Exercise 9-12

Kirkland Company combines its operating expenses for budget purposes in a selling and administrative expense budget. For the first 6 months of 2020, the following data are available.

Prepare a selling and administrative expense budget by quarters for the first 6 months of 2020. (List variable expenses before fixed expense.)

KIRKLAND COMPANY
Selling and Administrative Expense Budget

Income Statement

For the Year Ended December 31, 2018

Sales                                                               $8,500,000

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.

Free cash flow valuation   Nabor Industries is considering going public but is unsure of a fair offering price for the company. Before hiring an investment banker to assist in making the public​ offering, managers at Nabor have decided to make their own estimate of the​ firm's common stock value. The​ firm's CFO has gathered data for performing the valuation using the free cash flow valuation model.

The​ firm's weighted average cost of capital is

13 %

and it has

$2,480,000

of debt at market value and

$500,000

of preferred stock at its assumed market value. The estimated free cash flows over the next 5​ years, 2016 through​2020, are given in the​ table,

. Beyond 2020 to​ infinity, the firm expects its free cash flow to grow by

5 %

annually.

a.  Estimate the value of Nabor​ Industries' entire company by using the free cash flow valuation

model.

a.  The value of Nabor​ Industries' entire company is

​$ 4,969,043 nothing

b.  Use your finding in part

a​,

along with the data provided​ above, to find Nabor​ Industries' common stock value.

b.  The value of Nabor​ Industries' common stock is

​$ ? nothing.

​(Round to the nearest​ dollar.)

Answer the question:
Some IT security personnel believe that their organizations should employ former computer criminals to identify weaknesses in their organizations’ security defenses. Do you agree? Why or why not?

Notes:
answer by using your own words, please.
the name of the course is "Professional Computing Issues."

Discuss an attitude you had about a group of people prior to having direct contact with them. Describe the process you went through. How long did it take you to change your mind? Did you have any feelings about your former attitudes?

Accounting for share capital

Rippa Ltd was incorporated on 1 July 2017. The following transactions and events occurred during the year ended 30 June 2018:

1 Jul 2017: Rippa Ltd makes an offer to the public for investors to subscribe for 5,000,000 shares, at an issue price of $4.00 per share, with $2.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $12,000.

31 Jul 2017: Applications close, with applications received for 6,000,000 shares.

10 Aug 2017: 5,000,000 shares are allotted in proportion to the number of shares for which applications had been made. The surplus application money is offset against the amount payable on allotment.

12 Aug 2017: The underwriter’s commission is paid.

10 Sep 2017: All allotment money is received.

1 Feb 2018: The call is made, with money due by 28 February 2018.

28 Feb 2018: All call money is received except for holders of 40,000 shares who fail to meet the call.

20 Mar 2018: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $3.20 is received for each share sold. Costs of the forfeiture and reissue amount to $4,000, and are paid.

25 Mar 2018: The balance of the Forfeited Shares Account is returned to the former shareholders.

Required:

i) Prepare the journal entries to record the transactions of Rippa Ltd up to and including that which took place on 25 March 2018. Show all relevant dates and narrations.

ii) After returning money to the former shareholders on 25 March 2018, one of the former shareholders has contacted you in relation to the amount of money that he received. He tells you that he paid the application money and allotment money for the shares that he had, so he should get an amount back of $3.50 per share. Explain why the amount returned to the former shareholders was not $3.50 per share, and prepare workings to show how the refund per share was calculated.

Rippa Ltd was incorporated on 1 July 2017. The following transactions and events occurred during the year ended 30 June 2018:

1 Jul 2017: Rippa Ltd makes an offer to the public for investors to subscribe for 5,000,000 shares, at an issue price of $4.00 per share, with $2.50 payable on application, $1.00 being payable within one month of allotment, and $0.50 payable on a call to be made at a later date. The issue is underwritten at a commission of $12,000.

