.000 × 10% = $450...000) Contributions (1.......080..000) (5.com Also you can contact us on Skype: Ebooksmtb Pensions and Other Employee Future Benefits 19.Solution Manual Please visit our website : http://www.... 912. Pension Expense ....000) 3.... 31... Pension Work Sheet for the year ended December 31. scanning. Ltd. recording. Unauthorized copying. distribution. modified. or transmitted in any form or by any means. Tenth Canadian Edition LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. Ltd. mechanical. The data contained in these files are protected by copyright. or transmission of this page is prohibited . or otherwise without the prior written permission of John Wiley & Sons Canada. stored in a retrieval system.com/ or contact us at [email protected]. made available on a network.42 Test Bank for Intermediate Accounting.Test Bank . For more Ebook's . Copyright © 2013 John Wiley & Sons Canada. reproduced.com Also you can contact us on Skype: Ebooksmtb 19. used to create derivative works.Solution Manual Please visit our website : http://www. photocopying. or related companies. This manual is furnished under licence and may be used only in accordance with the terms of such licence. Ltd. All rights reserved. The material provided herein may not be downloaded. electronic. Ltd.Test Bank . 5. 5 E 50. 5 M 32. 15 M 23. 10 M *44.9. 5. 12 M 26. Unauthorized copying. 14 E 48. 15 E 24. 14 M 4. 9. 14. 3 M 12. 2 M 7. 15 M 25.15 H 57. 9 M *42. 7 E 39. 2 M 6. 10 E *20.needbook1. 3 E 28. 11 H 2. 5 M 35. 8 M 17. 15 E 5. 3. 5 M 14. 3 M 10.16 M 61. 3 M 29. 4 E 31.8 H *54. 5 M 51. 14 M 56. 10 E *19. 7 M 36.10 M *69. For more Ebook's .10 H 62. 4 E 30.6 H 68.5 M 67. 10 H Problems 66. 10 M *45. 15 H Note: E = Easy M = Medium H = Hard *This topic is dealt with in an Appendix to the chapter.8 M *53. 2 E *58. 5 M *64. 4. 10 E 47. 2 M 8.12 M 40. 3. or transmission of this page is prohibited . 3 M 60. 9 M *18. 7. 10 M *43. 14 E Multiple Choice–CPA Adapted 46. 7 E 38. 12 M 3. 5 M 63. 2 E 9. 5 M 15. 5. 3 E 49.12 M *65.com Also you can contact us on Skype: Ebooksmtb CHAPTER 20 LEASES SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 5 M 34. 5 M 13.com/ or contact us at Ebooksmtb@hotmail. 5 M 33. 7. 7 E 16. distribution.Solution Manual Please visit our website : http://www. 12 M 27. 7 M 37. 15 E 22. 14 E Exercises 55. 9 E *41. 3 M 59. 16 M Multiple Choice–Computational 21. Copyright © 2013 John Wiley & Sons Canada. 3 M 11. 5 M 52. Ltd. MC 35. Ex Learning Objective 5 8. MC 46. MC *65. Ex Learning Objective 14 *18. Pr 9. MC 3. Ex 68. MC 39. MC 51. MC 56. MC 59. MC 34. MC 62. MC 32. Ex Learning Objective 15 *19. Ex 10.com Also you can contact us on Skype: Ebooksmtb 20. MC 31. Ex 6. MC *44. Ex 66. MC 25. Pr Learning Objective 4 23. MC Learning Objective 12 17. MC 27. MC *54. distribution. MC 55. Copyright © 2013 John Wiley & Sons Canada. Ex *65.needbook1. MC 40. MC 21. MC 33. MC 60. MC 24. MC 51. MC *45. Pr Learning Objective 6 67. MC 49. MC 33. MC 63. MC 57. MC Learning Objective 9 13. Ex 68. For more Ebook's .2 Test Bank for Intermediate Accounting. MC 26. MC 38. MC 22. MC *42. Ex Learning Objective 3 5. MC 66.com/ or contact us at Ebooksmtb@hotmail. MC 61. MC *64. MC 47. Ex 29. MC *53. MC 7. MC *43. MC Learning Objective 8 12. MC 30. Unauthorized copying. MC 48. Pr Learning Objective 10 14. MC 2. Pr Learning Objective 7 11. MC 28. Pr 15.Solution Manual Please visit our website : http://www. MC *41. MC 59. MC 37. Ex *58. Ex Learning Objective 11 16. MC 4.Test Bank . Ex Note: MC = Multiple Choice Ex = Exercise Pr = Problem *This topic is dealt with in an Appendix to the chapter. MC 52. MC 62. MC *58. MC 36. MC 50. Ex 67. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 2 1. or transmission of this page is prohibited . Ex Learning Objective 16 *20. MC 50. MC 59. As a capital lease. the transaction is similar in substance to acquiring an asset. Explain the conceptual nature. 4. Therefore. Identify and apply the criteria that are used to determine the type of lease for accounting purposes for a lessee under the classification approach. the lessor usually wants to recover the asset’s cost. If none of these criteria is met.3 CHAPTER STUDY OBJECTIVES 1. Leases represent a significant source of off–balance sheet financing for companies.Test Bank . In situations where the lessee obtains the use of the majority of the economic benefits inherent in a leased asset. distribution. the lessee recognizes the asset and associated liability and the lessor transfers the asset under one of the approaches to lease accounting. Ltd. called a finance lease under IFRS. 2. Payments to the lessor are divided into an interest portion and a principal payment.com Also you can contact us on Skype: Ebooksmtb Leases 20. in some cases the degree of specialization of the specific asset.Solution Manual Please visit our website : http://www. (2) the use of the majority of the asset services inherent in the leased asset. Account for a lessee’s basic capital (finance) lease. or through a bargain purchase price that it expects the lessee to pay. If the lessor participates in leases as a way of selling its product. therefore. The periodic lease payment. The lessor’s investment in the cost or selling price can be recovered in part through a residual value if the asset will be returned to the lessor. it usually wants to recover the sales price. The asset is then depreciated in the same way as other capital assets owned by the lessee.needbook1. Copyright © 2013 John Wiley & Sons Canada. (3) the recovery by the lessor of substantially all of its investment in the leased asset plus a return on that investment. 3. The amount capitalized is the present value of the minimum lease payments (in effect the payments. Understand the importance of leases from a business perspective. A lease is a contract between two parties that gives the lessee the right to use property that is owned by the lessor. or (4) under IFRS. and advantages of lease transactions.com/ or contact us at Ebooksmtb@hotmail. If the lessor has acquired an asset for the purpose of leasing it. the lessor recovers its investment through the lease payments. excluding executory costs) that the lessee has agreed to take responsibility for. For more Ebook's . or transmission of this page is prohibited . economic substance. Unauthorized copying. In addition to these sources. and protection against obsolescence. A lease is classified as a capital or finance lease where the risks and benefits of owning the leased asset are transferred to the lessee. The major advantages of leasing for the lessee relate to the cost and flexibility of the financing. leaving users like financial analysts having to guess the extent of debt and leverage of many companies. For the lessor. the asset is capitalized on the lessee’s SFP and a liability is recognized for the obligation owing to the lessor. using the effective interest method. if a bargain purchase is part of the lease agreement. the lease is classified as an operating lease. One of the issues identified by the IASB in existing accounting standards is the lack of transparency in financial reporting of leases. is the annuity amount whose present value exactly equals the amount to be recovered through lease payments. which is evidenced by one or more of the following: (1) the transfer of title. The lessor determines the investment that it wants to recover from a leased asset. 5. the finance income is attractive. Calculate the lease payment that is required for a lessor to earn a specific return. While the revenue recognition criteria are not set out in IAS 17. Aside from any income tax differences.com/ or contact us at Ebooksmtb@hotmail. This is made up of two accounts: (1) the gross investment or lease receivable. Account for an operating lease by a lessee and compare the operating and capitalization methods of accounting for leases. The asset is depreciated to this value by the end of the lease term. usually based on the proportion of time.com Also you can contact us on Skype: Ebooksmtb 20. and account for.needbook1. A lessee recognizes the lease payments that are made as rent expense in the period that is covered by the lease. The existence of a manufacturer’s or dealer’s profit on the amount to be recovered from the lessee is the difference between a manufacturer/dealer or sales-type lease and a direct financing lease. Determine the statement of financial position presentation of a capital (finance) lease and identify other disclosures required. the lessor accounts for the lease as either a direct financing or a sales-type lease. Unauthorized copying. it is classified either as a financing. The long-term portion of the obligation or net investment is the principal balance that will not be paid within 12 months of the SFP date. If a lease. The lessee includes the guaranteed residual in the lease obligation and leased asset value. 9.Solution Manual Please visit our website : http://www. or a manufacturer or dealer lease. distribution. Lessees disclose the same information as is required for capital assets and long-term debt in general. 7. Ltd. 10. the total amount that is charged to expense is the same whether the lease has been treated as a capital/finance lease or as an operating lease. Identify and apply the criteria that are used to determine the type of lease for a lessor under the classification approach. or transmission of this page is prohibited . the lessor accounts for the lease as an operating lease. the lessee takes no responsibility for the residual and it is excluded from the lessee’s calculations. For more Ebook's . or a combination of both. transfers the risks and benefits of ownership of the leased asset to the lessee (decided in the same way as for the lessee) and revenue recognition criteria related to collectibility and ability to estimate any remaining unreimbursable costs are met. In a finance lease. in substance. residual values and bargain purchase options in a lessee’s capital (finance) lease. it is obligated to return either the leased asset or cash. offset by (2) the portion of these amounts that represents Copyright © 2013 John Wiley & Sons Canada. Account for and report basic financing and manufacturer/dealer or sales-type leases by a lessor. the cash flows for a lease are the same whether it is classified as an operating or finance lease. If the residual is unguaranteed. (2) the type of expense that is charged (depreciation and interest expense for a finance lease versus rent expense for an operating lease). information about its leasing arrangements is required. in an amount that is equal to the guaranteed value. Under IFRS. 8. When a lessee guarantees a residual value. and (3) the recognition of an asset and liability on the SFP for a finance lease versus non-recognition for an operating lease. the lessor removes the cost of the leased asset from its books and replaces it with its net investment in the lease. Tenth Canadian Edition 6. Determine the effect of. The current portion also includes the amount of interest that has accrued up to the SFP date. they would be applied in general before any revenue is recognized by the lessor. and under IFRS.4 Test Bank for Intermediate Accounting. The difference relates to (1) the timing of recognition for the expense (more is charged in the early years for a finance lease). If any one of the capitalization or revenue recognition criteria is not met. as the objective is only to generate finance income in the latter. The current portion of the obligation is the principal that will be repaid within 12 months from the SFP date.Test Bank . In addition. Over the term of a lease. details are required of the future minimum lease payments for each of the next five years. 11. the seller-lessee takes the deferred gain or loss into income in proportion to the rental payments made.com/ or contact us at Ebooksmtb@hotmail. Ltd. is deferred by the lessee and recognized in income over the lease term.Test Bank . and the amount of rental income earned. distribution. 15. Account for and report an operating lease by a lessor. The lessor also transfers the inventory “sold” to cost of goods sold. and what changes are expected in the near future. For an operating lease under ASPE. A new lease standard was expected to be issued by the IASB and FASB after a 2013 exposure draft. the lessor records depreciation expense. For both types of lease. Account for and report financing and manufacturer/dealer or sales-type leases with guaranteed residual values or a bargain purchase option by a lessor. the unearned interest is taken into income based on the implicit rate of return that applies to the net investment. Under the classification approach. however. Copyright © 2013 John Wiley & Sons Canada. if the transaction is done at fair value. Explain the classification and accounting treatment for leases that involve real estate. 13. If the relative value of the land is minor. the deferred gain or loss is taken into income over the same period and basis as the depreciation of the leased asset (ASPE) or over the term of the lease (IFRS). Describe and apply the lessee’s accounting for sale-leaseback transactions. ASPE is substantially the same as the IFRS requirements.com Also you can contact us on Skype: Ebooksmtb Leases 20. For a finance lease. Different terminology is used and the classification requirements that differentiate between a capital/finance lease and an operating lease under IFRS are based more on principles and judgement than ASPE. The net investment represents the present value of the lease payments and the residual value or bargain purchase option amounts. the receivable is reduced. As the lease payments are received. A sale and leaseback is accounted for by the lessee as if the two transactions were related. As time passes. The lessor records the lease payments received from the lessee as rental income in the period covered by the lease payment.Solution Manual Please visit our website : http://www. Separate disclosure is required of the cost and accumulated amortization of property held for leasing purposes. For more Ebook's . the accounting is similar except that the net investment represents the sale amount the lessor wants to recover. Identify differences in accounting between ASPE and IFRS. Under a manufacturer/dealer or sales-type lease. the net investment in the lease includes the estimated residual value whether it is guaranteed or not. In general. both the sale and cost of goods sold amounts are reduced by any unguaranteed residual values. Because the leased asset remains on the lessor’s books. 14. a contract-based or right-of-use approach is used by both lessee and lessor. the gain or loss may be taken to income immediately.5 unearned interest. and it was expected to significantly change the approach to lease accounting. Under the revisions planned. any gain or loss. Unauthorized copying.needbook1. 12. with the exception of a real (economic) loss. Under a manufacturer/dealer or sales-type lease. or transmission of this page is prohibited . the minimum lease payments are fully capitalized as building. Under IFRS. the portion of such leases that relates to land is accounted for as an operating lease. or the bargain purchase option amount. Because the capitalization of land by the lessee in a capital or finance lease that does not transfer title results in an unwanted and unintended effect on the lessee’s financial statements. Explain and apply the contract-based approach to a basic lease for a lessee and lessor. The lessee recognizes this right-of-use as an asset and recognizes the obligation to make rental payments as an obligation. distribution. For more Ebook's . Ltd. or transmission of this page is prohibited .Solution Manual Please visit our website : http://www.6 Test Bank for Intermediate Accounting. The lessor recognizes the contractual right to receive lease payments as an asset—a receivable—and recognizes its performance obligation to permit the lessee to use the asset as a liability. the lessor recognizes revenue. The contract-based approach to lease accounting assumes that the asset transferred by the lease contract from the lessor to the lessee is the right to use the leased property. Tenth Canadian Edition 16.com Also you can contact us on Skype: Ebooksmtb 20.needbook1.com/ or contact us at [email protected] Bank . Unauthorized copying. As performance takes place. Copyright © 2013 John Wiley & Sons Canada. Calculate Lease Receivable. Essential element of a lease agreement c 2. Advantages of leasing b 4. a 34.com/ or contact us at Ebooksmtb@hotmail. Calculate minimum annual lease payment. d 38.needbook1. Calculate operating lease expense. Gain/loss recognition in a sale-leaseback a *19. Calculate rent expense with inducement. Calculate income before taxes from operating lease. Identification of lease type for lessee c 23. d 31. Disclosing obligations under leases c 13. Accounting for a sales-type lease (manufacturer or dealer lease) d 17.com Also you can contact us on Skype: Ebooksmtb Leases 20. Current standards in lease accounting c 5. c 37. Calculate gross profit and interest income for lessor. c 26. Unauthorized copying. a 39. Components of gross investment in lease a 15. Lessee accounting for a capital (finance) lease a 10. Determine interest rate implicit in lease payments. Classification of lease of land d *20.Test Bank . b 29.7 MULTIPLE CHOICE—Conceptual Answer No. a 27. Calculate reduction of lease obligation for lessee. Calculate gross profit and interest income for lessor. Revenues and expenses recorded by lessor/operating lease b *41. Calculate depreciation and interest expense for lessee. Calculate interest expense and depreciation expense for lessee. Copyright © 2013 John Wiley & Sons Canada. d 40. Contract-based approach MULTIPLE CHOICE—Computational Answer No.Solution Manual Please visit our website : http://www. Expense recorded by lessee/operating lease c 33. b 32. Identification of lease type for lessee b 22. d 30. Calculate total annual lease payment. Interest/discount rate used by lessee c 8. Components of minimum lease payments d 7. c 28. For more Ebook's . Calculate operating lease income/expense. Recognition of unearned interest income c 16. operating lease c 12. Rent expense with sale-leaseback b *42. Identification of executory costs a 3. Depreciation of a leased asset by lessee b 11. Identification of lease type for lessor b 36. Ltd. or transmission of this page is prohibited . c 25. Description b 1. ASPE capitalization criteria d 6. Description c 21. distribution. Effect on accounting of finance lease vs. Calculate depreciation expense for lessee. Identify incorrect statement c 9. Identification of lease type for lessor a 35. Objective of accounting for direct financing leases by lessor d 14. Accounting for initial direct costs c *18. d 24. Calculate rent expense. Calculate income realized by lessor. Determine reduction of lease obligation for lessee. Description c 46. a 49. a 48.Test Bank . Calculate the lease liability of a lessee. Tenth Canadian Edition a *43. d 51. Calculate the lease liability of a lessee. a 50. distribution. Calculate depreciation expense for lessee. Copyright © 2013 John Wiley & Sons Canada. contract-based approach E20-59 Lessor accounting—sales-type lease E20-60 Accounting for a capital lease by the lessee E20-61 Capital lease amortization and journal entries E20-62 Operating lease calculations E20-63 Accounting for a direct financing lease by lessor *E20-64 Lessee and lessor accounting (sale-leaseback) *E20-65 Lessee and lessor accounting (sale-leaseback) PROBLEMS Item Description P20-66 Lessee accounting—capital lease P20-67 Lessee accounting—capital lease P20-68 Lessor accounting—lease with IFRS criteria *P20-69 Sale and leaseback *This topic is dealt with in an Appendix to the chapter. Reporting gain on a sale-leaseback b *54.com Also you can contact us on Skype: Ebooksmtb 20. d *53. Calculate interest expense for lessee. Unauthorized copying. a 52. Determine long-term lease obligation for lessee. or transmission of this page is prohibited . Lease-related income in sale-leaseback MULTIPLE CHOICE—CPA Adapted Answer No. Ltd. For more Ebook's . b *45. Calculate lease-related expenses recognized by lessee. Identification of lease type for lessee d 47.needbook1.com/ or contact us at Ebooksmtb@hotmail. d *44.8 Test Bank for Intermediate Accounting.Solution Manual Please visit our website : http://www. Accounting for deferred profit in a sale-leaseback EXERCISES Item Description E20-55 Types of lessors E20-56 Lease criteria under IFRS E20-57 Lease criteria for classification by lessor under ASPE *E20-58 Classification approach vs. 5. property taxes and depreciation.com/ or contact us at Ebooksmtb@hotmail. b. Ltd. c. the minimum rental payments. b. The lease transfers ownership of the property to the lessor. interest and property taxes. b. insurance. insurance and income taxes. maintenance. the minimum lease payments may include a. a bargain purchase option and a guaranteed residual value. or transmission of this page is prohibited . b. All leases are capitalized. Only long-term leases are capitalized. distribution. The fair value of the minimum lease payments is equal to 90% or more of the present value of the leased asset. 100% financing at fixed rates d. c. Copyright © 2013 John Wiley & Sons Canada. d. 7.needbook1. the minimum rental payments and a guaranteed residual value only. maintenance. 2. lease must contain a bargain purchase option. An essential element in a lease agreement is that the a. c. In calculating the present value of the minimum lease payments. Unauthorized copying. the minimum rental payments and a bargain purchase option only.9 MULTIPLE CHOICE—Conceptual 1. lessee transfers less than the total interest in the property. Leases similar to instalment purchases are capitalized. Which of the following best describes current standards in accounting for leases? a. Which of the following is a correct statement regarding one of the ASPE capitalization criteria? a. Executory costs include a. Leases are not capitalized. use its incremental borrowing rate in all cases. d. d. rental (lease) payments must be constant for the duration of the lease. c. 3. no tax advantages for the lessor b. For more Ebook's . d. d. interest. 6. The lease term is 75% or more of the leased property’s estimated economic life. protection against obsolescence 4. The lease must contain a bargain purchase option. b. cheaper financing c. maintenance and property taxes.Solution Manual Please visit our website : http://www. Which of the following is NOT a potential advantage of leasing? a.Test Bank . IFRS requires the lessee should a. and a guaranteed residual value. lessor transfers less than the total interest in the property.com Also you can contact us on Skype: Ebooksmtb Leases 20. For a lessee. a bargain purchase option. c. For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 20- 10 Test Bank for Intermediate Accounting, Tenth Canadian Edition b. use either its incremental borrowing rate or the interest rate implicit in the lease, whichever is higher. c. use either its incremental borrowing rate or the interest rate implicit in the lease, whichever is lower. d. use the interest rate implicit in the lease whenever this is reasonably determinable, otherwise use the lessee’s incremental borrowing rate. 8. Regarding a basic capital (finance) lease for a lessee, which of the following statements is INCORRECT? a. The lessee records the leased asset at the lower of the minimum lease payments and the fair value of the asset at the lease’s inception. b. The lessee accounts for the lease as if an asset is purchased and a long-term obligation is entered into. c. The lessor uses the lease as a source of funding. d. The lessee uses the lease as a source of funding. 9. When a lessee is accounting for a capital (finance) lease a. a guaranteed residual value is excluded from the “minimum lease payments.” b. an unguaranteed residual value is excluded from the “minimum lease payments.” c. a guaranteed residual value is basically an additional lease payment due at the end of the lease. d. the present value of any guaranteed residual is deducted from the leased asset cost in determining the depreciable amount. 10. In calculating depreciation of a leased asset, the lessee should subtract a(n) a. guaranteed residual value and depreciate over the term of the lease. b. unguaranteed residual value and depreciate over the term of the lease. c. guaranteed residual value and depreciate over the economic life of the asset. d. unguaranteed residual value and depreciate over the economic life of the asset. 11. In the earlier years of a lease, from the lessee's perspective, accounting for a leased asset as a. a finance lease will enable the lessee to report higher income in the earlier years, compared to accounting for it as an operating lease. b. a finance lease will cause debt to increase, compared to accounting for it as an operating lease. c. an operating lease will cause income to decrease in the earlier years, compared to accounting for it as a finance lease. d. an operating lease will cause debt to increase, compared to accounting for it as a finance lease. 12. Obligations under leases should be disclosed as a. all current liabilities. b. all noncurrent liabilities. c. the current portion in current liabilities and the remainder in noncurrent liabilities. d. deferred credits. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Leases 20- 11 13. For companies engaged in direct financing leases (ASPE) or finance leases (IFRS) a. they are generally manufacturers or retail stores. b. their profits are derived from leasing their inventory at a profit. c. their objective is to earn interest income on the financing arrangement with the lessee. d. such leases are frequently operating leases. 14. For a lessor, which of the following would NOT be included in the Gross Investment in Lease (Lease Receivable)? a. guaranteed residual value b. unguaranteed residual value c. bargain purchase option d. executory costs 15. In a lease that is appropriately recorded as a direct financing lease (ASPE) or finance lease (IFRS) by the lessor, the unearned interest income is a. amortized and taken into income over the lease term using the effective interest method. b. amortized and taken into income over the lease term using the straight-line method. c. taken into income at the inception of the lease. d. taken into income at the end of the lease. 16. For a sales-type lease (ASPE) or manufacturer or dealer lease (IFRS), a. the sales price includes the present value of the unguaranteed residual value. b. the present value of the guaranteed residual value is deducted to determine the cost of goods sold. c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed. d. cost of goods sold is not recognized. 17. Initial direct costs are a. costs incurred by a lessee that are directly associated with negotiating and arranging a lease. b. expensed in the year of incurrence by the lessor in a financing-type lease. c. spread over the term of a sales-type lease by the lessee. d. deferred and allocated over the term of an operating lease in proportion to the amount of rental (lease) income that is recognized. *18. If a corporation adhering to IFRS sells machinery at fair value and then leases it back (sale-leaseback) as a finance lease, any gain on the sale should be a. recognized in the year of “sale.” b. recorded as other comprehensive income. c. deferred and amortized to income over the term of the lease. d. deferred and recognized as income at the end of the lease. *19. If land is the sole property being leased, and title does NOT transfer at the end of the lease, it Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 20- 12 Test Bank for Intermediate Accounting, Tenth Canadian Edition should be accounted for as a(n) a. operating lease. b. capital lease. c. sales-type lease. d. direct-financing lease. *20. Which statement is correct regarding the contract-based approach advocated by the IASB and FASB? a. The lessee recognizes a lease as the leased property itself when there is a transfer of the risk and benefits of ownership. b. It includes contracts that actually transfer control of the underlying assets itself or almost all of the risks and benefits of ownership. c. It will apply to all types of assets, including property, plant and equipment, and intangible assets. d. The asset taken on by the lessee is viewed as the contractual right to the use the asset, not the transfer of the asset itself. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Leases 20- 13 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. 1. b 4. b 7. d 10. a 13. c 16. c *19. a 2. c 5. c 8. c 11. b 14. d 17. d *20. d 3. a 6. d 9. c 12. c 15. a *18. c Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 20- 14 Test Bank for Intermediate Accounting, Tenth Canadian Edition MULTIPLE CHOICE—Computational 21. On January 1, 2014, Dionne Ltd. signs a 10-year non-cancellable lease agreement to lease a storage building from Seline Inc. Seline is in the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the lessor (other than executory costs). Both the lessor and the lessee are private corporations adhering to ASPE. The following information is available regarding this lease agreement: 1. The agreement requires equal payments at the end of each year. 2. At January 1, 2014, the fair value of the building is $900,000 and Seline’s book value is $750,000. 3. The building has an estimated economic life of 10 years, with no residual value. Dionne uses straight-line depreciation for all its depreciable assets. 4. At the termination of the lease, title to the building will transfer to the lessee. 5. Dionne's incremental borrowing rate is 11%. Seline Inc. set the annual rental to ensure a 10% rate of return. The lessor’s implicit rate is known to Dionne. 6. The yearly lease payment includes $3,000 executory costs related to taxes on the property. From the lessee's viewpoint, what type of lease is this? a. sales-type lease b. sale-leaseback c. capital lease d. operating lease 22. On January 1, 2014, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. 2. The fair value of the machine on January 1, 2014, is $700,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease. 3. Marlene depreciates all its machinery on a straight-line basis. 4. Marlene's incremental borrowing rate is 10%. Marlene does not have knowledge of the 8% implicit rate used by Dietrich. 5. Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful. From Marlene’s viewpoint, what type of lease is this? a. operating lease b. finance lease c. manufacturer or dealer lease d. other finance lease Use the following information for questions 23–24. On January 1, 2014, Dionne Ltd. signs a 10-year non-cancellable lease agreement to lease a storage building from Seline Inc. Seline is in the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Leases 20- 15 lessor (other than executory costs). Both the lessor and the lessee are private corporations adhering to ASPE. The following information is available regarding this lease agreement: 1. The agreement requires equal payments at the end of each year. 2. At January 1, 2014, the fair value of the building is $900,000 and Seline’s book value is $750,000. 3. The building has an estimated economic life of 10 years, with no residual value. Dionne uses straight-line depreciation for all its depreciable assets. 4. At the termination of the lease, title to the building will transfer to the lessee. 5. Dionne's incremental borrowing rate is 11%. Seline Inc. set the annual rental to ensure a 10% rate of return. The lessor’s implicit rate is known to Dionne. 6. The yearly lease payment includes $3,000 executory costs related to taxes on the property. 23. Rounded to the nearest dollar, the amount of the minimum annual lease payment is a. $ 56,471. b. $143,471. c. $146,471. d. $149,471. 24. Rounded to the nearest dollar, the amount of the total annual lease payment is a. $ 56,471. b. $143,471. c. $146,471. d. $149,471. 25. On January 1, 2014, X-Man Corp. signed a ten-year non-cancellable lease for new machinery. The terms of the lease called for X-Man to make annual payments of $100,000 at the end of each year for ten years, with title to pass to X-Man at the end of the lease period. X-Man accordingly accounted for this lease transaction as a finance lease. The machinery has an estimated useful life of 15 years and no residual value. X-Man uses straight-line depreciation for all of its property, plant and equipment. The lease payments were determined to have a present value of $671,008 at an effective interest rate of 8%. It was also determined that the fair value of the machinery on January 1, 2014 was $674,000. With respect to this lease, for the year ending December 31, 2014, X-Man should report (rounded to the nearest dollar) a. lease expense of $100,000, and depreciation expense of $44,734. b. interest expense of $53,681 and depreciation expense of $67,101. c. interest expense of $53,681 and depreciation expense of $44,734. d. interest expense of $53,920 and depreciation expense of $44,933. 26. On January 1, 2014, Dionne Ltd. signs a 10-year non-cancellable lease agreement to lease a storage building from Seline Inc. Seline is in the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the lessor (other than executory costs). Both the lessor and the lessee are private corporations adhering to ASPE. The following information is available regarding this lease agreement: 1. The agreement requires equal payments at the end of each year. 2. At January 1, 2014, the fair value of the building is $900,000 and Seline’s book value is Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 20- 16 Test Bank for Intermediate Accounting, Tenth Canadian Edition $750,000. 3. The building has an estimated economic life of 10 years, with no residual value. Dionne uses straight-line depreciation for all its depreciable assets. 4. At the termination of the lease, title to the building will transfer to the lessee. 5. Dionne's incremental borrowing rate is 11%. Seline Inc. set the annual rental to ensure a 10% rate of return. The lessor’s implicit rate is known to Dionne. 6. The yearly lease payment includes $3,000 executory costs related to taxes on the property. Rounded to the nearest dollar, how much depreciation expense would Dionne record on this asset for calendar 2014? a. $ 0 b. $ 75,000 c. $ 90,000 d. $146,471 27. On July 1, 2014, Justin Ltd., a dealer in machinery and equipment, leased equipment to Trudeau Inc. The lease is for ten years, and at the end of the lease period, title will pass to Trudeau. Justin requires ten equal annual payments of $62,100 on July 1 of each year, and Trudeau made the first payment on July 1, 2014. Justin had purchased the equipment for $390,000 on January 1, 2014, and established a selling price of $500,000 (which was fair value at July 1, 2014). Assume that, at July 1, 2014, the present value of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $450,000. The useful life of the equipment is 12 years. For the year ended December 31, 2014, and assuming that Trudeau uses straight-line depreciation, how much depreciation and interest expense should Trudeau record? a. $18,750 and $15,516 b. $18,750 and $24,840 c. $22,500 and $15,516 d. $22,500 and $24,840 28. On January 1, 2014, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. 2. The fair value of the machine on January 1, 2014, is $700,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease. 3. Marlene depreciates all its machinery on a straight-line basis. 4. Marlene's incremental borrowing rate is 10%. Marlene does not have knowledge of the 8% implicit rate used by Dietrich. 5. Immediately after signing the lease, Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful. Assume the present value of the lease payments is $700,000 at January 1, 2014. If Marlene accounts for this lease as a finance lease, what is the amount of the reduction in the lease obligation in calendar 2015? (Round to the nearest dollar.) a. $201,622 b. $215,622 c. $221,784 Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Leases 20- 17 d. $232,873 29. On December 1, 2014, Quincannon Corp. leased office space for 10 years at a monthly rental of $25,000, under an operating lease. On that date Quincannon paid the landlord the following amounts: Rent deposit .............................................. $25,000 First month's rent ...................................... 25,000 Last month's rent....................................... 25,000 Installation of new walls and offices .......... 135,000 $210,000 Quincannon debited the entire $210,000 payment to Prepaid Rent. How much should Quincannon recognize as rent expense for the year ended December 31, 2014? a. $25,000 b. $26,125 c. $51,125 d. $137,500 30. Laurel Ltd. leased an office building to Hardy Inc. for a three year, non-renewable term. This was properly classified as an operating lease by both parties. The monthly rental is set at $12,000 per month. However, as an added inducement, Laurel agreed to grant Hardy a four-month rent-free period at the beginning of the lease, and a further two-month rent-free period at the end of the lease. How much rent expense should Hardy record each month during the three year period? a. $12,000 b. $11,250 c. $10,667 d. $10,000 31. On May 1, 2014, Charles Corp. leased equipment to Darwin Inc. for one year under an operating lease. Instead of leasing it, Darwin could have bought the equipment from Charles for $800,000 cash. At this time, Charles's accounting records showed a book value for the equipment of $700,000. Depreciation on the equipment in 2014 was $90,000. During 2014, Darwin paid $22,500 per month rent to Charles for the 8-month period, and Charles incurred maintenance and other related costs under the terms of the lease of $16,000. The pre-tax expense reported by Darwin from this lease for the year ended December 31, 2014, should be a. $74,000. b. $90,000. c. $164,000. d. $180,000. 32. On January 1, 2014, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited Dionne Ltd. or transmission of this page is prohibited . Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful. 2014. $490.000) $(450.000 $(360. Seline is in the business of leasing/selling property. Dionne's incremental borrowing rate is 11%. The following information is available regarding this lease agreement: 1. what expense(s) will be reported in calendar 2014 in relation to this lease? a. for one year. 4. and the next day.000. is $700. On July 1. Dionne uses straight-line depreciation for all its depreciable assets. $490. The machine reverts to the lessor upon the termination of the lease. signs a 10-year non-cancellable lease agreement to lease a storage building from Seline Inc. Unauthorized copying. 6. The equipment. The original cost of the equipment was $3. Immediately after signing the lease. title to the building will transfer to the lessee. leased heavy equipment to Duey Inc. The building has an estimated economic life of 10 years. the fair value of the building is $900.000) $(360. distribution. 3.000) b. Duey returned the equipment on June 30. Seline Inc. 2014. On January 1.000 $(360. $810.000 a month.000 executory costs related to taxes on the property. Rent Expense c. for three years.000) d. Marlene depreciates all its machinery on a straight-line basis.000 a month. 2011.Solution Manual Please visit our website : http://www. Marlene's incremental borrowing rate is 10%. Ltd. set the annual rental to ensure a 10% rate of return. 2013.Test Bank . leased this equipment to Luey Ltd. The yearly lease payment includes $3. is being depreciated on a straight-line basis over ten years with no residual value.000) c. From the lessor's viewpoint. which has been continually on lease since July 1.needbook1. At January 1. 5. 2014. If Marlene accounts for the lease as an operating lease. Huey Corp. sales-type lease b. Marlene does not have knowledge of the 8% implicit rate used by Dietrich. The machine has a remaining economic life of 10 years.200. Depreciation Expense and Interest Expense 33.000 and Seline’s book value is $750. 5. Assuming that both the lease to Duey and the lease to Luey are appropriately recorded as operating leases for accounting purposes. The fair value of the machine on January 1. Huey Corp.18 Test Bank for Intermediate Accounting. The lessor’s implicit rate is known to Dionne. At the termination of the lease. $450. 2. Depreciation Expense b. with no residual value. Interest Expense d.com Also you can contact us on Skype: Ebooksmtb 20. 4. 2014? Huey Duey Luey a. For more Ebook's . Both the lessor and the lessee are private corporations adhering to ASPE. what type of lease is this? a. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the lessor (other than executory costs). The agreement requires equal payments at the end of each year.com/ or contact us at Ebooksmtb@hotmail. Tenth Canadian Edition 2. how much net income (loss) before income taxes that each company would record as a result of the above facts for the year ended December 31. 3.000 $(360.000. at $75. at $60.000) $(450.000) $(900.000. 2014.000) 34. with no residual value. sale-leaseback Copyright © 2013 John Wiley & Sons Canada.000 $(450. 2014. Both corporations adhere to ASPE. $70. The lease is for ten years.516 d. enters into an agreement with Dietrich Rentals Inc. under an eight year capital (finance) lease. other finance lease 36.516 c. For the year ended December 31. 2014. 3. and title will transfer to Nickel at the end of the lease contract. Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful. $70. The appropriate rate of interest for this lease is 9%.needbook1. On January 1. a dealer in machinery and equipment. 