Prepare necessary adjusting entries to correct the errors on all issues (ii) to (v) in the financial statements of GHL for the year ended 31 March 2020 in accordance with relevant HKFRSs.  

(ii) At 1 April 2019 there was a deferred tax liability of $6.6 million in the statement of financial position and no adjustments have been made to this figure at 31 March 2020. This deferred tax liability was solely in relation to the differences between the carrying amount ($90 million) and the tax based ($57 million) of plant and equipment. At 31 March 2020 these figures were $96 million and $54 million respectively for the carrying amount and tax base of plant and equipment. The applicable income tax is 20%. GHL accounts for plant and equipment using cost model under HKAS 16 ‘Property, Plant and Equipment’.

The first tax loss carried forward in respect of the year ended 31 March 2020 is $24 million. GHL has reliable budgets for a total taxable profit of $12 million for the next two financial years. Tax losses can be carried forward indefinitely under the tax law. Fanny used the full amount of tax loss to determine the deferred tax amount and has been reflected in the draft financial statements.

(iii) On 31 March 2020 GHL issued $15 million 5% convertible bonds at par. Interests on the bonds are payable annually in arrears with first payment on 31 March 2021. Issue costs payable to professional advisers were $600,000. The bond can, at the choice of the holders, be redeemed at par on 31 March 2023; or converted on 31 March 2023 into ordinary shares in GHL at the rate of three ordinary shares for every $10 bond held.

In the draft financial statements, the proceeds from the bond issue have been recognized as bonds payable. The issue costs have been classified as an administrative expense. Cash received and paid has been recognized. No other entries have been made. The prevailing market interest rate for similar bonds for equivalent risk, but without conversion rights, is 8% per annum.

(iv) On 1 April 2019, GHL entered into a sale and leaseback agreement for its manufacturing plant. The plant was originally acquired by GHL on 31 March 2009 for $8,910,000, at which point the plant had a useful life of 30 years with no residual value. The sale proceeds of plant from the sale and leaseback agreement were $11.25 million, which is higher than the fair value of the plant of $9.0 million. The plant was leased back on a 20-year lease from 1 April 2019 at an annual rental of $1,105,350 to be paid annually in arrears at 31 March 2020. The sale satisfies HKFRS 15 "Revenue from Contracts with Customers", however, she insisted to account for it as a financing arrangement. The first lease rental is paid and charged to the statement of profit or loss. The sales proceed was treated as a financial liability. The incremental borrowing rate is 15% per annum.  

(v) GHL purchased a factory site in Malaysia on 1 April 2019 with intention for industrial use. Land prices in the area had increased significantly in the years immediately prior to 31 March 2020. Nearby sites had been acquired and converted into residential use. It is felt that, should the GHL's site also be converted into residential use, the factory site would have a market value of $27 million. $1.5 million of costs are estimated to be required to demolish the factory and to obtain planning permission for the conversion. GHL was not intending to convert the site at 1 April 2019 and had not sought planning permission at that date. The current replacement cost and carrying amount of the factory site are correctly calculated as $25.1 million and $28 million respectively as at 31 March 2020 before revaluation. Fanny did not reflect the change in fair value of the factory site even the factory site is measured using the revaluation model under HKAS 16.

Below is a list of accounts and balances for Sandals Inc. for the year ending September 30, 2020. All balances are in thousands of dollars. Sandals Inc. follows IFRS. Assume a tax rate of 25%. Exclude the presentation of earnings per share for this question.

Notes:
Unlimited common shares are authorized and 2,380 have been issued and are currently outstanding.
The notes payable is payable over 5 years and $4,400 will be paid by September 30, 2021.

Do not enter dollar signs or commas in the input boxes.
Round all answers to the nearest whole number.
Do not use the negative sign for any values.

a) Prepare a statement of comprehensive income by function for the year ended September 30, 2020.

b) Prepare a statement of changed in equity for the year ended September 30, 2020. There was no opening balance in the accumulated other income account and FlipFlop Inc. did not issue any new common shares in the fiscal year ended September 30, 2020.

c) Prepare a statement of financial position as at September 30, 2020.

