1.American Food Services, Inc. leased a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. The lease agreement for the $4 million (fair value and present value of the lease payments) machine specified four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. Barton and Barton’s implicit interest rate was 10%.

Required:

1. Prepare the journal entry for American Food Services at the beginning of the lease on January 1, 2018.

2. Prepare an amortization schedule for the four-year term of the lease.

3. Prepare the appropriate entries related to the lease on December 31, 2018.

4. Prepare the appropriate entries related to the lease on December 31, 2020.

(Note: You may wish to compare your solution to this exercise with that of E 14–18 which deals with a parallel situation in which the packaging machine was acquired with an installment note.)

(iv) On 1 April 2019, GHL entered into a sale and leaseback agreement for its manufacturing plant. The plant was originally acquired by GHL on 31 March 2009 for $8,910,000, at which point the plant had a useful life of 30 years with no residual value. The sale proceeds of plant from the sale and leaseback agreement were $11.25 million, which is higher than the fair value of the plant of $9.0 million. The plant was leased back on a 20-year lease from 1 April 2019 at an annual rental of $1,105,350 to be paid annually in arrears at 31 March 2020. The sale satisfies HKFRS 15 “Revenue from Contracts with Customers”, however, she insisted to account for it as a financing arrangement. The first lease rental is paid and charged to the statement of profit or loss. The sales proceed was treated as a financial liability. The incremental borrowing rate is 15% per annum.

4) what is the requirement of a sale and leaseback transaction from the seller-lessee perspective in accordance with HKFRS 16?

Exercise 14-20 Installment note; amortization schedule [LO14-3]

American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2018. In payment for the $4.3 million machine, American Food Services issued a four-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 9%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Prepare the journal entry for American Food Services’ purchase of the machine on January 1, 2018.
2. Prepare an amortization schedule for the four-year term of the installment note.
3. Prepare the journal entry for the first installment payment on December 31, 2018.
4. Prepare the journal entry for the third installment payment on December 31, 2020.

READREAD THE ARTICLE BELOWBELOW. FROM THE WALL STREET.

describe all relevant informationinformation. telling the main thing you take away from the articlearticle and how it applies to globalization.

