Kremlin Spirits Pty Ltd (Kremlin) operates a business from premises it owns in Brisbane importing premium quality vodka. Its directors are Vasili and Svetlana (his niece). Kremlin has three shareholders: Vasili, Svetlana and Mikhail. Mikhail has lent considerable amounts of money to Kremlin over the years. Vasili controls the company’s business activities, while Svetlana does not concern herself with the day-to-day management of Kremlin’s business so that she does not really understand the business or its finances. Svetlana is currently undertaking a Bachelor of Commerce on a part-time basis and Vasili has told her that he would like her to take over the accounting side of the business when she finishes her degree in 2021. Due to the popularity of Australian wines, the vodka business falls into a slump. By early March 2020, Vasili is selectively paying trade creditors of Kremlin, having insufficient funds to pay all debts as they fall due. To prop up the company’s fortunes, however, Vasili arranges for the company to obtain a loan of $30,000 from an old friend to spend on advertising in April 2020. Despite the advertising campaign, a liquidator was appointed to wind up the company in June 2020.
Advise the liquidator in respect of the following matters under the Australian Corporations Act 2001 Cth:
(a) Whether there is any basis for recovering funds from the directors personally? If so, are there any defences that Vasili and/or Svetlana can rely on?
(b) In January 2020, Mikhail demanded that Kremlin should repay him some of the money it owed him. Vasili and Svetlana decided that Kremlin should pay half of the debt back to Mikhail.
(c) When Kremlin was established, it borrowed $100,000 from Large Bank. The loan was secured by a non-circulating security interest over the company’s premises and a circulating security interest over its assets and undertaking. Vasili and Svetlana also provided personal guarantees to the bank. When the circulating security interest was granted, neither Kremlin nor the Bank registered it on the Personal Property Securities (PPS) register. The necessary forms were provided to the bank, but a clerk at the bank lost the forms before they could be lodged.
In: Accounting
The long-term liabilities section of CPS Transportation’s
December 31, 2020, balance sheet included the following: (FV of $1,
PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
(Use appropriate factor(s) from the tables
provided.)
a. A lease liability with 15 remaining lease payments of $38,000
each, due annually on January 1:
| Lease liability | $ | 289,031 | |
| Less: current portion | 9,097 | ||
| $ | 279,934 | ||
The incremental borrowing rate at the inception of the lease was
11% and the lessor’s implicit rate, which was known by CPS
Transportation, was 10%.
b. A deferred income tax liability due to a single temporary
difference. The only difference between CPS Transportation’s
taxable income and pretax accounting income is depreciation on a
machine acquired on January 1, 2020, for $560,000. The machine’s
estimated useful life is five years, with no salvage value.
Depreciation is computed using the straight-line method for
financial reporting purposes and the MACRS method for tax purposes.
Depreciation expense for tax and financial reporting purposes for
2021 through 2024 is as follows:
| Year | MACRS Depreciation |
Straight-line Depreciation |
Difference | ||||||
| 2021 | $ | 176,000 | $ | 112,000 | $ | 64,000 | |||
| 2022 | 88,000 | 112,000 | (24,000 | ) | |||||
| 2023 | 78,000 | 112,000 | (34,000 | ) | |||||
| 2024 | 68,000 | 112,000 | (44,000 | ) | |||||
The enacted federal income tax rates are 20% for 2020 and 25% for
2021 through 2024. CPS had a deferred tax liability of $9,500 as of
December 31, 2020. For the year ended December 31, 2021, CPS’s
income before income taxes was $960,000.
On July 1, 2021, CPS Transportation issued $660,000 of 9% bonds.
The bonds mature in 15 years, and interest is payable each January
1 and July 1. The bonds were issued at a price to yield the
investors 10%. CPS records interest at the effective interest
rate.
Required:
1. Determine CPS Transportation’s income tax
expense and net income for the year ended December 31, 2021.
2. Determine CPS Transportation’s interest expense
for the year ended December 31, 2021.
3. Prepare the long-term liabilities section of
CPS Transportation's December 31, 2021, balance sheet.
