Accounts-QA80

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PART:1

 

Question 1: Calculating Bad Debts
 

At January 1, 2017, the credit balance of Culver Corporation’s Allowance for Doubtful Accounts was $410,000. During 2017, the bad debt expense entry was based on a percentage of net credit sales. Net sales for 2017 were $80 million, of which 89% were on account. Based on the information available at the time, the 2017 bad debt expense was estimated to be 0.77% of net credit sales. During 2017, uncollectible receivables amounting to $486,000 were written off against the allowance for doubtful accounts. The company has estimated that at December 31, 2017, based on a review of the aged accounts receivable, the allowance for doubtful accounts would be properly measured at$522,000.
 

Required
 

a) Prepare a schedule calculating the balance in Culver Corporation’s Allowance for
Doubtful Accounts at December 31, 2017.
b) Prepare any necessary journal entry at year-end to adjust the allowance for doubtful accounts to the required balance.
 

Question 2: Bank Reconciliation
 

Congo Ltd. prepared the following bank reconciliation at March 31:
Balance per bank statement ………………………………………….. $37,200
Add: Deposit in transit ………………………………………………….. 10,300
…………………………………………………………………………………. 47,500
Less: Outstanding cheques …………………………………………… 12,600
Correct cash balance per books, March 31 ……………………… $34,900
Data per bank statement for the month of April follows:
Deposits …………………………………………………………………….. $47,700
Disbursements ……………………………………………………………. 49,700
All reconciling items at March 31 cleared the bank in April. Outstanding cheques at April30th totaled $5,000. There were no deposits in transit at April 30.
 

Required
 

What is the correct cash balance per books at April 30?
 

Question 3: Note Receivable
 

On October 1, 2017, Flint Corporation sold a harvesting machine to Pearl Industries.
Instead of a cash payment, Pearl Industries gave Flint a $139,000, two-year, 12% note;12% is a realistic rate for a note of this type. The note required interest to be paid annually on October 1, beginning October 1, 2018. Flint’s financial statements are prepared on a calendar-year basis.
 

Required
 

a) Assuming that no reversing entries are used and that Pearl Industries fulfills all the
terms of the note, prepare the necessary journal entries for Flint Corporation for the
entire term of the note.
b) Repeat the journal entries under the assumption that Flint Corporation uses reversing entries, but only up to and including October 1, 2018.
 

Question 4: Inventory destroyed
 

The explosion of an underground oil tank destroyed Sarasota Inc.’s April 30 inventory.January 1 inventory was $324,000 and purchases for January through April totalled $794,000. Sales for the same period were $1.1 million. Sarasota’s’ normal gross profit percentage is 30%.
 

Required
 

Using the gross profit method, estimate the amount of Sarasota’s’ April 30 inventory that was destroyed.
 

Question 5: Periodic Inventory, FIFO, Weighted Average Cost
 
 

Flounder Corporation began operations on December 1, 2016. The only inventory
transaction in 2016 was the purchase of inventory on December 10, 2016, at a cost of$20 per unit. None of this inventory was sold in 2016. Relevant information for fiscal2017 is as follows:
Ending inventory units:
December 31, 2016 130
December 31, 2017 160
Comprised of by purchase date:
December 2, 2017 130
July 2, 2017 30 160
During 2017, the following purchases and sales were made:
Purchases Sales
Mar. 15 360 units at $24 Apr. 10 220
July 20 360 units at $26 Aug. 20 310 Sept. 4 300 units at $28 Nov. 18 160 Dec. 2 130 units at $32 Dec. 12 430
The company uses the periodic inventory method.
 

Required
 
Determine the ending inventory under;
a) FIFO
b) Weighted average cost
 

Question 6: Amortized Cost and FV-NI Investments in Bonds
 
The following information relates to the debt investments of Sarasota Inc. during a recent
year:
 

1.On February 1, the company purchased Gibbons Corp. 10% bonds with a face value of $324,000 at 100 plus accrued interest. Interest is payable on April 1 and October
 

2. On April 1, semi-annual interest was received on the Gibbons bonds.
 

3.On June 15, Sampson Inc. 9% bonds were purchased. The $216,000 par-value
bonds were purchased at 100 plus accrued interest. Interest dates are June 1 and
December 1.
 

