For each item, select the appropriate fundamental principle. Some principles will be used more than once, but each item has only one principle as its answer.

The Organization of the Petroleum Exporting Countries (OPEC) is a group of oil producers that have entered into an agreement aimed at controlling the world supply of oil. They behave like a monopolist, seeking to maximize profits by restricting output and increasing price. Suppose that the inverse demand curve for oil over the next five years is P = 165 − 2.5Q, where Q is millions of barrels per day. OPEC’s marginal cost is $15/barrel, or C(Q) = 15Q.

a. What is OPEC’s profit-maximizing level of output? What is the price of oil?

b. Business consultants believe that maximizing short-run profit is counterproductive for OPEC in the long run. They suggest that high oil prices push consumers to conserve energy and find cheaper alternatives. High oil prices also lead to innovation and new competition that increases the overall supply of oil in the future. It is estimated that demand will stay the same if oil prices stabilize at around $65/barrel or below, and if oil price exceeds $65/barrel then demand in the long run (over a second five-year period) will decrease to P = 135 − 2.5Q. Suggest what OPEC should do if their goal is to maximize total profit over the next 10 years.

Zena Company’s financial records showed the following selected items for 2015:

Advertising receipts

$650,000

Land rental revenues

$520,000

Interest paid on borrowings

$100,000

Wage expense

$190,000

Zena follows the accrual basis of accounting. The following balances were taken from Zena’s balance sheets:

12-31-14

12-31-15

Advertising receivables

20,000

25,000

Prepaid advertising costs

50,000

44,000

Unearned land rental revenue

46,000

53,000

Unearned advertising

30,000

38,000

Wages payable

34,000

25,000

Interest payable

60,000

70,000

a.

What were advertising-related revenues for 2015?

b.

What was interest expense for 2015?

c.

How much cash was paid out for wages and salaries during 2015?

d.

How much cash was collected for land rentals during 2015?

Samtech Manufacturing purchased land and building for $4 million. In addition to the purchase price, Samtech made the following expenditures in connection with the purchase of the land and building:

An independent appraisal estimated the fair values of the land and building, if purchased separately, at $3.5 and $1.5 million, respectively. Shortly after acquisition, Samtech spent $100,000 to construct a parking lot and $58,000 for landscaping.

Required:
1. Determine the initial valuation of each asset Samtech acquired in these transactions.
2. Determine the initial valuation of each asset, assuming that immediately after acquisition, Samtech demolished the building. Demolition costs were $430,000 and the salvaged materials were sold for $6,500. In addition, Samtech spent $97,000 clearing and grading the land in preparation for the construction of a new building.
  

College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct labor-hours. A group of company employees recommended that CSC switch to activity-based costing and identified the following activities, cost drivers, estimated costs, and estimated cost driver units for Year 5 for each activity center.

In addition, management estimated 2,000 direct labor-hours for year 5.

Assume that the following cost driver volumes occurred in February, year 5.

Direct labor costs were $20 per hour.

Required:

a. Compute a predetermined overhead rate for year 5 for each cost driver recommended by the employees. Also compute a predetermined rate using direct labor-hours as the allocation base.
b. Compute the production costs for each product for February using direct labor-hours as the allocation base and the predetermined rate computed in requirement a.
c. Compute the production costs for each product for February using the cost drivers recommended by the employees and the predetermined rates computed in requirement a. (Note: Do not assume that total overhead applied to products in February will be the same for activity-based costing as it was for the labor-hour-based allocation.)

Southern Corporation began operations in January 2019 and purchased a machine for $120,000 at that time. Southern uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2019, 30% in 2020, and 20% in 2021. Pretax accounting income for 2021 – which is the THIRD year of using this machine – is $140,000, which includes interest revenues of $20,000 from municipal bonds. In December 31, 2020 the enacted tax rate had been changed from 30% to 20% starting in2021. There are no other differences between accounting and taxable income.

