Tiner Leasing Company purchased specialized equipment from Fred

Company on December 31, 2019 for $800,000. On the same date, it leased this equipment to Tears Company for 6 years, the useful life of the equipment. The lease payments begin January 1, 2020 and are made every 6 months. Tiner Leasing wants to earn 9% annually on its investment.

   (a) Calculate the amount of each rent. $ __________

   (b) How much interest revenue will Tiner earn in 2020? $ __________

Assume in 2019 the rate of job separation is 1% and the rate of job finding is 19%. In 2020 during a recession, 85 out of every 1000 employed workers become separated from their jobs while 21 out of every 100 unemployed workers find jobs.

a. what is the natural rate of unemployment during the recession?

b. what is the percent change in the unemployment rate between 2019 and 2020?

c. describe a governmental program that will decrease the unemployment rate

Stellar Ltd prepares accounts to 31March every year. Its latest trial balance for the year ended 31 March 2020 is provided below.

Stellar Ltd Trial Balance as at 31 March 2020

Additional information as at 31March 2020 is provided below:

1. Inventories at close of business on 31 March 2020 was valued at £17,500,000 at cost.
2. A cash dividend of £0.10 per share was paid to ordinary shareholders on 27 March 2020. No entries have been made in the accounts for this transaction.
3. Due to the contractual obligation to pay preference dividends, the company recognises and accounts for preference shares as a liability.
4. Depreciation is to be provided for the year ending 31March 2020 as follows:
   1. Property at 1% per annum on cost.
   2. Plant and equipment at 5% per annum on a reducing balance basis.
   3. The depreciation charge for the year is to be apportioned to administrative and distribution expenses as per the table below:

5. Interest on the debentures has not yet been paid and needs to be accrued for the year.
6. To be prudent, the directors wish to create an allowance for receivables equal to 1% of trade receivables. It is company policy to classify all bad debts and any allowances for receivables as distribution expenses.
7. Staff costs outstanding at the financial year end amounted to £500,000 and other expenses included £300,000 which had been paid in advance. Both these expenses are chargeable 60% to administration and 40% to distribution.
8. The amount for rent in the trial balance above relates to the period 1 April 2019 to May 2020. Rent expense is charged 30% to administration and 70% to distribution.
9. Half of the general expenses relate to administration and half to distribution.
10. The corporation tax charge is to be provided at 20% of profits after charging all expenses and interest

Prepare the Statement of Profit and Loss, the Statement of Changes in Equity and the Statement of Financial Position of Stellar Ltd for the financial year end 31 March 2020. (You should show all your workings).

Stellar Ltd prepares accounts to 31March every year. Its latest trial balance for the year ended 31 March 2020 is provided below.

Stellar Ltd Trial Balance as at 31 March 2020

Additional information as at 31March 2020 is provided below:

1. Inventories at close of business on 31 March 2020 was valued at £17,500,000 at cost.
2. A cash dividend of £0.10 per share was paid to ordinary shareholders on 27 March 2020. No entries have been made in the accounts for this transaction.
3. Due to the contractual obligation to pay preference dividends, the company recognises and accounts for preference shares as a liability.
4. Depreciation is to be provided for the year ending 31March 2020 as follows:
   1. Property at 1% per annum on cost.
   2. Plant and equipment at 5% per annum on a reducing balance basis.
   3. The depreciation charge for the year is to be apportioned to administrative and distribution expenses as per the table below:

5. Interest on the debentures has not yet been paid and needs to be accrued for the year.
6. To be prudent, the directors wish to create an allowance for receivables equal to 1% of trade receivables. It is company policy to classify all bad debts and any allowances for receivables as distribution expenses.
7. Staff costs outstanding at the financial year end amounted to £500,000 and other expenses included £300,000 which had been paid in advance. Both these expenses are chargeable 60% to administration and 40% to distribution.
8. The amount for rent in the trial balance above relates to the period 1 April 2019 to May 2020. Rent expense is charged 30% to administration and 70% to distribution.
9. Half of the general expenses relate to administration and half to distribution.
10. The corporation tax charge is to be provided at 20% of profits after charging all expenses and interest

Prepare the Statement of Profit and Loss, the Statement of Changes in Equity and the Statement of Financial Position of Stellar Ltd for the financial year end 31 March 2020. (You should show all your workings).

