Question

In: Accounting

The bookkeeper for Branford Ltd. has drawn up a financial statement on 31 December 20X1. Some of the items on the draft balance sheet are as follows:...

The bookkeeper for Branford Ltd. has drawn up a financial statement on 31 December 20X1. Some of the items on the draft balance sheet are as follows:

 

Upon further inquiry, you discover that at 31 December 20X1, the Canadian dollar is worth HK$7.5. You also ascertain that the value of the marketable securities was $987,000 at 20X1 year-end.

 

Required:

1. Indicate what change, if any, you would make in reporting each of the preceding items.

2. In each case, discuss the accounting principle involved.

Solutions

Expert Solution

Cash:

The cash should be reported at $313,333; i.e., [$300,000 + ($100,000 ÷ 7.5)] The HK$ must be reported at its Canadian dollar equivalent.

 

Branford has violated the principle of faithful representation, since the $100,000 reported is not an accurate reflection of the value of the cash in a Canadian dollar financial statement.

 

Marketable securities:

Marketable securities should be reported at market value (here, $987,000); as “temporary investments”, they are either FVTPL or FVTOCI.

 

Branford has violated the principle of relevance, since the $900,000 reported cost is not the most important information with respect to the investment.

 

Accounts receivable:

The revenue recognition criteria have not been met. The vendor, Branford, has not performed all acts required x the product has not yet been delivered. The order is an executory contract at this point and should not be recognized.

 

Branford has violated the the revenue recognition concept. He has also violated the principle of reliability, since there is no account receivable or revenue until delivery, so the $500,000 reported is not representationally faithful to its real identity.

 

Contract liability:

This is an executory contract. There is a contract between Branford and the contractor, but Branford has not yet paid anything nor has the contractor begun work. This amount should not be recorded or recognized until at least one party to the contract has ‘executed’ its obligation (or a part thereof).

 

Other liabilities:

Branford knows that it has an obligation to pay $75,000 next year but has not recorded the liability in the financial statements. The amount should be recorded.

 

The faithful representation of the financial statements is reduced when this liability is omitted.

The faithful representation of the financial statements is reduced when this liability is omitted.

