Chapter 4

Solutions

Exercise 4.1

Account name Classification
Preferred shares Cap
Franchise agreement IA
Salaries and wages payable CL
Accounts payable CL
Buildings (net) PPE
Investment – Held for Trading CA
Current portion of long-term debt CL
Allowance for doubtful accounts CA
Accounts receivable CA
Bond payable (maturing in 10 years) NCL
Notes payable (due next year) CL
Office supplies CA
Mortgage payable (maturing next year) CL
Land PPE
Bond sinking fund LI
Inventory CA
Prepaid insurance CA
Income tax payable CL
Cumulative realized gain or loss from an OCI investment AOCI
Investment in associate LI
Unearned subscriptions revenue CL
Advances to suppliers CA
Unearned rent revenue CL
Copyrights IA
Petty cash CA
Foreign currency bank account or cash CA

Exercise 4.2

  1. Aztec Artworks Ltd.
    Statement of Financial Postion
    As at December 31, 2021
    Assets
    Current assets
    Cash $143,000
    Investments (held for trading at fair value 135,000
    Accounts receivable $332,000
    Allowance for doubtful accounts (12,000) 320,000
    Inventory (at lower of FIFO cost and NVR) $960,000
    Inventory on consignment 20,000 980,000
    Prepaid expenses 30,000
    Total current assets 1,608,000
    Long-term investments:
    Investment in bonds (held to maturity at amortized cost) 200,000
    Bond sinking fund 100,000
    Land held for investment (at cost) 200,000
    500,000
    Property, plant, equipment
    Building under construction $220,000
    Land (at cost) 220,000 440,000
    Building (at cost) $1,950,000
    Accumulated depreciation (450,000) 1,500,000
    Equipment (at cost) 500,000
    Accumulated depreciation (120,000) 380,000 2,320,000
    Intangible assets: Patents (net of accumulated amortization for $9,000) 21,000
    Total assets $4,449,000
    Liabilities and Shareholders’ Equity
    Current liabilities
    Bank indebtedness $18,000
    Accounts payable 370,000
    Rent payable 120,000
    Notes payable 300,000
    Other payables 35,000
    Income tax payable 80,000
    Total current liabilities $923,000
    Long-term liabilities
    Bonds payable (20 year 5% bonds, due August 31, 2025) 800,000
    Pension obligations 210,000 1,010,000
    Total liabilities 1,933,000
    Shareholders’ equity
    Paid in capital
    Preferred, ($2, non-cumulative, participating-authorized 50,000, issued and outstanding, 20,000 shares) $900,000
    Common (authorized, 900,000 shares; issued and outstanding 700,000 shares) 700,000
    Contributed surplus 430,000 2,030,000
    Retained earnings 326,000
    Accumulated other comprehensive income 160,000 2,516,000
    Total liabilities and shareholders’ equity $4,449,000
    1

    Cash balance, Dec 31

    Plus bank overdraft

    Less bond sinking fund

    Adjusted cash balance, December 31

    $225,000

    18,000

    (100,000)

    $143,000

     

     

    2

    Account receivable, Dec 31

    Plus AFDA

    Plus credit balances to be separately reported

    Adjusted balance, Dec 31

    $285,000

    12,000

    35,000

    $332,000

     

     

    3

    Inventory, Dec 31

    Plus inventory on consignment

    Adjusted balance, Dec 31

    Inventory, net realizable value, Dec 31

    $960,000

    20,000

    $980,000

    985,000

     

     

    4

    Land, Dec 31

    Less land held for investment

    Adjusted land, Dec 31

    $420,000

    (200,000)

    $220,000

     

     

    5

    Balance, Dec 31

    Plus accumulated depreciation

    Adjusted balance, Dec 31

    Building

    $1,500,000

    450,000

    $1,950,000

    Equipment

    $380,000

    120,000

    $500,000

     

     

    6

    Goodwill, Dec 31

    Removed – internally generated goodwill
    cannot be recognized

    Adjust balance, Dec 31

    $190,000

    (190,000)

