Question 1 Accounting for Equity                                                                   

Sugar Ltd was involved in the following transactions during 1 July 2019 to 30 June 2020 financial period.

1. On 5 November 2019 the directors of the company decided to raise extra capital by issuing 2 million ordinary shares publicly at a price of $2 each share. The company received application monies of $4,800,000 for 2.4 million shares on 30 November.
2. The company decided to allot shares to applicants on the basis of 10 shares for every 12 shares applied for on 30 December.
3. On 30 December, the excess amounts paid on application were refunded to applicants after the allotment.
4. The funds raised were transferred to the company’s business account.
5. The company paid $300,000 interim dividends from prior retained earnings to ordinary shareholders on 7 February 2020.
6. The company issued 280,000 bonus shares at a price of $2 per share from general reserve on 30 June 2020.
7. The company earned $700,000 profit during the financial year ended 30 June 2020.

Required:

Provide journal entries to record the above transactions for 2019/2020 financial year. (Narrations are required)      

Exceed, a US company, on January 1, 2019 acquired all the outstanding common stock of Silver Company, which is located in a country whose currency is the peso. The peso is the functional currency of Silver. For 2019, exchange rates for the peso were as follows:

Notes: Read carefully and follow strictly so that Bb can grade you correctly!
1. Use comma in numbers, one thousand is 1,000, not 1000. Round to the nearest dollar: 1,000.45 should be 1,000, and 1,000.55 should be 1,001, no decimal points. No $ sign.
2. Use parenthesis ( ) for expenses, accumulated depreciation, dividends, and G/L or adjustments only!

Required: Translate the 2019 financial statements of the subsidiary to U.S. dollars from pesos.

Translation of Financial Statements to U.S. Dollars

For Year Ended December 31, 2019

QUESTION 1: According to Interbrand’s analysis, Apple’s brand is valued at more than $170 billion, while Google in second place is valued at $120 billion and Coca-Cola in third is at $78 billion (2015). Do you agree that Apple should be so far ahead of its nearest brand competition? What about Samsung, which is larger in size (Samsung is valued at $45 billion)?

QUESTION 2: With Steve Jobs, Apple’s legendary founder and CEO, passing away in 2011, what can we expect from Apple in the future? Will it be as innovative? Will it maintain brand value leadership? Will it run the top global supply chain in the world?

QUESTION 3: Apple products have usually been priced above their competition and sold for their value, intrigue, and market leadership. Some would say Samsung is catching up on many of these fronts and even passing Apple perhaps. Do you think Apple can charge a price premium for its products much longer?

QUESTION 4: Apple’s global supply chains make its business thrive. There is a secrecy among suppliers, superior quality standards by every party involved in Apple’s supply chains, and a total value focus that ultimately makes the customers happy. Is this a sustainable business model for its global supply chains?

A) Explain the accounting treatment for the two categories of Government Grant.

B) Dermaga Sdn Bhd (DSB) acquired a plant at a gross cost of RM1.6 million on 1 October 2019. The plant has an estimated economic life of ten years with a residual value equal to 10% of its gross cost. Depreciation is allocated on time basis apportionment. The company received government grant of 30% from its cost price during the purchase time. If the company retains the plant for five years or more, there will be no repaymaent liability. If the company sells the plant within one year, it has to repay 75% of the cost. This amount decreases by 20% in suceeding years. DSB has no intention of disposing the plant witihn five years. Its policy for capital-based government is to treat them as deferred credits and release them to income over the life of the asset to which they relate. Required:

i. Discuss whether the company’s policy for the treatment of government grants meets the definition of a liability in MASB Conceptual Framework.

Prepare extract of DSB’s financial statements for the year ended 30 March 2020 in respect to the plant and grant , applying the company’s policy, and in compliance with the definition of liability in the Conceptual Framework

The CEO of a growing cyber-security firm was awarded 25,000 stock options as part of her pay package. She can exercise the options -turn them into stock- in two years. The company’s stock price was $35.00 per share at the time of the stock option grant. Shortly after the option award was received, she went to an investment banking firm and bought put options at a strike price of $35.00. The option expires in two years.

(i) What does the put option do for the CEO? Carefully explain why your stated result occurs.

(ii) Stock options and stock ownership are included in compensation packages to create incentives for CEOs to create value for shareholders. Does this put option purchase change those incentives? If so, how?

(iii) If you were a shareholder in this company, would you want to be informed about these types of transactions by the CEO?

1. Please describe the relationship of the Board of Directors for Company Bravo to the company. Provide the purpose, details of general responsibilities, etc. with support.
2. What types of items would constitute a Board members breach of duty to the company? Name and explain with details and support.
3. Is it acceptable for a company’s Board of Directors to approve a personal loan to the CEO of the company as long as the vote is unanimous? Why or Why not? Please explain in detail and support your response.

You are the CFO of Jordan company. The year-end of Jordan is 31 March. The CEO of Jordan company informed you that the company intends to open a new branch in the next few weeks. The company has spent a substantial sum on a series of television advertisements to promote this new branch. The company paid for advertisements costing JOD 1,500,000 before 31 March 2018. JOD 900,000 of this sum relates to advertisements shown before 31 March 2018 and JOD 350,000 to advertisements shown in April 2018. Since 31 March 2018, The company has paid for further advertisements costing JOD 250,000. A discussion between the CEO and the board of directors whether these costs should be written off as expenses in the year to 31 March 2018. The board of Directors doesn’t want to charge JOD 3 million. Required: Explain and justify the treatment of these costs of JOD 3 million in the financial statements for the year ended 31 March 2018 according to IAS 38 assuming that market research indicates that this new branch is likely to be highly successful.

Pioneer, Inc., a publicly held company with a 21% marginal tax rate, paid its CEO an annual salary of $2.5 million.  None of the amount was a bonus.

Ignoring payroll taxes, calculate the after-tax cost of this payment.

(1) Is a CEO using a corporate jet (instead of flying commercial) a sign of severe principal-agent problems within a company? Why or why not?

(2) Why is this a stark example of the principal-agent problem discussed in Chapter 1?

QUESTION 11

A 1X liquidation preference would give the Venture Capital Fund the right to the recovery of 100% of their investment before any distributions are made to other shareholders of the company.

True

False

QUESTION 12

Venture capitalists rely on preferred stock in a company to skew investment returns in their favor relative to the owners of the common stock, gain a disproportionate level of control of key decisions relative to the common shareholders and ensure that their interests are aligned with the founders.

True

False

QUESTION 13

The term sheet between an investors and founder is a legally binding agreement.

True

False

QUESTION 14

The term sheet between a venture capital company and the founders of a venture give control of the company to the venture capitalists.

True

False

QUESTION 15

One thing that entrepreneurs seek to get from a term sheet is sufficient capital to bring the venture to the next business milestone while giving up as little of the company as possible.

True

False