Credit Policy Changes Use the following information to answer the next three questions:

Peterson Plumbing Supplies, Inc. has the following projected credit sales for the second quarter: April May June Credit sales $290,000 $270,000 $195,000 Credit sales in February and March 2018 were $240,000 and $230,000, respectively. The company predicts that 15 percent of its customers will pay in the month of the sale and take a 2 percent discount, 75 percent of its customers will pay in the month following the sale, and 10 percent will pay in the second month following the sale.

4. Calculate the days sales outstanding (DSO) for the first quarter (April-June, assuming 30 days in each month).

5. Complete an aging schedule for the second quarter.

6. Complete an uncollected balances (payments pattern) schedule for the second quarter

6.6

(a) Estimate the terminal speed of a wooden sphere (density 0.870 g/cm³) falling through air, if its radius is 7.00 cm and its drag coefficient is 0.500. (The density of air is 1.20 kg/m³.)
m/s

(b) From what height would a freely falling object reach this speed in the absence of air resistance?
m

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

The gross margin is 25% of sales.

Actual and budgeted sales data:

Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

Monthly expenses are as follows: commissions, 12% of sales; rent, $2,200 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $945 per month (includes depreciation on new assets).

Equipment costing $1,400 will be purchased for cash in April.

Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

1. Complete the following schedule:

2. Complete the following:

3. Complete the following cash budget:

4. Prepare an absorption costing income statement for the quarter ended June 30.

Complete the following schedule:

Complete the following cash budget: (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Prepare an absorption costing income statement for the quarter ended June 30.

6. The table below shows the projected free cash flows of an acquisition target. Estimate the following:

a) Terminal value at the end of 2025 based on the perpetual growth equation with a 4% perpetual growth rate

b) Maximum acquisition price (MAP) as of the end of 2020 at a 9% discount rate

YEAR                                                               2021    2022   2023   2024   2025
FREE CASH FLOW ($ thousands)                  -$500      $83    $87    $89     $92

The Present Value of $1 Table (Table 3) tells us:

Period (n)        Present Value Factor at 9% Discount Rate
1                                                          .917
2                                                          .842
3                                                          .772
4                                                         .708
5                                                          .650

Bramble Corp. will invest $88000 every December 31st for the next six years (2020 – 2025). If Bramble will earn 13% on the investment, what amount will be in the investment fund on December 31, 2025?

$827609.

$732398.

$397518.

$351783

Sheffield Corp. has outstanding accounts receivable totaling $1.25 million as of December 31 and sales on credit during the year of $6.20 million. There is also a debit balance of $6100 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

$25000.

$31100.

$24878.

$18900.

1. Consider these three bonds:

1) USTN 10% due 3/31/2025 with a yield to maturity of 3.5%

2) USTN 3% due 3/31/2025 with a yield to maturity of 3.6%

3) USTN 10% due 12/31/18 with a yield to maturity of 3.1%

Which bond has the highest risk and which bond has the lowest risk. Tell me in your own words, what bond risk means to you. If you were investing in bonds and you believe interest rates will rise across the entire yield curve, which of these three bonds would you buy and why.

Parker Piano Company purchases a tract of land and an existing building for $1,000,000. The company plans to remove the old building and construct a new restaurant on the site. In addition to the purchase price, Parker pays closing costs, including title insurance of $3,000. The company also pays $14,000 in property taxes, which includes $9,000 of back taxes (unpaid taxes from previous years) paid by Parker on behalf of the seller and $5,000 due for the current fiscal year after the purchase date. Shortly after closing, the company pays a contractor $50,000 to tear down the old building and remove it from the site. Parker is able to sell salvaged materials from the old building for $5,000 and pays an additional $11,000 to level the land.

Determine the cost of the land.

Cost of land:

Purchase cost                                          $1,000,000

Add: Closing costs                                  3,000

Add: Back taxes                                       9,000

Add: Cost of tearing the building             50,000

Add: Cost of leveling the land                 11,000

Less: Salvage value of materials              5,000

Total cost of land                                    $1,068,000

Depreciation and Disposal

The Parker Piano Company purchased a Delivery Truck on January 1, 2025 for $50,000 which included all costs to get the asset ready for use. The truck has an anticipated life of 100,000 miles or 4 years. The estimated residual value at the end of the assets service life is expected to be $2,000. For assets of this type, the company utilizes the straight-line depreciation method.

1. Record the purchase of the asset.

B. Complete the depreciation table below.

(QUESTIONS A and B have been completed please complete C-D)

3. Record the entry for December 31, 2025 to record the depreciation for the year.

D. Suppose the company sells the van on December 31, 2027 for $18,000 cash. Provide the journal entry to record the sale.

E. Assume the company chooses to use the units-of-production method. Based on the information below, complete the depreciation schedule.

1.Budgeted units to be sold for each quarter: 1000, 1200, 1500 and 2000 for the year 2018 and 2019. Assume that company policy requires 20% of the next quarter’s sales in ending inventory and that beginning inventory of t-shirts for the first quarter of the year was 180. The unit selling price of t-shirt is $10.

2. Budgeted units to be produced for each quarter: 1060, 1260, 1600, and 1800. Plain t- shirts cost $3 each, and ink costs $0.20 per ounce. On a per-unit basis, the factory needs one plane t-shirt and five ounces of ink for each logoed t-shirt that the company produces. Lion Inc. is to have 10% of the following quarter’s production needs in ending inventory. The factory has 58 plain t-shirts and 390 ounces of ink on hand on January 1. At the end of the year, the desired ending inventory is 106 plain t- shirts and 530 ounces of ink.

3. Budgeted units to be produced for each quarter are: 1060, 1260, 1600, and 1800. It takes 0.12 hour to produce one t-shirt. The average wage cost per hour is $10.

4. Refer to the direct labor budget. The predetermined overhead rate for variable overhead is $ 5 per direct labor hour. Fixed overhead is budgeted at $1,645 per quarter (this amount include $540 per quarter for depreciation among others). There is no noncash expense items other than depreciation expense.

5. For SG&A expenses: Variable SG&A costs are $0.10 per unit sold. As for fixed SG&A costs, salaries average $1420 per quarter; utilities, $50 per quarter; and depreciation, $150 per quarter. Advertising for quarters 1 through 4 is $100, 200, 800 and 500, respectively. There is no noncash expense items other than depreciation expense. Prepare SG&A Expense Budget.

6. Lion Inc. has provided the following information for preparing a cash budget:

Expected cash balance on 1/1/2018 = $40,000

Information on cash receipts:
(1) From past experience, Lion Inc. expects that, on average, 25% of total sales are cash and 75% of total sales are on credit. Of the credit sales, the company expects that 90% will be paid in cash during the quarter of sale, and the remaining 10% will be paid in the following quarter. Budgeted units to be sold for each quarter: 1000, 1200, 1500 and 2000.
The balance in A/R as of the last quarter of 2017 was $1350. This will be collected in cash during the first quarter of 2018.

a. Calculate cash sales expected in each quarter

b. Prepare a schedule showing cash receipts from sales expected in each quarter of 2018.

(2) In the 1st quarter of 2018, Lion Inc. expects to sell marketable securities that are valued at $5,000.

Information on cash disbursements:
(3) Direct materials are all purchased on credit. Lion Inc. usually pays 80% of its purchases in the same quarter as the purchase and the rest is paid in the following quarter. The company expects to have an accounts payable balance of $1,000 on December 31, 2017; and all outstanding payables are expected to be paid in the first quarter of 2018. Prepare cash disbursement on A/P budget.
(4) All employees – direct laborers, supervisors, S&A staff – are all paid in the quarter in which their services are used.
(5) Overhead costs and S&A expenses are paid in the quarter in which they are incurred.
(6) On April 1, 2018, the company plans to spend $30,000 to buy a high-end knitting machine, which has a 10-year useful life.

Information on financing:
(7) The company plans to borrow $30,000 from the local bank at an annual interest rate of 12%

to fund the purchase of the high-end kitting machine at the beginning of the second quarter. Principal will be due in 1 year and interest will be due every quarter. The company does not expect to issue stock or pay any dividends in 2018. Also, as of 12/31/2018, the company does not have any debt on its balance sheet. The company wants to maintain a minimum cash balance of $15,000.

7. Budgeted Income Statement: The Company calculates the predetermined overhead rate every year using direct labor hours as a cost driver (Round to the nearest cent). Also, when calculating the unit product cost, make sure to include two direct material components (t-shirt and ink).
Put together your master budget for 2018 in the following order:

1. Sales Budget
2. Schedule of Cash Collection
3. Production Budget
3. Direct materials purchase Budget

- one for T-shirt

- one for Ink
4. Schedule of Cash Disbursement

5. Direct Labor Budget
6. Manufacturing Overhead Budget

7. SG&A Budget
8. Cash Budget
9. Budgeted Income Statement.

Following are the budgeted income statements for the second quarter of 2016 for SeaTech, Inc.:

^* Includes all product costs (i.e., direct materials, direct labor, and manufacturing overhead).

^† Includes all period costs (i.e., selling, general, and administrative expenses).
  

The company expects about 30% of sales to be cash transactions. Of sales on account, 60% are expected to be collected in the first month after the sale is made, and 40% are expected to be collected in the second month after sale. Depreciation, insurance, and property taxes represent $24,000 of the estimated monthly cost of goods sold and $16,000 of the estimated monthly operating expenses. The annual insurance premium is paid in January, and the annual property taxes are paid in August. Of the remainder of the cost of goods sold and operating expenses, 80% are expected to be paid in the month in which they are incurred, and the balance is expected to be paid in the following month.

Current assets as of April 1, 2016, consist of cash of $28,000 and accounts receivable of $299,600 ($209,720 from March credit sales and $89,880 from February credit sales). Current liabilities as of April 1 consist of $36,000 of accounts payable for product costs incurred in March; $9,200 of accrued liabilities for operating expenses incurred in March; and a $80,000, 12%, 120-day note payable that is due on April 17, 2016.

An estimated income tax payment of $80,000 will be made in May. The regular quarterly dividend of $32,000 is expected to be declared in May and paid in June. Capital expenditures amounting to $34,400 will be made in April.

Required:

a. Complete the monthly cash budgets for the second quarter of 2016 using the following format. Note that the ending cash balance for June is provided as a check figure. (Use 360 days year for calculations.)

Rex Manufacturing had the following data for the quarter ended December 31:

                     Office expenses                         $  12,500

                     Office rent                                     20,000

                     Factory maintenance                   25,000

                     Office maintenance                      11,000

1. Present Rex's Schedule of Cost of goods Sold.