Fieldman Company purchased a machine for leasing purposes on January 1, 2020, for $1,500,000. The machine has a 10-year life, has no residual value, and will be depreciated on a straight-line basis. On January 2, 2020, Fieldman leased the machine to Dahlia Company for $150,000 a year for a five-year period ending December 31, 2024. Dahlia does not guarantee a residual value of the machine at lease-end, although Dahlia can purchase the machine at the end of the lease term for 40% of the estimated residual value which is a significant discount. Dahlia paid $150,000 to Fieldman on January 2, 2020, the first annual payment date.

How would Fieldman Company and Dahlia Company classify the lease, considering a 5% implicit interest rate for both parties?

Fieldman Company         Dahlia Company

On November 1, 2017, Concord Company adopted a stock-option plan that granted options to key executives to purchase 39,000 shares of the company’s $9 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $585,000. All of the options were exercised during the year 2020: 26,000 on January 3 when the market price was $69, and 13,000 on May 1 when the market price was $80 a share.

Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019

ABC Company forms in 2020. Prior to operations, ABC incurred $75,000 of startup costs. ABC began operations in February 2020.

ABC Company is in the construction business and has to make significant capital expenditures to begin operations. ABC purchased the following capital assets during the year:

Construction Equipment - $1,500,000

Furniture for its offices - $50,000

Computer Equipment - $250,000

ABC rents its office space from an unrelated third party. The rent is $20,000 per month.

If ABC elects to expense assets using § 179 and does not elect the additional first-year depreciation deduction, calculate its total § 179 deduction for the year and carryforward, if any. Compute amortization expense as well.

If ABC elects to take advantage of the additional first-year depreciation (bonus depreciation) calculate its total deduction, and carryforward if any, for depreciation and amortization purposes.

On November 1, 2017, Blue Company adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $450,000. All of the options were exercised during the year 2020: 20,000 on January 3 when the market price was $69, and 10,000 on May 1 when the market price was $78 a share. Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.

On November 1, 2017, Sandhill Company adopted a stock-option plan that granted options to key executives to purchase 28,500 shares of the company’s $10 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $30, and the fair value option-pricing model determines the total compensation expense to be $427,500.

All of the options were exercised during the year 2020: 19,000 on January 3 when the market price was $67, and 9,500 on May 1 when the market price was $77 a share.

Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.

The GPAs of all 5540 students enrolled at a university has a distribution with a mean of 3.02 and a standard deviaiton of 0.29. Let x-bar be the mean GPA of a random sample of 48 students selected from this university.

a. Find the mean and standard deviation of x-bar and comment on the shape of its sampling distribution (1 point for each).

b. What is the probability that the sample mean of such a sample will be greater than 3.10?

The author of an introductory textbook on business statistics completed a study using 30 undergraduate statistics students selected at random from a large university. The students were given a comprehensive test that took them an average of 90 minutes to complete with a sample standard deviation of 15 minutes. Construct and interpret the 90% confidence interval for the population mean time it would take for all statistics students at the university to complete this test.

1. In the results of a survey of 395 teaching university faculty and 266 research university faculty. Of the teaching university faculty, 224 said they were very satisfied with their jobs, whereas 126 of the research university faculty were very satisfied with their work. Estimate the difference between the proportion of all teaching university faculty who are very satisfied and research university faculty who are very satisfied by calculating and interpreting a 95% CI.

Question 4

Identify the control weakness, if any, in each of the following individually independent cases

and explain your reasons:

(i)

Gary Wong is the internal audit (“IA”) chief of Golden Limited (“the company”). In

preparing his audit plan for 2020, he has decided to carry out a review of the

effectiveness of the internal controls that are in place in the company’s purchasing

division. The audit programme that Gary has prepared for use in this regard has been

based on the IA’s standard audit programme which has been tailored, as appropriate, in

the circumstances. To ensure that the review can be carried out in a more efficient way,

Tim has sent his draft audit programme to the purchasing division head for comments.

(ii)

Barry Ng is the chief internal auditor of Trendy Limited which is engaged in the

manufacturing and selling of health foods. Trendy Limited has been growing rapidly

over the past few years, in particular with a number of outlets opened in South East

Asia. In this connection, Barry needs to expand his internal audit team to undertake

internal control testing. He has recently recruited externally five new staff who are all,

despite lack of audit and accounting experience, experienced front-line salespersons.

(iii)

Adam Chan is the chief internal auditor of Lewis Limited. He is currently supervising

a team of ten experienced internal audit subordinated staff. Three staff members of the

accounts payable department have recently left that manpower resource is urgently

needed by this department in the short term to help handle daily transactions. The CEO

has requested Adam to send two of his people to the accounts payable department for a

few weeks.

(iv)

Denny Chan has been working for Silver Limited as a salesman for many years. He

has built an established portfolio of long-term customers such that his relationship with

them has been well maintained. Since he knows the customers well, he has been asked

to carry out the annual credit review of his customers and revise the credit limits, where

appropriate, for each of the customers.

(v)

Astar Limited is a large import and export trading company with markets worldwide.

To support its business, it has been using a number of banks, including local, US, Japan

and Europe based financial institutions. The company carries out bank reconciliations

for all bank accounts maintained on a quarterly basis and any significant discrepancies

discovered are investigated and rectified promptly

a) Discuss the advantages of shelf registration. Try to find an example in US which did shelf registration and provide reasons highlighted by the Company.

b) Briefly describe the traditionalists’ position on capital structure

c) Briefly discuss bankruptcy costs – please provide in addition shortly an real life example from the past to demonstrate effects of bankrupcy.