During 2020, Sandhill Company started a construction job with a contract price of $1,590,000. The job was completed in 2022. The following information is available.

Part 1

Compute the amount of gross profit to be recognized each year, assuming the percentage-of-completion method is used.

Read Case Ticketmaster – Making Better Decisions passage below and answer the following questions 1-4 in bold :

Case Study: Ticketmaster
In 2010, Ticketmaster found out the hard way that the entertainment industry is not, in fact, as recession-proof as it was once widely believed to be. The company, which sells tickets for live music, sports, and cultural events, and which represents a significant chunk of parent company’s Live Nation Entertainment’s business, saw a drop in ticket sales that year of a disconcerting 15 percent. Then there was the mounting negative press, including artist boycotts, the vitriol of thousands of vocal customers, and a number of major venues refusing to do business with Ticketmaster.

Yet 2012 has been more friendly to the company—under the leadership of former musician and Stanford MBA- educated CEO Nathan Hubbard, who took over in 2010 when Ticketmaster merged with Live Nation, the country’s largest concert promoter. Third-quarter earnings were strong, with just under $2 billion in revenue, a 10 percent boost from the same period last year, driven largely by Live Nation’s ticketing and sponsorship divisions. Ticketmaster was largely responsible as well, thanks to the sale of 36 million tickets worth $2.1 billion, generating $82.1 million in adjusted operating income, which translates to an increase of 51 percent for the year.
That’s because Hubbard knows how to listen, and read the writing on the wall, “If we don’t disrupt ourselves, someone else will,” he said, “I’m not worried about other ticketing companies. The Googles and Apples of the world are our competition.”

Some of the steps he took to achieve this included to the creation of Live Analytics, a team charged with mining the information (and related opportunities) surrounding 200 million customers and the 26 million monthly site visitors, a gold mine that he thought was being ignored. Moreover Hubbard redirected the company from being an infamously opaque, rigid and inflexible transaction machine for ticket sales to a more transparent, fan-centered e-commerce company, one that listens to the wants and needs of customers and responds accordingly. A few of the new innovations rolled out in recent years to achieve this include an interactive venue map that allows customers to choose their seats (instead of Ticketmaster selecting the “best available”) and the ability to buy tickets on iTunes.

Hubbard eliminated certain highly unpopular service fees, like the $2.50 fee for printing one’s own tickets, which he announced in the inaugural Ticketmaster blog he created.
Much to the delight of event goers—and the simultaneous chagrin of promoters and venue owners, who feared that the move would deter sales—other efforts toward transparency included announcing fees on Ticketmaster’s first transaction- dedicated page, instead of surprising customers with them at the end, while consolidating others. “I had clients say, ‘What are you doing? We’ve been doing it this way for 35 years,’” Hubbard recalled, “I told them, ‘You sound like the record labels.’”

Social media is an integral part of listening, and of course, “sharing.” Ticketmaster alerts on Facebook shows friends of purchasers who is going to what show. An app is in the works that will even show them where their concert going friends will be seated. Not that it’s all roses for Ticketmaster—yet. Growth and change always involve, well, growing pains, and while goodwill for the company is building, it will take some time to shed the unfortunate reputation of being the company that “everyone loves to hate.” Ticketmaster made embarrassing headlines in the first month of 2013 after prematurely announcing the sale of the president’s Inaugural Ball and selling out a day early as a result, disappointing thousands. But as the biggest online seller of tickets for everything from golf tournaments to operas to theater to rock concerts, and with Hubbard’s more customer-friendly focus, Ticketmaster should have plenty of opportunity to repent their mistake

1. Identify the problems that Ticketmaster was facing, using cause and effect analysis. What were the Symptomatic Effects? What were the Underlying Causes?

2. What process(es) did Nathan Hubbard use to Generate Alternatives? What alternatives were available to Mr. Hubbard? What types of Uncertainty did he experience?

3. How did Mr. Hubbard select his most desirable alternative? Describe which type of Decision Making he used, and explain your findings.

4. Were the recent decisions that Mr. Hubbard made effective, according to the concepts in Chapter 7 – Decision Making? Explain your response.

Assignment Problem Three - 14 (Employment Income)

For the past five years, Mr. Brooks has been employed as a financial analyst by a large Canadian

public firm located in Winnipeg. During 2020, his basic gross salary amounts to $63,000. In addition, he was awarded an $11,000 bonus based on the performance of his division. Of the total bonus, $6,500 was paid in 2020 and the remainder is to be paid on January 15, 2020.

