Consider each of the following scenarios, and discuss how each arrangement should be classified. Scenario 1 A group of three investors, Companies A, B, and C, have entered into an agreement to purchase and manage a large outdoor retail mall. A new company, RealCo, was established in order to purchase the mall. Companies A and B contributed $100,000 cash to RealCo. Company C contributed $50,000 in cash and the commitment to perform management services. The arrangement requires that all decisions be made unanimously by all investors. Each investor will receive a share of the income from RealCo. Companies A and B will earn 30% of the total income. Company C will earn 40% (which includes a 10% management fee). Scenario 2 Two companies, A and B, have set up an arrangement to manufacture some products. Both will use their own assets to complete part of the manufacturing process. Ownership of the assets will remain the same. Company A has a loan on their equipment. In the case of default, Company B will not have any responsibility relating to the debt for the equipment. Company A will take 55% of the profit from sale, and Company B will take 45% of the profit from sale. All decisions relating to the manufacturing process and operations must be agreed upon by both parties. Required: For each scenario, discuss how Company A, a public company, should account for their interest. Explain some of the critical decisions that would need to be considered in this analysis.
> Juno Corporation (JC) is a Canadian online streaming service that provides access to a wide variety of movies and TV shows. The company has been in operation for the past five years and currently has a subscriber base of five million customers. JC curren
> Winery Inc. (WI) is a private corporation formed in 20X8. Prior to 20X8, WI had been operating as a partnership by the Verity family. Due to their success and desire to expand, they have made the decision to incorporate so that they will have additional
> Glowworm Inc. “I cannot believe you have advised against an employee bonus this year,” exclaimed Jessica Simpson, senior accountant of Glowworm Inc. (GI), as she stormed into the office of the GI chief financial officer on Monday morning. GI is a large,
> Titles Inc. (TI) is a major publisher of books for postsecondary education. TI is a Canadian public corporation. One of TI’s major shareholders is Global Holdings PLC (GHC), a London-based media company. In early 20X4, TI’s executives were preparing a bi
> CBD Inc. (CBD) grows and manufacturers Cannabis sativa plant species and then curates their product into CBD oil. The company was incorporated in 20X6, and operates out of Prince Edward Country, Ontario. CBD Inc. primarily sells its products via online c
> Love Your Pet, Inc. (LPI) is a pet food company located in rural Quebec. LPI has been operating for years as a distributor of pet food but in the last year has begun to manufacture raw dog food. In the current year, LPI has been certified by the Canadian
> Mitrium Corp. is a large privately held company that manufactures frozen ice cream products, which are sold to large and small retailers across North America. The shares of this company are held by 12 individuals, some of them related and some of them no
> Crane Inc. is an agent for Phillips Co. and negotiates sales contracts between Phillips and the final customer for heating and air conditioning units. By agreement, Crane is to receive a commission of 15% on each sale. During the last quarter, Crane nego
> Match the user with the most likely objective. User 1. Bank 2.Small private company 3. Not-for-profit organization 4. Management 5. Shareholders with agreement objective 1. Stewardship 2. Income tax deferral 3. Cash flow prediction 4. Contract Compliance
> The Melville Credit Union has operated in small-town, rural Nova Scotia for the last 27 years. In the summer of 20X4, after decades of operation as a prosperous paper mill, the Lancaster Mersey Mill was abruptly shut down. Lancaster had been a major empl
> Reliable Construction Inc. (RCI) is a public company that sells construction equipment to builders of primarily homes, office buildings, and highways. RCI has been in operation for over 30 years. Up until this year, the company has had profits with the r
> Thomas Technologies Corp. (TTC) is an engineering services company based in Calgary. The company’s Class B common shares are listed on the Toronto Stock Exchange. The Class A common shares are all owned by Theodore Thomas, the company founder, and his im
> Lake Country Ltd. (LCL) is a Canadian manufacturer of outdoor furniture products. LCL manufactures high-quality, durable, and attractive furniture such as outdoor seating, tables, and accessories. LCL sells its products directly to retailers, who in turn
