Golden Wedding Dress Company designs custom wedding dresses for brides to be. The person preparing the adjusting entries at year-end was unable to complete the adjustments due to illness. You have been given the following unadjusted trial balance along with some additional information for the December 31, 2020, year-end.

Other information:

1. Assume all accounts have a normal balance.
2. 70% of the balance in the Advance Sales account is for wedding dresses to be made and delivered by Golden during 2021; the remaining 30% is from sales earned during 2020.
3. Golden warranties its wedding dresses against defects and estimates its warranty liability to be 2% of adjusted net sales.
4. The 3%, 5-year note payable was issued on October 1, 2020; interest is payable annually each September 30.
5. The mortgage is paid annually on the first day of the next year. The next mortgage payment will be paid consisting of $8,752 interest and $23,727 principal for a total of $32,479.
6. Uncollectible accounts are estimated to be 1.5% of outstanding receivables.
7. A physical count of the inventory showed a balance actually on hand of $61,700.
8. Sarah promised her operations manager a year-end performance bonus of $3,715, which would be paid with her salary in January for high sales achieved this year.

Required:
1. Based on the information provided, journalize the adjusting entries at December 31, 2020.

2. Prepare a classified balance sheet. (Be sure to list the assets and liabilities in order of their liquidity. Round the final answers to the nearest whole dollar amount.)

Abc trading provided following information :-

1. Prepare a Cash Flow Statement from the following information for the year ended 30 June 2021.

2. Prepare a Statement in accordance with AASB 107 reconciling net cash flows from

operating activities to operating profit after income tax.

1. Net profit after tax – 50,230 dollars.

2. An item of plant costing $ 60,000 with a carrying value of $16,700 sold during 2020 for $20,000.

3. 25000 Shares issued at 1.50 each (Fully paid on Feb 2021).

4. Abc Trading paid an interim dividend in March 2021 of $4500 and the final proposed dividend from 2020.

1. GDP, UNEMPLOYMENT and FISCAL POLICY [15 marks]

1. Describe the relevant criteria that government statisticians use in Australia to determine whether a person is ‘unemployed’. Describe two ways in which the current method of calculating official ‘unemployment rate’ in Australia has been criticised for underestimating unemployment.  

                                                                                                   [3 mark]        

2. Identify whether there is likely an increase or decrease in measured Australian GDP in the following scenarios and discuss whether GDP is a ‘good’ measure of progress in each case:

1. a major increase in the extraction of coal to meet electricity demands of Chinese firms;
2. a large increase in the proportion of employed people volunteering (i.e. spending quality time, unpaid) with the poor and unemployed;
3. a sharp rise in the rate of theft (e.g. break-ins) of households and businesses.

                                                                                         [6 mark]

3. Suppose Britain’s formal departure from the European Union in 2020 results in some significant structural challenges to the British economy. The following hypothetical data show the state of the British economy from December 2020 to December 2021:

• the Consumer Price Index (CPI) falls from 110 to 100
• the underemployment rate rises from 4.7% to 10.1%
• real GDP per capita growth rate falls from 2.0% to -0.2%

Explain the phases of the business cycle the British economy is likely to be experiencing from December 2020 to December 2021. Provide specific reasons for your answer. Use a well-labelled AD/AS diagram to show the position of this economy in December 2021. Explain whether the British government should use expansionary or contractionary fiscal policy to move the economy back to the long run, full-employment GDP equilibrium. Draw the AD curve shift(s) associated with this policy on your diagram.

                                                                                                    [6 marks]

1. On 1 January 2013, Grove Limited acquired and installed a machinery for use in its manufacturing business. When acquired, the machinery cost £1,200,000, had an estimated useful life of 10 years and an expected residual value of £200,000. Grove depreciates machinery on a straight-line basis over its useful life. The company follows a calendar year reporting period.

At 31 December 2014, the annual review of all machinery found that this particular item of machinery had incurred significant damage. As a result, the engineering department estimated the fair value less costs to sell the machinery at this date was £710,000. As the machinery can operate in a limited capacity, it could be expected to provide annual net cash flows of £105,000 for the next 8 years, while the expected residual value will remain unchanged. The relevant discount rate is 8%.

1. Which IFRS standard would you consult to account for the event that occurred on 31 Dec. 2014? (0.5 point)
2. What is the difference between such an event and the depreciation of machinery? (1.5 points)
3. Show the relevant steps to test for the accounting impact of this event, and provide the appropriate journal entry, if necessary. (4 points)

The consolidated financial statements of FMCG Ltd and RG Ltd were presented to the Board. The Board is alarmed that the economic entity’s balance sheet (consolidated balance sheet) shows a deferred tax balance, when the accounts for FMCG Ltd had no deferred tax asset or deferred tax liability.

