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intermediate accounting volume 1

Intermediate Accounting 11th International Edition David Spiceland, Mark W. Nelson, Wayne M. Thomas - Solutions

2. Listed below are several transactions that took place during the second and third years of operations for the RPG Company.LO1–2 Year 2 Year 3 Amounts billed to customers for services rendered $ 350,000 $ 450,000 Cash collected from credit customers 260,000 400,000 Cash disbursements:Payment of
1. Listed below are several transactions that took place during the first two years of operations for the law firm of Perez Associates.Year 1 Year 2 Amounts billed to clients for services rendered $ 170,000 $ 220,000 Cash collected from clients 160,000 190,000 Cash disbursements:Salaries paid to
Per Note 36.2, what is the fair value of AF’s derivative instruments on the balance sheet? (Hint: This information is also provided in Notes 26 and 35.)
In Note 36.1, “Risk Management,” and Note 36.2, “Derivative Instruments,” AF discusses its various risk exposures and strategies to reduce its exposure to such risks. Based on the detailed disclosures in Note 36.2, what are the three largest risk exposures (based on the fair value of its
Is this classification different from cash flow statements prepared in accordance with U.S. GAAP?
In which classification are cash inflows from dividends included in AF’s cash flow statements?
Is this classification the same as or different from cash flow statements prepared in accordance with U.S. GAAP?
In its statement of cash flows, what are the three primary classifications into which AF’s cash inflows and cash outflows are separated?
Is this the same approach AF would follow if using U.S. GAAP?
Refer to AF’s disclosure notes, in particular Note 2, “Restatement of Accounts 2018.” Was the first of the two changes described in the note a change in estimate, a change in principle, a change in reporting entity, or an error correction?
Note 14 in the financial statements provides information on the calculation of earnings per share:a. Based on the information provided, what was diluted earnings per share for 2019?b. Using the information provided by the note, infer the reason for the €6 million “Consequence of potential
In its presentation of the components of the balance sheet, which is listed first, liabilities or shareholders’ equity? Does this approach differ from U.S.GAAP?
In its presentation of the components of the balance sheet, which is listed first, current liabilities or non-current liabilities? Does this approach differ from U.S. GAAP?
In its presentation of the components of the balance sheet, which is listed first, current assets or non-current assets? Does this approach differ from U.S. GAAP?
Locate Note 28.5 in AF’s financial statements. What items comprise “Reserves and retained earnings,” as reported in the balance sheet?
See Note 29.3, “Evolution of Commitments.” For its Netherlands operations, did AF report (a) net interest cost or (b) net interest income in 2019?
Look at AF’s balance sheet. How does the way that AF reports Pension assets and Pension liabilities (provisions) compare with the way we report those amounts under U.S. GAAP?
AF reported past service cost (called prior service cost under U.S. GAAP)in its income statement as part of net periodic pension cost. How does that reporting method compare with the way we report prior service cost under U.S.GAAP?
Below is an excerpt from one of AF’s notes to its financial statements:Is this policy consistent with U.S. GAAP? Explain.
Here’s an excerpt from one of AF’s notes to its financial statements:Is this policy consistent with U.S. GAAP? Explain.
What amounts are shown in AF’s December 31, 2019, balance sheet for deferred taxes?
From your reading of Note 4.15, “Lease Contracts,” what would you say is the primary difference between IFRS 16 and U.S. GAAP in the way lessees account for leases?
In Note 4.15: Lease contracts, AF states that “leases recorded in the balance sheet and lead to the recognition of:- an asset representing a right of use of the asset leased during the lease term of the contract and- a liability related to the payment obligation.”Is this policy generally
AF does not elect the fair value option (FVO) to report its financial liabilities.Examine Note 36.3, “Market value of financial instruments.” If the company had elected the FVO for all of its debt measured at amortized cost, what would be the balance at December 31, 2019, in the fair value
Examine the long-term borrowings described in AF’s Note 31.3. Note that AF has convertible bonds outstanding that it issued in 2019 (Ou d’Echange En Actions Nouvelles ou Existantes—OCEANE). Prepare the journal entry AF would use to record the issue of convertible bonds.Prepare the journal
Note 30.2 lists a number of contingent liabilities. Are amounts for those items recognized as a liability on AF’s balance sheet? Explain.
