QUESTION THREE (PART A)

Aussie Furniture Removals Limited provides furniture removal services in Australia. The following transactions relate to the purchase of a new delivery truck. Aussie Furniture Removals Limited is registered for GST and the GST rate is 10%.

REQUIRED:

1. Prepare the journal entry to record the purchase of the delivery truck on 1 July 2019.
2. Prepare the journal entry to record the depreciation for the year ended 30 June 2020.

(3 + 2 = 5 marks)

PART B

Timber Merchants Limited supplies fencing materials and landscaping products in Australia. The following transactions relate to a fencing machine that was purchased by the company on 1 July 2017. Timber Merchants Limited is registered for GST and the GST rate is 10%.

REQUIRED:

c) Prepare the journal entries to record the installation of the digging tool on 1 July 2018.

d) Prepare the journal entry to record the sale of the fencing machine on 1 July 2020.

(3 + 3 = 6 marks)

Sandhill Holdings Inc., a publicly listed company in Canada, ventured into construction of a mega-shopping mall in Edmonton, which is rated as the largest shopping mall in North America. The company’s board of directors, after much market research, decided that instead of selling the shopping mall to a local investor who had approached them several times with excellent offers that he steadily increased during the year of construction, the company would hold this property for the purposes of capital appreciation and earning rental income from mall tenants. Sandhill Holdings retained the services of a real estate company to find and attract many important retailers to rent space in the shopping mall, and within months of completion at the end of 2017, the shopping mall was fully occupied.

According to the company’s accounting department, the total construction cost of the shopping mall was $50 million. The company used an independent appraiser to determine the mall’s fair value annually. According to the appraisal, the fair values of the shopping mall at December 31, 2017, and at each subsequent year end were:

The independent appraiser felt that the useful life of the shopping mall was 20 years and its residual value was $8 million.

Note that the mall’s rental income and expenses would be the same and thus can be omitted from the analysis for this exercise.

Prepare the necessary journal entries for 2018, 2019, and 2020 if it decides to treat the shopping mall as an investment property under IAS 40: Use fair value model. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

__________

___________

_____________

Prepare the necessary journal entries for 2018, 2019, and 2020 if it decides to treat the shopping mall as an investment property under IAS 40: Use Cost model. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record journal entries in the order presented in the problem.)

_________________

__________________

___________________

Based on the Case below, Write a brief explanation that explains why the case represents its particular ACHE competency domain. (Be sure that the explanation justifies the assigned competency domain based upon the facts and circumstances of the case.)

Case:

Case 1: Communication and Relationship Management Memorial Hospital was moving rapidly to finalize its plans for new multiple-specialty outpatient center located 15 miles from the hospital campus. Strategically this was exactly what the health system needed to do. First, it would provide a presence in a community that traditionally was served by one of Memorial’s major competitors. And second, increased the ambulatory care services of the health system that lagged behind other health systems in this regard. The plan called for seven specializations to provide services to the patient and community population of this new area and to help channel patients that needed more intense treatment and care to the hospital itself. Six departments had agreed to this arrangement and were actively developing their budgets and management resources to cover this new location. But the Department of Psychiatry, although an initial service slated for the ambulatory facility, was now backing out of the agreement suggesting that they could not adequately resource the operation and felt it would significantly increase their overall patient volume. The CEO of the hospital understood that Psychiatry needed to be part of the service mix in order for this new facility to succeed. The market research conducted a year earlier to provide information on community needs, clearly suggested this service would be well received and perceived by people as a value addition to the other medical specialties being offered. With this sense of urgency in mind, the CEO arranged to meet with the Chair of Psychiatry and discuss the issue. The meeting took place within the next week and it was not a comfortable exchange according to the Chair. He felt pressured by the CEO to come on-board and develop the necessary budgetary and operational plans to be part of the new ambulatory center. From the perspective of the CEO, the meeting was equally non-productive. He reported that the Chair seemed to miss the critical points of why Psychiatry was needed as part of the service mix. Two subsequent meetings took place by both individuals with significant ‘back and forth’ between the two men until an agreement was met. The Chair of Psychiatry agreed that his department would join the other services, but that it needed to be phased-in process. The CEO, although disappointed that Psychiatry would require six to eight months for full implementation into the facility, understood that this was the most reasonable approach he could expect. The final agreement allowed Memorial Hospital to eventually offer all six services to its targeted community. It did require modifying some public relations materials and gaining the support of the other five services that this special arrangement was necessary to achieve the ultimate complement of services. The Department of Psychiatry gained the time it felt it needed to align its resources to add this service to its roster. The result was that Psychiatry actually achieved its adjusted operational program for the new facility in four and a half months, a good two months ahead of its original target date to begin operations. It is difficult to know exactly why the CEO and the Chair of Psychiatry arrived at their agreement. Both individuals did not appear too pleased with their initial exchange. Each seemed to have his own agenda without much interest in understanding the expectations of needs of the other party. It took two more projected meetings for a final agreement to be outlined. It is not clear either, what if any, long term affect this had for either the hospital administration or the leadership of the Department of Psychiatry. The general opinion throughout the administration and medical officers of the health system was the CEO paid a heavy political price for getting Psychiatry on board.

