Problem 2:

The following events apply to Sam’s Seafood Restaurant for the year ended December 31, 2020, its first year of operations:

1. The company acquired $50,000 cash by issuing common stock.

2. Purchased a new cook top that cost $35,000 cash.

3. Earned $36,000 in cash revenue.

4. Paid $12,000 cash for salaries expense.  

5. Recorded depreciation expense on the cook top for 2020 using straight-line depreciation. The cooktop was purchased on January 1, 2020, the expected useful life of the cook top is four years, and the estimated salvage value is $3,000.  

Required: Answer the following questions.

1. What is the net income for 2020?   

2. What amount of depreciation expense would Sam’s report on the 2021 income statement?

3. What amount of accumulated depreciation would Sam’s report on the December 31, 2021, balance sheet?

4. Would the cash flow from operating activites be affected by depreciation in 2021?

5. If Sam’s Seafood Restaurant decided to sell the new cooktop in 2022 for $10,000, would the company realize a gain or loss? How much?  

Question 1 – CVP Analysis

Brandon Manufacturing provides the data below relating to its single product for 2020:

• Selling price per unit $20
• Annual fixed costs $280,800
• Variable costs per unit $14
• Annual sales volume expected in 2020: 52,000 units

Required:

1. Complete the following table calculating each requirement listed in the table.

2. Prepare a Contribution Margin Income Statement for the expected sales in 2020: (given the original data)

QUESTION 2

The Hickey Family trust, established under Australian law, has the following income for the year ended 30 June 2020:

• Australian sourced business income                                                               $100,000
• United States sourced business income                                                          $50,000
• Capital gain on property held for 5 years                                                       $60,000

Assume there are no allowable deductions for the year ended 30 June 2020.

The three beneficiaries of the trust are:

• Earl – A 50 year old United States Resident who is not under a legal disability
• Randy – Earl’s 48 year old brother who lives in Australia and is under a legal disability.
• Joy – Earl’s ex-wife, a 40 year old Australian resident who is not under a legal disability and has a carried forward capital loss of $20,000

REQUIRED

B) What is the net income of the trust for the year ended 30 June 2020?

b) Advise the trustee of the most tax effective way to distribute the trust income for the year ended 30 June 2020.

Make sure you explain your answer.

You are not required to perform any calculations to answer this question.

Bowe Ltd is a reporting entity and complies with AASB 112 ‘Income Taxes'. Bowe maintains separate accounts for any deferred tax assets or deferred tax liabilities (i.e. does not offset deferred tax assets and deferred tax liabilities). Bowe’s accounting records for the year ended 30 June 2020 disclose the following:

REQUIRED:

Calculate deferred tax expense for the year ended 30 June 2020. Your answers must comply with AASB 112 ‘Income Taxes’. Show all necessary working, explanations and assumptions to support your answer.

Avig Ltd acquired 80% of the issued capital of Non Ltd on 1 July 2015. The following three transactions occurred. 1) On 1 July 2018, Avig Ltd purchased equipment from Non Ltd for $1,500,000. The equipment had originally cost Non Ltd $1,200,000 when acquired on 1 July 2016. Non Ltd had been depreciating the equipment over 12 years using the straight-line method. Avig Ltd expected the remaining useful life of the equipment to be 10 years and also depreciates using the straight-line method. 2) In May 2020, Avig Ltd sold inventory costing $80,000 to Non Ltd for $150,000. One quarter of this inventory remained on hand as at 30 June 2020. 3) Non Ltd paid a final dividend of $500,000 on 30 June 2020. Required Based on the information provided, prepare the intra-group journal entries, including all related tax effects, required upon consolidation as at 30 June 2020. The tax rate is 30%. Note: NCI allocation journals are not required.

The following data are taken from the records of Alee Company.    December 31, 2020    December 31, 2019 Cash $ 15,000 $  8,000 Current assets other than cash   85,000   60,000 Long-term debt investments   10,000   53,000 Plant assets  335,000  215,000 $445,000 $336,000 Accumulated depreciation $ 20,000 $ 40,000 Current liabilities   40,000   22,000 Bonds payable   75,000 –0– Common stock  254,000  254,000 Retained earnings   56,000   20,000 $445,000 $336,000 Additional information: Held-to-maturity debt securities carried at a cost of $43,000 on December 31, 2019, were sold in 2020 for $34,000. The loss (not unusual) was incorrectly charged directly to Retained Earnings. Plant assets that cost $50,000 and were 80% depreciated were sold during 2020 for $8,000. The loss was incorrectly charged directly to Retained Earnings. Net income as reported on the income statement for the year was $57,000. Dividends paid amounted to $10,000. Depreciation charged for the year was $20,000. Instructions Prepare a statement of cash flows for the year 2020 using the indirect method.

Question 1 – CVP Analysis

Brandon Manufacturing provides the data below relating to its single product for 2020:

• Selling price per unit $20
• Annual fixed costs $280,800
• Variable costs per unit $14
• Annual sales volume expected in 2020: 52,000 units

Required:

1. Complete the following table calculating each requirement listed in the table.

2. Prepare a Contribution Margin Income Statement for the expected sales in 2020: (given the original data)

(b)Raymond Traders is a small business, and it undertakes periodical stock-takes to determine its inventory value. On 30 June 2020, Raymond Traders completed a physical stock-take, and inventory on hand as at 30 June 2020 had a cost of $39,600. However, some of the inventory items were deemed to be obsolete and Net Realisable value was determined to be $36,000.

(i) Based on the information above, what inventory management system is Raymond Traders currently using? Outline one advantage and one disadvantage of the inventory management system.

(ii)Advice Raymond Traders on the value of inventories to be shown in the Statement of Financial Position as at 30 June 2020, with reference to NZ IAS 2. Explain. (iii)In light of your answer (ii) above, prepare a journal entry to record any required adjustments on 30 June 2020.

(c) NZ IAS 2, paragraph 36 requires companies to make disclosures to present inventory fairly in their financial statements. List six disclosures that companies must include in the financial statements as additional disclosures.

Bridgeport Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the following balances related to this plan.

As a result of the operation of the plan during 2020, the actuary provided the following additional data for 2020.

1.Using the preceding data, compute pension expense for Bridgeport Corp. for the year 2020 by preparing a pension worksheet that shows the journal entry for pension expense. (Enter all amounts as positive.)

2. Use the market-related asset value to compute the expected return and for corridor amortization.