question: Why is retained earnings on December 31, 2018, equal to $80,000 in all three cases despite the reporting of different amounts of net income each year?
Is it A,B, or C?
A: Net income over sufficiently long time periods equals cash inflows minus cash outflows. Walmart acquired the land in 2016 for $100,000 and sold it for $180,000 in 2018. Thus, the total effect on net income through the realization of the increase in the va
B: Net income over sufficiently long time periods equals cash inflows plus cash outflows. Walmart acquired the land in 2016 for $100,000 and sold it for $180,000 in 2018. Thus, the total effect on net income through the realization of the increase in the val
C: Net income over sufficiently long time periods equals cash inflows minus cash outflows. Walmart acquired the land in 2016 for $100,000 and sold it for $180,000 in 2018. Thus, the total effect on net income through the realization of the increase in the va
In: Accounting
Van Hatten Consolidated has three operating divisions: DeMent
Publishing Division, Ankiel Security Division, and Depp Advisory
Division. Each division maintains its own accounting system but
follows IFRS.
| DeMent Publishing Division The DeMent Publishing Division sells large volumes of novels to a few book distributors, which in turn sell to several national chains of bookstores. DeMent allows distributors to return up to 30% of sales, and the distributors give the same terms to bookstores. While returns from individual titles fluctuate greatly, the returns from distributors have averaged 20% in each of the past five years. A total of $7 million of paperback novel sales were made to distributors during fiscal 2020. On November 30, 2020 (the end of the fiscal year), $1.5 million of fiscal 2020 sales were still subject to return privileges over the next six months. The remaining $5.5 million of fiscal 2020 sales had actual returns of 21%. Sales from fiscal 2019 totalling $2 million were collected in fiscal 2020 less 18% returns. This division records revenue according to the revenue recognition method when the right of return exists. |
| Ankiel Security Division The Ankiel Security Division works through manufacturers’ agents in various cities. Orders for alarm systems and down payments are forwarded from agents, and the division ships the goods f.o.b. factory directly to the customers (usually police departments and security guard companies). Customers are billed directly for the balance due plus actual shipping costs. The company received orders for $6 million of goods during the fiscal year ended November 30, 2020. Down payments of $600,000 were received, and $5.2 million of goods were billed and shipped. Actual freight costs of $100,000 were also billed. Commissions of 10% on product price are paid to manufacturing agents after goods are shipped to customers. Such goods are covered by the warranty for 90 days after shipment, and warranty claims have been about 1% of sales. Revenue is recognized at the point of sale by this division. |
| Depp Advisory Division The Depp Advisory Division provides asset management services. This division grew out of Van Hatten’s own treasury and asset management operations, which several of its customers asked to have access to. On January 1, 2020, Depp entered into a contract with Scutaro Co. to perform asset management services for one year. Depp receives a quarterly management fee of 0.25% on Scutaro’s assets under management at the end of each quarter. In addition, Depp receives a performance-based incentive fee of 20% of the fund’s annual return in excess of the return on the S&P 500 index at the end of the year. At the end of the first quarter of 2020, Depp was managing $2.4 million of Scutaro assets. The annualized return on the portfolio was 6.2%. (The S&P 500 index had an annualized return of 5.7%.) |
(a)
For each division’s revenue arrangements, identify the separate
performance obligations, briefly explain the allocation of the
transaction process to each performance obligation, and indicate
when the performance obligations are satisfied.
In: Accounting
Company A has a market value of equity of $2,000 million and 80 million shares outstanding. Company B has a market value of equity of $400 million and 25 million shares outstanding. Company A announces at the beginning of 2019 that is going to acquire Company B.
The projected pre-tax gains in operating income (in millions of $) from the merger are:
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Pre-tax Gains in Operating Income | 12 | 16 | 28 | 38 |
45 |
The projected pre-tax gains in operating income are expected to grow at 4% after year 2023. The company is using a discount rate of 8% to value the synergies. The marginal corporate tax rate is 35%.
Company A has decided to pay a $300 million premium for Company B. Assume that capital markets are efficient and that there is a 100% probability the deal will be closed.
1/ By how much the price per share of Company A would change at the time of the announcement of the acquisition?
2/ If Company A were to make a 100% stock offer for Company B, what would the exchange ratio be? Remember that the exchange ratio is the number of Company A’s shares that the shareholders of Company B will receive in exchange for each of their shares.
