Problem 6-18A Alternative cost flows—periodic LO8

Synergy Company began 2020 with 20,000 units of Product X in its inventory that cost $7.70 per unit, and it made successive purchases of the product as follows:

The company uses a periodic inventory system. On December 31, 2020, a physical count disclosed that 16,000 units of Product X remained in inventory.

Required:
1. Calculate the number and total cost of the units available for sale during 2020.

2. Prepare calculations showing the amounts that should be assigned to the 2020 ending inventory and to cost of goods sold, assuming:

a. FIFO

b. Weighted average cost basis. (Round the "Average cost per unit" answer to 2 decimal places.)

Be the Banker, Smith Carson Limited

Smith Carson Limited, located in Ottawa, ON, is a thriving t-shirt manufacturer that is also involved in screen printing. It has a strong balance sheet with moderate debt, reflecting the conservative nature of its management. Total revenues are CAD 25 million.

The company supplies two major Canadian retailers that make up about 60% of its annual turnover.  The remainder of its sales are spilt between the export market (25%) and smaller independent retailers/single outlets (15%).

Smith Carson’s CFO requested a meeting with your bank, which began with a discussion of the following 2 new business opportunities.

1.Smith Carson currently purchases a large volume of raw materials from the Hong Kong and Singapore. Smith Carson normally does its own manufacturing but it has now found a very reliable supplier in Singapore, Fabrics R Us Inc. Fabrics R Us has much cheaper labour costs and are able to produce a lower cost, high quality Tshirt. Smith Carson is interested in sourcing from Fabrics R Us on a trial basis.

2.Following a recent business trip to HK, Smith Carson identified a company called Top Brands Corp in Bristol, which indicated that they are prepared to buy high quality shorts from Smith Carson.

As a result of these 2 opportunities, it is now Smith Carson’s intention to sell Top Brands, the shirts manufactured by Fabrics R Us.

Smith Carson still plans to take delivery of the shirts so that they can screen print designs on them before shipping to Top Brands.

Sales contracts and purchase orders are close to being signed between Smith Carson and the two foreign companies.  The basic terms of sale are that Fabrics R Us will supply on a prices basis of $1 per shirt CIF Toronto Port and Top Brands will purchase the shirts for $7 FOB Toronto port.

The initial contract will be for 200 shirts, with many future contracts to follow if all goes well.

Smith Carson wants to take advantage of this opportunity given the huge profit margin and it hopes to develop these two relationships into ongoing sales. There are a number of issues closing, and Smith Carson’s current Bank is unable to come to an acceptable solution.

1-

As this is Fabrics R Us’ first transaction with Smith Carson, it prefers payment in advance, particularly as the good are being shipped by air. Its reasoning is that since Smith Carson is shown as consignee, once shipped the goods will no longer be under Fabric R Us’ control.

However to make this transaction more appealing, Fabrics R Us is prepared to ship the t-shirts so that they arrive 30 days after the signing of the contracts provided that at that time, they have an assurance of getting guaranteed immediate sight payment of 100% of CIF value ($200,000) before letting the goods leave their control. Fabrics R Us will ship the full 200,000 shirts in one shipment.

2-

Top Brands is an extremely credit worthy company that normally imports on open account. Its other suppliers are in the practice of giving them N45 credit terms. To help close this deal Smith Carson will have to do the same. In accordance with Top Brands expected credit terms, this 6 week credit period will be calculated from the time Smith Carson makes shipment of the goods.

3-

At your meeting you obtain the following information. Screen printing, packing and shipment of the t-shirts to Bristol will take a maximum of 50 days from receipt of the shirts from Fabrics R Us.

Smith Carson is mainly concerned with cash flow. Given the industry most of Smith Carson’s sales are sold on terms unfavorable to their cash flow. This causes financial stress on the mgmt of Smith Carson. While they generally have enough money to meet current contracts, this new foreign export contract will stretch their cash flow too far. Smith Carson is looking to you to help complete this very important transaction.

TASK 1: Using the table below, and for each commercial contract, identify which methods of payment could be used in the contract between Smith Carson& Fabrics R Us and between Smith Carson& Top Brands Corp. Once you have completed the charts, discuss what risk your bank could be exposed to and then decide what payment term you (as the bank manager) are comfortable authorizing for Smith Carson and why.

TASK 2: Construct a timeline for the transaction. Starting at contract signing, continuing for the period covering Smith Carson’s inventory and ending with Top Brands pays out. - How many days will this transaction take from production to payment? - If you were to issue a sight or usance LC, how many days will Smith Carson be waiting for payment?

5. Explain the Principal-Agent problem in private enterprises. Cite an example or two to show the seriousness of the problem in even some of the biggest North American businesses. How does a Japanese CEO differ from his North American counterpart?

Is it better for a firm's actual stock price in the market to be under, over, or equal to its intrinsic value? Would your answer be the same from the standpoints of stockholders in general and a CEO who is about to exercise a million dollars in options and then retire? Explain.

