Question 1:

The income statement for Strait Horn Inc., a publicly traded company following IFRS, is presented here:

Strait Horn Inc.

Income Statement

Year Ended December 31, 2019

Sales $5,200,000

Cost of Goods Sold $3,155,000

Gross Profit $2,045,000

Operating Expenses $1,025,000

Profit from Operations Interest Expense $1,020,000

Interest Expense $120,000

Profit before Income Taxes Income Taxes. $900,000

Income Taxes $230,000

Profit $670,000

Additional Information:

1. Operating expenses include $50,000 of depreciation expense and a $45,000 impairment loss on property, plant and equipment.
2. Accounts Receivable increased by $100,000
3. Merchandise Inventory increased by $45,000
4. Prepaid expenses related to operating expenses increased by $35,000
5. Accounts Payable to suppliers of merchandise decreased by $90,000
6. Accrued liabilities related to operating expenses decreased by $55,000
7. Interest Payable increased by $55,000
8. Income tax payable increased by $35,000

Required:

Prepare the operating activities section of the statement of cash flows using the Indirect Method.

Question 2:

Zemax Inc. began operations on January 2. Its year end is December 31, and it adjusts its accounts annually. Selected transactions for the current year follow:

1. On January 2, purchased supplies for $3,500 cash. A physical count at December 31 revealed that $800 of supplies were still on hand.
2. Purchased a vehicle for $44,000 on April 1, paying $4,000 cash and signing a $40,000 bank loan for the balance. The vehicle is estimated to have a useful life of five years.
3. Purchased a $3,500, one-year insurance policy for cash on August 1. The policy came into effect on that date.
4. Received a $1,200 advance cash payment from a client on November 9 for services to be provided in the future. As at December 31, half of these services had been completed.
5. On December 1, the company rented additional office space for a six-month period starting on December 1 for $1,050 each month. It paid rent for the months of December and January in advance of this date.

Required:

1. For each of the above situations, provide the entry for the original transaction.
2. For each of the above situations, provide the adjusting entry required at December 31.

Question 3:

M7 Inc. budgeted sales and direct materials purchases are as follows:

Month Budgeted Sales Budgeted Direct Material Purchases

March $180,000 $22,000

April $205,000 $35,000

May $280,000 $43,000

M7 Inc. sales are 30% cash and 70% credit. It collects credit sales 20% in the month of sale, 40% in the month following sale, and 35% in the second month following sale; 5% are uncollectible. M7 Inc. purchases are 40% cash and 60% on account. It pays purchases on account 60% in the month of purchase, and 40% in the month following purchase.

Required:

1. Provide a schedule of expected collections from customers for May.
2. Provide a schedule of expected payment for direct materials for May.

Question 4:

The Blue division of the Leaf Company reported the following data for the current year:

Sales $2,600,000

Variable Cost $2, 100,000

Controllable Fixed Cost $450,000

Average Operating Assets $5,050,000

Senior Management is unhappy with the investment centre's return on investment. It asksthe manager of the Blue division to submit plans to improve the ROI in the next year. The manager believes it is reasonable to consider each of the following independent courses of action.

1. Increase sales by $270,000 with no change in the contribution margin percentage

2. Reduce variable costs by $120,000

3. Reduce average operating assets by 4.5%

Required:

1. Calculate the return on investment for the current year.
2. Using the ROI formula, calculate the ROI under each of the proposed courses of
3. action (Round to one decimal)