Questions and Answers of Intermediate Accounting Volume 2

Fellows Inc. started operations on 1 January 20X8 and purchased $2,000,000 of equipment. The income tax rate was 40% in 20X8 and 38% in 20X9. The following is information related to 20X8 and
The records of Samuel Corp. provided the following data at the end of years 1 through 4 relating to income tax allocation:The above amounts include only one temporary difference; no other changes
Dauphinee DL Corp. plans to purchase 100,000 shares of Santos Technology Ltd., a publicly traded company. Dauphinee has signed a contract to acquire the shares from Holding Co. in 90 days, after
The records of Boomer Corp., in its first year of operation, at the end of 20X8, provided the following data related to income taxes:a. Golf club dues expense in 20X8, $10,000, properly recorded for
Lin Ltd. reported the following:Required:1. What is the amount of the taxable income or loss in each year?2. How much is the tax refund to be claimed in 20X8?3. How much is tax expense (recovery) in
Penguin Corp. reported accounting earnings before taxes as follows: 20X6, $675,000; 20X7, $57,000. Taxable income for each year would have been the same as pre-tax accounting income except for the
Cell Image Corp. reported a deferred tax liability of $120,000 in 20X5, caused by equipment with a UCC of $1,500,000 and net book value of $1,980,000. The tax rate was 25%. In 20X6, accounting
Compass Direction Ltd. has constructed a warehouse facility, paying $560,000 for land on 1 February 20X2, $500,000 to a contractor in late March 20X2, another $2,000,000 in late August 20X2, and
Early in 20X1, Nitro Demolition Ltd. borrowed money to partially finance the acquisition of a bulldozer. The loan was a five-year, $90,000 loan, secured by a first charge on the bulldozer and the
Xing Corp. has a 31 December year-end and adopts IFRS for financial reporting.The following data relate to bonds issued by Xing Corp:• Bond issue date: 1 January 20X6• Total face value:
The following cases are independent: Case A On 1 January 20X5, Radar Co. issued $200,000 of bonds payable with a stated interest rate of 12%, payable annually each 31 December. The bonds
On 1 July 20X2, Hendrie Corp. issued $6,000,000 of 5% (payable each 30 June and 31 December),10-year bonds payable. The bonds were issued to yield 6%. The company uses effective interest amortization
The following two cases are independent.Case A At 31 December 20X3, QML Ltd. reports the following on its statement of financial position:Accrued interest payable of $450,000 was recorded on 31
Pasquali Ltd. issues $600,000 of 9% bonds on 1 July 20X1. Additional information on the bond issue is as follows:Required:1. Record the bond issue and the first interest payment under the effective
The following balances are from the statement of financial position of Merit Ltd.Additional information:a. A portion of the 7% bond payable was retired at 101. Discount amortization of $14,700 was
Return to the facts of Assignment 13-10.Data From Assignment 13-10The following partial amortization table was developed for a 5.4%, $800,000 5-year bond that pays interest each 30 September and 31
The graph shows Huli Corp.’s interest expense and interest paid for the period 20X1 to 20X6. Huli Corp.’s overall debt composition has not changed in the period shown. The debt includes an
Fast Transportation Co. sold $1,500,000 of five-year, 12% bonds on 1 August 20X2. Additional information on the bond issue is as follows:Required:1. Record the bond issuance on 1 August 20X2.2.
The following accounts are taken from the general ledger of GRL Trading Ltd. on 31 December 20X1:Required:Prepare the shareholders’ equity section of the SFP at year-end. Assume accounts have
Tollmark Ltd. (Tollmark) is a private company founded 20 years ago by Karam Raynan. The company is in the medical supply industry, providing medical equipment to hospital and doctors offices.
