FINANCIAL REPORTING CONCEPTS (6 MARKS)

Junk Grrlz (Junk) is a wholesale distributor of goods.Junk purchases goods that are not selling from manufacturers and other wholesalers and sells them to discount retail outlets.You are a professional accountant and are preparing Junk's financial statements for the year ended September 30, 2017. The company had $300,000 of real animal fur coats in merchandise inventory that were not selling.Junk has not had an order for real fur coats for over a year.The president is reluctant to write off the inventory and consequently signed a sales agreement with Cheap But Good (Cheap). Cheap agreed to buy the coats for the $350,000 and could return any costs that it had not sold by December 31, 2017.In addition, Cheap was not required to pay Junk for the coats until December 31, 2017.The coats were shipped to and received by Cheap on September 29, 2017.

Requirement 5: Answer the following questions:

(a)Assuming returns cannot be estimated and Junk uses the earnings approach, when should revenue be recognized on the fur costs sold to Cheap But Good?Explain. (2 marks)

(b)How should the fur costs be reported in Junk's financial statements for the year ended September 30, 2017?Explain. (4 mark)

NON-CURRENT LIABILITIES (19 MARKS)

You have recently graduated from University, and have accepted a well-paying job at a prestigious firm.Currently, your main mode of transportation is rapid transit and the car you got from your parents, but what you would really like to drive is a bright yellow Camaro Spyder.Now that you have a well-paying job you are seriously considering buying one.

You have checked things out on the internet, and believe you could buy the kind of car you want for $50,000.The down payment of $5,000 would come from selling your current car.

You are considering three financing alternatives.

Alternative #1:Borrowing from the bank.The bank has agreed to give you a 5-year, 6% mortgage note payable with monthly blended payments.

Alternative #2:Borrowing from your parents.They would require you to sign a 5-year, 6% note payable with monthly fixed principal payments.

Alternative #3:Your parents are strongly suggesting that you save up for the car by saving a fixed amount on a monthly basis over 5 years, and purchase the car when you have the cash.You will earn 3% interest on your savings account. Assume that you will be able to sell your old car in 5 years for $2,500.

Requirement 14: Determine the monthly cost under each of the following alternatives:

(a)Alternative #1:Calculate the amount of the monthly blended payment. (5 marks)

(b)Alternative #2:Calculate the amount of the payment to be made the first month (principal and interest) (5 marks)

(c)Alternative #3:Calculate the amount that you will need to deposit each month if you saved for 5 years. (4 marks)

Requirement 15 (4 marks): Calculate how long it would take to save $47,500 if you deposited an amount equal to the monthly blended payment each month?

Requirement 16 (1 mark): Which alternative has the upper advantage?