Last week, you performed a trend analysis for the manufacturing company you selected in week 2. For this week, refer back to that company and assess the financial statements using the ratio tools you have acquired in the course. Select at least one profitability, liquidity, solvency, and market valuation ratio and evaluate the results. Based on your findings, post an initial response to the following: What do the metrics tell you about the company’s performance? Support your answer by explaining the results from your assessment. If you were considering investing in the company, what other questions would you ask to gain further insight into the performance?
In: Accounting
Riverbed Company reports pretax financial income of $63,900 for 2020. The following items cause taxable income to be different than pretax financial income.
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1. |
Depreciation on the tax return is greater than depreciation on the income statement by $17,600. |
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2. |
Rent collected on the tax return is greater than rent recognized on the income statement by $23,300. |
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3. |
Fines for pollution appear as an expense of $11,800 on the income statement. |
Riverbed’s tax rate is 30% for all years, and the company expects
to report taxable income in all future years. There are no deferred
taxes at the beginning of 2020.
Compute taxable income and income taxes payable for 2020.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2020.
Compute the effective income tax rate for 2020.
In: Accounting
During 2020, Susan Building Company constructed various assets
at a total cost of $12,600,000. The weighted average accumulated
expenditures on assets qualifying for capitalization of interest
during 2020 were $8,138,000. The company had the following debt
outstanding at December 31, 2020:
| 1. | 10%, 5-year note to finance construction of various assets, dated January 1, 2020, with interest payable annually on January 1 | $5,452,000 | ||
| 2. | 12%, ten-year bonds issued at par on December 31, 2014, with interest payable annually on December 31 | 5,946,000 | ||
| 3. | 9%, 3-year note payable, dated January 1, 2019, with interest payable annually on January 1 | 2,973,000 |
Compute the amounts of each of the following.
| 1. | Avoidable interest | $ | |
| 2. | Total interest to be capitalized during 2020 | $ |
In: Accounting
During 2020, Maria Building Company constructed various assets
at a total cost of $12,600,000. The weighted average accumulated
expenditures on assets qualifying for capitalization of interest
during 2020 were $8,347,000. The company had the following debt
outstanding at December 31, 2020:
| 1. | 10%, 5-year note to finance construction of various assets, dated January 1, 2020, with interest payable annually on January 1 | $5,388,000 | ||
| 2. | 12%, ten-year bonds issued at par on December 31, 2014, with interest payable annually on December 31 | 5,811,000 | ||
| 3. | 9%, 3-year note payable, dated January 1, 2019, with interest payable annually on January 1 | 2,905,500 |
Compute the amounts of each of the following.
| 1. | Avoidable interest | $ | |
| 2. | Total interest to be capitalized during 2020 |
In: Accounting
Plastix Inc. bought a molding machine for $600,000 on July 1, 2017. The company expected to use this machine to extrude plastic toys for the next eight (8) years, when the machine would be sold for $40,000. On July 1, 2020, their major customer, WalMart, gave notification that they were terminating Plastix Inc. as a supplier. Plastix Inc.’s accountants estimate that the machine will generate $360,000 in future cash inflows from other customers and the fair value of the machine is $350,000. Plastix uses straight-line depreciation. What is the impairment loss on July 1, 2020?
In: Accounting
The following information is used for the following two questions. Ping and Slazenger Company (its 90% owned affiliate) reported the following income information for year X1: Ping Slazenger Revenue 300,000 100,000 Cost of Sales 120,000 40,000 Selling, General, and Adm Expenses 40,000 20,000 Depreciation 20,000 10,000 Investment Income ? Total Net Income ? 30,000 During Year X1, Slazenger made sales of $20,000 to Ping. Slazenger’s Cost of Sales was $10,000. As of 12/31/X1, Ping had still owned 60% of the units acquired from Slazenger. Based on this information, how much Consolidated Income should Ping report? Select one: a. $140,000 b. $144,000 c. $146,000 d. $150,000 e. None of the Above
The next two questions are based on the following information: Assume that Meridian Company acquired 1,000 shares of of Slim Company's common stock for $10 per share on 1/1/X1 and adopted the fair value (FV) accounting method. On 1/1/X1, Slim had 10,000 shares outstanding and its equity book value included $50,000 Capital Stock and $50,000 of Retained Earnings. During year X1, Slim reported a $50,000 net income and paid dividends of $1 per share. on 12/31/X1, Slim's stock traded at $16 per share. How much investment income should Meridian recognize in year X1?
