Earthcom Inc. is in the telecommunications industry. The company builds and maintains telecommunication lines that are buried in the ground. The company is a public company and has been having some bad luck. One of its main underground telecommunications lines was cut by accident and the company cannot determine the exact location of the problem. As a result, many of the company’s customers have lost service. Because Earthcom did not have a backup plan, it is uncertain about how long it will take to restore service. The affected customers are not happy and are threatening to sue. In order to try to calm them down, Earthcom has managed to purchase some capacity from a competitor. Unfortunately, the cost of the service is much higher than the revenues from Earthcom’s customers. Earthcom is also currently spending quite a bit on consulting fees (on lawyers and damage control consultants). In addition, Earthcom is spending a significant amount of money trying to track down the problem with its line, and although it has had no luck so far, the company recently announced that it was confident that services would be restored imminently. As a result of the work being done, Earthcom feels that it will be in a better position to restore service if this ever happens again. The company has been upgrading many of its very old telecommunications lines that were beginning to degrade due to age. It has capitalized these amounts and they are therefore showing up as investing activities on the statement of cash flows. The company’s auditors have questioned this because they feel that the amounts should be expensed. As a result of all this, Earthcom’s share price has plummeted, making its stock options worthless. Management has historically been remunerated solely based on these stock options, however. The company’s CFO meanwhile has just announced that he is leaving and is demanding severance pay for what he is calling constructive dismissal. He feels that because the stock options are worthless, he is working for free—which he cannot afford to do—and that the company has effectively fired him. Instructions: Adopt the role of the company controller and discuss the financial reporting issues.
> Kawani Corporation has been operating for several years. On December 31, 2017, it presented the following statement of financial position. Cost of goods sold in 2017 was $420,000, operating expenses were $51,000, and net income was $27,000. Accounts pa
> Henrietta Aguirre, the ethical accountant, is the newly hired Director of Corporate Taxation for Mesa Incorporated, which is a publicly traded corporation. Aguirre’s first job with Mesa was to review the company’s accounting practices for deferred taxes.
> Locate the 2015 audited annual financial statements of a company that may be experiencing financial difficulties, such as a pharmaceutical company still primarily in the research and development stage. One such company is Antibe Therapeutics Inc., a Cana
> Refer to the information for Darby Corporation in E13-2. Instructions: (a) Prepare the journal entries for the payment of the notes at maturity. (b) Repeat part (a) assuming Darby uses reversing entries. (Show the reversing entries at January 1, 2018.)
> Four independent situations follow. Situation 1: During 2017, Sugarpost Inc. became involved in a tax dispute with the CRA. Sugarpost’s tax lawyers have informed management that Sugarpost will likely lose this dispute. They also believe that Sugarpost wi
> Islim Limited manufactures faux fur coats of all types and sizes that are sold to specialty stores throughout Canada. Sales to retailers provide for payment within 60 days of delivery and the retailer may return a maximum of 25% of an order at the retail
> St. Thomas Auto Repairs is preparing the financial statements for the year ended November 30, 2017. As the accountant, you are looking over the information regarding short-term liabilities, and determining the amounts that should be reported on the balan
> Timo van Leeuwen operates a very busy roadside fruit and vegetable stand from May to October every year as part of his farming operation, which has a December 31 year end and uses ASPE. Each time a customer purchases over $10 of produce, Timo gives the c
> Three independent situations follow. Situation 1: Marquart Stamp Corporation records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. The stamps can be collected and then redeemed for discounts on f
> Pucci Corporation is a machinery dealer whose shares trades on the TSX, and so uses IFRS 16. Pucci leased a machine to Ernst Ltd. on January 1, 2017. The lease is for a six-year period and requires equal annual payments of $24,736 at the beginning of eac
> Moleski Limited, a private company following ASPE, includes one coupon in each box of soap powder that it produces, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, Moleski purchased 8,800 premiums at $0.90 each and sold 120,000
> To increase sales, Bélanger Inc., a public company following IFRS, implemented a customer loyalty program that rewards a customer with 1 loyalty point for every $10 of purchases on a select group of products. Each point is redeemable for a $1 discount on
> Novack Machinery Co. manufactures equipment to a very high standard of quality; however, it must still provide a warranty for each unit sold, and there are instances where the machines do require repair after they have been put into use. Novack started i
> Selzer Equipment Limited sold 500 Rollomatics on account during 2017 for $6,000 each. During 2017, Selzer spent $30,000 servicing the two-year warranties that are included in each sale of the Rollomatic. All servicing transactions were paid in cash. Ins
> The amount of income tax that is due to the government for a period of time is rarely the same as the amount of income tax expense that is reported on the income statement for that same period under IFRS and one of the alternatives under ASPE. Instructi
