Intermediate Accounting, Volume 2, 10th Canadian Edition Solution Manual

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
CHAPTER 13
NON-FINANCIAL AND CURRENT LIABILITIES
ASSIGNMENT CLASSIFICATION TABLE
Topics
Brief
Exercises Exercises Problems
Writing
Assign-
ments
1. Concept of liabilities;
definition and
classification.
1 1 1 2, 5
2. Current liabilities
including accounts
and notes payable,
dividends payable,
sales and income tax
payable and short-
term obligations
expected to be
refinanced.
2, 3, 4, 5,
6, 7, 8, 9,
10, 11, 12
2, 3, 4, 5,
6, 7, 8
1, 2, 3, 4
3. Employee-related
liabilities.
13, 14, 15,
16, 17
6, 9, 10,
11, 12, 13
3, 5, 6, 7 4
4. Asset retirement
obligations.
18, 19, 20 14, 15 1, 4, 8 1
5. Unearned revenues,
product guaranties,
warranties and other
customer programs.
21, 22, 23,
24
6, 16, 17,
18, 19, 20,
21, 22, 23
1, 3, 4, 9,
10, 11, 12,
13, 14, 15
1, 3
6. Contingencies,
guarantees and
uncertain
commitments.
25, 26 6, 24 8, 9, 16, 17 1, 3, 4
7. Presentation and
analysis.
27 25, 26, 27 3, 8, 9, 17 5

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
ASSIGNMENT CHARACTERISTICS TABLE
Item Description
Level of
Difficulty
Time
(minutes)
E13-1 Balance sheet classification of various
liabilities.
Simple 10-15
E13-2 Accounts and notes payable. Moderate 20-25
E13-3 Liability for returnable containers. Moderate 15-20
E13-4 Entries for sales tax. Simple 20-30
E13-5 Income Tax. Moderate 15-20
E13-6 Financial statement impact of liability
transactions.
Moderate 30-35
E13-7 Refinancing of short-term debt. Simple 10-12
E13-8 Refinancing of short-term debt. Simple 10-15
E13-9 Payroll tax entries. Simple 15-20
E13-10 Compensated absences – vacation and
sick pay.
Moderate 25-30
E13-11 Compensated absences – vacation and
sick pay.
Moderate 25-30
E13-12 Compensated absences – parental
benefits.
Moderate 25-30
E13-13 Bonus calculation and income
statement preparation.
Complex 15-20
E13-14 Asset retirement obligation. Moderate 20-25
E13-15 Asset retirement obligation. Moderate 25-35
E13-16 Warranties – expense approach and
cash basis.
Simple 10-15
E13-17 Warranties – expense approach. Moderate 15-20
E13-18 Warranties – expense approach and
revenue approach.
Moderate 20-25
E13-19 Warranties – expense approach and
revenue approach.
Moderate 15-20
E13-20 Premiums. Moderate 15-20
E13-21 Premiums. Moderate 20-30
E13-22 Premiums. Simple 10-15
E13-23 Coupons and rebates. Moderate 15-20
E13-24 Contingencies and commitments. Moderate 20-30
E13-25 Ratio calculations and discussion. Simple 15-20
E13-26 Ratio calculations and analysis. Simple 20-25
E13-27 Ratio calculations and effect of
transactions.
Moderate 15-25

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Item Description
Level of
Difficulty
Time
(minutes)
P13-1 Current liability entries and adjustments. Simple 40-50
P13-2 Instalment note. Moderate 30-35
P13-3 Current liabilities: various. Complex 45-55
P13-4 Asset retirement obligation and
warranties.
Moderate 25-35
P13-5 Payroll tax entries. Moderate 20-30
P13-6 Payroll tax entries. Moderate 20-25
P13-7 Bonus calculation. Moderate 25-30
P13-8 Loss contingencies: entries and essay. Moderate 45-50
P13-9 Advances, self-insurance, loss
contingencies, guarantees and
commitments.
Moderate 25-30
P13-10 Warranties, accrual and cash basis. Simple 20-25
P13-11 Extended sales warranties. Moderate 20-30
P13-12 Warranty calculations. Moderate 20-25
P13-13 Premium entries. Moderate 30-45
P13-14 Premium entries and financial statement
presentation.
Moderate 30-45
P13-15 Warranties and premiums. Simple 25-30
P13-16 Guarantees and contingencies. Complex 35-45
P13-17 Loss contingencies: entries and essays. Moderate 45-50

