Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 44,000 of these balls, with the following results:

Required:

1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.

2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?

3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $123,000, as last year?

4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?

5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?

6. Refer to the data in (5) above.

a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $123,000, as last year?

b. Assume the new plant is built and that next year the company manufactures and sells 44,000 balls (the same number as sold last year). Prepare a contribution format income statement and Compute the degree of operating leverage.

Kitchenware, Inc., sells two types of water pitchers, plastic and glass. Plastic pitchers cost the company $15 and are sold for $30. Glass pitchers cost $24 and are sold for $45. All other costs are fixed at $982,800 per year. Current sales plans call for 14,000 plastic pitchers and 42,000 glass pitchers to be sold in the coming year.

a. How many pitchers of each type must be sold to break even in the coming year?

b. Kitchenware, Inc., has just received a sales catalog from a new supplier that is offering plastic pitchers for $13. What would be the new breakeven point if managers switched to the new supplier?

Suppose a company can replace the packing material it currently uses with a biodegradable packing material. The company believes this move to biodegradable packing materials will be well-received by the general public. However, the biodegradable packing materials are more expensive than the current packing materials and the contribution margin ratios of the related products will drop. What are the arguments for the company to use the biodegradable packing materials? What are the arguments for the company to not use the biodegradable materials?

Sunny Ltd., a hand sanitizer manufacturer, has prepared its financial statements for the year ended at December 31, 2019. On February 28, 2020, the board of directors authorized to issue the financial statements to shareholders. The following events have occurred:

1. On December 1, 2019, the board of directors decided to issue $50,000,000, 9% convertible bonds for the purpose of expanding business in other countries. The conversion rate is fixed at 50 shares for bond with face value of $1,000. The convertible bonds are offered to the public on January 15, 2020. The market interest rate for a similar bond without conversion option is at 12%.

2. On October 23, 2019, Sunny signed a contract to sell 10,000 hand sanitizer to a local store at a price of $200 each. However, due to the increase in the cost of materials, the estimated cost of making one hand sanitizer has been increased to $250. Sunny has to deliver the hand sanitizer to its customer on January 30, 2020.

3. Under the terms of the sales contract, Sunny undertakes to recall its new formulated sanitizer, for its manufacturing defects within six months from the date of sale. The accountants estimated that 5% of the sanitizer will be returned for refund. In January 2020, Sunny discovered a serious problem in the manufacturing process of the new formulated sanitizer. Because of this, Sunny expected that 20% of the sanitizer sold in 2019 will be returned for refund.

4. On December 15, 2019, a group of customers reported that the hand sanitizer that they bought in 2019 caused them have serious skin infection problems. They filed a lawsuit against Sunny on December 20, 2019. The company’s attorney said that it was probable that Sunny would be liable for the case. However, the amount of damage could not be estimated.

5. On February 12, 2020, the above lawsuit case was settled for the amount of $2,500,000.

6. Sunny has retail stores in China doing poorly. On February 15, 2020, Sunny estimated that those stores might report a loss of $1,500,000 in 2020.

7. In May 2019, Sunny had legal disputes with Coco Limited. Unable to reach out-of-court settlement with Coco, Sunny sued Coco for compensation for damages in August 2018. In November 2019, Sunny heard good news about the lawsuit in which the company sued Coco. Sunny’s lawyer is confident that the company will win the case and will receive about $120,000 in compensation for damages from Coco in early 2020. Sunny recognized the gain and receivable from litigation of $120,000 in year 2019.

8. On March 1, 2020, a customer owing $600,000 to Sunny filed for bankruptcy. The financial statements include an allowance for doubtful debts pertaining to this customer only of $30,000.

Required: For each of the above event, state the correct accounting treatments in accordance with Hong Kong Accounting Standards for the year ended at December 31, 2019. If it is an event after the reporting period, identify whether it is an adjusting or non-adjusting event. Give reasons for your answer.

Minden Company introduced a new product last year for which it is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each $2 reduction in the selling price. The company’s present selling price is $94 per unit, and variable expenses are $64 per unit. Fixed expenses are $834,900 per year. The present annual sales volume (at the $94 selling price) is 25,700 units.

