The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company’s present fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considering two alternatives:

At the end of three years, the fleet could be sold for one-half of the original purchase price.

Riteway Ad Agency’s required rate of return is 16%.

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

Required:    

1. What is the net present value of the cash flows associated with the purchase alternative?

2. What is the net present value of the cash flows associated with the lease alternative?

3. Which alternative should the company accept?

Describe what is meant by asset impairment and identify the sources of inherent risks related to asset

impairment.

Problem 1-39 (Static) Cost Data for Managerial Purposes (LO 1-3)

Imperial Devices (ID) has offered to supply the state government with one model of its security screening device at “cost plus 20 percent.” ID operates a manufacturing plant that can produce 66,000 devices per year, but it normally produces 60,000. The costs to produce 60,000 devices follow:

Based on these data, company management expects to receive $522 (= $435 × 120 percent) per monitor for those sold on this contract. After completing 500 monitors, the company sent a bill (invoice) to the government for $261,000 (= 500 monitors × $522 per monitor).

The president of the company received a call from a state auditor, who stated that the per monitor cost should be:

Therefore, the price per monitor should be $324 (= $270 × 120 percent). The state government ignored marketing costs because the contract bypassed the usual selling channels.

Required:

For each of the four situations, calculate the cost basis per device based on the information shown above. (Round intermediate calculations and final answers to 2 decimal places.)

Options:

1. Only the differential production costs could be considered as the cost basis.
2. The total cost per device for normal production of 60,000 devices could be used as the cost basis.
3. The total cost per device for production of 66,000 devices, excluding marketing costs, could be used as the cost basis.
4. The total cost per device for production of 66,000 devices, including marketing costs, could be used as the cost basis.

25.65% is Google’s Long Term Assets as % of Total Assets 2018.

70.82% is Walmart’s Long Term Assets as % of Total Assets 2018.

-What are the possible reasons for the difference in Long Term Assets value between the two companies?

-Which company has the stronger asset turnover in 2018?  What does Asset turnover indicate?

It was determined that a shipment on Dec 29 from BGA to Hubba Bubba Corp. arrived at Hubba Bubba on Jan 2. Hubba Bubba purchased from BGA 100,000 lbs of bubble gum for a sales price of $4.00 per lb. Cost of the product was $2.00 per lb. Terms were FOB Shipping Point. Payment terms Net 30. BGA billed the company on account, including the required 5% sales tax which was added to the invoice to Hubba Bubba. Record this transaction on the journal.

What tax and nontax advantages and disadvantages accrue when an acquiring corporation purchases all of a target​ corporation's stock for cash and subsequently liquidates the target​ corporation?

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Select the advantages of purchasing all of the target​ corporation's stock for cash and subsequently liquidating the target corporation into the acquiring corporation.​ (Select all that​ apply.)

A. The acquiring corporation assumes the tax attributes of the target corporation.

B. The target corporation pays a​ tax, however the​ shareholders' receive the distribution as a​ tax-free distribution.

C. The only tax cost incurred to accomplish the transaction is that the target​ corporation's shareholders must recognize​ gain/loss on the sale of their target corporation stock.

D. No tax cost is incurred in the transfer of the assets from the target corporation to the acquiring corporation.

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Select the disadvantages of purchasing all of the target​ corporation's stock for cash and subsequently liquidating the target corporation into the acquiring corporation.​ (Select all that​ apply.)

A. A Sec. 338 election can be used to​ step-up the​ assets' inside​ bases, however this generally involves tax on the gain from the deemed Sec. 338 sale.

B. The acquiring corporation does not obtain a​ stepped-up basis in the acquired assets.

C. Tax is incurred in the transfer of the assets from the target corporation to the acquiring corporation.

D. The stock basis​ "loss" cannot be deducted for five​ years, and therefore does not provide a current benefit to the acquiring corporation.

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 10 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Use the NPV decision rule to evaluate these projects; which one(s) should it be accepted or rejected?

Required information

[The following information applies to the questions displayed below.]

A six-column table for JKL Company follows. The first two columns contain the unadjusted trial balance for the company as of July 31, 2017. The last two columns contain the adjusted trial balance as of the same date.

Prepare JKL Company's statement of retained earnings for the year ended July 31, 2017. Note: Retained earnings at July 31, 2016, was $22,400, and the current-year dividends were $5,000.

Prepare JKL Company's the balance sheet as of July 31, 2017.

A Boca Raton Company, Purchased $35,000 shares of common stock of Polo for (Long-Term) Investment $ 700,000 during the year for Polo Corp. Corp reported net income of $300,000 and paid $100,000 of dividends.

a.) assuming that $ 35,000 shares represent a 10% interest in the Polo Corp.

b.) Prepare what entries in Acct. that Boca Raton Company should make for it's in Investment Polo Stock that Year.