Oriental Industries Ltd. manufactures a variety of materials and equipment for the aerospace industry. A team of R&D engineers in the firm’s plant has developed a new material that will be useful for a variety of purposes in orbiting satellites and spacecraft. Trade named Ceramal, the material combines some of the best properties of both ceramics and laminated plastics. Ceramal is already being used for a variety of housings in satellites produced in three different countries. Ceramal sheets are produced in an operation called rolling, in which the various materials are rolled together to form a multilayer laminate. Orbital Industries sells many of these Ceramal sheets just after the rolling operation to aerospace firms worldwide. However, Orbital also processes many of the Ceramal sheets further in the plant. After rolling, the sheets are sent to the moulding operation, where they are formed into various shapes used to house a variety of instruments. After moulding, the sheets are sent to the punching operation, where holes are punched in the moulded sheets to accommodate protruding instruments, electrical conduits, and so forth. Some of the moulded and punched sheets are then sold. The remaining units are sent to the dipping operation, in which the moulded sheets are dipped in a special chemical mixture to give them a reflective surface. Oriental Industries Ltd uses process costing system. For the month of January, 2020, the following production data is provided to you for Department -2:

Quantitative data:
• Transferred in during the month from Department -1 ………………    50,000 units
• Transferred- out during the month to finished goods store ………… 30,000
• Work in process at the end of the month ……………………………            12,000
           {60% completed as per conversion cost}

Numerical data:
Cost received from department: 1 ……………………………………            Rs. 1,400,000
Direct labor cost incurred in department: 2 ……………………….…                    1000,000
Factory overhead cost incurred in department: 2 ……………………                      800,000

Additional information:
• All losses are normal
• Direct materials are input in Department- I only.
• Work in process opening inventory is NIL.

Required:
a. As a cost Accountant of Oriental Industries Ltd, how would you differentiate in normal and abnormal loss?
b. Prepare cost of production Report for Department -2 for the month of January, 2020

Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and remain at that rate.

Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for the remaining years.

Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after.

Year 1Year 2Year 3Year 4Year 5Year 6Year 7- 75,000 100,000 125,000 150,000 150,000 150,000

Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and remain at that rate.

Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for the remaining years.

Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:

Year 1Year 2Year 3Year 4Year 5Year 6Year 7- 80,000 95,000 130,000 140,000 150,000 160,000
The company’s required rate of return and cost of capital is 8%.
Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose. They have requested that the four main capital budgeting calculations be done: NPV, IRR, Payback Period, and ARR for each option.
For this assignment, compute all required amounts and explain how the computations were performed. Evaluate the results for each option and explain what the results mean. Based on your analysis, recommend which option the company should pursue.
Superior papers will:

Perform all calculations correctly.

Articulate how the calculations were performed, including from where values used in the calculations were obtained.

Evaluate the results computed and explain the meaning of the results, including why certain measurements are more accurate than others.

Recommend which option to pursue, supported by well-thought-out rationale, and considering any other factors that could impact the recommendation.

Omobola Adesoye-Amoo

Home

Search coursesSubmit

My courses

BUS 5110 - AY2020-T4

14 May - 20 May

Written Assignment Unit 6

Written Assignment Unit 6

Submission phase

Workshop timeline with 5 phasesSkip to current tasks

Setup phase

Submission phase

Current phase

Task to doSubmit your work

Task infoOpen for submissions from Thursday, 14 May 2020, 6:05 AM (5 days ago)

Task infoSubmissions deadline: Thursday, 21 May 2020, 5:55 AM (2 days left)

Assessment phase

Task infoOpen for assessment from Thursday, 21 May 2020, 6:05 AM (2 days left)

Task infoAssessment deadline: Thursday, 28 May 2020, 5:55 AM (9 days left)

Grading evaluation phase

Closed

Instructions for submission

Submit a written paper which is 3-4 pages in length (no more than 4-pages), exclusive of the reference page. Your paper should be double spaced in Times New Roman (or its equivalent) font, which is no greater than 12 points in size. The paper should cite at least three sources in APA format. One source can be your textbook.
Please describe the circumstances of the following case study and recommend a course of action. Explain your approach to the problem, perform relevant calculations and analysis, and formulate a recommendation. Ensure your work and recommendation are thoroughly supported.
Case Study:
A manufacturing company is evaluating two options for new equipment to introduce a new product to its suite of goods. The details for each option are provided below:
Option 1

$65,000 for equipment with useful life of 7 years and no salvage value.

