Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of the portfolio is greater than its original cost, even though some securities have decreased in value. Ted Abernathy, the financial vice-president, and Donna Nottebart, the controller, are in the process of classifying this securities portfolio in accordance with the new IFRS standard (IFRS 9) for the first time. Abernathy wants to classify all investments that have increased in value during the period as fair value through net income in order to increase net income this year. He wants to account for all the securities that have decreased in value at amortized cost. Nottebart disagrees. She tells Abernathy that there are no options now under IFRS. Depending on certain criteria, the debt instrun1ents must be classified into the amortized cost category or the fair value through net income category. Assume the role of the ethical accountant. You work for Addison Manufacturing and Abernathy and Nottebart have asked for your advice regarding the application of IFRS 9. Instructions In your role as the ethical accountant, respond to the following questions assuming that the company has no issues related to accounting mismatches. (a) Is Nottebart correct in that there are no choices for the classification of debt instruments? (b) For each of the following types of debt instruments, determine, by referring to the newly issued IFRS 9, if the debt security would be measured at amortized cost or fair value. 1. A debt instrument has a variable rate of interest and matures in 2015. The variable rate is based on the prime bank lending rate and pays 2% above prime. The company has, in the past, bought and sold these bonds and not held them until maturity. 2. A 5% bond, issued by Exnon Inc., is convertible into equity at the holder’s option. If Addison decides to receive shares rather than cash, the conversion rate to be used is a price of $50 per share of Exnon Inc. Addison will likely request to convert to shares when the share price of Exnon is over $55 per share or more. 3. A corporate bond pays interest that is linked to an inflation index. The company expects to hold on to this bond until it matures. 4. A perpetual bond (meaning it has no maturity date), issued by Resource Inc., can be called at any point by the issuer. If the bond is called, Addison will receive the face value of the bond plus any accrued interest. In addition, interest can only be paid on the bond if Resource Inc. meets certain solvency tests, before and after the payment of the interest. The company plans to hold this debt investment in perpetuity.
> Use the data provided in BE12- 16. How would your response change if ABC is a public company reporting under IFRS? In exercise E12-16: ABC Company has a trademark with a carrying amount of $83,750, and expected useful life of 15 years. As part of an imp
> ABC Company has a trademark with a carrying amount of $83,750, and expected useful life of 15 years. As part of an impairment test on December 31, 2014, due to a change in customer tastes, ABC gathered the following data about the trademark for purposes
> Swinson, Inc., a private company that applies ASPE, incurred $15,000 in materials and $12,000 in direct labour costs between January and March 2014 to develop a new product. In May 2014, the criteria required to capitalize development costs were met. A f
> WEBDESIGN Ltd. decided that it needed to update its computer programs for its supplier relationships. It purchased an off-the-shelf program and modified it internally to link it to 'WEBDESIGN's other programs. The following costs may be relevant to the a
> Canadian Tire Corporation, Limited is one of Canada's best-known retailers. Obtain a copy of Canadian Tire's financial statements for the year ended December 31, 2011, through SEDAR at www.sedar.com or on the companys website. To answer the following que
> Instructions Gain access to the 2011 financial statements of Potash Corporation of Saskatchewan from the company's website (www.potashcorp.com) or www.sedar.com. (a) Based on the information contained in these financial statements, determine each of the
> Usually a comparison assignment involves comparing two similar companies that are reporting under different GAAP. Ideally, it would be better to compare the same company's financial reports prepared on two different bases. First Capital Realty adopted IF
> Lufthansa and Air Canada are both global airline companies. Lufthansa reports under IFRS. Air Canada reported under pre-changeover Canadian GAAP until 2010 and now reports under IFRS. Access the financial statements of Lufthansa for its year ended Decemb
> Two well-known company names in the transportation industry in Canada are Canadian National Railway Company and Canadian Pacific Railway Limited. Go co either SEDAR (www.sedar.com) or to each company's website to gain access to the financial statements o
> Gibbs Inc. purchased a machine on January 1, 2014, at a cost of $60,000. The machine is expected to have an estimated residual value of $5,000 at the end of its five-year useful life. The company capitalized the machine and depreciated it in 2014 using t
> Brookfield Asset Management Inc. is a publicly traded Canadian company that converted to IFRS on January 1, 2010. Instructions From the company's website, access the annual report for the year ended December 31, 2009, the last year of reporting under Ca
> LianTang, HK Corporation's controller, is concerned that net income may be lower this year. He is afraid that upper-level management might recommend cost reductions by layiog off accounting staff, himself included. Tang knows that depreciation is a major
> Prophet Manufacturing Limited was organized on January 1, 2014. During 2014, it used the straight-line method of amortizing its plant assets in its reports to management. As the company's controller, on November 8 you are having a conference with Prophet
> On March 31, Ramesh Corp. invests in a $1,000, 6% bond to be held for short-term trading purposes, and accounts for this investment using the FV-NI method. The bond's fair value when acquired was $970, but an additional $10 was paid (and debited to Inter
> Write a brief essay highlighting the differences between IFRS and ASPE noted in this chapter, discussing the conceptual justification for each.
