In three units of study, there will be application-focused cases due at the beginning of the class that will be provided by the instructor. These cases will be complex in nature and will require the application of course concepts to real-word business situations. Each case will have an associated rubric to highlight expectations. All submissions must be of professional quality and done in Microsoft Word, Microsoft Excel, or submitted as a PDF.

Case: Investment Proposals for Ontario Coffee Home

It is January 1, 2019. You are a Senior Analyst at Ontario Coffee Home (OCH), one of the leading coffee chains and wholesaler of coffee/bakery products in Ontario. The CEO of Ontario Coffee Home, Jerry Donovan, has reached out to you to draft a report to evaluate two investment proposals.

Requirements

1.      Identify which revenues and costs are relevant to your analysis, and which costs are irrelevant. Summarize all the information that will be required for each investment proposal, including describing the proposal and identifying the time horizon for each proposal evaluation.

2.      Calculate the after-tax cash flows during the life of each of the projects.

3.      Utilizing the after-tax cash flows from question 2, evaluate each investment proposal utilizing the following criteria (unless directed otherwise):

a.      Payback

b.      NPV

4.      Clearly indicate whether any of the above criteria support each of the project proposals, and what the company should ultimately decide to do.

Investment Proposals

Jerry Donovan, CEO of OCH, wants you to evaluate two investment proposals that the company is considering:

1.      The purchase of a coffee roaster plant in Cuba.

2.      The re-development of coffee shops to accommodate the selling of frozen yogurt.

Mr. Donovan reminds you that only relevant costs and revenues should be considered. “Relevant costs have to be occurring in the future,” explained Mr. Donovan. “And have to differ from the status quo. For example, if we choose to buy the roaster plant, it is only the incremental revenue and costs related to the purchase that should be considered. We also need to take into account the opportunity cost associated with the alternatives.”

More details on each investment proposal are included below. Mr. Donovan wants you to recommend if OCH should invest in one, both, or none of the investment proposals.

Required Return

Mr. Donovan wants you to use 7% as the discount rate (i.e., the required return).

Investment in Roasted Coffee Plant

Mr. Donovan is considering purchasing a coffee plant in Cuba where labour is cheap and there are proximal coffee farms to help lower transportation costs.

The acquisition price of the plant is $6M, which includes roasting equipment that originally cost $14M when it was purchased 8 years ago. Some of the equipment is on its last legs, so an additional $2M of equipment has to be purchased. The roaster plant currently has $2M of available tax shield left, excluding any tax shield related to the equipment to be purchased.

The direct materials and direct labour used to manufacture these products are 8% and 7% of sales, respectively. The actual roasting processing costs are approximately 17% of sales. These costs as a percentage of sales are expected to remain consistent over the time horizon. The plant also requires two managers with fixed salaries of $50,000 each per year. Insurance for the plant and equipment is $40,000 per year.

Other incremental manufacturing overhead costs (property taxes, maintenance, security, etc.) excluding depreciation are estimated to be $75,000 annually. Wages are expected to increase with inflation (estimated to be 2%) over the time period, while other fixed costs are expected to remain steady.

Transportation variable costs (gas, variable overhead, etc.) are estimated to be 12% of revenue, and include transportation of raw materials to the roaster and finished products to the port for delivery to OCH coffeehouses.

The roasted coffee plant is expected to produce 1.1M pounds of coffee for the first two years, with production dipping by 100,000 pounds per year after this due to lower productivity from the deteriorating equipment. Each pound of roasted coffee can be sold at $3.25 per pound (either to retail cafes, franchise cafes, or to wholesale partners), with the price expected to rise with inflation over time. Each pound of coffee can make 30 cups of coffee that can sell at an average retail price of $4.00 per cup. Mr. Donovan has stressed that the profitability of the plant base has to be looked at on a stand-alone basis, i.e., from the sales from the plant to buyers, not from retail cafés to customers.

