Sandhill Corp., which uses IFRS, signs non-renewable, non-cancellable lease agreement to lease robotic equipment from Xiu Inc. The following information concerns the lease agreement.

Using (1) factor tables, (2) a financial calculator, or (3) Excel functions, calculate the amount of the right-of-use asset and lease liability.

Prepare the initial entry to reflect the signing of the lease agreement. (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.)

Prepare an amortization schedule for the term of the lease to be used by Sandhill. Use Excel. (Round answers to 0 decimal places, e.g. 5,275.)

Prepare the journal entries on Sandhill Corp.’s books to record the payments related to this lease for the years 2020 and 2021 as well as any adjusting journal entries at its fiscal year ends of December 31, 2020 and 2021. (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.)

The Shamrock Pub provides catering services to local businesses. The following information was available for The Shamrock Pub for the years ended December 31, 2019 and 2020.

Shamrock management is preparing for a meeting with its bank concerning renewal of a loan and has collected the following information related to the above balances.

1.The cash reported at December 31, 2020, reflects the following items: petty cash $1,560 and postage stamps $120. The other current assets balance at December 31, 2020, includes the checking account balance of $3,900.

2.On November 30, 2020, Shamrock agreed to accept a 6-month, $4,940 note bearing 12% interest, payable at maturity, from a major client in settlement of a $4,940 bill. The above balances do not reflect this transaction.

3.Shamrock factored some accounts receivable at the end of 2020. It transferred accounts totaling $10,000 to Final Factor, Inc. with recourse. Final Factor will receive the collections from Shamrock's customers and will retain 2% of the balances. Final Factor assesses Shamrock a finance charge of 3% on this transfer. The fair value of the recourse liability is $360. However, management has determined that the amount due from the factor and the fair value of the resource obligation have not been recorded, and neither are included in the balances above.

4.Shamrock charged off uncollectible accounts with balances of $1,570. On the basis of the latest available information, the 2020 provision for bad debts is estimated to be 2.5% of accounts receivable.

Based on the above transactions, determine the balance for (1) Accounts Receivable and (2) Allowance for Doubtful Accounts at December 31, 2020. (Round answers to 0 decimal places, e.g. 125.)

Accounts receivable ending balance$

Allowance for doubtful ending balance$

Prepare the current assets section of The Shamrock Pub's balance sheet at December 31, 2020. (Round answers to 0 decimal places, e.g. 125.) and,

Compute Shamrock's current ratio and accounts receivable turnover for December 31, 2020. The accounts receivable turnover in 2019 was 4.37.

On January 1, 2020, Blossom Inc. agrees to buy 3 kg of gold at $32,000 per kilogram from Golden Corp on April 1, 2020, but does not intend to take delivery of the gold. On the day that the contract was entered into, the fair value of this futures contract that trades on the Futures Exchange was zero. On January 1, 2020, Blossom is required to deposit $66 with the stockbroker as a margin. The fair value of the futures subsequently fluctuated as follows:

On the settlement date, the spot price of gold is $33,000 per kilogram. Assume that Blossom complies with IFRS.

QUESTION:

1) Prepare the journal entry for the day the futures contract was signed.

2) Prepare the journal entries to recognize the changes in the fair value of the futures contract.

3) Prepare the journal entry that would be required if Blossom settled the contract on a net basis on April 1, 2020.

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:

The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use:

1. The breakdown of the selling and administrative expenses that are shown above is as follows:

*Allocated on the basis of sales dollars.

*Allocated on the basis of sales dollars.

1. The lease on the building housing the North Store can be broken with no penalty.

2. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed.

3. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $10,400 per quarter. The general manager of the North Store would continue to earn her normal salary of $11,400 per quarter. All other managers and employees in the North store would be discharged.

4. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person’s salary is $4,300 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete.

