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

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

Question 3

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A firm shuts down if price is

Select one:

below minimum average variable cost.

above minimum average fixed cost.

below average total cost.

less than marginal cost.

above minimum average variable cost.

Question 4

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A perfectly competitive firm's supply curve includes its marginal cost curve at all prices above minimum

Select one:

average variable cost.

average fixed cost.

total variable cost.

total cost

average total cost.

Question 5

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A firm is producing the profit-maximizing amount of output when it is producing where its ________ curve intersects its ________ curve.

Select one:

marginal cost; average variable cost

marginal cost; marginal revenue

total cost; total revenue

marginal cost; average total cost

average total cost; average variable cost

Question 6

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GM will temporarily lay off 1,300 employees as the company stops production of the electric car, Chevy Volt, for five weeks. GM had hoped to sell 10,000 Volts last year, but ended up selling just 7,671. It plans to maintain inventory levels by adjusting production to match demand.

Source: Politico, March 2, 2012

The shutdown decision ________ total fixed cost and ________ total variable cost.

Select one:

does not change; does not change

does not change; increases

does not change; decreases

increases; does not change

decreases; decreases

Question 7

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In the short run, a firm in a perfectly competitive market

Select one:

chooses the price that maximizes its economic profit.

chooses the price that minimizes its marginal cost.

always makes an economic profit.

can make an economic profit, incur an economic loss, or break even.

shuts down if it incurs an economic loss.

Question 8

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Franklin is a fiddlehead farmer. He sold 10 bags of fiddleheads last month, with total fixed cost of $100 and total variable cost of $50.

Suppose the price of fiddleheads is expected to stay at $10 per bag for the foreseeable future, and Franklin's production and cost figures are expected to stay the same. His total fixed cost consists entirely of rent on land, and his five-year lease on the land runs out at the end of the month. Should Franklin renew the lease?

Select one:

Insufficient information to answer.

No, because in the long run, zero economic profit is a signal to move factors of production out of fiddlehead farming.

Yes, because total revenue will still cover total fixed cost.

Yes, because total revenue will still cover total variable cost and a portion of total fixed cost.

No, because total revenue must cover all costs for factors of production to remain in fiddlehead farming in the long run.

Question 9

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If firms exit an market, the

Select one:

price of the good falls.

total market output increases.

economic profit of the remaining firms stay the same.

economic profit of the remaining firms decrease.

market supply curve shifts leftward.

Question 10

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If firms in a perfectly competitive market are making an economic profit, new firms will enter. This entry shifts the market

Select one:

demand curve leftward, and the market price falls.

supply curve rightward, and the market price falls

demand curve rightward, and the market price rises.

supply curve leftward, and the market price rises.

Need Income Statement Need Statement of Retained Earnings, Balance Sheet, Closing Entries

ABC Corporation Unadjusted Trial Balance December 31, 2016 Debit Credit Cash 759,444 Accounts receivable 442,120 Allowance for doubtful accounts - Inventory Allowance to Reduce Inventory to NRV - Purchases 247,000 Prepaid insurance 6,750 Land 88,000 Building 37,500 Accumulated depreciation: building 1,150 Equipment 21,600 Accumulated depreciation: equipment 9,000 Patent 50,000 Accounts payable 88,851 Notes payable 40,000 Income taxes payable 99,000 Unearned rent revenue 13,500 Bonds Payable 700,000 Premium on Bonds Payable 56,774 Common stock 125,000 PIC In Excess of Par-Common Stock 40,000 Retained earnings Treasury stock 20,000 Dividends 28,000 Sales Revenue 790,000 Advertising expense 9,240 Wages expense 62,150 Office expense 28,500 Depreciation expense 10,150 Utilities expense 33,571 Insurance expense 20,250 Income taxes expense 99,000 $1,963,275 $1,963,275

