Ramsey Corporation acquired a machine (7-year property) on December 31, 2017, at a cost of $2230000. Ramsey Corproation has a taxable income from its business in 2017 of $1000000 and elects to expense the maximum amount under section 179 but elects out of bonus depreciation for the machine. Compute Ramsey's allowable expensing deduction under Section 179 and MACRS depreciation deduction for the machine for 2017. Assume the machine is the only depreciable personal property acquired by Ramsey Corporation during 2017.

James Inti acquired a block of land on 1 July 2013 at a cost $1.4 million and valued it according to the cost model. Three years on, the management found out that the area where the land was acquired has been contaminated due to a chemical incident.

On 30 June 2015, the management is provided with the following information:

The value in use $1.3 million

Net selling price $1.2 million

REQUIRED

Describe the accounting treatment required under Accounting Standard to record the drop in the value of the land?

Part of the accounting records for the last quarter of 2017 of Boswell Corp., a Canadian private company applying IFRS, were destroyed due to a software malfunction. You have been tasked with reconstructing the accounting records related to inventory and receivables.

The following information has been salvaged:

Extract from the Quarterly Statement of Financial Position as at December 31, 2017

Aging of receivables analysis as at December 31, 2017 (Incomplete)

By talking to the CEO, the controller, and other employees of the accounting department you were also able to gather the following information:

Firm’s Accounting Policies:

a) The company uses the periodic inventory system and the FIFO cost flow assumption.

b) The company applies the aging of receivables analysis to adjust the AFDA at year-end.

The only inventory and sale-related transactions during the quarter were:

1. On October 15, 2017, Boswell Corp. sold 160 units at $20 each, shipped on the same day, FOB destination, and arrived 3 days later, freight-out of $80 for the entire shipment, and payment within 30 days. As at December 31, 2017, the client had still not paid.

2. On November 10, Boswell Corp. received from its supplier a shipment of 2,000 units costing $10 each. Boswell Corp. also had to cover shipping costs of $1,000, import duty taxes of $200 (non-refundable).

3. On December 1, Boswell Corp. sold 1,000 units at $20 each, 2/10, n/30. The client paid half of the total amount on December 5, but made no other payment since.

4. On December 15, 2017, Boswell Corp. signed a contract for the purchase of 1,000 units of inventory from a Canadian supplier at a price of $13 per unit. The supplier shipped the goods FOB destination on December 27. On December 31, 2017, the goods had not yet been delivered, and no invoice had been received.

Other information:

a) The physical count of inventory at the end of the previous quarter was 200 units. The physical count of inventory at the end of December 2017 was 1,040 units.

b) The beginning balance for Gross Accounts Receivable for the quarter was $10,000.

c) The CEO estimates that inventory on hand at the end of 2017 could be sold for a per unit price of $11, with $0.20 per unit costs to sell.

Required:

1. Re-construct the journal entries for the transactions during the quarter.

2. Make ALL necessary quarter-end adjusting entries as at December 31, 2017. Show your computation. (Hint: there are 4 adjusting entries needed to (1) record the write-down of inventory (2) record COGS and update ending inventory (3) record write-off (4) record bad debt expense using aging analysis.)

3. Present to the CEO the calculation of gross profit for the last quarter in 2017.

After Enron, WorldCom, and other major corporate scandals that rocked America in the recent past, it seemed that nothing would surprise investors or regulators. However, almost everyone was shocked by revelations that as many as 20 percent of all public corporations may have allowed their officers and directors to “backdate” their stock option awards and account for the awards improperly. For a time, hardly a day went by without another public company’s fraudulent stock option practices being revealed.

A stock option is an award granted under which key employees and directors may buy shares of the company’s stock at the market price of the stock at the date of the award. As an example, assume that Company A’s stock price is $15 per share on January 1, 2007. Further assume that the company’s CEO is awarded 200,000 stock options on that date. This means that after a certain holding (vesting) period, the CEO can buy 200,000 shares of the company’s stock at $15 per share, regardless of what the stock price is on the day he or she buys the stock. If the stock price has risen to, say $35 per share, then the CEO can simultaneously buy the 200,000 shares at a total price of $3 million (200,000 times $15 per share) and sell them for $7 million ($35 per share times 200,000 shares), pocketing $4 million. Stock options are a way to provide incentives to executives to work as hard as they can to make their companies profitable and, therefore, have their stock price increase.

Until 2006, if the option granting price ($15 in this case) were the same as the market price on the date the option was granted, the company reported no compensation expense on its income statement. (Under accounting rule FAS 123R, effective in 2006, the required accounting changed.) However, if the options were granted at a price lower than the market share price (referred to as “in-the-money” options) on the day the options were granted, say $10 in this example, then the $5 difference between the option granting price and the market price had to be reported as compensation expense by the company and represented taxable income to the recipient.

