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intermediate accounting

Accounting 9th edition Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett - Solutions

This chapter has focused on Australian financial reporting as legislated by the Corporations Act. However, companies are increasingly prepared to disclose additional information beyond that required by legislation. These types of voluntary disclosures may include information about environmental
Advise Townsend on the most appropriate treatment in the financial statements for each of the above circumstances.Note particularly the definitions of income, revenue, gains, and expenses and losses contained either in the Framework or in IAS 18/AASB 118 Revenue.Terrific Town Houses Ltd is a large
The following unadjusted trial balance is for the year ended 30 June 2019:BILLY GOAT LTDUnadjusted Trial Balanceas at 30 June 2019DebitCreditBank overdraftVehicle rental expensesCash at bankInvestment in government bondsGoodwillInterest revenueInsurance expenseLandBuildingsOffice furniture and
The ledger balances of Outback Grande Ltd as at 30 June 2019 are shown below.The following adjustments are yet to be taken into the accounts:1. Inventory on hand at 30 June 2019 valued at $94 250.2. Allowance for doubtful debts to be increased to $1625, which was the balance of the
The trial balance of Le Max Ltd at 30 June 2019 was as shown below.LE MAX LTDTrial Balanceas at 30 June 2019DebitCreditShare capital (ordinary shares issued at $2, fully paid)General surplusRetained earningsRevaluation surplusMortgage loan (secured over land and buildings)Bank overdraft (at call)7%
Munce and Cassidy, the proprietors of a consulting business, decided to convert their business into a limited company known as Hawkspur Ltd. The following was the balance sheet for internal purposes at the date of the proposed conversion, 1 July 2018:mUNCE AND CASSIDYBalance Sheetas at 30 June
Dandino Ltd was formed on 1 March 2018 for the purpose of purchasing the business of Verama Ltd whose assets and liabilities at that date were as shown below.AssetsFreehold landBuildingsMachinerySuppliesAccounts receivableInventoryLiabilitiesMortgage payableAccounts
Royal Empire Ltd commenced trading many years ago. Equity at 30 June 2018 comprised:Share capital, 200 000 ordinary shares fully paid at $5General reserveRetained earnings$1 000 000335 000 171 500$ 1 506 500During the financial year ended 30 June 2019, the following
The equity of Fiorente Ltd at 30 June 2018 was:Share capital500 000 5% cumulative preference shares issued at $1 each1 000 000 ordinary shares issued at $2 each$500 0002 000 000Total share capitalGeneral reserveRetained
The following information relating to Mount Athos Ltd has been obtained from balance sheet as at 30 June 2018.Share capital$1 600 000General reserve492 000Retained earnings880 000In addition to the above, it is noted that during the year ended 30 June 2019:(a) 100 000
RUSCELLO LTDIncome Statement (Internal)for period ended 30 June 2019IncomeInterest on investmentsLess: Selling expensesAdvertisingSales salariesCommissionsLess: Administrative expensesRatesInsuranceAdministrative expensesOther administrative expensesLess: Finance expensesInterest expenseProfit
The equity of Kenselmac Ltd at 14 February 2018 consisted of:Share capital:800 000 shares (fully paid for $2)600 000 shares (paid to $1, issued at $2)General reservePlant replacement reserveRetained earnings$1 600 000600 000100 00050 000125 000The following
The following information relating to the year ending 30 June 2019 for Megathink Ltd has been obtained from the company’s records.General reserveGoodwillIncome tax expenseInterim dividends paidProfit for year before further adjustments and income taxRetained earnings (1/7/18)Revaluation
The following was obtained from the ledger of Valediction Ltd as at 30 June 2018:Share capital100 000 ordinary shares paid to 75c, but issued for $160 000 10% preference shares fully paid at $1Calls in advanceGeneral reserveRetained earnings 1/7/17Profit for year (before tax)Interim
The equity of Instrumental Issues Ltd at 30 June 2018 is as follows:Equity10% preference shares, cumulative and participating, issued at $5170 000 ordinary shares, fully paidRevaluation surplusRetained earnings$1 000 0001 020 000300 000 650
On 1 July 2018, the equity of Terravista Ltd was as follows:600 000 ordinary shares issued at $2.20General reserveRetained earnings$1 320 00050 000500 000During the year ended 30 June 2019, the following events affecting the company’s equity occurred:20188Aug.
