1. Machine Replacement Decision

   A company is considering replacing an old piece of machinery, which cost $597,600 and has $352,200 of accumulated depreciation to date, with a new machine that has a purchase price of $484,300. The old machine could be sold for $63,200. The annual variable production costs associated with the old machine are estimated to be $156,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $101,500 per year for eight years.

   a. Prepare a The area of accounting concerned with the effect of alternative courses of action on revenues and costs.differential analysis dated April 29 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

   Differential Analysis
   Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2)
   April 29
   	Continue with Old Machine (Alternative 1)	Replace Old Machine (Alternative 2)	Differential Effect on Income (Alternative 2)
   Revenues:
   Proceeds from sale of old machine	$	$	$
   Costs:
   Purchase price
   Variable productions costs (8 years)
   Income (Loss)	$	$	$

   Feedback

   Determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
   

   • Continue with the old machine
   • Replace the old machine

   Feedback

   b. What is the sunk cost in this situation?

   The sunk cost is $.

1. Make-or-Buy Decision for a Service Company

   The Theater Arts Guild of Dallas (TAG-D) employs five people in its Publication Department. These people lay out pages for pamphlets, brochures, magazines, and other publications for the TAG-D productions. The pages are delivered to an outside company for printing. The company is considering an outside publication service for the layout work. The outside service is quoting a price of $16 per layout page. The budget for the Publication Department for the current year is as follows:

   Salaries	$190,100
   Benefits	43,200
   Supplies	23,000
   Office expenses	28,800
   Office depreciation	25,900
   Computer depreciation	17,300
   Total	$328,300

   The department expects to lay out 18,000 pages for the current year. The Publication Department office space and equipment would be used for future administrative needs, if the department's function were purchased from the outside.

   a. Prepare a The area of accounting concerned with the effect of alternative courses of action on revenues and costs.differential analysis dated February 22 to determine whether TAG-D should layout pages internally (Alternative 1) or purchase layout services from the outside (Alternative 2). If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

   Differential Analysis
   Lay out Pages Internally (Alt. 1) or Purchase Layout Services (Alt. 2)
   February 22
   	Lay out Pages Internally (Alternative 1)	Purchase Lay out Services (Alternative 2)	Differential Effect on Income (Alternative 2)
   Sales price	$	$	$
   Costs:
   Purchase price of lay out work	$	$	$
   Salaries
   Benefits
   Supplies
   Office expenses
   Office depreciation
   Computer depreciation
   Income (loss)	$	$	$

   Feedback

   b. The benefit from using an outside service is shown to be

   • more
   • less
   than performing the layout work internally. The fixed costs (depreciation expenses) in the budget are
   • relevant
   • irrelevant
   to the decision. Thus, the work should
   • be
   • not be
   purchased from the outside on a strictly financial basis.

   c. Before electing to

   • keep
   • lay off
   the five employees, the Guild should consider the
   • short-run impact
   • long-run impact
   of the decision.

The following information pertains to Austin, Inc. and Huston Company:

Required
a-1. Compute each company’s debt-to-assets ratio, current ratio, and times interest earned (EBIT must be computed).

Compute each company’s return-on-equity ratio and return-on-assets ratio. Use EBIT instead of net income when computing the return-on-assets ratio.

Clayton Industries has the following account balances:

The company wishes to raise $37,000 in cash and is considering two financing options: Clayton can sell $37,000 of bonds payable, or it can issue additional common stock for $37,000. To help in the decision process, Clayton’s management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio.

Required
a-1. Compute the current ratio for Clayton’s management currently, if bonds are issued, if stock is issued.

a-2. Compute the debt-to-assets ratio for Clayton’s management currently, if bonds are issued, if stock is issued.

Assume that after the funds are invested, EBIT amounts to $13,100. Also assume the company pays $4,400 in dividends or $4,400 in interest depending on which source of financing is used. Based on a 30 percent tax rate, determine the amount of the increase in retained earnings that would result under each financing option.(bonds, stocks)

7. International capital budgeting

One of the important components of multinational capital budgeting is to analyze the cash flows generated from subsidiary companies.

Consider this case:

Sacramone Products Co. is a U.S.-based firm evaluating a project in Mexico.

You have the following information about the project:

What is the dollar-denominated net present value (NPV) of this project?

$2,580.13

$2,345.57

$2,697.41

$2,228.29

1.

At the beginning of the month, the Painting Department of Skye Manufacturing had 23,000 units in inventory, 70% complete as to materials, and 25% complete as to conversion. The cost of the beginning inventory, $31,650, consisted of $25,400 of material costs and $6,250 of conversion costs. During the month the department started 118,000 units and transferred 124,500 units to the next manufacturing department. Costs added in the current month consisted of $298,600 of materials costs and $541,910 of conversion costs. At the end of the month, the department had 16,500 units in inventory, 40% complete as to materials and 10% complete as to conversion. If Skye Manufacturing uses the weighted average method of process costing, compute the costs per equivalent unit of materials and conversion respectively for the Painting Department.

Multiple Choice

• $2.47; $4.35.

• $2.22; $4.29.

• $2.54; $4.40.

• $2.54; $4.29.

• $2.82; $4.55.

2.

The following is an account for a production department, showing its costs for one month:

Assume that materials are added at the beginning of the production process and that direct labor and overhead are applied uniformly. If the started and completed units cost $42,050, what was the cost of completing the units in the beginning Work in Process inventory?

• $54,800.

• $12,750.

• $7,960.

• $2,360.

• $37,260.

3.

During March, the production department of a process operations system completed and transferred to finished goods 33,000 units that were in process at the beginning of March and 100,000 that were started and completed in March. March's beginning inventory units were 100% complete with respect to materials and 30% complete with respect to labor. At the end of March, 38,000 additional units were in process in the production department and were 100% complete with respect to materials and 30% complete with respect to labor. The production department incurred direct labor cost of $579,200 and its beginning inventory included labor cost of $55,000. Compute the direct labor cost per equivalent unit for the department using the weighted-average method.

• $4.77.

• $4.01.

• $5.79.

• $4.35.

• $4.39.

4.

A company uses the weighted-average method for inventory costing. At the end of the period, 18,000 units were in the ending Work in Process inventory and are 100% complete for materials and 69% complete for conversion. The equivalent costs per unit are materials, $2.59, and conversion $2.25. Compute the cost that would be assigned to the ending Work in Process inventory for the period.

• $74,565.

• $145,620.

• $67,760.

• $114,930.

• $100,478.

Problem 08-3A Flexible budget preparation; computation of materials, labor, and overhead variances; and overhead variance report LO P1, P2, P3, P4 Skip to question [The following information applies to the questions displayed below.] Antuan Company set the following standard costs for one unit of its product. Direct materials (4.0 Ibs. @ $6.00 per Ib.) $ 24.00 Direct labor (1.9 hrs. @ $13.00 per hr.) 24.70 Overhead (1.9 hrs. @ $18.50 per hr.) 35.15 Total standard cost $ 83.85 The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% capacity level. Overhead Budget (75% Capacity) Variable overhead costs Indirect materials $ 15,000 Indirect labor 90,000 Power 15,000 Repairs and maintenance 30,000 Total variable overhead costs $ 150,000 Fixed overhead costs Depreciation—Building 24,000 Depreciation—Machinery 72,000 Taxes and insurance 18,000 Supervision 263,250 Total fixed overhead costs 377,250 Total overhead costs $ 527,250 The company incurred the following actual costs when it operated at 75% of capacity in October. Direct materials (61,000 Ibs. @ $6.20 per lb.) $ 378,200 Direct labor (22,000 hrs. @ $13.10 per hr.) 288,200 Overhead costs Indirect materials $ 41,050 Indirect labor 176,800 Power 17,250 Repairs and maintenance 34,500 Depreciation—Building 24,000 Depreciation—Machinery 97,200 Taxes and insurance 16,200 Supervision 263,250 670,250 Total costs $ 1,336,650 rev: 04_27_2020_QC_CS-209738 Problem 08-3A

Part 1&2 Required: 1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.

March, April, and May have been in partnership for a number of years. The partners allocate all profits and losses on a 4:2:2 basis, respectively. Recently, each partner has become personally insolvent and, thus, the partners have decided to liquidate the business in hopes of remedying their personal financial problems. As of September 1, the partnership’s balance sheet is as follows:

Prepare journal entries for the following transactions: (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1. Sold all inventory for $72,000 cash.
2. Paid $12,300 in liquidation expenses.
3. Paid $56,000 of the partnership’s liabilities.
4. Collected $65,000 of the accounts receivable.
5. Distributed safe payments of cash; the partners anticipate no further liquidation expenses.
6. Sold remaining accounts receivable for 30 percent of face value.
7. Sold land, building, and equipment for $33,000.
8. Paid all remaining liabilities of the partnership.
9. Distributed cash held by the business to the partners.

In 1968 the Worcester Five Cent Savings Bank hired Ronald Haselton to be its new president and chief executive officer. One thing that Haselton did was change the name of the bank to Consumers Savings Bank. What else did Haselton do that later was considered one of the biggest innovations in the banking industry in the 20th century?

Assume that you are living in Dar Es Salaam, Tanzania and your friend, Safari in Rwanda invites you to visit him. Safari is so generous , he has promised you to pay your flight to Kigali to see him, The round trip Dar – Kigali airfare costs $ 1,200. A week later, your friend Mukai, from Nairobihears from Safari that you will be going to Kigali. She also decides to invite you to come to see her in Nairobi and offers to reimburse you as well. The Dar Nairobi round trip airfare costs $ 800. You decide to combine the two trips into one big trip: Dar- Nairobi – Kigali- Dar that will cost $ 1,500 in airfare and save them $ 500 had it been that you had visited them separately. Required: Using the stand alone method, the incremental method and the shapley value method of allocating common costs, show how much cost of the $ 1,500 do you allocate to each of them separately.

Consider that the key difference in revenue recognition under ASC 605 vs 606 is that ASC 605 focused on transferring risks and rewards, but ASC 606 focuses on transferring control. How is the difference in control under ASC 840 vs 842 similar or different to this?

What are the steps in completing the accounting cycle? How do the different steps affect the financial statements? What is the effect on the financial statements of missing a step when completing the accounting cycle? How do these steps play a roll in accrual basis accounting?

Explain the need for account reserves. What do accountants create reserves for (be specific)? What purpose do reserves serve? How do reserves make a company's financial records more accurate?