Question 11

The following facts pertain to a non-cancelable lease agreement between Carla Vista Leasing Company and Tamarisk Company, a lessee.

The collectibility of the lease payments by Carla Vista is probable.

Discuss the nature of this lease to Tamarisk.
Discuss the nature of this lease to Carla Vista.

Prepare a lease amortization schedule for Tamarisk for the 5-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.)

Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Tamarisk’s annual accounting period ends on December 31. Reversing entries are used by Tamarisk. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)

The current assets and current liabilities sections of the statement of financial position of Monty Corp. are as follows:

The following errors have been discovered in the corporation’s accounting:

I can't seem to figure out the adjustments. If you could prove explanations to your steps: it would be appreciated!

The December 31, 2019 statement of financial position of Howson Limited (Howson) showed Trade Accounts Receivable of $450,000 and a credit balance in Allowance for Doubtful Accounts of $45,000. During 2020, the following transactions occurred: Total service revenue of 2,000,000 was recognized of which 75% was billed on account; collections from customers totaled $1,300,000; accounts written off totaled $37,000; and previously written off accounts of $4,000 were collected.

Required

a) Journalize the 2020 transactions. (6 marks)

b) If the company uses the percentage of receivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 5% of trade accounts receivable, prepare the adjusting entry at December 31, 2020?
   c) Management of Howson wants to show the highest possible net income for the year ended December 31, 2020. The president states, “one of my competitors told me that using % of credit sales method in determining our bad debt expense would increase the Company’s net income. Our industry average % of 2.4% is very reflective of our bad debt experience.”

    Required:

     The president of Howson has two questions she would like addressed.

1. First, would you recommend Howson adopt this method. (2 marks)

2. Secondly, regardless of your recommendation in (i), what amount would the net book value of the Accounts Receivable show on Howson’s Balance Sheet if the method were adopted?

Boehm Corporation has had stable earnings growth of 7% a year for the past 10 years, and in 2019 Boehm paid dividends of $3 million on net income of $15 million. However, net income is expected to grow by 30% in 2020, and Boehm plans to invest $11.0 million in a plant expansion. This one-time unusual earnings growth won't be maintained, though, and after 2020 Boehm will return to its previous 7% earnings growth rate. Its target debt ratio is 37%. Boehm has 1 million shares of stock.

1. Calculate Boehm's dividend per share for 2020 under each of the following policies:

1.Its 2020 dividend payment is set to force dividends per share to grow at the long-run growth rate in earnings. Round your answer to the nearest cent.

2. It continues the 2019 dividend payout ratio. Round your answer to the nearest cent.

3. It uses a pure residual policy with all distributions in the form of dividends (37% of the $11.0 million investment is financed with debt). Round your answer to the nearest cent.

4. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual policy. What will the extra dividend be? Round your answer to the nearest cent.

Show calculations please

The Trial Balance of Nuqa Ltd is provided below

2020 2019

Bank Overdraft    60,000

Cash 29,000 0

Sales 1,200,000 1,150,000

Cost of Goods Sold 800,000 714,000

Insurance Expense 30,000 27,000

Wages Expense 120,000 121,000

Doubtful Debts Expense 5,000 4,000

Other Expenses 65,000 78,000

Accounts Payable 70,000 75,000

Accounts Receivable 90,000 88,000

Allowance for Doubtful Debts 10,000 11,000

Inventory 80,000 82,000

Accrued Wages 12,000 10,000

Prepaid Insurance 8,000 6,000

Plant & Equipment 550,000 600,000

Accumulated Dep. on Plant & Equip. 125,000 110,000

Loan Payable 150,000 130,000

Share Capital 200,000 200,000

Retained Earnings 10,000 0

Accumulated Losses 0 26,000

Additional Information

Depreciation was $28,000 in 2019 and $25,000 in 2020. Loss on disposal in 2020 was $15,000.

i)Calculate receipts from customers

ii)Calculate payments to suppliers

iii)Calculate payments to employees

iv)Calculate net investing cash flows

v)Calculate financing cash inflows

vi)Calculate net profit for 2020

vii)Reconcile net profit with operating cash flows, using the direct method.

viii)Use your answer for (vii) to suggest two ways in which the company could improve its operating cash flows by managing current assets and liabilities.

Laura Leasing Company signs an agreement on January 1, 2020, to lease equipment to Larkspur Company. The following information relates to this agreement.

Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round answers to 0 decimal places, e.g. 5,265.)

Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)

ABC Corporation had the following shareholders’ equity balances at January 1, 2020:

Common shares, unlimited authorized, 400,000 issued                                       $800,000

Retained earnings                                                                                             120,000                     

Accumulated other comprehensive income                                                                30,000

The following events occurred in 2020:

• Issued 50,000 common shares for $150,000 cash.
• Declared and paid cash dividends of $25,000.
• Reported net income of $40,000.
• Reported other comprehensive income of $10,000.
• At the end of the year, the fair market value of common shares was $5/share.
• Completed a 2:1 stock-split.

Required:

1. Prepare a statement of changes in equity using the following tabular format (i.e., input numbers into the table below):

2. Would your answer to part a) above change if the company paid a stock dividend rather than a cash dividend? Explain.

3. Briefly explain why the shareholders’ equity section is important to users of financial statements.
4. Provide your views on the following quote from the President of Medical Ltd, a struggling pharmaceutical company that focuses on developing new and innovative medications:

“Investors are important. We need to please them. We need to maintain a high dividend payout ratio…whatever it takes…I want to show an increasing dividend payout ratio….”

Alta Products Ltd. has just created a new division to manufacture and sell DVD players. The facility is highly automated and thus has high monthly fixed costs, as shown in the following schedule of budgeted monthly costs. This schedule was prepared based on an expected monthly production volume of 2,000 units. Manufacturing costs Variable costs per unit Direct materials $  30 Direct labour 40 Variable overhead 10 Total fixed overhead 70,000 Selling and administrative costs Variable 6% of sales Fixed $50,000 During August 2020, the following activity was recorded: Units produced 2,000 Units sold 1,700 Selling price per unit $  175 Instructions

a. Prepare an income statement for the month ended August 31, 2020, under absorption costing. Net income $34,150

b. Prepare an income statement for the month ended August 31, 2020, under variable costing. Net income $23,650

c. Reconcile the absorption-costing and variable-costing income figures for the month.

d. Prepare an income statement for the month ended August 31, 2020, under throughput costing.

e. Reconcile the variable-costing income and throughput-costing income figures for the month.

f. What are some of the arguments in favour of using variable costing? What are some of the arguments in favour of using absorption costing?

Sunland Sports began operations on January 2, 2020. The following stock record card for footballs was taken from the records at the end of the year.

A physical inventory on December 31, 2020, reveals that 120 footballs were in stock. The bookkeeper informs you that all the discounts were taken. Assume that Sunland Football Shop uses the invoice price less discount for recording purchases.

Compute the December 31, 2020, inventory using the FIFO method. (Round per unit and final answer to 2 decimal paces, e.g. 35.57.)

Compute the 2020 cost of goods sold using the LIFO method. (Round per unit and final answer to 2 decimal paces, e.g. 35.57.)