Larkspur Golf Inc. was formed on July 1, 2019, when Matt Magilke purchased the Old Master Golf Company. Old Master provides video golf instruction at kiosks in shopping malls. Magilke plans to integrate the instructional business into his golf equipment and accessory stores. Magilke paid $770,000 cash for Old Master. At the time, Old Master’s balance sheet reported assets of $670,000 and liabilities of $210,000 (thus owners’ equity was $460,000). The fair value of Old Master’s assets is estimated to be $800,000. Included in the assets is the Old Master trade name with a fair value of $12,000 and a copyright on some instructional books with a fair value of $43,200. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 40 years.

Prepare the journal entry to record amortization expense for 2020. Prepare the intangible assets section of Larkspur Golf Inc. at December 31, 2020.

Nash Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $10,200,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Nash’s equipment. Nash’s controller estimates that expected future net cash flows on the equipment will be $6,426,000 and that the fair value of the equipment is $5,712,000. Nash intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Nash uses straight-line depreciation.

Prepare the journal entry (if any) to record the impairment at December 31, 2020. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry for the equipment at December 31, 2021. The fair value of the equipment at December 31, 2021, is estimated to be $6,018,000. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry (if any) to record the impairment at December 31, 2020 and for the equipment at December 31, 2021, assuming that Nash intends to dispose of the equipment and that it has not been disposed of as of December 31, 2021. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

CVRX Ltd., one of the world’s largest biotechnology companies, invests considerable amounts in research and development each year. In the most recent fiscal year (2020), the R&D expense was $500 million, the net income was $1,000 million, and the book value of equity was $8,000 million. The R&D expenses for the prior 3 years are as follows: $1,200 million (2019), $900 million (2018), and $600 million (2017).

1. Would you expect the Free Cash Flows to the Firm (FCFF) of CVRX Ltd. to increase or decrease as a result of the capitalisation of the R&D expenses? Please explain briefly in the space provided below.

2. Please explain below why the capitalisation of R&D expenses changes the reinvestment rate of CVRX Ltd..

3. Assuming an amortizable life of 3 years, determine the amortization of capitalised R&D in each of the R&D years. Please type your answer below.

Amortization in 2020 = ……………………

Amortization in 2019 = ……………………

Amortization in 2018 = ……………………

Amortization in 2017 = …………………....

4. Determine the total Value of Research Asset for CRVX and the R&D amortization expense for the current year. Please type your answer below.

Value of Research Asset in 2020 = ……………………

5. Compute the Net Income, Book Value of Equity (BVE) and Return on Equity (ROE) of the firm before and after capitalising the R&D expenses. Please type your answer below.

Net Income (before capitalisation) = ……………………

Net Income (after capitalisation) = ……………………

BVE (before capitalisation) = ……………………

BVE (after capitalisation) =……………………

ROE (before capitalisation) = ……………………

ROE (after capitalisation) =……………………

6. If the WACC of CRVX Ltd. decreased to 10% after capitalising the R&D expenses, should the company continue investing in Research and Development? Please explain briefly in the space provided below.

Novak Ltd. sold $6,430,000 of 10% bonds, which were dated March 1, 2020, on June 1, 2020. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2030, and the bonds were issued to yield 12%. Novak's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2021, Novak bought back $2,430,000 worth of bonds for $2,330,000 plus accrued interest.

1)

Using 1. a financial calculator, or 2. Excel function PV, calculate the issue price of the bonds and prepare the entry for the issuance of the bonds. (Hint: Use the account Interest Payable in your entry). (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

2)

Prepare the journal entry for the scheduled interest payment on September 1, 2020. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

3)

Prepare any year-end entry required at February 28, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

4)

Prepare the entry required for the redemption of face value $2,430,000 of the bonds on June 1, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Novak Ltd. sold $6,430,000 of 10% bonds, which were dated March 1, 2020, on June 1, 2020. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2030, and the bonds were issued to yield 12%. Novak's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2021, Novak bought back $2,430,000 worth of bonds for $2,330,000 plus accrued interest.

1)

Using 1. a financial calculator, or 2. Excel function PV, calculate the issue price of the bonds and prepare the entry for the issuance of the bonds. (Hint: Use the account Interest Payable in your entry). (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

2)

Prepare the journal entry for the scheduled interest payment on September 1, 2020. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

3)

Prepare any year-end entry required at February 28, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

4)

Prepare the entry required for the redemption of face value $2,430,000 of the bonds on June 1, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Novak Ltd. sold $6,430,000 of 10% bonds, which were dated March 1, 2020, on June 1, 2020. The bonds paid interest on September 1 and March 1 of each year. The bonds' maturity date was March 1, 2030, and the bonds were issued to yield 12%. Novak's fiscal year-end was February 28, and the company followed IFRS. On June 1, 2021, Novak bought back $2,430,000 worth of bonds for $2,330,000 plus accrued interest.

