On January 1, 2018, Morris Production leased a machine from Werner Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Morris. Portions of the Werner Leasing's lease amortization schedule appear below: Jan. 1 Payments Effective Interest Decrease Outstanding in Balance Balance 374,596 2018 40,000 40,000 334,596 2018 40,000 33,460 6,540 328,056 2019 40,000 32,806 7,194 320,861 2020 40,000 32,086 7,914 312,947 2021 40,000 31,295 8,705 304,242 2022 40,000 30,424 9,576 294,666 2023 40,000 29,467 10,533 284,133 – –– – – – –– – – – –– – – 2035 40,000 9,948 30,052 69,422 2036 40,000 6,942 33,058 36,364 2037 40,000 3,636 36,364 0 Required: 1. What is Morris's lease liability at the beginning of the lease (after the first payment)? 2. What amount would Majestic record as a right-of-use asset? 3. What is the lease term in years? 4. What is the effective annual interest rate? 5. What is the total amount of lease payments? 6. What is the total effective interest expense recorded over the term of the lease?

Hemming Co. reported the following current-year purchases and sales for its only product.
    

Required:
Hemming uses a perpetual inventory system.
  
1. Determine the costs assigned to ending inventory and to cost of goods sold using FIFO.
2. Determine the costs assigned to ending inventory and to cost of goods sold using LIFO.
3. Compute the gross margin for FIFO method and LIFO method.

Fun Toys is a retailer of children’s toys. The Accounts payable department is located at company headquarters in Boston, Massachusetts. The department consists of two full-time clerks and one supervisor. They are responsible for processing and paying approximately 2000 checks every month. The accounts payable process begins with receipt of a purchase order from the purchasing department. The purchase order is held until a receiving report and the vendor’s invoice have been forwarded to accounts payable. At that time, the purchase order, receiving order, and vendor’s invoice are matched together by an accounts payable clerk, and payment and journal entry information are input to the computer. Payments details are designated in the input, and these are based on vendor payment terms. Company policy is to take advantage of any cash discounts offered. If there are any discrepancies among the purchase order, receiving report, and invoice, they are given to supervisor for resolution. After resolving the discrepancies, the supervisor returns the documents to the appropriate clerk for processing. Once documents are matched and payment information is input, the documents are stapled together and filed in a temporary file folder by payment date until checks are issued. When checks are issued, a copy of each check is used as a voucher cover and is affixed to the supporting documentations from the temporary file. The entire voucher is then defaced to avoid duplicated payments. In addition to the check and check copy, other outputs of the computerized accounts payable system are a check register, vendor master list, accrual of open invoices, and a weekly cash requirement forecast. Requirement • Draw a context diagram for the company’s accounts payable process.

Contribution Margin

Sally Company sells 37,000 units at $46 per unit. Variable costs are $26.68 per unit, and fixed costs are $321,700.

Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.

Break-Even Point

Radison Enterprises sells a product for $107 per unit. The variable cost is $63 per unit, while fixed costs are $474,320.

Determine (a) the break-even point in sales units and (b) the break-even point if the selling price were increased to $112 per unit.

Target Profit

Outdoors Company sells a product for $160 per unit. The variable cost is $75 per unit, and fixed costs are $374,000.

Determine (a) the break-even point in sales units and (b) the break-even point in sales units required for the company to achieve a target profit of $67,320.

Sales Mix and Break-Even Analysis

Michael Company has fixed costs of $1,600,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products are provided below.

The sales mix for products Model 94 and Model 81 is 50% and 50%, respectively. Determine the break-even point in units of Model 94 and Model 81 of the overall (total) product, E. If required, round your answers to the nearest whole number.

a. Product Model 94_____ units

b. Product Model 81______ units

Operating Leverage

Cartersville Company reports the following data:

Determine Cartersville Company's operating leverage. Round your answer to one decimal place.______

Margin of Safety

The Ira Company has sales of $230,000, and the break-even point in sales dollars is $177,100.

Determine the company's margin of safety as a percent of current sales.  ____%

Lonnie Davis has been a general partner in the Highland Partnership for many years and is also a sole proprietor in a separate business. To spend more time focusing on his sole proprietorship, he plans to leave Highland and will receive a liquidating distribution of $72,000 in cash and land with a fair market value of $135,500 (tax basis of $173,000). Immediately before the distribution, Lonnie’s basis in his partnership interest is $448,000, which includes his $79,500 share of partnership debt. The Highland Partnership does not hold any hot assets.

a. What is the amount and character of any gain or loss to Lonnie?

b. What is Lonnie’s basis in the land?
c. What is the amount and character of Lonnie’s gain or loss if he holds the land for 13 months as investment property and then sells it for $163,000?
d. Assume there are no gains from the sale of other Section 1231 in the same tax year. What is the amount and character of Lonnie’s gain or loss if he places the land into service in his sole proprietorship and then sells it 13 months later for $163,000?

Coolplay Corp. is thinking about opening a soccer camp in southern California. To start the camp, Coolplay would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year, the camp would be run for 8 sessions of 1 week each. The company would hire college soccer players as coaches. The camp attendees would be male and female soccer players ages 12–18. Property values in southern California have enjoyed a steady increase in value. It is expected that after using the facility for 20 years, Coolplay can sell the property for more than it was originally purchased for. The following amounts have been estimated.

Click here to view PV table.

(a)

Calculate the net present value of the project. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Should the project be accepted?

