Part 1

The United States' economy is growing at a faster rate than the economy of its trading partner, the United Kingdom. As a result, the rate of American inflation is increasing.

1. Draw correctly labeled graphs to show how the increase in inflation will affect the supply of the U.S. dollar and demand for the British pound in the foreign exchange market.
2. Based on the scenario, what will happen to the value of the U.S. dollar? Explain. (Make sure you use the costs of foreign and domestic goods in your explanation.)
3. Based on the changing value of the U.S. dollar in part (B), how will U.S. net exports be affected? Explain.

Part 2

The Federal Reserve decreases the money supply in the United States causing interest rates to increase.

1. Draw correctly labeled graphs to show how the increased interest rates in the scenario will affect the demand for the U.S. dollar and supply of the EU euro in the foreign exchange market.
2. Based on the scenario, what will happen to the value of the EU euro? Explain. (Make sure you use the concept of foreign financial investment in your explanation.)
3. Based on the changing value of the EU euro in part (B), how would U.S. aggregate demand be affected? Explain.

Valco

Tom has been named the manager of a large new chemical plant that is still to be designed and constructed. Tom’s responsibilities are to assemble and supervise the design staff; ensure that the plant is safe, operable, and maintainable; and start up the plant after construction. Tom recommends that the design staff specify a new ValCo valve to replace traditional gate valves.

Consider the Following Series of Cases:

Use the line-drawing techniques described in Chapter 2, section 2.4 to determine if each of the scenarios within the following case is an example of conflict of interest or not.

• Case 1: ValCo valves are superior to traditional gate valves because they seal more tightly and more quickly. After a large number of ValCo valves have been ordered, Jim, the ValCo salesman and a former classmate of Tom’s, visits Tom and gives Tom a pen with the company logo stamped in gold. The pen is worth $5. Should Tom accept this pen?
• Case 2: Same as Case 1, except that, instead of offering Tom a $5 pen, Jim invites Tom to play golf at an exclusive country club. Should Tom accept the golf invitation?
• Case 3: Same as Case 2, except that Jim offers to sponsor tom for membership in an exclusive country club. Should Tom accept the offer of sponsorship?
• Case 4: Same as Case 3, except that Jim makes his offer before ValCo valves have been ordered. Should Tom accept the offer of sponsorship?
• Case 5: Same as Case 4, except that ValCo valves are inferior traditional gate valves. Should Tom accept the offer of sponsorship?
• Case 6: Same as Case 5, except that, instead of offering to sponsor Tom’s membership in an exclusive country club, Jim says he will treat Tom to an all-expenses-paid trip to the Bahamas. Should Tom accept the trip?

Each of the above cases assumed that Jim and Tom were former classmates. What difference if any, would it make to any of these cases if Jim and Tom had never previously met each other?

Question One

Given the following account information for Howard Corporation, prepare a balance sheet in report form for the company as of December 31, 2020. All accounts have normal balances. Assume Howard uses IFRS.

       Equipment........................................................................................         60,000

       Interest Expense..............................................................................           2,400

       Interest Payable...............................................................................              600

       Retained Earnings, beginning..........................................................       113,200

       Dividends..........................................................................................         50,400

       Land..................................................................................................       137,320

       Accounts Receivable.......................................................................       102,000

       Bonds Payable.................................................................................         78,000

       Accumulated other comprehensive income ………………………..         19,000

       Notes Payable (due in 6 months)....................................................         29,400

       Common Stock................................................................................         70,000

       Accumulated Depreciation—Equip..................................................         10,000

       Prepaid Advertising..........................................................................           5,000

       Service Revenue..............................................................................       341,400

       Buildings...........................................................................................         80,400

       Supplies............................................................................................           1,860

       Income Taxes Payable....................................................................           3,000

       Utilities Expense...............................................................................           1,320

       Advertising Expense........................................................................           1,560

       Salaries and Wages Expense..........................................................         53,040

       Salaries and Wages Payable...........................................................              900

       Accumulated Depr. Bldg..................................................................         20,000

       Cash.................................................................................................         45,000

       Depreciation Expense......................................................................           8,000

       Investment in Bonds to be held to maturity …………………………      100,000

       FV-OCI Investments (Fair value = 16,000)………………………….                12,000

       FV-NI Investments ……………………………………………………           3,200

       Assets held for sale ……………………………………………..                 22,000

Cash is comprised of $50,000 at RBC and a bank overdraft of $5,000 at BMO.

