Question

28. Quantacc Company began operations on January 1, Year 1, and uses IFRS to prepare its financial statements. Quantacc reported net income of $100,000 in Year 5 and had stockholders' equity of $500,000 at December 31, Year 5. The company wishes to determine what its Year 5 income and December 31, Year 5, stockholders' equity would be if it had used U.S. GAAP. Relevant in- formation follows: • Quantacc carries fixed assets at revalued amounts. Fixed assets were last revalued upward by $35,000 on January 1, Year 3. At that time, fixed assets had a remaining useful life of 10 years. Quantacc capitalized development costs related to a new product in Year 4 in the amount of $80,000. Quantacc began selling the new product in January, Year 5, and expects the product to be marketable for a total of five years. Early in January, Year 5, Quantaco realized a gain on the sale-and-leaseback of an office building in the amount of $150,000. The lease is accounted for as an operating lease, and the term of the lease is 20 years. Required: Calculate the following for Quantacc Company using U.S. GAAP (ignore in- come taxes): a. Net income for Year 5. b. Stockholders' equity at December 31, Year 5.

Answer 1

a. Determine the net income for the year-5 using U.S. GAAP as shown below: Calculation Amount $100.000 Details Net income under IFRS Adjustments: Reversal of depreciation on revaluation of fixed assets Reversal of amortization of deferred development costs Reversal of gain on sale and leaseback Amortization of gain on sale and leaseback Net income (loss) under U.S. GAAP $35.000 - 10 years | $3,500 $80.000 = 5 years $16.000 ($150.000) $150,000 = 20 years $7,500 ($23.000 Thus, the net loss under U.S. GAAP is $23,000. b. Determine the stockholders' equity at December 31, year 5 using U.S. GAAP as shown below: Calculation Amount $500,000 Details Stockholders' Equity under IFRS Adjustments: Reversal of revaluation of fixed assets ($35,000) $35.000 (3 = 10) years $80,000 - 5 years Reversal of accumulated depreciation on revaluation of fixed assets Reversal of deferred development costs Reversal of accumulated amortization of deferred development costs Reversal of gain on sale and leaseback Amortization of gain on sale and leaseback Stockholders' Equity under U.S. GAAP $10,500 ($80.000) $16.000 ($150,000) $7,500 $269.000 $150,000 - 20 years Thus, the Stockholders' Equity under U.S. GAAP is $269,000.