In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows: 2018 2019 2020 Cost incurred during the year $ 2,044,000 $ 2,628,000 $ 2,890,800 Estimated costs to complete as of year-end 5,256,000 2,628,000 0 Billings during the year 2,170,000 2,502,000 5,328,000 Cash collections during the year 1,885,000 2,600,000 5,515,000 Westgate recognizes revenue over time according to percentage of completion. Required:
In: Accounting
True or False questions
Michael Baker and Michael Gluk were the CEO and CFO of ArthroCare Corporation, a public company. Due to fraud committed by two senior vice presidents of ArthroCare, John Raffle and David Applegate, ArthroCare misstated its earnings in various SEC filings from 2006 to 2008. Pursuant to the clawback provisions of §§ 302 and 304 of Sarbanes-Oxley Act and acting on behalf of ArthroCare, the SEC sought recovery from Baker and Gluk in the amount of cash bonuses, incentives, and equity-based compensation that Baker and Gluk earned during the affected periods. The SEC argued that Baker and Gluk were liable because they were the CEO and CFO at the time and thus signed the filings that required restatements. Baker and Gluk argued that they did not commit any conscious wrongdoing, did not themselves commit any violation of securities law, and should not be required to disgorge their compensation.
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1. Under §§ 302 and 304 of Sarbanes-Oxley, Baker and Gluk as CEO and CFO are required to be diligent to insure internal controls prevented misdeeds by the two senior vice presidents, and must disgorge their compensation if they knowingly committed any conscience wrongdoing or violate securities law. |
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2. The Sarbanes-Oxley Act creates a cause of action permitting the SEC to pursue a derivative lawsuit to disgorge the compensation of CEOs and CFOs for failure to maintain sufficient internal controls. |
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3. §§ 302 and 304 of Sarbanes-Oxley impose fiduciary duties on CEOs and CFOs to be vigilant in insuring adequate internal controls and accuracy of financial statements. |
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4. Baker and Gluk are appointed to their respective posts as CEO and CFO by the Board of Directors and serve at their pleasure. The shareholders of Arthrocare appoint the directors by voting for them at the annual meeting or a special shareholder meeting called for that purpose. |
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5. The executive vice presidents who misstated ArthroCare Corporation earnings in various SEC filings from 2006 to 2008 are not liable for fraud under Rule 10b-5. |
In: Accounting
Module 7 &8: Management Issues for Non-Depository Institutions
The Save You Insurance Company has the following financial statements. 2020 2019
Net Premiums Written 48,612 47,398
-------------------------------------------------------------------------------
Income Statement ($ mils.)
Premiums Earned 42,624 48,321
Loss Expenses 30,746 34,364
Operating Expenses 17,720 17,693
Total Policy Expenses 48,466 52,057
Net Underwriting Gain/Loss (5,842) (3,736)
Net Investment Income 15,700 19,995
Operating Income before taxes 9,858 16,259
Dividends to Policyholders 6,517 10,361
Income Tax 1,294 1,670
Net Income $2,047 $ 4,228
Ave Investment Yield 4.94% 5.89%
(mils.) 2020 2019
Total Assets $381,972 $406,529
Liabilities
Total Liabilities $349,069 $369,700
Total Equity 32,903 36,829
Total Liabs. & Equity $381,972 $406,529
Dupont Analysis:
Asset Turnover
Net Profit Margin
ROA
ROE
OROA
Equity Multiplier (EM)
Give an overview for why the insurance companies overall profitability changed in 2020 including trends in the expense ratio, loss ratio, and combined rate, and average investment yield. Also do a Dupont analysis explaining why the ROE and ROA for the insurance company changed in 2020 (based on the Operating Profit Margin, Asset Utilization, and the Equity Multiplier.
In: Finance
Mike's Company purchased equipment that cost $118,000 on August 1, 2018. The equipment has an estimated useful life of eight years with an estimated salvage of $10,000. Mike's Company has a December 31 year-end. Calculate the following, showing all of your computations well-labeled and in good form under each of the followingindependent scenarios:
1. The equipment is depreciated using machine hours. The machine is expected to be used for a total of 110,000 hours over it estimated useful life. The following hours of usage were recorded in 2018, 2019, and 2020:
2018 2019 2020
6,000 hours 13,000 hours 12,000 hours
(a) Calculate the depreciation for 2019 using the above data.
