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intermediate accounting volume 2

Questions and Answers of Intermediate Accounting Volume 2

What three time elements are embedded in the definition of a liability?
What is a non-financial liability? Provide three examples, and explain how such liabilities are measured.
A firm is being sued for \($550,000\) by an unhappy customer; the lawsuit is in its early stages, and the firm feels that it has a good case and is willing to defend itself.However, legal costs will
A company signs a purchase order for 5,000 cases of a product at \($10\) per case. The product will be delivered next year. Is a liability for \($50,000\) recorded? Under what conditions will some
A company issues 10,000 coupons that allow a discount of \($1\) off the retail price of a \($14\) product. Will some liability be recorded? Explain.
The statement of financial position includes an obligation for insurance for a com¬ pany that self-insures. How is, this obligation measured? What is not included in this obligation?
A company borrows \($10,000\) for two years, interest free, when the market interest rate is 10%, compounded annually. At what amount should the liability be valued? How would your answer change if
Distinguish between the par value and the issue price of a bond. When are they the same? When are they different? Explain. If a \($5,000\) bond is sold for 101, how much cash is paid/received?
What is the primary conceptual difference between the straight-line and effective- interest methods of amortizing a discount or premium on a bond or note payable? Why is the effective-interest method
Explain why and how a bond discount and bond premium affect (a) the statement of financial position and (b) earnings of the issuer of the bond.
When the end of the accounting period of the issuer is not on a bond interest date, adjusting entries must be made for (a) accrued interest and (b) discount or premium amortization. Explain in
When bonds are sold (or purchased) between interest dates, accrued interest must be recognized. Explain why.
How would the payment of a \($5,000\) upfront administration fee on a \($50,000\), 6%, five-year loan affect subsequent recognition of interest expense?
When does capitalization of borrowing costs begin, if a company borrows money to finance the acquisition of capital assets that have a lengthy delivery period?
A company has a \($2\) million operating line of credit at an interest rate of 4% and (general use) long-term loans of \($8\) million at an interest rate of 7%. If general bor¬ rowings are used to
Under what circumstances will a gain or loss occur on the repayment of a bond payable?
When will a bond discount or premium be included in an entry to retire bonds? How is the amount calculated?
What is meant by defeasance? Can debt that is subject to a defeasance arrangement be derecognized? Contrast this with an in-substance defeasance.
Assume that a Canadian company borrowed US\($325,000\), for five years, when US\($1\) = Cdn\($1.10\). If the exchange rate at the end of the first year is US\($1\) = Cdn\($1.08\), and at the end of
Interest expense of \($45,500\) is recorded, after discount amortization of \($4,500\). Interest payable has increased by \($2,000\) during the year. How much cash was paid for interest?
“Kevin, it’s such a relief to get this \($2,000,000\) of financing in place at a reasonable cost. We finally have the go-ahead for that new equipment! If we order now, we’ll have it in place
Homebake Inc. is a growing company in the consumer small appliance industry. After months of research and testing, Homebake introduced its new home breadmaker in retail stores in September 20X5, just
Sable Company purchased merchandise for resale on 1 January 20X5, for \($5,000\) cash plus a \($20,000\), two-year note payable. The principal is due on 31 December 20X6; the note specified 3%
Pinnacle Limited issued \($5,000,000\) in secured notes payable on 30 April 20X0. The notes mature on 30 April 20X6, and bear interest at 5% per annum, payable every 30 October and 30 April. The
ABC Company issues a \($5,000,000,\) 8 1/2% bond on 1 October 20X4. At this time, market interest rates are in the range of 8%. The bond had a 20-year life from 1 October 20X4, and paid interest
Ayaz MacDonald Ltd. (AML) issued \($3,000,000\) of 5% bonds payable on 1 September 20X9 to yield 6%. Interest on the bonds is paid semi-annually, and is payable each 28 February and 31 August. The
On 1 January 20X1, Omega Additives Limited issued \($500,000\) of eight-year, 7.5% debentures at a net price of \($485,635.\) Interest is payable annually, on the anniversary date of the bond. The