Required:

1. What is the present yearly net operating income or loss?

2. What is the present break-even point in unit sales and in dollar sales?

3. Assuming that the marketing studies are correct, what is the maximum annual profit that the company can earn? At how many units and at what selling price per unit would the company generate this profit?

4. What would be the break-even point in unit sales and in dollar sales using the selling price you determined in (3) above (e.g., the selling price at the level of maximum profits)?

1. Barker Industries issued 3 000 $1,000 bonds at 105. Each bond contains 20 detachable stock warrants that allow the bondholder to purchase a share of Barker's common stock for $50. Immediately after the issue, the warrants were selling for $4 each and the bonds without the warrants were selling for $ 985. How much will be credited to Additional Paid-in Capital -Stock Warrants? (Round intermediate calculations to four decimal places and your final answer to the nearest dollar.) Use the proportional method. Answer is $236, 619. Just want to know how to calculate.

2. Harrison Corporation borrowed $ 33 000 from F&M Bank on June 1 of the current year. The bank required 6% interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the current year? (Do not round intermediate calculations. Only round your final answer to the nearest dollar.)

correct answer : $1155. Just want to know how to calculate.

3. Neil Corporation issued 5,000 $1,000 bonds at 103. Each bond contains 15 detachable stock warrants that allow the bondholder to purchase a share of Neil's common stock for $50. Immediately after the issue, the bonds without the warrants were selling for $1,007. The stock warrants had no readily determinable value. How much will be credited to Additional Paid-in Capital-Stock Warrants? Correct answer: 115,000. Just want to know how to calculate.

Thank you!!

“The ordering of the three sections of the statement of cash flows is ‘backwards’ for start-up firms, but it is more appropriate for businesses once they are up and running.” Explain.

Wubben, Inc. manufactures two products. It currently has 2,000 hours of direct labor and 1,000 hours of machine time available per month. The table below lists the contribution margin, labor and machine time requirements, and demand for each product.

(T or F ) If Wubben maximized profit, then the firm will manufacture 1,000 units of Product 1 and 2,000 units of Product B per month.

Woo Ltd. recently conducted an extensive review of its accounting and reporting policies. The following accounting changes are an outgrowth of that review:

1. Woo acquired a machine at a cost of $400,000 in 2016. The machine has been depreciated on a straight-line basis with no residual value since it was acquired. During 2019, it was decided that the benefits from the machine would be consumed over a total of 13 years rather than the 20-year useful life now being used to depreciate its cost.

2. At the beginning of 2019, Woo changed its method of valuing inventory from the FIFO cost method to the weighted-average cost method. At December 31, 2018 and 2017, Woo’s inventories were as follow:

3. Woo‘s income tax rate is 20%.

4. Woo reports net income for 2019 and 2018 for the following amounts:

5. The retained earnings of Woo as at December 31, 2018 and 2017 before adjusting the     effect from the changes in inventory valuation method are as follow:

6. Dividends declared during 2019 and 2018 were $100,000 and $500,000, respectively.

Required:

1. Prepare the journal entries needed in 2019 related to each change.   

Prepare the statements of changes in equity (in part) for the year ended at 31 December 2019 after the adjustments (including comparative figure for 2018) in accordance with HKAS 8.      

a. Rory Inc. is a manufacturer of windows. Rory primarily sells to residential builders who take delivery of windows only when the house is at the stage at which the windows can be immediately installed. Consequently, builders will order the total number of windows in the various shape and size needed for an entire season. The builder will be invoiced as the order is completed and the windows put into a separate section of the warehouse and tagged with the customer name. But the windows will not be delivered until requested by the customer. The completed order is held in Rory's warehouse and shipped as the requests are received. Payment is made 60 days after the invoice date.

b.Heckiner Inc, manufacture customized equipment used in the paper packing industry, Customers can pick from a variety of "sections" to build a customized piece of machinery.It takes nine months to build these machines. However, even though the machines are"customized" they can be easily modified at any time during the production phase for another customer.since the section are standard and easily disassembled if required. The contract outlines which standard sections will be required and how they will be assembled for the final machine. the amount of consideration to be paid. and that the customer will take the title on delivering and inspection of the machinery. Payment is due after delivery and inspection.

c. Nevo Corp, develops customized software for clients related to inventory, management. Noro started with the customer specifications and then writes the software based on these requirements. it takes about 18 months to complete the project from concept and specifications through programming, debugging, and testing. Included in the contract are installation, on-site testing, training, and two year's upgrade and service9which certain milestone are achieved. A contract outlines the specification for the software, a project plan for installation, testing, training, upgrade and service agreements separately to the customer, but installation, testing, and training are not offered separately since these are customized to the specific customer's software.

