Recording Revenue Under Different Repurchase Agreements

On January 1, 2020, Miller Inc. sells equipment to Smith Inc. for $132,000. As stipulated in the revenue contract, Miller Inc. will buy back the equipment on December 31, 2020, for $141,240. The relevant interest rate is 7%

a. Prepare the seller’s journal entry on January 1, 2020.

b. Prepare the seller’s journal entry on December 31, 2020.

c. Assume instead that Miller has the option to buy back the equipment and the fair value of the equipment is expected to
decline through 2020. How would the answers to parts a and b change (if at all)?

d. Assume instead that Smith has the option to require Miller to buy back the equipment after one year for $141,240 (an amount greater than
the expected market value of the equipment at that time). How would the answers to parts a and b change (if at all)?

The Fit Stop Ltd. is a brand-new firm that will open its doors exactly four months from today. Its business objective is to sell all types of training, fitness, conditioning, and exercise equipment to the general public. The Fit Stop plans to specialize in this equipment and to provide customers with personalized advice geared to a customer's specific training or conditioning needs (e.g., training for a particular sport, rehabilitation from injuries, strengthening of back muscles to deal with back pain, general conditioning and fitness), whether the customer is eight or 80 years of age. In order to provide high-quality advice, each store will employ a physiotherapist (to provide advice on problems such as injuries or chronic back pain) and a person with a bachelor's degree in kinesiology (to provide advice on training for various sports of other physical activities). A staff member will even sit down with customers and develop a personalized training or conditioning program that meets their own specific objectives and needs, al no cost to the customer. The remainder of the staff in the store will consist of a manager, with a Bachelor of Commerce degree, and sales staff, who will have at least high school diplomas. Due to the long opening hours, it is expected that between 8 and 12 salespeople will be needed for each store. Because the stores are in shopping malls, they will operate on a Neven-day-4-week basis, open 9:00-9:00 weekdays, 9:00-6:00 Saturdays, and noon to 6:00 on Sundays. Aside from personally helping customers, the roles of the physiotherapist and kinesiologist will be to train other employees in how each type of equipment can be used for various conditioning and rehabilitation purposes. Initially, sales staff will be given general training, but as time goes by, each salesperson will be expected to learn in depth about all the different pieces of equipment, to help customers diagnose their needs accurately, and to be able to explain proper use of the equipment. Because of the high level of training required, all employees will be full-time. The founder of the business is Susan Super fit, who has undergraduate degrees in kinesiology and commerce from the University of Saskatchewan. While at university, she participated in many sports and suffered many injuries due to her all-out style of play). She carne up with the idea for this business while laid up with one of her injuries. While there were businesses that sold fitness and conditioning equipment’s found that the people selling it had very limited knowledge and often gave poor advice on what to buy and how to use it. She has secured funding from private investors and from Growthworks, a large Canadian labour-sponsored investment fund. In order to get volume discounts on the equipment she will be purchasing and to beat competitors into the market, she wants to start off quite large, with stores in major cities in Ontario and the four western provinces, before expanding to Quebec and the Atlantic provinces. She knows that this is a risky strategy and that cost control will be essential to keep the business going long enough to become well known and develop a stable clientele. She does not expect the business to make a profit for at least one year, or maybe even two. Her main competitors will be sporting goods megastores and department and dis- count stores, each of which sells some of the same equipment. Some of these outlets will be able to price their equipment lower than The Fit Stop will be able to, but none have the range of equipment that The Fit Stop will have, and none provide the personalized services that The Fit Stop will. Susan believes that the key to her business success will be highly motivated and knowledgeable employees who have a strong concern for their customers and who are able to work as a team with the other employees to provide the best possible customer service. Since no two customers are exactly alike, employees will have to he innovative in developing solutions that fit their needs. It will also be crucial to keep up with the latest fitness and training trends, as knowledge about fitness is continually increasing, along with new and different types of specialized equipment. A key aspect of company strategy is to be the most up-to-date and advanced supplier of new products and techniques. Although Susan has given a lot of thought to her business, one thing she hasn't really given much thought co is how to compensate her employees. Since she doesn't really know much about compensation, she tends to feel that the safest thing would be to just do what her competitors are doing

que 1-Analyze “The Fit Shop Ltd.” Case and identify the benefit systems (including specific benefits) that would make the most sense for this firm. minimum 500 words

que 2-You have decided that the Fit Stopwould be well suited to Organizational Performance Pay. Select the specific organizational performance pay plan that would seem to work best; then design it, describing specifically how you would deal with various design issues. When you are done, the plan should be ready for implementation. minimum 500 words.

The following are quotes from a currency dealer in the New York currency market:

1a. Which currency above has the widest bid ask spread?

Which has the narrowest?

b. Which currency above has the widest percentage bid ask spread?

