Question 1

For the past five years, Mr. Brooks has been employed as a financial analyst by a large Canadian public firm located in Winnipeg. During 2020, his basic gross salary amounts to $63,000. In addition, he was awarded an $11,000 bonus based on the performance of his division. Of the total bonus, $6,500 was paid in 2020 and the remainder is to be paid on January 15, 2021.

During 2020, Mr. Brooks’ employer withheld the following amounts from his gross wages:

Federal Income Tax                                                                                             $3,000

Employment Insurance Premiums 856

Canada Pension Plan Contributions 2,898

Registered Pension Plan Contributions 2,800

Donations to the United way (charity) 480

Union Dues 240

Payments for Personal Use of Company Car 1,000

Other Information:

1. Due to an airplane accident while flying back from Thunder Bay on business, Mr. Brooks was seriously injured and confined to a hospital for two full months during 2020. As his employer provides complete group disability insurance coverage, he received a total of $4,200 in payments during this period. All of the premiums for this insurance plan are paid by the employer. The plan provides periodic benefits that compensate for lost employment income.
2. Mr. Brooks is provided with a car that the company leases at a rate of $678 per month, including both GST and PST. The company pays for all of the operating costs of the car, and these amounted to $3,500 during 2020. Mr. Brooks drove the car a total of 35,000 kilometres during 2020, 30,000 kilometres of which were carefully documented as employment-related travel. While he was in the hospital (see Item 1), his employer required that the care be returned to company premises, so it was not available to him.
3. On January 15, 2019, Mr. Brooks received options to buy 200 shares of his employer’s common stock at a price of $23 per share. At this time, the shares were trading at $20 per share. Mr. Brooks exercised these options on July 6, 2020, when the shares were trading at $28 per share. He does not plan to sell the shares for at least a year.
4. In order to assist Mr. Brooks in acquiring a new personal residence in Winnipeg, his employer granted him a five year, interest free loan of $125,000. The loan qualifies as a home relocation loan. The loan was granted on October 1, 2020, and, at that point in time, the prescribed interest rate set by the CRA is 2%.
5. Other disbursements made by Mr. Brooks include the following:

Advanced financial accounting course tuition fees                                      $1,200

Music history course tuition fees                                                                       600

Fees paid to financial planner                                                                           300

Payment of premiums on life insurance                                                            642

Mr. Brooks’ employer reimbursed him for the tuition for the accounting course, but not for any of these other expenses.

Required:

Calculate Mr. Brooks’ net employment income for the taxation year ending December 31, 2020.

LePage Manufacturing Ltd. agrees to lease equipment to Labonté Ltée. on July 15, 2020. LePage follows ASPE and Labonté is a public company following IFRS 16. The following information relates to the lease agreement.

1. The lease term is seven years, with no renewal option, and the equipment has an estimated economic life of nine years.

2. The equipment’s cost is $420,000 and the asset’s fair value on July 15, 2020, is $560,000.

3. At the end of the lease term, a payment to LePage, the lessor, in the amount of $80,000 is expected to be payable by Labonté, the lessee, under a residual value guarantee. Labonté depreciates all of its equipment on a straight-line basis.

4. The lease agreement requires equal annual rental payments beginning on July 15, 2020.

5. LePage usually sells its equipment to customers who buy the product outright, but Labonté was unable to get acceptable financing for a cash purchase. LePage’s credit investigation on Labonté revealed that the company’s financial situation was deteriorating. Because Labonté had been a good customer many years ago, LePage agreed to enter into this lease agreement, but used a higher-than-usual 15% interest rate in setting the lease payments. Labonté is aware of this rate.

6. LePage is uncertain about what additional costs it might have to incur in connection with this lease during the lease term, although Labonté has agreed to pay all executory costs directly to third parties.

