Reference no: EM132490991

Point 1: Chang's Consulting Inc. (Chang's), which provides architectural consulting services, has a December 31 year end. It prepares its financial statements in accordance with IFRS.

Point 2: In February 20X7, the company received a new car in exchange for some of its used computer equipment. The fair value of the car received was $18,488. The original cost of the computers given up was $54,600; the net book value at the time of the exchange was $17,100 ($54,600 cost less $37,500 accumulated depreciation). The fair value of the computer equipment is difficult to accurately determine because used computer equipment is seldom sold.

Point 3: In March 20X7, Chang's replaced the motor in the company's delivery van, which is expected to extend the life of the van by five years. The motor replaced was not previously accounted for as a separate component of the van. When the new motor was being installed, Chang's had the van cleaned and the windshield replaced. Chang paid a total of $4,950 for these services, including the $4,300 cost of the new motor.

Question 1: What is the change in the cost (gross amount) of property, plant, and equipment (PP&E) that will be reported on Chang's statement of financial position because of these two transactions?

a) Cost increases by $5,688

b) Cost increases by $22,788

c) Cost decreases by $31,162

d) Cost decreases by $31,812

Question 2: Red Tank Inc. recently expanded its business. On January 1, 20X6, Red Tank purchased a parcel of land along with a building and equipment to use in the expansion. The company paid a total of $412,000 for all three items. The fair market values of the purchases were determined to be as follows:

Land $244,625

Building $135,375

Equipment $95,000

• The building is expected to have a 25-year useful life with no residual value. The equipment is expected to have a 14-year useful life with no residual value. The company uses the straight-line method to record depreciation expense, and it has a December 31 fiscal year end.

How much depreciation expense will Red Tank record in its 20X6 fiscal year? Assume the company follows IFRS.

a) $ 5,291

b) $10,583

c) $12,201

d) $19,070

Question 3: On January 1, 20X4, J-Bar Implements Corp. bought $1,250,000 of 5% bonds from Transnational Group. The bonds pay interest semi-annually on June 30 and December 31. The market rate of interest on January 1, 20X4, was 4%. The company intends to hold on to the bonds up to their December 31, 20X8, maturity date to collect all of the contractual cash flows.

At what amount will J-Bar Implements report the bonds on January 1, 20X4?

a) $1,250,000

b) $1,295,784

c) $1,305,648

d) $1,306,141