The balance sheets for Kinder Company showed the following information. Additional information concerning transactions and events during 2020 are presented below.

Kinder Company

Balance Sheet

            December 31    

     2020                  2019

         Cash $ 30,900 $ 10,200

         Accounts receivable (net) 43,300 20,300

         Inventory 35,000 42,000

         Long-term investments 0 15,000

         Property, plant & equipment 236,500 150,000

         Accumulated depreciation     (37,700)              (25,000)

$308,000 $212,500

         Accounts payable $ 17,000           $ 26,500

         Accrued liabilities 21,000 17,000

         Long-term notes payable 70,000 50,000

         Common stock 130,000 90,000

         Retained earnings      70,000               29,000

$308,000 $212,500

Additional data:

1.   Net income for the year 2020, $61,000.

2. Gain on sale of investment, $18,000, included in net income.

3.   Paid a $40,000 long-term note payable by issuing common stock.

Prepare a Statement of Cash Flows for Kinder using the indirect method using Be sure to include required supplemental disclosures.

The balance sheets for Kinder Company showed the following information. Additional information concerning transactions and events during 2020 are presented below.

Kinder Company

Balance Sheet

            December 31    

     2020                  2019

         Cash $ 30,900 $ 10,200

         Accounts receivable (net) 43,300 20,300

         Inventory 35,000 42,000

         Long-term investments 0 15,000

         Property, plant & equipment 236,500 150,000

         Accumulated depreciation     (37,700)              (25,000)

$308,000 $212,500

         Accounts payable $ 17,000           $ 26,500

         Accrued liabilities 21,000 17,000

         Long-term notes payable 70,000 50,000

         Common stock 130,000 90,000

         Retained earnings      70,000               29,000

$308,000 $212,500

Additional data:

1.   Net income for the year 2020, $61,000.

2. Gain on sale of investment, $18,000, included in net income.

3.   Paid a $40,000 long-term note payable by issuing common stock.

Prepare a Statement of Cash Flows for Kinder using the indirect method using Be sure to include required supplemental disclosures.

Part A: Provisional Tax and Interest

Yixuan Wu runs a business and her residual income tax (RIT) for the 2019-20 income year (31 March balance date) was $30,000. She filed for her 2019-20 income year return on 1 July 2020. Business has not been great since April this year due to the lock downs and Yixuan is expecting to make much lower profit for this income year and hence expects to pay much less tax for the 2020-21 income year. She seeks your advice on her provisional tax payments for the 2020-21 income tax year ending 31 March 2021. She has previously used the standard uplift method to calculate her provisional tax payments.

(c) Yixuan is concerned that she may end up paying her tax late or underpaying her tax and is not sure of the consequences if this happens. Explain to Yixuan what happens if a taxpayer is late paying their tax or underpays their tax?

QS 6-12 Estimating inventories—gross profit method LO6

The inventory of Sixth Avenue Department Store was destroyed by a fire on September 10, 2020. The following 2020 data were found in the accounting records

Jan. 1 inventory ............................................................... $180,000

Jan. 1–Sept. 10 purchases (net) ................................. $342,000

Jan. 1–Sept.10 sales ..................................................... $675,000

2020 estimated gross profit rate ................................ 42%

QS 6-13 Estimating inventories—gross profit method LO6

During the past two months, management of Wallace Lake Computing Supplies was closely watching inven-tory levels due to suspected shrinkage caused by unknown factors. The physical count on July 31, the end of the current month, shows $48,000 of merchandise actually on hand. The accounting records for prior periods indicate that gross profit should be 30% of the $565,000 net sales for July. Inventory at June 30 was actually $65,000 and July purchases were $385,500. Calculate the estimated:

a. Ending inventory

Gym Equipment Manufacturers Ltd (GEM) manufactures and sells gym equipment. It also installs the gym equipment for their customers.

