SOLUTION MANUAL FOR
Intermediate Accounting Volume 1 8e Thomas H. Beechy, Joan E. Conrod,
Elizabeth Farrell, Ingrid Mcleod-Dick, Kayla Tomulka, Romi-Lee Sevel
All Chapters 1-11 [With Appendix]
Chapter 1: The Framework For Financial Reporting
Case 1-1 Mulla And Yang
1-2 Richard Wright
1-3 Taylor Jay
Suggested Time
Technical 1-1 Chapter Overview, True-False .............................. 10
1-2 Chapter Overview, True-False .............................. 10
1-3 Acronyms……………………………………… 10
1-4 Ifrs Or Aspe…………………………………. 10
1-5 Ifrs Or Aspe…………………………………. 10
1-6 Disclosed Basis Of Accounting………………… 10
1-7 Gaap And Reporting Currency ........................... 10
1-8 Gaap And Reporting Currency ........................... 10
1-9 Users And Objectives………………………….. 10
1-10 Required Financial Statements ............................ 10
Assignment 1-1 Iasb Standard-Setting...................................... 10
1-2 International Comparisons................................ 10
1-3 Accounting Choices .......................................... 10
1-4 Effect Of Accounting Policies .......................... 15
1-5 Reporting Alternatives ...................................... 10
1-6 Non-Ifrs Situations ........................................ 15
1-7 Reporting Situations ......................................... 20
1-8 Reporting Situations ......................................... 15
1-9 Objectives Of Financial Reporting ..................... 20
1-10 Impact of differing objectives ......................... 20
1-11 Accounting policy disagreement...................... 15
1-12 Accounting policies and reporting objectives.. 10
1-13 Policy choice .................................................... 20
,Cases
Case 1-1 (Lo1.2, Lo1.3, Lo1.4, Lo1.5)
Notes For Discussion With Elicia:
There Is A Conflict Of Interest Between The Objectives Of Elicia And Dabika Due To
The Buyout Clause In The Shareholder Agreement. Elicia Will Have A Motivation To
Decrease Shareholders‘ Equity Since This Will Reduce The Amount That She Will Be
Required To Pay To Buy Out Dabika. Dabika Will Be Interested In Increasing
Shareholders‘ Equity To Increase The Amount She Will Receive. It Must Be Clarified
Who I Am Working For Since I May Have A Conflict Of Interest Since I Know Both
Parties.
It Is Important That All Accounting Policies Are ‗Fair‘ To Both Sides. What Is Considered
‗Fair‘? From Dabika‘S Perspective, Fair Could Be Accounting Policies Consistent With
Prior Years. From Elicia‘S Perspective, Fair Could Be If The Economic Events Change
The Accounting Policy Would Change. Fair Could Be Both Sides Split The Difference
Where Dabika And Elicia Disagree On Value. In The Future It Is Important That The
Shareholders Agreement Is More Specific.
Due To The Choices Allowed Within Gaap A Policy Could Be Selected That Would Be
More Beneficial To One Of The Parties. It Is Assumed Since This Is A Small Private
Company That They Are Using Aspe. There Is No Indication That Neither Elicia Or
Dabika Would Be Using Ifrs Nor That The Bank Requires It.
Inventory
Elicia Wants To Write Off The Inventory Value For The Garden Gnomes And Statues
And This Will Decrease The Amount Of The Payment To Dabika. According To Aspe,
Inventory Would Be Valued At The Lower Of Cost And Net Realizable Value. Even
Though This Inventory Has Been Sitting In The Gardening Centre There Is Still A Few
Being Sold Each Year. This Indicates There Is Still Some Value Associated With The
Inventory And Therefore It Should Not Be Written Down To Zero. It Should Be
Determined What The Net Realizable Value Of This Inventory Is To Determine The
Amount Of The Write Off. If It Is All Written Off And Then Sold At A Later Date This
Would Not Be Fair To Dabika Since Elicia Would Get The Benefit Of A Reduced
Shareholders‘ Equity And Thus A Lower Payment Required To Dabika. The Purchase Of
This Inventory Would Have Been A Decision Made By Both Dabika And Elicia So If
The Inventory Is Unsellable They Should Both Bear The Impact Of This Decision.