Maintenance costs are expected to be $2,700 per year and increase by 3% in Year 6 and remain at that rate.

Materials in Year 1 are estimated to be $15,000 but remain constant at $10,000 per year for the remaining years.

Labor is estimated to start at $70,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:
Year 1Year 2Year 3Year 4Year 5Year 6Year 7- 75,000 100,000 125,000 150,000 150,000 150,000

Option 2

$85,000 for equipment with useful life of 7 years and a $13,000 salvage value

Maintenance costs are expected to be $3,500 per year and increase by 3% in Year 6 and remain at that rate.

Materials in Year 1 are estimated to be $20,000 but remain constant at $15,000 per year for the remaining years.

Labor is estimated to start at $60,000 in Year 1, increasing by 3% each year after.

Revenues are estimated to be:

Year 1Year 2Year 3Year 4Year 5Year 6Year 7- 80,000 95,000 130,000 140,000 150,000 160,000
The company’s required rate of return and cost of capital is 8%.
Management has turned to its finance and accounting department to perform analyses and make a recommendation on which option to choose. They have requested that the four main capital budgeting calculations be done: NPV, IRR, Payback Period, and ARR for each option.
For this assignment, compute all required amounts and explain how the computations were performed. Evaluate the results for each option and explain what the results mean. Based on your analysis, recommend which option the company should pursue.
Superior papers will:

Perform all calculations correctly.

Articulate how the calculations were performed, including from where values used in the calculations were obtained.

Evaluate the results computed and explain the meaning of the results, including why certain measurements are more accurate than others.

Recommend which option to pursue, supported by well-thought-out rationale, and considering any other factors that could impact the recommendation.

