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Chapter 13: Question 7BE (page 692)
BE13-7 (L01) Kasten Inc. provides paid vacations to its employees. At December 31, 2017, 30 employees have each earned 2 weeks of vacation time. The employees’ average salary is $500 per week. Prepare Kasten’s December 31, 2017, adjusting entry.
The amount of vacation expenses is $30,000.
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(Equity Method) Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out
40% of net income in dividends each year.
Instructions
Use the information in the following T-account for the investment in Sub to answer the following questions.
Investment in Sub Co.
1,000,000
110,000
44,000
(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?
(b) What was Sub Co.’s total net income for the year?
(c) What were Sub Co.’s total dividends for the year?
(d) How much was Parent Co.’s share of Sub Co.’s dividends for the year?
How is present value related to the concept of a liability?
(Fair Value Option) Presented below is selected information related to the financial instruments of
Dawson Company at December 31, 2017. This is Dawson Company’s first year of operations.
Carrying Fair Value
Amount (at December 31)
Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000
Investment in Chen Company stock 800,000 910,000
Bonds payable 220,000 195,000
Instructions
(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson’s net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson’s net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.
(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable
In determining the amount of a provision, a company using IFRS should generally measure:
(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.
(b) Using the minimum amount of the loss in the range.
(c) Using the best estimate of the amount of the loss expected to occur.
(d) Using the maximum amount of the loss in the range.
Which types of investments are valued at amortized cost? Explain the rationale for this accounting.
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