Eight entries, new company, no hints

Muskoka Timber’s December

Muskoka Timber Ltd. is a Bracebridge sawmill that reports under IFRS in preparation for a listing. Its policy is to charge inventory write-downs within cost of goods sold and to credit impairment losses to accumulated depreciation. Eight transactions arrive in December, in no particular order — exactly the way the midterm presents them. The first two are worked below; the rest are yours.

1 December — LCNRV. Lumber on hand cost $41,000. Its net realisable value — estimated selling price less costs to complete and sell — is $38,700. Cost exceeds NRV by $2,300, so the inventory is written down:

Dr Cost of Goods Sold        2,300
    Cr Inventory                     2,300

No separate loss account (the policy says COGS) and no allowance account (the course credits Inventory directly). The prompt gives the policy; the chart offers the alternatives as traps.

4 December — disposal. A planer that cost $120,000, with accumulated depreciation of $95,000 already updated to the sale date, is sold for $18,000. Carrying amount is $120,000 − $95,000=$25,000; proceeds of $18,000 fall short by $7,000, a loss:

Dr Cash                          18,000
Dr Accumulated Depreciation—Planer 95,000
Dr Loss on Disposal               7,000
    Cr Planer                            120,000

Three things every disposal entry does: remove the cost (credit the asset), remove the accumulated depreciation (debit the contra-asset), and plug the difference between proceeds and carrying amount as a gain (credit) or loss (debit). The prompt says depreciation is already updated; when it is not, that update is the first entry.

The remaining six, in brief

• Impairment. The kiln’s carrying amount is $210,000; value in use is $172,000 and fair value less costs of disposal $165,000, so the recoverable amount is the higher, $172,000: loss $38,000, credited to Accumulated Depreciation—Kiln.
• Share issue. 20,000 shares at $9.50 with $4,000 of issue costs: cash received $186,000, all of it share capital.
• Dividend. $0.25 on 120,000 shares = $30,000 declared, later paid.
• Warranty. 4 % of $500,000 of December sales = $20,000 of expected claims, recognised when the sales are made.
• Error. Last year’s ending inventory was overstated by $9,000 and the books are closed: last year’s cost of goods sold was too low, so retained earnings is too high, and the inventory account still carries the excess.

Each uses a chart that mixes the traps the modules recorded — an expense where a distribution belongs, a liability for a dividend never declared, a loss account the policy excludes. Read the prompt for the policy, then build the entry.