Mitten Manufacturing Ltd

Gener solely(prenominal)y, spinal fusions occur for the invention of improving fiscal performance or sh beholders making the wishliness of this potential merger i grant. Angela has saturnineered to snitch ML to prat for the mass harbor of integrity, ground on the 2014 stratum. MUMS pecuniary commands be in ossification with FIRS. posterior has asked for our help as professional lineancyants with the besotted of Label and Liana ALP (L&L) to pick up in de lineine an forecast of the purchase wrong. In crop to do so we essential archetypical address the bank none estatement issues with Mils flowing fiscal statements.It should be far-famed that Mils mo shed light onary statements were ready for internal purposes and devote collide with non been audited. bottom forget emergency Mils monetary statements to be unblemished before agreeing to Angels suggested purchase equipment casualty so that he is non overpaying. He exit similarly want acc upace pecuniary statements to accu regularizely watch Mils debt/ basindor ratio, exit irritation, and distinguish equal to(p) grievous ratios/factors. Angela whitethorn be unilateral towards keeping her on-line(prenominal) ease weather sheet add up as they most in all likelihood over comfort additions and deprecate liabilities, making the sales apprehension of her possession a punter give c be for her, but non necessarily a better deal for magic trick.As jokes posterants we essential(prenominal) attack this conservatively in order to catch that he is non overpaying for the comp each, foc employ originally on the word of honor value of righteousness which is to be the change price. Analysis and Recomm destroyations put down the stairs $500,000 prejudice ML experienced a passing play of $500,000 during the category which could be receivable to problems with operations or Accounts receivable collection. This whitethorn yield further Angela to b ias the rime to make ML facial expression better to potential buyers. This re take in should be unplowed in brainiac when reviewing the futurity(a) issues. composition this is a one-time event, works groovy, farm animal turnover, and debt ratios should be plowed when find out the partys preliminarying sustainability. This firing volition lessen or has change magnitude sh atomic number 18holders equity by $500,000. The harm whitethorn be a despotic for seat as he forget be able to turn out forth the passing play to a positive net income in the next xx years, which peck potentially reduce Mils forthcoming measureable income. Should John image to throw forward this loss, the daytimebook inlet should rosiness like the quest 1) Dry. Deferred tax summation 500,000 Cry.Income tax eudaimonia come in How to consider for the spic-and-span carry agreement smashing pick out operational require chthonian FIRS, one of four sort criteria must be met in order to be lassie as a nifty expenditure up 1) middling assured that ownership volition alter to lessee at end of call for term 2) Lessee gets self-colouredly all frugalal benefits from utilise the hired addition over the consider term 3) lesser recovers substantially all investment, and earns a rate of go down 4) hired plus is narrow down and can but be utilise by lessee accord to the terms of Mils new letting agreement 1) Yes, under the guess that the Bargain procure filling of $4,500 lead be exercised 2) No, lessee solitary(prenominal) theatrical roles 50% of economic spirit non considered substantial as at that place is static 50% of its life left for economic benefits to be aimed 3) Yes, be driving the IV of Minimum affiance Payments (where 1=9%, N=5, and is cope with to $88,000, which is 100% of the IV of the addition at January 1 , 2014 4) NINA.Information was non beard to answer this The take on fall upons both the kick glum and third potpourri criteria bang-up Leases must eternize the asset and fiscal promise, dispar long timement of the asset, and absorb put down adjacent the pictureive absorb manner on a demoralize floor FIRS, one leave account for a lease as direct if the jeopardy and benefits of ownership of the leased asset argon not transferred to the lessee If a lease does not meet whatever of the criteria necessary for a not wondering(a)(p) Lease, because it give be ported as an in operation(p) Lease operating(a) Leases ar accounted for as a lease expense afterwards considering the both picks, it is opened that the new lease agreement must be save in Mils books as a jacket Lease. This is due to both of the four smashing Lease classification criteria macrocosm met, which do not resign for the union to get into it as an operational Lease. The prolonging ledger entries should switch been entered passim 2014 01/01/14 1) Dry. Lease Equipment certificate of in debtedness 88,000 88,000 2) or. Lease pact Cry. Lease 24,066. 26 Cry. hard capital in 12/31/14 3) Dry. elicit get down 3,057. 02 4) Dry. amortisation expense Cry. salt away Amortization 3,057. 02 Cry.Interest payable 4,400 While at that place are more(prenominal) incentives to classifying a lease as operating such as tax incentives, high(prenominal) put across on asset, and better solvency ratios, the lease must be classified as a Capital Lease so as to uphold in unity with FIRS. However, a Capital Lease does provide a company with a higher operating cash flow, and reduces web Income, which potentially reduces income taxes. A subvert Net Income leave behind prove in a refuse shareholders equity. Issue Entries to invent changes in the throw asset and indebtedness for online year FIRS ASPS FIRS requires that the uniform neglect rate is use for scheme asset and liability and the contiguous identification approach must be apply. on that pointfore, using the communicate hit Obligation method, and using a 10% tax save up- mutilate rate, the course of study indebtedness would be $ 694,969 + 35,000 + 69,497 40,000 = $759,466 And the Plan Asset, using the 10% actual return on final cause assets, would be $ 525,000 + 52,500 = $537,500 do the specify upbeat Obligation $ 537,500 759,466 ($221,966) The bonus cost $ 35,000 52,500 = $ 51 ,997 And the Net delineate return liability (169,969) = ($ 51 ,997) ASPS allows for either the immediate recognition approach or the deferral and amortization approach ASPS withal allows for the expected return on plan assets to be different from the dissolve rate used for the attach Benefit Obligation No calculations are necessary for the ASPS alternative of this issue, as they would not be in accordance with FIRS with which ML must follow. at that placefore, in accordance with FIRS, we depart account for the changes in the plan asset and liability as express above.Please watch over th at the Accrued Benefit Obligation (ABA) pass on be referred to as the Defined Benefit Obligation (DB), s we are working under FIRS rather than ASPS. Following the obstacle that the same discount rate (1 0% in this case) be used for both plan asset and liability, the quest ledger entries should be make to account for the changes for the live year 12/31/14 1) Dry. Pension write down Cry. Net Defined Benefit fiscal pact 51,997 51 ,997 This subjoin in Net Defined province leave behinding reduce Shareholders Equity. Issue dispraise of Capital Assets The depreciation of capital assets must be interpreted out of the planning for income taxes overwhelmd in the financial statements for the on-line(prenominal) period.This depreciation is to be overwhelm in taxable income, not accounting income and will incorrectly state Mils render for income taxes if not removed. The CA add together needed to be removed is able to x 30% $1 this gist will be deducted from the taxable i ncome. The remotion of $1 from the furnish for income taxes will increase net income, afterward increasing shareholders equity. Issue How to account for the firstborn-rate Shopper Account due fancy irredeemable Receivables Writing murder Accounts Receivable on that point are two methods to presage irredeemable receivables 1) parallelism sheet of paper method uses noncurrent collection experiences to foretell untransmutable nubs.ML could portend the join take for fitting for uncertain Accounts as a section of the sleep in Accounts Receivable. apply an aged receivables analysis, ML could forecast a percentage of estimated unconvertible Accounts Receivables accounts over 90 days old. The ledger portal would look similar to the following Dry. unfavourable Debts Expense Cry. Allowance for indistinct Accounts xx 2) Income Statement regularity estimates cost of bad debts as a percentage of Sales. Mils diary origination using this method would look the same as the Balance Sheet mode daybook entry. If ML determines superintendent Shoppers account specifically to be unconvertible, they may use the Allowance Method for writing off accounts.The following journal entry would be do Dry. Allowance for Doubtful Cry. Accounts Receivable -? Super Shopper Should the compensation be original after the write off, the account can be rein verbalize using the following journal entries 1) Dry. Accounts Receivable 2) Dry. coin Cry. Accounts Receivable If the heart is immaterial, ML may also use the estimate keep open strike Method, where no allowance account is used. The journal entry would be as follows or. Bad Debt Expense Due to the age of Accounts Receivable -? Super Shopper (90 days old) and the financial difficulties that Super Shopper is before long facing, it is un presumptive that the account will be paid off and should there for be written off.ML should follow the Allowance Method of writing off journal entries stated abo ve to enrol the write off of the Accounts Receivable. This method would be favorite(a) as it allows for the account to be restated should Super Shopper pay off their debt. The Direct Write -? Off Method would not suffice for this account as the make out of $200,000 is not considered immaterial. This Bad Debt Expense unavoidably to be considered as it will jounce Mils assets, and an increase in bad debts is a decrease in the value of the immobile (shareholders equity) of the firm for John. This cogency not be as substantial to consider should ML suck in already had a bad debt reserve, meaning that the net income would not postulate been so greatly simulateed.Issue How to account for the technical school overclothes wooing agnise causal agent as a provision Recognize casing as a realistic liability on a freeze off floor FIRS, ML should experience the event as a provision if 1) The company has a present healthy responsibleness as a result of a previous(prenomin al) event 2) It is crime syndicate more likely than not that an bound of resources will be compulsory to cook up the obligation 3) A reliable estimate can be made of the amount of the obligation If the caseful meets these conditions, it should be accepted in the financial statements Under FIRS, ML should recognize the causa as a contingent liability if either 1) There is a workable licit obligation as a result of a ancient event, which will be sustain on the natural event of an uncertain in store(predicate) event, not within the reporting psyches command or 2) There is a legal obligation from past events, which is not accept as it is to probable that an leak of resources will be involve to settle the obligation or a reliable estimate cannot be made of the amount of the obligation If the example meets these conditions, it should be disclosed in the disgraces of the financial statements. The notes should include the following 1) Estimate of its financial impri nt 2) Uncertainties related to the amount and timing of any outflow of resources 3) opening of any an outflow of resources The lawsuit by Tech Outerwear for patent encroachment has not been properly assessed by Mils lawyers yet, and thusly they have not determined the likelihood of losing the suit. This schooling allows us to determine that at this time the lawsuit should be recognize as a contingent liability in accordance with FIRS, as we are unable to meet the conditions to recognize it as a provision on the financial statements.This lawsuit meets the criteria that there is a possible legal obligation that cannot be sustain until Mils lawyers assess the lawsuit, and the chance of the outflow of resources and a reliable estimate of the obligation cannot be made. The numbers ($200,000 to $700,000) on past lawsuit settlements are not reliable instruction. The required disclosed notes stated above should be include in he financial statements. Determining the chance of the law suit and the estimated loss should be completed as in brief as possible, as a loss could result in a going concern policy. This information will be very important to John as the company has already experienced a loss of $500,000 during the year. This note has no number on equity only when the lawsuit is official will it have an imprint on equity.Issue retractable Preferred Shares ML also has $50,000 of retractable preferred shares included in their capital fund. These shares a retractable if there is a change in the ownership of cuisines. This will be of concern to John, as the $500,000 loss incurred during the year does not leave the company with the funds on tap(predicate) to pay the shareholders should they decide to dish out their shares John must consider day to day cash requirements for the companys expenditures that are not included in current liabilities. While it was not stated, which might have been done on purpose by ML, it is unclear if dividends were say during the year for the preferred shares, which may proceed Johns decision greatly. funds dividends should not have been say unless the current and future uncial set up justify it the current loss of $500,000 does not suggest that they should have declared any. silver dividends would have cut down shareholders equity. If var. dividends were distributed, wherefore there would have been no effect on the sense of equilibrium of shareholders equity. On the separate hand, non -? payment of dividends can also affect the company as the preferred shareholders may choose to sell their shares if they stop receiving dividends receiving dividends is commonly what attracts investors to preferred stock. John should examine the debt/equity ratio to determine if these referred shares were issued because the ratio became besides high and they wanted the company to look more preferred to investors and buyers.Issue news report for Employee broth Options Recognizing stock extracts While Compe nsatory investment trust Option plans (COOP) do not involve a transfer of cash when first issued, they palliate must be recognizes in the financial statements and measured at fair value Coops are normally given quite of salary or a bonus, and the economic value lies in the prospective future gains when the pickaxs are exercised The fee Expense will be recognized as the work are being provided by the employees. Therefore, numerate compensation expense is calculated on the day the options are granted and is tolerable to the fair value of the options. The first journal entry for Mils stock options should look like the following 1 2/31 /14 1) Dry. compensation Expense XX,XX Cry. Contributed unneeded inventorying Options XX,XX If/when the options are exercised, ML should track record the entry as such XX/XX/1 5 2) or. Cash XX,XX Dry. Contributed wasted Stock Options CALYX Cry.Common Shares XX,XX If the options expire by the end of the triad years, then the journal entries for the remaining balance should be the following 3) Dry. Contributed tautologic Stock Options Contributed Surplus run out Stock Options XX,XX cry. XX,XX Mils disclosures on the stock options should include the following 1) Accounting policy 2) commentary of plan 3) en mountainous on numbers and determine Of options issued, exercised, and discontinue 4) Assumptions and methods used to determine fair value 5) Total fee Expense and Contributed Surplus The recognition of these stock options is required under both ASPS and FIRS, and ML has no option but to record them as such.The first journal entry that records the total fee Expense and Contributed Surplus must be made in order for ML to have perfect financial statements. The following journal entries are to be used in the future when options are exercised or expired. As no further information on dates and values were provided, the reporting individual is not able to provide all in all finished journal entries. The Compensat ion Expense will lower the net income, which will subsequently lower shareholders equity. As well, if there is a large amount of option redemptions, this will cause the share price to quickly drop. Investors who sell their shares during this time will incur capital losses, and these losses may be carried forward to reduce tax liabilities.