Best Buy ranks number 72 on the Fortune 500; it is the largest consumer electronics retailer in the world. Best known for its discounted high-quality products, customer centered approach, sustainable outreach, and extensive recycling program. Best Buy is listed as a “socially responsible” company. It was founded by Richard Schulze in 1966. Since then the company has undergone many changes.

College students, who wanted higher-end electronics, were the first customers they targeted. In 2000, when sales growth slowed, Best Buy acquired Geek Squad, a repair service. This acquisition led to their Concept 5 stores, where products are sold, and customers taught how to use them. This improved service turnaround time and increased customer satisfaction. By 2009, the company became the primary online and brick-and-mortar provider of consumer electronics.

             Best Buy views itself as a customer-centered organization. The company uses www.BestBuy.com to learn more about its customer needs and preferences. Customers can use that website to rate every product purchased. In 2007, the Company published its first Corporate Social Responsibility Report (SR) as result of the customers concern for sustainability. Electronic waste was filling landfills, and their customers wanted to see this problem addressed. In response to their concerns, Best Buy implemented a wide-scale electronics recycling program.   In 2009 Best Buy set a goal to reduce carbon emissions by 45%; by the end of 2016 they had reached nearly 47%.

             Today Best Buy employs a Chief Ethics Office and maintains a blog for company employees; it covers ethical lapses and related issues. Employees can visit the website and read about the company policy regarding ethically questionable behaviors and learn tips on how to best defend themselves from crossing ethical boundaries. Hubert Joly was appointed CEO in 2012 after a scandal forced out CEO, Brian Dunn and Chairman, Richard Schulz.

Under Joly, Best Buy, once again, became a growth company. He implemented its “Renew Blue” strategy, adding new product lines and services and emphasizing both in-store and online customer opportunities. Its Geek Squad division began an in-store, online, and home advisory program. He expanded into both Canadian and Mexican markets. Operations in China and Europe were closed to reduce costs, and he closed some domestic stores, under his lean management mandate.

             To improve customer service, the “Geek Squad hours were expanded to provide 24-hour service on site, at home, or through the Internet. The tech experts make about 4 million home calls a year. Walmart and Amazon their biggest competitors do not offer comparable at-home services. In March 2017, “Renew Blue” was officially closed by Joly and pronounced a success.

             In 2017, Joly announced the company will implement “Best Buy 2020 - Building the New Blue.” Best Buy began a try-before-you-buy program which allows the customer to rent gadgets such as audio equipment, fitness trackers, smartwatches, and cameras. If the customer decides to keep the product, 20% of the rental fee is deducted and applied to the final cost of the product.

             Best Buy will continue demonstrating new technology solutions, contracts and services and sustainability . The company plans to enhance their smart home areas in all stores, roll out its Best Buy Smart Home Powered by Vivint home automation and security offering to 450 stores, which will add 1,500 dedicated smart home employees. The “Geek Squad” expanded services will include “Smart Home ‘Total Tech Services, which will service every electronic product in your home no matter where the product was purchased and create a totally integrated technology system for your home.

Another service Best Buy will provide is the Smart Home Senior Care Services,” which is considered an “untapped white space opportunity.” The electronic “Assured Living” system will allow millennials /caregivers to look in on their aging parents while permitting the seniors to live independently. Mr. Joly envisions rolling out a broader business of sensor-based senior services, sold through health-and-wellness departments in Best Buy’s more than 1,000 stores.   With an aging population in the U.S., there will be 70 million people who will be seniors in 2027. Best Buy sees this growth opportunity and will use the Smart Home Business and its ability to get into people’s home as a trusted adviser.

Question:

How does Best Buy deal with ethically questionable behaviors, in short essay form

Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve his goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program.

Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $65,000 per year, and his salary expected to increase at 3% per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26%. Ben has savings account with enough money to cover the entire cost of his MBA program.

The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full time enrollment at the university. The annual tuition is $70,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $3000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $110,000 per year, with a $20,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 31%. The Bradley School of Business at Mount Perry College began its MBA program 16 years ago.

The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one year program, with a tuition cost of $85,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,500. Ben thinks that he will receive an offer of $92,000 per year upon the graduation, with an $18,000 signing bonus. The salary at this job will increase at 3.5% per year. His average tax rate at this level of income will be 29%. Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,000 more per year at both schools than his current expenses, payable at the beginning of each year. The appropriate discount rate is 4.7%

Questions:

1.How does Ben's age affect his decision to get an MBA?