31 Jul 2017: Applications close, with applications received for 6,000,000 shares.

10 Aug 2017: 5,000,000 shares are allotted in proportion to the number of shares for which applications had been made. The surplus application money is offset against the amount payable on allotment.

12 Aug 2017: The underwriter’s commission is paid.

10 Sep 2017: All allotment money is received.

1 Feb 2018: The call is made, with money due by 28 February 2018.

28 Feb 2018: All call money is received except for holders of 40,000 shares who fail to meet the call.

20 Mar 2018: The shares on which call money was not received are forfeited and sold as fully paid. An amount of $3.20 is received for each share sold. Costs of the forfeiture and reissue amount to $4,000, and are paid.

25 Mar 2018: The balance of the Forfeited Shares Account is returned to the former shareholders.

Required:

i) Prepare the journal entries to record the transactions of Rippa Ltd up to and including that which took place on 25 March 2018. Show all relevant dates and narrations.

ii) After returning money to the former shareholders on 25 March 2018, one of the former shareholders has contacted you in relation to the amount of money that he received. He tells you that he paid the application money and allotment money for the shares that he had, so he should get an amount back of $3.50 per share. Explain why the amount returned to the former shareholders was not $3.50 per share, and prepare workings to show how the refund per share was calculated.

Case:

Carl Kelly is an American transpatriate assigned to Motorola’s facility in a former USSR satellite nation in Eastern Europe, called Ruritania. Carl has found that Ruritanian culture strange and experienced a bit of culture shock, which explains why he arranged to have his wife Kathleen join him as soon as possible. Kathleen arrived in Ruritania 10 months ago, eagerly looking forward to spending more time with Carl than was possible back in Florida. She was rudely surprised. In those 10 months she was able to spend “quality” time with him on exactly 7 weekends!

Then came some good news. Last month Carl was told that for the next four weeks you would be assigned to Surabaya, Indonesia. Kathleen, who had a long-standing interest in Javanese arts, wanted to go along. That way, on weekdays she could enjoy local music, dance, drama, painting and sculpture, and on weekends she and Carl could finally snatch some quality time together in nearby Bali.

But there was a problem. All three of the Kelly children were in college, and their combined tuition payments were huge financial burden, making it difficult to afford Kathleen’s airfare to Indonesia.

Yaroslav, a Ruritanian colleague of Carl’s, offered to help them out. Yaroslav got in touch with Easy Virtue Travel, a most obliging local company. That evening Easy Virtue delivered to round-trip coach tickets to Surabaya for Carl and Kathleen, along with a bill for just one round trip “business-class” passage for Carl. This way, Carl would bill Motorola for business-class reimbursement, while he and Kathleen would fly coach. Carl would be personally out-of-pocket only an extra $27.94 for Kathleen’s seat. “Not bad,” exclaimed Carl. “That will make up for all of those lonely weekends,” added an eager Kathleen.

That night, though, Carl had trouble sleeping. “Deserve it or not, this is probably against some corporate regulation. I better check with Sam.”

Sam Smoothover was Motorola’s HR manager for Ruritania. Sam had long experience in the former satellite countries and suspected that local Ruritania travel agencies often did things that were technically frowned upon by foreigners, yet actually humane in their consequences. Sam also enjoyed an enviable reputation for putting the well-being of Motorolans high on his list of value priorities – certainly higher than formal compliance with the details of regulations set by headquarters 4,000 miles away.

Sam’s reaction was, “Okay, Carl, you and Kathleen make the trip this time. I just don’t go around talking to people about it.”

However, a few days later Sam had his own second thoughts and decided to check with corporate officials in Schaumburg, just to make sure it really was okay.

Additional information for the case:

Motorola allows for business travel for any trip over five hundred miles so Carl could travel with a business class ticket. The home office also recognizes that the Ruritania assignment is difficult given the primitive living conditions there and that unlike several of his predecessors Carl has done an exceptional job meeting the requirements of the company.

Answer the following questions.

