Questions
Portland is an economy comprised of only of a restaurant named Gloria’s Kitchen (GK) owned and...

Portland is an economy comprised of only of a restaurant named Gloria’s Kitchen (GK) owned and run by Gloria. In one year, the yearly sale revenue of GK is $1,000,000. GK pays $600,000 to its employees, who pay $140,000 in taxes on this income. GK’s equipment depreciates in value by $125,000. GK pays $50,000 in corporate income taxes and pays Gloria a dividend of $150,000. Gloria pays taxes of $60,000 on this dividend income. GK retains $75,000 of earnings in the business to finance future expansion.

  1. How much does this economic activity contribute to each of the following?

GDP, NNP ( net national product), National income, Compensation of employees, Proprietors’ income, Corporate profits, Personal income, and Disposable personal income.

  1. Now consider an economy that produces and consumes coconuts and apples. In the following table are data for two different years.

Goods/Years

2010

2015

Quantity

Price

Quantity

Price

Coconuts

200

$2

250

$4

Apples

200

$3

500

$4

Using 2010 as the base year, compute the following statistics for each year: nominal GDP, real GDP, the implicit price deflator for GDP, and a fixed-weight price index such as the CPI.

                 

c- Now suppose, Gloria consumes only apples. In year 1 (2010) red apples cost $1 each and green apples cost $2 each, and she buys 10 red apples. In year 2 (2015), red apples cost $2, and green apples cost 1$ each, and she buys 10 green apples. Compute a consumer price index for apples for each year. Assume that year 1 is the base year in which the consumer basket is fixed. How does your index change from year 1 to year 2? Compute the deflator for each year. How does the deflator change from year 1 to year 2?

In: Economics

Omar Al Balushi, the senior executive of ACT Technology Company, was saying to himself, "One more...