During 2020, Mr. Brooks’ employer withheld the following amounts from his gross wages:

Other Information:

1. Due to an airplane accident while flying back from Thunder Bay on business, Mr. Brooks was seriously injured and confined to a hospital for two full months during 2020. As his employer provides complete group disability insurance coverage, he received a total of $4,200 in payments during this period. All of the premiums for this insurance plan are paid by the employer. The plan provides periodic benefits that compensate for lost employment income.
2. Mr. Brooks is provided with a car that the company leases at a rate of $678 per month, including both GST and PST. The company pays for all of the operating costs of the car, and these amounted to $3,500 during 2020. Mr. Brooks drove the car a total of 35,000 kilome- tres during 2020, 30,000 kilometres of which were carefully documented as employment- related travel. While he was in the hospital (see Item 1), his employer required that the car be returned to company premises.
3. In order to assist Mr. Brooks in acquiring a new personal residence in Winnipeg, his employer granted him a five year, interest free loan of $125,000. The loan qualifies as a home reloca- tion loan. The loan was granted on October 1, 2020, and, at this point in time, the interest rate on open five year mortgages was 5 percent. Assume the relevant ITR 4301 rate was 2 percent on this date. Mr. Brooks purchases a house for $235,000 on October 2, 2020. He has not owned a home during any of the preceding four years.
4. Other disbursements made by Mr. Brooks include the following:

Mr. Brooks’ employer reimbursed him for the tuition fees for the accounting course, but not the music course.

Required: Calculate Mr. Brooks’ net employment income for the taxation year ending December 31, 2020.

3. John Deere is operated as a C corporation. The company received an order for a $12,000 tractor from a customer on June 30, 2020 and delivered the tractor to the customer on July 31, 2020. The company sent the customer a bill saying they had to pay for the tractor by no later than January 31, 2021. John Deere uses a calendar year tax period. Based on phone calls with the customer in December of 2020, the customer explained that it may have to file bankruptcy proceedings but was trying to work its way out of financial hardship before taking that option. The customer said that at worst it would be able to pay at least $9,000 of the bill. On January 15, 2021, John Deere received a check from the customer for $9,000 and was informed it would receive no additional payment based on the outcome of the bankruptcy case. In addition to the transaction above, the following occurred:

• A different customer paid for the same type of tractor (at $12,000) on November 1, 2020 and scheduled delivery for January 15, 2021. John Deere included the income in its 2020 financial accounting statements.
• The company both incurred and paid expenses for the following in 2020:
  • Wages:                                                                               $3,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $2,000
• The company both incurred and paid expenses for the following in 2021:
  • Wages:                                                                               $4,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $3,000

1. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
2. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
3. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
4. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
   
   
   
   
   
   
   
5. (8 points) How should the sum of the 2020 and 2021 accrual method net profit (loss) total relate to the sum of the 2020 and 2021 cash method net profit (loss) total (i.e. how should the sum of your answers in a. and b. relate to the sum of your answers in c. and d.)?
   Circle the best answer below.
   i. The sum of the two years for the accrual method should be greater than the sum of the
       two years under the cash method.
   ii. The sum of the two years for the accrual method should be less than the sum of the
       two years under the cash method.
   iii. The sum of the two years for the accrual method should be equal to the sum of the
       two years under the cash method.
   

3. John Deere is operated as a C corporation. The company received an order for a $12,000 tractor from a customer on June 30, 2020 and delivered the tractor to the customer on July 31, 2020. The company sent the customer a bill saying they had to pay for the tractor by no later than January 31, 2021. John Deere uses a calendar year tax period. Based on phone calls with the customer in December of 2020, the customer explained that it may have to file bankruptcy proceedings but was trying to work its way out of financial hardship before taking that option. The customer said that at worst it would be able to pay at least $9,000 of the bill. On January 15, 2021, John Deere received a check from the customer for $9,000 and was informed it would receive no additional payment based on the outcome of the bankruptcy case. In addition to the transaction above, the following occurred:

• A different customer paid for the same type of tractor (at $12,000) on November 1, 2020 and scheduled delivery for January 15, 2021. John Deere included the income in its 2020 financial accounting statements.
• The company both incurred and paid expenses for the following in 2020:
  • Wages:                                                                               $3,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $2,000
• The company both incurred and paid expenses for the following in 2021:
  • Wages:                                                                               $4,000
  • Rental costs for a warehouse:                                            $4,000
  • Repairs:                                                                              $3,000

1. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
2. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
3. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
   
4. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
   
   
   
   (8 points) How should the sum of the 2020 and 2021 accrual method net profit (loss) total relate to the sum of the 2020 and 2021 cash method net profit (loss) total (i.e. how should the sum of your answers in a. and b. relate to the sum of your answers in c. and d.)?
5. Circle the best answer below.
   i. The sum of the two years for the accrual method should be greater than the sum of the
       two years under the cash method.
   ii. The sum of the two years for the accrual method should be less than the sum of the
       two years under the cash method.
   iii. The sum of the two years for the accrual method should be equal to the sum of the
       two years under the cash method.
   

