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business
intermediate accounting

Intermediate Accounting 3rd Edition Vol. 1 Kin Lo, George Fisher - Solutions

Dudas Inc. sold a division of its business in 2017. Pertinent details follow:Required:Prepare the journal entry to record the sale of the assets assuming that Dudas Inc. uses the net method to record intangibles. Segregate the gain or loss on the sale into its component parts, for example, arising
Axo Mirth Company paid $24 million to purchase a drug patent on April 1, 2013. At the date of purchase, the patent remained valid for another 12 years. In 2015, the company spent $4 million to successfully defend the patent, with the case closed on September 30, 2015. The company has a December 31
a. Complete the table below to indicate whether the intangibles listed are amortizable assets as they have a finite life; are not amortized as they have an indefinite life; or may be either depending on the nature of the agreement.b. Provide a brief explanation of the determining factors to be
Simple Value Limited (SVL) was incorporated on January 1, 2013, when the sole shareholder invested $1,000,000. This is the only financing the firm needed. SVL has a single project that it developed over four years. Below are details of the four years of operations. SVL used $900,000 of the funds to
Below are several intangible assets.a. A firm purchased a famous luxury good’s brand name for $50,000,000. The firm has the exclusive right to use this name forever.b. Over the years, by consistently promoting its products’ excellent features and high quality, a firm developed a reputation that
Clare Cherry Cola (CCC) is a privately held soda company specializing in the manufacturing and distribution of soda across Canada. CCC is a fairly new entrant to the market, incorporated in 2008, but it has been doing well in the last few years, expanding to new markets across Canada and showing
You have recently been hired by International Products Inc.’s (IPI) internal audit department and are sitting in your office planning for your upcoming meeting with the head of internal audit. It is January 20, 2014. You just returned from a week visiting Air Technologies Ltd. (Air), IPI’s
Autotech Corp. (Autotech) is a federally incorporated public company formed in 2009 to manufacture and sell specialty auto products including paint protection and rust proofing. By 2013, Autotech€™s board of directors felt that the company€™s products had fully matured and that
Refer to the 2013 financial statements for Canadian Tire Corporation in Appendix D.Required:a. Which measurement basis does the company use for its PPE (cost or revaluation)? Where in the annual report does the company disclose this choice? What reason does the company provide for this choice?b.
Obtain the 2013 financial statements for Thomson Reuters Corporation either from the company’s website or from SEDAR (www.sedar.com).Required:a. What are the major categories of PPE that the company owns?b. On what basis does the company report its PPE (cost or revaluation)? What method of
Pebble Pasta Corporation (PPC) recently decided to add a new line of sauces to its product mix. To do so, it had to acquire new equipment for a new assembly line. The following costs were incurred in early 2017 relating to the assembly line: The mixing machine and the packaging machine are both
Quitzau Fishing Corp. (QFC) received a parcel of undeveloped land from another company in exchange for $45,000 cash and a second-hand forklift used in production. The fair values of the forklift and land have both been reliably measured. Pertinent details of the exchange follow:Historical cost of
Lela Corp. purchased land and buildings in 2015 for $4,000,000. $1.4 million of the purchase price was allocated to land, the balance to buildings. At the time of purchase it was estimated that the building would have a useful life of 30 years but no residual value.In 2024, Lela Corp. exchanged the
Josh Inc. paid $2,400,000 cash for equipment on May 8, 2015, and immediately brought it into use. At the time of purchase it was estimated that the equipment would produce 4,000,000 casings over its useful life of five years and have a residual value of $600,000.On August 1, 2019, the equipment was
Taya Ltd. purchased equipment in February 2016 for $200,000. At the time of purchase it was estimated that the equipment would have a useful life of four years with no residual value. In September 2018, the equipment was destroyed in a flood. In February 2019, Taya Ltd. received an insurance
Below are two cases related to the depreciation of plant and equipment. In both cases the company has a December 31 year-end.Case A: A machine was acquired on January 1, 2017, for $4,000,000. At that time it was estimated the machine would last eight years and have a residual value of $500,000. The
Fresh Juice Company installed a new juice press for $1,000,000. The company expects to use the press for 10 years, after which it can be sold for proceeds of $200,000. Management believes that the double-declining-balance method of depreciation is appropriate. After six years the company reassessed
Golden Bakery acquires a delivery truck for $60,000 and anticipates using it for eight years, at which time it will have logged 500,000 kilometres. Currently, market conditions suggest that a used truck with 500,000 kilometres on the odometer sells for $4,000. The company anticipates using the
In January 2016, JN Norman Inc. (JNN) purchased and installed production equipment. It was first available for use on March 1, 2016. JNN has a December 31 year-end and accounts for partial years using the number of months that the asset is available for use. The following data were available for
At December 31, 2017, the following data were available for a building owned by NU Company:Building cost ........................................................................................ $800,000Accumulated depreciation—building ............................................