Match the description with the type of dividend. Description 1. Pay dividend with non-cash item 2. Dividend takes form of certificate issued (promissory note) 3. If dividends not declared the
Wonder Ltd. has treasury stock transactions in 20X9 as follows:At the end of 20X8, Wonder Ltd. had reported the following in shareholders equity:Required:1. Prepare journal entries for the treasury
During 20X5, Walter Ltd. retired 4,000 common shares and 2,000 preferred shares, respectively. Earnings were $100,000 in 20X5, and dividends declared, $40,000. The comparative equity accounts for
Halo Ltd. has the following statement of equity as of 31 December 20X9:Where applicable, the matching dividend is $0.30 per share. Dividends were not paid in 20X7 or 20X8.Required:Compute the amount
On 31 December 20X6, Wave Exploration Ltd. reported the following in shareholders’ equity:Comprehensive income for 20X7 is as follows:Required:1. Calculate the balance in each equity account,
In 20X4, L Concept entered into an agreement with J Trax whereby J Trax agreed to purchase common shares from L Concept. Details of the transaction are as follows:• $420,000 will be paid in in
On 1 January 20X5, Dolphin Operations Ltd. reported the following in shareholders’ equity:In 20X5, the company declared and issued a 10% stock dividend. The stock dividend was to be valued at $5
Indicate if each item would increase or decrease retained earnings. Item 1. Dividends 2. Earnings 3. Share issue costs 4. Loss 5. Spinoff of investment to shareholders Increase/Decrease
The records of Victoria Corp. showed the following balances on 1 November 20X5:On 5 November 20X5, the board of directors declared a stock dividend to the shareholders of record as of 20 December
On 1 June 20X5, Lush Corp. issued $40,000,000 of 7.5% bonds, with interest paid semi-annually on 30 April and 31 October. The bonds were originally dated 1 November 20X4, and were 15-year bonds. The
Shurely Inc. lent $5,000,000 to Beeti Corp. in 20X3. Beeti Corp. has recently brought a new product to market and is having a tough time selling it. As a result, Beeti Corp. is experiencing cash flow
At the end of 20X8, Minnow Reserves Corp. reported the following in shareholders’ equity:The company had treasury stock transactions in the following sequence during 20X9:1. Purchased 100,000
Return to the facts of A13-6Data From Assignment -13-6Mathieson Co. issues a $10,000,000, 6 ½ % bond on 1 October 20X4. At this time, market interest rates are in the range of 6%. The bond had a
Roland Garment Inc. is a private company that uses ASPE for financial reporting. On 1 April, 20X5 Roland Garment Inc. issued bonds with the following characteristics:• Bond date: January 1, 20X5•
The following are independent statements pertaining to long-term liability disclosures:a. Title of the debt issue with maturity date, interest rate and amount outstanding must be disclosed.b. The
As at 31 December 20X3 Biraca Corp. has three sources of long-term debt outstanding:1. $1.3M note payable that matures on July 31, 20X62. $3M bonds payable that mature October 31, 20X83. $2.5M bank
Below are selected accounts from O’Hara Oil Corp. at 31 December 20X1. The accounts have not a been closed for the year but transactions have been correctly recorded.Required:1. Calculate
Altitude Ltd. had the following shareholders’ equity on 31 December 20X8:Earnings for 20X8 had been $216,000, and comprehensive income, which also included a $13,500 unrealized gain on an
1. Cumulative preferred shares are required to receive dividends every year.2. Par-value shares cannot be issued below par.3. Issued shares will be higher than outstanding shares if there are
On 1 January 20X5 100,000 shares of ABC Corp. are subscribed by Lucas Mapplebeck for $50 per share. The shares will be paid for in four equal instalments due every six months. The first instalment is
Cranberry Ltd. (CL) was incorporated in 20X6. Unlimited no-par common shares were authorized. IFRS was chosen for external reporting. During the first week, the company had the following share
Holimont Ltd. (HL) has unlimited no-par common shares authorized. The following transactions took place in the first year:a. To record authorization of shares by board of directors (memorandum).b.
On 1 January 20X1, Grey Corp. issued 375,000 no-par common shares at $4 per share. In 20X5, there were treasury stock transactions. On 15 January 20X5, the company purchased 4,200 of its own common
At the end of 20X2, Provoe Products Ltd. had 222,000 common shares outstanding, with a recorded value in the common share account of $875,000. Retained earnings was $673,500. During 20X3, the
Massive Corp. is authorized to issue unlimited $0.80 no-par preferred shares and unlimited no-par common shares. There are 15,000 preferred and 45,000 common shares outstanding. In a five-year
Locomotive Co. decided to raise new equity using a rights offering and on 15 June announced that it would issue one right for each share owned to existing shareholders. The company currently has
Assume the same scenario as in TR14-12.Data From TR14-12Prepare the journal entries for the following unrelated transactions:1. A truck valued at $62,000 is purchased in exchange for 4,000 preferred
Prepare the journal entries for the following unrelated transactions:1. A truck valued at $62,000 is purchased in exchange for 4,000 preferred shares. The current share price is $14.25.2. Land that
Gupta Corp. was authorized to issue unlimited common shares and had 452,000 common shares outstanding on 8 March 20X2, with a recorded value of $1,367,000. On this date, the board of directors
