183
7/25/2019 sm ch (14).doc http://slidepdf.com/reader/full/sm-ch-14doc 1/183 Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition CHAPTER 14 LONG-TERM FINANCIAL LIABILITIES ASSIGNMENT CLASSIFICATION TABLE Topics Brief Exercises Exercises Probles !ri"i#$ Assi$#e#" 1. nderstand the nature of long!term de"t. 1, # 1, # 1, # $ #. nderstand ho% long!term de"t is measured and accounted for. &, ', (, $, ), *, +, 1, 11, 1#, 1&, 1', 1(, 1$, 1), 1* &, ', (, $, ), *, +, 1, 11, 1#, 1&, 1', 1(, 1$, 1), 1* 1, #, &, ', (, $, ), *, + &, $ &. -ecognition and derecognition of de"t and de"t restructurings. 1+, #, #1 1), 1+, #, #1, ##, #&, #', #(, #$, #), #*, #+ 1, 11, 1#, 1&, 1', 1(, 1$, 1) 1, ' '. resentation of long!term de"t. #' 1$, 1*, &, &1 #, + & (. /isclosure re0uirements. &# * $. ong!term de"t analysis. #( ) # ). /ifferences "et%een A2E and I3-2. ( 45TE6 If your students are sol7ing the end!of!cha8ter material using a financial calculator or an E9cel s8readsheet as o88osed to the : ta"les, 8lease note that there %ill "e a difference in amounts. E9cel and financial calculators yield a more 8recise result as o88osed to : ta"les. The amounts used for the 8re8aration of  ;ournal entries in solutions ha7e "een 8re8ared from the results of calculations arri7ed at using the : ta"les. Solutions Manual 14-1 Chapter 14 . 

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

CHAPTER 14

LONG-TERM FINANCIAL LIABILITIES

ASSIGNMENT CLASSIFICATION TABLE

TopicsBrief 

Exercises Exercises Probles!ri"i#$

Assi$#e#"

1. nderstand the nature oflong!term de"t.

1, # 1, # 1, # $

#. nderstand ho% long!termde"t is measured andaccounted for.

&, ', (, $,), *, +, 1,11, 1#, 1&,1', 1(, 1$,1), 1*

&, ', (, $,), *, +, 1,11, 1#, 1&,1', 1(, 1$,1), 1*

1, #, &, ',(, $, ), *,+

&, $

&. -ecognition andderecognition of de"t andde"t restructurings.

1+, #, #1 1), 1+, #,#1, ##, #&,#', #(, #$,#), #*, #+

1, 11,1#, 1&,1', 1(,1$, 1)

1, '

'. resentation of long!termde"t.

#' 1$, 1*, &,&1

#, + &

(. /isclosure re0uirements. &# *

$. ong!term de"t analysis. #( ) #

). /ifferences "et%een A2Eand I3-2.

(

45TE6 If your students are sol7ing the end!of!cha8ter material using a financialcalculator or an E9cel s8readsheet as o88osed to the : ta"les, 8lease note thatthere %ill "e a difference in amounts. E9cel and financial calculators yield a more

8recise result as o88osed to : ta"les. The amounts used for the 8re8aration of  ;ournal entries in solutions ha7e "een 8re8ared from the results of calculationsarri7ed at using the : ta"les.

Solutions Manual 14-1 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE

I"e %escrip"io#Le&el of %iffic'l"(

Tie)i#'"es*

  E1'!1 3eatures of long!term de"t. 2im8le 1!1(  E1'!# Information related to 7arious "ond

issues.2im8le #!&

  E1'!& Entries for "ond transactions. 2im8le 1(!#  E1'!' Entries for "ond transactions<effecti7e

interest.2im8le 1(!#

  E1'!( Entries for "ond transactions<straight!line.

2im8le 1(!#

  E1'!$ Entries for noninterest!"earing de"t. 2im8le 1(!#  E1'!) Im8utation of interest. 2im8le 1(!#E1'!* Instalment note. Moderate 1(!#E1'!+ urchase of e0ui8ment %ith noninterest!

"earing de"t.Moderate 1(!#

  E1'!1 urchase of e0ui8ment %ith noninterest!"earing de"t.

Moderate 1(!#

  E1'!11 Entries for "ond transactions. Moderate 1(!#  E1'!1# Amorti=ation schedule<straight!line. 2im8le 1(!#  E1'!1& Amorti=ation schedule<effecti7e interest. 2im8le 1(!#  E1'!1' /etermine 8ro8er amounts in account

"alances.Moderate 1(!#

E1'!1( >o7ernment interest free loan Moderate 1(!#  E1'!1$ Entries and 0uestions for "ond

transactions.Moderate #!&

  E1'!1) Entries for retirement of "onds. 2im8le 1!1(  E1'!1* Entries for retirement and issuance of

"onds ? straight line.2im8le 1(!#

E1'!1+ Entries for retirement and issuance of"onds ? effecti7e interest.

Com8le9 &!&(

  E1'!# Entry for retirement of "ond@ "ond issuecosts.

2im8le 1(!#

  E1'!#1 Entries for retirement and issuance of"onds.

2im8le 1(!#

  E1'!## Im8airments. Moderate 1(!#(  E1'!#& 2ettlement of de"t. Moderate 1(!#

  E1'!#' Term modification de"tors entries. Moderate #!&  E1'!#( Term modification creditors entries. Moderate #(!&  E1'!#$ 2ettlement de"tors entries. Moderate #(!&  E1'!#) 2ettlement creditors entries. Moderate #!&  E1'!#* /e"torBcreditor entries for modification of

trou"led de"t.Moderate #!#(

Solutions Manual 14-2 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE )Co#"i#'e+*

I"e %escrip"io#Le&el of %iffic'l"(

Tie)i#'"es*

  E1'!#+ /e"torBcreditor entries for settlement oftrou"led de"t.

2im8le 1(!#

  E1'!& Classification of lia"ilities 2im8le 1(!#  E1'!&1 Classification. 2im8le 1(!#  E1'!&# ong!term de"t disclosure. 2im8le 1!1(

  1'!1 Entries for noninterest!"earing de"t@8aya"le in instalments.

Moderate #!#(

  1'!# Contrasting note terms. Com8le9 '!(  1'!& Analysis of amorti=ation schedule and

interest entries.2im8le 1(!#

  1'!' Issuance and retirement of "onds. Moderate #(!&  1'!( Com8rehensi7e "ond 8ro"lem. Com8le9 (!$(  1'!$ Issuance of "onds "et%een interest

dates, straight!line, retirement.Com8le9 &!&(

  1'!) Entries for noninterest!"earing de"t. 2im8le 1(!#(  1'!* Issuance and retirement of "onds@

income statement 8resentation.2im8le 1(!#

  1'!+ Com8rehensi7e 8ro"lem@ issuance,classification, re8orting.

Moderate #!#(

  1'!1 Issuance of "onds "et%een interestdates, effecti7e interest, retirement.

Com8le9 &!&(

  1'!11 Entries for life cycle of "onds. Moderate #!#(  1'!1# oan im8airment entries. Moderate &!'  1'!1& /e"torBcreditor entries for continuation

of trou"led de"t.Moderate 1(!#(

  1'!1' -estructure of note under differentcircumstances.

Com8le9 '!(

  1'!1( /e"torBcreditor entries for continuationof trou"led de"t.

Com8le9 '!(

  1'!1$ Entries for trou"led de"t restructuring. Moderate &!&(  1'!1) /e"torBcreditor entries for continuation

of trou"led de"t %ith ne% effecti7e

interest.

Com8le9 '!(

Solutions Manual 14-3 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

SOL,TIONS TO BRIEF EERCISES

BRIEF EERCISE 14-1

).* A bo#+/s cre+i" r."i#$ is . reflec"io# of cre+i" 0'.li"( T2eBBB- cre+i" r."i#$ of "2e bo#+ ." "2e "ie of iss'.#cereflec"e+ .# .ssesse#" of "2e cop.#(/s .bili"( "o p.( "2e.o'#"s "2." 3ill be +'e o# "2." specific bo#+ !i"2 fo'r co#sec'"i&e 0'.r"ers of i#cre.si#$ losses .#+ +e"erior."i#$fi#.#ci.l posi"io# i# 5146 .#+ #e3 cope"i"io# i# "2ei#+'s"r(6 cre+i" .#.l(s"s .( +o3#$r.+e "2e bo#+/s cre+i"r."i#$ "o belo3 i#&es"e#" $r.+e

)b* T2e .r7e" closel( o#i"ors . bo#+/s cre+i" r."i#$ 32e#

+e"eri#i#$ "2e re0'ire+ (iel+ .#+ prici#$ of bo#+s ."iss'.#ce .#+ i# perio+s .f"er iss'.#ce If "2e bo#+/s cre+i"r."i#$ is +o3#$r.+e+6 "2e (iel+ re0'ire+ b( i#&es"ors 3illli7el( i#cre.se6 .#+ "2e price of "2e bo#+s 3ill li7el(+ecre.se6 "o cope#s."e "2e bo#+2ol+er for "2e .++i"io#.lris7 .ssoci."e+ 3i"2 "2." specific bo#+

Solutions Manual 14-4 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-

).* Fi#.#ci#$ is $e#er.ll( ob".i#e+ "2ro'$2 "2ree so'rces8borro3i#$6 iss'i#$ s2.res6 .#+9or 'si#$ i#"er#.ll( $e#er."e+f'#+s Le&er.$e )or 'si#$ borro3e+ o#e( "o i#cre.sere"'r#s "o s2.re2ol+ers* c.# .xii:e re"'r#s "os2.re2ol+ers6 .#+ "2e rel."e+ i#"eres" p.i+ is ".x +e+'c"ibleHo3e&er6 borro3e+ f'#+s 's" be rep.i+ .#+ c.# i#cre.seli0'i+i"( .#+ sol&e#c( ris7 Iss'i#$ s2.res +oes #o" i#cre.seli0'i+i"( .#+ sol&e#c( ris7; 2o3e&er i" .( res'l" i# +il'"io#of o3#ers2ip ,si#$ i#"er#.ll( $e#er."e+ f'#+s .( be.ppropri."e if "2e cop.#(/s b'si#ess o+el is $e#er."i#$excess f'#+s

)b* B.se+ o# "2e i#for."io# pro&i+e+6 borro3i#$ is "2e os"s'i".ble so'rce of fi#.#ci#$ for %o3"( !i"2 . +eb" "o "o".l.sse"s r."io of <<=6 %o3"( is '#+erle&er.$e+ cop.re+ "osiil.r si:e cope"i"ors oper."i#$ i# "2e s.e i#+'s"r( T2ise.#s "2." %o3"( .( #o" be .xii:i#$ re"'r#s "os2.re2ol+ers6 .#+ "2." %o3"( .( be .ble "o fi#.#ce "2eexp.#sio# b( borro3i#$ .#+ s"ill .i#".i# .# .ccep".blele&el of li0'i+i"( .#+ sol&e#c( ris7 As . "eleco'#ic."io#se0'ipe#" .#'f.c"'rer6 %o3"( oper."es i# . c.pi".li#"e#si&e i#+'s"r(6 .#+ . le#+er .( be .ble "o s"r'c"'re "2ele#+i#$ .$reee#" i# s'c2 . 3.( .s "o sec're "2e lo.# 3i"2"2e cop.#(/s '#+erl(i#$ ".#$ible .sse"s

Solutions Manual 14-5 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14->

Prese#" &.l'e of "2e pri#cip.l  ?<556555 >@ ?1644<Prese#" &.l'e of "2e i#"eres" p.(e#"s  ?@6<55 141 >46@11

Iss'e price ?<>161<

Excel for'l.8DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P  iel+s ? <>161<

I <=

N 5PMT ? )@6<55*

F ? )<556555*

T(pe 5

BRIEF EERCISE 14-4

).* C.s2>556555

No"es P.(.ble>556555

)b* I#"eres" Expe#se46555C.s2 )?>556555 =*46555

Solutions Manual 14-6 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-<

).*Prese#" &.l'e of "2e pri#cip.l  ?556555 @445 ?1461Prese#" &.l'e of "2e i#"eres" p.(e#"s  ?6555 <>55 64

Iss'e price ?1@655

Excel for'l.8DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P  iel+s ? 1@65514

I >=N 15

PMT ? )6555*

F ? )556555*

T(pe 5

)b* C.s21@655Bo#+s P.(.ble1@655

)c* I#"eres" Expe#se  )?1@655 = 91*6<1Bo#+s P.(.ble )?6555 ?6<1*164

C.s2 )?556555 = 91*6555

I#"eres" Expe#se  )?1@655 ?164* = 91J64@Bo#+s P.(.ble )?6555 ?64@*16<>>

C.s2 )?556555 = 91*6555

Solutions Manual 14-7 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-

).* C.s24@64No"es P.(.ble4@64

)b* I#"eres" Expe#se )?4@64 1=*<6@5No"es P.(.ble<6@5

)c*,si#$ . fi#.#ci.l C.lc'l."or8

F D ?)@<6555*# D 4

PMT D 5i D 1= C.lc'l."e

P D ?4@64

)+*Sc2e+'le of %isco'#" Aor"i:."io#

Effec"i&e I#"eres" Me"2o+ )1=*

1=

I#"eres" %isco'#" C.rr(i#$

%."e Expe#se Aor"i:e+ Ao'#"K.# 1 514 ?4@6455

%ec >1 514 ?<6@1 ?<6@1 <>6>>

%ec >1 51< 64554 161<@ <6@@

%ec >1 51 @61@46@@ 16>554 644

%ec >1 51@ 65><<1 @6>>55 @<655555

?@6>>55 ?@6>>55

ro'#+e+

Solutions Manual 14-8 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-@

).* E0'ipe#">61No"es P.(.ble>61

)b* I#"eres" Expe#se465C.s26<55No"es P.(.ble16@5  )?>61 1155= D ?465*  )?<56555 <= D ?6<55*

,si#$ . fi#.#ci.l c.lc'l."or8

P ? >61

I

 iel+s 1155= )ro'#+e+ "o

+eci.l pl.ces*N <

PMT ?)6<55*

F ? )<56555*

T(pe 5

Solutions Manual 14-9 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-

C.s21456555No"es P.(.ble 15654,#e.r#e+ Re&e#'e >@65

?1456555 )?1456555 @><5> D ?15654*J D ?>@65

Excel for'l.8 DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P iel+s ? 15654

I =

N 4

PMT 5F ? )1456555*

T(pe 5

BRIEF EERCISE 14-

T2e rele&.#" i#"eres" r."e "o be ip'"e+ o# "2e i#s".le#" #o"e is"2e r."e Pfl'$ 3o'l+ p.( ." i"s b.#7 of 11=

,si#$ Or+i#.r( A##'i"( T.bles for 11= for "3o perio+s6 "2e f.c"or of 1@1< is 'se+ .#+ +i&i+e+ i#"o "2e prese#" &.l'e .o'#" of ?456555 "o .rri&e ." "2e .o'#" of "2e e0'.l i#s".le#" p.(e#" of ?>6><@>

Excel for'l. D PMT)r."e6#per6p&6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8P ? )456555*

I 11=

N

PMT iel+s ? )>6><@><*

F ? 5

Solutions Manual 14-10 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

T(pe 5

Solutions Manual 14-11 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-15

).* C.s2 )?<556555 ?<6555*4@<6555Bo#+s P.(.ble4@<6555

)b* I#"eres" Expe#se )?456555 ?6<55*46<55Bo#+s P.(.ble6<55C.s2456555

?<556555 = D ?456555 ?<6555 iss'e cos" 1915 D ?6<55

)c* !2e# . #o"e or bo#+ is iss'e+6 i" s2o'l+ be reco$#i:e+ ." f.ir &.l'e .+'s"e+ b( .#( +irec"l( .""rib'".ble iss'e cos"sHo3e&er6 #o"e "2." 32ere "2e li.bili"( 3ill s'bse0'e#"l( be

e.s're+ ." f.ir &.l'e )e$6 '#+er "2e f.ir &.l'e op"io# or bec.'se i" is . +eri&."i&e*6 "2e "r.#s.c"io# cos"s s2o'l+ #o"be i#cl'+e+ i# "2e i#i"i.l e.s'ree#" )ie6 "2e cos"s s2o'l+be expe#se+* CICA Handbook 6 P.r" II6 Sec"io# ><5@ .#+IAS >4>J

BRIEF EERCISE 14-11

).* C.s2>556555Bo#+s P.(.ble>556555

)b* I#"eres" Expe#se1<6555C.s2 )?>556555 15= 91*1<6555

)c* I#"eres" Expe#se1<6555I#"eres" P.(.ble1<6555

Solutions Manual 14-12 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-1

).* C.s2 )?>556555 *46555Bo#+s P.(.ble46555

)b* I#"eres" Expe#se1<655C.s2 )?>556555 15= 91*1<6555Bo#+s P.(.ble 55

)?6555 19< < D ?55*

)c* I#"eres" Expe#se1<655I#"eres" P.(.ble1<6555Bo#+s P.(.ble 55

BRIEF EERCISE 14-1>

).* C.s2 )?>556555 15> D ?>56555*>56555Bo#+s P.(.ble>56555

)b* I#"eres" Expe#se146155Bo#+s P.(.ble )?6555 19< <*55

C.s2 )?>556555 15= 91*1<6555

)c* I#"eres" Expe#se146155Bo#+s P.(.ble55

I#"eres" P.(.ble1<6555

Solutions Manual 14-13 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-14

).* C.s2@16555Bo#+s P.(.ble@556555I#"eres" Expe#se16555)?@556555 = 491 D ?16555*

)b* I#"eres" Expe#se>16<55C.s2 >16<55 )?@556555 = 91 D ?>16<55*

)c* I#"eres" Expe#se>16<55I#"eres" P.(.ble>16<55

Solutions Manual 14-14 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-1<

).* C.s2<<6Bo#+s P.(.ble<<6

)b* I#"eres" Expe#se6>C.s216555Bo#+s P.(.ble 16>

)c* I#"eres" Expe#se644I#"eres" P.(.ble16555Bo#+s P.(.ble 1644

)+*

,si#$ . Fi#.#ci.l C.lc'l."or8F D )556555* Gi&e#

# D 5 15 (e.rs

PMT D )16555* F.ce @= 91

i D 45= C.lc'l."e

P D <<6 Gi&e#

)e*Sc2e+'le of %isco'#" Aor"i:."io#

Effec"i&e I#"eres" Me"2o+ )4=*

><= 45=

C.s2 I#"eres" %isco'#" C.rr(i#$

%."e P.i+ Expe#se Aor"i:e+ Ao'#"

K.# 1 514 ?<<655

K'l( 1 514 ?1655555 ?6>1 ?16>1 <56<1

K.# 1 51< 1655555 64>> 164>> <655K'l( 1 51< 1655555 645 1645 <>6<5@

Solutions Manual 14-15 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-1

).* C.s2446><Bo#+s P.(.ble446><

)b* I#"eres" Expe#se16>>Bo#+s P.(.ble161

C.s216555

)c* I#"eres" Expe#se16Bo#+s P.(.ble16@11

I#"eres" P.(.ble16555

)+*,si#$ . Fi#.#ci.l C.lc'l."or8

F D )556555* Gi&e#

# D 5 15 (e.rs

PMT D )16555* F.ce @= 91

i D >5= C.lc'l."e

P D 46>< Gi&e#

)e*Sc2e+'le of Prei' Aor"i:."io#

Effec"i&e I#"eres" Me"2o+ )>=*

><= >5=

C.s2 I#"eres" Prei' C.rr(i#$

%."e P.i+ Expe#se Aor"i:e+ Ao'#"

K.# 1 514 ?446><55

K'l( 1 514 ?1655555 ?16>>5< ?165< 46@45<K.# 1 51< 1655555 16 16@15@ 416>@

K'l( 1 51< 1655555 16>@5 16@15 >6<511@

Solutions Manual 14-16 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-1@

I#"eres" Expe#se644Bo#+s P.(.ble16<<4

I#"eres" P.(.ble 6555  )?446> = 91 D ?644* )?556555 = 91 D ?6555*

BRIEF EERCISE 14-1

).* I#"eres" Expe#se )?165556555 @=*@56555C.s2@56555

Bo#+s P.(.ble )?165556555 - ?556555*1556555,#re.li:e+ G.i# or Loss 1556555

)b* I#"eres" Expe#se )?165556555 @=*@56555C.s2@56555

Bo#+s P.(.ble )?165556555 - ?556555*1556555,#re.li:e+ G.i# or Loss 1556555

)c* I#"eres" Expe#se )?165556555 @=*@56555C.s2@56555

Bo#+s P.(.ble )?165556555 - ?556555*1556555,#re.li:e+ G.i# or Loss- OCI1556555

BRIEF EERCISE 14-1

Bo#+s P.(.ble )?<556555 ?6@<5*<56@<5C.s2 )?<556555 * 4<6555G.i# o# Re+ep"io# of Bo#+s 146@<5

Solutions Manual 14-17 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-5

T2is is . si"'."io# 32ere . c'rre#"l( ."'ri#$ li.bili"( ). c'rre#"li.bili"(* ." (e.r e#+ is expec"e+ "o be refi#.#ce+ o# . lo#$-"erb.sis

,#+er IFRS6 "2is lo.# li.bili"( is re0'ire+ "o be repor"e+ .s .c'rre#" li.bili"( o# "2e %eceber >1 fi#.#ci.l s"."ee#"s bec.'sei" 3.s #o" refi#.#ce+ b( "2e repor"i#$ +."e T2e o#l( excep"io#peri""e+ 3o'l+ be if "2e refi#.#ci#$ "2." ex"e#+s "2e rep.(e#""ers 3.s +o#e '#+er .# .$reee#" "2." exis"e+ ." %eceber >1.#+ "2e +ecisio# .bo'" "2e refi#.#ci#$ is solel( 'p "o "2e+iscre"io# of "2e e#"i"(/s .#.$ee#"

T2e ASPE s".#+.r+6 2o3e&er6 .llo3s . li""le ore flexibili"( T2e."'ri#$ +eb" is re0'ire+ "o be repor"e+ .s . c'rre#" li.bili"('#less i" 2.s bee# refi#.#ce+ o# . lo#$-"er b.sis or "2ere is .#o#-c.#cell.ble .$reee#" "o +o so before "2e fi#.#ci.ls"."ee#"s .re cople"e+6 .#+ "2ere is #o"2i#$ "2." pre&e#"scople"io# of "2e refi#.#ci#$ Bec.'se "2e e#"i"(/s fi#.#ci.ls"."ee#"s 3o'l+ #o" 2.&e bee# cople"e+ .s soo# .s "3o +.(s.f"er "2e repor"i#$ +."e )%eceber >1* 32e# "2e #e3 .$reee#"3.s fi#.li:e+6 ASPE 3o'l+ peri" "2e +eb" "o be i#cl'+e+ 3i"2lo#$-"er li.bili"ies

Solutions Manual 14-18 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-

).* S"ei#e/s li0'i+i"( 2.s ipro&e+ As . res'l" of "2is"r.#s.c"io#6 "2e cop.#(/s s"."ee#" of fi#.#ci.l posi"io#3ill s2o3 ?1 illio# ore c.s26 .#+ ?1 illio# less .cco'#"srecei&.ble ). less li0'i+ .sse" "2.# c.s2*

)b* S"ei#e/s s"."ee#" of fi#.#ci.l posi"io# 3ill #o" s2o3i#cre.se+ +eb" or e0'i"( .s . res'l" of "2is "r.#s.c"io# T2ec.s2 3.s $e#er."e+ b( "2e speci.l p'rpose e#"i"(6 32ic2 sol+s2.res "o i"s i#&es"ors

)c* T2is "r.#s.c"io# is .# ex.ple of off-b.l.#ce-s2ee"fi#.#ci#$ Fro "2e perspec"i&e of .# i#&es"or6 "2ere is . ris7

"2." "2e speci.l p'rpose e#"i"( is bei#$ 'se+ pri.ril( "o.7e S"ei#e/s s"."ee#" of fi#.#ci.l posi"io# .#+ li0'i+i"(posi"io# .ppe.r be""er As . $e#er.l r'le6 speci.l p'rposee#"i"ies s2o'l+ be co#soli+."e+ 3i"2 "2e .i# cop.#( 32e#"2e .i# cop.#( is "2e pri.r( be#efici.r(

BRIEF EERCISE 14->

C'rre#" li.bili"ies

Bo#+ i#"eres" p.(.ble ? 56555Lo#$-"er li.bili"ies

Bo#+s p.(.ble6 +'e K.#'.r( 16 5?1616555

Solutions Manual 14-20 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-4

).*

Li#$ Corpor."io#P.r"i.l S"."ee#" of Fi#.#ci.l Posi"io#

As ." %eceber >16 514

Li.bili"ies

Acco'#"s p.(.ble ? 56555Lo#$-"er +eb" 1556555Bo#+s p.(.ble 556555

To".l li.bili"ies ?>56555

No"e8 "2e .o'#"s "o be p.i+ or reco&ere+ 3i"2i# "2e #ex" 1o#"2s s2o'l+ be +isclose+

)b*

Li#$ Corpor."io#P.r"i.l S"."ee#" of Fi#.#ci.l Posi"io#

As ." %eceber >16 514

Li.bili"ies

C'rre#"Acco'#"s p.(.ble ?56555C'rre#" por"io# of lo#$-"er +eb" 56555

To".l c'rre#" li.bili"ies 456555

Lo#$-"erLo#$-"er +eb" 56555Bo#+s p.(.ble 556555

To".l lo#$-"er li.bili"ies 56555

To".l li.bili"ies ?>56555

Solutions Manual 14-21 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF EERCISE 14-<

%eb"-p.(i#$ .bili"( .( be e&.l'."e+ b( c.lc'l."i#$ "2e +eb" "o"o".l .sse"s r."io8

514 - ?1 illio# 9 ? illio# D <55=51< - ?1 illio# 9 ? illio# D <4<=

B.se+ o# Bec7ers/ +eb" "o "o".l .sse"s r."io6 "2e cop.#(/s +eb"-p.(i#$ .bili"( .#+ lo#$-r'# sol&e#c( +ecli#e+ i# 51<6 cop.re+"o 514

Solutions Manual 14-22 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

SOL,TIONS TO EERCISES

EERCISE 14-1 )15-1< i#'"es*

).*

1 ii iii> ii4 ii< i ii@ ii

i

)b* A fe."'re or c2.r.c"eris"ic "2." i#cre.ses "2e ris7i#ess of "2elo#$-"er +eb" 3ill c.'se i#&es"ors "o re0'ire . 2i$2er (iel+o# "2e lo#$-"er +eb" A 2i$2er (iel+ o# "2e lo#$-"er +eb"3ill $i&e i#&es"ors .# .ccep".ble re"'r# "2." ."c2es "2eiss'er/s ris7 c2.r.c"eris"ics

Solutions Manual 14-23 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )5->5 i#'"es*

,#sec're+Bo#+s

ero Co'po#Bo#+s

Mor"$.$eBo#+s

).* M."'ri"( &.l'e ?1565556555 ?6<556555 ?1<65556555

)b* N'ber ofi#"eres" perio+s

  45

  15

  15

)c* S"."e+ r."e per><= )

1>=* 5 15=

perio+ 4

)+* Effec"i&e r."e>= )

  1=* 1= 1=

per perio+ 4

)e* P.(e#" .o'#" ?><6555 )1* 5 ?16<556555 )*

per perio+

)f* Prese#" &.l'e ?156<@@655 )>* ?546< )4* ?1>6>5465 )<*

)1* ?1565556555 1>= 194 D ?><6555)* ?1<65556555 15= D ?16<556555)>* Prese#" &.l'e of .# .##'i"( of ?><6555

+isco'#"e+ ." >= per perio+ for 45perio+s )?><6555 >114@@* D ? @6<16>55

  Prese#" &.l'e of ?1565556555 +isco'#"e+." >= per perio+ for 45 perio+s)?1565556555 >5<* D >65<655