4.On August 31, Gibbons Corp. bonds with a par value of $65,000 purchased on
February 1 were sold at 99 plus accrued interest.
 

5.On October 1, semi-annual interest was received on the remaining Gibbons Corp.
bonds.
 

6. On December 1, semi-annual interest was received on the Sampson Inc. bonds.
 

7.On December 31, the fair values of the bonds purchased on February 1 and June 15were 98.5 and 101, respectively.
 

Assume the investments are accounted for under the recognition and measurement
requirements of IFRS 9 Financial Instruments. Assume the investments are NOT
adjusted for Present Value.
 

Required
 
a) Prepare all journal entries that you consider necessary, including December 31 year end entries, assuming these investments are accounted for at FV-NI and interest income is not reported separately from other related investment gains and losses.

b) Assume instead that Sarasota manages these investments based on their yield to
maturity (Amortized Cost) Prepare all journal entries that you consider necessary,
including December 31 adjusting entries.
 

Question 7: FV-NI Investments
 
Grouper Corp. has the following portfolio of securities acquired for trading purposes and accounted for using the FV-NI model at September 30, 2017, the end of the company’s third quarter
 
Investment Cost Fair Value
48,000 common shares of Yuen Inc. $273,600 $192,000
3,300 preferred shares of Monty Ltd. 125,400 132,000
1,400 common shares of Oakwood Inc. 126,000 125,300
On October 8, 2017, the Yuen shares were sold for $5.70 per share. On November 16,2017, 3,000 common shares of Patriot Corp. were purchased at $43.90 per share.Grouper pays a 1% commission on purchases and sales of all securities. At the end of the fourth quarter, on December 31, 2017, the fair values of the shares held were as follows: Monty $102,200; Patriot $117,000; and Oak wood $142,100. Grouper prepares financial statements every quarter. Assume Grouper follows IFRS 9 and does not recognize dividends and other investment income accounts separately.
 

Required
 
a) Prepare the journal entries to record the sale, purchase, and adjusting entries related to the portfolio for the fourth quarter of 2017.
b) Indicate how nd where the investments would be reported on the December 31,
2017 statement of financial position.
 

Question 8: FV-OCI and Equity Method
 
Grouper Inc. acquired 10% of the outstanding common shares of Gregson Inc. on
December 31, 2016. The purchase price was $904,000 for 45,200 shares, and is equal to 10% of Gregson’s carrying amount. Gregson declared and paid a $0.80 per share cash dividend on June 15 and again on December 15, 2017. Gregson reported netincome of $516,000 for 2017. The fair value of Gregson’s shares was $24 per share at December 31, 2017. Grouper is a public company and applies IFRS.
 

Required:
 
a) Prepare the journal entries for Grouper for 2016 and 2017, assuming that Grouper
cannot exercise significant influence over Gregson. The investment is accounted for
using the FV-OCI model.
b) Prepare the journal entries for Grouper for 2016 and 2017, assuming that Grouper
can exercise significant influence over Gregson.
 

PART:2

 
Question 1: Treatment of Depreciation, Impairment, held for sale
assets and disclosure
 
What are the main differences between ASPE & IFRS with the treatment of
Depreciation, Impairment, held for sale assets and disclosure? Your answer should bein essay format including an overall assessment of which one is more complex based on these categories and why.
 

