During 2018 and 2019, Kale Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31.

2018

2019

Required

1. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? If the bonds had sold at face value, what amount of cash would Kale Co. have received?
2. Prepare the liabilities section of the balance sheet at December 31, 2018 and 2019.
3. Determine the amount of interest expense Kale would report on the income statements for 2018 and 2019.
4. Determine the amount of interest Kale would pay to the bondholders in 2018 and 2019.

Problem 13-4 Various liabilities [LO13-1, 13-2, 13-3, 13-4] The unadjusted trial balance of the Manufacturing Equitable at December 31, 2018, the end of its fiscal year, included the following account balances. Manufacturing’s 2018 financial statements were issued on April 1, 2019.

Accounts receivable $ 90,000

Accounts payable 46,600

Bank notes payable 654,000

Mortgage note payable 1,253,000

Other information:

The bank notes, issued August 1, 2018, are due on July 31, 2019, and pay interest at a rate of 15%, payable at maturity. The mortgage note is due on March 1, 2019. Interest at 14% has been paid up to December 31 (assume 14% is a realistic rate). Manufacturing intended at December 31, 2018, to refinance the note on its due date with a new 10-year mortgage note. In fact, on March 1, Manufacturing paid $252,000 in cash on the principal balance and refinanced the remaining $1,001,000. Included in the accounts receivable balance at December 31, 2018, were two subsidiary accounts that had been overpaid and had credit balances totaling $15,350. The accounts were of two major customers who were expected to order more merchandise from Manufacturing and apply the overpayments to those future purchases. On November 1, 2018, Manufacturing rented a portion of its factory to a tenant for $31,800 per year, payable in advance. The payment for the 12 months ended October 31, 2019, was received as required and was credited to rent revenue.

Required: 1. Prepare any necessary adjusting journal entries at December 31, 2018, pertaining to each item of other information (a–d). 2. Prepare the current and long-term liability sections of the December 31, 2018, balance sheet.

QUESTION 6

On 1 January 2018, Neon Bhd sold a packaging machine to Apex Bhd under a hire-purchase agreement. The cost and cash price of the packaging machine were RM18,000 and RM35,000, respectively. The agreement required a deposit of RM7,000 and further instalments of RM1,200 each month for 3 years starting from 31 January 2018.

On 1 December 2018, Neon Bhd discovered that Apex Bhd defaults on payments since October 2018. After serving 'the notice of intention to repossess' to Apex Bhd, the company repossessed the packaging machine on 31 December 2018, with repossession cost and storage cost of RM240 and RM100 respectively. Apex Bhd decided to let the goods be repossessed. The market price for the identical packaging machine is RM29,500.

Apex Bhd used gross method to account for the hire purchase and a straight line method to compute the interest expense. Neon Bhd employed sales method to account for hire purchase and a sum-of-the-years digit method to compute the interest revenue. Apex Bhd recognised the interest on each of the instalment date whereas Neon Bhd recognised the interest at the end of accounting period.

REQUIRED:

(Round all numbers to the nearest RM)

(a) Determine the hire-purchase price and total interest for Apex Bhd. Show your workings.

(b) Prepare the journal entries for Apex Bhd to record the transaction on 1 January 2018 and 31 January 2018.

(c) Compute the amount to be paid to or to be received from Apex Bhd for the settlement of the repossession on 31 December 2018.

(d) Following to the default payment, assume that the new accountant of Apex Bhd, Mr Anuar

refused to return the packaging machine as he stated that his company has possessed the packaging machine from the day of acquisition and that the ownership belongs to his company. Discuss on the appropriateness of Mr Anuar's action.

QUESTION ONE [25]

The following financial information relates to Cams Limited.

