On January 1, 2018, Pharoah Corporation issued $2,400,000 of 5-year, 9% bonds at 96. The bonds pay interest annually on January 1. By January 1, 2020, the market rate of interest for bonds of risk similar to those of Pharoah Corporation had risen. As a result, the market value of these bonds was $2,130,000 on January 1, 2020—below their carrying value. Joanna Pharoah, president of the company, suggests repurchasing all of these bonds in the open market at the $2,130,000 price. To do so, the company will have to issue $2,130,000 (face value) of new 10-year, 11% bonds at par. The president asks you, as controller, “What is the feasibility of my proposed repurchase plan?”

depreciation expense

Stacey Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2021, an asset account for the company showed the following balances: Manufacturing equipment $ 67,800 Accumulated depreciation through 2020 45,000 In early January 2021, the following expenditures were incurred for repairs and maintenance: Routine maintenance and repairs on the equipment $ 950 Major overhaul of the equipment 9,700 The equipment is being depreciated on a straight-line basis over an estimated life of 14 years, with a $4,800 estimated residual value. The company’s fiscal year ends on December 31. Required: 1. Calculate the depreciation expense for the manufacturing equipment for 2020.

Please tell us about your experience with budgeting. This can be either experience from a work environment or with your personal life. If you've learned anything cool this week that will inform your budgeting practices in the future, please tell us about it.

Cullumber Equipment Ltd. wanted to expand into New Brunswick and was impressed by the provincial government’s grant program for new industry. Once it was sure that it would qualify for the grant program, it purchased property in downtown Saint John on June 15, 2020. The property cost $237,000 and Cullumber spent the next two months gutting the building and reconstructing the two floors to meet the company’s needs. The building has a useful life of 20 years and an estimated residual value of $64,800. In late August 2020, the company moved into the building and began operations. Additional information follows:

Assuming that the company uses the cost reduction method to account for government assistance, answer the following:

1- What is the cost of the building on Cullumber Equipment’s statement of financial position at August 31, 2020, its fiscal year end?

Cost of Building =

2- What is the effect of this capital asset on the company’s income statement for the company’s year ended August 31, 2021?

Net effect on income statement=

Assuming the company uses the deferral method to account for government assistance, answer the following:

1- What is the cost of the building on Cullumber Equipment’s statement of financial position at August 31, 2020?

Cost of Building =

2- What is the effect of this capital asset on the company’s income statement for the company’s year ended August 31, 2021?

Net income on effect=

Grouper, Inc. had the following equity investment portfolio at January 1, 2020.

During 2020, the following transactions took place.

During 2021, the following transactions took place.

Prepare journal entries for each of the above transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

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List of Accounts

Prepare a partial balance sheet showing the investment-related amounts to be reported at December 31, 2020 and 2021.

Lunar Artistry Company needs to purchase new etching and finishing equipment. The owners hope to finance the costly equipment with cash on hand and a short term loan from Erie Bank. The CFO of Lunar Artistry Company has recently completed the sales forecast. She projects sales to increase by 10% each month over the previous month sales for the first quarter with the remaining months remaining constant.

The controller has been asked to prepare the master monthly budget for the first quarter 2021. In the process, the controller has accumulated the following information:

1. Projected Sales for December 2020 are $500,000. Credit sales are 80% of total sales with immediate cash sales as the other 20%. Of the credit sales, cash is collected 20% in the month of the sale and the remainder in the month following the sale.
2. Lunar’s cost of goods sold is generally 60% of the current month sales. All inventory is purchased on account. 40% of inventory purchases are paid for in the month of purchase with the remaining 60% paid the month following the purchase.
3. The controller has determined additional monthly expenses to be as follows:
   1. Salaries                       $55,000 Paid monthly
   2. Advertising                 $20,000 Paid Monthly
   3. Property Taxes            $ 2,900 Paid Feb 28 and Aug 31
   4. Sales Commissions    1.2% of monthly sales
4. The owners of Lunar Artistry Company have selected etching and finishing equipment costing $175,000. They plan to pay cash for the equipment. If they do not have enough cash, assuming the company can maintain a $25,000 balance, the owners will take a short term loan from Erie Bank. The CFO has stated the current interest rate on short term loans is 6% and she anticipates the need for a six-month loan. Interest on short-term loans is payable monthly.
5. Interest is paid each March 31 and September 30 on the Mortgage Payable. The interest rate on the mortgage is 4%
6. The board of directors intends to declare a $40,000 dividend at the end of the first quarter.

REQUIRED:

1. Using the Excel template, complete the purchase budget, cash disbursement budget and cash budget.

*PLEASE SHOW EXCEL FORMULAS*

Additional Information:

Projected BS Tab from Excel Template:

Sales Budget Tab from Excel Template:

Banks are financing acquisition projects, i.e. for Venture Capital funds. An exemplary project shows the following data:

            A VC fund purchased the target company on 1.1.2020 for a price of €300k at a Price/EBIT-multiple of 7.5x. 40% of the purchase price is funded by equity of the VC, remaining amount by bank loan at an interest of 10% p.a., collateralized by the shares of the target company. The loan will be repaid on 31.12.2023, accrual for loan repayment is planned pro rata annually. All cash flows related to the purchase will be pushed down into the target company’s P&L.
            The target company runs operationally at annual revenues of €150k in 2020, growing each upcoming year at 4%, while operational costs in 2020 are at €-110k at a future growth rate of 2% year-on-year. In 2020, EBIT is €40k. Operational interest is at €-6.0k (and will be stable for the upcoming years). Tax rate is 30%. There are no other operational P/L impacts.
            The VC plans to sell the company on 31.12.2025 (= after 6 years) at a Price/EBIT-multiple of 7.5x which was the same at purchase.

Please complete the financial model of the transaction based on the xls-table below. In case of lack of data, please take a reasonable assumption for your subsequent calculation. Please calculate the planned annual profitability of the VC fund and the overall internal rate of return. As the financing bank, what is your recommendation in respect to the transaction and its risks and benefits?

Transaction data

Purchase price                  300€

Equity                                 120€

Debt capital                       180€

Term dept                   4 years bullet repayment

Annual debt accrual          45.0€

Interest rate                      10.0%

Tax rate                             30%

Target company                 2020           2021        2022        2023         2024         2025

Revenues                           150,0

Cost operational                -110,0

EBIT                                   40,0

Interest operational           -6.0

Taxes                                 -10,2

PBT                                     23,8

Warnerwoods Company uses a periodic inventory system. It entered into the following purchases and sales transactions for March. Date Activities Units Acquired at Cost Units Sold at Retail Mar. 1 Beginning inventory 145 units @ $80 per unit Mar. 5 Purchase 445 units @ $85 per unit Mar. 9 Sales 465 units @ $115 per unit Mar. 18 Purchase 210 units @ $90 per unit Mar. 25 Purchase 290 units @ $92 per unit Mar. 29 Sales 250 units @ $125 per unit Totals 1,090 units 715 units For specific identification, the March 9 sale consisted of 90 units from beginning inventory and 375 units from the March 5 purchase; the March 29 sale consisted of 85 units from the March 18 purchase and 165 units from the March 25 purchase.