Prepare diana healthy journal entries relating to the above

Question

Part -1:

Question 1. Assume that a subsidiary had recorded an impairment loss due to a revaluation under IAS 16: Property, Plant, and Equipment. Which of the following statements is true?
a. The loss can be reversed and is reported in net income.
b. The loss can be reversed and is reported in other comprehensive income.
c. The loss can be reversed and is reported directly to retained earnings.
d. The loss cannot be reversed.

Question 2. Tom Ltd. purchased a machine from its subsidiary, Pam Co., for $81,000. Pam had acquired the machine a few years ago for $225,000. At the time of sale, Pam had taken accumulated amortization of$157,000. How should the machine be reported on Tom's
consolidated balance sheet?
a. machine $225,000, accumulated amortization $157,000
b. machine $225,000, accumulated amortization $0
c. machine $67,500, accumulated amortization $0
d. machine $81,000, accumulated amortization $

Question 3. A gain on bond retirement arose when a subsidiary acquired all of its parent company's bonds on the open market. What approach does IFRS recommend for allocating the gain?
a. The whole gain should be allocated to the issuing company.
b. The whole gain should be allocated to the subsidiary company.
c. The gain should be allocated between the issuing and purchasing companies.
d. IFRS is silent on how to do the allocation.

Question 4. Neil Ltd. acquired blocks of Jack Ltd. as follows:

20X1	5%
20X3	10%
20X4	20%
20X6	25%
20X8	20%
	80%

Which of the following is true about Neil's 20X8 acquisition?
a. Jack must be revalued to fair value, taking into consideration prior acquisition differentials and amortization.
b. Jack must be revalued to fair value, ignoring prior acquisition differentials and amortization.
c. Only the non-controlling interest must be revalued.
d. Neil should treat the acquisition as an equity transaction.

Use the following information for Questions 5 and 6:

Balance Sheets
December 31 20X7

	Kim Ltd.	Pat Ltd.
Current assets	$ 503,100	$ 417,600
Equipment	32,400	-
Accumulated amortization	(10,800)	-
Investment in Paxton Ltd.	202,500	-
Total assets	727)00	4171600
Current liabilities	216,000	162,000
Common shares	270,000	144,000
Retained earnings	241,200	111,600
Total liabilities and shareholders' equity	$ 727)00	$ 4171600

Income Statements
For the Year Ended December 31 20X7

	,
	Kim Ltd.	Pat  Ltd.
Sales	$ 360,000	$ 138,600
Gain on sale of equipment	-	5,400
	360,000	144,000
Amortization expense	10,800	-
Other expenses	248,400	93,600
Income tax expense	39,600	19,800
	298,800	113,400
Net income	$ 611200	$ 302600

Statements of Changes in Equity - Retained Earnings Section
For the year ended December 31, 20X7

	Kim  Ltd.	Pat  Ltd.
Balance, December 31, 20X6	$ 216,000	$	81,000
Net income	61,200		30,600
	277,200		111,600
Dividends declared	36,000		-
Balance, December 31, 20X7	$ 2412200	$ 1111600

Kim Ltd. acquired 90% of Pat Ltd.'s voting shares several years ago. The investment has been recorded using the cost method. On January 2, 20X7, Pat sold a machine to Kim for $32,400, earning a profit of $5,400. Kim has determined that the machine has a remaining useful life of 3 years. Assume that all income, including the gain, for both companies is taxed at an average rate of 40%.

Question 5. What amount should be reported for accumulated amortization on Kim's 20X7 consolidated balance sheet?

a. $5,400
b. $9,000
c. $10,800
d. $12,600

Question 6. What amount of Kim's consolidated net income should be attributed to Kim's shareholders?
a. $61,200
b. $80,676
c. $86,796
d. $89,640

Question 7. Apple Ltd. owned 95% of Arnold Ltd. At the beginning of this year, Apple sold 10% of its interest in Arnold, realizing a gain of $1 0,000. How is this gain treated on the consolidated financial statements?
a. as an increase to consolidated net income
b. as an increase to other consolidated comprehensive income
c. as an increase to consolidated contributed surplus
d. not reflected on consolidated financial statements

Question 8. Under IAS 21: Foreign Exchange Rate, at what rate should interest expense be translated at the end of the reporting period?
a. historical rate
b. average rate
c. closing rate
d. forward rate

Question 9. Which of the following statements is true about exchange gains?
a. They are reported as a direct adjustment to retained earnings.
b. They are reported only when realized.
c. They are reported as a separate item under shareholders' equity.
d. They are reported on the income statement.

Question 10. What is presented on the balance sheet under the gross method of recording a forward contract?
a. The receivable to the bank and the payable to the bank are presented separately at fair value.
b. The receivable to the bank and the payable to the bank are presented separately at the forward rate.
c. The receivable to the bank and the payable to the bank are offset against each other, and only the net receivable or net payable is presented at fair value.
d. The receivable to the bank and the payable to the bank are offset against each other, and only the net receivable or net payable is presented at the forward rate.