For each situation, asset the five steps and determine when revenue is recognized and how costs and payment.

AugRealElectronics is a midsized electronics manufacturer. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded over 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items.  You, a recent business school graduate, have been hired by the company in its finance department.

One of the major revenue-producing items manufactured by AugReal is a smart phone. AugReal currently has one smart phone model on the market and sales have been excellent. The smart phone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. AugReal spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing one but adds new features such as Pokémonluring and capturing. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone.

AugReal can manufacture the new smart phone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively, and no sales after the fifth year. The unit price of the new smart phone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule (see Table 6.3, p. 175).  It is believed the value of the equipment in five years will be $5.5 million.

Net working capital for the smart phones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. AugReal has a 35 percent corporate tax rate and a required return of 12 percent.

Shelly has asked you to prepare a report that answers the following questions:

QUESTIONS

1. What is the payback period of the project?
2. What is the profitability index of the project?
3. What is the IRR of the project?
4. What is the NPV of the project?
5. Should AugReal produce the new smart phone?

REPORT STYLE

            Remember that your boss is a smart business person, but she is not a financial analyst like you.  You should lead her through the logic of your analysis to your conclusions. Be sure your report is accurate and professional:  your job (grade) is on the line!

The report should be single-spaced within paragraphs and double spaced between paragraphs.  Use headings for major sections.  Include page numbers.  Use Times 12-point font.  Pay attention to grammar and writing style.  Write your report in third person, active voice.  Include Excel Worksheet Objects as tables in the body of your report that show the numbers involved in your analysis.  Include a memo to your boss as the cover/transmittal page.  The memo should present your primary conclusions in a bullet list.  

Your submission should be a single Word document (maximum of 6 pages) uploaded into Canvas.  I will use the attached rubric in the grading process.  “Paste object” to put your cash flows from Excel into your Word file. This allows me to simply click on your tables to see the match behind your calculations.  DO NOT USE EXCEL LIKE A TYPEWRITER.  That is, let Excel do the calculations.  Don’t do the calculations with pen and paper or a calculator and then simply type in the numbers into an Excel sheet.  I want to see that you can use Excel for this assignment and that you understand the concept of pasting an object rather than a picture from Excel to Word.  Failure to use Excel in the manner described will result in a significant grade penalty (50%?) even if your numbers are technically correct.

Sam’s Electronics Universe has discovered and investigated a kickback fraud perpetrated by its purchasing agent. The fraud lasted eight months and cost the company $2 million in excess inventory purchases. The perpetrator personally benefited by receiving kickbacks of $780,000. Your boss wants to seek restitution of what the company has lost, but is worried about the ramifications of a trial and its effect on your company’s image in the market. She is trying to decide if she should pursue remedies through a civil trial, or turn the case over to the district attorney to prosecute the perpetrator criminally.

The defendants have retained Daren as an expert witness in a recent fraud case. He will be providing information concerning the defendant’s activities, explaining why the defendant’s activities are in accordance with generally accepted accounting principles (GAAP) and normal business practice. Throughout the litigation process, Daren has been completely honest with the attorneys in his deposition and any other correspondence. Daren believes that the activities of the defendant have been in accordance with GAAP. The case continues and is brought to trial. A few days before Daren is called to testify in the trial, he discovers some new documents and information, which could possibly represent fraudulent behavior by the defendant.

Questions:

1. What ethical issues does Daren face in the light of this new information he has received?
2. What concerns should Daren have?
3. What are some possible actions Daren could take?

You can choose anything you want.

