Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition CHAPTER Reporting and Analyzing Long-Lived Assets ASSIGNMENT CLASSIFICATION TABLE Study Objectives Questions Brief Exercises Determine the cost of property, plant, and equipment 1, 2, 3, 1, 2, 1, 1A, 2A, 3A 1B, 2B, 3B 4, 6, Explain and calculate depreciation 5, 6, 7, 8, 9, 13 4, 5, 6, 7, 8, 2, 3, 4, 5, 6, 2A, 3A, 4A, 5A, 6A, 7A, 8A 2B, 3B, 4B 5B, 6B, 7B, 8B 1, 3, 4, 5, Account for the derecognition of property, plant, and equipment 10, 11, 12 10, 11 5, 6, 6A, 7A, 8A 6B, 7B, 8B Identify the basic accounting issues for intangible assets and goodwill 13, 14, 15, 16, 17 12, 13 8, 9, 10 9A, 10A, 11A 9B, 10B, 11B 1, Illustrate how long18, 19, 20 lived assets are reported in the financial statements 12, 14, 15 10, 11 8A, 10A, 8B, 10B Describe the 21, 22, 23 methods for evaluating the use of assets 16, 17 12, 13 11A, 12A, 11B, 12B 2, 3, 4, Exercises A Problems B Problems BYP Solutions Manual 9-1 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) Moderate 15-20 Simple 20-30 1A Classify expenditures 2A Determine cost; record property transactions 3A Determine cost; calculate depreciation under different methods Moderate 30-40 4A Calculate and compare depreciation under different methods Moderate 40-50 5A Calculate depreciation; discuss revision of estimate Moderate 15-20 6A Record acquisition, depreciation, and disposal of equipment Simple 15-20 7A Record and determine effect of depreciation method over life of asset Moderate 35-45 8A Record property, plant and equipment transactions; prepare partial statement of financial position Moderate 10-15 9A Identify intangible assets and goodwill Moderate 20-30 10A Record intangible asset transactions; prepare partial statement of financial position Moderate 30-40 11A Calculate and evaluate ratios Moderate 30-40 12A Calculate and evaluate ratios Moderate 30-40 1B Classify expenditures Moderate 15-20 2B Determine cost; record property transactions Simple 20-30 3B Determine cost; calculate depreciation under different methods Moderate 35-45 4B Calculate and compare depreciation under different methods Moderate 40-50 Solutions Manual 9-2 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition ASSIGNMENT CHARACTERISTICS TABLE (Continued) Problem Number Description Difficulty Level Time Allotted (min.) Moderate 15-20 Simple 15-20 5B Calculate depreciation; discuss revision of estimate 6B Record acquisition, depreciation, and disposal of equipment 7B Record and determine effect of depreciation method over life of asset Moderate 35-45 8B Record property, plant and equipment transactions; prepare partial statement of financial position Moderate 10-15 9B Identify intangible assets and goodwill Moderate 20-30 10B Record intangible asset transactions; prepare partial statement of financial position Moderate 30-40 11B Calculate and evaluate ratios Moderate 30-40 12B Calculate and evaluate ratios Moderate 30-40 Solutions Manual 9-3 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition ANSWERS TO QUESTIONS (a) The cost principle requires that property, plant, and equipment be recorded at cost, which consists of the purchase price, less any discounts or rebates and any other expenditures necessary to acquire the asset and make it ready for its intended use (b) An asset retirement cost is an estimate of the cost of an obligation to dismantle, remove or restore a long-lived asset when it is retired These costs are included in the cost of property, plant, and equipment and depreciated over the life of the asset Two examples of operating expenditures include routine maintenance and painting of equipment Operating expenditures are expensed in the period they are incurred They help maintain an asset but not add additional value, useful life, or economic benefits Two examples of capital expenditures include the shipping cost of equipment to its location of use and testing it to ensure it is ready for its intended use Capital expenditures are included as part of the cost of the new equipment They are incurred to make an asset ready for use (or to enhance its productivity or extend its life) Land improvements are structural additions made to the land such as parking lots and fences Clearing and grading the land are not land improvements but are part of the land cost as they are required to get the land ready for its intended use They would therefore be capitalized (recorded) in the Land account An operating lease allows the lessee to account for the leasing transaction as a rental and so the lease payments are recorded to Rent Expense, an income statement account As a result, neither the asset nor the liability related to the asset is recorded on the company’s books For a finance lease, both the asset and the liability related to the leased asset are recorded on the company’s books even