Golden Gate Construction Associates, a real estate developer and
building contractor in San Francisco, has two sources of long-term
capital: debt and equity. The cost to Golden Gate of issuing debt
is the after-tax cost of the interest payments on the debt, taking
into account the fact that the interest payments are tax
deductible. The cost of Golden Gate’s equity capital is the
investment opportunity rate of Golden Gate’s investors, that is,
the rate they could earn on investments of similar risk to that of
investing in Golden Gate Construction Associates. The interest rate
on Golden Gate’s $60 million of long-term debt is 10 percent, and
the company’s tax rate is 40 percent. The cost of Golden Gate’s
equity capital is 15 percent. Moreover, the market value (and book
value) of Golden Gate’s equity is $90 million.
The company has two divisions: the real estate division and the
construction division. The divisions’ total assets, current
liabilities, and before-tax operating income for the most recent
year are as follows:
| Division | Total Assets | Current Liabilities | Before-Tax Operating Income | |||||||||||
| Real estate | $ | 100,000,000 | $ | 6,000,000 | $ | 20,000,000 | ||||||||
| Construction | 60,000,000 | 4,000,000 | 18,000,000 | |||||||||||
Required:
Calculate the economic value added (EVA) for each of Golden Gate
Construction Associates’ divisions. (Round your
weighted-average cost of capital to 3 decimal places (i.e. .123).
Enter your answers in millions rounded to 3 decimal places (i.e.
1,234,000 should be entered as 1.234)).
In: Accounting
- What it is comprehensive auditing, and what are the advantages and disadvantages of comprehensive auditing?
- Should a police service use comprehensive auditing?
In: Accounting
You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.
After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:
| Cost Formula | Actual Cost in March | ||
| Utilities | $16,800 plus $0.15 per machine-hour | $ | 21,450 |
| Maintenance | $38,900 plus $1.30 per machine-hour | $ | 57,400 |
| Supplies | $0.60 per machine-hour | $ | 11,200 |
| Indirect labor | $94,900 plus $2.00 per machine-hour | $ | 133,800 |
| Depreciation | $68,300 | $ | 70,000 |
During March, the company worked 17,000 machine-hours and produced 11,000 units. The company had originally planned to work 19,000 machine-hours during March.
Required:
1. Complete the report showing the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
2. Complete the report showing the spending variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
In: Accounting
11. -82
Eddie Industries issues $1,500,000 of 8% bonds at 105. The amount
of cash received from the sale is
$1,575,000
$1,000,000
$1,425,000
$1,080,000
12. -83
If the market rate of interest is greater than the contractual rate
of interest, bonds will sell
only after the stated rate of interest is increased
at a premium
at face value
at a discount
13. -90
The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated
January 1 at 96. The journal entry to record
the issuance will show a
debit to Cash of $2,000,000
credit to Bonds Payable for $1,920,000
debit to Discount on Bonds Payable for $80,000
credit to Cash for $1,920,000
14. -92
Bonds with a face amount of $1,000,000 are sold at 106. The journal
entry to record the issuance is
15. -58
The market interest rate related to a bond is also called the
effective interest rate
contract interest rate
straight-line rate
stated interest rate
16. TF.12-03
The financial loss that each stockholder in a corporation can incur
is usually limited to the amount invested by the
stockholder.
True
False
17. TF.12-05
Double taxation is a disadvantage of a corporation because the
corporation has to pay income taxes at twice the
rate applied to partnerships.
True
False
18. TF.12-09
The two main sources of stockholders' equity are investments
contributed by stockholders and net income retained
in the business.
True
False
19. TF.12-11
The net increase or decrease in Retained Earnings for a period is
recorded by closing entries.
True
False
20. TF.12-38
Before a stock dividend can be declared or paid, there must be
sufficient cash.
True
False
In: Accounting
Budgets are developed months before the end of the current year and are best guess estimates of future performance. What do you think might be some pitfalls of budgeting, and how can they be avoided?