At the beginning of the year, RU Company purchased a machine that cost $200,000. It has an estimated four-year life and a residual value of $20,000. The machine is expected to be used for a total of 6,000 hours over the four years. During the year, it was used for 1,720 hours.Required:How much is
On April 1, 2018, STV Company acquired $30,000 of furniture. The furniture is expected to last 10 years with no residual value. STV uses the double-declining-balance method and fractional year depreciation based on the number of months.Required:What would be the depreciation expense for the year
Van Deerman Inc. acquired various assets from a business in financial distress. Details of the assets acquired and elated outlays follow:Asset category
Acorn Mines began developing an open pit copper and zinc mine in northern Ontario in April of 2014. As part of the regulatory approvals to develop and to extract minerals from the site, the company committed to restore the mine site. Given the nature of open pit mining, it is not possible to fully
Abacus Energy drilled a natural gas well in northern Alberta and began producing from the well immediately. The company’s geological engineers estimate that the well will be productive for 10 years. Environmental regulations require the company to restore the well site to its original state at
Eeyore Toys made significant renovations to one of its retail stores. Total costs of the renovation were $800,000 completed over six months ending October 31, 2014. The company financed the renovation costs with a short-term bank loan with a 6% interest rate. The company received the $500,000
Dolan Enterprises constructed a new warehouse for its distribution facility. The construction period began on May 1, 2014, and continued until October 31, 2015. Dolan began operating the warehouse on January 1, 2016. Material and labour costs totalled $5 million. Payments for these costs were made
MINID Property Corp. (MINID) is a publicly held real estate company in Canada, specializing in retail real estate property. The company took advantage of the economic downturn and purchased several investment properties in the United States over the fiscal year of 2013. The following were the
Joliet Co. Ltd. was incorporated on January 2, 2018, but was unable to begin manufacturing immediately. The new factory facilities became available for use on July 1, 2018.During the start-up period, the company provisionally used a ??Land and factory building?? account to record the following
Dunstan Electric Inc. is a private company specializing in the sale of high-end home appliances and consumer electronics with over 40 stores across Canada. Dunstan Electric is known for its guaranteed delivery within 24 hours. The company has been owned and operated by the Dunstan family for over
Bedrock Quarries Ltd. (Bedrock), wholly owned by Betty Rubble, has operated a sand and gravel pit since 1992. During that time, its revenues have increased moderately. On March 15, 2015, after almost two years of negotiation, a purchase and sale agreement between Flintstone Sand and Gravel Ltd.
