QUESTION 1

Equipment with a cost of $75,809.00, an estimated residual value of $4,582.00, and an estimated life of 13 years was depreciated by the straight-line method for 4 years. Due to obsolescence, it was determined that the remaining useful life should be shortened by 3 years and the residual value changed to zero. The depreciation expense for the current and future years is

QUESTION 2

The Boxwood Company sells blankets for $ 37.00 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.

Assuming that the company uses the perpetual inventory system, determine the ending inventory value for the month of May using the FIFO inventory cost method.

QUESTION 3

On June 8, Alton Co. issued an $86,600, 7%, 120-day note payable to Seller Co. Assume that the fiscal year of Seller Co. ends June 30. Using a 360-day year in your calculations, what is the amount of interest revenue recognized by Seller in the following year? When required, round your answer to the nearest dollar.

After Enron, WorldCom, and other major corporate scandals that rocked America in the recent past, it seemed that nothing would surprise investors or regulators. However, almost everyone was shocked by revelations that as many as 20 percent of all public corporations may have allowed their officers and directors to “backdate” their stock option awards and account for the awards improperly. For a time, hardly a day went by without another public company’s fraudulent stock option practices being revealed.

A stock option is an award granted under which key employees and directors may buy shares of the company’s stock at the market price of the stock at the date of the award. As an example, assume that Company A’s stock price is $15 per share on January 1, 2007. Further assume that the company’s CEO is awarded 200,000 stock options on that date. This means that after a certain holding (vesting) period, the CEO can buy 200,000 shares of the company’s stock at $15 per share, regardless of what the stock price is on the day he or she buys the stock. If the stock price has risen to, say $35 per share, then the CEO can simultaneously buy the 200,000 shares at a total price of $3 million (200,000 times $15 per share) and sell them for $7 million ($35 per share times 200,000 shares), pocketing $4 million. Stock options are a way to provide incentives to executives to work as hard as they can to make their companies profitable and, therefore, have their stock price increase.

Until 2006, if the option granting price ($15 in this case) were the same as the market price on the date the option was granted, the company reported no compensation expense on its income statement. (Under accounting rule FAS 123R, effective in 2006, the required accounting changed.) However, if the options were granted at a price lower than the market share price (referred to as “in-the-money” options) on the day the options were granted, say $10 in this example, then the $5 difference between the option granting price and the market price had to be reported as compensation expense by the company and represented taxable income to the recipient.

The fraudulent stock option backdating practices involved corporations, by authority of their executives and/or boards of directors, awarding stock options to their officers and directors and dating those options as of a past date on which the share price of the company’s stock was unusually low. Dating the options in this post hoc manner ensured that the exercise price would be set well below market, thereby nearly guaranteeing that these options would be “in the money” when they vested and thus provided the recipients with windfall profits. In doing so, many companies violated accounting rules, tax laws, and SEC disclosure rules. Almost all companies that were investigated “backdated” their options so that they would appear to have been awarded on the low price date despite having actually been authorized months later.

Would a good system of internal controls have prevented these fraudulent backdating practices?

Why would executives and directors of so many companies have allowed this dishonest practice in their companies?

Would a whistle-blower system have helped to prevent or reveal these dishonest practices?

Adelman Company received a $100,000, one year, 9 percent bank loan on October 31, 2016. Interest is payable at the end of the loan term.

Adelman’s adjusting entry at the end of their fiscal year on March 31, 2017 is:

At the beginning of the period, Cracker Corporation had $800 of supplies on hand. During the period, it purchased $1,800 of supplies and at the end of the period, the company determined that only $1,600 of supplies were still on hand.

What adjusting entry should Cracker Corporation make at the end of the period?

On June 1, 2016, Enne Brahtz Corporation received $3,600 as advance payment for 12 months' advertising. The receipt was recorded as a credit to Unearned Fees.

What adjusting entry is required on December 31, 2016?

Background Getswift Ltd (“Getswift”) is a newly listed company involved that provides a software distribution solution. The board has heard that a new revenue standard (IFRS 15) has been issued and as none of the board has a financial background, they are unsure what it means for them. They have heard though that the impact of the new standard on most businesses will be significant. As a result, they have engaged your consultancy firm to provide them with a letter of advice to explain the impact that the new standard will have on the income recognition of Getswift. REQUIRED You are required to provide a letter of advice to the board of Getswift explaining the requirements of the new revenue standard with a focus on how it will impact their particular revenue recognition. In addition, you are required to write a short transmittal email enclosing the letter of advice. Important Additional Information You are expected to research this company and gain an understanding of what they do so that you understand the nature of their revenue. The 2016/2017 annual report should be used as a starting point but you are expected to go further than this. This assessment requires much more than copying the requirements from the new standard and those students that just do this will be marked poorly. The majority of the marks will be for the application of the standard to Getswift’s revenue sources. Therefore, you need an understanding of what they do. The language of your letter of advice should be tailored to the audience and their level of financial literacy. Required Format and additional requirements You are required to produce: 1. A transmittal email to the Board 2. A Letter of Advice, addressed to the Board, which includes references

The first audit of the books of Fenimore Company was made for the year ended December 31, 2018. In examining the books, the auditor found that certain items that resulted from changes in accounting policies, accounting estimates and errors had been overlooked or incorrectly handled in the last 3 years.

