...columns of which contain the financial statements of the members of the group. The adjustment columns contain the consolidation worksheet entries that adjust the left-hand columns to form the consolidated financial statements. The adjustment entries have no effect on the actual financial records of the parent and its subsidiaries. At acquisition date, an acquisition analysis is undertaken. The key purposes of this analysis are to determine the fair values of the identifiable assets, liabilities and contingent liabilities of the subsidiary, and to calculate any goodwill or gain on bargain purchase arising from the business combination. From this analysis, the main consolidation worksheet adjustment entries at acquisition date are the business combination valuation entries, to adjust carrying amounts of the subsidiaries’ assets and liabilities to fair value, and the pre-acquisition entries. In preparing consolidated financial statements in periods subsequent to acquisition date, the consolidation worksheet will contain valuation entries and pre-acquisition entries. However, these entries are not necessarily the same as those used at acquisition date. If there are changes to the assets and liabilities of the subsidiaries since acquisition date, or there have been movements in pre-acquisition equity, changes must be made to these entries. 2. DEMONSTRATION PROBLEMS Demonstration Problem 1 On 1 July 2007, Oslo Ltd acquired 100% of the issued shares of Helsinki Ltd on...
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...cash is received and expenses are recorded in the period in which cash is paid. - This method does not recognize income when goods are sold and services are performed on credit - Costs of goods and services consumed during the current period, but not paid for, are recognized as expenses in a subsequent period when cash is paid - Good for small businesses, not so good for businesses whom conduct most of activities on credit or government. • Accrual basis: Income (inc. revenues) is recognized in the period in which the expected inflow of economic benefits can be measured in a faithful and verifiable manner i.e. in the period in which a business sells goods or performs services under a contractual agreement. - Provides a faithful representation of inflows and consumptions Income (inc. revenues): - Income represents increases in economic benefits during the period in the form of inflows or exchangements of assets or of decreases in liabilities that result in increased equity. Expenses: - Expenses recognized in the period which they are consumed - Costs incurred and expected to provide economic benefits in future period represents unexpired cost, is an asset recorded on the balance sheet - Cost of assets that have been consumed during the current period are recorded in income statement as expenses – expired costs, deducted from income (revenues) to determine profit. Temporary (nominal) and permanent (real) accounts: - Separate accounts made for each major type of income...
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...components 2. Record journal entries in the accounting journal 3. Transfer debit and credit amounts to each account in accounting ledger 4. Prepare adjusting journal entries 5. Prepare a trial balance 6. Prepare financial statements by transferring balances from the trial balance to appropriate financial statements 7. Close temporary accounts and transfer revenue and expense account balances to retained earnings account | Accounting cycle | Accounting cycle by key word 1. Analyze the transaction 2. Journal entries 3. Posting to accounting ledger 4. Adjusting journal entries 5. Trial balance 6. Financial statements 7. Close temporary accounts | Debit or credit | Debit accounts include asset, expense accounts Credit accounts include liability, equity, revenue accounts | Debit or credit | Debit is recorded on the left side of journal entry and t-account Credit is recorded on the right side of journal entry and t-account | Debit or credit | On the trial balance, left side lists the balances of all debit accounts On the trial balance, right side lists the balances of all credit accounts | Accounting equation | Left side of the equation is equal to left side of the equation Left side total = Right side total Debit accounts are recorded on the left side of accounting equation Credit accounts are recorded on the right side of accounting equation Accounting equation means Debit accounts total = Credit accounts total | Journal entry | Accounting transactions...
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...Principles of Accounting Chapter 10 Preview of Ch. #10 2 Current Liabilities Current liability • A debt that the company expects to pay within one year or the operating cycle, whichever is longer. • Most companies pay current liabilities by using current assets. Current liabilities include notes payable, accounts payable, unearned revenues, and accrued liabilities such as taxes, salaries and wages, and interest payable. 3 Current Liabilities Question The time period for classifying a liability as current is one year or the operating cycle, whichever is: a. longer b. shorter c. probable d. possible 4 Current Liabilities Notes Payable • Recorded obligation in the form of written notes. • Usually require the borrower to pay interest. • Issued for varying periods of time. • Those due for payment within one year of the statement of financial position date are usually classified as current liabilities. 5 Current Liabilities Illustration: Hong Kong National Bank agrees to lend HK$100,000 on September 1, 2014, if C.W. Co. signs a HK$100,000, 12%, four-month note maturing on January 1. Instructions a) Prepare the journal entry on September 1. b) Prepare the adjusting journal entry on December 31, assuming monthly adjusting entries have not been made. c) Prepare the journal entry at maturity (January 1, 2015). 6 Current Liabilities Illustration: Hong Kong National Bank agrees to lend HK$100,000 on ...
