The following trial balance was extracted from the books of Big Bamboo Limited on December 31, 2020               

Additional Information:

1.      Stock at December 31, 2020 $80,000

2.      Payment of $10,100 for insurance relates to the first quarter of 2021.

3.      Wages owing $4,800

4.      Provision for bad debt is to be increased to $1,500

5.      Depreciation on fixed assets:

-          Motor vehicles 10% on cost

-          Buildings 15 % on the reducing balance method

Required:

Prepare for Big Bamboo Limited:

(a)    An income statement for the year ended December 31, 2020                      

(b)   A statement of financial position as at December 31, 2020                          

In line with South Bank’s current thrust to expand retail through its branches, Alex Roces, manager of the Marikina Branch, reviewed its list of depositors. Since Roces planned to offer South Bank’s loan services to its depositors, he inquired among the branch’s employees on potential loan clients. He was informed that Fe Javier, the owner of Darling Dolls Company (DCC), had plans to borrow money for use in her business.

Early in January 1995, Roces set up a meeting with Javier. During their meeting, Javier informed Roces that DDC was in need of P1 million for additional working capital during the year.

DDC had no formal accounting records. Javier confidentially informed Roces that its financial statements were only prepared when she had to report her income for tax puposes. In view of this, Roces wanted a new set of DDC’s financial statements prepared for his evaluation.

Company’s Background

Darling Dolls Company was a small manufacturer of stuffed dolls operating from 200-sq.m. leased building in Parang, Marikina. Fe Javier established the business in early 1992 with an initial capital of P2 million from her savings (P1 million) and from personal borrowings from relatives and friends (P1 million). Of the initial investment, about P500,000 was used for improvement of building. Sandee, one of her daughters and a Stuyvesant School of Fine Arts graduate, helped in the management of business and designed the dolls.

Javier started the business with only major customer, Martie Designs. After a year, she was able to ink contracts with four additional customers. DDC dolls were unique and appealing not only to children and teenagers but also to working ladies and young mothers.

DDC had 25 employees, two of whom handled administrative work. Its production process was simple, and its equipment were mainly high-speed sewing machines. In December 1994, Javier invested in 10 new high-speed sewing machines at a total cost of P270,000.

Dolls made by DDC soon became popular. During the fourth quarter of 1994, Javier was able to establish contact with three additional store chains based in Visayas and Mindanao. She believed that a lasting business relationship could be established with these prospective clients. She estimated that production would increase by 80 percent from the current annual level of 27,000 dolls. But as a result of the recent acquisition of 10 sewing machines, Javier did not have sufficient funds to cover the increase in working capital. Moreover, she anticipated that the prices of raw materials and factory supplies would also increase due to the expected implementation of new tax measures.

Up until this time, DDC had no bank loans of any other credit accommodation, except for suppliers’ credit.

Roces assigned a member of his staff to interview Javier, and visit her factory. Based on the results of the interview, Roces’ staff prepared a brief description of the company and summarized the financial data. (see Exhibit 1).

Exhibit 1

Darling Dolls Company

Interview Questions and Answers

Guide Questions:

C. If you were Roces, would you favorably consider the P1 million loan requested by Darling Dolls Company? What assets can be used as collateral?

Flint Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the following balances relate to this plan.

As a result of the operation of the plan during 2020, the following additional data are provided by the actuary.

Using the data above, compute pension expense for Flint Corp. for the year 2020 by preparing a pension worksheet.

Prepare the journal entry for pension expense for 2020.

Edible Chemicals Corporation owns a $2 million whole life insurance policy on the life of its CEO, naming Edible Chemicals as beneficiary. The annual premiums are $72,000 and are payable at the beginning of each year. The cash surrender value of the policy was $22,000 at the beginning of 2018.

1. & 2. Prepare the appropriate 2018 journal entries to record insurance expense and the increase in the investment assuming the cash surrender value of the policy increased according to the contract to $28,200. The CEO died at the end of 2018.

