1. A new operating system for an existing machine is expected to cost $720,000 and have a useful life of six years. The system yields an incremental after-tax income of $275,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $21,800.
2. A machine costs $510,000, has a $33,800 salvage value, is expected to last eight years, and will generate an after-tax income of $66,000 per year after straight-line depreciation.

Assume the company requires a 10% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1 and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Problem 15-1A Production costs computed and recorded; reports prepared LO C2, P1, P2, P3, P4

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

Marcelino Co.'s March 31 inventory of raw materials is $86,000. Raw materials purchases in April are $590,000, and factory payroll cost in April is $378,000. Overhead costs incurred in April are: indirect materials, $53,000; indirect labor, $23,000; factory rent, $37,000; factory utilities, $21,000; and factory equipment depreciation, $56,000. The predetermined overhead rate is 50% of direct labor cost. Job 306 is sold for $635,000 cash in April. Costs of the three jobs worked on in April follow.

rev: 03_15_2018_QC_CS-121813

Problem 15-1A Part 2

1. Materials purchases (on credit).
2. Direct materials used in production.
3. Direct labor paid and assigned to Work in Process Inventory.
4. Indirect labor paid and assigned to Factory Overhead.
5. Overhead costs applied to Work in Process Inventory.
6. Actual overhead costs incurred, including indirect materials. (Factory rent and utilities are paid in cash.)
7. Transfer of Jobs 306 and 307 to Finished Goods Inventory.
8. Cost of goods sold for Job 306.
9. Revenue from the sale of Job 306.
10. Assignment of any underapplied or overapplied overhead to the Cost of Goods Sold account. (The amount is not material.)

2. Prepare journal entries for the month of April to record the above transactions.

Cash to Monthly Cash Expenses Ratio

Amicus Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of various diseases, including Parkinson’s disease. Amicus Therapeutics reported the following financial data (in thousands) for three recent years:

a. Determine the monthly cash expenses for Year 3, Year 2, and Year 1 (in thousands).

b. Determine the ratio of cash to monthly cash expenses for Year 3, Year 2, and Year 1 as of December 31. Round to one decimal place.

c. Based on (a) and (b), which of the following statements is correct.

(8-3)

[The following information applies to the questions displayed below.]
In January 2017, Mitzu Co. pays $2,700,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $678,500, with a useful life of 20 years and a $75,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $501,500 that are expected to last another 17 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,770,000. The company also incurs the following additional costs:

Required:

1. Allocate the costs incurred by Mitzu to the appropriate columns and total each column.

2. Prepare a single journal entry to record all the incurred costs assuming they are paid in cash on January 1, 2017.

3. Using the straight-line method, prepare the December 31 adjusting entries to record depreciation for the 12 months of 2017 when these assets were in use.

problem:

YOUth is a not-for-profit organization that supports at-risk youth in a small Northern community through a crisis center, outreach initiatives, and after-school activity programs. The organization has implemented triple-bottom-line accounting, results are reported quarterly to stakeholders.

Financial performance is concerned with results as compared to budget as well as with measuring overhead costs as a percentage of donations and grants received to ensure that an appropriate proportion of total funds is spent on programs directly. Social metrics combine input-based approaches (such as the number of contacts and the number of youth taking part in programs) and output measures (such as youth crime rates in the community).

The environmental metrics currently focus on results achieved by recent initiatives to clean up schoolyards and parks to ensure safer play areas for children in the community. Last week, a new potential donor approached the organization and met with Saanvi, the executive director, explaining that his daughter had been having issues at school with bullying and had received help from YOUth’s after-school program. The potential donor is a wealthy businessman who owns a furniture manufacturing plant, and he questioned the triple-bottom-line approach. The businessman suggested that the organization should be monitoring only its financial results, because, as he put it, “if you can’t keep the financials working, you are just going to sink. The rest of those metrics are a waste of time, and I don’t like supporting wasted time.”

The businessman is coming to the office again next week, and Saanvi, unsure what the businessman may want, has asked you to put together a presentation to explain to him the merits of the triple-bottom-line methodology for YOUth.

Required: Use the ACAF Method to analyze this situation.

Specifically: a. Assess the situation.

b. Identify the issues.

Question #6. Independent cases:

A. On January 1, Nets Company paid $48,000 for a new delivery truck. It was estimated that the truck would be driven 100,000 miles during the next 5 years, at which time it would have a salvage value of $3,000. During the first and second years, the odometer registered 22,000 and 40,000 miles, respectively. Calculate the depreciation expense Nets Company needs to record at the end of year I & end of year 2. Nets Company uses the Units of Production method to account for depreciation. What is the book value of the truck at the end of 2^nd year.