FREEPORT, Pa. The rising dollar is putting US. Manufacturers through the equivalent of a new year's fitness regime, causing pain for now but also promising long-term gains in efficiency.
After more than a decade of weakness, the dollar began surging in mid-2014 against the euro and many other currencies. That is making U.S.-made products pricier in other countries and imports cheaper in the U.S.-a combination that is likely to expand, the already gaping U.S. trade deficit. "When the dollar was weakening, it was a lot easier [for manufacturers] be a little sloppy," said Hal Sirkin, a Chicago-based senior partner at Boston Consulting Group. A rising dollar, which effectively raises prices, forces manufacturers to automate more production processes and redesign products to be lower cost and higher value, Mr. Sirkin said. US. manufacturers also will look for ways to buy lower-cost parts and materials in Asia or Europe.
Past periods of currency strength in Switzerland, Germany and Japan required manufacturers there to streamline processes and find niches that allowed them to charge premium prices.
Here in Freeport, on the fringes of the Pittsburgh metro area, Oberg Industries is striving hang onto its small share of the global economy. The family owned company, with 750 employees and annual sales of about $130 million, makes metal parts for a host of products, including oil production equipment and door locks.
Oberg is moving out of some markets where competition is based mainly on price. For instance, the company recently sold a plant in Mexico where it made doorknobs, competing with Asian manufacturers. Oberg is putting more focus on highly regulated markets, such as parts for medical devices and aircraft. Because quality standards are higher, there is less import competition, said Rich Bartek, Oberg’s chief operating officer.
Oberg recently bought another robot to help sort out parts as they emerge from a stamping machine. It also has invested in new computer controlled cutting machines that are easier to program and run. One operator can handle four of these machines. "In the old days, it was one operator, one machine," Mr. Bartek said. Manufacturers have long been under pressure from intensifying global competition, but the dollar's sudden ascent adds more urgency. Since mid-2014, the dollar is up nearly 19% against the euro and 17% against the yen. “
The challenge I gave to our team is use as an opportunity to get more costs out of the company," said Ron DeFeo, executive of Terex Corp., a Westport, Conn.-based maker of heavy equipment, including aerial work platforms used to hoist construction and maintenance workers. For instance, Terex is making more steel parts for some of its machines in China, where steel and labor are cheaper. The company is leaning on delivery firms to pass on some of the savings they are getting from lower fuel costs. Terex may also be able to shift some production of equipment to Europe, where the weaker euro has reduced costs in dollar terms.
The rising dollar already has forced U.S. poultry companies to accept lower prices for dark chicken meat, popular in over- seas markets, said Mike Cockrell, chief financial officer of Sanderson Farms Inc., the third-largest U.S. poultry processor. Bulk leg quarters of chicken, a top export that sold for 48 cents pound in mid December, now are selling for 88 cents, Mr. Cockrell said. Chicken processors still can turn a profit on those prices, along as sales of white meat the US, remain brisk. But if prices sink to very low levels, chicken processors may resort selling frozen bags of dark in US grocery stores at cut-rate prices, as they have done before. Prime Equipment Group Lnc. Columbus, Ohio, maker of poultry processing equipment, is using more Brazilian parts and materials for the products sells in that country, to help offset the effects of a weak real, The company also is delaying repatriation of profits from Brazil in the hope the real will regain value. "As long as the real doesn't collapse-a possibility we consider very remote--we can afford to wait," said Mike Gasbarro, chief executive. Global giants like Caterpillar Inc. or Ford Motor Co. long have had plants around the world, reducing their exposure to any one currency. Some smaller manufacturers are trying to emulate that global approach. Firstronic LLC, a Grand Rapids, Mich., maker of printed circuit boards used in cars and other products, serves its customers in North America mainly in production from its plants Michigan and Mexico, said John Sammut, the CEO. It has set up joint ventures in the Czech Republic, India and China it can produce circuit boards there as well, depending on customers' needs and currency factors.
For now, Firstronic is exporting from Michigan to Europe circuit boards used to control car seats. If the dollar stays strong. said Mr. Sammut, that production could be moved to the Czech Republic. By creating a global network of factories, “we have buffered ourselves from this issue” he said.
Ground Force Worldwide, Post Idaho, maker of used in mining, committed to manufacturing in the US even though about 75% of its sales are in other countries, said Ron Nilson, owner and CEO But he said the company can assemble portions of its trucks, such as fuel tanks, overseas to reduce costs.
FirmGreen Inc., based in Newport Beach, a maker of equipment used to purify biogas, having to "scramble for solu tions," said CE0 Steven Wilburn. The company, which sells most of equipment overseas, is being hit both by a strong dollar and by the drop in oil prices, which deters investment im alternative energy sources. Mr. Wilburn said he has had to cut his staff to 10 people- from 17 FirmGreen relies on other US-based companies to manufacture its equipment. Mr.Willburn said he doesn't want to shift production China fears his technological secrets to rivals. "Pius," he said, "Tm patriot. Woodward Inc., a maker of parts for aircraft and various types of engines, based in Fort Collins, Colo, is trying to help some overseas customers cope with the currency swings. On some contracts, it includes clauses that adjust the price of a large order depending on currency movements, so that the two sides share the risk.
Bob Weber, chief financial officer of Woodward, said the company could import more parts from countries with weaker currencies. But that is difficult in highly regulated markets such as those for aircraft. "it's extremely hard to switch suppliers midstream.” Mr. Weber said.

