SOLUTION MANUAL FOR n n
Intermediate Accounting Volume 1 8E Thomas H. Beechy, Joan E. Conrod,
n n n n n n n n n n n
Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel
n n n n n n n
Alln Chaptersn 1-11n n [Withn Appendix]
Chapter 1: The Framework for Financial Reporting
n n n n n n
Casen 1-1 Mullan and n Yang
1-2 Richard n Wright
1-3 Taylorn Jay
Suggested nTime
n Technical 1-1 Chaptern overview,n true-falsen.............................. 10
1-2 Chaptern overview,n true-falsen.............................. 10
1-3 Acronyms……………………………………… 10
1-4 IFRSn orn ASPE…………………………………. 10
1-5 IFRSn orn ASPE…………………………………. 10
1-6 Disclosed n basisn ofn accounting………………… 10
1-7 GAAPn andn reportingn currencyn........................... 10
1-8 GAAPn andn reportingn currencyn........................... 10
1-9 Usersn andn objectives………………………….. 10
1-10 Required nfinancialn statementsn............................ 10
Assignment n1-1 IASBn standard-setting...................................... 10
1-2 Internationaln comparisons................................ 10
1-3 Accountingn choicesn.......................................... 10
1-4 Effectn ofn accountingn policiesn .......................... 15
1-5 Reportingn alternativesn...................................... 10
1-6 Non-IFRSn situationsn ........................................ 15
1-7 Reportingn situationsn......................................... 20
1-8 Reportingnsituationsn......................................... 15
1-9 Objectivesn ofn financialn reportingn ..................... 20
1-10 Impact n of n differingn objectivesn ......................... 20
1-11 Accountingn policyn disagreement...................... 15
1-12 Accountingn policiesn and n reportingn objectives.. 10
1-13 Policyn choicen.................................................... 20
©n2022 nMcGraw n H ill.n Allnrights n rese rve d
Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n A cc ounting ,n Volume n1 ,n8 th n e ditio 2-1
n
,Cases
Casen1-1n(LO1.2,n LO1.3,n LO1.4,n LO1.5)
Notesn forn Discussionn Withn Elicia:
Theren isn an conflict n ofn interestn betweenn then objectivesn ofn Elician andn Dabikanduentonthen buyout
n clausen inn then shareholdern agreement.n Elician willn haven an motivationntondecreasen shareholder
s‘n equityn sincen thisnwilln reducen then amountn that n shen willn ben required nton paynton buyn outnDabik
a.n Dabikan willn ben interestedn inn increasingn shareholders‘n equityn ton increasen then amountn shenw
illn receive.n Itn must n ben clarified nwhonIn amn workingnforn sincenI n mayn haven an conflictn ofn interest n
sincen I n know n bothn parties.
It n isn important n that n alln accountingn policiesn aren ‗fair‘n ton bothn sides.n What n isn considered
‗fair‘?n Fromn Dabika‘sn perspective,n fairn could n ben accountingn policiesn consistent n withn priorn y
ears.n Fromn Elicia‘sn perspective,n fairn could n ben if nthen economicn eventsn changenthen accounting
n policyn wouldn change.n Fairn could n ben bothn sidesn split n thendifferencen wherenDabikan and n Elicia
ndisagreen onn value.n Innthenfuturen it n isn importantn that nthen shareholdersn agreement n isn moren spe
cific.
Duentonthen choicesn allowedn withinn GAAPn an policyn couldn ben selectedn that nwouldn ben moren be
neficialn ton onen ofn then parties.nItn isn assumed n sincenthisn isn an smalln privaten companyn thatntheyn ar
en usingn ASPE.n Theren isn non indicationn that n neithern Elician orn Dabikan would n ben usingnIFRSn no
rn that n then bankn requiresn it.