C.) What is the balance of stock accounts for Polo Investment on Polo Company's Books for that Year.

2. Assuming that the 35,000 Shares represent 20% of Interest in Polo Corp.

a.) Prepare the Journal Entry to reflect the entry in Polo stock.

b,) Prepare what entries in Acct. that Boca Raton Company should make for it's in Investment Polo Stock that Year.

c.) What is the balance of stock accounts for Polo Investment on Polo Company's Books for that Year.

Mr. Briggs purchased an apartment complex on January 10, 2016 for $2 million with 10% of the price allocated to land. He sells the complex on October 22, 2018 for $2.5 million. Assume that 10% of the $2.5 million selling price is allocated to land and 90% is allocated to the building. \

a. How much depreciation was allowed for 2016?

b. How much depreciation is allowed for 2018?

c. Will any of the gain be ordinary income?

d. What is the amount of gain and the character of the gain on the sale of the building?

e. What is the amount of gain and the character of the gain on the sale of the land?

f. Will any of the gain be taxed at 25%?

On April 1, 2018, Windel Corporation issued bonds with detachable warrants.

Information related to these bonds is shown below:

Face value of bonds $325,000

Stated rate of interest 8%

Bonds issued at 106%

Each $1,000 bond was sold with 20 detachable warrants

Each warrant allowed the investor to purchase one share of common stock for $16

The par value of the common stock is $4.00

On April 1, 2018 the market values were:

Common stock $12

Warrants $7

In February 2023, some of the warrants were exercised. The percentage of warrants exercised was 20%

Bond #2: On January 1, 2016, Windel sold the following bonds:

Maturity value $850,000

Stated rate of interest 9%

Effective rate of interest 8%

Interest is paid each December 31

Maturity date January 1, 2021

On December 31, 2018, Windel redeemed (called) some of the bonds:

Call premium 105%

Percentage of bonds redeemed 40%

Required:

a. With respect to Bond #2:

1. Prepare an amortization schedule for the bonds.

The segmented income statement for XYZ Company for the year ended December 31, 2016, follows: XYZ COMPANY Segmented Income Statement For the Year Ended December 31, 2016

Total Company Product A Product B Product C

Sales $ 610,000 $ 305,000   $ 118,000 $ 187,000

Vari. expenses 273,000 146,000 53,000 74,000

Cont. margin $ 337,000 $ 159,000 $ 65,000 $ 113,000

Fixed expenses 283,000 164,000 49,000 70,000

Oper. income $ 54,000 $ (5,000 ) $ 16,000 $ 43,000

The company is concerned about the performance of product A, and you have been asked to analyze the situation and recommend to the president whether to continue or discontinue the product. During your investigation, you discover that certain fixed expenses are traceable directly to each product line as indicated here:

Total Company Product A Product B Product C

Direct fixed expenses $102,000 $75,000 $10,000 $17,000

The remaining fixed expenses are considered to be corporate-wide expenses that have been allocated to each product line based on sales revenue.

Required: a. What will be the effect of the decision to discontinue product A on operating income?

b. Assume that product A is discontinued. Prepare a segmented income statement for the remaining products. Allocate corporate-wide fixed expenses as described. (Round intermediate calculations to 2 decimal places.)

c. Starting with the segmented income statement, use the information you discovered during your investigation to present a more appropriately designed segmented income statement.

Lansing Company’s 2017 income statement and selected balance sheet data (for current assets and current liabilities) at December 31, 2016 and 2017, follow.

Required:
Prepare the cash flows from operating activities section only of the company’s 2017 statement of cash flows using the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

Lansing Company’s 2017 income statement and selected balance sheet data (for current assets and current liabilities) at December 31, 2016 and 2017, follow.

Required:
Prepare the cash flows from operating activities section only of the company’s 2017 statement of cash flows using the direct method. (Amounts to be deducted should be indicated with a minus sign.)
  

Wiset Company completes these transactions during April of the current year (the terms of all its credit sales are 2/10, n/30).
  

Required:

1-a. Review the transactions of Wiset Company and enter those that should be journalized in the sales journal.
1-b. Review the transactions of Wiset Company and enter those that should be journalized in the cash receipts journal. The terms of all credit sales are 2/10, n/30. Prepare a general ledger

2 & 3. Enter the March 31 balances for Cash ($85,000), Inventory ($125,000), Long-Term Notes Payable ($110,000), and B. Wiset, Capital ($100,000). Post the total amounts from the journal in the following general ledger accounts and in the accounts receivable subsidiary ledger accounts for Paula Kohr, Page Alistair, and Nic Nelson.

4-a. Prepare a trial balance of the general ledger.
4-b. Prepare a schedule of accounts receivable.