The Grilton Tire Company manufactures racing tires for bicycles. Grilton sells tires for $50 each. Grilton is planning for next year (2020) by developing a master budget by quarters. Grilton’s balance sheet for December 31, 2019 follows:

GRILTON TIRE COMPANY

Balance Sheet

December 31, 2019

Assets

Current Assets:

  Cash                                                                                           $  39,000

  Accounts Receivable                                                                   40,000

  Raw Materials Inventory                                                               2,400

  Finished Goods Inventory                                                            8,700

  Total Current Assets                                                                                              $ 90,100

Property, Plant and Equipment:

  Equipment                                                                                 177,000

  Less: Accumulated Depreciation                                            (42,000)                135,000

Total Assets                                                                                                               $225,100

Liabilities

Current Liabilities:

  Accounts Payable                                                                                                  $  8,000

Stockholder’s Equity

Common Stock, no par                                                           $ 130,000

Retained Earnings                                                                         87,100

  Total Stockholder’s Equity                                                                                  217,100

Total Liabilities and Stockholder’s Equity                                                          $225,100

Other data for Grilton Tire Company:

1. Budgeted Sales are 1,500 for the first quarter and expected to increase by 200 tires per quarter. Cash Sales are expected to be 30% of total sales, with the remaining 70% of sales on account.
2. Finished Goods Inventory on December 31, 2019 consists of 300 tires at $29 each.
3. Desired ending Finished Goods Inventory is 40% of the next quarter’s sales; first quarter sales for 2020 are expected to be 2,300 tires and second quarter sales for 2020 are expected to be 2,500.  FIFO inventory costing method is used.
4. Direct Materials cost is $8 per tire.
5. Desired ending Raw Materials Inventory is 30% of the next quarter’s direct materials needed for production.
6. Each tire requires 0.40 hours of direct labor; direct labor costs average $16 per hour.
7. Variable manufacturing overhead is $2 per tire produced.
8. Fixed manufacturing overhead includes $4,500 per quarter in depreciation and $26,780 per quarter for other costs, such as utilities, insurance, and property taxes.
9. Fixed selling and administrative expenses include $8,000 per quarter for salaries; $1,800 per quarter for rent; $1,200 per quarter for insurance; and $500 per quarter for depreciation.
10. Variable selling and administrative expenses include supplies at 2% of sales.
11. Capital expenditures include $45,000 for new manufacturing equipment, to be purchased and paid in the first quarter.
12. Cash receipts for sales on account are 60% in the quarter of sale and 40% in the quarter following the sale. The December 31, 2019 Accounts Receivable ($40,000) is received in the first quarter of 2020.
13. Direct materials purchases are paid 70% in the quarter purchased and 30% in the following quarter. The December 31, 2019 Accounts Payable ($8,000) is paid in the first quarter of 2020.
14. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.
15. Income tax expense is projected at $3,500 per quarter and is paid in the quarter incurred.
16. Grilton desires to maintain a minimum cash balance of $35,000 and borrows from the local bank as needed in increments of $1,000 at the beginning of the quarter; principal repayments are made at the beginning of the quarter when excess funds are available and in increments of $1,000; interest is 6% per year and paid at the beginning of the quarter based on the amount outstanding from the previous quarter. Interest must be paid at the beginning of each quarter.

• 1	Grilton Tire Company
  	Sales Budget
  	For the Year Ended December 31, 2020
  		Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
  	Budgeted tires to be sold	1500	1700	1900	2100	7200
  	Selling price per unit	$               50	$               50	$               50	$               50	$               50
  	Total sales $	75000	85000	95000	105000	360000
  2	Grilton Tire Company
  	Schedule of Expected Cash Collections
  	For the Year Ended December 31, 2020
  		Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
  	Sales $	75000	85000	95000	105000	360000
  	Cash sales collections (30%)	22500	25500	28500	31500	108000
  	Collections for credit sales of:
  	Previous quarter (40%)	40000	21000	23800	26600	111400
  	Current quarter (60%)	31500	35700	39900	44100	151200
  	Collection on credit sales	71500	56700	63700	70700	262600
  	Total cash collections $	94000	82200	92200	102200	370600
  3	Grilton Tire Company
  	Production Budget
  	For the Year Ended December 31, 2020
  		Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
  	Budgeted tires to be sold	1500	1700	1900	2100	7200
  	Add: Desired ending FG inventory	680	760	840	920	920
  	Total tires needed	2180	2460	2740	3020	8120
  	Less: Beginning FG inventory	300	680	760	840	300
  	Budgeted tires to be produced	1880	1780	1980	2180	7820

A 2010 study asserts that the number of hours that the average college student studies each week has been steadily dropping (The Boston Globe, July 4, 2010). In fact, the researchers state that, in the U.S., today’s undergraduates study an average of 14 hours per week. Suppose an administrator at a local university wants to show that the average study time of students at his university differs from the national average. He takes a random sample of 35 students at is university and finds that the average number of hours spent studying per week is 16.3. Assume that the population standard deviation is 7.2 hours. At 0.05 level of significance, what is the test statistics for testing the hypotheses H0: µ = 14 versus H1: µ ≠ 14?

