REQUIRED

Post all transactions, adjusting and closing entries for Midnight Oil for the fiscal year ending December 31, 2004.

MIDNIGHT OIL (MO)

Midnight Oil (MO) was formed as a private corporation on January 1, 2003, by Hanna Carins. Although Carins had been making candles in her basement in Port Stanley for years to give as gifts, she had decided to expand her operations in order to generate additional income. Port Stanley, a small town bordered by Lake Erie, was about 30-minutes drive from London, Ontario. The town attracted many tourists to its beaches, making it an ideal locale for the sale of specialty candles. Carins’ second fiscal year had just ended, and she was anxious to discover how profitable it had been.

PRODUCTION PROCESS AND FIXED ASSETS

Carins used several pieces of equipment to manufacture her signature cube candles. The first, a large stove burner, was used to melt the raw, solid wax. Carins had purchased the burner on the first day of operations for $4,500 and had amortized it using the straight-line method over 10 years.¹ The burner worked well until May 1, 2004, when Carins spent $900 to repair the heating mechanism. This unexpected repair was paid for with cash and was expected to add on additional year to the burner’s useful life. Its salvage value would remain the same.

Large pots, used to melt the wax, deteriorated quickly and were amortized using the units-of-output method. Their total original cost was $2,200, with an estimated$200 salvage value after approximately 700 batches. The pots had been used for 275 batches by early November of fiscal 2004 in anticipation of the Christmas season, and on November 8, 2004, Carins decided to scrap all the pots. Carins received $100 from a wrecker for the metal. The following day, Carins purchased new large pots for a total cost of $2,900 cash. She decided to amortize the new pots using the same method of amortization as the old pots (including the original life of 700 batches) buy decided on a $00 salvage value. The new pots were used to make a total of 40 batches from November 9, 2004, to December 31, 2004.

Three moulds were used to form the melted wax into the square shape that Carins had designed. These moulds were amortized using the double-declining-balance method, had useful life of five years and were expected to have a salvage value of $150 each. Each mould had originally cost $1,200, not including transportation costs of $75 each. On the first day of fiscal 2004, each mould had a net book value of $765.

In additional to the office equipment listed on the fiscal 2003 balance sheet (see Exhibit 1), Carins had purchased a new printer for $1,000 on January 1, 2004, to make her invoices look more professional. The printer had been purchased using a 90-day note payable that carried four per cent annual interest and had been paid in full in cash on the maturity date. Carins planned to amortize the printer using the same method as the rest of the office equipment.

MANUFACTURING FACILITY

Originally, Carins had believed she could operate out of her basement, but she quickly realized more space was needed. In early June 2003, Carins began renting a small 500-square-foot workspace in Port Stanley for $450 per month paid with cash on the last day of each month. Upon signing the three-year lease, Carins had been required to pay both first and last month’s rent. The manufacturing area represented 450 square feet, and the remaining space was used for Carins’s office.

Utilities for the rented workspace had totaled $1,100 in fiscal 2004, but Carins had recorded payments by cheques for $1,150. Carins allocated utilities costs based on space occupied. Insurance covering production operation only was purchased annually on January 1 with cash and had cost $800 in fiscal 2003. The premium had increased by 10 per cent in fiscal 2004.

WAGES AND SALARIES

While Carins did perform some of the manufacturing herself, she needed two part-time workers to help make the candles. The part-time employees earned $7.15 per hour, and each had worked 250 hours in fiscal 2004. All wages had been paid in full. Carins had been compensating herself generously ($2,000 per month), and she thought that 50 per cent of her time was spent actually making the candles. On top of her monthly salary, depending on the results for fiscal 2004, Carins would decide whether to issue herself, as the shareholder, a dividend subsequent to year-end.

OTHER DISBURSMENTS

Carins had paid the following miscellaneous costs with cash: $684 for fiscal 2003 income taxes, $260 for the telephone, $500 in promotional materials, and $65 for transportation to customers. MO had also established a petty cash fund for $110 on December 30, 2004.

Carins had required a bank loan to help cover the initial costs of the production equipment and inventory. The loan was listed on the balance sheet and was being paid back in equal annual installments of $500, paid on the first day of the fiscal year beginning January 1, 2004. Carins paid five per cent interest on the loan amount outstanding at the end of each year. Both the loan and the interest were paid with cash.

