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

Intermediate Accounting, Volume 2, 10th Canadian Edition Solution Manual offers textbook solutions that are easy to follow, helping you ace your assignments.

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition CHAPTER 13 NON-FINANCIAL AND CURRENT LIABILITIES ASSIGNMENT CLASSIFICATION TABLE Topics Brief Exercises Exercises Problems Writing Assign- ments 1. Concept of liabilities; definition and classification. 1 1 1 2, 5 2. Current liabilities including accounts and notes payable, dividends payable, sales and income tax payable and short- term obligations expected to be refinanced. 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 2, 3, 4, 5, 6, 7, 8 1, 2, 3, 4 3. Employee-related liabilities. 13, 14, 15, 16, 17 6, 9, 10, 11, 12, 13 3, 5, 6, 7 4 4. Asset retirement obligations. 18, 19, 20 14, 15 1, 4, 8 1 5. Unearned revenues, product guaranties, warranties and other customer programs. 21, 22, 23, 24 6, 16, 17, 18, 19, 20, 21, 22, 23 1, 3, 4, 9, 10, 11, 12, 13, 14, 15 1, 3 6. Contingencies, guarantees and uncertain commitments. 25, 26 6, 24 8, 9, 16, 17 1, 3, 4 7. Presentation and analysis. 27 25, 26, 27 3, 8, 9, 17 5

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE Item Description Level of Difficulty Time (minutes) E13-1 Balance sheet classification of various liabilities. Simple 10-15 E13-2 Accounts and notes payable. Moderate 20-25 E13-3 Liability for returnable containers. Moderate 15-20 E13-4 Entries for sales tax. Simple 20-30 E13-5 Income Tax. Moderate 15-20 E13-6 Financial statement impact of liability transactions. Moderate 30-35 E13-7 Refinancing of short-term debt. Simple 10-12 E13-8 Refinancing of short-term debt. Simple 10-15 E13-9 Payroll tax entries. Simple 15-20 E13-10 Compensated absences – vacation and sick pay. Moderate 25-30 E13-11 Compensated absences – vacation and sick pay. Moderate 25-30 E13-12 Compensated absences – parental benefits. Moderate 25-30 E13-13 Bonus calculation and income statement preparation. Complex 15-20 E13-14 Asset retirement obligation. Moderate 20-25 E13-15 Asset retirement obligation. Moderate 25-35 E13-16 Warranties – expense approach and cash basis. Simple 10-15 E13-17 Warranties – expense approach. Moderate 15-20 E13-18 Warranties – expense approach and revenue approach. Moderate 20-25 E13-19 Warranties – expense approach and revenue approach. Moderate 15-20 E13-20 Premiums. Moderate 15-20 E13-21 Premiums. Moderate 20-30 E13-22 Premiums. Simple 10-15 E13-23 Coupons and rebates. Moderate 15-20 E13-24 Contingencies and commitments. Moderate 20-30 E13-25 Ratio calculations and discussion. Simple 15-20 E13-26 Ratio calculations and analysis. Simple 20-25 E13-27 Ratio calculations and effect of transactions. Moderate 15-25

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE (Continued) Item Description Level of Difficulty Time (minutes) P13 - 1 Current liability entries and adjustments. Simple 40 - 50 P13 - 2 Instalment note. Mod erate 30 - 35 P13 - 3 Current liabilities: various. Complex 45 - 55 P13 - 4 Asset retirement obligation and warranties . Moderate 2 5 - 3 5 P13 - 5 Payroll tax entries. Moderate 20 - 30 P13 - 6 Payroll tax entries. Moderate 20 - 25 P13 - 7 Bonus calculation. Moderate 25 - 30 P13 - 8 Loss contingencies: entries and essay. Moderate 45 - 50 P13 - 9 Advances, self - insurance, loss contingencies, guarantees and commitments. Moderate 25-30 P13-10 Warranties, accrual and cash basis. Simple 20-25 P13-11 Extended sales warranties. Moderate 20-30 P13-12 Warranty calculations. Moderate 20-25 P13-13 Premium entries. Moderate 30-45 P13-14 Premium entries and financial statement presentation. Moderate 30-45 P13-15 Warranties and premiums. Simple 25-30 P13-16 Guarantees and contingencies. Complex 35-45 P13-17 Loss contingencies: entries and essays. Moderate 45-50

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 13-1 (a) Working capital is the excess of total current assets over total current liabilities. It represents the liquid buffer that is available to meet the financial demands of the company’s operating cycle. Current liabilities place a demand on the company’s current assets. Management of the due dates of current liabilities and management of current assets to generate cash on a timely basis are important for effective management of business operations. Effective management of working capital to achieve high liquidity may also contribute to positive cash from operating activities as seen on the statement of cash flows. (b) Wellson can improve its management of working capital by focusing on management of current liabilities as well as current assets. For example, if Wellson has a cash flow shortage, it can take advantage of the full credit period extended by its suppliers. As another example, Wellson may also time the due dates of short-term notes payable to coincide with expected periods of positive cash flow. BRIEF EXERCISE 13-2 07/01 Purchases ................................................... 60,000 Accounts Payable .............................. 60,000 Freight-in ..................................................... 1,200 Cash ................................................... 1,200 07/03 Accounts Payable ....................................... 6,000 Purchase Returns and Allowances .. 6,000 07/10 Accounts Payable ....................................... 54,000 Cash ................................................... 52,920 Purchase Discounts .......................... 1,080

