(b) The information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee.

Inception date        January 1, 2020

Lease term         6 years

Annual lease payment due at the beginning of

each year, beginning with January 1, 2020   $150,000

Fair value of asset at January 1, 2020     $760,000

Economic life of leased equipment     7 years

Residual value of equipment at end of lease term,

guaranteed by the lessee       $65,500

Lessor’s implicit rate      10%

Lessee’s incremental borrowing rate    12%

January 1, 2020

The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment.

Instructions

iii) Record the first year’s depreciation on Telsan Company’s books.

iv)Record interest expense and lease liability for Telsan Company for the year ending December 31, 2020.

On December 31, 2019, Cheyenne Inc. borrowed $3,960,000 at 13% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $475,200; June 1, $792,000; July 1, $1,980,000; December 1, $1,980,000. The building was completed in February 2021. Additional information is provided as follows.

Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2020.

For its first year if operations, Altitude Inc. reports pretax GAAP income of $100,000 in 2020. Assume pretax income in 2021 and 2022 of $125,000 and $90,000 respectively. The enacted income tax rate in all years is 25%. The following additional information is available for the first three years of operation (with the exception of the one item in the 4th year).

• Prepaid rent in the amount of $20,000 was recorded on December 21, 2020 for 2021 rent.
• A warranty accrual of 30,000 was recorded on December 31, 2020. The warranty was paid evenly over the years 2021-2023.
• The company recorded interest revenue of $500 each of the three years on municipal bonds.

1. Compute the income tax payable each year for 202, 2021, 2022
2. Determined the balance of any deferred tax assets or deferred tax liabilities at the end of each year (2020, 2021, 2022)
3. Record the journal entry related to taxes in 2020, 2021, 20222

1          A renewable energy electricity supply technology has the following characteristics:

If the owner can sell the electricity at 25 c/kWh, what is the simple payback period for the technology?

Would the owner invest in this technology if (s)he set a strict maximum four-year payback period?

What would the selling price for the electricity have to rise to for the owner to invest in the technology if (s)he set a maximum three-year payback period?

What is the Present Worth (Net Present Value) of the investment over a 25 year assessment period and real discount rate of 5% when the electricity price is 25 c/kWh?

What is the real internal rate of return for the owner of this technology over a 25-year assessment period when the electricity price is 30 c/kWh? Would the owner invest if their threshold real rate of return was 30%?

Derive an analytical relationship between simple payback period and internal rate of return (IRR) over a 15-year assessment period for a project with a single fixed capital payment (K) at the beginning of year 1 and equal constant-dollar annual net benefits over this period (B). Hint: the simple payback period will be K/B. Use the equation for IRR given in the week 2 lecture.

Then solve this equation iteratively using Excel for payback periods between 1 and 15, and plot the corresponding graph of IRR vs Payback Period

With reference to your answers to 1.1 to 1.6, discuss briefly the limitations of the simple payback period as an evaluation criterion and why this can disadvantage renewable energy technologies compared to conventional fossil fuel power supply (at least 200 words).

….Continued on next page

Using the same figures as in question 1, calculate the lifecycle cost of the technology over an assessment period of 25 years at a real discount rate of 5%                                

Calculate the average unit cost of the power in present value terms (in cents/kWh) supplied by the technology over its lifetime at this real discount rate.

What is the corresponding Levelised Cost of Electricity (LCOE) (in cents/kWh)? Why is this value higher than that obtained in question 2.2? (Note: LCOE will not be covered in lectures until week 3.)

How would the competitiveness of this electricity from a renewable energy source be changed if there was (a) a price on carbon, and (b) a Clean Energy Target?

Using the figures in the table in Q1 as a baseline, work out an expression for Present Worth with real discount rate, assessment period, salvage value, and electricity price as independent variables. Then changing just one variable at a time (other things being kept equal) plot graphs of Present Worth versus each of these variables. Use a range of assessment periods up to the lifetime of the technology. Explore the effects of both positive and negative salvage values.

On the basis of these graphs and the lectures presented, critically discuss the relative influence of these variables on Present Worth, and hence the more general implications for the economic assessment of renewable energy technologies. You may wish to relate variations in electricity price to carbon pricing. 300 words minimum.

Note: to simplify the calculation of present worth, for assessment periods less than the lifetime, neglect the residual value of the technology, and assume salvage values are only incurred at the end of the lifetime of the technology.

