Mr Novak Murray is the sole owner of Roger & Rafa, a store that offers tennis racquet stringing service (that involves the use of strings and labour). The unadjusted trial balance of Roger & Raga as at 30 June 2018 is shown below. The annual reporting period for the business ends 30 June.
|
Roger & Rafa Unadjusted Trial Balance as at 30 June 2018 |
||
|
Account |
Debit |
Credit |
|
Cash at Bank |
$18 000 |
|
|
Accounts Receivable |
3 200 |
|
|
String Supplies |
5 840 |
|
|
Stringing Machines |
23 400 |
|
|
Accounts Payable |
$ 1300 |
|
|
Novak Murray, Capital |
38 600 |
|
|
Novak Murray, Drawings |
2 500 |
|
|
Stringing Service Revenue |
21 420 |
|
|
Salaries Expense |
3 260 |
|
|
Rent Expense |
2 980 |
|
|
String Supplies Expense |
2 140 |
|
|
$61 320 |
$61 320 |
|
Additional information:
A cash payment of $540 for rent covering the period 1 May 2018 to 31 July 2018 was made on 30 April 2018 and debited to the Rent Expense account on the day.
One customer, Naomi Stosur, purchased a $250 service package by cash on 5 May 2018. Thepackage covers ten times of the use of the store’s stringing service. No service was used at purchase. This transaction was credited to service revenue on the day of purchase. Naomi had used the stringing service four times by the end of the reporting period.
The unpaid salaries earned by the store’s two sale assistants,
Alex and Ashleigh, totaled $780as at 30 June 2018.
Ignore depreciation. The use of string supplies in the period has
been accounted for.
Required
(a) Prepare the journal entries required to correct recording errors (if any, leave blank if there are no errors).
(b) Prepare adjusting entries (after correction of errors, if
any).
(c) Prepare the Adjusted Trial Balance for Roger & Rafa.
(For parts (a) & (b), provide your answers to the related item
number, no narration required.)
In: Accounting
Alice is single and self-employed in 2018. Her net business profit on her Schedule C for the year is $154,000. What is her self-employment tax liability and additional Medicare tax liability for 2018? (Round your intermediate calculations to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)
In: Accounting
1. What does the court here mean when it says that liquidated damages clauses allow the parties to “allocate and incorporate the risks [of the transaction] in their negotiations”?
2. Why is it relevant that the plaintiff Ingram was engaged in a childcustody dispute and wanted to move to California as soon as possible?
3. What, in plain language, is the issue here?
4. How does the court’s resolution of the issue seem to the court the better analysis?
5. Why did the plaintiff get to keep the $15,000 when he really suffered no damages?
6. Express the controlling rule of law out of this case.
read-
Watson v. Ingram 881 P.2d 247 (Wash. 1994) Johnson, J. Chapter 16 Remedies 16.6 Cases 619 …In the summer of 1990, Wayne Watson offered to buy James Ingram’s Bellingham home for $355,000, with a $15,000 [about $24,000 in 2010 dollars] earnest money deposit.… Under the agreement, the entire amount of the purchase price was due in cash on or before December 3, 1990.…The agreement required Watson to pay a $15,000 earnest money deposit into escrow at Kelstrup Realty, and provided that “[i]n the event of default by Buyer, earnest money shall be forfeited to Seller as liquidated damages, unless Seller elects to seek actual damages or specific performance. Lastly, the agreement contained a provision entitled “BUYER’S REPRESENTATIONS,” which stated, “Buyer represents that buyer has sufficient funds available to close this sale in accordance with this agreement, and is not relying on any contingent source of funds unless otherwise set forth in this agreement”.… On November 10, 1990, Watson sent a written proposal to Ingram seeking to modify the original agreement. The proposed modification would have allowed Watson to defer paying $54,000 of the $355,000 sale price for between 6 and 12 months after the scheduled December closing date. In exchange, Ingram would receive a second lien position on certain real estate Watson owned. According to Ingram, the November 10 proposal was the first time he realized Watson did not have financing readily available for the purchase of the house. Ingram notified Watson on November 12, 1990, that he would not agree to modify the original agreement and intended to strictly enforce its terms. Ingram was involved in a child custody suit in California and wanted to move to that state as soon as possible.