Assignment 4. (30 Marks) 1. In February 20X4, Colton's Western Wear (CWW) invested excess cash in shares of PLZ Corporation, a publicly traded company with over 1,000,000 shares outstanding. CWW bought 2,700 shares at $11.65 per share. The shares were bou

   

Assignment 4. (30 Marks)

1. In February 20X4, Colton's Western Wear (CWW) invested excess cash in shares of PLZ Corporation, a publicly traded company with over 1,000,000 shares outstanding. CWW bought 2,700 shares at $11.65 per share. The shares were bought on speculation that they would increase in value, as analyst valuations for the next 12 months were that the shares would trade in the $31 to $36 range. Brokerage costs were $0.05 per share plus a flat fee of $29.00. The closing price of the shares and the dividends per share are as follows for the quarter-ends:

  

February 17, 20X4

Closing value   on the
  stock exchange

$11.65

Dividend per   share

 

March 31, 20X4

$16.20

$0.24

 

June 30, 20X4

$22.75

$0.25

 

September 30, 20X4

$31.20

$0.26

 

December 31, 20X4

$29.85

$0.26

The dividends were declared by the board of PLZ on the 15th of the months noted and were payable on the last day of the month.

2. In 20X2, CWW bought the mortgages on two properties in Edmonton. The company receives monthly payments that include principal and interest. One mortgage will be repaid in full in 14 years and the other in 18 years. CWW bought the mortgages with the intention of selling them at a profit when the financial conditions improve. However, both mortgagees are struggling financially, and the underlying value of the properties has declined. In December 20X4, CWW had the value of the mortgages appraised, and the appraisal showed a total impairment of $38,500 on the mortgages. Interest and principal have been properly recorded for this investment.

3. On July 1, 20X4, CWW bought General Company Inc.'s bonds for $250,000. The interest rate on the bonds is 7% per annum, which is equal to the market rate. Interest is paid on June 30 and December 31 each year. CWW intends to hold the bonds until they mature on June 30, 20X9. At year end, CWW had not yet received the semi-annual interest payment that was due on December 31, 20X4. The market value of the bonds was $254,500 on December 31, 20X4.

   

For items 4 and 5, see the schedule after item 5.

4. On January 1, 20X1, CWW bought the customer list of a retail store that was closing down for $10,000. The list was expected to have value for five years.

The half-year rule is applied in depreciating property, plant and equipment, including intangible assets. The company takes a half-year of depreciation in the year of acquisition and a half-year of depreciation in the year of disposal.

5. In October 20X4, the company bought a new delivery vehicle. The cost was $18,500. The vehicle is expected to have a five-year life and a $2,000 residual value. On December 31, 20X4, the company sold the old delivery vehicle for $800; however, the journal entry to account for the sale of the vehicle has not been booked yet. On December 31, 20X4, the cash from the sale was deposited into CWW's bank account.

The transaction was journalized as follows:

DR Cash 800

CR Gain on sale of equipment 800

All capital assets up to December 31, 20X3, are shown in the schedule below.

  

Life   (in years)

Cost,   opening

Residual   value

Accumulated   
  depreciation to
December 31, 20X3

Net   book value, at
  December 31, 20X3

 

Land —   warehouse

n/a

85,000.00

85,000.00

 

Land — store

n/a

194 400.00

194,400.00

 

279,400.00

279,400.00

 

Warehouse   (building)

40

126,000.00

10,000.00

27,550.00

98,450.00

 

Store

40

368,400.00

78,285.00

290,115.00

 

Tools and other   equipment

15

38,850.00

24,605.00

14,245.00

 

Vehicles —   delivery, service, sales — old

5

16,500.00

500.00

14,400.00

2,100.00

 

Vehicles — delivery, service, sales — new

5

—

2 000 00

—

 

549,750.00

12,500.00

144,840.00

404,910.00

 

Office   equipment

20

8,500.00

500.00

3,400.00

5,100.00

 

Computer equipment—old

3

10,500.00

600.00

4,950.00

5,550.00

 

Computer equipment — new

3

 

19,000.00

1,100.00

8,350.00

10,650.00

 

848,150.00

13,600.00

153,190.00

694,960.00

 

Customer list

5

10,000.00

5,000.00

5,000.00

   

CWW reports its financial information using FRS.

The opening trial balance for CWW is presented below.

Colton's Western Wear
Unadjusted trial balance
As at December 31, 20X4

  

Account

DR

CR

 

Cash

$ 146,358.00

 

Accounts receivable — trade

42,500.00

 

Allowance for doubtful accounts

$ 1,468.00

 

Prepaid insurance

11,500.00

 

Inventory — clothing

30,780.00

 

Inventory — boots

113,930.00

 

Inventory — related products

35,550.00

 

Investment in PLZ shares (at FVPL)

84,240.00

 

Investment in General Company bonds (at amortized cost)

250,000.00

 

Investment in mortgage option (at FVOCI)

5,000.00

 

Investment in mortgages (at FVOCI)

512,000.00

 

Land

279,400.00

 

Warehouse

126,000.00

 

Accumulated depreciation — warehouse

27,550.00

 

Store

368,400.00

 

Accumulated depreciation — store

78,285.00

 

Tools and other equipment

38,850.00

 

Accumulated depreciation — tools and other equipment

24,605.00

 

Vehicles — delivery, service, sales

35,000.00

 

Accumulated depreciation — vehicles

14,400.00

 

Office equipment

8,500.00

 

Accumulated depreciation — office equipment

3,400.00

 

Computer equipment

12,300.00

 

Accumulated depreciation — computer   equipment

4,950.00

 

Customer list

10,000.00

 

Accumulated amortization — customer list

5,000.00

 

Accounts payable

109,590.00

 

Payroll taxes payable

4,240.00

 

Short-term note payable

3,500.00

 

Current portion of long-term debt

7,200.00

 

Long-term debt

36,000.00

 

Preferred shares (2,000 shares outstanding)

50,000.00

 

Common shares (750 shares © $4001 share)

300,000.00

 

Retained earnings

237,957.00

 

Revenue — merchandise

2,637,508.00

 

Revenue — related products

571,577.00

     

Revenue — clothing Revenue — other

526,225.00
  198,600.00

 

Cost of goods sold — boots

1,424,192.00

 

Cost of goods sold — related   products

355,944.00

 

Cost of goods sold — clothing

310,500.00

 

Advertising

4,500.00

 

Audit and legal fees

13,907.00

 

Bad debts

1,275.00

 

Interest expense — long-term   debt

3,225.00

 

Insurance expense — property,   building and casualty

23,700.00

 

Insurance — automobile

2,500.00

 

Investment transaction costs

309.00

 

Janitorial services

7,800.00

 

Office expenses

4,800.00

 

Property taxes

18,600.00

 

Training and development

3,200.00

 

Telephone

6,685.00

 

Utilities

7,200.00

 

Wages, salaries and benefits

432,000.00

 

Dividend income

2,025.00

 

Gain / loss   through P&L on investment in PLZ shares

52,785.00

 

Mortgage interest income

57,980.00

 

Gain / loss   on sale of property, plant and equipment

800.00

 

Income tax expense

225,000.00

 

Total

$4,955.645.00

$4,955,645.00

Required:

Submit the following in your response:

1. The adjusting journal entries with supporting calculations (26 marks)

2. Adjusted trial balance (1 mark)

3. The statement of comprehensive income (1 mark)

4. The statement of changes in equity (1 mark)

5. The statement of financial position (1 mark)

While preparing the financial statements of CWW for the year ended December 31, 20X4, assume that income tax expense will remain unchanged for this scenario.