Morgan Company acquires 40% of the voting stock of Kirk Corporation on January 1, 2014, for $60,000,000, and treats it as an equity method investment. At the date of Morgan’s investment, the fair values of Kirk’s net assets differed from book values as follows:

                                                                                             Book value                                     Fair value                                                                                                     

Merchandise (sold during 2014)                                   $ 5,000,000                                     $ 8,000,000

Buildings and equipment (20-year life)                        30,000,000                                       40,000,000

Intangible assets (4-year life)                                           0                                                         10,000,000

Kirk reports total net income of $20,000,000 for the period 2014 - 2017, and $5,000,000 for 2018. Kirk paid no dividends during the period 2014 – 2017, but paid $1,000,000 in dividends in 2018. The accounting year for both companies ends December 31.

Kirk sells merchandise to Morgan at a markup of 30% on cost (Hint: what is the relationship between markup on cost and gross profit %?). The inventory balances held by Morgan, purchased from Kirk, are as follows.

Inventory held by Morgan, purchased from Kirk

December 31, 2017                         $1,560,000              

December 31, 2018                           2,600,000

Required:

a. Calculate equity in net income of Kirk, reported on Morgan’s 2018 income statement. (2p.)

b. Calculate Investment in Kirk, reported on Morgan’s December 31, 2018 balance sheet. (4p.)

A Company produces colorful 100% cotton shirts and the entity needs 50,000 kilos of raw materials in the production process. On December 1, 2018, the entity purchased a call option as a cash flow hedge to buy 50,000 kilos on July 1, 2019. The option strike price is P100 per kilo. The entity paid P50,000 for the call option. This derivative option contract means that if the market price is higher than P100, the entity can exercise the option and buy the asset at the strike option price of P100. If the market price is lower than P100, the entity can throw away the option and buy the asset at the cheaper price. The market price per kilo is P110 on December 31, 2018 and P115 on July 1, 21019.

1. What is the derivative asset on December 31, 2018?
2 what is the cash settlement from the speculator on July 1, 2015.
3 Assume the market price is P110 on December 31, 2018 and P90 on July 1, 2019. What amount should be recognized as loss on call option in 2019?
4. Assume the market price is P110 on December 31, 2018 and P90 on July 1, 2019. What is the derivative liability on July 1, 2019?

On January 1, 2018, Morris Company sells land to Lopez Corporation for $10,000,000, and immediately leases the land back. The following information relates to this transaction:

1.   The term of the noncancelable lease is 20 years and the title transfers to Morris Company at the end of the lease term.

2.   The land has a cost basis of $8,400,000 to Morris.

3.   The lease agreement calls for equal rental payments of $943,074 at the beginning of each year.

4.   The land has a fair value of $10,000,000 on January 1, 2018.

5.   The incremental borrowing rate of Morris Company is 10%. Morris is aware that Lopez Corporation set the annual rentals to ensure a rate of return of 8%.

6.   Morris Company pays all executory costs which total $255,000 in 2018.

7.   Collectibility of the rentals is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor.

Instructions

(a)    Prepare the journal entries for the entire year 2018 on the books of Morris Company to reflect the above sale and lease transactions (include a partial amortization schedule and round all amounts to the nearest dollar.)

(b)    Prepare the journal entries for the entire year 2018 on the books of Lopez Corporation to reflect the above purchase and lease transactions.

Fuzzy Monkey Technologies, Inc., purchased as a short-term investment $110 million of 10% bonds, dated January 1, on January 1, 2018. Management intends to include the investment in a short-term, active trading portfolio. For bonds of similar risk and maturity the market yield was 12%. The price paid for the bonds was $94 million. Interest is received semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31, 2018, was $100 million. Required: 1. to 3. Prepare the relevant journal entries on the respective dates (record the interest at the effective rate). 4-a. At what amount will Fuzzy Monkey report its investment in the December 31, 2018, balance sheet? 4-b. Prepare any entry necessary to achieve this reporting objective. 5. How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment?

How would Fuzzy Monkey's 2018 statement of cash flows be affected by this investment? (Do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place, (i.e., 5,500,000 should be entered as 5.5).)

The December 31, 2017, adjusted trial balance of Maritime Manufacturing showed the following information:

¹Remaining useful life four years; estimated residual $40,000
²Remaining useful life five years; estimated residual $11,300

Early in 2018, the company made a decision to stop making the items produced by the machinery and buy the items instead. As a result, the remaining useful life was decreased to two years and the residual value was increased to a total of $80,000. At the beginning of 2018, it was determined that the estimated life of the office furniture should be reduced by two years and the residual value decreased by $6,500. The company calculates depreciation using the straight-line method to the nearest month.

Required:
Prepare the entries to record depreciation on the machinery and office furniture for the year ended December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round the final answer to the nearest whole dollars.)

1.Record the depreciation on the machinery, for the year ended Dec. 31, 2018.

2. Record the depreciation on the office furniture for the year ended Dec. 31, 2018.

On June 30, 2018, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $779,353 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 12%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $4.1. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the present value of the lease payments at June 30, 2018 that Georgia-Atlantic uses to record the right-of-use asset and lease liability. 2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2018? 3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2018?

On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $530,475 over a 4-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic's incremental borrowing rate is 10.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $3.1 million. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price at which Builders is “selling” the equipment (present value of the lease payments) at June 30, 2018. 2. What amounts related to the lease would Builders report in its balance sheet at December 31, 2018 (ignore taxes)? 3. What amounts related to the lease would Builders report in its income statement for the year ended December 31, 2018 (ignore taxes)? (For all requirements, enter your answers in whole dollars and not in millions. Round your final answer to nearest whole dollar.)

On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $530,475 over a 4-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic's incremental borrowing rate is 10.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $3.1 million. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price at which Builders is “selling” the equipment (present value of the lease payments) at June 30, 2018. 2. What amounts related to the lease would Builders report in its balance sheet at December 31, 2018 (ignore taxes)? 3. What amounts related to the lease would Builders report in its income statement for the year ended December 31, 2018 (ignore taxes)? (For all requirements, enter your answers in whole dollars and not in millions. Round your final answer to nearest whole dollar.)

On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $583,573 over a 4-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic's incremental borrowing rate is 11.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $3.4 million.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
1. Determine the price at which Builders is “selling” the equipment (present value of the lease payments) at June 30, 2018.
2. What pretax amounts related to the lease would Builders report in its balance sheet at December 31, 2018?
3. What pretax amounts related to the lease would Builders report in its income statement for the year ended December 31, 2018?

(For all requirements, enter your answers in whole dollars and not in millions. Round your final answer to nearest whole dollar.)

A

The agreement of the trial balance totals is an indication that all transactions have been properly recorded in the books of accounts. Do you agree with this statement? Required: Outline 4 reasons to justify your response. B ABC Ltd started business on 1/1/14, and its financial year ends on 31st December each year. The following information was extracted from the company’s asset register. DATE TRANSACTION AMOUNT (GHS) 2016 January, 1 Purchased one motor van 58,500 2016 September, 1 Purchased two motor vans 78,000 each 2018 March, 1 Purchased one motor van 45,200 2018 May, 2 Sold the motor van purchased in January 2016 18,240 2019 April 1 Purchased three motor vans 62,000 each Additional Information The company’s policy is to depreciate Motor vehicles at a rate of 20% per annum on cost. You are required to prepare: i) The Motor vehicles account (2016-2019) ii) Provision for depreciation account (2016-2019) iii) Disposal account for 2018 iv) Statement of profit or loss extract for 2018 and 2019 (1 mark) v) Statement of financial position extract for 2018 and 2019