Vigor Corporation reports a net income before tax for 2020 of $512,800, has a tax rate of 21% and provides the following selected information (covers the three tax difference items) from its ledger as at December 31, 2019 and 2020:

                                                                                                    2019             2020

                        Equipment, at cost                                  900,000 DR 900,000 DR

                        Accumulated depreciation, equipment    450,000 CR 525,000 CR

                        Deferred Tax Asset                                   10,080 DR                   ?

                        Warranty Liability                                     48,000 CR    56,000 CR

                        Deferred Tax Liability                              47,250 CR                   ?

                        Depreciation expense, equipment             75,000 DR   75,000 DR

                        Warranty expense                                     27,000 DR   30,000 DR

                        Municipal bond interest (tax exempt)       17,800 CR    18,800 CR

The tax basis of the equipment (book value for tax purposes or the amount of the cost of the asset not yet deducted for tax purposes) is $225,000 at December 31, 2019 and $112,500 as at December 31, 2020. The tax deduction for warranties is limited to actual warranty payments.

Required:

1. What is the tax deduction for warranties on Vigor’s 2020 tax return?
2. What is taxable income for 2020?
3. What is income tax expense/benefit, current portion for 2020?
4. What is the amount of the deferred tax asset at December 31, 2020?
5. What is the amount of the deferred tax liability at December 31, 2020?
6. What was income tax expense/benefit, deferred portion for 2020?
7. What is Vigor’s effective income tax rate (ETR) for 2020?

On 1 June2020, Purchase Limited enters into a firm commitment Supply Limited to buy USD 100,000 of inventory. On 1 July 2020, the Purchase Limited enters into a hedging arrangement which meets the hedge accounting criteria stipulated by the accounting standards (Australian Accounting Standards Board (AASB) 9). Purchase Limited has designated the firm commitment hedging arrangement as a fair value hedge. On 1 August 2020, Supply Limited transfers the inventory to Purchase Limited, and on that date, the Purchase Limited makes the payment. The spot and forward rates are as follows. Date Spot rate in AUD Forward rate in AUD 1 June 2020 0.19 0.2 30 June 2020 0.2 0.25 1 August 2020 0.3 0.3 Required: a) Explain at least two determinants of determining an effectiveness of a hedge instrument against a he

ue

2. What is your subject?

dge 5 Marks b) Provide journal entries to account for the hedged item (firm commitment to buy inventory) 8 Marks i. On 1 June 2020 ii. On 30 June 2020 iii. On 1 August 2020 c) Provide journal entries to account for the hedge instrument (forward contract) 7 Marks i. On 1 June 2020 ii. On 30 June 2020 iii. On 1 August 2020

Complete the required tasks utilizing excel and label everything. All work must be shown to receive credit. A 20% late penalty will be assessed for each 24 hours submitted late. Below is the activity (purchases and Sales) for inventory held by Random Creations for the month of January, 2020: Beginning Inventory: January 1, 2020 80 Units @ $50 per unit Total $ 4,000 Purchases: January 18, 2020 40 Units @ $51 per unit Total $ 2,040 January 28, 2020 40 Units at $52 per unit Total $ 2,080 Sales: January 12, 2020 Sold 30 Units January 22, 2020 Sold 30 Units January 31, 2020 Sold 45 Units Using the information above, answer the following:

a) Compute the January 31, 2020 Ending Inventory and Cost of Goods Sold assuming Random Creations uses FIFO

b) Compute the January 31, 2020 Ending Inventory and Cost of Goods Sold assuming Random Creations uses LIFO and the Perpetual System

c) Compute the January 31, 2020 Ending Inventory and Cost of Goods Sold assuming Random Creations uses LIFO and the Periodic System

d) Compute the January 31, 2020 Ending Inventory and Cost of Goods Sold assuming Random Creations uses Average Cost and the Perpetual System REMEMBER ALL WORK MUST BE SHOWN TO RECEIVE CREDIT

Depreciation for Partial Periods

Bar Delivery Company purchased a new delivery truck for $36,000 on April 1, 2019. The truck is expected to have a service life of 10 years or 180,000 miles and a residual value of $3,000. The truck was driven 12,000 miles in 2019 and 16,000 miles in 2020. Bar computes depreciation expense to the nearest whole month.

