Solve the following case: 10

Saurabh Mitra is a fresh graduate from the institute of Mass Communication. He also possess a Masters Degree in Marketing Management from the Mumbai University. It was through campus recruitment that Saurabh was picked up by Doras Pharmaceuticals, a reputed company, having a large market share in many OTC products. Main among these being a fairness cream named Snowhite and an ointment for burns and cuts branded 'Burns" i.e. Stopburns.

The company has an all India presence and plans to soon launch a pain balm -cum-cold rub named D'Cold. D'cold would be in straight competition with 'Vicks Vaporub' and 'Amrutanjan'.

Shri Manoj Singh, the company's marketing manager, dreams to make Dtcold a leading brand. He has contracted Admagic the country's no. 1 advertising agency to handle the account of D'cold.

When Saurabh joined Doras he was included in the Marketing team of D' cold. L o o k i n g at Saurabh' s qualifications, and interests he was given the task of liaison with the advertising agency Admagic. After a series of meetings between Saurabh and the Account Executive of Admagic, in a few of which Mr. Singh was also present, it was decided to position Dicold towards the adult segment of the market since all the three of them believed that the requirements of the adult segment of the pain balm market were different from those of the children. They were also convinced that D'cold had all the ingredients to meet the requirements of the adult segment of the market. .

Accordingly, the first advertising campaign of D'cold was released in July 1999 to the media. The company decided to concentrate on TV and the national press to reach its targetted customers. The TV spots showed D'cold being used on the father of a family who is down with cold and body ache. The focus of the advertising was on the punch line ‘Bado ka cold rub’(A rub for the adults). The timing of launching D'cold was perfect since the rainy season was considered boom period for cold rubs.

The initial results were very encouraging and by the end of the rainy season D'cold had already become a brand to reckon with. After the rainy season Admagic proposed to change the campaign and accordingly a new campaign was prepared. While the TV spots showed a young mother using D'cold on her school going child the earlier punch line was entirely missing.

Saurabh was not very happy from the TV spots as he felt that the new campaign went against the earlier positioning of D'cold. This, he felt, would confuse the buyers and the advantage of the positioning strategy would be lost. Since Mr. Singh was very happy with the new advertisements Saurabh decided to keep silent.

Requirements:

1. Evaluate D'cold's segmentation strategy. (3)
2. Do you agree with Saurabh's opinion on the new advertisements? (3)
3. What would you do if you were in Saurabh's place? (4)

Background facts After graduating from your business degree at Central Queensland University you recently commenced working at a professional consulting services firm called “Squared Consulting” in the State or Territory in which you are undertaking your studies. You work in the legal compliance team and utilise your knowledge of commerce and law acquired from LAWS20059 to advise a diverse range of clients. You specialise in advising clients on how Australian law governs business structuresin the operation of commercial activities. Giovanni is a trained pizza maker who worked for 10 years as the head pizza maker at a national pizza chain called “Molto Bene”. His wife, Sandra, said to him one day: “your pizzas are terrific, you should start a pizza shop”. Giovanni thought that was a wonderful idea, so he began planning the grand opening of his new pizza shop. However, he only had $100,000 and the cost of starting a pizza shop was approximately $300,000 so he needed to either borrow money or invite partners to join him in the business. His aunt, Leanne, and uncle, Mick, each had about $100,000 in savings and they were keen to get into a pizza making business. They want to maintain a family business, so they do not want any outside investors. Giovanni, Leanne and Mick go into business together and they each contribute $100,000 into the business. They call the pizza shop “Dough Magic” and they charge $19 per pizza, which gives them approximately $4 profit on each pizza if they are sold. They agree that Giovanni will receive 50% of the profits, Leanne will receive 25% of the profits and Mick will receive 25% of the profits. They want to keep start up, regulatory and compliance costs to a minimum and they all want to participate in running the business. They also want to protect their personal assets. Giovanni, Leanne and Mick organise a meeting with your firm because they have a number of questions about different business structures.

