Question 1 (Main question is question2)

Cathy is bullish on Tencent; so she instructs her broker to sell 15/7/2020 European 500 put options on Tencent with an exercise price of $400 each share. Sandy agrees to buy these options and pays the premium of $7 each option. Without taking any transaction costs into consideration,

1. what will be Sandy’s gain or loss if Tencent’s price is $385 each share on 15/7/2020?   
2. what would be Cathy’s potential maximum loss on 15/7/2020?   
3. what is Cathy’s break-even price?   

Question 2

Re-visit Question 1. If the current price of each share is $380,

1. show how to determine Sandy’s initial margin.  
2. show how to determine Cathy’s initial margin.

Salinas Corporation acquired 20% of the outstanding common stock of Pebble Beach Corporation on December 31, 2020. The purchase price was $4,200,000 for 100,000 shares. Pebble Beach Corporation declared and paid a $.95 (cents) per share cash dividend on June 30 and on December 31, 2021. Pebble Beach reported net income of $1,720,000 for 2021. The fair market value of Pebble Beach Corporation’s stock was $30 per share at December 31, 2021.

1. Journal entries need be prepared for Salinas Corporation for 2020 and 2021, assuming Phelps is not able to exercise significant influence over Pebble Beach Corporation.
2. Journal entries need be prepared for Salinas Corporation for Salinas Corporation for 2020 and 2021, assuming that Salinas Corporation is able to exercise influence over Pebble Beach Corporation.

At December 31, 2020, the available-for-sale debt portfolio for Cullumber, Inc. is as follows.

On January 20, 2021, Cullumber, Inc. sold security A for $14,700. The sale proceeds are net of brokerage fees.

Cullumber, Inc. reports net income in 2020 of $123,000 and in 2021 of $135,000. Total holding gains (including any realized holding gain or loss) equal $40,000 in 2021.

Prepare a statement of comprehensive income for 2020, starting with net income.
Prepare a statement of comprehensive income for 2021, starting with net income.

Two accountants, Yuan Tsui and Sergio Aragon, are arguing about the merits of presenting an income statement in the multiple-step versus the single-step format. The discussion involves the following 2020 information for P. Bride Company (in thousands):

Common shares outstanding for 2020 total 30,000 (in thousands). Income tax for the year was $18,130.

Prepare an income statement for the year ended December 31, 2020, using the multiple-step format, showing expenses by function. Include calculation of EPS.

In 2018, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2020. Information related to the contract is as follows:

Westgate recognizes revenue over time according to percentage of completion.

Required:
5. Calculate the amount of revenue and gross profit (loss) to be recognized in each of the three years assuming the following costs incurred and costs to complete information.

Sheffield Corp. purchased a machine on July 1, 2020, for $30,975. Sheffield paid $210 in title fees and a legal fee of $175 related to the machine. In addition, Sheffield paid $590 in shipping charges for delivery, and $450 to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 10 years, a total expected life of 12 years, a residual value of $6,300, and no salvage value. Sheffield uses straight-line depreciation.

Calculate the 2020 depreciation expense if Sheffield prepares financial statements in accordance with IFRS.

eTextbook and Media

Calculate the 2020 depreciation expense if Sheffield prepares financial statements in accordance with ASPE.

Bridgeport Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2020, the following balances relate to this plan.

As a result of the operation of the plan during 2020, the following additional data are provided by the actuary.

Using the data above, compute pension expense for Bridgeport Corp. for the year 2020 by preparing a pension worksheet.

On January 1, 2018, Loop Raceway issued 550 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 6 percent, so the total proceeds from the bond issue were $535,288. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year. Required:

1. Prepare a bond amortization schedule.

2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 98.

The following information is an extract from the financial statements of Extreme-Experiences Pty Ltd.

Required: Answer the following questions in the spaces provided below:

a)    Calculate the following ratios for both 2019 and 2020.

b)    Comment on the Liquidity of Extreme-Experiences using the answers in part a).

c) Which ratio measures Solvency? Provide suggestions on how to improve the Solvency of Extreme-Experiences.

On January 1, 2018, Loop Raceway issued 520 bonds, each with a face value of $1,000, a stated interest rate of 5 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 6 percent, so the total proceeds from the bond issue were $506,090. Loop uses the straight-line bond amortization method and adjusts for any rounding errors when recording interest in the final year.

Required:

1. 1. Prepare a bond amortization schedule.

2. 2-5. Prepare the journal entries to record the bond issue, the interest payments on December 31, 2018 and 2019, the interest and face value payment on December 31, 2020 and the bond retirement. Assume the bonds are retired on January 1, 2020, at a price of 98.