1. Find the future value of each deposit if the account pays​ (a) simple​ interest, and​ (b) interest compounded annually.

​$1500 at 6​% for 8 years

​

2. . Tony opened a hot dog stand last April. He borrowed ​$6800 to pay for the stand and startup​ inventory, and he agreed to pay off the loan in 10 months at 6​% simple interest. Find the total amount required to repay the loan.

The total amount required to repay the loan is $__

3. For each​ deposit, find the future value​ (that is, the final amount on​ deposit) when compounding occurs​ (a) annually,​ (b) semiannually, and​ (c) quarterly.

1. Experience and formal educations were often used as a proxy for (entrepreneurial) ability. Briefly discuss the advantages and disadvantages of using each of them. How does your answer help explain why empirical studies of entrepreneurial choice often include both measures (such as year of schooling and years of work experience)?

2. Briefly discuss how important is strong- vs. weak-tie social capital to the following two startup company: a new restaurant and an e-commerce platform.

3. What is the benefit of forming entrepreneurial teams when starting a company? Is a more diverse team better than a team with similar members for a business venture?

Dave Solomon is 59 years of age and is planning for his retirement. Dave is a barrister at a leading law firm. His gross salary for the 2019–2020 income year totals $345,000. He has decided to sell the majority of his assets as detailed below:

•  A two-storey residence at St Lucia, described in PoTL end of chapter question 11.6 (a)

•  A painting, described in PoTL end of chapter question 11.6 (b)

•  A parcel of shares, described in PoTL end of chapter question 11.6 (d).

•  A unit in a unit complex that he holds as a residential rental property investment. Davepurchased the unit ‘off plan’ on 1 January 2012 for $350,000. The unit was tenanted from that day. On 1 August 2019, Dave replaced the stove in the unit with a new one that cost him $1,800. He uses the diminishing value method for income tax purposes, and the effective life of the stove is 12 years. Dave sold the unit on 29 February 2020 for $450,000, and applies an apportionment of 0.2% on the sale of depreciating assets as set out in the ATO Rental properties Guide for rental property owners. During the 2019–2020 income year, Dave received rent totalling $16,800. By 30 June 2019, Dave had claimed Div 43 capital works deductions totalling $52,500.

  You are required to:

  Calculate Dave’s taxable income for the 2019–2020 income year. Show all your calculations and provide reasons for your answer, referencing relevant sections of the Income Tax Assessment Acts.

  Question 2

  Your client is a wealthy investor and property owner. Your client provides you with information (as detailed below) about various transactions that took place between 1 July 2019 and 30 June 2020.

1. 1) Warehouse: On 30 April 1985 your client acquired a large parcel of vacant land at Rocklea, a suburb in Brisbane with a significant number of commercial buildings. The purchase price was $180,000 and your client incurred $2,000 in legal fees and $18,000 in transfer duty when purchasing the land. In April 2000 your client signed a contract for the construction of a large warehouse on the land. The final construction cost was $1,000,000. The warehouse is used tohouse your client’s extensive motor vehicle collection. Your client signs the contract to sell the warehouse for $2,200,000 on 1 June 2020. Your client receives the proceeds on 1 July 2020. At the time of sale, an independent valuation revealed the land component of the sale price was $1,200,000. Your client paid $80,000 to insure the warehouse building against flood and fire damage.

2. 2) Boat: Your client owned a luxury motor cruiser that was moored at the Manly Yacht Club. Your client used the boat to go fishing over weekends and to cruise the waters of Moreton Bay. Your client purchased the vessel in late 2006 for $140,000 and sells the vessel on 1 June 2020 to a local boat broker for $90,000. During the period of ownership, your client paid a total of $25,000 in weekly mooring fees to the Manly Yacht club and also incurred $20,000 in repairs on the vessel.

3. 3) Dining Table: Your client acquires a large, hand crafted, English oak dining table for $8,000 in April 2001. The table is very old, having been constructed sometime during 1910 and was used by your client and his family in their formal dining room. Your client auctions the table on 2 April 2020 and it sells for a record price of $50,000. Your client pays $2,000 in auction fees. Duringyour client’s period of ownership they paid $3,000 to insure the table against loss or damage.

4. 4) Your client also has a capital loss carried forward from the 2017–2018 income year of $10,000.

You are required to:

Calculate which amount(s), if any, must be returned as assessable income for the 2019–2020 income year. Show all your calculations and provide reasons for your answer, referencing relevant sections of the Income Tax Assessment Acts.

ABC Ltd acquired $5 million of ten-year, 6 percent, annual coupon corporate bond (which pay interest annually).
At the time of ABC Ltd acquiring the bond, the market required a rate of return 7 percent per annum on such
bonds. ABC Ltd has an intention to hold the bond for cash flows and not to trade them. Assume that the moneys
paid out to acquire debentures were allotted on the same day: 30 June 2018.
Appendix A provides the present value of $1 in n periods.
Appendix B provides the present value of an annuity of $1 per period for n periods.
Required:
(a) Calculate the acquired price of the bonds at 30 June 2018. Show workings.
(b) Prepare a schedule as follows Please copy the schedule format to the paper.