SALES

All of MO’s customers purchased their candles with cash. By the end of the year, MO had six regular customers whose purchases had totaled $49,000.² Discounts had not been offered in fiscal 2004.

INVENTORIES

Oil, used to coat the moulds, was the only production supply required. Carins had purchased $170 worth of supplies in fiscal 2004 with cash, and she had $25 worth of supplies remaining on December 31, 2004.

MO used the weighted-average-cost method of inventory valuation to determine the value of wax at year-end. Carins had started fiscal 2004 with 20 kilogram of wax, had purchased 310 kilograms,³ and counted only five kilograms on hand on December 31, 2004. Glaxen Inc. was MO’s only supplier. Glaxen shipped FOB destination and demanded cash on delivery. Carins remembered that a shipment had been ordered for 24 kilograms on December 27. The shipment had cost $245 but had not yet arrived in Port Stanley. Wax covered rope wicks were also included in the raw materials account. No purchases had been made in the year, and Carins estimated $11 worth of wicks remained on hand.

Some candles were partially completed at the end of December 31, 2004. Carins estimated that an allocation of $120 of her salary had five hours of part-time work had been spent manufacturing the candles, and that $40 of raw materials had been used so far. Carins used direct labor dollars as the proxy for determining partial factory overhead.

Finally, Carins had counted 70 finished candles in the small storage area and had no record of any damaged candles.

MO paid corporate tax at a rate of 20 per cent.

REQUIRED

Post all transactions, adjusting and closing entries for Midnight Oil for the fiscal year ending December 31, 2004.

¹Carins expected a salvage value of $500 at the end of the burner’s useful life

²Representing 4,640 candles

³For a total cost of $936

¹Raw materials – wax ($30); raw materials – wicks ($23); finished goods ($95, representing 30 candles).

^2The office equipment was amortized using the straight-line method over 10 years with no salvage value

³Relates to utilities used but not paid as at year-end.

⁴MO paid corporate income tax at a rate of 20 per send.

Brazos Higher Education Service Corporation, Inc., was a nonprofit student loan company. Brazos allowed one of its employees to store customers’ personal financial information on a laptop with an unencrypted hard drive. The laptop was subsequently stolen from the employee’s home during a robbery. Brazos had no way of knowing which customers’ information was contained on the laptop’s hard drive or whether the information would be accessed by a third party. As a precaution, Brazos notified all of its customers that their information may have been accessed by a third party and offered each customer six months of identity-theft monitoring. One customer, Guin, brought suit against Brazos for negligence, claiming that Brazos had failed to adequately protect his financial information, thereby causing Guin harm. Guin’s information was never accessed by a third party, and Guin never suffered identity theft. How might other businesses be affected if Guin’s lawsuit succeeded? Do you think Brazos was wrong to store its customers’ financial information on an unencrypted laptop hard drive? [Stacy Lawton Guin v. Brazos Higher Education Service Corporation, Inc., 2006 U.S. Dist. LEXIS 4846 (2006).]

For each assigned case, analyze the issue based on the following criteria:

e.       Identify the parties involved in the case dispute (who is the plaintiff and who is the defendant).

f.       Identify the facts associated with the case and fact patterns.

g.      Develop the appropriate legal issue(s) in question (i.e., the specific legal issue between the two parties).Provide a judgment on who should win the case - be clear.

h.      Support your decision with an appropriate rule of law.

i.        Be prepared to defend your decision and to objectively evaluate the other points of view.

j.        Purpose

You are Given the Following Information for an OECS country for the years 2005 and 2004:

1. Calculate GDP for the years 2005 and 2004.You have just calculated nominal GDP.

2.You are told that inflation in 2005 was approximately 2%,what would be your initial estimate of real GDP growth in 2025?Briefly outline the difference between nominal and real GDP.

Collect information on the budgets of each of Netherland and Malaysia for the 15 years from 2004 and 2018. You need to collect information on the major components of revenue and expenses with smaller items put into the category “others”. Determine whether the country or federal budget was in surplus or deficit in each of the years.

The accompanying data table lists the weights of male college students in kilograms. Test the claim that male college students have a mean weight that is less than the 84 kg mean weight of males in the general population. Use a 0.05 significance level. Identify the null​ hypothesis, alternative​ hypothesis, test​ statistic, P-value, and conclusion for the test. Assume this is a simple random sample.

