Goldworld Mining Inc. (GMI) is a new, privately owned gold mining company that will prepare its financial statements using ASPE. GMI’s head office was set up in the Northwest Territories, but it also began mining operations in the United States and South America. There are only two individuals in GMI’s accounting department: a controller and an accounting clerk. GMI’s chief financial officer has some doubts about the controller’s understanding of complex accounting issues given some errors that were identified in the last few months. GMI has a loan outstanding from RD Bank that has two loan covenants: GMI’s debt-to-equity ratio CANNOT exceed 1.5:1, and GMI must maintain a current ratio of at least 2:1. GMI requires additional capital to finance its operations and is planning on going public in the near future. GMI’s controller is preparing GMI’s first set of annual financial statements for the current year ended December 31. Required: Evaluate the two accounting options available for GMI to report income taxes on its financial statements. Discuss three case facts related to each of the accounting options. Recommend which option GMI should choose, and explain why
Goldworld Mining Inc. (GMI) is a new, privately owned gold mining company that will
prepare its financial statements using ASPE. GMI’s head office was set up in the
Northwest Territories, but it also began mining operations in the United States and
South America. There are only two individuals in GMI’s accounting department: a
controller and an accounting clerk. GMI’s chief financial officer has some doubts about
the controller’s understanding of complex accounting issues given some errors that
were identified in the last few months.
GMI has a loan outstanding from RD Bank that has two loan covenants: GMI’s
debt-to-equity ratio CANNOT exceed 1.5:1, and GMI must maintain a
least 2:1.
GMI requires additional capital to finance its operations and is planning on going public
in the near future. GMI’s controller is preparing GMI’s first set of annual financial
statements for the current year ended December 31.
Required:
Evaluate the two accounting options available for GMI to report income taxes on its
financial statements. Discuss three case facts related to each of the accounting options.
Recommend which option GMI should choose, and explain why
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