For the year ended December 31, 20X4
Account DR CR
Accounts receivable 1,875,000
Allowance for doubtful accounts 30,000
Construction in progress 15,000,000
Investments (at cost) 1,650,000
Prepaid expense 1,232,000
Accounts payable 2,625,000
Accrued liabilities 3,534,000
Billings on construction in progress 15,000,000
Bonds payable 30,000,000
Note payable 9,825,000
Ordinary shares 63,000,000
Administrative expense 3,655,000
Bad debt expense 30,000
Cost of goods sold 99,600,000
Insurance expense 2,850,000
Interest expense 4,174,000
Lease expense 2,000,000
Wage and benefit expense 15,648,000
Total 267,264,000 267,264,000
On January 1, 20X4, Build-All Inc. was incorporated and began operations. The construction
company is owned by Padma Vipat, Thor Hammond and John Goldsmith. It has offices in
Halifax, Moncton and Charlottetown.
Build-All’s accountant, Cynthia Solnickova, is preparing the company’s financial statements in
accordance with IFRS as the shareholders hope to take the company public at a later date.
You are a CPA and a consultant to Build-All. Cynthia has always used ASPE in the past, so
she has requested your assistance in preparing the year-end statements in advance of the
company’s first audit. Cynthia has provided you with a trial balance and some information on
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1. Build-All’s income tax rate is 25%, and this is not expected to change in the foreseeable
2. On January 1, 20X4, $30 million of eight-year, 4% convertible bonds were issued at par,
when similar non-convertible bonds were yielding 5%. Interest is payable semi-annually on
June 30 and December 31. At the bondholders’ option, each $1,000 bond may be
exchanged for 40 ordinary shares. At the issue date, Cynthia credited bonds payable for
the net proceeds of $30 million; during the year she debited interest expense for the
amount of interest paid.
3. On January 1, 20X4, Build-All issued 10 million ordinary shares at $5.60 per share. On
August 1, 20X4, Build-All sold an additional 1 million shares for $7 each to Saranjit Toor.
4. On April 1, 20X4, the note payable was issued. The loan is repayable annually at $982,500
plus interest at 6% per annum, first due on April 1, 20X5. Cynthia erroneously expensed a
full year’s interest on the note. Build-All calculates interest expense based on the number of
months outstanding, rather than the number of days.
5. On December 31, 20X4, Build-All purchased 100% of Joy Corporation for $1,650,000 cash.
The book and fair market values of Joy at the acquisition date follow:
December 31, 20X4 Book value Fair market value
Accounts receivable* $ 400,000 $385,000
Inventory* 900,000 $940,000
Accounts payable $ 200,000 $200,000
Ordinary shares 300,000
Retained earnings 800,000
*In early 20X5, the net receivables were collected and inventory sold.
6. Padma provided Cynthia with the estimated bad debt expense after superficially analyzing
the outstanding receivables. Saranjit, who has extensive industry experience, suggested
that a rate of 2.5% of the outstanding receivables would be a more appropriate allowance.
7. On May 1, 20X4, Build-All paid $1,232,000 for a two-year general insurance policy effective
the date purchased. Prepaid expenses was debited for the premium.
8. On June 1, 20X4, Build-All leased some heavy-duty machinery. The lease term is six years
with annual payments of $2 million first due on June 1, 20X4. At the end of the lease term,
title to the machinery will transfer to the company. The machinery has a useful life of eight
years with an estimated salvage value of $60,000. Build-All knows that the implicit rate in
the lease is 5% per annum. Note that for tax purposes, there is no distinction between an
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operating lease and a finance lease. Lease payments are expensed and no CCA is taken
on the leased asset.
9. Build-All’s depreciable assets consist of buildings, owned equipment and leased
equipment. The buildings and owned equipment were acquired on January 1, 20X4. BuildAll depreciates all assets on a straight-line basis. The expected useful life of the buildings is
thirty years and the owned equipment is six years. The expected salvage value of all
owned assets is nil. Depreciation has not yet been recorded for the year. For tax purposes,
buildings are Class 1 assets (CCA rate 4%) and all equipment is Class 8 (CCA rate 20%).
10.Administrative expenses include $50,000 in meals and entertainment and $32,000 for
memberships at Seymour Golf and Country Club, where the shareholders entertain clients.
11. Cynthia inadvertently did not make any tax instalment payments during the year.
12.The company’s owners asked Cynthia to use the revaluation model to account for its land.
The fair value of the land at December 31, 20X4, as determined by appraisal was:
City Cost Market value
Halifax $40,000,000 $42,000,000
Moncton 27,000,000 30,000,000
Charlottetown 15,500,000 11,500,000
Cynthia has not yet made any revaluation adjustments. For income tax computation
purposes, Build-All assumes that 50% of the gains and loss are a permanent difference.
13.During the year, Build-All built an apartment building under a $15 million fixed contract.
Cynthia has not yet included construction-related interest costs to cost of goods sold. She
is also unsure about how to deal with the remaining construction-in-progress asset.
Pertinent details follow:
• The building was completed on December 31, 20X4.
• The balance in the associated construction-in-progress account includes an estimated
15% gross profit margin, excluding interest costs.
• The construction-in-progress asset is a qualifying asset under IFRS.
• Build-All recorded all interest expense directly to the statement of comprehensive
income. Qualifying interest should have been capitalized.
• Related costs were incurred equally during the year; the weighted-average interest cost
• The client was invoiced a total of $15 million during 20X4; there is $500,000 outstanding
at year-end, which has been included in the accounts receivable balance reported on
the trial balance.
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• The total contract revenue of $15 million was recognized as income and is included in
the sales reported on the trial balance. All related expenses other than the interest costs
have been properly accounted for.
1. Assist Cynthia by preparing any journal entries necessary to properly adjust for the events
listed above. Add additional accounts as necessary. Properly format journal entries,
including an explanation about why the adjustment is required. Provide supporting
computations as appropriate.
2. Prepare financial statements in proper form for Build-All for the year ended December 31,
20X4, including a statement of comprehensive income, a non-consolidated statement of
financial position and a statement of changes in equity. Do not prepare a statement of
3. Calculate both the basic and diluted earnings per share for Build-All.
4. Provide Cynthia with a list of all notes required for the financial statements, but do not
prepare draft notes. Refer to the CPA Canada Handbook – Accounting for guidance, and
document which Handbook section provides the necessary details for drafting the required
5. With regards to the acquisition of Joy Corporation:
a) Prepare an acquisition differential allocation schedule and determine the amount of the
purchase price allocated to goodwill pertaining to the acquisition of Joy.
b) Complete an acquisition differential and impairment schedule for 20X4 and 20X5.
c) Compute and list the consolidated balances as at December 31, 20X4, of all asset,
liability and equity accounts that differ from those set out in Build-All’s non-consolidated
statement of financial position prepared in requirement 2. Do not prepare a
consolidated statement of financial position.
Note: Journal entries and financial statements are to be rounded to the nearest dollar.
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2 Bonds Payable 1,958,400
Share Options 1,958,400
Interest Expense 204,606
Bonds Payable 204,606
4 Accrued liabilities 147,375
Interest Expense 147,375
5 Goodwill 525,000
6 Bad Debts expense 16,875
Allowance for Doubtful Accounts 16,875
7 Insurance expense 410,667
Prepaid expenses 410,667
8 Capital Lease Machinery 10,151,380
Capital Lease Obligation 10,151,380...