Case 2: Reporting shareholders’ equity

Vinabread Ltd had the following equity account on 1 July 2020:

Share Capital (100,000 shares) 1,800,000

Retained Earnings $ 960,000

General Reserve $ 100,000

Vinabread Ltd’s profit for the year ending 30 June 2020, which has not been included in the retained earnings was $180,000. During the year, the following transactions and events occurred:

July 15, 2020 Declared and paid interim dividend of $0.50 per share.

July 30, 2020 Effected 3 for 1 share split,

June 30, 2021 Declared a final cash dividend of $0.30 per share and transferred $20,000 from retained earnings to general reserve.

Required: Prepare the equity section of the statement of financial position of Vinabread Ltd as at 30 June 2021.

The total costs incurred in 2019 at various output levels in a factory have been measured as follows:

When output is 200 units or more, another factory unit must be rented and fixed costs therefore increase by 50%. Variable cost per unit is forecast to rise by 20% at the start of 2020.

Required:

Using the high-low method and least squares method-

a.       Calculate the Variable cost per unit.

b.      Calculate Total Fixed Cost.

c.       Develop the cost function that links Cost to Output (2020).

d.      Calculate the estimated total costs of producing 200 units in 2020.

e.       Calculate the estimated output if total cost is $15,400 in 2020.

Geraths Windows manufactures and sells custom storm windows for three-season porches. Geraths also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Geraths enters into the following contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,400 and chooses Geraths to do the installation. Geraths charges the same price for the windows irrespective of whether it does the installation or not. Geraths estimates the standalone selling price of the installation based on an estimated cost of $400 plus a margin of 20% on cost The customer pays Geraths the full amount upon delivery. The windows are delivered on September 1, 2020, Geraths completes installation on October 15, 2020. Prepare the journal entries for Geraths in 2020.

On January 1, 2020, Hawkeye Air leased a new airplane for 5 years. The expected life of the airplane is 20 years. The lease stipulates that Hawkeye Air makes annual payments of $1,085,923 payable at the beginning of each year. Hawkeye Air has an incremental borrowing rate of 4.3%. Hawkeye Air has an option to renew the lease with a 2% increase in the lease payment.

1) How will the lease be classified and how do you know?

1b) Calculate the present value of the lease payments.

2) What is the balance sheet impact of the lease at the beginning of the lease (1/1/2020)?

2a) What is the income statement impact of the lease for 2020?

2b) Identify any effects the lease arrangement and the associated reporting would have on the statement of cash flows for 2020.

1. Suppose the data for a hypothetical economy is given above. This economy produces only 3 things, pizzas, haircuts and tanks. The base year is 2019.

1. Calculate GDP deflator in 2020. Based on GDP deflator, what is the inflation rate from 2019 to 2020?
2. Suppose a representative consumer basket consists of 10 pizzas and 20 haircuts. Using this consumer basket, calculate CPI in 2020 (again, assuming 2019 is the base year). Based on CPI, what is inflation rate?
3. Why do you think there is such a dramatic difference in the inflation rates from parts a and b?

1. Suppose the data for a hypothetical economy is given above. This economy produces only 3 things, pizzas, haircuts and tanks. The base year is 2019.

a. Calculate GDP deflator in 2020. Based on GDP deflator, what is the inflation rate from 2019 to 2020?

b. Suppose a representative consumer basket consists of 10 pizzas and 20 haircuts. Using this consumer basket, calculate CPI in 2020 (again, assuming 2019 is the base year). Based on CPI, what is inflation rate

c. Why do you think there is such a dramatic difference in the inflation rates from parts a and b?

1. Discuss in detail what an outlier is and explain how it can be a disadvantage of using the High-Low method.
2. The CEO of Keechen & Moore has heard about some firms using regression analysis (method of least squares) to estimate costs. Briefly explain the regression method and discuss its main advantage relative to the High-Low method.

1. What is the biggest problem with Executive compensation? a. Is this a problem that can be solved by the BoD, or would an outside firm be better able to solve it?

2. How can companies ensure that their shareholders needs are being met?

3. Given how much control the CEO has over the BoD, is it possible for executive compensation to ever be reduced? If so, how?

Why construct financial forecasts? From a planning perspective, is it necessary to forecast the future as it relates to the organization as well as the industry as a whole? If you were President and CEO of Apple Corporation, would you want to know what the forecast for iPhones would be in the next year, 5 years, and 10 years? Why would this information be important? Explain.