SOLUTION MANUAL FOR . .
Intermediate Accounting Volume 1 8E Thomas H. Beechy, Joan E. Conrod, Eliz
. . . . . . . . . . .
abeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel
. . . . . . .
All.Chapters.1-11. . [With.Appendix]
Chapter 1: The Framework for Financial Reporting
. . . . . .
Case. 1-1 Mulla.and.Yang
1-2 Richard.Wright
1-3 Taylor.Jay
Suggested.Time.
Technical 1-1 Chapter.overview,.true-false............................... 10
1-2 Chapter.overview,.true-false............................... 10
1-3 Acronyms……………………………………… 10
1-4 IFRS.or.ASPE…………………………………. 10
1-5 IFRS.or.ASPE…………………………………. 10
1-6 Disclosed.basis.of.accounting………………… 10
1-7 GAAP.and.reporting.currency............................ 10
1-8 GAAP.and.reporting.currency............................ 10
1-9 Users.and.objectives………………………….. 10
1-10 Required.financial.statements............................. 10
Assignment.1-1 IASB.standard-setting...................................... 10
1-2 International.comparisons................................ 10
1-3 Accounting.choices........................................... 10
1-4 Effect.of.accounting.policies. .......................... 15
1-5 Reporting.alternatives....................................... 10
1-6 Non-IFRS.situations......................................... 15
1-7 Reporting.situations.......................................... 20
1-8 Reporting.situations.......................................... 15
1-9 Objectives.of.financial.reporting...................... 20
1-10 Impact.of.differing.objectives. ......................... 20
1-11 Accounting.policy.disagreement...................... 15
1-12 Accounting.policies.and.reporting.objectives.. 10
1-13 Policy.choice..................................................... 20
©.2022.McGraw.Hill..All.rights.reserved
Solutions.Manual.to.accompany.Intermediate. Accounting,.Volume.1,.8th. edition 2-1
,Cases
Case.1-1.(LO1.2,.LO1.3,.LO1.4,.LO1.5)
Notes.for.Discussion.With.Elicia:
There.is.a.conflict.of.interest.between.the.objectives.of.Elicia.and.Dabika.due.to.the.buyout.cla
use.in.the.shareholder.agreement..Elicia.will.have.a.motivation.to.decrease.shareholders‘.equit
y.since.this.will.reduce.the.amount.that.she.will.be.required.to.pay.to.buy.out.Dabika..Dabika.wi
ll.be.interested.in.increasing.shareholders‘.equity.to.increase.the.amount.she.will.receive..It.mu
st.be.clarified.who.I.am.working.for.since.I.may.have.a.conflict.of.interest.since.I.know.both.part
ies.
It. is. important. that. all. accounting. policies. are. ‗fair‘. to. both. sides.. What. is. considered
‗fair‘?.From.Dabika‘s.perspective,.fair.could.be.accounting.policies.consistent.with.prior.year
s..From.Elicia‘s.perspective,.fair.could.be.if.the.economic.events.change.the.accounting.policy.
would.change..Fair.could.be.both.sides.split.the.difference.where.Dabika.and.Elicia.disagree.o
n.value..In.the.future.it.is.important.that.the.shareholders.agreement.is.more.specific.
Due.to.the.choices.allowed.within.GAAP.a.policy.could.be.selected.that.would.be.more.benefi
cial.to.one.of.the.parties..It.is.assumed.since.this.is.a.small.private.company.that.they.are.using.A
SPE..There.is.no.indication.that.neither.Elicia.or.Dabika.would.be.using.IFRS.nor.that.the.bank.
requires.it.
Inventory
Elicia.wants.to.write.off.the.inventory.value.for.the.garden.gnomes.and.statues.and.this.will.dec
rease.the.amount.of.the.payment.to.Dabika..According.to.ASPE,.inventory.would.be.valued.at.t
he.lower.of.cost.and.net.realizable.value..Even.though.this.inventory.has.been.sitting.in.the.gard
ening.centre.there.is.still.a.few.being.sold.each.year..This.indicates.there.is.still.some.value.asso
ciated.with.the.inventory.and.therefore.it.should.not.be.written.down.to.zero..It.should.be.deter
mined.what.the.net.realizable.value.of.this.inventory.is.to.determine.the.amount.of.the.write.off.