Note 30 lists “Return obligation liability and provision for leased aircraft and other provisions” (hereafter, “other provisions”).a. Do the beginning and ending balances of total provisions shown in Note 30 for fiscal 2019 tie to the balance sheet? By how much has the total amount of
Is the threshold for recognizing a provision under IFRS different than it is under U.S.GAAP? Explain.
Read Notes 4.6 and the Consolidated Balance Sheet. What do you think gave rise to total deferred income of €3,289 as of the end of fiscal 2019? Would transactions of this type be handled similarly under U.S. GAAP?
Read Notes 4.3. and 21.a. When AF can exercise significant influence over an investee, what accounting approach does it use to account for the investment? How does AF determine if it can exercise significant influence?b. If AF is involved in a joint venture, what accounting approach does it use to
Complete C1 again, but for equity investments accounted for as either FVPL or FVOVI.
Read Notes 23 and 36.4. Focusing on debt investments accounted for at fair value through profit loss (FVPL):a. As of December 31, 2019, what is the total balance of those investments in the balance sheet?b. How much of that balance is classified as current and how much as noncurrent?c. How much of
The following is included in AF’s Disclosure Note 4.13: “Intangible assets are recorded at initial cost less accumulated amortization and any accumulated impairment losses.” Assume that on December 31, 2019, AF decided to revalue its Other intangible assets (see Note 16), and that the fair
Describe the approach AF uses to determine fixed asset impairment losses. (Hint:See Note 4.16.) How does this approach differ from U.S. GAAP?
When does AF test for the possible impairment of fixed assets? How does this approach differ from U.S. GAAP?
AF calculates depreciation of plant and equipment on a straight-line basis, over the useful life of the asset. Describe any differences between IFRS and U.S. GAAP in the calculation of depreciation.
Under U.S. GAAP, what alternatives do companies have to value their property, plant, and equipment?
AF’s property, plant, and equipment is reported at cost. The company has a policy of not revaluing property, plant, and equipment. Suppose AF decided to revalue its flight equipment on December 31, 2019, and that the fair value of the equipment on that date was €14,000 million. Prepare the
AF does not report the receipt of any government grants. If it did, its approach to accounting for government grants would be significantly different from U.S.GAAP. Describe the differences between IFRS and U.S. GAAP in accounting for government grants. If AF received a grant for the purchase of
AF does not report any research and development expenditures. If it did, its approach to accounting for research and development would be significantly different from U.S. GAAP. Describe the differences between IFRS and U.S. GAAP in accounting for research and development expenditures.
How does AF account for information technology (IT) development costs before and during its development phase?
AF’s inventories are valued at the lower of cost or net realizable value. Does this approach differ from U.S. GAAP?
What method does the company use to value its inventory? What other alternatives are available under IFRS? Under U.S. GAAP?
Examine Note 27. Does AF have any bank overdrafts? If so, are the overdrafts shown in the balance sheet the same way they would be shown under U.S. GAAP?
In Note 25, AF reconciles the beginning and ending balances of its valuation allowance for trade accounts receivable. Prepare a T-account for the valuation allowance and include entries for the beginning and ending balances and any reconciling items that affected the account during 2019.
In Note 4.11, AF describes how it values trade receivables. Is this approach consistent with U.S. GAAP?
AF has a frequent flyer program (also called a “loyalty program”), “Flying Blue,”which allows members to acquire “miles” as they fly on Air France or partner airlines that are redeemable for free flights or other benefits.a. Does AF treat “Miles” as a separate performance
Assume that AF is forced to cancel a flight due to mechanical trouble, requiring it to promise €50,000 of compensation to affected passengers. Prepare the journal entry that AF would make to record this event.