2.What other, perhaps nonquantifiable, factors affect Ben's decision to get an MBA?

3.Assuming all salaries are paid at the end of each year, what is the best option for Ben from a strictly financial standpoint?

4.Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

5.What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?

6.Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision

Raj Danielson graduated from university six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Assiniboine University or the University of Passy. Both schools encourage internships, but to get class credit for the internship, no salary can be accepted. Other than internships, neither school allows its students to work while enrolled in its MBA program.

Raj currently works at the money management firm of Prash and Sid. His annual salary at the firm is $53,000 and his salary is expected to increase at 3% per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26%. Raj has a savings account with enough money to cover the entire cost of his MBA program.

The Sentinel School of Business at Assiniboine University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrolment at the university. The annual tuition is $58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,000 per year. Raj expects that after graduation from Assiniboine, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4% per year. Because of the higher salary, his average income tax rate will increase to 31%.

The Pond School of Business at the University of Passy began its MBA program 16 years ago. The Pond School is smaller and less well known than the Sentinel School. It offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,200. Raj thinks that he will receive an offer of $78,000 per year upon graduation, with a $8,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29%.

Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Raj also estimates that room and board expenses will decrease $4,000 per year at both schools. The appropriate discount rate is 6.5%.

QUESTIONS:

1.How does Raj’s age affect his decision to get an MBA?
2. What other, perhaps non-quantifiable, factors affect Raj’s decision to get an MBA?
3. Assuming all salaries are paid at the end of each year, what is the best option for Raj from a strictly financial standpoint?
4. Raj believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?
5. What initial salary would Raj need to receive to make him indifferent between attending Assiniboine University and staying in his current position?

6. Suppose, instead of being able to pay cash for his MBA, Raj must borrow the money. The current borrowing rate is 5.4%. How would this affect his decision?

Raj Danielson graduated from university six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Assiniboine University or the University of Passy. Both schools encourage internships, but to get class credit for the internship, no salary can be accepted. Other than internships, neither school allows its students to work while enrolled in its MBA program.

Raj currently works at the money management firm of Prash and Sid. His annual salary at the firm is $53,000 and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 38 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Raj has a savings account with enough money to cover the entire cost of his MBA program.

The Sentinel School of Business at Assiniboine University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrolment at the university. The annual tuition is $58,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $2,000 per year. Raj expects that after graduation from Assiniboine, he will receive a job offer for about $87,000 per year, with a $10,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent.

The Pond School of Business at the University of Passy began its MBA program 16 years ago. The Pond School is smaller and less well known than the Sentinel School. It offers an accelerated one-year program, with a tuition cost of $75,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,200. Raj thinks that he will receive an offer of $78,000 per year upon graduation, with a $8,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29 percent.

Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Raj also estimates that room and board expenses will decrease $4,000 per year at both schools. The appropriate discount rate is 6.5 percent.

QUESTIONS:

1.How does Raj’s age affect his decision to get an MBA?
2. What other, perhaps non-quantifiable, factors affect Raj’s decision to get an MBA?
3. Assuming all salaries are paid at the end of each year, what is the best option for Raj from a strictly financial standpoint?
4. Raj believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?
5. What initial salary would Raj need to receive to make him indifferent between attending Assiniboine University and staying in his current position?

6. Suppose, instead of being able to pay cash for his MBA, Raj must borrow the money. The current borrowing rate is 5.4%. How would this affect his decision?

