ABC Energy Corp. (the “Company”), an SEC registrant, operates three manufacturing facilities in the United States. The Company manufactures various household cleaning products at each facility, which are sold to retail customers. The U.S. government granted the Company emission allowances (EAs) of varying useable years (i.e., the years in which the allowance may be used) to be used between 2015 and 2030. Upon receipt of the EAs, the Company recorded the EAs as intangible assets with a cost basis of zero, in accordance with the Federal Energy Regulatory Commission (FERC) accounting guidance for EAs. The Company has a fiscal year end of December 31.

As background, in an effort to control or reduce the emission of pollutants and greenhouse gases, governing bodies typically issue rights or EAs to entities to emit a specified level of pollutants. Each individual EA has a useable year designation. EAs with the same useable year designation are fungible and can be used by any party to satisfy pollution control obligations. Entities can choose to buy EAs from, and sell EAs to, other entities. Such transactions are typically initiated through a broker. At the end of a compliance period, participating entities are required to either (1) deliver to the governing bodies EAs sufficient to offset the entity's actual emissions or (2) pay a fine. The Company currently emits a significant amount of greenhouse gases because of its antiquated manufacturing facilities. The Company plans to upgrade its facilities in 2024, which will decrease greenhouse gas emissions to a very low level. On the basis of the timing of the upgrade, the Company currently anticipates a need for additional EAs in fiscal years 2020–2024.

However, upon completion of the upgrade, the Company believes it will have excess EAs in fiscal years subsequent to 2024 because of reduced emissions as a result of the upgrade. The Company currently has forecasted the updates to its facilities will cost approximately $15 million. As the Company operates in a capital intensive industry, analysts and investors focus on a number of important ratios and measures, including working capital, capital expenditures, cash flows from operations, and free cash flow. As a result, the board of directors and management provide forward-looking guidance on these ratios and measures and expend great effort managing these results in light of the Company’s operational needs. The Company entered into the following two separate transactions in fiscal year 2020, which will impact the Company’s results as presented in the statement of cash flows, which the Company prepares under the indirect method.

          1. To meet its need for additional EAs in fiscal years 2020–2024, on April 2,         2020, the Company spent $6.5 million to purchase EAs with a useable year of       2023 from XYZ Manufacturing Corp.

2. In an effort to offset the costs of the April 2, 2019, purchase of 2023 EAs, the Company sold EAs with a useable year of 2026 to DEF Chemical Corp. for $5 million.

Required:

1. What is the appropriate classification in the statement of cash flows in the Company’s December 31, 2020, financial statements for its purchase of 2023 EAs from XYZ Manufacturing Corp.?

2. What is the appropriate classification in the statement of cash flows in the Company’s December 31, 2020, financial statements for its sale of 2026 EAs to DEF Chemical Corp.?

3. Should these cash flows be reported at gross amounts or net amounts in the 2020 statement of cash flows?

Be sure to cite appropriate authoritative support for your answer from the Accounting Standards Codification.

Luthan Company uses a plantwide predetermined overhead rate of $23.90 per direct labor-hour. This predetermined rate was based on a cost formula that estimated $286,800 of total manufacturing overhead cost for an estimated activity level of 12,000 direct labor-hours.

The company incurred actual total manufacturing overhead cost of $268,000 and 11,800 total direct labor-hours during the period.

Determine the amount of manufacturing overhead cost that would have been applied to all jobs during the period.

Kiyara (single) is a 50 percent shareholder of Jazz Corporation (an S Corporation). Kiyara does not do any work for Jazz Corp. Jazz Corp. reported $350,000 of business income for the year (2020). Before considering her business income allocation from Jazz Corp. and the self-employment tax deduction (if any), Kiyara’s adjusted gross income was $300,000 (all employee salary). Answer the following questions for Kiyara.

Assuming the income allocated to Kiyara is qualified business income, what is Kiyara’s deduction for qualified business income?

What is Kiyara’s additional Medicare tax liability (include all earned income)?

Please briefly explain the activity-based costing income statement and provide a hypothetical example of activity-based costing income statement in a manufacturing enterprise

Problem 19-11 EPS; nonconvertible preferred stock; treasury shares; shares sold; stock dividend [LO19-4, 19-5, 19-6, 19-7]

On December 31, 2017, Dow Steel Corporation had 780,000 shares of common stock and 48,000 shares of 10%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 5% common stock dividend on May 15 and paid cash dividends of $580,000 and $87,000 to common and preferred shareholders, respectively, on December 15, 2018.

On February 28, 2018, Dow sold 68,000 common shares. In keeping with its long-term share repurchase plan, 5,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2018, was $3,000,000. The income tax rate is 40%.
  
Required:
Compute Dow's earnings per share for the year ended December 31, 2018. (Do not round intermediate calculations. Enter your answers in thousands.)

