Assignment
Question 1
X-cell Inc. began operations on January 1, 2013. Its adjusted trial balance at December 31, 2014 and 2015 is shown below.
Other information regarding X-cell Inc. and its activities during 2015 follow in (a) through (e) :
Assume all accounts have normal balances.
a. $19,000 of the long-term notes payable will be paid during 2016.
b. Equipment was sold for cash of $17,200.
c. Old machinery was sold for cash of $21,400. New machinery was purchased for $41,000 cash.
d. Common shares were issued for cash.
e. Cash dividends were declared and paid.
X-cell Inc.Adjusted Trial Balance
December 31 20152014
Account
Accounts Payable 83,710 73,000
Accounts Receivable 57,700 79,500
Accumulated Depreciation, Equipment 1,300 81,500
Accumulated Depreciation, Machinery 9,500 91,000
Allowance for Doubtful Accounts 5,700 13,500
Depreciation Expense, Equipment 9,500 9,500
Depreciation Expense, Machinery 9,800 9,800
Cash 329,650 285,000
Cash Dividends 45,000 45,000
Common Shares 140,000 100,000
Equipment 9,300 118,000
Machinery 61,700 133,000
Merchandise Inventory 119,260 109,500
Long-term Notes Payable 77,720 90,000
Other Expenses (including losses) 740,000 30,000
Preferred Shares 178,000 178,000
Retained earnings 59,000 50,000
Revenues (including gains) 783,300 103,300
Unearned Revenue 43,680 39,000
Required:
Using the information provided, prepare a statement of cash flows (using the indirect method) for the year ended December 31, 2015 and a classified balance sheet at December 31, 2015.
Question 2
Ludwig Inc.'s adjusted trial balance is shown below. In addition, the following information is known:
• No shares were issued in the years ended December 31, 2013 and 2014.
• No dividends were declared or paid in the years ended December 31, 2013 and 2014.
• The market value for the common shares at December 31, 2013 and 2014 were $15 and $16 respectively.
Ludwig Inc.
Adjusted Trial Balance
December 31,
2014 2013 2012
Cash 595,050 412,850 146,500
Account receivable 40,600 32,950 31,675
Allowance for doubtful accounts 10,000 3,750 5,575
Merchandise inventory 42,500 41,900 39,900
Prepaid expenses 3,000 2,600 2,900
Notes receivable, due in 2019 13,000 15,500 13,500
Property, plant and equipment assets 371,250 405,725 516,650
Accumulated depreciation 91,250 90,725 126,650
Accounts payable 36,700 36,700 35,300
Unearned sales 5,200 4,500 4,500
Notes payable, due in 2020 60,000 68,000 70,000
Preferred shares; $1.00 non-cumulative; 100,000 shares 290,000 290,000 290,000
Common shares; 50,000 shares issued and outstanding 170,000 170,000 170,000
Retained earnings 247,850 49,100 7,400
Sales 1,226,400 1,038,6001,286,500
Cost of goods sold 849,400 604,100 1,099,600
Other operating expenses 167,700 201,800 124,800
Interest expense 8,900 8,750 7,600
Income tax expense 46,000 25,200 12,800
Ratio20142013 Change Ind. AverageComparison
Current ratio 13.26
Acid-test ratio 16.15
Accounts receivable turnover 36.75
Merchandise turnover 21.34
Days' sales uncollected 7.78
Days' sales in inventory 19.41
Total asset turnover 1.44
Debt ratio 12.68
Equity ratio 87.32
Times interest earned 21.29
Profit margin 13.26
Gross margin 26.93
Return on total assets 14.44
Return on common shareholders' equity 26.07
Book value per common share 12.91
Book value per preferred share 2.42
Basic earnings per share 3.25
Price-earnings ratio 5.93
Accounts Payable Turnover 18.60
Required:
Industry averages for each ratio are shown in the table above. Use this information to complete the chart above by calculating the required ratios, determining if the change from the previous year is favourable or unfavourable, and then determining whether the each ratio (for 2014) is favourable or unfavourable compared to the industry average. If there is no change to 2 decimal places, select 'No change' if comparing from year to year, or 'The same as' if comparing to the industry average. All values should be accurate to at least two decimal places.
Question 3
1.The IASB has authority for setting Canadian accounting standards.
2.All Canadian corporations must comply with international accounting standards.
3.Most Canadian corporations are listed on the Toronto Stock Exchange.
4.IFRS must be used for the financial statements of every Canadian public corporation.
5.The objective of general purpose financial reporting is to serve the information needs of a wide variety of users, including lenders, shareholders, employees, and regulators.
6.The primary objective of financial accounting is to reveal all information about an enterprise's financial performance.
7.If a corporation has a restrictive bond covenant that specifies a minimum times-interest-earned ratio, the corporation's management will be motivated to pick discretionary accounting policies that maximize income.
8.Income tax law has no impact on the accounting choices made by management.
9.The presence of a control block can have an impact on a public company's choice of accounting policies.
10.Any Canadian company that uses U.S. GAAP must prepare its statements in U.S. dollars.