Mr. Donovan wants to see if the project will reach profitability after 5 years, as significant reinvestment will be needed after five years to keep the plant operational, so he wants you to evaluate the return on investment in that period using the investment criteria of payback period, NPV, and IRR. The following table will help in the calculations of the tax shield for the new equipment:

Assume no salvage value when calculating the tax shield, and that the half-year rule applies for Class 43. The tax rate Mr. Donovan wants you to utilize is 25%. When calculating the tax shield, the present value should be in the same period as the initial investment (Year 0), which also means that deprecation (i.e., CCA) should not be taken from the cash flows in subsequent years since their tax shelter effects are already accounted for in the tax shield.

Redevelopment of Coffee Shops

Mr. Donovan also wants you to evaluate the potential of developing several hundred stores into new store models with frozen yogurt services. Five hundred stores have been selected as candidates for development. It will cost $80,000 to convert each store, including modifications to refrigeration equipment, with these costs being capitalized with a 6% applicable CCA rate. The average modified coffee shop is expected to generate an additional $30,000 in after-tax cash flow every year. However, OCH is also estimated to lose about $15,000 in annual after-tax cash flow from these cafés due to yogurt sales cannibalizing existing coffee shops. In other words, some customers who normally would have purchased coffee would instead purchase yogurt.

The five hundred stores have average annual rent of $36,000 each. Mr. Donovan wants you to evaluate the profitability of this investment after a seven-year period using the investment criteria of NPV.

The standard cost of product 5252 includes 2.80 hours of direct labor at $14.00 per hour. The predetermined overhead rate is $20.00 per direct labor hour. During July, the company incurred 3,700 hours of direct labor at an average rate of $13.53 per hour and $81,400 of manufacturing overhead costs. It produced 1,300 units. Compute the total, price, and quantity variances for labor.

A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts as of January 1, 2021:

According to the articles of partnership, Athos is to receive an allocation of 50 percent of all partnership profits and losses, while Porthos receives 30 percent, and Aramis, 20 percent. The book value of each asset and liability should be considered an accurate representation of fair value.

For each of the following independent situations, prepare the journal entry or entries to be recorded by the partnership.

1. Porthos, with permission of the other partners, decides to sell half of his partnership interest to D’Artagnan for $88,000 in cash. No asset revaluation or goodwill is to be recorded by the partnership.

2. All three of the present partners agree to sell 10 percent of each partnership interest to D'Artagnan for a total cash payment of $40,000. Each partner receives a negotiated portion of this amount. Goodwill is recorded as a result of the transaction.

3. D'Artagnan is allowed to become a partner with a 10 percent ownership interest by contributing $52,000 in cash directly into the business. The bonus method is used to record this admission.

4. Use the same facts as in requirement (c) except that the entrance into the partnership is recorded by the goodwill method.

5. D'Artagnan is allowed to become a partner with a 15 percent ownership interest by contributing $60,000 in cash directly to the business. The goodwill method is used to record this transaction.

6. Aramis decides to retire and leave the partnership. An independent appraisal of the business and its assets indicates a current fair value of $426,000. Goodwill is to be recorded. Aramis will then be given the exact amount of cash that will close out his capital account.

Ray Inc. sponsors a defined benefit pension plan for its employees. At January 1, 2018, Ray Inc. has unrecognized prior service cost of $24 million (amortized $4 per year) and net gains in AOCI of $30 million (amortized over 10 years). Ray Inc. reported Net Pension Asset of $10 million on its balance sheet as of December 31, 2017. Additional information for Ray’s pension plan follows (the fiscal year ends in December):

Record the journal entry for pension expense for 2018. Write step by step

Record the journal entry for gain or losses in PBO for 2018 if necessary. Write no entry if unnecessary.

Record the journal entry for gain or losses in plan assets for 2018 if necessary. Write no entry if unnecessary.

Record the journal entry for cash contribution to plan assets for 2018 if necessary. Write no entry if unnecessary.