Round to the nearest hundredth.
(b) Calculate the book value on the machine at December 31,
2020.
Straight-line method.
(a) Calculate the depreciation for 2019 using the above
data.
(b) Calculate the book value on the machine at December 31,
2020.
Sum-of-the-years’ digits method
(a) Calculate the depreciation for 2019 using the above data.
(b) Calculate the book value on the machine at December 31, 2019.
Double declining-balance method. Round your calculations to the nearest dollar.
(a) Calculate the depreciation for 2019 using the above
data.
(b) Calculate the book value on the machine at December 31,
2019.
In: Accounting
On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2020. (Ignore all tax effects.)
Requirement 1: Accounting
Requirement 2: Analysis
Show how Garner will report income and EPS for 2020 and 2019. Briefly discuss the importance of GAAP for EPS to analysts evaluating companies based on price-earnings ratios. Consider comparisons for a company over time, as well as comparisons between companies at a point in time.
In: Accounting
Below is an extract from the initial trial balance of
Zamzam provided to the auditors for the financial
year ended 31 December 2020 (‘FY2020’), before any of the errors
and omissions identified and
noted below, were corrected and taken into consideration:
General ledger account Balance
Dr/ (Cr)
4000/000: Current tax expense (p/l) R420 651
4200/000: Deferred tax expense (p/l) R65 187
9100/000: SARS payable (SoFP) R420 651
9200/000: Deferred tax (SoFP) – 31 December 2020 R54 160
5400/000: Revaluation surplus: Owner-occupied land (SoCE) – 1
January 2020 (R117 500)
5500/000: Revaluation surplus: Owner-occupied land (OCI) (Before
tax) R150 000
The only errors and omissions identified by the auditors (not yet
correctly accounted for in the above
balances) are listed below:
Error 1: Incorrect depreciation expense on the office
building
The depreciation expense on the office building was incorrectly
calculated as R67 000 instead of
R77 000. Zamzam used R67 000 in the current tax calculation for the
current financial year. The
South African Revenue Service (SARS) does not allow any capital
allowances on the office building.
It is the intention of Zamzam to use the office building until the
end of its useful life.
Omission 1: Exclusion of current tax effect on exchange of
assets
Zamzam exchanged its old air conditioners for more technologically
advanced air conditioners on
30 June 2020. The effect of both the old and new air conditioners
were omitted from the current tax
calculation for the current financial year. Details of the old and
new air conditioners include the
following:
Old air conditioners
Cost on 1 January 2019 (ready for and taken into use on this date;
paid immediately
in cash)
R170 000
Fair value on 30 June 2020 R150 000
Useful life as of 1 January 2019 10 years
New air conditioners
Fair value on 30 June 2020 (ready for and taken into use on this
date) R160 000
Useful life as of 30 June 2020 10 years.
The residual values of both the old and new air conditioners were
considered to be immaterial. The
useful life and residual value estimates remained unchanged. The
exchange transaction had
commercial substance as defined in terms of IAS 16 Property, Plant
and Equipment. The SARS
allows a section 11(e) wear and- tear allowance over 15 years on
both the old and new air
conditioners; apportioned for periods shorter than a year. Zamzam
has never had any intention to
sell any of its air conditioners. The SARS deems the exchange
transaction as if the old air
conditioners were sold and the new air conditioners were obtained
for the same consideration as
would be recognised for accounting purposes in terms of IAS
16.
Omission 2: Deposits received in the current financial year
Zamzam receives deposits for large orders placed from new
customers. The deposit is refundable
on cancellation of the order, which results in control only passing
when the order will be delivered.
At the end of the current financial year, Zamzam received deposits
to the value of R90 000 which
were correctly classified as revenue received in advance. The
effect of these deposits were however
not taken into account in the current tax calculation for the
current financial year. No such deposits
were received at the end of the prior financial year.