The ledger of Elena’s Crystals Ltd at 30 June 2018 contained the following information:Sales revenueGain on revaluation of building (not sold)Interest revenueDonations receivedCost of salesSelling and distribution expensesAdministrative expensesFinance
The information relates to Treasure Cove Ltd for the year ended 30 June 2019.1.2.3.4.5.6.7.8.9.Profit before tax(This figure is before adjustments for points 4 and 5 are made.)Retained earnings 1 July 2018Revenues for the yearInterest expenseImpairment of goodwillTransfer to general
The following information was obtained for Lisa’s Fashionista Ltd for the year ended 30 June 2019:Administrative expensesCost of salesDividends declaredGain on asset revaluationGain on sale of machineryIncome tax expense for current yearLosses on investments in equity instrumentsNet sales
The summarised balance sheet of Magic Cadre Ltd at 30 June 2019 for presentation to management is: MAGIC CADRE LTDBalance Sheetas at 30 June 2019CURRENT ASSETSCash at bankAccounts receivable (net)InventoryAssets held for sale$158 00050 00085 000 15
The following information relates to Dunadeal Ltd at 30 June 2019:Share capital100 000 10% cumulative preference shares issued at $1 each200 000 ordinary shares issued at $1 each$100 000200 000General reserve (balance 1 July 2018)Retained earnings (balance 1 July
Determine whether the following transactions would appear in the statement of profit or loss and other comprehensive income. If so explain how they would be disclosed.(a) A gain on foreign currency translation of $83 000.(b) As a result of a fall in share prices in a recession, directors decided to
Are there any circumstances in which borrowing costs are permitted to be excluded from the statement of profit or loss and other comprehensive income? Explain.
For each of the following items state which financial statement(s) it would appear in:(a) Property, plant and equipment(b) Retained earnings(c) Gains on property revaluation(d) Cost of sales(e) Issue of share capital.
According to AASB 1039, in order to provide clear information to shareholders the concise financial report must disclose which of the following?(a) Gross profit(b) Dividends per share(c) Earnings per share(d) Sales revenue(e) Changes
Given that disclosing entities are required to comply with the accounting standards why are the figures in financial statements sometimes disputed? [Adapted from A Guide to Understanding Annual Reports, CPA Australia 2013).
Why do you think the AASB has introduced the reduced disclosure requirements for some entities?
What is the purpose of a statement of changes in equity? What is the connection between this statement and the other two financial statements discussed in this chapter?
Comment on why you think the accounting standards now require companies to separately disclose other comprehensive income.
What is meant by the all-inclusive concept of profit? Does IAS 1/AASB 101 Presentation of Financial Statements follow this concept in presenting a statement of profit or loss and comprehensive income? Explain.
A financial report must include ‘comparative figures’. What does this mean and can a company change these comparative figures in the following year? Discuss.
What items must be included in a company’s annual financial report?
