For the past 10 years, Prince Company (Prince) has owned 75,000 or 75% of the common shares of Stiff Inc. (Stiff). Elizabeth Winer owns another 20% and the other 5% are widely held. Although Prince has the controlling interest, you would never know it during the annual shareholders' meetings. Winer keeps the board of directors on its toes by asking a lot of tough questions and continually threatening legal action if her rights as a minority shareholder are not protected. Rick Impatient owns 100% of the shares of Prince. After Prince's latest shareholders' meeting, he decided that Prince would offer to purchase Winer's shares in Stiff or Prince would sell its interest in Stiff as Impatient was tired of all of the heckling from Winer. The shares of Stiff were recently trading for $50 per share. On November 13, Year 13, Prince offered to pay $54 per share to Winer for her 20% interest in Stiff. To Impatient's surprise, Winer accepted the offer and the transaction was consummated on December 31, Year 13. At December 31, Year 13, the unamortized acquisition differential relating to prior purchases by Prince was $250,000, which pertained solely to goodwill. On the closing date, the shares of Stiff had a carrying amount of $35 per share and all identifiable net assets had a fair value equal to carrying amount except for unrecognized patents, which had a fair value of $0.65 million and an estimated useful life of four years. The CFO of Prince wants to recognize the entire acquisition differential related to the new purchase from Winer as goodwill in order to minimize the impact on earnings for Years 13 and 14. The controller, on the other hand, believes that some of the acquisition differential should be charged to income in Year 13 as a loss because of the excessive price paid for the shares. Required: How would you resolve the dispute? Provide the arguments to support your position, and indicate the impact of your decision on consolidated profit attributable to Prince's shareholders for Years 13 and 14. State your assumptions.
> Her Company purchased 22,000 common shares (20%) of Him Inc. on January 1, Year 4, for $374,000. Additional information on Him for the three years ending December 31, Year 6, is as follows: On December 31, Year 6, Her sold its investment in Him for $50
> Pender Corp. paid $285,000 for a 30% interest in Saltspring Limited on January 1, Year 6. During Year 6, Saltspring paid dividends of $110,000 and reported profit as follows: Pender's profit for Year 6 consisted of $990,000 in sales, expenses of $110,0
> On January 1, Year 5, Blake Corporation purchased 25% of the outstanding common shares of Stergis Limited for $1,850,000. The following relates to Stergis since the acquisition date: Required: (a) Assume that Blake is a public company and the number of
> Baskin purchased 20,000 common shares (20%) of Robbin on January 1, Year 5, for $275,000 and classified the investment as FVTPL. Robbin reported net income of $85,000 in Year 5 and $90,000 in Year 6, and paid dividends of $40,000 in each year. Robbin's s
> Briefly describe the trend in reporting of investments in equity securities over the past 12 years.
> Harmandeep Ltd. is a private company in the pharmaceutical industry. It has been preparing its financial statements in accordance with ASPE. Since it has plans to go public in the next three to five years, it is considering changing to IFRS for the curre
> The summarized trial balances of Phase Limited and Step Limited as of December 31, Year 5, are as follows (amounts in thousands): Phase had acquired the investment in Step in three stages: The January 1, Year 2, acquisition enabled Phase to elect 3 m
> On December 31, Year 6, Ultra Software Limited purchased 70,000 common shares (70%) of a major competitor, Personal Program Corporation (PPC), at $30 per share. Several shareholders who were unwilling to sell at that time owned the remaining common share
> On January 1, Year 8, Panet Company acquired 40,000 common shares of Saffer Corporation, a public company, for $500,000. This purchase represented 8% of the outstanding shares of Saffer. It was the intention of Panet to acquire more shares in the future
> On January 1, Year 4, a Canadian firm, Canuck Enterprises Ltd., borrowed US$208,000 from a bank in Seattle, Washington. Interest of 7.5% per annum is to be paid on December 31 of each year during the four-year term of the loan. Principal is to be repaid
> The Valleytown Senior's Residential Home (Valleytown) engages in palliative care, education, and fundraising programs. The costs of each program include the costs of personnel, premises, and other expenses that are directly related to providing the progr
> The William Robertson Society is a charitable organization funded by government grants and private donations. It prepares its annual financial statements using the restricted fund method in accordance with the CPA Canada Handbook, and uses both an operat
> All facts about this NFPO are identical to those described in Problem 11, except that the deferral method of recording contributions is used for accounting and for external financial reporting. Fund accounting is not used. The Year 6 transactions are als
> The Far North Centre (the Centre) is an anti-poverty organization funded by contributions from governments and the general public. For a number of years, it has been run by a small group of permanent employees with the help of part-timers and dedicated v
> All facts about this NFPO are identical to those described in Problem 9, except that the Centre wants to use the restricted fund method of accounting for contributions. The Centre will use two separate funds--operating and capital. The capital fund will
> In Year 1, XZY Co. expensed all development costs as incurred. How would the current ratio, debt-to-equity ratio and return on equity change if XZY Co. had capitalized the development costs?
