CA14-2. (Bond Theory: Price, Presentation, and Redemption) On March 1, 2017, Sealy Company sold its 5-year, $1,000 face value, 9% bonds dated March 1, 2017, at an effective annual interest rate (yield) of 11%. Interest is payable semiannually, and the first interest payment date is September 1, 2017. Sealy uses the effective-interest method of amortization. The bonds can be called by Sealy at 101 at any time on or after March 1, 2018.

Instructions

(a) 1.How would the selling price of the bond be determined?

(a) 2.Specify how all items related to the bonds would be presented in a balance sheet prepared immediately after the bond issue was    sold.

(b) What items related to the bond issue would be included in Sealy's 2017 income statement, and how would each be determined?

(c) Would the amount of bond discount amortization using the effective-interest method of amortization be lower in the second or third year of the life of the bond issue? Why

(d) Assuming that the bonds were called in and redeemed on March 1, 2018, how should Sealy report the redemption of the bonds on the 2018 income statement? (AICPA adapted)

U3 Company is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.

Depreciation is computed by the straight-line method with no salvage value. The company’s cost of capital is 15%. (Assume that cash flows occur evenly throughout the year.)

Click here to view PV table.

Compute the cash payback period for each project. (Round answers to 2 decimal places, e.g. 10.50.)

Compute the net present value for each project. (Round answers to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Compute the annual rate of return for each project. (Hint: Use average annual net income in your computation.) (Round answers to 2 decimal places, e.g. 10.50.)

Project BonoProject EdgeProject Clayton

Annual rate of return

enter a percentage number rounded to 2 decimal places

Rank the projects on each of the foregoing bases. Which project do you recommend?

Please be as specific as possible, I am confused on how to properly calculate each cash flow. Thank you.

1.      What are share splits and what accounting entries are necessary when a share split is undertaken?

2.      Are preference shares debt or equity? Briefly provide your reasoning?

3. On 1 July 2019 Campbell Ltd provided 1 million options to its chief executive officer. The options were valued at $1.20 each and allowed the chief executive officer to acquire shares in Campbell Ltd for $8.40 each. The chief executive officer is not permitted to exercise the options before 30 June 2021 but may then exercise them at any time between 1 July 2021 and 30 June 2022. The market price of the Campbell Ltd shares on 1 July 2019 was $9.75.

On 31 December 2021, the share price reaches $10.78 and the chief executive officer decides to exercise her options and acquire shares in Campbell Ltd.

Required: Account for the issue and exercise of options in Campbell Ltd

Τhe P/E (price to earnings) ratio show us the expected price of a stock based on its earnings. Investors tend to invest in a company with a high P/E ratio and buy its shares. On the other hand, reported earnings are often reconstructed by the companies by using some accounting techniques in order to attract investors. Which are those accounting techniques which can artificially help companies change the P/E ratio trend line?

Exercise 21A-1 a Splish Brothers enters into an agreement with Traveler Inc. to lease a car on December 31, 2016. The following information relates to this agreement. 1. The term of the non-cancelable lease is 3 years with no renewal or bargain purchase option. The remaining economic life of the car is 3 years, and it is expected to have no residual value at the end of the lease term. 2. The fair value of the car was $14,730 at commencement of the lease. 3. Annual payments are required to be made on December 31 at the end of each year of the lease, beginning December 31, 2017. The first payment is to be of an amount of $5,452.82, with each payment increasing by a constant rate of 5% from the previous payment (i.e., the second payment will be $5,725.46 and the third and final payment will be $6,011.73). 4. Splish Brothers’ incremental borrowing rate is 8%. The rate implicit in the lease is unknown. 5. Splish Brothers uses straight-line depreciation for all similar cars. (a) Prepare Splish Brothers’ journal entries for 2016, 2017, and 2018.

(Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 2 decimal places, e.g. 5,275.25.)

Date    Account Titles and Explanation    Debit Credit

12/31/16

12/31/17

(To record interest expense)

12/31/17

(To record amortization of the right-of-use asset)

12/31/18

(To record interest expense)

12/31/18

(To record amortization of the right-of-use asset)

Davis Uniform Corporation operates a store that sells uniforms. The following are the transactions that occurred during the first quarter of operation- Jan. 1 to Mar. 31, 2019.

Jan.     1   Davis issues 20,000 shares of $1 par value common stock with an issuing price of $10

per share.

Jan.     2   Purchased furniture and fixtures from Acme Furniture for $14,400 cash.

Jan.     4   Purchased $1,600 of office supplies for cash.

Jan.   15   Paid $36,000 in advance for one year’s rent on the store building. The rent begins with

                Jan 15. The company counts January for half a month.

Jan.   31   Paid salaries to employees for the first month, $3,600.

Feb.    1    Purchased $62,400 of uniforms inventory on account from the Birdwell Uniforms

                 Manufacturing Company.

Feb.    1    Borrowed $66,000 from a local bank and signed two notes. The first note of                  

                $21,000 requires payment of principal in six months with annual interest rate at 4%.