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-3 07/01 Purchases ($60,000 X 98%) ........................ 58,800 Accounts Payable .............................. 58,800 Freight-in ..................................................... 1,200 Cash ................................................... 1,200 07/03 Accounts Payable ($6,000 X 98%) ............. 5,880 Purchase Returns and Allowances .. 5,880 07/10 Accounts Payable ($54,000 X 98%) ........... 52,920 Cash ................................................... 52,920 BRIEF EXERCISE 13-4 11/01/14 Cash ...................................................... 40,000 Notes Payable .............................. 40,000 12/31/14 Interest Expense ................................... 600 Interest Payable ........................... 600 ($40,000 X 9% X 2/12) 02/01/15 Notes Payable ....................................... 40,000 Interest Payable .................................... 600 Interest Expense ................................... 300 Cash .............................................. 40,900 BRIEF EXERCISE 13-5 01/01/15 Interest Payable .................................... 600 Interest Expense .......................... 600 02/01/15 Notes Payable ....................................... 40,000 Interest Expense ................................... 900 Cash .............................................. 40,900

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-6 11/01/14 Cash ...................................................... 60,000 Notes Payable .............................. 60,000 12/31/14 Interest Expense ................................... 900 Notes Payable .............................. 900 ($1,350 X 2/3) 02/01/15 Interest Expense ................................... 450 Notes Payable .............................. 450 Notes Payable ....................................... 61,350 Cash .............................................. 61,350 BRIEF EXERCISE 13-7 Accounts Receivable ........................................... 41,810 Sales Revenue ............................................. 37,000 HST Payable ($37,000 X 13%) ..................... 4,810 BRIEF EXERCISE 13-8 Purchases ............................................................. 29,400 GST Receivable ($29,400 X 5%)........................... 1,470 Accounts Payable ....................................... 30,870 Accounts Receivable ........................................... 47,250 Sales Revenue ............................................. 45,000 GST Payable ................................................ 2,250 GST Payable ......................................................... 2,250 Cash ............................................................. 780 GST Receivable ........................................... 1,470

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-9 Income Tax Expense ............................................ 12,800 Cash ($3,200 X 4)......................................... 12,800 Income Tax Expense ($20,000 – $12,800) ........... 7,200 Income Tax Payable .................................... 7,200 At year end, the company would report Income Tax Payable of $7,200 in current liabilities. BRIEF EXERCISE 13-10 Income Tax Receivable ........................................ 2,600 Income Tax Expense ................................... 2,600 ($12,800 – $10,200) At year end, the company would report Income Tax Receivable of $2,600 in current assets. BRIEF EXERCISE 13-11 (a) Under IFRS, the $600,000 debt is reclassified as current because the long-term debt agreement is violated and the liability becomes payable on demand. It should be noted that under IFRS, the debt is reclassified as current, even if the lender agrees between the date of the statement of financial position and the date the financial statements are released that it will not demand repayment because of the violation. (b) Under ASPE, the $600,000 debt is reclassified as current unless the creditor waives in writing the covenant (agreement) requirements, or the violation has been cured within the grace period that is usually given in these agreements and it is likely that the company will not violate the covenant requirements within a year from the balance sheet date.

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-12 (a) Under IFRS, since the debt is due within 12 months from the reporting date, it is classified as a current liability. This classification holds even if long-term refinancing has been completed before the financial statements are released. The only exception accepted for continuing long-term classification is if, at the balance sheet date, the entity expects to refinance it or roll it over under an existing agreement for at least 12 months and the decision is solely at its discretion. (b) Under IFRS, the whole $500,000 of maturing debt would still be classified as a current obligation at December 31, 2014. The international standard has a stringent requirement that the agreement must be firm at the date of the statement of financial position in order to qualify for classification as long-term. (This assumes Burr had not entered into a long-term agreement prior to the statement of financial position date.) (c) For part (a), under ASPE, the debt would be classified as a long-term liability. If there is irrefutable evidence by the time the financial statements are completed and released that the debt has been or will be converted into a long-term obligation, ASPE allows currently maturing debt to be classified as long-term on the balance sheet. In this case, the debt was refinanced before the financial statements were completed and released. For part (b), under ASPE, the debt would be classified as a current liability since there was not irrefutable evidence by the time the financial statements were completed that the debt has been or will be converted into a long-term obligation. (This assumes Burr had not entered into a long- term agreement prior to the release of the financial statements.) In addition, since repayment occurred before funds were obtained through long-term financing, the repayment used existing current assets.

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

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-16 December 1, 2014: Employee Benefit Expense* ............................... 11,952 Parental Leave Benefits Payable .............. 11,952 * Salary for 17 weeks ($74,000 ÷ 52 X 17) $24,192 Less: employment insurance payments ($720/week X 17 weeks) (12,240) Employee Benefit Expense $11,952 For each of the 4 weeks in December, 2014, Laurin Corporation will pay Ruzbeh Awad a top up amount and record the payments as follows: Parental Leave Benefits Payable........................ 703.08 Cash ............................................................ 703.08 ($74,000 ÷ 52 weeks) = $1,423.08 – $720.00 = $703.08 BRIEF EXERCISE 13-17 12/31/14 Bonus Expense .................................. 350,000 Bonus Payable .......................... 350,000 2/15/15 Bonus Payable ................................... 350,000 Cash ........................................... 350,000

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-18 Drilling Platform .................................................. 500,249 Asset Retirement Obligation ..................... 500,249 ($1,000,000 X .50025) Using a financial calculator: PV ? Yields $ 500, 248 .97 I 8% N 9 PMT 0 FV $ (1,000,000) Type 0 BRIEF EXERCISE 13-19 (a) IFRS Depreciation Expense ............................... 1,166,694 Accumulated Depreciation – Drilling Platform ............................... 1,166,694 [($10,000,000 + $500,249) ÷ 9 years] Interest Expense ....................................... 40,020 Asset Retirement Obligation ........... 40,020 ($500,249 X 8%) (b) ASPE Depreciation Expense ............................... 1,166,694 Accumulated Depreciation– Drilling Platform ............................... 1,166,694 [($10,000,000 + $500,249) ÷ 9 years] Accretion Expense .................................... 40,020 Asset Retirement Obligation ........... 40,020 ($500,249 X 8%)

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-20 (a) IFRS Inventory .................................................... 54,027 Asset Retirement Obligation ........... 54,027 (b) ASPE Drilling Platform ........................................ 54,027 Asset Retirement Obligation ........... 54,027 BRIEF EXERCISE 13-21 2014 Cash, A/R, etc. ................................... 2,500,000 Sales Revenue—Product......... 2,500,000 2014 Warranty Expense ............................. 63,000 Cash, Inventory, etc. ................ 63,000 12/31/14 Warranty Expense ............................. 420,000 Warranty Liability ..................... 420,000 BRIEF EXERCISE 13-22 2014 Cash, A/R, etc. ................................... 2,500,000 Sales Revenue—Product......... 1,900,000 Unearned Warranty Revenue .. 600,000 2014 Warranty Expense ............................. 63,000 Accounts Payable, Salaries and Wages Payable, etc. ......................... 63,000 12/31/14 Unearned Warranty Revenue ........... 150,000 Warranty Revenue ................... 150,000 $600,000 X 25%

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    Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-23 Note that this warranty contract is a separate service and should be accounted for using the revenue approach, which is the preferred method under both IFRS and ASPE for multiple deliverables (bundled sales). (a) Cash ....................................................... 1,980,000 Unearned Warranty Revenue ...... 1,980,000 (20,000 X $99) (b) Warranty Expense ................................. 180,000 Cash, Inventory, etc. .................... 180,000 (c) Unearned Warranty Revenue ............... 330,000 Warranty 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, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-24 (a) IFRS Inventory of Premiums ................................. 250,000 Cash ...................................................... 250,000 100,000 X $2.50 Cash, A/R, etc. ............................................... 4,000,000 Sales Revenue ...................................... 3,600,000 Unearned Premium Revenue ............... 400,000* * 1,000,000 X $4.00 X 10% Cash. .............................................................. 80,000** Premium Expense ......................................... 120,000 Inventory of Premiums......................... 200,000*** ** 240,000/3 X $1.00 *** 240,000/3 X $2.50 Unearned Premium Revenue ........................ 320,000 Sales Revenue ...................................... 320,000 240,000/(1,000,000 X 30%) X $400,000 (b) ASPE Inventory of Premiums ................................. 250,000 Cash ...................................................... 250,000 100,000 X $2.50 Cash, A/R, etc. ............................................... 4,000,000 Sales Revenue ...................................... 4,000,000 Cash. .............................................................. 80,000** Premium Expense ......................................... 120,000 Inventory of Premiums......................... 200,000*** ** 240,000/3 X $1.00 *** 240,000/3 X $2.50 Premium Expense ......................................... 30,000 Premium 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, McConomy Intermediate Accounting, Tenth Canadian Edition BRIEF EXERCISE 13-25 (a) Litigation Expense ...................................... 700,000 Litigation Liability .............................. 700,000 (b) Litigation Expense ...................................... 700,000 Litigation Liability .............................. 700,000 (c) No entry is necessary. The loss is not accrued because it is not probable that a liability has been incurred at 12/31/14. (d) ASPE where Litigation Liability is likely: Litigation Expense ................................... 700,000 Litigation Liability ........................... 700,000 ASPE where Litigation Liability is not likely: No entry is necessary. The loss is not accrued because it is not likely that a liability has been incurred at 12/31/14.

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