Question 2                                                                                     

On January 1, 2015, Portia Ltd. issued shares worth $1,120,000 to Storm Ltd. to acquire 80% of Storm’s outstanding shares. On the acquisition date, Storm’s statement of financial position shows share capital of $420,000 and retained earnings of $777,000. At the acquisition date, all of Storm’s identifiable assets and liabilities equaled their fair values with the exception of the following:

          Inventories (fair value exceeded book value by $14,000)

          Investments (fair value exceeded book value by $14,000)

          Equipment (fair value exceed net book value by $105,000)

At the acquisition date, Storm’s accumulated amortization account for the equipment had a balance of $805,000. As of the acquisition date, Storm’s equipment had a remaining useful life of 10 years.

Additional information:

Portia records its investments using the cost method.

Portia uses the entity theory method of consolidation.

In 2017, Portia sold all its investments for a gain of $63,000.

In 2018, Portia purchased equipment from Storm for $127,400. At the sale date, Storm’s net book value of the equipment was $98,000. Storm had originally purchased the equipment for $140,000. After the purchase, Portia amortized the equipment at a rate of $18,200 per year for the remaining 7 years of its useful life, taking a full year of amortization in 2018.

During 2019, Storm purchased goods from Portia. At the end of 2019, Storm still had $28,000 of these goods in inventory. Portia had earned a gross margin of 40% on the sale. The goods were sold to external customers in 2020.

During 2019, Portia purchased goods from Storm. At the end of 2019, Portia still had $140,000 of these goods in inventory. Storm had earned a gross margin of 40% on the sale. The goods were sold to external customers in 2020.

During 2020, Portia sold goods of $140,000 to Storm. Portia earned a gross profit of $56,000 on this sale. At the end of 2020, Storm still had $56,000 worth of goods in inventory.

During 2020, Storm sold goods of $980,000 to Portia at a gross margin of 40%. At the end of 2020, Portia still had 10% of the goods in inventory.

During 2020, Portia received $126,000 in royalties from Storm. Between January 1, 2015 and December 31, 2019, Portia received $700,000 in royalties from Storm.

The financial statements for Portia and Storm for the year ended December 31, 2020 are presented on the following pages.

Statement of Financial Position

As of December 31, 2020

                                                                                                      Portia Ltd.      Storm Ltd.

Assets:

Current assets:

Cash                                                                                      $        70,000    $       28,000

Accounts receivable                                                                   210,000             224,000

Inventory                                                                                       252,000             140,000

                                                                                                      532,000             392,000

Noncurrent assets:

Land                                                                                             140,000                   -

Equipment                                                                                 7,000,000        3,780,000

Accumulated amortization, equipment                      (2,478,000)       (1,736,000)

Investment in Storm                                                                  1,120,000           ____-___

                                                                                                    5,782,000        2,044,000

Total assets                                                                           $ 6,314,000     $ 2,436,000

Liabilities and shareholders’ equity:

Current liabilities:

Accounts payable                                                                 $     630,000     $    280,000

Noncurrent liabilities:

Loan payable                                                                               420,000             700,000

                                                                                                    1,050,000             980,000

Shareholders’ equity:

Share capital                                                                             1,680,000             420,000

Retained earnings                                                                    3,584,000        1,036,000

                                                                                                    5,264,000        1,456,000

                                                                                                 $ 6,314,000     $ 2,436,000

Condensed Statement of Comprehensive Income

For the year ended December 31, 2020

                                                                                          Portia Ltd.      Storm Ltd.

Revenue:

            Sales                                             $ 2,804,200   $ 2,100,000

            Royalties                                            210,000                -

            Dividends                                           100,800      ____-___

                                                                      3,115,000      2,100,000

                  Expenses:

                              Cost of sales                                   1,680,000      1,260,000

                              Other                                                   784,000        575,400

                                                                                        2,464,000      1,835,400

                  Net and comprehensive income          $    651,000   $    264,600

Statement of Changes in Equity – Retained Earnings Section

For the year ended December 31, 2020

                                                                                                      Portia Ltd.      Storm Ltd.