Person Weight

1 75

2 97

3 74

4 93

5 59

6 71

7 67

8 92

9 67

10 69

11 87

12 81

13 60

14 70

15 68

16 68

17 80

18 64

19 54

20 73

21 77

22 74

23 74

24 63

25 64

26 64

27 66

28 71

29 65

30 75

31 74

32 94

1. How does Spirit Airlines compete against its rivals? Use reasoning to support your answer.
2. Is the airline industry elastic or inelastic? How does this fact contribute to Spirit’s success?
3. What types of customers is Spirit targeting? What types of customers would be least likely to use Spirit’s services and why?

A national newspaper reported that the state with the longest mean life span is Hawaii, where the population mean life span is 74 years. A random sample of 20 obituary notices in the Honolulu Advertizer gave the following information about life span (in years) of Honolulu residents.

(i) Use a calculator with sample mean and standard deviation keys to find x and s. (Round your answers to two decimal places.)

(ii) Assuming that life span in Honolulu is approximately normally distributed, does this information indicate that the population mean life span for Honolulu residents is less than 74 years? Use a 5% level of significance.

(a) What is the level of significance?


State the null and alternate hypotheses.

H₀: μ = 74 yr; H₁: μ > 74 yrH₀: μ = 74 yr; H₁: μ < 74 yr    H₀: μ = 74 yr; H₁: μ ≠ 74 yrH₀: μ > 74 yr; H₁: μ = 74 yrH₀: μ < 74 yr; H₁: μ = 74 yr

(b) What sampling distribution will you use? Explain the rationale for your choice of sampling distribution.

The Student's t, since we assume that x has a normal distribution and σ is unknown.The standard normal, since we assume that x has a normal distribution and σ is known.    The standard normal, since we assume that x has a normal distribution and σ is unknown.The Student's t, since we assume that x has a normal distribution and σ is known.

What is the value of the sample test statistic? (Round your answer to three decimal places.)


(c) Estimate the P-value.

P-value > 0.2500.100 < P-value < 0.250    0.050 < P-value < 0.1000.010 < P-value < 0.050P-value < 0.010

Sketch the sampling distribution and show the area corresponding to the P-value.

(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis? Are the data statistically significant at level α?

At the α = 0.05 level, we reject the null hypothesis and conclude the data are statistically significant.At the α = 0.05 level, we reject the null hypothesis and conclude the data are not statistically significant.    At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are statistically significant.At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are not statistically significant.

(e) Interpret your conclusion in the context of the application.

There is sufficient evidence at the 0.05 level to conclude that the population mean life span of Honolulu residents is less than 74 years.There is insufficient evidence at the 0.05 level to conclude that the population mean life span of Honolulu residents is less than 74 years.    

Complete each of the following nuclear reactions and calculate the energy change (in units J/mol of reactant) associated with each one. (Al-27 = 26.981538 amu, He-4=4.002603 amu, P-30=29.981801, W-179=178.94707, Ta- 179=178.94593)

(for below x / y , x = mass number while y = atomic number)

a. 27 / 13 Al + 4 / 2 He → 30 / 15 P + ______

b. 179 / 74 W + ______ →179 / 73 Ta

Revenue Recognition: Understanding the Impact of IFRS 15 - Revenue from Contracts with Customers

Rodney Redding       Brent T. McCallum* Abstract

In May 2014, the International Accounting Standards Board issued International Financial Reporting Standard (hereafter IFRS) 15 “Revenue from Contracts with Customers”. The standard replaces the International Accounting Standards (IAS) 18, “Revenue” and IAS 11, “Construction Contracts.” The accounting guidelines under IFRS 15 will become authoritative in 2018. Some companies may not see significant changes in the amount of revenue recognized. However, in certain industries such as telecom, software development, real estate, and some retailers, the effect on revenue recognition timing may be significant. The purpose of this case is to contrast the accounting for a transaction under the present IAS standard for revenue recognition and the guidance to be implemented in 2018. The case is relevant not only for those majoring in accounting but also for majors such as finance that analyze corporate financial statements. The case requires the performance of a web search to obtain details of the guidelines provided in IFRS 15 and a contrasting of the accounting treatment under IAS 18 with the approach required by the new IFRS 15 for a mobile telecommunications company.

Key Words: Revenue Recognition , IFRS 15, “Revenue from Contracts with Customers”, International Financial Reporting Standard 15, telecommunications revenue recognition, telecoms revenue recognition, revenue recognition timing, five-step process for revenue recognition, guidance changes for revenue recognition, identify the contract with the customer, performance obligations, contract price, transaction price, satisfying the performance obligation.

