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:

Sales			$12,887,100
Cost of goods sold			6,364,000
Gross profit			$6,523,100
Expenses:
Selling expenses	$3,182,000
Administrative expenses	3,182,000
Total expenses			6,364,000
Income from operations			$159,100

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

	Variable		Fixed
Cost of goods sold	70%		30%
Selling expenses	75%		25%
Administrative expenses	50%		50%

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.

Total variable costs	$
Total fixed costs	$

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.

Unit variable cost	$
Unit contribution margin	$

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.

	Transportation Costs		Gross-Ton Miles
January	$1,008,400		298,000
February	1,124,300		333,000
March	794,600		216,000
April	1,078,000		323,000
May	904,100		260,000
June	1,159,100		351,000

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

Variable cost (Round to two decimal places.)	$ per gross-ton mile
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:

Fuel	$7,699
Flight crew salaries	5,897
Airplane depreciation	2,784
Variable cost per passenger—business class	50
Variable cost per passenger—economy class	40
Round-trip ticket price—business class	530
Round-trip ticket price—economy class	290

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.

Total number of seats at break-even

seats

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

Business class seats at break-even	seats
Economy class seats at break-even	seats

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

	Commencement date					October 1, 2017
	Lease term					6	years
	Economic life of leased equipment					6	years
	Fair value of asset at October 1, 2017					$       313,043
	Book value of asset at October 1, 2017					$       280,000
	Residual value at end of lease term					-
	Lessor's implicit rate					0
	Lessee's incremental borrowing rate					0
	Annual lease payment due at the beginning of each year,        beginning with October 1, 2017
						$         62,700

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.

Date	Lease Payment / Receipt	Interest (8%) on Unpaid Liability / Receivable	Reduction of Lease Liability / Receivable	Balance of Lease Liability / Receivable
10/01/17				$       313,043
10/01/17	$      62,700	-
10/01/18
10/01/19
10/01/20
10/01/21
10/01/22

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:

Beginning inventory		0
Units produced		42,000
Units sold		37,000
Selling price per unit	$	80
Selling and administrative expenses:
Variable per unit	$	3
Fixed (per month)	$	561,000
Manufacturing costs:
Direct materials cost per unit	$	16
Direct labor cost per unit	$	9
Variable manufacturing overhead cost per unit	$	3
Fixed manufacturing overhead cost (per month)	$	798,000

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.

Date			Activities	Units Acquired at Cost								Units sold at Retail
Jan.	1		Beginning inventory	150	units	@	$	7.50	=	$	1,125
Jan.	10		Sales										110	units	@	$	16.50
Jan.	20		Purchase	80	units	@	$	6.50	=		520
Jan.	25		Sales										90	units	@	$	16.50
Jan.	30		Purchase	200	units	@	$	6.00	=		1,200
			Totals	430	units					$	2,845		200	units

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:

Work in Process—Filling Department
(4,600 units, 30% completed):
	Direct materials (4,600 x $11.70)	$53,820
	Conversion (4,600 x 30% x $7.50)	10,350
		$64,170

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

Direct materials transferred from Reaction
	Department: 59,300 units at $11.40 a unit	$676,020
Direct labor		238,560
Factory overhead		229,206

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.

Dover Chemical Company
Cost of Production Report-Filling Department
For the Month Ended January 31
Unit Information
Units charged to production:
Inventory in process, January 1
Received from Reaction Department
Total units accounted for by the Filling Department
Units to be assigned costs:
		Equivalent Units
	Whole Units	Direct Materials	Conversion
Inventory in process, January 1	--------	----------	--------
Started and completed in January	---------	----------	------
Transferred to finished goods in January	-----------	-----------	-----------
Inventory in process, January 31	------------	-----------	---------
Total units to be assigned costs	----------	----------	------
Cost Information
Costs per equivalent unit:
		Direct Materials	Conversion
Total costs for January in Filling Department		$	$
Total equivalent units
Cost per equivalent unit		$	$
Costs charged to production:
	Direct Materials	Conversion	Total
Inventory in process, January 1			$
Costs incurred in January
Total costs accounted for by the Filling Department			$
Cost allocated to completed and partially completed units:
Inventory in process, January 1 balance			$
To complete inventory in process, January 1	$	$
Cost of completed January 1 work in process			$
Started and completed in January
Transferred to finished goods in January			$
Inventory in process, January 31
Total costs assigned by the Filling Department			$

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.

