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business
intermediate accounting volume 2
Questions and Answers of
Intermediate Accounting Volume 2
Tracking Co. holds an HTM bond investment in Fields Corp. The carrying value of the investment is \(\$ 4,500\) at December 31, 2020. Tracking Co. estimates the present value of the amounts expected
Determine the amount of impairment loss (if any) to record in income under the following three separate scenarios for an AFS debt investment. In all three cases, the company does not intend to sell
Refer to the information in Brief Exercise 14-34 except now assume that the company intends to sell the AFS securities. Determine the amount of impairment loss (if any) to record in income under the
Tracking Co. holds a bond investment in Fields Corp. Tracking Company's carrying value of the bond investment is \(\$ 4,500\) at year-end. Tracking Co. determines the fair value of the bond
On January 1, 2020, Evergreen Inc. purchased 3,750 of the 15,000 outstanding shares of common stock of Nature Net Inc. resulting in significant influence over Nature Net Inc. The shares were
On June 15, 2020, Diaz Inc. purchased \(\$ 100,000\) bonds at par value and elects to account for the bonds using the fair value option. On December 31, 2020, the bonds had a fair value of \(\$
For the following six items, indicate which financial statement category would be affected: (1) net income or (2) other comprehensive income.a. Realized gain on sale of AFS debt investment.b.
The first list below shows the financial statements normally included in a company’s annual financial statements. The second list shows some amounts that often appear in those financial statements.
Oleander Corporation had total assets of \($1,200,000\) on 31 December 20X3. On 31 December 20X4, total assets had increased to \($1,400,000.\) Oleander’s statement of changes in equity disclosed
HUM Products Limited (HUM) is a consumer products company that designs, manufactures, markets, and distributes a diverse portfolio of consumer products, primarily in the recreational and leisure
Explain the term “non-controlling interest.’
What is meant by appropriations
Excerpts from the statements of comprehensive income for Yaoming Adventures Limited for the years 20X2 through 20X4 are as follows: (stated in millions of Canadian dollars) Operating earnings from
Haliteck Corporation is based in Halifax. At the end of 20X4, the company’s accounting records show the following items: a. A $100,000 loss from hurricane damage. b. Total sales revenue of
When can a disposal group be reported as discontinued operation rather than simply as an asset held-for-sale?
Deluca Solutions Inc. is an Ontario-based manufacturer. The company is listed on the TSX, but the family of founder David Deluca retains control through multiple-voting shares.Deluca undertook
Hospitality Inc. (HI) is a holding company that has wholly owned interests in the travel and entertainment industry. HI is listed on the Toronto Stock Exchange and is subject to the reporting
Nominal dollar capital maintenance assumes that earnings are distributable once the dollar level of investment has been maintained.
Nominal dollar financial capital maintenance is the only feasible basis for measuring earnings for a modern diversified business corporation.
The separate-entity assumption means that there must be no financial transactions between the business entity and its owners, except for the payment of dividends.
The continuity assumption means that it is feasible to prepare corporate financial statements at any point over the continuity of time.
The time-period assumption means that it is feasible to prepare meaningful annual financial statements, even though the entity still has many unfulfilled transactions outstanding.
The continuity assumption states that a business entity will last long enough for its assets to be used up and its liabilities settled.
The entity basis of reporting is the same as consolidated reporting, wherein all resources under the control of the shareholders of the parent company are combined into financial statements for the
The unit-of-measure assumption states that it is meaningful to express the affairs of an enterprise in currency units.
Because of the continuity assumption, it is impossible to prepare meaningful financial statements for a bankrupt company.
In each of the following cases indicate the principle that appears to have been violated: Case A For its factory equipment, Unrequited Love Inc. used accelerated depreciation in 20X2; straight-line
The IASB has the authority to set Canadian accounting standards.
All Canadian corporations must comply with international accounting standards.
Most Canadian corporations are listed on the Toronto Stock Exchange.
