Question 5 [15 marks]
Impairment of assets
Gadgets Ltd has a division that represents a separate cash generating unit. At 30 June 2016, the carrying amounts of the assets of the division, valued pursuant to the cost model, are as follows:
| Assets: |
$ |
| Cash |
242,000 |
| Plant and equipment | 600,000 |
| Less: accumulated depreciation | (200,000) |
| Land |
800,000 |
| Inventory | 190,000 |
| Accounts receivable | 67,000 |
| Patent | 200,000 |
| Goodwill |
10,000 |
| Carrying amount of cash generating unit |
1,909,000 |
The receivables were regarded as collectable, and the inventory’s fair value less costs to sell was equal to its carrying amount. The patent has a fair value less costs to sell of $180,000, and the land has a fair value less costs to sell of $780,000.
The directors of Gadgets estimate that, at 30 June 2016, the fair value less costs to sell of the division amounts to $1,750,000, while the value in use of the division is $1,840,000.
As a result, management increased the depreciation of the plant and equipment from $40,000 p.a. to $45,000 for the year ended 30 June 2017.
By 30 June 2017, the recoverable amount of the cash generating unit was calculated to be $20,000 greater than the carrying amount of the assets of the unit.
Required:
Determine how Gadgets Ltd should account for the results of the impairment test at 30 June 2016 and 30 June 2017, and prepare any necessary journal entries. Show all workings and provide references to the relevant accounting standard to support your answer.
| Marking Guide - Question 5 |
Max. marks awarded |
| Journal entries, calculations and workings for 2016 |
7.5 |
| Journal entries, calculations and workings for 2017 | 7.5 |
In: Accounting
[The following information applies to the questions
displayed below.]
Selected comparative financial statements of Korbin Company follow
| KORBIN COMPANY | ||||||||||||
| Comparative Income Statements | ||||||||||||
| For Years Ended December 31, 2016, 2015, and 2014 | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Sales | $ | 550,381 | $ | 421,637 | $ | 292,600 | ||||||
| Cost of goods sold | 331,329 | 264,366 | 187,264 | |||||||||
| Gross profit | 219,052 | 157,271 | 105,336 | |||||||||
| Selling expenses | 78,154 | 58,186 | 38,623 | |||||||||
| Administrative expenses | 49,534 | 37,104 | 24,286 | |||||||||
| Total expenses | 127,688 | 95,290 | 62,909 | |||||||||
| Income before taxes | 91,364 | 61,981 | 42,427 | |||||||||
| Income taxes | 16,994 | 12,706 | 8,613 | |||||||||
| Net income | $ | 74,370 | $ | 49,275 | $ | 33,814 | ||||||
| KORBIN COMPANY | ||||||||||||
| Comparative Balance Sheets | ||||||||||||
| December 31, 2016, 2015, and 2014 | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Assets | ||||||||||||
| Current assets | $ | 45,997 | $ | 35,987 | $ | 48,106 | ||||||
| Long-term investments | 0 | 900 | 4,890 | |||||||||
| Plant assets, net | 86,750 | 92,016 | 53,800 | |||||||||
| Total assets | $ | 132,747 | $ | 128,903 | $ | 106,796 | ||||||
| Liabilities and Equity | ||||||||||||
| Current liabilities | $ | 19,381 | $ | 19,207 | $ | 18,689 | ||||||
| Common stock | 69,000 | 69,000 | 51,000 | |||||||||
| Other paid-in capital | 8,625 | 8,625 | 5,667 | |||||||||
| Retained earnings | 35,741 | 32,071 | 31,440 | |||||||||
| Total liabilities and equity | $ | 132,747 | $ | 128,903 | $ | 106,796 | ||||||
|
1. Complete the below table to calculate each year's current ratio. 2.
Complete the below table to calculate income statement data in
common-size percents. (Round your percentage answers to 2
decimal places.) 3.
