XYZ Company makes two products, W and P, in a joint process. At the split-off point, 45,000 units of Product W and 70,000 units of Product P are available each month. Monthly joint production costs total $184,000 and are allocated to the two products equally. Product W can either be sold at the split-off point for $6.10 per unit or it can be processed further and then sold for $8.80 per unit. If Product W is processed further, additional processing costs of $3.20 per unit will be incurred. Product P can also be sold either at the split-off point for $4.25 per unit or it can be processed further and then sold for $7.60 per unit. If Product P is processed further, additional processing costs of $2.90 per unit will be incurred. However, the further processing of Product P will result in a loss of 6,000 units (i.e., only 64,000 units of Product P will be available for sale if it is processed further). The further processing of Product W will not result in the loss of any units. Assume XYZ Company makes all the correct sell or process further decisions. Calculate the amount of net income reported by XYZ Company last month.

4. Spartan Inc. (a US based MNC) is planning to open a subsidiary in Switzerland to manufacture shoes. The new plant will cost SF 1.0 billion. The salvage value of the plant at the end of the 4 yr economic life is estimated to be SF 200 million net of any tax effects. This plant will also call for extra inventory holding of SF 300 million, and extra accounts payables of SF 200 million. Projected sales from this new plant are SF 800 million per year. The fixed costs are estimated to be SF 300 million per year, and the variable costs are estimated to be SF 100 million per year. Depreciation on the new plant after accounting for the salvage value will be SF 300 million per year. The Swiss government will impose a 40 % tax on the earnings. US govt. will not impose any taxes. 100 % of the cash flows will be remitted to the parent. The exchange rate is expected to be stable at $ 0.80 per SF. Spartan requires 15 % return on its capital investments.

Please compute:

a) Net Investment Cost of the plant

b) Cash flows in years 1 through 4 of the project

c) Net Present Value of the project

d) Internal Rate of Return (IRR) of the project

e) Should the project be accepted or rejected? Why or why not?

f) If the exchange rate scenario unfolds as follows

t = time 0 1 2 3 4

$0.80/SF $0.70/SF $0.70/SF $0.65/SF $0.55/SF

Re-compute the NPV. Is the project still acceptable? Why or why not?

g) If the exchange rate scenario were to unfold as follows,

t=time 0 1 2 3   4

$0.80/SF $0.80/SF $0.90/SF $0.95/SF $1.00/SF

Re-compute the NPV. Is the project still acceptable? Why or why not?

  
Required:
Using the trial balance provided above, prepare an income statement and statement of changes in equity for the first month ended May 31, 2017, and a balance sheet at May 31, 2017.

  
Analysis Component:
Upon review of the trial balance, the balance at May 31, 2017 for utilities expense is $1,320. Create a journal entry that might have created this balance. Create a second entry when the May utility bill is to be paid in the next month. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

The balance in the utilities expense account could have arisen on account of one of the following entries.

Problem 7-18 Activity-Based Costing and Bidding on Jobs [LO7-2, LO7-3, LO7-4]

Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish between routine work, such as removal of asbestos insulation around heating pipes in older homes, and nonroutine work, such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $2.80 to determine the bid price. Since our average cost is only $2.575 per square foot, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart.”

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Required:

1. Perform the first-stage allocation of costs to the activity cost pools.

2. Compute the activity rates for the activity cost pools.

3. Using the activity rates you have computed, determine the total cost and the average cost per thousand square feet of each of the following jobs according to the activity-based costing system.

a. A routine 1,000-square-foot asbestos removal job.

b. A routine 2,000-square-foot asbestos removal job.

c. A nonroutine 2,000-square-foot asbestos removal job.

MC Qu. 150 On January 1, a company issues...

On January 1, a company issues bonds dated January 1 with a par value of $370,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $384,280. The journal entry to record the first interest payment using straight-line amortization is: (Rounded to the nearest dollar.)

Multiple Choice:

Debit Bond Interest Expense $18,922; debit Premium on Bonds Payable $1,428; credit Cash $20,350.

