Sabre is considering opening a new online storefront to support the launch of their 'Pyramid' tablet. The severs required to support the store will cost $622,000, are expected to have a five year life, and have no salvage value; depreciation is straight-line to zero. There are no expected NWC requirements.

Sales are projected at 14,000 units per year, price per unit will be $255.00, variable cost per unit will be $186.00, and fixed costs will be $200,000 per year. The required return is 11 percent and the relevant tax rate is 34 percent.

Based on your experience, you think the unit sales price and quantity, variable cost, and fixed cost projections given here are probably accurate to within +/- 9 percent. What is the worst case NPV? Round your answer to the nearest dollar.

How is the allowance method of accounting for bad debts different from the direct write off method? Which is the preferred method? Why? In what ways are accounts receivable similar to a note receivable? How are they different? Why might a company choose to issue a note receivable over an account receivable?

For each of the following, state whether True or False:

If you repurchase stock at an amount less than its original issue price, you can record a gain.

If you repurchase stock and then reissue it at a higher price, you can record a gain.

Interest expense is computed using the effective rate of interest, not the stated rate.

Cash interest paid is computed using the stated rate of interest, not the effective rate.

Non-interest-bearing notes payable have no interest expense.

Exercise 4-11

The following are selected ledger accounts of Skysong Corporation at December 31, 2017.

Skysong’s effective tax rate on all items is 34%. A physical inventory indicates that the ending inventory is $690,090.

Prepare a condensed 2017 income statement for Skysong Corporation. (Round earnings per share to 2 decimal places, e.g. 1.48.)

White Corporation’s budget calls for the following sales for next year: Quarter 1 95,000 units Quarter 3 67,000 units Quarter 2 81,000 units Quarter 4 98,000 units Each unit of the product requires 5 pounds of direct materials. The company’s policy is to begin each quarter with an inventory of product equal to 5% of that quarter’s estimated sales requirements and an inventory of direct materials equal to 20% of that quarter’s estimated direct materials requirements for production. Required: 1. Determine the production budget for the second quarter. 2. Determine the materials purchases budget for the second quarter.

Hopewell Electronics maintains its LED television inventory using the perpetual method. The inventory records for April follow: Beginning inventory 20 units @ $525 each April 12 purchase 30 units @ $550 each April 20 sale 40 units @ $830 each April 25 purchase 15 units @ $575 each Using the weighted-average cost method, how much is the April 30 ending inventory on the Hopewell Electronics' Balance Sheet? Select one: A. $21,600 B. $13,750 C. $14,025 D. $14,175

Depreciation by Three Methods; Partial Years

Perdue Company purchased equipment on April 1 for $75,870. The equipment was expected to have a useful life of three years, or 7,020 operating hours, and a residual value of $2,160. The equipment was used for 1,300 hours during Year 1, 2,500 hours in Year 2, 2,100 hours in Year 3, and 1,120 hours in Year 4.

Required:

Determine the amount of depreciation expense for the years ended December 31, Year 1, Year 2, Year 3, and Year 4, by (a) the straight-line method, (b) units-of-activity method, and (c) the double-declining-balance method.

Note: FOR DECLINING BALANCE ONLY, round the multiplier to four decimal places. Then round the answer for each year to the nearest whole dollar.

a. Straight-line method

b. Units-of-activity method

c. Double-declining-balance method

In its Department R, Recyclers, Inc., processes donated scrap cloth into towels for sale in local thrift shops. It sells the products at cost. The direct materials costs are zero, but the operation requires the use of direct labor and overhead. The company uses a process costing system and tracks the processing volume and costs incurred in each period. At the start of the current period, 500 towels were in process and were 60 percent complete. The costs incurred were $176.

During the month, costs of $20,150 were incurred, 3,100 towels were started, and 250 towels were still in process at the end of the month. At the end of the month, the towels were 20 percent complete.

Required:

a. Prepare a production cost report: the company uses FIFO process costing. (Round "Cost per equivalent unit" to 2 decimal places.)

b. Show the flow of costs through T-accounts. Assume that current period conversion costs are credited to various payables.

Jane Thompson is managing a team of analysts assigned to the report on firms operating in the mining industry. The team is currently researching and analysing a firm that mines for lithium. The last 5 years the company has benefited from an increase in the price of lithium of about 10% each year, and has returned a large profit. The members of Jane’s team insist that this will continue, and that the forecast sales growth rate in their model should be 10% for each year. On the other hand, Jane is concerned that if this growth in the lithium price does not continue, the profits and value of this mining company will be negatively affected.

Discuss the problem that Jane faces with her team’s approach. Recommend a course of action that Jane can use to ensure the analysis conducted by her team is reasonable and accounts for different contingencies (possible outcomes). Explain how this should be presented to the potential investors.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2018. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2017.

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2018, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2018 income statement, 2018 statement of comprehensive income, and 12/31/2018 balance sheet as a result of these investments.

Comparative financial statements for Weaver Company follow:

During this year, Weaver sold some equipment for $19 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $7 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 from Part 1, 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.)

Comparative financial statements for Weaver Company follow:

During this year, Weaver sold some equipment for $19 that had cost $31 and on which there was accumulated depreciation of $10. In addition, the company sold long-term investments for $13 that had cost $7 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.

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2. Using the information from Part 1, 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.)

Magic Company adds materials at the beginning of the process in Department A. The following information on physical units for Department A for the month of August is available:

Required:

a. Compute the equivalent units for materials costs and for conversion costs using the weighted-average method.

b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method.

Lansing, Inc. provides the following information for one of its department’s operations for June (no new material is added in Department T):

The ending inventory has 3,600 units, which are 50 percent complete with respect to Department T costs and 100 percent complete for prior department costs.

Required:

a. Complete the production cost report using the weighted-average method. (Round "Cost per equivalent unit" to 2 decimal places.)

Every time a company prepares financial statements, adjusting entries are required. Generally, financial statements are prepared at the end of each month, the end of each quarter and at the end of each year.

Each adjusting entry affects a balance sheet account and an income statement account. For example, Adjusting Entries for Prepaid Assets or Fixed Assets involve decreasing the asset account and increasing the expense account. Adjusting entries are made in order properly follow GAAP.

1. Based on your review of Section 1 of Chapter 5, describe an adjusting journal entry that is needed at the end of an accounting period.
2. Why are adjusting entries important and how do they contribute to accurate financial reporting?
3. Accrual accounting is required under U.S. GAAP. One of the main principles of accrual accounting is the Matching Principle, also known as the Revenue Recognition Principle and the Expense Recognition Principle. Consult are liable resource online and in your own words, explain the difference between accrual basis accounting and cash basis accounting. How does this relate to the Matching Principle?