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business
intermediate accounting volume 2
Questions and Answers of
Intermediate Accounting Volume 2
Kathleen Inc. during a review of its books in 20X3 found the following error: Overhead costs that were not directly attributable to inventory were included in the amount capitalized for inventory.
Greta Inc. is a private company that follows ASPE. The company has always had a policy to expense development costs. However, it is now looking to acquire some funding from an independent investor.
KLB Corp., a private company, has used the completed-contract method to account for its longterm construction contracts since its inception in 20X3. On 1 January 20X7, management decided to change to
PPR is a manufacturer of medical-grade cleaning products. The company has two main categories of customers: corporate and municipal customers (hospitals and community centres). The company sells all
Wuhan Corp. is a Vancouver-based company that engages in a large volume of international activities. The company had a largely independent wholly owned subsidiary in Hong Kong. Wuhan had been
EC Construction Ltd. (EC) has 100,000 common shares outstanding in public hands. The balance of retained earnings at the beginning of 20X7 was $2,400,000. On 15 December 20X7 EC declared dividends of
In 20X6, Black Oil Inc. changed its method of accounting for oil exploration costs from the successful efforts method (SE) to full costing (FC) for financial reporting because of a change in
Purple Ltd. reported the following in its 31 December financial statements:After the draft 20X9 financial statements were prepared but before they were issued, Purple discovered that a capital asset
Late in 20X6, the management of Richter Minerals Inc., a Canadian private company, decided to change the company’s inventory valuation method and, concurrently, its revenue recognition method.
TXL Corp. has tentatively computed income before tax as $660,000 for 20X4. Retained earnings at the beginning of 20X4 had a balance of $3,600,000. Dividends of $270,000 were paid during 20X4. There
On 1 January 20X5, Teal Ltd. decided to change the inventory costing method used from average cost (AC) to FIFO to conform to industry practice. The annual reporting period ends on 31 December. The
Linfei Ltd. has a 31 December year-end, and a tax rate of 25%. Management has asked you to respond to the following situations:Required:1. The company has always used the FIFO method of determining
Plastics Ltd. (PL) had been a public company for the past 15 years. However this year, 20X6, PL’s senior management acquired 90% of the shares outstanding in public hands and, as permitted by
Excerpts from the 31 December financial statements of Tungston Ltd., before any corrections:After these financial statements were prepared, but before they were issued for 20X7, a routine review
Gunnard Ltd. was formed in 20X4 and has a 31 December year-end. Gunnard changed from successful efforts (SE) to full costing (FC) for its resource exploration costs in 20X5. SE is still used for tax
Catherine Ltd. has an investment with an original cost of $400,000. The investment was accounted for using the cost method in 20X0, 20X1, and 20X2. This year, 20X3, the company must conform to new
Hasimoto Ltd. is a public company that follows IFRS. In 20X6, the company purchased new computer equipment for several employees. However, due to an error in processing, the company expensed the
In 20X6, Dalia Corp., a calendar fiscal-year company, discovered that depreciation expense was erroneously overstated $52,000 in both 20X4 and 20X5 for financial reporting purposes. Net income in
On 4 July 20X2, Giovanni Inc. leased computer equipment through the leasing subsidiary of Giovanni’s bank. The lease was for five years at $240,000 per year, payable at the beginning of each lease
In early 20X1 Picton Ltd., a public company, entered into a finance lease that required Picton to make $100,000 beginning-of-year payments for six years. The interest rate implicit in the lease was
Waves Corp., which has a calendar fiscal year, purchased its only depreciable capital asset on 1 January 20X3. Information related to the asset:In 20X5, Waves decreased the estimated residual value
Swift Corp. reports the following situations in 20X6 with respect to its high-tech manufacturing equipment:a. Machine 1 was acquired at a cost of $1,106,000 in 20X3. The machine was depreciated on a
Brockton Ltd. began applying IFRS in 20X8. One of the necessary adjustments was to adjust past inventory records to remove warehousing expenses from the balances of the ending inventories for 20X5,
Dutta Ltd. signed an operating lease on 1 January 20X0. The lease was a 60-year term on a piece of land. The land reverts to the lessor at the end of the lease term. The lease requires annual
Stacey Corp. has been depreciating equipment over a 10-year life on a straight-line basis. The equipment, which cost $24,000, was purchased on 1 January 20X1. It has an estimated residual value of
D Ltd. has an investment with an original cost of $100,000, purchased in 20X1. The investment was accounted for using the cost method in 20X1, 20X2, and 20X3. The investment had a fair value of
In its 20X4 year-end review, JTL Corporation discovered the following issues:• JTL has accounts receivable of $190,000 and an allowance for doubtful accounts of $32,000. Bad debts have been