3/ If Company A were to offer 0.80 share of Company A for each share of company B, by how much the price per share of Company A would change at the time of the announcement of the acquisition?
In: Accounting
Majestic Company owns the following debt investment which management properly classifies as available for sale:
Amortized Cost Fair Value at 12/31/19
Ajax Company Bond $1,670,000 $1,710,000
Majestic is preparing its adjusting entries for 2019 to record the Ajax Bond at its fair value. At the end of 2018, the bond had an amortized cost of $1,700,000 and a fair value of $1,680,000 leaving a credit balance in the Fair Value Adjustment account of $20,000. (SHOW ALL WORK)
Required:
In: Finance
Pesto Company possesses 80 percent of Salerno Company's outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2014, Pesto sold 6 percent bonds payable with a $14.0 million face value (maturing in 20 years) on the open market at a premium of $1,070,000. On January 1, 2017, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 percent of face value. Both companies use the straight-line method of amortization. For a 2018 consolidation, what adjustment should be made to Pesto's beginning Retained Earnings as a result of this bond acquisition?
Multiple Choice
$543,000 increase
$521,600 increase
$554,200 increase
$532,300 increase
In: Accounting
Assume that TDW Corporation (calendar-year-end) has 2019 taxable income of $668,000 for purposes of computing the §179 expense. The company acquired the following assets during 2019: (Use MACRS Table 1, Table 2, Table 3, Table 4 and Table 5.)
| Placed in | |||
| Asset | Service | Basis | |
| Machinery | September 12 | $ | 2,272,250 |
| Computer equipment | February 10 | 265,925 | |
| Furniture | April 2 | 883,825 | |
| Total | $ | 3,422,000 | |
a. What is the maximum amount of §179 expense TDW may deduct for 2019?
b. What is the maximum total depreciation, including §179 expense, that TDW may deduct in 2019 on the assets it placed in service in 2019, assuming no bonus depreciation?
In: Accounting
Recently President Trump signed an executive order that instructed federal agencies to give less consideration to an educational degree and more consideration for demonstrable skill for many federal positions. He stressed that there would still be positions that require a degree, but that in many cases a degree should not be given primary weight in the hiring consideration. Educational leaders have indicated that they did not see this as a devaluing of earning a degree, as many of the skills that will give potential employees and edge are often acquired through education. If you were hiring employees for financial positions in a company you either owned or were in upper management, how much weight in the hiring process would you put on college education and why?
In: Accounting
A manufacturer of fabricated metal products has acquired a new plasma table for $37,000. It is projected that the acquisition of this equipment will increase revenue by $10,000 per year. Operating costs for the machine will average $2,600 per year. The machine will be depreciated using the MACRS method, with a recovery period of 7 years. The company uses an after-tax MARR rate of 10% and has an effective tax rate of 30%.
2. Now, suppose that the duration of the project is six years and that an estimate of the value of the equipment cannot be obtained from the marketplace.
2.1. Estimate the SV value at the end of the project period using the appropriate technique. In subsequent parts, assume the estimated SV is $12,000, regardless of the result that you actually obtained.
In: Finance
Pesto Company possesses 80 percent of Salerno Company's outstanding voting stock. Pesto uses the initial value method to account for this investment. On January 1, 2014, Pesto sold 10 percent bonds payable with a $18.0 million face value (maturing in 20 years) on the open market at a premium of $760,000. On January 1, 2017, Salerno acquired 40 percent of these same bonds from an outside party at 96.6 percent of face value. Both companies use the straight-line method of amortization. For a 2018 consolidation, what adjustment should be made to Pesto's beginning Retained Earnings as a result of this bond acquisition?
Multiple Choice
$503,200 increase
$481,200 increase
$488,800 increase
$473,600 increase
In: Accounting
The following transactions pertain to Year 1, the first-year operations of Baird Company. All inventory was started and completed during Year 1. Assume that all transactions are cash transactions.
1.Acquired $4,000 cash by issuing common stock.
2.Paid $700 for materials used to produce inventory.
3.Paid $1,830 to production workers.
4.Paid $862 rental fee for production equipment.
5.Paid $110 to administrative employees.
6.Paid $120 rental fee for administrative office equipment.
7.Produced 320 units of inventory of which 230 units were sold at a price of $13 each.
Required
Prepare an income statement and a balance sheet in accordance with GAAP.
In: Accounting