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...cycle" chapter are to learn about: • Preparation of financial statements. • The accounting cycle and closing process. • The nature of "optional" reversing entries. • Classified balance sheets. • The importance of business liquidity and the concept of an operating cycle. DISCUSSION PREPARING FINANCIAL STATEMENTS THE TOUGH WORK IS DONE: In the previous chapter, you learned all about adjustments that might be needed at the end of each accounting period. These adjustments were necessary to bring a company's books and records current in anticipation of calculating and reporting its income and financial position. However, Chapter 3 did not illustrate how those adjustments would be used to actually prepare the financial statements. This chapter will begin with that task. AN ILLUSTRATION: To illustrate the process for preparing financial statements, let's look at some facts for England Tours Company. England began operation early in 20X3. In the process of preparing its financial statements for the year ending December 31, 20X3, England determined that the following adjusting entries were needed. The numbers are all "assumed" and you should not be concerned about that. But, if you are unclear as to why any one of these entries might be needed, you should definitely review the detailed discussion of adjusting entries from the previous chapter. 12-31-X3 Depreciation Expense 5,000 Accumulated Depreciation 5,000 To record annual depreciation expense...
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...previous current Receivable Revenue year year Balance 2012 $30 2013 $750 30 740 10 2014 715 10 690 25 2015 700 25 695 5 Problem 16–1 (continued) ($ in thousands) Current Future Year Taxable 2013 Amount Pretax accounting income 250 Temporary difference: 2012 services (30) 30 2013 services (10) 10 Taxable income (income tax return) 270 Enacted tax rate 40% 40% Tax payable currently 108 Deferred tax liability 4 ( Deferred tax liability: Ending balance (balance currently needed) $ 4 Less: Beginning balance: ([$650 – 620] x 40%) (12) Change needed to achieve desired balance $ (8) Journal entry at the end of 2013 Income tax expense (to balance) 100 Deferred tax liability (determined above) 8 Income tax payable (determined above) 108 Problem 16–1 (continued) Requirement 2 ($ in thousands) Current Future Year Taxable 2014 Amount Pretax accounting income 220 Temporary difference: 2013 services (10) 10 2014 services (25) 25 Taxable income (income tax return) 205 Enacted tax rate 40% 40% Tax payable currently 82 Deferred tax liability 10 ( Deferred tax liability: Ending balance (balance currently needed) $10 Less: Beginning balance: (from 2013 calculation) (4) Change needed to achieve desired balance $ 6 Journal entry at the end...
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...ACCT 2015 INTERMEDIATE FNANCIAL ACCOUNTING 11 Current Liabilities, Contingencies & Provisions Required Reading: Alfredson – Chap 5, Keiso – Chaps 13, IAS 37 Learning Objectives 1. CURRENT LIABILITIES: – Define and explain types of current liabilities. – Account for the major types 2. IAS 37 PROVISIONS & CONTINGENCIES – Define Provisions and answer the following questions: • • • Why do them When to provide How much to provide – Calculate and account for Restructuring Provisions – Define Contingent Assets & Liabilities and apply relevant measurement and recognition rules – Apply IAS 37 Disclosure Requirements CURRENT LIABILITIES LIABILITY – Claims against the business arising out of a past transaction that will cause an outflow of resources e.g. loans, notes payable • Long-Term Liability - Obligations that a company does not reasonably expect to liquidate within the normal operating cycle Current Liability - Obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities. • 1 CURRENT LIABILITIES E13-2 (Accounts and Notes Payable) The following are selected 2007 transactions of Sean Astin Corporation. Sept. 1 - Purchased inventory from Encino Company on account for $50,000. Astin records purchases gross and uses a periodic inventory system. Oct. 1 - Issued a $50,000, 12-month, 8% note to Encino in payment of account. Oct. 1 - Borrowed $50,000 from the Shore Bank by signing...
