Alison and Chuck Renny began operations of their furniture repair shop (Lazy Sofa Furniture, Inc.) on January 1, 2017. The annual reporting period ends December 31. The trial balance on January 1, 2018, follows (amounts are rounded to thousands of dollars to simplify).

Transactions during 2018 (summarized in thousands of dollars) follow:

1. Borrowed $16 cash on July 1, 2018, signing a six-month note payable.
2. Purchased equipment for $23 cash on July 2.
3. Issued additional shares of common stock on July 3 for $5.
4. Purchased additional equipment on August 4, $3 cash.
5. Purchased, on account, supplies on September 5 for future use, $10.
6. On December 6, recorded revenues in the amount of $60, including $9 on credit and $51 received in cash.
7. Paid salaries and wages expenses on December 7, $24.
8. Collected accounts receivable on December 8, $8.
9. Paid accounts payable on December 9, $11.
10. Received a $4 deposit on December 10 for work to start January 15, 2019.

Data for adjusting journal entries on December 31:

11. Amortization for 2018, $4.
12. Supplies of $4 were counted on December 31, 2018.
13. Depreciation for 2018, $2.
14. Accrued interest on notes payable of $5.
15. Wages earned but not yet paid, $3.
16. Income tax for 2018 was $4 and will be paid in 2019.

C4-4 Part 3

3. Prepare an unadjusted trial balance. (Enter your answers in thousands of dollars.)

3. Prepare an unadjusted trial balance. (Enter your answers in thousands of dollars.)

3. Prepare an unadjusted trial balance. (Enter your answers in thousands of dollars.)

3. Prepare an unadjusted trial balance. (Enter your answers in thousands of dollars.)

Following is selected financial information from JM Smucker Co. for the year ended April 30, 2018 ($ millions).

* Cash from financing activities includes the effects of foreign exchange rate fluctuations.

a. Prepare the income statement for the year ended April 30, 2018.

Note: Do not use negative signs with any of your answers.

b. Prepare the balance sheet as of April 30, 2018.

c. Prepare the statement of cash flows for the year ended April 30, 2018.
Note: Use a negative sign with your answer to indicate cash was used by activities and/or a decrease in cash.

d. Compute ROA.
e. Compute profit margin (PM).
f. Compute asset turnover (AT).
g. Compute ROE.

Notes:
Round ROA, PM, and ROE to one decimal place (ex: 10.5%).
Round AT (asset turnover) to two decimal places (0.33).

Background information

Gifts Ltd (Gifts) operates 30 specialty gift stores. The company’s year-end is 30 June 2018. The audit manager and partner recently attended a planning meeting with the finance director and have provided you with the planning notes below. You are the audit senior, and this is your first year on this audit. The audit manager has asked you to undertake some research to gain an understanding of Gifts, so that you are able to assist in the planning process. He has then asked that you identify relevant audit risks from the notes below and also consider how the team should respond to these risks. Gifts spent $2.1 million in refurbishing all of its stores and extending their central warehouse. In order to finance this refurbishment, Gifts borrowed $2 million from the bank. This is due to be repaid over five years. The company will be performing a year-end inventory count at the central warehouse, as well as at all 30 stores, on 30 June 2018. Inventory is valued at selling price less an average profit margin, as the finance director believes that this is a close approximation of cost. Prior to the 2018 financial year, each store maintained its own financial records and submitted returns monthly to head office. During the 2018 financial year all accounting records were centralised within head office. Therefore, at the beginning of the 2018 financial year, each store’s opening balances were transferred into head office’s accounting records. The increased workload at head office has led to some changes in the finance department and in May 2018 the financial controller left. Her replacement will start in late June 2018.

REQUIRED

: a) List two (2) sources of information that would be of use in gaining an understanding of Gifts, and for each source describe what information you would expect to obtain.

b) Using the background information provided above, identify six (6) audit risks and explain the auditor’s response to each risk in planning the audit of Gifts.