> Cool Sound Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale—2% of sales; second year
> The following are selected 2017 transactions of Darby Corporation. Sept. 1 Purchased inventory from Orion Ltd. on account for $50,000. Darby uses a periodic inventory system and records purchases using the gross method of accounting for purchase discount
> Cléroux Corporation sold 150 colour laser copiers in 2017 for $4,000 each, including a one-year warranty. Maintenance on each machine during the warranty period averages $300. Instructions: (a) Prepare entries to record the machine sales and the related
> Listed below are selected transactions of Schultz Department Store for the current year ending December 31. 1. On December 5, the store received $500 from the Selig Players as a deposit to be returned after certain furniture to be used in a stage product
> On May 1, 2017, Green Machine Inc. entered into a contract to deliver one of its specialty mowers to Schroeter Landscaping Co. The contract requires Schroeter to pay the contract price of $3,200 in advance on May 15, 2017. Schroeter pays Green Machine on
> On May 1, 2017, a machine was purchased for $1,750,000 by Pomeroy Corp., a private company following ASPE. The machine is expected to have an eight-year life with no salvage value and is to be depreciated on a straight-line basis. The machine was leased
> Crude Oil Limited purchased an oil tanker depot on July 2, 2017 at a cost of $600,000 and expects to operate the depot for 10 years. After the 10 years, Crude Oil is legally required to dismantle the depot and remove the underground storage tanks. It is
> On January 1, 2017, Offshore Corporation erected a drilling platform at a cost of $5,460,000. Offshore is legally required to dismantle and remove the platform at the end of its six-year useful life, at an estimated cost of $950,000. Offshore estimates t
> The incomplete income statement of Justin Corp. follows. The employee profit-sharing plan requires that 20% of all profits remaining after the deduction of the bonus and income tax be distributed to the employees by the first day of the fourth month fo
> Goldwing Corporation offers enriched parental benefits to its staff. While the government provides compensation based on Employment Insurance legislation for a period of 12 months, Goldwing increases the amounts received and extends the period of compens
> Refer to the data in E13-11 and assume instead that Mustafa Limited has chosen not to recognize paid sick leave until it is used, and has chosen to accrue vacation time at expected future rates of pay without discounting. Mustafa uses the following proje
> Sporon Corp. is a fast-growing Canadian private company involved in the manufacturing, distribution, and retail of specially designed yoga and leisure wear. Sporon has recently signed 10 leases for new retail locations and is looking to sign about 30 mor
> Mustafa Limited began operations on January 2, 2016. Mustafa employs nine individuals who work eight-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of th
> As the new accountant for Carly’s Pet Express Inc., a line of pet boutiques, you are developing the financial statement disclosures for the 2017 financial statement note on income taxes. The company uses ASPE, and has selected the taxes payable method. T
> Refer to the information in E18-15 for Zdon Inc. Assume that the company follows the taxes payable method of accounting for income taxes under ASPE. During the year, Zdon Inc. made tax instalment payments of $42,000. Instructions: (a) Calculate the taxa
> Refer to the information in E18-11 for Henry Limited. Assume that the company reports under ASPE and that the taxes payable method of accounting is used for income tax. Instructions: (a) Prepare the journal entries to record income tax at December 31,
> On January 1, 2017, Vick Leasing Inc., a lessor that uses IFRS 16, signed an agreement with Rock River Inc., a lessee, for the use of a compression system. The system cost $415,000 and was purchased from Manufacturing Solutions Ltd. specifically for Rock
> Geoff Corp.’s operations in 2017 had mixed results. One division, Vincenti Group, again failed to earn income at a rate that was high enough to justify its continued operation, and management therefore decided to close the division. Vincenti Group earned
> Darrell Corporation reports under IFRS. At December 31, 2017, the company had a net deferred tax liability of $402,000. An explanation of the items that make up this balance follows: Instructions: (a) Indicate how deferred tax should be presented on Da
> Refer to the information provided about Roux Corp. in E18-28. Instructions: (a) Assuming that it is more likely than not that $25,000 of the deferred tax asset will not be realized, prepare the journal entries to record income taxes for 2017. Roux uses
> Roux Corp. had a Deferred Tax Asset account with a balance of $81,000 at the end of 2016 due to a single temporary difference of $270,000 related to warranty liability accruals. At the end of 2017, this same temporary difference has increased to $300,000
> Refer to the information for Riley Inc. in E18-26. Instructions: (a) Assume that Riley Inc. uses a valuation allowance to account for deferred tax assets, and also that it is more likely than not that 25% of the carryforward benefits will not be realize
> Riley Inc. reports the following pre-tax incomes (losses) for both financial reporting purposes and tax purposes: The tax rates listed were all enacted by the beginning of 2015. Riley reports under the ASPE future/deferred income taxes method. Instruc
> Corby Spirit and Wine Limited is a leading Canadian marketer and distributor of premium spirits and wine brands. Obtain a copy of the company’s comparative financial statements for the year ended June 30, 2015 from the company’s website (www.corby.ca).
