Wingfoot Co. began operations on July 1, 2019. By the end of its first fiscal year, ended June 30, 2020, Wingfoot had sold 10,000 wingers. Selected data on operations for the year ended June 30, 2020, follow. (Any balance sheet figures are as at June 30, 2020.)

Additional information:

• 1.Each winger requires 2 kg of direct materials, 0.5 machine hours, and one direct labour hour.

• 2.Except for machinery depreciation of $5,000 and a $1,000 miscellaneous fixed cost, all manufacturing overhead is variable.

• 3.Except for $4,000 in advertising expenses, all selling and administrative expenses are variable.

• 4.The tax rate is 40%.

Instructions

Assume that the company uses variable costing and prepare a contribution-method income statement in good form for the year ended June 30, 2020.

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

1. The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years.

2. The fair value of the asset at January 1, 2020, is $70,000.

3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $7,000, none of which is guaranteed.

4. The agreement requires equal annual rental payments of $21,827.58 to the lessor, beginning on January 1, 2020.

5. The lessee’s incremental borrowing rate is 4%. The lessor’s implicit rate is 3% and is unknown to the lessee.

6. Crane uses the straight-line depreciation method for all equipment.

Click here to view factor tables. Prepare all of the journal entries for the lessee for 2020 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. (For calculation purposes, use 5 decimal places as displayed in the factor table provided

Lo 9-7, 9-8

37. On October 1, 2020, Mertag Company ( a U.S.-based comany) receives an order from a customer in Poland to deliver goods on January 31,2021, for a price of 1,000,000 Polish zotys (PLN). Mertag enters into a forward contract on October 1, 2020, to sell PLN 1,000,000 in four months ( on January 31, 2021). U.S. dollar-Polis zioty exchange rates are follows:

October 1, 2020 $0.25 $0.29

December 31, 2020 0.28 0.31

January 31, 2021 0.30 N/A

Mertag designates the forward contract as a fair value hedge of a foreign currency firm commitment. The fair value of the firm commitment is measured b referring to changes in the forward rate, and, therefore, forward points are included in assessing hedge effectiveness. Mertag must close its books and prepare financial statements on December 31. Discounting to present value can be ignored.

a. Prepare journal entries for the foreign currency forward contract, foreign currency firm commitment and export sale.

b. Determine the net benefit, if any, realized by Mertag from entering into the forward contract.

Notes for Journal Entries:

1) Kuechly uses periodic inventory system and LIFO

2) All credit sales discounts are recorded using the net method – customers receive a 3 percent discount if they pay within 30 days.

3) Purchase discounts are recorded using the net method

4) All depreciation is straight line.

5) 2020 is first year of operation.

June 30 2020 -  Purchased land and a building.  A $200,000 cash down payment was required and a $800,000 note was accepted by the seller for the balance (12 percent interest payable each year on June 30). The fair value of the land at the date of purchase was deemed to be 300,000 and the fair value of the building was 900,000. The building has an estimated residual value of $0 and a useful life of 30 years.

October 1 2020 - Purchased equipment for in exchange for a $30,000 non-interest bearing note due in one year. The equipment has an estimated residual value of $2,000 and a useful life of 8 years. Note: Assume an effective interest rate of 8 percent.

What Adjusting Journal Entries should be made at 12/31/2020

Company Epsilon has two retail divisions, retail division #1 and retail division #2, which reported the following results for the year end of 2019. The required rate of return set for the retail divisions is 10%.

If no investment in made for 2020, both retail divisions are expected to maintain the same net operating income and average operating assets as of 2019. However, there is an opportunity in 2020 for Company Epsilon to invest in one of the two retail division. The investment would be of $15,000,000 and would generate additional net operating income of $2,400,000 per year.

Required:

1. Which division had the higher return on investment (ROI) in 2019 and why?

2. Which division had the higher residual income (RI) in 2019 and why?

3. If the managers of the retail divisions are evaluated based on return on investment (ROI), will the managers want to invest in 2020 and why?

4. If the managers of the retail divisions are evaluated based on residual income (RI), will the managers want to invest in 2020 and why?

Sheffield Construction Company has entered into a contract beginning January 1, 2020, to build a parking complex. It has been estimated that the complex will cost $595,000 and will take 3 years to construct. The complex will be billed to the purchasing company at $903,000. The following data pertain to the construction period.

(a) Using the percentage-of-completion method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

(b) Using the completed-contract method, compute the estimated gross profit that would be recognized during each year of the construction period. (If answer is 0, please enter 0. Do not leave any fields blank.)

Bella's Bone World, Inc. is a thriving bone production business! As the chief bone examiner, Bella is performing simple valuations as a starting point to determining the overall value of her bone production business. Bells uses a 9% required rate of return for operations. She used her 2019 financial statements to calculated her residual operating income as $25 million and net operating assets were $82 million at the end of 2019. Her residual operating income is expected to stay the same level for 2020 because even during the pandemic, dogs eat bones. While Bella does not expect growth, she expects to maintain her financial position in 2020.

For this question, you need to do two calculations. First, forecast Bella's operating income for 2020. Then calculate the value of operations for Bella's Bone World.

Select the answer below that most closely matches your calculations.

The format of the answer is: 2020 operating income, Value of operations

$36.2 million, $402.22 million

$32.92 million, $299.27 million

$74.02 million, $672.91 million

None of the above

$32.38 million, $359.78 million

Morrisey Technologies Inc. ‘s 2019 financial statements are shown below:

Suppose that in 2020 sales increase by 10% over 2019 sales and that 2020 DPS will increase to $1.12. Construct the projected financial statements for 2020. Use AFN to balance the pro forma balance sheet. How much additional capital (AFN) will be required (assume that it will be obtained at the end of the year, giving the interest expense for 2020 remain unchanged)? Assume the firm operated at full capacity in 2019.

Tip: Instead of using the AFN formula, you need to prepare the projected income statement first, then determine the amount of increase in R/E, and prepare a projected balance sheet with the balancing figure be the AFN (added to the notes payable).

1. The table given below summarizes the 2019 income statement and end-year balance sheet of Drake’s Bowling Alleys. Drake’s financial manager forecasts a 10% increase in sales and costs in 2020. The ratio of sales to average assets is expected to remain at 0.40. Interest is forecasted at 5% of debt at the start of the year. At the end of 2018 debt was $2,400,000 and assets were $6,960,000. (10 points)

a. What is the expected level of assets at the end of 2020?

b. If the company pays out 50% of net income as dividends, how much cash will Drake need to raise in the capital markets in 2020? Assumes debt remains constant.

c. If Drake is unwilling to make an equity issue, what will be the debt ratio at the end of 2020?

(show all work)

Samuel whales Ltd has purchased a property in Wellington New Zealand on 20 July 2020 for NZD 3,200,000 and intended to use it as a showroom. The company borrowed NZD 2,000,000 to finance the purchase. The company plans to take the opportunity of the current low interest rate to expand its property acquisitions.

2) The company applied for Wages Subsidy scheme on 4 April and was granted 70,000. On 7 August, the ToL received a letter from the government requesting the company to pay back the Wages Subsidy with interests citing the reason that the company did not qualify.

3) The company was experiencing delays in its supply chain from overseas suppliers from March to May 2020, which resulted longer lead times in filling customer orders. On 31 July, a customer filed a lawsuit against the company suing for damages of $300, 000. Because of the delay, this customer could not open business on time and suffered income loss.

REQUIRED: For each of the above subsequent event:

a) Explain the potential impact on the 2020 financial statements.

b) Discuss audit procedures that may verify the potential impact on the 2020 financial statements.