At the end of the 20X4 fiscal year, the shareholders’ equity section of the statement of financial position of Chomney Corp. was as follows:The board of directors was considering three
Collirs Inc. has the following accounts and account activity as of 30 June 20X5:Other information, not included in above accounts:1. Dividends of $205,000 were declared on 14 June 20X5. The last time
In order to take advantage of lower U.S. interest rates, Zhang Ltd. borrowed $8 million from a U.S. bank on 1 May 20X2. Annual interest, at 7¼%, was due each subsequent 1 May, with lump-sum
On 1 May 20X9, All-Man Imports Ltd. (AML) obtained a five-year loan from a major New York bank. The loan is for US$20,000,000, bears interest at 6% per annum (paid annually on the loan anniversary
On 1 January 20X8, a borrower arranged a $1,000,000 three-year 2% bond payable, with interest paid annually each 31 December. There was an upfront fee of $106,920, which was deducted from the cash
A 3% loan was granted to Simeoni Ltd. in 20X2. The principal amount was $8,000,000 and the term was three years. Interest is paid at the end of each year. In addition, the lender charged an upfront
Return to the facts of A13-10. The bond is now issued on 1 August 20X1.Data From A13-10The following partial amortization table was developed for a 5.4%, $800,000 5-year bond that pays interest each
The following partial amortization table was developed for a 5.4%, $800,000 5-year bond that pays interest each 30 September and 31 March. The table uses an effective interest rate of 5%. The bond
The following partial amortization table has been prepared for a 9%, $100,000 5-year bond that pays interest each 30 April and 31 October. The table uses an effective interest rate of 10%. The bond
Arbuckle Ltd. issued $80,000 of four-year, 7% bonds dated 1 December 20X5. Interest is payable semi-annually on 31 May and 30 November. The bonds were issued on 1 February 20X6. The effective
Randy Corp. issued $200,000 of 7.6% (payable each 28 February and 31 August), 4-year bonds. The bonds were dated 1 March 20X4, and mature on 28 February 20X8. The bonds were issued (to yield 8%) on
Leader Inc. has the following foreign financing: The company borrowed US$325,000, for five years, when US$1.00 = Cdn$1.01. The exchange rate at the end of the first year is US$1.00 = Cdn$1.03, and at
Hambelton Ltd. issued $4,000,000 of 5% bonds payable on 1 September 20X9 to yield 4%. Interest on the bonds is paid semi-annually and is payable each 28 February and 31 August. The bonds were dated 1
Li Corp. purchased a container load of antiques for resale at an invoice cost of $1,200,000. The goods were paid for when they were shipped in early June. The container arrived in Canada at the end
On 30 September 20X1, Golf Mania Co. issued $3 million face-value debentures. The bonds have a nominal interest rate of 10% per annum, payable semi-annually on 31 March and 30 September, and mature
Power Solutions Ltd. issues a $10,000,000, five-year, 4.5% bond with semi-annual interest payments. Underwriting costs, paid up front, are $640,000. The bond sells at par.Required:1. How much cash
Mathieson Co. issues a $10,000,000, 6 ½ % bond on 1 October 20X4. At this time, market interest rates are in the range of 6%. The bond had a 10-year life from 1 October 20X4, and paid interest
Sanderson Corp. issued $20,000,000 of bonds payable on 1 June 20X5. The bonds are 10-year bonds, and bear interest at 5.5% per annum, payable semi-annually each 31 May and 30 November. The bonds were
Cumming Corp. issues a $6,000,000, 5% bond on 1 April 20X3. At this time, market interest rates are in the range of 6%. The bond had a 10-year life from 1 April 20X3, and paid interest semiannually
Harrison Ltd. issued $4,000,000 of bonds payable on 30 April 20X0. The bonds are due on 30 April 20X8, and bear interest at 4.5% per annum, payable every 30 October and 30 April. The bonds were
Prentice Ltd. was authorized to issue $5,000,000 of 10-year, 6% bonds payable on 1 August 20X2.The bonds are due on 31 July 20X12. Interest payments dates were 31 July and 31 January. The bond was
The following are possible sources of financing:• Operating line of credit• Commercial paper• Term loan• Commercial mortgage• Long-term bonds payable• Equity financingConsider each of the
The following are possible sources of financing:• Operating line of credit• Commercial paper• Term loan• Commercial mortgage• Long-term bonds payable• Equity financingConsider each of the
1. Bonds must be measured using amortized cost.2. Straight-line amortization is used for amortized cost.3. Transaction costs are expensed for financial liabilities.4. Borrowing costs include both
Brealle Corp. sells a range of sunglasses. To attract sales, it began a mail-in-rebate promotion in 20X3. In 20X3 Brealle Corp. heavily promoted the program, and as a result sales grew.The rebate
In 20X3 Pilo Corp. began offering a one-year warranty on its AT24 product to provide assurance the product will meet agreed-upon specifications.The new warranty program began at the beginning of
1. Bonds are usually classified in other liabilities.2. Transaction costs always reduce the value of the financial liability.3. The cash received will be more than the face value of the bond if a
The following are possible sources of financing:• Operating line of credit• Commercial paper• Term loan• Commercial mortgage• Long-term bond payable• Equity financingRequired:Explain the
GYO Ltd. reports the following amounts on its statement of cash flows: 20X5Other information:• The 8% note payable is a bank loan due in 20X6, but negotiations for its renewal are taking place.