> How even Inc. is a private company that expects to "go public" and become publicly traded soon. Accordingly, it expects to be adopting IFRS by 2014. It is a manufacturing company with extensive investments in property, plant, and equipment. The company c
> Variable interest entities (VIEs) is a very complex topic and continues to be high on the agendas of the accounting standard-setting communities around the world. Part of the recent global credit crisis, as well as the fall of Enron, was a result of the
> Puma Paper Company Ltd. operates a 300-tonne per-day kraft pulp mill and four sawmills in New Brunswick. The company is expanding its pulp mill facilities to a capacity of 1,000 tonnes per day and plans to replace three of its older, less efficient sawmi
> Realtor Inc. is a company that owns five large office buildings that are leased out to tenants. Most of the leases are for 10 years or more with renewal clauses for an additional 5 years. Currently, the company is a private company that follows ASPE. Rec
> Nickel Strike Mines is a nickel mining company with mines in northern Ontario, Colombia, and Australia. It is a publicly traded company and follows IFRS, and has historically followed industry practice and used units of production as its depreciation pol
> MA Hydro (MH) is a private company that owns and operates all of Ontario~ electricity transmission systems. It is deciding whether it should follow IFRS or ASPE in the upcoming year. The company must choose now and is looking to do an analysis of the imp
> On March 10, 2014, Lucas Limited sold equipment that it purchased for $192,000 on August 20, 2007. It was originally estimated that the equipment would have a useful life of 12 years and a residual value of $16,800 at the end of that time, and depreciati
> Club Loop Corporation (CL) is a large owner, operator, and developer of golf clubs and resorts. The company is privately owned by several wealthy individuals. During the current year, according to the draft financial statements, revenues increased by 7.2
> On June 15,201 1, a second-hand machine was purchased for$77,000. Before being put into service, the equipment was overhauled at a cost of$5,200, and additional costs of $400 for direct material and $800 for direct labour were paid in fine-tuning the con
> Phoenix Corp. purchased Machine no. 201 on May 1, 2014. The following information relating to Machine no. 201 was gathered at the end of May: Price $85,000 Credit terms 2/10, n/30 Freight-in costs $800 Preparation and i
> Kitchigami Limited was attracted to the Town of Mornington by the town's municipal industry commission. Mornington donated a plant site to Kitchigami, and the provincial government provided S150, 000 toward the cost of the new manufacturing facility. The
> On October 1, Qilan Ltd. purchased 7% bonds with a face value of $1,000 for trading purposes, accounting for the investment at fair value through net income. The bonds were priced at 1.044 to yield Qilan 6%, and pay interest annually each October 1. Qila
> Refer to the 2011 financial statements and accompanying notes of Royal Bank of Canada (RBC) that are found on the company's website ('www.royalbank.ca) or www.sedar.com. Instructions (a) What percentage of total assets is held in investments (2011 versu
> Munro Limited reports the following information in its tax files covering the five-year period from 2012 to 2016. All assets are Class 10 with a 30% maximum CCA, and no capital assets had been acquired before 2012. 2012 Purchased assets A, B, and C for $
> Consider the following independent situations. Situation 1: Ducharme Corporation purchased electrical equipment at a cost of $12,400 on June 2, 2011. From 2011 through 2014, the equipment was depreciated on a straight-line basis, under the assumption tha
> Sung Corporation, a manufacturer of steel products, began operations on October 1, 2013. Sung’s accounting department has begun preparing the capital asset and depreciation schedule that follows. You have been asked to assist in complet
> The following is a schedule of property dispositions for Shangari Corp.: The following additional information is available: Land On February 15, land that was being held mainly as an investment was expropriated by the city. On March 31, another parcel of
> Conan Logging and Lumber Company, a small private company that follows ASPE, owns 3,000 hectares of timberland on the north side of Mount Leno, which was purchased in 2002 at a cost of S550 per hectare. In 2014, Conan began selectively logging this timbe
> Hubbub Company Ltd. acquired equipment at the beginning of Year 1. The asset has an estimated useful life of five years. An employee has prepared depreciation schedules for this asset using two different methods to compare the results of using one method
> Khamsah Mining Ltd. is a small private company that purchased a tract of land for $720,000. After incurring exploration costs of $83,000, the company estimated that the tract will yield 120,000 tonnes of ore having enough mineral content to make mining a
> On April30, 2014, Oceanarium Corporation ordered a new passenger ship, which was delivered to the designated cruise port and available for use as of June 30, 2014. Overall, the cost of the ship was $97 million, with an estimated useful life of 12 years a
> Linda Monkland established Monkland Ltd. in mid-2013 as the sole shareholder. The accounts on June 30, 2014, the company's year end, just prior to preparing the required adjusting entries, were as follows: All the capital assets were acquired and put int
> Soon after December 31,2014, the auditor of Morino Manufacturing Corp. asked the company to prepare a depreciation schedule for semi trucks that showed the additions, retirements, depreciation, and other data that affected the company's income in the fou
> Refer to the annual financial statements of Shoppers Drug Mart for its fiscal year ended December 31, 2011, found in Appendix 5B. Instructions (a) Review Shoppers Drug Mart's balance sheet. Identify all financial investments that are reported. You may n
> On January 1, 2012, Dayan Corporation, a small manufacturer of machine tools, acquired new industrial equipment for $1.1 million. The new equipment had a useful life of five years and the residual value was estimated to be $50,000. Dayan estimates that t
> Abdul Corporation purchased 400 common shares of Sigma Inc. for trading purposes for $13,200 on September 8 and accounted for the investment under ASPE at FV-NI. In December, Sigma declared and paid a cash dividend of $1.75 per share. At year end, Decemb
> Comco Tool Corp. records depreciation annually at the end of the year. Its policy is to take a full year's depreciation on all assets that are used throughout the year and depreciation for half a year on all machines that are acquired or disposed of duri
> Gambit Corporation purchased a new plant asset on April 1, 2014, at a cost of $769,000. It was estimated to have a useful life of 20 years and a residual value of $300,000, and a physical life of 30 years and a salvage value of $0. Gambit's accounting pe
> Diderot Corp. acquired a property on September 15, 2014, for $220,000, paying $3,000 in transfer taxes and a $1,500 real estate fee. Based on the provincial assessment information, 75% of the property's value was related to the building and 25% to the la
> The following assets have been acquired by various companies over the past year: 1. Boardroom table and chairs for a corporate head office 2. Dental equipment in a new dental clinic 3. Long-haul trucks for a trucking business 4. Weight and aerobic equipm
> Jiang Company Ltd. Purchases equipment on January 1, 2014, for $387,000 cash. The asset is expected to have a useful life of 12 years and a residual value of$39,000.Jiang prepares financial statements under IFRS. Instructions (a) Calculate the amount of
> Barnett Inc. purchased computer equipment on March 1, 2014, for $31,000. The computer equipment has a useful life of five years and a residual value of 51,000. Barnett uses a double declining- balance method of depreciation for this type of capital asset
> During 2014, Laiken Limited sold its only Class 3 asset. At the time of sale, the balance of the undepreciated capital cost for this class was $37,450. The asset originally cost $129,500. Instructions (a) Calculate recaptured CCA, capital gains, and ter
> On August 1, 2014, Iroko Corporation purchased a new machine for its assembly process. The cost of this machine was $136,400. The company estimated that the machine will have a trade-in value of $14,200 at the end of its useful life. Its useful life was