Omission 3: Exclusion of allowance for credit losses in the current
financial year
The SARS allows a section 11(j) deduction of 25% of the accounting
allowance for credit losses
each year. Zamzam did not recognise the doubtful debt as part of
IFRS 9 Financial Instruments for
the purposes of SARS. The effect of the allowance was correctly
accounted for in the current financial
year’s deferred tax calculation. However, the FY2020 current tax
calculation does not include the
effect of the allowance for credit losses. The allowance for credit
losses of Zamzam amounted to the
following at the respective dates:
Description Amount
Dr / (Cr)
Balance on 31 December 2019 (R145 000)
Balance on 31 December 2020 (R170 000)
Other relevant information:
1. The correctly calculated accounting profit before tax, after
correctly taking into account the
above errors and omissions amounted to R1 950 000. This profit
includes a net non-deductible
permanent difference of R2 000. The latter consists of dividends
received form a local listed
company to the value of R10 000 and the remaining balance consists
of other non-deductible
expenses incurred during the current financial year. The latter
items were correctly accounted
for in the current year tax calculation.
2. The assessed loss for the financial year ended 31 December 2019
amounted to R360 000.
3. Zamzam’s board has always been of the opinion that the company
will make taxable profits in
the foreseeable future to utilise any unused tax losses.
4. Zamzam always utilises any tax deductions received from SARS in
the year of assessment
they are entitled to do so.
5. Assume that none of the identified errors and omissions affect
any of the prior year balances.
6. Assume that all other information provided are correct and
accurately accounted for to the
extent that it is not affected by the errors and omissions
noted.
ZigZag provided an extract of the asset register as at the end of
the current and prior financial year:
ASSETS CARRYING AMOUNTS
31 December 2020
R
31 December 2019
R
Land (1) 3 800 000 3 000 000
Office buildings (2) 1 900 000 1 370 000
Industrial buildings (3) 3 333 333 3 666 667
Machinery (4) 1 800 000 2 700 000
Additional information:
1. Land is vacant land and it is classified as investment property.
The land was acquired on
1 April 2019 at R2 800 000. The fair value adjustments have been
accounted for at the end of
the respective financial years.
2. The office building was acquired on 1 July 2019 for R1 400 000
and was revalued for the first
time on 31 December 2020 to its fair value of R1 900 000. The
office buildings are depreciated
on the straight line basis over 20 years to its residual value of
R200 000. During 2019,
management expected to use the asset up to the end of its economic
life.
On 1 January 2020, management estimated the remaining useful life
of the building to have
changed to 10 years and the residual value to be R500 000.
In December 2020 the management changed the intention and decided
they were going to sell
the office building.
Office buildings have no capital allowances available.
3. Industrial buildings are depreciated over 12 years on the
straight line basis. In terms of the
Income tax act, a section 13 allowance of 5% applies to the
industrial buildings. The buildings
were bought on 1 January 2019, with the intention to keep the
building, for an amount of
R4 000 000 paid in cash immediately with its residual value
regarded as being insignificant.
4. Machinery is depreciated on a straight line basis at 20% per
year to Rnil residual value. The
SARS allows a section 12C allowance of 40%/20%/20%/20% on
machinery. The machinery had
a tax base of R1 800 000 on 31 December 2019 and R900 000 on 31
December 2020. No
additional machinery was acquired during FY2020.
5. ZigZag always pays their insurance in advance. At the end of
FY2020 the balance for insurance
paid in advance amounted to R35 000 (2019: R25 000).
6. On 1 December 2020, Zamdela, a loyal customer, ordered
transportation equipment from
ZigZag which will be delivered to him during December 2021. ZigZag
received R500 000 from
Zamdela in cash when the order was placed.
7. The accounting profit before tax, which included dividends
received of R40 000, amounted to
R3 200 000 for the year ended 31 December 2020. All above mentioned
movements were taken
into account in arriving at this accounting profit.
8. The deferred tax asset balance as at 31 December 2019 was R390
150 due to an assessed
loss of R2 200 000 that existed at that time. ZigZag expected to
make sufficient taxable profits
during 2020 and onwards to fully utilize assessed losses and other
deductible temporary
differences.
Accounting policies and other information for both companies:
Owner-occupied land is accounted for on the revaluation model and
is revalued at the end of
each financial year in terms of IAS 16.
Office buildings are carried on the revaluation model using the
net replacement method in
terms of IAS 16.
Machinery is measured on the cost model in terms of IAS 16.
Industrial buildings are measured on the cost model in terms of
IAS 16.
In terms of IAS 8 Change in accounting policies, estimates and
errors, changes in estimates
are accounted for using the re-allocation method.
All other items of property, plant and equipment are accounted
for on the cost model in terms
of IAS 16.
Investment property is accounted for on the fair value model in
terms of IAS 40 Investment
Properties.