?156<@@655

,si#$ . fi#.#ci.l c.lc'l."or8P ? iel+s ?156<@@6I >=N 45PMT ? )><6555*

F ? )1565556555*T(pe 5

Excel for'l. D P)r."e6#per6p"6f&6"(pe*

Solutions Manual 14-24 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

)4* Prese#" &.l'e of ?6<556555 +isco'#"e+ ." 1= for 15 perio+s)?6<556555 >1@* D ?546<

,si#$ . fi#.#ci.l c.lc'l."or8P ? iel+s ?546>> I 1=N 15PMT 5F ? )6<556555*T(pe 5

Excel for'l. D P)r."e6#per6p"6f&6"(pe*

)<* Prese#" &.l'e of .# .##'i"( of ?16<556555 +isco'#"e+." 1= for 15 perio+s)?16<556555 <<5* D ?64@<6>>5

  Prese#" &.l'e of ?1<65556555 +isco'#"e+." 1= for 15 (e.rs)?1<65556555 >1@* 466<<5

?1>6>5465

,si#$ . fi#.#ci.l c.lc'l."or8P ? iel+s ?1>6>546>>I 1=N 15PMT ? )16<556555*F ? )1<65556555*T(pe 5

Excel for'l. D P)r."e6#per6p"6f&6"(pe*

A ore .cc'r."e res'l" is ob".i#e+ cop.re+ "o 'si#$ f.c"ors fro".bles .s "2ere .re . lii"e+ #'ber of +eci.l pl.ces i# "2e".bles

Solutions Manual 14-25 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

)$* Siil.ri"ies .#+ +iffere#ces .o#$ "2e bo#+ fe."'res .#+ "2eir ip.c" o# ris7 .re .s follo3s8

  bo#+ ."'ri"( )+'r."io#* T2e bo#+s .ll 2.&e "2e s.e ."'ri"(+."e )+'r."io#*6 "2's "2is ris7 f.c"or is e0'.li:e+ .o#$ "2e bo#+s

  bo#+ s"."e+ r."e .#+ effec"i&e i#"eres" r."e T2e bo#+s .ll 2.&e. +iffere#" s"."e+ i#"eres" r."e )r.#$i#$ fro . +eep +isco'#"6 :eroco'po# bo#+ of 5= "o 1>=* A +isco'#" o# bo#+s p.(.ble res'l"s32e# i#&es"ors +e.#+ . r."e of i#"eres" 2i$2er "2.# "2e r."es"."e+ o# "2e bo#+s T2is occ'rs 32e# "2e i#&es"ors .re #o"s."isfie+ 3i"2 "2e s"."e+ #oi#.l i#"eres" r."e bec.'se "2e( c.#

e.r# . $re."er r."e o# .l"er#."i&e i#&es"e#"s of e0'.l ris7 T2e(ref'se "o p.( p.r for "2e bo#+s .#+ c.##o" c2.#$e "2e s"."e+#oi#.l r."e Ho3e&er6 b( lo3eri#$ "2e .o'#" p.i+ for "2e bo#+s6i#&es"ors c.# .l"er "2e effec"i&e r."e of i#"eres" A prei' o#bo#+s p.(.ble res'l"s fro "2e opposi"e co#+i"io#s T2." is6 32e#i#&es"ors .re s."isfie+ 3i"2 . r."e of i#"eres" lo3er "2.# "2e r."es"."e+ o# "2e bo#+s6 "2e( .re 3illi#$ "o p.( ore "2.# "2e f.ce&.l'e of "2e bo#+s i# or+er "o .c0'ire "2e6 "2's re+'ci#$ "2eir effec"i&e r."e of i#"eres" belo3 "2e s"."e+ r."e I# "2is c.se6 .ll "2ebo#+s .re se" "o (iel+ .# effec"i&e i#"eres" r."e of 1=6 32ic2.+'s"s "2e prici#$ of e.c2 i#+i&i+'.l bo#+ so "2." "2e( .re .lle0'.ll( .""r.c"i&e "o i#&es"ors )p'rel( o# i#"eres" r."es*

  "ii#$ of c.s2 flo3s T2e bo#+s .ll 2.&e +ifferi#$ "ii#$ of c.s2 flo3 "o "2e i#&es"ors T2is c.# .ffec" "2eir ris76 .s c.s2 flo3sf'r"2er i# "2e f'"'re 2.&e . 2i$2er ris7 f.c"or "2.# c.s2 flo3s i#"2e prese#"

  bo#+ sec'ri"( Bo#+s sec'ri"( .ffec"s "2e ris7 of "2e bo#+ I#

"2e e&e#" of +ef.'l"6 . sec're+ bo#+ 3ill r.#7 2i$2er "2.# .#'#sec're+ bo#+ T2's '#sec're+ bo#+s .re $e#er.ll( ore ris7("2.# sec're+ bo#+s Pres'.bl( "2e or"$.$e bo#+s 2.&esec'ri"(

Solutions Manual 14-26 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

)$* )Co#"i#'e+*

All of "2e .bo&e f.c"ors 2.&e "o be .ssesse+ "o$e"2er "o +e"eri#e"2e ris7i#ess of e.c2 bo#+ T2e :ero-co'po# bo#+s 2.&e #o c.s2flo3s o&er "2e e#"ire 15-(e.r "er6 .7i#$ "2e ris7ier i# "2." "2ecop.#( .( #o" be .ble "o p.( b.c7 "2e ?< illio# ." "2." "ieO# "2e o"2er 2.#+6 "2e :ero-co'po# bo#+s .( 2.&e oresec'ri"( '#+erl(i#$ "2e "2.# "2e 1>= bo#+s 32ic2 .re lis"e+ .s'#sec're+ T2e or"$.$e bo#+s .re "2e le.s" ris7( 3i"2 "2ei#"eres" c.s2 flo3s spre.+ o&er "2e life of "2e bo#+s6 .#+ 3i"2p2(sic.l proper"( ple+$e+ .s coll."er.l i# "2e c.se of i#.bili"( of A#.co#+. "o p.( "2e pri#cip.l or i#"eres" F'r"2er i#for."io# is

re0'ire+6 2o3e&er6 .bo'" "2e f.ir &.l'e of "2e '#+erl(i#$ coll."er.l

Solutions Manual 14-27 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-> )1<-5 i#'"es*

1 %i&.c Lii"e+8

).* 191914 C.s2>556555

Bo#+s P.(.ble>556555

)b* @91914 I#"eres" Expe#se6@<5  )?>556555 = >91*

C.s26@<5

)c* 19>1914 I#"eres" Expe#se6@<5I#"eres" P.(.ble6@<5

erbi"s7( I#c8).* 91914 C.s2156555

Bo#+s P.(.ble556555I#"eres" Expe#se156555)?556555 1= <91*

)b* @91914 I#"eres" Expe#se16555C.s216555)?556555 1= 91*

)c* 19>1914 I#"eres" Expe#se16555I#"eres" P.(.ble16555

No"e "o i#s"r'c"or8 Soe s"'+e#"s .( cre+i" I#"eres" P.(.ble o#91914 If "2e( +o so6 "2e e#"r( o# @91914 3ill 2.&e . +ebi" "o I#"eres"P.(.ble for ?156555 .#+ . +ebi" "o I#"eres" Expe#se for ?6555

Solutions Manual 14-28 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-4 )1<-5 i#'"es*

).*191914 C.s2 )?556555 15=*16555

Bo#+s P.(.ble16555

)b*@91914 I#"eres" Expe#se>6@5

  )?16555 @<= 19*Bo#+s P.(.ble5

C.s2456555)?556555 15= 91*

)c*

19>1914 I#"eres" Expe#se>6@  )?1<6@5 @<= 19*Bo#+s P.(.ble>1

I#"eres" P.(.ble456555

C.rr(i#$ .o'#" of bo#+s ." K'l( 16 5148  C.rr(i#$ .o'#" of bo#+s ." K.#'.r( 16 514 ?16555  Aor"i:."io# of bo#+ prei'  )?456555 ?>6@5* )5*

  C.rr(i#$ .o'#" of bo#+s ." K'l( 16 514 ?1<6@5

Solutions Manual 14-29 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-< )1<-5 i#'"es*

).*)1* 191914 C.s2 )?556555 15=*16555

Bo#+s P.(.ble16555

)* @91914 I#"eres" Expe#se>655Bo#+s P.(.ble455  )?16555 45*

C.s2456555 )?556555 15= 91*

)>* 19>1914 I#"eres" Expe#se>655Bo#+s P.(.ble455

I#"eres" P.(.ble456555

)b* Al"2o'$2 "2e effec"i&e i#"eres" e"2o+ is re0'ire+ '#+er IFRS per IAS >4@6 .cco'#"i#$ s".#+.r+s for pri&."ee#"erprises +o #o" specif( "2." "2is e"2o+ 's" be 'se+.#+ "2erefore6 "2e s"r.i$2"-li#e e"2o+ is .lso .# op"io# T2es"r.i$2"-li#e e"2o+ is &.l'e+ for i"s siplici"( .#+ i$2" be'se+ b( cop.#ies 32ose fi#.#ci.l s"."ee#"s .re #o"co#s"r.i#e+ b( "2is specific elee#" of GAAP

Solutions Manual 14-30 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )1<-5 i#'"es*

).* K.#'.r( 16 5141 L.#+ >55655555

No"es P.(.ble >55655555  )T2e ?>556555 c.pi".li:e+ l.#+ cos"  represe#"s "2e prese#" &.l'e of "2e  #o"e 3i"2 ."'ri"( .o'#" of ?<5<6<1

+isco'#"e+ for fi&e (e.rs ." 11=* 

E0'ipe#" 5464No"es P.(.ble 5464

Cop'"."io# of "2e +isco'#" o# #o"es p.(.ble8M."'ri"( &.l'e ?@<655555Prese#" &.l'e of ?@<6555 +'e i#  (e.rs ." 11=?@<6555

4>>> ?116>>5@<Prese#" &.l'e of ?16<55)?@<6555 = 191*  p.(.ble .##'.ll( for (e.rs  ." 11= .##'.ll(?16<55  <141 4615Prese#" &.l'e of "2e #o"e )54641@>*%isco'#" "o be .or"i:e+ ? @56@<@

Solutions Manual 14-31 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?546451

I 11=N

PMT ? )16<55*

F ? )@<6555*

T(pe 5

A ore .cc'r."e res'l" is ob".i#e+ cop.re+ "o 'si#$ f.c"ors fro".bles .s "2ere .re . lii"e+ #'ber of +eci.l pl.ces i# "2e".bles T2is +iffere#ce is i# os" c.ses i."eri.l

)b*1 I#"eres" Expe#se>>6555

No"es P.(.ble >>6555  )?>556555 11*

I#"eres" Expe#se64@  )?5464 11*

No"es P.(.ble <[email protected] )?@<6555 5* 16<55

Solutions Manual 14-32 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-@ )1<-5 i#'"es*

).* T2e .pplic.ble Excel for'l. "o +e"eri#e "2e prese#" &.l'eof "2e f'"'re c.s2 flo3s of ?4@65 is .s follo3s8

Excel for'l. D P)r."e6#per6p"6f&6"(pe*

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i#"eres"-be.ri#$ #o"e

Solutions Manual 14-33 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-@ )Co#"i#'e+*

)b* K.#'.r( 16 514C.s2465556555

No"es P.(.ble6@>6545,#e.r#e+ Re&e#'e16@65

?465556555 )?465556555 >51* D ?16@65

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C.rr(i#$ .o'#" of "2e #o"e  ." K.#'.r( 16 514 ?6@>6545Applic.ble i#"eres" r."e )15=* 15I#"eres" expe#se "o be

repor"e+ for 514 ? @>654

?465556555 ?16@65 D ?6@>6545

Solutions Manual 14-34 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )1<-5 i#'"es*

).* T2e p'rc2.se price of "2e l.#+ s2o'l+ be recor+e+ ." "2eprese#" &.l'e of "2e f'"'re c.s2 flo3s of "2e i#s".le#"#o"e ." "2e ip'"e+ i#"eres" r."e of = T2is is "2e f.ires"e.s're of "2e &.l'e of "2e .sse" ob".i#e+ .s i" represe#"s"2e prese#" &.l'e of .# .$ree+ series of f'"'re c.s2 flo3sT2e lis"i#$ price represe#"s . "e#"."i&e .o'#" Q.s7e+ for "2e proper"( .#+ co'l+ be .bo&e or belo3 "2e e&e#"'.l.$ree+ &.l'e

)b* L.#+ 3ill be recor+e+ ." ?1156555 b.se+ o# "2ec.lc'l."io#s belo38

P of ?4>64< or+i#.r( .##'i"( = for >(e.rs8 )?4>64< <>1>5* D ?1156555

Excel for'l.8 DP)r."e6#per6p"6f&6"(pe*

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Solutions Manual 14-35 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

)+* L.#+1156555No"es P.(.ble1156555

)e* I#"eres" Expe#se655No"es P.(.ble>>6<<

C.s24>64<).*

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re+'c"io# of "2e pri#cip.l b.l.#ce i# e&er( p.(e#" recei&e+.##'.ll( .#+ "2erefore re+'ces S.f.(e#i/s i#&es"e#" i# "2erecei&.ble6 freei#$ 'p "2e c.s2 for o"2er p'rposes T2is is+eo#s"r."e+ i# "2e effec"i&e i#"eres" .or"i:."io# ".blepro&i+e+ .bo&e for "2e i#s".le#" #o"e

Solutions Manual 14-36 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )1<-5 i#'"es*

).* E0'ipe#"<@6@<No"es P.(.ble<@6@<

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C.s2156555

Solutions Manual 14-37 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-15 )1<-5 i#'"es*

).* E0'ipe#" 6>455C.s2 >5655555No"es P.(.ble <6>455

P of ?@<6555 15= for > (e.rs  )?@<6555 5@<1>* ?<6>4%o3# p.(e#" >56555C.pi".li:e+ &.l'e of e0'ipe#" ?6>4

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19>1914 ?<6>45519>191< ?<6>45 16>519>191 61> 6119>191@ 61@@1 @<655555 ro'#+e+ b( ?5<

Solutions Manual 14-38 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-15 )Co#"i#'e+*

)b* )Co#"i#'e+*

%eceber >16 518I#"eres" Expe#se 61>

No"es P.(.ble 61>

%eceber >16 51@8I#"eres" Expe#se 61@@1No"es P.(.ble @<655555

No"es P.(.ble 61@@1C.s2 @<655555

)c* Acco'#"i#$ s".#+.r+s for pri&."e e#"erprises +o #o" specif("2." "2e effec"i&e i#"eres" e"2o+ 's" be 'se+ .#+"2erefore6 "2e s"r.i$2"-li#e e"2o+ is .lso .# op"io# Colli#s.( prefer "o 'se "2e s"r.i$2"-li#e e"2o+ +'e "o i"ssiplici"( Ho3e&er6 "2e effec"i&e i#"eres" e"2o+ is re0'ire+'#+er IFRS per IAS >4@

Solutions Manual 14-39 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-11 )1<-5 i#'"es*

).*K.#'.r( 16 514

C.s2 56<1@Bo#+s P.(.ble 56<1@

)b*Sc2e+'le of I#"eres" Expe#se .#+ Bo#+ Prei' Aor"i:."io#

Effec"i&e I#"eres" Me"2o+1= Bo#+s Sol+ "o iel+ 15=

%."eCre+i"C.s2

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Bo#+s

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C.s2655555

Solutions Manual 14-40 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-11 )Co#"i#'e+*

)e* Acco'#"i#$ s".#+.r+s for pri&."e e#"erprises +o #o" specif("2." "2e effec"i&e i#"eres" e"2o+ 's" be 'se+ .#+"2erefore6 "2e s"r.i$2"-li#e e"2o+ is .lso .# op"io# Osbor#.( prefer "o 'se "2e s"r.i$2"-li#e e"2o+ +'e "o i"ssiplici"( Ho3e&er6 "2e effec"i&e i#"eres" e"2o+ is re0'ire+'#+er IFRS per IAS >4@

Solutions Manual 14-41 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1 )1<-5 i#'"es*

Sc2e+'le of %isco'#" Aor"i:."io#S"r.i$2"-Li#e Me"2o+

 e.r 

Cre+i"I#"eres"P.(.ble

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P.(.ble

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?4>6<<5 D )?>65556555 ?6@>6@4* <

Solutions Manual 14-42 Chapter 14. 

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1> )1<-5 i#'"es*

).*,si#$ . fi#.#ci.l c.lc'l."or8

P ? 6@>6@4

  I =

N <

PMT ? )>556555*

F ? )>65556555*

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Excel for'l.8 D RATE)#per6p"6p&6f&6"(pe*T2e effec"i&e i#"eres" or (iel+ r."e is 1=

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Solutions Manual 14-43 Chapter 14. 

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1> )Co#"i#'e+*

)b* T2e s"r.i$2"-li#e e"2o+ res'l"s i# 2i$2er i#"eres" expe#sefor "2e (e.r e#+e+ %eceber >16 5146 .#+ "2e effec"i&ei#"eres" e"2o+ res'l"s i# 2i$2er i#"eres" expe#se for "2e(e.r e#+e+ %eceber >16 51 ,#+er "2e s"r.i$2"-li#ee"2o+6 "2e .o'#" "2." is .or"i:e+ e.c2 (e.r is co#s".#",#+er "2e effec"i&e i#"eres" e"2o+6 "2e .o'#" .or"i:e+e.c2 (e.r is b.se+ o# . co#s".#" perce#".$e of "2e bo#+s/i#cre.si#$ c.rr(i#$ .o'#" A 'ser 32o 3o'l+ li7e "2ecop.#(/s i#coe s"."ee#" "o reflec" "2e os" f.i"2f'll(represe#"."i&e e.s're of #e" i#coe 3o'l+ prefer "2." "2ecop.#( 'se "2e effec"i&e i#"eres" e"2o+6 '#+er 32ic2i#"eres" expe#se correl."es ore closel( 3i"2 "2e .c"'.l

c.rr(i#$ .o'#" of "2e bo#+

Solutions Manual 14-44 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-14 )1<-5 i#'"es*

1Pri#"i#$ .#+ e#$r.&i#$ cos"s of bo#+s ?<6555Le$.l fees 6555Coissio#s p.i+ "o '#+er3ri"er @56555Ao'#" "o be repor"e+ ?146555

!2e# . #o"e or bo#+ is iss'e+6 i" s2o'l+ be reco$#i:e+ ." "2ef.ir &.l'e .+'s"e+ b( .#( +irec"l( .""rib'".ble iss'e cos"s  T2ecos"s 3o'l+ .ffec" "2e .o'#" of bo#+ prei' or +isco'#".or"i:."io# recor+e+ .#+ effec"i&el( i#cre.se "2e i#"eres"expe#se o&er "2e "er of "2e bo#+ Ho3e&er6 #o"e "2." 32ere"2e li.bili"ies 3ill s'bse0'e#"l( be e.s're+ ." f.ir &.l'e )e$6

'#+er "2e f.ir &.l'e op"io# or bec.'se "2e( .re +eri&."i&es*6 "2e"r.#s.c"io# cos"s s2o'l+ #o" be i#cl'+e+ i# "2e i#i"i.le.s'ree#" )ie6 "2e cos"s s2o'l+ be expe#se+ ." "2e "ie of iss'.#ce* CICA Handbook 6 P.r" II6 Sec"io# ><5@ .#+ IAS>4>J

I#"eres" p.i+ for e.c2 perio+6 fro K.#'.r( 1  "o K'#e >56 514 .#+ K'l( 1 "o %ec >16 514

  ?>65556555 15= 91 ?1<56555Less8 Prei' .or"i:."io# for e.c2 perio+ fro  K.#'.r( 1 "o K'#e >56 .#+ K'l( 1 "o %ec >16  )?>65556555 154* ?>65556555J 15 91   6555

I#"eres" expe#se "o be recor+e+ o# e.c2 of K'l( 1  .#+ %eceber >16 514 ? 1446555

>C.rr(i#$ .o'#" of bo#+s o# K'#e >56 514 ?<6<55Effec"i&e i#"eres" r."e for "2e perio+ fro K'#e >5  "o Oc"ober >16 514 )15 491* 5>>>>>I#"eres" expe#se "o be recor+e+ o# Oc"ober >16 514 ? 16@<5

Solutions Manual 14-45 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-14 )Co#"i#'e+*

4C.rr(i#$ .o'#" of bo#+s o# %ec >16 514 ?<56@1@Less8 f.ir &.l'e of bo#+s o# %ec >16 514 >655555G.i# o# bo#+s +'e "o c2.#$e i# cre+i" ris7 ?16@1@

,#+er IAS >6 32ere "2e f.ir &.l'e op"io# is selec"e+6 cre+i" ris7is i#corpor."e+ i#"o "2e e.s'ree#" .#+ res'l"i#$$.i#s9losses .re boo7e+ "2ro'$2 #e" i#coe Ho3e&er6 '#+er IFRS )32ic2 is #o" .#+."oril( .+op".ble '#"il 51<*6$.i#s9losses rel."e+ "o c2.#$es i# cre+i" ris7 .re boo7e+"2ro'$2 O"2er Copre2e#si&e I#coe

)No"e "2." '#+er ASPE6 32ere "2e f.ir &.l'e op"io# is 'se+6cre+i" ris7 is i#corpor."e+ i#"o "2e e.s'ree#" .#+ res'l"i#$$.i#s9losses .re boo7e+ "2ro'$2 #e" i#coe*

Solutions Manual 14-46 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

 EERCISE 14-1< )1<-5 i#'"es*

).* B( $r.#"i#$ "2e lo.# for "2e b'r#er6 "2e Pro&i#ce of O#".rio is co#ferri#$ .++i"io#.l be#efi" "o R'ssell Fores"Pro+'c"s Lii"e+ be(o#+ pro&i+i#$ fi#.#ci#$ T2e( .refor$i&i#$ "2e i#"eres" "2." R'ssell 3o'l+ #or.ll( bec2.r$e+6 i# "2is c.se ." "2e r."e of @=6 2.+ "2e( borro3e+"2e f'#+s "o fi#.#ce "2e co#s"r'c"io# R'ssell Fores"Pro+'c"s Lii"e+ is $e""i#$ . +o'ble be#efi" Firs" i" is$e""i#$ "2e lo.# .#+ seco#+ "2e cop.#( +oes #o" 2.&e "oi#c'r i#"eres" p.(e#"s o# "2e #o"e T2e be#efi" 2.s "o be.cco'#"e+ for .s . $o&er#e#" $r.#" T2e e.s'ree#" of "2e i#"eres" ." @= is "2e f.ir r."e of i#"eres" "o ip'"e o#"2is lo.#

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19>1914 ? >65>419>191< ?16< 4655

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Solutions Manual 14-47 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1< )Co#"i#'e+*

)c*C.s24556555

No"es P.(.ble >654E0'ipe#" 1@61

)?4556555 ?>654 D ?1@61*

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Solutions Manual 14-48 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1 )5->5 i#'"es*

).*1 K'#e >56 514

C.s246>5565Bo#+s P.(.ble46>5565

%eceber >16 514I#"eres" Expe#se<65<<  )?46>5565 1= 91*Bo#+s P.(.ble164<

C.s2 56555  )?465556555 1>= 91*

> K'#e >56 51<I#"eres" Expe#se<@6>  )?46>5565 ?164<*

1= 91JBo#+s P.(.ble651

C.s2 56555

4 %eceber >16 51<I#"eres" Expe#se<@61<  )?46>5565 ?164<   ?651* 1= 91JBo#+s P.(.ble61<

C.s2 56555

)b* Lo#$-"er Li.bili"ies8Bo#+s p.(.ble6 1>= )+'e o# K'#e >56 5>4* ?466@<

)?46>5565 ?164< * D ?466@<

Solutions Manual 14-49 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

 EERCISE 14-1 )Co#"i#'e+*

)c*1 I#"eres" expe#se for "2e perio+ fro

  K'l( 1 "o %eceber >16 514 fro ).* ?<65<<Ao'#" of bo#+ i#"eres" expe#se  repor"e+ for 514 ?<65<<

T2e .o'#" of bo#+ i#"eres" expe#se repor"e+ i# 514 3illbe $re."er "2.# "2e .o'#" "2." 3o'l+ be repor"e+ if "2es"r.i$2"-li#e e"2o+ of .or"i:."io# 3ere 'se+ ,#+er "2es"r.i$2"-li#e e"2o+6 "2e .or"i:."io# of bo#+ prei' is?@6<> )?>556595 91* Bo#+ i#"eres" expe#se for 514 3o'l+ be "2e +iffere#ce be"3ee# "2e .c"'.l i#"eres"

p.i+6 ?56555 )?465556555 1>= 91* .#+ "2e.or"i:e+ prei'6 ?@6<> T2's6 "2e .o'#" of bo#+i#"eres" expe#se 3o'l+ be ?<64@@6 32ic2 is s.ller "2.#"2e bo#+ i#"eres" expe#se '#+er "2e effec"i&e i#"eres"e"2o+

No"e8 Al"2o'$2 "2e effec"i&e i#"eres" e"2o+ is re0'ire+'#+er IFRS per IAS >4@6 .cco'#"i#$ s".#+.r+s for pri&."e e#"erprises +o #o" specif( "2." "2is e"2o+ 's"

be 'se+ .#+ "2erefore6 "2e s"r.i$2"-li#e e"2o+ is .lso .#op"io# T2e s"r.i$2"-li#e e"2o+ is &.l'e+ for i"s siplici"(.#+ i$2" be 'se+ b( cop.#ies 32ose fi#.#ci.ls"."ee#"s .re #o" co#s"r.i#e+ b( "2is specific elee#" of GAAP

> To".l i#"eres" "o be p.i+ for "2e bo#+  )?465556555 1>= 5* ?1564556555Pri#cip.l +'e i# 5>4 465556555To".l c.s2 o'"l.(s for "2e bo#+ 1464556555

C.s2 recei&e+ ." iss'.#ce of "2e bo#+ )46>5565*To".l cos" of borro3i#$ o&er "2e life

  of "2e bo#+ ?1565655

4 T2e( 3ill be "2e s.e6 .l"2o'$2 "2e p.""er#of reco$#i"io# 3ill be +iffere#"

Solutions Manual 14-50 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1@ )15-1< i#'"es*

Reacquisition price ($500,000 X 104%)........................... $520,000

Less: Net carrying amount of bonds

redeemed:Face value..............................................................$500,000

Unamortized discount........................................... (10,000) 490,000

Loss on redemption......................................................... $ 30,000

Bonds Payable..................................................................490,000

Loss on Redemption of Bonds........................................30,000

Cash.......................................................................... 520,000

(To record redemption of bonds payable)

Cash...................................................................................512,000

Bonds Payable

 ($500,000 + $15,000 – $3,000)................................ 512,000

(To record issuance of new bonds)

No"e8 !2e# . #o"e or bo#+ is iss'e+6 i" s2o'l+ be reco$#i:e+ .""2e f.ir &.l'e .+'s"e+ b( .#( +irec"l( .""rib'".ble iss'e cos"sT2ese cos"s 3o'l+ .ffec" "2e .o'#" of bo#+ prei' or +isco'#" .or"i:."io# recor+e+ .#+ effec"i&el( i#cre.se "2ei#"eres" expe#se o&er "2e "er of "2e bo#+ "2ro'$2 "2e.lloc."io# of "2e iss'.#ce cos" "o perio+s Ho3e&er6 #o"e "2."

