On January 1, 2020, Sheridan Company purchased 11% bonds, having a maturity value of $301,000 for $324,415.24. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Sheridan Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

The financial year of your audit client Pickles Ltd ended on 31 December 2019. Your audit report was signed on 20 February 2020 and the financial statements were issued on 5 March 2020.

Each of the following independent events, which the auditors have discovered after the end of the financial year, have a material effect on the financial statements:

1. 14 February 2020

   You found that the audit client had lost a court case for breaching a contract with a supplier. The litigation started on 2 February 2019. The company is required to pay $45,000 damages to the supplier.

2. 27 February 2020
   Pickles Ltd announced that it is making a takeover offer for another company.

Required:

For each of the two events above, explain the auditor’s responsibilities and the auditor’s appropriate course of action.

Sheffield Company reports pretax financial income of $76,500 for 2020. The following items cause taxable income to be different than pretax financial income.

1. Depreciation on the tax return is greater than depreciation on the income statement by $15,700.

2. Rent collected on the tax return is greater than rent recognized on the income statement by $23,400.

3. Fines for pollution appear as an expense of $10,500 on the income statement. Sheffield’s tax rate is 30% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2020.

Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020.

Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income taxes.

In early 2019, Bridge Company entered into a long term contract to construct a bridge for Greensville County for $10 million. The bridge will take three years to complete. In 2019, Bridge spent $2.8 million on the project, recognized $3.5 million in revenue and $.7 million in profit. In 2020, Bridge spent $4.2 million on the project, recognized $3.8 million in revenue and a $.4 million loss. Bridge billed Greensville $3.0 million in 2019 and $4.5 million in 2020. Greensville paid Bridge $2.6 million in 2019 and $4.3 million in 2020. Bridge Company recognizes revenue on all contracts over time, as the project is being completed by using the cost to cost approach. When preparing the December 31, 2019 and the December 31, 2020 balance sheets what would Bridge report in regards to this contract?

On January 1, 2020, Oriole Company purchased 11% bonds, having a maturity value of $328,000 for $353,515.61. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Oriole Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

2020
$351,400      
2023
$338,100
2021
$337,000      
2024
$328,000
2022
$336,000              

(a)       Prepare the journal entry at the date of the bond purchase.
(b)       Prepare the journal entries to record the interest revenue and recognition of fair value for 2020.
(c)       Prepare the journal entry to record the recognition of fair value for 2021.

On January 1, 2020, Riverbed Company purchased 12% bonds, having a maturity value of $276,000 for $296,924.88. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Riverbed Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows. 2020 $294,800 2023 $286,100 2021 $285,000 2024 $276,000 2022 $284,100 (a) Prepare the journal entry at the date of the bond purchase. (b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2020. (c) Prepare the journal entry to record the recognition of fair value for 2021.

On January 1, 2020, Larkspur Company purchased 12% bonds, having a maturity value of $275,000 for $295,849.07. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Larkspur Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

College Graduation Rates. Data from the College Results Online website compared the 2011 graduation rate and median SAT score for 92 similar-sized public universities and colleges in the United States. The scatterplot below shows the relationship between these two variables along with the least squares fit. Round all calculated results to 4 decimal places. 1. The relationship between median SAT score and graduation rate is , , and . 2. The explanatory variable is and the response variable is . The summary statistics for graduation rate and median SAT score are listed below. The correlation between graduation rate and median SAT score is 0.673. Median SAT score: mean = 1038.1, standard deviation = 77.5 Graduation rate: mean = 49.4, standard deviation = 15 3. The equation of the regression line is y = + x 4. Complete the following sentence to interpret the slope of the regression line: An increase of in Median SAT score corresponds to a/an of in Graduation Rate. 5. The recorded median SAT score for Northern Michigan University is 1030. Use the regression equation to estimate the graduation rate for Northern Michigan University. 6. The recorded graduation rate for Northern Michigan University is 46.4. Complete the following sentence. The residual for Northern Michigan University is . This means the graduation rate at Northern Michigan University is A. the same as B. lower than C. higher than the rate predicted by the regression model. 7. Stanford University (an elite private university in California not included in this data set) has a median SAT score of 1455. Would it be appropriate to use this linear model to predict the graduation rate for Stanford? A. Yes, because 1455 is a reasonable median SAT score for an elite university. B. No, because 103.705% is too large to be a reasonable graduation rate, even for an elite university. C. No, because 1455 is beyond the range of the data used to build the regression model.

