Assignment 2A ACC 926 Intermediate I PDF

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Centre for Continuing Education

ACC 926 Intermediate Financial Accounting I (Online self study) Assignment 2 (Worth 15 out of 40 Assignment Marks) Chapters 4, 5 & 6 (Total!71!marks)! ! ! ! ! ! ! ! ! ! Fine Print: ฀ Individual Submission ฀ Document submitted in either Word or Excel or both ฀ Submit by Assignments via Avenue to Learn at http://avenue.mcmaster.ca ฀ Presentation is important, make sure it flows and is easy to follow; ฀ Show all calculations.

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Question 1: Income statement Classifications ( 4 marks) Motivated Inc.’s manufacturing division lost $140,000 (net of tax) for the year ended December 31, 2017. Motivated estimates that it can sell the division at a loss of $190,000 (net of tax). The division qualifies for treatment as a discontinued operation. Required: a) Explain how the discontinued operation would be measured and presented on the income statement and balance sheet under ASPE. b) Explain how your answer to part (a) would be different if Motivated prepared financial statements in accordance with IFRS.

Question 2: Multi-Step Income Statement (20 marks) Presented below is information which relates to Malfour for 2017: Collections of credit sales ................................................................................. $1,100,000 Retained earnings, January 1, 2017 ................................................................. 800,000 Sales ................................................................................................................. 1,900,000 Selling and administrative expenses ................................................................. 290,000 Casualty loss (pre-tax) ...................................................................................... 350,000 Cash dividends declared on common stock ..................................................... 34,000 Cost of goods sold ............................................................................................ 1,100,000 Loss resulting from calculation error on depreciation charge in 2015 (pre-tax) 460,000 Other revenues ................................................................................................. 180,000 Other expenses ................................................................................................. 120,000 Loss from early extinguishment of debt (pre-tax) .............................................. 340,000 Gain from transactions in foreign currencies (pre-tax) ...................................... 220,000 Proceeds from sale of Malfour common shares ............................................... 60,000

! Additional information: 1. On September 1, 2017, Malfour sold one of its segments (product line) to Best Industries for a gain (pre-tax) of $550,000. During the period January 1 to August 31, the discontinued segment incurred an operating loss (pre-tax) of $480,000. This loss is not included in any of the numbers shown above. 2. Included in "Selling and Administrative Expenses" is "Bad Debts Expense" of $19,000. Malfour bases its bad debts expense upon a percentage of sales. In 2015 and 2016, the percentage was 0.5 %. In 2017, the percentage was changed to 1%. 3. Early in 2017, Malfour changed depreciation methods for its plant assets from the double declining-balance to the straight-line method. The affected assets were purchased at the beginning of 2012 for $200,000, had no residual value, and had useful lives of 10 years. Depreciation expense of $20,000 is included in the "Selling and Administrative Expenses" of $290,000. ! 2

Question)2)Continued…) Required:) ! a)!In!good!form,!prepare!a!multiple-step!income!statement!for!2017.!Assume!a!20%! income!tax!rate!and!that!20,000!common!shares!were!outstanding!during!the!year.! b)!Prepare!a!statement!of!Retained!earnings!! ! Note: Malfour Limited follows ASPE, read the question carefully as some information does not always apply to the question at hand, for example, the change in depreciation is a change in estimate, not a change in accounting policy. It maybe helpful to review the solution to E4-10 & P4-10 in your practice exercises, and E4-5 in the study guide.

Question 3: Statement of Financial Position- Classification (6 marks) Use!the!code!letters!listed!below!(a!–!k)!to!indicate,!for!each!statement!of!financial! position!item!(1!–!13)!listed!below,!the!usual!valuation!reported!on!the!statement!of! financial!position.! a)!No!par!value! b)!Current!cost!of!replacement! c)!Amount!payable!when!due,!less!unamortized!discount!or!plus!unamortized! premium! d)!Amount!payable!when!due! e)! Fair!value!at!statement!of!financial!position!date! f)! Net!realizable!value! g)! Lower!of!cost!or!net!realizable!value! h)! Original!cost!less!accumulated!depreciation/amortization! i)! Original!cost!less!accumulated!depletion! j)! Historical!cost! k)! Unexpired!or!unconsumed!cost! ! !_____!! 1.! Common!shares! !_______!! 8.! Long-term!bonds!payable! !_____!! 2.! Prepaid!expenses! !_______!! 9.! Land!(in!use)! !_____!! 3.! Natural!resources! !_______!!10.! Land!(future!plant!site)! !_____!! 4.! Property,!plant,!and!equipment!!_______!!11.! Patents! !_____!! 5.! Trade!accounts!receivable! !_______!!12.! Trading!securities! !_____!! 6.! Copyrights! !_____!! 7.! Merchandise!inventory!