Radian Company issued to Seivers Company \($30,000\) of three-year, 6% bonds dated 1 December 20X5. Interest is payable semi-annually on 31 May and 30 November. The bonds were issued on 28 February
A 2% loan was granted to Pegasus Technology Limited. The principal amount was \($750,000\) and the term was three years. Interest is paid at the end of each year. In addition, the lender charged an
On l January 20X8, a borrower arranged a \($500,000\) three-year 2% note payable, with interest paid at the end of each loan year. There was an upfront fee of \($53,460,\) which was deducted from the
On 1 July 20X2, Copp Corporation issued \($600,000\) of 5% (payable each 30 June and 31 December), 10-year bonds payable. The bonds were issued to yield 6%. The company uses effective interest
The following three cases are independent.Case A On 31 December 20X7, a company has the following bond on the statement of financial position:On 28 February 20X8, 20% of the bond was retired for
At 31 December 20X8, Hulu Ltd. reports the following on its statement of financial position:On 1 March 20X9,40% of the bond issue was bought back in the open market and retired at 99 plus accrued
On I June 20X5, Bridle Corp. issued \($40,000,000\) of 7.5% bonds, with interest paid semi-annually on 30 April and 31 October. The bonds were originally dated 1 November 20X4, and were 15-year
Computer Medic Limited issues \($800,000\) of 9.5% bonds on 1 July 20X1. Additional information on the bond issue is as follows:Required:1. Record the bond issue and the first interest payment under
Batra Company sold \($1,500,000\) of five-year, 12% bonds on 1 August 20X2. Additional information on the bond issue is as follows:Required:1. Record the bond issuance on 1 August 20X2.2. Prepare the
On l May 20X9, Nahal imports Limited (NIL) obtained a five-year loan from a major New York bank. The loan is for US\($13,000,000,\) bears interest at 5% per annum (paid annually on the loan
You are a senior auditor auditing the December 31, 2023 financial statements of Hoang Inc., a manufacturer of novelties and party favours and a user of ASPE. During your inspection of the company
Big Country Corporation is in the business of selling cattle. Due to recent diseases plaguing cattle, Big Country is experiencing a cash shortage. Big Country issued a $280,000, six-year,
Anaconda Inc. has issued three types of debt on January 1, 2023, the start of the company’s fiscal year:1. $10 million, 10-year, 13% unsecured bonds, with interest payable quarterly, priced to
Refer to the information for Darby Corporation in E13.2.Instructionsa. Prepare the journal entries for the payment of the notes at maturity. Assume no other accruals of interest were recorded since
In each of the following independent cases, the company closes its books on December 31.1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2023. The bonds pay interest on September 1 and March 1.
Falkon Corp. reported the following amounts in the shareholders’ equity section of its December 31, 2022 SFP:During 2023, the company had the following transactions that affect shareholders’
Oregano Inc. was formed on July 1, 2020. It was authorized to issue an unlimited number of common shares and 100,000 cumulative and non-participating preferred shares carrying a $2 dividend. The
Access the financial statements and accompanying notes of Brookfield Asset Management Inc. for the year ended December 31, 2020, through SEDAR (www.sedar.com) or the company’s website and then
Manitoba Deck System Corporation is a public company whose shares are actively traded on the Toronto Stock Exchange. The following transactions occurred in 2023:Jan. 1 The company was granted a
As at December 31, 2022, Cayenne Ltd., a public company, had 40,000 common shares outstanding. During 2023, Cayenne had the following transactions:1. Issued 6,000 common shares at $29 per share, less
Stellar Corp. had the following shareholders’ equity on January 1, 2023:The contributed surplus arose from net excess of proceeds over cost on a previous cancellation of common shares. Stellar
Original Octave Inc. (OOI) is a widely held, publicly traded company that designs equipment for tuning musical instruments. Information about its shareholders’ equity is as follows.The preferred
The following is the shareholders’ equity section of Suozzi Corp. at December 31, 2023:aThe preferred shares have a $2 dividend rate, are cumulative, and participate in distributions in excess of a
Dubois Steel Corporation, as lessee, signed a lease agreement for equipment for five years, beginning January 31, 2023. Annual rental payments of $41,000 are to be made at the beginning of each lease
Castle Leasing Corporation, which uses IFRS, signs a lease agreement on January 1, 2023, to lease electronic equipment to Wai Corporation, which also uses IFRS. The term of the non-cancellable lease
