In the 2013 third quarter, we issued $350 million aggregate principal amount of 3.4 percent Series M Notes due 2020 (the “Series M Notes”). We received net proceeds of approximately $345 million from the offering, after deducting the underwriting discount and estimated expenses. We pay interest on the Series M Notes on April 15 and October 15 of each year, commencing on April 15, 2014.

These Series M Notes are described as: Series M Notes, interest rate of 3.4%, face amount of $350, maturing October 15, 2020 (effective interest rate of 3.6%)

(a) What journal entry would have been recorded in the third quarter of 2013 to record the issuance of the Series M Notes?

(b) Record the interest payment and interest expense on April 15 and October 15, 2014. Assume the effective interest method, and record your responses to the nearest thousand dollars.

April 15:

October 15:

(c) Assume that, at the end of 2014, the prevailing market rate for interest obligations similar to these notes was 4.0%. What would be the approximate net carrying or book value of the notes at the year end? Explain.

. Alpha Ltd has appointed you as a manager in the budgeting department. The company has provided the following information to prepare a cash flow budget for the six months from the 1 January 2021 to 30 June 2021.

1. Alpha Ltd produces only one type of product and the projected selling price of the product is £2 for January and February and after that will be fixed at £3 for the foreseeable future.      
2. For the first three months of the year, 2,000 units will be sold per month. For the following three months, 2,500 units will be sold per month. Sales income is to be received in the month of sale.
3. Insurance costs are £200 every two months. The company will pay for insurance on 1 December 2020.
4. The company is paying 20% of sales of each month as bonus to the employees in the following month. The total sales during December 2020 will be £5,000.
5. Alpha Ltd will pay overhead costs of £2,000 each month.
6. The opening cash balance at 1 January 2021 will be £1,000.
7. The monthly cost of direct material and direct labour is estimated to be £500 and the company will pay them during each month.

viii Fixed costs of production are £100 per month, payable in the month

At the end of its fiscal year 2019, an analyst made the following forecast for ABC, Inc. (in millions of dollars):

ABC has a net debt of $823. Assume that free cash flow will grow at 4 percent per year after 2023. ABC had 300 million shares outstanding at the end of 2019, trading at $75 per share. Using a required return of 10 percent, calculate the following for ABC at the end of 2019 (You have to fill in the table below to show your working process):

1. The enterprise value                                                                          

[5 marks]

2. Equity value                                                                                       

[2 marks]

3. Equity value per share                                                                                   

[2 marks]

4. Based on your estimate, should investors buy the share of this company?

[1 mark]

Kelly Mills Ltd was wound up on 22^nd August 2020.

Kelly Mills Ltd

Trial Balance

as at 22^nd August 2020

The following information is relevant

1. The assets were sold and realised the following cash amounts:

                      Inventories                                          $624 000

                      Plant and machinery                            $728 000

2. The Alliance Bank took possession of the land and buildings, sold them for $468 000 and after the debt was cleared paid any excess funds to the liquidator.

3. Liquidation costs were $98 800.

4. The liquidator paid all liabilities.

Required

Prepare the JOURNAL ENTRIES to wind up the affairs of Kelly Mills Ltd and to calculate any deficiency and distribution to the shareholders.

T accounts are NOT required.

Kelly Mills Ltd was wound up on 22^nd August 2020.

Kelly Mills Ltd

Trial Balance

as at 22^nd August 2020

The following information is relevant

1. The assets were sold and realised the following cash amounts:

Inventories $624 000

Plant and machinery $728 000

2. The Alliance Bank took possession of the land and buildings, sold them for $468 000 and after the debt was cleared paid any excess funds to the liquidator.

3. Liquidation costs were $98 800.

4. The liquidator paid all liabilities.

Required

Prepare the JOURNAL ENTRIES to wind up the affairs of Kelly Mills Ltd and to calculate any deficiency and distribution to the shareholders.

T accounts are NOT required.

1. Explain why drugs are covered and protected by copyright law but recipes are not.

2. What are the arguments for extending copyright protection to the fashion industry? How might it change the way clothes are produced and sold? Would it affect us, the final consumers?  

3. What do you think? Should the law extending copyright protection to the fashion industry be passed?

Copycats vs. Copyrights

Does it make sense to legally protect the fashion industry from knockoffs?

Fashion designer Zac Posen helps country singer Martina McBride choose a dress. Posen is one of those who want a law to protect designs from knockoffs.

I pride myself on being a man of substance. A wonk. A nerd, even. And like most nerds, I don’t have a great eye for fashion. So I ask this question seriously: what did you think of Chelsea Clinton’s Vera Wang wedding dress? Want to buy it? What if I can sell it to you really, really cheap?

On Aug. 5, Sen. Chuck Schumer (D-N.Y.) introduced S.3728: the Innovative Design Protection and Piracy Prevention Act. He’s got 10 cosponsors—including three Republicans—and a big idea: to extend copyright protections to the fashion industry, where none currently exist. That’s right: none. I—well, not I, but someone who can sew—can copy Vera Wang’s (extremely expensive) dress and sell it to you right now (for much less), and Wang can’t do a thing about it.

