On 3/31/2020, Company ABC released its quarterly report, showing the sales in the first quarter had tumbled 30% as pandemic hit. However, the stock price for company ABC rose by 3% (instead of fell by 3%) after the report is released. Does this mean a failure of the Market Efficient Theory?

P5.11 A comparative statement of financial position for Spencer Corporation follows:

Spencer Corporation
Statement of Financial Position
December 31
Assets  
2020
2019
Cash  
$ 65,000 
$ 29,000 
Accounts receivable  
87,000 
59,000 
Inventory  
133,000 
81,000 
FV-OCI investments in shares  
63,000 
84,000 
Land  
65,000 
103,000 
Equipment  
390,000 
430,000 
Accumulated depreciation—equipment  
(117,000)
(86,000)
Goodwill  
 124,000 
 173,000 
 Total  
$810,000 
$873,000 
Liabilities and Shareholders' Equity      
Accounts payable  
$ 12,000 
$ 51,000 
Dividends payable  
15,000 
32,000 
Notes payable  
220,000 
335,000 
Common shares  
265,000 
125,000 
Retained earnings  
288,000 
284,000 
Accumulated other comprehensive income  
  10,000 
  46,000 
 Total  
$810,000 
$873,000 
Additional information:

1. Net income for the fiscal year ending December 31, 2020, was $19,000.
2. In March 2020, a plot of land was purchased for future construction of a plant site. In November 2020, a different plot of land with original cost of $86,000 was sold for proceeds of $95,000.
3. In April 2020, notes payable amounting to $140,000 were retired through the issuance of common shares. In December 2020, notes payable amounting to $25,000 were issued for cash.
4. FV-OCI investments were purchased in July 2020 for a cost of $15,000. By December 31, 2020, the fair value of Spencer's portfolio of FV-OCI investments decreased to $63,000. No FV-OCI investments were sold in the year.
5. On December 31, 2020, equipment with an original cost of $40,000 and accumulated depreciation to date of $12,000 was sold for proceeds of $21,000. No equipment was purchased in the year.
6. Dividends on common shares of $32,000 and $15,000 were declared in December 2019 and December 2020, respectively. The 2019 dividend was paid in January 2020 and the 2020 dividend was paid in January 2021. Dividends paid are treated as financing activities.
7. A loss on impairment was recorded in the year to reflect a decrease in the recoverable amount of goodwill. No goodwill was purchased or sold in the year.
Instructions
a. Prepare a statement of cash flows using the indirect method for cash flows from operating activities along with any necessary note disclosure.

b. From the perspective of a shareholder, comment in general on the results reported in the statement of cash flows.

I am wondering how to calculate the consolidation entry for accumulated depreciation in the consolidation of a less than wholly owned subsidiary acquired at more than book value with inventory transfers. Nothing I do seems to work, and I am getting really creative and confusing myself with all sorts of calculations. What is the proper formula for calculating consolidation entry for accumulated depreciation in this situation?

Pop Corporation acquired 70 percent of Soda Company's voting common shares on January 1, 20X2, for $112,700. At that date, the noncontrolling interest had a fair value of $48,300 and Soda reported $71,000 of common stock outstanding and retained earnings of $31,000. The differential is assigned to buildings and equipment, which had a fair value $28,000 higher than book value and a remaining 10-year life, and to patents, which had a fair value $31,000 higher than book value and a remaining life of five years at the date of the business combination. Trial balances for the companies as of December 31, 20X3, are as follows:

Pop Corporation Soda Company Item Debit Credit Debit Credit Cash & Accounts Receivable $16,400     $22,600      Inventory  166,000      36,000      Land  81,000      41,000      Buildings & Equipment  350,000      261,000      Investment in Soda Company  117,200             Cost of Goods Sold  187,000      80,800      Depreciation Expense  20,000      15,000      Interest Expense  17,000      6,200      Dividends Declared  31,000      16,000      Accumulated Depreciation    $141,000      $85,000  Accounts Payable     93,400       36,000  Bonds Payable     219,250       94,000  Bond Premium             1,600  Common Stock     121,000       71,000  Retained Earnings     128,900       61,000  Sales     261,000       130,000  Other Income     10,600          Income from Soda Company     10,450            $985,600 $985,600  $478,600  $478,600  

On December 31, 20X2, Soda purchased inventory for $31,500 and sold it to Pop for $45,000. Pop resold $30,000 of the inventory (i.e., $30,000 of the $45,000 acquired from Soda) during 20X3 and had the remaining balance in inventory at December 31, 20X3.

