Case Summary

Best Value Hardware (BVH), Inc., a public company, is preparing their balance sheet, and income statement for the calendar year-ended December 31, 2016 based on U.S. GAAP and also based on IFRS.BVH?s accountant has already recorded most of the entries at year end on the trial balance but needs your assistance in accounting for the following transactions and preparing the appropriate adjusting journal entries.

Read through the following information, then using the providedExcel template, complete the missing information. For this project, you will first complete the calculations, journal entries, and adjusting entries. This information will then be reflected in the financial statements. You will use these financial statements to compare the financial information generated under IFRS and under GAAP.

Part 1:Contingencies (Due at the end of unit 1)

Loss Contingency

12/31/16 Best Value Hardware is being sued by an employee who slipped on spilled milk and broke his back. BVH?s lawyers expect to lose the lawsuit and estimate the loss to be between $250,000 and $500,000 with no one outcome being assessed as more likely than the other.

Gain Contingency

12/31/16 Best Value Hardware had a delivery truck drive through the side of one of their stores causing major damages. The delivery truck is owned by an independent party and Best Value Hardware is suing the trucking company for the $2,000,000 in damages. BVH?s lawyers are virtually certain they will win the lawsuit and receive the full amount of damages.

Requirements in the provided Excel Template ? Contingencies tab:

In the shaded text boxes discuss whether or not Best Value Hardware recognize a contingent liability or Gain under U.S. GAAP and IFRS. If a contingency is recognized, determine how much.

Record necessary adjusting journal entries in their own adjusting journal entry for 12/31/16.

Part 2: Compute the Inventory value (Due at the end of unit 2)

Best Value Hardware had the following inventory on hand at 12/31/16. BVH uses the LIFO method for measuring inventory.

Item# UnitsLIFO $CostLIFO $CostNRVLight bulbs177,000

$115,050$125,050$150,450Paint Brushes250,000$250,000$275,000$325,000Live Plants150,000$375,000$395,000$337,500Holiday Items175,000$603,750$633,750$568,750Hammers200,000$550,000$575,000$600,000$1,893,800 $2,003,800 $1,981,700

Requirements in the provided Excel Template on the Inventory Worksheet Tab:

Compute the value of the inventory using LIFO and GAAP.

Create the required journal entries regarding the value of the inventory.

Compute the value of the inventory using FIFO and IFRS.

Discuss why the valuation and journal entries are different if computed under IFRS.

Part 3:Property, Plant and Equipment (Due at the end of unit 4, but you will start it in unit 3)

The Company has the following Property, Plant & Equipment at the beginning of January, 2016:

AssetPurchase DateOriginal CostUseful Life - YearsAccumulated Depreciation Straight-lineBook Value

12/31/15

Denver, CO

Vacant Land

9/15/2009$1,610,0001,610,000

Golden, CO

Land

1/1/2015$1,280,000$1,280,000Golden, CO

Building

1/1/20152,175,00015(145,000)

2,030,000Houston, TX

Machinery &

Equipment

6/1/2015425,1005(49,595)375,505Additionally, the company engaged in the following transactions during 2016:

**Note: these transactions have not yet been recorded. You must create the Journal Entries.

JE#1 - August 31, 2016

Purchased land for $850,000 and constructed a building ? location: Dallas, Texas. All costs were paid for in cash and construction was completed 8/31/16:

Labor & materials $1,250,000

Architecture fees $18,250

Interest costs capitalized on construction $58,000

Prepaid annual insurance of $14,500 for period: 9/1/16 ? 8/31/12

The building has a useful life of 18 years, straight-line depreciation, $0 Residual Value.For IFRS purposes, the building is revalued on an annual basis.

JE#2 and JE#3- September 30, 2016

Sold the land and building - Golden, Colorado for $3,157,000 cash. Record depreciation through the date of sale, then record the sale. Be sure to make a t-account to keep track of the book value and accumulated depreciation.