> The 2014 annual report of Trocchi Inc. contains the following information (in thousands): Instructions (a) Calculate the following ratios for Trocchi Inc. for 2014: 1. Asset turnover ratio 2. Rate of return on assets 3. Profit margin on sales (b) How ca
> On April 1, 2014, Lombardi Corp. was awarded $460,000 cash as compensation for the forced sale of its land and building, which were directly in the path of a new highway. The land and building cost $60,000 and $280,000, respectively, when they were acqui
> On December 31, 2013, Grey Inc. owns a machine with a carrying amount of $940,000. The original cost and accumulated depreciation for the machine on this date are as follows: Machine $1,300,000 Accumulated depreciation 360,000 $94
> On September 1, Louisa Ltd. purchased $80,000 of five-year, 9% bonds for $74,086, resulting in an effective (yield) rate of 11%. The bonds pay interest each March I and September I. Louisa Ltd. applies ASPE, accounts for the investment under the amortize
> Consider the following independent situations for Kwok Corporation. Kwok applies ASPE. Situation 1: Kwok purchased equipment in 2007 for $120,000 and estimated a $12,000 residual value at the end of the equipment's 10-year useful life. At December 31, 20
> Jupiter Wells Corp. purchased machinery for $315,000 on May 1, 2013. It is estimated that it will have a useful life of 10 years, residual value of $15,000, production of 240,000 units, and 25,000 working hours. During 2014, Jupiter Wells Corp. used the
> Use the information for Odyssey Ltd. in BE11-5. In exercise Odyssey Ltd. purchased machinery on January 1, 2014, for $60,000. The machinery is estimated to have a residual value of $6,000 after a useful life of eight years. (a) Calculate the 2014 depr
> Odyssey Ltd. purchased machinery on January 1, 2014, for $60,000. The machinery is estimated to have a residual value of $6,000 after a useful life of eight years. (a) Calculate the 2014 depreciation expense using the straight-line method. (b) Calculat
> Gilles Corp. purchased a piece of equipment on February 1, 2014, for $100,000. The equipment has an estimated useful life of eight years with a residual value of $25,000, and an estimated physical life of 10 years with no salvage value. The equipment was
> Chong Corp. purchased a machine on July 1, 2014, for $30,000. Chong paid $200 in title fees and a legal fee of $100 related to the machine. In addition, Chong paid $500 of shipping charges for delivery, and paid $400 to a local contractor to build and wi
> Fran Song looked at the consolidated financial statements of Vixen Manufacturing Limited and shook her head. "I was asked to look at the accounting for Vixen's investments," she said, "but I can't find any investments listed on the balance sheet!" Fran h
> On October 1, 2014, Ocean Airways Ltd. purchased a new commercial aircraft for a total cost of $100 million. Included in the total cost are the aircraft's two engines, at a cost of510 million each, and the aircraft's body, which cost $80 million. The est
> Cella Corporation's statement of financial position shows property, plant, and equipment of $100,000. The notes to its financial statements state that the amount is represented by a cost of $600,000, accumulated depreciation of $300,000, and accumulated
> Fang Limited purchased an asset at a cost of $45,000 on March 1, 2014. The asset has a useful life of seven years and an estimated residual value of $3,000. For tax purposes, the asset belongs in CCA Class 8, with a rate of 20%. Calculate the CCA for eac
> In its 2014 annual report, Winkler Limited reports beginning-of-the-year total assets of $1,923 million, end of- the-year total assets of $2,487 million, total revenue of $2,687 million, and net income of $52 million. (a) Calculate Winkler's asset turno
> Use the information presented for Volumetrics Corporation in BEII-17, but assume that the machinery is sold for $5,200 instead of $13,500. Prepare journal entries to In exercise Volumetrics Corporation owns machinery that cost $20,000 when purchased on
> Jamoka Corporation is a public company that manufactures farm implements such as tractors, combines, and wagons. Jamoka uses the revaluation model per IAS 16, and records asset revaluations using the elimination method. (This means the balance in the acc
