On January 1, 2018, Labtech Circuits borrowed $190,000 from First Bank by issuing a three-year, 8% note, payable on December 31, 2020. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2018, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 8% fixed interest rate on a notional amount of $190,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year. Floating (LIBOR) settlement rates were 8% at inception and 9%, 7%, and 7% at the end of 2018, 2019, and 2020, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows: January 1 December 31 2018 2018 2019 2020 Fair value of interest rate swap 0 $ (2,659 ) $ 1,835 $ 0 Fair value of note payable $ 190,000 $ 187,341 $ 191,835 $ 190,000 Required: 1. Calculate the net cash settlement at the end of 2018, 2019, and 2020. 2. Prepare the journal entries during 2018 to record the issuance of the note, interest, and necessary adjustments for changes in fair value. 3. Prepare the journal entries during 2019 to record interest, net cash interest settlement for the interest rate swap, and necessary adjustments for changes in fair value. 4. Prepare the journal entries during 2020 to record interest, net cash interest settlement for the interest rate swap, necessary adjustments for changes in fair value, and repayment of the debt. 5. Calculate the book values of both the swap account and the note in each of the three years. 6. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.) 7. Suppose the fair value of the note at December 31, 2018, had been $187,000 rather than $187,341 with the additional decline in fair value due to investors’ perceptions that the credit worthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values?

Golden Manufacturing Company started operations by acquiring $142,000 cash from the issue of common stock. On January 1, 2018, the company purchased equipment that cost $132,000 cash, had an expected useful life of five years, and had an estimated salvage value of $13,200. Golden Manufacturing earned $94,700 and $68,080 of cash revenue during 2018 and 2019, respectively. Golden Manufacturing uses double-declining-balance depreciation.

Required

1. Record the purchase in a horizontal statements model.

1. b-1. Prepare an income statements for 2018 and 2019. Use a vertical statements format.

1. b-2. Prepare a balance sheets for 2018 and 2019. Use a vertical statements format.

1. b-3. Prepare a statements of cash flows for 2018 and 2019. Use a vertical statements format.

Beverly and Ken Hair have been married for 3 years. Both taxpayers are under age 65. Beverly works as an accountant at Cypress Corporation. Ken is a full-time student at Southwest Missouri State University (SMSU) and also works part-time during the summer at Cypress Corp. Ken's birthdate is January 12, 1992 and Beverly's birthdate is November 4, 1994. Beverly and Ken each received a W-2 form from Cypress Corporation. The Hairs have interest income of $1,000 on City of St. Louis bonds. Beverly and Ken also received a Form 1099-INT from Boatman's Bank and a 1099-DIV form from green Corporation. Ken is an excellent student at SMSU. He was given a $1,750 scholarship by the university to help pay educational expenses. The scholarship funds were used by Ken for tuition and books. Last year, Beverly was laid off from her former job and was unemployed during January 2018. She was paid $1,825 of unemployment compensation until she started work with her current employer, Cypress Corporation. Ken has a 4-year-old son, Robert R. Hair, from a prior marriage that ended in divorce in 2013. During 2018, he paid his ex-wife $300 per month in child support. Robert is claimed as a dependent by Ken's ex-wife. During 2018, Ken's aunt died. The aunt, in her will, left Ken $15,000 in cash. Ken deposited this money in the Boatman's Bank savings account. Required: Complete the Hair's Form 1040, Schedule 1, and the Qualified Dividends and Capital Gain Tax Worksheet. The Hair's had health cover for the entire year. They do not want to make any contribution to the presidential election campaign. Make any other realistic assumptions about any missing data. If an amount box does not require an entry or if an amount is zero, enter "0". Enter amounts as positive numbers. If required, round amounts to the nearest dollar.

anufacturing costs for Davenport Company during 2018 were as follows:

Note: The pre-determined overhead rate is 0.85 (85%) of direct labor cost.

Required:

1. Prepare a Cost of Goods Manufactured report.

2. Prepare a Partial Income Statement if sales revenue was $1,350,000 and operating expenses were $260,000 for 2018.

Adjusting Entries – III. Provide the adjusting journal entries at year-end 2019 for the

following independent situations (assume calendar year)

1. On March 1, 2019. Finland Tutorials received P60,000 representing an advance

payment for services to be rendered in November 2019. This was booked using a real

account. At year end, only 70% of the expected service was rendered.

2. The trial balance of Mangolia Café shows Kitchen Supplies and Kitchen Supplies

Expense accounts at balances of P8,400 and P0, respectively. At year-end, there are

P1,480 of supplies on hand.