ABC Corporation Adjusted Trial Balance December 31, 2016 Debit Credit Cash 875,444 Accounts Receivable 442,120 Inventory 100,000 Purchases - - Pre-Paid Insurance 4,500 Land 88,000 Allowance for Doubtful Accounts 75,000 Allowance to reduce Inventory to NRV - Bonds Payable $695,271 Premium on Bonds Payable 56,774 Building 37,500 Accumilated Deprication-Building 1,265 Equipment 21,600 Accumilated Deprication-Equipment 9,900 Patent 45,000 Account Payable 88,851 Notes Payable 40,000 Income Tax Payable 99,000 Unearned Rent Revenue 9,000 Common Stock 135,000 Retained Earnings - Dividends 28,000 PIC in Excess of Par - Common Stock 130,000 Sales Revenue 790,000 Advertising Expense 9,240 Wages Expense 67,150 Office Expense 28,500 Deprication Expense 11,165 Utilities Expense 33,571 Treasury Stock 10,000 Insurance Expense 22,500 Income Tax Expense 99,000 Rent Revenue 4,500 Wages Payable 5,000 Interest Expense 30,571 Interest Payable 35,300 Loss on Impairment 5,000 Cost of Goods Sold 147,000 Bad Debt Expense 75,000 PIC from Treasury Stock 6,000 Total 2,180,861 2,180,861

can't be completed until Income Statement is done, Income before Income Taxes

Corporate taxes are due in four estimated quarterly payments on April 15, June 15, September 15, and December 15. However, for the purposes of this ABC illustration, we will assume that estimates are not paid, and that the tax is paid in full on the return's March 15, 2017 due date. ABC's income tax rate is 35%. The entire year's income tax expense was estimated at the beginning of 2016 to be $108,000, so January through November income tax expense recognized amounts to $99,000 (11/12 months). Since we are assuming estimates are not made during the year, the balance in Income taxes payable represents income tax accrued for January through November. Assume no deferred tax assets or deferred tax liabilities. Based on the income before income taxes figure from the income statement, calculate and record December's income tax expense adjustment so that the entire year's tax expense is correct (i.e. the difference between total income tax expense and the amount already accrued through November).

Some Figures to help out along the way -Check figure 1: Income from operations = $395,874. -Check figure 2: Income before income taxes = $361,403. -Check figure 3: Total Current Assets at 12/31/16 = $1,343,664. -Check figure 4: Retained Earnings at 12/31/16 = $206,912. -Check figure 5: Total Stockholders' Equity at 12/31/16 = $467,912. -Check figure 6: Total Liabilities at 12/31/16 = $1,056,687. If your need anything else please let me know

Your company is a global seller or home furnishings called Worldwide Home Stuff Unlimited (WHSU). (Yes, they need some more creative people in their company.) Complete a seven-year planning model for WHSU for the period 2016 through 2022. Use the structure shown at the end of this assignment. Proceed as follows:

1. Take the 2016, 2017, and 2018 values from the data at the end of this assignment. Enter the ACTUAL VALUES even for the various lines that can be calculated from other lines (e.g., the Gross Profit or the EBT).

2. Place all growth rates and other input variables at the top left corner of the worksheet. Use formulas and/or functions to perform all necessary calculations.

   Important Note: Most or all of the growth factors and other input values you will be using in this model are calculated in steps 3 through 7 below. So put the formulas for calculating these values in the appropriate cells at the top left corner of the worksheet.

3. Starting with 2019 and beyond, for the following line-items (a thru d below), assume a constantPERCENTAGE growth from one year to the next—e.g., from 2018 to 2019. That percentage change is equal to the Average Annual Percentage Change from 2016 to 2018. Calculate this value by averaging the percentage change from 2016 to 2017 and the percentage change from 2017 to 2018.

   1. Net Sales/Sales Revenue

   2. Selling, General, and Administrative (SG&A)

   3. Depreciation and Amortization

   4. Other Expenses

4. Starting with 2019 and beyond, assume that Advertising will change by the same dollar amount (not the same percentage) from one year to the next—e.g., from 2018 to 2019. That amount is equal to the Average Annual Change (in dollars) between 2016 and 2018.

