Based on past experience, Maas Corp. (a U.S.-based company) expects to purchase raw materials from a foreign supplier at a cost of 1,500,000 francs on March 15, 2021. To hedge this forecasted transaction, on December 15, 2020, the company acquires a call option to purchase 1,500,000 francs in three months. Maas selects a strike price of $0.63 per franc when the spot rate is $0.63 and pays a premium of $0.005 per franc. The spot rate increases to $0.634 at December 31, 2020, causing the fair value of the option to increase to $13,000. By March 15, 2021, when the raw materials are purchased, the spot rate has climbed to $0.65, resulting in a fair value for the option of $30,000. The raw materials are used in assembling finished products, which are sold by December 31, 2021, when Maas prepares its annual financial statements.

1. Prepare all journal entries for the option hedge of a forecasted transaction and for the purchase of raw materials.

2. What is the overall impact on net income over the two accounting periods?

3. What is the net cash outflow to acquire the raw materials?

The three principal ways in which venture capital companies exit venture-backed companies are: Select one: A. selling to a strategic buyer, buying out the founder, and offering shares to the public. B. selling to a strategic buyer, selling to a financial buyer, and buying out the founder. C. selling to a strategic buyer, selling to a financial buyer, and offering shares to the public. D. None of the above.

THE MBA DECISION Ben Bates graduated from college six years ago with a finance undergraduate degree. Since graduation, he has been employed in the finance department at East Coast Yachts. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben’s annual salary at East Coast Yachts is $61,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 25 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program. The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $65,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,800 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $107,000 per year, with an $20,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 30 percent. The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $78,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,000. Ben thinks that after graduation from Mount Perry, he will receive an offer of $90,000 per year, with a $17,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average income tax rate at this level of income will be 28 percent. Both schools offer a health insurance plan that will cost $3,500 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,500 more per year at both schools than his current expenses, payable at the beginning of each year. The appropriate discount rate is 6.2 percent. Assume all salaries are paid at the end of each year. Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint? He has three choices: remain at his current job, pursue a Wilton MBA, or pursue a Mt. Perry MBA. In order to determine the best option, you will need to calculate the after tax value of each option (perform analysis below).

Timeline for growing annuity for 40 years Salary Wilton MBA Mount Perry MBA

Timeline Timeline Timeline

Year Value Year Value Year Value

Business Entities

The Exxon Valdez was owned by the former Exxon Shipping Company. Discuss the options available to Exxon as to formation of a separate company and discuss the advantages and disadvantages of a wholly owned subsidiary compared to a division within the company. Make sure to support your statements with specific examples that are supported by a citation. Support your discussion with at least 3 Internet citations in APA style.

On 1 July 2019, Gail Ltd acquired all the issued shares of Ray Ltd for $90 000. The financial statements of Ray Ltd showed the equity of Ray Ltd at that date to be:
Share capital-10000 $5 50,000
General reserve 25000
Retained earning 15000
All the assets and liabilities of Ray Ltd were recorded at amounts equal to their fair values at that date.
During the year ending 30 June 2020, Ray Ltd undertook the following actions.
• On 1 January 2020, transferred $5 000 from the general reserve existing at 1 July 2019 to retained earnings.
Required:
(a) Prepare the pre-acquisition entries at 1 July 2019.
(b) Prepare the pre-acquisition entries at 30 June 2020.

Gunna Ltd acquired a printing machine on 1 July 2018 for $100,000. It is expected to have a useful life of 5 years, with the benefits being derived on a straight- line basis. The residual is expected to be $nil. On 1 July 2019 the machine is deemed to have a fair value of $75,000 and a revaluation is undertaken in accordance with Gunnamatta Ltd’s policy of measuring property, plant and equipment at fair value. The asset is sold for $89 000 on 1 July 2020. Required: Provide the journal entries necessary to account for transactions and events at the following date. Narrations are required. (7 marks. Word limit: n/a) a) 30 June 2019 b) 1 July 2019 c) 30 June 2020 d) 1 July 2020

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 3% of sales. Sales of the awnings in 2020 were $4,100,000. Accordingly, warranty expense and a warranty liability of $123,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 2% of sales rather than 3%. Sales of the awnings in 2021 were $4,600,000, and warranty expenditures in 2021 totaled $104,650.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $1,120,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $760,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $750,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $396,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $260,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $416,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $511,000.

Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 2% of sales. Sales of the awnings in 2020 were $2,600,000. Accordingly, warranty expense and a warranty liability of $52,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 1% of sales rather than 2%. Sales of the awnings in 2021 were $3,100,000, and warranty expenditures in 2021 totaled $70,525.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $820,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $610,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $600,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $231,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $110,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $251,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $346,000.

Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.
  

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

a. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 4% of sales. Sales of the awnings in 2020 were $2,500,000. Accordingly, warranty expense and a warranty liability of $100,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 3% of sales rather than 4%. Sales of the awnings in 2021 were $3,000,000, and warranty expenditures in 2021 totaled $68,250.

b. On December 30, 2017, Rival Industries acquired its office building at a cost of $800,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $600,000.

c. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $590,000.

d. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $220,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.

e. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $100,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $240,000 in penalties.

f. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $335,000.

Required:
For each situation:
1. Identify the type of change, change in accounting estimates or change in accounting principle
2. Prepare any journal entry necessary as a direct result of the change or any adjusting entry for 2021 related to the situation described