2014.000 (which was fair value at July 1.000 on January 1. On July 1.com/ or contact us at Ebooksmtb@hotmail. direct financing lease d. $110. The first payment is made on July 1. What is the amount of gross profit and interest income that Dime would record for the year ended December 31. $0 and $23.000 c.000.000 and $23. The present value of the lease payments is $620. is $700. 2014. payable on July 1 of each year.622 are due on December 31 of each year. 2014. 2014. manufacturer or dealer lease d.Test Bank . Marlene does not have knowledge of the 8% implicit rate used by Dietrich. Marlene Corp.637 and $23.000 and $24.000 and $15.. distribution. Justin Ltd. 2014. Equal annual payments of $100. The useful life of the equipment is 12 years.. 2014). The fair value of the equipment is $620. to lease a machine from them.400 d. The machine has a remaining economic life of 10 years. Assume that.637. 2014.Solution Manual Please visit our website : http://www. Nickel Ltd.19 c. operating lease b.100 on July 1 of each year. The term of the non-cancellable lease is three years with no renewal option. finance lease c. leases equipment from Dime Corp.400 Copyright © 2013 John Wiley & Sons Canada.000 are required. operating lease 35. the present value of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $450. The following data relate to the agreement: 1. The machine reverts to the lessor upon the termination of the lease. and at the end of the lease period. Justin requires ten equal annual payments of $62. Ltd. On July 1. leased equipment to Trudeau Inc. From Dietrich’s viewpoint. $ 0 and $15. Unauthorized copying.516 b. Payments of $271.000. with no residual value. and established a selling price of $500. Justin had purchased the equipment for $390. 4. Marlene depreciates all its machinery on a straight-line basis. 2. $231. at July 1. $ 60. 2014? a. title will pass to Trudeau. 2014. 5.000 and $15. The fair value of the machine on January 1.com Also you can contact us on Skype: Ebooksmtb Leases 20. Immediately after signing the lease. and Trudeau made the first payment on July 1. For more Ebook's .840 37.400 b.000. or transmission of this page is prohibited . what is the amount of gross profit and interest income that Justin should record regarding this lease? a. what type of lease is this? a. $0 and $36.000 and the cost in Dime's accounting records is $550. Marlene's incremental borrowing rate is 10%. 2014. Marlene's incremental borrowing rate is 10%. If Dietrich records this lease as a finance lease.000.500 per month rent to Charles for the 8-month period. $271.000. The net income before income taxes reported by Charles from this lease for the year ended December 31. Darwin could have bought the equipment from Charles for $800. Unauthorized copying.622 are due on December 31 of each year. 3.000 cash. with no residual value. what amount would be recorded as Lease Receivable at the inception of the lease? a.000. $90.000. On May 1.000 d. Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful. and Charles incurred maintenance and other related costs under the terms of the lease of $16. During 2014. Tenth Canadian Edition 38. The term of the non-cancellable lease is three years with no renewal option. Ltd. Immediately after signing the lease. On January 1. $164. Marlene depreciates all its machinery on a straight-line basis. At this time. The machine has a remaining economic life of 10 years. 40. enters into an agreement with Dietrich Rentals Inc. distribution. 2014. 4. Marlene does not have knowledge of the 8% implicit rate used by Dietrich. Marlene depreciates all its machinery on a straight-line basis. b. Both corporations adhere to ASPE. to lease a machine from them.000.000. Marlene's incremental borrowing rate is 10%. Dietrich discovers that Marlene is the defendant in a lawsuit that is sufficiently material to make collectibility of future lease payments doubtful. Immediately after signing the lease. The machine reverts to the lessor upon the termination of the lease. Marlene does not have knowledge of the 8% implicit rate used by Dietrich. $814. should be a. Charles's accounting records showed a book value for the equipment of $700. 2014. 2.needbook1. Copyright © 2013 John Wiley & Sons Canada. enters into an agreement with Dietrich Rentals Inc. The term of the non-cancellable lease is three years with no renewal option. For more Ebook's . 5. is $700. is $700. Both corporations adhere to ASPE.Solution Manual Please visit our website : http://www. 4. Charles Corp.000. to lease a machine from them.20 Test Bank for Intermediate Accounting. The following data relate to the agreement: 1. Instead of leasing it. 3. On January 1. with no residual value. Depreciation on the equipment in 2014 was $90. The fair value of the machine on January 1.866 39. Payments of $271. 5.Test Bank . $700. Marlene Corp. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb 20. $675. The machine has a remaining economic life of 10 years. 2014. 2014. The following data relate to the agreement: 1.000.622 b. The fair value of the machine on January 1. leased equipment to Darwin Inc.483 c. $180. $74.000. Marlene Corp. for one year under an operating lease. Darwin paid $22. Payments of $271. d. 2014. 2.622 are due on December 31 of each year. c. The machine reverts to the lessor upon the termination of the lease.com/ or contact us at Ebooksmtb@hotmail. Sharma leased back the equipment at $6.66 46.Solution Manual Please visit our website : http://www.21 If Dietrich accounts for the lease as an operating lease.com Also you can contact us on Skype: Ebooksmtb Leases 20. The lease is a 10-year. The equipment had a book value of $500.862. What is the amount of the lessee's obligation to the lessor after the December 31. $76.000.509. 2013 $500. Interest Expense and Depreciation Expense d. $24. 12% b. $80.42 Dec 31.000. when construction was completed. non-cancellable lease. Ball uses straight-line amortization for its other assets. The same day. $30. 2013 $81. sold equipment for $300. Ltd. 10% c. d. 6% *43.627. Interest Income c. 2014. Title to the property will revert back to Ball at the end of the lease.000. 2014 81. c.000.372. For more Ebook's . Rental Revenue and Depreciation Expense *41.000. and immediately leased it back from the oil company.000.000. 2015 81.66 468.74 37.156.000. 2014.66 $50. b. d. The total lease-related expenses recognized by the lessee during 2014 are (rounded to the nearest dollar) a. Use the following information for questions *42–*45.863. The economic life of the station is 15 years with zero residual value. Ball Ltd. b. Sharma Corp.com/ or contact us at Ebooksmtb@hotmail. at a total cost of $450. what revenue(s) and/or expense(s) will be reported in calendar 2014 in relation to this lease? a. $36.000. or transmission of this page is prohibited . On January 2.74 34. Fair value of the land at the time of the sale was $50. Sharma's equipment rent expense for this equipment for the year ended December 31.92 434. purchased land and constructed a service station. c. distribution.Test Bank . $91.373.66 43.000 and a remaining useful life of 10 years.50 *42.00 Dec 31.needbook1. 8% d. A partial amortization schedule for this lease follows: Payments Interest_ Amortization Balance__ Jan 02.372. On June 30. Rental Revenue b.372. What is the interest rate implicit in the amortization schedule presented above? a. $81.117.000 per month for 5 years with no option to renew the lease or repurchase the equipment. Ball sold the service station and land to a major oil company for $500. *44.000.000.372.34 Dec 31.00 $31.92 396. 2013.960.863. $72. should be a.411. 2015 Copyright © 2013 John Wiley & Sons Canada. Unauthorized copying. Solution Manual Please visit our website : http://www.com Also you can contact us on Skype: Ebooksmtb 20. b.000. or transmission of this page is prohibited . d.) a.Test Bank . $3.157 *45.22 Test Bank for Intermediate Accounting. $500. $468. $5.needbook1. $50. distribution. Ltd. For more Ebook's . The total lease-related income recognized by the lessee during 2014 is a.000 b.117 d. Copyright © 2013 John Wiley & Sons Canada. $ -0-. Unauthorized copying.333. c. $434. $396.627 c. Tenth Canadian Edition payment? (Round to the nearest dollar.000.com/ or contact us at Ebooksmtb@hotmail. 69005 3 2.33493 4.12000 3 3.10000 2.18079 14.08000 2. c *41. d 34.46321 6.86842 4. For more Ebook's . Item Ans.06000 2.52563 5.85941 1. b 22.11141 7 5.71561 8.31013 4.32825 10 7.60478 6 5.00000 2 2.71008 6.15250 3.96764 9 7. 21.10782 6.99271 3. b 36.46511 3. b 40. b 26.89286 2 1. b 33.90909 . a 24.39384 8. Unauthorized copying.72173 7.58238 5.49132 12.83339 1.62288 4.89747 10. d 35. c 30.54874 Present Value of an Ordinary Annuity of 1 Period 5% 6%_ 8%_ 10%_ 12%_ 1 . d 28.50611 4.20637 4.11519 7 8.16986 3. b 23.48656 15.54595 3.com/ or contact us at [email protected] MULTIPLE CHOICE ANSWERS—Computational Item Ans.95238 .48717 10.80191 6.00000 1.Solution Manual Please visit our website : http://www.54911 9.65022 Copyright © 2013 John Wiley & Sons Canada.72325 2.07569 4.com Also you can contact us on Skype: Ebooksmtb Leases 20. a *43.35285 6 6.86660 6. Item Ans.20979 5. b *45. Item Ans.40183 4 3.73554 1.14201 8.24689 5.57710 2.63709 5.37462 4.78637 5.80169 6.33592 7. Ltd.32948 4.10510 6.21236 3.79079 3.00000 1. d *44.Test Bank .14457 5.64100 4.43589 12.67301 2.57789 13.31000 3.29969 9 11.00000 1.92280 9.02656 11. c 27.03735 5 4.93743 17.37440 4 4. a 31.97532 7.18360 3.74664 5.08901 8 9.91732 4. c 25.63663 11. or transmission of this page is prohibited .75902 5.48685 2.77566 10 12. c 37. a 38.31213 3. a 39.36009 6.78326 1. c 29. d *42. c 32.48756 13.57948 14. d Future Value of Ordinary Annuity of 1 Period 5%__ 6%__ 8%_ 10%__ 12%_ 1 1.05000 2.77933 5 5. Item Ans.00000 1. Item Ans. Item Ans.35526 4.92593 . distribution.24640 3.56376 8 6.94340 . 000 = $74. a ($22.000 x 30) ÷ 36 = $10.750 $450.483. c $671.000 = $60.008 ÷ 15 = $44. b $450. c Conceptual 22.08 X 6/12 = $15.863 *44.000 – $50. b $6.000/10) x 1 ÷ 12] = $26.622 × 2. d $22.000 × .1)] = $498.000 – [$271.000 31.08 X 6/12 = $15.008 × . or transmission of this page is prohibited .734 26. distribution.000) 34.000 40.08 = $53.622 – ($498.000 = $149.000 – $90.000 ÷ 10) = $490.000 32.000 *42. c $700.000) × 6 = $(450.471 (PV of Ordinary Annuity Table) 24.000 ($620.125 30. $671.) *45. FV exceeds cost (profit element) 35.Test Bank .516 28.000 ($450. a [($500.000 = $70.157 (See amortization table.000 – $100.471 25. a Fails to meet all requirements for lessor 36.863 = $76.622 – ($700. d $146.784 29. Ltd.500 x 8 = $180.com/ or contact us at [email protected] 27.483 = 96% > 90% $700.000 × 6) – ($3.needbook1.100) × .500 x 8) – $16.866 39. a Conceptual.333 Copyright © 2013 John Wiley & Sons Canada.378 × . c $620. c $900. $675. b $271. b $25.000 = 10% *43. b $50.09 X 6/12= $23.14457 = $146.48685 = $675.com Also you can contact us on Skype: Ebooksmtb 20.000 × 6 = $36. d ($12.378 $271.000) Luey: ($75.000 – $62. b Conceptual 33.000/12 x 50% = $18. d Conceptual *41.681.000) × 6 = $(360. Tenth Canadian Edition DERIVATIONS—Computational No. Unauthorized copying. c Huey: ($60.516 37. b ($500.000 – $550.000 – $450.000) ÷ 15 = $3.000) ÷ 15] + $46.200.000 ÷ 6. Answer Derivation 21. d $396.400 38.000) × .471 + $3. d $271.Solution Manual Please visit our website : http://www.000 × 6) + ($75.000 Duey: ($60.1) = $221.000 – $62.622 × 3 = $814. a $450.000 +[($135.000 23.24 Test Bank for Intermediate Accounting.000 – $390.000 ÷ $500.000 ÷ 10 = $90.100) × . c $900. For more Ebook's . 500 d. 47. For more Ebook's . but the lease term is equal to 90% of the estimated economic life of the leased property. Ltd. with no residual value.500 48. Cambridge Ltd. one-tenth of the original lease liability. 2014. the current liability shown for the lease at the end of year 1. On their 2014 income statement. $17.com/ or contact us at Ebooksmtb@hotmail. Capital lease Capital lease d. $21. $17.500 d. with title passing to Cambridge at the end of the lease.Test Bank . or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb Leases 20. Using ASPE criteria. Lease A does not contain a bargain purchase option.000. 2014. $35.000 from Copyright © 2013 John Wiley & Sons Canada. based on an implicit interest rate of 10%.needbook1. Cambridge uses straight-line depreciation for all its plant assets. but the lease term is equal to 85% of the estimated economic life of the leased property. how should the lessee classify these leases? Lease A Lease B a. d.Solution Manual Please visit our website : http://www. $10. the current liability shown for the lease at the end of year 2.000. On December 31.750 b. how much depreciation expense should Cambridge report in connection with this lease? a. Capital lease Operating lease Use the following information for questions 47–48. c. $13. The drill press has an estimated useful life of 20 years.500 c.125 c. 50. Eastern Inc. $0 b. how much interest expense should Cambridge report in connection with this lease? a.000 49. leased machinery with a fair value of $420. 2014. signed a ten-year non-cancellable lease for a heavy-duty drill press. Unauthorized copying. starting December 31. On their 2014 income statement. the reduction of the lease obligation in year 1. The reduction of the lease liability in year 2 should equal a. The lease required annual payments of $35. A lessee reported a ten-year capital lease requiring equal annual payments. distribution. The lease payments were determined to have a present value of $215. b.25 MULTIPLE CHOICE—CPA Adapted 46. Cambridge is accounting for this lease as a capital (finance) lease. Operating lease Capital lease b. On January 2. $21. Lease B does not transfer ownership of the property to the lessee by the end of the lease term. Operating lease Operating lease c. 52. $303. or transmission of this page is prohibited . Madrigal Corp. $383. On its December 31. what amount of income should Sukwinder report from this lease? a. b. For the year ended December 31. The present value of an annuity due for 6 years at 11% is 4. distribution. sold its headquarters building at a gain. The present value of the minimum lease payments at the inception of the lease (before the first payment) was $1. however. and there are no additional costs (other than executory costs) to be incurred by Sukwinder. The normal sales price of the equipment (fair value) is $462. Unauthorized copying.251. Northern Skies Corp. Copyright © 2013 John Wiley & Sons Canada. a separate component of shareholders' equity. The first payment was made on December 31. $198. b. $132. other comprehensive income. Sukwinder Corp. Ltd. the gain should be reported as a.000 annual executory costs).6959.100.000. $855. for five years.000 b. At the time of the sale.7908. 2014. 2013.900. and the second payment on December 31. The lease was reported as a capital (finance) lease. and simultaneously leased back the building from the buyer.com/ or contact us at Ebooksmtb@hotmail. c. On its December 31. Eastern adheres to IFRS. they also know that the interest rate implicit in the lease payments is 10%. The lease is being accounted for as a finance lease by Northern Skies. Annual lease payments are $315.000. The appropriate interest rate for this type of lease is 10%.Solution Manual Please visit our website : http://www.000.com Also you can contact us on Skype: Ebooksmtb 20. 2013. $138. The present value of an annuity due for 6 years at 10% is 4. Eastern’s incremental borrowing rate is 11%. Annual lease payments are $126.26 Test Bank for Intermediate Accounting.000 *53. $102. For more Ebook's . leased a machine from Eastern Star Ltd. due on December 31 each year.Test Bank . d.264. The lease is appropriately accounted for by Eastern as a finance lease. On December 31.000.000 c.264. b.000 executory costs) and are due on December 31 of each year. $951. 2014 statement of financial position.needbook1. $746. $936. Tenth Canadian Edition Northern Rentals.672. with ownership of the equipment being transferred to Pattar at the end of the lease. $340.000 (including $15. 51. 2014 statement of financial position. for a five-year period.000.000. d. and Sukwinder’s cost is $360. a deferred gain. The agreement is a six-year non-cancellable lease requiring annual payments of $80. operating income. $375. d. Sukwinder leased equipment to Pattar Sales Inc. 2014. On December 31.000 (including $6. c. 2014.000 d. 2014. Northern Skies should report a lease liability of a. c. Eastern should report a lease liability of (rounded to the nearest dollar) a. manufactures equipment for sale or lease. 2014. Collectibility of the remaining lease payments is reasonably assured. The first payment was made on December 31.000 beginning December 31. ... b.....needbook1...Solution Manual Please visit our website : http://www......000...000 Present value of reasonable lease rentals ($1.....com/ or contact us at Ebooksmtb@hotmail. $17.. Copyright © 2013 John Wiley & Sons Canada..... 2014 statement of financial position...000 Book value of machine .. 165.. $ 0..... and simultaneously leased it back for one year....000. sold a machine to Martin Inc.27 *54....... On December 31..... d. Lewis Ltd.... or transmission of this page is prohibited . c.. distribution.883 Machine’s estimated remaining useful life 12 years On Lewis’s December 31.Test Bank .. 2014... 16....... $ 2....000.... the deferred profit from the sale of this machine should be reported as a..... $180..... For more Ebook's .. Unauthorized copying..com Also you can contact us on Skype: Ebooksmtb Leases 20... Pertinent information at this date follows: Sales price ...... $15. Ltd......500 for 12 months @ 12%) .. needbook1. 46.000 – $360.000 Copyright © 2013 John Wiley & Sons Canada. d $1. distribution. Unauthorized copying.000 = $15. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.Solution Manual Please visit our website : http://www. a Conceptual 50. a ($80.000 – [$300. d 49.10 = $21. c 48.264 51. a *54 b 47. a $462.000 × 4. a 52.000 ÷ 20 = $10.500 48.Test Bank .10)] = $746. d DERIVATIONS—CPA Adapted No. d Conceptual *54 b $180.000 (2013) $951. c Conceptual 47. Ltd.100 (2014) 52.000 – ($951.28 Test Bank for Intermediate Accounting.000 – $165. Item Ans.000 *53. d *53. a 50. For more Ebook's . d $215.251.com Also you can contact us on Skype: Ebooksmtb 20. a 51.com/ or contact us at [email protected] = $303.000 = $951.000 = $102. Answer Derivation 46. Item Ans.000 × .7908) – $80.000 × .750 49. Item Ans.000 – $300. a $215. Item Ans. or transmission of this page is prohibited . Solution 20-55 A manufacturer finance company. Solution 20-56 1. Ex. and c) and both of the following Group II criteria (a and b): Group I Copyright © 2013 John Wiley & Sons Canada. 3. Unauthorized copying. and Chrysler Finance Service Canada. 20-55 Types of lessors Explain the difference between a manufacturer finance company and an independent finance company. acts as financial intermediary by providing lease financing for a wide range of manufacturers. distribution. The leased asset is so specialized that. There is reasonable assurance that the lessee will obtain ownership of the leased asset by the end of the lease term. The lease allows the lessor to recover substantially all of its investment in the leased property and to earn a return on the investment.com Also you can contact us on Skype: Ebooksmtb Leases 20. on the other hand.Test Bank . For more Ebook's . without major modification. The lease term is long enough that the lessee will receive substantially all of the economic benefits expected to be derived from using the leased property over its economic life. the lease at the date of inception must satisfy one or more of the following Group I criteria (a. 20-57 Lease criteria for classification by lessor under ASPE What are the criteria that must be satisfied for a lessor under ASPE to classify a lease as a direct financing or sales-type lease? Solution 20-57 In order for a lessor to classify a lease as a direct financing or a sales-type lease.Solution Manual Please visit our website : http://www. distributors and other dealers. They are intended to be principles based and require professional judgment.needbook1. Note that the IFRS criteria do not cite any specific numbers. 20-56 Lease criteria under IFRS Discuss the criteria cited by IFRS to support classifying a lease as a finance lease.29 EXERCISES Ex. An independent finance company. b. is a subsidiary whose main business is to provide leasing services for a parent company. also called a captive leasing company. which provides lease financing for General Motors dealers. Examples are General Motors Acceptance Company of Canada (GMAC). as the ASPE criteria do. which provides lease financing for Chrysler dealers. 2. 4.com/ or contact us at Ebooksmtb@hotmail. The dealer will sell the customer the product(s) and then outsource the financing to an independent finance company. This is commonly seen in the construction industry. Ex. Ltd. or transmission of this page is prohibited . it would be of use only to the lessee. Which does the IASB favour? Why? *Solution 20-58 The classification approach says that transactions should be classified and accounted for according to their economic substance. or transmission of this page is prohibited . 2014. The present value of the minimum lease payments (excluding executory costs) equals or exceeds 90% of the fair value of the leased property. The IASB favours the contract-based approach. Albert leases ten trailers to Einstein Inc. There is reasonable assurance that the lessee will obtain ownership of the property at the end of the lease term.com/ or contact us at Ebooksmtb@hotmail. 2. Group II a. b.needbook1. under a six-year non-cancellable lease agreement. Exceptions would be leases that actually transfer control of the asset or almost all of the risks and benefits associated with ownership. What type of lease is this for the lessor? Discuss. Calculate the annual lease payment. or where there is a bargain purchase option. On the other hand. Each trailer has an expected useful life of nine years. such as leases where title will transfer at the end of the contract. *Ex. is a manufacturer of truck trailers. c. Collectibility of the payments required from the lessee is reasonably assured.62288. Ltd. The following information about the lease and the trailers is provided: 1. b. Unauthorized copying. a private corporation that adheres to ASPE. Copyright © 2013 John Wiley & Sons Canada.000. b.Test Bank . Equal annual payments (due on December 31 each year) will be payable. the fair value of each trailer is $50. is $45.com Also you can contact us on Skype: Ebooksmtb 20. even those currently accounted for as operating leases. contract-based approach Explain the difference between classification approach vs contract-based approach for capitalizing leases. This would justify capitalizing leases that have similar characteristics to instalment purchases. For more Ebook's . Round to the nearest dollar. 2014. The cost of each trailer to Albert Corp. 20-58 Classification approach vs. since it will capture almost all leases. This approach would justify capitalizing the fair value of the rights and obligations of just about all leases. On January 1.000. 4. At January 1. Instructions a. including those that are currently “off balance-sheet” (operating leases) and make accounting for leases more transparent.Solution Manual Please visit our website : http://www.. the contract-based approach (also called a right-of-use approach) views the lease as conveying a contractual right to use the property (not the physical property itself). 3. Collectibility of the lease payments is reasonably assured. Present value factor for 6 periods at 8% is 4. Any unreimbursable costs under the lease that are likely to be incurred by the lessor can be reasonably estimated. Title to the trailers will pass to Einstein at the end of the lease. 20-59 Lessor accounting—sales-type lease Albert Corp. distribution.30 Test Bank for Intermediate Accounting. and any unreimbursable costs under the lease that are likely to be incurred by Albert can be reasonably estimated. Tenth Canadian Edition a. Ex. The lease term is equal to 75% or more of the estimated economic life of the leased property. to provide Albert with an 8% return on their investment . 40.....................948 Cost of Goods Sold .....................Solution Manual Please visit our website : http://www....) Net Annual Interest on Investment Net Date Lease Rental Net Investment Recovery_ Investment 1/1/14 $500...658 79................... Copyright © 2013 John Wiley & Sons Canada......500 278.............000) of the minimum lease payments equals or exceeds 90% ($450......158 Lease Receivable........................000 12/31/14 $108............................547 Ex....158 Lease Receivable......... 34................. for the first three years................................... 34..... 648..........158 c.. 500... 2014 Lease Receivable ($108.... This is a sales-type lease to the lessor......................731 d........... For more Ebook's .....................000..... distribution................ 450.................158 28..com/ or contact us at [email protected] 431............................ 108................... Jan 1.... Ltd....... Prepare the journal entries for the lessor for 2014 and 2015 to record the lease agreement. d................ 2015 Cash . 148................. collectibility is reasonably assured....... Assume the use of a perpetual inventory system and round all amounts to the nearest dollar...Test Bank ................31 c......... Unauthorized copying...................................000 Sales Revenue ....158 or 6 N 8 i 500000 PV CPT PMT => $108.. and any unreimbursable costs under the lease that are likely to be incurred can be reasonably estimated............... 108............948 Dec 31........................................ Albert's gross profit on this sale is $50........................needbook1..........000 $68............. Prepare a lease amortization schedule for Albert Corp.. Lease Amortization Schedule (ALBERT CORP.. the receipt of the lease rentals...547 Interest Income ........000 Unearned Interest Income....158 $40.......611 358................. which is recognized in the year of sale (2014)........ 40... b.com Also you can contact us on Skype: Ebooksmtb Leases 20...................... the present value ($500. 108.... ($50...........158 x 6) ............. 450...... 20-60 Accounting for a capital lease by the lessee Explain the procedures used by the lessee to account for a capital or finance lease.......... 2014 Cash ...........547 73........62288 = $108..... and the recognition of income...158 Unearned Interest Income ........................000 × 10) ÷ 4...158 34.231 12/31/16 108........................................................................ Albert Corp........158 Unearned Interest Income .............................. or transmission of this page is prohibited ....... It is not an operating lease because title to the assets passes to the lessee...... 108.........................000 Inventory . Solution 20-59 a.......842 12/31/15 108..........000 Dec 31...000 Interest Income ....000) of the fair value of the leased trailers............. ... the present value is calculated using the interest rate implicit in the lease whenever this is reasonably determinable... the company uses straight-line depreciation over eight years......com Also you can contact us on Skype: Ebooksmtb 20......... Ex.. 71......... starting December 31..) a... Jan 1.736 b..... Prepare a lease amortization table for 2014 and 2015.... leases machinery on January 1..840 609..... 10% Reduction Lease Date__ Payments Interest_ Obligation Obligation Jan 1/14 $681....... Under ASPE........ Solution 20-61 a.... distribution..needbook1.024 530. Erica uses the effective interest method of amortization for the lease..... Unauthorized copying... Seven annual lease payments of $140...com/ or contact us at [email protected] Test Bank for Intermediate Accounting. 2014 Equipment under Lease ......600 Dec 31.. The present value of the lease payments at 10% is $681......... If the lease transfers ownership or contains a bargain purchase option........... 2014 Interest Expense .. the asset is depreciated in a manner consistent with the lessee's normal depreciation policy over the economic life of the asset and allowing for residual value...600 Obligations under Lease .Test Bank .....Solution Manual Please visit our website : http://www........ Instructions (Round values to the nearest dollar.....840 Copyright © 2013 John Wiley & Sons Canada......... For more Ebook's ....... or transmission of this page is prohibited ........ 20-61 Capital lease amortization and journal entries Erica Corp... Prepare the general journal entries relating to this lease for 2014... The asset and obligation are recorded at the lower of (1) the present value of the minimum lease payments (excluding executory costs) or (2) the fair value of the asset at the inception of the lease........760 Dec 31/15 140.600. unless the implicit rate used by the lessor is lower and the lessee has knowledge of it. the lessee treats the lease transactions as if the asset were being purchased.. 2014.000 are required the end of each year........000 60...... otherwise by using the lessee’s incremental borrowing rate..................... 681..000 $68. the present value of the lease payments is calculated using the lessee's incremental borrowing rate.... If the lease does not transfer ownership...160 $71.976 79... 68........... with no residual value....160 Obligations under Lease ....... 681.................... Ltd...... The effective interest method is used to allocate each lease payment between interest expense and a reduction of the lease obligation. b... Tenth Canadian Edition Solution 20-60 When the capital lease method is used..... Under IFRS........... the leased asset is depreciated over the lease term...600 Dec 31/14 $140........ 2014... and records this as a finance lease... For all machinery... ........ 20-64 Lessee and lessor accounting (sale-leaseback) On January 1.. $161...... How much rent expense will Clark report in connection with this lease for calendar 2014? Solution 20-62 a... Copyright © 2013 John Wiley & Sons Canada................ 2014 was $1. no residual value. The machinery’s original cost was $2.000 ÷ 20) × 9 ÷ 12) .200 Accumulated Depreciation--Machinery ..... For more Ebook's ..................needbook1.. sells machinery to Contralto Corp.....050....................... This lease is properly classified as an operating lease by both parties....... $225..250 b.33 Cash ..200 Ex.......... The lessor records payments received as a reduction in the receivable..000 × 9) ............ etc......000 Expenses: Depreciation ($900...... 2014..........000...... $33.. Lewis Corp.......000 × 9) ......com Also you can contact us on Skype: Ebooksmtb Leases 20..Solution Manual Please visit our website : http://www..........750 Income before taxes ....... 2014. with the intention of leasing it......... 2014 ($25. Revenue Apr 1-Dec 31..............000 a year ($25................................ Apr 1-Dec 31..........000 a month) for a four-year period ending March 31....... 2014. How much income before income taxes will Lewis report from this lease for calendar 2014? b....... The building is expected to have a 20 year life. or transmission of this page is prohibited ... at its fair value of $1.. Unearned income is recognized periodically as interest income.. This is a contra-account to Lease Receivable...... 20-62 Operating lease calculations On January 1.. Lewis incurred $30..... The lease is for 10 years and the implicit interest rate is 10%..000.......... 2014.. is recorded as Unearned Interest Income....... 20-63 Accounting for a direct financing lease by the lessor Explain the procedures used to account for a direct financing lease (ASPE) or finance lease (IFRS) by the lessor.000...000 and immediately leases it back.. also called the net investment in lease..... ..... 85... using the effective interest method and the implicit interest rate used to calculate the lease payments....com/ or contact us at [email protected]....... distribution........... During calendar 2014.. $225............Test Bank . 30.. Lewis leased the building to Clark Company for $300.... 2014 ($25. Baritone Inc. 2018......... Unauthorized copying..000 Ex........750 Maintenance... Solution 20-63 The lessor records the gross amounts of the minimum lease payments (excluding executory costs) and the unguaranteed residual value (a guaranteed residual value is included in the minimum lease payments) as Lease Receivable and removes the asset from the books...... On April 1........000 to Lewis on April 1. and its book value at January 1.......600/8) ..000 63.. The difference between the gross investment in lease (Lease Receivable) and the asset's cost (or carrying amount)..000 Depreciation Expense ($681.. and will be depreciated on a straight-line basis... *Ex. Clark paid $300. under a cancellable lease.000......000 in maintenance and other executory costs under the provisions of the lease.. Ltd.. Instructions a.... 140...... 85. Rent expense.... purchased a building for $900....... .. Assume this lease will be accounted for as a capital (finance) lease by both parties...... 2014 Cash ......200...200..000 Machinery ............ or transmission of this page is prohibited ........ distribution................500 Cash ......000 Cash ....... 1...... 177.........................250 Interest Income ...needbook1.................... 15............................ 1.........000 Lease Receivable ($177................... *Solution 20-64 a..000 Accumulated Depreciation. 177............. 102.............Test Bank ......... Unauthorized copying...........................000 Obligations under Lease ..................... 2014................500 Dec 31................................................. 950................................................... (Lessor) Jan 1.............. Instructions a.............500)] ....................com/ or contact us at Ebooksmtb@hotmail.................... 177.................................. 120. BARITONE INC........200.................................................................Solution Manual Please visit our website : http://www.. 2014 Unearned Interest Income . 1................ Prepare all of Contralto's 2014 entries to reflect the above sale and lease transactions. Tenth Canadian Edition The lease payments of $177.....................................................................000 Accumulated Depreciation—Leased Machinery ........................................ 102..............200.........000 Depreciation Expense—Leased Machinery ......................200............ Ltd..... 2014 Machinery Acquired for Lessee .200..........................................................000.......... 2014 Depreciation Expense ...........000 Machinery under Lease ........................ 575.. 120........................................ 102...................................... 150..000 Deferred Profit on Sale-Leaseback ......................... Machinery .... 1... Baritone uses straight-line depreciation and assumes there will be no residual value at the end of the 10 years......250 Copyright © 2013 John Wiley & Sons Canada.............000 Machinery Acquired for Lessee............. 177................ 15.........................................500 Lease Receivable............. 2.............................000 Cash .....775.. 102.................000 Deferred Profit on Sale-Leaseback .............500 start on January 1.......34 Test Bank for Intermediate Accounting...000 Unearned Interest Income........................... 1..200........................... b...................000 Interest Expense [$10% × ($1............. CONTRALTO CORP................................................com Also you can contact us on Skype: Ebooksmtb 20......000 – $177...................................................................................... For more Ebook's .......000 Obligations under Lease ... (Lessee) Jan 1.....250 Interest Payable ........500 x 10) .......250 b..... Prepare all of Baritone's 2014 entries to reflect the above sale and lease transactions....................500 Dec 31. 1......... 1.. .....................600... 7..000 Dec 31..704 Cash ...............................................com Also you can contact us on Skype: Ebooksmtb Leases 20................ The land has a cost basis of $1................................. Both companies follow ASPE........Solution Manual Please visit our website : http://www......000 Obligations under Lease ........000........... 4.. Ltd.. to reflect the above sale and lease transactions (include a partial amortization schedule and round all amounts to the nearest dollar. which total $170............. 170..... sells land to Spock Inc.. 400................000 in 2014...... distribution....... to reflect the above purchase and lease transactions............. 43.........000 * a revenue account is used since there is no Depreciation Expense here Interest Expense ........... 160...................... Unauthorized copying..................... The lease agreement calls for equal rental payments of $203........... Instructions a.......000........... The land has a fair value of $2............. 2014 Cash ...................... KIRK CORP.... or transmission of this page is prohibited ... 1...000.704 Partial Lease Amortization Schedule Annual Interest Reduction of Date Lease Payment 8% Lease Obligation Balance_ Copyright © 2013 John Wiley & Sons Canada..... 2..704 at the end of each year....... Collectibility of the rentals is reasonably assured...000 to Kirk.......000 ÷ 20).....needbook1.... 20..... Prepare all the 2014 journal entries on the books of Spock Inc.....) b... Kirk pays all executory costs........... 2014......... 170..... is 10%. 5..........000 Accounts Payable or Cash ................ 20-65 Lessee and lessor accounting (sale-leaseback) On January 1................. (Lessee) Jan 1................. 2............. and immediately leases the land back...000.. *Solution 20-65 a... 2.... 2014 Deferred Profit on Sale-Leaseback ($400................................com/ or contact us at Ebooksmtb@hotmail......... 2..000.600....000 Gain from Sale-Leaseback* .. The incremental borrowing rate of Kirk Corp............. The term of the non-cancellable lease is 20 years and the title transfers to Kirk at the end of the lease term............... and any unreimbursable costs under the lease that are likely to be incurred can be reasonably estimated by the lessor.... Kirk is aware that Spock set the annual rentals to ensure a rate of return of 8%.......................... The following information relates to this transaction: 1......35 *Ex.........000 on January 1................ 20...............000 Throughout 2014 Executory Costs (Insurance and Taxes) ..000.......... 3.................................000 Land ..000 Land under Lease ........... 203................. 6......... Kirk Corp...Test Bank .. 2014................ Prepare all the 2014 journal entries on the books of Kirk Corp............ For more Ebook's .........000 Deferred Profit on Sale-Leaseback ..000 Obligations under Lease ................... for $2... . 2014 $2...... .. 4.000 Cash…………………………………………………..... 2014 Cash ... 203................................................. 2.....000.... 2014 Land………………………………………………………….704 Unearned Interest Income .000 Copyright © 2013 John Wiley & Sons Canada. 2014 $203..074............. For more Ebook's ..... ............. Ltd....296 b. 2. 203.......000 Dec 31... 160.......... distribution..........704 × 20)……………….... 160....... SPOCK INC.704 $160...Solution Manual Please visit our website : http://www.........................704 Lease Receivable......000....080 Unearned Interest Income………………………….........Test Bank ...... 2.000 Lease Receivable ($203.......36 Test Bank for Intermediate Accounting......................... 2................ Unauthorized copying.000....needbook1..............com/ or contact us at [email protected] Dec 31.......................000 $43.........704 1..... (Lessor) Jan 1.............956.... ................074....000 Interest Income .......080 Land………………………………………………… ...........com Also you can contact us on Skype: Ebooksmtb 20.................... or transmission of this page is prohibited .............000............ Tenth Canadian Edition Jan 1.............. .000 Obligations under Lease ...... The fair value of the equipment on July 1............. Payments of $126........... 2014 ii.. 105. Unauthorized copying.. with no renewal option.......... December 31..... The following data are relevant to the lease agreement: 1... The equipment has an economic life of 6 years with no residual value. Round all amounts to the nearest dollar.807 are due on June 30 of each year.807 × PV of an ordinary annuity for 4 periods at 8% (use the lessor’s implicit rate.... Ltd..000) equals the fair value of the leased property.... The term of the lease is 4 years........ Long's incremental borrowing rate is 10%. For more Ebook's .....needbook1. or transmission of this page is prohibited ....... Prepare the journal entries on Long's books that relate to the lease agreement for the following dates.. 2014...... since it is known) $126.......000 Interest Expense ($33...... 2014 iii. 2015 Solution 20-66 a........000 × 2 ÷ 4) × 6 ÷ 12] ...com/ or contact us at Ebooksmtb@hotmail... 2014 Equipment under Lease .807 × 3... 20-66 Lessee accounting—capital lease Long Ltd. 420. Long depreciates similar equipment it owns on the double declining-balance basis....... Instructions a. it is a capital lease. a private corporation adhering to ASPE......31213 = $420... 