Protek Ltd, a masks distributor company, provides the following trial balance for the year ended 30 June 2020:
Protek Ltd
Trial balance as at 30 June 2020
Debit ($)
Credit ($)
Sales of N97 surgical masks
2,151,670
Sales of 4-ply masks
3,120,850
Sales of masks filters
3,288,426
Cost of goods sold
4,688,000
Rental expenses
375,950
Salaries and wages
1,980,000
Administration expenses
128,450
Annual leave expense
98,510
Doubtful debts expense
158,000
Depreciation expense
376,000
Amortisation expense - patent
56,900
Interest expense
22,500
Interest income
8,200
Selling expenses
66,800
Income tax expense
228,600
Cash on hand
53,000
Cash management account
230,000
Trade debtors
478,600
Allowance for doubtful debts
19,144
Inventories
455,040
Land
760,000
Motor vehicles
630,000
Accumulated depreciation - motor vehicles
252,000
Office equipment
620,000
Accumulated depreciation - office equipment
124,000
Patent (5 years)
569,000
Accumulated amortisation - patent
56,900
Deferred tax asset
28,500
Deferred tax liability
125,000
Bank loan
450,000
Trade creditors
182,560
Provision for annual leave
43,000
Current tax liability
132,100
Retained earnings, 1 July 2019
70,000
Dividends paid
20,000
Share capital
2,000,000
12,023,850
12,023,850
Additional information:
Protek Ltd is a reporting entity in accordance with the requirements of Australian’s Conceptual Framework.
The bank loan is repayable in 3 years.
The depreciation expense of $376,000 relates to motor vehicles and office equipment amounted to $252,000 and $124,000 respectively.
60% of the provision for annual leave are expected to be payable within 1 year and the remaining is payable after 1 year.
The patent was acquired on 1 January 2020. It represents fees paid to Teknova Group, a manufacturer company based in China. Protek Ltd is given the sole distributorship in Australia to sell the new high quality mask, N97, designed for first line workers in the health industry. The patent lasts for 5 years.
There was no new shares issued during the financial year ending 30 June 2020.
Protek Ltd uses the single statement format for the statement of profit or loss and other comprehensive income and presents an analysis of expenses by function on the statement.
The following expenses are allocated to administrative expenses and distribution costs for the purposes of preparation of the statement of profit or loss and other comprehensive income:
Administrative expenses
Distribution costs
Rental expenses
40%
60%
Salaries and wages
50%
50%
Administration expenses
100%
-
Annual leave expense
50%
50%
Doubtful debts expense
-
100%
Depreciation expense – motor vehicles
10%
90%
Depreciation expense – office equipment
80%
20%
Amortisation expense - patent
100%
-
Selling expenses
-
100%
In relation to the statement of financial position, where AASB 101 requires entities to disclose further sub-classifications of the minimum line items on the face of the statement or in the notes, the directors of Protek Ltd want to report only the minimum line items on the face of the statement, and leave the sub-classifications to be disclosed in the notes.
Part A
As the accountant for the entity, prepare the following statements of Protek Ltd the year ended 30 June 2020 in accordance with AASB101:
Statement of profit or loss and other comprehensive income;
Statement of financial position; and
Statement of changes in equity.
In preparing the above statements, you should use the line items that a listed company is likely to use and refer to paragraphs 54, 82, 82A and 106 of AASB 101 in determining the line items to be presented. Show all workings to support your figures presented in the statements. Disclosure notes and comparative figures are not required.
Note: In preparing the statements for Part A, you should consider only information given in this part and ignore information given in Part B below.
Part B
The following events occurred after the preparation of statements was completed in Part A above.
Event 1
The directors have asked you to review the doubtful debts allowance due to the high level of bad debts expense that occurred during the year. The allowance is currently measured based on 4% of trade debtors’ balances following the advice of Jane, who is one of the directors. After reviewing industry averages, you have advised the directors that the allowances should be revised to 8% of the trade debtors’ balances and the directors agreed to your proposal and adopt the new basis from 1 July 2019. This change is considered material in Protek Ltd’s case.
Required:
State if the above situation would constitute a change in accounting policy or a change in accounting estimate. Explain and support your answers by making reference to relevant paragraphs in AASB108.
Prepare necessary adjusting entries and/or notes disclosures required to account for the change in the doubtful debt allowance for the year ended 30 June 2020.
Event 2
Protek Ltd stored its masks in rented warehouses located in several locations. One of the warehouses in Orange was destroyed by bushfires on 29 July 2020. From the accounting records, there were 8,000 boxes of N95 masks stored in that warehouse, with cost of inventories valued at $120,000. Unfortunately, there was no insurance policy acquired to cover this loss and the loss is considered material for Protek Ltd.