32ere "2e li.bili"ies 3ill s'bse0'e#"l( be e.s're+ ." f.ir &.l'e)e$6 '#+er "2e f.ir &.l'e op"io# or bec.'se "2e( .re+eri&."i&es*6 "2e "r.#s.c"io# cos"s s2o'l+ #o" be i#cl'+e+ i# "2ei#i"i.l e.s'ree#" )ie6 "2e cos"s s2o'l+ be expe#se+ ." "2e"ie of iss'.#ce* CICA Handbook 6 P.r" II6 Sec"io# ><5@ .#+IAS >4>J

Solutions Manual 14-51 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1 )1<-5 i#'"es*).*

K'#e >56 514Bo#+s P.(.ble@655Loss o# Re+ep"io# of Bo#+s46455

C.s2 >6555

Re.c0'isi"io# price )?556555 154=* ?>6555C.rr(i#$ .o'#" of bo#+s re+eee+8

P.r &.l'e?556555,#.or"i:e+ +isco'#"  )156455* )@655*  )5 ?556555 1>95*

Loss o# re+ep"io# ? 46455

C.s2 )?165556555 15=*16556555Bo#+s P.(.ble 16556555

)b* %eceber >16 514I#"eres" Expe#se46<55Bo#+s P.(.ble<55

C.s2<56555

)1945 ?56555 D ?<55*

)5< ?165556555 D ?<56555*

Solutions Manual 14-52 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1 )>5->< i#'"es*

,si#$ ei"2er . fi#.#ci.l c.lc'l."or or Excel "2e effec"i&ei#"eres" r."e o# "2e bo#+s is c.lc'l."e+ .s follo3s8Excel for'l. DRATE)#per6p"6p&6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8P ? @46555I = iel+s 1><=N 45PMT ? )46555*F ? )556555*T(pe 5

Sc2e+'le of Bo#+ %isco'#" Aor"i:."io#Effec"i&e I#"eres" Me"2o+

1= Sei-.##'.l Bo#+s Sol+ "o iel+ 1@=

5= 1><=

C.s2 I#"eres" %isco'#" C.rr(i#$

%."e P.i+ Expe#se Aor"i:e+ Ao'#"

K'#e >5 55@ ?@4655555

%ec >1 55@ ?4655555 ?46544 ?45 @46545

K'#e >5 55 4655555 4615444 15444 @4654

%ec >1 55 4655555 461154 1154 @46>1>K'#e >5 55 4655555 4611@4 11@4 @464>1>>

%ec >1 55 4655555 4614 14 @46<<1

K'#e >5 515 4655555 461>< 1>< @46@1

%ec >1 515 4655555 46145< 145< @46>

K'#e >5 511 4655555 4614 14 @46@4

%ec >1 511 4655555 461<44 1<44 @<61>@5

K'#e >5 51 4655555 4611 11 @<6>5<4

%ec >1 51 4655555 461@4 1@4 @<64>@K'#e >5 51> 4655555 4614> 14> @<6@>1<

%ec >1 51> 4655555 46515< 515< @<6@41

K'#e >5 514 4655555 461>> 1>> @65@<@

?65@<@

Solutions Manual 14-53 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1 )Co#"i#'e+*

Al"2o'$2 #o" re0'ire+6 "2e e#"r( ." "2e iss'.#ce of "2e bo#+s8

9>595@ C.s2 )?556555 =*@46555Bo#+s P.(.ble@46555

).*A" K'#e >56 514 "2e c.rr(i#$ .o'#" of "2e bo#+s is .si#+ic."e+ i# "2e effec"i&e i#"eres" ".ble8 ?@65@<@

K'#e >56 514Bo#+s P.(.ble@65@<@

Loss o# Re+ep"io# of Bo#+s4<614>C.s2 >655555

Re.c0'isi"io# price )?556555 154=*?>655555Ne" c.rr(i#$ .o'#" of bo#+s re+eee+8 @65@<@Loss o# re+ep"io# ?4<614>

C.s2 )?165556555 15=*16556555

Bo#+s P.(.ble 16556555

Solutions Manual 14-54 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-5 )1<-5 i#'"es*

).*Re.c0'isi"io# price )?<56555 15=* ?@6555Less8 Ne" c.rr(i#$ .o'#" of bo#+s re+eee+8

P.r &.l'e <56555,#.or"i:e+ +isco'#" )4>61@*

  565>

Loss o# re+ep"io# ? 561@

C.lc'l."io# of '#.or"i:e+ +isco'#"Ori$i#.l .o'#" of +isco'#"8  ?<56555 >= D ?<6<55 ?<6<55Bo#+ iss'.#ce cos"s )?1156555

?<565559?16<556555 D 6>>>

Ao'#" "o be .or"i:e+ o&er 15 (e.rs ?@6>>Ao'#" of +isco'#" '#.or"i:e+8)?@6>> <* 15 D ?4>61@

K.#'.r( 6 514Bo#+s P.(.ble565>Loss o# Re+ep"io# of Bo#+s 561@

C.s2 @6555

Solutions Manual 14-56 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-5 )Co#"i#'e+*

)b* H.+ "2e cos"s of iss'i#$ "2e bo#+ of ?1156555 bee#expe#se+ o# "2e +."e of iss'e )32ic2 is "2e re0'ire+.cco'#"i#$ "re."e#" for "r.#s.c"io#s cos"s 32e# "2e +eb"

is s'bse0'e#"l( e.s're+ ." f.ir &.l'e r."2er "2.#.or"i:e+ cos"*6 "2e iss'e cos"s 3o'l+ 2.&e bee# c2.r$e+"o expe#se i# 55

Re.c0'isi"io# price )?<56555 15=* ?@6555Less8 C.rr(i#$ .o'#" of bo#+s o# "2ere.c0'isi"io# +."e D f.ir &.l'e ." "2." +."e )see.ss'p"io#* @6555

G.i#9Loss o# re+ep"io# ? -5-

No"e "o i#s"r'c"or8 Si#ce "2e bo#+s .re c.rrie+ ." f.ir &.l'e6"2ere 3o'l+ be #o sep.r."e $.i# or loss o# re"iree#" Allc2.#$es i# "2e f.ir &.l'e of "2e bo#+s 3o'l+ 2.&e .lre.+( bee#reco$#i:e+ i# #e" i#coe i# prior (e.rs If "2e cop.#( 2.+.+op"e+ IFRS e.rl( i# prior (e.rs6 .ll c2.#$es i# "2e f.ir &.l'eof "2e bo#+s )32ic2 rel."e "o c2.#$es i# cre+i" ris7* 3o'l+ 2.&e.lre.+( bee# reco$#i:e+ i# O"2er Copre2e#si&e I#coe

K.#'.r( 6 514Bo#+s P.(.ble@6555

C.s2 @6555

Solutions Manual 14-57 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-5 )Co#"i#'e+*

)c*

If Uo3.lc2'7 3ere "o follo3 IFRS6 "2e# "2e effec"i&e i#"eres"e"2o+ 's" be 'se+ "o .or"i:e .#( +isco'#"s or prei'sAl"2o'$2 "2e effec"i&e i#"eres" e"2o+ is re0'ire+ '#+er IFRSper IAS >4@6 .cco'#"i#$ s".#+.r+s for pri&."e e#"erprises +o#o" specif( "2." "2is e"2o+ 's" be 'se+ .#+ "2erefore6 "2es"r.i$2"-li#e e"2o+ is .lso .# op"io# T2e s"r.i$2"-li#e e"2o+is &.l'e+ for i"s siplici"( .#+ i$2" be 'se+ b( cop.#ies32ose fi#.#ci.l s"."ee#"s .re #o" co#s"r.i#e+ b( "2is specificelee#" of GAAP

,#+er IAS >6 32ere "2e f.ir &.l'e op"io# is selec"e+6 cre+i" ris7is i#corpor."e+ i#"o "2e e.s'ree#" .#+ res'l"i#$$.i#s9losses .re boo7e+ "2ro'$2 #e" i#coe Ho3e&er6 '#+er IFRS )32ic2 is #o" .#+."oril( .+op".ble '#"il 51<*6$.i#s9losses rel."e+ "o c2.#$es i# cre+i" ris7 .re boo7e+"2ro'$2 O"2er Copre2e#si&e I#coe

)No"e "2." '#+er ASPE6 32ere "2e f.ir &.l'e op"io# is 'se+6cre+i" ris7 is i#corpor."e+ i#"o "2e e.s'ree#" .#+ res'l"i#$$.i#s9losses .re boo7e+ "2ro'$2 #e" i#coe*

Solutions Manual 14-58 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-1 )1<-5 i#'"es*

C.s2 )?@65556555 *656555Bo#+s P.(.ble 656555

  )To recor+ iss'.#ce of 15= bo#+s*

Bo#+s P.(.ble4656555Loss o# Re+ep"io# of Bo#+s56555

C.s2 )?<65556555 15* <61556555

  )To recor+ re"iree#" of 11= bo#+s*

Re.c0'isi"io# price ?<61556555Less8 Ne" c.rr(i#$ .o'#" of bo#+s re+eee+8

P.r &.l'e?<65556555

,#.or"i:e+ bo#+ +isco'#"  )156555* 4656555Loss o# re+ep"io# ? 56555

Solutions Manual 14-59 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )1<-< i#'"es*

).* Ko'r#.l e#"r( "o recor+ iss'.#ce of lo.# b( P.r B.#78

%eceber >16 51>

No"es Recei&.ble1641C.s21641

)b*No"e Aor"i:."io# Sc2e+'le

)Before Ip.ire#"*

%."e

C.s2Recei&e+

)5=*

I#"eres"I#coe

)=*%isco'#"

Aor"i:e+

C.rr(i#$Ao'#" of 

No"e

19>191> ?164119>1914 ?5 ?@6>1 ?@6>1 6<<>

Cop'"."io# of "2e ip.ire#" loss8C.rr(i#$ .o'#" of i#&es"e#" )19>1914* ?6<<>Less8 Prese#" &.l'e of ?>6@<5 +'e i# 4 (e.rs

." = )?>6@<5 @54>* 641<Loss +'e "o ip.ire#" ?61>

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?641<

I =

N 4

PMT 5

F ? )>6@<5*

T(pe 5

Excel for'l. D P)r."e6#per6p"6f&6"(pe*

Solutions Manual 14-60 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

T2e e#"r( "o recor+ "2e loss b( P.r B.#7 is .s follo3s8

B.+ %eb" Expe#se61>Allo3.#ce for %o'b"f'l Acco'#"s 61>

)c* Mo2r I#c6 "2e +eb"or6 .7es #o e#"r( bec.'se i" s"illle$.ll( o3es ?1<6555

Solutions Manual 14-61 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-> )1<-5 i#'"es*

).* Tr.#sfer of proper"( o# %eceber >16 5148

S"ric7l.#+ I#c )%eb"or*8No"es P.(.ble556555I#"eres" P.(.ble16555Acc''l."e+ %epreci."io#M.c2i#e16555  M.c2i#er( >56555

  G.i# o# S.le of M.c2i#er( 116555.

  G.i# o# Res"r'c"'ri#$ of %eb" >6555b

.?156555 )?>56555 ?16555* D ?116555b)?556555 ?16555* ?156555 D ?>6555

He.r"l.#+ B.#7 )Cre+i"or*8M.c2i#er(156555Allo3.#ce for %o'b"f'l Acco'#"s>6555  No"es Recei&.ble 556555  I#"eres" Recei&.ble 16555

Ass'es He.r"l.#+ 2.+ pre&io'sl( reco$#i:e+ . loss 32e#"2e( +e"eri#e+ "2e lo.# 3.s ip.ire+6 .#+ se" 'p .# .llo3.#cefor +o'b"f'l .cco'#"s or 2.+ o"2er3ise i#cl'+e+ "2is c."e$or(of #o"es i# .llo3.#ce c.lc'l."io#s

)b* If QG.i# o# S.le of M.c2i#er( .#+ QG.i# o# Res"r'c"'ri#$of %eb" +o #o" occ'r fre0'e#"l(6 "2e( .re s"ill prese#"e+.s p.r" of i#coe fro co#"i#'i#$ oper."io#s If "2e( .re#o" ."eri.l i# .o'#"6 "2e( .re cobi#e+ 3i"2 "2e o"2er i"es i# "2e i#coe s"."ee#" If "2e( .re ."eri.l6 "2e(.re +isclose+ sep.r."el( Ho3e&er6 if "2e s.e "(pes of 

$.i#s9losses rec'r e.c2 (e.r6 "2e# "2e( .re #o" re.ll('#'s'.l .#+ c.re 's" be ".7e# "o cl.ssif( "2e 3i"2o"2er $.i#s .#+ losses .s #or.l "r.#s.c"io#s

Solutions Manual 14-62 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-> )Co#"i#'e+*

)c* Gr.#"i#$ of e0'i"( i#"eres" o# %eceber >16 5148

S"ric7l.#+ I#c )%eb"or*8No"es P.(.ble556555I#"eres" P.(.ble16555  Coo# S2.res 156555  G.i# o# Res"r'c"'ri#$ of %eb" 6555

He.r"l.#+ B.#7 )Cre+i"or*8F-NI I#&es"e#"s156555Allo3.#ce for %o'b"f'l Acco'#"s6555  No"es Recei&.ble 556555

  I#"eres" Recei&.ble 16555

Ass'es He.r"l.#+ 2.+ pre&io'sl( reco$#i:e+ . loss 32e#"2e( +e"eri#e+ "2e lo.# 3.s ip.ire+6 .#+ se" 'p .# .llo3.#cefor +o'b"f'l .cco'#"s or 2.+ o"2er3ise i#cl'+e+ "2is c."e$or(of #o"es i# .llo3.#ce c.lc'l."io#s

Solutions Manual 14-63 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-4 )Co#"i#'e+*

Si#ce "2e prese#" &.l'e of "2e f'"'re c.s2 flo3s of "2e #e3 +eb"+oes #o" +iffer b( .# .o'#" $re."er "2.# 15= of "2e prese#"

&.l'e of "2e ol+ +eb"6 "2e re#e$o"i."e+ +eb" is #o" co#si+ere+ .se""lee#" No $.i# is recor+e+ b( Tro'ble+ T2is is co#si+ere+. o+ific."io# of "ers T2e ol+ +eb" re.i#s o# "2e boo7s of Tro'ble+ ." ?65556555 .#+ #o $.i# or loss is reco$#i:e+ No"e+isclos're is re0'ire+

)b*T2e #e3 effec"i&e r."e of @<= 3.s cop'"e+ b( Tro'ble+ i#or+er "o recor+ "2e i#"eres" expe#se b.se+ o# "2e f'"'re c.s2flo3s specifie+ b( "2e #e3 "ers 3i"2 "2e pre-res"r'c"'ri#$c.rr(i#$ .o'#" of "2e +eb" of ?65556555 T2e r."e 3o'l+ 2.&ebee# c.lc'l."e+ .s follo3s8

Excel for'l. DRATE)#per6p"6p&6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P ? 65556555

I =  iel+s @< =

N >PMT ? )156555*

F ? )16556555*

T(pe 5

Solutions Manual 14-65 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-4 )Co#"i#'e+*

T2e i#"eres" p.(e#" sc2e+'le is prep.re+ .s follo3s8

TRO,BLE% INCINTEREST PAMENT SCHE%,LE AFTER %EBT

RESTR,CT,RINGEFFECTIE INTEREST RATE @<=

%."e

C.s2I#"eres")15=*

Effec"i&eI#"eres"

)@<=*

Re+'c"io#of C.rr(i#$

Ao'#"

C.rr(i#$Ao'#" of 

No"e

19>1914 ?6555655519>191< ?156555. ?1<614b ?>561c   16614

19>191 156555 1<6@>1 >>6 16><61<19>191@ 156555 1<465<+   ><61< 16556555To".l ?<@56555 ?4@56555 ?1556555

.?16556555 15= D ?156555b?65556555 @<= D ?1<614c?156555 ?1<614 D ?>561+A+'s"e+ for ro'#+i#$

)c* I#"eres" p.(e#" e#"r( for Tro'ble+ I#c is8

%eceber >16 51No"es P.(.ble>>6I#"eres" Expe#se1<6@>1

C.s2156555

)+* T2e p.(e#" e#"r( ." ."'ri"( is8

K.#'.r( 16 51No"es P.(.ble16556555

C.s216556555

Solutions Manual 14-66 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-< )<->5 i#'"es*

).* T2e Gree# B.#7 s2o'l+ 'se "2e 2is"oric.l i#"eres" r."e of1= "o c.lc'l."e "2e loss

)b*Pre-res"r'c"'ri#$ c.rr(i#$ .o'#" of #o"e ?65556555Prese#" &.l'e of res"r'c"'re+ c.s2 flo3s )belo3* 1656@>5Loss o# res"r'c"'ri#$ of +eb" ? 116@5

,si#$ ".bles8

1= Prese#"

F.c"or .l'e

Si#$le .o'#" ? 16556555 5@11@ ? 16><6>I#"eres" .##'i"( 156555 451> 4<6>4

? 1656@>5

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?1656@>5

I 1=

N >

PMT ? )156555*

F ? )16556555*

T(pe 5

%eceber >16 514B.+ %eb" Expe#se116@5

No"es Recei&.ble 116@5

No"e8 if Gree# B.#7 2.+ pre&io'sl( reco$#i:e+ .# Allo3.#cefor %o'b"f'l Acco'#"s rel."e+ "o "2is .cco'#"6 "2e +ebi" .cco'#"3o'l+ 2.&e bee# "2e Allo3.#ce .cco'#" i#s"e.+ of "2e expe#se.cco'#"

Solutions Manual 14-67 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-< )Co#"i#'e+*

)c* T2e i#"eres" receip" sc2e+'le is prep.re+ .s follo3s8

GREEN BANUINTEREST RECEIPT SCHE%,LE AFTER %EBT RESTR,CT,RING

EFFECTIE INTEREST RATE 1=

%."e

C.s2I#"eres")15=*

Effec"i&eI#"eres")1=*

I#cre.sei# C.rr(i#$

Ao'#"

C.rr(i#$Ao'#" of 

No"e

19>1914 ?1656@>519>191< ?156555. ?1@654@b ?@654@c   16><6@@@19>191 156555 56> >56> 1665@519>191@ 156555 >6>5 >>6>5 16556555To".l ?<@56555 ?16@5 ?16@5

.?16556555 15= D ?156555b?1656@>5 1= D ?1@654@c?1@654@ ?156555 D ?@654@

)+* I#"eres" receip" e#"r( for Gree# B.#7 is8%eceber >16 51

C.s2156555No"es Recei&.ble>56>

I#"eres" I#coe56>

)e* T2e receip" e#"r( ." ."'ri"( is8K.#'.r( 16 51

C.s216556555No"es Recei&.ble16556555

Solutions Manual 14-68 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )<->5 i#'"es*

).*T2e firs" s"ep is "o +e"eri#e "2e eco#oic s'bs".#ce of "2e

+eb" re#e$o"i."io# .#+ +e"eri#e if i" s2o'l+ be .cco'#"e+ .s .se""lee#" or . o+ific."io#9exc2.#$e re$.r+i#$ "2e ol+ +eb"I# "2is c.se6 "2e cre+i"or is "2e s.e .#+ so is "2e c'rre#c( .#+"2erefore "2e "es" "o es".blis2 32e"2er "2ere is . se""lee#" or #o" re&ol&es .ro'#+ "2e c.s2 flo3s T2e prese#" &.l'e of "2ec.s2 flo3 s"re.s of "2e #e3 +eb" .re c.lc'l."e+ 'si#$ "2e2is"oric.l i#"eres" r."e of 1= for co#sis"e#c( .#+cop.r.bili"(

Prese#" &.l'e of ol+ +eb" is ?65556555Prese#" &.l'e of #e3 +eb" is c.lc'l."e+ .s follo3s8

1= Prese#"

,si#$ ".bles8 F.c"or .l'e

Si#$le .o'#" ? 16556555 5@11@ ? 161>64

I#"eres" .##'i"( 156555 451> >46>

? 16<>6141

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?16<>6141

I 1=

N >

PMT ? )156555*

F ? )16556555*

T(pe 5

Si#ce "2e prese#" &.l'e of "2e f'"'re c.s2 flo3s of "2e #e3 +eb"of ?16<>6141 +iffers b( .# .o'#" l.r$er "2.# 15= of "2eprese#" &.l'e of "2e f'"'re c.s2 flo3s of "2e ol+ +eb" i# "2e.o'#" of ?655565556 "2e re#e$o"i."e+ +eb" is co#si+ere+ .se""lee#" .#+ Tro'ble+ recor+s . $.i#

Solutions Manual 14-69 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

)b*No"es P.(.ble65556555

G.i# o# Res"r'c"'ri#$ of %eb"4556555No"es P.(.ble16556555

)c*T2e #e3 +eb" 3o'l+ be recor+e+ ." "2e prese#" &.l'e of "2e #e3c.s2 flo3s ." "2e c'rre#" .r7e" r."e of 15= T2ereforeTro'ble+ s2o'l+ 'se "2e c'rre#" .r7e" r."e of 15= "o c.lc'l."ei"s i#"eres" expe#se i# f'"'re perio+s I# E14-46 "2ere#e$o"i."e+ +eb" 3.s #o" co#si+ere+ . se""lee#"6 .#+ . #e3effec"i&e i#"eres" r."e 3.s ip'"e+ b( e0'."i#$ "2e c.rr(i#$.o'#" of "2e ori$i#.l +eb" 3i"2 "2e prese#" &.l'e of "2e re&ise+c.s2 flo3s

)+* T2e i#"eres" p.(e#" sc2e+'le is prep.re+ .s follo3s8TRO,BLE% INC

INTEREST PAMENT SCHE%,LE AFTER %EBTRESTR,CT,RING

EFFECTIE INTEREST RATE 15=

%."e

C.s2I#"eres")15=*

Effec"i&eI#"eres")15=*

Re+'c"io#of C.rr(i#$

Ao'#"

C.rr(i#$Ao'#" of 

No"e

19>1914 ?1655655519>191< ?156555. ?156555 - 1655655519>191 156555 156555 - 1655655519>191@ 156555 156555 - 16556555To".l ?456555 ?456555

.?16556555 15= D ?156555

Solutions Manual 14-70 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )Co#"i#'e+*

)e* I#"eres" p.(e#" e#"ries for Tro'ble+ I#c .re8

%eceber >16 51< "2ro'$2 51@I#"eres" Expe#se156555C.s2156555

)f* T2e p.(e#" e#"r( ." ."'ri"( is8

K.#'.r( 16 51No"es P.(.ble16556555

C.s216556555

Solutions Manual 14-71 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-@ )5->5 i#'"es*

).*Pre-res"r'c"'ri#$ c.rr(i#$ .o'#" of #o"e ?65556555

Prese#" &.l'e of res"r'c"'re+ c.s2 flo3s )belo3* 16<>6141Loss o# +eb" res"r'c"'ri#$ ? 4@6<

,si#$ prese#" &.l'e ".bles8

1= Prese#"

F.c"or .l'e

Si#$le .o'#" ? 16556555 5@11@ ? 161>64

I#"eres" .##'i"( 156555 451> >46>

? 16<>6141

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?16<>6141

I 1=

N >

PMT ? )156555*

F ? )16556555*T(pe 5

Gree# B.#7 #ee+s "o c.lc'l."e "2e prese#" &.l'e of "2eexpec"e+ c.s2 flo3s +isco'#"e+ ." "2e 2is"oric.l effec"i&ei#"eres" r."e6 32ic2 i# "2is c.se is 1=

)b*%eceber >16 514

B.+ %eb" Expe#se4@6<No"es Recei&.ble 4@6<

Solutions Manual 14-72 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-@ )Co#"i#'e+*

)c* T2e i#"eres" receip" sc2e+'le is prep.re+ .s follo3s8

GREEN BANUINTEREST RECEIPT SCHE%,LE AFTER %EBT RESTR,CT,RING

EFFECTIE INTEREST RATE 1=

%."e

C.s2I#"eres")15=*

Effec"i&eI#"eres")1=*

I#cre.sei# C.rr(i#$

Ao'#"

C.rr(i#$Ao'#" of 

No"e

19>1914 ?16<>614119>191< ?156555. ?16@@@b ?6@@@c   16<4<6119>191 156555 1<6<15 <6<15 16<@16419>191@ 156555 16<@ 6<@ 16556555To".l ?456555 ?<<6< ?@6<

.?16556555 15= D ?156555b?16<>6141 1= D ?16@@@c?16@@@ ?156555 D ?6@@@

)+* I#"eres" receip" e#"r( for Gree# B.#7 is8%eceber >16 51<

C.s2156555No"es Recei&.ble6@@@

I#"eres" I#coe16@@@

%eceber >16 51C.s2156555No"es Recei&.ble<6<15

I#"eres" I#coe1<6<15

%eceber >16 [email protected]"es Recei&.ble6<@

I#"eres" I#coe16<@

Solutions Manual 14-73 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-@ )Co#"i#'e+*

)e* T2e receip" e#"r( ." ."'ri"( is8K.#'.r( 16 51

C.s216556555

No"es Recei&.ble16556555

Solutions Manual 14-74 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EXERCISE 14-28 (20–25 minutes)

T2e firs" s"ep is "o +e"eri#e "2e eco#oic s'bs".#ce of "2e+eb" re#e$o"i."io# .#+ +e"eri#e if i" s2o'l+ be .cco'#"e+ .s .

se""lee#" or . o+ific."io#9exc2.#$e re$.r+i#$ "2e ol+ +eb"I# "2is c.se6 "2e cre+i"or is "2e s.e .#+ so is "2e c'rre#c( .#+"2erefore "2e "es" "o es".blis2 32e"2er "2ere is . se""lee#" or #o" re&ol&es .ro'#+ "2e c.s2 flo3s T2e prese#" &.l'e of "2ec.s2 flo3 s"re.s of "2e #e3 +eb" .re c.lc'l."e+ 'si#$ "2e2is"oric.l i#"eres" r."e of 1= for co#sis"e#c( .#+cop.r.bili"(

Prese#" &.l'e of ol+ +eb" is ?@56555Prese#" &.l'e of #e3 +eb" is c.lc'l."e+ .s follo3s8,si#$ ".bles8 1= Prese#"

F.c"or .l'eSi#$le .o'#" ? 56555 5@@1 ? 1@<6>I#"eres" .##'i"( 116555 155< 16<1

? 1>6@>

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8P ? iel+s ?1>6@>I 1=N PMT ? )116555*F ? )56555*T(pe 5

Since the present value of the future cash flows of the new debtdiffers by an amount larger than 10% of the present value of theold debt, the renegotiated debt is considered a settlement. Again/loss is recorded by Vargo (debtor) and no interest isrecorded by the debtor. This is not considered a modification ofterms. The old debt is removed from the books of Vargo with again/loss being recognized, and the new debt is recorded.

