Questions and Answers of Intermediate Accounting Volume 2

Hogarth Ltd. had the following transactions in February 20X8:a. Recorded sales of $3,600,000, plus GST of 5%.b. Recorded sales of $12,400,000, plus GST of 5%.c. Bought equipment for $1,250,000, plus
Helpi Auto Parts Ltd. offers a six-month warranty on parts that the company has installed. This warranty ensures that parts are working as intended. The warranty covers the cost of parts, plus
Hendrie reported opening balances as at 1 June 20X8:The company had the following transactions in June 20X8:a. Collected $708,000 of GST on sales to customers.b. Recorded the bimonthly payroll, which
A company has an account payable to a U.S. company, a supplier of inventory, in the amount of US$150,000. The payable was incurred when the exchange rate was US$1 = Cdn$.75. At yearend, the rate is
Blue Ltd. engages in transactions involving foreign currencies, namely the Australian dollar and U.S. dollar. Blue Ltd. engaged in the following transactions during 20X9:1. Purchased inventory on 1
Simon Inc. had the following events occur during the year. Simon follows IFRS.1. Simon has a fleet of trucks. It was recently decided that the company would replace old trucks with new finance leases
Maddox Steel Co. had an inventory turnover of 9 in 20X3 and 7 in 20X4.Required:Interpret these figures and comment on the trend. What is the company’s average days in inventory?
Sweets Inc., a candy manufacturer that follows IFRS, had the following events occur during the year:1. Sweets decided to increase the number of years in depreciating its property and equipment from
Below is selected information for XTM Inc. for the years ended December 31:Required:Calculate the return on assets before tax for 20X9 and 20X8. Discuss what the ratios reveal about the company.
Trimaz Co. has the following selected information from its financial statements:Required:1. Calculate the cash conversion cycle for 20X9 and 20X8. (Use closing balances, rather than average balances,
Selected data is provided below for KLS Co.:Required:Calculate the cash conversion cycle for 20X5 and 20X4. Is it likely that the company has shortterm investments or requires short-term bank
Refer to the facts of A22-22.Data From A22-22Bram Inc. is a family-owned company that reports using ASPE. It has a 30 June year-end. Bram has one primary and one secondary source of revenue. The
Fader Corp.’s 20X4 and 20X5 SFP and 20X5 SCI are as follows (in millions of dollars, except per share amounts):Required:Compute the 20X5 ratios that measure:a. Profitability (after tax only)b.
Bram Inc. is a family-owned company that reports using ASPE. It has a 30 June year-end. Bram has one primary and one secondary source of revenue. The company has never acquired another company, nor
The following information is available for Davison Ltd., a private company, for the year ended 31 December 20X6:Additional information:• The company has a $1,000,000, 10% bond outstanding. Each
Alpha Ltd. is considering building a second plant at a cost of $4,700,000. Management has two alternatives to obtain the funds: (1) sell additional common shares or (2) issue $4,700,000, five-year
Sandy Panchaud has come to you for some independent financial advice. He is considering investing some of his money in an operating company, and he wants to know which of the two alternatives he has
Frank Smythe, the owner of Cuppola Ltd., has asked you to compare the operations and financial position of his company with those of Ling Ltd., a large company in the same business and a company that
Clothing Stores Inc. has operating segments defined by geographic regions. Below is the information that was provided in the notes related to these segments:Required:1. What ratios can be calculated
Abacus Ltd. and Zandi Corp. are competing businesses. Abacus owns all of its operating assets, financed largely by secured loans. Zandi leases its operating assets from a major industrial leasing
The 20X9 condensed SCI and the 20X9 and 20X8 condensed SFP for Georgian Ltd. are shown below. All sales are on credit. The company’s income tax rate is 28%.Required:Compute the following ratios for
The condensed financial information given below was taken from the annual financial statements of Conter Corp.:Required:1. Based on the above data, calculate the following ratios for 20X4 and 20X5.
The table below shows selected information reported by a Canadian retailer during a five-year period:Required:Based on the data above, analyze the changes that have occurred over this five-year
The 20X5 comparative financial statements for Wilson Corp. reported the following selected information:Required:1. Based on the above financial data, compute the following ratios for 20X4 and 20X5:a.