5. The company pays employment taxes equal to 15% of their employees' salaries.

6. One-third of the insurance in the North Store is on the store’s fixtures.

7. The “General office salaries” and “General office—other” relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person’s compensation is $5,700 per quarter.

Required:

1. How much employee salaries will the company avoid if it closes the North Store?

2. How much employment taxes will the company avoid if it closes the North Store?

3. What is the financial advantage (disadvantage) of closing the North Store?

4. Assuming that the North Store's floor space can’t be subleased, would you recommend closing the North Store?

5. Assume that the North Store's floor space can’t be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store? (Enter any "disadvantages" as a negative value.)

KLM Company purchased a Mixer Machine on January 2, 2008, for $14,500. The Mixer was expected to have a useful life of five (5) years and a residual value of $1,000. The company engineers estimated that the Mixer would have a useful life of 7,500 hours. It was used 1,500 hours in 2008, 2625 hours in 2009, 2250 hours in 2010, 750 hours in 2011, and 375 hours in 2012. KLM Company's year end is December 31. Required:

1. Compute the depreciation expense and carrying value for 2008 to 2012, using the following methods: (a) Straight-Line, (b) Production, (c) Double-Declining-Balance.

2. Prepare the adjusting entry to record the depreciation for 2008 that you that you calculated in 1(a), 1(b), and 1(c). (Three separate independent entries.)

3. Show Accumulated Depreciation Account (in T Account form) using all three (3) methods mentioned in 2 from 2008 to 2012. (Three separate independent accounts.)

4. Show the Balance Sheet presentation for the Mixer Machine after the entries in 2, under all three methods, on December 31, 2008. (Three separate independent presentations.)

5. Show the Balance Sheet presentation for the Mixer Machine after the entries in 2, under all three methods, on December 31, 2012. (Three separate independent presentations.)

6. What conclusions can you draw from the patterns of yearly depreciation? Please answer this question as well , please.

Fostering Entrepreneurship in Unlikely Places

Vic Ahmed is no stranger to business start-ups; he’s been involved in at least 15 or 20. But his latest venture is a start-up … for start-ups. Ahmed founded Innovation Pavilion, a business incubator in Centennial, Colorado (Denver’s Tech Center), in 2011. A typical business incubator provides start-up companies with workspace, mentoring, training, and sometimes a path to funding, but Innovation Pavilion goes further.

Innovation Pavilion (IP) is an 80,000 square foot “entrepreneurial ecosystem,” housing dozens of start-ups and renting out desks, office space, and event space. But it also hosts meetups, educational workshops, and a Toastmasters group designed specifically for entrepreneurs. It contains a makerspace (a workspace providing shared tools and manufacturing equipment for prototyping products) and encourages the growth of niche entrepreneurial communities based on specific industries. For example, IP has a space for IoT (the Internet of Things), one for health care, and another for aerospace. These communities bring together people in an industry to learn from and collaborate with each other.

While IP has a traditional incubator program, with companies housed within the IP campus, it has a semi-virtual hypergrowth accelerator program for more mature firms, too, which is open to companies around the country. It also seeks out educational partnerships, working with the Highland’s Ranch STEM program, for instance, and has its own educational spin-off, Xuno Innovative Learning, designed to help companies train their staff and find new employees with the skills they need. IP operates its own streaming TV service, filming educational events and interviews with entrepreneurs.

Innovation Pavilion has national expansion plans—and several signed agreements with specific cities—targeting not the giant metropolitan areas but also second tier and “ring” cities across the country, such as Joliet, Illinois, and Olathe, Kansas, smaller cities that don’t get the attention of the larger cities yet have plenty of educated and creative people.

IP is in discussions with 20 cities around the nation, with the goal of building 200,000-square-foot campuses providing incubator services, office space, makerspace, education and training, outreach to young entrepreneurs, conference centers, retail space, and even housing. Entrepreneurs will be able to live and work in a space with everything they need, providing a complete entrepreneurial ecosystem in smaller cities across the nation.

