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Chapter 11: Q20-5IFRS (page 607)

At the end of the current year, Joshua Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)345,000. The amount of the vested benefits for the plan is \(225,000. Joshua has a liability gain of \)8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company’s statement of financial position?

Short Answer

Expert verified

Answer

The company should report $8,300 as other comprehensive gains.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Equity

In accounting, equity refers to the amount which belongs to the shareholders of the company. Equity reflects the amount payable to thecommon stockholdersafter settling all the liabilities and dues of preference stockholders.

02

Reporting on financial statements

According to the above-given information, Joshua Company would report$10,000as a pension asset, i.e., the difference between the defined benefit obligation and plan assets’ fair value.

In addition, $8,300 should be reported in the equity section of the company asother comprehensive gains.

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Most popular questions from this chapter

Andrea Torbert purchased a computer for \(8,000 on July 1, 2017. She intends to depreciate it over 4 years using the double-declining-balance method. Salvage value is \)1,000. Compute depreciation for 2018.

(Depletion, Timber, and Unusual Loss) Conan O’Brien Logging and Lumber Company owns 3,000 acres of timberland on the north side of Mount Leno, which was purchased in 2005 at a cost of \(550 per acre. In 2017, O’Brien began selectively logging this timber tract. In May 2017, Mount Leno erupted, burying the timberland of O’Brien under a foot of ash. All of the timber on the O’Brien tract was downed. In addition, the logging roads, built at a cost of \)150,000, were destroyed, as well as the logging equipment, with a net book value of \(300,000.

At the time of the eruption, O’Brien had logged 20% of the estimated 500,000 board feet of timber. Prior to the eruption, O’Brien estimated the land to have a value of \)200 per acre after the timber was harvested. O’Brien includes the logging roads in the depletion base.

O’Brien estimates it will take 3 years to salvage the downed timber at a cost of \(700,000. The timber can be sold for pulp wood at an estimated price of \)3 per board foot. The value of the land is unknown, but must be considered nominal due to future uncertainties.

Instructions

  1. Determine the depletion cost per board foot for the timber harvested prior to the eruption of Mount Leno.
  2. Prepare the journal entry to record the depletion prior to the eruption.
  3. If this tract represents approximately half of the timber holdings of O’Brien, determine the amount of the unusual loss due to the eruption of Mount Leno for the year ended December 31, 2017.

(Depreciation Computations—Five Methods) Jon Seceda Furnace Corp. purchased machinery for \(315,000 on May 1, 2017. It is estimated that it will have a useful life of 10 years, salvage value of \)15,000, production of 240,000 units, and working hours of 25,000. During 2018, Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.

Instructions

From the information given, compute the depreciation charge for 2018 under each of the following methods. (Round to the nearest dollar.)

  1. Straight-line.
  2. Units-of-output.
  3. Working hours.
  4. Sum-of-the-years’-digits.
  5. Declining-balance (use 20% as the annual rate)

Brazil Group purchases a vehicle at a cost of \(50,000 on January 2, 2017. Individual components of the vehicle and useful lives are as follows.

Cost

Useful Lives

Tires

\) 6,000

2 years

Transmission

10,000

5 years

Trucks

34,000

10 years

Instructions

(Assume no residual (salvage) value.)

  1. Compute depreciation expense for 2017, assuming Brazil depreciates the vehicle as a single unit.
  2. Compute depreciation expense for 2017, assuming Brazil uses component depreciation.
  3. Why might a company want to use component depreciation to depreciate its assets?

(Depreciation—Replacement, Change in Estimate) Greg Maddox Company constructed a building at a cost of \(2,200,000 and occupied it beginning in January 1998. It was estimated at that time that its life would be 40 years, with no salvage value.

In January 2018, a new roof was installed at a cost of \)300,000, and it was estimated then that the building would have a useful life of 25 years from that date. The cost of the old roof was $160,000.

Instructions

  1. What amount of depreciation should have been charged annually from the years 1998 to 2017? (Assume straight-line depreciation.)
  2. What entry should be made in 2018 to record the replacement of the roof?
  3. Prepare the entry in January 2018 to record the revision in the estimated life of the building if necessary.
  4. What amount of depreciation should be charged for the year 2018?
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