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 13-1
(a) Working capital is the excess of total current assets over
total current liabilities. It represents the liquid buffer that is
available to meet the financial demands of the company’s
operating cycle. Current liabilities place a demand on the
company’s current assets. Management of the due dates of
current liabilities and management of current assets to
generate cash on a timely basis are important for effective
management of business operations. Effective
management of working capital to achieve high liquidity
may also contribute to positive cash from operating
activities as seen on the statement of cash flows.
(b) Wellson can improve its management of working capital by
focusing on management of current liabilities as well as
current assets. For example, if Wellson has a cash flow
shortage, it can take advantage of the full credit period
extended by its suppliers. As another example, Wellson
may also time the due dates of short-term notes payable to
coincide with expected periods of positive cash flow.
BRIEF EXERCISE 13-2
07/01 Purchases ................................................... 60,000
Accounts Payable .............................. 60,000
Freight-in ..................................................... 1,200
Cash ................................................... 1,200
07/03 Accounts Payable ....................................... 6,000
Purchase Returns and Allowances .. 6,000
07/10 Accounts Payable ....................................... 54,000
Cash ................................................... 52,920
Purchase Discounts .......................... 1,080

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-3
07/01 Purchases ($60,000 X 98%) ........................ 58,800
Accounts Payable .............................. 58,800
Freight-in ..................................................... 1,200
Cash ................................................... 1,200
07/03 Accounts Payable ($6,000 X 98%) ............. 5,880
Purchase Returns and Allowances .. 5,880
07/10 Accounts Payable ($54,000 X 98%) ........... 52,920
Cash ................................................... 52,920
BRIEF EXERCISE 13-4
11/01/14 Cash ...................................................... 40,000
Notes Payable .............................. 40,000
12/31/14 Interest Expense ................................... 600
Interest Payable ........................... 600
($40,000 X 9% X 2/12)
02/01/15 Notes Payable ....................................... 40,000
Interest Payable .................................... 600
Interest Expense ................................... 300
Cash .............................................. 40,900
BRIEF EXERCISE 13-5
01/01/15 Interest Payable .................................... 600
Interest Expense .......................... 600
02/01/15 Notes Payable ....................................... 40,000
Interest Expense ................................... 900
Cash .............................................. 40,900

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-6
11/01/14 Cash ...................................................... 60,000
Notes Payable .............................. 60,000
12/31/14 Interest Expense ................................... 900
Notes Payable .............................. 900
($1,350 X 2/3)
02/01/15 Interest Expense ................................... 450
Notes Payable .............................. 450
Notes Payable ....................................... 61,350
Cash .............................................. 61,350
BRIEF EXERCISE 13-7
Accounts Receivable ........................................... 41,810
Sales Revenue ............................................. 37,000
HST Payable ($37,000 X 13%) ..................... 4,810
BRIEF EXERCISE 13-8
Purchases ............................................................. 29,400
GST Receivable ($29,400 X 5%)........................... 1,470
Accounts Payable ....................................... 30,870
Accounts Receivable ........................................... 47,250
Sales Revenue ............................................. 45,000
GST Payable ................................................ 2,250
GST Payable ......................................................... 2,250
Cash ............................................................. 780
GST Receivable ........................................... 1,470