Ramon de la Cruz, CEO for Big Four Corporation, announced to his executive management team that he has decided to implement ________ at the Lakeview plant. The CEO stated, “With this implementation, I want to eliminate unnecessary steps in the production process and continually strive for improvement. We must emphasize productivity, quality, and cost-effectiveness. We must eliminate underused staff positions and waste.”

just-in-time delivery

computer-integrated manufacturing

formalization

lean manufacturing

mass customization

What are the real-world implications or application of the obtained results? (The answer to this question can be found by reading the “Discussion” section of the article, especially the “Conclusion” or last few paragraphs).

and here are the discussion:

Today’s students are quite different than those who populated university classrooms at the turn of the century. Raised in the internet age, constantly “plugged in”, seemingly inextricably attached to cell phones, and facile with all types of electronic media, these students nonetheless are expected to learn much of the same material as did their predecessors of the late 20th century. Today’s students’ classroom behaviors, however reflective of their engagement and facility with current technology, may be putting students’ learning at risk. And today’s classrooms, configured for wireless computing or equipped with computers, may be enabling students to engage in behaviors that compromise learning. Although many stories and anecdotes describe professors who find their students shopping online, playing games, texting friends, and checking Facebook, no prevalence data have indicated how widespread of a phenomenon classroom multitasking is. The purpose of this study was to describe the multitasking behaviors of university students while sitting in their traditional classrooms and while on their computers working on online classes. The finding that the majority of students multitask is not surprising; however, in an institution where the average class size was 22.7 during the semester that the study was done, it is surprising that more than 50% of the students sitting in class were frequently text messaging and more than one fourth were frequently checking Facebook, presumably while their professors looked on. Abaté (2008) claims that the consequence of tolerating multitasking in the classroom is an education that is limited in its adaptability, superficial, and short term memory based. The negative association between multitasking and GPA that was found in this study may not provide evidence for Abaté’s (2008) specific claims, but it does provide some justification for those professors who are banning laptops and cell phones from their classrooms (Adams, 2006; Jan, 2011). Banning phones and laptops in the classroom may meet with resistance because students may not be aware of the frequency of their multitasking, and if they are, they may not see it as problematic. Turkle (2011) comments that today’s youth grew up in a culture of distraction and that technology is so much a part of life, it has become like a phantom limb. She refers to individuals as “tethered” to technology, and contends that for many, the “unplugged” world does not provide satisfaction. Turkle (2008) writes that a phenomenon such as e-mailing during classes is so mundane that it is scarcely noticed, and that once done surreptitiously, it is currently not something people feel they need to hide. The proliferation of online classes and the significantly greater amounts of multitasking that take place among students engaged in online coursework may lead to some concern about the quality of attention and learning going on in online classes. Some of the focus group responses to the question asking participants what else they were doing while they were engaged in coursework were unique to students who took online classes. These included cooking dinner, caring for children, playing with pets, and conversing with family/roommates. These kinds of activities not only divert cognitive focus and attention, they also can physically remove the student from the act of engaging in the class. 8 Multitasking in the University Classroom http://digitalcommons.georgiasouthern.edu/ij-sotl/vol6/iss2/8 The associations between multitasking and risk behaviors are disconcerting. College students worldwide have been known to engage in various risk behaviors, including alcohol, tobacco, and other drug use, unhealthy sexual practices, and disregard for preventive and protective habits (Centers for Disease Control, 1997; Steptoe et al, 2002). Indeed, the overall risk behavior of the current study population is similar to that of the general US college population. However, the significant correlations between multitasking and risk behaviors, and the significant differences in risk behaviors between high and low multitaskers support Foehr’s (2006) findings that multitaskers tend to engage in risk behaviors, and point to an additional factor to examine when considering risk behaviors among college and university students. Clearly understanding that correlations do not support causality, these results may, however, lead one to wonder if multitasking in the classroom may be yet another risk that some university students are inclined to take. The results may also lead one to believe that classroom multitaskers must also be engaging in multitasking behaviors outside of the classroom – perhaps while driving, doing homework, or engaging in other activities whose effectiveness and safety multitasking may compromise. The consideration of multitasking as a risk behavior is exacerbated by Greenfield’s (2011) claim that the digital communication and entertainment devices frequently used by multitaskers have addictive properties that can distract users as well as alter their moods and consciousness. Wang & Tchernev’s (2012) findings that college students’ multitasking behaviors generate emotional gratification provide evidence that students have a powerful drive to repeatedly engage in multitasking behavior. The addictive and emotionally gratifying nature of multitasking make it all the more difficult, and perhaps all the more important, to address. This study had several limitations: the sample was a nonrandom convenience sample, the data were self-reported, and the design was correlational. These limitations constrain inferences or generalizations regarding the entire university student population. Another limitation was that the multitasking behaviors that were listed on the survey might not adequately represent all of the multitasking activities in which the student respondents engaged. Despite the limitations, however, the results of this study can provide a starting point for further research as well as for discussions about learning in the 21st century, about standards for classroom behavior, and about the nature of risk behaviors. Ongoing research into the phenomenon of classroom multitasking may provide guidelines for the mitigation of the problems and their sequelae. Further research is needed to assess the associations between multitasking and risk behaviors; one suggestion would be to add multitasking items to the National Youth Risk Behavior Surveys and the College Health Risk Behavior Survey. Another important area for continued investigation is to examine the predictors of multitasking behaviors: what kinds of attitudes, beliefs, personality traits, and learning environments lend themselves to multitasking behaviors? And are said attitudes, beliefs, characteristics, and environments modifiable? University professors might also engage in small action research studies in their classrooms, experimenting with and assessing the effects of different pedagogical styles and approaches that might decrease multitasking among students. Although it is very likely that students have been engaging in distracting behaviors in the classroom throughout the history of education, the ubiquity of technologies seems to make the possibilities for classroom multitasking even more likely in the near future. A recent white paper by the global telecommunications company, Ericsson (2011), projects that by 9 IJ-SoTL, Vol. 6 [2012], No. 2, Art. 8 2020 there will be 50 billion connected devices, with individuals possessing between 5 and 10 devices each, so it’s quite clear that the temptations and opportunities for multitasking will not abate and will not go away. The sheer number of electronic devices, their addictive nature, and the tethered selves that students have become can make addressing the issue of classroom multitasking quite daunting. For the sake of student learning outcomes, however, instructors should attempt to mitigate the problem to the extent possible. Some suggestions include having and enforcing clear written policies regarding multitasking behaviors and media use in the classroom, along with clear penalties for non-compliance with said policies. Instructors can utilize hands-on, active learning strategies that require that students be on task with tasks that minimize opportunities for engagement with electronic devices. And, if possible, professors can set up classroom seating that minimizes visual obstructions and maximizes opportunities for circulating around classrooms. Many university professors are aware that their students are engaging in multiple behaviors while sitting in their classrooms; these professors should not avert their eyes, but rather help their students become aware of the consequences of multitasking. Perhaps engaging students in discussions about multitasking and seeking student input in addressing the issue can be a first step in resolving what has the potential to become a pernicious problem.

