Trillium Construction Company is a publicly traded company that began a long-term government contract on July 1, 2019 to build a housing complex for the price of $8,000,000. The construction was expected to take 24 months to complete.

a.       For the year ended December 31, 2019, Trillium incurred construction costs of $1,300,000 and it was estimated that an additional $3,900,000 in costs would needed to complete the contract. Trillium billed the government $2,000,000 during the first year and collected $1,000,000 by December 31, 2019. Trillium uses the percentage-of-completion method of revenue recognition. Calculate the gross profit to be recognized for the year ended December 31, 2019.

b.       Then, for the year ended December 31, 2020, Trillium incurred construction costs of $3,180,000 and at that point, it was estimated that an additional $1,120,000 in costs would be needed to complete the contract. Trillium billed the government $4,000,000 during the second year and collected $4,500,000 by December 31, 2020. Continuing to use the percentage-of-completion method of revenue recognition, calculate the revenue recognized for the year ended December 31, 2020.

c.       The CEO of Trillium has heard that the completed-contract method is easier to use than the percentage-of-completed method.   Briefly explain to the CEO (approximately 1 or 2 sentences) why Trillium should or should not adopt the completed contract method.

Consulting: INITIAL INTERVIEW

You are a CEO (Michelle Royal) of Goodwill Industries of Boston, which serves twelve locations in the greater Boston area.  Overall, the stores are doing very well but you know they can be more successful and productive.  For example, you have experienced positive retail revenue growth over the past three years; however, the growth was still lower than the average and your donor volume is down. On the other hand, your sales per square foot outperformed the national average.

Consequently, you called Headquarters (HQ) and investigated the possibility of having a consultant come to Boston to review your situation and give recommendations for improvement.  You were talking to the CEO in Chicago and she explained that she found the consulting to be a very helpful exercise.  The contact at HQ asked you a few questions and said that Jane/Joe Reynolds, an inhouse retail consultant, would be giving you a call.

You have been in your position for one year.  You did not have any previous retail experience before taking the Goodwill position.  You have pretty much continued the work of your predecessor and have tried to remain very independent and creative.  For example, you and your staff like to create your own signage as opposed to using the standard Goodwill prototypes. Your expertise is finance and you have been able to implement and maintain excellent financial reports.

You suspect that improvement can be made through increased efficiency and production.

Some areas that you think might need attention:  merchandise layout, pricing, sorting and processing, transportation.  Furthermore, your new Retail Manager thinks one of your store managers might be ineffective. Your style has been rather formal.  You tend to work one-on-one with your key managers and supervisors.

Though you want help (you really want to surpass all Goodwill averages), you are concerned about having a consultant come and "snoop around."  You realize that this is the only way, however, so you decide to talk to the consultant and see what he suggests in terms of coming to Boston.  You are very concerned about how he/she is going to go about the project.  You would like to keep things very quiet, not involve too many people, and not stir things up.  After all, it seems to you that things are going generally well.

Background info: The mission of Goodwill is to provide work for underprivileged and to do that through retail stores. The underprivileged are trained for a period of time by working in the stores and then sent out into the broader marketplace. Consequently, the Goodwill Stores (collecting old stuff and selling it), is only a means for the real mission.

Goodwill HQ has a team of internal consultants, each with different areas of expertise, who are available to travel to the different locations when they need help. The individual Goodwill locations are independent and are “loosely” tied to HQ, more as nonprofit associations, not industry. Consequently, the CEOs of the various Goodwill locations want assistance but also want to remain independent—the classic “push-pull” that consultants encounter.

Assignment:

You are the Goodwill HQ Consultant that Michelle calls. Since she is in Boston and you are in D.C., you decide to conduct the conversations (which you two have formally scheduled) through visual WEBX so you can see one another faces.

Brainstorm and jot down how you would go about the interview. Following the information in your consulting packet on how to conduct the exploratory phase of formulating an intervention, what questions would you ask? How would you explain your role and the parameters of the consulting arrangement? How would you gain Michelle’s trust? What kind of resistance do you think she will demonstrate? How will you handle that resistance?

Then, actually write out an entire conversation, making it up as you go, demonstrating the skills sets that you know you have to demonstrate. Have Michelle challenge you and deal with her resistance and getting through all phases of the exploratory phase. End the session by summarizing next steps.

