Question 2 (23 marks)

1. The company began its operation in 20X1. At the end of 20X1, the cost of inventory was $160,000 while its NRV was $140,000. At the end of 20X2, the cost of inventory was $140,000, while its NRV was $115,000.

Required (4 marks):

Prepare journal entries to apply lower-of-cost-or-NRV valuation at the end of 20X1 and 20X2 (using the indirect (allowance) method).

2. The company provided the following inventory data for 20X1:

Jan 1 Beginning inventory 1,000 units @ $4.00

May 18 Cash Purchase 2,000 units @ $4.50

Oct 5 Credit Purchase 1,000 units @$4.80

Nov 24 Credit Sales 3,000 units

Dec 1 Credit Purchase 1,000 units @$5.00

The companys reporting date is December 31.

Required (19 marks):

(1) Assume that the company uses perpetual inventory system and weighted average method, prepare journal entries on Oct 5 and Nov 24 (Please do not prepare entries to recognize sales revenue).

(2) Assume that the company uses periodic inventory system and weighted average method, prepare journal entries on Dec 1 and Dec 31.

(3) Assume that the company uses periodic inventory system and FIFO, prepare journal entries on May 18 and Dec 31.

(4) In 20X2, the company found an understatement of $3,000 for 20X1s ending inventory. The income tax rate is 30%. Prepare journal entries to correct this error.

Question 3 (23 marks)

1. The company had the following transactions or events during the year:

1. The company paid $150,000 to exchange an old equipment for a new equipment. The cost and accumulated depreciation of the old equipment were $520,000 and $280,000, respectively. The fair value of the old equipment was $200,000, while the fair value of the new equipment was $400,000. This exchange had commercial substance.
2. The old machinery with the original cost of $4,000 and accumulated depreciation of $3,500 was exchanged for a new machinery. The company paid $5,000 for the new machinery. This exchange did not have commercial substance.
3. The company purchased an equipment on August 1. The equipment will be dismantled, and the estimated site restoration costs $60,000 will be incurred after 15 years. The current discount rate is 6%. The company recorded accrued interest on this asset retirement liability on December 31. (P/F,6%,15) =0.41727, i.e., the present value of $1 at the discount rate of 6% for 15 periods.

Required (13 marks):

Prepare journal entries to record the above transactions or events.

2. On January 1, 20X1, the company purchased an equipment for $180,000. The equipment has a useful life of 12 years with no residual value. The company uses straight-line depreciation and revalues the equipment every three years. The companys reporting date is December 31. The equipments fair value is $117,000 at December 31, 20X3, and $100,000 at December 31, 20X6.

Required (10 marks):

Prepare journal entries to revalue the equipment as at December 31, 20X3 and December 31, 20X6 (using the asset adjustment method).

Question 4 (17 marks)

1. The company purchased the equipment on October 1, 20X1 for $100,000, and estimated that the equipment will use for 5 years and has a residual value of $2,000. The equipment has the following capacity: 10,000 service hours. December 31 is the reporting date. The equipment provided 700 and 2,300 service hours in 20X1 and 20X2, respectively.

Required (6 marks):

Calculate depreciation expense for 20X1 and 20X2 using different methods in the following table

	Straight-line	Double-declining-balance	Activity method
20X1
20X2

2. The company provided the data of PP&E in a cash-generating unit (CGU) as follows:

	Cost	Accumulated Depreciation
Equipment A	$ 15,000	$ 8,000
Equipment B	30,000	19,000
Equipment C	45,000	23,000

The units fair value less costs to sell was $25,000. The units future cash flows

was $32,000, and its present value was $28,000. The company adopted IFRS.

Required (11 marks):

1. Prepare journal entries to record impairment.
2. If the recoverable amount of Equipment C is $19,000, prepare journal entries to record impairment.
3. If the recoverable amount of Equipment C is $24,000, prepare journal entries to record impairment.