Question 2:

Sunny Ltd., a hand sanitizer manufacturer, has prepared its financial statements for the year ended at December 31, 2019. On February 28, 2020, the board of directors authorized to issue the financial statements to shareholders. The following events have occurred:

1. On December 1, 2019, the board of directors decided to issue $50,000,000, 9% convertible bonds for the purpose of expanding business in other countries. The conversion rate is fixed at 50 shares for bond with face value of $1,000. The convertible bonds are offered to the public on January 15, 2020. The market interest rate for a similar bond without conversion option is at 12%.                                                                                        [3 marks]
2. On October 23, 2019, Sunny signed a contract to sell 10,000 hand sanitizer to a local store at a price of $200 each. However, due to the increase in the cost of materials, the estimated cost of making one hand sanitizer has been increased to $250. Sunny has to deliver the hand sanitizer to its customer on January 30, 2020.                                                      [4 marks]

3. Under the terms of the sales contract, Sunny undertakes to recall its new formulated sanitizer, for its manufacturing defects within six months from the date of sale. The accountants estimated that 5% of the sanitizer will be returned for refund. In January 2020, Sunny discovered a serious problem in the manufacturing process of the new formulated sanitizer. Because of this, Sunny expected that 20% of the sanitizer sold in 2019 will be returned for refund.    [4 marks]

4. On December 15, 2019, a group of customers reported that the hand sanitizer that they bought in 2019 caused them have serious skin infection problems. They filed a lawsuit against Sunny on December 20, 2019. The company’s attorney said that it was probable that Sunny would be liable for the case. However, the amount of damage could not be estimated.        [4 marks]

5. On February 12, 2020, the above lawsuit case was settled for the amount of $2,500,000.                                                                                                     [4 marks]
6. Sunny has retail stores in China doing poorly. On February 15, 2020, Sunny estimated that those stores might report a loss of $1,500,000 in 2020.                                 [4 marks]

7. In May 2019, Sunny had legal disputes with Coco Limited. Unable to reach out-of-court settlement with Coco, Sunny sued Coco for compensation for damages in August 2018.         In November 2019, Sunny heard good news about the lawsuit in which the company sued Coco. Sunny’s lawyer is confident that the company will win the case and will receive about $120,000 in compensation for damages from Coco in early 2020. Sunny recognized the gain and receivable from litigation of $120,000 in year 2019.                                 [4 marks]

8. On March 1, 2020, a customer owing $600,000 to Sunny filed for bankruptcy. The financial statements include an allowance for doubtful debts pertaining to this customer only of $30,000.                                                                                          [3 marks]

Required:

For each of the above event, state the correct accounting treatments in accordance with Hong Kong Accounting Standards for the year ended at December 31, 2019. If it is an event after the reporting period, identify whether it is an adjusting or non-adjusting event. Give reasons for your answer.

Problem 4.2

                                                   Open-to-Buy Problem

Jane buys men’s sport shirts. She is in the process of estimating her June and July open to buy. As of June 10, she has actual stock on hand of $1,543,768. Jane’s area has had sales of $235,333 (against total June planned sales of $638,950). Total June markdowns of $25,238 (out of a plan of $75,862) have also been taken. The current on-order for June is $115,338, of which Jane expects that $15,000 will not arrive until July. Likewise, of the July on order of 20,432 she expects $12,000 to arrive in June. The June EOM plan is $1,210,562. Before calculating her OTB Jane decides that, if she is overbought, she will return $36,000 worth of knit shirts to one of her vendors for credit.

The July sales plan is $433,985 while the July markdown budget is $65,666. She expects $2,000 of the July on order to be past due. Likewise, she expects that $3,000 of the August on-order will arrive in July. The July EOM plan is $722,500.

Use the attached OTB worksheet to estimate Jane’s total open-to-buy for June and July.

                               Table 8

         Estimated OTB for the Month of                                

            Table 9

         Estimated OTB for the Month of                                

Alcoa is the world's leading producer of primary aluminum, fabricated aluminum, and alumina. The following is a press release from the company:

Alcoa Announces 33% Increase in Base Dividend, 2-for -1 Stock Split

PITTSBURGH—Alcoa today announced that its Board of Directors approved a base quarterly dividend increase of 33.3%. Alcoa's announcement indicated that the new quarterly dividend would be 25 cents per share. It also stated that the Board of Directors declared a two-for-one stock split and reaffirmed its commitment to a stock repurchase program. Your boss, Mr. Scott, has written you a simple note to the effect, “What options do we have in accounting/reporting these actions as they take place?”