IFRS must be used for the financial statements of every Canadian public corporation.
The objective of general-purpose financial reporting is to serve the information needs of a wide variety of users, including lenders, shareholders, employees, and regulators.
If a corporation has a restrictive bond covenant that specifies a minimum interest-earned ratio, the corporation’s management will be motivated to pick discretionary accounting policies that
Income tax law has no impact on the accounting choices made by management.
The presence of a control block can have an impact on a public company’s choice of accounting policies.
Any Canadian company that uses U.S. GAAP must prepare its statements in U.S. dollars.
IFRS and the CPA Canada Handbook, Part II, have equal status in Canada for financial reporting.
In a private corporation, the needs of external users have no impact on the company’s financial reporting objectives.
Canadian companies must always prepare their annual financial statements in Canadian dollars.
Canadian accounting standards are set by the Canada Business Corporations Act.
The debt and equity securities of a private company cannot be traded on public exchanges. Therefore, private companies have no external sources of financing.
A company may take a “big bath” in a loss year if management wishes to maximize future earnings.
A public company may not use a disclosed basis of accounting for external public financial reporting.
When an enterprise's primary reporting objective is cash flow assessment, the enterprise will use a cash basis of reporting rather than an accrual basis.
Any Canadian company may use IFRS.
The IASB cannot require transnational corporations to use IFRS.
You have just returned from a meeting with a friend who is considering an opportunity to invest in non-voting shares in Peterson Products Limited (PPL). PPL is a private company that is offering to
List three financial statement users and a decision for each that may rest on financial statement analysis.
Why is a potential investor's perspective different than an existing investor's perspective?
Explain why financial analysts and others, in analyzing financial statements, examine the summary of accounting policies.
Explain why the actual disclosure of accounting policies in financial statements might not be as helpful as analysts and other financial statement users might wish.
What does it mean to "recast" the financial statements? Why are financial statements recast?
Distinguish between vertical and horizontal analysis. Briefly explain the use of each.
Explain the two ratios that combine to form return on assets. What strategies can a company use to maximize return on assets?
Explain the return-on-assets ratio. Why is it a fundamental measure of profitability?
Moller Company's average collection period for accounts receivable is 24 days. Interpret this figure. What is the accounts receivable turnover ratio? What does it reveal?
Maddox Steel Company has an inventory turnover of 9; interpret this figure.
Explain the circumstances where a company has debt financing and the leverage factor is (a) positive, (b) negative, and (c) zero.
Current assets and current liabilities for two companies with the same amount of working capital are summarized below. Evaluate their relative liquidity positions. Current assets Current liabilities
Analyze each case and choose a letter code under each category (type and approach) to indicate the preferable accounting for each case.a. Changed depreciation method from declining-balance to
Analyze each case and choose a letter code under each category (type and approach) to indicate the preferable accounting for each case.a. Changed the expected useful lives of depreciable assets from
The following 10 situations all involve a change in accounting. For each situation, assume the company is public unless specified otherwise.a. Straight-line depreciation for the past three years has
Accounting Changes: Mohammed Motors Limited made the following changes to its accounting in 20X5:a. Increased the interest rate used to discount its pension obligations from \(6.0 \%\) to \(6.5
In 20X6, Cathode Company, a calendar fiscal-year company, discovered that depreciation expense was erroneously overstated \(\$ 40,000\) in both \(20 X 4\) and \(20 X 5\) for financial reporting
Betteroff Company was incorporated on 1 January 20X3. In the past, it has not provided an allowance for doubtful accounts. Instead, uncollectible accounts were expensed when written off and
Kate Limited has asked you to prepare appropriate journal entries for the following unrelated situations. There is no income tax.Case A An investment with an original cost of \(\$ 400,000\) was
Armstrong Limited has used the average cost (AC) method to determine inventory values since first formed in \(20 X 3\). In \(20 X 7\), the company decided to switch to the FIFO method, to conform to
Zealand Company made several financial accounting changes in \(20 \mathrm{X} 6\) :First, the company changed the total useful life from 20 years to 14 years on a \(\$ 350,000\) asset purchased 1
A company has always used the allowance method to value accounts receivable and establish a bad debt expense on the income statement. In the current year, it changed from using the aging method to
Why are changes in estimates so prevalent?
