On June 1, 2020, Krypton Industries [KI] purchased a call option for $ 2,400, giving it the right to buy 2,000 shares of Kriminel Corporation for $ 20 per share. On June 30, 2020, similar options were being traded at $3,100. On August 18, 2020, when the option value was $ 12,000, Omega settles the option for cash. On August 18, 2020, KI settles the option for cash when the option value in the market is $12,000.

Prepare the journal entry in the books of KI, if required, to record this transaction.

a. No Journal Entry Required.

b. Derivatives - Financial Assets/Liabilities ........ DR $8,900; Cash ........ CR $8,900

c. Cash ........ DR $12,000; Derivatives - Financial Assets/Liabilities ........ CR $3,100; Gain/Loss On Derivatives ........ CR $8,900

d. Derivatives - Financial Assets/Liabilities ........ DR $700; Cash ........ CR $700 e. Cash ........ DR $12,000; Gain/Loss On Derivatives ........ CR $12,000

(b) On 1 July 2018, Maxwell Chemical Ltd acquired a plant at a cost of $1,000,000. Maxwell depreciated the assets on a straight line basis. As at 30 June 2020, the machinery had accumulated depreciation of $200,000 and an expected remaining useful life of four years. On 30 June 2020, Maxwell Chemical Ltd conducted an impairment test on asset. It was assessed that the plant could be sold to other entities for $600,000 with costs of disposal of $25,000. The management expect to use the plant for another four years and it is expected that net cash flow to be generated by the plant would be $195,000 over each of the next four years. The rate of return by the market on this plant is 8% as at 30 June 2020.

Note: The present value of an annuity of $1 for four years discounted at 8 per cent is $3.3121

Required: (a) Determine whether the plant is impaired. If so, provide appropriate journal entry at 30 June 2020.

(b) Provide the journal entry to account for the depreciation in 2021.

On 1 July 2018, Maxwell Chemical Ltd acquired a plant at a cost of $1,000,000. Maxwell depreciated the assets on a straight line basis. As at 30 June 2020, the machinery had accumulated depreciation of $200,000 and an expected remaining useful life of four years. On 30 June 2020, Maxwell Chemical Ltd conducted an impairment test on asset. It was assessed that the plant could be sold to other entities for $600,000 with costs of disposal of $25,000. The management expect to use the plant for another four years and it is expected that net cash flow to be generated by the plant would be $195,000 over each of the next four years.

The rate of return by the market on this plant is 8% as at 30 June 2020.

Note: The present value of an annuity of $1 for four years discounted at 8 per cent is $3.3121

Required:

(a)  Determine whether the plant is impaired. If so, provide appropriate journal entry at 30 June 2020.                                                                                                         

(b) Provide the journal entry to account for the depreciation in 2021.   

While reviewing the March 31, 2020, balance sheet of Business Solutions, Santana Rey notes that the business has built a large cash balance of $68,146. Its most recent bank money market statement shows that the funds are earning an annualized return of 0.64%. S. Rey decides to make several investments with the desire to earn a higher return on the idle cash balance. Accordingly, in April 2020, Business Solutions makes the following investments in trading securities

On June 30, 2020, the fair value of the Johnson & Johnson bonds is $14,700 and the Starbucks notes is $3,700.

Required:
1. Prepare journal entries to record the April purchases of trading securities by Business Solutions.
2. On June 30, 2020, prepare the adjusting entry to record any necessary fair value adjustment to its portfolio of trading securities.

On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 2,800,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PFI prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows:

1. Prepare all journal entries related to this foreign currency borrowing.
2. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022.

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

4. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information. (Do not round intermediate calculations and round your final answers to the nearest whole dollar amount. Loss amounts should be indicated with a minus sign.)

Presented below is information related to Tobias Corp., for the year 2020. Required: Prepare a multiple-step Income Statement and Statement of Retained Earnings for 2020 in good form (with headings). Assume the 300,000 shares of common stock were outstanding during 2020.

Administrative Expenses 70,000

Cost of Goods Sold 1,200,000

Depreciation Expense overstated in 2015 105,000

Dividend revenue 30,000

Dividends Declared 120,000

Effect on prior years of Change in Accounting Principle (credit) 220,000

Gain from sale of land in discontinued component 300,000

Interest Expense 45,000

Interest Revenue 20,000

Loss from operations in discontinued component of business 240,000

Retained Earnings, 1/1/2020 460,000

Sales Discounts 12,000

Sales Return & Allowances 50,000

Sales Revenue $ 1,950,000

Selling Expenses 95,000

Write-off of Goodwill due to Impairment 75,000

Federal tax rate of 20% on all items

Company X is a U.S.-based IT company with operations and earnings in a number of foreign countries. The company's profits by subsidiary, in local currency (in millions), are shown in the following table for 2019 and 2020.

     Net Income           Japanese Subsidiary       Britih Subsidiary

2019                   JPY 200                            GBP 100.00

2020                   JPY 1,480                         GBP 108.40

The average exchange rate for each year, by currency pairs, is the following.

Exchange Rate      JPY = 1 USD                 USD = 1 GBP

      2019                     97.57                               1.5646

      2020                      90.88                               1.6473

Use the above data, Students answer the following questions.

1. What is Company X's consolidated profits in U.S. dollars in 2019 and 2020?

2. If the same exchange rates are used for both years, what is the change in corporate earnings on a "constant currency" basis?   

Using the results of the constant currency analysis in part b, is it possible to separate Company X's growth in earnings between local currency earnings and foreign exchange rate impacts on a consolidated basis?           

A comparative balance sheet for Carla Corporation is presented as follows.

Additional information:

(a)

Prepare a statement of cash flows for 2020 for Carla Corporation. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

A comparative balance sheet for Pharoah Corporation is presented as follows.

Additional information:

Prepare a statement of cash flows for 2020 for Pharoah Corporation. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)