What is a related party transaction? Provide examples of transactions that would be considered related-party transactions and then locate an example of a related party transaction that has been questioned in a company and what were the end results?

Little TownLittle TownPizza bought a used Ford delivery van on January​ 2,20182018​, for$ 21 comma 800$21,800. The van was expected to remain in service for four years left parenthesis 48 750(48,750 miles). At the end of its useful​ life, Little TownLittle Town management estimated that the​ van's residual value would be $ 2 comma 300$2,300. The van traveled 1500015,000 miles the first​ year, 1700017,000 miles the second​ year, 1250012,500 miles the third​ year, and 42504,250 miles in the fourth year.

1.	Prepare a schedule of depreciation expense per year for the van under the three depreciation methods.​ (For units-of-production and​ double-declining-balance methods, round to the nearest two decimal places after each step of the​ calculation.)
2.	Which method best tracks the wear and tear on the​ van?
3.	Which method would Little TownLittle Town prefer to use for income tax​ purposes? Explain your reasoning in detail.

Problem 16-1A Indirect: Statement of cash flows LO A1, P1, P2, P3

Forten Company, a merchandiser, recently completed its calendar-year 2013 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s balance sheets and income statement follow.

  

FORTEN COMPANY Comparative Balance Sheets December 31, 2013 and 2012
	2013			2012
Assets
Cash	$	43,649		$	62,500
Accounts receivable		65,825			51,625
Merchandise inventory		274,156			249,800
Prepaid expenses		1,220			1,625
Equipment		143,025			101,000
Accum. depreciation—Equipment		(33,850)			(41,000)
Total assets	$	494,025		$	425,550
Liabilities and Equity
Accounts payable	$	59,975		$	108,350
Short-term notes payable		6,200			4,100
Long-term notes payable		37,625			33,500
Common stock, $5 par value		153,250			145,250
Paid-in capital in excess of par, common stock		24,000			0
Retained earnings		212,975			134,350
Total liabilities and equity	$	494,025		$	425,550

  

FORTEN COMPANY Income Statement For Year Ended December 31, 2013
Sales				$	587,500
Cost of goods sold					287,000
Gross profit					300,500
Operating expenses
Depreciation expense	$	18,100
Other expenses		128,100			146,200
Other gains (losses)
Loss on sale of equipment					(4,025)
Income before taxes					150,275
Income taxes expense					26,250
Net income				$	124,025

  

Additional Information on Year 2013 Transactions
a.	The loss on the cash sale of equipment was $4,025 (details in b).
b.	Sold equipment costing $43,425, with accumulated depreciation of $25,250, for $14,150 cash.
c.	Purchased equipment costing $85,450 by paying $41,000 cash and signing a long-term note payable for the balance.
d.	Borrowed $2,100 cash by signing a short-term note payable.
e.	Paid $40,325 cash to reduce the long-term notes payable.
f.	Issued 1,600 shares of common stock for $20 cash per share.
g.	Declared and paid cash dividends of $45,400.

  

Required:
1.	Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Rachel is an engineer who practices as a sole proprietor. This year, Rachel had net business income of $500,000 from her business. Assume that Rachel pays $20,000 wages to her employees, she has $500,000 of property (unadjusted basis of equipment she purchased last year), has no capital gains, and her taxable income before the deduction for qualified business income is $380,000. Calculate Rachel's deduction for qualified business income.

To prepare for this discussion review the chapter reading assignments. While doing the reading think about your responses to the identified questions, AND respond to your colleagues’ postings in one or more of the following ways:

• Ask a probing question.
• Share an insight from having read your colleague’s posting.
• Offer and support an opinion.
• Validate an idea with your own experience.
• Make a suggestion.
• Expand on your colleague’s posting.

Tammy Potter, a new partner with the regional CPA firm of Tower & Tower, was recently appointed to the board of directors of a local civic organization. The chairman of the board of the civic organization is Lewis Edmond, who is also the owner of a real estate development firm Tiera Corporation.

Potter was quite excited when Edmond indicated that his corporation needed an audit and he wished to discuss the matter with her. During the discussion, Potter was told that Tiera Corporation needed the audit to obtain a substantial amount of additional financing to acquire another company. Presently, Tiera Corporation is successful, profitable, and committed to growth. The audit fee for the engagement should be substantial.

Since Tierra Corporation appeared to be a good client prospect. Potter tentatively indicated that Tower & Tower wanted to do the work. Potter then mentioned that Tower & owner’s quality control policies require an investigation of new clines and approved by the managing partner, Lee Tower.

Potter obtained the authorization of Edmond to make the necessary inquires for the new client investigation. Edmond was found to be a highly respected member of the community. Also, Tiera Corporation was highly regarded by tis banker and its attorney, and the Dun & Bradstreet report on the corporation reflected nothing negative.

