Information related to equipment owned by Brownfield Company follows:

Original cost $900,000

Accumulated depreciation to date $100,000

Expected future cash flows $825,000

Fair value $790,000

Value in use $785,000

Selling costs $30,000

Assuming Brownfield will continue to use the equipment, test the asset for impairment under both IFRS and U.S. GAAP and discuss the results.

PART A

Shania Twain Ltd pays its annual insurance premium in cash on 1 September each year.  The latest payment of $9,000 was on 1 September 2020 which was $600 more than the previous year.  All transactions are recorded in the general journal. Shania Twain Ltd has a December 31st year end.

Required:

Assuming Shania Twain Ltd uses the Asset approach to record the payment, prepare general journal entries (narrations are NOT required) required at:

1. 1 September 2020
2. 31 December 2020 (adjusting entry only; i.e. closing entry not required)

PART B

Why do we prepare closing entries at year end?

PART C

Shania Twain Ltd had Accounts Receivable of $215,000 and an Allowance for Doubtful Debts of $520 (Credit) at 31 December 2020.  A review of outstanding accounts indicated the need to immediately write off $700 of bad debts and to make a provision for Doubtful Debts for next year based on 3% of Adjusted Accounts Receivable.

Prepare the necessary general journal entries for the above information (narrations are NOT required).

PART D

Shania Twain Ltd had purchased equipment on 1 January 2020 at a cost of $200,000. The equipment had a useful life of 6 years and an estimated residual of $35,000.  The company decided to use the reducing balance method of depreciation at 30% per annum.

Calculate the depreciation and prepare the necessary journal entry for the year ended 31 December 2021.

Exercise 12-04

Presented below is selected information for Cullumber Company.

Answer the questions asked about each of the factual situations. (Do not leave any answer field blank. Enter 0 for amounts.)

1. Cullumber purchased a patent from Vania Co. for $1,340,000 on January 1, 2018. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2028. During 2020, Cullumber determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2020?

2. Cullumber bought a franchise from Alexander Co. on January 1, 2019, for $3,150,000. The carrying amount of the franchise on Alexander’s books on January 1, 2019, was $315,000. The franchise agreement had an estimated useful life of 30 years. Because Cullumber must enter a competitive bidding at the end of 2021, it is unlikely that the franchise will be retained beyond 2028. What amount should be amortized for the year ended December 31, 2020?

3. On January 1, 2020, Cullumber incurred organization costs of $257,500. What amount of organization expense should be reported in 2020?

The statement of comprehensive income of kolad plc, a publicly listed company, is as follows:

Statement of comprehensive income for the year ended 31 March 2020

The following supporting information is available:

1. Depreciation of £965,000 was charged (to cost of sales) for property, plant and equipment in the year ended 31 March 2020. An item of plant with a carrying value of £750,000 was sold at a profit of £65,000 during the year.

2. The following extracts from the statements of financial position for the years ended 31 March 2020 and 31 March 2019 are relevant:

YOU ARE REQUIRED TO:

1. Calculate the net cash flow from operating activities for kolad plc for the year to 31 March 2020 in accordance with IAS 7 Statement of cash flows using the indirect method.

2. Explain the characteristics of an item to be considered as a cash equivalent and give three examples of items that could be included as cash and cash equivalents in a statement of cash flows.

3. Profit is not a good indicator of performance as it can be changed to suit management’s needs.

Discuss whether, in your opinion, the statement of profit or loss or the statement of cash flows is a better indicator of a company’s performance.

On March 10, 2020, Pharoah Company sold to Barr Hardware 160 tool sets at a price of $50 each (cost $30 per set) with terms of n/60, f.o.b. shipping point. Pharoah allows Barr to return any unused tool sets within 60 days of purchase. Pharoah estimates that (1) 10 sets will be returned, (2) the cost of recovering the products will be immaterial, and (3) the returned tools sets can be resold at a profit. On March 25, 2020, Barr returned 7 tool sets and received a credit to its account. Assume that instead of selling the tool sets on credit, that Pharoah sold them for cash.

(a)

Partially correct answer iconYour answer is partially correct.

Prepare journal entries for Pharoah to record (1) the sale on March 10, 2020, (2) the return on March 25, 2020, and (3) any adjusting entries required on March 31, 2020 (when Pharoah prepares financial statements). Pharoah believes the original estimate of returns is correct. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Problem 21-06 (Part Level Submission)

Novak Leasing Company agrees to lease equipment to Splish Corporation on January 1, 2020. The following information relates to the lease agreement.
1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years.

2.The cost of the machinery is $517,000, and the fair value of the asset on January 1, 2020, is $657,000

3.At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $55,000. Splish estimates that the expected residual value at the end of the lease term will be 55,000. Splish amortizes all of its leased equipment on a straight-line basis

4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020

5.The collectibility of the lease payments is probable.

6.Novak desires a 10% rate of return on its investments. Splish’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown.
(Assume the accounting period ends on December 31.)

A. Discuss the nature of this lease for both the lessee and the lessor.

-This is a finance lease for Splish

-This is a sales type lease for Novack

B. Calculate the amount of the annual rental payment required.

- Annual rental payment $117413

C. Compute the value of the lease liability to the lessee.

- Present value of minimum lease payments ????

