QUESTION Gamma Securities Corporation (GSC) is a public company with a December 31 year-end. GSC has never reported other comprehensive income (OCI) from a previous period on its Statement of...

QUESTION

Gamma Securities Corporation (GSC) is a public company with a December 31 year-end. GSC has never reported other comprehensive income (OCI) from a previous period on its Statement of Comprehensive Income. On April 30, 2018, GSC purchased for cash 6,000 shares of Bishop Ltd. for $13 per share. In addition, GSC paid a commission of $600 on this transaction. On November 30, 2018, GSC received a $0.45 per share dividend on the Bishop shares. On December 31, 2018, the Bishop shares had a fair value of $11 per share.

On November 30, 2019, GSC received a $0.62 per share dividend on the Bishop shares. On December 31, 2019, the Bishop shares had a fair value of $15 per share.

On January 31, 2020, GSC sold all of the Bishop shares for $16.50 per share less $700 paid as a commission. Disregard income tax implications.

Required:

(a) Assume Gamma Securities Corporation classifies this investment under the Cost Model. Complete the table below, where appropriate, by determining the amounts to be reported on Gamma’s Statement of Financial Position and Statement of Comprehensive Income with respect to the accounts listed for the years 2018, 2019, and 2020.

(b) Assume Gamma Securities Corporation classifies this investment under the FV-NI Model. Complete the table below, where appropriate, by determining the amounts to be reported on Gamma’s Statement of Financial Position and Statement of Comprehensive Income with respect to the accounts listed for the years 2018, 2019, and 2020.

(c) Assume Gamma Securities Corporation classifies this investment under the FV-OCI Without Recycling Model. Complete the table below, where appropriate, by determining the amounts to be reported on Gamma’s Statement of Financial Position and Statement of Comprehensive Income with respect to the accounts listed for the years 2018, 2019, and 2020.

Important Note:

If you feel no amount is to be entered against a listed account shown in any of the three tables below, leave the corresponding space blank. For example, under the Cost Model, if you feel there is no unrealized holding loss/ (gain) for any particular year(s), leave the corresponding space(s) blank.

Cost Model:

Question No. 3 (24 marks)

FV-NI Model:

FV-OCI Without Recycling Model:

QUESTION

On January 5, 2020 Petra Corporation purchased for cash 5,100 of the 21,250 outstanding common shares of Lindstrom Company. On the date of acquisition, the book value of assets subject to depreciation, as reported by Lindstrom on its Statement of Financial Position, was $150,000 whereas the fair value of these assets was $375,000. All other assets and liabilities reported by Lindstrom had book values that were equal to fair values. Lindstrom’s depreciable assets have a 10-year remaining useful life and are being depreciated under the straight-line method.

During the first quarter of 2020, Lindstrom declared and paid total cash dividends to its shareholders in the amount of $160,000. Later in the year, on September 21, 2020, Lindstrom announced a 10% common stock dividend which was distributed to shareholders on October 15, 2020. For the year ended December 31, 2020, Lindstrom reported net income of $150,000.

Petra Corporation appropriately used the equity method to account for this investment. On December 31, 2020, the investment account showed a balance of $254,475.

Required:

(a) Calculate the acquisition cost of Petra Corporation’s investment in Lindstrom Company on January 5, 2020. Prepare a schedule to support your answer.

(a)

T- ACCOUNT

Alternate Schedule (Optional)

Question No. 2 (continued) (14 marks)

(a) Assume that on January 2, 2021, Petra Corporation sold 20% of its investment in Lindstrom Company for $55.00 per share. Prepare the journal entry to record the sale.

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QUESTION

Quinn Industries Limited (QIL) is a private company that follows ASPE. On January 8, 2017 QIL purchased a specialized machine for $4,800,000 cash. On the date of purchase, the machine had an estimated useful life of 8 years and no residual value. On April 27 2018, a major part costing $350,000 and designed to increase the machine’s efficiency was added. When the addition was completed, the estimated useful life of the machine remained unchanged. QIL’s policy is to use straight-line method of depreciation calculated to the nearest whole month.

However, by December 31, 2018, new technology had been recently introduced that would eventually render the machine obsolete. At that time, Quinn’s controller estimated that expected undiscounted future net cash flows and expected discounted future net cash flows associated with the machine would be $2,600,000 and $2,320,000, respectively. The machine had a fair value of $2,200,000 on that date and estimated disposal costs were $40,000. QIL intends on continuing to use the machine. However, management has now revised the remaining useful life of the machine down to a total of 4 years.

On May 6, 2020, QIL sold the machine for $2,000,000.

QIL has a December 31 year-end.

Required:

(a) Prepare the journal entry, if any, to record asset impairment at December 31, 2018.

(7 marks)

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(b) Prepare the journal entry to record the sale of the machine on May 6, 2020. (4 marks)

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(c) Assume Quinn Industries Limited follows IFRS instead of ASPE. Prepare the journal entry, if any, to record asset impairment at December 31, 2018. (4 marks)

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