Ratchet Company uses budgets in controlling costs. The August 2020 budget report for the company’s Assembling Department is as follows. RATCHET COMPANY Budget Report Assembling Department For the Month Ended August 31, 2020 Difference Manufacturing Costs Budget Actual Favorable Unfavorable Neither Favorable nor Unfavorable Variable costs Direct materials $48,000 $47,000 $1,000 Favorable Direct labor 54,000 51,200 2,800 Favorable Indirect materials 24,000 24,200 200 Unfavorable Indirect labor 18,000 17,500 500 Favorable Utilities 15,000 14,900 100 Favorable Maintenance 12,000 12,400 400 Unfavorable Total variable 171,000 167,200 3,800 Favorable Fixed costs Rent 12,000 12,000 –0– Neither Favorable nor Unfavorable Supervision 17,000 17,000 –0– Neither Favorable nor Unfavorable Depreciation 6,000 6,000 –0– Neither Favorable nor Unfavorable Total fixed 35,000 35,000 –0– Neither Favorable nor Unfavorable Total costs $206,000 $202,200 $3,800 Favorable The monthly budget amounts in the report were based on an expected production of 60,000 units per month or 720,000 units per year. The Assembling Department manager is pleased with the report and expects a raise, or at least praise for a job well done. The company president, however, is unhappy with the results for August because only 58,000 units were produced. (a) State the total monthly budgeted cost formula. (Round cost per unit to 2 decimal places, e.g. 1.25.) The formula is $ + variable costs of $ per unit. (b) Prepare a budget report for August using flexible budget data. (List variable costs before fixed costs.) RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended August 31, 2020 Difference Budget Actual Costs Favorable Unfavorable Neither Favorable nor Unfavorable $ $ $ $ $ $ In September, 64,000 units were produced. Prepare the budget report using flexible budget data, assuming (1) each variable cost was 10% higher than its actual cost in August, and (2) fixed costs were the same in September as in August. (List variable costs before fixed costs.) RATCHET COMPANY Assembling Department Flexible Budget Report For the Month Ended September 30, 2020 Difference Budget Actual Costs Favorable Unfavorable Neither Favorable nor Unfavorable $ $ $ $ $ $

CP 14-3 Present Values

Alex Kelton recently won a jackpot in the Colorado lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options:

a. Receive $100,000,000

b. Receive $25,000,000 today and $9,000,000 per year for 8 years, with the first payment being received one year from today.

c. Receive $15,000,000 per year for 10 years, with the first payment being received one year from today.

Assuming that the effective rate of interest is 7% which payout option should Alex select? Use the present value tables in Appendix A . Explain your answer and provide any necessary supporting calculations.

Examine the types of warehousing that reduce transportation costs and the warehousing types shortens customer lead times.

You are part of a team that is determining whether your company should undertake a new project. Your team calculated the NPV of the new project using the cost of capital (weighted average cost of capital) to discount the future cash flows. However, the Chief Financial Officer noticed that your team excluded the interest payments in estimating the future cash flows.

Discussion Questions:

1. Why did your team exclude interest payments in the estimation of future cash flows of the new project? Explain.

2. What method should your team use to evaluate the feasibility of the new project if the Chief Financial officer insists on including interest payments? Be detailed in your response.

Premium Auditing

Examine the rating classes applied to the accounts that you audit.

What regulations limit or enhance the insurer's ability to establish fair and accurate insurance rates and premiums for insureds?

NEED REPLY TO THESE TWO POSTS! 100 WORDS EACH.

POST 1:

1. Budgeting is the process of allocating a company's financial resources although ethical issues is seen as a problem or situation that requires a person or organization to choose between different alternatives that must be evaluated as ethical or unethical. During the planning phase the organizations are most concerned about getting right estimates that lead to positive results. The control phase requires evaluating performance of the people working in the company by comparing actual results to the operating budget. They have to see what is best decision for the company at the end.

2. Sales and profit budget that is considerably lower than what will likely happen causes problems for the entire organization. Production can be short of labor or materials the causes inefficiencies to the production process. Selling and administrative support may be lacking due to underestimating sales. Customers will be angry because they have to wait and the person in charge has to do what is best for the company.

