Mace Company acquired equipment that cost $60,000, which will be depreciated on the assumption that the equipment will last six years and have a $4,000 residual value. Component parts are not significant and need not be recognized and depreciated separately. Several possible methods of depreciation are under consideration.

Required:
1. Prepare a schedule that shows annual depreciation expense for the first two years, assuming the following (Round your answer to nearest whole dollar.):

1. Declining-balance method, using a rate of 30%.
2. Productive-output method. Estimated output is a total of 210,000 units, of which 24,000 will be produced the first year; 36,000 in each of the next two years; 30,000 the fourth year; and 42,000 the fifth and sixth years.
3. Straight-line method.

2. Repeat your calculations for requirement 1, assuming a useful life of 10 years, and a declining-balance rate of 20% that reflects the longer life, but the same number of units of production. The residual value is unchanged.

At 30 June 2019, the financial statements of McMaster Ltd showed a building with a cost (net of GST) of $372,000 and accumulated depreciation of $188,000. The business uses the straight-line method to depreciate the building. When acquired, the building's useful life was estimated at 30 years and its residual value at $74,000. On 1 January 2020, McMaster Ltd made structural improvements to the building costing $117,000 (net of GST). Although the capacity of the building was unchanged, it is estimated that the improvements will extend the useful life of the building to 40 years, rather than the 30 years originally estimated. No change is expected in the residual value. Calculate the number of years the building had been depreciated to 30 June 2019.

Part A: Evaluating a Company’s Budget Procedures and Behavioural Aspects of Budgeting Allenby Ltd is a distributor of earrings to various retail outlets located in shopping malls across the country. The company operates on a financial year basis and begins its annual budgeting process in late March when the Chief Executive Officer (CEO) establishes targets for total sales dollars and net operating income before taxes for the next financial year. The sales target is given to Marketing Department, where the Marketing manager, Ms Dory Thompson formulates a sales budget in both units and dollars. Ms Thompson also estimates the cost of the marketing activities required to support target sales volume and prepares a tentative marketing expense budget. The Deputy CEO uses the sales and profit targets, and the tentative marketing expense budget to determine the dollar amounts that can be devoted to purchases and office expense. The Deputy CEO prepares the budget for office expenses, and then forward to the Purchases Department, the sales budget in units and total dollar amount that can be devoted to purchases. The purchases manager is Mr Mark Treble. The purchases manager develops a purchases plan that will acquire the required inventory units when needed within the cost constraints set by the Deputy CEO. The budgeting process usually comes to a halt at this point because the purchases manager does not consider the financial resources allocated to his department to be adequate. When this standstill occurs, the Chief Finance Officer (CFO), the Deputy CEO, the marketing manager, and the purchases manager meet to determine the final budgets for each of the areas. This normally results in a modest increase in the total amount available for inventory costs, while the marketing expense and office expense budgets are cut. The total sales and net operating income targets proposed by the CEO are seldom changed. Although the managers are hardly pleased with the compromise, these budgets are final. The marketing and purchases managers then develop a new detail budget for their own departments. However, none of these departments has achieved their budgets in recent years. Sales often run below the target. When budgeted sales are not achieved, each department is expected to cut costs so that the CEO’s profit 3 target can still be met. Nonetheless, the profit target is hardly met since costs are not cut enough. In fact, costs often run above the original budget in all departments. The CEO is concerned that the company had not been able to meet its sales and profit targets. He employed a consultant with considerable relevant industry experience. The consultant suggested a participatory budgeting approach where the marketing and production managers would be requested by the CEO to coordinate in order to estimates sales and purchases quantities. Ms Thompson decided that she would start out by looking at recent sales history, potential customers, and customers’ spending patterns. Subsequently, she would intuitively forecast the best sales quantity and pass it to Mr Treble so he can estimate a purchases quantity. Since Ms Thompson and Mr Treble did not want to fall short of the sales estimates, they gave themselves ‘a little breathing room’ by lowering the initial sales estimates by between 5% and 10%. As a result, they had to adjust the projected purchases as the year progressed, which changes the estimated ending inventory. They also made similar adjustments to expenses by adding at least 10% to the initial estimates. Required:

You are required to prepare a to the CEO discussing the follow aspects.

Please discuss in details the questions

3. The new budget approach recommended by the consultant.

4. Ms Thompson and Mr Treble behaviour under the new budget approach, and the potential impact of their behaviour.

Allenby Ltd is a distributor of earrings to various retail outlets located in shopping malls across the country. The company operates on a financial year basis and begins its annual budgeting process in late March when the Chief Executive Officer (CEO) establishes targets for total sales dollars and net operating income before taxes for the next financial year.

The sales target is given to Marketing Department, where the Marketing manager, Ms Dory Thompson formulates a sales budget in both units and dollars. Ms Thompson also estimates the cost of the marketing activities required to support target sales volume and prepares a tentative marketing expense budget.

The Deputy CEO uses the sales and profit targets, and the tentative marketing expense budget to determine the dollar amounts that can be devoted to purchases and office expense. The Deputy CEO prepares the budget for office expenses, and then forward to the Purchases Department, the sales budget in units and total dollar amount that can be devoted to purchases. The purchases manager is Mr Mark Treble.

The purchases manager develops a purchases plan that will acquire the required inventory units when needed within the cost constraints set by the Deputy CEO. The budgeting process usually comes to a halt at this point because the purchases manager does not consider the financial resources allocated to his department to be adequate.

When this standstill occurs, the Chief Finance Officer (CFO), the Deputy CEO, the marketing manager, and the purchases manager meet to determine the final budgets for each of the areas. This normally results in a modest increase in the total amount available for inventory costs, while the marketing expense and office expense budgets are cut. The total sales and net operating income targets proposed by the CEO are seldom changed. Although the managers are hardly pleased with the compromise, these budgets are final. The marketing and purchases managers then develop a new detail budget for their own departments.

However, none of these departments has achieved their budgets in recent years. Sales often run below the target. When budgeted sales are not achieved, each department is expected to cut costs so that the CEO’s profit target can still be met. Nonetheless, the profit target is hardly met since costs are not cut enough. In fact, costs often run above the original budget in all departments.

The CEO is concerned that the company had not been able to meet its sales and profit targets. He employed a consultant with considerable relevant industry experience. The consultant suggested a participatory budgeting approach where the marketing and production managers would be requested by the CEO to coordinate in order to estimates sales and purchases quantities.

Ms Thompson decided that she would start out by looking at recent sales history, potential customers, and customers’ spending patterns. Subsequently, she would intuitively forecast the best sales quantity and pass it to Mr Treble so he can estimate a purchases quantity.

Since Ms Thompson and Mr Treble did not want to fall short of the sales estimates, they gave themselves ‘a little breathing room’ by lowering the initial sales estimates by between 5% and 10%. As a result, they had to adjust the projected purchases as the year progressed, which changes the estimated ending inventory. They also made similar adjustments to expenses by adding at least 10% to the initial estimates.

Prepare a report to the CEO discussing the follow aspects.

1. The company’s original budget approach that contributed to the failure to achieve the CEO’s sales and profit targets.

2. Whether the departments should be expected to cut their costs when sales volume falls below budget.

3. The new budget approach recommended by the consultant.

4. Ms Thompson and Mr Treble behaviour under the new budget approach, and the potential impact of their behaviour.

help with part 4

The IT Manager’s Dilemma

Sally Lewis graduated from college 4 years ago with a degree in computer science. She currently runs the business application support department for a mid-sized company in Austin. Sally currently earns $73,000 per year and expects an annual raise of 3% per year. Her company does not pay bonuses. Sally is 27 and intends on working for an additional 38 years (until she is 65). She has a fully paid insurance benefit and is currently in the 26% tax bracket. Although Sally enjoys her job she is concerned that her degree and current experience is to narrow and as a result might limit her potential career opportunities and earning potential. Sally is considering two options to further her career.

Option 1 is to do a two-year MBA at Brazonian University. The degree would round out her technical skills with a sound business background. The MBA would require two years of full-time study (where Sally would be unable to work) with an annual tuition amount of $58,000 payable each year. Books and other supplies would be $2,000 per year. After finishing the MBA sally thinks she would be able to get an immediate position and make $105,000 per year and also receive a $10,000 signing bonus. The salary would be expected to grow by 4% per year. She then would be in the 31% tax bracket.

Option 2 is to do a specialize one year program at Olympus University in Data Analytics. The program would be an intense 1-year program (she would be unable to work) and offer her employment opportunities starting at $98,000 growing at 5% per year while also receiving an $8,000 initial signing bonus. The compensation would put her in the 29% tax bracket. The cost for the 12-month program is $75,000 plus an additional $4,200 in fees.

Both programs offer insurance coverage for $3,000 per year. Housing on campus at both programs would be $4,000 less than what Sally is currently paying so would be a net savings. Sally has been a diligent saver in her career and as a result has the money in savings for either of these options and would pay cash and incur no financing fees.

Sally likes her current position but also is intrigued with both options. She see’s herself being happy in either of these options or even with the status quo. What she would like to do is make the decision and pursue the path that provides the best financial upside to her. Sally wants to use a 5.5% discount rate for her analysis.

So consider:

• What other factors (financial or otherwise) should Sally consider when making this decision?

• What risks are there for Sally to pursue either option?

• On a purely economic perspective what is the best decision for Sally to make?

• How does Sally’s age play into making this decision?   Does the decision change if Sally wants to retire in 20 years?

• What initial salaries (one each for the MBA and one for the Data Analytics program) would Sally need to be offered to make her indifferent about leaving her current situation (at what salary points are the future values equal?)

• Assume Sally wanted to borrow the money to attend either option the interest rate was 5.4%, how would this change Sally’s decision?

Sharpex (Hong Kong) exports 1,000 containers of razor blades to its U.S. based parent company, Eversharp. Use the following information to calculate the consolidated after-tax profit.

• The direct cost for the Hong Kong division is USD 10,000 per unit
• The overhead cost for the Hong Kong division is USD 6,000 per unit
• The desired markup for the Hong Kong division is 22%
• Hong Kong tax rate is 15%

• The direct cost per unit for the U.S. parent is transfer price (sale price) of the Hong Hong division
• The overhead cost for the U.S. parent is USD 1,000 per unit
• The desired markup for the U.S. parent is 10%
• The tax rate for the U.S. parent is 35%

On July 1, 2021, Truman Company acquired a 70 percent interest in Atlanta Company in exchange for consideration of $767,200 in cash and equity securities. The remaining 30 percent of Atlanta’s shares traded closely near an average price that totaled $328,800 both before and after Truman’s acquisition.

In reviewing its acquisition, Truman assigned a $138,500 fair value to a patent recently developed by Atlanta, even though it was not recorded within the financial records of the subsidiary. This patent is anticipated to have a remaining life of five years.

The following financial information is available for these two companies for 2021. In addition, the subsidiary’s income was earned uniformly throughout the year. The subsidiary declared dividends quarterly.

a) What is the excess fair-value assigned to patent and goodwill?

b) How did Truman allocate the goodwill from the acquisition across the controlling and noncontrolling interests?

c) How did Truman derive the Investment in Atlanta account balance at the end of 2021?

d) Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2021. At year-end, there were no intra-entity receivables or payables.

3.On January 1, 2016, Fuller Company acquired a 80% interest in Wilson Company for a purchase price that was $240,000 over the book value of the Wilson’s Stockholders’ Equity on the acquisition date. Fuller uses the equity method to account for its investment in Wilson. Fuller assigned the acquisition-date AAP as follows:

Wilson sells inventory to Fuller (upstream) which includes that inventory in products that it, ultimately, sells to customers outside of the controlled group. You have compiled the following data for the years ending 2018 and 2019:

The inventory not remaining at the end of the year has been sold outside of the controlled group.

The parent and the subsidiary report the following financial statements at December 31, 2019:

a. Compute the EOY noncontrolling interest equity balance
b. Prepare the consolidation journal entries.

On January 1, 2013, Daisy Company acquired 90 percent of Rose Company for $700,000 in cash. Rose’s total book value on that date was $620,000 and the fair value of the noncontrollinginterest was $150,500. The newly acquired subsidiary possessed a trademark (10-year remaining life) that, although unrecorded on Rose’s accounting records, had a fair value of $75,000. Any remaining excess acquisition-date fair value was attributed to goodwill.

Daisy decided to acquire Rose so that the subsidiary could furnish component parts for the parent’s production process. During the ensuing years, Rose sold inventory to Daisy as follows:

Any transferred merchandise that Daisy retained at a year-end was always put into production during the following period.

Rose company earned net income during 2015 of 80,000 and distributed dividends of 25,000.

1.Compute annual amortization

2.Compute the balance of investment in Rose account

3.Compute controlling interest share of net income 2015

4. 3.Compute non controlling interest share of net income 2015

5.Record necessary journal entries during 2015 related to intra company transactions.

osada Company acquired 7,000 of the 10,000 outstanding shares of Sabathia Company on January 1, 2016, for $840,000. The subsidiary’s total fair value was assessed at $1,200,000 although its book value on that date was $1,130,000. The $70,000 fair value in excess of Sabathia’s book value was assigned to a patent with a five-year remaining life.

On January 1, 2018, Posada reported a $1,085,000 equity method balance in the Investment in Sabathia Company account. On October 1, 2018, Posada sells 1,000 shares of the investment for $191,000. During 2018, Sabathia reported net income of $120,000 and declared dividends of $40,000. These amounts are assumed to have occurred evenly throughout the year.

How should Posada report the 2018 income that accrued to the 1,000 shares prior to their sale? (Do not round your intermediate calculations.)

What is the effect on Posada’s financial statements from this sale of 1,000 shares? (Do not round your intermediate calculations.)