Is it better for a firm's actual stock price in the market to be under, over, or equal to its intrinsic value? Would your answer be the same from the standpoint of stockholders in general and a CEO who is about to exercise a million dollars in options and then retire? Explain.

At the beginning of 2020, Braun Corporation had the following stockholders’ equity balances in its general ledger:
Common Stock, $10 Par Value $400,000

Paid-In Capital in Excess of Par: Common $600,000

Paid-In Capital, Treasury Stock $5,000

Paid-In Capital, Stock Options    $200,000

Retained Earnings    $1,200,000

Treasury Stock (5,000 shares) $(100,000)

_____________________________________

Total Stockholders’ Equity $2,305,000

The paid-in capital from stock options relates to options granted on 1/1/12 to the CEO as incentive compensation. As of 1/1/20, the remaining expected benefit period is four years; expense has been and will be recorded evenly over the benefit period.
The following events were among the many occurring in 2020:
a. January 2: Purchased 5,000 shares of its common stock for $16 per share. Braun uses the cost method of accounting for treasury stock transactions.
b. February 1: Declared and distributed a 10% stock dividend on common stock outstanding when the market price of the stock was $13 per share.
c. April 1: Issued 20,000 shares of $50 par, noncumulative, convertible 6% preferred stock for $60 per share, where one share of preferred stock is convertible into two shares of common stock.
d. July 1: 2,000 shares of treasury stock that had been purchased in a prior year for $21 per share were re-issued for $12 per share.
e. August 1: Holders of 8,000 shares of the preferred stock converted their shares into common stock when the market value of the common stock was $22 per share. Braun uses the book value method of accounting for conversions.
f. October 1: Declared and paid a cash dividend of $3 per share on the outstanding common stock.
g. November 1: Corrected an error that was made several years ago, when land that had been purchased for $60,000 was inadvertently expensed.
h. December 1: Declared and distributed a property dividend of land to preferred shareholders. The land had a fair value of $75,000 and a carrying value of $80,000.
i. December 31: Recorded 2020 compensation expense related to the stock options.

The 2020 Final Net Income, including the effects of any net income items listed above (and the 2020 tax effects on net income items), was $1,000,000. There were 500,000 shares authorized for both preferred and common stock.

Required: 1. All journal entries for the items (a. through i.) above.
2. The 12/31/20 Stockholders’ Equity section.

Assume that there are only two countries in the world: USA and Brazil, so all international transactions are only between those two countries. The table gives the information regarding international transactions of USA in 2018:

1. Calculate the US trade balance
2. Calculate the US current account balance
3. Calculate the US financial account balance
4. Was the United States a net borrower or a net lender? Explain your answer.
5. Assume that an exchange rate of USD increased from 3.14 Brazilian Reals to 4.62 Brazilian Reals for 1 USD. Explain how this change may affect the US trade balance, current account balance, and the financial account balance.

Assume that there are only two countries in the world: USA and Brazil, so all international transactions are only between those two countries. The table gives the information regarding international transactions of USA in 2018:

1. Calculate the US trade balance
2. Calculate the US current account balance
3. Calculate the US financial account balance
4. Was the United States a net borrower or a net lender? Explain your answer.
5. Assume that an exchange rate of USD increased from 3.14 Brazilian Reals to 4.62 Brazilian Reals for 1 USD. Explain how this change may affect the US trade balance, current account balance, and the financial account balance.

At December 31, 2020, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows

Depreciation methods and useful lives:
Buildings—150% declining balance; 25 years.
Equipment—Straight line; 10 years.
Automobiles and trucks—200% declining balance; 5 years, all acquired after 2017.
Leasehold improvements—Straight line.
Land improvements—Straight line.

Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2021 and other information:

1. On January 6, 2021, a plant facility consisting of land and building was acquired from King Corp. in exchange for 35,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $60 a share. Current assessed values of land and building for property tax purposes are $255,000 and $595,000, respectively.
2. On March 25, 2021, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $252,000. These expenditures had an estimated useful life of 12 years.
3. The leasehold improvements were completed on December 31, 2017, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2023, was renewable for an additional four-year term. On April 30, 2021, Cord exercised the renewal option.
4. On July 1, 2021, equipment was purchased at a total invoice cost of $335,000. Additional costs of $11,000 for delivery and $60,000 for installation were incurred.
5. On September 30, 2021, Cord purchased a new automobile for $13,500.
6. On September 30, 2021, a truck with a cost of $25,000 and a book value of $11,000 on date of sale was sold for $12,500. Depreciation for the nine months ended September 30, 2021, was $2,475.
7. On December 20, 2021, equipment with a cost of $22,000 and a book value of $3,225 at date of disposition was scrapped without cash recovery

For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2021. (Do not round intermediate calculations. Round your final answers to nearest whole dollar.)

Sometimes, a consolidated statement of financial position does not show a figure in respect of non-controlling interest, which of the following shows the reason of this situation?
A.None of the subsidiaries were acquired as going concerns.
BThe group has no associated undertakings.
CThe parent company has a widespread shareholding.

D Entire subsidiaries are wholly owned by the parent company