Logout Open In App
Open In App
Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 11: Q20-5IFRS (page 607)

At the end of the current year, Joshua Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)345,000. The amount of the vested benefits for the plan is \(225,000. Joshua has a liability gain of \)8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company’s statement of financial position?

Short Answer

Expert verified

Answer

The company should report $8,300 as other comprehensive gains.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Equity

In accounting, equity refers to the amount which belongs to the shareholders of the company. Equity reflects the amount payable to thecommon stockholdersafter settling all the liabilities and dues of preference stockholders.

02

Reporting on financial statements

According to the above-given information, Joshua Company would report$10,000as a pension asset, i.e., the difference between the defined benefit obligation and plan assets’ fair value.

In addition, $8,300 should be reported in the equity section of the company asother comprehensive gains.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Depletion Computations—Mining) Alcide Mining Company purchased land on February 1, 2017, at a cost of \(1,190,000. It is estimated that a total of 60,000 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at \)90,000. It believes it will be able to sell the property afterwards for \(100,000. It incurred developmental costs of \)200,000 before it was able to do any mining. In 2017, resources removed totaled 30,000 tons. The company sold 22,000 tons.

Instructions

Compute the following information for 2017.

  1. Per unit material cost.
  2. Total material cost of December 31, 2017, inventory.
  3. Total material cost in cost of goods sold at December 31, 2017.

(Depreciation—Replacement, Change in Estimate) Greg Maddox Company constructed a building at a cost of \(2,200,000 and occupied it beginning in January 1998. It was estimated at that time that its life would be 40 years, with no salvage value.

In January 2018, a new roof was installed at a cost of \)300,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $160,000.

Instructions

  1. What amount of depreciation should have been charged annually from the years 1998 to 2017? (Assume straight-line depreciation.)
  2. What entry should be made in 2018 to record the replacement of the roof?
  3. Prepare the entry in January 2018 to record the revision in the estimated life of the building if necessary.
  4. What amount of depreciation should be charged for the year 2018?

Tan Chin Company purchases a building for \(11,300,000 on January 2, 2017. An engineer’s report shows that of the total purchase price, \)11,000,000 should be allocated to the building (with a 40-year life), \(150,000 to 15-year property, and \)150,000 to 5-year property. No residual (salvage) value should be considered. Compute depreciation expense for 2017 using component depreciation.

Electroboy Enterprises, Inc. operates several stores throughout the western United States. As part of an operational and financial reporting review in a response to a downturn in its markets, the company’s management has decided to perform an impairment test on five stores (combined). The five stores’ sales have declined due to aging facilities and competition from a rival that opened new stores in the same markets. Management has developed the following information concerning the five stores as of the end of fiscal 2016.

Original cost \(36million

Accumulated depreciation \)10 million

Estimated remaining useful life 4 years

Estimated expected future

annual cash flows (not discounted) \(4.0 million per year

Appropriate discount rate 5 percent

Accounting

  1. Determine the amount of impairment loss, if any, that Electroboy should report for fiscal 2016 and the book value at which Electroboy should report the five stores on its fiscal year-end 2016 balance sheet. Assume that the cash flows occur at the end of each year.
  2. Repeat part (a), but instead assume that (1) the estimated remaining useful life is 10 years, (2) the estimated annual cash flows are \)2,720,000 per year, and (3) the appropriate discount rate is 6 percent.

Analysis

Assume that you are a financial analyst and you participate in a conference call with Electroboy management in early 2017 (before Electroboy closes the books on fiscal 2016). During the conference call, you learn that management is considering selling the five stores, but the sale won’t likely be completed until the second quarter of fiscal 2017. Briefly discuss what implications this would have for Electroboy’s 2016 financial statements. Assume the same facts as in part (b) above.

Principles

Electroboy management would like to know the accounting for the impaired asset in periods subsequent to the impairment. Can the assets be written back up? Briefly discuss the conceptual arguments for this accounting.

(Depreciation Basic Concepts) Burnitz Manufacturing Company was organized on January 1, 2017. In 2017, it has used in its reports to management the straight-line method of depreciating its plant assets.

On November 8, you are having a conference with Burnitz’s officers to discuss the depreciation method to be used for income tax and stockholder reporting. James Bryant, president of Burnitz, has suggested the use of a new method, which he feels is more suitable than the straight-line method for the needs of the company during the period of rapid expansion of production and capacity that he foresees. Following is an example in which the proposed method is applied to a fixed asset with an original cost of \(248,000, an estimated useful life of 5 years, and a salvage value of approximately \)8,000.

Year

Year of life used

Fraction rate

Depreciation expense

Accumulated depreciation at the end of year

Book value at the end of Year

1

1

1/15

\(16,000

\) 16,000

$232,000

2

2

2/15

32,000

48,000

200,000

3

3

3/15

48,000

96,000

152,000

4

4

4/15

64,000

160,000

88,000

5

5

5/15

80,000

240,000

8,000

The president favors the new method because he has heard that:

  1. It will increase the funds recovered during the years near the end of the assets’ useful lives when maintenance and replacement disbursements are high.
  2. It will result in increased write-offs in later years and thereby will reduce taxes.

Instructions

  1. What is the purpose of accounting for depreciation?
  2. Is the president’s proposal within the scope of generally accepted accounting principles? In making your decision, discuss the circumstances, if any, under which use of the method would be reasonable and those, if any, under which it would not be reasonable.
  3. The president wants your advice on the following issues.
    1. Do depreciation charges recover or create funds? Explain.

(2) Assume that the Internal Revenue Service accepts the proposed depreciation method in this case. If the proposed method were used for stockholder and tax reporting purposes, how would it affect the availability of cash flows generated by operations?
See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Behavior

Read Explanation

Sales in Business

Read Explanation

Business Development

Read Explanation

Corporate Finance

Read Explanation

Finance Literacy (Business Studies)

Read Explanation

Managerial Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free