The books of Binkerton Corporation carried the following account balances as at December 1, 2023:The preferred shares have dividends in arrears for the past year (2022). On December 21, 2023, the
Secord Limited has two classes of shares outstanding: preferred ($6 dividend) and common. At December 31, 2022, the following accounts and balances were included in shareholders’ equity:The
On January 1, 2023, Copeland Ltd. (a public company) had the following shareholders’ equity accounts:The following selected transactions occurred during 2023:Jan. 2 Issued 100,000 preferred shares
Some of the account balances of Vos Limited at December 31, 2022, are as follows:The price of the company’s common shares has been increasing steadily on the market; it was $21 on January 1, 2023,
Gateway Corporation has outstanding 200,000 common shares that were issued at $10 per share. The balances at January 1, 2023, were $21 million in its Retained Earnings account; $4.3 million in its
Lasson Corp. has 5,000 preferred shares outstanding ($2 dividend), which were issued for $150,000, and 30,000 common shares, which were issued for $550,000.InstructionsThe following schedule shows
Brondon Corp. purchased a put option on Mykia common shares on July 7, 2023, for $480. The put option is for 350 shares, and the strike price is $50. The option expires on January 31, 2024. The
Mallard Inc. owns shares of Oakwood Corporation that are classified as Mallard’s fair value through net income (FV-NI) investment portfolio and accounted for using the FV-NI model. At December 31,
The shareholders’ equity accounts of Abbasi Inc. have the following balances on December 31, 2023:Common shares are currently trading on the Toronto Stock Exchange at $59.InstructionsPrepare the
Perfect Ponds Inc. (PPI) is a backyard pond design and installation company. PPI was incorporated during 2023, with an unlimited number of common shares, and 50,000 preferred shares with a $3
Cornwall Inc., a publicly accountable enterprise that reports in accordance with IFRS, issued convertible bonds for the first time on January 1, 2023. The $1 million of six-year, 10% (payable
Brubacher Corporation’s post-closing trial balance at December 31, 2023, was as follows:At December 31, 2023, Brubacher had the following numbers for its common and preferred shares:The dividends
The treasurer of Hing Wa Corp. has read that the stock price of Ewing Inc. is about to take off. To profit from this potential development, Hing Wa purchased a call option on Ewing common shares on
Miss M’s Dance Studios Ltd. is a public company, and accordingly uses IFRS for financial reporting. The corporate charter authorizes the issuance of an unlimited number of common shares and 50,000
On January 1, 2023, Roper Inc. agrees to buy 3 kg of gold at $40,000 per kilogram from Golden Corp. on April 1, 2023, but does not intend to take delivery of the gold. On the day that the contract
Abourawes Services Inc. issued 1,000 $2 convertible preferred shares at $75 and 5,000 common shares at $25 each in 2022. Each preferred share is convertible into three common shares. On March 15,
Daisy Inc. issued $6 million of 10-year, 9% convertible bonds on June 1, 2023, at 98 plus accrued interest. The bonds were dated April 1, 2023, with interest payable April 1 and October 1. Bond
On September 30, 2023, Gargiola Inc. issued $4 million of 10-year, 8% convertible bonds for $4.6 million. The bonds pay interest on March 31 and September 30 and mature on September 30, 2033. Each
Oakridge Leasing Corporation signs an agreement on January 1, 2023, to lease equipment to LeBlanc Limited. Oakridge and LeBlanc follow ASPE. The following information relates to the agreement:1. The
On January 1, 2023, Ginseng Inc. entered into a forward contract to purchase U.S. $6,000 for CAD $6,336 in 30 days. On January 15, the fair value of the contract was $40 (reflecting the present value
On January 1, 2023, Salem Corp. issued $1.1 million of five-year, zero-interest-bearing notes along with warrants to buy 1 million common shares at $22 per share. On January 1, 2023, Salem had 9.3
Martinez Ltd. has the following equity accounts at January 1, 2023.Preferred shares outstanding: 2,500 shares $ 62,500Common shares outstanding: 4,000 shares 400,000(a) What was the average issue
The following are unrelated transactions.1. On March 1, 2023, Loma Corporation issued $300,000 of 8% non-convertible bonds at 104, which are due on February 28, 2043. In addition, each $1,000 bond
Radford Corporation’s charter authorized 1 million $11 par value common shares, and 300,000 6% cumulative and non-participating preferred shares, with a par value of $100 per share. The corporation