Question 2

The controller of Nebula Corporation has provided you with the following information:

Nebula Corporation

Income Statement

For the Year Ended December 31, 2020

Net sales..................................................................................................                        620,000

Operating expenses................................................................................                        410,000

Income from operations..........................................................................                        210,000

Other revenues and expenses

       Gain on sale of equipment............................................................... 30,000

       Interest expense............................................................................... 8,000               22,000

Income before income taxes...................................................................                        232,000

Income taxes...........................................................................................                          92,800

Net income..............................................................................................                        139,200

Nebula Corporation

Comparative Account Information

Relating to Operations

For the Year Ended December 31, 2020

                                                                           2020                            2019

Accounts receivable                                        56,000                         40,000

Prepaid insurance                                             5,000                           6,000

Accounts payable                                           59,000                         47,000

Interest payable                                                   600                           1,500

Income taxes payable                                       4,200                           6,000

Unearned revenue                                          20,000                         14,000

Instructions

1. Prepare a statement of cash flows (for operating activities only) for the year ended December 31, 2020, using the direct method.
2. Prepare a statement of cash flows (for operating activities only) for the year ended December 31, 2020 using the indirect method.

Opening UCC balances

Class 1 $330,000

Class 8 $56,000

Class 10.1 $21,000

Class 13 $45,000

Class 50 $260,000

Any other classes have an opening balance of nil.

The company purchased furniture on April 1, 2020 for $5,212.

On the same date, furniture with an original cost of $142,713, was sold for $67,277.

Calculate the maximum impact on business income for the year from furniture and other miscellaneous tangible capital assets.

A distillation column is required to purchase for a petrochemical industry. The chief engineer of the industry wants to evaluate the cost of the distillation column to make his purchase worthy. The data is not available with the vendor. So chief engineer of the company predicts that the estimation by using cost index data is most suitable to determine the cost. But the cost index table is available from the year 1980 to 1990. As a chief engineer describe a procedure to calculate cost of the equipment in current year 2020.

1. Andrew Cousins is 63 years old and is employed as a personal tax planning advisor by PWMG LLP. Andrew is married to Ying Yue Cousins; Ying Yue is a pensions analyst at Falcons plc, a large investment bank.

   Andrew owns an investment portfolio of tangible and intangible assets; he is also a keen collector of antique paintings and sculptures. Andrew intends to retire in the near future; he plans to acquire a retirement home in Nice, France. To finance this acquisition, he made a number of disposals from his investment portfolio during the tax year 2019/20.

   Which of the following disposals would be exempt or wholly relieved from capital gains tax in 2019/20?

   1. Sale of corporate bonds issued by Ravens plc, an engineering company that operates in the UK oil and gas sector

   2. Sale of an oil painting to Ying Yue Cousins. The oil painting had a market value on disposal of £18,000, but Andrew sold it to Ying Yue for a total consideration of £10,000. The painting cost £3,000 when acquired on 6 December 1999

   3. Sale of Andrew’s principal private residence (i.e. his main residence), a house in London, UK. Andrew acquired the house in 1996

   4. Part disposal of 400 shares in Trubisky Inc., a company that is resident in Delaware, USA; the shares were acquired in two acquisitions of £23,000 for 259 shares on 7 October 1994 and £35,000 for 303 shares on 11 July 2001, respectively. Net disposal consideration on the part disposal were £516,000

3. Ahmed Benghazi owns and manages a bakery. Ahmed’s business, Benghazi Mediterranean Khabbaz, produces luxury bread, cakes and pastries for restaurants and delicatessens in Newcastle upon Tyne, UK.