Required:

Respond to your boss (Mr. Living Scott) using a one page, 12 point-text memo. Be sure to include the following in your memo writeup:

1. What are the two primary reporting alternatives Alcoa has in accounting for the repurchase of its shares? Hint: Think formal retirement versus treasury stock. Be sure to mention the effect of the optional courses of action on total shareholders' equity? What would be the effect of the optional courses of action on how stock would be presented in Alcoa's balance sheet?
2. What are the two primary courses of action Alcoa has in accounting for the stock split, and how would the choice affect Alcoa's shareholders' equity? Hint: Think stock-split versus a large stock dividend.
3. Access the FASB Accounting Standards Codification at the AAA website (see the syllabus). Identify and include the specific citation from the authoritative literature that describes how to account for treasury stock and stock-splits.

Note: Keep in mind that a well written memo should include an introductory paragraph that CLEARLY states the purpose of your memo to your boss. Avoid much writing here – be specific and to the point.

Discussion paragraph(s) that addresses the questions posed. Note that you can have several paragraphs as long as they address different major points.

Usually a memo has a conclusion/recommendation paragraph but since this assignment does not require one, you can leave that out but find a professional way to end your memo and not just leaving it hanging.

1.         Fast Tires issued $5,000,000 of five-year, 10% bonds on June 30, 20Y5, for $5,405,550. The bonds pay interest quarterly, beginning September 30, 20Y5. At the date of issuance, the market rate was 8%. Calculate the interest expense and bond amortization for the first fiscal year using the:

a.Straight-line method for amortization

b. Effective interest rate method for amortization

Use the information above to prepare the journal entries to record the issuance, first interest payment, and retirement of the bonds for Fast Tires. Assume the company uses the straight-line method for amortization.

DEPRECIATION
Calculate the complete depreciation table for an asset with a Cost Basis of $80,000, a Salvage Value of $20,000 and a useful life of 6 years with the Declining Balance 200% method with switchover to Straight Line Method.

Complete a Statement of Stockholders Equity

1. Acquired cash of $225,000 from the issue of common stock.

2. Borrowed $175,000 cash from the bank on April 1, 2018.

3. Paid $285,000 cash to purchase fixed assets - land that cost $65,000

   and a building that cost $220,000.

4. Earned and recognized consulting revenue on account for $345,000

5. Collected $200,000 on the accounts receivable during the year

6. Incurred $150,000 of consulting expenses on account during the year.

7. Paid $125,000 on the accounts payable during the year.

8. Paid $92,500 cash for other operating expenses during the year.

9. Paid the company owners $5,300 of dividends.

10. Received $21,750 cash for services to be performed in the future.

11. On June 1, paid $10,500 cash in advance for a one-year lease to rent office space.

12. Paid $9,450 cash for salaries expense.

Information for December 31, 2018

ADJUSTING ENTRIES:

13. Completed $11,350 of services performed described in Transaction 10.

14. Adjust Prepaid Rent account for rent used up during the year. (7

    months)

15. Use the straight-line method to depreciate the building purchased in

    Transaction 3. Management estimated that it had a useful life of 20

    years. Record the building depreciation.

16. Recognized that $3,647 of Salary Expense has been incurred on

    December 31. The employees are owed this for the services they provided in December but will not be paid to them until January. Record the year end accrual for salary expense.

17. Accrued interest expense for loan in # 2. Terms: interest rate 10%, in one year. (Loan was outstanding 9 months during 2018).

Problem 26-17

Here are data on three hedge funds. Each fund charges its investors an incentive fee of 10% of total returns. Suppose initially that a fund of funds (FF) manager buys equal amounts of each of these funds, and also charges its investors a 10% incentive fee. For simplicity, assume also that management fees other than incentive fees are zero for all funds.

a. Compute the rate of return after incentive fees to an investor in the fund of funds. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Suppose that instead of buying shares in each of the three hedge funds, a stand-alone (SA) hedge fund purchases the same portfolio as the three underlying funds. The total value and composition of the SA fund is therefore identical to the one that would result from aggregating the three hedge funds. Consider an investor in the SA fund. After paying 10% incentive fees, what would be the value of the investor’s portfolio at the end of the year? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)

d. Now suppose that the return on the portfolio held by hedge fund 3 were −35% rather than +35%. Recalculate your answers to parts (a) and (b). (Do not round your intermediate calculations. Negative amount should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.)

