Erskine Consulting Ltd. has been in business for several years, providing software consulting to its customers on an annual contract or special assignment basis. All work is done over the Internet, although some travel is occasionally required for meeting with customers to negotiate contracts and renewals of contracts, as well as resolving possible disputes in invoicing for their services. Erskine operates out of rented premises and has a modest investment in equipment that is used by the consulting team. Erskine is a private company that follows ASPE and that has a calendar year end.

At the end of each year, Erskine obtains the services of an accountant to complete the annual accounting cycle of the business and prepare any year-end adjusting of journal entries, financial statements, and corporate tax returns.

Upon arrival in early 2020, the accountant was given an unadjusted trial balance and obtained the following additional information to complete his work.

Show any calculations used in completing this question.

Additional information:

1. 1. Management has been going over the list of accounts receivable for possible accounts that are not collectible. One account for $700 must be written off. In the past, 5% of the balance of all accounts receivable has been the basis of an estimate for the required balance in the allowance for doubtful accounts. Management feels that this estimate should be followed for 2020.
2. 2. After doing a count of supplies on hand, management determined that $400 of supplies remained unused at December 31, 2020.
3. 3. The account balance in Prepaid Insurance of $4,000 represents the annual cost of the renewal of all of Erskine's insurance policies that expire in one year. The policies' coverage started April 1, 2020.
4. 4. FV-NI Investments are long-term investments. The fair value of the portfolio of investments was $22,500 at December 31, 2020, based on quoted market values on the TSX.
5. 5. In January 2020, some old equipment was sold for proceeds of $300 cash. The entry made when depositing the cash was debit Cash, credit Gain on Disposal of Equipment. The original cost of the equipment was $4,300 and the accumulated depreciation was $4,200.
6. 6. The depreciation expense for the remaining equipment was calculated to be $7,200 for the 2020 fiscal year.
7. 7. The notes receivable from customers are due October 31, 2023, and bear interest at 5%, with interest paid semi-annually. The last interest collected related to the notes was for the six months ended October 31, 2020.
8. 8. Bank loans are demand bank loans for working capital needs and vary in amount as the needs arise. The bank advised that the interest charge for December 2020 that will go through on the January 2021 bank statement is in the amount of $200.
9. 9. Unpaid salaries and wages at December 31, 2020, totalled $790. These will be paid as part of the first payroll of 2021.
10. 10. After some analysis, management informs the accountant that the Unearned Revenue account should have a balance of $1,000.
11. 11. Erskine was sued by one of its former clients for $50,000 for giving bad advice and instructions. Upon discussion with legal counsel, it has been agreed that it will likely take $5,000 to settle this dispute out of court, in the next fiscal year. No entry has yet been recorded.
12. 12. The accountant is told that a sublet lease arrangement for some excess office space has been negotiated and signed. It will provide Erskine with rent revenue starting on February 1, 2021, at a rate of $400 per month.
13. 13. Erskine has been making income tax instalments as required by the Canada Revenue Agency. All instalment payments have been debited to the Income Taxes Payable account.
14. 14. After recording all of the necessary adjustments and posting to the general ledger, management drafted a new trial balance to arrive at the income before income taxes. Using this result, the accountant prepared the tax returns, and determined that a tax rate of 28% needed to be applied to the income before income tax amount. The necessary adjusting entry for taxes has not yet been recorded.

Instructions

a. Prepare all necessary adjusting and correcting entries required based on the information given, up to item 13.

b. Post the journal entries in adjustment columns and arrive at an adjusted trial balance. Enter the journal entries in the following worksheet format:

c. Using the adjusted trial balance columns of your worksheet, calculate the amount of income before income taxes. Use the information provided in item 14 to record income tax expense for the year.

d. Prepare a single-step statement of income, a statement of retained earnings, and a statement of financial position for 2020.