The fraudulent stock option backdating practices involved corporations, by authority of their executives and/or boards of directors, awarding stock options to their officers and directors and dating those options as of a past date on which the share price of the company’s stock was unusually low. Dating the options in this post hoc manner ensured that the exercise price would be set well below market, thereby nearly guaranteeing that these options would be “in the money” when they vested and thus provided the recipients with windfall profits. In doing so, many companies violated accounting rules, tax laws, and SEC disclosure rules. Almost all companies that were investigated “backdated” their options so that they would appear to have been awarded on the low price date despite having actually been authorized months later.

Would a good system of internal controls have prevented these fraudulent backdating practices?

Why would executives and directors of so many companies have allowed this dishonest practice in their companies?

Would a whistle-blower system have helped to prevent or reveal these dishonest practices?

Part of the accounting records for the last quarter of 2014 of Alexandra Corp., a Canadian private company applying IFRS, were destroyed due to a software malfunction. You have been tasked with reconstructing the accounting records related to inventory and receivables.

The following information has been salvaged:

Extract from the Quarterly Statement of Financial Position as at December 31, 2014

Aging of receivables analysis as at December 31, 2014 (Incomplete)

By talking to the CEO, the controller, and other employees of the accounting department you were also able to gather the following information:

Firm’s Accounting Policies:

a) The company uses the periodic inventory system and the FIFO cost flow assumption.

b) The company applies the aging of receivables analysis to adjust the AFDA at year-end.

The only inventory and sale-related transactions during the quarter were:

1. On October 15, 2014, Alexandra Corp. sold 80 units at $10 each, shipped on the same day, FOB destination, and arrived 3 days later, freight-out of $30 for the entire shipment, and payment within 30 days. As at December 31, 2014, the client had still not paid.

2. On November 10, Alexandra Corp. received from its supplier a shipment of 1,000 units costing $5 each. Alexandra Corp. also had to cover shipping costs of $500, import duty taxes of $100 (non-refundable).

3. On December 1, Alexandra Corp. sold 500 units at $10 each, 2/10, n/30. The client paid half of the total amount on December 5, but made no other payment since.

4. On December 15, 2014, Alexandra Corp. signed a contract for the purchase of 500 units of inventory from a Canadian supplier at a price of $6.50 per unit. The supplier shipped the goods FOB destination on December 27. On December 31, 2014, the goods had not yet been delivered, and no invoice had been received.

Other information:

a) The physical count of inventory at the end of the previous quarter was 100 units. The physical count of inventory at the end of December 2014 was 520 units.

b) The beginning balance for Gross Accounts Receivable for the quarter was $5,000.

c) The CEO estimates that inventory on hand at the end of 2014 could be sold for a per unit price of $5.50, with $0.10 per unit costs to sell.

Required:

1. Re-construct the journal entries for the transactions during the quarter.

2. Make ALL necessary quarter-end adjusting entries as at December 31, 2014. Show your computation. (Hint: there are 4 adjusting entries needed to (1) record the write-down of inventory (2) record COGS and update ending inventory (3) record write-off (4) record bad debt expense using aging analysis.)

3. Present to the CEO the calculation of gross profit.

(Please use the Gross Method to record the sales discount)

A company in the civil engineering industry with headquarters locate in Accra undertakes contract anywhere in Ghana

The company has had its tender for a job in Kumasi Accepted for GHS 288,000 and work is due to begin in June 2020. However, the company has also been asked to undertake a contract on the Coast of Accra. The price offered for this contract is GHS 352,000. Both of the contracts cannot be undertaken simultaneously because of constraints on staff site management personnel and on plant available. An escape clause enables the company to withdraw from the contract in Accra, provided notice is given before the end of April, 2020 and an agreed penalty of GHS 28,000 is paid.

The company’s quantity surveyor has submitted the following estimates

Additional Information:

1. X, Y and Z are three building materials. Material X is not in common use and would not realize much money if re-sold; however, it could be used on other contracts but only as a substitute for another material currently quoted at 10% less than the original cost of X. The price of Y a material in common use has doubles since it was purchased; it net realizable value if resold would be the new price less 15% to cover the disposal cost. Alternatively, it could be kept for use on another contract in the following year.

