1) Skysong Corporation issued $620,000 of 9% bonds on November 1, 2017, for $656,123. The bonds were dated November 1, 2017, and mature in 8 years, with interest payable each May 1 and November 1. Skysong uses the effective-interest method with an effective rate of 8%.

Prepare Skysong’s December 31, 2017, adjusting entry.

2)On January 1, 2017, Skysong Corporation issued $450,000 of 7% bonds, due in 8 years. The bonds were issued for $478,264, and pay interest each July 1 and January 1. The effective-interest rate is 6%.

Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry. Skysong uses the effective-interest method.

Given the following information for Macro Drive Inc.

1. Prepare (in good form) an income statement for 2017 for Macro Drive Inc
2. Assume that Micro Drive Inc. has 50,000 shares outstanding, calculate the Earnings Per Share for the company for the period ending 2017
3. Differentiate between accounting income and free cash flow. Why is FCF the most important measure of cash flow?

At the beginning of the school year, Priscilla Wescott decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:

a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.

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b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?

Static

c. What are the budget implications for Priscilla Wescott?

Priscilla can see that her present plan will not provide  sufficient cash. If Priscilla did not budget but went ahead with the original plan, she would be $ short  at the end of December, with no time left to adjust.

X- Cell Limited is in the process of evaluating a project which will allow the firm to branch into a new product line. The projected cash flow for its new product line is as follows:

1. Calculate the payback period for the project. What is the key drawback of the payback method of project appraisal?
2. If the required return is 11 percent, should the firm accept the project based on the IRR rule?
3. Suppose X-Cell uses the NPV decision rule. At a required return of 9 percent, should the firm accept the project? Will your decision change if the required was 15 percent and why?
4. Why is NPV considered to be a superior method of evaluating the cash flows from a project? Suppose the NPV for a period’s cash flows is computed to be $2500.00. What does this number represent to the firm’s shareholders?

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:

The company’s direct labor rate is $22 per hour.

Required:

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)

Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:

Additional information about the company follows:

1. Hubs require $29 in direct materials per unit, and Sprockets require $15.

2. The direct labor wage rate is $12 per hour.

3. Hubs require special equipment and are more complex to manufacture than Sprockets.

4. The ABC system has the following activity cost pools:

Required:

1. Compute the activity rate for each activity cost pool.

2. Determine the unit product cost of each product according to the ABC system.

QUESTION TWO

1. Discuss the capital allowances available to hotel owners and the capital expenditures that qualify for such allowances.                                                                                                            
2. Wageni tourist hotel ltd. Is a five star hotel in Mombasa. The hotel provided the following information,

1. Written down values as at 31.12.2018

Disposals during the year.

2. Additions during the year

1. Computer            350,000.00
2. Fax Machine        40,000.00
3. Photocopier         160,000.00
4. Beds                    500,000.00
5. New hotel building                      5,000,000.00

      The new hotel building was brought to use on 1.9.2019

3. The old hotel building was first brought in to use on 1.1.2014 at a cost of Sh. 8,000,000.00
4. A saloon car which cost sh. 1,200,000 in 2014 was traded in for a new car costing Sh. 900,000.00. The old car was valued at Shs. 600,000 and the company paid a balance of shs. 300,000.00

Required

1. Compute capital allowances due to the company for the year ended 31.12.2019.            
2. Show the written down value of all the assets as at 31.12.2019. Comment on Class I balance.

Bramble Company owns 9,000 acres of timberland purchased in 2006 at a cost of $1,540 per acre. At the time of purchase, the land without the timber was valued at $440 per acre. In 2007, Bramble built fire lanes and roads, with a life of 30 years, at a cost of $92,400. Every year, Bramble sprays to prevent disease at a cost of $3,300 per year and spends $7,700 to maintain the fire lanes and roads. During 2008, Bramble selectively logged and sold 770,000 board feet of timber, of the estimated 3,850,000 board feet. In 2009, Bramble planted new seedlings to replace the trees cut at a cost of $110,000.

A. Determine the depreciation expense and the cost of timber sold related to depletion for 2008. (Round intermediate calculations to 5 decimal places, e.g. 1.54687 and final answers to 0 decimal places, e.g. 5,125.)

B. Bramble has not logged since 2008. If Bramble logged and sold 990,000 board feet of timber in 2019, when the timber cruise (appraiser) estimated 5,500,000 board feet, determine the cost of timber sold related to depletion for 2019. (Round intermediate calculations to 5 decimal places, e.g. 1.54687 and final answers to 0 decimal places, e.g. 5,125.)

Define the triple bottom line and give examples of each of the “three Ps.” (2–3 paragraphs)

Nelson Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

Required:

a. Prepare a contribution format income statement for the month using variable costing.

b. Prepare an income statement for the month using absorption costing.

Special-Order Pricing. Barry is conscientious about the quality of his meals, and he has a regular crowd of 400 patrons for his $9.90 lunch. His variable cost for each meal is about $3.10, and he figures his fixed costs, on a daily basis, are about $2,300. From time to time, bus-tour groups with 50 patrons stop by. He has welcomed them because he has capacity to seat 500 diners in the average lunch period, and his cooking and wait staff can easily handle the additional load. The tour operator generally pays for the entire group on a single check to save the wait staff and cashier the additional time. Due to competitive conditions in the tour business, the operator is now asking Barry to lower the price to $4.60 per meal for each of the 50 bus-tour members. (Round your answers to 2 decimal places.)

1-a. What is the incremental profit (loss) per bus-tour meal?

1-b. Should Barry accept the bus-tour offer?

2-a. What is the incremental profit (loss) for each meal if the tour company were willing to guarantee 200 patrons (or four bus loads) at least once a month for $3.90 per meal?

2-b. Is the offer financially attractive?

The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budgetinformation:

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 65% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $8,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of March 1 include cash of $49,000, marketable securities of $70,000, and accounts receivable of $149,050 ($113,000 from February sales and $36,050 from January sales). Sales on account for January and February were $103,000 and $113,000, respectively. Current liabilities as of March 1 include a $65,000, 12%, 90-day note payable due May 20 and $8,000 of accounts payable incurred in February for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $3,900 in dividends will be received in March. An estimated income tax payment of $19,000 will be made in April. Dash Shoes' regular quarterly dividend of $8,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $38,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for March, April, and May. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations.

Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows:

The company’s chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget:

1. The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2018 is 13,000 units.
2. All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.
3. Each quarter’s ending finished goods inventory should equal 15% of the next quarter’s unit sales.
4. Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter’s ending raw materials inventory should equal 10% of the next quarter’s production needs. The estimated ending raw materials inventory on December 31, 2017 is 5,000 yards.
5. Seventy percent of each quarter’s purchases are paid for in the quarter of purchase. The remaining 30% of each quarter’s purchases are paid in the following quarter.
6. Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.
7. The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred.
8. The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciation expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.
9. The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company’s lender imposes a simple interest rate of 3% per quarter on any borrowings.
10. Dividends of $15,000 will be declared and paid in each quarter.
11. The company uses a last-in, first-out (LIFO) inventory flow assumption. This means that the most recently purchased raw materials are the “first-out” to production and the most recently completed finished goods are the “first-out” to customers.

Required:

1. Calculate the following budgeted figures for 2017:

a. The total fixed cost.

b. The variable cost per unit sold.

c. The contribution margin per unit sold.

d. The break-even point in unit sales and dollar sales.

e. The margin of safety.

f. The degree of operating leverage

Tamar Co. manufactures a single product in one department. All direct materials are added at the beginning of the manufacturing process. Conversion costs are added evenly throughout the process. During May, the company completed and transferred 32,200 units of product to finished goods inventory. Its 5,000 units of beginning work in process consisted of $201,500 of direct materials and $440,104 of conversion costs. It has 3,400 units (100% complete with respect to direct materials and 80% complete with respect to conversion) in process at month-end. During the month, $688,500 of direct material costs and $3,680,456 of conversion costs were charged to production.

• Beginning work in process consisted of 5,000 units that were 100% complete with respect to direct materials and 40% complete with respect to conversion.
• Of the 32,200 units completed, 5,000 were from beginning work in process. The remaining 27,200 were units started and completed during May.

Assume that Tamar uses the FIFO method to account for its process costing system.

1. Prepare the company’s process cost summary for May using the FIFO method. (Round "Cost per EUP" to 2 decimal places.)

2. Prepare the journal entry dated May 31 to transfer the cost of completed units to finished goods inventory.

Mango & Associates expects the below departments to make the following income for the upcoming year. Dept. M Dept. N Dept. O Dept. P Dept. T Total Sales $ 67,000 $ 37,000 $ 60,000 $ 46,000 $ 32,000 $ 242,000 Expenses Avoidable 11,800 38,800 23,600 16,000 41,400 $ 131,600 Unavoidable 53,400 15,000 4,600 31,800 12,600 $ 117,400 Total expenses 65,200 53,800 28,200 47,800 54,000 249,000 Net income (loss) $ 1,800 $ (16,800 ) $ 31,800 $ (1,800 ) $ (22,000 ) $ (7,000 ) Recompute & prepare departmental income statements (which should include a combined total column) for Mango & Associates taking each of the following separate scenarios into consideration. Part 1 Mango & Associates' management decided to get rid of departments with expected net losses. Part 2 Mango & Associates' management decided to get rid of departments with sales dollars that are less than avoidable expenses.