> On December 31, Year 2, PAT Inc. of Halifax acquired 90% of the voting shares of Gioco Limited of Italy, for 690,000 euros (€). On the acquisition date, the fair values equaled the carrying amounts for all of Gioco's identifiable assets
> The Ford Historical Society is an NFPO funded by government grants and private donations. It uses both an operating fund and a capital fund. The capital fund accounts for moneys received and restricted for major capital asset acquisitions. The operating
> The Brown Training Centre is a charitable organization dedicated to providing computer training to unemployed people. Individuals must apply to the center and indicate why they would like to take the three-month training session. If their application is
> All facts about this NFPO are identical to those described in Problem 5, except for the following: 1. The Society will use the restricted fund method of accounting for contributions. 2. The Society will use three separate funds for reporting purposes--
> The Fara Littlebear Society is an NFPO funded by government grants and private donations. It was established in Year 5 by the friends of Fara Littlebear to encourage and promote the work of Native Canadian artists. Fara achieved international recognition
> Protect Purple Plants (PPP) uses the deferral method of accounting for contributions and has no separate fund for restricted contributions. On January 1, Year 6, PPP received its first restricted cash contribution-$120,000 for the purchase and maintenanc
> All facts about this NFPO are identical to those described in Problem 2, except that the association wants to use the deferral method of accounting for contributions. The center will continue to use the three separate funds. Required: Prepare a stateme
> The Perch Falls Minor Hockey Association was established in Perch Falls in January Year 5. Its mandate is to promote recreational hockey in the small community of Perch Falls. With the support of the provincial government, local business people, and many
> The OPI Care Centre is an NFPO funded by government grants and private donations. It prepares its annual financial statements using the deferral method of accounting for contributions, and it uses only the operations fund to account for all activities. T
> You, CPA, are employed at Beaulieu & Beauregard, Chartered Professional Accountants. On November 20, Year 3, Dominic Jones, a partner in your firm, sends you the following email: Our firm has been reappointed auditors of Floral Impressions Ltd. (FIL)
> Identify the financial statement ratios typically used to assess profitability, liquidity and solvency, respectively.
