1998 revenue $126,231,000 entertainment questions

Questions

Fender Construction Company receives a contract to construct a building over a period of 3 years...

Fender Construction Company receives a contract to construct a building over a period of 3 years for a price of $700,000. The contract represents a single performance obligation that will be satisfied over time. Information relating to the performance of the contract is summarized as follows:

	2017	2018	2019
Construction costs incurred during the year	$150,000	$242,000	$168,000
Estimated costs to complete	350,000	168,000	—
Billings during the year	120,000	250,000	330,000
Collections during the year	100,000	260,000	340,000

Required:

1.	Prepare journal entries for all 3 years.
2.	Assume that the contract represents a single performance obligation that will be satisfied at a point in time. Prepare journal entries for all 3 years.

CHART OF ACCOUNTS

Fender Construction Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
155	Construction in Progress
156	Partial Billings
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
420	Construction Revenue

	EXPENSES
500	Construction Expense
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

	Assume the contract represents a single performance obligation that will be satisfied over time. Prepare journal entries on December 31 for all 3 years
1.	to record costs of construction for cash.
2.	to record partial billings.
3.	to record collections on account.
4.	to record gross profit recognized.
5.	to close out construction accounts in 2019.
	Additional Instruction

PAGE 2017

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9

PAGE 2018

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9

PAGE 2019

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10
11

	Assume that the contract represents a single performance obligation that will be satisfied at a point in time. Prepare journal entries on December 31 for all 3 years
1.	to record costs of construction for cash.
2.	to record partial billings.
3.	to record collections.
4.	to recognize revenue at completion on 2019.
5.	to recognize expense at completion on 2019.

PAGE 2017

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

PAGE 2018

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6

PAGE 2019

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8
9
10

In: Accounting

Case 19-7 Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination Company...

Case 19-7

Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination

Company G (G), an SEC registrant, is a global financial advisory and asset management firm. Company P (P), a private company, offers advisory services for (1) mergers, acquisitions, and divestitures; (2) capital structure (including initial public offerings); (3) government advisory, including strategic, finance and capital markets related policy considerations; and (4) restructurings.

Case Facts

On September 18, 20X8, (the “Closing”), G and P executed an acquisition agreement (the “Agreement”) whereby G acquired 100 percent of the outstanding shares of P (the “Acquisition”). At the time of close, P had 10 employees that had over 200 combined years of financial and strategic advisory experience. Company P was owned as follows:

Founder — 85 percent.
Senior advisor — 10 percent.
Other employees (four in total) — 5 percent.

The purchase price was calculated using a revenue multiple that was established using market data at the midpoint and transferred in exchange for 100 percent of the outstanding shares to the Founder ÷ employees who owned 100 percent of P (collectively, the “Shareholders”) on a pro rata basis. The total purchase price comprised the following:
- Cash = $1 million.
- Shares = 100,000 shares in G (worth $3.3 million).
- Delayed Consideration = 120,000 G shares, but issued to the Shareholders under the terms below (value assuming a 4-year vesting restriction = $5 million; assuming a 10-year vesting restriction = $4 million).

o Delayed consideration is held by an independent third party (Exchange Co) and on the fourth anniversary of the Closing, Exchange Co shall release the Delayed Consideration to the Shareholders, subject to the Shareholder being employed on such date.

o If a Shareholder is no longer employed on the fourth anniversary, the Delayed Consideration issued to such Shareholder will continue to be held by Exchange Co until the tenth anniversary of the Closing, at which point Exchange Co shall release the Delayed Consideration to the Shareholders.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 2

• Earnout Consideration = Up to 600,000 shares (valued at total of $20 million).

o The Earnout Consideration will be contingent upon achievement of revenue hurdles over a period beginning on September 18, 20X8, and ending on December 31, 20X2 (“Earnout Period”).

o To the extent the performance targets below are achieved, Exchange Co shall deliver the relevant Earnout Shares to the Shareholders on a pro rata basis. However, if and to the extent certain performance targets described below are not achieved, in whole or in part, no Earnout Consideration will be paid.

