Intermediate Accounting, Volume 1, 13th Canadian Edition – Solution Manual

Preface vi

1 The Canadian Financial Reporting Environment 1-1

• Capitalizing on Financial Reporting 1-1
• Preview of Chapter 1 1-3
• 1.1 Financial Statements and Financial Reporting 1-3
• Accounting and Capital Allocation 1-4
• Stakeholders 1-5
• Objective of Financial Reporting 1-6
• Information Asymmetry 1-9
• 1.2 Standard Setting 1-11
• Need for Standards 1-11
• Parties Involved in Standard Setting 1-12
• 1.3 Generally Accepted Accounting Principles 1-17
• GAAP Hierarchy 1-17
• Professional Judgement 1-18
• 1.4 Challenges and Opportunities for the Accounting Profession 1-18
• Impact of Technology 1-20
• Sustainability Reporting 1-21
• Oversight in the Capital Marketplace 1-23
• Centrality of Ethics 1-24
• Standard Setting in a Political Environment 1-25
• Principles versus Rules 1-26
• Conclusion 1-26

2 Conceptual Framework Underlying Financial Reporting 2-1

• Measuring the Unconventional 2-1
• Preview of Chapter 2 2-3
• 2.1 Conceptual Framework 2-3
• Rationale for a Conceptual Framework 2-3
• Development of the Conceptual Framework 2-4
• Information Asymmetry Revisited 2-5
• Objective of Financial Reporting 2-5
• 2.2 Qualitative Characteristics of Useful Information 2-6
• Fundamental Qualitative Characteristics 2-6
• Enhancing Qualitative Characteristics 2-13
• Trade-offs 2-14
• 2.3 Elements of Financial Statements 2-14
• Assets 2-15
• Liabilities 2-16
• Equity 2-17
• Revenues/Income 2-18
• Expenses 2-18
• Gains/Losses 2-18
• 2.4 Foundational Principles 2-19
• Recognition/Derecognition 2-20
• Measurement 2-25
• Presentation and Disclosure 2-32
• 2.5 Financial Reporting Issues 2-34
• Principles-Based Approach 2-35
• Financial Engineering 2-35
• Fraudulent Financial Reporting 2-36
• 2.6 IFRS/ASPE Comparison 2-37
• Looking Ahead 2-37

3 Data, Decisions, and Measurement 3-1

• How CEO Travel Patterns Can Be Used to Predict Mergers and Acquisitions 3-1
• Preview of Chapter 3 3-3
• 3.1 Data and Decisions 3-3
• Data, Digitization, and Digitalization 3-3
• Decision-Making in Financial Reporting 3-5
• 3.2 Measuring Financial Statement Elements 3-10
• Valuation Techniques 3-10
• Value in Use Measurements 3-15
• Disclosures Relating to Measurement 3-16
• 3.3 Measuring Fair Value Using IFRS 13 3-17
• 3.4 Present Value Concepts 3-20
• The Nature of Interest 3-20
• Fundamental Variables in Present Value Calculations 3-21
• Different Ways to Perform the Calculations 3-23
• Some Additional Calculations 3-31
• 3.5 IFRS/ASPE Comparison 3-33
• A Comparison of IFRS and ASPE 3-34
• 4 Reporting Financial Performance 4-1
• Making Money out of Thin Air 4-1
• Preview of Chapter 4 4-3
• 4.1 Performance 4-3
• Business Models and Industries 4-3
• Communicating Information about Performance 4-7
• 4.2 Quality of Earnings/Information 4-8
• 4.3 Measurement of Income 4-14
• 4.4 Discontinued Operations 4-16
• Component of an Enterprise 4-16
• Assets Held for Sale 4-17
• Measurement and Presentation 4-18
• 4.5 The Statement of Income and the Statement of Comprehensive Income 4-20
• Presentation 4-20
• 4.6 The Statement of Retained Earnings and the Statement of Changes in Equity 4-30
• Presentation of the Statement of Retained Earnings 4-31
• Presentation of the Statement of Changes in Equity 4-32
• 4.7 Disclosure and Analytics 4-34
• Disclosure 4-34
• Analytics 4-34
• Non-GAAP Measures 4-35
• Other Key Measures 4-35
• 4.8 IFRS/ASPE Comparison 4-36
• A Comparison of IFRS and ASPE 4-36
• Looking Ahead 4-37
• Appendix 4A Application of the Cash and Accrual Bases of Accounting 4-37
• Differences between Cash and Accrual Bases 4-37
• Conversion from Cash Basis to Accrual Basis 4-39
• Theoretical Weaknesses of the Cash Basis 4-42

