Bensen Company began operations when it acquired $26,800 cash from the issue of common stock on January 1, 2018. The cash acquired was immediately used to purchase equipment for $26,800 that had a $4,400 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $3,400 cash. Bensen uses straight-line depreciation. 2018 2019 2020 2021 2022 Revenue $7,470 $7,970 $8,170 $6,970 $0
Required
Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years. Present the statements in the form of a vertical statements model. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)
In: Accounting
Bensen Company began operations when it acquired $60,000 cash from the issue of common stock on January 1, 2018. The cash acquired was immediately used to purchase equipment for $50,000 that had a $10,000 salvage value and an expected useful life of four years. The equipment was used to produce the following revenue stream (assume all revenue transactions are for cash). At the beginning of the fifth year, the equipment was sold for $8,800 cash. Bensen uses straight-line depreciation. 2018 2019 2020 2021 2022 Revenue $ 26,100 $ 28,500 $ 32,000 $ 31,300 $ 0 Required Prepare income statements, statements of changes in stockholders’ equity, balance sheets, and statements of cash flows for each of the five years. Present the statements in the form of a vertical statements model. (Statement of Cash Flows and Balance Sheet only: Items to be deducted must be indicated with a minus sign.)
In: Accounting
Calculation of depreciation; three methods)
On January 1, 2016, SugarBear Company acquired equipment costing $150,000, which will be depreciated on the assumption that the equipment will be useful for five years and have a residual value of $12,000. The esti- mated output from this equipment is as follows: 2016—15,000 units; 2017—24,000 units; 2018—30,000 units; 2019—28,000 units; 2020—18,000 units. The company is now considering possible methods of depreciation for this asset.
Required:
a. Calculate what the depreciation expense would be for each year of the asset’s life, if the company chooses:
i. The straight-line method
ii. The units-of-production method
iii. The double-diminishing-balance method
b. Briefly discuss the criteria that a company should consider when selecting a depreciation method.
In: Accounting
In April 2015, CEO Dan Price of Gravity Payments made a shocking announcement. Price, who is also founder and co-owner of Gravity, decided to cut his own salary by 93 percent, and then to use that money—along with a big chunk of corporate profits— to ensure that every single one of his employees makes a minimum of $70,000.1
The news was certainly welcomed by Gravity’s employees. (For the lowest-paid employees, the raise to $70k meant a doubling of their salaries.) And Price was widely applauded by commentators and on social media.
Price’s move was especially noteworthy in an era in which many CEOs have been criticized for accepting astronomically high levels of pay. In a 2015 article on executive compensation, Bloomberg.com reported,2 for example, that Elon Musk, the entrepreneurial CEO of Tesla Motors Inc., earned just over $100 million in 2014. But that’s far from the high end of executive compensation: The same article noted that Nicholas Woodman, CEO of GoPro Inc., had earned a whopping $285 million that year. Criticism of CEO pay has not focused solely on the absolute amount earned, but also on the ratio of CEO pay to what those CEOs’ employees are paid. According to the Bloomberg article, “The CEOs of 350 Standard & Poor’s 500 companies made 331 times more than their employees in 2013.”
Some people defend high levels of pay for CEOs, pointing out that the highest levels of compensation are achieved through stock options, which means that CEOs do well only when the value of the company’s stock goes up, a sign that the CEO is actually doing a good job. Others, however, are skeptical. As the Bloomberg article points out, “Stock options, once believed to align executives with shareholders because they appreciate when the stock price rises, are now derided for encouraging short-term financial engineering at the expense of long- term planning.” In other words, stock options encourage CEOs to find short-term ways to boost stock prices (such as reducing costs by cutting employees), even if those moves aren’t in the long-term interests of the company and its shareholders.