> The accounting income (loss) figures for Farah Corporation are as follows: 2012…………………………………………………$ 160,000 2013 …………………………………………………..250,000 2014……………………………………………………..80,000 2015………………………………………………….(160,000) 2016………………………………………………….(380,000) 2017………………
> Cuomo Mining Corporation, a public company whose stock trades on the Toronto Stock Exchange, uses IFRS. The vice-president of finance has asked you, the assistant controller, to prepare a comparison of the company’s current accounting of a lease (IAS 17)
> The comparative statement of financial position for Cosky Corporation follows: Additional information: 1. Dividends of $15,000 were declared and paid in 2017. 2. There were no unrealized gains or losses on the FV-NI investments. Instructions: Based on
> The Bank of Montreal and Royal Bank of Canada financial statements for their years ended October 31, 2015 can be found on SEDAR (www. sedar.com). Instructions: (a) What is the average carrying amount of each company’s common shares? Compare these values
> The following transactions took place during the year 2017 for Mia Inc. 1. Convertible bonds payable with a carrying amount of $300,000 along with conversion rights of $9,000 were exchanged for common shares. 2. The net income for the year was $410,000.
> Shen Limited reported net income of $32,000 for its latest year ended March 31, 2017. Instructions: For each of the five different situations involving the statement of financial position accounts that follow, calculate the cash flow from operating acti
> The following are transactions of Albert Sing, an interior design consultant, for the month of September 2017. Sept. 1 Albert Sing began business as an interior design consultant, investing $31,000 for 5,000 common shares of the company, A. S. Design Lim
> Huang Corp. uses the direct method to prepare its statement of cash flows and follows IFRS. Huang’s trial balances at December 31, 2017 and 2016 were as follows: Additional information: 1. Huang purchased $5,000 of equipment during 20
> Data for Malouin Corp. are presented in E22-12. Instructions: Prepare the operating activities section of the statement of cash flows using the indirect method. Data from E22-12: Malouin Corp.’s income statement for the year ended De
> Sunlight Equipment Manufacturers (SEM) makes barbecue equipment. The company has historically been very profitable; however, in the last year and a half, things have taken a turn for the worse due to higher consumer interest rates and a slowdown in the e
> AltaGas Ltd. capitalizes on the supply and demand dynamic for natural gas and power by owning and operating assets in gas, power, and utilities in places that provide a strategic competitive advantage. Instructions: Access the financial statements for A
> Temple Limited is in the real estate business. After several years of economic growth, most of the company’s assets are now worth significantly more than the amount that is recognized on the financial statements. Wanting to capitalize on this positive tr
> Saltworks Inc. (SI) produces salt. Its main assets are two properties that have two salt mines in them (mine 1 and mine 2). Both mines are currently in production. The salt exists in a crystalline layer of rock that rests about 50 meters below ground lev
> Castle Leasing Corporation, which uses IFRS 16, signs a lease agreement on January 1, 2017 to lease electronic equipment to Wai Corporation, which also uses IFRS 16. The term of the non-cancellable lease is two years and payments are required at the end
> Martel Industries Limited is in the mining business. The company has significant exploration activities in many countries and has started to explore and develop oil and gas properties in the past few years. The company’s shares trade on the national stoc
> Cauchy Inc. (CI) has just had a planning meeting with its auditors. There were several concerns that had been raised during the meeting regarding the draft financial statements for the December 31, 2017 year end. CI is a public company whose shares list
> Tiziana’s Foods Limited (TFL) is in the supermarket business. It is a public company and is thinking of going private (that is, buying up all of its shares that are available). The funds will come from a private consortium. The consortium has offered to
> On-line Deals Inc. (ODI) is in the business of selling things on-line. The company is currently owned by two founding partners, Jay and Wen. Due to the rise in Internet commerce, Jay and Wen are thinking about taking the company public. Revenues have inc