1. HK Limited has 100 employees. Each employee earns two weeks of paid vacation per year. Vacation time not taken in the year earned can be carried over to two calendar years. Paid leave is first taken out of the balance brought forward from the previous year and then out of the current year’s entitlement (a FIFO basis). During 2019, 30 employees took both weeks’ vacation, but at the end of the year, 70 employees had vacation time carryover as follows:

        During 2019, the average salary for employees is $5,000 per week.              [5 marks]

2. The profit sharing plan requires HK Ltd. to pay 2% of its net profit to its two directors, Mr. Yau Wen and Ms. Shally Tin. The net profit for 2019 is $3,500,000. Mr. Wen will receive the bonus six months after the end of 2019, whereas Ms. Tin would be paid on July 2021 since she joined the company in March of 2019.                         [5 marks]

3. HK Ltd. agrees to pay a fixed contribution of 5% of employees’ salary to a retirement plan, subject to a cap of $1,250 per month for each employee. The contribution is paid monthly on or before the 10th of the following month. Out of the 200 employees, 160 employees earn an average monthly salary of $20,000.   The remaining employees earn more than $35,000 per month.                                           [5 marks]

Required:

Classify the nature of the employee benefit(s) above and explain the accounting treatment (provide journal entries if necessary) in accordance with relevant Hong Kong Accounting Standard(s).

Complete an Income Statement

1. Acquired cash of $225,000 from the issue of common stock.

2. Borrowed $175,000 cash from the bank on April 1, 2018.

3. Paid $285,000 cash to purchase fixed assets - land that cost $65,000

   and a building that cost $220,000.

4. Earned and recognized consulting revenue on account for $345,000

5. Collected $200,000 on the accounts receivable during the year

6. Incurred $150,000 of consulting expenses on account during the year.

7. Paid $125,000 on the accounts payable during the year.

8. Paid $92,500 cash for other operating expenses during the year.

9. Paid the company owners $5,300 of dividends.

10. Received $21,750 cash for services to be performed in the future.

11. On June 1, paid $10,500 cash in advance for a one-year lease to rent office space.

12. Paid $9,450 cash for salaries expense.

Information for December 31, 2018

ADJUSTING ENTRIES:

13. Completed $11,350 of services performed described in Transaction 10.

14. Adjust Prepaid Rent account for rent used up during the year. (7

    months)

15. Use the straight-line method to depreciate the building purchased in

    Transaction 3. Management estimated that it had a useful life of 20

    years. Record the building depreciation.

16. Recognized that $3,647 of Salary Expense has been incurred on

    December 31. The employees are owed this for the services they provided in December but will not be paid to them until January. Record the year end accrual for salary expense.

17. Accrued interest expense for loan in # 2. Terms: interest rate 10%, in one year. (Loan was outstanding 9 months during 2018).

Complete a Horizontal Model

1. Acquired cash of $225,000 from the issue of common stock.

2. Borrowed $175,000 cash from the bank on April 1, 2018.

3. Paid $285,000 cash to purchase fixed assets - land that cost $65,000

   and a building that cost $220,000.

4. Earned and recognized consulting revenue on account for $345,000

5. Collected $200,000 on the accounts receivable during the year

6. Incurred $150,000 of consulting expenses on account during the year.

7. Paid $125,000 on the accounts payable during the year.

8. Paid $92,500 cash for other operating expenses during the year.

9. Paid the company owners $5,300 of dividends.

10. Received $21,750 cash for services to be performed in the future.

11. On June 1, paid $10,500 cash in advance for a one-year lease to rent office space.

12. Paid $9,450 cash for salaries expense.

Information for December 31, 2018

ADJUSTING ENTRIES:

13. Completed $11,350 of services performed described in Transaction 10.

14. Adjust Prepaid Rent account for rent used up during the year. (7

    months)

15. Use the straight-line method to depreciate the building purchased in

    Transaction 3. Management estimated that it had a useful life of 20

    years. Record the building depreciation.

16. Recognized that $3,647 of Salary Expense has been incurred on

    December 31. The employees are owed this for the services they provided in December but will not be paid to them until January. Record the year end accrual for salary expense.