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Question 4: Statement of Financial Position & Cash Flow (23 marks) Amerac!Inc.!had!the!following!statement!of!financial!position!at!the!end!of! operations!for!2016:! ) Amerac!Inc.! Statement!of!Financial!Position! December!31,!2016! ! Cash! ! ! ! $!25,000! Accounts!Payable! ! $!32,000! Accounts!receivable! !!! !!!23,000! Bonds!Payable! ! !!!50,000! ! FV-NI!investments! ! !!!30,000! Common!Shares! ! !!!90,000! Equipment!(net)! ! !!!82,000! Retained!Earnings! ! !!!38,000! Land! ! ! ! !!!50,000! ! ! ! ! __________! ) ) ) ) $210,000! ) ) ) ) $210,000! ! During!2017,!the!following!occurred:! 1.!Amerac!liquidated!its!FV-NI!portfolio!as!a!loss!of!$5,000.! 2.!A!parcel!of!land!was!purchased!for!$33,000! 3.!An!additional!$25,000!worth!of!common!shares!was!issued.! 4.!Dividends!totaling!$10,000!were!declared!and!paid!to!shareholders.! 5.!Net!income!for!2017!was!$40,000,!including!$10,000!in!depreciation!expense.! 6.!Land!was!purchased!through!the!issuance!of!$30,000!in!additional!bonds.! 7.!At!December!31,!2017,!Cash!was!$76,000;!Accounts!Receivable!was!$44,000;!and! Accounts!Payable!was!$42,000.! ! Required:) a))Prepare!a!statement!of!financial!position!as!it!would!appear!at!December!31,! 2017.! ! b))Prepare!a!statement!of!cash!flows!for!the!year!ended!December!31,!2017!using! the!indirect!method.!Assume!dividends!paid!are!treated!as!financing!activities.! Footnote!any!statements!that!should!be!disclosed!on!the!cash!flow!at!the!bottom.! )

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Question 5: Revenue Recognition (4 marks) Worldwide!Phone!Corp.!sells!prepaid!telephone!cards!to!customers.!They!then!pay! the!telecommunications!company!for!the!actual!usage!of!the!phone!lines!relating!to! the!prepaid!telephone!cards.!In!January!2017,!Worldwide!Phone!sells!$5,000!worth!of! prepaid!cards.!It!then!pays!on!usage,!which!is!as!follows;!!February!is!50%,!,!March! 35%!and!April!15%.!The!total!payment!by!Worldwide!to!the!telecommunications! company!for!lines!over!the!three!months!is!$4,000.!! ! Required:)Indicate!how!much!income!Worldwide!should!recognize!as!income!in! January,!February,!March!and!April!under!IFRS.! ! !

Question 6: Percentage of Completion Method (11 marks) Flames! Corp.! contracted! to! build! a! bridge! for! $5,000,000.! Construction! began! in! 2017!and!was!completed!in!2018.!Data!relating!to!the!construction!are:! ! !!!!!!!!!2017! !!!!!!!!!2018! ! Costs!incurred!................................................................!$1,620,000! $1,400,000! ! Estimated!costs!to!complete!....................................!! 1,380,000! —! ! Required:! Using!the!percentage-of-completion!method!and!the!cost-to-cost!basis,!refer!to!BE630,!E6-30,!study!guide!E6-6!as!a!guide.! a)! How!much!revenue!should!be!reported!for!2017?!Show!your!calculation.! b)! Prepare!the!journal!entry!to!record!progress!billings!of!$1,700,000!during!2017.! c)! Prepare!the!journal!entry!to!record!the!revenue!and!gross!profit!for!2017.! d)! How!much!gross!profit!should!be!reported!for!2018?!Show!your!calculation.! !

Question 7: CICA Look-up (3 marks) Refer!to!the!CPA!Handbook!which!can!be!accessed!through!the!link!found!if!you!go! to!Content/!Library!Research!&!Assistance!Guide/Library!Links!&!Databases.! Click!on!McMaster!Libraries! Put!in!the!search!section!“CPA!Handbook”,!Click!Find! Click!on!the!box!for!CPA!Canada!Standards!&!Guidance!Collection! Click!on!Access!this!Resource! Using!your!Mac!ID,!log!in! In!the!search!box!(top!left!of!screen)! Type!in!your!question!and!hit!enter! Required:) Find!the!following:!Define!Materiality!!

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Your!answer!should!be!in!quotes,!including!in!what!section!you!found!the!definition! from!the!CPA!Handbook.!!

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