Record the journal entry for benefits paid to employees for 2018 if necessary. Write no entry if unnecessary.

What is the balance of Net gain–AOCI at December 31, 2018 and what will be the “amortization of net gain–OCI” amount in 2019?

Please explain step by step.

1. If a company uses a periodic inventory system, it will use all of the following accounts during the year to record normal transactions  except: A. costs of goods sold; B. purchase returns; C. sales revenue; D. purchases.

2. Which of the following would be included in the Cost of Goods Sold account on a merchandising company's income statement? A. sales commissions; B. shipping costs from the manufacturer to the merchandiser; C. costs of advertising; D. sales taxes.

3. A manager of Company X gets a bonus if net income of a certain amount is achieved. If she had her 'druthers', she would love to use what method of inventory costing (in most situations and if permitted)? A. FIFO; B. LIFO; C. Specific identification; D. weighted-average

4. For most property, plant, and equipment, depreciation is caused by which of the following: A. changes in fair value; B. the process of valuation; C. obsolescence; D. setting aside cash to replace the assets when they wear out

5. Which of the following would not be included in the Machinery account? The cost of: A. freight costs; B. Tearing down a factory wall in order to get the large machine into the factory; C. Extra cost because the company didn't have the cash last year when machine prices were cheaper; D. Paying duty to American authorities for the American product

Topic 6. Solving a problem

Prompt

There are THREE methods in calculating Hire Purchase Interest:

• Sum-of-the-Years’- Digit (SYD)
• Straight Line Method (SLM)
• Reducing Balance Method (RBM)

Examples of calculating hire purchase interest

a) Sum of the Years’ Digit Method (SYD)

     Number the installment, given the highest digit to the first installment and the digit 1 to the last installment;

-          Add up the digits;

-          The interest proportion to each Accounting period is the:

Digit given to the installment     X                Interest

                     Sum of digits

Method of calculating HP Interest using SYD

Under a Hire Purchase Agreement, an asset with a cash price of $2,500 is to be paid by a deposit of $500 and a 5 monthly installment starting from January. The interest is $400.

                  The apportioning of hire purchase interest is as follows:

                  Step 1:

                  Cash price                              $2,500

                  -) Deposit                               $500       

                  Outstanding liability                $2,000

                  Interest                                      $400       

                  Total installment                    $2,400

Step 2:

The installments are numbered as follows:

January       5

February     4

March         3

April           2

May            1

                           15

Step 3:

Apportion the interest according to each Accounting period:

January                5/15 x $400 =       $133

February              4/15 x $400 =       $107

March                  3/15 x $400 =       $80

April                    2/15 x $400 =       $53

May                     1/15 x $400 =       $27

                                                               $400

b) Straight Line Method (SLM)

-      under this method, the interest is deemed to accrue evenly over the period of the  Hire Purchase Agreement.

Under a Hire Purchase Agreement, an asset with a cash price of $2,500 is to be paid by s deposit of $500 and a 24 monthly installments of $100.

                  The apportioning of hire purchase interest is as follows:

                  Cash price                              $2,500

                  -) Deposit                                   $500       

                  Outstanding liability                $2,000

                   Interest                                       $400       

                  Total installment                     $2,400

                  Therefore;

                  Installment/ month =       $2,400/24    =       $100

                  Interest/ month      =       $400/24       =       $16.70

c) Reducing Balance Method (RBM)

-        under this method, simple interest is calculated based on outstanding debt after each installment becomes payable.

Under the Hire Purchase Agreement, an asset with a cash price of $2,500 is to be paid by a deposit of $500 and 4 annual installments of $631. Interest rate is at 10% per annum.