Retained earnings, beginning of the year                           $ 3,353,000 $    897,400

Net income                                                                                   651,000         264,600

Dividends declared                                                                    (420,000)      (126,000)

Retained earnings, end of year                                $ 3,584,000 $ 1,036,000

Required:

Prepare Portia’s consolidated financial statements for the year ended December 31, 2020. Be sure to show all your supporting calculations.

Read the following scenario - I ask each of you to make up a parody (funny imitation, like Weird Al does) of the song "Blurred Lines" by Robin Thicke and Pharrell Williams.

One of you comes up with a GREAT version and as our next class project we decide to create a corporation, with each of us as equal shareholders. We work together to see if we can produce and post a financially successful video. Next thing you know we are the biggest thing since "Gangham Style" (currently at 3.4 BILLION hits, don't ask me why!). We quickly exceed 100 Million hits for which we earn a penny a piece. So we now have $1,000,000 to split 35 ways and that number is only going to increase.

SAD NEWS: We get a letter from the lawyer for Thicke and Williams saying we have violated their clients' intellectual property rights and they want two-thirds of the money we've made (and will continue to make) off the song. We don't want to share!  

1. Construct an approximately 125-word argument (it can be more, but much less would not be good) as if you are representing Thicke and Williams, clearly outlining what right they have to "our" money (be sure to talk about the specific area of law, how their right was acquired, what protection they are entitled to, and what damages they could be entitled to).

Pretzel Corporation acquired 100 percent of Stick Company’s outstanding shares on January 1, 20X7. Balance sheet data for the two companies immediately after the purchase follow:

As indicated in the parent company balance sheet, Pretzel purchased $58,000 of Stick’s bonds from the subsidiary at par value immediately after it acquired the stock. An analysis of intercompany receivables and payables also indicates that the subsidiary owes the parent $11,000. On the date of combination, the book values and fair values of Stick’s assets and liabilities were the same.

Required:
a. Prepare all consolidation entries needed to prepare a consolidated balance sheet for January 1, 20X7. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) ( 1. Record the basic consolidation entry, 2. Record the excess value, 3. Record the entry to eliminate the intercompany accounts for Bonds Payable. 4.Record the entry to eliminate the remaining intercompany accounts. 5. Record the optional accumulated depreciation consolidation entry.)

b. Complete a consolidated balance sheet worksheet. (Values in the first two columns (the "parent" and "subsidiary" balances) that are to be deducted should be indicated with a minus sign, while all values in the "Consolidation Entries" columns should be entered as positive values. For accounts where multiple adjusting entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet.)

c. Prepare a consolidated balance sheet. (Amounts to be deducted should be entered with a minus sign.)

1. Gabriel Ltd leases a siphoning filter from Logan Ltd. The terms of the lease is to commence on 1 July 2020. The lease is to last for 4 years. Lease payments are to be made annually in arrears. The first payment to be made on 30 June 2021. Each lease payment is to amount to $5,000. At the end of the lease, the expected residual value of the filter is $3000. Gabriel Ltd guarantees $2000 of the residual value. The interest rate implicit in the lease is 4%. At the start of the lease, at what amount should Gabriel Ltd record the right to use asset in their books?

a.$19,859

b.$20,585

c.$18,149

d.$20,714

2. White Ltd owned a boat that has an economic useful life of 6 years as at 1 July 2020. On 1 July 2020 the company leased one boat to River Ltd for three years. White Ltd recognised this lease as a finance lease and recorded a lease receivable valued at $61,507. In the lease agreement, River Ltd agreed to guarantee $4,000 residual value, $1,000 less than what White had estimated. The lease payment is $20,000. Lease payments are to be made annually and in advance. The interest rate implicit in the lease is the same for both companies at 5%. What is the amount of River Ltd’s lease liability on the commencement day of the lease?

