Problem 1

On January 2, 20x8, the Todd Company acquired a truck with a list price of $400,000. The Todd Company's incremental borrowing rate is 8% (imputed rate). Assume that the

truck manufacturer is offering Todd the following terms (each situation is independent). For each of the terms, prepare the journal entries for the life of the note. Assume a December 31 year end.

Todd company is a publicly accountable company.

a) Todd Company has to make equal annual payments of principal and interest over five years. Payments are due on December 31 of every year. The interest rate charged is 10%.

b) Todd Company pays the $400,000 in three years. No interest is charged on the note.

c) Todd Company pays the $400,000 in three years. Interest of 3% is charged on the note payable on December 31 of every year.

d) Todd Company pays $80,000 on the principal at the end of every year, over 5 years. No interest is charged.

e) Todd Company has to make equal annual payments of principal and interest over five years. The interest rate charged is 4%.

Plug Products owns 80 percent of the stock of Spark Filter Company, which it acquired at underlying book value on August 30, 20X6. At that date, the fair value of the noncontrolling interest was equal to 20 percent of the book value of Spark Filter. Summarized trial balance data for the two companies as of December 31, 20X8, are as follows:

On January 1, 20X8, Plug's inventory contained filters purchased for $76,000 from Spark Filter, which had produced the filters for $56,000. In 20X8, Spark Filter spent $116,000 to produce additional filters, which it sold to Plug for $157,429. By December 31, 20X8, Plug had sold all filters that had been on hand January 1, 20X8, but continued to hold in inventory $47,229 of the 20X8 purchase from

Plug Products owns 80 percent of the stock of Spark Filter Company, which it acquired at underlying book value on August 30, 20X6. At that date, the fair value of the noncontrolling interest was equal to 20 percent of the book value of Spark Filter. Summarized trial balance data for the two companies as of December 31, 20X8, are as follows:

On January 1, 20X8, Plug's inventory contained filters purchased for $76,000 from Spark Filter, which had produced the filters for $56,000. In 20X8, Spark Filter spent $116,000 to produce additional filters, which it sold to Plug for $157,429. By December 31, 20X8, Plug had sold all filters that had been on hand January 1, 20X8, but continued to hold in inventory $47,229 of the 20X8 purchase from Spark Filter.

Required:
a. Prepare all consolidation entries needed to complete a consolidation worksheet for 20X8. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

b. Compute consolidated net income and income assigned to the controlling interest in the 20X8 consolidated income statement.

c. Compute the balance assigned to the noncontrolling interest in the consolidated balance sheet as of December 31, 20X8.

Eaton Ross Puppet Company acquired a new plastic molding machine at the beginning of the current year at a cost of $ 450 comma 000. The asset has a 6​-year useful life for financial reporting purposes and is depreciated on a​ straight-line basis with no residual value expected at the end of its useful life. The company uses the​ double-declining balance method on its income tax returns. The company is subject to a 35​% tax rate. Compute the deferred tax portion of the income tax expense for the first 2 years. Complete the table below to compute the​ straight-line book depreciation and​ double-declining tax depreciation method through year 2 to determine the​ book-tax difference.​ (Round your calculations to the nearest​ dollar.)

Question 6

Zoy plc is listed on the Hong Kong Stock Exchange and currently has 1m issued ordinary shares.

Over the last 5 years the following dividends have been paid at the end of each year:

The dividends are expected to increase from 2020 at the same rate as they have historically and then by 4% per annum for periods after 2023.

The cost of equity of Zoy is unknown but the company has a beta of 0.9 and the rate of return on government securities is 0.6% per annum. The equity risk premium is estimated to be 6% per annum.

Required:

1. Calculate the value of Zoy plc using the dividend valuation model. Assume the 2020 dividend has just been paid.

(12 marks)

2. Discuss whether using future cash flows to value a company is more useful than using the net asset value from the balance sheet.

(8 marks)

The balance sheets for Kinder Company showed the following information. Additional information concerning transactions and events during 2020 are presented below.