On July 1, 2019, the City of Belvedere accepted a gift of cash in the amount of $3,500,000 from a number of individuals and foundations and signed an agreement to establish a private-purpose trust. The $3,500,000 and any additional gifts are to be invested and retained as principal. Income from the trust is to be distributed to community nonprofit groups as directed by a Board consisting of city officials and other community leaders. The agreement provides that any increases in the market value of the principal investments are to be held in trust; if the investments fall below the gift amounts, then earnings are to be withheld until the principal amount is re-established. The following events and transactions occurred during the fiscal year ended June 30, 2020. Record them in the Belvedere Community Trust Fund: On July 1, the original gift of cash was received. On August 1, $2,500,000 in XYZ Company bonds were purchased at par plus accrued interest ($41,667). The bonds pay an annual rate of 5 percent interest semiannually on April 1 and October 1. On August 2, $900,000 in ABC Company common stock was purchased. ABC normally declares and pays dividends semiannually, on January 31 and July 31. On October 1, the first semiannual interest payment ($62,500) was received from XYZ Company. Note that part of this is for accrued interest due at the time of purchase; the remaining part is an addition that may be used for distribution. On January 31, a cash dividend was received from ABC Company in the amount of $25,000. On March 1, the ABC stock was sold for $921,000. On the same day, DEF Company stock was purchased for $945,000. On April 1, the second semiannual interest payment was received from XYZ Company. During the month of June, distributions were approved by the Board and paid in cash in the amount of $82,500. Administrative expenses were recorded and paid in the amount of $5,500. An accrual for interest on the XYZ bonds was made as of June 30, 2020. As of June 30, 2020, the fair value of the XYZ bonds, exclusive of accrued interest, was determined to be $2,503,000. The fair value of the DEF stock was determined to be $941,000. Closing entries were prepared. Required: a. The above events and transactions occurred during the fiscal year ended June 30, 2020. Record them in the Belvedere Community Trust Fund. b. Prepare (1) a Statement of Changes in Fiduciary Net Position for the Belvedere Community Trust Fund and (2) a Statement of Fiduciary Net Position.

ACCOUNTING FOR DEPRECIABLE ASSETS CHALLENGE #6

INSTRUCTIONS: USING THE INFORMATON PROVIDED BELOW

1. CALCULATE THE ANNUAL DERECIATION FOR THE DEPRECIABLE ASSETS IN 2017

2. PREPARE THE JOURNAL ENTRIES (USING CORRECT DATES AND EXPLANATIONS) THAT ARE NECESSARY TO RECORD THE FOLLOWING:

THE PURCHASE OF THE ASSETS BOUGHT IN 2017

THE DEPRECIATION FOR EACH OF THE DEPRECIABLE ASSETS FOR THE YEAR ENDED DEC. 31, 2017

THE POTENTIAL SALE OF THE TRUCK ON DECEMBER 31, 2020 USING THE INFORMATION PROVIDED

3. ENTER THE POST REFERENCES IN THE JOURNAL FOR JOURNAL ENTRIES PERPARED IN STEP 2.

(NOTE: ONLY INCLUDE POST REFERENCES FOR THE ENTRIES ACTUALLY POSTED).

4. COMPLETE THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017.

(NOTE: CURRENT PORTION OF NOTE PAYABLE IS $52,800)

5. ANSWER QUESTIONS A-D.

IN 2016 AND 2017, FISH & BAIT COMPANY HAD IN THE FOLLOWING TRANSACTIONS FOR FIXED ASSETS:

PURCHASE DATE TRANSACTION DEPRECIATION METHOD LIFE COST SALVAGE VALUE

1/1/2016 PURCHASED LAND N/A N/A $124,225 N/A

6/30/2016 PURCHASE MACHINERY UNITS-OF-PROD. 24,000 HR $132,000 12,000

1/5/2017 PURCHASE TRUCK DD BALANCE 5 YEARS $65,000 6,000

10/1/2017 PURCHASE STORE EQUIP. STRAIGHT-LINE 8 YEARS $80,000 8,000

ADDITIONAL INFORMATION:

THE COMPANY PAID $5,000 CASH FOR THE TRUCK AND SIGNED A LOAN FOR THE REMAINDER OF THE PURCHASE.

