Suppose a firm buys a machine with a 4 year useful life for $280,000. The machine has a salvage value of $20,000. Do each question separately.

V. Assume the firm uses straight-line depreciation. After two years of depreciation, the firm conducts an impairment test. It concludes the net cash flows from the machine for the remaining two years will be $60,000 per year. Is the machine impaired? Record the journal entry if it is impaired. Assume that the appropriate discount rate is 4%.

VI. Assume the firm uses the units of activity depreciation method where it allocates depreciation expense proportionate to the number of hours the machine is operated. It anticipates operating the machine for 3,000; 3,200; 3,300 and 3,500 hours in the next four years, respectively. Calculate the depreciation expense and net book value for each year.

VII. A steelmaker’s assets will largely consist of tangible assets like inventories and property, plant and equipment. List a firm for which the most valuable things that the firm owns are intangible assets that are not recorded on the balance sheet. Which of the two firms (the steelmaker or the firm you selected) is likely to have the larger market to book ratio? Explain why.

The patient is a 57-year old woman with a history of hypertension and chronic stable angina. She arrives in the ED complaining of indigestion-type pain that occurs more frequently than her chest pain and takes over 20 minutes to go away. She appears mildly short of breath, with vital signs of BP 155/98, pulse rate 100, respiratory rate 24/min. What should be considered as the most likely cause of this patient’s pain? Why? What is the difference between stable and unstable angina? Why might this new pain most likely be considered unstable angina?

You are working on the financial report audit for a wholesaling company the year ended 30 June 2020. You are currently considering the audit approach for the property, plant and equipment account. The balance of the property, plant and equipment account was $325,000 at 30 June 2019. The balance at 30 June 2020 is $410,000. The materiality threshold for this client is $50,000.

You note that all property, plant and equipment has been valued based on fair value estimates. The fair value of the property, plant and equipment is heavily affected by changes in economic conditions. You note that the internal controls for this account are weak.

Required:

Explain why the internal controls are likely to be weak for the property, plant and equipment account.

Comment on whether a lower assessed level of control risk approach, or a predominantly substantive approach be more appropriate for this account.

Identify the main assertion that is likely to be at-risk for this account for this client. Explain why it is at risk.

Identify an audit procedure that would provide evidence for this assertion.

Following are the individual financial statements for Gibson and Davis for the year ending December 31, 2015:

Gibson acquired 60 percent of Davis on April 1, 2015, for $583,800. On that date, equipment owned by Davis (with a five-year remaining life) was overvalued by $60,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $389,200.

Davis earned income evenly during the year but declared the $40,000 dividend on November 1, 2015.

a. Prepare a consolidated income statement for the year ending December 31, 2015.

b. Determine the consolidated balance for each of the following accounts as of December 31, 2015.

1) At the end of each year you deposit $750 in a retirement account that pays 6%. How much money will you accumulate for your retirement if you plan to retire 30 years from now?

2) Starting today Andrew will deposit $2,000 per year in a retirement account that pays 6%. How much money will he accumulate for his retirement if he plans to retire 50 years from now?

3)  You are looking into an investment that will pay you $12,000 per year for the next 15 years. If you require a 7% return, what is the most you would pay for this investment today?

4) If today you pay $100,000 in exchange for a 20 year annuity with 10% return, what will be the annual cash flow?

5) You are buying a house for $180,000. Your bank will lend you the money at 6% for 20 years. How much will you have to pay every month?

6) An insurance company is trying to sell you an investment policy that will pay you and your heirs $50,000 per year forever. If the required return on the investment is 5%, how much will you pay for the policy?

The financial statements of Aimi Enterprise for the year ended 31 December 2018 are as follows:

Required:

1. Calculate the following ratios:

1. Current ratio
2. Quick ratio
3. Inventory turnover ratio
4. Average collection period
5. Gross profit margin
6. Net profit margin

2. Give interpretation for each of the above ratios

           (Total: 30 marks)

The net income reported on the income statement for the current year was $257,354. Depreciation recorded on fixed assets and amortization of patents for the year were $38,458 and $8,183, respectively. Balances of current asset and current liability accounts at the end and at the beginning of the year are as follows:

What is the amount of cash flows from operating activities reported on the statement of cash flows prepared by the indirect method?

$323,056

$246,653

$264,794

$275,688

Prepare the journal entries for the following transactions.

1. DFC has total sales for the year of $2,256,000. Included in the total sales figure are $160,500 of cash sales. During the year, the firm received $2,052,000 of payments on account.  
2. During the year, the firm determined that accounts totaling $7,500 were uncollectible. Moreover, a $2,000 receivable written off during the year was subsequently collected. The $2,000 is not included in cash collections in “A.” above.
3. DFC uses the allowance method to record bad debts. Specifically, the firm uses the percentage of receivables method to compute the allowance for doubtful accounts. For the year ended May 31, 2020, DFC estimates the required allowance for doubtful accounts to be 8% of the gross accounts receivable balance at May 31, 2020.
4. DFC purchased $1,400,000 of additional inventory on account during the year. The purchases are charged to accounts payable. Total payments made on account for the year were $1,411,200. Inventory at May 31, 2020 totaled $117,000.

2. The following information is available for the Roots Heritage Corp. for the year ended Dec. 31, 2015:

Collection of principal on long term loan to a supplier …… ……………    $35,000

Purchase of equipment for cash …     ……………………………………    10,000

Proceeds from sale of long-term investment at book value ……………..     27,000

Issuance of common stock for cash ……………………………………..     20,000

Depreciation expense for the year   …………………………………           25,000

Redemption of bonds at carrying value     ………………………….            24,000

Payment of cash dividends ………………………………………………        9,000

Net income ……………………………………………………………….    30,000

Purchase of land by issuing bonds payable ………………………………   40,000

In addition, the following information is available from the comparative balance sheet for 2015 & 2014:

                                                                                                   2015                2014            

                                                Cash ………………………. $102,000         $ 14,000

                                                Accounts receivable (net) …     20,000             15,000

                                                Prepaid insurance …………       17,000             13,000

                                                Total current assets ……….   $139,000         $ 42,000

                                                Accounts payable …………   $ 25,000         $ 19,000

                                                Salaries payable …………..          4,000               7,000

                                                Total current liabilities ……   $ 29,000         $ 26,000

            Required: Prepare a statement of cash flows using the indirect method