Solutions Manual 14-75 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EXERCISE 14-28 (Continued)

Date

Cash

Interest

Effective-

Interest

Increasein Carrying

Amount

CarryingAmount of

Note12/31/14 $193,97312/31/15 $11,000a $23,277b $12,277c  206,25012/31/16 11,000  24,750 13,750 220,000

a$11,000 = $220,000 X .05b$23,277 = $193,973 X 12%c$12,277 = $23,277 – $11,000

December 31, 2015Cash...................................................................................11,000Notes Receivable..............................................................12,277

Interest Income........................................................ 23,277

December 31, 2016Cash...................................................................................11,000Notes Receivable..............................................................13,750

Interest Income........................................................ 24,750

Cash...................................................................................220,000Notes Receivable..................................................... 220,000

Solutions Manual 14-77 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14- )1<-5 i#'"es*

).* Gr'p( Lii"e+/s e#"r(8

No"es P.(.ble1>@6>55Acc''l."e+ %epreci."io# - E0'ipe#"4<6555

E0'ipe#" 1556555G.i# o# %ispos.l of E0'ipe#" @6<55  )?6<55 ?<<6555*G.i# o# Res"r'c"'ri#$ of %eb" <4655

?1>@6>55 ?6<55

)b* B.#7 O#e I#c/s e#"r(8

E0'ipe#"6<55Allo3.#ce for %o'b"f'l Acco'#"s<4655

No"es Recei&.ble 1>@6>55

Solutions Manual 14-78 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14->5 )1<-5 i#'"es*

).* IFRS

1 C'rre#" li.bili"( si#ce "2e oper."i#$ c(cle of "2e 3i#er( is <(e.rs

C'rre#" li.bili"(6 ?65556555; lo#$-"er li.bili"(6 ?65556555> C'rre#" li.bili"( ).o'#" .c"'.ll( 2el+ i# "r's"*4 Prob.bl( #o#c'rre#"6 .l"2o'$2 if oper."i#$ c(cle is $re."er 

"2.# o#e (e.r .#+ c'rre#" .sse"s .re repor"e+ b.se+ o#"2is lo#$er perio+6 "2is i"e 3o'l+ be cl.ssifie+ .s c'rre#"

< I#"eres" p.(.ble is . c'rre#" li.bili"( .#+ "2e #o"e p.(.bleis #o#c'rre#" li.bili"(

C'rre#" li.bili"(

@ No#c'rre#" li.bili"( C'rre#" li.bili"( C'rre#" .sse" #e""e+ .$.i#s" o"2er c.s2 b.l.#ces15 C'rre#" li.bili"(

)b* ASPE

No +iffere#ces All of "2e .bo&e IFRS cl.ssific."io#s 3o'l+ be"2e s.e '#+er ASPE

Solutions Manual 14-79 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14->1 )1<-5 i#'"es*

).* IFRS

1 I#"eres" expe#se )cre+i" b.l.#ce*QO"2er re&e#'es .#+$.i#s o# "2e i#coe s"."ee#"

G.i# o# res"r'c"'ri#$ of +eb" If QG.i# o# res"r'c"'ri#$ of +eb" +oes #o" occ'r fre0'e#"l(6 i" is s"ill prese#"e+ .s p.r"of QI#coe fro co#"i#'i#$ oper."io#s If i" is #o" ."eri.li# .o'#"6 i" is cobi#e+ 3i"2 "2e o"2er i"es i# "2ei#coe s"."ee#" If i" is ."eri.l6 i" is +isclose+ sep.r."el(

> Mor"$.$e p.(.bleCl.ssif( o#e-"2ir+ .s c'rre#" li.bili"(.#+ "2e re.i#+er .s lo#$-"er li.bili"( o# "2e s"."ee#" of fi#.#ci.l posi"io#

4 %ebe#"'re bo#+sCl.ssif( .s lo#$-"er li.bili"( o#b.l.#ce s2ee"

< No"es p.(.bleCl.ssif( .s lo#$-"er li.bili"( o# b.l.#ces2ee"

I#coe bo#+s p.(.bleCl.ssif( .s lo#$-"er li.bili"( o#"2e s"."ee#" of fi#.#ci.l posi"io#

)b* ASPE

No +iffere#ces All of "2e .bo&e IFRS cl.ssific."io#s 3o'l+ be"2e s.e '#+er ASPE

Solutions Manual 14-80 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

EERCISE 14-> )15-1< i#'"es*

A" %eceber >16 5146 +isclos'res 3o'l+ be .s follo3s8

Lo#$-"er +eb" co#sis"s of "2e follo3i#$8No"es p.(.ble6 +'e K'#e >56 51@ ?6556555Bo#+6 +'e Sep"eber >56 51 465556555%ebe#"'re 1@6<556555

?>6@556555

T2e +ebe#"'re 2.s .##'.l si#7i#$ f'#+ p.(e#"s of ?>6<556555i# e.c2 of "2e (e.rs 51 "o 55

M."'ri"ies .#+ si#7i#$ f'#+ re0'iree#"s o# lo#$-"er +eb" .re

.s follo3s8

51< ? 551 >6<55655551@ <6@556555 )?6556555 ?>6<556555*51 @6<556555 )?465556555 ?>6<556555*51 >6<556555T2ere.f"er >6<556555

No"e8 T2e cop.#( 3o'l+ .lso #ee+ "o +isclose i#"eres" r."esfor e.c2 li.bili"(6 coll."er.l if .#(6 co&e#.#"s .#+ .#( o"2er si$#ific.#" +e".ils i# "2e +eb" .$reee#"s

Solutions Manual 14-81 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

TIME AN% P,RPOSE OF PROBLEMS

ro"lem 1'!1Time #!#( minutesD

ur8ose<to 8ro7ide the student %ith an o88ortunity to "ecome familiar %ith thee9change of a note, %hich is 8aya"le in e0ual instalments, for machinery. This8ro"lem re0uires the 8re8aration of the necessary ;ournal entries concerning thee9change and the annual 8ayments and interest. A schedule of note discountamorti=ation should "e constructed to su88ort the res8ecti7e entries.

ro"lem 1'!#Time '!( minutesD

ur8ose<to 8ro7ide the student %ith the o88ortunity to contrast the terms of along!term note gi7en in e9change for the 8urchase of land. The discussion of risk and financial statement disclosure is included as 8art of the re0uired for this

0uestion. The 8re8aration of effecti7e interest ta"les for "oth alternati7es isintended to dra% the students attention to the differences in the treatment of 8rinci8al and interest "et%een a regular note and an instalment note 8aya"le.ournal entries and ad;usting ;ournal entries and the statement of financial8osition disclosure must also "e 8re8ared under "oth alternati7es. This is acom8rehensi7e 0uestion.

ro"lem 1'!&Time 1(!# minutesD

ur8ose<to 8ro7ide the student %ith the o88ortunity to inter8ret a "ondamorti=ation schedule. This 8ro"lem re0uires "oth an understanding of the

function of such a schedule and the rele7ance of each of the indi7idual num"ers.The student is to 8re8are ;ournal entries to reflect the information gi7en in the"ond amorti=ation schedule.

ro"lem 1'!'Time #(!& minutesD

ur8ose<to 8ro7ide the student %ith an understanding of ho% to make the ;ournal entry to record the issuance of "onds. In addition, a 8ortion of the "ondsare retired and therefore a "ond amorti=ation schedule has to "e 8re8ared.2tudent must also deal %ith accounting for the costs of issuing a "ond.

Solutions Manual 14-82 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

TIME AN% P,RPOSE OF PROBLEMS )CONTIN,E%*

ro"lem 1'!(Time (!$( minutesD

ur8ose<to 8ro7ide the student %ith an understanding of the rele7ant ;ournalentries %hich are necessitated for a "ond issuance. This 8ro"lem in7ol7es t%oinde8endent "ond issuances %ith the assum8tion that one is sold at a discountand the other at a 8remium, "oth utili=ing the effecti7e interest method. Thiscom8rehensi7e 8ro"lem re0uires 8re8aring ;ournal entries for the issuance of "onds, related interest 8ayments and amorti=ation %ith the construction of amorti=ation ta"les %here a88lica"leD, and the retirement of 8art of the "onds.

ro"lem 1'!$Time &!&( minutesD

ur8ose<to 8ro7ide the student %ith an understanding of the rele7ant ;ournal

entries, for a "ond issuance and "ond retirement. This 8ro"lem re0uires8re8aring ;ournal entries, assuming the straight!line method, for the issuance of "onds, related interest 8ayments and amorti=ation, and the retirement of 8art of the "onds.

ro"lem 1'!)Time 1(!#( minutesD

ur8ose<to 8ro7ide the student %ith an o88ortunity to "ecome familiar %ith thee9change of notes for cash or 8ro8erty, goods, or ser7ices. This 8ro"lemre0uires the 8re8aration of the necessary ;ournal entries concerning thee9change of a non!interest!"earing long!term note for a com8uter soft%are

system, and the necessary ad;usting entries relati7e to amorti=ation. The studentshould construct the rele7ant schedule of note discount amorti=ation to su88ortthe res8ecti7e entries.

ro"lem 1'!*Time 1(!# minutesD

ur8ose<to 8ro7ide the student %ith an understanding of the rele7ant ;ournalentries %hich are necessitated %hen there is a "ond issuance and "ondretirement. This 8ro"lem also 8ro7ides an o88ortunity for the student to learn theincome statement treatment of the loss from retirement and the footnotedisclosure re0uired.

ro"lem 1'!+Time #!#( minutesD

ur8ose<to 8ro7ide the student %ith an understanding of a num"er of areasrelated to "onds. 28ecifically, the classification of "onds, determination of cashrecei7ed %ith "ond issue costs and accrued interest, and disclosurere0uirements

Solutions Manual 14-83 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

TIME AN% P,RPOSE OF PROBLEMS )CONTIN,E%*

ro"lem 1'!1 Time #!#( minutesD

ur8ose<to 8ro7ide the student %ith a series of transactions from "ond

issuance, 8ayment of "ond interest, accrual of "ond interest, amorti=ation of "ond discount, and "ond retirement. ournal entries are re0uired for each of these transactions.

ro"lem 1'!11 Time #!#( minutesD

ur8ose<to 8ro7ide the student the same o88ortunity as those gi7en inro"lem 1'!$ e9ce8t that the effecti7e interest method %ill "e used. The student%ill "e re0uired to calculate the effecti7e interest rate on the "ond using either afinancial calculator or E9cel function. The 8re8aration of a 8artial effecti7e

interest ta"le is also re0uired.

ro"lem 1'!1# Time &!' minutesD

ur8ose<to 8ro7ide the student %ith a loan im8airment situation that re0uiresentries "y "oth the de"tor and the creditor and an analysis of the loss onim8airment.

ro"lem 1'!1& Time 1(!#( minutesD

ur8ose<to 8ro7ide the student %ith a trou"led de"t situation that re0uirescalculation of the creditors loss on restructure, entries to recogni=e the loss, anddiscussion of >AA relating to this situation.

ro"lem 1'!1' Time '!( minutesD

ur8ose<to 8ro7ide the student %ith four inde8endent and different restructuredde"t situations %here losses or gains must "e com8uted and ;ournal entriesrecorded on the "ooks of the creditor and the de"tor.

ro"lem 1'!1( Time '!( minutesD

ur8ose<to 8ro7ide the student %ith a restructuring of a trou"led de"t situationre0uiring com8utation of the creditors loss and entries "y "oth the de"tor andcreditor "efore and after restructuring along %ith an amorti=ation schedule.

Solutions Manual 14-84 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

TIME AN% P,RPOSE OF PROBLEMS )CONTIN,E%*

ro"lem 1'!1$ Time &!&( minutesD

ur8ose<to 8ro7ide the student %ith a situation %here trou"led de"t is sold toanother creditor. The student must 8re8are entries on the "ooks of "othcreditors and de"tors after com8uting any gains or losses.

ro"lem 1'!1) Time '!( minutesD

ur8ose<to 8ro7ide the student %ith a com8le9 trou"led de"t situation thatre0uires t%o amorti=ation schedules, com8utation of loss on restructure, andentries at different times on "oth the creditors and de"tors "ooks.

Solutions Manual 14-85 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

SOL,TIONS TO PROBLEMS

PROBLEM 14-1

).*)1*19>1914 M.c2i#er(164<

C.s2<56555No"es P.(.ble1>64<

  To recor+ .c2i#er( ." "2e  prese#" &.l'e of "2e #o"e pl's  "2e ie+i."e c.s2 p.(e#"8  P of ?456555 .##'i"( =  for 4 (e.rs )?456555 >>11>* ?1>64<

  %o3# p.(e#" <56555C.pi".li:e+ &.l'e of .c2i#er( ?164<

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?1>64<

I =

N 4

PMT ? )456555*

F ? 5

T(pe 5

Sc2e+'le of No"e %isco'#" Aor"i:."io#

%."e%ebi"6 I#"eres" Expe#seCre+i"6 No"es P.(.ble

  Cre+i" C.s2

C.rr(i#$Ao'#"of No"e

19>1914 ?1>64<

19>191< ?156< ?456555 15>65419>191 64@ 456555 @16>>119>191@ <6@5 456555 >@65>@19>191 6> 456555

?15>654 D ?1>64< ?156< ?456555

Solutions Manual 14-86 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1 )Co#"i#'e+*

)*19>191< No"es P.(.ble456555

C.s2456555

I#"eres" Expe#se156<No"es P.(.ble156<

)>*19>191 No"es P.(.ble456555

C.s2456555

I#"eres" Expe#se64@No"es P.(.ble64@

)4*19>191@ No"es P.(.ble456555

C.s2456555

I#"eres" Expe#se<6@5No"es P.(.ble<6@5

)<*19>191 No"es P.(.ble456555

C.s2456555

I#"eres" Expe#se6>No"es P.(.ble6>

)b* Fro "2e perspec"i&e of "2e le#+er6 .# i#s".le#" #o"epro&i+es for . re+'ce+ ris7 of collec"io# 32e# cop.re+"o .# i#"eres"-be.ri#$ #o"e I# "2e c.se of "2e i#"eres"-be.ri#$ #o"e6 "2e pri#cip.l .o'#" is +'e ." "2e ."'ri"( of 

"2e #o"e F'r"2er6 "2e i#s".le#" #o"e pro&i+es . re$'l.r re+'c"io# of "2e pri#cip.l b.l.#ce i# e&er( p.(e#"recei&e+ .##'.ll( .#+ "2erefore re+'ces "2e le#+er/si#&es"e#" i# "2e recei&.ble6 freei#$ 'p "2e c.s2 for o"2er p'rposes T2is is +eo#s"r."e+ i# "2e sc2e+'le of +isco'#" .or"i:."io# pro&i+e+ .bo&e for "2e i#s".le#"#o"e

Solutions Manual 14-87 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-

).* T2e &.l'e of "2e l.#+ s2o'l+ be recor+e+ ." "2e prese#"&.l'e of "2e f'"'re c.s2 flo3s of "2e #o"e $i&e# i#

exc2.#$e for "2e l.#+ T2e .s7i#$ price for "2e l.#+ is2i$2er "2.# "2e re.l p'rc2.se price T2ere is soeflexibili"( "o #e$o"i."e . re+'c"io# i# "2e .s7i#$ price for "2e l.#+ for s.le b( Sil&er.# Corpor."io# T2e rele&.#"i#"eres" r."e "o ip'"e o# "2e #o"e is "2e i#"eres" r."e "oM.c%o'$.ll 32o is "2e borro3er i# "2is c.se T2e rele&.#"i#"eres" r."e is "2erefore 15= T2e i#"eres" r."e c.lle+ for i# "2e #o"e of 4= is &er( lo3 i# rel."io# "o . f.ir .r7e"r."e of i#"eres"

)b* A or"$.$e #o"e i#&ol&es "2e re$is"eri#$ of . c2.r$e.$.i#s" "2e proper"(6 i# "2is c.se l.#+6 32ere.s .proissor( #o"e .lo#e offers #o re+'c"io# of ris7 "oSil&er.# Corpor."io# S2o'l+ M.c%o'$.ll f.il "o p.( "2e#o"e 3i"2i# "2e "ers6 Sil&er.# Corpor."io# c.# ob".i#reco'rse "2ro'$2 "2e co'r" .#+ ob".i# "2e .sse"6 or "2eprocee+s fro "2e res.le of "2e .sse"6 .s s."isf.c"io# for "2e o'"s".#+i#$ pri#cip.l .#+ i#"eres" o3i#$ o# "2eor"$.$e #o"e A proissor( #o"e .lo#e +oes #o" offer 

"2is po"e#"i.l relief "o "2e cre+i"or .#+ is "2erefore . 2i$2er cre+i" ris7 "o Sil&er.# Corpor."io#

)c* T2e l.#+ is c.pi".li:e+ ." "2e prese#" &.l'e of . si#$lep.(e#" ." "2e e#+ of fi&e (e.rs of ?>556555 pl's "2e.##'i"( i#"eres" p.(e#"s of ?16555 per (e.r for < (e.rs6ip'"e+ ." 15= i#"eres" ,si#$ prese#" &.l'e ".bles8

?>556555 5 D ?16@?16555 >@5@ D 4<645

Prese#" &.l'e ?>16@

Solutions Manual 14-88 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14- )Co#"i#'e+*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?>16@

I 15=N <

PMT ? )16555*

F ? )>556555*

T(pe 5

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

Mor"$.$e No"e P.(.ble i#"eres" p.i+ ." 4=

4= 15= No"e

C.s2 I#"eres" %isco'#" C.rr(i#$

%."e P.i+ Expe#se Aor"i:e+ Ao'#"

K'#e 1 514 ?>16@<4

K'#e 1 51< ?1655555 ?>61@< ?1161@< 4644

K'#e 1 51 1655555 4644 1644 <<6>

K'#e 1 51@ 1655555 <6<>@ 1>6<>@ 6@5>>

K'#e 1 51 1655555 6@5> 146@5> >6>>K'#e 1 51 1655555 6>>4 16>>4 >55655555

?16>41 ?6>41

)+* K'#e 16 514L.#+>16@

No"es P.(.ble>16@

Solutions Manual 14-89 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14- )Co#"i#'e+*

)e*%eceber >16 514

I#"eres" Expe#se1>6<1@No"es P.(.ble 6<1@I#"eres" P.(.ble @655555

)?>61@< @91 D ?1>6<1@*)?1161@< @91 D?6<1@*

K'#e 16 51<I#"eres" Expe#se6<1I#"eres" P.(.ble@655555

No"es P.(.ble 46<1

C.s2 1655555)?>61@< <91 D ?6<1*)?1161@< <91 D?46<1*

)f* 1 ,si#$ "2e .l"er#."i&e of "2e i#s".le#" #o"e6 "2e l.#+ isc.pi".li:e+ ." "2e prese#" &.l'e of "2e .##'i"( p.(e#" .""2e e#+ of e.c2 of "2e #ex" fi&e (e.rs 32ic2 3illcorrespo#+ "o "2e s.e &.l'e .s "2." .rri&e+ ." for "2eor"$.$e #o"e6 ip'"e+ ." 15= i#"eres" T2e prese#" &.l'eis ?>16@

,si#$ ".bles8?>16@ >@5@ )POA<6 15=* D ?161>>

,si#$ . fi#.#ci.l c.lc'l."or8

P ? >16@

I 15=

N <

PMT ?  iel+s ?)161>4*F ? 5

T(pe 5

Excel for'l. DPMT)r."e6#per6p&6f&6"(pe*

Solutions Manual 14-90 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14- )Co#"i#'e+*

I#s".le#" No"e P.(.ble

15= No"e

C.s2 I#"eres" %isco'#" C.rr(i#$

%."e P.i+ Expe#se Aor"i:e+ Ao'#"

K'#e 1 514 ?>16@<4

K'#e 1 51< ?161>4 ?>61@< ?>@6 1>65>1

K'#e 1 51 161>4 16>5> 416@<> 1<6544<

K'#e 1 51@ 161>4 1<6544> 4<6>4 156154>

K'#e 1 51 161>4 156154 <56<>5 <<6<11>K'#e 1 51 161>4 <6<<11 <<6<11> 555

 ?@>6>5> ?>16@<4

>K'#e 16 514

L.#+>16@No"es P.(.ble>16@

4 %eceber >16 514I#"eres" Expe#se1>6<1@

I#"eres" P.(.ble 1>6<1@)?>61@< @91 D ?1>6<1@*

K'#e 16 51<I#"eres" Expe#se6<1I#"eres" P.(.ble1>6<1@No"es P.(.ble>@6

C.s2 161>4

Solutions Manual 14-91 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14- )Co#"i#'e+*

<T2e cl.ssific."io# of "2e Mor"$.$e No"e o# "2e %eceber >16 514 s"."ee#" of fi#.#ci.l posi"io# is8

C'rre#" li.bili"ies8I#"eres" p.(.ble ?@6555

No#-c'rre#" li.bili"ies8Mor"$.$e #o"e p.(.ble6 +'e K'#e 16 51  )?>16@ ?6<5* >6

T2e cl.ssific."io# of "2e I#s".le#" No"e o# "2e %eceber >16 514 s"."ee#" of fi#.#ci.l posi"io# is8

C'rre#" li.bili"ies8I#"eres" p.(.ble ?1>6<1I#s".le#" #o"e p.(.ble6 c'rre#" por"io# >@6>

No#-c'rre#" li.bili"ies8I#s".le#" #o"e p.(.ble6 )+'e i# .##'.l

p.(e#"s of ?161> e#+i#$ K'#e 16 51*  )?>16@ ?>@6>* 1>65>

Sil&er.# Corpor."io# 3o'l+ i#sis" o# "2e i#s".le#" #o"ei# or+er "o sec're l.r$er c.s2 i#flo3s +'ri#$ "2e "er of "2e #o"e .#+ "o re+'ce "2e ris7 of 2.&i#$ "o collec" "2e#o"e pri#cip.l i# "2e c.se of . +ef.'l" b( M.c%o'$.ll

Solutions Manual 14-92 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14->

).* T2e bo#+s 3ere sol+ ." . +isco'#" of ?<6<1 E&i+e#ce of 

"2e +isco'#" is "2e K.#'.r( 16 514 c.rr(i#$ .o'#" of ?46>46 32ic2 is less "2.# "2e ."'ri"( &.l'e of ?1556555i# 5>

)b* T2e i#"eres" .lloc."io# .#+ bo#+ +isco'#" .or"i:."io# .reb.se+ 'po# "2e effec"i&e i#"eres" e"2o+; "2is is e&i+e#"fro "2e i#cre.si#$ i#"eres" c2.r$e ,#+er "2e s"r.i$2"-li#ee"2o+ "2e .o'#" of i#"eres" 3o'l+ 2.&e bee# ?116<<15?116555 )?<6<1 15*J for e.c2 (e.r of "2e "er of "2e

bo#+s

Al"2o'$2 "2e effec"i&e i#"eres" e"2o+ is re0'ire+ '#+er IFRS per IAS >4@6 .cco'#"i#$ s".#+.r+s for pri&."ee#"erprises +o #o" specif( "2." "2is e"2o+ 's" be 'se+.#+ "2erefore6 "2e s"r.i$2"-li#e e"2o+ is .lso .# op"io#T2e s"r.i$2"-li#e e"2o+ is &.l'e+ for i"s siplici"( .#+i$2" be 'se+ b( cop.#ies 32ose fi#.#ci.l s"."ee#"s.re #o" co#s"r.i#e+ b( "2is specific elee#" of GAAP

)c* T2e s"."e+ r."e is 11= )?116555 ?1556555* T2e effec"i&e

r."e is 1= )?116> ?46>4*

Solutions Manual 14-93 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-> )Co#"i#'e+*

)+* K.#'.r( 16 514C.s246>4

Bo#+s P.(.ble46>4

)e* %eceber >16 514I#"eres" Expe#se116>

Bo#+s P.(.ble >I#"eres" P.(.ble116555

)f* K.#'.r( 16 5 )I#"eres" P.(e#"*I#"eres" P.(.ble116555

C.s2116555

%eceber >16 5I#"eres" Expe#se116@@

Bo#+s P.(.ble @@I#"eres" P.(.ble116555

Solutions Manual 14-94 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-4

).* T2e prese#" &.l'e of "2e f'"'re c.s2 flo3s "o".ls?6516445 T2e .pplic.ble Excel for'l. follo3s8

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

DP)156156-1565556-6555655565* 32ere 15 +esi$#."es "2ei#"eres" r."e )R."e*6 "2e 15 is for "2e "er )Nper*6 "2e o'"flo3 of ?156555 is "2e .##'i"( p.(e#" )P"* b.se+ o# "2e 15<=i#"eres" r."e6 "2e o'"flo3 of ?65556555 is f'"'re &.l'e )F&*6 .#+"2e :ero +esi$#."es "2." "2e .##'i"( is . re$'l.r .##'i"( )T(pe*

,si#$ ".bles8

Prese#" &.l'e of "2e pri#cip.l  ?65556555 ><<4 )P156 15=* ?@@1655

Prese#" &.l'e of "2e i#"eres" p.(e#"s  ?156555 144<@ )POA156 15=* 1656>5

Prese#" &.l'e )selli#$ price of "2e bo#+s* ?6516445

?65556555 15<= D ?156555

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?651644

I 15=

N 15

PMT ? )156555*

F ? )65556555*

T(pe 5

C.s265116445Bo#+s P.(.ble)?65556555 ?16445 ?<56555* 65116445

Solutions Manual 14-95 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-4 )Co#"i#'e+*

)b*

%."e

C.s2

P.(e#"15<=

I#"eres"

Expe#se1545<>=

%isco'#"

Aor"i:.-"io#

C.rr(i#$

Ao'#" of Bo#+s

191914 ?6511644519191< ?156555 ?56 ?@54 65156@>19191 156555 56> @@@ 6556<19191@ 156555 5614 < 655615119191 156555 565<> 4@ 65561<419191 156555 56<4 1654 655@615

)c* C.rr(i#$ .o'#" .s of 19191@ ?6556151Less8 Aor"i:."io# of bo#+ prei'

)?4@ *   4@4

C.rr(i#$ .o'#" .s of @9191@ ?6556@

Re.c0'isi"io# price ?165<6555C.rr(i#$ .o'#" .s of @9191@ of bo#+  )?6556@ * )165546>14*

Loss o# Re+ep"io# ? 56

E#"r( for .ccr'e+ i#"eres"I#"eres" Expe#se <6>Bo#+s P.(.ble>@  )?4@ 19 19*

C.s2 <6<55  )?156555 19 19*

Solutions Manual 14-96 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-4 )Co#"i#'e+*

)c* )Co#"i#'e+*

E#"r( for re.c0'isi"io#Bo#+s P.(.ble165556555Loss o# Re+ep"io# of Bo#+s56Bo#+s P.(.ble46>14

C.s2 165<6555

Prei' .s of @9191@ "o be 3ri""e# off )?6556@ ?65556555* 19 D ?46>14

)+*B( c2oosi#$ "o c.rr( "2e bo#+s ." f.ir &.l'e .#+ expe#si#$ "2ecos"s of iss'i#$ "2e bo#+ i# "2e .o'#" of ?<565556 "2eprei' o# bo#+s p.(.ble 3o'l+ i#cre.se ." "2e +."e of iss'.#ce b( "2e ?<56555 expe#se+ ." iss'e Correspo#+i#$l(6"2e i#"eres" expe#se recor+e+ e.c2 (e.r 3o'l+ be lo3er b( "2e.o'#" c2.r$e+ "o expe#se 'si#$ "2e effec"i&e i#"eres" e"2o+for "2e .or"i:."io# of "2e .++i"io#.l ?<56555 )"2e effec"i&ei#"eres" r."e 3o'l+ be 15= i#s"e.+ of "2e 154<>= re0'ire+ +'e"o "2e c.pi".li:."io# of "2e bo#+ iss'e cos"s* I# "o".l6 "2eperio+ic expe#se 3o'l+ be lo3er o&er "2e 15-(e.r "er of "2ebo#+ b( ?<565556 e0'.l "o "2e expe#se reco$#i:e+ ." iss'.#ceT2e "o".l cos"s 3o'l+ be 'l"i."el( c2.r$e+ "o i#coe T2e o#l(+iffere#ce 3o'l+ be "2." "2e c2.r$e 3o'l+ be cople"el(expe#se+ i# "2e (e.r "2e bo#+ 3.s iss'e+ .s oppose+ "ospre.+ o&er "2e "e#-(e.r "er of "2e bo#+

No"e8 !2e# . #o"e or bo#+ is iss'e+6 i" s2o'l+ be reco$#i:e+ .""2e f.ir &.l'e .+'s"e+ b( .#( +irec"l( .""rib'".ble iss'e cos"s

Ho3e&er6 #o"e "2." 32ere "2e li.bili"ies 3ill s'bse0'e#"l( bee.s're+ ." f.ir &.l'e )e$6 '#+er "2e f.ir &.l'e op"io# or bec.'se "2e( .re +eri&."i&es*6 "2e "r.#s.c"io# cos"s s2o'l+ #o"be i#cl'+e+ i# "2e i#i"i.l e.s'ree#" )ie6 "2e cos"s s2o'l+ beexpe#se+* CICA Handbook 6 P.r" II6 Sec"io# ><5@ .#+ IAS>4>J

