Effect of Proposals on Divisional Performance A condensed income statement for the Electronics Division of Gihbli Industries Inc. for the year ended December 31 is as follows: Sales $4,290,000 Cost of goods sold 2,771,500 Gross profit $ 1,518,500 Operating expenses 875,000 Income from operations $ 643,500 Invested assets $3,300,000 Assume that the Electronics Division received no charges from service departments. The president of Gihbli Industries Inc. has indicated that the division’s return on a $3,300,000 investment must be increased to at least 22.5% by the end of the next year if operations are to continue. The division manager is considering the following three proposals: Proposal 1: Transfer equipment with a book value of $660,000 to other divisions at no gain or loss and lease similar equipment. The annual lease payments would be less than the amount of depreciation expense on the old equipment by $118,800. This decrease in expense would be included as part of the cost of goods sold. Sales would remain unchanged. Proposal 2: Reduce invested assets by discontinuing a product line. This action would eliminate sales of $701,300, reduce cost of goods sold by $468,600, and reduce operating expenses by $206,300. Assets of $1,670,800 would be transferred to other divisions at no gain or loss. Proposal 3: Purchase new and more efficient machinery and thereby reduce the cost of goods sold by $435,600 after considering the effects of depreciation expense on the new equipment. Sales would remain unchanged, and the old machinery, which has no remaining book value, would be scrapped at no gain or loss. The new machinery would increase invested assets by $1,650,000 for the year.

Required:

1. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for the Electronics Division for the past year. Round your answers to one decimal place.

2. Prepare condensed estimated income statements and compute the invested assets for each proposal.

3. Using the DuPont formula for return on investment, determine the profit margin, investment turnover, and return on investment for each proposal. Round your answers to one decimal place.

4. Which of the three proposals would meet the required 22.5% return on investment.

5. If the Golf Division were in an industry where the profit margin could not be increased, how much would the investment turnover have to increase to meet the president's required 22.5% return on investment? Enter your increase in investment turnover answer as a percentage of current investment turnover. If required, round your answer to one decimal place.
%

A lease agreement that qualifies as a finance lease calls for annual lease payments of $40,000 over a eight-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 4%. (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:
a. Determine the present value of the lease upon the lease's inception.
b. Create a partial amortization through the first payment on January 1, 2017.
c. If the lessee’s fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the first year ended December 31?

Cash vs. Accrual Accounting: Explain the difference between the cash basis, modified cash basis, and the accrual basis measures of performance. Provide examples of accounts that are treated differently under the three methods. Be sure to review the related PowerPoint Presentation in the Unit 3 Presentations/Lectures and in the Supplementary Materials. Why, in most cases, does accrual basis net income provide a better measure of performance than cash basis net income? Explain the purpose of adjusting entries as they relate to the difference between cash and accrual accounting. Which generally accepted accounting principle (GAAP) rule does accrual accounting fulfill

NewTech Medical Devices is a medical devices wholesaler that commenced business on June 1, 20X1. The company purchases merchandise for cash and on open account. In June 20X1, NewTech Medical Devices engaged in the following purchasing and cash payment activities:

Required:
Journalize the transactions in a general journal.


Analyze:
What was the amount of trade discounts received on the June 15 purchase from Park Research?

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

Starbooks Corporation provides an online bookstore for electronic books. The following is a simplified list of accounts and amounts reported in its accounting records. The accounts have normal debit or credit balances. Assume the year ended on September 30, 2018.

Classify the following costs as Direct or Indirect costs.

The foreman’s salary

Supplies

Depreciation of factory equipment

Leather used in the manufacture of shoes

Lubricants for machines

Fringe benefits (an extra benefit supplementing an employee's salary)

Wood in making furniture

Glue in tube making

FICA tax

Janitorial supplies

Classify the following costs as Variable or Fixed in terms of their behavior with respect to volume or level of activity.

Property taxes

Sales agent’s salary

Direct materials

Insurance

Depreciation

Sales agent’s commission

Rent

Classify the following costs as either Manufacturing, Selling, or Administrative expenses in terms of their functions.

Factory supplies

Shipping

Advertising

Employer’s payroll taxes - factory

Employer’s payroll taxes - sales office

Auditing expenses

Rent on general office building

President’s salary

Legal expenses

Samples

Small tools

Sanding materials used in furniture making

Cost of machine breakdown

Classify the following costs as Product Costs or Period Expenses.

                           [ Select ]                       ["Product", "Period", "", ""]          Pears in a fruit cocktail

                           [ Select ]                       ["Product", "Period"]          Fringe benefits - general office

                           [ Select ]                       ["Product", "Period"]         Workers’ compensation

                           [ Select ]                       ["Product", "Period"]         Legal fees

                           [ Select ]                       ["Product", "Period"]         Social Security taxes-direct labor

                           [ Select ]                       ["Product", "Period"]         Insurance on office equipment

                           [ Select ]                       ["Product", "Period"]          Travel expenses

                           [ Select ]                       ["Product", "Period"]         Advertising expenses

                           [ Select ]                       ["Product", "Period"]         Rework on defective products

Management of Baldwin Equipment Inc. is considering increasing the productivity of its plant. Management heard from suppliers that a certain piece of equipment could have an after-tax cash flow savings of more than $35,000 a year if it was installed in Baldwin’s plant. However, Jim Henderson, the controller of the company, is unsure whether the company should buy or lease the equipment. If the asset is leased for a 10-year period, it would cost the company $45,000 a year (before tax). The company’s income tax rate is 50%. If the company buys the asset, it would cost $300,000 and be financed entirely through debt for 10 years at a cost of 10%.The asset’s capital cost allowance is 25% (declining basis). On the basis of this information, Jim is now considering whether to purchase or lease the equipment. He is consid- ering doing a sensitivity analysis regarding the two options by modifying some of the data in the information presented above.

Question On the basis of the following, calculate the effect that each individual change would have on the decision.

Changes to the base case (the information given above) are as follows: • • • Capital cost allowance would be increased to 40%. The interest on the loan would be 8%. The company would be able to sell the asset for $50,000 in the tenth year.

Problem 16-7 Multiple differences; calculate taxable income; balance sheet classification [LO16-4, 16-6, 16-8]

Sherrod, Inc., reported pretax accounting income of $90 million for 2018. The following information relates to differences between pretax accounting income and taxable income:

1. Income from installment sales of properties included in pretax accounting income in 2018 exceeded that reported for tax purposes by $3 million. The installment receivable account at year-end had a balance of $4 million (representing portions of 2017 and 2018 installment sales), expected to be collected equally in 2019 and 2020.
2. Sherrod was assessed a penalty of $2 million by the Environmental Protection Agency for violation of a federal law in 2018. The fine is to be paid in equal amounts in 2018 and 2019.
3. Sherrod rents its operating facilities but owns one asset acquired in 2017 at a cost of $100 million. Depreciation is reported by the straight-line method assuming a four-year useful life. On the tax return, deductions for depreciation will be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

4. Warranty expense of $5 million is reported in 2018. For tax purposes, the expense is deducted when costs are incurred, $3 million in 2018. At December 31, 2018, the warranty liability was $3 million (after adjusting entries). The balance was $1 million at the end of 2017.
5. In 2018, Sherrod accrued an expense and related liability for estimated paid future absences of $10 million relating to the company’s new paid vacation program. Future compensation will be deductible on the tax return when actually paid during the next two years ($7 million in 2019; $3 million in 2020).
6. During 2017, accounting income included an estimated loss of $4 million from having accrued a loss contingency. The loss is paid in 2018 at which time it is tax deductible.

Balances in the deferred tax asset and deferred tax liability accounts at January 1, 2018, were $2.0 million and $3.6 million, respectively. The enacted tax rate is 40% each year.

Required:
1. Determine the amounts necessary to record income taxes for 2018 and prepare the appropriate journal entry.
2. What is the 2018 net income?
3. Show how any deferred tax amounts should be classified and reported in the 2018 balance sheet.

Transfer pricing is a contentious issue for almost any company where divisions buy from or sell to each other. Stated another way, transfer pricing causes more conflict between divisions than almost any other issue. Does your company use transfer pricing to "charge" divisions for the cost of the products they consume? Are these prices set equal to the opportunity cost of the product? Why or why not? Can you think of a better organizational architecture?

The production department in a process manufacturing system completed 88,000 units of product and transferred them to finished goods during a recent period. Of these units, 26,400 were in process at the beginning of the period. The other 61,600 units were started and completed during the period. At period-end, 16,400 units were in process.

Prepare the department’s equivalent units of production with respect to direct materials under each of the three separate assumptions using the FIFO method for process costing

Jul

6 Cohen invested $149,000 in the business, which in turn issued its common stock to her

9 the business paid cash for land cost in $62,000 calling plans to build an office building on the land

12 The business purchased medical supplies for $1700 on account

15-31 During the rest of the month, Cohen treated patients and arned service revenue of $9,000, recieving cash fo rhalf the revenue earned.15 dr. Christine Cohen, P.C. officially opened for business

15-31 The business paid cash expenses: employee salaries, $3000:office rent, $700: utilities, $1100

31 The business sold supplies to another physician for the cost of $900 and recieved cash

31 The business borrowed $34,000, signing a note payable to the bank

31 The business paid $700 on account

1. After journalizing the transactions in the previous exercise, post the entries to the ledger, using T-accounts. Key transactions by date.

2. Prepare the trial balance of Dr Kristine COhen, P.C., at July 31, 2016.

3. From the trial balance, determine total assets, total liabilities, and total stockholders' equity on July 31.

Requirement 1. Analyze the effects of these events on the accounting equation of the medical practice of Dr.

Cohen​,

Begin with the first transaction on

July

6. ​(Use parentheses or a minus sign when decreasing accounts. If a box is not used in the table leave the box​ empty; do not enter a zero. Enter the transactions in the same order as they appear in the original​ list.)

please tell me type of equity: Types of equity transactions: Dividends, Issued Stock, Rent Expense, Salary Expense, Service Revenue, Utilities Expense

Bridgeport Warehouse distributes suitcases to retail stores and extends credit terms of n/30 to all of its customers. Bridgeport Warehouse uses a periodic inventory system the earnings approach. At the end of June its inventory consisted of 41 suitcases purchased at $36 each. During the month of July, the following merchandising transactions occurred:

Problem 15-4 Finance/sales-type lease; lessee and lessor [LO15-1, 15-2, 15-3] Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $1,750,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2018. (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.) Lease Description: Quarterly lease payments $ 114,201—beginning of each period Lease term 5 years (20 quarters) No residual value; no purchase option Economic life of lithotripter 5 years Implicit interest rate and lessee's incremental borrowing rate 12% Fair value of asset $ 1,750,000 Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2018. Adjusting entries are recorded at the end of each fiscal year (December 31). 3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.5 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2018.