Bass Ltd, a leading producer of construction, mining and electrical equipment, suffered a significant drop in the demand of the company’s products due to COVID-19 in 2020 that significantly threatens the financial stability of the company. Bass in order to survive in this critical situation decides to restructure its strategy for forthcoming years. Changes in company strategies and accounting policies have a significant impact on reported profit. The basic earnings per share and diluted earnings per share presented in the company’s current year financial statements in accordance with “AASB 133 Earnings per Share” were comparatively higher than that of the last year. In contrast, company share prices have dropped by 20% at the reporting date, according to Yahoo finance.

While most shareholders seem unhappy to own company shares for the meagre dividend attached to them the question of whether Bass Ltd are fully valued at their current share prices continues to linger.

The directors of Bass Ltd are not sure how to calculate and include basic and diluted earnings per share in the company’s financial statements in accordance with AASB 133, and called for a report from the Finance Manager of the company.

On 30 June 2020, Bass Ltd had the following equity:

During the year ended 30 June 2020, the company earned after tax profit of $1 240 000 from ordinary activities.

The additional information is available.

1. On 20 November 2019, the company made a one-for-five bonus issue, and on 30 March 2020, the company made a rights issue of 400 000 ordinary shares.
2. On 20 July 2017, the company issued $ 750 000 of 8% convertible notes. Each $ 100 note was convertible into 50 ordinary shares. There was no conversion during the year ended 30 June 2020.
3. On 28 February 2019, the company issued options to purchase 10 000 shares at $ 3.50 each. No options were exercised during the year ended 30 June 2020.
4. The company income tax rate is $ 0.30 in the dollar and the company’s ordinary shares are trading at $ 5 per share on 30 June 2020.
5. The company paid preference dividends of $ 40 000.

Required

1. Briefly describe the requirements of AASB 133 ‘earnings per share’ for the calculation of earnings per share.                                                                                                                     

Free Cash Flows

Rhodes Corporation’s financial statements are shown below.

Rhodes Corporation: Income Statements for Year Ending December 31
(Millions of Dollars)

Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Suppose the federal-plus-state tax corporate tax is 25%. Answer the following questions.

1. What is the net operating profit after taxes (NOPAT) for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.

   $ 765 million

2. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.

   2020: $ 3500 million

   2019: $ 3200 million

3. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number.

   2020: $ 7250 million

   2019: $ 6700 million

4. What is the free cash flow for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Cash outflow, if any, should be indicated by a minus sign. Round your answer to the nearest whole number.

   $ ??? million

5. What is the ROIC for 2020? Round your answer to two decimal places.

   ??? %

Earnings per share

Bass Ltd, a leading producer of construction, mining and electrical equipment, suffered a significant drop in the demand of the company’s products due to COVID-19 in 2020 that significantly threatens the financial stability of the company. Bass in order to survive in this critical situation decides to restructure its strategy for forthcoming years. Changes in company strategies and accounting policies have a significant impact on reported profit. The basic earnings per share and diluted earnings per share presented in the company’s current year financial statements in accordance with “AASB 133 Earnings per Share” were comparatively higher than that of the last year. In contrast, company share prices have dropped by 20% at the reporting date, according to Yahoo finance.

While most shareholders seem unhappy to own company shares for the meagre dividend attached to them the question of whether Bass Ltd are fully valued at their current share prices continues to linger.

The directors of Bass Ltd are not sure how to calculate and include basic and diluted earnings per share in the company’s financial statements in accordance with AASB 133, and called for a report from the Finance Manager of the company.

On 30 June 2020, Bass Ltd had the following equity:

During the year ended 30 June 2020, the company earned after tax profit of $1 240 000 from ordinary activities.

The additional information is available.

1. On 20 November 2019, the company made a one-for-five bonus issue, and on 30 March 2020, the company made a rights issue of 400 000 ordinary shares.
2. On 20 July 2017, the company issued $ 750 000 of 8% convertible notes. Each $ 100 note was convertible into 50 ordinary shares. There was no conversion during the year ended 30 June 2020.
3. On 28 February 2019, the company issued options to purchase 10 000 shares at $ 3.50 each. No options were exercised during the year ended 30 June 2020.
4. The company income tax rate is $ 0.30 in the dollar and the company’s ordinary shares are trading at $ 5 per share on 30 June 2020.
5. The company paid preference dividends of $ 40 000.

