An auto parts Company produces various extra additions to motor cars. It has just discovered an opportunity to invest in producing air conditioners for the back seats of vans and minibuses. The investment project will cost $925,000 and will generate an estimated additional operating income of $95,500.

Without the investment, the company will have average assets for the coming year of $29.5 million and expected operating income of $4.535 million.

Required:

1. What is the ROI of the new investment project alone? Is it higher or lower than the existing ROI of the company?

2. What will be the ROI of the company after accepting the new investment?

3. Assuming that the managers are evaluated and rewarded on the basis of ROI performance, should a rational manger make the new investment? Why?

4. Suppose that the company sets a minimum required rate of return to 11%. What will be the ‘Residual Income’ of the company after accepting the new investment? Is it higher or lower than the Residual Income without the investment?

5. What will be the Economic value Added (EVA) of the company after making the new investment if corporate tax rate is 30% and the actual cost of capital of the company is 10%?

Church Company completes these transactions and events during March of the current year (terms for all its credit sales are 2/10, n/30).

Assume the following ledger account amounts Inventory (March 1 beg. bal. is $63,000), Z. Church, Capital (March 1 beg. bal. is $63,000) and Church Company uses the perpetual inventory system.

Prepare the March 31 trial balance, schedule of accounts receivable and schedule of accounts payable. Post information from the journals in Part 2 to the general ledger and the accounts receivable and accounts payable subsidiary ledgers.

Prepare the March 31 trial balance.

• Trial Balance

Create a Balance Sheet using the following data:
               
Sales   $55,000           Accumulated Depreciation   19,000            
Cost of good sold   32,000           Accounts Receivable    7,300           
Depreciation Expense   3,800           Accounts Payable   6,500           
Interest Expense   2,600           Short-term notes payable   2,600           
Income taxes   5,985             Marketing, general and admin expenses   4,500  

Inventories   4,700           Gross fixed assets   64,800           
Long-term debt   36,000           Common stock   12,000           

Other assets   1,500           Retained earnings   13,850  

Cash   ?               
Include two columns Percentage of Total assets and Dollar Value.              
Also firm has paid $1,500 in common stock dividends during the year and has 1000 shares outstanding .

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $50,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement: Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Sales $890,000.00 $600,000.00 3 Cost of goods sold 320,400.00 228,000.00 4 Gross profit $569,600.00 $372,000.00 5 Selling expenses $142,400.00 $84,000.00 6 Administrative expenses 62,300.00 54,000.00 7 Total operating expenses $204,700.00 $138,000.00 8 Income from operations $364,900.00 $234,000.00 9 Other income 80,100.00 54,000.00 10 Income before income tax $445,000.00 $288,000.00 11 Income tax expense 231,400.00 156,000.00 12 Net income $213,600.00 $132,000.00 1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Round your percentages to one decimal place. Enter all amounts as positive numbers. 2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

Cardio Care Inc. manufactures stationary bicycles and treadmills. The products are produced in the Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

The activity-base usage quantities and units produced for each product were as follows:

Use the activity rate and usage information to compute the total activity costs and the activity costs per unit for each product. If required, round your answers to two decimal places.

Problem 8-3 Some of the transactions of Splish Company during August are listed below. Splish uses the periodic inventory method. August 10 Purchased merchandise on account, $11,900, terms 2/10, n/30. 13 Returned part of the purchase of August 10, $1,300, and received credit on account. 15 Purchased merchandise on account, $16,100, terms 1/10, n/60. 25 Purchased merchandise on account, $20,500, terms 2/10, n/30. 28 Paid invoice of August 15 in full. Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken: Prepare general journal entries to record the transactions. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses: Prepare general journal entries to enter the transactions. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Aug. 28 SHOW LIST OF ACCOUNTS Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses: Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Aug. 31

Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 8,900 DVDs and 4,450 equipment sets. Information on the two products is as follows:

   DVDs    Equipment Sets

Price    $7.80    $25.40

Variable cost per unit    $3.60 $15.40

Total fixed cost is $60,720.

Required:

1. What is the sales mix of DVDs and equipment sets?

2. Compute the break-even quantity of each product.

1. Two friends are considering opening a driving range for golfers. Because of the growing popularity of golf, they estimate such a range could generate rentals of 20,000 buckets at $3 a bucket the first year, and that rentals will grow at 7% a year thereafter. The price will remain a $3 per bucket.

            Equipment requirements include:

                        Incorporated fee                        $2,500

                        ball dispensing machine             $2,000

                        ball pick-up vehicle                    $8,000

                        tractor and accessories                $8,000

            All the equipment is 7-year ACRS property and is expected to have a salvage value of 10% of cost after 8 years.

2. Stocking a small shop selling tees, visors, gloves, towels, sun-block, etc., plus a checking account for the business make net working capital needs $3,000 to start. This amount is expected to grow at 5% per year.

            Annual fixed operating costs are expected as follows:

                        Land lease                                 $12,000

                        Water                                       1,500

                        Electricity                                 3,000

                        Labor                                       30,000

                        Seed & Fertilizer                       2,000

                        Gasoline                                   1,500

                        Equipment maintenance             1,000

                        Insurance                                  1,000

                        Other                                        1,000

                        Total                                         $53,000

Expenditures for balls and baskets, initially $4,000, are expected to grow at 7% per year. The relevant tax rate is 15% and the required return is also 15%. The project is to be evaluated over an 8-year life. Should the friends proceed?

1. The three categories of the accounting equation are:

2. Companies need a way to organize their accounts so they use a chart of accounts. Accounts starting

with 1 are usually Assets, 2 – Liabilities, 3 – Equity, 4 – Revenues, and 5 – Expenses. The second

and third digits in account numbers indicate:

3. A chart of accounts and a ledger are similar in that they both list the account names and account

numbers of the business. A ledger, though, provides the following:

4. With a double-entry you need to record the dual effects of each transaction. Every transaction affects

at least ____ accounts.

5. A T-account is a shortened form of each account in the ledger. The debit is on the ____ side, credit on

the _____ side, and the account name is shown on _____.

Pat Inc. purchased the $100,000 face value outstanding bonds of Slinger Company, its 80%-owned subsidiary, for $97,000 on January 1, 20X3. The bonds mature on January 1, 20X6. The bonds have a stated interest rate of 8% and were sold for $101,000 on January 1, 20X1. The bonds pay interest each January 1. Amortization of the issue premium and /or discount will be on the straight-line basis. Instruction:

1. Record the entries Slinger Company would make on its books for 20X3

2. Record the entries Pat Inc. would make on its books for 20X3

The following accounts were unintentionally omitted from the aging schedule:

Wig Creations has a past history of uncollectible accounts by age category, as follows:

Required:

1. Determine the number of days past due for each of the preceding accounts. If an account is not past due, enter a zero.

2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals. If an amount box does not require an entry, leave it blank.

3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
$

4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $1,820 before adjustment on December 31, 20Y1. Journalize the adjustment for uncollectible accounts.

5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?

On the balance sheet, assets would be   by   because the allowance for doubtful accounts would be   by  . In addition, the owner’s capital account would be   by   because bad debt expense would be   and net income   by   on the income statement.

Discuss the partnership taxation topic of hot assets.

Post the total amounts from the journal in the following general ledger accounts and in the accounts receivable subsidiary ledger accounts for Paula Kohr, Page Alistair, and Nic Nelson.

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

Wiset Company completes these transactions during April of the current year (the terms of all its credit sales are 2/10, n/30).

Distinguish between recourse and non recourse debt within a partnership.

Discuss guaranteed payments within the confines of partnership operations.