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Homework answers / question archive / 1)Brenda has adjusted gross income (AGI) of $65,000 for this year
1)Brenda has adjusted gross income (AGI) of $65,000 for this year. She usually itemizes her deductions She had to undergo surgery earlier in the year for which she paid $5,700 out of pocket to meet her deductible and co-pay. It is December and she has some dental work pending, and her dentist reminded her on her last visit to get it done as soon as possible. If Brenda decides to undergo the dental treatment for a total out-of-pocket cost of $3,500 and she itemizes deductions, her AGI will be reduced by $5,700 B reduced by $5,700 + $3,500. C ? zero. D reduced by $5,700 + $3,500 - 10% of AGI.
2)Preparing a Trial Balance; Preparing and Interpreting the Balance Sheet LO 2-2, 2-3, 2-4, 2-5 Bearings & Brakes Corporation (B&B) was incorporated as a private company. The company's accounts included the following at June 30: $ 50,000 Land $444,000 Accounts Payable Buildings Cash 500,000 5.000 90.000 Notes Payable (long-term) Retained Earnings Supplies 966,000 Common Stock 170,000 9,000 Equipment 148,000 During the month of July, the company had the following activities: a. Issued 6,000 shares of common stock for $600,000 cash. b. Borrowed $60,000 cash from a local bank, payable in four years. c. Bought a building for $166,000; paid $66,000 in cash and signed a three-year note for the balance. d. Paid cash for equipment that cost $90,000. e. Purchased supplies for $90,000 on account. Required: 1. Analyze transactions (a)-(e) to determine their effects on the accounting equation. Use the format shown in the Page 92 demonstration case. 2. Record the transaction effects determined in requirement 1 using a journal entry format. 3. Summarize the journal entry effects from requirement 2 using T-accounts. 4. Prepare a trial balance at July 31. 5. Prepare a classified balance sheet at July 31. 6. As of July 31, has the financing for B&B's investment in assets primarily come from liabilities or stockholders' equity?
3)Discuss whether the following items would meet the definition of an asset using the IFRS definitions. If so, explain with reference to the appropriate criteria. 1.A franchisee has a licence to operate a Tim Hortons restaurant. 2.The parent company has guaranteed the operating line of credit of its subsidiary, which resulted in the subsidiary obtaining a lower interest rate than it would otherwise receive. Is the guarantee an asset for the subsidiary? 3.FreshWater Inc. bottles and sells the spring water from a natural spring near its property. Is the natural spring an asset of the company? 4.Mountain Ski Resort Ltd. often has to use its snow-making machine to make snow for its hills and trails when there is not enough natural snowfall. Is the snow an asset for Mountain Ski?
1)
Option D
??????Any qualified medical expense in excess of 10% of Aggregate total income will be allowed as deduction while computing tax.
In the given case , Brenda had undergone a suregry earlier in the year for which she paid $5,700 and she also decides to undergo dental care treatment in the month of december which would cost her $3,500.
Assuming that she undergoes the dental care treatment and in such case she will be allowed to reduce her AGI by $5,700 +$ 3500 - 10% of AGI.
Important Note:
Since the question is silent about the year to which the AGI relates thereby it is assumed that AGI relates to year in which qualified medical expenses In excess of 10% of AGI are allowed as deduction.
2)
| Effects on Accounting Equation | |||||
| Sl. No. | Assets | = | Liabilities | + | Shareholder's Equity |
| Opening Balance | 11,91,000.00 | 55,000.00 | 11,36,000.00 | ||
| a | 6,00,000.00 | - | 6,00,000.00 | ||
| b | 60,000.00 | 60,000.00 | - | ||
| c | (66,000.00) | 1,00,000.00 | - | ||
| 1,66,000.00 | |||||
| d | (90,000.00) | - | - | ||
| 90,000.00 | |||||
| e | 90,000.00 | 90,000.00 | - | ||
| Net Effect | 20,41,000.00 | 3,05,000.00 | 17,36,000.00 | ||
| Journal Entris | ||||
| Sl. No. | Particulars | Debit Amount | Credit Amount | |
| a | Cash | 6,00,000.00 | ||
| Common Stock | 6,00,000.00 | |||
| b | Cash | 60,000.00 | ||
| Bank Loan | 60,000.00 | |||
| c | Building | 1,66,000.00 | ||
| Cash | 66,000.00 | |||
| Notes Payable | 1,00,000.00 | |||
| d | Equipment | 90,000.00 | ||
| Cash | 90,000.00 | |||
| e | Supplies | 90,000.00 | ||
| Accounts Payable | 90,000.00 |
| Cash Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance B/d | 90,000.00 | By, Building | 66,000.00 |
| To, Common Stock | 6,00,000.00 | By, Equipment | 90,000.00 |
| To, Bank Loan | 60,000.00 | By, Balance C/d | 5,94,000.00 |
| 7,50,000.00 | 7,50,000.00 | ||