11.IFRS and the CPA Canada Handbook, Part II, have equal status in Canada for financial reporting.
12.In a private corporation, the needs of external users have no impact on the company's financial reporting objectives.
13.Canadian companies must always prepare their annual financial statements in Canadian dollars.
14.Canadian accounting standards are set by the Canada Business Corporations Act.
15.The debt and equity securities of a private company cannot be traded on public exchanges. Therefore, private companies have no external sources of financing.
16.A company may take a "big bath" in a loss year if management wishes to maximize future earnings.
17.A public company may not use a disclosed basis of accounting for external public financial reporting.
18.When an enterprise's primary reporting objective is cash flow assessment, the enterprise will use a cash basis of reporting rather than an accrual basis.
19.Any Canadian company may use IFRS.
20.The IASB cannot require transnational corporations to use IFRS.
21.A private company based in Canada must follow the recommendations of the CPA Canada Handbook, Part II.
22.A company that reports in U.S. dollars must use U.S. accounting standards.
23.A company cannot report under Canadian accounting standards unless it uses Canadian dollars as the unit of presentation in its financial statements.
24.A Canadian company that is listed on the TSE may use U.S. accounting standards.
25.All companies listed on the NYSE must use U.S. accounting standards.
Required:
Indicate whether each statement is true or false.
Question 4
Carleton Builders Ltd. recorded the following summarized transactions during the current year.
a. The company originally sold and issued 100,000 common shares. During the current year, 94,000 of these shares were outstanding and 6,000 were repurchased from the shareholders and retired. Near the end of the current year, the Board of Directors declared and paid a cash dividend of $8 per share. The dividend was recorded as follows:
|
General Journal
|
Debit
|
Credit
|
|
Retained earnings
|
800,000
|
|
|
Cash ($8 × 94,000)
|
|
752,000
|
|
Dividend income ($8 × 6,000)
|
|
48,000
|
b. Carleton Builders Ltd. purchased a machine that had a list price of $90,000. The company paid for the machine in full by issuing 10,000 common shares (market price = $8.50). The purchase was recorded as follows:
|
General Journal
|
Debit
|
Credit
|
|
Machine
|
90,000
|
|
|
Share capital ($8.50 × 10,000)
|
|
85,000
|
|
Gain on purchase of equipment
|
|
5,000
|
c. Carleton needed a small structure for temporary storage. A contractor quoted a price of $769,000. The company decided to build the structure itself. The cost was $542,000, and construction required three months. The following entry was made:
|
General Journal
|
Debit
|
Credit
|
|
Buildings-warehouse
|
769,000
|
|
|
Cash
|
|
542,000
|
|
Revenue from self-construction
|
|
227,000
|
d. Carleton owns a plant located on a river that floods occasionally. A severe flood occurred during the current year, causing an uninsured loss of $97,000 (measured as the amount spent to repair the flood damage). The following entry was made:
|
General Journal
|
Debit
|
Credit
|
|
Retained earnings, flood loss
|
97,000
|
|
|
Cash
|
|
97,000
|
e. On 28 December, the company collected $76,000 cash in advance for merchandise to be shipped in January. The company's fiscal year-end is 31 December. This transaction was recorded on 28 December as follows:
|
General Journal
|
Debit
|
Credit
|
|
Cash
|
76,000
|
|
|
Sales revenue
|
|
76,000
|
Required:
For each transaction, select which accounting principle was violated.
a. The company originally sold and issued 100,000 common shares. During the current year, 94,000 of these shares were outstanding and 6,000 were repurchased from the shareholders and retired. Near the end of the current year, the Board of Directors declared and paid a cash dividend of $8 per share.
1. Revenue principle and representational faithfulness
2. Cost principle and revenue recognition
3. Cost principle
4. Representational faithfulness
b. Carleton Builders Ltd. purchased a machine that had a list price of $90,000. The company paid for the machine in full by issuing 10,000 common shares (market price = $8.50).
1. Revenue principle and representational faithfulness
2. Cost principle and revenue recognition
3. Cost principle
4. Representational faithfulness
c. Carleton needed a small structure for temporary storage. A contractor quoted a price of $769,000. The company decided to build the structure itself. The cost was $542,000, and construction required three months.
1. Revenue principle and representational faithfulness
2. Cost principle and revenue recognition
3. Cost principle
4. Representational faithfulness
d. Carleton owns a plant located on a river that floods occasionally. A severe flood occurred during the current year, causing an uninsured loss of $97,000 (measured as the amount spent to repair the flood damage).
1. Revenue principle and representational faithfulness
2. Cost principle and revenue recognition
3. Cost principle
4. Representational faithfulness
e. On 28 December, the company collected $76,000 cash in advance for merchandise to be shipped in January. The company's fiscal year-end is 31 December.
1. Revenue principle and representational faithfulness
2. Cost principle and revenue recognition
3. Cost principle
4. Representational faithfulness
In each instance, indicate how the transaction should have been originally recorded. (If no entry is required for a transaction/event, indicate"No journal entry required".