Accounting -Pre-Contribution Balance Sheets and Fair Values

| January 30, 2017

Question
Assignment 1
Problem 1

Pre-Contribution Balance Sheets and Fair Values

June 30, 20X9

(in thousands of $)

Swag Co. Perk Ltd.

Pre-

Contribution

Fair

Value

Pre-

Contribution

Fair

Value

Assets:

Cash and cash equivalents

1,645

1,645

840

840

Accounts receivable

1,400

1,400

1,260

1,260

Land

3,500

5,950

Building (net)

9,450

7,700

5,880

7,700

Equipment (net)

420

525

2,170

2,800

Total assets

16,415

10,150

Liabilities and

shareholders’ equity:

Accounts payable

455

455

770

770

Long-term debt

1,400

1,400

700

630

Total liabilities

1,855

1,470

Common shares

10,500

4,865

Retained earnings

4,060

3,815

Total shareholders’ equity

14,560

8,680

Total liabilities and

shareholders’ equity

16,415

10,150

Swag Co. acquired Perk on June 30, 20X9. Both companies have June 30 year-ends. Before the combination, Swag and Perk had, respectively, 840,000 and 525,000 common shares, issued and outstanding.

Required:

Prepare Swag’s consolidated balance sheet under each of the following independent situations:

a) Swag purchased the assets and assumed the liabilities of Perk by
paying $1,400,000 in cash and issuing a $12,600,000 note.

b) Swag issued 280,000 common shares in exchange for all of
Perk’s outstanding shares. The fair value of the Swag shares
was $14,000,000.

c) In exchange for all of Perk’s outstanding shares, Swag paid
$700,000 cash and issued 189,000 common shares with a
market value of $9,450,000.

Problem 2

Balance Sheets

December 31, 20X3

GreenTower

Ltd.

BlueLoft

Ltd.

Assets:

Current assets:

Cash

$ 156,000

$ 143,000

Accounts receivable

195,000

175,500

Inventory

312,000

253,500

Total current assets

663,000

572,000

Land

923,000

Equipment

897,000

1,183,000

Accumulated amortization

(663,000)

(416,000)

Investment in Blue Loft

1,409,200

Goodwill*

98,800

__-____

Total assets

3,328,000

1,339,000

Liabilities and shareholders’ equity:

Liabilities:

Accounts payable

184,600

78,000

Bonds payable

780,000

260,000

Total liabilities

964,600

338,000

Shareholders’ equity:

Common shares

650,000

325,000

Retained earnings

1,713,400

676,000

Total shareholders’ equity

2,363,400

1,001,000

Total liabilities and shareholders’ equity

$3,328,000

$1,339,000

*from an acquisition prior to Blue Loft

Income Statements

Year Ended December 31, 20X3

GreenTower

Ltd.

BlueLoft

Ltd.

Sales revenue

$1,560,000

$1,283,100

Cost of goods sold

1,040,000

845,000

520,000

438,100

Gain on sale of land

___-___

273,000

520,000

711,100

Operating expense

305,500

464,100

Net income

214,500

247,000

Statements of Retained Earnings

Year Ended December 31, 20X3

Green Tower

Ltd.

BlueLoft

Ltd.

Retained earnings, December 31, 20X2

$1,498,900

$ 429,000

Net income

214,500

247,000

Retained earnings, December 31, 20X3

$1,713,400

$ 676,000

Blue Loft Ltd.

Carrying and Fair Values

January 1, 20X2

Carrying

Value

Fair

Value

Cash

$ 104,000

$ 104,000

Accounts receivable

128,700

128,700

Inventory

231,400

253,500

Land

650,000

811,000

Equipment

390,000

151,000

Accumulated amortization

(260,000)

Accounts payable

91,000

91,000

Bonds payable

260,000

260,000

Common shares

325,000

Retained earnings

568,100

On January 1, 20X2, Green Tower Ltd. acquired all the outstanding common shares of Blue Loft Ltd. for $1,409,200 cash.

At December 31, 20X2, Green Tower’s inventory included goods that it had purchased from Blue Loft for $58,500. The intercompany profit on these goods was $15,600. All these goods were sold to third parties in 20X3.

During 20X3, Green Tower purchased goods from Blue Loft for $195,000. Blue Loft earned a gross profit of $65,000 on this sale. At December 31, 20X3, Green Tower still had 40% of these goods in its inventory.

