DeSoto Tools Inc. is planning to expand production. The expansion will cost $3,000,000, which can be financed either by bonds at an interest rate of 8 percent or by selling 60,000 shares of common stock at $50 per share. The current income statement before expansion is as follows:

After the expansion, sales are expected to increase by $1,600,000. Variable costs will remain at 20 percent of sales, and fixed costs will increase to $1,370,000. The tax rate is 30 percent.

a. Calculate the degree of operating leverage, the degree of financial leverage, and the degree of combined leverage before expansion. (For the degree of operating leverage, use the formula: DOL = (S − TVC) / (S − TVC − FC). For the degree of combined leverage, use the formula: DCL = (S − TVC) / (S − TVC − FC − I). These instructions apply throughout this problem.) (Round your answers to 2 decimal places.)
  

b. Construct the income statement for the two alternative financing plans. (Round EPS to 2 decimal places.)
  

c. Calculate the degree of operating leverage, the degree of financial leverage, and the degree of combined leverage, after expansion. (Round your answers to 2 decimal places.)
  

Many freeways have service (or logo) signs that give information on attractions, camping, lodging, food, and gas services prior to off-ramps. These signs typically do not provide information on distances. An article reported that in one investigation, six sites along interstate highways where service signs are posted were selected. For each site, crash data was obtained for a three-year period before distance information was added to the service signs and for a one-year period afterward. The number of crashes per year before and after the sign changes were as follows.

a)The article included the statement "A paired t test was performed to determine whether there was any change in the mean number of crashes before and after the addition of distance information on the signs." Carry out such a test. [Note: The relevant normal probability plot shows a substantial linear pattern.]
State and test the appropriate hypotheses. (Use

α = 0.05.)

Calculate the test statistic and P-value. (Round your test statistic to two decimal places and your P-value to three decimal places.)

b)If a seventh site were to be randomly selected among locations bearing service signs, between what values would you predict the difference in number of crashes to lie? (Use a 95% prediction interval. Round your answers to two decimal places.)

Question 4

Consider each of the following independent and material situations, identified below (i-vi). In each case:

• the balance date is 30 June 2020;
• the field work was completed on 12 August 2020;
• the Directors’ Declaration and the Audit report were signed on 20 August 2020;
• the completed financial report accompanied by the signed Audit report were mailed to the shareholders on 26 August 2020.

1. On 26 September 2020, you discovered that a debtor at 30 June 2020 had gone bankrupt on 2 September 2020. The debt had appeared collectible at 30 June 2020 and 20 August 2020.

2. On 12 August 2020, you discovered that a debtor at 30 June 2020 had gone bankrupt on 5 August 2020. The cause of the bankruptcy was an unexpected loss of a major lawsuit by the debtor on 15 July 2020.

3. On 14 August 2020, you discovered that a debtor had gone bankrupt on 5 August 2020. The sale took place on 2 July 2020. The cause of the bankruptcy was a major uninsured fire at one of the debtor’s premises on 30 June 2020.

4. On 19 August 2020, the company settled a legal action out of court that had originated in 2016 and was listed as a continent liability at 30 June 2020.

5. A draft investigative report commissioned by a government enquiry was leaked to the media on 10 August 2020. The report has questioned the continued need for a segment of your client’s business. Accordingly, there is a significant uncertainty regarding the future necessity for one of the services offered by your client and its industry colleagues. There have been significant media attention and speculation on this issue.

6. Your client, BHP Mining, owns a mineral exploration licence in Western Australia. At 30 June this licence was valued by an independent expert at $20,000,000. This valuation is reflected in the financial report. On 17 August BHP Mining received notice that a claim was being lodged under the Native Titles Act for land which included that subject to the exploration licence. If the claim is successful, the exploration licence will be worthless.

Required:

1. For each of the situations described above (i-vi), select the appropriate action from the list below, and justify your response.

