For its first year if operations, Altitude Inc. reports pretax GAAP income of $100,000 in 2020. Assume pretax income in 2021 and 2022 of $125,000 and $90,000 respectively. The enacted income tax rate in all years is 25%. The following additional information is available for the first three years of operation (with the exception of the one item in the 4th year).

• Prepaid rent in the amount of $20,000 was recorded on December 21, 2020 for 2021 rent.
• A warranty accrual of 30,000 was recorded on December 31, 2020. The warranty was paid evenly over the years 2021-2023.
• The company recorded interest revenue of $500 each of the three years on municipal bonds.

1. Compute the income tax payable each year for 2020, 2021, 2022
2. Determined the balance of any deferred tax assets or deferred tax liabilities at the end of each year (2020, 2021, 2022)
3. Record the journal entry related to taxes in 2020, 2021, 20222

For its first year of operations, Altitude Inc. reports pretax GAAp income of 100,000 in 2020. Assume pretax GAAP income in 2021 and 2022 of 125,000 and 90,000, respectively. The enacted income tax rate in all years is 25%. The following additional information is available for the first three years of operation (with the exception of the one item in the 4th year): Prepaid rent in the amount of 20,000 was recored on December 31, 2020 for 2021 rent. A warranty accrual of 30,000 was recorded on December 31, 2020. The warranty was paid evenly over the years 2021-2023. The company recorded interest revenue of 500 each of three years on municipal bonds.

1. Compute the income tax payable each year for 2020, 2021, and 2022

2. Determined the balance of any Deferred Tax Assets or Deferred Tax Liabilities at the end of each year (2020, 2021, 2022)

3. Record the journal entries related to taxes in 2020, 2021, 2022

The Chan family composed of the parents (aged 40 and 42) and two children (Tom and Mary, aged 18 and 16 respectively), they have four goals that they would like to achieve:

1. To have the children (Tom and Mary) to receive university education in US
2. To accumulate enough for a luxury cruise trip in around 10 years
3. Save enough for retirement in 20-22 years.

And he is considering invest in

1. Small Cap Stocks
2. Blue Chips (Stocks)
3. Long dated High yield bonds
4. A 5 year investment grade bonds
5. Short term investment grade bond fund
6. Money market fund

If they would like to pick one investment for money invested for one goal, which investment you will suggest them to invest for each goal (i.e. Goal 1, 2 and 3) and why.

Today is 15 April 2020.

You are an audit manager of QUTPG Partners and are planning the audit of RST Co for the year ending 30 June 2020. The company is a manufacturer of digital devices and your have already had a planning meeting, with the finance director. Forecast revenue is $137.2m and profit before tax is $8.4m. The following notes from the planning meeting have been given to you.

Planning Meeting Notes

• RST Co holds inventory in four warehouses in Brisbane, Sydney, Melbourne, and Canberra respectively. RST Co plans to conduct a full inventory stocktake at the warehouses on 1, 2, 3 and 4 July. Any necessary adjustments will be made to reflect post year-end movements of inventory. RST Co has an internal audit function and an internal audit team will attend the inventory counts. Inventories are measured at the lower of cost and net realisable value. Cost includes the purchase price of raw materials, labour and other production costs, and other general overheads including head office administrative costs.
• During the year, RST Co paid $2.2m to purchase a patent which allows the company the exclusive right for five years to customise their portable audio player to gain a competitive advantage in the market. The $2.2m has been expensed in the current year statement of profit or loss. To finance this purchase, RST Co raised $2.4m through new share issuance.
• It was discovered that, in January 2020, a significant fraud had been colluded by four employees in the sales ledger department by stealing funds from wholesale customer receipts. They allocated later customer receipts against the older receivables to cover the stolen funds. RST Co had reported to the police and subsequently dismissed the four employees.
• As a result of the vacancies in the sales ledger department, RST Co has outsourced its sales ledger processing to U Services, an external service organisation since 1March 2020. U Services handles all elements of the sales ledger cycle, including sales invoicing, chasing receivables balances, and sending monthly reports of sales and receivable amounts to RST Co.
• In December 2019, the financial accountant of RST Co was dismissed. He had been employed by the company for ten years, and he has threatened to sue the company for unfair dismissal. Until his replacement commences work in March, the financial accountant’s responsibilities have been allocated to other staff in the finance department. However, in January and February 2020, no reconciliations of supplier statement have been performed, and no reconciliations of purchase ledger control account have been performed.
• In January 2019, a receivable balance of $1.8m was written off by RST Co when a customer had declared bankruptcy. In February 2020, the liquidators of the customer company publicly announced that it was likely that most of its creditors would receive a pay-out of 30% of the balance owed. As a result, RST Co has included a current asset of $540,000 in the balance sheet and other income in the statement of profit or loss.

• Required:

  (a) Describe QUTPG Partners’ responsibilities in relation to the prevention and detection of fraud and error.

  (b) Describe EIGHT audit risks, and explain the auditor’s response to each risk in planning the audit of RST Co.

Kenton and Denton Universities offer executive training courses to corporate clients. Kenton pays its instructors $5,000 per course taught. Denton pays its instructors $250 per student enrolled in the class. Both universities charge executives a $450 tuition fee per course attended.

Required

A. Prepare income statements for Kenton and Denton, assuming that 20 students attend a course.

B. Kenton University embarks on a strategy to entice students from Denton University by lowering its tuition to $240 per course. Prepare an income statement for Kenton assuming that the university is successful and enrolls 40 students in its course.

