Featherbed Surf & Leisure Holidays Ltd. is a resort company based on Vancouver Island. Its operations include boating, surfing, diving, and other leisure activities; a backpackers’ hostel; a family hotel; and a five-star resort. Justin and Sarah Morris own the majority of the shares in the Morris Group, which controls Featherbed. Justin is the chair of the board of directors of both Featherbed and the Morris Group, and Sarah is a director of both companies as well as the CFO of Featherbed.

In February 2020, Justin Morris approached your audit firm, KFP Partners, to carry out the Featherbed audit for the year ended June 30, 2020. Featherbed has not been audited before but this year the audit has been requested by the company’s bank and a new private equity investor group that has just acquired a 20-percent share of Featherbed.

Featherbed employs 30 full-time staff. These workers are employed in administration, accounting, catering, cleaning, and hotel/restaurant duties. During peak periods, Featherbed also uses part-time and casual workers. These workers tend to be travellers visiting the West Coast who are looking for short- term employment to help pay their traveling expenses.

Justin and Sarah have a fairly laid-back management style. They trust their workers to work hard for the company and they reward them well. The accounting staff, in particular, are very loyal to the company. Justin tells you that some accounting staff enjoy their jobs so much they have never taken any holidays, and hardly any workers ever take sick leave.

There are three people currently employed as the accountants, the most senior of whom is Peter Pinn. Peter heads the accounting department and reports directly to Sarah. He is in his fifties and plans to retire in two or three years. Peter prides himself on his ability to delegate most of his work to his two accounting staff, Kristen and Julie. He claims he has to do this because he is very busy developing a policy and procedures manual for the accounting department. This delegated work includes opening mail, processing payments and receipts, banking funds received, performing reconciliations, posting journals, and performing the payroll function. Julie is a recently graduated Chartered Professional Accountant. Kristen works part-time—coming into the office on Mondays, Wednesdays, and Fridays. Kristen is responsible for posting all journal entries into the accounting system and the payroll function. Julie does the balance of the work, but they often help each other out in busy periods.

Required

Using the factors in the above scenario, assess audit risk.

Bonzo’s Boards makes reasonably high-end skateboards which sell for $400 each.   The production process is fairly simple and involves assembling components purchased from various suppliers.  Since each skateboard only takes one hour to assemble, there is essentially no work-in-process inventory.  

Bonzo’s Boards has the capacity to make 2,000 skateboards per year.

Costs for the skateboard components are:

Each board should take one hour of direct labor to assemble.  Direct labor wages are $55 per hour.

Other manufacturing costs on a monthly basis are:

Inventory balances are as follows (Bonzo’s uses FIFO inventory cost flow assumption):

During 2020 (the entire year) Bonzo’s Boards expects to sell 500 skateboards.  

• What is the budgeted cost of Skateboards manufactured for 2020?

• What is the budgeted cost of Decks purchased for 2020?

• What is the budgeted cost of Hardware Packages purchased for 2020?

• What is budgeted dollar value of ending Finished Skateboard inventory?

• What is the budgeted dollar value of ending Deck inventory?

• What is the budgeted dollar value of ending Hardware Package inventory?

• How much income does Bonzo’s Boards expect to make if they sell 500 skateboards in 2020 and have budgeted Selling & Administrative expenses of $20,000 (assume no income taxes)?

Questions #1

The following information is available for the first three years of operations for Faberge Corporation:

1.         Year                Accounting Income

       2020                          $ 250,000

       2021                             280,000

2. Included in the accounting income above is $10,000 annual dividends income from investments in taxpaying Canadian companies.
3. On January 2, 2020, equipment was purchased for $ 500,000. The equipment had an estimated service life of 5 years and no residual value. Straight-line depreciation is used for book purposes and CCA at 30% is used for tax purposes (ignore the half year rule for the first year).
4. On January 2, 2020, $ 210,000 was collected in advance for the rental of a building for three years. The entire $ 210,000 was included in taxable income in 2020, but two-thirds of the $ 210,000 was reported as unearned revenue at December 31, 2020 for book purposes.
5. The enacted tax rate is 40% for 2020, 35% for 2021 and 30% for 2023 and thereafter.

