Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products, including the management of its own forest reserves. Unfortunately, in the current year a bushfire in the mountain range bordering the company’s operations resulted in the destruction of 5 000 hectares of standing timber, harvested logs, forestry buildings and equipment. As a result the company recognised a $10 million loss in the current period. The board of directors of GTL are debating whether it can raise a deferred tax asset in relation to this loss in the financial statements for the current period.

The accounting profit and other relevant information of GTL for the year to 30 June 2019 are as follows:

The company tax rate is 30%.

The Chief Executive Officer (CEO) of GTL instructed the Chief Financial Officer (CFO) to submit a report to the board providing advice on the raising of a deferred tax asset and specifying the conditions, if any, under which the asset could be recognised.

Required

1. Explain how accounting profit and taxable profit differ and how each is treated when accounting for income taxes.                                                                                      

2. Discuss when a deferred tax asset must be recognised.                                         

3. Calculate the taxable income.                                                                                      

4. Prepare the journal entry for the deferred tax asset.                                              

Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

Problem 23-1A Part 1&2

Required:
1&2. Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

3. The company’s business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $550,000 if this level is reached without increasing capacity?

4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

What is the QBO Account Type for the following accounts appearing in Mookie The Beagle™ Concierge’s Chart of Accounts?

Accounting for company income tax

Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products, including the management of its own forest reserves. Unfortunately, in the current year a bushfire in the mountain range bordering the company’s operations resulted in the destruction of 5 000 hectares of standing timber, harvested logs, forestry buildings and equipment. As a result the company recognised a $10 million loss in the current period. The board of directors of GTL are debating whether it can raise a deferred tax asset in relation to this loss in the financial statements for the current period.

The accounting profit and other relevant information of GTL for the year to 30 June 2019 are as follows:

The company tax rate is 30%.

The Chief Executive Officer (CEO) of GTL instructed the Chief Financial Officer (CFO) to submit a report to the boardproviding advice on the raising of a deferred tax assetand specifying the conditions, if any, under which the asset could be recognised.

Required

1. Explain how accounting profit and taxable profit differ and how each is treated when accounting for income taxes.                                                                                        

2. Discuss when a deferred tax asset must be recognised.                                

3. Calculate the taxable income.                                                                                   

4. Prepare the journal entry for the deferred tax asset.                                     

ABCO is a conglomerate that has ksh4 billion in common stock. Its capital is invested in four subsidiaries: Entertainment (ENT), Consumer products (CON), Pharmaceuticals (PHA) and insurance (INS). The four subsidiaries are expected to perform differently, depending on the economic environment as follows:

Assuming that the three economic outcomes (1) have an equal likelihood of occurring and (2) that the good economy is twice as likely to take place as the other two:

1. Calculate the individual expected returns for each subsidiary
2. Calculate the implicit portfolio weights for each subsidiary and an expected return and variance for the equity in the ABCO Conglomerate

1. Asssume in a) above that ABCO also has a pension fund, which has a net asset value of ksh 5 billlion, implying that ABCO’s stock is really worth ksh 9 billion instead of ksh 4 billlion. The sh 5 billion in pension fund is invested in short term government risk free securities yielding 5% per year. Recalculate parts i) and ii) of a) to reflect this information.
2. Assume the in a), ABCO decides to borrow sh 8 billion at 5% interest to triple its current investment in each of its four lines of business. Assume that this new investment has the same return outcomes as the old investment.

1. Answer part i) and ii) of a) given the new investment
2. How does this result compare with the results from a)?
3. To whom does this return belong? Why?

3. Explain how ABCO would manage its portfolio prudently

Grace Timber Ltd (GTL) is engaged primarily in agricultural pursuits as well as in forestry products, including the management of its own forest reserves. Unfortunately, in the current year a bushfire in the mountain range bordering the company’s operations resulted in the destruction of 5 000 hectares of standing timber, harvested logs, forestry buildings and equipment. As a result the company recognised a $10 million loss in the current period. The board of directors of GTL are debating whether it can raise a deferred tax asset in relation to this loss in the financial statements for the current period.

The accounting profit and other relevant information of GTL for the year to 30 June 2019 are as follows:

The company tax rate is 30%.

The Chief Executive Officer (CEO) of GTL instructed the Chief Financial Officer (CFO) to submit a report to the board providing advice on the raising of a deferred tax asset and specifying the conditions, if any, under which the asset could be recognised.