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-9
Income Tax Expense ............................................ 12,800
Cash ($3,200 X 4)......................................... 12,800
Income Tax Expense ($20,000 – $12,800) ........... 7,200
Income Tax Payable .................................... 7,200
At year end, the company would report Income Tax Payable of
$7,200 in current liabilities.
BRIEF EXERCISE 13-10
Income Tax Receivable ........................................ 2,600
Income Tax Expense ................................... 2,600
($12,800 – $10,200)
At year end, the company would report Income Tax Receivable
of $2,600 in current assets.
BRIEF EXERCISE 13-11
(a) Under IFRS, the $600,000 debt is reclassified as current
because the long-term debt agreement is violated and the
liability becomes payable on demand. It should be noted
that under IFRS, the debt is reclassified as current, even if
the lender agrees between the date of the statement of
financial position and the date the financial statements are
released that it will not demand repayment because of the
violation.
(b) Under ASPE, the $600,000 debt is reclassified as current
unless the creditor waives in writing the covenant
(agreement) requirements, or the violation has been cured
within the grace period that is usually given in these
agreements and it is likely that the company will not violate
the covenant requirements within a year from the balance
sheet date.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-12
(a) Under IFRS, since the debt is due within 12 months from
the reporting date, it is classified as a current liability. This
classification holds even if long-term refinancing has been
completed before the financial statements are released.
The only exception accepted for continuing long-term
classification is if, at the balance sheet date, the entity
expects to refinance it or roll it over under an existing
agreement for at least 12 months and the decision is solely
at its discretion.
(b) Under IFRS, the whole $500,000 of maturing debt would
still be classified as a current obligation at December 31,
2014. The international standard has a stringent
requirement that the agreement must be firm at the date of
the statement of financial position in order to qualify for
classification as long-term. (This assumes Burr had not
entered into a long-term agreement prior to the statement
of financial position date.)
(c) For part (a), under ASPE, the debt would be classified as a
long-term liability. If there is irrefutable evidence by the
time the financial statements are completed and released
that the debt has been or will be converted into a long-term
obligation, ASPE allows currently maturing debt to be
classified as long-term on the balance sheet. In this case,
the debt was refinanced before the financial statements
were completed and released.
For part (b), under ASPE, the debt would be classified as a
current liability since there was not irrefutable evidence by
the time the financial statements were completed that the
debt has been or will be converted into a long-term
obligation. (This assumes Burr had not entered into a long-
term agreement prior to the release of the financial
statements.) In addition, since repayment occurred before
funds were obtained through long-term financing, the
repayment used existing current assets.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-13
Salaries and Wages Expense ............................. 23,000
Employee Income Tax Deductions
Payable ................................................... 3,426
CPP Contributions Payable ....................... 990
EI Premiums Payable ................................. 920
Health Insurance Premiums Payable ........ 250
Cash ............................................................ 17,414
BRIEF EXERCISE 13-14
(a)
Payroll Tax Expense ........................................... 2,278
EI Premiums Payable ($920 X 1.4) ............ 1,288
CPP Contributions Payable ....................... 990
(b)
Employee Income Tax Deductions Payable ...... 3,426
CPP Contributions Payable ($990 X 2)............... 1,980
EI Premiums Payable ($920 + $1,288) ................ 2,208
Cash ............................................................ 7,614
BRIEF EXERCISE 13-15
Salaries and Wages Expense ............................. 30,000
Vacation Wages Payable ........................... 30,000
(30 X 2 X $500)

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-16
December 1, 2014:
Employee Benefit Expense* ............................... 11,952
Parental Leave Benefits Payable .............. 11,952
* Salary for 17 weeks ($74,000 ÷ 52 X 17) $24,192
Less: employment insurance
payments ($720/week X 17 weeks) (12,240)
Employee Benefit Expense $11,952
For each of the 4 weeks in December, 2014, Laurin Corporation
will pay Ruzbeh Awad a top up amount and record the payments
as follows:
Parental Leave Benefits Payable........................ 703.08
Cash ............................................................ 703.08
($74,000 ÷ 52 weeks) = $1,423.08 – $720.00 = $703.08
BRIEF EXERCISE 13-17
12/31/14 Bonus Expense .................................. 350,000
Bonus Payable .......................... 350,000
2/15/15 Bonus Payable ................................... 350,000
Cash ........................................... 350,000

