Question 3.1 (Total: 15 marks for completed income statement; -3 marks per error)

Presented below is selected information pertaining to Pineapple Enterprises Ltd. for last year:

Account

Increase (Decrease)

Cash

$22,000

Accounts Receivable (net)

(9,000)

Inventory

48,000

Plant Assets (net)

24,000

Accounts Payable

28,000

Bonds Payable

(14,000)

Common Shares

72,000

The only entry to retained earnings were for net income and a dividend declaration of $12,000.

Required

Calculate the net income for last year.

Question 3.2 (Total: 22 marks; 2 marks each)

For each of the items listed below, indicate how it should be treated in the financial statements. Use the following letter code for your selections:

a. Ordinary item on the income statement

b. Discontinued operations

c. Unusual item on the income statement

d. Adjustment to prior years retained earnings

_____ 1. The bad debt rate was increased from 1% to 2% of sales, thus increasing bad debt expense.

_____ 2. Obsolete inventory was written off. This was a material amount, and the first loss of this type in the company's history.

_____ 3. An uninsured earthquake loss was incurred. This was the first loss of this type in the company's history.

_____ 4. Recognition of revenue earned last year, inadvertently omitted from last year's income statement.

_____ 5. The company sold one of its warehouses at a loss.

_____6. Settlement of a court case involving the federal government, related to income taxes of three years ago. The company is continually involved in various adjustments with the federal government related to its taxes.

_____ 7. A loss incurred from expropriation the company owned resources in South America which were taken over by a dictator unsympathetic to Canadian business interests.

_____ 8. The company failed to record depreciation in the previous year.

_____ 9. Discontinuance of all production in Canada. The manufacturing operations were relocated to Honduras.

_____ 10. Loss on sale of investments. The company last sold some of its investments two years ago.

_____11. Loss on the disposal of a segment of the business.

Question 3.3 (Total: 45 marks; part 1: 24 marks; part 2: 15 marks; part 3: 6 marks)

Star Finder Inc. has provided the following information for the year ended December 31, 2021:

Sales revenue

$1,300,000

Loss on inventory due to decline in net realizable value

$80,000

Unrealized gain on FV-OCI equity investments

42,000

Loss on disposal of equipment

35,000

Interest income

7,000

Depreciation expense related to buildings omitted by mistake in 2020

55,000

Cost of goods sold

780,000

Retained earnings at December 31, 2020

980,000

Selling expense

65,000

Loss from expropriation of land

60,000

Administrative expense

48,000

Dividends declared

45,000

Dividend revenue

20,000

The effective tax rate is 25% on all items. Star Finder Inc. prepares financial statements in accordance with IFRS. The FV-OCI equity investments trade on the stock exchange. Gains/losses on FV-OCI investments are not recycled through net income.

Required:

1. Prepare a multi-step statement of financial performance for 2021, showing expenses by function. Ignore calculation of EPS.

2. Prepare the retained earnings section of the statement of changes in equity for 2021.

3. Prepare the journal entry to record the depreciation expense omitted by mistake in 2020.

Question 3.4 (Total: 18 marks)

Lunar Eclipse Inc. follows IFRS and has the following amounts for the year ended December 31, 2020: gain on sale of FV-NI investments (before tax), $15,000; loss from operation of discontinued division (net of tax), $42,000; income from operations (before tax), $220,000; unrealized holding gain-OCI (net of tax), $12,000; income tax on income from continuing operations, $63,000; loss from disposal of discontinued division (net of tax), $75,000. The unrealized holding gain-OCI relates to investments that are not quoted in an active market.

Required

1. Calculate income from continuing operations.

2. Calculate net income.

3. Calculate other comprehensive income.

4. Calculate comprehensive income.

5. How would your Solutions to parts (1) to (4) be different if Lunar Eclipse followed ASPE?