Ben Bates graduated from college six years ago with a finance undergraduate degree. Although he is satisfied with his current job, his goal is to become an investment banker. He feels that an MBA degree would allow him to achieve this goal. After examining schools, he has narrowed his choice to either Wilton University or Mount Perry College. Although internships are encouraged by both schools, to get class credit for the internship, no salary can be paid. Other than internships, neither school will allow its students to work while enrolled in its MBA program. Ben currently works at the money management firm of Dewey and Louis. His annual salary at the firm is $65,000 per year, and his salary is expected to increase at 3 percent per year until retirement. He is currently 28 years old and expects to work for 40 more years. His current job includes a fully paid health insurance plan, and his current average tax rate is 26 percent. Ben has a savings account with enough money to cover the entire cost of his MBA program. The Ritter College of Business at Wilton University is one of the top MBA programs in the country. The MBA degree requires two years of full-time enrollment at the university. The annual tuition is $70,000, payable at the beginning of each school year. Books and other supplies are estimated to cost $3,000 per year. Ben expects that after graduation from Wilton, he will receive a job offer for about $110,000 per year, with a $20,000 signing bonus. The salary at this job will increase at 4 percent per year. Because of the higher salary, his average income tax rate will increase to 31 percent. The Bradley School of Business at Mount Perry College began its MBA program 16 years ago. The Bradley School is smaller and less well known than the Ritter College. Bradley offers an accelerated, one-year program, with a tuition cost of $85,000 to be paid upon matriculation. Books and other supplies for the program are expected to cost $4,500. Ben thinks that he will receive an offer of $92,000 per year upon graduation, with an $18,000 signing bonus. The salary at this job will increase at 3.5 percent per year. His average tax rate at this level of income will be 29 percent. Both schools offer a health insurance plan that will cost $3,000 per year, payable at the beginning of the year. Ben also estimates that room and board expenses will cost $2,000 more per year at both schools than his current expenses, payable at the beginning of each year. The appropriate discount rate is 6.3 percent.

1. How does Ben’s age affect his decision to get an MBA?

2. What other, perhaps nonquantifiable factors affect Ben’s decision to get an MBA?

3. Assuming all salaries are paid at the end of each year, what is the best option for Ben—from a strictly financial standpoint?

4. Ben believes that the appropriate analysis is to calculate the future value of each option. How would you evaluate this statement?

5. What initial salary would Ben need to receive to make him indifferent between attending Wilton University and staying in his current position?

6. Suppose, instead of being able to pay cash for his MBA, Ben must borrow the money. The current borrowing rate is 5.4 percent. How would this affect his decision?

Downstream Intercompany Land Transactions

Saucony Company, a wholly-owned subsidiary of Puma Company, purchased a tract of land from Puma in 2019 for $5,000,000. Puma originally acquired the land for $2,000,000 and accounts for its investment in Saucony using the complete equity method.

Required

a. Assuming that Saucony still owns the land, give the working paper eliminations needed for the intercompany land sale when consolidated statements are prepared at the end of 2019 and 2020.

Enter numerical answers using all zeros (do not abbreviate to millions or thousands).

b. If Saucony sells the land to a third party for $4,500,000 in 2021, prepare the eliminations needed for the intercompany land sale when consolidated statements are prepared at the end of 2021.

On 1 July 2018, Parent Ltd acquired all the shares of Son Ltd, on a cum-div. basis, for $2,057,000. At this date, the equity of Son Ltd consisted of:

Share capital – 500 000 shares $ 1,000,000

Retained earnings 500,000

Son Ltd also reported a dividend payable of $100,000 and a recorded goodwill of $50, 000 at the acquisition date. The dividend payable was subsequently paid in September 2018.

At the acquisition date, all the identifiable assets and liabilities of Son Ltd were recorded at amounts equal to fair value except for the following:

Of the inventory on hand in Son Ltd at 1 July 2018, 60 percent was sold in August 2018 and the remainder was sold in June 2019. It was estimated that the plant has a further 5-year life with zero residual value.

Son Ltd was involved in a court case that could potentially result in the company paying damages to customers. At the acquisition date, Parent Ltd calculated the fair value of this liability to be $50,000, even though Son Ltd had not recorded any provision for damages (liability). On 29 June 2020 Son Ltd reassessed the liability in relation to the court case as the chance of winning the case had improved. The fair value on 29 June 2020 was considered to be $30,000.

The company applies the partial goodwill method. The income tax rate is 30%.

During the period 1 July 2018 to 30 June 2020, the following intragroup transactions have occurred between Parent Ltd and Son Ltd:

(T1) On 1 January 2019, Parent Ltd acquired furniture for $100,000 from Son Ltd. The furniture had originally cost Son Ltd $150,000 and had a carrying amount at the time of sale of $80,000. The sale was made on credit. At 30 June 2019, $60,000 was outstanding. At 30 June 2020, $20,000 was still not paid and outstanding. Both entities apply depreciation on a straight-line basis. At 1 January 2019, the furniture had a further five years of useful life, with zero residual value.