16. 3.. 105........ 420.Solution Manual Please visit our website : http://www..........800 Interest Payable ...... with the first payment due June 30. b. June 30... December 31....000 Accumulated Depreciation—Leased Equipment.. What type of lease this is for Long? What is your rationale? b.... July 1.......... to lease equipment from Fong Ltd... 2014 is $420. enters into a non-cancellable lease agreement on July 1. 2........000... 3......Test Bank . 2015 iv..................... 2015........16986............. 5.... Present value of minimum lease payments: $126........ 4.......... 2014 Depreciation Expense [($420.. 16....000 Because the present value of the lease payments ($420... at 10%.....................800 Lease Amortization Schedule Annual Interest on Reduction of Balance of Date__ Lease Payment Unpaid Obligation Lease Obligation Lease Obligation Copyright © 2013 John Wiley & Sons Canada......com Also you can contact us on Skype: Ebooksmtb Leases 20...31213. The lessee is aware that the lessor used an implicit rate of 8% in calculating the lease payments. i. distribution..600 × 6 ÷ 12) ...37 PROBLEMS Pr.. Present value factor for 4 periods at 8% is 3........000 Dec 31.... Include a partial amortization schedule.. July 1... ............664 226..000 × 2 ÷ 4) + [($420............ will realize $200..................000 – $210. 2015 Interest Expense ...................... Semi-annual lease payments of $438.. that Wells Ltd................................000) ......... 14.............. c.000 Residual guarantee ...........000 Less executory costs......207 Cash ........................................... However... What kind of lease is this to Fargo Corp........ 200..................................... Include an amortization schedule through January 1.com/ or contact us at Ebooksmtb@hotmail........... Ltd.. 400.....................? Why? d. b......................................................................... 157..000..............807 26.........13394.......000..........Solution Manual Please visit our website : http://www.............................. Tenth Canadian Edition Jul 1/14 $420................... 13....072 Interest Payable . 13.... The present value of the minimum lease payments is: Copyright © 2013 John Wiley & Sons Canada..........143 100............. 93............ 157....... 2..............com Also you can contact us on Skype: Ebooksmtb 20............... The undiscounted minimum lease payments are: Semi-annual rental payments ... the actual residual value is expected to be $120..needbook1...... Fargo's incremental borrowing rate is 8%.................. for equipment having an estimated useful life of 11 years and a fair value of $6. distribution.......... Instructions a. Solution 20-67 a..... For more Ebook's ...807 $33....600 $ 93........072 Pr...45639..Test Bank ....... The lease contains the following provisions: 1............... 8....................38 Test Bank for Intermediate Accounting...793 Jun 30/16 126...000 for property taxes)....000) × 2 ÷ 4] × 6 ÷ 12} Interest Expense ($26.................... 2015 and round values to the nearest dollar.......... Calculate the present value of the minimum lease payments...... ............................................. Both companies adhere to ASPE....................... 20-67 Lessee accounting—capital lease On January 1.....................000....................... Fargo Corp..... 20 .......600 Obligations under Capital Leases ..................... payable on January 1 and July 1 of each year............ Calculate the undiscounted minimum lease payments over the life of the lease... PV factor for $1 due in 20 interest periods at 8% annual rate...129 Jun 30.. Unauthorized copying........000 from selling the asset at the expiration of the lease......................... $ 438............... Round to nearest dollar... 2015 Depreciation Expense ...... Present the journal entries that Fargo would record during the first year of the lease.000.......................000 b............000 (including $38.............807 (Interest payable entry assumed to have been reversed Jan 1/13) Dec 31............000 Number of payments over lease term .... (38..............143 × 6 ÷ 12) .500 Accumulated Depreciation—Leased Equipment ...........000 Minimum lease payments ................ Fargo uses the straight-line method to depreciate assets..... $8.......... but they do not know Wells’ implicit rate.. 126... PV factor for annuity due of 20 semi-annual payments at 8% annual rate......... 2014....000 Jun 30/15 $126...............500 {($420.... A guarantee by Fargo Corp.......... 33........ enters into a ten-year non-cancellable lease with Wells Ltd....207 326.........200.... or transmission of this page is prohibited ... ......................854 AND Obligations under Lease ..964............ 14. $5........ 438..................................350* Accumulated Depreciation—Leased Equipment..........45639 Guaranteed residual ........000 (These two entries can be combined) Jul 1.....................................576) ............000) ÷ 11 = $511.................. the present value of the minimum lease payments exceeds 90% of the current fair value of the equipment ($6...................158........... $5..... 206..................... For more Ebook's .. 20-68 Lessor accounting—lease with IFRS criteria On January 1......... $ 400........................................794 Cash . $200......... This lease is a capital lease to Fargo Corp...... 38.... 213..................................Test Bank ...............000 $213.648 Jan 1/15 400........... distribution..............654 4........... 511....... less executory costs .... d........... 20 periods................... 438........ Regal Air Inc...... 400.....350 Interest Expense ....000 91...........346 193... The following information relates to this agreement: Copyright © 2013 John Wiley & Sons Canada..com/ or contact us at [email protected] 5.. or transmission of this page is prohibited ...............744...000 Interest Expense ...................000 5....13394 Semi-annual payments..... because its 10 year term exceeds 75% of the equipment's estimated useful life......... In addition.. non-cancellable lease agreement to lease an airplane to Atlantic Airlines...... .........346 Interest Payable ..............744...... 4%............ Unauthorized copying...653.........000 Cash ...........................................854 Jul 1/14 400..... 2014 Equipment under Lease .............................. 2014 Obligations under Lease… .000 206................... 38.744.....39 Factor for present value of an annuity due.........com Also you can contact us on Skype: Ebooksmtb Leases 20........................................854 c....344............................................ 5..744...........................000 Dec 31..Solution Manual Please visit our website : http://www........744................... 511..............needbook1...........350 Pr.........................854 Obligations under Lease ....000).............278 (OR 20 N 4 i 200000 FV CPT PV => 91..000 — $400........277) Present value of lease payments ............ 0...346 *($5...................854 – 120................ 2014 Depreciation Expense ...206 Property Taxes .. 206.......... enters into an eight year............... 5.............653................................000 (OR 20 N 4 i 400000 PMT CPT PV => 5......... 186..................................... with payments required at the end of each year........ Ltd..............................994 Jan 1..576 Factor for present value of $1 due in 20 semi-annual interest periods at 4% ... 2014........000 Property Taxes ..............854 Jan 1/14 $400...................... Lease Amortization Schedule Semi-Annual Interest Reduction of Date Lease Payment 4%__ Lease Obligation Balance Initial PV $5............000..........794 186....................................... The airplane cost Regal Air $30.000. Both #1 and #3 apply here.needbook1.663 Dec 31/15 4. 3.40 Test Bank for Intermediate Accounting. this is a finance lease.000. as the ASPE criteria do. Prepare the journal entries on Regal Air’s books to record the lease agreement. It has an estimated useful life of fifteen years. Since the bargain purchase option exists. to reflect payments received under the lease.000.227.000.162.562. Tenth Canadian Edition 1.986) this criterion is satisfied.000 at the end of the lease.337 2. 4. The lease allows the lessor to recover substantially all of its investment in the leased property and to earn a return on the investment. What type of lease is this for the lessor? Justify your answer. #2 and #4 do not apply.498. Regal Air's Lease Amortization Schedule Annual Interest on Net Investment Date__ Lease Rental Net Investment Recovery Net Investment Jan 1/14 $30. Note that the IFRS criteria do not cite any specific numbers. #3. and would be classified as an “other financing lease” for Regal Air (called a “direct financing lease” under ASPE).com/ or contact us at [email protected]. for the years 2014 and 2015. 3.696 and the present value of the eight payments plus the BPO is approx $30. distribution. or transmission of this page is prohibited . b.502.000. Annual year-end lease payments of $4. it would be of use only to the lessee.562.562. it is assumed Atlantic will exercise the option and acquire the airplane.000. Solution 20-68 a. #1. 2.000.000 at the termination of the lease when the asset is expected to have a fair value of $12. at which time the airplane’s fair value is expected to be $12. and a residual value of zero at the end of that time (due to technological obsolescence).000. Ltd.400. Since the undiscounted total of the eight lease payments plus the bargain purchase option is $43. 2. The leased asset is so specialized that. without major modification. Round all amounts to the nearest dollar.Solution Manual Please visit our website : http://www.013 2.com Also you can contact us on Skype: Ebooksmtb 20. Unauthorized copying. Assume Regal Air adheres to IFRS.000 Dec 31/14 $4. Under IFRS.999. b. Atlantic will pay all executory costs related to the leased airplane. The lease term is long enough that the lessee will receive substantially all of the economic benefits expected to be derived from using the leased property over its economic life. There is reasonable assurance that the lessee will obtain ownership of the leased asset by the end of the lease term. and since only one criterion has to be satisfied.000 $2. 4. c. They are intended to be principles based and require professional judgment.Test Bank . Atlantic Airlines has the option to purchase the airplane for $7.339 Copyright © 2013 John Wiley & Sons Canada.335.000 (8 N 8 i 4562337 PMT 7000000 FV CPT PV = > $29.000. The option to buy the airplane for $7. and to recognize income.324 25. Instructions a.000 constitutes a bargain purchase option. the presence of any one or a combination of the following situations will normally support classification as a finance lease: 1. For more Ebook's . Prepare a lease amortization schedule for Regal Air for the first two years (2014 and 2015).337 will allow Regal Air to earn an 8% return on its investment.337 $2.337 27. ..com/ or contact us at Ebooksmtb@hotmail............................................... *Solution 20-69 a......................... Cash .......000 Unearned Interest Income. 2...337 Unearned Interest Income ........ however..............250 on December 31 each year.........................562........................... distribution..... or transmission of this page is prohibited .............................................needbook1.................................................. 250..000 Accumulated Depreciation..............Test Bank ........... Instructions a................... 2014..562.......500 and had a book value of $225............ 20-69 Sale and Leaseback Simian Valley Corp........ 4......227......696 Airplane ..... for $250....000...............com Also you can contact us on Skype: Ebooksmtb Leases 20.. 30.... owns both the land and building that it uses for a banana plantation............000 . Building ........ this cost is included in the lease payment.................. 25.....498...........................000 Obligations under Lease ..498.....000 and simultaneously leased back to Simian Valley.........337 Lease Receivable........000 Copyright © 2013 John Wiley & Sons Canada.... Prepare year-end adjusting entries for Simian Valley for 2014............. 2.......... b..... Jan 1....................... The original cost of the building was $412.000 per year.500 – $225.......41 c....... 2014 Cash ..337 Lease Receivable............400......000 Dec 31..........................562............... Unauthorized copying.............................. Simian Valley will pay maintenance and other operating costs......... 2........... 2014 Lease Receivable ($4.................... 13..... The lease allows the property to revert to the lessee at the end of the lease......................000) Building under Lease ............... 2.........000 Interest Income .......500* Building ...............000 at January 1....400.......013 *Pr..337 × 8) + $7..................227......................... On this date the building was sold to Bonobo Leasing Inc................... 43.... For more Ebook's ...562................. Ltd........... but they do not know Bonobo’s implicit rate........... 250.. 187............................ 4.... 4.... 250......................................562...............337 Unearned Interest Income ...........500 Deferred Profit on Sale-leaseback ........................ 2015 Cash .................................... 412...000 *($412...................... Bonobo will pay property taxes on the building of $6........................... Prepare entries on Simian Valley’s books to record the sale and leaseback of the building.....Solution Manual Please visit our website : http://www...................013 Interest Income .... The lease had a guaranteed 10-year term and required annual payments of $47..................696 Dec 31........................ The lease qualifies as a capital (finance) lease since the lease term is equal to the economic life of the building........... Simian Valley’s incremental borrowing rate is 12%...000.................................. 4.............. The building will be depreciated straight line over its remaining 10-year life........ .......... or transmission of this page is prohibited .. 25......000 ÷ 10)................. 2.........500 Depreciation Expense ..........000 Cash ..........................................Test Bank ......... For more Ebook's .......................................Solution Manual Please visit our website : http://www.... Interest Expense ($250........000 ÷ 10).............. distribution.... 41..... Unauthorized copying..........................................500 Copyright © 2013 John Wiley & Sons Canada............................... 47..........000 Accumulated Amortization—Leased Building ....................... Ltd................... 6................ 2.....com/ or contact us at [email protected] Test Bank for Intermediate Accounting........................000 Deferred Profit on Sale-Leaseback ($25......250 Property tax expense ... 25. 30.............................. 30...........com Also you can contact us on Skype: Ebooksmtb 20. Tenth Canadian Edition b......000 x 12%) ...........................................000 Obligations under Lease .................................250 Depreciation Expense ($250.000 Interest payable .......needbook1.................... or transmission of this page is prohibited . used to create derivative works. All rights reserved. The material provided herein may not be downloaded. For more Ebook's . Ltd.Solution Manual Please visit our website : http://www. Ltd.43 LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. distribution. scanning. Unauthorized copying. The data contained in these files are protected by copyright. Ltd. made available on a network. electronic. stored in a retrieval system. reproduced. mechanical.Test Bank . modified.com/ or contact us at Ebooksmtb@hotmail. Copyright © 2013 John Wiley & Sons Canada. or transmitted in any form or by any means. This manual is furnished under licence and may be used only in accordance with the terms of such licence. photocopying. recording. or otherwise without the prior written permission of John Wiley & Sons Canada.com Also you can contact us on Skype: Ebooksmtb Leases 20.needbook1. or related companies. 6 H *44. 5 H *57. 7 H 48. 9 M Exercises 47. 6 M Multiple Choice–Computational 24.5 M 55. 1 M 12. For more Ebook's . Unauthorized copying. 4 M 20. 1 M 9. 9 M 49. Overview M 50. 1 M 8. 9 M 5. 4. 5 H 59. 6 M *35. 4 H 28. 9 H *38. 6 H *45.Solution Manual Please visit our website : http://www. Ltd. 9 H 6.6 M 43. 3 E 18.4–6 H 54. 1 M 51. 1. or transmission of this page is prohibited . 4 M *21. 1 M 53. 9 H 27. 5 M 30. 6 M 3. 9 H *46. 3 E 17. 9 H Multiple Choice–CPA Adapted 39. 1. 3 M 16. 1 M 52.com Also you can contact us on Skype: Ebooksmtb CHAPTER 21 ACCOUNTING CHANGES AND ERROR ANALYSIS SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 4 M *22. 5 E *23. 6 M *33. 4 M 42.3 M 13. 4 M 41. 3 M 15. 2 M 14.com/ or contact us at Ebooksmtb@hotmail. 1 M 11. 6 M 31. 5 M 29. 4 M 19. 9 H 40. 9 H 25. 9 M 4. 1 E 7.needbook1. 1 M 10. 9 H Note: E = Easy M = Medium H = Hard *This topic is dealt with in an Appendix to the chapter.Test Bank . Copyright © 2013 John Wiley & Sons Canada. 9 H *36. 9 H 26. 5 M Problems 58. 9 H *37. 6 M *34. distribution. 6 M *32. 4. 6 H 2. 5 H *60. 4–6 M 56. MC 27. Ex Learning Objective 2 8. Unauthorized copying. Pr Note: MC = Multiple Choice Ex = Exercise Pr = Problem *This topic is dealt with in an Appendix to the chapter. Ex 2. Copyright © 2013 John Wiley & Sons Canada. MC *36. Ex 51. Ex Learning Objective 1 1. MC 51.Test Bank . MC 12. MC 52. distribution. or transmission of this page is prohibited . Ex *23. MC 24. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Overview 47. MC 49. MC 28. Ex 59. For more Ebook's . MC *57.Solution Manual Please visit our website : http://www. MC Learning Objective 4 13. Ex 53. MC 51. MC 31.com/ or contact us at Ebooksmtb@hotmail. MC *45. Ex 54. MC 5. Ex 53. MC *34. MC 41. MC 15. MC 7. Ltd. Pr 25. MC 29. Ex Learning Objective 7 56. MC 20. MC 26. MC 11. MC 16. MC 52. Ex 19. MC 41. MC 39. MC 4.needbook1. MC 43. MC 51. Ex 50. MC 6. MC 9. MC *38. MC 48. MC *33. Ex 14. MC 30. MC *44.com Also you can contact us on Skype: Ebooksmtb 21.2 Test Bank for Intermediate Accounting. Ex Learning Objective 5 17. Pr Learning Objective 6 18. MC Learning Objective 3 7. Ex 55. MC 53. MC *60. MC *22. Ex 58. Ex Learning Objective 9 *21. MC *37. MC *32. MC 3. MC *46. MC *35. MC 10. MC 42. MC 40. currently. if under IFRS. excluding specific ASPE accounting changes. Unauthorized copying. Ltd. the effects on future periods. but instead. Accounting changes could be accounted for retrospectively. information about the standards and the provisions is provided. (3) Correction of a prior period error: a change caused by an omission from or misstatement in prior years’ financial statements from the misuse of or failure to use reliable information that existed at the time the statements were completed and that could have been used in their preparation and presentation. distribution. rules.needbook1. beginning to use the new method in the current and future periods. Apply retrospective restatement for the correction of an accounting error and identify the disclosure requirements. 5. the cumulative effect of the change is shown as an adjustment to the beginning retained earnings of the earliest prior period possible. Identify the accounting standards for each type of accounting change under ASPE and IFRS. For more Ebook's . If the error is Copyright © 2013 John Wiley & Sons Canada. Information about the future effect of changes in primary sources of GAAP that are issued but not yet effective is also required under IFRS. bases. Prospective treatment requires making no adjustment for past effects. The opening balance of each affected component of equity is adjusted for the earliest prior period presented.Test Bank . or practices that an entity applies in the preparation of its financial statements. if applicable. Identify and explain alternative methods of accounting for accounting changes. including. 4. A change in accounting policy due to the initial application of a new primary source of GAAP is accounted for according to the transitional provisions of that standard. retrospective application is used. If none is provided. the effect on each financial statement item affected. A change in an accounting estimate is accounted for prospectively. and all other affected comparative amounts for each prior period provided are restated. and reports it in the current period. If the change resulted from applying transitional provisions. When the effects on particular prior periods are impracticable to determine. the reasons why the new policy results in more relevant information are disclosed.com/ or contact us at Ebooksmtb@hotmail. the amounts relating to periods prior to those that are presented. Errors are corrected through full retrospective restatement. Comparative amounts for prior periods affected are restated. 2. Apply the retrospective application method of accounting for a change in accounting policy and identify the disclosure requirements. There are three types of accounting changes.Solution Manual Please visit our website : http://www. and why full retrospective application was not applied. (1) Change in accounting policy: a change in the specific principles. The retrospective method requires restatement of prior periods as if the accounting change had been used from the beginning. Identify and differentiate among the types of accounting changes. or prospectively.3 CHAPTER STUDY OBJECTIVES 1. or the error had never been made. or transmission of this page is prohibited . 3. If it is a voluntary change. or if it is a voluntary change.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. (2) Change in an accounting estimate: a change in the carrying amount of an asset or liability or the amount of an asset’s periodic consumption from reassessing the current status of the asset or liability or the expected future benefits or obligations associated with it. The current method calculates a catch-up adjustment related to the effect on all prior years. Comparative periods are presented as if the new accounting policy had always been applied. Required disclosures therefore include identifying the nature of the change. unless under IFRS it is not practicable to identify the effect on specific past periods. The nature of the error and the amount of the adjustment to each comparative financial statement line item and to EPS are all required disclosures. is expected to affect future periods. Financial statement users should analyze the information presented about accounting changes and adjust any trend information affected.com Also you can contact us on Skype: Ebooksmtb 21. 7. ASPE allowing specific voluntary changes without justification on a “reliable and more relevant” basis. Some of the aspects that affect decisions about the choice of accounting methods are (1) political costs. (2) errors that affect only the income statement. only the current and future fiscal periods are affected.com/ or contact us at Ebooksmtb@hotmail. under IFRS. There is no adjustment of current-year opening balances and no attempt is made to “catch up” for prior periods. 8. (3) bonus payments.needbook1. Identify the differences between ASPE and IFRS related to accounting changes. Unauthorized copying. is required to be disclosed. 9. For more Ebook's . where the effects take longer than two periods to correct themselves.Solution Manual Please visit our website : http://www. 6. distribution. Minor differences exist. Ltd. Three types of errors can occur: (1) errors that affect only the SFP. and IFRS requiring additional disclosures. or transmission of this page is prohibited . Under prospective treatment. Copyright © 2013 John Wiley & Sons Canada. and (4) the desire to smooth earnings. Identify economic motives for changing accounting methods and interpret financial statements where there have been retrospective changes to previously reported results. The nature and amount of a change in an accounting estimate that affects the current period or. such as IAS 8’s permitting partial retrospective treatment for the correction of an accounting error. This last type of error is classified either as (a) a counterbalancing error. where the effects are offset or corrected over two periods. and (3) errors that affect both the SFP and the income statement.4 Test Bank for Intermediate Accounting. An opening SFP is required under IFRS for the earliest comparative period presented as is information about the nature of any impracticality. or (b) a non-counterbalancing error. Tenth Canadian Edition in a period before the earliest comparative statements included. (2) the capital structure.Test Bank . the opening balances of the earliest comparative period are restated. The accounting standards under ASPE are very similar to those under IFRS. Apply the prospective application method for an accounting change and identify the disclosure requirements for a change in an accounting estimate. Correct the effects of errors and prepare restated financial statements. Effect of errors on net income and retained earnings a *36. or transmission of this page is prohibited . c 27. a 26. Accounting for retrospective change b 14. Calculate cumulative effect of error on income statement. Calculate net income with change in inventory costing method.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. a 5. Accounting policy changes and errors a 9. Change in accounting estimate d 13. Ltd. Identify accounting changes. Counterbalancing errors c *22. Impact of failure to record purchase and count in ending inventory d *23. Effect of errors on net income c *33. Identify a correction of an error. Change in asset service life b *21. d 2. Effect of errors on retained earnings c *38. Effect of errors on retained earnings a *35.com/ or contact us at Ebooksmtb@hotmail. Calculate effect on net income with change in an accounting estimate. d *32. Identify a change in accounting estimate. Voluntary change in accounting policy c 3. Alternative accounting methods allowed for accounting changes a 10. Identify changes in accounting policy. b 8. Calculate effect on retained earnings of error in recording asset. c 7. Calculate net income with change in depreciation method. Calculate revised depreciation expense. Calculate depreciation expense after a change in estimated life.Solution Manual Please visit our website : http://www. d 31.5 MULTIPLE CHOICE—Conceptual Answer No. c 4. b 20. Change in depreciation method b 19. Identify correct statement.Test Bank . Identify changes in accounting policy. c 6. Description b 24. Identify accounting errors. distribution. Description b 1. c 29. Retrospective application a 11. Change accounted for prospectively b 12. For more Ebook's . Underlying principle of retrospective application c 15. Adjustments required when transitioning to IFRS c 17. c 25. Unauthorized copying. d 28. Effect of errors on working capital c *34. Impact of incorrectly recording depreciation MULTIPLE CHOICE—Computational Answer No.needbook1. Effect of errors on net income b *37. Disclosures required under IFRS d 18. a 30. Effect of errors on working capital Copyright © 2013 John Wiley & Sons Canada. Calculate revised depreciation expense. Change in inventory costing method b 16. *This topic is dealt with in an Appendix to the chapter. Calculate carrying value of a patent with a change in estimate c *44. *P21-60 Error corrections and adjustments. Description c 39. Depreciation expense to be recorded following an error EXERCISES Item Description E21-47 Overall objectives of accounting and disclosure standards for accounting changes E21-48 Conditions for a change in accounting policy under IFRS and ASPE E21-49 Matching accounting changes to situations E21-50 Matching disclosures to situations E21-51 Change in estimate. correction of errors E21-52 Retrospective application for accounting changes E21-53 Recognition of accounting changes or corrections E21-54 Effects of errors on financial statements E21-55 Effects of errors on net income E21-56 Economic reasons for changing accounting policies *E21-57 Non-counterbalancing error correction PROBLEMS Item Description P21-58 Corrections of errors in prior years.6 Test Bank for Intermediate Accounting. Cumulative effect of inventory costing change b 41. Retained earnings balance with multiple errors b *46. Unauthorized copying. Ltd. For more Ebook's . Use of retrospective treatment c 42. Balance of accumulated depreciation after a change in estimate b 43. voluntary change in accounting policy. P21-59 Accounting for accounting changes and error corrections.needbook1. distribution. Impact of failure to accrue insurance costs a *45. Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted Answer No. Cumulative effect of inventory costing change a 40.Test Bank . Copyright © 2013 John Wiley & Sons Canada.com/ or contact us at [email protected] Manual Please visit our website : http://www. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb 21. d. Which of the following is NOT considered to be an accounting error? a. 3.needbook1.com/ or contact us at Ebooksmtb@hotmail. more relevant. from the FIFO method of inventory valuation to the average cost method.Test Bank . b. expensing the cost of a new machine c. Which of the following is NOT considered to be an accounting change? a. change in accounting for a defined benefit pension plan from deferral and amortization to immediate recognition 6. distribution. One condition required by IFRS is that a voluntary change in accounting policy must result in information that is a. or transmission of this page is prohibited . change in accounting policy d. changing from the cash basis to the accrual basis b. based on changes in the economic environment. in the service life of plant assets. Copyright © 2013 John Wiley & Sons Canada.Solution Manual Please visit our website : http://www. For more Ebook's . changing from the cost basis to the fair value model for measuring investments 4. failing to accrue wages payable at year end 5. Changes in accounting policy are always handled in the current or prospective period. b. in the tax assessment related to a prior period.7 MULTIPLE CHOICE—Conceptual 1. change in accounting estimate b. changing depreciation methods from declining-balance to straight line d. An example of a correction of an error in previously issued financial statements is a change a. correction of a prior period error 2. change from FIFO to weighted average cost c. change in the composition of the board of directors c. Prior year statements should always be restated for changes in accounting estimates. c. more reliable than before. both more reliable and more relevant. b. changing from weighted average to FIFO for valuing inventories b. reclassifying items on the financial statements of prior periods to make the statements more comparable d. Which of the following is NOT considered to be a change in accounting policy? a. Unauthorized copying. d. from the cash basis of accounting to the accrual basis of accounting. Which of the following statements is correct? a. c. 7. initial adoption of a new accounting standard c.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. more reliable. Ltd. initial adoption of a new accounting standard d. but equally as relevant as before. Which of the following is NOT considered a change in accounting policy? a. change in depreciation method b. but equally as reliable as before. 8. Which type of accounting change may be accounted for in current and future periods only? a. To use retrospective application for an accounting policy change without restatement. current and prospective d. Retrospective application is required for all a. changes in estimates. Accounting for a retrospective change requires a. if allowed in the transition policy. c. change in accounting policy d. d.com Also you can contact us on Skype: Ebooksmtb 21. Copyright © 2013 John Wiley & Sons Canada. errors and changes in estimates.8 Test Bank for Intermediate Accounting. To use prospective application for a change in estimate. change in accounting estimate b. b. For accounting changes.Solution Manual Please visit our website : http://www. retrospectively only b. To use prospective application for an accounting policy change. d. change in inventory costing method c. b. Unauthorized copying. Which of the following is (are) the proper time period(s) to record the effects of a change in accounting estimate? a. reissuing all prior financial statements affected by the change. reporting the “catch-up” adjustment on the current income statement. retrospective only 10. d. prospective and retrospective b. Tenth Canadian Edition c. d. b. Ltd. For more Ebook's . To net accounting errors for disclosure purposes. c. which of the following is NOT allowed? a. current period only 13. current period and prospectively c. correction of an error 12. Correction of prior period error should be presented as an adjustment on the current income statement. adjusting the ending balance of retained earnings for the current year. current period and retrospectively d. or transmission of this page is prohibited . Which of the following alternative accounting methods is(are) allowed by ASPE and IFRS for reporting accounting changes? a.com/ or contact us at Ebooksmtb@hotmail. distribution. A change from the deferral and amortization method to the immediate recognition method of accounting for defined benefit pension plans should be treated as a change in accounting policy.Test Bank . changes in estimates and non-mandated policy changes. 11. 9. if restatement is impractical. errors and non-mandated policy changes. c. current and retrospective c.needbook1. adjusting the opening balance of each affected component of equity for the current year. b. must be accounted for by prospective application. apply changes currently and in the future. the amount of the correction made to each affected financial statement item for each prior period presented b.Test Bank . are ignored. Management feels that this will result in equally reliable and more relevant information. change in accounting estimate. A change in accounting policy for which the financial statements for prior periods included for comparative purposes should be restated. c. thus it will be treated as a change in accounting policy. b. are recognized directing in other comprehensive income. For more Ebook's . b. b.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. 19. Stockton Ltd. distribution. A change in accounting estimate for which the financial statements for prior periods included for comparative purposes should be restated. this change should probably be treated as a a. A publicly accountable enterprise changes from straight-line depreciation to double declining balance. c. Unauthorized copying. 15. who was responsible for the error d. d. Copyright © 2013 John Wiley & Sons Canada. Under IFRS. 16. which of the following disclosures is NOT required for the correction of an accounting error? a. c. 17. any adjustments required to bring GAAP measures in line with IFRS a. changed its inventory system from FIFO to average cost. debit to Deferred Tax Liability. A change in accounting estimate for which the financial statements for the prior periods included for comparative purposes do not need to be restated. credit to Deferred Tax Asset. the effect of the correction on both basic and diluted earnings per share for each prior period presented 18. The entry to record this change should include a a. A change in accounting policy for which the financial statements for prior periods included for comparative purposes do not need to be restated. b. d. The underlying principle of the retrospective application method is to a. change in accounting policy. What type of accounting change does this represent? a. present all comparative periods as if the new accounting policy had always been used. d. When an entity is first transitioning to IFRS. are recognized directly in retained earnings. Ltd. When a company decides to switch from deferring development costs to expensing them immediately.com/ or contact us at Ebooksmtb@hotmail. c.needbook1. disclose all mistakes made in the past. make assumptions about what management’s intent was in prior years. debit to Accumulated Depreciation. credit to Other Comprehensive Income. or transmission of this page is prohibited .9 14.Solution Manual Please visit our website : http://www. d. the nature of the error c. c.com/ or contact us at Ebooksmtb@hotmail. Unauthorized copying.Test Bank . it was discovered that the 2013 depreciation expense on their computer equipment had been incorrectly debited to maintenance expense. *23. Restate their 2013 financial statements. *21. or transmission of this page is prohibited . errors that correct themselves in three or more years. distribution. d. b. and then depreciate the adjusted book value as though the estimated life had always been 40 years. The service life of a building that has been depreciated for 30 years of an originally estimated 50-year life (no residual value) has been revised to an estimated remaining life of 10 years. How will these errors affect assets.com Also you can contact us on Skype: Ebooksmtb 21. b. the accountant should a. liabilities. is a small private corporation that does not prepare comparative statements. an understatement of ending inventory. Prepare an adjusting entry to debit retained earnings and credit maintenance expense. prior period adjustment. No effect Understate Overstate Overstate. At the end of their 2014 fiscal year. Based on this information. *22. adjust accumulated depreciation to its appropriate balance through retained earnings. For more Ebook's . Understate No effect Understate Understate. errors that correct themselves in two years. d. Ignore it. correction of an error. an overstatement of unearned revenue. b. b. Counterbalancing errors do NOT include a. No effect Overstate Understate Understate. Understate Understate No effect No effect. d. and then depreciate the adjusted book value as though the estimated life had always been 40 years.10 Test Bank for Intermediate Accounting. and shareholders' equity at year end and net income for the year? Assets Liabilities Shareholders' Equity Net Income a. 20. based on a 40-year life. MissTake Corp. d.Solution Manual Please visit our website : http://www. adjust accumulated depreciation to its appropriate balance through net income. Prepare an adjusting entry to debit depreciation expense and credit maintenance expense. How should MissTake deal with this situation? a. Tenth Canadian Edition c.needbook1. based on a 40-year life. c. depreciate the remaining book value over the remaining life of the asset. A company using a perpetual inventory system neglected to record a purchase of merchandise on account at year end. c. Ltd. d. c. continue to depreciate the building over the original 50-year life. This merchandise was also omitted from the year-end physical count. Copyright © 2013 John Wiley & Sons Canada. Item Ans. d 17.11 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. Unauthorized copying. 1. b 12.Solution Manual Please visit our website : http://www. b 16. b 18. a 15. c 8.needbook1. d 6. Item Ans. a 9. d 4. b Copyright © 2013 John Wiley & Sons Canada.Test Bank . a 13. d *22. c 19. c 7. or transmission of this page is prohibited . Item Ans. c 11. distribution. Item Ans. For more Ebook's . b 20. Item Ans.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. a 14. b 5. c 10. b *23. c *21. b 2. c 3. Ltd.com/ or contact us at Ebooksmtb@hotmail. $62. For calendar 2014. Accordingly. still with no residual value. or transmission of this page is prohibited . 27. They used straight-line depreciation for this machinery. $121. $ 93.000. At the beginning of 2014. $490. 2014. The entire cost was incorrectly recorded as an expense. $93. c. Before the corrections were made. Unauthorized copying. 2013.000 Pre-tax Income (calculated using FIFO) 375. and the appropriate corrections were made.000 Average cost 200. On January 2. distribution.000. $470. Caspar Corp.000 250.000. Beaver uses straight line depreciation for all its plant assets.000.000.com/ or contact us at Ebooksmtb@hotmail. bought machinery for $500. c.com Also you can contact us on Skype: Ebooksmtb 21.000. over an estimated useful life of ten years. Detroit Ltd. 26. and uses FIFO to cost its inventory. d. The machinery has a nine-year life and a $9.000. the following information has been developed: Ending Inventory 2013 2014 FIFO $240. $50.000. 2011.000 450. the depreciation expense for this machinery is a. began operations on January 1. Detroit decided the estimated useful life of this machinery was only eight years (from the date of acquisition). Ignore income tax considerations. b.000. 2014 should show the cumulative effect of this error of a.Test Bank .Solution Manual Please visit our website : http://www.000.needbook1. The error was not discovered until May 1. 25.000.000 residual value. Management is contemplating a change to the average cost method and is interested in determining what effect such a change will have on pre-tax income. $107. purchased machinery for $135.000. Beaver's income statement for the year ended December 31. 