5 Financial Position and Cash Flows 5-1

• Toward Better Disclosure 5-1
• Preview of Chapter 5 5-3
• 5.1 Usefulness of the Statements of Financial Position and Cash Flows from a Business Perspective 5-4
• Analyzing a Statement of Financial Position 5-4
• Assessing Earnings Quality 5-4
• Assessing the Creditworthiness of Companies 5-4
• 5.2 Usefulness and Limitations of the Statement of Financial Position 5-5
• Usefulness 5-5
• Limitations 5-6
• 5.3 Classification in the Statement of Financial Position 5-7
• Monetary versus Nonmonetary Assets and Liabilities 5-8
• Financial Instruments 5-8
• Elements of the Statement of Financial Position 5-9
• 5.4 Preparation of the Classified Statement of Financial Position (Balance Sheet) 5-11
• Current Assets 5-12
• Non-current Investments 5-17
• Property, Plant, and Equipment 5-17
• Intangible Assets and Goodwill 5-19
• Other Assets 5-20
• Current Liabilities 5-20
• Long-Term Debt and Liabilities 5-22
• Owners’ Equity 5-22
• Statement of Financial Position Format 5-24
• 5.5 Other Required Disclosures 5-25
• Contingencies and Provisions 5-25
• Accounting Policies 5-26
• Contractual Obligations 5-26
• Additional Detail 5-27
• Subsequent Events 5-27
• 5.6 Techniques of Disclosure 5-27
• Parenthetical Explanations 5-27
• Notes 5-28
• Cross-References and Contra Items 5-28
• Supporting Schedules 5-29
• Terminology 5-29
• 5.7 Purpose, Content, and Format of a Statement of Cash Flows 5-29
• 5.8 Preparation of the Statement of Cash Flows 5-32
• 5.9 Usefulness of the Statement of Cash Flows 5-37
• Financial Liquidity 5-38
• Financial Flexibility 5-38
• Perspectives 5-38
• 5.10 IFRS/ASPE Comparison 5-41
• A Comparison of IFRS and ASPE 5-41
• Looking Ahead 5-42
• Appendix 5A Ratio Analysis: A Reference 5-42
• Business Risks 5-42
• Financial Ratios 5-43

6 Revenue Recognition 6-1

• Revenue Recognition in the Digital World 6-1
• Preview of Chapter 6 6-4
• 6.1 Understanding the Nature of Sales Transactions from a Business Perspective 6-4
• Economics of Sales Transactions 6-4
• Legalities of Sales Transactions 6-9
• Information for Decision-Making 6-10
• 6.2 The Asset-Liability Approach to Revenue
• Recognition: An Overview of the Five-Step Process 6-11
• 6.3 Identifying the Contract with Customers—Step 1 6-13
• Basic Accounting 6-14
• Contract Modifications 6-15
• 6.4 Identifying Separate Performance Obligations—Step 2 6-15
• Material Rights 6-18
• Warranties 6-19
• Upfront Fees 6-21
• Series of Goods and Services That Are Substantially the Same 6-21
• 6.5 Determining the Transaction Price—Step 3 6-22
• Variable Consideration 6-22
• Time Value of Money 6-27
• Non-cash Consideration 6-28
• Consideration Paid or Payable to Customers 6-28
• 6.6 Allocating the Transaction Price to Separate Performance Obligations—Step 4 6-29
• 6.7 Recognizing Revenue When (or As) Each Performance Obligation Is Satisfied—Step 5 6-33
• 6.8 Earnings Approach to Revenue Recognition 6-37
• Selling Goods 6-37
• Selling Services 6-39
• Measurability and Collectibility 6-39
• 6.9 Other Revenue Recognition Issues 6-39
• Repurchase Agreements 6-39
• Bill-and-Hold Arrangements 6-40
• Principal-Agent Relationships 6-41
• Consignments 6-42
• Summary of Other Revenue Recognition Issues 6-43
• 6.10 Presentation, Disclosure, and Analytics 6-44
• Presentation and Disclosure 6-44
• Analytics 6-47
• 6.11 IFRS/ASPE Comparison 6-49
• A Comparison of IFRS and ASPE 6-49
• Looking Ahead 6-50
• Appendix 6A Long-Term Contracts 6-51
• Percentage-of-Completion Method 6-51
• Measuring the Progress Toward Completion 6-52
• Zero-Profit Method 6-57
• Completed-Contract Method 6-58
• Losses on Long-Term Contracts 6-59
• Loss in Current Period on a Profitable Contract 6-59
• Loss on an Unprofitable Contract 6-60

