The idea of insurance is that we all face risks that are unlikely but carry high cost. Think of a fire destroying your home. So we form a group to share the risk: we all pay a small amount, and the insurance policy pays a large amount to those few of us whose homes burn down. An insurance company looks at the records for millions of homeowners and sees that the mean loss from fire in a year is μ = $500 per house and that the standard deviation of the loss is σ = $10,000. (The distribution of losses is extremely right-skewed: most people have $0 loss, but a few have large losses.) The company plans to sell fire insurance for $500 plus enough to cover its costs and profit. (a) Explain clearly why it would be unwise to sell only 100 policies. Then explain why selling many thousands of such policies is a safe business. (b) Suppose the company sells the policies for $600. If the company sells 50,000 policies, what is the approximate probability that the average loss in a year will be greater than $600?

Jay Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment. The following data are relevant to the lease agreement.
- The term of the noncancellable lease is three years, with no renewal option. Payments of $12,000 are due on January 1, of each year.
- The fair value of the equipment on January 1, 2020 is $35,000. The equipment has an estimated economic life of five years, and an unguarenteed residual value of $4,000.
- The equipment reverts back to the lessor at the termination of the lease and is expected to have use to the lessor.
- The lessee is aware that the lessor used an implicit rate of 6%.
(Present Value & Future Value Tables are provided on pages 3 and 4)
Instructions:
1. Indicate the type of lease Jay has entered into and why (include a list of the Capital Lease Criteria)
(Present Value & Future Value Tables are provided on pages 3 and 4)
2. Prepare the journal entries on Jay’s books related to the lease agreement for the following dates: (round all amounts to the nearest dollar. Include a partial amortization schedule)
a. January 1, 2020
b. December 31, 2020
c. January 1, 2021
Problem #2 (14 points)
Calculation of lease payments
Zest Company, as lessee, enters into a lease agreement on January 1, 2018, to
lease equipment. The following data are relevant to the lease agreement.
- The term of the noncancellable lease is three years, with no renewal option.
- The fair value of the equipment on January 1, 2018 is $60,000. The
estimated residual value is $0.
- The equipment reverts back to the lessor at the termination of the lease.
- The lessor used an implicit rate of 4%.
Instructions:
-Calculate the required amount of the lease payments

Waterway Paper Products purchased 11,900 acres of forested timberland in March 2020. The company paid $2,023 per acre for this land, which was above the $952 per acre most farmers were paying for cleared land. During April, May, June, and July 2020, Waterway cut enough timber to build roads using moveable equipment purchased on April 1, 2020. The cost of the roads was $290,100, and the cost of the equipment was $267,750; this equipment was expected to have a $10,710 salvage value and would be used for the next 15 years. Waterway selected the straight-line method of depreciation for the moveable equipment. Waterway began actively harvesting timber in August and by December had harvested and sold 642,600 board feet of timber of the estimated 8,032,500 board feet available for cutting. In March 2021, Waterway planted new seedlings in the area harvested during the winter. Cost of planting these seedlings was $142,800. In addition, Waterway spent $9,520 in road maintenance and $7,140 for pest spraying during calendar-year 2021. The road maintenance and spraying are annual costs. During 2021, Waterway harvested and sold 921,060 board feet of timber of the estimated 7,675,500 board feet available for cutting. In March 2022, Waterway again planted new seedlings at a cost of $178,500, and also spent $17,850 on road maintenance and pest spraying. During 2022, the company harvested and sold 773,500 board feet of timber of the estimated 7,735,000 board feet available for cutting. Compute the amount of depreciation and depletion expense for each of the 3 years (2020, 2021, and 2022). Assume that the roads are usable only for logging and therefore are included in the depletion base.

Sandhill Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $30,232 at the beginning of each year. The first payment is received on January 1, 2020. Sandhill had purchased the machine during 2016 for $105,000. Collectibility of lease payments by Sandhill is probable. Sandhill set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sandhill at the termination of the lease.

Compute the amount of the lease receivable. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.)

Prepare all necessary journal entries for Sandhill for 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)

Suppose the collectibility of the lease payments was not probable for Sandhill. Prepare the necessary journal entry for the company in 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Suppose at the end of the lease term, Sandhill receives the asset and determines that it actually has a fair value of $1,190 instead of the anticipated residual value of $0. Record the entry to recognize the receipt of the asset for Sandhill at the end of the lease term. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)

Question 1, Abilene Paradox, Anaclitic Depression, and the Organization:

You have a sense that your organization may have arrived to Abilene. You are to decide what to do next. As part of your answer, explain the concept of the Abilene Paradox to the CEO. Why does it happen? How would you know if your organization is in or approaching Abilene? Define and explain what anaclitic depression is and how it impacts organizations. Develop a strategy to take your organization out of Abilene/Phrog Farm, and explain to the CEO why you would or would not recommend doing .

Corporate Tax Payable

While for many years, Sweat Ltd. used a December 31 year end, a 2017 change in the nature of its business resulted in the Company requesting a change in their taxation year end to August 31. Based on the information provided, the CRA accepted this change.