Refer to the consolidated financial statements and notes in the latest financial report of JB Hi-Fi Limited on its website, www.jbhifi.com.au, and answer the following questions.1. Have the current liabilities of JB Hi-Fi Limited increased or decreased over the year? By how much? What classes of
Sharon Rock, assistant accountant for Brady Industrial Products, was discussing the finalisation of the financial statements of the business as at 30 June 2018 with the accountant of the business, Tim O’Shea. Both agreed that everything appeared to be in order. Sharon, however, had noticed that
In recent years a number of companies have gone into liquidation (been ‘wound up’) because they have not been able to meet their liabilities when they fell due. In Australia, there are some well-publicised examples such as ABC Learning, HIH Insurance, One.Tel phone company, Australian Discount
It has been argued that many companies’ profits are overstated because they fail to take into account the full cost of their operating activities. This is particularly relevant when considering the potential future environmental impact of both production and ultimate disposal of the items they
A. Would you support Laura in her approach to not providing for warranty costs on the 4D computers, and hence no provision at all for all products? Explain why or why not.B. Would you support Benji in his decision to set up a provision for warranty costs on the computers? How would you justify your
Tactix Ltd wishes to raise $2 500 000 to carry out construction work as part of a major expansion of its shopping mall operations. The directors decide to issue 10 000 $100 8% debentures, fully payable on application, with interest payable 6-monthly on 1 July and 1 January, and to borrow another $1
Barrett and Taylor Ltd completed the following selected transactions during 2018 and 2019. The financial year for the company ends on 31 December. (Ignore GST.)2018Jan.Feb.MarchAprilJuneJulyAug.Sept.Sept.Nov.Dec.657231515291019110Issued a 7% 60-day promissory note to Carter Ltd in settlement of an
Several potential investors have been studying the affairs of Pelican Corporation to decide whether to invest in the company by purchasing unsecured notes which the company was proposing to issue. There was some speculation that the company was experiencing liquidity problems. The statements of
Maryburn Imports Ltd has decided to purchase a new office building. It purchased land and a building for $5 250 000 on 1 December 2018. Agreed financing arrangements included payment of an initial deposit of 10% of the purchase price and the signing of a 7.5% p.a. mortgage contract which provided
Trend Promotion Ltd, which has been trading profitably for many years, is planning to expand the business to meet the increasing demand for its services. The issue price of all shares is $2.50. It plans to invest $8 000 000 to finance this expansion, and as a result achieve an increase in profit
Euro Classics Ltd has been operating a successful business for many years specialising in servicing and reconditioning repairs for classic European automobiles. Servicing costs $750, while reconditioning engines costs $1450. The business has a reputation for good customer service, an important
The following accounts and balances appeared in the ledger of Chafezz Accountants Ltd on 30 April 2018:Annual Leave PayableSick Leave PayableProvision for Long-Service LeaveTaxation OfficeSuperannuation FundMedical Insurance Payable$23 400 Cr16640 Cr89625 Cr32210 Cr8600 Cr1 480 CrThe
The following information is used to calculate Cleaning Capers Ltd’s payroll for the week ending 30 June 2018.EmployeeGross paySalary sacrifice — donationsV. GribbenD. MitchellF. SpeightP. Aiken95212402 180123020405030Employees’ superannuation contribution is 9% of their gross pay. PAYG
Latte Services Ltd has three employees. Their employment contracts entitle them to 13 weeks leave after 10 years of service. Refer to the following information about each employee at 30 June 2018:EmployeeCurrent salaryYears serviceNathanLucyAva70000115000190000248Assume salaries are not expected to
The following information is available for Mods Media Ltd.20182017Total assetsTotal liabilitiesShare capitalRetained earnings$1 630000900000365000365000$1 725000850000480000395000RequiredA. Calculate the following ratios for 2017 and 2018:1. Debt ratio2. Equity ratio3. Capitalisation
The following information has been extracted from the financial statements of Blue Hills Ltd.20182017Cash at bankMarketable securitiesAccounts receivableInventoryPrepaid expensesPlant and equipmentAccounts payableBills payableAccrued