Calculate Payroll

Breakin Away Company has three employees-a consultant, a computer programmer, and an administrator. The following payroll information is available for each employee:

For the current pay period, the computer programmer worked 60 hours and the administrator worked 50 hours. The federal income tax withheld for all three employees, who are single, can be determined by adding $356.90 to 28% of the difference between the employee's amount subject to withholding and $1,796.00. Assume further that the social security tax rate was 6%, the Medicare tax rate was 1.5%, and one withholding allowance is $70.

Determine the gross pay and the net pay for each of the three employees for the current pay period. Assume the normal working hours in a week are 40 hours. If required, round your answers to two decimal places.

Feedback

Gross pay represents the total earnings of an employee for a specific pay period, prior to taxes and deductions. Net pay is also known as take-home pay.

Locate the proper withholding wage bracket in the withholding table. Pay attention to the number of exemptions each employee is claiming.

If Quail Company invests $43,000 today, it can expect to receive $12,600 at the end of each year for the next seven years, plus an extra $6,700 at the end of the seventh year. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Enter negative net present values, if any, as negative values. Round your present value factor to 4 decimals.) What is the net present value of this investment assuming a required 8% return on investments?

Determine the amount of sales (units) that would be necessary under

Break-Even Sales Under Present and Proposed Conditions

Darby Company, operating at full capacity, sold 116,100 units at a price of $111 per unit during the current year. Its income statement for the current year is as follows:

The division of costs between fixed and variable is as follows:

Management is considering a plant expansion program that will permit an increase of $999,000 in yearly sales. The expansion will increase fixed costs by $99,900, but will not affect the relationship between sales and variable costs.

Required:

1. Determine the total variable costs and the total fixed costs for the current year. Enter the final answers rounded to the nearest dollar.

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Enter the final answers rounded to two decimal places.

3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number.
units

4. Compute the break-even sales (units) under the proposed program for the following year. Enter the final answers rounded to the nearest whole number.
units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $159,100 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number.
units

6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar.
$

7. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year? Enter the final answer rounded to the nearest dollar.
$  

8. Based on the data given, would you recommend accepting the proposal?

1. In favor of the proposal because of the reduction in break-even point.
2. In favor of the proposal because of the possibility of increasing income from operations.
3. In favor of the proposal because of the increase in break-even point.
4. Reject the proposal because if future sales remain at the current level, the income from operations will increase.
5. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.

Choose the correct answer.

During Year 1 and Year 2, Agatha Corp. completed the following transactions relating to its bond issue. The corporation’s fiscal year is the calendar year. Year 1 Jan. 1 Issued $330,000 of 8-year, 8 percent bonds for $324,000. The annual cash payment for interest is due on December 31. Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account. Year 2 Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account. Required a-1. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? a-2. If Agatha had sold the bonds at their face amount, what amount of cash would Agatha have received? b. Prepare the liabilities section of the balance sheet at December 31, Year 1 and Year 2. c. Determine the amount of interest expense that will be reported on the income statements for Year 1 and Year 2. d. Determine the amount of interest that will be paid in cash to the bondholders in Year 1 and Year 2.

Please answer both.

High-Low Method for a Service Company

Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved.

Determine the variable cost per gross-ton mile and the total fixed cost.

Break-Even Sales and Sales Mix for a Service Company

Zero Turbulence Airline provides air transportation services between Los Angeles, California, and Kona, Hawaii. A single Los Angeles to Kona round-trip flight has the following operating statistics:

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall enterprise product, E. Assume that the overall product mix is 10% business class and 90% economy class tickets.

b. How many business class and economy class seats would be sold at the break-even point?

The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system.

The collectability of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor.

a) Assuming the lessee's accounting period ends on September 30, answer the following questions with respect to this lease agreement.

1. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2018?

2. What items and amounts will appear on the lessee's balance sheet at September 30, 2018?

3. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2019?

4. What items and amounts will appear on the lessee's balance sheet at September 30, 2019?

b) Assuming the lessee's accounting period ends on December 31, answer the following questions with respect to this lease agreement.

1. What items and amounts will appear on the lessee's income statement for the year ending December 31, 2017?

2. What items and amounts will appear on the lessee's balance sheet at December 31, 2017?

3. What items and amounts will appear on the lessee's income statement for the year ending December 31, 2018?

4. What items and amounts will appear on the lessee's balance sheet at December 31, 2018?

High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant’s operation:

Management is anxious to assess the profitability of the new camp cot during the month of May.

Required:

1. Assume that the company uses absorption costing.

a. Determine the unit product cost.

b. Prepare an income statement for May.

2. Assume that the company uses variable costing.

a. Determine the unit product cost.

b. Prepare a contribution format income statement for May.

Laker Company reported the following January purchases and sales data for its only product.

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 230 units, where 200 are from the January 30 purchase, 5 are from the January 20 purchase, and 25 are from beginning inventory.

Required:

1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,350, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)

2. Which method yields the highest net income?

• Specific identification

• Weighted average

• LIFO

• FIFO

3. Does net income using weighted average fall between that using FIFO and LIFO?

• Yes

• No

4. If costs were rising instead of falling, which method would yield the highest net income?

• FIFO

• LIFO

• Specific identification

• Weighted average

Equivalent Units and Related Costs; Cost of Production Report; Entries

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in Process—Filling was as follows on January 1:

The following costs were charged to Work in Process—Filling during January:

During January, 58,800 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 5,100 units, 50% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. If required, round your answers to two decimal places.

4. The cost of production report may be used as the basis for allocating product costs between   and  . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.