Q1. Distinguish between an upstream sale of inventory and a downstream sale. Why is it important to know whether a sale is upstream or downstream?

Q2. What factors are used to determine a reporting entity’s functional currency? Provide at least one example for which a company’s local currency may not be its functional currency.

Q3. On December 1, 20X1, Rone Imports, a U.S. company, purchased clocks from Switzerland for 15,000 francs (SFr), to be paid on January 15, 20X2. Rone’s fiscal year ends on December 31, and its reporting currency is the U.S. dollar. The exchange rates are:

December 1, 20X11SFr = $0.70

December 31, 20X11SFr =0.66

January 15, 20X21SFr =0.68

Required:

• In which currency is the transaction denominated?
• Prepare journal entries for Rone to record the purchase, the adjustment on December 31, and the settlement.

Q4. Debra and Merina sell electronic equipment and supplies through their partnership. They wish to expand their computer lines and decide to admit Wayne to the partnership. Debra’s capital is $200,000, Merina’s capital is $160,000, and they share income in a ratio of 3:2, respectively.

Required:

Record Wayne’s admission for each of the following independent situations:

a. Wayne directly purchases half of Merina’s investment in the partnership.

b. Wayne invests the amount needed to give him a one-third interest in the capital of the partnership if no goodwill or bonus is recorded.

c. Wayne invests $110,000 for a one-fourth interest if Goodwill is to be recorded.

	Cash	110,000
	Goodwill	10,000
	Wayne, Capital			120,000
	$120,000 = $480,000 total resulting capital x 1/4

Assignment 2

• (a) Abdul Inc., wants to raise $1 million by issuing six-year zero coupon bonds with a face value of $1,000. Its investment banker states that investors would use an 11.4 percent discount rate to value such bonds. At what price would these bonds sell in the marketplace? How many bonds would the firm have to issue to raise $1 million? Assume semi-annual interest payments. (1 Mark)
• Amani owns shares in Honda Inc. Currently, the market price of the stock is $36.34. Management expects dividends to grow at a constant rate of 6 percent for the foreseeable future. Its last dividend was $3.25. Amani’s required rate of return for such stocks is 16 percent. She wants to find out whether she should sell his shares or add to her holdings.
• You are considering three independent projects: A, B, and C. Given the following free cash flow information, calculate the payback period for each. Required rate of return is 9%. (1 Mark)

(b) Investor A holds a 15-year bond, while investor B has an 7-year bond. If interest rate increases by 1 percent, which investor will have the higher interest rate risk? Explain. (0.5 Mark)

(c) Investor A holds a 10-year bond paying 8 percent a year, while investor B also has a 10-year bond that pays a 6 percent coupon. Which investor will have the higher interest rate risk? Explain. (0.5 Mark)

• What is the value of this stock? (1 Mark)

1. Based on your answer above, should Rhea buy additional shares in Ryoko Corp?

Why or why not? (0.5 Mark)

If you require a 3-year payback before an investment can be accepted, which project(s) would be accepted? (0.5 Mark)

Year	Project A	Project B	Project C
0	(1,000)	(9,000)	(4,000)
1	300	4,000	1,100
2	400	2,000	1,800
3	250	2,000	2,200
4	125	3,000	2,800
5	125	5,000	3,200

Question 1: From SDL find one article in accounting filed and identify (survey research): (3 marks)

• What sort of survey was the author contemplated?
• What sort of respondent he/she targeted?
• How was the sample selected?

Question 2: Explain at least three interview methods. What are the advantages and disadvantages of interview methods? (2marks)