Kinder Company

Balance Sheet

            December 31    

     2020                  2019

         Cash $ 30,900 $ 10,200

         Accounts receivable (net) 43,300 20,300

         Inventory 35,000 42,000

         Long-term investments 0 15,000

         Property, plant & equipment 236,500 150,000

         Accumulated depreciation     (37,700)              (25,000)

$308,000 $212,500

         Accounts payable $ 17,000           $ 26,500

         Accrued liabilities 21,000 17,000

         Long-term notes payable 70,000 50,000

         Common stock 130,000 90,000

         Retained earnings      70,000               29,000

$308,000 $212,500

Additional data:

1.   Net income for the year 2020, $61,000.

2. Gain on sale of investment, $18,000, included in net income.

3.   Paid a $40,000 long-term note payable by issuing common stock.

Prepare a Statement of Cash Flows for Kinder using the indirect method using Be sure to include required supplemental disclosures.

The balance sheets for Kinder Company showed the following information. Additional information concerning transactions and events during 2020 are presented below.

Kinder Company

Balance Sheet

            December 31    

     2020                  2019

         Cash $ 30,900 $ 10,200

         Accounts receivable (net) 43,300 20,300

         Inventory 35,000 42,000

         Long-term investments 0 15,000

         Property, plant & equipment 236,500 150,000

         Accumulated depreciation     (37,700)              (25,000)

$308,000 $212,500

         Accounts payable $ 17,000           $ 26,500

         Accrued liabilities 21,000 17,000

         Long-term notes payable 70,000 50,000

         Common stock 130,000 90,000

         Retained earnings      70,000               29,000

$308,000 $212,500

Additional data:

1.   Net income for the year 2020, $61,000.

2. Gain on sale of investment, $18,000, included in net income.

3.   Paid a $40,000 long-term note payable by issuing common stock.

Prepare a Statement of Cash Flows for Kinder using the indirect method using Be sure to include required supplemental disclosures.

On January 1, 2020, Tom Company is considering purchasing a 35 percent ownership interest in Jerry Company, a privately held enterprise, for $900,000. Jerry predicts its profit will be $250,000 in 2020, projects a 3% annual increase in profits (from one year to the next) in each of the next four years, and expects to pay a steady annual dividend of $20,000 for the foreseeable future. Jerry has on its books a patent that is undervalued by $120,000, and has an estimated remaining useful life of 6 years. All of Jerry’s other assets and liabilities have book values that approximate market values. Tom uses the equity method for its investment in Jerry.

Need a schedule in Excel for the years 2020 through 2024 to display the following:

1. Tom’s equity in Jerry earnings with rows showing these:
   1. Tom’s share of Jerry reported income
   2. Amortization expense
   3. Tom’s equity in Jerry earnings
2. Tom’s Investment in Jerry balance with rows showing the following:
   1. Beginning balance
   2. Equity earnings
   3. Dividends
   4. Ending balance

Referring to the following data of the Omani Company, that extracted from the balance sheet at 31\12\2019, answer the following questions: -          (Note; Write all Equations regarding the questions)

1. The company manager targets to reduce the current ratio in the year (2020) by 33% from the previous year (2019), this requiring to downsize the amount of the total current asset. To what level can the manager reduce the total current asset to achieve this target at (2020)? (Suppose the other things are fixed)
2. The manager put a plan to reduce the selling period in the (2020) by (16.7%) from the previous year (2019). Calculate the new inventory turnover.

(Suppose the other things are fixed)

Referring to the following data of the Omani Company, that extracted from the balance sheet at 31\12\2019, answer the following questions: -       (Note; Write all Equations regarding the questions)

1. The company manager targets to reduce the current ratio in the year (2020) by 33% from the previous year (2019), this requiring to downsize the amount of the total current asset. To what level can the manager reduce the total current asset to achieve this target at (2020)? (Suppose the other things are fixed)
2. The manager put a plan to reduce the selling period in the (2020) by (16.7%) from the previous year (2019). Calculate the new inventory turnover.

(Suppose the other things are fixed)