On January 2016, Profit Ltd enters the contract with City Ltd for the use of a truck. The contract contained the following clauses:

Lease term: four years with a $6,000 purchase option at the end of the lease.

Lease payments: $200,048 per annum in advance, the first payment is made on 1 January 2016.

Fair value of the truck : $720,000

Profit Ltd incurs $50,000 initial direct cost, including $15,000 legal fees and $35,000 commission to real estate agent

At the end of the lease, Profit Ltd has express intention to exercise the purchase option.

Implicit interest rate: 8%

Estimated useful life of the truck is five years

Profit Ltd accounts for its lease using IFRS 16

(a) Determine the lease liability and initial measurement of a right-use-use asset (i.e. the truck) for Profit ltd.

(b) Prepare the lease liability movement schedule for each year for Profit Ltd.

(c) Prepare accounting journal entries for Profit Ltd for the years ended 31 December 2016 and 2017

Warped Company has the following liabilities at December 31, 2015. For each liability, indicate the amount that should be reported as a current and non-current on the December 31, 2015 Balance Sheet:

a.

$18 million of 10% notes are due on March 31, 2017. A debt covenant requires Warped Company to maintain current assets at least equal to 150% of its current liabilities. On December 31, 2015, Warped is in violation of this covenant. Warped Company obtained a waiver from a bank until June 2016, having convinced the bank that the company's normal 2 to 1 ratio of current assets to current liabilities will be reestablished during the first half of 2016.

b.

$30 million of 8% notes were issued for $30 million on May 31, 2011. The notes mature on May 31, 2021, but investors have the option of calling (demanding payment on) the notes on June 30, 2016. However, given current market conditions it is not expected that the call option will be exercised.

Statement of Cash Flows

The following are several items involving the cash flow activities of the ROCKY HORROR PICTURE CO. for 2016:

Net income, $43300

Payment of dividends, $15600

Ten-year, $36100 bonds payable were issued at face value

Depreciation expense, $20600

Building was acquired at a cost of $36400

Accounts receivable decreased by $1800

Accounts payable decreased by $4600

Equipment was acquired at a cost of $6600

Inventories increased by $6100

Beginning cash balance, $16500

Required:

Prepare Rocky Horror Picture's statement of cash flows for 2016 using the indirect method. Use a minus sign for any negative amounts.

1. Mr. B gets a six month extension to file his 2016 return. The extension allows Mr. B to file his 2016 return on or before October 15, 2017. Mr. B mails his return on October 10, 2017. The post office postmarks the envelope containing the return “October 11, 2017”. The IRS receives the return on October 14, 2017. The IRS issues a SND for Mr. B’s 2016 year on April 6, 2019. Mr. B does not file a Tax Court petition. When does the SOL on assessment expire? Assume 3 year SOL. (Please, explain)

2. Same facts as in Question 1, except the IRS received the return on October 17, 2017. (Please, explain)

3. Same facts as in Question 1, except Mr. B’s correct gross income was $200,000. On his return he reported $150,000. Furthermore, Mr. B did not make any disclosures with respect to his gross income. (Please, explain)

Entries for Issuing Bonds and Amortizing Premium by Straight-Line Method

Daan Corporation wholesales repair products to equipment manufacturers. On April 1, 2016, Daan Corporation issued $3,900,000 of 8-year, 7% bonds at a market (effective) interest rate of 5%, receiving cash of $4,409,147. Interest is payable semiannually on April 1 and October 1.

a. Journalize the entry to record the issuance of bonds on April 1, 2016. For a compound transaction, if an amount box does not require an entry, leave it blank.

b. Journalize the entry to record the first interest payment on October 1, 2016, and amortization of bond premium for six months, using the straight-line method. The bond premium amortization is combined with the semiannual interest payment. (Round to the nearest dollar.) For a compound transaction, if an amount box does not require an entry, leave it blank.

c. Why was the company able issue the bonds for $4,409,147 rather than for the face amount of $3,900,000?

The market rate of interest is the contract rate of interest.

Karen Samuels (Social Security number 123-45-6789) makes the following purchases and sales of stock:

Transaction       Date       Number of Shares   Company Price per Share

Purchase          1-1-2015            300               MDG          $ 75

Purchase          6-1-2015            150               GRU           300

Purchase         11-1-2015             60               MDG            70

Sale             12-3-2015            200               MDG            80

Purchase          3-1-2016            120               GRU           375

Sale              8-1-2016             90               GRU           330

Sale              1-1-2017            150               MDG            90

Sale              2-1-2017             75               GRU           500

Assuming that Karen is unable to identify the particular lots that are sold with the original purchase, determine the recognized gain or loss on each type of stock:

a. As of July 1, 2015.

b. As of December 31, 2015.

c. As of December 31, 2016.

d. As of July 1, 2017.

Please explain so that I understand.

NGW, a consumer gas provider, estimates a rather cold winter. As a result it decides to enter into a futures contract on the NYMEX for natural gas on November 2, 2016. The trading unit is 10,000 millioin British thermal units (MMBtu). The three month futures contract rate is $7.00 per MMBtu, so each contract will cost NGW $70,000. In addition, the exchange requires a $5,000 deposit on each contract. NGW enters into 20 such contracts.

1. Why is the futures contract likely to be considered an effective hedge and therefore qualified for hedge accounting?
2. Why would this transaction be accounted for as a cash flow hedge?
3. Assume the Dec 31, 2016, futures contract is $6.75 for delivery on Feb 2, 2017, and the spot rate on Feb 2, 2017, is $6.85. Assume that NGW sells all of the gas on Feb 3, 2017, for $8.00 per MMBtu. Prepare all the necessary journal entries from Nov 2, 2016, through Feb 3, 2017, to account for this hedge situation.

Question 2: Manufacturing Statement and Income Statement (20 marks in total)

Lake Ltd.’s accounting department provided following financial information:

Required: prepare a statement of Cost of Goods Manufactured and an Income Statement for Lake Ltd. for the year ended 30^th June 2017. You can prepare the statements in an Excel spreadsheet then paste into Word.

Statement of Cash Flows

The following are several items involving the cash flow activities of the ROCKY HORROR PICTURE CO. for 2016:

Net income, $45,800

Payment of dividends, $14,400

Ten-year, $31,600 bonds payable were issued at face value

Depreciation expense, $24,900

Building acquired at a cost of $38,400

Accounts receivable decreased by $2,900

Accounts payable decreased by $3,000

Equipment acquired at a cost of $5,100

Inventories increased by $5,700

Beginning cash balance, $30,100

Required:

Prepare Rocky Horror Picture's statement of cash flows for 2016 using the indirect method. Use a minus sign for any negative amounts.