During 20X3, Green Tower sold goods to Blue Loft for $507,000. Green Tower earned a gross profit of $117,000 on this sale. At December 31, 20X3, Blue Loft still had 20% of these goods in its inventory.

In December, 20X3, Blue Loft sold a tract of land to Green Tower for $923,000. Blue Loft had purchased the land 8 years ago for $650,000.

At the time of Green Tower’s acquisition, Blue Loft’s equipment had a remaining estimated useful life of 3 years. Blue Loft uses the straight-line method of amortization, with no residual value.
Required:

Prepare the consolidated financial statements for 20X3 using the direct method.

Problem 3

Cox Ltd. acquired 70% of the common shares of March Co. at the beginning of 20X7. At the acquisition date, March’s shareholders’ equity consisted of the following:

Common shares $720,000
Retained earnings 360,000

The only acquisition differential pertained to goodwill.

Cox’s “Investment in March” general ledger account is as follows:

1/2/X7 Cost $ 781,200

12/31/X7 Dividends $33,600

12/31/X7 Investment Income 62,160

12/31/X8 Dividends 42,000

12/31/X8 Investment Income 76,440

12/31/X9 Dividends 50,400

12/31/X9 Investment income 94,080

Balance $ 887,880

March usually declares half of its profits as dividends.

Cox uses the entity theory method to consolidate its subsidiary.

Required:

a) Calculate the total amount of dividends declared by March for 20X7.

b) Calculate March’s profit for 20X8.

c) Calculate the non-controlling interest amounts for Cox’s 20X9

i. consolidated income statement, and

ii. consolidated balance sheet.

d) Calculate the amount of goodwill that should appear on Cox’s 20X9 consolidated balance sheet.

Problem 4

Balance Sheets

December 31, 20X6

Peony

Ltd.

Aster

Ltd.

Assets:

Cash

$ 62,500

$ 25,000

Accounts receivable

187,500

200,000

Inventories

225,000

125,000

Equipment

6,250,000

3,375,000

Accumulated amortization

(2,212,500)

(1,550,000)

Investment in Aster Ltd.

1,000,000

Other investments

125,000

____-____

Total assets

$5,637,500

$2,175,000

Liabilities and Shareholders’ Equity

Accounts payable

$ 562,500

$ 250,000

Bonds payable

375,000

625,000

Total liabilities

937,500

875,000

Common shares

1,500,000

375,000

Retained earnings

3,200,000

925,000

Total shareholders’ equity

4,700,000

1,300,000

Total liabilities and shareholders’ equity

$5,637,500

$2,175,000

Income Statements

Year Ended December 31, 20X6

Peony

Ltd.

Aster

Ltd.

Sales revenue

$2,500,000

$1,875,000

Royalty revenue

187,500

Dividend income

93,750

____-____

Total revenue

2,781,250

1,875,000

Cost of sales

1,500,000

1,125,000

Other expenses

700,000

513,750

Total expenses

2,200,000

1,638,750

Net income

$ 581,250

$ 236,250

Statements of Retained Earnings

December 31, 20X6

Peony

Ltd.

Aster

Ltd.

Retained earnings, beginning of year

$2,993,750

$ 801,250

Net income

581,250

236,250

Dividends declared

(375,000)

(112,500)

Retained earnings, end of year

$3,200,000

$ 925,000

At January 1, 20X1, Peony Ltd. acquired 80% of the common shares of Aster Ltd. by issuing 500,000 Peony common shares valued at $2 per share. This resulted in Peony having 1,500,000 issued and outstanding shares.

Peony has provided the following information about Aster at the acquisition date:

Aster’s shareholders’ equity consisted of the following:

Common shares $375,000
Retained earnings 693,750

Fair value of Aster’s net identifiable assets equalled their carrying value, with the exception of the following items:

Excess of fair value
over carrying value:
Inventories $ 12,500
Equipment 93,750
Investments 12,500

The accumulated amortization on the equipment was $718,750. The equipment is amortized on a straight-line basis. At the acquisition date, the equipment is estimated to have a remaining life of 10 years with no residual value.

In 20X3, Aster sold its investments to parties outside the consolidated entity for $56,250 over carrying value.

From the acquisition date to December 31, 20X5, Aster paid royalties of $625,000 to Peony. During 20X6, Aster paid $112,500 in royalties to Peony.