Inventory
Elician wantsn ton writen offn then inventoryn valuenfornthen gardenn gnomesn andn statuesn and nthisn wil
ln decreasenthen amountn of nthen paymentntonDabika.n AccordingntonASPE,n inventoryn would n ben v
alued n atnthen lowern ofn costn and n net n realizablen value.n Evenn thoughn thisn inventoryn hasn beenn sitti
ngn innthen gardeningn centrentheren isn stilln anfewn beingn soldn eachn year.n Thisn indicatesntheren isn sti
lln somen valuen associatedn withn then inventoryn andn thereforen it n should n notn benwrittenndownn ton z
ero.n Itn shouldn bendetermined nwhatn then netn realizablen valuen of n thisn inventoryn isn tondeterminen t
hen amount n ofn then writen off.nIf n it n isn alln writtenn off n andn thenn soldn atn an laterndaten thisnwouldn notn
ben fairntonDabikan sincen Elician would n getn then benefitn of n an reducedn shareholders‘n equityn and nth
usn an lowern paymentn required ntonDabika.n Then purchasen ofn thisn inventorynwouldn haven beenn an
decisionn maden byn bothnDabikan and n Elician son ifn then inventoryn isn unsellablen theyn shouldn bothn
bearn then impact n of n thisn decision.
Warranty
AccordingntonASPEn then accountingn policyn isn appropriaten and n an warrantyn expensen shouldn ben
includedn forn then guarantee.n Then impact n isnthatn thisnwouldndecreasen shareholders‘n equityn and n
then amountn ofnthen paymentn tonDabika.n Thisn isn an new n policynthat ndidn notn exist n untiln thisn year.n
Then estimaten of n 5%n wasn onlyn basedn onn salesn fromn then fall.n Sincen itn isn an newn policyn thatn wasn
maden byn Elician onn hern ownn itn mayn ben appropriatenthatn then impact n of nthisn isn excluded nfromn th
en calculationn of n shareholders‘n equity.n At n an minimumn then estimaten should
n©2022 nMc Graw n H ill.n Allnrights n rese rve d
2-2 Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n Ac c ounting,n Volume n1 ,n8 thn e ditio
n
,ben reviewedn tondeterminen if n itn isn reasonable.n Furthermore,n then estimate,n if n includedn innthen sh
areholders‘n equityn calculation,n should n ben agreed n uponn byn bothn Elician and n Dabika.
Computern Equipment
ASPEn isn flexiblen inn then method n usedn tondepreciaten assets.n Thendecliningn balancen method n usi
ngn 40%nwouldn writen offnthen valuen ofn then computersn inn approximatelyn twon years.n Thisn isn ver
yn fast n especiallyn forn an smalln companyn thatn isn likelyn ton usen an computern forn an longern periodn of nt
imen duen ton limited n resourcesn asn comparedn ton an largern company.n Just n becausen then computern
mayn becomen obsoleten quicklyn doesn not n meannthen businessn willn not n continuen tonderiven benef
it n fromnthen continuedn usen ofn then computer.n Then impact n ofn higherndepreciationn isn an reductionn
inn then paymentn tonDabika.n Ifn wen lookn atn consistencyn withn othern assetsn itn wouldn ben appropriat
en ton usenthen straight n linen method.n Wen shouldn inquiren withn Elician asn ton hern rationalenforn choos
ingn decliningn balancen instead n ofn then straight-
linen depreciatoinn methodn used nforn alln othern assetsn and ndeterminen thendecliningn methodn refle
ctsn then actualn usagen ofnthen assetn (i.e.n moren ofn then asset n usedn earliern on).n Sincen againn sincen thi
sn wasn andecisionn maden onlyn ben Elician mayben it n shouldn ben excluded nfromn then calculationn orn
mayben then policyn shouldn ben consistentn withntheirn othern assetsn butn furthern informationn isn req
uired.
Casen1-2n(LO1.2,n LO1.3,n LO1.4,n LO1.5)
Dearn Richard n Wright:
I n amn happynton respond nton yourn questionsn regardingnthen accountingn changesn thatn then newn ban
kern hasn requested.nItn isn important nthatn youn realizen that nthen needsn ofn then bankern arendifferentn t
hann yourn needs.n Then bankn isn interestedn inn yourn abilitynton maken loann payments;ntherefore,nthe
n bankern wantsn ton assessn futuren cashn flows,n collateraln and n yourn abilityn ton payn backn then loan.