though the asset is not legally owned by the party leasing the asset The asset account involved would be Assets under Finance Leases and the related liability account would be Finance Lease Liability Solutions Manual 9-4 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) (1) Depreciation Expense (2) Profit (3) Accumulated Depreciation (4) Carrying Amount (a) Early years Straight-line Same each year Constant charge (depreciation expense) to profit Increases at a constant amount each year Declines at a constant amount each year Units-ofproduction Varies with number of units produced Impact on profit will vary with the number of units produced Increases at a Declines at a variable amount variable amount based on number of units produced Diminishingbalance Decreases each year Increasing profit each year because depreciation expense is lower each year Increases at a diminishing amount each year Declines at a higher amount in the early years All three result All three result in the same total in the same total depreciation impact on profit expense All three result in the same total accumulated depreciation All three result in the same ending carrying amount (b) Total life Straight-line, units-ofproduction, diminishingbalance If the residual value was deducted for the diminishing balance method, the carrying value would never reach the residual value Applying a fixed percentage rate to a diminishing balance will always result in an undepreciated balance because a portion of the depreciable amount will always remain at the end of the period Residual value is considered in the diminishing-balance method by ensuring that the asset is never depreciated below its residual value In this way we always make sure that the undepreciated balance (carrying amount) is adjusted to equal residual value at the end of its useful life Residual value is subtracted from the cost when using the other methods because the resulting depreciable cost is needed to determine the annual depreciation expense Solutions Manual 9-5 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) The straight-line and diminishing-balance methods use annual depreciation rates in their depreciation calculations Therefore, the result must be adjusted for any period less than one year The units-of-production method does not need to be adjusted for partial periods as this method multiplies the depreciable amount per unit by the actual units produced in the period This reflects how much the asset was used during the period For example, if an asset was purchased July and produced 10,000 units for the period July through December, it can only produce a result for that six month period (the company could not have produced units before it purchased the asset) and therefore does not need to be adjusted for the half year ownership period (a) A company should choose the depreciation method it believes will best reflect the pattern over which the asset’s future economic benefits are expected to be consumed The depreciation method must be revised if the expected pattern of consumption of the future economic benefits has changed (b) Private companies using ASPE would not be allowed to use the revaluation model and therefore must use the cost model Publicly traded companies, which must follow IFRS, can choose to use the cost model or the revaluation model Factors to consider when choosing the revaluation model over the cost model are whether fair values are more relevant than cost (such as in the real estate industry), whether reliable measures of fair value can be obtained, and whether the benefits from the revaluation model exceed the additional costs involved in determining the value of the assets each year (a) Companies need to calculate an impairment loss when an asset becomes obsolete or when a competitive market causes a decline in sales of products produced by that asset The impairment loss is the amount by which the carrying amount of the asset exceeds its recoverable amount The loss is recorded with debit to Impairment Loss and a credit to the Accumulated Depreciation account of the asset or the asset itself if a contra account is not used (b) Some companies attempt to record asset impairments in fiscal years where the company is experiencing poor results and the additional charge for the impairment will not be noticed or will be received in a better light by the financial statement users Once the carrying amounts of the assets are reduced from the recording of the impairment loss, subsequent depreciation is correspondingly reduced Since management’s judgement is involved in arriving at the amount of impairment loss, the timing of the recording of the loss may be the result of management’s objective to manipulate current and future years’ financial results This approach becomes problematic to the financial statement