At the beginning of 20X4, Peony purchased some equipment from Aster for $113,750. Aster had originally acquired the equipment for $125,000 and was amortizing it at a rate of $12,500 per year. When Aster sold the equipment to Peony, it had a carrying value of $87,500. At that time, Peony estimated that the equipment had a remaining life of 7 years and started amortizing the equipment in 20X4, using the straight-line method with no residual value.

At December 31, 20X5, Aster’s inventory included $25,000 of goods purchased from Peony. Peony’s gross margin on the sale was 40%. The goods were sold to third parties in 20X6.

At December 31, 20X5, Peony’s inventory included $125,000 of goods purchased from Aster. Aster’s gross margin on the sale was 40%. The goods were sold to third parties in 20X6.

During 20X6, Peony sold goods to Aster for $125,000. Peony’s gross margin on the sale was 40%. At December 31, 20X6, $50,000 of the goods are still in Aster’s inventory.

During 20X6, Aster sold goods to Peony for $875,000. Aster’s gross margin on the sale was 40%. At December 31, 20X6, $87,500 of the goods are still in Peony’s inventory.

Peony uses the entity method to report business combinations.
Required:

Prepare the consolidated financial statements for Peony at December 31, 20X6 using the direct method. Show all your work.

Problem 5

On January 1, 20X4, Chee Co. purchased 80% of the outstanding shares of Tyme Ltd. for $2,000,000 in cash. On the acquisition date, Tyme’s shareholders’ equity consisted of the following:

Common shares $1,600,000
Retained earnings 800,000

At the time of acquisition, the carrying values of Tyme’s identifiable net assets equalled their fair market values with the following exceptions:

The fair value of a building with an estimated remaining life of 10 years was $480,000 less than its carrying value.

A long-term liability that matures in 8 years has a fair value that is $400,000 less than its carrying value.

The condensed income statements for Chee and Tyme are presented below:

Income Statements

Year ended December 31, 20X8

Chee Co.

Tyme Ltd.

Sales

$1,600,000

$ 720,000

Investment income

800,000

80,000

Gain on sale of land

___-___

54,400

Total revenue

2,400,000

854,400

Cost of goods sold

1,040,000

400,000

Other expenses

768,000

256,000

Total expenses

1,808,000

656,000

Net income

$ 592,000

$ 198,400

Additional information:

At the beginning of 20X5, Chee acquired a piece of equipment from Tyme for $168,000. Tyme had purchased the equipment 5 years ago for $320,000. When Tyme purchased the equipment, it had expected that it would have a useful life of 20 years, with no residual value. Chee concurred with this estimate (i.e., at the time of purchase, Chee expected that the equipment would have a remaining useful life of 15 years). Both Tyme and Chee use the straight-line method of amortization.

Sale of goods from Chee to Tyme:

Gross Unsold Goods in Tyme’s
Year Sales Margin Inventory at Year-End
20X7 $400,000 30% $80,000
20X8 320,000 30% 72,000

Sale of goods from Tyme to Chee:

Gross Unsold Goods in Chee’s
Year Sales Margin Inventory at Year-End
20X7 $240,000 40% $56,000
20X8 200,000 40% 48,000

All goods in inventory at year-end were sold to third parties in the subsequent year.

On August 31, 20X8, Chee purchased a tract of land from Tyme for $106,400 in cash. Tyme had acquired the land 12 years previously for $52,000.

During 20X8, Chee declared and paid dividends of $200,000 and Tyme declared and paid dividends of $32,000.

There was no impairment of goodwill at the end of 20X8.

Chee accounts for its investments using the cost method and uses the entity theory method to report its business combinations.
Required:

a) Prepare a consolidated income statement for Chee Co. for the year ended December 31, 20X8. Be sure to show your supporting calculations.

b) Prove that your calculation of net income attributable to the shareholders of Chee Co. in (a) is correct by calculating Chee’s net income using the equity method.

Problem 6

At the beginning of 20X3, Jong Ltd. acquired 80% of the outstanding shares of Nye Co. for $1,400,000. At the acquisition date, Nye’s shareholders’ equity consisted of the following:

Common shares $350,000

Retained earnings 875,000

At the time of acquisition, all of Nye’s net identifiable assets had carrying values that equalled their fair values with the exception of its patents. The fair value of the patents exceeded their carrying values by $525,000 and had a remaining life of 8 years.

The trial balances for Jong and Nye for December 31, 20X6 are as follows:

Jong Ltd. Nye Co.