“SoftBank Plans $4.8 Billion Share Buyback Following Pressure From Elliott; The proposed share buyback isn't as large as the one urged by the activist shareholder Wall Street Journal; New York, N.Y. [New York, N.Y] 13 Mar 2020. TOKYO—SoftBank Group Corp. said it would spend as much as ¥500 billion ($4.8 billion) to buy back up to 7% of its own shares, following plunging stock prices and a pressure campaign from one of the world's most aggressive activists. ”Stock-Buyback Plans Shrink"; The new coronavirus may threaten companies' buyback plans— though a down market could also create a buying opportunity Wall Street Journal (Online); New York, N.Y. 09 Mar 2020. U.S. corporations are signalling a reduced appetite for stock buybacks this year, undermining a pillar of support for stocks at a time of heightened volatility. Companies authorized around $122 billion in future buybacks through February, according to data compiled by equity research firm Birinyi Associates, marking a nearly 50% drop from the same period a year ago and representing the slowest pace in three years…”

Required: Discuss the benefits of share buybacks. While having lots of firms suspend buybacks under current market conditions, advise with reasonings if SoftBank should suspend their share buyback plan?

“SoftBank Plans $4.8 Billion Share Buyback Following Pressure From Elliott; The proposed share buyback isn't as large as the one urged by the activist shareholder
Wall Street Journal; New York, N.Y. [New York, N.Y] 13 Mar 2020.
TOKYO—SoftBank Group Corp. said it would spend as much as ¥500 billion ($4.8 billion) to buy back up to 7% of its own shares, following plunging stock prices and a pressure campaign from one of the world's most aggressive activists.”
“Stock-Buyback Plans Shrink; The new coronavirus may threaten companies' buyback plans—though a down market could also create a buying opportunity
Wall Street Journal (Online); New York, N.Y. 09 Mar 2020.
U.S. corporations are signalling a reduced appetite for stock buybacks this year, undermining a pillar of support for stocks at a time of heightened volatility.
Companies authorized around $122 billion in future buybacks through February, according to data compiled by equity research firm Birinyi Associates, marking a nearly 50% drop from the same period a year ago and representing the slowest pace in three years…”
Required:
Discuss the benefits of share buybacks. While having lots of firms suspend buybacks under current market conditions, advise with reasonings if SoftBank should suspend their share buyback plan?

“JP. Morgan Plans $4.8 Billion Share Buyback Following Pressure From Elliott; The proposed share buyback isn't as large as the one urged by the activist shareholder
Wall Street Journal; New York, N.Y. [New York, N.Y] 13 Mar 2020.
TOKYO—JP. Morgan said it would spend as much as ¥500 billion ($4.8 billion) to buy back up to 7% of its own shares, following plunging stock prices and a pressure campaign from one of the world's most aggressive activists.”
“Stock-Buyback Plans Shrink; The new coronavirus may threaten companies' buyback plans—though a down market could also create a buying opportunity
Wall Street Journal (Online); New York, N.Y. 09 Mar 2020.
U.S. corporations are signalling a reduced appetite for stock buybacks this year, undermining a pillar of support for stocks at a time of heightened volatility.
Companies authorized around $122 billion in future buybacks through February, according to data compiled by equity research firm Birinyi Associates, marking a nearly 50% drop from the same period a year ago and representing the slowest pace in three years…”
Required:

Discuss the benefits of share buybacks. While having lots of firms suspend buybacks under current market conditions, advise with reasonings if JP. Morgan should suspend their share buyback plan?

“SoftBank Plans $4.8 Billion Share Buyback Following Pressure From Elliott; The proposed share buyback isn't as large as the one urged by the activist shareholder
Wall Street Journal; New York, N.Y. [New York, N.Y] 13 Mar 2020.
TOKYO—SoftBank Group Corp. said it would spend as much as ¥500 billion ($4.8 billion) to buy back up to 7% of its own shares, following plunging stock prices and a pressure campaign from one of the world's most aggressive activists.”
“Stock-Buyback Plans Shrink; The new coronavirus may threaten companies' buyback plans—though a down market could also create a buying opportunity
Wall Street Journal (Online); New York, N.Y. 09 Mar 2020.
U.S. corporations are signalling a reduced appetite for stock buybacks this year, undermining a pillar of support for stocks at a time of heightened volatility.
Companies authorized around $122 billion in future buybacks through February, according to data compiled by equity research firm Birinyi Associates, marking a nearly 50% drop from the same period a year ago and representing the slowest pace in three years…”
Required:
Discuss the benefits of share buybacks. While having lots of firms suspend buybacks under current market conditions, advise with reasonings if SoftBank should suspend their share buyback plan?