    $ –

     

     

    7

    Patents, Dec 31

    Accum. amortization for 3 years ($30,000 ÷ 10 × 3)

    $21,000

    $9,000

     

     

    Retained earnings = ($501,000 + $20,000 consignment inventory − $190,000 goodwill adjustment − $5,000 unrealized holding loss for trading investments) = $326,000 OR ($4,449,000 − 1,933,000 − 2,030,000 − 160,000) = $326,000

  2. Liquidity ratios

    Current ratio = 1,608,000 ÷ 923,000 = 1.74

    Quick ratio = (143,000 + 135,000 + 320,000 = 598,000) ÷ 923,000 = 0.65

    Activity ratios

    Accounts receivable turnover = 3,000,000 ÷ 320,000

    = 9.38 times per year or every 38.9 days (365 ÷ 9.38)

    Days’ sales uncollected = 332,000 ÷ 3,000,000 × 365

    = 40.4 days

    Inventory turnover = (3,000,000 × 60%) ÷ 980,000

    = 1.84 times per year or every 198.4 days (365 ÷ 1.84)

    Asset turnover = 3,000,000 ÷ 4,449,000

    = 0.67 times

    Comments:

    In terms of liquidity, Aztec’s current ratio of 1.74 suggests at first glance that it can meet its short-term obligations. However, when inventory and prepaid expenses are removed, the ratio drops to .65, which is short of the general rule of 1:1 for quick ratios. This may mean that inventory levels are too high. The inventory turnover ratio below will confirm if this is the case or not.

    Activity ratios, such as the accounts receivable turnover, measure how quickly ac- counts are converted into cash. For Aztec, accounts receivable are collected every
    38.9 days on average. Looking at days’ sales uncollected, if a guideline of 30–40 days to collect is considered reasonable, then Aztec is close to the top end of the 40- day benchmark. Management would be wise to take steps to improve its receivables collections somewhat.

    Inventory turnover of every 200 days or so appears to be very low, which could mean that too much cash is being tied up in inventory or there is too much obsolete inventory that cannot be sold. A turnover ratio that is too high can signal inventory shortages that may result in lost sales. A turnover ratio for each major inventory category will help to determine if the situation is wide-spread or limited to a particular inventory category.

    Asset turnover for .67 times appears low but without industry standard ratios to use as a comparison benchmark, ratios become less meaningful.


Exercise 4.3

  1. Johnson Berthgate Corp.
    Statement of Financial Position
    As at December 31, 2021
    Assets
    Current assets
    Cash $131,000
    Investments (held for trading at fair value) 120,000
    Accounts receivable $330,000
    Allowance for doubtful accounts (15,000) 315,000
    Inventory (at lower of FIFO cost and NRV) 430,000
    Prepaid expenses 6,000
    Total current assets 1,002,000
    Long-term investments:
    Investments in bonds (held to maturity at amortized cost) 190,000
    Investment, FVOCI 180,000 370,000
    Property, plant, and equipment
    Land (at cost) 170,000
    Building (at cost) $660,000
    Accumulated depreciation (110,000) 550,000
    Equipment (at cost) 390,000
    Accumulated depreciation (50,000) 340,000 1,060,000
    Intangible assets:
    Patents (net of accum. amort. of $80,000 on a straight-line basis) 125,000
    Franchise (net of accum. amort. of $45,000 on a straight-line basis) 115,000 240,000
    Goodwill 30,000
    Total assets $2,702,000
    Liabilities and Shareholders’ Equity
    Current liabilities
    Accounts payable $350,000
    Accrued liabilities 70,000
    Commissions payable 90,000
    Notes payable 60,000
    Unearned consulting fees 13,000
    Total current liabilities 583,000
    Long-term liabilities:
    Bonds payable (20-year 5% bonds, due December 31, 2025) 655,684
    Note payable (3%, 5-year, due December 31, 2024) 571,875 1,227,559
    Total liabilities 1,810,559
    Shareholders’ equity
    Paid in capital
    Preferred, ($3, non-cumulative, authorized 1200, issued and outstanding, 800 shares) $80,000
    Common (unlimited authorized, issued and outstanding 260,000 shares) 520,000 600,000
    Retained earnings[1] 236,441
    Accumulated other comprehensive income 55,000 891,441
    Total liabilities and shareholders’ equity $2,702,000

    Net income = (4,858,000 + 40,000 + 102,000 − 3,050,000 − 11,000 − 8,500 − 135,000 − 1,190,000 − 580,000) = $25,500

  2. Debt ratio = 1,810,559 ÷ 2,702,000 = 67.01%

    Equity ratio = 891,441 ÷ 2,702,000 = 32.99%

    Nearly 70% of all assets are provided by creditors, which is significant. Digging deeper and looking at the current ratio for 1.72 (1,002,000 ÷ 583,000), it appears that the current assets will adequately cover the current liabilities. It follows that the $1.2M in long-term obligations is the true risk for this company. The company may have to re-finance the note payable when comes due in 3 more years, or sell off any assets not currently contributing to profit. Selling off long-term assets is a reasonable step provided that the assets are idle and will not be used in the foreseeable future to earn profits. This company’s debt ratio is high, so it has very little financial flexibility.

  3. The credit balances in accounts receivable represent amounts owing to specific customers. IFRS requires that significant credit balances be separated and reported as a current liability.

    Current ratio without separation of the credit 1,002,000 ÷ 583,000 = 1.72

    Current ratio with separation of the credit (1,002,000 + 250,000) ÷ (583,000 + 250,000) = 1.50

    Managers may not be aware of the impact that the reporting requirement (to classify credit receivables as current liabilities) can have on the current ratio. In this case, this ratio has weakened significantly once the credit amount of $250,000 is reclassified from a current asset to a current liability. If the company had a restrictive covenant to maintain a current ratio of 1.7 times, this could spell disaster for the company in two ways. First, creditors expect a restrictive covenant ratio to be maintained at all times. If this ratio slips below that threshold, any short-term notes owing to the creditor would become payable immediately as a demand loan. This would create significant pressure to raise enough cash in a short period of time to make the single, large payment. Second, if the debt owing to that creditor also includes any long-term debt, the creditor could also force the company to reclassify the long-term balances to current liabilities, driving the current ratio even lower. This might be all that it takes to drive a marginally performing company into bankruptcy, which is a no-win for either the company or its creditors.

    The following are possible conditions or situations that would give rise to a credit balance in accounts receivable customer accounts:

    • Customers returned goods after the account was paid.
    • A customer has overpaid an account in error.
    • The company policy may be no cash refunds. Any returns would therefore be credited to the customer account to be used later for a future purchase.
    • Most of the accounting software applications apply customer prepayments (unearned revenues) as a credit balance in accounts receivable, since eventually the actual amounts when owed by the customer at the time the goods and services provided will be debited to the accounts receivable sub-ledger when the invoice is prepared.
    • On the basis of materiality, the credit balances, if insignificant, will likely remain with the existing accounts receivable as small credit balances.

Exercise 4.4

  1. Hughey Ltd.
    Statement of Financial Position
    As at December 31, 2021
    Assets
    Current assets
    Cash $250,000
    Accounts receivable $1,015,000
    Less allowance for doubtful accounts (55,000) 960,000
    Inventory – at lower FIFO cost and NRV 1,300,000
    Prepaid insurance 40,000
    Total current assets $2,550,000
    Long-term investments
    Investments, FVOCI, of which investments costing $800,000 have been pledged as security for notes payable to bank 2,250,000
    Property, plant, and equipment 530,000
    Land 770,000
    Accumulated depreciation (300,000) 470,000
    Equipment 2,500,000
    Accumulated depreciation (1,200,000) 1,300,000 2,300,000
    Intangible assets
    Patents (net of accumulated amortization of $35,000) 25,000
    Total assets $7,125,000
    Liabilities and Shareholders’ Equity
    Current liabilities
    7% notes payable to bank, secured by investments which cost $800,000 $600,000
    Accounts payable 900,000
    Accured liabilities 300,000
    Total current liabilities 1,800,000
    Long-term liabilities
    Bonds payable, 25-yr, 8%, due December 31, 2030 at amortized cost 1,100,000
    Total liabilities 2,900,000
    Shareholders’ equity
    Paid-in capital
    Common shares; 100,000 shares authorized, 80,000 shares issued and outstanding 2,500,000
    Retained earnings 1,330,000
    Accumulated other comprehensive income 395,000[2] 4,225,000
    Total liabilities and shareholders’ equity $7,125,000
  2. Patent annual amortization: 60,000 − 25,000 = 35,000 total amortization for the period January 1, 2015 to December 31, 2021 or 7 years amortized since its purchase. $35,000 ÷ 7 years = $5,000 per year
  3. This company follows IFRS because it has classified and reported some of its investments as available for sale (OCI) which is a classification only permitted by IFRS companies. ASPE does not have this classification.

Exercise 4.5

Description Section Amount
Issue of bonds payable of $500 cash Financing 500
Sale of land and building of $60,000 cash Investing 60,000
Retirement of bonds payable of $20,000 cash Financing (20,000)
Current portion of long-term debt changed from $56,000 to $50,000 Financing The current portion of long-term debt for both years would be added to their respective long-term debt payable accounts and reported as a single line item in the financing section.
Repurchase of company’s own shares of $120,000 cash Financing (120,000)
Issuance of common shares of $80,000 cash Financing 80,000
Payment of cash divided of $25,000 recorded to retained earnings Financing (25,000)
Purchase of land of $60,000 cash and a $100,000 note Investing (60,000)
Cash dividends received from a trading investment of $5,000 Operating 5,000
Interest income received in cash from an investment of $2,000 Operating 2,000
Interest and finance charges paid of $15,000 Operating (15,000)
Purchase of equipment for $32,000 Investing (32,000)
Increase in accounts receivable of $75,000 Operating (75,000)
Decrease in short-term payable of $10,000 Operating (10,000)
Increase in income taxes payable of $3,000 Operating 3,000
Purchase of equipment in exchange for a $14,000 long-term note None: non-cash

Exercise 4.6

  1. Camel Corp.
    Balance Sheet
    As at December 31, 2021
    Assets
    Current assets
    Cash $247,600
    Accounts receivable (net) 109,040
    Total current assets 356,640
    Investment in land (at cost) 220,000
    Property, plant, and equipment
    Land $200,000
    Building (net) 87,200
    Equipment (net) 198,000 485,200
    Total assets $1,061,840
    Liabilities and Shareholders’ Equity
    Current liabilities
    Accounts payable $55,200
    Current portion of long-term debt 32,000
    Total current liabilities 87,200
    Long-term liabilities
    Mortgage payable 110,200
    Total liabilities 197,400
    Shareholders’ equity
    Common shares $470,000
    Retained earnings 394,440 864,440
    Total liabilities and shareholders’ equity $1,061,840

    The required disclosures discussed in Chapter 3 that were missed were the AFDA, the accumulated depreciation for the building and equipment, the interest rate, securitization and due date for the mortgage payable classified as a long-term liability, and the authorized and issued common shares in the equity section.

    Calculations Worksheet:

    Adjustments
    Dr Cr Dr Cr
    Cash $84,000 1,356,600[3] 1,193,000[4] 247,600
    Accounts receivable (net) 89,040 1,000,000 980,000 109,040
    Investments – trading 134,400 134,400
    Buildings (net) 340,200

    225,000

    28,000

    87,200

    Equipment (net) 168,000 50,000 20,000 198,000
    Land 200,000 220,000 420,000
    $1,015,640 $1,061,840
    Accounts payable $146,000 900,000 809,200 55,200
    Mortgage payable 172,200 30,000 142,200
    Common shares 400,000 70,000 470,000
    Retained Earnings 297,440 8,000 105,000 394,440
    $1,015,640 2,123,680 $1,061,840
    Revenues $1,000,000 A/R 1,000,000
    Gain 2,200 2,200
    Total revenue 1,002,200
    Expenses
    Operating expenses 809,200 809,200
    Interest expenses 35,000 35,000
    Depreciation 48,000 48,000
    Loss 5,000 5,000
    897,200
    Net income $105,000 4,461,800 4,566,800
    – 105,000 net income
    4,461,800 4,461,800 to retained earnings
  2. Camel Corp.
    Statement of Cash Flows
    For the Year Ended December 31, 2021
    Cash flows from operating activities
    Net income $105,000
    Adjustments for non-cash revenue and expense items in the income statement:
    Depreciation expense $ 48,000
    Gain on sale of investments (2,200)
    Loss on sale of building 5,000
    Decrease in investments – trading 136,600
    Increase in accounts receivable ($109,040 − $89,040) (20,000)
    Decrease in accounts payable ($146,000 − $55,200) (90,800) 76,600
    Net cash from operating activities 181,600
    Cash flows from investing activities
    Proceeds from sale of building ($225,000 − $5,000) 220,000
    Purchase of land (220,000)
    Net cash from investing activities 0
    Cash flows from financing activities
    Reduction in long-term mortgage principal (30,000)
    Issuance of common shares 20,000
    Payment of cash dividends (8,000)
    Net cash from financing activities (18,000)
    Net increase in cash 163,600
    Cash at beginning of year 84,000
    Cash at end of year $ 247,600

    Note:

    • The purchase of equipment through the issuance of $50,000 of common shares is a significant non-cash financing transaction that would be disclosed in the notes to the financial statements.
    • Cash paid interest $35,000
      Had there been cash paid income taxes, this would also be disclosed.
  3. Free cash flow

    Net cash provided by operating activities

    Capital purchases – land

    Cash paid dividends

    Free cash flow

    $ 181,600

    (220,000)

    (8,000)

    $(46,400)

    An analysis of Carmel’s free cash flow indicates it is negative as shown above. Including dividends paid is optional, but it would not have made a difference in this case. What does make the difference in this case is that the capital expenditures are those needed to sustain the current level of operations. In Carmel’s case, the land was purchased for investment purposes and not to meet operational requirements. The free cash flow would more accurately be:

    Net cash provided by operating activities

    Capital purchases

    Cash paid dividends

    Free cash flow

    $ 181,600

    0

    (8,000)

    $173,600

    This makes intuitive sense and is supported by the results from one of the coverage ratios.

    The current cash debt coverage provides information about how well Carmel can cover its current liabilities from its net cash flows from operations:

    Net cash from operating activities ÷ Average current liabilities

    Carmel’s current cash debt coverage is ($181,600 ÷ ((87,200 + 176,000) × 50%) = 1.38. The company has adequate cash flows to cover its current liabilities as they come due and so overall, its financial flexibility looks positive.

    In terms of cash flow patterns, Carmel has managed to more than triple its cash balance in the year mainly from cash generated from operating activities, which is a good trend. Carmel was able to pay $8,000 in dividends, or a 1.7% return. If dividends are paid several times throughout the year, the return is more than adequate to investors. Carmel also sold off its traded investments for a profit and some idle buildings at a small loss to obtain sufficient internal funding for some land that it wants as an investment. Carmel also managed to lower its accounts payable levels by close to 60%. All this supports the assessment that Carmel’s financial flexibility looks reasonable.

  4. The information reported in the statement of cash flows is useful for assessing the amount, timing, and uncertainty of future cash flows. The statement identifies the specific cash inflows and outflows from operating activities, investing activities, and financing activities. This gives stakeholders a better understanding of the liquidity and financial flexibility of the enterprise. Some stakeholders have concerns about the quality of the earnings because of the various bases that can be used to record accruals and estimates, which can vary widely and be subjective. As a result, the higher the ratio of cash provided by operating activities to net income, the more stakeholders can rely on the earnings reported.

Exercise 4.7

Lambrinetta Industries Ltd.
Statement of Cash Flows
Year Ended December 31, 2021
Cash flows from operating activities
Net income $161,500
Adjustments
Depreciation expense[5] $25,500
Change in A/R 27,200
Change in A/P 11,900
Unrealized loss on investments-trading[6] 5,200
Investments purchased (12,000)
57,800
Net cash from operating activities 219,300
Cash flows from investing activities
Sold plant assets 37,400
Purchase plant assets[7] (130,900)
Net cash from investing activities (93,500)
Cash flows from financing activities
Note issued[8] 42,500
Shares issued for cash (81,600+37,400 in exch for land – 130,900 ending balance) 11,900
Cash dividends paid[9] (188,700)
Net cash from financing activities (134,300)
Net decrease in cash (8,500)
Cash at beginning of year 40,800
Cash at end of year $32,300

Disclosures:

Additional land for $37,400 was acquired in exchange for issuing additional common shares.


Exercise 4.8

Egglestone Vibe Inc.
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash flows from operating activities
Net income  $ 24,700
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense (Note 1) $ 55,900
Loss on sale of equipment (Note 2) 10,100
Gain on sale of land (Note 3) (38,200)
Impairment loss–goodwill 63,700
Increase in accounts receivable (36,400)
Increase in inventory (67,600)
Decrease in accounts payable (28,200) (40,700)
Net cash used by operating activities (16,000)
Cash flows from investing activities
Purchase of investments (FVOCI) (20,000)
Proceeds from sale of equipment 27,300
Purchase of land (Note 4) 62,400
Proceeds from sale of land 150,000
Net cash provided by investing activities 94,900
Cash flows used by financing activities
Payment of cash dividends (Note 5) (42,600)
Issuance of notes payable 10,500
Net cash used by financing activities (32,100)
Net increase in cash 46,800
Cash at beginning of year 37,700
Cash at end of year $ 84,500

Note: During the year, $160,000 in notes payable were retired by issuing common shares.

    1. $111,800 − $15,600 + X = $152,100; X = 55,900
    2. $27,300 − ($53,000 − $15,600)
    3. $150,000 − $111,800
    4. $133,900 − 111,800 + X = $84,500
    5. Retained earnings account: $370,200 + 24,700 − X = $374,400; Dividend declared but not paid = $20,500
      Dividends payable account: $41,600 + 20,500 − 19,500 = $42,600 cash paid dividends
  1. Negative cash flows from operating activities may signal trouble ahead with regard to Egglestone’s daily operations, including profitability of operations and management of its current assets such as accounts receivable, inventory and accounts payable. All three of these increased the cash outflows over the year. In fact, net cash provided by investing activities funded the net cash used by both operating and financing activities. Specifically, proceeds from sale of equipment and land were used to fund operating and financing activities, which may be cause for concern if the assets sold were used to generate significant revenue. Shareholders did receive cash dividends, but investors may wonder if these payments will be sustainable over the long term. Consider that dividends declared was $20,500, which was quite high compared to the net income for $24,700. In addition, the dividends payable account still had a balance payable for $41,600 from prior dividend declarations not yet paid. All this adds up to increasing the pressure on the company to find enough funds to catch up with the cash payments to investors. Egglestone may not be able to sustain payment of cash dividends of this size in the long term if improvement regarding its profitability and management of receivables, payables and inventory are not implemented quickly.