How is a change in accounting estimate accounted for?
A \(\$ 100,000\) asset is depreciated for six years on a straight-line basis using a 10 -year life and a \(\$ 10,000\) residual value. In year 7 , the remaining life is changed to five years, with a
If there is doubt about whether a change is a change in policy or a change in estimate, how should it be treated? Why do you think accounting standards have this requirement?
Explain the difference between a voluntary and mandatory change in accounting policy.
What criteria must be met for a voluntary accounting policy change to be allowed? What difficulty is there in justifying a voluntary change?
What role do a company's reporting objectives play in changes in accounting policy?
Explain the difference between a change in estimate and an error correction.
Accounting changes involve (a) policies and (b) estimates. Using these letters and the letter (c) for error corrections, identify each of the following types of change:a. A lessor discovers, while a
How is an accounting error accounted for?
What are the advantages of retrospective restatement for a change in accounting policy? Why is it not required for all changes in accounting policy?
Assume that a company had traditionally expensed development costs but now satisfies capitalization criteria and thus has changed its policy. Explain how the change in development cost accounting
Mountain Mines Lubrication Ltd. (MML), a Canadian private company, supplies lubricant to mining operations in northern British Columbia and the Northwest Territories. MML commenced operations four
Regional Airlines (RA) is a wholly owned subsidiary of National Commercial Airlines (NCA). Both companies prepare financial statements in accordance with International Financial Reporting Standards
Lalani Couture Limited (LCL) is a privately held company headquartered in Montreal. The company operates a chain of retail clothing stores in major cities across Canada, although the bulk of the
Philip Roth is just finishing his first week as chief financial officer of MTC. He was recruited from Atkins Consulting to replace the former CFO who had been relieved of his duties when major errors
What is the formula for basic EPS? Describe the numerator and the denominator.
Explain why and when dividends on non-cumulative preferred shares must be subtracted from earnings to compute basic EPS.
What adjustments, in addition to preferred dividends, may be made to the numerator of basic EPS?
Why are weighted-average ordinary shares used in EPS calculations?
If common shares are issued during the year under a contract that involved meeting a contingent requirement, as of what date are the shares included in the weighted average ordinary share calculation?
A company split its common shares 2-for-1 on 30 June of its fiscal year, which ends on 31 December. Before the split, 4,000 common shares were outstanding. How many weighted-average ordinary shares
What is the required EPS disclosure if discontinued operations are reported?
Assume that a company has two classes of shares that both have voting rights and are entitled to the proceeds of net assets on dissolution. One class is entitled to receive 10 times the dividends of
What is the purpose of diluted EPS?
A company has basic EPS based on earnings from continuing operations of \(\$ 4.50\) and on net earnings, \(\$ 3.50\). A potentially dilutive element has an individual effect of \(\$ 4.00\). Is the
Specify the numerator and/or denominator item(s) that would be used when calculating diluted EPS for dilutive (a) convertible preferred shares, (b) convertible debt, (c) contingently issuable shares,
Options are outstanding for 100,000 shares at \(\$ 10\). The average market price during the period is \(\$ 25\). What adjustment would be made to the denominator of diluted EPS?
What is the difference between a dilutive security and an anti-dilutive security? Why is the distinction important in EPS considerations?
What does it mean if options are said to be in-the-money? Are options dilutive when they are in-the-money? Explain.
A company has an agreement outstanding at the end of the fiscal year that requires it to issue common shares in the future for no additional cash consideration if certain conditions are met. How does
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