Profit Center Responsibility Reporting

XSport Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y9, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

The bases to be used in allocating expenses, together with other essential information, are as follows:

1. Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $508,000; Summer Sports Division, $574,000.
2. Transportation expense—charged back to divisions at a charge rate of $15 per bill of lading: Winter Sports Division, 14,200 bills of lading; Summer Sports Division, 15,600 bills of lading.
3. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $8 per invoice: Winter Sports Division, 13,200 sales invoices; Summer Sports Division, 15,400 sales invoices.
4. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 120,000 square feet; Summer Sports Division, 160,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Do not round your interim calculations.

Provide supporting schedules for determining service department charges. If required, round per unit amounts to two decimal places and final answers to the nearest dollar.

Summarize the case- "Tesco: From Troubles to Turnaround". Explain what other companies should learn from Tesco's mistakes?

The balance sheet shows your assets, liabilities, and equity of the business and is a key financial statement to analyze. If a business had cash of $200,000, accounts receivable of $500,000, a loan payable of $1,000,000, and equity of -$300,000, then what would this indicate about the business? What would be your overall thoughts on the health of this company and how could you improve its financial health? Would you want to invest in this company? Lead this company? Why or why not?

The net income of Thomas & Sons, a landscaping company, decreased sharply during 2018. The owner of the company, Jerry Thomas, anticipates the need for a bank loan in 2019. Late in 2018, Jerry instructs the company’s accountant to record $2,000 service revenue for landscape services for the McGrath family, even though the services will not be performed until January 2019. Jerry also tells the accountant not to make the following December 31, 2018 adjusting entries: Salaries owed to employees $900 Prepaid insurance that has expired $400

Requirements:

1) Calculate the total dollar amount of the affect on net income for the three suggested actions. Be detailed in your response so that we can follow how you calculated the total and why the amounts included in your total impact net income.

2) Of the four financial statements, which are impacted by the suggestions and where in the statement? Be specific and provide sufficient detail to suport your answer.

Required information

[The following information applies to the questions displayed below.]

Comparative financial statements for Weaver Company follow:

During this year, Weaver sold some equipment for $19 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $12 that had cost $6 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $40 of its own stock. This year Weaver did not retire any bonds.

1. Using the indirect method, determine the net cash provided by/used in operating activities for this year. (List any deduction in cash and cash outflows as negative amounts.)

2. Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

A company is evaluating two independent projects for capital investment purposes. If the company has only $85 million to invest, and its required return is 10 percent by how much the company’s value will increase?

All values are in millions.

LaTanya Corporation is planning to issue bonds with a face value of $101,000 and a coupon rate of 6 percent. The bonds mature in seven years. Interest is paid annually on December 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: Compute the issue (sale) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 6 percent. b. Case B: Market interest rate (annual): 4 percent c. Case C: Market interest rate (annual): 7 percent.

Assess the key ratios for profitability, liquidity, and solvency used by financial analysts to evaluate the financial performance of Target. How do you indicate one (1) ratio from each of the three (3) categories (profitability, liquidity, and solvency) that you believe to be most indicative of future performance. How do I use actual ratios for Target?

Cardinal Company is considering a five-year project that would require a $2,945,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows:

___________________________________________

6. What is the project’s internal rate of return? (Round your answer to nearest whole percent.)

7. What is the project’s payback period? (Round your answer to 2 decimal places.)

8. What is the project’s simple rate of return for each of the five years? (Round your answer to 2 decimal places.)

13. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project’s actual net present value? (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount.)

Prepare the journal entries for these transactions.

1) Dur Company purchased equipment on January 2, 2013, for $112,000. The equipment had an estimated useful life of 5 years with an estimated salvage value of $12,000. Dur uses straight-line depreciation on all assets. On January 2, 2017, Dur exchanged this equipment plus $12,000 in cash for newer equipment. The old equipment has a fair value of $50,000. (Assume that the exchange has commercial substance.)

2) Same transaction except (The exchange lacks commercial substance).