Required:

1. Compute depreciation expense for 2019 and 2020 using the following methods: (Round your answers to the nearest dollar.)
   1. Straight-line method

      2019	$ fill in the blank 1
      2020	$ fill in the blank 2

   2. Sum-of-the-years'-digits method

      2019	$ fill in the blank 3
      2020	$ fill in the blank 4

   3. Double-declining-balance method

      2019	$ fill in the blank 5
      2020	$ fill in the blank 6

   4. Activity method

      2019	$ fill in the blank 7
      2020	$ fill in the blank 8

2. For each method, what is the book value of the machine at the end of 2019? At the end of 2020? (Round your answers to the nearest dollar.)
   1. Straight-line method

      2019	$ fill in the blank 9
      2020	$ fill in the blank 10

   2. Sum-of-the-years'-digits method

      2019	$ fill in the blank 11
      2020	$ fill in the blank 12

   3. Double-declining-balance method

      2019	$ fill in the blank 13
      2020	$ fill in the blank 14

   4. Activity method

      2019	$ fill in the blank 15
      2020	$ fill in the blank 16

The following information has been extracted from the financial statements of a company. Use it to answer the 4 questions that follow it. When answering the questions (filling in the blanks), DO NOT use dollar signs, USE commas to separate thousands, DO NOT use parenthesis to denote negative numbers, USE the negative sign in front of first digit for negative numbers. Round to the nearest dollar.

1. What is the Net Cash Flow (NFC) for 2020?

2. What is the Investment in Gross Fixed Assets for 2020?

3. What is the investment in net operating working capital (Investment NOWC) for 2020?

4. What is the Free Cash Flow (FCF) for 2020?

The following information has been extracted from the financial statements of a company. Use it to answer the 4 questions that follow it. When answering the questions (filling in the blanks), DO NOT use dollar signs, USE commas to separate thousands, DO NOT use parenthesis to denote negative numbers, USE the negative sign in front of first digit for negative numbers. Round to the nearest dollar.

1. What is the Net Cash Flow (NFC) for 2020?

2. What is the Investment in Gross Fixed Assets for 2020?

3. What is the investment in net operating working capital (Investment NOWC) for 2020?

4. What is the Free Cash Flow (FCF) for 2020?

Case 19-7

Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination

Company G (G), an SEC registrant, is a global financial advisory and asset management firm. Company P (P), a private company, offers advisory services for (1) mergers, acquisitions, and divestitures; (2) capital structure (including initial public offerings); (3) government advisory, including strategic, finance and capital markets related policy considerations; and (4) restructurings.

Case Facts

On September 18, 20X8, (the “Closing”), G and P executed an acquisition agreement (the “Agreement”) whereby G acquired 100 percent of the outstanding shares of P (the “Acquisition”). At the time of close, P had 10 employees that had over 200 combined years of financial and strategic advisory experience. Company P was owned as follows:

• Founder — 85 percent.

• Senior advisor — 10 percent.

• Other employees (four in total) — 5 percent.

  The purchase price was calculated using a revenue multiple that was established using market data at the midpoint and transferred in exchange for 100 percent of the outstanding shares to the Founder ÷ employees who owned 100 percent of P (collectively, the “Shareholders”) on a pro rata basis. The total purchase price comprised the following:

  • Cash = $1 million.

  • Shares = 100,000 shares in G (worth $3.3 million).

  • Delayed Consideration = 120,000 G shares, but issued to the Shareholders under the terms below (value assuming a 4-year vesting restriction = $5 million; assuming a 10-year vesting restriction = $4 million).

o Delayed consideration is held by an independent third party (Exchange Co) and on the fourth anniversary of the Closing, Exchange Co shall release the Delayed Consideration to the Shareholders, subject to the Shareholder being employed on such date.

o If a Shareholder is no longer employed on the fourth anniversary, the Delayed Consideration issued to such Shareholder will continue to be held by Exchange Co until the tenth anniversary of the Closing, at which point Exchange Co shall release the Delayed Consideration to the Shareholders.