The financial statements for the year ended 30 June 2020 were authorised for issue by the directors on 28 August 2020.
Required:
Classify the above event as either an adjusting or non-adjusting event after the end of the reporting period. Justify your answer by making reference to AASB110.
Consistent with your answer to (i) above, prepare any journal entries and/or note disclosures required to comply with the requirements of AASB110.
In: Accounting
Assuming a cash flow statement is prepared using the indirect method, indicate the
reporting of the transactions and events listed below by major categories on the
statement. Use the following code letters to indicate the appropriate category under which
the item would appear on the cash flow statement.
Codes:
A
Cash flows from operating activities (Add to profit)
D
Cash flows from operating activities (Deduct from profit)
IA
Cash flows from investing activities
FA
Cash flows from financing activities
Category
1. Common shares are issued for cash.
_____
2. Merchandise inventory increased during the period.
_____
3. Depreciation expense recorded for the period.
_____
4. Building was purchased for cash.
_____
5. Bonds payable were acquired and retired at their carrying value.
_____
6. Accounts payable decreased during the period.
_____
7. Prepaid expenses decreased during the period.
_____
8. Investment in common shares of another company were acquired for
cash.
_____
9. Land is sold for cash at an amount equal to carrying amount.
_____
10. Loss on sale of equipment was recorded on the income
statement.
____
In: Accounting
In: Finance
NATIONAL FARM AND GARDEN, INC., BACKGROUND
(Everyone reads.)
National Farm and Garden, Inc. (NFG) was incorporated in Nebraska in 1935 and has been a leading supplier of farming equipment for more than sixty years. Over the last five years, however, demand for NFG’s flagship product, the Ultra Tiller, has been declining. To make matters worse, NFG’s market lead was overtaken by the competition for the first time two years ago.
Last year, NFG expanded its product line with the Turbo Tiller, a highly advertised and much anticipated upgrade to the Ultra Tiller. The product launch was timed to coincide with last year’s fall tilling season. Due to the timing of the release, the research and development process was shortened, and the manufacturing department was pressed to produce high numbers to meet anticipated demand. All responsible divisions approved the product launch and schedule. In order to release the product as scheduled, however, the manufacturing department was forced to employ the safety shield design from the Ultra Tiller. When attached, the shield protects the user from the tilling blades; however, it is necessary to remove the shield in order to clean the product. Because of differences between the Ultra and Turbo models, the Turbo’s shield is very difficult to reattach after cleaning and the process requires specialized tools. Owners can have the supplier make modifications on site or at the sales location, or they can leave the shield off and continue operation. All product documentation warns against operating the tiller without the shield, and the product itself has three distinct warning labels on it. Modifications are now available that allow for the shield to be removed and replaced quite easily, and these modifications are covered by the factory warranty. However, most owners have elected to operate the Turbo Tiller without the safety shield after its first cleaning.
Over the last year, a number of farm animals (chickens, cats, a dog, and two goats) have been killed by Turbo Tillers being operated without the guard. Two weeks ago, a seven-year-old Nebraska boy riding on the back of an unshielded tiller fell off. When the tiller caught the sleeve of his shirt, his arm was permanently mangled and required amputation. One of the child’s parents owns the local newspaper, which ran a story about the accident on the front page of the local paper the next day. NFG’s CEO has called an emergency meeting with the company’s divisional vice president, director of product development, director of manufacturing, director of sales, and vice president of public relations to discuss the situation and develop a plan of action.
Divisional Vice President
You are the divisional vice president and have been with the company for many years. Historically, you have not been a pushy individual and generally prefer to stay in the background. When there are major decisions to be made or crises to address, you are frequently not available. The CEO recently put you on a sixty-day action plan to improve your division’s output; failure to achieve this plan will result in your termination, even though you are just a few years shy of retirement. Therefore, you now find it necessary to satisfy not only your own objectives, but the CEO’s very high expectations as well. This has caused great turmoil within all divisions because you place increasing pressure on your subordinates.
As the divisional vice president, you are focused on coordinating all departments. You are responsible for output from the sales, manufacturing, and field service engineering departments. The research and development (R&D) department, which must sign off on all new products before they are approved for production, is not under your supervision.
Recently, you received a memorandum from the director of R&D outlining some potential problems with the development and testing of the Turbo Tiller. The memo was copied to you, the director of manufacturing, and the director of sales. You agreed with the director of manufacturing not to share the contents of the memo with your CEO because you felt that bringing this small concern to his attention would cause unnecessary problems for each division. Moreover, the CEO is known for his abrasive personality and has a history of yelling at bearers of bad news.
The CEO has called an all-hands emergency meeting at 7:00 a.m. tomorrow. You are expected to bring all knowledge of this situation with you for discussion and creation of a comprehensive action plan.