“SoftBank Plans $4.8 Billion Share Buyback Following Pressure From Elliott; The proposed share buyback isn't as large as the one urged by the activist shareholder Wall Street Journal; New York, N.Y. [New York, N.Y] 13 Mar 2020.

TOKYO—SoftBank Group Corp. said it would spend as much as ¥500 billion ($4.8 billion) to buy back up to 7% of its own shares, following plunging stock prices and a pressure campaign from one of the world's most aggressive activists.

”Stock-Buyback Plans Shrink"; The new coronavirus may threaten companies' buyback plans— though a down market could also create a buying opportunity Wall Street Journal (Online); New York, N.Y. 09 Mar 2020.

U.S. corporations are signalling a reduced appetite for stock buybacks this year, undermining a pillar of support for stocks at a time of heightened volatility.

Companies authorized around $122 billion in future buybacks through February, according to data compiled by equity research firm Birinyi Associates, marking a nearly 50% drop from the same period a year ago and representing the slowest pace in three years…”

Required:

Discuss the benefits of share buybacks. While having lots of firms suspend buybacks under current market conditions, advise with reasonings if SoftBank should suspend their share buyback plan?

Read:

One industry with an impact on both undergraduate and MBA students is textbook publishing. Traditional printed textbooks are being challenged on one hand by self-publishing firms offering very low prices for specific instructor materials, and on the other hand by a need to offer digital resources that substitute for printed materials. Large textbook publishers are increasingly investing in adaptive learning systems such as Wiley-PLUS, Cengage MindTap, and McGraw-Hill Connect. Complicating factors for the publishers is the changing business model of renting textbooks (printed and electronic). U.S. university book rental was about 25 percent of student purchasing volume in 2015.
Use the five forces model (with complements) to think through the various impacts such technology shifts may have on the textbook industry. Include in your response answers to the following questions.

(a) Identify the threat of new entrants. Choose one of the concepts (Economies of scale, Network effects, Customer switching costs, Capital requirements, Advantages independent of size, Government policy, Credible threat of retaliation) to discuss the intensity of threat of new entrants. And discuss whether the intensity of threat of new entrants is high or low.

(b) Identify the power of supplies. Discuss whether the power of supplies is high or low (1-e) Identify the power of buyers. Discuss whether the power of buyer is high or low (1-g) Identify the threat of substitutes.

(c) Discuss whether the threat of substitutes is high or low

(d) Identify the rivalry among competitors. Choose one of the concepts (Competitive industry structure, Industry growth, Strategic commitments, Exit barriers) to discuss the intensity of rivalry among competitors. And discuss whether the intensity of rivalry among competitors is high or low.

You set up your own business in merchandising sector in Scranton, PA - opening a luxury watch shop on 1/1/2020.

The following is related information about the business:

-   Specific sub-sector: Merchandising sector.

-   Location: Scranton, PA

-   Business model: merchandiser - buying and selling luxury watches.

-   Investment by owner: $1,000,000

- You hired a shop manager. In order to handle different aspects of business, you had one employee responsible for the purchasing, receiving, and storing of watches purchased. A second employee is responsible for the maintenance of account receivable records and collection from customers. A third employee has responsibility for personal records, timekeeping, preparation of payrolls, and distribution of payroll checks. As a part of his job, the shop manager would do some internal control functions. In addition, you hired one security officer, and 4 full-time sales assistants.

Requirements:

1. You are given the following economic events of the business in 2020

1/1/2020: Opened the business, invested $1,000,000 cash in the business.

1/1/2020: bought a building for the business purpose for $100,000 cash. The building has a useful economic life of 10 years.