Statement of Financial Position as at 31 December 2017 and 2018

Statement of changes in equity for the year ended 31 December 2018 R

Dividends on ordinary shares                                             R 60 000

Note no. 1 for the year ended 31 December 2017 and 2018

Property, plant and equipment                                      2018 (R)               2017 (R)

Land and building at cost                                                 200 000                 160 000

Equipment at carrying value                                               30 000                35 000

                                                                                          230 000              195 000

Additional information

1. No equipment was purchased or sold during the financial year ended 31 December 2018

2. Ordinary shares were issued during the year.

Required:

Use the information provided above to prepare the cash flow statement for the year ended 31 December 2018.

Except for the earnings per share statistics, the 2016, 2017, and 2018 income statements for Ace Group Inc. were originally presented as follows:Required:

1. Calculate the 11 missing amounts. (Loss should be indicated by a minus sign.)

*No preferred shares have been issued.

2. Calculate the weighted-average number of common shares outstanding during the following years: (Do not round intermediate calculations. Round your answers to nearest whole number.)

3. Prepare the earnings per share income statement presentation during the following years: (Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign.)

Could you please summarize the following?

Thank you

(1) LIQUIDITY:

         FY 2017          FY 2018

Current Ratio:

Mcdonald’s.                _1.84___                     _1.36___

Wendy’s                      _1.78___                     __2.34__

Quick Ratio:

                                  Mcdonald’s                 1.82____                     _1.35___

            Wendy’s                      _1.77___                     __2.33__

Comments On The Company’s Liquidity:

Be sure to include comments! The numbers are meaningless by themselves. Comment

on what you see. What story do the numbers tell?

(2) ASSET MANAGEMENT

         FY 2017          FY 2018

Total Asset Turnover:

Mcdonald’s.                _.68___                       _.63___

            Wendy’s                      _.30___                _.38___

Average Collection Period:

Mcdonald’s                 __31.6__                     __42.4__

           Wendy’s                       __34.6__                ____

(3) DEBT MANAGEMENT:

         FY 2017          FY 2018

FY 2017          FY 2018

Total Debt to Total Assets:

Mcdonald’s                 _110%___                   __119.07__

            Wendy’s                      _86%___                     __.64__

Times Interest Earned:

Mcdonald’s                 __9.1X__                    _8.71___

            Wendy’s                      __2.4X__                    ____

(4) PROFITABILITY:

         FY 2017          FY 2018

Net profit Margin:

Mcdonald’s.                _22.8%___                  _28.18___

            Wendy’s                      _15.9 %___                 _4.7%___

Return on Assets:

Mcdonalds                  _15.3 %___                 _%15.82___

           Wendy’s                       __ 4.74%__                 __ 10.83%__

Return on Equity:

Mcdonald’s                 _0___              __0__

           Wendy’s                       _ 33.9%___                 _79.14%___

Modified Du Pont Equation, FY 2018:

                                                                     Mcdonald’s.     Wendy’s

Net Profit Margin                    _28.2%___                  _28.94__

Total Asset Turnover              _.64%___                    _.38___

Equity Multiplier                     ____                         _7.9376___

(5) MARKET VALUE RATIOS:

         FY 2017          FY 2018

         FY 2017          FY 2018

PE Ratio:

Mcdonald’s.                _$26.72___                 __$23.55__

            Wendy’s                      _$20.83___                 _$9.22___

Market to Book Ratio:

Mcdonald’s.                _-41.30___                  _22.13___

            Wendy’s                      $6.82____                   _$6.45___

:

PART 4, CONCLUSIONS AND RECOMMENDATIONS

‑ Summarize your analysis. Review your comments in the financial analysis section and provide your assessment of the overall status of the firm. Include any recommendations you think are appropriate.

