Exercise 12-25 (Algorithmic)
Fair Value and Equity Methods

Nadal Corporation purchased 8,800 common shares of Beck Inc., on January 1, 2018, for $107,000. During 2018, Beck declared and paid cash dividends to Nadal in the amount of $7,000. Nadal's share of Beck's net income for 2018 was $5,700. At December 31, 2018, the fair value of the 10,000 shares was $122,000. This is Nadal's only investment.

Required:

1. Assume that Beck has 66,000 common shares outstanding. What journal entries will Nadal make during 2018 relative to this investment?

2. Assume that Beck has 35,200 common shares outstanding. What journal entries will Nadal make during 2018 relative to this investment?

Could you write detailed calculation getting 2018 Dec 31 Investments-Equity Method and Investment Income-Equity Method

Ripit Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors The outlay required is $480,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with the project follow:

Year               Cash Revenues       Cash Expenses

1                      $780,000                   $600,000

2                        780,000                     600,000

3                        780,000                     600,000

4                        780,000                     600,000

5                        780,000                     600,000

Required:

1. Compute the payback period for the NC equipment.

2. Compute the NC equipment's ARR.

3. Compute the investment's NPV, assuming a required rate of return of 10 percent.

4. Compute the investment's IRR.

9. Younger Corporation reports that at an activity level of 8,700 units, its total variable cost is $653,109 and its total fixed cost is $658,416.

Required:

For the activity level of 8,800 units, compute: (a) the total variable cost; (b) the total fixed cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per unit; and (f) the average total cost per unit. Assume that this activity level is within the relevant range.

10. Match the following terms to the appropriate statement by placing the letter to the left of each statement.

a.Committed fixed cost b. Fixed Cost c. Variable Cost d. Total Cost e. Discretionary Fixed Cost f. High-low method g. Mixed Cost h. Relevant Range i. Scattergraph j. Step cost

1. Cost that does not change in total as long as production is in the relevant range.

2. Fixed costs that cannot be changed over the short run.

3. Cost that changes in total as production changes but remains unchanged per unit.

4. The sum of fixed costs and variable costs

5. The normal level of operating activity.

6. Fixed costs that can be changed over the short run.

7. A cost that has both a fixed and variable component.

8. A cost that is fixed over only a small range of activity.

9. A graph that shows total costs in relation to volume, or activity level.

10. A method of estimating the fixed and variable cost components of a mixed cost that requires using only two data points, the lowest point of activity and the highest point of activity.

11. Indicate which of the following costs are classified as mixed or step costs.

12. Vest Construction Company’s cost of renting a crane for the last four months is as follows:

Using the high-low method, what is the company’s estimated variable and fixed component of operating expenses? What is the total cost equation? What would be the estimated total cost if a crane is rented for 60 hours per month?

Financial statements for Askew Industries for 2021 are shown below (in thousands):

Required:
Calculate the following ratios for 2021. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.)
1. inventory turn over ratio:________

2. Average days in inventory:_______ days

3. Receivables turnover rate:_______

4. Average collection period:________days

5. Asset turnover ratio:_________

6. Profit margin on sales:______%

7. Return on assets:__________%

8. Return on equity:________%

9. Equity multiplier:____________times

10. Return on equity (using the DuPoint framework):_________%

Backcountry Adventures is a Colorado-based outdoor travel agent that operates a series of backcountry huts. Currently, the value of the firm is $3.8 million. But profits will depend on the amount of snowfall: If it is good year, the firm will be worth $5.2 million, and if it is a bad year it will be worth $2.5 million. Suppose managers always keep the debt to equity ratio of the firm at 30%, and the debt is riskless.

a. What is the initial amount of debt?
b. Calculate the percentage change in the value of the firm, its equity and its debt once the level of snowfall is revealed, but before the firm adjusts the debt level to achieve its target debt to equity ratio.
c. Calculate the percentage change in the value of outstanding debt once the firm adjusts to its target debt-equity ratio.
d. What does this imply about the riskiness of the firm's tax shields. Explain.

Required information Great Adventures Problem AP3-1 [The following information applies to the questions displayed below.] Tony and Suzie graduate from college in May 2021 and begin developing their new business. They begin by offering clinics for basic outdoor activities such as mountain biking or kayaking. Upon developing a customer base, they’ll hold their first adventure races. These races will involve four-person teams that race from one checkpoint to the next using a combination of kayaking, mountain biking, orienteering, and trail running. In the long run, they plan to sell outdoor gear and develop a ropes course for outdoor enthusiasts. On July 1, 2021, Tony and Suzie organize their new company as a corporation, Great Adventures Inc. The articles of incorporation state that the corporation will sell 36,000 shares of common stock for $1 each. Each share of stock represents a unit of ownership. Tony and Suzie will act as co-presidents of the company. The following transactions occur from July 1 through December 31. Jul. 1 Sell $18,000 of common stock to Suzie. Jul. 1 Sell $18,000 of common stock to Tony. Jul. 1 Purchase a one-year insurance policy for $4,320 ($360 per month) to cover injuries to participants during outdoor clinics. Jul. 2 Pay legal fees of $1,500 associated with incorporation. Jul. 4 Purchase office supplies of $1,400 on account. Jul. 7 Pay for advertising of $370 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $40 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $12,300 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,800 from 70 bikers. Tony conducts the mountain biking clinic. Jul. 22 Because of the success of the first mountain biking clinic, Tony holds another mountain biking clinic and the company receives $3,350. Jul. 24 Pay $960 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $110 in advance or $160 on the day of the clinic. Jul. 30 Great Adventures receives cash of $7,700 in advance from 70 kayakers for the upcoming kayak clinic. Aug. 1 Great Adventures obtains a $40,000 low-interest loan for the company from the city council, which has recently passed an initiative encouraging business development related to outdoor activities. The loan is due in three years, and 6% annual interest is due each year on July 31. Aug. 4 The company purchases 14 kayaks, paying $20,400 cash. Aug. 10 Twenty additional kayakers pay $3,200 ($160 each), in addition to the $7,700 that was paid in advance on July 30, on the day of the clinic. Tony conducts the first kayak clinic. Aug. 17 Tony conducts a second kayak clinic, and the company receives $11,900 cash. Aug. 24 Office supplies of $1,400 purchased on July 4 are paid in full. Sep. 1 To provide better storage of mountain bikes and kayaks when not in use, the company rents a storage shed for one year, paying $3,240 ($270 per month) in advance. Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,000 cash. Oct. 17 Tony conducts an orienteering clinic. Participants practice how to understand a topographical map, read an altimeter, use a compass, and orient through heavily wooded areas. The company receives $18,000 cash. Dec. 1 Tony decides to hold the company’s first adventure race on December 15. Four-person teams will race from checkpoint to checkpoint using a combination of mountain biking, kayaking, orienteering, trail running, and rock-climbing skills. The first team in each category to complete all checkpoints in order wins. The entry fee for each team is $500. Dec. 5 To help organize and promote the race, Tony hires his college roommate, Victor. Victor will be paid $40 in salary for each team that competes in the race. His salary will be paid after the race. Dec. 8 The company pays $1,800 to purchase a permit from a state park where the race will be held. The amount is recorded as a miscellaneous expense. Dec. 12 The company purchases racing supplies for $2,900 on account due in 30 days. Supplies include trophies for the top-finishing teams in each category, promotional shirts, snack foods and drinks for participants, and field markers to prepare the racecourse. Dec. 15 The company receives $20,000 cash from a total of forty teams, and the race is held. Dec. 16 The company pays Victor’s salary of $1,600. Dec. 31 The company pays a dividend of $3,500 ($1,750 to Tony and $1,750 to Suzie). Dec. 31 Using his personal money, Tony purchases a diamond ring for $4,900. Tony surprises Suzie by proposing that they get married. Suzie accepts and they get married! The following information relates to year-end adjusting entries as of December 31, 2021. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,500. Six months’ of the one-year insurance policy purchased on July 1 has expired. Four months of the one-year rental agreement purchased on September 1 has expired. Of the $1,400 of office supplies purchased on July 4, $270 remains. Interest expense on the $40,000 loan obtained from the city council on August 1 should be recorded. Of the $2,900 of racing supplies purchased on December 12, $140 remains. Suzie calculates that the company owes $13,700 in income taxes. Part 7 Post the closing entries of retained earnings to the T-account.

How do I post to the T-account?

Alan Legler requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $38,600. Purchases since January 1 were $65,700; freight-in, $3,300; purchase returns and allowances, $2,200. Sales are made at 33 ¹/₃% above cost and totaled $99,900 to March 9. Goods costing $10,000 were left undamaged by the fire; remaining goods were destroyed.

Compute the cost of goods destroyed. (Round gross profit percentage and final answer to 0 decimal places, e.g. 15% or 125.)

Compute the cost of goods destroyed, assuming that the gross profit is 33 ¹/₃% of sales. (Round ratios for computational purposes to 5 decimal places, e.g. 78.72345% and final answer to 0 decimal places, e.g. 28,987.)

11

consider the following information for Evans, Inc. when the company entered bankruptcy proceedings:

Inventory with a book value of $240,000 and realizable value of $175,000 is security for notes payable of $145,000. The equipment secures the remaining notes payable. Expected realizable values of the assets are:

The prepaid expenses and goodwill have a realizable value of zero. The entire wages payable balance is a priority liability.

Required

Compute the estimated deficiency to unsecured creditors.

Do not use negative signs with any of your answers below.

1/ On January 1, 2018, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,300. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

What inventory balance would Badger report on its 12/31/2020 balance sheet?

Multiple Choice

• $129,050.

• $130,895.

• $154,860.

• None of these answer choices are correct.

2/ Nu Company reported the following pretax data for its first year of operations.

What is Nu's net income if it elects LIFO?

Multiple Choice

• $546.

• $910.

• $520.

• $312.

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Chicago Furniture Company produces combination desk and chair sets for the elementary schools in the Midwest. As the second quarter is progressing it is important for the controller to complete a budget for the third quarter. The sales department manager has provided the following forecast.

• In order to ensure Just-in-Time (JIT) deliveries are maintained in accordance with the needs of the schools Chicago Furniture Company has a standing policy that the inventory at the end of each month must be equal to 40% of the following month’s forecasted sales. On July 1st there will be 3,200 desk combos in inventory.
• The building of each desk combo requires 12 board feet of pine planks which cost $0.70 per foot. In order to maintain proper inventory for building the desk combos the department must have 30% of the next month’s production requirements.

Using Microsoft Excel, create a spreadsheet for the production and material purchases budget for the 3rd Quarter.

Exercise 7-7 Aging of receivables method LO P3

Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

a. Complete the below table to calculate the estimated balance of Allowance for Doubtful Accounts using the aging of accounts receivable method.
b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $3,600 credit.
c. Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $100 debit.

Section 301 of the Sarbanes-Oxley Act requires that public companies have an audit committee. Independent auditors are increasingly involved with audit committees.

Select all of the following that are functions of the audit committee: (Select all that apply.)

• Selection of the independent auditor, discussion of audit fee with the auditor, and review of the auditor's engagement letter.

• Review of the independent auditor's overall audit plan (scope, purpose, and general audit procedures).

• Review of the annual financial statements before submission to the full board of directors for approval.

• Review of the results of the auditor's examination including experiences, restrictions, cooperation received, findings, and recommendations. Matters that the auditor believes should be brought to the attention of the directors or shareholders should be considered.

• Review of the independent auditor's evaluation of the company's internal control systems.

• Review of the company's accounting, financial, and operating controls.

• Review of the reports of internal audit staff.

• Review of interim financial reports to shareholders before the board of directors approves them.

• Review of the audit workpapers to ensure that the audit was conducted properly.

• Review of the makeup of the board of directors to ensure that they are qualified to oversee the audit process.

• Review of the qualifications of the audit staff to ensure that they are qualified to conduct the audit.

• Review of the applicable audit standards to ensure that they apply to the audited company.

1. Cost Information and FIFO

   Gunnison Company had the following equivalent units schedule and cost information for its Sewing Department for the month of December:

   	Direct Materials		Conversion Costs
   Units started and completed	45,000		45,000
   Add: Units in beginning work in process ×
   Percentage complete:
   7,000 × 0% direct materials	—
   7,000 × 50% conversion Costs			3,500
   Add: Units in ending work in process ×
   Percentage complete:
   12,000 × 100% direct materials	12,000		—
   12,000 × 35% conversion Costs	—		4,200
   Equivalent units of output	57,000		52,700
   Costs:
   Work in process, December 1:
   Direct Material			$91,000
   Conversion Costs			21,000
   Total work in process			$112,000
   Current costs:
   Direct Material			$798,000
   Conversion Costs			263,500
   Total current costs			$1,061,500

   Required:

   1. Calculate the unit cost for December, using the FIFO method.
   $ per equivalent unit

   2. Calculate the cost of goods transferred out, calculate the cost of EWIP, and reconcile the costs assigned with the costs to account for.

   Cost of goods transferred out	$
   Cost of EWIP	$

   Cost to account for:
   BWIP	$
   Current (December)
   Total	$

   3. What if you were asked for the unit cost from the month of November? Calculate November's unit cost.
   $ per equivalent unit

Discuss thoroughly at least 3 benefits and 3 risks of the fast-paced move to automation in accounting using at least one specific technology. Please do not include topics already discussed by you in this quiz or the last one.

Metlock Company provides the following selected information related to its defined benefit pension plan for 2017.
Compute pension expense.

Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2017. Preparation of a pension worksheet is not required. Benefits paid in 2017 were $37,500