Solutions Manual 14-97 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-<

1 Ars"ro#$ I#c

>91914 C.s2166><Bo#+s P.(.ble166><

M."'ri"( &.l'e of bo#+s p.(.ble ?65556555Prese#" &.l'e of ?65556555 +'e i# @perio+s ." = )?65556555 <5* ?16>>5615

Prese#" &.l'e of i#"eres" p.(.bleSei.##'.ll( ." = )?1556555 <<>* <<6>

Procee+s fro s.le of bo#+s )166><*

%isco'#" o# bo#+s p.(.ble ?11164

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?166><

I =

N @

PMT ? )1556555*

F ? )65556555*

T(pe 5Excel for'l. D P)r."e6#per6p"6f&6"(pe*

A ore .cc'r."e res'l" is ob".i#e+ cop.re+ "o 'si#$ f.c"orsfro ".bles .s "2ere .re . lii"e+ #'ber of +eci.l pl.ces i#"2e ".bles

91914 I#"eres" Expe#se11>6>51Bo#+s P.(.ble1>6>51C.s21556555

19>1914 I#"eres" Expe#se@65Bo#+s P.(.ble6>  )?1465 49*I#"eres" P.(.ble )?1556555 49*6@

Solutions Manual 14-98 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-< )Co#"i#'e+*

>9191< I#"eres" Expe#se>65>>I#"eres" P.(.ble6@

Bo#+s P.(.ble46@55

  )?1465 9*C.s21556555

9191< I#"eres" Expe#se11464<Bo#+s P.(.ble1464<C.s21556555

19>191< I#"eres" Expe#se@@6Bo#+s P.(.ble156<1

  )?1<64 49*I#"eres" P.(.ble6@

Sc2e+'le of Bo#+ %isco'#" Aor"i:."io#Effec"i&e I#"eres" Me"2o+

15= Bo#+s Sol+ "o iel+ 1=

%."e

 C.s2

P.i+

  I#"eres"

Expe#se

  %isco'#"

Aor"i:e+

C.rr(i#$Ao'#" of 

Bo#+s

>91914 ?166><91914 ?1556555 ?11>6>51 ?1>6>51 16516<4

>9191< 1556555 11465 1465 161<6@<>

9191< 1556555 11464< 1464< 16>56

>9191 1556555 11<64 1<64 1646<45

9191 1556555 116@ 16@ 16>6>>

>9191@ 1556555 11@655 1@655 16161>

9191@ 1556555 116 16 65556555 

Solutions Manual 14-99 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-< )Co#"i#'e+*

O'ele""e L"+

91914 C.s261>6Bo#+s P.(.ble61>6

T2e prese#" &.l'e of "2e f'"'re c.s2 flo3s "o".ls ?61>6>T2e .pplic.ble Excel for'l. follo3s8

DP)5<66->>565556-6555655565* 32ere 5< +esi$#."es "2ei#"eres" r."e )R."e*6 "2e is for "2e "er )Nper*6 "2e o'"flo3 of ?>>56555 is "2e .##'i"( p.(e#" )P"*6 "2e o'"flo3 of ?65556555is f'"'re &.l'e )F&* "2e :ero +esi$#."es "2." "2e .##'i"( is .

re$'l.r .##'i"( )T(pe*

,si#$ prese#" &.l'e ".bles8M."'ri"( &.l'e of bo#+s p.(.ble ?65556555Prese#" &.l'e of ?65556555 +'e i#

perio+s ." <= )?65556555 @4* ?46516545Prese#" &.l'e of i#"eres" p.(.ble

sei.##'.ll( )?>>56555 4>1* 61>6<Procee+s fro s.le of bo#+s 61>6Prei' o# bo#+s p.(.ble ? 1>6

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?61>6

I <=

N

PMT ? )>>56555*

F ? )65556555*

T(pe 5

Excel for'l. DP )r."e6 #per6 p"6 f&6 "(pe*

Solutions Manual 14-100 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-< )Co#"i#'e+*

191914 I#"eres" Expe#se>56<Bo#+s P.(.ble56>5<

C.s2 )?65556555 11 91*>>56555

19>1914 I#"eres" Expe#se )?>565 19*<1644@Bo#+s P.(.ble>6<<>  )?16>5 19*

I#"eres" P.(.ble )?>>56555 19*<<6555

9191< I#"eres" Expe#se )?>565 <9*<@6>>I#"eres" P.(.ble<<6555

Bo#+s P.(.ble1@6@@  )?16>5 <9*

C.s2>>56555

159191< I#"eres" Expe#se41651<  )?>5@614 49*Bo#+s P.(.ble6<  )?6> 49*

C.s2446555)?>>56555 49 *?16556555 ?65556555 D

159191< Bo#+s P.(.ble16556555Bo#+s P.(.ble@64Loss o# Re+ep"io# of Bo#+s16<>1

C.s216><6555

Re.c0'isi"io# price

  )?164556555 ?446555* ?16><6555Ne" c.rr(i#$ .o'#" of bo#+s re+eee+8

P.r &.l'e ?16556555,#.or"i:e+ prei'

) )?1>6?56>5<?16>5*J ?6< @64 )16@64*  Loss o# re+ep"io# ? 16<>1

Solutions Manual 14-101 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-< )Co#"i#'e+*

19191< I#"eres" Expe#se )?>5@614 *4651Bo#+s P.(.ble )?6> *1@65

C.s2 )?>>56555 *46555)?65556555 ?16556555* ?65556555 D

19>191< I#"eres" Expe#se456  )?>5644 19*Bo#+s P.(.ble>61>4  )?>6<5 19*

I#"eres" P.(.ble446555  )?>>56555 19*

9191 I#"eres" Expe#se )?>5644 <9*546>I#"eres" P.(.ble446555Bo#+s P.(.ble1<6@1  )?>6<5 <9*

C.s2 )?>>56555 *46555

19191 I#"eres" Expe#se )?>5<6>1 *446<<Bo#+s P.(.ble )?461 *16@4<

C.s2 )?>>56555 *46555

%."e

C.s2

P.i+ I#"eres"Expe#se

Prei'

Aor"i:e+

C.rr(i#$Ao'#" of 

Bo#+s

91914   ?61>6191914  ?>>56555 ?>56< ?56>5< 61@>6<19191<   >>56555 >565 16>5 61<6@119191<   >>56555 >5@614 6> 616<9191   >>56555 >5644 >6<5 6156>@19191   >>56555 >5<6>1 461 65169191@   >>56555 >5465< <61< 65<<6@>19191@   >>56555 >56@ @611 656<@9191   >>56555 >5164 6<@ 65556555

Solutions Manual 14-102 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-

).*

M.( 16 514C.s2@>6555

 )?@556555 15<=* )?@556555 1= 491*

Bo#+s P.(.ble )?@>6555 ?6555* @><6555I#"eres" Expe#se )?@556555 1= 491* 6555

%eceber >16 514I#"eres" Expe#se )?@556555 1=*46555

I#"eres" P.(.ble 46555

Bo#+s P.(.ble6414I#"eres" Expe#se 6414  )?><6555 911 D ?6414*

)1 15* 4 D 11

K.#'.r( 16 51<I#"eres" P.(.ble46555

C.s2 46555

April 16 51<Bo#+s P.(.ble<4>

I#"eres" Expe#se <4>  )?><6555 >911 5*

?456555 9 ?@556555 D 5

Bo#+s P.(.ble4>655I#"eres" Expe#se )?456555 1 >91* 1655

C.s2 )?4>655 ?1655* 44<655G.i# o# Re+ep"io# of Bo#+s 645

#ex" p.$e )?456555 ?1655* ?456555 15>=*J #ex" p.$e

Solutions Manual 14-103 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14- )Co#"i#'e+*

).* )Co#"i#'e+*

Re.c0'isi"io# price )i#cl'+i#$ .ccr'e+ i#"eres"*  )?456555 15>=* )?456555 1= >91*?44<655Ne" c.rr(i#$ .o'#" of bo#+s re+eee+8P.r &.l'e 456555,#.or"i:e+ prei'  ?><6555 )?456555 ?@556555* 15<911J  1655

Ne" c.rr(i#$ .o'#" of bo#+s re+eee+ 4>655Accr'e+ i#"eres" )?456555 1= >91* 1655

4<165

G.i# o# re+ep"io# ? 645

%eceber >16 51<I#"eres" Expe#se )?56555 1*>>655

I#"eres" P.(.ble >>655

Bo#+s P.(.ble1644I#"eres" Expe#se 1644

Aor"i:."io# per (e.r o# ?56555 )?><6555 1 911 45* ?1644

)?@556555 ?456555* ?@556555 D 45

)b*

If Pf.ff 3ere "o follo3 IFRS6 "2e# "2e effec"i&e i#"eres" e"2o+'s" be 'se+ "o .or"i:e .#( +isco'#"s or prei's Al"2o'$2"2e effec"i&e i#"eres" e"2o+ is re0'ire+ '#+er IFRS per IAS

>4@6 .cco'#"i#$ s".#+.r+s for pri&."e e#"erprises +o #o"specif( "2." "2is e"2o+ 's" be 'se+ .#+ "2erefore6 "2es"r.i$2"-li#e e"2o+ is .lso .# op"io# T2e s"r.i$2"-li#e e"2o+is &.l'e+ for i"s siplici"( .#+ i$2" be 'se+ b( cop.#ies32ose fi#.#ci.l s"."ee#"s .re #o" co#s"r.i#e+ b( "2is specificelee#" of GAAP

Solutions Manual 14-104 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-@

).* %eceber >16 514M.c2i#er(4565

No"es P.(.ble4565  )M.c2i#e c.pi".li:e+ ." "2e prese#"  &.l'e of "2e #o"e?556555 >51*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?4565

I 15=

N 4

PMT ? 5

F ? )556555*T(pe 5

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

)b* %eceber >16 51<%epreci."io# Expe#se@61

Acc''l."e+ %epreci."io#  M.c2i#er(@61  )?4565 ?@56555* <J

I#"eres" Expe#se4561No"es P.(.ble4561

Sc2e+'le of No"e %isco'#" Aor"i:."io#

%."e

%ebi"6 I#"eres" Expe#se

Cre+i" No"es P.(.bleC.rr(i#$ Ao'#"

of No"e

19>1914 ?456555

19>191< ?45655 4<56@519>191 4<65@ 4<6<19>191@ 46<<> <4<64<1@19>191 <46<41 55655555 ?>5> .+'s"e#" +'e "o ro'#+i#$

Solutions Manual 14-105 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-@ )Co#"i#'e+*

)c* %eceber >16 51%epreci."io# Expe#se@61

Acc''l."e+ %epreci."io#  M.c2i#er(@61

I#"eres" Expe#se4<65@No"es P.(.ble4<65@

)+* %eb" "o "o".l .sse"s is . e.s're of +eb"-p.(i#$ .bili"( .#+lo#$-r'# sol&e#c( Prior "o p'rc2.si#$ "2e .c2i#e6 "2ecop.#(/s +eb" "o "o".l .sse"s r."io 3.s 4= )?4>6555 ?6555* As . res'l" of "2e p'rc2.se6 "2e +eb" "o "o".l

.sse"s r."io i#cre.se+ "o 4<= )?4>6555 ?4565* )?6555 ?4565*J T2e perce#".$e of "o".l .sse"spro&i+e+ b( cre+i"ors i#cre.se+6 32ic2 . cre+i"or 3o'l+&ie3 .s '#f.&o'r.ble T2e cre+i"or .( .lso co#si+er "2."32ile "2e #o#-i#"eres" be.ri#$ #o"e p.(.ble is i#cl'+e+ i#+eb" i# "2e +eb" "o "o".l .sse"s r."io6 i" 3ill #o" res'l" i#c.s2 o'"flo3 '#"il i" is +'e i# fo'r (e.rs

Solutions Manual 14-106 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-

).*

E#"r( "o recor+ "2e iss'.#ce of "2e 11= bo#+s o# %eceber 165148

C.s246556555Bo#+s P.(.ble 46556555

E#"r( "o recor+ "2e re"iree#" of "2e = bo#+s o# K.#'.r( 6 51<8

Bo#+s P.(.ble6456555Loss o# Re+ep"io# of Bo#+s156555

C.s2 )?>65556555 x 154=* >6156555

A" K.#'.r( 6 51< "2e c.rr(i#$ .o'#" of "2e re"ire+ bo#+s is8

Bo#+s p.(.ble ?>65556555Less '#.or"i:e+ +isco'#" )?1<56555 159<* 56555Bo#+ c.rr(i#$ .o'#" ?6456555

)b* I#coe fro oper."io#s ?>6556555Loss o# re+ep"io# of bo#+s )No"e 1* 156555I#coe before ".x >6556555I#coe ".x @<<6555Ne" i#coe ?6<6555

E.r#i#$s per s2.re8Ne" i#coe ?1<1

No"e 1 Bo#+ Re+ep"io#8A loss of ?156555 occ'rre+ fro "2e re+ep"io# .#+ re"iree#"

of ?>65556555 of "2e Corpor."io#/s o'"s".#+i#$ bo#+ iss'e +'ei# 5< T2e bo#+s 3ere re+eee+ ." 154= .s pro&i+e+ for i#"2e bo#+ i#+e#"'re T2e f'#+s 'se+ "o rep'rc2.se "2e or"$.$ebo#+s represe#" . por"io# of "2e procee+s fro "2e s.le of ?465556555 of 11= +ebe#"'re bo#+s iss'e+ %eceber 16 514.#+ +'e i# 5>4

Solutions Manual 14-107 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-

).* !il7ie I#c

Selli#$ price of "2e bo#+s )?465556555 15>=* ?46156555Accr'e+ i#"eres" fro K.#'.r( 1 "o Febr'.r(

6 51< )?465556555 = 91* 56555To".l c.s2 recei&e+ fro iss'.#ce of "2e bo#+s 46156555Less8 Bo#+ iss'.#ce cos"s @6555Ne" .o'#" of c.s2 recei&e+ ?461<>6555

!2e# . #o"e or bo#+ is iss'e+6 i" s2o'l+ be reco$#i:e+ ." "2ef.ir &.l'e .+'s"e+ b( .#( +irec"l( .""rib'".ble iss'e cos"s

Ho3e&er6 #o"e "2." 32ere "2e li.bili"ies 3ill s'bse0'e#"l( bee.s're+ ." f.ir &.l'e )e$6 '#+er "2e f.ir &.l'e op"io# or bec.'se "2e( .re +eri&."i&es*6 "2e "r.#s.c"io# cos"s s2o'l+ #o"be i#cl'+e+ i# "2e i#i"i.l e.s'ree#" )ie6 "2e cos"s s2o'l+ beexpe#se+ ." "2e "ie of iss'.#ce* CICA Handbook 6 P.r" II6Sec"io# ><5@ .#+ IAS >4>J

)b* L.#$le( L"+C.rr(i#$ .o'#" of "2e bo#+s o# 191914 ?465Effec"i&e i#"eres" r."e )15=* 515

I#"eres" expe#se "o be repor"e+ for 514 ? 46

Al"2o'$2 "2e effec"i&e i#"eres" e"2o+ is re0'ire+ '#+er IFRSper IAS >4@6 .cco'#"i#$ s".#+.r+s for pri&."e e#"erprises +o#o" specif( "2." "2is e"2o+ 's" be 'se+ .#+ "2erefore6 "2es"r.i$2"-li#e e"2o+ is .lso .# op"io# T2e s"r.i$2"-li#e e"2o+is &.l'e+ for i"s siplici"( .#+ i$2" be 'se+ b( cop.#ies32ose fi#.#ci.l s"."ee#"s .re #o" co#s"r.i#e+ b( "2is specificelee#" of GAAP

Solutions Manual 14-108 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14- )Co#"i#'e+*

)c* C2ico B'il+i#$ I#c

51< ?4556555 51 ?556555

51 ><56555 51 ><5655551@ 556555 T2ere.f"er >556555

)+* C:esl.3 I#cSi#ce "2ree bo#+s repor"e+ b( C:esl.3 I#c .re sec're+ b(ei"2er re.l es"."e6 sec'ri"ies of o"2er corpor."io#s6 or pl.#"e0'ipe#"6 "2ere .re #o +ebe#"'re bo#+s o'"s".#+i#$ for"2e cop.#(

Solutions Manual 14-109 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-15

).*

491914 C.s2 )16555 ?16555 @=*116456555Bo#+s P.(.ble116456555

)b*1591914 I#"eres" Expe#se@6555

C.s256555Bo#+s P.(.ble16555?165556555 11 91 D

?56555?>56555 15 o#"2s

o#"2s D ?16555 

)c*19>1914 I#"eres" Expe#se>>6555

I#"eres" P.(.ble>>56555  )?56555 >9*Bo#+s P.(.ble6555  )?6555 > o#"2s*

)+*>9191< I#"eres" P.(.ble )?>>56555 V*6<55

I#"eres" Expe#se<6555C.s21>@6<55Bo#+s P.(.ble16555C.s2 p.i+ "o re"iri#$

bo#+2ol+ers8 ?>65556555  11 <91 D ?1>@6<55?65559o o#"2s

  V of "2e bo#+s D ?16555

Solutions Manual 14-110 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-15 )Co#"i#'e+*

A" M.rc2 16 51< "2e c.rr(i#$ .o'#" of "2e re"ire+ bo#+s is8

Bo#+s p.(.ble ?>65556555

Less8 '#.or"i:e+ +isco'#" 46<55Bo#+ c.rr(i#$ .o'#" ?61<6<55

?65559o 1 o#"2s V of "2e bo#+s D ?46<55

T2e re.c0'isi"io# price8 1556555 s2.res ?>1 D ?>61556555

T2e loss o# ex"i#$'is2e#" of "2e bo#+s is8Re.c0'isi"io# price ?>61556555

Less8 c.rr(i#$ .o'#" 61<6<55Loss ? 146<55

T2e e#"r( "o recor+ ex"i#$'is2e#" of "2e bo#+s is8Bo#+s P.(.ble61<6<55Loss o# Re+ep"io# of Bo#+s 146<55  Coo# S2.res >61556555

Solutions Manual 14-111 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-11

,si#$ ei"2er . fi#.#ci.l c.lc'l."or or Excel "2e effec"i&e

i#"eres" r."e o# "2e bo#+s is c.lc'l."e+ .s follo3s8

Excel for'l. DRATE)#per6p"6p&6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P ? 116456555

I =  iel+s <@11> =

N >5

PMT ? )56555*

F ? )165556555*T(pe 5

Sc2e+'le of Bo#+ %isco'#" Aor"i:."io#Effec"i&e I#"eres" Me"2o+

<<= Sei-.##'.l Bo#+s Sol+ "o iel+ <@11>=

<<= <@11>=

C.s2 I#"eres" %isco'#" C.rr(i#$%."e P.i+ Expe#se Aor"i:e+ Ao'#"

April 1 /14 ?11645655555

Oc" 1 /14 5655555 46@<> 46@<> 116446@<>

April 1 /1< 5655555 <655 <655 116464<

 ).*491914 C.s2 )16555 ?16555 @=*116456555

Bo#+s P.(.ble116456555

Solutions Manual 14-112 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-11 )Co#"i#'e+*

)b*1591914 I#"eres" Expe#se46@<>

C.s25655555Bo#+s P.(.ble46@<>

)c*19>1914 I#"eres" Expe#se>>6<>45

I#"eres" P.(.ble>>5655555  )?56555 >9*Bo#+s P.(.ble6<>45  )?<655 >9 D ?6<>45*

)?<655 >9* D ?>>6<>45

)+*>9191< I#"eres" P.(.ble )?>>56555 V*6<5555

I#"eres" Expe#se<<644>C.s21>@6<5555Bo#+s P.(.ble 44>

C.s2 p.i+ "o re"iri#$ bo#+2ol+ers8)?>65556555 11 <91* D ?1>@6<55

)?<655 9 V* D ?<<644> )?<655 9 V* D ?44>

A" M.rc2 16 51< "2e c.rr(i#$ .o'#" of "2e re"ire+ bo#+s is8

Bo#+s p.(.ble ?>6555655555Less8 '#.or"i:e+ +isco'#" @6@4<5Bo#+s c.rr(i#$ .o'#" ?616<41

B.l.#ce of %isco'#" 155= <=

B.l.#ce ." iss'.#ce ?>5655555

Aor"i:."io# Oc" 16 514 )46@<>*

Accr'.l %eceber >16 514 )6<>45*

B.l.#ce %eceber >16 514 ?><6@55 V D ?61@<M.rc2 16 51< for <= )44>*

B.l.#ce M.rc2 16 51< ?@6@4<5

Solutions Manual 14-113 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-11 )Co#"i#'e+*

T2e re.c0'isi"io# price8 1556555 s2.res ?>1 D ?>61556555

T2e loss o# ex"i#$'is2e#" of "2e bo#+s is8Re.c0'isi"io# price ?>6155655555Less8 c.rr(i#$ .o'#" of bo#+s 616<41Loss ? 1@6@4<5

T2e e#"r( "o recor+ ex"i#$'is2e#" of "2e bo#+s is8Bo#+s P.(.ble 616<41Loss o# Re+ep"io# of Bo#+s 1@6@4<5  Coo# S2.res >6155655555

Solutions Manual 14-114 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1

).* T2e e#"ries for "2e iss'.#ce of "2e #o"e o# K.#'.r( 16

5148

T2e prese#" &.l'e of "2e #o"e is8 ?16556555 5< D?16@55 )Ro'#+e+ b( ?4*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?16@55

I =

N <

PMT ? 5F ? )16556555*

T(pe 5

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

B."o#ic. Lii"e+ )%eb"or*8C.s216@55

  No"es P.(.ble 16@55

Nor"2er# S.&i#$s B.#7 )Cre+i"or*8No"es Recei&.ble16@55  C.s2 16@55

Solutions Manual 14-115 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1 )Co#"i#'e+*

)+* T2e loss is cop'"e+ .s follo3s8C.rr(i#$ .o'#" of lo.# )19>1914* ?65>.

  Less8 Prese#" &.l'e of ?556555  +'e i# 4 (e.rs ." = )<654*b

Loss +'e "o ip.ire#" ?4651

.See .or"i:."io# sc2e+'le fro .#s3er )b*b?556555 @><5> D ?<654

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?<654

I =

N 4

PMT ? 5

F ? )556555*

T(pe 5

%eceber >16 514

B."o#ic. Lii"e+ )%eb"or*8

No e#"r(

Nor"2er# S.&i#$s B.#7 )Cre+i"or*8B.+ %eb" Expe#se4651  Allo3.#ce for %o'b"f'l Acco'#"s 4651

No"e "o I#s"r'c"or8 Si#ce "2is #o"e is #o" (e" res"r'c"'re+6 "2eloss is "re."e+ .s .# .llo3.#ce

Solutions Manual 14-117 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1>

).* T2e firs" s"ep is "o +e"eri#e "2e eco#oic s'bs".#ce of "2e

+eb" re#e$o"i."io# .#+ +e"eri#e if i" s2o'l+ be .cco'#"e+ .s .se""lee#" or . o+ific."io#9exc2.#$e re$.r+i#$ "2e ol+ +eb"I# "2is c.se6 "2e cre+i"or is "2e s.e .#+ "2erefore "2e "es" "oes".blis2 32e"2er "2ere is . se""lee#" or #o"6 re&ol&es .ro'#+"2e c.s2 flo3s T2e prese#" &.l'e of bo"2 of "2e c.s2 flo3s"re.s of "2e #e3 +eb" .re c.lc'l."e+ 'si#$ "2e 2is"oric.li#"eres" r."e of 1= for co#sis"e#c( .#+ cop.r.bili"(

Pre-res"r'c"'re c.rr(i#$ .o'#" ?556555Prese#" &.l'e of res"r'c"'re+ c.s2 flo3s8

Prese#" &.l'e of ?556555 +'e i# 15(e.rs ." 1=6 i#"eres" p.(.ble.##'.ll(; )?556555 >1@* ?1>61

Prese#" &.l'e of ?>56555 i#"eres"p.(.ble .##'.ll( for 15 (e.rs ." 1=

  )?>56555 <<5* 16<5@ )>6*%iffere#ce ?>@6>11

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?>61I 1=

N 15

PMT ? )>56555*

F ? )556555*

T(pe 5

As "2e prese#" &.l'e of "2e #e3 +eb" is ore "2.# 15= +iffere#"fro "2e prese#" &.l'e of "2e ol+ +eb" )'si#$ "2e ori$i#.l r."e*6

"2is is . s'bs".#"i.l c2.#$e .#+ "2e "r.#s.c"io# is .cco'#"e+for .s . se""lee#" b( Per7i#s .#+ #e3 +eb" is recor+e+

T2e #e3 +eb" is recor+e+ ." "2e prese#" &.l'e of "2e #e3 c.s2flo3s 'si#$ "2e c'rre#" .r7e" r."e of i#"eres"

Solutions Manual 14-118 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1> )Co#"i#'e+*

)b*1 Per7i#s I#cNo"es P.(.bleWWWWWWWWWWWWW ?556555  G.i# o# Res"r'c"'ri#$ of %eb"WW ?>@6>11  No"es P.(.bleWWWWWWWWW ?>6

,#i"e+ B.#7B.+ %eb" Expe#se>@6>11

  No"es Recei&.ble >@6>11

C.lc'l."io# of loss

Pre-res"r'c"'re c.rr(i#$ .o'#" ?556555Prese#" &.l'e of res"r'c"'re+ c.s2 flo3s8

Prese#" &.l'e of ?556555 +'e i# 15(e.rs ." 1=6 i#"eres" p.(.ble.##'.ll(; )?556555 >1@* ?1>61

Prese#" &.l'e of ?>56555 i#"eres"p.(.ble .##'.ll( for 15 (e.rs ." 1=

  )?>56555 <<5* 16<5@ )>6*Cre+i"or/s loss o# res"r'c"'re ?>@6>11

)c* Losses .re #o3 c.lc'l."e+ b.se+ 'po# "2e +isco'#"e+prese#" &.l'e of f'"'re c.s2 flo3s; "2's6 "2is f.irl(.pproxi."es "2e eco#oic loss "o "2e le#+er

T2e +eb"or reco$#i:es . $.i# 32ic2 reflec"s "2e f.c" "2.""2e( .re #o3 p.(i#$ lo3er i#"eres" C.re s2o'l+ be ".7e#"o e#s're "2e re.so# for "2e $.i# is cle.rl( #o"e+ i# "2es"."ee#"s .s "2is is ."eri.l i#for."io# .#+ "2e $.i# 2.s

bee# $e#er."e+ solel( +'e "o "2e f.c" "2." "2e e#"i"( is i#fi#.#ci.l +is"ress

Solutions Manual 14-119 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-14

).*

O# "2e boo7s of S2.2.#i Corpor."io#8No"es p.(.ble>65556555Coo# S2.res 6556555G.i# o# Res"r'c"'ri#$ of %eb" 556555

  F.ir &.l'e of e0'i"( ?6556555  C.rr(i#$ .o'#" of +eb" >65556555  G.i# o# res"r'c"'ri#$ of +eb" ? 556555

O# "2e boo7s of B.3. N."io#.l B.#78

I#&es"e#" i# S2.2.#i6556555Allo3.#ce for %o'b"f'l Acco'#"s )or B.+  %eb" Expe#se*556555

No"es Recei&.ble >65556555

)b*O# "2e boo7s of S2.2.#i8No"es P.(.ble>65556555

L.#+ 165<56555

G.i# o# %ispos.l of L.#+ 164<56555G.i# o# Res"r'c"'ri#$ of %eb" <556555

  F.ir &.l'e of l.#+ ?6<556555  C.rr(i#$ .o'#" of l.#+ 165<56555  G.i# o# +ispos.l of l.#+ ?164<56555

No"e p.(.ble )c.rr(i#$ .o'#"* ?>65556555F.ir &.l'e of l.#+ 6<556555G.i# o# res"r'c"'ri#$ of +eb" ? <556555

Solutions Manual 14-120 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-14 )Co#"i#'e+*

O# "2e boo7s of B.3. N."io#.l B.#78I#&es"e#" i# L.#+6<556555Allo3.#ce for %o'b"f'l Acco'#"s )or B.+  %eb" Expe#se*<556555

No"es Recei&.ble >65556555

)c*T2e firs" s"ep is "o +e"eri#e "2e eco#oic s'bs".#ce of "2e+eb" re#e$o"i."io# .#+ +e"eri#e if i" s2o'l+ be .cco'#"e+ .s .se""lee#" or . o+ific."io#9exc2.#$e re$.r+i#$ "2e ol+ +eb"I# "2is c.se6 "2e cre+i"or is "2e s.e .#+ so is "2e c'rre#c( .#+"2erefore "2e "es" "o es".blis2 32e"2er "2ere is . se""lee#" or 

#o" re&ol&es .ro'#+ "2e c.s2 flo3s T2e prese#" &.l'e of "2ec.s2 flo3 s"re.s of "2e #e3 +eb" .re c.lc'l."e+ 'si#$ "2e2is"oric.l i#"eres" r."e of 15= for co#sis"e#c( .#+cop.r.bili"(

Prese#" &.l'e of ol+ +eb" is ?>65556555Prese#" &.l'e of #e3 +eb" is c.lc'l."e+ .s follo3s8,si#$ ".bles8

15= Prese#"

F.c"or .l'eSi#$le .o'#" ? >65556555 5@<1> ? 6<>65

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?6<>644

I 15=

N >

PMT ? 5

F ? )>65556555*

T(pe 5

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-14 )Co#"i#'e+*

,si#$ prese#" &.l'e ".bles8

1= Prese#"

F.c"or .l'eSi#$le .o'#" ? 6>556555 5@11@ ? 16>@654I#"eres" p.(e#"s for 

"2ree (e.rs 5@6555 451> 4@61@

)re+'ce for firs" (e.r* )5@6555* )146*

?16464<1

No"es P.(.ble>65556555G.i# o# Res"r'c"'ri#$ of %eb"165<56<4

No"es P.(.ble16464<1

O# "2e boo7s of B.3. N."io#.l B.#78B.+ %eb" Expe#se4<6>

No"es Recei&.ble 4<6>

C.lc'l."io# of loss8  Pre-res"r'c"'re c.rr(i#$ .o'#" ?>65556555  Prese#" &.l'e of res"r'c"'re+ c.s2 flo3s8

Prese#" &.l'e of ?6>556555 +'e i#  > (e.rs ." 15=6

)?6>556555 @<1>* ?16@65>Prese#" &.l'e of ?5@6555 i#"eres"  p.(.ble .##'.ll( for > (e.rs ."