Question 2: Asset Valuation & Depreciation
 
Black watch Corp., a public company located in Saskatchewan, both purchases and
constructs various pieces of machinery and equipment that it uses in its operations. The following items are for machinery that was purchased and a piece of equipment that was constructed during the 2017 fiscal year:
 

Machinery
 
Cash paid for machinery, including sales tax of $7,000 and recoverable GST of$5,000 $112,000
Freight and insurance cost while in transit 2,330
Cost of moving machinery into place at factory 3,600
Wage cost for technicians to test machinery 4,400
Materials cost for testing 550
Insurance premium paid on the machinery for its first year of operation 1,400Special plumbing fixtures required for new machinery 8,900
Repair cost on machinery incurred in first year of operations 1,600
Cash received from provincial government as incentive to purchase machinery 25,500
 

Equipment (Self-Constructed)
 
Material and purchased parts (gross cost $210,000; failed to take 1% cash discount; the company uses the net method of recording purchases of material and parts) $210,000
Imputed interest on funds used during construction (Note: the company has no borrowing costs, but it has calculated imputed interest on its equity/share financing)13,800Labour costs manufacturing the equipment 185,000Overhead costs (fixed $20,300; variable $32,700) 53,000
Profit on self-construction 30,700
Cost of installing equipment 4,500

 

Required:
 
(round all answers to 0 decimal place)
a) Calculate the cost of the machinery and the cost of the equipment.
b) Calculate the depreciation for the first two years, (use full year depreciation) on themachinery and equipment assuming they both have a useful life of 10 years and the machinery has a salvage value of $10,000 and equipment of $30,000 using 1) Straightlineand 2) CCA3
 

Question 3: Depletion Charges
 
In 2017, Moose Corporation purchased a mine for $200 million (of this, $30million was applicable to the land). An independent evaluation estimated the mine’s reserves at 7.5 million tons. During 2017, Moose extracted 900,000 tons.
 

Required
 
What is Moose’s depletion expense for 2017?
 

Question 4: Goodwill
 
Argo Corporation is targeting Tiger Inc. for acquisition. As an analyst for Argo,you are asked to determine the goodwill that, pending various assumptions, maybe inherent in this potential transaction. The available information relating toTiger includes the following:
Current net assets: $5 million
Expected return on net assets for industry 10%
Reported net income for the previous six consecutive years:
 
Year Amount Year Amount
2013 $720,000 2016 $750,000
2014 $690,000 2017 $800,000
2015 990,000 2018 $825,000
The earnings for 2015 included a $200,000 gain from the sale of a discontinued part of its business.
 

Required
 
Answer the following questions and show your calculations. Round to the nearest dollar, no decimals
a) Calculate the normal earnings the company would expect to earn using the industry average
b) Calculate the average earnings for the past 6 years
c) What is the value of the excess earnings?
d) What is estimated goodwill by capitalizing average excess earnings at 15%
e) Assuming that excess earnings are expected to continue for 7 years, and ignoring the time value of money, estimated goodwill is?
f) Assuming that excess earnings are expected to continue for 7 years and average excess earnings are discounted at 12%, estimated goodwill is? (use financial calculator or tables page 784-787)
 

Question 5: Trademarks
 
In early January 2017, Crawford Corporation applied for and received approval for a trade name, incurring legal costs of $50,400. In January 2018, Crawford incurred $22,050 of legal fees in a successful defence of its trade name.
 

Required
 
(round all answers to 0 decimal place)
a) Calculate amortization for 2017; carrying amount at December 31, 2017;amortization for 2018; and carrying amount at December 31, 2018, if the company amortizes the trade name over its 16-year legal life
b) Calculate amortization for 2017; carrying amount at December 31, 2017;amortization for 2018; and carrying amount at December 31, 2018, if the company amortizes the trade name over a useful life of 5 years
 

Question 6: Impairment Losses & Recovery
 
Metro Publishing uses a specialized printer in their media business. The printer was purchased in January 2016 for $9 million and had an estimated life of 9years with no residual value. By January 1, 2018, new technology was introduced, making the printer obsolete in the future and decreasing its useful life to only 5 years. Metro’s controller estimates the expected undiscounted future net cash flows on the equipment to be $5.6 million and the expected discounted future net cash flows on the equipment to be $5.15 million. Fair value of printer on December 31, 2017 was estimated at $4.95 million. Metro uses straight-linedepreciation and is a private company that follows ASPE.
 
Hint: You will need to calculate the carrying amount of the asset net of accumulated depreciation for the periods in question. Impairment loss is calculated differently under ASPE and IFRS. ASPE evaluates using Cost Recovery model and calculates impairment losses based on fair value, where IFRS evaluates using discounted future cash flows.
 