Suppose that you are part of the Management team at Porsche. Suppose that it is the end of December 2019 and a novel coronavirus that causes a respiratory illness was identified in Wuhan City, Hubei Province, China. The illness was reported to the World Health Organization and there is heightened uncertainty around the Globe.

You (as part of the management team) are reviewing Porsche’s hedging strategy for the cash flows it expects to obtain from vehicle sales in North America during the calendar year 2020. Assume that Porsche’s management entertains three scenarios:

Scenario 1 (Expected): The expected volume of North American sales in 2020 is 35,000 vehicles.

Scenario 2 (Pandemic): The low-sales scenario is 50% lower than the expected sales volume.

Scenario 3 (High Growth): The high-sales scenario is 20% higher than the expected sales volume.

Assume, in each scenario, that the average sales price per vehicle is $85,000 and that all sales are realised at the end of December 2020. All variable costs incurred by producing an additional vehicle to be sold in North America in 2020 are billed in euros (€) and amount to €55,000 per vehicle. Shipping an additional vehicle to be sold in North America in 2020 are billed in € and amount to €3,000 per vehicle.

The current spot exchange rate is (bid-ask) $1.11/€ - $1.12/€ and forward bid-ask is $1.18/€ - $1.185/€. The option premium is 2.5% of US$ strike price, and option strike price is $1.085/€. Your finance team made the following forecasts about the exchange rates at the end of December 2020:

• bid-ask will be $1.45/€ - $1.465/€ if the investors (and speculators) consider the euro (€) a safe haven currency during the pandemic.
• bid-ask will be $0.88/€-$0.90/€ if the investors (and speculators) consider the U.S. dollar ($) a safe haven currency during the pandemic

3. As the CFO, you decided to hedge using option contracts. Assuming expected final sales volume is 35,000, what are your total benefit/cost and the percentage benefit/cost from hedging

(compared to no hedging)

1. if the exchange rate (bid-ask) remains at $1.11/€ - $1.12/€?
2. if the investors consider the U.S. dollar a safe haven currency during the pandemic?

4. Assume that the Scenario 2 (Pandemic) took place in 2020 and the euro became a safe haven currency during the pandemic. What are your cash flows if you did not hedge, hedged using forward contracts, and hedged using option contracts?   

5. Assume that the Scenario 2 (Pandemic) took place in 2020 and the U.S. dollar became a safe haven currency during the pandemic. What are your cash flows if you did not hedge, hedged using forward contracts, and hedged using option contracts?   

6. Based on the calculations in Part B, do you believe that it is a good policy to hedge Porsche’s currency exposure? Why?

Corona Corp. is a multi-product beverage company. Presented below is information concerning one of its products, COVID-20 spritz for 2020:

The company made all purchases on account. By the end of the year, it has not paid for the 11/8 purchases.

The company has a perpetual inventory system and elected to use the average cost method to calculate its inventory.

Additional information is as follows:

1. Physical count of the goods at the end of 2020 indicated $25,000 was actually on hand.
2. Consignment goods of $1,000 from Bud Light Corporation, the consignor, were included in the physical count of Corona Corp. at the end of 2020 and in accounts payable at December 31, 2020.   
3. Wine spritzers costing $11,000 were purchased by a customer f.o.b. shipping point on December 31, 2020. The sales price was at $17,000 and the customer paid in cash. However, the goods were still included in the physical count at the end of 2020 because the inventory were sitting at the loading dock waiting to be shipped due to social distancing requirements. No journal entry related to this transaction has been recorded so far.
4. Inventory returned by customer amounted to a cost of $7,500. This inventory was held for inspection and were excluded from the physical count at year-end. On January 10, 2021, the inventory was inspected and was returned to the warehouse where inventory is kept. Credit memos totaling $12,000 were issued to the customer on the same date.
5. Goods shipped to customer f.o.b. destination on December 28, 2020 were still in transit at December 31 and had a cost of $12,000. Upon notification of receipt by customer on January 5, 2021, Corona Corp. recorded the sales for $22,000. No journal entry has been recorded so far.
6. New purchases were in transit from a vendor to Corona Corp. on December 31 for 1,000 units at a unit price of $24. The goods were shipped f.o.b. shipping point on December 28, 2020. No journal entry has been recorded so far.
7. In January 2021, it was discovered that an invoice covering purchases of $15,000 related to the November purchases was entered twice in the accounting periods.

