Lusail Company builds office buildings. The office buildings are constructed under contract with reputable buyers. During...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Lusail Company builds office buildings. The office buildings are constructed under contract with reputable buyers. During 2016, Lusail Company began construction of an office building for AlKhor Corporation. The total price is $20 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows: 2016 2017 2018 2019 2020 2021 Costs incurred during the year $2,000,000 2,000,000 4,750,000 4,750,000 2,250,000 2,250,000 Estimated costs to complete as of year-end $6,000,000 6,000,000 1,250,000 1,500,000 656,250 0 Billings during the year $1,000,000 1,000,000 5,000,000 5,000,000 4,000,000 4,000,000 Cash collections during the year $900,000 900,000 4,300,000 4,300,000 4,800,000 4,800,000 To properly fulfil the above construction project, Lusail Company leased a machine from Qatar Leasing Corporation on June 30, 2018. The lease agreement calls for Lusail Company to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Lusail Company's incremental borrowing rate is 10%, the same rate Qatar Leasing uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each financial year. The fair value of the machine is $3 million. In addition, Lusail Company issued on January 1, 2019 $1,500,000, 4%, 5-year bonds. Interest on the bonds is paid semimanual on June 30 and December 31. The market interest for bonds of similar risk and maturity was 6%. Lusail Company was aware that according to the U.S. GAAP, companies are allowed to switch from the effective interest method to fair value method with little justification. On December 31, 2020, the market interest rate increased to 8%, thus prompting Lusail Company to switch to the fair value method to account for its bonds. On the same date, the fair value of the bond issue was estimated at $1,342,735. Although, IFRS does allow the use of fair value to account for liabilities, there are many restrictions and requirements. Unfortunately, Lusail Company did not meet these requirements; a matter that enforced the company to follow the effective interest method in reporting for its bonds in the financial statements instead of the fair value method. Show and discuss how the above financial transactions will affect the income statement and the statement of financial position for Lusail Company on December 31, 2016 and December 31, 2020 assuming that the company reports with U.S. GAAP and uses the percentage of completion method for its office building contracts. (3 Marks) Show and discuss how the above financial transactions will affect the income statement and the statement of financial position for Lusail Company on December 31, 2016 and December 31, 2020 assuming that the company reports under IFRS and uses the cost recovery method for its office building contracts. (3 Marks) Lusail Company builds office buildings. The office buildings are constructed under contract with reputable buyers. During 2016, Lusail Company began construction of an office building for AlKhor Corporation. The total price is $20 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows: 2016 2017 2018 2019 2020 2021 Costs incurred during the year $2,000,000 2,000,000 4,750,000 4,750,000 2,250,000 2,250,000 Estimated costs to complete as of year-end $6,000,000 6,000,000 1,250,000 1,500,000 656,250 0 Billings during the year $1,000,000 1,000,000 5,000,000 5,000,000 4,000,000 4,000,000 Cash collections during the year $900,000 900,000 4,300,000 4,300,000 4,800,000 4,800,000 To properly fulfil the above construction project, Lusail Company leased a machine from Qatar Leasing Corporation on June 30, 2018. The lease agreement calls for Lusail Company to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Lusail Company's incremental borrowing rate is 10%, the same rate Qatar Leasing uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each financial year. The fair value of the machine is $3 million. In addition, Lusail Company issued on January 1, 2019 $1,500,000, 4%, 5-year bonds. Interest on the bonds is paid semimanual on June 30 and December 31. The market interest for bonds of similar risk and maturity was 6%. Lusail Company was aware that according to the U.S. GAAP, companies are allowed to switch from the effective interest method to fair value method with little justification. On December 31, 2020, the market interest rate increased to 8%, thus prompting Lusail Company to switch to the fair value method to account for its bonds. On the same date, the fair value of the bond issue was estimated at $1,342,735. Although, IFRS does allow the use of fair value to account for liabilities, there are many restrictions and requirements. Unfortunately, Lusail Company did not meet these requirements; a matter that enforced the company to follow the effective interest method in reporting for its bonds in the financial statements instead of the fair value method. Show and discuss how the above financial transactions will affect the income statement and the statement of financial position for Lusail Company on December 31, 2016 and December 31, 2020 assuming that the company reports with U.S. GAAP and uses the percentage of completion method for its office building contracts. (3 Marks) Show and discuss how the above financial transactions will affect the income statement and the statement of financial position for Lusail Company on December 31, 2016 and December 31, 2020 assuming that the company reports under IFRS and uses the cost recovery method for its office building contracts. (3 Marks)
Expert Answer:
Answer rating: 100% (QA)
Answer International Financial Reporting Standards IFRS are a set of accounting standards that gover... View the full answer
Posted Date:
Students also viewed these accounting questions
-
Assuming the PPC does not shift, which of the following is true? A B D Grapes Juice (Lirs.) 2222 28 22 16 9 22 13 7 0 1 2 g G 3 4 Wine (lirs.) Point A is desirable but is inefficient 5 Point G is...