Part C.2 The finance director of Gifts is considering establishing an internal audit department and is unsure what factors he should consider when making his decision.

REQUIRED: Bearing in mind the differences and similarities between the roles of an internal auditor compared to an external auditor, outline four (4) factors the finance director should consider before establishing an internal audit department.

Bolero Company holds 75 percent of the common stock of Rivera, Inc., and 30 percent of this subsidiary’s convertible bonds. The following consolidated financial statements are for 2017 and 2018:

Additional Information for 2018

The parent issued bonds during the year for cash.

Amortization of databases amounts to $27,000 per year.

The parent sold a building with a cost of $104,000 but a $52,000 book value for cash on May 11.

The subsidiary purchased equipment on July 23 for $253,000 in cash.

Late in November, the parent issued stock for cash.

During the year, the subsidiary paid dividends of $56,000. Both parent and subsidiary pay dividends in the same year as declared.

Prepare a consolidated statement of cash flows for this business combination for the year ending December 31, 2018. (Use indirect method) (Negative amounts and amounts to be deducted should be indicated by a minus sign.)

Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business using the following financial data.
  

  
Required:
Prepare a statement of cash flows for Business Solutions using the indirect method for the three months ended March 31, 2018. Owner Santana Rey contributed $34,000 to the business in exchange for additional stock in the first quarter of 2018 and has received $3,900 in cash dividends. (Amounts to be deducted should be indicated with a minus sign.)
  

Placid Lake Corporation acquired 90 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $490,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $7,000 per year.

Placid Lake's 2018 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $390,000. Scenic reported net income of $200,000. Placid Lake declared $190,000 in dividends during this period; Scenic paid $49,000. At the end of 2018, selected figures from the two companies' balance sheets were as follows:

During 2017, intra-entity sales of $120,000 (original cost of $60,000) were made. Only 30 percent of this inventory was still held within the consolidated entity at the end of 2017. In 2018, $180,000 in intra-entity sales were made with an original cost of $68,000. Of this merchandise, 40 percent had not been resold to outside parties by the end of the year.

Each of the following questions should be considered as an independent situation for the year 2018.

1. What is consolidated net income for Placid Lake and its subsidiary?

2. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

3. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

4. What is the consolidated balance in the ending Inventory account?

5. Assume that no intra-entity inventory sales occurred between Placid Lake and Scenic. Instead, in 2017, Scenic sold land costing $39,000 to Placid Lake for $68,000. On the 2018 consolidated balance sheet, what value should be reported for land?

1. f-1. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2017, Scenic sold equipment (that originally cost $190,000 but had a $69,000 book value on that date) to Placid Lake for $98,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2018, consolidation of these two companies to eliminate the impact of the intra-entity transfer?

2. f-2. For 2018, what is the noncontrolling interest’s share of Scenic’s net income?

Santana Rey, owner of Business Solutions, decides to prepare a statement of cash flows for her business using the following financial data.
  

Placid Lake Corporation acquired 80 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $400,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $5,000 per year.

Placid Lake's 2018 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $300,000. Scenic reported net income of $110,000. Placid Lake declared $100,000 in dividends during this period; Scenic paid $40,000. At the end of 2018, selected figures from the two companies' balance sheets were as follows:

During 2017, intra-entity sales of $90,000 (original cost of $54,000) were made. Only 20 percent of this inventory was still held within the consolidated entity at the end of 2017. In 2018, $120,000 in intra-entity sales were made with an original cost of $66,000. Of this merchandise, 30 percent had not been resold to outside parties by the end of the year.

Each of the following questions should be considered as an independent situation for the year 2018.

What is consolidated net income for Placid Lake and its subsidiary?

If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

What is the consolidated balance in the ending Inventory account?

Assume that no intra-entity inventory sales occurred between Placid Lake and Scenic. Instead, in 2017, Scenic sold land costing $30,000 to Placid Lake for $50,000. On the 2018 consolidated balance sheet, what value should be reported for land?

f-1. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2017, Scenic sold equipment (that originally cost $100,000 but had a $60,000 book value on that date) to Placid Lake for $80,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2018, consolidation of these two companies to eliminate the impact of the intra-entity transfer?

f-2. For 2018, what is the noncontrolling interest’s share of Scenic’s net income?

