Towers Inc. (TI) is a leader in delivering communications technology that powers global commerce and secures the world's most critical information. Its shares trade on the Canadian and U.S. national stock exchanges. The company had been experiencing unprecedented growth, but then, in 2018, industry demand for the company's services and products declined dramatically due to industry realignment, an economic downturn, and a tightening in global capital and product markets. By the end of 2020, the industry stabilized and the company began to enter a turnaround period after significant downsizing. In 2020, employee morale was very low because of all the downsizing. Many employees were being actively recruited away from TI. Management decided to set up bonus programs for employees who stayed to see the company through the difficult times and back to profitability. Under one plan, every employee would receive a bonus in the first quarter that the company achieved enough profit to cover the bonus costs. In order to help achieve profitability, the CFO met with the managers of his divisions and established profitability targets and what he called "roadmaps" that showed how these targets could be achieved. The roadmaps included statements that the profits could be achieved only through the release from the statement of financial position of excess provisions (that is, provisions for obsolete inventory and bad debts). The provisions had been overprovided for in earlier years in an effort to "manage" profits. In 2021, the company came under scrutiny from the securities regulators. The government notified it of a criminal investigation into alleged accounting irregularities. In addition, there were several class-action lawsuits outstanding against the company by shareholders alleging that TI had provided misleading information to them in the financial statements for 2019 and 2020. Once news of this was released, credit-rating agencies significantly downgraded their ratings of Tl's securities. As a result of this negative activity, the company had not released its financial statements for 2021 and was now in breach of stock exchange requirements to file financial statements. Although the stock exchanges had not done so, they now had the power to delist Tl's shares. The controller of TI must now finalize the financial statements and has come across the following information. 1. During the year, the company signed contracts to sell optical software products. Before year end, the company shipped out what it called an "interim product solution" -in other words, the optical software product ordered by the company was not yet ready in its final form so the company shipped a beta or draft version of it. This interim product would be followed shortly by the final version. Revenues were recognized upon shipment of the interim product solution, as it was felt that the final version just needed minor refinements. The customers generally paid more than half of what was owed under the contract when they received the interim product solution. It was rare for customers to back out of this type of contract for any reason. 2. In 2020, TI had purchased a subsidiary of DEF Inc. and agreed to pay additional future consideration for the purchase (the consideration would take the form of additional TI shares). The additional consideration was a function of the profitability of the subsidiary. The more profitable the subsidiary, the more shares that TI would issue as consideration. Given that Tl's shares are highly volatile, TI and DEF agreed that the number of shares to be issued should be based on the average price per share in the three months prior to the future issuance date of the shares. So far, the subsidiary has been performing above expectations. 3. By the end of 2021, TI was still restructuring to streamline its core operations and activities. Part of the restructuring included abandoning its voice-over-fibre operations. The operations would be closed down in early 2022, and this would involve workforce reductions and abandonment of plant and equipment. Instructions Adopt the role of controller and analyze the financial reporting issues.
> During 2020, 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 term
> On August 1, 2020, Iroko Corporation purchased a new machine for its assembly process at a cost of $136,400. The company estimated that the machine would have a trade-in value of $14,200 at the end of its useful life. Its useful life was estimated to be
> The 2020 annual report of Trocchi Inc. contains the following information (in thousands): Instructions a. Calculate the following ratios for Trocchi Inc. for 2020. Round answers to two decimal places. 1. Asset turnover ratio 2. Rate of return on assets 3
> Joe Schreiner, controller for On Time Clock Company Inc., recently prepared the company's income statement and statement of changes in equity for 2020. Schreiner believes that the statements are a fair presentation of the company's financial progress dur
> On April 1, 2020, 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, 2019, 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: Depreciation is calculated at $60,000 per year on a straight-line basis. Instr
> Consider the following independent situations for Kwok Corporation. Kwok applies ASPE. Situation 1: Kwok purchased equipment in 2013 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
> 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 ac
> Onkar Corporation bought a machine on June 1, 2016, 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, while the m
> Assume the same information as in Ell.22, except that at December 31, 2020, Gaurav discontinues use of the equipment and intends to dispose of it in the coming year by selling it to a competitor. It is expected that the costs of disposal will total $50,0
> The information that follows relates to equipment owned by Gaurav Limited at December 31, 2020: Assume that Gaurav will continue to use this asset in the future. As at December 31, 2020, the equipment has a remaining useful life of four years. Gaurav use
