Entries for Bonds Payable, including bond redemption

*Please find Year 3 - Loss of redemption on bonds and discount on bonds payable*

The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:

Required:

1. Journalize the entries to record the foregoing transactions. If an amount box does not require an entry, leave it blank or enter "0". When required, round your answers to the nearest dollar.

2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2.

a. Year 1   $

b. Year 2   $

3. Determine the carrying amount of the bonds as of December 31, Year 2.
$

Ponpon produces cans of jelly. The company would like to purchase a canning machine. The machine costs $25,000 and the company needs a loan to make the purchase. Before agreeing to the loan, their bank requires Ponpon to provide both current (2020) and budgeted (3 months in 2021) financial statements.

Use the following information from Ponpon to provide the bankers with the 2021 budgeted financial states.

Balance Sheet

Cash                                        $50,000   

Accounts Receivable               $31,000   

Inventory                                $12,000

Fixed Assets                            $37,000

Total Assets                            $130,000

Accounts Payable                   $22,500

Accrued Credit Fees               $9,200

Common Stock                        $46,800

Retained Earnings                   $$51,500

Total Liabilities & Equity         $130,000

2021 Sales Forecast

January            $74,000

February          $82,000

March              $58,000

April                $54,000

May                 $80,000

June                 $67,000

July                  $70,500

Additional Info:

1. Ponpon only accepts credit cards when selling their jelly. Ponpon collects 35% of the sales on account in the month of the sale and 65% in the month after the sale.
2. Unfortunately, the credit card companies pass along a 6.2% sales fee to Ponpon for the convenience and safety of their transactions on account. The sales fee is due one month after the sale.
3. The cost of sales is 42% of (current month) sales.
4. Ponpon maintains an inventory at all times at the sales requirements (COS) for the months’ budgeted sales. This provides assurance that they won’t run out of jelly.
5. Ponpon uses a credit card for all their purchases. The company pays off their credit card balance in full the following month.
6. Ponpon pays 5% of sales each month to Jako Co. for the CEO’s security service.
7. In addition to the carriable security cost, Ponpon incurs fixed expenses of $22,000 per month, $1500 of which is for depreciation of fixed assets.

1. Complete the budget spreadsheet for Ponpon

  Cash Budget

January            February           March             April         May

      Beginning Balance:                           

Plus, cash receipts from sales:

Cash from Dec Sales

Cash from Jan Sales     $74,000

Cash from Feb Sales    $82,000

Cash from Mar Sales  $58,000

Cash from Apr Sales    $54,000

Cash from May Sales  $80,000

Cash from Jun Sales     $67,000      

Plus: Total Cash Receipts                                                                                                            

Cash Expenditures

Inventory Purchases

Variable Costs  (mgmt. fee)

Credit Card Fees

Fixed Expenses

Total Cash Expenditures

Ending Cash Balance

Read the case study and answer three questions below:

Patti Smith looked up at the bright blue Carolina sky before she entered the offices of Horizon Consulting. Today was Friday, which meant she needed to prepare for the weekly status report meeting. Horizon Consulting is a custom software development company that offers fully integrated mobile application services for iPhoneTM, AndroidTM, Windows Mobile® and BlackBerry® platforms. Horizon was founded by James Thrasher, a former marketing executive, who quickly saw the potential for digital marketing via smartphones. Horizon enjoyed initial success in sports marketing, but quickly expanded to other industries. A key to their success was the decline in cost for developing smartphone applications, which expanded the client base. The decline in cost was primarily due to learning curve and ability to build customized solutions on established platforms. Patti Smith was a late bloomer who went back to college after working in the restaurant business for nine years. She and her former husband had tried unsuccessfully to operate a vegetarian restaurant in Golden, Colorado. After her divorce, she returned to University of Colorado where she majored in Management Information Systems with a minor in Marketing. While she enjoyed her marketing classes much more than her MIS classes, she felt the IT know-how acquired would give her an advantage in the job market. This turned out to be true as Horizon hired her to be an Account Manager soon after graduation. Patti Smith was hired to replace Stephen Stills who had started the restaurant side of the business at Horizon. Stephen was “let go” according to one Account Manager for being a prima donna and hoarding resources. Patti’s clients ranged from high-end restaurants to hole-in-wall mom and pop shops. She helped develop smartphone apps that let users make reservations, browse menus, receive alerts on daily specials, provide customer feedback, order take-out, and in some cases order delivery. As an Account Manager she worked with clients to assess their needs, develop a plan, and create customized smartphone apps. Horizon appeared to be a good fit for Patti. She had enough technical training to be able to work with software engineers and help guide them to produce client-ready products. At the same time she could relate to the restaurateurs and enjoyed working with them on web design and digital marketing. Horizon was organized into three departments: Sales, Software Development, and Graphics, with Account Managers acting as project managers. Account Managers generally came from Sales, and would divide their time between projects and making sales pitches to potential new clients. Horizon employed a core group of software engineers and designers, supplemented by contracted programmers when needed. The first step in developing a smartphone application involved the Account Manager meeting with the client to define the requirements and vision for the application. The Account Manager would then work with a Graphic User Interface (GUI) designer to come up with a preliminary story board of how the application would function and look. Once the initial concept and requirements were approved the Account Manager was assigned two pairs of software engineers. The first pair (app engineers) would work on the smartphone side of the application while the second pair would work on the client side of the application. Horizon preferred to have software engineers work in tandem so they could check each other’s work. The two app engineers would typically work full time on the application until it was completed while the other engineers would work on multiple projects as needed. Likewise, GUI designers would work on the project at certain key stages in the product development cycle when their expertise was needed. The head of Graphics managed the GUI designers’ schedule while the head of Software managed the software engineer assignments. At the end of each project Account Managers submitted performance reviews of their team. The Director of Sales was responsible for the Account Managers’ performance reviews based on customer satisfaction, generation of sales, and project performance. Horizon believed in iterative development, and every two to three weeks Account Managers were expected to demonstrate the latest version of applications to clients. This led to useful feedback and in many cases redefining the scope of the project. Often clients wanted to add more functionality to their application once they realized what the software could do. Depending upon the complexity of the application and changes introduced once the project was under way, it typically took Horizon two to four months to deliver a finished product to a client. Patti was currently working on three projects. One was for Shanghai Wok, a busy Chinese mom and pop restaurant located in downtown Charlotte, North Carolina. The owners of Shanghai Wok wanted Horizon to create a smartphone app that would allow customers to order and pay in advance for meals they would simply pick up at a walk-up window. The second project was for Taste of India that operated in Kannapolis, North Carolina. They wanted Horizon to create a phone app that would allow staff at the nearby bio-tech firms to order food that would be delivered on-site during lunch and dinner hours. The last project was for Nearly Normal, a vegetarian restaurant which wanted to send out e-mail alerts to subscribers that would describe in detail their daily fresh specials. James Thrasher was an admirer of Google and encouraged a playful but focused environment at work. Employees were allowed to decorate their work spaces, bring pets to work, and play ping-pong or pool when they needed a break. Horizon paid its employees well but the big payoff was the annual Christmas bonus. This bonus was based on overall company profits, which were distributed proportionately based on pay grade and performance reviews. It was not uncommon for employees to receive a 10–15 percent boost in pay at the end of the year.