   During the tax year 2019/20, Benghazi Mediterranean Khabbaz’s taxable turnover (excluding capital items) was £222,070. The business’s VAT administration and payments of VAT liabilities are up-to-date. Ahmed Benghazi has never been convicted of a VAT offence or assessed to a penalty for VAT evasion involving dishonest conduct. Since the business started trading in 2012/13, Benghazi Mediterranean Khabbaz has participated in the flat-rate scheme for small businesses.

   Which, if any, of the special schemes for VAT administration are available for Benghazi Mediterranean Khabbaz in 2019/20?

   1. Cash accounting and annual accounting schemes only

   2. Flat rate scheme for small businesses only

   3. Cash accounting scheme, annual accounting scheme and flat-rate scheme for

      small businesses

   4. Annual accounting scheme and flat rate scheme for small businesses

5. Laura
Investment Services Ltd. Jackson Investment Services is a limited company, incorporated under the UK Companies Act 2006. Laura receives dividends from Jackson Investment Services Ltd.

Jackson Investment Services Ltd employs two investment analysts and an administrative assistant. Laura sub-contracts some of Jackson Investment Services Ltd’s work to Josh Dalton, a sole trader and self-employed tax specialist.

Jackson is an asset management advisor; she owns and manages Jackson

Which of the following are chargeable to Jackson Investment Services Ltd for the year ended 31 March 2020?

1. Corporation tax, Class 4 National Insurance contributions and income tax

2. Income tax and corporation tax

3. Corporation tax and Class 1 secondary National Insurance contributions

4. 4. Corporation tax, Class 1 primary National Insurance contributions and income tax

5. The badges of trade are the key factors in deciding whether an activity constitutes a trade.Josh Prescott is employed as an indirect taxation specialist by Falcons LLP, a large investment bank. Josh is also a talented mathematician and computer programmer: he provides risk analysis consultancy services to professional sports clubs in North America.

6. During the tax year 2019/20, Josh engaged in a number of transactions. Which of the following transactions would be used to determine if Josh’s risk analysis and consultancy services are a trading activity? A. Sale of risk analysis and management software to the Portland Panthers American Football Club. The software was originally designed for use in rugby; Josh adapted and improved the software for use in American football. B.Throughout the tax year 2019/20, Josh was supplied with a car by Falcons LLP. Josh used the car for both work and private use. Josh agreed to reimburse Falcons LLP for the full cost of any fuel used for private journeys: this amounted to £3,720, which Josh paid in a single instalment on 3 April 2019. C.Josh sold a licence for a risk analysis model for use in baseball to the Toronto Angels Baseball Club. Josh sold the licence for £70,000 on 1 July 2019.   D. Previously, he had sold licences to use the risk analysis model to four other baseball clubs.

Josh acquired debt finance to fund the acquisition of digital recording technology. The technology was used to collect data that Josh then used as part of his risk analysis consultancy activities.

The Sanding Department of Coronado Furniture Company has the following production and manufacturing cost data for March 2020, the first month of operation.

Production: 6,260 units finished and transferred out; 3,000 units started that are 100% complete as to materials and 20% complete as to conversion costs.

Manufacturing costs: Materials $35,188; labor $21,500; overhead $35,438.

Prepare a production cost report. (Round unit costs to 2 decimal places, e.g. 2.25 and other answers to 0 decimal places, e.g. 125.)

Cost Reconciliation Schedule

Costs accounted for

   Transferred out

$

   Work in process, March 31

      Materials

$

      Conversion costs

   Total costs

$

Question 1:

Menara Wealth Management involved the following transactions during September 2020, the first month of its operation:

Required:

1. Prepare journal entries to record all of the above transactions.

(5.75)

2. Post the journal entries to the relevant three column ledgers.

(6)

3. Prepare the trial balance as at 30 September 2020.

(2.75)