Director of Product Development
You are the director of product development. Although you have a master’s degree in mechanical engineering from Stanford University, you are originally from the inner-city area of Chicago, where you grew up in the school of “hard knocks.” From previous experience, you tend to be rather uncompromising about products that are engineered within your organization. Your engineering team has been very successful in the past, and you are quite proud of the many new successful products your department has developed.
You originally fast-tracked the Turbo Tiller product due to constant pressure, particularly from the director of sales. However, on further investigation, you have become concerned about the implementation of the product’s safety shield. Consequently, you recently sent a memorandum to the director of manufacturing, director of sales, and the divisional vice president outlining the fact that consumers could sue National Farm and Garden under the state’s strict liability doctrine, which holds manufacturers, distributors, wholesalers, retailers, and others in the chain of distribution of a defective product liable for the damages caused by the defect, regardless of fault. Moreover, plaintiffs could cite the state’s concept of defect of manufacture when the manufacturer fails to (1) properly assemble a product, (2) properly test a product, and (3) adequately check the quality of the product component parts or materials used in manufacturing. You now believe that NFG has violated all three of these concepts of “defects of manufacture.”
Having received no response to this memo, you are contemplating whether to escalate the issue by going to the CEO. The only reason you have not already done so is the CEO’s historic temper when confronted with negative situations.
The CEO has called an all-hands emergency meeting at 7:00 a.m. tomorrow. You are expected to bring all knowledge of this situation with you for discussion and creation of a comprehensive action plan.
Director of Manufacturing
You are the director of manufacturing. A graduate from the University of Alabama with a B.S. in industrial manufacturing, you have worked for NFG for twenty years. You are required to provide reports to top management on a weekly, monthly, and quarterly basis. Top management creates the exact measures of performance that you provide; although you have a say in what these reports focus on, you often disagree with their exact focus. Your overall performance is evaluated based more on numbers of units produced than on quality. Despite this, you enjoy working for the company. You consider the group like family, and especially appreciate the effort the CEO has made to make you feel valued and supported.
You are aware of the difficulties that the Ultra Tiller guard poses when used on the Turbo Tiller. Due to the Turbo Tiller’s larger size, the guard is nearly impossible to replace after removal. Re-attachment of the shield requires a professional machine shop and additional assistance. However, with your knowledge of statistics, you know that, even without the shield in place, the chances of an animal or a person being injured by the Turbo Tiller are small. Thus, you agreed with the divisional vice president to bury a memo sent by the director of R&D stating related concerns. You both felt that the risks were small enough and that raising these concerns to your superiors would only cause headaches and paperwork. Furthermore, you need to stay on schedule in order to reach your volume goals if you are to earn your bonus.
You have also received several e-mails from the manager of the field service engineering department about reports of farmers operating the Turbo Tiller without the guard. When you requested statistical data regarding the number and location of occurrences and any related accidents, the field service engineering manager replied with field data indicating that more than 85 percent of all Turbo Tillers are eventually operated without the guard.
The CEO has called an all-hands emergency meeting at 7:00 a.m. tomorrow. You are expected to bring all knowledge of this situation with you for discussion and creation of a comprehensive action plan.
Director of Sales
You are the director of sales and have been with NFG for more than ten years. You were recruited from a competing firm and have more than twenty-five years of sales experience in the industry. Because of sagging sales, you face extreme pressure from above to meet your numbers. However, you feel that sales forecasts have been set unrealistically. Furthermore, these aggressive forecasts create churning within your department as your sales staff consistently complains that their quotas are unrealistic. Although you are adamant that declining sales are industry and product offering issues, you are reluctant to raise these concerns to the CEO because of his history of anger directed at messengers bearing bad news. You have witnessed this phenomenon firsthand as the CEO literally screamed at a coworker who brought a problem to his attention. On the other hand, the CEO has promised you a new BMW if your department reaches its numbers this year. Of course, you enthusiastically promised to achieve these results.
The Turbo Tiller has been a much-anticipated addition to your stagnant product portfolio, but you were concerned that it would be delayed due to red tape and wrote daily e-mails to the R&D manager about getting it to market on a timely basis. You have received a memo from the R&D manager about some legal concerns over the Turbo Tiller. However, you feel that these concerns are manufacturing’s problem, not your department’s. Furthermore, because the director of manufacturing received a carbon copy of the memo, you are sure that the concerns will be addressed appropriately.
You have organized training on this product for your sales staff that included proper operating procedures and the dangers of standing within five feet of the tilling blades. In addition to these training sessions, you arranged a separate class on how to address and downplay these concerns with customers.
The CEO has called an all-hands emergency meeting at 7:00 a.m. tomorrow. You are expected to bring all knowledge of this situation with you for discussion and creation of a comprehensive action plan.
