1. Other comprehensive income is a category of comprehensive income made up of specific gains and losses that are reported separately after net earnings under IFRS. These concepts do not exist under ASPE. Rather ASPE only requires the reporting of net income.
a. Discuss the rationale for excluding other comprehensive income items from ASPE. Use examples of items that are currently reported under other comprehensive income and discuss their treatment under ASPE. [3 marks]
b. Earnings per share (EPS) is calculated using net earnings if a company follows IFRS. Discuss the pros and cons of calculating EPS on comprehensive income rather than net income. [2 marks]
2. Gander Inc. (Question to be answered on paper or Excel) [7 marks]
The financial records of Gander Inc. were destroyed in a flood at the end of December 2017. Fortunately the Controller had backed-up some statistical data related to financial performance so she was able to provide the following information related to the income statement:
• Beginning merchandise inventory was $84,000. During 2017 inventory decreased by 20%
• Sales discounts were $15,000
• Common shares outstanding in 2017 were 15,000
• Interest expense was $20,000
• Gander’s income tax rate is 25%
• Cost of goods sold was $420,000
• Administrative expenses were 20% of cost of goods sold but only 4% of gross sales
• Selling expenses represented 80% of cost of goods sold.
Using the above data prepare a single-step income statement for Gander for the year ended December 31, 2017. Expenses should be presented by function. Your statement should include an EPS calculation. [7 marks]
3. Eggleton Ltd. decided to sell Danton Television Corp., a wholly-owned subsidiary, on September 30, 2017. It’s year-end is December 31, 2017. The Board of Directors approved a formal plan to dispose of the subsidiary and the sale qualifies for discontinued operations treatment. The following data regarding Danton’s operations include: operating loss for the 9- month period ending September 30, 2017 is $1.9 million (net of tax); operating loss for the final 3 months of 2017 is $700,000 (net of tax); estimated loss on sale of net assets for the year (net of tax) is $150,000.
Required: [8 marks]
i. Prepare the discontinued operations section of Eggleton’s Income Statement for the year ending December 31, 2017 [4 marks]
ii. How should Eggleton present the discontinued operations of Danton on the Balance Sheet ?(Eggleton follows IFRS). [2 marks]
iii. Would your answer to part ii. Change if Eggleton follows ASPE? [ 2 mark]
4. Prepare a Cash Flow Statement for Rocket Corp. for the year ended December 31, 2017. Use the indirect method for the operating section. Use the balances provided below. [25 marks]
a. Net Income for 2017 was $19,000
b. In March 2017, Rocket purchased a plot of land for the future construction of a plant. In November 2017, Rocket sold a different plot of land with original cost of $86,000 for proceeds of $95,000.
c. April 2017 – Rocket retired notes payable in the amount of $140,000 by issuing common shares. In December 2017, notes payable in the amount of $25,000 were issued in exchange for cash.
d. Fair Value – OCI investments were purchased in July 2017 for a cost of $15,000 (cash). At December 31, 2017, the fair value of the portfolio was $63,000. There were no sales in FV-OCI in 2017.
e. No equipment was purchased during the year. Rocket sold equipment – original cost $40,000 for $21,000 (cash) on December 31, 2017. The related accumulated depreciation was $12,000.
f. Dividends on the common shares were declared as follows:
a. December 2017 – $15,000; paid January 2018
b. December 2016 -$32,000; paid January 2017
Rocket treats dividends paid as a financing activity.
g. Impairment in Goodwill was recorded in 2017 to reflect a decrease in the recoverable amount of goodwill. No Goodwill was generated or removed in 2017 (other than impairment).
5. Select two (2) public companies from an industry that you are interested in. For example, auto manufacturing, clothing retail, financial services, foodservices, health care, oil & gas, technology, etc. Reuters, at www.reuters.com provides lists of industries.
Locate the most current 1 set of financial statements 2 for each company. Financial statements are often available on the company’s website. They can also be found at www.sedar.com. SEDAR is the Canadian Securities Administrators’ System for Electronic Document and Analysis. Use the “Search Database” section of the website and select “search for public company documents”
Companies may issue a 10K instead of or in addition to the annual financial statements if they are listed on a US stock exchange e.g. NASDAQ or NYSE. This report is filed with the Securities Exchange Commission (“SEC”) in the United States. The 10K may be found on the company’s website. [If you are using the 10K, Section 8 contains all the relevant information for this assignment.]
a. Complete the attached template for each company. [5 marks]
b. Comment on the similarities and differences that you noted between the two companies. [5 marks]
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