Complete the below table to calculate the balance sheet data in
trend percents with 2014 as the base year. (Round your
percentage answers to 2 decimal places.) |
||||||||||||
In: Accounting
| Clark Industries has a defined benefit pension plan that specifies annual retirement benefits equal to: |
| 1.7% × Service years × Final year’s salary |
|
Stanley Mills was hired by Clark at the beginning of 1997. Mills is expected to retire at the end of 2041 after 45 years of service. His retirement is expected to span 15 years. At the end of 2016, 20 years after being hired, his salary is $85,000. The company’s actuary projects Mills’s salary to be $320,000 at retirement. The actuary’s discount rate is 6%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) |
| Required: |
| 1. |
Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2016. |
| 2. |
Suppose Clark’s pension plan permits a lump-sum payment at retirement in lieu of annuity payments. Determine the lump-sum equivalent as the present value as of the retirement date of annuity payments during the retirement period. |
| 3. |
What is the company’s projected benefit obligation at the end of 2016 with respect to Stanley Mills? |
| 4. |
Even though pension accounting centers on the PBO calculation, the ABO still must be disclosed in the pension disclosure note. What is the company’s accumulated benefit obligation at the end of 2016 with respect to Stanley Mills? |
| 5. |
If we assume no estimates change in the meantime, what is the company’s projected benefit obligation at the end of 2017 with respect to Stanley Mills? |
| 6. |
What portion of the 2017 increase in the PBO is attributable to 2017 service (the service cost component of pension expense) and to accrued interest (the interest cost component of pension expense)? |
In: Accounting
Appendix: Financial Statements From an End-of-Period Spreadsheet
Alert Security Services Co. offers security services to business clients.
| Alert Security Services Co. End-of-Period Spreadsheet For the Year Ended October 31, 2016 |
|||||||||||||
| Adjusted Trial Balance | Income Statement | Balance Sheet | |||||||||||
| Account Title | Dr. | Cr. | Dr. | Cr. | Dr. | Cr. | |||||||
| Cash | 12 | ||||||||||||
| Accounts Receivable | 103 | ||||||||||||
| Supplies | 4 | ||||||||||||
| Prepaid Insurance | 2 | ||||||||||||
| Land | 190 | ||||||||||||
| Equipment | 50 | ||||||||||||
| Accum. Depr. - Equipment | 7 | ||||||||||||
| Accounts Payable | 36 | ||||||||||||
| Wages Payable | 1 | ||||||||||||
| Common Stock | 50 | ||||||||||||
| Retained Earnings | 210 | ||||||||||||
| Dividends | 8 | ||||||||||||
| Fees Earned | 213 | ||||||||||||
| Wages Expense | 111 | ||||||||||||
| Rent Expense | 12 | ||||||||||||
| Insurance Expense | 10 | ||||||||||||
| Utilities Expense | 6 | ||||||||||||
| Supplies Expense | 4 | ||||||||||||
| Depreciation Expense | 3 | ||||||||||||
| Miscellaneous Expense | 2 | ||||||||||||
| 517 | 517 | ||||||||||||
Prepare an income statement for Alert Security Services Co.
| Alert Security Services Co. | ||
| Income Statement | ||
| For the Year Ended October 31, 2016 | ||
| $ | ||
| Expenses: | ||
| $ | ||
| Total expenses | ||
| $ | ||
Prepare a retained earnings statement for Alert Security Services Co.
| Alert Security Services Co. | ||
| Retained Earnings Statement | ||
| For the Year Ended October 31, 2016 | ||
| $ | ||
| $ | ||
| $ | ||
Prepare a balance sheet for Alert Security Services Co.
| Alert Security Services Co. | |||
| Balance Sheet | |||
| October 31, 2016 | |||
| Assets | |||
| Current assets: | |||
| $ | |||
| Total current assets | $ | ||
| Property, plant, and equipment: | |||
| $ | |||
| $ | |||
| Total property, plant, and equipment | |||
| Total assets | $ | ||
| Liabilities | |||
| Current liabilities: | |||
| $ | |||
| Total liabilities | $ | ||
| Stockholders' Equity | |||
| $ | |||
| Total stockholders' equity | |||
| Total liabilities and stockholders' equity | $ | ||
In: Accounting
I GIVE THUMBS UPS
Ceres Corporation is considering making a significant long-term investment in Pisces Ltd., a young and very promising company. Ceres decides to make a smaller investment first, and if Pisces turns out to be successful, Ceres intends to make an additional investment to reach significant influence. Pisces has 200,000 shares authorized, 110,000 shares issued and 90,000 shares outstanding.
On January 1, 2016, Pisces issues Ceres 10,000 shares for $400,000 in cash (so now there are 120,000 shares issued, and 100,000 shares outstanding).
