Nealon Energy Corporation engages in the​ acquisition, exploration,​ development, and production of natural gas and oil in the continental United States. The company has grown rapidly over the last 5 years as it has expanded into horizontal drilling techniques for the development of the massive deposits of both gas and oil in shale formations. The​ company's operations in the Haynesville shale​ (located in northwest​ Louisiana) have been so significant that it needs to construct a natural gas gathering and processing center near Bossier​ City, Louisiana, at an estimated cost of $50 Million.

To finance the new​ facility, Nealon has $10 Million in profits that it will use to finance a portion of the expansion and plans to sell a bond issue to raise the remaining $40 million. The decision to use so much debt financing for the project was largely due to the argument by company CEO Douglas Nealon Sr. that debt financing is relatively cheap relative to common stock​ (which the firm has used in the​ past). Company CFO Doug Nealon Jr.​ (son of the company​ founder) did not object to the decision to use all debt but pondered the issue of what cost of capital to use for the expansion project. There was no doubt that the​ out-of-pocket cost of financing was equal to the new interest that must be paid on the debt.​ However, the CFO also knew that by using debt for this project the firm would eventually have to use equity in the future if it wanted to maintain the balance of debt and equity it had in its capital structure and not become overly dependent on borrowed funds. The following balance sheet, reflects the mix of capital sources that Nealon has used in the past. Although the percentages would vary over​ time, the firm tended to manage its capital structure back toward these proportions.

The firm currently has one issue of bonds outstanding. The bonds have a par value of $1000 per bond, carry a coupon rate of 6%, have 16 years to maturity, and are selling for $1055. Nealon's common stock has a current market price of $42, and the firm paid a $2.20 dividend last year that is expected to increase at an annual rate of 6% for the foreseeable future.

BONDS 40%

COMMON STOCK 60%

a. What is the yield to maturity for​ Nealon's bonds under current market​ conditions?

b. What is the cost of new debt financing to Nealon based on current market prices after both taxes​ (you may use a marginal tax rate of 36% for your​ estimate) and flotation costs of $30 per bond have been considered?

Note​: Use N=16 for the number of years until the new bond matures.

c. What is the​ investor's required rate of return for​ Nealon's common​ stock? If Nealon were to sell new shares of common​ stock, it would incur a cost of

$3.00 per share. What is your estimate of the cost of new equity financing raised from the sale of common​stock?

d. Compute the weighted average cost of capital for​ Nealon's investment using the weights reflected in the actual financing mix​(that is,

$10 million in retained earnings and $40 million in​ bonds).

e. Compute the weighted average cost of capital for Nealon where the firm maintains its target capital structure by reducing its debt offering to 40 percent of the

$50 million in new​ capital, or $20

​million, using $20 million in retained earnings and raising $10 million through a new equity offering.

f. If you were the CFO for the​ company, would you prefer to use the calculation of the cost of capital in part (d​) or (e​) to evaluate the new​ project? Why?

​

Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd. All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd. At 30 June 2020 Asia Pacific Ltd estimates the following:  The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.  The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.  The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.  The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.  Salaries are expected to increase indefinitely at 1 per cent per annum. The interest rates on high-quality corporate bonds are as follows: Corporate bonds maturing in seven years 6% Corporate bonds maturing in eight years 8% Corporate bonds maturing in nine years 8% Corporate bonds maturing in ten years 10% At 30 June 2019 the provision for long-service leave was $12,000. Required: a) Calculate the total accumulated long-service leave benefit as at 30 June 2020. b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119? c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119. d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words

Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd. All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd. At 30 June 2020 Asia Pacific Ltd estimates the following:  The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.  The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.  The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.  The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.  Salaries are expected to increase indefinitely at 1 per cent per annum. The interest rates on high-quality corporate bonds are as follows: Corporate bonds maturing in seven years 6% Corporate bonds maturing in eight years 8% Corporate bonds maturing in nine years 8% Corporate bonds maturing in ten years 10% At 30 June 2019 the provision for long-service leave was $12,000. Required: a) Calculate the total accumulated long-service leave benefit as at 30 June 2020. b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119? c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119. d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words

Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd.

All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd.

At 30 June 2020 Asia Pacific Ltd estimates the following:

 The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.

 The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.

 The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.

 The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.

 Salaries are expected to increase indefinitely at 1 per cent per annum.

The interest rates on high-quality corporate bonds are as follows:

Corporate bonds maturing in seven years 6%

Corporate bonds maturing in eight years 8%

Corporate bonds maturing in nine years 8%

Corporate bonds maturing in ten years 10%

At 30 June 2019 the provision for long-service leave was $12,000.