Required
 
(round all answers to 0 decimal place)
a) Calculate the impairment loss and record the journal entry and indicate which impairment model you followed under ASPE, as at December 31, 2017
b) On December 31, 2018 the fair value is now estimated at $5.25 million.Prepare any journal entries for the printer at December 31, 2018
c) Now assume they follow IFRS, calculate the impairment loss and record the journal entry, indicating which impairment model you following under IFRS, as at December 31, 2017
d) Assuming IFRS is followed, calculate the December 31, 2018 entry for depreciation expense
 

You can read more about our case study assignment help services here.
 

 

PART:3

 

Required
 
Provide clear, concise answers for the following
 
1. How should unusual gains and losses be disclosed in the income statement?
2. When does a discontinued segment qualify as discontinued operations?
3. State two examples of adjustments to prior year’s retained earnings and indicate how they are reported in the financial statements.
4. Explain the merits of classified financial statements.
5. What are financial instruments?
6. What are other assets?
7. What statement of financial position information requires supplemental disclosure?
8. The IASB is planning significant changes regarding the presentation of financial statements. How did these changes evolve and how will financial statements likely be impacted?
 

Question 2: Journal Entries, Consolidated Income Statement,Retained Earnings Statement and Statement of Financial
Position
 
Ferntree Clothing Inc. is a company that makes and sells clothing to up scaleshops across the country. In 2005, the company decided to add the sale of fabricto the company portfolio, selling mainly to other clothing manufacturing companies. Ferntree soon realized that this market was unprofitable with low margins and with the continued increase in on-line sales their fabric division was suffering
The company’s current controller vacated the position without notice four months ago and Ferntree has hired you as their new controller to make any adjustment snecessary and correct any errors you may find. The fiscal year end is January31, 2017 and you will need to correct errors, make adjustments and draft financial statements using ASPE in preparation for the annual audit.The following information has been gathered for you to work with.
 

The trial balance at January 31, 2017, before any adjustments is provide don the attached excel worksheet.
 
Your review through the company files has led you to the following information,which may require adjustments:
1. In October of 2016, the shareholders met and decided to sell the fabric division. By December 2016, it became apparent that a buyer is unlikely to be found. The only asset of this division is the inventory, and all attempts have been made to sell this by year-end. The company is expected to recover the book value of the inventory as it is being carried at its current fair value. There are no liabilities relating to this division. (Hint: Regardless of a buyer, this would be classified as a gain/loss from discontinued operations).
 

2. The company paid a dividend of $25,000 to its shareholders in December2016. This amount was incorrectly recorded as a cost of goods sold for the clothing division.
 

3. Last year’s accounts payable had been paid: $25,000 for the clothing division and $15,000 for the fabric division. When they were paid, they had been debited to cost of goods sold for clothing division and operating expenses for the fabric division.
 

4. Upon reviewing the aged accounts receivable, it is apparent that one account in the amount $5,000 had become uncollectible and was written off to bad debt expense. In the past, 1% of accounts receivable had been used to estimate the allowance for doubtful accounts, but this year given the past history, they have decided to increase that amount to 2% of accounts receivable. All accounts receivable and the allowance account relate to the clothing division.(Hint: adjust the bad debt expense and allowance account first before you adjust for the allowance for doubtful accounts).
 

5. In January 2017, some old equipment was sold for proceeds of $250 cash.The original equipment cost $5,000 and had accumulated depreciation of $4,900.The entry made when depositing the cash was debit Cash, credit equipment for$250.The equipment is being amortized using the straight-line method over 10 years.
Depreciation has not been recorded for the current year for the remainder ofthe equipment in this account.
 

6. FV-NI investments are long-term investments. The fair value of the portfolio investments at January 31, 2017 was $35,000.
 

7. Insurance is paid each November 30th and covers a 12-month period. When the company paid the insurance, it was debited to insurance expense.
 

8. The note payable is due in two equal installments of $25,000 each, plus interest on January 31, 2018 and 2019. The annual interest rate is 5% and thenote has been outstanding since August 1, 2016.
 

