Problem 10-12 Acquisition costs; lump-sum acquisition; noninterest-bearing note; interest capitalization [LO10-1, 10-2, 10-3, 10-7]

Early in its fiscal year ending December 31, 2018, San Antonio Outfitters finalized plans to expand operations. The first stage was completed on March 28 with the purchase of a tract of land on the outskirts of the city. The land and existing building were purchased for $1,160,000. San Antonio paid $380,000 and signed a noninterest-bearing note requiring the company to pay the remaining $780,000 on March 28, 2020. An interest rate of 10% properly reflects the time value of money for this type of loan agreement. Title search, insurance, and other closing costs totaling $38,000 were paid at closing.
   
During April, the old building was demolished at a cost of $88,000, and an additional $68,000 was paid to clear and grade the land. Construction of a new building began on May 1 and was completed on October 29. Construction expenditures were as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

San Antonio borrowed $6,300,000 at 10% on May 1 to help finance construction. This loan, plus interest, will be paid in 2019. The company also had the following debt outstanding throughout 2018:

In November, the company purchased 10 identical pieces of equipment and office furniture and fixtures for a lump-sum price of $780,000. The fair values of the equipment and the furniture and fixtures were $572,000 and $308,000, respectively. In December, San Antonio paid a contractor $375,000 for the construction of parking lots and for landscaping.
  
Required:
1. Determine the initial values of the various assets that San Antonio acquired or constructed during 2018. The company uses the specific interest method to determine the amount of interest capitalized on the building construction.
2. How much interest expense will San Antonio report in its 2018 income statement?

Question 5

Alto Imports ending inventory was assigned a cost of $14,600 as a result of a physical stock-take on 30 June 2020.

A review of the company’s records revealed the following information:

• Alto Imports had recorded a $2,900 invoice (excluding GST) from a supplier for goods shipped ExW on 26 June 2020. The goods were not included in the physical inventory count because they had not yet arrived at the warehouse of Alto Imports by 30 June.
• Alto Imports had recorded a $1,900 invoice (excluding GST) from a supplier for goods shipped DPP on 28 June 2020. The goods were not included in the physical inventory count because they had not yet arrived at the warehouse of Alto Imports by 30 June.
• Alto Imports had goods valued at $3,600 (excluding GST) out on consignment on 30 June 2020 that were included in the physical inventory count.

Required:

1. For each of the above, determine the effects on Alto Imports 30 June inventory account balances.

2. What is correct value of inventory on hand at 30 June 2020?

Select information from Patel Sales and Services financial statements are listed below:

Part A                                                                                                                                     

Calculate the following ratios in the table below for 2020.  Show your calculations to receive full marks).  Results should be rounded to 2 decimal places.

The 2019 results for those ratios are shown in the table below.  In the Conclusion column, indicate whether Patel has improved or deteriorated in 2020 as compared to 2019.

Part B                                                                                                                                      Marks

Discuss Patel’s overall financial position in 2020 compared to 2019 using your results from above.

Define NAFTA, the European Union, and MERCOSUR.

What are trade sanctions and embargos.

List and describe an example of a global company that faces ethical issues for its operations outside the US.

Part of the accounting records for the last quarter of 2017 of Boswell Corp., a Canadian private company applying IFRS, were destroyed due to a software malfunction. You have been tasked with reconstructing the accounting records related to inventory and receivables.

The following information has been salvaged:

Extract from the Quarterly Statement of Financial Position as at December 31, 2017

Aging of receivables analysis as at December 31, 2017 (Incomplete)

By talking to the CEO, the controller, and other employees of the accounting department you were also able to gather the following information:

Firm’s Accounting Policies:

a) The company uses the periodic inventory system and the FIFO cost flow assumption.

b) The company applies the aging of receivables analysis to adjust the AFDA at year-end.

The only inventory and sale-related transactions during the quarter were:

1. On October 15, 2017, Boswell Corp. sold 160 units at $20 each, shipped on the same day, FOB destination, and arrived 3 days later, freight-out of $80 for the entire shipment, and payment within 30 days. As at December 31, 2017, the client had still not paid.

2. On November 10, Boswell Corp. received from its supplier a shipment of 2,000 units costing $10 each. Boswell Corp. also had to cover shipping costs of $1,000, import duty taxes of $200 (non-refundable).

3. On December 1, Boswell Corp. sold 1,000 units at $20 each, 2/10, n/30. The client paid half of the total amount on December 5, but made no other payment since.

