WEEK #6: VALIDITY, STRENGTH, AND

DETERMINING WHETHER ARGUMENTS ARE INDUCTIVE OR DEDUCTIVE

ASSIGNMENT 1:

A. Determine whether the following deductive arguments are valid or invalid.

1. New York City is either in the U.S.A. or France. But it's not in France. It follows that New York City is in France.

2. If the moon is made of green snot, then there are boogers on the moon. The moon is made of green snot; therefore, there are boogers on the moon.

3. If a car is made by FORD, then it comes with a warranty. Corvette cars are not made by FORD. Therefore, Corvette cars do not come with a warranty.

B. Determine whether the following inductive arguments are strong or weak.

1. The Governor of the state of Michigan has stated that the water supply of Flint (a city in Michigan) does not constitute a major threat to the public health. Furthermore, his Cabinet members agree with him on this point. Accordingly, we conclude that the water supply of Flint (a city in Michigan) does not constitute a major threat to the public health.

2. Two weeks after Pope Francis visited Mexico City to warn against the ills of drug-trafficking and violence, the city suffered a severe earthquake. Therefore, Pope Francis caused the severe quake in Mexico City.

3. 45 million turkeys are killed each year for Thanksgiving. Therefore, the next turkey killed is certain to be for Thanksgiving.

ASSIGNMENT 2:

Determine whether the following arguments are inductive or deductive and correspondingly valid/invalid or strong/weak.

1. Most birds can fly, and an ostrich is a bird.   So, ostriches most probably can fly.

2. If the Taliban take power in Afghanistan, then they will eventually take power in all Central Asia. And, if the Taliban take power in all Central Asia, then they will take over the rest of the world. Thus, once the Taliban take power in Afghanistan, they will take over the rest of the world.

3. Either Maria will earn an A in this logic course or she will earn a B, C, D, E, or I. Maria did not earn a B, C, D, E, or I. So, she must have earned an A.

Forten Company, a merchandiser, recently completed its calendar-year 2017 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, and (5) Other Expenses are paid in advance and are initially debited to Prepaid Expenses. The company’s income statement and balance sheets follow.

Additional Information on Year 2017 Transactions

1. The loss on the cash sale of equipment was $9,125 (details in b).
2. Sold equipment costing $58,875, with accumulated depreciation of $34,125, for $15,625 cash.
3. Purchased equipment costing $100,375 by paying $38,000 cash and signing a long-term note payable for the balance.
4. Borrowed $4,400 cash by signing a short-term note payable.
5. Paid $52,125 cash to reduce the long-term notes payable.
6. Issued 2,900 shares of common stock for $20 cash per share.
7. Declared and paid cash dividends of $50,900.

Required:
1. Prepare a complete statement of cash flows; report its operating activities using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)
  

The statement of cash flows is very useful because it provides valuable information to investors, creditors, and other users. Distinguish among the three types of activities that are reported in the statement of cash flows. Please discuss in detail. (Please no handwritten responses - they can be difficult to decipher.)

Measuring Cost Behavior

Month                         Setup Hours (X)                    Setup Costs (Y)

January                                100                                        $1,000

February                              200                                         1,250   

March                                  300                                          2,250           

April                                    400                                          2,500           

May                                     500                                          3,750

What is the variable cost per unit using least-squares regression?

A. $4.50

B. $6.75

C. $7.25

D. $8.95

What is the fixed cost using least-squares regression?

A. $100

B. $105

C. $125

D. $135

What is the total cost at a level of 800 setup hours using least-squares regression?

A. $4,235

B. $4,765

C. $4,985

D. $5,525   

Variable Costing and Segment Reporting: Tools for Management. Search the Internet and provide a "recent" real world example of a company's use of any of the concepts discussed in the Chapter

Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows:

Required:

1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows:

Required:

1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

Jobs Inc. has recently started the manufacture of Tri-Robo, a three wheeled robot that can scan a home for fires and as leaks and then transmit the information to a smartphone. The cost structure to manufacture 20,000 Tri-Robos is as follows: dIRECT MATERIALS $50 per robot - Cost $100000, Direct Labor $40 per robot - 800,000, Variable overhead $6 per robot 120,000, Allocated fixed overhead $30 per robot 600,000. Jobs is approached by Tieh Inc. which offers to ake Tri-Robo for $115 per unit or $2,300,000. a. Using incremental analysis, determine whether Jobs should accept this offer undr each of the following Independent asumptions. 1. Asume that $405,000 of the fixed overhead cost can be avoided. 2. Assume that none of the fixed overhead can be avoided. However, if the robots are purchased from Tienh Inc;, Jobs can use the released productive resources to generate additional income of $375,000. b. Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplier.

Ayayai Corporation had the following stockholders’ equity accounts on January 1, 2020: Common Stock ($5 par) $500,000, Paid-in Capital in Excess of Par—Common Stock $200,000, and Retained Earnings $120,000. In 2020, the company had the following treasury stock transactions.

Ayayai Corporation uses the cost method of accounting for treasury stock. In 2020, the company reported net income of $30,000.

Prepare the stockholders’ equity section for Ayayai Corporation at December 31, 2020. (Enter the account name only and do not provide the descriptive information provided in the question.)

Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.95 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, she designed a simple system consisting of four activity cost pools. The activity cost pools and their activity measures appear below:

The total cost of operating the company for the year is $347,000 which includes the following costs:

Resource consumption is distributed across the activities as follows:

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Required:

1. Prepare the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. The company recently completed a 200 square foot carpet-cleaning job at the Flying N Ranch—a 51-mile round-trip journey from the company’s offices in Bozeman. Compute the cost of this job using the activity-based costing system.

4. The revenue from the Flying N Ranch was $45.90 (200 square feet @ $22.95 per hundred square feet). Calculate the customer margin earned on this job.

Company is replacing existing equipment with new equipment which can replicate what the existing machine does and also support a new product line.

Old equipment was purchased 3 years ago for 100,000 and was being depreciated using a MACRS 5 year asset class depreciation schedule. It was expected to have a 15,000 salvage value at the end of year 5 when it was planned to be sold. The company is considering replacing it now with a new machine. The old machine can be sold today for 35,000.

New machine will cost 180,000 and is expected to have an economic life of 8 years but is expected to use the MACRS 5 year asset class depreciation schedule for tax purposes. It is expected to have a salvage value of 12% of the original equipment costs at the end of 8 years. The remaining operational years beyond the depreciation tax schedule will not have any depreciation expense but will continue to have operational impact.

The new machine will require an increase in working capital of 10,000 in the first year of the project and will be fully recovered at the end of the project.

The new equipment is expected to increase revenue by 40,000 per year and reduce costs by 5,000 per year before tax impact and consideration of depreciation impact of the new machine.

Cost of Capital is 10% and Tax Rate is 40%.

A: Base Case scenario

• Calculate the project’s NPV
• What is your recommendation?

B: Alternate Analysis Scenarios

• What if revenue impact was only 50% of projections for the first 4 years what would be the impact on NPV?
• What if cost reduction assumptions were not realized and no operational costs savings were achieved? What would the impact on NPV be?

On October 29, 2016, Lobo Co. began operations by purchasing razors for resale. Lobo uses the perpetual inventory method. The razors have a 90-day warranty that requires the company to replace any nonworking razor. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new razor is $14 and its retail selling price is $70 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred.

2016

2017

1.1 Prepare journal entries to record above transactions and adjustments for 2016.
  

1.2 Prepare journal entries to record above transactions and adjustments for 2017.
  

Monticello Company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost. Monticello’s predetermined overhead application rate for 2017 was computed from the following data: Total estimated factory overhead $1,232,500 Total estimated direct labour cost $850,000 The following activities took place in the work in process inventory during June: WIP Inventory A/C June 1 Bal. 25,625 Direct Materials Used 127,400 Other transactions incurred:  Indirect material issued to production was $19,000  Total manufacturing labour incurred in June was $172,500, 80% of this amount represented direct labour.  Other manufacturing overhead costs incurred for June amounted to $170,375.  Two jobs were completed with total costs of $160,000 & $105,000 respectively. They were sold on account at a mark-up of 75% on cost. Required: i) ii) Compute Monticello’s predetermined manufacturing overhead rate for 2017. State the journal entries necessary to record the above transactions in the general journal: For direct materials used in June For indirect material issued to production in June For total manufacturing labour incurred in June To assign manufacturing labour to the appropriate accounts For other manufacturing overhead incurred For manufacturing overhead applied for June To move the completed jobs into finished goods inventory To sell the two completed jobs on account Calculate the manufacturing overhead variance for Monticello and state the journal entries necessary to dispose of the variance. What is balance on the Cost of Goods Sold account after the adjustment Determine the balance in work in process inventory on June 30.

Diaz Company owns a machine that cost $126,600 and has accumulated depreciation of $90,600. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. Diaz sold the machine for $16,500 cash. Diaz sold the machine for $36,000 cash. Diaz sold the machine for $41,700 cash. 1. Record the disposal of the machine receiving nothing in return. 2. Record the sale of the machine for $16,500 cash. 3. Record the sale of the machine for $36,000 cash. 4. Record the sale of the machine for $41,700 cash.

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 38,000 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.

The following information relates to year-end adjusting entries as of December 31, 2021.

1. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $7,380.
2. Six months’ of the one-year insurance policy purchased on July 1 has expired.
3. Four months of the one-year rental agreement purchased on September 1 has expired.
4. Of the $1,900 of office supplies purchased on July 4, $320 remains.
5. Interest expense on the $30,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,100 of racing supplies purchased on December 12, $180 remains.
7. Suzie calculates that the company owes $14,600 in income taxes.

Choose the appropriate accounts to be reported on the income statement. Select the 'adjusted' from the dropdown, which will then populate the balances in those accounts from the trial balance.