Question 2: Balance Sheet Build and Analysis

Q.Clean, a student run dry-cleaning service has the following financial information as of December 31, 2020:

• The cash ending balance for the year was $117,820

• Buildings & Equipment for the year was $91,350

• Accounts Receivables for the year was $31,510

• Common Shares for the year was $194,860

• Inventory for the year was $87,970

• Land for the year for the year was $281,490

• Accounts Payable for the year was $74,250

• Retained earnings for the year was $70,100

• Buildings & Equipment Accumulated Depreciation for the year was $40,000

• Wages payable for the year was $46,190

• Short-term debt for the year was $10,500

• Taxes payable for the year was $55,750

• Mortgage for the year was $60,010

• 10-year bond for the year was $20,500

• Interest Payable for the year was $37,980

1. Prepare a 2020 Balance Sheet for the company. Ensure you categorize your accounts into Current and Non-Current Assets/Liabilities, and Shareholders’ Equity.

2. Calculate the Net Working Capital and Quick Ratio of the company. Explain what these values are and what they are used for. Comment on the company’s financial position, based on the ratios you calculated.

3. In 2021, the company plans to purchase additional retail space in Ray Hall. This space will cost $100,000. Half of the purchase will be made in cash, and the other half will be added to the mortgage. Also, the company takes an additional $35,000 of short-term debt. Please answer the following questions:

1. Describe the effect that these transactions will have on the 2020 Balance Sheet.

2. Will this impact the Income Statement in any way? If yes, identify and explain the impact. If no, explain why there is no impact.

the accountant's Company

Income Statement

For the Year Ended December 31, 2018

Sales                                                               $8,500,000

Manufacturing Expenses

Variable                                $3,250,000

Fixed overhead                       640,000       3,890,000

Gross Margin                                                  $4,610,000

Selling and administrative expenses

Commissions                           $580,000

Fixed marketing expenses       300,000

Fixed admin expenses               450,000      1,330,000

Net Operating Income                                     $3,280,000

Fixed Interest expenses                                       230,000    

Income before Taxes                                      $3,050,000     

Income Taxes (21%)                                            640,500

Net Income                                                     $2,409,500

1.Restate the income statement in a contribution margin format.

2.Compute the break-even point in sales dollars given the current structure.

3.Compute the operating leverage at the 2018 level of sales.

4.Compute the margin of safety in both dollars and percentage for the 2018 level of sales.

Your company is considering out-sourcing the sales and marketing to an agency specializing in these types of sales. The outsourcing would remove the commissions, reduce the marketing by $270,000, and reduce the fixed administrative expenses by $35,000. The out-sourcing firm, Jangler Marketing, will charge a fee of 14% of sales. Jangler requires a 3-year contract. Jangler believes that it can increase sales by 10% for 2019 and 13% each year after (2020 and 2021). The company believes that with its current sales and marketing staff, sales will increase by 8% for 2019 and 9% in each year after (2020 and 2021).

1.Prepare contribution format projected income statements for 2019, 2020 & 202a assuming the company hires Jangler Marketing.

2.Prepare contribution format projected income statements assuming the outsourcing is rejected.

Laker Company reported the following January purchases and sales data for its only product.

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 285 units, where 270 are from the January 30 purchase, 5 are from the January 20 purchase, and 10 are from beginning inventory.

Required:
1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,700 and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)

3. Does net income using weighted average fall between that using FIFO and LIFO?2. Which method yields the highest net income?

4. If costs were rising instead of falling, which method would yield the highest net income?

Required information

[The following information applies to the questions displayed below.]

Laker Company reported the following January purchases and sales data for its only product.

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 240 units, where 220 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.

Required:

1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,450, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)

I need the weighted average!!!!!

Southport Pty Ltd is considering a proposal for a warehouse project in Gold Coast. Initial investment (i.e acquisition of land, construction cost and others) for the proposed warehouse is estimated $20,000,000. A total amount of $15,000,000 will be taken as loan from bank @ 10% interest and equal repayment method for five years counting from first year (assuming that bank loan is available at any time). The company is expected to complete construction in less than one year and the warehouse is expected to be in full operation exactly one year from today (since initial investment are made) if the project proposal is approved within short time. Expected operational life of the project is 4 years (i.e total project life including construction time is 5 years). Storage capacity of the warehouse is 240,000 m² (floor space). The company is expecting to earn $100 per m² per year by renting the floor spaces. The company has to maintain all the costs of warehouse administration (including staff payments, council rates, insurance, electricity and water bills etc) which is estimated as $60 per m² per year. Assume discounting rate of 10%, investment occurring at the starting, and gross profit acquired at the end of any period after construction. The Company is expecting to earn $12,000,000 by selling the discarded warehouse at the end of the project life (end of 5^th year). Assume straight-line depreciation and 40% taxes on income.

1. What is the payback period of the Investment?                                                          
2. Determine Net present value and Internal rate of return.                             
3. What is your recommendation?