Additional information:
1. On November 1, 2016, Pisces declares a total cash dividend of $180,000.
2. Pisces reports $225,000 net income for 2014. Its stock price on December 31, 2016 is $38.
3. On November 1, 2017, Pisces announces a total dividend of $270,000 to be paid on January 2, 2018.
4. Pisces reports $360,000 net income for 2017. Its stock price on December 31, 2017 is $44.
5. On March 15, 2018, Ceres is approached by an investment fund which offers to buy all their Pisces shares for $55 per share, a 25% premium over the current stock price of $44. Ceres accepts the offer and sells the shares on that day.
Instructions
Assuming Ceres uses the fair value through net income model (FV–NI) to account for this investment:
a) Prepare the journal entries in Ceres’s books for the 2016 calendar year.
b) Prepare the journal entries in Ceres’s books for the 2017 calendar year.
c) Prepare the journal entries in Ceres’s books for the 2018 calendar year.
In: Accounting
3300 Econometics HW Set 1
| DATE | Cons. | Disp.Icome |
| 2015-01-01 | $ 11,788.36 | $ 13,226.57 |
| 2015-04-01 | $ 11,887.54 | $ 13,327.81 |
| 2015-07-01 | $ 11,971.95 | $ 13,440.36 |
| 2015-10-01 | $ 12,039.65 | $ 13,471.39 |
| 2016-01-01 | $ 12,111.78 | $ 13,562.27 |
| 2016-04-01 | $ 12,214.10 | $ 13,541.45 |
| 2016-07-01 | $ 12,294.30 | $ 13,592.92 |
| 2016-10-01 | $ 12,372.73 | $ 13,685.36 |
| 2017-01-01 | $ 12,427.65 | $ 13,835.34 |
| 2017-04-01 | $ 12,515.86 | $ 13,909.77 |
| 2017-07-01 | $ 12,584.91 | $ 13,986.19 |
| 2017-10-01 | $ 12,706.37 | $ 14,065.92 |
| 2018-01-01 | $ 12,722.84 | $ 14,219.83 |
| 2018-04-01 | $ 12,842.02 | $ 14,306.61 |
| 2018-07-01 | $ 12,968.54 | $ 14,393.59 |
The data given in the data file in the Consumption file represent the real private consumption of the USA from Quarter I 2005 to III Quarter 2018.
Similarly, the Real Disposable Income is provided over the same time span.
Set up a regression that relates the dependent variable(Y) to the independent variable(X).
Derive Manually the coefficients of the regression. (Intercept(b1) and slope(b2)).
State the Regression equation.
Interpret the meaning of the slopes b2, in this problem.
Derive the Correlation Coefficient R^2
Derive the Standard Error of the regression
Derive the standard error of the Intercept (b1) and the standard error of the Slope (b2).
Derive the t values of the coefficients
Construct a 95% confidence interval for b1 and b2
Use a two tail α=5% level of significance, to test the confidence intervals for the slope(b2).
(Hint: All the formulas required to answer the questions are cited in chapters 2 and 3 of the textbooks. Use also the notes from the lectures).
In: Math
Measures of Disease Frequency (Chapter 2)
In 2009, President Obama launched a nationwide initiative to end homelessness in the U.S. by 2020. The homeless are a vulnerable population with limited access to health care and poor health outcomes. In order to allocate sufficient federal and local resources to eliminate homelessness, U.S. cities conduct an annual survey to estimate the number of homeless persons living within major cities. The City of Boston’s Emergency Shelter Commission (ESC) conducted a survey of homelessness on the night of January 25, 2017. Volunteers counted the number of homeless persons living on the streets, in emergency shelters for individuals or families, in domestic violence programs, in residential mental health or substance abuse programs, transitional housing, and in specialized programs.
1. Which of the following best describes the homeless population in the City of Boston?
a. Dynamic population
b. Fixed population
2. Which of the following describes the homeless population that took part in the ESC survey on January 25th?
a. Dynamic population
b. Fixed population
3. The 2015 Homeless Census counted 3,456 homeless persons in Boston. The 2016 homeless census counted 3,384 homeless persons in Boston. The size of the population in Boston was 665,984 in 2015 and 673,184 in 2016. From 2015-2016, did the burden of homelessness:
a. Increase
b. Decrease
c. Stay the same (2015: .52%, 2016 0.50%)
d. Cannot determine from this information
4. What do you consider to be the biggest limitation in the homeless survey and why?
a. Time of year (winter)
b. Survey conducted one time annually, not more frequently
c. Survey unlikely captured all homeless persons
d. Survey captures prevalence, not incidence of homelessness
In: Math
PLEASE SHOW HOW YOU GOT THE NUMBERS
Ceres Corporation is considering making a significant long-term investment in Pisces Ltd., a young and very promising company. Ceres decides to make a smaller investment first, and if Pisces turns out to be successful, Ceres intends to make an additional investment to reach significant influence. Pisces has 200,000 shares authorized, 110,000 shares issued and 90,000 shares outstanding.