Allen Schwartz, founder and lead designer of the label ABS, has already promised to do exactly that. He’ll take the dress, remake it, and sell it to the masses for much cheaper. Is he stealing? Or is he popularizing? Schumer’s legislation suggests his answer: he wants to make Schwartz’s imitation illegal. Only Vera Wang should be able to profit from her designs, at least for the first three years (the length of Schumer’s proposed copyright). But what if he’s wrong? What if copying, despite what your teacher always told you, is ... good?

We’re used to the logic of copyright. Movies, music, and pharmaceuticals all use some form of patent or copyright protection. The idea is simple: if people can’t profit from innovation, they won’t innovate. So to encourage the development of stuff we want, we give the innovators something very valuable—exclusive access to the profit from their innovations. We’ve so bought into the logic that we allow companies to patent human genes.

And companies love copyright. They love it so much they persuaded Congress to pass the Sonny Bono Act, which extended individual copyright protections to the life of the author, plus another 70 years; and corporate copyrights to 120 years from creation, or 95 years from publication, whichever is earlier. That’s an absurdly long time, and it belies the original point of patents: does anyone seriously believe that a 40-year-old with a money-making idea is going to hold back because someone can mimic it 20 years after he dies?

At a certain point, copyrights stop protecting innovation and begin protecting profits. They scare off future inventors who want to take a 60-year-old idea and use it as the foundation to build something new and interesting. That’s the difficulty of copyrights, patents, and other forms of intellectual protection. Too little, and the first innovation won’t happen. Too much, and the second innovation—the one relying on the first—will be stanched.

Which is why we have to be careful when one industry or another demands more copyright protection for itself. “Intellectual property is legalized monopoly,” says James Boyle, a professor at Duke Law School. “And like any monopoly, its tendency is to raise prices and diminish availability. We should have a high burden of proof for whether it’s necessary."

Drug development probably meets the burden of proof. It costs hundreds of millions of dollars to bring a drug to market. If Pfizer could just copy the drugs Novartis develops, Novartis wouldn’t have much reason to develop drugs.

Recipes don’t. You can’t patent dessert. Just ask Jean-Georges Vongerichten. Years ago, he created a chocolate cake with a molten core of liquid chocolate. The recipe became a sensation. Which meant it appeared on menus all across the country, with no credit to JGV. That’s a bummer for its creator, but a boon to all of us who don’t live in New York. We get to eat it anyway. And yet innovation continues apace in the food world. JGV is still a rich man. We can have our cake and eat it, too. (Sorry, sorry.)

So which one is fashion? Well, look around. Sure seems as if there are a lot of clothing options, and at all manner of price points. The big fashion houses are raking in billions of dollars in profits. What’s the problem we’re trying to solve?

Well, there’s the principle of the thing. Designers don’t like being copied. It doesn’t seem fair. But there’s nothing fair about legal monopolies, either. The question is, which benefits consumers more?

Then there’s the matter of profit: Schwartz is threatening to take Wang’s profits. In theory, that might dissuade Wang from making new dresses. But America has never had copyright protection for dresses, and Wang keeps making—and profiting from—them. Meanwhile, Schwartz’s copies make versions of Wang’s designs available to consumers who would never be able to afford them otherwise. That has value, too. Copyright law is supposed to help consumers by protecting innovation, not producers by protecting profits. If we’re not having an innovation problem, we’re not having a problem that needs to be fixed through copyright.

Fordham University’s Susan Scafidi, who helped craft the legislation, says that it’s actually small designers that we need to worry about. They get ripped off, and because they don’t have the name recognition of a Vera Wang, there’s nothing they can do about it, and so they have to close up shop. But how many of them? There’s anecdotal evidence of this, but we’ve got record numbers of students signing up for fashion-design school, and the entire American fashion industry has emerged and thrived in the absence of copyright.

And what about the dangers of the new law? Schumer’s office has worked to protect against frivolous lawsuits. The language is very narrow, and cynical plaintiffs would have a tough road ahead of them. But the letter of the law does not always govern the effect of the law: small designers and retailers don’t have attorneys on retainer, and if bigger firms take the opportunity to start sending out a lot of intimidating cease-and-desist letters, or opportunists try to patent everything in sight and sue their way to prosperity, we could, at the least, see the legal fees and threats pile up—and ultimately consumers will pay for that.

And then there’s the question of creep: a judge could interpret the law as bigger than Congress intends, or a future Congress could expand the law beyond what Schumer intends—as has happened in other areas of copyright.

If we’re going to risk all that, the law needs to carry some serious benefits. And it might have one: innovation. “We have Allen Schwartz and six other companies making slavish copies of Vera Wang,” Scafidi says. “But suppose we have this law in place. The other companies can’t copy it exactly, so they go to their designers and create six or seven versions at the affordable price point.” In other words, the ability to copy might reduce the need to innovate.