15=6 )?5@6555 4<* <146@@  Less firs" (e.r p.(e#"8

Prese#" &.l'e of ?5@6555 i#"eres"  +'e i# 1 (e.r ." 15=

)?5@6555 55* )161* )65<46>*

  Cre+i"or/s loss o# res"r'c"'re ? )4<6>*

Solutions Manual 14-124 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1<

).* T2e firs" s"ep is "o +e"eri#e "2e eco#oic s'bs".#ce of "2e+eb" re#e$o"i."io# .#+ +e"eri#e if i" s2o'l+ be .cco'#"e+ .s .

se""lee#" or . o+ific."io#9exc2.#$e re$.r+i#$ "2e ol+ +eb"I# "2is c.se6 "2e cre+i"or is "2e s.e .#+ so is "2e c'rre#c( .#+"2erefore "2e "es" "o es".blis2 32e"2er "2ere is . se""lee#" or #o" re&ol&es .ro'#+ "2e c.s2 flo3s T2e prese#" &.l'e of "2ec.s2 flo3 s"re.s of "2e #e3 +eb" .re c.lc'l."e+ 'si#$ "2e2is"oric.l i#"eres" r."e of 1<= for co#sis"e#c( .#+cop.r.bili"(

Prese#" &.l'e of ol+ +eb" is ?<56555 .ccr'e+ i#"eres" of 

?>@6<55 for . "o".l of ?@6<55Prese#" &.l'e of #e3 +eb" is c.lc'l."e+ .s follo3s8,si#$ prese#" &.l'e ".bles8

1<= Prese#"

F.c"or .l'e

Si#$le .o'#"6 4 (e.rs ? 1<56555 5<@1@< ? <6@>I#"eres" .##'i"(6 4 (e.rs)?1<56555 =* 6555 <4 <6<

11164<

S2.res $i&e# 56555 ?145 46555?1<64<

Si#ce "2e prese#" &.l'e of "2e f'"'re c.s2 flo3s of "2e #e3 +eb"+iffers b( .# .o'#" l.r$er "2.# 15= of "2e prese#" &.l'e of "2ef'"'re c.s2 flo3s of "2e ol+ +eb" i# "2e .o'#" of ?@6<556 "2ere#e$o"i."e+ +eb" is co#si+ere+ . se""lee#" .#+ . $.i# isrecor+e+ b( %ile. .s follo3s8

514E#"ries b( %ile. I#c8I#"eres" P.(.ble>@6<55No"es P.(.ble<56555

No"es P.(.ble 11164<Coo# S2.res 46555G.i# o# Res"r'c"'ri#$ of %eb" 654

Solutions Manual 14-125 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1< )Co#"i#'e+*

T2e #o"e p.(.ble #o3 2.s . b.l.#ce of ?11164<6 32ic2 e0'.ls"2e prese#" &.l'e of "2e f'"'re c.s2 flo3s "o be p.i+

%."e

=

C.s2I#"eres"

1<=

Effec"i&eI#"eres"

I#cre.se i#C.rr(i#$Ao'#"

C.rr(i#$Ao'#" of 

No"e

19>1914 ?11164<19>191< ?6555.   ?16@1b ? @6@1c 1161@@19>191 6555 1@6@@ 6@@ 165<419>191@ 6555 165 1565 1>619>191 6555 56@> 116@> 1<56555

.?6555 D ?1<56555 5b?16@1 D ?11164< 1<=c?@6@1 D ?16@1 ?6555A+'s"e+ +'e "o ro'#+i#$

%ec >16 51<8I#"eres" Expe#se16@1

No"es P.(.ble @[email protected] 6555

%ec >16 518I#"eres" Expe#se1@6@@

No"es P.(.ble 6@@C.s2 6555

%ec >16 51@I#"eres" Expe#se165

No"es P.(.ble 1565C.s2 6555

%ec >16 51

I#"eres" Expe#se56@>No"es P.(.ble 116@>C.s2 6555

No"es P.(.ble1<56555C.s2 1<56555

Solutions Manual 14-126 Chapter 14

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1< )Co#"i#'e+*

)b*To recor+ "2e res"r'c"'ri#$ o# "2e boo7s of S".'s7.s B.#78B.+ %eb" Expe#se654F-NI I#&es"e#"46555

No"es Recei&.ble 1>6<4I#"eres" Recei&.ble >@6<55

)1* F.ce &.l'e of ol+ +eb" ?<56555Ne" c.rr(i#$ .o'#" of ol+ +eb" )belo3* ?5>6<55Less8 f.ce &.l'e of #e3 +eb" 1<56555 <>6<55

?16<55C.lc'l."io# of loss8

  Pre-res"r'c"'re c.rr(i#$ .o'#")?<56555 ?>@6<55*  ?@6<55  Less8 se""lee#" co#si+er."io# )s2.res* 46555  Ne" c.rr(i#$ .o'#" 5>6<55  Less8 Prese#" &.l'e of res"r'c"'re+ c.s2 flo3s8

Prese#" &.l'e of ?1<56555 +'e i# 4 (e.rs  ." 1<=6 )?1<56555 <@1@<* ?<6@>Prese#" &.l'e of ?6555 i#"eres" p.(.ble

  .##'.ll( for 4 (e.rs ." 1<=)?6555 <4* <6< 11164<

  Cre+i"or/s loss o# res"r'c"'re ? )654*

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1< )Co#"i#'e+*

%."e

=

C.s2I#"eres"

1<=

Effec"i&eI#"eres"

I#cre.se i#

C.rr(i#$Ao'#"

C.rr(i#$

Ao'#" of No"e

19>1914 ?11164<19>191< ?6555.   ?16@1b ? @6@1c 1161@@19>191 6555 1@6@@ 6@@ 165<419>191@ 6555 165 1565 1>619>191 6555 56@> 116@> 1<56555

. ?6555 D ?1<56555 5b ?16@1 D ?11164< 1<=

c ?@6@1 D ?16@1 ?6555 A+'s"e+ +'e "o ro'#+i#$

To recor+ i#"eres" i#coe i# "2e perio+s s'bse0'e#" "o "2eres"r'c"'ri#$8

%ec >16 51<8C.s26555No"es Recei&.ble@6@1

I#"eres" I#coe 16@1%ec >16 518C.s26555No"es Recei&.ble6@@

I#"eres" I#coe 1@6@@%ec >16 [email protected]"es Recei&.ble1565

I#"eres" I#coe 165%ec >16 518

C.s26555No"es Recei&.ble116@>

I#"eres" I#coe 56@>

C.s21<56555No"es Recei&.ble 1<56555

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1

).* Sep"eber >56 514

T2or#"o#8I#"eres" Recei&.ble )?>556555 1 91*@6555

I#"eres" I#coe @6555

Loss o# I#&es"e#"[email protected]

I#"eres" Recei&.ble @6555No"es Recei&.ble >556555

T2is 3o'l+ #o" be . "ro'ble+ +eb" res"r'c"'ri#$

S2'"+o3#8 No e#"r( S2'"+o3# +oes #o" 2.&e . "ro'ble+ +eb"res"r'c"'ri#$

Orsi#i8I#"eres" I#coe@6555No"es Recei&.ble<>6555

C.s2 56555

A +ebi" "o I#"eres" Recei&.ble is .lso .ppropri."e T2is 3o'l+#o" be . "ro'ble+ +eb" res"r'c"'ri#$

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1 )Co#"i#'e+*

)b* %eceber >16 514

S2'"+o3#8I#"eres" Expe#se )?>556555 1*>6555

I#"eres" P.(.ble >6555

No"es P.(.ble>556555I#"eres" P.(.ble>6555Cos" of Goo+s Sol+456555

I#&e#"or( 456555G.i# o# Res"r'c"'ri#$ of %eb" 16555S.les Re&e#'e >1<6555

T2is 3o'l+ be . "ro'ble+ +eb" res"r'c"'ri#$ for S2'"+o3#6si#ce "2e se""lee#"6 ?>1<65556 is less "2.# "2e c.rr(i#$.o'#" of "2e +eb"6 ?>>6555

Orsi#i8I#"eres" Recei&.ble )?>556555 1*>6555

I#"eres" I#coe >6555

O#l( #e" of ?6555 repor"e+ .s i#"eres" i#coe bec.'se?@6555 of .ccr'e+ i#"eres" 3.s p'rc2.se+ i# Sep"eber

I#&e#"or(>1<6555No"es Recei&.ble <>6555I#"eres" Recei&.ble >6555G.i# o# I#&es"e#"s 6555

T2is 3o'l+ #o" be . "ro'ble+ +eb" res"r'c"'ri#$

)No"e "o i#s"r'c"or8 T2is proble i#+ic."es "2." s(e"r( .(#o" .l3.(s be .c2ie&e+ be"3ee# "2e +eb"or .#+ cre+i"or .#+"2." "2e +eb"or .( 2.&e . res"r'c"'ri#$ b'" "2e cre+i"or6 if c2.#$e+6 .( #o"*

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1@).*T2e firs" s"ep is "o +e"eri#e "2e eco#oic s'bs".#ce of "2e+eb" re#e$o"i."io# .#+ +e"eri#e if i" s2o'l+ be .cco'#"e+ .s .

se""lee#" or . o+ific."io#9exc2.#$e re$.r+i#$ "2e ol+ +eb"I# "2is c.se6 "2e cre+i"or is "2e s.e .#+ so is "2e c'rre#c( .#+"2erefore "2e "es" "o es".blis2 32e"2er "2ere is . se""lee#" or #o" re&ol&es .ro'#+ "2e c.s2 flo3s T2e prese#" &.l'e of "2ec.s2 flo3 s"re.s of "2e #e3 +eb" .re c.lc'l."e+ 'si#$ "2e2is"oric.l i#"eres" r."e of 15= for co#sis"e#c( .#+cop.r.bili"(

Prese#" &.l'e of ol+ +eb" is ?1156555 ?116555 D ?116555

Prese#" &.l'e of #e3 +eb" is c.lc'l."e+ .s follo3s8,si#$ prese#" &.l'e ".bles8

15= Prese#"

F.c"or .l'e

Si#$le .o'#"6 > (e.rs ? 1556555 5@<1> ? @<61>

I#"eres" .##'i"(6 > (e.rs 156555 4< 46

 ?1556555

Excel for'l. DP)r."e6#per6p"6f&6"(pe*

,si#$ . fi#.#ci.l c.lc'l."or8

P ?  iel+s ?1556555

I 15=

N >

PMT ? )156555*

F ? )1556555*

T(pe 5

Si#ce "2e prese#" &.l'e of "2e f'"'re c.s2 flo3s of "2e #e3 +eb"+iffers b( .# .o'#" l.r$er "2.# 15= of "2e prese#" &.l'e of "2ef'"'re c.s2 flo3s of "2e ol+ +eb" i# "2e .o'#" of ?116555 "2ere#e$o"i."e+ +eb" is co#si+ere+ . se""lee#" T2e ol+ +eb"3o'l+ be reo&e+ fro "2e boo7s6 "2e #e3 +eb" reco$#i:e+.#+ "2e +iffere#ce 3o'l+ be recor+e+ .s . $.i# for M.::.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1@ )Co#"i#'e+*

T2e effec"i&e i#"eres" r."e s'bse0'e#" "o res"r'c"'re is "2ec'rre#" .r7e" r."e of i#"eres"

)b*M.::. Corp

SCHE%,LE OF %EBT RE%,CTION AN%INTEREST EPENSE AMORTIATION

%."eC.s2

I#"eres"Effec"i&eI#"eres"

)M.r7e"*

C2.#$e i#C.rr(i#$

Aor"i:e+

C.rr(i#$Ao'#"

19>1914 ?1556555

19>191< ?156555. ?156555b ? 5 155655519>191 156555 156555 5 155655519>191@ 156555 156555 5 155655519>191@ 1556555 1556555 -5-

. ?156555 D ?1556555 15=b ?156555 D ?1556555 15=

)c*C.lc'l."io# of loss8

Pre-res"r'c"'re c.rr(i#$ .o'#" ?116555Prese#" &.l'e of res"r'c"'re+ c.s2 flo3s8 1556555Ts.#$ Corp/s loss o# res"r'c"'re ? )16555*

Ts.#$ Corp

%."eC.s2

I#"eres"

Effec"i&eI#"eres")M.r7e"*

C2.#$e i#C.rr(i#$

Aor"i:e+

C.rr(i#$Ao'#" of 

No"e

19>1914 ?1556555

19>191< ? 156555.

?156555b

? 5 155655519>191 156555 156555 5 155655519>191@ 156555 156555 5 155655519>191@ 1556555 5 1556555 5. ?156555 D ?1556555 15= b ?156555 D ?1556555 15=

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

PROBLEM 14-1@ )Co#"i#'e+*

)+* M.::. Corp e#"ries8%eceber >16 514

I#"eres" P.(.ble116555No"es P.(.ble1156555

No"es P.(.ble1556555G.i# o# Res"r'c"'ri#$ of %eb"16555

%eceber >16 51<6 51I#"eres" Expe#se156555

C.s2156555

)e* Ts.#$ Corp e#"ries8

%eceber >16 514B.+ %eb" Expe#se16555

No"es Recei&.ble16555No"e "2." "2e +r co'l+ be boo7e+ "o "2eAllo3.#ce .cco'#" i#s"e.+ if "2e loss2.+ .lre.+( bee# pro&i+e+ for

%eceber >16 51<6 51C.s2156555

I#"eres" I#coe156555

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

CASES

No"e8 See "2e C.se Prier o# "2e S"'+e#" 3ebsi"e6 .s 3ell .s

"2e S'.r( of "2e C.se Prier i# "2e fro#" of "2e "ex" No"e"2." "2e firs" fe3 c2.p"ers i# &ol'e 1 l.( "2e fo'#+."io# for fi#.#ci.l repor"i#$ +ecisio# .7i#$

CA 14-1 Pi"" Corpor."io#

57er7ie%

• Com8any 8roduces 8o8 and is looking to o"tain a steadysu88ly of cans. It is considering entering into a 8ro;ectfinancing arrangement %ith ACC6 its 8resent can su88lier,since the com8any has e98erienced financial difficulties anddoes not %ant to use con7entional financing.

•  ACC %ill "e a user and %ill %ant to assess the financial8osition of the com8any.

•  As controller, concerned a"out adding additional de"t to thestatement of financial 8osition.

• >AA likely a constraint since ACC %ould likely %ant to assessCs a"ility to 8ay as %ould the "ank<>AA %ould 8ro7ide

more useful information. The controller %ould like to kno%%here any differences e9ist "et%een I3-2 and A2E.

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CA 14-1 )Co#"i#'e+*

 Analysis and recommendations

Issue6 Fo% to account for the 8ro;ect financing arrangement

urchase commitment ia"ility! E9ecutory contract.! Would not record as is

sim8ly a 8urchasecommitment and alia"ility only arises oncethe cans are shi88ed.

! 2hould note disclose

only.! The "uilding<e7en

though on C 8ro8erty ?is o%ned "y ACC for thefirst # years<C doesnot ha7e access to it norcontrol o7er it.

! /oes not affect de"t onthe statement of financial8osition.

! Is this really a 8ro;ect financingG! ACC is sim8ly 8ro7iding

construction ser7ices for the"uilding<%hich is really Cs"uilding.

! These ser7ices are "eing 8aid for o7er time de"t ser7ice

com8onent of the 8rice of thecansD instead of u8front.

! 2ince the 8lant o%nershi8 re7ertsto C at the end and is on theirland, it is likely an asset of C.

! -egardless of the a"o7e, C hasan o"ligation to 8ay the de"tser7ice cost shortfalls. Theo"ligation is una7oida"le andarises from the t%o!8art8lanBagreement.

! The "ank %ho is financing the"uilding of the 8lantD is lookingto the 8urchase commitment forre8ayment of the loan

! -isk that the com8any may "eaccused of ha7ing off thestatement of financial 8ositionde"t.

! May also "e seen as a financialguarantee %hich must "erecogni=ed if measura"le.

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CA 14-1 )Co#"i#'e+*

This is a tough issue since the arrangement is com8licated. A casee9ists to note disclose only. If C records a lia"ility, it must alsorecord an asset. The "uilding is the 8ro8erty of ACC and since Cdoes not ha7e control o7er it, it does not meet the definition of anasset. The lia"ility to 8ay de"t ser7ice is really a contingent lia"ilitysince it %ould a88ear that ACC %ould "e a"le to sell the cans e7en%ithout C at a good 8rice sufficient to re8ay the de"t. >AA %ould"e similar under I3-2 and A2E.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

INTEGRATE% CASES

IC 14-1 Fi#is2i#$ I#"er#."io#.l E#"erprise )FIE*

57er7ie%

! Hank %ould like audited statements and de"t co7enantre0uires a de"tBe0uity ratio of no more than 1B1. Therefore thestatements must follo% >AA may use A2E or I3-2D andde"t and e0uity are sensiti7e num"ers ? may "e a "ias toensure that the de"t co7enant is not "roken since they need toloan for e98ansion into 2.

! Tony %ill look to the statements to assess financial 8osition and8erformance.

! 3ormerly income ta9 minimi=ation %ould ha7e "een theo";ecti7e, since 3IE is a 8ri7ate com8any. As such, 3IE %as notlegally "ound "y >AA. Fo%e7er, an audit is no% re0uired andthere %ill "e a "ias to ensure that the de"t co7enants are met.

 As auditors must ensure that the statements are trans8arent./ifferences "et%een I3-2 and A2E %ill "e noted.

 Analysis and recommendations ! MEM5

To: Tony and HeatherFrom: Senior Accountant, Lento and PartnersRe: Establishment o ne! accountin" #olicies or Finishin"

International Enter#rises

I#"ro+'c"io#The follo%ing re8ort has "een 8re8ared to analy=e and recommendaccounting 8olicies, consistent %ith >AA I3-2 or A2ED, for 3IE.3IE has a choice to follo% A2E of I3-2. The accountingrecommendations %ere made %hile kee8ing the de"t!to!e0uity ratio

in mind although ensuring fair 8resentation is the key goal./ifferences in the accounting treatment "et%een A2E and I3-2are noted "elo%. 

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IC 14-1 )Co#"i#'e+*

!.rr.#"( Expe#seIssue Analysis6 The cash method of accounting for %arranty costs isacce8ta"le %hen the costs are not material or %hen the %arranty8eriod is relati7ely short. It may also "e acce8ta"le %hen the amountof the lia"ility cannot "e reasona"ly estimated or if future costs arenot likely to "e incurred. Fo%e7er, the current %arranty e98ense ismaterial and can "e estimated, therefore, the cash method is notacce8ta"le.

We need to esta"lish %hether the 3IE %arranty is solely 8ro7ided tomake good on deficiencies in the tractors they deli7ered, or %hether 3IE sells %arranties se8arately to co7er 8ro"lems that arise

generally. If the former is the case, then 3IE must record anadditional lia"ility for the remaining costs e98ected in the futurerelated to the sales recogni=ed in #1'. The com8any has recordedonly 1*, in e98ense for the %arranty, ho%e7er, the totalestimated associated %ith the current year sales is )$, #,9 &*D, therefore, lia"ilities are understated "y (*,. 3IE hasrecorded the follo%ing entry6

!.rr.#"( Expe#se156555C.s26 I#&e#"or(6 P.(roll156555

nder A2E and I3-2, the additional lia"ility must "e recorded6

!.rr.#"( Expe#se<56555!.rr.#"( Li.bili"(<56555

Fo%e7er, if 3IE sells %arranties as se8arate deli7era"les, there7enue recogni=ed in #1' of #, J #,$ (,#, should"e "ifurcated into earned re7enue for the tractors and an unearnedamount re8resenting the 7alue assigned to the future %arrantyser7ices sold.

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IC 14-1 )Co#"i#'e+*

In this latter case, a 8ortion of the unearned %arranty re7enueoriginally recogni=ed %ould ha7e to "e transferred to earned re7enuein #1', 8ro"a"ly on the "asis of actual costs incurred in the year asa 8ercentage of total e98ected costs. In this case, the remainingnearned Warranty -e7enue re8orted on the 23 %ould "e higher than the e98ense a88roach amount of (*, calculated a"o7e.

Im8lication on /BE6 More information is re0uired to ena"le us to 8indo%n the amount of ad;ustment re0uired, "ut the (*, additionallia"ility %ould "e the least it could "e. This negati7ely im8acts theratio as de"t %ill increase "y a minimum of (*,, "ut, it isre0uired for >AA com8liance. In addition, net income "efore

income ta9 %ould "e a minimum of (*, less than re8orted inthe draft financial statements. This %ill reduce retained earnings ande0uity.

Contingent ia"ility

Issue Analysis6 The loss should "e accrued since "oth criteria it islikely that a loss is incurred and the amount of the loss can "ereasona"ly determinedD for recording the contingency are met. Whenthere is a range of estimates and no 8oint estimate is more likely

than another (, to )(,D, the lo%er end of the range isto "e accrued under A2E %ith the range disclosed. Therefore,(, should "e accrued.

Fo%e7er, gi7en that the loss is co7ered "y insurance, e9ce8t for the#(, deducti"le, only the #(, should "e accrued. nder I3-2, the amount to "e accrued %ould "e the 8ro"a"ility %eightede98ected 7alue of the loss information not 8ro7ided in the caseD.

Im8lication on /BE6  This negati7ely im8acts the ratio as de"t %illincrease "y #(,, "ut, it is re0uired for >AA com8liance.

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IC 14-1 )Co#"i#'e+*

Interest 3ree oanIssue Analysis6 ong!term de"t is recorded at the 8resent 7alue fair 7alueD of the stream of 8ayments. Currently, 3IE recorded the lia"ilityoriginally at #.( million@ ho%e7er, this re8resents the undiscountedamount, and therefore, "oth assets and lia"ilities are o7erstated. The8resent 7alue of the 8ayments, discounted at n ( and i +L, ise0ual to 1,+'',*( :I3A &.**+) 9 MT (,D. Theoriginal entry should ha7e "een6

C.pi".l Asse"16446<5Lo#$-Ter Li.bili"ies16446<5

The first 8ayment %as likely recorded as follo%s6

Lo#$-Ter Li.bili"ies<556555C.s2<556555

Fo%e7er, the loan should "e amorti=ed, %ith a 8ortion of the8ayment going to interest e98ense and a 8ortion to the 8rinci8alre8ayment as follo%s6

Lo#$-Ter Li.bili"ies>46I#"eres" Expe#se1@<65>4

C.s2<556555

The follo%ing loan amorti=ation ta"le has "een 8re8ared6

Interest Carryingeriod ayment E98ense Amorti=ation Amount

 1,+'',*#$

1 (,

1)(,&'

&#',+$$ 1,$1+,*$

# (, 1'(,)*) &(',#1& 1,#$(,$'*& (, 11&,+* &*$,+# *)+,(($' (, )+,1$ '#,*' '(*,)1$( (, '1,#*' '(*,)1$

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

IC 14-1 )Co#"i#'e+*

The ca8ital asset should "e amorti=ed "ased on this 7alue, aso88osed to the full #,(,. Hased on a se7en year useful life,

amorti=ation e98ense should "e #)),*&( as o88osed to &(),1(#,an o7erstatement of e98enses of )+,&11.

Im8lication on /BE at year end6 The im8lications for the /BE ratio aresummari=ed as follo%s6 ong!term lia"ility decrease "y6 &*,1' #,, ? 1,$1+,*$D

E0uity decrease "y interest e98ense6 1)(,&'

E0uity increases "y decreased amorti=ation e98ense6 )+,&11D4et decrease in e0uity +(,)#&

 Asset -etirement 5"ligationIssue Analysis6 The A-5 should "e recorded at the 8resent 7alue of the future o"ligation. At the "eginning of the year %hen the A-5 %asincurred, 3IE should ha7e ca8itali=ed the asset retirement cost andrecord the A-5 as follo%s6

!.re2o'se )ARO*1>6555

Asse" Re"iree#" Obli$."io#1>6555#, J .$* assuming an *L rateD

Each year of the lease term the com8any %ould allocate assetretirement costs ca8itali=ed as follo%s6

%epreci."io# Expe#se@655Acc''l."e+ %epreci."io# -

B'il+i#$s@655

1&$, B (N #),#

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

IC 14-1 )Co#"i#'e+*

Each year of the lease term the com8any %ould recogni=e theincrease in A-5 due to accretion and related o8erating e98ense asfollo%s6

Year Halance Accretion *LD1 1&$, 1,+# 1&$, O 1,+ 1'$,+ 11,*& 1'$,+ O 11,* 1(*,) 1#,)' 1(*,) O 1#,) 1)1,' 1&,)( 1)1,' O 1&,) 1*(,1 1',+

Halance of A-5 at end of lease term #,

Im8lication on /BE6 The im8lications for the /BE ratio aresummari=ed as follo%s6

 A-5 lia"ility decrease to : on an. 1B1&6 $',D#, ? 1&$,D

 A-5 lia"ility increase "y accretion e98ense6 ##,)4et decrease in lia"ilities6 '1,&D

E0uity decrease "y A-5 amorti=ation e98ense6 (','D

 #),# 9 #DE0uity decreases "y accretion e98ense6 ##,)D4et decrease in e0uity6 )),1D

-edeema"le and -etracta"le 2haresIssue Analysis6  3IE issued &, redeema"le and retracta"le8referred shares at a 7alue of 1 8er share. 3IE has classified theshares as e0uity, ho%e7er, >AA re0uires the financial instrumentsto "e recorded "ased on the su"stance of the instrument as o88osedto the legal form.

