Metlock Company manufactures equipment. Metlock’s products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $200,000 to $1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Metlock has the following arrangement with Winkerbean Inc.

Metlock delivers the equipment on June 1, 2020, and completes the installation of the equipment on September 30, 2020. The equipment has a useful life of 10 years. Assume that the equipment and the installation are two distinct performance obligations which should be accounted for separately.

(a)

How should the transaction price of $930,000 be allocated among the service obligations? (Do not round intermediate calculations. Round final answers to 0 decimal places.)

Question 1 Provisions and Contingencies                                                     

Below are three independent situations.

1. ABC Ltd is a manufacturer of boats and gives warranties at the time of sale to purchasers of its boats. Pursuant to the warranty terms, ABC Ltd undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale.
2. ABC Ltd has a number of non-current assets, some of which require, in addition to normal ongoing maintenance, substantial expenditure on major refits/refurbishment at certain intervals or on major components that require replacement at regular intervals.
3. XYZ Ltd is a listed company that provides food to functional centres that host events such as wedding and engagement parties. After an engagement party held by one of XYZ Ltd’s customers in May 2020, 50 people became ill, possibly as a results of food poisoning from products sold by XYZ Ltd. Legal proceedings were commenced seeking damages from XYZ Ltd. XYZ Ltd disputed liability by claiming that the functional centre was at fault for handling the food incorrectly. Up to the date of 30 June 2020 (financial year-end), XYZ Ltd’s lawyers advise that it was probable that XYZ Ltd would not be found liable.

REQUIRED:

Should a liability in the form of a provision be recorded? Briefly justify your decisions.

Below are three independent situations.

1. ABC Ltd is a manufacturer of boats and gives warranties at the time of sale to purchasers of its boats. Pursuant to the warranty terms, ABC Ltd undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale.
2. ABC Ltd has a number of non-current assets, some of which require, in addition to normal ongoing maintenance, substantial expenditure on major refits/refurbishment at certain intervals or on major components that require replacement at regular intervals.
3. XYZ Ltd is a listed company that provides food to functional centres that host events such as wedding and engagement parties. After an engagement party held by one of XYZ Ltd’s customers in May 2020, 50 people became ill, possibly as a results of food poisoning from products sold by XYZ Ltd. Legal proceedings were commenced seeking damages from XYZ Ltd. XYZ Ltd disputed liability by claiming that the functional centre was at fault for handling the food incorrectly. Up to the date of 30 June 2020 (financial year-end), XYZ Ltd’s lawyers advise that it was probable that XYZ Ltd would not be found liable

   REQUIRED:

   Should a liability in the form of a provision be recorded? Briefly justify your decisions.

Below are three independent situations.
1.   ABC Ltd is a manufacturer of boats and gives warranties at the time of sale to purchasers of its boats. Pursuant to the warranty terms, ABC Ltd undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale.
2.   ABC Ltd has a number of non-current assets, some of which require, in addition to normal ongoing maintenance, substantial expenditure on major refits/refurbishment at certain intervals or on major components that require replacement at regular intervals.
3.   XYZ Ltd is a listed company that provides food to functional centres that host events such as wedding and engagement parties. After an engagement party held by one of XYZ Ltd’s customers in May 2020, 50 people became ill, possibly as a results of food poisoning from products sold by XYZ Ltd. Legal proceedings were commenced seeking damages from XYZ Ltd. XYZ Ltd disputed liability by claiming that the functional centre was at fault for handling the food incorrectly. Up to the date of 30 June 2020 (financial year-end), XYZ Ltd’s lawyers advise that it was probable that XYZ Ltd would not be found liable.
REQUIRED:
Should a liability in the form of a provision be recorded? Briefly justify your decisions.

A. The countries of Western Europe have greater proportions of immigrants on welfare than are found in the US. Discuss why this difference exists between the US and Western Europe. B. Define the brain drain. Give two separate causes of the brain drain. Further, identify all parties who benefit from the brain drain.

Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time. Southern uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2019, 30% in 2020, and 20% in 2021. Pretax accounting income for 2020 – which is the SECOND year of using this machine – is $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is 30% for all years. There are no other differences between accounting and taxable income.