On January 1, 2013, Bamfield Company purchased bonds with a maturity value of $10,000 for $9,147. These bonds have a 4% per year coupon rate payable semi-annually on June 30 and December 31. The bond matures on December 31, 2017. On January 1, 2013, the market yield for bonds of equivalent risk and
Refer to the facts in problem P7-36.Data from 7-36.Armstrong Corp. purchased a bond with a maturity value of $10,000 payable in five years. These bonds have a 6% coupon rate payable annually. Armstrong paid $10,890 for these bonds, giving a yield of 4%.Required:Using the straight-line alternative
During 2016, Heather Ltd. purchased 6,000 shares of Oaktree Corp. for $31 per share ($186,000 total). Heather held these shares until September 2018, when it old them for $36 per share. During these three years, Oaktree paid dividends of $1 per share on July 31. On Heather’s fiscal year-end
Refer to the facts presented in problem P7-30.Data from P7-30Laurel Ltd. has a December 31 fiscal year-end. During 2017, the company purchased 15,000 shares of Pinegreen Company for $4.40 per share ($66,000 total), and sold these shares in 2020 for $5.60 per share. Pinegreen declared and paid
Laurel Ltd. has a December 31 fiscal year-end. During 2017, the company purchased 15,000 shares of Pinegreen Company for $4.40 per share ($66,000 total), and sold these shares in 2020 for $5.60 per share. Pinegreen declared and paid dividends of $0.10, $0.20, and $0.30 per share at the end of 2017,
Refer to the facts in problem P7-21.Data from P7-21On January 1, 2016, Ganges Marine Supplies purchased a Government of Canada bond at par for $5,000. The bond has an interest rate of 4% and matures in three years. By December 31, 2016, market interest rates had increased such that the fair value
On January 1, 2016, Ganges Marine Supplies purchased a Government of Canada bond at par for $5,000. The bond has an interest rate of 4% and matures in three years. By December 31, 2016, market interest rates had increased such that the fair value of the bond decreased to $4,900. The fair value of
Refer to the facts presented in problem P7-19.Data from P7-19On January 25, 2017, Douglas Ltd. purchased 1,000 common shares of BMO (Bank of Montreal) for $65 each. During the remainder of 2017, Douglas received $2.80/share in dividends and BMO’s earnings per share were $5.30. The closing
On January 25, 2017, Douglas Ltd. purchased 1,000 common shares of BMO (Bank of Montreal) for $65 each. During the remainder of 2017, Douglas received $2.80/share in dividends and BMO’s earnings per share were $5.30. The closing price of the shares on the fiscal year-end date of December 31,
On January 1, 2017, Sunshine Ltd. acquired 30% of the outstanding ordinary shares of Moonbeam Inc. for $270,000 and now has significant influence over the investee. The fair value of Moonbeam€™s net identifiable assets at acquisition date was $900,000. Pertinent information
On January 1, 2016, Arch Ltd. purchased 30% of the common shares of AP Inc. for $1,700,000. In 2016, AP reported net income of $880,000 and paid dividends of $600,000.Required:a. Which of the following conditions must be met for Arch to use the equity method to report its investment in AP?i. Arch
Refer to the facts set out in P7-13 above and consider the following additional information:a. On July 1, 2018, ICI received a $43,750 interest payment on the Zoe Corp. bonds. The next interest payment is due on January 1, 2019.b. On September 30, 2018, ICI received a $3,750 dividend on the Bleay
On January 1, 2018, Investor’s Club Inc. (ICI) made a number of non-strategic investments detailed below:a. The company acquired 100,000 ordinary shares in Norman Inc. for $5 cash per share plus a $10,000 transaction fee. ICI’s management did not make any specific election with respect to the
Consider the eight investments listed in problem P7-9.Data from P7-9.Consider the following eight investments.a. Investment in 500 shares of Bank of Montreal: Management believes the shares are currently under priced.b. Investment in bonds maturing in two years: Management made the purchase to park
Consider the following eight investments.a. Investment in 500 shares of Bank of Montreal: Management believes the shares are currently underpriced.b. Investment in bonds maturing in two years: Management made the purchase to park idle cash until after two years, when it will make a major capital
Consider the six investments listed in the problem P7-7.Data from P7-7.Consider the following six investments:a. Atlantic Company buys 5,000 common shares of a publicly traded company that has 200 million shares outstanding.b. Beetleweed buys $20,000 in bonds maturing in five years.c. A bank lends
Consider the following six investments:a. Atlantic Company buys 5,000 common shares of a publicly traded company that has 200 million shares outstanding.b. Beetleweed buys $20,000 in bonds maturing in five years.c. A bank lends $400,000 to a person to purchase a home.d. An exporter enters into a
For each of the following financial asset classifications shown in the left column, identify the combinations of (i) the type of financial instrument in the middle column that can be put into that classification and (ii) the business model that would lead to that classification. Accounting