Copyright 2019 Deloitte Development LLC All Rights Reserved.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 2

• Earnout Consideration = Up to 600,000 shares (valued at total of $20 million).

o The Earnout Consideration will be contingent upon achievement of revenue hurdles over a period beginning on September 18, 20X8, and ending on December 31, 20X2 (“Earnout Period”).

o To the extent the performance targets below are achieved, Exchange Co shall deliver the relevant Earnout Shares to the Shareholders on a pro rata basis. However, if and to the extent certain performance targets described below are not achieved, in whole or in part, no Earnout Consideration will be paid.

•  First Earnout Consideration — If revenue exceeds $10 million in the Earnout Period, the Shareholders will be entitled to 200,000 shares.

•  Second Earnout Consideration — If revenue exceeds $20 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

•  Third Earnout Consideration — If revenue exceeds $30 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

o The Shareholders are still entitled to the Earnout Consideration in the event that targets are met, but they are not employees of G at the time the Earnout Consideration is earned.

Other Key Facts

• Company P meets the definition of a business under ASC 805.

• Each employment agreement executed by G and the Shareholders contains compensation that is commensurate with the service each respective Shareholder is providing to G.

• The Shareholders have at-will employment agreements with G.

• If the Shareholders were to leave, G would be able to replace them with an existing G investment banker; therefore, the Shareholders are not integral to the future success of the acquired business.

• The fair value of P was determined to be $24 million.

• The Earnout Consideration is not being treated as compensation expense for tax purposes.

Copyright 2019 Deloitte Development LLC All Rights Reserved.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 3

Required:

If there was a change to the case facts, and the Shareholders were no longer entitled to the Earnout Consideration if they were not employees of G at the time the revenue targets were met, should the Earnout Consideration to the Shareholders be accounted for as purchase consideration in exchange for the Acquisition or as compensation for postcombination services?

Suppose that the United Kingdom has no restriction on capital flows and wants to keep the value of GBP stable (i.e., no currency appreciation or depreciation). Under this framework, the United Kingdom also wants to adopt an expansionary monetary policy (i.e., lowering its interest rate) to stimulate its economy. Will the monetary policy be successful? Why? What would be the likely outcomes if the United Kingdom actually lowers its interest rate?

In this chapter, we examined the difference in educational attainment between first- and second-generation Hispanic Americans and Asian Americans based on the proportion of each group with a bachelor’s degree. We present additional data from the Pew Research Center’s 2013 report, measuring the percentage of each group that owns a home (Frankfort-Nachmias, & Leon-Guerrero, 2018, p. 231).

First-Generation Hispanic Americans (N = 899), 43% own a home Second-Generation Hispanic Americans (N = 351), 50% own a home First-Generation Asian Americans (N = 2,684), 58% own a home Second-Generation Asian Americans (N = 566), 51% own a home Source: Pew Research Center, Second-Generation Americans: A Portrait of the Adult Children of Immigrants. Pew Research Center, Washington, D.C. February 7, 2013. http://www.pewsocialtrends.org/2013/02/07/second-generation-americans/

Test whether there is a significant difference in the proportion of homeowners between first- and second-generation Hispanic Americans. Set alpha at 0.05. Test whether there is a significant difference in the proportion of homeowners between first- and second-generation Asian Americans. Set alpha at 0.01. Reference: Frankfort-Nachmias, C., & Leon-Guerrero, A. (2018). Social statistics for a diverse society (8th ed.). Thousand Oaks, CA: SAGE Publications, Inc.

Question 1 3 Points Is there a significant difference between first-and second-generation Hispanic American populations? Yes No

Question 2 3 Points What is the difference? -2.33 2.33 0.0198 0.07

Question 3 2 Points Is there a significant difference between first-and second-generation Asian populations? Yes No

Question 4 2 Points What is the difference? 3.50 -3.50 0.0004 0.07 In 2016, the Pew Research Center surveyed 1,799 white and 1,001 black Americans about their views on race and inequality. Pew researchers found “profound differences between black and white adults in their views on racial discrimination, barriers to black progress and the prospects for change.” White and black respondents also disagreed about the best methods to achieve racial equality. For example, 34% of whites and 41% of blacks said that “bringing people of different racial backgrounds together to talk about race” would be a very effective tactic for groups striving to help blacks achieve equality. Test whether the proportion of white respondents who support this tactic is significantly less than the proportion of black respondents.