9. Unpaid salaries and wages amounted to $1,500 at January 31, 2017 and will be paid in the first payroll of February 2017. These have not been recorded.
 

10. In reviewing sales, it was determined that the balance in the unearned revenue account as at January 31, 2017 should be $30,000. The entire amount relates to the clothing division.
 

11. Ferntree has been making some income tax instalments and debiting these payments to the Income Taxes Payable account.It has been determined that the applicable tax rate is 25%. The adjusting entry needed for taxes has not been recorded yet. (Hint: do this entry last)
 

Required
 
a) Prepare all adjusting and correcting entries based on the above information.
b) Post these entries journal entries to the trial balance and complete other columns of the work in good form
c) Prepare the January 31, 2017 Combined Income Statement/Comprehensive Income using the Multi-step income statement format, Statement of Financial Position and Statement of Retained Earnings for Ferntree Clothing Inc. for the fiscal year ended January 31, 2017
 

Question 3: Purpose of Cash Flow Statement
 
What simple but important questions do the statement of cash flows help answer?
And what is the main difference between ASPE and IFRS with regards to the cash flow per share reporting?
 

Question 4: Statement of Financial Position & Cash Flow
 
Below is the comparative statement of financial position for Whalen Corporationas at December 31, 2017
December 31 December 31
2017 2016
 

Assets
 
Cash
61,000 16,000
Accounts Receivable
120,000 110,000
Equipment
33,000 28,000
Less: Accumulated
depreciation
-14,000 -14,000
Total
200,000 140,000
 

Liabilities and Shareholders’ Equity
 
Accounts Payable
27,000 19,000
Common Shares
125,000 100,000
Retained Earnings
48,000 21,000
Total
200,000 140,000
Net income of $42,000 was reported and dividends of $15,000 were declared and paid in 2017. New equipment was purchased and old equipment with acarrying value of $6,000 (cost $13,000 and accumulated depreciation of $7,000)was sold for $8,000.
 

Required
 
Prepare a statement of cash flows using the indirect method for cash flows from operating activities. Assume that Whalen prepares financial statements in accordance with ASPE.
 

Question 5: Percentage of Completion and Completed Contract
Methods
 
Clark Ltd. Began work in 2017 on a contract for $1,200,000. Other details follow:
2017 2018
Costs incurred during the year ……………………………………. $200,000 $612,500
Estimated costs to complete as of December 31 …….. 600,000 0
Billings during the year ………………………………………………… 225,000 900,000
Collections during the year ………………………………………….. 150,000 975,0006
 

Required
 
a) Assume that Clark uses the percentage-of-completion method of accounting.
What portion of the total gross profit would be recognized in 2017?
b) Assume that Clark uses the completed-contract method of accounting. What
portion of the total gross profit would be recognized in 2018?
 

Question 6: Bundled Sales
 
Canucks Inc., a software company sells new accounting software and user support bundled together. The fair value of the software is $1,500 and the fair value of the user support is $500. The user support is valid for a period of 12months from the date of software purchase. To be able to compete with a competitor’s offering, Loon decided to sell the bundle at a discount for $1,800.During its first month of sales, 100 units of this software bundle were sold at the discounted price, and expenses were $50,000.
 

Required
 
a) Calculate the sale price that should be allocated to each component of the bundle using the adjusted market assessment approach (fair value). (hint:allocate based on % new price/% total fair value)
b) Calculate the sale price that should be allocated to each component of the bundle using the residual approach. (hint: allocate based on selling price less fair value of support first)
c) Assuming that the relative fair value method is used (adjusted market assessment approach) and income tax rate is 30%, calculate the net income applicable to Loon’s first month of sales.
 

Question 7: CICA Look-up
 
Refer to the CPA Handbook, which can be accessed through the link found if you go
to Content/ Library Research & Assistance Guide/Library Links & Databases.
Click on Mc Master Libraries
Put in the search section “CPA Handbook”
Click on the box for CICA Handbook
Click on Access this Resource
Using your Mac ID, log in
Click on CPA Canada Standards & Guidance Collection
Click on resources at left hand side of screen
Under Preface to CPA Handbook, 2016 edition and Conceptual framework…..
 

