1)

(Financial Statement Impact of Liability Transactions)The following is a list of possible transactions.

1. Purchased inventory for $80,000 on account. (Assume a perpetual system is used.)
2. Issued an $80,000 note payable in payment of an account (see item 1 above).
3. Recorded accrued interest on the note from item 2 above.
4. Borrowed $100,000 from the bank by signing a $104,000, six-month, non-interest-bearing note.
5. Recognized four months of interest expense on the note from item 4 above.
6. Recorded cash sales of $81,900, which includes 5% provincial sales tax.
7. Recorded salaries and wages expense of $35,000. The cash paid was $25,000; the difference was due to various amounts withheld.
8. Recorded employer's payroll taxes.
9. Accrued accumulated vacation pay.
10. Signed a $2-million contract with Construction Corp. to build a new plant.
11. Recorded bonuses due to employees.
12. Recorded a provision on a lawsuit that the company will probably lose.
13. Accrued assurance-type warranty expense.
14. Paid warranty costs that were accrued in item 13 above.
15. Recorded sales of product and separately sold service-type warranties.
16. Paid warranty costs under contracts from item 15 above.
17. Recognized warranty revenue (see item 15 above).
18. Recorded estimated liability for premium claims outstanding.
19. Recorded the receipt of a cash down payment on services to be performed in the next accounting period.
20. Received the remainder of the contracted amount and performed the services related to item 19 above.

Instructions

a.Set up a table using the format that follows and, using ASPE, analyze the effects of the 20 transactions on the financial statement categories in the table. Use the following codes: increase (I), decrease (D), or no net effect (NE).

Transaction

Assets

Liabilities

Shareholders' Equity

Net Income

b.Determine if any of the transactions would have had different criteria applied for recognition had IFRS been followed.

2)

Healy Corp., a leader in the commercial cleaning industry, acquired and installed, at a total cost of $110,000 plus 15% HST, three underground tanks to store hazardous liquid solutions needed in the cleaning process. The tanks were ready for use on February 28, 2020.

The provincial ministry of the environment regulates the use of such tanks and requires them to be disposed of after 10 years of use. Healy estimates that the cost of digging up and removing the tanks in 2030 will be $28,000. An appropriate interest or discount rate is 6%.

Healy also manufactures commercial cleaning machines that it sells to dry cleaning establishments throughout Nova Scotia. During 2020, Healy sold 20 machines at a price of $12,000 each plus 15% HST. The machines were sold with a two-year warranty for parts and labour. Similar warranty agreements are available separately and are estimated to have a stand-alone value of $970. Sales in 2020 occurred evenly throughout the year. Any revenue related to the warranty agreements is assumed to be earned evenly over the two-year contract term as follows: 2020, 25%; 2021, 50%; and 2022, 25%. Healy estimates the total cost of servicing the warranties will be $10,800 over the two-year contract term. Healy incurred actual warranty expenditures of $2,700 in 2020.

Instructions

Answer the following, assuming Healy follows IFRS and has a December 31 fiscal year end.

a.Assuming straight-line depreciation and no residual value for the tanks at the end of their 10-year useful life, what is the balance in the asset Storage Tanks account, net of accumulated depreciation, at December 31, 2020? Round amounts to the nearest dollar.

b.What is the balance of the asset retirement obligation liability at December 31, 2022, assuming there has been no change to the estimate of the final cost of disposal? Round amounts to the nearest dollar.

c.Determine the balance of the warranty-related liability that would be reported on the December 31, 2020 SFP. Ignore HST and assume that Healy uses the (service type) approach to account for warranties.

d.Determine the warranty expense that would be reported on Healy's 2020 income statement.

e.Healy has been permitted to file its HST return on December 31 each year and either send a cheque or request a refund on this date. Assuming there are no other HST transactions during the year, will Healy be sending a cheque or requesting a refund on December 31, 2020? What will be the amount of the cheque paid or refund claimed?

3)

The following is a payroll sheet for Bayview Golf Corporation for the first week of November 2020. The EI rate is 1.66% and the maximum annual deduction per employee is $858.22. The employer's obligation for EI is 1.4 times the amount of the employee deduction. Assume a 15% income tax rate for all employees, and a 4.95% CPP premium charged to both the employee and employer, up to an annual maximum of $2,593.80 per employee. Union dues are 1% of earnings. Bayview is a private corporation following ASPE.

NameEarnings

to Oct. 31

1st Week Nov.

Earnings

Income Tax

Deducted

CPP

EI

Union

Dues

L. Meloche $36,120

$ 840

P. Groot33,540

780

D. Beaux54,180

1,260

C. Regier6,000

1,000

Instructions

a.Complete the payroll sheet and prepare the necessary entry to record the payment of the payroll. Round amounts to the nearest cent.

b.Prepare the entry to record the employer's payroll tax expense.

c.Prepare the entries to record the payments of the payroll liabilities (1) to the Receiver General for Canada and (2) to the employees' union. Assume that Bayview pays all payroll liabilities at the end of each week.

d.What is the total expense that Bayview will report for the first week of November 2020 relative to employee compensation? (Ignore any vacation pay accrual.) What percentage of gross pay is the payroll tax expense? Will this percentage be a constant for all pay periods?

4)

To increase the sales of its Sugar Kids breakfast cereal, KW Foods Limited (KW) places one coupon in each cereal box. Five coupons are redeemable for a premium consisting of a child's hand puppet. In 2020, KW purchases 40,000 puppets at $1.50 each and sells 480,000 boxes of Sugar Kids at $3.75 a box. Ignore any cost of goods sold. KW estimates that $0.20 of the sale price relates to the hand puppet to be awarded.From its experience with other similar premium offers, KW estimates that 40% of the coupons issued will be mailed back for redemption. During 2020, 115,000 coupons are presented for redemption. KW is a private company following ASPE.

Instructions

a.Prepare the journal entries that should be recorded in 2020 relative to the premium plan, assuming that KW follows a policy of charging the cost of coupons to expense as they are redeemed and adjusting the liability account at year end.

b.Prepare the journal entries that should be recorded in 2020 relative to the premium plan, assuming that KW follows a policy of charging the full estimated cost of the premium plan to expense when the sales are recognized.

c.How would the accounts resulting from the entries in parts (a) and (b) be presented on the 2020 financial statements?

d.Prepare the journal entries that should be recorded in 2020 relative to the premium plan, assuming that KW follows IFRS and accounts for its promotional programs in accordance with the revenue approach and IFRS 15.

e.How would the accounts resulting from the entries in part (d) be presented on the 2020 financial statements?