Required

1. Briefly describe the requirements of AASB 133 ‘earnings per share’ for the calculation of earnings per share.                                                                                                                         
2. Distinguish between basic and diluted earnings per share.                                              

Following the requirements of AASB 133:

3. Calculate basic earnings per share.                                                                                           
4. Calculate diluted earnings per share.                                                                                     

20.An examination of the capital cost allowance schedule for 2020 provided the following opening balances for the undepreciated capital cost for each class of EASI's assets:

The following additional information was found in the 2020 fixed asset schedules working paper files.

A. The building which cost $997,426 in 1992 was sold for $150,000. It was the only building in Class 1 at the time of its sale. A new building was purchased (non used) in April 2020 for $750,000. Also, in February 2020 a lot adjacent to the new building, was purchased for $100,000 for use as a parking lot by employees and visitors. This lot was paved at a cost of $25,000. A fence was erected around an outside storage area near the new building at a cost of $40,000.

B New office furniture was purchased for $20,000. This purchase replaced old assets which were sold for $5,000. None of the old assets was sold for more than capital cost.

C Three small trucks purchased in 2015 for $12,000 each were traded in for three new trucks. Each new truck was priced at $15,000, but this was reduced by a trade-in credit of $2,500 for each old truck.

D. Some small tools were sold for a total of $7,000. All of these tools were sold at a price less than their capital cost.

E. Leasehold improvements had been made to a leased warehouse at a cost of $225,000 in October 2018. The remaining length of the lease in that year was six years with two successive renewal options of three years each. Further leasehold improvements were made to this warehouse in 2020 at a cost of $21,000.

F.During 2020, an unlimited life franchise was purchased for $48,000.

G.Accounting gains and losses on the above asset sales netted to nil.

Required:

Based on the foregoing information, Compute the income from business for tax purposes for Eldridge Asset Sales Inc. for its 2020 fiscal year.

1. Your answer should incude the following six column

2. Follow the sequence of information given above 1 to 20.
3. Show all calculations whether or not they seem relevant to the final answer.
4. Provde CCA calculation

State your assumptions if any information is not adequate for your calculation

Kitts Ltd. has recently decided to go public and has hired you as their independent accountant. They wish to adhere to IFRS and know that they must prepare a statement of cash flows. Their financial statements for 2020 and 2019 are provided below:

Statements of Financial Position

                                                                     Dec 31/2020           Dec 31/2019

Cash.............................................                   $ 51,000                  $ 24,000

Accounts receivable........................                     45,000                     27,000

Merchandise inventory....................                     48,000                     60,000

Property, plant and equipment..........   $ 76,000                  $ 120,000

     Less accumulated depreciation.... (40,000)       36,000    (38,000)    82,000

Total Assets                                                    $ 180,000                $ 193,000

Accounts payable............................                   $ 17,000                 $ 12,000

Income taxes payable.....................                     34,000                     44,000

Dividends payable………………………………                       2,000                          -0-

Deferred income tax liability………………                     10,000                       5,000

Bonds payable................................                     50,000                     80,000

Unamortized bond discount……………….                     (2,000)                     (5,000)

Common shares.............................                     27,000                     27,000

Retained earnings...........................                      42,000                     30,000

Total Liabilities & Shareholders’ Equity                $ 180,000                $ 193,000

Statement of Comprehensive Income

Year ended December 31, 2020

Sales........................................................................................... $ 1,050,000

Cost of sales................................................................................       894,000

Gross profit..................................................................................       156,000

Selling and administrative expenses................................................         99,000

Income from operations................................................................         57,000

Interest expense..........................................................................           9,000

Income before taxes.....................................................................         48,000

Income taxes...............................................................................         12,000

Net income.................................................................................. $      36,000

The following additional data were provided for the year ended December 31, 2020:

1.   Dividends were declared.

2.   Equipment was sold for $30,000. This equipment originally cost $ 44,000, and had accumulated depreciation of $8,000 at the time of sale. Any gains, losses or other expenses not separately disclosed are included in “selling and administrative expenses”.

