Pearl Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $61,020 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 7%; Pearl’s incremental borrowing rate is 9%. Pearl is unaware of the rate being used by the lessor. At the end of the lease, Pearl has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Pearl uses the straight-line method of depreciation on similar owned equipment.

Prepare the journal entries, that Pearl should record on December 31, 2020.

Prepare the journal entries, that Pearl should record on December 31, 2021.

Required information

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

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.

rev: 09_15_2017_QC_CS-99734

Required:

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.)

Vernon Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on demand. Vernon would sell it at the end of the fifth year of its useful life. The expected cash inflows and outflows follow: Year Nature of Item Cash Inflow Cash Outflow 2018 Purchase price $ 94,800 2018 Revenue $ 38,500 2019 Revenue 38,500 2020 Revenue 27,500 2020 Major overhaul 9,700 2021 Revenue 24,500 2022 Revenue 22,500 2022 Salvage value 8,500 Required a.&b. Determine the payback period using the accumulated and average cash flows approaches.

On January 1, 2017, AJ Corporation purchased bonds with a face value of $300,000 for $308,373.53. The bonds are due June 30, 2020, carry a 13% stated interest rate, and were purchased to yield 12%. Interest is payable semiannually on June 30 and December 31. On March 31, 2018, in contemplation of a major acquisition, the company sold one-half the bonds for $159,500 including accrued interest; the remainder were held until maturity.

Prepare an investment interest income and bond premium amortization schedule using the effective interest method.

Prepare the journal entries to record the purchase of the bonds.

Prepare the journal entries to record each interest payment.

Prepare the journal entries to record the partial sale of the investment on March 31, 2018, and the retirement of the bond issue on June 30, 2020.

Required information

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

Required:

1. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years. (Do not round intermediate calculations. Loss amounts should be indicated with a minus sign.)

Germany has given Zambia a K370 million rapid response package to mitigate the effects of COVID – 19 (Coronavirus), especially on the vulnerable. The support is focusing on expanding social protection measures through social cash transfers and supporting health systems in combating the pandemic by procuring medical supplies like protective equipment, essential medicines, and enhancing testing and laboratory capacity (Tuesday, May 12, 2020: Zambia Daily Mail.)
In April, 2020, Trade Kings made a contribution of K155, 000.00 to the fight against the spread of COVID – 19 (Coronavirus) in Zambia. What justification do you think the company management should give or will give to the owners of the business for taking such a commendable action? Is there any Economic benefit in taking such an action? .
(Be constructive and Analytical in your justification)

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.)

SQL

A manufacturing company’s data warehouse contains the following tables.

Region

Note: (p) = "primary key" and (f) = "foreign key". They are not part of the column names.

Product

Sales_Totals

Answer the following questions using the above tables/data:

6. Write a set of SQL statements which will add a row to the Region table for Europe, and then add a row to the Sales_Total table for the Europe region and the Sprocket product (product_id = 7684) for October 2020, with a sales total of $1,500. You can assign any value to the region_id column, as long as it is unique to the Region table. The statements should be executed as a single unit of work. Please note that since the statements are executed as a single unit of work, additional code is needed.