Required
 
Find the following: Relevance
In what section(s) did you find the definition from the CPA Handbook?
In quotes, state the first three lines of the definition as it appears in the handbook
 

PART:4

PART 1: Sole Proprietorships,Partnership and Corporations
 

 

Background Information
Bruno and his friend Bobby decide to open a Tattoo and Body Piercing Parlour. Bruno is a talented tattoo artist and Bobby enjoys poking holes in living things.
 
Assignment Question: (2 marks for each consideration)
 

Using the 6 Legal Considerations of Business Organization, evaluate their decision to organize their business as a partnership. Was it the right decision? How would you deal with any disadvantages with their choice?
1. Ownership, control, and formation of business
2. Financing:
3. Liability:
4. Profit:
5. Income Taxation of Profit:
6. Continuity:
 

Question #2 Sole Proprietorship
 

Background Information
Charles was a carpenter with a large homebuilder in Toronto. He is married to a teacher and has two teenage children. Charles and his wife own their own home that is registered jointly in their names and each owns a car. They also have a joint bank account and Canada Savings Bonds that are registered in both their names.
 

Last year, he quit his full‐time job, got a part‐time job at the Home Depot and started a home renovation business as a sole proprietor that he operates under the name The Reliable Renovation Company. Although he lost money in his first year, Charles intends to eventually expand into the home construction business and hopefully leave a thriving business to his children.
Assignment Question: (2 marks each)
 

1. What would Charles have to do to establish his sole proprietorship?
2. What are the advantages to Charles of operating this business as a sole proprietorship?
3. What are the disadvantages of operating this business as a sole proprietorship? What
can Charles do to reduce these disadvantages?
 

Question #3 General Partnership
 
Background Information
 
Charles, at the end of 2013, came to the conclusion that if his business is to be successful he would require more money. He also realized that although he had carpentry skills he knew very little about marketing, accounting and architecture. In January 2014, therefore, he approached three employees of his former employer who had been laid off: Mary, an architect, Bob, an accountant and Jane, a marketing manager and suggested that they form a general partnership.
 

Everyone felt this was a great opportunity and a simple partnership agreement was entered into. Under the terms of the partnership agreement, each agreed to make the following financial contributions to the partnership
 

•Mary $25,000 cash
•Bob $25,000 cash
•Jane $50,000 cash
•Charles $50,000 assets from sole proprietorship
They also agreed that no partner would enter into any contract over $1,000 without the consent of all other partners.The partnership has only been operating for a short time but problems are already beginning.
 

Jane, without the knowledge of her partners, has entered into a $5,000 advertising contract with a local newspaper. Charles has caused some serious fire damage to the home of a customer when rags he used to stain some hardwood floors ignited through spontaneous combustion. Mary has been using money paid by customers as deposits on renovation work to gamble at Casino Niagara.
 

In addition, there have been some disputes on how the profits of business are to be shared.
Charles and Jane are claiming that they are entitled to draw twice as much of the profits as Bob and Mary since they contributed twice the amount of capital. It has also been discovered that Charles has been doing some renovation work on the side for some of his old customers and pocketing the money.
 
Assignment Question
 
1. Who is legally responsible to the newspaper for the advertising contract? Why?
2. Who is legally responsible to the homeowner for the fire damage? Why?
3. Who is legally responsible to the customers for the deposits? Why?
4. Are Charles and Jane correct? (explain your answer)
5. Is Charles allowed to do this outside work? (explain your answer)
Length of Response:1 paragraph per question (a paragraph is approximately 300 words)
 
 
Question #4 – The Corporation
 
Background Information
Recently, there has been talk amongst the partners regarding the expansion of the business
into the home construction business. Charles, Bob and Jane support the idea but Mary is totally opposed.
 

Charles, Bob and Jane decide to buy out Mary for $25,000. Charles and Jane are each contributing $10,000 to the buyout and Bob is contributing $5,000. They intend to implement their expansion plans by purchasing a tract of land and building a small subdivision. A financial analysis has indicated that although such a project is risky and will require another $500,000 in capital, it has the potential of generating substantial profits because of the improving reale state market.
 

