Required information

[The following information applies to the questions displayed below.]
  
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

3. Complete the information required below to prepare a partial balance sheet for 2018 and 2019 showing any items related to the contract. (Do not round intermediate calculations.)

Map071 Shop specializes in producing and selling pouch bags. Currently, there is only one type of pouch bag being produced and sold by the shop, namely Baby On. The newly designed pouch bag is carefully produced by the business owner, Ms. Meisa. The materials are specially purchased from the best supplier in town and the processes are followed under strict quality control. The selling price for Baby On is RM42 per unit.

The following information is gathered for the purpose of preparing relevant budgets for the third quarter of 2020.   

(i)  The budgeted sales quantity for the quarter are shown below:

(ii) The pencil case will be using one type of direct material, which is the heavyweight strecthy lycra fabric. Each unit of Baby On will require 0.4 meter of lycra fabric. The cost of the fabric is estimated to be RM10 per meter.

(iii)  Every unit of Baby On will need 4 hours of direct labour hour and the rate for the direct labour is set to be at RM9 per hour.

(iv)  It is estimated that budgeted stock of finished goods are 70 units of Baby On at the beginning of July 2020. Additionally, the company also wishes to maintain monthly closing inventories of the pouch bags at 10 units lower than those monthly opening inventories.

(v)  In term of direct materials, the shop plans to keep opening inventories in July 2020 amounting to 20 meter of lycra fabric. At the end of every month, the company intends to maintain 3 meter less of lycra fabric as compared to the opening inventories.

Required:

Prepare the following budgets for the month of July, August and September 2020.

(a)      Sales budget.

(b)      Production budget.

(c)     Raw materials usage and raw material purchased.

(d)     Direct labour budget.

(pls show calculation methhod)

Pina Colada Corporation uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $9.60 million and had an estimated useful life of 8 years with no residual value. In early April 2020, a part costing $840,000 and designed to increase the machinery’s efficiency was added. The machine’s estimated useful life did not change with this addition. By December 31, 2020, new technology had been introduced that would speed up the obsolescence of Pina Colada’s equipment. Pina Colada’s controller estimates that expected undiscounted future net cash flows on the equipment would be $6.05 million, and that expected discounted future net cash flows on the equipment would be $5.57 million. Fair value of the equipment at December 31, 2020, was estimated to be $5.38 million. Pina Colada intends to continue using the equipment, but estimates that its remaining useful life is now four years. Pina Colada uses straight-line depreciation. Assume that Pina Colada is a private company that follows ASPE.

Prepare the journal entry to record asset impairment at December 31, 2020, if any.

Fair value of the equipment at December 31, 2021, is estimated to be $5.66 million. Prepare any journal entries for the equipment at December 31, 2021.

Repeat part (b), assuming that on December 31, 2021, Pina Colada's management decides to dispose of the equipment. As at December 31, 2021, the asset is still in use and not ready for sale in its current state. In February 2022, Pina Colada's management will meet to outline an active program to find a buyer.

Repeat part (b), assuming that the equipment is designated as "held for sale" as of January 1, 2021, and that the equipment was not in use in 2021 but was still held by Pina Colada on December 31, 2021.

Repeat parts (a) and (b), assuming instead that Pina Colada is a public company that prepares financial statements in accordance with IFRS.

XYZ Ltd. is a large retail company listed on a major stock exchange, and its reported net income for the year ended December 31, 2019, is $5 million. The earnings were announced to the public on March 31, 2020. Just before the release of the 2019 earnings on March 31, 2020, financial analysts had predicted the company’s net income for 2019 to be $7 million.

Assumptions

■ No other news about XYZ Ltd. was released to the public on March 31, 2020.

■ No significant economy-wide events affecting share prices occurred on March 31, 2020

Consider the two situations below:

i The $2 million deviation of forecasted earnings from actual earnings is completely accounted for by XYZ Ltd.’s having closed down a number of its retail outlets.

ii The $2 million deviation of the forecasted earnings from actual earnings is completely accounted for by a fire in XYZ Ltd.’s largest retail outlet, which had caused

the outlet to be closed temporarily for six months.

A. Which event would likely cause the largest impact on the share price in an efficient market – a loss from a fire disaster that disrupts business for a short period of time, or a similar size loss from closing a large number of stores?

B. Would the market reaction to the fire disaster be positive or negative? Would you expect the market reaction to the store closings to be positive or negative? Defend and explain each answer.

[assume that the market was unaware of the fire disaster or the store closings, as the case might be, prior to the earnings announcement. Thus, when the company reported earnings, it also disclosed for the first time the cause of the earnings shortfall. The assumption means that we have a scenario where the disclosure of the earnings shortfall and the simultaneous disclosure of the reason for the shortfall is both news to the market.]

A Belgium subsidiary's beginning and ending trial balances appear below:

Exchange rates ($/€) are:

The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

If the subsidiary's functional currency is the U.S. dollar, what is the remeasurement gain or loss for the year?