> Beta Corp. invested in a three-year, $ 100 face value 8% bond, paying $95.03. At this price, the bond will yield a 10% return. Interest is payable annually. (a) Prepare a bond discount amortization table for Beta Corp. assuming Beta uses the effective in
> Volumetrics Corporation owns machinery that cost $20,000 when purchased on January 1, 2013. Depreciation has been recorded at a rate of $3,000 per year, resulting in a balance in accumulated depreciation of $6,000 at December 31, 2014. The machinery is s
> Caley Inc. owns a building with a carrying amount of $1.5 million, as of January 1, 2014. On that date, Caley's management determined that the buildings location is no longer suitable for the company's operations and decided to dispose of the building by
> Riverbed Ltd. is a manufacturer of computer network equipment and has just recently adopted IFRS. The wireless division is a cash-generating unit or asset group that has the following carrying amounts for its net assets: land, $20,000; buildings, $30,000
> Consider the following types of investments and explain whether they are debt or equity instruments. Provide one or two reasons for each as to why a company might choose this investment. (a) 10,000 Class A voting shares in One Corp. with a market value o
> Greentree Properties Ltd. is a publicly listed company following IFRS. Assume that on December 31, 2014, the carrying amount of land on the statement of financial position is $500,000. Management determines that the land's value in use is $425,000 and th
> Hambrecht Corp. is preparing its financial statements for the fiscal year ending November 30, 2014. Certain specialized equipment was scrapped on January 1, 2015. At November 30, 2014, this equipment was being used in production by Han1brecht and had a c
> Use the information for Qilin Corp. given in BE11-11. By the end of the following year, the machinery's fair value has increased to $490,000. In exercise Qilin Corp., a small company that follows ASPE, owns machinery that cost $900,000 and has accumulat
> Qilin Corp., a small company that follows ASPE, owns machinery that cost $900,000 and has accumulated depreciation of$360,000. The undiscounted future net cash flows from the use of the asset are expected to be $500,000. The equipment's fair value is $40
> Chuckwalla Limited purchased a computer for $7,000 on January 1, 2014. Straight-line depreciation is used for the computer, based on a five-year life and a $1,000 residual value. In 2016, the estimates are revised. Chuckwalla now expects the computer wil
> Extract Corporation, a publicly traded mining company, acquires a mine at a cost of $500,000. Capitalized development costs total $125,000. After the mine is depleted, $75,000 will be spent to restore the property, after which it can be sold for $ 157,50
> Onkar Corporation bought a machine on June 1, 2010, for $31,800, f.o.b. the place of manufacture. Freight costs were $300, and $500 was spent to install it. The machine's useful life was estimated at 10 years, with a residual value of $1,900. On June 1,
> Jared Industries Ltd. presents you with the following information: Instructions Complete the table for the year ended December 31, 2015. The company depreciates all assets for a half year in the year of acquisition and the year of disposal. Accumula
> The following is net asset information for the Dhillon Division of Klaus, Inc.: The purpose of the Dhillon Division (also identified as a reporting unit or cash-generating unit) is to develop a nuclear-powered aircraft. If successful, travelling delays t
> On July 1, 2014, Zoe Corporation purchased the net assets of Soorya Company 10) by paying $415,000 cash and issuing a $50,000 note payable to Soorya Company. At July 1, 2014, the statement of financial position of Soorya Company was as follows: Cash …………
> Fred Moss, owner of Medici Interiors Inc., is negotiating for the purchase of Athenian Galleries Ltd. The condensed statement of financial position of Athenian follows in an abbreviated form: Medici and Athenian agree that the land is undervalued by $40,
> The following information is for a copyright owned by Venetian Corp., a private entity, at December 31, 2014. Venetian Corp. applies ASPE. Cost $4,300,000 Carrying amount 2,150,000 Expected future net cash flows (undiscounted) 2,000