The following data relate to Freeman Inc.:From the disclosure notes:• The $0.20 convertible preferred shares are callable by the company after 31 March 20X14, at $60 per share. Each share is
Analyze each case and choose a letter code under each category (type and approach) to indicate the preferable accounting for each case.a. Used the instalment sales method in the past five years; an
New Corp Ltd. has been in operation for five years but only recently has become profitable. In 20X5, the company had significant accumulated tax loss carryforwards of $3,000,000 that were not
Eddison Inc. purchased a capital asset for $220,000 in 20X2. Management estimated that the asset would have a 8-year life with an estimated residual value of $16,200. Management depreciated assets
Analyze each case and choose a letter code under each category (type and approach) to indicate the preferable accounting for each case.a. A private company changed from the percentage-of-completion
Cleat Corp. changed its policy for accounting for certain staff training costs in 20X5. Previously, the costs were capitalized and amortized straight-line over three years, starting with the year of
M-Halon Corp. is a public company that trades on the TSX. It adopts IFRS for financial reporting and has a 31 December year-end.The capital structure of M-Halon Corp. included the following for 20X9
Tianan Corp. acquired equipment in 20X1 for $200,000. Management instructed the accounting staff to depreciate the equipment on a 20% declining balance rate. In 20X3, as the year-end financial
At 31 December 20X1, Regina Realty Ltd. had the following items on the statement of financial position:The Class A preferred shares are redeemable in 20X11 at the investors’ option and are
In 20X7, after the 20X6 annual financial statements had been issued, Marcella Stores Inc. discovered that a significant transposition error had been made in recording the ending inventory for 20X6.
MacDonald Corp. had the following securities outstanding at its fiscal year-end 31 December 20X7:Additional information:a. 20X7 net earnings were $790,000. There were no discontinued operations.b.
Sarto Co. purchased a $350,000 asset on 1 January 20X2. In 20X6, the company changed the total useful life from 20 years to 14 years. The asset was originally expected to be sold for $50,000 at the
Duncan Inc. (DI) is a chemical manufacturer located in Southwestern Ontario. The company develops and produces a variety of chemicals that are sold to manufacturing companies across the country.Their
Gannon Ltd. reported earnings as follows:The capital structure of Gannon included the following:Required:1. Calculate 20X2 basic EPS, including the comparative 20X1 calculation.2. Interpret the trend
Huron Resources is a public oil field services company. Selected information follows:Required:1. Calculate basic EPS for 20X4 and 20X3.2. Interpret the trend in basic EPS.3. Repeat requirement 1,
Targeted Ltd. (TL) reports the following calculations for basic EPS, for the year ended 31 December 20X4:Assume two different scenarios for Targeted Ltd.—Case A versus Case B as shown below:Case
Maria Corp. reported 20X6 earnings from continuing operations of $4,045,600 and a loss from discontinued operations of $1,355,600 after tax. The tax rate was 25%. Maria reports the following
Information regarding Fujing Ltd:• Common shares outstanding on 31 December 20X1: 80,000. The company had issued 30,000 shares under a contingent share agreement on 1 December 20X2. It had also
Sea Products Corp. (SPC) reported $6,080,000 of earnings from continuing operations for the 20X4 fiscal year, and an after-tax loss from discontinued operations of $7,610,000. Preferred dividends and
The shareholders’ equity of Cameron Corp. as of 31 December 20X6, the end of the current fiscal year, is as follows:Additional information:• On 1 July 20X6, 150,000 preferred shares were
Bytol Corp. had the following common share transactions and balances during 20X8:• 1 January—160,000 shares outstanding• 30 April—60,000 shares issued on conversion of $5,500,000 bonds
At the end of 20X7, the records of Info Solutions Ltd. reflected the following:Required:Compute the required EPS amounts. Show computations, and round to two decimal places. Statement of financial
Ashante Sports Collections Ltd. (ASCL) ended 20X5 with 700,000 common shares outstanding, after issuing 200,000 common shares for cash on 31 December. The tax rate is 40%. There were no other common
Select SFP data for Emin Corp. for the 31 December 20X5 year-end is as follows:Additional information:a. On 1 April 20X5, 100,000 common shares were issued.b. Common share options are outstanding
Accounting staff at Linfei Corp. have gathered the following information:• Common shares outstanding on 31 December 20X4, 150,000.• A 3-for-1 stock split was distributed on 1 April 20X4.•
Bolshevik Ltd.’s statement of financial position at 31 December 20X2 reported the following:Additional information:a. 50,000 common shares were issued at $50 on 1 July 20X2.b. Common share options
For the year ended 31 December 20X7, Daffy Daisy Donut Corp. (DDD) had earnings from continuing operations of $6,500,000 before taxes and a loss on discontinued operations of $2,520,000 before tax.