Consider the system of a motorcycle + car. The motorcycle crashes and sticks into the initially stationary car, pushing it horizontally. After the crash the motorcycle and the car both slide to a halt together. Even though the system is not closed /isolated, the momentum of the collision is approximately conserved during the collision. Why is that?

Describe using words and graphs the how the impact of fiscal policy on output is different in a closed economy IS-LM model and an open economy IS-LM model. In addition, explain carefully how the open economy macro model depends on whether exchange rates are fixed or flexible.

Describe using words and graphs the how the impact of fiscal policy on output is different in a closed economy IS-LM model and an open economy IS-LM model. In addition, explain carefully how the open economy macro model depends on whether exchange rates are fixed or flexible.

Chemical modifications of histone tails are often made in chromatin to change the amount of chromatin compaction. Name three chemical modifications that have been observed by scientists to be on histone tails in chromatin. the modifications that you listed and discuss whether that modification is associated with closed or open chromatin.

A mixture of 0.750 atm ClF3 , 0.554 atm F2 , and 0.394 atm ClF is heated in a closed vessel to 700 K .

ClF3(g)↽−−⇀ClF(g)+F2(g)Kp=0.140 at 700 K

Calculate the equilibrium pressure of each gas at 700 K .

Question 4   (30 minutes)

Easy Company bought a piece of equipment four years ago. At December 31, 2020, the company revalued the equipment to its fair value. The following information relates to the equipment

Original cost: $1,200; Residual value: $ 200; Estimated useful life from purchase date: 10 years; Years used to December 31, 2020: 4 years; Fair value at December 31, 2020: $966; Depreciation method is straight-line.

Required:

1. Determine the depreciation expense for 2020.
2. Record the journal entry adjustment for the revaluation, using the ‘asset adjustment’method.
3. Determine the depreciation expense for 2021.
4. Assume that the fair value at the end of 2022 is $468. Record the journal entry for depreciation first for 2022, and then the entry related to this new fair value for 2022.

Question 5   (25 minutes)

Buzz Bee Yard Company’ Apiary began operations on January 1, 2020, with the purchase of 100 bee hives for $500 total. Buzz follows IFRS and its standard on agricultural products. It has completed the first year of operations and has the following information for its bee hives at December 31, 2020:

1. Bee Hives – purchase of hives as per above                                                                 $   500
2. Honey harvested during 2020 (at net realizable value)                                         1,900                  
3. Honey sold during 2020 (at net realizable value)                                                    1,600
4. Hive maintenance costs directly traceable to hive activity in year                      $60        
5. Company general administration costs                                                                           $40
6. Fair value on Dec. 31, 2020 of hives                                                                              $1,300    

Required:

1. Prepare all the journal entries for Buzz’s bee hives activities for 2020, as per the information in (a) to (f).

Question 6   (25 minutes)

The following events occurred in 2020:

1. June 30, 2020    A building that Big Company had purchased on January 1, 2016, for $ 10,000 was exchanged for another building owned by Other Company. Big Company exchanged its building and $1,000 cash for Other Company’s building. Big’s building had a fair value of $ 9,500 at the time of the exchange. Straight-line depreciation on the building with a 40-year useful life and no R.V. has been properly charged from Jan. 1, 2016 through Dec. 31, 2019. Both parcels of land on which the warehouses were located were equal in value, and had a fair value equal to book value. Big Company’s building contained a manufacturing operation. Other Company’s building was an office building.

2. Dec. 30, 2020      Machinery with a cost of $ 120 and accumulated depreciation through December 31, 2019, of $ 90 was exchanged, along with $ 15 cash, for a parcel of land with a fair market value of $ 44. Straight-line depreciation had been used for the machine. The machine had a 12-year useful life, and was 9 years-old as at Dec. 31, 2019.

3. Big Company replaced a roof on a building that it purchased in 2008. (12 years old as at Dec. 31, 2020.) The building cost $400,000 in 2008, and had an estimated life of 40 years, with no residual value. The new roof costs $25,020 to install. Big Company estimated that prices for goods and services have increased by 80% since 2008 . The roof component was not separately identified in the company accounts, but, of course, was included in the building asset at that time.

Required: Prepare ALL journal entries for 2020 related to the three situations above. Each situation may require more than one entry.