In: Accounting
The following information is provided for X Corporation for the year ending December 31, 2018:
|
Book earnings before income taxes |
$6,000 |
|
Tax exempt interest income |
600 |
|
Taxes on foreign income above the U.S. statutory rate |
200 |
|
State income taxes (before Federal benefit) |
500 |
|
Annual increase in warranty reserve |
200 |
|
Dividend received deduction on dividends from foreign subsidiaries |
600 |
|
Foreign tax credits available after the TCJA |
400 |
|
Tax over book depreciation for 2018 |
500 |
|
Current year increase in valuation allowance |
1,000 |
|
Entertainment expenses |
400 |
|
Foreign derived intangible income (FDII) special deduction |
600 |
X Corporation has not made an assertion under APB 23 that their non-U.S. undistributed earnings will be invested indefinitely or that the earnings will be solely remitted in a tax-free liquidation. The U.S. statutory rate is 21%. Based on all of the information presented, prepare an effective rate reconciliation showing the dollar amount of each reconciling item (i.e. do not combine potentially immaterial amounts) and the impact of each reconciling item on the effective tax rate.
In: Accounting
51.
The relationship of $325,000 to $125,000, expressed as a ratio, is
a. 2.0
b. 2.5
c. 2.6
d. 0.45
52.
The ability of a business to pay its debts as they come due and to earn a reasonable net income is
a. solvency and equity.
b. solvency and leverage.
c. solvency and profitability.
d. solvency and liquidity.
53.
| Harding Company | |
| Accounts payable | $ 40,000 |
| Accounts receivable | 65,000 |
| Accrued liabilities | 7,000 |
| Cash | 30,000 |
| Intangible assets | 40,000 |
| Inventory | 72,000 |
| Long-term investments | 110,000 |
| Long-term liabilities | 75,000 |
| Marketable securities | 36,000 |
| Notes payable (short-term) | 30,000 |
| Property, plant, and equipment | 625,000 |
| Prepaid expenses | 2,000 |
Based on the data for Harding Company, what is the quick ratio,
rounded to one decimal point?
0.9
2.6
2.7
1.7
54.
Which of the following measures a company's ability to pay its current liabilities?
times interest earned
current ratio
inventory turnover
earnings per share
55.
Based on the following data for the current year, what is the inventory turnover?
| Sales on account during year | $700,000 |
| Cost of goods sold during year | 270,000 |
| Accounts receivable, beginning of year | 45,000 |
| Accounts receivable, end of year | 35,000 |
| Inventory, beginning of year | 90,000 |
| Inventory, end of year | 110,000 |
3.0
2.7
2.5
9.7
56.
A company reports the following:
| Net income | $160,000 |
| Preferred dividends | $10,000 |
| Shares of common stock outstanding | 20,000 |
| Market price per share of common stock | $35 |
The company's earnings per share on common stock is
$8.50
$13.33
$7.50
$35.00
57.
The purpose of an audit is to
a. determine whether or not a company is a good investment.
b. determine whether or not a company complies with corporate social responsibility.
c. render an opinion on the fairness of the statements.
d. determine whether or not a company is a good credit risk.
58.
Which of the following is required by the Sarbanes-Oxley Act?
a common-sized statement
a vertical analysis
a report on internal control
a price-earnings ratio
59.
The following information pertains to Diane Company. Assume that
all balance sheet amounts represent both average and ending balance
figures and that all sales were on credit.
Assets
| Cash and short-term investments | $30,000 | |
| Accounts receivable (net) | 20,000 | |
| Inventory | 15,000 | |
| Property, plant, and equipment | 185,000 | |
| Total assets | $250,000 | |
Liabilities and Stockholders' Equity
| Current liabilities | $45,000 | ||
| Long-term liabilities | 70,000 | ||
| Stockholders' equity—Common | 135,000 | ||
| Total liabilities and stockholders' equity | $250,000 | ||
Income Statement
| Sales | $85,000 | |
| Cost of goods sold | 45,000 | |
| Gross margin | $40,000 | |
| Operating expenses | (15,000) | |
| Interest expense | (5,000) | |
| Net income | $20,000 | |
| Number of shares of common stock outstanding | 6,000 |
| Market price of common stock | $20 |
| Total dividends paid | $9,000 |
| Cash provided by operations | $30,000 |
What are the dividends per common share for Diane Company?
a. $0.67
b. $20.00
c. $3.00
d. $1.50
60.
Assume the following sales data for a company:
| Current year | $325,000 | |
| Preceding year | 250,000 |
What is the percentage increase in sales from the preceding year to
the current year?