Omar Al Balushi, the senior executive of ACT Technology Company, was saying to himself, "One more year has gone without making a good profit and if it continues at this pace, so soon the company will go bankrupt". He added, "profit has decreased by 15% in a market of 20% of growth per annum."
Omar Al Balushi, who has been a senior executive at ACT Technology company, witnessed a decrease in sales and profit for the last three years. ACT Technology, which is based in Muscat, manufactures sophisticated electromechanical control devices for factory production lines, more specifically, ACT Technology is specialized in producing control devices only for chemical manufacturing facilities. The products suit to chemical processing plan which provides safety and cut-out mechanisms.
ACT Technology products are sold across all the GCC counties and middle east though salesforces based in the capitals of these countries; 12 salesforces based in Riyadh, Abu-Dhabi, Dubai, Kuwait city, Manamah, Doha, Beruit, Amman, Muscat, Jeddah and Tehran. As can be seen from the previous geographic distribution the focus is on the major cities in the region and all of the sales representatives are qualified, mechanical engineers. Despite the fact that 95% of ACT Technology sales come from the chemical industry, the electrochemical control device has many applications in a wide variety of industries.
For the reason to do with the history of the company, the owner (Mr Bala Bathichara) of the company, who happened to be an engineer, found an opportunity in such a device. His father in law who was a rich man doing business in the detergent industry supported him by being one of his first customers and a generous financer of Bala's project. However, nowadays, Mr Bala is not anymore in the executive position, but he still maintains the company financial affairs. Mr Bala's philosophy on business felt among the company's executive team.
The excellence in products and production is the essence of Mr Bala's Philosophy which is backed by strong technical sales support. He believed that if products are well designed and produced in high-quality, there will always be a market. It is self-evident that such type of products required for salespeople to push the products by showing the consequences of not buying the safety mechanisms which may result in damage to the clients manufacturing process. Therefore, the technical salespeople used to emphasize the negative aspect (of not having such device) rather than the positive aspects (of how good, they were, time-saving in the case of plant breakdown, etc). This technique of sales was pivotal to the success of ACT Technology sales strategy, according to Mr Bala. The embedment of the philosophy in salespeople is still clear in their behaviour, decision-making process and sales approaches unless most of customers' show no interest in updating their control equipment.
Few thousands of Rials spent on advertisement and sales promotion, however, from time to time, whenever there was a surplus of cash, Mr Bala would have spent on advertising in the local magazine " Y-Magazine". Due to the associated expenses, the company follows a cost-plus pricing structure basis, fixed prices by the accounting department. In other words, the company salespeople given no room to negotiate the price with clients. Hence, a disappointment has prevailed among the salespeople for not being able to negotiate with clients over price and delivery terms as per the customers' requirement because Bala's philosophy prevails, " If they wanted the product badly enough, they will wait for it, and Why offer a discount for large quantities - if they did not want that many they would not order them".
During the last few years, many competitors from the GCC countries entered the market. In plain English, the market became so competitive and thus, the ACT Technology market share dropped sharply. ACT Technology used to be the traditional supplier of the device across the GCC countries. However, the new competitors introduced updated and innovative devices based on the new advancement in electronics. However, ACT Technology management believed in the superiority of their products/device, therefore believing once the trend of novelty is worn off, the customers will revert to ACT.
Unlike many of his colleagues, Al Balushi was worried by developments over the past five years and felt there was a need for many changes. He was aware that the more successful new entrants to the industry had introduced a marketing philosophy into their operations. Compared with ten years ago in this type of business, it was now common practice for companies to appoint marketing managers. Furthermore, he knew from talking to other people in the industry that such companies considered sales to be an integral part of marketing. At a recent meeting with his senior staff, he mentioned to the sales manager the possibility of appointing a marketing director. The sales manager, who was shortly expecting to be made sales director, was scathing about the idea. His view was that marketing was suitable for a baked beans manufacturer but not for a company engaged in the manufacture and sale of sophisticated control devices for the chemicals industry. He argued that ACT Technology customers would not be swayed by superficial advertising and marketing ploys.
Now, Mr Omar Al Balushi is intending to appoint a marketing manager based on the recent figures which strongly indicate that a change must be brought in the management philosophy and the way sales are functioned at ACT technology; he needed a marketing manager has marketing experience but has come from the chemical industry. The person appointed would have equal status to the sales manager, and ultimately either the new appointee or the existing sales manager would be promoted to the board of directors.
Question:
Make a critical analysis of ACT Technology product approach to sales and marketing

In: Economics

Blossom Company sells goods that cost $250,000 to Ayayai Company for $400,000 on January 2, 2020....

Blossom Company sells goods that cost $250,000 to Ayayai Company for $400,000 on January 2, 2020. The sales price includes an installation fee, which is valued at $41,000. The fair value of the goods is $369,000. The goods were delivered on March 1, 2020. Installation is considered a separate performance obligation and was completed on June 18, 2020. Under the terms of the contract, Ayayai Company pays Blossom $250,000 upon delivery of the goods and the balance at the completion of the installation.

Using the five-step process for revenue recognition, determine when and how much revenue would be recognized by Blossom. Assume IFRS is followed. (Round percentage allocations to 2 decimal places, 15.25 and final answers to 0 decimal places, e.g. 5,275.)

Performance Obligation When? How much?

Deliver goods

 choose a transaction date                                                                      January 2, 2020March 1, 2020June 18, 2020 $enter a dollar amount rounded to 0 decimal places

Installation

 choose a transaction date                                                                      January 2, 2020March 1, 2020June 18, 2020 enter a dollar amount rounded to 0 decimal places

Total

 $enter a total amount rounded to 0 decimal places

eTextbook and Media

List of Accounts

  

  

Prepare the journal entries for Blossom on January 2, March 1, and June 18, 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. Record journal entries in the order presented in the problem.)