Based on the Case below, Write a brief explanation that explains why the case represents its particular ACHE competency domain. (Be sure that the explanation justifies the assigned competency domain based upon the facts and circumstances of the case.)

Case:

Case 1: Communication and Relationship Management

Memorial Hospital was moving rapidly to finalize its plans for new multiple-specialty outpatient center located 15 miles from the hospital campus. Strategically this was exactly what the health system needed to do. First, it would provide a presence in a community that traditionally was served by one of Memorial’s major competitors. And second, increased the ambulatory care services of the health system that lagged behind other health systems in this regard.

The plan called for seven specializations to provide services to the patient and community population of this new area and to help channel patients that needed more intense treatment and care to the hospital itself. Six departments had agreed to this arrangement and were actively developing their budgets and management resources to cover this new location. But the Department of Psychiatry, although an initial service slated for the ambulatory facility, was now backing out of the agreement suggesting that they could not adequately resource the operation and felt it would significantly increase their overall patient volume.

The CEO of the hospital understood that Psychiatry needed to be part of the service mix in order for this new facility to succeed. The market research conducted a year earlier to provide information on community needs, clearly suggested this service would be well received and perceived by people as a value addition to the other medical specialties being offered. With this sense of urgency in mind, the CEO arranged to meet with the Chair of Psychiatry and discuss the issue. The meeting took place within the next week and it was not a comfortable exchange according to the Chair. He felt pressured by the CEO to come on-board and develop the necessary budgetary and operational plans to be part of the new ambulatory center. From the perspective of the CEO, the meeting was equally non-productive. He reported that the Chair seemed to miss the critical points of why Psychiatry was needed as part of the service mix.

Two subsequent meetings took place by both individuals with significant ‘back and forth’ between the two men until an agreement was met. The Chair of Psychiatry agreed that his department would join the other services, but that it needed to be phased-in process. The CEO, although disappointed that Psychiatry would require six to eight months for full implementation into the facility, understood that this was the most reasonable approach he could expect.

The final agreement allowed Memorial Hospital to eventually offer all six services to its targeted community. It did require modifying some public relations materials and gaining the support of the other five services that this special arrangement was necessary to achieve the ultimate complement of services. The Department of Psychiatry gained the time it felt it needed to align its resources to add this service to its roster. The result was that Psychiatry actually achieved its adjusted operational program for the new facility in four and a half months, a good two months ahead of its original target date to begin operations. It is difficult to know exactly why the CEO and the Chair of Psychiatry arrived at their agreement. Both individuals did not appear too pleased with their initial exchange. Each seemed to have his own agenda without much interest in understanding the expectations of needs of the other party. It took two more projected meetings for a final agreement to be outlined. It is not clear either, what if any, long term affect this had for either the hospital administration or the leadership of the Department of Psychiatry. The general opinion throughout the administration and medical officers of the health system was the CEO paid a heavy political price for getting Psychiatry on board.

Course：Business Law

Frontier Entertainment Pty Ltd is a company that trades under the name “Concert Connections” (CC). In January of 2019, CC negotiated and arranged for three international acts to tour Australia in 2020 and 2021. The three artists, their Australian concert locations and dates were as follows:

1. Taylor Swifty Sydney / Melbourne / Adelaide Brisbane / Perth / Hobart November – December 2020

2. Ed Shearer Brisbane / Perth / Hobart January – February 2021

3. Lady Gaggle Sydney / Canberra / Darwin August – September 2021

In April of 2020, those consumer concert goers who purchased tickets to one or more of the Taylor Swifty concerts received notice from CC that due to the COVID- 19 pandemic, Taylor’s arranged concerts had been cancelled. The notification further stated that CC would be cancelling all ticket purchase contracts and retaining the full $550.00 ticket purchase price previously paid by concert goers in accordance with Clause 10 of the contract entered when the ticket(s) were originally purchased. Clause 11 of the same contract also states that in the event of CC exercising its rights in relation to clause 10, ticket purchasers are prohibited from taking any legal action for recovery of their money previously paid.