5. Starting with 2018 and beyond, assume that Rent Expense will be unchanged (that is, constant) from one year to the next, so the values in 2019 through 2022 will be the same as the 2018 value.

6. Assume that the Cost of Goods Sold (CGS) as a percentage of Net Sales/Sales Revenue (that is, the ratio of CGS to Net Sales) will be constant in years 2018 through 2022 and equal to the percentage in 2018. You will need to calculate that percentage (ratio).

7. Assume that the tax rate will be constant in years 2018 through 2022 and equal to the tax rate in 2018. You will need to calculate that value (that is, the tax expense as a percentage of the EBT).

2

8. Note that your formulas should allow for the possibility that your company may lose money in any given year (whether or not it is not the case with the current data).

9. Be sure to note somewhere on the spreadsheet that all figures are in millions.

10. Format financial data with commas (but no decimal places), using dollar signs only for the Net Sales/Sales Revenue, Gross Profit, Total Expenses, Earnings Before Taxes, and Net Income lines. Format growth rates as percentages. Properly format all columns and numbers.

11. When creating the spreadsheet, be sure to copy cell formulas rather than entering similar formulas many times (for example, you can use the autofill handle to copy cell formulas from year to year).

12. Use Excel to place a footer on your spreadsheet with your last name and section (e.g., Jones—INSY 2299 RZQ—where you substitute your last name for Jones and your section for RZQ).

Be sure to follow these instructions carefully!

Profitability Analysis
Assume Strands, a local hair salon, provides cuts, perms, and hairstyling services. Annual fixed costs are $150,000, and variable costs are 40 percent of sales revenue. Last year's revenues totaled $300,000.

(a) Determine its break-even point in sales dollars.
$Answer

(b) Determine last year's margin of safety in sales dollars.
$Answer

(c) Determine the sales volume required for an annual profit of $80,000.

Round your answer to the nearest dollar.
$Answer

Multiple Product Planning with Taxes
In the year 2017, Pyramid Consulting had the following contribution income statement:

(a) Determine the annual break-even point in sales revenue.

Round contribution margin ratio to two decimal places for your calculation. Round final answer to nearest dollar.  
$Answer

(b) Determine the annual margin of safety in sales revenue.

Use rounded answer from above for calculation.
$Answer

(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $57,000?

Use rounded contribution margin ratio (2 decimal places) for your calculation.
$Answer

(d) With the current cost structure, including fixed costs of $285,000, what dollar sales revenue is required to provide an after-tax net income of $200,000?

Use rounded contribution margin (2 decimal places) for calculation. Round your answer to the nearest dollar.  
$Answer

(e) Prepare an abbreviated contribution income statement to verify that the solution to requirement (d) will provide the desired after-tax income.

Use rounded contribution margin (2 decimal places) for variable cost/contribution margin computations. Round your answers to the nearest dollar. Use rounded answers for subsequent calculations. Do not use negative signs with any of your answers.

Question requirements at bottom of text and numbered...

Paul’s Fishing Gear and Tackle Repair Inc.

Winter 2018

Paul’s Fishing Gear and Tackle Repair, Inc. is a fishing supply and repair store, run by its primary shareholder and manager Paul Martin. Presented below is the November 30, 2017, unadjusted trial balance of Paul’s Fishing Gear and Tackle Repair, Inc. The account balances represent the results of entries recorded during the first 11 months of the year. The balance in Paul’s common stock and retained earnings accounts have not changed since December 31, 2016. Currently, 16,000 shares of stock are outstanding and 25,000 have been authorized. Paul’s board of directors have decided to reinvest this year’s profit for future use and will not pay dividends to shareholder’s (Trey, Will, Megan, and Ben, all friends of Paul) at the end of this year. All income tax effects are to be ignored for this project.