Select one:
a. $1,000
b. $5,000
c. $6,000
d. $7,000
e. None of the Above
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This question is a continuation of the previous question about Meridian and Slim. On 1/1/X2, Meridian purchased 5,000 shares of Slim stock for $17 per share and elected Meridian's CEO and CFO to Slim's Board of Directors. An appraisal of Slim's assets could not identify any asset groups that were mis-valued. During year X2, Slim reported earnings per common share of $6 and paid a dividend of $1 per share. On 12/31/X2, Slim stock traded at $21 per share. Based on this information, Meridian's investments in Slim should be reported at which of the following amounts on 12/31/X2?
Select one:
a. $125,000
b. $131,000
c. $132,000
d. $138,000
e. None of the Above
In: Accounting
A parent company acquired 100 percent of the stock of a subsidiary company on January 1, 2013, for $800,000. On this date, the balances of the subsidiary’s stockholders’ equity accounts were Common Stock, $50,000, Additional Paid-in Capital, $55,000, and Retained Earnings, $195,000. On the acquisition date, the excess was assigned to the following AAP assets:
| Original Amount | Original Useful Life | |||||||
|---|---|---|---|---|---|---|---|---|
| Property, plant & equipment | 300,000 | 10 | years | |||||
| Customer list | 200,000 | 8 | years | |||||
| Royalty agreement | 180,000 | 8 | years | |||||
| Goodwill | 120,000 | Indefinite | ||||||
The Goodwill asset has been tested annually for impairment, and has not been found to be impaired.
Assume that the parent company sells inventory to its wholly owned subsidiary. The subsidiary, ultimately, sells the inventory to customers outside of the consolidated group. You have compiled the following data for the years ending 2015 and 2016:
| Intercompany Sales |
Gross Profit Remaining
in Unsold Inventory |
Receivable (Payable) |
|||||
|---|---|---|---|---|---|---|---|
| 2016 | $39,000 | $7,000 | $27,000 | ||||
| 2015 | $59,000 | $9,500 | $14,000 | ||||
The inventory not remaining at the end of a given year is sold to unaffiliated entities outside of the consolidated group during the next year. The parent uses the cost method of pre-consolidation Equity Investment bookkeeping.
The financial statements of the parent and its subsidiary for the year ended December 31, 2016, follow:
| Parent | Subsidiary | Parent | Subsidiary | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Income statement | Balance sheet | ||||||||||||||||
| Sales | $4,350,000 | $800,000 | Assets | ||||||||||||||
| Cost of goods sold | (3,050,000) | (480,000) | Cash | $650,000 | 350,000 | ||||||||||||
| Gross profit | 1,300,000 | 320,000 | Accounts receivable | 560,000 | 180,000 | ||||||||||||
| Income (loss) from subsidiary | 15,000 | - | Inventory | 850,000 | 250,000 | ||||||||||||
| Operating expenses | (830,000) | (200,000) | Equity investment | 1,100,000 | - | ||||||||||||
| Net income | 485,000 | 120,000 | Property, plant & equipment | 4,000,000 | 420,000 | ||||||||||||
| Statement of retained earnings | $7,160,000 | $1,200,000 | |||||||||||||||
| BOY retained earnings | $2,000,000 | 505,000 | Liabilities and stockholders' equity | ||||||||||||||
| Net income | 485,000 | 120,000 | Accounts payable | $350,000 | $100,000 | ||||||||||||
| Dividends | (125,000) | (15,000) | Other current liabilities | 400,000 | 125,000 | ||||||||||||
| Ending retained earnings | $2,360,000 | 610,000 | Long-term liabilities | 2,500,000 | 260,000 | ||||||||||||
| Common stock | 700,000 | 50,000 | |||||||||||||||
| APIC | 850,000 | 55,000 | |||||||||||||||
| Retained earnings | 2,360,000 | 610,000 | |||||||||||||||
| 7,160,000 | 1,200,000 | ||||||||||||||||
a. BOY [ADJ] for consolidation at December 31, 2016
b. Consolidating entries
In: Accounting
Wember Company acquired a subsidiary company on December 31, 2012, and recorded the cost of the intangible assets it acquired as follows:
| Patent | $100,000 |
| Trade name | 80,000 |
| Goodwill | 150,000 |
The patent is being amortized by the straight-line method over an expected life of 10 years with no residual value. Amortization has been recorded for the current year. The trade name was considered to have an indefinite life.
Because of the success of the subsidiary in the past, Wember has not previously considered any of the intangible assets to be impaired. However, in 2016, because of a current recession and technological changes in the subsidiary’s industry, Wember decides to review all of its intangible assets for impairment and record any adjustments at December 31, 2016.
Wember estimates that the fair value of the patent is $42,000. The company estimates the fair value of the trade name to be $90,000 but decides that it now has a limited life of 5 years. The subsidiary company, which qualifies as a reporting unit, has a book value of $700,000, including the goodwill of $150,000. Wember estimates that the fair value of the subsidiary company is $400,000, of which it allocates 80% to the identifiable assets and liabilities.
Required:
| 1. | Prepare journal entries for Wember to record the impairment of its intangible assets at December 31, 2016. |
| 2. | Prepare journal entries for Wember to record the amortization expense for its intangibles at December 31, 2017. |
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In: Accounting
Phoenix Company can invest in each of three cheese-making
projects: C1, C2, and C3. Each project requires an initial
investment of $282,000 and would yield the following annual cash
flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use
appropriate factor(s) from the tables provided.)
| C1 | C2 | C3 | ||||||||||
| Year 1 | $ | 30,000 | $ | 114,000 | $ | 198,000 | ||||||
| Year 2 | 126,000 | 114,000 | 78,000 | |||||||||
| Year 3 | 186,000 | 114,000 | 66,000 | |||||||||
| Totals | $ | 342,000 | $ | 342,000 | $ | 342,000 | ||||||
(1) Assume that the company requires a 9% return
from its investments. Using net present value, determine which
projects, if any, should be acquired. (Negative net present
values should be indicated with a minus sign. Round your answers to
the nearest whole dollar.)
Phoenix Company can invest in each of three cheese-making
projects: C1, C2, and C3. Each project requires an initial
investment of $282,000 and would yield the following annual cash
flows. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use
appropriate factor(s) from the tables provided.)
| C1 | C2 | C3 | ||||||||||
| Year 1 | $ | 30,000 | $ | 114,000 | $ | 198,000 | ||||||
| Year 2 | 126,000 | 114,000 | 78,000 | |||||||||
| Year 3 | 186,000 | 114,000 | 66,000 | |||||||||
| Totals | $ | 342,000 | $ | 342,000 | $ | 342,000 | ||||||
(1) Assume that the company requires a 9% return
from its investments. Using net present value, determine which
projects, if any, should be acquired. (Negative net present
values should be indicated with a minus sign. Round your answers to
the nearest whole dollar.)
In: Accounting
Monty Corp. had the following long-term receivable account balances at December 31, 2019.
| Notes receivable | $2,000,000 | |
| Notes receivable - Employees | 350,000 |
Transactions during 2020 and other information relating to Monty'
long-term receivables were as follows:
| 1. | The $2,000,000 note receivable is dated May 1, 2019, bears interest at 9%, and represents the balance of the consideration received from the sale of Monty's electronics division to Sandhill Company. Principal payments of $666,667 plus appropriate interest are due on May 1, 2020, 2021, and 2022. The first principal and interest payment was made on May 1, 2020. Collection of the note instalments is reasonably assured. | |
| 2. | The $350,000 note receivable is dated December 31, 2019, bears interest at 9%, and is due on December 31, 2022. The note is due from Marcia Cumby, president of Monty Corp., and is secured by 10,000 Monty common shares. Interest is payable annually on December 31, and the interest payment was made on December 31, 2020. The quoted market price of Monty's common shares was $50 per share on December 31, 2020. | |
| 3. | On April 1, 2020, Monty sold a patent to Carla Vista Company in exchange for a $200,000 non–interest-bearing note due on April 1, 2022. There was no established exchange price for the patent, and the note had no ready market. The prevailing rate of interest for a note of this type at April 1, 2020, was 10%. The present value of $1 for two periods at 10% is 0.82645 (use this factor). The patent had a carrying amount of $43,000 at January 1, 2020, and the amortization for the year ended December 31, 2020 would have been $7,000. The collection of the note receivable from Carla Vista is reasonably assured. | |
| 4. | On July 1, 2020, Monty sold a parcel of land to Teal Mountain Inc. for $220,000 under an instalment sale contract. Teal Mountain made a $54,000 cash down payment on July 1, 2020, and signed a four-year, 11% note for the $166,000 balance. The equal annual payments of principal and interest on the note will be $53,506, payable on July 1, 2021, through July 1, 2024. The land could have been sold at an established cash price of $210,000. Monty had paid $140,000 for the land when it purchased it. Collection of the instalments on the note is reasonably assured. | |
| 5. | On August 1, 2020, Monty agreed to allow its customer, Saini Inc., to substitute a six-month note for accounts receivable of $210,000 it owed. The note bears interest at 6% and principal and interest are due on the note’s maturity date. |
Click here to view the factor table PRESENT VALUE OF 1.
Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF
1.
The tables in this problem are to be used as a reference for this
problem. (For calculation purposes, use 5 decimal
places as displayed in the factor table
provided.)
Partially correct answer iconYour answer is partially correct.
Describe the relevant cash flows in terms of amount and timing.
| Cash inflows from notes | ||||||||||||
| 2020 | 2021 | 2022 | 2023 | 2024 | ||||||||
| 1. | 9% Note receivable | |||||||||||
| Principal | $ | $ | $ | $ | $ | |||||||
| Interest | ||||||||||||
| 2. | 9% Note receivable | |||||||||||
| Principal | ||||||||||||
| Interest | ||||||||||||
| 3. | Non-interest-bearing note receivable | |||||||||||
| Payment | ||||||||||||
| 4. | Instalment contract receivable | |||||||||||
| Down payment | ||||||||||||
| Payment | ||||||||||||
| 5. | 6% Note receivable | |||||||||||
| Principal | ||||||||||||
| Interest | ||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||
Determine the amount of interest income that should be reported in 2020. (Round answers to 0 decimal places, e.g. 8,971.)
| Note Receivable | $ | |
| Note Receivable—Employees | $ | |
| Zero-interest-bearing Note—Patent | $ | |
| Instalment Contract—Sale of Land | $ | |
| Note Receivable - Saini | $ | |
| Total Interest Income reported in 2020 | $ |
Determine the portion of the note and any interest that should be reported in current assets at December 31, 2020. (Round answers to 0 decimal places, e.g. 9,871. Do not leave any answer field blank. Enter 0 for amounts.)
| Current portion of 9% notes receivable | $ | |
| Current portion of 8% notes receivable | $ | |
| Non-interest-bearing note receivable | $ | |
| Current portion of instalment contract | $ | |
| Note receivable from customer | $ | |
| Total current notes and interest | $ |
Prepare the long-term receivables section of Monty statement of financial position at December 31, 2020. (Round answers to 0 decimal places, e.g. 8,971.)
| Monty Corp. Long-Term Receivables Section of Statement of Financial Positon December 31, 2020 |
||
| 9% note receivable from sale of division | $ | |
| 9% note receivable from employees | ||
| Zero-interest-bearing note from sale of patent | ||
| Instalment contract receivable | ||
| Total long-term receivables | $ | |
Prepare a schedule showing the current portion of the long-term receivables and accrued interest receivable that would appear in Monty's statement of financial position at December 31, 2020. (Round answers to 0 decimal places, e.g. 8,971.)
| Monty Corp. Selected Statement of Financial Positon Balances December 31, 2020 |
||
| Note receivable from customer | $ | |
| Current portion of long-term receivables: | ||
| Note receivable from sale of division | $ | |
| Instalment contract receivable | ||
| Total current portion of long-term receivables | $ | |
| Accrued interest receivable: | ||
| Note receivable from sale of division | $ | |
| Instalment contract receivable | ||
| Note receivable from customer | ||
| Total accrued interest receivable | $ | |
In: Accounting