C. Denton University embarks on a strategy to entice students from Kenton University by lowering its tuition to $240 per course. Prepare an income statement for Denton, assuming that the university is successful and enrolls 40 students in its course.

I NEED IT ANSWERED IN THIS FORMAT, FILL IN BLANKS

Problem 11-28

a.      N = Number of units to break-even point

Sales − Variable cost − Fixed cost = Desired Profit

          (Sales price x N) − (Variable cost per unit x N) = Fixed cost + Desired Profit

(Contribution margin per unit x N) = Fixed cost + Desired Profit

N = (Fixed cost + Desired Profit) ÷ Contribution margin per unit

N = ($               + $           ) ÷ [$       - ($     + $       )] =          Units

          Break-even point dollars =        Units x $        selling price per unit = $

b.      N = Number of units to break-even point

          N = (Fixed cost + Desired Profit) ÷ Contribution margin per unit

          N = ($            + $            ) ÷ [$        – ($       + $      )]

          N =          Units

          Break-even point dollars =    Units x $            selling price per unit = $

Jen and Larry’s Frozen Yogurt Company

     In 2019, Jennifer (Jen) Liu and Larry Mestas founded Jean and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2019 and were estimated to be $1.2 million in 2020.

     Because Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $3, and the cost of producing the frozen yogurt averaged $1.50 per cup. Administrative expenses, including Jen and Larry’s salary and expenses for an accountant and two other administrative staff, were estimated at $180,000 in 2020. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in 2020.

     An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in lower downtown (known as LoDo) occurred at the beginning of 2019. Additional equipment needed to make the amount of yogurt forecasted to be sold in 2020 was purchased at the beginning of 2020. As a result, depreciation expenses were expected to be $50,000 in 2020. Interest expenses were estimated at $15,000 in 2020. The average tax rate was expected to be 25% of taxable income.

1. Jen and Larry believe that under a worst-case scenario, yogurt revenues would be at the 2019 level of $600,00 even after plans and expenditures were put in place to increase revenues in 2020. What would happen to the venture’s EBDAT?
2. Jen and Larry also believe that, under optimistic conditions, yogurt revenues could reach $1.5 million in 2020. Show what would happen to the venture’s EBDAT if this were to happen.

Late in 2011, JCPenney made a dramatic move, ousting CEO Myron Ulman and bringing in Ron Johnson. Johnson was perceived as a change agent who could reinvent the company as a new, hip place to shop, just as he had transformed the Apple Store from a run-of-the-mill mall store to an entertainment destination. His vision was clear, stating, "In the United States, the department store has a chance to regain its status as the leader in style, the leader in excitement. It will be a period of true innovation for this company." Johnson proposed offering new products and interesting product lines, such as Martha Stewart and Joe Fresh, to lure in high-end customers. He also envisioned JCPenney as a destination, where shoppers would look forward to spending time browsing the store, similar to the excitement one often finds in an Apple Store.

Unfortunately for JCPenney, Johnson's new vision was a near-complete failure. Penney's loyal customer base was unhappy with the new store and pricing strategies. The company failed to attract new customers and sales fell by 25 percent in one year. Even the major shareholder who championed johnson's recruitment, Bill Ackman, realized that the company had made a new fatal error, lamenting, "One of the biggest mistakes was perhaps too much change too quickly without adequate testing on what the impact would be. " Notre Dame marketing Professor Carol Phillips points out that the company failed to understand the buyer with its new value pricing, no sale strategy. "JCP's CEO Ron Johnson was ... clueless about what makes shopping fun for women. It's the thrill of the hunt, not the buying." The new strategy was a mismatch with the company's existing managers, product lines, pricing strategies, and customer base.

Do you think Ron Johnson changed the mission of JCPenney or just implemented new strategies? Be sure to support your conclusion.

For the following independent situations, identify and discuss issues related to external auditor’s ethics and independence under APES110 Code of Ethics for Professional Accountants and Corporations Act. State the main principles/regulations and apply them to each case. Where appropriate, advise the appropriate course of action for the auditor. Hint: In your answer, (a) identify the ethical issue and discuss relevant threats to independence, (b) state applicable rules/regulations and (c) suggest safeguards where applicable.

1.The audit client is satisfied with the audit team’s past work so the audit client asks the same team to perform the audit for the 6th consecutive year.

2.The audit client is a listed company and its Chief Executive Officer (CEO) trusts the audit team’s accounting expertise. The CEO asks the audit team to provide advice on how to value another business which the audit clients intends to takeover.

1. Given the following information:

1. Produce a cash flow statement for the company.                                                
2. What does the statement tell us about the financial state of this company? Explain.

Financial Management

Question 1

John met his insurance agent to discuss the purchase of an insurance plan to fund his 8 year-old daughter's university education in 11 years' time. The payout from the insurance company is as follows:

* Receive $30,000 at the begining of each year for 4 years with the first receipt starting 11 years from today.

The insurance company had 3 payment proposals:

Proposal 1:

* Pay $35,000 today

Proposal 2:

* Beginning 2 years from today, pay $8,000 each year for the next 8 years.

Proposal 3:

* Beginning 2 years from today, make payments each year for the next 8 years. The first payment is $7,000 and the amount increases by 5% each year.

(a) Calculate the present value of each proposal. Use a 10% discount rate. (7m)

(b) Which proposal should John choose? Explain. (5m)

(c) If the discount rate is not given to you, what would be an appropriate discount rate to use? (3m)