Determine the main accounting assumptions underlying each currently used method (e.g., current rate method and temporal method). Determine the fundamental differences in balance sheet exposure from the application of each method.

Albert, CEO of XYZ, Inc., desires to expand the company’s sales through exports to three (3) foreign subsidiaries. Albert knows that the target subsidiaries are located in countries that require transactions to be denominated in the local currencies. Albert has researched foreign currency risk and knows that there is accounting exposure in accounting statements, operating exposure in future cash flows, and transaction exposure in outstanding obligations. Albert does not understand how these risks apply to XYZ, Inc. under his proposal or if there are any mitigating risk strategies available. Albert requests you, the head of the Risk Management division, to prepare a report that he can present to the Board of Directors on the potential foreign currency risk if XYZ, Inc. expands sales into these markets. XYZ, Inc.’s reporting currency is the U.S. dollar and the subsidiaries would purchase the merchandise as inventory items.

On July 1, 2020, Yorkton Company purchased for $420,000 equipment having an estimated useful life of five years with an estimated residual value of $20,000. Depreciation is calculated to the nearest month. The company has a December 31 year-end.

Required:
Complete the following schedules: (Amount to be deducted should be indicated by a minus sign.)

Limpah Kurnia Sdn Bhd (LKSB) is an engineering company that started a new business with an opening cash balance of RM85,000. This new business will focus on sales component parts to all potential customers located in Sungkai, Perak. The following are the budgeted data of LKSB for the year 2020.

1.   In January 2020, to start a business the company has rented a double storey building for its operation at RM5,000 per month with RM20,000 rental deposit. Rental deposit is paid in January and monthly rental will be paid in the month it is incurred.

2.   In February, the company is planning to purchase a machine at a cost of RM55,000 which has an estimated useful life of 10 years. Depreciation charge per annum will be RM5,500. Only half of the machine cost will be paid in the month of purchase, while the balance will be paid equally over the next two months.

3.   Four (4) administration staff will be employed and each staff will be paid RM1,200 per month. Payment will be in the month in which they are incurred.

4.   Purchases of materials will be made on credit. 50% of the credit purchases will be paid in the month of purchase and another 50% one month after the purchases. Estimated purchases are as follows.
           January   RM23,000
           February   RM28,000
           March       RM25,000
           April       RM22,000

5.   A motor van costing RM49,800 will be purchased in January. Payment of the motor van will be in six equal payments starting February 2020.

6.   Estimated sales for component parts in units are:
           January    5,000
February    4,500
March        5,300
April       4,800
  
7.   The selling price for the component parts is RM20. 60% of the sales are expected to be in cash whilst the other 40% is on credit. The credit sales will be collected one (1) month after sales.
8.   Allowance for manager is RM1,000 per month and paid in the month incurred.
9.   Monthly utilities RM850 is to be paid one month in arrears.
10.   The company received 5% dividend from unit trust investment of RM500,000 in February.

Required:
a)   Prepare schedule of collection and payments for the month of January, February and March 2020.

b)   Prepare a cash budget for the month of January, February and March 2020.

(Total: 25 Marks)

Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, Benjamin acquires 45,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows:

Assume that Benjamin acquired the widgets on December 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?

Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on December 1, 2017. What is the effect of the exchange rate fluctuations on reported income in 2017?

Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?

                                     Fixed Rate                                      Floating Rate
Company A                         5.50% LIBOR + 1.05%
Company B                          6.75%                                         LIBOR + 1.75%
Assuming comparative advantage and the agree upon rate of 6.45%, after entering into an interest rate swap determine the cost of financing for Company A and Company B. Who are the main users of interest swaps and currency swaps?
6. A U.S. investor purchased stock in Toyota, the rate of return on the stock in yen was 8.65% and the yen appreciated by 2.34%, determine the exact total return to the investor.

Should a CEO have Guaranteed Pension provided.

Recommend changes to the company's business processes that will make them more effective and efficient.