2012. d. $135. $430. On January 1. c. Beaver Corp. a change to the average cost method in 2014 would result in pre-tax income for 2014 of a. c. d. d. For more Ebook's . $ 0. with no residual value. $70.000 $270.000.000.12 Test Bank for Intermediate Accounting. Copyright © 2013 John Wiley & Sons Canada. Use the following information for questions 25–26. $395.000. $107. Tenth Canadian Edition MULTIPLE CHOICE—Computational 24. retained earnings was understated by a.000.000 Based upon the above information. b. $121. b.500. $100. Ltd. b. 2012. and no residual value.000 31. $85. or transmission of this page is prohibited . $45. purchased a machine on January 1.000.000 c. using an estimated useful life of six years and no residual value. Missoula decided to change to the straight-line method of depreciation for this equipment. and treated the change as a change in accounting policy. Unauthorized copying. Double declining balance depreciation has been used for financial statement reporting and CCA for income tax reporting. 29. $120. the depreciation expense for this machinery is a. distribution. $60. For more Ebook's .000. The machine has an estimated five year life.000 Copyright © 2013 John Wiley & Sons Canada. They used double declining balance depreciation for this asset. Reno decided to change to straight-line depreciation for this machine. For calendar 2015. Missoula Corporation bought machinery for $800.Test Bank .13 28. c. An accounting change was made in 2014 to reflect this additional information.000 d. $100. $60.000 b. For calendar 2015. b. that the machine had an estimated useful life of eight years from the date of acquisition with no residual value. 2011.needbook1.000 b.820 c. $150. and treated the change as a change in estimate.000 c. 2014. Assuming that the direct effects of this change are limited to the effect on depreciation and the related tax provision.000. for $600. Minor Corp. $0 b. What is the amount of depreciation expense on this machine that should be reported in Minor's income statement for calendar 2014? a. Effective January 1.500 Use the following information for questions 30–31. Ltd. what should be reported in the income statement for calendar 2014 as the cumulative effect on prior years of changing the estimated useful life of the machine? a. 2012. $95.000.000. $66. with an estimated life of eight years.050. 2015. Reno Inc.Solution Manual Please visit our website : http://www.000 residual value. $ 27. and an estimated $200.500. Their income tax rate has been 30% for many years. $40. and that the income tax rate for all years since the machine was purchased was 30%. d. $75. $ 75. At the beginning of 2015.500.500 d. What net income should Reno report for calendar 2015? a. Minor determined. purchased a machine for $150. On January 1. $ 92.000 d. as a result of additional information.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. $210. On January 1. The machine is being depreciated on a straight-line basis. Reno’s pre-tax income before depreciation on this asset is $125. 30. On January 1. c. 2013 net income to be overstated $6. Ignore income tax considerations.200 overstated Depreciation expense $400 understated An insurance premium of $3.com/ or contact us at [email protected] *33. 2014 Ending inventory $1.000 and 2014 net income to be understated $5.000 b. Cheyenne Ltd. Use the following information for questions *36–*38. Net income overstated by $1. Retained earnings understated by $500 d. What is the total net effect of the errors on the amount of Cheyenne's working capital at December 31. 31. distribution. Copyright © 2013 John Wiley & Sons Canada. 2. 2014 had been treated as expense instead of supplies inventory. There were no other errors during 2014 or 2015 and no corrections have been made for any of the errors.000. Ltd.000 each. *32.com Also you can contact us on Skype: Ebooksmtb 21. Neither of these errors was discovered nor corrected.Solution Manual Please visit our website : http://www. but the sale was not recorded until 2015. At December 31. Working capital understated by $900 d.900 cash.Test Bank . and 2015. In addition. 2013. Net income overstated by $2. Retained earnings understated by $900 c. For more Ebook's .needbook1. This had been debited to insurance expense.500 understated $2.000 b. 2014? a. 2014. Working capital overstated by $1.’s auditor discovered the following errors: 1.000. fully depreciated machinery was sold for $1.14 Test Bank for Intermediate Accounting. Retained earnings overstated by $700 *35. 2013 retained earnings to be understated $11.600 was prepaid in 2013 covering the calendar years 2013.'s December 31 year-end financial statements contained the following errors: Dec. 2014 net income and December 31.900 b. The effect of these two errors would cause a. 2014 retained earnings to be understated $5.000 each.000 at December 31.000 and December 31. 31. Net income understated by $2. 2014 net income to be understated $16.400 *34. What is the total effect of the errors on the balance of Cheyenne's retained earnings at December 31. 2014.000 were NOT recorded at December 31. Tenth Canadian Edition Use the following information for questions *32–*34. Office supplies on hand of $5. 2013 Dec. 2014. on December 31.500 c. Grant Corp. b. 2014? a. 2014 retained earnings to be understated $5. Accrued salaries payable of $11. 2013 net income and December 31. Unauthorized copying. d. Net income overstated by $3. Working capital overstated by $300 c. Working capital understated by $2. or transmission of this page is prohibited . What is the total net effect of the errors on Cheyenne’s 2014 net income? a. Retained earnings understated by $2.600 d. b. 2014 fully depreciated equipment was sold for $7. c. on December 31. The total effect of the errors on Fairfax's 2014 net income is a. or transmission of this page is prohibited .000 too low Depreciation expense 21. $82. $67. $100. understated by $61. distribution. Ltd. The total effect of the errors on Fairfax's retained earnings at December 31. 2013. $46. Financial statements for 2013 and 2014 contained the following errors: Dec.800. b. d.200. understated by $94. $46.Solution Manual Please visit our website : http://www. *36. 31. $34. Copyright © 2013 John Wiley & Sons Canada. $79. c. For more Ebook's . 2014 Ending inventory $33.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21.200. c. b.000 too high $39. overstated by $28.000 too high Prepaid insurance 15. $31.000 too low 15. Unauthorized copying. Ignore income tax considerations.200. began operations on January 1. 31. No corrections have been made for any of the errors.000 too high — In addition. overstated by $49.15 Fairfax Inc.200.800. 2013 Dec. d.com/ or contact us at Ebooksmtb@hotmail. The total effect of the errors on Fairfax's working capital at December 31.000 too high — Insurance expense 15. 2014 is that working capital is understated by a. d. 2014 is that the balance is understated by a. *37.200.200.200.200. *38.200.200.200.Test Bank . but the sale was NOT recorded until 2015.needbook1. Answer Derivation 24. c $150. a $0.000 (ann deprec. distribution.000 – $462.000(o) from 2013 is offset by the $11.000 28.com Also you can contact us on Skype: Ebooksmtb 21.000) = $430. c $39. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Computational Item Ans.needbook1.200 (u) = $94. c *36. d $1. a *38.500 (o) + $2. Ltd. c 28.000 – $250.000 (u) + $21. c DERIVATIONS—Computational No.25) = $462.200 (o) – $1.000 (u) + $5.000 (u) + $15.000 (u) + $39.900 (u) = $900 (u) *34.000 $300.000 (u) – $15.000 – $150.000 – $9. a 25.200 (u) = $67. a 2014 NI = $11.000 26.000 ÷ 5 = $30.200 (u) – $1.25) + ($450. d *34.200 (u) *38.500 30. c Acc deprec to Dec 31/13 $500.000 *32.200 (u) *37.000 ÷ 5 = $60.000(u) in 2014 *36.200 (o) + $1. c $400 (o) + $2. c $2. Unauthorized copying. a *33.200 (u) = $46.16 Test Bank for Intermediate Accounting.com/ or contact us at [email protected] Manual Please visit our website : http://www.500 new depreciable amount $800.200 (o) – $1. booked through R/E 27.000 = $350. Item Ans.000 ÷ 6) × 3 = $300.000 new annual expense $500.000) × (1 – . d ($600.000 (u) = $16.000 (u) 2014 RE = $5. For more Ebook's . c $135.500 29.000 – ($270.000 (u) + $7.900 (u) = $3.000 (u) + $7. c *32. d 31. Item Ans.000 (u) The $11.000 × .500 new annual expense $137.000 × .200 (o) – $1. b 27. or transmission of this page is prohibited .000 (u) + $7. use prospective application since this is a change in estimate 31. b $450. a 29.25) + ($600.000 – [($135. d *35.000 (o) + $15.900 (u) = $500 (u) *35.000 ÷ 8 – 3 = $70. Item Ans. 24.500 ÷ 5 = $27.200 (u) Copyright © 2013 John Wiley & Sons Canada. b 26.using S/L) ($125.000 (o) *33.Test Bank .000 – $200. Item Ans. c *37. b $39. c 30. d Acc deprec to Dec 31/14 (DDB) ($800.000 25.000 – $30. a Not booked through I/S.200 (u) – $1.000 × .500 = $137.000 ÷ 10 x 3 = $150. a $33.3) = $66.000) ÷ 9 x 2] = $107. 000.000. Income statement as a $400. $187. 2010. b. c. b. Assume a 30% income tax rate. Yes Yes b. d. 2014. 2014.com/ or contact us at Ebooksmtb@hotmail. b.000. Unauthorized copying. 40.17 MULTIPLE CHOICE—CPA Adapted 39. the accumulated depreciation for this machine should have a balance of a. Robin Ltd.000. Which of the following should be given retrospective treatment? Change in Change from Estimated Lives Unacceptable Policy of Depreciable Assets to Acceptable Policy a. but will have a residual value of $30. An accounting change was made in 2013 to reflect these additional facts. 43. c. 2013. $450. On January 1.000. $600.000 other comprehensive income. Plover determined that the machine had a useful life of only six years from the date of acquisition.500. On January 1. 41.000 cumulative effect of accounting change. purchased a machine for $330. No Yes c.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. d. $250. The cumulative effect of this accounting change reported for the year ended December 31. however.000 increase in the beginning inventory at January 1. At December 31. No No 42. 2014. On January 1. c. changed its inventory costing to average cost from FIFO for financial statement and income tax purposes. $182.500. d. Wren determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition. Chickadee Corp.000 increase in the beginning inventory at January 1. Retained earnings statement as a $400. distribution.000 and depreciated it using the straight-line method with an estimated useful life of eight years with no residual value. changed its inventory valuation method to FIFO from weighted-average cost for financial statement and income tax purposes. Yes No d. Plover Ltd.250.Solution Manual Please visit our website : http://www. What amount should be reported in the Copyright © 2013 John Wiley & Sons Canada. $ 0. Wren Corp.000 addition to the beginning balance. On January 1. Assume a 25% income tax rate. 2014. The cumulative effect of this accounting change should be reported by Chickadee in its 2014 a.000 addition to the beginning balance. 2011. $150. Income statement as $280. $241. purchased a patent for $238.Test Bank . At the beginning of 2014. The change resulted in a $600. 2014. For more Ebook's .000.needbook1. or transmission of this page is prohibited . Ltd. The change resulted in a $400. to make their reporting as reliable and more relevant. to make their reporting as reliable and more relevant. On January 1. Retained earnings statement as a $280. The patent is being amortized straight-line with no residual value over its remaining legal life of 15 years. 2014 is a. $4. 2014 statement of financial position? Accrued Liabilities Retained Earnings a. 2013.000.000 overstated $30. Ltd.000 increase *46.Test Bank . distribution. the bookkeeper at Thrush Corp.000. $163.000 d.000 overstated 2014 12. Eagle Corp. No effect Overstated c. d.800 b. Tenth Canadian Edition statement of financial position for the patent. related to a building that Thrush Corp. 2014. Unauthorized copying. Understated No effect d. b. or transmission of this page is prohibited . Copyright © 2013 John Wiley & Sons Canada. Condor Corp. On January 1.000 increase c. with no residual value. Ignoring income taxes. $168. The oversight was discovered during the preparation of Condor's 2014 financial statements.000. For more Ebook's . 2013 or December 31.000 understated 10. $0.Solution Manual Please visit our website : http://www. No effect No effect b. by how much should Eagle's retained earnings be retrospectively adjusted at January 1.com/ or contact us at Ebooksmtb@hotmail. is constructing. net of accumulated amortization. Depreciation expense on this machine for 2014 should be a. 2014.000. $32. 2014? a. $40.000 decrease d.com Also you can contact us on Skype: Ebooksmtb 21. Understated Overstated *45. What is the effect of the omission on accrued liabilities and retained earnings in the December 31.18 Test Bank for Intermediate Accounting. c.000 understated Assume that purchases were recorded correctly and that no correcting entries were made at December 31. no depreciation was recognized in Condor's 2013 financial statements. On December 31.needbook1. 2015? a. $50. $8.200 c. $2. It is to be depreciated straight line over five years.550 *44. is a calendar-year corporation whose financial statements for 2013 and 2014 included errors as follows: Year Ending Inventory Depreciation Expense 2013 $36. Because of a bookkeeping error.000 increase b. at December 31. acquired a machine for $200. $174. $80. $142. did not record special insurance costs that had been incurred (but not yet paid). com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21.000 41.000 – $47.000 40.000 (u) *46. a $400. For more Ebook's .needbook1.000 (u) + $30.000 – $47. Ltd. c Acc deprec to Dec 31/12 $330. Item Ans. b Conceptual 42.200 patent at Dec 31/14 = $238. b *45.000 ÷ 5 = $40. b Acc amort to Dec 31/13 $238. Unauthorized copying. Item Ans.000 (o) = $32.600) ÷ 7] = $27.3) = $280.200 *44.000) ÷ 3 = $58.000 × (1 – . a $12.750 Acc deprec at Dec 31/14 = $123. c *44.750 x 2) = $241.000 Copyright © 2013 John Wiley & Sons Canada. 39. c Conceptual *45.000 (u) – $10.600 new annual rate [($238. c 41. b 43. Answer Derivation 39.750 + ($58. b $200.000 – $123.25) = $450.com/ or contact us at Ebooksmtb@hotmail. a 42.Test Bank .Solution Manual Please visit our website : http://www.750 – $30. c *46.19 MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans. or transmission of this page is prohibited .750 new annual rate ($330. c $600. distribution.000 × 3 ÷ 15 = $47. b DERIVATIONS—CPA Adapted No.000 × 3 ÷ 8 = $123.200 = $163.000 × (1 – . a 40. Item Ans.600 – $27.250 43. Tenth Canadian Edition EXERCISES Ex 21-47 Overall objectives of accounting and disclosure standards for accounting changes What are the three main objectives of accounting and disclosure standards for accounting changes? Solution 21-47 1. for expenditures during the development phase on internally generated intangible assets. vi. ____ 2. Change due to failure to recognize unearned portion of revenue. Change due to debiting a new asset to an expense account. or transmission of this page is prohibited . measuring a hybrid financial instrument that has both a liability and equity component (the equity component may be measured at zero).Test Bank . These include: i. ____ 3. distribution. To limit the types of changes permitted. some voluntary changes are allowed under ASPE without having to meet the “reliable and more relevant” criterion. Change from FIFO to weighted average costing. For more Ebook's . You are to enter a code letter to the left to indicate the type of change. ____ 1. Change in accounting policy b. reporting where the investor has significant influence or joint control iii. accounting for income taxes v. Ex. reporting for investments in subsidiaries ii. A voluntary change results in the information in the financial statements being as reliable and more relevant. Unauthorized copying. Copyright © 2013 John Wiley & Sons Canada. Ltd.Solution Manual Please visit our website : http://www. accounting for defined benefit plans iv.20 Test Bank for Intermediate Accounting.com/ or contact us at Ebooksmtb@hotmail. 21-48 Conditions for a change in accounting policy under IFRS and ASPE What conditions are allowed for a change in accounting policy to be acceptable? Solution 21-48 Under IFRS.needbook1. Error correction Instructions Following are a series of situations. To standardize the reporting for each type of change. 2. there are only two situations where a change in accounting policy is acceptable: 1. To ensure that readers of accounting reports have the necessary information to understand the effects of such changes on the financial statements. Ex. 3. 2. 21-49 Matching accounting changes to situations The three types of accounting changes are: Code a.com Also you can contact us on Skype: Ebooksmtb 21. Change in accounting estimate c. However. The change is required by a primary source of GAAP. c 9. Solution 21-49 1. Change in residual value of a depreciable plant asset.com/ or contact us at Ebooksmtb@hotmail. b 5. c 4. ____ 13. ____ 8.needbook1. c 11.Solution Manual Please visit our website : http://www. Change from one acceptable policy to another acceptable policy. ____ 5 Change in the calculation of warranty liabilities. For more Ebook's . a 3. 21-50 Matching disclosures to situations In the blank to the left of each statement. a 14. ____ 9. Change in estimated net realizable value of accounts receivable. ____ 12. Change due to expensing prepaid assets. distribution. ____ 14. ____ 7. Adoption of a new accounting standard. b 12. c 2. b 8. Change due to understatement of inventory. c 15.21 ____ 4. ____ 15. Unauthorized copying. b Ex. b 13. Change in estimated service life of a depreciable plant asset. Change in accounting policy requiring retrospective application Copyright © 2013 John Wiley & Sons Canada. or transmission of this page is prohibited . for the current year ending December 31. Change from straight-line to double declining-balance method of depreciation. fill in the letter from the following list which best describes the treatment of the item on the financial statements of Sora Inc. ____ 6.Test Bank . 2014: a. Change from an unacceptable accounting policy to an acceptable accounting policy. a 10. Ltd. b 6. Change in amortization period for an intangible asset. c 7. ____ 10. Change due to failure to recognize and accrue income. ____ 11.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. the allowance seemed appropriate.600. Ltd. ____ 4. a 6. Sora decided to change from the deferral and amortization approach for their defined benefit pension plan to the immediate recognition approach. b 3. The company switched from average cost to FIFO inventory costing during the current year. Tenth Canadian Edition b. None of the above ____ 1. After negotiations with Canada Revenue Agency.000. ____ 6. d 7. Change in estimate c. or transmission of this page is prohibited . ____ 8. They were originally estimated to be $28.100. the company changed its method of depreciating plant assets from the double declining-balance method to the straight-line method.000 was retired at a cost of $4. In calculating the depreciation in 2012 for buildings. Correction of error d. distribution. d 9. the company incurred interest expense of $29. an audit revealed that the corporation's allowance for doubtful accounts was too large and should be reduced to 2%. Depreciation on a truck. the company changed its method of recognizing income from the completed-contract method to the percentage-of-completion method. The understatement had been made in order to show higher net income in 2011 and 2012. In 2014.22 Test Bank for Intermediate Accounting.000. In 2014. ____ 7. correction of errors Give examples and discuss the accounting procedures and disclosure required for the following: Copyright © 2013 John Wiley & Sons Canada. b 8. ____ 2. At the end of 2014.000 on a 20-year bond issue. Solution 21-50 1.900. In 2014.Solution Manual Please visit our website : http://www. The error was discovered in 2014. voluntary change in accounting policy. an error was made which overstated income in that year by $75. acquired in 2010. income taxes owing for 2013 were established at $42. b Ex.needbook1. was understated because the service life had been overestimated. c 10. 21-51 Change in estimate.com Also you can contact us on Skype: Ebooksmtb 21. In 2014.600. c 4. Unauthorized copying. a 5. ____ 9.Test Bank . ____ 3. a 2. When the audit was performed in 2013.com/ or contact us at Ebooksmtb@hotmail. a long-term bond with a carrying value of $3. During 2014. For more Ebook's . ____ 10. ____ 5. the current year. Unauthorized copying. Solution 21-52 The general requirement for changes in accounting policy and the required method for error Copyright © 2013 John Wiley & Sons Canada. Correction of an error Solution 21-51 1. that is in current and future periods. the amount of the correction for each prior period presented. Immaterial changes in estimates do not need to be disclosed. Voluntary change in accounting policy 3. distribution. Ltd. The nature of the error. and the amount related to periods prior to those presented. Examples: collectability of receivables change in depreciation methods estimated lives or residual values warranty costs Accounting estimates will change as new events occur. the amount of the adjustment related to periods prior to those presented. as more experience is acquired. 3. 21-52 Retrospective application for accounting changes Discuss how retrospective application for accounting changes would be applied. Examples: change in the basis of inventory pricing change in the method of accounting for construction contracts change in the method of accounting for instalment sales change in the method of accounting for defined pension plans The financial statements need to be adjusted to reflect the change in all of the prior years presented. Examples: a change from an accounting policy that is not generally accepted to an accounting policy that is accepted mathematical mistakes changes in estimates that occur because the estimates are not made in good faith an oversight a misuse of facts misclassification of an asset as an expense or vice versa Corrections of errors are recorded in the year discovered. should be shown as an adjustment to beginning retained earnings in the current year. No restatement of previous financial statements is made. Ex.needbook1. are corrected retrospectively with restatement of all prior years presented. Changes in estimates are handled prospectively.Test Bank . and the cumulative effect of the change on prior periods. and justification of the change. For more Ebook's . net of tax. must all be disclosed. and the beginning balance of retained earnings is adjusted. or new information is obtained. Change in estimate 2. or transmission of this page is prohibited . 2.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. Disclosure should include the amount of the adjustment for the current period and each prior period presented including the effect on each financial statement line item and the per share amounts.Solution Manual Please visit our website : http://www. either that the change has been applied retrospectively. Financial statement disclosure includes the nature and amount of the change.com/ or contact us at Ebooksmtb@hotmail. or without restatement and an explanation why this was impractical. and that the comparative information has been restated.23 1. Change in accounting estimate. Failure to accrue 2013 interest revenue 3. restatement may be omitted. Change due to failure to record depreciation in a previous period 5. Correction of an error. Ex. adjustment of beginning retained earnings. Ex. retrospective treatment. 2013 2014 Income SFP Income SFP Statement Statement 1. prospective application for current and future periods only. distribution. 5. 21-53 Recognition of accounting changes or corrections For each of the following items. 5 years) was charged to expense in error in 2013 4. If restatement is not practical. the cumulative effect of the change (net of tax) is shown as an adjustment to the beginning retained earnings.Test Bank . Failure to accrue 2013 wages Copyright © 2013 John Wiley & Sons Canada. Change from the cash basis to the accrual basis of accounting 3. restatement of financial statements of the period affected. the adjustments are reported in each prior year affected. Change in accounting estimate. When the effects on particular prior periods of a change in accounting policy is impractical to determine.24 Test Bank for Intermediate Accounting. Ltd. 21-54 Effects of errors on financial statements Show how the following independent errors will affect net income on the income statement and the shareholders' equity section of the statement of financial position (SFP) using the symbol + (plus) for overstated. If restatement is not practical. adjustment of beginning retained earnings of the first period after the error. 1. Correction of an error.com/ or contact us at Ebooksmtb@hotmail. prospective application for current and future periods only. 4. the effects of the new accounting policy. For more Ebook's . or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb 21. 2. restatement of financial statements of all prior periods presented. indicate the type of accounting change and how each is recognized in the accounting records in the current year. Ending 2013 inventory overstated 2. restatement may be omitted.Solution Manual Please visit our website : http://www. Unauthorized copying. retrospective treatment. 3. Income statements of the affected prior periods presented for comparison purposes are restated to show. A capital expenditure for factory equipment (useful life. adjustment of beginning retained earnings of the current period. and 0 (zero) for no effect.needbook1. Change from straight-line method of depreciation to double declining-balance 2. When historical summaries are reported. on a retrospective basis. Comparative financial statements of prior periods presented for comparison are not restated. Change in the net realizable value of certain receivables Solution 21-53 1. Change in accounting policy. Change from FIFO to weighted average cost method for inventory valuation purposes 4. restatement of financial statements of all prior periods presented. – (minus) for understated. Tenth Canadian Edition correction is that the change’s cumulative effect be shown as an adjustment to the beginning retained earnings. .. $ 6.... fully depreciated equipment was sold for $19. Unauthorized copying. 31. Ending inventory in 2013 understated 6.....Solution Manual Please visit our website : http://www.... Ending 2013 inventory overstated......000 too high $35........... 35. 2014.. For more Ebook's ..000 too low In addition...Test Bank . _ _ + 0 3. 2014 Ending inventory $20.000) 2014 ending inventory ... No corrections have been made for any of the errors.....000.............. The error in prepaid insurance is related to the error in insurance expense... + + – 0 4........ (19. on December 26........... 21-55 Effects of errors on net income Hummingbird Corp.... Failure to accrue 2013 interest – – + 0 revenue..................... Copyright © 2013 John Wiley & Sons Canada....000 too high 10......... Overstated 2013 depreciation expense.... 2013....000 Insurance expense ......000 too low — Accumulated depreciation 16...000) Overstatement of 2014 income .......needbook1.... Ltd.... Financial statements for 2013 and 2014 contained the following errors: Dec. Ending inventory in 2013 understated. + + – 0 2.... 10.. Ex.. began operations on January 1..... Failure to accrue 2013 wages.........000 too low 16. show your calculation of the total effect of the errors on 2014 net income. 31...25 5...com/ or contact us at Ebooksmtb@hotmail............ distribution... but the sale was not recorded until 2015................. Solution 21-55 2013 ending inventory ....000 too high Depreciation expense 16...... Overstated 2013 depreciation expense..000 too low Prepaid insurance 14...... 2013 Dec......................... A capital expenditure for factory equipment (useful life....000 Unrecorded gain . – – + 0 5. $(20.. 6......... or transmission of this page is prohibited ........000 Note: The error in depreciation expense has no effect on 2014 income. Instructions Ignoring income tax....000 too low Insurance expense 14...com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21... 2014 expense correct Solution 21-54 2013 2014 Income Income Statement SFP Statement SFP 1. – – 0 – 2014 expense correct.. 5 years) was charged to expense in 2013.. Ignore income tax effects............... Bonus payments: Many companies have compensation plans that include bonuses for management linked to income measures or stock option agreements.......................... Examples would be covenants that specify maximum debt to equity ratios or minimum working capital ratios......needbook1.000) ÷ 10 = $26... or that unions will seek higher wage settlements.....Solution Manual Please visit our website : http://www. and smoothing of earnings.......................... bonus payments.........000 Machine ... Ltd.000 Retained Earnings ... and may be hard for management to repeat in subsequent years...... It had a $15...Test Bank .. Unauthorized copying.000 – $15............... Some of these reasons are political costs............. Capital structure: Companies that have restrictive covenants included in their debt contracts may seek policies that make it less likely that they violate the terms of these agreements........com/ or contact us at Ebooksmtb@hotmail.. management may choose policies that smooth earnings and reduce volatility... 26. For these reasons..... As a result.... or transmission of this page is prohibited ...... 21-57 Non-counterbalancing error correction Turkey Corp........ management may choose accounting policies based on the expected economic impact of the policy..... As well... high earnings may attract the attention of politicians and regulators. *Ex........... 275. Instructions Prepare the correcting entry or entries related to the machine for 2014.000 Accumulated Depreciation.. Solution 21-56 Research has shown that choice of accounting policies often have economic consequences for business organizations.000..000 Accumulated Depreciation (2 × $26..................... Tenth Canadian Edition Ex...........000 Copyright © 2013 John Wiley & Sons Canada. Management as a result may favour policies that increase net income and share prices.. 52..... 2012 for $275.. bought a machine on January 3... Smoothing of earnings: Stock markets react negatively to volatility in earnings... For more Ebook's ...............000 estimated residual value and a ten-year life............. The corporation uses straight-line depreciation.com Also you can contact us on Skype: Ebooksmtb 21......... 223......... 21-56 Economic reasons for changing accounting policies Discuss possible economic reasons why companies may choose to change accounting policies............ Political costs: The management of large firms may seek policies that reduce their net income and therefore the likelihood that politicians and regulators will seek to increase taxes or restrictive regulations on them.... 26.. capital structure..... distribution..................... Solution 21-57 Annual depreciation is ($275..............000 Depreciation Expense ... but this was not discovered until late 2014. An expense account was debited in error on the purchase date.........000) ..26 Test Bank for Intermediate Accounting. 200) Net income (corrected) $53..000 Double declining balance 23..000 $180.............. The following calculations present depreciation on both bases: 2014 2013 2012 Straight-line $18...... Retained Earnings .000) Understatement of accrued advertising expense—2012 (1.. the corporation has Copyright © 2013 John Wiley & Sons Canada...000 Overstatement of ending inventory—2012 (7. with an $8..Test Bank ..... Solution 21-58 a...500) 8...........000 Understatement of accrued advertising expense .......... Show any calculations..500 $4..... $7.com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21. Unauthorized copying. $60..... 21-59 Accounting for accounting changes and error corrections Parrot Corp. 4. 2....000 $225.500 Overstatement of ending inventory—2014 (4....000 estimated residual value and a six-year life...000 $18.. 2014. Parrot uses straight-line depreciation for all trucks...600 $65...needbook1...000 During the 2014 year-end audit.000 cash...000 1. $62.......000 36.900 $60...000 $63...300 b..100 2. During 2014.200 Advertising Expense .... $63...... 2012 2013 2014 Net income (unadjusted) $62..000 $8.... b....000 $60. you find that the following errors have been made: 2012 2013 2014 Overstatement of ending inventory ...... and 2014.... 2013. For more Ebook's ..000) 7...........100 30.... Prepare the entry required in 2015 to correct the books...200 Instructions a....... 1. reported net incomes for the last three years as follows: 2012.100) 1...000 In reviewing the accounts in 2015 (after the books for the prior year had been closed)..... Parrot bought a truck on January 1. In reviewing its provision for uncollectible accounts during 2014.100 Understatement of accrued advertising expense—2013 (2. Ltd.. or transmission of this page is prohibited . reported net incomes for the last three years as follows: 2014 2013 2012 $240....000..... 5... The company debited an expense account for the entire cost of the asset...... Ignore income taxes... 3.... 1....000 Understatement of accrued advertising expense—2014 _______ _______ _(1...000 Overstatement of ending inventory—2013 (8......... 2013.. the following items come to your attention: 1.....000 The net income for 2014 was calculated using the double declining balance method..........Solution Manual Please visit our website : http://www..........000 Pr...........200 Inventory .................. 21-58 Correction of errors in prior years Goldfinch Inc... Calculate corrected net incomes for 2012..000.. 2011 for $98............000 $18. Parrot changed from straight-line depreciation for its cement plant to double declining balance...com/ or contact us at [email protected] PROBLEMS Pr....000) 2........ distribution... ............ and are accounted for prospectively.. 2011–2014) . For more Ebook's ...........000............000 – $45...........000 $210..000 Depreciation Expense (2014 only) .......... Assume that Stork has recognized bad debt expense as the receivables have actually become uncollectible in the following way: 2013 2014 Copyright © 2013 John Wiley & Sons Canada..... At what adjusted amount should this beginning retained earnings balance be shown? Solution 21-59 Annual depreciation would be ($98........ Unauthorized copying..... At what adjusted amount should the beginning retained earnings balance for 2012 be shown................. Tenth Canadian Edition determined that 1% is the appropriate amount of bad debt expense to be charged to operations. b.......... or transmission of this page is prohibited ....000) (15.000 $225.......... c................. starting with income before the cumulative effect of any accounting changes. 98.... If they had used the old rate..... distribution........ The transactions at issue are presented below: 1.. Assume that the beginning retained earnings balance (unadjusted) for 2012 was $630... assuming that the books have not been closed for 2014....000 Note items 2 and 3 are considered changes in estimates... 53.... 83....000 *Pr... Truck .......... respectively.. 21-60 Error corrections and adjustments The controller for Stork Corp....... 2014.. after discussing these matters with various individuals.......................000 – $8. Retained earnings (unadjusted) .. $713........ $900.. 53............000 b......... Present comparative income statement data for the years 2012 to 2014...... c....000 less bad debt expense on December 31...................000) ... $953........... assuming that comparative financial statements were prepared? d.000) (15..com Also you can contact us on Skype: Ebooksmtb 21..................000) ....... The controller.......... Retained earnings (unadjusted) ..000 Retained Earnings .000 a.................... $630..... Prepare the general journal entry required to correct the books for the item 1 situation (only) of this problem.....000...... has come to you for advice........000 and that comparative financial statements are not prepared.......000 – $15.000 and $6..000) $225..000 Retained earnings (adjusted) . Instructions (Ignore all income tax effects) a...000 Depreciation of truck (15....... 60.000 $165... is concerned about certain business transactions that the company experienced during 2014.........Solution Manual Please visit our website : http://www.............................000 Correction of 2011 error ($98...000 Correction of error ($98.com/ or contact us at Ebooksmtb@hotmail.... 15...... Parrot recorded bad debt expense using the new rate for 2014......needbook1.....000 $180...Test Bank ...........000 Retained earnings (adjusted) ...........000 d.. Assume that the beginning retained earnings balance (unadjusted) for 2014 is $900.............28 Test Bank for Intermediate Accounting...000) ÷ 6 = $15......... The company has decided to switch from the direct write-off method for accounting for bad debts to the percentage-of-sales approach. The company had used 1/2 of 1% as its rate in 2013 and 2012 when the expense had been $9............. Ltd........... they would have recorded $3.....000 Accumulated Depreciation (4 years. 2014 2013 2012 Income before cumulative effect of of error correction $240......... ... distribution................................ At December 31.......600 4.. (18... 53..000... reported pre-tax income of $500....... (32..... For more Ebook's . Stork sold $300...000 1........... or transmission of this page is prohibited . Cash of $86........needbook1..................... 128...000 Retained Earnings.................. (21.000) 2.................000 Accounts Receivable...... Retained Earnings........................................800 applicable to 2013 sales and $18...........800 2...... Reported net income ..000 The controller estimates that an additional $21. 2014.. $ 4............com Also you can contact us on Skype: Ebooksmtb Accounting Changes and Error Analysis 21.................. Assume that the consigned inventory is sold the following year......... 3. assuming that the books have been closed.. the instalment method was considered appropriate... including a down payment of $30.......000) .... Ltd........................................... During 2014...... b... was collected on these instalment sales during 2014..... Assume that Stork Corp. Gross profit—Recognized ...... Instructions a. These transactions have been recorded as ordinary sales and billed as such (on account)........000) 3......... $500..000 ..... 53.000 3........000 From 2012 sales 15.................................................................000 to 2014 sales.... 1.........500) (53.. The percentage markup on selling price is 20%........500 Deferred Gross Profit . Additional charge for bad debts 2011 debts written off in 2014 (add back) .................29 From 2011 sales 10....... $400........Test Bank ....000 for 2014........ 21............ 21....... Inventory has been shipped on consignment.... 160.................... 32.......... The company inadvertently handled these sales and related costs as part of their regular sales transactions.....000 2014 debts to be written off in 2015 (deduct) .000.............800 Allowance for Doubtful Accounts ......500 b.. Present a schedule showing the corrected pre-tax income after the above transactions are taken into account............................................000............500) Corrected income ..........800 in bad debts will be written off in 2015: $3.........500 Copyright © 2013 John Wiley & Sons Canada....... 2014..... The company uses the perpetual inventory system................000 Should be 25% × $86......... 75.................000 worth of goods on the instalment basis..com/ or contact us at Ebooksmtb@hotmail........................ inventory billed and in the hands of consignees amounted to $160..........000) (14.... The cost of sales associated with these instalment sales is $225....... 2... Retained Earnings.. Ignore income tax effects.......... Unauthorized copying..............000.. Solution 21-60 a............. Consignment—(20% × $160.. Consignment Inventory ............ Due to questionable collectability..Solution Manual Please visit our website : http://www.... Prepare the correcting journal entries required at December 31........... recording. distribution. used to create derivative works.com/ or contact us at Ebooksmtb@hotmail. Ltd. The material provided herein may not be downloaded. Unauthorized copying.com Also you can contact us on Skype: Ebooksmtb 21. For more Ebook's . mechanical. or related companies. Copyright © 2013 John Wiley & Sons Canada. All rights reserved. The data contained in these files are protected by copyright. photocopying. scanning.30 Test Bank for Intermediate Accounting. Tenth Canadian Edition LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada.needbook1.Test Bank . electronic. or transmitted in any form or by any means. Ltd. or transmission of this page is prohibited .Solution Manual Please visit our website : http://www. modified. This manual is furnished under licence and may be used only in accordance with the terms of such licence. reproduced. Ltd. or otherwise without the prior written permission of John Wiley & Sons Canada. made available on a network. stored in a retrieval system. 7.com/ or contact us at Ebooksmtb@hotmail. 11 M 23. 7 M 53. 4 M 59. 4. 2 E 6. 9 M Multiple Choice–Computational 21. 4. 4.7 M 2. 4 E 55. or transmission of this page is prohibited . 