a.$40,644   b.$60,644   c.$61,507    d.$41,507

3.White Ltd owns a boat that has an economic useful life of 6 years as at 1 July 2020. On 1 July 2020 the company leases the boat to River Ltd. The right to use asset recorded by River Ltd is valued at $61,507. The lease payment id $20,000 for three years. Lease payments are to be made annually and in advance. River Ltd guarantees the $5,000 residual value of the boat. What is the amount of River Ltd’s annual depreciation expense?

a.$18,836 b.$9,418    c.$13,836    d.$12,169

4.According to AASB16, which of these is NOT a valuation model which can be applied to any type of leased asset?

a. The cost model b. the fair value model c.The revaluation model d.The lower of cost and net realisable value model

5. According to AASB16, at the commencement date of a lease, how is the lessee to measure the lease liability?

a. The fair value of the leased asset

b. The present value of all lease payments over the life of the lease

c. The present value of all lease payments to be made after the commencement date

d. The present value of the cash flows to be generated by the leased asset

Problem 3: Rick goes to career fair booths in the technology sector for data science jobs (e.g., Facebook, Amazon, IBM, etc.). His likelihood of receiving an off-campus interview invitation after a career fair booth visit depends on how well he did in MIE 263. Especially, an A in MIE 263 results in a probability p=0.95 of obtaining an invitation, whereas a C in MIE 263 results in a probability of p=0.15 of an invitation. (Whether a student will get an invitation is independent on whether he will get an invitation from other firms.) Furthermore, to get an A, a student has to pass all quizzes. The probability that Rick passes any quiz is 0.5. Rick’s performance on each
quiz is independent of his performance on all other quizzes.

c) Assuming that each student visits 5 booths during a typical career fair, find the probability that an A student in MIE 263 will not get an off-campus interview invitation.Similarly, find the probability that a C student in MIE 263 will get an invitation during a typical career fair.
d) Determine the probability that Rick will pass exactly two out of the first four quizzes.
e) Determine the probability that the third quiz Rick takes is the first one that he fails.
f) Given that Rick failed four times in his first eight quizzes, determine the conditional
probability that his fifth failure will occur on the eleventh quiz.
g) Determine the probability that Rick’s second failure occurs on his fifth quiz.