-
On October 1, 2014, Vaughn, Inc., leased a machine from Fell Leasing Company. The lease qualifies as a capital lease and requires nine annual payments of $10,000 beginning September 30, 2015. The...
-
On October 1, 2017, Vaughn, Inc., leased a machine from Fell Leasing Company for five years. The lease requires five annual payments of $10,000 beginning September 30, 2018. Vaughn's incremental...
-
You are a lead auditor from ABC Auditors Pty Ltd. Your client is Cassey's Quality Cars Ltd who are a large car dealership with branches across Queensland. ABC Auditors have performed audits for past...
-
The comparative balance sheets for Federer Sports Apparel are presented below. Required: 1. Prepare a vertical analysis of the balance sheet data for 2016 and 2015. Express each amount as a...
-
Jen Miller made $1,090 this week. Only social security (fully taxable) and federal income taxes attach to her pay. Miller contributes $125 each week to her companys 401(k) plan and has $40 put into...
-
What are the limitations of all financial performance measures? Compare and contrast the relative advantages and dis advantages of RI and ROI. When would you consider the use of RI to be more...
-
Construct the nine elements of the plan identified above. MINI CASE D. U. Singer Hospital Products Corp. has done sufficient new product development at the research and development level to estimate...
-
6. Find the volume of the box whose length, width and height are given respectively: 14 mm, 3 mm, and 6 mm. V= mm 3
-
You are a senior accountant in a top-tier accounting firm. Your senior manager has asked you to assist your client, Daisy Ltd, in the preparation of consolidated financial statements for the year...
-
Xinhong Company is considering replacing one of its manufacturing machines. The machine has a book value of $43,000 and a remaining useful life of five years, at which time its salvage value will be...
-
Question 15 of 25. In order to comply with federal banking regulations, you must complete and pass this training course prior to undertaking any bank representative related activities. OTRUE FALSE...
-
Suppose that a group is assigned a group presentation for a class. Group members briefly discuss to divide up the content, and then each individual researches and writes his or her portion of the...
-
Find amount of (A) net price and (B) trade discount dollar amount. (2 marks) Stove: List $1,400 Chain discount 13/10/4 A____________ B. ____________
-
A goldfish is swimming inside a spherical bowl of water, which has an index of refraction of n = 1.333. Suppose the goldfish is at p = 10.0 cm from the wall of the bowl, which has a radius |R| = 15.0...
-
How was the PV formula on excel used to calculate these? 22-Jan Cash $ Discount on Bond Payable SASA 68,917.00 $ 6,083.00 Bond Payable $ 75,000.00
-
Question 1 Partially correct Mark 5.00 out of 10.00 Flag question Computing Cost of Goods Sold and Ending Inventory Under FIFO, LIFO, and Average Cost Assume that Madden Company reports the following...
-
An interest bearing promissory note for 90 days at 5.6% p.a. has a face value of $120,000. If the note is discounted 20 days after the issue date at a rate of 6.8% p.a., calculate the amount of...
-
Do you think that people give primarily for altruistic reasons or in order to receive benefits for themselves, including warm feelings, recognition, and social approval? Might the motivations differ...
-
The Corcoran Gallery of Art was established by Washington, DC, businessman William Wilson Corcoran, an early collector of contemporary American art. The gallery was opened in 1874 in a building that...
-
Hull House was founded in Chicago in 1889 by Jane Addams and Ellen Gates Starr, with the purpose of serving Chicago's immigrants and helping the city's poorest citizens improve their lives. Hull...
Study smarter with the SolutionInn App