As a final part of the investigation process, Potter contacted Edmond’s former tax accountant, Bill Tuner. Potter was reprised to discover that Turner did not share the others’ high opinion of Edmond. Turner related that on an IRS audit 10 years ago, Edmonds’ former tax accountant, Bill Turner. Potter was surprised to discover that Turner did not share the others’ high opinion of Edmond. Turner related that on an IRS audit 10 years ago. Edmond was questioned about the details of a large capital loss reported on the sale of a tract of land to a trust. Edmond told the IRS agent that he had lost all the supporting documentation for the transaction, and they had no way of finding out the names of the principals of the trust. A search by an IRS auditor revealed that the land was recorded in the name of Edmond’s married daughter and that Edmond himself was listed as the trustee. The IRS disallowed the loss and Edmond was assessed a civil fraud penalty. Potter was concerned about these findings, but eventually concluded that Edmond has probably matured to a point where he would not engage in such activities.

1. Present arguments supporting a decision to accept Tiera Corporation as an audit client.
2. Present arguments supporting a decision NOT to accept Tierra Corporation as an audit client.

Assuming that you are Lee Tower, set forth your decision regarding acceptance of the client, identifying those arguments from pat (a) or pat (b) that you found most persuasive.

Company	Profit Margin	Return on Equity	Current Ration
Regions Financial	31.79%	10.2%	0.04%
Bank of America	31.74%	10.57%	0.41%
Wells Fargo	26.44%	11.29%	0.25%

Build a table showing the three companies and the three ratios and conduct an analysis of comparison.

1. Based on your interpretation of the ratios, which companies seem to be doing better and why?
2. Are your findings and interpretations consistent with how you viewed the company prior to your research? If not, what is different and why?
3. What unanswered questions do the ratios not address and how might you go about addressing these questions?

Exercise 14-20 Installment note; amortization schedule [LO14-3]

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. In payment for the $4.3 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 9%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Prepare the journal entry for American Food Services’ purchase of the machine on January 1, 2018.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2018.
4. Prepare the journal entry for the third installment payment on December 31, 2020.

Explain the difference between Limited and Reasonable Assurance, also give one example of each.
Need Examples and evaluated answer.

List the following information of Camping World Inc.

CEO:

President:

CFO:

Are any of the above names famous? If so who and what are they known? What were some reasons for the stock price to fluctuate besides the usual stock market conditions. List specific examples reasons that help the stock price rise (tailwinds) or caused the stock to drop (headwinds). In at least 300 words write your recommendations for this company.

The following information was available to reconcile Montrose Company’s book balance of Cash with its bank statement balance as of October 31, 2017:

a.	After all posting was completed on October 31, the company’s Cash account had a $17,673 debit balance, but its bank statement showed a $39,247 balance.
b.	Cheques #296 for $1,784 and #307 for $17,056 were outstanding on the September 30 bank reconciliation. Cheque #307 was returned with the October cancelled cheques, but cheque #296 was not. It was also found that cheque #315 for $1,194 and cheque #321 for $2,675, both written in October, were not among the cancelled cheques returned with the statement.
c.	In comparing the cancelled cheques returned by the bank with the entries in the accounting records, it was found that cheque #320 for the October rent was correctly written for $5,080 but was erroneously entered in the accounting records as $5,800.
d.	A credit memo enclosed with the bank statement indicated that there was an electronic fund transfer related to a customer payment for $22,900. A $160 bank service charge was deducted. This transaction was not recorded by Montrose before receiving the bank statement.
e.	A debit memo for $4,335 listed a $4,269 NSF cheque plus a $66 NSF charge. The cheque had been received from a customer, Jefferson Tyler. Montrose had not recorded this bounced cheque before receiving the statement.
f.	Also enclosed with the statement was a $99 debit memo for bank services. It had not been recorded because no previous notification had been received.
g.	The October 31 cash receipts, $3,105, were placed in the bank’s night depository after banking hours on that date and this amount did not appear on the bank statement.

Required:
1. Prepare a bank reconciliation for the company as of October 31, 2017.     

2. Prepare the General Journal entries necessary to bring the company’s book balance of Cash into agreement with the reconciled balance. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• 1

  Record the collection of note less collection fee.

• 2

  Record the NSF cheque.

• 3

  Record the bank service charges.

• 4

  Record to correct error in Cheque #320.

The St. Lucia Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month.

A report prepared by a government official comparing actual costs to budgeted costs for the blood bank appears below. Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.

St. Lucia Blood Bank Cost Control Report For the Month Ended September 30
	Actual Results		Planning Budget		Variances
Liters of blood collected		880		700
Medical supplies	$	10,437	$	8,295	$	2,142	U
Lab tests		12,145		9,975		2,170	U
Equipment depreciation		1,840		1,600		240	U
Rent		1,700		1,700		0
Utilities		384		350		34	U
Administration		14,705		14,520		185	U
Total expense	$	41,211	$	36,440	$	4,771	U

The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget.