Is there a difference between community college statistics students and university statistics students in what technology they use on their homework? Of the randomly selected community college students 67 used a computer, 86 used a calculator with built in statistics functions, and 22 used a table from the textbook. Of the randomly selected university students 40 used a computer, 88 used a calculator with built in statistics functions, and 39 used a table from the textbook. Conduct the appropriate hypothesis test using an αα = 0.01 level of significance.

1. What is the correct statistical test to use?
   • Goodness-of-Fit
   • Independence
   • Homogeneity
   • Paired t-test
2. What are the null and alternative hypotheses?
   H0:H0:
   • Type of student and type of technology used for statistics homework are dependent.
   • Type of student and type of technology used for statistics homework are independent.
   • The distribution of the technology that community college statistics students use for their homework is the same as the distribution of the technology that university statistics students use for their homework.
   • The distribution of the technology that community college statistics students use for their homework is not the same as the distribution of the technology that university statistics students use for their homework.
   
   
   
   H1:H1:
   • The distribution of the technology that community college statistics students use for their homework is the same as the distribution of the technology that university statistics students use for their homework.
   • Type of student and type of technology used for statistics homework are independent.
   • The distribution of the technology that community college statistics students use for their homework is not the same as the distribution of the technology that university statistics students use for their homework.
   • Type of student and type of technology used for statistics homework are dependent.
3. The test-statistic for this data =  (Please show your answer to 2 decimal places.)
   
4. The p-value for this sample = (Please show your answer to 4 decimal places.)
   
5. The p-value is Select an answer less than (or equal to) greater than  αα
   
6. Based on this, we should
   • accept the null
   • fail to reject the null
   • reject the null
7. Thus, the final conclusion is...
   • There is sufficient evidence to conclude that the distribution of the technology that community college statistics students use for their homework is the same as the distribution of the technology that university statistics students use for their homework.
   • There is insufficient evidence to conclude that type of student and type of technology used for statistics homework are independent.
   • There is sufficient evidence to conclude that type of student and type of technology used for statistics homework are dependent.
   • There is insufficient evidence to conclude that the distribution of the technology that community college statistics students use for their homework is not the same as the distribution of the technology that university statistics students use for their homework.
   • There is sufficient evidence to conclude that the distribution of the technology that community college statistics students use for their homework is not the same as the distribution of the technology that university statistics students use for their homework.

On May 14, 2020, the spot rate for Australian Dollars was 0.7306 USD/ 1 AUD.  The 180-day (6 month) forward rate quoted in the market was for 0.7340 USD/1 AUD and the risk-free rate on 180-day securities was 2.90 percent APR for United States LIBOR and 1.96 percent APR for Australian LIBOR.  (LIBOR rates are widely used as a reference rate for financial instruments.)  Assume that the US is the home country.

1. Are the quotes for AUD above relative to the USD direct or indirect quotations? Circle one:     direct or indirect
2. Is the USD expected to appreciate or depreciate relative to the AUD given the forward rate quoted above?   Circle one:     appreciate or depreciate
3. What is the implied forward rate if interest rate parity holds in this case?  Does interest rate parity hold here?  Use 4 decimal places for accuracy.   Implied forward rate ________
4. Which country’s risk free security offers the highest expected $ profit for a US investor, or are the $ profits the same?  Determine the $ profit for both investments using a beginning amount of 1,000 USD.   US LIBOR $ profit                             ________     Australian LIBOR $ profit                ________

Tan Company acquires a new machine (10-year property) on January 15, 2020, at a cost of $200,000. Tan also acquires another new machine (7-year property) on November 5, 2020, at a cost of $40,000. No election is made to use the straight-line method. The company does not make the § 179 election and elects to not take additional first-year depreciation. Determine the total deductions in calculating taxable income related to the machines for 2020.

a.$102,000

b.$24,000

c.$25,716

d.$132,858

Barry purchased a used business asset (seven-year property) on September 30, 2020, at a cost of $200,000. This is the only asset he purchased during the year. Barry did not elect to expense any of the asset under § 179, did not claim additional first-year depreciation, and did not elect straight-line cost recovery. Barry sold the asset on July 17, 2021. Determine the cost recovery deduction for 2021.

a.$19,133

b.$34,438

c.$55,100

d.$24,490

White Company acquires a new machine (seven-year property) on January 10, 2020, at a cost of $620,000. White makes the election to expense the maximum amount under § 179, and wants to take any additional first-year depreciation allowed. No election is made to use the straight-line method. Determine the total deductions in calculating taxable income related to the machine for 2020, assuming that White reports taxable income of $800,000.

a.$568,574

b.$88,598

c.$620,000

d.$301,159

Bowie State University athletic department wants to develop its budget for the coming year, using a forecast for football attendance. Football attendance accounts for the largest portion of the University revenues. The new President of the university who is also a football fan has asked the athletic director to come up with strategies in promoting the university football team. The athletic director believes that attendance is directly related to the number of wins by the team. Instead of attempting to predict attendance based on only one variable (wins), the athletic department has included a second variable for advertising and promotional expenditures as well. The university president is anxious to know the result of this forecast to determine strategies that improve attendance and boost revenues for the University. The business manager of the BSU football team has accumulated total annual attendance figures for the past 8 years:  

Given the number of returning starters and the strength of the schedule, the athletic director believes the team will win at least seven games next year. He wants to develop a multiple regression equation for these data to forecast attendance for this level of success.

Discussion questions

1 Given that Attendance as the dependent variable and Wins and Promotion as independent variables, use excel to estimate the relationship between attendance and promotion and wins. (Copy results and paste).

2 What is the strength of this relationship? Use the coefficient of determination R squared from the excel output to describe this relationship.

3 Is the relationship significant? Use the “Fisher significance” from the excel output to determine this. Begin by stating the null and the alternate hypotheses

Kenton and Denton Universities offer executive training courses to corporate clients. Kenton pays its instructors $5,000 per course taught. Denton pays its instructors $250 per student enrolled in the class. Both universities charge executives a $450 tuition fee per course attended.

Required

Prepare income statements for Kenton and Denton, assuming that 20 students attend a course.

Kenton University embarks on a strategy to entice students from Denton University by lowering its tuition to $240 per course. Prepare an income statement for Kenton assuming that the university is successful and enrolls 40 students in its course.

Denton University embarks on a strategy to entice students from Kenton University by lowering its tuition to $240 per course. Prepare an income statement for Denton, assuming that the university is successful and enrolls 40 students in its course.

Problem 11-28

a.      N = Number of units to break-even point

Sales − Variable cost − Fixed cost = Desired Profit

          (Sales price x N) − (Variable cost per unit x N) = Fixed cost + Desired Profit

(Contribution margin per unit x N) = Fixed cost + Desired Profit

N = (Fixed cost + Desired Profit) ÷ Contribution margin per unit

N = ($               + $           ) ÷ [$       - ($     + $       )] =          Units

          Break-even point dollars =        Units x $        selling price per unit = $

b.      N = Number of units to break-even point

          N = (Fixed cost + Desired Profit) ÷ Contribution margin per unit

          N = ($            + $            ) ÷ [$        – ($       + $      )]

          N =          Units

          Break-even point dollars =    Units x $            selling price per unit = $

Bowie State University magazine agency wants to determine the best combination of two possible magazines to print for the month of May.  Star which the University has published in the past with great success is the first choice under consideration. Prime is a new venture and is a promising magazine. The university envisages that by positioning it near Star, it will pick up some spillover demand from the regular readers. The University also hopes that the advertising campaign will bring in a new type of reader from a potentially very lucrative market. The publishing department wants to print at most 500 copies of Star and 300 copies of Prime. The cover price for Star is $3.50, the university is pricing Prime for $4.50 because other magazines doing the same line of business command this type of higher price. The University publishing department has 25 hours of printing time available for the production run. It has 27.5 hours for the collation department, where the magazines are actually assembled. Each copy of Star magazine requires 2.5 minutes to print and 3 minutes to collate. Each Prime requires 1.8 minutes to print and 5 minutes to collate. How many of each magazine should BSU print to maximize revenue? Show all the corner solutions and the value of the objective function.

Hint: You are required to maximize revenue assuming that Star = X and Prime = Y. create a table, specify the LP, draw graph to show feasible region and solve for the corner points. Find the profit for each of the solutions. Also convert hours to minutes in the constraints. The problem has 4 constraints excluding the non-negative constraints.

a. Formulate a linear programming model for this problem.

b. Represent this problem on a graph using the attached graph paper. Show the feasible region.

c. Solve this model by using graphical analysis showing the optimal solution and the rest of the corner points as well as the profits

EXERCISE 5-4

Allocation of Cost and Workpaper Entries at Date of Acquisition LO 2

On January 1, 2020, Porter Company purchased an 80% interest in Salem Company for $260,000. On this date, Salem Company had common stock of $207,000 and retained earnings of $130,500.

An examination of Salem Company’s balance sheet revealed the following comparisons between book and fair values:

Required:

1. Determine the amounts that should be allocated to Salem Company’s assets on the consolidated financial statements workpaper on January 1, 2020.
2. Prepare the January 1, 2020, consolidated financial statements workpaper entries to eliminate the investment account and to allocate the difference between book value and the value implied by the purchase price.

The Donut Stop acquired equipment for $23,000. The company uses straight-line depreciation and estimates a residual value of $3,400 and a four-year service life. At the end of the second year, the company estimates that the equipment will be useful for four additional years, for a total service life of six years rather than the original four. At the same time, the company also changed the estimated residual value to $2,000 from the original estimate of $3,400.

Required:

Calculate how much The Donut Stop should record each year for depreciation in years 3 to 6.

Cost of the equipment:

Less: accumulated depreciation (year 1 & 2):

Book value, end of year 2:

Less: new residual value:

New depreciable cost:

Remaining service life:

Annual depreciation in years 3 to 6