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.

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals. The balance in the account Work in Process—Filling was as follows on January 1: Work in Process—Filling Department (3,400 units, 30% completed): Direct materials (3,400 x $18.2) $61,880 Conversion (3,400 x 30% x $11.8) 12,036 $73,916 The following costs were charged to Work in Process—Filling during January: Direct materials transferred from Reaction Department: 43,900 units at $17.9 a unit $785,810 Direct labor 273,870 Factory overhead 263,128 During January, 43,500 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 3,800 units, 50% completed.

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the cost transferred from Filling to Finished Goods.

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2. Remember that there are three types of inventory; materials, work in process, and finished goods. What costs are captured in the work in process account? Are these units 100% complete or are they being transferred to another department?

3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. If required, round your answers to two decimal places.

4. Discuss the uses of the cost of production report and the results of part (3).

The cost of production report may be used as the basis for allocating product costs between Work in Process  and Finished Goods . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.

Frannie Fans currently manufactures ceiling fans that include remotes to operate them. The current cost to manufacture 10,060 remotes is as follows:

Frannie is approached by Lincoln Company which offers to make the remotes for $18 per unit.

Required:

1. Compute the difference in cost between making and buying the remotes if none of the fixed costs can be avoided. What is the change in net income?

2. Compute the difference in cost between making and buying the remotes if $20,120 of the fixed costs can be avoided. What is the change in net income?

3. What is the change in net income if fixed cost of $20,120 can be avoided and Frannie could rent out the factory space no longer in use for $20,120?

A $35,000 bond has a payable interest of 6% per year compounded quarterly. The bond is expected to mature in fifteen years. If the market interest rate is 8% per year compounded quarterly, the present value of the bond closest to which of the following values?

1. What are the budgeted sales for July?

2. What are the expected cash collections for July?

3. What is the accounts receivable balance at the end of July?

4. According to the production budget, how many units should be produced in July?

5. If 52,000 pounds of raw materials are needed to meet production in August, how many pounds of raw materials should be purchased in July?

6. What is the estimated cost of raw materials purchases for July?

7. If the cost of raw material purchases in June is $88,880, what are the estimated cash disbursements for raw materials purchases in July?

8. What is the estimated accounts payable balance at the end of July?

9. What is the estimated raw materials inventory balance at the end of July?

10.What is the total estimated direct labor cost for July assuming the direct labor workforce is adjusted to match the hours required to produce the forecasted number of units produced?

11.If the company always uses an estimated predetermined plantwide overhead rate of $10 per direct labor-hour, what is the estimated unit product cost?

12.What is the estimated finished goods inventory balance at the end of July?

13.What is the estimated cost of goods sold and gross margin for July?

14.What is the estimated total selling and administrative expense for July?

15.What is the estimated net operating income for July?

Assumptions to use for the budget:

1. the selling price is $75.00 per unit.

2. the beginning accounts receivable balance is $315,000

3. the beginning accounts payable balance is $49,000.

4. the beginning cash balance is $49,500

Other than the above all other information is as presented in the text.

Required:

Using the information above answer questions 1 through 15

The following information is available for year 1 for Pepper Products: Sales revenue (210,000 units) $ 3,150,000 Manufacturing costs Materials $ 168,000 Variable cash costs 142,400 Fixed cash costs 337,600 Depreciation (fixed) 989,000 Marketing and administrative costs Marketing (variable, cash) 422,400 Marketing depreciation 149,600 Administrative (fixed, cash) 509,200 Administrative depreciation 64,800 Total costs $ 2,783,000 Operating profits $ 367,000 All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 4 percent, but prices are expected to rise by 18 percent. Material costs per unit are expected to increase by 10 percent. Other unit variable manufacturing costs are expected to decrease by 9 percent per unit. Fixed cash costs are expected to increase by 5 percent. Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 5 percent. Inventories are kept at zero. Pepper Products operates on a cash basis. Required: Estimate the cash from operations expected in year 2. (Do not round intermediate calculations.)