7. LePage incurred legal costs of $2,500 in early July 2020 in finalizing the lease agreement.

Instructions:

a. Discuss the nature of this lease for both the lessee and the lessor.

b. Using (1) time value of money tables, (2) a financial calculator, or (3) Excel functions, calculate the amount of the annual rental payment that is required to obtain a return of 15% for LePage.

c. Prepare the journal entries that Labonté would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and that it does not use reversing entries. Round amounts to the nearest dollar.

d. From the information you have calculated and recorded, identify all balances related to this lease that would be reported on Labonté’s December 31, 2020 statement of financial position and statement of income, and where each amount would be reported.

e. Prepare the journal entries that LePage would make in 2020 and 2021 related to the lease arrangement, assuming that the company has a December 31 fiscal year end and does not use reversing entries. Round amounts to the nearest dollar.

f. From the information you have calculated and recorded, identify all balances related to this lease that would be reported on LePage’s December 31, 2020 statement of financial position and statement of income, and where each amount would be reported.

g. Comment briefly on the December 31, 2020 reported results in parts (d) and (f) above.

The following transactions are from Sharper Vision Corporation.

1. Purchased inventory on December 10, 2020, with a list price of $6,000, a trade discount of 20%, and with terms 2/10, n/30.
2. Returned $800 of inventory to the supplier on December 15, 2020.
3. Paid $3,200 cash on account on December 19, 2020.
4. Paid the remaining balance on January 5, 2021.

• Perpetual inventory systems
• Periodic inventory systems

a. Prepare journal entries for the transactions 1 through 4, assuming that the company uses the perpetual inventory system and the net method to record purchases. Include any adjusting entry required on December 31, 2020.
Note: Round answers to the nearest dollar.

PreviousSave AnswersNext

Copyright  2020 Cambridge Business Publishers , All Rights Reserved | Terms of Use | Privacy Policy | Return Policy | User Guide | Browser Support

A partial trial balance of Novak Corporation is as follows on December 31, 2021. Dr. Cr. Supplies $2,600 Salaries and wages payable $1,300 Interest Receivable 5,000 Prepaid Insurance 89,600 Unearned Rent 0 Interest Payable 14,900 Additional adjusting data:

1. A physical count of supplies on hand on December 31, 2021, totaled $1,000.

2. Through oversight, the Salaries and Wages Payable account was not changed during 2021. Accrued salaries and wages on December 31, 2021, amounted to $4,700.

3. The Interest Receivable account was also left unchanged during 2021. Accrued interest on investments amounts to $4,200 on December 31, 2021.

4. The unexpired portions of the insurance policies totaled $70,800 as of December 31, 2021.

5. $25,800 was received on January 1, 2021, for the rent of a building for both 2021 and 2022. The entire amount was credited to rent revenue.

6. Depreciation on equipment for the year was erroneously recorded as $4,500 rather than the correct figure of $45,000.

7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $6,400 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment. Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2021? (Ignore income tax

Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2021? (Ignore income tax considerations.)

Pass the necessary adjusting entries for the following taking into account income tax effects (40% tax rate) and assuming that the books have been closed. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Pass the necessary adjusting entries for the following taking into account income tax effects (40% tax rate) and assuming that the books have been closed. (Round answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Exercise 7-7A Effect of recognizing uncollectible accounts on the financial statements: percent of receivables allowance method LO 7-2

[The following information applies to the questions displayed below.]

Leach Inc. experienced the following events for the first two years of its operations:

Year 1:

1. Issued $29,000 of common stock for cash.
2. Provided $98,900 of services on account.
3. Provided $55,000 of services and received cash.
4. Collected $88,000 cash from accounts receivable.
5. Paid $57,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
7. Closed the revenue account.
8. Closed the expense account.

Year 2:

1. Wrote off an uncollectible account for $840.
2. Provided $107,000 of services on account.
3. Provided $51,000 of services and collected cash.
4. Collected $100,000 cash from accounts receivable.
5. Paid $84,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.

Exercise 7-7A Effect of recognizing uncollectible accounts on the financial statements: percent of receivables allowance method LO 7-2

[The following information applies to the questions displayed below.]

Leach Inc. experienced the following events for the first two years of its operations:

Year 1:

1. Issued $29,000 of common stock for cash.
2. Provided $98,900 of services on account.
3. Provided $55,000 of services and received cash.
4. Collected $88,000 cash from accounts receivable.
5. Paid $57,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts receivable balance will be uncollectible.
7. Closed the revenue account.
8. Closed the expense account.

