Part I (6 p) 1 2 3 The following events took place for HAWK Company after the company's fiscal March 31, 2019 year-end, but before the company's financial statements were released to the public. 4 5 (1) One of HAWK's customers declared bankruptcy on April 4. The customer owed HAWK $12.000, which HAWK had already included in its Allowance for Doubtful Accounts. Page 2: 6 7 8 (2) There was a fire in one of HAWK's three factories on April 7. The factory was completely destroyed. Insurance is estimated to cover approximately half of the loss, (3) On April 16, a judge ruled on a lawsuit filed against HAWK two years previously by one of HAWK's customers. Unfortunately for HAWK, the judge surprisingly ruled in favour of the customer, and ordered HAWK to pay damages of $50,000. Question 15 (6 points) Page 3 12 10 For each event, (a) recommend whether Hawk should (1) adjust the financial statements, (ii) disclose the event only in the notes to the financial statements, or neither adjust nor disclose and (b) briefly explain why you would make this recommendation per Page 1 Part 5 (15 marks 28 minutes) 1 2. 3 Splish Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus of $204,000. The terms of the lease are as follows: 4 5 Page 2: The lease term begins on January 1, 2018, and runs for 5 years, . The lease requires payments of $50,975 at the beginning of each year starting January 1, 2018 which includes $6,100 for maintenance and insurance costs. . At the end of the lease term, the equipment is to be returned to the lessor, Lantus' implied interest rate is 5% (which is known to the lessee) while Splish's borrowing rate is 6%. Splish uses straight-line depreciation for similar equipment 7 8 6 The year-end for both companies is December 31. 9 Question 16 (2 points) Page 3 12 Assume that both companies follow ASPE. What type of lease would this be for Splish, the lessee? Discuss all criteria that should be considered and provide any supporting calculations regarding your answer. 10 21 Page 1: 1 2. 3 4 un Page 2: 7 6 Question 17 (2 points) 9 For parts (b) and (c), assume instead that both companies follow IFRS and that this is a finance (that is not an operating) lease for the lessee. Provide a detailed cakulation to prove that the amount of the annual lease payment to be charged by the Lessor would be $204,000. (Note: annual lease payments are due on the first day of exch Page 3 year of the lease). 12 11 10 29 Page 1 1 2 3 Question 18 (11 points) 4 5 Prepare the 2018 journal entries and the January 1, 2019 journal entry for Splish Limited, the lessee. Specifically provide the journal entries for the following dates Page 2: (1) January 1, 2018 (ii) December 31, 2018 (iii) January 1, 2019 6 7 8 9 Page 3 12 11 10 299