In: Accounting
Selected balance sheet and income statement information follows for Snap Inc. and Golden Eagle Inc. for the fiscal year ended January 30, 2020.
|
For Fiscal Year Ended Jan. 30, 2020 ($ millions) |
Snap | Golden Eagle |
|---|---|---|
| Income statement information: | ||
| Interest expense | $236 | $6 |
| Income before interest and taxes | 9,296 | 1,932 |
| Balance sheet information: | ||
| Cash and cash equivalents | 7,946 | 1,534 |
| Accounts receivable | 1,692 | 478 |
| Current assets | 24,309 | 4,410 |
| Current liabilities | 15,971 | 2,691 |
| Total assets | 46,333 | 9,833 |
| Total liabilities | 30,554 | 3,422 |
| Total stockholders’ equity | 15,779 | 6,411 |
Required
a. Compute the following ratios for the fiscal year ended January 30, 2020.
| For Fiscal Year Ended Jan. 30 2020
($ millions) |
Snap |
Golden Eagle |
|---|---|---|
| 1. Current ratio | Answer | Answer |
| 2. Quick ratio | Answer | Answer |
| 3. Total liabilities-to-equity | Answer | Answer |
| 4. Times interest earned | Answer | Answer |
b. Comment on liquidity and solvency comparing the ratio results from the the two companies, assuming all differences are material.
As compared to Golden Eagle, Snap Inc. has a:
| AnswerLower liquidityHigher liquidityLower debt relative to equityHigher debt relative to equityStronger ability to pay interest when dueWeaker ability to pay interest when due | Indicated by the current ratio |
| AnswerLower liquidityHigher liquidityLower debt relative to equityHigher debt relative to equityStronger ability to pay interest when dueWeaker ability to pay interest when due | Indicated by the current ratio |
| AnswerLower liquidityHigher liquidityLower debt relative to equityHigher debt relative to equityStronger ability to pay interest when dueWeaker ability to pay interest when due | Indicated by the current ratio |
| AnswerLower liquidityHigher liquidityLower debt relative to equityHigher debt relative to equityStronger ability to pay interest when dueWeaker ability to pay interest when due | Indicated by the current ratio |
As compared to Golden Eagle Inc., Snap Inc. has:
| AnswerStrongerWeakerAn indeterminable difference in | Liquidity |
| AnswerStrongerWeakerAn indeterminable difference in | Solvency |
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In: Accounting
LazyDaz, Inc. reported the following for its 2020 financial
statements.
Balance Sheet
| Dec 31, 2020 | Dec 31, 2019 | Difference | |
| Cash | 526 | 315 | 211 |
| Accounts Receivable | 24 | 16 | 8 |
| Allow for Doubtful Accounts | (2) | (1) | (1) |
| Inventory | 21 | 32 | (11) |
| PP&E | 1,709 | 1,750 | (41) |
| Land | 809 | 660 | 149 |
| Accumulated Depreciation | (314) | (300) | (14) |
| Patent | 6 | 8 | (2) |
| Total Assets | 2,779 | 2,480 | |
| Accounts Payable | 37 | 19 | 18 |
| Wages Payable | 7 | 10 | (3) |
| Unearned Revenue | 12 | 11 | 1 |
| Interest Payable | 57 | 50 | 7 |
| Income Tax Payable | 53 | 83 | (30) |
| Notes Payable | 75 | 0 | 75 |
| Bonds Payable | 783 | 750 | 33 |
| Common Stock | 1,242 | 1,100 | 142 |
| Retained Earnings | 513 | 457 | 56 |
| Total Liabilities & Equity | 2,779 | 2,480 |
Income Statement
For the Year Ending Dec 31, 2020
| Sales | 1,250 | |
| Cost of Goods Sold | (648) | |
| Gross Profit | 602 | |
| Operating Expenses | ||
| Wage Expense | (150) | |
| Bad Debt Expense | (1) | |
| Depreciation Expense | (114) | |
| Amortization Expense | (2) | |
| Utilities Expense | (52) | |
| Other Operating Expenses | (151) | (470) |
| Income From Operations | 132 | |
| Other | ||
| Interest Expense | (11) | |
| Gain (Loss) on Sale of Land | (20) | |
| Gain (Loss) on Sale of PP&E | 55 | 24 |
| Income before Tax Expense | 156 | |
| Income Tax Expense | (68) | |
| Net Income | 88 |
The financial notes of LazyDaz disclose the following 2020
information:
(1) Property, plant and equipment was sold for cash. The PP&E
had an original cost of $400
and accumulated depreciation of $100.