Assume that we are now at the beginning of year 2020 and are trying to evaluate Company A using different valuation models. Answer all of questions below.   
1) The current leveraged beta of Company A is estimated to be 2.0 and the marginal tax rate is 40%. The risk-free rate for all the maturity is 3% and the market risk premium is 6.62%. Its debt-to-equity ratio is 1.00 currently. Next year, Company A expects to increase its debt-to-equity ratio to 1.50. Please calculate Company A’s current cost of equity, and estimate its cost of equity after it increases its debt-to-equity ratio.
2) Company A is facing a very competitive market condition and the projected free cash flow to the firm for the next five years are 500 million, 550 million, 600 million, 620 million, 650 million. Then it is expected to grow at a 3% beyond the fifth year. The WACC of the firm is estimated to be 10% and will not change in the future. Please use the “Perpetuity Growth Method” and estimate the firm’s enterprise value at the beginning of the year 2020(now).
3) The following table presents the EV/EBITDA information about Company A’s comparable companies.
Comparable Firm Information
Company Name EV/EBITDA
Company B 8.5 Company C 8.0 Company D 7.8
Besides, we also know that the EBITDA of Company A is 1500 million and its net debt is 6500 million. Its number of fully diluted shares is 100 million. Please estimate the firm’s share price range (+/- 1*standard deviation).