Elements of E0uity• /i7idends are to "e declared on a discretionary 8eriod after

#1#.• /i7idends after #1# are not cumulati7e.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

IC 14-1 )Co#"i#'e+*

Elements of /e"t• Mandatory di7idend 8ayment of # 8er share re0uires the

deli7ery of cash for the first fi7e years.• The shares are retracta"le at the discretion of the holder,

therefore, re0uiring 3IE to deli7er cash. The likelihood of theholders retracting the shares is high gi7en that after ( years,the retraction 8eriod e98ires and di7idends are no longer mandatory or cumulati7e.

Hased on the su"stance of the transaction, A2EBI3-2 8ro7idesguidance on %hen 8referred shares esta"lish a contractual o"ligationto deli7er cash indirectly through the terms and conditions, such as

these 8referred shares. These shares should "e classified as afinancial lia"ility. As such, the di7idend of $ that %ent through theretained earnings should go through the income statement asinterest e98ense. I ha7e made the a88ro8riate ad;ustments to the netincome to reflect the su"stance of the financial instrument.

Im8lication on /BE6  The de"t is understated "y &, as it iscurrently reclassified as e0uity@ furthermore, the di7idends of $, should "e classified as interest e98ense, although this %illnot im8act the total e0uity.

ayment of /i7idend on Common 2haresIssue Analysis6 rior to 8aying the *, di7idend, Tony should"e a%are that the de"t!to!e0uity ratio %ill change significantly fromthe current .($61 after all of the re0uired >AA ad;ustments.

S'.r(8  I ha7e 8re8ared E9hi"it I to summari=e the >AAad;ustments and the im8act on the /BE ratio. After making all of the>AA ad;ustments, the de"t!to!e0uity ratio %ill "e 1.'+61, definitely

in 7iolation of com8liance %ith the co7enants. 5nce the di7idend is8aid, e0uity %ill decrease "y *,, and the ratio %ill increase to&.+61.

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IC 14-1 )Co#"i#'e+*

Ex2ibi" 1 - Rec.lc'l."io# of %9E R."io%eb" E0'i"(

reliminary 1,$, #,*(,

%eb"-"o-e0'i"( r."io

.($ 1

GAAP Adjustments1D Warrantye98ense

(*, (*,D

#DContingentlia"ility

#(, #(,D

&D Interest

free loan

&*,1'D +(,)#&D

'D Asset-etirement

'1,&D )),1D

(D-edeema"leshares

&, &,D

re!di7idend"alances #,&*,($ 1,('),1))%eb"-"o-e0'i"( r."io

1.'+ 6 1

/i7idend *,D Ad;usted"alance #,&*,($ )'),1))A+'s"e+%9E r."io

&.+ 6 1

It is recommended that Tony does not 8ay the di7idend, and that theCom8any seeks an alternati7e to a7oid the co7enant 7iolation andclassification of the long!term de"t as current. Additional e0uity isre0uired.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

IC 14- - RTL 

57er7ie%6- -T is a 8ri7ate family run "usiness so A2E >AA is an

o8tion. There are no future 8lans of going 8u"lic so I3-2 isnot re0uired.

- The "ank %ill use the financial statements to assess going

concern and -Ts a"ility to 8ay interest and 8rinci8al.- Management %ill use the financial statements to assess -Ts

transition to digital 8rinting and achie7ement of re7enue

targets.- The auditors %ill "e auditing the financial statements %ith a

trans8arent re8orting o";ecti7e.

-There is a 8otential for management "ias and aggressi7eaccounting 8olicies.

o -Ts 8rofits ha7e "een declining for the 8ast # years

and it has recently lost (L of its re7enue.o -T also entered into an agreement %ith the "ank for a

restructuring of its loan.- 5ur re8orting o";ecti7e as the controller is to fairly 8resent the

statements.

Issue6 -ecognition of the restructuring of de"t.

 A modification of de"t can "e treated as a settlement if the follo%ingcondition is met.

If the discounted : under the ne% terms discounted at the originaleffecti7e rateD is at least 1L different from the discounted : of theremaining cash flo%s under the old de"t ? the old de"t is treated asa settlement and remo7ed from the "ooks.

5ld de"t6 #,, de"t is due end of #1#D4e% de"t6 1,(, .)(1&#D O 1#, #.'*$*(D 1,'#(,'#

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

IC 14- )Co#"i#'e+*

1L of the 7alue of the old de"t is #,. The difference"et%een the old and ne% de"t is greater than #,. Thereforethis restructuring 0ualifies as a settlement of the old de"t.

The discount rates are calculated using the follo%ing6/iscount rate of .)(1&# is the : discount factor for a single sum1L, & yearsD/iscount rate of #.'*$*( is the : discount factor for an ordinaryannuity 1L, & yearsD

sing a financial calculator6: G Yields 1,'#(,&+'

I 1L4 &MT 1#,D3: 1,(,DTy8e

E9cel formula :rate,n8er,8mt,f7,ty8eD

5n the "ooks the ne% de"t is calculated using the current marketdiscount rates using the follo%ing6

/iscount rate of .))#1* is the : discount factor for a single sum+L, & yearsD/iscount rate of #.(&1& is the : discount factor for an ordinaryannuity +L, & yearsD

sing a financial calculator6: G Yields 1,'$#,#$I +L4 &MT 1#,D3: 1,(,DTy8e

E9cel formula :rate,n8er,8mt,f7,ty8eD

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

IC 14- )Co#"i#'e+*

The follo%ing ;ournal entry is re0uired6

/e"t oldD............................................................................#,,/e"t ne%D...................................................................1,'$#,#$>ain on -estructuring of /e"t.....................................(&),+)(

Issue6 -e7enue recognition of the digital contract sales.

Immediate recognition /efer recognition- -efunda"le fee ? no

additional ser7ice is

re0uired to "e 8erformed"y -T. The u8front fee is8aid u8front ensuringcollecta"ility andmeasura"ility.

- Minimum contract fee ?-T earns a minimalcontract fee at the end ofthe contract term #!&yearsD e7en if no 8rintingser7ices are 8erformed.

-  Another o8tion is torecogni=e the refunda"lefee and the minimalcontract fee o7er theduration of the contract.

- -efunda"le fee ? the earnings8rocess for the sales transaction

is the entire duration of thecontract. -T must "e a7aila"leto 8erform 8rinting ser7ices on!demand ? the earnings 8rocessis not com8leted u8on signing ofthe contract.

- Minimal contract fee ? same asa"o7e.

- -isk still remains %ith -T for theduration of the contract ? for theon!demand 8rinting ser7ices.

- Collecta"ility ? may "e an issue ?# of -Ts digital customers ha7egone "ankru8t. -T does notha7e any history %ith digitalcustomers ? an a88ro8riateestimate for an allo%ance fordou"tful accounts may not "e8ossi"le.

Conclusion6 /e8ending on the significance of # digital customersthat ha7e filed for "ankru8tcy and -Ts limited digital sales history !collecta"ility may "e a concern and -T should recogni=e therefunda"le fee and minimal contract fee at the end of the contract.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

IC 14- )Co#"i#'e+*

Minor Issue6 -ecognition of an asset retirement o"ligation.

The 1, re8resents a constructi7e o"ligation. -T is 8lanningto sell the e0ui8ment to a 7endor %ho %ill only 8urchase the digital8rinting e0ui8ment if -T makes the necessary modifications tou8date the e0ui8ment and 8re8are it for sale.

The lia"ility should ha7e "een recorded at : using the discountrate in effect at that timeD. The 8rinting e0ui8ment asset should ha7eincreased "y the : of the o"ligation. Accretion e98ense shouldha7e "een recorded for #11 and #1#. As the accounting ledger for #11 is no% closed the correction must "e recorded in the #1#

ledger. An ad;ustment to o8ening e0uity %ill "e re0uired. 3or #1#the a88ro8riate accretion e98ense must "e recorded in the o8eratingstatement.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

TIME AN% P,RPOSE OF !RITING ASSIGNMENTS

WA 1'!1 Time 1(?# minutesD

ur8ose<to 8ro7ide the student %ith an o88ortunity to ad7ise management on

the legal, accounting and re8orting issues concerning derecognition of de"t onthe statement of financial 8osition. egal defeasance and in!su"stancedefeasance are contrasted in this case.

WA 1'!# Time #(?& minutesD

ur8ose<to 8ro7ide the student %ith some familiarity %ith the economic theorythat relates to the accounting for a "ond issue. The student is re0uired todiscuss the conce8tual merits for each of the three different statements of financial 8osition 8resentations for the same "ond issue as %ell as the merits of utili=ing the nominal rate 7ersus the effecti7e rate at date of issue in thecom8utation of the carrying 7alue of the o"ligations arising from a "ond issue.

WA 1'!& Time #?#( minutesD

ur8ose<to 8ro7ide the student %ith an understanding of the 7arious accounts%hich are generated in a "ond issue and their 8ro8er classifications on thestatement of financial 8osition. Included in this case, is non!market rate "ondsrelated to go7ernment loans, and de"t e9changed for assets. ustification must"e 8ro7ided for the treatment accorded these accounts in relation to thes8ecifics of this case.

WA 1'!' Time #?#( minutesD

art I6 ur8ose<to 8ro7ide the student %ith an understanding of thesignificance of the difference "et%een the effecti7e interest method of amorti=ation and the straight!line method of amorti=ation.

art II6 ur8ose<to 8ro7ide the student %ith some familiarity %ith the 7ariousmethods of accounting for gains and losses from the early e9tinguishment of de"t, and of the ;ustifications for each of the different methods.

WA 1'!( Time #!#( minutesD

ur8ose<to 8ro7ide students %ith an o88ortunity to understand the differences"et%een A2E and I3-2 and the conce8tual reasons for these differences.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

TIME AN% P,RPOSE OF !RITING ASSIGNMENTS -)Co#"i#'e+*

WA 1'!$ Time &(!' minutesD

ur8ose<to 8ro7ide students the o88ortunity to research issues regardingusing credit risk ad;usted discount rates in measuring lia"ilities.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

SOL,TIONS TO !RITING ASSIGNMENTS

!A 14-1

egal defeasance re0uires that the creditor agrees to collect

8rinci8al and interest 8ayments from the trust rather than from . A

legal agreement on "ehalf of the creditor, the trust, and the de"tor 

%ould "e needed to achie7e legal defeasance. nder I3-2,

%ould "e a"le to derecogni=e the lia"ility if they o"tain legal

defeasance and e9tinguish the de"t. In su"stance defeasance

results %hen a com8any sets u8 a trust to re8ay the 8rinci8al and

interest 8ayments for the de"t %ithout o"taining the creditors

agreement. Without o"taining a legal agreement from the creditor,the 8rimary o"ligation to re8ay the loan resides %ith . As a result,

in su"stance defeasance does not result in derecognition of the

lia"ility according to I3-2.

3or "oth legal and in su"stance defeasance there is an argument for 

derecognition of de"t on the financial statements since has set u8

a trust %ith lo% risk in7estments that %ill "e a"le to co7er all future

interest and 8rinci8al 8ayments. Effecti7ely, "y setting u8 the trust has 8re8aid the de"t %ith lo% risk of default "ased on their 

in7estment strategy.

-egardless of the intent of the com8any, I3-2 relies on the legal

o"ligation %hen e9tinguishing de"t. Therefore, if the agreement from

the creditor has not "een o"tained, and only in su"stance

defeasance occurs, the de"t must remain on the statement of 

financial 8osition. In order to e9tinguish the de"t, needs to o"taina legal agreement from the creditor releasing them from the de"t

o"ligation and transferring that o"ligation to the trust. The ethical

accountant must communicate this to the : 3inance and e98lain

that %ithout a formal agreement %ith the creditor, the de"t cannot "e

e9tinguished on the financial statements.

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!A 14-

aD 1. This is a common statement of financial 8osition 8resentation

and has the ad7antage of "eing familiar to users of financial

statements. Although the face, or maturity 7alue, of 1,, is not sho%n in an o"7ious manner, the total of 

1,)(,#& is the o";ecti7ely determined e9change 8rice at

%hich the "onds %ere issued. It re8resents the fair market

7alue of the "ond o"ligations gi7en. Thus, this is in kee8ing

%ith the generally acce8ted accounting 8ractice of using

e9change 8rices as a 8rimary source of data.

#. This 8resentation indicates the dual nature of the "ond

o"ligations. There is an o"ligation to make 8eriodic 8ayments

of $(, and an o"ligation to 8ay the 1,, at

maturity. The amounts 8resented on the statement of financial

8osition are the 8resent 7alues of each of the future

o"ligations discounted at the initial effecti7e rate of interest.

The 8ro8er em8hasis is 8laced u8on the accrual conce8t, that

is, that interest accrues through the 8assage of time. The

em8hasis u8on 8remiums and discounts is eliminated, andthis might "e useful su88lemental information at the time of 

issuance of the "onds.

&. This 8resentation sho%s the total lia"ility, %hich is incurred in

a "ond issue, "ut it ignores the time 7alue of money. This

%ould "e a fair 8resentation of the "ond o"ligations only if the

effecti7e interest rate %ere =ero.

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!A 14- )Co#"i#'e+*

aD

When an entity issues interest!"earing "onds, it normally

acce8ts t%o ty8es of o"ligations6 1D to 8ay interest at regular inter7als and #D to 8ay the 8rinci8al at maturity. The in7estors

%ho 8urchase Hranagh imited "onds e98ect to recei7e $(,

each anuary 1 and uly 1 through anuary 1, #&', 8lus

1,, 8rinci8al on anuary 1, #&'. 2ince this $(,D is

more than the 1#L 8er annum $, semiannuallyD that the

in7estors %ould "e %illing to acce8t on an in7estment of 

1,, in these "onds, they are %illing to "id u8 the 8rice<

to 8ay a 8remium for them. 

The amount that the in7estors should "e %illing to 8ay for these

future cash flo%s de8ends u8on the interest rate that they are

%illing to acce8t on their in7estmentsD in this security %hich in

turns, de8ends on the current market conditions %hen the "onds

are issued and the 8re7ailing rates for similar risk in7estments.

"D The amount that the in7estors are %illing to 8ay and the issuer 

is %illing to acce8tD, 1,)(,#&, is the 8resent 7alue of the

future cash flo%s discounted at the rate of interest that in7estors

%ill acce8t.

 Another %ay of 7ie%ing this is that the 1,)(,#& is the amount

that, if in7ested at an annual interest rate of 1#L com8ounded

semiannually, %ould allo% %ithdra%als of $(, e7ery si9

months from uly 1, #1', through anuary 1, #&', and include

1,, on anuary 1, #&'.

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!A 14- )Co#"i#'e+*

"DContinuedD

 Assuming "onds are issued at their maturity 7alue, the 8rice 8aidis e0ual to the maturity 7alue %hen the cou8on rate is e0ual to

the effecti7e rate. If the "onds had "een issued at their maturity

7alue, the 1,, %ould "e the 8resent 7alue of future

interest and 8rinci8al 8ayments discounted at an annual rate of 

1&L com8ounded semiannually.

Fere the effecti7e rate of interest is less than the cou8on rate, so

the 8rice of the "onds is greater than the maturity 7alue. If theeffecti7e rate of interest %as greater than the cou8on rate, the

"onds %ould sell for less than the maturity 7alue.

cD 1. The use of the cou8on rate for discounting "ond o"ligations

%ould gi7e the face 7alue of the "ond at anuary 1, #1', and

at any interest!8ayment due thereafter. Although the cou8on

rate is readily a7aila"le %hile the effecti7e rate must "e

com8uted, the cou8on rate may "e set ar"itrarily at the

discretion of management so that there %ould "e little or no

su88ort for acce8ting it as the a88ro8riate discount rate.

#. The effecti7e interest rate at anuary 1, #1', is the market

rate to Hranagh imited for long!term "orro%ing. This rate

gi7es a discounted 7alue for the "ond o"ligations, %hich is the

amount that could "e in7ested at anuary 1, #1', at the

market rate of interest. This in7estment %ould 8ro7ide the

sums needed to 8ay the recurring interest o"ligation 8lus the8rinci8al at maturity. Thus, the effecti7e interest rate is

o";ecti7ely determined and 7erifia"le.

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!A 14- )Co#"i#'e+*

cDContinued

The market or yield rate of interest at the date of issue should"e used throughout the life of the "ond "ecause it reflects the

interest o"ligation %hich the issuer acce8ted at the time of 

issue. The resulting 7alue at the date of issue %as the current

7alue at that time and is similar to historical cost. Also, this

yield rate is o";ecti7ely determined in an e9change transaction.

The continued use of the issue!date yield rate results in a failure

to reflect %hether the "urden is too high or too lo% in terms of thechanges that may ha7e taken 8lace in the interest rate.

dD sing a current yield rate 8roduces a current 7alue, that is, the

amount that could currently "e in7ested to 8roduce the desired

8ayments. When the current yield rate is lo%er than the rate at

the issue date or than at the 8re7ious 7aluation dateD the

lia"ilities for 8rinci8al and interest %ould increase. When the

current yield is higher than the rate at the issue date or at the

8re7ious 7aluation dateD the lia"ilities %ould decrease. Thus,

holding gains and losses could "e determined. If the de"t is held

until maturity, the total of the interest e98ense and the holding

gains and losses under this method %ould e0ual the total interest

e98ense using the yield rate at issue date.

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!A 14->

aD Machine 8urchased as an instalment sale. In this case, this is a

de"t instrument e9changed for the machine. The fair 7alue of the

de"t must "e determined discounting the cash flo%s re0uired onthe de"t at the a88ro8riate rate to reflect the credit risk of 

Thom8son. Hecause this is a 8ri7ate com8any, %ith no credit

rating, %e %ould not "e a"le to o"ser7e market risk assessment

rates for this com8any. We ha7e used uno"ser7a"le data that is

8articular to this com8any only, %hich %ould "e le7el & in the fair 

7alue hierarchy. We are told that the com8any could ha7e

"orro%ed funds at )L from the "ank for this same 8urchase. If 

%e use ).L rate to discount the cash flo%s on the de"t, the8resent 7alue can "e determined as follo%s6

ayment an 1, #1' #',

resent 7alue of ' annual 8ayments of #',

 at )L #', J &.&*)# *1#,+#*

Total 1,(#,+#*

This fair 7alue determination %ould "e a PsoftQ 7alue since the

)L interest rate is a 8ro8osed 7ersus actualD lending rate.

Fo%e7er, %e are also told that the fair 7alue of the machine is

only 1,(,. This is an o"ser7a"le market 7alue for similar 

assets. As such, this in8ut is a le7el # fair 7alue hierarchy. And

again, this fair 7alue %ould "e considered a PsoftQ 7alue.

The 0uestion "ecomes, %hat fair 7alue should "e used ? the fair 

7alue of %hat is gi7en u8 the de"tD or the fair 7alue of %hat has

"een recei7ed the machineD. A2E and I3-2 recommend thatthe fair 7alue of the consideration gi7en u8 should "e used to

determine the 7alue of the transaction unless the fair 7alue of the

item recei7ed is more relia"le and more clearly e7ident. In this

case, "oth of the fair 7alues, as discussed a"o7e are "oth

estimates, and one is not more relia"le than the other.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

!A 14-> )Co#"i#'e+*

aDContinuedD

 As such, the 7alue of the de"t %hich has "een gi7en u8 isdetermined to "e relia"ly determina"le and is used to 7alue the

transaction. The treatment under A2E and I3-2 %ould "e the

same.

anuary 1, #1' ! -ecord 8urchase of the machine as follo%s6

Machinery..................................................... 1,(#,+#*Cash..................................................... #',4otes aya"le...................................... *1#,+#*

/ecem"er &1, #1'

-ecord the de8reciation on the machine assuming 1 years

useful life

/e8reciation E98ense 1,(#,+#* B 1D .........1(,#+& Accumulated /e8reciation ? Machinery... . 1(,#+&

/ecem"er &1, #1'

-ecord accrued interest for #1' using )L

Interest E98ense )L J *1#,+#*D................ ... ($,+(Interest aya"le........................................ ($,+(

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!A 14-> )Co#"i#'e+*

aDContinuedD

>o7ernment loan ? The go7ernment loan has "een gi7en at aninterest rate su"stantially "elo% market. The com8any %ould

normally ha7e had to 8ay $L gi7en its credit risk, "ut the

go7ernment is charging 1L. To record the loan, %e must

determine the loan discounted at $L and com8are to the loan

discounted at 1L.

1L $L /ifference

: of (, in ( years ')(,)&& &)&,$#+: of (, annual

8ayments for ( years #',#$) #1,$#(, &+',$+1 1(,&+

ournal entry to record the go7ernment funding /ecem"er &1, #1'

Cash............................................................. (,4otes aya"le...................................... &+',$+1

E0ui8ment............................................ 1(,&+

The grant of 1(,&+ %ill "e amorti=ed to net income on the

same "asis as the 8lant technology in order to offset the

de8reciation. 5r alternati7ely, the grant can "e directly netted

against the 8lant technology e0ui8ment 8urchased and a smaller 

amount of de8reciation %ill "e recorded each year.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

!A 14-> )Co#"i#'e+*

aDContinuedD

The note 8aya"le to the go7ernment %ill "e amorti=ed to intereste98ense o7er the fi7e years, so that at the end of ( years, the

"alance %ill "e (,. nder I3-2, the effecti7e interest rate

of $L %ill "e used. Again, this rate is likely not o"ser7a"le in the

market 8lace since the com8any has no credit rating for 

com8arison 8ur8oses. Conse0uently, this 7alue is a le7el & in the

fair 7alue hierarchy.

"D 1. se of the asset re0uires a de8reciation charge in each year of use. This in turn re0uires carrying the e0ui8ment as an asset as

the risk and re%ards of o%nershi8 ha7e 8assed, although the

com8any does not ha7e legal title to the asset. The com8any has

contracted to 8urchase the e0ui8ment and, thus, has a real

lia"ility %hich affects financial condition and must "e sho%n. As

such, the fair 7alue of the lia"ility that the com8any o%es must "e

set u8 along %ith the fair 7alue of the asset that has "een

recei7ed in return for the lia"ility. There is an im8uted interest

rate "uilt into the 8ayments o7er the ( years that must "e

recorded. 2ince the fair 7alue of the machine is only 1,(,,

then %e cannot sho% a higher than fair 7alue amount.

Effecti7ely, the difference "et%een the total 8ayments "eing

made and the fair 7alue of the machine is the interest to "e 8aid

o7er the ( year 8eriod.

#. The o"ligation of a com8any is to its "ondholders, not to the

trustee. ntil the "ondholders ha7e recei7ed 8ayment, thecom8any still has a lia"ility.

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!A 14-> )Co#"i#'e+*

"DContinuedD

No"e "o i#s"r'c"or8  The student may ha7e difficulty %ith thisstatement "ecause this ty8e of situation %as not discussed in the

cha8ter. It therefore 8ro7ides an o88ortunity to em8hasi=e that

8ayment to an agent or trustee does not constitute 8ayment of 

the lia"ility for "ond interest. When the trustee dis8enses the

funds to "ondholders, the lia"ility should "e reduced. A se8arate

Hond Interest 3und account, similar to a P2inkingQ fund is

esta"lished at the time 8ayment is made to the trustee. This fund

is sho%n as a long!term in7estment in the asset section of thestatement of financial 8osition

&. -e8urchased "onds are not an asset. A com8any cannot o%e or 

o%n itself. Thus, these "onds are different from in7estments in

"onds of other com8anies. -e8urchased "onds should "e

re8orted as a deduction from "onds 8aya"le.

'. There are t%o 8oints here. 3irst of all, %e o"tained 7ery

fa7oura"le financing from the go7ernment, since %e only must

8ay 1L on the loan and not $L that %e %ould ha7e 8aid on

"orro%ed funds. Conse0uently, this concession must "e gi7en

se8arate treatment in our "ooks. It is as though the go7ernment

is forgi7ing (L interest each year. The loan is recorded as

though it %as charging $L, and therefore the 8ayments %e %ill

make of (, each year for the ne9t ( years and then the

(, re8ayment are 8art 8rinci8al and 8art interest

8ayments. An amount of 1(,&+ %ill "e charged as interest

o7er the ( year 8eriod.

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!A 14-> )Co#"i#'e+*

cDContinuedD

The second 8oint is %hat to do a"out this concession. The"enefit of this %ill "e treated as a go7ernment grant i.e., forgi7en

amount of interestD. As a grant, the amount is recorded either in

a se8arate account or as a reduction against the e0ui8ment

8urchased. In either case, the PgrantQ is amorti=ed into income

o7er the life of the asset. Conse0uently, %e %ill also ha7e a

lo%er de8reciation charged to net income as a result. 57er the

fi7e year, this reduction in the de8reciation %ill "e offset "y the

additional interest e98ense charged on the loan.

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!A 14-4

P.r" I

aD The effecti7e interest method of amorti=ation of "ond discount or 8remium a88lies a constant interest rate to the carrying 7alue of 

de"t. The straight!line method a88lies a constant dollar amount

o7er the life of the de"t resulting in a changing effecti7e interest

rate incurred that is "ased on the carrying 7alue of the de"t.

Either method, ho%e7er, com8utes the total 8remium or discount

to "e amorti=ed as the difference "et%een the 8ar 7alue of the

de"t and the 8roceeds from the issuance.

"D Hefore the effecti7e interest method can "e used, the effecti7e

yield or interest rate of the "ond must "e com8uted. The effecti7e

yield rate is the interest rate that %ill discount the de"t instrument

to the amount recei7ed at issuance. The t%o com8onents in the

7alue of a "ond are the 8resent 7alue of the 8rinci8al amount

due at the end of the "ond term and the 8resent 7alue of the

annuity re8resented "y the 8eriodic interest 8ayments during the

life of the "ond. Interest e98ense using the effecti7e interest

method is "ased u8on the effecti7e yield or interest rate

multi8lied "y the carrying 7alue of the "ond 8ar 7alue ad;usted

for unamorti=ed 8remium or discountD. The amount of 

amorti=ation is the difference "et%een recogni=ed interest

e98ense and the interest actually 8aid 8ar 7alue multi8lied "y

nominal rateD. When a 8remium is "eing amorti=ed, the dollar 

amount of the 8eriodic amorti=ation %ill increase o7er the life of 

the instrument. This is due to the decreasing carrying 7alue of 

the "ond instrument multi8lied "y the constant effecti7e interestrate, %hich is su"tracted from the amount of cash interest 8aid.

In the case of a discount, the dollar amount of the 8eriodic

amorti=ation %ill increase o7er the life of the "ond.

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!A 14-4 )Co#"i#'e+*

art I ContinuedD

"D ContinuedD

This is due to the increasing carrying 7alue of the "ond

instrument multi8lied "y the constant effecti7e interest rate from

%hich is su"tracted the amount of cash interest 8aid.

The 7arying amounts of interest occur "ecause of the changing

carrying 7alue of the "ond o7er the life of the instrument. In

contrast, the straight!line method yields a constant dollar amountof interest "ased u8on the life of the instrument regardless of 

effecti7e yield rates demanded in the market8lace.