Unadjusted Trial Balance
November 30, 2017

REF
DEBIT
CREDIT
Cash 111 16,200
Accounts Receivable 112 5,750
Supplies Inventory 113 2,300
Prepaid Rent 114 3,600
Equipment 115 75,000
Accumulated Depreciation, Equipment 116 15,000
Building 117 221,400
Accumulated Depreciation, Building 118 40,000
Accounts Payable 211 11,750
Wages Payable 212
Utilities Payable 213
Interest Payable 214
Unearned Repair Revenue 220 2,500
Long- Term Notes Payable 231 95,000
Common Stock ($5 par value) 311 80,000
Retained Earnings 312 36,695
Income Summary 313
Dividends 314
Repair Revenue 411 145,000
Wages Expense 511 80,300
Rent Expense 512 13,000
Supplies Expense 513
Utilities Expense 514 3,000
Advertising Expense 515 1,500
Maintenance Expense 516 95
Depreciation Expense, Equipment 517
Depreciation Expense, Building 518
Interest Expense 519 3,800
Totals $425,945 $425,945

The following transactions occurred during the month of December 2017:
December 3 Purchased $1,800 of supplies on account.
• Paid accounts payable of $3,500.
• Received $34,600 for repair revenue.
• Charged a customer $450 for repairs to deep-sea fish finder. This bill will not be paid until early January.
• Purchased $5,400 of supplies on account.
• Paid $400 for newspaper advertisements that ran on November 9.
• Paid utility expense of $350.
• Received $56,000 for repair revenue.
• Paid wages of $2,925 for period of December 1-14
• Received $1,900 cash on account.
• Paid $4,200 of the amount owed from December 10.
• Acquired additional equipment costing $7,600 by paying $1,000 in cash and giving a long-term note payable for the remainder of the balance.
• Received bill and paid $995 for repairs to electronic scales.
• Sold 700 shares of $5 par value common stock for $5 a share for a new shareholder, Kent Clark.
• Received $24,000 for repair revenue.
30 Charged a customer $195 for repairs to a fishing rod. The balance will not
be paid until January.
• Paid wages of $3,100 for the period of December 15-30.
31 Declared and paid a $2,300 dividend to shareholders.

REQUIREMENTS
1. Prepare and post journal entries to record the December transactions listed above.

2. Prepare a 6 column worksheet (page 15). Enter the December 31 balances from the general ledger (pp. 8-14) in the unadjusted trial balance columns of the worksheet. Total the debits and credits to assure that debits equal credits. Also enter adjustments A-H on the worksheet and complete the worksheet.[1]
1. Depreciation for the year on the building was $17,500
2. Interest expense to be accrued on the note payable for 2017 is $400.
3. The December 31 supply inventory was $1,900.
4. Depreciation for the year on equipment was $5,250
5. Unpaid wages were $350 as of December 31.
6. Unpaid utilities expense for December 13-30 was $245.
7. Prepaid rent that has expired through December 31 amounts to $2,200.
8. Unearned repair revenue represents a payment received in advance on November 17 for repairs to a multifacited, computerized swivel with built in cup holder. The job was not complete as of December 31. However 2/5 ($1,000) has been completed and earned as of December 31.

3. Journalize and post the adjusting entries. In other words, record the above adjustments in the general journal and post those entries to the general ledger. So, these adjustments will be recorded both in (1) the 6 column worksheet, and (2) the general journal and general ledger.

4. Prepare an income statement, statement of retained earnings, and a classified balance sheet for the year ended December 31, 2017.

5. Journalize and post the closing entries. In other words, close the revenues and expenses, using journal entries recorded in the general journal and posted to the general ledger.
Prepare post-closing

Annual starting salaries for college graduates with degrees in business administration are generally expected to be between $20,000 and $40,000. Assume that a 95% confidence interval estimate of the population mean annual starting salary is desired. How large a sample should be taken if the desired margin of error is:

a.$300

b.$230

c.$80 Would you recommend trying to obtain the $80 margin of error? Explain.