Before proceeding, however, their accountant has recommended that they form a corporation
and sell the partnership assets now worth $200,000 to the new corporation. They have allagreed to this suggestion but have made it clear that they all wish to have a say in corporate decision‐making and to take an active role in the day to day operations of the corporation.
They also insist that their shareholdings in the new corporation must reflect each of their present financial interests in the partnership.
 

Assignment Question
 
1. Why would incorporating the business be better than continuing as a general partnership?

2. Why would issuing Common Shares to each partner be the best way to distribute ownership upon incorporation?

3. After the corporation was formed, Bob was delegated the task of finding a suitable piece of property for the development. Within a few days, he learned of a farmer who was considering selling his farm. On investigation, it turned out to be such a good deal that Bob decided not to tell the others about the property and to purchase it for himself as an investment. Several weeks later, he recommended to his fellow directors a property owned by his recently deceased uncle that was being sold to settle the estate in which Bob was a beneficiary. Bob did not tell the others about his connection to the property. Did Bob act properly? (Explain your answer)

4. Disappointed by Bob’s conduct, Jane and Charles have decided that they want Bob out of the business. What legal right does Bob have if Jane and Charles gang up on him?
(Explain your answer)

5. What should Jane, Charles and Bob have done when they formed the corporation to avoid the problems they are experiencing? (Explain your answer) (2 marks
Length of Response:1 paragraph per question
 

Agency and Franchises

Assignment Questions
1. What does it mean when we say that an agent is the fiduciary of his principal?

2. How is the scope of an agent’s authority to enter into contracts for a principal extended
so as to permit the agent to do the job which the principal hired him or her to do?

3. How is the agency relationship used in a corporation and a partnership?
4. Give reasons why a company would expand through franchising rather than through the setting up of its own branches.

5. Does the franchisor have a fiduciary duty towards the franchisee? How about the other way around? Length of Response: 1 paragraph per question
 
PART:5

Offer and Acceptance

Decide whether the parties involved have reached an agreement in each of the following situations. Your answer must include the legal reason for your opinion. Length of Response: 2‐ 3 Sentences per question
 
1. Pete placed an ad in the Auto Trader that read “2009 Pontiac Firebird for sale ‐ $6,000″. Paul read the ad and went to see the car. After examining the car, Paul told Pete he would give him the $6,000.
 
2. Arnold owned three building units (A, B and C) in a commercial development in Brampton. As a result of some financial difficulties, he wrote to Bob as follows “I will sell you one of my units for $150,000. Bob immediately wrote back “I accept your offer”.
 
3. On February 1, Ann offers to sell a product she invented to Ace Manufacturing for $30,000. On February 2, Ace replies that they will only pay $20,000. Ann replies “No Deal”. On February 3,having thought it over, Ace tells Ann they will give her the $30,000.
 
4. On Monday, Horner, a tree farmer, faxes an offer to sell 100 pine Christmas trees at $10.00 each to Green, a retail nursery owner. Horner states that the offer will be open for acceptance until noon on Wednesday. On Tuesday evening, Horner faxes Green and tells him that the trees are no longer available as another purchaser has agreed to pay $12.00 a tree. Ignoring the Tuesday fax, Green faxes Horner an acceptance that is received by Horner at 10 a.m. on Wednesday morning.
 
5. On September 15th, Dick offered in writing to sell to Jane 5,000 shares in a very volatile
computer company at a price of $10.00 each. No time limit was specified for acceptance of the offer. After thinking it over for several weeks, Jane wrote Dick on October 15th stating that she was accepting his offer.
 

The Other Essentials Elements of a Valid Contracts

In each of the following situations the parties have reached an agreement. Their agreements, however, are not valid and enforceable contracts but are void/voidable contracts because an essential element is missing. Decide which of these agreements are void and which are voidable and explain which of the essential elements of a valid and enforceable contract is missing in each agreement. Length of Response: 2‐ 3 sentences per question.
 
1. Arnold invited Jane to the college New Year dinner and dance. Jane accepted his invitation and agreed to accompany Arnold who purchased the tickets and arranged a limo.
 
2. Jones was aware that Smith, a fellow employee, was having an affair. Jones informed Smith that he would advise Smith’s wife of the affair unless Smith entered into an agreement to transfer ownership of a cottage lot he owned to him. Smith agreed.
 
3. Margaret, an elderly woman, had broken her hip in a fall. During her recuperation, Paul, her neighbour, had cut her grass and looked after her garden. On her recovery, Margaret wrote Paul a letter thanking him for all his kindness and promising him a cedar canoe that was stored in her basement. Paul was delighted and told Margaret he would take it as soon as he cleared a spot for it in his garage.
 
4. Mike, who is in the electronics business, sold a car stereo system on credit to John, a seventeen year old. The equipment cost $1,500 and John made an initial payment of $500 and agreed to pay the balance in 10 monthly installments of $100 each.
 
5. Clarence offered to sell his restaurant business to Denise. Prior to accepting, Denise requested the financial statements for the business. Clarence delivered them but in order to make the business look more profitable he inflated the revenue figures on the income statement. After reviewing the statements, Denise agreed to purchase the business. She has now discovered that the business is not very profitable.
 
6. Larry, a very religious person, who recently inherited a large sum of money, sought advice from his spiritual leader, a well‐known television evangelist. During their conversation, the evangelist suggested Larry donate a large sum of money for a new television studio that the church would name after Larry. Larry, although initially reluctant, was eventually convinced by the evangelist that it was better to build up treasure in heaven than on earth and agreed to make a large contribution. Larry is now having second thoughts.
 
7. Today, John entered into an agreement to sell his cottage to Paul for $100,000. Unknown to both John and Paul, the cottage was totally destroyed last weekend when a large pine tree fell on it during a severe windstorm.
 

Performances and Discharge of Contracts

The Performance and Breach of Contracts Susan Smith, the owner of a small advertising firm, entered into a contract with Dynamic Enterprises to develop promotional material for one of their new products using Dynamic’s standard form of contract. The contract was signed by both parties, standard terms included the following:
 
In their discussions, Dynamic mentioned how important it was that the material be delivered on time since they intended to introduce the product at a major trade show on September 30th. Susan indicated there would be no problem and to reassure Dynamic promised she would reduce her fee by 25% if she missed the deadline.
 
After entering the contract, Susan immediately contacted Mike, a well‐ known graphic artist, to arrange for the production of the artwork she was going to include in the promotional material. The terms of their contract provided that Mike for a fee of $1000 would deliver to Susan:
 
Everything was going well until September 14th. On that day, a fire erupted in Mike’s studio and destroyed the partially completed artwork he was preparing for Susan. In a panic, Mike quickly put together some new illustrations of the product to fulfil his contractual obligations and delivered them to Susan on September 15th. The illustrations, however, were not photo‐ready which was standard practice within the graphic arts industry. An investigation by the fire marshal’s office has revealed that the fire was caused by paint thinners Mike had stored next to a gas furnace.
 
As a result of the delay caused by the incomplete artwork, Susan was not able to deliver the
promotional material to Dynamic until the morning of September 18th. Dynamic is now refusing to pay the full contract price claiming Susan missed the deadline and promised a discount if that happened.
 
Susan is refusing to pay Mike the full $1000 for the illustrations since they were not photo‐ready. Mike want the full amount claiming he delivered five product illustrations as specified in their contract.
 
QUESTIONS (provide legal reasons for your answers using the lesson materials)
Length of Response: 2‐ 3 Sentences per question.
 
1. Is the promise by Susan of a discount for missing the deadline a warranty or condition of the contract with Dynamic?
 
2. What are the legal consequences of missing the deadline if it is a warranty or a condition?
 
3. Is Mike entitled to be fully paid for his artwork?
 
4. Could Mike have not delivered anything to Susan and claim his contract with Susan was
discharged by frustration?
 
Product code: Accounts-QA80
 
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Summary