You:

Michelle:

You:

Michelle:

Etc.

KIKI CORPORATION

Kiki Corporation, a US company, prepares its financial statements under US GAAP. For 2014, the company reported $1,000,000 income and stockholders’ equity balance of $8,000,000 on December 31, 2014. In preparation for a possible adoption of IFRS by the US companies, the management wishes to explore possible impacts of the move. You are engaged to prepare a reconciliation schedule to convert 2014 income as well as stockholders’ equity on December 31, 2014 from US GAAP basis to IFRS. The following information is provided by the company’s accounting department:

1. In 2010, the company acquired a brand with a fair value of $50,000. The brand was booked as an intangible asset with an indefinite life. At the end of 2014, the brand had a selling value of $46,000 with zero selling expense. Expected future cash flows from continued use of the brand are $52,000 and the present value of the expected future cash flows is $43,000.
2. In 2014, Kiki Corporation incurred research and development costs of $200,000. Of this amount, 45% related to development activities subsequent to the point at which criteria had been met indicating that an intangible asset existed. As of the end of 2014, development of the new product had not been completed.
3. At the end of 2014, Kiki Corporation had an inventory item with a historical cost of $250,000, a replacement cost of $170,000, a net realizable value of $190,000, and a normal profit margin of 20 percent.
4. In January 2012, the company realized a gain on the sale-and-leaseback of an office building in the amount of $150,000. The lease is accounted for as an operating lease, and the term of the lease is five years.
5. The company acquired a building at the beginning of 2013 at a cost of $2,750,000. The building has an estimated useful life of 25 years, an estimated residual value of $500,000, and is being depreciated on a straight-line basis. At the beginning of 2014, the building was appraised and determined to have a fair value of $3,250,000. There is no change in estimated useful life or residual value. In a switch to IFRS, the company would use revaluation model in IAS 16 to determine the carrying value of property, plant, and equipment subsequent to acquisition.

Make sure your reconciliation statement is accompanied by an adequate explanation and reference for every one of your adjustments. Ignore income taxes.

CASE ONE, KIKI CORPORATION

Kiki Corporation, a US company, prepares its financial statements under US GAAP. For 2014, the company reported $1,000,000 income and stockholders’ equity balance of $8,000,000 on December 31, 2014. In preparation for a possible adoption of IFRS by the US companies, the management wishes to explore possible impacts of the move. You are engaged to prepare a reconciliation schedule to convert 2014 income as well as stockholders’ equity on December 31, 2014 from US GAAP basis to IFRS. The following information is provided by the company’s accounting department:

In 2010, the company acquired a brand with a fair value of $50,000. The brand was booked as an intangible asset with an indefinite life. At the end of 2014, the brand had a selling value of $46,000 with zero selling expense. Expected future cash flows from continued use of the brand are $52,000 and the present value of the expected future cash flows is $43,000.

In 2014, Kiki Corporation incurred research and development costs of $200,000. Of this amount, 45% related to development activities subsequent to the point at which criteria had been met indicating that an intangible asset existed. As of the end of 2014, development of the new product had not been completed.

At the end of 2014, Kiki Corporation had an inventory item with a historical cost of $250,000, a replacement cost of $170,000, a net realizable value of $190,000, and a normal profit margin of 20 percent.

In January 2012, the company realized a gain on the sale-and-leaseback of an office building in the amount of $150,000. The lease is accounted for as an operating lease, and the term of the lease is five years.

The company acquired a building at the beginning of 2013 at a cost of $2,750,000. The building has an estimated useful life of 25 years, an estimated residual value of $500,000, and is being depreciated on a straight-line basis. At the beginning of 2014, the building was appraised and determined to have a fair value of $3,250,000. There is no change in estimated useful life or residual value. In a switch to IFRS, the company would use revaluation model in IAS 16 to determine the carrying value of property, plant, and equipment subsequent to acquisition.

Make sure your reconciliation statement is accompanied by an adequate explanation and reference for every one of your adjustments. Ignore income taxes.

Problem 1:

The following are ending balances for George’s Gorcery Store (GGS) as of December 31, 2019: Cash, $8,000, Accounts Receivable, $40,000, Allowance for Doubtful Accounts, $2,000, Inventory $80,000, Accounts Payable, $20,000, Common Stock, $40,000, and Retained Earnings, $66,000. The company uses the allowance method to record bad debts.