Year 2:

1. Wrote off an uncollectible account for $840.
2. Provided $107,000 of services on account.
3. Provided $51,000 of services and collected cash.
4. Collected $100,000 cash from accounts receivable.
5. Paid $84,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 5 percent of the ending accounts

Not-So-Fit-Bit is a high-tech company that designs, develops, manufacturers, markets, and services fitness-based wrist bands on a global basis together with software which can be integrated into any mobile phone so that a user can monitor their daily progress toward exercise goals. The Company introduced this innovative product two years ago, and presently has a substantial competitive lead in the market in both product innovation and price/performance. Their worldwide market share for this product currently stands at 85%. At the same time, revenues and net income have increased substantially over the past two years, resulting in a tremendous increase in the company’s stock price and a current Price/Earnings (PE) ratio, which is more than double the average PE ratio of New York Stock Exchange (NYSE) listed firms.

Paul Jones was recently appointed as the CFO of Not-So-Fit-Bit. Paul has worked in the high-tech industry for various firms in various financial capacities, including corporate controller, treasurer, and assistant CFO for 20 years as of the date of his CFO appointment. Paul took over the CFO role right after Not-So-Fit-Bit released record earnings for the fiscal year ended December 31, 2016 and after the company filed its Annual Report on Form 10K for that year. The CEO of Not-So-Fit-Bit, Nancy Fitness, requested a meeting together with Paul and other members of management including engineering, product development, manufacturing, marketing, sales, and service, a few weeks after Paul started as the CFO. In this meeting, Paul noticed that each member of the management team appeared to be totally stressed out, and the tension in the meeting room was high as soon as the meeting began. The meeting started with sales and marketing explaining to the management team that sales had slowed significantly in the first quarter. Engineering management updated everyone with news that Apple had announced a new wrist-band exercise monitoring product line and introduced it to the worldwide market with extensive fanfare two weeks ago, with both pricing and performance that exceeded Not-So-Fit-Bit’s main wrist band product line. Manufacturing reported that significant product quality issues were occurring, especially with the raw materials used in producing the main wrist band product line. The management meeting ended with very few positive comments by the members of the management team present at the meeting.

After the meeting Paul began walking back to his office when Nancy asked him to update the company’s quarterly and coming year’s projections of revenues and net income compared to budgeted levels. The company’s traditional accounting functions, IT, and Internal Audit departments, including the corporate controller report directly to Paul. He noticed that employees from each of these departments including the IT Director, Internal Audit Director, Corporate Controller and many members of their staffs, were working extremely large amounts of overtime and weekends. Paul met with each of these department heads to get an update on the status of the current quarter vs. budgeted revenues and expenses. Paul was led to believe that the company was on target to meet external revenue and profit expectations for the current quarter.

The first quarter ended March 31. The books were closed, and despite the information Paul heard just a few weeks earlier, the company indeed met the current quarter’s revenue and profit expectations.

Please provide an initial response to each question below; then, read your classmates’ responses and respond substantively to at least two of your classmates’ initial responses to each question. To make sure you cover the Requirements of this Discussion, I suggest you copy and paste each question below into your initial response:

Which elements (parts) of the fraud triangle can be applied to the situation occurring at Not-So-Fit-Bit? Be specific with specific details in your initial response.

Assume that Paul had access to the general ledger. What types of analysis could Paul have performed to determine if there was any type of financial statement fraud occurring at Not-So-Fit-Bit? Again, be specific.

Looking at the 2016 ACFE Fraud Report to the Nations and given the information in this case, what are some of the potential financial statement frauds that could be occurring at Not-So-Fit-Bit? Again, be specific, and address the potential involvement of IT, Internal Audit, and the Corporate Controller.

In your opinion, should the Internal Audit Department report to the CFO of this Company? If so, why? If not, to whom should the Internal Audit Department and the Internal Audit Director report to, and why? Be specific.

Please show work. Thank you!