The following cost formulas were used to construct the planning budget:

	Cost Formulas
Medical supplies	$11.85q
Lab tests	$14.25q
Equipment depreciation	$1,600
Rent	$1,700
Utilities	$350
Administration	$1.60q

Required:

1. Complete the performance report for September using the flexible budget approach. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations and round your final answers to nearest whole dollar.)

	St. Lucia Blood Bank Flexible Budget Performance Report For the Month Ended September 30 Actual Results Spending Variances Flexible Budget Activity Variances Planning Budget Medical supplies $10,437 $8,295 Lab tests 12,145 9,975 Equipment depreciation 1,840 1,600 Rent 1,700 1,700 Utilities 384 350 Administration 14,705 14,520 Total expense $41,211 $36,440

QUESTION ONE:

Comprehensive Standard Cost Variances

Clarissa McWhirter, vice-president of Cyprus Company, was pleased to see a small variance on the income statement after the trouble the company had been having in controlling manufacturing costs. She noted that the $12,250 overall manufacturing variance reported last period was well below the 3% limit that had been set for variances. The company produces and sells a single product. The standard cost card for the product follows:

Standard Cost Card -Per Unit

Direct materials, 4 metres at $3.50 per metre                                                    $14

Direct labour, 1.5 direct labour-hours at $12 per direct labour-hour                 18

Variable overhead, 1.5 direct labour-hours at $2 per direct labour-hour           3

Fixed overhead, 1.5 direct-labour hours at $6 per direct labour-hour                9

Standard cost per unit                                                                                              44

                                                                                           

The following additional information is available for the year just completed:

a. The company manufactured 20,000 units of product during the year.

b. A total of 78,000 metres of material was purchased during the year at a cost of $3.75 per metre. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year.

c. The company worked 32,500 direct labour-hours during the year at a cost of $11.80 per hour.

d. Overhead cost is applied to products on the basis of standard direct labour-hours. Data relating to manufacturing overhead costs follow:

Denominator activity level (direct labour-hours)                             25,000

Budgeted fixed overhead costs (from the flexible budget)       $150,000

Actual fixed overhead costs                                                           $148,000

Actual variable overhead costs                                                      $68,250

Required:

1. Compute the direct materials price and quantity variances for the year.
2. Compute the direct labour rate and efficiency variances for the year.
3. For manufacturing overhead, compute the following:
   1. The variable overhead spending and efficiency variances for the year.
   2. The fixed overhead budget and volume variances for the year.
4. Total the variances you have computed, and compare the net amount with the $12,250 mentioned by the vice-president Do you think that everyone should be congratulated for a job well done? Explain.

Your company is considering purchasing a new bottling machine for the line that manufactures juice products. This Swill Fill 2000 is forecast to last for five years and will cost $42,000 to purchase. The new machine will offer labor savings of $4,500 annually through faster changeovers and will save you $5,000 per year in maintenance costs vs. your existing machine. The existing machine does not exhibit unusual wear-and-tear and should be able to go for another five years as well.

Your internal hurdle rate is 12%. Should you go forward with the purchase?

If we assume that the machine can outlive its useful life as stated in the problem above, what is our simple payback period? What is our discounted payback period? Please build a table to demonstrate the payback period over time at least through the point in time where the discounted payback period turns positive.

Atlas Enterprises Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

Activity	Activity Rate
Fabrication	$20	per machine hour
Assembly	$10	per direct labor hour
Setup	$55	per setup
Inspecting	$24	per inspection
Production scheduling	$11	per production order
Purchasing	$8	per purchase order

The activity-base usage quantities and units produced for each product were as follows:

Activity Base	Elliptical Machines		Treadmill
Machine hours	1,747		1,031
Direct labor hours	385		150
Setups	56		17
Inspections	683		410
Production orders	72		14
Purchase orders	189		115
Units produced	313		210

Use the activity rate and usage information to calculate the total activity cost and activity cost per unit for each product. If required, round the per unit answers to the nearest cent.

	Total Activity Cost	Activity Cost Per Unit
Elliptical Machines	$	$
Treadmill	$	$

Post to T accounts

The following transactions for The Reds Co. in 2000:

2/1 deposited in the bank $50,000 as Capital

4/1 furniture bought to use in store for $6,500 paid by cheque.

10/1 bought good on Credit from alwatan Co. at a cost of $8,000.

15/1 goods were sold for $1,500 in cash

16/1 goods were sold to Mohammad for $600 received a cheque

18/1 sales for $800 in cash

20/1 $2,000 were deposited in the business bank account

25/1 $5,000 were paid back in cheque to alwatan Co.

26/1 good were sold to Alahly Club for $2,300 on credit

27/1 goods were sold to Mohammad for $1,200 on credit

28/1 all money is received from Alahly Club in cash

30/1 500$ were paid as salaries to worker in the store by cheque

31/1 the store paid $650 by cheque as rent for the store