> Green Thumb Landscaping Limited has determined that its lawn maintenance division is a cash-generating unit under IFRS. The carrying amounts of the division's assets at December 31, 2020, are as follows: The lawn maintenance division has been assessed fo
> Perez Corp., a mining company, owns a significant mineral deposit in a northern territory. Perez prepares financial statements in accordance with IFRS. Included in the asset is a road system that was constructed to give company personnel access to the mi
> The management of Luis Inc., a small private company that uses the cost recovery impairment model, was discussing whether certain equipment should be written down as a charge to current operations because of obsolescence. The assets had a cost of $900,00
> Parfait Limited reported the following for 2020: sales revenue, $900,000; cost of sales, $750,000; operating expenses, $100,000; and unrealized gain on FV-OCI investments, $60,000. The company had January 1, 2020 balances as follows: common shares, $600,
> Finlay Limited constructed a building at a cost of $2.8 million and has occupied it since January 2000. It was estimated at that time that its life would be 40 years, with no residual value. In January 2020, a new roof was installed at a cost of $370,000
> In 1991, Lincoln Limited completed the construction of a building at a cost of $1.8 million; it occupied the building in January 1992. It was estimated that the building would have a useful life of 40 years and a residual value of $400,000. Early in 2003
> Machinery purchased for $56,000 by Wong Corp. on January 1, 2015, was originally estimated to have an eight-year useful life with a residual value of $4,000. Depreciation has been entered for five years on this basis. In 2020, it is determined that the t
> At the beginning of 2020, Kao Company, a small private company, acquired a mine for $850,000. Of this amount, $100,000 was allocated to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists found that appro
> Rachel Timber Inc., a small private company that follows ASPE, owns 9,000 hectares of timberland purchased in 2007 at a cost of $1,400 per hectare. At the time of purchase, the land without the timber was valued at $420 per hectare. In 2008, Rachel built
> Wettlauffer Company Ltd. shows the following entries in its Equipment account for 2020. All amounts are based on historical cost. Instructions a. Prepare any necessary correcting entries. b. Assuming that depreciation is to be charged for a full year bas
> Gibbs Inc. purchased a machine on January 1, 2020, 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 2020 using t
> On March 10, 2020, Lucas Limited sold equipment that it bought for $192,000 on August 20, 2013. 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 depreciation
> Jiang Company Ltd. buys equipment on January 1, 2020, 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 dep
> Samson Corporation is preparing its December 31, 2020 statement of financial position. The following items may be reported as either current or long-term liabilities: 1. On December 15, 2020, Samson declared a cash dividend of $1.50 per common share to s
> The Big and Rich Corporation had income from operations before tax for 2020 of $4.4 million. In addition, it suffered an unusual and infrequent loss of $1,060,000 from a tornado. Of this amount, $300,000 was insured. In addition, the company realized a l
> The bookkeeper for Garfield Corp. has prepared the following statement of financial position as at July 31, 2020: The following additional information is provided: 1. Cash includes $1,200 in a petty cash fund and $12,000 in a bond sinking fund. 2. The ne
> Bruno Corp. has decided to expand its operations. The bookkeeper recently completed the following statement of financial position in order to obtain additional funds for expansion: Instructions a. Prepare a revised statement of financial position using t
> Use the information in E5.l 7 for Dropafix Inc. Instructions a. Calculate the current and acid-test ratios for 2019 and 2020. b. Calculate Dropafix's current cash debt coverage ratio for 2020. c. Calculate Dropafix's cash debt coverage ratio for 2020. d
> Use the information in E5.14 for Carmichael Industries. Instructions a. Calculate the current and ac id-test ratios for 2019 and 2020. b. Calculate Carmichael's current cash debt coverage ratio for 2020. c. Based on the analyses in parts (a) and (b), co
> Use the information in E5.18 for Sensify Corporation. Instructions a. Calculate the current ratio and debt to total assets ratio as at December 31, 2019 and 2020. Calculate the free cash flow for December 31, 2020. b. Based on the analysis in part (a),
> The comparative statement of financial position of Sensify Corporation as at December 31, 2020, follows: Net income of $37,000 was reported and dividends of $13,000 were declared and paid in 2020. New equipment was purchased, and equipment with a carryin
> The comparative statement of financial position of Dropafix Inc. as at June 30, 2020, and a statement of comprehensive income for the 2020 fiscal year follow: Additional information: 1. Dropa fix follows IFRS. Assume that interest is treated as an operat
> The statement of income of Kneale Transport Inc. for the year ended December 31, 2020, reported the following condensed information: Kneale's statement of financial position included the following comparative data at December 31: Additional information:
> A comparative statement of financial position for Carmichael Industries Inc. follows: Additional information: 1. Net income for the fiscal year ending December 31, 2020, was $129,000. 2. Cash dividends of $60,000 were declared and paid. Dividends paid ar
> It is February 2021 and Janix Corporation is preparing to issue financial statements for the year ended December 31, 2020. To prepare financial statements and related disclosures that are faithfully representative, Janix is reviewing the following events
> Redo the analysis using Excel functions for an annuity due. Will the conclusion reached be the same as in P3.4? Assume the same information as in P3.4.