> Pocket Entertainment Group Ltd. (PEG) is an interactive entertainment company that develops mobile apps. Sharleen Williams and her family members own the majority of the 4,000 shares, and have financed all growth through shareholder loans, equity investm
> Solar Power Inc. (SPI) is a public company manufacturing and distributing solar panels. It has been in existence for the past ten years, of which the last three have been as a public company. To date SPI has experienced good growth rates, slightly higher
> Rosy Ltd. (Rosy) is a consumer products company that designs, manufactures, markets, and distributes a diverse portfolio of products, primarily in the recreational and leisure segments. The products enjoy strong positive brand recognition and include suc
> “Frankly, if we continue to grow, we will be out of business soon.” This was the glum assessment of Kathy Lin, President and CEO of Purple Ltd. (Purple), a company that designs, manufactures, and retails womenâ&#
> The owner of Bettany Inc., Mario Sloan, has come to you, a public accountant, for advice. “I am very worried about my business right now. The bank loan is at its maximum level, we have no cash, and my salary is backing up, unpaid. I don
> The management of WPB Ltd. has spent the past year reorganizing the company’s business activities. WPB is a service provider to hospitals. Originally the company operated only in Canada, where hospital care is provided at government expense through publi
> Information related to various financial statement items is provided for two cases: Case A Operating expenses were $500,000. Inventory increased by $72,000, accounts payable increased by $50,000, and prepaid rent decreased by $16,000. Case B Sales revenu
> Wonder Amusements Ltd. (WAL) was incorporated over 40 years ago as an amusement park and golf course. Over time, a nearby city has grown to the point where it borders on WAL’s properties. In recent years WAL’s owners,
> Colour My World Inc. (CMWI) has been operating as a private company for the past 25 years. It manufactures and sells paint. At first, the owners ran only a few retail stores in Northern Ontario, but the company has since expanded with stores across Canad
> T&E Investor Corporation (TEIC) is a holding company with wholly owned interests in the travel and entertainment industry. It is listed on the Toronto Stock Exchange and is subject to the reporting requirements of that exchange and of the Ontario Securit
> Singh Solutions Inc. (SSI) is an Ontario-based manufacturing business that specializes in the production of fire and soundproofing insulation. The company holds public-listed debt, and the family of its founder, Jasmeet Singh, retains control through spe
> International Corp. (IC) is a large Canadian company that has operations around the world that are very diverse. In the past few years they have acquired a number of different companies in a variety of businesses. They have decided this year that it is t
> Dubois Ltd. is a Vancouver-based private company established 30 years ago. Until very recently, all 16 of the shareholders have been relatives of the founder, Blanche Dubois. The company has been profitable in most years. In recent years, however, it has
> On 1 May 20X7, Bertrum Ltd. purchased $1,000,000 of Fox Corp. 6.2% bonds. The bonds pay semi-annual interest each 1 May and 1 November. The market interest rate was 6% on the date of purchase. The bonds mature on 1 November 20X11. Required: 1. Calculate
> On 1 January 20X5, Franco Ltd. purchased $400,000 of Gentron Company 5% bonds. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 6% on the date of purchase. The bonds mature on 31 December 20X10. The company ha
> On 1 July 20X2, New Company purchased $600,000 of Old Corp. 5.5% bonds, classified as an AC investment. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 5% on the date of purchase. The bonds mature on 30 June
> On 1 June 20X8, Ghana Company purchased $7,000,000 of Monaco Corp. 5.8% bonds, classified as a FVOCI-Bond investment. The bonds pay semi-annual interest each 30 May and 30 November. The market interest rate was 6% on the date of purchase. The bonds matur
> Selected accounts from the SFP of Norry Ltd. at 31 December 20X4 and 20X5 are presented below. Norry reported earnings of $280,000 in 20X5. There was a new $140,000 of note payable this year that was direct financing (a note issued by the vendor) for a p
> On 1 July 20X8, Sun Company purchased $4,000,000 of Moon Corp. 6.2% bonds, classified as an AC investment. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 6% on the date of purchase. The bonds mature on 30 Ju
> Poffer Investments (Poffer) is an investment company. The owners are avid investors that have pooled their money to earn income through their investments. They have a small, but wealthy client base that they manage funds for. All investments are purchase
> Timmins Ltd. owns a number of investments in bonds. Timmins has a 31 December year-end. Case A $3,000,000 bonds in Lakehead Corp. a publicly traded company. The bonds are currently classified as AC with an amortized cost of $3,250,000 as at December 31 a
