The company's total shareholders' equity as of 12/31/2020 is $1,777,000 Common stock; par value of $2; Auth 500,000 and issued/outstanding 100,000 @ an average issue price of $4.75. Accumulted other comprehensive income is $180,000. The balance in shareholders' equity is retained earnings.

During 2021: Sales revenue $880,000, interest revenue $30,000 ; rent revenue $160,000; Dividend Revenue $80,000; sales Returns & Allowances $25,000; Sales discounts $70,000; COGS $350,000; Selling exp $100,000; General Administrative expenses $80,000; Interest expense $70,000; Loss on sale of Investments $60,000; Restructuring Costs $75,000; Gain on sale of compenant that qualifies as a discontinued ops $150,000; Write down of inventory $50,000; foreign currency translation gain $20,000; unrealized gain in value of land $50,000; .Unrealized gain in the value of patents $50,000; unrealized loss in value of available for sale securities $60,000 ;

Additional information: Tax rate is 20% The company issues 50,000 shares on 10/1/21 for $250,000. The company issues 20,000 shares on 7/1/21 for equipment that has a fair value of $100,000 The company declared dividends of $100,000 of which $25,000 will be paid on 1/31/22.

2.) Prepare a statement of shareholders' equity.

At the beginning of 2016, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2016 and 2017. Late in 2018, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2019 and 2020) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values. The controller, Heather Meyer, was asked by Harvey Dent, the company’s chief executive officer (CEO), to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been an impairment of value requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciated over the equipment’s revised service life. The CEO does not like Heather’s conclusion because of the effect it would have on 2018 income. “Looks like a simple revision in service life from 10 years to 5 years to me,” Dent concluded. “Let’s go with it that way, Heather.” Required: What is the difference in before-tax income between the CEO’s and Heather’s treatment of the situation? Discuss Heather Meyer’s ethical dilemma.

Question 4.

While many economies were shut down during the pandemic, most firms suffer while a small number of these firms might extinct forever. On the other hand, some firms in selected industries actually thrived during this economic environment.

Boeing, which had been going through a crisis of its own with its 737 Max even before the pandemic, reported a US641 million loss for the first quarter of this year. Around the same time, Boeing borrowed an addition US$25 BILLION of new debt.

Apple Computers also borrowed US$8 billion of new debt in May 2020. For 2019, Apple’s net income was US$55 billion, has operating cash flow of US$69 billion, has cash and equivalent of US$66 billion and total asset of US$339 billion at year end.

(1) List and explain the benefits that firms could achieve from use of debt financing. (X marks)

(2) List and discuss some potential costs of using debt financing. (X marks)

(3) Apple Computers is a very successful firm despite the pandemic. Why would Apple want to borrow money at this time? Would borrowing money at this time indicate a sign of weakness to the investing community?

The following transactions occurred during 2020. Assume that depreciation of 10% per year is charged on all machinery and 5% per year on buildings, on a straight-line basis, with no estimated salvage value. Depreciation is charged for a full year on all fixed assets acquired during the year, and no depreciation is charged on fixed assets disposed of during the year.

Prepare general journal entries for the transactions

On January 1, 2020, Claudia, a single taxpayer who was age 67 at the time, began receiving monthly retirement benefits from her former employer's pension plan. Claudia did not receive any distributions before the annuity start date, and her investment in the plan is $35,000. There is no survivor beneficiary. I f Claudia receives a monthly benefit of $1,200, what amount will she recover tax-free in 2020?

Suppose the dividends for the Seger Corporation over the past six years were $3.08, $3.16, $3.25, $3.33, $3.43, and $3.48, respectively. Assume that the historical average growth rate will remain the same for 2020. Compute the expected share price at the end of 2020 using the perpetual growth method. Assume the market risk premium is 12.6 percent, Treasury bills yield 5.2 percent, and the projected beta of the firm is .81.

Share price:

Vanessa spent 45 days of 2020 in a nursing home. The cost of the services provided to her was $18,900. Medicare paid $7,900 toward the cost of her stay. Vanessa also received $9,100 of benefits under a long-term care insurance policy she purchased. The 2020 per diem rate is $380.

What is the effect on Vanessa’s gross income?
Her available exclusion is $, therefore, the amount included in her gross income is $.

Victoria's 2019 tax return was due on April 15, 2020, but she did not file it until June 12, 2020. Victoria did not file an extension. The tax due on the tax return when filed was $10,000. In 2019, Victoria paid in $16,500 through withholding. Her 2018 tax liability was $14,500. Victoria’s AGI for 2019 is less than $150,000. How much penalty will Victoria have to pay (disregard interest)?