As a third year medical, you find yourself the only “doctor” on duty in the Emergency Room (ER) when the residents, having been working for 36 hours, are trying to catch some sleep. A 62 year old male patient has been brought into the ER that is severely dehydrated. Not wanting to disturb the residents, you tried to administer water orally, but the patient vomited. Realizing the emergency and need to hydration, you grab the first sterile fluid available to you, sterile water, and administer 1 liter intravenously (IV).

The questions that follow are to determine the consequences of your actions. Assume that the patient weighs 160 lbs with a hematocrit of 54%. The osmolarity of the patient’s blood before the infusion is 300 mOsm/L.

Predict the direction of change (increase, decrease or not change) you expect the infusion to have on the following parameters:

Based on the patient’s weight, calculate their plasma volume before you administered the IV. Average blood volume in a male is 75 mL per Kg. (show calculations)

Plasma volume (Liters) ____________

Use this number to calculate the osmolality of the patient’s blood after the IV. (show calculations)

Osmolality (mOsm/L)___________

After your treatment, the patient’s condition got much worse so a resident was called. The resident drew blood for routine lab tests, one of which is determining the hematocrit. The lab tech reports the hematocrit is lower than when the patient came in (only 45% down from 54%) and the plasma portion was pink. The resident immediately infused the patient with Lactated Ringers.

Why was the patient’s plasma pink?

If you had given the patient a sterile sucrose solution instead of sterile distilled water, what would the concentration of sucrose would need to be used to prevent the above condition?

The resident, figuring out what you had done, infused the patient with 1 L of 600 mM sucrose solution (600 mOsm/L). Based on the plasma volume and osmolarity after your infusion, predict the following parameters as to whether they will increase, decrease or show no change.

Assuming that none of the 600 mOsm/L sucrose administered was absorbed or excreted, calculate the final plasma osmolality.

Final plasma osmolality ___________

1. Calculate Beta for Apple and Microsoft, using a characteristic line. Display the data points on a graph and display the characteristic line.

   	Year	Microsoft	Apple	Market
   Jan 2010 - Dec 2010	1	-0.34%	3.85%	14.93%
   Jan 2011 - Dec 2011	2	-0.37%	2.09%	2.06%
   Jan 2012 - Dec 2012	3	0.40%	2.87%	15.84%
   Jan 2013 - Dec 2013	4	2.81%	0.38%	32.21%
   Jan 2014 - Dec 2014	5	1.91%	3.05%	13.53%
   Jan 2015 - Dec 2015	6	1.75%	-0.45%	1.34%
   Jan 2016 - Dec 2016	7	1.37%	1.24%	11.80%
   Jan 2017 - Dec 2017	8	2.72%	3.41%	21.69%
   Jan 2018 - Dec 2018	9	1.41%	-0.33%	-4.45%
   Jan 2019 - Dec 2019	10	4.06%	5.89%	31.29%
   Average Return		1.57%	2.20%	14.02%
   Std Deviation		1.42%	2.02%	12.21%
   Correlation with the market		0.61	0.57	1.00
   Beta		0.07	0.09	1.00

   Beta Calculation
   Run a regression line of past returns on Stock I versus returns on the market. The regression line is the characteristic line.
   	Year	rM	ri
   	1
   	2
   	3
   	4
   	5
   	6
   	7
   	8
   	9
   	10

Using the procedure outlined in the appendix at the end of the chapter for geometric average growth rates​ (in the section titled​ "Calculating Average​ (Compound) Growth​ Rates," reproduce the​ "Implied (Average) Annual​ Growth" figures​ (for the following​ countries: France,​ Singapore, Botswana,​ India, and Kenya. GDP values are​ PPP-adjusted 2005 constant dollars.

Fill in the table below with the geometric average growth rates as a percentage.

​(Round

your responses to two decimal

places​.)

Using the procedure outlined in the appendix for finding arithmetic average growth​ rates, calculate the arithmetic average growth rate for the five countries.  

Fill in the table below with the arithmetic average growth rates as a percentage.

​(Round

your responses to two decimal

places​.)

Compare the geometric and arithmetic average growth rates.  

The arithmetic average

overstates, or neither understates nor overstates, or understates. choose one of the three.

the actual growth rate.