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

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.  

Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

Revenues—East $ 870,000
Revenues—West 1,034,000
Revenues—Central 1,880,000
Operating Expenses—East 565,700
Operating Expenses—West 621,360
Operating Expenses—Central 1,174,660
Corporate Expenses—Shareholder Relations 150,000
Corporate Expenses—Customer Support 350,000
Corporate Expenses—Legal 264,000
General Corporate Officers’ Salaries 281,000

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

East West Central
Number of customer contacts 3,000 4,000 7,000
Number of hours billed 1,300 2,160 2,040

Required:
1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.
2. Identify the most successful division according to the profit margin. Enter percentage rounded two decimal places (e.g. 0.22547 is 22.55%).
3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? What is a major weakness of the present method?

Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Shareholder Relations Department and general corporate officers’ salaries are not controllable by division management. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

ructions

Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

Discuss factors that an external auditor should consider in assessing the risk of fraudulent financial reporting committed by a public company CFO or CEO. In discussing this topic, please consider risks of fraudulent financial reporting that are related to the fraud triangle (i.e., incentive/pressure, opportunity, and rationalization.). Also, research factors that the PCAOB and the AICPA identify as fraudulent financial reporting risks.

Jack Dorsey (CEO of Twitter & Square) is donating $1 Billion of stock in Square to support the COVID-19 relief. However, he is doing it through an LLC, not directly to a non-profit to retain control of voting rights with his company and not have to pay capital gains on his donation. Do a bit of research on the topic and especially the ethical aspect of the transactions.