THE COMPANY PAID CASH FOR THE STORE EQUIPMENT.

THE MACHINERY WAS ACTUALLY USED FOR THE FOLLOWING NUMBER OF HOURS:

2016 2,900 HOURS

2017 4,100 HOURS

1. CALCULATE DEPRECIATION

use the space provided below to calculate the 2017 depreciation for the machinery:

complete the table below to calculate the annual depreciation for the truck:

YEAR BOOK VALUE AT BEGINNING OF YEAR DEPREC, RATE ANNUAL DEPREC. EXPENSE   

2017

2018

2019

2020

2021

(AT THE END OF THE YEAR)

YEAR ACCUM. DEPREC. BOOK VALUE

2017

2018

2019

2020

2021

use the space provided below to calculate the 2017 depreciation for the store equipment:

2. PREPARE JOURNAL ENTRIES

FISH & BAIT COMPANY

GENERAL JOURNAL

DATE( 2017) DESCRIPTION DEBIT CREDIT

ASSUME ON DECEMBER 31, 2020, THE COMPANY SELLS THE TRUCK FOR CASH OF $8,000

PREPARE THE JOURNAL ENTRY TO RECORD THE SALE OF THE TRUCK

Conch Republic Electronics Part 1

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smart phone. Conch Republic currently has one smart phone model on the market, and sales have been excellent. The smart phone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing smart phone but adds new features such as WiFi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone.

Conch Republic can manufacture the new smart phones for $215 each in variable costs. Fixed costs for the operation are estimated to run $6.1 million per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five years, respectively. The unit price of the new smart phone will be $520. The necessary equipment can be purchased for $40.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $6.1 million.

As previously stated, Conch Republic currently manufactures a smart phone. Production of the existing model is expected to be terminated in two years. If Conch Republic does not introduce the new smart phone, sales will be 95,000 units and 65,000 units for the next two years, respectively. The price of the existing smart phone is $380 per unit, with variable costs of $145 each and fixed costs of $4.3 million per year. If Conch Republic does introduce the new smart phone, sales of the existing smart phone will fall by 30,000 units per year, and the price of the existing units will have to be lowered to $210 each. Net working capital for the smart phones will be 20 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent.

Shelley has asked Jay to prepare a report that answers the following questions.

Conch Republic Electronics Part 2

Shelley Couts, the owner of Conch Republic Electronics, had received the capital budgeting analysis from Jay McCanless for the new smart phone the company is considering. Shelley was pleased with the results, but she still had concerns about the new smart phone. Conch Republic had used a small market research firm for the past 20 years, but recently the founder of that firm retired. Because of this, she was not convinced the sales projections presented by the market research firm were entirely accurate. Additionally, because of rapid changes in technology, she was concerned that a competitor could enter the market. This would likely force Conch Republic to lower the sales price of its new smart phone. For these reasons, she has asked Jay to analyze how changes in the price of the new smart phone and changes in the quantity sold will affect the NPV of the project.

Shelley has asked Jay to prepare a memo answering the following questions.

QUESTIONS

5.How sensitive is the NPV to changes in the price of the new smart phone?

6.How sensitive is the NPV to changes in the quantity sold of the new smart phone?

In most multi-divisional firms, divisional managers run their divisions as profit centers: they have broad decision rights and are evaluated based on divisional profits.

1. However, these divisional managers’ decision rights do not typically extend to their capital budget. That is, they are not allowed to choose the amount of capital that they will be allowed to invest in their division as that decision is centralized. These divisional managers have valuable information (specific knowledge) about the appropriate capital expenditures for their division. Why aren’t they allowed to choose their capital budget?

2. In a recent paper titled Divisional Managers and Internal Capital Markets Professors Ran Duchin and Denis Sosyura of the University of Michigan show that divisional managers with social ties to the CEO receive more capital. Would you expect multi-divisional firms where divisional managers have social ties the CEO to have a smaller or larger diversification discount than multi-divisional firms where the divisional managers do not have social ties to the CEO? Explain.