Intermediate Accounting, Volume 2, 10th Canadian Edition Solution Manual

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionCHAPTER 13NON-FINANCIAL AND CURRENT LIABILITIESASSIGNMENT CLASSIFICATION TABLETopicsBriefExercisesExercisesProblemsWritingAssign-ments1.Concept of liabilities;definition andclassification.1112, 52.Current liabilitiesincluding accountsand notes payable,dividends payable,sales and income taxpayable and short-term obligationsexpected to berefinanced.2, 3, 4, 5,6, 7, 8, 9,10, 11, 122, 3, 4, 5,6, 7, 81, 2, 3, 43.Employee-relatedliabilities.13, 14, 15,16, 176, 9, 10,11, 12, 133, 5, 6, 744.Asset retirementobligations.18, 19, 2014, 151, 4, 815.Unearned revenues,product guaranties,warranties and othercustomer programs.21, 22, 23,246, 16, 17,18, 19, 20,21, 22, 231, 3, 4, 9,10, 11, 12,13, 14, 151, 36.Contingencies,guarantees anduncertaincommitments.25, 266, 248, 9, 16, 171, 3, 47.Presentation andanalysis.2725, 26, 273, 8, 9, 175

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionASSIGNMENT CHARACTERISTICS TABLEItemDescriptionLevel ofDifficultyTime(minutes)E13-1Balance sheet classification of variousliabilities.Simple10-15E13-2Accounts and notes payable.Moderate20-25E13-3Liability for returnable containers.Moderate15-20E13-4Entries for sales tax.Simple20-30E13-5Income Tax.Moderate15-20E13-6Financial statement impact of liabilitytransactions.Moderate30-35E13-7Refinancing of short-term debt.Simple10-12E13-8Refinancing of short-term debt.Simple10-15E13-9Payroll tax entries.Simple15-20E13-10Compensated absences – vacation andsick pay.Moderate25-30E13-11Compensated absences – vacation andsick pay.Moderate25-30E13-12Compensated absences – parentalbenefits.Moderate25-30E13-13Bonus calculation and incomestatement preparation.Complex15-20E13-14Asset retirement obligation.Moderate20-25E13-15Asset retirement obligation.Moderate25-35E13-16Warranties – expense approach andcash basis.Simple10-15E13-17Warranties – expense approach.Moderate15-20E13-18Warranties – expense approach andrevenue approach.Moderate20-25E13-19Warranties – expense approach andrevenue approach.Moderate15-20E13-20Premiums.Moderate15-20E13-21Premiums.Moderate20-30E13-22Premiums.Simple10-15E13-23Coupons and rebates.Moderate15-20E13-24Contingencies and commitments.Moderate20-30E13-25Ratio calculations and discussion.Simple15-20E13-26Ratio calculations and analysis.Simple20-25E13-27Ratio calculations and effect oftransactions.Moderate15-25

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionASSIGNMENT CHARACTERISTICS TABLE (Continued)ItemDescriptionLevel ofDifficultyTime(minutes)P13-1Current liability entries and adjustments.Simple40-50P13-2Instalment note.Moderate30-35P13-3Current liabilities: various.Complex45-55P13-4Asset retirement obligation andwarranties.Moderate25-35P13-5Payroll tax entries.Moderate20-30P13-6Payroll tax entries.Moderate20-25P13-7Bonus calculation.Moderate25-30P13-8Loss contingencies: entries and essay.Moderate45-50P13-9Advances, self-insurance, losscontingencies, guarantees andcommitments.Moderate25-30P13-10Warranties, accrual and cash basis.Simple20-25P13-11Extended sales warranties.Moderate20-30P13-12Warranty calculations.Moderate20-25P13-13Premium entries.Moderate30-45P13-14Premium entries and financial statementpresentation.Moderate30-45P13-15Warranties and premiums.Simple25-30P13-16Guarantees and contingencies.Complex35-45P13-17Loss contingencies: entries and essays.Moderate45-50

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionSOLUTIONS TO BRIEF EXERCISESBRIEF EXERCISE 13-1(a)Working capital is the excess of total current assets overtotal current liabilities. It represents the liquid buffer that isavailable to meet the financial demands of the company’soperating cycle. Current liabilities place a demand on thecompany’s current assets. Management of the due dates ofcurrent liabilities and management of current assets togenerate cash on a timely basis are important for effectivemanagementofbusinessoperations.Effectivemanagement of working capital to achieve high liquiditymayalsocontributetopositivecashfromoperatingactivities as seen on the statement of cash flows.(b)Wellson can improve its management of working capital byfocusing on management of current liabilities as well ascurrent assets. For example, if Wellson has a cash flowshortage, it can take advantage of the full credit periodextended by its suppliers. As another example, Wellsonmay also time the due dates of short-term notes payable tocoincide with expected periods of positive cash flow.BRIEF EXERCISE 13-207/01Purchases ...................................................60,000Accounts Payable..............................60,000Freight-in.....................................................1,200Cash ...................................................1,20007/03Accounts Payable.......................................6,000Purchase Returns and Allowances ..6,00007/10Accounts Payable.......................................54,000Cash ...................................................52,920Purchase Discounts ..........................1,080