Placid Lake Corporation acquired 90 percent of the outstanding voting stock of Scenic, Inc., on January 1, 2017, when Scenic had a net book value of $490,000. Any excess fair value was assigned to intangible assets and amortized at a rate of $7,000 per year.

Placid Lake's 2018 net income before consideration of its relationship with Scenic (and before adjustments for intra-entity sales) was $390,000. Scenic reported net income of $200,000. Placid Lake declared $190,000 in dividends during this period; Scenic paid $49,000. At the end of 2018, selected figures from the two companies' balance sheets were as follows:

During 2017, intra-entity sales of $120,000 (original cost of $60,000) were made. Only 30 percent of this inventory was still held within the consolidated entity at the end of 2017. In 2018, $180,000 in intra-entity sales were made with an original cost of $68,000. Of this merchandise, 40 percent had not been resold to outside parties by the end of the year.

Each of the following questions should be considered as an independent situation for the year 2018.

1. What is consolidated net income for Placid Lake and its subsidiary?

2. If the intra-entity sales were upstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

3. If the intra-entity sales were downstream, how would consolidated net income be allocated to the controlling and noncontrolling interest?

4. What is the consolidated balance in the ending Inventory account?

5. Assume that no intra-entity inventory sales occurred between Placid Lake and Scenic. Instead, in 2017, Scenic sold land costing $39,000 to Placid Lake for $68,000. On the 2018 consolidated balance sheet, what value should be reported for land?

1. f-1. Assume that no intra-entity inventory or land sales occurred between Placid Lake and Scenic. Instead, on January 1, 2017, Scenic sold equipment (that originally cost $190,000 but had a $69,000 book value on that date) to Placid Lake for $98,000. At the time of sale, the equipment had a remaining useful life of five years. What worksheet entries are made for a December 31, 2018, consolidation of these two companies to eliminate the impact of the intra-entity transfer?

2. f-2. For 2018, what is the noncontrolling interest’s share of Scenic’s net income?

Problem 16-6 Skysong Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2017, and May 31, 2018. The income from operations for the fiscal year ended May 31, 2017, was $1,775,000 and income from continuing operations for the fiscal year ended May 31, 2018, was $2,566,000. In both years, the company incurred a 10% interest expense on $2,446,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss from discontinued operations of $617,000 on February 2018. The company uses a 40% effective tax rate for income taxes. The capital structure of Skysong Corporation on June 1, 2016, consisted of 954,000 shares of common stock outstanding and 20,100 shares of $50 par value, 5%, cumulative preferred stock. There were no preferred dividends in arrears, and the company had not issued any convertible securities, options, or warrants. On October 1, 2016, Skysong sold an additional 490,000 shares of the common stock at $20 per share. Skysong distributed a 20% stock dividend on the common shares outstanding on January 1, 2017. On December 1, 2017, Skysong was able to sell an additional 794,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years. Identify whether the capital structure at Skysong Corporation is a simple or complex capital structure. Determine the weighted-average number of shares that Skysong Corporation would use in calculating earnings per share for the fiscal year ended: Weighted-average number of shares (1) May 31, 2017 (2) May 31, 2018 Prepare, in good form, a comparative income statement, beginning with income from operations, for Skysong Corporation for the fiscal years ended May 31, 2017, and May 31, 2018. This statement will be included in Skysong’s annual report and should display the appropriate earnings per share presentations. (Round earnings per share to 2 decimal places, e.g. $1.55.) SKYSONG CORPORATION Comparative Income Statement For Fiscal Years Ended May 31, 2017 and 2018 2017 2018 $ $ $ $ Earnings per share: $ $ $ $ Question Attempts: 0 of 5 used Save for later Submit Answer