DR

CR

DR

CR

Cash

700,000

350,000

Accounts receivable

1,400,000

249,200

Inventory

2,100,000

1,575,000

Plant and equipment

9,800,000

1,750,000

Accumulated amortization

2,800,000

700,000

Patents

280,000

Investment in Nye

1,400,000

Investment in Jong bonds

170,800

Accounts payable

1,744,400

1,734,950

Bonds payable

350,000

Premium on bonds payable

5,600

Common shares

3,150,000

350,000

Retained earnings

7,000,000

1,400,000

Dividends

420,000

175,000

Sales

3,430,000

1,400,000

Dividend revenue

140,000

Interest revenue

15,050

Cost of goods sold

1,680,000

595,000

Operating expenses

673,400

210,000

Interest expense

26,600

Income tax expense

420,000

_________

245,000

________

18,620,000

18,620,000

5,600,000

5,600,000

Additional information:

20X6 net income for Jong is $770,000 and for Nye, $365,050.

At the beginning of 20X6, Jong purchased a piece of equipment from Nye for $350,000. At the time of purchase, the equipment had a net book value of $280,000 to Nye and an estimated useful life of 5 years.

At the end of 20X5, Jong’s inventory included $350,000 of goods purchased from Nye. Nye’s had recorded a gross profit of $140,000 on this sale.

During 20X6, Nye sold goods to Jong for $700,000. Nye earned a gross profit of $280,000 on this sale.

At the end of 20X6, Jong had sold all the goods in its opening inventory to third parties but still had $210,000 of the goods purchased from Nye during 20X6 in its ending inventory. All of those goods will be sold to third parties in 20X7.

Amortization expense for the plant, equipment, and patent are included in operating expenses.

At the beginning of 20X4, Jong issued bonds for $359,800. These bonds have an interest rate of 8%, mature in 7 years, and have a face value of $350,000. Interest will be paid annually at the end of the year. Nye purchased half of these bonds at the beginning of 20X6 for $169,750. Any intercompany gains or losses on these bonds are to be allocated between the two companies.

Both companies have an average income tax rate of 40%.
Required:

Assume that Jong used the equity method of accounting for its investment in Nye instead of the cost method. Calculate the balance of its “Investment in Nye” account.

Problem 7

At the beginning of 20X2, Dahl Ltd. acquired 8% of the outstanding common shares of Tippy Ltd. for $400,000. This amounted to 80,000 shares.

At the beginning of 20X4, Dahl acquired an additional 270,000 shares of Tippy for $1,512,000. At this acquisition date, Tippy’s shareholders’ equity consisted of the following:

4% non-cumulative preferred shares $1,000,000
Common shares, 1,000,000 outstanding shares 2,400,000
Retained earnings 2,160,000

At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following:

Excess of fair value
over carrying value

Inventory $ 96,000

Land 800,000

At the beginning of 20X5, Dahl acquired an additional 450,000 shares of Tippy for 2,880,000. The shares were trading for $6 per share. At this acquisition date, Tippy’s shareholders’ equity consisted of the following:

4% non-cumulative preferred shares $1,000,000
Common shares, 1,000,000 outstanding shares 2,400,000
Retained earnings 2,560,000

At this acquisition date, the fair values of the net identifiable assets equalled their carrying values except for the following:

Excess of fair value over/(under)
carrying value

Accounts receivable $W (48,000)
Building and equipment (net) 720,000

Long-term debt 160,000

The building and equipment have an estimated remaining life of 10 years and the long-term debt matures in 10 years.

The condensed separate-entity financial statements for December 31, 20X6 are as follows:

Balance Sheets

As at December 31, 20X6

Dahl Ltd.

Tippy Ltd.

Assets:

Cash

$ 400,000

$ 560,000

Accounts receivable

1,920,000

440,000

Inventories

400,000

320,000

Land

4,400,000

800,000

Buildings and equipment (net)

8,488,000

7,200,000

Investment in Tippy (at cost)

4,792,000

____-____

Total assets

$ 20,400,000

$ 9,320,000

Liabilities:

Accounts payable

$ 2,400,000

$ 400,000

Long-term debt

3,200,000

1,600,000

Total liabilities

5,600,000

2,000,000

Shareholders’ equity:

4% non-cumulative preferred shares

1,000,000

Common shares

7,200,000

2,400,000

Retained earnings

7,600,000

3,920,000

Total shareholders’ equity

14,800,000

7,320,000

Total liabilities and shareholders’ equity

$ 20,400,000

$ 9,320,000

Income Statements

Year Ended December 31, 20X6

Dahl Ltd.

