. On January 3, 2020, Hanna Corp signed a lease on a machine and the lease commences the same date. The lease requires Hanna too make six annual lease payments of $12000 with the first payment due on December 31, 2020. Hanna could have financed the machine by borrowing at an interest rate of 7%. What entries would the company record on Jan 3 and December 31, 2020 if the lease is classified as a finance lease?

32. Nabors Finance Company reported equipment with an original cost of $379,000 and $344,000 and accumulated depreciation of $153,000 and $128,000, respectively in its financial statements for years ended December 31, 2020 and 2019. During 2020, Nabors purchased equipment costing $50,000 and sold equipment with carrying amount of $9,000. What amount should Nabors report as depreciation expense for 2020?

a. $19,000 c. $31,000 b. $25,000 d. $34,000

Mintu Inc. creates, develops and sells several different types of consumer products. Before launching a new product for commercialization, the company would typically test market the product. However, the CEO just heard that the competition is ready to launch a similar product. Provide 2 compelling arguments why, for this new launch, marketing testing ought to be skipped.

Describe the trade-off conditions that occur in the following conditions:
a. A family decides to buy a new house.
b. The cabinet of government of country A decided to provide energy subsidies to the public.
c. The CEO of the company XYZ decided to invest by opening a new factory.
d. A recently graduated scholar decides to continue his education to a higher level.

find an example of a company that failed to innovate, that failed (or is currently failing) to keep up with a changing market (like Blockbuster Video, Sears/Kmart, Yahoo, MySpace, RadioShack, etc.). What did they do wrong? Does the fault like with the vision of the CEO and other executives? Or did the management structure operate poorly and was unable to execute the vision of the executives?

Queen limited has an investment proposal which is expected to yield a return of 12%. The CEO is contemplating whether to go ahead with the proposal or not. Following is the capital structure of the firm as per book value weights. Equity capital - 1.5 crore shares of Rs. 10 each 12% preference capital, 1 lakh shares of Rs. 100 each, 11% term loan of Rs. 12.5 crore, 11.5% debentures - 10 lakh debentures of Rs. 100 each and retained earnings of Rs. 20 crore. The company is expected to declare equity dividend at the rate of 36% next year. The company is growing at the rate of 7% pa and is currently quoted at Rs. 40 per share. Debentures were issued 4 years ago for a tenure of 10 years and are currently trading at a rate of Rs. 80. Preference shares redeemable in next 10 years are trading at Rs. 75 per share. The income tax rate is 30%.

Advise the CEO if the investment proposal should be undertaken.

You are a loan officer at a bank. Two years ago your bank loaned Westwood Solar $100,000 to start a company selling solar panels to commercial and residential customers. The loan has an acceleration clause that permits the bank to immediately demand all payments plus the interest owed to date if Westwood Solar fails to pay an installment in any given month. Westwood Solar has made its loan payments for the past two years. However, you know that the company has slipped into financial distress as sales of solar panels have proved more difficult than expected. The CEO of Westwood Solar, anticipating your concern, has informed you that a new state bill proceeding through the legislature proposes to give residents substantial tax breaks for buying solar panels. The CEO has also asked for a two month extension for the next payment in order to prepare for the new tax law. Evaluate whether you should exercise the acceleration clause against Westwood Solar.

HARLAND CORP has been in existence for 45 years. Over the past, 6 years the stock price has stagnated and remained between $22.15 and $22.82. The CEO, who started the company, believes that the stock price needs to be higher, and the best way to do that is to pay a dividend to increase the demand for the stock. The company has never paid a dividend in their history. The CEO needs to determine what type of dividend policy to follow, and how much the first dividend should be, so he comes to you for advice. He provides you with the following historical information as it relates to the company's earnings per share (as an aside, dividends per share should not exceed EPS unless the firm is liquidating):

      YEAR                          EPS

      2017                           $2.36

      2016                           $2.12

      2015                           $0.81

      2014                           $2.01

      2013                           $2.09

      2012                           $2.44

      2011                           $2.31

      2010                           $2.01

what is the brief memo as to what dividend policy you recommend, why recommend it, what initial dividend amount you recommend, and why you recommend that amount.

Case 3-2 Rite Aid Inventory Surplus Fraud

Occupational fraud comes in many shapes and sizes. The fraud at Rite Aid is one such case. On February 10, 2015, the U.S. Attorney’s Office for the Middle District of Pennsylvania announced that a former Rite Aid vice president, Jay Findling, pleaded guilty to charges in connection with a $29.1 million dollar surplus inventory sales/kickback scheme. Another former vice president, Timothy P. Foster, pleaded guilty to the same charges and making false statements to the authorities. Both charges are punishable by up to five years’ imprisonment and a $250,000 fine.

The charges relate to a nine-year conspiracy to defraud Rite Aid by lying to the company about the sale of surplus inventory to a company owned by Findling when it was sold to third parties for greater amounts. Findling would then kick back a portion of his profits to Foster.

Findling admitted he established a bank account under the name “Rite Aid Salvage Liquidation” and used it to collect the payments from the real buyers of the surplus Rite Aid inventory. After the payments were received, Findling would Page 176send lesser amounts dictated by Foster to Rite Aid for the goods, thus inducing Rite Aid to believe the inventory had been purchased by J. Finn Industries, not the real buyers. The government alleged Findling received at least $127.7 million from the real buyers of the surplus inventory but, with Foster’s help, only provided $98.6 million of that amount to Rite Aid, leaving Findling approximately $29.1 million in profits from the scheme. The government also alleged that Findling kicked back approximately $5.7 million of the $29.1 million to Foster.

Foster admitted his role during the guilty plea stage of the trial. He voluntarily surrendered $2.9 million in cash he had received from Findling over the life of the conspiracy. Foster had stored the cash in three 5-gallon paint containers in his Phoenix, Arizona, garage.

Assume you are the director of internal auditing at Rite Aid and discover the surplus inventory scheme. You know that Rite Aid has a comprehensive corporate governance system that complies with the requirements of Sarbanes-Oxley and the company has a strong ethics foundation. Moreover, the internal controls are consistent with the COSO framework. Explain the steps you would take to determine whether you would blow the whistle on the scheme applying the requirements of AICPA Interpretation 102-4 that are depicted in Exhibit 3.13. In that regard, answer the following questions.

Questions

1. What steps must you take to be eligible to blow the whistle to the SEC under the Dodd-Frank Financial Reform Act?
2. Would you inform the external auditors about the fraud? Explain.
3. Assume you met all the requirements to blow the whistle under Dodd-Frank. Would you do so? Why or why not?

In a company, beginning capital balances on June 1, 2020, are Coo $53,000 and Vid $65,500. During the month, drawings were Coo $8,200 and Vid $6,700. Net income was $30,000, and the partners share the income based on interest allowances of 10% on beginning capital balances and share the remaining income equally. What is the division of net income for Coo?

In a company, beginning capital balances on second quarter of 2020, are Coo $72,000 and Vid $67,500. During the quarter, drawings were Coo $11,500 and Vid $9,900. Net income was $37,000, and the partners share income equally. What is the company’s total equity in its statement of financial position at June 30, 2020?