Please do fast you can.

Please provide an original post AND please reply to at least one classmate's post around one of the topics from this week, explaining a topic to the class, discussing a problem that you found particularly difficult, or expanding on something that you learned. To get full points you should have a thoughtful topic or response. You must complete both parts to get full credit. Please see below for an example of a strong discussion post and reply.

Learning Objectives: CHAPTER 1

1. Explain why accounting is the language of business
2. Explain and apply underlying accounting concepts, assumptions, and principles
3. Apply the accounting equation to business organizations
4. Evaluate business operations through the financial statements
5. Construct financial statements and analyze the relationships among them
6. Evaluate business decisions ethically

Learning Objectives: CHAPTER 2

1. Explain what a transaction is
2. Define “account” and list and differentiate between different types of accounts
3. Show the impact of business transactions on the accounting equation
4. Analyze the impact of business transactions on accounts
5. Record (journalize and post) transactions in the books
6. Construct and use a trial balance

EXAMPLE OF WHAT I'M LOOKING FOR:

One thing I found challenging was the credits and debits concept from chapter two and matching them up, (common stock would be a cash debit and stock credit). Once I got it down it was one of those "why didn't it make sense to me sooner" moments but at the time I didn't understand and would switch things. How I approached the chapter was really to make sure I understood all the terms, ie notes payable, accounts receivable, etc. Being able to understand them without going back to the textbook made the process a bit faster and overall easier. Another thing was really taking advantage of the internet and that if there was something in the textbook I didn't understand, looking it up on Google and going through different websites and tutorials. While going through the problems I made sure to take as thorough notes as I could with information that I knew would help me moving forward, targeting the problems that were difficult for me. Being able to go back and read through something that was written in a way that made the most sense to me as an individual definitely proved helpful. I also Skyped a friend who is currently enrolled in a financial accounting class and we would work through problems together.

On July 1, 2020, Davis Corp. issued 10-year, 800 Bonds, Par Value $1,000 each, Bonds carry 10% coupon rate, with interest payable semi-annually on January 1 and July 1. The bonds were issued for $ 908,722. On January 2, 2022, Davis offered to buy back the bonds at 103. Forty percent (40%) of the bondholders accepted the offer. Davis uses the effective-interest method of amortizing premium or discount.

Instructions

a)     Prepare the journal entry to record the bond issuance.

b)     Prepare the adjusting entry at December 31, 2020, the end of the fiscal year and the payment on Jan 1, 2021

c)     What is the interest amount Davis will report for the year ended Dec 31, 2021.

d) What is the total cost of borrowing over the life of the bond?

e) Show the proper presentation for the Bonds on the Statement of Financial Position (Balance sheet) for Davis co. as of Dec 31, 2021.  

f)      Prepare the entry to record the retirement of the bonds for the 40% who accept the offer on January 2, 2022.

Round all values to the nearest dollar. ( Hint: you need to calculate the EIR)

Addison Manufacturing holds a large portfolio of debt securities as an investment. The fair value of the portfolio is greater than its original cost, even though some debt securities have decreased in value. Sam Beresford, the financial vice president, and Angie Nielson, the controller, are near year-end in the process of classifying for the first time this securities portfolio in accordance with GAAP. Beresford wants to classify those securities that have increased in value during the period as trading securities in order to increase net income this year. He wants to classify all the securities that have decreased in value as held-to-maturity.

Nielson disagrees. She wants to classify those debt securities that have decreased in value as trading securities and those that have increased in value as held-to-maturity. She contends that the company is having a good earnings year and that recognizing the losses will help to smooth the income this year. As a result, the company will have built-in gains for future periods when the company may not be as profitable.

Instructions

Answer the following questions.

(a)  

Will classifying the portfolio as each proposes actually have the effect on earnings that each says it will?

(b)  

Is there anything unethical in what each of them proposes? Who are the stakeholders affected by their proposals?

(c)  

Assume that Beresford and Nielson properly classify the entire portfolio into trading, available-for-sale, and held-to-maturity categories. But then each proposes to sell just before year-end the securities with gains or with losses, as the case may be, to accomplish their effect on earnings. Is this unethical?