Prepare the JE for 2021

Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new and improved version. Cost accountants at company headquarters have prepared costs for the two reels for the most recent period. The plant manager is concerned. The cost report does not coincide with her intuition about the relative costs of the two models. She has asked you to review the cost accounting and help her prepare a response to headquarters.

Manufacturing overhead is currently assigned to products based on their direct labor costs. For the most recent month, manufacturing overhead was $277,600. During that time, the company produced 12,100 units of the M-008 and 2,100 units of the M-123. The direct costs of production were as follows.

Management determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year were as follows.

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

b. How much of the overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?

During its prior tax year, your client acquired from a third party a license granted by the federal government. The client tells you that he/she believes that the license has a useful life of 8 years and produces a report, prepared by another firm, supporting that useful life. You look at the report and do not believe that it is very convincing. Discuss how you would handle this situation keeping in mind any ethical and professional considerations. What are the penalty risks to your client and your own firm if you rely on this report?Be sure to back up your opinion with articles from the Keiser University library and Treasury Department Circular No. 230.

Fijisawa Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be

$2,000,000 ,

and the project would generate incremental free cash flows of

$500,000

per year for

6

years. The appropriate required rate of return is

7

percent.

a. Calculate the

NPV.

b. Calculate the

PI.

c. Calculate the

IRR.

d. Should this project be accepted?

a.

What

is the project's

NPV ?

(Round to the nearest​ dollar.)

Excom manufactures high-end whole home electronic systems. The company provides a two-year warranty for all products sold. The company estimates that the warranty cost is $225 per unit sold and reported a liability for estimated warranty costs $10.8 million at the beginning of this year. During the current year, the company sold 60,000 units, costing $180 million, for a total of $243 million on account. It also paid warranty claims of $9,000,000 on current and prior year sales. 1. Prepare the (aggregate) journal entry to record the sale of the 60,000 units. 2. Prepare the (aggregate) journal entry to record the payment of warranty claims. 3. Prepare the adjusting journal entry associated with warranties. 4. What is the balance in the warranty liability account on the year-end balance sheet?

Sweet Dates Company offers a premium to its customers—a glass bowl (cost to Sweet Dates is $0.90) upon return of 40 coupons. Two coupons are placed in each box of dates sold. The company estimates, on the basis of past experience, that only 70% of the coupons will ever be redeemed. During 2016, 10 million boxes of dates are sold, for cash, at $0.30 each. Eight million coupons are redeemed during 2016. Sweet Dates purchased 360,000 glass bowls for the plan on January 1, 2016.

q2

On January 1, 2017, Fro-Yo Inc. began offering customers a cash rebate of $5.00 if the customer mails in 10 proof-of-purchase labels from its frozen yogurt containers. Based on historical experience, the company estimates that 20% of the labels will be redeemed. During 2017, the company sold 5,000,000 frozen yogurt containers at $1, cash, per container. From these sales, 800,000 labels were redeemed in 2017, 150,000 labels were redeemed in 2018, and the remaining labels were never redeemed.

Parker, age 48, has a traditional Ira with a balance of $50,000. The $50,000 balance consists of $30,000 of contributions and earning of $20,000. This year Parker's marginal tax rate is 24%. Parker is convinced that his marginal tax rate will increase in the future. Parker decides to cash out his IRA and received $50,000 this year. He contributes $40,000 of these $50,000 to a Roth IRA. How much income tax and penalty must Parker pay this year?

-Income tax __

-Penalty __

A mid-sized chain restaurant is considering growing their business and opening additional restaurants in new markets. One of the key factors in making this decision will be the level of interest rates over the next few years. It is estimated that there is a 30% chance that interest rates will go down by 2 percentage points, a 60% chance that they will stay the same, and a 10% chance that they will go up by 2 percentage points. The expansion options that they are considering and possible payoffs are shown in the table below.

Which alternative is best, based on expected value?