Luca Merchandising Inc. (LMI) is a privately held import and export company located in Montreal considering going public in the next fiscal year. The company decided to purchase shares in two companies, Terra Nova Inc. (TNI) and McBeal Ltd. (ML). Information related to these investments is as
Obtain the 2013 financial statements for Teck Resources Limited from the company’s website or from SEDAR (www.sedar.com).Required:a. How much in inventory did the company have at the end of 2013? What four components comprised this amount?b. The company separately reported the current and
Obtain the 2013 annual report for Bombardier Inc. from the company’s website or from SEDAR (www.sedar.com).Required:a. How much in inventories did the company have at the end of 2013? What three components comprise this mount?b. How does the company determine the amount for work in progress on
Obtain the 2011 annual report for Canadian Tire Corporation from the company’s website or from SEDAR (www.sedar.com).Required:a. Which types of inventories does the company have (raw materials, work in process, finished goods)?b. What does the company include in inventory cost?c. Which cost flow
Oculus is a proprietorship that produces a specialized type of round window. It is after the fiscal year-end for 2019, and the owner has drafted the financial statements for the business for presentation to the bank and for tax purposes. The following provides a summary of those financial
In early 2019, Darwin’s Pet Shop discovered that some of its inventory of dogs were not what the supplier purported them to be. More than 300 puppies that were supposed to be purebred (and therefore expensive) were in fact sired by parents with unknown history. As at the fiscal year ended
Comfy Feet manufactures slippers. In 2017, the company hired a new bookkeeper who did not have appropriate training. The bookkeeper charged to “production expense” all of the following costs for manufacturing 70,000 pairs of slippers:Raw materials
A manufacturer produces two products: Grimmets and Hokeys. Information on these products along with their raw material inputs and costs incurred to convert the raw materials into finished products are below:Required:Evaluate these inventories to determine the amount of write down, if any. Inventory
Refer to the facts in Problem 6-29.Data from 6-29.Assume that GFF uses a perpetual inventory system and the weighted-average cost flow assumption to account for its inventory. All purchases were made on account; all sales were for cash. GFF€™s supplier offered terms of 2/10, net 30. GFF
GFF€™s inventory records included the following information regarding one of its product lines for the month of August 2018:Required:Calculate the dollar amount of ending inventory and cost of goods sold under each of the following cost flow assumptions:a. First-in, first-out, periodic
Holden Inc. sells one major product. Purchase prices have been rising steadily for this product for several years. Which of the following inventory costing methods would tend to provide the lowest year-end inventory value? Explain your answer.a. First-in, first-out, perpetual systemb.
Ferro Ltd. began operations on January 1, 2018. Merchandise purchases and four alternative methods of valuing inventory for the first two years of operations are summarized below:Required:a. Which of the four methods listed above does not apply matching? Briefly explain.b. Determine the cost flow
Refer to the information in problem 6-22. Assume that the company uses a periodic inventory system and counts inventory at the end of each month.Data from 6-22.Required:Using the LIFO cost method that is commonly used in the United States, compute the amount of cost of goods sold for the quarter
Refer to the information in problem P6-22. Assume that the company uses a periodic inventory system and counts inventory at the end of each month.Data from P6-22.Required:Using the weighted-average cost method, compute the amount of cost of goods sold for the quarter ending March 31 and the cost of
Consider the following inventory information:Required:Using the first-in, first-out (FIFO) method, compute the amount of cost of goods sold for the quarter ending March 31 and the cost of inventory on March 31. Cost per unit # Units $5.00 Beginning inventory, January 1 3,000 Purchase, January 4
Formula Fabricating Inc. (FFI) is a publicly reportable enterprise. At the beginning of the year, FFI did not have in inventory any completed units or work in progress. However, it did have $20,000 in raw materials inventory. Extracts from the company’s general ledger as at the December 31
One of Zoe Inc.€™s suppliers was going out of business. Zoe agreed to purchase the supplier€™s remaining inventory stored in the spa manufacture€™s warehouse for $1.7 million cash plus 10% HST (harmonized sales tax). Zoe also paid a shipping company $30,000 to deliver
James Television Inc. (JTI) is a privately owned television wholesaler located in Yellowknife that specializes in selling high-end Japanese televisions to retailers. It has been in business for 10 years and has been recording increasing profits for the last five years. Its inventory information for
Mountain Mines Lubrication Ltd. (MML) supplies lubricant to mining operations in northern British Columbia and the Northwest Territories. MML commenced operations four years ago and is based in Prince George, British Columbia. MML has two lubricant products: Slip Coat and Maximum Guard.
