Intermediate Accounting Assignment - Impairment, Assets Held for Sale and Discontinued Operations, Investments in Financial Instruments
Problem 1 - Anastasia Inc. has identified indicators of possible impairment on a depreciable asset and an intangible asset.
Information on each of these is provided below:
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Depreciable asset -
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|
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Building
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$560,000
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Accumulated depreciation
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(300,000)
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Carrying value
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$260,000
|
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Undiscounted future cash flows from use of asset
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$270,000
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Value in use
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220,000
|
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Fair value
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240,000
|
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Costs of disposal
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(12,000)
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Indefinite Life Intangible Asset -
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|
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Carrying value
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$120,000
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Fair value
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90,000
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Direct costs to dispose of the trademark
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(20,000)
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Value in use
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110,000
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Required - Prepare any impairment loss journal entries required under IFRSs and under ASPE. (Note that for ASPE, the first step is assumed met when dealing with an indefinite life intangible asset, i.e. just like goodwill).
Problem 2 - The partial statement of comprehensive income for Huppmann Ltd., a publicly accountable entity, for the year ended December 31, 20x1, is as follows:
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Sales
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$26,000,000
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Cost of goods sold
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(15,000,000)
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Gross margin
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11,000,000
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Operating expenses
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7,600,000
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Operating income
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3,400,000
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|
Income taxes (30%)
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1,020,000
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Net income
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$ 2,380,000
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In August 20x1, the company's board made a decision to sell one of its six divisions. In September the division was put up for sale with a listing price of $9 million. The division being sold had revenues of $3.4 million, cost of goods sold of $2.3 million and operating expenses of $850,000. These amounts are included in the above statement of comprehensive income.
The carrying value of the net assets of the division were $9 million, and the fair market value of the division is estimated to be $8.5 million. The costs to sell the division are expected to be 12% of the fair market value of the net assets. These amounts have not been taken into consideration in preparing the statement of comprehensive income above.
Required - Prepare a revised statement of comprehensive income.
Problem 3 - The Lannister Corporation, a publicly accountable entity, had the following investments as at December 31, 20x2:
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Company
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Type
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Classification
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Original Cost
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Carrying Value
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Fair Value
|
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Arryn Corp.
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Shares
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FVPL
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$65,000
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$61,000
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$58,000
|
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Baratheon Co.
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Shares
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FVPL
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105,000
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112,000
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125,000
|
|
Bolton Inc.
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Shares
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FVOCI
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82,000
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88,000
|
106,000
|
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Frey Inc.
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Shares
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FVOCI
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95,000
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80,000
|
88,000
|
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Greyjoy Co.
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Bonds
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FVOCI
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210,106
|
210,106
|
210,106
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The Greyjoy Co. bonds were purchased on December 31, 20x2. The bonds have a face value of $200,000, pay interest of 4% semiannually (Jun 30 & Dec 31) and mature on December 31, 20x19. Bond issue costs were capitalized to the FVOCI investment account.
The following transactions took place in 20x3:
Feb 4 - Sold the Baratheon shares for $130,000 less $3,200 in brokerage fees Mar 31 Purchased shares of Martell Inc. for $165,000 plus $4,500 in brokerage fees. The shares are classified as FVPL.
April 20 - Sold the Frey Inc. shares for $98,000 less $2,800 in brokerage fees.
Aug 12 - Purchased shares of Stark Co. for $45,000 plus $2,000 in brokerage fees. The shares are classified FVOCI.
Dec 31 - The fair values of the investments on hand are as follows:
Arryn Corp. $ 55,000
Bolton Inc. 115,000
Greyjoy Co. 206,000
Martell Inc. 173,500
Stark Co. 39,500
Required -
a) Prepare the journal entries to record all 20x3 transactions for the investments above. When preparing the December 31, 20x3 fair value adjustment entry, write two journal entries only: one for the total fair value adjustment on FVPL investments and one for the total fair value adjustment on FVOCI investments. Do not write a separate journal entry for each individual investment.
b) Assume that Lannister's net income for the year ended December 31, 20x3 is $3,500,000. Prepare the bottom portion of the Statement of Comprehensive Income starting with the net income line.
c) Prepare a t-account showing the transaction in the A•OCI account from the beginning to the end of the year. Prove the ending balance.
d) At the end of 20x5 the Greyjoy Co. bonds were trading at 104.5. Write all journal entries for the bonds for the year ended December 31, 20x5.