In 2017, the Keenan Company paid dividends totaling $3.6 million on net income of $10.8 million. Note that 2017 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 10%. However, in 2018, earnings are expected to jump to $14.4 million, and the firm expects to have profitable investment opportunities of $8.4 million. It is predicted that Keenan will not be able to maintain the 2018 level of earnings growth—the high 2018 projected earnings level is due to an exceptionally profitable new product line to be introduced that year—and then the company will return to its previous 10% growth rate. Keenan’s target capital structure is 40% debt and 60% equity.
a. Calculate Keenan’s total dividends for 2018 if it follows each of the following policies:
(1)Its 2018 dividend payment is set to force dividends to grow at the long-run growth rate in earnings.
(2) It continues the 2017 dividend payout ratio.
(3)It uses a pure residual policy with all distributions in the form of dividends (40% of the $8.4 million investment is financed with debt and 60% with common equity).
(4)It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual policy.
b. Which of the preceding policies would you recommend? Restrict your choices to the ones listed, but justify your answer.
c. Assume that investors expect Keenan to pay total dividends of $9,000,000 in 2018 and to have the dividend grow at 10% after 2018. The stock's total market value is $180 million. What is the company's cost of equity?

d. What is Keenan's long-run average return on equity?

e.Does a 2018 dividend of $9,000,000 seem reasonable in view of your answers to parts c and d? If not, should the dividend be higher or lower?Explain your answer.

Typewritten answers only, please. No handwritten answers.

Thank you.

Golden Manufacturing Company started operations by acquiring $111,000 cash from the issue of common stock. On January 1, 2018, the company purchased equipment that cost $101,000 cash, had an expected useful life of five years, and had an estimated salvage value of $10,100. Golden Manufacturing earned $99,310 and $69,480 of cash revenue during 2018 and 2019, respectively. Golden Manufacturing uses double-declining-balance depreciation.

Prepare an income statements for 2018 and 2019. Use a vertical statements format. (Do not round intermediate calculations. Round the final answers to nearest dollar amount.)

b-2. Prepare a balance sheets for 2018 and 2019. Use a vertical statements format. (Do not round intermediate calculations. Round the final answers to nearest dollar amount.)

b-3. Prepare a statements of cash flows for 2018 and 2019. Use a vertical statements format. (Amounts to be deducted should be indicated with minus sign. Do not round intermediate calculations. Round the final answers to nearest dollar amount.)

Typewritten answers only, please. No handwritten answers.

Thank you.

QUESTION ONE [25]

The following financial information relates to Cams Limited.

Statement of Financial Position as at 31 December 2017 and 2018

Statement of changes in equity for the year ended 31 December 2018 R

Dividends on ordinary shares                                             R 60 000

Note no. 1 for the year ended 31 December 2017 and 2018

Property, plant and equipment                                      2018 (R)               2017 (R)

Land and building at cost                                                 200 000                 160 000

Equipment at carrying value                                               30 000                35 000

                                                                                          230 000              195 000

Additional information

1. No equipment was purchased or sold during the financial year ended 31 December 2018

2. Ordinary shares were issued during the year.

Required:

Use the information provided above to prepare the cash flow statement for the year ended 31 December 2018.

Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale.

During 2018, Citation began construction of an office building for Altamont Corporation. The total contract price is $29 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows:

Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $980,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2018 and paid for in full for $980,000 each by the buyers. The completed homes cost $735,000 each to construct. The construction costs incurred during 2018 for the nine uncompleted homes totaled $4,410,000.

Required:

1. Which method is most equivalent to recognizing revenue at the point of delivery?
2. Answer the following questions assuming that Citation uses the completed contract method for its office building contracts:
2-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements?
2-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019?
2-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.)
3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts.
3-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements?
3-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019?
3-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.)
4. Assume the same information for 2018 and 2019, but that as of year-end 2019 the estimated cost to complete the office building is $13,050,000. Citation uses the percentage-of-completion method for its office building contracts.
4-a. How much revenue related to this contract will Citation report in the 2019 income statement?
4-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2019?
4-c. What will Citation report in its 2019 balance sheet related to this contract? (Ignore cash.)
5. Which method of accounting should Citation Builders, Inc adopt for its single-family houses?
6. What will Citation report in its 2018 income statement and 2018 balance sheet related to the single-family home business (ignore cash in the balance sheet)?