.If.it.is.all.written.off.and.then.sold.at.a.later.date.this.would.not.be.fair.to.Dabika.since.Elicia.wo
uld.get.the.benefit.of.a.reduced.shareholders‘.equity.and.thus.a.lower.payment.required.to.Dabi
ka..The.purchase.of.this.inventory.would.have.been.a.decision.made.by.both.Dabika.and.Elicia.
so.if.the.inventory.is.unsellable.they.should.both.bear.the.impact.of.this.decision.
Warranty
According.to.ASPE.the.accounting.policy.is.appropriate.and.a.warranty.expense.should.be.incl
uded.for.the.guarantee..The.impact.is.that.this.would.decrease.shareholders‘.equity.and.the.am
ount.of.the.payment.to.Dabika..This.is.a.new.policy.that.did.not.exist.until.this.year..The.estimat
e.of.5%.was.only.based.on.sales.from.the.fall..Since.it.is.a.new.policy.that.was.made.by.Elicia.on.
her.own.it.may.be.appropriate.that.the.impact.of.this.is.excluded.from. the.calculation. of.shareh
olders‘.equity..At. a. minimum.the.estimate. should
©2022.McGraw.Hill..All.rights.reserved
.
2-2 Solutions.Manual.to.accompany.Intermediate.Accounting,.Volume.1,.8th. edition
,be.reviewed.to.determine.if.it.is.reasonable..Furthermore,.the.estimate,.if.included.in.the.share
holders‘.equity.calculation,.should.be.agreed.upon.by.both.Elicia.and.Dabika.
Computer.Equipment
ASPE.is.flexible.in.the.method.used.to.depreciate.assets..The.declining.balance.method.using.4
0%.would.write.off.the.value.of.the.computers.in.approximately.two.years..This.is.very.fast.esp
ecially.for.a.small.company.that.is.likely.to.use.a.computer.for.a.longer.period.of.time.due.to.lim
ited.resources.as.compared.to.a.larger.company..Just.because.the.computer.may.become.obsol
ete.quickly.does.not.mean.the.business.will.not.continue.to.derive.benefit.from.the.continued.u
se.of.the.computer..The.impact.of.higher.depreciation.is.a.reduction.in.the.payment.to.Dabika..I
f.we.look.at.consistency.with.other.assets.it.would.be.appropriate.to.use.the.straight.line.method
..We.should.inquire.with.Elicia.as.to.her.rationale.for.choosing.declining.balance.instead.of.the.
straight-
line.depreciatoin.method.used.for.all.other.assets.and.determine.the.declining.method.reflects.t
he.actual.usage.of.the.asset.(i.e..more.of.the.asset.used.earlier.on)..Since.again.since.this.was.a.d
ecision.made.only.be.Elicia.maybe.it.should.be.excluded.from.the.calculation.or.maybe.the.poli
cy.should.be.consistent.with.their.other.assets.but.further.information.is.required.
Case.1-2.(LO1.2,.LO1.3,.LO1.4,.LO1.5)
Dear.Richard.Wright:
I.am.happy.to.respond.to.your.questions.regarding.the.accounting.changes.that.the.new.banker.
has.requested..It.is.important.that.you.realize.that.the.needs.of.the.banker.are.different.than.your
.needs..The.bank.is.interested.in.your.ability.to.make.loan.payments;.therefore,.the.banker.want
s.to.assess.future.cash.flows,.collateral.and.your.ability.to.pay.back.the.loan.
First,.there.is.the.issue.of.moving.to.the.accrual.basis..While.it‘s.true.that,.ultimately,.what.you.
earn.is.the.net.cash.in.your.pocket,.the.cash.basis.of.accounting.doesn‘t.wholly.capture.all.of.the
.cash.flows.that.will.happen.in.the.future..Your.banker.wants.to.know.what.liabilities.you‘ll.hav
e.to.pay.in.the.coming.months.(and.years),.and.what.amounts.you.currently.are.owed.that.will.b
e.collected.in.the.future.weeks.or.months..The.accrual.method.really.gives.a.clear.picture.of.fut
ure.―cash.flow‖.
It‘s.for.much.the.same.reason.that.he.wishes.you.to.show.your.cattle.at.market.value..I‘m.sure.h
e.recognizes.that.both.your.dairy.cattle.and.your.breeders.are.intended.for. continued.use.and.ar
e.not.for.sale.in.the.normal.course.of.business.As.saleable.stock,.the.cattle.represent.a.potential.
cash.resource.in.the.event.of.bankruptcy.or.default..After.all,.you.probably.use.the.cattle.as.coll
ateral.for.loans,.and.he.needs.to.know.the.value.of.that.collateral.