JE#4 ? November 1, 2016

Exchanged the Vacant Land for land and a building in Denver, Colorado. The independent appraised fair value of the land and building were as follows: Land $325,000; Building $1,650,000. The Company paid cash to the other party of $260,000 and paid cash for legal fees of $12,000 (assume the legal fees were attributed to the building) as part of the exchange. In addition, the Company prepaid the annual property tax of $30,000 with Cash. Useful life of the building is 10 years, $0 residual value, and straight-line depreciation. For IFRS purposes, the building is revalued on an annual basis.

JE#5 ? November 30, 2016

Paid cash of $135,000 for new furniture and fixtures for the new building in Denver, Colorado. Paid sales tax $10,800 and installation costs of $7,500. Useful life is 7 years, $0 residual value, straight-line depreciation.

Adjusting Entries: Year-end information at 12/31/16:

DepreciationDepreciation MethodUseful LifeBuilding-Dallas, TexasStraight-line18 Years

Building-Denver, ColoradoStraight-line10 Years

Furniture & Fixtures-Denver, ColoradoStraight-line7 Years

Machinery & Equipment-Houston, TexasStraight-line5 Years

Prepaid ExpensesDate paidAmount paidProperty Taxes11/1/2016$30,000Insurance8/31/2016$14,500Fair Market Value Year-end information at 12/31/16:

FMV on 12/31/2016Building-Dallas, Texas$1,320,000Building-Denver, Colorado$1,605,000Requirements in the provided Excel template:

Record General Journal Entries for the PP&E events that occurred during the year.Be sure to record partial year's expenses as appropriate.

Complete the Depreciation Calculation Table. Be sure to pro-rate as necessary.

Complete the Prepaid Expenses Table. Be sure to pro-rate as necessary.

Enter the year-end Adjusting Journal Entries for Depreciation and Prepaid expenses.

Discuss the Fair Value revaluation option for the properties under GAAP and IFRS, and compute the ending book values for the two properties listed.

Part 4: Analysis (Due at the end of unit 5)

Compute the financial ratios from the provided Financial Statements in the Excel worksheet, conduct a short ratio analysis comparing the financial information generated under IFRS and under GAAP.

Requirements in the provided Excel Template:

1.Compute the ratios listed.

2.Discusswhythe financial statements and ratios differ under the two standards of accounting, GAAP and IFRS.