You are to analyze five key business processes: selling meat, purchasing animals, paying employees, purchasing miscellaneous supplies and services, and providing refunds to customers. The following interviews with the CEO and key employees describe those business processes. Where information is incomplete, you are to make appropriate assumptions.The company uses accrual accounting and a calendar fiscal year. Summary of Interview with CEO A few years ago, he bought a small wholesale store to seek his fortunes in a less dangerous but potentially more lucrative occupation. Through hard work, his business grew. the company steadily expanded to other cities up and down the East Coast. the company steadily built a reputation for high quality fresh meat. He still personally guarantees complete satisfaction or his customers get their money back—no questions asked. the company focuses on the wholesale meat market; as such, their customers are primarily restaurants and retail stores. The company offers its customers a wide variety of fresh meat. Each store can carry all types of meat. The stores are essentially small warehouses, not retail meat stores. In order to service its customers, the company owns a fleet of trucks, each with its distinctive logo on the side. The trucks are used to pick up and deliver meat. 1 Until recently, all record keeping for the company was primarily done manually. Each store keeps track of its purchases, inventories, sales, etc. Then, they send all the hard copy documents to the ceo, via the accounts payable or payroll clerks as appropriate. He prepares his business reports from those documents as well as the deposit information he receives from the banks and the cash disbursement information he receives from the accounts payable and payroll clerks. Recently, his computer crashed. He lost all his records. He has been rebuilding those records from the manual documents using Microsoft Excel®. So far, he has just about completed his records for early 2020. For now, he wants to move his data from Excel into a Microsoft Access® database accounting system and prepare financial reports for the first quarter of this year. He has an employee who knows a bit about Access, and is confident that with a good starter system and a bit of training, the company can move forward with the Access- based system (for now). the CEO, despite his data setback, plans to expand his business. So, in addition to providing financial information about his current performance, he wants advice on the risks his business faces and how he can mitigate those risks with cost-effective internal controls. To facilitate recordkeeping and management after the expansion, he is considering the installation of computers at each store as well as using tablet computers or smartphones to record transactions at the source. He believes that eventually he should use an online accounting system (he’s interested in cloud computing) and have each store submit transactions daily (or maybe even real-time) from their tablets/phones. Thus, he also wants an evaluation of the costs/benefits of using information technology and how that might affect his internal control system. Summary of Interview with the AP Clerk The AP clerk prepares checks for payments to farmers and miscellaneous vendors. The stores mail purchase documents for meat to him almost every day. He knows that the farms need to be paid promptly, so they can pay their crew, buy fuel, etc. So, he tries to pay them within a week after receiving the documents. If he receives multiple purchases from the same farmers during that time, he will combine payments. For miscellaneous purchases, such as phone bills, truck repairs, gasoline, etc., the stores assign purchase order numbers to the vendor’s invoice and mail them to him. He holds the documents for payment at the end of the month. If he receives a bill after he has already prepared checks, he often holds it until the end of the following month before sending payment. Again, he will combine payments if he receives multiple bills from the same vendor. The AP Clerk stamps each document with the check number, the check amount, and the date paid. After writing the checks and sending out the payments, he packages all the documents (meat purchase documents and miscellaneous invoices) and delivers them to CEO’s office. Summary of Interview with a store Supervisor The supervisor's duties are similar to supervisor duties at all the stores. Being supervisor is only a part-time responsibility. Most of the time, he is just another employee at the store, buying animals, preparing meat for delivery to customers, making deliveries, etc. Customers call to place orders for future deliveries. Usually, they order about one week in advance. The store employees know most of the customers by name and also know what types of meat they prefer. They also know what types of meat will likely be available, so they try to steer the orders to those meat. They record customer orders in the store’s order log. Then, every morning they look at the log to estimate the types of meat and quantities that they need to buy for the day. They don’t buy meat for specific orders, instead, they try to get enough meat of each type to meet all the orders for that day. Each morning, one employee hops in a truck and drives to the local pier to buy the freshest available meat from farmers to fulfill customers’ orders. The employee carefully selects the best meat and loads them into the truck. Sometimes, it is not possible to get the specific types and quantities that the customers ordered, but other high quality meat is available. In that case, the employee will buy the other meat and contact the customers to see if they’re willing to modify their orders. The purchase document identifies the purchase number (sequential), the farmer number, the purchasing employee, the truck VIN (to track mileage), the type of meat, the quantity purchased in lbs., and the purchase price. The meat is purchased at the prevailing market price that day. On occasion, one purchase can involve multiple types of meat, although typically one purchase is for one type of meat. When the truck returns to the store with the purchased meat, all the employees unload the truck, clean the meat, and place it on ice for delivery to the customers in the afternoon. The employees then prepare the delivery documents. Those documents list the customers’ original order number, the order date, the delivery (sale) date, the truck VIN used to deliver the meat (to track mileage), the types and quantities of meat both ordered and sold, and the sale price. The CEO sets the sales prices for all stores, and those prices can change periodically. One customer order can (and typically does) involve several types of meat. Each afternoon, the employees load the truck for the deliveries to customers. One employee then delivers the meat. Each customer receives the meat and the delivery document. They then pay for all their deliveries by the end of the month. They send the payment to the address listed on the delivery document (currently the address of the New York store). When the employee returns to the store, we put all the delivery documents in an envelope and mail them to the CEO. Summary of Interview with a store Payroll Clerk Post maintains the payroll records. Each employee fills out his/her timecard each day. At the end of each month, each store supervisor collects employee timecards, checks them for accuracy, and sends them by overnight delivery to Post. If a timecard looks like it may be incorrect, the supervisor asks the employee to correct it. Post then prepares the payroll checks and sends them to the addresses designated for each employee. Once the checks are mailed, Post mails the timecards and copies of the checks to the CEO. Summary of Interview a store Accounts Receivable Clerk The account receivable clerk receives payments from customers at the end of each month. She assigns sequential cash receipt numbers to each incoming payment, recording the customer number, the receipt date, and the receipt amount. Each day, She deposits all checks received in the bank. Next, she mails the list of cash receipts along with a copy of the deposit slip to the CEO . She maintains that she is really not an accounts receivable clerk, because she never knows how much the customer owes; she just knows how much she received and deposited. Summary of Interview with an Employee The employee described the customer refund process. The company guarantees satisfaction and provides complete refunds if the customer is unhappy with any meat received on an order. The customer calls the local store and reports a problem with the meat. The employee that answers the phone immediately prepares a refund authorization. If the customer hasn’t yet paid for that order, the employee instructs the customer to take that amount off their bill. In that case, the employee then sends the refund authorization directly to the CEO for informational purposes. If the customer has paid for that order, the employee notifies the customer that they will receive a check within about a week. The employee sends the refund authorization form to the accounts payable clerk, who sends the customer a check. Then, the refund authorization and the payment information are forwarded to the ceo.