Prepare the JE for 2020

In 2001, the turnaround was largely complete. Minoli’s focus shifted to future growth. Minoli announced ambitious growth targets. What should Ducati do next? What strategic directions are available to Minoli in 2001? (financial perspective)

The Turnaround Program
Ducati was founded on July 4, 1926, when Antonio Cavalieri Ducati and his three sons established
one of the first Italian operations of radios and electrical components. In 1935 Ducati started
production at a new factory in Borgo Panigale, just outside Bologna, at the heart of what later became
the most extensive Italian mechanical district. Not until the post-war period did Ducati’s first
motorcycle appear. The bike, “il Cucciolo,” soon became a blockbuster. The 1950s witnessed the
introduction of a series of increasingly sophisticated and powerful bikes, and particularly the
appearance of Ducati’s technical signature: the Desmodromic valve distribution system. This
innovation, developed by the celebrated Ducati engineer Fabio Taglioni, was a sophisticated
mechanical system allowing the engine to achieve more revolutions per minute and greater “usable”
power. The Desmo system could still be found in 2001 on every motorcycle produced, representing
the soul of all Ducatis: the deep intoxicating noise made by the desmo engine was music to the ears of
purists.
Thanks to their technical superiority, Ducati motorcycles rapidly achieved success in the
international racing circuit. This success fueled growth throughout the sixties and the seventies, and
the development of a strong reputation in the performance segment of the motorcycle industry. In
1972, a Ducati 750 Super Sport prototype won a dramatic victory in the Imola 200cc race. This
motorcycle, which was configured with an L-shape desmo engine (two cylinders mounted at a 90-
degree angle) and a Formula Uno-derived tubular trestle frame, inspired the production of a new line
of larger displacement motorcycles that represented the stylistic and technical foundation of modern
Ducatis.

Despite the innovativeness and technical excellence of its product lines, Ducati’s fortunes declined
sharply in the early 1980’s, primarily due to the decision of its major shareholder at that time (IRI, a
State holding company) to refocus the company on products other than motorcycles. In 1985 IRI
decided to sell its motorcycle assets, and Cagiva, an Italian manufacturing conglomerate and
producer of small displacement motorcycles, acquired Ducati. Under Cagiva, Ducati suddenly
recovered its reputation for on and off-track excellence. An impressive series of victories in the
World Superbike Championship where, for the first time, a Ducati two-cylinder engine defeated a
four-cylinder engine produced by Japanese competitors, was paralleled by the introduction of a new
series of stunningly beautiful street performance bikes. However, towards the mid nineties, liquidity
problems at the larger Cagiva group deprived Ducati of the necessary working capital funding,
which, in turn, delayed its payment terms to some key suppliers, resulting in significant production
delays.
Ducati was one step from going bankrupt when, in September 1996, a majority stake in the
company was acquired by the Texas Pacific Group, an American private equity firm. Abel Halpern,
HBS ’93 and TPG partner was the driving force behind the deal. He had a passion for high-end,
“nichey” businesses, and was driven by the firm belief that Ducati had enormous potential that was
largely unexploited due to poor management. For this reason, he needed a first-class, highly
committed management team, and TPG appointed Halpern’s friend and former colleague at Bain &
Co., Federico Minoli, as CEO of Ducati.

Questions #2 Basic and diluted earnings per share

The following data are presented by Quentin Corp. for calendar 2020

Net income                                                                                                                                                                               $ 4,500,000

Common shares outstanding, 1,000,000 shares

10%, cumulative preferred shares, convertible into 120,000 common shares                             $ 1,600,000

8% convertible bonds; convertible into 105,000 common shares                                                        $ 7,500,000

360,000 call options exercisable at $ 25 per share

Additional information

1.       The common and preferred shares and the convertible bonds were outstanding from the beginning of the year.

2.       In 2020, a $ 500,000 dividend was declared and distributed; however, no dividends were declared in 2019.

3.       The average market price of the common shares in 2020 was $ 30. The stock price was $ 27 on January 1, 2020, and $ 35 on December 31, 2020.

4.       The convertible bonds were sold at par.

5.       The income tax rate for 2020 is 30%.

Instructions

a)      Calculate basic EPS.

b)      Calculate diluted EPS.

c)      Briefly discuss the usefulness of the EPS measure in general. What is the additional importance of reporting diluted EPS?