First,n theren isnthen issuen ofn movingn tonthen accrualn basis.n Whilen it‘sn truen that,n ultimately,n whatn
youn earnn isn then netn cashn inn yourn pocket,n then cashn basisn ofn accountingndoesn‘tn whollyn capture
n alln ofn then cashnflowsnthatn willn happenn innthenfuture.n Yourn bankern wantsn ton know nwhatn liabili
tiesn you‘lln haven ton payn innthen comingn monthsn (andn years),n andn what n amountsn youn currentlyn a
ren owed nthatn willn ben collectedn innthenfuturen weeksn orn months.n Then accrualn method n reallyn giv
esn an clearn picturen of n futuren ―cashn flow‖.
It‘snforn muchn then samen reasonn thatn hen wishesn younton shown yourn cattlen atn market n value.nI‘mn s
uren hen recognizesn thatn bothn yourndairyn cattlen andn yourn breedersn aren intendednforn continuedn
usen andn aren not nforn salen innthen normaln coursen ofn business.Asn saleablen stock,n then cattlen repres
ent n an potentialn cashn resourcen inn then event n ofn bankruptcyn orndefault.n Aftern all,n youn probablyn u
sen then cattlen asn collateraln forn loans,n and n hen needsn ton know n then valuen of n that n collateral.
Youn shouldn not ntrynton estimaten then valuen ofn yourn stockn byn yourself.n Forn credibility,n youn sho
uld n obtainn ann independentn estimate.n Then valuationn willn requiren an professionaln evaluationn (a
nd n then cost n thereof),n but n willn ben necessaryn inn ordern ton satisfyn then bank.
©n2022 nMcGraw n H ill.n Allnrights n rese rve d
Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n A cc ounting ,n Volume n1 ,n8 th n e ditio 2-3
n
, Sincerely,n A
ndriana
Casen1-3n(LO1.1,n LO1.2,n LO1.3,n LO1.4,n LO1.5)
Overview
Thisn casen isn intendedn ton get n studentsnton focusn onnthendifferencesn betweenn companiesn andnthe
n variousn factorsn that n haven an bearingn onntheirn financialn reportingn objectives.n Studentsn aren ask
edn ton prioritizen thenfactorsn orn characteristicsn that n aren most n likelyn ton affectn eachn company‘sn fi
nancialn reporting.
Companyn Characterics
Alln threen companiesn aren privaten enterprises.n Significant n characteristicsn of n eachn aren asnfollo
ws:
BreezenInc. SaturnnSoftware Intern’l nAuto nParts
Business Newn mobilen phonen networkCustom n software Auto n partsn forn international
development auto n makers
Owners Privaten investorsn and n venture Two nentrepreneurs,nnot Wealthy n family
capitalists wealthy
Othern capitalns Egyptian nfund Pension nfund— Debt n through n investment nfund
ources pref.nsharesn Bankn linen ofncredit snand n by nU.S.nand n Cdn.
banks
Capital nrequire Capitalnintensiven start-up Salary- Established nmanufacturer;
ments based noperation; n worki n expandingn tongain n foreign
ngn capitaln needed customers
Constraints Egypt n fund n hasn 3 n board n seats Bank n covenants: Probablen debt n covenants
– restrictionsn on n divide
nd/salary npayouts
– newndebt
Preferred ndividend n required
Reporting CRTC Pension n fund Investment n fundsnand n banks
requirements Egypt n fund; n Japan n partner Bank Potentialn newn customers
IPO Not n in n then foreseeablen future Unlikely Yes,n anticipated n in n 2-3 n years
probable?