 First Earnout Consideration — If revenue exceeds $10 million in the Earnout Period, the Shareholders will be entitled to 200,000 shares.
 Second Earnout Consideration — If revenue exceeds $20 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.
 Third Earnout Consideration — If revenue exceeds $30 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

o The Shareholders are still entitled to the Earnout Consideration in the event that targets are met, but they are not employees of G at the time the Earnout Consideration is earned.

Other Key Facts

Company P meets the definition of a business under ASC 805.
Each employment agreement executed by G and the Shareholders contains compensation that is commensurate with the service each respective Shareholder is providing to G.
The Shareholders have at-will employment agreements with G.
If the Shareholders were to leave, G would be able to replace them with an existing G investment banker; therefore, the Shareholders are not integral to the future success of the acquired business.
The fair value of P was determined to be $24 million.
The Earnout Consideration is not being treated as compensation expense for tax purposes.

Required:

Does the Delayed Consideration represent purchase consideration in exchange for the Acquisition or compensation for postcombination services? Is it contingent consideration? How much of the Delayed Consideration (if any) should be consideration for postcombination services?

In: Accounting

Case 19-7 Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination Company...

Case 19-7

Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination

Company G (G), an SEC registrant, is a global financial advisory and asset management firm. Company P (P), a private company, offers advisory services for (1) mergers, acquisitions, and divestitures; (2) capital structure (including initial public offerings); (3) government advisory, including strategic, finance and capital markets related policy considerations; and (4) restructurings.

Case Facts

On September 18, 20X8, (the “Closing”), G and P executed an acquisition agreement (the “Agreement”) whereby G acquired 100 percent of the outstanding shares of P (the “Acquisition”). At the time of close, P had 10 employees that had over 200 combined years of financial and strategic advisory experience. Company P was owned as follows:

Founder — 85 percent.
Senior advisor — 10 percent.
Other employees (four in total) — 5 percent.

The purchase price was calculated using a revenue multiple that was established using market data at the midpoint and transferred in exchange for 100 percent of the outstanding shares to the Founder ÷ employees who owned 100 percent of P (collectively, the “Shareholders”) on a pro rata basis. The total purchase price comprised the following:
- Cash = $1 million.
- Shares = 100,000 shares in G (worth $3.3 million).
- Delayed Consideration = 120,000 G shares, but issued to the Shareholders under the terms below (value assuming a 4-year vesting restriction = $5 million; assuming a 10-year vesting restriction = $4 million).

o Delayed consideration is held by an independent third party (Exchange Co) and on the fourth anniversary of the Closing, Exchange Co shall release the Delayed Consideration to the Shareholders, subject to the Shareholder being employed on such date.

o If a Shareholder is no longer employed on the fourth anniversary, the Delayed Consideration issued to such Shareholder will continue to be held by Exchange Co until the tenth anniversary of the Closing, at which point Exchange Co shall release the Delayed Consideration to the Shareholders.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 2

• Earnout Consideration = Up to 600,000 shares (valued at total of $20 million).

o The Earnout Consideration will be contingent upon achievement of revenue hurdles over a period beginning on September 18, 20X8, and ending on December 31, 20X2 (“Earnout Period”).

o To the extent the performance targets below are achieved, Exchange Co shall deliver the relevant Earnout Shares to the Shareholders on a pro rata basis. However, if and to the extent certain performance targets described below are not achieved, in whole or in part, no Earnout Consideration will be paid.

 First Earnout Consideration — If revenue exceeds $10 million in the Earnout Period, the Shareholders will be entitled to 200,000 shares.
 Second Earnout Consideration — If revenue exceeds $20 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.
 Third Earnout Consideration — If revenue exceeds $30 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

o The Shareholders are still entitled to the Earnout Consideration in the event that targets are met, but they are not employees of G at the time the Earnout Consideration is earned.

Other Key Facts

Company P meets the definition of a business under ASC 805.
Each employment agreement executed by G and the Shareholders contains compensation that is commensurate with the service each respective Shareholder is providing to G.
The Shareholders have at-will employment agreements with G.
If the Shareholders were to leave, G would be able to replace them with an existing G investment banker; therefore, the Shareholders are not integral to the future success of the acquired business.
The fair value of P was determined to be $24 million.
The Earnout Consideration is not being treated as compensation expense for tax purposes.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 3

Required:

Should the Earnout Consideration to Shareholders be accounted for as purchase consideration in exchange for the Acquisition or as compensation for postcombination services?