	Increase or Decrease	Amount
Change in direct materials cost per equivalent unit		$
Change in conversion cost per equivalent unit		$

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.

Merrill Corp. has the following information available about a potential capital investment:   

Initial investment	$	1,100,000
Annual net income	$	110,000
Expected life		8	years
Salvage value	$	120,000
Merrill’s cost of capital		7	%

Assume straight line depreciation method is used.  


Required:
1. Calculate the project’s net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

         

2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 7 percent.

    

	Greater than 7 Percent
	Less than 7 Percent

   

3. Calculate the net present value using a 13 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

       

4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 13 percent.

    

	More than 13 percent
	Less than 13 percent
	Equal to 13 percent

On August 15, 2017, Jarvis Company issued 50,000 options on the shares of RBC (Royal Bank Corporation). Each option gives the option holder the right to buy one share of RBC at $60 per share until March 16, 2018. Jarvis received $25,000 for issuing these options. At the company’s year-end of December 31, 2017, the options contracts traded on the Montreal Exchange at $.40 per contract. On March 16, 2018, RBC shares closed at $58 per share, none of the options were exercised, so the options had to be removed and any gain or loss earned thus far reported.

Required:

Record all journal entries related to these call options.

Selected data derived from the income statement and balance sheet of National Beverage Co. for a recent year are as follows:

1	Income statement data (in thousands):
2	Net income	$43,993.00
3	Depreciation expense	10,651.00
4	Losses on inventory write-down and fixed assets	7.00
5	Other noncash items	(187.00)
6	Balance sheet data (in thousands):
7	Increase in accounts receivable	5,679.00
8	Increase in inventory	7,509.00
9	Increase in prepaid expenses	2,239.00
10	Decrease in accounts payable and other current liabilities	1,341.00

Required:

A.	Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method for National Beverage Co. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. Use the minus sign to indicate cash outflows, cash payments, decreases in cash and for any adjustments, if required.
B.	Interpret your results in part (a).

P6-6A. Goods in Transit The Yankee Wholesale Company sells merchandise to a variety of retailers. Yankee uses different freight terms with its various customers and suppliers. All sales are made on account.

Required

For each of the following transactions, indicate which company has ownership of the goods in transit:

a. Yankee sold merchandise to X-Mart stores, with shipping terms of F.O.B shipping point.

b. Yankee purchased merchandise from Zendo Manufacturing Company, with shipping terms of F.O.B. destination.

c. Yankee Sold merchandise to Mary's boutique, with shipping terms of F.O.B destination.

d. Sunshine Manufacturing Company sold merchandise to Yankee, with shipping terms of F.O.B. shipping point.

e. Yankee purchased merchandise from Warfield Manufacturing Company, with freight terms of F. O. B shipping point.

f. Stevenson Stores purchased merchandise from Yankee, with shipping terms of F.O.B shipping point.

P6-7A. Lower-of-Cost-or-Net Realizable Value Method The Vandy Company had the following inventory at year-end:

   Unit Price

   Quantity Cost Net Realizable Value

Fans

Model X1...................................................................................300 $18    $19

Model X2..................................................................................250    23 24

Model X3..................................................................................450    29 25

Heaters

Model B7...................................................................................500    24 30

Model B8...................................................................................290 35    32   

Model B9...................................................................................100 41    37

Required

a. Determines the value of ending inventory after applying the lower-of-cost-or-net realizable value method to each item of inventory.

b. Would the net income be lower under the cost method or the lower-of-cost-or-net realizable value method?