A simple random sample of 80 items from a population with σ = 7 resulted in a sample mean of 33. If required, round your answers to two decimal places.

a. Provide a 90% confidence interval for the population mean. to

b. Provide a 95% confidence interval for the population mean. to

c. Provide a 99% confidence interval for the population mean. to

Question 2 A study showed that 67% of supermarket shoppers believe supermarket brands to be as good as national name brands. To investigate whether this result applies to its own product, the manufacturer of a national name-brand ketchup asked a sample of shoppers whether they believed that supermarket ketchup was as good as the national brand ketchup.

a. Formulate the hypotheses that could be used to determine whether the percentage of supermarket shoppers who believe that the supermarket ketchup was as good as the national brand ketchup differed from 67%. H0: p Select greater than or equal to 0.67 greater than 0.67 less than or equal to 0.67 less than 0.67 equal to 0.67 not equal to 0.67 Item 1 Ha: p Select greater than or equal to 0.67 greater than 0.67 less than or equal to 0.67 less than 0.67 equal to 0.67 not equal to 0.67 Item 2

b. If a sample of 100 shoppers showed 52 stating that the supermarket brand was as good as the national brand, what is the p-value (to 4 decimals)?

c. At α = .05, what is your conclusion? p-value Select greater than or equal to 0.05, reject greater than 0.05, do not reject less than or equal to 0.05, reject less than 0.05, reject equal to 0.05, do not reject not equal to 0.05, do not reject Item 4 H 0 d. Should the national brand ketchup manufacturer be pleased with this conclusion? Select Yes No Item 5

Question 3 Data on advertising expenditures and revenue (in thousands of dollars) for the Four Seasons Restaurant follow. Advertising Expenditures 1 2 4 6 10 14 20 Revenue 20 33 44 41 52 53 54

a. Let x equal advertising expenditures and y equal revenue. Complete the estimated regression equation below (to 2 decimals). y= _ + _x

b. compute the following to 1 decimal

SSE

SST

SSR

MSR

MSE

c. st whether revenue and advertising expenditures are related at a .05 level of significance. Compute the F test statistic (to 2 decimals). What is the p-value? Select less than .01 between .01 and .025 between .025 and .05 between .05 and .10 greater than .10 Item 9 What is the conclusion? Select Conclude revenue is related to advertising expenditure Cannot conclude revenue is related to advertising expenditure Item 10 What does the residual plot above suggest about the assumption of linearity between x and y? Select Despite the small sample size, there appears to be a linear relationship Question the assumption that a linear relationship exists

Question 4 Consider the following data for two variables,

x and y. xi 140 110 135 145 175 165 120

yi 150 100 120 120 130 130 110

a. Compute the standardized residuals for these data

Observation 1

Observation 2

Observation 3

Observation 4

Observation 5

Observation 6

Observation 7 Do the data include any outliers? Select Yes, there appear to be 3 outliers. Yes, there appear to be 2 outliers. Yes, there appears to be an outlier. No, there do not appear to be any outliers.

Question 5 The travel-to-work time for residents of the 15 largest cities in the United States is reported in the 2003 Information Please Almanac. Suppose that a preliminary simple random sample of residents of San Francisco is used to develop a planning value of 6.66 minutes for the population standard deviation. Round your answers to nearest whole number

A.If we want to estimate the population mean travel-to-work time for San Francisco residents with a margin of error of 5 minutes, what sample size should be used? Assume 95% confidence.

b. If we want to estimate the population mean travel-to-work time for San Francisco residents with a margin of error of 3 minutes, what sample size should be used? Assume 95% confidence.

Deloitte Trueblood Case

A Network of Ideas

Spider-Web Corporation (“Spider”) owns and operates various Web sites, including YourSpace, a social networking Web site, and Bling, a Web site search engine. Spider is a nonpublic U.S.-based company with headquarters in Silk Valley, CA, and it earns most of its revenue through advertising. Spider not only manages the advertisement space on its own Web sites, but it also assists other Web site owners with filling their ad space.

To generate revenue, Spider enters into agreements with various third-party advertisers (the “advertisers” or the “customers”) whereby Spider agrees to place advertisers’ ads on Web sites owned by Spider. Spider can also place these ads on Web sites owned by its network partners (the “partners”), for which it has agreements to do so (see discussion below). Spider gives the advertisers a list of Web sites to choose from; the advertisers specify which Web sites are suitable to reach their intended demographic. If the desired advertising space is not available, the advertiser and Spider must agree on an alternative Web site. The advertisers are not made aware of who owns the partner Web sites, and the fees charged to each advertiser are from Spider’s standard list prices, which are specified in the agreement between the advertiser and Spider.

Spider offers the advertisers the option to have their ad displayed on a home page or linked to key search words. The pricing structure differs depending on which type of advertising is selected. For example, Spider will charge a fee each time an ad (also known as an impression) is displayed. Alternatively, if an advertiser selects its ad to be linked to key search words, Spider will charge a fee only when an end user clicks on the linked ad. The advertisers are invoiced the month after their ads are displayed, and payments are submitted directly to Spider.

To offer the advertisers a choice of Web sites on which to display their ads, Spider enters into agreements with the partners that own other Web sites. This expanded offering allows Spider to potentially increase its revenue from the advertisers; however, it comes with a cost to Spider. The partners charge a fee to Spider for use of their Web site ad spaces. The fee structure allows the partners to receive a minimum base fee that is equal to the cost to maintain the ad space (as predetermined on a quarterly basis) and up to 51 percent of the adjusted gross advertising revenue earned monthly. As defined in the agreement, the adjusted gross advertising revenue is equal to the amounts invoiced to the advertiser less chargebacks, credits, bad debt, refunds, and certain out-of-pocket expenses, including agency commissions and fees, sales commissions and fees, and creative services; however, the amount beyond the base fee is paid to the partner only after it is collected by Spider from the advertiser. The advertisers are not a party to any agreement with the partners; advertisers only have an agreement with Spider. Spider is solely responsible for fulfilling its contracts with the advertisers. Therefore, if suitable advertising space is not available on a partner’s Web site or if the partner does not believe the ad is suitable for its Web site, Spider and the advertiser will agree on an alternative Web site.

Spider’s agreement with the partners also specifies the space, size, and location on the partner’s Web site that must be available for ads. During the term of the agreement, the partner is also required to keep Spider’s network footer at the bottom of its home page because Spider is paying for the base fee. Since the advertisers are charged a fee either (1) for each time a user clicks their ad on a partner’s Web site or (2) each time an ad is displayed, the partners are required to install and use the tracking software provided by Spider. This tracking software is given to the partner at no charge, and it gives Spider monthly usage reports; Spider uses these reports to determine the invoice for the customer.

Spider will identify ads or marketing messages from the advertisers, along with its own ads, to be placed on a partner’s Web site. Spider will also pay the partner a nominal fee that is based on the number of times Spider’s ad is displayed on the partner’s Web site. Although Spider tries to identify ads that are best suited for the partner’s Web site, it sometimes selects ads that are not a good fit for the partner’s audience. The terms and conditions of the agreements between Spider and its partners allow the partners to request that Spider remove ads that are not suitable for their Web sites. If this situation occurs, Spider can find an alternative partner Web site to post the advertiser’s ad.

Required:

On the basis of the case facts, should Spider record the revenue it earns from placing ads for various third-party advertisers on Web sites owned by the partners on a gross or net basis? Provide an analysis supporting your conclusion based on US GAAP (Section 606) and IASB IFRS.