During 20X3, Soda sold inventory purchased for $56,000 to Pop for $80,000, and Pop resold all but $25,000 of its purchase. On March 10, 20X3, Pop sold inventory purchased for $15,000 to Soda for $30,000. Soda sold all but $7,800 of the inventory prior to December 31, 20X3. Assume Pop uses the fully adjusted equity method, that both companies use straight-line depreciation, and that no property, plant, and equipment has been purchased since the acquisition.

I need to be able to calculate the amount of accumulated depreciation for consolidated financial adjustment entries. I am aware that the transaction is Debited to Accumulated Depreciation and is Credited to Buildings and Equipment

Bonadio Electrical Supplies distributes electrical components to the construction industry. The company began as a local supplier 15 yrs ago and has grown rapidly to become a major competitor in the North central U.S. As the business grew and variety of components to be stocked expanded, Bonadio acquired a computer and implemented an inventory control system. Other applications such as accounts receivable, account payable, payroll, and sale analysis were gradually computerized as each function expanded. Because of its operational importance, the inventory system has been upgraded to an online system, while all the other applications are operating in batch mode. Over the years, the company has developed or acquired more than 100 application programs and maintains hundreds of files. Bonadio faces stiff competition from local suppliers throughout its marketing area. At a management meeting, the sales manager complained about the difficulty obtaining immediate, current information to respond to customer inquiries. Other managers states that they also had difficulty obtaining timely data from the system. As the result, the controller engaged a consulting firm to explore the situation. The consultant recommended installing a database management system (DBSM), and the company complied, employing Jack Gibbons as the database administrator.

At a recent management meeting, Gibbons presented an overview of the DBMS. Gibbons explained that the databases approach assumes an organizational, data oriented viewpoint as it recognizes that a centralized database represents a vital resource. Instead of being assigned to applications, information is more appropriately used and managed for the entire organization. The operating system physically moves data to and from disk storage, while the DBMS is the software program that controls the data definition library that specifies the data structures and characteristics. As the result. both the roles of the application programs and query software and the tasks of the application programers and users are simplified. Under the database approach, the data are available to all users within security guidelines.

a. Explain the basic difference between a file-oriented system and database management system.

b. Describe at least 3 advantages and at least 3 disadvantages of the database management system.

c. Describe the duties and responsibilities of Jack Gibbons, the database administrator. (CMA Adapted)

Your company received a letter from Mrs. Mirvat Amin in which she complained that the microwave she bought a month ago from your store does not work. In her complaint letter, she asked for either a new microwave or a full refund. Since the microwave has a one-year warranty, your company can meet Mrs. Amin’s request and replace the defective product.

Write an adjustment letter to Mrs. Mirvat Amin in which you inform her about the good news. The letter should be 150-400 words. It should be sent out on April 1, 2020

Mrs. Mirvat Amin’s address is: 546 Zayed Road Dubai, UAE Your company’s letterhead is RAWN Group 647 Emirates Road Dubai, UAE Your name is: Najla Fathi General Sales Manager

The following information was obtained from the accounting records and financial statements of Palmer Inc.

Additional information:

• On May 5, 2020 a capital asset with a cost of $225,000 and net book value of $90,000 was sold for $70,000.
• On September 1, 2020, Palmer issued 5% bonds for face value of $ 200,000.
• On October 15, 2020, bonds with a face value of $ 100,000 were retired for $ 110,000.
• On December 20, 2020, Palmer declared and paid cash dividends.

Required:

1. Prepare the cash flow statement, using the direct method, for Palmer for the year ended December 31, 2020.
2. Prepare the cash flows from operating activities, using the indirect method, for Palmer for the year ended December 31, 2020.

Intangibles: Balance Sheet Presentation and Income Statement Effects

Sempton Company has provided information on intangible assets as follows:

1. A patent was purchased from Lou Company for $1,230,000 on January 1, 2018. Sempton estimated the remaining useful life of the patent to be 10 years. The patent was carried in Lou's accounting records at a net book value of $980,000 when Lou sold it to Sempton.
2. During 2019, a franchise was purchased from Rink Company for $390,000. In addition, 6% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $1,900,000. Sempton estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year of purchase.
3. Sempton incurred R&D costs in 2019 as follows:
   

   Materials and equipment	$100,000
   Personnel	136,000
   Indirect costs	76,000
   	$312,000

   
   Sempton estimates that these costs will be recouped by December 31, 2020.
4. On January 1, 2019, Sempton estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 5 years from January 1, 2019.