Instructions

1.      Describe the types of accounting changes.                                                     

2.      Explain the accounting procedures for changes in accounting policies and estimates and the correction of errors.                                                                                 

3.      Assuming that the books for 2018 have not been closed, prepare the correcting journal entries related to the following items. Disregard the effects of these corrections on income tax.

a)      At the beginning of 2016, the company purchased a machine for $510,000 (residual value of $51,000) that had a useful life of 5 years. The bookkeeper used straight-line depreciation but failed to deduct the residual value in computing the depreciation base for the years 2016, 2017, 2018.                                                                    

b)      At the end of 2017, the company failed to accrue sales salaries of $45,000.

c)      A tax lawsuit that involved the year 2013 was settled late in 2018. It was determined that the company owed an additional $85,000 in taxes related to 2016. The company did not record a liability in 2016 or 2017 because the possibility of loss was considered remote and debited the $85,000 to a loss account in 2015 and credited Cash for the same amount.                                                                            (1 mark)

d)      Fenimore Company purchased a copyright from another company early in 2016 for $50,000. Fenimore had not amortized the copyright because its value had not diminished. The copyright has a useful life at purchase of 20 years.          

e)      In 2018, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings and credited to Inventory.

f)       Year-end salaries and wages payable of $3,400 were not recorded because the bookkeeper thought that “they were immaterial.”                                  

g)      Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $3,300 because “the amount of the cheque is about the same every year.”                                                                                

h)      Reported sales revenue for the year is $1,908,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $103,400.        

T/F   

______ 21.    A member may omit answering a question on a tax return if reasonable grounds exist for omitting the answer to a question applicable to the taxpayer.

SSTS: ___________________________________________

______ 22. A member should not omit an answer to a question because it might prove disadvantageous to the taxpayer.

SSTS: ___________________________________________

______ 23.   If reasonable grounds do not exist for omission of an answer to an applicable question, a taxpayer is not required to provide on the return an explanation of the reason for the omission.

SSTS: ___________________________________________

______ 24. A member shall make a reasonable effort to obtain from the taxpayer that the taxpayers has maintained books and records or substantiating documentation to support reported deduction or tax treatments of items on a tax return.   SSTS: ___________________________________________

______ 25. A member can use estimates if fire, computer failure, or natural disaster has destroyed the taxpayer’s records.

SSTS: ___________________________________________

______ 26. A practitioner may endorse or otherwise negotiate any check issued to a client if the client has authorized the practitioner to do so.

230: ___________________________________________

______ 27. Tax advisors should provide clients with the highest quality representation concerning Federal tax issues by adhering to best practices in providing advice and in preparing or assisting in preparation of a submission to the Internal Revenue Service.

230: ___________________________________________

_____ 28. An enrolled agent has the same ability to practice before the Internal Revenue Service as does an attorney or CPA.

       230: ___________________________________________

______ 29. Practice before the Internal Revenue Service include preparing documents, filing documents, corresponding and communicating with the Internal Revenue Service and representing a client at conferences, hearings, and meetings.

230: ___________________________________________

______ 30. Enrolled Agents, enrolled retirement plan agents, and registered tax return preparers must renew their status with the Internal Revenue Service to maintain eligibility to practice before the IRS.

230: ___________________________________________

31. A CPA may be denied to practice before the IRS if he or she has not filed their own individual income tax returns.

230: ___________________________________________

______ 32. An employee of the Mississippi Department of Revenue may not practice before the Internal Revenue Service if such employment may disclose facts or information applicable to Federal tax matters.

230: ___________________________________________

______ 33. In order to practice before the Internal Revenue Service, an individual must be twenty-one years old.

230: ___________________________________________

______ 34. An individual must pass a written examination administered by the Internal Revenue Service in order to receive status as an enrolled agent.

230: ___________________________________________

______ 35. An enrolled agent must complete a minimum of 72 hours of continuing education credit during an enrollment cycle with a minimum of 16 during each enrollment year.

230: ___________________________________________

______ 36. An enrolled agent must complete two hours of ethics or professional credit each enrollment year.

230: ___________________________________________

______ 37. A practitioner who, having been retained by a client with respect to a matter administered by the Internal Revenue Service, knows that the client has not complied with the revenue laws of the United States or has made an error in or omission from any return, document, affidavit, or other paper which the client submitted or executed under the revenue laws of the United States, must advise the client promptly of such noncompliance, error, or omission.