> Foreign Infants Adoption Inc. (FIA) is a consulting company wholly owned by Roger Tremblay, a wealthy, recently retired lawyer. FIA helps Canadian families adopt infants from other countries. Typically, these infants have been abandoned or have lost thei
> Mega Communications Inc. (MCI) is a Canadian-owned public company operating throughout North America. Its core business is communications media, including newspapers, radio, television, and cable. The company's year-end is December 31. You, a CPA, have r
> RAD Communications Ltd. (RAD), a Canadian public company, recently purchased the shares of TOP Systems Inc. (TOP), a Canadian-controlled private corporation. Both companies are in the communications industry and own television, radio, and magazine and ne
> Vulcan Manufacturing Limited (VML) is a Canadian-based multinational plastics firm, with subsidiaries in several foreign countries and worldwide consolidated total assets of $500 million. VML's shares are listed on a Canadian stock exchange. VML is attra
> Long Life Enterprises was a well-€stablished Toronto-based company engaged in the importation and wholesale marketing of specialty grocery items originating in various countries of the western Pacific Rim. They had recently also entered the high-risk bus
> The Rider Corporation operates throughout Canada buying and selling widgets. In hopes of expanding into more profitable markets, the company recently decided to open a small subsidiary in California. On October 1, Year 2, Rider invested CDN$1,000,000 in
> You, CPA, have been working for Plener and Partners, Chartered Professional Accountants (P&P), a mid-size CPA firm, for three years. You have been assigned a new project for a long-term client of your firm, Oxford Developments Inc. (ODI). Information
> ZIM Inc. (ZIM) is a high-technology company that develops, designs, and manufactures telecommunications equipment. ZIM was founded in Year 5 by Dr. Alex Zimmer, the former assistant head of research and development at a major telephone company. He and th
> The United Football League (UFL), a North American professional football league, has been in work stoppage since July 1, Year 9, immediately after the six-week training camp ended. Faced with stalled negotiations, the players' union representing the leag
> Canada Cola Inc. (CCI) is a public company engaged in the manufacture and distribution of soft drinks across Canada. Its primary product is Canada Cola ("Fresh as a Canadian stream"), which is a top seller in Canada and generates large export sales. You
> For the items listed in Exhibit 1.1, for which items would the debt-to-equity ratio not change when a company switched from ASPE to IFRS? Exhibit 1.1: Accounting Item IFRS ASPE Very extensive for many items, especially financial instruments, post-e
> Interfast Corporation, a fastener manufacturer, has recently been expanding its sales through exports to foreign markets. Earlier this year, the company negotiated the sale of several thousand cases of fasteners to a wholesaler in the country of Loznia.
> Segment reporting can provide useful information for investors and competitors. Segment disclosures can result in competitive harm for the company making the disclosures. By analyzing segment information, potential competitors can identify and concentrat
> P Co. is looking for some additional financing in order to renovate one of the company's manufacturing plants. It is having difficulty getting new debt financing because its debt-to-equity ratio is higher than the 3:1limit stated in its bank covenant. It
> Mr. Landman has spent the last 10 years developing small commercial strip malls and has been very successful. He buys a residential property in a high-traffic area, rezones the property, and then sells it to a contractor who builds the plaza and sells it
> Enviro Facilities Inc. (EFl) is a large, diversified Canadian-controlled private company with several Canadian and U.S. subsidiaries, operating mainly in the waste management and disposal industry. EFl was incorporated more than 50 years ago, and has gro
> You, a CPA, have recently accepted a job at the accounting firm of Cat, Scan & Partners, as a manager, and have been assigned the audit of Vision Clothing Inc. (VCI). The partner in charge had been at VCI the previous week and had met with the contro
> Dry Quick (DQ) is a medium-sized, private manufacturing company located near Timmins, Ontario. DQ has a June 30 year-end. Your firm, Poivre & Sel (P&S), has recently been appointed as auditors for DQ. It is now August 2, Year 10. You, CPA, have b
> Traveller Bus Lines Inc. (TBL) is a wholly owned subsidiary of Canada Transport Enterprises Inc. (CTE), a publicly traded transportation and communications conglomerate. TBL is primarily in the business of operating buses over short- and long distance ro
> Identify some of the financial statement items for which ASPE is different from IFRS.