STATUS REPORT MEETING

As was her habit Patti entered the status report meeting room early. David Briggs was in the midst of describing the game-winning catch John Lorsch had made in last night’s softball game. Horizon sponsored a co-ed city league softball team which most of the Account Managers played on. Patti had been coaxed to play to ensure that the requisite number of “females” were on the field. She balked at the idea at first; softball wasn’t really her sport, but she was glad she did. Not only was it fun, but it gave her a chance to get to know the other managers. James Thrasher entered the room and everyone settled down to business. He started off as he always did by asking if anybody had important news to bring to everyone’s attention. Jackson Browne slowly raised his hand and said, “I am afraid I do. I just received notification from Apple IOS that they have rejected our TAT app.” TAT was a phone app that Jackson was the project lead on that allowed subscribers to reserve and see in real time what swimming lanes were available at a prestigious athletic club. This announcement was followed by a collective groan. Before an Apple app could go operational it had to be submitted and approved by Apple. Usually this was not a problem, but lately Apple had been rejecting apps for a variety of reasons. Jackson went on to circulate the list of changes that had to be made before Apple would approve the app. The group studied the list, and in some cases ridiculed the new requirements. Ultimately, James Thrasher asked Jackson how long it would take to make the necessary changes and resubmit the app for approval. Jackson felt it would probably take two to three weeks at most. Thrasher asked who the engineers that worked on this project were. Patti’s heart fell. One of the app engineers who had developed the TAT app was working on her Shanghai Wok project. She knew what was going to happen next. Thrasher announced, “OK everyone, it only makes sense that these engineers are the best ones to finish what they had started so they are all going to have to be reassigned back to the TAT project. Those affected are going to have to get together after this meeting and figure how you are going to replace them.” The meeting then proceeded as planned with all the account managers reporting the status of their projects, and sharing relevant issues with the group.

POST-MEETING

As everyone filed out, Patti looked around to see who else was in her same boat. There were three other Account Managers as well as Jackson Browne. Resource assignments were a reoccurring issue at Horizon given the nature of their work. Horizon had developed a policy where decisions were made based on project priority. Each project was assigned a Green, Blue or Purple designation based on the company priority. Priority status was based on the extent the project contributed to the mission of the firm. The Shanghai Wok project given its limited size and scope was a Purple project, which was the lowest ranking. The list of available software engineers was displayed on the big screen. Patti was only familiar with a few of the names. Leigh Taylor who had the only Green project immediately selected Jason Wheeler from the list. She had used him before and was confident in his work. Tom Watson and Samantha Stewart both had Blue Projects and both needed to replace a mobile app engineer. They both immediately jumped on the name of Prem Mathew, claiming he was the best person for their project. After some friendly jousting, Tom said, “OK, Sam, you can have him; I remember when you helped me out on the Argos project; besides my project is just beginning. I’ll take Shin Chen.” Everyone looked at Patti; she started by saying, “You know, I am only familiar with a few of these names; I guess I’ll go with Mike Thu.” Jackson interjected, “Hey everyone, I am really sorry this happened, and I am sure Mike is a good programmer, but I recommend you work with Axel Gerthoff. I have used him before, and he is a very quick study and a joy to work with.” This was a relief to Patti and she quickly took his advice. They left to submit a report to Thrasher detailing the decisions they each had made and the impact on their projects.

1. How successful was the post-meeting?

2. What factors contributed to the success or failure of this meeting?

3. What kind of project management structure does Horizon use? Is it the right structure? Explain.

Chapter 5 Case

You are the Chief Financial Officer (CFO) for Zen Distributors Inc., a media broker that secure shelf space in independent bookstores for small publishing companies. As a member of the company’s executive team, you are preparing the operating budget for the fourth quarter of 2020. Your intent is to summarize the budget for team members and provide them with detailed schedules that support your overview.  

Zen’s general ledger provides you with current account data on September 30, 2020 (the end of the third quarter) of operations:

Jack Closer, Vice President of Sales, estimated that sales should increase slightly from their fourth quarter levels of the previous year. Per your request, he forwarded his monthly fourth quarter sales estimates to you, along with the current month’s actual sales and his forecast for January 2021.

You next met with Mary Balance, Zen’s Controller. Ms. Balance informed you that the company prices its products to ensure a 25% gross profit margin on sales. Zen has met that margin throughout the first three quarters of 2020, and she was confident that the firm would meet this target margin in the near term. Mary also told you that, on average, 60% of Zen’s customer pay in cash. Those customers receive a one percent discount on the invoice price.

