Individual Case Assignment
University of Windsor, Odette School of Business (Windsor)
BSMM-8360-01: International Financial Reporting
Submission Date- 25th February 2020 | Winter 2020 | Prof. William Orawski
PART ONE
1.The entries for sale of the mold making division
Dr Cash
$10,000,000
Liabilities assumed by SF
$1,350,000
Cr Asset held-for-sale(fair value)
$750,000
Gain on sale
$10,600,000
2. The entries for reclassification
Dr Assets held-for-sale(current assets)
Impairment on assets
$750,000
$50,000
Cr Assets
$800,000
3. Income Statement
KC Plastic Inc.
Income Statement
In the year of 2019
Income from division profit (100,000*(1-27%))
73,000
Income from selling division(10,600,000*(1-27%))
7,738,000
Impairment on asset
(50,000)
Net Income
$7,761,000
4. Adjustment of 2018 comparative financial statements and notes to reclassify the
revenue is needed. Assets of discontinued division should be reclassified as held-for-sale.
And division assets should be reclassified from non-current to current. Moreover, asset is
remeasured at the lower of carrying value and fair value less costs to sell. So, impairment
on asset would occur when reclassifying the assets as assets held-for-sale.
PART TWO
EVENT 1
1. Revenue should be recognized on January 19, 2019.
2. Entry on transaction date
Dr Deferred revenue
$25,000
Notes receivable
$100,000
Cr Revenue
$125,000
3. Revenue is recognized at the time when there is a transfer of promised goods and
services to the buyer. In other words, legal titles, physical possession have been
transferred. So, the transfer day is January 19, 2019. That is the date when the revenue
should be recognized.
EVENT 2
1. There is no specific date of recognizing revenue. Revenue needs to be recognized as
service is being performed.
2. Entry on June 15, 2018
Dr Cash
$30,000
Cr Unearned revenue
30,000
During July 1, 2018 to June 30, 2019
Dr Unearned revenue
Cr Revenue
xxx(The value of service performed)
xxx(The value of service performed)
3. Because this contract occurs over a fiscal year. The revenue should be spread out over
the term of the contract. Measurement of progress of the performance obligation is
needed. There are two types of measurement of the revenue over time. One is output
methods, the other one is input methods.
EVENT 3
1.The revenue should be recognized on October 15, 2018
2. Entry on October 15, 2018
Dr Accounts receivable
Cr Revenue
$7,500
$7,500
3. Revenue should be recognized on the day when the promised goods are transferred to
the buyer. Because the buyer promised to deliver the resin after the goods were
transferred, the debit side of the entry needs to be recorded as accounts receivable.
PART THREE
Error 1
1. Prior Adjustment=1.8million*8%*2-1.8million=$-1,512,000
2. The corrections need to be disclosed in the Notes of 2017 financial statements
3. Entry for the correction
Dr Prior period adjustment
Cr Equipment
Dr Accumulated Amortization
Cr Prior period adjustment
$1,800,000
$1,800,000
$288,000
$288,000
Error 2
1. Prior period adjustment=3,800,000*30%-3,800,000=-2,660,000
2. Corrections should be disclosed in the Notes of 2017 Financial Statements
3 Entry for the correction
Dr Prior period adjustment
Cr Accounts receivable
Dr Income tax liability
Cr Prior period adjustment
$3,800,000
$3,800,000
$1,140,000
$1,140,000