3) Cheng Company traded a used truck for a new truck. The used truck cost $30,000 and has accumulated depreciation of $27,000. The new truck is worth $37,000. Cheng also made a cash payment of $36,000. Prepare Cheng's entry to record the exchange. (The exchange lacks commercial substance.)

4) Slaton Corporation traded a used truck for a new truck. The used truck cost $20,000 and has accumulated depreciation of $17,000. The new truck is worth $35,000. Slaton also made a cash payment of $33,000. Prepare Slaton's entry to record the exchange. (The exchange lacks commercial substance.)

a. The initial cost of the extraction equipment is $2,500,000. In addition to this cost, the equipment will require a large concrete foundation at a cost of $300,000. The vendor has quoted an additional cost of $200,000 to install and test the equipment. These costs are all considered part of the cost of acquiring the equipment.

b.The useful life of the equipment is 10 years with no salvage value at the end of this period. However, for tax purposes, the equipment will be classified as 7year property and use the following MACRS depreciation allowances (half year convention) for computing tax depreciation deductions:

Percentage Of Original Year Cost

1 . . . . . . . . . . 14.3%

2 . . . . . 24.5

3 . . . . . . . . . . 17.5

4 . . . . . . . . . . 12.5

5 . . . . . . . . . . 8.9

6 . . . . . . . . . .8.9

7 . . . . . . . . . . 8.9

8 . . . . . . . . . .4.5

100.0%

c. Using the new equipment, 250 pounds of platinum can be extracted annually for the next 10 years from the previously inaccessible area of the mine.

d.The cost to extract and separate platinum from the ore is $4,000 per pound of platinum. After separation, the platinum must undergo further processing and testing that costs $1900 per pound of platinum. These are all out of pocket, variable costs.

e.Two skilled technicians will be hired to operate the new equipment. The total salary and fringe benefit expense for these two employees will be $200,000 annually over the 10 years.

f.Periodic maintenance on the equipment is expected to cost $175,000 per year.

g.The project requires an investment in additional working capital of $300,000. This working capital would be released for use elsewhere at the conclusion of the project in 10 years.

h.Environmental and safety regulations require that the mine be extensively restored and toxic substances be safely disposed at the conclusion of the project. The cost of environmental remediation work is expected to be $4,500,000

i.The current market price of platinum is 12,800 per pound

j.The tax rate is 21% and it uses an 18% after tax discount rate (minimum required rate of return)

Question:

2.

Haley Company produces one product and has the capacity to make 150,000 units per month. The cost that is associated with producing 125,000 units is shown below:

The selling price per unit is $150. The Haley company was contacted by a prospective customer interested in purchasing 25,000 units for $100. The management team is considering this offer and in the meeting about this new prospect, you (the management accountant), stated that the fixed cost will remain the same, but the variable cost will increase along with $10 shipping expense due to the customer’s international location. Management has asked you to determine if they should accept or reject the new customer proposal and what nonmonetary factors should be considered.

Financial data for Joel de Paris, Inc., for last year follow:

The company paid dividends of $207,200 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%.

Required:

1. Compute the company's average operating assets for last year.

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

3. What was the company’s residual income last year?

match Point is a retail sports store carrying tennis apparel and equipment. The store is at the end of its second year of operation and is struggling. A major problem is that its cost of inventory has continually increased in the past two years. In the first year of operations, the store assigned inventory costs using LIFO. A loan agreement the store has with its bank, its prime source of financing, requires the store to maintain a certain profit margin and current ratio. The store's owner is currently looking over Match Point’s preliminary financial statements for its second year. The numbers are not favorable. The only way the store can meet the required financial ratios agreed on with the bank is to change from LIFO to FIFO. The store originally decided on LIFO because of its tax advantages. The owner recalculates ending inventory using FIFO and submits those numbers and statements to the loan officer at the bank for the required bank review. The owner thankfully reflects on the available latitude in choosing the inventory costing method.

Required:

1. How does Match Point’s use of FIFO improve its net profit margin and current ratio?
2. Is the action by Match Point’s owner ethical? Please justify your answer with an explanation.