At the end of the current year, Accounts Receivable has a balance of $98,880; Allowance for Doubtful Accounts has a debit balance of $3,556; and sales for the year total $1,108,000. Bad debt expense is estimated at 1/2 of 1% of sales.

a. Determine the amount of the adjusting entry for bad debt expense.
$

b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense.

Adjusted Balance

Accounts Receivable$

Allowance for Doubtful Accounts

Bad Debt Expense

c. Determine the net realizable value of accounts receivable.
$

Multiple Choice

1. During the year, if a trust distributes corpus (principal), it is classified as a
   1. Grantor Trust
   2. Simple Trust
   3. Complex Trust
   4. Complicated Trust
2. Which of the following rights, if retained by the grantor, will cause the trust to be included in their estate?
   1. Right to receive income from the trust
   2. Right to amend the trust
   3. Reversionary interest in excess of 5%
   4. All of the above will cause inclusion in the gross estate
3. Which of the following trust is typically created through a decedent’s Will?
   1. Inter Vivos Trust
   2. Grantor Trust
   3. Credit Shelter Trust
   4. All of the above
   5. None of the above

A 15 year old girl in a coma was brought to the emergency room by her parents. She has been an insulin dependent diabetic for 7 years. Her parents stated that there have been several episodes of hypoglycemia and ketoacidosis in the past, and that their daughter has often been “too busy” to take her insulin injections. The laboratory results obtained on admission are shown in Case study Table 14-5.1

1. Calculate the osmolal gap.

2. What method was used to measure Na+?

3. Are these results valid? Explain why?

Venous Blood                   Result                                   Reference Range

Sodium                                 145 mmol/L                        136-145 mmol/L

Potassium                           5.8 mmol/L                         3.4-5.0 mmol/L

Chloride                               87 mmol/L                           98-107 mmol/L

Bicarbonate                        8 mmol/L                             22-29 mmol/L

Glucose                                1,050 mg/dL                       70-110 mg/dL

Urea nitrogen                    35 mg/dL                             7-18 mg/dL

Creatinine                           1.3 mg/dL                            0.5-1.3 mg/dL

Lactate                                 5 mmol/L                             0.5-2.2 mmol/L

Osmolality                           385 mOsmol/kg                275-295 mOsmol/kg

A young engineer is evaluating a 5-year investment, by looking at the cash flows at the end of each year. The capital cost of the project is considered as occurring at the end of a hypothetical year, 0. The project has no start-up revenue, but requires a start-up capital cost of $50,000. The project promises revenues of $0, $20,000; $30,000; $40,000; $50,000, and $100,000; at the end of years 0, 1, 2, 3, 4, and 5, respectively. In addition to the $50,000 start-up cost at the end of year, 0; the project has operating costs of $24,000 at the end of each year 1, 2, 3, 4, and 5.

The engineer needs to know the net present value of this investment at a given annual interest rate. This can be done by finding the present value of each yearly revenue, B_n, and each yearly Cost, C_n, at the given rate of interest, i. In this case, n, is the number of the year from 0 to 5.

The present value of a cash flow, P_n is given by the formula:

P_o = P_n (1 + i)^-n, where;

P_o is the present value of a cash flow, such as B_n or C_n

P_n is the cash flow item in year, n.

n, is the year; 0,1, 2, 3, 4, 5

i, is the annual interest rate expressed as a decimal.

1. Please construct an excel spreadsheet to display this information clearly. Be sure to show; each year n; from 0 to 5, each revenue amount, B_n, each Cost amount, C_n. Also show the calculated present value of each B_n term, the calculated present value of each C_n term, the net present value of each year’s cash flow, and at the end, the total net present value of the investment. Assume an annual interest rate of 5% (0.05). -

2. Use your spreadsheet to find the total net present value of the investment at an annual interest rate of 10%.   

For each of the following transactions that occurred during the year, indicate the dollar amount to be reported as a current liability as of December 31, 2020. (Enter 0 for amounts if no current liability is to be reported. Do not leave any answer field blank.)