2. With the construction industry not yet recovered from the recent recession, the company is confident that manual labour, both skilled and unskilled could be hired locally on a sub-contract basis to meet the needs of each of the contracts

3. The plant, which would be needed for the Coast of Accra contract, has been owned by for some years and GHS 12,800 is the year’s depreciation on a straight-line basis. If the Kumasi contract is undertaken , less plan will be required but the surplus plant will be hired out for the period of the contract at a rental of GHS 6,000

4. It is the company’s policy to charge all contracts with nominal interest at 8% on estimated working capital involved in contracts. Progress payments would be made receivable from the contractee

5. Salaries and general cost of operating the small headquarters amount to about GHS 108,000 each year. There are usually ten contracts being supervised at the same time

6. Each of the two contracts is expected to last from June 2020 to December 2020 which, coincidentally is the company’s financial year

7. Site management is treated as a fixed cost

Required:

As a management accountant to the company, present comparative statements to show the net benefit to the company for undertaking the more advantageous of the two contracts.

Explain the reasoning behind the inclusion and omission from your comparative financial statement for each item given in the cost estimates and the notes relating thereto

A comparative statement of financial position for Ayayai Corporation follows:

Additional information:

(a)

Prepare a statement of cash flows using the indirect method for cash flows from operating activities. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

P5.11 A comparative statement of financial position for Spencer Corporation follows:

Spencer Corporation
Statement of Financial Position
December 31
Assets  
2020
2019
Cash  
$ 65,000 
$ 29,000 
Accounts receivable  
87,000 
59,000 
Inventory  
133,000 
81,000 
FV-OCI investments in shares  
63,000 
84,000 
Land  
65,000 
103,000 
Equipment  
390,000 
430,000 
Accumulated depreciation—equipment  
(117,000)
(86,000)
Goodwill  
 124,000 
 173,000 
 Total  
$810,000 
$873,000 
Liabilities and Shareholders' Equity      
Accounts payable  
$ 12,000 
$ 51,000 
Dividends payable  
15,000 
32,000 
Notes payable  
220,000 
335,000 
Common shares  
265,000 
125,000 
Retained earnings  
288,000 
284,000 
Accumulated other comprehensive income  
  10,000 
  46,000 
 Total  
$810,000 
$873,000 
Additional information:

1. Net income for the fiscal year ending December 31, 2020, was $19,000.
2. In March 2020, a plot of land was purchased for future construction of a plant site. In November 2020, a different plot of land with original cost of $86,000 was sold for proceeds of $95,000.
3. In April 2020, notes payable amounting to $140,000 were retired through the issuance of common shares. In December 2020, notes payable amounting to $25,000 were issued for cash.
4. FV-OCI investments were purchased in July 2020 for a cost of $15,000. By December 31, 2020, the fair value of Spencer's portfolio of FV-OCI investments decreased to $63,000. No FV-OCI investments were sold in the year.
5. On December 31, 2020, equipment with an original cost of $40,000 and accumulated depreciation to date of $12,000 was sold for proceeds of $21,000. No equipment was purchased in the year.
6. Dividends on common shares of $32,000 and $15,000 were declared in December 2019 and December 2020, respectively. The 2019 dividend was paid in January 2020 and the 2020 dividend was paid in January 2021. Dividends paid are treated as financing activities.
7. A loss on impairment was recorded in the year to reflect a decrease in the recoverable amount of goodwill. No goodwill was purchased or sold in the year.
Instructions
a. Prepare a statement of cash flows using the indirect method for cash flows from operating activities along with any necessary note disclosure.

b. From the perspective of a shareholder, comment in general on the results reported in the statement of cash flows.

A comparative statement of financial position for Whispering Winds Corporation follows:

Additional information:

(a)

Prepare a statement of cash flows using the indirect method for cash flows from operating activities. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Conch Republic Electronics

Conch Republic Electronics is a mid sized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department.

One of the major revenue-producing items manufactured by Conch Republic is a personal digital assistant (PDA). Conch Republic currently has one PDA model on the market, and sales have been excellent. The PDA is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Conch Republic developed a prototype for a new PDA that has all the features of the existing PDA but adds new features such as cell phone capability. The company has performed a marketing study to determine the expected sales figures for the new PDA.

Conch Republic can manufacture the new PDA for $200 each in variable costs. Fixed costs for the operation are estimated to run $4.5 million per year. The estimated sales volume is 70,000, 80,000, 100,000, 85,000, and 75,000 per each year for the next five years, respectively. The unit price of the new PDA will be $340. The necessary equipment can be purchased for $16.5 million and will be depreciated on a 5 year straight-line schedule.

Net working capital investment for the PDAs will be $6,000,000 the first year of operations. Of course NWC will be recovered at the projects end. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return.

Shelly has asked Jay to prepare a report that answers the following questions:

1. What is the IRR of the project?
2. What is the NPV of the project, based on the required rate of return of 12%?