Question 5 2 Points What is the null hypotheses? π₁ ≠ π₂ π₁ = π₂ μ1 = μ2 μ1 ≠ μ2

Question 6 2 Points What is the research hypotheses? π₁ ≠ π₂ π₁ = π₂ μ1 = μ2 μ1 ≠ μ2

Question 7 2 Points Calculate the Z statistic and test the hypothesis at the 0.05 level. What is the Z Statistic? 3.50 -3.50 0.0004 0.07

Question 8 2 Points What is your decision (step 5 in hypothesis testing)? Do you accept or reject the null hypothesis? Accept Reject We compare the proportion who indicated that it was “very important” to be born in this country to be American for two GSS 2014 groups: respondents (1) born in the United States (native born) and (2) not born in the United States (foreign born). Test the research hypothesis that a higher proportion of native-born respondents than foreign-born respondents indicated being born in the United States was “very important” to be American. Set alpha at 0.05.

Question 9 2 Points Do you accept or reject the null hypothesis? Accept Reject

Question 4 Suppose a study reports that the average price for a gallon of self-serve regular unleaded gasoline is $3.16. You believe that the figure is higher in your area of the country. You decide to test this claim for your area of the United States by randomly calling gasoline stations. Your random survey of 25 stations produces the following prices (all in dollars). Assume gasoline prices for a region are normally distributed. Did the data you obtained provide enough evidence to reject the claim? Use a 1% level of significance. Make sure you clearly state both the null and the alternative hypotheses in full sentences. Following your calculations, clearly state the conclusion in the same manner (do not simply say “accept/reject null”) and explain how you arrived at this conclusion (based on which metrics). 3.27 3.3 3.16 3.15 3.11 3.05 3.54 3.25 3.05 3.11 3.13 3.15 3.27 3.14 3.14 3.2 3.3 3.09 3.05 3.07 3.37 3.34 3.35 3.35 3.1 GB513: Business Analytics 3 of 5 Question 5 Where do CFOs get their money news? According to Robert Half International, 47% get their money news from newspapers, 15% get it from communication/colleagues, 12% get it from television, 11% from the Internet, 9% from magazines, 5% from radio, and 1% do not know. Suppose a researcher wants to test these results. She randomly samples 76 CFOs and finds that 40 of them get their money news from newspapers. Does the test show enough evidence to reject the findings of Robert Half International? Use a = .05. Make sure you clearly state both the null and the alternative hypotheses in full sentences. Following your calculations, clearly state the conclusion in the same manner (do not simply say “accept/reject null”) and explain how you arrived at this conclusion (based on which metrics). Question 6 To answer this question, use the Data Analysis Toolpack in Excel and select “t-Test: Two-Sample Assuming Equal Variances” from the list of available tools. Conduct a hypothesis test using this tool. Explain your answer (how you decided if men spend more or not) and include the output table. Some studies have shown that in the United States, men spend more than women buying gifts and cards on Valentine’s Day. Suppose a researcher wants to test this hypothesis by randomly sampling men and women with comparable demographic characteristics from various large cities across the United States to be in a study. Each study participant is asked to keep a log beginning 1 month before Valentine’s Day and record all purchases made for Valentine’s Day during that 1-month period. The resulting data are shown below. Use these data and a 1% level of significance to test to determine if, on average, men actually do spend significantly more than women on Valentine’s Day. Assume that such spending is normally distributed in the population and that the population variances are equal. Make sure you clearly state both the null and the alternative hypotheses in full sentences. Include the output table; then, clearly state the conclusion in the same manner (do not simply say “accept/reject null”) and explain how you arrived at this conclusion (based on which metrics). Men Women 107.48 125.98 143.61 59.32 90.19 96.35 125.53 80.62 70.79 77.6 83 84.34 129.63 75.21 154.22 68.48 GB513: Business Analytics 4 of 5 93.8 65.84 111.25 126.11 78.6 82.54 89.35 123.5