POST 2:

1. The ethical conflict that can occur between the planning control phases of the budgeting process is where someone is a manager that assists upper management in planning budget. It is possible that this manager may receive a bonus for meeting quarterly estimated profit. Therefore, if the manager sets this budget low, they are guaranteed to receive a bonus.

2. Underestimating a sales budget can have a negative impact on the organization because it may not allocate funds in order for the manufacturer to be fully functional. Factories may be short on labor and supplies.

A-13 Present Value of Cash Flows

Rush Corporation plans to acquire production equipment for $635,000 that will be depreciated for tax purposes as follows: year 1, $127,000; year 2, $217,000; and in each of years 3 through 5, $97,000 per year. A 12 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8 and Exhibit A.9.

Required:

a. Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)

b. Compute the present value of the tax shield from depreciation assuming straight-line depreciation ($127,000 per year). (Round PV factor to 3 decimal places and other intermediate calculations to nearest whole number.)

The partnership of Matteson, Richton, and O’Toole has existed for a number of years. At the present time the partners have the following capital balances and profit and loss sharing percentages:

O’Toole elects to withdraw from the partnership, leaving Matteson and Richton to operate the business. Following the original partnership agreement, when a partner withdraws, the partnership and all of its individual assets are to be reassessed to current fair values by an independent appraiser. The withdrawing partner will receive cash or other assets equal to that partner’s current capital balance after including an appropriate share of any adjustment indicated by the appraisal. Gains and losses indicated by the appraisal are allocated using the regular profit and loss percentages.

An independent appraiser is hired and estimates that the partnership as a whole is worth $680,000. Regarding the individual assets, the appraiser finds a building with a book value of $220,000 has a fair value of $300,000. The book values for all other identifiable assets and liabilities are the same as their appraised fair values.

Accordingly, the partnership agrees to pay O’Toole $200,000 upon withdrawal. Matteson and Richton, however, do not wish to record any goodwill in connection with the change in ownership.

Prepare the journal entry to record O’Toole’s withdrawal from the partnership. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.)

• Record the building appreciation to old partners.
• Record O'Toole's withdrawal from the partnership.

A partnership has the following account balances: Cash, $70,000; Other Assets, $540,000; Liabilities, $260,000; Nixon (50 percent of profits and losses), $170,000; Cleveland (30 percent), $110,000; Pierce (20 percent), $70,000. The company liquidates, and $8,000 becomes available to the partners. Who gets the $8,000? Determine how much of this amount should be distributed to each partner.(Do not round intermediate calculations.)

Alexander Corporation reports the following components of stockholders’ equity on December 31, 2016:

In year 2017, the following transactions affected its stockholders’ equity accounts.

Eye Trendy Corporation is a distributor of frames for sunglasses. The company’s controller is currently preparing a budget for the third quarter of the year. The following information is from company’s financial records: Projected Sales July 3,120 units August 2,000 units September 2,640 units October 3,000 units • Selling price is RM25 per unit • Collections from customers are normally 70 per cent in the month of sale, 20 per cent in the month following sale, and 9 per cent in the second month following the sale. The balance is expected to be uncollectible. Projected Purchases • Purchase price is RM18 per unit. • All frames purchases are on account. 70 per cent of the frames purchased are paid for in the month of purchase; the remaining 30 per cent are paid for in the month after acquisition. • Inventory of frames on 1st July is 1,200 units. The frames inventory at the end of each month equals 20 per cent of sales anticipated for the following month. • The company purchases the frames as needed in multiple quantities of 1,000 units per shipment. Operating Expenses • General and administrative expenses are projected to be RM33,000 for the quarter. The breakdown of these expenses is presented in the following schedule. All cash expenditures will be paid uniformly throughout the quarter: Promotion RM9,000 Insurance RM12,000 Utilities RM7,500 Depreciation RM4,500 Total RM33,000 Other information • Cash proceeds from sale of old equipment amounted to RM5,000 in the month of August. • Purchase of new equipment amounted to RM50,000 is to be made in the month of September. • Eye Trendy is expected to maintain a minimum cash balance of RM20,000 at all times. If the cash balance is less than RM20,000 at the end of each month, the company borrows amounts necessary to maintain this balance. All amounts are repaid out of the subsequent positive cash flow. • The company’s cash balance on 1st July is RM22,000. Required: a. Prepare the following schedules: (i) Expected cash collections for the sales of frames during the third quarter. Show computations by month and in total for the quarter. (ii) Expected Cash disbursements for the purchases of frames during the third quarter. Show computations by month and in total for the quarter. (iii) Expected Cash balance on 30th September. Show computations by month and in total for the quarter. b. Refer to your answer in requirement (a). Prepare a schedule that shows whether or not the company meets the minimum cash requirement and compute the amount of borrowing required, if any, to maintain the firm’s minimum cash balance. c. How can a company’s board of directors use the different types of budget to influence the future direction of the firm? Please answer point b and c only