Hamish Ltd needs your assistance in calculating and disclosing the taxation expense for the financial year ended 30 June 2018. Hamish Ltd has supplied you with an extract from their income statement and from their balance sheet as well as a list of other information that need to be considered.

The following information relates to the year ended 30 June 2018. Revenue from sales, including those on credit terms, is taxable when the sales are made. Administration and salary expenses are tax deductible when they are incurred. This also applies to wages and salary expenses. The following items that are included in the financial statements of Hamish Ltd are treated differently for accounting and tax purposes:

At year end, accounts receivable owed to Hamish Ltd was $80,000 net after the allowance for doubtful debts. Since Hamish Ltd expects that some of its debtors may be doubtful, it creates an allowance for doubtful debts. The opening balance (on 1 July 2017) of the allowance for doubtful debts was $5,000. The doubtful debts expense is not tax deductible until the debtor is actually written off as bad.

The insurance expense amounts to $4,500 per month. During the year $60,000 was actually paid for insurance and on 30 June 2017 $13,500 was prepaid for the 2017 financial year. Insurance expense is tax deductible when it is paid.

Interest amounting to $12,000 was received during the year and an additional $6,000 was accrued to account for the total interest earned of $18,000 for the year. Interest is taxable when it is received.

The plant was acquired on 1 July 2016 at a cost of $500,000. The plant has an economic life of 5 years with a residual value of $50,000. The straight line method of depreciation is used to depreciate the plant for accounting purposes. For taxation purposes, the straight line method over 4 years is used to calculate the depreciation, but only the cost of the plant is depreciable (ignore the residual for tax purposes).

Hamish Ltd paid an amount of $10,000 during the year in respect of long service leave. In addition an amount of $25,000 had been accrued for accounting purposes during the year in respect of long service leave. Tax deductions for this item are available only when the amount is paid. At 30 June 2017 there was no accrual for long service leave.

During the year $45,000 was received with respect to rent revenue, of which $36,000 relates to the current year. This is the first year that Hamish Ltd received any rent. Rent received is taxable when it is received.

Warrantee expenses incurred amount to $45,000, of which $15,000 has been paid by year end. Warrantee expenses are only tax deductible if they have been paid. At 30 June 2017 there was no accrual for warrantee expenses.

During the year the goodwill with an opening balance of $100,000 was impaired by $20,000. Goodwill impairment is not a deductible expense for tax purposes.

At the beginning of the year (i.e., at the 1st of July 2017), total taxable temporary differences amounted to $48,500 and total deductible temporary differences amounted to $5,000.

The tax rate was always 33% but changed to 28% during the current year.

Required:

Calculate the deferred taxation that Hamish Ltd should provide for the year ended 30 June 2018. Complete the worksheet for this purpose. Prepare the journal entries (with narrations) to account for Hamish Ltd’s tax expense for the year ended 30 June 2018 in accordance with NZ IAS 12.

Calculate the taxable income and current tax for Hamish Ltd for the year ended 30 June 2018. Provide the journal entries that will be needed to account for current tax for the 2018 financial year.

Show an extract from the income statement and the notes to the income statement of Hamish Ltd that clearly shows the required disclosure of the tax expense for the year ended 30 June 2018 in accordance with NZ IAS 12. (9

Hamish Ltd has a deferred tax asset as well as a deferred tax liability at 30 June 2018 in accordance to your calculation that would be disclosed in accordance with NZ IAS 12. The financial director is concerned with this situation as he argues that the IRD does not owe them anything and neither does Hamish owe anything to the IRD, other than the current tax payable. So why should amounts that are not currently an asset or liability be disclosed as such? Give a well-reasoned answer to the financial director.

Girl Scout Cookies and the Snack Tax

State sales taxes often exempt food purchased for at-home consumption to help relieve regressivity. However, that exemption causes substantial loss of revenue. Furthermore, some people question the nutritional value of certain items exempted under the food label and doubt the wisdom of losing revenue in a tax structure to provide relief to such purchases. In difficult fiscal times in the early 1990's, a few states sought additional revenue by narrowing the food exemption, particularly by removing some of these questionable categories from the exempt list. These new laws and their enforcement have produced policy problems testing the resolve of the legislators and tax administration.