Jennifer Jenkins, an intellectual-property expert at Duke, disagrees. “In fashion, copying has benefits,” she argues. First, knockoffs make designs trendy, and that increases the value of the original, and thus the incentives for designers to innovate. Second, it makes them affordable, so more people can wear them. Vera Wang and Allen Schwartz aren’t selling to the same crowds, and there are a lot more people shopping at discount stores than at designer boutiques (which is why many designers are now licensing their names to retail outlets like Target). And third, it speeds up innovation, as fashion designers have to keep churning out new products to stay ahead of the copycats.

But perhaps the strongest argument is that America’s apparel industry doesn’t seem broken—so why try and fix it? “America is the world fashion leader,” said Steven Kolb, director of the Council of Fashion Designers of America, the lead trade group in support of the Schumer bill, “and yet it is basically the only industrialized country that does not provide protection for fashion design.”

Run that by me one more time? We’re the world leader in fashion, so we should change our policy to mimic our lagging competitors?

Too often, copyrights are used not to protect consumers by making sure they have access to new products, but to protect the profits of producers. It’s no coincidence that the rise of the Internet—which led to an explosion of low-cost distribution networks, new forms of competition, and unexpected types of innovation—has also led to calls for new and stronger forms of intellectual protection.

Consumers assume this is all for them, as that’s what they’ve been told. But it isn’t. There’s a reason we’re skeptical of monopolies, and we shouldn’t forget that even when they’re dressed up as “copyrights.”

Miss Socks & Mr. Fore the owners of Jazz Dance Studio have prepared the unadjusted trial balance for Jazz Dance Studio Limited. They know that before they can prepare their financial statements that adjusting journal entries must be prepared but do not know how to make the adjustments. Knowing that you are taking an accounting course they have come to you for assistance. Miss Socks has provided you with the unadjusted trial balance and has gathered the following information for you:

- depreciation has been calculated for the year but hasn't been recorded Equipment

- $2,500 Furniture

- $600

- on August 1 the company paid $4,500 for the rent for August, September & October

- $625 of interestexpense has been incurred but not paid - the balance of office supplies on August 31, 2020 is $1,900.

-Jazz Dance Studio operates 7 days a week and pays it's employees on Saturday for the week then ended. As August 31 falls on a Friday the company owes its employees for 6 days. The total salary for the week ending September 1, 2020 is $5,250

- On August 1 the company received $1,200 from students for dance fees for August, September & October.

Jazz Dance Studio Limited Unadjusted Trial Balance

August 31, 2020

Debit Credit

Cash 75,700

Accounts receivable 1,850

Prepaid rent 4,500

Office supplies 3,600

Equipment 12,500

Accumulated depreciation - equipment 5,000

Furniture 3,600

Accumulated depreciation - furniture 1,800

Accounts payable 4,950

Salary payable -

Interest payable -

Unearned revenue 1,200

Note payable 25,000

Share capital 10,000

Retained earnings 18,600

Revenue 195,000

Advertising expense    9,750

Bank charges expense 1,080

Depreciation expense -

Interest expense -

Office supplies expense 4,900

Repairs expense 6,270

Rent expense 16,500

Salary expense 121,300

261,550 261,550

Selected information about income statement accounts for the Reed Company is presented below (the company's fiscal year ends on December 31):

On July 1, 2021, the company adopted a plan to discontinue a division that qualifies as a component of an entity as defined by GAAP. The assets of the component were sold on September 30, 2021, for $64,000 less than their book value. Results of operations for the component (included in the above account balances) were as follows:

In addition to the account balances above, several events occurred during 2021 that have not yet been reflected in the above accounts:

1. A fire caused $54,000 in uninsured damages to the main office building. The fire was considered to be an unusual event.
2. Inventory that had cost $44,000 had become obsolete because a competitor introduced a better product. The inventory was written down to its scrap value of $7,000.
3. Income taxes have not yet been recorded.

Required:
Prepare a multiple-step income statement for the Reed Company for 2021, showing 2020 information in comparative format, including income taxes computed at 25% and EPS disclosures assuming 500,000 shares of outstanding common stock. (Amounts to be deducted should be indicated with a minus sign. Round EPS answers to 2 decimal places.)

The management of Nash Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Nash changed its method of pricing inventory from last-in, first-out (LIFO) to average-cost in 2020. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average-cost method.

Prepare comparative statements for the 5 years, assuming that Nash changed its method of inventory pricing to average-cost. Indicate the effects on net income and earnings per share for the years involved. Nash Instruments started business in 2015. Assume that the number of shares outsanding is 100.

Acme Materials Company manufactures and sells synthetic coatings that can withstand high temperatures. Its primary customers are aviation manufacturers and maintenance companies. The following table contains financial information pertaining to cost of quality (COQ) in 2019 and 2020 (in thousands of dollars):

Required:

1. Classify the cost items in the table into cost-of-quality (COQ) categories.

2. Calculate the ratio of each COQ category to revenues in each of the 2 years.

Classify the cost items in the table into cost-of-quality (COQ) categories. Calculate the ratio of each COQ category to revenues in each of the 2 years. (Enter amounts in thousands, not in whole dollar. Round your "Percentage" answers to 2 decimal places.)