Concept explainers
Parnell Company acquired construction equipment on January 1, 2017, at a cost of $78,400. The equipment was expected to have a useful life of six years and a residual value of $10,000 and is being
- a. Determine the appropriate accounting for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
- b. Prepare the entry(ies) that Parnell would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.
a.
Determine the appropriate accounting for this equipment for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.
Explanation of Solution
(1)
U.S. GAAP:
The entry to record equipment under U.S. GAAP:
The equipment is not recorded under U.S. GAAP as the revaluation model is not used under same.
Computation of value of equipment as on December 31, 2017:
Computation of value of equipment as on December 31, 2018:
(2)
IFRS:
The entry to record sale and leaseback under IFRS:
Date | Account Title and Explanation | Post ref. | Debit ($) | Credit ($) |
1/1/2018 | Accumulated Depreciation on equipment | 11,400 | ||
Equipment | 11,400 | |||
(being equipment reduced for accumulated depreciation) | ||||
1/1/2018 | Equipment | 7,500 | ||
Revaluation surplus | 7,500 | |||
(being equipment revalued) | ||||
12/31/2018 | Depreciation expense | 12,900 | ||
Accumulated Depreciation on equipment | 12,900 | |||
(being depreciation recorded after revaluation) |
Table: (1)
b.
Prepare the entry that Company P would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.
Explanation of Solution
The entry that Company P would make on December 31, 2018:
Date | Account Title and Explanation | Post ref. | Debit ($) | Credit ($) |
12/31/2018 | Depreciation expense | 1,500 | ||
Accumulated Depreciation on equipment | 9,900 | |||
Equipment | 3,900 | |||
Revaluation surplus | 7,500 | |||
(being revaluation surplus and depreciation recorded) |
Table: (2)
Partial Conversion worksheet, December 31, 2017 (Revaluation of equipment) | ||||
Particulars | U.S. GAAP | Debit | Credit | IFRS |
Depreciation expense | $11,400 | $11,400 | ||
Net income | $11,400 | $11,400 | ||
Retained earnings on 01/01/2017 | $0 | $0 | ||
Retained earnings on 12/31/2017 | $11,400 | $11,400 | ||
Revaluation surplus | $0 | $0 | ||
AOCI on 01/01/2017 | $0 | $0 | ||
AOCI on 12/31/2017 | $0 | $0 | ||
Cash | ($78,400) | ($78,400) | ||
Equipment | $78,400 | $0 | $78,400 | |
Accumulated Depreciation on equipment | ($11,400) | $0 | ($11,400) | |
Total assets | ($11,400) | ($11,400) | ||
Total Liabilities | $0 | $0 | ||
Retained earnings on 12/31/2017 | $11,400 | $11,400 | ||
AOCI, 31/12/2017 | $0 | $0 | ||
Total liabilities and Equity | $11,400 | $0 | $0 | $11,400 |
Table: (3)
Partial Conversion worksheet, December 31, 2018 (Revaluation of equipment) | ||||
Particulars | U.S. GAAP | Debit | Credit | IFRS |
Depreciation expense | $11,400 | $1,500 | $12,900 | |
Net income | $11,400 | $12,900 | ||
Retained earnings on 01/01/2017 | $11,400 | $11,400 | ||
Retained earnings on 12/31/2017 | $22,800 | $24,300 | ||
Revaluation surplus | $0 | $7,500 | ($7,500) | |
AOCI on 01/01/2017 | $0 | $7,500 | ||
AOCI on 12/31/2017 | $0 | ($7,500) | ||
Cash | ($78,400) | ($78,400) | ||
Equipment | $78,400 | $0 | $3,900 | $74,500 |
Accumulated Depreciation on equipment | ($22,800) | $9,900 | ($12,900) | |
Total assets | ($22,800) | $9,000 | ||
Total Liabilities | $0 | $0 | ||
Retained earnings on 12/31/2017 | $22,800 | $24,300 | ||
AOCI, 31/12/2017 | $0 | ($7,500) | ||
Total liabilities and Equity | $22,800 | $11,400 | $11,400 | $16,800 |
Table: (4)
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Chapter 11 Solutions
EBK ADVANCED ACCOUNTING
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