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...JWCL165_c10_444-505.qxd 8/12/09 7:24 AM Page 444 10 Liabilities Chapter STUDY OBJECTIVES After studying this chapter, you should be able to: 1 Explain a current liability, and identify the major types of current liabilities. 2 Describe the accounting for notes payable. 3 Explain the accounting for other current liabilities. 4 Explain why bonds are issued, and identify the types of bonds. 5 Prepare the entries for the issuance of bonds and interest expense. 6 Describe the entries when bonds are redeemed or converted. 7 Describe the accounting for long-term notes payable. 8 Identify the methods for the presentation and analysis of long-term liabilities. ✓ The Navigator Scan Study Objectives Read Feature Story Read Preview Read text and answer p. 453 p. 465 ■ ■ ■ ■ ■ p. 458 ■ Do it! p. 461 Do it! ■ p. 463 ■ ■ ■ ■ ■ Work Comprehensive p. 469 Review Summary of Study Objectives Answer Self-Study Questions Complete Assignments ✓ The Navigator Feature Story FINANCING HIS DREAMS What would you do if you had a great idea for a new product, but couldn’t come up with the cash to get the business off the ground? Small businesses often cannot attract investors. Nor can they obtain traditional debt financing through bank loans or bond issuances. Instead, they often resort to unusual, and costly, forms of nontraditional financing. Such was the case for Wilbert Murdock. Murdock grew up in a New York housing project, and always...
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...With regards to the potential purchase of MML, analysis of the financial statements and notes from discussion with MML Management was completed. The following memo pertains to the suggested journal entries and notes to the financial statements to address the concerns under IFRS. Loss during the year MML’s loss during the year is a one-time event and not considered an ordinary course of business. However, not enough information was provided to determine whether the loss was dependent on the decisions of the owners. Under the assumption that the loss was not a result of management actions, this loss would be classified as an extraordinary item (SOURCE - 387). As per IFRS, extraordinary items are no longer reported thus entries and notes to the financial statements are not required. The acquisition of MML necessitates John to consider whether the business will continue to operate in the foreseeable future. Since the loss has caused a reduction in the current year’s operating profitability, it is essential to consider the “going concern” assumption (SOURCE- chapter 2 387). MML will need to provide a disclosure of any material uncertainties with regards to the continuity of the company, which will provide financial statement users with more relevant and faithful representation of information (SOURCE - Chapter 2). “MML experienced a $500,000 reduction of operating profitability from a non-recurring transaction. It is predicted that MML will return to profitability within...
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...approaches to preparing correcting entries. *6. Identify the sections of a classified balance sheet. *7. Prepare reversing entries. Questions 1, 2, 3, 4, 5 6, 7, 11, 12 8, 9 Brief Exercises 1, 2, 3 4, 5, 6 7 Exercises 1, 2, 3, 5, 6, 17 4, 7, 8, 11, 19 4, 7, 8 A Problems 1A, 2A, 3A, 4A, 5A 1A, 2A, 3A, 4A, 5A 1A, 2A, 3A, 4A, 5A 5A 6A B Problems 1B, 2B, 3B, 4B, 5B 1B, 2B, 3B, 4B, 5B 1B, 2B, 3B, 4B, 5B 5B 10, 11, 12 13 8 9 10, 19 12, 13 14, 15, 16, 17, 18 10, 19, 20 10, 11 12 3, 9, 14 15, 16, 17 18, 19 1A, 2A, 3A, 4A, 5A 1B, 2B, 3B, 4B, 5B *Note: All asterisked Questions, Exercises, and Problems relate to material contained in the appendix *to the chapter. 4-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 1A 2A 3A 4A 5A 6A 1B 2B 3B 4B 5B Description Prepare worksheet, financial statements, and adjusting and closing entries. Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance. Prepare financial statements, closing entries, and postclosing trial balance. Complete worksheet; prepare classified balance sheet, entries, and post-closing trial balance. Complete all steps in accounting cycle. Analyze errors and prepare correcting entries and trial balance. Prepare worksheet, financial statements, and adjusting and closing entries. Complete worksheet; prepare financial statements, closing entries, and post-closing trial balance. Prepare financial statements, closing entries, and postclosing trial balance. Complete...
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... | | | | | | | |1A | |Prepare worksheet, financial statements, and adjusting and closing entries. | |Simple | |40–50 | | | | | | | | | |2A | |Complete worksheet; prepare financial statements, | |Moderate | |50–60 | | | |closing entries, and post-closing trial balance. | | | | | | | | | | | | | |3A | |Prepare financial statements, closing entries, and post-closing trial balance. | |Moderate | |40–50 | | | | | | | | | |4A | |Complete worksheet; prepare classified balance sheet, entries, and post-closing | |Moderate | |50–60...
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...Chapter 16 Accounting for Income Taxes Questions for Review of Key Topics Question 16-1 Income tax expense is comprised of both the current and the deferred tax consequences of events and transactions already recognized. Specifically, it includes (a) the income tax that is payable currently and (b) the change in the deferred tax liability (or asset). Apparently, in the situation described, temporary differences required a $4.4 million increase in the deferred tax liability, a $4.4 million decrease in the deferred tax asset, or some combination of the two. Question 16-2 Temporary differences between the reported amount of an asset or liability in the financial statements and its tax basis are primarily caused by revenues, expenses, gains, and losses being included in taxable income in a year earlier or later than the year in which they are recognized for financial reporting purpose, although there are other, less common, events that can cause these temporary differences. Some temporary differences create deferred tax liabilities because they result in taxable amounts in some future year(s) when the related assets are recovered or the related liabilities are settled (when the temporary differences reverse). An example is the receivable created when installment sale gross profit is recognized for financial reporting purposes. When this asset is recovered, taxable amounts are produced because the installment sale gross profit is then recognized for tax purposes...
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...TAX ASSETS AND DEFERRED TAX LIABILITIES Fundamental Concepts There are fundamental differences in the amount of income and expenses reported for GAAP and income tax purposes. The objective for GAAP reporting is to report the economic activities of the entity. The objective for income tax purposes is for the government to raise revenue. There are two terms that identify the types of income subject to tax under each reporting system. 1 Pretax financial income Pretax financial income is the income determined using GAAP. It is the amount of income on which income tax is computed for financial statement purposed. It is formally presented in the income statement as income before income taxes. We normally refer to it is pretax income. 2 Taxable income Taxable income is the income determined using Internal Revenue Code rules and regulations. It is the amount of income on which the entity will actually pay income tax in the current accounting period. Temporary Differences Deferred taxes arise as a result of temporary difference between income tax expense and income tax payable. A temporary difference is the difference between the book value of an asset or liability and the tax basis of the same asset or liability. If the income tax expense in the income statement is larger than the current income tax liability the difference is called a deferred tax liability. If the income tax expense in the income statement is smaller than the current income tax liability the difference is called a...
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...the concept of liabilities of financial accounting. The definition of liabilities, current liabilities, and long-term liabilities are covered. The assigned readings clarify the difference among accounts payable, notes payable, accrued expenses, depreciation, and amortization procedures. This week, you gain insight into the methods used for presentation and analysis of long-term liabilities and how those journal entries are calculated and recorded. During Week Two, you also prepare the necessary calculations and journal entries for depreciation and amortization. Liabilities OBJECTIVE: Differentiate among accounts payable, notes payable, and accrued expenses. Resource: Ch. 10 of Financial Accounting Content • Ch. 10: “Liabilities” o Current Liabilities • What is a Current Liability? • Statement Presentation and Analysis o Long-Term Liabilities • Bond Basics • Accounting for Bond Issues • Accounting for Bond Retirements • Accounting for Long-Term Notes Payable • Statement Presentation and Analysis OBJECTIVE: Prepare necessary journal entries to record the issuance of bonds, the periodic interest, and amortization of bond premiums and discounts. Resource: Ch. 10 of Financial Accounting Content • Ch. 10: “Liabilities” o Current Liabilities • What is a Current Liability? • Statement Presentation and Analysis o Long-Term Liabilities • Bond...
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...Chapter 16 Accounting for Income Taxes AACSB assurance of learning standards in accounting and business education require documentation of outcomes assessment. Although schools, departments, and faculty may approach assessment and its documentation differently, one approach is to provide specific questions on exams that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question, exercise, and problem in Intermediate Accounting, 7e, with the following AACSB learning skills: Questions 16–1 16–2 16–3 16–4 16–5 16–6 16–7 16–8 16–9 16–10 16–11 16–12 16–13 16–14 16–15 AACSB Tags Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Reflective thinking Diversity, Reflective thinking Analytic Analytic Analytic Analytic Analytic Analytic Reflective thinking Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Analytic Exercises (cont.) 16–6 16–7 16–8 16–9 16–10 16–11 16–12 16–13 16–14 16–15 16–16 16–17 16–18 16–19 16–20 16–21 16–22 16–23 16–24 16–25 16–26 16–27 16–28 16–29 16–30 AACSB Tags Reflective thinking Analytic Analytic Analytic Analytic Analytic Communications Analytic Analytic Analytic Analytic, Reflective thinking Analytic Analytic Analytic Analytic Analytic...
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