(T2) On 1 March 2019, Son Ltd sold inventory costing $12,000 to Parent Ltd for $16,000. On 1 October 2019, Parent Ltd sold half of these inventory items back to Son Ltd for $6,000. Of the remaining inventory kept by Parent Ltd, half was sold in March 2020 to Dingo Ltd at a profit of $400.

Required:
a) Prepare the acquisition analysis at 1 July 2018.

b) Prepare the consolidation worksheet entries at 30 June 2020. Your answer should include: 1. BCVR entries,

2. Pre-acquisition entries, and
3. Intragroup transaction adjustment entries (T1 to T2).

c) The adjusting consolidation entries at 30 June 2019 for the last intragroup transaction (T2) is provided below.

Explain why the above entries are made for the intragroup transaction (T2) as at 30 June 2019, noting the adjustments to each account separately.

d) Critically analyze the accounting treatment of acquisition related costs in a business combination. For your critical analysis, you could compare with how acquisition related costs are accounted for when a company purchases property plant and equipment. [word limit: 150 words]

John Thompson, CEO of NewVenture, Inc., seeks to raise $5 million in equity for his early
stage venture in January 2016. NewVenture is a subscription-based software company that has
experienced 75% revenue growth over the last year. The company generated $2.5 million of
revenue in 2015, with an operating loss of ($450,000). Thompson projects that NewVenture
will achieve $30 million in revenue by 2020. Samantha Jones of Gorsuch Capital is considering
an investment in January 2016, offering pre-money valuation of $14.75 million.
a. What is the post-money valuation of NewVenture?
b. What share of the company will Samantha Jones require?
c. The company has 1,000,000 shares outstanding before the investment. How many new
shares should she purchase, and at what price per share?

Samantha Jones believes Thompson will have to grant generous stock options in addition to
the salaries projected in his business plan. From experience, she thinks management should
have the ability to own at least a 15% share of the company in the form of options by the end
of year 5.

f. What share of the company should Samantha insist on getting today if an option pool is
created after her investment? (in order to ensure that she will still maintain the same
ownership level noted above)
g. How many shares are allocated to Jones and the option pool in this case?

First Cup Ltd., a Canadian coffee retailer and roaster which operates more than 1,000 cafes in Canada, reported the following balances as at December 31, 2020:

7% Par $100 convertible bonds, issued at par $250,000

      3,000 call options, each entitled to purchase 1 common shar

Cumulative Preferred shares, 36,000 convertible shares outstanding    $960,000

Common shares, 112,500 shares issued and outstanding $2,880,000

Contributed surplus on repurchase of common shares $31,200

Retained earnings $1,032,000

First Cup Ltd. applies IFRS. The company also informed you details related to the following transactions during 2020:

a]   On February 1, the company declared and distributed a 20% stock dividend for its common shareholders. The shares were being traded in the market at $30.

b]   On March 1, it acquired 18,000 of its own common shares in the market at $30.00 per share and retired them on the same day.

c]   On April 1, the company issued 17,500 common shares in exchange for plant and equipment assessed at $336,000.

d]   On May 1, 40% of the call option holders exercised their options when the market price of the common share was $31. As these options were issued before stock dividends, options holders receive an increased number of shares considering a 20% stock dividends (i.e. adjust for stock dividend).

e]   On May 15, the company declared a 3:1 stock split on common shares. The common shares were being traded at the adjusted market price of $32.00 per share

f]   On August 1, the company issued share certificates for 3,708 common shares to subscribers who had applied to an earlier share subscription issue. These subscribers had paid for the shares they had subscribed at $34 per share.

g]   On October 1, 20% of the bond holders submitted their bonds to the company for conversion into common shares. As the bonds were issued before stock dividends and stock split, the number of shares given to reward conversion need to be adjusted consequently.

h]   No Dividends have been declared in the previous two years. Dividends for the current year were also not declared.

Additional Information

i]    The cumulative preferred shares had been issued several years ago when the company was incorporated. Cumulative preferred shares carried a dividend rate of $2.10 per share and as at January 1, 2020, one preferred share could be converted into two common shares.

ii] The company reported earnings from operations of $1,847,790 for 2020. There were no discontinued items to report in 2020.

iii] The bonds had been issued at par in 2017. Assume No premium was charged for the conversion rights and debt was credited for the full amount received. Each $100 bond was convertible into 8 common shares.

Required:

Determine the weighted average number of shares for determining the basic earnings per share for 2020 using this template