76.9%
70%
50%
30%
In: Accounting
Direct Materials Purchases Budget
Lorenzo’s Frozen Pizza Inc. has determined from its production budget the following estimated production volumes for 12'' and 16'' frozen pizzas for September:
| Units | ||||
| 12" Pizza | 16" Pizza | |||
| Budgeted production volume | 13,400 | 23,100 | ||
Three direct materials are used in producing the two types of pizza. The quantities of direct materials expected to be used for each pizza are as follows:
| 12" Pizza | 16" Pizza | ||||
| Direct materials: | |||||
| Dough | 0.80 | lb. per unit | 1.50 | lb. per unit | |
| Tomato | 0.50 | 0.70 | |||
| Cheese | 0.70 | 1.30 | |||
In addition, Lorenzo’s has determined the following information about each material:
| Dough | Tomato | Cheese | ||||
| Estimated inventory, September 1 | 580 | lb. | 210 | lb. | 300 | lb. |
| Desired inventory, September 30 | 610 | lb. | 200 | lb. | 330 | lb. |
| Price per pound | $1.00 | $2.10 | $3.30 | |||
Prepare September's direct materials purchases budget for Lorenzo’s Frozen Pizza Inc. When required, enter unit prices to the nearest cent.
| Lorenzo’s Frozen Pizza Inc. | ||||
| Direct Materials Purchases Budget | ||||
| For the Month Ending September 30 | ||||
| Dough | Tomato | Cheese | Total | |
| Units required for production: | ||||
| 12" pizza | ||||
| 16" pizza | ||||
| Total pounds required | ||||
| Total units to be purchased | ||||
| Unit price | x $ | x $ | x $ | |
| Total direct materials to be purchased | $ | $ | $ | $ |
In: Accounting
Schedule of Cash Collections of Accounts Receivable
Furry Friends Supplies Inc., a pet wholesale supplier, was organized on May 1. Projected sales for each of the first three months of operations are as follows:
| May | $310,000 |
| June | 340,000 |
| July | 510,000 |
All sales are on account. 50 percent of sales are expected to be collected in the month of the sale, 39% in the month following the sale, and the remainder in the second month following the sale.
Prepare a schedule indicating cash collections from sales for May, June, and July.
| Furry Friends Supplies Inc. | |||
| Schedule of Collections from Sales | |||
| For the Three Months Ending May 31 | |||
| May | June | July | |
| May sales on account: | |||
| Collected in May | |||
| Collected in June | |||
| Collected in July | |||
| June sales on account: | |||
| Collected in June | |||
| Collected in July | |||
| July sales on account: | |||
| Collected in July | |||
| Total cash collected | $ | $ | $ |
In: Accounting
Provide a carefully constructed narrative reply to each of the following requirements. You may consider using internet resources beyond your textbook to gather supporting information. Identify several different career paths that one might consider as an accounting professional.
Define accounting, and define generally accepted accounting principles (GAAP).
Identify several different career paths that one might consider as an accounting professional.
What is ethical behavior, and why is it very important to the accounting profession? What challenges might arise that cause an otherwise "good person" to engage in unethical behavior?
In: Accounting
Garcon Inc. manufactures electronic products, with two operating divisions, Consumer and Commercial. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:
|
Garcon Inc. |
|
Divisional Income Statements |
|
For the Year Ended December 31, 20Y2 |
|
1 |
Consumer Division |
Commercial Division |
Total |
|
|
2 |
Sales: |
|||
|
3 |
14,400 units × $144 per unit |
$2,073,600.00 |
$2,073,600.00 |
|
|
4 |
21,600 units × $275 per unit |
$5,940,000.00 |
5,940,000.00 |
|
|
5 |
Total sales |
$2,073,600.00 |
$5,940,000.00 |
$8,013,600.00 |
|
6 |
Expenses: |
|||
|
7 |
Variable: |
|||
|
8 |
14,400 units × $104 per unit |
$1,497,600.00 |
$1,497,600.00 |
|
|
9 |
21,600 units × $193* per unit |
$4,168,800.00 |
4,168,800.00 |
|
|
10 |
Fixed |
200,000.00 |
520,000.00 |
720,000.00 |
|
11 |
Total expenses |
$1,697,600.00 |
$4,688,800.00 |
$6,386,400.00 |
|
12 |
Income from operations |
$376,000.00 |
$1,251,200.00 |
$1,627,200.00 |
*$150 of the $193 per unit represents materials costs, and the remaining $43 per unit represents other variable conversion expenses incurred within the Commercial Division.