On 1 January 2020, Keeping Fit Gym in Auckland signed a contract to purchase a piece of personalised gym equipment from GEM Ltd. The purchase price in the signed contract is $39,000. GEM Ltd also offers free installation service of the equipment to Keeping Fit.

The selling price of the same type of gym equipment, excluding the free installation, is $36,450. The installation of the equipment can also be done by registered manufacturers at $4,050.

On 10 January 2020, Keeping Fit paid the full amount, and on the same day, the equipment was delivered. The installation of the equipment was performed on the 20 January 2020.

Required:

(a)   Advise GEM Ltd on how to recognise the revenues in accordance with the 5-step model in NZ IFRS 15. (You are required to explain each step in the model with calculations).

(b)   Prepare relevant journal entries to recognise revenue for the above sale in terms of the 5-step model in GEM Ltd’s books.

The comparative statement of financial position of Bramble Corporation as at December 31, 2020, follows: BRAMBLE CORPORATION Statement of Financial Position December 31 December 31 Assets 2020 2019 Cash $ 54,000 $ 14,700 Accounts receivable 89,600 88,600 Equipment 26,700 21,300 Less: Accumulated depreciation (10,300 ) (10,900 ) Total $ 160,000 $ 113,700 Liabilities and Shareholders’ Equity Accounts payable $ 19,600 $ 15,800 Common shares 100,000 80,100 Retained earnings 40,400 17,800 Total $ 160,000 $ 113,700 Net income of $36,100 was reported and dividends of $13,500 were declared and paid in 2020. New equipment was purchased, and equipment with a carrying value of $4,700 (cost of $11,900 and accumulated depreciation of $7,200) was sold for $8,100. Prepare a statement of cash flows using the indirect method for cash flows from operating activities. Assume that Bramble prepares financial statements in accordance with ASPE. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

At the beginning of its fiscal year 2020, an analyst made the following forecast for ABC, Inc. (in millions of dollars):

Suppose these numbers were given to you at the end of 2019, as forecasts, when the book value was 890 million, as indicated and market price of the stock was $10.5 per share. Use a required return of 10 percent for calculations below. Show your working process.

1. Calculate residual earnings and return of common equity (ROCE) for each year, 2020–2024.                                                                                      

[5 marks]

2. Value the firm at the end of 2019 under the assumption that the RE in 2024 will continue at the same level subsequently.                                                            

[2 marks]

3. Based on you analysis, if the number of shares outstanding at the end of 2019 was 220 million, what should be the share price of ABC?                                      

[1 mark]

4. Based on your estimate, should investors buy the share of this company?          

[1 mark]

Fieldman Company purchased a machine for leasing purposes on January 1, 2020, for $1,500,000. The machine has a 10-year life, has no residual value, and will be depreciated on a straight-line basis. On January 2, 2020, Fieldman leased the machine to Dahlia Company for $150,000 a year for a five-year period ending December 31, 2024. Dahlia does not guarantee a residual value of the machine at lease-end, although Dahlia can purchase the machine at the end of the lease term for 40% of the estimated residual value which is a significant discount. Dahlia paid $150,000 to Fieldman on January 2, 2020, the first annual payment date.

How would Fieldman Company and Dahlia Company classify the lease, considering a 5% implicit interest rate for both parties?

Fieldman Company         Dahlia Company

Crane Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The lease is for an 8-year period and requires equal annual payments of $34,300 at the beginning of each year. The first payment is received on January 1, 2020. Crane had purchased the machine during 2019 for $140,000. Collectibility of lease payments by Crane is probable. Crane set the annual rental to ensure a 8% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Crane at the termination of the lease. Assume that Dexter Corporation does not know the rate implicit in the lease used by Crane, and Dexter’s incremental borrowing rate is 10%. In addition, assume that Dexter incurs initial direct costs of $12,000.

Compute the amount of the lease liability and right-of-use asset for Dexter?

Prepare all necessary journal entries for Dexter for 2020.

(To record the lease)

(To record the first lease payment)

(To record interest expense)

(To record amortization of the right-of-use asset)