7 Cash and Receivables 7-1

• Managing Receivables in Risky Times 7-1
• Preview of Chapter 7 7-3
• 7.1 Understanding Cash and Accounts Receivable 7-4
• How Do Companies Manage and Control Cash? 7-4
• What Types of Companies Have Extensive Accounts Receivable? 7-4
• What Are the Types of Accounts Receivable? 7-6
• How Do Companies Manage Accounts Receivable? 7-6
• 7.2 Cash 7-7
• What Is Included in Cash? 7-8
• Reporting Cash 7-8
• Summary of Cash-Related Items 7-11
• 7.3 Receivables 7-12
• 7.4 Recognition and Measurement of Accounts Receivable 7-14
• Trade Discounts 7-15
• Cash Discounts (Sales Discounts) 7-15
• Sales Returns and Allowances 7-15
• Non-Recognition of Interest Element 7-16
• Measurement of Accounts Receivable after Acquisition 7-17
• 7.5 Impairment of Accounts Receivable 7-17
• Estimating Uncollectible Trade Accounts Receivable 7-17
• Allowance Method 7-19
• Effects on Accounts 7-22
• Direct Write-Off Method 7-23
• 7.6 Notes and Loans Receivable 7-23
• Recognition and Measurement of Short-Term Notes and Loans Receivable 7-23
• Recognition and Measurement of Long-Term Notes and Loans Receivable 7-25
• 7.7 Derecognition of Receivables 7-32
• Secured Borrowings 7-33
• Sales of Receivables 7-33
• Securitized Receivables—Transparency 7-39
• 7.8 Presentation, Disclosure, and Analytics 7-39
• Presentation and Disclosure 7-39
• Analytics 7-41
• 7.9 IFRS/ASPE Comparison 7-42
• A Comparison of IFRS and ASPE 7-42
• Looking Ahead 7-43
• Appendix 7A Methods for Controlling Cash 7-44
• Management and Control of Cash 7-44
• Using Bank Accounts 7-44
• The Imprest Petty Cash System 7-45
• Physical Protection of Cash Balances 7-46
• Reconciliation of Bank Balances 7-46

8 Inventory 8-1

• Inventory Management after COVID-19 8-1
• Preview of Chapter 8 8-4
• 8.1 Understanding Inventory 8-4
• What Types of Companies Have Inventory? 8-4
• Inventory Categories 8-4
• Inventory Planning and Control 8-5
• Information for Decision-Making 8-5
• 8.2 Recognition of Physical Goods Included in Inventory 8-7
• Accounting Definition of Inventory 8-7
• Goods Included in Inventory 8-8
• 8.3 Inventory Errors 8-14
• Ending Inventory Misstated 8-14
• Purchases and Inventory Misstated 8-16
• 8.4 Measurement of Inventory—Costs Included 8-17
• Volume Rebates 8-17
• Product Costs 8-19
• 8.5 Measurement and Inventory Accounting Systems 8-21
• Perpetual System 8-21
• Periodic System 8-22
• Comparing Perpetual and Periodic Systems 8-22
• Supplementary System—Quantities Only 8-23
• 8.6 Measurement and Cost Formulas 8-23
• Specific Identification 8-24
• Weighted Average Cost 8-26
• First-In, First-Out (FIFO) 8-27
• Choice of Cost Formula 8-29
• Last-In, First-Out (LIFO) 8-29
• 8.7 Measurement and the Lower of Cost and Net Realizable Value (LC&NRV) Principle 8-30
• What Is Net Realizable Value? 8-31
• Application of the LC&NRV Principle 8-31
• Evaluation of the LC&NRV Principle 8-35
• 8.8 Exceptions to Lower of Cost and Net Realizable Value 8-35
• Inventories Measured at Net Realizable Value 8-35
• Inventories Measured at Fair Value Less Costs to Sell 8-36
• 8.9 Measuring Inventory Using Estimates 8-40
• The Need for Estimates 8-40
• Gross Profit Method 8-41
• 8.10 Presentation, Disclosure, and Analytics 8-43
• Presentation and Disclosure of Inventories 8-43
• Analytics 8-44
• 8.11 IFRS/ASPE Comparison 8-47
• A Comparison of IFRS and ASPE 8-47
• Looking Ahead 8-48
• Appendix 8A The Retail Inventory Method of Estimating Inventory Cost 8-48
• Retail Method Terminology 8-49
• Special Items 8-51
• Evaluation of Retail Inventory Method 8-52
• Appendix 8B Accounting Guidance for Specific Inventory 8-53