Account Titles and Explanation

Debit

Credit

choose a transaction date                                                                      January 2, 2020June 18, 2020March 1, 2020

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount
choose a transaction date                                                                      January 2, 2020March 1, 2020June 18, 2020

enter an account title to record sales

enter a debit amount

enter a credit amount

enter an account title to record sales

enter a debit amount

enter a credit amount

enter an account title to record sales

enter a debit amount

enter a credit amount
(To record sales)

choose a transaction date                                                                      January 2, 2020June 18, 2020March 1, 2020

enter an account title to record cost of goods sold

enter a debit amount

enter a credit amount

enter an account title to record cost of goods sold

enter a debit amount

enter a credit amount
(To record cost of goods sold)

choose a transaction date                                                                      June 18, 2020January 2, 2020March 1, 2020

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

In: Accounting

Assignment Problem Three - 14 (Employment Income) For the past five years, Mr. Brooks has been...

Assignment Problem Three - 14 (Employment Income)

For the past five years, Mr. Brooks has been employed as a financial analyst by a large Canadian

public firm located in Winnipeg. During 2020, his basic gross salary amounts to $63,000. In addition, he was awarded an $11,000 bonus based on the performance of his division. Of the total bonus, $6,500 was paid in 2020 and the remainder is to be paid on January 15, 2020.

During 2020, Mr. Brooks’ employer withheld the following amounts from his gross wages:

Federal Income Tax

$3,000

Employment Insurance Premiums

856

Canada Pension Plan Contributions

2,898

Registered Pension Plan Contributions

2,800

Donations To The United Way

480

Union Dues

240

Payments For Personal Use Of Company Car

1,000

Other Information:

  1. Due to an airplane accident while flying back from Thunder Bay on business, Mr. Brooks was seriously injured and confined to a hospital for two full months during 2020. As his employer provides complete group disability insurance coverage, he received a total of $4,200 in payments during this period. All of the premiums for this insurance plan are paid by the employer. The plan provides periodic benefits that compensate for lost employment income.
  2. Mr. Brooks is provided with a car that the company leases at a rate of $678 per month, including both GST and PST. The company pays for all of the operating costs of the car, and these amounted to $3,500 during 2020. Mr. Brooks drove the car a total of 35,000 kilome- tres during 2020, 30,000 kilometres of which were carefully documented as employment- related travel. While he was in the hospital (see Item 1), his employer required that the car be returned to company premises.
  3. In order to assist Mr. Brooks in acquiring a new personal residence in Winnipeg, his employer granted him a five year, interest free loan of $125,000. The loan qualifies as a home reloca- tion loan. The loan was granted on October 1, 2020, and, at this point in time, the interest rate on open five year mortgages was 5 percent. Assume the relevant ITR 4301 rate was 2 percent on this date. Mr. Brooks purchases a house for $235,000 on October 2, 2020. He has not owned a home during any of the preceding four years.
  4. Other disbursements made by Mr. Brooks include the following:

Advanced financial accounting course tuition fees

$1,200

Music history course tuition fees

(University of Manitoba one week intensive course)

600

Fees paid to financial planner

300

Payment of premiums on life insurance

642

Mr. Brooks’ employer reimbursed him for the tuition fees for the accounting course, but not the music course.

Required: Calculate Mr. Brooks’ net employment income for the taxation year ending December 31, 2020.

In: Accounting

The following facts relate to Novak Corporation. 1. Deferred tax liability, January 1, 2020, $24,400. 2....

The following facts relate to Novak Corporation.

1. Deferred tax liability, January 1, 2020, $24,400.
2. Deferred tax asset, January 1, 2020, $0.
3. Taxable income for 2020, $115,900.
4. Pretax financial income for 2020, $244,000.
5. Cumulative temporary difference at December 31, 2020, giving rise to future taxable amounts, $292,800.
6. Cumulative temporary difference at December 31, 2020, giving rise to future deductible amounts, $42,700.
7. Tax rate for all years, 20%.
8. The company is expected to operate profitably in the future.

A. Compute income taxes payable for 2020.

Income taxes payable

$enter Income taxes payable in dollars

B. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020. (Credit account titles are automatically indented when 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.)