On January 1, 2016, Pisces issues Ceres 10,000 shares for $400,000 in cash (so now there are 120,000 shares issued, and 100,000 shares outstanding).
Additional information:
1. On November 1, 2016, Pisces declares a total cash dividend of $180,000.
2. Pisces reports $225,000 net income for 2014. Its stock price on December 31, 2016 is $38.
3. On November 1, 2017, Pisces announces a total dividend of $270,000 to be paid on January 2, 2018.
4. Pisces reports $360,000 net income for 2017. Its stock price on December 31, 2017 is $44.
5. On March 15, 2018, Ceres is approached by an investment fund which offers to buy all their Pisces shares for $55 per share, a 25% premium over the current stock price of $44. Ceres accepts the offer and sells the shares on that day.
Instructions
Assuming Ceres uses the fair value through net income model (FV–NI) to account for this investment:
a) Prepare the journal entries in Ceres’s books for the 2016 calendar year.
b) Prepare the journal entries in Ceres’s books for the 2017 calendar year.
c) Prepare the journal entries in Ceres’s books for the 2018 calendar yea
In: Accounting
The Stockholders’ Equity section of the Balance Sheet of Carpenter Corporation on December 31, 2015, showed Cumulative Preferred 9% Stock, $50 par (1,806shares authorized, 500 shares issued); Common Stock, $20 par (25,271 shares authorized, 9,338 shares issued); and Retained Earnings of $1,116. The Notes to the Financial Statements in the Annual Corporate Report for 2015 indicate that the market values of the stock are $42 per share (Cumulative Preferred) and $17per share (Common). Forecasts in the Annual Report also indicate that investments in future growth in 2016 are expected to result in sustained increased profits. In consideration of these matters, the Board of Directors has secured approval from the Securities and Exchange Commission for a bond issuance. The Board of Directors has also decided to forego paying dividends in 2015, and to repurchase shares of the corporation’s common stock at par, with a view to reselling the stock when market rates rise with increased profitability.
On January 2, 2016, $247,159 in 10 year, 7% bonds with a market interest rate of 9%, and interest payable semiannually, were issued for $189,839. On January 3, the corporation purchased 2,108 shares of its common stock at par. Profits soared during 2016, and on May 1, the corporation resold 1,551 shares of treasury stock, at $9 above par. On June 30, bond interest was paid. On December 31, the corporation showed an after tax Net Income of $56,505. On December 31, bond interest was paid; and dividends were declared and paid. Common shareholders received $2.32 per share.
What is the effect of the stock and bond transactions on Cash on the Balance Sheet on December 31, 2016?
In: Accounting
The January 1, 2016 trial balance for the Taylor company is found on the trial balance tab. The beginning balances are assumed. Perry Co. entered into the following transactions involving short-term liabilities in 2016 and 2017. (use 360 days a year).
2016
Apr. 20 Purchased $46,750 of merchandise on credit from Parker, terms are n/30. Perry uses the perpetual inventory system.
May 19 Replaced the April 20 account payable to Parker with a 90-day, $36,000 note bearing 10% annual interest along with paying $10,750 in cash.
July 8 Borrowed $84,000 cash from AKR Bank by signing a 120-day, 10% interest-bearing note with a face value of $84,000.
Aug 17 Paid the amount due on the note to Parker at the maturity date.
Nov 5 Paid the amount due on the note to AKR Bank at the maturity date.
Nov 28 Borrowed $81,000 cash from Chicago Bank by signing a 60-day, 8% interest-bearing note with a face value of $81,000.
Dec 31 Recorded an adjusting entry for accrued interest on the note to Chicago Bank.
2017
Jan 27 Paid the amount due on the note to Chicago Bank at he maturity date.
Requirement
General Journal tab-Prepare the 2016 journal entries related to the notes and accounts payable of Perry Co.
Calculation of interest tab-Use the interest formula (P x R x T) to verify the amount of interest recorded in your entries.
2017 payment tab- Prepare the January 27, 2017 entry to record the repayment of the note at maturity.
In: Accounting