The profit before tax, as reported in the statement of profit and loss for Aileen Ltd for the year ended 30 June 2020, amounted to $150,000, including the following revenue and expense items:

Revenues

Sales revenue $600,000

Interest revenue 60,000

Government grant 40,000

Expenses

Cost of goods sold 300,000

Bad debts expense 8,000

Depreciation expense – equipment 6,000

Depreciation expense – plant 25,000

Research and development expense 51,000

Wages expense 120,000

Long service leave expense 40,000

The draft statement of financial position of Aileen Ltd at 30 June 2020 and the statement from last year showed the following assets and liabilities:

2019 2020

Assets

Cash $30,000 $30,000

Inventory 100,000 150,000

Accounts receivable 50,000 70,000

Allowance for doubtful debts (5,000) (10,000)

Interest receivable 25,000 20,000

Equipment—cost 30,000 30,000

Accumulated depreciation-equipment (12,000) (18,000)

Plant—cost 500,000 500,000

Accumulated depreciation-plant (50,000) (75,000)

Goodwill 15,000 15,000

Deferred tax asset 33,000, ?

Liabilities

Accounts payable 60,000 40,000

Wages payable 50,000 80,000

Revenue received in advance - , 40,000

Loan payable 200,000 100,000

Provision for long-service leave 40,000 30,000

Deferred tax liability 18,730, ?

Additional information:

In the year ended 30 June 2019, Aileen Ltd had a tax loss of $70,000 that it carried over in the deferred tax asset. In June 2020, the company received an amended assessment for the year ended 30 June 2020 from the ATO, indicating that an amount of $10,000 claimed as a deduction has been disallowed. Aileen Ltd has not yet adjusted its accounts to reflect the amendment. The remaining losses can be used to offset taxable incomes in future periods.

Amounts received from sales, including those on credit terms, are taxed at the time the sale is made. All other general taxation rules apply.

The depreciation regimes for the financial reports and the company income tax return respectively, are listed below.

Depreciation Regimes Equipment Plant Depreciation rate:

All research and development expenses were paid in cash during the year ended 30 June 2020. A tax deduction for development costs of 120% of the $51,000 spent during the year is available

All movements of deferred tax accounts during the year are not yet recongised.

The company tax rate applicable is 30%.

REQUIRED: (a) Determine the taxable profit for the year ended 30 June 2020. Start from the accounting profit before tax and show the adjustments for differences between taxation and accounting rules.

(b) Complete the worksheet on the additional page provided to determine the movements in the deferred tax accounts for the year ended 30 June 2020.

(c) Prepare the journal entries to recognise the current tax liability and the final deferred tax adjustments for the year ended 30 June 2020 including the movement during the year due to carry-forward tax loss. Note Aileen Ltd does not set off the deferred tax accounts against each other.

On January 1, 2017, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,625,400 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $2,060,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $252,000. On January 1, 2018, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $608,125 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger.

During the two years following the acquisition, Sellinger reported the following net income and dividends:

Show Palka’s journal entry to record its January 1, 2018, acquisition of an additional 25 percent ownership of Sellinger Company shares.

Prepare a schedule showing Palka’s December 31, 2018, equity method balance for its Investment in Sellinger account.

A. Record the acquisition of an additional 25 percent ownership of Sellinger Company shares on January 01, 2018

B.  Prepare a schedule showing Palka’s December 31, 2018, equity method balance for its Investment in Sellinger account. (Amounts to be deducted should be indicated with a minus sign.)

Initial Value for Acuqisition

Adjusted subsidiary net income 2017

Subsidiary dividends 2017

Adjusted fair value of newly acquired shares

Adjusted subsidiary 2018 net income

Subsidiary dividends 2018

Investment in Sellinger 12/13/18

At December 31, 2020, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:

Depreciation methods and useful lives:
Buildings—150% declining balance; 25 years.
Equipment—Straight line; 10 years.
Automobiles and trucks—200% declining balance; 5 years, all acquired after 2017.
Leasehold improvements—Straight line.
Land improvements—Straight line.

Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2021 and other information:

1. On January 6, 2021, a plant facility consisting of land and building was acquired from King Corp. in exchange for 17,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $50 a share. Current assessed values of land and building for property tax purposes are $167,500 and $502,500, respectively.
2. On March 25, 2021, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $144,000. These expenditures had an estimated useful life of 12 years.
3. The leasehold improvements were completed on December 31, 2017, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2023, was renewable for an additional four-year term. On April 30, 2021, Cord exercised the renewal option.
4. On July 1, 2021, equipment was purchased at a total invoice cost of $317,000. Additional costs of $10,000 for delivery and $42,000 for installation were incurred.
5. On September 30, 2021, Cord purchased a new automobile for $11,700.
6. On September 30, 2021, a truck with a cost of $23,200 and a book value of $7,600 on date of sale was sold for $10,700. Depreciation for the nine months ended September 30, 2021, was $1,710.
7. On December 20, 2021, equipment with a cost of $13,000 and a book value of $2,775 at date of disposition was scrapped without cash recovery.

