Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance:

Debit CreditAccounts payable   $55,800Accounts receivable$42,500   Additional paid-in capital    50,000Buildings (net) (4-year remaining life) 209,000   Cash and short-term investments 67,250   Common stock    250,000Equipment (net) (5-year remaining life) 357,500   Inventory 136,000   Land 114,000   Long-term liabilities (mature 12/31/23)    168,500Retained earnings, 1/1/20    414,650Supplies 12,700   Totals$938,950 $938,950

During 2020, Abernethy reported net income of $104,500 while declaring and paying dividends of $13,000. During 2021, Abernethy reported net income of $137,750 while declaring and paying dividends of $34,000.

Assume that Chapman Company acquired Abernethy’s common stock for $819,720 in cash. Assume that the equipment and long-term liabilities had fair values of $378,350 and $137,980, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment.

Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance:

During 2020, Abernethy reported net income of $101,000 while declaring and paying dividends of $13,000. During 2021, Abernethy reported net income of $152,000 while declaring and paying dividends of $39,000.

Assume that Chapman Company acquired Abernethy’s common stock for $664,740 in cash. Assume that the equipment and long-term liabilities had fair values of $349,250 and $151,060, respectively, on the acquisition date. Chapman uses the initial value method to account for its investment.

Prepare consolidation worksheet entries for December 31, 2020, and December 31, 2021

At December 31, 2019, certain accounts included in the property, plant, and equipment section of Novak Company’s balance sheet had the following balances.

During 2020, the following transactions occurred.

The building was completed and occupied on September 30, 2020.

(a)

Calculate the balance at December 31, 2020 in each of the following balance sheet accounts. Disregard the related accumulated depreciation accounts.

Mark worked as route manager for United Trucks Pty Ltd in Queensland from 2003-17. A term of his contract was that if he should leave the company, he could not engage in the trucking industry in Queensland for five years. In 2018 he registered a company called Sunshine Trucks Pty Ltd. Mark owns 99% of the shares in the company. The other 1% is owned by his brother, Greg, whom he elected as sole director and CEO. Sunshine Trucks operates from Townsville and carries goods all over Queensland. Greg also signs a contract on behalf of the company, taking out a loan of $ 2 million from Grasping Bank in 2018 as start-up capital. The company did well during 2018, 2019 and the first half of 2020, but in July 2020 was not able to repay a loan instalment of $ 100 000 owing to Grasping Bank Ltd. Mark comes to you for advice after receiving two letters: One from United Trucks Pty Ltd requiring Sunshine Trucks Ltd to cease operating in Queensland, the other from Grasping Bank Ltd threatening to sue him for $ 100 000. Advise him, citing all relevant legal authority. Please note that you should assume that the restraint of trade clause in the contract that Mark had with United Trucks is valid under the law of contract. You should therefore not discuss that issue.

Advice Mark using ILAC.

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Read and answer the question:

Summary

Wal-Mart’s stock tumbled on the news that the company was investigating possible violations of the Foreign Corrupt Practices Act. According to information leaked to the press, Wal-Mart may have been bribing Mexican government officials in order to gain the zoning approvals it needed to build stores in the country. What makes the story especially interesting was the fact that the company appears to have known about the violations for several years, yet seemingly chose to do nothing.

While Wal-Mart had no legal obligation to disclose the fact that it was looking into the situation some years ago, analysts agree that the company had an ethical responsibility to make some disclosure, particularly given that the retail giant seems to have done little with the knowledge of a potential violation. Investigators will be looking to see whether the company gained an unfair competitive advantage as a result of its illegal activity.

If the company is found to have violated the Foreign Corrupt Practices Act it could face fines, and possibly have to return some of the profits it earned as a result. In addition, because it seems that top level executives were aware of the bribes when they occurred, there could be further penalties. Wal-Mart’s current CEO, Mike Duke, was head of Wal-Mart International at the time of the bribes.