Instructions

1. Prepare a schedule comparing depreciation for book purposes with CCA for tax purposes.
2. Determined the taxable income and income tax payable for 2020.
3. Prepare a schedule of deferred taxable/deductible amounts and the deferred tax asset and/or liability at the end of 2020.
4. Calculate the net deferred tax expense or benefit for 2020.
5. Prepare the adjusting journal entries to record income tax expense, deferred taxes, and income tax payable for 2020.
6. Determined the taxable income and income tax payable for 2021.
7. Prepare a schedule of future taxable/deductible amounts and the deferred tax asset and/or liability at the end of 2021.
8. Calculate the net deferred tax expense or benefit for 2021.
9. Prepare the adjusting journal entries to record income tax expense, deferred taxes, and income tax payable for 2021.
10. Prepare the income tax section of the comparative income statements of 2020 and 2021

Case Study

Will Saleh and Sons Nursery Company, Al Kharj overcome prevailing business turbulence?

Mr Saleh is the owner and Chief Executive Officer (CEO) of a family owned and operated business established in 1990. His business operated under the name of Saleh and Sons Nursery Company and based in Al Kharj, Kingdom of Saudi Arabia (KSA). The company’s net worth is SAR 5 million. Their nursery is situated 40 Km away from Al Kharj which is managed by two of his sons. The nursery specializes in cultivating a variety of seasonal and perennial plants both indoor and outdoor and engaged in transplanting, budding, and grafting. Elder son Rakan manages outdoor plant business while younger one Salim manages the indoor plant business. In addition to nursery operations, the company also deals in other floriculture commodities related to seeds, soil, fertilizers, gardening tools, garden decorative etc.

The company is renowned and reputed in Al Kharj and adjoining cities since it has been in business for the last 30 years. It has 20% market share in the region. The Fresh Plant Company and Friends plant company are its two main rivals who operate out of Riyadh. Both hold a market share of 30% and 25% respectively. Remaining market is shared between big retail stores and unorganized businesses. However, Saleh has a competitive advantage of being local in Al Kharj region by catering to the needs of his customers by providing bespoke and consultative customer service. In spite of this advantage, their business is witnessing sluggish growth patterns over the past 5 years owing to the presence of new big retail stores who also stock indoor plants. Often these stores sell these plants at heavily discounted prices even below the cost prices that directly impacted Saleh’s business with decreasing sales and depleting profits. Nursery business annually growth rate is 15% due to awareness of the advantage of being green by community at large.

The company opened its first retail store (1990) in the Al Kharj city center near the main vegetable market which is a very popular and strategic located. The second store was opened up a decade ago along Riyadh road, Al Kharj due to recent economic developments in the region. Considering business scalability and expansion, Saleh shown interest in his sons to open up a Flower and Boutique store noticing a shift in consumer buying behavior in gifting from chocolates to flowers. Rakan is computer engineer proposed to open an online store and invest in building an e-commerce platform. On other hand Salim is a business management graduate, he proposed to reposition their products categories and diversify their business into gardening and landscaping since there is no other company offering such types of services in Al Kharj. Whereas Saleh intends to scale up and expand its business operations by opening new retail stores in nearby cities of Dilam, Hota Bin Tamimi ,Riyadh etc.

Saleh stands on a cross road, he wanted to convene a meeting with his sons and the company top management in order to discuss business scalability and expansion strategies from 2020 and beyond especially with Pandemic crisis.

Questions

Q1. Analysis of at least five micro(actors) and five macro(factors) environment factors affecting Saleh and Sons Nursery Company business in current situation. (

Q2. You are the company marketing head, propose viable five new business development plans with strategies to the top management.

Q3. Saleh intends to make policies in Corporate Social Responsibility (CSR) coupled with social marketing. Frame five plans with strategies can be devised to community engagement for this initiative?   