The following account balances are available from the ledger of Yutao Shui Corporation on December 31, 2022:On January 2, 2023, the corporation put into effect a shareholder-approved reorganization
Nadra Corporation reported the following information for the years ended December 31, 2022 and 2023:Prepare a dashboard in Excel highlighting the year-over-year comparison and including movement
CopMin Inc. is a private enterprise that is involved in copper mining operations. The company currently owns two operating mines. It is January 1, 2023, and CopMin has recently entered into two types
On January 1, 2023, when the fair value of its common shares was $80 per share, Hammond Corp. issued $10 million of 8% convertible debentures due in 20 years. The conversion option allowed the holder
On February 1, 2023, Daily Produce Ltd. entered into a purchase commitment contract to buy apples from Farmers Corporation. According to the contract, Daily Produce could settle the contact on a net
On April 1, 2023, Petey Ltd. paid $175 for a call to buy 700 shares of NorthernTel at a strike price of $27 per share any time during the next six months. The market price of NorthernTel’s shares
Hanover Corporation has 750,000 shares outstanding. The shares have an average cost of $45 per share. On September 5, 2023, the company repurchases 1,500 of its own shares at $75 per share and does
On January 1, 2023, MacGregor Ltd. issued 1,000 five-year, 10% convertible bonds at par of $1,000, with interest payable each December 31. Each bond is convertible into 100 common shares, and the
On January 2, 2023, Jackson Corporation purchased a call option for $500 on Walter Inc.’s common shares. The call option gives Jackson the option to buy 1,000 shares of Walter at a strike price of
On January 1, 2023, Olson Corporation issued $6 million of 10-year, 7% convertible debentures at 104. Investment bankers believe that the debenture would have sold at 102 without the conversion
Vanstone Corp., a public company, adopted a stock option plan on November 30, 2023, that designated 70,000 common shares as available for the granting of options to officers of the corporation at an
RIT Co. has an investment of 5,000 shares in a public company, SIT Ltd. In October 2023, RIT purchased 5,000 put options for SIT shares at a price of $2 per put option. The strike price associated
On January 2, 2023, Thompson Corp. issued a $100,000, four-year note at prime plus 1% variable interest, with interest payable semi-annually. On the same date, Thompson entered into an interest rate
On January 1, 2023, Fresh Juice Ltd. entered into a purchase commitment contract to buy 10,000 oranges from a local company at a price of $0.50 per orange any time during the next year. The contract
Dadayeva Inc. has $5 million of 6% convertible bonds outstanding. Each $1,000 bond is convertible into 50 no par value common shares. The bonds pay interest on January 31 and July 31. On July 31,
On January 1, 2023, Wolfgang Ltd. paid $1,000 for the option to buy 5,000 of its common shares for $25 each. The contract stipulates that it may be settled only by exercising the option and buying
On September 1, 2023, Oxford Corp. sold at 102 (plus accrued interest) 5,200 of its $1,000 face value, 10-year, 9% non-convertible bonds with detachable stock warrants. Each bond carried two
On January 1, 2023, Tiamund Corp. sold at 103, 100 of its $1,000 face value, five-year, 9% non-convertible, retractable bonds. The retraction feature allows the holder to redeem the bonds at an
Somerton Corporation had two issues of securities outstanding: common shares and a 6% convertible bond issue in the face amount of $6 million. Interest payment dates of the bond issue are June 30 and
During 2023, Genoa Limited issued retractable preferred shares. The shares may be presented to the company by the holder for redemption after 2026. Explain how these should be presented in the
Synergetics Inc. leased a new crane to Gumo Construction Inc. under a six-year, non-cancellable contract starting February 1, 2023. The lease terms require payments of $21,500 each February 1,
On November 1, 2022, Aymar Corp. adopted a stock option plan that granted options to key executives to purchase 45,000 common shares. The options were granted on January 2, 2023, and were exercisable
On January 1, 2023, Waldorf Corporation granted 40,000 options to key executives. Each option allows the executive to purchase one share of Waldorf’s common shares at a price of $30 per share. The
In January 2023, Parker Inc. issued preferred shares that must be redeemed by Parker if the fair value of the company’s common shares exceeds $100 per share. At time of issuance of the preferred

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