> Yohan Inc. owns 14,000 shares in Placelid Corporation (represents 10%). Both companies are private entities. The shares were purchased in 20X1 for $20 per share, plus transaction fees of $6,250. In 20X6, Placelid experienced significant challenges with i
> Operators 1 and 2 are both copper mining companies. Operator 1 focuses on drilling and extraction; Operator 2 focuses on the grinding and concentration process (to extract the ore). The companies work together to drill, extract, and partially process the
> On 3 January 20X4, TA Company purchased 2,000 shares of the 10,000 outstanding shares of common stock of UK Corp. for $14,600 cash. TA has significant influence as a result of this acquisition. At that date, the statement of financial position of UK Corp
> On 2 January 20X5, Junction Ltd., a private company, purchased 90,000 of the 100,000 outstanding common shares of Wicket Corporation for $12 per share. The remaining 10,000 shares are owned by an investor. Transactions costs totalled $12,500. During 20X5
> On 1 January 20X8, Khalil Ltd. purchased $2,000,000 of six-year, Harvest Ltd. 5.4% bonds. The bonds pay semi-annual interest each 30 June and 31 December. The market interest rate was 6% on the date of purchase. Khalil is a private company that complies
> Return to the facts of A11-7. Assume now that New Company is a private company that complies with ASPE. Straight-line amortization will be used rather than the effective-interest method. Required: 1. Calculate the price paid by New Company. 2. Construct
> Return to the facts of A11-2. Assume now that the investor is a private company that complies with ASPE. Required: How should the investor classify each of the investments? What accounting method should be used for each? Data from A11-2: For each situat
> Selected accounts from the SFP of Penton Ltd. at 31 December 20X5 and 20X4 are presented below. Penton declared $100,000 of cash dividends during the year, and purchased $200,000 of machinery in direct exchange for common shares. Required: List the items
> Return to the facts of A11-1. Assume now that the investor is a private company that complies with ASPE. Required: How should the investor classify each of the investments? What accounting method should be used for each? Data from A11-1:; The following
> The following comparative data are available from the 20X4 statement of financial position of Trevor Holdings Ltd: In 20X4, the following transactions took place and are properly reflected in the accounts, above. 1. There were no purchases or sales of FV
> For each of the following transactions, identify the item(s) that would appear on the statement of cash flows. Assume that the indirect method of presentation is used in the operating activities section, and cash flow from investing revenue is classified
> Consider the following investment categories: 1. AC investment 2. FVOCI-Bond investment 3 FVTPL investment 4. FVOCI-Equity investment 5. Associate 6. Subsidiary 7. Joint venture An investor company that is a public company has the following items: 1. SRY
> On 31 December 20X6, TKB Company’s investments in equity securities were as follows: Required: 1. Explain what the carrying value for each investment represents. 2. What was the original cost of the FVOCI investment? 3. TKB reclassified
> In 20X1, Pepper Company bought 75% of S Company’s common shares, establishing control over the board of directors. Pepper Company used the cost method to account for its investment in S Co. during the year, but prepared consolidated fin
> Royals Imports is a public company. It reported the following at the end of 20X5: FVOCI investment, Huebner Co. 20,000 shares ($542,000 cost) $ 742,000 FVTPL investments Adams Co., 28,000 shares $1,816,000 - Sawicki Co., $150,000 par value, 8% bond, due
> On 3 January 20X8 Raylink Inc., a publicly traded company, purchased 60,000 common shares of Tall Forest Ltd. for $27 per share. There are a total of 300,000 common shares issued and outstanding. Tall Forest has the following assets on the date the share
> On 1 January 20X6, Loffer Ltd. purchased 37% of Ming’s common shares for a price of $875,000. The remainder of the shares in Ming are closely held by family members of the founder of the company. Loffer considers this a strategic investment, acquired to
> Selected accounts from the SFP of Katten Ltd. at 31 December 20X8 and 20X7 are presented below. Katten reported earnings of $100,000 in 20X8. There was a stock dividend recorded, valued at $50,000 that reduced retained earnings and increased common share
> On 1 January 20X5, Zan Company purchased 5,000 of the 20,000 outstanding common shares of Woo Computer Corp. (WC) for $120,000 cash. Zan had significant influence as a result of the investment and will use the equity method to account for the investment.