The Consumer Division is presently producing 14,400 units out of a total capacity of 17,280 units. Materials used in producing the Commercial Division’s product are currently purchased from outside suppliers at a price of $150 per unit. The Consumer Division is able to produce the materials used by the Commercial Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.
| Required: | |
| 1. | Would the market price of $150 per unit be an appropriate transfer price for Garcon Inc.? Explain. |
| 2. | If the Commercial Division purchases 2,880 units from the Consumer Division, rather than externally, at a negotiated transfer price of $115 per unit, how much would the income from operations of each division and the total company income from operations increase? |
| 3. | Prepare condensed divisional income statements for Garcon Inc. based on the data in Requirement 2. |
| 4. | If a transfer price of $126 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase? |
| 5a. | What is the range of possible negotiated transfer prices that would be acceptable for Garcon Inc.? |
| 5b. | Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price? |
In: Accounting
Metlock Corporation wishes to exchange a machine used in its
operations. Metlock has received the following offers from other
companies in the industry.
| 1. | Bonita Company offered to exchange a similar machine plus $25,300. (The exchange has commercial substance for both parties.) | |
| 2. | Windsor Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.) | |
| 3. | Sheridan Company offered to exchange a similar machine, but wanted $3,300 in addition to Metlock’s machine. (The exchange has commercial substance for both parties.) |
In addition, Metlock contacted Skysong Corporation, a dealer in
machines. To obtain a new machine, Metlock must pay $102,300 in
addition to trading in its old machine.
|
Metlock |
Bonita |
Windsor |
Sheridan |
Skysong |
||||||
| Machine cost | $176,000 | $132,000 | $167,200 | $176,000 | $143,000 | |||||
| Accumulated depreciation | 66,000 | 49,500 | 78,100 | 82,500 | –0– | |||||
| Fair value | 101,200 | 75,900 | 101,200 | 104,500 | 203,500 |
For each of the four independent situations, prepare the journal
entries to record the exchange on the books of each company.
(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.)
|
No. |
Account Titles and Explanation |
Debit |
Credit |
|
1. |
Metlock Corporation |
||
|
Bonita Company |
|||
|
2. |
Metlock Corporation |
||
|
Windsor Company |
|||
|
3. |
Metlock Corporation |
||
|
Sheridan Company |
|||
|
4. |
Metlock Corporation |
||
|
Skysong Company |
|||
| (To record exchange of inventory) | |||
| (To record cost of inventory) |
In: Accounting
2. Preferential Rates Income: Determine the taxpayer’s income tax liability for 2020 for each of the scenarios.
a. Henrich is married to Sally and their taxable income is $81,000. Included in their taxable income is $1,500 of long-term capital gains.
b. Henrich is married to Sally and their taxable income is $81,000. Included in their taxable income is $10,000 of long-term capital gains.
c. Henrich is single but provides all of the support for his 10 year-old son. His taxable income is $512,000, which includes $16,000 of qualified dividends
Explain/Show your Work
In: Accounting
1. Zig Corporation incurs advertising and training costs of $52,500 before its business actually begins. Zig Corporation began business on May 1, 2018. Compute the maximum amount of Zig Corporation’s deduction for start-up costs for 2018.
2. John Porter, the sole shareholder of Canit Inc., incurred the following expenses for the year that were reimbursed by the company:
Parking tickets incurred while of business $550
Traffic ticket for running a stop sign when going to a business meeting $150
Political contributions on behalf of the company $750
What is the amount of expenses that Canit Inc. can deduct?
In: Accounting
With the market price of gold at C$1,562.50 per ounce (C$ stands for Canadian dollars), Maritime Resources Corp., a Canadian mining firm, would like to assess the financial feasibility of reopening an old gold mine that had ceased operations in the past due to low gold prices. Reopening the mine would require an up-front capital expenditure of C$67.9 million and annual operating expenses of C$19.43 million. Maritime expects that over a 5-year operating life it can recover 174, 000 ounces of gold from the mine and that the project will have no terminal value. Maritime uses straight-line depreciation, has a 21.04% corporate tax rate, and has a(n) 11.1% cost of capital.
a. Calculate the operating cash flows for the gold mine project.
Operating Cash Flows for Gold Mine Project:
Revenue $ ________
Operating Expenses _______
EBITS _______
Depreciation _______
NPBT ________
Taxes _______
NPAT _______
OCF _______
b. Depict on a timeline the net cash flows for the gold mine project.
c. Calculate the internal rate of return (IRR) for the gold mine project.
d. Calculate the net present value (NPV) for the gold mine project.
e. Make a recommendation to accept or reject the gold mine project, and justify your answer.
SHOW ALL WORK/FORMULAS
In: Accounting