Ensign Plus Ltd have recently purchased new premises in order to expand their inventory space. The cost of the premises was $1 280 000 and on 1 November they financed the purchase with a 7% loan to Hermitage Bank to be paid off over five years. Ensign paid a cash deposit of $350000 and the
The following information relates to a debentures issue of Justice Ltd dated 1 January 2017:Date issuedNominal valueStated interest rateInterest payment datesTerm to maturityCash received from the issue1 January 2017$10008%30 June and 31 December8 years$500000The company’s financial year-end is
On 1 June, Sea Fare Enterprises received authorisation from its board of directors to issue $1 500 000 of 6% 10-year debentures dated 1 July. Interest is payable half-yearly on 31 December and 30 June each year.RequiredA. Record the issue of the debentures in general journal entry
At 30 June 2018, Ting Sun Electronics adjusted its Provision for Warranties so that it would be equal to 5% of sales for the year ended on that date. Sales for the year ended 30 June 2018 were $1600000 and the Provision for Warranties before the adjustment was $47000. On 6 October 2018, a
On 21 November, the weekly payroll register of Python Ltd showed gross wages and salaries of $87000. The organisation withheld $20 880 for income tax, $1670 for life insurance, $2500 for medical insurance premiums, and $8700 for superannuation deductions made on behalf of employees. Prior to this
At 30 June 2018, the accountant for Braxton Brewery, Sue Robertson, is preparing the financial statements for the year ended on that date. To calculate the annual leave payable, the accountant had gathered the following information on employee annual salary weeks leave outstanding:EmployeeAnnual
The following were among transactions of Raven Industries Ltd during the financial years ending 30 June 2017 and 30 June 2018.2017MarchMayJuneJuly130131Raven Industries Ltd discounted its own 90-day bill of exchange made out to the International Bank. The face value of the bill was$360000 and the
Aspire Services Ltd made the following transactions during July 2018.2018JulyJulyJulyJulyJuly1215263031Credit sales GST inclusive $4840.Cash sales GST inclusive $1320.Purchased supplies on account GST inclusive $1760Credit sales GST inclusive $5060Paid GST due to Australian Tax Office.RequiredUse
Classify each of following items as a contingent liability, a provision or neither.An unresolved lawsuit against the entity for copyright infringement.Allowance for doubtful debts.An arrangement to pay a bonus to salespersons for achieving sales over $50 000.Refurbishment costs of a machine that
How would each of the following liabilities be classified (current, non-current, or both) at the end of the financial year?Unearned revenueAccrued expensesProvision for warranty repair costs10-year debentures (after 5 years)Mortgage loan (15-year)Annual leave payableProvision for long-service
What is leasing? Why might an organisation decided to lease an asset rather than purchase it?
The debt ratio is the inverse of the equity ratio. If the company increases its level of leveraging what will the effect be on the equity ratio?
‘GST Payable should be treated a revenue account for the entity.’ Discuss.
A company issues debentures at 10%, the market rate at that time. What effect would an interest rate rise have?
If a company is regarded as solvent, then it can be concluded that the company has no liquidity problems. Discuss.
A family company, which had been operating successfully for five generations, continues to maintain a policy of raising money only through equity finance and never through debt. Discuss the advantages and disadvantages of adopting this policy. Would you recommend a continuation of this policy?
With reference to the Conceptual Framework, explain why future warranty costs should be recognised as a liability in the statement of financial position in the current period.
Your accounting lecturer remarked: ‘The journal entries necessary to record the expense and liability in accounting for long service leave can be easily and logically derived. However, deciding when to record such entries and the dollar amount involved is problematic.’ Discuss.
‘Employees often fail to appreciate the true cost of their employment‘. Discuss.
‘The accounting treatment for a provision and a contingent liability is the same.’ Discuss.
‘Classification of liabilities as current or non-current is not that important. The money is paid out eventually anyway, so what’s the big deal? Discuss.
‘Classification of liabilities is based on the same principles as the classification of assets.’ Do you agree with this? Why or why not?