The Handy’s Woodworking Company is a small-to-medium sized custom furniture and cabinet making company, with head-office and a spacious plant site at Industrial Estates, Melbourne. It’s Chairman and Chief Executive Officer is Ron Haywood now in his late-sixties. His wife Mrs. Emy Haywood, being an aggressive business woman and somewhat younger than her husband, now effectively runs the company. Ron Heywood is affectionately known to all as "Handy" and so the company is generally known as "Handy's". Handy, after an apprenticeship as a cabinet maker, started his small furniture manufacturing business back in 1964 and he and his wife moved to their present location in 1969. The company quickly gained a reputation for attractively designed and well constructed furniture, using imported hardwoods and indigenous softwoods for its products. Handy's now produces custom furniture to order, several lines of furniture for wholesaler/retailers, and a number of variations of standard kitchen and bathroom cabinets, including units made to order. Over the years the Haywoods continued to prosper and built up a loyal staff and work force. More recently their son, John Haywood, has joined the company's management after having obtained a commerce degree at the local university. At John Haywood's insistence, lured by longer production runs and higher and more consistent mark-ups, the company has moved into subcontract work supplying and installing counter-tops, cabinets and similar fixtures for new commercial construction. To date, Handy's has established a well-founded reputation for supplying millwork to the construction industry. The Opportunity There has been a mini-boom in commercial construction in Western suburbs of Melbourne. Bruce Sharpe (VP of Sales and Estimating) persuaded Handy's directors that they were well placed to expand their manufacturing business. Miles Faster (VP of Production), regularly complained that the company's production efficiency was being thwarted by lack of manufacturing space, made a pitch to John Haywood for moving to completely new and more modern facilities. John Haywood, with a vision of growth based on computer controlled automation, talked over the idea with his father. Handy discussed it with his wife who in turn brought Kim Cashman (Controller) and Spencer Moneysworth (VP of Finance and Administration) into the debate. Cashman and Moneysworth felt strongly that they should remain in their current location since there was spare land on their property, even though it was not the most convenient for plant expansion. They argued that not only would this avoid the costs of buying and selling property, but more importantly avoid the interruption to production while relocating their existing equipment. Besides, the nearest potential location at an attractive price was at least 20 kms further out from the residential area where most of them lived. Polarization of opinions rapidly became evident and so, in the spring of 2010, Handy called a meeting of the directors and key personnel to resolve the issue. After a visit to the factory floor and a prolonged and sometimes bitter argument lasting into the early hours, it was agreed that the company would stay put on its existing property. Handy's Corporate Profile Head Office Melbourne, Victoria Business Furniture manufacturing, custom millwork, and hardwood importer; federal charter 1960; privately held; number of employees approx. 850. Major Shareholder: Rainwood Holdings Ltd. On December 31, 2010, total assets were $181,000,000. In fiscal 2010, sales were $93,250,000 with net earnings of $6,540,000. Directors Chairman & CEO Ron Haywood President Mrs. Emy Haywood Executive Vice President Kim Qualey Director John Haywood Key personnel VP Production Miles Faster VP Finance and Administration Spencer Moneysworth VP Personnel Molly Bussell VP Sales and Estimating Bruce Sharpe Controller Kim Cashman Other key players Ian Leadbetter Handy’s project manager Randy Schemers Industrial design consultant, Schemers and Plotters (S&P) Alfred Fowler Industrial property developers, Director, Expert Developers (ED) Ivar Kontark ED's Project Manager Dave Rivett I. Beam Construction Ltd., steel fabricators and installers Bert Leaky Classic Cladding Co., cladding and roofing contractors Charlie Droppe Water proofing contractor, Rain Water Ltd. Amos Dent Mechanical equipment contract, Reece Associate Olaf Volta Electrical contractor, Zapp Electrical Eddie Forgot Equipment supplier, Piecemeal Corporation Win Easley Project management consultant The Project Concept It was agreed at the meeting that additional production capacity would be added equivalent to 25% of the existing floor area. The opportunity would also be taken to install air-conditioning and a dust-free paint and finishing shop complete with additional compressor capacity. Equipment would include a semi-automatic woodworking production train, requiring the development and installation of software and hardware to run it. The President and Executive Vice Presidents' offices would also be renovated. At the meeting, the total cost of the work, not including office renovation, was roughly estimated at $17 million. Handy agreed to commit the company to a budget of $17 million as an absolute maximum for all proposed work and the target date for production would be eighteen months from now. To give Handy's personnel a feeling of ownership, Molly Bussell (VP of Personnel) proposed that the project should be called Handy 2010. Spencer Moneysworth would take responsibility for Project Handy 2010. Planning Moneysworth was keen to show his administrative abilities. He decided not to involve the production people as they were always too busy and, anyway, that would only delay progress. So, not one for wasting time (on planning), Moneysworth immediately invited Expert Developers (ED) to quote on the planned expansion. He reasoned that this contractor's prominence on the industrial estate and their knowledge of industrial work would result in a lower total project cost. Meanwhile, Kim Cashman developed a monthly cash flow chart as follows: First he set aside one million for contingencies. Then he assumed expenditures would be one million in each of the first and last months, with an intervening ten months at $1.4 million each. He carefully locked the cash flow chart away in his drawer for future reference. All actual costs associated with the project would be recorded as part of the company's normal book-keeping. Upon Moneysworth's insistence, ED submitted a fixed-price quotation. It amounted to $20 million and an eighteen-month schedule. After Moneysworth recovered from the shock, he persuaded Handy's management that the price and schedule were excessive. (For their part, ED believed that Handy's would need considerable help with their project planning and allowed for a number of uncertainties). Further negotiations followed in which ED offered to undertake the work based on a fully reimbursable contract. Moneysworth started inquiries elsewhere but ED countered with an offer to do their