Account Titles and Explanation

Debit

Credit

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

  

C. Prepare the income tax expense section of the income statement for 2020, beginning with the line “Income before income taxes.” (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Novak Corporation
Income Statement (Partial)
choose the accounting period                                                                      December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020

select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues

$enter a dollar amount

select an opening section name                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues

select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues

$enter a dollar amount

select an income statement item                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues

enter a dollar amount

enter a subtotal of the two previous amounts

select a closing name for this statement                                                                      CurrentDeferredDividendsExpensesIncome before Income TaxesIncome Tax ExpenseNet Income / (Loss)Retained Earnings, January 1Retained Earnings, December 31RevenuesTotal ExpensesTotal Revenues

$enter a total net income or loss amount

In: Accounting

3. John Deere is operated as a C corporation. The company received an order for a...

3. John Deere is operated as a C corporation. The company received an order for a $12,000 tractor from a customer on June 30, 2020 and delivered the tractor to the customer on July 31, 2020. The company sent the customer a bill saying they had to pay for the tractor by no later than January 31, 2021. John Deere uses a calendar year tax period. Based on phone calls with the customer in December of 2020, the customer explained that it may have to file bankruptcy proceedings but was trying to work its way out of financial hardship before taking that option. The customer said that at worst it would be able to pay at least $9,000 of the bill. On January 15, 2021, John Deere received a check from the customer for $9,000 and was informed it would receive no additional payment based on the outcome of the bankruptcy case. In addition to the transaction above, the following occurred:

  • A different customer paid for the same type of tractor (at $12,000) on November 1, 2020 and scheduled delivery for January 15, 2021. John Deere included the income in its 2020 financial accounting statements.
  • The company both incurred and paid expenses for the following in 2020:
    • Wages:                                                                               $3,000
    • Rental costs for a warehouse:                                            $4,000
    • Repairs:                                                                              $2,000
  • The company both incurred and paid expenses for the following in 2021:
    • Wages:                                                                               $4,000
    • Rental costs for a warehouse:                                            $4,000
    • Repairs:                                                                              $3,000
  1. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
  2. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
  3. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
  4. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?







  5. (8 points) How should the sum of the 2020 and 2021 accrual method net profit (loss) total relate to the sum of the 2020 and 2021 cash method net profit (loss) total (i.e. how should the sum of your answers in a. and b. relate to the sum of your answers in c. and d.)?
    Circle the best answer below.
    i. The sum of the two years for the accrual method should be greater than the sum of the
        two years under the cash method.
    ii. The sum of the two years for the accrual method should be less than the sum of the
        two years under the cash method.
    iii. The sum of the two years for the accrual method should be equal to the sum of the
        two years under the cash method.

In: Accounting

Consider each of the following independent and material situations. In each case: • the financial report...

Consider each of the following independent and material situations. In each case:

• the financial report date is 31 December 2019;

• the field work was completed on 12 February 2020;

• the directors declaration and the audit report were signed on 19 February 2020; and

• the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020

A. You are an auditor pf PP Limited (PP), a company specialising in industrial property development. On 10 February 2020, you become aware that a major overseas investor has informed the management of PP of their intention to withdraw their investment in a proposed major development. On the basis of its discussions with the investor and previously pledged funds from them, PP has incurred substantial costs in feasibility studies, structural engineering reports and architectural plans. A significant portion of these costs has been capitalised. The management is dependent on finding a new investor to be able to meet these expenses and to continue with the project.

B. You are the auditor of XY Limited (XY), a manufacturing client. XY has plans to upgrade its manufacturing process and plans to finance this by a sale of property which is superfluous to its needs, situated next to its head office. The property has been subdivided for the purposes of the sale and placed on the market in December 2019. On 25 January 2020, the state government approved a plan for the construction of an express freeway. The plan will result in the appropriation of a portion of the property owned by XY and subdivided for the purpose of sale. Construction of the freeway will begin in late 2020. No estimate of the compensation payment is available.