Do It! Review 14-3 The condensed financial statements of Murawski Company for the years 2019 and 2020 are presented follows. (Amounts in thousands.) MURAWSKI COMPANY Balance Sheets December 31 2020 2019 Current assets Cash and cash equivalents $ 370 $ 368 Accounts receivable (net) 414 468 Inventory 390 480 Prepaid expenses 166 140 Total current assets 1,340 1,456 Investments 14 10 Property, plant, and equipment 350 400 Intangibles and other assets 484 508 Total assets $2,188 $2,374 Current liabilities $ 766 $ 908 Long-term liabilities 350 428 Stockholders’ equity—common 1,072 1,038 Total liabilities and stockholders’ equity $2,188 $2,374 MURAWSKI COMPANY Income Statements For the Years Ended December 31 2020 2019 Sales revenue $3,810 $3,820 Costs and expenses Cost of goods sold 908 942 Selling & administrative expenses 2,300 2,378 Interest expense 21 25 Total costs and expenses 3,229 3,345 Income before income taxes 581 475 Income tax expense 142 81 Net income $ 439 $ 394 Compute the following ratios for 2020 and 2019. (Round current ratio and invertory turnover ratio to 2 decimal places, e.g. 1.62 or 1.62% and all other answers to 1 decimal place, e.g. 1.6 or 1.6%.) (a) Current ratio. (b) Inventory turnover. (Inventory on 12/31/18 was $331.) (c) Profit margin ratio. (d) Return on assets. (Assets on 12/31/18 were $1,912.) (e) Return on common stockholders’ equity. (Stockholders' equity on 12/31/18 was $888.) (f) Debt to assets ratio. (g) Times interest earned.

Bentley Industrial Services Management wants to acquire Lerner Industrial Services Management Corporation. Lerner is willing to be acquired at a minimum price of $121 million and nothing less. However, two of Bentley’s major shareholders are not in favor of this acquisition. Lerner had no scientific basis for asking for a minimum of $121 million.

Industry Structure

The industry is about $120 billion in Industrial facility services management including engineering energy needs that include heating, ventilation, and air conditioning. The industry is very competitive with a few large companies offering integrated services, and many small ones offering specific single and limited services. There is a great opportunity for large companies to offer integrated solutions for “one stop shopping.” Large firms may have an advantage in that they can get premium pricing from integrated services and can get economies of scale. Companies in this industry may be able to distinguish themselves through branding and diversifying their offerings in targeted industries.

The industry had experienced steady growth over the last decade and the industry demand is expected to grow at 5% per year in 2015 and 2016, whereas small companies with limited offerings, or single service offerings is expected to grow at 3% per year.

Lerner Industrial Services

Lerner is a large industrial services company with specialization in integrated services solutions for a wide range of companies. It grew from a small single service company to a large integrated company within 30 years. Its specialization includes strong technical expertise in engineering and management services with solutions targeted to the Fortune 500 bio tech companies, large hospitals, and pharmaceutical companies. The company is highly respected and known for its high quality of services which is an advantage that can make Lerner charge premium prices. Despite this pricing strategy, the company had experienced declining operating profit margins, increase operating expenses, from 4% in 2012 to about 1% in 2015, and declining cash balance on its balance sheet.

Bentley Industrial Services

Bentley Industrial facility services Management Company is not as large as Lerner, and its service offerings are limited. The company service offerings including heating, ventilation and air conditioning services, as well as maintenance of buildings. The company wanted to expand its services, and to become a fully integrated company which can offer services such as building engineering and energy solutions. Unfortunately, the company lacks the expertise in this area. Bentley thinks that if it owns Lerner, it will have the advantage it lacks, and Bentley then will be able to increase its customer base, and diversify its services to many other industry sectors. Bentley is well known company for its operational efficiency as well. Bentley believes it can improve Lerner’s financials by replacing its management, and cutting expenses.

Bentley was convinced that the acquisition of Lerner will be good for its shareholders and the company as Bentley can cut costs when it combines the two companies and implement a premium pricing strategy.   Bentley expects Lerner revenues to grow 5% per year from 2016 to 2020, and thereafter, 4% per year into the future. Bentley did some forecasting and created the financial projections for Lerner (see Lerner’s financials)

The news of the acquisition was publicly known, and the stock market had mixed results. The financial investment firms were concerned about whether Bentley could manage Lerner efficiently and can achieve the reduction of expenses and other financial success. Some of the shareholders and Board members also were concerned. Nevertheless, Bentley convinced an investment company to provide the financing for the purchase of Lerner and decided to put together the financial information herein.

Lerner will have an acquisition debt ratio of 55% with a tax rate of 30%. The beta of Lerner is 1.5.     

1. Do you think that Bentley should acquire Lerner? Why?
2. Should Bentley pay $121 million for Lerner? Can the company justify this price?
3. What is the worst and best case value scenario for Bentley based on your analysis of the financial forecast and analysis of the merger?