Case 1 (10 points) Dawyn Corporation Dawyn Corporation is a French-based company that prepares its consolidated financial statements in accordance with IFRS. The company reported income in 2020 of $1,000,000 and stockholders' equity at December 31, 2020, of $8,000,000 The company willing to disclose the impact of switching IFRS to U.S. GAAP. The CFO has request you to prepare a reconciliation of income and stockholders' equity from to IFRS. To U.S. GAAP You have identified the following five areas in which Dawyn's accounting principles based on IFRS differ from U.S. GAAP. 1. Inventory 2. Property, plant, and cquipment 3. Intangible assets 4. Research and development costs 5. Sale-and-leaseback transaction 6. Borrowing cost Dawyn provides the following information with respect to each of these accounting differences. Inventory At year-end 2020, inventory had a selling price of $210,000, historical cost of $200,000, a replacement cost of $150,000, a net realizable value of $190,000, and a normal profit margin of 25 percent Property, Plant, and Equipment The company acquired a building at the beginning of 2010 at a cost of $2,750,000. The building has an estimated useful life of 25 years, an estimated residual value of $250,000, and is being depreciated on a straight-line basis. The carrying value cost ratio is 64%. At the beginning of 2020, the building was appraised and determined to have a fair value of $3,250,000. There is no change in estimated useful life or residual value. (Required: using method 1 calculation adjustment please show table calculation) Intangible Assets As part of a business combination in previous year, the company acquired a brand with a fair value of $40,000. The brand is classified as an intangible asset with an indefinite life. At year- end 2020, the brand is determined to have a selling price of $40,000 with a cost to sell of $5,000. Expected future cash flows from continued use of the brand are $42,000 and the present value of the expected future cash flows is $34,000. Research and Development Costs The company incurred research costs of 100,000 and development costs of $200,000 in current year. Of this amount, 60 percent related to development activities subsequent to the point at which criteria had been met indicating that an intangible asset existed. The company has capitalized the development cost to intangible assets for the year ended 2020. Sale-and-Leaseback The company entered into financial lease agreement (under IFRS) at the beginning of year 2020. The installment payment is $10,000 per month. However the contract did not meet the S requirements of financial lease according to U.S. GAAP. Borrowing cost The company borrows 1,000,000 euro from related company on Jan 1, 2020, interest 12% annual. The money will be used to build a new factory for 3 years. The company drew the 3 money only 200,000 euro from the contract. The remaining were invested into the fixed deposit. The company received $20,000 of interest revenue. Spot rate Jan 1, 2020 = 1.16 Euro to U.S.D. Spot rate Dec 31, 2020 = 1.20 Euro to U.S.D. Required 1. Prepare a reconciliation schedule to convert 2020 income and December 31, 2020, stockholders' equity from IFRS basis to U.S. GAAP, Ignore income taxes 2. Prepare a note to explain each adjustment made in the reconciliation schedule. (If any item has no adjustment, you may just state that there is no adjustment. However if that item need to be adjusted, then you have to show how to calculate all adjustment step by step. Please use solution pattern as a guideline. Please don't just provide reconciliation balance.) 3. If you are a CFO of the company and the company is free to choose accounting standard. Which accounting standard is better for the company? Please explain the reasons. Case 1 (10 points) Dawyn Corporation Dawyn Corporation is a French-based company that prepares its consolidated financial statements in accordance with IFRS. The company reported income in 2020 of $1,000,000 and stockholders' equity at December 31, 2020, of $8,000,000 The company willing to disclose the impact of switching IFRS to U.S. GAAP. The CFO has request you to prepare a reconciliation of income and stockholders' equity from to IFRS. To U.S. GAAP You have identified the following five areas in which Dawyn's accounting principles based on IFRS differ from U.S. GAAP. 1. Inventory 2. Property, plant, and cquipment 3. Intangible assets 4. Research and development costs 5. Sale-and-leaseback transaction 6. Borrowing cost Dawyn provides the following information with respect to each of these accounting differences. Inventory At year-end 2020, inventory had a selling price of $210,000, historical cost of $200,000, a replacement cost of $150,000, a net realizable value of $190,000, and a normal profit margin of 25 percent Property, Plant, and Equipment The company acquired a building at the beginning of 2010 at a cost of $2,750,000. The building has an estimated useful life of 25 years, an estimated residual value of $250,000, and is being depreciated on a straight-line basis. The carrying value cost ratio is 64%. At the beginning of 2020, the building was appraised and determined to have a fair value of $3,250,000. There is no change in estimated useful life or residual value. (Required: using method 1 calculation adjustment please show table calculation) Intangible Assets As part of a business combination in previous year, the company acquired a brand with a fair value of $40,000. The brand is classified as an intangible asset with an indefinite life. At year- end 2020, the brand is determined to have a selling price of $40,000 with a cost to sell of $5,000. Expected future cash flows from continued use of the brand are $42,000 and the present value of the expected future cash flows is $34,000. Research and Development Costs The company incurred research costs of 100,000 and development costs of $200,000 in current year. Of this amount, 60 percent related to development activities subsequent to the point at which criteria had been met indicating that an intangible asset existed. The company has capitalized the development cost to intangible assets for the year ended 2020. Sale-and-Leaseback The company entered into financial lease agreement (under IFRS) at the beginning of year 2020. The installment payment is $10,000 per month. However the contract did not meet the S requirements of financial lease according to U.S. GAAP. Borrowing cost The company borrows 1,000,000 euro from related company on Jan 1, 2020, interest 12% annual. The money will be used to build a new factory for 3 years. The company drew the 3 money only 200,000 euro from the contract. The remaining were invested into the fixed deposit. The company received $20,000 of interest revenue. Spot rate Jan 1, 2020 = 1.16 Euro to U.S.D. Spot rate Dec 31, 2020 = 1.20 Euro to U.S.D. Required 1. Prepare a reconciliation schedule to convert 2020 income and December 31, 2020, stockholders' equity from IFRS basis to U.S. GAAP, Ignore income taxes 2. Prepare a note to explain each adjustment made in the reconciliation schedule. (If any item has no adjustment, you may just state that there is no adjustment. However if that item need to be adjusted, then you have to show how to calculate all adjustment step by step. Please use solution pattern as a guideline. Please don't just provide reconciliation balance.) 3. If you are a CFO of the company and the company is free to choose accounting standard. Which accounting standard is better for the company? Please explain the reasons