C. You are an auditor of Q limited (Q), a major public company involved in the property development industry. Prior to signing your audit report you sought a letter of comfort from Q’s bankers that the bank would continue to support Q by providing finance over the coming year. The bank agrees that it would continue to provide finance. It was your view that without such support Q had severe cash flow problems and the financial report would need to be modified with respect to a going concern assumption. On 15 March 2020, the company’s bankers wrote to you advising that the company had breached its loan covenant with the bank in February 2020 and that the loan facility was now due and payable and would not be renewed.

D. You are the auditor of Turbo Limited (Turbo), a professional services client. On 15 January 2020, Turbo settled and paid a personal injury claim to a former employee as the result of an accident that occurred in September 2017. The company had not previously recorded a liability for the claim. E. You are the auditor of Charge Limited (Charge), an automobile parts manufacturer. On 2 February 2020, Charge agreed to purchase for cash the outstanding shares of Electronic Fuel Injection Limited. The acquisition is likely to double the sales volume of Charge.

Required: For each of the events A to E:

1. Outline the required treatment in the financial report, if any. Justify your answer.

In: Accounting

3. John Deere is operated as a C corporation. The company received an order for a...

3. John Deere is operated as a C corporation. The company received an order for a $12,000 tractor from a customer on June 30, 2020 and delivered the tractor to the customer on July 31, 2020. The company sent the customer a bill saying they had to pay for the tractor by no later than January 31, 2021. John Deere uses a calendar year tax period. Based on phone calls with the customer in December of 2020, the customer explained that it may have to file bankruptcy proceedings but was trying to work its way out of financial hardship before taking that option. The customer said that at worst it would be able to pay at least $9,000 of the bill. On January 15, 2021, John Deere received a check from the customer for $9,000 and was informed it would receive no additional payment based on the outcome of the bankruptcy case. In addition to the transaction above, the following occurred:

  • A different customer paid for the same type of tractor (at $12,000) on November 1, 2020 and scheduled delivery for January 15, 2021. John Deere included the income in its 2020 financial accounting statements.
  • The company both incurred and paid expenses for the following in 2020:
    • Wages:                                                                               $3,000
    • Rental costs for a warehouse:                                            $4,000
    • Repairs:                                                                              $2,000
  • The company both incurred and paid expenses for the following in 2021:
    • Wages:                                                                               $4,000
    • Rental costs for a warehouse:                                            $4,000
    • Repairs:                                                                              $3,000
  1. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
  2. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the accrual method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?
  3. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2020?
  4. (9 points) Assuming the local John Deere’s operates on a calendar year-end under the cash method and prefers to defer income whenever possible, what amount of net profit (loss) for tax purposes in 2021?



    (8 points) How should the sum of the 2020 and 2021 accrual method net profit (loss) total relate to the sum of the 2020 and 2021 cash method net profit (loss) total (i.e. how should the sum of your answers in a. and b. relate to the sum of your answers in c. and d.)?
  5. Circle the best answer below.
    i. The sum of the two years for the accrual method should be greater than the sum of the
        two years under the cash method.
    ii. The sum of the two years for the accrual method should be less than the sum of the
        two years under the cash method.
    iii. The sum of the two years for the accrual method should be equal to the sum of the
        two years under the cash method.

In: Accounting

Consider each of the following independent and material situations. In each case: • the financial report...

Consider each of the following independent and material situations. In each case:

• the financial report date is 31 December 2019;

• the field work was completed on 12 February 2020;

• the directors declaration and the audit report were signed on 19 February 2020; and

• the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020

A. You are an auditor pf PP Limited (PP), a company specialising in industrial property development. On 10 February 2020, you become aware that a major overseas investor has informed the management of PP of their intention to withdraw their investment in a proposed major development. On the basis of its discussions with the investor and previously pledged funds from them, PP has incurred substantial costs in feasibility studies, structural engineering reports and architectural plans. A significant portion of these costs has been capitalised. The management is dependent on finding a new investor to be able to meet these expenses and to continue with the project.

