Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 2% of sales. Sales of the awnings in 2020 were $2,900,000. Accordingly, warranty expense and a warranty liability of $58,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 1% of sales rather than 2%. Sales of the awnings in 2021 were $3,400,000, and warranty expenditures in 2021 totaled $77,350.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $880,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $640,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $630,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $264,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $140,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $284,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $379,000.

Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.

GAP Inc.

DESCRIPTION

The Gap, Inc. (Gap Inc.), incorporated on April 15, 1988, is an apparel retail company. The Company offers apparel, accessories and personal care products for men, women and children under the Gap, Banana Republic, Old Navy, Athleta and Intermix brands. The Company's products are available to customers online through Company-owned Websites and through the use of third-parties that provide logistics and fulfilment services. In addition to operating in the speciality, outlet, online and franchise channels, it also uses the Company's omni-channel capabilities to bridge the digital world and physical stores. The Company's omni-channel services, including order-in-store, reserve-in-store, find-in-store and ship-from-store that are tailored across its portfolio of brands. The Company also sells products that are designed and manufactured by branded third-parties, especially at its Intermix brands. Gap Inc. has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, Italy, China, Hong Kong, Taiwan, and Mexico. It operates Gap, Banana Republic and Old Navy stores throughout Asia, Australia, Europe, Latin America, the Middle East and Africa.

Gap

Gap is the apparel and accessories brands anchored in optimistic, casual, American style. Its collections of wardrobes include denim, tees, button-downs, and khakis. Gap includes apparel and accessories for men and women, under the name Gap name, in addition to GapKids, babyGap, GapMaternity, GapBody and GapFit collections. Gap serves through speciality stores, online and franchise stores. Gap also offers a suite of omni-channel services to its customers in the United States. In addition, it brings the brand to customers, with designer collections for Gap Outlet and Gap Factory stores and Web sites.

Question

1. Study the external environment of GAP Inc. Are any changes taking place in the macro environment that might have a positive or negative impact on the industry in which GAP Inc is based on? Apply the PESTEL framework to identify which factors may be the most important in GAP Inc industry. What will be the effect on GAP Inc industry?

2. How dynamic is the industry in which GAP Inc is based? Is there evidence that industry structure is reshaping competition, or has done so in the recent past?

Bonita Hardware has four employees who are paid on an hourly basis plus time-and-a-half for all hours worked in excess of 40 a week. Payroll data for the week ended March 15, 2020, are presented below.

Employee Hours Worked Hourly Rate Federal Income Tax Withholdings United Fund

Ben Abel 40 $15 $? $5

Rita Hager 42 16 ? 5

Jack Never 44 13 60 8

Sue Perez 46 13 61 5

Abel and Hager are married. They claim 0 and 4 withholding allowances, respectively.

The following tax rates are applicable: FICA 7.65%, state income taxes 3%, state unemployment taxes 5.4%, and federal unemployment 0.8%.

R. B. is an 80-year old English woman who is visiting a friend in the United States. One morning her friend noticed that upon awakening, R. B. had slurred speech, a R-facial droop, and was disoriented. She was transported to the hospital where a CT scan confirmed the diagnosis of intracranial hemorrhage. Because of the location of the bleed, surgery was not possible and over the next couple days R. B.’s R-facial droop progressed to a totally flaccid R-side. R. B. was transferred to your rehabilitation facility for therapy. Ten days after the initial insult, R. B. still has some confusion, memory problems, difficulty swallowing, slurred speech, and profound R-sided weakness. She is hoping to be able to return to England soon.

1. Define CVA.

2. List 3 main causes of a CVA and describe how they disrupt the O₂ supply.

3. List 10 factors that increase the risk of a CVA.

What is the overall goal of rehabilitation

R. B. is an 80-year old English woman who is visiting a friend in the United States. One morning her friend noticed that upon awakening, R. B. had slurred speech, a R-facial droop, and was disoriented. She was transported to the hospital where a CT scan confirmed the diagnosis of intracranial hemorrhage. Because of the location of the bleed, surgery was not possible and over the next couple days R. B.’s R-facial droop progressed to a totally flaccid R-side. R. B. was transferred to your rehabilitation facility for therapy. Ten days after the initial insult, R. B. still has some confusion, memory problems, difficulty swallowing, slurred speech, and profound R-sided weakness. She is hoping to be able to return to England soon.