3.   Bonds were retired during the year for proceeds equal to their carrying value. The unamortized discount associated with the bonds redeemed was $2,000.

Required #1:

From the information above, prepare, in good form, a Statement of Cash Flows under the direct method to the extent the information provided permits all disclosures, for the year ended December 31, 2020. Show supporting calculations only in area indicated; not in the body of the good form presentation.

Kitts Limited

Statement of Cash Flows For the Year ended December 31, 2020

Supporting calculations:

Required #2:

Prepare, in good form, the cash from operations only under the indirect method of presentation. Kitts Limited wishes to disclose any separate disclosures as regards interest and taxes in the body of the cash flow from (used in) operations sections and not as a separate disclosure. Show any supporting calculations in the area indicated, not in the body of the good form presentation.

Kitts Limited

Statement of Cash Flows (Operations Only) For the Year ended December 31, 2020

Supporting calculations:

P15.12 (LO1,2,3,4) (Analysis and Classification of Equity Transactions) Penzi plc was formed on July 1, 2017. It was authorized to issue 300,000 shares of £10 par value ordinary shares and 100,000 shares of 8% £25 par value, cumulative and non-participating preference shares. Penzi plc has a July 1-June 30 fiscal year.

The following information relates to the equity accounts of Penzi plc.

Ordinary Shares

Prior to the 2019-2020 fiscal year, Penzi plc had 110,000 ordinary shares outstanding issued as follows

1. 85.000 shares were issued for cash on July 1, 2017, at £31 per share.

2. On July 24, 2017, 5,000 shares were exchanged for a plot of land which cost the seller £70,000 in 2011 and had an estimated fair value of £220,000 on July 24, 2017.

3. 20,000 shares were issued on March 1, 2018, for £42 per share.

During the 2019–2020 fiscal year, the following transactions regarding ordinary shares took place.

Preference Shares

Penzi issued 40,000 preference shares at £44 share July 1, 2018.

Cash Dividends

Penzi has followed a schedule of declaring cash dividends in December and June, with payment being made to shareholders of record in the following month. The cash dividends which have been declared since inception of the company through June 30, 2020, are shown below.

No cash dividends were declared during June 2020 due to the company's liquidity problem.

Retained Earnings

As of June 30, 2019, Penzi's retained earnings account had a balance of £690,000. For the fiscal year ending June 30, 2020, Penzi reported net income of £40,000.

Instructions

Prepare the equity section of the statement of financial position, including appropriate notes, for Penzi plc as of June 30, 2020, as it should appear in its annual report to the shareholders.

Upton's balance sheet as of December 31, 2019, is shown here (millions of dollars):

Sales for 2019 were $475 million and net income for the year was $14.25 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.7 million to common stockholders, so its payout ratio was 40%. Its tax rate was 25%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2020.

1. If sales are projected to increase by $99.75 million, or 21%, during 2020, use the AFN equation to determine Upton's projected external capital requirements. Enter your answers in millions. $________millions.
2. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds?_____%
3. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2020. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt). Assume Upton's profit margin and dividend payout ratio will be the same in 2020 as they were in 2019. What is the amount of the line of credit reported on the 2020 forecasted balance sheets?
4. (Hint: You don't need to forecast the income statements because the line of credit is taken out on the last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2020 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answers to two decimal places.

National Supply’s shareholders’ equity included the following accounts at December 31, 2017:

Required:
1. National Supply reacquired shares of its common stock in two separate transactions and later sold shares. Prepare the entries for each of the transactions under each of two separate assumptions: the shares are (a) retired and (b) accounted for as treasury stock.

REQUIRED 1A

Feb 15 Record the repurchase of shares on February 15, 2018 for retirement.

Feb 17 Record the repurchase of shares on February 17, 2019 for retirement.

Nov 9 Record the sale of shares on November 9, 2020.

REQUIRED 1B

Feb 15 Record the repurchase of shares on February 15, 2018 and accounted as treasury stock.

Feb 17 Record the repurchase of shares on February 17, 2019 and accounted as treasury stock.

Nov 09 Record resale of treasury shares on November 9, 2020 (assumes FIFO cost).