> On December 31, Year 7, Pepper Company, a public company, agreed to a business combination with Salt Limited, an unrelated private company. Pepper issued 72 of its common shares for all (50) of the outstanding common shares of Salt 'This transaction incr
> It is Monday, September 13, Year 10. You, CPA, work at Fife & Richardson LLP, a CPA firm. Ken Simpson, one of the partners, approaches you mid-morning regarding Brennan & Sons Limited (BSL), a private company client for which you performed the Au
> Stephanie Baker is an audit senior with the public accounting firm of Wilson & Lang. It is February Year 9, and the audit of Canadian Development Limited (CDL) for the year ended December 31, Year 8, is proceeding. Stephanie has identified several transa
> On January 1, Year 4, Plum purchased 100% of the common shares of Slum. On December 31, Year 5, Slum purchased a machine for $168,000 from an external supplier. The machine had an estimated useful life of six years with no residual value. On December 31,
> In early September Year 1, your firm's audit client, D Ltd. (D) acquired in separate transactions an 80% interest in N Ltd. (N) and a 40% interest in K Ltd. (K). All three companies are federally incorporated Canadian companies and have August 31 year-en
> Enron Corporation's 2000 financial statements disclosed the following transaction with LIM2, a nonconsolidated special purpose entity (SPE) that was formed by Enron: In June 2000, LIM2 purchased dark fibre optic cable from Enron for a purchase price of
> Digital Future Technologies (DFT) is a public technology company. It has a September 30 year-end, and last year it adopted IFRS. Kin Lo is a partner with Hi & Lo, the accounting firm that was newly appointed as DFT's auditor in July for the year endi
> Wedding Planners Limited (WP), owned by Anne and Francois Tremblay, provides wedding planning and related services. WP owns a building (the Pavilion) that has been custom-made for hosting weddings. Usually, WP plans a wedding from start to finish and hos
> You, the CPA, an audit senior at Grey & Co., Chartered Professional Accountants, are in charge of this year's audit of Plex-Fame Corporation (PFC). PFC is a rapidly expanding, diversified, and publicly owned entertainment company with operations througho
> Briefly explain why a Canadian private company may decide to follow IFRS even though it could follow ASPE.
> Distinguish between unrestricted and restricted contributions of a charitable organization.
> Good Quality Auto Parts Limited (GQ) is a medium-sized, privately owned producer of auto parts, which are sold to car manufacturers, repair shops, and retail outlets. In March Year 10, the union negotiated a new three-year contract with the company for t
> You, the controller, recently had the following discussion with the president: President: I just don't understand why we can't recognize the revenue from the intercompany sale of inventory on the consolidated financial statements. The subsidiary company
> Gerry's Fabrics Ltd. (GFL), a private company, manufactures a variety of clothing for women and children and sells it to retailers across Canada. Until recently, the company has operated from the same plant since its incorporation under federal legislati
> Beaver Ridge Oilers' Players Association and Mr. Slim, the CEO of the Beaver Ridge Oilers Hockey Club (Club), ask for your help in resolving a salary dispute. Mr. Slim presents the following income statement to the player representatives: Mr. Slim argu
> Total Protection Limited (TPL) was incorporated on January 1, Year 1, by five homebuilders in central Canada to provide warranty protection for new-home buyers. Each shareholder owns a 20% interest in TPL. While most homebuilders provide one-year warrant
> It is now mid-September Year 3. Growth Investments Limited (GIL) has been owned by Sam and Ida Growth since its incorporation under the Canada Business Corporations Act many years ago. The owners, both 55 years of age, have decided to effect a corporate
> BIO Company is a private company. It employs 30 engineers and scientists who are involved with research and development of various biomedical devices. All of the engineers and scientists are highly regarded and highly paid in the field of biomedical rese
> It is September 15, Year 8. The partner has called you, CPA, into his office to discuss a special engagement related to a purchase agreement. John Toffler, a successful entrepreneur with several different businesses in the automotive sector, is finalizin
> Lauder Adventures Limited (LAL) 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 LAL's properties. In recent years LAL's owners, who are all members of one family
> When Valero Energy Corp. acquired Ultramar Diamond Shamrock Corp. (UDS) for US$6 billion, it created the second-largest refiner of petroleum products in North America, with over 23,000 employees in the United States and Canada, total assets of $10 billio
> Briefly explain why the Canadian AcSB decided to create a separate section of the CPA Canada Handbook for private enterprises.
