Question 6 Audit Report

Before the audit report was signed, the audit team encountered the following situation. Treat each situation independently and assume the remaining financial statements are fine.

1) A property owned by Cook’s Furniture Ltd was sold to Lidia Preston, the wife of Howard Cook in June 2020 (refer to case description in part A). The property has a market value of four million and was sold at 3.2 million. Management did not disclose this in the financial statement because they believed this was a private matter. The disposal of this asset has been appropriately accounted for on the financial statements (e.g. the asset was removed from PPE and the loss of disposal was correctly recognized as an expense).

2) The subsequent selling price of the ready-made furniture range suggests the inventory valuation as of 30 June 2020 should be written down by $48,000 but management only wrote $38,000 off as per the financial statements because they were confident that they can increase the selling price again in 2021 after people settling back to normality.

3) Carl Cook decided to retire in 2021 due to health reasons, Carl is willing to sell his shareholding to the remaining shareholders. However, the BoD decided to explore the potential of selling the business. By the time to sign the 2020 financial statements, the company has not commenced negotiations with any potential buyer. The BoD said to the auditor that they may not sell the business if they cannot get a good deal. Carl’s retirement decision is disclosed on the financial statements, but not the intention to sell the business.

REQUIRED: For each of the above situation:

a) Discuss the audit procedure that the auditor needs to perform in relation to each situation.

b) Explain which audit opinion is appropriate for each situation.

Villa Corporation (VC) is a private company that follows ASPE. The company’s policy is to report all cash flows arising from interest and dividends as operating activities. The company’s activities for the year ended December 31, 2020 included the following:

1. VC reported income before income taxes of $400,000. Income tax expense was $50,000.

2. Retained earnings increased by $340,000 for the year; the dividends payable account increased by $5,000.

3. Income taxes payable increased by 2,000 during the year.

4. Interest expense for the year was $20,000; the interest payable account increased by $12,000.

5. Accounts receivable decreased by $18,000 and accounts payable increased by $40,000 during the year.

6. Inventory increased by $14,000 during the year.

7. VC sold equipment with a net book value of $40,000 for $42,000 cash.

8. VC sold a long-term investment for $12,000; the book value of the investment was $15,000.

1. Depreciation expense for the year totaled $22,000.

10. VC recorded a goodwill impairment loss of $15,000 during the year.

11. VC acquired $200,000 in equipment by way of a $20,000 cash down payment and a $180,000 loan from its local bank.

Required:

1. Prepare the cash flows from operating activities section of the Cash Flow Statement for Villa Corporation for the year ended December 31, 2020 using the indirect method.       

2. For each activity described in this question that is not classified as an operating activity, explain how the activity and the related cash flow would be reported in Villa Hospitality’s Cash Flow Statement.

Cash Flow Statement (Partial)

For the Year Ended December 31, 2020 (Indirect Method)

1. Gonsalo runs a business doing car repairs, writes up his taxes on the cash basis, and on the calendar year.

Gonsalo paid $ 27,000 to his landlord on 12-1-2018 for a required advance rent payment on an 18 month lease covering the months 12-1-2018 through 5-31-2020.

Gonsalo paid $ 12,000 on 7-1-2018 for a one year insurance policy covering the months of 7-1-2018 through 6-30-2019. A payment of $ 16,000 was made on 7-1-2019 for a one year policy covering the period of 7-1-2019 to 6-30-2020.

Gonsalo has a business use only credit card, used to purchase supplies.    A purchase was charged on 12-30-2018 for supplies of $ 4,000, buying in bulk to receive a quantity discount, and another $6,000 purchase of supplies was charged on 8-1-2019 to fill up the stocks for 2019, and for the early months of 2020. Gonsalo paid the interest on the credit card in the amount of $ 2,500 during 2019 and has paid the principal balance on the credit card down by $ 8,000 so far by the end of 2019.

Finally, on 11-30-2018, Gonsalo signed and gave a note payable to a supplier for $3,000, due to be paid with accrued interest on May 30, 2019 with 6% annual interest. The note has a below market interest rate, and is worth $ 2,950. Gonsalo made the required payment when due. All of the purchased supplies had been used by May 2019.

How much of these payments qualify as tax deductible expenses for Gonsalo during 2019?

The post-closing trial balance of M/S. Sun Traders at 31 March 2020 is set out below
Sun Tarders
Post Closing Trial Balance
As on 31St March 2020

On the above date, Akbar retired, and the following arrangements were agreed upon:
a. Goodwill of the firm is to be valued at OMR 24,000.
b. The assets and liabilities are to be valued as: Stock OMR 12,000, Sundry Debtors
OMR.10,500, Land and Building OMR 22,600, Plant and Machinery OMR25,000 and
Sundry Creditors OMR 14,000.
c. To bring into books unrecorded investments OMR 1,000
d. Babar and Khan were to introduce OMR20,000 and OMR5,000 respectively into the business and OMR16,200 was to be paid immediately and balance transfer to loan accounts.
e. Bills payable were unrecorded to the extent of OMR1,000
f. Babar and Khan agreed not to retain goodwill in books.
g. Akbar, Babar and Khan profit and loss sharing ratio are 4:2:1 respectively.