> The current assets and current liabilities sections of the statement of financial position of Agin court Corp. are as follows: The following errors have been discovered in the corporation's accounting: 1. January 2021 cash disbursements that were entered
> Selected accounts follow of Aramis Limited at December 31, 2020: The following additional information is available: 1. Inventory is valued at the lower of cost and net realizable value using FIFO. 2. Equipment is recorded at cost. Accumulated depreciatio
> Lujie Xie is the controller of Lincoln Corporation and is responsible for the preparation of the year-end financial statements on December 31, 2020. Lincoln prepares financial statements in accordance with ASPE. The following transactions occurred during
> The trial balance of Zhang Ltd. At December 31, 2020, follows: Instructions a. Prepare a classified statement of financial position as at December 31, 2020. Ignore income taxes. b. Is there any situation where it would make more sense to have a statement
> Shannonrock Racing Inc. (SR) is a promoter and sponsor of motorsport activities. It is privately owned. The owner is looking to expand and has approached the local bank,which has agreed to accept financial statements prepared in accordance with ASPE. The
> In the late 1990s, CIBC helped Enron Corporation structure 34 "loans" that appeared in the financial statements as cash proceeds from sales of assets. Enron subsequently went bankrupt in 2001 and left many unhappy investors and creditors with billions of
> Real Estate Investment Trust (RE) was created to hold hotel properties. RE currently holds 15 luxury and first-class hotels in Europe. The entity is structured as an investment trust, which means that the trust does not pay income taxes because it distri
> Findit Gold Inc. (FGI) was created in 2012 and is 25% owned by Findit Mining Corporation (FMC). FGI's shares trade on the local exchange and its objective is to become a substantial low-cost mineral producer in developing countries. FMC provided substant
> TELUS Corporation is one of Canada's largest telecommunications companies and provides both products and services. Its shares are traded on the Toronto and New York stock exchanges, and its credit facilities contain certain covenants relating to the amou
> The Blue Collar Corporation had income from continuing operations of $12.6 million in 2020. During 2020, it disposed of its restaurant division at a loss of $89,000 (net of tax of $38,000). Before the disposal, the division operated at a loss of $315,000
> Rouge Valley Golf and Health Club (RVGH) is a public company that operates eight clubs in a large city and offers one-year memberships. Membership gives members access to golf and the fitness centre including fitness classes. The members may use any of t
> Environmental Inc. operates in Canada and the United States. Its basic business is high-temperature treatment services for contaminated soil. In its 2020 financial statements, the company had a loss of $9.3 million (and an accumulated deficit of $43.7 mi
> Verity Retail Limited was a private company that experienced cash flow difficulties and hired new management to turn the company around. The company then went public and the shares sold at $15 per share. Within months, however, the share price plummeted
> Oil Company Limited (OCL) is in the oil and gas business and operates internationally. The company is public and lists on the National Stock Exchange. In the past two years, oil prices have been declining significantly. The company's Canadian operations
> Branson Restaurants Limited is currently reviewing its financial operations for the past year. Specifically, it is looking to determine what is happening with one of its restaurants (which it owns - including the land). The following summary gives data a
> Bradford Construction Ltd. submitted a $14.5-million sealed bid for a fixed-price roads contract with the local municipality. Historically, Bradford is awarded 20% of the contracts on which it submits sealed bids. Using the three-step analysis for determ
> The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation? Are these provisions in effect in Canada?
> What are the sources of pressure that change and influence the development of accounting principles and standards?
> Ethics Refer to the information for Bradford Construction Ltd. in BE2.5. Assume that the sealed bid for the road contract was submitted on December 28, 2020, that Bradford has a calendar year end, and that the annual financial statements are issued in la
> Use the information in BE4.12 to prepare a multiple-step income statement for Sierra Corporation, showing expenses by function. (b) Assume the average market price for the common shares is $66. What is Sierra's price-earnings ratio?