The remaining 40% of the customers pay on account. Credit sales terms are n/2EOM. This means credit customers must pay the full invoice price by the end of the month following the month in which they purchased merchandise. Mary explained, “Our customers are pretty sophisticated, and they constantly manage their cash flows--just as we do. Consequently, if we make a credit sale in October, they will pay us by the end of November.” Finally, Mary said, “We screen our customers very carefully before extending them credit. Our customers pay what they owe us. We don’t have any bad debts, and we don’t expect any in the future.”  

Mary also provided you with third quarter monthly expense data to assist in constructing your budget. The next table presents that information:

She concluded that, “As you know, we pay our operating expenses in the month we accrue them.”

               Procurement officer Jim Washburn managed inventory so that its ending balance equaled 80% of the next month’s cost of goods sold. Washburn said, “We can construct monthly purchase budgets as follows: add desired ending inventory to cost of goods sold, which are 75% of sales, to determine required inventory for a month. Then we subtract that month’s beginning inventory to determine required purchases for the month.” Washburn also stated that the accounts payable clerk pays one-half of each month’s inventory cost in the month of acquisition, and the remaining 50% in the following month.

               Ashleigh McNamara, head of capital expenditures, informed you that Zen will make a cash purchase of $1,500 worth of hand-held scanning devices in early October. McNamara said “We will use operating cash to pay for the scanners because they are an inexpensive capital acquisition.” Per corporate policy, the firm will depreciate this equipment over thirty months on a straight-line basis. Ashleigh added, “They’ll be useless at the end of that time, so we will scrap them.”    

               In your role as CFO, you insist that Zen maintain an ending monthly cash balance of $4,000 to maintain financial flexibility. The company has an open line of credit with its banking partner to ensure that it can meet its cash balance goal. This agreement mandates a 12% annual interest rate for all short-term borrowings. Financing must take place at the beginning of the month in thousand dollar multiples. Repayments of borrowing must also occur in thousand dollar increments, and the bank only accepts interest payments when Zen repays principal.    

Required:

Compose a memorandum to Zen’s management team that highlights the key aspects of the 2020 fourth quarter operating budget. Supplement your summary with budgetary schedules and attach them to the executive summary. The budgetary flow that you select is as follows:

• Cash collections

• Inventory purchases

• Cash disbursements for purchases

• Cash disbursements for operating expenses

• Short-term financing budget (collections, disbursements, and financing)

You construct each of the above budgets on a monthly and quarterly basis.

               Finally, you conclude your budgets with projected (pro-forma) monthly and quarterly income statements and a pro-forma balance sheet on December 31. The company has a zero percent income tax rate, due to previous tax losses.  

Compare the Closed-Economy IS-LM model, an Open-Economy IS-LM-BP model in which exchange rates are allowed to float freely, and an Open-Economy IS-LM-BP model in which exchange rates are held constant by the central bank. Specifically, use the three models to explain, and compare, the effects on GDP, interest, and the exchange rate of the national currency of:

a. A sudden increase in government expenditures.

b. A sharp increase in the discount rate and a massive sale of Treasury bonds by the central bank.

Consider a Carnot heat engine cycyle executed in a closed system (piston-cylinder device) using 0.01848695 kg of stem as the working fluid. It is known that the maximum absolute temperature in the cycle is three times the minimum absolute temperature, and the net-work output of the cycle is 90 KJ assuming no kinetic and potential energy changes. If the steam changes from saturated vapor (state 3=h_g) to saturated liquid(state 4=h_f) during heat rejection (process3-4) determine

a) the thermal efficiency of this Carnot Cycle

b) the head addition during the process 1-2 (isothermal expansion)

c) the heat rejection during process 3-4 (isothermal compression)

d) the temperature of the steam during the heat rejection process.