The following is a list of transactions that happened in 2020 for George’s Grocery Store:

1. GGS acquired an additional 10,000 cash from the issuance of common stock.
2. GGS purchased $90,000 of inventory on account.
3. GGS sold inventory that cost $91,000 for $150,000. Sales were made on account.
4. The company wrote-off $800 of uncollectible accounts.
5. On September 1, GGS loaned $15,000 to Eden Co. The note had an 8 percent interest rate and a one-year term.
6. GGS paid $22,000 cash for operating expenses.
7. The company collected $152,000 cash from accounts receivable.  
8. A cash payment of $96,000 was paid on accounts payable.
9. The company paid a $10,000 cash dividend to the shareholders.
10. GGS sold an additional amount of inventory for $6,000 on account. The cost of the inventory was $4,000.
11. It is estimated that 1 percent of credit sales will be uncollectible.

Required: Answer the following questions.

1. Provide the journal entry needed for transaction 4, assuming GGS uses the allowance method for accounting for bad debts.

2. What is the adjusting entry GGS would need to record at December 31, 2020 for transaction 5?

3. What is the amount of bad debt expense GGS will report in 2020?
4. What is the NRV that GGS would report on its 2020 balance sheet?
5. What is GGS’ gross margin for 2020?
6. What is operating income for GGS for 2020?
7. What is the amount of total assets that GGS will report on its 2020 balance sheet?
8. What is the amount of net income GGS will report for 2020?
9. What is the ending balance in Retained Earnings GGS will report for 2020?
10. What is the net cash from operating activites that would be reported on the Statement of Cash Flows for GGS for 2020?
11. Which transaction would be classified as an investing activity on the Statement of Cash Flows?

Problem 1:

The following are ending balances for George’s Gorcery Store (GGS) as of December 31, 2019: Cash, $8,000, Accounts Receivable, $40,000, Allowance for Doubtful Accounts, $2,000, Inventory $80,000, Accounts Payable, $20,000, Common Stock, $40,000, and Retained Earnings, $66,000. The company uses the allowance method to record bad debts.  

The following is a list of transactions that happened in 2020 for George’s Grocery Store:

1. GGS acquired an additional 10,000 cash from the issuance of common stock.

2. GGS purchased $90,000 of inventory on account.

3. GGS sold inventory that cost $91,000 for $150,000. Sales were made on account.

4. The company wrote-off $800 of uncollectible accounts.

5. On September 1, GGS loaned $15,000 to Eden Co. The note had an 8 percent interest rate and a one-year term.

6. GGS paid $22,000 cash for operating expenses.

7. The company collected $152,000 cash from accounts receivable.   

8. A cash payment of $96,000 was paid on accounts payable.

9. The company paid a $10,000 cash dividend to the shareholders.

10. GGS sold an additional amount of inventory for $6,000 on account. The cost of the inventory was $4,000.  

11. It is estimated that 1 percent of credit sales will be uncollectible.

Required: Answer the following questions.

1. Provide the journal entry needed for transaction 4, assuming GGS uses the allowance method for accounting for bad debts.  

2. What is the adjusting entry GGS would need to record at December 31, 2020 for transaction 5?

3. What is the amount of bad debt expense GGS will report in 2020?  

4. What is the NRV that GGS would report on its 2020 balance sheet?

5. What is GGS’ gross margin for 2020?

6. What is operating income for GGS for 2020?

7. What is the amount of total assets that GGS will report on its 2020 balance sheet?

8. What is the amount of net income GGS will report for 2020?

9. What is the ending balance in Retained Earnings GGS will report for 2020?

10. What is the net cash from operating activites that would be reported on the Statement of Cash Flows for GGS for 2020?

11. Which transaction would be classified as an investing activity on the Statement of Cash Flows?

*Please do not answer if you've already did. I'm getting a second opinion on this.

MBA Inc is expected to have dividend distribution policies as below:
- MBA Inc will pay out cash dividend £1 per share per year in the next two years
- In the end of the 3rd year, MBA Inc will pay out cash dividend £2 per share
- From the end of the 3rd year, MBA Inc will continuously pay cash divided at 5% constant growth rate per annum.

What is the theoretical price of stock of MBA Inc if the required rate of return is 10% per annum? Please show your working.