Module 5.1

Intermediate Financial

Reporting 1

Project 2

Chartered Professional Accountants of Canada, CPA Canada, CPA

are trademarks and/or certification marks of the Chartered Professional Accountants of Canada.

2018, Chartered Professional Accountants of Canada. All Rights Reserved.

Module 5.1 Intermediate Financial Reporting 1

PROJECT 2 (30 marks)

1. In February 20X4, Colton's Western Wear (CWW) invested excess cash in shares of PLZ

2 / 6

Corporation, a publicly traded company with over 1,000,000 shares outstanding. CWW

bought 2,700 shares at $11.65 per share. The shares were bought on speculation that they

would increase in value, as analyst valuations for the next 12 months were that the shares

would trade in the $31 to $36 range. Brokerage costs were $0.05 per share plus a flat fee

of $29.00. The closing price of the shares and the dividends per share are as follows for the

quarter-ends:

Closing value on the

stock exchange Dividend per share

February 17, 20X4 $11.65

March 31, 20X4 $16.20 $0.24

June 30, 20X4 $22.75 $0.25

September 30, 20X4 $31.20 $0.26

December 31, 20X4 $29.85 $0.26

The dividends were declared by the board of PLZ on the 15th of the months noted and

were payable on the last day of the month.

2. In 20X2, CWW bought the mortgages on two properties in Edmonton. The company

receives monthly payments that include principal and interest. One mortgage will be repaid

in full in 14 years and the other in 18 years. CWW bought the mortgages with the intention

of selling them at a profit when the financial conditions improve. However, both mortgagees

are struggling financially, and the underlying value of the properties has declined. In

December 20X4, CWW had the value of the mortgages appraised, and the appraisal

showed a total impairment of $38,500 on the mortgages. Interest and principal have been

properly recorded for this investment.

3. On July 1, 20X4, CWW bought General Company Inc.'s bonds for $250,000. The interest

rate on the bonds is 7% per annum, which is equal to the market rate. Interest is paid on

June 30 and December 31 each year. CWW intends to hold the bonds until they mature on

June 30, 20X9. At year end, CWW had not yet received the semi-annual interest payment

that was due on December 31, 20X4. The market value of the bonds was $254,500 on

December 31, 20X4.

Module 5.1 Intermediate Financial Reporting 1 Project 2

For items 4 and 5, see the schedule after item 5.

4. On January 1, 20X1, CWW bought the customer list of a retail store that was closing down

3 / 6

for $10,000. The list was expected to have value for five years.

The half-year rule is applied in depreciating property, plant and equipment, including

intangible assets. The company takes a half-year of depreciation in the year of acquisition

and a half-year of depreciation in the year of disposal.

5. In October 20X4, the company bought a new delivery vehicle. The cost was $18,500. The

vehicle is expected to have a five-year life and a $2,000 residual value. On December 31,

20X4, the company sold the old delivery vehicle for $800; however, the journal entry to

account for the sale of the vehicle has not been booked yet. On December 31, 20X4, the

cash from the sale was deposited into CWW's bank account.

The transaction was journalized as follows:

DR Cash800

CR Gain on sale of equipment800

All capital assets up to December 31, 20X3, are shown in the schedule below.

Module 5.1 Intermediate Financial Reporting 1 Project 2

Life (in years) Cost, opening Residual value

4 / 6

Accumulated

depreciation to

December 31, 20X3

Net book value, at

December 31, 20X3

Land warehouse n/a85,000.0085,000.00

Land store n/a194,400.00194,400.00

279,400.00279,400.00

Warehouse (building) 40126,000.0010,000.0027,550.0098,450.00

Store 40368,400.0078,285.00290,115.00

Tools and other equipment 1538,850.0024,605.0014,245.00

Vehicles delivery, service, sales old 516,500.00500.0014,400.002,100.00

Vehicles delivery, service, sales new 52,000.00

549,750.0012,500.00144,840.00404,910.00

Office equipment 208,500.00500.003,400.005,100.00

Computer equipment old 310,500.00600.004,950.005,550.00

Computer equipment new 3

19,000.001,100.008,350.0010,650.00

848,150.0013,600.00153,190.00694,960.00

Customer list 510,000.005,000.005,000.00

Module 5.1 Intermediate Financial Reporting 1 Project 2

5 / 6

CWW reports its financial information using IFRS.

The opening trial balance for CWW is presented below.

Colton's Western Wear

Unadjusted trial balance

As at December 31, 20X4

Account DRCR

Cash $ 146,358.00

Accounts receivable trade 42,500.00

Allowance for doubtful accounts $1,468.00

Prepaid insurance 11,500.00

Inventory clothing 30,780.00

Inventory boots 113,930.00

Inventory related products 35,550.00

Investment in PLZ shares (at FVPL) 84,240.00

Investment in General Company bonds (at

amortized cost) 250,000.00

Investment in mortgage option (at FVOCI) 5,000.00

Investment in mortgages (at FVOCI) 512,000.00

Land 279,400.00

Warehouse 126,000.00

Accumulated depreciation warehouse 27,550.00

Store 368,400.00

Accumulated depreciation store 78,285.00

Tools and other equipment 38,850.00

Accumulated depreciation tools and other

equipment 24,605.00

Vehicles delivery, service, sales 35,000.00

Accumulated depreciation vehicles 14,400.00

Office equipment 8,500.00

Accumulated depreciation office equipment 3,400.00

Computer equipment 12,300.00

Accumulated depreciation computer equipment 4,950.00

Customer list 10,000.00

Accumulated amortization customer list 5,000.00

Accounts payable 109,590.00

Payroll taxes payable 4,240.00

Short-term note payable 3,500.00

Current portion of long-term debt 7,200.00

Long-term debt 36,000.00

Preferred shares (2,000 shares outstanding) 50,000.00

Common shares (750 shares @ $400 / share) 300,000.00

Retained earnings 237,957.00

Revenue merchandise 2,637,508.00

Revenue related products 571,577.00

Module 5.1 Intermediate Financial Reporting 1 Project 2

6 / 6

Revenue clothing 526,225.00

Revenue other 198,600.00

Cost of goods sold boots 1,424,192.00

Cost of goods sold related products 355,944.00

Cost of goods sold clothing 310,500.00

Advertising 4,500.00

Audit and legal fees 13,907.00

Bad debts 1,275.00

Interest expense long-term debt 3,225.00

Insurance expense property, building and

casualty 23,700.00

Insurance automobile 2,500.00

Investment transaction costs 309.00

Janitorial services 7,800.00

Office expenses 4,800.00

Property taxes 18,600.00

Training and development 3,200.00

Telephone 6,685.00

Utilities 7,200.00

Wages, salaries and benefits 432,000.00

Dividend income 2,025.00

Gain / loss through P&L on investment in PLZ

shares 52,785.00

Mortgage interest income 57,980.00

Gain / loss on sale of property, plant and

equipment 800.00

Income tax expense225,000.00

Total $4,955,645.00$4,955,645.00

Required:

Submit the following in your response:

1. The adjusting journal entries with supporting calculations (26 marks)

2. Adjusted trial balance (1 mark)

3. The statement of comprehensive income (1 mark)

4. The statement of changes in equity (1 mark)

5. The statement of financial position (1 mark)

While preparing the financial statements of CWW for the year ended December 31, 20X4,

assume that income tax expense will remain unchanged for this scenario.