| Common Stock Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance C/d | 7,70,000.00 | By, Balance B/d | 1,70,000.00 |
| By, Cash A/c | 6,00,000.00 | ||
| 7,70,000.00 | 7,70,000.00 | ||
| Bank Loan Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance C/d | 60,000.00 | By, Cash A/c | 60,000.00 |
| 60,000.00 | 60,000.00 | ||
| Building Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance B/d | 5,00,000.00 | By, Balance C/d | 6,66,000.00 |
| To, Cash A/c | 66,000.00 | ||
| To, Notes Payable | 1,00,000.00 | ||
| 6,66,000.00 | 6,66,000.00 | ||
| Notes Payable Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance C/d | 1,05,000.00 | By, Balance B/d | 5,000.00 |
| By, Building | 1,00,000.00 | ||
| 1,05,000.00 | 1,05,000.00 | ||
| Equipment Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance B/d | 1,48,000.00 | By, Balance C/d | 2,38,000.00 |
| To, Cash A/c | 90,000.00 | ||
| 2,38,000.00 | 2,38,000.00 | ||
| Supplies Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance B/d | 9,000.00 | By, Balance C/d | 99,000.00 |
| To, Accounts Payable | 90,000.00 | ||
| 99,000.00 | 99,000.00 | ||
| Accounts Payable Account | |||
| Particulars | Dr. Amount | Particulars | Cr. Amount |
| To, Balance C/d | 1,40,000.00 | By, Balance B/d | 50,000.00 |
| By, Supplies | 90,000.00 | ||
| 1,40,000.00 | 1,40,000.00 | ||
| Trial Balance | ||
| Particulars | Debit Amount | Credit Amount |
| Accounts Payable | 1,40,000.00 | |
| Building | 6,66,000.00 | |
| Cash | 5,94,000.00 | |
| Common Stock | 7,70,000.00 | |
| Equipment | 2,38,000.00 | |
| Land | 4,44,000.00 | |
| Notes Payable | 1,05,000.00 | |
| Retained Earnings | 9,66,000.00 | |
| Supplies | 99,000.00 | |
| Bank Loan | 60,000.00 | |
| Total | 20,41,000.00 | 20,41,000.00 |
| Balance Sheet | |||
| Capital & Liabilities | Amount | Assets | Amount |
| Accounts Payable | 1,40,000.00 | Building | 6,66,000.00 |
| Bank Loan | 60,000.00 | Cash | 5,94,000.00 |
| Common Stock | 7,70,000.00 | Equipment | 2,38,000.00 |
| Notes Payable | 1,05,000.00 | Land | 4,44,000.00 |
| Retained Earnings | 9,66,000.00 | Supplies | 99,000.00 |
| Total | 20,41,000.00 | 20,41,000.00 | |
Total Assets Purchased : 346000, Total loan taken : 250000, which is approx 72.25% of purchase amount, so we can say that investmentin assets primerly comes from liabilities or Stakeholders Equity.
3)Definition of Asset as per IFRS: Asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
By applying above criteria for assets, answers to different scenarios are as follows:
| Sr.No. | Situation | Asset or not | Criteria |
| 1 | A franchisee has a licence to operate a Tim Hortons restaurant | Asset | Having a franchisee name provides you an resource that is controlled by entity from which franchisee holder can expect future economic benefits. In our case Franchisee has a licence to operate a Tim Hortons restraunt, in that case franchisee holder can earn economic benefits in the name of Tim Hortons restruants. It is treated as Intangible asset becuause it can not be touched. |
| 2 | The parent company has guaranteed the operating line of credit of its subsidiary, which resulted in the subsidiary obtaining a lower interest rate than it would otherwise receive. Is the guarantee an asset for the subsidiary? | Not an Asset | Providing gurantee to some one does not create resource to such person and also control is also not transferred in case of gurrantee. In the given case parent company has guranteed the operating line to its subsidiary, subsidiary is not having any control over such gurantee, therefore can be termed as Asset |
| 3 | FreshWater Inc. bottles and sells the spring water from a natural spring near its property. Is the natural spring an asset of the company | Asset | Any resource whether it is natural or artificial if controlled by entity to have future economic benefits can be termed as assets. Since Fresh water Inc bottles water from natural spring, we can assume is having control over that. Control here doesn't restricted to ownership only. Since Spring water is a resource that is controlled by Fresh water Inc and from this company is having future economic benefits, therefore to be termed as Assets. If no amount was paid by FreshWater Inc. for natural spring, the same can be recorded at nominal value |
| 4 | Mountain Ski Resort Ltd. often has to use its snow-making machine to make snow for its hills and trails when there is not enough natural snowfall. Is the snow an asset for Mountain Ski? | Not an Asset | Here Snow is an output generated by the snow-making machine for the hills near Mountain Ski Resort Ltd. It can not be termed as asset as it is not a resource that is controlled by Mountain Ski Resort Ltd |
