Solution Manual for Intermediate Accounting (Volume 1) 8th Canadian Edition By Thomas H. Beechy, Joan E. Conrod, Verified All Chapters Complete | Newest Version

Solution Manual for Intermediate Accounting (Volume 1) 8th Canadian Edition By Thomas H. Beechy, Joan E. Conrod, Verified All Chapters Complete | Newest Version. Moonburst needs a private capital infusion. Negotiations are under way with three American and one Canadian potential equity investors. As a private Canadian company, Moonburst has a wide range of possible reporting standards. IFRS is a possibility, but since none of the potential investors operates in an IFRS environment, IFRS seems an unnecessary burden at this time. The choice would seem to be between U.S. standards (i.e., FASB) or Canadian private-company reporting (ASPE). Three of the potential investors are U.S.-based, which suggests that U.S. standards would be desireable from their point of view. However, U.S. standards are at least as complex as IFRS. If the investors are negotiating with Moonburst, they probably are already well aware of Canadian standards for private enterprises ASPE. Moonburst should use Canadian standards ASPE as reflected in Part II of the CPA Canada Handbook. The company can prepare special-purpose statements for the investment firms, if necessary. There seems to be no reason to use any reporting currency other than Canadian. Although the source of its raw material is South America, the bulk of its expenses and all of its revenue will be in Canadian dollars. 2. As a public company, Pangal must report on the basis of IFRS. If the company decides to register with the SEC, IFRS will be an acceptable reporting basis. There is some hint that US$ would be a possible reporting currency since 70% of the output is currently sold into the US, but the expenses are in Canadian dollars and USsourced sales are expected to decline. Canadian dollars should be the reporting currency. 3. EI is a private Canadian company. It is unclear as to whether it is a corporation or a partnership (the consultants have to make an equity investment to become a senior consultant, which suggests that EI is a partnership). As a consultancy, its financial reporting probably is relatively simple (e.g., as compared to a manufacturer). Nevertheless, its primary financial statement users will be its shareholders/partners. A disclosed basis of accounting might be most appropriate, although reporting on the basis of Canadian accounting standards for private enterprises (ASPE) may also be appropriate. Since most of the company‘s business is with European companies, its functional currency may well be the euro. This is not clear, however, since billings can be in US$, C$, £, and other European currencies. If the consultants are mainly Canadian residents, C$ would be most appropriate. 4. CEC is a private Canadian company with extensive operations in the U.S. and in U.S. dollars. The most relevant GAAPs would be (1) Canadian accounting standards for private companies (ASPE) and (2) DBA. FASB standards (i.e., U.S. GAAP) are designed for public companies and international standards have no advantage in this situation; thus, neither is suitable for CEC. The best might be ASPE Canadian © 2022 McGraw Hill. All rights reserved Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-19 private-company GAAP, with possible variations based on industry practice (which effectively turns it into DBA). U.S. dollars would probably be the most relevant reporting currency given that most of its operations are in the USA. ©2022 McGraw Hill. All rights reserved 2-20 Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition Assignment 1-8 (LO1.1, LO1.2, LO1.3, LO1.4, LO1.5) 1. Since the company is searching for funds internationally, Canadian GAAP statements will be unfamiliar to potential investors. It might be preferable to raise financing to move to IFRS. The company should also use US dollars as presentation currency. 2. FI should continue to use Canadian private enteprise accounting standards (ASPE) as prescribed in the CPA Canada Handbook Part II to continue to obtain financing from the Class B shareholders. If the Class A shareholders who have control wish reporting on a near-cash basis, FI should prepare special-purpose reports for the fund by backing out accruals and interperiod allocations other than those ―permitted‖ by the fund. FI can continue to have its regular financial statements audited; the auditor can then review the special purpose reports and give some assurance on them to the Class A shareholders. © 2022 McGraw Hill. All rights reserved Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-21 Assignment 1-9 (LO1.1, LO1.2, LO1.3, LO1.4, LO1.5) The CPA Canada Handbook cites the objectives of general purpose financial statements as: ... to provide financial information ... that is useful to present and potential equity investors, lenders and other creditors in making decisions in their capacity as capital providers. Information that is decision-useful to capital providers may also be useful to other users of financial reporting who are not capital providers. These objectives are very broad and applications of accounting standards can still be affected by the entity-specific objectives of financial reporting. The objectives of a private and public company can be different since private companies may have a more limited group of users and may be more interested in minimizing income taxes. However a large private company may have the same objectives as a public company. A summary follows: Objectives Policy 1. Assessing and predicting cash flow Revenues and expenses recognized close to the related cash flows. Extensive disclosure notes regarding cash flows. 2. Income tax minimization Defer revenues as long as possible. Recognize expenses as soon as possible. (As long as policies also acceptable for tax) 3. Contract compliance Maximize or minimize variables specified in contract. Comply with policies required by contracts. 4. Performance evaluation Recognize revenue when effort expended. Match expenses to revenues. 