Gidi Professional Institute is constructing a Tuition Center at Aboabo that will take about 18 months to complete. The company commenced construction on 2 January 2018.

        The following payments were made during the year:                              GH¢‘000

        31 January                                                                                                40,000

        31 March                                                                                                  90,000

30. June      20,000
31. October            40,000

        30 November                                                                                            50,000

The first payment on 31 January was funded from the company’s pool of debts. However, the company succeeded in raising Medium-Term Loan Notes for an amount of GH¢160,000,000 on 31 March 2018 at a simple interest rate of 9 percent per year, calculated and payable monthly in arrears.

These funds were specifically used for the construction. Excess funds were temporarily invested at 6 percent monthly in arrears and payable in cash. The pool of debts was again used for a GH¢40,000,000 payment on 30 November 2018 which could not be funded from the Medium-Term Loan Notes. The construction project was temporarily halted for three weeks in May 2018 when substantial technical and administrative work was carried out.

The following amounts of debts were outstanding at the reporting date of 31 December 2018:

        10% 7-year Notes 1/10/2018 with simple interest payable annually at 31 Dec         1,800,000

For the bank overdraft, the weighted average amount outstanding during the year was GH¢150,000,000 and the total interest charged by the bank amounted to GH¢6,760,000 for the year.

Required

        Calculate the total amount of interest to be capitalised                                                  

The comparative balance sheets for 2018 and 2017 are given below for Surmise Company. Net income for 2018 was $52 million.

Prepare the statement of cash flows of Surmise Company for the year ended December 31, 2018. Use the indirect method to present cash flows from operating activities because you do not have sufficient information to use the direct method. You will need to make reasonable assumptions concerning the reasons for changes in some account balances. A spreadsheet or T-account analysis will be helpful. (Hint: The right to use a building was acquired with a seven-year lease agreement. Annual lease payments of $8 million are paid at January 1 of each year starting in 2018.)

The economy of Euphoria has the following economic data.

1. Production costs are costs of raw materials, wages, capital goods and services.
2. Productivity index relates to all production inputs.

Examine the data relating to the economy of Euphoria above and answer the following questions.

Q1. What phase of the business cycle was the economy in 2018? Briefly give two reasons for your answer.                                                                                              

Q2. What was the likely cause of the change in the unemployment rate in 2018? What type of unemployment is likely to exist in Euphoria in 2018? Explain your answer.         

Q3. Identify and explain the likely cause of inflation / deflation in 2018?

Include in your answer the contribution that export and import prices made to inflation /   deflation in 2018.        

q. 28

Witter House is a calendar-year firm with 370 million common shares outstanding throughout 2018 and 2019. As part of its executive compensation plan, at January 1, 2017, the company had issued 30 million executive stock options permitting executives to buy 30 million shares of stock for $15 within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $2 per option.

In 2018, Witter House began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 25 million restricted common shares to senior executives at January 1, 2018. The shares vest four years later. The fair value of the stock was $20 per share on the grant date. The average price of the common shares was $20 and $25 during 2018 and 2019, respectively.

The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company's net income was $220 million and $230 million in 2018 and 2019, respectively. Its income tax rate is 40%.

Required:
1. Compute basic and diluted earnings per share for Witter House in 2018.
2. Compute basic and diluted earnings per share for Witter House in 2019.

(For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places (i.e., 10,000,000 should be entered as 10.00).)

q.28

Witter House is a calendar-year firm with 370 million common shares outstanding throughout 2018 and 2019. As part of its executive compensation plan, at January 1, 2017, the company had issued 30 million executive stock options permitting executives to buy 30 million shares of stock for $15 within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $2 per option.

In 2018, Witter House began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 25 million restricted common shares to senior executives at January 1, 2018. The shares vest four years later. The fair value of the stock was $20 per share on the grant date. The average price of the common shares was $20 and $25 during 2018 and 2019, respectively.

The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company's net income was $220 million and $230 million in 2018 and 2019, respectively. Its income tax rate is 40%.

Required:
1. Compute basic and diluted earnings per share for Witter House in 2018.
2. Compute basic and diluted earnings per share for Witter House in 2019.

(For all requirements, do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places (i.e., 10,000,000 should be entered as 10.00).)

Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 26,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 26,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:

Brandlin's incremental borrowing rate is 15 percent. The present value factor for two months at an annual interest rate of 15 percent (1.25 percent per month) is 0.9755. Brandlin must close its books and prepare financial statements at December 31.

a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars.

a-2. What is the impact on 2017 net income?

a-3. What is the impact on 2018 net income?

a-4. What is the impact on net income over the two accounting periods?

b-1. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars.

b-2. What is the impact on 2017 net income?

b-3. What is the impact on 2018 net income?

b-4. What is the impact on net income over the two accounting periods?

Johnson Corporation began 2018 with inventory of 19,000 units of its only product. The units cost $7 each. The company uses a periodic inventory system and the LIFO cost method. The following transactions occurred during 2018:

1. Purchased 95,000 additional units at a cost of $10 per unit. Terms of the purchases were 3/10, n/30, and 100% of the purchases were paid for within the 10-day discount period. The company uses the gross method to record purchase discounts. The merchandise was purchased f.o.b. shipping point and freight charges of $0.50 per unit were paid by Johnson.
2. 1,900 units purchased during the year were returned to suppliers for credit. Johnson was also given credit for the freight charges of $0.50 per unit it had paid on the original purchase. The units were defective and were returned two days after they were received.
3. Sales for the year totaled 90,000 units at $16 per unit.
4. On December 28, 2018, Johnson purchased 5,900 additional units at $12 each. The goods were shipped f.o.b. destination and arrived at Johnson's warehouse on January 4, 2019.
5. 22,100 units were on hand at the end of 2018.

Required:
1. Complete the below table to determine the ending inventory and cost of goods sold for 2018.
2. Assuming that operating expenses other than those indicated in the above transactions amounted to $168,000, determine income before income taxes for 2018.
  

Brandlin Company of Anaheim, California, sells parts to a foreign customer on December 1, 2017, with payment of 13,000 korunas to be received on March 1, 2018. Brandlin enters into a forward contract on December 1, 2017, to sell 13,000 korunas on March 1, 2018. Relevant exchange rates for the koruna on various dates are as follows:

Brandlin's incremental borrowing rate is 18 percent. The present value factor for two months at an annual interest rate of 18 percent (1.5 percent per month) is 0.9707. Brandlin must close its books and prepare financial statements at December 31.

1. a-1. Assuming that Brandlin designates the forward contract as a cash flow hedge of a foreign currency receivable and recognizes any premium or discount using the straight-line method, prepare journal entries for these transactions in U.S. dollars.

2. a-2. What is the impact on 2017 net income?

3. a-3. What is the impact on 2018 net income?

4. a-4. What is the impact on net income over the two accounting periods?

5. b-1. Assuming that Brandlin designates the forward contract as a fair value hedge of a foreign currency receivable, prepare journal entries for these transactions in U.S. dollars.

6. b-2. What is the impact on 2017 net income?

7. b-3. What is the impact on 2018 net income?

8. b-4. What is the impact on net income over the two accounting periods?