Introduction

In May of 2014, the International Accounting Standards Board issued International Financial Reporting Standard (hereafter IFRS) 15 “Revenue from Contracts with Customers”. The standard replaces the International Accounting Standards (IAS) “Revenue” and “Construction Contracts” as well as several other interpretations dealing with related issues. The accounting guidelines under IFRS 15 were originally intended to become authoritative in 2017 however, following a recent amendment, this has been extended to 2018. IFRS 15 changes the guidelines for timing and amount of revenue recognition for contracts with customers. For many companies these changes will have little financial impact Companies in the telecoms, software development, real estate, and retail sectors may however be significantly impacted by these changes. The core of IFRS 15 is the new five step process for determining the timing and amount of revenue to be recognized which will now be applied to all revenue from contracts with customers.

What Are The Accountants Doing To Our Revenue? The Company

MoServ is a Middle Eastern North African (MENA) telecommunications company that has been in existence since 2011. The company provides mobile phone service to 16 Middle Eastern and African countries. To attract customers they operate similar to their competition by offering low

cost or sometimes free mobile telephones to customers that sign multiyear service contracts. The company has been able to keep initial construction costs to a minimum by signing an agreement with a competitor to use the competitor’s signal towers on a 10 year lease ending in 2022. MoServ has already begun to acquire land in suitable locations for construction of company owned signal towers. Financing of the tower construction will require the company to acquire external funding through debt issuances in 2021. The Treasurer is concerned about the potential impact of the adoption of IFRS 15 on the trading results for the company for the three years 2018 to 2020. The Treasurer has a finance background and needs to know the impact of the new revenue recognition guidelines on reported income in those two years. He requires guidance on the following issues:

• Will the effect lower reported earnings?
• If so, how much compared to earnings determined using IAS 18, the current guidance for revenue recognition?
• Will the amount of any decrease affect the cost of borrowing or perhaps even restrict access to some debt opportunities?

The treasurer has asked the Controller to assign an accounting staff member to report on the new IFRS 15 guidelines to bring the treasury staff up to date on the changes. He also wants to know how the new standard will affect the revenue recognition arrangements on their 2 year New Soltam contract. This is the company’s highest revenue generating transaction and consists of a two year calling contract with a “free” telephone upon contract signing.

Revenue Transaction

MoServ offers a package similar to many of its competitors. Customers that sign up for a multiyear contract for phone usage are provided a phone for free or at cost significantly below the market value of the mobile phone. MoServ’s main contract (that provides 95% of corporate revenue) is as follows:

2 Year New Soltam Contract with Moserv

Length of contract: 24 months Cancellation policy: Non-cancelable

Monthly fee for mobile service: AED 800 (AED: United Arab Emirates currency) Contract signing bonus: New Soltam 398FX6 sophisticated mobile phone

Other information:

Normal selling price of Soltam mobile phone without contract: AED 1800. A 24 month contract with no free mobile phone is 870 AED per month.

The cost to MoSERV for the Soltam 398FX6 is AED 900 per unit.

Specific Instructions and Questions for the Accounting Staff

1. Access one of the websites of one of the Big Four public accounting firms and obtain the firm’s publication on IFRS 15. You are looking for only an Overview of the guidance. The Treasurer only wants an introduction to the guidance not detailed information. Attach a file to your report with this information or publication for review by the Treasurer.
2. Is the new revenue recognition guidance different under IASB and FASB? Or is this a joint project where the guidance is similar?
3. Indicate the IASB standard that is followed currently by MoServ before the adoption of IFRS 15.
4. Show the accounting for the signing of one contract by a customer under the current IASB authoritative guidance, for revenue recognition. Include the accounting at the time of signing the contract and for the first two months of the contract.
5. What is the effective date for the adoption of IFRS 15?
6. Can MoServ adopt IFRS early?
7. List and discuss the five steps of revenue recognition under IFRS 15 as applied to MoServ’s 2 Year New Soltam contract. Include the accounting journal entries at the time of signing the contract and for the first two months of the contract.
8. Write a brief description of the differences in the revenue and expense recognition under the two IASB standards.

We are planning to have 2000 customers each generating 100 USD revenue for a total revenue of 200000 USD (per day).

Q- What measure do you propose to bring it close to the planned number?