3 M 9. 4.11 M *68. 11 M *51. 6 M 19. 11 M 25.11 H Problems 74. 5 M 17. 5 E 15. 4. For more Ebook's . 4. Unauthorized copying.11 H 69.7 M *48. 11 M *50. 6. 4.7 M 3. 4 M 60. 4 M 56. 4 M 35.7 M *44. Ltd. 4 M 30. 4 M 58. Copyright © 2013 John Wiley & Sons Canada. 7 M 63. 4 M *66.7.6 H 41.11 H 64. 8 M 5.11 H 71. 5 E *72. 5–7 M *73. 4 M 10.7 M *47. 4 M 34.com Also you can contact us on Skype: Ebooksmtb CHAPTER 22 STATEMENT OF CASH FLOWS SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 4 M 31. 4. 4 H 33. 4.7 H *45. 4 M 12. 6 H Exercises 62.6 M *42. 4 M 32. 4. 11 M 24.Test Bank . 11 H 22.7.7.7 M *46. 4 E 11. 4. 4 M 61. 4 M 57. 7.11 H *76. 6. 4. 4 E 36.needbook1. 5 E 16. 7. 11 M Multiple Choice–CPA Adapted 52.6 M *43. 7 M 4. 4 M 40. 4 M *65.11 M 70. 4 M 13. 6 M 20. 4 M 37.6 M *75. 4. 4 H 29. 4 M 54. 4. 4. 4 M 39. distribution.7 M *67.7 H *49. 5 M 18. 11 E 26. 11 H 27.Solution Manual Please visit our website : http://www.11 H 77. 4 M 14. 4 M 38. 4.7. 11 E 28. 4. 5 M Note: E = Easy M = Medium H = Hard *This topic is dealt with in an Appendix to the chapter.7. 2 E 7. 2 E 8. MC 31. MC 65. MC 62. MC Learning Objective 9 20. MC 39. MC 29. Ex *76. Ex 68. MC Learning Objective 11 *42. MC 41. MC 17. Ex 72. Ex 6. Ex 21. MC 3. MC 33. MC 36. MC 38. Copyright © 2013 John Wiley & Sons Canada. MC 63. Ex 71. MC *48. MC 66.com Also you can contact us on Skype: Ebooksmtb 22. MC 39. Ex 15. MC 57. Ex *68. Pr Note: MC = Multiple Choice Ex = Exercise Pr = Problem *This topic is dealt with in an Appendix to the chapter. MC 41. Ex 70. MC 35. MC 74. MC 28. MC 38. Ex 76. MC 67. MC Learning Objective 4 5. MC 37. For more Ebook's . MC 33. MC 55. MC 34. MC 70. Ex *72. MC *46. MC 32. Ex 18. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 2 1. MC 26. MC 52. Ex *73. MC *49. Ex Learning Objective 5 10. MC 24. MC 64. MC *47. Pr 7. Pr *44. MC 66. MC 58.2 Test Bank for Intermediate Accounting. MC 69. MC 53. Unauthorized copying. Pr 8.Solution Manual Please visit our website : http://www. Ex 36.needbook1. Ex *75. Ltd. Ex 23. MC 2. MC 40. MC 56.Test Bank . Ex 76. MC 40. MC 54. MC 65. distribution. MC *67. MC 12. Ex *43. MC 30. Ex 73. MC 64. MC 27. Pr 11. Ex 75. MC Learning Objective 3 4. MC 67. or transmission of this page is prohibited . MC *50. MC 74. MC 68. Ex 75. MC 16. MC 61. MC 59. MC *45. MC 35. MC *65. Ex 77. Ex Learning Objective 6 14. Pr 9. MC 34. MC 13.com/ or contact us at Ebooksmtb@hotmail. MC 37. MC 70. Pr Learning Objective 7 16. MC *66. MC *51. MC 25. MC 60. Pr 17. Pr Learning Objective 8 19. Ex 22. The direct method presents operating cash flows in a manner similar to a condensed cash basis income statement. The amount of cash spent on investing activities affects an organization’s potential for future cash flows. Prepare the operating activities section of a statement of cash flows using the direct versus the indirect method. One sign of a healthy company is positive cash flow from operations. it is not surprising that the statement of cash flows has grown in importance for companies and standard setters over the past 25 years. and for non-operating gains and losses.needbook1. 4. investing. 2. Ltd. A company’s ability to generate operating cash flows affects its capacity to pay dividends to shareholders. A secondary objective is to report the entity’s operating. The accrual amounts are listed and adjusted whenever the cash received or paid out differs from the revenues. timing. the requirements for future cash outflows. and to meet obligations when they fall due. Companies can use these funds to finance expansion.com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22. or to ensure that they remain solvent during economic downturns.Solution Manual Please visit our website : http://www. highly liquid non-equity investments that are convertible to known amounts of cash with insignificant risk of changes in value. and financing activities. gains. Cash and cash equivalents include cash on hand.3 CHAPTER STUDY OBJECTIVES 1. Define cash and cash equivalents.com/ or contact us at Ebooksmtb@hotmail. Prepare a statement of cash flows using the direct method. The definition of cash is related to an organization’s cash management activities. and financing activities during the period. Cash flows are classified into those resulting from operating. Cash invested in increased levels of productive assets forms the basis for increased future operating cash inflows. inserting line items from Copyright © 2013 John Wiley & Sons Canada. IFRS allows preferred shares acquired within a short period of their maturity to be included as a cash equivalent. to issue dividends. distribution. The statement’s objective is to provide information about historical changes in an enterprise’s cash so that investors and creditors can assess the amount. Many also consider it to be less susceptible to earnings management than the statement of comprehensive income. therefore. investing. or transmission of this page is prohibited . expenses. as well as the organization’s needs for cash and how cash will be used. and degree of certainty associated with an entity’s future cash flows.Test Bank . 6. Understand the importance of cash flows from a business perspective. 3. to take advantage of investment opportunities. to provide internal financing for growth. demand deposits. and short-term. Describe the purpose and uses of the statement of cash flows. Identify the major classifications of cash flows and explain the significance of each classification. Unauthorized copying. The primary purpose of this statement is to provide information about an entity’s cash receipts and cash payments during a period. Given the importance of cash flows for business. Financing cash activities affect the firm’s capital structure and. and losses reported in net income. 5. For more Ebook's . The direct method involves determining the change in cash and cash equivalents during the period. These amounts are reduced by bank overdrafts that fluctuate from positive to negative balances and that are repayable on demand. with one exception. The first step in reading and interpreting a statement of cash flows is to look at the subtotals for the three classifications of activities and the overall change in cash. The statement is then prepared with required disclosures. and explain what changes are expected to standards for the statement of cash flows. distribution. the results recorded on the statement are compared with the change in cash during the period.needbook1. This method accounts for all changes in the balances of non-cash statement of financial position accounts from the period’s beginning to the end. keeping alert for accounting policies that affect the type of cash flow reported. and interest and dividends paid are operating flows unless they were charged directly to retained earnings. Identify the financial presentation and disclosure requirements for the statement of cash flows. or transmission of this page is prohibited .Test Bank . A work sheet can be used to organize the analysis and cash flow information needed to prepare a statement of cash flows. and analyzing the changes in all accounts on the statement of financial position to identify all transactions that have an impact on cash. There are no significant differences between ASPE and IFRS related to the statement of cash flows except for the definition of cash equivalents and the presentation and disclosure requirements identified above.com Also you can contact us on Skype: Ebooksmtb 22. 9. 7. The steps using the indirect method are the same as in Objective 6 above.4 Test Bank for Intermediate Accounting. Unauthorized copying. and non-cash investing and financing transactions are excluded from the statement of cash flows.com/ or contact us at Ebooksmtb@hotmail. Those with a cash impact are recorded on the statement of cash flows. Tenth Canadian Edition the income statement as the starting point within the statement’s Operating Activities section. Use a work sheet to prepare a statement of cash flows. All the same adjustments are then made to adjust net income to a cash basis. Read and interpret a statement of cash flows. Identify differences in ASPE and IFRS. Gross amounts should be reported except in specifically permitted circumstances.Solution Manual Please visit our website : http://www. and the amount of and explanation for cash and cash equivalents not available for use. and financing cash flows in the process. This provides a high-level summary of the period’s cash flows. Familiarity with the company’s business and strategic direction is very useful in interpreting the statement. identifying all operating. but required disclosures are limited to interest and dividends paid and charged to retained earnings and the amount of any restricted cash. Under IFRS. 8. The statement of cash flows is prepared from the cash flow information Copyright © 2013 John Wiley & Sons Canada. 11. 10. For more Ebook's . but details about these are reported elsewhere on the financial statements. In addition. ASPE presentation requirements are very similar. Prepare a statement of cash flows using the indirect method. the net income amount is the beginning point. the definition and components of cash and cash equivalents reconciled to the amounts reported on the statement of financial position. Ltd. interest and dividends received are both operating flows. investing. Next. analyze the items within each section for additional insights. To ensure that all cash flows have been identified. Choices are available under IFRS for the reporting of interest and dividends received (operating or investing) and interest and dividends paid (operating or financing). Rather than starting with line items from the income statement in the Operating Activities section. but the style and format of the Operating Activities sections differ. disclosure is required of cash flows associated with interest and dividends received and paid. All income tax cash flows are reported as operating flows unless they can be linked directly to investing or financing flows. Test Bank .Solution Manual Please visit our website : http://www.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22. For more Ebook's . Copyright © 2013 John Wiley & Sons Canada.5 accumulated at the bottom of the work sheet. distribution. Unauthorized copying.needbook1. or transmission of this page is prohibited . Ltd. d 34. Item(s) to include in investing activities c 9. Adjustment for a decrease in prepaid insurance d 18. Significant non-cash transactions a 6. Calculate cash provided by (used in) financing activities. Calculate cash provided by operating activities using direct method. Calculate cash provided by (used in) investing activities. c 27. Calculate cash provided by (used in) financing activities. a 35. Calculate cash provided by operating activities. Unauthorized copying. Disclosures under IFRS and ASPE b 20. Cash flow effects of depreciation expense and purchase of assets c 25. Effect of decrease in accounts payable d 15.com Also you can contact us on Skype: Ebooksmtb 22. c 36. Adjustment for an increase in accounts payable a 17. Adjustments to reconcile net income to cash from operating activities d 12. Calculate cash provided by operating activities. Calculate depreciation expense for year. Calculate cash provided by (used in) investing activities. Calculate cash received from customers. Adjust net income for bad debt expense. Adjustment for equity method investment income d 19. Major source of cash for a successful company d 7. Cash flow effects of a stock dividend c 8. c 39. or transmission of this page is prohibited . Calculate cash provided by operating activities. c 22.Solution Manual Please visit our website : http://www.Test Bank . a 33. Free cash flow MULTIPLE CHOICE—Computational Answer No. Adjustment to net income for inventory increase c 13. For more Ebook's . Calculate cash provided by (used in) financing activities. Assessment of information in the statement of cash flows c 3. d 40. b 31. Reporting insurance proceeds c 37. distribution. Description c 1. Calculate net income for year. Net loss under direct method a 16. Additional cash invested by a sole proprietor b 10. Adjustments under the direct method and indirect method c 14. d 29. b *42. c 32. Copyright © 2013 John Wiley & Sons Canada. Tenth Canadian Edition MULTIPLE CHOICE—Conceptual Answer No. IFRS and ASPE requirements d 4.com/ or contact us at [email protected] Test Bank for Intermediate Accounting. b 26. Primary purpose of the statement of cash flows b 2. Cash flow effects of selling equipment at a loss b 24.needbook1. Ltd. Calculate cash provided by investing activities. Description a 21. b 38. Calculate cash provided by operating activities. b 30. Calculate cash paid for income taxes. Reporting of inventory increase on the statement of cash flows b 11. Cash equivalent elements d 5. a 28. a 41. Calculate cash provided by financing activities. Calculate cash provided by (used in) investing activities. Cash flow effects of selling plant assets at a gain a 23. For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22- 7 b *43. Calculate depreciation expense for year. a *44. Calculate equipment purchased during year. c *45. Calculate cost of equipment sold. a *46. Calculate book value of assets at end of year. b *47. Calculate ending balance of accounts payable. c *48. Calculate ending balance of retained earnings. d *49. Calculate ending balance of common shares account. b *50. Calculate amount of a cash dividend. d *51. Reporting a stock dividend MULTIPLE CHOICE—CPA Adapted Answer No. Description a 52. Calculate cash provided by investing activities. c 53. Calculate cash provided by financing activities. c 54. Calculate cash used in investing activities. b 55. Calculate cash provided by (used in) financing activities. b 56. Calculate cash provided by investing activities. b 57. Calculate cash provided by financing activities. a 58. Calculate cash used in investing activities. d 59. Calculate cash provided by financing activities. b 60. Calculate cash paid for insurance (direct method). c 61. Calculate depreciation expense for year. *This topic is dealt with in an Appendix to the chapter. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 22- 8 Test Bank for Intermediate Accounting, Tenth Canadian Edition EXERCISES Item Description E22-62 Choices of statement of cash flow categories under IFRS E22-63 Classification of cash flows and transactions E22-64 Effects of transactions on statement of cash flows (indirect method) *E22-65 Effects of transactions on statement of cash flows (indirect method) *E22-66 Effects of transactions on statement of cash flows (indirect method) *E22-67 Preparation of statement of cash flows (indirect method) *E22-68 Preparation of statement of cash flows (format provided) E22-69 Direct and indirect methods E22-70 Cash flows from operating activities (indirect and direct methods) E22-71 Classification of cash flows (indirect method) *E22-72 Calculations for statement of cash flows (indirect method) *E22-73 Calculations for statement of cash flows (indirect method) PROBLEMS Item Description P22-74 Preparation of statement of cash flows (direct method) *P22-75 Preparation of statement of cash flows (indirect method) *P22-76 Complex statement of cash flows (indirect method) P22-77 Advantages and disadvantages of direct and indirect methods *This topic is dealt with in an Appendix to the chapter. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22- 9 MULTIPLE CHOICE—Conceptual 1. The primary purpose of the statement of cash flows is to provide information a. about an entity’s operating, investing, and financing activities during a period. b. that is useful in assessing cash flow prospects. c. about an entity’s cash receipts and cash payments during a period. d. about an entity's ability to meet its obligations, its ability to pay dividends, and its needs for external financing. 2. The information in a statement of cash flows enables stakeholders to assess the a. amounts, timing and certainty of future cash flows. b. liquidity and solvency of an entity. c. change in working capital during the period. d. reason(s) for the difference between net income and cash flows from financing activities. 3. The statement of cash flows is required to be included a. only for financial statements prepared under IFRS. b. only for financial statements prepared under ASPE. c. for both financial statements prepared under IFRS and under ASPE. d. for financial statements prepared under IFRS, but is optional under ASPE. 4. Cash equivalents include a. treasury bills, equity investments and long term bonds. b. non-equity investments with short maturities and bank overdrafts repayable on demand. c. treasury bills, commercial paper and all equity investments. d. treasury bills, commercial paper, and money market funds purchased with excess cash. 5. Which of the following is NOT a significant non-cash transaction? a. capital (finance) lease obligations b. conversion of preferred shares to common shares c. exchange of non-monetary assets d. purchasing a building with a 10% cash down payment and mortgaging the balance 6. A successful company’s major source of cash should be a. operating activities. b. investing activities. c. financing activities. d. both operating activities and investing activities. 7. A statement of cash flows generally would NOT include the effects of a. common shares issued at an amount greater than par value. b. the purchase of treasury shares. c. cash dividends paid. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 22- 10 Test Bank for Intermediate Accounting, Tenth Canadian Edition d. stock dividends declared and issued. 8. In a statement of cash flows, which of the following would be reported in the cash flows from investing activities section? a. issuance of common shares in exchange for a factory building b. stock dividends received c. development costs incurred (intangible asset) d. declaration of cash dividends 9. On a statement of cash flows, additional cash invested by a sole proprietor would be disclosed in a. operating activities. b. investing activities. c. financing activities. d. both operating and financing activities. 10. Using the indirect method, an increase in inventory would be reported in a statement of cash flows as a(n) a. addition to net income in calculating cash flows from operating activities. b. deduction from net income in calculating cash flows from operating activities. c. cash flow from investing activities. d. cash flow from financing activities. 11. When preparing a statement of cash flows (indirect method), which of the following is NOT an adjustment to reconcile net income to cash flows from operating activities? a. an increase in prepaid expenses b. an increase in bonds payable c. a decrease in income taxes payable d. depreciation expense 12. When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to net income because a. cash was increased while cost of goods sold was decreased. b. acquisition of inventory is an investment activity. c. inventory purchased during the period was less than inventory sold, resulting in a net cash increase. d. cost of goods sold on an accrual basis is lower than on a cash basis. 13. When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in calculating cash flows from operating activities? Direct Method Indirect Method a. Increase Decrease b. Decrease Increase c. Increase Increase Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22- 11 d. Decrease Decrease 14. In calculating cash flows from operating activities, a decrease in accounts payable during a period a. means that accrual basis income is less than cash basis income. b. requires an addition to net income under the indirect method. c. requires an increase to cost of goods sold under the direct method. d. requires a decrease to cost of goods sold under the direct method. 15. When preparing a statement of cash flows using the direct method, a net loss reported on the income statement will a. automatically result in a cash outflow from operating activities. b. be included in financing activities. c. be disclosed as a note to the statement of cash flows. d. not be included on the statement at all. 16. When preparing a statement of cash flows, an increase in accounts payable during a period would require which of the following adjustments in determining cash flows from operating activities? Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease 17. When preparing a statement of cash flows, a decrease in prepaid insurance during a period would require which of the following adjustments in determining cash flows from operating activities? Indirect Method Direct Method a. Increase Decrease b. Decrease Increase c. Increase Increase d. Decrease Decrease 18. Oyster Corp. reports its income from investments by the equity method and recognized income of $25,000 from its investment in Pearl Ltd. during the current year, even though no dividends were declared or paid by Pearl during the year. On Oyster's statement of cash flows (indirect method), the $25,000 should a. not be shown. b. be shown as cash inflow from investing activities. c. be shown as cash outflow from financing activities. d. be shown as a deduction from net income in the cash flows from operating activities section. 19. With regard to disclosures required under IFRS and ASPE, which of the following statements Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 22- 12 Test Bank for Intermediate Accounting, Tenth Canadian Edition is INCORRECT? a. IFRS requires separate disclosure of taxes on income. b. IFRS requires separate disclosure of interest received and paid and dividends received and paid. c. ASPE does not require reporting and explanation of the amount of cash and cash equivalents that have restrictions on their use. d. ASPE does not require separate disclosure of taxes on income. 20. Free cash flow is a. the cash flows from operating activities reported on the statement of cash flows. b. the discretionary cash that an entity has available for increasing capacity, acquiring new investments, paying dividends, and retiring debt. c. the discretionary cash that an entity has available for increasing capacity, selling off investments, paying dividends, and incurring new debt. d. the cash flows from operating activities reported on the statement of cash flows increased by the capital expenditures that are needed to sustain the current level of operations. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22- 13 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. 1. c 4. d 7. d 10. b 13. c 16. a 19. d 2. b 5. d 8. c 11. b 14. c 17. a 20. b 3. c 6. a 9. c 12. d 15. d 18. d Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited For more Ebook's - Test Bank - Solution Manual Please visit our website : http://www.needbook1.com/ or contact us at [email protected] Also you can contact us on Skype: Ebooksmtb 22- 14 Test Bank for Intermediate Accounting, Tenth Canadian Edition MULTIPLE CHOICE—Computational 21. During 2014, Danish Corp., which uses the allowance method of accounting for doubtful accounts, recorded bad debts expense of $10,000. As well, the corporation wrote off uncollectible accounts receivable of $4,000. As a result of these transactions, their cash flows from operating activities would be calculated (indirect method) by adjusting net income with a a. $10,000 increase. b. $4,000 increase. c. $6,000 increase. d. $6,000 decrease. 22. Horatio Corp. sold some of its plant assets during calendar 2014 for $21,000 cash. The original cost of the assets was $150,000, and the accumulated depreciation to the date of sale was $140,000. This transaction should be shown on Horatio's 2014 statement of cash flows (indirect method) as a(n) a. deduction from net income of $11,000 and a $10,000 cash inflow from financing activities. b. addition to net income of $11,000 and a $21,000 cash inflow from investing activities. c. deduction from net income of $11,000 and a $21,000 cash inflow from investing activities. d. addition to net income of $21,000. 23. Claudius Ltd. sold equipment during calendar 2014 for $19,000 cash. The original cost of the equipment was $46,000, and the accumulated depreciation to the date of sale was $24,500. This transaction should be shown on Claudius’s 2014 statement of cash flows (indirect method) as a(n) a. addition to net income of $2,500 and a $19,000 cash inflow from investing activities. b. deduction from net income of $2,500 and a $21,500 cash inflow from investing activities. c. deduction from net income of $2,500 and a $19,000 cash inflow from investing activities. d. addition to net income of $2,500 and a $19,000 cash inflow from financing activities. 24. An analysis of the machinery accounts of Polonius Ltd. during 2014 follows: Accumulated Book Machinery Depreciation Value Balance, Jan 1, 2014 $500,000 $125,000 $375,000 Purchases of new machinery in 2014 for cash 200,000 — 200,000 2014 depreciation — 100,000 (100,000) Balance, Dec 31, 2014 $700,000 $225,000 $475,000 The information concerning Polonius's machinery accounts should be shown in their statement of cash flows (indirect method) for the year ended December 31, 2014, as a(n) a. subtraction from net income of $100,000 and a $200,000 decrease in cash flows from financing activities. b. addition to net income of $100,000 and a $200,000 decrease in cash flows from investing activities. c. $100,000 increase in cash flows from financing activities. d. $200,000 decrease in cash flows from investing activities. Copyright © 2013 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is prohibited d..000)..... c......000).. The cash provided by (used in) investing activities during 2014 is a...000..000 b............ $400..... $320..Test Bank ... 40.....000 Purchase of inventories ..................... 850. d.... $(400...... $(240........ 280...... $(440.... $192..... c..000.... d.................... For more Ebook's . $200.000 at the time of sale.. c...000..............000 Proceeds from issuance of common shares . 28. 300... Therefore....... The cash provided by financing activities during 2014 is a. The equipment had cost $252.Solution Manual Please visit our website : http://www........000 Purchase of long term investment ..... c...000 Proceeds from sale of equipment . $60.... b. 40.. $360...000.......... $200..000 and had a book value of $144..000.... Proceeds from issuing bonds ....... During calendar 2014.needbook1.. sold equipment for $168..... Depreciation Expense (Equipment) for 2014 was a...000.............000......000 Purchase of treasury shares .....000........000... 400....com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22..000..000.. $220................... 380.......000...000 Proceeds from long-term borrowings .....'s 2014 accounting records is as follows: Proceeds from sale of land ......... $156. 280.. b.. $260.000 Dividends paid to preferred shareholders ..... Copyright © 2013 John Wiley & Sons Canada.... Ltd. or transmission of this page is prohibited .. d......... 27.... Accumulated Depreciation—Equipment was $688.. $300......000 Purchase of inventories .......... $ 20............ 160.......... Selected information from Regan Ltd..............15 25....000 at Dec 31....... Use the following information for questions 26–27... 60.000.....000 Based on the above information........ the cash provided by investing activities for calendar 2014 is a...com/ or contact us at [email protected] at Dec 31.....000). Marcellus Inc.. distribution. $96.. provided the following information for calendar 2014: Marcellus adheres to ASPE.. 2014.......000 Proceeds from issuing preferred shares ... Marcellus Corp...000 Purchase of plant assets ........... $ 40.......... Unauthorized copying.... 2013 and $736.000 26.. $320...... b......... $590......000 Property.000 27...000 Less accumulated depreciation ........000....000 49........... plant and equipment ...000. 60....000) 82.. 30...........000 60. Use the following information for questions 31–32........... Tenth Canadian Edition 29.... 44.................. 1..... They wish to adhere to IFRS and know that they must prepare a statement of cash flows........ 15.........000 Cash dividends paid on preferred shares ................... the cash provided by (used in) financing activities for calendar 2014 is a.000 Cash dividends paid on common shares ................. $ 51............ Ltd.000 (38............ Unauthorized copying.. $76...............................000)...... 120......... $605. $150. 45.... 45..............000 Common shares ..... $ 160........000 $ 24...000 27.480.................. 160.......... $(220.000) 36. 85.000 Purchase of equipment .. (40....................................................... For more Ebook's ..... d..............................200......000 Copyright © 2013 John Wiley & Sons Canada....000 Purchase of a FV-NI investment ..000 $120...... 25... $630..........................000 Accounts payable ....000 Bad debts expense ....... Their financial statements for 2014 and 2013 are provided below.000 Based on the above information.....000 Income taxes payable .... distribution.000. 27...... $ 180.................... 48... $565........000... has recently decided to go public and has hired you as their independent accountant.... $ 22.. plant and equipment .......000 Accounts receivable ... Additional information follows: Depreciation on property.000.........000 $193.................................... Statements of Financial Position Dec 31/14 Dec 31/13 Cash....... 100......000 $180.000 Loss on sale of equipment ......... $1........ b.000............000..000 Bonds payable ...........................000 $ 12.. $ 400.000 Merchandise inventory . c. Oswald Ltd... or transmission of this page is prohibited ..... d.Solution Manual Please visit our website : http://www...... Proceeds from issuance of common shares .....000 Interest paid on long-term bonds ..... the cash provided by operating activities (indirect method) for calendar 2014 is a............com Also you can contact us on Skype: Ebooksmtb 22.............. Edmund Corp........000 Proceeds from issuance of bonds . c........... b......needbook1...................000 Based on the above information. 55... reported net income for calendar 2014 of $300...000 75....com/ or contact us at [email protected] Test Bank for Intermediate Accounting....000 Sale of shares to officers and employees NOT included above ...Test Bank .........'s 2014 accounting records is as follows: Cordelia adheres to ASPE......000.. Selected information from Cordelia Corp..... ................ $(54........................................... b...............000 Cash received from customers ......000 Purchase of new equipment for cash .... Dividends declared and paid were $24..17 Retained earnings ......... $ 30...... The cash provided by (used in) by financing activities is a....000 at the time of sale...... Ltd.... 105.......000.......... d.....................com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22.............................000........................ For a statement of cash flows for calendar 2014: 31......................... 99........ c.... 894.000...........” as was the depreciation expense for the year.......... $(36....................... Gertrude Inc.. 140........000 $180. and using the direct method..............000 Salaries and wages paid to employees .000................... Bonds were retired during the year at par............................050....................................... 48.................000 Income from operations .............000 Gertrude adheres to ASPE................ 2.............................. 3.............000...........000 Income taxes paid .................. or transmission of this page is prohibited ..........Test Bank ..000 Income taxes.. b.................................. The cash provided by (used in) investing activities is a......... a service organization.......................................................................... 12.............................000). 300........................................000).. This equipment originally cost $44. $ 36.000 The following additional data were provided for calendar 2014: 1............................................................................ 57...............000 Interest expense ........ 33..... 20...... The loss on sale was included in “selling and administrative expenses.000 Income before taxes ........................................000 Selling and administrative expenses ........com/ or contact us at [email protected])....... the Copyright © 2013 John Wiley & Sons Canada.... 2014 Sales . 9..000 Interest payments (on long term debt) ... 160.000........ $350.......... distribution.............. For more Ebook's ......................... and had a book value of $36..... $ 6.......................................Solution Manual Please visit our website : http://www..................000 Cost of sales ....... 45.............000 $193..........................000 Income Statement Year ended December 31.000 Net income ....... 15................................... Equipment was sold for $30.. $(44............................. reports the following for calendar 2014: Service revenue ..... $1.............................................................. d..............000 Net income ............... Unauthorized copying......000 Gross profit ......................000..... 156.. $ 24.... Based on the above information.....................................needbook1. 32.......000)....... $(30................ $ 6.... 8........000 Payments for office rental & general expenses . 42...000 30.000 Cash dividends paid ................ c...... (40... $ 51..000 Income from operations ....needbook1..........000 Income before taxes ................................ For a statement of cash flows for calendar 2014: Copyright © 2013 John Wiley & Sons Canada..................... 2014 Sales ......... $76.... 9............................. 99.......................000 $ 12......... b......000 Cost of sales ...........000)......000......... 2...000 Common shares .............. They wish to adhere to IFRS and know that they must prepare a statement of cash flows.. Tenth Canadian Edition cash provided by (used in) operating activities to be reported on Gertrude’s 2014 statement of cash flows is a............. $ 32...............................000......000 60........... distribution. $ 36.000..... This equipment originally cost $44......000) 36....................000 $193..... $ 40..............................000 (38................. Bonds were retired during the year at par.................. 45...............000) 82. 3.................................................................. $ 70....................................................................000 Gross profit ...................... Dividends declared and paid were $24...................................... plant and equipment . $ 22......000..000 Accounts receivable ............000 $120................................. has recently decided to go public and has hired you as their independent accountant........000 $180............. d $(90............000 at the time of sale....... c.... Equipment was sold for $30...... Oswald Ltd.000 Income taxes payable ...............000 The following additional data were provided for calendar 2014: 1...................000........ 48...000 Less accumulated depreciation .. 27............... 44......000 Interest expense ..............000 Bonds payable ........ Unauthorized copying..............................000 Property................. 57............ or transmission of this page is prohibited .......000 $193.....000 Income Statement Year ended December 31.........................com/ or contact us at Ebooksmtb@hotmail................... 48........Test Bank ...................... 894..............................000 30... 45........................ 12...................... For more Ebook's .........000 $180. Their financial statements for 2014 and 2013 are provided below..... Ltd..............com Also you can contact us on Skype: Ebooksmtb 22........ 42.................000 27...............” as was the depreciation expense for the year......18 Test Bank for Intermediate Accounting..... $1........... 156..................000... Statements of Financial Position Dec 31/14 Dec 31/13 Cash............................000 Merchandise inventory .............................................000 27. Use the following information for questions 34–35...... and had a book value of $36......000 49..................000 75.................Solution Manual Please visit our website : http://www... The loss on sale was included in “selling and administrative expenses......................050............000 Net income ....000 Income taxes.................000 Accounts payable ...........................000 Retained earnings ........................000 $ 24...000 Selling and administrative expenses .............................. .... $981.... be shown as an inflow from investing activities of $600....000) Totals ........000 135.......000 Accumulated depreciation—buildings and equipment . b...Solution Manual Please visit our website : http://www....... the receipt from the insurance company should a....... $1.......com/ or contact us at Ebooksmtb@hotmail................. d..................................... c.................000............... $ 75.... On the statement of cash flows (indirect method)....... A fire damaged Francisco Corp............ be shown as an inflow from investing activities of $420..................... 36.......... distribution.....000 $105...........000.....000 54..............................000) $981..... $1.... which was $180...................000...000 $771... 120...032..... Use the following information for questions 37–39. For more Ebook's ..000 Accounts payable ...000 $771.....000 477. 36..000 less than the book value of the building........ 270........ $ 5............................000.......com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22.. (54..... 30..... be shown as an addition to net income of $420..... 627... Their income tax rate is 25%..... All equipment purchased was for cash........ $12......000 Merchandise inventory ............................. or transmission of this page is prohibited .........000 During 2014........ c.................000...000..............000.....Test Bank ........ $17........000. The company received $600.... b......... The cash received from customers is a.’s office building..000 $165..........000 225...055......... b.... In Copyright © 2013 John Wiley & Sons Canada.......000 135.... book value of the equipment at the time of sale was $12........ 180........ at the ends of 2014 and 2013 follow: 2014 2013 Cash.. and the loss was included in net income.000) (24....... Unauthorized copying................... 90.. Cash dividends of $30........................ The cash paid for income taxes is a..000 Common shares ................000 Salaries payable ..............000 cash.......000 Notes payable—long-term ...........000 Retained earnings (deficit) ...000 at the time).................... be shown as an inflow from investing activities of $450......... d............................needbook1... 35.. $ 7..... 24..... Equipment costing $15.................000..................000 Mortgage payable ............ The statement of financial position data of the King Lear Corp.. land was acquired in exchange for common shares (which had a market value of $150........................................000 was sold for $6...000 Land ..000 (45................................... $1.............................050..............000............. Ltd...000.......068................000.............................................19 34...... d.................000 as a settlement from their insurance company............. c...000 Prepaid expenses .. 270......... $204............................................000 75... $1... 210................000 Buildings and equipment ....000 were declared and paid during the year......000.000 120...000 Accounts receivable (net) ...... .. 75.000. c.......000 Long-term debt: Bond premium amortized ............ $ 51....000)................000 Depreciation on plant assets ...... 45.......... Unauthorized copying. Oswald Ltd........ 39.000) 82..000)..000 Property... $99. $(30..000 $ 24..... b................000.............. plant and equipment ......... Ltd.. 600.000 Merchandise inventory .. 48. b....... reported net income for calendar 2014 of $3..Solution Manual Please visit our website : http://www. d...... $72.. $84.... 37....000 Based on the above information......000......20 Test Bank for Intermediate Accounting... (40...000 Less accumulated depreciation .....com Also you can contact us on Skype: Ebooksmtb 22......000..100... d....750........ $ 30.................000) 36... Statements of Financial Position Dec 31/14 Dec 31/13 Cash.. $78... 40. c.000 Interest expense ... $4................ Tenth Canadian Edition the statement of cash flows (indirect method) for calendar 2014..... the cash provided by operating activities (indirect method) for calendar 2014 is a.... 38. The cash provided by (used in) investing activities was a.. $(60. $ 39.000....730........ $ 0.000).. b.. 1. King adheres to ASPE.. 41.. $4...... $76....000 (38...........000 Bad debts expense .com/ or contact us at [email protected]................ Edgar Inc........000 Copyright © 2013 John Wiley & Sons Canada.......Test Bank ...000.000.. $ (60............000.000. b....... distribution.............. c........ c............... d....000)...... $4..000 $120.000 Accounts receivable ..needbook1....000 60............. The cash provided by (used in) financing activities was a.... $4. Additional information follows: Impairment of goodwill . They wish to adhere to IFRS and know that they must prepare a statement of cash flows.... or transmission of this page is prohibited ........ $ 90.... d....000)........ 45... $ (54.715. $(204.000 27. has recently decided to go public and has hired you as their independent accountant.. Their financial statements for 2014 and 2013 are provided below...... For more Ebook's .660...... The cash provided by operating activities was a...000.... .. *42.....000........ 57..000...000..............000 Income before taxes . On Hamlet Ltd..............000 Gross profit .. sold equipment for $70.....000 Retained earnings . 894.................. $36....... $214...............000 30................... distribution..............................000 Income Statement Year ended December 31.050........ The loss on sale was included in “selling and administrative expenses......... Equipment was sold for $30.....................000 Cost of sales . 12...000.....000......... impairment of goodwill of $10....000 $193........... Hamlet’s net income for 2014 was a................................................. Hamlet Ltd.... 99.. d.......000.........................000 49............................com/ or contact us at Ebooksmtb@hotmail...... 9..........'s statement of cash flows (indirect method) for calendar 2014..21 $180............. $51.......... and cash dividends paid of $72............... $ 36.............. using the indirect method.....” as was the depreciation expense for the year...000 $193............ $25............000 Selling and administrative expenses ....000..000........... Dividends declared and paid were $24............... 45...................000............. For a statement of cash flows for calendar 2014................ $30. 2. 156...000 $180..........................000 Income taxes payable .. and had a book value of $36.....000....... 42...... adheres to ASPE......000 75....000 Accounts payable .........000 The following additional data were provided for calendar 2014: 1................... 44.... or transmission of this page is prohibited ....... $1.........000 at the time of sale.............. Use the following information for questions *43–*44..... $154......Test Bank ........... $ 12.. b.............................000...... This equipment originally cost $44............... The equipment had cost Copyright © 2013 John Wiley & Sons Canada.......................... Ltd............................. 48.......000 Interest expense ..............Solution Manual Please visit our website : http://www................................................ 3.000 Common shares ........... c............ c. b...................000.. cash flows from operating activities were reported at $154........................................... During calendar 2014......000 Income from operations ...000 $ 12.......000.................... For more Ebook's .............. 2014 Sales ..... $ 84.... $ 22...com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22........................000 Net income .... 27..... d...........................................000..000.....................needbook1.......... the cash provided by operating activities is a......................... The statement included the following items: depreciation on plant assets of $60......000 Income taxes.................. Bonds were retired during the year at par...... Laertes Corp....................... Unauthorized copying.000 27........000 Bonds payable .000............................. Based only on the information given above... Ltd...... or transmission of this page is prohibited ................ Tenth Canadian Edition $100...... $160......... *44..000 at the time of sale.... $100.000............ (24.......... distribution.................com/ or contact us at [email protected]..... $86.000) Amortization of patents ........000 Gain on sale of equipment ... 2014 Cash provided by operating activities Net income .22 Test Bank for Intermediate Accounting.. $ (64... Unauthorized copying.. c. Data from their comparative statements of financial position are: Dec 31/14 Dec 31/13 Equipment $720.................... 8.000 Add back non-cash expenses: Increase in accounts receivable ...... d............ $170.. Statement of Cash Flows (indirect method) Year ended December 31......................000..........000................000) Increase in accounts payable..000 Buildings and equipment ....Test Bank .....000 Copyright © 2013 John Wiley & Sons Canada........ c...... Equipment purchased during 2014 was a..... Financial statements for Bernardo Corp.....com Also you can contact us on Skype: Ebooksmtb 22...000 Depreciation expense ........ d................000 Accounts receivable ................. 32............. Depreciation expense for 2014 was a......000................... $12.....000 *43........................ 60.......000 Retained earnings..... 600.... For more Ebook's ..000 BERNARDO CORP.. 144.................. $30...Solution Manual Please visit our website : http://www..... $70...................... are presented below: BERNARDO CORP......... $ 76..... Use the following information for questions *45–*49................ Statement of Financial Position January 1. (200........000 12.......000 Cash provided by operating activities ..000 $776........000.000 $776.. $200............ 460... 212. 72..needbook1...000 Accounts payable ........................000 and had a book value of $52...000 Accumulated depreciation— buildings and equipment ......000 Patents ........000 Accumulated Depreciation 210... $18...000. $68......000..................000) Common shares ..000 190...... b......... 2014 Assets Liabilities and Equity Cash ....... 240.......................000 $650.. b... .... $148......000...........000. or transmission of this page is prohibited ....... c.....000... $ 48..........000. $520.......Test Bank ..............000.. (100..000..........000) Issuance of common shares .... $460..000 Cash....... (244........ *49.. 2014 statement of financial position were $1......... Ltd.......................... b.. The balance in the Common Shares account at December 31........ b..000 Cash provided by financing activities .... January 1....000 Cash.. b......000...... d............. $712............. The balance in the Accounts Payable account at December 31.......needbook1. d. $228. 68..000.. 48...... d...... $260..... b.....000..... the Buildings and Equipment account was credited with a.........com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22........... *48.. 2014 ..................000....... $104... The balance in the Retained Earnings account at December 31... $ 56.......000.000... $ 32........000) Purchase of buildings and equipment ........... $ 80.000...... 2014 was a.......108. Unauthorized copying...... c... $180... $380.................................. Accumulated depreciation on the equipment sold was $56. 160............ $ 44..000.................000) Cash provided by financing activities Payment of cash dividends ... 2014 ...........Solution Manual Please visit our website : http://www...000........... $108..000............ 100.. $588......com/ or contact us at Ebooksmtb@hotmail... c..000... 2014 was a.... 2014 was a..............000......................000...... d.......000. c.... $440............ 2014 was a...... c... *47... $620........ *45......23 Cash provided by (used in) investing activities Sale of equipment ........... d... When the equipment was sold... $508..... b....000 Total assets on the December 31.......... (60.. 160............................ *46.............000....000.........000) Cash used by investing activities ......000 Purchase of land ... For more Ebook's ....... December 31. (192... $400.................... distribution......... $500................. Copyright © 2013 John Wiley & Sons Canada.000 Net increase in cash .... The book value of the buildings and equipment at December 31....... c.500. $239. Unauthorized copying.500. $ 93.500. *51.500. or transmission of this page is prohibited . distribution. Ltd. which increased the common shares account by $116. b.500. Copyright © 2013 John Wiley & Sons Canada. The stock dividend should be reported on the statement of cash flows as a. d. During 2014.com/ or contact us at Ebooksmtb@hotmail. $218. The amount of the cash dividend declared and paid was a.500. an outflow from operating activities of $116.000.24 Test Bank for Intermediate Accounting. c.needbook1. 2013 of $270.000.Test Bank .Solution Manual Please visit our website : http://www. an outflow from investing activities of $116. $123. Net income for calendar 2014 was $187. Stock dividends are not shown on a statement of cash flows. b. 2014. d. and at December 31. As well. $164. Tenth Canadian Edition Use the following information for questions *50–*51. an outflow from financing activities of $116. *50.500. For more Ebook's . Ophelia Ltd. reported retained earnings at December 31.000. a cash dividend was declared and paid during the year. a stock dividend was declared and distributed.000.com Also you can contact us on Skype: Ebooksmtb 22. 000 = $590. a *51. A/R write-offs are not relevant using indirect method.000 = $17.480. d 22. d $3. b 23.000) = ($54. c *42.000) – ($30.000 – $688.000 – $280. a $300. Item Ans.000 = $1. Item Ans.000 – $105.000 + $3.000 + $33. Item Ans.000 + $55. a *49. a $10. or transmission of this page is prohibited .000 – $10. c Conceptual. b $30.000 + $85.000 (bad debts expense added back).000) + $90.000 – $225. Item Ans.000 + $100.000 34.) $99.000 = $6. For more Ebook's .000 – $144.000 (Loss) $54. c 32.000 26.000 (proceeds) 24.000 – $15.000 – $45.000 – $140.000).com/ or contact us at Ebooksmtb@hotmail. a *46. b 36.000 = ($60. c 30. Item Ans.000) = ($54.000 + $6. c $736. d 39.050. a 38. c *44.000 – $190.000) = $11. c *50.25 MULTIPLE CHOICE ANSWERS—Computational Item Ans. $21.000 + $6.000 + $8. b *43.000 29.000) 40.000 + $45.000 – $5.000 = $260.000 41.000 + $45.000 + $1.000 – $75. a $300.000) = $156.000 – $60.000 31. c ($120. 22.000 *44.000 = $(240.000 = $20.000 – $3.000 (Deprec.000 – $24. a 28.Solution Manual Please visit our website : http://www.000 – $52.000 + $150. Unauthorized copying. d *45. c 24. c $21.com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22. c 27.000 = $4. a 33. c $200.000 – $30. a $36.000 + $1.000 – $280. a $720.000 38. b DERIVATIONS—Computational No.000 – $650.000 – $8.000 35. distribution. b 31.000 – $45. exp.000 36. Item Ans. b *47.000 – $160.000 – ($46.500.000 – $40.000 – $38.000 + $12.000 *42. d 25. c ($24.000 + $39.000) – $18.000) 33. $600.000) = $68.100.000 = $170.660.000 (NI) ($15.000 Copyright © 2013 John Wiley & Sons Canada.000 + $100.000 + $12.000 = $1.000 + ($252. b $300. d $27.000 + ($40.000 = $33.000 + $15. c 37.200. no purchases) 32.000 + $30.000 = $84.500 (loss). b *48.000 = $51. Ltd.000 – ($150. b 35.000 – $45.needbook1.000) – $6. a 26. b 29.000) 27.000 – $24.000 *43.000 (gain). b $40.000 + $1. 39.032.Test Bank . Answer Derivation 21.000 + $30.000 30. b Conceptual 25.000 + $75.000 28.000 + $10. $19.000 – $60.000 – $60. b $6. c $24.000 (proceeds) 23. d $400. 21. a $49.000 = $84. c 41. d 34. a $19.000 = $99. a 40.000 + ($100.000 – $44.500) = $2.000 – ($270.000 (actual proceeds) 37. b $154.000 – $140.000 – $18.000 (sale of equipment.000 = $32. b $210.000 + $160. 000 + $160.000 + $32. $24.com Also you can contact us on Skype: Ebooksmtb 22.000 = $108. a ($600.needbook1.000 *49. c $48. c $240. X = $123.000 = $620. or transmission of this page is prohibited .500 – X = $218. b $76.000.Test Bank .000 – $24. Ltd.000 – $200.com/ or contact us at Ebooksmtb@hotmail. Tenth Canadian Edition *45.26 Test Bank for Intermediate Accounting.000 *46.000 *48.000 = $24.000 + $192.000 – $60. d Conceptual Copyright © 2013 John Wiley & Sons Canada.000 + $200.000 + $187.000 *51. b $270.000 *47.000 = $80.000 (BV).000 + $56.000 *50.000) – $24.Solution Manual Please visit our website : http://www.000 = $508. d $460. For more Ebook's . Unauthorized copying.000 – $60.500 – $116. distribution.000 = $380. Copyright © 2013 John Wiley & Sons Canada. Borrowed $220. $(70. Sold long-term investments for $200. b. $ 10. For more Ebook's .com/ or contact us at Ebooksmtb@hotmail. In a statement of cash flows.000 cash. paying part of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. distribution. 2. the cash payment b.000. purchased a building. Issued 1. the full purchase price c. zero (but disclosed in the notes) d. $(270.needbook1. Purchased land for $220.000). $(20. what amount is included in financing activities for the above transaction? a. The cash provided by (used in) financing activities for 2014 was a.000 from the bank on a long term note.27 MULTIPLE CHOICE—CPA Adapted Use the following information for questions 52–53. Accounts payable increased by $80. In a statement of cash flows. Duncan Corp.000. the cash payment b. c. Paid cash dividends of $240. Accounts receivable decreased by $40.000. 2014 included the following: 1.000. 52. 5. Unauthorized copying. b.com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22. 7. the amount mortgaged Use the following information for questions 54–55.'s transactions for the year ended December 31.Solution Manual Please visit our website : http://www. 4.000. or transmission of this page is prohibited .Test Bank .000. d. Purchased machinery and equipment for $50.000.000). the amount mortgaged 53. $ 80.000). what amount is included in investing activities for the above transaction? a. zero (but disclosed in the notes) d.000 cash. 55.000 common shares for $100.000). 6. Ltd. 54. the full purchase price c. Banquo adheres to ASPE. 8. $(150. Banquo Corp. The cash used in investing activities for 2014 was a. 3. ................ plant and equipment ......................'s transactions for calendar 2014 included the following: 1......000 150............000) (225.. 3............... 345...000 $ 50...000...... c... 150.. d... 2014 and 2013 and information relating to 2014 activities are presented below: December 31.......................... Issued 5.................. $296.. 255..................... $308.............. Tenth Canadian Edition c............. The cash provided by investing activities in 2014 was a... 100.......000......000 — Accounts receivable (net) ..630................... $(180.... $(200.000 500...... 145.... 2....... c....needbook1..... 4....000 300...... $226.. $286..000 cash......... b......... Use the following information for questions 56–57..000 Accumulated depreciation .... Acquired 50% of Lennox Ltd........................................000 Long-term investments .. par value $200........000....000 $ 360.. 45.... Unauthorized copying..... Paid $60.....Solution Manual Please visit our website : http://www............000 cash. 600......000) Goodwill .000 $1.... d. 7............... or transmission of this page is prohibited ......... 850.....Test Bank .000).000 Inventory ........... 6..........000 255........000 cash.........................000..000 from Bank A........... Borrowed $90............000 Copyright © 2013 John Wiley & Sons Canada..........000.........000 475.............. 56...'s common shares for $90.......$ 415..........................000........ d... (225.......... Ross Corp............ Malcolm Corp...000 preferred shares in exchange for land with a fair value of $160.... For more Ebook's ...000 Liabilities and Shareholders' Equity Accounts payable ......... $ 110.................... 5....000............000 — Common shares ................com/ or contact us at [email protected] Total assets .....................000. $1................000)....... Use the following information for questions 58–59.. $198..................................000 Property........................000..000 Long-term note payable . 57.......... Purchased a patent for $110........ Sold long-term investments for $398.___ 2014 2013 Assets Cash ....................... $136...000........ Ltd............000 50.......... b.... The cash provided by financing activities in 2014 was a... $148...000 toward a bank loan with Bank B... distribution...000 Temporary investments .....080... for $196.........28 Test Bank for Intermediate Accounting.000... due 2020........... $238......'s statements of financial position at December 31...com Also you can contact us on Skype: Ebooksmtb 22. Issued 11% bonds................ . Macbeth Corp.. c.000. distribution. For more Ebook's . $264...000... Temporary investments consist of treasury bills maturing on June 30. The cash used in investing activities in 2014 was a.000 d...000 Other information relating to 2014 activities: 1.000 245... A long-term investment was sold for $80... $240. respectively. 5.. $270.. There were no other transactions affecting long-term investments.000 was the only equipment sold in 2014... 2015....000..'s comparative statements of financial position at December 31. $120. 59. b.com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22..'s prepaid insurance balance was $10.000 and a book value of $48. $252.needbook1.080..000.000. 58...000 Total liabilities and shareholders' equity .000..000 were declared and paid.. 60.. $455.000...000 b.000..... 2013. 2014 and 2013 reported accumulated depreciation balances of $960. Insurance expense was $4..000 for 2013. $580. d.000. $420... Equipment with a cost of $60. $420. was sold for $90.. 2...000. 6. or transmission of this page is prohibited .000 at December 31..... c. b.. $ 4.com/ or contact us at [email protected] and $720. $11.... $430... Unauthorized copying. Copyright © 2013 John Wiley & Sons Canada....000 for 2014 and $3........000 c.....Test Bank .. $1. Cash dividends of $150..630. Therefore... 4.. 3. 5.000. Macduff Ltd...29 Retained earnings .000.. $228. with a book value of $80.000 61.. d..000 common shares were issued for $25 a share.. $130.000 $1.000.000.000..000... d...000. 2014 and $5.. c...000 at December 31. Net income was $375. $ 6... 470... the depreciation expense for 2014 was a..... Ltd..000. How much cash paid for insurance would be reported in Blackfoot's 2014 statement of cash flows prepared using the direct method? a.. Equipment costing $250..Solution Manual Please visit our website : http://www.. The cash provided by financing activities in 2014 was a. $ 9.. b. 000 = $120. distribution.000) + $145.000 Copyright © 2013 John Wiley & Sons Canada. b 53.000 = $580. c DERIVATIONS—CPA Adapted No.000 + ($60. For more Ebook's . Unauthorized copying.Solution Manual Please visit our website : http://www.000 – $50.000 – $48.000 × $25 = $125.000 57.000 – $110. c $960. b $220. Item Ans.000 = $198. b $196. Item Ans.000 = $226.000 + $100.000 – $60.000 61.000) 55.Test Bank . b 58.000 – $5.000 + $90.000 – $90.000 – $220. b 57. d 61.000 – $720.000 – ($850.000 = $(70. c 55.000 + $4. a Conceptual 53. Item Ans. or transmission of this page is prohibited .000) = $252.000 + $90. c $200. Answer Derivation 52.000 – $500. 52.com/ or contact us at Ebooksmtb@hotmail. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.000 56. Ltd.000 58.000 – $240.com Also you can contact us on Skype: Ebooksmtb 22.000 60.000) – $150. b $398.000 59. b $10.30 Test Bank for Intermediate Accounting.000 = $9. Item Ans. a $80. d (5. b 59. a 54.000 – $150. a 60. c Conceptual 54.000 = $80.needbook1.000 + $250. c 56. three distinct examples of investing activities. 22-63 Classification of cash flows and transactions Assuming the company follows ASPE.com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22. Explain what these choices are. Solution 22-63 a. distribution.needbook1. 22-62 Choices of statement of cash flows categories under IFRS Under IFRS. Ltd. 4.31 EXERCISES Ex. three distinct examples of significant noncash transactions. however. Financing activities: issuance or reacquiring of shares issuance or retirement of debt cash dividends paid c. 3. Interest paid/received and dividends received (except dividends received from a significant influence investment) can be recognized in operating activities (assuming they are included in calculating net income). Investing activities: purchase or sale of both tangible and intangible assets purchase or sale of investments in other entities loans or collection of principal of loans to other entities b. Not shown on the statement of cash flows: Copyright © 2013 John Wiley & Sons Canada. Solution 22-62 Under IFRS. Unauthorized copying.Solution Manual Please visit our website : http://www. two examples of transactions not shown on a statement of cash flows. Note. three distinct examples of financing activities. Dividends paid can be treated as a financing outflow (highlighting the fact they are returns to shareholders). once management makes the appropriate choices. Interest paid can also be treated as a financing outflow. For more Ebook's .com/ or contact us at Ebooksmtb@hotmail. c. or an as operating outflow (as a measure of the ability of operations to cover returns to shareholders). d. they must be applied consistently.Test Bank . b. 2. Interest and dividends received can also be treated as investing inflows. choices are allowed in the categorization of interest paid and received and dividends received. Ex. Significant non-cash transactions: acquiring assets by issuing shares or debt capital (finance) leases conversion or refinancing of debt nonmonetary exchanges of assets d. give: a. or transmission of this page is prohibited . there are several choices available for these items: 1. Solution Manual Please visit our website : http://www. Unauthorized copying.000.800. ____ 1.000 for the year. 22-64 Effects of transactions on the statement of cash flows (indirect method) Any given transaction may affect a statement of cash flows (using the indirect method) in one or more of the following ways: Cash flows from operating activities A. Tenth Canadian Edition stock dividends stock splits Ex.200. Increase as a result of cash inflows. Solution 22-64 1. D. or transmission of this page is prohibited . Paid cash dividends of $8. Ltd. list the letter or letters from above that describe(s) the effect of the transaction on a statement of cash flows (indirect method) assuming the company follows ASPE. Cash flows from investing activities C. F 2. F. Recorded depreciation expense of $150. ____ 9. Instructions For each transaction listed below. Decrease as a result of cash outflows. The statement of cash flows is not affected G. G 5.000 for $50. distribution. ____ 3. ____ 6. ____ 7. E Copyright © 2013 John Wiley & Sons Canada. Sold machinery that originally cost $3.000. Increase as a result of cash inflows. B. Ignore any income tax effects. E 6. Cash flows from financing activities E. Decrease as a result of cash outflows.needbook1. ____ 4.000.000 against the allowance for doubtful accounts balance of $12.000. For more Ebook's .000 common shares for $25 per share. Sold treasury shares at their carrying value. Purchased a patent for $20. Redeemed preferred shares with a carrying value of $44.C 4.com/ or contact us at Ebooksmtb@hotmail. G 3. Sold 1. with a book value of $1. for $5. ____ 2. Not required to be reported on the statement. Wrote off uncollectible accounts receivable of $3. Acquired land through the issuance of bonds payable. ____ 5.000. Net income will be increased or adjusted upward.32 Test Bank for Intermediate Accounting.Test Bank . B.com Also you can contact us on Skype: Ebooksmtb 22. Net income will be decreased or adjusted downward. ____ 8. " Show financing and investing outflows in parentheses.000. Add $10.000 c. Issued 3. b.000 g.000 with accumulated depreciation of $48.700 or Investing ($31. If not disclosed.000 (gain) f. Add $1. Machinery. e.000.000. Add $3. write "Add. write "noncash. write "Deduct. A *Ex. an answer might be: Deduct $4. Investing $55. "Not shown. The balance in “Investment in Kinnear Corp. Financing ($60.com/ or contact us at Ebooksmtb@hotmail. If not disclosed. assuming the company follows ASPE." and for an item that is deducted from net income. write. write "Not shown. Amortization of bond discount. too. distribution. *Solution 22-65 a.needbook1. which cost $100. $1. Cash dividends paid. If the item is a noncash transaction that should be disclosed separately. The deferred tax liability increased $10. $3.000 b.33 7. d.000 common shares with a market value of $15 per share for machinery. h.000).Solution Manual Please visit our website : http://www.” increased $12. Issuance of a stock dividend increased the common shares account by $56.000. or transmission of this page is prohibited . indicate for each of the following what should be disclosed on a statement of cash flows (indirect method) and in which section.000) *Ex. F 8." If an item is added to net income. Ltd.) g. 22-66 Effects of transactions on the statement of cash flows (indirect method) Assuming ASPE. $60.Test Bank . Not shown d.600. write "Add. 22-65 Effects of transactions on the statement of cash flows (indirect method) Indicate for each of the following what should be disclosed on a statement of cash flows (indirect method). was sold for $55. f. c.000." If an item is a noncash transaction that would not be on the statement but should be shown separately." There may be more than one answer for some items. Deduct $3. Amortization of patents. (Show the amount. Noncash $45. For more Ebook's . write "Noncash." a. For an item that is added to net income.600 e.com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22.000 as a result of using the equity method. Deduct $12." and if an item is deducted from net Copyright © 2013 John Wiley & Sons Canada.000 h.000. Unauthorized copying. D 9.000. For example. ... deduct $1... Retained earnings 12/31/14 $728....... $260.........000..........000..000 x $130) *Ex.000 Increase 243......... add $650.000....... Unauthorized copying...... f....000 preferred shares with a fair value of $130 per share for a parcel of land.........000 Allowance for doubtful accounts ................ Tenth Canadian Edition income...... 22-67 Preparation of statement of cash flows (indirect method) The following information is taken from Green Lake Corporation's financial statements...........................100) Inventory .... Issued 2.... f........ (4....000).......... distribution......000 at December 31.000 Cash dividend $127....... d. was sold for $67....000 at December 31................. 2014...000 $ 27................ Amortization of bond premium............." Show financing and investing outflows in parentheses....needbook1.. *Solution 22-66 a......... Operating.......... 287............ c. The balance in Retained Earnings was $485..................... For more Ebook's .100. 2013 and $728..................000. write "Deduct..000) d...... an answer might be: Deduct $4....... There may be more than one answer for some items......... A stock dividend was declared and distributed which increased common shares by $280... b.... $1............000 Increase in retained earnings 243... deduct $5...... 7..... 95...000 Net income 650............. c....... or transmission of this page is prohibited ......000 Total dividends 407...Test Bank .com Also you can contact us on Skype: Ebooksmtb 22.. Noncash...... Investing... The deferred tax liability increased $18... $ 92..... Green Lake adheres to ASPE: December 31 2014 2013 Cash........000 Cash dividend $127............000................000 523....500 6.........000 Retained earnings 12/31/13 485... Equipment.......com/ or contact us at Ebooksmtb@hotmail.... 145.........100....000 Prepaid expenses .......000 (gain on sale)...... Operating. net income was $650....500) (3. which cost $115.....000.......... b.......000....000 Stock dividends 280. Ltd...000 Buildings .......................000 Stock dividend—Not shown Cash dividend—Financing ($127......000 175......800 Land . (Show calculation of the cash dividend and indicate how it and the stock dividend would be shown)..000 Accounts receivable ..............34 Test Bank for Intermediate Accounting....000 244..000 (or) Net income $650....000 with accumulated depreciation of $53... e...000 60..... For 2014...... $67.......700 or Investing ($31......... For example.....Solution Manual Please visit our website : http://www.....000 Copyright © 2013 John Wiley & Sons Canada.000.000 Stock dividend 280.... (2................. add $18. 93. Operating..........000 80. e. a... Operating...000........ ....................... (700) Increase in accounts payable.000) Sale of patent ($35............com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22.......................$7..................000) 41..........................Test Bank ............................................................ distribution...........000 Amortization of patent ...........300 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense ....000 ........................................................................................................000 Gain or loss on sale of patents ........000 Increase in prepaid expenses ......700 Cash provided by operating activities .......................................................................000 35....................600) Decrease in inventory ..000) Purchase of buildings ..... 30............000 Increase in accounts receivable .............................................................. 8...................................................................000 Accrued liabilities ......... Unauthorized copying............. $700................................000 Copyright © 2013 John Wiley & Sons Canada............................ $53......000) ................... 2014 Cash flows provided by operating activities Net income ......................................... *Solution 22-67 GREEN LAKE CORPORATION Statement of Cash Flows Year ended December 31.......... (9................ (68.........................000 ... (13...............000 312..needbook1....... For more Ebook's ..000 Cash dividends declared and paid .....Solution Manual Please visit our website : http://www...............700 Accounts payable ................................................................. 346.................. net of accumulated amortization ............ Ltd.....................000 Cash flows provided by (used in) investing activities Purchase of land ........................... 65.................000 $611...............................................000 .......... 22................. $22.........................................................................000 63...........................000 $611.........000) ................35 Accumulated depreciation ......... 7....... $ 90....... none Instructions Prepare a statement of cash flows (indirect method) for Green Lake Corporation for calendar 2014......... or transmission of this page is prohibited .................................................. $53. 6............. 20........000 Decrease in accrued liabilities..000) (13................................................................ 54..............................com/ or contact us at Ebooksmtb@hotmail...........................................................................................700 Treasury shares.....................000) Cash flows provided by financing activities Sale of bonds ..... 95....................... 20.........................................................000) Patents...................................................................................................000) (8....000 Common shares ........ 100..............000 Bonds payable ...........000 100....... (33....... at cost .........300 Depreciation expense .... 7..... (15........................................000 Cash used in investing activities ..... $700...........000 60.................000 $ 84...............................................................000 Amortization of patents ......700 For 2014 Year Net income . (43. (35...................... 125.............................000 Retained earnings .........................$20.................... ................000 Common shares ....................................500 Accounts payable ...... $ 19..........000 long-term note payable by issuing common shares....000 Cash.............................. For more Ebook's ..com Also you can contact us on Skype: Ebooksmtb 22... Statement of Cash Flows Year ended December 31................... Paid cash dividends of $34.300 Inventory .......000 Retained earnings ...........................000 $212.................300 20.............................. paid cash.............. 3......................500 Additional information concerning transactions and events during 2014: 1............... Ltd...... 27.. December 31.......................... 236........................000 *Ex...... January 1......000 Long-term notes payable ......000 42.................................... Statements of Financial Position ___December 31__ 2014 2013 Cash .. 38.......000 $212.. BURGUNDY BAY LTD........... 70............... 22-68 Preparation of statement of cash flows (format provided) Comparative statements of financial position for Burgundy Bay Ltd. Unauthorized copying....................000............................... (20................ Extinguished a $40.. 6....................... 35............................................000 $ 26.....................000.................com/ or contact us at Ebooksmtb@hotmail..... (7.................... Net income was $80............000 Accumulated depreciation .000 Net increase in cash .......................................000 Long-term investments ............. are shown below: Burgandy adheres to ASPE.......... Purchased machinery by signing a $60.000 $313............................................... 2014 Cash provided by operating activities Copyright © 2013 John Wiley & Sons Canada..................000) Payment of cash dividends .... distribution....Solution Manual Please visit our website : http://www......... 5....000 Cash......................... (37.000 29......000 50......................................................................... Tenth Canadian Edition Purchase of treasury shares .....000............700) (25........................................................... 48.................. 0 15..... 2...000 17. $65...500 150.......000 90.................... BURGUNDY BAY LTD..... Purchased machinery costing $26..... plant & equipment ......... 19... 130..Test Bank .000 long-term note payable............... $ 30.000) $313..............000) Cash provided by financing activities ..... 2014 ...... 4.......... or transmission of this page is prohibited ...... prepare a statement of cash flows (indirect method) for calendar 2014 for Burgundy Bay Ltd..needbook1..............500 Accrued liabilities ....................000 Property..........500..............900 $ 10...200 Accounts receivable (net) ............................ 2014 ... Sold the long-term investments for $28.. 75................... $92.. Instructions Using the format provided on the next page................................36 Test Bank for Intermediate Accounting.................... ........37 Net income $__________ Adjustments to reconcile net income to net cash provided by operating activities: __________________________________ $__________ __________________________________ __________ __________________________________ __________ __________________________________ __________ __________________________________ __________ __________________________________ __________ __________________________________ __________ __________ Cash provided by operating activities __________ Cash provided by investing activities ___________________________________ __________ ___________________________________ __________ ___________________________________ __________ Cash provided by investing activities __________ Cash provided by (used in) financing activities ___________________________________ __________ ___________________________________ __________ Cash provided by (used in) financing activities __________ Net increase (decrease) in cash $ Cash..........com/ or contact us at [email protected] Manual Please visit our website : http://www... Ltd...com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22..... December 31.... Statement of Cash Flows Year ended December 31. distribution.000 Copyright © 2013 John Wiley & Sons Canada....needbook1.... $ 80........... 2014 Cash.... 2014 $ *Solution 22-68 BURGUNDY BAY LTD............ For more Ebook's .. 2014 Cash provided by operating activities Net income ......... January 1. Unauthorized copying.Test Bank ......... or transmission of this page is prohibited .... ......................... (28.000) Decrease in inventory .... The difference between cash revenues and cash expenses is cash net income. 22-69 Direct and indirect methods Explain and compare the direct method and the indirect method of preparing a statement of cash flows............................ The direct method adjusts revenues and expenses to a cash basis by showing the actual cash received from customers (and any other forms of revenue) and the actual amount of cash paid out for suppliers............. 2.500) Cash provided by investing activities .......... December 31.................... operating expenses.. Ltd... and equity method revenues and losses.................500) Increase in accrued liabilities .............. 2014 ....... For more Ebook's .............. i..................: Copyright © 2013 John Wiley & Sons Canada....000 Decrease in accounts payable ......needbook1.......000) Net increase in cash . $ 20... Solution 22-69 Only the operating activities section is affected by the choice of method.................... Ex...700 Gain on sale of investments ... or transmission of this page is prohibited . 53................. and adjusting for noncash items included in net income.......... The indirect method adjusts accrual net income to a cash basis. (26............ $ 12....... 22-70 Cash flows from operating activities (indirect and direct methods) Presented below is the latest income statement of Oxford Ltd...200 Cash provided by investing activities Sale of long-term investments . amortization of bond discount or premium................................000) Increase in accounts receivable ....... book gains and losses on disposal of assets................. Examples of noncash items include depreciation and amortization...... interest..... distribution.............. $ 30....000 Purchase of machinery ...... the net cash flow from operating activities..................... 28..com/ or contact us at Ebooksmtb@hotmail...... etc...000 (26.............................. (13....200 Cash............ 10..... January 1.... (7..000) Cash provided by (used in) financing activities .. The investing and financing sections are the same under both methods........900 Ex... Unauthorized copying.........................................38 Test Bank for Intermediate Accounting................. (34... (34........... employees...com Also you can contact us on Skype: Ebooksmtb 22...........Test Bank ...................................................................................... 1.......... taxes.......... bad debts expense.......... This is done by starting with the accrual net income and adding or subtracting changes in the balances of current assets and current liabilities during the year....... 2014 .......Solution Manual Please visit our website : http://www........e... Tenth Canadian Edition Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense ...........800) Cash provided by operating activities ......... 7................500 Cash provided by (used in) financing activities Paid dividends ....................................................................................700 Cash................ ............ $380.......400 Decrease in salaries payable (operating expenses) ........... 3... 2...........700 and that the deferred tax liability account increased $2......................................... distribution.............700 Increase in future income tax liability ............................ Statement of Cash Flows (Partial) (Direct Method) Cash flows from operating activities Cash received from customers ($380..........................000 Oxford Ltd............ OXFORD LTD...Solution Manual Please visit our website : http://www.. Solution 22-70 a..............700 Net cash provided by operating activities...............700 b.......... $372.600 27... $12... 13........ 85................ using the indirect method.....000) Increase in accounts payable.......000 Accounts payable ...... (6....600.......... 9..............000 Gross profit ......... Statement of Cash Flows (Partial) (Indirect Method) Cash flows from operating activities Net income .....39 Sales ......needbook1......................................... Unauthorized copying................................... $42........... (3..... $69........................ OXFORD LTD....................000) Decrease in inventories... Ltd....... or transmission of this page is prohibited ....................................000 Income tax payable ............000 Income taxes ........................com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22....000 Income before income taxes ........................................ 8.....400 Salaries payable (operating expenses) .... 9.............000 In addition........000 – $8.................. $155..................... For more Ebook's ..............................000 Cost of goods sold ...........000 Operating expenses .. 6. also reports that depreciation expense for the year was $13.....................000) Depreciation expense ...... 