ACC321 Intermediate Accounting II Course Project: Best Value Hardware, Inc. - A Comparison of IFRS and GAAP Case Summary Best Value Hardware (BVH), Inc., a public company, is preparing their balance sheet, and income statement for the calendar year-ended December 31, 2016 based on U.S. GAAP and also based on IFRS. BVH's accountant has already recorded most of the entries at year end on the trial balance but needs your assistance in accounting for the following transactions and preparing the appropriate adjusting journal entries. Read through the following information, then using the provided Excel template, complete the missing information. For this project, you will first complete the calculations, journal entries, and adjusting entries. This information will then be reflected in the financial statements. You will use these financial statements to compare the financial information generated under IFRS and under GAAP. Part 1: Contingencies (Due at the end of unit 1) Loss Contingency o 12/31/16 Best Value Hardware is being sued by an employee who slipped on spilled milk and broke his back. BVH's lawyers expect to lose the lawsuit and estimate the loss to be between $250,000 and $500,000 with no one outcome being assessed as more likely than the other. Gain Contingency o 12/31/16 Best Value Hardware had a delivery truck drive through the side of one of their stores causing major damages. The delivery truck is owned by an independent party and Best Value Hardware is suing the trucking company for the $2,000,000 in damages. BVH's lawyers are virtually certain they will win the lawsuit and receive the full amount of damages. Requirements in the provided Excel Template - Contingencies tab: 1. In the shaded text boxes discuss whether or not Best Value Hardware recognize a contingent liability or Gain under U.S. GAAP and IFRS. If a contingency is recognized, determine how much. 2. Record necessary adjusting journal entries in their own adjusting journal entry for 12/31/16. Part 2: Compute the Inventory value (Due at the end of unit 2) Best Value Hardware had the following inventory on hand at 12/31/16. BVH uses the LIFO method for measuring inventory. Item # Units LIFO $Cost FIFO $Cost NRV Light bulbs 177,000 $115,050 $125,050 $150,450 Paint brushes 250,000 $250,000 $275,000 $325,000 Live plants 150,000 $375,000 $395,000 $337,500 Holiday items 175,000 $603,750 $633,750 $568,750 Hammers 200,000 $550,000 $575,000 $600,000 $1,893,800 $2,003,800 $1,981,70 0 Requirements in the provided Excel Template on the Inventory Worksheet Tab: 1. Compute the value of the inventory using LIFO and GAAP. 2. Create the required journal entries regarding the value of the inventory. 3. Compute the value of the inventory using FIFO and IFRS. 4. Discuss why the valuation and journal entries are different if computed under IFRS. Part 3: Property, Plant and Equipment (Due at the end of unit 4, but you will start it in unit 3) The Company has the following Property, Plant & Equipment at the beginning of January, 2016: Asset Purchase Date Original Cost Useful Life - Years Denver, CO Vacant Land 9/15/2009 $1,610,000 1,610,000 Golden, CO Land 1/1/2015 $1,280,000 $1,280,000 Golden, CO - 1/1/2015 2,175,000 15 Accumulate d Depreciation Straight-line (145,000) Book Value 12/31/15 2,030,000 Building Houston, TX Machinery & Equipment 6/1/2015 425,100 5 (49,595) 375,505 Additionally, the company engaged in the following transactions during 2016: **Note: these transactions have not yet been recorded. You must create the Journal Entries. JE#1 - August 31, 2016 Purchased land for $850,000 and constructed a building - location: Dallas, Texas. All costs were paid for in cash and construction was completed 8/31/16: Labor & materials $1,250,000 Architecture fees $18,250 Interest costs capitalized on construction $58,000 Prepaid annual insurance of $14,500 for period: 9/1/16 - 8/31/12 The building has a useful life of 18 years, straight-line depreciation, $0 Residual Value. For IFRS purposes, the building is revalued on an annual basis. JE#2 and JE#3- September 30, 2016 Sold the land and building - Golden, Colorado for $3,157,000 cash. Record depreciation through the date of sale, then record the sale. Be sure to make a t-account to keep track of the book value and accumulated depreciation. JE#4 - November 1, 2016 Exchanged the Vacant Land for land and a building in Denver, Colorado. The independent appraised fair value of the land and building were as