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intermediate accounting volume 2

Questions and Answers of Intermediate Accounting Volume 2

How is gift card breakage recognized as revenue using the proportional method?
Why is deferred revenue classified as a liability?
What is a compensated absence? When should the expense related to compensated absences be recognized?
What is the accounting definition of a contingency? What are the three characteristics of a contingency? Why is this concept important?
How is the likelihood of the outcome of a contingency measured? In general, how does this affect the accounting for and reporting of contingencies?
Briefly explain the accounting and reporting for loss contingencies.
What costs are recognized for environmental obligations?
Under what conditions may a debt due within the next year (as measured at year-end) be reported as a noncurrent liability? Under what conditions may a long-term debt (as measured at year-end) be
Define a security. Distinguish between debt and equity securities.
Briefly describe the methods to account for debt investments. How does an investor determine the appropriate accounting method to follow?
On July 1,2020 , Baker Company purchased \(\$ 50,000\) of LoCal Company \(6 \%\) bonds at par value. The bonds pay interest semiannually on July 1 and January 1. At December 31, 2020, the bonds have
If an investor holds an equity security investment where the investor does not exert significant influence, explain the appropriate accounting for the investment.
What accounts are affected by a sale of a debt security classified as HTM?
What is the most significant difference in the accounting treatment of an available-for-sale debt security compared to a trading debt security?
Explain the basic features of the equity method of accounting for long-term investments. When is the equity method applicable?
Why is the equity method sometimes called the one-line consolidation method?
How would an investor typically report a dividend declared by a company in which it holds a \(40 \%\) voting interest? A \(10 \%\) voting interest?
Indicate reasons why a 30\% ownership interest in another company may not be considered significant.
When are unrealized holding gains and losses on debt securities included in the determination of net income? When are unrealized holding gains and losses on equity securities included in the
Describe the balance sheet categorization and valuation within the asset section when an investment in securities is classified asa. Trading debt securities.d. Equity securities measured at FV-NI.b.
What is the financial statement impact when an investment is reclassified from a trading debt security to an available-for-sale debt security? When an available-for-sale debt security is reclassified
Explain when the fair value option of accounting for equity investments is applicable. What is the financial statement impact of accounting for investments under the fair value option?
What approach(es) are used to analyze impairment on available-for-sale and held-to-maturity debt securities?
On January 1,2020 , Sharp Company purchased \(\$ 50,000\) of Sox Company \(6 \%\) bonds, at a time when the market rate was \(5 \%\). The bonds mature on December 31, 2024, and pay interest annually
On January 1, 2020, Sharp Company purchased \(\$ 50,000\) of Sox Company \(5 \%\) bonds, at a time when the market rate was \(6 \%\). The bonds mature on December 31, 2024, and pay interest
Henry Inc. purchased \(\$ 5,000\) of Container Corporation's \(5 \%\) bonds at par. The purchase is made on January 1 , 2020, and the investment is classified as a trading security. At June 30, 2020,
Referring to information in Brief Exercise 14-18, assume that Henry Inc. sold its holdings of Container Corporation bonds on July 2, 2020, for \(\$ 4,800\).a. Record the sale of the debt
Referring to information in Brief Exercise 14-18, assume that Henry Inc. sold its holdings of Container Corporation bonds on July 2, 2020, for \(\$ 4,800\). Record the sale of the debt investment,
Assume the same facts as in Brief Exercise 14-16, except that Sharp Company does not intend to trade the bonds or to hold them until maturity.a. Prepare the entry for the purchase of the debt
Tracking Co. holds an AFS bond investment in Fields Corp. The carrying value of the investment is \(\$ 4,500\) at December 31, 2020. Tracking Co. determines the fair value of the investment at the
The following information relates to an AFS security investment held by Gomez Inc.Provide the journal entry to adjust the investment to fair value on December 31, 2020. Fair value. Carrying value
Turbo Corporation had net income of \(\$ 30,000\) and other comprehensive income of \(\$ 0\) prior to the following two adjustments: Turbo Corporation discovered it has an unrealized holding loss of
Phelps Company reported the following amounts this past year.- Revenues, \(\$ 50,000\).- Expenses, \(\$ 30,000\).- Realized loss on sale of AFS debt investments, \(\$ 5,000\).- Reclassification
An investor purchased 100 shares of Mallard common stock at \(\$ 20\) per share on March 15, 2020. On December 31, 2020, the stock was quoted at \(\$ 19\) per share and declared and paid a dividend
An investor purchased 100 shares of Mallard common stock at \(\$ 20\) per share on March 15, 2020. On December 31, 2020, the stock was quoted at \(\$ 19\) per share and declared and paid a dividend
Lance Co. purchased 100 shares of Mallard common stock at \$20 per share on March 15, 2020. Mallard declared and paid a dividend of \(\$ 1.50\) per share in 2020. The market price on December 31,
On December 31, 2020, Raven Company's portfolio of equity securities was valued at \(\$ 1,800\). The original cost of the investments in the portfolio was \(\$ 1,600\). Raven does not have
On January 1, 2020, Evergreen Inc. purchased 3,750 of the 15,000 outstanding shares of common stock of Nature Net Inc. obtaining significant influence of the company. The shares were purchased for
On January 1, 2020, Hockey Unlimited Inc. purchased 2,500 of the 10,000 outstanding common shares of Goal Corporation for \(\$ 14,000\) cash obtaining significant influence of the company. Hockey
Clarkson Inc. purchased \(10 \%\) of the 10,000 shares of common stock in Nashville Inc. for \(\$ 40,000\) in January 2020. Shelton Inc. purchased 35\% of the 10,000 shares of common stock in
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

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