Warranty
According To Aspe The Accounting Policy Is Appropriate And A Warranty Expense
Should Be Included For The Guarantee. The Impact Is That This Would Decrease
Shareholders‘ Equity And The Amount Of The Payment To Dabika. This Is A New
Policy That Did Not Exist Until This Year. The Estimate Of 5% Was Only Based On
Sales From The Fall. Since It Is A New Policy That Was Made By Elicia On Her Own It
May Be Appropriate That The Impact Of This Is Excluded From The Calculation Of
,Shareholders‘ Equity. At A Minimum The Estimate Should
, Be Reviewed To Determine If It Is Reasonable. Furthermore, The Estimate, If Included
In The Shareholders‘ Equity Calculation, Should Be Agreed Upon By Both Elicia And
Dabika.
Computer Equipment
Aspe Is Flexible In The Method Used To Depreciate Assets. The Declining Balance
Method Using 40% Would Write Off The Value Of The Computers In Approximately
Two Years. This Is Very Fast Especially For A Small Company That Is Likely To Use A
Computer For A Longer Period Of Time Due To Limited Resources As Compared To A
Larger Company. Just Because The Computer May Become Obsolete Quickly Does Not
Mean The Business Will Not Continue To Derive Benefit From The Continued Use Of
The Computer. The Impact Of Higher Depreciation Is A Reduction In The Payment To
Dabika. If We Look At Consistency With Other Assets It Would Be Appropriate To Use
The Straight Line Method. We Should Inquire With Elicia As To Her Rationale For
Choosing Declining Balance Instead Of The Straight-Line Depreciatoin Method Used
For All Other Assets And Determine The Declining Method Reflects The Actual Usage
Of The Asset (I.E. More Of The Asset Used Earlier On). Since Again Since This Was A
Decision Made Only Be Elicia Maybe It Should Be Excluded From The Calculation Or
Maybe The Policy Should Be Consistent With Their Other Assets But Further
Information Is Required.
Case 1-2 (Lo1.2, Lo1.3, Lo1.4, Lo1.5)
Dear Richard Wright:
I Am Happy To Respond To Your Questions Regarding The Accounting Changes That
The New Banker Has Requested. It Is Important That You Realize That The Needs Of
The Banker Are Different Than Your Needs. The Bank Is Interested In Your Ability To
Make Loan Payments; Therefore, The Banker Wants To Assess Future Cash Flows,
Collateral And Your Ability To Pay Back The Loan.
First, There Is The Issue Of Moving To The Accrual Basis. While It‘S True That,
Ultimately, What You Earn Is The Net Cash In Your Pocket, The Cash Basis Of
Accounting Doesn‘T Wholly Capture All Of The Cash Flows That Will Happen In The
Future. Your Banker Wants To Know What Liabilities You‘Ll Have To Pay In The
Coming Months (And Years), And What Amounts You Currently Are Owed That Will
Be Collected In The Future Weeks Or Months. The Accrual Method Really Gives A
Clear Picture Of Future ―Cash Flow‖.
It‘S For Much The Same Reason That He Wishes You To Show Your Cattle At Market
Value. I‘M Sure He Recognizes That Both Your Dairy Cattle And Your Breeders Are
Intended For Continued Use And Are Not For Sale In The Normal Course Of
Business.As Saleable Stock, The Cattle Represent A Potential Cash Resource In The
Event Of Bankruptcy Or Default. After All, You Probably Use The Cattle As Collateral
For Loans, And He Needs To Know The Value Of That Collateral.