Part A – BUSINESS STRUCTURES To prepare for the client meeting your supervisor, Jonathan, asks you to write a report which:

1. identifies two legal differences between a sole trader and a partnership.

2. explains a legal partnership on the one hand, and a company on the other.

3. explains one way a business would use a truststructure, the role of each participant in the trust and identifies the three elements required for a valid express trust. In Part A you must write a written report which addresses all the above points.

15 marks – 1,000 words maximum

Part B – COMPANIES AND THE CORPORATE VEIL

The pizza shop is doing well and making a profit. In fact, the pizza shop is doing so well that they need to hire a pizza maker, Fabio. Fabio’s employment contract contains a non-competition clause which is designed to stop him from competing with “Dough Magic” if he ever leaves. Fabio does decide to leave Dough Magic, but he registers a company, Kings of Dough Pty Ltd, which he uses to run a competing pizza shop which trades as “Kings of Dough”. Fabio is the sole director and shareholder of the company. Giovanni, Leanne and Mick learn about “Kings of Dough” and they want to know whether they can take any legal action against Fabio and/or Kings of Dough Pty Ltd. They have heard that companies have separate legal identity, so they are confused about whether they can sue for breach of contract and have the contract enforced. Giovanni, Leanne and Mick make another appointment with your firm for a consultation. To help prepare for the meeting, your supervisor, Jonathan, wants you to write a report for him. In Part B you must write a report which: 4

1. identifies one case law authority which relates to the separate legal personality principle in company law.

2. explains the separate legal personality principle and the concept of the corporate veil.

3. explains the respective role of shareholders and directors of a company.

4. advises whether the corporate veil can be lifted in this circumstance, and what it means for the corporate veil to be lifted. You must identify and apply one case law authority on point.

15 marks – 1,000 words maximum

Part C – ORAL PRESENTATION In Part C you are required to record a 5-minute oral presentation (of no more than 5 minutes in duration) with the use of a visual aid (such as a PowerPoint presentation, a chart, etc). Your supervising partner, Jonathan, has asked you to brief your team on your work advising Giovanni, Leanne and Mick. In your presentation, you must reflect on your reports for the meetings with Giovanni, Leanne and Mick to explain:

1. what business structure you would recommend for the pizza shop.

2. what you learned about the separate legal identity of companies from completing Part B of your assignment.

3. what you learned about veil piercing from completing Part B of your assignment.

Note: You will need to upload your presentation to and provide a link to your presentation in Part C of your assignment answer. Your recorded presentation must be accessible to the marker.

Johny started Bowling Company on January 1, Year 1. The company experienced the following events during its first year of operation:

1. Earned $16,200 of cash revenue.
2. Borrowed $12,000 cash from the bank.
3. Adjusted the accounting records to recognize accrued interest expense on the bank note. The note, issued on September 1, Year 1, had a one-year term and an 8 percent annual interest rate.

Required
a. What is the amount of interest payable at December 31, Year 1?
b. What is the amount of interest expense in Year 1?
c. What is the amount of interest paid in Year 1?
d. Use a horizontal statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. Indicate whether the event increases (I), decreases (D), or does not affect (NA) each element of the financial statements. In the Cash Flows column, designate the cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not affected (NA). The first transaction has been recorded as an example.

PLEASE ANSWER THE LAST QUESTIONS (as many as you can starting with the last question)

On January 1, 2016, the following information was drawn from the accounting records of Carter Company: cash of $400; land of $2,400; notes payable of $700; and common stock of $1,540. Required a. Determine the amount of retained earnings as of January 1, 2016.

g. During 2016, Carter Company earned cash revenue of $660, paid cash expenses of $380, and paid a cash dividend of $58. (Hint: It is helpful to record these events under an accounting equation before preparing the statements.) (Enter any decreases to account balances with a minus sign. Select "NA" if there is no effect on the "Account Titles for Retained Earnings".)

g-2. Prepare a statement of changes in stockholders’ equity dated December 31, 2016.

g-3. Prepare a balance sheet dated December 31, 2016. g-4.