REQUIRED 2

Prepare the shareholders’ equity section of National Supply’s balance sheet at December 31, 2020, assuming the shares are (a) retired and (b) accounted for as treasury stock. Net income was $11 million in 2018, $12 million in 2019, and $13 million in 2020. No dividends were paid during the three-year period. (Enter your answers in whole dollars.)

3. Job Order Costing – Inventory Accounts; Cost Flows (8pts):   DaleksRUs, Corp. is a manufacturer that uses a job-order costing system. At the beginning of April 2020, DalekRUs had only one job in process, Job 57. During April 2020, DaleksRUs continued working on Job 57, but also began working on 4 additional jobs: Job 58, Job 59, Job 60, and Job 61. Costs for these five jobs are listed below:

DaleksRUs provided additional information for April:

• Job 57 sold for $69,140 on account in April
• Raw materials inventory (direct and indirect), beginning balance on 4/1/2020: $27,800
• Raw materials (direct and indirect) purchased in April 2020: $99,250
• Finished goods inventory, beginning balance on 4/1/2020: $0
• Actual Factory OH costs incurred in April: Indirect materials = $6,425; Indirect labor = $13,880; Factory rent = $12,000; Factory utilities = $1,930; Factory equipment depreciation = $28,890

Prepare journal entries for the month of April to record the below transactions (make sure to use proper journal entry formatting and include a brief description of each entry).

1. Raw materials purchases (on credit).
2. Direct materials used in production.
3. Direct labor used and assigned to Work in Process Inventory (credit Factory Wages Payable).
4. Overhead costs applied to Work in Process Inventory.
5. Indirect materials used and assigned to Factory Overhead.
6. Indirect labor paid in cash and assigned to Factory Overhead.
7. Actual other overhead costs incurred and assigned to Factory Overhead (assume Factory rent and utilities are paid in cash).
8. Transfer of Jobs 57, 58, and 61 to Finished Goods Inventory.
9. Revenue from the sale of Job 57.
10. Cost of goods sold for Job 57.
11. Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account (Assume the amount is not material).

The current administration is offering the 2 trillion dollars stimulus package to maintain the loss due to the unprecedented chaos caused by the Coronavirus. (Let’s say this package can inject 4 trillion dollars into the economy this year while including the multipliers).

• What will be the unemployment rate during this summer? How about at the end of the year?

The US unemployment rate in March 2020 was 4.4%. It is expected to increase due to lockdowns and the fact that it will take some time for businesses, especially small ones, to recover. My estimation for the summer unemployment rate would be 5.5%.At the end of the year hopefully quite a lot of businesses would have recovered. My estimate for the end of year business rate would be 4%.

• Use GDP per capita in the US in 2019, calculate the total number of unemployed people because of the Coronavirus in 2020, and estimate the total loss in the economy, due to the unemployment.
• 2019 USA GDP per capita $65,111.6
• Total US labor force is ~165 million.
• The US unemployment rate in December 2019 was 3.6%. This has jumped to 4.4% now, an increase of .8%.
• .8%x165= 1.32 million
• Total loss in economy due to unemployment= 1.32mil x65111= 85.947 billion

If businesses lose 10 percent of their value by the end of this year (despite the stimulus package), what is the total loss in the economy because of that (use Wall Street Journal website to derive the total assets of the US companies)?

• American total assets for the quarter ending December 31, 2019 were $525.064B.
• A 10% loss from that is 52.5 billion

• What will be your estimation of the total GDP in 2020? Calculate the growth rate (from 2019 to 2020)

My estimation is that there will be contraction in US economy in first 2 quarters, and then slight expansion in the last 2 quarters. Total growth would be level, at best at .5%. So, total GDP in 2020

=GDP in 2019x1.005

=21.44x1.005= $21.5472 trillion

NEED ANSWERS TO THE FOLLOWING

• Based on your above calculations, roughly compute the saving rates in 2020 if the population growth rate would be 0.5 percent, depreciation rate 3 percent, and technological progress 1 percent (considering the current crisis). Explain the “ODD” result you get!

• Explain and calculate the total debt for the US at the end of 2020 (part of the debt is due to the stimulus package, and the other part is because of the reduction in government’s revenue from taxation).

• Who will pay this debt, and how will this debt show itself in the future of the US economy?

• Who is (actually) responsible for this substantial cumulative debt? Support your claim