You Should Not Try To Estimate The Value Of Your Stock By Yourself. For Credibility,
You Should Obtain An Independent Estimate. The Valuation Will Require A
Professional Evaluation (And The Cost Thereof), But Will Be Necessary In Order To
Intermediate Accounting Volume 1 8e Thomas H. Beechy, Joan E. Conrod,
Elizabeth Farrell, Ingrid Mcleod-Dick, Kayla Tomulka, Romi-Lee Sevel
All Chapters 1-11 [With Appendix]
Chapter 1: The Framework For Financial Reporting
Case 1-1 Mulla And Yang
1-2 Richard Wright
1-3 Taylor Jay
Suggested Time
Technical 1-1 Chapter Overview, True-False .............................. 10
1-2 Chapter Overview, True-False .............................. 10
1-3 Acronyms……………………………………… 10
1-4 Ifrs Or Aspe…………………………………. 10
1-5 Ifrs Or Aspe…………………………………. 10
1-6 Disclosed Basis Of Accounting………………… 10
1-7 Gaap And Reporting Currency ........................... 10
1-8 Gaap And Reporting Currency ........................... 10
1-9 Users And Objectives………………………….. 10
1-10 Required Financial Statements ............................ 10
Assignment 1-1 Iasb Standard-Setting...................................... 10
1-2 International Comparisons................................ 10
1-3 Accounting Choices .......................................... 10
1-4 Effect Of Accounting Policies .......................... 15
1-5 Reporting Alternatives ...................................... 10
1-6 Non-Ifrs Situations ........................................ 15
1-7 Reporting Situations ......................................... 20
1-8 Reporting Situations ......................................... 15
1-9 Objectives Of Financial Reporting ..................... 20
1-10 Impact of differing objectives ......................... 20
1-11 Accounting policy disagreement...................... 15
1-12 Accounting policies and reporting objectives.. 10
1-13 Policy choice .................................................... 20
,Cases
Case 1-1 (Lo1.2, Lo1.3, Lo1.4, Lo1.5)
Notes For Discussion With Elicia:
There Is A Conflict Of Interest Between The Objectives Of Elicia And Dabika Due To
The Buyout Clause In The Shareholder Agreement. Elicia Will Have A Motivation To
Decrease Shareholders‘ Equity Since This Will Reduce The Amount That She Will Be
Required To Pay To Buy Out Dabika. Dabika Will Be Interested In Increasing
Shareholders‘ Equity To Increase The Amount She Will Receive. It Must Be Clarified
Who I Am Working For Since I May Have A Conflict Of Interest Since I Know Both
Parties.
It Is Important That All Accounting Policies Are ‗Fair‘ To Both Sides. What Is Considered
‗Fair‘? From Dabika‘S Perspective, Fair Could Be Accounting Policies Consistent With
Prior Years. From Elicia‘S Perspective, Fair Could Be If The Economic Events Change
The Accounting Policy Would Change. Fair Could Be Both Sides Split The Difference
Where Dabika And Elicia Disagree On Value. In The Future It Is Important That The
Shareholders Agreement Is More Specific.
Due To The Choices Allowed Within Gaap A Policy Could Be Selected That Would Be
More Beneficial To One Of The Parties. It Is Assumed Since This Is A Small Private
Company That They Are Using Aspe. There Is No Indication That Neither Elicia Or
Dabika Would Be Using Ifrs Nor That The Bank Requires It.
Inventory
Elicia Wants To Write Off The Inventory Value For The Garden Gnomes And Statues
And This Will Decrease The Amount Of The Payment To Dabika. According To Aspe,
Inventory Would Be Valued At The Lower Of Cost And Net Realizable Value. Even
Though This Inventory Has Been Sitting In The Gardening Centre There Is Still A Few
Being Sold Each Year. This Indicates There Is Still Some Value Associated With The
Inventory And Therefore It Should Not Be Written Down To Zero. It Should Be
Determined What The Net Realizable Value Of This Inventory Is To Determine The
Amount Of The Write Off. If It Is All Written Off And Then Sold At A Later Date This
Would Not Be Fair To Dabika Since Elicia Would Get The Benefit Of A Reduced
Shareholders‘ Equity And Thus A Lower Payment Required To Dabika. The Purchase Of
This Inventory Would Have Been A Decision Made By Both Dabika And Elicia So If
The Inventory Is Unsellable They Should Both Bear The Impact Of This Decision.