Samuel purchased 5 tickets for his family to attend the Taylor Swifty concert in Sydney on 02 November 2020. Samuel comes to see you and says that despite CC’c clearly expressed contractual right to retain his $2,700.00, their refusal not to refund him his money is unfair. Samuel wants to know if the Australian Consumer Law (ACL) can assist his cause.

Advise Samuel

Tamarisk Dairy leases its milking equipment from Vaughn Finance Company under the following lease terms.

1.The lease term is 10 years, noncancelable, and requires equal rental payments of $27,900 due at the beginning of each year starting January 1, 2020.

2.The equipment has a fair value at the commencement of the lease (January 1, 2020) of $211,081 and a cost of $263,000 on Vaughn Finance's books. It also has an estimated economic life of 15 years and an expected residual value of $12,700, though Tamarisk Dairy has guaranteed a residual value of $19,200 to Vaughn Finance.

3.The lease contains no renewal options, and the equipment reverts to Vaughn Finance upon termination of the lease. The equipment is not of a specialized use.

4.Tamarisk Dairy's incremental borrowing rate is 8% per year. The implicit rate is also 8%.

5.Tamarisk Dairy depreciates similar equipment that it owns on a straight-line basis.

6.Collectibility of the payments is probable.

Prepare the journal entries for the lessee and lessor at January 1, 2020, and December 31, 2020 (the lessee's and lessor's year-end). Assume no reversing entries.

What would have been the amount of the initial lease liability recorded by the lessee upon the commencement of the lease if:

The residual value of $19,200 had been guaranteed by a third party, not the lessee?

The residual value of $19,200 had not been guaranteed at all?

On the lessor's books, what would be the amount recorded as the lease receivable at the commencement of the lease, assuming:

The residual value of $19,200 had been guaranteed by a third party?

The residual value of $19,200 had not been guaranteed at all?

Summit Energy is an alternative energy producer. Your hedge fund is interested in investing into the company. As an analyst, you need to estimate firm value and its price per share using the NPV method and report it to the energy portfolio manager. So far you’ve partially forecasted its earnings for 2020-2022 (numbers are in millions).

Assume that annual net working capital represents 10% of revenues. In 2021 Summit plans to purchase new equipment for its new generation of wind mills for $200 million. No other purchases are planned in 2020 or 2022.

Please enter the answer in the following format: XX,XXX

A. Calculate Summit's free cash flow in 2022.

B. Summit Energy’s beta is 1.7. Calculate its expected rate of return if the market portfolio return is 12% and the risk free rate is 4%

C. Calculate Summit’s terminal value if free cash flows are expected to grow 2% perpetually starting 2023. Use its expected rate of return from question B as a discount rate.

D. Calculate Summit’s NPV as of 2020. Use its expected rate of return from question B as a discount rate

Marigold Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 22% of sales. The income statement for the year ending December 31, 2020, is as follows.

The company is considering hiring its own sales staff to replace the network of agents. It will pay its salespeople a commission of 7% and incur additional fixed costs of $11,265,000.

PART 1: Calculate the company’s break-even point in sales dollars for the year 2020 if it hires its own sales force to replace the network of agents.

PART 2: Calculate the degree of operating leverage at sales of $75,100,000 if (1) Marigold Beauty uses sales agents, and (2) Marigold Beauty employs its own sales staff. (Round answers to 2 decimal places, e.g. 1.25.)

PART 3: Calculate the estimated sales volume in sales dollars that would generate an identical net income for the year ending December 31, 2020, regardless of whether Marigold Beauty Corporation employs its own sales staff and pays them an 7% commission or continues to use the independent network of agents.

Recording and Preparing Schedule Using Sum-of-theYears’-Digits Method Depreciation, Partial Year

An asset was purchased October 1, 2020, costing $30,000, with a residual value of $6,000 and an estimated three-year useful life.

Required

a. Prepare a schedule of depreciation that shows annual depreciation expense and year-end accumulated depreciation and book value over the useful life of the asset assuming that the company depreciated the asset using the sum-of-the-years’-digits method.

Note: Round each amount to the nearest dollar.

b. Record the entry to recognize depreciation in 2020.

c. Record the entry to recognize depreciation in 2021.