Discussion Questions

1. If the allegations against Wal-Mart prove to be true, the company will certainly be penalized for its illegal behavior. Consider, though whether the Foreign Corrupt Practices Act puts U.S. firms at a competitive disadvantage in foreign markets. Does it actually encourage unethical behavior by firms?
2. Is it ethical for U.S. lawmakers to prohibit bribery in foreign markets? What are the implications of the Foreign Corrupt Practices Act on employment and economic development in countries like India and Mexico?
3. Suppose you are a U.S. supplier to Wal-Mart Mexico. Do you agree with the Foreign Corrupt Practices Act? How does it affect you? Do you feel that U.S. lawmakers have the right to limit the activities of U.S. firms in foreign markets?
4. How might the organization culture at Wal-Mart encourage managers to make unethical decisions? Discuss the expectations of shareholders. Do you think shareholders would look the other way if Wal-Mart bribed Mexican officials to speed up its approvals?

Need to make journal entires

Your top sales officer met with a new customer to discuss a potential future contract. She informs you that the customer is considering signing the $200,000 deal, which would become effective February 2020. ACCY1 Accounting Fundamentals Group Project 7 30. On October 1st, you purchased 11,250 units at the decreased price of $61 per unit. The purchase was made on account. 31. On October 10th you paid your supplier $132,000 cash for inventory purchased on account. November 32. November 1 st, the CEO, in an effort to adjust ratios, ordered the repurchasing of the company’s own stock. The quantity of stock repurchased was 175,000 shares. 33. Purchased a three-year building insurance policy on November 1st for $442,000 cash. [Adjusting Entry Required] 34. On November 17th a customer pays you $450,000 for work that you will finish in January of 2020. 35. November 19th , your customers bought 8,650 units of your product at $110 per unit. The cost of this product is determined by the method of inventory valuation used by your company. Customers paid you 55% in cash and the remainder was on account. 36. An employment contract is signed with a new regional manager. You have offered him $150,000 per year. He will not begin working for the company until March 2020.

On 1 July 2020 S Ltd acquired 60% of the issued shares of P Ltd. During the year ended 30 June 2021 the following intra group transactions occurred:

1. Sales of inventory: P Ltd to S Ltd $200,000 (Cost to P Ltd $150,000)

2. Intragroup inventory on hand 30 June 2021: S Ltd held 40% of the inventory acquired from P Ltd

3. Intragroup sale of equipment An item of equipment originally acquired by S Ltd on 1 July 2018 at a cost of $200,000 was sold to P Ltd on 1 July 2020 for $170,000. S Ltd had depreciated this asset at 10% per annum on a straight line basis with no scrap value. Subsequent to the sale the expected useful life of the asset is a further 4 years.

4. During the year ended 30 June 2021 the following dividends were paid:

• S Ltd       $10,000
• P Ltd       $2,000

5. On 31 December 2020 S Ltd lent P Ltd $100,000. Interest on this loan at 6% was paid up to 30 June 2021.

6. During the year ended 30 June 2021 P Ltd paid S Ltd $4,000 for management services.

Required.

Prepare the consolidation journal entries required to eliminate the above intragroup transactions for the year ended 30 June 2021. Assume a tax rate of 30%

The spread of the coronavirus in the U.S. has had negative effects on the U.S. economy. GDP growth rate went negative (-5.8%) in the first quarter of 2020 and unemployment rate spiked to 14.7% in April. Use the aggregate demand and aggregate supply model from chapter 10 to explain this short run downturn? Make sure to indicate the shifts in the curves.

Explain Malibu Boats' business model (be certain to include the value proposition and profit formula). How — if at all — has it changed over the first five years?