Here is the question. please help me to answer this:
1) List the key stakeholders in this scenario.
2) What actions will you take with the family of the injured boy?
3) What actions will you take to move customers from the old tiller to the new version?
4) Are there any other actions you think that should be done?
In: Operations Management
Runiowa is a fashion shoe company that tries to manufacture much more durable heels in 2020. The management team of Runiowa suggests two rubber materials A and B and the research team of Runiowa is asked to design an experiment to gauge whether the rubber A is more durable than the rubber B. 300 people in the US aged between 18 and 65 were randomly chosen. The rubber A is allocated at random to the right shoe or the left shoe of each individual. Then, the rubber B has been assigned to the other. For example, if Mr. Nathaniel is one of 300 people randomly chosen, then the right heel of Mr. Nathaniel is randomly assigned to be made with the rubber A and then his left heel is to be made with the rubber B. The research team measures the amounts of heel wear both the rubber A (wA) and the rubber B (wB) in each individual and records the difference wA − wB of 300 individuals. Even though the individuals are heterogeneous with different heights and weights, those individual heterogeneities will not obscure the comparison of treatment groups by focusing on the paired differences of each individual. Also as long as the heel materials are randomly assigned for each individual, there has been no restrictions on shoe styles. Note that the age of subjects is ranging from 18 to 65. In this way, researchers compare treatments within blocks controlling heterogeneity of individuals. The research team also repeats this experiment design with 300 people in the US aged between 18 and 65 chosen at random.
Question:
What are the experimental units?
What is the control?
Hoe much replication was used?
How was randomization used?
In: Statistics and Probability
Use the adjusting journal entry information to prepare the formal adjusting journal entries as of December 31, 2020. Remember to skip a line between each adjusting journal entry and use AJ1, AJ2, AJ3, etc, instead of the actual date.
Information for Year End Adjusting Journal Entries December 31, 2020
1) The building(cost of $180,000)was purchased on January 1, 2019 and it is expected to have a useful life of 30 years with no salvage value. Depreciation expense has been recorded through November 30, 2020.
2) Office equipment(cost of $130,000)as of November 30, 2020 was purchased on January 1, 2015. The office equipment is expected to have a useful life of 10 years with $10,000 salvage value. Depreciation expense has been recorded through November 30, 2020.
3) Insurance in the amount of $4,800 was paid on April 1, 2020 covering the period of April 1, 2020 through March 31, 2021. The insurance expense and prepaid insurance accounts have been properly adjusted through November 30, 2020.
4) A December 31, 2020 count of supplies showed $3,300 of supplies remaining on hand.
5) Salaries earned but unpaid as of December 31, 2020 amount to $31,500.
6) The company has earned one of the three months rent previously received on December 1 from Bullwinkle Inc.
7) Interest at an annual rate of 3¼% is owed for the month of December 2020 on the Mortgage Note Payable due in 5 years (round interest to nearest whole dollar).
8) The savings account was opened on December 31, 2019. It earns interest at an annual rate of 1.5%, compounded monthly. Interest has been received and recorded through November 30, 2019. The bank notified the company that interest for the month of December was deposited in the savings account on December 31, 2020(round interest to the nearest dollar).
9) Uncollectible accounts are expected to be $11,500 based on net sales.
10) Income taxes owed for the year amounted to $15,000.
In: Accounting
A popular blog reports that 42% of college students use Twitter. The director of media relations at a large university thinks that the proportion may be different at her university. She polls a simple random sample of 200 students, and 101 of them report that they use Twitter. Can she conclude that the proportion of students at her university who use Twitter differs from 0.42? Answer by showing the five steps of signigicance test, allowing a Type I error rate of 0.05.
In: Statistics and Probability
The president of a university claims that the mean time spent partying by all students at this university is not more than 7 hours per week. A random sample of 30 students taken from this university showed that they spent an average of 9.50 hours partying the previous week with a standard deviation of 2.3 hours. Test at a significance level of 0.025 whether the president’s claim is true.
In: Statistics and Probability
You would like to study the height of students at your
university. Suppose the average for all university students is 67
inches with a SD of 18 inches, and that you take a sample
of 19 students from your university.
a) What is the probability that the sample has a
mean of 61 or less inches?
probability =
b) What is the probability that the sample has a
mean between 68 and 71 inches?
probability =
Note: Do NOT input probability responses as
percentages; e.g., do NOT input 0.9194 as 91.94.
In: Statistics and Probability
The CEO of Tom and Sue’s wants the company to earn a net income of $2.800 million in 2022. Cost of goods sold is expected to be 60 percent of net sales, depreciation and other operating expenses are not expected to change, interest expense is expected to increase to $1.266 million, and the firm’s tax rate will be 21 percent. Calculate the net sales needed to produce net income of $2.800 million.
In: Finance