9 Investments 9-1

• Environmental, Social, and Governance Investing 9-1
• Preview of Chapter 9 9-3
• 9.1 Understanding Investments 9-4
• Types of Investments 9-4
• Types of Companies That Have Investments 9-5
• Information for Decision-Making 9-9
• Measurement: Overview 9-9
• 9.2 Measurement—Cost/Amortized Cost Model 9-11
• Investments in Shares of Other Entities 9-11
• Investments in Debt Instruments of Other Entities 9-12
• 9.3 Measurement—Fair Value through Net Income (FV-NI) Model 9-16
• 9.4 Measurement—Fair Value through Other Comprehensive Income (FV-OCI) Model 9-21
• Investments in Shares of Other Entities 9-23
• Investments in Debt Instruments of Other Entities 9-25
• 9.5 Measurement—Impairment Models 9-28
• Incurred Loss Impairment Model 9-28
• Expected Loss Impairment Model 9-29
• Fair Value Loss Impairment Model 9-33
• Summary of Impairment Models 9-33
• 9.6 Strategic Investments—Investments in Associates 9-34
• Significant Influence 9-34
• Equity Method 9-35
• Summary of Accounting Standards for Associates 9-39
• 9.7 Strategic Investments—Investments in Subsidiaries 9-40
• 9.8 Presentation, Disclosure, and Analytics 9-41
• Presentation and Disclosure 9-42
• Analytics 9-44
• 9.9 IFRS/ASPE Comparison 9-45
• A Comparison of IFRS and ASPE 9-46

10 Property, Plant, and Equipment: Accounting Model Basics 10-1

• Fair Value Accounting Makes Sense for BAM 10-1
• Preview of Chapter 10 10-3
• 10.1 Definition and Recognition of Property, Plant, and Equipment 10-3
• Property, Plant, and Equipment—Business Perspective 10-4
• Property, Plant, and Equipment—Characteristics 10-4
• 10.2 Cost Elements 10-6
• Self-Constructed Assets 10-7
• Borrowing Costs 10-8
• Dismantling and Restoration Costs 10-9
• 10.3 Measurement of Cost for Nonmonetary Exchange 10-10
• Cash Discounts Not Taken 10-10
• Deferred Payment Terms 10-11
• Lump-Sum Purchases 10-12
• Nonmonetary Exchanges 10-13
• Contributed Assets and Government Grants 10-18
• 10.4 Measurement of Costs Associated with Specific Assets 10-19
• Land 10-20
• Buildings 10-20
• Leasehold Improvements 10-20
• Equipment 10-21
• Investment Property 10-21
• Natural Resource Properties 10-21
• Biological Assets 10-22
• 10.5 Measurement after Acquisition 10-24
• Cost and Revaluation Models 10-25
• Fair Value Model 10-28
• 10.6 Costs Incurred after Acquisition 10-31
• Additions 10-32
• Replacements, Major Overhauls, and Inspections 10-32
• Rearrangement and Reinstallation 10-35
• Repairs 10-35
• 10.7 IFRS/ASPE Comparison 10-36
• A Comparison of IFRS and ASPE 10-36
• Looking Ahead 10-38
• Appendix 10A Capitalization of Borrowing Costs 10-39
• Qualifying Assets 10-39
• Capitalization Period 10-40
• Avoidable Borrowing Costs 10-40
• Disclosures 10-44
• Appendix 10B Revaluation: The Proportionate Method 10-44

