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Homework answers / question archive / 1) Harrington Company was sued by an employee in late 2017
1) Harrington Company was sued by an employee in late 2017. General counsel concluded that there was an 70 percent probability that the company would lose the lawsuit. The range of possible loss is estimated to be $32,000 to $76,000, with no amount in the range more likely than any other. The lawsuit was settled in 2018, with Harrington making a payment of $63,000.
Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.
Required: a. Prepare journal entries for this lawsuit for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
b. Prepare the entry(ies) that Harrington would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.
2. Parnell Company acquired construction equipment on January 1, 2017, at a cost of $74,100. The equipment was expected to have a useful life of six years and a residual value of $12,000 and is being depreciated on a straight-line basis. On January 1, 2018, the equipment was appraised and determined to have a fair value of $69,600, a salvage value of $12,000, and a remaining useful life of five years. In measuring property, plant, and equipment subsequent to acquisition under IFRS, Parnell would opt to use the revaluation model in IAS 16.
Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.
Required:
a. Prepare journal entries for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
b. Prepare the entry(ies) that Parnell would make on the December 31, 2018 conversion worksheet to convert U.S. GAAP balances to IFRS.
3. Trecek Corporation incurs research and development costs of $668,000 in 2017, 30 percent of which relate to development activities subsequent to IAS 38 criteria having been met that indicate an intangible asset has been created. The newly developed product is brought to market in January 2018 and is expected to generate sales revenue for 10 years.
Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must
Required:
a. Prepare journal entries for research and development costs for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
b. Prepare the entry(ies) that Trecek would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS be made. Ignore income taxes.
4. Ecru Company has identified five industry segments: plastics, metals, lumber, paper, and finance.
It appropriately consolidated each of these segments in producing its annual financial statements. Information describing each segment (in thousands) follows:
Plastics Metals Lumber Paper Finance
Sales to outside parties $ 6,835 $ 2,404 $ 736 $ 447 $ 0 Intersegment transfers 160 183 148 160 0
Interest income from outside parties 0 39 26 0 47 Interest income from intersegment loans 0 0 0 0 211 Operating expenses 4,314 1,812 1,116 679 36 Interest expense 81 36 71 23 107 Tangible assets 1,564 3,246 574 821 204 Intangible assets 92 413 0 68 0 Intersegment loans (debt) 0 0 0 0 716
Ecru does not allocate its $1,410,000 in common expenses to the various segments.
Perform testing procedures to determine Ecru’s reportable operating segments.
a. Revenue test:
b. Profit or loss test:
c. Asset test:
5. Noventis Corporation prepared the following estimates for the four quarters of the current year
First Quarter Second Quarter Third Quarter Fourth Quarter
Sales $ 1,550,000 $ 1,860,000 $ 2,170,000 $ 2,480,000 Cost of goods sold 455,000 535,000 605,000 655,000 Administrative costs 360,000 210,000 215,000 225,000 Advertising costs 0 200,000 0 0 Executive bonuses 0 0 0 96,000 Provision for bad debts 0 0 0 74,000 Annual maintenance costs 82,000 0 0 0
Additional Information
First-quarter administrative costs include the $100,000 annual insurance premium.
Advertising costs paid in the second quarter relate to television advertisements that will be broadcast throughout the entire year.
No special items affect income during the year.
Noventis estimates an effective income tax rate for the year of 40 percent
a. Assuming that actual results do not vary from the estimates provided, determine the amount of net income to be reported each quarter of the current year.
b. Assume that actual results do not vary from the estimates provided except for that in the third quarter, the estimated annual effective income tax rate is revised downward to 38 percent. Determine the amount of net income to be reported each quarter of the current year.