Question 1 - Week 1
You have recently graduated from your university course and start work with an audit firm.
You meet an old school friend, Nayan, for dinner — you haven't seen each other for several
years. Nayan is surprised that you are now working as an auditor because your childhood
dream was to be a ballet dancer. Unfortunately, your knees were damaged in a fall, and you
can no longer dance. The conversation turns to your work, and Nayan wants to know how
you do your job. Nayan cannot understand why an audit is not a guarantee the company will
succeed. Nayan also thinks that company managers will lie to you in order to protect
themselves. As an auditor, you would have to assume that you cannot believe anything a
company manager says to you.
Required:
(a) Write a letter to Nayan explaining the concept of reasonable assurance, and how
reasonable assurance is determined. Explain why an auditor cannot offer absolute assurance
. (200 -250 words)
(b) Explain in the letter to Nayan the concept of 'professional scepticism' and how it is not
the same as assuming that managers are always trying to deceive auditors . (150-
200 words)

You have recently graduated from your university and started work with an accounting firm. You meet an old school friend, Kim, for dinner—you haven’t seen each other for several years. Kim is surprised that you are now working as an auditor because your childhood dream was to be a ballet dancer. Unfortunately, your knees were damaged in a fall and you can no longer dance. The conversation turns to your work and Kim wants to know how you do your job. Kim cannot understand why an audit is not a guarantee the company will succeed. Kim also thinks that company managers will lie to you to protect themselves, and as an auditor you would have to assume that you cannot believe anything a company manager says to you.

Compose a letter to Kim explaining the concept of reasonable assurance, and how reasonable assurance is determined. Explain why an auditor cannot offer absolute assurance. Describe the concept of professional skepticism and how it is not the same as assuming that managers are always trying to deceive auditors. Explain to Kim why her perceptions are a perfect example of the expectations gap.

On February 1, 2020, Concord Ltd. began selling electric scooters that it purchased exclusively from Ionone Motors Inc. Ionone Motors offers volume rebates based on the volume of annual sales to its customers and calculates and pays the rebates at its fiscal year end, December 31. Concord has a September fiscal year end and uses a perpetual inventory system. The rebate offer that Concord received is for a $75 rebate on each scooter that is purchased in excess of 150 units in the calendar year, ending December 31. An additional rebate of $30 is given for all units purchased in excess of 175 units in the same year. By September 30, 2020, Concord had purchased 170 units from Ionone Motors and had sold all but 35. Although it only made its first purchase on February 1, 2020, Concord expects to purchase a total of 205 electric scooters from Ionone Motors by December 31, 2020. Before arriving at the estimate of 205 electric scooters, Concord’s management looked carefully at trends in purchases by its competitors and the strong market for sales of electric scooters in the coming months; sales are especially strong among environmentally conscious customers in suburban areas. Management is very confident the 205 electric scooters will be purchased by December 31, 2020.

Assuming that Concord follows the reporting requirements under ASPE, answer the following questions.

Calculate the amount of any accrued rebate to be recorded by Concord at September 30, 2020, assuming that the rebate is not discretionary and that management has a high degree of confidence in its estimate of the amount of purchases that will occur by December 31, 2020. (Round per unit rate to 2 decimal places, e.g. 1.25 and final answer to 0 decimal places, e.g. 5,275.)

eTextbook and Media

Assistance Used

List of Accounts

Record the accruals that are needed at Concord’s fiscal year end of September 30, 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,125.)

eTextbook and Media

List of Accounts

How would your response change if Concord followed the reporting requirements of IFRS?

Find the historical exchange rate of US dollar to CHF (Switzerland) and explain if the currency has appreciated or depreciated in relation to the US dollar. List some examples as to why this might have happened. For instance, an international event (one event is fine). Approach this from the event side, explore what happened to the exchange rate as an outcome of this particular event.

1. What is the balance of payments? Explain how s trade surplus in China with the US leads to a net capital outflow of investment from China to the US? Using the international macroeconomic model, show the model and describe the relation between output, spending, savings investment, trade balances, government budgets and capital investment across trading nations?

Dr. Smith and his wife are both medical doctors and they just completed their medical residence at a local hospital. While attending your graduation party, Dr. Smith and his wife learned that you just earned your MBA. The Smiths approached you for advice on the legal form of business they should elect for their medical practice they are planning to open. The Smiths are interested in understanding each form of business organization and advantages and disadvantages of each form.

In advising the Smiths, please address the following questions:

1.         Compare and contrast

a.         the forms of business organizations, advantages, and disadvantages.

b.         general partner vs. limited partner?

c.         limited liability partnership vs. a limited liability company?

2.         Explain the advantages and disadvantages of organizing a business as an “S-Corporation?”

3.         Explain if the form of business organization impact the control of the firm and ethical behavior.

Based on your discussion, explain which form of business organization you would advise the Smiths to elect. Defend your response.