The apportioning of Hire Purchase is as follows:

Cash price                              $2,500

-) Deposit                               ($500)

Outstanding liability                $2,000

+) 10% Interest                          $200       

                                                      $2,200

-) 1^st installment                      ($631)

                                                      $1,569       

+) 10% Interest                          $157       

                                                      $1,726

-) 2^nd installment                     ($631)

                                                      $1,095

+) 10% Interest                       $110

                                                      $1,205

-) 3^rd installment                      ($631)

                                                      $574

+) 10% Interest                           $57

                                                      $631

-) 4^th installment                      ($631)

-        Therefore, the apportioning for the interest is as follows:

1^st year        =       $200

2^nd year       =       $157

3^rd year        =       $110

4^th year        =          $57

                                    $524

Pr   

P Problem specification: the task is to calculate hire purchase payment using all three methods

ds McBook Air with a cash price $1000 and deposit $200 ; 4 annual installement ,interest rate -10%

Summary Payroll Data

In the following summary of data for a payroll period, some amounts have been intentionally omitted:

a. Calculate the amounts omitted in lines (1), (3), (8), and (12).

b. Journalize the entry to record the payroll accrual. If an amount box does not require an entry, leave it blank.

c. Journalize the entry to record the payment of the payroll.

Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. Date Activities Units Acquired at Cost Units Sold at Retail Mar. 1 Beginning inventory 210 units @ $53.20 per unit Mar. 5 Purchase 280 units @ $58.20 per unit Mar. 9 Sales 370 units @ $88.20 per unit Mar. 18 Purchase 140 units @ $63.20 per unit Mar. 25 Purchase 260 units @ $65.20 per unit Mar. 29 Sales 240 units @ $98.20 per unit Totals 890 units 610 units 4. Compute gross profit earned by the company for each of the four costing methods. For specific identification, the March 9 sale consisted of 120 units from beginning inventory and 250 units from the March 5 purchase; the March 29 sale consisted of 100 units from the March 18 purchase and 140 units fr

I am sorry. I thought I posted everything. My requirement is below.

Compute gross profit earned by the company for each of the four costing methods. For specific identification, the March 9 sale consisted of 120 units from beginning inventory and 250 units from the March 5 purchase; the March 29 sale consisted of 100 units from the March 18 purchase and 140 units from the March 25 purchase. (Round weighted average cost per unit to two decimals and final answers to nearest whole dollar.)

Give examples of three depreciation methods and their formulas. Explain why each would be used over the others.

1. Straight‐line
2. Declining‐balance
3. Units‐of‐activity

The following is the current balance sheet for a local partnership of doctors:

The following questions represent independent situations:

1. E is going to invest enough money in this partnership to receive a 20 percent interest. No goodwill or bonus is to be recorded. How much should E invest?

2. E contributes $60,000 in cash to the business to receive a 10 percent interest in the partnership. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: A, 30 percent; B, 10 percent; C, 40 percent; and D, 20 percent. After E makes this investment, what are the individual capital balances?

3. E contributes $60,000 in cash to the business to receive a 20 percent interest in the partnership. Goodwill is to be recorded. The four original partners share all profits and losses equally. After E makes this investment, what are the individual capital balances?

4. E contributes $84,000 in cash to the business to receive a 20 percent interest in the partnership. No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: A, 10 percent; B, 30 percent; C, 20 percent; and D, 40 percent. After E makes this investment, what are the individual capital balances?

5. C retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 115 percent of her final capital balance. No goodwill or other asset revaluation is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?

Grady received $8,800 of Social Security benefits this year. Grady also reported salary and interest income this year.

What amount of the benefits must Grady include in his gross income under the following five independent situations? (Leave no answer blank. Enter zero if applicable.)

a. Grady files single and reports salary of $13,600 and interest income of $400.

b. Grady files single and reports salary of $23,650 and interest income of $750.

c. Grady files married joint and reports salary of $78,000 and interest income of $650.

d. Grady files married joint and reports salary of $44,000 and interest income of $850.

e. Grady files married separate and reports salary of $23,650 and interest income of $750.

Complete this question by entering your answers in the tabs below.