Question 11. Lina Ltd. is using a derivative as a hedging instrument and has designated it a cash flow hedge. How is the gain/loss on the derivative treated?
a. It is initially reported in profit and subsequently reclassified to other comprehensive income.
b. It is initially reported as other comprehensive income and subsequently reclassified to profit.
c. It is reported as a direct adjustment to retained earnings.
d. It is reported as a separate item under shareholders' equity.

Question 12. Under the current rate method, what is share capital translated at?
a. current rate
b. historical rate
c. average rate
d. closing rate

Question 13. David Ltd. is a private enterprise with a foreign subsidiary. Under which of the following methods of accounting for subsidiaries is David not required to translate the financial statements of the subsidiary?
a. cost or equity
b. fair value or equity
c. cost or fair value
d. equity

Question 14. On June 1, 20Xl, Ontario Co. shipped FC $60,000 of inventory to its foreign customer, Sammy Ltd. Ontario expects to receive payment in full from Sammy by July 31, 20Xl.

Ontario has a June 30 year-end and has provided the following information:

June 1, 20Xl FC $1 = $1.141 CAD
June 30, 20Xl FC $1 = $1.142 CAD
July 31, 20Xl FC $1 = $1.145 CAD

What is Ontario's total exchange gain on this transaction?
a. $60
b. $120
c. $240
d. $300

Question 15. Which of the following statements is true?
a. The relationship of balance sheet items is not preserved under either the temporal or current rate methods of translation.
b. Balance sheet items are treated in the same manner under both the temporal and the current rate method of translation.
c. The relationship of balance sheet items is best preserved under the temporal method of translation.
d. The relationship of balance sheet items is best preserved under the current rate method of translation.

Question 16. Kelly Co. has the following 4 segments:

Segment	Assets	Revenues	Profit
A	$30,000	$300,000	$120,000
B	60,000	18,000	9,000
C	120,000	90,000	3,000
D	120,000	50,000	15,000

Using only the profit test, which of the following segments would be reportable?
a. A and D
b. A and B
c. Band C
d. A only

Question 17. Endowment contributions are a special type of
a. unrestricted contribution.
b. restricted contribution.
c. contribution by bequest.
d. contribution in trust.

Question 18. Under the reporting requirements of the PSA Handbook, which of the following statements is not one of the statements that governments are required to present?
a. statement of remeasurement gains and losses
b. statement of changes in net debt
c. statement of changes in net assets
d. statement of cash flows

Question 19. Under the restricted fund method, transfers between funds
a. are not permitted.
b. are reported as changes in fund balances.
c. are reported as revenues and expenses.
d. must be done through the unrestricted fund.

Question 20. An ABC received an unsolicited donation of a new washing machine. It has no intention of using the washing machine and will be auctioning it off at its annual fundraiser next year. How should the washing machine be reflected in the financial statements?
a. as a contribution to the capital fund
b. as a gain on the statement of operations
c. as a capital asset
d. as another asset

Part -2: Questions

Q1

Sara Lighting Ltd. paid $2,700,000 for all the shares of Chad Lamps Ltd. at the beginning of its fiscal year. Sara will be preparing consolidated financial statements. The following information pertains to Chad' s assets and liabilities at the acquisition date:

	Book	Fair
	Value	Value	Tax Basis
Inventory	$ 180,000	$ 180,000	$ 180,000
Accounts Receivable	225,000	225,000
Land	338,400	450,000	450,000
Building (net)	666,000	675,000	450,000
Equipment (net)	603,000	562,500	450,000
Accounts payable	157,500	157,500	157,500

Both Sara and Chad have a tax rate of 50%. Chad has not established any deferred tax asset or liability accounts on its books.

Required:
a. Calculate the goodwill that should be presented on Sara's consolidated balance sheet.

b. Determine if a deferred tax asset or deferred tax liability should be presented on Sara's consolidated balance sheet. If so, calculate the amount and identify if it is an asset or a liability. If no deferred tax asset or liability should be presented, explain why.

c. Explain the difference between a taxable temporary difference and a deductible temporary difference, and describe how they are treated for accounting purposes.

Q2

Canadian Premium Seafood Ltd. (CPS) sells fresh seafood to a large number of international clients. On September l, 20X3, CPS entered into a contract to sell goods to a foreign customer for FC 600,000. CPS delivered the goods to the customer on October l, 20X3 and received payment on November 30, 20X3. On September 1, CPS also entered into a forward contract to deliver FC 600,000 on November 30 at a rate ofFC 1 = $ 1.70 CAD. CPS had designated this as a fair value hedge on a firm commitment. On October 1, the forward rate on FCs to November 30 was FC 1= $1.72 CAD. At CPS's October 31, 20X3 year-end, the forward rate for FCs was FCl = $1.74 CAD.