Let’s turn back to Price’s decision. Different people had different reactions to the decision. Some applauded it as a move toward justice or fairness in compensation. Others thought it was a savvy business move, aimed at producing better outcomes for Gravity Payments by motivating employees and gaining free publicity for the company. Still others thought it spoke well of Price’s character; to them, Price looked like what a good CEO ought to look like, in comparison to the greedy CEOs of so many other companies.
questions:
1. Do you think Dan Price is a hero? Why or why not?
2. Are there any further facts that you would want to know before making a judg- ment about this case?
3. GravityPaymentsisprivatelyownedbyDanPriceandhisbrother.IfGravitywere a publicly traded company with thousands of shareholders, would that change your view about the ethics of his decision? If so, in what way?
4. If you were an employee at Gravity Payments, already making $70,000, how would you feel about employees who made half what you make suddenly mak- ing the same amount as you?
In: Accounting
"Some people call this artificial intelligence, but the reality
is this technology
will enhance us. So instead of artificial intelligence, I think
we'll augment
our intelligence." Ginni Rometty, former CEO of IBM
Discuss the term “Augmented Intelligence” and what it means
for
introducing broadly the use of artificial intelligence capabilities
in key
functions of the company (e.g. Marketing, Sales, R&D, IT, and
Service).
(recommended to choose ByteDance, Vodafone,
Microsoft, TetraPak and Siemens as examples)
In: Operations Management
Campus Fast is a new audit client. Client Fast uses public WiFi
to place and deliver restaurant take out for students at the Up and
Coming State University. Campus Fast was founded by three highly
ambitious MBA students at the university. The business plan is to
find a buyer or place an IPO of the company by graduation in two
years. The founders expect to pay off all student loans, take a
tour around the world and then start another company. In order for
the business plan to work on the timeline for graduation, the
business must meet highly ambitious earnings numbers. Additionally,
the company is dealing with two situations that the founders would
like to keep from the auditors:
1) The company has been using free, unsecured public WiFi to take
orders via the Internet. The customer may pay via the Internet.
Several students, who all happen to be members of the same student
organization on campus, are claiming that using Campus Fast has
allowed their identity to be stolen. One student is claiming that
she had $12,000 of charges on her credit card to the unsecured
Internet site of Campus Fast. Management plans to pay off the
complaining students and keep the true liability off the balance
sheet. The reason is Campus Fast is concerned that an interested
buyer may become concerned about the unsecured site and might get
scared by the student complaints.
2) The company guarantees fast delivery. It has offered to pay any
speeding or other moving violation tickets to its delivery drivers.
Unfortunately, one of the drivers was involved in an accident due
to running a red light. The passenger in the other car is in
critical condition and the intensive care unit in the hospital. The
driver has promised the family of the passenger that the company
will make good on any expenses and admitted the company policy on
repaying all traffic tickets. Attorneys for the injured party are
threatening to sue and publicize the situation. The founders do not
have enough cash to take care of this problem but are still trying
to keep the situation from the auditors and potential buyer.
Using the internal control framework assess the internal controls
at Campus Fast and risk environment.
In: Accounting
Cheap-As-Dirt Rental Company advertises that the average cost of a rental they find for undergraduate students at the University of Oregon is $580 with a standard deviation of $75 (Let us assume the rents are approximately Normally distributed.) The Department of Consumer Protection will investigate the company if, when they choose a sample of students, they find that the average rental cost for those students is $610 or more. Assuming that the company is advertising truthfully, what is the probability that the company will be investigated if the Department of Consumer Protection samples 8 clients? (Round your answer to 4 decimal places, to the ten thousandths place.)vg
In: Statistics and Probability
QUESTION 4
CASE STUDY
Read the following case study and then answer the
questions.
A market darling falls to Earth: The EOH
Meltdown
Background
EOH was listed on the JSE in 1997. Over the next
twenty years it grew to one of the largest technology businesses on
the African continent.
By 2017 it operated in 36 countries in Africa and
internationally. It had grown its annual turnover to R15,4 bn rand
and was generally viewed as a highly successful company. In 2016
the share price peaked at R177 per share. Because of its
performance, EOH shares were included in most investment
portfolios, including that of pension funds.