FMCG management is also planning to acquire another entity ABC Investments Ltd in the near future. Management pointed out to the Board that on acquisition, the financial results of this new subsidiary (ABC Investments Ltd) will also be consolidated in the economic entity financial statements.

One of the Board members noted that the new business to be acquired by FMCG Ltd is an investment company. Its financial statements should not be consolidated because it is involved in investments industry, whereas all of the other companies in the economic entity are involved in retail industry.

Required:

As the financial accountant you are requested to prepare a response to the following questions:

(a) Why does the economic entity have a deferred tax balance? (2.5 marks)

(b) Should the financial statements of proposed acquired business, ABC Investments Ltd, be consolidated into the economic entity and why? (2.5 marks)

1. A donor, Jill Brown, puts an entry into her last will and testament to leave Miss University in Mississippi $15,000,000 on October 10, 2018 to be used to pay for a new classroom building named after her late husband, Billy Brown. The university was immediately informed of this bequest by the donor's attorney on October 21, 2018. The donor dies on January 2, 2019. The university receives the check for the bequest on May 4, 2019. The classroom building planning and construction began December 3, 2019 and was placed into operation in January 2, 2021. When should the $15,000,000 bequest be recognized by Miss University?

A. October 21, 2018.

B. January 2, 2019.

C. May 4, 2019.

D. January 2, 2021.

2. A donor pledges $100,000 on December 15, 2018 to be paid in one amount to Columbia University. No donor restrictions were applied. The contribution is to be received four years from the pledge. If the present value of $1 at 3 percent is 0.8885, the journal entry to record the pledge would include: A. Debiting contributions receivable, $88,850. B. Crediting contributions—with donor restrictions, $100,000. C. Crediting discount of pledges, $11,150. D. Debiting net assets—without donor restrictions, $100,000 3. Cathleen Hallmark, president of the save-the-professor foundation, a non-for-profit, spends 80 percent of her time on presidential and board-related duties, which half of that time is also spent fundraising. She spends the remaining 20 percent of her time working on mission-oriented activities. On the statement of activities, Cathleen Hallmark's salary and benefits:

A. Should all be recognized as management and general expenses.

B. Should be subdivided as half in fundraising and half in management and general expenses.

C. Should be subdivided as 20 percent in program expenses, 40 percent in management and general, with the remainder in fundraising expenses.

D. Should never be allocated to program expenses.

3. Cathleen Hallmark, president of the save-the-professor foundation, a non-for-profit, spends 80 percent

of her time on presidential and board-related duties, which half of that time is also spent fundraising. She

spends the remaining 20 percent of her time working on mission-oriented activities. On the statement of

activities, Cathleen Hallmark's salary and benefits:

A. Should all be recognized as management and general expenses.

B. Should be subdivided as half in fundraising and half in management and general expenses.

C. Should be subdivided as 20 percent in program expenses, 40 percent in management and general, with

the remainder in fundraising expenses.

D. Should never be allocated to program expenses.

Joe’s Supply Company manufactures and sells elbow joints from its only location in New York. The elbow joints are sold throughout the United States and go into homes, houses, apartments, office buildings, hospitals and other buildings. On January 1, 2007 Joe, CEO of Joe’s Supply Company, finds a new supplier for resin to make his elbow joints at a much lower cost. This will make his business competitive with other manufacturers who already have Chinese suppliers. Joe’s R&D director does some preliminary tests on the resin and ultimately, the resin seems satisfactory. On February 1, 2007, Joe’s Supply begins manufacturing his elbow joints with the new resin and selling the newly formulated product over the internet, by mail and with walk-in customers. The elbow joints come with a 2 year limited warranty and a disclaimer about consequential damages.

In June 2008, Joe started to get reports from contractor customers that his elbow joints were leaking and damage to property was occurring. Joe did nothing to investigate these claims. He simply sent the customers a letter with the final results on the resin and told them, they must have installed the elbow joints incorrectly.

Can Joe be sued for the damage caused by the elbow joints? If so, describe the steps that Joe’s customer would have to take to sue Joe.

Can Joe’s customer sue the Chinese Company that made the resin?

If Joe did not want to be sued what other dispute resolution procedures are available to him and what do you think he should do?

If the government brought a criminal case against Joe’s Supply, can the corporation refuse to testify against itself under the 5^th Amendment? Can Joe refuse to testify? Can Joe refuse to hand over internal corporate papers such as the test results? Why?