B. On Jan. 1, 2004, Cav Co., which uses straight-line depreciation, purchased equipment for $60,000 with a useful life of 7 years and $4,000 salvage value. On April 1, 2008, the equipment was sold for $30,000 cash. What gain or loss should Cav recognize as a result of this disposition? Indicate the impact of the disposition on the income statement & balance sheet.

C. On Nov. 1, 2005, GoodTaste Magazine received $36,000 of annual magazine subscriptions. On Dec. 31, 2005, the end of fiscal year, Management of GoodTaste decided to recognize the $36,000 as revenues for the year 2005. Do you agree with GoodTaste Management? Explain. How should GoodTaste Magazine report this in its financial statements as of Dec. 31, 2005?

7-5

A machine costing $211,400 with a four-year life and an estimated $15,000 salvage value is installed in Luther Company’s factory on January 1. The factory manager estimates the machine will produce 491,000 units of product during its life. It actually produces the following units: 121,600 in 1st year, 123,900 in 2nd year, 120,800 in 3rd year, 134,700 in 4th year. The total number of units produced by the end of year 4 exceeds the original estimate—this difference was not predicted. (The machine must not be depreciated below its estimated salvage value.)

  
Required:

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each depreciation method. (Round your per unit depreciation to 2 decimal places. Round your answers to the nearest whole dollar.)

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Straight-line depreciation.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Units of production.

Compute depreciation for each year (and total depreciation of all years combined) for the machine under each Double-declining-balance.

On June 30, 2018, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $486,269 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3.3. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the present value of the lease payments at June 30, 2018 that Georgia-Atlantic uses to record the right-of-use asset and lease liability. 2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2018? 3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2018?

World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7% decline in sales and 12% in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3%), but he wants the total compensation package to cost 3% less. The current costs are shown in Exhibit 1 (attached). Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (see Exhibit 2 attached). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (see Exhibit 3 attached). Please analyze and answer each of the questions below. It is not necessary for you to type the question itself. Your assignment should be 3-4 pages long, double-spaced, using 12-point font, excluding cover page, attachments, etc. 1. Cost out these packages given the data in Exhibit 1 and the information obtained from various insurance carriers and other information sources (see Exhibit 4 attached). 2. Which package should you recommend to Jacobs? Why? 3. Which of these strategies do you think will require less input from employees in terms of their reactions? Why? Exhibit 1: Current Compensation Costs Average yearly wage $27,290.00 Average hourly wage 13.12 Dollar value of yearly benefits, per employee 16,904.00 Total compensation (wages plus benefits) $44,194.00 Benefits (by Category) Dollar Cost/Employee/Year 1. Legally required payments (employer’s share): a. FICA taxes $2,088.00 b. Unemployment compensation 434.00 c. Workers’ compensation 546.00 2. Pension, insurance, etc. (employer’s share): a. Pension plan premiums/pension payments 1,460.00 b. Life insurance and health insurance 427.00 c. Health insurance 4,000.00 c. Short-term disability 83.00 d. Salary continuation/long-term disability 57.00 e. Dental insurance 350.00 f. Discounts on goods/services purchased from company by employees 27.00 g. Miscellaneous payments (separation or termination pay moving expenses, etc.) 124.00 3. Paid rest periods, lunch periods, wash-up time, clothes- change time, get ready time, etc. (60 minutes/day) 3410.00 4. Payments for time not worked: a. Paid vacations/payments in lieu of vacation (16 days per year average) 1,680.00 b. Payments for holidays not worked (9 days) 945.00 c. Paid sick leave (10 days maximum) 1050.00 d. Payments for state or national guard duty, jury duty, bereavement pay, voting pay allowance 66.00 5. Other items: a. Profit sharing payments 0.00 b. Contributions to employee thrift plans 71.00 c. Christmas or other special bonuses, service awards, suggestion awards, etc. 0.00 d. Employee education expenditures (tuition reimbursement, etc.) 40.00 e. Special wage payments ordered by courts, payments to union stewards, etc. 46.00 Total $16,904.00 Exhibit 2: Benefit Preferences Benefit Type/Method of Administration Importance to Workers Pensions 87 Health insurance 86 Life insurance 79 Paid vacation 82 Holidays 82 Long-term disability 72 Paid sick leave 70 Short-term disability 69 Paid rest periods, lunch periods, etc. 55 Dental insurance 51 Christmas bonuses 31 Profit sharing 21 Education expenditures 15 Contributions to thrift plans 15 Discount on goods 5 Fair treatment in administration 100 Note: 0 = unimportant; 100 = extremely important Exhibit 3: Two Possible Packages for Cutting Benefit Costs Option 1: Implement copay for benefits: Pension plan ($25.00 per month) Life insurance premium ($10.00 per month) Health insurance premiums ($50.00 per month) Dental insurance ($10.00 per month) Short-term and long-term disability insurance ($7.50 per month) Reduction of Benefits Eliminate 10-minute paid break (workers leave work 10 minutes earlier) Eliminate one paid holiday per year Eliminate two sick days per year Option 2: Improved claims processing: Unemployment compensation Workers’ compensation Short- and long-term disability insurance Increase deductible from $500 to $1,000 on health insurance Implement probationary periods: 6 months’ probationary period on health insurance 1 year probationary period on dental insurance Implement probationary period of 1 year on dental insurance Implement copay for benefits: Health insurance - $50.00 per month Dental insurance - $10.00 per month Life insurance - $10.00 per month Short- and long-term disability insurance - $5.00 per month Reduction of benefits: Eliminate payments to thrift plan Eliminate two paid holidays per year Eliminate tuition reimbursement Exhibit 4: Analysis of Cost Implications Cost Saving Strategy: Copay Dollar-for-dollar savings equal to amount of copay Deductible: Health insurance – 15% savings of benefit cost Required probationary periods: Health insurance – 5% savings of benefit cost Dental insurance – 10% savings of benefit cost Improved claims processing: Unemployment compensation – 8% of benefit cost Workers’ compensation – 3% of benefit cost Short-term and long-term disability – 1% of benefit cost

Cash Payback Period, Net Present Value Method, and Analysis

Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:

Each project requires an investment of $200,000. A rate of 10% has been selected for the net present value analysis.

Required:

1a. Compute the cash payback period for each project.

1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.

2. Because of the timing of the receipt of the net cash flows, the plant expansion  offers a higher net present value .

Below is the account information for UMPI Corporation. Prepare a classified balance sheet in report form for the company as of December 31, 2018. Prepare a balance sheet as of December 31, 2020.

Equipment 60,000

Interest Payable 250

Retained Earnings ?

Dividends Payable 50,000

Land 140,000

Accounts Receivable 102,000

Bonds Payable (long-term) 78,000

Notes Payable (due in 6 months) 29,000

Common Stock 70,000

Accumulated Depreciation - Equip. 10,000

Prepaid Advertising 5,000

Buildings 80,000

Supplies 1,000

Income Taxes Payable 3,000

Salaries and Wages Payable 900

A/D - Building 15,000

Cash 95,000

Refer to the income statement below for The Gap, Inc.

Consolidated Statement of Earnings

Fiscal year ended Jan 31, 2015    Feb 1, 2014

Net Sales    $16,435 $16,148

Cost of goods sold and occupancy expenses 10,146 9,855

Gross profit    6,289 6,293

Operating expenses 4,206    4,144

Operating income    2,083    2,149

interest expense    75 61

interest income (5) (5)

income before income taxes    2,013 2,093

income taxes 751    813

Net earnings    $1,262    $1,280

a. Prepare common-size income statements for fiscal years 2014 (ending January 31, 2015) and 2013 (ending February 1, 2014).

b. Prepare a pro forma income statement for the fiscal year 2015 (ending January 30, 2016), based on the following assumptions:

- Net sales total $15,000 million.

- Cost of goods sold and occupancy expenses are 64% of sales.

- Operating expenses total 26% of sales.

- Interest income and interest expense are unchanged from the 2014 amounts.

- The Gap's effective tax rate is 39%.

c. Given the Gap's business strategy, what are the factors that ultimately determine the accuracy of the pro forma statement prepared in b?

Distinguish between how managerial accounting would support the strategy of cost leadership and the strategy of product differentiation. Give 2 paragraphs and use examples when needed.

Net Present Value Method, Internal Rate of Return Method, and Analysis

The management of Quest Media Inc. is considering two capital investment projects. The estimated net cash flows from each project are as follows:

The radio station requires an investment of $970,700, while the TV station requires an investment of $1,838,190. No residual value is expected from either project.

Required:

1a. Compute the net present value for each project. Use a rate of 10% and the present value of an annuity of $1 in the table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest whole dollar.

1b. Compute a present value index for each project. If required, round your answers to two decimal places.

2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 in the table above. If required, round your present value factor answers to three decimal places and internal rate of return to the nearest whole percent.

3. The net present value, present value index, and internal rate of return all indicate that the tv station  is a better financial opportunity compared to the radio station , although both investments meet the minimum return criterion of 10%.

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,197,000 $ 1,827,000 Cost of goods sold (@ $36 per unit) 684,000 1,044,000 Gross margin 513,000 783,000 Selling and administrative expenses* 310,000 340,000 Net operating income $ \203,000\ $ 443,000 * $3 per unit variable; $253,000 fixed each year. The company’s $36 unit product cost is computed as follows: Direct materials $ 6 Direct labor 9 Variable manufacturing overhead 2 Fixed manufacturing overhead ($456,000 ÷ 24,000 units) 19 Absorption costing unit product cost $ 36 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 24,000 24,000 Units sold 19,000 29,000 Required: 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year.