Junaid answered 1 year ago
Next > < Previous

Related Solutions

For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets Liabilities Cash $ 17,000 Accounts payable $ 19,000 Accounts receivable 22,000 Notes payable 27,000 Inventory 32,000 Bonds payable 57,000 Prepaid expenses 12,700 Fixed Assets Stockholders’ Equity Gross plant and equipment $ 257,000 Preferred stock $ 27,000 Less: Accumulated depreciation 51,400 Common stock 62,000 Paid in Capital 32,000 Net plant and equipment $ 205,600 Retained earnings 65,300 Total assets $ 289,300 Total liabilities and stockholders’...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets Liabilities Cash $ 30,000 Accounts payable $ 32,000 Accounts receivable 35,000 Notes payable 40,000 Inventory 45,000 Bonds payable 70,000 Prepaid expenses 14,000 Fixed Assets Stockholders’ Equity Gross plant and equipment $ 270,000 Preferred stock $ 40,000 Less: Accumulated depreciation 54,000 Common stock 75,000 Paid in Capital 45,000 Net plant and equipment $ 216,000 Retained earnings 38,000 Total assets $ 340,000 Total liabilities and stockholders’...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets Liabilities Cash $ 13,000 Accounts payable $ 15,000 Accounts receivable 18,000 Notes payable 23,000 Inventory 28,000 Bonds payable 53,000 Prepaid expenses 12,300 Fixed Assets Stockholders’ Equity Gross plant and equipment $ 253,000 Preferred stock $ 23,000 Less: Accumulated depreciation 50,600 Common stock 58,000 Paid in Capital 28,000 Net plant and equipment $ 202,400 Retained earnings 73,700 Total assets $ 273,700 Total liabilities and stockholders’...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:    Current Assets Liabilities Cash $ 30,000 Accounts payable $ 32,000 Accounts receivable 35,000 Notes payable 40,000 Inventory 45,000 Bonds payable 70,000 Prepaid expenses 14,000 Fixed Assets Stockholders’ Equity Gross plant and equipment $ 270,000 Preferred stock $ 40,000 Less: Accumulated depreciation 54,000 Common stock 75,000 Paid in Capital 45,000 Net plant and equipment $ 216,000 Retained earnings 38,000 Total assets $ 340,000 Total liabilities and stockholders’...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows: Current Assets Liabilities...
For December 31, 20X1, the balance sheet of Baxter Corporation was as follows: Current Assets Liabilities Cash $ 15,000 Accounts payable $ 17,000 Accounts receivable 20,000 Notes payable 25,000 Inventory 30,000 Bonds payable 55,000 Prepaid expenses 12,500 Fixed Assets Stockholders’ Equity Gross plant and equipment $ 255,000 Preferred stock $ 25,000 Less: Accumulated depreciation 51,000 Common stock 60,000 Paid in Capital 30,000 Net plant and equipment $ 204,000 Retained earnings 69,500 Total assets $ 281,500 Total liabilities and stockholders’ equity...
The following balance sheet was prepared by the bookkeeper for Jacuzi Company as of December 31,...
The following balance sheet was prepared by the bookkeeper for Jacuzi Company as of December 31, 2017. Jacuzi Company Balance Sheet as of December 31, 2017 Cash $ 80,000 Accounts payable $ 75,000 Accounts receivable (net) 52,200 Bonds payable 100,000 Inventory 57,000 Stockholders' equity 218,500 Investments 76,300 Equipment (net) 96,000 Patents 32,000 $393,500 $393,500 The following additional information is provided: 1. Cash includes the cash surrender value of a life insurance policy $9,400, a bank overdraft of $2,500 has been...
Wick Corporation has a Mexican subsidiary that had the following balance sheet at December 31, 20X1...
Wick Corporation has a Mexican subsidiary that had the following balance sheet at December 31, 20X1 (stated in millions of pesos): (millions of pesos) Cash 300 Accounts receivable 125 Inventory 400 Property and equipment 1,950 Total assets 2,775 Accounts payable 280 Long-term debt 1,200 Common equity 1,295 Total liabilities and equity 2,775 At December 31, 20X1, it took 19.66 pesos to buy one U.S. dollar. At December 31, 20X2, it took only 19.50 pesos to buy one U.S. dollar because...
The summarized statement of financial positions of A Ltd and B Ltd as at 31 December...
The summarized statement of financial positions of A Ltd and B Ltd as at 31 December 2018 are as follows: A Ltd B Ltd Non-Current Assets at book value 60,000 46,000 Investment in B Ltd 75,000 Current assets Inventory 32,000 13,000 Receivables 27,000 17,000 Bank 1,000 2,000 195,000 78,000 Financed by: Share capital (Sh 1ordinary shares) 100,000 50,000 Retained profits 70,000 12,000 170,000 62,000 Liabilities 25,000 16,000 195,000 78,000 A Ltd purchased the entire share capital of B Ltd on...
Gumya Ltd. is a paper producing company in Sheffield. Its draft trial balance at 31 December...
Gumya Ltd. is a paper producing company in Sheffield. Its draft trial balance at 31 December 2019 is shown below: Credit ($000) Debit ($000) Administration costs 39 Bank balance 10 Debenture interest 9 Debenture (6% p.a., repayable at par 2025) 300 Discount allowed 12 Discount received 15 Fixtures and fittings – cost 110 Fixtures and fittings - provision for depreciation 24 Inventory (as at 1 January 2019) 78 Land and buildings 1430 Machinery - cost 280 Machinery - provision for...
BrownLow Ltd. is a paper producing company in Sheffield. Its draft trial balance at 31 December...
BrownLow Ltd. is a paper producing company in Sheffield. Its draft trial balance at 31 December 2019 is shown below: Credit ($000) Debit ($000) Administration costs 39 Bank balance 10 Debenture interest 9 Debenture (6% p.a., repayable at par 2025) 300 Discount allowed 12 Discount received 15 Fixtures and fittings – cost 110 Fixtures and fittings - provision for depreciation 24 Inventory (as at 1 January 2019) 78 Land and buildings 1430 Machinery - cost 280 Machinery - provision for...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT