Case International Inc. Skip to main content. Paperback More Buying Choices 4. Add To Cart. Intermediate Accounting Kieso Weygandt Warfield 15th edition solutions manual.
Solution Intermadiate accounting: Belajar akuntansi banyak yang bilang membingungkan, namun jika dipelajari dengan sungguh sungguh tentunya semua akan berjalan dengan mudah. How is Chegg Study better than a printed Intermediate Accounting, Volume 1 student solution manual from the bookstore?
Solutions Manual for Intermediate Accounting Volume 1. Intermediate Accounting Volume 1 7th Edition Solution Solution manual-intermediate-accounting-volume There will be no problem with using IFRS for a private company. Ineed, it is wise to use IFRS if a future public offering or listing is anticipated.
Special purpose reports can always be prepared for specific users. They cannot be issued publicly, however. Assignment WEB Dear Manager: International Financial Reporting Standards IFRS became the required reporting standard for public companies starting in , including comparative statements for the year earlier, which really made the required date for compliance. Since your company is privately-held, you have some options. One option is to use IFRS as planned, especially since your company is ready for it.
The differences are mainly in some measurement and disclosure requirements that are more appropriate for public companies than for the more limited user group of private company statements. That way, you will be in a position to receive an unqualified audit opinion, if you do engage an auditor. Assignment 1.
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. The choice would seem to be between U. Three of the potential investors are U. However, U. If the investors are negotiating with Moonburst, they probably are already well aware of Canadian standards. The company can prepare special-purpose statements for the investment firms, if necessary.
There seems to be no reason 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. Canadian dollars should be the reporting currency. 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.
A disclosed basis of accounting might be most appropriate, although reporting on the basis of Canadian accounting standards for private enterprises also can be appropriate. CEC is a private Canadian company with extensive operations in the U. FASB standards i. GAAP are designed for public companies and international standards have no advantage in this situation; thus, neither is suitable for CEC.
CCL 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 fund. Since the company is searching for funds internationally, Canadian GAAP statements will be unfamiliar to potential investors. However, all of these sources are quite weak: 1. An industry guide is likely to be biased in favour of enhancing the industry.
Thistle is using a complex series of third parties and agents in its revenue-generating activities. Objective observers may well wonder whether Thistle is being ethical in its revenue recognition policy.
Therefore, it behooves Thistle to give full disclosure of its accounting policies, estimates, and disclosures in order to give comfort to financial statement readers. Management should be cautioned to exercise some restraint when selecting a revenue recognition policy. Information that is decision-useful to capital providers may also be useful to other users of financial reporting who are ot capital providers.
These objectives are very broad and applications of accounting standards can still be affected by the entity-specific objectives of financial reporting. A summary follows: Policy. Revenues and expenses recognized close to the related cash flows. Extensive disclosure notes regarding cash flow.
Maximize expenses in a loss year big bath. Spread out revenues and expenses to reduce profit variation smoothing. Defer revenues as long as possible. Recognize expenses as soon as possible. As long as policies also acceptable for tax.
Maximize or minimize variables specified in contract. Comply with policies required by contracts. Accelerated deprec. Capital lease Accelerated deprec. Expense Expense. Without common standards, transnational or multinational companies would have to comply with different accounting standards in each country in which they operate.
Common international standards reduce that cost and inconvenience. Common standards also help international accounting firms because staff can be transferred around the world without special training, and the general quality of professional education, staff training, and audit work can be improved and made more consistent.
Common standards facilitate financial statement transparency and compliance with security regulations. IFRS has been adopted for public reporting by most countries, with the current exception of the U. By adopting IFRS for public companies, the AcSB has made the international capital markets more accessible to Canadian companies because now Canadian companies will report with the same standards as everone else instead of unique standards that may not be understood outside of Canada.
Overall, this is good for Canada in an international context. Setting the agenda Planning the project Developing and publishing the discussion paper Developing and publishing the exposure draft Developing and publishing the standard After the standard is issued.
The last stage can properly be viewed by students as not being a part of developing the standard, and thus a satisfactory response will focus on the first five stages. Setting the agenda. Items are added to the agenda after receiving suggested topics from staff, from the Standards Advisory Council, from national standard-setting bodies, and from the corporate sector. After deliberation, the IASB decides which topics merit development and which ones either are already covered adequately by current standards or are not of sufficient economic importance to be added to the agenda.
