Required information
In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

2-a. In the journal below, complete the necessary journal entries for the year 2018 (credit "Various accounts" for construction costs incurred).
2-b. In the journal below, complete the necessary journal entries for the year 2019 (credit "Various accounts" for construction costs incurred).
2-c. In the journal below, complete the necessary journal entries for the year 2020 (credit "Various accounts" for construction costs incurred).

ACCOUNTING FOR LEASES
  This equipment is NOT considered a specialized one.
  Start Date: January 1, 2020
  Contract term: 3 years (The contract ends on December 31, 2022.) The property title will be transferred to the tenant free of cost when the third year ends.
  Annual payments: $ 37,174 payable on January 1 of each year. The first payment was made on 1/1/20.
  Estimated useful life for the asset: 4 years.
  Estimated residual value: zero.
  Landlord's interest rate: 12%, the tenant does NOT know it.
  Lessee's incremental borrowing rate: 10%.
  The fair value of the asset is $ 100,000.
  The original acquisition cost the lessor paid for the equipment was $ 90,000.

  REQUIRED (Read carefully and only answer what is asked, otherwise you may lose points)
  1. Prepare the journal entries to be recorded by the LESSEE on January 1, 2020.
  2. Indicate the expense accounts and the amount that the lessee will report in the 2020 statement of income and expenses (account and amount).

Question 3 (Marks: 14)  

Q.3.2 Resonant Holdings owns a commercial shipping fleet and is in the process of refitting a container ship that was bought from a previous owner. They took ownership on 1 June 2020 and anticipate that it will take twelve months to complete the refurbishment at a total cost of R15 million.
One third of the project cost is to be financed by a specific loan at an interest rate of 6.5% and the balance will be financed from two general sources, namely debentures worth R10 million at an interest rate of 7.25% and a revolving loan costing 7%, also worth R10 million.  

The company expects to make three payments to the ship builders during the year as follows:

• R4 000 000 on 1 June 2020
• R5 000 000 on 1 October 2020
• A final payment of R6 000 000 on 1 April 2021

Required:

Calculate the borrowing costs that Resonant Holdings will capitalise for the year ended 31 May 2021. (14)

Question 3 (Marks: 14) Q.3.2 Resonant Holdings owns a commercial shipping fleet and is in the process of refitting a container ship that was bought from a previous owner. They took ownership on 1 June 2020 and anticipate that it will take twelve months to complete the refurbishment at a total cost of R15 million. One third of the project cost is to be financed by a specific loan at an interest rate of 6.5% and the balance will be financed from two general sources, namely debentures worth R10 million at an interest rate of 7.25% and a revolving loan costing 7%, also worth R10 million. The company expects to make three payments to the ship builders during the year as follows: R4 000 000 on 1 June 2020 R5 000 000 on 1 October 2020 A final payment of R6 000 000 on 1 April 2021 Required: Calculate the borrowing costs that Resonant Holdings will capitalise for the year ended 31 May 2021. (14)

Stacey Ltd purchased a new machine on 1 September 2019 at a cost of $206,100 (excluding GST). The entity estimated that the machine has a residual value of $29,700 (excluding GST). The machine is expected to be used for 36,000 working hours during its 8 year life. Assume a 31 December year-end. Required (a) Calculate the depreciation expense using the straight-line method for 2019 and 2020. (b) Calculate the depreciation expense using the diminishing-balance method and a depreciation rate of 25% for 2019 and 2020. (c) Calculate the depreciation expense using the units-of-production method for 2019, assuming the machine usage was 1,820 hours. (d) On 31 December 2020 the company discarded a delivery truck that was purchased on 1 January 2016 for $24,200 cash (including GST of 10%) and was depreciated on a straight line basis with a useful life of 6 years and a residual value of $2200 (excluding GST). What was the profit or loss on the scrapping of the truck?

Required                                                                                            

(a) Calculate the depreciation expense using the straight-line method for 2019 and 2020.
(b) Calculate the depreciation expense using the diminishing-balance method and a depreciation rate of 25% for 2019 and 2020.
(c) Calculate the depreciation expense using the units-of-production method for 2019, assuming the machine usage was 1,820 hours.
(d) On 31 December 2020 the company discarded a delivery truck that was purchased on 1 January 2016 for $24,200 cash (including GST of 10%) and was depreciated on a straight line basis with a useful life of 6 years and a residual value of $2200 (excluding GST).
What was the profit or loss on the scrapping of the truck?

Blenkinsop Manufacturing produces ChopNSlice, a multifunctional slicing and chopping kitchen tool. The following shows a summary of the manufacturing data for ChopNSlice for 2020. Selling price per unit $ 64 Variable manufacturing costs 38 Annual fixed manufacturing costs 201 060 Variable selling, distribution and administration costs 10 Annual fixed non-manufacturing costs 102 940 Annual volume 28 000 units.

a.Calculate the profit earned in 2020. (1 mark)

b. Blenkinsop Manufacturing has decided to introduce robots in part of the manufacturing production process with the changes taking place in 2021. The new production methods would bring about a decrease in variable costs per unit of $18 but would increase the fixed manufacturing costs by $150 000. How many units would need to be sold to earn the same profit as in 2020? Would you recommend the changes?

c. Prepare the Statement of Profit or Loss for (a) and (b).

Waterway Inc. reported the following pretax income (loss) and related tax rates during the years 2019–2022.

Pretax financial income (loss) and taxable income (loss) were the same for all years since Waterway began business. The tax rates from 2019–2022 were enacted in 2019.

a.  Prepare the journal entries for the years 2020-2022 to record income taxes payable (refundable), income tax expense (benefit), and the tax effects of the loss carryforward. Assume that Jennings expects to realize the benefits of any loss carryforward in the year that immediately follows the loss year.

c.  Prepare the portion of the income statement, starting with “Operating loss before income taxes,” for 2020.

d.  Prepare the portion of the income statement, starting with “Income before income taxes,” for 2021.

question 2

Hanson Bank agrees to lend $ 250,000 to Mishin Corp. on May 1, 2020 and the company signs a $ 250,000, three-month, 6% note maturing on August 1, 2020.

Instructions

Prepare the journal entry to record the cash received by Mishin Corp. on May 1, the entry to record interest expense at Mishin’s year-end of July 31 and the entry at maturity of the note.

Question # 3

Dividends on preferred shares

At December 31, 2020, Russia Inc. has outstanding the following shares:

       5,000, $ 3.20, no par value preferred shares with a carrying value of $ 200,000, and 40,000 no par value common shares with a carrying value of $ 600,000.

No dividends have been paid since December 31, 2017. The corporation now desires to distribute $ 120,000 in dividends.

Instructions

Calculate how much the preferred and common shareholders will receive if the preferred shares are cumulative and fully participating.