Forward contracts and futures contracts have similar functions and different features. Among those features are the fact that while forward contracts are closed out by specific performance, futures contracts are almost never closed out that way. Why not? Since the contracts are closed out in different ways, it is implied that the parties to these contracts have different goals. What types of entities get involved in each? How might their goals differ?

Desrosiers Ltd. had the following long-term receivable account balances at December 31, 2019:

Notes receivable    $1,800,000

Notes receivable—Employees 400,000

Transactions during 2020 and other information relating to Desrosiers' long-term receivables were as follows:

1. The $1.8-million note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance of the consideration received from the sale of Desrosiers's electronics division to New York Company. Principal payments of $600,000 plus appropriate interest are due on May 1, 2020, 2021, and 2022. The first principal and interest payment was made on May 1, 2020. Collection of the note instalments is reasonably assured.

2. The $400,000 note receivable is dated December 31, 2019, bears interest at 8%, and is due on December 31, 2022. The note is due from Marcia Cumby, president of Desrosiers Ltd., and is secured by 10,000 Desrosiers common shares. Interest is payable annually on December 31, and the interest payment was made on December 31, 2020. The quoted market price of Desrosiers's common shares was $45 per share on December 31, 2020.

3. On April 1, 2020, Desrosiers sold a patent to Pinot Company in exchange for a $200,000 non–interest bearing note due on April 1, 2022. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2020, was 12%. The present value of $1 for two periods at 12% is 0.79719 (use this factor). The patent had a carrying amount of $40,000 at January 1, 2020, and the amortization for the year ended December 31, 2020 would have been $8,000. The collection of the note receivable from Pinot is reasonably assured.

4. On July 1, 2020, Desrosiers sold a parcel of land to Four Winds Inc. for $200,000 under an instalment sale contract. Four Winds made a $60,000 cash down payment on July 1, 2020, and signed a four year, 11% note for the $140,000 balance. The equal annual payments of principal and interest on the note will be $45,125, payable on July 1, 2021, through July 1, 2024. The land could have been sold at an established cash price of $200,000. Desrosiers had paid $150,000 for the land when it purchased it. Collection of the instalments on the note is reasonably assured.

5. On August 1, 2020, Desrosiers agreed to allow its customer, Saini Inc., to substitute a six-month note for accounts receivable of $200,000 it owed. The note bears interest at 6% and principal and interest are due on the note's maturity date.

Instructions

a. For each note:

1. Describe the relevant cash flows in terms of amount and timing.

2. Determine the amount of interest income that should be reported in 2020.

3. Determine the portion of the note and any interest that should be reported in current assets at December 31, 2020.

4. Determine the portion of the note that should be reported as a long-term investment at December 31, 2020.

b. Prepare the long-term receivables section of Desrosiers's SFP at December 31, 2020.

c. Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Desrosiers's SFP at December 31, 2020.

d. Determine the total interest income from the long-term receivables that would appear on Desrosiers's income statement for the year ended December 31, 2020.

Consider an annuity for 10 years, whose payments vary in geometric progression. An annual effective interest rate of 6% is used. Obtain the financial value at t = 29/05/2010 of this annuity considering different cases:

1. Annual payments increasing 3% annually. First payment (€1,650; 29/05/2011).
2. Annual payments increasing 5% annually. First payment (€1,650; 29/05/2011).
3. Monthly payments increasing 0.3% monthly. First payment (€175; 29/06/2010).
4. Monthly payments, constant during the year and increasing 4% annually. First payment (€175; 29/06/2010).

Presented below is information related to equipment owned by ALALI Company at December 31, 2010.

                        Cost                                                        SAR 7,000,000

                        Accumulated depreciation to date                  1,500,000

                        Value-in-use                                                  5,000,000

                        Fair value less cost of disposal                       4,400,000

Assume that ALALI will continue to use this asset in the future. As of December 31, 2010, the equipment has a remaining useful of 4 years.

Instructions

Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2010.

Prepare the journal entry to record depreciation expense for 2011.

The recoverable amount of the equipment at December 31, 2011, is SAR 5,250,000. Prepare the journal entry (if any) necessary to record this increase.

Bonalli Shoe Company has been facing increased competition from overseas shoemak- ers. Its total assets and stockholders’ equity at the beginning of 2010 were $690,000 and $590,000, respectively. A summary of the firm’s data for 2010 and 2011 follows.

Required:

Use (1) liquidity analysis and (2) profitability analysis to document Bonalli Shoe Company’s declining financial position.

Tony and Suzie purchased land costing $500,000 for a new camp in January 2020. Now they need money to build the cabins, dining facility, a ropes course, and an outdoor swimming pool. Tony and Suzie first checked with Summit Bank to see if they could borrow another million dollars, but unfortunately the bank turned them down as too risky. Undeterred, they promoted their idea to close friends they had made through the outdoor clinics and TEAM events. They decided to go ahead and sell shares of stock in the company to raise the additional funds for the camp. Great Adventures has two classes of stock authorized: 7%, $10 par preferred, and $1 par value common.