You.should.not.try.to.estimate.the.value.of.your.stock.by.yourself..For.credibility,.you.should.o
btain.an.independent.estimate..The.valuation.will.require.a.professional.evaluation.(and.the.co
st.thereof),.but.will.be.necessary.in.order.to.satisfy.the.bank.
©.2022.McGraw.Hill..All.rights.reserved
Solutions.Manual.to.accompany.Intermediate. Accounting,.Volume.1,.8th. edition 2-3
, Sincerely,.A
ndriana
Case.1-3.(LO1.1,.LO1.2,.LO1.3,.LO1.4,.LO1.5)
Overview
This.case.is.intended.to.get.students.to.focus.on.the.differences.between.companies.and.the.vari
ous.factors.that.have.a.bearing.on.their.financial.reporting.objectives..Students.are.asked.to. pri
oritize.the.factors.or.characteristics.that.are.most.likely.to.affect.each.company‘s.financial.repo
rting.
Company.Characterics
All.three.companies.are.private.enterprises..Significant.characteristics.of.each.are.as.follows:
Breeze.Inc. Saturn.Software Intern’l.Auto.Parts
Business New.mobile.phone.network Custom.software Auto.parts.for.international
development auto.makers
Owners Private.investors.and.venture Two.entrepreneurs,.not Wealthy.family
capitalists wealthy
Other. capital.s Egyptian.fund Pension.fund— Debt.through.investment.funds
ources pref..shares.Bank.line.of.credit .and.by.U.S..and.Cdn.
banks
Capital.require Capital.intensive.start-up Salary- Established.manufacturer;.
ments based.operation;.workin expanding.to.gain.foreign
g.capital.needed customers
Constraints Egypt.fund.has.3.board.seats Bank.covenants: Probable.debt.covenants
– restrictions.on.dividen
d/salary.payouts
– new.debt
Preferred.dividend.required
Reporting CRTC Pension.fund Investment.funds.and.banks
requirements Egypt.fund;.Japan.partner Bank Potential.new.customers
IPO Not.in.the.foreseeable.future Unlikely Yes,.anticipated.in.2-3.years
probable?
©2022.McGraw.Hill..All.rights.reserved
.
2-4 Solutions.Manual.to.accompany.Intermediate.Accounting,.Volume.1,.8th. edition
Intermediate Accounting Volume 1 8E Thomas H. Beechy, Joan E. Conrod, Eliz
. . . . . . . . . . .
abeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel
. . . . . . .
All.Chapters.1-11. . [With.Appendix]
Chapter 1: The Framework for Financial Reporting
. . . . . .
Case. 1-1 Mulla.and.Yang
1-2 Richard.Wright
1-3 Taylor.Jay
Suggested.Time.
Technical 1-1 Chapter.overview,.true-false............................... 10
1-2 Chapter.overview,.true-false............................... 10
1-3 Acronyms……………………………………… 10
1-4 IFRS.or.ASPE…………………………………. 10
1-5 IFRS.or.ASPE…………………………………. 10
1-6 Disclosed.basis.of.accounting………………… 10
1-7 GAAP.and.reporting.currency............................ 10
1-8 GAAP.and.reporting.currency............................ 10
1-9 Users.and.objectives………………………….. 10
1-10 Required.financial.statements............................. 10
Assignment.1-1 IASB.standard-setting...................................... 10
1-2 International.comparisons................................ 10
1-3 Accounting.choices........................................... 10
1-4 Effect.of.accounting.policies. .......................... 15
1-5 Reporting.alternatives....................................... 10
1-6 Non-IFRS.situations......................................... 15
1-7 Reporting.situations.......................................... 20
1-8 Reporting.situations.......................................... 15
1-9 Objectives.of.financial.reporting...................... 20
1-10 Impact.of.differing.objectives. ......................... 20
1-11 Accounting.policy.disagreement...................... 15
1-12 Accounting.policies.and.reporting.objectives.. 10
1-13 Policy.choice..................................................... 20
©.2022.McGraw.Hill..All.rights.reserved
Solutions.Manual.to.accompany.Intermediate. Accounting,.Volume.1,.8th. edition 2-1
,Cases
Case.1-1.(LO1.2,.LO1.3,.LO1.4,.LO1.5)
Notes.for.Discussion.With.Elicia:
There.is.a.conflict.of.interest.between.the.objectives.of.Elicia.and.Dabika.due.to.the.buyout.cla
use.in.the.shareholder.agreement..Elicia.will.have.a.motivation.to.decrease.shareholders‘.equit
y.since.this.will.reduce.the.amount.that.she.will.be.required.to.pay.to.buy.out.Dabika..Dabika.wi
ll.be.interested.in.increasing.shareholders‘.equity.to.increase.the.amount.she.will.receive..It.mu
st.be.clarified.who.I.am.working.for.since.I.may.have.a.conflict.of.interest.since.I.know.both.part
ies.