Shown below is an income statement in the traditional format for April Corp. that sells a single product having a sales volume of 15,000 units. Cost formulas are also shown (for example, COGS includes fixed costs of $23,000 and variable costs of $3.20 per unit):

Sales ………………………………………………………………… $108,000

Cost of goods sold ($23,000 + $3.20 per unit) ……………………… (71,000)

Gross profit ………………………………………………………… $ 37,000

Operating expenses: Selling ($9,000 + $0.82 per unit) …………………………………… (21,300)

Administrative ($12,800 +$0.07 per unit)…………………………… (13,850)

Operating income …………………………………………………… $ 1,850

a. Prepare an income statement in the contribution margin format.

b. Calculate the contribution margin per unit and contribution margin ratio.

c. Calculate the firm's break even point in units.

An American Company borrowed 1million Canadian dollars to finance the construction of an office building when the Canadian dollar was worth $1 US. At 10% interest, the American Company expected to pay back 1.1 million Canadian dollars which would cost $1.1 million US dollars. However, based on changes in the value of the Canadian dollar, the American Company must pay $1,030,000 million US dollars to satisfy this debt. How will this $70,000 US dollar difference be shown on the American Company’s financial statements under GAAP? How would this have been shown if the American Company used IFRS? Which gives us more relevant information? Explain

A taxi driver in Manhattan is sitting in his car passing time until someone needs a ride. Unbeknownst to the taxi driver, a man in a nearby alley is robbing two people. After the robber has completed the crime, he runs around the corner and jumps into the taxi. The robber tells the driver to floor it, and to emphasize his point, he puts a gun to the taxi driver's head. The driver puts the car in gear and takes off. Meanwhile, one of the robbery victims has followed the robber to the taxi and is running next to it to try to get in the cab. He is yelling something to the effect of, "Stop thief!" The taxi driver looks in the mirror and notices that the robber is looking at the victim chasing the taxi and figures it is his chance to hightail it!. The driver slams on the brakes and jumps out of the cab. When he slammed on the brakes, the robber in the car was injured; however, the taxi, without the driver, continued forward. The driverless taxi ran off the street and up onto the sidewalk where it struck a poor woman and her three children, injuring all three. The woman sued the taxi driver for their injuries resulting from the driver jumping out of a moving vehicle.

Please discuss the results of the action by the woman and her children against the taxi driver.

Freedom Corporation acquired a fixed asset for $170,000. Its estimated life at time of purchase was 4 years, with no estimated salvage value. Assume a discount rate of 11% and an income tax rate of 40%. (Use Exhibit 12.4,Appendix C, TABLE 1 and Appendix C, TABLE 2.)

Required:

1. What is the incremental present value of the tax benefits resulting from calculating depreciation using the sum-of-the-years’-digits (SYD) method rather than the straight-line (SLN) method on this asset? Use the SYD and SLN functions in Excel to calculate depreciation charges.

2. What is the incremental present value of the tax benefits resulting from calculating depreciation using the double-declining-balance (DDB) method rather than the straight-line (SLN) method on this asset? Use the SLN and DDB functions in Excel to calculate depreciation charges.

3. What is the incremental present value of the tax benefits resulting from using MACRS rather than straight-line (SLN) depreciation? The asset qualifies as a 3-year asset. Use the half-year convention.