However, within a mere four years, EOH's market value
has collapsed, falling from a peak of R20 billion in 2016 to just
R3 billion at present. This is reflected in the 92% plunge in its
share price, from R174.83 to R14.61. So, what has caused this
massive sell-off?
The first cracks begin to show
In 2016, EOH was thrust into a corporate scandal after
allegations of compliance and governance irregularities emerged,
involving various government departments such as Defence, Water and
Sanitation, as well as the South African Police Service and
eThekwini municipality, among others. The rumours in the market
almost instantly translated into a massive loss in shareholder
confidence.
The management of EOH tried to quell the market fears
with the following statement:
"The combination of the macroeconomic environment and
the adverse, unfounded media coverage that EOH received,
temporarily affected the group's position in the market. Despite
these market conditions all areas of the business coped very
well."
For the time-being, the management could hold things
together. By the time the 2017 Annual Results were finalized the
performance of the company did not reflect the negative market
perceptions. But the rumours persisted, and this prompted the
company to launch an internal investigation into public sector
contracts.
Unfolding events
In May 2017, EOH announced that its founder and chief
executive Asher Bohbot, will be stepping down at the end of June
2017 after 19 years as the CEO. Zunaid Mayet who previously worked
as chief executive of the EOH Industrial Technologies division
replaced Bohbot as Group CEO. Bohbot then became the chairman of
the Board.
In March 2018, EOH announced that it would split its
business into two new operating entities. Rob Godlonton was
appointed to head the new EOH subsidiary and the EOH CEO Zunaid
Mayet was relinquishing his role as group CEO to take the reins at
the newly created subsidiary Nextec. This created room for a new
CEO.
In June 2018 Africa News 24-7 reported that the
National Homebuilders Registration Council and the National
Treasury placed EOH on a database of restricted suppliers. It was
believed that the Registration Council requested for the company to
be blacklisted after a contract was breached.
It was further announced that two non-executive
directors will resign from the EOH Holdings board with effect from
1 July 2018: Lucky Khumalo and Johan van Jaarsveld, and that four
executive directors: Brian Gubbins, Rob Godlonton, Ebrahim Laher
and Jehan Mackay, will relinquish their positions in the Board to
focus on their executive roles in the business.
These resignations cleared the way for a new "more
balanced" independent Board to be appointed.
In September 2018 Stephen Van Coller was appointed as
the new CEO. This was followed by the appointment of several other
people to establish a new management team.
In February 2019, the software giant Microsoft served
EOH with notice that they will terminate their channel partner
contract with the EOH after an anonymous whistle-blower filed a
complaint with the United States Securities and Exchange Commission
(SEC) in November 2018. They alleged misconduct and corruption in
relation to a R120 million contract that was concluded with the SA
Department of Defence. Notice was served whilst Microsoft launched
their own investigation.
It was estimated that the loss of the Microsoft
contract would wipe several millions off the profit line of the
company. In response to this news EOH's share price fell a further
4.3% to R13.46. This meant that the share had lost 71% of its value
in the preceding 12 months and 90% in the preceding three years.
Also, in February 2019, EOH founder Asher Bohbot, announced that he
will be stepping down as the Board Chairman in the interest of
improved governance. At the same time two other longstanding
members of the Board also stepped down namely Rob Sporen, a
non-executive director and founding member of EOH, who has been
with the group for 20 years, and Tshilidzi Marwala, another
non-executive director who had served on the board for 11
years.
In the very same month (February 2019) the Board of
EOH requested a law firm; ENSafrica (ENS), to conduct a
comprehensive investigation into EOH contracts in order to identify
any wrongdoing or criminal conduct in the acquisition, award or
execution of those contracts.
Further developments and remedial
actions
In June 2019, Dr Xolani Mkhwanazi, was appointed as
the new Chairman to the Board.
In July 2019, the ENS report was released. Several
senior executives had handed in their resignations prior to the
release of the report.
