QUESTION 4 (16 MARKS) Charlemagne Corp , a private company reporting under ASPE, had the following events and transactions for the financial year ended December 31, 2022 Jan 1 Issued an instalment note in exchange for equipment The note requires four annual blended payments of $45,000 every December 31 The market interest rate at the date of acquisition was 6 Apr 30 Sold goods costing $200,000 for $420,000 cash Charlemagne expects to incur $30,000 in costs of servicing the two year assurance type warranty Jul 1 Issued 10,000 stock appreciation rights (SARs) to its senior executives Each SAR entitles the holder to receive cash for the difference between the fair value of its shares and a pre established price of $15 The required service period is 2 years and the exercise period is 2 years from the end of the service period Nov 15 Charlemagne received a notice from the provincial environmental ministry identifying it as a potentially responsible party in a chemical spill Required a) Prepare dated journal entries to record the above events and transactions If no journal entry is required, please indicate this clearly (7 marks) b) Prepare the journal entry to record the first annual instalment on the note issued on January 1, 2022 (2 marks) c) Prepare the journal entry required to record the actual costs of $12,000 incurred by December 31, 2022 for servicing the warranty for goods sold on April 30, 2022 (1 mark) d) At December 31, 2022, the fair value per SAR was $8 while the fair value of each share of Charlemagne was $20 Prepare the journal entry required for the SARs (3 marks) e) Charlemagnes legal counsel has advised management that the company will likely be found responsible for damages, which could range between $2 million and $4 million, with no single amount being a better estimate than the rest As of December 31, 2022, the case has not yet been settled Discuss how Charlemagne should report this information in its financial statements for the year ended December 31, 2022 (3 marks)

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QUESTION 4 (16 MARKS) Charlemagne Corp., a private company reporting under ASPE, had the following events and transactions for the financial year ended December 31,

QUESTION 4 (16 MARKS)

Charlemagne Corp., a private company reporting under ASPE, had the following events and transactions for the financial year ended December 31, 2022.

Jan 1 Issued an instalment note in exchange for equipment. The note requires four annual blended payments of $45,000 every December 31. The market interest rate at the date of acquisition was 6%.

Apr 30 Sold goods costing $200,000 for $420,000 cash. Charlemagne expects to incur $30,000 in costs of servicing the two-year assurance type warranty.

Jul 1 Issued 10,000 stock appreciation rights (SARs) to its senior executives. Each SAR entitles the holder to receive cash for the difference between the fair value of its shares and a pre-established price of $15. The required service period is 2 years and the exercise period is 2 years from the end of the service period.

Nov 15 Charlemagne received a notice from the provincial environmental ministry identifying it as a potentially responsible party in a chemical spill.

Required:

a) Prepare dated journal entries to record the above events and transactions. If no journal entry is required, please indicate this clearly. (7 marks)

b) Prepare the journal entry to record the first annual instalment on the note issued on January 1, 2022 (2 marks)

c) Prepare the journal entry required to record the actual costs of $12,000 incurred by December 31, 2022 for servicing the warranty for goods sold on April 30, 2022 (1 mark)

d) At December 31, 2022, the fair value per SAR was $8 while the fair value of each share of Charlemagne was $20. Prepare the journal entry required for the SARs. (3 marks)

e) Charlemagnes legal counsel has advised management that the company will likely be found responsible for damages, which could range between $2 million and $4 million, with no single amount being a better estimate than the rest. As of December 31, 2022, the case has not yet been settled. Discuss how Charlemagne should report this information in its financial statements for the year ended December 31, 2022. (3 marks)