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Crunchem Cereal Company incurred the following actual costs during 20x1.

The firm’s predetermined overhead rate is 210 percent of direct-labor cost. The January 1 inventory balances were as follows:

What was the cost of goods sold for the year?

A selected Forecast Model showed the lowest MAD at the beginning of the year with $60.5. If the following three quarters reflected the following MAD:

Q2: $60.2 Q3: $75.4 Q4: $78.9
Would you stay using this model for the next year? Explain your answer.

Milo-Freeze Company manufactures and sells a product that has seasonal variations in demand, with peak sales coming in the third quarter. The following information concerns operations for Year 2- the coming year- and for the first two quarters of Year 3: a) The company’s single product sells for $10 per unit. Budgeted sales in units for the next six quarters are as follows: Year 2 Quarter Year 3 Quarter 1 2 3 4 1 2 Budgeted unit sales 40,000 60,000 100,000 50,000 70,000 80,000 b) Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the company’s balance sheet showed $65,000 in accounts receivable, all of which will be collected by the end of first quarter. Bad debts are negligible and can be ignored. c) The company desires an ending inventory of finished units on hand at the end of each quarter equal to 30% of the budgeted sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand. d) Six pounds of raw materials are required to complete one unit of product. The company requires an ending inventory of raw materials on hand at the end of each quarter equal to 10% of the production needs of the following quarter. On December 31, Year 1, the company had 23,000 pounds of raw materials on hand. e) The raw material costs $0.80 per pound. Purchases of raw material are paid for in the following pattern: 60% paid in the quarter the purchases are made, and the remaining 40% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $81,500 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year.

Prepare the following budgets and schedules for the year, showing both quarterly and total figures:

1. A sales budget.
2. A cash collections budget.
3. A production budget.
4. A direct materials budget.
5. Cash payments for purchases of materials schedule.

Essay Format 350-400 words : 1. Brief introduction 2. Main/detail explanation 3. Brief summary/conclusion

Question: Why do we need to follow GAAP rule that a deferred tax liability meets the definition of a liability? Explain in detail.

Mrs. O is negotiating to purchase a tract of land from DC Company, a calendar year taxpayer. DC bought this land six years ago for $480,000. According to a recent appraisal, the land is worth $800,000 in the current real estate market. According to DC’s director of tax, the company’s profit on the sale will be taxed at 35 percent if the sale occurs this year. However, this tax rate will definitely decrease to 21 percent if the sale occurs next year. Mrs. O is aware that DC would prefer the sale close next year. However, Mrs. O needs the land immediately to begin construction of a new retail outlet. She offers to pay $875,000 for the land with the stipulation that the sale close by December 31. Calculate the amount of after-tax cash for the each of the following alternatives. Should DC accept Mrs. O’s offer?

Fill in the blank options questions 16:

0.66:1

cost of goods available for sale

estimated cost of goods sold

FIFO

first-in, first-out

gross margin method

higher      

historical

last-in, first-out

less

LIFO

Lower

Merchandise Inventory

net sales

replacement

retail inventory method

Fill in the blank options questions 17:

$840

$957

$990

$1017

$1525.50

$3360

$3393

$3510

$32250

$32500

$54000

$55880

Fill in the blank options questions 18:

Overstated

understated

Fill in the blank options questions 19(1-3 Ending Inventory/Cost of Goods Sold):

$840

$957

$990

$1017

$1525.50

$3360

$3393

$3510

$32250

$32500

$54000

$55880

Fill in the blank options questions 20:

0.66:1

cost of goods available for sale

estimated cost of goods sold

FIFO

first-in, first-out

gross margin method

higher      

historical

last-in, first-out

less

LIFO

Lower

Merchandise Inventory

net sales

replacement

retail inventory method

Question 1: Capital Budgeting       

Monash Manufacturing Ltd is contemplating the purchase of a new fully automated machine to replace the old manually operated machine that has been operating in the factory for the last 6 years. The machine manufactures disk drives. When the new machine replaces the old machine, the old machine will be sold immediately (i.e. today). Both machines are fully depreciated over their expected lives using straight-line depreciation to a book value of zero. The new machine will also be sold at the end of its useful life. In addition, because the new machine will work faster than the old one, investment in raw materials and goods-in-progress inventories will increase by $5,000 initially (today), there are no further increases in inventory in years 1, 2 and 3 and the company will recover the initial additional $5,000 inventory outlay at the end of year 4. Revenues from the new machine will stay the same but the new machine will reduce maintenance costs by $16,000 per year. Because of the new machine, the company will need to pay an extra $16,000 in interest expense every year. Maintenance workers need special training to use the new machine because the new machine involves recent IT technology advancements. However, the company purchased a similar machine 5 months ago and at that time spent $12,000 training workers and workers need no further additional training to use the new machine. The cost of equity capital of the firm is 24% per annum and the weighted average cost of capital (WACC) of the firm is 20% per annum. The company’s marginal corporate tax rate is 30%. Information regarding the old machine and the purchase of the new machine is given in the table below.

1. What discount rate should Monash Manufacturing use to value this project? What assumption have you made about the risk of the project’s incremental cashflows?

2. Using the table provided below, identify the project’s incremental free cash flows. Be careful to clearly label the project’s (i) initial investment (t=0), (ii) operating free cash flows (t=1 to 3) and (iii) terminal free cash flow (t=4).

3. Do you recommend accepting or rejecting the decision to replace the old manually operated machine with the new fully automated machine? To obtain full credit you are required to justify your recommendation using appropriate capital budgeting decision techniques.

(Please ensure that you show all working, you can insert a scan or photograph of handwritten workings if you wish).

4. Monash Manufacturing has an independent computer replacement project with conventional cashflows. The project’s cashflows have more exposure to market risk than the cashflows of Monash Manufacturing’s average risk project. The net present value (NPV) of the computer replacement project is zero when discounted at 20%.   Determine whether Monash Manufacturing should accept or reject the computer replacement project. Justify your answer.

Selected current year-end financial statements of Cabot Corporation follow. (All sales were on credit; selected balance sheet amounts at December 31 of the prior year were inventory, $47,900; total assets, $179,400; common stock, $81,000; and retained earnings, $51,347.)

Required:
Compute the following: (1) current ratio, (2) acid-test ratio, (3) days' sales uncollected, (4) inventory turnover, (5) days' sales in inventory, (6) debt-to-equity ratio, (7) times interest earned, (8) profit margin ratio, (9) total asset turnover, (10) return on total assets, and (11) return on common stockholders' equity. (Do not round intermediate calculations.)

Sandra would like to organize BAL as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 13 percent annual before-tax return on a $660,000 investment. Sandra’s marginal income tax rate is 37 percent and her tax rate on dividends and capital gains is 23.8 percent (including the 3.8 percent net investment income tax). If Sandra organizes BAL as an LLC, she will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. BAL’s income is not qualified business income (QBI) so Sandra is not allowed to claim the QBI deduction. Assume that BAL will distribute all of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Round your intermediate computations to the nearest whole dollar amount.)

a. How much cash after taxes would Sandra receive from her investment in the first year if BAL is organized as either an LLC or a C corporation?

b. What is the overall tax rate on BAL’s income in the first year if BAL is organized as an LLC or as a C corporation?(Round your final answers to 2 decimal places.)

Waterways prepared the balance sheet and income statement for the irrigation installation division for 2020. Now the company also needs to prepare a statement of cash flows for the same division. The comparative balance sheets for Waterways Corporation’s Irrigation Installation Division for the years 2019 and 2020 and the income statement for the year 2020 are presented below. Additional information: 1. Waterways sold a company vehicle for $24,200. The vehicle had been used for 10 years. It cost $80,500 when purchased and had a 10-year life and a $6,100 salvage value. Straight-line depreciation was used. 2. Waterways purchased with cash new equipment costing $209,100. 3. Prepaid expenses increased by $33,800. All changes in accounts payable relate to inventory purchases.

(a) Prepare a statement of cash flows using the indirect method for the year 2020. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Q1. Two partnerships of A & B and C&D began business on Jan 1^st2017; each partnership owns one retail appliance store. The two partnerships agree to combine as of April 1^st2017 to form a new partnership, ABCD Discount Stores. The two businesses agreed upon the following points:

1. Profit and loss ratios.

2. Capital investments.The opening capital investments for the new partnership are to be in the same ratio as the profit and loss sharing ratios for the new partnership. If necessary, certain partners may have to contribute additional cash, and others may have to withdraw cash to bring the capital investments into the proper ratio.
3. Accounts receivable. The partners agreed to set the new partnership’s allowance for bad debts at 3% of the accounts receivable contributed by A&B and 12% of the accounts receivable contributed by C&D.
4. Inventory.The new partnership’s openinginventory is to be valued by the FIFO method.  B&M used the FIFO method to value inventory (which approximates its current value), and A&J used the LIFO method. The LIFO inventory represents 85% of its FIFO value.
5. Property and equipment. The partners agree that the building’s current value is approximately 70% of the building’s historical cost, as recorded on each partnership’s books.
6. Unpaid liability. After each partnership’s books were closed on 31^stMarch 2017, an unrecorded merchandise purchase of $1,500 by A&B was discovered. The merchandise had been sold by 31^stMarch 2017.
7. The 31^stMarch 2017 post  closing trial balances of the partnerships was as follow.

Required:

1. Prepare the journal entries to record the initial capital contribution after considering the effect of this information.  Use separate entries for each of the combining partnerships.
2. Prepare a schedule computing the cash contributed or withdrawn by each partner to bring the initial capital balances into the profit and los sharing ratio.

2. Debra and Merina sell electronic equipment and supplies through their partnership. They wish to expand their computer lines and decide to admit Wayne to the partnership. Debra’s capital is $200,000, Merina’s capital is $160,000, and they share income in a ratio of 3:2, respectively.      

Required:

  Record Wayne’s admission for each of the following independent situations:

   a. Wayne directly purchases half of Merina’s investment in the partnership.   

   b. Wayne invests the amount needed to give him a one-third interest in the capital of the partnership if no goodwill or bonus is recorded.

  c. Wayne invests $110,000 for a one-fourth interest if Goodwill is to be recorded.   

3. Taif city levied property taxes totaling $750,000.  Of this amount, $10,000 was estimated to be uncollectible. Collections during the year totaled $725,000, of which $12,000 were associated with property taxes levied in the prior year that had been declared delinquent at the end of the prior year.  All of the remaining property taxes receivable at the beginning of the current year, totaling $5,000, were written off as uncollectible. The net realizable amount at 6/30/X8 ($11,000) is expected to be collected within 60 days. Pass Journal entries.

Sushi Corp. purchased and installed electronic payment equipment at its drive-in restaurants in San Marcos, TX, at a cost of $40,500. The equipment has an estimated residual value of $2,700. The equipment is expected to process 268,000 payments over its three-year useful life. Per year, expected payment transactions are 64,320, year 1; 147,400, year 2; and 56,280, year 3.

Required:

Complete a depreciation schedule for each of the alternative methods.

1. Straight-line.

2. Units-of-production.

3. Double-declining-balance.

Sonic Inc. makes running shoes. The shoes are made out of specialized fabric, foam for cushioning, and rubber for the soles. Each pair of shoes is considered to be one unit. Sonic Inc. is currently preparing their budget for the next quarter (April, May, June). They believe they will sell 5,000 pairs of shoes over the next three months and that they will sell each pair for $ 87 each. They estimate that, on average, each pair of shoes will need 2.5 square feet (sqft) of fabric, 4 ounces of foam and .45 kilograms of rubber. Each pair of shoes should take 3.5 hours of direct manufacturing labor to make. They estimate that for the quarter, they will spend $3.20 on each sqft of fabric, $1.75 on each ounce of foam and $5.50 on each kilogram of rubber. They also estimate they will spend $148,750 on labor, $75,250 on variable manufacturing overhead, and $39,375 on fixed manufacturing overhead. On March 31st, their inventory accounts had these numbers: Fabric: $ 3,843 (1,220 sqft) Foam: $ 3,293 (1,850 ounces) Rubber: $ 1,233 (225 kilograms) Finished Goods: $ 26,532 (495 pairs of shoes) At the end of the quarter, they want these amounts in their ending inventory: Fabric: 1,300 sqft Foam: 1,800 ounces Rubber: 200 kilograms Finished Goods: 500 pairs of shoes Sonic Inc. uses the FIFO method to cost direct materials and finished goods inventory. For the purpose of this budget, the work-in-process inventories are considered to be negligible and ignored and the unit costs of direct materials purchased and finished goods are assumed to be constant for the period. With this information, please prepare these parts of the master budget for Sonic Inc. for the next quarter (April, May, June). a. The Revenues Budget (Schedule 1) b. The Production Budget (Schedule 2) c. The Direct Materials Usage Budget (Schedule 3a) d. The Direct Materials Purchases Budget (Schedule 3b) e. The Direct Manufacturing Labor Budget (Schedule 4) f. The Manufacturing Overhead Cost Budget (Schedule 5) g. The Ending Inventories Budget (Schedule 6A (units); Schedule 6B (dollars)) h. The Cost of Goods Sold Budget (Schedule 7)

In his own words, Daniel Jones was “The Dude.” With his waist-long dreadlocks, part-time rock band, and well-paid job managing a company’s online search directory—he seemed to have it all. Originally from Germany, Jones, now age 32, earned his doctorate and taught at the University of Munich before coming to the United States, where he started his career in computers. When Jones started working with the company as a director of operations for U.S.-Speech Engineering Service and Retrieval Technology—he was assigned to work on a new, closely guarded search engine tied to the company’s .net concept.

The company allows employees to order an unlimited amount of software and hardware, at no cost, for business purposes. In one year’s time, Jones ordered or used his assistant and other employees (including a high school intern) to order nearly 1,700 pieces of software which had very low cost but were worth a lot on the street. He then resold them for reduced prices— reaping millions. When items with a cost of goods sold of more than $1,000 are ordered, an e-mail is sent to the employee’s direct supervisor, who must click on an “Approve” button before the order is filled. In no individual order was the cost of goods more than $1,000—he made sure none of the orders required a supervisor’s approval. The loosely controlled internal ordering system reflects the trust the company puts in its employees.

During this time frame, FBI agents said they saw Jones exchanging a large box of software for cash in a department store parking lot. The FBI contacted the company’s security and began monitoring Jones’s bank accounts. Previously, one account with his bank had an average balance of $2,159. In a short time, however, the average balance ballooned to $129,775. Another account at another bank showed irregular deposits totaling $500,000—none of which appeared to be from any legitimate income or other source.

Investigators also noted that Jones purchased a Ferrari, a Jaguar, and traded in lesser vehicles for a Hummer, a Mercedes, and a Harley-Davidson motorcycle. He also bought an $8,000 platinum diamond ring, a $2,230 wristwatch, and a $4,000 bracelet. “You figured that I like big boy’s toys by looking at some of my pictures,” Jones wrote on his personal Web page. “I just can’t resist.” The Dude’s Web page includes a camera for monitoring his cat and photos of his yacht, cars, and other treasures. For a relatively low-level manager, it was an impressive collection. But at his company, where teenage software engineers can earn more than company directors, no one noticed anything unusual.

A neighbor across the street from Jones said that he was clearly wealthy, but not flamboyant with his money. He described Jones as an intelligent man who didn’t flaunt his education, would loan neighbors tools, and was always friendly. The neighbor was surprised to hear the accusations against someone he called his friend. All he knew about Jones was that he was a good neighbor who loved cars. “He was very, very helpful. The few times I had problems with my PC, he’d come and help straighten them out,” the neighbor said. “They are just ideal neighbors. I feel terrible for him and his wife.” Jones and his wife lived in a modest home.

Jones also joined the city’s Rotary Club, “where he seemed more outgoing and personable than the stereotype techie,” said a local jeweler and immediate past president of the club. “He seemed like what I would expect a genius software developer to be.” Eventually, the fraud was discovered and Jones was fired. He was also charged with 15 counts of wire, mail, and computer fraud—with each count carrying a maximum of fives years in prison. He is expected to remain in custody until his preliminary hearing.

Questions:

1. Describe the symptoms of fraud that might be evident to a fellow employee.

2. Recently, his employer has been putting more empha- sis on controlling costs. With the slowing of overall technology spending, executives have ordered managers to closely monitor expenses and have given vice presidents greater responsibility for balance sheets. What positive or negative consequences might this pose to the company in future fraud prevention?

3. As discussed previously, all frauds involve the following key elements: perceived pressure, perceived opportunity, and rationalization. Describe two of the key elements of the Jones fraud— pressure and opportunity.

4. From the scenario, what measures has the company taken to prevent fraud? In what ways could the company improve?

ABC Company’s budgeted sales for June, July, and August are 15,400, 19,400, and 17,400 units, respectively. ABC requires 30% of the next month’s budgeted unit sales as finished goods inventory each month. Budgeted ending finished goods inventory for May is 4,620 units. Each unit that ABC Company produces uses 3 pounds of raw material. ABC requires 25% of the next month’s budgeted production as raw material inventory each month. Required: Calculate the number of pounds of raw material to be purchased in June.