Accounting for Managers

25 most important ratios for analysis Definition of what the ratios are and what they compare, elements of the ratio and where to find those elements, type of ratio is this and what does it tell the user?

The data below represents the amount of grams of carbohydrates in a sample serving of breakfast cereal. 10 18 24 30 19 22 24 20 18 25 20 22 19

what is the variance?

Tustin Corporation has provided the following data for its two most recent years of operation:

The net operating income (loss) under variable costing in Year 1 is closest to:

Multiple Choice

• $480,000

• $139,000

• $420,000

• $159,000

Innovative Components, Inc. reported the following income statement data for 2013-2017.   

What would be an appropriate sales growth rate based on the historical data?

. You are required to allocate the support department cost to operations department by taking any Saudi based operating company

Most guaranteed payments from partnerships and wages from S Corporations are subject to the full 15.3% FICA tax. Flow-through income from partnerships is sometimes subject to FICA tax while S corp flow-through income is not subject to FICA tax. Cash distributions are not subject to tax, nor are they a deductible expense. Services contributed to a partnership are often compensated through guaranteed payments from the partnership. These are treated as salary payments on which the partner receiving them must pay payroll taxes which is why partners sometimes try to classify themselves as limited partners who would not be responsible for management of the partnership, so their share of partnership income is not subject to self-employment taxes. S corporation shareholders generally prefer dividend distributions of their S corporations’ profits over compensation payments from their S corporations because the compensation payments are subject to FICA taxes and dividend distributions are not. (We cover S corporations in later in the course.) S Corporations often get the IRS’s attention for paying too little salary—unreasonably low compensation. C Corporations on the other hand want to increase salary to employees and lower dividends distributions because the corporation does not get a tax deduction for the dividends issued to the shareholders. A small closely-held C Corporation pays excess earnings to employee/owners as a bonus so its income tax liability decreases. Often, the employee/owners compensation exceeds the social security wage thresholds so an “end of year bonus” is not subject to the full 15.3% FICA tax. C Corporations often get the IRS’s attention for paying too much salary —unreasonably high compensation. In the eyes of the Service, these distinctions by pass-throughs have caused great abuses and tax avoidance. The GAO has reported in the past that S corporations had underreported their shareholder compensation by $24.6 billion, with corporations with fewer than three shareholders responsible for nearly all the underreporting. This issue reached a boiling point in Watson v. Commissioner, 668 F.3d 1008 (8th Cir. 2012). (I assume no relation to our classmate, Jason). In this case, Watson was an accountant in a firm he owned. He drew a salary of $24,000 even though the firm grossed nearly $3 million in revenue. Watson was a Certified Public Accountant with advanced degrees. The 8th Circuit Court ruled that a reasonable person would consider the dividends paid to Watson to be “remuneration for services performed” as opposed to a return on investment. To support its position, the IRS successfully asserted that the $24,000 shareholder salary was not enough to support Watson’s lifestyle. As such, his dividends were reclassified as wages and the firm was assessed huge employment taxes plus penalties and interest. Using the findings in Watson as a model and to prevent S corporations and their shareholders and LLCs operating as partnerships from avoiding payroll taxes by maximizing distributions and minimizing compensation payments, the IRS now requires S corporations and partnerships to pay shareholders and general partners who provide substantial services reasonable compensation. The IRS makes its compensation determinations using three factors: Employee performance; Salary comparisons; and Company conditions. Do these factors seem fair to you in judging the compensation an employee receives? Yes/No Why? Do you have a better way to determine how much compensation is enough?

Overhead Variances, Four-Variance Analysis, Journal Entries

Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294,700 is fixed overhead.

Required:

1. Calculate the fixed overhead spending and volume variances.

2. Calculate the variable overhead spending and efficiency variances.

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3. Prepare the journal entries that reflect the following:

1. Assignment of overhead to production
2. Recognition of the incurrence of actual overhead
3. Recognition of overhead variances
4. Closing out overhead variances, assuming they are not material

Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank or enter "0".

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Service Department Charges and Activity Bases

Middler Corporation, a manufacturer of electronics and communications systems, uses a service department charge system to charge profit centers with Computing and Communications Services (CCS) service department costs. The following table identifies an abbreviated list of service categories and activity bases used by the CCS department. The table also includes some assumed cost and activity base quantity information for each service for October.

One of the profit centers for Middler Corporation is the Communication Systems (COMM) sector. Assume the following information for the COMM sector:

• The sector has 5,000 employees, of whom 50% are office employees.

• All the office employees have been issued a smartphone, and 80% of them have a computer on the network.

• 95 percent of the employees with a computer also have an e-mail account.

• The average number of help desk calls for October was 1 call per individual with a computer.

• There are 230 additional printers, servers, and peripherals on the network beyond the personal computers.

a. Determine the service charge rate for the four CCS service categories for October. Round your answers to two decimal places.

b. Determine the charges to the COMM sector for the four CCS service categories for October. Round your answers to the nearest dollar amount.

Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

During the year, the company produced 35,000 units and sold 17,000 units. The selling price of the company’s product is $58 per unit.

Required:

1. Assume that the company uses absorption costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $109,000 and is expected to generate an additional $42,000 in cash flows for 5 years. A bank will make a $109,000 loan to the company at a 12% interest rate for this equipment’s purchase. Use the following table to determine the break-even time for this equipment. All cash flows occur at year-end. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

The global economy has changed the way we do business and made us all realize the importance of having at least a minimum understanding of international law. Briefly discuss key transactions and clauses which should be addressed before going into international business. Next, discuss your opinion of owning/running a business which does a substantial amount of international business. Submit your assignment.

Please answer the following questions. Answers can be found in Chapter 4 of the textbook and in the Chapter 4 lecture notes. Submit your answers as an attachment on Canvas

1. What is the role of the jury?

2. What is the role of the judge?

3. What are the two COURT SYSTEMS in the US?

4. What are the two TYPES of courts in those court systems?

5. What are the two types of law considered by the two types of courts in those two court systems?

X Company must decide whether to continue using its current equipment or replace it with new, more efficient equipment. The following information is available for the current and new equipment:

Maintenance work will be necessary on the new equipment in Year 3, costing $2,500. The current equipment will last for six more years; the life of the new equipment is also six years. Assuming a discount rate of 6%, what is the net present value of replacing the current equipment?

Most Company has an opportunity to invest in one of two new projects. Project Y requires a $330,000 investment for new machinery with a five-year life and no salvage value. Project Z requires a $330,000 investment for new machinery with a four-year life and no salvage value. The two projects yield the following predicted annual results. The company uses straight-line depreciation, and cash flows occur evenly throughout each year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

4. Determine each project’s net present value using 7% as the discount rate. Assume that cash flows occur at each year-end. (Round your intermediate calculations.)

Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $253,000 and will yield the following expected cash flows. Management requires investments to have a payback period of 3 years, and it requires a 7% return on investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the table provided.)

Required:
1. Determine the payback period for this investment.
2. Determine the break-even time for this investment.
3. Determine the net present value for this investment.

Determine the payback period for this investment. (Enter cash outflows with a minus sign. Round your Payback Period answer to 1 decimal place.)

Determine the break-even time for this investment. (Enter cash outflows with a minus sign. Round your break-even time answer to 1 decimal place.)

Determine the net present value for this investment.