During 2018 the following occurred:

• Land costing $300,000 was purchased in 2018 for $220,000 cash and by issuing common shares of $80,000
• A building that had an original cost of $348,000 and accumulated depreciation of $128,000 was sold for a loss of $53,000
• A vehicle was sold during the year, the vehicle had a cost of $21,000, accumulated depreciation of $3,000 and was sold for $6,800 in cash
• The vehicle that was purchased in 2018 was purchased by obtaining a bank loan
• $137,0000 was paid towards the bank loan in 2018
• The company declared dividends of $32,000 in 2018
• Common shares were bought back by the company during 2018

1. Prepare the statement of cash flows for 2018 using the indirect method.

For each of the three independent situations below determine the amount of the annual lease payments. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. (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.)

Determine the annual lease payments for each situation: (Round your intermediate and final answers to the nearest whole dollar amount.)

27. Two major sub-sections appearing in the paid-in capital section of the balance sheet are

Select one:

a. preferred stock and common stock.

b. capital stock and treasury stock.

c. capital stock and additional paid-in capital.

d. paid-in capital and retained earnings.

30. On January 1, Borge Inc. issued $3,000,000, 8% bonds for $2,817,000. The market rate of interest for these bonds is 9%. Interest is payable annually on December 31. Borge uses the effective-interest method of amortizing bond discount. At the end of the first year, Borge should report unamortized bond discount of

Select one:

a. $153,000.

b. $169,470.

c. $163,547.

d. $164,700.

e. $157,647.

31. Each of the following decreases retained earnings except

Select one:

a. All of the provided responses decrease retained earnings.

b. a cash dividend.

c. a stock dividend.

d. a liquidating dividend.

33. Garland Company received proceeds of $188,000 on 10-year, 6% bonds issued on January 1, 2016. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Garland uses the straight-line method of amortization.

What is the carrying value of the bonds on January 1, 2018?

Select one:

a. $190,400

b. $197,350

c. $189,200

d. $200,000

e. $188,454

20. Following are balance sheet amounts for Carolina Company as of 12/31/17:

Preferred Stock                                                              $    200,000

Common Stock                                                                     300,000                       

Paid-In Capital in Excess of Par - Preferred                     200,000

Paid-In Capital in Excess of Par - Common                      400,000

Retained Earnings                                                          500,000

Treasury Stock                                                                100,000

Paid In Capital from Treasury Stock                                    50,000

Given the above what is total paid in capital?

Select one:

a. $1,150,000

b. $1,100,000

c. $1,000,000

d. $   600,000

e. $   650,000

21. A corporation issued $600,000, 10%, 5-year bonds on January 1, 2017 for $648,666, which reflects an effective-interest rate of 7%. Interest is paid semiannually on January 1 and July 1. If the corporation uses the effective-interest method of amortization of bond premium, the carrying value of the bonds on January 1, 2019 is

Select one:

a. $617,911

b. $629,198.

c. $626,001.

d. $638,932.

e. $633,817.

24. The cumulative effect of the declaration and payment of a cash dividend on a company's financial statements is to

Select one:

a. increase total liabilities and decrease total assets.

b. decrease total liabilities and stockholders' equity.

c. increase total expenses and total liabilities.

d. decrease total assets and stockholders' equity.

e. increase total assets and stockholders' equity.

26. The following selected amounts are available for Vizio Company:

Retained earnings (beginning)                                                                                 $1,600

Net loss                                                                                                                             300

Write off of uncollectible receivable (to allowance for doubtful accounts)             200                                             

Inventory overstatement from prior period (net of tax)                                            500

Cash dividends declared                                                                                                 200

Stock dividends declared                                                                                    200

Based upon the above information, what is Vizio's ending retained earnings balance?

Select one:

a. $   200

b. $1,400

c. $1,200

d. $   400

e. $1,800

Outdoor Outfitters has created a flexible budget for the 70,000-unit and the 80,000-unit levels of activity shown as follows. Complete Outdoor Outfitters's flexible budget at the 105,000-unit level of activity. Assume that the cost of goods sold and variable operating expenses vary directly with sales and that income taxes remain at 30 percent of operating income.

Cybernetronics Inc. (Cyber) is a Canadian-owned public company which designs and manufactures communications and control systems. The company's year end is May 31. It is now June 2018.

You, CPA, are the manager for the audit of Cyber and yesterday had met with the treasurer to discuss the year-end audit. The partner responsible for this client has asked you to prepare a report for the client which discusses important financial accounting issues and a memo to him regarding the audit issues you believe are important.

Notes from the Meeting with the Treasurer

1.          In December 2017, Cyber won a $40 million contract to design autonomous robots for use in mining activities. In April 2018, the customer exercised the cancellation clause included in the contract. Cyber has capitalized design and development costs related to this contract. The cancellation clause requires the mining company to pay a penalty of $12 million. The penalty has not yet been paid to Cyber.

In June 2017, Cyber entered into an agreement with a university whereby Cyber received assistance in the development of fuzzy logic software which was to have been used in the robots designed for the contract with the mining company. The agreement requires Cyber to make an annual contribution of $0.5 million to the university for four years. The first payment of $0.5 million was made in March 2018 when the university's work was completed.

Management of Cyber is confident that the technology developed, including the fuzzy logic software, can be applied to future contracts involving the design of robots.

Cyber entered into a five-year lease on June 1, 2017 for facilities dedicated to the design and future manufacture of the robots for the mining company. Management of Cyber is presently negotiating a buy-out of the lease and has offered to make lump-sum payment of $750,000 to the lessor on September 1, 2018. The annual lease payment is $500,000.