In: Accounting

Rowland Company is a small editorial services company owned and operated by Marlene Rowland. On August...

Rowland Company is a small editorial services company owned and operated by Marlene Rowland. On August 31, 2018, the end of the current year, Rowland Company’s accounting clerk prepared the following unadjusted trial balance:

Rowland Company

UNADJUSTED TRIAL BALANCE

August 31, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash	7,135.00
2	Accounts Receivable	37,950.00
3	Prepaid Insurance	7,045.00
4	Supplies	1,895.00
5	Land	116,150.00
6	Building	148,750.00
7	Accumulated Depreciation-Building		88,280.00
8	Equipment	133,800.00
9	Accumulated Depreciation-Equipment		97,280.00
10	Accounts Payable		12,145.00
11	Unearned Rent		6,970.00
12	Common Stock		74,735.00
13	Retained Earnings		147,950.00
14	Dividends	15,300.00
15	Fees Earned		320,650.00
16	Salaries and Wages Expense	190,770.00
17	Utilities Expense	42,730.00
18	Advertising Expense	22,595.00
19	Repairs Expense	17,420.00
20	Miscellaneous Expense	6,470.00
21	Totals	748,010.00	748,010.00

The data needed to determine year-end adjustments are as follows:

a.	Unexpired insurance at August 31, $6,080.
b.	Supplies on hand at August 31, $470.
c.	Depreciation of building for the year, $7,245.
d.	Depreciation of equipment for the year, $4,140.
e.	Rent unearned at August 31, $1,200.
f.	Accrued salaries and wages at August 31, $3,550.
g.	Fees earned but unbilled on August 31, $11,125.

	Required:
1.	Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense. Refer to the Chart of Accounts for exact wording of account titles.
2.	Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

CHART OF ACCOUNTS

Rowland Company

General Ledger

	ASSETS
11	Cash
12	Accounts Receivable
13	Prepaid Insurance
14	Supplies
15	Land
16	Building
17	Accumulated Depreciation-Building
18	Equipment
19	Accumulated Depreciation-Equipment

	LIABILITIES
21	Accounts Payable
22	Unearned Rent
23	Salaries and Wages Payable

	EQUITY
31	Common Stock
32	Retained Earnings
33	Dividends

	REVENUE
41	Fees Earned
42	Rent Revenue

	EXPENSES
51	Salaries and Wages Expense
52	Utilities Expense
53	Advertising Expense
54	Repairs Expense
55	Depreciation Expense-Building
56	Depreciation Expense-Equipment
57	Insurance Expense
58	Supplies Expense
59	Miscellaneous Expense

1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense. Refer to the Chart of Accounts for exact wording of account titles.

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1		Adjusting Entries
2
3
4
5
6
7
8
9
10
11
12
13
14
15

2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

Rowland Company

ADJUSTED TRIAL BALANCE

August 31, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash
2	Accounts Receivable
3	Prepaid Insurance
4	Supplies
5	Land
6	Building
7	Accumulated Depreciation-Building
8	Equipment
9	Accumulated Depreciation-Equipment
10	Accounts Payable
11	Unearned Rent
12	Salaries and Wages Payable
13	Common Stock
14	Retained Earnings
15	Dividends
16	Fees Earned
17	Rent Revenue
18	Salaries and Wages Expense
19	Utilities Expense
20	Advertising Expense
21	Repairs Expense
22	Depreciation Expense-Building
23	Depreciation Expense-Equipment
24	Insurance Expense
25	Supplies Expense
26	Miscellaneous Expense
27	Totals

In: Accounting

Case 19-7 Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination Company...

Case 19-7

Accounting for Contingent Payments to Employees or Selling Shareholders in a Business Combination

Company G (G), an SEC registrant, is a global financial advisory and asset management firm. Company P (P), a private company, offers advisory services for (1) mergers, acquisitions, and divestitures; (2) capital structure (including initial public offerings); (3) government advisory, including strategic, finance and capital markets related policy considerations; and (4) restructurings.