Steve Case, the cofounder of America Online (AOL), shares Vic Ahmed’s vision for entrepreneurship in mid-America. His “Rise of the Rest” bus tour has traveled 8,000 miles over the last three years, investing in local start-ups in 33 cities across the country. Case hosts a pitch competition with the best start-ups in each city, and one lucky winner receives a $100,000 investment from Case.

Media attention has focused on the entrepreneurial engines of America’s coastal cities, but Ahmed and Case have a more expansive entrepreneurial vision, in which smaller cities throughout the nation rise up alongside larger, start-up hot spots.

Critical Thinking Questions

1. What characteristics made Vic Ahmed a successful entrepreneurs?
2. How did their Ahmed and Steven Case's partnership and shared vision of "Rise of the Rest" serve their business goals?
3. Is focusing on smaller cities rather than areas like silicon valley a good strategy, why?

Stock Valuation Assignment (Fall 2017 Data)

The purpose of this analysis is to find an intrinsic value for Microsoft (MSFT) using the both the Constant Dividend Discount Model (DDM) and the Non-constant DDM. You will need to (1) estimate Beta in order to calculate the required return for MSFT; (2) estimate dividend growth rate; and (3) estimate future dividends.   

Submit your Excel spreadsheet with all data and formulas so that your answers can be replicated. You may answer the questions on the spreadsheet. HOWEVER, WRAP YOUR TEXT!!! I do NOT want to see text running across 40 columns. Remember, Excel is not a word processor. Do a simple draft print to see if your output is in readable form. Follow instructions as written. NEATNESS AND ORGANIZATION MATTERS!

You are analyzing Microsoft to find an intrinsic value for Microsoft (MSFT) using the both the Constant Dividend Discount Model (DDM) and the Non-constant DDM. I have provided you with an Excel spreadsheet of monthly prices (121 months) from Sept 1, 2007 to Sept 1, 2017). These prices have already been adjusted for dividends. List dates and prices out on your spreadsheet in order to calculate monthly returns.

Using the prices provided, calculate the monthly returns for each of the stocks, where r = (P_t/P_t-1) – 1; which is the same as [(P_t-P_t-1)/ P_t-1] as I covered in the Lecture Video. PLEASE NOTE THAT THE DATA IS LISTED FROM SEPT 2007 TO SEPT 2017! SO BE CAREFUL WITH YOUR RETURN FORMULA! There are 121 months to calculate 120 monthly returns. You may post monthly returns as decimals to 6 places or percentages to 4 places. For example, average return for MSFT can be written as .009999 or .9999%.

(10 points)

At the bottom of the column for each stock calculate the Average Monthly Return (use AVERAGE() function) and the Standard Deviation [use STDEV.P()] population function NOT STDEV() sample function).

As a check, you should find your average returns to be: MSFT = 1.2310% and SPY = .6861%.

(5 points)

Calculate and Interpret the Correlation Coefficient (r_1,2) between Microsoft (MSFT) and S&P 500 Index (SPY). (use CORREL() function). (5 points)

We can estimate the Beta for MSFT over the 120-month period by running a Regression of SPY returns on the x-axis (independent variable) and MSFT returns on the y-axis (dependent variable). The Beta is the SLOPE of the regression. To find Beta use the SLOPE function in Excel. Be careful use RETURNS NOT prices!

How does your estimate compare to the FinanceYahoo.com beta and the Value Line beta? What does Beta represent? (10 points)

Now, let’s check the stability of Beta. You may again use the SLOPE function in Excel, where SPY is independent & MSFT is dependent variable.

Estimate Beta over the first 60 monthly returns (5 years): October 1, 2007 to September 1, 2012.

Estimate Beta over the second 60 monthly returns (5 years):         October 1, 2012 to September 1, 2017.

What is the beta for each period? Is there a substantial difference between the two Betas?