Question 1: Partial year’s depreciation; alternative methods; exchange/disposal of PPE

Videotron Ltee completed the following transactions involving printing equipment.

Machine 6690 was purchased for cash on May 1, 2020, at an installed cost of $72,900. Its useful life was estimated to be four years with an $8,100 trade-in value. Straight-line depreciation was recorded for the machine at the ends of 2020 and 2021.

On August 5, 2020, it was traded for Machine 6691, which had an installed cash price of $54,000. A trade-in allowance of $40,500 was received and the balance was paid in cash. The new machine’s life was estimated at five years with a $9,450 trade-in value. The fair values of Machines 6690 and 6691 were not reliably determined at the time of the exchange. Double-declining-balance depreciation was recorded on each December 31 of Machine 6691’s life. On February 1, 2025, it was sold for $13,500.

Machine 6711 was purchased on February 1, 2025, at an installed cash price of $79,650. It was estimated that the new machine would produce 75,000 units during its useful life, after which it would have an $8,100 trade-in value. Units-of-production depreciation was recorded on the machine for 2025, a period in which it produced 7,500 units of product. Between January 1 and October 3, 2026, the machine produced 11,250 more units. On October 3, 2026, it was sold for $54,000

Required

Prepare journal entries to record:

1. The depreciation expense recorded to the nearest whole month on the first December 31 of each machine’s life. (for units-of-production, round the rate per unit to three decimal places).
2. The purchase/exchange/disposal of each machine.

Question 2: Intangible assets

On February 3, 2020, Secure Software Group purchased the patent for a new software for cash of $220,800. The company expects the software to be sold over the next five years and uses the straight-line method to amortize intangibles.

Required

1. Prepare entries to record the:

1. Purchase of the software patent.
2. Straight-line amortization for the year ended December 31, 2020, calculated to the nearest whole month. Round to the nearest dollar.

2. On December 31, 2020, the company’s adjusted trial balance showed the additional asset accounts shown below. Prepare the asset section of the balance sheet at December 31, 2020, including the patent purchased on February 3, 2020.

Accounts receivable………………………………$285,600

Accumulated depreciation, equipment……………$259,200

Accumulated depreciation, building………………$189,000

Allowance for doubtful accounts……………………$8,400

Cash………………………………………………. $103,200

Equipment…………………………………………$477,600

Building………………………………………… $595,200

Land………………………………………………. $ 110,400

Merchandise inventory…………………………… $ 135,600

2. Cost-Volume-Profit (CVP)                                                                                                               40 points

a. Assignment Question on Cost Volume Profit (CVP)

MMC Nutri Company is a small family fast food restaurant that opened in 2015, serving tropical cuisine to its mainly Afro-American, Asian and African customers. Because of its hot ingredients, few others patronize the food.

This business serves its popular dish Jollof rice, fish or meat stew, and rice flour porridge, as a meal for $9 a serving. Its variable cost per serving is $4.10 and its monthly fixed cost is $4,600 a month. On average, the business sells 60 servings a day, opened every day except Sunday. The highly religious owner takes Sunday off, as a rest day.

During this 2020 year of COVID-19 pandemic, average sales has dropped significantly. In June of this year, the federal government gave a lump sum financial assistance of $10,000 to the business, during a six weeks lockdown. Since then, current sales has dropped by 60% of its pre-COVID level, despite the introduction of take-away opportunity. The business optimistically estimates that sales will slowly increase to a maximum of 80% of pre-COVID level, for the rest of this year.

The owner is considering closing the business, due to uncertainty and depletion of personal savings to finance its operations, and has commissioned you to give advice, based on your knowledge of accounting.

The business is also exploring an available option of a $6,000 investment in machinery that will be used for 5 years and will reduce variable cost by $0.30 a unit. Sales price/unit will not change.

What will be your overall advice to this owner? Justify each option with analysis based on CVP.            

(Points will be awarded for trend of thought and the application of CVP principles. There is no one answer.) 30 points

b. Assignment on Plant-wide Overhead Absorption

Basic Construction Company won a bid to build a gym between January and March 2020. The actual manufacturing overhead for the completed construction was $128,610. On December, 2019, before the start of the construction, the company decided to set an annual overhead rate of $875,000 for all jobs during 2020, to be absorbed by direct labor hours. The actual direct labor hours used for this job was 49,000, and the direct machine hours used was 12,700. The annual direct labor hours estimated for 2020 by the company was 350,000 DLH. Provided there is over or under absorbed overhead, considered not significant, prepare the journal entry to close the manufacturing overhead account, at the end of the contract.                                                                                                                                             10 points