3. On June 15, 2019, Russia Beauty Shop paid P18,000 to Secure Insurance Company for a three-year insurance policy. This was taken up in the books using a real account.

4. China Chickens received a 90 – day, P18%, P175,000 note from a customer for

catering services rendered. The note matures on February 14, 2020.

5. On May 1, 2019. Indonesia Services mortgaged a piece of real property to a local bank. Proceeds amounted to P499,200, net of 4% services charges. The mortgage requires annual payment of 12% interest starting May 1, 2020.

5. On March 1, 2019, Pakistan Job Placements decided to sublease a portion of its office to a review center for a P8,500 a month. The review center occupied the space on September 1, 2019. Because of a tight budget, the review center requested Pakistan if it could make the first payment on January 15, 2020. Pakistan yielded to this request.

7. The Unearned Subscriptions Revenue account of Iran Events showed a balance of

P268, 500 composed of the following:

a. One-year subscription starting July 1, 2019, P87,000.

b. Two-year subscriptions starting February 1, 2019, P95,700.

c. Eight-month subscription starting April 1, 2019, P85,800.

8. Mexico Skin Care bought a piece of salon equipment for P75,000 on January 15, 2019. It has an estimated useful life of five years. Scrap value has been determined to be 10% of the acquisition cost.

9. Australia Delivery needed four trucks in 2019. Two trucks were purchased on May 1, 2019 at P1,850,000 each and another two trucks were purchased on July 1, 2019 at a total price 15% higher than the May 1, 2019 purchase. For this type ofdepreciable assets, Australia is allocating 8% of the acquisition cost for scrap value and estimating useful lives at eight years.

Gordon Ramsay’s butler is filling out his taxes for 2017. He has income of $

104,700 and

will file as HoH because he has one baby girl. He will take the standard deduction and use the

$1,000 child tax credit as well. The total amount withheld for federal taxes was $16,563.

a.

[7 pts]

How much is the total tax bill for the butler?

b Explain if the butler will owe tax or get a refund and determine how much (either

way).

C

Using no computations:

If the butler decided to marry a woman who has no

income in 2015, would this be a case of marriage penalty or

marriage bonus? Explain.

Financial data for Joel de Paris, Inc., for last year follow: Joel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash $ 135,000 $ 128,000 Accounts receivable 342,000 479,000 Inventory 574,000 474,000 Plant and equipment, net 779,000 789,000 Investment in Buisson, S.A. 392,000 430,000 Land (undeveloped) 248,000 249,000 Total assets $ 2,470,000 $ 2,549,000 Liabilities and Stockholders' Equity Accounts payable $ 376,000 $ 346,000 Long-term debt 952,000 952,000 Stockholders' equity 1,142,000 1,251,000 Total liabilities and stockholders' equity $ 2,470,000 $ 2,549,000 Joel de Paris, Inc. Income Statement Sales $ 4,995,000 Operating expenses 4,295,700 Net operating income 699,300 Interest and taxes: Interest expense $ 129,000 Tax expense 198,000 327,000 Net income $ 372,300 The company paid dividends of $263,300 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%. Required:

1. Compute the company's average operating assets for last year.

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.) 3. What was the company’s residual income last year?

Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $ 12,600,000 $ 35,750,000 $ 20,600,000 Average operating assets $ 3,150,000 $ 7,150,000 $ 5,150,000 Net operating income $ 516,600 $ 572,000 $ 597,400 Minimum required rate of return 9.00 % 9.50 % 11.60 % Required:

1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.

2. Compute the residual income (loss) for each division.

3. Assume that each division is presented with an investment opportunity that would yield a 10% rate of return.

a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity?

b. If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity?

The cost of materials entering directly into the manufacturing process is classified as factory overhead cost.

Indirect labor would be included in factory overhead.

Depreciation expense on factory equipment is part of factory overhead cost.

Direct labor cost is an example of a period cost.

Custom-made goods would be accounted for using a process costing system.

In a process costing system, a separate work in process inventory account is maintained for each customer’s job.

A new business client comes to your office. There are three owners of the business. The three individuals, Alan, Bob, and Carol, are thinking about forming a partnership. Alan is only investing $1 million in cash. He will not have anything to do with the daily activities of the business. Bob has had some experience in the business and will be responsible for the day-to-day operations of the business. Carol has a great deal of experience and many contacts within the business. She will be responsible for attracting new clients. Neither Bob nor Carol are investing cash into the partnership. During the first year of operation, the partnership generated a profit of $150,000. None of the partners received distributions during the year.