> Premium Investments Ltd. bought the following bond investment: $4,000,000 bonds of Trans-BC Operations Ltd. The bonds were purchased 1 Feb 20X5. Interest at 6% is payable semi-annually on January 31 and July 31. The bonds mature in four years on 31 Janua
> Lauren Corp. purchased a $728,000 investment in the common shares of Reesh Corp. on 15 May 20X5. The investment is a FVTPL investment. Reesh is a private company and few shares are bought and sold. Lauren was speculating that the value of the Reesh commo
> Adar purchased on 1 October 20X3 a $70,000, 5%, ten-year bond that pays interest each 31 March and 30 September. The bond was purchased for $65,014, and is expected to yield 6%. It is trading at 94 at December 20X3 and Adar has determined that the credit
> For each situation below, indicate how the investment would be classified, and how it would be accounted for. The investor is a public company. 1. Common shares are bought in a public company whose shares are broadly held and widely traded. The company i
> Danigal purchased a $150,000, 6% coupon bond from Intregal Corp. on 1 January 20X2. Interest is paid semi-annually on 30 June and 31 December. The market interest rate was 4.5% at the time of purchase. The bond expires on 31 December 20X7. The bond is re
> 16 July 20X7: Sachet Inc. purchased the following 15,000 shares in Zynic Inc., a European corporation, for €32 per share. Management designated the shares as FVOCI. Total commissions and fees to purchase the shares: €1,300. - 31 December 20X7: Zynic shar
> On 22 May 20X5, Friedland Ltd. purchased 52,000 shares of Gerstan Ltd. for US$13.40 per share, plus US$2,000 in commissions and fees. The shares were purchased from a broker on account, with later cash payment. On 22 May 20X5, the exchange rate was US$1
> Cudmore Ltd. had two FVTPL investments at the end of 20X4, disclosed on the SFP as follows: Kelowna Ltd. 2,000 shares $ 88,700 Burnaby Corp. 7,200 shares 66,240 $154,940 By the end of 20X4, unrealized losses of $3,700 related to the Kelowna Ltd. shares a
> During 20X2, Morran Company purchased shares in two corporations and bond securities of a third. The share investments are classified as FVOCI-Equity and the bond investment is FVTPL. Transactions in 20X2 include: 1. Purchased 3,000 of the 100,000 common
> Selected accounts from the SFP of MNN Ltd. at 31 December 20X4 and 20X5 are presented below. Depreciation was $40,000 for equipment, $60,000 for buildings, and $75,000 for machinery. A new machine was purchased in 20X5, with 25% of the price paid in cash
> On 30 April 20X2, Marc Company purchased 4,000 shares of Spencer Ltd. for $17 per share plus $400 in commission. In 20X2, the company received a $0.65 per share dividend, and the shares had a fair value of $16 per share at the end of the year. In 20X3, t
> London Ltd. reported the following transactions and information regarding the shares of Dolma Corp: - 15 October 20X2, purchased 3,000 shares at $42 per share plus $1,200 commission. - 1 December 20X2, received $0.50 per share cash dividend. - 31 Decembe
> On 1 November 20X8, Porter Company acquired the following FVTPL investments: - Minto Corp.—2,000 common shares at $15 cash per share - Pugwash Corp.—700 preferred shares at $25 cash per share The annual reporting period ends 31 December. Quoted fair valu
> At the end of 20X9, Canfrax Corp. Ltd. reported an unrealized loss on Comet Company shares of $24,600 in earnings. Investments were reported on the statement of financial position as follows: Long-term assets: investments: Star Co. common shares $1,370,1
> Shyloft Corporation purchased $85,000, 7% bonds of Coyyle Ltd. on 2 July 20X3. Interest is paid 1 July and 1 January. The bonds expire on 30 June 20X13. The market interest rate at the time of purchase was 6.5%. The fair value of the bond is as follows:
> The following investments are held by investors that are public companies: 1. A $5,000,000 5% publicly traded 10-year bond of Tree Ltd. The bonds are held for short-term capital appreciation, as the investor is expecting interest rates to change. 2. A $4