Exercise 4.9

Lisbon Corporation
Statement of Cash Flow
For the Year Ended December 31, Y4

Cash flows from operating activities
Net income $36,510
Adjustments for non-cash revenue and expense
items in the income statement:
Depreciation expense (1) 5,680
Gain on sale of equipment (2) -3,740
Increase in accounts receivable -6,880
Increase in accounts payable 3,980 -960
Net cash from operating activities 35,550
Cash flows from investing activities
Proceeds - sale of equipment 9,400
Purchase of equipment (3) -22,460
Net cash from investing activities -13,060
Cash flows from financing activities
Issue (sale) of common shares 40,000
Payment of dividends (4) -28,830
Net cash from financing activities 11,170
Net increase in cash 33,660
Cash - beginning of year 17,560
Cash - end of year $51,220

Notes:

(1) Depreciation Expense:

Accumulated Depreciation

13,560 beg bal
sale 6,890
5,680 depreciation expense
12,350 end bal

(2) Gain on sale of equipment:

Net book value ($12,550 - $6,890) 5,660
Proceeds 9,400
Since proceeds > NBV = gain 3,740 GAIN

(3) Purchase of equipment:

Equipment

beg bal 22,690
12,550 sale
purchase 22,460
end bal 32,600

(4) Payment of dividends:

Retained Earnings

18,760 beg bal
36,510 net income
dividends 28,830
26,440 end bal


Exercise 4.10

  Account Name Classification
1 Preferred Shares Capital shares
2 Franchises Intangible assets
3 Salaries and Wages Payable Current liabities
4 Accounts Payable Current liabities
5 Leasehold Improvements Property, plant and equipment
6 FV-NI Investments Current assets
7 Current Portion of Long-Term Debt Current liabities
8 Obligations under Lease (portion due next year) Current liabities
9 Bonds Payable (maturing in two years) Long-term debt
10 Notes Payable (due next year) Current liabities
11 Supplies Current assets
12 Mortgage Payable (principal portion due beyond next year) Long-term debt
13 Land (for use) Property, plant and equipment
14 Bond Sinking Fund Investment Long-term investment
15 Inventory Current assets
16 Prepaid Insurance Current assets
17 Bonds Payable (maturing next year) Current liabities
18 Unrealized Gain or Loss—OCI Accumulated other comprehensive income
19 Deficit Retained earnings
20 FV-OCI Investments Long-term investments
21 Common Shares Capital shares
22 Dividends Payable Current liability
23 Accumulated Depreciation - Equipment Property, plant and equipment
24 Petty Cash Current asset
25 Interest Payable Current liability
26 Income tax payable Current Liability
27 Land improvements Property, plant and equipment
28 WIP - Direct Materials Current asset
29 Wages Payable Current Liability
30 Unearned Revenue Current Liability
31 Litigation Liability Current Liability
32 Accounts receivable Current asset
33 Accumulated depreciation - buildings Property, plant and equipment
34 Allowance for doubtful accounts Current asset
35 Buildings Property, plant and equipment
36 Copyrights Intangible assets
37 Inventory Current asset
38 Equipment Property, plant and equipment
39 Patents Intangible assets
40 HST Payable Current liability


  1. 290,941−90,000+20,000 investment trading adj−10,000 inventory adj+NI of $25,500 = $236,441
  2. Opening balance of $245,000 + $150,000($2,250,000 − 2,100,000) for unrealized holding gain – OCI on FVOCI investments.
  3. 1Cash increases due to 980,000 A/R collections, 136,600 proceeds from the sale of the trading investments, 220,000 from the sale of the building and 20,000 from the issuance of additional common shares = 1,356,600
  4. Cash decreases due to 900,000 payments of accounts payable, 8,000 payment of cash dividends, 220,000 for additional land, and 65,000 for payments for the mortgage payable = 1,193,000
  5. $136,000 − 13,600 − 147,900
  6. $81,600 + 12,000 − 88,400
  7. $345,100 − 51,000 − 425,000
  8. $75,000 + 10,000 − 119,500 − 8,000
  9. $314,500 + 161,500 − 287,300

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Intermediate Financial Accounting 1 Copyright © 2022 by Michael Van Roestel is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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