5. Maximize income (manager motivation, Maximize revenue or minimize possibly related to bonus) expenses. 6. Minimize income Minimize revenue or maximize expenses 7. Adhere to a pattern (smoothing or a big bath) Maximize expenses in a loss year (big bath). ©2022 McGraw Hill. All rights reserved 2-22 Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition Spread out revenues and expenses to reduce profit variation (smoothing). 8. Minimum compliance Minimize bookkeeping costs by minimizing disclosures. © 2022 McGraw Hill. All rights reserved Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-23 Assignment 1-10 (LO1.5) Scenario User 1 User 2 Conflicts 1 Bank –Ensure repayment of principal and interest Management of a public company - Performance evaluation is likely evaluated based on share price, and therefore income smoothing may be an objective. Earnings maximization to ensure bonus payment. Bank looking for revenues and expenses to be as close to the related cash flows where as management wants to likely both smooth and maximize income. 2 Bank –Ensure repayment of principal and interest Owners of a private company that are facing cash flow issues – Minimize taxes due to cash flow issues, maximize income to ensure loan qualification Bank looking for revenues and expenses to be as close to the related cash flows whereas the owners are currently cash strapped and would like to both 1) qualify for the loan so would want to ensure financial statements are attractive to the bank and 2) also likely looking to minimize income tax to help with cash flow issues. 3 Union – Maximize earnings to allow for more bargaining power Management – minimize income as evaluated based on overall reduction of operating expenses. Union is looking to maximize income in order to have strength in collective bargaining (i.e. increase wages / benefits etc). This conflicts with management as they are evaluated ©2022 McGraw Hill. All rights reserved 2-24 Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition based on a reduction of expenses and therefore will be trying to minimize income and specifically expenses relating to wages / benefits. © 2022 McGraw Hill. All rights reserved Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-25 Assignment 1-11(LO1.2, LO1.3, LO1.4, LO1.5) Issue Earnings maximization Cash flow prediction Earnings minimization 1 Average cost1 with LCM FIFO with LCM FIFO1 with LCM 2 Capitalize if meets development criteria2 and S.L. amortization Expense, or if policy to capitalize, then amortize by unit-of-sale Expense or if policy to capitalized then amortize using accelerated deprec. 3 Straight line depreciation SL or accelerated depreciation Accelerated depreciation 4 Defer and amortize3 Expense Expense 1 With declining inventory costs, FIFO gives higher CGS than average cost. (If inventory costs rise, average cost gives higher CGS than FIFO). LCM is necessary under GAAP. LCM is defined as lower of cost and net realizable value. 2 Assuming following ASPE and has policy choice to capitalize or expense. 3 Assuming that software development costs are eligible for capitalization. However, the capitalization of training costs is not permitted. ©2022 McGraw Hill. All rights reserved 2-26 Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition Assignment 1-12 (LO1.2, LO1.3, LO1.4, LO1.5) Dear Ms. Raisa, After conducting the research that you requested, I‘ve come to the conclusion that both IFRS and Canadian ASPE require research costs to be expensed. In contrast, development costs should be capitalized and amortized, if certain criteria are met in IFRS. In ASPE there is the option to choose to expense development costs even though they meet the criteria to capitalize. In the past, the company has expensed all research and development costs. I understand that this practice was followed because, until this year, the costs were relatively minor and could be construed as immaterial. Accounting standards define a set of criteria to differentiate between research and development costs. If all criteria are satisfied, then there is no choice—they are defined as development costs and must be deferred and amortized in IFRS. The catch is that the criteria all involve estimates about the future, such as the availability of resources to complete the project and the ability of the company to actually sell it. The estimates are about future events and are made by management. In light of the fact that the new copying machine has been brought to a marketable stage, it would seem that most of the criteria have already been met. Only the saleability is really open to question at this stage. If the long-run viability of this project is still open to reasonable question, it may be possible to continue to expense the costs. Management has some discretion, but should not act unethically. You are concerned about the reaction of the bank to burdening future revenues with past costs and the fact that the bank is primarily interested in the company‘s cash flows. If you wish, this issue can easily be solved by preparing a special-purpose report that treats development costs as expenses, but this must be exclusively for the bank‘s use. In practice, however, the bank is a sophisticated user and will most likely analyse our company‘s cash flows by use of their own techniques. I regret that I cannot be encouraging about the prospect of capitalizing the research costs. Perhaps you should discuss this with your audit committee or with the audit partner. I regret that I cannot be of greater assistance, since I greatly enjoy my job here. Faithfully yours, © 2022 McGraw Hill. All rights reserved Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-27 Assignment 1-13 (LO1.2, LO1.3, LO1.4, LO1.5) 1. C and D 2. A and D 3. C and D 4. B EMAIL ME: For help with report, Assignment, Essay and thesis writing. ©2022 McGraw Hill. All rights reserved 2-28 Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition Assignment 1-14 (LO1.3, LO1.4) Note: The objective of this assignment is to stress the different ways in which circumstances can affect the way in which management may look at an accounting issue. Chapter 3 will discuss the difference between an idle asset (which continues to be depreciated) and an abandoned asset (which is written down to NRV and thereafter not depreciated). The assets described in this assignment are idle, as they are being converted to a different use. However, students probably will not be familiar with this distinction nor with the relevant treatment for each. Policy Rationale 1. Do not depreciate Match depreciation with revenue earned once units are rented; this avoids increasing current loss due to vacant properties. 