1 )

Using 1. a financial calculator, or 2. Excel function PV, calculate the issue price of the bonds and prepare the entry for the issuance of the bonds. (Hint: Use the account Interest Payable in your entry). (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

2)

Prepare the journal entry for the scheduled interest payment on September 1, 2020. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

3)

Prepare any year-end entry required at February 28, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

4)

Prepare the entry required for the redemption of face value $2,430,000 of the bonds on June 1, 2021. (Round answer to 0 decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $240,000 per year for the next 5 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 10% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $64 and variable costs at 80% of revenue. The company’s policy is to pay out two-thirds of net income as dividends and to maintain a book debt ratio of 20% of total capital.

Required:

a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets.

a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets.

b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020.

c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2022?

The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (i.e., assets net of depreciation) by $210,000 per year for the next 4 years, and it forecasts that the ratio of revenues to total assets will remain at 1.50. Annual depreciation is 20% of net fixed assets at the beginning of the year. Fixed costs are expected to remain at $58 and variable costs at 70% of revenue. The company’s policy is to pay out one-half of net income as dividends and to maintain a book debt ratio of 20% of total capital.

Required:

a1. Produce an income statement for 2020. Assume that net working capital will equal 50% of fixed assets.

a2. Produce a balance sheet for 2020. Assume that net working capital will equal 50% of fixed assets.

b. Now assume that the balancing item is debt and that no equity is to be issued. Prepare a completed pro forma balance sheet for 2020.

c. Assume that the balancing item is debt and that no equity is to be issued, what is the projected debt ratio for 2022?

Ka-Pow Corporation's charter authorizes the issuance of 1 million common shares and 500,000 cumulative, participating preferred shares that have a dividend rate of $6 per share per year.

Ka-Pow’s limited ledger shows the following balances on December 31, 2019:

Preferred shares outstanding, 10,000 shares $1,200,000 Common shares outstanding, 20,000 shares 300,000 Retained earnings 2,000,000

The following transactions involving share issues were completed in 2020. Assume that Ka-Pow follows IFRS.

Jan 1: The board of directors declared a $163,000 dividend on both the 20,000 shares of outstanding common and the 10,000 shares of outstanding preferred.

Feb 1: The dividend was paid. Mar 1: Issued 4,000 common shares for machinery. The machinery had been appraised at a fair value of $72,000, and the seller's carrying amount was $58,600. The common shares' most recent market price is $18.50 a share.

Jun 1: Purchased 6,000 of its own outstanding common shares for $20 each and cancelled them.

Dec 15:Declared a 2-for-1 stock split on the outstanding common shares. The market price of the common shares was $24 at the time of the split.

Dec 31: The company reported/declared/calculated net income of $500,000 and comprehensive income of $530,000.

Instructions:

1. Prepare the journal entries to record the transactions from January 1 through to and including December 15. If no entry is needed for a particular date, write “n/a”.

2. On December 31, 2020,

a) What is the total number of common shares outstanding?

b) What is the total number of common shares authorized?

c) What is the balance in retained earnings at December 31, 2020?

Problem A, Income Taxes Harms Way Company (HWC) provides you with the following information for the year ended October 31, 2020. Your assignment is to calculate income tax expense, income taxes payable, and deferred income tax assets/liabilities. The end result will be a journal entry to record all of that. In addition, you must calculate HWC’s effective tax rate and prepare a reconciliation to the federal statutory rate of 21%. You can explain the difference in words, if you wish.

Information provided:

1. Income before tax, as shown on HWC’s GAAP statement of income = $2,440,000

2. Depreciation calculated under GAAP = $300,000. Depreciation as will be shown on the tax return = $475,000.

3. Interest income on municipal bonds, which is not subject to federal income tax = $150,000.

4. Fines recorded and paid during the year to the EPA for environmental violations = $450,000. Fines are not tax deductible.

5. Meals and entertainment expenses recorded during the year = $375,000. Only one-half (50%) of those expenses may be deducted for tax purposes.

6. At the end of the fiscal year (in October 2020), HWC received a payment of $750,000 from a client for a product to be delivered in November 2020. Under the tax law, that payment is taxable when received, not when the product is delivered.

Your Assignment: Calculate:

1. Income tax expense (GAAP).

2. Income taxes currently payable.

3. Deferred income taxes resulting from this year’s operations.

Be sure to show your work, I give partial credit (full credit, too, of course), but I must be able to see how you calculated amounts used in your answer