Which has the narrowest?

2. Using the quotes provided above, answer the following question. (Phrase your answer to the second part of each of the following as either “If you sell one (identify the currency) to the dealer, you will receive (specify the number of units) (identify the currency)” or ““If you buy one (identify the currency) from the dealer, you will pay (specify the number of units) (identify the currency)”.)

a. What is the bid price in the quote for the Australian dollar? Explain what it means.

b. What is the ask price in the quote for the New Zealand dollar? Explain what it means.

c. What is the bid price in the quote for the Mexican peso? Explain what it means.

d. What is the ask price in the quote for the Egyptian pound? Explain what it means.

3. Using the quotes provided above, how many US dollars a customer would receive from this dealer in exchange for one million

a. British pounds?                  

b. Thai baht?                          

c. Swiss francs?                      

d. New Zealand dollars?        

(In these transactions, the customer is selling foreign currency and buying US dollars.)

4. Using the quotes provided above, how many units of the following foreign currencies would a customer receive from this dealer in exchange for one million US dollars?

a. Canadian dollars                

b. Korean won                       

c. euros                                   

d. Australian dollars               

(In these transactions, the customer is selling US dollars and buying foreign currency.)

5. Using the quotes provided above, how many units of the foreign currency indicated would it take to purchase one million US dollars

a. Australian dollars               

b. Brazilian real                                  

c. British pounds                    

d. Mexican pesos       

(In these transactions, the customer is selling foreign currency and buying US dollars.)

6. Using the quotes provide above, how many US dollars would it cost to purchase one million

a. euros?

b. New Zealand dollars?

c. Mexican pesos?

e. Egyptian pounds?

Exercise 10-13

Presented below is information related to Nash Company.

1. On July 6, Nash Company acquired the plant assets of Doonesbury Company, which had discontinued operations. The appraised value of the property is:

Nash Company gave 12,500 shares of its $100 par value common stock in exchange. The stock had a market price of $188 per share on the date of the purchase of the property.

2. Nash Company expended the following amounts in cash between July 6 and December 15, the date when it first occupied the building. (Prepare consolidated entry for all transactions below.)

3. On December 20, the company paid cash for equipment, $269,700, subject to a 2% cash discount, and freight on equipment of $11,200.

Joe Watt, an ambitious 22 year-old, started an entertainment business called Grand Club after he graduated from Connecticut State University. Grand Club was initially a business failure because Joe ignored day-to-day operations and cost controls. One year later, Joe was heavily in debt. Despite his debt, Joe decided to open another location of Grand Club. He was confident that Grand Club would bring him financial success.

However, as his expenses increased, Joe could not meet his debts. He turned to insurance fraud to save his business. He would stage a break-in at a Grand Club location and then claim a loss. In addition, he reported fictitious equipment to secure loans; falsified work order contracts to secure loans, stole money orders for cash, and added zeros to customers’ bills who paid with credit cards. Joe was living the “good life,” with an expensive house and a new sports car.

Two years later, Joe decided to make Grand Club a public corporation. He falsified statements to greatly improve the reported financial position of Grand Club. In order to avoid the SEC’s scrutiny of his financial statements, he merged Grand Club with Purple House, an inactive New York computer firm, and acquired Purple House’s public owned shares in exchange for stock in the newly formed corporation. The firm became known as Purple House, and the Grand Club name was dropped. Joe personally received 79 percent of the shares. He was now worth $24 million on paper. Joe was continually raising money from new investors to pay off debts. A few months later, Purple House’s stock was selling for $21 a share and the company’s book value was $310 million. Joe was worth $190 million on paper. A short time later, he met Peter Jason, president of GH Firm, an advertising service. Jason agreed to raise $100 million, via junk bonds, for Purple House to buy out Sun Travel, a travel service.

Afterward, with television appearances, Joe became a “hot figure” and developed a reputation as an entrepreneurial genius. However, this reputation changed after an investigation report was published in a major newspaper. The report chronicled some of his early credit card frauds. Within two weeks, Purple House’s stock plummeted from $21 to $5.

After an investigation, Joe was charged with insurance, bank, stock, and mail fraud; money laundering and tax evasion; and Purple House’s shares were selling for just pennies. A company once worth hundreds of millions of dollars dropped in value to only $48,000.

Required:

From this case, identify:

1. The pressures, opportunities and rationalization that led Joe to commit his fraud(s).

2. The signs that could signal a possible fraud.

3. Controls or actions that could have detected Joe’s behavior.

Hank Moody, an executive for a healthcare company in Dallas, TX, has approached our firm, The Comet Group, due to recent interaction with the IRS. Over the past few years, Hank acquired and renovated several properties in the Dallas area, ultimately intending to lease them for use by various tenants. Hank is the sole owner of these properties. Hank’s daughter, Becca, began her freshman year at the University of Texas at Dallas in the Fall of 2018. Hank hopes to use the income from these properties to pay for Becca’s college tuition, as well as her living expenses.  