Required:

September 1, 20X3             FC 1 = $1.67 CAD
October l, 20X3                   FC 1 = $1.70 CAD
October 31, 20X3                FC 1 = $1.72 CAD
November 30, 20X3            FC 1 = $1.69 CAD

a. Prepare dated journal entries to record the hedging transactions using the gross method.

b. Explain how the premium paid on a forward contract to hedge a firm commitment to purchase inventory is reported in income when the inventory is purchased

i. for cash, and
ii. on account.

Q3

On April l, 20X7, Rona Ltd., a Canadian company, established a wholly-owned foreign subsidiary called Tim Ltd. Tim issued shares to Rona in exchange for cash. On May 31, 20X7, Tim received an interest-free loan from Lorry Inc., another subsidiary of Rona. Tim anticipates that at least half of its sales will be to Lorry. With the loan, Rona helped Tim acquire inventory and a tract of land on June 30, 20X7. Tim plans to construct a building on the land in 3 years. In the meantime, Rona is allowing Tim to use some of its surplus space rent-free.

On January 1, 20X8, Tim acquired a packing machine. Because of some regulatory issues, Tim was not able to begin operations until 20X8. Additional purchases of inventory were made evenly throughout the year. The goods in ending inventory were purchased on November 30, 20X8.

Selected exchange rates for the local currency, FC, to the Canadian dollar are as follows:

April 1, 20X7	FCI = $2.00
May 31, 20X7	FCI = $1.98
June 30, 20X7	FCI = $2.00
December 31, 20X7	FCl = $2.30
November 30, 20X8	FCI = $2.45
December 31. 20X8	FCI = $2.50
20X7 average	FCI = $2.15
20X8 average	FCI = $2.40

Tim has provided the following financial information, denominated in FC:

Tim Ltd.
Statement of Financial Position
Years ended December 31
(in FC)

		20X8	20X7
Assets
Current assets:
Cash		138,600	158,400
Accounts receivable		99,000
Inventory		79,200	158,400
		316,800	316,800
Non-current assets:
Land		316,800	316,800
Packing machine	237,600
Accumulated amortization	(39,600)	198,000
Total assets		514,800	316,000
Liabilities and shareholder's equity Liabilities:		831.600	633,600
Accounts payable - current		174,240	39,600
Loan payable - long-term		198,000	198,000
		372,240	237,600
Shareholder's equity:
Common shares		396,000	396,000
Retained earnings		63,360
		459,360	396,000
Total liabilities and shareholder's equity		831,600	633,600

Tim Ltd.
Statement of Net and Comprehensive Income
Year ended December 31, 20X8
(in FC)

Sales		475,200
Cost of sales:
Opening inventory	158,400
Purchases	237,600
Ending inventory	(79,200)	316,800
Gross profit		158,400
Expenses:
Amortization	39,600
Other	55,440	95,040
		63,360

Net and comprehensive income

Required:

a. There are a number of indicators that a Canadian business should consider in determining the functional currency for its foreign subsidiary. Identify two of these indicators and provide an example of a condition that would indicate that the Canadian dollar is the
functional currency.

b. Assume that the functional currency is the Canadian dollar in the above scenario.

i. What type of foreign subsidiary is Tim?
ii. Calculate Tim's translation gain/loss at December 31, 20X7.
iii. Prepare translated financial statements for 20X8.
iv. Prepare an independent calculation (analysis) of the 20X8 translation gain/loss to prove the balance.
c. Assume that the functional currency is not the Canadian dollar in the above scenario.

i. What type of foreign subsidiary is Tim?
ii. Calculate Tim's translation gain/loss at December 31, 20X7.
iii. Prepare translated financial statements for 20X8.
iv. Prepare an independent calculation (analysis) of the 20X8 translation gain/loss to prove the balance.

Remember to show all your work.

Q4

Diana Healhy is a not-for-profit organization that provides respite care for patients with dementia.

Over the years, Aron Enterprises Ltd. has become a very big supporter of Diana Healthy. This year, Aron surprised Diana Healthy by donating a building and the land that it stands on. The building has a fair value of $1,800,000 and an estimated remaining useful life of 25 years. The land has a fair value of $270,000. Diana Healthy uses straight-line amortization and expects the building to have a $180,000 residual value. Its accounting policy requires it to take a full year of amortization in the year of acquisition. Diana Healthy will be moving to the new building and will sell their current building to finance its operations.

Required:
a. Prepare Diana Healthy journal entries relating to the above donation by Aron Enterprises for the current year assuming that
i. Diana Healthy uses the deferral method to record contributions.
ii. Diana Healthy uses the restricted fund method to record contributions.
b. Diana Healthy sometimes receives endowment contributions. Explain what an endowment contribution is, and describe how Diana Healthy should record it under the restricted fund method.