Case Facts

On September 18, 20X8, (the “Closing”), G and P executed an acquisition agreement (the “Agreement”) whereby G acquired 100 percent of the outstanding shares of P (the “Acquisition”). At the time of close, P had 10 employees that had over 200 combined years of financial and strategic advisory experience. Company P was owned as follows:

Founder — 85 percent.
Senior advisor — 10 percent.
Other employees (four in total) — 5 percent.

The purchase price was calculated using a revenue multiple that was established using market data at the midpoint and transferred in exchange for 100 percent of the outstanding shares to the Founder ÷ employees who owned 100 percent of P (collectively, the “Shareholders”) on a pro rata basis. The total purchase price comprised the following:
- Cash = $1 million.
- Shares = 100,000 shares in G (worth $3.3 million).
- Delayed Consideration = 120,000 G shares, but issued to the Shareholders under the terms below (value assuming a 4-year vesting restriction = $5 million; assuming a 10-year vesting restriction = $4 million).

o Delayed consideration is held by an independent third party (Exchange Co) and on the fourth anniversary of the Closing, Exchange Co shall release the Delayed Consideration to the Shareholders, subject to the Shareholder being employed on such date.

o If a Shareholder is no longer employed on the fourth anniversary, the Delayed Consideration issued to such Shareholder will continue to be held by Exchange Co until the tenth anniversary of the Closing, at which point Exchange Co shall release the Delayed Consideration to the Shareholders.

Case 19-7: Accounting for a Contingent Payments to Employees or
Selling Shareholders in a Business Combination Page 2

• Earnout Consideration = Up to 600,000 shares (valued at total of $20 million).

o The Earnout Consideration will be contingent upon achievement of revenue hurdles over a period beginning on September 18, 20X8, and ending on December 31, 20X2 (“Earnout Period”).

o To the extent the performance targets below are achieved, Exchange Co shall deliver the relevant Earnout Shares to the Shareholders on a pro rata basis. However, if and to the extent certain performance targets described below are not achieved, in whole or in part, no Earnout Consideration will be paid.

 First Earnout Consideration — If revenue exceeds $10 million in the Earnout Period, the Shareholders will be entitled to 200,000 shares.
 Second Earnout Consideration — If revenue exceeds $20 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.
 Third Earnout Consideration — If revenue exceeds $30 million in the Earnout Period, the Shareholders will be entitled to an additional 200,000 shares.

o The Shareholders are still entitled to the Earnout Consideration in the event that targets are met, but they are not employees of G at the time the Earnout Consideration is earned.

Other Key Facts

Company P meets the definition of a business under ASC 805.
Each employment agreement executed by G and the Shareholders contains compensation that is commensurate with the service each respective Shareholder is providing to G.
The Shareholders have at-will employment agreements with G.
If the Shareholders were to leave, G would be able to replace them with an existing G investment banker; therefore, the Shareholders are not integral to the future success of the acquired business.
The fair value of P was determined to be $24 million.
The Earnout Consideration is not being treated as compensation expense for tax purposes.

Required:

Does the Delayed Consideration represent purchase consideration in exchange for the Acquisition or compensation for postcombination services? Is it contingent consideration? How much of the Delayed Consideration (if any) should be consideration for postcombination services?

In: Accounting

1. Value the following scenario, assuming there is no end to the timeline and the following...

1.

Value the following scenario, assuming there is no end to the timeline and the following data:

Cost of equity = 17.75%

Cost of debt = 6.83%

Debt = $583MM

Equity = $1237MM

Tax rate = 40%

Long-term growth expectations = 3.6%

Future dividends are forecast as follows:

Year 0: n/a

Year 1: 128

Year 2: 149

Year 3: 162

Year 4: 175

Year 5: 182

(Round your answer to the nearest cent)

2.

Use the data below to compute 2014 EBIT:

	2014	2013
Cash	12	20
Short-term investments	5	65
Accounts receivable	366	315
Inventories	553	416
Property, plant & equipment (net)	928	871
Accounts payable	50	35
Short-term debt	95	62
Accrued liabilities	148	132
Long-term debt	663	581
Common stock	130	130
Retained earnings	766	712
Net revenue	3145	2851
Depreciation expense	110	93
Interest	92	65
Taxes	82	84
Net income	253	122

3.

