Pick 3 and answer

If you were evaluating an investment opportunity, which technique would you use and why?

When evaluating investments, you can get data from engineering, marketing, and sometimes accounting. Do you think any of these organizations have internal biases? If so, as a member of the finance department, how would you deal with them?

You have just discovered that your boss favors payback in evaluating investments. Should you try to talk him out of it or should you go along with his/her desires?

You are comptroller for your company. The CEO is a savvy individual with great instincts for the business. She strongly favors an investment that is only marginally acceptable at best. She has asked you to put together a justification for it. What will you do?

Last year your company financed its investments by selling shares of common stock. This year the plan is to use debt. The after-tax cost of debt is 5%, the cost of equity is 12% and the weighted average cost of capital is 9.5%. The first investment for this year is an expansion project. What cost of capital will you use and why?

1. Samira, a business law student, went to a well-known clothes shop to buy a pure (natural) silk shirt. She specifically told the shop-owner that she is allergic (sensitive) to (unnatural) silk and that she wants only natural silk. The shop owner then sold Samira a shirt telling her it is 100% natural and pure silk. A week after wearing the shirt Samira suffered from extreme allergic condition. Advise Samira as to her options.

2. Nora, the CEO of a company, was on a business trip for six days. During that time Jamal, who is Nora’s office manager, sold five tons of potato that were about to perish (expire) in the company’s warehouse for 75 % of their market price. When Nora returned she asked Jamal to compensate the company for the losses incurred by selling at that price. Can Nora do that? Why?

3. Khalid and Jasim had formed a Limited Partnership in which Jasim was a limited partner, while Khalid was a general partner. Each of them contributed 4 million AED to the capital. The Partnership suffered losses amounting to 10 million AED. What is the extent of Khalid’s liability for the losses? Why?

How far should our government (G) go in order to try to “make whole” the workers losing wage income starting March,2020?  Should our G try to transfer money to these workers? Yes? WHY? How much? A. One quarter of their lost income? B. One third? C. One half? D. ALL OF IT???????? E. Do you see any potential problems with D???? What might they be? 6. Okay. One could argue that D may be a little extreme…. You have to form your own opinion….. IS NOW THE TIME IN OUR COUNTRY’S HISTORY FOR US TO CHANGE OUR CURRENT SYSTEM OF INCOME DISTRIBUTION AND WEALTH DISTRIBUTION? IF SO, just in general terms, what should we do? Why?

On 1 July 2019, Vajra Ltd was incorporated and offered 2,500,000 ordinary shares to the public at an issue price of $4.00 per share, with $1.50 payable on application, and $1.50 upon allotment (due within one month of allotment) and $1.00 payable on another call to be made at a later date.

The issue is underwritten at a commission of $42,000.

By 31 July 2019, applications had been received for 2,450,000 shares. On 12 August 2019, shares were allotted, and the underwriter forwarded the application and allotment money due on the 50,000 shares less their commission. All remaining allotment money was received by 12 September 2019. On 30 September 2019, Vajra Ltd paid the legal costs (for company formation) of $6,200 and share issue cost of $4,600.

On 20 January 2020, the call was made, with money due by 29 February 2020. By 29 February 2020, all call money was received except for holders of 35,000 shares who failed to meet the call. On 31 March 2020, the shares on which call money was not received were forfeited.

On 9 April 2020, the forfeited shares were auctioned for $3.70 as fully paid. Share re-issue costs amounting to $8,500 were paid. The constitution provides for any surplus on resale, after satisfaction of unpaid instalments and any costs, to be returned to shareholders whose shares were forfeited. The refunds were made on 5 May 2020.

Required: Prepare the journal entries to record the transactions of Vajra Ltd up to and including that which took place on 30 June 2020. Show all relevant dates, narrations and workings.

5–5A Buono Adventures, which uses the perpetual inventory system, has the following account balances (in alphabetical order) on July 31, 2020:

Note: For simplicity, all operating expenses have been summarized in the account Operating Expenses.

Additional data at July 31, 2020:

1. A physical count of items showed $3,000 of supplies on hand. (Hint: Use the account Operating Expenses in the adjusting journal entry.)

2. An inventory count showed inventory on hand at July 31, 2020, of $140,000.

3. The equipment has an estimated useful life of eight years and is expected to have no scrap or residual value at the end of its life. (Hint: Use the account Operating Expenses in the adjusting journal entry.)

4. Unearned sales revenue of $5,600 was earned by July 31, 2020.

Required

1. Record all adjustments and closing entries that would be required on July 31, 2020.

2. Prepare the multi-step income statement and statement of owner’s equity for the year ended July 31, 2020, and the classified balance sheet in report format as at July 31, 2020.

3 4

Adjusting and closing the accounts of a merchandising company, and preparing a merchandiser’s financial statements under the perpetual inventory system

2. Net loss, $67,500

Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2021, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets.

The following table presents information concerning the change. The income tax rate for all years is 25%.

   
Required:
1. Prepare the journal entry to record the change in accounting principle.
2. Determine the net income to be reported in the 2021–2020 comparative income statements.
4. Indicate the affect of the change in the 2021–2020 comparative statements of shareholders’ equity assuming cash dividends were $2 million each year and that no dividends were paid prior to 2020.

Millington Materials is a leading supplier of building equipment, building products, materials, and timber for sale, with over 200 branches across the Mid-South. On January 1, 2021, management decided to change from the average inventory costing method to the FIFO inventory costing method at each of its outlets.

The following table presents information concerning the change. The income tax rate for all years is 25%.

Required:
1. Prepare the journal entry to record the change in accounting principle.
2. Determine the net income to be reported in the 2021–2020 comparative income statements.
4. Indicate the affect of the change in the 2021–2020 comparative statements of shareholders’ equity assuming cash dividends were $5.00 million each year and that no dividends were paid prior to 2020.

Magpie Ltd enters into a non-cancellable two-year lease agreement with Tiger Ltd for an item of machinery on 1 January 2020. Magpie Ltd pays $15,000 on signing the agreement with Tiger Ltd on 1 January 2020. There are eight quarter payments of $10,000, the first being made on 31 March 2020. Included within the $10,000 lease payments is an amount of $1,000 representing payment to the lessor for insurance and maintenance of the machinery. The machinery is to be depreciated on a straight-line basis. The machinery is expected to have an economic life of five years, after which time it will have a zero-salvage value. There is a purchase option Magpie Ltd will be able to exercise at the end of the second year for $30,000. If this purchase option is exercised, the machinery will be transferred to Magpie Ltd. The rate of interest implicit in the lease is 12%. Refer to the appendix for the tables of Present Value Factor for a single future amount and Present Value of an ordinary annuity of $1.

Prepare the lease payments schedule for Magpie Ltd from 1 January 2020 to 30 June 2020.