Warranty
According To Aspe The Accounting Policy Is Appropriate And A Warranty Expense
Should Be Included For The Guarantee. The Impact Is That This Would Decrease
Shareholders‘ Equity And The Amount Of The Payment To Dabika. This Is A New
Policy That Did Not Exist Until This Year. The Estimate Of 5% Was Only Based On
Sales From The Fall. Since It Is A New Policy That Was Made By Elicia On Her Own It
May Be Appropriate That The Impact Of This Is Excluded From The Calculation Of
,Shareholders‘ Equity. At A Minimum The Estimate Should
, Be Reviewed To Determine If It Is Reasonable. Furthermore, The Estimate, If Included
In The Shareholders‘ Equity Calculation, Should Be Agreed Upon By Both Elicia And
Dabika.
Computer Equipment
Aspe Is Flexible In The Method Used To Depreciate Assets. The Declining Balance
Method Using 40% Would Write Off The Value Of The Computers In Approximately
Two Years. This Is Very Fast Especially For A Small Company That Is Likely To Use A
Computer For A Longer Period Of Time Due To Limited Resources As Compared To A
Larger Company. Just Because The Computer May Become Obsolete Quickly Does Not
Mean The Business Will Not Continue To Derive Benefit From The Continued Use Of
The Computer. The Impact Of Higher Depreciation Is A Reduction In The Payment To
Dabika. If We Look At Consistency With Other Assets It Would Be Appropriate To Use
The Straight Line Method. We Should Inquire With Elicia As To Her Rationale For
Choosing Declining Balance Instead Of The Straight-Line Depreciatoin Method Used
For All Other Assets And Determine The Declining Method Reflects The Actual Usage
Of The Asset (I.E. More Of The Asset Used Earlier On). Since Again Since This Was A
Decision Made Only Be Elicia Maybe It Should Be Excluded From The Calculation Or
Maybe The Policy Should Be Consistent With Their Other Assets But Further
Information Is Required.
Case 1-2 (Lo1.2, Lo1.3, Lo1.4, Lo1.5)
Dear Richard Wright:
I Am Happy To Respond To Your Questions Regarding The Accounting Changes That
The New Banker Has Requested. It Is Important That You Realize That The Needs Of
The Banker Are Different Than Your Needs. The Bank Is Interested In Your Ability To
Make Loan Payments; Therefore, The Banker Wants To Assess Future Cash Flows,
Collateral And Your Ability To Pay Back The Loan.
First, There Is The Issue Of Moving To The Accrual Basis. While It‘S True That,
Ultimately, What You Earn Is The Net Cash In Your Pocket, The Cash Basis Of
Accounting Doesn‘T Wholly Capture All Of The Cash Flows That Will Happen In The
Future. Your Banker Wants To Know What Liabilities You‘Ll Have To Pay In The
Coming Months (And Years), And What Amounts You Currently Are Owed That Will
Be Collected In The Future Weeks Or Months. The Accrual Method Really Gives A
Clear Picture Of Future ―Cash Flow‖.
It‘S For Much The Same Reason That He Wishes You To Show Your Cattle At Market
Value. I‘M Sure He Recognizes That Both Your Dairy Cattle And Your Breeders Are
Intended For Continued Use And Are Not For Sale In The Normal Course Of
Business.As Saleable Stock, The Cattle Represent A Potential Cash Resource In The
Event Of Bankruptcy Or Default. After All, You Probably Use The Cattle As Collateral
For Loans, And He Needs To Know The Value Of That Collateral.
You Should Not Try To Estimate The Value Of Your Stock By Yourself. For Credibility,
You Should Obtain An Independent Estimate. The Valuation Will Require A
Professional Evaluation (And The Cost Thereof), But Will Be Necessary In Order To