On 31 December 20X3, the capital structure of Victor Varieties Ltd. was as follows:• $4,500,000 face value of 12% debentures, due 1 April 20X10, convertible into eight common shares per $1,000.
The Birch Corp. has the following items in its capital structure at 31 December 20X7, the end of the fiscal year:a. Options to purchase 400,000 common shares were outstanding for the entire period.
The Duckworth Ltd. 20X5 financial statements include the following:The company declared and paid preferred dividends of $20,000 during the year and had an effective tax rate of 25%.Required:1.
Balor Corp. has a 31 December year-end. The following information relates to 20X8, 20X7, and 20X6.Net earnings for 20X8 is $645,100.Required:1. For purposes of calculating EPS at the end of each
Ramca Corp.’s accounting year ends on 31 December. During the three most recent years, its common shares outstanding changed as follows:Required:1. For purposes of calculating EPS at the end of
The following information pertains to Archibald Acquisitions Ltd. (AAL) for the year ended 31 December 20X7:a. AAL had 150,000 common shares outstanding at the end of 20X7. Of that number, 30,000 had
Martin Inc. is a public company that is IFRS compliant. It has a 31 December year-end date. The following select SCI information is provided for Martin Inc. for the 31 December 20X5 year-end:• Net
On 1 January 20X5, Aker Aviation Services Ltd. entered into an agreement to purchase Moore Fuels Ltd. The agreement included the following terms:1. Aker agreed to issue an additional 3,000,000 shares
On 1 January 20X1, Barnhill Information Technologies reported 3,650,000 common shares outstanding. During the prior year, 20X0, the company had acquired Semere Systems, a supplier company, in a cash
Kolanso Inc. had 870,000 common shares outstanding on 1 January 20X8. On 1 June, the company entered into an agreement to purchase the shares of Leroy Co. As part of this acquisition transaction,
Darlington Industries Ltd. reported earnings of $1,000,000 in 20X6; no dividends were declared.Darlington has two classes of ordinary shares—Class A and Class B. The characteristics of the two
Seeko Inc. is a public company that reports EPS figures. It has a 31 December year-end date. It issued its 20X4 year-end financial statements on 20 February 20X5. The following information relates to
Murchie Ltd. earned $16,000,000 in 20X6 and paid dividends of $7,400,000. The company has two classes of voting shares. Class A shares have six votes per share, while Class B shares have one vote per
The following cases are independent:Case A Halifax Ltd. had 2,500,000 common shares outstanding on 1 January 20X8. On 1 March, 600,000 common shares were issued for cash. On 1 July, 300,000
Kouk Corp. has the following capital structure at the end of 20X7:• 100,000 Class A shares carrying five votes per share.• 100,000 Class B shares, carrying one vote per share.• Dividends are
Dexlux Ltd. (DL) is a vertically integrated manufacturer and retailer of moderately priced high-fashion footwear, leather goods, and accessories. DL’s common shares are listed on the Toronto Stock
The following cases are independent.Case A Jethrow Ltd. had 1,000,000 common shares outstanding on 1 January 20X2.• On 27 February 200,000 shares were issued for $50 each.• 300,000 shares
Wilcorp Ltd. reported a loss of $610,000. There are 550,000 shares outstanding. The company has outstanding stock options for 100,000 common shares at $10 per share. The average common share price
Summit Holdings Corporation (SHC) is a diversified Canadian company based in Winnipeg. SHC’s primary business is the distribution and retailing of pharmaceutical and health care products. Its
CH Holdings Inc. has net earnings of $5,456,000 for the year ended 31 December 20X5. It has convertible bonds currently outstanding with a face value of $8,500,000 and a book value of $7,871,852 at 1
The following are independent scenarios.1. Rial Corp. designated convertible bonds as fair value through profit or loss (FVPL) on initial recognition. Management is unsure how to handle the liability
CNZ Co. had 1,200,000 shares outstanding at the beginning of the year—1 June 20X8. During the year, the following transactions occurred:1 August 20X8—5,000 share options with an exercise price of
Bryant Corporation is a small public company trading on the TSX. Bryant Corporation has issued both common and preferred shares. During 20X3 the company paid cash dividends on its preferred shares.