> Factory Optical Distributors (FOD) is a publicly held manufacturer and distributor of high-quality eyeglass lenses located in Burnaby, British Columbia. For the past 10 years, the company has sold its lenses on a wholesale basis to optical shops across C
> On December 31, Year 7, Maple Company issued preferred shares with a fair value of $1,200,000 to acquire 24,000 (60%) of the common shares of Leafs Limited. The Leafs shares were trading in the market at around $40 per share just days prior to and just a
> Planet Publishing Limited (Planet) is a medium-sized, privately owned Canadian company that holds exclusive Canadian distribution rights for the publications of Typset Daily Corporation (TDC). Space Communications Ltd. (Space), an unrelated privately own
> How are translation exchange gains and losses reflected in financial statements if the foreign operation's functional currency is the Canadian dollar? Would the treatment be different if the foreign operation's functional currency were not the Canadian d
> What translation method should be used for a subsidiary that operates in a highly inflationary environment? Why?
> What difference does it make whether the foreign operation's functional currency is the same or different than the parent's presentation currency? What method of translation should be used for each?
> What should happen if a foreign subsidiary's financial statements have been prepared using accounting principles different from those used in Canada?
> Define a foreign operation as per IAS 21.
> How are gains and losses on financial instruments used to hedge the net investment in a foreign operation reported in the consolidated financial statements when the PCT method is used to translate the foreign operation?
> Explain how the acquisition cost is determined for a reverse takeover.
> Why might a company want to hedge its balance sheet exposure? What is the paradox associated with hedging balance sheet exposure?
> What are the three major issues related to the translation of foreign currency financial statements?
> Would hedge accounting be used in a situation in which the hedged item and the hedging instrument were both monetary items on a company's statement of financial position? Explain.
> If the sales of a foreign subsidiary all occurred on one day during the year, would the sales be translated at the average rate for the year or the rate on the date of the sales? Explain.
> When translating the financial statements of the subsidiary at the date of acquisition by the parent, the exchange rate on the date of acquisition is used to translate plant assets rather than the exchange rate on the date when the subsidiary acquired th
> Explain how the FCT method produces results that are consistent with the normal measurement and valuation of assets and liabilities for domestic transactions and operations.
> "If the translation of a foreign operation produced a gain under the FCT method, the translation of the same company could produce a loss if the operation were translated under the PCT method." Do you agree with this statement? Explain.
> The amount of the accumulated foreign exchange adjustments appearing in the translated financial statements of a subsidiary could be different from the amount appearing in the consolidated financial statements. Explain how.
> Does the FCT method use the same unit of measure as the PCT method? Explain.
> The FCT and PCT methods each produce different amounts for translation gains and losses due to the items at risk. Explain.
> When will the premium paid on a forward contract to hedge a firm commitment to purchase inventory be reported in income under a cash flow hedge? Explain.
> List some ways that a Canadian company could hedge against foreign currency exchange rate fluctuations.
> Differentiate between the accounting for a fair value hedge and a cash flow hedge.
> Differentiate between a spot rate and a closing rate.
> Describe when to use the closing rate and when to use the historical rate when translating assets and liabilities denominated in a foreign currency. Explain whether this practice is consistent with the way we normally measure assets and liabilities.
> How are foreign-currency-denominated assets and liabilities measured on the transaction date? How are they measured on a subsequent balance sheet date?
> Differentiate between a spot rate and a forward rate.
> You read in the newspaper, "One U.S. dollar can be exchanged for 1.15 Canadian dollars." Is this a direct or an indirect quotation? If your answer is indirect, what is the direct quotation? If your answer is direct, what is the indirect quotation?
> What is the difference between pegged and floating exchange rates?
> What is meant by hedge accounting?
> What is the suggested financial statement presentation of hedge accounts recorded under the gross method? Why?