Required: a) Calculate the total accumulated long-service leave benefit as at 30 June 2020.

b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119?

c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119.

d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words)

Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd. All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd. At 30 June 2020 Asia Pacific Ltd estimates the following:  The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.  The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.  The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.  The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.  Salaries are expected to increase indefinitely at 1 per cent per annum. The interest rates on high-quality corporate bonds are as follows: Corporate bonds maturing in seven years 6% Corporate bonds maturing in eight years 8% Corporate bonds maturing in nine years 8% Corporate bonds maturing in ten years 10% At 30 June 2019 the provision for long-service leave was $12,000. Required: a) Calculate the total accumulated long-service leave benefit as at 30 June 2020. b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119? c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119. d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words)

Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd. All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd. At 30 June 2020 Asia Pacific Ltd estimates the following:  The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.  The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.  The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.  The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.  Salaries are expected to increase indefinitely at 1 per cent per annum. The interest rates on high-quality corporate bonds are as follows: Corporate bonds maturing in seven years 6% Corporate bonds maturing in eight years 8% Corporate bonds maturing in nine years 8% Corporate bonds maturing in ten years 10% At 30 June 2019 the provision for long-service leave was $12,000. Required: a) Calculate the total accumulated long-service leave benefit as at 30 June 2020. b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119? c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119. d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words)

Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd.
All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd.
At 30 June 2020 Asia Pacific Ltd estimates the following:
 The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.
 The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.
 The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.
 The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.
 Salaries are expected to increase indefinitely at 1 per cent per annum.
The interest rates on high-quality corporate bonds are as follows:
Corporate bonds maturing in seven years 6%
Corporate bonds maturing in eight years 8%
Corporate bonds maturing in nine years 8%
Corporate bonds maturing in ten years 10%
At 30 June 2019 the provision for long-service leave was $12,000.
Required:
a) Calculate the total accumulated long-service leave benefit as at 30 June 2020.
b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119?
c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119.
d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words)

Week 6 Asia Pacific Ltd started operating on 1 July 2017 with 12 employees. Three years later all of those employees were still with the company. On 1 July 2019 the company hired 15 more people but by 30 June 2020 only 10 of those employed at the beginning of that year were still employed by Asia Pacific Ltd. All employees are entitled to 13 weeks’ long-service leave after a conditional period of 10 years of employment with Asia Pacific Ltd. At 30 June 2020 Asia Pacific Ltd estimates the following:  The aggregate annual salaries of all employees hired on 1 July 2017 is now $1,200,000.  The aggregate annual salaries of all current employees hired on 1 July 2019 is now $800,000.  The probability that employees hired on 1 July 2017 will continue to be employed for the duration of the conditional period is 40 per cent.  The probability that employees hired on 1 July 2019 will continue to be employed for the duration of the conditional period is 20 per cent.  Salaries are expected to increase indefinitely at 1 per cent per annum. The interest rates on high-quality corporate bonds are as follows: Corporate bonds maturing in seven years 6% Corporate bonds maturing in eight years 8% Corporate bonds maturing in nine years 8% Corporate bonds maturing in ten years 10% At 30 June 2019 the provision for long-service leave was $12,000. Required: a) Calculate the total accumulated long-service leave benefit as at 30 June 2020. b) What amount should be reported for the long-service leave provision as at 30 June 2020 in accordance with AASB 119? c) Prepare the journal entry for the provision for long-service leave for 30 June 2020 in accordance with AASB 119. d) Which employee benefits are required to be discounted in accordance with AASB 119? (1 mark, maximum 100 words)

P12.4 Monsecours Corp., a public company incorporated on June 28, 2019, set up a single account for all of its intangible assets. The following summary discloses the debit entries that were recorded during 2019 and 2020 in that account:

The new business started up on July 2, 2019. No amortization was recorded for 2019 or 2020. The goodwill purchased on April 1, 2020, includes in-process development costs that meet the six development stage criteria, valued at $175,000. The company estimates that this amount will help it generate revenues over a 10-year period.

Instructions

a. Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as at December 31, 2020, and record any necessary amortization so that all balances are appropriate as at that date. State any assumptions that you need to make to support your entries.

b.  In what circumstances should goodwill be recognized? From the perspective of an investor, does the required recognition and measurement of goodwill provide useful financial statement information?

Question 3 Part A XYZ Windows Ltd is involved in a research and development project to create a filtering window that removes the need for curtains. For the current year ended 30 June 2020 expenditure on the project is as follows: Research $235,000 Development $500,000 The window is expected to return profits of $70,000 per year for the 10 years commencing 1 July 2020. Assuming the company uses a straight-line method amortisation. This company uses a discount rate of 8 per cent. Required: i) How much research and development cost should be expensed in the year to 30 June 2020? ii) How much development expenditure should be amortised in the year to 30 June 2021?

Part B An assistant of yours has encountered the following matter during the preparation of the draft financial statements of XYZ Ltd for the year ending 30 June 2020. He /She has given an explanation of his/her treatment of the item. “XYZ Ltd management spent $200,000 sending its staff on training courses during the year. This has already led to an improvement in the company’s efficiency and resulted in cost savings. The organiser of the course has stated that the benefits from the training should last for a minimum of four years. The assistant has therefore treated the cost of the training as an intangible asset and charged six months’ amortisation based on the average date during the year on which the training courses were completed.” Required: Comment on the assistant’s treatment of them in the financial statement for the year ended 30 June 2020 and advise him how they should be treated under AASB 138 Intangible Assets.

Part C If an organisation is constructing a building, and that building will take a number of years to complete, can the organisation recognise revenue throughout the contract, or does the construction-based organisation have to wait until project completion before it recognises the revenue associated with the construction contract? Discuss this statement in accordance to AASB 15.