P.r" II

aD 1. G.i# or loss "o be .or"i:e+ o&er "2e re.i#i#$ life of ol+

+eb" The "asic argument su88orting this method is that if 

refunding is done to o"tain de"t at a lo%er cash outlay

interest costD, then the gain or loss is truly a cost of o"taining

the reduction in cash outlay. As such, the ne% rate of interest

alone does not reflect the cost of the ne% de"t, "ut a 8ortion

of the gain or loss on the e9tinguishment of the old instrument

must "e matched %ith the nominal interest to reflect the true

cost of o"taining the ne% de"t instrument. This argument

states that this matching must continue for the une98ired life

of the old de"t in order to reflect the true nature of the

transaction and cost of o"taining the ne% de"t instrument.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

!A 14-4 )Co#"i#'e+*

art II ContinuedD

aD ContinuedD

G.i# or loss "o be .or"i:e+ o&er "2e life of "2e #e3 +eb"

i#s"r'e#" This argument states that the gain or loss from

early e9tinguishment of de"t actually affects the cost of 

o"taining a ne% de"t instrument. Fo%e7er, this method asserts

that the effect should "e matched %ith the interest e98ense of 

the ne% de"t for the entire life of the ne% de"t instrument. This

argument is "ased on the assum8tion that the de"t %asrefunded to take ad7antage of ne% lo%er interest rates or to

a7oid 8ro;ected high interest rates in the future, and that any

gain or loss on early e9tinguishment should "e reflected as an

element of this decision and total interest cost o7er the life of 

the ne% instrument should "e stated to reflect this decision.

> G.i# or loss reco$#i:e+ i# "2e perio+ of ex"i#$'is2e#"

ro8onents of this method state that the early e9tinguishment

of de"t to "e refunded actually does not differ from other 

ty8es of e9tinguishment of de"t %here the consensus is that

any gain or loss from the transaction should "e recogni=ed in

full, in current net earnings. The early e9tinguishment of the

de"t is 8rom8ted for the same reason that other de"t

instruments are e9tinguished@ namely, that the 7alue of the

de"t instrument has changed in light of current financial

circumstances and early e9tinguishment of the de"t %ould

8roduce the most fa7oura"le results. Also, it is argued that

any gain or loss on the e9tinguishment is directly related to

market interest fluctuations related to 8rior 8eriods.

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!A 14-4 )Co#"i#'e+*

art II ContinuedD

aD ContinuedD

> )Co#"i#'e+*

If the true market interest rate had "een kno%n at the time of 

issuance, there %ould "e no gain or loss at the time of 

e9tinguishment. Also, e7en if market interest rates %ere not

kno%n "ut the carrying 7alue of the "ond %as 8eriodically

ad;usted to market, any gain or loss %ould "e reflected at theinterim dates and not in a future 8eriod.

The call 8remium 8aid on e9tinguishment and any unamorti=ed

8remium or discounts are actually ad;ustments to the actual

effecti7e interest rate o7er the outstanding life of the "ond. As

such, any gain or loss on the early e9tinguishment of de"t is

related to 8rior!8eriod 7aluation differences and should "e

recogni=ed immediately.

"DThe immediate recognition 8rinci8le is the only acce8ta"le

method of reflecting gains or losses on the early e9tinguishment

of de"t, and that these amounts, if material, must "e reflected as

unusual items outside of o8erations %ith other re7enues and

gains or other e98enses and losses.

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 !A 14-<

>enerally, A2E has "een designed to reduce com8le9ity in the

recognition and measurement of items, to reduce disclosure

re0uirements and to make the information useful for the main user,

%ho has "een defined as creditors. >i7en this, %e %ill see the

im8act of this in the discussion "elo% of the differences "et%een

 A2E and I3-2.

There are fe% differences "et%een I3-2 and A2E in this cha8ter.

a. >enerally, lia"ilities 8rimarily de"t in this cha8terD are measured

at amorti=ed cost using the effecti7e interest rate method under 

I3-2. A2E allo%s either the effecti7e interest rate method, or alternati7es, %hich %ould normally "e in 8ractice, the straight!line

method. The reason for this difference relates to com8le9ity. The

effecti7e rate of interest is more com8licated and costly to

im8lement. At each re8orting 8eriod, the effecti7e interest rate %ill

"e a88lied on the current "alance of outstanding de"t. This

com8licates the measurement and recording of interest e98ense

and the related de"t on the statement of financial 8osition. The

straight!line method is much easier and less costly to im8lementDas the total amount of 8remiumBdiscount to "e recogni=ed o7er 

the 8eriod is sim8ly di7ided "y the term of the de"t. This gi7es

the amount of interest to "e recogni=ed each 8eriod.

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!A 14-< )Co#"i#'e+*

". nder A2E, long term de"t that is "eing refinanced can "e

sho%n as long term at the re8orting date 8ro7ided that the

agreement %ith the creditor is in 8lace 8rior to the release of thefinancial statements. This differs %ith I3-2, %hich %ould re0uire

the agreement to "e in 8lace 8rior to the year end re8ort date.

The main reason for this difference is to continue %ith normal

Canadian 8ractice that has "een in 8lace for many years 8rior to

ado8tion of I3-2. It also means that there is some time 8rior to

issue to get the financing documents in order to 8ro8erly sho% the

current 7ersus non!current classification.

c. With res8ect to ca8ital disclosures ? I3-2 re0uires detailed

ca8ital disclosure notes %hich include information on6

• Com8anys o";ecti7es, 8olicies and 8rocesses to manage its

ca8ital "eing cash, de"t and e0uityD• What s8ecifically is included in the com8anys definition of 

ca8ital• Whether or not there are e9ternally im8osed restrictions on this

ca8ital, and if so, if the com8any is in com8liance %ith these.

nder A2E, the only disclosure re0uired is %hether or not the

com8any is in com8liance %ith co7enants on the de"t.

The main reason for these differences is that 8ri7ate com8anies tend

to not ha7e 7ery com8le9 ca8ital arrangements. >enerally, there

might "e de"t that is outstanding to the "ank, and small amounts of 

e0uity issued to the manager!shareholders of the com8any. As the

creditors are the 8rimary users of the financial statements, they

%ould already "e familiar %ith restrictions 8ut on the statement of 

financial 8osition of the com8any. >i7en these facts, it %as thought

to "e too costly for 8ri7ate enter8rises to 8re8are and disclose this

data and that the costs %ould not ;ustify the "enefits.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

!A 14-

aD The Pnon!8erformance riskQ refers to the risk that the o"ligation

%ill not "e settled. Credit risk related to the o"ligor is acom8onent of non!8erformance risk. The credit risk may differ 

de8ending on the o"ligation "eing fulfilled ? i.e. is settlement to

"e in cash or in goods and ser7ices or are there any terms of 

credit enhancements related to the lia"ilitiesG

"D Helo% are the arguments for incor8orating credit risk into the

measurement of a lia"ility6

1. Consistency of initial recognition ! 2ince credit risk is incor8orated

into the effecti7e interest rate used to measure the "onds 8aya"le at

initial recognition, in order to "e consistent, this same "asis should

"e used at each re8orting 8eriod. Additionally, to "e consistent, all

lia"ilities, regardless of their nature should incor8orate credit risk in

the assessment of the a88ro8riate discount rate to "e used.

Currently, the discount rates used for 7aluing other lia"ilities such as

%arranties, 8ension o"ligations and asset retirement o"ligations are

all different.

#. Wealth transfer ? A second argument is that as the credit risk of 

the entity deteriorates, there is a transfer of %ealth from the

"ondholders de"t is decliningD to the shareholders. E7en though

this might re7erse o7er time as the lia"ility to the "ondholders is

settled, 8ro8onents of this e98lanation argue that all changes in

relati7e claims should "e reflected on the statement of financial

8osition, not ;ust some.

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!A 14- )Co#"i#'e+*

&. Accounting mismatch ? The final argument is that %hen credit risk

is not incor8orated into the 7alue of lia"ilities, there is a mismatch

"et%een asset and lia"ility measurements. The assets measured atfair 7alue are im8acted "y credit risk assessments related to the

assets. Fo%e7er, if the lia"ilities do not incor8orate for credit risk

changes, then there is a mismatch and com8rehensi7e income

"ecomes distorted.

 Arguments to su88ort that credit risk should not "e incor8orated into

the lia"ility measurement are as follo%s6

1. Counter!intuiti7e results ? An increase in the credit risk of anentity, %ill result in the decrease in the 7alue of the lia"ility, %hich %ill

result in a gain. This is not intuiti7ely a88ealing, since normally %e

%ould e98ect gains to "e reali=ed on im8ro7ements in the entitys

financial 8osition, not %ith deterioration. This %ould result in

misleading and distorted 8rofits.

#. Accounting mismatch ? This argument considers the fact that

including the credit risk changes also leads to accounting

mismatches since not all assets are "eing 7alued at fair market7alues. A decline in the entitys credit 0uality might indicate that

some of the ca8ital and intangi"le assets and good%ill ha7e also

declined in 7alue. Fo%e7er, as these assets are not re8orted at fair 

market 7alues, these declines %ould not "e recorded. 2o %e ha7e a

decline in lia"ilities, %ith no decline in assets as a result of the same

e9ternal condition.

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!A 14- )Co#"i#'e+*

&. -eali=ation ? The final argument against changing the discount

rate for changes in credit 0uality is that reali=ation is not critical inaccounting for some asset 7alues. Whereas assets are sold all the

time, lia"ilities are rarely sold since often it is not 8ractica"le, or it

re0uires the counter 8artys 8ermission. Conse0uently if the entity

cannot "enefit from reali=ation of the lia"ility, %hy should the lia"ility

"e measured at current 7aluesG 2ome lia"ilities must "e measured

using current information, "ut credit risk need not "e incor8orated

into this 7alue since shareholders may not gain or lose from this

change.

cD 3inally, the alternati7es "eing discussed to determine the

a88ro8riate measure of lia"ilities are6

1. se the risk!free rate of interest, e9cluding any default risk and

re8ort any im8act of changes immediately to 8rofit or loss in the

8eriod they arise.

#. se the risk!free rate of interest, e9cluding any default risk, and

re8ort any im8act of changes to e0uity and amorti=e o7er the lifeof the lia"ility.

&. Measure lia"ilities that relate to an e9change of cash at the

amount of the cash 8roceeds as is currently done using the

current market rate of returnD. ia"ilities that are not an

e9change of cash should "e measured at their 8resent 7alue of 

future cash flo%s using a current discount rate that e9cludes

credit risk changes.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

RESEARCH AN% FINANCIAL ANALSIS

RA14-1

%eb" "o "o".l .sse"s r."io D )To".l +eb"* 9 )To".l .sse"s*

Ties i#"eres" e.r#e+ D )I#coe before i#coe ".xes X i#"eres"

expe#se* 9 )I#"eres" expe#se*

K.#'.r( 16 5118

%eb" "o "o".l .sse"s r."io D )?6416<* 9 )?@654461@* D 41@=

Ties i#"eres" e.r#e+ D )?@6>* 9 )?<6* D 1>@

%eceber >16 5118

%eb" "o "o".l .sse"s r."io D )?>65>645* 9 )?@6>556>15* D 41<4=

Ties i#"eres" e.r#e+ D )?1565<* 9 )?@654* D 1><

%'ri#$ 511 S%Ms sol&e#c( ipro&e+ sli$2"l( .s i"s r."io of 

+eb" "o "o".l .sse"s +ecre.se+ Ties i#"eres" e.r#e+ +ecre.se+

sli$2"l( +'ri#$ 511 i#+ic."i#$ .# o+es" +e"erior."io# i# S%M/s

.bili"( "o rep.( i"s i#"eres" li.bili"ies

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

RA14- LOBLA! ERS,S EMPIRE

aD The follo%ing are the de"t to total assets and times interest

earned ratios for the com8anies6

In millions o"la%/ecem"er &,

#11

Em8ireMay ), #11

Total lia"ilities 11,'#1 &,&$.'Total assets 1),'#* $,(((.'/e"t to asset ratio .$$ .(Earnings "efore interest and ta9es 1,&*' '+).'Interest e98ense &#) )1.&Times interest earned '.#& $.+*

3rom the a"o7e analysis, it a88ears that o"la% has slightly

more de"t than Em8ire in its ca8ital structure. This results in its

times interest earned ratio also "eing less than Em8ire.

Fo%e7er, Em8ire has significant o8erating leases that %ould

also need to "e considered in 8re8aring a full analysis. In this

case, many of Em8ires assets and o"ligations are off the

statement of financial 8osition as a result of using o8erating

leases. 2ee discussion "elo% in 8art cD.D

"D The follo%ing ratios are highlighted in the Management

/iscussion and Analysis for reach com8any6

o"la% Em8ire

3unded de"t to ca8ital ratio #$.'L

4et funded de"t to ca8ital ratio 1'.(L

3unded de"t to EHIT/A 1.'J

EHIT/A to interest 1#.1J

Interest co7erage '.#61

4et de"t to e0uity .*61

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

RA14- )Co#"i#'e+*

 As can "e seen from the a"o7e ta"le, "oth com8anies use

different ratios to measure their de"t le7els. 2ince these are

non!>AA measures, there is some detail 8ro7ided as to ho%these ratios ha7e "een calculated. Fo%e7er, an analyst %ould

likely calculate their o%n ratios so that the t%o com8anies could

"e com8ared em8loying the same ratios.

cD -e7ie%ing the long term de"t note 11D of Em8ire, the com8any

has medium term notes coming due "et%een #1* to #',

de"entures coming due "et%een #11 and #1$, credit facilities

due in #1# and #1& and some ca8ital lease o"ligations due#11!#'. Em8ire had a credit rating of 8ositi7e trend, %hich

"y the end of the year had "een u8graded to sta"le. The

8rimary reason dri7ing this change %as that the com8any had

im8ro7ed EHIT/A and also reduced interest e98ense, there"y

im8ro7ing its EHIT/A to interest ratio.

o"la%, in note 1), outlines that its de"t is 8rimarily made u8 of 

notes 8aya"les %hich mature on 7arious dates from #1& to

#'&. It also has some 8ri7ate 8lacement 2 de"t maturing in

#1& and #1(. 3inally, it has mortgage secured de"t, >ICs and

inde8endent securiti=ation trusts. 5n age 1' of the Annual

-e8ort, o"la% outlines its credit ratings from /H- and 2R.

/uring #11, the com8anys credit ratings and %ere reaffirmed

as sta"le.

Hoth com8anies ha7e HHH ratings %ith a sta"le trend.

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RA14- )Co#"i#'e+*

The com8anies ha7e similar de"t ratings e7en though o"la% is

seen to ha7e more de"t on its statement of financial 8osition

than Em8ire. We %ould ha7e antici8ated that o"la% %ould ha7ethe %orse credit rating since it has more de"t than Em8ire. The

fact that Em8ire and o"la% ha7e the same credit rating is likely

due to the amount of leases that Em8ire annual o"ligation of 

&)).' million and &,(*.' million in totalD has in com8arison to

o"la% #1+ million annually and 1,(* million in totalD.

These lease o"ligations re0uire cash flo% from Em8ire that is in

addition to its de"t o"ligations. Credit analysts %ould consider 

all o"ligations "oth on and off the statement of financial 8ositionin order to assess financial risk.

dD 4ote 1( outlines Em8ires ca8ital disclosures. The com8anys

o";ecti7es in managing its ca8ital are6 to ensure ongoing

li0uidity, minimi=e its cost of ca8ital, maintain an o8timal ca8ital

structure to ensure financial fle9i"ility and to maintain an

in7estment grade credit rating. Total ca8ital for the com8any

includes all interest "earing de"t funded de"tD net of cash and

cash e0ui7alents, and e0uity. The total ca8ital "eing managed is

&,)+* million. The key ratios "eing monitored are6 funded de"t

to ca8ital@ funded de"t to EHIT/A and EHIT/A to interest.

Em8ire had t%o co7enants to maintain for %hich they %ere in

com8liance6 1D Ad;usted total de"t to EHIT/A and #D de"t

ser7ice co7erage ratio.

In 4ote #, o"la% outlines its ca8ital disclosure. It has '

o";ecti7es in managing its ca8ital6 to ensure sufficient li0uidity to

8ay its o"ligations, to maintain financial ca8acity and the a"ility

to access ca8ital as needs arise@ to minimi=e its cost of ca8ital@

and to utili=e short term funding to manage %orking ca8ital and

long term funding to finance long term assets.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

 RA14- )Co#"i#'e+*

The com8any has three key ratios it monitors6 interest

co7erage, net de"t to e0uity and net de"t to EHIT/A ratios.The

total net de"t "eing managed is #,(1& million no e0uity isincluded in this totalD. The com8any has t%o co7enants that

must "e maintained6 an interest co7erage ratio and a le7erage

ratio. It also has certain ca8ital re0uirements to "e met as a

result of its "anking ser7ices %hich are im8osed "y 523I? a

regulatory "ody 5ffice of the 2u8erintendant of 3inancial

InstitutionsD.

cD Em8ire has t%o ty8es of 7aria"le interest entities that aredisclosed in 4ote #+. The com8any has #** franchise affiliates

%here the agreements deem Em8ire controls the entities. As a

result, all of these entities are consolidated in Em8ires

consolidated financial statements. The second entity in7ol7es a

Warehouse and /istri"ution agreement %ith an inde8endent

entity. This agreement also 0ualifies to "e consolidated in the

statements for Em8ire, as Em8ire controls the entity.

)+*

In note #), o"la% e98lains its :IEs. The com8any has a

7ariety of franchise agreements in7ol7ing sale of goods and

ser7ices and financing and leasing arrangements. There %ere

#1' of the com8anys inde8endent franchise stores that meet

the re0uirements to "e consolidated as a :IE "ecause o"la%

controls them. The com8any also has a 7ariety of %arehouse

and distri"ution agreements %ith third 8arty 8ro7iders. /ue to

the nature of these agreements, these entities ha7e "een

consolidated and included in o"la%s financial statements

"ecause control e9ists.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

RA14-> %BRS

aD /ominion Hond -ating 2er7ice imited /H-2D uses the

follo%ing a88roach in rating food retailer com8anies6

1. >eneral "usiness risk 8rofile includes analysis of6

aD Economic en7ironment

"D egislati7e and regulatory en7ironment

cD Com8etiti7e en7ironment

dD Country risk

eD Industry cyclicality

fD Management, and

gD Cor8orate go7ernance.

#. >eneral financial risk factors include6

aD Earnings6 gross margins, return on common e0uity, return on

ca8ital and EHIT margin and EHIT/A margin.

"D Cash flo%BCo7erage6 EHIT interest co7erage and EHIT/A

interest co7erage@ EHIT fi9ed charges co7erage@ cash flo%Btotal

de"t and cash flo%Bad;usted total de"t@ cash flo%Bca8ital

e98enditures@ ca8ital e98enditures Bde8reciation@ de"tBEHIT/A

and di7idend 8ayout ratio.

cD 2tatement of financial 8osition and financial fle9i"ility

considerations6 current ratio@ recei7a"les turno7er@ in7entory

turno7er@ asset co7erage@ Total de"t to ca8ital@ ad;usted total

de"t to ca8ital@ net de"t to ca8ital.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

RA14-> )Co#"i#'e+*

&. Industry s8ecific factors that are considered include6

aD "rand name ? same store sales gro%th is an indicator of "rand

strength"D formats and "anners

cD o8erational efficiency

dD relati7e si=e

eD 8ri7ate la"el "rands

fD di7ersification

gD understanding Bada8ting to consumer trends

hD real estate ? o%ned 7ersus leased

iD locations;D la"our 

 "D o"la% has "een gi7en a rating of HHH on its medium term

notes and de"entures, and a rating of fd!& middle for its

commercial 8a8er. All trends on its de"t are sta"le.

Em8ires de"t ratings ha7e "een discontinued@ ho%e7er 

2o"eys senior unsecured de"t is still rated as HHH %ith a

sta"le outlook. This is similar to o"la%.

cD These ratings for o"la% and Em8ire are similar. This is likely

due to the fact that "oth o"la% and 2o"eys are in the same

industry and therefore face similar "usiness risks.

dD It is 8ossi"le to ha7e different ratings on different de"t

instruments %ithin the same com8any, as is illustrated "y the

different ratings assigned "y /H-2 to the 7arious instruments

for o"la% as discussed in 8art "D. This is due to the nature of the de"t long term 7ersus short termD and %hether or not the

de"t is secured or unsecured. 2ince different ratings firms use

different scales, it is also 8ossi"le for there to "e differences

"et%een the ratings of 7arious instruments for a 8articular 

com8any assigned "y different rating firms.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

RA14-4 AIR CANA%A

aD The de"t to e0uity ratio for Air Canada is &.&'. This ratio

indicates that Air Canada is highly le7eraged. The deficit

"alance of e0uity indicates a %eak e0uity 8osition, thecom8any o8erations are "eing funded %ith de"t.

"D /H-2 rated Air Canada at a PHQ rating %ith a sta"le trend.

cD :aria"le interest entities6 4ote #(iD discusses the im8act of 

the transition to I3-2 on accounting for :IEs. nder Canadian

>AA consolidation %as "ased on the 8rimary "eneficiary for 

:IEs and on the continuing 8o%er to go7ern o8erating andfinancial 8olicies for non!:IEs. Consolidation of non!:IEs

%ould further consider %hether the "enefits and risks from the

entities acti7ities %ould flo% to the 8otential 8arent com8any.

nder I3-2 the control model is used to determine %hether an

entity should "e consolidated. The control model assesses the

8o%er to go7ern 8olicies, "oth financial and o8erational.

2imilar to Canadian >AA, access to "enefits from the actions

of a consolidated su"sidiary is considered in the determination

of %hether consolidation should occur.

4on!controlling interest is measured at historical cost of net

assets held "y non!controlling shareholders and 8resented

se8arately from lia"ilities and e0uity on the statement of 

financial 8osition under Canadian >AA. 3or I3-2, non!

controlling interest is measured either at fair 7alue or as the

8ro8ortionate share of net identifia"le assets of the non!

controlling interest. resentation under I3-2 sho%s non!controlling interest as a com8onent of e0uity.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

RA14-4 ContinuedD

The im8act on accounting for :IEs as it relates to Air Canada is as

follo%s. 28ecial 8ur8oses entities 2EsD are consolidated under 

I3-2 that %ere not consolidated under Canadian >AA. Theim8act of the consolidated 2Es include an increase in long!term

de"t, and a decrease to non!controlling interest. 4on!controlling

interest is reclassified to e0uity. 2hare of net income relating to

non!controlling interests is reclassified to Income attri"uta"le to

non!controlling interests.

ong!term de"t instruments6 /ifferences "et%een Canadian

>AA and I3-2 accounting for long!term de"t relate to8resentation for Air Canada. -efinancing o"tained through a

secured term loan facility can "e reclassified to long!term de"t

under Canadian >AA, including the amounts due %ithin 1#

months. nder I3-2, these amounts due %ithin one year must "e

included in the current 8ortion of long!term de"t.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

C,M,LATIE COERAGE )C2.p"ers 1>-14*

P.r" .8/- C-

1 2alaries and Wages E98ense '$,

Em8loyee Income Ta9 /eductions aya"le 11,EI remiums aya"le 1.+*L 9 '$,D +,1*C Contri"utions aya"le '.+(L 9 '$,D ##,))2alaries and Wages aya"le &1*,1##

em8loyee %ages and em8loyee deductionsDayroll Ta9 E98ense &(,(#1

EI remiums aya"le +,1* 9 1.'D 1#,)(1C Contri"utions aya"le ##,))

  em8loyer 8ortions of 8ayroll ta9es i.e. an e98ense to the com8anyD-ecord %ages 8aya"le at une &.# 2alaries and Wages E98ense #$,

:acation Wages aya"le #$,:acation 8ay accrual ) 9 ', 9 'L S 1#D O # 9 1#(, 9 *L S 1#D& 2ome%hat 8ossi"le does not mean that it is likely there is a lia"ility. In order to

accrue a contingent lia"ility, the com8any must think it is likely that the lia"ility%ill "ecome 8aya"le./isclosure that the com8any has "een sued and may face a 8ossi"le loss isnecessary, although the 8ractice is generally to 8ro7ide scant details. It %ouldconclude %ith a note Pin the o8inion of legal counselQ, and contain a statementagreed %ith legal counsel as there is a ;oint agreement "et%een the CICA andthe CHA go7erning such communicationsD.

' The amount that the com8any may collect as a result of this legal actionre8resents a contingent recei7a"le and corres8onding gain. Contingent assetsdo not meet the definition of an asset, and they should not "e recorded. As thisitem has likely "een re8orted in the media, note disclosure may hel8 to 8ro7ideclarification "ut must "e 7ery cautious in tone and content. 2ee a"o7e.

( E0ui8ment +,/ue to 2hareholder &,4otes aya"le $,

Interest E98ense $, J *L J (B1#D #,Interest aya"le #,

-ecord 8urchase of e0ui8ment and interest 8aya"le on note. Insufficient information

is 8ro7ided a"out the useful life, residual 7alue and de8reciation 8olicy of thecom8any to 8re8are the necessary de8reciation e98ense entry for the fi7e monthsended une &, #1'.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

C,M,LATIE COERAGE )C2.p"ers 1>-14* )Co#"i#'e+*

$ Cash ',&*&,*Honds aya"le ',&*&,*

Hond issue 8rice ',#, 9 .)*1# O ',#, 9 &LD 9 *.)(#$

',&*&,*Interest E98ense ',&*&,* J (L J (B1#D +1,&#+Honds aya"le 1&,$)1

Interest aya"le ',#, J $L J (B1#D 1(,-ecord interest 8aya"le on "ond at year end.Interest may also "e calculated in this manner6Interest 8ayment due August 1 1#$,, multi8ly "y (B$ to recogni=e 8artial8eriod 1(,Interest e98ense at August 1 ',&*&,* 9 #.(L 1+,(+(, multi8ly "y (B$ +1,&#+remium amorti=ation to une & 1(, ! +1,&#+ 1&,$)1

) -ent E98ense #,)&-ent aya"le #,)&

additional rent 8aya"le "ased on e9cess sales o7er lease threshold 1,(#&, !1,#(,D 9 1L #,)&* remium E98ense #',

  remium ia"ility $,  In7entory of remiums 1*,

Estimated unredeemed cou8ons6Cou8ons issued 1,-edem8tion rate $LTotal cou8ons that are e98ected to "e redeemed $L 9 1, $,

Total 8romotion e98ense $, cou8ons S & cou8onsD 9 1.# 8er container #',ess6 cou8ons redeemed during the year '(, this solution assumes theredem8tion has not "een recorded, and remo7es the s8ice containers, gi7en ine9change for cou8ons, from in7entoryDTherefore, an estimated 1(, cou8ons may "e retired in the future.1(, cou8ons can "e redeemed for s8ice containers, & are re0uired 8er s8icecontainer, so u8 to (, s8ice containers may "e gi7en a%ay. They cost 1.#, sototal lia"ility is 1.# 9 (, $,.

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

C,M,LATIE COERAGE )C2.p"ers 1>-14* )Co#"i#'e+*

P.r" b8Aor"i:."io# ".ble for bo#+ "o A'$'s" 16 51<8

Cash ? C-

InterestE98ense

#.(LD /-

remium Amorti=ation

/-Hond Carrying

 Amount3e"ruary 1, #1' ',&*&,*

 August 1, #1' 1#$, 1+,(+( 1$,'( ',&$),&+(3e"ruary 1, #1( 1#$, 1+,1*( 1$,*1( ',&(,(*

 August 1, #1( 1#$, 1*,)$( 1),#&( ',&&&,&'(3e"ruary 1, #1$ 1#$, 1*,&&' 1),$$$ ',&1(,$)+

Early redem8tion occurs August &1, #1(, for 'L of the "onds at 1.&Carrying amount August 1, #1( for 'L 'L 9 ',&&&,&'( 1,)&&,&&*

 Amorti=ation of 8remium to August &1 1),$$$ 9 'L S $ months 1,1)*Carrying amount of "ond August &1, #1( 1,)&#,1$rice 8aid to redeem early ',#, 9 'L 9 1.& 1,)&,'>ain on early redem8tion 1,)$

Cash for interest due 1#$,.'1B$ *,'

Entry to record early redem8tion6/- C-

Interest E98ense ',&&&,&'( J (L J 1B1# J 'LD ),###

Honds aya"le 1,1)*Cash *,'Honds aya"le 1,)&#,1$

Cash 1,)&,'>ain on -edem8tion of Honds 1,)$

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Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition