Intermediate Accounting Volume 1, Sixth Canadian Edition Solution Manual

Name: Intermediate Accounting Volume 1, Sixth Canadian Edition Solution Manual
Brand: Academic Documents Platform
Price: 17 USD
Availability: InStock
Author: Benjamin White

Intermediate Accounting Volume 1, Sixth Canadian Edition Solution Manual is the perfect textbook guide, offering thorough solutions to all your textbook exercises.

Benjamin White

Contributor

4.5

about 1 month ago

Preview (16 of 603)

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-1
Chapter 1: The Framework for Financial Reporting
Case 1-1 Richard Ploughwright
1-2 Milton Kidd
1-3 International Fashions Inc.
Suggested Time
Technical Review
TR1-1 Chapter overview, true-false ............................ 10
TR1-2 Chapter overview, true-false .......................... . 10
TR1-3 GAAP and Reporting Currency ..................... . 10
TR1-4 Acronyms ...................................................... . 10
Assignment A1-1 IASB Standard Setting................................... 10
A1-2 International Comparisons ............................. 10
A1-3 Accounting Choices....................................... 10
A1-4 Effect of Accounting Policies (*W) ............... 15
A1-5 Reporting Alternatives................................... 10
A1-6 Non-IFRS Situations...................................... 15
A1-7 Reporting Situations ...................................... 20
A1-8 Reporting Situations ...................................... 15
A1-9 Objectives of financial reporting .................... 20
A1-10 Impact of Differing Objectives....................... 20
A1-11 Accounting Policy Disagreement ................... 15
A1-12 Accounting Policies and Reporting Objectives 10
A1-13 Policy Choice ................................................ 20
*W The solution to this assignment is on the text website, Connect.
This solution is marked WEB.

1-2 Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition
Questions
1. A public company issues securities (debt and/or equity) to the public; a private
company does not issue securities to the public, but may raise capital through private
placements. Public and publicly-accountable companies must use IFRS. Private
companies (except publicly-accountable enterprises) may use IFRS, Canadian
Accounting Standards for Private Enterprises (ASPE) as provided in the CICA
Handbook, or a disclosed basis of accounting (DBA).
2. A control block exists when a small number of related or affiliated shareholders own
enough shares to guarantee being able to cast a majority of shareholders’ votes.
Controlling a majority of the votes enables the group to elect the board of directors.
Financial reporting will often be tailored to the needs of the controlling shareholders
and not necessarily those of the minority shareholders.
3. Canadian accounting standards are set by the Accounting Standards Board (AcSB)
which is a unit of the Canadian Institute of Chartered Accountants. For public
companies, the AcSB has adopted IFRS. Standards for private companies are
determined by the AcSB and are maintained as Part II of the CICA Handbook.
4. Canadian private companies can choose to use (a) IFRS, (b) Part II of the CICA
Handbook, or (c) a disclosed basis of accounting (DBA).
5. A private company may choose to use IFRS if it is competing with international firms
for debt or private equity funding. By being directly comparable to public companies,
IFRS-basis statements should make it easier for prospective lenders or investors to
compare potential investees on a common basis. The company may thereby be able to
lower its average cost of capital as a result.
6. A disclosed basis of accounting (DBA) is a set of accounting policies specifically
chosen to meet specific user needs, either for private companies that are not
constrained by GAAP, or as special-purpose statements intended to meet the
accounting measurement requirements of specific contracts such as loan agreements.
7. The most important objective of general purpose financial statements is to serve the
information needs public companies’ suppliers of debt and equity capital who
normally have no direct access to information and must rely on the company’s
general purpose financial reporting. Other users such as employees, customers, and
regulators will find the information useful, but they are secondary users.
8. If an organization wishes to portray cash flows, accounting policies will be chosen
that minimize inter-period allocations and provide maximum disclosure of future cash
flow patterns.