Refer to the information provided in TR22-1 and in TR22-2. Data From TR 22-1Riyers Inc. has the following selected information for its years ended June 30:Required:Calculate the
Selected accounts from the SFP of ARM Co. at 31 August 20X3 and 20X2:Required:Calculate the debt to equity ratio for ARM. What has happened to the leverage of the company, and why? (in thousands of
SmartCo. has the following selected information for 20X6 and 20X7:The company pays taxes at the rate of 28%.Required:Calculate the times-debt-service-earned ratio for 20X6 and 20X7. Comment on what
Four-year comparative statements of comprehensive income and SFP for Firenza Products Inc. (FPI) are shown below. FPI has been undergoing an extensive restructuring in which the company has
Selected accounts from the SFP of SMI Ltd. at 31 December 20X8 and 20X7 are provided below:Required:Calculate the current ratio and quick ratio for SMI for 20X8 and 20X7. Comment on what the ratios
The following ratios are available for a three-year period for Woolfrey Ltd.:Required:1. Explain why the current ratio is increasing while the quick ratio is decreasing.2. Comment on the company’s
You are provided below with the 20X4 condensed SCI and the 20X4 and 20X3 condensed SFP for Hiro Corp.Required:1. Compute the ratios for 20X4 which are listed below. Round to two decimal places. Hiro
Peele Inc. has hired you as an analyst to assist with making an investment decision. The choice has been narrowed down to two companies, and a decision must be made on which of the two Peele Inc.
The following independent scenarios and questions are provided, which focus on the limitations of ratio analysis.Required:Consider each scenario and answer the specific related question.1. A lender
Consider the following three cases:Case 1 A company has four legal claims outstanding, each for $100,000. There is a 10% chance that one claim will be paid out, a 10% chance that two will be paid
Petunia Corp. engaged in the following transactions during the month of October. Petunia maintains a periodic inventory system.a. On 1 October, purchased inventory for resale with an invoice price of
1. Provisions include legal and constructive obligations.2. Amortized cost uses either effective interest method or straight-line method.3. The foreign currency gain or loss for a note payable is
Bertrand Inc. had the following liabilities at 30 April 20X1:A. Customer deposit liability (for future goods)B. One-year note payableC. Decommissioning obligationD. Cash dividends payable on
1. Provisions include legal and constructive obligations.2. Amortized cost uses either effective interest method or straight-line method.3. The foreign currency gain or loss for a note payable is
At the beginning of 20X4, Caprioli Tracking Corp. (CTC) had a deferred income tax liability on its statement of financial position of $60,000. The deferred income tax balance reflects the tax impact
Lu Ltd. has experienced the following accounting earnings and taxable income:The differences between accounting and taxable income are caused by differences between accounting and tax expenses that
Lopez Ltd. reports the following asset on the statement of financial position at 31 December 20X8:This asset reflects the benefit of a tax loss carryforward recorded in 20X7. It was not used in 20X8.
Bogdan Ltd. shows the following on its 31 December 20X4 statement of financial position:All this income tax liability relates to the difference between the NBV and UCC of property, plant, and
Simeoni Ltd. began operations in 20X5 and reported the following information for the years 20X5 to 20X9:The income tax rate is 40% in all years. Assume that Simeoni’s only depreciable assets were
Dynamic Ltd. reported the following 20X8 statement of profit and loss:Other information:a. There is an $80,000 accrued rent receivable on the statement of financial position. This amount was included
The Village Co. manufactures and sells television sets. The company recorded warranty expense of 2% of sales for accounting purposes. The following information is taken from the company’s books:Net
Truan Corp. reports a deferred income tax asset loss carryforward on the SFP at 31 December 20X3 in the amount of $668,800. The asset reflects the benefit of a tax loss carryforward recorded in 20X2.
Loo Corp. was incorporated in 20X5. Details of the company’s results are presented below:Required:1. Prepare journal entries for tax for 20X5, 20X6, and 20X7. Assume that realization of the benefit
Meroo Corp. reported a deferred income tax liability of $28,000 on its 31 December 20X7 SFP. The income tax liability relates entirely to the difference between the UCC and net book value of
In the years 20X4 through 20X6, Leader Corp. reported a total of $450,000 of taxable income. The enacted tax rate during those years was 38%. At the end of 20X6, Leader reported a deferred income tax
You are the new accountant for Evanoff Ltd. (EL). You have been asked to explain the impact of income tax on the financial statements for the year ended 31 December 20X5. You discover the
You were recently promoted to senior accountant at Y&G Partners Ltd. A new junior accountant has joined your team. He has noted the following questions after reviewing various company records:1.