Discuss the advantages of a cash distribution policy. What are the tax consequences of cash distributions? Identify the most widely used cash distribution policies.

1.Explain why the balance sheet does not portray the market value of an entity?

2.Distinguish between property, plant, and equipment and intangible assets.

Question three (Total mark: 5 marks, word limit: 500 words)

You will need to do some research – via the Internet and/or via articles and papers. Investigate the goals for three organizations, covering one private-sector organization, one in the public sector and one not-for-profit organization. Briefly compare and contrast the detail in their goals.

1. Un-jumble the Income statement, put in the proper format, and find the profit or loss.
2. Compute the Break-even Analysis.
3. If profit increased 15,000, how much sales in dollars would need to be generated?
4. If the Avg Sales price is 74.00, how many Units will be needed to break even?  

Office Supplies Expense 2,500
Cost of Goods Sold 113,500
Depreciation 5,000
Advertising Expense 17,000
Labor Expense 52,500 (65% Fixed)
Benefits Expense 17,500 (65% Fixed)
Insurance Expense 3,000
Income Taxes 12,725
Administrative Expense 21,825
Sales Returns 4,000
Rent Expense 19,000
Gross Sales 380,000
Utilities Expense 7,000
Sales Allowances 4,500
Interest Expense 4,600
Selling Expense 16,500
Legal Expense 4,500

The following summaries for ¹Maryland Service, Inc., and ²Grapone, Co., provide the information needed to prepare the stockholders’ equity section of each company’s balance sheet. The two companies are independent.

1. Maryland is authorized to issue 44,000 shares of $1 par common stock. All the stock was issued at $11 per share. The company incurred net losses of $47,000 in 2009 and $15,000 in 2010. It earned net income of $32,000 in 2011 and $178,000 in 2012. The company declared no dividends during the four-year period.    

2. Grapone’s charter authorizes the issuance of 70,000 shares of 5%, $14 par preferred stock and 470,000 shares of no-par common stock. Grapone issued 1,400 shares of the preferred stock at $14 per share. It issued 130,000 shares of the common stock for $260,000. The company’s retained earnings balance at the beginning of 2012 was $60,000. Net income for 2012 was $98,000, and the company declared the specified preferred dividend for 2012. Preferred dividends for 2011 were in arrears.

Requirements:

1. For each company, prepare the stockholders’ equity section of its balance sheet at December 31, 2012. Show the computation of all amounts. Entries are not required.

Financial statements from the end-of-period spreadsheet

Demo Consulting is a consulting firm owned and operated by Jesse Flatt. The following end-of-period spreadsheet was prepared for the year ended August 31, 20Y9:

During the year ended August 31, 20Y9, $15,000 of additional common stock was issued.

Based on the preceding spreadsheet, prepare an income statement for Demo Consulting.

Feedback

Revenue and expense accounts flow into the income statement.

Based on the preceding spreadsheet, prepare a statement of stockholders’ equity for Demo Consulting. If a net loss is incurred or dividends were paid, enter that amount as a negative number using a minus sign. If an amount box does not require an entry, leave it blank.

Feedback

The statement of stockholders' equity shows the beginning balances of common stock and retained earnings. The common stock balance will be increased by any stock issued during the period, and retained earnings will be increased by any net income and decreased by any net losses and dividends.

Based on the preceding spreadsheet, prepare a balance sheet for Demo Consulting.

Chart your personal required yield curve vs. treasury yields. Write a paragraph with your observations and conclusions with respect to your personal investment decisions

Profitability Ratios

The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:

The 20Y7 net income was $39,770, and the 20Y6 net income was $27,125. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.

a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders’ equity for the years 20Y6 and 20Y7. When required, round to one decimal place.

b. The profitability ratios indicate that Vidahill Inc.'s profitability has ______ . Since the rate of return on assets is _______ the return on stockholders' equity in both years, there must be______ leverage from the use of debt.

The exemption amount is used to determine which of the following?

a.Whether certain taxpayers are spouses

b.The tax rate applicable to the taxpayer's dependency exemption

c.Whether married taxpayers filing separate returns must claim dependents

d.The tax rate applicable to the taxpayer's personal exemption

e.Whether certain taxpayers are dependents

During 2020, Hayden had the following transactions:

Hayden's AGI is:

a.$79,000.

b.$82,000.

c.$83,000.

d.$136,000.

e.$125,000.

The kiddie tax applies to the unearned income of dependent children.

True

False

A strategy taxpayers can use to maximize the use of the standard deduction is to:

a.Spread charitable contributions across several years.

b.Employ a child in a business.

c.Purchase stock in a child's name.

d.Use the cash method to concentrate multiple years' deductions, such as charitable contributions, in a single year.

e.Reduce the amount of charitable contributions made in the year.