PhonUs Ltd. (PUL) is a Canadian public company involved in network technology for mobility telecommunications. This network technology allows super-fast data services to be offered through mobile
Arca Ltd., a public company, has a defined benefit obligation. From their financial statements, you have determined that the pension obligation recognized in the financial statements has a discount
Refer to the information in T20-2. Assume that Hominem Inc. had a loss on discontinued operations of $1,000,000 (after tax).Data From T20-2Hominem Inc. has 100,000 common shares outstanding. Earnings
The following are independent statements related to earnings per share.1. EPS calculations can be computed and then interpreted meaningfully as individual amounts without concern for comparisons.2.
The following sentences are incomplete.1. When calculating WAOS, if there is a stock dividend during the reporting period, the additional shares are not weight-averaged; rather, they are.2. When
Angelo Ltd., a public company, had 600,000 common shares outstanding at the beginning of 20X4. On 1 March 20X4, Angelo purchased and retired 120,000 shares that had been owned by one of the company
Jabba Inc. is looking to establish a post-employment benefit plan for its employees. The company has decided on the following structure for its plan.A contributory defined benefit plan. The plan
Oilfield Multiservices Ltd. (OML) offers oilfield operation services to the oil and gas industry in Alberta and Texas. OML owns no natural resource properties itself but assists in exploration
Return to the facts of A19-22. Assume instead that this pension plan is sponsored by a private company and ASPE applies.Data From A19-22Solutions Ltd. sponsors a defined benefit pension plan for its
Return to the facts of A19-19. Assume instead that this pension plan is sponsored by a private company and ASPE applies.Data From A19-19Jones Manufacturing Inc. sponsored a defined benefit pension
Genis Inc. is a large distributor located in Atlantic Canada. Genis’s draft financial statements show the following:The company has the following items that have not yet been recorded as of the end
Return to the facts of A19-13. Assume instead that this pension plan is sponsored by a private company and ASPE applies.Data From A19-13The following data relate to a defined benefit pension
Return to the facts of A19-12. Assume instead that this pension plan is sponsored by a private company and ASPE applies.Data From A19-12The following data relate to a defined benefit pension
Refer to the data of TR19-2. Assume now that the contribution to the plan assets was made 1 September 20X8 and pension payments to pensioners were paid evenly throughout the year.Data From TR19-2The
Return to the facts of A19-10. Assume instead that this pension plan is sponsored by a private company and ASPE applies.Data From A19-10Urban Life Ltd. sponsors a defined benefit pension plan for its
Lin Developments Ltd. provides post-employment benefits to its retirees for supplementary health care, including prescription medication. Lin had an accumulated OCI loss amount related to OPEBs of
Extracts from the pension disclosures of Blue Pony Ltd. are shown below.Pension Benefits The estimated present value of accrued plan benefits and the estimated market value of the net assets
Return to the facts of A19-11. Assume instead that this pension plan is sponsored by a private company and ASPE applies.Data From A19-11Micro Computers Inc. sponsors a defined benefit pension plan
Car Wash Ltd. began a pension fund in the year 20X3, effective 1 January 20X4. Terms of the pension plan follow:• The yield rate on long-term high-grade corporate bonds is 5%.• Employees will
Jetnow Ltd. has a defined benefit pension plan for its employees. The following information was provided by the actuary:Required:Prepare a spreadsheet for 20X3 that determines pension expense and
Morocco Corp. initiated a defined benefit pension plan on 1 January 20X5. The plan does not provide past service benefits for existing employees. The pension funding payment is made to the trustee on
Raka Ltd. provides supplementary post-employment benefits to its retirees. The benefits include dental, vision, and prescription medication. At the beginning of 20X3, Raka had an accumulated OCI loss
On 1 January 20X0, Rainbow Inc. established a defined benefit pension plan for its employees. At the inception of the plan, the present value of the defined benefit obligation relating to employees'
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