PRACTICAL QUESTION                                                                                         

Tiger Construction Ltd signs a contract on 1 May 2018 to build a theme park. The construction is scheduled to commence on 1 July 2018 and the estimated date of completion is 30 June 2021. The total contract price is $5m and the cost of the park is initially estimated at $4.5m. The following data relates to the construction period:

Assume that cost (an input measure) is used as the basis for assessing progress on the construction contract.

Required

Determine the percentage of completion for 2019, 2020 and 2021.               

Calculate revenue and gross profit for 2019, 2020 and 2021.                           

Using the percentage of completion method, provide the journal entries for 2019, 2020 and 2021.                                                                                                              

PRACTICAL QUESTION                                                                                         

Tiger Construction Ltd signs a contract on 1 May 2018 to build a theme park. The construction is scheduled to commence on 1 July 2018 and the estimated date of completion is 30 June 2021. The total contract price is $5m and the cost of the park is initially estimated at $4.5m. The following data relates to the construction period:

Assume that cost (an input measure) is used as the basis for assessing progress on the construction contract.

Required

Determine the percentage of completion for 2019, 2020 and 2021.               

Calculate revenue and gross profit for 2019, 2020 and 2021.                           

Using the percentage of completion method, provide the journal entries for 2019, 2020 and 2021.                                                                                                              

P5–5A Buono Adventures, which uses the perpetual inventory system, has the following account balances (in alphabetical order) on July 31, 2020:

Accounts Payable.......................................................................$ 21,600Accounts Receivable..................................................................23,200Accumulated Amortization—Equipment..............................64,600Cash..............................................................................................8,400Cost of Goods Sold.....................................................................687,000E. Buono, Capital........................................................................402,000E. Buono, Withdrawals..............................................................92,000Equipment..............................180,000Interest Earned..........................................................................4,000Inventory....................................................................................143,000Operating Expenses..................................................................355,000Sales Discounts..........................................................................10,300Sales Returns and Allowances................................................32,900Sales Revenue............................................................................1,045,200Supplies......................................................................................14,600Unearned Sales Revenue..........................................................9,000

NOTE: For simplicity, all operating expenses have been summarized in the account Operating Expenses.

Additional data at July 31, 2020:

A physical count of items showed $3,000 of supplies on hand. (Hint: Use the account Operating Expenses in the adjusting journal entry.)

An inventory count showed inventory on hand at July 31, 2020, of $140,000.

The equipment has an estimated useful life of eight years and is expected to have no scrap or residual value at the end of its life. (Hint: Use the account Operating Expenses in the adjusting journal entry.)

Unearned sales revenue of $5,600 was earned by July 31, 2020.

Required

Record all adjustments and closing entries that would be required on July 31, 2020.

Prepare the multi-step income statement and statement of owner’s equity for the year ended July 31, 2020, and the classified balance sheet in report format as at July 31, 2020.

The following information was obtained from the accounting records and financial statements of Fairbanks Inc.

Additional information:

• On February 1, 2020, Fairbanks issued common shares for machinery and equipment. The common shares had a current market value of $20,000.
• On March 1, 2020, Fairbanks sold equipment that cost $200,000, with a book value of $90,000, for $95,000.
• On August 15, 2020, Fairbanks sold land with an original cost of $200,000 for $189,000.
• On September 27, 2020, Fairbanks issued a stock dividend to shareholders valued at $10,000.
• On December 31, 2020, Fairbanks declared and paid cash dividends of $3,000.

Required:

1. Prepare the cash flow statement, using the indirect method, for Fairbanks for the year ended December 31, 2020.

Required: Complete the following worksheet for Appliance Repair for the year ended 30 June 2020.

Additional information to complete the worksheet:

1. The equipment of $67,500 was purchased on 1 March 2020. The straight-line depreciation method is used with a useful life of 3 years and a scrap value of $2,700. No depreciation is ever recorded.
2. The $75,000 bank loan was borrowed on 1 May 2020. It is an interest only loan. The interest rate is 0.8% per month. No interest is ever paid or recorded.
3. The supplies on hand at 30 June 2020 were $650.
4. The prepaid insurance balance represents the annual premium paid on 1 April 2020.
5. $2,500 of unearned revenue has been earned by 30 June 2020.

Appliance Repair

Worksheet

For the year ended 30 June 2020

Alexa Inc. purchased equipment in 2018 for $70,000 with no residual value. On December 31, 2020, accumulated depreciation using the straight-line method for financial reporting was $21,000. For tax purposes, Alexa uses MACRS depreciation resulting in $49,840 in accumulated depreciation for tax purposes on December 31, 2020. Taxable income was $140,000 for 2020 and the company's tax rate is 25%.

a. Determine the GAAP basis of equipment (net) on December 30, 2020.

b. Determine the tax basis of equipment on December 30, 2020.

c. Assuming a deferred tax liability balance of $6,860 on December 31, 2019, record income tax expense for 2020.