Tippy Ltd.

Sales

$ 12,000,000

$ 7,200,000

Dividend income

96,000

Gain on sale of equipment

_______

168,000

Total revenue

12,096,000

7,368,000

Cost of goods sold

7,600,000

4,960,000

Operating expenses

2,374,400

944,000

Income tax expense

825,600

584,000

Total expenses

10,800,000

6,488,000

Net income

$ 1,296,000

$ 880,000

Additional information:

Dahl and Tippy declared and paid dividends during 20X6 of $400,000 and $160,000, respectively.

At the end of 20X5, the inventories of Dahl and Tippy included goods with intercompany profits of $68,000 and $152,000 respectively.

During 20X6, Dahl sold goods to Tippy for $3,120,000 at a gross margin of 45%. At the end of 20X6, $200,000 of these goods were still in Tippy’s inventory.

During 20X6, Tippy sold goods to Dahl for $2,080,000 at a gross margin of 35%. At the end of the year, $320,000 of these goods were still in Dahl’s inventory.

On January 1, 20X6, Tippy sold some equipment to Dahl for $360,000. At that time, the equipment had a book value of $192,000 and an estimated remaining life of 8 years. Dahl has paid Tippy $252,000 and will pay the balance on January 31, 20X7.

Both Dahl and Tippy use the straight-line method of amortization for their buildings and equipment.

In 20X5, a goodwill impairment of $73,600 was recognized and a further impairment of $46,400 occurred in 20X6. Impairment losses are allocated 80% to Dahl and 20% to the non-controlling interest.

Both companies are taxed at an average rate of 40%.
Required:

Calculate Dahl’s 20X6 consolidated net income and identify the amount attributable to Dahl’s shareholders and to the non-controlling interest. Be sure to show all your calculations. You are not required to prepare a consolidated income statement.

Problem 8

Income Statements

Year Ended December 31, 20X8

Insure Co.

Go-med Co.

Sales

$3,900,000

$1,560,000

Other income

260,000

91,000

Gain on sale of land

___-___

130,000

4,160,000

1,781,000

Cost of sales

1,820,000

728,000

Operating expenses

780,000

559,000

Income tax

520,000

195,000

3,120,000

1,482,000

Net income

$1,040,000

$ 299,000

Insure acquired 40% of the common shares of Go-med in 20X2 for $1,072,500.

For 20X8, Insure amortized its acquisition differential as follows:

Buildings $ 11,700

Long-term liabilities (16,250)

Goodwill impairment loss 16,900

$ 12,350

During 20X8, Go-med paid royalties of $162,500 to Insure, which Insure included in its other income.

During 20X8, Go-med sold land to a third party. It had acquired the land 3 years ago from Insure. At that time, Insure had recorded a profit on the sale of $29,250.

During 20X8, Go-med declared and paid dividends of $104,000.

Both Insure and Go-med pay taxes at an average rate of 40%.

Required:

Assume that Go-med is a joint venture owned by Insure and four other venturers, that the acquisition differentials are valid, and that it has not yet adopted IFRS 11: Joint Arrangements. Prepare a 20X8 consolidated income statement for Insure using proportionate consolidation.

Problem 9

On April 1 of the current year, Econ Ltd. ordered maps from a foreign supplier for 500,000 units of foreign currency (FC). On April 2, Econ entered a forward contract as a cash flow hedge to acquire 500,000 FC on July 31 for $0.31. On July 31, the maps arrived and Econ paid the supplier in full and settled the forward contract. Econ has an April 30 year-end.

Spot Rate

Forward Rate

April 1 and 2

FC 1 = $0.280

FC 1 = $0.310

April 30

FC 1 = $0.270

FC 1 = $0.305

July 31

FC 1 = $0.320

FC 1 = $0.320

Required:

a) Prepare dated journal entries to record the transactions shown above.

b) Assume that Econ did not enter into a forward contract. Prepare dated journal entries to record the transactions above.

c) Assume that Econ had entered into a forward contract that was designated a fair value hedge. Prepare dated journal entries to record the transactions above.

Problem 10

Golden Bells Inc. is a foreign subsidiary of Northern Bells Ltd., a Canadian company. Northern Bells had purchased 90% of the outstanding shares of Golden Bells at the beginning of 20X9 for 20,160 foreign currency (FC) units. At the acquisition date, Golden Bells’ balance sheet in FC units is as follows:

DR

CR

Current monetary assets

14,000

Inventory

11,200

Equipment (net)

28,000

Current liabilities

12,600

Long term debt

22,400

Common shares

14,000

Retained earnings

______

4,200

53,200

53,200

At the acquisition date, the only acquisition differential was in regard to the equipment, which had a fair value of 30,800 FC and an estimated remaining useful life of 10 years.

