ADM 2342 ASSIGNMENT-Johnson Ltd. has a fiscal year-end on December 31

ADM 2342
ASSIGNMENT
Fall 2016
Due: December 6, 2016 NAME: ___________________________ STUDENT #: _________________ Instructions:
The assignment should be typed. Please submit your solutions with the cover (this page) and a
signed Statement of Academic Integrity (the next page). You are required to print out and submit
your assignment at the beginning of the class on December 6. Late submission will not be
accepted. Question Marks 1 Inventory /20 2 Investments /22 3 Investments /20 4 PP&E /18 TOTAL /80 1 Statement of Academic Integrity
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the Telfer School of Management must include on its front page an “ethics statement”:
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Individual
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assignment and that I have applied all the appropriate rules of quotation and referencing in use at
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policies outlined in the Academic Regulations in the University’s Undergraduate Studies
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brochure found on the Telfer School of Management’s BlackBoard site. ________________
Signature ______________
Date ________________________________
Last Name (print), First Name (print) ______________
Student Number 2 QUESTION 1
(Chapter 8 - Inventory)
Johnson Ltd. has a fiscal year-end on December 31. Below is the trial balance after closing the
book on December 31, 2017: Account
Cash
Accounts and notes receivable
Inventory
Property, plant, and equipment (net)
Accounts and notes payable
Long-term debt
Common shares
Retained earnings Debit
$5,000
39,000
79,000
125,000 $248,000 Credit $75,000
62,000
60,000
51,000
$248,000 Before the senior accountant prepared the financial statements for the year of 2017, the following
errors were identified.
Errors made in 2016 by an inexperienced accountant:
1. The inventory was overstated by $13,000
2. A prepaid expense of $2,400 was omitted. (It was fully expensed in 2016.)
3. Accrued revenue of $2,500 was omitted. (It was recognized when cash was received in 2017.)
4. A supplier's invoice for $1,700 for inventory purchases made in 2016 was not recorded until
2017. But the purchase was included in the 2016 December 31 inventory.
There were further errors made in 2017:
5. The inventory was understated by $17,000.
6. A prepaid expense of $750 was omitted.
7. Accrued December 2017 salaries of $1,800 were not recognized.
8. Unearned income of $2,300 was recorded in the 2017 revenue.
9. In addition, it was determined that $20,000 of the accounts payable were long-term, and that a
$500 dividend was reported as dividend expense and deducted in calculating net income.
The net income reported on the books for 2017 was $53,000.
Required:
a) Write journal entries to correct each of the above errors if necessary.
b) Prepare the statement of financial position on December 31, 2017. 3 QUESTION 2
(Chapter 9 - Investments)
On January 1, 2017, Tim Corp. pays $92,418 to purchase $100,000 of Jenny Corporation 8%
bonds. The bonds provide the bondholders with a 10% yield. The bonds mature on January 1,
2022, and interest is payable each January 1. Tim Corp. records interest revenues separately from
other investment gains and losses. Tim Corp. is a public company and holds the bonds for
trading. Assume Tim has the fiscal year-end on August 31.
The following schedule presents the fair value of bonds at each reporting date: Fair Value 08/31/2017 08/31/2018 08/31/2019 08/31/2020 08/31/2021
$90,000
$98,000
$99,000 $100,200
$101,000 Required (all results rounded to the nearest integer):
a) Prepare a bond investment amortization schedule.
b) Assume that Tim sold the bonds on August 31, 2020. Prepare all necessary journal entries on
Tim Corp’s books for the bonds from its date of issuance to, and including, August 31, 2020. 4 QUESTION 3
(Chapter 9 - Investments)
Aden Corp. decided to purchase 35% of the outstanding shares of Riverside Ltd. Aden’s CFO
conducted an extensive evaluation of the financial statements of Riverside and reported his
findings to the board of directors in the following memo:
Dear Board of Directors,
Following your request, I conducted a detailed analysis of Riverside Ltd. I found out that the
liabilities reported in its books at December 31, 2016 in the amount of $20M fairly represent
their economic values. As for the assets, their book value is $45M. The company owns an office
building in downtown Toronto where its headquarters are located. The net book value of this
building, including the land, is $10M. Riverside purchased the land for $6M some 20 years ago
and then constructed the building. I consulted with real estate experts and currently the fair value
of the land is $9M and the fair value of the building is $8M. The remaining useful life of the
building in Riverside’s books is 20 years and I find this estimate realistic.
The firm has developed a patent. According to my analysis, the fair value of the patent is $12M.
Given future advances in technology, I expect the value of the patent to decline and become
worthless 6 years from now. The patent was developed by the company and all the related costs
were recorded as research and development expenses.
Sincerely,
Tim McKay, CA
The board of directors of Aden Corp. adopted the report by Mr. McKay and on January 1, 2017
purchased 35% of the shares of Riverside, based on its fair value according to Mr. McKay’s
analysis. After the acquisition of the shares, Aden was able to exercise significant influence over
Riverside.
In 2017, Riverside reported net income of $10M and distributed 40% of it as cash dividends.
In 2018, the earnings of Riverside doubled compared with 2017. Riverside distributed 60% of its
income as cash dividends.
On December 31, 2018, Aden sold its investment in Riverside Ltd. for $20M.
Required:
Assuming Aden accounts for this investment using the method required under IFRS,
a) Record the initial purchase by Aden Corp.
b) Record the entries related to the investment in Riverside Ltd. for 2017.
c) Record the entries related to the investment in Riverside Ltd. for 2018. 5 QUESTION 4
(Chapter 10- PP&E)
Diamond Inc. exchanged machinery with an appraised value of $1,170,000, a recorded cost of
$1,800,000 and accumulated depreciation of $900,000, for machinery that Export Corp. owns.
Export’s machinery has an appraised value of $1,140,000, a recorded cost of $2,160,000, and
accumulated depreciation of $1,188,000. Export also gave Diamond $30,000 in the exchange.
Assume depreciation has been updated to the date of exchange.
Required:
a) Prepare the entries on both companies’ books assuming that the transaction has commercial
substance.
b) Prepare the entries on both companies’ books assuming that the transaction lacks
commercial substance. 6