Exercise 12-3

Hillsong Inc. manufactures snowsuits. Hillsong is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six months ago, Hillsong spent $55,000 to keep it operational. The existing sewing machine can be sold today for $ 240,438 . The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7:

The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $ 379,100 . This new equipment would require maintenance costs of $ 94,000 at the end of the fifth year. The cost of capital is 9%.

Click here to view PV table.

Use the net present value method to determine the following: (If net present value is negative then enter with negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

Calculate the net present value.

Determine whether Hillsong should purchase the new machine to replace the existing machine?

With our understanding of revenue recognition lets see how we might apply the 5 step model to the following transaction that most of us have encountered. Lets say we visit our favorite phone store and sign up for new cell service. We sign up for and receive a new phone that would normally retail for $500 (cost to manufacture $380). We commit to a three year contract where we will have to pay back an amount that starts at $600 (to pay for the phone) but drops each month until it reaches zero at the end of 3 years (kind of like financing for the phone). We pay an activation fee of $35 along with the first month of service that will be $70 each month for the next 36 months. After one year of service, we will be eligible for $100 off the latest phone if we trade in the one year old phone for a new one. That rises to $200 after two years. You can describe how to apply the 5 step model to this transaction from the phone company side. Show journal entries when necessary to make sure this gets recorded (you do not have to show all of them just enough to get the idea).

Question 4

Fresplanade Co. had the following historical collection pattern for its credit sales:

75% collected in the month of sale
12% collected in the first month after month of sale
9% collected in the second month after month of sale
3% collected in the third month after month of sale
1% uncollectible

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below:

The estimated total cash collections by Fresplanade Co. during November from collection of accounts receivable is:

Multiple Choice

• $131,940.

• $120,060.

• $177,300.

• $154,800.

• $121,320.

Fresplanade Co. had the following historical collection pattern for its credit sales:

75% collected in the month of sale
12% collected in the first month after month of sale
8% collected in the second month after month of sale
4% collected in the third month after month of sale
1% uncollectible

The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below:

The estimated cash collection by Fresplanade Co. during August from July and August credit sales is:

Multiple Choice

• $98,850.

• $94,380.

• $102,090.

• $65,250.

• $84,690.

Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Assuming that total assets were $2,514,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

period costs are: costs expensed on the income statement when incurred, are added to the cost of the inventory, include direct labor, are equal to the product costs?

how price discrimination can generate more revenue

Hamilton Ltd. was organized on January 2, 2017. The following investment transactions and events occurred during the following months:

Assume that Hamilton has a significant influence over Wong with its 20% share.

Required:
1. Prepare the entries to record the preceding transactions in Hamilton’s books. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)



2. Calculate the carrying value per share of Hamilton’s investment as reflected in the investment account on January 4, 2019. (Round your answer to 2 decimal places.)



3. Calculate the change in Hamilton’s equity from January 2, 2017, through January 5, 2019, resulting from its investment in Wong.

Green Mountain Coffee Roasters is a specialty coffee roaster and manufacturer of coffee makers. Using the following information, class notes, and the posted PowerPoint slides as resources complete the following:

I. Constructing a Balance Sheet 1. Use the information below to construct and balance sheet and a common sized balance sheet for the corporation (note the information here is not necessarily provided in the order in which it should appear on a balance statement. a. Gross fixed assets: $110,000 b. Cash $100,000 c. Accounts payable: $43,000 d. Retained earnings: $25,000 e. Accumulated depreciation $42,000 f. Accounts receivable $75,000 g. Long-term bank loan $29,000; $15,000 of which will be due within the next 12 months. h. Mortgage (long-term) $50,000 i. Common Stock $105,000 j. Inventories $36,000 k. Notes payable (short-term) $27,000 2. What is the firm's net working capital? (the difference between current assets and current liabilities). 3. Does the firm use more equity or debt (as a percent of total assets) to finance its business? • A common-sized balance sheet is a balance sheet in which a firm's assets and sources of debt and equity are expressed as a percentage of its total assets. • The debt ratio- is a firm's total liabilities divided by its total assets. It is a ratio that measures the extent to which a firm has been financed with debt. Use the following to answer questions 29-37:

Use the information and your calculations from the Balance Sheet and Statement of Cash Flows exercise posted on Canvas to answer the following questions:

34. The corporation had cash flow from operating activities of: A) $9,000 B) $21,000 C) $33,000 D) $59,000

35. The corporation had cash outflow from investing activities of: A) $38,000 B) $35,000 C) $3,000 D) $0

36. The corporation had cash flow from financing activities of: A) $35,000 B) $32,000 C) $3,000 D) $49,000 Page 8

37. The corporation's cash _______________ by __________________. A) increased, $30,000 B) increased, $18,000 C) decreased, $30,000 D) decreased $18,000

identify three factors that would discourage you from selecting a target company to acquire or partner with and why these factors are likely to work against a merger or acquisition.

The Lippert Company uses the perpetual inventory system. The following July data are for an item in Lippert's inventory:

Calculate the cost of goods sold for the July 15 sale using (a) first-in, first-out, (b) last-in, first-out, and (c) the weighted-average cost methods.

Round your final answers to the nearest dollar. For weighted-average cost, do not round the weighted-average unit cost

Class: ACCT-301 --> WEEK 7: TRANSFER PRICING AND CAREER RESEARCH TASK

How is transfer pricing used to assess performance? Have you ever worked with transfer pricing before? What kinds of companies would benefit the most by using this properly? How could they hurt themselves without using it or without applying it properly?

You are about to start working at car dealership that is currently reporting losses due to flooding but will be profitable in a few years. Assume you’re your risk adverse and your supervisor cannot fully monitor your actions. The key metrics at this dealership include both financial data (number of sales, margin on sales) as well as qualitative data (survey of experience). You are tasked with designing a compensation contract.

1. Define in your own terms moral hazard and adverse-selection Describe how the firm may want to establish a compensation contract for you given moral hazard and adverse selection issues.

2. Does this change depending on your level of risk aversion?

3. Discuss both tax and nontax factors from both the employee and employers perspective.

4. Suppose a firm has a tax loss in the current period of $200, which when added to prior tax losses gives it an NOL carryforward of $300. The top statutory tax rate is 21%. Assume an after-tax discount rate of 10% and future taxable income of $50 per year. What is the firm’s marginal explicit tax rate?

5. Create the compensation contract with points 1-4 in mind. Keep this contract to a single page. You will be graded on creativity, presentation, and writing clarity.

Thakin Industries Inc. manufactures dorm furniture in separate processes. In each process, materials are entered at the beginning, and conversion costs are incurred uniformly. Production and cost data for the first process in making a product are as follows.

(a1)

Compute the physical units of production.

b. For each plant compute equivalent units of production for materials and for conversion costs.

c). For each plant determine the unit costs of production. (Round unit costs to 2 decimal places, e.g. 5.25.)
d). For each plant show the assignment of costs to units transferred out and in process.

This semester, we learned that Congress designed the Code to include deductions that can be taken for losses that a taxpayer may experience. Two such deductions are (1) the bad debt deduction and (2) the deduction for casualty losses and theft. How does the IRS generally interpret deductions (i.e., broadly or narrowly)? How do we determine whether a taxpayer is entitled to each of these two deductions? What is the purpose of each of these two deductions? Are there any limits on the deduction at issue? Finally, what generally governs when a taxpayer may take each of these two deductions?