> Wind and Solar Inc. (WSI) is in the business of providing electricity. The company started up in 2016. Currently, it is owned by Winifred Wind and Winston Chang. Both Winston and Winifred own 50% of the WSI common shares. Under the terms of the sharehold
> Sandolin Incorporated (SI) is a global, diversified firm whose shares trade on the major Canadian and U.S. stock markets. It owns numerous toll highways, several companies in the energy business, and an engineering consulting fi rm. Currently, its shares
> RTL is a family-owned and operated business that prints flyers and banners. It has been in operation for over 20 years and is being passed on to the next generation. Profits from the past two years have been significantly declining. This is a direct resu
> Big Bath Emporium (BBE), a private company based in Toronto, is the city’s largest manufacturer and vendor of bathtubs, showers, and sinks. The company sells products direct to consumers, and also sells wholesale to other retailers. BBE is owned by Bob B
> Access the financial statements of Bombardier Inc. for the years ended December 31, 2015 and December 31, 2014 from the company’s website or SEDAR (www.sedar.com). Instructions: Changes in non-cash working capital items can have a significant impact on
> Landfill Limited (LL) is a private company that collects and disposes of household garbage. Waste is collected and trucked to local disposal sites, where it is dumped and then covered with topsoil. The disposal sites are owned by LL and were financed by
> Yogendran Corp., which uses ASPE, leases a car to Jaimme DeLory on June 1, 2017. The term of the non-cancellable lease is 48 months. The following information is provided about the lease. 1. The lessee is given an option to purchase the automobile at the
> Enviro company Limited (EL) is a pulp and paper company that has been in operation for 50 years. Its shares trade on a major stock exchange. It is located in a small town in Northern Ontario and employs thousands of people. In fact, the town exists mainl
> Candelabra Limited (CL) is a manufacturing company that is privately owned. The company’s production facilities produce a significant amount of carbon dioxide, and currently the town is suing CL for polluting the surrounding area. The company is enjoying
> Frangipani Ltd. (FL) is a new company that has just started up in January 2017. The company is the brainchild of Frank Frangi, who is working on developing a new process for a solar-powered car. To date, most of the year has been taken up with setting up
> Penron Limited is in the energy business, buying and selling gas and oil and related derivatives. It is a public company whose shares are widely held. It underwent a tremendous expansion over the past decade, and revenues quadrupled and continue to climb
> Tobita Limited, which follows IFRS, has adopted the policy of classifying interest paid as operating activities and dividends paid as financing activities. Condensed financial data for 2017 and 2016 follow (in thousands): Additional information: Durin
> Information from the statement of financial position and statement of income are given below for North Road Inc., a company following IFRS, for the year ended December 31. North Road has adopted the policy of classifying interest paid as operating activi
> Robbins Ltd. is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the three-year period 2015–2017. The firm’s total assets a
> The following information (in $000) has been obtained from Patinka Limited’s financial statements for the fiscal years ended December 31. There are no preferred shares issued by Patinka. Instructions: (a) Calculate the following item
> Tarzwell Limited is preparing some analysis of past financial performance and positions to include in the management discussion and analysis (MD&A) portion of the annual report to shareholders. You have suggested that it would be useful for users o
> Brookfield Asset Management Inc.’s 2014 financial statements can be found at the end of this volume or on the company website. Brookfield owns and operates assets with a focus on property, renewable energy, infrastructure, and private equity. Instructio
> On January 1, 2017, Maleki Corp., which uses IFRS 16, signs a 10-year, non-cancellable lease agreement to lease a specialty lathe from Liu Inc. The following information concerns the lease agreement. 1. The agreement requires equal rental payments of $73
> The condensed statements of changes in financial position and detailed income statement information for Tran Consulting Ltd. follow. Tran contracts professionals in the electronic data management field and provides services to clients around the globe.