Maher Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$	198
Units in beginning inventory		0
Units produced		3,230
Units sold		3,060
Units in ending inventory		170
Variable costs per unit:
Direct materials	$	55
Direct labor	$	55
Variable manufacturing overhead	$	14
Variable selling and administrative expense	$	13
Fixed costs:
Fixed manufacturing overhead	$	109,820
Fixed selling and administrative	$	12,240

Required:

a. What is the unit product cost for the month under variable costing?

b. What is the unit product cost for the month under absorption costing?

c. Prepare a contribution format income statement for the month using variable costing.

d. Prepare an income statement for the month using absorption costing.

e. Reconcile the variable costing and absorption costing net operating incomes for the month.

Consolidation at date of acquisition (purchase price greater than book value, acquisition journal entries
Assume that the parent company acquires its subsidiary by exchanging 50,000 shares of its $1 par value Common Stock, with a fair value on the acquisition date of $30 per share, for all of the outstanding voting shares of the investee. In its analysis of the investee company, the parent values all of the subsidiary’s assets and liabilities at an amount equaling their book values except for an unrecorded Trademark with a fair value of $120,000, an unrecorded Video Library valued at $300,000, and Patented Technology with a fair value of $60,000.

a. Prepare the journal entry that the parent makes to record the acquisition.

General Journal
Description	Debit	Credit
Answer	Answer	Answer
Common stock	Answer	Answer
Answer	Answer	Answer

b. Given the following acquisition-date balance sheets of the parent and the subsidiary, prepare the consolidation entries.

Balance Sheet						Parent		Subsidiary
Assets
Cash						$250,020		$120,000
Accounts receivable						200,000		300,000
Inventory						300,000		400,000
Equity investment						1,500,000		-
Property, plant & equipment						2,000,000		800,000
						$4,250,000		$1,620,000
Liabilities and stockholders' equity
Accounts payable						$200,000		$80,000
Accrued liabilities						250,000		140,000
Long-term liabilities						1,800,000		500,000
Common stock						400,000		100,000
APIC						600,000		200,000
Retained earnings						1,000,000		600,000
						$4,250,000		$1,620,000

Consolidation Journal
	Description	Debit	Credit
[E]	Common stock	Answer	Answer
	APIC	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
[A]	Trademark	Answer	Answer
	Video library	Answer	Answer
	Patented technology	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer

c. Prepare the consolidation spreadsheet.

Consolidation Worksheet
			Parent		Subsidiary			Debit			Credit			Consolidated
Assets
Cash			$250,000		$120,000									Answer
Accounts receivable			200,000		300,000									Answer
Inventory			300,000		400,000									Answer
Equity investment			1,500,000		-					[E]	Answer			Answer
										[A]	Answer
PPE, net			2,000,000		800,000									Answer
Trademark							[A]	Answer						Answer
Video library							[A]	Answer						Answer
Patented technology							[A]	Answer						Answer
Goodwill			-		-		[A]	Answer						Answer
			$4,250,000		$1,620,000									Answer
Liabilities and equity
Accounts payable			$200,000		$80,000									Answer
Accrued liabilities			$250,000		$140,000									Answer
Long-term liabilities			$1,800,000		$500,000									Answer
Common stock			$400,000		$100,000		[E]	Answer						Answer
APIC			$600,000		$200,000		[E]	Answer						Answer
Retained earnings			$1,000,000		$600,000		[E]	Answer						Answer
			$4,250,000		$1,620,000			Answer			Answer			Answer

d. Where were the intangible assets on the parent or subsidiary’s balance sheets?

A.)On the parent's balance sheet embedded in the equity investment account. On the subsidiary's balance sheet, each intangible asset is listed.

B.)On the parent's balance sheet embedded in the equity investment account. After the consolidation process is complete, each intangible asset is listed on the consolidated balance sheet.

C.)On the subsidiary's balance sheet embedded in retained earnings. After the consolidation process is complete, each intangible asset is listed on the consolidated balance sheet.

Cash Flow Issues

• Explain cash-flow issues relevant to reimbursement of providers.
• Compare the risks to payer and provider of each reimbursement methodology.
• Examine the concept of positive cash flow in relation to claims processing.

Reimbursement issues

• Explain timely payment, with examples.
• Describe recoupment, with examples.
• Examine the concept of difficult economics in relation to a healthcare provider