                The second note of $45,000 requires the payment of principal in two years and annual

interest payment with annual interest rate at 5%.

Feb.    6    Sold uniforms on account to St. Jude’s School for $7,200. Cost of the uniforms sold

is $4,800.

Feb.    9   Paid Birdwell Uniforms Manufacturing Company $50,000 for the purchase on Feb. 1.

Feb. 20    Sold uniforms to a chemical factory for $79,200 cash. Cost of the uniforms sold is

                 $47,520.

Feb. 23    Purchased $10,000 of uniforms inventory on account from the Birdwell Uniforms

                 Manufacturing Company.

Feb. 28    Paid salaries to employees for the month of February, $4,200.

Mar.   1   Sold uniforms to the football team of Robert Lee High School, and accepted a $12,000,

three-month, note receivablewith annual interest rate at 5%. Cost of the uniforms

sold is $9,600.

Mar.   1   Subleased a portion of the building to a jewelry store. Received $3,000 in advance

for three months’ rent beginning on Mar. 1.

Mar.   3   Some uniforms were returned by the chemical factory which made a purchase on

                Feb. 20. The selling price and cost of the returned uniforms is $7,200 and 4,320,

respectively. Cash of $7,200 is refunded to the customer.

Mar. 23   Paid Birdwell Uniforms Manufacturing Company $14,400 for the purchases in Feb.

Mar. 25   Received $5,800 cash from St. Jude’s School.

Mar. 30   The corporation announced and paid its shareholders cash dividends of $2,500.

Requirements:

1. Analyze the transactions and record journal entries in General Journal.

2. Open accounts in General Ledger and post from the General Journal to the general ledger accounts.

3. Record adjusting entries in General Journal and post to the general ledger accounts.

Additional information:

1. At the end of March, $900 of supplies remained.

2. The furniture and fixtures have a useful life of six years and will be worthless at the end of their useful life.

3.    Salaries for the month of March are $4,600, and will be paid in April.

4.    The company’s management estimated that of the $1,400 remaining on account from St.

Jude’s School, $200 would be uncollectible.

5. Income tax rate applied to the company is 21%.

4. Prepare a worksheet as of Mar 31, 2019.

5. For Davis Uniform Corporation as of Mar 31, 2019, prepare the financial statements

including Income Statement (multiple-step with EPS section), Classified Balance Sheet,

andStatement of Stockholders’ Equity. Statement of Cash Flows is not required.

6. Prepare closing entries to close the temporary accounts and post to the general ledger accounts.

.

What is the difference between a cost center and a profit center? Give a complete answer that demonstrates what critical element distinguishes the profit center from the cost center.

14-16 5

Required:

1. Present the balance sheet in common-size format.

2. Present the income statement in common-size format down through net income.

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $340,000, $360,000, $350,000, and $370,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $44,000. Each month $6,000 of this total amount is depreciation expense and the remaining $38,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Complete this question by entering your answers in the tabs below.

Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

Req 2A

Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

Req 2B

Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

Req 3

Prepare an income statement for the quarter ended September 30.

Req 4

Prepare a balance sheet as of September 30.

QUESTION 1 BANK RECONCILIATION The information given below was extracted from the accounting records of Mika Stores. REQUIRED 1.1 Complete the Cash Receipts Journal and Cash Payments Journal of Mika Stores for March 2018 after taking the information provided into account. Use only the columns illustrated below. In the details column write down the name of the contra account e.g. Rent income. (11) Cash Receipts Journal Details Bank Total b/f Cash Payments Journal Details Bank Total b/f MODULE FUNDAMENTALS OF FINANCIAL ACCOUNTING TOTAL MARKS 60 MARKS 1.2 Post to the Bank account in the General ledger of Mika Stores. Balance the account. (3) 1.3 Prepare the Bank Reconciliation Statement as at 31 March 2018. Use the following format: (6) Bank Reconciliation Statement as at 31 March 2018 Debit Credit INFORMATION R 1. The bank column of each of the cash journals showed the following totals before the March 2018 bank statement was received: Cash Receipts Journal Cash Payments Journal 300 000 350 000 2. A comparison of the cash journals of Mika Stores for March 2018 and the Bank Reconciliation Statement for February 2018 with the bank statement from Key Bank for March 2018 revealed the following differences: 2.1 Entries that appeared on the bank statement but not in the cash journals: R 2.1.1 A cheque previously received from the lessee for rent was dishonoured because of insufficient funds. 6 800 2.1.2 A debit order in favour of Telkom for the personal telephone account of the proprietor. 3 800 2.1.3 Charges levied by Key Bank: Service fees Cash deposit fee Interest on overdraft 1 500 1 000 100 2.1.4 A deposit by a debtor to settle his account of R6 200 6 000 2.1.5 A deposit by Key Bank for a successful loan application 50 000 2.2 Entries in the cash journals that did not appear in the bank statement: R 2.2.1 A deposit made on 31 March 2018 102 400 2.2.2 The following cheque issued during March 2018: Cheque no. 520 8 700 3. Additional information R 3.1 Cheque no. 490 (dated 23 February 2018) which appeared in the Bank Reconciliation Statement for February 2018 did not appear in the bank statement for March 2018. 16 140 3.2 Cheque no. 460 issued to Rix Soccer Club during January 2018 as a donation must be cancelled as the club no longer exists. 4 800 3.3 A deposit made by Rika Stores was erroneously reflected on the bank statement of Mika Stores. 4 000 3.4 An entry was made in the Cash Payments Journal for a cheque to a creditor MS Suppliers for R10 000. The bank statement reflected the correct amount of the cheque, R11 000. 3.5 The bank account in the ledger of Mika Stores reflected a debit balance on 01 March 2018. 38 800 3.6 The bank statement showed an unfavourable balance on 31 March 2018. ?