Required:

1. Prepare a schedule showing the intangibles section of Sempton's balance sheet at December 31, 2019.

2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.

Intangibles: Balance Sheet Presentation and Income Statement Effects

Bringle Company has provided information on intangible assets as follows:

1. A patent was purchased from Lou Company for $1,665,000 on January 1, 2018. Bringle estimated the remaining useful life of the patent to be 15 years. The patent was carried in Lou's accounting records at a net book value of $1,315,000 when Lou sold it to Bringle.
2. During 2019, a franchise was purchased from Rink Company for $590,000. In addition, 5% of revenue from the franchise must be paid to Rink. Revenue from the franchise for 2019 was $1,700,000. Bringle estimates the useful life of the franchise to be 5 years and takes a full year's amortization in the year of purchase.
3. Bringle incurred R&D costs in 2019 as follows:
   

   Materials and equipment	$126,000
   Personnel	157,000
   Indirect costs	54,000
   	$337,000

   
   Bringle estimates that these costs will be recouped by December 31, 2020.
4. On January 1, 2019, Bringle estimates, based on new events, that the remaining life of the patent purchased on January 1, 2018, is only 10 years from January 1, 2019.

Required:

1. Prepare a schedule showing the intangibles section of Bringle's balance sheet at December 31, 2019.

2. Prepare a schedule showing the income statement effects for the year ended December 31, 2019, as a result of the previously mentioned facts.

EZ Clean-Up Inc. (EZ Clean-Up or the “Company”) provides various set-up, tear-down, and clean-up services to party-planning businesses as well as various third-party customers.

The Company entered into a contract with The Function Junction LLC to be the sole provider of its services for all its events for a period of three years. The Function Junction holds weekly events, with EZ Clean-Up providing its services for every event. After the initial three-year period, the contract is renewable in one-year increments. The average customer relationship period typically lasts five years (the initial three-year term plus two one-year renewals). The Company accounts for the arrangement as a contract with a customer within the scope of ASC 606.

As an incentive to execute new customer contracts, the Company offers its sales representative a one-time $5,000 commission, which is earned and payable to the sales representative as soon as the contract is executed with the customer. No additional commission is paid to the sales representative upon renewal of the contract by the customer.

Before winning the contract, the sales representative incurred $500 in travel costs to travel to The Function Junction’s headquarters to perform a demonstration.

EZ Clean-Up incurred approximately $2,000 in external legal costs to draft the contract executed between the Company and The Function Junction.

Required:

1. Under US GAAP, how should EZ Clean-Up treat incremental costs of obtaining a contract? Please answer the same question under IFRS/IAS.

2. According to US GAAP, which costs, in this case, are incremental costs of obtaining the contract, and therefore are required to be capitalized?

3. According to US GAAP, how should EZ Clean-Up determine the appropriate amortization method, and over what period should the Company amortize any capitalized costs?

4. According to US GAAP, what disclosures should EZ Clean-Up provide in its financial statements?

EZ Clean-Up Inc. (EZ Clean-Up or the “Company”) provides various set-up, tear-down, and clean-up services to party-planning businesses as well as various third-party customers.

The Company entered into a contract with The Function Junction LLC to be the sole provider of its services for all its events for a period of three years. The Function Junction holds weekly events, with EZ Clean-Up providing its services for every event. After the initial three-year period, the contract is renewable in one-year increments. The average customer relationship period typically lasts five years (the initial three-year term plus two one-year renewals). The Company accounts for the arrangement as a contract with a customer within the scope of ASC 606.

As an incentive to execute new customer contracts, the Company offers its sales representative a one-time $5,000 commission, which is earned and payable to the sales representative as soon as the contract is executed with the customer. No additional commission is paid to the sales representative upon renewal of the contract by the customer.

Before winning the contract, the sales representative incurred $500 in travel costs to travel to The Function Junction’s headquarters to perform a demonstration.

EZ Clean-Up incurred approximately $2,000 in external legal costs to draft the contract executed between the Company and The Function Junction.

Required:

1. Under US GAAP, how should EZ Clean-Up treat incremental costs of obtaining a contract? Please answer the same question under IFRS/IAS.

2. According to US GAAP, which costs in this case are incremental costs of obtaining the contract, and therefore are required to be capitalized?

3. According to US GAAP, how should EZ Clean-Up determine the appropriate amortization method, and over what period should the Company amortize any capitalized costs?

4. According to US GAAP, what disclosures should EZ Clean-Up provide in its financial statements?