users who are looking to compare results over several fiscal years to properly identify and assess financial trends Solutions Manual 9-6 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 10 Depreciation must be updated for the period that has elapsed since depreciation was last recorded to the date of the sale because the depreciation expense must properly reflect the total period over which the asset’s economic benefits are used Updating depreciation also aids in determining the correct amount of the gain or loss on disposition 11 In a sale of property, plant, and equipment, the carrying amount of the asset is compared to the proceeds received from the sale If the proceeds of the sale exceed the carrying amount of the asset, a gain on disposal occurs If the proceeds of the sale are less than the carrying amount of the asset sold, a loss on disposal occurs The calculation is the same for an asset that is retired if proceeds, such as a residual value, are received Often there are no proceeds received when an asset is retired If no proceeds are received, a gain will never occur 12 The machine and related accumulated depreciation should continue to be reported on the statement of financial position without further depreciation or adjustment until the asset is retired Reporting the asset and related accumulated depreciation on the statement of financial position informs the reader of the financial statements that the company is still using the asset Once an asset is fully depreciated, even if it is still being used, no additional depreciation should be taken on this asset In no situation can the accumulated depreciation on the asset exceed the cost of the asset 13 Tangible and intangible assets have similar characteristics, in that they are purchased for use in the operations and not for resale, have usefulness beyond one fiscal year and are depreciated or amortized, with the exception of land and indefinite life intangible assets Tangible and intangible assets are also similar in that their cost includes all of the necessary outlays that are made to get the asset ready for its intended use They differ in their physical substance in that intangible assets have no physical substance 14 Since finite intangible assets have limited usefulness to the business, each period of benefit should be charged with the allocation of the amortizable cost of the intangible asset used to generate revenue Indefinite life intangible assets cannot have a systematic allocation of their amortizable cost allocated against revenues as the period of benefit is indeterminable Rather, these assets are tested for impairment more frequently to ensure that their recoverable amount continues to exceed their carrying amount Solutions Manual 9-7 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 15 (a) The cost of intangible assets with finite lives should be amortized over the shorter of that asset's useful life (the period of time when operations are benefited by use of the asset) or its legal life Extending the amortization period beyond the useful life would result in a misallocation of the cost of the intangible asset to accounting periods beyond those when the asset was in use and contributed to producing revenue (b) If the useful life is shorter than legal life, amortizing the asset over its legal life would be inappropriate because the amortization each year would be too low and the asset would have a carrying amount shown on the statement of financial position after its useful life had passed 16 The legal fees should be added to the cost of the patent and amortized over the patent’s remaining useful life as they prove the patent’s validity and add to, or ensure the continuation of, the future economic benefits to be generated by the patent 17 Goodwill is the value of many favourable attributes that are intertwined in the business enterprise Goodwill can be identified only with the business as a whole and, unlike other assets, cannot be sold separately Goodwill can only be sold if the entire business is sold 18 (a) Long-lived assets are normally reported on the statement of financial position under the headings “property, plant, and equipment”, “intangible assets” and “goodwill.” The balances of the major classes of assets should be disclosed, as well as the accumulated depreciation and accumulated amortization, either on the statement of financial position or in the notes to the financial statements (b) The income statement reports, in the operating expenses section, depreciation expense, amortization expense, any gain or loss on disposal of property, plant and equipment, and any impairment losses (c) The statement of cash flows reports, in the investing activities section, any cash paid to purchase long-lived assets and any cash received on their disposal Solutions Manual 9-8 