A partner of your accountancy firm has requested you to prepare detailed notes on the impact of redundancy pay. During this brief meeting with you, the partner said the following, “When the employment ofan employee ends prematurely (i.e. before reaching the retirement age or by resignation ofthe employee), it is called termination of the employment. Ordinarily this type of termination is initiated by the employer, therefore, breaching the employment contract between themselves and the employee. As a result, employers usually offer the employee some benefits at the time of termination to settle the breach of employment contract.”

The partner required you prepare a note that discusses the taxation of various benefits provided to the employees when their employment contract is terminated. Specifically, the following benefits must be separately discussed among any other benefits that you may come across in your research.

Gardening leave

Payment for training and skill development of employee

Past due salary & bonus

Pay in lieu of unutilised holidays

Payment in lieu of notice (PILON)

Statutory redundancy pay up to £30,000

Statutory redundancy pay above £30,000T

he discussion should also include how to determine whether benefits are being paid as ‘services rendered under employment’ or ‘as compensation for breach of the employment contract’.

References to the relevant sections of the legislation (section 62 & sections 401-416 ITEPA 2003) will enable you to secure higher marks.

REQUIRED:Present your detailed notes in a report format.

Your summary shouldbe detailed enough to be a basis for the partner to explain the matter to his clients. It may contain examples if that will improve the clarity of your report

Nautical Creations is one of the largest producers of miniature ships in a bottle. An especially complex part of one of the ships needs special production equipment that is not useful for other products. The company purchased this equipment early in 2015 for $200,000. It is now early in 2019, and the manager of the Model Ships Division, Jeri Finley, is thinking about purchasing new equipment to make this part. The current equipment will last for four more years with zero disposal value at that time. It can be sold immediately for $40,000. The following are last year's total manufacturing costs, when production was 8,200 ships:

The cost of the new equipment is $140,000. It has a four year useful life with an estimated disposal value at that time of $50,000. The sales representative selling the new equipment stated, "The new equipment will allow direct labor and variable overhead combined to be reduced by a total of $2.25 per unit." Finley thinks this estimate is accurate, but also knows that a higher quality of direct material will be necessary with the new equipment, costing $0.15 more per unit. Fixed overhead costs will increase by $4,100.

Finley expects production to be 8,650 ships in each of the next four years. Assume a discount rate of 5%.

REQUIRED

1. What is the difference in net present values if Nautical Creations buys the new equipment instead of keeping their current equipment?

Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:

*Before any purchase discount.

Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.

Required:

1. Refer to case 1 shown above. Alpha Division can avoid $6 per unit in commissions on any sales to Beta Division.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be?

d. Assume Alpha Division offers to sell 68,000 units to Beta Division for $39 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?

3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 6% price discount from the outside supplier.

a. What is the lowest acceptable transfer price from the perspective of the Alpha Division?

b. What is the highest acceptable transfer price from the perspective of the Beta Division?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer?

d. Assume Beta Division offers to purchase 18,000 units from Alpha Division at $55.16 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged?

4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 56,000 units of a different product from the one Alpha Division is producing now. The new product would require $27 per unit in variable costs and would require that Alpha Division cut back production of its present product by 28,000 units annually. What is the lowest acceptable transfer price from Alpha Division’s perspective?

Garrison, Inc. purchased an asset for $63,282 and negotiated a non-cancelable lease with Jasper Corporation on January 1, 20X1. Jasper will lease the asset from Garrison over a 10-year lease period with annual payments beginning January 1, 20X1. The expected economic life of the asset is 12 years. Title does not transfer to the lessee, Jasper, and there is no purchase option or guaranteed residual value. Assume Garrison’s implicit rate in the lease and Jasper’s incremental borrowing rate are both 12%.

Required:

1. Determine the annual lease payments that Garrison will charge Jasper. Round to the nearest $.
2. What kind of lease is this for Garrison and for Jasper? Be sure to tell me what lease criteria are met and why.
3. Prepare an amortization schedule for the first two years of the lease.
4. Prepare the journal entries on January 1, 20X1, December 31, 20X1 and January 1, 20X2 and December 31, 20X2 on:

1. Garrison’s books
2. Jasper’s books