Copyright © John Wiley & Sons, Inc.

Kieso Intermediate: IFRS 4e,

Intermediate Financial Accounting 1 (01) - Assignment #2

Problem Set

Chapter 8 – Brief Exercises & Exercises

E 8.2.
In your audit of Garza Company, you find that a physical inventory on December 31, 2022,
showed merchandise with a cost of $441,000 was on hand at that date. You also discover the
following items were all excluded from the $441,000.
1. Merchandise of $61,000 which is held by Garza on consignment. The consignor is the
Bontemps Company.
2. Merchandise costing $33,000, which was shipped by Garza f.o.b. destination to a
customer on December 31, 2022. The customer was expected to receive the
merchandise on January 6, 2023.
3. Merchandise costing $46,000, which was shipped by Garza f.o.b. shipping point to a
customer on December 29, 2022. The customer was expected to receive the
merchandise on January 2, 2023.
4. Merchandise costing $73,000 shipped by a vendor f.o.b. destination on December 30,
2022, and received by Garza on January 4, 2023.
5. Merchandise costing $51,000 shipped by a vendor f.o.b. shipping point on December
31, 2022, and received by Garza on January 5, 2023.
Instructions: Based on the following information, calculate the amount that should appear on
Garza’s statement of financial position at December 31, 2022, for inventory

E 8.10.
Esplanade SA was formed on December 1, 2021. The following information is available form
Esplanade’s inventory records for Product BAP.
Units Unit Cost
January 1, 2022 (Beginning inventory) 600 $ 8.00
Purchases:
January 5, 2022 1,100 9.00
January 25, 2022 1,300 10.00
February 16, 2022 800 11.00
March 26, 2022 600 12.00

A physical inventory on March 31, 2022, shows 1,500 units on hand.

Instructions:
Assuming Esplanade uses a periodic system, prepare schedules to compute the ending
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 Copyright © John Wiley & Sons, Inc. Kieso Intermediate: IFRS 4e,

inventory at March 31, 2022, under each of following inventory methods (round to two decimal
places)
a. Specific identification. b. FIFO. c. weighted-average

BE 8.8.
Bienvenu Enterprises reported cost of goods sold for 2022 of $1,400,000 and retained earnings
of $5,200,000 at December 31, 2022. Bienvenu later discovered that its ending inventories at
December 31, 2021 and 2022, were overstated by $110,000 and $35,000, respectively.
Determine the corrected amounts for 2022 cost of goods sold and December 31, 2022, retained
earnings.

Chapter 9 – Exercises
E 9.6.
LaGreca SA uses the LCNRV method, on an individual item basis, in pricing its inventory
items. The inventory at December 31, 2022, includes product X. Relevant per-unit data for
product X are as follows:

Estimated selling price €50

Cost 40
Estimated selling expenses 14

There are 1,000 units of product X on hand at December 31, 2022. Product X is incorrectly
valued at €38 per unit for reporting purposes. All 1,000 units are sold in 2023.
Instructions:
Compute the effect of this error on net income for 2022 and the effect on net income for 2023,
and indicate the direction of the misstatement for each year. (Assume using periodic
inventory system)

E 9.19.
Presented below is information related to Jerrod Ltd. For the current year.
Beginning inventory £ 600,000
Purchases 1,500,000
Total goods available for sale £2,100,000
Sales 2,300,000

Compute the ending inventory, assuming that (a) gross profit is 40% of sales, and (b) gross
profit is 60% of cost.

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 Copyright © John Wiley & Sons, Inc. Kieso Intermediate: IFRS 4e,

E 9.21.
Presented below is information related to Kuchinsky Company.
Cost Retail
Beginning inventory € 200,000 € 280,000
Purchases 1,425,000 2,140,000
Markups 95,000
Markup cancellations 15,000
Markdowns 35,000
Markdown cancellations 5,000
Sales 2,250,000

Instructions:
Compute the inventory by conventional retail inventory method.

Chapter 10 – Exercises
E 10.8.
On December 31, 2021, Tsang Group borrowed HK$3,000,000 at 12% payable annually to
finance the construction of a new building. In 2022, the company made the following
expenditures related to this building: March 1, HK$360,000; June 1, HK$600,000; July 1,
HK$1,500,000; and December 1, HK$1,200,000. Additional information is provided as
follows.

1. Other debt outstanding

10-year, 11% bond, December 31, 2015, interest payable annually HK$4,000,000
6-year, 10% note, dated December 31, 2019, interest payable annually HK$1,600,000
2. March 1, 2022, expenditure included land costs of HK$150,000
3. Interest revenue earned in 2022 on funds related to specific borrowing HK$49,000

Instructions:
a. Determine the amount of borrowing cost to be capitalized in 2022 in relation to the
construction of the building.

E 10.15.
Windsor plc purchased a computer on December 31, 2021, for £130,000, paying £30,000 down
and agreeing to pay the balance in five equal installments of £20,000 payable each December
31 beginning in 2022.
An assumed interest rate of 10% is implicit in the purchase price.

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 Copyright © John Wiley & Sons, Inc. Kieso Intermediate: IFRS 4e,

Instructions:
a. Prepare the journal entry or entries at the date of purchase.
b. Prepare the journal entry or entries at December 31, 2022, to record the payment and
interest (effective-interest method employed).
c. Prepare the journal entry on entries at December 31, 2023, to record the payment and
interest (effective-interest method employed).

E 10.18.
Montgomery Ltd. Purchased an electric wax melter on April 30, 2023, by trading in its old gas
model and paying the balance in cash. The following data relate to the purchase.

List price of new melter ₤15,800

Cash paid 10,000
Cost of old melter (5-year life, ₤700 residual value) 12,700
Accumulated depreciation (old melter – straight-line) 7,200
Fair value of old melter 5,200

Instructions:
Prepare the journal entry or entries necessary to record this exchange, assuming that the
exchange (a) has commercial substance, and (b) lacks commercial substance. Montgomery’s
year ends on December 31, and depreciation has been recorded through December 31, 2022.

Chapter 11 – Exercises
E 11.6.
Agazzi Company purchased equipment for $304,000 on October 1, 2022. It is estimated that
the equipment will have a useful life of 8 years and a residual value of $16,000. Estimated
production is 40,000 units, and estimated working hours are 20,000. During 2022, Agazzi uses
the equipment for 525 hours, and the equipment produces 1,000 units.
Instructions: compute depreciation expense under each of the following methods. Agazzi is
on a calendar-year basis ending December 31.
a. Straight-line method for 2022
b. Activity method (units of output) for 2022.
c. Activity method (working hours) for 2022.
d. Sum-of-the-years’-digits method for 2024.
e. Double-declining-balance method for 2023.

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 Copyright © John Wiley & Sons, Inc. Kieso Intermediate: IFRS 4e,

E 11.18.
Presented below is information related to equipment owned by Pujols SpA at December 31,
2022.

Cost €9,000,000
Accumulated depreciation to date 1,000,000
Value-in-use 7,000,000
Fair value less cost of disposal 4,400,000

Assume that Pujols will continue to use this asset in the future. As of December 31, 2022, the
equipment has a remaining useful life of 4 year.
Instructions
a. Prepare the journal entry (if any) to record the impairment of the asset at December 31,
2022.
b. Prepare the journal entry to record depreciation expense for 2023.
c. The recoverable amount of the equipment at December 31, 2023, is €6,000,000. Prepare
the journal entry (if any) necessary to record this increase.

E 11.27.
Falcetto Company acquired equipment on January 1, 2021, for €12,000. Falcetto elects to value
this class of equipment using revaluation accounting.
This equipment is being depreciated on a straight-line basis over its 6-year useful life. There is
no residual value at the end of the 6-year period. The appraised value of the equipment
approximates the carrying amount at December 31, 2021 and 2023. On December 31, 2022,
the fair value of the equipment is determined to be €7,000.
Instructions
a. Prepare the journal entries for 2021 related to the equipment.
b. Prepare the journal entries for 2022 related to the equipment.
c. Determine the amount of depreciation expense that Falcetto will record on the
equipment in 2023.