> Quality Producers acquired factory equipment on 1 January 20X5, costing $156,000. Component parts are not significant and need not be recognized and depreciated separately. In view of pending technological developments, it is estimated that the machine w
> Mace Company acquired equipment that cost $36,000, which will be depreciated on the assumption that the equipment will last six years and have a $2,400 residual value. Component parts are not significant and need not be recognized and depreciated separat
> You have been asked to explain the appropriate policy for depreciation for the following two cases for a major utility: 1. Case A The utility has a number of transformers in its transformer stations that transform power from a high voltage to a lower vol
> The company purchased a machine for $25,000 cash. The machine will probably have a useful life of 10 years but it has a component part that will need to be replaced every two and a half years. The cost to replace this part is $250. 2. Case B The company
> Selected accounts from the SFP of Lexy Ltd. at 31 December 20X7 and 20X6 are presented below. During the year, equipment with an original cost of $200,000 and net book value of $85,000 was sold at a loss of $15,000. Other equipment was purchased for cash
> Technology Inc. (TI) has the following intangible assets: 1. Case A TI acquired a patent from another company that expires in 10 years. The purpose of the purchase was to eliminate competition for one of its top-selling products. Based on market surveys,
> The methods of depreciation or amortization demonstrated in the chapter include the following: 1. Straight-line 2. Productive-output 3. Declining-balance Required: Indicate the likely choice of depreciation or amortization method expected under each of t
> Tinoy Corporation manufactures bath toys for toddlers. Tinoy has 3 machines it utilizes in the manufacturing process. Between 20X5 and 20X9 production volume has been consistent with each machine producing approximately the same production totals. The ma
> Bitum Incorporated purchased equipment in 20X1 and at that time the estimated useful life of the equipment was estimated to be 12 years. Management’s estimated maintenance costs would be less than $300 in the first 2 years, $500 in the
> The following information is available for a machine owned by Sorano Inc. at 31 December 20X4: Machine original cost $12 million Salvage value $0 Purpose of machine: Manufacturing Remaining useful life 5 years Depreciation method Straight-line Machine—ac
> Immersive Inc. adopts IFRS and has a 31 December year-end date. 2. On 1 January 20X3 Immersive Inc. acquired a tract of land and a building for a lump-sum price of $35 million; $25 million was allocated to the land and $10 million to the building. The bu
> Kalua Inc. is a small manufacturing plant. All produced goods pass through one key piece of machinery that was purchased in 20X2 for $6 million. The machine is being depreciated using a variable charge method. Revenues have been relatively stable between
> Gardner Inc. manufactures products in two plants. One of the plants is an area where there has been a downturn in the market, and indications are that there has been potential impairment. Gardner has determined that the asset group includes land, buildin
> Refer to the facts in A10-22 and assume the company is following the accounting standards for private enterprises. Required: Is the machine impaired? If so, what is the amount of the impairment loss? Data from A10-22: Yuan Inc. has a large piece of mach
> Brioche Incorporated is a private company that uses IFRS for financial reporting. The company acquired equipment for $90,000 on 1 January 20X1. At acquisition, Brioche estimated the equipment would have a useful life of 10 years. The residual value was e