Refer to the consolidated financial statements and their notes in the latest financial report of JB Hi-Fi Limited on its website, www.jbhifi.com.au, and answer the following questions.1. Were any items of property, plant and equipment revalued by the entity during the current
GeneTech Ltd is a biological research company that is developing gene technology in the hope of finding a vaccine for skin cancer. During the last financial year, GeneTech Ltd spent $1.2 million on research. The scientists involved in the project believe they may be on the right track with the
On 1 January 2016, Good Ltd acquired a block of land for $100000 cash, and on the same day Better Ltd purchased the adjacent block, which was virtually identical to the block purchased by Good Ltd, also for $100000 cash. Both companies intended to construct industrial warehouses on these
A. Calculate the selling price being asked by each business and the purchase price offered by Sharp Photographics. Should each business sell out to Sharp Photographics?B. The sale between Sharp Photographics and Framers & Son went ahead at the negotiated price; and the eventual sale price of
On 1 July 2016, Frewville Ltd acquired the assets and liabilities of Glenunga Ltd. The assets and liabilities of Glenunga Ltd consisted of:Carrying amountFair valuePlant A (cost $840000)Plant B (cost $680000)Furniture (cost
Coomans Ltd, which started operations on 1 October 2013, prepared the following account balances as at 30 June 2016:Machinery (at cost)Accumulated Depreciation – MachineryVehicles (at cost; purchased 20 February 2014)Accumulated Depreciation – Vehicles$310000170 50016000059 200Details
Bittoto Ltd has four different intangible assets at the end of 2016. Facts concerning each are:1. Franchise. On 2 January 2016, Bittoto Ltd purchased a franchise to distribute a new product for a 10-year period with no right of renewal. Cost of the franchise was $860 000.2.
Adam Hamilton, who recently won a major prize in a lottery, left his coaching job to invest in a business of his own. He found what he believed was an ideal business for his background, Glenside Gym, which had been earning an average profit of $70000 per year over the last 4 years.Adam has a copy
The following transactions and events affected the accounts of Heritage Ltd for the current year (ignore GST):1. On 3 January of the current year, Heritage Ltd paid $110000 in legal fees for the successful defence of a patent infringement suit.2. A patent with a useful life of 10 years
On 1 January 2014, Nicolaidis Ltd purchased two identical new machines at a total cost of $700 000 plus GST. It was estimated that the machines would have a useful life of 10 years and a residual value of $50 000 each. Nicolaidis Ltd uses the straight-line method of depreciation for all of its
Opposite are extracts from the financial reports of Wollowiec Traders Ltd for the years ended 30 June 2016 and 30 June 2017.WOLLOWIEC TRADERS ltdStatement of Financial Position (extract)as at 30 June 2016NON-CURRENT ASSETSLandBuildingLess: Accumulated
The following errors were discovered during the current year.1. A machine with a cost of $33500 and accumulated depreciation to the date of sale of $24000 was sold for $9000. The sale was recorded by a debit to Cash at Bank and a credit to Machinery for $9000.2. Depreciation of machinery,
On 1 January 2014, Martini Ltd bought a machine for $109000 cash; its useful life was 12 years and its residual value was $13 000. It was decided to depreciate the machine by the straight-line method. On 30 September 2016, the machine was traded in to Lowe Ltd for a new model, the total cost being
The beginning balance in the Machinery control account and Accumulated Depreciation account, and dates in the accounts for various machinery acquisitions and disposals during the year by Liu Ltd are presented below:Liu Ltd records depreciation to the nearest month.At 1 January 2016, the company
Khan Ltd entered into the following transactions during the year ended 31 December 2016. Ignore GST. Jan.Mar.AprilJulySept.Oct.Dec.4301113131Sold for $17600 a machine that had cost $35000 on 2 January 2013. The machine’s useful life and residual value were 5 years and
Jaensch Ltd reported the following non-current assets at 30 June 2016:LandBuildingsLess: Accumulated Depreciation – Buildings$42000000 19 400000$ 4 80000022600000EquipmentLess: Accumulated Depreciation – Equipment65000000 1000000055000000Total non-current
Hanxhari Ltd has a policy of revaluing its motor vehicles to fair value. The details at 30 June 2017 relating to Hanxhari Ltd’s motor vehicles, which had previously been revalued upwards by $7000, are as follows:Motor vehiclesLess: Accumulated depreciation$88000 22000$66000At the date
On 2 January 2015, Gormly Ltd purchased a machine for $165 000. The machine had a useful life of 5 years and a residual value of $5000. Straight-line depreciation is used. The machine is to be disposed of on 1 July 2019. Ignore GST. Gormly Ltd balances its accounts on 31 December.RequiredA.