own work on cost plus but solicit fixed price quotations for all sub-trade work. Under this arrangement ED would be paid an hourly rate covering direct wages or salaries, payroll burden, head-office overhead and profit. This rate would extend to all engineering, procurement, construction and commissioning for which ED would employ Schemers and Plotters (S&P) for the building and industrial design work. Moneysworth felt that the proposed hourly rate was reasonable and that the hours could be monitored effectively. He persuaded Handy's directors to proceed accordingly. The Design A couple of months later as S&P commenced their preliminary designs and raised questions and issues for decision, Moneysworth found he needed assistance to cope with the paper work. John Haywood suggested he use Ian Leadbetter, a bright young mechanical engineer who had specialized in programming semi-automatic manufacturing machinery. Moneysworth realized that this knowledge would be an asset to the project and gave Leadbetter responsibility for running the project. Ian was keen to demonstrate his software skills to his friend John Haywood. So, while he lacked project management training and experience (especially any understanding of "project life-cycle" and "control concepts") he readily accepted the responsibility. During the initial phases of the mechanical design, Ian Leadbetter made good progress on developing the necessary production line control software program. However, early in design ED suggested that Handy's should take over the procurement of the production train directly, since they were more knowledgeable of their requirements. Miles Faster jumped at the opportunity to get involved and decided to change the production train specification to increase capacity. Because of this, the software program had to be mostly rewritten, severely limiting Leadbetter's time for managing the project. It also resulted in errors requiring increased debugging at startup. Neither Moneysworth nor Leadbetter was conscious of the need for any review and approval procedures for specifications and shop drawings submitted directly by either S&P or by Eddie Forgot of Piecemeal Corporation, the suppliers of the production train. In one two-week period, during which both Faster and Leadbetter were on vacation, the manufacturing drawings for this critical long-lead equipment sat in a junior clerk's in-tray awaiting approval. For this reason alone, the delivery schedule slipped two weeks, contributing to a later construction schedule conflict in tying-in the new services. Construction Site clearing was tackled early on with little difficulty. However, as the main construction got into full swing some eight months later, more significant problems began to appear. The change in production train specification made it necessary to add another five feet to the length of the new building. This was only discovered when holding-down bolts for the new train were laid out on site, long after the perimeter foundations had been poured. The catalogue descriptions and specifications for other equipment selected were similarly not received and reviewed until after the foundations had been poured. Leadbetter was not entirely satisfied with the installation of the mechanical equipment for the dust-free paint shop. As a registered mechanical engineer, he knew that the specifications governed the quality of equipment, workmanship and performance. However, since these documents had still not been formally approved, he was loath to discuss the matter with Ivar Kontrak. Instead, he dealt directly with Amos Dent of Reece Associates, the mechanical sub-contractor. This led to strained relations on the site. Another difficulty arose with the paint shop because the local inspection authority insisted that the surplus paint disposal arrangements be upgraded to meet the latest environmental standards. Startup Two years after the project was first launched, the time to get the plant into production rapidly approached. However, neither Moneysworth nor Leadbetter had prepared any meaningful planning for completion such as owner's inspection and acceptance of the building, or testing, dry-running and production start-up of the production train. They also failed to insist that ED obtain the building occupation certificate. Moreover, due to late delivery of the production train, the "tie-in" of power and other utility connections scheduled for the annual two-week maintenance shut-down could not in fact take place until two weeks later. These factors together resulted in a loss of several weeks of production. Customer delivery dates were missed and some general contractors cancelled their contracts and placed their orders for millwork elsewhere. Finished goods inventories were depleted to the point that other sales opportunities were also lost in the special products areas on which Handy’s reputation was based. Control Costs arising from these and other changes, including the costs of delays in completion, were charged to Handy's account. Project overrun finally became reality when actual expenditures exceeded the budget and it was apparent to everyone that the project was at best only 85% complete. Cashman was forced to scramble for an additional line of credit in project-financing at prime plus 2-1/2%, an excessive premium given Handy's credit rating. From then on, Handy was in a fire fighting mode and their ability to control the project diminished rapidly. They found themselves throwing money at every problem in an effort to get the plant operational. During Handy’s period of plant upgrading, construction activity in the region fell dramatically with general demand for Handy’s products falling similarly. Even though Sharpe launched an expensive marketing effort to try to regain customer loyalty, it had only a marginal effect. Post Project Appraisal The net result was that when the new equipment eventually did come on-line, it was seriously under-utilized. Production morale ebbed. Some staff publicly voiced their view that the over-supply of commercial space could have been foreseen even before the project started, especially the oversupply of retail and hotel space, the prime source of Handy's contracts. John Haywood, not a favorite with the older staff, was blamed for introducing these "new fangled and unnecessarily complicated ideas". Because of this experience, Handy's President Emy Haywood retained project management consultant Win Easley of W. Easley Associates to conduct a post project appraisal. Easley had some difficulty in extracting solid information because relevant data was scattered amongst various staff who were not keen to reveal their short-comings. Only a few formal notes of early project meetings could be traced. Most of the communication was on hand-written memos, many of which were not dated. However, interviews with the key players elicited considerable info, as mentioned above. Prepare your report following the format and the rubrics of Handy 2010 Project Case study: ‘Handy’s 2010 Project’ Project appraisal questions:

a)Was the Handy’s 2010 project well-conceived? Give reasons for your opinion. (2.5 marks)

b)Write a simple project scope statement of the Handy 2010 project. Why do you suppose renovation of the President and Executive Vice President’s offices were included in the project and was that a good idea? (2.5 marks)

c)Was Leadbetter qualified to be a project manager? Should Leadbetter (project manager) have been left to run the project? - rationale your answer? (2.5 marks)

d)Discuss- how did the Handy 2010 project handle risks? What might they have done better? (2.5 marks)

e)What type of contract(s) were awarded in Handy’s project. Rationalise the choice of contracts in this project (contracting for professional services and construction work). (2.5 marks)

f) Identify and describe a set of project schedule milestones from project concept to project completion. What would you have done when you saw that the project would not meet its schedule? (2.5 marks)

g)Evaluate project cost performance. Identify two major causes of cost variation. How should the project budget and expenditures be set out for cost control? (2.5 marks)

2-6. Effect of accruals on the financial statements

Cordell Inc. experienced the following events in 2018, its first year of operation:

1. Received $40,000 cash from the issue of common stock.

2. Performed services on account for $82,000.

3. Paid a $6,000 cash dividend to the stockholders.

4. Collected $76,000 of the accounts receivable.

5. Paid $53,000 cash for other operating expenses.

6. Performed services for $19,000 cash.

7. Recognized $3,500 of accrued utilities expense at the end of the year.

Required

a. Identify the events that result in revenue or expense recognition.

b. Based on your response to Requirement a, determine the amount of net income reported on the 2018 income statement.

c. Identify the events that affect the statement of cash flows.

d. Based on your response to Requirement c, determine the amount of cash flow from operating activities reported on the 2018 statement of cash flows.

e. What is the before- and after-closing balance in the Service Revenue account? What other accounts would be closed at the end of the accounting cycle?

f. What is the balance of the Retained Earnings account that appears on the 2018 balance sheet?

2-7. Net income versus changes in cash

In 2018, Lee Inc. billed its customers $62,000 for services performed. The company collected $51,000 of the amount billed. Lee incurred $39,000 of other operating expenses on account. Lee paid $31,000 of the accounts payable. Lee acquired $40,000 cash from the issue of common stock. The company invested $21,000 cash in the purchase of land.

Required

(Hint: Identify the six events described in the paragraph and record them in general ledger accounts under an accounting equation before attempting to answer the questions.) Use the preceding information to answer the following questions:

a. What amount of revenue will Lee report on the 2018 income statement?

b. What amount of cash flow from revenue will be reported on the statement of cash flows?

c. What is the net income for the period?

d. What is the net cash flow from operating activities for the period?

e. Why is the amount of net income different from the net cash flow from operating activities for the period?

f. What is the amount of net cash flow from investing activities?

g. What is the amount of net cash flow from financing activities?

h. What amounts of total assets, liabilities, and equity will be reported on the year-end balance sheet?

2-8. Supplies and the financial statements model

Pizza Express Inc. began the 2018 accounting period with $2,500 cash, $1,400 of common stock, and $1,100 of retained earnings. Pizza Express was affected by the following accounting events during 2018:

1. Purchased $3,600 of supplies on account.

2. Earned and collected $12,300 of cash revenue.

3. Paid $2,700 cash on accounts payable.

4. Adjusted the records to reflect the use of supplies. A physical count indicated that $250 of supplies was still on hand on December 31, 2018.

Required

a. Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the Cash Flows column, use OA to designate operating activity, IA

for investing activity, FA for financing activity, and NC for net

change in cash. Use NA to indicate accounts not affected by the event. The beginning balances are entered in the following example:

b. Explain the difference between the amount of net income and amount of net cash flow from operating activities.