1.         What is the issue?

2.         Do you think that the travel plan for Carl and his wife appropriate? Why?

3.         What are your thoughts regarding Sam Smoothover's response to Carl? What would you have done?

Read the following:

TOKYO — Prosecutors in Japan on Monday indicted Carlos Ghosn, the former chairman of Nissan Motor, and the auto company itself on charges that they had violated financial laws by underreporting Mr. Ghosn’s compensation.

Mr. Ghosn, once among the auto industry’s most respected executives, was arrested three weeks ago by the Japanese authorities. The allegations have upended a carmaking empire that includes Nissan and Mitsubishi Motors in Japan and Renault in France.

In addition to the formal charges announced Monday, which cover allegations related to actions from 2011 to 2015, the authorities rearrested Mr. Ghosn on similar charges stemming from a subsequent period. Mr. Ghosn, 64, has been held in detention in Tokyo since his arrest on Nov. 19.

Motonari Otsuru, a lawyer for Mr. Ghosn, could not immediately be reached for comment.

In response to the indictment, Nissan said in a statement that it would strengthen its compliance efforts. It did not deny the charges.

“Nissan takes this situation extremely seriously,” the statement said. “Making false disclosures in annual securities reports greatly harms the integrity of Nissan’s public disclosures in the securities markets, and the company expresses its deepest regret.”

On Tuesday, a Tokyo court approved keeping Mr. Ghosn in detention until Dec. 20.

Prosecutors also indicted Greg Kelly, a former Nissan human resources manager and a member of the company’s board. Mr. Kelly, through his lawyer, Yoichi Kitamura, has denied wrongdoing. Mr. Kelly, like Mr. Ghosn, was rearrested Monday, on allegations that he helped Mr. Ghosn underreport his compensation.

Nissan has said it uncovered misconduct by Mr. Ghosn that included underreporting his compensation and using company funds for personal expenses. In a news conference held the night Mr. Ghosn and Mr. Kelly were initially arrested, Hiroto Saikawa, Nissan’s chief executive, said Mr. Kelly “has been determined to be the mastermind of this matter, together with Carlos Ghosn.”

According to the indictment, Mr. Ghosn and Mr. Kelly understated Mr. Ghosn’s earnings from 2011 to 2015 by half in securities filings: 4.99 billion yen ($44.3 million) compared with 9.86 billion yen ($88.4 million), including bonuses. Nissan was indicted on charges of having misstated Mr. Ghosn’s compensation in filings with the financial authorities.

Nissan, which conducted an internal inquiry into the alleged financial underreporting, removed Mr. Ghosn as chairman shortly after he was arrested and removed Mr. Kelly as executive director.

Mr. Ghosn was also removed from a similar position at Mitsubishi Motors. He remains chairman of Renault, but the French company has appointed Thierry Bolloré, its chief operating officer, to assume Mr. Ghosn’s day-to-day responsibilities.

In a new arrest warrant issued Monday, Tokyo prosectors said Mr. Ghosn and Mr. Kelly conspired to understate Mr. Ghosn’s pay in securities filings from June 2016 to June 2018. In the fillings, Mr. Ghosn’s compensation for the period was reported as 2.9 billion yen ($25.7 million). Prosecutors said they were investigating allegations that Mr. Ghosn was actually paid 7.17 billion yen ($63.6 million).

Prosecutors have yet to address allegations contained in Nissan’s internal report that Mr. Ghosn misused company funds for personal use.

A Nissan spokesman confirmed that the company had barred Mr. Ghosn’s family from a home the company bought for him in Rio de Janeiro.

“We believe that they would attempt to remove or destroy evidence,” said Nicholas Maxfield, a Nissan spokesman at the company’s headquarters in Yokohama. “And some of that evidence would be fairly incriminating.”

Legal experts in Japan said it was common for prosecutors to indict companies alongside individuals in financial crime cases.

“In this case it makes perfect sense,” said David Litt, a professor at Keio University Law School in Tokyo. “It would have been very hard for him to hide this without a number of people in the company knowing about it.”

Use economic analysis to explain the issue with INCENTIVE COMPENSATION in the article?

Three former college classmates have decided to pool a variety of work experiences by opening a store near campus to sell wireless equipment to students. The business has been incorporated as University Wireless.

Required: Several transactions occurred in March. Each is described separately in this folder. For each transaction, indicate the accounts that are affected, whether they increase or decrease, and the amount of the increase or decrease.

YOU MUST FOLLOW THE INSTRUCTIONS BELOW. IF YOU DON'T, YOU MAY KNOW THE CORRECT ENTRY BUT THE COMPUTER WILL NOT RECOGNIZE IT AND YOU WILL NOT RECEIVE CREDIT.

1. After each transaction description, there are several "Account" submission boxes and corresponding "Amount" submission boxes. To indicate the accounts that you think are affected, choose them from the drop-down menu. But you MUST select them in the order that they are listed in the menu. FOR EXAMPLE, if you think that Cash and Inventory are affected by a particular transaction, you must record the Cash impact first and the Inventory impact second because that is the order in which they are listed in the drop-down menu. If you record the Inventory impact first and the Cash impact second, even if they are the correct accounts and even if you have the correct dollar amounts, your answer will be considered incorrect.
2. When you record the dollar amounts, be sure to use a minus sign to indicate a decrease in the account. You don't need to use a plus sign to indicate an increase.
3. There are always more "Account" and "Amount" submission boxes available than are necessary. When you have indicated all the accounts that are affected by the transaction, you MUST select "Leave Blank" from the drop-down menu for EACH of the remaining "Account" submission boxes (you can leave the "Amount" boxes blank).
4. For transactions 3, 4, 5, and 8, you are given additional instructions. Read them carefully.

Transaction 1

On March 1, the three classmates opened a checking account for The Wire at a local bank. They each deposited $22,000 in exchange for shares of stock. A few of their friends also purchased stock for $13,000 that was deposited in The Wire account.

Transaction 2

The company quickly acquired $36,000 in inventory, 40% of which was acquired on open accounts that were payable after 30 days. The rest was paid for in cash.

Transaction 3

A one-year store rental lease was signed on March 1 for $1,000 per month, and rent for the first 3 months was paid in advance. [Note: Record the complete entry for the March 1 transaction first and the complete adjusting entry on March 31 second.]

Transaction 4

The owners paid $4,000 for website advertising. They were able to get a good deal because one of the company's owners also owns stock in the website company. The owners also paid $6,500 for some advertising in local newspapers. [Note: Combine both transactions into one entry].

Transaction 5

Sales were $76,000. Cost of merchandise sold was 55% of sales. 25% of sales were for cash. [Note: Record the complete entry for the sales first and the complete entry for the expenses second]

Transaction 6

Wages and salaries in March were $11,500, of which $8,000 was actually paid to employees.

Transaction 7

Miscellaneous expenses were $1,800, all paid for with cash.

Transaction 8

On March 1, fixtures and equipment were purchased for $6,000 with a downpayment of $1,500 and a $4,500 note, payable in one year. Interest of 5.5% per year was due when the note was repaid. The estimated life of the fixtures and equipment is 10 years with no expected salvage value. [Note: Record the complete entry for the March 1 equipment purchase first, the March 31 depreciation adjusting entry second, and the March 31 interest adjusting entry third. Also, round all answers to the nearest cent.]

Transaction 9

Cash dividends totaling $5,000 were paid to stockholders on March 31.

Basic set up looks like this:

Account: Account: Account: Account: Account: Dolla

Account Options: Cash, Accounts Receivable, Inventory, Prepaid Rent, Fixtures and Equipment, Accounts Payable, Interest Payable, Wages Payable, Notes Payable, Paid-in Capital, Retained Earnings, Leave Blank