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-3
9. Accounting policies that minimize revenues and maximize expenses (delay revenue
recognition and speed up expense recognition) help to minimize income tax. These
policies are only successful in meeting the tax minimization objective if they can be
used for filing tax returns as well as financial reporting.
10. Income smoothing is the use of accounting policies and estimates to even-out periodic
fluctuations in earnings. Income smoothing is intended to produce a relatively smooth
record of earnings, free from peaks and valleys that imply risk. One way of
accomplishing this objective is to make relatively small adjustments to accounting
estimates that can, cumulatively, have a significant impact on net earnings in a
particular period. The deliberate use of accounting estimates to manipulate net
earnings is an unethical practice.
11. A “big bath” occurs when a company, in the year of an operating loss, uses the
opportunity to recognize as many losses or write-offs in that year as possible, thereby
maximizing the loss. This makes it easier to report a larger net income in future years
because assets are written down, reducing amortization, and because pessimistic loss
provisions may be established.
12. A covenant is a provision in a debt agreement that requires a company to maintain a
certain level of performance, for example, a maximum debt/equity ratio, or minimum
times-interest-earned ratios. Accounting policies chosen by a company with
restrictive covenants would be those that help meet the restriction, such as maximize
earnings, minimize debt, etc.
13. Managers may be motivated by self-interest rather than a desire to maximize return
for shareholders. They may wish to maximize their compensation, reputation, or
keep lenders from getting edgy. Policies chosen to maximize net income are common
if managers receive bonuses based on net income.
14. National practices concerning corporate debt differ between countries. In some
countries, a high debt load indicates risk of banruptcy; in others, a high debt load
indicates that the banks and other lenders have confidence in the company and is a
good sign. The world-wide use of IFRS may mislead investors into believing that
financial statements can be compared directly between companies based in different
countries.
15. A company’s financial reporting is affected by its economic and political
environment. Each company’s reporting objectives is designed to suit its local
environment. For example, in countries that require tax-book conformity, accounting
judgements are driven by the tax law. In countries with high inflation, asset valuation
will be affected, such as with substantial asset write-ups to reflect the higher nominal
value of assets.

1-4 Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition
Cases
Case 1-1 Richard Ploughwright
Dear Mr. Ploughwright:
I am happy to respond to your questions regarding the accounting changes that the new
banker has requested.
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 have to pay in the coming months (and years), and what cash you
currently are owed that will be collected in the future weeks or months. The accrual
method really gives a clear picture of “cash flow”.
It’s for much the same reason that he wishes you to show your cattle at market value. I’m
sure he recognizes that both your dairy cattle and your breeders are intended for
continued use and are 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 collateral 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 obtain an independent estimate. The valuation will require a professional
evaluation (and the cost thereof), but will be necessary in order to satisfy the bank.
As for my bill, that may change somewhat in the first year due to switching to the accrual
method. However, once the accrual approach has been put in place, the cost of the annual
review engagement will not be any higher than it would be had you continued to use the
cash basis.
Sincerely,
Andrian

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-5
Case 1-2 Milton Kidd
Overview
This case is intended to get students to focus on the differences between companies and
the various factors that have a bearing on their financial reporting objectives. Students are
not asked to provide the objectives, but rather to prioritize the factors or characteristics
that are most likely to affect each company’s financial reporting.
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
development
Auto parts for
international auto
makers
Owners Private investors Two entreprenuers, not
wealthy
Wealthy family
Other capital
sources
Egyptian fund Pension fund—
preferred shares
Bank line of credit
Debt through
investment funds and
by U.S. and Canadian
banks
Capital
requirements
Capital intensive start-
up
Salary-based operation;
working capital
needed
Established mgfr;
expanding to gain
foreign customers
Constraints Egypt fund has 3
board seats
Bank covenants:
 dividend/salary
payouts
 new debt
Preferred dividend
required
Probable debt covenants
Financial
statement
users
CRTC
Egypt fund; Japan
partner
Pension fund
Bank
Investment funds and
banks
Potential new customers
IPO
probable?
Not in the foreseeable
future
Unlikely Yes, antipicpated in 2-3
years

Loading page 6...

1-6 Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition
Prioritization
A possible ranking of significant factors may look as shown below. This listing is not
definitive, but students should exhibit some logic as to why they rank some factors as
more important than others.
From the most important to (possibly) the less important:
Breeze Inc. Saturn Software Intern’l Auto Parts
Major Egyptian investor
must be kept happy—
IFRS may be appropriate
as ASPE may not be
understood by the
investor
Liquidity requirements—
cash flow/prediction
primary objective
IPO likely in near future—
compliance with IFRS
will be necessary (ASPE
not appropriate)
Important Japanese telecom
partner that Breeze needs
for network support
Continuously profitable—
but minimize income
taxes to conserve cash
Reflect good management
performance to help
attract new auto
companies as customers
Continuing need for major
capital investment
Bank covenants—protect
lines of credit to be able
to pay preferred dividends
Satisfy investment funds’
reporting expections (e.g.,
re covenants)
Cash needs to be
preserved—minimize
current incometaxes
Salary information must be
clearly disclosed
Exhibit sucess in attracting
new customers
Clear reporting of revenues
on which 2% fee is based
is needed
Complex reporting not
necessary; ASPE
probably best
Minimize income taxes to
conserve cash

Loading page 7...

