Problem 18-10

On March 1, 2017, Bridgeport Construction Company contracted to construct a factory building for Fabrik Manufacturing Inc. for a total contract price of $8,340,000. The building was completed by October 31, 2019. The annual contract costs incurred, estimated costs to complete the contract, and accumulated billings to Fabrik for 2017, 2018, and 2019 are given below:

(a) Using the percentage-of-completion method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

(b) Using the completed-contract method, prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2017, 2018, and 2019. (Ignore income taxes.)

1. Wight Corporation has provided its contribution format income statement for June. The company produces and sells a single product.

If the company sells 9,700 units, its net operating income should be closest to:

• $57,000

• $55,573

• $58,500

• $55,000

2. Krepps Corporation produces a single product. Last year, Krepps manufactured 34,080 units and sold 28,200 units. Production costs for the year were as follows:

Sales totaled $1,494,600 for the year, variable selling and administrative expenses totaled $163,560, and fixed selling and administrative expenses totaled $224,928. There was no beginning inventory. Assume that direct labor is a variable cost.

Under absorption costing, the ending inventory for the year would be valued at:

• $264,040

• $194,040

• $221,540

• $255,540

In preparing its consolidated financial statements at December 31, 20X7, the following consolidation entries were included in the consolidation worksheet of Powder Corporation:

Powder owns 60 percent of Snow Corporation’s voting common stock. On January 1, 20X7, Snow sold Powder a building it had purchased for $635,000 on January 1, 20X1, and depreciated on a 20-year straight-line basis. Powder recorded depreciation for 20X7 using straight-line depreciation and the same useful life and residual value as Snow.

Required:
a. What amount did Powder pay Snow for the building?

b. What amount of accumulated depreciation did Snow report at January 1, 20X7, prior to the sale?

c. What annual depreciation expense did Snow record prior to the sale?

d. What expected residual value did Snow use in computing its annual depreciation expense?

e. What amount of depreciation expense did Powder record in 20X7?

f. If Snow reported net income of $80,000 for 20X7, what amount of income will be assigned to the noncontrolling interest in the consolidated income statement for 20X7?

g. If Snow reported net income of $61,000 for 20X8, what amount of income will be assigned to the noncontrolling interest in the consolidated income statement for 20X8?

In five years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be managed in the free time he has available from his regular occupation, and it could be closed easily when he retires. After careful study, Mr. Duncan determined the following:

1. A building in which a car wash could be installed is available under a five-year lease at a cost of $5,600 per month.

2. Purchase and installation costs of equipment would total $320,000. In five years the equipment could be sold for about 6% of its original cost.

3. An investment of an additional $8,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere.

4. Both a wash and a vacuum service would be offered. Each customer would pay $1.30 for a wash and $.60 for access to a vacuum cleaner.

5. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vacuum for electricity.

6. In addition to rent, monthly costs of operation would be: cleaning, $2,900; insurance, $155; and maintenance, $1,775.

7. Gross receipts from the wash would be about $2,990 per week. According to the experience of other car washes, 60% of the customers using the wash would also use the vacuum.

Mr. Duncan will not open the car wash unless it provides at least a 8% return.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. Assuming that the car wash will be open 52 weeks a year, compute the expected annual net cash receipts from its operation.

2-a. Determine the net present value using the net present value method of investment analysis.

2-b. Would you advise Mr. Duncan to open the car wash?

B&B Technologies is considering expanding its operations to include production and sales of high capacity storage devices. The assistant to the CFO has collected a lot of information which is described below. Unfortunately, some of the information may be of questionable relevance, but that is for you to decide. You have asked to present a net present value based analysis to help management decide on the desirability of getting into the storage device business.

The company owns a vacant building near its current manufacturing facility; this building could be used for the expansion, or it could be leased to an interested customer and generate a lease revenue of $250,000, starting this year. The firm could increase the lease charge by 5% every year. The company has some unused equipment that has a book value of $40,000 and a market value of $30,000. This equipment could either be sold or be modified to produce storage devices; the modification would cost $10,000. The old equipment and modification costs would be depreciated straight-line over five years. Producing storage devices would also require the purchase of new equipment costing $900,000. For purposes of depreciation, the new equipment would be in the 7-year MACRS class. This equipment would have a useful life of six years, at the end of which it would have a scrap value of 10% of the purchase price.