28. $19.................... the following information related to net changes in working capital is available: Debit Credit Cash .................. $ (8..................................................000 Net income .................................. Instructions Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows: a.......com/ or contact us at Ebooksmtb@hotmail..........................................................................................................................................000 Accounts receivable (net) ..................Test Bank ....................................... b.............000 Decrease in income taxes payable .... $ 42..............000 Copyright © 2013 John Wiley & Sons Canada........000) ........................... 225..........................000 Inventories ......................... using the direct method......... 70.......000 Adjustments to reconcile net income to net cash provided by operating activities: Increase in accounts receivable ............ 19.. .000 – $13.needbook1....... ____ 8.40 Test Bank for Intermediate Accounting... the section or sections where the effect would be reported assuming the company follows ASPE. If the item is not required to be reported on the statement of cash flows... or transmission of this page is prohibited .000) .000 + $3.... Unauthorized copying.. The book value of FV-NI investments was reduced to fair value..... ____ 7.. indicate by letter in the blank spaces below...com Also you can contact us on Skype: Ebooksmtb 22.700 Ex..300 Net cash provided by operating activities . Accrued estimated income taxes for the year...... ____ 3. $196..400 – $9. 77... ____ 5.000 – $2...000 + $6. $ 69... 22-71 Classification of cash flows (indirect method) Note that X in the following statement of cash flows identifies a dollar amount and the letters (A) through (F) identify specific items. Gain on disposal of old machinery.. distribution. Declaration of stock dividends... Copyright © 2013 John Wiley & Sons Canada..... Assume that generally accepted accounting principles have been followed in determining net income and that there are no temporary investments which are considered cash equivalents.. Ltd..... Accounts receivable increased by $60. For more Ebook's .600 Operating expenses paid ($85. Issued preferred shares in exchange for equipment... Purchase of long-term investment.....400 302.600) . Use the code (A through F) from above. which appear in the major sections of the statement of cash flows prepared using the indirect method....000.... write the word "none" in the blank....300 Taxes paid ($28... ____ 6.. ____ 9.000 – $19.Solution Manual Please visit our website : http://www.. ____ 2. 28... Cash flows from operating activities Net income X Add (deduct) non-cash expenses: Add +X (A) Deduct –X (B) Cash provided by operating activities X Cash flows from investing activities Inflows +X (C) Outflows –X (D) Cash provided by (used in) investing activities X Cash flows from financing activities Inflows +X (E) Outflows –X (F) Cash provided by (used in) by financing activities X Net increase (decrease) in cash X Instructions For each of the following items.... ____ 4....700) .....Test Bank .com/ or contact us at Ebooksmtb@hotmail. Amortization of premium on bonds payable..... ____ 1.. Tenth Canadian Edition Cash paid to suppliers ($225.. Bad debts expense recorded (company uses the allowance method). ...000) Depreciation expense ........... FV-NI investments sold at a loss...... 2014. Ltd............. 2013 and $62.. Sale ..... A *Ex... distribution..........000 Deduct from net Income 3........ A 7....000 at the date of sale....000 2.. $24...000 at December 31................................... 22-72 Calculations for statement of cash flows (indirect method) During 2014... 14..... Include your calculations........................41 ____ 10.......... This equipment originally cost $24...... Cost ..... A 9..000 at December 31........................ or transmission of this page is prohibited ....... Accumulated depreciation for equipment was $65....... *Solution 22-72 1....Test Bank ................... $15.000......000 Deduct decrease in accumulated depreciation .................... A 4...Solution Manual Please visit our website : http://www.....com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22..000 Add to net income Copyright © 2013 John Wiley & Sons Canada.. 10..com/ or contact us at Ebooksmtb@hotmail............... None 2..................... and the depreciation expense for 2014 would be shown on a statement of cash flows (indirect method)...........................cash inflow from investing activities ...000 Gain on sale .. 14.......... B 10... Solution 22-71 1. B 3........ Sale price . B 5....... $ 1....... Unauthorized copying. None 8. ____ 11..needbook1........... For more Ebook's ............... $15. F 11......000 Book value ...............000 Book value .................. equipment was sold for $15.. D 6........................ (3..........000 Accumulated depreciation .......000 and had a book value of $14....... Declaration and payment of cash dividends......... $ 7............ Instructions Based on the above information show how the sale (including any gain or loss)............ .......cash inflow from investing activities ...... Calculate these four items...... $13............000 Accumulated depreciation ........................................................... For more Ebook's .......... 11............. distribution...............................000 Purchase of machinery .....000 Depreciation expense ............. *Solution 22-73 1........Test Bank ...... 27........000 Add increase in machinery ..000 $173................ Cost ......... 11.... $19.................000 2....................... $22...........000 Gain on sale ..................... Ltd.............. Unauthorized copying................... or transmission of this page is prohibited ...... Sale .............. Cost of machine sold ......................................000 Book value ........... $ 2......000 Add increase in accumulated depreciation ............ $13....000 Book value ...000 and had a book value of $11..........com Also you can contact us on Skype: Ebooksmtb 22...................... 22-73 Calculations for statement of cash flows (indirect method) Cornwall Ltd..... $46......42 Test Bank for Intermediate Accounting.000 Deduct from net income 3................ Data from the corporation's comparative statements of financial position are: Dec 31/14 Dec 31/13 Machinery $200................................................ sold a machine that cost $19.000 Cash outflow from investing activities Copyright © 2013 John Wiley & Sons Canada..............000 for $13....needbook1......000 Add to net income 4......... 14..000 Accumulated depreciation 48..Solution Manual Please visit our website : http://www....com/ or contact us at Ebooksmtb@hotmail.. 8............ Sale price ....000 34......... there are four items that need to be shown on a statement of cash flows (indirect method)....000............ Show your calculations................... Tenth Canadian Edition *Ex............000 Instructions Based on the above information................ $19........ .................... and credited for the net income for the year...... The Retained Earnings account was debited for cash dividends declared and paid of $46............................. distribution.................................. but new equipment was purchased during 2014...000 39.................. 51.Test Bank .43 PROBLEMS Pr.....000 Prepaid expenses .....000 Property...... 43...........................................................000 Accounts receivable ............. 200............000 — Common shares ............... $ 99................. Depreciation expense and a charge for impairment of goodwill have both been included in operating expenses.......... Unauthorized copying........ $646....... Solution 22-74 WHITE HORSE LTD..000 1.000 $ 51....... 2014 2013 Cash .............................. — 150........ Statement of Cash Flows (direct method) Year ended December 31....................... 22-74 Preparation of statement of cash flows (direct method) White Horse Ltd..............................................000 58....................................................................................................................................... or transmission of this page is prohibited ...... 420.....000 Mortgage payable ...........000 9.............000 Cost of sales ....................................com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22...................... prepare a statement of cash flows (direct method) for calendar 2014..............Solution Manual Please visit our website : http://www.......000 60........000 Inventory ................ has prepared the following comparative statements of financial position at December 31.......... 20........................... 3...............000 Net income ............... The Accumulated Depreciation account has been credited only for the depreciation expense for the year............000 350............000 200.................com/ or contact us at [email protected] $529..........000 $442................................... 2014 Cash provided by operating activities Cash received from customers (1) ....... 50...000) (125..............................000 22...................... 53........000 Accumulated depreciation .........000 Preferred shares ...................000 $529........................................000............needbook1......000 14..000 Copyright © 2013 John Wiley & Sons Canada.......................... There were no disposals of property........................................... (150.............000 $442.. $ 51.. plant and equipment.....................................000 Instructions From the information above.. 230................ $660.......... 297.. 363....000 Operating expenses .....000 Gross profit .......... 2........ Ltd...........................000) Goodwill ....000 Accrued liabilities . $ 67................... 2013 and 2014: White Horse adheres to ASPE........... For more Ebook's ....... The condensed income statement for 2014 is as follows: Sales ............... 215.....................000 Accounts payable .....000 $ 56. plant & equipment ... 6...........000 Retained earnings ...... .........000) Payment of mortgage payable ............................................................................. 22.....000 Accounts receivable ..............com Also you can contact us on Skype: Ebooksmtb 22.... 215.................Test Bank ....................................... December 31.............needbook1.............................................000 – $10.................000 – $14. 13...... (46...000 Plant and equipment ........................................ (150......300 Inventory .. $660. December 31...................... 73............................. 15.......................................................... 80.................................................. 51............600 Other information regarding the corporation’s 2014 year: An analysis of the Retained Earnings account shows: Retained earnings..... $363......... (70...................... distribution...............................................44 Test Bank for Intermediate Accounting.................Solution Manual Please visit our website : http://www..............com/ or contact us at Ebooksmtb@hotmail........... 16.......000 Add: Net income .............. 74........................200 Prepaid expenses .................................... $ 92..000 Common shares ................ 240...................... 2013 .........................................200 Allowance for doubtful accounts ..... 48........ 19...... $1................... $121.000 _______ $668....000 (decrease in INVT) + $5........................................ Tenth Canadian Edition Cash paid to suppliers (2) $358...000 Operating expenses paid (3) .......000 (decrease in A/P) 3..000 Cash provided by (used in) investing activities Purchase of plant assets .......000 FV-NI investments ....000 Net cash provided by operating activities ....... $230.................................................... 98.500 Long term bonds ....................300.............. Account Debit Credit Cash...........000 (decrease in prepaid expenses) – $6...........................500 Deferred tax liability .000 Retained earnings .... 80..........................................................000 547......000 Copyright © 2013 John Wiley & Sons Canada.........000 Cash...... 155................. Brown Derby adheres to ASPE.000 Accumulated depreciation ...000) Sale of preferred shares ..................................... or transmission of this page is prohibited .............000 Net increase in cash . For more Ebook's ......... 189...................................... 99..............................................800 Long term investment (100% owned subsidiary) ...........................000 (increase in A/R) 2.. Ltd........000 Cash................................................................................................................000 Accounts payable ..... 2014 ................................................000 (impairment of goodwill) – $3. Unauthorized copying..................................700 Accrued liabilities ..........................000 – $25............ 22-75 Preparation of statement of cash flows (indirect method) The net changes in the statement of financial position accounts of Brown Derby Corp...................... 20............................................000 (increase in accrued liabilities) *Pr.000 (depreciation) – $7.....................................................................000) Cash provided by financing activities Payment of cash dividend .. 287.........................600 $668... $ 99.........................000 Cash provided by financing activities .....................................000 1................................... 235................................................. January 1........................ 2014 ......... for calendar 2014 are shown below......... ........202.....000) Major repairs to equipment ....000 Deduct: Cash dividend ............... 2014................... The company paid the cash dividend on February 1..... *Solution 22-75 BROWN DERBY CORP.....000) Decrease in deferred tax liability ..........000 385. December 31..... (29............ distribution.......000...........400 were considered uncollectible and written off in 2014 and 2013.................................... $1................... the cash balance was $136......Solution Manual Please visit our website : http://www....000 Purchase of plant and equipment ............900) Increase in inventory ......... 16. 22.............700) Increase in accrued liabilities .................... (85................ Statement of Cash Flows (indirect method) Year ended December 31......................... 3..............................000 Retained earnings......................... 155......000 were sold for $150........... For more Ebook's .......... Ltd.. respectively. (59. 2014 .......000) Net cash provided by (used in) investing activities .............000 1....................................................needbook1............... 150............... 5................. Long term bonds were sold at par...45 Subtotal ............... Instructions Prepare a statement of cash flows (indirect method) for calendar 2014................... 242....Test Bank .............. (15.......................... Major repairs of $25............ and distributed the stock dividend on August 1......200) Decrease in prepaid expenses............................................. 6.......000 Adjustments to reconcile net income to net cash provided by operating activities: Equity investment loss .................000 Stock dividend ......................587. (74................................. or transmission of this page is prohibited ..000 Gain on sale of FV-NI investments ... 2014....... (25. 4............. 2.......000) Cash provided by (used in) financing activities Payment of cash dividend ........... (80..........000............500) Increase in accounts receivable ................. 1..000) Copyright © 2013 John Wiley & Sons Canada..com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22................ 2014 Cash provided by operating activities Net income .......... $145... Accounts receivable of $16...................... (145........com/ or contact us at [email protected]..................... 7........ $287..... (210.. $ 20..... The 100% owned subsidiary reported a net loss for the year of $20.......................... On January 2................ At January 1......... 2014.................000 to the equipment were debited to the Plant and Equipment account during the year........................... 2014...... Unauthorized copying.......000) Cash provided by operating activities .......000 Cash flows provided by (used in) investing activities Sale of FV-NI investments ..............500 (45........ FV-NI investments costing $121........800 Decrease in accounts payable ... 240...200 and $19.......................000 Depreciation expense .. .000 Office equipment ........... The long-term investments were sold for $70................................................... 7.......000) Net increase in cash .....................000 Cash.............. 10..... The following entry was made to record an exchange of an old machine for a new one: Machinery ..000 Net cash provided by (used in) financing activities ...... A 5% common stock dividend was issued March 31.........................600 Additional information: 1...................... December 31..............000 *Pr...................000 Accounts payable ........600 Retained earnings ............ 2.................. Net income for the year was $70..600 _______ $852.................000 Machinery .......000..... 80................600 Accrued liabilities ..... At the time there were 36..000 Allowance for doubtful accounts ........... and a new one was purchased........................................ 2014 .......000 Cash ....000................... 14.........................................000 6.................800 Accounts receivable ..................................000 were declared December 15.................................000 Machinery ........ Tenth Canadian Edition Sale of bonds ..............000 Bonds payable .... Cash dividends of $64.............................. payable January 15..............................000 Long-term investments .......... 6.. 189.. A fully depreciated copier machine................... 72.............................. when the market value was $22.................................................. 70........................ 416............................. 80........needbook1........ 20.............................................................000 Office equipment ...................................................... 30..................000 Buildings . for the calendar year 2014 are shown below: Account Debit Credit Cash.......000 Land .............................................................. 4........................................ (65....000 Preferred shares ..................... January 1..............................................................................000............. 10................... 2015. 2014....600 $852............000 common shares outstanding..........................600 Prepaid expenses .....000..000 Accumulated depreciation: Buildings ....................... 43.........................000 Inventory ................................................................ 136........... 3.......000 Common shares .................................................00 per share...... was sold for $200......................com/ or contact us at Ebooksmtb@hotmail........... was written off.......................................46 Test Bank for Intermediate Accounting...com Also you can contact us on Skype: Ebooksmtb 22........................................................................................................................................................ with a book value of $150....000.................................................................. 5......... 92............................................ $ 32.......000 Machinery ......................................... 12... Unauthorized copying..................................................................000... 36............. 150..............Solution Manual Please visit our website : http://www........... or transmission of this page is prohibited ......... 91.... 22-76 Complex statement of cash flows (indirect method) The net changes in the statement of financial position accounts of Black Beauty Inc...... 30. For more Ebook's . 64............................... A building which had cost $240...........................Test Bank .............................. 300............000 Accumulated Depreciation—Machinery ............................................ $ 62........................................... 108............................ Copyright © 2013 John Wiley & Sons Canada... 2014 ....... which cost $14....................... distribution. $228......................000 Cash... 2014....... Ltd....... 50.........................................000 Dividends payable ..................... ......................................................................................000 Depreciation expense .......................800 (1) Net change .................. Unauthorized copying............................. 2014. $ 62........................ (50................ 90............................................................. (10...000 Purchase of building ..................000 (10) Cash provided by financing activities .................. 2014 Cash provided by operating activities Net income ......................................000 (9) Retirement of preferred shares ........000 Debit to accumulated depreciation on sale .................. 9........................................... 8.000 were redeemed for $40..............000 was sold for $54..........................................000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense—buildings.............................600) Increase in prepaid expenses ..............000) Sale of common shares ....000 Proceeds from sale of land ........................000 (6) Decrease in accounts receivable (net) ........................................................................................000 Increase in inventory .000..............com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22......... 54...... (556..........000) Cash provided by financing activities Sale of bonds ................................... distribution......................000........000) (4) Loss on sale of long-term investments.......................... Black Beauty sold 6...... 30........................................ *Solution 22-76 BLACK BEAUTY INC....... 200............................................. Preferred shares originally issued for $30..................... (91............ (40...................................000 22.. $102............. $ 70... 2........ 10..needbook1................ Statement of Cash Flows (indirect method) Year ended December 31. 416....................... 36......................................600) Increase in accrued liabilities ............................................000 Copyright © 2013 John Wiley & Sons Canada....... (540.000 (2) Depreciation expense—office equipment .800 Cash provided by (used in) investing activities Sale of long-term investments ............000) (7) Proceeds from sale of building .000 (1) Depreciation expense—machinery . Land with a book value of $120.............Test Bank ........ 2014 for $25 a share...... 92........... or transmission of this page is prohibited .............. 150........................................... Instructions Prepare a statement of cash flows (indirect method) for calendar 2014........ 526.............................................. Ltd........ 70.....................................000 (3) Gain on sale of building....... (70. 8.. 66.......Solution Manual Please visit our website : http://www...000) (8) Purchase of machinery ........000 (5) Loss on sale of land .47 7.000) Cash provided by (used in) investing activities ............................. 39.......000 common shares on June 15.000) Decrease in accounts payable .................. (270............ $ 12.........000 Net increase in cash ......... (108.......800 Cash provided by operating activities ............................. Bonds were sold at 104 on December 31.000 Purchase of land ........... For more Ebook's ....... $102...................................com/ or contact us at Ebooksmtb@hotmail......... .... Solution 22-77 The direct method adjusts revenues and expenses to a cash basis............................................... 120............................................ Common shares Sale 6................... $72........ $200..com Also you can contact us on Skype: Ebooksmtb 22...................Test Bank .................................. (10) 6................................. $30.. 20....................600) Preferred share redemption ..............................000 Depreciation expense ......000 x 1..............................000 Loss on sale . 540..........04 = $416............................... $270.......000) Write-off ............................. (64................com/ or contact us at [email protected] Sale price ..000 × $25 = $150..........................needbook1........ $ 66......................................000) Dividends (stock) .......................................................................000 Cost of building sold ..........000 Gain on sale ...................................600 Retained Earnings Net income ............ The difference between cash Copyright © 2013 John Wiley & Sons Canada..... distribution.. 70......000 Sale price .................................... Ltd......................................000 (4) Sale price of building ......................000 Cost of land sold ..................................000 Stock dividend 36............... 150.......... Tenth Canadian Edition (2) Net change ..... (10....... 22-77 Advantages and disadvantages of the direct and indirect methods Discuss the advantages and disadvantages of the direct and indirect methods of preparing a statement of cash flows................................................... $10...... $ 8...000 ....................000............ $300............ 14........................48 Test Bank for Intermediate Accounting..........600 Net change $189........................ Unauthorized copying..... (39..000 × $25 = $150......................................000 (7) Net change ..000 Book value ................................000.....................000 (5) Carrying value of long-term investments ........ 54.........000 Debit to accumulated depreciation on exchange ..................................................000 Dividends (cash) .................. $(6. $ 2.................000 Loss on sale .... For more Ebook's ..............................................000 (6) Book value of land .................................000 x 5% × $22 = 39........ $ 50....600) Pr....................000 ........000) Net change... $150......000 Depreciation expense ......... $(43..... or transmission of this page is prohibited ..... 240.......................... $ 70..............000 (9) $400.................................................................000 (3) Net change .................................................... $120.....Solution Manual Please visit our website : http://www.000 (8) Net change .. As well. because of the additional information provided. distribution. whereas lending officers and investors tend to prefer the direct method.Test Bank . reporting income on a cash basis). A possible disadvantage is that many companies say their data collection methods do not gather the information required to use the direct method. which is to provide information about an entity’s cash receipts and cash payments during a specific period. The principal advantage of the direct method is that it shows operating cash receipts and payments. and that it is cheaper to develop the information compared to the information required for the direct method. For more Ebook's . The only section affected by use of the direct vs indirect methods is the operating activities. or transmission of this page is prohibited . The indirect method involves adjusting accrual net income to a cash basis. which is equal to net cash flow from operating activities (effectively.needbook1. adjusting for changes in working capital items and adding or subtracting noncash items included in net income. Copyright © 2013 John Wiley & Sons Canada. Unauthorized copying.Solution Manual Please visit our website : http://www. although this argument may be a bit weak given the powerful computer systems available today.com Also you can contact us on Skype: Ebooksmtb Statement of Cash Flows 22. IFRS and ASPE also encourage the use of the direct method. Advocates of this method maintain that such information is useful for estimating future cash flows.com/ or contact us at [email protected] revenues and cash expenses is cash net income. Other advantages offered by indirect method advocates are that it is the “familiar” method which has been used for many years. Public companies generally prefer the indirect method. Ltd. The principal advantage of the indirect method is that it focuses on the difference between net income reported on the income statement and the actual cash flow from operating activities. supporters of the indirect method say the direct method may incorrectly suggest that net cash flow from operating activities is as good as (or even better than) accrual net income as a performance measure. and is more consistent with the primary objective of a statement of cash flows. This is done by starting with accrual net income. Ltd. The material provided herein may not be downloaded.Solution Manual Please visit our website : http://www. or transmission of this page is prohibited . or otherwise without the prior written permission of John Wiley & Sons Canada. electronic.needbook1. scanning. Copyright © 2013 John Wiley & Sons Canada. reproduced. Ltd. mechanical. This manual is furnished under licence and may be used only in accordance with the terms of such licence. All rights reserved. The data contained in these files are protected by copyright.50 Test Bank for Intermediate Accounting. made available on a network. stored in a retrieval system. Tenth Canadian Edition LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. photocopying.com Also you can contact us on Skype: Ebooksmtb 22. recording.Test Bank . modified. or related companies. or transmitted in any form or by any means. Unauthorized copying. used to create derivative works.com/ or contact us at Ebooksmtb@hotmail. Ltd. For more Ebook's . distribution. 3 M 32.Test Bank . Unauthorized copying. 9 M 31. 9 M 45. 8 M 23. 9 M 29. 5 M 27. distribution. 6 H 19. 9 M 25. 7 M 48. 4 H 13. 9 M Multiple Choice–CPA Adapted 30. 5 E 43. 4 M 12. 7 M 22. 5 M 36.Solution Manual Please visit our website : http://www. Ltd. 3 E 39. 5 M Exercises 37. 5 M Problems 44. 7 M 21. 3 E 9. 4 M 40. 9 M 38.com/ or contact us at Ebooksmtb@hotmail. 4 H 26. 9 M 5. 5 H 42. or transmission of this page is prohibited . 5 H 47. 4 H 46. 4 M 14. 5 E 18. 4 H 11. 8 M Note: E = Easy M = Medium H = Hard Copyright © 2013 John Wiley & Sons Canada. 4 M 35. 9 M 3. 8 M Multiple Choice–Computational 24. 2 E 7. 4 H 41. 4 M 33. 5 M 16. 10 E 6. 5 M 28. 2 E 8. 7 M 20.needbook1. 5 M 15. 5 M 17. 3 M 10. 9 M 4. 8 M 2.com Also you can contact us on Skype: Ebooksmtb CHAPTER 23 OTHER MEASUREMENT AND DISCLOSURE ISSUES SUMMARY OF QUESTION TYPES BY LEARNING OBJECTIVE AND LEVEL OF DIFFICULTY Item LO LOD Item LO LOD Item LO LOD Item LO LOD Multiple Choice–Conceptual 1. 4 M 34. For more Ebook's . MC 30. MC 46. MC 2. MC 40. MC 28. MC 24.com/ or contact us at Ebooksmtb@hotmail. Ex 45. Pr 6. MC Learning Objective 4 5. MC 47. MC 32. or transmission of this page is prohibited . Ex 10. MC 8. Tenth Canadian Edition SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Item Type Item Type Item Type Item Type Item Type Item Type Learning Objective 2 1. MC 15. MC 4.com Also you can contact us on Skype: Ebooksmtb 23. MC Learning Objective 7 14. Pr Learning Objective 6 13. MC 27.Test Bank . MC 12. MC 38. MC 39. MC 29. MC 34. MC 19. MC 7. MC Note: MC = Multiple Choice Ex = Exercise Pr = Problem Copyright © 2013 John Wiley & Sons Canada. Pr 21. Ex 44. MC 35. MC 48. distribution.2 Test Bank for Intermediate Accounting. MC 22. MC 25. MC 41. MC 16. MC 18.Solution Manual Please visit our website : http://www. MC Learning Objective 3 3. MC 31. MC 11. Pr Learning Objective 9 20. Ex 42.needbook1. Ltd. Ex Learning Objective 10 23. MC 43. Ex Learning Objective 5 9. MC 36. Unauthorized copying. For more Ebook's . MC 33. MC 26. Pr Learning Objective 8 17. The information provided in financial statements helps investors compare the performance of companies and to assess the relative risks and returns of different investments.needbook1. 6. The full disclosure principle suggests that information relevant to decision-making should be included in the financial statements.Solution Manual Please visit our website : http://www. There is no way to tell from the consolidated data how much each product line contributes to the company’s profitability. Information that is pertinent to specific financial statement items can be explained in qualitative terms.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. For more Ebook's . Explain the use of accounting policy notes in financial statement preparation. risk. Interim reports cover periods of less than one year. 5. Discuss the accounting issues for relatedparty transactions. much information regarding the composition of these figures is hidden in aggregated figures. The full disclosure principle calls for financial reporting of any financial facts that are significant enough to influence the judgement of an informed reader. In contrast. Accounting policy notes explain the accounting methods and policies chosen by the company. Information disclosure is important to the proper functioning of capital markets and the allocation of capital. or transmission of this page is prohibited . Review the full disclosure principle and describe problems of implementation. Describe the accounting problems associated with interim reporting. Related-party transactions Copyright © 2013 John Wiley & Sons Canada. Describe the disclosure requirements for major segments of a business. 2. Disclosure requirements for public entities have increased because of (1) the growing complexity of the business environment. As a result. and growth potential. distribution.com/ or contact us at Ebooksmtb@hotmail. Notes are the accountant’s means of amplifying or explaining the items presented in the main body of the statements. however. There are two viewpoints regarding interim reports. 4. Implementing the full disclosure principle is difficult because the cost of disclosure can be substantial and the benefits difficult to assess. and (3) the use of accounting as a control and monitoring device. For private entities. Ltd. disclosure requirements have decreased due to the lesser complexity of many private entities and the fact that many stakeholders of private entities have greater access to information. the integral view holds that the interim report is an integral part of the annual report and that deferrals and accruals should take into consideration what will happen for the entire year. 3. thus allowing greater comparability between companies. and supplementary quantitative data can be provided to expand the information in the financial statements. The same accounting principles that are used for annual reports should generally be employed for interim reports. there are several unique reporting problems.3 CHAPTER STUDY OBJECTIVES 1. (2) the necessity for timely information. But financial statements are just one of many sources of information for investors and creditors. If only the consolidated figures are available to the analyst. segment information is required by the profession for public entities. Understand the importance of disclosure from a business perspective. The discrete view holds that each interim period should be treated as a separate accounting period. Unauthorized copying.Test Bank . Interim reporting is not mandated by accounting standard setters even for public entities. IFRS encourages the discrete view approach. Differences are noted in the chapter and the comparison chart.Solution Manual Please visit our website : http://www. Ltd.4 Test Bank for Intermediate Accounting. No one technique is more useful than another. Since the transactions are not at arm’s length. 10. results of operations. an unqualified opinion is expressed. Various techniques are used in the analysis of financial statement data. For more Ebook's . keep in mind that there are limitations inherent in individual financial statement analysis techniques. ordinarily. Unauthorized copying. and examination of related data (in notes and other sources). Ratio analysis is a starting point in developing information desired by an analyst.Test Bank . If the auditor is satisfied that the financial statements present the financial position. and cash flows fairly in accordance with generally accepted accounting principles. 7. they may have to be remeasured under ASPE. percentage (common-size) analysis. IFRS does not require remeasurement of related-party transactions whereas ASPE does. Copyright © 2013 John Wiley & Sons Canada. or transmission of this page is prohibited . Every situation faced by the analyst is different. and what changes are expected in the near future. Tenth Canadian Edition pose special accounting issues.com Also you can contact us on Skype: Ebooksmtb 23. you should refer to textbooks and courses that focus entirely on financial statement analysis. The first type of events provides additional evidence about an event that existed at the SFP date. Describe methods used for basic financial statement analysis and summarize the limitations of ratio analysis. Identify the major differences in accounting between ASPE and IFRS. In the absence of reliable information. These include ratio analysis. An adverse opinion is required in any report in which the exceptions to fair presentation are so pervasive that a qualified opinion is not justified. as the exchange value is not necessarily representative of the market or fair value. Identify the difference between the two types of subsequent events. A qualified opinion contains an exception to the standard opinion. For more complex techniques. 9. the exception is not significant enough to invalidate the statements as a whole. These events should be disclosed in notes if they will have a material impact on the future of the company. The second type of event provides evidence about events or transactions that did not exist at the SFP date. These events should be reflected in the SFP and income statement.com/ or contact us at Ebooksmtb@hotmail. While the basic concepts and tools for analysis are provided. Identify the major disclosures found in the auditor’s report. and the answers needed are often obtained only on close examination of the interrelationships among all the data provided. 8.needbook1. distribution. A disclaimer of an opinion is appropriate when the auditor has gathered so little information on the financial statements that no opinion can be expressed. the transaction may have to be remeasured to reflect historical values or costs. Property taxes and repairs recognized in interim period. Components of annual report a 2. Determine reportable segments. Disclosure of significant accounting policies c 4. c 25. Definition of errors and irregularities d 5.