You are required to pass necessary Journal entries with proper narrations to record the above transactions. Prepare revaluation account, capital accounts, bank account and financial position of the new firm as at 1st April 2020, after all above arrangement have been completed. Write down the impact of retirement with explanations values in the new balance sheet.

Teal Corporation purchased a computer on December 31, 2019, for $132,300, paying $37,800 down and agreeing to pay the balance in five equal installments of $18,900 payable each December 31 beginning in 2020. An assumed interest rate of 9% is implicit in the purchase price.New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.

Prepare the journal entry at the date of purchase. (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare the journal entry at December 31, 2020, to record the payment and interest (effective-interest method employed). (Round answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare the journal entry at December 31, 2021, to record the payment and interest (effective-interest method employed). (Round answers to 2 decimal places, e.g. 52.75. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

The post-closing trial balance of M/S. Sun Traders at 31 March 2020 is set out below
Sun Tarders
Post Closing Trial Balance
As on 31St March 2020

On the above date, Akbar retired, and the following arrangements were agreed upon:
a. Goodwill of the firm is to be valued at OMR 24,000.
b. The assets and liabilities are to be valued as: Stock OMR 12,000, Sundry Debtors
OMR.10,500, Land and Building OMR 22,600, Plant and Machinery OMR25,000 and
Sundry Creditors OMR 14,000.
c. To bring into books unrecorded investments OMR 1,000
d. Babar and Khan were to introduce OMR20,000 and OMR5,000 respectively into the business and OMR16,200 was to be paid immediately and balance transfer to loan accounts.
e. Bills payable were unrecorded to the extent of OMR1,000
f. Babar and Khan agreed not to retain goodwill in books.
g. Akbar, Babar and Khan profit and loss sharing ratio are 4:2:1 respectively.

You are required to pass necessary Journal entries with proper narrations to record the above transactions. Prepare revaluation account, capital accounts, bank account and financial position of the new firm as at 1st April 2020, after all above arrangement have been completed. Write down the impact of retirement with explanations values in the new balance sheet.

Questions 2, 3, and 4 ask you to consider the situation described in the article published in Monday, March 2, 2020 issue of The Wall Street Journal and titled “Meat Stockpiles Surge as Coronavirus Epidemic Curbs Exports”. You do not have to read the story to understand the setup of these questions. Here is what you should focus on to complete your analysis.  

• In 2019, U.S. meatpackers had been exporting large amounts of meat (chicken, pork, and beef) to China.
• However, the coronavirus (Covid-19) outbreak in January and February 2020 has significantly reduced demand for U.S. meat exports.
• For this analysis, assume the meatpacking industry is perfectly competitive, demand is downward sloping, supply is upward sloping, and production technology results in traditional U-shaped ATCand AVC curves.
• Finally, for questions 2, 3, and 4, market price is always greater than the minimum of the AVC curve.

Question 2:

Assume that prior to the outbreak of the coronavirus (Covid-19), the meatpacking industry was in Long Run Equilibrium (LRE).

• Using our side-by-side graph methodology, graphically depict the market equilibrium P₀ and Q₀, the optimal output of an individual firm representative of the other firms in the industry at this LRE (labeled as q₀), and the individual firm’s profit if any (shaded and clearly labeled).
• Provide a brief narrative explaining the setting and the profitability of an individual firm in an LRE (including why there is a certain level of profit in this setting).
• Reminder: Be sure to label all relevant points and axes.

(a) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2010 measured in base year dollars. Please show the work done to get your answer.

(b) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2011 measured in base year dollars. Please show the work done to get your answer.

(c) Using the base year as the comparison year, calculate the Real Value of Bill’s Income for 2012 measured in base year dollars. Please show the work done to get your answer.

(d) Explain what happened to Bill's real income from 2010 to 2011.  

(e) Explain what was the cause for your answer in (d) above.

(f) Using the information above, calculate the inflation rate from 2010 to 2011.   Please show the work done to get your answer. Give your answer to the second decimal (hundredths place).

(g) In one factual sentence, state what information your answer for the inflation rate in (f) above tells us. I do not want an opinion as to whether this number is high or low. Please use your answer in (f) above in your answer for (g).

(h) If Sue lent Bill $20,000 at the start of 2010 for 1 year and charged Bill a nominal interest rate of 12.00%, then please calculate the real interest rate that Sue earned for this 1 year loan. Please show how you got your answer. Please be clear what your answer is and calculate your answer to the second decimal place (hundredths place).

(i) If Sue wanted to earn a real interest rate (return) of 12.00% for the loan mentioned in (h) above, then what nominal interest rate should she have charged Bill? Please show how you got your answer. Please be clear what your answer is and calculate your answer to the second decimal place (hundredths place)

java True or False. no need to explain

6. Class member variables should be declared as private because the objectoriented programming principle of encapsulation.

7. The method public char getChar(); will return a character data. Page 2

8. Assume that there is a Class named Stock and the class has a constructor private Stock(String symbol, double price); So a programmer can create a Stock object by doing the following in the main method: Stock stock = new Stock(“Google Inc”, 578.45);

9. A breakpoint is a marker that you can set to specify where execution should pause when you are running your Java application in Eclipse.

10. We use int [] numbers to create a number of integer values in the heap