In April 2010, a gold mining company, Cahaya Emas was formed. Cahaya Emas had convinced numerous mining experts that they had rights to one of the largest gold deposits ever discovered. The gold mine, located on a remote island in the East Coast of Peninsula Malaysia, supposedly had so much gold that the actual price of gold on the open market dropped significantly due to the anticipation of an increased gold supply. Within a few months, thousands of Malaysian – big-time investors, pension and mutual fund, managers and many small investors, including factory workers – got caught up in “Gold fever”. The company’s stock price shot from pennies to more than $250 per share before a 10-for-1 stock split was announced. Thousands of investors believed they were on the verge of becoming millionaires.
Two years later, the president and CFO, who are also the founder of the company were found committing financial statement fraud which went on for about two years. The president and the CFO were the fraud perpetrators. Kate, the accountant was aware of the financial statement fraud being committed by the management of her company, but she never reported it.
As is the case with many frauds of this type, numerous class-action lawsuits were filed against Cahaya Emas management, alleging that they misled the shareholders.

REQUIRED:
A.   Discuss some of the possible reasons for Kate’s hesitance to come forward to report the financial statement fraud.
B.   What were some of the perpetrators’ motivations to commit financial statement fraud?

During 2019 Canada Computer Company sold computers for $100,000 which includes a 2-year warranty. Warranties sold separately for $70,000 that requires the company to perform periodic services and to replace defective parts. In 2020, Canada Computer Company incurred actual warranty costs relative to 2019 computer sales of $5,000 for parts and $12,000 for labor.                                                                                            

Instructions

(a) Using the revenue warranty approach, prepare the entries to reflect the above transactions for 2019 and 2020. assuming Canada co. earn any unearned warranties equally over warranty life.

(b) The transactions of part (a) create what balance under current liabilities in the Dec 31, 2019 balance sheet?

Q3. On January 1, 2016, ATM Corporation acquired all of the common stock of ZED Company for $300,000. On that date, ZED's identifiable net assets had a fair value of $250,000. The assets acquired in the purchase of ZED are considered to be a separate reporting unit of ATM Corporation. The carrying value of ZED's investment at December 31, 2016, is $310,000. The fair value of the net assets (excluding goodwill) at that date is $220,000 and the fair value of the reporting unit is determined to be 260,000.

Required:

1) Explain how goodwill is tested for impairment for a reporting unit.

2) Determine the amount, if any, of impairment loss to be recognized at December 31, 2016.

On June 1, 2018, Riverbed Company and Marin Company merged to form Headland Inc. A total of 802,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2020, the company issued an additional 625,000 shares of stock for cash. All 1,427,000 shares were outstanding on December 31, 2020.

Headland Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 38 shares of common at any interest date. None of the bonds have been converted to date.

Headland Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,507,000. (The tax rate is 20%.)

Determine the following for 2020.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

Exercise 16-23 On June 1, 2018, Marin Company and Headland Company merged to form Sage Inc. A total of 834,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2020, the company issued an additional 552,000 shares of stock for cash. All 1,386,000 shares were outstanding on December 31, 2020. Sage Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 40 shares of common at any interest date. None of the bonds have been converted to date.

Sage Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,584,000. (The tax rate is 20%.) Determine the following for 2020. (a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1) Basic earnings per share enter a number of shares rounded to 0 decimal places shares

(2) Diluted earnings per share enter a number of shares rounded to 0 decimal places shares

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(1) Basic earnings per share $enter a dollar amount rounded to 0 decimal places

(2) Diluted earnings per share $enter a dollar amount rounded to 0 decimal places

On June 1, 2018, Novak Company and Splish Company merged to form Blossom Inc. A total of 837,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.

On April 1, 2020, the company issued an additional 576,000 shares of stock for cash. All 1,413,000 shares were outstanding on December 31, 2020.

Blossom Inc. also issued $600,000 of 20-year, 7% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date.

Blossom Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,395,000. (The tax rate is 20%.)

Determine the following for 2020.

(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)

On June 1, 2018, Waterway Company and Wildhorse Company merged to form Sheffield Inc. A total of 769,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2020, the company issued an additional 599,000 shares of stock for cash. All 1,368,000 shares were outstanding on December 31, 2020. Sheffield Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2020. Each $1,000 bond converts to 36 shares of common at any interest date. None of the bonds have been converted to date. Sheffield Inc. is preparing its annual report for the fiscal year ending December 31, 2020. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,688,000. (The tax rate is 20%.) Determine the following for 2020. (a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share enter a number of shares rounded to 0 decimal placesEntry field with incorrect answer 1.39 shares (2) Diluted earnings per share enter a number of shares rounded to 0 decimal placesEntry field with incorrect answer 4800 shares (b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share $enter a dollar amount rounded to 0 decimal placesEntry field with incorrect answer 1.78 (2) Diluted earnings per share

The 2020 inventory data for Garden Corporation’s patio furniture Bermuda set is presented below. Assume that Garden uses periodic inventory tracking.

When Garden examines the actual units in ending inventory, they see that 15 of the units are from 2020 beginning inventory, 20 units are from the 1/20/20 purchase, and 60 units are from the 6/15/20 purchase.  

1. In a period of falling prices, which of the following statements is true?
   1. FIFO produces a lower amount of net income than LIFO
   2. LIFO produces a lower cost for ending inventory than FIFO
   3. Average cost produces a higher net income than FIFO or LIFO
   4. LIFO produces a higher cost of goods sold than FIFO

2. Heavenly Rest, Inc. uses a periodic inventory system. When a warehouse supervisor counts the inventory on December 31, 2019, he accidentally counts one pile of blankets twice, resulting in 2019 ending inventory being overstated by $100,000. The warehouse supervisor counts the December 31, 2020 inventory correctly. Which of the following statements is true related to Heavenly Rest's 2019 and 2020 financial statements?
   1. 2019 Cost of Goods Sold will be understated by $100,000.
   2. 2020 Beginning Inventory will be understated by $100,000.
   3. 2020 Cost of Goods Sold will be overstated by $100,000.
   4. All of the above are true.
   5. Both a and c are true.

3. On October 28, Unilever sells and ships $100,000 worth of merchandise to Target. The goods are shipped FOB shipping point and arrive at Target stores on November 4. Which of the following statements is TRUE?
   1. The goods are in transit on October 31 so neither company includes the $100,000 as part of its October 31 Inventory balance.
   2. Unilever includes the $100,000 as part of its October 31 Inventory balance.
   3. Target includes the $100,000 as part of its October 31 Inventory balance.
   4. Both companies include the $50,000 as part of their October 31 Inventory balances.

The Coca-Cola Company owns 40 percent of the voting stock of Coca-Cola FEMSA, acquired at book value. Assume that Coca-Cola FEMSA reports income of $6 million for 2013. Coca-Cola FEMSA regularly sells canned beverages to Coca-Cola at a markup of 42 percent on cost. During 2013 Coca-Cola FEMSA's sales to Coca-Cola totaled $30 million. Coca-Cola's January 1, 2013, inventories include $1,620,000 purchased from Coca-Cola FEMSA. Coca-Cola's December 31, 2013, inventories include $1,458,000 purchased from Coca-Cola FEMSA. Prepare the 2013 journal entry on Coca-Cola's books to recognize its income from Coca-Cola FEMSA under the equity method.

Beavis Construction Company was the low bidder on a construction project to build an earthen dam for $1,820,000. The project was begun in 2020 and completed in 2021. Cost and other data are presented below:

Assume that Beavis recognizes revenue on this contract over time according to percentage of completion.

Required:
Compute the amount of gross profit recognized during 2020 and 2021.