In which way(s) does urbanization increase genetic drift (select all that apply)?

Environmental changes leading to an increase in genome-wide mutation rates

New populations establishing themselves in the urban environment leading to a founder effect

High number of roads in urban environment, cutting habitats in smaller fragments

Novel selective pressures in the environment such as pollutants leading to bottlenecks

Trillium Ltd, a small and growing innovative start-up technology company traded on the Toronto Stock Exchange, leased machinery on January 1, 2020 for a term of 10 years. The Company considered purchasing the machinery but instead opted to lease. The machinery is widely known to have a general life span of about 20 years.

At the date of signing the lease contract, the leased machinery and associated lease obligation were correctly recorded at $42,000. The first lease payment of $6,000 was made on December 31, 2020 and the interest rate inherent in the lease contract is 7%.

At the start of the year, the Company had a cash and retained earnings balance of $100,000. Assume the above was the only transaction in the year.

The Company has a December 31 year-end.

Required:

1. For the year-ended December 1, 2020, prepare the relevant parts of the following financial statements:

1. Statement of Financial Position
2. Statement of Profit or Loss

2. Explain, with support, two of the most likely reasons why this specific Company opted to lease the machinery rather than purchase it.

3. Explain how the lease will affect Earnings-before-Interest-Taxes-Depreciation (EBITDA).

4. Explain how the debt-to-equity ratio would be affected if the Company choose to borrow funds from a bank to purchase the machinery rather than leasing it. Be specific.

Part (A)

As at year ended 31 March 2019, the total carrying value of property, plant and equipment on the statement of financial position of Candy Limited was $720,000. The current assets as at year ended 2019 included interest receivable of $10,000. The related interest revenue would be taxed on a cash basis.

Property, plant and equipment included furniture and computer equipment. Furniture was acquired on 1 April 2016 at a cost of $800,000. The company purchased the computer equipment during the year 2019 for $600,000.

It is Candy Limited’s accounting policy to measure its property, plant and equipment at cost less accumulated depreciation. Accounting depreciation is provided on a straight-line basis over the useful life of the asset:

Furniture 5 years Computer Equipment 3 years

Full year depreciation will be provided for in the year of purchase and nil residual value is assumed.

As at 31 March 2018, the balances of deferred tax accounts in the statement of financial position were:

Deferred tax asset $16,000 (coming from tax losses carried forward) Deferred tax liability $96,000

As at 31 March 2019, tax depreciation of $800,000 had been allowed for furniture. The tax authority allows full deduction on the cost of any computer equipment in the year of purchase. For the year ended 31 March 2019, a tax loss of $40,000 was computed. All tax losses will be allowed to set off the future profits for tax purpose. As at 31 March 2019, the management estimated the taxable profits for the forthcoming years as follows:

2020
2021
2022 and beyond

$50,000 $40,000

No estimation is available The announced income tax rates for 2018 and thereafter was 20%.

5

Required:

(a) Prepare a table showing the temporary differences (1) furniture (2) computer equipment (3) interest receivable, with the following column headings as at 31 March 2019:

Carrying Deductible temporary Taxable temporary Item amount Tax base difference difference

[6 marks]

(b) Compute the deferred tax asset / liability related to (1) furniture (2) computer equipment (3) interest receivable for the year ended at 31 March 2019. [2 marks]

(c) Provide accounting entries for the adjustments of the deferred tax asset / liability for the year of 2019. Show your workings. Narratives are not required. [5 marks]

Part B

Sea Ltd. commenced its business in 2019. The company incurred a tax loss of $150,000 for the year ended 31 December 2019. It is expected that the company will not incur losses again and will be able to generate future taxable profits of $160,000. The tax rate for 2019 and thereafter is 30%.

Required:

(a) Provide the journal entries to record deferred tax regarding the tax loss in year 2019.

[2 marks]

(b) Assume the actual taxable profit for the year ended 31 December 2020 is $40,000 and the management of the company based on new information estimates the future taxable profits as $90,000 on 31 December 2021. Prepare the relevant journal entries for the year 2020.

Show all workings. Narratives are not required.

Question # 2.   

You are the external auditor of Suleman and Stock Ltd. The CEO, Ahsan Suleman, has contacted you because the company is considering setting up an internal audit department for the first time and he is looking for some guidance as to what is required for an effective internal audit department.

Required:

Explain the key considerations Ahsan Suleman should consider when setting up an internal audit department.

A shareholder's group is lodging a protest against your company. The shareholder's group claimed that the mean tenure for the chief executive office (CEO) was at least 10 years. A survey of 21 companies reported in the Wall Street Journal found a sample mean tenure of 9 years for CEOs with a standard deviation of s=5.3 years. Test whether this is significant evidence that the mean tenure is less. (Please use calculator not table)