…[Further efforts by Ingram to sell to third parties and by Watson to get an extension from Ingram failed.] In September 1991, Ingram finally sold the house to a third party for $355,000, the same price that Watson had agreed to pay in December 1990. Ingram and Watson each sought to recover Watson’s $15,000 earnest money held in escrow. On December 4, 1990, Ingram wrote to Kelstrup Realty, indicating he was entitled to the $15,000 earnest money in escrow because Watson had defaulted. In January 1991, Watson filed this action to recover the earnest money, alleging it amounted to a penalty and Ingram had suffered no actual damages.… The trial court found the earnest money “was clearly intended by both parties to be non-refundable” if Watson defaulted and determined $15,000 was “a reasonable forecast by [Ingram and Watson] of damages that would be incurred by [Ingram] if [Watson] failed to complete the purchase”. The court entered judgment in favor of Chapter 16 Remedies 16.6 Cases 620 Ingram for the amount of the earnest money plus interest. The court also awarded Ingram his attorney fees pursuant to the parties’ agreement. The Court of Appeals, Division One, affirmed. Watson now appeals to this court. This case presents a single issue for review: whether the parties’ contract provision requiring Watson to forfeit a $15,000 nonrefundable earnest money deposit is enforceable as liquidated damages. Liquidated damages clauses are favored in Washington, and courts will uphold them if the sums involved do not amount to a penalty or are otherwise unlawful. [Citation] To determine whether liquidated damages clauses are enforceable, Washington courts have applied a 2-part test from the Restatement of Contracts.…Liquidated damages clauses are upheld if the following two factors are satisfied: First, the amount fixed must be a reasonable forecast of just compensation for the harm that is caused by the breach. Second, the harm must be such that it is incapable or very difficult of ascertainment. The question before this court is whether this test is to be applied as of the time of contract formation (prospectively) or as of the time of trial (retrospectively). We have previously held, the “[r]easonableness of the forecast will be judged as of the time the contract was entered”. [Citations] In contrast, a prior Division One opinion relied upon by Petitioner held the reasonableness of the estimate of damages and the difficulty of ascertainment of harm should be measured as of the time of trial, and earnest money agreements should not be enforceable as liquidated damages if the nonbreaching party does not suffer actual damage. [Citations] We…adopt the date of contract formation as the proper timeframe for evaluating the Restatement test. The prospective approach concentrates on whether the liquidated sum represents a reasonable prediction of the harm to the seller if the buyer breaches the agreement, and ignores actual damages except as evidence of the reasonableness of the estimate of potential damage. We believe this approach better fulfills the underlying purposes of liquidated damages clauses and gives greater weight to the parties’ expectations. Liquidated damages permit parties to allocate business and litigation risks. Even if the estimates of damages are not exact, parties can allocate and quantify those risks and can negotiate adjustments to the contract price in light of the allocated risks. Under the prospective approach, courts will enforce the parties’ allocation of risk so long as the forecasts appear reasonable when made. [Citations] Chapter 16 Remedies 16.6 Cases 621 In addition to permitting parties to allocate risks, liquidated damages provisions lend certainty to the parties’ agreements and permit parties to resolve disputes efficiently in the event of a breach. Rather than litigating the amount of actual damages, the nonbreaching party must only establish the reasonableness of the agreement. The prospective approach permits parties to rely on their stipulated amounts without having to precisely establish damages at trial. In contrast, if the reasonableness of the amount is judged retrospectively, against the damage actually suffered, the “parties must fully litigate (at great expense and delay) that which they sought not to litigate.” [Citation]. Petitioner argues the prospective approach treats buyers unfairly because it permits sellers to retain earnest money deposits even when the seller suffers no actual damage, and this violates the principle that contract damages should be compensatory only. He further contends that by evaluating parties’ liquidated damages agreements against actual damages established at trial, courts can most effectively determine whether such agreements were reasonable and fair. We disagree. As this court has previously explained, “[w]e are loath to interfere with the rights of parties to contract as they please