The comparative statement of financial position of Blue Spruce Corporation as at December 31, 2020, follows: BLUE SPRUCE CORPORATION Statement of Financial Position December 31 December 31 Assets 2020 2019 Cash $ 53,500 $ 11,900 Accounts receivable 89,600 87,200 Equipment 26,200 21,700 Less: Accumulated depreciation (9,800 ) (10,800 ) Total $ 159,500 $ 110,000 Liabilities and Shareholders’ Equity Accounts payable $ 20,300 $ 15,500 Common shares 100,000 79,600 Retained earnings 39,200 14,900 Total $ 159,500 $ 110,000 Net income of $37,600 was reported and dividends of $13,300 were declared and paid in 2020. New equipment was purchased, and equipment with a carrying value of $4,500 (cost of $11,500 and accumulated depreciation of $7,000) was sold for $7,600. Prepare a statement of cash flows using the indirect method for cash flows from operating activities. Assume that Blue Spruce prepares financial statements in accordance with ASPE.

Question 2: A company wants to get its working capital calculated by you. You are given the following estimates for the year 2020 In addition to that add 5 percent to your figures for contingencies. Calculate the average amount of working capital required for the year 2020.

Solution:

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 $23,650 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 $2150 (excluding GST).
What was the profit or loss on the scrapping of the truck?

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).

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?