The relevant exchange rates for 20X9 are as follows:

January 1 FC 1 = $1.10
September 15 FC 1 = $1.20
December 31 FC 1 = $1.25
Average rate for 20X9 FC 1 = $1.18

Balance Sheets

December 31, 20X9

Northern

Bells Ltd.

$

Golden

Bells Inc.

FC

Assets:

Current monetary assets

44,173

23,800

Inventory

42,000

15,400

Investment in Golden Bells

22,176

Equipment (net)

84,000

25,200

Total assets

192,349

64,400

Liabilities:

Current monetary liabilities

36,400

16,800

Long-term debt

56,000

22,400

Total liabilities

92,400

39,200

Shareholders’ equity:

Common shares

42,000

14,000

Retained earnings

57,949

11,200

Total shareholders’ equity

99,949

25,200

Total liabilities and shareholders’ equity

192,349

64,400

Income Statements

Year Ended December 31, 20X9

Northern

Bells Ltd.

$

Golden

Bells Inc.

FC

Sales

503,849

140,000

Dividend income

6,300

____-___

Total revenue

510,149

140,000

Cost of goods sold

252,000

82,600

Operating expenses

217,000

44,800

Total expenses

469,000

127,400

Net income

41,149

12,600

At the end of 20X9, Northern Bells and Golden Bells declared dividends of $30,800 and 5,600 FC, respectively.

Golden Bells’ goods in inventory at the end of 20X9 were from a special purchase made September 15, 20X9.

Golden Bells had a goodwill impairment loss of 140 FC that occurred evenly throughout 20X9.

Northern Bell uses the entity theory method to consolidate its subsidiary.

Required:

Prepare Northern Bell’s consolidated financial statements for December 31, 20X9, assuming that Golden Bell’s functional currency is

a) the Canadian dollar, and

b) the foreign currency unit.

Problem 11

Wise Owls, an NFPO, began operations at the beginning of 20X1 to provide free tutoring and homework assistance, as well as a nutrition program, to low-income immigrant children. The local school board has provided Wise Owls with the use of a wing of a school at a heavily discounted rate of $1,000 per month. During 20X1, Wise Owls rented the wing for the full year and plans to continue to do so until it can construct its own building. Wise Owls is funded primarily by donations.

This year’s fundraiser was very successful and exceeded expectations. In addition to the net proceeds of $350,000 from the fundraising event, another $50,000 was pledged by attendees, but most of these pledges have not yet been collected. They will probably be collected early next year. Of the $50,000 pledged, $10,000 was pledged for the purchase of land, and Wise Owls received it a few days after its year-end. Of the $350,000 raised, $40,000 was designated for the purchase of a tract of land on which the organization plans to erect a building for its programs. Wise Owls still needs to raise another $10,000 before the land can be purchased. If everything goes according to plan, it will be able to purchase the land for $60,000 within the first six months of 20X2.

Wise Owls is especially happy with its fundraiser because the government has committed to provide matching funds, to a maximum of $250,000, of the net proceeds raised for operations. It received a letter from the government two weeks after year-end advising it that its application had been approved and that it can expect the grant in six weeks.

Wise Owls has had good support from the local community. Four grocery stores in the area provided donations totaling $25,000 of food for Wise Owls’ nutrition program. An office supply store provided $2,500 of school supplies and a card for $5,000 of photocopying services.

All of the people working at Wise Owls are volunteers except for the full-time director and the part-time volunteer coordinator. During 20X1, the director was paid $70,000 and the coordinator was paid $26,000. $2,000 of the amount paid to the coordinator was an advance against her salary in January, 20X2. Normally, advances are not allowed; however, due to extenuating circumstances, the board allowed it.

During 20X1, Wise Owls spent $53,000 on food, $10,000 on school supplies, and $90,000 on other operating expenses.

Wise Owls will buy 40 laptop computers in the next year for use in several of its programs. The director has negotiated a deal with a supplier to get the computers for $20,000. The computers should be delivered in a month, with payment due on delivery.

Required:

Using the deferral method, prepare a statement of revenues and expenses and a statement of changes in net assets for Wise Owls for 20X1.

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