between themselves [Citations] It is not the role of the court to enforce contracts so as to produce the most equitable result. The parties themselves know best what motivations and considerations influenced their bargaining, and, while, “[t]he bargain may be an unfortunate one for the delinquent party,…it is not the duty of courts of common law to relieve parties from the consequences of their own improvidence…” [Citations] The retrospective approach fails to give proper weight to the parties’ negotiations. At the time of contract formation, unpredictable market fluctuations and variations in possible breaches make it nearly impossible for contracting parties to predict “precisely or within a narrow range the amount of damages that would flow from breach.” [Citations]. However, against this backdrop of uncertainty, the negotiated liquidated damages sum represents the parties’ best estimate of the value of the breach and permits the parties to allocate and incorporate these risks in their negotiations. Under the prospective approach, a court will uphold the parties’ agreed upon liquidated sum so long as the amount represents a reasonable attempt to compensate the nonbreaching party. On the other hand, if the reasonableness of a liquidated damages provision is evaluated under a retrospective approach, the parties cannot confidently rely on their agreement because the liquidated sum will not be enforced if, at trial, it is not a close approximation of the damage suffered or if no actual damages are proved.… Chapter 16 Remedies 16.6 Cases 622 Having adopted the date of contract formation as the proper timeframe for evaluating the Restatement test, the Restatement’s second requirement loses independent significance. The central inquiry is whether the specified liquidated damages were reasonable at the time of contract formation.… We also agree with the Court of Appeals that in the context of real estate agreements, a requirement that damages be difficult to prove at trial would undermine the very purposes of the liquidated damage provision: “certainty, assurance that the contract will be performed, and avoidance of litigation”. [Citation] It would “encourage litigation in virtually every case in which the sale did not close, regardless of whether the earnest money deposit was a reasonable estimate of the seller’s damages.” [Citation] In sum, so long as the agreed upon earnest money agreement, viewed prospectively, is a reasonable prediction of potential damage suffered by the seller, the agreement should be enforced “without regard to the retrospective calculation of actual damages or the ease with which they may be proved”. The prospective difficulty of estimating potential damage is a factor to be used in assessing the reasonableness of the earnest money agreement… The decision of the Court of Appeals is affirmed.
In: Operations Management
Question 9
Which is the true statement?
a. A revaluation decrease should occur if a non-current asset's
carrying amount is less than its fair value.
b. An initial revaluation decrease should be treated as a debit to
the revaluation surplus reserve.
c. An initial revaluation decrease should be treated as a debit
against the current period’s profit or loss.
d. An initial revaluation decrease should be disclosed in the
profit report as a reduction in other comprehensive income.
Question 11
The balance sheet of Doorbell Ltd at 31 December 2014
showed:
$
Equipment 80 000
Accumulated depreciation of equipment 63 000
17 000
On 1 January 2015 the equipment was sold for $15 000. What is the
accounting entry to record the receipt of the proceeds from the
sale of the equipment?
a. Debit bank $15 000; credit proceeds from sale of equipment $15
000
b. Debit bank $17 000; credit proceeds from sale of equipment $17
000
c. Debit bank $15 000; credit equipment $15 000
d. Debit bank $2000; credit proceeds from sale of equipment
$2000
Question 12
If a computer with a fully depreciated cost of $30 000 is discarded
as worthless, the accounting entry to record the scrapping is which
of the following?
a. Debit expense on disposal of asset $30 000; credit computer $30
000
b. Debit expense on disposal of asset $30 000; credit accumulated
depreciation computer $30 000
c. Debit accumulated depreciation computer $30 000; credit computer
$30 000
d. Debit accumulated depreciation computer $30 000; credit computer
$30 000; Debit expense on disposal of asset; credit proceeds of
disposal of asset $30 000
Question 13
On 31 December 2013 a printing machine with a cost of $380 000 has
accumulated depreciation written off of $140 000. If it is sold for
$220 000 on 1 January 2014 what will be the net effect of the sale
on the income statement?
