Genmo Corporation*

On the night of February 27, 2012, certain records of the Genmo Corporation were accidentally destroyed by fire. Two days after that the principal owner had an appointment with an investor to discuss the possible sale of the company. The owner needed as much information as could be gathered for this purpose, recognizing that over a longer period of time a more complete reconstruction would be possible.

On the morning of February 28, the following were available: (1) A balance sheet as of December 31, 2010, and an income statement for 2010 (Exhibit 1) and (2) certain fragmentary data and ratios that had been calculated from the current financial statements (Exhibit 2). The statements themselves had been destroyed in the fire. (In ratios involving balance sheet amounts, Genmo used year‐end amounts rather than an average.) And (3) the following data (in thousands):

2011 revenues.............................................................. $10,281

Current liabilities, December 31, 2011 ......................... 2,285

EXHIBIT 1 Genmo Corporation Financial Statements

(thousands of dollars)

BALANCE SHEET

As of December 31, 2010

Assets

Current assets: Cash................................................................ $    18

Marketable securities..................................... 494

Accounts receivable......................................   728

Inventories......................................................    972

Prepaid expenses........................................... 214

Total current assets..................................... 2,426

Investments……………………………………………. 898

Real estate, plant, and equipment........................... $4,727

Less: Accumulated depreciation..................... 2,433 2,294

Special tools............................................................. 171

Goodwill................................................................... 594

Total assets.............................................................. $6,383

Liabilities and Shareholders’ Equity

Current liabilities: Accounts payable............................................. $ 732

Loans payable.................................................. 266

Accrued liabilities.............................................. 1,232

Total current liabilities............................. 2,230

Long-term debt.......................................................... 250

Other noncurrent liabilities......................................... 951

Total liabilities............................................................ 3,431

Shareholders’ equity: Preferred stock................................................. 25

Common stock.................................................   54

Additional paid-in capital.................................. 667

Retained earnings............................................   2,206

Total shareholders’ equity.......................   2,952

Total liabilities and shareholders’ equity.................... $6,383

Income Statement, 2010

Total revenues.......................................................... $9,779

Cost of sales (excluding depreciation and amortization)… $8,165

Depreciation........................................................................ 278

Amortization of goodwill and special tools.......................... 343 8,786

Selling, general, and administrative expenses................... 430

Provision for income taxes.................................................. 163

Total costs and expenses................................................... 9,379

Net income.......................................................................... $ 400

EXHIBIT 2 Selected Ratios

                                                                                                              2011 2010

Acid-test ratio.......................................................................... 0.671    0.556

Current ratio ........................................................................... 1.172     1.088

Inventory turnover (times) .......................................................10.005   8.400

Days’ receivables.................................................................... 39.66     27.17

Gross margin percentage........................................................ 15.12    16.50

Profit margin percentage.......................................................... 2.831   4.090

Invested capital turnover (times) ............................................. 2.091    2.355

Debt/equity ratio (percentage) ................................................. 62.15   40.68

Return on shareholders’ equity.................................................. ?        13.55

Questions 1. Prepare a balance sheet as of December 31, 2011, and the 2011 income statement.

                    2. What was the return on shareholders’ equity for 2011?

The residents of nnn spend all of their income on cauliflower, broccoli, and carrots. In 2020, they spend a total of $250 for 100 heads of cauliflower, $100 for 50 bunches of broccoli, and $250 for 500 carrots. In 2021, they spend a total of $210 for 60 heads of cauliflower, $180 for 90 bunches of broccoli, and $270 for 450 carrots.

Complete the following table by calculating the price of one unit of each vegetable in each year.

Using 2020 as the base year, the CPI for 2020 is   , and the CPI for 2021 is   .

The inflation rate in 2021 is    % using the CPI.

On January 1, 2020, ECT Co. adopted the dollar-value LIFO method for its one inventory pool. The pool's value on this date was $600 million. The 2020 and 2021 ending inventory valued at year-end costs were $702 million and $840 million, respectively. The appropriate cost indexes are 1.08 for 2020 and 1.20 for 2021.

Required:

Calculate the inventory balance that ECT Co. would report on its year-end balance sheets for 2020 and 2021, using the dollar-value LIFO method and submit using the DVL template.

On January 1, 2020, Penguin Corporation, the parent corporation of a consolidated group of corporations filing a calendar year consolidated tax return, acquires all of the stock of Steeler corporation for $3 million. In 2020, Steeler Corporation earns $500,000 of taxable income, it earns $20,000 of tax-exempt interest income, it pays Penguin corporation a dividend of $400,000. Steeler pays Penguin an amount equal to its stand-alone income tax liability for 2020, computed at the statutory tax rate of 21%. Compute Penguin’s year-end 2020 tax basis in Steeler stock.

A hurricane destroys Kirk’s boat in 2017. The boat is worth $40,000, and Kirk paid $30,000 for the boat two years ago. The boat is a personal use asset. Kirk’s AGI for 2020 is 40,000. Answer the following unrelated situations:

a. What is the casualty deduction that Kirk can take in 2017?

b. Assume that the boat was destroyed in 2020. What is the casualty deduction Kirk can take in 2020?

c. Assume that the insurance company pays Kirk $35,000 in 2017 to cover the loss of the boat. What is the casualty deduction Kirk can take in 2020?

Mitchell Corporation pays $10 million to acquire a 30 percent interest in Turner Corporation’s stock on January 1, 2020, and reports the investment using the equity method. Any basis difference is attributed to goodwill. During 2020, Turner reports net income of $1,000,000, which includes $50,000 in realized and unrealized gains on trading securities. Turner also reports $80,000 in unrealized losses on AFS securities in other comprehensive income, and pays dividends of $250,000 in 2020. Required Prepare Mitchell’s journal entries to record the above events for 2020

In 2020, Hydrogen Corp. began selling a new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:

           First year of warranty 2%

           Second year of warranty 5%

Sales and actual warranty expenditures for 2020 and 2021 are presented below:

                                                                                             2020                               2021

           Sales                                                                     $ 450,000                     $ 600,000

           Actual warranty expenditures 15,000                           30,000

Hydrogen uses the expense approach to account for warranties.

Provide the journal entries for 2020 relating to the above transactions.

Dre Inc. began operations on 01/01/2020 and bought some equipment for $30,000. Dre uses a four-year straight-line depreciation for accounting purposes. For tax, the deduction is 40% of cost in 2020, 30% in 2021, and 30% in 2022. Pretax accounting income for 2020 was $160,000, including interest revenue of $25,000 from municipal bonds. The tax rate is 30% for all years.

Required:
Prepare a journal entry to record income taxes for the year 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Sheffield Inc. was authorized to issue 100000 £10 par value ordinary shares. As of December 31, 2020, the company had issued 54000 shares at an average price of £22 per share. During 2020, the company felt that the shares were undervalued so it purchased 9800 treasury shares at £16 per share. When the share price rebounded later in the year, the company sold 4200 of the treasury shares for £24 per share. Retained earnings was £1666000 at December 31, 2020.

Total equity at December 31, 2020 is

£2697200.

£2994000.

£2764400.

£2798000.

Write a program that reads in a single integer.

Display a message depending on what is given:

• When the number is 42, output "42 is the Ultimate Question of Life, the Universe, and Everything."
• When the number is 2020 output "2020 is the current year."
• When the number is greater than 1000 and less than 3000 output "1500 could be a year." where 1500 is the number the user originally inputted
• When none of the above, output "no idea."

One example shown below with the user input highlighted:

Give a number: 2020
2020 is the current year.