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.  

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.   

Santana Rey created Business Solutions on October 1, 2019. The company has been successful, and its list of customers has grown. To accommodate the growth, the accounting system is modified to set up separate accounts for each customer. The following chart of accounts includes the account number used for each account and any balance as of December 31, 2019. Santana Rey decided to add a fourth digit with a decimal point to the 106 account number that had been used for the single Accounts Receivable account. This change allows the company to continue using the existing chart of accounts.

In response to requests from customers, S. Rey will begin selling computer software. The company will extend credit terms of 1/10, n/30, FOB shipping point, to all customers who purchase this merchandise. However, no cash discount is available on consulting fees. Additional accounts (Nos. 119, 413, 414, 415, and 502) are added to its general ledger to accommodate the company’s new merchandising activities. Its transactions for January through March follow:

The following additional facts are available for preparing adjustments on March 31 prior to financial statement preparation:

1. The March 31 amount of computer supplies still available totals $2,145.
2. Prepaid Insurance coverage of $663 expired during this 3-month period.
3. Lyn Addie has not been paid for seven days of work at the rate of $205 per day.
4. Prepaid rent of $2,535 expired during this 3-month period.
5. Depreciation on the computer equipment for January 1 through March 31 is $1,080.
6. Depreciation on the office equipment for January 1 through March 31 is $240.

The March 31 amount of merchandise inventory still available totals $564

1- Post the journal entries in part 1 to the accounts in the company’s general ledger. Note: Begin with the ledger’s post-closing adjusted balances as of December 31, 2019.------- Prepare a 6-column work sheet that includes the unadjusted trial balance, the March 31 adjustments (a) through (g), and the adjusted trial balance. Do not prepare closing entries and do not journalize the adjustments or post them to the ledger. ---------Prepare an income statement (from the adjusted trial balance in part 3) for the three months ended March 31, 2020. (a) Use a single-step format. List all expenses without differentiating between selling expenses and general and administrative expenses. (b) Use a multiple-step format that begins with gross sales (service revenues plus gross product sales) and includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses. Categorize the following accounts as selling expenses: Wages Expense, Mileage Expense, and Advertising Expense. Categorize the remaining expenses as general and administrative. --------Prepare a statement of retained earnings (from the adjusted trial balance in part 3) for the three months ended March 31, 2020. ----------Prepare a classified balance sheet (from the adjusted trial balance) as of March 31, 2020.

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?

A Ltd specialises in the distribution of pharmaceutical products. It buys from pharmaceutical companies and re-sells to each of the three different distribution channels: (i) General supermarket chains, (ii) Drug store chains, and (iii) Individual chemist shops. The company plans to use activity-based costing for analysing the profitability of its distribution channels. The following data relates to the quarter ending March 2020. Particulars General supermarket chains Drug store chains Individual chemist shops Average sales per delivery $96,500 $32,450 $6,225 Average cost of goods sold per delivery $94,650, $31,800, $5,950 Number of deliveries 960 ,2,470, 8,570 Number of orders 1,000, 2,650, 9,500 Average number of cartons shipped per delivery 250 75 12 Average number of hours of shelf stocking per delivery 2, 0.5, 0.1 The following information is available in respect of operating costs (other than cost of goods sold) for the quarter ending March 2020. Activity areas Cost Cost driver Customer purchase order processing $591,750 Purchase orders by customers Customer store delivery $960,000 Number of deliveries Cartons dispatched to customer stores $792,135 Number of cartons dispatched to customer stores Shelf stocking at customer location $80,240 Hours of shelf stocking Required: (a) Calculate the activity cost driver rates for each of the activity areas. (b) Prepare an income statement showing details of each distribution channel for the quarter ending March 2020 using activity-based costing.

Pharma Save Ltd specialises in the distribution of pharmaceutical products. It buys from pharmaceutical companies and re-sells to each of the three different distribution channels: (i) General supermarket chains, (ii) Drug store chains, and (iii) Individual chemist shops. The company plans to use activity-based costing for analysing the profitability of its distribution channels. The following data relates to the quarter ending March 2020.

The following information is available in respect of operating costs (other than cost of goods sold) for the quarter ending March 2020.

Required:

1. Calculate the activity cost driver rates for each of the activity areas.

2. Prepare an income statement showing details of each distribution channel for the quarter ending March 2020 using activity-based costing.

WQ2: (Question 2C) Assume Riddler Ltd (lessee) has entered into a leasing arrangement with Joker Ltd (lessor) for some land. The terms are as follows:

• The lease is for 7 years and commences on the 1 July 2020 The first payment of $85,000 is payable on 1 July 2020.

• There are 6 further payments of $85,000 payable on 1 July each year commencing from 1 July 2021.

? Assume as an incentive to enter in the lease the lessor agrees to pay for signage costs (i.e. costs to prepare and erect Riddlers Ltd signs with company details) of $22,000. These costs were paid by the lessor at the commencement on the lease on 1 July 2020. Assume that Riddler Ltd would expense signage costs when incurred.

• The fair value of the land was $2 million.

• The land is expected to appreciate in value and to have a fair value of $3.5 million at the end of the lease.

• The lessee’s incremental borrowing rate is 7%. • The lessee will vacate the land at the end of the lease. There is no option to purchase the land.

2 Required: (a) Determine the lease term.

(b) Calculate the present value of the lease payments. Show your calculations and basis for these.

(c) Determine the amount of the lease asset and liability initial recognised at the start of the lease. Show your calculations and basis for these.

(d) Prepare a schedule for the lease liability.

(e) Prepare the journal entries required by the lessee for the years ending: 30 June 2021 and 30 June 2022. Show any related calculations.

(f) Calculate the amounts for lease liability shown as non-current (and current) at 30 June 2024.