Required:

1. Fill in the schedule of adjustments below. You must first determine the initial ending inventory, sales and accounts payable for Corona Corp. Then for each of the seven transactions, show the effect, if any, separately. If the transactions have no effect on the amount shown, state NONE.

2. Briefly, explain each adjustment made above

QUESTION 2

REQUIRED
Use the information provided below to prepare the Statement of Comprehensive Income for the year ended
29 February 2020. Use the following format as a guide:
Statement of Comprehensive Income format
Sales
Cost of sales
Gross profit
Other operating income
Gross operating income
Operating expenses
Operating profit
Interest income
Interest expense
Net profit for the year
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INFORMATION
DURAVIT TRADERS
PRE-ADJUSTMENT TRIAL BALANCE AS AT 29 FEBRUARY 2020
Debit (R)
Credit (R)
Balance Sheet accounts section
Capital
1 255 000
Drawings
80 000
Land and buildings
900 000
Vehicles at cost
680 000
Equipment at cost
500 000
Accumulated depreciation on vehicles
380 000
Accumulated depreciation on equipment
160 000
Fixed deposit: Sen Bank (6% p.a.)
150 000
Trading inventory
115 000
Debtors control
130 000
Provision for bad debts
8 000
Bank
67 000
Cash float
6 000
Creditors control
110 000
Mortgage loan: Sen Bank (12% p.a.)
320 000
Nominal accounts section
Sales
1 500 000
Cost of sales
480 000
Sales returns
10 000
Salaries and wages
419 000
Bad debts
12 000
Stationery
20 000
Rates and taxes
58 000
Motor expenses
90 000
Repairs to building
17 000
Telephone
38 000
Electricity and water
46 000
Bank charges
8 000
Insurance
20 000
Interest on mortgage loan
33 000
Interest on fixed deposit
6 000
Rent income
140 000
3 879 000
3 879 000
Adjustments and additional information
1.
The electricity and water account for February 2020, R4 000, was due to be paid on 03 March 2020.
2.
A debtor, P. Smith, was declared insolvent. His insolvent estate paid R600 which represented 40% of his debt. The balance of his account must now be written off.
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3.
3.1
3.2
Stocktaking on 29 February 2020 revealed the following inventories:
Trading inventory R110 000
Stationery R2 000
4.
The provision for bad debts must be decreased by R1 500.
5.
Rent has been received up to 30 April 2020.
6.
The insurance total includes an annual premium of R6 000 that was paid for the period 01 September 2019 to 31 August 2020.
7.
Provide for outstanding interest on the mortgage loan for February 2020.
8.
Provide for outstanding interest on fixed deposit. The investment in fixed deposit was made on
01 June 2019.
9.
The credit purchase of tyres for a motor vehicle was not recorded, R5 000.
10.
10.1
10.2
Provide for depreciation as follows:
On equipment at 10% p.a. on cost.
On vehicles at 20% p.a. using the diminishing balance method.

Waterway Company is a manufacturer of smart phones. Its controller resigned in October 2020. An inexperienced assistant accountant has prepared the following income statement for the month of October 2020.

Prior to October 2020, the company had been profitable every month. The company’s president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows.

1. Inventory balances at the beginning and end of October were:

2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Prepare a schedule of cost of goods manufactured for October 2020.

Prepare a correct income statement for October 2020.

Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process.

Waterways likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $181,800.

Direct Materials

Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit.

Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,370 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $102,870.

Other Information

The Cash balance on December 31, 2019, totaled $100,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.30 per share for 4,910 shares outstanding. The company has an open line of credit with Romney’s Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $500,000 equipment purchase is planned for February.

For the first quarter of 2020, prepare a cash budget. (Round answers to 0 decimal places, e.g. 2,520.)