4. On December 15, 2017, Boswell Corp. signed a contract for the purchase of 1,000 units of inventory from a Canadian supplier at a price of $13 per unit. The supplier shipped the goods FOB destination on December 27. On December 31, 2017, the goods had not yet been delivered, and no invoice had been received.

Other information:

a) The physical count of inventory at the end of the previous quarter was 200 units. The physical count of inventory at the end of December 2017 was 1,040 units.

b) The beginning balance for Gross Accounts Receivable for the quarter was $10,000.

c) The CEO estimates that inventory on hand at the end of 2017 could be sold for a per unit price of $11, with $0.20 per unit costs to sell.

Required:

1. Re-construct the journal entries for the transactions during the quarter.

2. Make ALL necessary quarter-end adjusting entries as at December 31, 2017. Show your computation. (Hint: there are 4 adjusting entries needed to (1) record the write-down of inventory (2) record COGS and update ending inventory (3) record write-off (4) record bad debt expense using aging analysis.)

3. Present to the CEO the calculation of gross profit for the last quarter in 2017.

Part of the accounting records for the last quarter of 2014 of Alexandra Corp., a Canadian private company applying IFRS, were destroyed due to a software malfunction. You have been tasked with reconstructing the accounting records related to inventory and receivables.

The following information has been salvaged:

Extract from the Quarterly Statement of Financial Position as at December 31, 2014

Aging of receivables analysis as at December 31, 2014 (Incomplete)

By talking to the CEO, the controller, and other employees of the accounting department you were also able to gather the following information:

Firm’s Accounting Policies:

a) The company uses the periodic inventory system and the FIFO cost flow assumption.

b) The company applies the aging of receivables analysis to adjust the AFDA at year-end.

The only inventory and sale-related transactions during the quarter were:

1. On October 15, 2014, Alexandra Corp. sold 80 units at $10 each, shipped on the same day, FOB destination, and arrived 3 days later, freight-out of $30 for the entire shipment, and payment within 30 days. As at December 31, 2014, the client had still not paid.

2. On November 10, Alexandra Corp. received from its supplier a shipment of 1,000 units costing $5 each. Alexandra Corp. also had to cover shipping costs of $500, import duty taxes of $100 (non-refundable).

3. On December 1, Alexandra Corp. sold 500 units at $10 each, 2/10, n/30. The client paid half of the total amount on December 5, but made no other payment since.

4. On December 15, 2014, Alexandra Corp. signed a contract for the purchase of 500 units of inventory from a Canadian supplier at a price of $6.50 per unit. The supplier shipped the goods FOB destination on December 27. On December 31, 2014, the goods had not yet been delivered, and no invoice had been received.

Other information:

a) The physical count of inventory at the end of the previous quarter was 100 units. The physical count of inventory at the end of December 2014 was 520 units.

b) The beginning balance for Gross Accounts Receivable for the quarter was $5,000.

c) The CEO estimates that inventory on hand at the end of 2014 could be sold for a per unit price of $5.50, with $0.10 per unit costs to sell.

Required:

1. Re-construct the journal entries for the transactions during the quarter.

2. Make ALL necessary quarter-end adjusting entries as at December 31, 2014. Show your computation. (Hint: there are 4 adjusting entries needed to (1) record the write-down of inventory (2) record COGS and update ending inventory (3) record write-off (4) record bad debt expense using aging analysis.)

3. Present to the CEO the calculation of gross profit.

(Please use the Gross Method to record the sales discount)

The Whit company, a manufacture and the berry company, a retailer , entered into a business combination whereby whit acquired for cash all the outstanding voting common stock of Berry.

The Whit company is preparing consolidated financial statements immediately after the sonsummation of the newly formed business combination. How should whit determin in general the amounts to be reported for the assets and liabilities of Berry compnay? Assuming that the business combination resulted in good will, infdicate how the amount of good will is determined.

b. Why and under what circumstances should Berry be included in the entity's consolidated financial statements?

Problem 23-04

Sarasota Company had the following information available at the end of 2020.

Prepare a statement of cash flows for Sarasota Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale. (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Ivanhoe Company had the following information available at the end of 2020.

Prepare a statement of cash flows for Ivanhoe Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale. (Show amounts in the investing and financing sections that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Fallon Company uses flexible budgets to control its selling expenses. Monthly sales are expected to range from $169,900 to $211,000. Variable costs and their percentage relationship to sales are sales commissions 7%, advertising 4%, travel 4%, and delivery 1%. Fixed selling expenses will consist of sales salaries $34,700, depreciation on delivery equipment $7,500, and insurance on delivery equipment $1,900.

Prepare a monthly selling expense flexible budget for each $13,700 increment of sales within the relevant range for the year ending December 31, 2020.