Use the data below to compute 2014 NOPAT:

	2014	2013
Cash	13	18
Short-term investments	7	67
Accounts receivable	370	315
Inventories	552	417
Property, plant & equipment (net)	929	873
Accounts payable	46	34
Short-term debt	97	61
Accrued liabilities	150	131
Long-term debt	662	584
Common stock	130	130
Retained earnings	768	711
Net revenue	3144	2852
Depreciation expense	112	93
Interest	93	62
Taxes	78	83
Net income	251	121

(Round to the nearest whole dollar)

4.

Use the data below to compute 2014 OCF (Operating Cash Flow):

	2014	2013
Cash	15	16
Short-term investments	7	69
Accounts receivable	366	317
Inventories	550	416
Property, plant & equipment (net)	928	875
Accounts payable	50	34
Short-term debt	99	60
Accrued liabilities	145	134
Long-term debt	662	583
Common stock	130	130
Retained earnings	769	711
Net revenue	3145	2851
Depreciation expense	110	92
Interest	88	63
Taxes	83	81
Net income	251	121

(Round to the nearest whole dollar)

5.

Use the data below to compute the change in NOWC (Net Operating Working Capital)

	2014	2013
Cash	11	17
Short-term investments	5	69
Accounts receivable	366	317
Inventories	554	420
Property, plant & equipment (net)	926	873
Accounts payable	49	33
Short-term debt	95	62
Accrued liabilities	149	133
Long-term debt	659	583
Common stock	130	130
Retained earnings	767	710
Net revenue	3148	2855
Depreciation expense	111	95
Interest	93	60
Taxes	83	86
Net income	254	126

(Round to the nearest whole dollar)

6.

Use the data below to compute 2014 FCF (Free Cash Flow):

	2014	2013
Cash	15	15
Short-term investments	10	65
Accounts receivable	366	318
Inventories	551	417
Property, plant & equipment (net)	925	870
Accounts payable	48	32
Short-term debt	100	63
Accrued liabilities	145	130
Long-term debt	663	581
Common stock	130	130
Retained earnings	766	712
Net revenue	3148	2852
Depreciation expense	113	95
Interest	90	62
Taxes	81	86
Net income	254	121

(Round to the nearest whole dollar)

In: Accounting

Rowland Company is a small editorial services company owned and operated by Marlene Rowland. On August...

Rowland Company is a small editorial services company owned and operated by Marlene Rowland. On August 31, 2018, the end of the current year, Rowland Company’s accounting clerk prepared the following unadjusted trial balance:

Rowland Company

UNADJUSTED TRIAL BALANCE

August 31, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash	7,655.00
2	Accounts Receivable	38,345.00
3	Prepaid Insurance	7,075.00
4	Supplies	2,290.00
5	Land	113,500.00
6	Building	149,450.00
7	Accumulated Depreciation-Building		87,905.00
8	Equipment	133,250.00
9	Accumulated Depreciation-Equipment		96,435.00
10	Accounts Payable		11,860.00
11	Unearned Rent		6,705.00
12	Common Stock		74,530.00
13	Retained Earnings		146,290.00
14	Dividends	14,690.00
15	Fees Earned		328,600.00
16	Salaries and Wages Expense	198,220.00
17	Utilities Expense	42,120.00
18	Advertising Expense	22,315.00
19	Repairs Expense	17,210.00
20	Miscellaneous Expense	6,205.00
21	Totals	752,325.00	752,325.00

The data needed to determine year-end adjustments are as follows:

a.	Unexpired insurance at August 31, $5,860.
b.	Supplies on hand at August 31, $545.
c.	Depreciation of building for the year, $7,985.
d.	Depreciation of equipment for the year, $4,080.
e.	Rent unearned at August 31, $1,145.
f.	Accrued salaries and wages at August 31, $3,490.
g.	Fees earned but unbilled on August 31, $11,640.