In Note 4.6, AF indicates that “Sales related to air transportation, which consist of passenger and freight transportation, are recognized when the transportation service is provided, so passenger and freight tickets are consequently recorded as ‘Deferred revenue upon issuance.’”a. Examine
Refer to AF’s Note 29.2 “Description of the actuarial assumptions and related sensitivities.”a. What are the average discount rates used to measure AF’s (a) 10–15 year and(b) 15-year and more pension obligations in the “euro” geographic zone in 2019?b. If the rate used had been 1%
Under which activities in the statement of cash flows are dividends paid and dividends received included? Under IFRS, what other classifications for these items are allowed?
Under which activities in the statement of cash flows are interest paid and interest received included? Under IFRS, what other classifications for these items are allowed?
Under which account title in the income statement does AF include interest expense and interest revenue?
What amount does AF report for amortization, depreciation, and provisions in the income statement? How is this amount listed in the statement of cash flows?
What amount does AF report in the income statement for (a) sales and for external expenses related to (b) aircraft fuel and (c) aircraft maintenance (see Note 7)?
Assuming Air France-KLM’s (AF) industry had an average current ratio of 1.0 and an average debt to equity ratio of 2.5, comment on AF’s liquidity and long-term solvency.
Compute Air France-KLM’s (AF) current ratio and debt to equity ratio in 2019.
What was Air France-KLM’s (AF) largest current asset other than “Other current liabilities”?
What amounts did Air France-KLM (AF) report for the following items (a) Current assets, (b) Long-term assets, (c) Total assets, (d) Current liabilities, (e) Long-term liabilities, (f) Total liabilities, and (g) Total shareholders’ equity on December 31, 2019?
Describe the similarities and differences in the order of presentation of the components of the balance sheet between IFRS as applied by Air France–KLM (AF)and a typical balance sheet prepared in accordance with U.S. GAAP.
The statement of cash flows lists the purchase of property, plant, and equipment.Assuming this full amount was for the purchase of flight equipment, prepare the journal entry.
Among the items listed under “External expenses” in the income statement is aircraft fuel (see Note 7). Using this amount, (a) prepare the journal entry for the prepayment of aircraft fuel in advance of flights and (b) prepare the journal entry on the day of the flight.
Find sales revenue (labeled “Sales”) in the income statement. Using this amount, (a)prepare the journal entry for the sale of tickets, assuming all tickets are sold for cash and before the day of the flight, and (b) prepare the journal entry on the day of the flight.
What amount did AF report for total assets, total liabilities, and total equity in the balance sheet? Show that the basic accounting equation remains in balance.
What was AF’s basic earnings or loss per share for the year ended December 31, 2019?
What amounts did AF report for the following items for the fiscal year ended December 31, 2019?a. Total revenuesb. Income from current operationsc. Net income or net loss (Group part)d. Total assetse. Total equity
Based on information in Note 6 and Note 15, what are the balance sheet effects of the hedging relationships described in Note 16 at February 1, 2020?
Does Target have a gain or a loss on its interest rate swaps for the fiscal year ended February 1, 2020, and where in the financial statements was the gain or loss recorded? On the bond? Did earnings increase or decrease due to the hedging arrangement? Why?
Target has designated its interest rate swaps as fair value hedges. What interest rate risk is Target concerned about?
Note 16 indicates that Target has derivative instruments consisting of interest rate swaps that are designated as fair value hedges. The total notional amount of the existing swap agreements is $1,500 million. According to the note, how is the net settlement determined under these agreements?
Some transactions that don’t increase or decrease cash must be reported in conjunction with a statement of cash flows. What activity of this type did Target report during each of the three years presented?
Is Target increasing or decreasing its long-term debt?
What is Target’s largest investing activity?
Is Target’s cash provided by operating activities more or less than net income in fiscal 2019?
Did Target’s cash provided by operating activities in fiscal 2019 increase or decrease from the previous year?
Suppose Target uses the FIFO costing method but decided to change to the LIFO method. How would it account for the change?
If Target changed that method to another method, how would it account for the change?