B. You are the auditor of XY Limited (XY), a manufacturing client. XY has plans to upgrade its manufacturing process and plans to finance this by a sale of property which is superfluous to its needs, situated next to its head office. The property has been subdivided for the purposes of the sale and placed on the market in December 2019. On 25 January 2020, the state government approved a plan for the construction of an express freeway. The plan will result in the appropriation of a portion of the property owned by XY and subdivided for the purpose of sale. Construction of the freeway will begin in late 2020. No estimate of the compensation payment is available.

C. You are an auditor of Q limited (Q), a major public company involved in the property development industry. Prior to signing your audit report you sought a letter of comfort from Q’s bankers that the bank would continue to support Q by providing finance over the coming year. The bank agrees that it would continue to provide finance. It was your view that without such support Q had severe cash flow problems and the financial report would need to be modified with respect to a going concern assumption. On 15 March 2020, the company’s bankers wrote to you advising that the company had breached its loan covenant with the bank in February 2020 and that the loan facility was now due and payable and would not be renewed.

D. You are the auditor of Turbo Limited (Turbo), a professional services client. On 15 January 2020, Turbo settled and paid a personal injury claim to a former employee as the result of an accident that occurred in September 2017. The company had not previously recorded a liability for the claim. E. You are the auditor of Charge Limited (Charge), an automobile parts manufacturer. On 2 February 2020, Charge agreed to purchase for cash the outstanding shares of Electronic Fuel Injection Limited. The acquisition is likely to double the sales volume of Charge.

Required: For each of the events A to E:

2. Determine whether additional audit evidence needs to be obtained. If so, describe the nature of the audit evidence to be obtained and the audit procedures used to obtain it.

In: Accounting

Consider each of the following independent and material situations. In each case: • the financial report...

Consider each of the following independent and material situations. In each case:

• the financial report date is 31 December 2019;

• the field work was completed on 12 February 2020;

• the directors declaration and the audit report were signed on 19 February 2020; and

• the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020

A. You are an auditor pf PP Limited (PP), a company specialising in industrial property development. On 10 February 2020, you become aware that a major overseas investor has informed the management of PP of their intention to withdraw their investment in a proposed major development. On the basis of its discussions with the investor and previously pledged funds from them, PP has incurred substantial costs in feasibility studies, structural engineering reports and architectural plans. A significant portion of these costs has been capitalised. The management is dependent on finding a new investor to be able to meet these expenses and to continue with the project.

B. You are the auditor of XY Limited (XY), a manufacturing client. XY has plans to upgrade its manufacturing process and plans to finance this by a sale of property which is superfluous to its needs, situated next to its head office. The property has been subdivided for the purposes of the sale and placed on the market in December 2019. On 25 January 2020, the state government approved a plan for the construction of an express freeway. The plan will result in the appropriation of a portion of the property owned by XY and subdivided for the purpose of sale. Construction of the freeway will begin in late 2020. No estimate of the compensation payment is available.

C. You are an auditor of Q limited (Q), a major public company involved in the property development industry. Prior to signing your audit report you sought a letter of comfort from Q’s bankers that the bank would continue to support Q by providing finance over the coming year. The bank agrees that it would continue to provide finance. It was your view that without such support Q had severe cash flow problems and the financial report would need to be modified with respect to a going concern assumption. On 15 March 2020, the company’s bankers wrote to you advising that the company had breached its loan covenant with the bank in February 2020 and that the loan facility was now due and payable and would not be renewed.

D. You are the auditor of Turbo Limited (Turbo), a professional services client. On 15 January 2020, Turbo settled and paid a personal injury claim to a former employee as the result of an accident that occurred in September 2017. The company had not previously recorded a liability for the claim. E. You are the auditor of Charge Limited (Charge), an automobile parts manufacturer. On 2 February 2020, Charge agreed to purchase for cash the outstanding shares of Electronic Fuel Injection Limited. The acquisition is likely to double the sales volume of Charge.

Required: For each of the events A to E:

3. If no action is taken by management, determine the most appropriate audit report to be issued.

In: Accounting