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 19 The notes to the financial statements should disclose the balance of the major classes of assets as well as the accumulated depreciation and amortization for depreciable and amortizable assets if this information has not been reported directly in the financial statements The depreciation and amortization method(s) used and the useful lives or rates should also be described Under IFRS, companies must disclose if they are using the cost or revaluation model for each class of long-lived assets and include a reconciliation of the carrying amount at the beginning and end of period for each class of long-lived assets If the revaluation model is used, disclosure of any increases and decreases from revaluation, as well as other information, is required Information relating to any impairment recorded must also be disclosed For companies using ASPE, the disclosure requirements are substantially reduced because the revaluation model cannot be used 20 Gains and losses recorded on the disposal of property, plant, and equipment are classified in the operating section of the income statement because they are basically an adjustment to deprecation, which is classified as an operating expense 21 (a) Grocery stores usually have a high asset turnover and a low profit margin This is typical in industries that have high sales relative to assets and are in an industry where there are many competitors (b) Railway companies normally have a low asset turnover because they are so capital intensive To compensate for this, companies such as these need to have a high profit margin which is typical in an industry that is hard to enter due to high capital barriers 22 The return on assets ratio measures the return being generated by each dollar invested in the business (profit ÷ average total assets) The return on assets can also be calculated by multiplying the profit margin by the asset turnover ratio The profit margin measures how effective the business is at generating profit from its sales and the asset turnover measures how well the company can generate sales from a given level of assets Together, the two ratios can be combined to measure how effective a company is at generating profit from a given level of assets (return on assets) Therefore, if a company wants to improve its return on assets, it can so either by increasing the margin it generates from each dollar of sales (profit margin) or by increasing the volume of goods that is sells (asset turnover) Solutions Manual 9-9 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Answers to Questions (Continued) 23 ($ in millions) 2012 2011 Return on assets $403 = 18.0% $2,244 $383 = 16.3% $2,343 Asset turnover $2,226 = 1.0 times $2,244 $2,012 = 0.9 times $2,343 Tim Hortons’ return on assets and asset turnover ratios improved in 2012 compared to 2011 Solutions Manual 9-10 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BYP 9-4 (Continued) (f) The asset turnover ratio is calculated by dividing sales revenue by average total assets Next year, the numerator is not expected to change If the company is not planning to purchase any new rigs or other assets, because these assets are depreciated each year, their carrying amounts will fall and consequently, the denominator of this ratio will decline while the numerator remains constant Therefore the asset turnover ratio will rise Normally an increase in this ratio would lead one to conclude that the company is generating more revenues with its assets, but in this case the increase simply means that the company has decided not to replace some of its aging assets Solutions Manual 9-79 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BYP 9-5 ETHICS CASE (a) The stakeholders in this situation are: Benny Benson, president of Imporia Container Ltd Yeoh Siew Hoon, controller The shareholders and creditors of Imporia Container Ltd Potential investors and creditors in Imporia Container Ltd (b) Profit before income tax in 2015 (the year of change) will increase by implementing the president’s proposed changes because increasing the useful life and residual value will decrease the depreciation expense The change will not affect profit for 2014 (c) The proposed changes in useful life and residual value, will increase the profit margin because the depreciation expense has been reduced, causing the increased profit The proposed change will also cause an overstatement of the average assets without changing net sales An increase in average assets decreases the asset turnover (d) The intentional misstatement of the life and residual value of an asset is unethical for whatever the reason and would represent an attempt at profit manipulation There is nothing unethical about changing the estimate either of the life of an asset or of an asset’s residual value if the