Although the report was not released to the public,
EOH announced that the investigation by ENS had found evidence of
serious governance failings and wrongdoing at the company. These
included unsubstantiated payments, tender irregularities and other
unethical business dealings primarily limited to public sector
business run from its head office as well as EOH Mthombo, a
division of the company.
EOH announced that they have terminated the employment
relationships with individuals who have been directly implicated in
the identified wrongdoing and indicated that it had reported the
concerns and the details of those implicated to the Directorate for
Priority Crimes Investigation, known as the Hawks.
In August 2019 it was announced that two more
directors resigned from their positions.
What does the future hold?
In October 2019 during an interview, Van Coller (the
new CEO) indicated that the corruption that has tainted EOH related
to contracts entered into between 2014 and 2017. It involved eight
people and approximately 20 suppliers. Action had been instituted
against those implicated.
He further indicated that the Board was busy
developing a comprehensive remedial plan, with a number of
measures, some of which had already been implemented. The recent
appointments of a new board chairperson and three independent,
non-executive directors were important milestones for the group to
enhance and complement leadership capability and governance
oversight.
He also indicated that audit firm PWC assisted the
company with setting up an internal audit function while ENS had
helped implement an anti-bribery programme based upon the
International Standard for Anti Bribery Management
Systems.
One question however remains, can a company such as
EOH survive this ordeal and will the remedial actions be enough to
steer EOH to more peaceful waters? Only time will tell.
Adapted from various newspaper
articles.
4.1 Explain why the events leading up to the
appointment of a new CEO and Chairman to the Board of EOH can be
seen as a breakdown in corporate governance. (4)
4.2 Identify/name four (4) stakeholders of EOH and
indicate how their interests were compromised by the unfolding
events and the drop in the share price. (8)
4.3 Identify and describe four (4) principles listed
by King IV which should have guided the Board of EOH, but which was
somehow compromised. This could relate to mistakes or failures by
the board or management of EOH. (8)
4.4 Will the shareholders of EOH have a possible claim
or legal recourse against the Board members who served between
2016-2018 for the fact that the value of their investments was
destroyed? In other words, can the Board be held liable?
(5)
In: Finance
Elegant Constructions is a construction company which
was established in the year 2020. Ms. Adeela is the founder of the
company. The company is involved in the construction of excellent
quality buildings which had aesthetic elevations and appearance.
Elegant Constructions Company became popular in Rustaq region in
the Sultanate of Oman. Like all other companies, this new company
also should get their financial statements audited. The financial
statements and all other operations of the company was checked and
verified by Ms. Zeenat, the head of Marketing Department who is
very knowledgeable and has more 15 years of experience. The
shareholders of the company and the audit committee decided to
appoint Smart Audit Services as the auditors for the company.
Answer the following questions:
Identify the type of assurance engagement between
Elegant Constructions and Smart Audit Services and Justify by
explaining.
‘Auditing and assurance are parts of the same process
of verifying the information on the company’s accounting records
for accuracy and compliance with the accounting standards and
principles’- Explain.
C. Differentiate the audit services of Ms. Zeenat, the head of
Marketing Department and Smart Audit Services, the auditors of the
company.
In: Accounting
ABC, Inc. acquired 15% of EFG Corporation on January 1, 2019, for $125,000 when the book value of EFG's net assets was $950,000. During 2019, EFG reported net income of $530,000 and paid dividends of $40,000. On January 1, 2020, ABC purchased an additional 15% of EFG for $550,000. Any excess of cost over book value was attributable to goodwill (No amortization). On that same date, ABC changed to the equity method. During 2020, EFG reported net income of $730,000 and paid dividends of $90,000.
Required:
A. What type and amount of income(s) did ABC record from EFG in 2019?
B. What type and amount of income(s) did ABC record from EFG in 2020?
C. What was the balance in the Equity Investment in EFG account at December 31, 2020?
In: Accounting