(5 points)

Given the information below, use the CAPM to estimate the required rate of return for MSFT. Round to 2 decimals, e.g., x.xx%, 1.23%

Return on the market portfolio (SPY) R_SPY = 9.25% (based on 25 years of historical data); the risk free rate is R_f = 3.0% (based on L-T inflation rate of 2.0% & real return of 1.0%); USE MSFT beta estimate: b = 0.97

(10 points)

Based on past trends and ValueLine estimate, let’s assume MSFT will pay a dividend of $1.64 in 2018. Therefore, let’s assume that D₁ = $1.64, because it will not be fully paid until the end of Year 2018. Let’s also assume that MSFT will grow its future dividends at a L-T constant rate of g = 6%. Assuming a required rate of return found in (7) above, estimate the current value of MSFT using the Constant Growth DDM.   Assume that D₁ = $1.64

(10 points)

Now, using the Value Line sheet, estimate the average growth rate of dividends for MSFT over the last 10 years, from 2007-2017? Round your growth estimate to 4 decimal places. [Hint: The Growth rate (g) can be calculated as CPT i on your calculator or in Excel as a TVM problem.

(5 points)

Two-stage Non-constant DDM: Now let’s assume that for the next four years MSFT will grow its dividends at the growth rate you estimated in (9) above. Assuming D₁ = $1.64, what are the dividends for: D₂ ; D₃ ; D₄; and D₅ if they grow at the rate estimated in (9)? You may round each dividend estimate to the nearest penny.

(10 points)

Now, let’s assume that the dividend growth reverts back to a L-T sustainable growth rate = 6% after Year 5 to infinity. Estimate is D₆ and P₅.

(5 points)

Use the Non-constant growth DDM from the Stock Video Lecture (at 17:20) to estimate the current value of MSFT using the dividend information you found in (10) & (11) above; assume a L-T sustainable growth rate of g = 6% after Year 5; and the required rate of return found in (7). [HINT: You already have all the data, not much work left here….find the sum of the PV of the cash flows.]

(10 points)

Which of the two models do you think is more reasonable (Constant DDM or Non-constant DDM)? WHY?

(5 points)

What is the current market price of MSFT? Based on your analysis, would you recommend buying this stock at the current market price? Explain why or why not?

(10 points)

Two countries produce two different items, root beer and cheese. The table below shows the amounts of each commodity that each country can produce with 400 units of factor inputs (productive units). Before trade consumption in each country is equal to production – that is, if trade is warranted, citizens need to receive at least as much root beer and cheese as they started with before trade. Given the following production levels, calculate the best possible trading scenario that maximizes production in this two-country world. Remember each country has 400 productive units which they can use in any combination. Before trade, each country has allocated 50% of their productive units to each product. That is, before trade, Hokieland makes 100 gallons of root beer and 20 wheels of cheese. Based on the theory of Comparative Advantage, what should each country do if they trade? [be careful, you need to make at least as much of each output after trade as you had before trade.] Explain your solution. Use this example to clearly explain the difference between Absolute and Comparative advantage. Bold the Solution

Appen Ltd. incurred fixed manufacturing costs of $25,000 during 2020. Other information for 2020 includes:

            The budgeted denominator level is 2,500 units.

            Units produced total 2,600 units.

            Units sold total 1,600 units.

            Variable cost per unit is $5

            Beginning inventory is zero.

The fixed manufacturing cost rate is based on the budgeted denominator level. There is no spending variance for fixed manufacturing cost.

Under absorption costing, calculate the production-volume variance. Clearly label whether the variance is ‘favourable’ or ‘unfavourable’ (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) Show all workings.

Windsor Construction Company began work on a $404,000 construction contract in 2020. During 2020, Windsor incurred costs of $273,000, billed its customer for $232,000, and collected $182,000. At December 31, 2020, the estimated additional costs to complete the project total $163,660.

Prepare Windsor’s journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method. (Credit account titles are automatically indented when 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. Round answers to 0 decimal places, e.g. 5,275.)