1. Adjust the 30 June 2020 financial report.
2. Disclose the information in the notes to the 30 June 2020 financial report.
3. Request that the client recall the 30 June 2020 financial report for revision.
4. No action is required.                                                                                                  (6*2= 12 marks)

If no action is taken by management for each of the events described above (i-v), determine the most appropriate audit opinion to be issued.            

Pharoah Corporation provides the following information about its defined benefit pension plan for the year 2020:

Pharoah follows IFRS.

QUESTIONS:

A) Prepare a continuity schedule for 2020 for the defined benefit obligation.

B) Prepare a continuity schedule for 2020 for the plan assets.

C) Calculate pension expense for the year 2020.

D) Prepare all pension journal entries recorded by Pharoah in 2020.

E) What pension amount will appear on Pharoah’s SFP at December 31, 2020?

Evaluate Stephen Moehrle article 2010) on response to the Financial Accounting Standards Board's and International Accounting Standard Boatd's Joint Discussion paper Entitled preliminary views on Financial Statement Presentation.

General ledger

INFORMATION

The inexperienced bookkeeper of Siyakha Traders prepared the following account in the general ledger:

DR                                                      DEBTORS CONTROL                                                     CR

                                                                         2019

              Jun 01    Balance                         b/d      73 200

BP (British Petroleum) faced in 2010 a deep crisis as result of an accident -the worst environmental disaster in the United Stated up to date- in one of the prospection owned by the company. 11 people died, the equivalent to 4.9 million barrels were discharged in the Gulf of Mexico with devastating consequence to the marine life and $42.2 billion were claimed up to 2013 as civil liabilities.

Read the article “BP oil spill: Five years after 'worst environmental disaster' in US history, how bad was it really?”(http://www.telegraph.co.uk/news/worldnews/northamerica/usa/11546654/BP-oil-spill-Five-years-after-worst-environmental-disaster-in-US-history-how-bad-was-it-really.html) and answer the following questions:

Do you think that BP could have managed the crisis more effectively? Why or why not?

Could the reputational damage suffered by the company been avoided by a better/more adequate response?

Do you recall when the crisis was happening? What do you recall hearing about it from the media? Was the company doing enough to respond to the public at the time the crisis was happening?

Choose the correct answer for each question below

Questions 10 – 15 relate to the following prescription:

-Prescription: #3302 Mickey’s Pharmacy Dr. Bond

-Linda Carson

-Novolexin 500 mg.

-Directions: Give two tablets every 12 hours for 14 days

-No food for 1 hour before taking medication

-Expiry: Jul/2015

-Qty: 56 0 Refills

10. What is the name of the medication?

a) Novoplexor

b) Novoflex

c) Novoplex

d) Novolexin

11. The dose of each tablet is:

a)1000mg

B)500mg

C)100mg

D)200mg

12. “Expires: Jul/2015” means the medication should not be taken after this date:

a)true

B)false

13. How many tablets have been dispensed?

a)26

B)35

C)56

D)60

14. Linda Carson should take:

a) 2 tablets before every meal

b) One tablet 1 hour before breakfast and before going to bed

c) Two tablets every day

d) Two tablets before breakfast and two tablets one hour after supper

15. Linda may have this prescription refilled how many times?

a) There are no refills on this prescription

b) There is 1 refill on this prescription

c) There are 2 refills on this prescription

d) There are 3 refills on this prescription

An arrangement has been made with the local bank that if ToyWorks maintains a minimum balance of $70,000 in their bank account before considering any interest obligation, they will be given a line of credit (ie. ability to borrow from the bank) at a rate of 6 % per annum. All borrowing is considered to happen on the first day of the month, repayments are on the last day of the month. Interest must be paid at the end of each month.

Assume that ToyWorks is unable to obtain the bank financing discussed above and is forecasting a cash deficiency in October 2020. Propose five alternative actions that ToyWorks may consider to avoid this deficiency briefly reflecting your reasoning.