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-307/01Purchases ($60,000 X 98%)........................58,800Accounts Payable..............................58,800Freight-in.....................................................1,200Cash ...................................................1,20007/03Accounts Payable ($6,000 X 98%) .............5,880Purchase Returns and Allowances ..5,88007/10Accounts Payable ($54,000 X 98%) ...........52,920Cash ...................................................52,920BRIEF EXERCISE 13-411/01/14Cash ......................................................40,000Notes Payable ..............................40,00012/31/14Interest Expense ...................................600Interest Payable ...........................600($40,000 X 9% X 2/12)02/01/15Notes Payable .......................................40,000Interest Payable ....................................600Interest Expense ...................................300Cash..............................................40,900BRIEF EXERCISE 13-501/01/15Interest Payable ....................................600Interest Expense ..........................60002/01/15Notes Payable .......................................40,000Interest Expense ...................................900Cash..............................................40,900

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-611/01/14Cash ......................................................60,000Notes Payable ..............................60,00012/31/14Interest Expense ...................................900Notes Payable ..............................900($1,350 X 2/3)02/01/15Interest Expense ...................................450Notes Payable ..............................450Notes Payable .......................................61,350Cash..............................................61,350BRIEF EXERCISE 13-7Accounts Receivable ...........................................41,810Sales Revenue.............................................37,000HST Payable ($37,000 X 13%).....................4,810BRIEF EXERCISE 13-8Purchases .............................................................29,400GST Receivable ($29,400 X 5%)...........................1,470Accounts Payable .......................................30,870Accounts Receivable ...........................................47,250Sales Revenue.............................................45,000GST Payable ................................................2,250GST Payable .........................................................2,250Cash .............................................................780GST Receivable ...........................................1,470

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-9Income Tax Expense............................................12,800Cash ($3,200 X 4).........................................12,800Income Tax Expense ($20,000 – $12,800) ...........7,200Income Tax Payable ....................................7,200At year end, the company would report Income Tax Payable of$7,200 in current liabilities.BRIEF EXERCISE 13-10Income Tax Receivable ........................................2,600Income Tax Expense...................................2,600($12,800 – $10,200)At year end, the company would report Income Tax Receivableof $2,600 in current assets.BRIEF EXERCISE 13-11(a)Under IFRS, the $600,000 debt is reclassified as currentbecause the long-term debt agreement is violated and theliability becomes payable on demand. It should be notedthat under IFRS, the debt is reclassified as current, even ifthe lender agrees between the date of the statement offinancial position and the date the financial statements arereleased that it will not demand repayment because of theviolation.(b)Under ASPE, the $600,000 debt is reclassified as currentunlessthecreditorwaivesinwritingthecovenant(agreement) requirements, or the violation has been curedwithinthegraceperiodthatisusuallygivenintheseagreements and it is likely that the company will not violatethe covenant requirements within a year from the balancesheet date.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-12(a)Under IFRS, since the debt is due within 12 months fromthe reporting date, it is classified as a current liability. Thisclassification holds even if long-term refinancing has beencompleted before the financial statements are released.Theonlyexceptionacceptedforcontinuinglong-termclassification is if, at the balance sheet date, the entityexpects to refinance it or roll it over under an existingagreement for at least 12 months and the decision is solelyat its discretion.(b)Under IFRS, the whole $500,000 of maturing debt wouldstill be classified as a current obligation at December 31,2014.Theinternationalstandardhasastringentrequirement that the agreement must be firm at the date ofthe statement of financial position in order to qualify forclassification as long-term. (This assumes Burr had notentered into a long-term agreement prior to the statementof financial position date.)(c)For part (a), under ASPE, the debt would be classified as along-term liability. If there is irrefutable evidence by thetime the financial statements are completed and releasedthat the debt has been or will be converted into a long-termobligation,ASPEallowscurrentlymaturingdebttobeclassified as long-term on the balance sheet. In this case,the debt was refinanced before the financial statementswere completed and released.For part (b), under ASPE, the debt would be classified as acurrent liability since there was not irrefutable evidence bythe time the financial statements were completed that thedebthasbeenorwillbeconvertedintoalong-termobligation. (This assumes Burr had not entered into a long-termagreementpriortothereleaseofthefinancialstatements.) In addition, since repayment occurred beforefundswereobtainedthroughlong-termfinancing,therepayment used existing current assets.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-13Salaries and Wages Expense .............................23,000Employee Income Tax DeductionsPayable ...................................................3,426CPP Contributions Payable .......................990EI Premiums Payable .................................920Health Insurance Premiums Payable........250Cash ............................................................17,414BRIEF EXERCISE 13-14(a)Payroll Tax Expense ...........................................2,278EI Premiums Payable ($920 X 1.4) ............1,288CPP Contributions Payable .......................990(b)Employee Income Tax Deductions Payable ......3,426CPP Contributions Payable ($990 X 2)...............1,980EI Premiums Payable ($920 + $1,288) ................2,208Cash ............................................................7,614BRIEF EXERCISE 13-15Salaries and Wages Expense .............................30,000Vacation Wages Payable ...........................30,000(30 X 2 X $500)