Planning the project. The IASB decides how to go about developing a potential new standard. The IASB may decide to develop a new standard on its own, or the Board may invite other standardsetting bodies e. FASB to enter into a cooperative development plan. The paper typically includes: a comprehensive overview of the issue; possible approaches in addressing the issue; the preliminary views of its authors or the IASB; and an invitation to comment.
Exposure draft Issuance of an exposure draft is a mandatory step in the process. After the IASB collects and analyzes responses to its discussion paper, the Board begins deliberations that lead to an exposure draft, which is a draft of a proposed final standard.
Issuance of the ED is followed by a limited comment period. Final standard After the comment period on the ED has ended, the Board considers the received comments and may make slight changes to the ED. Board members then vote on the proposed standard. If the new standard is accepted, the Board then publishes the final standard. After the standard Assignment Dear Ms. I am not yet an accounting expert, but I did learn in my accounting course that since our company is a public company, our financial statements should comply with Canadian generally accepted accounting principles.
Canadian public companies should comply with IFRS, the international standards. IFRS offers flexibility in some instances. However, for research and development costs, both IFRS and Canadian private-company GAAP require research costs to be expensed while development costs can be capitalized. Since the company is publicly traded, an unqualified audit opinion is necessary. Sometimes, a company will prepare a special-purpose report.
In a special-purpose report, full compliance with GAAP is not a requirement. The problem is that you wish to report higher earnings to the shareholders. Unfortunately a special-purpose report will not be possible if it is to be given general distribution. 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,. C and D A C and D B D and perhaps C, if revenue would be recognized earlier A and perhaps C, if payment is later than the time that expense recognition would otherwise be appropriate. Depreciation on idle properties could be viewed as an indication of opportunity cost.
Assignment Underlying assumptions Qualitative characteristics Concepts identification Capital maintenance Relevance and reliability Questions on principles Realization versus recognition Recognition of elements Elements of financial statements Revenue recognition Recognition and elements Application of principles Implementation of principles Recognition criteria Accounting principles include: a Underlying assumptions — basic underlying assumptions that make accounting possible.
Ethical professional judgement is important in accounting because of the pervasiveness of choice in accounting policy and estimates. The credibility of accounting information rests on appropriate judgement, applied to be fair to all stakeholders. Time-period—financial information can be reported over a series of time spans shorter than the total life of the enterprise. Separate-entity—financial reports relate to the activities of the business enterprise separate from its owners.
Continuity—the business entity will continue in operations for the foreseeable future going concern assumption. Proprietary approach—results are reported from the perspective of the owners, who hold residual return and risk.
Unit-of-measure—results can be meaningfully expressed in monetary terms. Nominal dollar financial capital maintenance—profits are earned after historical cost is recovered; neither general inflation nor specific changing prices are considered. The time-period assumption requires accruals and deferrals in accounting because cash transactions are not always completed in the accounting period to which the underlying transaction relates.
Accruals and deferrals move income recognition to the year to which they relate. Accruals record revenues and expenses for which there have as yet been no cash transaction; deferrals delay recognition of revenues and expenses. If this assumption is not valid, assets should be valued at net recoverable amounts.
Owners are viewed as the residual risk-takers in the proprietary view; they receive the residual profit or loss, after all other claims are met. Under the entity view, the shareholders are only one of several stakeholders in the financial success of an entity.
Inflation is a major factor when dealing with the nominal dollar financial capital maintenance assumption. This presumes that income has been earned when the financial capital invested in an item, not adjusted for inflation, has been recouped. The stable dollar assumptions is made. This would be an application of constant dollar financial capital maintenance. Financial capital maintenance is the concept that residual and distributable income remains only after preserving financial capital; the closing amount of net assets must exceed the amount at the start before net income is present.
In contrast, physical capital maintenance is the concept that residual income results only after preserving physical capital or productive capacity. The difference between the two concepts relates to the amount of income earned through a given transaction. Income is earned as long as the amount need for physical capital inventory replacement value is retained. The two fundamental characteristics of accounting information are: 1 Relevance—accounting measurements must be useful to the needs of financial statement users for making decisions.
To be relevant, information must be presented in a timely fashion. However, in many instances, accuracy i. Such a delay makes the information less relevant, however, because it comes too late for effective decision-making by users. The statement is not true. Accounting measures complex economic phenomona and the results cannot be understood unless the financial statement user is reasonably knowledgeable about 1 business and economic activities and 2 accounting concepts and measurement methods.