> Early in its 2020 fiscal year (December 31 year end), Hayes Company purchased 10,000 Kenyon Corporation common shares for $26.18 per share, plus $1,800 in brokerage commissions. These securities were accounted for at FV-OCI (with no recycling), and trans
> Trottier Ltd. has a single debt investment that it accounts for using FV-OCI recycled to net income. The carrying value of the debt investment on July 1 after the collection of interest and amortization of premium was $72,500. To date, $1,500 of unrealiz
> Gauthier Ltd. has a single investment that it accounts for using FV-OCI. The carrying value of the investment at the last reporting period was $72,500. To date, $2,500 of unrealized gains on fair value adjustments have been recorded to other comprehensiv
> Lachapelle Traders Inc. has cyclical cash flows and decided to invest some excess cash on hand by purchasing a 60-day Government of Canada treasury bill. On December 15, 2020, Lachapelle paid $99,509 for a treasury bill that has a maturity amount of $100
> Use the information in BE12.13 and assume that in January 2022, Lakeshore spends $26,000 successfully defending a patent suit. In addition, Lakeshore now feels the patent will be useful only for another seven years. Prepare the journal entries to record
> Lakeshore Corporation purchased a patent from MaFee Corp. on January 1, 2020, for $87,000. The patent had a remaining legal life of 16 years. Prepare Lakeshore's journal entries to record the 2020 patent purchase and amortization for the year rounded to
> Using the data provided in BE12.10, assume that Darrien also spent $12,500 to promote and launch the product that the manufacturing equipment is used to produce. Explain the accounting for these costs.
> Sweet Tooth Inc., a private company that applies ASPE, incurred $15,000 in materials and $12,000 in direct labor costs between January and March 2020 to develop a new product. In May 2020, the criteria required to capitalize development costs were met.
> Programming for Kids 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 Programming for Kids' other programs. The following costs may
> Bountiful Industries Ltd. had one patent recorded on its books as at January 1, 2020. This patent had a book value of $365,000 and a remaining useful life of eight years. During 2020, Bountiful incurred research costs of $140,000 and brought a patent inf
> The following account balances were included in the trial balance of Reid Corporation at June 30, 2020: During 2020, Reid incurred production salary and wage costs of $710,000, consumed raw materials and other production supplies of $474,670, and had an
> Sunny Valley Inc. bought an Internet domain name by issuing a $220,000, five-year, noninterest-bearing note to Ti-Mine Corp. with an effective yield of 12%. The note is repayable in five annual payments of $44,000 made at the end of each year. Prepare th
> Azure Industries Ltd. acquired two copyrights during 2020. One copyright was on a textbook that was developed internally at a cost of $36,000. This textbook is estimated to have a useful life of three years from July 1, 2020, the date it was published. T
> Using the data from BE12.19, assume that Pipeline Corporation is a private entity. Explain how goodwill will be tested for impairment. If the unit's carrying amount (including goodwill) is $3,581,000 and its fair value is $3,474,000, determine the amount
> Using the data from BE12.19, assume that Pipeline Corporation is a public company and that the goodwill was allocated entirely to one cash-generating unit (CGU). Two years later, information about the CGU is as follows: carrying amount $3,740,000; value
> On September 1, 2020, Pipeline Corporation acquired Tunneling Limited for a cash payment of $954,000. At the time of purchase, Tunneling statement of financial position showed assets of $780,000, liabilities of $420,000, and owners' equity of $360,000. T
> Use the data provided in BE12.16, except assume that useful life is expected to be unlimited. How would your response change if Coffee Company reported under or (a) ASPE (b) IFRS?
> Use the data provided in BE12.16. How would your response change if Coffee Company were a public company reporting under IFRS?