1. Define CVA.

2. List 3 main causes of a CVA and describe how they disrupt the O₂ supply.

3. List 10 factors that increase the risk of a CVA.

What is the overall goal of rehabilitation

R. B. is an 80-year old English woman who is visiting a friend in the United States. One morning her friend noticed that upon awakening, R. B. had slurred speech, a R-facial droop, and was disoriented. She was transported to the hospital where a CT scan confirmed the diagnosis of intracranial hemorrhage. Because of the location of the bleed, surgery was not possible and over the next couple days R. B.’s R-facial droop progressed to a totally flaccid R-side. R. B. was transferred to your rehabilitation facility for therapy. Ten days after the initial insult, R. B. still has some confusion, memory problems, difficulty swallowing, slurred speech, and profound R-sided weakness. She is hoping to be able to return to England soon.

1. Define CVA.

2. List 3 main causes of a CVA and describe how they disrupt the O₂ supply.

3. List 10 factors that increase the risk of a CVA.

What is the overall goal of rehabilitation

R. B. is an 80-year old English woman who is visiting a friend in the United States. One morning her friend noticed that upon awakening, R. B. had slurred speech, a R-facial droop, and was disoriented. She was transported to the hospital where a CT scan confirmed the diagnosis of intracranial hemorrhage. Because of the location of the bleed, surgery was not possible and over the next couple days R. B.’s R-facial droop progressed to a totally flaccid R-side. R. B. was transferred to your rehabilitation facility for therapy. Ten days after the initial insult, R. B. still has some confusion, memory problems, difficulty swallowing, slurred speech, and profound R-sided weakness. She is hoping to be able to return to England soon.

1. Define CVA.

2. List 3 main causes of a CVA and describe how they disrupt the O₂ supply.

3. List 10 factors that increase the risk of a CVA.

What is the overall goal of rehabilitation

R. B. is an 80-year old English woman who is visiting a friend in the United States. One morning her friend noticed that upon awakening, R. B. had slurred speech, a R-facial droop, and was disoriented. She was transported to the hospital where a CT scan confirmed the diagnosis of intracranial hemorrhage. Because of the location of the bleed, surgery was not possible and over the next couple days R. B.’s R-facial droop progressed to a totally flaccid R-side. R. B. was transferred to your rehabilitation facility for therapy. Ten days after the initial insult, R. B. still has some confusion, memory problems, difficulty swallowing, slurred speech, and profound R-sided weakness. She is hoping to be able to return to England soon.

1. Define CVA.

2. List 3 main causes of a CVA and describe how they disrupt the O₂ supply.

3. List 10 factors that increase the risk of a CVA.

What is the overall goal of rehabilitation

MBA 5008 Quanatitative Analysis

Most business decisions involve elements of uncertainty and randomness. The notion of probability is used everywhere, both in business and in our daily lives. I reviewed the following video and need some help answering this question: https://www.youtube.com/watch?v=_sY3ZRxhBaM

A. Explain the concept of probability by applying a specific application example of probability in business? B. Discuss the economic implications of the video?

If the salary is paid at the end of the year, how much will John get?

1. He can keep his current job at the management firm D&L. His annual salary at the firm is $65,000 per year and is salary is expected to increase at 3% per year until retirement. He is currently 28 years old and he expects to work for 40 more years. His current job includes a full paid health insurance plan and is current average tax rate is 26%. John has a savings account with enough money to cover the entire cost of the MBA program.

2. The Carlton College offers a one-year MBA program. The tuition cost is $85,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,500. The Carlton program is a full-time one that does not allow students to work in the meantime. John thinks that after the Carlton degree he will be able to receive an offer of $92,000 per year with a $18,000 signing bonus. The salary at this job will increase at 3.5% per year. His average tax rate at this level of income will be 29%.

As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $2,698,000 Cost of sales (all variable) $1,557,563 Gross Margin $1,140,438 Operating expenses: Variable $277,975 Fixed $213,675 Total operating expenses: $491,650 Administative expenses (all fixed) $564,375 Net operating income $84,413 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average meal cost for lunches and dinners are $20 and $40 respectively. Al Dente serves both lunch and dinner 300 days per year and serves twice as many lunches as dinners. As the MBA intern you are to prepare a managerial accounting focused report to the owners of Al Dente's Italian Restaurant, to include the following:

1. Prepare a contribution margin income statement using the given financial data. Use the following format:

Sales

Variable costs

Cost of sales

Operating

Total variable costs

Contribution margin

Fixed costs

Operating

Administrative

Total fixed costs

Net operating income

As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $2,698,000 Cost of sales (all variable) $1,557,563 Gross Margin $1,140,438 Operating expenses: Variable $277,975 Fixed $213,675 Total operating expenses: $491,650 Administative expenses (all fixed) $564,375 Net operating income $84,413 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average meal cost for lunches and dinners are $20 and $40 respectively. Al Dente serves both lunch and dinner 300 days per year and serves twice as many lunches as dinners. As the MBA intern you are to prepare a managerial

3. Using the CM income statement format, verify that your calculated break-even volume for lunches and dinners results in a NOI of zero (hint: in your prepared CM statement from #1, breakout the Sales dollars into subcategories lunch and dinner as shown below, using the values of X for in the # of meals cells). Present the entire CM statement at the BE level.