Required

1. Explain how accounting profit and taxable profit differ and how each is treated when accounting for income taxes.                                                                                        

2. Discuss when a deferred tax asset must be recognised.                                                      

3. Calculate the taxable income.                                                                                         

4. Prepare the journal entry for the deferred tax asset.                                           

Elsinore Electronics is a decentralized organization that evaluates divisional management based on measures of divisional contribution margin. Home Audio (Home) Division and Mobile Electronics (Mobile) Division both sell electronic equipment, primarily for video and audio entertainment. Home focuses on home and personal equipment; Mobile focuses on components for automobile and other, nonresidential equipment. Home produces an audio player that it can sell to the outside market for $72 per unit. The outside market can absorb up to 89,000 units per year. These units require 3 direct labor-hours each.

If Home modifies the units with an additional hour of labor time, it can sell them to Mobile for $81 per unit. Mobile will accept up to 77,000 of these units per year.

If Mobile does not obtain 77,000 units from Home, it purchases them for $84 each from the outside. Mobile incurs $36 of additional labor and other out-of-pocket costs to convert the player into one that fits in the dashboard and integrates with the automobile’s audio system. The units can be sold to the outside market for $202 each.

Home estimates that its total costs are $1,010,000 for fixed costs, $14.40 per direct labor-hour, and $7.20 per audio player for materials and other variable costs besides direct labor. Its capacity is limited to 375,000 direct labor-hours per year.

Required:

Determine the following:

a. Total contribution margin to Home if it sells 89,000 units outside.

b. Total contribution margin to Home if it sells 77,000 units to Mobile.

(c) & (d). The costs to be considered in determining the optimal company policy for sales by Home.

The annual contributions and costs for Home and Mobile under the optimal policy

1. At the beginning of the school year, Craig Kovar decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:

   Cash balance, September 1 (from a summer job)	$10,850
   Purchase season football tickets in September	200
   Additional entertainment for each month	310
   Pay fall semester tuition in September	5,600
   Pay rent at the beginning of each month	750
   Pay for food each month	690
   Pay apartment deposit on September 2 (to be returned December 15)	750
   Part-time job earnings each month (net of taxes)	1,500

   This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

   Open spreadsheet

   a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.

   Craig Kovar
   Cash Budget
   For the Four Months Ending December 31
   	September		October		November		December
   Estimated cash receipts from:
   		$		$		$		$
   Total cash receipts		$		$		$		$
   Less estimated cash payments for:
   		$
   				$		$		$
   Total cash payments		$		$		$		$
   Cash increase (decrease)		$		$		$		$
   Cash balance at end of month		$		$		$		$

   b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?
   
   

   c. What are the budget implications for Craig Kovar?

   Craig can see that his present plan   sufficient cash. If Craig did not budget but went ahead with the original plan, he would be $   at the end of December, with no time left to adjust.

NEW YORK -- Herbalife, a Los Angeles-based health and nutrition company, bribed Chinese government officials for a decade to grow its overseas business and falsified accounting records to cover up the payments, U.S. prosecutors said Friday in announcing corruption charges against the publicly traded company.

Herbalife agreed to pay combined penalties of more than $123 million to resolve the charges, federal prosecutors said.

The company admitted to the conspiracy as part of a deferred prosecution agreement it reached with the U.S. Justice Department and the U.S. Attorney's Office in Manhattan.

The charges were brought under the Foreign Corrupt Practices Act, which prohibits bribery of foreign government officials or company executives to secure or retain business.

Herbalife did not immediately respond to a message seeking comment.

Company officials began paying off Chinese government officials in 2007 in a bid to obtain licenses from national and local authorities the company needed to sell health and nutrition products.

They also bribed a state-owned media outlet “for the purpose of removing negative media reports about Herbalife China,” prosecutors said.

Herbalife falsely recorded the improper payments as “travel and entertainment expenses,” prosecutors said.

Herbalife has long been embroiled in litigation and regulatory actions over its business practices, which have been compared by some to a pyramid scheme.

Prosecutors said the company also agreed to pay more than $67 million in disgorgement — repayment of ill-gotten gains — and prejudgment interest to the Securities and Exchange Commission.

Question - What are your thoughts about this company? Violations of the Foreign Corrupt Practices Act are alleged. Do you think such regulations/laws are outdated?