Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 13 percent return on its investment.

  During the past week, management of the company’s Northeast Division was approached about the possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the Northeast Division and the competitor:

Northeast Division .l Competitor

Sales........................................................$8,400,000 l . $5,200,000
Variable costs ..............................................70% of sales l. 65% of sales
Fixed costs ................................................ .$2,150,000 l $1,670,000
Invested capital ............................................ $1,850,000 l. $625,000

Management has determined that in order to upgrade the competitor to Megatronics’ standards, an additional $375,000 of invested capital would be needed.

To do:
1. Compute the current ROI of the Northeast Division and the division’s ROI if the competitor is acquired.
2. What is the likely reaction of divisional management toward the acquisition? Why?
3. What is the likely reaction of Megatronics’ corporate management toward the acquisition? Why?
4. Would the division be better off if it didn’t upgrade the competitor to Megatronics’ standards? Show computations to support your answer.
5. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent minimum return on invested capital. Compute the current residual income of the Northeast Division and the division’s residual income if the competitor is acquired. Will divisional management be likely to change its attitude toward the acquisition? Why?

Sheffield Co. had sales revenue of $550,900 in 2020. Other items recorded during the year were:

Prepare a single-step income statement for Sheffield for 2020. Sheffield has 100,700 shares of stock outstanding. (Round earnings per share to 2 decimal places, e.g. 1.48.)

Jackson’s Corporation purchased equipment at a cost of $500,000. The equipment has an estimated residual value of $50,000 and an estimated life of 5 years, or 10,000 hours of operation. The equipment was purchased on January 1, 2020 and was used 2,500 hours in 2020 and 2,100 hours in 2021. On January 1, 2022, the company decided to sell the equipment for $315,000. Jackson’s Corporation uses the units-of- production method to account for the depreciation on the equipment.

1.) Will the entry to record the sale of the equipment show a gain or loss?

2.) How much will the gain or loss be?

On January 1, 2020, ABC Corporation had 990,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On May 1, the company issued a 5% stock dividend. On July 1, the corporation declared and issued a 3-for-1 stock split. On October 1, the corporation repurchased on the market 400,000 of its own outstanding shares and retired them. Instructions Compute the weighted average number of shares to be used in computing earnings per share for 2020

A company makes the following journal entry for 2020:

Dr. Income Tax Expense                    xxxx

Dr. Deferred Tax Asset                      77,000

            Cr. Deferred Tax Liability                     27,000

            Cr. Income Tax Payable                                 275,000

On the income statement, the deferred portion of income tax expense for 2020 appears as: _______________. Very important: If the amount of the deferred portion is subtracted from the current portion to obtain income tax expense, put a minus sign in front of the amount; if the amount of the deferred portion is added to the current portion, then leave the amount as is.

in 2018 the westgate construction company entered into a contract to construct a road for Santa Clara County for 10,000,000 The road was completed in 2020. Calculate the amount of revenue and gross profit to be recognized in each of the 3 years assuming the following costs to incur and costs to complete information. ( Do not round intermediate calculations and round your final answers to the nearest whole dollar amount.

   2018    2019 2020

Cost incurred during the year $2,016,000 3,890,000    3,290,000

Estimated cost to complete as of year end $5,184,000    3,190,000   

Question 11

The following facts pertain to a non-cancelable lease agreement between Carla Vista Leasing Company and Tamarisk Company, a lessee.

The collectibility of the lease payments by Carla Vista is probable.

Discuss the nature of this lease to Tamarisk.
Discuss the nature of this lease to Carla Vista.

Prepare a lease amortization schedule for Tamarisk for the 5-year lease term. (Round answers to 2 decimal places, e.g. 5,275.15.)

Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Tamarisk’s annual accounting period ends on December 31. Reversing entries are used by Tamarisk. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)

ABC Corporation had the following shareholders’ equity balances at January 1, 2020:

Common shares, unlimited authorized, 400,000 issued                                       $800,000

Retained earnings                                                                                             120,000                     

Accumulated other comprehensive income                                                                30,000

The following events occurred in 2020:

• Issued 50,000 common shares for $150,000 cash.
• Declared and paid cash dividends of $25,000.
• Reported net income of $40,000.
• Reported other comprehensive income of $10,000.
• At the end of the year, the fair market value of common shares was $5/share.
• Completed a 2:1 stock-split.

Required:

1. Prepare a statement of changes in equity using the following tabular format (i.e., input numbers into the table below):

2. Would your answer to part a) above change if the company paid a stock dividend rather than a cash dividend? Explain.

3. Briefly explain why the shareholders’ equity section is important to users of financial statements.
4. Provide your views on the following quote from the President of Medical Ltd, a struggling pharmaceutical company that focuses on developing new and innovative medications:

“Investors are important. We need to please them. We need to maintain a high dividend payout ratio…whatever it takes…I want to show an increasing dividend payout ratio….”

Question 11

The following facts pertain to a non-cancelable lease agreement between Carla Vista Leasing Company and Tamarisk Company, a lessee.

The collectibility of the lease payments by Carla Vista is probable.

1. Discuss the nature of this lease to Tamarisk

a) operating b) finance c) sales type

2. Discuss the nature of this lease to Carla Vista.

a) operating b) finance c) sales type

3. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2020 and 2021. Tamarisk’s annual accounting period ends on December 31. Reversing entries are used by Tamarisk. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 2 decimal places, e.g. 5,275.15. Record journal entries in the order presented in the problem.)