A. How do the payment of salary and the allocation of profit affect entries and the financial bottom line? Be sure to support your explanation with concrete examples.

B. How could the payment of salary and allocation of profit be a more effective method of splitting the company's profits for the three partners? Explain a scenario in which the three partners would be compensated fairly, and support your answer with logical reasoning.

C. What would be the value of each partner's capital account at the end of the year, given your proposed fair allocation method? Support your answer with quantitative data and an explanation of how you came to this conclusion.

1. Etters Manufacturing Company has provided the following financial data for its most recent month.

Required:

Prepare an income statement using an absorption costing format.

LO2

Solution:

Sales                                                                            $171,000

Less cost of goods sold:

   Variable manufacturing                      $123,500

   Fixed manufacturing                               11,400            134,900

Gross profit                                                                      36,100

Less selling and administrative expenses

   Variable                                                   9,500

   Fixed                                                        8,000               17,500

Net operating income                                                   $  18,600

How is the 11,400 (fixed manufacturing) calculated??

Yozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows:

The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Purchasing Department charges divisions for services, based on the number of purchase orders for each department. The usage of service by the two divisions is as follows:

The service department charges of the Tech Support Department and the Purchasing Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:

Required:

IRAC (Issue Rule Argument Conclusion) IRAC is a basic method to brief a case. To better understand the cases we read we need to be able to identify the relevant factual and legal issues in them. How do we do this? We look at the underlying facts of the case. In Li v. Yellow Cab the plaintiff turned into a gas station when a cab coming in the opposite direction crashed into plaintiff's car on the rear passenger side. The jury found both drivers were negligent but the cab driver was more at fault than plaintiff. The law in California before Li v. Yellow Cab was that contributory negligence (careless conduct contributing to plaintiff's own injuries) by plaintiff barred plaintiff's recovery. But in Li v. Yellow Cab the California Supreme Court abandoned the contributory negligence doctrine for the comparative negligence doctrine. Under the comparative negligence doctrine a plaintiff is not barred from recovery. Defendant's liability is in proportion to fault. So if the cab driver was 80% at fault and Li was 20% at fault Li (instead of being barred under the doctrine of contributory negligence) could recover under the doctrine of comparative negligence 80% of her damages (pain, suffering, property damage, lost wages, medical expenses, etc.). If she proved $40,000 in total damages and the defendant was 80% at fault her judgment would be $32,000. Under the IRAC method the issue is always in the form of a question; the rule derives from a source of law (constitution, statute, common law or case law, or administrative law); the argument applies the facts of the case to the law; and, the conclusion identifies who wins. Post a reply that puts the following sentences in an order that make a proper brief: Comparative negligence is a doctrine based on liability in proportion to fault. Whether or not comparative negligence should be applied in this case? Plaintiff is entitled to 80% of her proven damages. By determining which party (or parties) is at fault and to what degree a fair and just result can be obtained rather than completely barring recovery to the party who is less at fault. In your reply use the following setup: Issue: (Insert the correct sentence) Rule: (Insert the correct sentence) Argument: (Insert the correct sentence) Conclusion: (Insert the correct sentence)

In the year, TGIT Inc. incurred the following costs:

In the year, TGIT produced 40,000 units and sold 42,000 units. The company had no beginning or ending work-in-process inventory. However, there are 5,000 units in beginning finished goods inventory. The 5,000 units produced in the previous year have the same costs per unit as the units produced in the year.

Hint - be clear about the difference between absorption and variable costing models

Using the information provided, answer the following questions:

a) Without making any calculations, which costing method will produce a higher net income for TGIT?

AnswerVariable CostAbsorption CostNeither

b) How many units are in finished goods inventory on December 31?

Answer units

c) Under variable costing, what is the product cost per unit?

$ Answer per unit

d) Under variable costing, what is the total value of TGIT's finished goods inventory on December 31?

$ Answer

e) Under variable costing,what is the total selling and administrative expense for the year?

$ Answer

f) Under absorption costing, what is the product cost per unit?

$ Answer per unit

g) Under absorption costing, what is the total value of TGIT's finished goods inventory on December 31?

$ Answer

h) Under absorption costing,what is the total selling and administrative expense for the year?

$ Answer

Equivalent Units of Production: Average Cost Method

The following information concerns production in the Finishing Department for May. The Finishing Department uses the average cost method.

a. Determine the number of units in work in process inventory at the end of the month.
units

b. Determine the number of whole units to be accounted for and to be assigned costs and the equivalent units of production for May.