Question 1

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, 2021.

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

Federal Income Tax                                                                                             $3,000

Employment Insurance Premiums 856

Canada Pension Plan Contributions 2,898

Registered Pension Plan Contributions 2,800

Donations to the United way (charity) 480

Union Dues 240

Payments for Personal Use of Company Car 1,000

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 kilometres 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 care be returned to company premises, so it was not available to him.
3. On January 15, 2019, Mr. Brooks received options to buy 200 shares of his employer’s common stock at a price of $23 per share. At this time, the shares were trading at $20 per share. Mr. Brooks exercised these options on July 6, 2020, when the shares were trading at $28 per share. He does not plan to sell the shares for at least a year.
4. 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 relocation loan. The loan was granted on October 1, 2020, and, at that point in time, the prescribed interest rate set by the CRA is 2%.
5. Other disbursements made by Mr. Brooks include the following:

Advanced financial accounting course tuition fees                                      $1,200

Music history course tuition fees                                                                       600

Fees paid to financial planner                                                                           300

Payment of premiums on life insurance                                                            642

Mr. Brooks’ employer reimbursed him for the tuition for the accounting course, but not for any of these other expenses.

Required:

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

3) On May 1, 2020, Vuitton Company established a petty cash fund by issuing a check for
€600
On May 31, 2020, petty cash fund was replenished when there is €35 cash in the fund, in
addition, these receipts were in the petty cash fund:
Freight-in
€300
Supplies Expense 205
Postage Expense 70
Prepare journal entry of replenishing the petty cash fund (entry of May 31):

Introduction

Lori Patrick’s conversation earlier that day with Mike Lowe, the company’s

CEO, kept running through Lori’s head during her 45-minute rush-hour

commute home. “What a great opportunity Mike’s given me,” she thought.

“The CEO of this organization believes in the value of HR and asked me to

tell him how HR can help the company meet its strategic goals. When I was

studying for my master’s in HR, we kept reading and talking about how HR

needs to position itself as a strategic business partner; but I didn’t think I

would get the opportunity so soon in my career.” Lori had been the director

of Human Resources with Reyes Fitness Centers, Inc. (R FC) for only a couple

of months. She had been attracted to the position in part because it offered her

first opportunity to oversee all of HR, and because of her interview with Mike

Lowe. Lowe was fairly new to the company (just less than two years) and was

highly regarded by the founder and chairman, John Reyes, and the rest of the

board of directors as a strategic thinker and someone with proven ability to

inspire and motivate staff. Lori knew from the interview with Lowe that when

he said employees were the key to RFC’s future, he meant it.

RFC background

Reyes Fitness Centers, Inc. was launched in May of 1999 by John Reyes with

$150,000 of his own funding and some investment capital from three college

friends from the University of North Carolina, Chapel Hill, where they were

business majors attending the university in the mid-1990s. The first center

was located in Raleigh, NC, and was an immediate success. The center offered

a full range of workout equipment, exercise classes, personal trainers, an

outdoor pool, on-site daycare, and even a small restaurant. Additional private

investment was secured and R FC expanded rapidly from 1999 to 2007, opening

approximately three new centers a year throughout the Southeast. By the end of

2007, RFC operated 28 fitness centers, grossing $51 million in revenues and $1

million in net income. Figure 1.0 below provides the financial performance of

RFC and its comparison to competitors.

By 2005, John Reyes had general managers overseeing each center and had

gradually removed himself from day-to-day oversight of the company. He

had become interested in other business ventures and, as a result, his board

encouraged hiring a CEO and other senior management team members to

oversee the growing enterprise. He hired 48-year-old Mike Lowe as the

new CEO of RFC in late 2005, and Reyes assumed the role of chairman.

This CEO position was the second in Lowe’s career. He had more than 20

years’ experience in the fitness equipment industry; before coming to RFC

he had been the CEO of a smaller fitness center company in California that

had been acquired. Lowe’s transition as CEO had gone quite well in Reyes’,

the board’s and in Lowe’s view. Lowe had been somewhat concerned about

being micromanaged by Reyes, but he was given complete autonomy over

the operations of the company and was expected to involve the board only in

strategic leadership issues

The Fitness center industry

While the fitness center industry grew dramatically in the mid to late 1990s

(more than 20 percent annually), overall industry growth had slowed

considerably, as most towns now had two to three fitness centers within

close proximity.

As shown in Figure 1.0, RFC is considered a medium-sized fitness center

enterprise. While some competitors (Day Spa and Constant Fitness in

particular) continue to focus on large-scale, either through acquisitions of

smaller fitness clubs or by opening new fitness centers, many others (including

RFC) have reduced the number of new clubs being opened.