Users who are not sophisticated or knowledgeable about accounting, they are expected to hire experts who will provide interpretation and advice. Comparability is the ability to ascertain differences and similarities between two pieces of information. Consistency eliminates differences between years, as it requires entities to use the same policies from year to year. Uniformity eliminates differences between companies, as it requires different companies to use the same policies for similar transactions, if all circumstances are similar.
The definitions of assets and liabilities embody three components and three time frames:. A revenue is derived from ordinary business activities of the enterprise; a gain arises from peripheral or incidental transactions or events. Recognition means recording a transaction or event in the books, while realization means cash flow. Realization always triggers simultaneous recognition because cash transactions require immediate recognition in the accounts.
Ethical professional judgement is a necessary element in the process of selecting accounting policies. Cases Case Overview Essentially, this case requires students to perceive how the reporting environment of a company has changed.
A private company has tapped new sources of financing in order to meet competition, and those sources are imposing a GAAP constraint on the company for the first time. A good response should be in report format. The case also can be used later in the course, following Chapter 9 or Congratulations on obtaining the necessary financing for your new and expanded facilities and processes.
Dubois Limited has been a private enterprise since its inception. As a private enterprise, it has not been necessary for your company to provide financial statements to external users, except perhaps occasionally to a bank for a credit line or a short-term loan. Although you are still a private company, Dubois will henceforth be required to provide audited financial statements to the Mangle Group, prepared on the basis of generally accepted accounting principles.
As well, you have an arrangement with a major bank to provide substantial secured working capital support. In the past, you probably prepared financial statements primarily for your own assessment of operations and for income tax purposes. So far as you indicated, you had no external users of your financial statements other than CRA. Clearly, that situation has changed. Both Mangle and the bank will be quite interested in cash flow prediction, since the cash flow will provide dividends for Mangle and debt service for the bank.
The bank most likely will not object to increasing assets and credit based on those assets as long as the cash flow remains strong. Dubois will no longer be able to use accounting measurement methods that are not generally accepted. For example, the company must begin to use acceptable depreciation methods for its tangible capital assets. Impairment tests will still be relevant, but those tests will not eliminate the need for systematic depreciation.
Company managers must be able to show the auditors suitable rationales for their many estimates used in preparing the financial statements. There remains the question of selecting the most appropriate accounting and reporting basis. Dubois is still a private company, although some directors indicate that Dubois may issue share to the public in the future. My advice is to use ASPE for the foreseeable future. ASPE has far fewer reporting requirements and more closely corresponds to the historical-cost accounting that Dubois has been using.
As well, the financial statements are simpler and will be quite adequate for Mangle and the bank. I see little reason to use IFRS at present, however. I am very glad to be of assistance. If I can provide any additional information or advice, please contact me at Sincerely, G.
Case Overview BLX Shipping Limited is a public company with considerable incentive to manipulate financial results. The company had to restate prior earnings, and they replaced the CFO. The container shipping industry in which they operate is highly price competitive and cyclical. There may be ethical issues in the accruals and estimates used. Issues — Accounting policy for: 1. Revenue recognition 2. Dry-docking expenditures Analysis.
Revenue is recognized when all significant acts of the seller have been performed, consideration is measurable and collection is reasonably assured. There do not seem to be any direct concerns about these criteria, except that the costs associated with the revenues must be measured. Actual invoices for costs are slow to surface. Because of the distance — and perhaps cultures — involved, time spans are long for receiving actual cost data. One of the recognition criteria is that items must be measurable to be recognized.
If costs are not measurable, they cannot be recognized. Accrued liabilities are improperly stated if not completely measured. Matching cannot be accomplished unless costs are accrued to match to revenue.
On one hand, management may be well qualified to make estimates, and since revenue has clearly been earned in the year delivery has been made the financial statement reader is better informed with the revenue recongnized as it is now. On the other hand, the material restatement of prior years provides evidence that management has not always been correct in their estimates.
While the mis-estimate was flagged as related to unsettled industry conditions and adverse exchange rates, this can hardly be viewed as unusual in the industry or world economy. Concern about the policy chosen seems justified. One wonders whether management was acting ethically, and whether the replacement of the CEO was somehow related. Financial statement readers may be misled by the trends in revenue and net income shown that include the accrued amounts. See the discussion below.
