In an examination of Kelsey Corporation Ltd. as of December 31, 2011, you have learned that the following situations exist. No entries have been made in the accounting records for these items. Kelsey follows IFRS.
1. The corporation erected its present factory building in 1996. Depreciation was calculated by the straight-line method, using an estimated life of 35 years. Early in 2011, the board of directors conducted a careful survey and estimated that the factory building had a remaining useful life of 25 years as of January 1, 2011.
2. An additional assessment of 2011 income taxes was levied and paid in 2012.
3. When calculating the accrual for officers’ salaries at December 31, 2011, it was discovered that the accrual for officers’ salaries for December 31, 2010, had been overstated.
4. On December 15, 2011, Kelsey Corporation Ltd. declared a stock dividend of 1,000 common shares per 100,000 of its common shares outstanding, distributable February 1, 2012, to the common shareholders of record on December 31, 2011.
5. Kelsey Corporation Ltd., which is on a calendar-year basis, changed its inventory method as of January 1, 2011. The inventory for December 31, 2010, was costed by the average method, and the inventory for December 31, 2011, was costed by the FIFO method. Kelsey is changing its inventory method as it presented more reliable and more relevant information.
6. Kelsey has guaranteed the payment of interest on the 20-year first mortgage bonds of Bonbee Inc., an affiliate. Outstanding bonds of Bonbee Inc. amount to $150,000 with interest payable at 10% per annum, due June 1 and December 1 of each year. The bonds were issued by Bonbee Inc., on December 1, 2007, and all interest payments have been met by the company with the exception of the payment due December 1, 2011. Kelsey states that it will pay the defaulted interest to the bondholders on January 15, 2012.
7. During the year 2011, Kelsey Corporation Ltd. was named as a defendant in a suit for damages by Anand Shahid Corporation for breach of contract. The case was decided in favour of Anand Shahid Corporation, which was awarded $80,000 damages. At the time of the audit, the case was under appeal to a higher court.
Instructions
Describe fully how each of the items should be reported in the financial statements of Kelsey Corporation Ltd. for the year 2011.