There is as much emphasis on health and recreation as ever in the U.S. Industry

reports suggest that the outlook for fitness centers in general is quite positive,

although some consolidation may occur because certain markets have been

saturated with too many clubs to remain profitable. However, the market in the

Southeast (where RFC operates) is still growing and market saturation is not

anticipated for at least five years.

Fitness centers hire a variety of professional and support staff. Some focus on

personal training and employ a large number of certified professional trainers

who work with members during club hours (typically 5-6am until 10pm,

although the more body-building oriented gyms have recently started offering

24-hour service). In addition to housekeeping and front desk staff, fitness

centers employ customer service representatives who can assist existing members

with questions and also act as sales representatives, giving tours of the facility to

prospective members.

RFC strategy

During Lowe’s tenure, RFC opened just one new fitness center (just outside

of Atlanta, GA). This modest club expansion is consistent with the three-

year financial strategy the RFC board has agreed on, where the focus is on

growing the profitability of existing clubs by increasing member enrollment and

retention. The company is privately held by a small group of investors and the

board wants it to stay that way. The board has discussed positioning itself for

acquisition by one of the larger fitness club chains at some point in the future. It

is agreed that improving the bottom-line (i.e., net income) performance of RFC

will only help in this regard.

Within Porter’s classic framework of various business strategies, RFC’s strategy

most closely aligns with Porter’s “focus” strategy, where a company focuses

on serving the needs of a particular market segment to achieve a competitive

advantage. RFC has positioned itself as a place where the whole family can

enjoy fitness and social activities. RFC has deliberately chosen not to compete

with gyms that cater to body builders with large free weight workout areas,

24-hour access, onsite training supplement sales, and “no-frills” amenities.

RFC’s strategy is to attract families by offering a wide variety of fitness offerings

including cardio equipment; free weights and circuit training weight machines;

personal training; and exercise classes (such as Pilates, yoga, stationary cycling,

etc.). Most RFC fitness centers have a snack bar where nutritional smoothies

and other healthy snacks can be purchased. All RFC centers offer extensive

locker room facilities and on-site daycare. Newer RFC fitness centers have small

indoor basketball courts and TV lounges to appeal to the 10- to 16-year-old

age group.

From his first day on the job, Lowe has stressed to the staff that he wants them

to be strategic in how they approach their daily, weekly, and annual activities

and projects. By that he means that they should consider how their jobs

contribute to RFC being able to provide a fitness club experience to couples and

families that is superior to any of the competition. He has worked diligently

with his senior management team and the board to understand how RFC

creates value for its customers, employees and investors. The business model

for how fitness centers make money is fairly straightforward: profitable firms

grow by recurring monthly member revenue (via new member recruitment and

existing member renewal) while maintaining relatively stable fixed costs and

low variable costs. Lowe has worked to identify both financial and nonfinancial

variables that drive RFC performance. By locating RFC fitness centers in upper-

middle-class locations and focusing marketing efforts on couples and families,

RFC has been successful recruiting new members. Research data shows that

members typically do not have issues with the RFC monthly dues. Member

feedback indicates that having a friendly place for the whole family to stay fit is a

driver of member value.

RFC Strategic Challenges

As with most start-ups, the early strategy for RFC focused on growing

revenue. They did this by opening several clubs each year and offering new

club promotions to attract members. RFC experienced rapid revenue growth

(more than 20 percent annually) through 2004. However, several of the RFC

centers are not reaching their profit goals. Mike Lowe tried to address this by

implementing operational efficiencies when he first came on board at RFC,

but he soon realized that the profit challenges were driven in large part by a

customer retention problem. While a certain amount of turnover is expected in

the industry (due to competing clubs, families moving out of the area, etc.), the

best industry data RFC can find relating to member retention shows that their

member retention is approximately 20 percent lower than industry average.

An analysis of member records shows that members often join during a special

promotion (where the initiation fee is waived) but then rarely use the center

and fail to renew. A telephone survey of members (lapsed and current) reveals

that “non-use” was one of the reasons for members not renewing or stating

they were unlikely to renew. An analysis of member-visit frequency shows that

more than 50 percent of members in 2006 hadn’t even visited their RFC fitness

center two times per week. The hypothesis is that members who aren’t going

to their RFC fitness center frequently are far less likely to see sufficient value to

renew. Another concern is member feedback that RFC staff members do not

provide very good or excellent customer service. Lowe, senior management, and

the board have had extensive discussions about the member retention problem.

While part of Lowe’s strategy to increase profits is to enroll more members in

existing fitness centers, those profits will be short-lived if members stay only one

year. Data also shows that membership cost, quality of offerings, amenities, etc.,

are all rated highly.