QUESTION 23

According to SFAS No. 141 on business combinations:

1 points   

QUESTION 24

U.S. Steel recently acquired Marathon Oil. This is an example of a(n):

1 points   

QUESTION 25

In the first quarter 2002, AOL-Time Warner wrote off $54 billion related to their recent merger. This was because:

Problem 7-5

1. William Company’s balance sheet at the end of 2019 (beginning of 2020) reported Accounts Receivable of $314,200 and Allowance for Doubtful Accounts of $4,710 (credit balance).
2. The company’s total sales during 2020 were $3,340,000. Of these, $501,000 were cash sales the rest were credit sales.
3. The company also wrote off an account for $4,152.
4. By the end of the year, the company had collected $2,516,680 of the credit sales.

Requirements

1. Create T-accounts for Accounts Receivables and the Allowance for Doubtful Accounts. Post the information from Item 1.
2. Prepare journal entries for Items 2, 3, & 4.
3. Post the journal entries. Calculate William Company’s balances for Accounts Receivable and the Allowance for Doubtful Accounts at the end of 2020, before the adjusting entry is made.
   1. What is the net realizable value at this point?
4. For each of the following separate scenarios, prepare the adjusting entry for bad debt.
   1. Williams Company estimates that 0.3% of credit sales will be uncollectible.
   2. Based on an aging of receivable, Williams Company estimates that $9,500 of the accounts will be uncollectible.
   3. Instead of the write-off being for $4,152, as stated in Item 3, the write-off was $5,152. Recalculate the balances in the Allowance for Doubtful Accounts and Accounts Receivable. Based on an aging of receivable, Williams Company estimates that $9,500 of the accounts will be uncollectible.
5. Based on the journal entry for each of the 3 scenarios in d., calculate the net realizable value that will be reported on the Balance Sheet. Also provide the amount of Bad Debt Expense that will appear on the Income Statement in the Operating Expenses section.