In December 2017, Hank successfully leased his first property. The lease began on January 1, 2018, and the tenants made their first rental payment that same day. The contract stated that the lease is for one year (i.e., it ends on December 31, 2018) and specified that the tenants would pay rent of $1,000 on the first day of each month. Thus, the total rent collected from the tenants for 2018 was $12,000. The tenants paid their rent each month on time.

Hank had discussed his intentions to use the income from the rental property to fund Becca’s education with his friends. One of them suggested that Hank have the tenants pay rent directly to Becca so that she, rather than Hank, would earn the income and be responsible for paying tax on it. His friend reasoned that, because Becca only has a part-time job, she would pay tax on the rental income at a lower rate than Hank, which would allow the income to cover more of the cost of her education. Hank was delighted to receive this advice from his friend, and he implemented it. The rental contract specified that the tenants send their payments directly to Becca Moody. The tenants complied with the terms of the contract, and Becca cashed their checks each month and used the money to pay for her education expenses. Becca reported $12,000 of rental income on her 2018 tax return and paid the appropriate tax.   

After examining Hank’s 2018 tax return, the IRS issued a deficiency assessment claiming that the $12,000 of rental income reported by Becca constituted income to Hank, and thus, should be included in Hank’s income under I.R.C. Section 61(a)(5). Hank has requested our assistance because he disagrees with the IRS’s position and believes that he is not required to include the income in his gross income given that the rental payments were paid directly to Becca. How should we advise Hank?

Assignment:

1) Look up and review the following authorities:

I.R.C. Section 61(a)

Treas. Reg. Section 1.61-1(a)

Lucas v. Earl, 281 U.S. 11 (1930)

1. State the primary issue or issues that the clients wants analyzed and answered?

2. Summerize the law and provide an analysis of the law as it appears to the facts of the case. (hint: summarize the relevant legal authorities that may pertain to the issue and analyze the clients facts in the light of the guidence you provide.)

Exercise 20-22 (Algo) Error correction; accrued interest on bonds [LO20-6]

At the end of 2020, Majors Furniture Company failed to accrue $68,500 of interest expense that accrued during the last five months of 2020 on bonds payable. The bonds mature in 2032. The discount on the bonds is amortized by the straight-line method. The following entry was recorded on February 1, 2021, when the semiannual interest was paid:

   
Required:
1-a. Prepare any journal entries necessary to correct the error, as well as any adjusting entry for 2021 related to the situation described. (Ignore income taxes.)
1-b. Prepare the journal entries that should have been recorded, if done correctly to start.

Dobbs Company issues 6%, two-year bonds, on December 31, 2019, with a par value of $106,000 and semiannual interest payments. Semiannual Period-End Unamortized Discount Carrying Value (0) 12/31/2019 $ 6,120 $ 99,880 (1) 6/30/2020 4,590 101,410 (2) 12/31/2020 3,060 102,940 (3) 6/30/2021 1,530 104,470 (4) 12/31/2021 0 106,000 Use the above straight-line bond amortization table and prepare journal entries for the following. Required: (a) The issuance of bonds on December 31, 2019. (b) The first through fourth interest payments on each June 30 and December 31. (c) Record the maturity of the bonds on December 31, 2021

At the end of 2019, Headland Company has $174,800 of cumulative temporary differences that will result in reporting the following future taxable amounts.

Tax rates enacted as of the beginning of 2018 are:

Headland’s taxable income for 2019 is $310,600. Taxable income is expected in all future years.

(a) Prepare the journal entry for Headland to record income taxes payable, deferred income taxes, and income tax expense for 2019, assuming that there were no deferred taxes at the end of 2018.

(b) Prepare the journal entry for Headland to record income taxes payable, deferred income taxes, and income tax expense for 2019, assuming that there was a balance of $21,600 in a Deferred Tax Liability account at the end of 2018

Presented below are two independent situations. Answer the question at the end of each situation.

1.   During 2020, Salt-n-Pepa Inc. became involved in a tax dispute with the IRS. Salt-n-Pepa Inc. believe it is probable that the company will lose this dispute and have to pay the IRS $900,000. How should Salt-n-Pepa Inc. report this contingency as of December 31^st, 2020 (fiscal year end)? If needed, prepare the journal entry for Salt-n-Pepa Inc.

2.   Etheridge Inc. had a manufacturing plant in Sudan, which was destroyed in the civil war. Etheridge has been assured by governmental officials that it will receive a definite amount for this plant. The amount of the compensation will be more than its book value. How should Etheridge Inc. report this contingency?