Required:

1. Figure a schedule analyzing the changes in each of the plant asset accounts during 2021. Do not analyze changes in accumulated depreciation and amortization.
2. For each asset category, figure a schedule showing depreciation or amortization expense for the year ended December 31, 2021.

• Required 1
• Required 2

Figure a schedule analyzing the changes in each of the plant asset accounts during 2021. Do not analyze changes in accumulated depreciation and amortization.

For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2021. (Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

On January 1, 2020, Flounder Company issued 10-year, $2,060,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Flounder common stock. Flounder’s net income in 2020 was $459,000, and its tax rate was 20%. The company had 108,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020.

(a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

(b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $1,080,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Flounder common stock. (Round answer to 2 decimal places, e.g. $2.55.)

On January 1, 2020, Pearl Company issued 10-year, $2,020,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 16 shares of Pearl common stock. Pearl’s net income in 2020 was $475,300, and its tax rate was 20%. The company had 97,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020. (a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $enter diluted earnings per share rounded to 2 decimal places (b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $970,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Pearl common stock. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $enter diluted earnings per share rounded to 2 decimal places

On January 1, 2020, Sweet Company issued 10-year, $2,060,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Sweet common stock. Sweet’s net income in 2020 was $535,600, and its tax rate was 20%. The company had 103,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020.

(a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

(b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $1,030,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Sweet common stock. (Round answer to 2 decimal places, e.g. $2.55.)

On January 1, 2020, Carla Company issued 10-year, $1,980,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Carla common stock. Carla’s net income in 2020 was $479,400, and its tax rate was 20%. The company had 102,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020.

(a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)

(b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $1,020,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Carla common stock. (Round answer to 2 decimal places, e.g. $2.55.)

4. University of Notre Dame is a premier institution that draws students from all over the world to its campus. Although it is privately funded, it aspires to world-class quality and reputation, which are enhanced when out-of-state residents enroll. Data suggest that in-state enrollment can be described by the equation:

Q_I = 25,000 - P_I,

where Q_I = in-state enrollment and P_I = in-state tuition. Out-of-state enrollment is given

by:                                           Q_N = 13,500 - .5P_N.

1. If tuition for in-state students is $14,000 and for out-of-state students is $19,000, what is total enrollment and demand elasticity for each type of student?
2. Suppose that the marginal cost to the university of an additional student is $7,000. Is Major University maximizing profit at its current tuition charges? Explain.  
3. Because of major funding cuts, the university is expecting to reduce its total enrollment to 11,000 students next year. The university is free to set any tuition charges it wishes. If the goal is to maximize total tuition revenue, what should in-state tuition, out-of-state tuition, and respective enrollments be? Explain why

Sadat company LTD has two bills payable of $55,000 and $60,000 with due dates of 30th June and 31st July 2020 respectively. The company wishes to arrange with it's bankers for any necessary re-financing in advance:

a) to pay the bills on their due dates
b) to provide a minimum end of month cash balance of $15,000.

You are also given the following information:

i) The projected sales and purchases

SALES    ($).                       PURCHASES.     ($)

March.   65,000

April.      90,000.                April.               57,000

May.       65,000.                May.                45,000

June.     68,000.                June.               51,000

July.      75,000.                 July.                42,000

ii) The cash balance on 1st May 2020 will be $18,000

iii) All sales are on terms of a 2% discount allowed on any payments made by the 10th of the month following the sales. past experience indicates 70% of the sales are collected within the first 10days; 20% during the remainder of the first month, and 8% in the second month following the sales. 2% of the sales are considered irrecoverable.

iv) All payments for purchases qualify for 2% discount. Two-thirds of the invoices will be paid in the month of the purchase, and one-third in the month following the purchase.

v) operating expenses are $6,000 per month and is paid for, when they are incurred.

vi) The company receives $1,500 monthly from property rentals.

vii) $2,500 will be realised in July from the sale of obsolete equipment

QUESTIONS
Prepare a cash budget for the month of May, June, and July 2020 showing the amount of additional borrowing that will be required.

Ace Company manufactures equipment. Ace’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $130,000 to $1,100,000 and are quoted inclusive of installation. The installation process does NOT involve changes to the features of the equipment to perform specifications. Ace has the following relationship with Rose Inc.

• Rose can purchase equipment from Ace for a price of $500,000 and contracts with Ace to install the equipment. Using market data, Rose determines installation service is estimated to have a fair value of $50,000. The cost of the equipment is $200,000.
• Rose is obligated to pay Ace the $500,000 upon delivery and installation of the equipment.

Ace delivers the equipment on August 1, 2020, and completes the installation of the equipment on October 1, 2020. The equipment has a useful life of 7 years. Assume the equipment and the installations are two distinct performance obligations that should be accounted for separately.

Instructions

a)    How should the transaction price of $500,000 be allocated among the service obligations?

b)    Prepare the journal entries for Ace for this revenue arrangement for 2020, assuming Ace receives payment when installation is completed.