Navjot Dhaliwal

ACTG 3110 Week 2 Lab

A3-5
Net Income -> Retained earnings
OCI -> AOCI
1. Revenues profit or loss
- Go through income statement
2. Cost of sales and SGA profit or loss
- Go through income statement
3. Non-controlling interest in earnings
- Portion of subsidiary that parent does not own income attributable to that portion
- Will show up on income statement and on statement of equity
4. Financial expenses
- Such as interest
- Go through income statement
5. Dividends
- Dr Retained earnings; Cr Cash or A/R
- Go through statement of equity
- Remember: transactions w/ owners never go through income
6. Income tax expense from continuing operations
- Go through income statement
7. Change in unrealized gain on translation of net investment in foreign operations
- Change is due to translation of foreign subsidiary from one currency to another since
translate from functional to presentation
- Changes go through statement of comprehensive income
8. Restructuring of operations and impairment of assets
- Go through income statement
9. Gain on translation of investments
- Go through income statement
10. Reclassification to income of loss related to cash flow hedges (net of tax)
- Originally the gain/loss would be recorded in OCI
- When investment sold, accumulated OCI reclassified to income statement
11. Premium over book value paid on repurchased shares
- Ex. Shares have BV = 1000, paid $2000 to repurchase
Dr Share capital
1000
Dr Loss on redemption
1000
Cr Cash
2000
recorded directly to equity if balance in contributed capital, would debit that amount
first (but cannot put into negative position). Ig no contributed capital, record to retained
earnings.
12. Diluted EPS from continuing operations
- EPS always recorded on income statement

A3-8
1. Abandonment
June 30 Journal entries
a) Dr Depreciation expense
5000
Cr Accumulated depreciation
5000
To depreciate from Jan 1 to June 30 when the assets use was discontinued
b) Dr Accumulated depreciation
155,000
Dr Loss on abandonment
45,000
Cr Equipment
200,000
Original cost 200k
Accumulated depreciation = 150,000 @ beginning of 2002 (200k-50k NBV) + 5000
deprecation during 2002 = 155l
Note: depreciation expense should be kept separate from loss on abandonment
2. Idle assets
Product line B
Cost = 660k
60% depreciated @ Jan 1, 2002
- What type of disposal?
- not a disposal -> idle asset (temporarily stopped using asset)
- Consequences
- no change
- continue depreciating
3. Held-for-sale
Cost = 7M
NBV = 2.4M
- What type of disposal
- asset held for sale -> actively looking for buyer, sale in 6-8 months, reasonable prce
(2M price, NBV = 2.4M)
- consequences
- stop depreciating
- write down to fair value less cost to sell
- reclassify to current as asset held for sale
- fair value less costs to sell
= 2M (3% commission x 2M)
= 1.94M

- write down
= NBV Fair value less costs to sell
= 2.4M 1.94M
= 460k
Dr Accumulated Depreciation
Dr Loss on write down
Dr Loss on write down
Cr Cargo Plane

4.6M
460K
1.94M
7M

A3-11
Note: August 1 decided to discontinue operations
September 22 closed deal to sell
When did they find out what the cost to sell would be? -> September 22
1. Give entries to record the
(a) reclassification Aug 1
Calculate loss
- Fair value = 275k (no deduction of commission because not known @ Aug 1)
- Write down
= NBV of 307.5k FV less costs to sell of 275k
= 32.5k
Step 1 write down assets
Dr Loss on write down
32.5k
Cr Asset
32.5
Step 2 Reclassify to current
Dr Assets held for sale (@FV)
275k
Dr Accumulated depreciation
167.5k
Cr Assets (475k cost - 32.5k write-down
442.5k
Step 3 tax implications on the loss on write down -> tax recovery b/c loss
Dr Income taxes recoverable
10.4k
Cr Income tax recovery (32.5k loss x tax rate 32%)
10.4
Step 4 Reclassify liabilities to current
Dr Liabilities
135k
Cr Liabilities held for sale
135l
(because purchaser also taking on liabilities)
(no write down because FV=BV)
(dont adjust for commission because not known at that time)
(b) sale of the services division September 22
Step 1 Record Sale
Dr Cash (235k price 40k commission)
Dr Liabilities held for sale
Cr Assets held for sale
Cr Gain on sale
Step 2 Income tax implications
Gain on sale =
55k
Division profit =
27.5k
Tax rate=
82.5k x 32% = 26.4k
Dr Income tax provision
Cr Income taxes payable

195k
135k
275k
55k

26.4k
26.4k

IS
BS
BS
BS
BS
BS
IS

2. Complete the 20X5 income statement, starting with income from continuing operations,
after tax (means net of tax).
Income Statement
Discontinued operations:
Operating profit
Gain on sale
Write down on AFS
Income before tax
Taxes (32%)
Income, net of tax

27.5k
55k
(32.5k)
50k
(16k)
34k

total income net of tax

income from discontinued operations, net of tax
income from continuing operations, net of tax

300k
34k
266k

Presentation
Income from continuing operations, net of tax
Discontinued operations, net of tax
Net income

266k
34k
300k

3. Explain what other disclosures and/or reclassifications are necessary in the 20X4
comparative financial statements and notes.
Reclassify current and prior year income from discontinued operations
Disclose
Facts/circumstances leading to disposal
Date of sale
Major categories of assets/liabilities involved in sale
Gain on sale