Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade

Problem 12-2 Importing/Exporting Transactions with a Forward Contract Hedge

Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company uses a periodic inventory system and is on a calendar-year basis. All exchange rates are direct quotations.

Dec. 1 Crystal Exporting purchased merchandise from Chang’s Ltd., a Hong Kong manufacturer. The invoice was for 210,000 Hong Kong dollars, payable on April 1. On this same date, Crystal Exporting acquired a forward contract to buy 210,000 Hong Kong dollars on April 1 for $.1314.
Dec. 29 Crystal Exporting sold merchandise to Zintel Retailers for 120,000 Hong Kong dollars, receivable in 90 days. No hedging was involved.
April 1 Crystal Exporting received 120,000 Hong Kong dollars from Zintel Retailers.
1 Crystal Exporting submitted full payment of 210,000 Hong Kong dollars to Chang’s, Ltd., after obtaining the 210,000 Hong Kong dollars on its forward contract.

Spot rates and the forward rates for the Hong Kong dollar were as follows:
Forward Rate for
Spot Rate April 1 Delivery
Dec. 1 $.1265 $.1314
Dec. 29 .1240 .1305
Dec. 31 .1259 .1308
April 1 .1430

Required:
A. Prepare journal entries for the transactions including the necessary adjustments on December 31.
B. Explain the income statement treatment given to any transaction gains and losses recognized at December 31.

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Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions

E 18-8 Reporting preferred shares

Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company's 2011 annual report:

Note 5. CONVERTIBLE PREFERRED STOCK (in part):
The Company has the following Convertible Preferred Stock outstanding as of September 2011:
Date of issuance: June 17, 2008
Optionally redeemable beginning June 18, 2010
Par value (gross proceeds): $2,500,000
Number of shares: 100,000
Liquidation preference per share: $25.00
Conversion price per share: $30.31
Number of common shares in which to be converted: 82,481
Dividend rate: 6.785%

The Preferred Stock is convertible at any time by the holders into a number of shares of Ozark's common stock equal to the number of preferred shares being converted times a fraction equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, as and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.

The Preferred Stock is optionally redeemable by the Company beginning on various dates, as listed above, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference after which date it remains the liquidation preference.

Required:
1. What amount of dividends is paid annually to a preferred shareholder owning 100 shares of the Series A preferred stock?
2. If dividends are not paid in 2012 and 2013, but are paid in 2014, what amount of dividends will the shareholder receive?
3. If the investor chooses to convert the shares in 2012, how many shares of common stock will the investor receive for his/her 100 shares?
4. If Ozark chooses to redeem the shares on June 18, 2012, what amount will the investor be paid for his/her 100 shares?

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Burger Baby restaurants engaged Air Advertising to fly an advertisement above the Connecticut beaches

9-4A. Types of Contracts. Burger Baby restaurants engaged Air Advertising to fly an advertisement above the Connecticut beaches. The advertisement offered $1,000 to any person who could swim from the Connecticut beaches to Long Island in less than a day. At 10:00 a.m. on October 10, Air Advertising’s pilot flew a sign above the Connecticut beaches that read: “Swim across the Sound and Burger Baby pays $1,000.” On seeing the sign, Davison dived in. About four hours later, when he was the about halfway across the Sound, Air Advertising flew another sign over the Sound that read: “Burger Baby revokes”. Davison completed the swim in another six hours. Is there a contract between Davison and Burger Baby? Can Davison recover anything? Why or why not?


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For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client

Problem 15-40 For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client. Jocelyn has assessed the control risk for the company at the maximum for all financial statement assertions involving investments. Consequently, the ICFR audit report will indicate material weaknesses and rather than relying on ICFR during the financial statement audit, all audit evidence will come from substantive procedures. Jocelyn determines that Rogers is unable to exercise significant influence over any investee and there are no related parties.

Morris receives an investment analysis from Rogers’s management revealing the following:
• There is a notation indicating that all securities either are in the treasurer’s safe or held by an independent bank custodian.
• Investments are classified as current or non-current.
• The beginning and ending balances are shown at cost and market.
• Unamortized premiums or discounts are associated with bonds.
• The face amount of bonds or number of shares of stock are given for the beginning and ending of the year.
• Accrued investment income for each investment at the beginning and ending of the year is presented.
• Investment income earned and collected is presented.
• Valuation allowances at the beginning and ending of the year are shown.
• Any sales or additions to portfolios for the year include date, number of shares, face amount of bonds, proceeds, cost, and realized gain/loss.

Required: Explain the audit objective for each of the listed management financial statement assertions relative to investments.

Assertion Audit Objective
1. Existence
2. Completeness
3. Rights
4. Valuation/allocation
Presentation and Disclosure


Click here for the solution: For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client