Prepare a statement of cash flows dated December 31, 2016. (Amounts to be deducted should be indicated with a minus sign.)

j. What is the balance in the Revenue account on January 1, 2016?

Problem 2:

The following events apply to Sam’s Seafood Restaurant for the year ended December 31, 2020, its first year of operations:

1. The company acquired $50,000 cash by issuing common stock.

2. Purchased a new cook top that cost $35,000 cash.

3. Earned $36,000 in cash revenue.

4. Paid $12,000 cash for salaries expense.  

5. Recorded depreciation expense on the cook top for 2020 using straight-line depreciation. The cooktop was purchased on January 1, 2020, the expected useful life of the cook top is four years, and the estimated salvage value is $3,000.  

Required: Answer the following questions.

1. What is the net income for 2020?   

2. What amount of depreciation expense would Sam’s report on the 2021 income statement?

3. What amount of accumulated depreciation would Sam’s report on the December 31, 2021, balance sheet?

4. Would the cash flow from operating activites be affected by depreciation in 2021?

5. If Sam’s Seafood Restaurant decided to sell the new cooktop in 2022 for $10,000, would the company realize a gain or loss? How much?  

6. Scotti Company had the following transactions during the year 2018: *On January 1, 2018, its first year of business, Scotti Company issued 800,000 shares of $5 par value Common Stock for $18 per share. *On July 5, 2018, Scotti repurchased 200,000 shares at $20 per share. *On August 4, 2018, Scotti reissued 50,000 of its Treasury shares at $25 per share. *On September 15, 2018, Scotti reissued 50,000 of its Treasury shares at $23 per share. *On December 29, Scotti reissued the remaining 100,000 shares for $15.50 per share. Scotti earned $420,000 of net income throughout the year and did not pay any dividends in its first year.

What is the balance in the Retained Earnings account on December 31, 2018? (Hint: Write down the entries for all the transactions since August 4th and keep track of the balance in the Paid-in Capital - Treasury Stock account).

Group of answer choices

Cannot be determined from the information given.

$470,000

$420,000

$0

$370,000

LO4 Under the cash basis of accounting, revenue is recorded when it is received in cash, and expenses are recorded when they are paid in cash. Under the accrual basis of accounting, revenue is recorded when earned, even if cash is received at an earlier or a later date, and expenses are recorded when incurred, even if cash is to be paid at an earlier or a later date. Considering the following events, match which month the revenue or expenses would be recorded using the accounting method specified.

Collins Company uses the accrual basis of accounting. Crane prepays cash in November for insurance that covers the following month, December, only.

Emily's Natural Company uses the accrual basis of accounting. Emily’s Natural makes a sale to a customer in June but does not expect payment until September.

Patricia's Printing uses the cash basis of accounting. Patricia’s receives cash from customers in March for services to be performed in June.

Wesley's Travel uses the cash basis of accounting. Wesley prepays cash in January for insurance that covers the following month, February, only.

a)January

b)March

c)June

)December

Question 4

Acme Publishing has the following (independent) investment opportunities:

The optimal capital structure calls for financing all projects with 60 per cent ordinary shares and 40 per cent debt. The following information applies to the future financial position of Acme Publishing:

• The most recent dividend (DO) was $0.35
• The growth rate of earnings and dividends is 6 per cent
• The current price of shares is $4.60
• If new shares are issued, a flotation cost of 10% will be incurred
• The company can borrow up to $10,000 from its bank at an interest rate of 12%. For any amount of debt above $10,000, the interest rate is 14%
• The company’s dividend pay out ratio is 40%
• The company is in a 30% tax bracket
• Acme Publishing earned $35,000 last year before tax

Required

In which of the projects (if any) should Acme Publishing invest, and what is its capital budget and weighted average cost of capital (WACC)?

Astro Corporation was started with the issue of 5,300 shares of $11 par stock for cash on January 1, 2018. The stock was issued at a market price of $20 per share. During 2018, the company earned $58,050 in cash revenues and paid $38,894 for cash expenses. Also, a $3,300 cash dividend was paid to the stockholders.

Required:

Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Astro Corporation’s 2018 fiscal year.