	Required:
1.	Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense. Refer to the Chart of Accounts for exact wording of account titles.
2.	Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

Chart of Accounts

CHART OF ACCOUNTS

Rowland Company

General Ledger

	ASSETS
11	Cash
12	Accounts Receivable
13	Prepaid Insurance
14	Supplies
15	Land
16	Building
17	Accumulated Depreciation-Building
18	Equipment
19	Accumulated Depreciation-Equipment

	LIABILITIES
21	Accounts Payable
22	Unearned Rent
23	Salaries and Wages Payable

	EQUITY
31	Common Stock
32	Retained Earnings
33	Dividends

	REVENUE
41	Fees Earned
42	Rent Revenue

	EXPENSES
51	Salaries and Wages Expense
52	Utilities Expense
53	Advertising Expense
54	Repairs Expense
55	Depreciation Expense-Building
56	Depreciation Expense-Equipment
57	Insurance Expense
58	Supplies Expense
59	Miscellaneous Expense

Journal

1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 10

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1		Adjusting Entries
2
3
4
5
6
7
8
9
10
11
12
13
14
15

Adjusted Trial Balance

2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

Rowland Company

ADJUSTED TRIAL BALANCE

August 31, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash
2	Accounts Receivable
3	Prepaid Insurance
4	Supplies
5	Land
6	Building
7	Accumulated Depreciation-Building
8	Equipment
9	Accumulated Depreciation-Equipment
10	Accounts Payable
11	Unearned Rent
12	Salaries and Wages Payable
13	Common Stock
14	Retained Earnings
15	Dividends
16	Fees Earned
17	Rent Revenue
18	Salaries and Wages Expense
19	Utilities Expense
20	Advertising Expense
21	Repairs Expense
22	Depreciation Expense-Building
23	Depreciation Expense-Equipment
24	Insurance Expense
25	Supplies Expense
26	Miscellaneous Expense
27	Totals

In: Accounting

The comparative statements of financial position for 2023 and 2022 and the statement of profit or...

The comparative statements of financial position for 2023 and 2022 and the statement of profit or loss for 2023 are given below for Arduous Company. Additional information from Arduous’ accounting records is also provided.

ARDUOUS COMPANY Comparative Statements of Financial Position December 31, 2023 and 2022 ($ in millions)
	2023			2022
Assets
Cash	$	109		$	81
Accounts receivable		190			194
Investment revenue receivable		6			4
Inventory		205			200
Prepaid insurance		4			8
Long-term investment		156			125
Land		196			150
Buildings and equipment		412			400
Less: Accumulated depreciation		(97	)		(120	)
Patent		30			32
	$	1,211		$	1,074
Liabilities
Accounts payable	$	50		$	65
Salaries payable		6			11
Bond interest payable		8			4
Income tax payable		12			14
Deferred income tax liability		11			8
Notes payable		23			0
Lease liability		75			0
Bonds payable		215			275
Less: Discount on bonds		(22	)		(25	)
Shareholders’ Equity
Ordinary share capital		430			410
Share premium		95			85
Preference share capital		75			0
Retained earnings		242			227
Less: Treasury stock		(9	)		0
	$	1,211		$	1,074

ARDUOUS COMPANY Statement of Profit or Loss For Year Ended December 31, 2023 ($ in millions)
Revenues
Sales revenue	$	410
Investment revenue		11
Gain on sale of Treasury bills		2	$	423
Expenses
Cost of goods sold		180
Salaries expense		73
Depreciation expense		12
Patent amortization expense		2
Insurance expense		7
Bond interest expense		28
Loss on sale of equipment		18
Income tax expense		36		356
Net profit			$	67

Additional information from the accounting records:

Investment revenue includes Arduous Company’s $6 million share of the net profit of Demur Company, an equity method investee.
Treasury bills were sold during 2023 at a gain of $2 million. Arduous Company classifies its investments in treasury bills as cash equivalents.
A machine originally costing $70 million that was half-depreciated was rendered unusable by a flood. Most major components of the machine were unharmed and were sold for $17 million.
Temporary differences between pre-tax accounting income and taxable income caused the deferred income tax liability to increase by $3 million.
The preference shares of Tory Corporation were purchased for $25 million as a long-term investment.
Land costing $46 million was acquired by issuing $23 million cash and a 15%, four-year, $23 million note payable to the seller.
The right to use a building was acquired with a 15-year lease agreement; present value of lease payments, $82 million. Annual lease payments of $7 million are paid at the beginning of each year starting January 1, 2023.
$60 million of bonds were retired at maturity.
In February, Arduous issued a 1-for-25 bonus issue (4 million ordinary shares). Assume that the bonus issue was valued at the market price of $7.50 per share ($5 par value) at that time, and the corporation law requires a reclassification from retained earnings to issued capital.
In April, 1 million ordinary shares were repurchased as treasury shares at a cost of $9 million.