(c) Provide the relevant journal entries at 30 June 2018.
(d) Provide the journal entries for the receipt of interest and principal component at 30 June 2019. Show
workings.
(e) Provide the journal entries for the receipt of interest and principal component at 30 December 2028. Show
workings.

The following information relates to the 2020 debt and equity investment transactions of Pina Colada Ltd., a publicly accountable Canadian corporation. All of the investments were acquired for trading purposes and accounted for using the FV-NI model, with all transaction costs being expensed. No investments were held at December 31, 2019, and the company prepares financial statements only annually, each December 31, following IFRS.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

Mar. 31 Acquired 6% Distribution Transformers Corporation bonds costing $460,000 at face value.

Sep. 1 Acquired $990,000 of American Instruments’ 8% bonds at face value.

Sep. 30 Received semiannual interest payment on the Distribution Transformers bonds.

Oct. 2 Sold the Distribution Transformers bonds for $491,000.

Nov. 1 Purchased $1,440,000 of M&D Corporation 4% bonds at face value.

Dec. 31 Recorded any necessary adjusting entry(s) relating to the investments. The market prices of the investments are:

American Instruments bonds $ 934,000
M&D Corporation bonds $ 1,526,000

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

The before-tax income for Whispering Co. for 2020 was $97,000 and $72,300 for 2021. However, the accountant noted that the following errors had been made:

Prepare a schedule showing the determination of corrected income before taxes for 2020 and 2021. (Enter negative amounts using either a negative sign preceding the number e.g. -15,000 or parentheses e.g. (15,000). Round answers to 0 decimal places, e.g. 125.)

Case 19-7

Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination

Company G (G), an SEC registrant, is a global financial advisory and asset management firm. Company P (P), a private company, offers advisory services for (1) mergers, acquisitions, and divestitures; (2) capital structure (including initial public offerings); (3) government advisory, including strategic, finance and capital markets related policy considerations; and (4) restructurings.

Case Facts

On September 18, 20X8, (the “Closing”), G and P executed an acquisition agreement (the “Agreement”) whereby G acquired 100 percent of the outstanding shares of P (the “Acquisition”). At the time of close, P had 10 employees that had over 200 combined years of financial and strategic advisory experience. Company P was owned as follows:

• Founder — 85 percent.

• Senior advisor — 10 percent.

• Other employees (four in total) — 5 percent.

  The purchase price was calculated using a revenue multiple that was established using market data at the midpoint and transferred in exchange for 100 percent of the outstanding shares to the Founder ÷ employees who owned 100 percent of P (collectively, the “Shareholders”) on a pro rata basis. The total purchase price comprised the following:

  • Cash = $1 million.

  • Shares = 100,000 shares in G (worth $3.3 million).

  • Delayed Consideration = 120,000 G shares, but issued to the Shareholders under the terms below (value assuming a 4-year vesting restriction = $5 million; assuming a 10-year vesting restriction = $4 million).

o Delayed consideration is held by an independent third party (Exchange Co) and on the fourth anniversary of the Closing, Exchange Co shall release the Delayed Consideration to the Shareholders, subject to the Shareholder being employed on such date.

o If a Shareholder is no longer employed on the fourth anniversary, the Delayed Consideration issued to such Shareholder will continue to be held by Exchange Co until the tenth anniversary of the Closing, at which point Exchange Co shall release the Delayed Consideration to the Shareholders.

Copyright 2019 Deloitte Development LLC All Rights Reserved.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 2

• Earnout Consideration = Up to 600,000 shares (valued at total of $20 million).

o The Earnout Consideration will be contingent upon achievement of revenue hurdles over a period beginning on September 18, 20X8, and ending on December 31, 20X2 (“Earnout Period”).

o To the extent the performance targets below are achieved, Exchange Co shall deliver the relevant Earnout Shares to the Shareholders on a pro rata basis. However, if and to the extent certain performance targets described below are not achieved, in whole or in part, no Earnout Consideration will be paid.

•  First Earnout Consideration — If revenue exceeds $10 million in the Earnout Period, the Shareholders will be entitled to 200,000 shares.

•  Second Earnout Consideration — If revenue exceeds $20 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

•  Third Earnout Consideration — If revenue exceeds $30 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

o The Shareholders are still entitled to the Earnout Consideration in the event that targets are met, but they are not employees of G at the time the Earnout Consideration is earned.

Other Key Facts

• Company P meets the definition of a business under ASC 805.

• Each employment agreement executed by G and the Shareholders contains compensation that is commensurate with the service each respective Shareholder is providing to G.

• The Shareholders have at-will employment agreements with G.

• If the Shareholders were to leave, G would be able to replace them with an existing G investment banker; therefore, the Shareholders are not integral to the future success of the acquired business.

• The fair value of P was determined to be $24 million.

• The Earnout Consideration is not being treated as compensation expense for tax purposes.

Required:

Does the Delayed Consideration represent purchase consideration in exchange for the Acquisition or compensation for postcombination services? Is it contingent consideration? How much of the Delayed Consideration (if any) should be consideration for postcombination services?