Assignment Instructions
Respond to the following questions. Theproblems should be solved on the basis of IFRS unless otherwise stated.
Chapter 4 Question
As a result of a downturn in the economy, Optiplex Corporation hasexcess productive capacity. On January 1, Year 3, Optiplex signed aspecial order contract to manufacture custom-design generators for a newcustomer. The customer requests that the generators be ready for pickupby June 15, Year 3, and guarantees it will take possession of thegenerators by July 15, Year 3. Optiplex incurred the following directcosts related to the custom-design generators:
Item | Cost |
---|---|
Cost to complete the design of the generators | $3,000 |
Purchase price for materials and parts | $80,000 |
Transportation cost to get materials and parts to manufacturing facility | $2,000 |
Direct labor (10,000 labor hours at $12 per hour) | $120,000 |
Cost to store finished product (from June 15 to June 30) | $2,000 |
Because of the company’s inexperience in manufacturing generatorsof this design, the cost of materials and parts included an abnormalamount of waste totaling 5,000 dollars. In addition to direct costs,Optiplex applies variable and fixed overhead to inventory usingpredetermined rates. The variable overhead rate is 2 dollars per directlabor hour. The fixed overhead rate based on a normal level ofproduction is 6 dollars per direct labor hour. Given the decreased levelof production expected in Year 3, Optiplex estimates a fixed overheadapplication rate of 9 dollars per direct labor hour in Year 3.
Determine the amount at which the inventory of custom-designgenerators should be reported on Optiplex Corporation’s June 30, Year 3,balance sheet.
Chapter 5 Question
SC Masterpiece Inc. granted 1,000 stock options to certain salesemployees on January 1, Year 1. The options vest at the end of 3 years(cliff vesting) but are conditional upon selling 20,000 cases ofbarbecue sauce over the 3-year service period. The grant-date fair valueof each option is 30 dollars. No forfeitures are expected to occur. Thecompany is expensing the cost of the options on a straight-line basisover the 3-year period at 10,000 dollars per year (1,000 options X $30divided by 3 = $10,000). On January 1, Year 2, the company’s managementbelieves the original sales target of 20,000 units will not be metbecause only 5,000 cases were sold in Year 1. Management modifies thesales target for the options to vest to 15,000 units, which it believesis reasonably achievable. The fair value of each option at January 1,Year 2, is 28 dollars.
Determine the amount to be recognized as compensation expense inYear 1, Year 2, and Year 3 under (a) IFRS and (b) U.S. GAAP. Prepare thenecessary journal entries.
Submission Requirements
Your paper should meet the following requirements:
- Written communication: Written communication is free of errors that detract from the overall message.
- APA formatting: Resources and citations are formatted according to current APA style and formatting.
- Font and font size: Times New Roman, 12 point.