Select one:

A. $ 810 loss

B. $2,020 loss

C. $1,130 gain

D. $1,030 gain

A Belgium subsidiary's beginning and ending trial balances appear below:

Exchange rates ($/€) are:

The subsidiary was acquired at the beginning of the year. Its sales, inventory purchases, and out-of-pocket selling and administrative expenses occurred evenly during the year. Equipment was purchased for €10,000 when the exchange rate was $1.23. Depreciation for the year includes €200 related to the equipment purchased during the year. The ending inventory was purchased at the end of the year, and the beginning inventory was purchased at the end of the previous year.

If the subsidiary's functional currency is the U.S. dollar, what is the remeasurement gain or loss for the year?

Stark Industries is considering adding a vibranium shield to the Iron Man Suits the company manufactures for the U.S. Armed Forces. The equipment to build the shields has a purchase price of $1,100,000, and the company will spend $100,000 to ship the equipment to its plant and install it on the production floor. Stark Industries engineers expect the machine to have a $50,000 salvage value at the end of its 10-year life and a practical capacity of 1,200 shields per year. The new equipment requires an average of $25,000 investment in working capital to keep the equipment running efficiently; the $25,000 investment in working capital is fully recoverable at the end of the investment.

Stark Industries managerial performance evaluations include an 18% charge on invested capital. The company can obtain a 6% return on short-term investments and its current weighted average cost of capital is 15%.

Stark Industries’ negotiations with its union regarding the staffing of the new shield-manufacturing machine resulted in the firm agreeing to hire new workers and pay them $200,000 annually. The union agreement also stipulated that the employees have the option to request a salary revision after the fifth year of the agreement of up to 5% of the agreed salary. The company also agreed to invest $40,000 to train the new employees on the equipment when hired. Training the new employees will be on the job, which will likely reduce the output for the first year of the project by up to 100 shields; in the worst case scenario the decrease in output would be 25%.   

Each shield consumes $500 worth of vibranium (imported from Wakanda). Recent contract negotiations with Wakanda and King T’Challa have locked-in this cost for the next five years and specify an increase to $550 per shield thereafter. The current contract negotiated with the U.S. Armed Forces guarantees a price of $960 per shield for the first 5 years in the contract. Tony Stark, Stark Industries’ CEO, believe it is unlikely

the government will require a reduction of more than 10% of the price per shield in the next contract negotiation.

Common practice in the tax department of Stark Industries is to depreciate the full value of any acquired assets regardless of their salvage values. Pepper Potts (Stark Industries CFO) determined the equipment is 7-years class property (see depreciation percentages for this type of property in Exhibit 1). Stark Industries is subject to a 26% tax rate (21% corporate tax rate plus 5% blended rate of state taxes).

Exhibit I: Depreciation Schedule (in percentages) for 7-year property.

1. 14.29            

2. 24.49

3. 17.49

4. 12.49

5. 8.93

6. 8.92

7. 8.93

8. 4.46

Using the information on the project and the assumptions you made in part I indicate the following:

a.            What is the Internal Rate of Return of the project?

b.            What is the after-tax payback period of the project?

c.             How sensitive is the viability of the project to the choice hurdle rate assumptions you made part I? (Indicate the NPV for each of the alternative hurdle rates you use).

d.            What will be the lowest price that Stark Industries may be able to accept upon contract renegotiation in year 5 that would continue to make the project viable?

Which of the following is NOT true about American Depository Receipts (ADRs)?

• A. ADRs are claims issued by U.S. financial intermediaries (FIs) against shares in foreign companies, with the shares held in custody by financial intermediaries for investors.
• B. ADRs are issued in the U.S. and are denominated in U.S. dollars. All cash flows to the investor are in dollars.
• C. An ADR enhances a companys visibility, status and profile in the U.S. and internationally among investors.
• D. An ADR decreases the foreign firms U.S. liquidity (and potentially total global issuer liquidity).
• E. All of the above are true.

Identify the forms of FDI (backward-vertical FDI, forward-vertical FDI and horizontal FDI) for the below examples:

a. John Deere U.S. (which manufactures/assembles tractors in the U.S.) sets up a wholly owned factory in India and begins manufacturing/assembling tractors in India.

b. John Deere U.S. invests with a local partner (50% each) to build a dealership network in Thailand from scratch.

c. John Deere U.S. buys a 10% stake in a German engine manufacturer to source engine components for its U.S. production process.

Consider the market for automobiles in the U.S. Explain how each of the following cases will affect the equilibrium quantity and equilibrium price of automobiles the U.S. auto market.

a. The stock market boomed and automobile is a normal good for a typical U.S. consumer

b. Auto insurance rates increases and wages of auto workers increases as well.

c. More and safer interstate highways are built and Ford exit the U.S. market to serve only European and African markets.

d. Nucor Corporation increase there steel production and OPEC place an embargo on the U.S.

e. The stock market crashes.