Question 1

Abbot Corp. issued a $270,000, three-year, zero-interest-bearing note payable to Athabasca Corp. for equipment on April 30, 2020. Abbot would normally pay interest at 6%. Abbot has a December 31 year-end and will repay the note with three equal yearly payments of $90,000. Abbot Corporation follows IFRS.

Instructions

Prepare the following journal entries for Abbot Corporation:

A.Record the note

B.December 31, 2020 interest accrual

C.April 30, 2021 payment

D.December 31, 2021 interest accrual

E.April 30, 2022 payment

As described in the Course Guide, use a Word table and correct journal entry format for all your journal entries. Round journal entry amounts to the nearest dollar. Round interest to the nearest full month.

Example of a Word table for journal entries:

May 30, 2020

Cash

3,000

Sales

3,000

30

Cost of goods sold

2,000

Cash

2,000

This question is easier to do if you make an amortization table in Excel. You do not need to provide the amortization table.

Question 2

Beartooth Appliances sells televisions for $1,900 each, which includes a 2-year assurance-type warranty that requires the company to perform periodic services and to replace defective parts. During 2020, Beartooth sold 600 televisions for cash. Based on experience, the company has estimated the total 2-year warranty costs to be $40. (Assume sales all occur on December 31, 2020.) In 2021, Beartooth Company incurred actual warranty costs relative to 2020 television sales of $13,000.

Beartooth also sells a five-year extended warranty for $300. Warranty expenditures are assumed to be zero in the first two years (since the assurance-type warranty covers these repairs) and then evenly over the final three years.

Of the 600 televisions sold in 2020, half the customers purchased the extended warranty. During 2023, Beartooth incurred $22,000 in warranty costs related to the 2020 television sales and the extended warranty. Beartooth Corporation follows IFRS.

Instructions

A.Prepare the entries for the sale of the televisions, including both warranties.

B.Prepare the entry for 2021 warranty costs. Use a date of May 30.

C.Prepare the 2023 entry for the warranty costs (use a date of May 30) and the December 31, 2023, adjusting entry for the extended warranty.

Question 3

On June 30, 2020, Helmer Corp. issued $500,000 in long-term bonds. The bonds will mature in 10 years and have a stated interest rate of 8%. The market rate at time of issue was 10%. The bonds pay interest semi-annually on June 30 and December 31. On September 30, 2022, Helmer decided to retire 20% of the bonds. At that time, the bonds were selling at 98. Helmer follows IFRS.

Instructions

(Round all values to the nearest dollar.)

A.Makhe all entries related to the issuance of the bonds and payments of interest to June 30, 2022.

B.Prepare the journal entries to record the partial retirement on September 30, 2022. This question is easier to do if you make an amortization table in Excel.

Question 4

Pennask Corporation follows IFRS. Below are independent situations:

A.During 2020, a factory worker was injured. The accident was partly the worker's fault, and partly Pennask's fault. The employee has sued Pennask Corp. for $600,000. The corporation's legal counsel believes it is possible that Pennask will lose the lawsuit. If they lose, the estimated loss is $150,000 to $400,000.

B.During 2020, Pennask was sued for $2,500,000. The plaintiff is alleging breach of contract, and defense counsel believes an unfavourable outcome is more likely than not. A reliable measurement of the award to the plaintiff is between $600,000 and $1,800,000.

C.During 2020, Pennask sued another company. The corporation's legal counsel believes it is likely that Pennask will be awarded damages of $1,000,000.

D.In November of 2020, one of Pennask's factories caught fire and was destroyed. Insurance will cover the full loss except for a deductible on the policy of $400,000. Pennask is quite concerned that insurance premiums will increase substantially, perhaps even double.

Instructions

For each situation, fully discuss the correct accounting treatment, including any required disclosures. Provide an explanation for your answers. A reasonably thorough answer would be explained.