> Repeat E12-13, but now assume that the licence was granted in perpetuity and has an indefinite life, and that Dayton prepares financial statements in accordance with ASPE. In exercise E12-13 At the end of 2014, Dayton Corporation owns a licence with a r
> Repeat E12-13, but now assume that the licence was granted in perpetuity and has an indefinite life. In exercise E12-13: At the end of 2014, Dayton Corporation owns a licence with a remaining life of 10 years and a carrying amount of $530,000. Dayton ex
> Repeat E12-13, but now assume that Dayton prepares financial statements in accordance with ASPE, and that the recoverable amount under ASPE (undiscounted future cash flows) is calculated to be $500,000 at the end of 2015. In exercise E12-13: At the end
> At the end of 2014, Dayton Corporation owns a licence with a remaining life of 10 years and a carrying amount of $530,000. Dayton expects undiscounted future cash flows from this licence to total $535,000. The licence's fair value is $425,000 and disposa
> Safe Ride Incorporated applied for several taxi licenses for its taxicab operations in the City of Waterford and, on August 31, 2014, incurred costs of$14,200 in the application process. The outcome of applying for taxi licenses in the City of Waterford
> PrideTalk Corp., reporting under ASPE, has provided the following information regarding its intangible assets: 1. A patent was purchased from Marvin Inc. for $1.2 million on January 1, 2013. PrideTalk estimated the patent's remaining useful life to be 1
> Andeo Corporation purchased a truck at the beginning of 2014 for $48,000. The truck is estimated to have a residual value of $3,000 and a useful life of 275,000 km. It was driven for $2,000 km in 2014 and 65,000 km in 2015. Calculate depreciation expense
> Marmon Drilling Limited leases property on which oil has been discovered. Wells on this property produced 21,000 barrels of oil during the current year and it was sold at an average of $85 per barrel. The total oil resources of this property are estimate
> Using the information presented in BE9-12, assume instead that Hayes follows a policy of accounting for its investment in Kenyon shares at FV-OCI without recycling. Prepare all entries associated with the disposal of the investment on April 13, 2015 In e
> In 2014, Inventors Corp. spent $392,000 on a research project, hut by the end of 2014 it was impossible to determine whether any benefit would come from it. Inventors prepares financial statements in accordance with IFRS. Instructions (a) What account sh
> Parastu Corp. incurred the following costs during 2014 in connection with its research and development phase activities: Cost of equipment acquired for use in research and development projects over the next five years (straight-line depreciation used) …
> In early January 2014, Kara Corporation applied for and received approval for a trade name, incurring legal costs of $45,000. In January 2 015, Kara incurred $24,300 of legal fees in a successful defense of its trade name. Instructions (a) Management det
> Bountiful Industries Ltd. had one patent recorded on its books as at January 1, 2014. This patent had a book value of $365,000 and a remaining useful life of eight years. During 2014, Bountiful incurred research costs of $140,000 and brought a patent inf
> Sunny Valley Inc. purchased an Internet domain name by issuing a $220,000, five-year, non-interest-bearing note to Ti-Mine Corp. with an effective yield of 12%. The note is repayable in five annual payments of $44,000 each. Prepare the journal entry to r
> Azure Industries Ltd. acquired two copyrights during 2014. One copyright was on a textbook that was developed internally at a cost of $ 18,000. This textbook is estimated to have a useful life of three years from September 1, 2014, the date it was publis
> Brilliant Minds Inc. incurred the following costs associated with its research facilities. Indicate whether these items are capitalized or expensed in the current year: (a) Executive salaries (b) Costs of testing prototypes (c) Market research to prepare
> For each independent scenario outlined below, discuss whether the three criteria required for an asset to be classified as an intangible are fulfilled: (a) Software purchased specifically for a manufacturing machine that cannot operate without that softw
