Suneview Ltd., a listed public company with actively traded securities, issued debentures with a total term of fifteen years and a face value of $1,000 to the public exactly five years ago for $1,000 each. The debentures were issued at an annual coupon interest rate of 12% p.a. with payments annually in arrears. Interest rates for debentures of a similar risk to those of Suneview Ltd. are currently (five years after originally being issued) being traded at a premium of 3% above the government bond rate. A new series of government bonds (Series XXIV) were issued today for a ten-year term at an annual coupon interest rate of 5% p.a. (with payments annually in arrears), a face / par value of $1,000 and a current yield to bondholders of 7% p.a.

Required:

a) Given the information provided above, how much would you pay today for Suneview Ltd. debentures? Show all relevant calculations and briefly explain the basis for the change in price, if any, from the original issue price of $1,000 using appropriate finance terminology / reasoning.

b) Assume that a further three years has elapsed since the calculations undertaken in part a) of this question (a total of eight years after the original debenture issue), and the premium on Suneview Ltd. debentures has increased to 5% above the government bond rate. No further government bonds have been issued since Series XXIV bonds which closed trading today at a yield of 9% p.a.

i) How much would you now (a total of eight years after the original debenture issue) pay for Suneview Ltd. debentures?

ii) Briefly discuss the possible ‘real-world’ factors that may have caused the differences in the premium on Suneview Ltd. debentures as compared to the government bond rate (from 3% to 5%). Note: This part of the question has a different focus than the response required in part a) of this question.

Earnings Management

M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year. Unfortunately, sales have been less than expected for the year, and Gallant concluded within two weeks of the end of the fiscal year that it would be impossible to report an increase in earnings as large as predicted unless some drastic action was taken. Accordingly, Gallant has ordered that wherever possible, expenditures should be postponed to the new year—including canceling or postponing orders with suppliers, delaying planned maintenance and training, and cutting back on end-of-year advertising and travel. Additionally, Gallant ordered the company’s controller to carefully scrutinize all costs that are currently classified as period costs and reclassify as many as possible as product costs. The company is expected to have substantial inventories at the end of the year.

Using the above scenario, your textbook, and a minimum of one outside source, address the following questions: Why would reclassifying period costs as product costs increase this period’s reported earnings? Do you believe Gallant’s actions are ethical? Why or why not?

Riverbed Enterprises is a large Canadian company traded on the Toronto Stock Exchange. Riverbed purchased two copyrights during 2020. The first copyright was purchased on February 1 for $21,700 and was expected to have a useful life until the end of December, 2022. The second copyright was purchased on July 1 for $126,000 and was expected to have an indefinite useful life. Riverbed's fiscal year-end was December 31.

On July 1, 2021, Riverbed paid $5,040 in legal fees to successfully defend the first copyright in court. On September 1, 2021, Riverbed determined that the second copyright would no longer have an indefinite useful life, and in fact would have a useful life of another 7 years, beginning September 1, 2021. On April 1, 2022, Riverbed sold the second copyright for $133,700.

Prepare the journal entries on the books of Riverbed to record the above transactions. (Hint: don’t forget the year-end amortization entries).

Your client, a publically-traded company, in 2019 acquires $2.5 million of fixed assets. All of these assets are 5 year class MACRS property. The first three years of MACRS depreciation are: First Year $625,000; Second Year 750,000; Third Year $450,000. For book purposes, the company uses a 10 year useful life, straight-line depreciation with no salvage value. Obviously, these assets will create a DTL. How should the DTL be presented for these assets at the end of year 2? Ignore partial year depreciation and assume a 21% tax rate.
a. $105, 000 Long-Term; $78,750 Short-Term
b. $78,750 Long-Term $105,000 Short-Term
c. $183,750 Long-Term
d. None of the above

A publically traded company more than doubled its EPS by changing depreciation methods. In justifying the change, management supported the change as follows: In comparison to direct competitors, the previous depreciation method was more conservative and thus had a negative impact on earnings. Although difficult to prove, there is considerable evidence that accounting changes are made for reasons other than improved financial reporting. GAAP are flexible in the initial selection of accounting methods and in making subsequent changes. However, the accounting standards specifically require that only changes to preferable accounting methods be made. Does this violate GAAP? Is this ethical? What would be an alternative course of action?  

Having an issue with question C. My answer continues to be incorrect. Thank you.

McGriff Dog Food Company normally takes 27 days to pay for average daily credit purchases of $9,460. Its average daily sales are $10,700, and it collects accounts in 27 days.  
  
a. What is its net credit position?
  

b-1. If the firm extends its average payment period from 27 days to 38 days (and all else remains the same), what is the firm's new net credit position? (Negative amount should be indicated by a minus sign.)

During the month, the following transactions occurred for Trevor’s Supply Company.   The company uses the perpetual inventory method.

Instructions

(a)     Journalize the transactions using the accounts listed in part b.  Round all amounts to the nearest dollar.

(b)     Post to the T accounts.  Beginning balances are already shown.

(c)     Journalize the following adjustments:

(d)     Post adjusting entries to the T accounts.

(e)     Prepare a trial balance.

(f)      Prepare the financial statements for the year ending December 31. The income statement should be formatted as a Multiple Step Income Statement as detailed in Chapter 5.

(g)     Ratio analysis

A​ company's customer service department asks its customers to rate their​ over-the-phone service on a scale of 1–20 immediately after their service has been completed. The company then matches each​ customer's rating with the number of minutes the person waited on hold. The accompanying table shows the ratings and numbers of minutes on hold for 10 randomly selected customers. Complete parts a through c below.

Minutes Rating
1 14
7 12
3 20
8 15
5 13
2 17
5 10
3 17
5 12
2 15

a. Calculate the sample covariance.

b. Calculate the sample correlation coefficient.

c. Describe the relationship between x and y.

Example 4:

Suppose that the monopolist faces a demand curve for its widgets as q = 9 - 0.2p. The firm’s marginal revenue and cost functions are: MR(q) = 45 – 10q and MC(q) = 15 + 5q. The firm’s total cost function is C(q) = 2.5q² + 15q + 3.

1. How many widgets should the firm produce and sell so that the monopolist can maximize its profits?
2. How much should the firm charge to each of its customers so that the firm can maximize its profits?
3. How much will the firm earn in total sales (or total revenues)?
4. How much will the firm earn in total profits?

Ecru Company has identified five industry segments: plastics, metals, lumber, paper, and finance.

It appropriately consolidated each of these segments in producing its annual financial statements. Information describing each segment (in thousands) follows:

Ecru does not allocate its $1,260,000 in common expenses to the various segments.

Perform testing procedures to determine Ecru’s reportable operating segments.

a. Revenue test

b. Profit or loss test

c. Asset test