Question 29:

Knight Co. owned 80% of the common stock of Stoop Co. Stoop had 50,000 shares of $5 par value common stock and 2,000 shares of preferred stock outstanding. Each preferred share received an annual per share dividend of $2 and is convertible into four shares of common stock. Knight did not own any of Stoop's preferred stock. Stoop also had 600 bonds outstanding, each of which is convertible into ten shares of common stock. Stoop's annual after-tax interest expense for the bonds was $2,000. Knight did not own any of Stoop's bonds. There are no excess amortizations or intra-entity transactions associated with this consolidation. Stoop reported net income of $300,000 for 2018. Knight has 100,000 shares of common stock outstanding and reported net income of $400,000 for 2018.

What would Knight Co. report as consolidated basic earnings per share (rounded)?

$7.00

$6.40

$5.68

$6.37

$6.00

The marketing director of a small private university is considering launching an advertising campaign-the first in the university's history-to boost student enrollment. She favored a mix of television, radio, and print advertising; recently, however, she read an article on the growing importance of inbound marketing. She has turned to you for advice on the relative merits of outbound marketing versus inbound marketing. What do you tell her? Can you provide any recommendations about what she should do for her campaign?

STOCHOS INC.      

STATEMENT of FINANCIAL POISTION                            

June 30, 2018

ASSETS                                                      LIABILITIES

Cash                               $222,000             Accounts Payable                $150,000

Accounts Rec.                     58,000             Mortgage Payable                  500,000

Inventory                              4,000           

Supplies                                 6,000              TOTAL LIABILITIES                    $650,000                           

Land                                  210,000

Buildings      $900,000                                STOCKHOLDER EQUITY

    Acc. Depr. <200,000> 700,000        

Equipment        260,000                             Common Stock $5 Par       $500,000

    Acc. Depr    <60,000> 200,000              Excess                                 $100,000

                                                                     Retained Earnings               $150,000

                                                                     TOTAL EQUITY                            $750,000            

TOTAL ASSETS      $1,400,000            TOTAL LIAB. & EQUITY         $1,400,000

July 1 Sold 220,000 shares of common stock for $6,600,000.

July 3 Purchased on account $100,000 of inventory for resale to customers.

July 5   Purchased a 2-year insurance policy for $4,800 in cash. Effective date is July 1.

July 7   Paid cash for $100,000 in inventory acquired July 3.

July 10 Sales revenue generated was $400,000. Cash received this date was $75,000 the

             balance would be received later in the year.

July 30 Paid $40,000 in wages for the month of July.

July 30 Acquired $800,000 of equipment. Useful life is 10 years. Signed a note (12%)

             for the full amount.

July 31 Paid $20,000 July monthly mortgage payment. The rate of interest on this

             mortgage is 7 per cent.

Aug. 1 Stochos declared a dividend of $1 per share. Shareholders who owned shares on

           August 15 would be paid the dividends in October.

Aug. 9 Stochos borrowed $180,000, and signed a note for this amount at 11 per cent.

Aug. 15 Customers returned $80,000 of items they acquired on July 10.

Aug. 18 Stochos sold 100,000 shares for $80 per share.

Aug. 30 Paid August wages – the $40,000 was paid in cash.

Aug. 31 Paid the August mortgage payment of $20,000.

Aug. 30 Paid $30,000 on the equipment note entered into on July 30 of this year.

Aug. 30 Received full amount due from the July 10 sale.

Sept. 30 Supply inventory valued at $200.

Sept. 30 Sales on account to customers amounted to $135,000. Stochos Inc. received

                $33,000 in cash on this date from customers.

Sept. 30 Wages were accrued this day in the amount of $40,000. Stochos Inc. informed

               their employee that their checks would be available October 5^th.

OTHER INFORMATION

1. Tax rate is 20%.

2. Building has a 20-year useful life from date of purchase.

3. All equipment has a useful life of ten years.

4. Inventory at the end of the quarter was $10,000.

PREPARE THE FOLLOWING:

1. INCOME STATEMENT

2. STATEMENT OF RETAINED EARNINGS

3. STATEMENT OF FINANCIAL POSTION [AKA] BALANCE SHEET

March, April, and May have been in partnership for a number of years. The partners allocate all profits and losses on a 4:2:2 basis, respectively. Recently, each partner has become personally insolvent and, thus, the partners have decided to liquidate the business in hopes of remedying their personal financial problems. As of September 1, the partnership’s balance sheet is as follows:

Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Sold all inventory for $80,000 cash.
2. Paid $14,700 in liquidation expenses.
3. Paid $64,000 of the partnership’s liabilities.
4. Collected $84,000 of the accounts receivable.
5. Distributed safe payments of cash; the partners anticipate no further liquidation expenses.
6. Sold remaining accounts receivable for 35 percent of face value.
7. Sold land, building, and equipment for $41,000.
8. Paid all remaining liabilities of the partnership.
9. Distributed cash held by the business to the partners.

Alta Ski Company's inventory records contained the following information regarding its latest ski model. The company uses a periodic inventory system.

Required:
1a. Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2018?
1b. Which method will result in the highest ending inventory balance?
2. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods.

Required information

[The following information applies to the questions displayed below.]

Comparative financial statements for Weaver Company follow:

During this year, Weaver sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $6 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $39 of its own stock. This year Weaver did not retire any bonds.

2. Using the information in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Compare short- and long-run pricing decisions and provide examples of each. What are two alternative approaches to long-run pricing decisions?

The following information is available for Sunland Company for the year ended December 31, 2017.

Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

The following information for July and August were extracted from the costing records of Venus CC:

                                                     July                                    August

Production and sales (units)        12 000                                 10 000

                                                         R                                        R

Costs:

Direct material                             270 000                                225 000

Direct labour                                360 000                                300 000

Factory overhead                         360 000                              331 500

Marketing expenses                     93 000                               87 000

Administrative expenses             153 000                               144 000

At the beginning of September it was estimated that production for that month would be either 13 000 or 14 000 units.

REQUIRED

1. Draw up the flexible budget for September based on

   13 000 and 14 000 units.   

2. At the end of September the cost records revealed that the

   Following costs/expenses were incurred in producing and selling

   13 500 units:

                                                                                       R

            Direct material                                                302 400

            Direct labour                                                   400 500

            Factory overhead                                                        425 250

            Marketing expenses                                        108 450

            Administrative expenses                                 180 900

Draw up a variance analysis report for September and indicate next to each variance whether it is favourable or unfavourable.  

Below are the transactions for September.

September 1                 The owner contributed $20,000 to the business to start the operations.

September 2                 Purchased a fully equipped hotdog cart for $15,000. Paid $5,000 upfront and put the remainder of the balance on account.

September 3                 Purchased hotdogs, sodas and consumable supplies for $500.

September 3                 Purchased 3 months of advertising services from the HB Times newspaper for $300.

September 4                 Sold $200 worth of hot dogs to customers for cash.

September 5                 Sold $300 worth of hot dogs to customers for cash.

September 6                 Sold $100 worth of hotdogs the HBPD on account.

September 8                 The HB surfing contest company asked me to supply hotdogs for their contests and paid $600 in advance for a total of 6 contests.

September 9                 Hired a person to help with the surf contest sales. Paid that person $100 for services performed.

September 10               Purchased hotdogs, sodas and consumable supplies for $500.

September 12               Sold $200 worth of hot dogs to customers for cash.

September 18               The city of HB requested that you provide $500 worth of food for an event they are holding at the pier this coming weekend. The job was completed. The city of HB paid $200 and you billed the difference.

September 25               HBPD paid the balance on account due from September 6.

September 26               Received propane (utility) bill, $100, which was put on account.

September 30               Took out a small business loan from the bank for $15,000 to expand the business. The bank approved the loan due one year from today.

September 30               The owner withdrew $200 in the form of dividends.

Adjustments

1. Expired advertising.
2. Provided hotdogs for 3 surfing contests
3. Depreciation of hotdog cart, $300.

Instructions

1. Journalize and post adjusted journal entries based on the adjustments data provided.

Electro Company manufactures an innovative automobile transmission for electric cars. Management predicts that ending finished goods inventory for the first quarter will be 275,400 units. The following unit sales of the transmissions are expected during the rest of the year: second quarter, 459,000 units; third quarter, 493,000 units; and fourth quarter, 208,500 units. Company policy calls for the ending finished goods inventory of a quarter to equal 60% of the next quarter's budgeted sales.

Prepare a production budget for both the second and third quarters that shows the number of transmissions to manufacture.

Ajax Products, Inc., reported an excess of warranty expense over warranty deductions of $72,000 for the year ended December 31, 2020. This temporary difference will reverse in equal amounts of $24,000 in years 2021, 2022, and 2023. The enacted tax rates are as follows: 2020: 40%; 2021: 25%; 2022: 21%; 2023: 20%. The reporting for this temporary difference at December 31, 2020, would be a

Question 4 options:

Jurica Corporation manufactures various trim pieces for vehicle manufacturers. The company has a number of plants, including the Juriquilla Plant, which makes door trim pieces.

Mr. Bates is both the regional manager for the Central America region and the plant manager of the Juriquilla Plant. His budget as the regional manager is charged to the Juriquilla Plant.

Bates has just heard that the company received a bid from an outside vendor to supply the equivalent of the entire annual output of the Juriquilla Plant for $20.5 million. Bates is astonished at the low outside bid because the budget for the Juriquilla Plant’s operating costs for the upcoming year is $24.16 million. If this bid is accepted, the Juriquilla Plant will be shut.

The budget for the Juriquilla Plant’s operating costs for the coming year is presented below.

*Fixed corporate expenses allocated to plants and other operating units based on total budgeted wage and salary costs.

Additional facts regarding the plant’s operations are as follows:

1. Due to Juriquilla’s commitment to use high-quality fabrics in all of its products, the Purchasing Department was instructed to place yearly purchase orders with major suppliers to ensure the receipt of sufficient materials for the coming year. If these orders are canceled as a consequence of the plant closing, termination charges would amount to 20% of the cost of direct materials.

2. Approximately 300 plant employees will lose their jobs if the plant is closed. This includes all of the direct laborers and supervisors as well as the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some would be able to find new jobs while many others would have difficulty. All employees would have difficulty matching Jurquilla’s base pay of $11.50 per hour, which is the highest in the area. A clause in Juriquilla’s current contract with the union may help some employees; the company must provide employment assistance to its former employees for 12 months after a plant closing. The estimated cost to administer this service would be $0.79 million for the year.

3. Some employees would probably choose early retirement because Jurica Corporation has an excellent pension plan. In fact, $0.61 million of the annual pension expense would continue whether the Juriquilla plant is open or not.

4. Bates and his staff would not be affected by the closing of the Juriquilla Plant. They would still be responsible for administering three other area plants.

5. If the Juriquilla Plant were closed, the company would realize about $3.68 million salvage value for the equipment and building. If the plant remains open, there are no plans to make any significant investments in new equipment or buildings. The old equipment is adequate and should last indefinitely.

Required:

1. Before looking at the numbers, discuss the human factors and other non-numerical factors that are at play when considering a make or buy decision of this magnitude?  

2. Jurica Corporation plans to prepare a financial analysis that will be used in deciding whether or not to close the Denver Cover Plant. Management has asked you to identify:

1. The annual budgeted costs that are relevant to the decision regarding closing the plant.
2. The annual budgeted costs that are not relevant to the decision regarding closing the plant.
3. Any nonrecurring costs that would arise due to the closing of the plant.

3. Looking at the data you have prepared in (1) above,

1. Calculate the financial advantage (disadvantage) of closing the plant. You should calculate this for both the first year and the years after the first year.

2. Based on your analysis as a manager should the plant be closed. Discuss your decision.

Your work should be submitted in full and grammatically correct sentences.

Calculations should be organized into tables that are easy to follow. If you have a mistake in your work but I cannot understand your calculations, I cannot give partial credit.

Grading Rubric:

Topic 1 (Note: Briefly in your own words 1 paragraph minimum, use and attach reference.)

Accounting Practices:

Using reading and research, locate a scholarly article that discusses accounting practices or the role of accounting in construction.

1.) Give a brief summary of what you learned and discuss how you will use this knowledge in your future career in construction management, what are the most common methods and programs used.

Discussion Topic 2 (Note: Briefly in your own words 1 paragraph minimum.)

Depreciation:

1. What impact do you think depreciation has on a construction company from a financial standpoint?  

2. Why do you think we need to depreciate some assets but not others?

HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:

1. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
2. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
3. HW is defending against another lawsuit for which management believes HW has a slightly better than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
4. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.

   
Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?
  

1.

2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?

A.U.S. GAAP. B.IFRS. C. BOTH ARE THE SAME