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)

PA10-6 (Supplement 10A) Recording Bond Issue, Interest Payments (Straight-Line Amortization), and Early Bond Retirement [LO 10-S1]

On January 1, 2018, Loop Raceway issued 540 bonds, each with a face value of $1,000, a stated interest rate of 6 percent paid annually on December 31, and a maturity date of December 31, 2020. On the issue date, the market interest rate was 7 percent, so the total proceeds from the bond issue were $525,829. 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 97.

Question2:

elow are account balances of Nile’Stones Shop, for the period ending 30th June 2020:

The following are transactions and additional information for Nile’Stones Shop for the month of June 2020 that have not been incorporated into those balances:

1. Collected cash $1,900 from credit customers.

2. Paid the creditors $2,600 of the amount owed on account.

3. The owner withdrew $1,000 from the business.

4. Paid all the accrued (utility) payable.

Required:

Based on the Nile’Stones Shop list of account balances at the end of June and incorporating the transactions and additional information above, calculate and itemise (list) the account balances and the amount of each account and the total amount that make up following:

a.     The total assets.

b.     The total liabilities

c.     The Owner’s Equity as at the 30^th June 2020.