1/1/2020: purchased 100 luxury watches for $200,000 with $100,000 cash payment, the remaining amount payable on 2/1/2021. (each watch costs $2,000)

3/1/2020: purchased 50 luxury watches for $250,000 with cash. Each watch costs $5,000.

4/1/2020: purchased 40 luxury watches for $240,000 with cash. Each costs $6,000.

6/1/2020: Sold 130 watched for $1,300,000. Of which $300,000 cash was received at the time of sale. The remaining amount to be received on 5/2/2021.

7/1/2020: paid $1,200 in advance for 12 months’ property insurance (7/1/20 to 7/1/21).

8/1/2020: borrowed $500,000 from a local Chase bank. Interest rate is 12%/year. Interest is paid every 6 months- the first payment date is 2/1/2021. Principal would be paid on 8/1/2021.

9/1/2020: to expand business, you rent a showroom in the next building. Paid $24,000 cash in advance for 12 month’s rent.

12/31/2020: Paid 2020 utilities expense, advertising expense, and miscellaneous expense for $5000, $15,000, and $4,000, respectively.

Salary is paid on the last day of each month. Each month’s salary expense is $20,000.

Notes:

• On 12/31/2020: Physical inventory showed that there were 60 luxury watches on hand at the end of the period. The company used periodic inventory system, and used FIFO costing method.
• Your business used straight-line depreciation method for all fixed assets.
• Ignore tax.

Requirement: Prepare an excel file that includes

1. Tab 1 titled “accounting entries”: prepare all journal entries, adjusting entries, closing entries needed for the period ending on 12/31/2020 based on above economic events

You set up your own business in merchandising sector in Scranton, PA - opening a luxury watch shop on 1/1/2020.

The following is related information about the business:

-   Specific sub-sector: Merchandising sector.

-   Location: Scranton, PA

-   Business model: merchandiser - buying and selling luxury watches.

-   Investment by owner: $1,000,000

- You hired a shop manager. In order to handle different aspects of business, you had one employee responsible for the purchasing, receiving, and storing of watches purchased. A second employee is responsible for the maintenance of account receivable records and collection from customers. A third employee has responsibility for personal records, timekeeping, preparation of payrolls, and distribution of payroll checks. As a part of his job, the shop manager would do some internal control functions. In addition, you hired one security officer, and 4 full-time sales assistants.

Requirements:

1. You are given the following economic events of the business in 2020

1/1/2020: Opened the business, invested $1,000,000 cash in the business.

1/1/2020: bought a building for the business purpose for $100,000 cash. The building has a useful economic life of 10 years.

1/1/2020: purchased 100 luxury watches for $200,000 with $100,000 cash payment, the remaining amount payable on 2/1/2021. (each watch costs $2,000)

3/1/2020: purchased 50 luxury watches for $250,000 with cash. Each watch costs $5,000.

4/1/2020: purchased 40 luxury watches for $240,000 with cash. Each costs $6,000.

6/1/2020: Sold 130 watched for $1,300,000. Of which $300,000 cash was received at the time of sale. The remaining amount to be received on 5/2/2021.

7/1/2020: paid $1,200 in advance for 12 months’ property insurance (7/1/20 to 7/1/21).

8/1/2020: borrowed $500,000 from a local Chase bank. Interest rate is 12%/year. Interest is paid every 6 months- the first payment date is 2/1/2021. Principal would be paid on 8/1/2021.

9/1/2020: to expand business, you rent a showroom in the next building. Paid $24,000 cash in advance for 12 month’s rent.

12/31/2020: Paid 2020 utilities expense, advertising expense, and miscellaneous expense for $5000, $15,000, and $4,000, respectively.

Salary is paid on the last day of each month. Each month’s salary expense is $20,000.

Notes:

• On 12/31/2020: Physical inventory showed that there were 60 luxury watches on hand at the end of the period. The company used periodic inventory system, and used FIFO costing method.
• Your business used straight-line depreciation method for all fixed assets.
• Ignore tax.

Requirement: Prepare an excel file that includes

Tab 2 titled “income statement”: prepare a multiple-step income statement for year ended 12/31/2020.