The following information is available for year 1 for Pepper Products: Sales revenue (300,000 units) $ 8,100,000 Manufacturing costs Materials $ 478,000 Variable cash costs 406,000 Fixed cash costs 935,000 Depreciation (fixed) 2,851,000 Marketing and administrative costs Marketing (variable, cash) 1,205,000 Marketing depreciation 428,000 Administrative (fixed, cash) 1,456,000 Administrative depreciation 213,000 Total costs $ 7,972,000 Operating profits $ 128,000 All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to fall by 6 percent, but prices are expected to rise by 16 percent. Material costs per unit are expected to increase by 9 percent. Other unit variable manufacturing costs are expected to decrease by 7 percent per unit. Fixed cash costs are expected to increase by 5 percent. Variable marketing costs will change with unit volume. Administrative cash costs are expected to increase by 2 percent. Inventories are kept at zero. Pepper Products operates on a cash basis. Required: Prepare a budgeted income statement for year 2. (Do not round intermediate calculations.)

Mamas & Papas, Inc. issues 7%, 10-year bonds with a face amount of $80,000 for $74,564 on January 1, 2020. The market interest rate for bonds of similar risk and maturity is 8%. Interest is paid semiannually on June 30 and December 31.

1. Record the bond issue in the journal.

2. Record in the journal the first interest payment on June 30, 2020.

Nautical Creations is one of the largest producers of miniature ships in a bottle. An especially complex part of one of the ships needs special production equipment that is not useful for other products. The company purchased this equipment early in 2015 for $200,000. It is now early in 2019, and the manager of the Model Ships Division, Jeri Finley, is thinking about purchasing new equipment to make this part. The current equipment will last for six more years with zero disposal value at that time. It can be sold immediately for $30,000. The following are last year's total manufacturing costs, when production was 8,600 ships: Direct materials $33,970 Direct labor 31,390 Variable overhead 14,190 Fixed overhead 37,840 Total $117,390 The cost of the new equipment is $145,000. It has a six year useful life with an estimated disposal value at that time of $40,000. The sales representative selling the new equipment stated, "The new equipment will allow direct labor and variable overhead combined to be reduced by a total of $1.90 per unit." Finley thinks this estimate is accurate, but also knows that a higher quality of direct material will be necessary with the new equipment, costing $0.23 more per unit. Fixed overhead costs will decrease by $4,800. Finley expects production to be 9,050 ships in each of the next six years. Assume a discount rate of 3%. REQUIRED 1. What is the difference in net present values if Nautical Creations buys the new equipment instead of keeping their current equipment?

1.

At the beginning of the current year, Trenton Company's total assets were $274,000 and its total liabilities were $188,000. During the year, the company reported total revenues of $119,000, total expenses of $89,000 and owner withdrawals of $18,000. There were no other changes in owner's capital during the year and total assets at the end of the year were $286,000. Trenton Company's debt ratio at the end of the current year is:

• 52.1%.

• 1.52%.

• 34.3%.

• 65.7%.

• 68.6%.

2.

Joe Jackson opened Jackson's Repairs on March 1 of the current year. During March, the following transactions occurred and were recorded in the company's books:

1. Jackson invested $38,000 cash in the business.
2. Jackson contributed $113,000 of equipment to the business.
3. The company paid $3,300 cash to rent office space for the month of March.
4. The company received $29,000 cash for repair services provided during March.
5. The company paid $7,500 for salaries for the month of March.
6. The company provided $4,300 of services to customers on account.
7. The company paid cash of $1,800 for utilities for the month of March.
8. The company received $4,400 cash in advance from a customer for repair services to be provided in April.
9. Jackson withdrew $6,300 for his personal use from the company.

Based on this information, net income for March would be:

• $6,600.

• $26,500.

• $7,100.

• $20,700.

• $26,400.

Georgia Orchards produced a good crop of peaches this year. After preparing the following income statement, the company is concerned about the net loss on its No. 3 peaches.

In preparing this statement, the company allocated joint costs among the grades on a physical basis as an equal amount per pound. The company’s delivery cost records show that $31,200 of the $69,300 relates to crating the No. 1 and No. 2 peaches and hauling them to the buyer. The remaining $38,100 of delivery costs is for crating the No. 3 peaches and hauling them to the cannery.

Problem 09-5AC Part 1

Required:
1. Prepare reports showing cost allocations on a sales value basis to the three grades of peaches. Separate the delivery costs into the amounts directly identifiable with each grade. Then allocate any shared delivery costs on the basis of the relative sales value of each grade. (Do not round intermediate calculations.)