©2022 nMc Graw n H ill.n Allnrights n rese rve d
n
2-4 Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n Ac c ounting,n Volume n1 ,n8 thn e ditio
n
Intermediate Accounting Volume 1 8E Thomas H. Beechy, Joan E. Conrod,
n n n n n n n n n n n
Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel
n n n n n n n
Alln Chaptersn 1-11n n [Withn Appendix]
Chapter 1: The Framework for Financial Reporting
n n n n n n
Casen 1-1 Mullan and n Yang
1-2 Richard n Wright
1-3 Taylorn Jay
Suggested nTime
n Technical 1-1 Chaptern overview,n true-falsen.............................. 10
1-2 Chaptern overview,n true-falsen.............................. 10
1-3 Acronyms……………………………………… 10
1-4 IFRSn orn ASPE…………………………………. 10
1-5 IFRSn orn ASPE…………………………………. 10
1-6 Disclosed n basisn ofn accounting………………… 10
1-7 GAAPn andn reportingn currencyn........................... 10
1-8 GAAPn andn reportingn currencyn........................... 10
1-9 Usersn andn objectives………………………….. 10
1-10 Required nfinancialn statementsn............................ 10
Assignment n1-1 IASBn standard-setting...................................... 10
1-2 Internationaln comparisons................................ 10
1-3 Accountingn choicesn.......................................... 10
1-4 Effectn ofn accountingn policiesn .......................... 15
1-5 Reportingn alternativesn...................................... 10
1-6 Non-IFRSn situationsn ........................................ 15
1-7 Reportingn situationsn......................................... 20
1-8 Reportingnsituationsn......................................... 15
1-9 Objectivesn ofn financialn reportingn ..................... 20
1-10 Impact n of n differingn objectivesn ......................... 20
1-11 Accountingn policyn disagreement...................... 15
1-12 Accountingn policiesn and n reportingn objectives.. 10
1-13 Policyn choicen.................................................... 20
©n2022 nMcGraw n H ill.n Allnrights n rese rve d
Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n A cc ounting ,n Volume n1 ,n8 th n e ditio 2-1
n
,Cases
Casen1-1n(LO1.2,n LO1.3,n LO1.4,n LO1.5)
Notesn forn Discussionn Withn Elicia:
Theren isn an conflict n ofn interestn betweenn then objectivesn ofn Elician andn Dabikanduentonthen buyout
n clausen inn then shareholdern agreement.n Elician willn haven an motivationntondecreasen shareholder
s‘n equityn sincen thisnwilln reducen then amountn that n shen willn ben required nton paynton buyn outnDabik
a.n Dabikan willn ben interestedn inn increasingn shareholders‘n equityn ton increasen then amountn shenw
illn receive.n Itn must n ben clarified nwhonIn amn workingnforn sincenI n mayn haven an conflictn ofn interest n
sincen I n know n bothn parties.
It n isn important n that n alln accountingn policiesn aren ‗fair‘n ton bothn sides.n What n isn considered
‗fair‘?n Fromn Dabika‘sn perspective,n fairn could n ben accountingn policiesn consistent n withn priorn y
ears.n Fromn Elicia‘sn perspective,n fairn could n ben if nthen economicn eventsn changenthen accounting
n policyn wouldn change.n Fairn could n ben bothn sidesn split n thendifferencen wherenDabikan and n Elicia
ndisagreen onn value.n Innthenfuturen it n isn importantn that nthen shareholdersn agreement n isn moren spe
cific.
Duentonthen choicesn allowedn withinn GAAPn an policyn couldn ben selectedn that nwouldn ben moren be
neficialn ton onen ofn then parties.nItn isn assumed n sincenthisn isn an smalln privaten companyn thatntheyn ar
en usingn ASPE.n Theren isn non indicationn that n neithern Elician orn Dabikan would n ben usingnIFRSn no
rn that n then bankn requiresn it.