> Coffee Company Limited 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, 2020, due to a change in customer tastes, Coffee Company gathered the following data about the t
> On December 31, 2020, Convenient Cabs Incorporated was granted 10 taxi licences by the City of Somerdale, at a cost of $1,000 per licence. It is probable that Convenient Cabs will receive the expected future economic benefits of the taxi licences. There
> Use the information from BE9.24, except that Julip Corporation is a private enterprise that applies ASPE. Prepare Julip's 2020 entries to record all transactions and events related to its significant influence investment in Krov Corporation, assuming tha
> Assume the same information as in BE3.27. (a) Describe how the vendor arrived at the amounts of the two options. (b) What would have been the equivalent cash selling price? (c) Is the risk the same to the vendor as with a cash sale? (d) What, if any, wou
> Julip Corporation purchased a 25% interest in Krov Corporation on January 2, 2020, for $1,000. At that time, the carrying amount of Krov's net assets was $3,600. Any excess of the cost of the investment over Julip's share of Krov's carrying amount can be
> Ramirez Company has an investment in 6%, 10-year bonds of Soto Company. The investment was originally purchased at par for $100 in 2019 and it is accounted for at amortized cost. Early in 2020, Ramirez recorded impairment on the Soto investment due to So
> The following information relates to Cortez Corp. for 2020: net income of $672,683; unrealized loss of $20,830 related to investments accounted for at FV-OCI during the year; and accumulated other comprehensive income of $37,273 on January 1, 2020. Deter
> Nair Corp. enters into a contract with a customer to build an apartment building for $1 million. The customer hopes to rent apartments at the beginning of the school year and offers a performance bonus of $150,000 to be paid if the building is ready for
> Talarczyk Company sold 10,000 Super Spreaders on July 1, 2020, at a total price of $1 million, with a warranty guarantee that the product was free of any defects. The cost of the spreaders sold is $550,000. The assurance warranties extend for a two-year
> On May 10, 2020, Cosmo Co. enters into a contract to deliver a product to Greig Inc. on June 15, 2020. Greig agrees to pay the full price of $2,000 on July 15, 2020. The cost of goods is $1,300. Cosmo delivers the product to Greig on June 15, 2020, and r
> Identify whether the following costs should be treated as a capital expenditure or revenue expenditure when they are incurred. a. $13,000 paid to rearrange and reinstall machinery b. $400 paid for a tune-up and oil change on a delivery truck c. $200,000
> Use the information for Valued Assets Inc. from BEl0.18. On January 5, 2021, Valued sold the building for $325,000 cash. Prepare the journal entries to record the sale of the building after having used (a) the cost model, (b) the revaluation model using
> Valued Assets Inc., a publicly listed company, has a building with an initial cost of $400,000. At December 31, 2020, the date of revaluation, accumulated depreciation amounted to $110,000. The fair value of the building, by comparing it with transaction
> a. Briefly explain the criteria that have to be met for inventory to be recorded at an amount greater than cost. b. Briefly explain the accounting for the following inventory items under ASPE: 1. Sheep 2. Wool 3. Carpet c. Briefly explain the accounting
> Soon after December 31, 2020, the auditor of Morino Manufacturing Corp. asked the company to prepare a depreciation schedule for semitrucks that showed the additions, retirements, depreciation, and other data that affected the company's income in the fou
> Farmer Brown Industries Inc. is in the business of producing organic foods for sale to restaurants and in local markets. The company uses IFRS and has a June 30 fiscal year end. As an experiment, the company has decided to try raising organic free-range
> Bluebell Enterprises Ltd.'s records reported an inventory cost of $55,600 and a net realizable value of $54,000 at December 31, 2018. At December 31, 2019, the records indicated a cost of $68, 700 and a net realizable value of $61,625. All opening invent
> Doors Unlimited Ltd. purchases units of wood frames that have manufacturer's volume rebates from Traders Inc. The rebate requires Doors Unlimited to purchase a minimum number of units in a calendar year. The initial unit cost of each wood frame is $2.50
> Sunny Valley Limited produces wine. Certain vintage wines take more than one year to age. The company has borrowed funds to cover the costs of this aging process. The company meets the interest capitalization criteria under IFRS. Capitalizable interest u
> Gamers' World buys 1,000 computer game CDs from a distributor that is discontinuing those games. The purchase price for the lot is $7,500. Gamers' World will group the CDs into three price categories for resale, as follows: Determine the cost per CD fo
> Angus Enterprises Ltd. reported cost of goods sold for 2020 of $2.5 million and retained earnings of $4.0 million at December 31, 2020. Angus later discovered that its ending inventories at December 31, 2019 and 2020, were overstated by $150,000 and $50,
> Best Corp., a public company using IFRS, signed a long-term non-cancellable purchase commitment with a major supplier to purchase raw materials at an annual cost of $1 million. At December 31, 2019, the raw materials to be purchased in 2020 have a market
> Furniture Madness Inc. recently purchased 1,000 mattresses from a supplier for its big box stores. The cost for these mattresses was $140,000, or $140 per mattress. Furniture Madness established the selling price on these mattresses at $230 each. The sto
> Delicious Foods Inc. reported inventory of $5,706 million at the end of its 2020 fiscal year and $5,310 million at the end of its 2019 fiscal year. It reported cost of goods sold of $35,350 million for the fiscal year 2020 and net sales of $54,365 millio
> Show whether the following would be considered inventory for a public company like Ford Motor Corporation. If so, show the inventory category to which that item would belong. a. Engines purchased to make the Ford F-150 b. Nuts and bolts purchased to atta
