Question 2:
Suppose that you are hired as a consultant to a large retail chain of apparel stores. As the company has grown, the CEO (also the owner) and the stock analysts who follow the company have noticed that the newly opened stores are not meeting sales projections. The CEO wants you to find out what is causing this problem and fix it. You do investigation and learn that the business development managers in the company are responsible for finding new store locations and negotiating leases with property owners. The company rewards the business development managers with stock options, provided that they open 5 new stores in a single year. Each new store is expected to have potential sales of at least $2 million per year. However those newly open stores can only achieve half of this amount. As a consultant, you are required to answer following questions.

1. Describe the principal-agent relationship. Who is making the bad

   decisions? Explain.

2. Do the agents have enough information to make a good decision?

   Explain.

3. Do the agents have incentives to make a good decision? Explain.

4. Based on your answers to (a), (b) and (c), discuss the centralization

   and decentralization solutions to resolve the principle-agent conflicts.

5. Based on your answer to (d), what solution will you propose. Justify

your choice.

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,100,000. San Antonio paid $350,000 and signed a noninterest-bearing note requiring the company to pay the remaining $750,000 on March 28, 2020. An interest rate of 8% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $35,000 were paid at closing.

During April, the old building was demolished at a cost of $85,000, and an additional $65,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

May 1 $ 3,450,000 July 30 2,250,000

September 1 1,800,000

October 1 2,700,000

San Antonio borrowed $5,700,000 at 8% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

$3,500,000, 9% long-term note payable

$5,500,000, 6% long-term bonds payable

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $750,000. The fair values of the equipment and the furniture and fixtures were $595,000 and $255,000, respectively. In December, San Antonio paid a contractor $360,000 for the construction of parking lots and for landscaping.

Required: Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.  How much interest expense will San Antonio report in its 2018 income statement?

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,200,000. San Antonio paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $800,000 on March 28, 2020. An interest rate of 9% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $40,000 were paid at closing.
   
During April, the old building was demolished at a cost of $90,000, and an additional $70,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $6,700,000 at 9% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $675,000 and $225,000, respectively. In December, San Antonio paid a contractor $385,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?

arly in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,200,000. San Antonio paid $400,000 and signed a noninterest-bearing note requiring the company to pay the remaining $800,000 on March 28, 2020. An interest rate of 9% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $40,000 were paid at closing.
   
During April, the old building was demolished at a cost of $90,000, and an additional $70,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $6,700,000 at 9% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $800,000. The fair values of the equipment and the furniture and fixtures were $675,000 and $225,000, respectively. In December, San Antonio paid a contractor $385,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?
  

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $820,000. San Antonio paid $210,000 and signed a noninterest-bearing note requiring the company to pay the remaining $610,000 on March 28, 2020. An interest rate of 6% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $21,000 were paid at closing.
   
During April, the old building was demolished at a cost of $71,000, and an additional $51,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $3,000,000 at 6% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $610,000. The fair values of the equipment and the furniture and fixtures were $426,000 and $284,000, respectively. In December, San Antonio paid a contractor $290,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?

Conscientiousness is a trait which implies discipline, dependability, and a heightened sense of personal responsibility. A school administrator wants to compare conscientiousness between high school and university students. He recruits 10 university and 15 high school students and measures their conscientiousness scores on a scale from 1 to 20 where 20 indicates greater conscientiousness. The university students have a mean conscientiousness score of 10 with a standard deviation of 1.5. The high school students have a mean conscientiousness score of 8 with a standard deviation of 1.7. In addition, standard error = .646. Is there a difference in conscientiousness between high school and university students?

a. Identify the IV, IV levels, and DV.

IV:
Levels:
DV:

b. Is this experiment a paired-samples or independent-samples design?

c. State null and alternative hypotheses in words.

H₀:
H₁:

d. Conduct a statistical test of the hypothesis

t( ) =

e. Decide whether to reject or retain the null hypothesis.

f. Interpret your results.

Conscientiousness is a trait which implies discipline, dependability, and a heightened sense of personal responsibility. A school administrator wants to compare conscientiousness between high school and university students. He recruits 10 university and 15 high school students and measures their conscientiousness scores on a scale from 1 to 20 where 20 indicates greater conscientiousness. The university students have a mean conscientiousness score of 10 with a standard deviation of 1.5. The high school students have a mean conscientiousness score of 8 with a standard deviation of 1.7. In addition, standard error = .646. Is there a difference in conscientiousness between high school and university students?

a. Identify the IV, IV levels, and DV.

IV:
Levels:
DV:

b. Is this experiment a paired-samples or independent-samples design?

c. State null and alternative hypotheses in words.

H₀:
H₁:

d. Conduct a statistical test of the hypothesis

t( ) =

e. Decide whether to reject or retain the null hypothesis.

f. Interpret your results.

Headquartered in Toronto, Indigo Books & Music Inc. (TSX: IDG) is Canada’s largest book retailer and the third largest in North America. The following information was taken from the management discussion and analysis section of the company’s March 31, 2020, annual report (in thousands):

Additional information from the company’s annual report:

1. Inventories are valued at the lower of cost, determined using a moving average cost formula, and market, being net realizable value. Under this method, inventory is recorded at the level of the individual article (stock-keeping unit or SKU).

2. Costs include all direct and reasonable expenditures that are incurred in bringing inventories to their present location and condition. Vendor rebates are recorded as a reduction in the price of the products and corresponding inventory is recorded net of vendor rebates.

3. The average cost of an article is continually updated based on the cost of each purchase recorded in inventory. When the company permanently reduces the retail price of an item, there is a corresponding reduction in inventory recognized in the period if the markdown incurred brings the retail price below the cost of the item.

4. The amount of inventory write-downs as a result of net realizable value lower than cost was $10.3 million in 2020 ($7.3 million in fiscal 2019), and there were no reversals of inventory write-downs that were recognized in 2020 or in prior

periods. The amount of inventory at March 31, 2020 with net realizable value equal to cost was $1.7 million ($2.3 million at March 31, 2019).

(a) Calculate the company’s inventory turnover and days sales in inventory ratios for 2020 and 2019. Comment on whether Indigo’s management of its inventory improved or weakened in fiscal 2020.  

(b) Does Indigo follow the lower of cost or net realizable value rule? Did the application of this rule have any effect on 2020 results? Explain

(c) Indigo uses the average cost formula to account for its inventories. A major competitor, Amazon Inc., uses the FIFO cost formula to account for its inventories. What difficulties would this create in comparing Indigo’s financial results with those of Amazon? Explain.  

On January 1, 2020, Marigold Company purchased 12% bonds having a maturity value of $270,000, for $290,470.00. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Marigold Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

1.Prepare the journal entry at the date of the bond purchase.

2.Prepare a bond amortization schedule.

3.Prepare the journal entry to record the interest revenue and the amortization at December 31, 2020.

4.Prepare the journal entry to record the interest revenue and the amortization at December 31, 2021.

Nash Company includes one coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, Nash Company purchased 8,000 premiums at 75 cents each and sold 105,000 boxes of soap powder at $3.20 per box; 41,000 coupons were presented for redemption in 2020. It is estimated that 60% of the coupons will eventually be presented for redemption. Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2020. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit