Chapter 8, Problem 47P

Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. Stag plc started a project on 1 January 2021. The initial costs of setting up the project incurred before 2021 were £2 million. From 1 January 2021 to 31 March 2021 ongoing project costs were £15,000 per month. On 1 April 2021, the project was considered to be technically feasible and commercially viable and from this date, project costs increased to £65,000 per month. From 1 July 2021 to 30 August 2021, additional £1.5 million was spent for the design and construction of a pilot for the project. This pilot is not capable of operating on a scale economically feasible for commercial production. From 1 September 2021 to 31 December 2021, additional £350,000 were also spent for testing of the pilot. Between 1 April 2021 and 31 December 2021, Stag spent £140,000 on research staff, £50,000 on initial staff training, and 30,000 on initial marketing plan. The project was not completed…

Stag, a public limited company, is preparing its financial statements for the year ending 31 December 2021. Stag plc started a project on 1 January 2021. The initial costs of setting up the project incurred before 2021 were £2 million. From 1 January 2021 to 31 March 2021 ongoing project costs were £15,000 per month. On 1 April 2021, the project was considered to be technically feasible and commercially viable and from this date, project costs increased to £65,000 per month. From 1 July 2021 to 30 August 2021, additional £1.5 million was spent for the design and construction of a pilot for the project. This pilot is not capable of operating on a scale economically feasible for commercial production. From 1 September 2021 to 31 December 2021, additional £350,000 were also spent for testing of the pilot. Between 1 April 2021 and 31 December 2021, Stag spent £140,000 on research staff, £50,000 on initial staff training, and 30,000 on initial marketing plan. The project was not completed…

In mid-2020, Asheville Corporation engaged Greensboro, Inc. to design and construct a complete modernization of Asheville's manufacturing facility. Construction was begun on June 30, 2020 and was completed on December 31, 2020. Asheville made the following payments to Greensboro, Inc. during 2020:                         Date                                                Payment                          June 30, 2020                                $600 ,000                         August 31, 2020                                900,000                         December 31, 2020                           750,000   To help finance the construction, on May 31, 2020, Asheville issued at par, a $500,000 of 2-year, 12% bonds payable, with interest payable annually, on June 1st.   In addition to the 12% bonds payable mentioned above, the only other debts outstanding during 2020 were a $250,000, 12% note payable dated January 1, 2012 and due January 1, 2022, with interest payable annually on…

Apollo Medical Supplies Ltd borrowed $25 million to finance an investment in a laboratory for developing and testing surgical supplies on 1 July 2019. The loan is due 30 June 2029. The lender insisted on a debt covenant in the loan agreement, specifying that the leverage ratio not exceed 60%. Apollo Medical Supplies Ltd complied with the requirement in 2020 when the ratio of total liabilities to total tangible assets was 58%. Apollo Medical Supplies Ltd also invested in plant and equipment used exclusively to manufacture polyester surgical masks. However, due to a decline in demand for polyester surgical masks, analysts are predicting that the company may need to write-down some of its plant and equipment. Requireda) Debt covenants or restrictions are commonly used in lending agreements. Discuss how they are used to reduce agency problems that exist in the relationship between management and lenders.b) Why would management choose to enter into a lending agreement that contains a…

To encourage entities to expand their operations in a specified development zone, where it is difficult for entities to obtain financing for their projects, the  government provides interest-free loans to fund the purchase of manufacturing equipment. On January 1, 2021, in accordance with the development scheme, an entity receives an interest-free loan from the government  for P5,000,000 for a period of three years. The market rate of interest for similar loans is 5% per year (is the market rate of interest for similar three-year loan to the entity). There are no future performance conditions attached to the interest-free loan.  What amount should be included immediately in the  profit or loss on January 1, 2021? A. NONE B. 238,095 C. 464, 853 D. 680,815

Sanders Construction Company enters into a contract to build a new football stadium for Central Illinois University  on November  5, 2021.  The contract is for $20 million and work is expected to be completed by August 1, 2022.  Orange will receive a $2 million bonus if the work is completed by  July 1, 2022.  Total payment will be made upon completion of the stadium.  Orange has built numerous stadiums and believes that there is a 80% chance that it will complete the project by July 1, 2022.  What is the transaction price?   Question 27 options:   a)  $20,000,000   b)  $20,400,000   c)  $21,600,000    d)  $22 ,000,000

Two technologies are currently available for the manufacture of an important and expensive food and drug additive. Laboratory A is willing to release the exclusive right to manufacture the additive in this country for $50,000 payable immediately, and a $40,000 payment each year for the next 10 years. The production costs are $1.23 per unit of product. Laboratory B is also willing to release similar manufacturing rights, with the following schedule of payments: on the closing of the contract, $10,000 from Years 1 to 5, at the end of each year, a payment of $25,000 each from Years 6 to 10, also at the end of each year, a payment of $20,000 The production costs are $1.37 per unit of product. Neither lab is to receive any money after 10 years for this contract. It is anticipated there will be an annual production of 100,000 items for the next 10 years. On the basis of analyses and trials, the products of A and B are practically identical in quality. Assuming a MARR of 12%, which lab should…

A company is analyzing the acquisition of a concession. The government provides it for 6 years for an initial investment of $50,000,000 and the export equipment will cost another $50,000,000 (which is acquired in the initial period of the project), with the commitment that in year 8 it will reforest for $250,000,000. The annual income (from year 1 to 6) is $50,000,000. The IOT (Internal rate of opportunity) is 20% per year. The IRR (A.I.R.), which is greater than 10%, of this project, is:

In 2019, Austin Powers Corporation developed a new product that will be marketed in 2020. In connection with the development of this product, the following costs were incurred in 2019: research and development costs $400,000, materials and supplies consumed $60,000, and compensation paid to research consultants $125,000. It is anticipated that these costs will be recovered in 2022. What is the amount of research and development costs that Austin Powers should record in 2019 as a charge to expense?