The draft balance sheet prepared for Cyber's May 31 year end included capitalized design and development costs in the amount of $8.2 million. This amount includes the $0.5 million paid to the university. The draft income statement includes the $12 million cancellation penalty as 'other income -- gain on cancellation of contract'.

*Identify the accounting and auditing issues*

Flexible Budget

In an attempt to improve budgeting, the controller for Meliore, Inc., has developed a flexible budget for overhead costs. Meliore, Inc., makes two types of products, the standard model and the deluxe model. Meliore expects to produce 400,000 units of the standard model and 120,000 units of the deluxe model during the coming year. The standard model requires 0.05 direct labor hour per unit, and the deluxe model requires 0.08. The controller has developed the following cost formulas for each of the four overhead items:

Required:

1. Prepare an overhead budget for the expected activity level for the coming year.

2. Prepare an overhead budget that reflects production that is 10 percent higher than expected (for both products).

Prepare an overhead budget for production that is 20 percent lower than expected.

Question 1
REQUIRED: Given the following Adjusted Trial Balance, prepare a report form Classified Balance Sheet.

Hint: Prior to creating the Balance Sheet, calculate the profit/loss and the owner’s (revised) capital balance as of the end of the year. You may assume there were no investments.

Erickson Rentals Adjusted Trial Balance March 31, 2010

Debit Credit

**note: the current portion of the long term note payable is $1,900.

Profit/Loss Calculation – Circle your final answer. _____________________________________________________________________________

Assignment 1 – Winter 2019 FA1

_____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________

Capital/Equity Calculation : – Circle your final answer. _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Report form Classified Balance Sheet :

Erickson Rentals Balance Sheet March 31, 2010

Assignment 1 – Winter 2019 FA1

The city of Morehead leased equipment. The life of the noncancellable lease is 10 years. Using an 8 percent interest rate, the present value of the lease payments is $905,861. The first payment of $125,000 is due when the lease begins, January 10, 2017. An additional payment is due on January 10th for each of the next 9 years. Prepare journal entries to record:

1. The long-term lease in the General Fund.

2. The first lease payment on January 10, 2017.

3. The second lease payment on January 10, 2018

Wizard’s Skateboard shop sells premium skateboards for use in skate parks. The shop uses a process-costing system to compute the unit costs of the skateboards that it produces and sells for $450. Customers place orders online for skateboards where they can customize the decks and griptape with a choice of patterns and colours. The parts are purchased and assembled, customized with the customer’s choice of grip tape for the deck, trucks and wheels, and packaged to be sent by courier directly to the customer. Wizard’s Skateboard shop has three distinct departments: Assembly, Customization, and Packaging/Shipping.

The production process works as follows: all major parts have been assembled and the skateboard is tested before it is transferred from Assembly to Customization, the Customization department adds some materials to meet customer’s preference, and finally, the Packaging/Shipping department places the skateboard in a cardboard box and makes arrangements for shipping to the customer. Overhead in each department is applied based on direct labour costs at a rate of 130% for assembly and 115% for customization.

During March, the following results are available for the first two departments:

Required:

Following the five steps outlined in the chapter, prepare a production report for the Assembly and Customization departments using the weighted average method.

FF&T Corporation is a confectionery wholesaler that frequently buys and sells securities to meet various investment objectives. The following selected transactions relate to FF&T’s investment activities during the last two months of 2021. At November 1, FF&T held $40 million of 20-year, 12% bonds of Convenience, Inc., purchased May 1, 2021, at face value. Management has the positive intent and ability to hold the bonds until maturity. FF&T’s fiscal year ends on December 31.

Charteris is a division of Capriola Corporation and operates as an investment center. Charteris currently has assets of $15 million, revenues of $12 million, and expenses of $9 million. The president of Charteris has an opportunity to acquire Grampan Corporation, which has revenues of $4 million, and expenses of $2.8 million. Acquisition price (value of assets) would be $7.5 million. Capriola has a target ROI for all divisions of 14%.

a) Compute Charteris' current ROI.

b) If Capriola evaluates divisions based on ROI, will be the president of Charteris be inclined to make the acquisition?Explain. Use the DuPont method to provide insight into your answer.

c) Would your answer change if Capriola also used residual income in evaluating divisions? Explain.

Budgeted Cash Collections, Budgeted Cash Payments

Historically, Ragman Company has had no significant bad debt experience with its customers. Cash sales have accounted for 20 percent of total sales, and payments for credit sales have been received as follows:

40 percent of credit sales in the month of the sale
35 percent of credit sales in the first subsequent month
20 percent of credit sales in the second subsequent month
5 percent of credit sales in the third subsequent month

The forecast for both cash and credit sales is as follows.

Required:

1. What is the forecasted cash inflow for Ragman Company for May?
$

2. Due to deteriorating economic conditions, Ragman Company has now decided that its cash forecast should include a bad debt adjustment of 2 percent of credit sales, beginning with sales for the month of April. Because of this policy change, what will happen to the total expected cash inflow related to sales made in April? (CMA adapted)

Cash will   by $.

Athos and Porthos are divisions of Dumas, Inc., operating as profit centers. Both are profitable. One of the products produced by Athos is A62, which normally sells for $180/unit. Cost is $125/unit (40% variable). Porthos is planning a new product, and is taking bids on one of the subassemblies. A62 would be appropriate for this subassembly with some modification.

a) Discuss the factors Athos should consider when submitting a bid.

b) If Athos does not submit the low bid, might Porthos still benefit from accepting their bid? Discuss briefly.