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-7
Case 1-3 International Fashions Inc.
Memo to: Manager
Subject: Reporting objectives for International Fashions Inc.
I have reviewed the ownership, organization, and financing of International Fashions Inc.
(IFI). There seem to be several conflicting financial reporting objectives. The principal
factors that affect the reporting objectives are as follows:
 The company has been internally financed. However, they expect to need additional
financing as they expand in China. The possible source of this financing has not been
identified. If the source is from Canada or U.S.A., GAAP is likely to be a constraint.
Financing might also be obtained through private equity sources or through debt
sources in Asia (e.g., P.R.C., Hong Kong, Taiwan, or Singapore), in which case IFRS
compliance may not be necessary.
 Most of the IFI inventory is supplied by a parallel company that is under common
ownership. The bulk of IFI’s activities is through related-party transactions, both for
supplying inventory and for profit transfer via management fees.
 There is a China-based partner for the P.R.C. subsidiary. The local partner is entitled
to receive 35% of the subsidiary’s net income. This provides motivation for IFI to
keep the subsidiary’s profits down, perhaps by charging high prices for inventory that
is supplied by the owners’ Xiamen manufacturing facility.
 The company is privately owned. The two shareholders are the active managers of the
company. ASPE is a viable option for this company, provided that the reporting
policies comply with any reporting requirements imposed by whomever provides the
external financing.
 The IFI head office is a Canadian corporation. Essentially, it is a holding company for
the Asian subsidiaries. As a private company, they could use the option of not
consolidating their subsidiaries, in which case the parent company’s assets would
consist mainly of IFI’s investment in its subsidiaries.
The company relies extensively on internal financing, but since there are no external
users, there is no need to try to maximize earnings. Tax minimization (deferral) is a good
objective because tax savings will retain earnings in the company for future expansion.
In view of the tight control maintained by the owners, as well as the intercompany and
related company operating structure, I would recommend minimum compliance as a
principal reporting objective. We must be careful to give proper disclosure of the related
party transactions, though, in order to give an ethical presentation. We don’t want to be
party to hiding important information from possible future users of the statements.
Because the future sources of financing are unclear, the company should use a
generally-accepted set of accounting standards. Since the company is Canadian, either
Canadian accounting standards for private enterprises (ASPE) or IRFS should be
adopted. I suggest using ASPE to simplify the statements and reduce accounting costs.

Loading page 8...

1-8 Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition
Consolidated statements may not be needed, since the owner-managers are in such
tight control. Nevertheless, the owners may want consolidated statements for their own
use in order to get a better overview of the overall status of the company and its
operations. The decision on consolidation should be left to the owners.
In summary, I recommend the following policies:
 Cash flow prediction overall reporting objective
 Tax minimization
 ASPE compliance
 Full disclosure of related party transactions
 Minimum compliance
There is minimal conflict between these objectives. However, for ethical reasons, full
disclosure of related party transactions should take precedence over minimum
compliance.

Loading page 9...

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-9
Technical Review
Technical Review 1-1
F 1. The International Accounting Standards Board has authority for setting Canadian accounting
standards.
F 2. All Canadian corporations must comply with international accounting standards.
F 3. Most Canadian corporations are listed on the Toronto Stock Exchange.
F 4. IFRS must be used for the financial statements of every Canadian public corporation.
T 5. The primary objective of general purpose financial reporting is to serve the information needs
of the suppliers of capital—lenders and shareholders.
F 6. The primary objective of financial accounting is to reveal all information about an
enterprise’s financial performance.
T 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 minimize income. (Note: Times-interest-earned is calculated as
income before interest and taxes, divided by interest.)
F 8. Income tax law has no impact on the accounting choices made by management.
T 9. The presence of a control block can have an impact on a public company’s choice of
accounting policies.
F 10. Any company using U.S. GAAP must prepare its statements in U.S. dollars.

Loading page 10...

1-10 Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition
Technical Review 1-2
F 1. IFRS and the CICA Handbook, Part II have equal status in Canada for financial reporting.
F 2. In a private corporation, the needs of external users have no impact on the company’s
financial reporting objectives.
F 3. Canadian companies must always prepare their annual financial statements in Canadian
dollars.
F 4. Canadian accounting standards are governed by the Canada Business Corporations Act.
F 5. The debt and equity securities of a private company cannot be traded on public exchanges.
Therefore, private companies have no external sources of financing.
T 6. A company may take a “big bath” in a loss year if management wishes to maximize future
earnings.
T 7. A public company may not use DBA for external public financial reporting.
F 8. 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.
T 9. Any Canadian company may use IFRS.
T 10. The IASB cannot require transnational corporations to use IFRS.

Loading page 11...

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-11
Technical Review 1-3
1. F Most private Canadian companies report on the basis of either IFRS or ASPE, both of which
are contained in the CICA Handbook. However, private companies may instead choose to use
a disclosed basis of accounting, one in which the company’s accounting standards differ in
one or more respects from the recommendations in the CICA Handbook, either Part I or Part
II.
2. F There is no requirement that a company’s presentation currency be that of the country on
which its accounting standards are based.
3. F Same as above–the company’s presentation currency is not tied to its accounting standards.
4. T
5. F A reporting entity that is based outside the U.S. may use either U.S. standards or IFRS.
6. F The NYSE doesn’t control the accounting standards—that is the function of the SEC. The
SEC permits foreign companies (including those based in Canada) to use either U.S. GAAP
or IFRS.
7. F An individual country can choose to review each IFRS standard and accept it, reject it, or
modify it to suit the national reporting environment.
8. F A private company can obtain “outside” capital from anywhere in the world from private
equity investors or from debt issues.
9. F The presentation currency usually is the functional currency, but that link is not required. A
company may report in a currency other than its functional currency for the convenience of its
users
10. F The presentation currency does not need to be the same as the functional currency; the
subsidiary can report in British pound sterling to be compatible with the parent’s presentation
currency.

Loading page 12...

Loading page 13...

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-13
Assignments
Assignment 1-1
[Note: the website descriptions change slightly from time to time, so word-perfect
responses are not necessary. This suggested solution is based on the continuing
general description of the IASB’s processes.]
The IASB website indicates six stages of IFRS development:
1. Setting the agenda
2. Planning the project
3. Developing and publishing the discussion paper
4. Developing and publishing the exposure draft
5. Developing and publishing the standard
6. 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 standard-
setting bodies (e.g., the U.S. FASB) to enter into a cooperative development plan. The
IASB may also choose establish a “working group” to help in developing the project.
Discussion paper
In some projects (but not all), the Board may decide that there is sufficient complexity
and/or controversy about the topic that the various views and research should be gathered
together and published as a discussion paper for broad circulation. 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.

Loading page 14...

1-14 Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition
Exposure draft
Issuance of an exposure draft (ED) is a mandatory step in the process. After the IASB
collects and analyzes responses to its discussion paper received from the public, 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 public comment period. After
the comment period on the ED has ended, the Board considers the received comments. If
the comments indicate more discussion is necessary, the Board may take engage in
further discussions and issue new ED. and may make slight changes to the ED.
Final standard
After the comment period on a new or revised ED, the Board may make minor only
changes to the exposed standard. Board members then vote on the proposed standard. If
the new standard is accepted, the Board then publishes the final standard.
After the standard... (not required in the student responses)
After an IFRS is issued, the staff and the IASB members hold regular meetings with
interested parties, including other standard-setting bodies, to help understand
unanticipated issues related to the practical implementation and potential impact of its
proposals.

Loading page 15...

Solutions Manual to accompany Intermediate Accounting, Volume 1, 6th edition 1-15
Assignment 1-2
Memo to: Manager
Subject: Viewpoint of conference speaker
I attended the conference where I heard Mr. Steans claimed that the financial statements
of all companies can now easily be compared between nations because they all are
prepared using IFRS.
In my view, Mr. Stearns is somewhat naive about the economic realities that underlie
financial statements. Financial statements are a product of their reporting environment.
The application of IFRS requires a great many accounting decisions, especially
accounting estimates. Management’s estimates will be affected by their reporting
objectives, such as to minimize current income taxes or to maximize earnings in order to
support their stock price. Each company’s legal, economic and political environment
affects its financial reporting, as do the ways of doing business in a country. While IFRS
gives the appearance of uniformity in financial statement presentation, there is a great
deal of variance in the substance underlying the apparent comparability.
As a banker, Mr. Stearns will be dealing with both private and public companies. The
reporting requirements for private companies will vary among nations, and although
private companies’ financial statements may look uniform, in fact they may be prepared
on quite different bases.
Although IFRS does establishe principles that can make the financial statements of
companies based in different countries much more similar in content and appearance, Mr.
Streans over simplifies the situation because he doesn’t take into consideration the
significant national differences in the political, economic, and business environment.

Loading page 16...

15 more pages available. Scroll down to load them.

Preview Mode

100%

Study Now!

XY-Copilot AI

Unlimited Access

Secure Payment

Instant Access

24/7 Support

Document Chat

Document Details

Subject

Accounting

Intermediate Accounting Volume 1, Sixth Canadian Edition Solution Manual

Study Now!

Document Details

Related Documents

Intermediate Accounting Volume 2, Seventh Canadian Edition Solution Manual

Solution Manual For Intermediate Accounting Volume 1, Seventh Canadian Edition

Study Notes For Intermediate Accounting Volume 1, Seventh Canadian Edition

Revision Notes for Intermediate Accounting, 2nd Edition

Intermediate Accounting, 10th Edition Test Bank

Intermediate Accounting Volume 2, Seventh Canadian Edition Test Bank

Intermediate Accounting Volume 2 Seventh Canadian Edition Test Bank

Intermediate Accounting Volume 1, Sixth Canadian Edition Lecture Notes

Accounting

Master Managerial Accounting Techniques

Company

Explore

Study Tools