a. $20 000 profit
b. $20 000 loss
c. $160 000 loss
d. $80 000 profit
Question 14
Billy’s Computer Shop purchased some new equipment trading in old
equipment with a carrying amount of $10 000. Cash of $9000 was paid
to the supplier and a trade-in allowance of $7000 was granted. The
new equipment should be recorded at:
a. $19 000.
b. $16 000.
c. $9000.
d. $7000.
Question 15
On 31 December 2014 an aeroplane with a cost of $200 000 has
accumulated depreciation written off of $90 000. If it was sold for
$130 000 on 1 January 2015 how much will be recorded as the expense
carrying-value on the disposal of the plane?
a. $200 000
b. $130 000
c. $110 000
d. $90 000
In: Accounting
Below are comparative balance sheets for Tigger Inc. at December 31, 2018 and 2017:
|
12/31/2018 |
12/31/2017 |
||
|
Cash |
$ 21,900 |
$ 10,000 |
|
|
Accounts receivables (net) |
50,000 |
45,000 |
|
|
Inventory |
64,000 |
70,000 |
|
|
Land |
0 |
32,000 |
|
|
Plant assets |
580,000 |
560,000 |
|
|
Accumulated depreciation |
(103,000) |
(100,000) |
|
|
$612,900 |
$617,000 |
||
|
Accounts payable |
$ 90,000 |
$ 93,000 |
|
|
Salaries payable |
8,000 |
4,000 |
|
|
Dividends payable |
1,700 |
2,300 |
|
|
Payable for general & admin expenses |
18,000 |
10,000 |
|
|
Income tax payable |
9,050 |
6,000 |
|
|
Bonds payable |
40,700 |
104,000 |
|
|
Notes payable |
40,000 |
40,000 |
|
|
Mortgage payable |
22,000 |
20,000 |
|
|
Common stock |
220,000 |
200,000 |
|
|
Retained earnings |
163,450 |
137,700 |
|
|
$612,900 |
$617,000 |
Additional information:
|
The income statement for 2018 is as follows: |
|
|
Sales |
$150,000 |
|
Cost of sales |
(90,000) |
|
Gross profit |
$60,000 |
|
Operating expenses |
(25,000) |
|
Loss on sale of land |
(4,500) |
|
Income before income tax |
30,500 |
|
Income tax expense |
(3,050) |
|
Net income |
$ 27,450 |
i. The only changes to retained earnings were for net income and dividends declared for 2018.
ii. Accounts payable were used only for inventory purchases.
iii. Plant assets were acquired by exchanging common stock.
iv. Of the operating expenses, $2,825 is for depreciation.
v. Land was sold for cash of $27,500.
Required:
Using the information above, prepare the Operating Activities section only of the calendar year 2018 Statement of Cash Flows for Tigger Inc. using the indirect method.
Below are comparative balance sheets for Tigger Inc. at December 31, 2018 and 2017:
|
12/31/2018 |
12/31/2017 |
||
|
Cash |
$ 21,900 |
$ 10,000 |
|
|
Accounts receivables (net) |
50,000 |
45,000 |
|
|
Inventory |
64,000 |
70,000 |
|
|
Land |
0 |
32,000 |
|
|
Plant assets |
580,000 |
560,000 |
|
|
Accumulated depreciation |
(103,000) |
(100,000) |
|
|
$612,900 |
$617,000 |
||
|
Accounts payable |
$ 90,000 |
$ 93,000 |
|
|
Salaries payable |
8,000 |
4,000 |
|
|
Dividends payable |
1,700 |
2,300 |
|
|
Payable for general & admin expenses |
18,000 |
10,000 |
|
|
Income tax payable |
9,050 |
6,000 |
|
|
Bonds payable |
40,700 |
104,000 |
|
|
Notes payable |
40,000 |
40,000 |
|
|
Mortgage payable |
22,000 |
20,000 |
|
|
Common stock |
220,000 |
200,000 |
|
|
Retained earnings |
163,450 |
137,700 |
|
|
$612,900 |
$617,000 |
Additional information:
|
The income statement for 2018 is as follows: |
|
|
Sales |
$150,000 |
|
Cost of sales |
(90,000) |
|
Gross profit |
$60,000 |
|
Operating expenses |
(25,000) |
|
Loss on sale of land |
(4,500) |
|
Income before income tax |
30,500 |
|
Income tax expense |
(3,050) |
|
Net income |
$ 27,450 |
i. The only changes to retained earnings were for net income and dividends declared for 2018.
