Reference no: EM13333385

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 ab out 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 carry ing value, with the exception of the following items:
  
  Exc ess 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-l ine 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.