• Required 1

Fill in the missing amounts in the following schedules.

Half of each month’s sales are on account. March sales amounted to $60,000.

†60% of credit sales is collected in the month of sale; 40% is collected in the following month.

‡Yen is the Japanese national currency.

2.

Complete this question by entering your answers in the tabs below.

• Required 2

Fill in the missing amounts in the following schedules.

3.

Complete this question by entering your answers in the tabs below.

• Required 3

Fill in the missing amounts in the following schedules.

4.

Complete this question by entering your answers in the tabs below.

• Required 4

Fill in the missing amounts in the following schedules.

5.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4
• Required 5

Fill in the missing amounts in the following schedules.

Scenario: Green Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, specializing in the boarding of broodmares and their foals. A recent economic downturn in the thoroughbred industry has led to a decline in breeding activities, and it has made the boarding business extremely competitive. To meet the competition, Green Pastures planned in 2017 to entertain clients, advertise more extensively, and absorb expenses formerly paid by clients such as veterinary and blacksmith fees.

The budget report for 2017 is presented as an attachment. As shown, the static income statement budget for the year is based on an expected 21,900 boarding days at $25 per mare. The variable expenses per mare per day were budgeted: feed $5, veterinary fees $3, blacksmith fees $0.25, and supplies $0.55. All other budgeted expenses were either semifixed or fixed.

During the year, management decided not to replace a worker who quit in March, but it did issue a new advertising brochure and did more entertaining of clients.

Develop a minimum 700-word examination of the financial statements and include the following:

Based on the static budget report:

• What was the primary cause(s) of the loss in net income?
• Did management do a good, average, or poor job of controlling expenses?
• Were management's decisions to stay competitive sound?
• Prepare a flexible budget report for the year.
• Based on the flexible budget report:
• What was the primary cause(s) of the loss in net income?
• Did management do a good, average, or poor job of controlling expenses?
• Were management's decisions to stay competitive sound?
• What course of action do you recommend for the management of Green Pastures?

Show your work in Microsoft Word or Excel.

Complete calculations/computations using Microsoft^®Word or Excel.   

1. In late 2018, NCS Corporation was formed. The corporate charter authorized the issuance of 40 million shares of common stock carrying a $1 par value, and 10 million shares of $50 par value, 10% cumulative, nonparticipating preferred stock. On Dec 23, 2018, 6 million shares of the common stock were issued in exchange for cash at an average price of $35 per share. Also on Dec 23, 3 million shares of preferred stock were issued at $55 per share.

During 2019, NCS Corporation participated in the following transactions:

• On January 30, NCS reacquired 500,000 shares for the treasury at a price of $34 per share.
• On May 31, 100,000 treasury shares were sold at $36 per share.
• On July 20, NCS reacquired and retired 1 million common shares at a price of $39 per share.
• On August 31, 100,000 treasury shares were sold at $36 per share.
• On November 15, the board of directors of NCS declared cash dividends of $1 million. Payment was scheduled for December 15, to common and preferred shareholders of record on November 15.
• On December 18, NCS declared a 5% stock dividend, payable on December 22, to common shareholders of record on December 20. At the date of declaration, the common stock was selling in the open market at $37 per share.
• On December 25, 200,000 treasury shares were sold at $35 per share.
• On December 30, NCS replaced its $1 par value common stock (all the authorized shares) with a new common stock having a $.50 par value. This represents a 2-for-1 stock split. That is, the shareholders received two shares of the $.50 par stock in exchange for each share of the $0.5 par stock they own. The $1 par stocks were collected and destroyed.
• Net income for 2019 was $15,000,000.

**Note: Dividends are not paid on shares held in the treasury. Dividends are paid only on the shares outstanding.

**Enter your answers in Thousands.

1. Prepare journal entries to record these transactions in 2019.
2. Determine the amount of dividends to be paid to preferred and common shareholders, and the amount of dividend in arrears for 2019.