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-18
Drilling Platform .................................................. 500,249
Asset Retirement Obligation ..................... 500,249
($1,000,000 X .50025)
Using a financial calculator:
PV ? Yields $ 500,248.97
I 8%
N 9
PMT 0
FV $ (1,000,000)
Type 0
BRIEF EXERCISE 13-19
(a) IFRS
Depreciation Expense ............................... 1,166,694
Accumulated Depreciation –
Drilling Platform ...............................
1,166,694
[($10,000,000 + $500,249) ÷ 9 years]
Interest Expense ....................................... 40,020
Asset Retirement Obligation ........... 40,020
($500,249 X 8%)
(b) ASPE
Depreciation Expense ............................... 1,166,694
Accumulated Depreciation–
Drilling Platform ...............................
1,166,694
[($10,000,000 + $500,249) ÷ 9 years]
Accretion Expense .................................... 40,020
Asset Retirement Obligation ........... 40,020
($500,249 X 8%)

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-20
(a) IFRS
Inventory .................................................... 54,027
Asset Retirement Obligation ........... 54,027
(b) ASPE
Drilling Platform ........................................ 54,027
Asset Retirement Obligation ........... 54,027
BRIEF EXERCISE 13-21
2014 Cash, A/R, etc. ................................... 2,500,000
Sales Revenue—Product......... 2,500,000
2014 Warranty Expense ............................. 63,000
Cash, Inventory, etc. ................ 63,000
12/31/14 Warranty Expense ............................. 420,000
Warranty Liability ..................... 420,000
BRIEF EXERCISE 13-22
2014 Cash, A/R, etc. ................................... 2,500,000
Sales Revenue—Product......... 1,900,000
Unearned Warranty Revenue .. 600,000
2014 Warranty Expense ............................. 63,000
Accounts Payable,
Salaries and Wages
Payable, etc. .........................
63,000
12/31/14 Unearned Warranty Revenue ........... 150,000
Warranty Revenue ................... 150,000
$600,000 X 25%

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-23
Note that this warranty contract is a separate service and should
be accounted for using the revenue approach, which is the
preferred method under both IFRS and ASPE for multiple
deliverables (bundled sales).
(a) Cash ....................................................... 1,980,000
Unearned Warranty Revenue ...... 1,980,000
(20,000 X $99)
(b) Warranty Expense ................................. 180,000
Cash, Inventory, etc. .................... 180,000
(c) Unearned Warranty Revenue ............... 330,000
Warranty Revenue ....................... 330,000
[$1,980,000 X ($180,000/$1,080,000*)]
* $180,000 + $900,000 = $1,080,000

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-24
(a) IFRS
Inventory of Premiums ................................. 250,000
Cash ...................................................... 250,000
100,000 X $2.50
Cash, A/R, etc. ............................................... 4,000,000
Sales Revenue ...................................... 3,600,000
Unearned Premium Revenue ............... 400,000*
* 1,000,000 X $4.00 X 10%
Cash. .............................................................. 80,000**
Premium Expense ......................................... 120,000
Inventory of Premiums......................... 200,000***
** 240,000/3 X $1.00
*** 240,000/3 X $2.50
Unearned Premium Revenue ........................ 320,000
Sales Revenue ...................................... 320,000
240,000/(1,000,000 X 30%) X $400,000
(b) ASPE
Inventory of Premiums ................................. 250,000
Cash ...................................................... 250,000
100,000 X $2.50
Cash, A/R, etc. ............................................... 4,000,000
Sales Revenue ...................................... 4,000,000
Cash. .............................................................. 80,000**
Premium Expense ......................................... 120,000
Inventory of Premiums......................... 200,000***
** 240,000/3 X $1.00
*** 240,000/3 X $2.50
Premium Expense ......................................... 30,000
Premium Liability ................................. 30,000
[(1,000,000 X 30%) – 240,000] / 3 X ($2.50 -
$1.00)

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition
BRIEF EXERCISE 13-25
(a) Litigation Expense ...................................... 700,000
Litigation Liability .............................. 700,000
(b) Litigation Expense ...................................... 700,000
Litigation Liability .............................. 700,000
(c) No entry is necessary. The loss is not accrued because it
is not probable that a liability has been incurred at
12/31/14.
(d) ASPE where Litigation Liability is likely:
Litigation Expense ................................... 700,000
Litigation Liability ........................... 700,000
ASPE where Litigation Liability is not likely:
No entry is necessary. The loss is not accrued because it is
not likely that a liability has been incurred at 12/31/14.

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