In the 1991 legislative session, Maine passed a package of tax changes designed to increase revenues by $300 million annually. (Total tax collections in fiscal 1990 were $1,560.9 million.) thee changes included higher income taxes, an increase in the state sales and use tax rate from 5 to 6 percent, and a revision to remove snack food from the "sales of grocery staples" category, which was then exempt from the state sales and use tax. The new law was estimated to yield $10 million annually. The new law taxed snack food, as defined by the legislature.

14-C. "Snack food." Snack food means any item that is ordinarily sold for consumption without further preparation or that requires for preparation other than combining the item with a liquid; that may be stored unopened without refrigeration, except that ice cream, ice milk, frozen yogurt, and sherbet are snack foods; that is not generally considered a major component of a well-balanced meal; and that is not defined in this section as a grocery stable. "Snack food" includes, but it not limited to, corn chips, potato chips, processed fruit snacks, fruit rolls, fruit bars, popped popcorn, pork rinds, pretzels, cheese sticks and cheese puffs, granola bars, breakfast bars, bread sticks, roasted nuts, doughnuts, cookies, crackers, pastries, toaster pastries, croissants, cakes, pies, ice cream cones, marshmallows, marshmallow creme, flavored powdered liquid drink mixes or drinks, ice cream sauces, pudding, beef jerky, meat bars and dips. (36 Maine Revised Statues 1752 [1992].

The lawmakers soon dissevered that the expansion of the sales and use tax base had some unexpected consequences, particularly with he regard to the finances of Girl Scouts. Two councils, the Abnake and Kennebec, served about 19,500 girls in Maine, and 60 to 65 percent of their revenues came from cookie sales. Because neither council was qualified to purchase inventory for resale as a registered reatiler, and then charge sales tax on each transaction, the councils now had to pay tax on their cookie purchases. That amounted to around $58,000 or almost 2 percent of cookie revenue (they paid tax on the wholesale price of about 80 cents per box).

The two councils responded differently to the new tax. Abnaki raised its cookie prices from $2.25 to $2.50, but sales fell 7 percent from the prior year. Kennebec lacked sufficient time to react, so it had to absorb about $40,000 in cookie losses. However, neither council thought the new tax was fair. Jo Stevens, executive director of the Abnaki Council, voiced the general view: "We're not selling groceries. We're raising charitable contributions." Of course, the problem for sales tax policy was, indeed, because they weren't selling groceries.

The Joint Taxation Committee was generally sympathetic. Its co-chair, Senator Stephen Bost said, "We had not intended as a committee to include... Girl Scouts in the snack tax." However, proposed legislation to exempt Girl Scout and related organizations (including the pre-popped popcorn sold by Boy Scouts) would cause a revenue loss of around $175,000 annually, and the state had no clear way to name it up. (Incidentally, candy had been taxed for some time, but candy sales by school groups and parent-teacher organizations are exempt.)

Discussion Question:

What should Maine do? Here are some options (1) do nothing - the tax is working as it should; (2) direct the Bureau of Taxation to rewrite the institution; (3) repeal the snack tax; (4) exempt sales and purchases by the Girl Scouts and similar organizations; (5) require the Girl Scouts to register as retail merchants, buy their cookies using the resale exemption, and collect sales tax on their cookie sales; and (6) exempt sales and/or purchases by all youth or charitable organizations. (You may think of other possibilities.) Use the standards for revenue policy evaluation (yield, fairness, economic effect, and collectability) to test options and provide a recommendation. Explain which approach is most consistent with the logic of sales taxation. Which parties would have an interest in the eventual outcome of the discussion? What is your overall view of the snack tax, without respect to the Girl Scout issue?