> Selected accounts from the SFP of Gabby Ltd. at 31 December 20X7 and 20X6 are presented below. Gabby reported earnings of $125,000 in 20X7, and depreciation expense was $20,000. Required: Calculate cash from operating activities for 20X7. Good form is no
> There are three valuation models described in Chapters 9 and 10: 1. Cost model 2. Revaluation model 3. Fair-value model Required: Explain the major differences among the models, including an explanation of how depreciation and impairment is treated in ea
> Scenario A Yaloo Incorporated purchased machinery on 2 December 20X2. Delivery was guaranteed within 10 days and the machinery arrived on 7 December 20X2. Installation took place between 10 December and 15 December 20X2. Testing of the machinery commence
> MH Plumbing Inc. (MH) is the largest plumbing contractor in Moncton, Alberta. Information on selected transactions/events is given below: 1. On 15 January 20X2, MH purchased land and a warehouse building for $455,000. The land was appraised at $175,000,
> Syan Corp. reflected the following on the 31 December statement of financial position: Syan Corp. also reflected the following on the 31 December year-end adjusted trial balance: Impairment loss $120,000 Depreciation expense 50,000 Gain on sale of machin
> Lindsay Ltd. reflected the following items in the 20X5 financial statements: Income statement Depreciation expense, machinery $1,200,000 Amortization expense, patent 240,000 Loss on sale of machinery 100,000 Gain on sale of land 120,000 Balance sheet Dec
> Information has been collected regarding Price Inc.’s cash-generating unit that includes goodwill. At 31 December 20X5, the assets of the Price’s CGU are shown as follows (in millions): An impairment test indicates tha
> Information has been collected regarding Orange Company’s cash-generating unit that includes goodwill. At 31 December 20X5, the assets of the Orange Company’s cash-generating unit are shown as follows (in millions) on
> The abrasives group of Chemical Products Inc. (CPI) has been suffering a decline in its business, due to new product introductions by competitors. At 31 December 20X5, the assets of the abrasives cash-generating unit are shown as follows (in millions) on
> Yuan Inc. has a large piece of machinery, and management has determined there is potential impairment. This piece of machinery has independent cash inflows. The following information relates to the machine: - Net book value is $14 million. - The machine
> Softsweat Inc. is a software development company. It has several products on the market, including the widely used PlayMark animation software. The cash flows from PlayMark are clearly distinguishable within Softsweat. The company has recorded developmen
> Selected accounts from the SFP of UVI Ltd. at 31 December 20X4 and 20X5 are presented below. UVI reported earnings of $407,000 in 20X5, and depreciation expense was $35,000. Required: Calculate cash from operating activities for 20X5. Good form is not re
> Marlene Inc. produces several lines of office furniture. All of the furniture is sold through sales agents who sell the full array of lines. Each line is developed by the company internally, and the development costs are capitalized and amortized over 12
> Portions of the 20X2 financial statements of Williams Company, a paint manufacturer, are reproduced below (in thousands of dollars): Partial Income Statement for the year ended 31 December 20X2 Net sales $2,266,732 Total expenses 2,079,455 Income before
> Bright Designs Ltd. began operations in 20X5 and, at the end of its first year of operations, reported a balance of $601,500 in an account called “intangibles.” Upon further investigation, it is discovered that the account had been debited throughout the
> The following select data has been extracted from Reelo Inc.’s financial records relating to equipment acquisitions during 20X7 and 20X8. On 31 December 20X8 equipment was retired which had an original cost of $56,000. The retirement ha