Debit Bond Interest Expense $18,922; debit Discount on Bonds Payable $1,428; credit Cash $20,350.

Debit Interest Payable $20,350; credit Cash $20,350.

Debit Bond Interest Expense $21,778; credit Discount on Bonds Payable $1,428; credit Cash $20,350.

Debit Bond Interest Expense $21,778; credit Premium on Bonds Payable $1,428; credit Cash $20,350.

MC Qu. 151 On January 1, a company issues...

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $415,437. The journal entry to record the first interest payment using the effective interest method of amortization is: (Rounded to the nearest dollar.)

Multiple Choice:

Debit Bond Interest Expense 23,544.00; credit Premium on Bonds Payable $1,544.00; credit Cash $22,000.00.

Debit Interest Expense $20,772; debit Premium on Bonds Payable $1,228; credit Cash $22,000.

Debit Interest Payable $22,000.00; credit Cash $22,000.00.

Debit Bond Interest Expense $20,772.00; debit Discount on Bonds Payable $1,228.00; credit Cash $22,000.00.

Debit Bond Interest Expense $20,456.00; debit Premium on Bonds Payable $1,544.00; credit Cash $22,000.00.

MC Qu. 152 Marwick Corporation issues...

Marwick Corporation issues 10%, 5 year bonds with a par value of $1,240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%. What is the bond's issue (selling) price, assuming the following Present Value factors:

Multiple Choice:

$1,240,000

$1,029,244

$1,742,876

$1,340,620

$737,124

MC Qu. 145 On July 1, Shady Creek Resort...

On July 1, Shady Creek Resort borrowed $390,000 cash by signing a 10-year, 9% installment note requiring equal payments each June 30 of $60,770. What is the journal entry to record the first annual payment?

Multiple Choice:

Debit Cash $390,000; debit Interest Expense $60,770; credit Notes Payable $450,770.

Debit Interest Expense $60,770; credit Cash $60,770.

Debit Interest Expense $35,100; credit Cash $35,100.

Debit Interest Expense $35,100; debit Interest Payable $25,670; credit Cash $60,770.

Debit Interest Expense $35,100; debit Notes Payable $25,670; credit Cash $60,770.

MC Qu. 148 On January 1, Year 1, Stratton...

On January 1, Year 1, Stratton Company borrowed $210,000 on a 10-year, 10% installment note payable. The terms of the note require Stratton to pay 10 equal payments of $34,177 each December 31 for 10 years. The required general journal entry to record the payment on the note on December 31, Year 2 is:

Multiple Choice:

Debit Interest Expense $21,000; debit Notes Payable $13,177; credit Cash $34,177.

Debit Notes Payable $21,000; debit Interest Expense $13,177; credit Cash $34,177.

Debit Interest Expense $19,682; debit Notes Payable $14,495; credit Cash $34,177.

Debit Notes Payable $34,177; credit Cash $34,177.

Debit Notes Payable $210,000; debit Interest Expense $13,177; credit Cash $34,177.

MC Qu. 149 On January 1, a company issues...

On January 1, a company issues bonds dated January 1 with a par value of $220,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $228,930. The journal entry to record the issuance of the bond is:

Multiple Choice:

Debit Cash $228,930; credit Discount on Bonds Payable $8,930; credit Bonds Payable $220,000.

Debit Cash $220,000; debit Premium on Bonds Payable $8,930; credit Bonds Payable $228,930.

Debit Bonds Payable $220,000; debit Bond Interest Expense $8,930; credit Cash $228,930.

Debit Cash $228,930; credit Bonds Payable $228,930.

Debit Cash $228,930; credit Premium on Bonds Payable $8,930; credit Bonds Payable $220,000.

Exercise 5-35 ABC; Selling Costs (LO 5-2, 5-4)

Redwood Company sells craft kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Redwood, while others are purchased for resale. For the products it manufactures, the company currently bases its selling prices on a product-costing system that accounts for direct material, direct labor, and the associated overhead costs. In addition to these product costs, Redwood incurs substantial selling costs, and Roger Jackson, controller, has suggested that these selling costs should be included in the product pricing structure.

