SOLVED

4) Cantac Construction purchased a piece of equipment for $40 million in early 2017. The company depreciates the equipment using the straight-line method over its useful life of 20 years, when it will have zero residual value. Cantac’s income tax rate is 40%. At the end of 2020, after four years of depreciation, the company wrote down the carrying amount of the equipment from $32 million to $24 million after performing an impairment test on the cash generating unit (CGU) to which the equipment belonged. As a result of the impairment, the annual depreciation declined from $2 million to $1.5 million. In 2023, prior to recording depreciation for that year, the company’s staff discovered an error in one of the formulas in the spreadsheet used to compute the value in use for the impairment test carried out at the end of 2020. Removing the error in the spreadsheet, the value in use for the CGU exceeded its carrying value. Therefore, the CGU was in fact not impaired, and Cantac should not have recorded an impairment writedown on the demolition equipment at the end of 2020. Required: Prepare the journal entries to correct the error including subsequent years’ depreciation and related tax effects. 5) Which statement is true regarding accounting accruals? A) The nature of accrual accounting is that accruals will reverse when cash cycles are complete. B) Operating activities generally have relatively long cash cycles. C) Financing and investing activities generally have relatively short cash cycles. D) Errors or changes in accounting policy that affect non-current items like equipment will result in follow-through changes over a relatively short period. 6) Which statement is true regarding accounting accruals? A) Errors or changes in accounting policy that affect non-current items like equipment will result in follow-through changes over a relatively short period. B) The purchase of equipment involves an initial accrual to record the asset followed by accrual reversals in the form of depreciation expense and derecognition of the asset upon disposal. C) Operating activities generally have relatively long cash cycles. D) Financing and investing activities generally have relatively short cash cycles. 7) Why are retrospective adjustments to past years’ income and expenses recorded directly in retained earnings? 8) Nadire Company has a December 31 year-end. The company uses the aging method to estimate bad debts at year-end. For interim reporting, the company uses the percentage- of-sales method because it is simpler. In March of 2019, the company identified a $109,000 receivable from Woodscreen Inc. as uncollectible. Upon further consideration, staff concluded that the write-off should have occurred in the 2018 fiscal year because the information about the uncollectibility of the account was available at the time. The general ledger accounts for 2018 have already been closed. Required: a.Record the entry to write-off the uncollectible account. b.Record any adjusting journal entries necessary to correct the error in Nadire’s ?accounts receivable.