Question a.

Nisha Patel has a full time job as a nurse in her local hospital. In her spare time she has a goat farming operation. The goat farm began in 2016, and resulted in a loss of $10,000. She deducted the maximum allowable amount of the loss against her 2016 income. In 2017, most of the problems had been worked out, and Nisha had a profit from the farm operation of $5,000, as well as employment income of $100,000. Determine Ms. Patel's taxable income for 2017.

Question b.

Which of the following statements about Allowable Business Investment Losses is correct?

Question c.

When an individual makes a gift of publicly traded securities to a registered charity, any capital gain that results from the disposition is deemed to be nil.

On August 1, 2019, United Corporation issued $9.50 million of 6% bonds at 104. The bonds mature in 20 years. Each $1,000 bond was issued with 20 detachable stock warrants, each of which entitled the bondholder to purchase, for $45, one share of United $5 par common stock. World Company purchased 20% of the bond issue. On August 1, 2019, the market value per share for United stock was $51 and the market value of each warrant was $7. In March 2025, when United common stock had a market price of $65 per share and the unamortized premium balance was $250,000, World exercised the warrants it held.

Required:

1. Prepare the journal entries on August 1, 2019, to record (A) the issuance of the bonds by United and (B) the investment by World.

2. Prepare the journal entries for both companies in March 2025 to record the exercise of the warrants.

Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $31,500, and Harold expects to spend about $1,000 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $12,500. Alternatively, Harold could lease the same vehicle for five years at a cost of $4,095 per year, including maintenance. Assume a discount rate of 11 percent.    

Required:
1. Calculate the net present value of Harold’s options. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amounts should be indicated by a minus sign. Round your final answers to 2 decimal places. Do not round intermediate calculations.)

             

2. Advise Harold about which option he should choose.

    

On January 1, 2018, Johns Shop leased a truck from Madix Motors for a six-year period. The useful life of the truck is 9 yrs. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate Assume that at the end of the second year, January 1, 2020, John's and Madix Motors had agreed to extend the lease term by three years. The relevant interest rate at that time was 6%. The truck price was $70,000

Prepare the journal entry, if any, at the end of the second year for the lessee to account for the modification.

Prepare the journal entry, if any, at the end of the second year for the lessor to account for the modification.

American Movieplex, a large movie theater chain, leases most of its theater facilities. In conjunction with recent operating leases, the company spent $28 million for seat and carpeting. The question being discussed over breakfast on Wednesday morning was the length of the depreciation period for these leasehold improvements. The company controller, Sarah Keene, was surprised by the suggestion of Larry Person, her new assistant. Keene: Why 25 years? We've never depreciated leasehold improvements for such a long period. Person: I noticed that in my review of back records. But during our expansion to the Midwest, we don't need expenses to be any higher than necessary. Keene: But isn't that a pretty rosy estimate of these assets' actual life? Trade publications show an average depreciation period of 12 years. Read through the dilemma.

For the Original Post*, you will be arguing in favor of Larry Person's proposal to increase the depreciation period for leasehold improvements. Remember to use logic and the accounting principles you have learned thus far to develop your argument. You must include at least three points as to why this route is the best route to go (with one of those points being related to the learned accounting principles).

1. Describe a Computer Operations internal control that you would implement to give you comfort that each of the following objectives is being met:

1. Controls provide reasonable assurance that data recorded, processed and reported remain complete, accurate and valid throughout the update and storage process.
2. Controls provide reasonable assurance that authorized programs are executed as planned and deviations from scheduled processing are identified and investigated, including controls over job scheduling, processing, error monitoring and system availability.
3. Controls provide reasonable assurance that any problems and/or incidents are properly responded to, recorded, resolved or investigated for proper resolution.

true or false

1. The main components needed to estimate a​ project’s incremental cash flows are the initial capital​ investment, the change in​ NWC, net income and the​ firm’s market share.

2. Use of a​ firm’sexisting assets in a proposed project would result in an erosion cost.

3. Working capital accounts typically go up at the beginning of a project and are then decreased later.

4. ​ Temple’s payment of​ $1M to an architectural firm for a feasibility study of a new football stadium is an example of a sunk cost.

5. Straight-linedepreciation is higher in the later years of a​ project’slife

6. The market value of a​ long-termasset at any point in time is equal to the​ asset’soriginal cost plus all of the depreciation that has been taken on that asset.

7. Sale of a piece of equipment at a gain reduces the CF from salvage

8. The installation cost is added to the accumulated depreciation of an asset to get the initial capital investment.

9. Cogswell Cola needed to purchase additional inventory of plastic bottles to launch its Pulsar Cola. This decrease in inventory represents a positive cash flow associated with the project.

10. Opportunity costs add to a​ project’scash flows while erosion costs and synergy gains reduce those cash flows.

11. Opportunity costs have no impact on a​ project’sincremental CFs.

12. If the company had a large depreciation expense during the​ period,the income statement could show a loss for the​ period,even though the cash account may have grown during the same period.

Gibson Company has operating assets of $21,000,000. The company’s operating income for the most recent accounting period was $2,730,000. The Dannica Division of Gibson controls $6,830,000 of the company’s assets and earned $1,230,000 of its operating income. Gibson’s desired ROI is 11 percent. Gibson has $1,110,000 of additional funds to invest. The manager of the Dannica division believes that his division could earn $142,000 on the additional funds. The highest investment opportunity to any of the company’s other divisions is 12 percent.