change is an attempt to better reflect the pattern of consumption of economic benefits In this case, it appears from the controller’s reaction that the revisions in the life and residual value are intended only to improve profit, which would be unethical Solutions Manual 9-80 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BYP 9-6 “ALL ABOUT YOU” ACTIVITY (a) Option 1: $760.54 × 36 months = $27,379.44 total costs incurred $27,379.44 – $25,000 = $2,379.44 costs of financing (b) Option (lease): $608.43 × 36 months = $21,903.48 total costs incurred (c) Option (purchase): $21,903.48 (from (b) above) + $7,500 = $29,403.48 total costs incurred You would own the three year old truck after having purchased it for $7,500 (d) Option of leasing the truck with no purchase at the end of its useful life appears, at least initially, to be the least expensive alternative However at the end of three years, you not own a truck Option 1, purchasing the truck rather than leasing it, would appear to be a reasonable choice as you own the truck that you can continue to use for a number of years without making any additional loan payments beyond the three year loan period Solutions Manual 9-81 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition BYP 9-7 SERIAL CASE (a) The following costs should be capitalized: Purchase price of ovens $30,000 Purchase price of new refrigerator 8,500 Plumbing upgrade 1,750 Electrical upgrade 2,450 Shipping ($500 × 3) 1,500 Total costs to be capitalized $44,200 The additional insurance and painting of the walls should be expensed during the year (b) Sep 1 Depreciation Expense Accumulated Depreciation—Equipment ($5,000 ÷ × 2/12 = $167) 167 Accumulated Depreciation—Equipment Loss on Disposal Equipment 3,667 1,333 167 5,000 Accumulated depreciation—equipment: [($5,000 ữ 5) ì 3.5] + $167 = $3,667 (c) Sept Equipment Prepaid Insurance Repair and Maintenance Expense Cash 44,200 1,200 3,850 49,250 Solutions Manual 9-82 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS – (b) Date Aug 3 10 14 21 31 31 Account Titles Debit Office Expense Rent Expense Cash 20,000 3,600 Notes Receivable Accounts Receivable 100,000 Accounts Receivable Sales 500,000 Cost of Goods Sold Merchandise Inventory 270,000 Allowance for Doubtful Accounts Accounts Receivable 70,000 Cash Sales Discounts ($300,000 × 2%) Accounts Receivable 294,000 6,000 Cash Accumulated Depreciation—Equipment Loss on Disposal Equipment 6,000 36,169 1,831 Income Tax Expense Cash 10,000 Patents Cash 24,000 Cash Sales 75,000 Cost of Goods Sold Merchandise Inventory 35,000 Credit 23,600 100,000 500,000 270,000 70,000 300,000 44,000 10,000 24,000 75,000 35,000 Solutions Manual 9-83 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (b) (Continued) Date Aug 31 31 31 31 31 31 Account Titles Debit Interest Expense Bank Charges Expense Cash 1,500 1,130 Bad Debts Expense Allowance for Doubtful Accounts [$320,000 – ($300,000 – $70,000) = $90,000] 90,000 Depreciation Expense Accumulated Depreciation—Equipment ($150,000 ữ ì 1/12 = $3,125) 3,125 Salaries Expense Cash 100,000 Interest Receivable Interest Revenue ($100,000 × 8% × 1/12) 667 Amortization Expense Accumulated Amortization—Patents ($24,000 ữ ì 1/12 = $400) 400 Credit 2,630 90,000 3,125 100,000 667 400 Solutions Manual 9-84 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (a) and (c) Cash July 31, 2015 170,000 Aug 23,600 Aug 294,000 14 10,000 10 6,000 21 24,000 31 75,000 31 2,630 31 100,000 Aug 31 Bal 384,770 Accounts Receivable July 31, 2015 Aug Aug 31 Bal 2,700,000 Aug 500,000 100,000 70,000 300,000 2,730,000 Allowance for Doubtful Accounts Aug 70,000 July 31, 2015 Aug 31 Aug 31 Bal 300,000 90,000 320,000 Interest Receivable Aug 31 667 Aug 31 Bal 667 Notes Receivable Aug 100,000 Aug 31 Bal 100,000 Solutions Manual 9-85 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (a) and (c) (Continued) Merchandise Inventory July 31, 2015 270,000 31 35,000 July 31, 2015 194,000 Aug 10 44,000 Aug 31 Bal 150,000 Aug 31 Bal 500,000 Aug 195,000 Equipment Accumulated Depreciation—Equipment Aug 10 36,169 July 31, 2015 31 Aug 31 Bal 73,669 3,125 40,625 Patents Aug 21, 2015 24,000 Aug 31 Bal 24,000 Accumulated Amortization—Patents Aug 31 400 Aug 31 Bal 400 Solutions Manual 9-86 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (a) and (c) (Continued) Accounts Payable July 31, 2015 Aug 31 Bal July 31, 2012 1,009,000 1,009,000 260,000 Bank Loan Payable July 31, 2015 Aug 31 Bal 350,000 350,000 Common Shares July 31, 2015 Aug 31 Bal 300,000 300,000 Retained Earnings July 31, 2015 Aug 31 Bal 1,531,331 1,531,331 Sales Aug 31 Aug 31 Bal 500,000 75,000 575,000 Solutions Manual 9-87 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (a) and (c) (Continued) Sales Discounts Aug Aug 31 Bal 6,000 6,000 Interest Revenue Aug 31 667 Aug 31 Bal 667 Cost of Goods Sold Aug 