The company defers and amortizes dry-dock expenditures. One can argue that the expenditures create future benefit in that they ensure that the vessels are in working order until the next scheduled dry-dock. Since dry-dock costs are sporadic, matching is better served by deferral and amortization. Future revenue from the vessel establishes the future benefit. On the other hand, regular maintenance does not make.
Recognition criteria are not met because future benefit is not proven. Deferred costs are an an internally developed intangible asset. Standards in the area must be reviewed and satisfied if amounts are to be capitalized. Here, the product is defined and the costs appear to be known. Probable future revenue is likely present. However, deferred costs do not qualify for deferral because there is only an asset if there is a severable asset, or one created through contractual right or legal contract.
This is problematic for this type of cost. Note that this material is the subject of later text discussion and may not be cited by the student at this point.
Accrual of the costs in advance of dry-docking is even more problematic. BLX would need to estimate the future cost of dry-docking. Given the erratic history of the dry-docking expenditures, estimation would be fraught with difficulties, and also an invitation to unethical manipulation with intent conscious or subconscious to affect net income. Impact on revenue and net income. Refer to Exhibit 1 for restated revenue and net income.
Revenue from contracts for which costs are not known is apparently up and down. Trends are changed when one adjusts this revenue, delaying it until the following year when costs would presumably become known. It should be emphasized that, since the reported numbers are based on containers actually delivered to customers, the originally reported numbers are a better indication of the effort expended in the year.
However, the reasons for the volatility of accruals is not clear. In particular, there appears to be a wide range associated with the cost of services accrued. The low cost percentage in 20X5 is suspicious because it is out of line with prior years.
Dry-docking cost is sporadic, and amortization is a smoother pattern. If dry-docking is expensed as incurred, the overall pattern of net income is less smooth. Overall, when both revenue and dry-docking costs are adjusted, net income becomes far more volatile, with losses recorded in two years 20X5 and 20X3 and higher net incomes in the other two years. Perhaps accounting policies are being used to smooth income, a result that might have unethical overtones.
Conclusion An individual investor is in no position to change the accounting policies of a company. Their task is to understand the implications of these policies. For BLX, accrual of revenue where costs are unknown may or may not be defensible. Dry-docking costs appear to fail the recognition tests and are more approriately expensed.
The outcome of the two chosen policies is that the financial statement reader might believe that BLX had more stable revenue and earnings history that the underlying economics of the industry might support. Knowledgeable readers and efficient markets should not be fooled by this, and the reduced stock price in the current year might indeed reflect current economic realities for the company.
Case SpaceSat Limited is a federally regulated monopoly in the communications industry; as such, we are politically visible and interested in full accountability. We have to give recognition to the public interest. Financial statement users include investors, creditors, and the general public. The ethical issue for the company is whether to perform the clean-up.
The Board of Directors should be kept fully informed so as to make this important decision, in the best interests of all stakeholders. Accounting for the potential disposal costs of obsolete satellites is under consideration.
The alternatives are: Do nothing. Disclose the situation and the potential for liability. Record an estimated liability. The definition of a liability is met a future sacrifice of economic benefits based on past transactions.
There is an appropriate basis of measurement, for which a reasonable estimate can be made. The sacrifice of benefits is probable. Cleanup costs based on past use and abandonment of a satellite would clearly require the sacrifice of economic benefits, or the outflow of cash or other resources to fund a cleanup as a result of a past transaction.
Thus, these costs meet the definition of a liability. The basis of measurement would be the cost of the cleanup program or its present value , but the availability of a reliable estimate is a problem to be faced.
Another problem is criteria 3, the probability of a cleanup being necessary. Payment is probable if the cleanup is legistatively required or if the Baord of Directors had decided to commit to the cleanup. Following are the alternatives: 1. Do nothing: With this alternative, there would be no accrual and no disclosure. It would be appropriate if the probability of the liability is deemed so low that the liability should.
At present, there is no precedent for such a liability, as there is no legislation or court decision establishing the need for a cleanup.
This approach is consistent with the proprietary view of ownership interests, which focuses on direct costs paid by shareholders, and under which acknowledging other stakeholders affected by environmental problems is inappropriate. On the other hand, it can be argued that we have an ethical responsibility to take care of our waste problems.