Refer to Target’s financial statements for the year ended February 1, 2020. Note 8 provides information on Target’s inventories. What method does Target use to report most of its inventories?
How many shares were included in diluted earnings per share but not basic earnings per share due to share-based compensation awards?
Projections of future performance should be based primarily on continuing operations. What was diluted EPS for continuing operations in each of the most recent three years?
Based on the fair value of the awards granted, what was Target’s primary form of share-based compensation for the year ended February 1, 2020?
What are the three types of awards described in Note 21, “Share-Based Compensation”?
Does Target account for share repurchases as (a) treasury stock or (b) retired shares?
Note 25, “Share Repurchase,” provides the information we need to reconstruct the journal entry that summarizes Target’s share repurchases in the year ended February 1, 2020. Provide that entry (dollars in millions, rounded to the nearest million).
What were the components of Target’s Pension Expense in the fiscal years 2019, 2018, and 2017?
Were these pension plans overfunded or underfunded for the fiscal years ended February 1, 2020, and February 2, 2019?
What were the changes in Target’s Pension Plan Assets in the fiscal years ended February 1, 2020, and February 2, 2019, for its qualified pension plans?
What were the changes in Target’s Projected Benefits Obligation in the fiscal years ended February 1, 2020 (fiscal 2019), and February 2, 2019 (fiscal 2018), for its qualified pension plans?
What is Target’s liability for unrecognized tax benefits as of February 1, 2020? If Target were to prevail in court and realize $50 million more in tax savings than it thought more likely than not to occur, what would be the effect on the liability for unrecognized tax benefits and on net income?
Target’s Note 18 indicates that “We recognized a net tax benefit of $36 million and$372 million in 2018 and 2017, respectively, primarily because we remeasured our net deferred tax liabilities using the new lower U.S. corporate tax rate.” What was the effect of the tax rate change on 2018 net
Focusing on the third table in Disclosure Note 18, “Net Deferred Tax Asset/(Liability),” calculate the change in net deferred tax assets or liability. By how much did that amount change? To what extent did you account for that change in the journal entry you wrote in your answer to question E2?
From the income statement, determine the income tax expense for the year ended February 1, 2020. Tie that number to the second table in Disclosure Note 18,“Provision for Income Taxes,” and prepare a summary journal entry that records Target’s tax expense from continuing operations for the
a. Note 17 indicates that Target’s finance lease liability at February 1, 2020, is$1,370 (= $67 current + $1,303 noncurrent) while its finance lease assets are$1,180. Why do the asset and liability amounts differ?b. Target’s finance lease assets are listed on February 1, 2020, at $1,180
Calculate Target’s times interest earned ratio for the year ended February 1, 2020.The coverage for companies in the Discount Retailers industry sector in a comparable time period was 6.5.
Calculate the debt to equity ratio for Target at February 1, 2020. The average ratio for companies in the Discount Retailers industry sector in a comparable time period was 1.95.
Disclosure Note 14 discusses Target’s accounting for contingencies. Is its approach appropriate?
Disclosure Note 2 discusses Target’s accounting for gift card sales.a. By how much did Target’s gift card liability change between February 1, 2020, and February 2, 2019?b. How would the following affect Target’s gift card liability (indicate “increase,”“decrease,” or “no change”
Target’s Consolidated Statement of Financial Position (its balance sheet) discloses its current assets and current liabilities.a. What are the three components of Target’s current liabilities?b. Are current assets sufficient to cover current liabilities? What is the current ratio for the year
Per Note 1, CVS has equity-method investments in SureScripts, LLC, and in Heartland Healthcare Services. CVS indicates that those investments are immaterial for the year ended December 31, 2019. Assuming that the Heartland investment is material:a. How would Heartland’s earnings affect CVS’s
Regarding CVS’s investments in debt securities:a. Turn to Note 1: Significant accounting policies. What approach is CVS using to account for its investments in debt securities–are they HTM, TS, or AFS?b. Turn to Note 3: Investments. What is the total amount of CVS’s investments as of

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