Required:
Prepare the statement of cash flows of Arduous Company for the year ended December 31, 2023, assuming the company classifies investment revenue as an investing activity and interest and dividends paid as financing activities. Present cash flows from operating activities by the direct method. (A reconciliation schedule is not required.) (Do not round your intermediate calculations. Enter your answers in millions (i.e., 10,000,000 should be entered as 10.). Amounts to be deducted should be indicated with a minus sign.)

In: Accounting

NBA San Francisco Warriors played in San Francisco for nine seasons before relocating to Oakland, CA...

NBA San Francisco Warriors played in San Francisco for nine seasons before relocating to Oakland, CA in 1971 and renaming themselves the Golden State Warriors. Their new home was the Oakland Alameda County Arena, a $24 million, 13,000-seat facility built in 1966. In 1997, a $121 million renovation expanded the facility to 20,000 seats and in 2007 it was renamed Oracle Arena. The Warriors won three NBA Championships in 1975, 2015, and 2017 in that facility. Despite playing in the oldest arena in the NBA, the Warriors’ success on the court led to a season ticket waiting list with about 40,000 fans.

Oracle Arena is owned by the joint city-county governmental agency called the Oakland Alameda County Coliseum Authority (OACCA). The city and county taxpayers covered the original arena construction cost and in 1996 issued $140 million in construction bonds for the renovation. That year the Warriors signed a 20-year lease that included paying $1.5 million for rent as well as the first $7.4 million of their premium seating revenue to the OACCA. The OACCA retained 5% of each ticket sold, a portion of the naming rights, parking revenue, and concession revenue. The OACCA share of annual ticket revenue tripled to $6.5 million in the period between 2011 and 2016 as the Warriors’ popularity grew. The OACCA also covered costs including maintenance and operation of the arena, some game day production and marketing expenses, and about $22 million for the principal and interest on the loan. In 2016, the OACCA required contributions of $11 million from both the city and county to balance their budget.

In 2012, the Warriors announced their intentions to leave Oracle Arena and build a new facility on the waterfront in San Francisco. After years of opposition and ballooning costs, the team altered their plans and in April 2014 paid a reported $250 million to purchase a different plot of land south of the San Francisco Giant’s AT&T Park. After several years of lawsuits from a local hospital concerned with arena crowds reducing patient and ambulance access, ground breaking took place in January 2017. The 11-acre development built and owned by the Warriors encompasses the 18,000 seat Chase Center arena, 100,000 square feet of retail space, and 580,000 square feet of office space. Half of the office space has already been rented out by ride-sharing firm Uber and JPMorgan Chase paid $300 million over 20 years for the naming rights.

Despite excitement about the new arena, the Warriors are responsible for the $1 billion cost. Arenas need to book events 200 or more days a year to break even. When the Chase Center opens in 2019, it will compete to fill those 200 dates with other local arenas including the newly abandoned Oracle Arena in Oakland, the 80-year-old Cow Palace south of San Francisco, and the SAP Center 45 miles away in San Jose. Notably, there are no other large, modern arenas within San Francisco leading some to suggest the Chase Center will have the upper hand in booking events. As evidence of the Warriors hopes for high profit potential, two years before opening they announced suites will range from $525,000 to $2.5 million in the Chase Center while they cost only $200,000 to $300,000 at Oracle Arena.

Back in Oakland, Oracle Arena will see their average of 110 annual events decrease by about 50 because of the loss of the Warriors. In addition, there will still be approximately $55 million remaining to be paid on the bonds they issued in 1996.