Question 1

For the past five years, Mr. Brooks has been employed as a financial analyst by a large Canadian public firm located in Winnipeg. During 2020, his basic gross salary amounts to $63,000. In addition, he was awarded an $11,000 bonus based on the performance of his division. Of the total bonus, $6,500 was paid in 2020 and the remainder is to be paid on January 15, 2021.

During 2020, Mr. Brooks’ employer withheld the following amounts from his gross wages:

Federal Income Tax                                                                                             $3,000

Employment Insurance Premiums 856

Canada Pension Plan Contributions 2,898

Registered Pension Plan Contributions 2,800

Donations to the United way (charity) 480

Union Dues 240

Payments for Personal Use of Company Car 1,000

Other Information:

1. Due to an airplane accident while flying back from Thunder Bay on business, Mr. Brooks was seriously injured and confined to a hospital for two full months during 2020. As his employer provides complete group disability insurance coverage, he received a total of $4,200 in payments during this period. All of the premiums for this insurance plan are paid by the employer. The plan provides periodic benefits that compensate for lost employment income.
2. Mr. Brooks is provided with a car that the company leases at a rate of $678 per month, including both GST and PST. The company pays for all of the operating costs of the car, and these amounted to $3,500 during 2020. Mr. Brooks drove the car a total of 35,000 kilometres during 2020, 30,000 kilometres of which were carefully documented as employment-related travel. While he was in the hospital (see Item 1), his employer required that the care be returned to company premises, so it was not available to him.
3. On January 15, 2019, Mr. Brooks received options to buy 200 shares of his employer’s common stock at a price of $23 per share. At this time, the shares were trading at $20 per share. Mr. Brooks exercised these options on July 6, 2020, when the shares were trading at $28 per share. He does not plan to sell the shares for at least a year.
4. In order to assist Mr. Brooks in acquiring a new personal residence in Winnipeg, his employer granted him a five year, interest free loan of $125,000. The loan qualifies as a home relocation loan. The loan was granted on October 1, 2020, and, at that point in time, the prescribed interest rate set by the CRA is 2%.
5. Other disbursements made by Mr. Brooks include the following:

Advanced financial accounting course tuition fees                                      $1,200

Music history course tuition fees                                                                       600

Fees paid to financial planner                                                                           300

Payment of premiums on life insurance                                                            642

Mr. Brooks’ employer reimbursed him for the tuition for the accounting course, but not for any of these other expenses.

Required:

Calculate Mr. Brooks’ net employment income for the taxation year ending December 31, 2020.

Topic: Property, plant and equipment.

Answer both parts independently of each other.

PART A (21 marks)

On 1 July 2018, ABC Ltd purchased and recorded equipment at its cost of acquisition of $320 000. The equipment is expected to have a useful life for seven years and an estimated residual value of $10 000. ABC Ltd depreciates the asset using the straight-line method. ABC Ltd uses the revaluation model to equipment and records accumulated depreciation using the net method. The reporting period end of ABC Ltd is 30 June. ABC Ltd revalued the equipment on 30 June 2020, when the fair value of the equipment was $250 000. On 1 July 2020, the useful life of the equipment is reassessed: it is expected to have a remaining useful life of 6 years. The estimated residual value remains unchanged. ABC Ltd revalued the equipment on 30 June 2021, when the fair value of the equipment was $180 000. On 30 June 2022 the equipment was sold for $200 000.

REQUIRED:

(1) Prepare journal entries to account for the revaluation of the equipment of 30 June 2020. Show all working steps.

(2) Prepare journal entries to account for the revaluation of the equipment of 30 June 2021. Show all working steps.

(3) Prepare journal entries to account for the sale of the equipment of 30 June 2022. Show all working steps.

PART B (19 marks)

ABC Ltd acquired a machine for $750 000 on 1 July 2018. The machine had a useful life of five years and was depreciated on a straight-line basis with no disposal value. ABC Ltd adopts the cost model for accounting for assets in this class. ABC Ltd makes the following estimates of the value of the machine: Date Net selling price Value in use Fair Value 30 June 2019 $550 000 520 000 590 000 30 June 2020 $460 000 420 000 490 000 Indicators of impairment were identified on 30 June 2019, while indicators of a reversal of impairment were found on 30 June 2020.

REQUIRED: Prepare journal entries relating to this asset from 30 June 2019 to 30 June 2020. Show the steps of impairment (or reversal of impairment) tests. Show all working (step by step).