> The financial statements of Mackay Corporation show the following information: Instructions: (a) Using horizontal analysis, analyze Mackay Corporation’s change in liquidity, solvency, and profitability in 2017. (b) Using vertical anal
> Canadian law firms typically use a partnership structure. The Income Tax Act allows law firms the reporting of revenue when invoices are remitted to clients, as opposed to when the work is performed and the revenue is earned. This provision in the Act al
> Dedrisan Inc. has experienced an unusually large loss from which it is very unlikely to recover. It is in default on some debt covenants. The auditor of the company concludes that Dedrisan is no longer a going concern. Management has requested the audito
> The following are subsequent (post–statement of financial position) events. 1. Settlement of a federal tax case at a cost considerably higher than the amount expected at year end 2. Introduction of a new product line 3. Loss of an assembly plant due to f
> Jason Corporation completed, its board of directors authorized, and it issued its financial statements following IFRS for the year ended December 31, 2017 on March 10, 2018. The following events took place in early 2018. 1. On January 30, 19,000 common s
> Verez Limited owns 90% of Consior Inc. During 2017, Verez acquired a machine from Consior in exchange for its own used machine. Both companies are in the tool-making business. The agreed exchange amount is $1,000, although the transaction is nonmonetary.
> Maffin Corp. owns 75% of Grey Inc. Both companies are in the mining industry. During 2017, Maffin Corp. purchased a building from Grey Inc. for $1,000. The building’s original cost is $25,000 and its carrying amount in Grey Inc.â&
> LaGraca Inc. is involved in five separate industries. The following information is available for each of the five industries: Instructions: Determine which of the operating segments are reportable under IFRS based on each of the following: (a) Revenue
> Sharma Ltd., a private construction company following ASPE, is discussing with its auditor its accounting policy for the recognition of revenue in its year-end financial statements. Management’s main area of contention is the requirement to estimate prog
> The following defined benefit pension data of Dahl Corp. apply to the year 2017: The company applies ASPE and has made an accounting policy choice to base its actuarial valuation of the DBO on the funding basis. Instructions: (a) Prepare a continuity
> Laflamme Inc. follows IFRS and has adopted the policy of classifying interest paid as operating activities and dividends paid as financing activities. Comparative statement of financial position accounts of Laflamme Inc., and its statement of income for
> Access the financial statements of Loblaw Companies Limited for its 2014 year ended January 3, 2015 from SEDAR (www.sedar.com) or the company’s website. Instructions: Review the financial statements and the company’s note disclosures related to new acco
> The detection and reporting of illegal acts by management or other employees is a difficult task. To fulfill their responsibilities, auditors must have a good knowledge of the client’s business, including an understanding of the laws and regulations that
> Cambosa Ltd. operates in an industry where the prices of merchandise purchased for resale are continuously rising. Cambosa’s choice of accounting policy for inventory costing has a significant impact on its net income. Investors compare Cambosa’s policy
> How would the transaction in BE23-13 be recorded if it were arm’s length? Data from BE23-13: Textile manufacturer Fiber right Corp. exchanges robotic equipment with an original cost of $20,000 and a carrying amount of $11,000 with the
> Textile manufacturer Fiber right Corp. exchanges robotic equipment with an original cost of $20,000 and a carrying amount of $11,000 with the equipment rental company Frederick Corp. The equipment that is received in exchange from Frederick Corp. has an
> Nguyen Limited buys land from its president for $390,000 in cash, which is the land’s appraised value at the time of the purchase. The land was purchased by the president 15 years ago for $65,000. (a) Assume that Nguyen follows ASPE. Prepare the journal
> How does seasonality affect interim reporting and how should companies overcome the seasonality problem? Is there more of an effect on interim reporting for companies following IFRS or ASPE?
> What are the accounting problems related to the presentation of interim data?
> Assets for the seven industry segments of Penner Corp. are as follows: Based only on the assets test, which industry segments are reportable under IFRS? (thousands) (thousands) $500 550 400 $200 150 475 Gamma Suh Kennedy RGD Tsui Nuhn Red Moon 400
> Operating profits and losses for the seven industry segments of Penner Corp. are as follows: Based only on the operating profit (loss) test, which industry segments are reportable under IFRS? (thousands) (thousands) $90 (40) Gamma Suh $(20) Kennedy
> Refer to the information in E19-7 about Berstler Limited’s defined benefit pension plan. Instructions: (a) Prepare a 2017 pension work sheet with supplementary schedules of calculations. (b) Prepare the journal entries at December 31,
> Penner Corp. has seven industry segments with total revenues as follows: Based only on the revenues test, which industry segments are reportable under IFRS? Which industry segments are reportable under ASPE? (thousands) (thousands) $600 650 Gamma S
> The IASB regularly updates and publishes a project plan that outlines the timelines for the projects it is working on. Instructions: Using the IASB website (www.ifrs.org), identify new standards that have been recently released. Review the transitional