Information:

Jack Springer, CEO of Malibu Boats since 2010, looked out over the main production facility of Louden, Tennessee, facility. In his ten years at the helm of the Tennessee boat company, he had transitioned it from an industry leader in high-performance towboats to a diversified firm that included high-performance fishing boats. A significant facet of this transition was Malibu's 2017 purchase of Cobalt Boats for $130 million and the 2018 purchase of Pursuit Boats for $100 million. Unknown at the time of the purchase was the havoc the COVID 19 pandemic would have on the world economy and the boating industry. Springer's task this summer morning was to prepare a written assessment to present at the upcoming Board of Directors meeting. Earlier in the week, the board had requested an assessment of the Cobalt and Pursuit acquisitions in the current economic context. As he looked out on the production floor, he pondered several questions: is Malibu in a better or worse competitive position with the acquisitions? What impact will a down economy have on the future success of this acquisition? And, what had the company learned from the experience?

Malibu Boats

Headquartered in Loudon, Tennessee, Malibu Boats is a top designer, manufacturer, and marketer of a diverse range of recreational powerboats, including performance sport, sterndrive, and outboard boats (Globe Newswire, 2020).

Founded in 1982 by Bob Alkema and Steve Marshall, Malibu Boats began production averaging two boats per week. The company grew quickly and increased staffing and production. In 1986, the company implemented an employee stock ownership program and had achieved a nine percent market share by 1988. Needing to expand production, Malibu opened a second plant in Tennessee, which allowed the company to produce almost 1000 custom ski boats that year.

In 1992, Malibu built a new manufacturing facility in Loudon, Tennessee. The company's focus on innovation led it to create and patent a fiberglass engine chassis system (FibECS) that eliminated vibration and noise. In the mid-nineties, Malibu expanded internationally to Australia thorough a licensee agreement.

In the area of water sports, Malibu was on the front end of research and development of wakeboarding features. By recognizing that the wakeboarding market was a natural outgrowth of the traditional sport of water skiing, Malibu was able to capitalize on this fast-growing market (Willet, 2012).

In the early 2000's Malibu established itself as the largest custom ski boat manufacturer in the world. In 2006, Horizon Holdings and Black Canyon Capital acquired Malibu.

Unlike competitors in the industry, Malibu was able to expand market share during the Great Recession of the mid-2000s.

Jack Springer was named CEO in 2009, and under his direction, Malibu launched the Axis Wake Research brand and relocated headquarters to the firm's production facility in Loudon, Tennessee. In doing so, Malibu positioned itself closer to the freshwater marine manufacturing industry.

In 2013, Malibu established a new holding company for all operations – Malibu Boats Inc. The new entity was formed, in part, to prepare for the company's initial public offering (IPO) in January of 2014. In going public, initial trading began at $14 a share, generating a market capitalization of $300 million (Kaiser, 2014).

Malibu's International Presence

Malibu has a small but important international footprint. In the early 1990s, the company had established its brand and a manufacturing facility in Australia through a licensee agreement. After Malibu's successful IPO, the company acquired all equity interests in Malibu Boats Australia and made assurances the company would maintain its presence in that market. Malibu Boats Inc. has publicly stated that Malibu Australia may become Malibu's primary producer for the entire Asian market.

In addition, through the acquisition of Cobalt boats and its dealer network, Malibu Boats Inc. has access to locations in Canada and overseas.

Acquisition of Cobalt and Pursuit Boats

Malibu's first major acquisition was a $130 million deal to purchase competitor Cobalt Boats (Malibu Boats, Inc., 2017). The deal maintained separate manufacturing operations; Malibu in Louden, TN, and Cobalt in Neodesha, KS.

In October of 2018, Malibu Boats acquired Pursuit Boats from S2 Yachts to expand its premium brand into the fast-growing saltwater fishing boat industry. The purchase price was $100 million. In addition to expanding its brand offerings, Malibu states, "the acquisition gives the company the ability to leverage manufacturing, design expertise, and distribution to accelerate outboard growth" (Trade Only Today, 2018). Malibu will finance the $100 million purchase with $50 million in cash on hand and $50 million in credit (Boating Industry, 2018).