Please answer the following questions for discussion

1. From a finance perspective, why did the Warriors allocate $1 billion to build a new arena?

2. What new revenue streams might the Warriors generate that could cover the cost of the new arena?

3. What specific risks do the Warriors face in taking on the full cost of the project?

4. If the Warriors used bonds to finance a portion of their costs, what criteria would lenders use to evaluate their ability to repay the loan?

In: Finance

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October...

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October 31, 2019 the end of the current year, Pitman Company’s accounting clerk prepared the following unadjusted trial balance:

Pitman Company

UNADJUSTED TRIAL BALANCE

October 31, 2019

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash	7,500.00
2	Accounts Receivable	38,400.00
3	Prepaid Insurance	7,200.00
4	Supplies	1,980.00
5	Land	112,500.00
6	Building	300,250.00
7	Accumulated Depreciation-Building		87,550.00
8	Equipment	135,300.00
9	Accumulated Depreciation-Equipment		97,950.00
10	Accounts Payable		12,150.00
11	Unearned Rent		6,750.00
12	Jan Pitman, Capital		371,000.00
13	Jan Pitman, Drawing	15,000.00
14	Fees Earned		324,600.00
15	Salaries and Wages Expense	193,370.00
16	Utilities Expense	42,375.00
17	Advertising Expense	22,800.00
18	Repairs Expense	17,250.00
19	Miscellaneous Expense	6,075.00
20	Totals	900,000.00	900,000.00

The data needed to determine year-end adjustments are as follows:

a.	Unexpired insurance at October 31, $600.
b.	Supplies on hand at October 31, $675.
c.	Depreciation of building for the year, $12,000.
d.	Depreciation of equipment for the year, $8,600.
e.	Unearned rent at October 31, $2,250.
f.	Accrued salaries and wages at October 31, $2,800.
g.	Fees earned but unbilled on October 31, $10,050.

	Required:
1.	Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense. Refer to the Chart of Accounts for exact wording of account titles.
2.	Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

CHART OF ACCOUNTSPitman CompanyGeneral Ledger

	ASSETS
11	Cash
12	Accounts Receivable
13	Prepaid Insurance
14	Supplies
15	Land
16	Building
17	Accumulated Depreciation-Building
18	Equipment
19	Accumulated Depreciation-Equipment

	LIABILITIES
21	Accounts Payable
22	Unearned Rent
23	Salaries and Wages Payable

	EQUITY
31	Jan Pitman, Capital
32	Jan Pitman, Drawing

	REVENUE
41	Fees Earned
42	Rent Revenue

	EXPENSES
51	Salaries and Wages Expense
52	Utilities Expense
53	Advertising Expense
54	Repairs Expense
55	Depreciation Expense-Building
56	Depreciation Expense-Equipment
57	Insurance Expense
58	Supplies Expense
59	Miscellaneous Expense

1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense. Refer to the Chart of Accounts for exact wording of account titles.

How does grading work?

PAGE 10

JOURNAL

ACCOUNTING EQUATION

Score: 164/176

	DATE	DESCRIPTION	DEBIT	CREDIT
1		Adjusting Entries
2	?	?
3		?
4	?	?	?
5		?		?
6	?	?	?
7		?		?
8	?	?	?
9		?		?
10	?	?
11		?
12	?	?	?
13		?		?
14	?	?	?
15		?		?

2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

Question not attempted.

Pitman Company

ADJUSTED TRIAL BALANCE

Score: 0/103

October 31, 2019

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash
2	Accounts Receivable
3	Prepaid Insurance
4	Supplies
5	Land
6	Building
7	Accumulated Depreciation-Building
8	Equipment
9	Accumulated Depreciation-Equipment
10	Accounts Payable
11	Unearned Rent
12	Salaries and Wages Payable
13	Jan Pitman, Capital
14	Jan Pitman, Drawing
15	Fees Earned
16	Rent Revenue
17	Salaries and Wages Expense
18	Utilities Expense
19	Advertising Expense
20	Repairs Expense
21	Depreciation Expense-Building
22	Depreciation Expense-Equipment
23	Insurance Expense
24	Supplies Expense
25	Miscellaneous Expense
26	Totals

In: Accounting