270,000 Aug 31 35,000 Aug 31 Bal 305,000 Depreciation Expense Aug 31 3,125 Aug 31 Bal 3,125 Amortization Expense Aug 31 400 Aug 31 Bal 400 Salaries Expense Aug 31 100,000 Aug 31 Bal 100,000 Solutions Manual 9-88 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (a) and (c) (Continued) Bad Debts Expense Aug 31 90,000 Aug 31 Bal 90,000 Office Expense Aug 20,000 Aug 31 Bal 20,000 Rent Expense Aug 3,600 Aug 31 Bal 3,600 Bank Charges Expense Aug 31 1,130 Aug 31 Bal 1,130 Interest Expense Aug 31 1,500 Aug 31 Bal 1,500 Loss on Disposal Aug 10 1,831 Aug 31 Bal 1,831 Income Tax Expense Aug 14 10,000 Aug 31 Bal 10,000 Solutions Manual 9-89 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (d) CLEAR IMAGES LTD Trial Balance August 31, 2015 Cash Accounts receivable Allowance for doubtful accounts Notes receivable Interest receivable Merchandise inventory Equipment Accumulated depreciation—equipment Patents Accumulated amortization—patents Accounts payable Bank loan payable Common shares Retained earnings Sales Sales discounts Interest revenue Cost of goods sold Depreciation expense Amortization expense Salaries expense Bad debts expense Office expense Rent expense Bank charges expense Interest expense Loss on disposal Income tax expense Debit $ 384,770 2,730,000 Credit $ 320,000 100,000 667 195,000 150,000 40,625 24,000 400 1,009,000 350,000 300,000 1,531,331 575,000 6,000 667 305,000 3,125 400 100,000 90,000 20,000 3,600 1,130 1,500 1,831 10,000 $4,127,023 000000000 $4,127,023 Solutions Manual 9-90 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (e) (1) CLEAR IMAGES LTD Income Statement Month Ended August 31, 2015 Sales Less: Sales discounts Cost of goods sold Gross profit Operating expenses Salaries expense Bad debts expense Office expense Rent expense Bank charges expense Depreciation expense Amortization expense Loss on disposal Total operating expenses Profit from operations Other revenues and expenses Interest revenue Interest expense Total other revenues and expenses Profit before income tax Income tax expense Profit $575,000 6,000 $569,000 305,000 264,000 $100,000 90,000 20,000 3,600 1,130 3,125 400 1,831 220,086 43,914 $ 667 (1,500) (833) 43,081 10,000 $ 33,081 Solutions Manual 9-91 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition COMPREHENSIVE CASE: CHAPTERS 3–9 (Continued) (e) (2) (Continued) CLEAR IMAGES LTD Statement of Changes in Equity Month Ended August 31, 2015 Balance, August Profit Balance, August 31 Common Shares $300,000 0000 000 $300,000 Retained Earnings $1,531,331 33,081 $1,564,412 Total Equity $1,831,331 33,081 $1,864,412 (3) CLEAR IMAGES LTD Statement of Financial Position August 31, 2015 Assets Current assets Cash Accounts receivable Less: Allowance for doubtful accounts Interest receivable Notes receivable Merchandise inventory Total current assets Property, plant and equipment Equipment Less: Accumulated depreciation Intangible assets Patents Less: Accumulated amortization Total assets $ 384,770 $2,730,000 320,000 $150,000 40,625 $24,000 400 2,410,000 667 100,000 195,000 3,090,437 109,375 23,600 $3,223,412 Liabilities and Shareholders’ Equity Liabilities Accounts payable Bank loan payable Total liabilities Shareholders’ equity Common shares Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity $1,009,000 350,000 $1,359,000 $ 300,000 1,564,412 1,864,412 $3,223,412 Solutions Manual 9-92 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited Kimmel, Weygandt, Kieso, Trenholm, Irvine Financial Accounting, Sixth Canadian Edition Legal Notice Copyright Copyright © 2014 by John Wiley & Sons Canada, Ltd or related companies All rights reserved The data contained in these files are protected by copyright This manual is furnished under licence and may be used only in accordance with the terms of such licence The material provided herein may not be downloaded, reproduced, stored in a retrieval system, modified, made available on a network, used to create derivative works, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the prior written permission of John Wiley & Sons Canada, Ltd (MMXV iv F3) Solutions Manual 9-93 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying, distribution, or transmission of this page is strictly prohibited ... Goodwill $ 5,860 $53,1 49 22,467 $166,756 85 ,93 6 $1 89, 730 101 ,96 1 $28 ,91 6 10, 191 30,682 80,820 87,7 69 205,131 18,725 499 19, 224 42,426 EXERCISE 9- 12 Company A: Costco (retail) Company... assets $ (9. 4) = (35.7)% $26.3 $1,383.8 = 10.4 % $13, 299 .5 $26.3 $88.7 + $105.6 � � = 0.3 times $13, 299 .5 $8,2 19. 2 + $7,360.4 � � = 1.7 times $ (9. 4) $88.7 + $105.6 � � = (9. 7)% $1,383.8 $8,2 19. 2 +... Accumulated Depreciation—Equipment ($70,000 × 33% × 10/12 = $ 19, 250) 19, 250 70,000 19, 250 Solutions Manual 9- 39 Chapter Copyright © 2014 John Wiley & Sons Canada, Ltd Unauthorized copying,