Note: List multiple debits (when applicable) in alphabetical order and list multiple credits (when applicable) in alphabetical order.

JY investment Ltd holds a well-diversified portfolio of shares that has a market value of $1.5 million on 30 June 2019. JY is concerned about possible downturns in the share market and on 1 March 2020 decides to take out a sell position in eleven “September 2020 SPI 200 Futures” units when the SPI 200 is 5500. The SPI 200 Futures contract unit value is the value of SPI 200 multiplied by $25. To enter the contract, JY pays an initial cash deposit (margin) of $150,000 to a broker. On 30 June 2020, the reporting date of JY investment Ltd, the unit price of the September SPI futures contracts has fallen to 5300 and the market value of the firm’s portfolio of shares is $1 435 000. Assume broker allows a $50,000 drop before making a margin call to allow for minor fluctuations in the market. The shares are sold on 31 August 2020 when the market value of the shares is $1 290 000 and the September SPI 200 futures contract closed out at 5250 on 31 August 2020. Assume the futures contracts qualify as a hedge, the shares are marked to market.

REQUIRED: Prepare journal entries to account for the above events from 1 March 2020 to 31 August 2020. Show all calculations and round them to the nearest dollar amount. No narration is required.

JY investment Ltd holds a well-diversified portfolio of shares that has a market value of

$1.5 million on 30 June 2019. JY is concerned about possible downturns in the share market and on 1 March 2020 decides to take out a sell position in eleven “September 2020 SPI 200 Futures” units when the SPI 200 is 5500. The SPI 200 Futures contract unit value is the value of SPI 200 multiplied by $25. To enter the contract, JY pays an initial cash deposit (margin) of $150,000 to a broker.

On 30 June 2020, the reporting date of JY investment Ltd, the unit price of the September SPI futures contracts has fallen to 5300 and the market value of the firm’s portfolio of shares is $1 435 000. Assume broker allows a $50,000 drop before making a margin call to allow for minor fluctuations in the market.

The shares are sold on 31 August 2020 when the market value of the shares is $1 290 000 and the September SPI 200 futures contract closed out at 5250 on 31 August 2020. Assume the futures contracts qualify as a hedge, the shares are marked to market.

QUESTION

Prepare journal entries to account for the above events from 1 March 2020 to 31 August 2020. Show all calculations and round them to the nearest dollar amount. No narration is required.

1-Which of the following controls a corporation?

1. Chief executive officer (CEO)
2. Board of directors
3. Chief financial officer (CFO)
4. None of these choices are correct.

2-All of the following are considered advantages of the corporate form of business EXCEPT

1. limited liability.
2. double taxation.
3. continuous life.
4. separate legal existence.

3- A journal entry to record the issuance of preferred stock at a premium would include a __________ to __________.

1. credit; Cash
2. debit; Paid-In Capital in Excess of Par
3. debit; Preferred Stock
4. credit; Preferred Stock

4-When only one class of stock is issued, it is called __________ stock.

1. common
2. preferred
3. no-par
4. cumulative preferred

5-Changes in retained earnings may be reported in all of the following EXCEPT

1. a separate retained earnings statement.
2. a combined income and retained earnings statement.
3. a statement of stockholders’ equity.
4. a balance sheet.

6-  Which is the argument in favor of super voting shares?

1. The founders can concentrate on the long-term goals of the company without concern for the more short-term goals public shareholders may have.
2. The founders can eliminate or reduce the public shareholders’ ability to hold management accountable.
3. The shareholders will have too much power in voting forward movement of the company.
4. The founders will relinquish control and thus steer the company in a direction that reduces shareholders' revenue.

"Long-Term Liabilities" Discuss bonds 2. "Off Balance Sheet Financing" Harold Walker is CEO and Owner of Walker Enterprises (WE), a company that has shown strong and consistent growth over the years. However, WE is struggling with cash flow issues and Harold is looking for a loan and/or line of credit to bolster his company. The problem is that the company’s debt to equity ratio is already high and he knows it will be challenging to find a bank willing to lend him additional funds. Fred, his CFO, has come up with an idea. A large portion of the company’s debt is tied up in the mortgage of their five-story office building. Fred has suggested moving this debt to “off balance sheet” by creating an SPV (Special Purpose Vehicle) that owns the building on behalf of the company and then leases it back. This results in WE entering into an operating lease off the balance sheet and recording only the relatively small monthly “rent” as an operating expense. Fred says this will significantly increase the company’s liquidity and present a balance sheet that will be much more attractive to any potential lenders. Fred has assured Harold this is legal and common. This arrangement does not feel right to Harold. What additional information should Harold request? What additional reservations or concerns would you have?