Refer to the facts in problem P7-38.Data from P7-38On January 1, 2013, Bamfield Company purchased bonds with a maturity value of $10,000 for $9,147. These bonds have a 4% per year coupon rate payable semi-annually on June 30 and December 31. The bond matures on December 31, 2017. On January 1,
On January 1, 2018, Dudas Inc. paid $917,783 plus a $5,000 transaction fee to acquire $1,000,000 in bonds that mature in 10 years. The bonds pay interest annually at 4.0% per annum on December 31. Dudas Inc. classifies its investment as a financial asset at amortized cost, which is in keeping with
Barb Lee Inc. (BLI) is about to reconcile its bank statement for the month of May 2018. Pertinent information follows:Bank statement balance $11,003.74.General ledger balance $8,284.07.BLI mailed a deposit of $899.14 to the bank on May 28. The bank had not yet received it by month end.BLI issued
Refer to the information in the previous problem (P4-31). Complete the question assuming that Hornby Construction Company uses ASPE and applies the completed contract method. 2011 2012 2013 Cost incurred to date Estimated costs to complete Cumulative billings to Ladysmith $ 150,000 1,350,000
There are a variety of rankings for educational institutions and programs around the world. Among them are university rankings by Times Higher Education (www.timeshighereducation.co.uk) and Academic Ranking of World Universities (www.arwu.org). For business schools specifically, the popular
For each concept in the following table, identify whether the concept relates to (i) representational faithfulness, (ii) recognition, or (iii) measurement. Representational faithfulness Recognition Concept Measurement Current cost a. b. Completeness Historical cost C. Revenue recognition d.
Explain why signalling needs to be costly to be credible. When would a company need to engage in such signalling?
Refer to the annual report for Canadian Tire Corporation for the fiscal year ended December 31, 2013, in Appendix D.Required:a. How much did the company have in cash and cash equivalents at the end of 2013? What is peculiar about this amount in the context of IFRS requirements?b. How much, if any,
Obtain the annual report for Air Canada for the fiscal year ended December 31, 2013, either through the company’s website or through SEDAR (www.sedar.com).Required:a. How much did the company have in cash and cash equivalents at the end of 2013? Of the amount in cash and cash equivalents, how
Obtain the annual report for Encana Corporation for the fiscal year ended December 31, 2013, either through the company’s website or through SEDAR (www.sedar.com).Required:a. How much cash did the company not include in “cash and cash equivalents” on the balance sheet at the end of 2013?b.
On January 1, 2018, Hicks Corp. sold inventory costing $32,000 and received $6,000 cash and a $40,000 promissory note. The five-year note was repayable at $8,734 per annum including interest at 3%. The market rate of interest for similar transactions was 7%. The first payment was due on January 1,
Evans Shielding Products (ESP) uses the aging method for its accounts receivable. On January 1, 2017, the balance in the allowance for doubtful accounts was $20,000. For the year ended December 31, 2017, ESP made $1,942,000 of credit sales, wrote off $75,000 of accounts as uncollectible, recovered
Wahlberg Design Partners (WDP) uses the aging method for its accounts receivable. On January 1, the balance in the allowance for doubtful accounts was $25,000. For the year, WDP made $2,560,000 of credit sales, wrote off $50,000 of accounts as uncollectible, and $850,000 remained outstanding at
Verdant Vines specializes in cultivating rootstock for grape vines. The company sells to both vineyards and consumers. At the beginning of the year, the company had $120,000 in accounts receivable before netting out $17,000 of allowance for doubtful accounts. At the end of the year, the
Upsidedown Cake Company produces dessert products for sale in grocery stores, but it also has a retail location. At the end of 2018, the company had $349,000 in accounts receivable before netting out $6,000 of allowance for doubtful accounts. At the prior year-end, the corresponding amounts were
At the end of the 2018 fiscal year, Reversiflex Filing Company reported net accounts receivable of $755,000 and allowance for doubtful accounts of $15,000. At the following year-end, the corresponding figures were $649,000 and $13,000, respectively. During 2019, the company had credit sales of
Stanger Corp.€™s December 31, 2018, year-end unadjusted trial balance showed the following amounts:Stanger Corp. estimates the following percentages of accounts receivable will not be collectible:Required:a. Calculate the total bad debts expense for the year ended December 31, 2018.b.
Grayson Co. (GC) uses the percentage of sales method for estimating bad debts for monthly reporting purposes. On January 1, 2017, the allowance for doubtful accounts balance was $5,000 Cr. GC had credit sales of $100,000 for the month of January, and, in the past, 1.5% of credit sales have not been
The opening vignette in this chapter mentions the significant amount of cash held onsite at casinos. Relating to this cash, it is commonly asserted that video cameras are the most basic level of security. For example, www.gamblinginfo.com indicates the following:“Casinos generally hire a variety
Chris Hacker Ltd. (CHL) is about to reconcile its bank statement for the month of September 2018. Pertinent information follows:Bank statement balance $6,627.87General ledger balance $5,685.45.The bank erroneously deducted another company’s $800 cheque from CHL’s bank account.CHL issued cheques
Barkwood Winery (BW) is a small winery located in the Niagara region of Ontario. The winery used to be closed to the public as the wines were solely for distribution to wholesalers. Recently, its owner, Edmond Tang, built a tasting room on the premises such that the vineyard could be open to the
Guaranteed investment certificates (GICs) have a definite value upon maturity, and the principal amount is guaranteed by the Government of Canada (through the Canadian Deposit Insurance Corporation). Explain why a $50,000 GIC maturing two years after the balance sheet date cannot be included in
Shares of large publicly traded companies can be readily sold and converted into cash. Explain why the value of such shares cannot be included in cash and cash equivalents.
Identify the two criteria for classifying an investment as a cash equivalent.
The CPA Canada Handbook is available to most post-secondary students through their educational institution’s subscription. Visit http://edu.knotia.ca to complete this exercise. (You may need to complete this exercise on campus, or log in through your institution’s VPN portal.)Go to the
The following is a partial trial balance for Pluto, a public company, for the year ended December 31, 2017. Each item has its normal debit or credit balance, but the total does not equal to zero as it is a partial trial balance.Accounts receivable
The following is a partial list of accounts and their balances for Davidson Company as at December 31, 2016:Net income for the year was $838,000 and the company declared $400,000 in dividends during the year. There were items of other comprehensive income in the year. The investments are not
The following is a pre-closing trial balance for Kalico Kats, as at December 31, 2018:During the year, the company declared and paid $500,000 of dividends and issued shares for proceeds of $5,000,000.Required:Prepare, in good form, the following:a. A statement of comprehensive income that includes
The following is a partial list of the accounts for Boot Company for the year ended December 31, 2017, in alphabetical order:Dr.(Cr.)Common shares ..................................................................................... $(2,000,000)Cost of goods sold
The following is a pre-closing trial balance for Axo Inc., a manufacturer of metal tubing, as at December 31, 2016:During the year, the company declared and paid dividends of $300,000, and issued shares for proceeds of $200,000.Required:Prepare, in good form, the following:a. A multi-step income
During the audit of Keats Island Brewery for the fiscal year ended June 30, 2016, the auditors identified the following issues:a. The company sells beer for $1 per bottle, plus $0.10 deposit on each bottle. The deposit collected is payable to the provincial recycling agency. During 2016, the
Below are several events that occur after the December 31, 2018, year-end but before the completion of the audit for Fundy Capital Inc. (Fundy). All amounts are considered to be material.a. Fundy declares an $80,000 dividend on its ordinary (common) shares payable on January 31, 2019.b. The Supreme

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