The reported net incomes for the first 2 years of Splish Products, Inc., were as follows: 2020, $147,800; 2021, $202,000. Early in 2022, the following errors were discovered.

Prepare the correcting entry necessary when these errors are discovered. Assume that the books are closed. (Ignore income tax considerations.)

3. Y received stock as a gift from her father in 2019. Her father purchased the stock several years ago of $30,000. The stock was worth $20,000 at the time the gift was received. Y sold the stock for $18,000 in 2020.

How much gain or loss, if any, should Y report on her 2020 tax return?

Assume the same facts as above, except that Y sold the stock for $25,000. How much gain or loss, if any, should Y report on her 2020 tax return?

Amazon leased equipment from United Machines on July 1, 2020, in a finance lease. The present value of the lease payments discounted at 10% was $82,000. Ten annual lease payments of $12,000 are due each year beginning July 1, 2020. United Machines had constructed the equipment recently for $66,000. What net effect did the lease have on the income statement of United Machines for the year ending December 31, 2020? Ignore taxes. a. $23,000 b. $0 c. $16,000 d. $19,500 e. $3,500

Trident Corporation is currently worth $16 million. Its current debt-to-value (D/V) ratio is 60%. The company is confident in meeting its debt obligation, and wants to introduce more debt to take advantage of the tax shield of interest payment. It is planning to repurchase part of the common stock by issuing more corporate debt. As a result, the firms debt value is expected to rise by $1.4 million. The cost of debt is 8 percent per year. Trident expects to have an EBIT of $2.4 million per year in perpetuity. Tridents tax rate is 30%.

(a) What would be the market value of Trident Corporation if it were unlevered? What would be the expected return on equity if Trident were an all-equity firm?

(b) What is the expected return on the firms equity before the announcement of the stock repurchase plan?

(c) What is the value of equity after the announcement of the stock repurchase plan? How much money do the equityholders expect to receive each year under the new capital structure? What is the expected return on the firms equity after the announcement?

(d) How much does the value of the firm increase after the announcement? If the goal is to maximize the firms value, would you recommend the CEO of Trident to borrow as much as they can? Please explain your rationale. Ignore the cost of financial distress and agency cost.

(e) Now we consider the downside of debt borrowing: cost of financial distress and agency cost. The more debt there is, the more costly it could be when the firm fails to meet its debt obligation. Suppose the firm expects to incur an additional cost of $360,000 for this $1.4 million increase in leverage. If the goal is to maximize the firms value, would you recommend the CEO of Trident to proceed with this repurchase plan? Please explain your rationale.

Tiger Enterprises has, for several years, enjoyed relatively easy access to the bond markets. Their President/CEO is wondering whether they may have taken too much advantage of their access and borrowed more than they should have.

Tiger's debt ratio is currently 68%. If it reaches 70%, holders of certain bonds will be able to force a conversion of their bonds to common stock. This will significantly dilute the ownership of several major investors. Their long-term debt is currently structured as follows:

$5,000,000 of 4.2%, 20-year bonds due in 2035, book value is $4,800,000

$8,000,000 of 4%, 20-year bonds due in 2036, book value is $7,510,000

$20,000,000 of 5%, 20-year convertible bonds due in 2037, book value is $17,800,000

$10,000,000 of 4.8%, 30-year bonds due in 2048, book value is $8,100,000

Tiger has a current cash balance of approximately $10,000,000, which is $6,000,000 more than they consider to be the minimum cash balance that allows them to carry on operations smoothly. There are no short-term investments. Their major lines of business all generate positive operating cash flows and are expected to continue to do so.

Required: In preparation for next week’s board meeting, the CEO has asked you to draft a plan to bring the debt ratio down below 50% in the next two years. Identify at least one approach that will reduce the debt ratio in two years. If there is additional information, you need to formalize your plan, indicate what information you need. Consider how the Balance Sheet will look at the level of Assets = Liabilities+Equity. Use rough amount estimates if needed and work the debt ratio down from there. What changes would be required for this and how will the company implement those changes?

Bond H, described in the table below, is sold for settlement on 20 April 2020.

What is the full price (per 100 of par value) that Bond H will settle at on 20 April 2020? Round your answer to three decimal places.

Bond H, described in the table below, is sold for settlement on 20 April 2020.

What is the amount of accrued interest for Bond H on the settlement date of 20 April 2020? Round your answer to three decimal places.

Bond H, described in the table below, is sold for settlement on 20 April 2020.

What is the flat price for Bond H on the settlement date of 20 April 2020? Round your answer to three decimal places.

The adjusted trial balance of Monona Inc. as of December 31, 2020, follows.

a. Prepare the income statement for the year ended December 31, 2020.
b. Prepare the statement of stockholders’ equity for the year ended December 31, 2020. Assume that the common stock was issued prior to 2020.
c. Prepare the balance sheet on December 31, 2020

Question 11

In early February 2020, Indigo Corp. began construction of an addition to its head office building that is expected to take 18 months to complete. The following 2020 expenditures relate to the addition:

On February 1, Indigo issued a $105,000, three-year note payable at a rate of 10% to finance most of the initial payment to the contractor. No other asset-specific debt was entered into. Details of other interest-bearing debt during the period are provided in the table below:

What amount of interest should be capitalized for the fiscal year ending December 31, 2020, according to IAS 23? (Do not round intermediate calculations. Round capitalization rate to 2 decimal places, e.g. 52.75% and final answer to 0 decimal places, e.g. 5,275.)

C-Bay Inc.'s accounting year ends on December 31. During the following three years, its common shares outstanding changed as follows.

Required

a. For purposes of calculating EPS at the end of each year, determine the number of shares outstanding. Hint: consider each reporting year separately.

b. For purposes of calculating EPS at the end of 2022, when comparative statements are being prepared on a three-year basis, determine the number of shares outstanding for each year.

c. Compute EPS for each year based on computations in part b. Assume net income is $375,000, $330,000, and $299,000, for years 2022, 2021, and 2020, respectively.

Note: Round earnings per share amounts to two decimal places.