17. Accrued interest expense for loan in # 2. Terms: interest rate 10%, in one year. (Loan was outstanding 9 months during 2018).

CFO of Graham Del plans to have the company issue $500 million of new common stock and use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. What affect it can have on the company’s financial statements. Discuss.

Bank Reconciliation

The following data were accumulated for use in reconciling the bank account of Creative Design Co. for August 20Y6:

1. Cash balance according to the company's records at August 31, $14,900.
2. Cash balance according to the bank statement at August 31, $15,900.
3. Checks outstanding, $3,020.
4. Deposit in transit, not recorded by bank, $2,430.
5. A check for $270 in payment of an account was erroneously recorded in the check register as $720.
6. Bank debit memo for service charges, $40.

a. Prepare a bank reconciliation, using the format shown in Exhibit 13.

b. If the balance sheet were prepared for Creative Design Co. on August 31, what amount should be reported for cash?
$

c. Must a bank reconciliation always balance (reconcile)?

Entries for Bank Reconciliation

The following data were accumulated for use in reconciling the bank account of Creative Design Co. for August 20Y6:

1. Cash balance according to the company's records at August 31, $22,100.
2. Cash balance according to the bank statement at August 31, $23,310.
3. Checks outstanding, $4,490.
4. Deposit in transit not recorded by bank, $3,600.
5. A check for $480 in payment of an account was erroneously recorded in the check register as $840.
6. Bank debit memo for service charges, $40.

Journalize the entries that should be made by the company that (a) increase cash and (b) decrease cash.

A.

Product Costs using Activity Rates

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:

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

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.

B.

High-Low Method for a Service Company

Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved.

Determine the variable cost per gross-ton mile and the total fixed cost.

Pls do not handwritten for easy reading === ===
Question:-
The following are mutually exclusive scenarios.
a) During 20X2 , a Singapore-incorporated company, JK Pte Ltd, discovered that the inventory as stated in the published 20X1 statement of Financial Position was overstated by $150,000. JK Pte Ltd uses a periodic system and the First-In-First-Out cost method. Discuss and determine the accounting treatment of this overstatement in JK Pte Ltd's book based on FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
b) The draft financial report of LM Pte Ltd for the year ended 31 Dec 20X1 was completed on 12 Mar 20X2. On 23 Mar 20X2, the board of directors reviews the financial report and authorises it for issue. LM Pte Ltd announces its profit and other selected financial information on 3 Apr 20X2. The shareholders approve the financial report at the annual meeting on 2 Jun 20X2 and the approved financial report is then filed with the regulatory body on 11 Jun 20X2. The objective of FRS 10. Events after the Reporting Period is to prescribe the treatment of events that occur after an entity's reporting period has ended. With reference to the above scenario, explain what are "Events after the reporting period" and how these events should b accounted for.

You have recently been hired as the assistant controller for Stanton Temperton Corporation, which rents building space in major metropolitan areas. Customers are required to pay six months of rent in advance. At the end of 2018, the company's president, Jim Temperton, notices that net income has fallen compared to last year. In 2017, the company reported before-tax profit of $330,000, but in 2018 the before-tax profit is only $280,000. This concerns Jim for two reasons. First, his year-end bonus is tied directly to before-tax profits. Second, shareholders may see a decline in profitability as a weakness in the company and begin to sell their stock. With the sell-off of stock, Jim's personal investment in the company's stock, as well as his company-operated retirement plan, will be in jeopardy of severe losses. After close inspection of the financial statements, Jim notices that the balance of the Deferred Revenue account is $120,000. This amount represents payments in advance from long-term customers ($80,000) and from relatively new customers ($40,000). Jim comes to you, the company's accountant, and suggests that the firm should recognize as revenue in 2018 the $80,000 received in advance from long-term customers. He offers the following explanation: “First, we have received these customers' cash by the end of 2018, so there is no question about their ability to pay. Second, we have a long-term history of fulfilling our obligation to these customers. We have always stood by our commitments to our customers and we always will. We earned that money when we got them to sign the six-month contract.”

Discuss the ethical dilemma you face:

1. What is the issue?

2. Who are the parties affected?

3. What factors should you consider in making your decision?

4. What is the stance you will take?

Required: 1) Reach a consensus concerning the answers to the four questions.

2) Write a memo to the company’s controller discussing the issue and the stance that your group is taking.