ii. Accounts payable were used only for inventory purchases.
iii. Plant assets were acquired by exchanging common stock.
iv. Of the operating expenses, $2,825 is for depreciation.
v. Land was sold for cash of $27,500.
Required:
Using the information above, prepare the Operating Activities section only of the calendar year 2018 Statement of Cash Flows for Tigger Inc. using the indirect method.
Below are comparative balance sheets for Tigger Inc. at December 31, 2018 and 2017: 12/31/2018 12/31/2017 Cash $ 21,900 $ 10,000 Accounts receivables (net) 50,000 45,000 Inventory 64,000 70,000 Land 0 32,000 Plant assets 580,000 560,000 Accumulated depreciation (103,000) (100,000) $612,900 $617,000 Accounts payable $ 90,000 $ 93,000 Salaries payable 8,000 4,000 Dividends payable 1,700 2,300 Payable for general & admin expenses 18,000 10,000 Income tax payable 9,050 6,000 Bonds payable 40,700 104,000 Notes payable 40,000 40,000 Mortgage payable 22,000 20,000 Common stock 220,000 200,000 Retained earnings 163,450 137,700 $612,900 $617,000 Additional information: The income statement for 2018 is as follows: Sales $150,000 Cost of sales (90,000) Gross profit $60,000 Operating expenses (25,000) Loss on sale of land (4,500) Income before income tax 30,500 Income tax expense (3,050) Net income $ 27,450 i. The only changes to retained earnings were for net income and dividends declared for 2018. ii. Accounts payable were used only for inventory purchases. iii. Plant assets were acquired by exchanging common stock. iv. Of the operating expenses, $2,825 is for depreciation. v. Land was sold for cash of $27,500. Required: Using the information above, prepare the Operating Activities section only of the calendar year 2018 Statement of Cash Flows for Tigger Inc. using the indirect method.
In: Accounting
Assume that on December 31, 2016, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement: 1. The agreement requires equal rental payments of $66,999 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $490,629. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $11,000, and an expected residual value of $8,100. Kimberly-Clark depreciates similar buildings on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Kimberly-Clark’s incremental borrowing rate is 8% per year. The lessor’s implicit rate is not known by Kimberly-Clark. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Collapse question part (a) Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2016, 2017, and 2018. Kimberly-Clark’s fiscal year-end is December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)
In: Accounting
Sullivan Ltd enters into a non-cancellable five-year lease agreement with Bubbles Ltd on 1 July 2015. The lease is for a number of spa baths that, at the inception of the lease, have a fair value of $924 560. The spas are being used as part of the amenities at Sullivan's exclusive Question The baths are expected to have an economic life of seven years, after which time they will have no residual value. There is a bargain purchase option that Sullivan Ltd will be able to an executive club, a club whose main clients are politicians exercise at the end of the fifth year, for $200 000. Bubbles Ltd manufactures spa baths. The cost of the spa baths to Bubbles Ltd is $800 000, with the result that Bubbles Ltd is making a profit on the sale of $124 560. There are to be five annual payments of $250 000, the first being made on 30 June 2016. Included within the $250 000 lease payments is an amount of $25 000 representing payment to the lessor for the insurance, sanitation, and maintenance of the equipment. The equipment is to be depreciated on a straight-line basis. The rate of interest implicit in the lease is 12 percent. PV of Annuity, 12%, n- 5 is 3.6048; PV of $1, n-5 is 0.5674 REQUIRED (a) Calculate the present value of the minimum lease payments. (b) Prepare the journal entries for the financial years ending 30 June 2016 and 30 June 2018 in the books of Bubbles Ltd, assuming Bubbles Ltd uses the net method.
In: Accounting
Assume that on December 31, 2016, Kimberly-Clark Corp. signs a 10-year, non-cancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement: 1. The agreement requires equal rental payments of $66,999 beginning on December 31, 2016. 2. The fair value of the building on December 31, 2016 is $490,629. 3. The building has an estimated economic life of 12 years, a guaranteed residual value of $11,000, and an expected residual value of $8,100. Kimberly-Clark depreciates similar buildings on the straight-line method. 4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. 5. Kimberly-Clark’s incremental borrowing rate is 8% per year. The lessor’s implicit rate is not known by Kimberly-Clark. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Collapse question part (a) Partially correct answer. Your answer is partially correct. Try again. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2016, 2017, and 2018. Kimberly-Clark’s fiscal year-end is December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.)
In: Accounting
Problem 2 — COMPUTATION OF RETURN ON INVESTMENT (ROI)
For the year ended December 31, 2017, Reese Company reports the following:
Sales $6,000,000
Variable costs 3,200,000
Controllable fixed costs 2,000,000
Average operating assets 5,000,000
Instructions: Compute ROI for each of the following situations. Show all computations.
1. For the year ended December 31, 2017.
2. For 2018 assuming the following independent courses of action:
(a) Sales will increase 10% with no change in the contribution margin ratio.
(b) Variable costs and controllable fixed costs will both be reduced 10%.
(c) Average operating assets will be reduced 20%.
SOLUTION
1. $800,000/$5,000,000 = 16% Sales $6,000,000
Var costs 3,200,000
2. Contribution margin 2,800,000
(a) Controllable FC 2,000,000
Sales 6,600,000 Controllable margin $ 800,000
Var costs
Cont margin 3,080,000 rounded ($6.6m *46.6667%) CM ratio=$2.8m / $6m =46.6667%
Controllable FC 2,000,000
Controllable M 1,080,000 $1,080,000 / $5000,000 = 21.6%
(b) Sales $6,000,000
Var costs - 2,880,000
Contribution margin 3,120,000
Fixed costs - 1,800,000 $1320,000 / $500,000 26.4%
Controllable margin $1,320,000
(c) $800,000/($5,000,000 - $1,000,000) = 20%
Controllable Costs -Costs that can be influenced or changed by management. Only focus on controllable costs in making decisions (non-controllable costs will be the same regardless of your decision)
In: Accounting
1) The Economy cannot be considered fully employed unless the measured unemployment rate is below 1%. Agree or disagree and explain your answer in a paragraph. What is the current actual u-rate for the US economy as of May Data for 2019? Is this unemployment rate below or above or equal to u-rate at full employment (usually called natural rate of unemployment or NAIRU)? 4pts
2) A) Why would you expect the inflation rate to accelerate if the actual unemployment rate declined to a level lower than the "full employment" unemployment rate (NAIRU) and remained at that low level for a year or longer? Explain your answer in a few sentences. 3pts .
B) Draw an AS/AD diagram illustrating your answer to part (A) and refer to the current state of the economy of the US to compare in this context. Be sure to label all lines and axes in your diagram clearly. 3pts
3) Between Q1, 2016 and Q2, 2018 measured Output in the non- farm business sector increased by 3.6%. During this time period the unemployment rate fell from 4.6% to 3.7% and total hours worked in the nonfarm business sector increased by 3.8%. What was the % rate of change in labor productivity over the year? Explain your answer briefly. (Hint: Labor productivity = Y/Labor hours; RGDP growth rate = Labor productivity growth plus and Labor Force Growth rate. No need to use u-rate changes for this question)
In: Economics