follows: Land $325,000; Building $1,650,000. The Company paid cash to the other party of $260,000 and paid cash for legal fees of $12,000 (assume the legal fees were attributed to the building) as part of the exchange. In addition, the Company prepaid the annual property tax of $30,000 with Cash. Useful life of the building is 10 years, $0 residual value, and straight-line depreciation. For IFRS purposes, the building is revalued on an annual basis. JE#5 - November 30, 2016 Paid cash of $135,000 for new furniture and fixtures for the new building in Denver, Colorado. Paid sales tax $10,800 and installation costs of $7,500. Useful life is 7 years, $0 residual value, straight-line depreciation. Adjusting Entries: Year-end information at 12/31/16: Depreciation Building - Dallas, Texas Building - Denver, Colorado Furniture & Fixtures - Denver, Colorado Machinery & Equipment - Houston, Texas Prepaid Expenses Property Taxes Insurance Depreciation Method Straight-line Straight-line Straight-line Straight-line Date paid 11/1/2016 8/31/2016 Useful life 18 years 10 years 7 years 5 years Amount paid $30,000 $14,500 Fair Market Value Year-end information at 12/31/16: Building - Dallas, Texas Building - Denver, Colorado FMV on 12/31/2016 $1,320,000 $1,605,000 Requirements in the provided Excel template: 1. Record General Journal Entries for the PP&E events that occurred during the year. Be sure to record partial year's expenses as appropriate. 2. Complete the Depreciation Calculation Table. Be sure to pro-rate as necessary. 3. Complete the Prepaid Expenses Table. Be sure to pro-rate as necessary. 4. Enter the year-end Adjusting Journal Entries for Depreciation and Prepaid expenses. 5. Discuss the Fair Value revaluation option for the properties under GAAP and IFRS, and compute the ending book values for the two properties listed. Part 4: Analysis (Due at the end of unit 5) Compute the financial ratios from the provided Financial Statements in the Excel worksheet, conduct a short ratio analysis comparing the financial information generated under IFRS and under GAAP. Requirements in the provided Excel Template: 1. Compute the ratios listed. 2. Discuss why the financial statements and ratios differ under the two standards of accounting, GAAP and IFRS. ACC321 Term Project: Part 1 - Contingencies Required: Would Best Value Hardware recognize a contingent liability or Gain under U.S. GAAP and IFRS? If so, how much? GAAP DISCUSS: IFRS DISCUSS: Journal Entries Date AJ# 1 12/31/16 Debit Note: Credit ACC321 Term Project - Inventory Required: Calculate the value of inventory on hand under U.S. GAAP and compute necessary write-downs. Apply the LCM rule to each type of product. Record necessary adjusting journal entries in the template below. Finally, discuss how the inventory valuation would be different under IFRS. This part of your project is due at the end of Unit 2. Part 1: U.S. GAAP Inventory Item Light bulbs Paint brushes Live plants Holiday items Hammers # Units LIFO Cost $ Part 2: Journal Entries JE # JE #1 Date 12/31/2016 Note: JE #2 12/31/2016 Note: Part 3: IFRS Comparison IFRS Inventory - NRV $ LC-NRV - Adjustment Adjusting Entry (Yes/No) Debit Credit 0 ACC321 Term Project - Inventory Item Light bulbs Paint brushes Live plants Holiday items Hammers # Units FIFO Cost $ - NRV $ LC-NRV - Adjustment 0 Discuss why the valuation and journal entries are different if computed under IFRS. Discuss: Adjusting Entry (Yes/No) ACC321 Term Project: Part 2 - PP&E Required: Record journal entries for the PP&E events that occurred during the year. Be sure to record partial year's expenses as appropriate. Then enter the year-end adjusting journal entries in Part 2 below. Finally, in Part 3, discuss the Fair Value revaluation option for the properties under GAAP and IFRS, and compute the ending book values for the properties listed. Be sure to complete the blue-shaded areas only! PP&E Part 1: Journal Entries for PP&E events JE # Date JE# 1 8/31/16 Land - Dallas, Texas Building - Dallas, Texas Prepaid Expense (Insurance) Cash Note: JE#2 9/30/16 Depreciation Expense Accumulated Depreciation - Building Golden, CO Note: JE#3 9/30/16 Cash Accum. Depreciation - Building Golden, CO Loss on Disposal Building - Golden, Colorado Land - Golden, Colorado Note: JE#4 11/1/16 Land - Denver, Colorado Building - Denver, Colorado Prepaid Expense (Property Tax) Land (Vacant)- Denver, CO Gain on Exchange Cash Note: JE#5 11/30/16 Furniture & Equipment- Denver, Colorado Cash Note: Debit Credit ACC321 Term Project: Part 2 - PP&E PP&E Part 2: Year-end Adjusting Entries Step 1: Compute Depreciation Asset Depreciation Useful life Method years Original Cost Full year of depreciation Building - Dallas, Texas Building - Denver, Colorado Furniture & Fixtures - Denver, Colorado Machinery & Equipment - Houston, Texas Step 2: Compute Portion of Prepaid to Expense Prepaid Expense Prepaid Taxes Prepaid Insurance Step 3: Make Journal Entries JE # Date AJ#1 12/31/2016 Depreciation Expense - Building - Dallas, TX Insurance Expense Prepaid Expense (Insurance) Accumulated Depreciation - Building - Dallas, TX Notes: Number of months this Amount to Original Cost year Pro-rating factor Expense 0.00% 0.00% Debit AJ#2 12/31/2016 Depreciation Expense - Building - Denver, CO Property Tax Expense Prepaid Expense (Property Tax ) Accumulated Depreciation - Building - Denver, CO Notes: AJ#3 12/31/2016 Depreciation Expense - Furniture & Fixtures - Denver Accumulated Depreciation - Furniture & Fixtures - Denver, CO Notes: AJ# 4 12/31/2016 Depreciation Expense - Machinery & Equip - Houston, TX Accumulated Depreciation - Machinery & Equip - Houston, TX Notes: Credit Number of months this Pro-rating Partial Year year factor Depreciation 0.00% 0.00% 0.00% 0.00% ACC321 Term Project: Part 2 - PP&E Part3: Revaluation - Building Denver, CO and Building Dallas, TX Required: Discuss the FV revaluation of the PP&E at year-end under GAAP and IFRS, and compute the Carrying Value under GAAP and IFRS. Adjust for revaluation as necessary. Building - Denver, CO Original Cost Accum. Deprec. Carrying Value Fair Market Value Revaluation Adj Ending Book Value Building - Dallas, TX Original Cost Accum. Deprec. Carrying Value Fair Market Value Revaluation Adj Ending Book Value Discuss: GAAP IFRS 0 0 0 0 These are for informational purposes only. There are no activities to complete on this tab. Best Value Hardware U.S. GAAP Balance Sheet 12/31/2016 Assets Current Assets Cash and Cash Equivalents Inventories (LIFO) Prepaid Expenses and Other Current Assets Accounts Receivable Total Current Assets Best Value Hardware IFRS Balance Sheet 12/31/2016 Assets Noncurrent Assets Total Noncurrent Assets 925,690 1,821,300 34,667 1,850,000 4,631,657 Total Property, Net Other Assets 4,320,545 356,193 Total Assets 9,308,395 Liabilities and Stockholders' Equity Current Liabilities 2,448,920 Noncurrent Liabilities Total Liabilities Stockholders' Equity Total Liabilities and Stockholders' Equity 2,399,300 4,848,220 4,460,175 9,308,395 Current Assets Inventories (FIFO) Prepaid Expenses and Other Current Assets Cash and Cash Equivalents Accounts Receivable Total Current Assets Total Assets Liabilities and Stockholders' Equity Total Stockholders' Equity Liabilities Noncurrent Liabilities Current Liabilities Total Liabilities Total Liabilities and Stockholders' Equity 5,724,393 1,976,250 34,667 925,960 1,850,000 4,786,877 10,511,270 5,513,050 2,449,300 2,448,920 4,998,220 10,511,270 These are for informational purposes only. There are no activities to complete on this tab. Best Value Hardware U.S. GAAP STATEMENT OF INCOME FOR THE YEAR ENDED 12/31/16 Sales and other revenue Cost of goods sold Gross profit on sales Best Value Hardware IFRS STATEMENT OF INCOME FOR THE YEAR ENDED 12/31/16 28,104,000 (17,589,200) 10,514,800 Sales and other revenue Cost of goods sold Gross profit on sales 28,104,000 (17,000,000) 11,104,000 Operating and administrative expenses: Insurance Property tax Depreciation Other Operating expenses 404,833 505,000 247,455 5,876,510 Operating and administrative expenses: Insurance Property tax Depreciation Other Operating expenses 404,833 505,000 240,435 5,876,510 Total operating and administrative expenses Operating profit 7,033,798 3,481,002 Total operating and administrative expenses Operating profit 7,026,778 4,077,222 Other income (expense): Income before income taxes Income taxes (299,000) 3,481,002 (539,300) Other income (expense): Income before income taxes Income taxes 608,850 4,686,072 (539,300) Net income (loss) 2,941,702 Net income (loss) 4,146,772 ACC321 Term Project: Part 4 - Ratio Analysis Compute the following ratios from the Financial Statements provided: GAAP IFRS a. Current b. Quick c. Debt to Assets d. Return on Assets e. Return on Equity f. Profit Margin g. Gross Margin h. Asset Turnover Required: Discuss why the financial statements and ratios differ under the two standards of accounting