Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty.

On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares.

Aston Blue’s annual net cash flows will be $1,350,000 if the summer remains hot for 12 weeks and $600,000 if the summer is warm for 6 weeks. Assume that the cash flows are received at year-end. In each year the objective probability that the summer is hot for 12 weeks is 65% and warm for 6 weeks 35%. The interest rate in the economy is 8% in both years.

Aston Blue will pay a dividend of $110,000 at the end of each year of operations.

Assume that in 2020 that the season is hot for 12 weeks.

A. Calculate the present value of the equipment on January 1, 2020.

B. Determine the following items that would appear on the December 31, 2020 financial statements: Cash, equipment, total assets, common shares, retained earnings, net income/loss.

C. Assuming that Aston Blue paid the present value for the equipment, calculate the net income/loss for the year ended December 31, 2021 on a historical cost basis. The equipment is amortized on a straight-line basis.

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty.

On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares.

Aston Blue’s annual net cash flows will be $1,350,000 if the summer remains hot for 12 weeks and $600,000 if the summer is warm for 6 weeks. Assume that the cash flows are received at year-end. In each year the objective probability that the summer is hot for 12 weeks is 65% and warm for 6 weeks 35%. The interest rate in the economy is 8% in both years.

Aston Blue will pay a dividend of $110,000 at the end of each year of operations.

Assume that in 2020 that the season is hot for 12 weeks.

A. Calculate the present value of the equipment on January 1, 2020.

B. Determine the following items that would appear on the December 31, 2020 financial statements: Cash, equipment, total assets, common shares, retained earnings, net income/loss.

C. Assuming that Aston Blue paid the present value for the equipment, calculate the net income/loss for the year ended December 31, 2021 on a historical cost basis. The equipment is amortized on a straight-line basis.

Go Party Ltd (GPL) is a successful New Zealand catering company, operating in South Island. It has a balance date of 30 June. During the preparation of the 30 June 2020 financial statements, the following two issues have come into the light. The details of these issues are as follows:

(a) After a wedding party held by a customer in January 2020, 60 people became seriously ill, possibly as a result of food poisoning from food served by GPL. Legal proceedings were commenced seeking damages from GPL. The company lawyers advised that owing to developments in the case, and it was probable that the company would be found liable and the estimated damages were $85,000 that would be material to the company’s reported profits.

(b) On 15 February 2020, the Department of Occupational Health and Safety undertook an audit against the complaints regards to the company’s unsafe storage practices. If found to be negligent by the court, the company will have to pay a fine and incur cleaning costs. At the end of the financial year, the outcome of the audit is unknown. The company directors are of the opinion that there is a 50% chance that Go Party Ltd will be found negligent.

Required: Determine how GPL should treat the above two issues in its financial statements for the year ended 30 June 2020. Include in your answer the criteria as per NZ IAS 37, necessary journal entries (if required) or any disclosure note/s required.

Manal Pvt.Ltd. budgeted income statement for 1st quarter 2020
Description
JANUARY
FEBRUARY
MARCH
Sales
285,000
323,000
221,000
Purchases
129,000
168,000
95,000
Wages
35,000
37,000
30,000
Supplies
26,000
23,000
21,500
Utilities
6,500
8,700
7,200
Rent
15,000
12,800
13,600
Insurance
12,000
12,000
12,000
Advertising
24,500
28,500
18,000
Depreciation
20,000
20,000
20,000
Net Profit
17,000
13,000
3,700

Manal Receivable Trend:
30% of Sales are collected in the month of sale, 30% of Sales are collected after the month of sale. 40% of Sales are collected two months after the sale is made

Manal Payable Trend:
10% of Purchases are paid for in the month of purchase, 35% of Purchases are paid after the month of purchase, and 55% of Purchases are paid two months after the purchase is made

Additional Information:

Rent and Insurance expense were prepaid at the end of 2020
All other expenses are paid for in the month they were incurred

November Sales = 195,000 November Purchases = 100,000
December Sales = 250,000 December Purchases = 165,000

Please see attached Budgeted Income Statement for 1st Quarter 2020

Required:
Calculate to show Jan-Mar 2020 cash collection from sale, cash payment of purchases and total expenses each month separately on the basis of above given data.

Wildhorse Co. purchased equipment on March 27, 2018, at a cost of $ 264,000. Management is contemplating the merits of using the diminishing-balance or units-of-production method of depreciation instead of the straight-line method, which it currently uses for other equipment. The new equipment has an estimated residual value of $ 8,000 and an estimated useful life of either four years or 80,000 units. Demand for the products produced by the equipment is sporadic so the equipment will be used more in some years than in others. Assume the equipment produces the following number of units each year: 14,600 units in 2018; 20,600 units in 2019;19,800 units in 2020; 20,000 units in 2021; and 5,000 units in 2022. Wildhorse has a December year end.

(a)

Prepare separate depreciation schedules for the life of the equipment using: (Round depreciation per unit to 2 decimal places, e.g. 5.28 and final answers to 0 decimal places, e.g. 5,275.)