Required

1. Calculate the ROI of Dannica Division.

1. (1) Before investment opportunity.

2. (2) Only on the new investment opportunity.

3. (3) Dannica total ROI if investment opportunity is accepted.

3. Calculate the Dannica Division residual income from the new investment opportunity. If residual income is used as the sole performance measure would the manager of the Dannica Division be likely to accept or reject the additional funding

Calculate the ROI of Dannica Division. (Round your answers to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
(1) Before investment opportunity.
(2) Only on the new investment opportunity.
(3) Dannica total ROI if investment opportunity is accepted.

(4) Calculate the Dannica Division residual income from the new investment opportunity. If residual income is used as the sole performance measure would the manager of the Dannica Division be likely to accept or reject the additional funding?

How to improve the reliability in the accounting system?

Phil and Jim were roommates in college and have always competed against each other. Since graduating from college, both men were hired at the same company. The company pays bonuses at the end of year based on performance, which also includes a weekend on their boss's yacht. Two years in a row Phil managed to surpass Jim's performance. This year, Jim is determined to get the highest bonus. Imagine you are the accountant and knowing that these two men are rivals, answer the following questions

1. Compare and contrast job order and ABC costing.

2. Determine which costing method would make it easier to detect budget variances or discrepancies.

Phil and Jim were roommates in college and have always competed against each other. Since graduating from college, both men were hired at the same company. The company pays bonuses at the end of year based on performance, which also includes a weekend on their boss's yacht. Two years in a row Phil managed to surpass Jim's performance. This year, Jim is determined to get the highest bonus. Imagine you are the accountant and knowing that these two men are rivals, answer the following questions

1. Compare and contrast job order and ABC costing.

2. Determine which costing method would make it easier to detect budget variances or discrepancies.

Phil and Jim were roommates in college and have always competed against each other. Since graduating from college, both men were hired at the same company. The company pays bonuses at the end of year based on performance, which also includes a weekend on their boss's yacht. Two years in a row Phil managed to surpass Jim's performance. This year, Jim is determined to get the highest bonus. Imagine you are the accountant and knowing that these two men are rivals, answer the following questions

3. Identify the steps in the budget process most susceptible to manipulation. Discuss at least two steps where budget discrepancies would be difficult to detect by managers.

4. Propose the goals that should be measured on the corporate score card to ensure that bonuses are paid to the manager making the greatest financial contribution

Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of lawn care equipment, which occur during May. The following information has been assembled to assist in preparing a cash budget for the quarter:

1. Budgeted monthly absorption costing income statements for April–July are:

*Includes $28,000 of depreciation each month.

2. Sales are 20% for cash and 80% on account.

3. Sales on account are collected over a three-month period with 10% collected in the month of sale; 70% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February’s sales totaled $260,000, and March’s sales totaled $275,000.

4. Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $119,000.

5. Each month’s ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $84,000.

6. Dividends of $35,000 will be declared and paid in April.

7. Land costing $43,000 will be purchased for cash in May.

8. The cash balance at March 31 is $57,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

9. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $200,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter

The company’s president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:

1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in the main section.

2. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $84,000 and accounts payable for inventory purchases at March 31 remains $119,000.

Required:

1. Using the president’s new assumptions in (a) above, prepare a schedule of expected cash collections for April, May, and June and for the quarter in total.

2. Using the president’s new assumptions in (b) above, prepare the following for merchandise inventory:

a. A merchandise purchases budget for April, May, and June.

b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June and for the quarter in total.

3. Using the president’s new assumptions, prepare a cash budget for April, May, and June, and
for the quarter in total.

Problem C-6A Activity-based costing LO P2 Patient Health is an outpatient surgical clinic that was profitable for many years, but Medicare has cut its reimbursements by as much as 50%. As a result, the clinic wants to better understand its costs. It decides to prepare an activity-based cost analysis, including an estimate of the average cost of both general surgery and orthopedic surgery. The clinic’s three cost centers and their cost drivers follow. Cost Center Cost Cost Driver Driver Quantity Professional salaries $ 1,850,000 Professional hours 10,000 Patient services and supplies 37,000 Number of patients 500 Building cost 480,000 Square feet 4,000 The two main surgical units and their related data follow. Service Hours Square Feet* Patients General surgery 4,000 830 400 Orthopedic surgery 6,000 3,170 100 *Orthopedic surgery requires more space for patients, supplies, and equipment. Required: Complete the below table. 1. compute the cost per cost driver for each of the three centers. 2. use the results from part 1 to allocate costs from each of the three cost centers to both the general surgery and the orthopedic surgery units. Computer total cost and average post per patient for both the general surgery and the orthopedic surgery units.

Lindon Company is the exclusive distributor for an automotive product that sells for $48.00 per unit and has a CM ratio of 30%. The company’s fixed expenses are $324,000 per year. The company plans to sell 26,500 units this year.

Required:

1. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places.)

2. What is the break-even point in unit sales and in dollar sales?

3. What amount of unit sales and dollar sales is required to attain a target profit of $180,000 per year?

4. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4.80 per unit. What is the company’s new break-even point in unit sales and in dollar sales? What dollar sales is required to attain a target profit of $180,000?