When the company began on July 1, 2018, Tony and Suzie each purchased 15,000 shares of $1 par value common stock at $1 per share. The following transactions affect stockholders’ equity during 2020, its third year of operations:

July 2 Issue an additional 110,000 shares of common stock for $13 per share.

September 10 Repurchase 11,000 shares of its own common stock (i.e., treasury stock) for $16 per share.

November 15 Reissue 5,500 shares of treasury stock at $17 per share.

December 1 Declare a cash dividend on its common stock of $134,500 ($1 per share) to all stockholders of record on December 15.

December 31 Pay the cash dividend declared on December 1.

1. Record each of these transactions.

2. Great Adventures has net income of $158,000 in 2020. Retained earnings at the beginning of 2020 was $148,000. Prepare the stockholders’ equity section of the balance sheet for Great Adventures as of December 31, 2020.

1. Suppose the base year is 2005, and the only goods in the economy are apples and bananas. In 2005 both apples and bananas cost $1, and 100 apples and 100 bananas are produced. In 2006, apples cost $20 and bananas cost $5, and 50 apples and 200 bananas are produced.

1. What is nominal GDP in 2005?                     
2. What is real GDP in 2005?                             
3. What is the GDP deflator in 2005?                

In 2006?              

In 2006?              

In 2006?              

4. Suppose the fixed basket of goods is 1 apple and 2 bananas.
5. What is the level of the CPI in 2005?                   In 2006?              
6. What is the CPI inflation rate from 2005 to 2006?               

2. What are the three effects that bias the measurement of CPI?

3. Which of the three effects listed in part c does each of the following illustrate?
   1. US households in 2010 spent a larger fraction of their income on televisions than they did in 1950.                                                                                         
   2. All televisions available in 2010 had higher resolution than any televisions available in 1950.                                                                                              
   3. In 1950, no US household had a plasma screen television, but in 2010 they are widely available.                                                                                          

4. Suppose the average television purchased in 1950 cost $200, and the average television purchased today costs $700.
   1. What is the percentage change in the average television price?

2. Taking into account the effects in part c, is this percentage increase likely an underestimate or overestimate of the true change in the cost of televisions?   

3. Why?                                                                                                        

5. Suppose CPI is as follows in each year:

Suppose in the year 2007 you are considering a job offer that pays $50,000 in 2007, plus a 10% (compounding) raise in each of the next three years.

1. What nominal salary will you make in each year?

2. What will your real salary be in each year, using a 2007 base year?

3. What will your real salary be in each year, using a 2009 base year?

4. In what year was your real salary highest?
5. Does your answer to 4 depend on the base year selected?                         
6. Suppose instead your contract gave you $50,000 in 2007, plus a cost of living adjustment equal to the percentage change in CPI. Compute the nominal wage in each year.

In what years is this contract better than the original one?        

1. An entity issues shares as consideration for the purchase of inventory. The shares were issued on January 1, 2009. The inventory is eventually sold on December 31, 2010. The value of the inventory on January 1, 2009, was $3 million. This value was unchanged up to the date of sale. The sale proceeds were $5 million. The shares issued have a market value of $3.2 million. Which of the following statements correctly describes the accounting treatment of this share-based payment transaction?

a. Equity is increased by $3 million, inventory is increased by $3 million; the inventory value is expensed on sale on December 31, 2010.

b. Equity is increased by $3.2 million, inventory is increased by $3.2 million

c. Equity is increased by $3 million, inventory is increased by $3 million; the inventory value is expensed over the two years to December 31, 2010.

d. Equity is increased by $3.2 million, inventory is increased by $3.2 million; the inventory value is expensed over the two years to December 31, 2010.

2. For the year ended May 31, 2009, Orchard, Inc. had per share earnings of $4.80. Orchard's outstanding shares for the 2008-2009 fiscal year consisted of $2,000,000 of 10% preference shares with $100 par value and 1,000,000 ordinary shares. On June 1, 2009, the ordinary shares were split 3 for 1, and the company redeemed one-half of the preference shares at par value. Orchard's profit for the year ended May 31, 2010, was 10% higher than in 2009. The earnings per share for the fiscal year ended May 31, 2010 is
a. $1.73 c. $1.80
b. $1.77 d. $2.70

3. On January 1, 2010, Parco Corporation issued 3-year 6,800 8% convertible bonds at par for $1,000 per bond. Interest is payable annually in arrears. Each bond can be converted any time before maturity into 250 ordinary shares. On maturity, Parco has the option to settle the principal amount of the bonds in cash or in ordinary shares. Market interest rate prevailing at the time of the bond issue without a conversion option was 10; similarly, the market price of one ordinary share at that date was $3. Other details are as follows:
Profit for the year 2010 $3,400,000
Ordinary shares outstanding, $1 par 4,080,000
Convertible bonds outstanding 6,800,000

Ignoring income tax, the diluted earnings per share for the year ended December 31, 2010 is (Round-off present value factors to four decimal places)
a. $0.70 c. $0.68
b. $0.65 d. $0.83