Below are the statements of financial position for Jupiter Plc, Neptune Limited, Pluto Limited and Venus Co for the year ended 30 April 2021.

i) Share CapitalNotes to the Above Accounts

• All ordinary shares other than those in Venus Co have a par value of 50 pence.
• Ordinary shares in Venus Co have a par value of K1.

ii)     Exchange Rates

• Rate at 1 May 2020: £1 = K10  £1 = €1.25
• Average for year to 30 April 2021: £1 = K10 £1 = €1.55
• Rate at 30 April 2021: £1 = K12 £1 = €1.60

iii) Neptune Limited

• Jupiter Plc purchased 7,500,000 ordinary shares in Neptune Limited on 31 October 2020. The purchase consideration was made up of 2 new ordinary shares in Jupiter valued at £1.20 each for every 3 shares held in Neptune Limited and £11,000,000 paid in 12 months’ time. Jupiter Plc has recorded the £11,000,000 payable in current borrowings and investments, but the accountant has not recorded the number or value of shares issued in Jupiter Plc’s investments.
• Jupiter Plc’s cost of capital is 10% and Neptune Limited’s cost of capital is 8%
• Profit for the year to 30 April 2021 for Neptune Limited was £1,000,000.
• At the date of acquisition, the fair value of Neptune Limited’s freehold properties was agreed to be £4,000,000 higher than book value; properties had an average remaining useful life of 10 years at the date of acquisition. This fair value adjustment has not been included in Neptune Limited’s books of account.
• It is group policy to capitalise development expenditure. Neptune Limited writes off development expenditure as it is incurred. At 31 October 2020 Jupiter Limited had written off development expenditure amounting to £600,000 and the total development expenditure written off up to 30 April 2021 amounted to £1,800,000.
• On 29 April 2021, Jupiter Limited remitted a payment to Pluto Limited for £100,000 to clear Jupiter Limited’s current account balance with Pluto Limited at the year end. Pluto Limited did not receive this cheque until 2 May 2021 and has not reflected this payment in trade receivables.
• At the date of acquisition, the non-controlling interest in Neptune Limited was agreed to have a fair value of £3,750,000.

iv) Pluto Limited

• Neptune Limited paid £1,648,000 to acquire 800,000 ordinary shares in Pluto Limited on 1 May 1996. Neptune Limited had no significant influence over Pluto Limited at this time as there was a controlling shareholder.
• Jupiter Plc paid £600,000 to acquire 300,000 ordinary shares in Pluto Limited on 1 May 2020.
• The retained earnings for Pluto Limited were as follows:

• The inventories of Jupiter Plc include goods which had cost Pluto Limited £2,300,000 and to which Pluto Limited had added a 25% mark up.
• At the point of acquisition, the non-controlling interest in Pluto Limited was agreed to have a fair value of £1,200,000

v)  Venus Co

• Venus Co is a company incorporated in Krulia.
• Jupiter Plc acquired 1,750,000 of the ordinary shares in Venus Co on 1 May 2020 at a cost of £400,000 when the retained earnings of Venus Co stood at K6,000,000.

• At the date of acquisition, the fair value of net assets was the same as the book value of net assets.

vi) Borrowings

• Jupiter Plc’s non-current liabilities includes borrowings which are denominated in Euros. The loan is for €4,000,000. This loan was last translated at 30 April 2020. No adjustment for movements in exchange rates have been made since this date. The loan remains in Jupiter Plc’s statement of financial position at the sterling value as at 30 April 2020

vii) Goodwill

• Positive goodwill is carried at cost and is reviewed annually for impairment.
• Negative goodwill is credited directly to retained earnings.
• An impairment review of goodwill had been carried out at year end and concluded that there had been no impairment of the goodwill associated with any of the investee companies.
• It is the group’s policy to value any non-controlling interests at their fair value.

YOU ARE REQUIRED TO:

Prepare the group statement of financial position for the Jupiter Plc Group as at 30 April 2021.
All your calculations should be made to the nearest £000.

Which of the following is a description of the ITU, the organization to which the 5G specification will be submitted by 2020?

Group of answer choices

The International telephone company.

A union for workers in the telecommunications profession.

The United Nations specialized agency for information and communication technologies.

An IT organization at Universities.

Current (annualised) US Treasury spot rates are as follows:

Bond Cashflows:

Maturity: 2 years semi annual

Par value: 100

Coupon: 1.625/2 = 0.8125

6 months from now = 0.8125

1 year from now = 0.8125

1.5 year from now= 0.8125

2 years from now = 100+0.8125

From the US treasury spot rates above and assuming Z-spread of 35 basis points, calculate appropriate discount rates (implied spot rates) for this bond’s cash flows. Show calculations.

The records of Earthly Goods provided the following information for the year ended December 31, 2020.

Required:
1. Prepare an estimate of the company’s year-end inventory by the retail method. (Round all calculations to two decimal places.)

Under the assumption the company took a year-end physical inventory at marked selling prices that totalled $1,674,800, prepare a schedule showing the store’s loss from theft or other causes at cost and at retail.

Prince Corporation acquired 100 percent of Sword Company on January 1, 20X7, for $195,000. The trial balances for the two companies on December 31, 20X7, included the following amounts:

Additional Information

1. On January 1, 20X7, Sword reported net assets with a book value of $136,000. A total of $26,000 of the acquisition price is applied to goodwill, which was not impaired in 20X7.
2. Sword’s depreciable assets had an estimated economic life of 11 years on the date of combination. The difference between fair value and book value of tangible assets is related entirely to buildings and equipment.
3. Prince used the equity-method in accounting for its investment in Sword.
4. Detailed analysis of receivables and payables showed that Sword owed Prince $25,000 on December 31, 20X7.

Required:
a. Prepare all journal entries recorded by Prince with regard to its investment in Sword during 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare all consolidating entries needed to prepare a full set of consolidated financial statements for 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Prepare a three-part consolidation worksheet as of December 31, 20X7. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)