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-16December 1, 2014:Employee Benefit Expense* ...............................11,952Parental Leave Benefits Payable ..............11,952* Salary for 17 weeks ($74,000 ÷ 52 X 17)$24,192Less: employment insurancepayments ($720/week X 17 weeks)(12,240)Employee Benefit Expense$11,952For each of the 4 weeks in December, 2014, Laurin Corporationwill pay Ruzbeh Awad a top up amount and record the paymentsas follows:Parental Leave Benefits Payable........................703.08Cash ............................................................703.08($74,000 ÷ 52 weeks) = $1,423.08 – $720.00 = $703.08BRIEF EXERCISE 13-1712/31/14Bonus Expense ..................................350,000Bonus Payable ..........................350,0002/15/15Bonus Payable ...................................350,000Cash...........................................350,000

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-18Drilling Platform ..................................................500,249Asset Retirement Obligation .....................500,249($1,000,000 X .50025)Using a financial calculator:PV?Yields $ 500,248.97I8%N9PMT0FV$ (1,000,000)Type0BRIEF EXERCISE 13-19(a) IFRSDepreciation Expense...............................1,166,694Accumulated Depreciation –Drilling Platform ...............................1,166,694[($10,000,000 + $500,249) ÷ 9 years]Interest Expense .......................................40,020Asset Retirement Obligation ...........40,020($500,249 X 8%)(b) ASPEDepreciation Expense...............................1,166,694Accumulated Depreciation–Drilling Platform ...............................1,166,694[($10,000,000 + $500,249) ÷ 9 years]Accretion Expense ....................................40,020Asset Retirement Obligation ...........40,020($500,249 X 8%)

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-20(a) IFRSInventory....................................................54,027Asset Retirement Obligation ...........54,027(b) ASPEDrilling Platform ........................................54,027Asset Retirement Obligation ...........54,027BRIEF EXERCISE 13-212014Cash, A/R, etc....................................2,500,000Sales Revenue—Product.........2,500,0002014Warranty Expense.............................63,000Cash, Inventory, etc.................63,00012/31/14Warranty Expense.............................420,000Warranty Liability.....................420,000BRIEF EXERCISE 13-222014Cash, A/R, etc....................................2,500,000Sales Revenue—Product.........1,900,000Unearned Warranty Revenue ..600,0002014Warranty Expense.............................63,000Accounts Payable,Salaries and WagesPayable, etc..........................63,00012/31/14Unearned Warranty Revenue ...........150,000Warranty Revenue ...................150,000$600,000 X 25%

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-23Note that this warranty contract is a separate service and shouldbe accounted forusing the revenue approach, which is thepreferredmethodunderbothIFRSandASPEformultipledeliverables (bundled sales).(a)Cash .......................................................1,980,000Unearned Warranty Revenue ......1,980,000(20,000 X $99)(b)Warranty Expense.................................180,000Cash, Inventory, etc. ....................180,000(c)Unearned Warranty Revenue ...............330,000Warranty Revenue .......................330,000[$1,980,000 X ($180,000/$1,080,000*)]* $180,000 + $900,000 = $1,080,000

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-24(a) IFRSInventory of Premiums .................................250,000Cash ......................................................250,000100,000 X $2.50Cash, A/R, etc. ...............................................4,000,000Sales Revenue......................................3,600,000Unearned Premium Revenue...............400,000** 1,000,000 X $4.00 X 10%Cash. ..............................................................80,000**Premium Expense .........................................120,000Inventory of Premiums.........................200,000***** 240,000/3 X $1.00*** 240,000/3 X $2.50Unearned Premium Revenue........................320,000Sales Revenue ......................................320,000240,000/(1,000,000 X 30%) X $400,000(b) ASPEInventory of Premiums .................................250,000Cash ......................................................250,000100,000 X $2.50Cash, A/R, etc. ...............................................4,000,000Sales Revenue......................................4,000,000Cash. ..............................................................80,000**Premium Expense .........................................120,000Inventory of Premiums.........................200,000***** 240,000/3 X $1.00*** 240,000/3 X $2.50Premium Expense .........................................30,000Premium Liability .................................30,000[(1,000,000 X 30%) – 240,000] / 3 X ($2.50 -$1.00)

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomyIntermediate Accounting, Tenth Canadian EditionBRIEF EXERCISE 13-25(a)Litigation Expense ......................................700,000Litigation Liability ..............................700,000(b)Litigation Expense ......................................700,000Litigation Liability ..............................700,000(c)No entry is necessary. The loss is not accrued because itisnotprobablethataliabilityhasbeenincurredat12/31/14.(d)ASPE where Litigation Liability is likely:Litigation Expense ...................................700,000Litigation Liability ...........................700,000ASPE where Litigation Liability is not likely:No entry is necessary. The loss is not accrued because it isnot likely that a liability has been incurred at 12/31/14.

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