This view is becoming the political norm, and the likelihood of future legislation is greater because of the prevailing social climate. Disclosure: Disclosure is appropriate for loss contingencies that are probable or indeterminable, in certain circumstances but for which no estimate is obtainable.
Since technology for cleanup is not yet established, any estimate for cleanup costs would be a guess. Financial statements should not be contaminated by unreliable numbers; otherwise, usefulness will suffer. Disclosure would demonstrate our social conscience, ensure that financial statement users are aware of the potential problem, and provide full public accountability. An estimate of cost ranges, if reasonably determinable, could be provided.
Investors, creditors, and the general public could be made aware of the situation and benefit from the information provided. It could be argued that disclosure goes too far—that to do nothing is still the best alternative. The probability of cleanup is remote, making note disclosure misleading and unnecessary; it might scare creditors and investors. Record liability: Note that if a liability is recorded, a debit must be created.
The result will be an expense over some period. This alternative is appropriate if the outflow of economic resources is probable and an amount is estimable. What is the likelihood of government legislation?
How strong is the corporate ethic that SSL is responsible for waste? Furthermore, an estimate would be needed, which may prove to be inaccurate. However, recording the liability would reflect a strong social ethic and be consistent with political visibility. It would match the cost of the eventual cleanup with the revenue generated currently.
This is the ethical high road. The negative points are that the liability may not be likely and that the amount is uncertain; therefore, it cannot be recorded.
Investors and creditors may be hurt if SSL is made to look risky or less profitable. This is especially true if the potential liability never materializes. Recommendation The overall assessment is that this potential future liability has the following characteristics: Probability—undeterminable Measurability—undeterminable.
It is often unwise to be totally silent on an issue that most reasonably informed investors are concerned about. Alternatively, due to the political environment in which we operate, disclosure could be considered very desirable. The situation should be monitored carefully. When and if the likelihood of payment becomes higher, strenuous efforts should be made to develop a cost estimate that can be recorded.
In this fashion, SSL can provide evidence of its social responsibility and corporate ethics. Qualitative criteria require that a measure be a faithfull representation of the value of the land, but also verifiable and free from material misstatement or bias.
Delaying the statements would most likely increase the accuracy of the accounts receivable and uncollectible accounts estimates. However, issuing statements six months after year-end definitely would decrease relevance—old information with little usefulness for predictive purposes; the following year is half over by that time. Completed contract does require far fewer estimates than percentage-of-completion, and therefore representational faithfulness is increased. On the other hand, the absence of any profitability information prior to completion definitely decreases relevance, giving the earnings information little predictive or confirmatory value.
As well, comparability is greatly impaired because other companies in the industry are using the percentage-completion method. There is no assurance that those assets will produce revenue-generating products, even though the company believes they will.
Costs were expenses when incurred due to the impossibility of estimating future revenues; revenues cannot be recognized until earned. The company should attempt to disclose of the nature of the assets rather than try to measure it by a highly biased and unverifiable quantitative measure.
In substance, a long-term rental arrangement, or lease, may be the same in substance as buying the asset and borrowing the money to finance the purchase.
When this is true, the financial statements show the rented asset as a capital asset, and the future rent payments as a liability. The resulting measurements have high representational faithfulness because the asset and liability reflect the true substance of the long-term leases. Assets that increase in value are not written up in the financial statements. Means consciously understating assets and income. Warranty expense that takes place two years after a sale is accrued in the earlier period of the sale.
A complicated accounting method that will not improve decisions of financial statement users will not be required in the financial statements. Information must be verifiable. Determines the timing of recognition of revenues. Distinguishes personal transactions of the owners from transactions of the business. Enables historical cost, rather than liquidation values, to be used.
Enables measurement of the income and financial position of entities at regular intervals. Requires recognized and many non-recognized items to be fully described in the notes to the financial statements. Assumes that all financial statement elements can be meaningfully described in dollar terms. Assignment Requirement 1 Three measures of income: a. Only in alternative c is there enough money left to replace inventory.
In the first two cases, the company does NOT have enough money left over to replace inventory, and would have to raise additional capital to do so. Relevance is the characteristic of usefulness. Information should be useful for making decisions. Reliability includes several characteristics: representational faithfulness, verifiability, and freedom from bias. This investment portfolio can be reported at historical cost or at fair market value.
Tannino Ltd.
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