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. IFRS requirements for interim reporting c 12. Auditor’s unqualified opinion d 18. Limitations of financial statement analysis a 21. For more Ebook's .Test Bank . Ltd. Discrete view for interim reporting a 11.com/ or contact us at Ebooksmtb@hotmail. Unauthorized copying. b 27. or transmission of this page is prohibited . Accounting for unincorporated businesses b 17. IFRS requirements for interim reporting b 10. Calculate profit margin on sales. Segment revenue test c 7.Solution Manual Please visit our website : http://www. c 29. Subsequent events requiring disclosure only a 16. Description b 24. Segment revenue test b 6. Auditor’s adverse opinion b 20. Guidance given by ASPE and IFRS MULTIPLE CHOICE—Computational Answer No. IFRS disclosures for reportable segments a 8. Increased disclosure requirements d 3. Ratios reflecting financial strength c 22. Subsequent events requiring adjustments d 15. Copyright © 2013 John Wiley & Sons Canada. Ratios assessing management performance b 23. Auditor’s qualified opinion c 19. distribution. IFRS requirements for reporting segmented information d 9. Related-party transactions c 14.5 MULTIPLE CHOICE—Conceptual Answer No. Problems with interim reporting d 13. Description b 1. Calculate current ratio. Bonus expense on quarterly income statement a 26. Calculate inventory turnover.needbook1. c 28. Identification of reportable segments b 33. Tenth Canadian Edition MULTIPLE CHOICE—CPA Adapted Answer No. Calculate accounts receivable turnover.6 Test Bank for Intermediate Accounting. or transmission of this page is prohibited .com Also you can contact us on Skype: Ebooksmtb 23. One time only and annual expense to be reported in interim statements b 36. For more Ebook's . Description c 30.Solution Manual Please visit our website : http://www.Test Bank . EXERCISES Item Description E23-37 Notes to financial statements E23-38 Segmented reporting (IFRS requirements) E23-39 Segmented reporting E23-40 Interim reports E23-41 Internet financial reporting E23-42 Income taxes at interim dates E23-43 Ratios for financial analysis PROBLEMS Item Description P23-44 Segmented reporting (IFRS requirements) P23-45 Interim reporting P23-46 Types of subsequent events P23-47 Auditor’s report P23-48 Ratio analysis Copyright © 2013 John Wiley & Sons Canada. Criteria for reporting segmented information b 32. Ltd. Annual expenses to be reported in interim statements d 35.needbook1. distribution. Significant accounting policies disclosures for plant assets c 31. Unauthorized copying. Identification of a reportable segment c 34.com/ or contact us at Ebooksmtb@hotmail. needbook1. in absolute amount. According to IFRS. Ltd. 3. c. Which of the following does NOT need be disclosed in a Summary of Significant Accounting Policies? a. 6. Reasons for increased disclosure requirements do NOT include a. accounting as a control and monitoring device. depreciation and amortization method(s) d. its operating loss is 10% or more of the combined operating losses of segments that incurred an operating loss. claims of shareholders 4. the complexity of the business environment. Yes Yes b. c. Errors and irregularities are defined as intentional distortions of facts. Unauthorized copying. d. Yes No c. Yes or No? Errors Irregularities a. an operating segment is a reportable segment if a.7 MULTIPLE CHOICE—Conceptual 1. No Yes d. of (a) the combined reported operating profit of all operating segments that did not incur a loss. inventory valuation method(s) b. or transmission of this page is prohibited . the absolute amount of its reported profit or loss is 10% or more of the greater. or (b) the combined reported loss of all operating segments that did report a loss. a segment of a business is to be reported separately when its reporting revenue (including both sales to external customers and intersegment sales or transfers) exceeds Copyright © 2013 John Wiley & Sons Canada. management discussion and analysis c. b. the current government trend toward reducing income taxes. in absolute amount. of (b) the combined reported profit of all operating segments that did report a profit. distribution.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. Which of the following items found in an annual report is NOT subject to GAAP? a.Test Bank . of (a) the combined reported operating profit of all operating segments that incurred a loss. d. financial statements b. No No 5. For more Ebook's .Solution Manual Please visit our website : http://www. b. the absolute amount of its operating profit or loss is 10% or more of the greater. revenue recognition method(s) c. According to IFRS. accounting policies 2. the necessity for timely information. inventory methods d.com/ or contact us at Ebooksmtb@hotmail. its operating profit is 10% or more of the combined operating profit of profitable segments only. management segment the enterprise on a geographical basis only. d. Copyright © 2013 John Wiley & Sons Canada. interest revenue.com Also you can contact us on Skype: Ebooksmtb 23. IFRS requires that all of the following information about each reportable segment must be provided EXCEPT a. 11. financial statements include selected information on a single basis of segmentation. b. b. regardless of how many there are. statement of cash flows.needbook1.com/ or contact us at Ebooksmtb@hotmail. financial statements include selected information on multiple bases of segmentation. IFRS requires that a. two exceptions that are permitted deal with the calculation of a. c. c. depreciation and unearned revenue. 9. b. Tenth Canadian Edition 10% of the a. When an accounting change is applied retrospectively. Although ASPE does NOT offer guidance for reporting segmented information. combined revenues of all the enterprise's operating segments. 8. income tax expense or benefit. combined revenues of all the enterprise’s profitable operating segments. cost of goods sold. how to record depreciation. combined net income of all the enterprise’s profitable operating segments. total domestic sales only. detailed statement of financial position. d. Only a statement of financial position and statement of comprehensive income are required. d. For more Ebook's . comprehensive income statement. c. inventory valuation.8 Test Bank for Intermediate Accounting. b. When using the discrete view to prepare interim statements. the enterprise must present a statement of financial position for the beginning of the earliest comparative period. 10. Unauthorized copying. distribution. For interim reporting. d. b. Problems with interim reporting include a. c. b. d. d. unearned revenue and employer’s payroll tax expense. The same accounting policies should be used as for the annual statements.Solution Manual Please visit our website : http://www. 7. income tax expense and employer’s payroll tax expense. depreciation and income tax expense. IFRS does NOT require a a. or transmission of this page is prohibited .Test Bank . Which of the following statements is INCORRECT regarding IFRS requirements for interim reporting? a. c. c. financial statements disclose results for every segment. Condensed financial statements are permitted. statement of shareholders’ equity. 12. total liabilities. b. Ltd. d. results of operations. Ltd. decline in the fair value of investments c. retirement of the company president b. 18.com/ or contact us at Ebooksmtb@hotmail. how to present a change in accounting policy/principle. or transmission of this page is prohibited . present fairly the financial position. it means that the financial statements a. c. b.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. it means that the financial statements a. and cash flows in accordance with GAAP.Test Bank . Which of the following subsequent events (post-statement of financial position events) would generally require disclosure in the financial statement notes. issue of a significant number of common shares 16. When an auditor expresses a qualified opinion about a company’s financial statements. results of operations. revenue recognition. related parties do not include members of the immediate family of company management. present fairly the financial position.9 c. are free from error. d. who owns the issued shares. c. 17. settlement of a lawsuit when the event that gave rise to the action occurred prior to the statement of financial position date c. When an auditor expresses an unqualified opinion about a company’s financial statements. but NOT adjustment of the accounts? a. Accounting issues involved for unincorporated businesses include a. b. are free from error. For more Ebook's . c. major losses as a result of a fire in the company’s plant b. 13. Regarding related-party transactions. segregating the salaries expense for the owner(s) from the salaries expense for the employees.Solution Manual Please visit our website : http://www. loss on an account receivable (on the books at statement of financial position date) resulting from a customer’s bankruptcy d. b. indicate that the company is doing well and would make a good investment. contain exceptions due to a departure from GAAP. Unauthorized copying. the definition of the economic entity. lawsuit arising from a customer’s injury due to a defective product 15. transactions between related parties are usually presumed to take place at arms length. distribution.needbook1. and cash flows in accordance Copyright © 2013 John Wiley & Sons Canada. ASPE requires that some related-party transactions be remeasured. d. provision for income taxes. b. Which of the following subsequent events (post-statement of financial position events) would require adjustment of the accounts before issuance of the financial statements? a. strike by the company’s unionized workers d. a. 14. both IFRS and ASPE deal only with disclosure requirements for such transactions. d. although very rare in the past. d.Test Bank . b. liquidity and profitability ratios. ASPE provides guidance for segmented reporting. d. while ASPE does not. c. distribution. profitability and activity ratios. c. A single ratio. IFRS provides guidance for segmented reporting. is frequently seen nowadays. c. Financial statements report on the past. means the financial statements are prepared in accordance with GAAP. while IFRS does not. profitability and activity ratios. Unauthorized copying. d. The ratios that assess management performance are a. IFRS does not provide guidance for reporting on unincorporated businesses.com Also you can contact us on Skype: Ebooksmtb 23. liquidity and coverage ratios. Which of the following is NOT a limitation of financial statement analysis? a. An auditor’s adverse opinion a. Which statement is INCORRECT regarding guidance given by IFRS and ASPE? a. is given when the auditor deems a qualified opinion is not justified.com/ or contact us at [email protected] Test Bank for Intermediate Accounting. means there are some minor exceptions due to a departure from GAAP. by itself.Solution Manual Please visit our website : http://www. contain exceptions due to a departure from GAAP.needbook1. The ratios that reflect financial strength are a. Ratio and trend analyses will help identify strengths and weaknesses of a company. b. indicate that the company is doing well and would make a good investment. 22. c. d. d. b. or transmission of this page is prohibited . liquidity and profitability ratios. 20. IFRS provides guidance for interim reporting. For more Ebook's . 19. liquidity and coverage ratios. Tenth Canadian Edition with GAAP. activity and coverage ratios. Copyright © 2013 John Wiley & Sons Canada. Financial statement analysis is not likely to reveal why things are as they are. 23. b. c. Ltd. b. while ASPE does not. activity and coverage ratios. is not likely to be very useful. 21. d. c. 11 MULTIPLE CHOICE ANSWERS—Conceptual Item Ans. b 14.needbook1. b Copyright © 2013 John Wiley & Sons Canada. b 5. d 22. For more Ebook's . a 20. a 12. c 8. d 17. c 16. distribution. a 15. 1. Ltd. a 2.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23.com/ or contact us at Ebooksmtb@hotmail. Item Ans. d 19. b 10. c 18. Item Ans. c 3. c 23.Solution Manual Please visit our website : http://www. or transmission of this page is prohibited . c 11. Unauthorized copying. d 13. Item Ans. b 21. Item Ans. d 9. a 6. b 4. d 7.Test Bank . Item Ans. 000 Inventories.000) 600.......... $575.......000 26..... On January 15.....000 $ 60..... Segments A............. and C b.. Ltd.. Tenth Canadian Edition MULTIPLE CHOICE—Computational 24..............000 b. paid $240....Test Bank . C..000 $ -0.... 95....com/ or contact us at [email protected] $600.... $ 60..000 Inventories.......000 $260.... $580. estimated that its year-end bonuses to executives for calendar 2014 would be $640.000 Net sales .....000 b.. Unauthorized copying...400... B.....................000 $600.. Pear Corp.. Dec 31/14 ....... $210...... 230..............000 150..000 d...000....................... Segments A and B d. distribution. 2014.000 $ 60.. Orange Ltd....000 $210..000 Copyright © 2013 John Wiley & Sons Canada.. $145.....000 Use the following data to answer questions 27–29............ the corporation made unanticipated repairs to its plant equipment at a cost of $600...........000 $20.000 $210.. 1....000 300. 110. Segments A... In the first week of April 2014.... $240......... In February 2014.............. 250....com Also you can contact us on Skype: Ebooksmtb 23.... $640... and D c........... 85..000 3...000 D 60..000 Long term liabilities ....000 4.. $580.... For more Ebook's ........... How much bonus expense should be reflected in Orange's interim income statement for the three months ended March 31.12 Test Bank for Intermediate Accounting.. $ 60..........000 $260.needbook1..000 (35......000 Total liabilities ... $160.. B.. In January 2014...... How should these expenses be reflected in Truro's quarterly income statements? Three Months Ended 3/31/14 6/30/14 9/30/14 12/31/14 a..... These repairs will benefit operations for the remainder of 2014 only..000....... Segments A and D 25....000 in property taxes on its factory building for the calendar year 2014...... Truro Corp.... or transmission of this page is prohibited ..................................000 $660........ The estimate for 2014 is subject to year-end adjustment.......... $ -0- d. reported the following data for calendar 2014: Total assets . 2014? a..000 $210....000 c.................000 c... Presented below are four segments that have been identified by Plum Corp.... which segments would be considered reportable segments? a...000 C 150.....000 $260.....000 was paid in bonuses for the 2013 year-end...: Operating Segments Total Revenue Profit (Loss) Assets A $150..Solution Manual Please visit our website : http://www... Dec 31/13 ...000 Current assets .....000 B 400.....000 According to IFRS.. .13 Gross profit ....’s current ratio for 2014 is a.... 6..... To two decimals.needbook1.. 19..... Unauthorized copying. 11. 1.. 165..64%..... distribution.000 Net income ....50.... d.. c...... 6. To two decimals.... b.... 6..23. 28.... b.Solution Manual Please visit our website : http://www.....’s profit margin on sales for 2014 is a.....60. Pear Corp. 29.. 2.’s inventory turnover for 2014 is a..... 9..... Copyright © 2013 John Wiley & Sons Canada..33.com/ or contact us at [email protected]. To two decimals. 8348%........... Pear Corp. c.... 840.....Test Bank .com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. 1.. Ltd.....59.....22..43%.. d.... b........... For more Ebook's ...........000 27.. 2. c. or transmission of this page is prohibited .09... Pear Corp. d........79%. 5....... Item Ans.650. Unauthorized copying.000 $600.000 x 100 = 11. b 29.000) ÷ 2] = 6.000 ÷ 4 = $160.000 ÷ ($230. For more Ebook's .com Also you can contact us on Skype: Ebooksmtb 23. a $240.000 ÷ 4 = $60.000 25.000 27. Item Ans. c $165. c ($1. b $250.needbook1.400. Item Ans. c DERIVATIONS—Computational No.com/ or contact us at [email protected] 26.Test Bank . 24.14 Test Bank for Intermediate Accounting.000 × 10% = $3.79% Copyright © 2013 John Wiley & Sons Canada.000 ÷ $1. Tenth Canadian Edition MULTIPLE CHOICE ANSWERS—Computational Item Ans. a 28.000 – $840.22 29. c 25. distribution. Ltd.000 × 10% = $76.08 28. c $640.000 × 10% = $165. b 26.000 – $110.000 ÷ 3 = $200.000 + $95. Answer Derivation 24. b Revenue test: Total revenue = $760.Solution Manual Please visit our website : http://www.000 Operating profit test: $35. or transmission of this page is prohibited .000) = 2.000) ÷ [($85. c 27.400.500 Asset test: Total assets = $1. .000 7. 2014...000.. 450. Gooseberry should report segmented financial information for each division meeting which of the following IFRS criteria? a. $198....com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23.000.needbook1.000 $20.. distribution.15 MULTIPLE CHOICE—CPA Adapted 30.000 12.. Copyright © 2013 John Wiley & Sons Canada.... Yes No d..000 According to IFRS....... Assets Industry Revenue Profit 12/31/14 A $10... No No 31..400... plant and equipment should be included in the Summary of Significant Accounting Policies? Depreciation Composition Method of Assets a....500.000 C 6..000 D 3.....500.. Yes Yes c.000.000 $66. The following data pertain to the industries in which operations were conducted for the year ended December 31.000...000 Intersegment sales of products similar to those sold to external customers . Apple has a reportable segment if that segment's revenue equals or exceeds a. is engaged in manufacturing operations in various industries.. 2014: Sales to external customers ...000. The following information pertains to Apple Corp. four c.. Ltd.. and its various divisions for the year ended December 31.650. five d.200.. how many reportable segments does Melon have? a..000 $32. or transmission of this page is prohibited .... segment profit or loss is 10% or more of combined profit or loss of all company segments c.000 6.....000.700.500.000 Interest earned on loans to other operating segments.... $195. six 33.. For more Ebook's ....000 550.. b.. Unauthorized copying.000.000 F 1.000. segment revenue is 10% or more of consolidated net income 32.. three b.........000 675. $1.... segment profit or loss is 10% or more of consolidated profit or loss b... No Yes b..000 B 8.250..750.500.... Melon Corp.000 3. Gooseberry Corp....000 1.Test Bank .500........com/ or contact us at [email protected] 225....000 17.. Which of the following facts concerning property. is a multidivisional corporation that has both intersegment sales and sales to external customers. segment revenue is 10% or more of combined revenue of all the company segments d... 30..000 $5...Solution Manual Please visit our website : http://www..000 $1.000 1.500..000 E 4.000 According to IFRS. distribution......22... what total expense relating to these two items should be reported? a.. Unauthorized copying..000 b............ For more Ebook's ......com Also you can contact us on Skype: Ebooksmtb 23.000 Payment of fire insurance for calendar year 2014 . Tenth Canadian Edition c. 2014? Loss from Theft Insurance Expense a........500 $ 45.... $160...... 34.. $900.63....... 2014. Prune Juice Corp.. $126.................... or transmission of this page is prohibited ....... the accounts receivable turnover for 2014 is a..000 $ 45...000 36..000.. has estimated that total depreciation expense for the 2014 calendar year will be $60.000 35.... c......000 c... In Peach's interim income statement for the six months ended June 30... $ 0 $180............. $ 30.. Ltd... $180.000 d.... $ 90. $126.000 Net income ........000 To two decimals.18.... and that 2014 year-end bonuses to employees will be $120..000.. 12... d... d........... Copyright © 2013 John Wiley & Sons Canada... $ 0 b.. $153...... 2014: Loss due to theft ... b.... had the following transactions during the quarter ended March 31........com/ or contact us at Ebooksmtb@hotmail.. 5.000 Average net receivables . $ 31..........16 Test Bank for Intermediate Accounting...Test Bank .000.000 c..000 d. $150. $110....000 What amount should be included in Raspberry's income statement for the quarter ended March 31..... reported the following data on their 2014 financial statements: Net sales ........... 17........000.... 8....... $126..78......................needbook1...Solution Manual Please visit our website : http://www.. Raspberry Corp...... 180... Peach Corp..........000 $180... 700.000 × 10% = $6.750.000 34. d DERIVATIONS—CPA Adapted No. Item Ans.000 = 8. c Conceptual 31. Item Ans. b $900.000 × 10% = $3.000 A.000 Insurance expense = $180. b 35. c 36. Answer Derivation 30.000 36. c 33.000 + $120.000 + $450. c 32.000 × 10% = $570.500.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. Item Ans. E. distribution.17 MULTIPLE CHOICE ANSWERS—CPA Adapted Item Ans.com/ or contact us at Ebooksmtb@hotmail. For more Ebook's . 30.500.650.000) × 10% = $195. b ($1. Unauthorized copying.18 Copyright © 2013 John Wiley & Sons Canada. C. B. b Revenue test: $32. b 34.000 35. c ($60.needbook1.000 Asset test: $66. c Conceptual 32.275. d Loss from theft = $126.000 ÷ 4 = $45.000) ÷ 2 = $90.Solution Manual Please visit our website : http://www.000 ÷ $110. Ltd. 33.Test Bank . b 31.000 Profit test: $5. or transmission of this page is prohibited . and their major customers. Tenth Canadian Edition EXERCISES Ex. assets. 23-38 Segmented reporting (IFRS requirements) IFRS requires the reporting of segmented (disaggregated) financial data about operating segments and also about their products and services. (2) contingent assets or liabilities. 2.com/ or contact us at Ebooksmtb@hotmail. foreign information must be disclosed by country. If the amounts are material. Information pertinent to specific financial statement items can be explained in qualitative terms. Reconciliation of the total of the segments’ revenues to total revenues. (4) revenue recognition methods. Ltd. For more Ebook's . amortization and inventory. Information about products and services (revenue from external customers).com Also you can contact us on Skype: Ebooksmtb 23. Notes are an integral part of the financial statements of a business enterprise. 23-37 Notes to financial statements An article in Dun's Review made the following comments: "At least every other year. foreign). Are notes considered part of the financial statements and what basic purpose do they serve? b. They are the accountant's method of more fully disclosing data relevant to the interpretation of the statements. The more common types of notes disclose such items as the following: (1) accounting methods used for depreciation. Restrictions imposed by financial arrangements or basic contractual agreements can also be explained in notes. and supplementary data of a quantitative nature can be provided to expand on the information in the financial statements. and related information." Instructions a. a reconciliation of the total of operating segments’ profits and losses to its income before income taxes and discontinued operations. distribution. (3) restrictions required by loan covenants. liabilities. Revenues from external customers (domestic vs foreign) and capital assets and goodwill (domestic vs. Instructions Identify four of the items of segmented information IFRS requires an enterprise to report. Unauthorized copying.needbook1.Test Bank . and a reconciliation of the total of the operating segments’ assets and liabilities to total assets and liabilities. Copyright © 2013 John Wiley & Sons Canada. Ex. 4. 5. Segment revenues. b. Solution 23-38 IFRS requires that an enterprise report the following segmented information: 1. the geographic areas in which they operate.18 Test Bank for Intermediate Accounting. profit and loss. or transmission of this page is prohibited . and (5) purchase commitments. Reconciliations for other significant items that are disclosed should also be presented. What are the general types of notes? Solution 23-37 a. 3.Solution Manual Please visit our website : http://www. businesses should print the notes in big type and the financial figures in smaller ones. General information about its reportable segments. ....000 Depreciation expense ......................000 88......................... Note that ASPE does not provide guidance for reporting segmented information.........000 Income before taxes ........................000 Operating and admin..000 Operating and administrative expenses ........000 37........... Operating Segment Hotels Grains Candy Totals Revenues (1) $1............000......000 $60......600....................000 Earnings per share (100........ Ex.000 Expenses Cost of goods sold ...000 755.......000 30......500.....528.......000 106..30 The following data relates to Tangerine's operating segments: Percent Identified with Segment Hotels Grains Candy Revenues 42% 50% 8% Cost of goods sold 48 49 3 Operating and administrative expenses 35 50 15 Depreciation expense 46 42 12 Included in the amounts allocated to each segment on the above percentages are the following expenses............000 Copyright © 2013 John Wiley & Sons Canada.............250.....000 Depreciation expense 4......needbook1.. Ltd........ 270.......19 6.....com/ or contact us at [email protected] Manual Please visit our website : http://www.000 shares) ............. distribution.000 228....000 Total expenses 667..000 $1............000 $ 495..........000 5...................000 $ 972. $2.......000 9.000 Expenses— Cost of goods sold (1) 480...... If 10% or more of the revenues are derived from a single customer.000.. For more Ebook's ....................000 Depreciation expense (3) 42..000 $200. exp (2) 145. Unauthorized copying..000 Income tax expense .000 $8.......... $1....................... $ 630..050.............. Based only on the above information.000 Instructions (Assume that the corporation adheres to IFRS) a...000 3....................000 12......... which segments must be reported and why? Solution 23-39 a.............000 $ 94..com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23............................. b....... 23-39 Segmented reporting Tangerine Corporation's most recent (condensed) income statement is presented below: Revenues ..............000 1..Test Bank .. 900......000 1... 500......000 $2...000 490..000 $22.....000 67. the enterprise must disclose the total amount of revenues from each of these customers by segment.........500....... Prepare a schedule showing the amounts distributed to each segment........000 1........ $6....000 Operating profit $ 383... 100.......... or transmission of this page is prohibited ................000 Net income .000 440....... which relate to general corporate activities: Operating Segment Hotels Grains Candy Totals Operating and administrative expenses $30..... 000 × 50%) – $22.000 Candy = ($500.Test Bank . the provision for taxes should reflect the anticipated effective tax rate for the year or be calculated on the basis of actual results for that interim period. What are the major accounting problems related to interim reports? b. c. (3) earnings per share.000 × 35%) – $30. Ex. 23-41 Internet financial reporting Copyright © 2013 John Wiley & Sons Canada.000 = $67. and executive compensation based on annual net income.20 Test Bank for Intermediate Accounting. or spread evenly over each quarter. IFRS recommends that at the end of each interim period the company should make its best estimate of the effective tax rate expected to be applicable for the full fiscal year.000 = $145. b. Instructions a. 23-40 Interim reports A few years ago.000 × 42%) – $5.000 × 12%) – $3. One of the problems is that fixed nonmanufacturing costs are not charged in proportion to sales. What problem exists with income taxes in interim reports and how does IFRS recommend that income taxes should be reported? c.000 = $37. The prediction models are probably unsuccessful because accountants have not treated the problem of seasonality correctly in their interim reports. Ex. (2) Hotels = ($500. both the Hotels and the Grains segments meet the 10% of the operating profit test.000 = $9. in the preparation of interim income statements. Such a situation suggests there are some difficult accounting issues involved in interim reporting. This rate should then be used in estimating income taxes on a current year-to-date basis. that is. or transmission of this page is prohibited . it is extremely difficult to make accurate predictions because some artificial concepts are used for matching purposes.com Also you can contact us on Skype: Ebooksmtb 23. Two segments.000 Candy = ($100. What might be the reason for this inability to predict? Solution 23-40 a.Solution Manual Please visit our website : http://www.com/ or contact us at [email protected] Grains = ($100. Ltd. no matter how sophisticated the prediction model. these costs are charged as incurred. a publishing company reported a quarterly net profit figure that exceeded sales for that quarter. Unauthorized copying.000 = $42. Hotels and Grains. (2) retrospective accounting changes.000 Grains = ($500. For more Ebook's . Instead. distribution. The major accounting issues related to interim reporting are the treatment of (1) annually determined items such as income taxes. Tenth Canadian Edition (1) Total times segment percentage.000 b. Many academicians have attempted to predict the year's net income after the first quarter's income is reported. In addition. the segment's revenues are 10% or more of the combined revenues of all operating segments. must be reported because they satisfy the revenue test. As a result. The basic question with income taxes is whether.000 × 15%) – $8. These attempts are generally unsuccessful.000 × 46%) – $4.needbook1.000 = $228. and (3) the problem of seasonality. pension costs.000 (3) Hotels = ($100. Copyright © 2013 John Wiley & Sons Canada. or the enterprise’s ability to meet long-term obligations. Examples are the current ratio and the acid-test ratio. Examples are profit margin on sales and rate of return on common shareholders’ equity. which measure financial performance and shareholder value creation for a specific time frame.needbook1. Solution 23-41 Advantages of internet reporting include the possibility of communicating with more users. Examples are the inventory turnover and asset turnover ratios. As a result.21 Discuss some of the issues involved with corporations reporting their results on the internet rather than in paper based formats. 23-43 Ratios for financial analysis Discuss the four major types of ratios used for financial analysis. which measure the degree of protection for long-term creditors and investors. 23-42 Income taxes at interim dates Discuss how income taxes are handled at interim dates. distribution.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. or transmission of this page is prohibited . and give two examples of each. 2. and the possibility of increased availability of information. as well as how quickly the asset’s value is realized.com/ or contact us at Ebooksmtb@hotmail. What would each type likely be used for? Solution 23-43 The four major types of ratios are: 1. Solution 23-42 It is not feasible to prepare an accurate estimate of income taxes on interim statements as the tax rate is often dependent on the total taxable income for the year.Test Bank . the ability of users to use internet and computer tools to help in analysis of financial statements.e. including the possibility of data corruption by hackers and the unaudited nature of much of the information. Ex. Coverage (solvency) ratios. Ex.Solution Manual Please visit our website : http://www. Profitability ratios. Possible disadvantages are the differential access due to less than universal access to the internet and issues around reliability of the information. i. interim income taxes are estimated using the annual estimated tax rate applied to the estimated interim taxable income and temporary differences. which measure the enterprise’s short-term ability to pay obligations as they become due. Unauthorized copying. more timely information. lower costs of communication. Activity and profitability ratios are generally used to assess management performance. 3. Liquidity and coverage ratios generally reflect financial strength. Activity ratios. the ability to satisfy the financial requirements of non-ownership interests. Ltd. 4. Examples are debt to total assets and times interest earned. Liquidity ratios. which measure how effectively the enterprise is using its assets. For more Ebook's . Ltd. of: The combined profits of all operating segments reporting profits. The profession recognizes that if an enterprise has many reportable segments.com/ or contact us at Ebooksmtb@hotmail. What is the test to determine if enough operating segments have been separately reported upon. Note that ASPE does not provide guidance for reporting segmented information. Instructions a. There are three basic tests to be applied to segments of an industry to see if they are significant enough to be separately reportable. Pr. Discuss generally how revenue should be recognized at interim dates and specifically how Copyright © 2013 John Wiley & Sons Canada. in absolute amount.Solution Manual Please visit our website : http://www. Third. distribution. a segment is reportable if its assets equal or exceed 10% of the combined assets of all operating segments of the enterprise. Therefore. it has proposed ten segments as an upper limit for the number of reportable segments. b. Enough operating segments must be separately reported so that the total of revenues from sales to external customers for the reportable segments equals or exceeds 75% of the combined sales to external customers for the entire enterprise. Tenth Canadian Edition PROBLEMS Pr.22 Test Bank for Intermediate Accounting. A segment is deemed reportable if the absolute amount of its profit or loss is 10% or more of the greater. Unauthorized copying. or transmission of this page is prohibited . The combined losses of all operating segments reporting losses. Accordingly. If a segment's revenue from sales to external customers and intersegment sales and transfers is equal to 10% or more of the enterprise's combined revenues. the segment is reportable.needbook1. The first test is based on revenue. 23-44 Segmented reporting (IFRS requirements) A central issue in reporting on operating segments of a business enterprise is the determination of which segments are reportable under IFRS. If applying the prescribed tests does not yield the required percentage of revenues described above. For more Ebook's . IFRS has made recommendations regarding interim financial reporting. and what is the guideline on the maximum number of operating segments to be shown? Solution 23-44 a. the benefit to the reader may be lost if more than 10 segments are reported. The second test is based on profits or losses. 23-45 Interim reporting There is ongoing discussion as to the proper method of reflecting results of operations at interim dates.Test Bank . what are the tests to determine whether or not an operating segment is reportable? b. If a segment meets any one of the tests. it is deemed significant and reportable.com Also you can contact us on Skype: Ebooksmtb 23. According to IFRS. Instructions a. additional segments must be reported on until the 75% test is met. therefore. To ignore these subsequent transactions is to miss an opportunity to improve the accuracy of the financial statements.com/ or contact us at Ebooksmtb@hotmail. They arise subsequent to the statement of financial position date. These items should be reflected in the final financial statements.Solution Manual Please visit our website : http://www. A corporation would prepare its tax return at year-end and assess taxes payable and related tax balances. the current state of completion of the contract should be estimated and revenue recognized at interim dates in the same manner as at the normal year-end. Discuss generally how product and period costs should be recognized at interim dates. in the case of services. but a disclosure should be made of the seasonal nature of the business. Sales and other revenues should be recognized for interim financial statement purposes in the same manner as for annual reporting purposes. then an estimate is made of interim taxable income and temporary differences and then the annual estimated tax rate is applied. Inventory losses from a decline in market value at interim dates should be recognized in the appropriate period unless they are temporary and no loss is expected for the fiscal year. Also discuss how inventory values should be treated at interim dates.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. c. It is normally neither cost effective nor feasible (since tax rates are often graduated) to do this for each interim period. c. Solution 23-45 a.needbook1. will result in required adjustments. or transmission of this page is prohibited . and no Copyright © 2013 John Wiley & Sons Canada. Discuss how the provision for income taxes is calculated and reported in interim financial statements. revenues should still be recognized as earned. distribution. benefit received. in allocating period costs among interim periods. the basis for allocation must be supportable and may not be based on merely an arbitrary assignment of costs between interim periods. if a gain or loss occurs during an interim period and is a type that would not be deferred at year-end. b. or other activity associated with the particular interim period(s). In the case of long-term contracts recognizing earnings on the percentage-of-completion basis.Test Bank . Therefore an annual estimated tax rate is calculated. b. Unauthorized copying. Finally. Ltd. Type 2 events provide evidence about situations that did not exist at the statement of financial position date.23 revenue should be recognized for industries subject to large seasonal fluctuations in revenue and for long-term contracts using the percentage-of-completion method. Solution 23-46 Type 1 events provide additional evidence about situations that existed at the statement of financial position date. affecting the estimates used in preparing the financial statements and. the gain or loss should be recognized in full in the interim period in which it occurs. This means normally at the point of sale or. Period costs (costs not directly associated with the production of a particular good or service) should be charged to earnings as incurred or allocated among interim periods based on an estimate of time expired. Pr. at completion of the earnings process. In the case of industries whose sales vary greatly due to the seasonality. Also. 23-46 Types of subsequent events Identify the difference between the two types of subsequent events. For interim reporting purposes. product costs (costs directly attributable to the production of goods or services) should be matched with the product and associated revenues in the same manner as for annual reporting purposes. For more Ebook's . ..000 Cost of goods sold ... $ 62.......’s statements of financial position at December 31.. and cash flows..000 130............................... An adverse opinion is required in any report in which the exceptions to fair presentation are so material that a qualified opinion is not justified...... 25................ Pr.....000 Interest expense .......... an unqualified opinion is expressed...... Inventory turnover b... to one decimal.......000 Land .......................... calculate the following for 2014: a..000 Goodwill ......needbook1..... A qualified opinion may also be given if there is a scope limitation where the auditor has not been able to obtain sufficient and appropriate evidence...000 33.000 $ 22... ordinarily the exception is not of sufficient magnitude to invalidate the statements as a whole..000 Inventory . results of operations....... 38..... and their income statement for calendar 2014: 2014 2013 Assets: Cash ....24 Test Bank for Intermediate Accounting......250 Sales (all on credit) ... 6................... 23-48 Ratio analysis The following select information is taken from Blueberry Pie Corp....... 33....000 $363...000 42.......Test Bank ............. Solution 23-47 If the auditor is satisfied that the financial statements fairly present the financial position...... However.... 15.. Ltd.......... 17.......... $ 18....... Unauthorized copying.. 61............ $415......................... 123.....................000 55.....000 Net income .. in all material respects.......... For more Ebook's ................000 Long-term investments .............000 Total assets ............ Tenth Canadian Edition adjustments are made to the accounts. they should be afforded note disclosure if they will have a material impact on the future of the enterprise... 305....... Pr....... 55..... the financial statements taken as a whole are not presented in accordance with Generally Accepted Accounting Principles.000 Prepaid insurance .com Also you can contact us on Skype: Ebooksmtb 23. 49..000 FV–NI investments ... or transmission of this page is prohibited ........................ 130.. A qualified opinion contains an exception to the standard opinion........000 Equipment (net) ................000 9.................. Receivables turnover Copyright © 2013 John Wiley & Sons Canada............000 20.................... 23-47 Auditor’s report Identify the major disclosures found in the auditor’s report..000 52........... distribution...600 Income tax expense ......... A disclaimer of an opinion is appropriate when the auditor has gathered so little information on the financial statements that no opinion can be expressed.......... in accordance with generally accepted accounting principles.... In such a case..450 Instructions From the above information......Solution Manual Please visit our website : http://www..000 -0- Accounts receivable ......................... 2013 and 2014.com/ or contact us at Ebooksmtb@hotmail...... 450) ÷ $15.600 + $17. For more Ebook's . Rate of return on assets (net income ÷ average total assets): $62.000 + $52.000) ÷ 2] = 2. Unauthorized copying.000 ÷ 2] x 100 = 16% d.250 + $15.000 + $363. Inventory turnover (cost of goods sold ÷ average INVT): $123.needbook1.000 ÷ [$38. Receivables turnover (net sales ÷ average A/R): $305. Times interest earned (income before interest and taxes ÷ interest exp): ($62.com/ or contact us at Ebooksmtb@hotmail. distribution.1 times Copyright © 2013 John Wiley & Sons Canada.000 ÷ 2] = 7. Solution Pr.Test Bank .250 ÷ [($415. Times interest earned.25 c.600 = 6. Rate of return on assets d.000 ÷ [($61. or transmission of this page is prohibited . Ltd.Solution Manual Please visit our website : http://www.000 + $42.2 times b.6 times c. 23-48 a.com Also you can contact us on Skype: Ebooksmtb Other Measurement and Disclosure Issues 23. Ltd. scanning. Tenth Canadian Edition LEGAL NOTICE Copyright © 2013 by John Wiley & Sons Canada. recording.Solution Manual Please visit our website : http://www. The data contained in these files are protected by copyright. Ltd. electronic. or transmission of this page is prohibited . used to create derivative works. or transmitted in any form or by any means. photocopying. The material provided herein may not be downloaded. Copyright © 2013 John Wiley & Sons Canada. reproduced. or related companies. Unauthorized copying.com Also you can contact us on Skype: Ebooksmtb 23. Ltd. All rights reserved. made available on a network. For more Ebook's .needbook1. This manual is furnished under licence and may be used only in accordance with the terms of such licence. or otherwise without the prior written permission of John Wiley & Sons Canada.com/ or contact us at Ebooksmtb@hotmail. distribution. stored in a retrieval system. mechanical.26 Test Bank for Intermediate Accounting.Test Bank . modified.