After studying the costs incurred over the past two years for one of its products, skeins of knitting yarn, Jackson has selected four categories of selling costs and chosen cost drivers for each of these costs. The selling costs actually incurred during the past year and the cost drivers are as follows:

The knitting yarn is sold to retail outlets in boxes, each containing 12 skeins of yarn. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales. The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog orders. Jackson believes that the selling costs vary significantly with the size of the order. Order sizes are divided into three categories as follows:

An analysis of the previous year’s records produced the following statistics.

Required:

1. Prepare a schedule showing Redwood Company’s total selling cost for each order size and the per-skein selling cost within each order size. (Round your intermediate calculations and unit cost per order to 2 decimal places.)

2. An analysis of selling costs shows. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

Management may want to consider offering discounts for large orders.checked

Small orders are preferable to medium sized orders.unanswered

Large orders are preferable to medium sized orders.checked

Marketing should be focused on small sized orders.

A project requires a contractor to excavate 28,000 bank CY dry earth, haul it away to a borrow area located 3 miles away. The contractor has 4 weeks to complete the work. The contractor doing the work has decided to mobilize scrapers with a capacity of 20 loose CY. Each Scraper has a typical cycle time of 20 minutes due to the rough terrain at the site. The contractor can purchase one scraper but will have to rent additional scrapers if necessary. The cost data for a CAT 621 Scraper is as follows: A new CAT 621G costs $450,000 (without tires). The contractor plans to use it for five years (average 2000 hours per year) and sell it for $190,000. The scraper tires cost $4,250/tire (scraper has 4 tires) and will likely last 6000 hours. The scraper consumes 10 gallons of fuel per hour. Diesel cost can be estimated at $3.0/gal. The annual maintenance cost for the scraper can be estimated at $18,000. Scraper operator costs $58.00 /hour including overheads. The rate of interest can be assumed to be 6.5%. The rental agency is willing to rent a 621G for $6,000 per week or $ 18,000 per month. The contractor will have to provide fuel and operator. The mobilization and demobilization cost for each scraper is $2,500. Based on this information, analyze the earthwork operations. Make recommendations:

1. How many scrapers should the contractor rent?

2. Estimate the cost in $$/bank CY

(Please show all work clearly and neatly)

Sheffield Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2020. The purchase price was $1,320,800 for 50,800 shares. Kulikowski Inc. declared and paid an $0.90 per share cash dividend on June 30 and on December 31, 2021. Kulikowski reported net income of $755,000 for 2021. The fair value of Kulikowski’s stock was $29 per share at December 31, 2021. Assume that the security is a trading security.

Prepare the journal entries for Sheffield Inc. for 2020 and 2021, assuming that Sheffield cannot exercise significant influence over Kulikowski. (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.)

eTextbook and Media

List of Accounts

Prepare the journal entries for Sheffield Inc. for 2020 and 2021, assuming that Sheffield can exercise significant influence over Kulikowski. (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.)

eTextbook and Media

List of Accounts

At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2021? What is the total net income reported in 2021 under each of these methods?

Traditional Product Costing versus Activity-Based Costing
Ridgeland Inc. makes backpacks for large sporting goods chains that are sold under the customers' store brand names. The Accounting Department has identified the following overhead costs and cost drivers for next year:

Total predicted direct labor hours for next year is 26,000. The following data are for two recently completed jobs:

a. Determine the unit cost for each job using a traditional plantwide overhead rate based on direct labor hours.
Round cost per unit answers to two decimal places when applicable.

b. Determine the unit cost for each job using ABC. Round cost per unit answers to two decimal places when applicable.

MC Qu. 120 A company issued...

A company issued 5-year, 6% bonds with a par value of $92,000. The company received $89,947 for the bonds. Using the straight-line method, the amount of interest expense for the first semiannual interest period is:

Multiple Choice:

$5,520.00.

$5,930.60.

$2,554.70.

$2,965.30.

$2,760.00.