Deduhin Ltd acquired two new machines for cash on 1 January 2014. The cost of machine A was $400 000, and of machine B, $600 000. Each machine was expected to have a useful life of 10 years, and residual values were estimated at $20 000 for machine A and $50 000 for machine B.Because of
The following information was obtained from the accounting records of Crothers Ltd.Vehicle AVehicle BVehicle CAcquisition dateCostResidual valueUseful life (in years)Depreciation method1 July 2015$30800$20005Straight-line1 July 2016$28800$24006Straight-line1 July
Zhang Ltd acquired the business of Azzam Ltd for a cash outlay of $5 000000 on 1 July 2016. The summarised balance sheet of Azzam Ltd on that date was as follows:AZZAM LTDSummarised Balance SheetAs at 1 July 2016AssetsCash at bankAccounts receivableInventoriesLandPlant and equipment (net)$
On 30 June 2016, Wong Ltd reported the following information for equipment in its statement of financial position:Equipment (at cost)Accumulated depreciation$1400000 520000$ 880000Investigation of the property and plant records showed that the equipment consisted of two items: a
On 1 July 2016, Weiland Pty Ltd owned several farming vehicles that had cost a total of $155 000. Accumulated depreciation on these vehicles to 1 July 2016 amounted to $73 000.On 30 September 2016, Weiland Pty Ltd acquired a new delivery vehicle and traded in one vehicle that had cost $32 000 and
During 2016, Truong Ltd disposed of four different non-current assets. On 1 January 2016 the accounts showed the following:AssetCostResidual valueUseful lifeAccumulated depreciationMotor vehicle No. 3Motor vehicle No. 7Machine AMachine D$3600052000180000280000$6000 7000 8000
Sage Ltd is considering the purchase of Rosemary Ltd, which produces a product that Sage Ltd uses in its manufacturing process. Relevant data for Rosemary Ltd are:Fair value of identifiable assetsFair value of identifiable liabilities$1 800000720000RequiredA. Determine the price Sage Ltd would
Reipl Ltd uses the composite-rate method to record depreciation of its store equipment. On 1January 2016, the company owned the following store equipment (ignore GST):ItemCostResidual valueUseful lifeDisplay casesCash registersShopping trolleysShelvingDisplay racks$ 73000280003000030000
Miyazono Ltd, which operated a silver, lead and zinc mine, was purchased by Pagnozzi Ltd for $112000000 (residual value $10000000). It is estimated that the mine will produce 25million tonnes of ore. Mining equipment with a useful life of 12 years was installed at a cost of $6 000000. Extraction of
On 1 January 2013, Leibhardt Ltd acquired two identical pieces of equipment for a total cost of $540000 plus GST. It was estimated that each item would have a useful life of 8 years and a residual value of $40000 each. The company uses the straight-line method of depreciation and its end of
Kapor Ltd exchanged machinery with a cost of $350 000 and accumulated depreciation of $180 000 for a parcel of land. There were no other assets given in exchange. Ignore GST.RequiredPrepare general journal entries to record the exchange assuming:1. the trade-in value of the machinery
On 3 January 2016, Greskowiak Ltd exchanged a machine with a cost of $430 000 and accumulated depreciation of $150 000 for a new similar machine with a cash price of $460 000. Ignore GST.RequiredA. Prepare general journal entries to record the exchange of the machines, assuming a trade-in allowance

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