Sunny Ltd., a hand sanitizer manufacturer, has prepared its financial statements for the year ended at December 31, 2019. On February 28, 2020, the board of directors authorized to issue the financial statements to shareholders. The following events have occurred:
1. On December 1, 2019, the board of directors decided to issue $50,000,000, 9% convertible bonds for the purpose of expanding business in other countries. The conversion rate is fixed at 50 shares for bond with face value of $1,000. The convertible bonds are offered to the public on January 15, 2020. The market interest rate for a similar bond without conversion option is at 12%.
2. On October 23, 2019, Sunny signed a contract to sell 10,000 hand sanitizer to a local store at a price of $200 each. However, due to the increase in the cost of materials, the estimated cost of making one hand sanitizer has been increased to $250. Sunny has to deliver the hand sanitizer to its customer on January 30, 2020.
3. Under the terms of the sales contract, Sunny undertakes to recall its new formulated sanitizer, for its manufacturing defects within six months from the date of sale. The accountants estimated that 5% of the sanitizer will be returned for refund. In January 2020, Sunny discovered a serious problem in the manufacturing process of the new formulated sanitizer. Because of this, Sunny expected that 20% of the sanitizer sold in 2019 will be returned for refund.
4. On December 15, 2019, a group of customers reported that the hand sanitizer that they bought in 2019 caused them have serious skin infection problems. They filed a lawsuit against Sunny on December 20, 2019. The company’s attorney said that it was probable that Sunny would be liable for the case. However, the amount of damage could not be estimated.
5. On February 12, 2020, the above lawsuit case was settled for the amount of $2,500,000.
6. Sunny has retail stores in China doing poorly. On February 15, 2020, Sunny estimated that those stores might report a loss of $1,500,000 in 2020.
7. In May 2019, Sunny had legal disputes with Coco Limited. Unable to reach out-of-court settlement with Coco, Sunny sued Coco for compensation for damages in August 2018. In November 2019, Sunny heard good news about the lawsuit in which the company sued Coco. Sunny’s lawyer is confident that the company will win the case and will receive about $120,000 in compensation for damages from Coco in early 2020. Sunny recognized the gain and receivable from litigation of $120,000 in year 2019.
8. On March 1, 2020, a customer owing $600,000 to Sunny filed for bankruptcy. The financial statements include an allowance for doubtful debts pertaining to this customer only of $30,000.
Required: For each of the above event, state the correct accounting treatments in accordance with Hong Kong Accounting Standards for the year ended at December 31, 2019. If it is an event after the reporting period, identify whether it is an adjusting or non-adjusting event. Give reasons for your answer.
In: Accounting
Natalie has prepared the balance sheet and income statement of Cookie & Coffee Creations Inc. and would like you to prepare the cash flow statement. The comparative balance sheet of Cookie & Coffee Creations Inc. at October 31, 2020 for the years 2020 and 2019 and the income statement for the year ended October 31, 2020, are presented below.
Additional information:
1. Equipment (cost $4,500 and book value $3,000) was disposed of at the beginning of the year for $500 cash and replaced with new equipment purchased for $4,000 cash.
2. Additional equipment was bought for $14,000 on November 1, 2019. A $12,000 note payable was signed. The terms provide for equal semi-annual installment payments of $2,000 on May 1 and November 1 of each year, plus interest of 5% on the outstanding principal balance.
3. Other equipment was bought for $13,000 cash.
4. Dividends were declared on the preferred and common stock on October 15, 2020, to be paid on November 15, 2018.
5. Accounts payable relate only to merchandise creditors.
6. Prepaid expenses relate only to other operating expenses.
Instructions:
(a) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2020, using the indirect method.
*(b) Prepare a statement of cash flows for Cookie & Coffee Creations Inc. for the year ended October 31, 2020, using the direct method.
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
|
Assets |
2020 |
2019 |
|
Cash |
$ 22,324 |
$5,550 |
|
Accounts receivable |
3,250 |
2,710 |
|
Inventory |
7,897 |
7,450 |
|
Prepaid expenses |
5,800 |
6,050 |
|
Equipment |
102,000 |
75,500 |
|
Accumulated depreciation— |
||
|
equipment |
(25,200) |
(9,100) |
|
Total assets |
$116,071 |
$88,160 |
COOKIE & COFFEE CREATIONS INC.
Balance Sheet
October 31,
|
Liabilities and Stockholders’ Equity |
2020 |
2019 |
|
|
Accounts payable |
$ 1,150 |
$ 2,450 |
|
|
Income taxes payable |
9,251 |
7,200 |
|
|
Dividends payable |
27,000 |
27,000 |
|
|
Salaries and wages payable |
7,250 |
1,280 |
|
|
Interest payable |
188 |
0 |
|
|
Note payable |
10,000 |
0 |
|
|
Preferred stock, no par, $6 cumulative, |
|||
|
3,000 and 2,800 shares issued, |
|||
|
respectively |
15,000 |
14,000 |
|
|
Common stock, $1 par—25,180 shares |
|||
|
issued and outstanding |
25,180 |
25,180 |
|
|
Additional paid-in capital—treasury stock |
250 |
250 |
|
|
Retained earnings |
20,802 |
10,800 |
|
|
Total liabilities and stockholders’ equity |
$116,071 |
$88,160 |
COOKIE & COFFEE CREATIONS INC.
Income Statement
Year Ended October 31, 2020
|
Sales |
$485,625 |
|
|
Cost of goods sold |
222,694 |
|
|
Gross profit |
262,931 |
|
|
Operating expenses |
||
|
Salaries and wages expense |
$147,979 |
|
|
Depreciation expense |
17,600 |
|
|
Other operating expenses |
48,186 |
213,765 |
|
Income from operations |
49,166 |
|
|
Other expenses |
||
|
Interest expense |
$ 413 |
|
|
Loss on disposal of plant |
||
|
assets |
2,500 |
2,913 |
|
Income before income tax |
46,253 |
|
|
Income tax expense |
9,251 |
|
|
Net income |
$ 37,002 |
In: Accounting
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In: Economics
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In: Computer Science
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In: Economics
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In: Economics
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In: Statistics and Probability
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In: Economics
You are the CEO of United Airlines and you have had a pretty difficult month. First, you kicked young women off of a plane because they were wearing yoga pants, then you forcefully dragged a doctor off a plane against his will. While your stock price has mostly rebounded, you a loss of value of $1 billion the day after the incident with the doctor. You know your organization needs a culture change. Apply Kotter’s 8-step model of change,to the United organization – what would be your strategy for remaking the organization? Be as specific as you can.
In: Operations Management