You are a Consultant for the professional service firm, BUSI 2083 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. One of the partners in your practice is impressed with the work you have completed to date and would like to give you additional responsibility. She has asked you to take the lead on this engagement with the hope that a successful outcome may lead to your promotion to Senior Consultant. You take the background files from the partner and get started.

Perfect Stitch Replica’s Limited, a nationwide distributor of low-cost imitation clothing, has an exclusive agreement for the distribution of the clothing. Sales have grown so rapidly over the last few years that it has become necessary to add new members to the management team. To date, the company's budgeting practices have been minimal, and at times, the company has experienced a cash shortage. You have been given responsibility for all planning and budgeting. Your first assignment is to prepare a master budget for the next three months, starting April 1. You are anxious to make a favourable impression and have assembled the information below.

Additional Information

The clothing is sold to retailers for an average price of $10 each. Recent and forecasted sales in units are as follows:

Ending inventories should be equal to 40% of the next month's sales in units.

The average cost of the clothing is $4 each. Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month's sales are collected by month-end. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

The company's monthly operating expenses are given below:

All operating expenses are paid during the month, in cash, with the exception of depreciation and insurance. Insurance is paid on an annual basis, in November of each year. The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be paid in cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. The company's balance sheet at March 31 is given below:

The company wants a minimum ending cash balance each month of $50,000. All borrowing is done at the beginning of the month; any repayments are made at the end of the month. The company has an agreement with a bank that allows it to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month, and for simplicity, assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.

Prepare the following budgets for the first three months of 2016:

1. A cash budget. Show the budget by month and in total.
2. A budgeted Income Statement for the three-month period ending June 30. Use the variable costing approach.

XYZ company is a well-known property and construction company in the USA. XYZ company has embarked on an expansion plan to increase its income. XYZ issued the following debt security to raise the needed funds. the accounting periods ends on 31 December.

On 1 June 2020, XYZ company issued 12% bonds dated 1 June 2020, with a principal amount of $60,000,000. The bonds will mature on 30 May 2025. On the issuance date, for bonds of similar risk and maturity, the market yield is 10%. interest paid semiannually on 1 June and 1 December. on 1 October 2021 ABC company redeemed half of the bond payable at a price of $30,150,000 including accrued interest.

Required:

1) Prepare the journal entry to record the bond payables. show all computations.

2)Compute the gain/loss on the redemption of bond payable. prepare journal entries to record the redemption of bond payables.

3)Prepare a partial statement of financial position for XYZ company, to show presentation of bond payables as at 31 December 2021. show all computations.

George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to the company’s assembly process. During 2021, management became aware that the $2.8 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property. Cost deducted over 7 years by the modified accelerated recovery system as follows:

The tax rate is 25% for all years involved.

Required:
1. & 3. Prepare any journal entry necessary as a direct result of the error described and the adjusting entry for 2021 depreciation.
2. Will GYI account for the change (a) retrospectively or (b) prospectively?

• Record the correcting entry.
• Record the 2021 adjusting entry for depreciation

On February 1, 2021, Cromley Motor Products issued 6% bonds, dated February 1, with a face amount of $75 million. The bonds mature on January 31, 2025 (4 years). The market yield for bonds of similar risk and maturity was 8%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $75,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31

Required:
1. Determine the price of the bonds issued on February 1, 2021.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2021.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2023.

The following accounts appeared on the trial balance of Ewana Company at December 31, 2020.

Instructions: Compute each of the following. You must show your work.  

1. Total current assets

2. Total property, plant, and equipment

3. Total assets

4. Total current liabilities

5. Total stockholders’ equity

Range Co. offers a postretirement benefit plan. Range estimates the following benefit payments for Reg Vick after he retires on January 1, 2024: 2024 and 2025,

$18,200 per year; 2026, $32,100; 2027 through 2029, $25,800 per year. Assume end- of-year payments.

On December 31, 2016, Vick has completed 12 of his 16 years of eligibility. The discount rate is 5.15%. The plan is unfunded (no plan assets). Use the following present value factors for a lump sum payment of $1 at 5.15% for n periods:

Answer the following for Vick’s benefits (WATCH THE DATES!):

1. Service cost for2017

2) Please solve for the value of the following bonds and briefly explain your results:

A) A U.S. Government Treasury Strip is quoted in the Wall Street Journal at a market price of 87:19 (87 and 19/32). If the strip is scheduled to mature in May 2025, what is the annual interest rate for this bond?

B) Xenor Corporation introduced a bond in 2001 that offered a coupon rate of 8 1/2%, resulting in coupon payments of $8.50. The bond is scheduled to mature in 2030. If the current going interest rate in the market is 6 3/4%, what is the market price (please calculate the interest and the principal due to get this value) of this bond today? What is the bond selling for in the market relative to its initial value at the time the bond was introduced and what is the common term used to describe a bond that is selling at this price?

C) A bond offers a coupon that makes annual payments of $87.50. The bond was originally set to mature in 17 years. A quote for this bond, obtained 15 years after the original issue date, listed the market price as $1,070.00. What is the YTM for this bond?

Exercise 19-9 (Algo) Stock options; exercise [LO19-2]

SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2021. The options permit holders to acquire 23 million of the company’s $1 par common shares for $12 within the next six years, but not before January 1, 2024 (the vesting date). The market price of the shares on the date of grant is $14 per share. The fair value of the 23 million options, estimated by an appropriate option pricing model, is $3.60 per option.

Required:

1. Determine the total compensation cost pertaining to the incentive stock option plan.
2. & 3. Prepare the appropriate journal entries to record compensation expense on December 31, 2021, 2022, and 2023. Record the exercise of the options if all of the options are exercised on May 11, 2025, when the market price is $15 per share.

LG

Following is the seven-year forecast for LG: (all amounts in $000)

Beginning after year 2026 the annual growth in EBIT is expected to be 1.5%, a rate that is projected to be constant over LG remaining life as an enterprise.   Beginning in 2026 LG capital expenditures and depreciation are expected to offset each other (capex - depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2020 as year 1.

Assume a tax rate is 21% and a cost of capital of 7.75%

Calculate the fair market value (NPV) for LG. Assume that the Net Present Value of LG free cash flow for the period 2020 - 2026 is $3000

Crane Limited purchased a machine on account on April 1, 2021, at an invoice price of $325,020. On April 2, it paid $1,820 for delivery of the machine. A one-year, $3,940 insurance policy on the machine was purchased on April 5. On April 19, Crane paid $8,150 for installation and testing of the machine. The machine was ready for use on April 30. Crane estimates the machine’s useful life will be five years or 6,326 units with a residual value of $81,460. Assume the machine produces the following numbers of units each year: 999 units in 2021; 1,507 units in 2022; 1,436 units in 2023; 1,364 units in 2024; and 1,020 units in 2025. Crane has a December 31 year end.

Cost of the machine -334990

Calculate the annual depreciation and total depreciation over the asset’s life using: (Round the depreciation cost per unit to 2 decimal places. Round answers to 0 decimal places, e.g. 5,275.)

Use Double-diminishing-balance method