The graph here reflects taxable income, accounting income, and deferred tax for Sima Corporation, a private company that adopts ASPE for financial reporting purposes and has chosen to use the future
Quality Cruises Ltd. (QCL) is a Canadian company that was formed 10 years ago but has only been marginally profitable. Recent severe losses have significantly reduced its equity base and made QCL the
Soccer Inc. (SI) is a public corporation incorporated in 20X2. SI operates a professional soccer team and related activities. New bank financing was obtained in 20X9 for the construction of a new
Burgher Ltd. had a taxable loss of $300,000 in 20X7. The tax rate in 20X7 is 32%. In the past three years, the company had the following taxable income and tax rates:There are no temporary
Kong Corp. reported the following items with respect to income tax in the 20X6 financial statements:The 20X6 statement of comprehensive income shows the following income tax expense:The disclosure
Colavecchia Ltd. had a taxable loss of $1,500,000 in 20X8. The tax rate in 20X8 is 28%. In the past three years, the company had the following taxable income and tax rates:There are no temporary
Petrilli Ltd. had a taxable loss of $3,500,000 in 20X8 and a further loss of $100,000 in 20X9. The tax rate in 20X8 was 32% and in 20X9, 33%. All rates are enacted in the year to which they pertain.
Downhill Ski Co. is experiencing financial difficulties. Earnings have been declining sharply over the past several years. The company has barely maintained profits over the last four years. In the
Landmark Corp. started operations in 20X6. The statements of comprehensive income for the first four years of operations reflected the following pre-tax amounts:There are no temporary differences
After utilizing any carrybacks, Nu Inc. had a taxable loss carryforward of $1 million in 20X9. The company is trying to determine if the “probable” condition has been met and if it should record
Halton Corp. reported pre-tax earnings from operations in 20X7 of $120,000 (the first year of operations). In 20X8, the corporation experienced a $70,000 pre-tax loss from operations.Future
Tyler Toys Ltd. reported the following:Required:1. Calculate taxable income each year, and tax payable. Tyler claims the maximum CCA each year.2. How much of the loss could Tyler use as a tax loss
Innis Corp. experienced an accounting and tax loss in 20X5. The benefit of the tax loss was realized in part by carryback. The remainder of the tax loss carryforward of $630,000 was not recognized
Cloud Corp. began operations in 20X8. In its first year, the company had a net operating loss before tax for accounting purposes of $200,000. Depreciation was $230,000, and CCA was $250,000. The
At the end of 20X8, Anderson Corp., a public company, had the following balances:In 20X8, the company had reported $1,350,000 of taxable income. It also reported a $550,000 long-term receivable,
Crandall Corp. was formed in 20X1. The company uses the comprehensive tax allocation method. Relevant information pertaining to 20X1, 20X2, and 20X3 is as follows:*Pension amounts are tax deductible
Zhang Ltd. reported earnings before income tax of $560,000 in 20X9. The tax rate for 20X9 was 30% and was enacted during the year. The enacted tax rate at the end of the previous year was 28%.At the
Behadrut Corporation uses IFRS for financial reporting. Information for 20X5 and 20X6 is provided below.Information relating to 20X5 is as follows:• The tax rate enacted in the year was 30%.•
Helon Corp. is a private company reporting under ASPE. Helon Corp. has selected to use the taxes payable method. Accounting income for 20X5 is $280,000. The following additional information is
Refer to the facts in A16-19.Data From A16-19In its first year of operations, Martha Enterprises Corp. reported the following information:a. Income before income taxes was $620,000.b. The company
Telo Corp. is a private company that uses the taxes payable method.The following information is available for 20X2:1. Income before income taxes was $1,300,000.2. The company paid a fine for late
Melik Ltd. engages in activity that qualifies for investment tax credits (ITCs) in 20X6. The company has a tax rate of 32% and deducts the deferred investment credit from the asset on the balance
Pegasus Printing began operations in 20X4 and has bought equipment for use in its printing operations in each of the last three years. This equipment qualifies for an investment tax credit of 14%.
