540 Solutions To Exercises

The ECL increase is deemed to be significant by management and as a result, the ECL
has changed from a 12-month ECL to the investment’s lifetime (Lifetime ECL).

EXERCISE 8–23
General Journal
Date Account/Explanation PR Debit Credit
Loss on impairment (NI) . . . . . . . . . . . . . . . . . . . . 1,725
Unrealized gain/loss (OCI) . . . . . . . . . . . . . . . . . . 4,025
Investment in bonds, amortized cost . . . . . 5,750
For Unrealized gain/loss: (1,150,000 × (1 −
0.995) = 5,750 − 1,725)

Chapter 9 Solutions

EXERCISE 9–1

The following costs should be capitalized with respect to this equipment:

Cash price paid, net of $1,600 discount, excluding $3,900 of recoverable tax $ 78,400
Freight cost to ship equipment to factory 3,300
Direct employee wages to install equipment 5,600
External specialist technician needed to complete final installation 4,100
Materials consumed in the testing process 2,200
Direct employee wages to test equipment 1,300
Legal fees to draft the equipment purchase contract 2,400
Government grant received on purchase of the equipment (8,000)
Total cost capitalized 89,300

The recoverable tax should be disclosed as an amount receivable on the balance sheet.

The repair costs, costs of training employees, overhead costs, and insurance cost would
all be expensed as regular operating expenses on the income statement.

An alternative treatment for the government grant would be to defer it as an unearned

revenue liability and then amortize it on the same basis as the equipment depreciation.