D. Prepare the journal entries Splish would make in 2020 and 2021 related to the lease arrangement

E. Prepare the journal entries Novak would make in 2020 and 2021 related to the lease arrangement.

Canvas Corp. is a large construction company that reports under IFRS. They have recently signed a contract with Ontario Tech University to build an addition to the library. Canvas began work on the contract at the beginning of 2020. Contract information and estimates are as follows: Contract price ……………………………………………….. $ 2,000,000 Estimated costs Labour.................................................................................. $ 435,000 Materials and subcontracts ................................................. 765,000 Indirect costs........................................................................ 300,000 1,500,000 Estimated gross profit................................................................... $ 500,000 At the end of 2020, the following was the actual status of the contract: Progress Billings to date ......................... $ 1,115,000 Costs incurred to date: Labour.................................................................................. $ 207,000 Materials and subcontracts ................................................. 468,000 Indirect costs........................................................................ 75,000 Latest forecast of total costs of project (no change).................... $ 1,500,000 At the end of 2021, progress billings to date totalled $1,900,000 and costs incurred to date totalled $1,395,000 with a forecast of $155,000 remaining costs to complete. Cash collected was $980,000 during 2020 and $1,000,000 during 2021. Job is expected to be completed in 2022 Instructions a) Calculate the gross profit that would be reported on this contract for 2020 and 2021. b) Prepare all journal entries for 2020. c) Indicate the account(s) and the amount(s) that would be shown on Canvas’ statement of d) Assume all the same facts, except that the forecast of remaining costs in 2021 is not $155,000, but $555,000. How much income (loss) would Canvas then report for the year 2021? e) Assume you are a shareholder of Canvas Corp. Do you think that recognizing revenue over time rather than at a point in time makes the financial statements more useful? Explain your answer.

Exercise 8-19 (Part Level Submission)

Waterway Corporation began operations on December 1, 2019. The only inventory transaction in 2019 was the purchase of inventory on December 10, 2019, at a cost of $25 per unit. None of this inventory was sold in 2019. Relevant information is as follows.

During the year 2020, the following purchases and sales were made.

The company uses the periodic inventory method.

(a1) Calculate average-cost per unit. (Round answer to 2 decimal places, e.e. 2.76.)

(a2) Determine ending inventory under (1) specific identification, (2) FIFO, (3) LIFO, and (4) average-cost. (Round answer to 0 decimal places, e.g. 2,760.)

(b1) Calculate price index. (Round answer to 4 decimal places, e.g. 2.7600.)

(b2) Determine ending inventory using dollar-value LIFO. Assume that the December 2, 2020, purchase cost is the current cost of inventory.(Hint: The beginning inventory is the base layer priced at $25 per unit.) (Round answer to 0 decimal places, e.g. 2,760.)

Glaser Company carries the following investments on its books at December 31, 2020 and December 31, 2021. Available for-Sale securities are considered to be non-current. All securities were purchased and properly recorded during February 2020. You need to combine all trading and AFS securities into trading portfolio and AFS portfolio, respectively, while making the fair value adjustment entries.

Required:

• Prepare the necessary fair value adjusting journal entries for Glaser on December 31, 2020.
• Assume Glaser sold its investment in “B” for $125 on December 15, 2021; prepare journal entries for sales of investment on December 15 and fair value adjusting journal entries on December 31, 2021.

• Ignoring income taxes and assuming both the retained earnings and accumulated other comprehensive income have a balance of 0 on December 31, 2019, complete the following schedule:

Suppose we are interested in modeling the factors that affect salaries of CEO’s of companies. Let salaryi denote CEO compensation in 1990 measured in $1000 increments. Let salesi denote the 1990 sales of a firm in millions of dollars. Let mktvali denote the market value of the firm at the end of 1990 in millions of dollars. Let profitsi denote 1990 profits in millions of dollars. Finally, let the dummy variable collegei = 1 if a CEO attended college and 0 otherwise and let the dummy variable gradi = 1 ,if a CEO attended graduate school and 0 otherwise.
First consider a simpler model where log denotes the natural logarithm (log base e):
log(salaryi) = β1 + β2 log(salesi) + β3 log(mktvali) + εi.
Assume that Classical Assumptions for MLR hold. This regression was estimated using a random sample of 177 firms. Standard errors are in parentheses:
log(sal?aryi) = 4.62 (0.25)
R2 = 0.299
(a) Test the joint significance of β2 and β3 at the 1% significance level.
Suppose an undergraduate RA student majoring in economics was working on this empirical question. Given the lack of training, this student could only think to estimate the simple regression model
log(salaryi) = β1 + β2 log(salesi) + εi. and he only reported that RSS from this regression was 46.51.
(b) Would the R2 from this simple regression be larger or smaller than 0.299? Give an explanation for your answer.
One might think that the profits of a firm would affect CEO pay (the more a firm makes, the more it can pay its CEO). Consider the following fitted model
log(sal?aryi) = 4.69 +0.161 log(salesi) +0.098 log(mktvali) +0.000036profitsi
(0.38) (0.04)
(0.064) (0.00015)
+0.162 log(salesi) +0.170 log(mktvali) (0.04) (0.05)
RSS = 45.31 TSS = 64.65 RSS = 43.295
(c) Test for the joint significance of the two slope parameters for log(mktval) and profits at the 1% signif-
icance level.
A more complete model of CEO salaries would take into effect the education of the CEOs:
log(salaryi) = β1 + β2 log(salesi) + β3 log(mktvali) + β4collegei + β5gradi + εi. (1)
This model was estimated by OLS yielding
log(sal?aryi) = 4.68 +0.160 log(salesi) +0.112 log(mktvali) −0.056collegei −0.057gradi
(0.35) (0.04)
(0.05) (0.237) (0.080)
RSS = 43.137