230: ___________________________________________

______ 38. A practitioner should always exercise due diligence in determining the correctness or oral or written representations made by the practitioner to the Department of the Treasury.

230: ___________________________________________

______ 39. A practitioner should not publish the availability of a written schedule of fees and disseminate since it may be considered to be advertising.

230: ___________________________________________

______ 40. A practitioner should refrain from any type of advertising.

230: ___________________________________________

Suppose that the annual market demand for Bleebs is given by Q=3750-75P The average and marginal costs of producing Bleebs are $10/bleeb.

A) If the firm acts as a single-price monopoly, what are the monopoly quantity, price, and profit?

B) Suppose that there are three hundred identical customers in this market. What is the best two-part tariff that the monopolist can use? If the monopolist implements the two-part tariff, how much profit will it make?

C) It turns out that the monopolist was wrong about the makeup of the customers. At any price, 1/3 of the customers buy twice as much as the other two thirds. If the monopolist implements the two-part tariff in part b, how much profit will it make?

The Unadjusted Trial Balance has been prepared (provided below and also in ThreeBrothers worksheet.xlsx), showing only those accounts with a non-zero balance. You have gathered the following information that will be helpful in preparing any necessary adjusting entries (add any accounts necessary). Good luck!

Also, in addition to its normal operations, ThreeBrothers's management entered into a long-term agreement on September 1, 2017 to supply its internally developed smart-phone-interactive fitness equipment, FITTRACKER, and maintenance support to a regional 24-hour fitness chain. The details of the agreement call for ThreeBrothers to be paid $10,000,000 up front for the equipment and 3 years of maintenance support (beginning on agreement date). The fitness chain could have bought just the equipment for $9,000,000 with no support, and they could have independently contracted for the maintenance support for $2,000,000 for the three-year period. ThreeBrothers has arranged with a 3^rd-party manufacturer to make and ship the equipment direct to customers so ThreeBrothers does not carry any FITTRACKER inventory. The cost of the equipment sold to the fitness chain was $4,500,000. ThreeBrothers has recorded the $10,000,000 as a point-of-sale transaction.

1. I need the adjusting journal entry and closing journal entry, if necessary. Thank You.

Internal Control : Performance Measures

Essex Engineering

Topic: Performance measures,

Essex is an industrial company with three divisions. Both the Midland Division and the North Division are long established. Senior managers are concerned that these divisions have a high percentage of products that are near the end of their product life-cycle. Forecast sales increases over the next 5 years is expected to be in the region of 4-5% per annum.

The East Division was acquired in 1999 and senior managers are optimistic that this division has very good growth potential. Most of the senior managers at this division have experience of working at the other divisions.

Since 1999 the head office has ranked all divisions according to return on investment (ROI) and residual income (RI). All managers believe that the rankings are important for future promotions and career development.

A small number of other performance measures are also used by managers. These include

These performance measures were agreed by all managers in 1999. At the time it was thought that managers should focus on only a small number of measures.

2002

The managers at the divisions provided the following information for the head office.

Selected data from the budgeted Management Accounts to 31 December 2002

Other measures

The head office has estimated that the group cost of capital is 10%

Ranking divisions in 2000

In 2000 the data on controllable and non-controllable costs and investments will be used to rank divisions.

Questions

Question 1

Based on the data provided comment on the relative financial performance of the two divisions and discuss how the ranking of the divisions changes if controllable and non-controllable costs and capital employed are analysed. (provide the calculation to prove your standpoint)

Question 2

Evaluate the choice of performance measures for the 3 divisions

Question 3

Identify and evaluate the difficulties faced by managers when measuring capital employed for a division.

Question 4

Discuss how using ROI can result in managers making poor investment decisions.

ROI has some built in biases that can lead managers to make poor decisions. First, ROI requires that all costs and benefits be stated in dollars. Because it is usually easier to quantify costs than benefits, ROI measurements can be biased in a way that gives undue weight to costs. Second, ROI focuses on benefits that can be predicted. It also tends to emphasize short run benefits over long run benefits. This biases ROI calculations to weigh short term costs and benefits more heavily than long term costs and benefits.

Question 5

Discuss the particular problems multinational companies have when evaluating the performance of divisions.   

You have now decided to collapse your data into on-campus and off-campus living (use data from #7) 2x2 table. Determine if there is a difference between living on-campus or off-campus and exercise status (yes exercise, no exercise).

1. state the null and alternative hypothesis

2. determine a

3. select chi square tool

4. Fine the critical value

5. reject or fail to reject

6. State the conclusion