The change will be implemented during 2017. Its Income Statement for the period January 1, 2017 through August 31, 2017, prepared in accordance with GAAP, is as follows:

Sweat Ltd.

Income Statement

8 Month Period Ending August 31, 2017

Sales (All Within Canada)                                                                            $916,000

Cost Of Sales                                                                                                    ( 485,000)

Gross Margin                                                                                                   $431,000

Other Expenses (Excluding Taxes):

        Wages And Salaries                                     ($153,400)

        Amortization                                                     ( 49,300)

        Rent                                                                      ( 56,700)

        Interest Expense                                              (   5,500)

        Foreign Exchange Loss                                   (   4,200)

        Travel And Promotion                                   ( 44,300)

        Bad Debt Expense                                            (   5,400)

        Warranty Expense                                           (   5,800)

        Charitable Donations                                      (   3,100)

        Other Operating Expenses                          ( 19,800)                    ( 347,500)

Operating Income                                                                                           $ 83,500

Gain On Sale Of Investments                                                                         3,900

Income Before Taxes                                                                                     $ 87,400

Other Information:

1.    In determining the Cost Of Sales, the Company deducted a $17,800 reserve for inventory obsolescence.

2.    Wages and salaries includes a $35,000 bonus to Sweat Ltd.’s CEO. Because she anticipates retiring at the end of 2018, this bonus will not be paid until January, 2019.

3.    Amortization is on the furniture and fixtures and delivery vehicles. The capital cost of the furniture and fixtures is $147,000 and, at January 1, 2017, the Class 8 UCC balance is $79,800. During 2017, new furniture was acquired at a cost of $20,500. Old furniture with a capital cost of $14,200 was sold for $9,500.

On January 1, 2017, the Class 10 UCC balance was $103,400. There were no additions or disposals in this Class during the 8 month period ending August 31, 2017.

4.    The interest expense relates to a line of credit that was used to finance seasonal fluctuations in inventory.

5.    The foreign exchange loss resulted from financing costs related to the purchase of merchandise in the United Kingdom.

6.    The travel and promotion expense consisted of the following items:

Business Meals And Entertainment                                           $15,200

Hotels And Airfare                                                                               21,400

Golf Club Memberships                                                                       7,700

Total Travel And Promotion Expense                                               $44,300

7.    For accounting purposes, the Company establishes a warranty reserve based on estimated costs. On January 1, 2017, the reserve balance was $5,400. On August 31, 2017, a new reserve was established at $6,200.

8.    The accounting gain on the sale of investments is equal to the capital gain for tax purposes.

9.    During the period January 1, 2017 through August 31, 2017, the Company declared and paid dividends of $27,600.

10. On January 1, 2017, the Company has available an $18,700 non-capital loss carry forward and a $6,250 [(1/2)($12,500)] net capital loss carry forward.

Required:  Calculate the minimum Net Income For Tax Purposes and Taxable Income for Sweat Ltd. for the 8 month period ending August 31, 2017. Indicate the amount and type of any carry forwards that will be available for use in future years.  

The hospital’s board of directors had hired a consulting firm to review the quality of patient care being delivered. Following a 2-week review, the consultants presented Nathan, the hosital’s CEO and his leadership group, with a verbal report. During the consultant’s exit review, Nathan appeared somewhat agitated by the report as he sat restlessly in his seat. When the written preliminary report listing the hospital’s deficiencies was presented to Nathan following the verbal report, he abruptly stood up and said, “This is not just about the hospital! This is about my job!” His managers then rose up and followed the CEO out of the room, without looking back—no goodbyes, just angry and disgruntled. In this case, the CEO did not accept the consultant’s report.

Discussion

1.Assuming the board became aware of the CEO’s parting comments, discuss what action(s), if any, the board should consider taking.

2.Knowing the board hired the consultants, how would you have reacted to the consultant’s report?

Sigma plc’s income statement for the year ended 31 March 2020 and the statements of financial position as at 31 March 2019 and 2020 are provided below.

Additional information for the year ended 31 March 2020 were as follows:

1. During the year, Sigma plc sold an item of plant for £25m. This item of plant was purchased several years ago for £50m and at the date of disposal, its accumulated depreciation amounted to £30m.
2. Sigma plc also purchased additional equipment to be used in its usual operations. The amount paid for the purchase was £120m.
3. Except for the above, there were no other non-current acquisitions or disposals. The company policy is to charge a full year’s depreciation in the year of acquisition and no depreciation on disposed assets in the year of disposal.   
4. A dividend of £25m was paid on ordinary shares during the year.
5. The interest income of £12m was equal to the actual cash inflow for the year.

REQUIRED

1. Prepare the statement of cash flows for the year-ended 31 March 2020 for Sigma plc using the indirect method.
2. Analyse and discuss Sigma plc’s statement of cash flows (prepared in part (a)) from a potential investor's perspective, highlighting any material items of interest or concern.