Exercise 21-12 (Part Level Submission)

On January 1, 2020, Pharoah Company leased equipment to Flynn Corporation. The following information pertains to this lease.

1.The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $9,000.

2.Equal rental payments are due on January 1 of each year, beginning in 2020.

3.The fair value of the equipment on January 1, 2020, is $120,000, and its cost is $110,000.

4.The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis.

5.Pharoah set the annual rental to ensure a 6% rate of return. Flynn's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown.

6.Collectibility of lease payments by the lessor is probable.

Both the lessor and the lessee's accounting periods end on December 31.

a. What is the amount of the annual Rental Payment?

d.   Suppose the collectibility of the lease payments was not probable for Pharoah. What are the necessary journal entries for the company in 2020.

c.   What are the journal entries for Flynn for 2020.

In this assignment, assume that the Sec. 179 and bonus depreciation tax apply to the 2020 tax year where applicable.

1. For a-d, determine the total depreciation amount for 2020 assuming the taxpayer opted out of Sec. 179 and bonus if they were available in the year of purchase. In addition, assume all taxpayers use a calendar year tax period and that the property mentioned was the only property purchased in the year of acquisition.
   
   

Grouper Company began operations on January 2, 2019. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.

Grouper Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.

Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2019 and 2020.

On January 31, 2020, the manufacturing facility of a medium-sized company was severely damaged by an accidental fire. As a result, the company's direct materials, work in process, and finished goods inventories were destroyed. The company did have access to certain incomplete accounting records, which revealed the following:1.Beginning inventories, January 1, 2020:

2.Key ratios for the month of January 2020:

Gross profit = 20% of sales

Prime costs = 70% of manufacturing costs

Factory overhead = 40% of conversion costs

Ending work in process is always 10% of the monthly manufacturing costs.

3.All costs are incurred evenly in the manufacturing process.

4.Actual operations data for the month of January 2020:

Instructions

a.  From the above data, reconstruct a cost of goods manufactured schedule.

CGM $788,000

b.  Calculate the total cost of inventory lost, and identify each category where possible (direct materials, work in process, and finished goods), at January 31, 2020.

Total $330,000

Old World Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every other month (which is 6 times per year). A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, what is the extra total cost of the current policy compared with the total cost of the optimal policy? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

Ordering cost = $10 per order

Carrying cost = 20% of purchase price

Purchase price = $15 per unit

Total sales for year = 1,000 units

Safety stock = 0

Old World Charm, Inc. specializes in selling scented candles. The company has established a policy of reordering inventory every other month (which is 6 times per year). A recently employed MBA has considered New England's inventory problem from the EOQ model viewpoint. If the following constitute the relevant data, what is the extra total cost of the current policy compared with the total cost of the optimal policy? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box. Ordering cost = $10 per order Carrying cost = 20% of purchase price Purchase price = $15 per unit Total sales for year = 1,000 units Safety stock = 0

Maples Corporation is a Canadian subsidiary of a U.S. parent company. Shown below is the company’s local currency income statement for 20X1. All transactions the company entered into should be considered to have occurred evenly throughout the year, except for the loss on storm damage, which occurred on September 30, 20X1, and resulted in the destruction of certain fixed assets. The U.S. parent translates Maples’ financial statements into U.S. dollars using the current rate method.

Exchange rates between the Canadian dollar and the U.S. dollar (stated as the U.S. dollar value of one Canadian dollar) at various times were as follows:

Required:

1. What is the amount of net income that would appear in Maples’ 20X1 U.S. dollar income statement after translation under the current rate method?
2. Suppose Maple’s retained earnings at December 31, 20X0, was C$519.1 million. It was US$472.0 million as shown in the company’s U.S. dollar balance sheet on the same date. Maples did not declare or pay any dividends in 20X1. What amount of retained earnings would it report in its December 31, 20X1, U.S. dollar balance sheet?

(For all requirements, round your intermediate and final answer to 3 decimal places. Enter your answer in millions and not in whole dollars.)

2. Would the following transactions be part of U.S. GDP, U.S. GNP, both or neither?

a. You received dividends from a company based in Germany.

b. Colin Firth, a British citizen, earns money acting in a movie made in Hollywood.

c. You buy a Volkswagen automobile which was made in Germany.

d. An American citizen works at a Honda factory in South Carolina

Europe’s response to the economic turmoil brought about by the global coronavirus shutdown is rekindling debate about the European Union’s financial unity. The euro has dropped 3.5% this year to $1.08, near its lowest level against the U.S. dollar since May 2017. The currency could lose another 5% by year-end, according to forecasts from Bank of America. That marks a sharp turnaround for a currency that posted its calmest year on record in 2019, when it slid 1.8%. The eurozone is headed for the deepest recession in its history, with the economy expected to contract 7.7% this year, the European Commission forecast on Wednesday. Any recovery is expected to be slow, halting and uneven, and is likely to lag that of the U.S. economy. Capital Economics, for instance, has forecast that the eurozone might not get back to pre-crisis levels until after 2022. Wall Street journal – May 14, 2020).

What are some of the major reasons for Euro to fall against dollar? Who appears be the winner of currency war United States or Europe?

1. The Cinci Company issues $100,000, 10% bonds at 103 on April 1, 2020. The bonds are dated January 1, 2020 and mature six years from that date. Straight-line amortization is used. Interest is paid annually each December 31. Compute the bond carrying value as of December 31, 2023.

Answer

$_______________