Depreciation and amortisation are accounted for on the
straight-line method.
Assume a normal tax rate of 28% for FY2020 (2019: 27%) and that
80% of capital gains are
taxable.
There are no temporary differences other than those that are
apparent from the given
information.
Required:
calculate deferred tax for the year ended 31 December 2020
In: Accounting
Presented below is information related to Kingbird
Company.
|
Date |
Ending Inventory |
Price |
||||
|---|---|---|---|---|---|---|
|
December 31, 2017 |
$ 78,200 | 100 | ||||
|
December 31, 2018 |
242,950 | 215 | ||||
|
December 31, 2019 |
239,604 | 246 | ||||
|
December 31, 2020 |
271,272 | 267 | ||||
|
December 31, 2021 |
320,579 | 287 | ||||
|
December 31, 2022 |
382,833 | 297 | ||||
Compute the ending inventory for Kingbird Company for 2017 through
2022 using the dollar-value LIFO method.
| Ending Inventory | |||
|---|---|---|---|
|
2017 |
$enter a dollar amount |
||
|
2018 |
$enter a dollar amount |
||
|
2019 |
$enter a dollar amount |
||
|
2020 |
$enter a dollar amount |
||
|
2021 |
$enter a dollar amount |
||
|
2022 |
$enter a dollar amount |
In: Accounting
The Sanding Department of Quik Furniture Company has the
following production and manufacturing cost data for March 2020,
the first month of operation.
Production: 6,940 units finished and transferred out;
3,000 units started that are 100% complete as to materials and 20%
complete as to conversion costs.
Manufacturing costs: Materials $38,766; labor $20,500;
overhead $43,213.
Prepare a production cost report. (Round unit costs to
2 decimal places, e.g. 2.25 and other answers to 0 decimal places,
e.g. 125.)
|
QUIK FURNITURE COMPANY |
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|---|---|---|---|---|---|---|---|---|
|
Equivalent Units |
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|
Quantities |
Physical |
|
Conversion |
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In: Accounting
A. Ling, Johnson, Lesley, and Miya commenced business and named
their company as Moba
Teknologi Sdn Bhd. The company sells a ready-to-use software
product, ML1 for the use of
small businesses. The current selling price for the product is
$500. Next year in 2020, the
company planned to sell 7,300 units. The followings are information
on the expenses:
Cost of software $180 per unit
Shipping and handling $20 per unit
Annual fixed cost $1,200,000
Required:
a. Calculate Moba Teknologi’s breakeven point in unit and value
($).
b. Calculate the next year's margin of safety (in
percentage).
c. Calculate the company’s operating income for the year 2020 if
there is a 10% increase
in unit sales.
B. Suppose in the year 2020, Moba Teknologi will sell two products;
ML1 and ML2. The product
cost and sales information are as follows:
Selling price ML1 $500 ML2
$700
Variable cost per unit ML1 $200
ML2 $300
The total annual fixed expense is $3,900,000, while the expected
sales mix is three ML1 to
one ML2.
Required:
a. Calculate the total contribution margin for ML1 and ML2.
b. Calculate the break-even point in the unit for each product.
In: Accounting
Manufacturing Expenses
Variable $3,250,000
Fixed overhead 640,000 3,890,000
Gross Margin $4,610,000
Selling and administrative expenses
Commissions $580,000
Fixed marketing expenses 300,000
Fixed admin expenses 450,000 1,330,000
Net Operating Income $3,280,000
Fixed Interest expenses 230,000
Income before Taxes $3,050,000
Income Taxes (21%) 640,500
Net Income $2,409,500
Your company is considering out-sourcing the sales and marketing to an agency specializing in these types of sales. The outsourcing would remove the commissions, reduce the marketing by $270,000, and reduce the fixed administrative expenses by $35,000. The out-sourcing firm, Jangler Marketing, will charge a fee of 14% of sales. Jangler requires a 3-year contract. Jangler believes that it can increase sales by 10% for 2019 and 13% each year after (2020 and 2021). The company believes that with its current sales and marketing staff, sales will increase by 8% for 2019 and 9% in each year after (2020 and 2021).
1.Prepare contribution format projected income statements for 2019, 2020 & 202a assuming the company hires Jangler Marketing.
2.Prepare contribution format projected income statements assuming the outsourcing is rejected.
In: Accounting