MC Qu. 122 A company issued...

A company issued 11%, 5-year bonds with a par value of $150,000. The market rate when the bonds were issued was 12%. The company received $144,481 cash for the bonds. Using the effective interest method, the amount of interest expense for the first semiannual interest period is:

Multiple Choice:

$8,250.00.

$8,668.86.

$17,337.72.

$9,000.00.

$16,500.00.

Comprehensive Case

51. Ethics: Manipulating Data to Establish a Budget (Appendix). Healthy Bar, Inc., produces energy bars for sports enthusiasts. The company’s fiscal year ends on December 31. The production manager, Jim Wallace, is establishing a cost budget for the production department for each month of this coming quarter (January through March). At the end of March, Jim will be evaluated based on his ability to meet the budget for the three months ending March 31. In fact, Jim will receive a significant bonus if actual costs are below budgeted costs for the quarter.

The production budget is typically established based on data from the last 18 months. These data are as follows:

You are the accountant who assists Jim in preparing an estimate of production costs for the next three months. You intend to use regression analysis to estimate costs, as was done in the past. Jim expects that 3,100 machine hours will be used in January, 3,650 machine hours in February, and 2,850 machine hours in March.

Jim approaches you and asks that you add $100,000 to production costs for each of the past 18 months before running the regression analysis. As he puts it, “After all, management always takes my proposed budgets and reduces them by about 10 percent. This is my way of leveling the playing field!”

Required:

1. Use Excel to perform regression analysis using the historical data provided.
   1. Submit a printout of the results.
   2. Use the regression output to develop the cost equation Y = f + vX by filling in the dollar amounts for f and v.
   3. Calculate estimated production costs for January, February, and March. Also provide a total for the three months.
2. Use Excel to perform regression analysis after adding $100,000 to production costs for each of the past 18 months, as Jim requested.
   1. Submit a printout of the results.
   2. Use the regression output to develop the cost equation Y = f + vX by filling in the dollar amounts for f and v.
   3. Calculate estimated production costs for January, February, and March. Also provide a total for the three months.
3. Why did Jim ask you to add $100,000 to production costs for each of the past 18 months?
4. How should you handle Jim’s request? (If necessary, review the presentation of ethics in Chapter 1 "What Is Managerial Accounting?" for additional information.)

MC Qu. 111 On January 1 of Year...

On January 1 of Year 1, Congo Express Airways issued $2,700,000 of 6% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,450,000 and the market rate of interest for similar bonds is 7%. The bond premium or discount is being amortized at a rate of $8,333 every six months. After accruing interest at year end, the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Multiple Choice:

$2,547,666.

$3,014,334.

$2,385,666.

$2,466,666.

$2,933,334.

MC Qu. 112 On January 1 of Year...

On January 1 of Year 1, Congo Express Airways issued $2,700,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,470,000 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $7,667 every six months. The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:

Multiple Choice:

$216,000.

$189,000.

$102,167.

$173,666.

$204,334.

Pam Corporation holds 70 percent ownership of Spray Enterprises. On December 31, 20X6, Spray paid Pam $29,500 for a truck that Pam had purchased for $34,500 on January 1, 20X2. The truck was considered to have a 15-year life from January 1, 20X2, and no residual value. Both companies depreciate equipment using the straight-line method.

Required:
a. Prepare the worksheet consolidation entry or entries needed on December 31, 20X6, to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare the worksheet consolidation entry or entries needed on December 31, 20X7, to remove the effects of the intercompany sale. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Pitcher Corporation purchased 60 percent of Softball Corporation’s voting common stock on January 1, 20X1. On December 31, 20X5, Pitcher received $243,000 from Softball for a truck Pitcher had purchased on January 1, 20X2, for $303,000. The truck is expected to have a 10-year useful life and no salvage value. Both companies depreciate trucks on a straight-line basis.

Required:
a. Prepare the worksheet consolidation entry or entries needed at December 31, 20X5, to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare the worksheet consolidation entry or entries needed at December 31, 20X6, to remove the effects of the intercompany sale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)