(a hint: use energy balance equation, H=U+PV, and h_g -h_f = h_fg

Thought Experiment: We have studied the open-closed resonator in air. Let’s turn our focus to other gases: helium (He) and sulfur hexafluoride (SF6). Helium is lighter than air. SF6 on the other hand is heavy, almost 5 time heavier than air. How would each gases speed of sound compare to that of air? Higher? Lower? The same? How do you expect the resonator to react in each gas?

Due to the ongoing COVID-19 pandemic, your employer closed down and retrenched all its employees. You decided to return to your hometown, a small town in the east coast of MARGATE. You noticed that there was no food delivery service business in the town and decided to start such a service using your cars. Your delivery riders would collect the orders from food outlets in the town and deliver the food to customers for a fee. However, you did not have sufficient funds to run the business. When you tried to obtain a business loan from a bank, the bank officer requested that you prepare a sales forecast for the proposed business.

i)   Explain two main challenges in making the sales forecast as required by the bank.

ii) Describe which specific method is suitable for the sales forecast and provide the reasons why you choose this method.

c) After the bank approved your loan, you began operating delivery service company as described in 2(b).

The company recorded the following number of deliveries in the last 6 months:

Due to the expected increase in deliveries, you approached the bank again to obtain another business loan. This time, the bank officer asked for a forecast of the deliveries for the rest of the year based on your July forecast. You decided to use naive, 3month moving average and 6-month moving average forecast methods.

i) Calculate your forecast for July using the three methods stated.

ii) If actual deliveries for July are 309, which one among the three methods is the most accurate using absolute deviation calculation?

A closed economy can be described by the long-run classical model: Y = 5K 1/4L 3/4 C = 23500 + 0.6(Y – T) – 1200r I = 15000 – 800r MPK = 1.25K – 3/4L 3/4 MPL = 3.75K 1/4L –1/4 In this economy, there are two productive factors, K and L and both factor inputs are fully employed. The stock of capital and the supply of labour are equal to 50625 and 10000 respectively. Initially, the level of government spending represents 24% of the initial national income. The government runs a budget deficit, and the size of the budget deficits is equal to 4% of total output. Note: r represents the real interest rate and is measured in percentage points (for example, if r = 10, then this is interpreted as r = 10%). Keep your answers to 3 decimal points if needed. a) Compute the long-run equilibrium levels of consumption, national savings and real interest rate. Also, find the long-run equilibrium real wage for labour and real rental price of capital. (5 points). Suppose the outbreak of COVID-19 reduces spending by both households and businesses. As a result, autonomous consumption and autonomous investment change by 6% and 5% respectively. b) Find the new long-run equilibrium levels of national savings and real interest rate, real wage, and real rental price of capital. (4 points) c) Compare your answers in parts (a) & (b), what happens to the (equilibrium) level of investment? (i.e., increase/decrease/remain unchanged)? Explain, in words only, why the variable changes or remains unchanged. (4 points) d) Show your answers for parts (a) & (b) in three diagrams (that depict the loanable funds market, the labour market, and the rental market for capital in long-run equilibrium). Be sure to identify which points on your diagrams are the long-run equilibria for part (a) & (b) respectively. No written explanation is required. (6 points) e) Suppose the government wants to promote the level of national savings to 8250 via a change government spending. Find the change in the level of government spending that will accomplish this goal. What happens to the budget balance (i.e., improves/deteriorates/no change)? (6 points)

1. A Common stock of General Motors closed at $38.16 today 7/03/19 The company paid $0.40 last quarter and the growth rate is expected to be 5.5%. What will be the investor’s price assuming she has a required rate of 9.5%? What would be the yield the yield on the investment based on an annual (4x$0.40) dividend? Would she buy, sell, or hold if she is interested in trading for a profit? Explain fully.

2. AT&T 10-year bonds paying 8% currently sells for 0.96 which is equivalent to $960 in dollar terms.

a. What is the current yield?

b. What is the yield to maturity?

c. What is the investor’s price assuming she is requiring 11% return

d. Would she invest in the bond? WHY?__________________