It. is. important. that. all. accounting. policies. are. ‗fair‘. to. both. sides.. What. is. considered
‗fair‘?.From.Dabika‘s.perspective,.fair.could.be.accounting.policies.consistent.with.prior.year
s..From.Elicia‘s.perspective,.fair.could.be.if.the.economic.events.change.the.accounting.policy.
would.change..Fair.could.be.both.sides.split.the.difference.where.Dabika.and.Elicia.disagree.o
n.value..In.the.future.it.is.important.that.the.shareholders.agreement.is.more.specific.
Due.to.the.choices.allowed.within.GAAP.a.policy.could.be.selected.that.would.be.more.benefi
cial.to.one.of.the.parties..It.is.assumed.since.this.is.a.small.private.company.that.they.are.using.A
SPE..There.is.no.indication.that.neither.Elicia.or.Dabika.would.be.using.IFRS.nor.that.the.bank.
requires.it.
Inventory
Elicia.wants.to.write.off.the.inventory.value.for.the.garden.gnomes.and.statues.and.this.will.dec
rease.the.amount.of.the.payment.to.Dabika..According.to.ASPE,.inventory.would.be.valued.at.t
he.lower.of.cost.and.net.realizable.value..Even.though.this.inventory.has.been.sitting.in.the.gard
ening.centre.there.is.still.a.few.being.sold.each.year..This.indicates.there.is.still.some.value.asso
ciated.with.the.inventory.and.therefore.it.should.not.be.written.down.to.zero..It.should.be.deter
mined.what.the.net.realizable.value.of.this.inventory.is.to.determine.the.amount.of.the.write.off.
.If.it.is.all.written.off.and.then.sold.at.a.later.date.this.would.not.be.fair.to.Dabika.since.Elicia.wo
uld.get.the.benefit.of.a.reduced.shareholders‘.equity.and.thus.a.lower.payment.required.to.Dabi
ka..The.purchase.of.this.inventory.would.have.been.a.decision.made.by.both.Dabika.and.Elicia.
so.if.the.inventory.is.unsellable.they.should.both.bear.the.impact.of.this.decision.
Warranty
According.to.ASPE.the.accounting.policy.is.appropriate.and.a.warranty.expense.should.be.incl
uded.for.the.guarantee..The.impact.is.that.this.would.decrease.shareholders‘.equity.and.the.am
ount.of.the.payment.to.Dabika..This.is.a.new.policy.that.did.not.exist.until.this.year..The.estimat
e.of.5%.was.only.based.on.sales.from.the.fall..Since.it.is.a.new.policy.that.was.made.by.Elicia.on.
her.own.it.may.be.appropriate.that.the.impact.of.this.is.excluded.from. the.calculation. of.shareh
olders‘.equity..At. a. minimum.the.estimate. should
©2022.McGraw.Hill..All.rights.reserved
.
2-2 Solutions.Manual.to.accompany.Intermediate.Accounting,.Volume.1,.8th. edition
,be.reviewed.to.determine.if.it.is.reasonable..Furthermore,.the.estimate,.if.included.in.the.share
holders‘.equity.calculation,.should.be.agreed.upon.by.both.Elicia.and.Dabika.
Computer.Equipment
ASPE.is.flexible.in.the.method.used.to.depreciate.assets..The.declining.balance.method.using.4
0%.would.write.off.the.value.of.the.computers.in.approximately.two.years..This.is.very.fast.esp
ecially.for.a.small.company.that.is.likely.to.use.a.computer.for.a.longer.period.of.time.due.to.lim
ited.resources.as.compared.to.a.larger.company..Just.because.the.computer.may.become.obsol
ete.quickly.does.not.mean.the.business.will.not.continue.to.derive.benefit.from.the.continued.u
se.of.the.computer..The.impact.of.higher.depreciation.is.a.reduction.in.the.payment.to.Dabika..I
f.we.look.at.consistency.with.other.assets.it.would.be.appropriate.to.use.the.straight.line.method
..We.should.inquire.with.Elicia.as.to.her.rationale.for.choosing.declining.balance.instead.of.the.
straight-
line.depreciatoin.method.used.for.all.other.assets.and.determine.the.declining.method.reflects.t
he.actual.usage.of.the.asset.(i.e..more.of.the.asset.used.earlier.on)..Since.again.since.this.was.a.d
ecision.made.only.be.Elicia.maybe.it.should.be.excluded.from.the.calculation.or.maybe.the.poli
cy.should.be.consistent.with.their.other.assets.but.further.information.is.required.