(2) Stock was issued for $120 cash.
(3) Bonds of $30 were retired.
(4) Land with a cost of $140 was sold.
(5) There were two major noncash transactions. PP&E was
acquired by issuing a $75 long-term
note. Later in the year, PP&E was acquired by issuing $100 in
common stock.
(6) All other transactions were cash transactions.
Can you prepare a Statement of Cash Flows for this information
In: Accounting
Assume that is produced only two products; Coffee bean and plastic where are the price and quantity produced are:
Year | Coffee bean | Plastic |
2018 (base year) | P= 10 Q= 1,000 | P= 5 Q= 2,000 |
2019 | P= 10 Q= 1,100 | P= 5 Q= 2,100 |
2020 | P= 12 Q= 900 | P= 6 Q= 1,900 |
Calculate GDP deflator for the years 2018, 2019 and 2020. Also, calculate the Nominal and real GDP growth on 2019 & 2020, compare between them by explaining why they are different. Calculate the 2019 & 2020 inflation rates.
In: Economics
4. Suppose you are hired on January 1, 2020 and start depositing $400 at the end of each month, with the first deposit on February 1, 2020, in a pension fund that pays interest of 9% per year compounded monthly on the minimum monthly balance and credited at the end of each month.
(a) How much money is in the pension fund on March 1, 2020?
(b) How much money is in the pension fund on April 1, 2020?
(c) How much money will be in the pension fund on January 1, 2040?
(d) What is the total amount of interest earned in this pension fund during these 20 years?
In: Finance
(a) ABC Company purchased land at a cost of $400,000,000 during 2018. ABC chooses to use the revaluation method of accounting for land. The fair value of the land is as follows at December 31, 2018 2019 and 2020:
2018 - $450,000,000
2019 - $360,000,000
2020 - $385,000,000
Required
(a) Record the journal entries to account for revaluation of the
land at 31 December 2018, 2019 and 2020.
(b) Assume ABC Company chooses to apply the cost method for the land and that the above amounts are the recoverable amount of the land at 31 December each year. Record the necessary journal entries to account for the land at 31 December 2018, 2019 and 2020.
In: Accounting
Tim (40) and Tina (42) live in California. They have one son, Todd (age 10; Todd is a qualifying child of Tim and Tina). Tim’s brother, Bob, lives in New York. Although Bob did not live with Tim and Tina at all in 2020, Tim and Tina provided 90% of Bob's support. Bob is single and had $1,000 gross income in 2020.
What is the amount of Tim and Tina’s 2020 child tax credit (including other dependent tax credit)?
Assume that Tim and Tina's 2020 AGI is below the phaseout threshold for the child tax credit.
In: Accounting
The following information was available for Wild Oat Company for the month ended May 31, 2020.
(a) The book balance at May 31, 2020 was $6,890.22.
(b) The bank balance at May 31, 2020 was $8,660.22.
(c) Outstanding cheques amounted to $6,310.
(d) The may 31st cash receipts of $5,600 were deposited but have not yet appeared on the bank statement.
(e) A $50 debit memorandum for cheques printed by the bank was included with the cancelled cheques.
(f) A customer's note for $1,000 was collected by the bank. In addition interest on the note was $110.
Prepare a bank reconciliation for Wild Oat Company at May 31, 2020.
In: Finance
On January 1, 2018, Grumpy Contractors agreed to construct a building at a contract price of $5,000,000. Grumpy estimates that the project will be finished in 2020. Information related to the costs and billings for this contract are as follows:
| 2018 | 2019 | 2020 | |
| Total costs incurred to date | $1,500,000 | $3,300,000 | $4,400,000 |
| Estimated costs to complete | 2,500,000 | 1,000,000 | -0- |
| Customer billings to date | 1,200,000 | 2,700,000 | 4,400,000 |
| Collections to date | 1,000,000 | 2,500,000 | 4,400,000 |
Instructions:
Assuming the building was finished in 2020, calculate the gross
profit that would be recorded for 2018, 2019 and 2020 using
the:
a) Completed contract method.
b) Percentage of completion method.
In: Accounting