IBM and Its Human Resources It had been a very bad morning for John Ross, the general manager of MMC’s Chinese joint venture. He had just gotten off the phone with his boss in St. Louis, Phil Smith, who was demanding to know why the joint ven- ture’s return on investment was still in the low single dig- its four years after Ross had taken over the top post in the operation. “We had expected much better performance by now,” Smith said, “particularly given your record of achievement; you need to fix this John! Our patience is not infinite. You know the corporate goal is for a 20 percent return on investment for operating units, and your unit is not even close to that.” Ross had a very bad feeling that Smith had just fired a warning shot across his bow. There was an implicit threat underlying Smith’s demands for improved performance. For the first time in his 20-year career at MMC, Ross felt that his job was on the line. Back in the early 2000s IBM’s CEO at the time, Sam Palmisano, set out to recreate IBM as a globallyintegrated enterprise that would provide its customers IBM products and services—software, hardware, busi- ness processing, consulting, and more—wherever and whenever they needed it. Underpinning Palmisano’s vi- sion was a realization that globalization was proceed- ing rapidly, and that many of IBM’s customers were themselves increasingly global enterprises. Global customers wanted to deal with one IBM, not many different national units. Palmisano also understood that for IBM to build a sustained competitive advantage in this new world, it would have to have world-class human capital. People and their acquired skills, he realized, were the foundation of competitive advantage. Companies that rely on technological or manufacturing innovations alone cannot be expected to dominate their markets indefi- nitely. Competitors can and do catch up. In Palmisano’s view, the quality and strategic deployment of human capital is what separates winners from also-rans. This was particularly true for a company like IBM, which increasingly relied on its people to build and deliver world-class services. To execute his strategy, Palmisano created global prod- uct divisions, but that alone was not enough. He realized that IBM’s existing human resource systems were not aligned with the new strategy. Much of the hiring, train- ing, and staffing functions of HR were still based in na- tional units. The company lacked a global approach to managing and deploying its human capital, and execut- ing Palmisano’s vision required this. That insight was the genesis for what became known as the Workforce Management Initiative (WMI) at IBM. Established by the global human resource group, the purpose of this initiative was to create for the first time a single, integrated approach to hiring, managing, and de- ploying IBM’s global workforce. The ultimate goal was to enable the company to find and deploy the best people within the company to help solve client problems or respond to their requests. For this to work, HR had to become intimately involved in understanding the busi- ness strategy of different IBM units and the implications that business strategy holds for human resource deploy- ment. Unless HR had a seat at the strategy table, it could not properly identify and provide the right people to exe- cute a unit’s strategy. As it progressed, the WMI involved investing more than $100 million to create a companywide database to document the skills of more than 400,000 employees at IBM, measure the supply and demand for different skills and capabilities, and seek to match human capital with specific projects. The goal was to get the right person, with the right skills, at the right time, place, and cost. For example, when a health care client needed a consultant with a clinical background, a search using the WMI data- base immediately targeted a former registered nurse who was now an IBM consultant. By improving the efficiency of its internal labor market and leveraging its global workforce, IBM estimates that the WMI database saved the company as much as $1.4 billion in its first four years in operation. The WMI database has a number of other benefits. It helps employees make career decisions, as by accessing it they can see which skills are in demand. Moreover, by identifying potential mismatches between the supply and demand of skills, it drives decisions about internal man- agement development and training programs, enabling IBM to identify with precision which skills its employ- ees need to acquire for the company to maintain its com- petitive edge going forward. In 2013, under the watch of new CEO Virginia “Ginni” Rometty, IBM continued the workforce devel- opment offerings by launching its Smarter Workforce Initiative, bringing together the products and services of Kenexa with IBM. Kenexa was acquired by IBM for $1.3 billion in late 2012, and it brought together vari- ous solutions within IBM such as employee assess- ment and psychology, employee engagement tools and offerings, employee branding and recruitment out- sourcing, and talent management software. The Smarter Workforce Initiative was IBM’s venture into a highly competitive space of HR solutions and soft- ware, with Oracle, SAP, and others having been in the market for a long time. With its internal Workforce Management Initiative and its externally focused Smarter Workforce Initiative, IBM was positioning it- self to be a major force in global human resource management.

Please write a summary of the case.

Blue Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $169,800. The company estimated that the machine would have a salvage value of $16,800 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 20,000 hours. Year-end is December 31. Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places, e.g. 45,892.) (a) Straight-line depreciation for 2020 $enter a dollar amount (b) Activity method for 2020, assuming that machine usage was 800 hours $enter a dollar amount (c) Sum-of-the-years'-digits for 2021 $enter a dollar amount (d) Double-declining-balance for 2021

Marigold Corporation purchased a new machine for its assembly process on August 1, 2020. The cost of this machine was $127,500. The company estimated that the machine would have a salvage value of $10,500 at the end of its service life. Its life is estimated at 5 years, and its working hours are estimated at 20,000 hours. Year-end is December 31.

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. (Round depreciation rate per hour to 2 decimal places, e.g. 5.35 for computational purposes. Round your answers to 0 decimal places, e.g. 45,892.)

(a)      
Straight-line depreciation for 2020
$enter a dollar amount
(b)      
Activity method for 2020, assuming that machine usage was 880 hours
$enter a dollar amount
(c)      
Sum-of-the-years'-digits for 2021
$enter a dollar amount
(d)      
Double-declining-balance for 2021

Question 2: A company wants to get its working capital calculated by you. You are given the following estimates for the year 2020 In addition to that add 5 percent to your figures for contingencies. Calculate the average amount of working capital required for the year 2020.

Solution: