Deriving cash flows for asset disposition. Custom Machining Company (CMC) purchased a made-to-order machine tool for grinding machine parts. The machine costs $160,000, and CMC installed it yesterday. Today, a vendor offers a machine tool that will do exactly the same work but costs only $80,000. Assume that the cost of capital is 12 percent, that both machines will last five years, that CMC will depreciate both machines on a straight-line basis for tax purposes with no salvage value, that the income tax rate is and will continue to be 40 percent, and that CMC earns sufficient income that it can offset any loss from disposing of or depreciating the ‘‘old’’ machine against other taxable income. How much, at a minimum, must the ‘‘old’’ machine fetch upon resale at this time to make purchasing the new machine worthwhile?

I have asked the question before, but I do not understand how depreciation * tax rate (for example $16,000* .4 = $64,000, instead of $4,000 or $32,000* .4= $128,000, instead of $8,000?).

Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 15,000 shares of cumulative preferred 2% stock, $140 par, and 50,000 shares of $25 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $28,200; second year, $65,800; third year, $83,300; fourth year, $110,000.

Compute the dividends per share on each class of stock for each of the four years. Round all answers to two decimal places. If no dividends are paid in a given year, enter "0".

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:

The company’s direct labor rate is $18 per hour.

Required:

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)

Vancouver manufacturing Ltd. manufactures a variety of high quality electronic components. Data from the last three months are presented below:

You are the controller for Vancouver manufacturing and you are reviewing the performance over the last 3 months. In addition, the controller notes that the company, although it has many detailed performance measures, is considering implementing a balanced scorecard and asks you to identify the measures you think would be most appropriate to include in the balanced scorecard.

Required:

Evaluate the performance of the company and prepare a detailed Balanced Scorecard.

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, 34,500 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 3,000 units, 30% 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.

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the cost transferred from Filling to Finished Goods. If an amount box does not require an entry, leave it blank.

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. Discuss the uses of the cost of production report and the results of part (3).

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.

Comparative financial statement data for Carmono Company follow:

For this year, the company reported net income as follows:

This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year.

Required:

1. Using the indirect method, prepare a statement of cash flows for this year.

2. Compute Carmono’s free cash flow for this year.

47. List the four types of audit opinions that can be issued in an audit of financial statements. ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

48. Give an example of a situation where an auditor issues an unmodified opinion and adds an emphasis of matter paragraph. __________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

49. When a client changes its accounting policy, the auditor is required to issue what in relation to the change in policy under GAAP and SEC rules?   ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

50. Under the PCAOB’s new auditor report standard, an auditor is required to issue a Critical Audit Matters (CAM). What are the 4 requirements necessitating the issues of a CAM? ______________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Do the following problems in Excel. Submit your Excel spreadsheet so I can see how you solved the problems (functions you used).

1. Assume the same facts as in part 1, except on Feb. 1, 2016, due to financial problems, Barrick deposit nothing in the fund. After this date, they resume and make sufficient equal payments to meet their goal of $32 million on Aug. 1, 2018. In other words, they make the same amount of payments in the fund as part 1 from Aug. 1, 2013-Aug. 1, 2018. Determine the first set of required payments and the second set of required payments. (10 points).

2. Barrick is comparing two gold mines.

Mine A: The mine is expected to make $3.5 billion in year 1, $4.5 billion in year 2, and $5.5 billion in years 3-6 and $4.25 billion in years 7-10. At the end of year 10, Barrick will need to spend $202 million on environmental clean-up costs and expects the residual value to be $200 billion.

Mine B: The mine is currently in operation and produces $4.1 billion per year. At the end of 10 years the residual value would be $200 billion and no environmental clean-up costs would be necessary.

Which mine should Barrick buy for $142 billion. (To simplify things, assume Net Income is earned one time per year at the end of the year.) The appropriate discount rate is 6.22% compounded quarterly. (15 points)

Marin Construction Company began work on a $424,000 construction contract in 2020. During 2020, Marin incurred costs of $279,500, billed its customer for $204,500, and collected $170,500. At December 31, 2020, the estimated additional costs to complete the project total $150,500. Prepare Marin’s journal entry to record profit or loss, if any, using (a) the percentage-of-completion method and (b) the completed-contract method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Assuming that total assets were $4,471,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

As a recently hired MBA intern, you are working in a consulting capacity to provide an analysis for Al Dente's Italian Restaurant. A financial income Statement is presented below: Sales $2,698,000 Cost of sales (all variable) $1,557,563 Gross Margin $1,140,438 Operating expenses: Variable $277,975 Fixed $213,675 Total operating expenses: $491,650 Administative expenses (all fixed) $564,375 Net operating income $84,413 This income statement presents the sales, expenses and pre-tax operating income for a local eating facility. At Al Dente, the average meal cost for lunches and dinners are $20 and $40 respectively. Al Dente serves both lunch and dinner 300 days per year and serves twice as many lunches as dinners. As the MBA intern you are to prepare a managerial accounting focused report to the owners of Al Dente's Italian Restaurant, to include the following:

2. Compute the break-even volume of the number of lunches and dinners. Assume that the CM% for each meal category is the same as the average CM% as calculated in #1. Hint: To solve a break even sales mix, use the horizontal formula:

Net operating income = ($Sales – $Variable costs) – $fixed costs

Net operating income = $CM – $fixed costs

At Breakeven, NOI = $0

Therefore, $CM = $ Fixed costs

Now solve for the unit $CM for each item. Let X be the number of dinners, 2X the number of lunches. $CM is the combined total of the $CM for dinners, and the $CM for lunches.

Problem 13-15 The Ashland Company recently hired you to review its control procedures for the purchase, receipt, storage, and issuance of raw materials. You prepared the following comments, which describe Ashland’s procedures. Raw materials, which consist mainly of high-cost electronic components, are kept in a locked storeroom. Storeroom personnel include a supervisor and four clerks. All are well trained, competent, and adequately bonded. Raw materials are removed from the storeroom only upon written or oral authorization from one of the production foremen. There are no perpetual inventory records; hence, the storeroom clerks do not keep records of goods received or issued. To compensate for the lack of perpetual records, a physical inventory count is taken monthly by the storeroom clerks, who are well supervised. Appropriate procedures are followed in making the inventory count. After the physical count, the storeroom supervisor matches quantities counted against a predetermined reorder level. If the count for a given part is below the reorder level, the supervisor enters the part number on a materials requisition list and sends this list to the accounts payable clerk. The accounts payable clerk prepares a purchase order for a predetermined reorder quantity for each part and mails the purchase order to the vendor from whom the part was last purchased. When ordered materials arrive at Ashland, they are received by the storeroom clerks. The clerks count the merchandise and see that the counts agree with the shipper’s bill of lading. All vendors’ bills of lading are initialed, dated, and filed in the storeroom to serve as receiving reports. a. List the internal control weaknesses in Ashland’s procedures. b. For each weakness that you identified, recommend an improvement(s).

Sharp Company manufactures a product for which the following standards have been set:

During March, the company purchased direct materials at a cost of $45,210, all of which were used in the production of 2,500 units of product. In addition, 4,100 direct labor-hours were worked on the product during the month. The cost of this labor time was $30,750. The following variances have been computed for the month:

Required:

1. For direct materials:

a. Compute the actual cost per foot of materials for March.

b. Compute the price variance and the spending variance.

2. For direct labor:

a. Compute the standard direct labor rate per hour.

b. Compute the standard hours allowed for the month’s production.

c. Compute the standard hours allowed per unit of product.

1. Transfer Pricing, Idle Capacity

   Mouton & Perrier, Inc., has a number of divisions that produce liquors, bottled water, and glassware. The Glassware Division manufactures a variety of bottles that can be sold externally (to soft-drink and juice bottlers) or internally to Mouton & Perrier’s Bottled Water Division. Sales and cost data on a case of 24 basic 12-ounce bottles are as follows:

   Unit selling price	$2.85
   Unit variable cost	$1.25
   Unit product fixed cost*	$0.75
   Practical capacity in cases	560,000
   *$420,000/560,000

   During the coming year, the Glassware Division expects to sell 450,000 cases of this bottle. The Bottled Water Division currently plans to buy 97,640 cases on the outside market for $2.85 each. Ellyn Burridge, manager of the Glassware Division, approached Justin Thomas, manager of the Bottled Water Division, and offered to sell the 97,640 cases for $2.79 each. Ellyn explained to Justin that she can avoid selling costs of $0.12 per case by selling internally and that she would split the savings by offering a $0.06 discount on the usual price.

   Required:

   1. What is the minimum transfer price that the Glassware Division would be willing to accept? Round to the nearest cent.
   $----- per unit

   What is the maximum transfer price that the Bottled Water Division would be willing to pay? Round to the nearest cent.
   $----- per unit

   What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place? When required, round your answer to the nearest dollar.
     $ -----

   3. Suppose that Mouton & Perrier’s policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be? Round to the nearest cent.
   $----- per unit