2-9. Supplies on financial statements

Yard Professionals Inc. experienced the following events in 2018, its first year of operation:

1. Performed services for $35,000 cash.

2. Purchased $6,000 of supplies on account.

3. A physical count on December 31, 2018, found that there was

$1,800 of supplies on hand.

Required

Based on this information alone:

a. Record the events under an accounting equation.

b. Prepare an income statement, balance sheet, and statement of cash flows for the 2018 accounting period.

c. What is the balance in the Supplies account as of January 1, 2019?

d. What is the balance in the Supplies Expense account as of January 1, 2019?

2-22. Closing the accounts

The following information was drawn from the accounting records of Wyckoff Company as of December 31, 2018, before the temporary accounts had been closed. The Cash balance was

$3,600, and Notes Payable amounted to $4,000. The company had revenues of $7,500 and expenses of $3,400. The company’s Land account had a $8,000 balance. Dividends amounted to

$1,000. The balance of the Common Stock account was $2,000.

Required

a. Identify which accounts would be classified as permanent and which accounts would be classified as temporary.

b. Assuming that Wyckoff’s beginning balance (as of January 1, 2018) in the Retained Earnings account was $2,500, determine its balance after the temporary accounts were closed at the end

of 2018.

c. What amount of net income would Wyckoff Company report on its 2018 income statement?

d. Explain why the amount of net income differs from the amount of the ending Retained Earnings balance.

e. What are the balances in the revenue, expense, and dividend

accounts on January 1, 2019

2-25. Classifying events on the statement of cash flows

The following transactions pertain to the operations of Ewing Company for 2018:

1. Acquired $30,000 cash from the issue of common stock.

2. Provided $65,000 of services on account.

3. Paid $22,000 cash on accounts payable.

4. Performed services for $8,000 cash.

5. Collected $51,000 cash from accounts receivable.

6. Incurred $37,000 of operating expenses on account.

7. Paid $6,500 cash for one year’s rent in advance.

8. Paid a $4,000 cash dividend to the stockholders.

9. Paid $1,200 cash for supplies to be used in the future.

10. Recognized $3,100 of accrued salaries expense.

Required

a. Classify the cash flows from these transactions as operating activities (OA), investing activities (IA), or financing activities (FA). Use NA for transactions that do not affect the statement of

cash flows.

b.         Prepare a statement of cash flows. (There is no beginning cash balance.)

Use an example to explain the matching concept.

On 1 March 2020 Holmes Ltd enters into a binding agreement with a New Zealand company, which requires the New Zealand Company to construct an item of machinery for Holmes Ltd. The cost of the machinery is NZ$750,000. The machinery is completed on 1 June 2021 and shipped FOB Auckland on that date. The debt is unpaid at 30 June 2020, which is also Holmes Ltd’s reporting date.

The exchange rates at the relevant dates are: 1 March 2011 A$1.00 = NZ$1.20 1 June 2011 A$1.00 = NZ$1.30 30 June 2011 A$1.00 = NZ$1.25 Required: a) Determine the amount in AUD, as at: • 1 March 2020; and • 30 June 2020. b) Prepare the journal entries for the above dates showing the amount of exchange gain or loss .

Back in May 2020, an ethanol plant’s risk manager looked at futures prices and considered a hedge to lock in a price on part of her new-crop corn acquisition planned for mid-to-late October 2020. She saw that the December 2020 futures contract was trading at $3.20/bushel and she knew that the basis in mid-October—when she expected to take delivery of the corn in question and to lift the hedge (i.e., to offset her futures position)—has typically (most years) been about 25 cents under December. What net price did she, back in May, expect to pay in October 2020 if she placed this hedge? d. $2.80/bu b. $2.95/bu c. $3.20/bu a. $3.45/bu e. None of the above

On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $60. [We are assuming that the 2020 coupon has just been redeemed.]

• Initially, the bond was sold for the premium price of $1,025.

• On October 15, 2020, this bond was selling for only $975.

• The market rate of interest for a riskless corporate bond, of this maturity, was 4.5% on October 15, 2016, which reflects market expectations about future rates of inflation.

• The market rate of interest for a riskless corporate bond, of this maturity, was 4.0% on October 15, 2020, which reflects market expectations about future rates of inflation.

Question- What was the nominal yield on this bond on October 15, 2020?  [To 1 decimal place.]