Case.1-2.(LO1.2,.LO1.3,.LO1.4,.LO1.5)
Dear.Richard.Wright:
I.am.happy.to.respond.to.your.questions.regarding.the.accounting.changes.that.the.new.banker.
has.requested..It.is.important.that.you.realize.that.the.needs.of.the.banker.are.different.than.your
.needs..The.bank.is.interested.in.your.ability.to.make.loan.payments;.therefore,.the.banker.want
s.to.assess.future.cash.flows,.collateral.and.your.ability.to.pay.back.the.loan.
First,.there.is.the.issue.of.moving.to.the.accrual.basis..While.it‘s.true.that,.ultimately,.what.you.
earn.is.the.net.cash.in.your.pocket,.the.cash.basis.of.accounting.doesn‘t.wholly.capture.all.of.the
.cash.flows.that.will.happen.in.the.future..Your.banker.wants.to.know.what.liabilities.you‘ll.hav
e.to.pay.in.the.coming.months.(and.years),.and.what.amounts.you.currently.are.owed.that.will.b
e.collected.in.the.future.weeks.or.months..The.accrual.method.really.gives.a.clear.picture.of.fut
ure.―cash.flow‖.
It‘s.for.much.the.same.reason.that.he.wishes.you.to.show.your.cattle.at.market.value..I‘m.sure.h
e.recognizes.that.both.your.dairy.cattle.and.your.breeders.are.intended.for. continued.use.and.ar
e.not.for.sale.in.the.normal.course.of.business.As.saleable.stock,.the.cattle.represent.a.potential.
cash.resource.in.the.event.of.bankruptcy.or.default..After.all,.you.probably.use.the.cattle.as.coll
ateral.for.loans,.and.he.needs.to.know.the.value.of.that.collateral.
You.should.not.try.to.estimate.the.value.of.your.stock.by.yourself..For.credibility,.you.should.o
btain.an.independent.estimate..The.valuation.will.require.a.professional.evaluation.(and.the.co
st.thereof),.but.will.be.necessary.in.order.to.satisfy.the.bank.
©.2022.McGraw.Hill..All.rights.reserved
Solutions.Manual.to.accompany.Intermediate. Accounting,.Volume.1,.8th. edition 2-3
, Sincerely,.A
ndriana
Case.1-3.(LO1.1,.LO1.2,.LO1.3,.LO1.4,.LO1.5)
Overview
This.case.is.intended.to.get.students.to.focus.on.the.differences.between.companies.and.the.vari
ous.factors.that.have.a.bearing.on.their.financial.reporting.objectives..Students.are.asked.to. pri
oritize.the.factors.or.characteristics.that.are.most.likely.to.affect.each.company‘s.financial.repo
rting.
Company.Characterics
All.three.companies.are.private.enterprises..Significant.characteristics.of.each.are.as.follows:
Breeze.Inc. Saturn.Software Intern’l.Auto.Parts
Business New.mobile.phone.network Custom.software Auto.parts.for.international
development auto.makers
Owners Private.investors.and.venture Two.entrepreneurs,.not Wealthy.family
capitalists wealthy
Other. capital.s Egyptian.fund Pension.fund— Debt.through.investment.funds
ources pref..shares.Bank.line.of.credit .and.by.U.S..and.Cdn.
banks
Capital.require Capital.intensive.start-up Salary- Established.manufacturer;.
ments based.operation;.workin expanding.to.gain.foreign
g.capital.needed customers
Constraints Egypt.fund.has.3.board.seats Bank.covenants: Probable.debt.covenants
– restrictions.on.dividen
d/salary.payouts
– new.debt
Preferred.dividend.required
Reporting CRTC Pension.fund Investment.funds.and.banks
requirements Egypt.fund;.Japan.partner Bank Potential.new.customers
IPO Not.in.the.foreseeable.future Unlikely Yes,.anticipated.in.2-3.years
probable?
©2022.McGraw.Hill..All.rights.reserved
.
2-4 Solutions.Manual.to.accompany.Intermediate.Accounting,.Volume.1,.8th. edition
