Question
5.Mohammed Ltd. purchased $181,200 of 6-year, 8% bonds from Caleb Corp for $172,939 on January 1, 2020. The market rate of interest is 9%. Mohammed
5.Mohammed Ltd. purchased $181,200 of 6-year, 8% bonds from Caleb Corp for $172,939 on January 1,
2020. The market rate of interest is 9%. Mohammed Ltd. classified the investment using the amortized
cost method. The bonds pay interest semi-annually.
Required:
a) make the journal entry for the purchase of the investment and receipt of interest for the first two
interest payments received. Assume that Mohammed Ltd. uses IFRS.
b) make the same three journal entries required above assuming that Mohammed Ltd. uses ASPE
and has chosen to use the straight-line method to amortize the discount.
6Oliver Corporation depreciates machinery at a rate of 10% per year and buildings at a rate of 5% per
year.
The following transactions occurred in 2020:
March 31, 2020
A building which Oliver Corporation had purchased on January 1, 2007 for $1.9 million (with
a current fair value of $1 million) was exchanged for another building which also had a
current fair value of $1 million. Depreciation has been properly charged from Jan 1, 2007
through Dec 31, 2019. Both parcels of land on which the buildings were located were equal
in value, and had a fair value equal to book value.
September 30, 2020
Machinery with a cost of $150,000 and accumulated depreciation through December 31,
2019 of $60,000 was exchanged, along with $68,000 cash, for a parcel of land with a fair
market value of $132,000.
Required:
Prepare all appropriate journal entries for Oliver Corporation for the above dates.
Question 7
Pia Corporation owns a building that it had purchased on January 1, 2019 for $2,500,000 cash and is
accounted for in a separate account. The company is using the revaluation model to account for its
buildings and revalues them annually. Pia Corporation uses straight-line depreciation over the asset's
20-year useful life with no residual value. The asset's fair value was equal to its book value on Dec. 31,
2019, and was $2,300,000 on Dec. 31, 2020.
Required: Assuming Pia Corporation uses the asset adjustment (elimination) method for revaluation,
prepare all required journal entries for 2019 and 2020.
3
Question 8
On January 20, 2018, Conrad Corp. purchased a high-end condo complex for $9,800,000 cash. In
addition to the purchase price, Conrad Corp. paid transfer fees of $180,000, and legal fees of $17,000.
The complex qualifies as an investment property. Conrad Corp. uses IFRS and applies the fair value
model to all its investment properties. Assume a December 31 year end.
Wages paid to maintenance staff during each of the following three years:
2018: $115,000
2019: $119,000
2020: $114,500
Fair value information:
Dec 31, 2018: $9,400,000
Dec 31, 2019: $10,100,000
Dec 31, 2020: $10,350,000
Required: Prepare the journal entries for 2018, 2019, and 2020.
Question 9
In February 2019, Quessa Corp. began the construction of a multi-story building. The construction is
expected to be completed by January 2020.
During 2019, the following payments were made:
May 1: $2,000,000
July 1: $3,000,000
Sept 1: $1,800,000
Nov 1: $1,900,000
No asset specific debt was incurred.
During 2019, Quessa's general debt consisted of the following:
$4,000,000, 4%, 3-year note,
$2,400,000, 5.5%, 2-year note,
$1,500,000, 3.8%, 4-year note.
Required:
a) Calculate the weighted-average accumulated expenditures for the year ended December 31,
2019.
b) Calculate the weighted-average capitalization rate on Quessa's general-purpose debt for the
year ended December 31, 2019.
c) Calculate the avoidable borrowing costs.
d) Calculate the amount of Quessa's borrowing costs that should be capitalized.
Question 10
Six identical vehicles which cost $600,000 total are acquired by Nick Ltd. on April 1, 2020. Their
estimated residual value is $6,000 each and expected life is seven years. These assets are Class 10
with a maximum capital cost allowance rate of 30%. Nick Ltd. has a December 31 year end.
Required:
a) Calculate the depreciation expense or capital cost allowance using the following methods for
both 2020 and 2021. (round to the nearest dollar)
1) Straight-line
2) Double-declining balance
3) Maximum capital cost allowance
4
Question 11
Required: State whether the following statements are true or false. If the statement is false, rewrite it
to make it true.
1. Once a loss has been recognized, IFRS prohibits the subsequent reversal of that loss.
2. Only assets with cash flows that are independent from those of other assets are included in a
cash-generating unit (CGU).
3. When using the straight-line method, an asset's residual value is deducted in the calculation of
depreciation expense
4. An asset that has been depreciated to its residual value can continue to be depreciated until it
reaches a net book value of zero.
5. The choice of depreciation method is specified in GAAP and does not require the use of
professional judgment.
6. Depreciation is the process of allocating the cost of assets in a manner that is consistent with
the desired effect on income.
7. Changes in the depreciation rate due to changes in the estimate of the asset's useful life are
accounted for in the current and future periods.
8. Gains and losses from the disposal of property, plant and equipment are always reported as
part of other comprehensive income.
9. The term "recoverable amount" with respect to a capital asset's impairment has the same
definition under ASPE and IFRS.
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