Refer to the case facts in A16-21.Data From A16-21Diversified Ltd. (DI) is a public company that started operations in 20X4. It opened a number of locations across Canada. In fiscal 20X4, the company
The following are independent statements regarding corporate income taxes:1. The choice to adopt the taxes payable method or future income taxes method is available only under ASPE.2. If a private
Tempo Inc. is a Canadian company that has operations in Canada and Australia. One source of temporary differences relates to the warranty it offers on its core products.Required:What type of
Diversified Ltd. (DI) is a public company that started operations in 20X4. It opened a number of locations across Canada. In fiscal 20X4, the company had earnings before tax of $290,000. The tax rate
Moon Pacific Ltd. reported the following amounts on the 31 December 20X2 SFP (in thousands):Moon Pacific has material accounts receivable and purchase orders from customers that are denominated in
AZZY Ltd. issued preferred shares as part of a transfer of ownership under specified sections of the Income Tax Act. The company issued 400,000 shares, for a nominal dollar amount of $1 per share.
Laffoley Corp. needs to raise $10,000,000 to finance a planned capital expansion. The company has investigated two alternatives:1. Issue $10 million of preferred shares at par. The shares can be
Closed Tech Ltd. issued convertible bonds on 1 July 20X8. The 15-year, 5% $10,000,000 bonds pay interest semi-annually each 30 June and 31 December. At the investor’s option, each $1,000 bond is
Abbot Corporation is a real estate developer looking to build a new property in the Metro Vancouver area. In order to do so, they need to raise capital to finance the construction. The company has
SCIFI Ltd. issued convertible bonds on 1 February 20X6. The 5-year, 3% $8,000,000 bonds pay interest semi-annually each 31 January and 31 July. At the investor’s option, each $1,000 bond is
Description of several financial instruments follows:Case 1 Convertible subordinated bonds payable, entitled to annual cash interest at 5%, paid semi-annually. At maturity, the bonds may be settled
Mecca Energy Corp. issued a convertible bond on 1 August 20X9. The 10-year, 4% $12,000,000 bond pays interest semi-annually each 31 July and 31 January. At maturity, each $1,000 bond is convertible
Description of several financial instruments follows:Case 1 Class D Series 2 shares, carrying a dividend entitlement equal to $5 per share or an amount equal to common share dividends, whichever is
Pont Chemical Remediation Ltd. issued options in 20X6 allowing the holder to acquire 50,000 common shares in five years’ time at an acquisition price of $20 per share. Using an option pricing
Glamour Mining Ltd. currently has a debt to equity ratio of 2.5-to-1, based on $80 million of debt and $32 million of equity. The company is looking to raise $16 million in new financing and must
On 31 December 20X2, the shareholders’ equity section of Sersa Corp.’s statement of financial position was as follows:There were 46,000 share options outstanding, issued for legal services,
Shurwood Ltd. issued 5,000,000 8%, 10-year, nonconvertible bonds with detachable warrants for $5,100,000. Shortly after issuance, the warrants trade for $300,000 in total, and the bonds were trading
A description of several financial instruments follows:Case A Subordinated 8% debentures payable, interest payable semi-annually, due in the year 20X8. At maturity, the face value of the debentures
In 20X0 ten executive management were awarded units in a phantom stock plan. The plan entitles each executive to either 11,000 common shares or cash equal to the market value of 8,000 shares at the
Forgin Co. issued 500 common shares to We Can Advertize for advertising services. The shares currently are valued at $24 per share, and the advertising services rendered are valued at
Cruz Inc., a publicly traded company, had the following balances in its shareholders’ equity accounts at the beginning of 20X3:The following transactions took place during the year:1. At the
Marjorie Manufacturing Ltd. issued a convertible bond on 2 July 20X5. The $5 million bond pays annual interest of 8% each 30 June. Each $1,000 bond is convertible into 50 shares of common stock, at
Darling Petrol Corp. granted stock options to executives in early 20X1. The stock options vest over five years and expire after eight years. In total, the options allow the purchase of 400,000 shares
Smith Minerals Ltd. had compensation plans in effect for senior managers that included two longterm compensation elements. SFP accounts at the end of 20X6 are:Retention levels were estimated to be
IT Solutions Ltd. has a cash-settled SARs program for employees. These employees will receive a cash payment after five years of service, calculated as the excess of share price over $7.50. In early
On 1 January 20X4, Eledant Inc. issued a $9,000,000, 3-year bond that pays 7.5% for $9,400,000. The bond pays interest on 31 December each year. At the end of the term each bond can, at the

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