P9.29    Sales and labour budgets: university

Perth Business University (PBU) is preparing its budget for the upcoming academic year. This is a specialised private university that charges fees for all degree courses. Currently, 15 000 students are enrolled on campus. However, the university is forecasting a 5 per cent growth in student numbers in the coming year, despite an increase in fees to $3000per subject. The following additional information has been gathered from an examination of university records and conversations with university managers:

• Perth Business University is planning to award scholarships to 180 students, which will cover their fees.
• The average class has 80 students, and the typical student takes 4 subjects per semester. Perth Business University operates 2 semesters per year.
• The average academic staff salary is $100 000 per annum including oncosts.
• PBU’s academic staff are evaluated on the basis of teaching, research, administration and professional/community service. Each of the academic staff teaches the equivalent of three subjects during the academic year.

Required:

1. Prepare a revenue budget for the upcoming academic year.

2. Determine the number of staff needed to cover classes.

3. Assume there is a shortage of full-time academic staff. List at least five actions that PBU might take to accommodate the growing student numbers.

4. You have been requested by the university’s deputy vice chancellor (DVC) to construct budgets for other areas of operation (such as the library, grounds, cafeteria, and maintenance). The DVC noted: ‘The most important resource of the university is its academic staff. now that you know the number of staff needed, you can prepare the other budgets. Academic staff are indeed the key driver—without them we don’t operate’. Does the DVC really understand the linkages within the budgeting process? Explain.

Question 1

Retail operations

‘Cycling Deal’ started its operation in bicycle retail industry on 1 June 2019. The business is

owned by Alex Richardson. Cycling Deal purchase bicycles from suppliers and sell those cycles

at the local markets. The business is registered for GST. The following transactions occurred

during June 2019:

Date Details

1-Jun Alex Richardson deposited $35,000 into the business bank account.

3-Jun

Purchase of bicycles (100 small bicycles, and 100 large bicycles) from Rocky

Hills Ltd on account for $10,000 ($50 per bicycle) plus GST on terms of 2/10,

n/30.

4-Jun

Cycling Deal received an invoice from Finland Delivery Ltd relating to delivery

costs for the bicycles purchased on 3 June. The amount due is $300

(including GST), and is due on 18 June.

5-Jun Sent a cheque in the mail to Green Ltd for $200 (including GST), for stall fees

at the local markets for the month of June.

6-Jun

Sale of 30 bicycles (15 small bicycles, and 15 large bicycles) at the local

markets, at $100 each (including GST). All of the customers paid by

cash. The money was banked at the end of the day.

9-Jun Paid Rocky Hills Ltd for purchases made on 3 June (net of the early payment

discount), by electronic funds transfer.

13-Jun Sale of 10 small bicycles to a local childcare centre, at $100 each (including

GST), on 30 day credit terms.

15-Jun Sent a cheque in the mail to Finland Delivery Ltd, in relation to the invoice

received on 4 June.

20-Jun Purchase of bicycles (40 small, and 15 large) from Rocky Hills Ltd on account

for $3,190 ($58 per bicycle) plus GST on terms of 2/10, n/30.ACCT6002_Assessment Brief 2_Individual Case Study

Page 4 of 11

23-Jun

Cycling Deal received an invoice from Finland Delivery Ltd relating to delivery

costs for the bicycles purchased on 20 June 2019. The amount due is $180

(including GST), and is due on 6 July 2019.

24-Jun Returned 20 of the small bicycles purchased on 20 June as they were

damaged.

28-Jun

Sale of 28 bicycles (18 small, and 10 large) at the local markets, at $100 each

(including GST). All of the customers paid by cash. The money was banked at

the end of the day.

30-Jun A stocktake was completed, and the number of bicycles on hand was 139 (54

small bicycles, and 85 large bicycles).

Mr Richardson has come to you for assistance, as he would like to use the perpetual inventory

system and the First-in-first-out (FIFO) costing method, but are not sure how to set this up.

equired

i) Prepare an Excel worksheet for each of the bicycle lines for June (one for the small bicycles,

and one for the large bicycles) using the FIFO costing method to keep track of the number of

bicycles purchased, bicycles sold, bicycles on hand, cost of goods sold and gross profit made.

ii) Prepare journal entries (including any adjusting entries) for all of the business’s transactions

for June (using the perpetual inventory system and FIFO costing method). Include dates,

references and narrations.

iii) Prepare T-accounts in an Excel spreadsheet, and post all of the above journal entries to

the T-accounts. Include dates and references for each entry. Total all of the T-accounts to

determine their balances at the end of the June 2019.

iv) Prepare the ‘Adjusted Trial Balance’ in an Excel spreadsheet as at 30th June 2019. Use

formulas to generate all of the figures in the ‘Adjusted Trial Balance’ from the balances in the

T-Accounts.

v) The business has a year-end of 30th June. Prepare the closing entries as at 30th June 2019.

vi) Prepare the income statement, balance sheet and statement of changes in equity in Excel.