Producing storage devices would require an ongoing investment in working capital. Net working capital is expected to be 10% of expected sales for the coming year and would vary with sales, but remain at 10% of expected sales for the coming year. All working capital would be recovered at the end of the six-year life of the investment. The production facility is expected to generate sales revenues of $1,000,000 in the first year; sales are expected to increase at 10% p.a. for three years and then decline by 5% p.a. over the last two years of the project. Operating costs are expected to be 40% of sales. The firm’s effective tax rate of 20% is expected to remain unchanged over the planning period, and the appropriate required rate of return for this investment is 8%.

Tasks:

1. Estimate the net present value and the internal rate of return for this investment.

2. Now suppose the following changes occur: (i) Sales in the first year turn out to be $900,000, (ii) the CGS to sales ratio is 45%, (iii) the NWC to sales ratio is 15%, (iv) the scrap value of the new equipment in year 6 is 5% of the original cost, and (v) the required rate of return is 10%. What is the net present value and the internal rate of return with all of the above changes? Should B&B Technologies get into the storage device business?

On 12/31/18, Company ABC buys 100 share in Walmart for $93.15. The following is a list of share prices for Walmart throughout 2019:

Assuming that ABC classifies the investment as a trading security, what will be the value that it reports on its 12/31/19 balance sheet, the gain/loss that it reports on its Q4 2019 incomes statement, and the gain/loss that it reports on its incomes statement for the year ended 12/31/19?

Question 3 options:

Mikeco wants to prevent an un-friendly take over and on 3/15/18 purchase 1,500,000 shares of its' common stock on the NYSE for $25 per share. The take over failed and on 8/23/18 Mikeco sold 1,000,000 shares of the stock it purchased on 3/15/18 for 32 per shear. On 12/28/18 Mikeco sold and additional 200,000 shears of its' Treasury Stock for 22 per share.

a. Required: Make all the required entries to record the information given above.

On 8/1/18 Allico Inc.s' board of directors declared a .20 cash dividend on all of its common stock.  The ex-dividend date was 8/27/18 and the date of record was 8/31/18.  The date of payment was 9/15/18.  On 8/1/18, Allico Inc. had 16,000,000 shares of common stock authorized with 7,000,000 issued and 500,000 shares held as treasurary stock.

b. Required: Make all the required entries to record the information given above.

On 3/15/18 DomCo Inc. issued 500,000 shares of $8.00 par value preferred stock. The company received $20 per share for the stock. On 3/31/18 company issued 1,000,000 shares of no par value common stock for $35 per share.

c. Required: Make the required Journal entries for both 3/15/18 and 3/31/18 for the issuance of both preferred and common stock.

The Kimm Company had the following assets and liabilities on the dates indicated.
Kimm began business on January 1, 2013, with an investment of $600,000 (60,000 shares, par value = $10).

1. In 2013, Kimm paid $50,000 dividends and no additional investment was made. Other comprehensive income was $1,000
2. In 2014, Kimm paid $100,000 dividends, additional investment of $200,000 (20,000 shares, par value = $10) was made by shareholders on September 1, 2014. Other comprehensive income (loss) was $(2,000).
3. In 2015, Kimm had zero dividends and no additional investment was made. Other comprehensive income (loss) was $(500,000).

P1. Determine net income in 2013, 2014 and 2015. (Show work clearly)

P2. Determine basic earnings per share in 2013, 2014 and 2015. (Show work clearly)

P3. Determine comprehensive income in 2013, 2014 and 2015. (Show work clearly)

P4. Determine the balance of retained earnings at the end of 2015. (Show work clearly)

P5. Determine the balance of common stock at the end of 2015. (Show work clearly)

P6. Determine the balance of accumulated other comprehensive income at the end of 2015. (Show work clearly)

Hint : Use Equity = CS +RE+AOCI, along with A = L + E. No preferred stock (thus no preferred div, net income to common stockholders = net income)

Altira Corporation provides the following information related to its merchandise inventory during the month of August 2021:

Required:
Using calculations based on a periodic inventory system, determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using each of the following cost flow methods.

Determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using the FIFO method. (Round cost per unit to 2 decimal places.)

Determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using the LIFO method. (Round cost per unit to 2 decimal places.)

Determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using the Average cost method. (Round cost per unit to 2 decimal places.)

You are a financial manager for Zoom Corp., which manufactures bicycles. In the most recent fiscal year,

Zoom manufactured and sold 20,000 bicycles. Wheels, seats, and brake calipers are three components of

the bicycles currently manufactured by Zoom. Three different vendors have proposed to provide those

components to Zoom, and quoted prices (including shipping) for their delivery. Your task is to determine

which, if any, of these proposals should be accepted.

Prepare a make vs. buy incremental analysis for each possible course of action in an Excel worksheet. Your

grade will be based on the correctness of your answers, as well as the use of Excel. That is, where possible,

you should use formulas to get your answers, rather than keyed-in values. See your instructor for help with

Excel basics if you need it.

In a Word document, prepare a memo stating which of the proposals you suggest accepting, as well as the

basis for your conclusions. Also identify any nonfinancial factors you should consider before accepting any

of the outsourcing proposals.

Below is cost data for Zoom's production of wheels, seats, and calipers. Outside suppliers have offered to

provide wheels for $7.26, seats for $7.76, and calipers for $2.56 per piece. Both wheels and seats are branded

with the Zoom logo, and that logo will need to be added at the Zoom factory at a cost of $0.50 each for any

of these components that are outsourced. For all three components, 75% of the fixed costs are avoidable, and

will be eliminated if the component's production is outsourced. In addition, seats and calipers are both

produced out of the same small factory space. If both seats and calipers were outsourced, Zoom could lease

the space out and increase net income by $6,000 per year, while eliminating all fixed costs for the two

components.

Wheels

Seats

Calipers

Cost category

Direct materials

$138,000

$54,500

$90,500

Direct labor

97,000

71,500

41,500

Variable overhead

21,000

14,000

16,000

Fixed overhead

58,600

36,600

31,400

Total cost

$314,600

$176,600

$179,400

Units produced

40,000

20,000

80,000

Cost per unit

$7.87

$8.83

$2.24

Hints: Prepare incremental analyses for each component separately. Make wheels vs. buy wheels, etc. Since

there are additional implications to outsourcing both seats and calipers, do a make vs. buy analysis assuming

both are outsourced. A correct solution, then, will likely have at least four incremental analyses.

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Sandra’s Purse Boutique has the following transactions related to its top-selling Gucci purse for the month of October. Sandra's Purse Boutique uses a periodic inventory system.

Required:

1. Calculate ending inventory and cost of goods sold at October 31, using the specific identification method. The October 4 sale consists of purses from beginning inventory, the October 13 sale consists of one purse from beginning inventory and two purses from the October 10 purchase, and the October 28 sale consists of three purses from the October 10 purchase and four purses from the October 20 purchase.

  

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Sandra’s Purse Boutique has the following transactions related to its top-selling Gucci purse for the month of October. Sandra's Purse Boutique uses a periodic inventory system.

Required:

1. Calculate ending inventory and cost of goods sold at October 31, using the specific identification method. The October 4 sale consists of purses from beginning inventory, the October 13 sale consists of one purse from beginning inventory and two purses from the October 10 purchase, and the October 28 sale consists of three purses from the October 10 purchase and four purses from the October 20 purchase.

what is the ending inventory?

what is cost of good sold?

  

On January 2, 2018, Baltimore Company purchased 18,000 shares of the stock of Towson Company at $12 per share. Baltimore obtained significant influence as the purchase represents a 35% ownership stake in Towson Company. On August 1, 2018, Towson Company paid cash dividends of $19,000. Baltimore Company intended this investment to a long-term investment. On December 31, 2018, Towson Company reported $55,000 of net income for FY 2018. Additionally, the current market price for Towson Company's stock increased to $18 per share at the end of the year. Use this information to determine, how much Baltimore Company should report for its investment in Towson Company on December 31, 2018. (Round to the nearest dollar.)

The following data relate to the operations of love Company, a wholesale distributor of consumer goods:

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

3. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $4,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $783 per month (includes depreciation on new assets).

7. Equipment costing $3,200 will be purchased for cash in April.

8. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

Prepare a balance sheet as of June 30.

Discuss 3 risks and 3 benefits of cloud-based computing especially as it relates to the expenditure cycle of an organization.