Red Squirrel Ltd. provides audited financial statements to its creditors and is required to maintain certain covenants based on its debt to equity ratio and return on assets. In addition, management at Red Squirrel Ltd. receive a bonus partially based on revenues for the year. Additional information related to Red Squirrel Ltd. is shown below:

1.      Depreciation expense on the building for the year was $45,000. Since the building was increasing in value during the year, the controller decided not to record any depreciation expense in the current year.

2.      An order for $61,500 was received from a customer on December 29, 2020 for products on hand. This order was shipped f.o.b. shipping point on January 3rd, 2021. The company made the following entry in December (prior to yearend of 2020):

Accounts Receivable    61,500

     Sales Revenue                      61,500

Please comment on the appropriateness of Red Squirrel’s accounting procedures and their impact on the company’s financial statement users for both scenarios, applying the conceptual framework.

You are working on the financial report audit for a wholesaling company the year ended 30 June 2020. You are currently considering the audit approach for the property, plant and equipment account. The balance of the property, plant and equipment account was $325,000 at 30 June 2019. The balance at 30 June 2020 is $410,000. The materiality threshold for this client is $50,000.

You note that all property, plant and equipment has been valued based on fair value estimates. The fair value of the property, plant and equipment is heavily affected by changes in economic conditions. You note that the internal controls for this account are weak.

Required:

Explain why the internal controls are likely to be weak for the property, plant and equipment account.

Comment on whether a lower assessed level of control risk approach, or a predominantly substantive approach be more appropriate for this account.

Identify the main assertion that is likely to be at-risk for this account for this client. Explain why it is at risk.

Identify an audit procedure that would provide evidence for this assertion.

Red Squirrel Ltd. provides audited financial statements to its creditors and is required to maintain certain covenants based on its debt to equity ratio and return on assets. In addition, management at Red Squirrel Ltd. receive a bonus partially based on revenues for the year. Additional information related to Red Squirrel Ltd. is shown below: 1. Depreciation expense on the building for the year was $45,000. Since the building was increasing in value during the year, the controller decided not to record any depreciation expense in the current year. 2. An order for $61,500 was received from a customer on December 29, 2020 for products on hand. This order was shipped f.o.b. shipping point on January 3rd, 2021. The company made the following entry in December (prior to yearend of 2020): Accounts Receivable 61,500 Sales Revenue 61,500 Please comment on the appropriateness of Red Squirrel’s accounting procedures and their impact on the company’s financial statement users for both scenarios, applying the conceptual framework.

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Update the balance sheet above to reflect the transactions below, which occur on January 6, 2020

1. Sell product for $25,000 with historical cost of $20,000

What is the final amount in Retained Earnings?

Note: Transaction amounts are provided in dollars but the balance sheet units are thousands of dollars.

Please specify your answer in the same units as the balance sheet (i.e., enter the number from your updated balance sheet)

1. On March 31, 2020, if the balance in Bonds Payable is $3,000,000 and the balance in Unamortized Premium on Bonds Payable (Premium on Bonds Payable) is $100,000, what is the amount for the carrying value of the bonds at March 31, 2020?

2. STATEMENT OF CASH FLOW: Company A has a net income of 1,000,000, depreciation of 500,000, a decrease in accounts receivable of 300,000, and an increase in accounts payable of 100,000. Using the indirect method, what is the amount for net cash flow from operating activities?

3. In which comparison between the market rate and the stated rate are the bonds issued at a discount?

Matthew, Inc., owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2021, the balance in the Investment in Lindman account is $341,000. Amortization associated with this acquisition is $17,400 per year. In 2021, Lindman earns an income of $159,000 and declares cash dividends of $53,000. Previously, in 2020, Lindman had sold inventory costing $47,200 to Matthew for $59,000. Matthew consumed all but 25 percent of this merchandise during 2020 and used the rest during 2021. Lindman sold additional inventory costing $60,800 to Matthew for $80,000 in 2021. Matthew did not consume 40 percent of these 2021 purchases from Lindman until 2022.

1. What amount of equity method income would Matthew recognize in 2021 from its ownership interest in Lindman?

2. What is the equity method balance in the Investment in Lindman account at the end of 2021?

Given the following account information for Leong Corporation, prepare a balance sheet in report form for the company as of December 31, 2020 and answer the question below and other questions from the same balance sheet. All accounts have normal balances. Equipment 80,000 Interest Expense 5,000 Interest Payable 1,200 Retained Earnings 12/31/2020 259,180 Dividends 60,800 Land 142,150 Accounts Receivable 88,000 Bonds Payable 100,000 Notes Payable (due in 6 months) 30,000 Common Stock 50,000 Accumulated Depreciation - Equip. 20,000 Prepaid Advertising 6,000 Service Revenue 350,900 Buildings 90,600 Supplies 2,100 Income Taxes Payable 4,000 Utilities Expense 7,500 Advertising Expense 3,560 Salaries and Wages Expense 58,210 Salaries and Wages Payable 2,470 Accumulated Depr. - Bld. 12,000 Cash 70,000 Depreciation Expense 14,000 In the company’s balance sheet, how much were total liabilities?

Required information

[The following information applies to the questions displayed below.]
  
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

rev: 09_15_2017_QC_CS-99734

4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Required information

[The following information applies to the questions displayed below.]
  
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

rev: 09_15_2017_QC_CS-99734

5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Intermediate Accounting II

1. United Health Group leased a life support machine on January 1, 2018, for a three-year period ending December 31, 2020. The lease agreement specified annual payments of $144,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2019. The company had the option to purchase the machine on December 30, 2020, for $180,000 when its fair value was expected to be $240,000, a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. United Health was aware that the lessor's implicit rate of return was 12%.

Required:

Round your answers to the nearest whole dollar amounts.

1.          Calculate the amount United Health should record as a right-of-use asset and lease liability for this finance lease.
2.          Prepare the appropriate journal entries for United Health from the beginning of the lease through the second payment (12/31/18).