Inventory
Elician wantsn ton writen offn then inventoryn valuenfornthen gardenn gnomesn andn statuesn and nthisn wil
ln decreasenthen amountn of nthen paymentntonDabika.n AccordingntonASPE,n inventoryn would n ben v
alued n atnthen lowern ofn costn and n net n realizablen value.n Evenn thoughn thisn inventoryn hasn beenn sitti
ngn innthen gardeningn centrentheren isn stilln anfewn beingn soldn eachn year.n Thisn indicatesntheren isn sti
lln somen valuen associatedn withn then inventoryn andn thereforen it n should n notn benwrittenndownn ton z
ero.n Itn shouldn bendetermined nwhatn then netn realizablen valuen of n thisn inventoryn isn tondeterminen t
hen amount n ofn then writen off.nIf n it n isn alln writtenn off n andn thenn soldn atn an laterndaten thisnwouldn notn
ben fairntonDabikan sincen Elician would n getn then benefitn of n an reducedn shareholders‘n equityn and nth
usn an lowern paymentn required ntonDabika.n Then purchasen ofn thisn inventorynwouldn haven beenn an
decisionn maden byn bothnDabikan and n Elician son ifn then inventoryn isn unsellablen theyn shouldn bothn
bearn then impact n of n thisn decision.
Warranty
AccordingntonASPEn then accountingn policyn isn appropriaten and n an warrantyn expensen shouldn ben
includedn forn then guarantee.n Then impact n isnthatn thisnwouldndecreasen shareholders‘n equityn and n
then amountn ofnthen paymentn tonDabika.n Thisn isn an new n policynthat ndidn notn exist n untiln thisn year.n
Then estimaten of n 5%n wasn onlyn basedn onn salesn fromn then fall.n Sincen itn isn an newn policyn thatn wasn
maden byn Elician onn hern ownn itn mayn ben appropriatenthatn then impact n of nthisn isn excluded nfromn th
en calculationn of n shareholders‘n equity.n At n an minimumn then estimaten should
n©2022 nMc Graw n H ill.n Allnrights n rese rve d
2-2 Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n Ac c ounting,n Volume n1 ,n8 thn e ditio
n
,ben reviewedn tondeterminen if n itn isn reasonable.n Furthermore,n then estimate,n if n includedn innthen sh
areholders‘n equityn calculation,n should n ben agreed n uponn byn bothn Elician and n Dabika.
Computern Equipment
ASPEn isn flexiblen inn then method n usedn tondepreciaten assets.n Thendecliningn balancen method n usi
ngn 40%nwouldn writen offnthen valuen ofn then computersn inn approximatelyn twon years.n Thisn isn ver
yn fast n especiallyn forn an smalln companyn thatn isn likelyn ton usen an computern forn an longern periodn of nt
imen duen ton limited n resourcesn asn comparedn ton an largern company.n Just n becausen then computern
mayn becomen obsoleten quicklyn doesn not n meannthen businessn willn not n continuen tonderiven benef
it n fromnthen continuedn usen ofn then computer.n Then impact n ofn higherndepreciationn isn an reductionn
inn then paymentn tonDabika.n Ifn wen lookn atn consistencyn withn othern assetsn itn wouldn ben appropriat
en ton usenthen straight n linen method.n Wen shouldn inquiren withn Elician asn ton hern rationalenforn choos
ingn decliningn balancen instead n ofn then straight-
linen depreciatoinn methodn used nforn alln othern assetsn and ndeterminen thendecliningn methodn refle
ctsn then actualn usagen ofnthen assetn (i.e.n moren ofn then asset n usedn earliern on).n Sincen againn sincen thi
sn wasn andecisionn maden onlyn ben Elician mayben it n shouldn ben excluded nfromn then calculationn orn
mayben then policyn shouldn ben consistentn withntheirn othern assetsn butn furthern informationn isn req
uired.
Casen1-2n(LO1.2,n LO1.3,n LO1.4,n LO1.5)
Dearn Richard n Wright:
I n amn happynton respond nton yourn questionsn regardingnthen accountingn changesn thatn then newn ban
kern hasn requested.nItn isn important nthatn youn realizen that nthen needsn ofn then bankern arendifferentn t
hann yourn needs.n Then bankn isn interestedn inn yourn abilitynton maken loann payments;ntherefore,nthe
n bankern wantsn ton assessn futuren cashn flows,n collateraln and n yourn abilityn ton payn backn then loan.
First,n theren isnthen issuen ofn movingn tonthen accrualn basis.n Whilen it‘sn truen that,n ultimately,n whatn
youn earnn isn then netn cashn inn yourn pocket,n then cashn basisn ofn accountingndoesn‘tn whollyn capture
n alln ofn then cashnflowsnthatn willn happenn innthenfuture.n Yourn bankern wantsn ton know nwhatn liabili
tiesn you‘lln haven ton payn innthen comingn monthsn (andn years),n andn what n amountsn youn currentlyn a
ren owed nthatn willn ben collectedn innthenfuturen weeksn orn months.n Then accrualn method n reallyn giv
esn an clearn picturen of n futuren ―cashn flow‖.
It‘snforn muchn then samen reasonn thatn hen wishesn younton shown yourn cattlen atn market n value.nI‘mn s
uren hen recognizesn thatn bothn yourndairyn cattlen andn yourn breedersn aren intendednforn continuedn
usen andn aren not nforn salen innthen normaln coursen ofn business.Asn saleablen stock,n then cattlen repres
ent n an potentialn cashn resourcen inn then event n ofn bankruptcyn orndefault.n Aftern all,n youn probablyn u
sen then cattlen asn collateraln forn loans,n and n hen needsn ton know n then valuen of n that n collateral.
Youn shouldn not ntrynton estimaten then valuen ofn yourn stockn byn yourself.n Forn credibility,n youn sho
uld n obtainn ann independentn estimate.n Then valuationn willn requiren an professionaln evaluationn (a
nd n then cost n thereof),n but n willn ben necessaryn inn ordern ton satisfyn then bank.
©n2022 nMcGraw n H ill.n Allnrights n rese rve d
Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n A cc ounting ,n Volume n1 ,n8 th n e ditio 2-3
n
, Sincerely,n A
ndriana
Casen1-3n(LO1.1,n LO1.2,n LO1.3,n LO1.4,n LO1.5)
Overview
Thisn casen isn intendedn ton get n studentsnton focusn onnthendifferencesn betweenn companiesn andnthe
n variousn factorsn that n haven an bearingn onntheirn financialn reportingn objectives.n Studentsn aren ask
edn ton prioritizen thenfactorsn orn characteristicsn that n aren most n likelyn ton affectn eachn company‘sn fi
nancialn reporting.
Companyn Characterics
Alln threen companiesn aren privaten enterprises.n Significant n characteristicsn of n eachn aren asnfollo
ws:
BreezenInc. SaturnnSoftware Intern’l nAuto nParts
Business Newn mobilen phonen networkCustom n software Auto n partsn forn international
development auto n makers
Owners Privaten investorsn and n venture Two nentrepreneurs,nnot Wealthy n family
capitalists wealthy
Othern capitalns Egyptian nfund Pension nfund— Debt n through n investment nfund
ources pref.nsharesn Bankn linen ofncredit snand n by nU.S.nand n Cdn.
banks
Capital nrequire Capitalnintensiven start-up Salary- Established nmanufacturer;
ments based noperation; n worki n expandingn tongain n foreign
ngn capitaln needed customers
Constraints Egypt n fund n hasn 3 n board n seats Bank n covenants: Probablen debt n covenants
– restrictionsn on n divide
nd/salary npayouts
– newndebt
Preferred ndividend n required
Reporting CRTC Pension n fund Investment n fundsnand n banks
requirements Egypt n fund; n Japan n partner Bank Potentialn newn customers
IPO Not n in n then foreseeablen future Unlikely Yes,n anticipated n in n 2-3 n years
probable?
©2022 nMc Graw n H ill.n Allnrights n rese rve d
n
2-4 Solutions n Ma nua lnt ona cc ompa nyn Inte rme diate n Ac c ounting,n Volume n1 ,n8 thn e ditio
n
