MGT 322 Assignment Summer 2015 Page 1 of 5 MGT 322 Summer 2015 Assignment (15%) Groups of two (MANDATORY). 12 page limit TNR 12 point, double spaced....

MGT 322 Assignment Summer 2015 Page 1 of 5

MGT 322 Summer 2015

Assignment (15%)

Groups of two (MANDATORY).

12 page limit TNR 12 point, double spaced.

Due: Beginning of last class

Question 1 (20%)

Wyoming Corp.is a public company and had the following events occur in 2014:

1. Early in 2014, Wyoming determined that equipment purchased in January 2012 for $124,000, with an estimated life of five years and residual value of $4,000, is now estimated to have a total seven year life (from the date of purchase), but will have only a $2,000 residual value. Wyoming is using straight-line depreciation for this equipment.

2. Wyoming discovered that depreciation expense had been understated by $17,000 in 2013, owing to the fact that an adjusting entry for depreciation on machinery was not recorded.

3. On January 1, 2011, Wyoming bought a truck for $108,000, with a $12,000 estimated residual value and a six-year life. At that time, the bookkeeper debited an expense account for this purchase. Wyoming uses straight-line depreciation for its trucks.

4. Wyoming, in reviewing its allowance for doubtful accounts during 2014, has determined that 1% of sales is the appropriate amount of bad debt expense to be recorded. The company had used 1.5% as its rate in 2013 and 2012 when the expense had been $14,000 and $10,000, respectively. Wyoming would have recorded $24,000 in bad debt expense for 2014 if they had used the old rate.

5. At the beginning of 2014, Wyoming decided to change from the average cost method of valuing inventories to FIFO, and used FIFO all during 2014 (perpetual system). They have determined that the opening inventory at January 1, 2014, which was $55,500 using average cost, would have been $52,500 using FIFO. Assume this change will make their financial statements as reliable and more relevant.

Required.

For each of the situations above, prepare the journal entry or entries required to adjust the accounts to the correct amounts. Ignore income taxes.

MGT 322 Assignment Summer 2015 Page 2 of 5

Question 2 (20%)

In 2014, the first year of its existence, Virginia Ltd.'s accountant, in preparing both the income statement and the tax return, developed the following list of items creating differences between accounting and taxable income:

1. The company sells its merchandise on an installment contract basis. In 2014, Virginia elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2014. These procedures created a $240,000 difference between book and taxable incomes for 2014. Future collections of installment receivables are expected to result in taxable amounts of $120,000 in each of the next two years.

2. The company depreciates all of its property, plant and equipment using CCA for tax purposes and straight-line for accounting purposes. This resulted in $42,000 excess CCA over accounting depreciation. This temporary difference will reverse equally over the three year period from 2015–2017.

3. On July 1, 2014, Virginia leased part of its building to Swift Books Ltd. on a two-year operating lease. The monthly rent is $30,000, and Swift paid the first year's rent in advance (July 1, 2014 to June 30, 2015). Virginia reported the entire amount on its tax return. This resulted in a $180,000 difference between book and taxable incomes.

4. Virginia sold $150,000 of bonds issued by the Government of Canada at a gain of $18,000, which was included as other income in its income statement. A taxable capital gain of $9,000 was reported for tax purposes.

5. In 2014, Virginia insured the lives of its chief executives. The premiums paid were $12,000 and this amount was shown as an expense on the income statement. However, this amount was not deductible for tax purposes.

Virginia is a publicly accountable enterprise adhering to IFRS. Their 2014 income statement showed "Income before income taxes" of $900,000. The currently enacted income tax rate (and for the foreseeable future) is 40%. Except for those items mentioned above, there are no other differences between book and taxable incomes.

Required

Prepare the required journal entries for the above information.

MGT 322 Assignment Summer 2015 Page 3 of 5

Question 3 (20%)

On January 1, 2014, Vermont Ltd. reported the following balances relating to their defined benefit pension plan:

Defined benefit obligation ............................................ $1,600,000

Fair value of plan assets ................................................ 1,600,000

Other data related to the pension plan for calendar 2014 are:

Current service cost ...................................................... 70,000

Past service cost ............................................................ 150,000

Contributions to the plan ............................................... 102,000

Benefits paid ................................................................. 100,000

Actual return on plan assets .......................................... 96,000

Interest (discount) rate .................................................. 9%

At December 31, 2014 the Defined benefit obligation was $ 2,500,000 as determined by an actuarial valuation. The fair value of the plan assets on that date was $ 2,600,000. The Company does not expect to realize any of the surplus in the plan.

Required:

Prepare and present the pension information for the December 31, 2014 financial statements using both ASPE and IFRS.

MGT 322 Assignment Summer 2015 Page 4 of 5

Question 4 – (10%)

Company D. provides the following information for 2014:

1. Net income $560,000

2. Capital structure:

a. Convertible 6% bonds. Each of the 300, $1,000 bonds is convertible into 50 common shares for the next 10 years 300,000

b. Common shares, 200,000 shares issued and outstanding during the entire year 2,000,000

c. Stock options outstanding to buy 16,000 common shares at $20 per share.

3. Other information:

a. Bonds converted during 2014 None

b. Income tax rate 30%

c. Convertible debt was outstanding the entire year

d. Average market price per common share during 2014 $32

e. Stock options were outstanding the entire year

f. Stock options exercised during 2014 None

Required:

Using IFRS standards calculate basic and diluted earnings per share for 2014.

Identify how the requirements in the calculation if ASPE was the framework.

MGT 322 Assignment Summer 2015 Page 5 of 5

Question 5 (30%)

The following two situations are not related to each other.

Situation 1 (5%)

Benson Ltd. (BL), a manufacturer of computer equipment, transferred computer equipment with a carrying value of $2,000,000 to Swanson Ltd. (SL) in return for an interest bearing note receivable in the amount of $2,800,000. The computer equipment transferred normally sells for $3,100,000. Mr. Jack Wood owns 70% of the shares of SL, a company that builds and repairs highways for the provincial government. Mr. Wood is also the President of BL.

Situation 2 (25%)

Johnson Limited (JL), a manufacturer of household products, owns 70 % of the outstanding common shares of White Ltd. (WL), a company that provides consulting services to a wide customer base. JL also owns 70% of Code Limited (CL), a company that is in the video game business. The other 30% of both companies are held by Dieter Limited (DL)—a company that sells insurance. During the current year, WL acquired land from CL on which it intends to build a new warehouse for an agreed exchange value of $1,300,000. The land had a carrying value of $1,000,000 in the records of CL and an estimated fair value of $1,450,000 which was supported by a recent independent appraisal. In exchange WL transferred equipment to CL with a carrying value of $ 900,000 and an estimated fair value of $ 1,050,000. WL also paid $ 250,000 cash to CL.

Required:

Assuming ASPE is the constraint provide journal entries on how all parties will record these transactions on their individual statements. The tax rate for all companies is 25% and they use the future tax method.

Briefly discuss how Situation 1 and 2 will be accounted for if IFRS was the constraint.