2. Do not depreciate Managers will prefer to maximize income. 3. Defer depreciation Net income will be higher. This effect will partially be offset by higher assets, but depreciation expense will have a proportionately greater effect on net income that on the amount of total assets, thereby improving the NI:TA ratio. 4. Indifferent Accounting depreciation policy does not affect income tax policy; CCA is an independent calculation for income tax purposes. 5. Could go either way (a) Depreciate, as idle properties are still getting older and increasingly obsolete, for stewardship; or (b) Delay depreciation to achieve better matching with future rental revenues, for performance appraisal. (don‘t depreciate) 6. Depreciate An increased loss for the current period will not affect managers‘ compensation for the year. However, depreciating the assets in the current period will reduce the amount of depreciation for future periods in which management may be able to earn a bonus. Managers may try for a ‗big bath‘. © 2022 McGraw Hill. All rights reserved Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-29 Chapter 2: Accounting Judgements Case 2-1 Accounting Conference 2-2 Aerotravel Inc. 2-3 Dubois Ltd. Suggested Time Technical 2-1 Underlying assumptions 10 ©2022 McGraw Hill. All rights reserved 2-30 Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-2 Underlying assumptions................................... 10 2-3 Qualitative characteristics ................................ 15 2-4 Concepts identification .................................... 15 2-5 Capital maintenance ......................................... 15 2-6 Capital maintenance ......................................... 20 2-7 Measurement methods ..................................... 15 2-8 Measurement methods ..................................... 15 2-9 Fair value measurement ................................... 10 2-10 Fair value measurement ................................... 10 Assignment 2-1 Relevance versus faithful representation ......... 15 2-2 Relevance and faithful repesentation ............... 15 2-3 Questions on principles .................................... 15 2-4 Questions on principles ................................... 15 2-5 Application of principles ................................. 10 2-6 Realization versus recognition ......................... 15 2-7 Recognition of elements .................................. 10 2-8 Elements of financial statements .................... 10 2-9 Questions on principles ................................... 10 2-10 Identification of accounting principles .............. 10 2-11 Revenue recognition ........................................ 15 2-12 Recognition and elements ................................ 15 2-13 Application of principles.................................. 15 2-14 Professional judgement………………………. 20 2-15 Professional judgement………………………. 20 2-16 Application of principles .................................. 15 2-17 Implementation of principles ........................... 30 2-18 Implementation of principles ............................ 30 2-19 Implementation of principles ............................ 30 2-20 Recognition criteria .......................................... 25 2-21 Recognition versus realization………………… 25 2-22 Recognition versus realization…………………. 25 2-23 Implementation of principles ............................. 30 2-24 IFRS-ASPE differences………………………. 25 2-25 Accounting policy choice……………………………20 © 2022 McGraw Hill. All rights reserved Solutions Manual to accompany Intermediate Accounting, Volume 1, 8th edition 2-31 Cases Case 2-1 (LO2.1, LO2.4, LO2.5, LO2.8, LO2.10) Notes for Panel Discussion 1.Principles-based Approach The Conceptual Framework includes underlying assumptions (or foundational principles) which make it a principles-based approach and not rules-based. The Conceptual Framework does not (and cannot) outline exactly how to report in every possible situation, rather, it provides general ―guidance‖. We can think of the conceptual framework as an organization of important concepts that must always be considered when accounting standards and policies are developed. This approach to financial reporting is respected and it should result in consistency (i.e., if all financial reporting decisions are made from foundational reasoning, they should all be in line (consistent)). At the same time as achieving consistency, a principles-based approach also allows for flexibility so that the most appropriate accounting decisions can be made for any situation. The existence of flexibility can, however, lead to unethical behaviour if the flexibility is taken to the extreme. Financial statement preparers must find a balance between exercising flexibility while honouring the need for consistency. 2.The framework as a pyramid Yes, this is logical. We often think of the conceptual framework in this type of visualization with underlying assumptions at the base, qualitative criteria and financial statement elements in the middle and objectives of financial reporting at the top. At the top level of the pyramid, we consider the objectives and provision of useful information. It‘s important to consider the goals before we can consider the details of appropriate treatment. The bottom level is all about ―how‖; it is the foundation that drives everything else. The middle can be thought of as a bridge between the top and bottom levels. Note to instructors: you may want to draw/show a pyramid visualization to aid this discussion.