Straight-line method:

Double-diminishing-balance method:

Units-of-production method:

Question 1

Lady Gaga Inc. is a company that manufactures and sells flashy women’s apparel. Recently, the company’s budget committee completed preliminary work on its master budget. Based on management's sales forecast, required production for the next three months is budged to be as follows:

Every unit sold is produced using 50 centimeters (0.5 meters) of fabric, which is purchased in one meter-length rolls at an average price of $50 per meter. Management wants to maintain an ending inventory of fabric equal to 80% of next month’s expected production requirements (of fabric). These standards remain unchanged from the previous year.

Required: Prepare a direct materials budget for the three months ending July 31, excluding quarterly totals.

Question 2

Sherry's Shoes, Inc. has estimated the following sales in units for each of the next three quarters:

Management at Sherry's Shoes, Inc. wished to maintain an inventory of finished goods at the end of each quarter equal to 25% of the next quarter's expected sales. The finished goods on hand at the beginning of the budget period conformed to management's standard.

Required:

Prepare a production budget for the first two quarters of 2020, with total column.

Omer, single, age 35, has one dependent (Maria, a qualifying child, age 7) that lived with Omer for all of 2020. Omer paid all costs of maintaining the household for himself and Maria. Omer’s sister, Zelda, also lived with Omer for all of 2020. Zelda had no income, and Omer provided all of her support.

In 2020, Omer had the following income items:

• Salary: $75,000

• Interest on savings account (investment income): $2,500

• Ordinary dividends (investment income; not qualified dividends): $1,500

• Unemployment Compensation: $10,000

• Gift from Omer’s father: $10,000

• Alimony from ex-wife (divorce finalized in 2014): $10,000

  Omer paid the following expenses in 2020:

• Federal income taxes withheld on wages: $4,000

• State & local income taxes withheld on wages: $1,000

• Sales tax: $9,000

• Property tax: $3,000

• Medical expenses: $1,000

• Food and clothes for Maria: $4,000

• Investment interest: $5,000

• Food and clothes for himself: $5,000

• Childcare expenses so Omer can work: $2,000

• HSA Contribution (Omer has a HDHP): $2,000

• Charitable contribution (cash): $2,500

• Unreimbursed employee business expenses: $500

• Car payment: $6,000

• Mortgage interest on $300,000 mortgage used to purchase primary residence: $3,000

QUESTION: What is Omer’s total itemized deductions?

Omer, single, age 35, has one dependent (Maria, a qualifying child, age 7) that lived with Omer for all of 2020. Omer paid all costs of maintaining the household for himself and Maria. Omer’s sister, Zelda, also lived with Omer for all of 2020. Zelda had no income, and Omer provided all of her support.

In 2020, Omer had the following income items:

• Salary: $75,000

• Interest on savings account (investment income): $2,500

• Ordinary dividends (investment income; not qualified dividends): $1,500

• Unemployment Compensation: $10,000

• Gift from Omer’s father: $10,000

• Alimony from ex-wife (divorce finalized in 2014): $10,000

  Omer paid the following expenses in 2020:

• Federal income taxes withheld on wages: $4,000

• State & local income taxes withheld on wages: $1,000

• Sales tax: $9,000

• Property tax: $3,000

• Medical expenses: $1,000

• Food and clothes for Maria: $4,000

• Investment interest: $5,000

• Food and clothes for himself: $5,000

• Childcare expenses so Omer can work: $2,000

• HSA Contribution (Omer has a HDHP): $2,000

• Charitable contribution (cash): $2,500

• Unreimbursed employee business expenses: $500

• Car payment: $6,000

• Mortgage interest on $300,000 mortgage used to purchase primary residence: $3,000

QUESTION:

1. What is Omer’s taxable income? Omer has no QBI deduction.

Vaughn Corp. has a deferred tax asset account with a balance of $75,920 at the end of 2019 due to a single cumulative temporary difference of $379,600. At the end of 2020, this same temporary difference has increased to a cumulative amount of $416,500. Taxable income for 2020 is $795,500. The tax rate is 20% for all years. At the end of 2019, Vaughn Corp. had a valuation account related to its deferred tax asset of $47,400.

(a) Record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming that it is more likely than not that the deferred tax asset will be realized in full. (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.)

(b) Record income tax expense, deferred income taxes, and income taxes payable for 2020, assuming that it is more likely than not that none of the deferred tax asset will be realized. (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.)

Go Party Ltd (GPL) is a successful New Zealand catering company, operating in South Island. It has a balance date of 30 June. During the preparation of the 30 June 2020 financial statements, the following two issues have come into the light. The details of these issues are as follows:

(a)   After a wedding party held by a customer in January 2020, 60 people became seriously ill, possibly as a result of food poisoning from food served by GPL. Legal proceedings were commenced seeking damages from GPL. The company lawyers advised that owing to developments in the case, and it was probable that the company would be found liable and the estimated damages were $85,000 that would be material to the company’s reported profits.

(b)   On 15 February 2020, the Department of Occupational Health and Safety undertook an audit against the complaints regards to the company’s unsafe storage practices. If found to be negligent by the court, the company will have to pay a fine and incur cleaning costs. At the end of the financial year, the outcome of the audit is unknown. The company directors are of the opinion that there is a 50% chance that Go Party Ltd will be found negligent.

Required:

Determine how GPL should treat the above two issues in its financial statements for the year ended 30 June 2020. Include in your answer the criteria as per NZ IAS 37, necessary journal entries (if required) or any disclosure note/s required.