a. Suppose the management fee of $350,000 does not get collected this year but instead the contract just gets extended one year so that no money comes in to the city this year, but next year the team pays $350,000 and $350,000 for each year until the end of the contract. (The article doesn’t say how long the contracted management fee of $350,000 is in place or if the dollar value of the fee increases over time. For the purpose of answering this question consider a multi-year contract of “x” years so now it would be “x+1” years and that instead of the payments starting today in year 0, the payments start one year from now in year 1.) Does the delay in payment make any difference since the city will still collect the $350,000 just at a later date? Explain.

b. The city anticipated collecting just over $470,000 in an added city sales tax at the stadium and the surrounding business. Suppose the city thought now thinks there is a 40% chance that the sales tax would bring $260,000 and a 60% chance that it might bring in $150,000 depending on when the limitations in business/crowds due to the virus subsides. Calculate the new expected value of the sales tax.

You are analyzing a project with a thirty-year lifetime, with the following characteristics: • The project will require an initial investment of $20 million and additional investments of $5 million in year 10 and $5 million in year 20. • The project will generate earnings before interest and taxes of $3 million each year. (The tax rate is 40%.) • The depreciation will amount to $500,000 each year, and the salvage value of the equipment will be equal to the remaining book value at the end of year 30. • The cost of capital is 12.5%.

a. Estimate the NPV of this project.

b. Estimate the IRR on this project. What might be some of the problems in estimating the IRR for this project?

You are a senior auditor working on the audit of HealthyGlow for the year ended 30 June 2015. You are in the planning stage of the audit. It is April 2015 and you discover that HealthyGlow has recently acquired two new, full-body scanning machines, representing the very latest in technology, at a cost of more than $10 million each. The machine enables a full 360 degree scan of the body with the ability to identify tumours, cysts and other abnormal internal growths which currently have a 50% probability of being detected with other scanning devices on the market.

Recent studies have shown there may be potential long-term side effects to patients who are scanned by the new technologically advanced machine. However, given the machine has only just arrived on the market, the results will not be known for many more years. This uncertainty and the potential high risk associated with the machine have caused bad press for both the scanning machine and HealthyGlow.

HealthyGlow charges patients a premium price for the scanning machine due to its advanced technological abilities. As a result of high demand, the hospital has decided to reserve the use of the machine for pre-paid patients only. All scans must be paid for in full by patients at the time of booking. Payments are immediately recognised as revenue by the hospital.

Demand for the scanners has been extremely high and HealthyGlow now has bookings for four months in advance. You note that even though it is only April 2015, the hospital has bookings for July and August 2015.

The Medical Association of NSW is currently reviewing the use of the scanning machines and may ban their use within Australia until the issue is resolved. The decision is expected to be communicated on 1 August 2015. Management have indicated there is an 80% chance the scanners will be given the go ahead.

Required

1. Assess the main business risks for HealthyGlow.
2. Identify two key account balances likely to be affected by the above information.
3. For each account balance identified in (b), identify and explain the key assertion most at risk.

1. In the year 2018, a director was dismissed and he commenced an action against the company claiming substantial damages for wrongful dismissal. The company's lawyer advised that the ex-director was likely to succeed with his claim estimated to be $1,000,000. In 2019, this case was still unsettled and the company has just found some new evidence showing that the possibility of success of the ex-director's claim was lower, around 30% as advised by the company's lawyer.

Required:

What was the accounting treatment for the claim for 2018 and 2019? Justify your answer. Provide journal entries where applicable. Limit your answer to 50 words.

2. Simple limited is preparing its financial statements for the year ended 31 December 2019. Before the authorization of financial statements for issue, the following material events took place:

(a) Simple Limited holds a portfolio of shares listed on the Hong Kong Stock Exchange as at the reporting date. The fair value of the investment portfolio of shares on the reporting date was $3.5 million. The value of such investments had deteriorated by 30% since the reporting date.

(b) Simple Limited carries its inventory at the lower of cost and net realizable value. On 20 January 2020, the company entered into an agreement to sell part of its inventory for $1 million. The cost of inventory as reported in its statement of financial position was $1.5 million.                             

Required;

Suggest and explain the accounting treatment for each of the above items. Justify your answers. Provide journal entries where applicable.