The following are independent possible provisions:a. Willow Corp. sued a local supplier for $99,000. Willow Corp. lost the lawsuit but subsequently appealed. Willow Corp. won the appeal as it
Homespun Resources Ltd was incorporated in 20X2 and is a mining operation in northern Alberta. The company is required by the terms of provincial legislation to remediate mine sites when mining is
Gaudet Industries Ltd. has a $5,000,000 note payable outstanding. The terms of the note require repayment of principal on 30 June 20X2. The company is now finalizing the financial statements for the
Silver Linings Ltd. commenced a mining operation in early 20X5. The company is required by the terms of provincial legislation to remediate the mine site when mining is completed, likely in five
In late September 20X6, Boothe Ltd. established a provision of $500,000 for a legal matter. The company expects the amount will be paid in late September 20X8. Timing can be estimated with
On 1 January 20X9, a borrower signed a long-term note, face amount, $1,600,000; time to maturity, three years; stated rate of interest, 2%. The effective rate of interest of 6% determined the cash
Infinite Solutions Ltd. purchases inventory on 1 September 20X7 and signs a note with the supplier, agreeing to pay $90,000 on 31 August 20X9, plus annual interest at 2% each 31 August. The market
Review the financial statement extract provided below:Required:1. In general, what is a provision?2. Is this a current or both current and long-term warranty provision?3. The provision for warranty
Tunacliff Mowers allows each employee to earn 15 fully paid vacation days each year. Unused vacation time can be carried over to the next year; if not taken during the next year, it is lost. By the
Prolong Inc. permits employees to earn 20 fully paid vacation days each year. Unused vacation time can be carried over to the next year. However, if not taken during the following year, it is lost.
Fresh Products Ltd. is gathering evidence to support an accrual for warranty claims. The warranty is offered on three products sold to ensure that they operate as expected.For Product 1, there are 75
Mapplebeck Company Ltd. is gathering evidence to support an accrual for legal claims. Three lawsuits are outstanding: Claim 1 is a lawsuit from an employee for $750,000. According to the legal
The following items pertain to possible provisions:a. A company uses a part manufactured in Germany in its automobile manufacturing plant. There has been a concern about the failure of this part in
Identify if the following liabilities would be classified as current or non current. Assume a December 31 year-end.1. Demand loan2. Accounts payable3. Mortgage due in Feb. not refinanced by Dec 314.
The following items pertain to the 20X9 operations of Fillet Information Services Ltd.:a. The company issued a purchase order for manufacturing equipment with an invoice price of $850,000, to be
a. The ABC Mining Co. has announced that it will restructure its Atlantic Canada operations and lay off 80% of workers in the area. The employees affected are informed and given six months notice and
On 2 January 20X8, Keen Mining Ltd. commenced a mining operation. Keen is required by the terms of provincial legislation to remediate the mine site when mining is completed, likely in 10 years’
Golden Ltd. had the following transactions in 20X5:a. Bought goods on 1 June from Brit Ltd. for 70,000 euros, with payment due in four months’ time.b. Bought goods from New York Sales Corp. on 15
Materials Ltd. purchases inventory on 1 April 20X7 and agrees to pay the vendor $250,000 on 31 March 20X9, plus annual interest at 2% each 31 March. The market interest rate for similar term and
On 1 October 20X6, Halpern Co. borrowed $120,000 from Canada Bank. The note has a two-year term, and requires that interest of 9% be paid each 30 September, with the principal payable 30 September
Dash Ltd. engaged in various transactions during the month of September:a. Bought $5,200 of office supplies on account.b. Borrowed $30,000 from the Big Bank at the beginning of the month and agreed
Best Ltd. has guaranteed a $800,000 loan of Grand Ltd., a customer. There is security valued at $500,000—assets of Grand—registered against the loan. Best estimates that there is a 30% chance

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