"Pursuit is an incredible addition to the Malibu family," said Jack Springer. "This highly complementary business creates strong strategic opportunities to enhance product development across our portfolio of brands. Together, we have an opportunity to broaden our outboard offering, while leveraging the manufacturing and design expertise of the respective teams." (Trade Only Today, 2018).

Cobalt Boats

Cobalt Boats is a market leader in mid to large-sized sterndrive boats that include cruisers, bowriders, and outboards used for cruising, skiing, entertaining, surfing, and fishing (Malibu Boats, Inc., 2017). Cobalt is a world-class brand producing 24 models across six series. The company has a dealer network of 132 locations in the U.S., Canada, and overseas. The year prior to the acquisition, Cobalt generated approximately $140 million in net sales.

Pursuit Boats

Pursuit Boats, located in Fort Pierce, Florida, builds 15 models of high-quality saltwater fishing boats in lengths of 23 to 40 feet. Pursuit has established itself as a premium brand by building high-quality offshore fishing boats for over 40 years (Boating Industry, 2018).

A2 Yachts, the original parent company of Pursuit Boats, is a privately held firm. S2 Yachts will continue to operate and own Tiarra Yachts and Tiarra Sport. Limited financial information is available on S2 Yachts as it is a privately held firm.

Malibu Today

Today, Malibu Boats is a leading designer, manufacturer, and marketer of a diverse range of powerboats across four primary brands: Malibu, Axis, Cobalt, and Pursuit (Malibu Boats, 2019). Company accolades include holding the #1 market share position in the U.S. in the performance sport boat category, the #1 market share position in the U.S. in the 24'-29’ segment of the sterndrive category, and a holding a leading market position for fiberglass outboard fishing boats (Malibu Boats, 2019). Malibu's boats are used for activities including water sports and recreational boating and fishing. Retail prices across the various models range from $60,000 - $800,000.

• Malibu – The flagship line provides consumers the latest innovations and designed for customers seeking a premium performance sport boat.
• Axis – Designed for customers who desire a more affordable performance sport boat yet expect high performance.
• Cobalt – Comprise mid to large-sized cruisers and bowriders providing exceptional comfort, performance, and quality.
• Pursuit – Consist of saltwater outboard fishing boats using a center console, dual console, and offshore models.

Competitive advantage across the brands is created by new products, a strong dealer network, and innovation. Malibu has built a distinctive competitive advantage. As an example, the Integrated Surf Platform (ISP) patented Surf Gate is an industry-leading (and envied) product. Similar to other boat brands in the industry, the dealership network is vital to the customer experience and Malibu Boats. As such, Malibu dedicates significant resources to find, develop, and improve the performance of dealerships. As of July 2019, the company's distribution channels consisted of 350 dealer locations globally. Innovation continues in 2020 with the launch of Stern Turn, which provides the driver the maneuverability of a sterndrive or outboard boat, thereby making navigation easier (Malibu Boats, 2019).

Compared to competitors, Malibu Boats has a higher degree of vertical integration. Malibu manufactures many of its own parts, including towers, stainless materials, trailers, and, more recently, engines. CEO Jack Springer builds as much as 25% more in-house compared to rival companies (Malibu Boats, 2019).

• Malibu is traded on the NASDAQ – Global Market index under MBUU, a Class A common stock.
• In 2019 Net sales increased 37.6% to a record high of $684 million.
• Malibu Boats continued to be a growth company finishing 2019 as the twenty-eighth fasted growing company on Fortune Magazine's Fastest-Growing Companies List.

Marine Industry

Towable performance boats have been a large part of the marine industry. Malibu has long held a premium position in this industry segment. The saltwater outboard fishing market is one of the largest and fastest-growing segments of the marine industry.

Conclusion

As Springer reflected on the upcoming board meeting, he could not help but recall his optimism in the 2019 annual report. Specifically, he cited that the U.S economy was strong, consumer confidence high, inflation low, and employment high. As such, he was confident that markets would remain strong for the foreseeable future. Then, the COVID 19 Pandemic changed everything. The rosy picture he had painted for the 2020 fiscal year will look very different.