Gold-I-Locks plc manufactures and sells doors and windows that contain a revolutionary locking mechanism the CEO developed while at university.  You have been provided with the company’s trial balance as at 31 March 2020.  Unfortunately, it was prepared by a junior member of staff and does NOT balance.  

The junior member of staff has identified the following errors but does not know how to correct them:

1. A payment of £150 for electricity was entered in the Bank Account but was not recorded in the Electricity Expense Account.
2. There is a debit in the Rent Expense Account for £718 and a debit to the bank account for the same amount.
3. A sale for £1,200 has been entered correctly in Accounts Receivable but as £120 in the Sales Account.
4. A payment to a supplier of £457 has been correctly recorded in Accounts Payable Account but no other entry has been made.

Required:

1. Prepare journal entries to correct the above errors and prepare a T-account for the Suspense Account showing the entries.

[20 marks]

2. There are two general categories of errors: Those that cause the trial balance not to balance and those that do not affect the trial balance balancing.  Describe one of each type of error, provide an example and describe how you would correct it. [word limit: 100-200 words]

Leisure Limited issued perpetual preferred stock with 7.5% annual dividend. The stock price is HK$115 and its par value is $100.

(a) Required:

(i) What is the current yield of Leisure Limited’s preferred stock? .

(ii) Suppose the market interest rate rises and Leisure’s preferred stock’s yield rises to 8%. What is the price of Leisure’s preferred stock then?

(b) The sales revenue of Carpe Diem Limited for 2019 is $100 million. The CEO told the sales director in December of 2019 that the board had set a target of $150 million in sales revenue for 2022 and expected that there should be stable annual growth of sales over the 3 years. The board expects the growth rate will be maintained continuously in future years. The market has the same expectation of the board. Carpe Diem Limited is expected to pay dividend of $20 per common stock at the end of the year 2020. The market price of the common stock at the beginning of 2020 is $1,000. What is the required rate of return on Carpe Diem Limited’s common stock?

(c) Leisure Limited provided a loan $3,000,000 to its subsidiary Carpe Diem Limited for 5 years which is interest bearing. The annual interest rate is 12% (compound interest method). Carpe Diem Limited has to make equal quarterly payment over the five years. How much should be repaid by Carpe Diem Limited at the end of each quarter?

(d) The investment return of an individual common stock can comprise dividend yield and eventual capital gain. Suppose there are two stocks: one stock with dividend payment and the other stock that does not pay any dividend. Is it possible that both stocks have the same investment returns? Please explain.

Raider Red Construction entered into a contract to build a commercial building for $3,600,000. Raider Red Construction uses the percentage-of-completion method for recognizing revenue on the project. Construction began in September of 2018 and the building was completed in June of 2020. The company provided the following additional information on the project.

Instructions:

(1.) Prepare the journal entries for the balance sheet in each year of the project.

A company purchased equipment for $400,000 which was estimated to have a useful life of 14 years with a salvage or residual value of $22,000 at the end of that time. Depreciation has been recorded for 2 years on a straight-line basis. In 2020 (year 3), it is determined that the total estimated life should be 17 years with a residual or salvage value of $16,000 at the end of that time.

What is the net book value a the time of the change?  write out the number, include a comma where appropriate, do not include decimals, do not use a dollar sign (i.e. 200,000)

What is depreciation expense for 2020?   

X Company uses an activity-based costing allocation system. On January 1, 2020, its accountant budgeted the following costs and cost drivers for three of the activities that are used in the ABC system:

In May of 2020, 600 units of Product C were finished, requiring $13,300 of direct materials, 4,000 direct labor hours, 1,382 parts, and 49 purchase orders.

How much of the three activity costs was allocated to Product C?

The Swifty Corporation issued 10-year, $4,080,000 par, 7% callable convertible subordinated debentures on January 2, 2020. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 13:1, and in 2 years it will increase to 20:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straight-line basis. Swifty’s effective tax was 20%. Net income in 2020 was $10,950,000, and the company had 1,830,000 shares outstanding during the entire year.

Compute both basic and diluted earnings per share.

The following items were taken from the financial statements of Garcia Company.

Mortgage payable $ 2,340 Accumulated depreciation 3,560 Prepaid expenses 980 Accounts payable 1,555 Property, plant, and equipment 11,500 Notes payable due after 2020 1,200 Long-term investments 1,300 Owner’s capital 14,026 Short-term investments 3,690 Accounts receivable 1,696 Notes payable due in 2020 1,000 Inventories 1,765 Cash 2,750

Instructions: Prepare a classified balance sheet in good form (with the proper three-line heading) as of December 31, 2019.

X Company uses an activity-based costing allocation system. On January 1, 2020, its accountant budgeted the following costs and cost drivers for three of the activities that are used in the ABC system:

In May of 2020, 521 units of Product C were finished, requiring $18,400 of direct materials, 4,000 direct labor hours, 1,464 parts, and 38 purchase orders.

How much of the three activity costs was allocated to Product C?

At the beginning for the year 2020, Shanghai Healthy Food Production Company budgeted its cost at 4 different capacity levels as follows:

A) What is the flexible budget formula for the year 2020?

B) What is the Predetermined MOH Rate (Applied MOH Rate) if the budgeted capacity is set at 18,000 mh?

The Carla Corporation issued 10-year, $5,060,000 par, 7% callable convertible subordinated debentures on January 2, 2020. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 99. Bond discount is amortized on a straight-line basis. Carla’s effective tax was 20%. Net income in 2020 was $11,200,000, and the company had 1,815,000 shares outstanding during the entire year. Compute both basic and diluted earnings per share.