Lori thinks about these strategic issues and how HR might affect them.

“There’s no question that problems with customer service and member

retention come down to people issues. It is affected by the type of people we

bring on board, how they’re trained and how their performance is managed

and rewarded.”

Questions:

1. Identify and prioritize a set of tasks for Lori. Provide a rationale for your prioritization. Link your responses to the key concepts to one of the examples in the The HR Scorecard.

2. Based on your understanding of RFC and its business strategy, how can HR add strategic value to RFC?

3. What challenges do you anticipate Lori will encounter as she develops the HR scorecard for RFC?

4. Anticipate potential outcomes for the plan that is proposed for RFC?

Thanks for your help!

Question: As the senior management team of the company, you are required to revise the budget for 2020 to take into account the impact of recession

can I have the answer for this question

The following data were taken from the records of Colbern Company for the fiscal year ending on July 31, 2020.

Raw Material Inventory 8/1/2019 $19,200

Raw Material Inventory 7/31/2020 $15,840

Finished Goods Inventory 8/1/2019 $38,400

Finished Goods Inventory 7/31/2020 $30,360

Work In Process Inventory 8/1/2019 $7,920 \

Work In Process Inventory 7/31/2020 $7,440

Direct Labor $55,700

Indirect Labor $9,784

Accounts Receivable $10,800

Factory Insurance $1,840

Factory Machinery Depreciation $6,400

Factory Utilities $11,040

Office & Admin Utilities Expense $3,460

Office & Admin Equipment Depreciation $2,120

Sales Revenue $213,600

Plant Manager's Salary $23,200

Factory Property Taxes $3,840

Indirect Materials $3,720

Raw Materials Purchases $38,560

Cash $12,800

Income Taxes for the Colbern Company are 35%

Prepare Colbern’s schedule of cost of goods manufactured for the year.

Prepare Colbern’s schedule of cost of goods sold for the year.

Prepare Colbern’s Income Statement for the year.

On January 1, 2020, Pearl Company sold 11% bonds having a maturity value of $600,000 for $622,744, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Pearl Company allocates interest and unamortized discount or premium on the effective-interest basis.

Prepare a schedule of interest expense and bond amortization for 2020–2022. (Round answer to 0 decimal places, e.g. 38,548.)

Prepare the journal entry to record the interest payment and the amortization for 2020. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry to record the interest payment and the amortization for 2022. (Round answer to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Exercise 20-23 (Algo) Error correction; three errors [LO20-6]

Below are three independent and unrelated errors.

1. On December 31, 2020, Wolfe-Bache Corporation failed to accrue salaries expense of $2,300. In January 2021, when it paid employees for the December 27–January 2 workweek, Wolfe-Bache made the following entry:
   

2. On the last day of 2020, Midwest Importers received a $100,000 prepayment from a tenant for 2021 rent of a building. Midwest recorded the receipt as rent revenue. The error was discovered midway through 2021.
3. At the end of 2020, Dinkins-Lowery Corporation failed to accrue interest of $9,000 on a note receivable. At the beginning of 2021, when the company received the cash, it was recorded as interest revenue.

Required:
For each error:

1. What would be the effect of each error on the income statement and the balance sheet in the 2020 financial statements?

error A

error B

error C

2. Prepare any journal entries each company should record in 2021 to correct the errors.

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Crane Company. The following information relates to this agreement.

1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.

2. The fair value of the asset at January 1, 2020, is $70,000.

3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,000, none of which is guaranteed.

4. The agreement requires equal annual rental payments of $21,827.58 to the lessor, beginning on January 1, 2020.

5. The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee.

6. Crane uses the straight-line depreciation method for all equipment.

Click here to view factor tables. Prepare all of the journal entries for the lessee for 2020 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (For calculation purposes, use 5 decimal places as displayed in the factor table provided

Company Epsilon has two retail divisions, retail division #1 and retail division #2, which reported the following results for the year end of 2019. The required rate of return set for the retail divisions is 10%.

If no investment in made for 2020, both retail divisions are expected to maintain the same net operating income and average operating assets as of 2019. However, there is an opportunity in 2020 for Company Epsilon to invest in one of the two retail division. The investment would be of $15,000,000 and would generate additional net operating income of $2,400,000 per year.

Required:

1. Which division had the higher return on investment (ROI) in 2019 and why?

2. Which division had the higher residual income (RI) in 2019 and why?

3. If the managers of the retail divisions are evaluated based on return on investment (ROI), will the managers want to invest in 2020 and why?

4. If the managers of the retail divisions are evaluated based on residual income (RI), will the managers want to invest in 2020 and why?