11 Depreciation, Impairment, and Disposition 11-1

• Accounting for Assets That Become Liabilities 11-1
• Preview of Chapter 11 11-3
• 11.1 The Importance of Depreciation, Impairment, and Disposition from a Business Perspective 11-3
• 11.2 Depreciation 11-4
• Factors Considered in the Depreciation Process 11-5
• 11.3 Depreciation—Methods of Allocation and Calculation 11-8
• Straight-Line Method 11-9
• Diminishing Balance Method 11-10
• Activity Methods 11-12
• Other Methods 11-13
• 11.4 Depletion of Mineral Resources 11-14
• Pattern of Depletion 11-15
• Estimating Recoverable Reserves 11-16
• Liquidating Dividends 11-17
• 11.5 Other Depreciation Issues 11-18
• Depreciation and Partial Periods 11-18
• Revision of Depreciation Rates 11-20
• 11.6 Impairment 11-22
• Indicators of Impairment 11-24
• Impairment—Measurement and Recognition Models 11-24
• Asset Groups and Cash-Generating Units 11-28
• 11.7 Held for Sale and Derecognition 11-30
• Long-Lived Assets to Be Disposed of by Sale 11-31
• Derecognition 11-31
• 11.8 Presentation, Disclosure, and Analytics 11-33
• Presentation and Disclosure 11-33
• Analytics 11-35
• 11.9 IFRS/ASPE Comparison 11-38
• A Comparison of IFRS and ASPE 11-38
• Looking Ahead 11-39
• Appendix 11A Depreciation and Income Tax 11-40
• Capital Cost Allowance Method 11-40

12 Intangible Assets and Goodwill 12-1

• Goodwill Impairment Is on the Line 12-1
• Preview of Chapter 12 12-3
• 12.1 The Business Importance and Characteristics of Goodwill and Intangible Assets 12-3
• Characteristics of Goodwill 12-4
• Characteristics of Intangible Assets 12-5
• 12.2 Recognition and Measurement of Intangible Assets at Acquisition 12-6
• Purchased Intangibles 12-6
• Intangibles Purchased in a Business Combination 12-7
• Prepayments 12-7
• 12.3 Recognition and Measurement of Internally Developed Intangible Assets 12-9
• Identifying Research and Development Phase Activities 12-10
• Accounting for Research Phase Costs 12-10
• Accounting for Development Phase Costs 12-11
• Costs Included and Excluded 12-11
• 12.4 Recognition and Measurement of Intangible Assets after Acquisition 12-12
• Limited-Life Intangibles 12-14
• Indefinite-Life Intangibles 12-16
• 12.5 Specific Intangibles 12-16
• Marketing-Related Intangible Assets 12-16
• Customer-Related Intangible Assets 12-19
• Artistic-Related Intangible Assets 12-19
• Contract-Based Intangible Assets 12-20
• Technology-Based Intangible Assets 12-21
• 12.6 Impairment and Derecognition 12-23
• Impairment of Limited-Life Intangibles 12-23
• Impairment of Indefinite-Life Intangibles 12-24
• Derecognition 12-25
• 12.7 Goodwill—Recognition and Measurement 12-25
• Internally Generated Goodwill 12-25
• Purchased Goodwill 12-26
• Bargain Purchase 12-28
• Valuation after Acquisition 12-29
• 12.8 Goodwill—Impairment 12-31
• 12.9 Presentation, Disclosure, and Analytics 12-33
• Presentation and Disclosure 12-33
• Analytics 12-36
• 12.10 IFRS/ASPE Comparison 12-38
• A Comparison of IFRS and ASPE 12-38
• Looking Ahead 12-39
• Appendix 12A Valuing Goodwill 12-40
• Excess-Earnings Approach 12-40
• Total-Earnings Approach 12-44
• Other Valuation Methods 12-45
• Appendix A Time Value of Money Tables AP-1
• Appendix B A Summary of the Case Primer AP-6
• Appendix C* The Accounting Information System AP-8
• *Full text available in the ebook and in Wiley’s online course.
• Online content only.
• Appendix C The Accounting Information System C-1
• Appendix D Specimen Financial Statements D-1
• Appendix E Coverage of the CPA Competency Map Knowledge Supplement E-1
• Glossary G-1
• Company Index I-1
• Subject Index I-5