Concept explainers
a.
Determine the amount of depreciation expense that Company B should recognize in determining net income in 2015, 2016, and 2017 and the amount at which equipment should be carried on the December 31, 2015, 2016, and 2017 balance sheets using (1) U.S. GAAP and (2) IFRS. In measuring property, plant, and equipment subsequent to acquisition, Company B uses the revaluation model in IAS 16.
a.
Explanation of Solution
(1)
U.S. GAAP:
The entry to record equipment under U.S. GAAP:
The equipment is not recorded under U.S. GAAP as the revaluation model is not used under same.
Computation of value of equipment as on December 31, 2016:
Computation of value of equipment as on December 31, 2017:
(2)
IFRS:
The entry to record sale and leaseback under IFRS:
Date | Account Title and Explanation | Post ref. | Debit ($) | Credit ($) |
1/1/2017 | 11,400 | |||
Equipment | 11,400 | |||
(being equipment reduced for accumulated depreciation) | ||||
1/1/2017 | Equipment | 7,500 | ||
Revaluation surplus | 7,500 | |||
(being equipment revalued) | ||||
12/31/2017 | Depreciation expense | 12,900 | ||
Accumulated Depreciation on equipment | 12,900 | |||
(being depreciation recorded after revaluation) |
Table: (1)
b.
Determine the adjustments that Company B would make in 2015, 2016, and 2017 to reconcile net income and
b.
Explanation of Solution
The entry that Company B would make on December 31, 2018:
Date | Account Title and Explanation | Post ref. | Debit ($) | Credit ($) |
12/31/2017 | Depreciation expense | 1,500 | ||
Accumulated Depreciation on equipment | 9,900 | |||
Equipment | 3,900 | |||
Revaluation surplus | 7,500 | |||
(being revaluation surplus and depreciation recorded) |
Table: (2)
Partial Conversion worksheet, December 31, 2016 (Revaluation of equipment) | ||||
Particulars | U.S. GAAP | Debit | Credit | IFRS |
Depreciation expense | $11,400 | $11,400 | ||
Net income | $11,400 | $11,400 | ||
| $0 | $0 | ||
Retained earnings on 12/31/2016 | $11,400 | $11,400 | ||
Revaluation surplus | $0 | $0 | ||
AOCI on 01/01/2016 | $0 | $0 | ||
AOCI on 12/31/2016 | $0 | $0 | ||
Cash | ($78,400) | ($78,400) | ||
Equipment | $78,400 | $0 | $78,400 | |
Accumulated Depreciation on equipment | ($11,400) | $0 | ($11,400) | |
Total assets | ($11,400) | ($11,400) | ||
Total Liabilities | $0 | $0 | ||
Retained earnings on 12/31/2016 | $11,400 | $11,400 | ||
AOCI, 31/12/2016 | $0 | $0 | ||
Total liabilities and Equity | $11,400 | $0 | $0 | $11,400 |
Table: (3)
Partial Conversion worksheet, December 31, 2017 (Revaluation of equipment) | ||||
Particulars | U.S. GAAP | Debit | Credit | IFRS |
Depreciation expense | $11,400 | $1,500 | $12,900 | |
Net income | $11,400 | $12,900 | ||
Retained earnings on 01/01/2017 | $11,400 | $11,400 | ||
Retained earnings on 12/31/2017 | $22,800 | $24,300 | ||
Revaluation surplus | $0 | $7,500 | ($7,500) | |
AOCI on 01/01/2017 | $0 | $7,500 | ||
AOCI on 12/31/2017 | $0 | ($7,500) | ||
Cash | ($78,400) | ($78,400) | ||
Equipment | $78,400 | $0 | $3,900 | $74,500 |
Accumulated Depreciation on equipment | ($22,800) | $9,900 | ($12,900) | |
Total assets | ($22,800) | $9,000 | ||
Total Liabilities | $0 | $0 | ||
Retained earnings on 12/31/2017 | $22,800 | $24,300 | ||
AOCI, 31/12/2017 | $0 | ($7,500) | ||
Total liabilities and Equity | $22,800 | $11,400 | $11,400 | $16,800 |
Table: (4)
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