Equipment costing $540,000 with an expected useful life of 10 years and an expected salvage value of $40,000, was purchased at the beginning of the year.

Calculate the depreciation expense for the first five years using:

(a) Sum-of-the-years' digits method. Do not round until final calculation. Round answers to the nearest whole number.

(b) Double-declining balance method (without straight-line switchover). Do not round until final calculation. Round answers to the nearest whole number.

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $83 per unit.

Assume the company uses variable costing. Compute the unit product cost for year 1 and year 2.

Prepare an income statement for Year 1 and Year 2.

Assume the company uses absorption costing. Compute the unit product cost for Year 1 and Year 2. (Round your intermediate calculations and final answers to 2 decimal places.)

Prepare an income statement for Year 1 and Year 2. (Round your intermediate calculations to 2 decimal places.)

Reconcile the difference between variable costing and absorption costing net operating income in Year 1. (Enter any losses or deductions as a negative value. Round your intermediate calculations to 2 decimal places.)

SHOW WORK ON EXCEL: You are considering an investment that will pay you $12,000 the first year, $13,000 the second year, $17,000 the third year, $19,000 the fourth year, $23,000 the fifth year, and $28,000 the sixth year (all payments are at the end of each year). What is the maximum you would be willing to pay for this investment if your opportunity cost is 11%?

Required information

[The following information applies to the questions displayed below.]

Inner Secret T Shirt Company produces and sells one product. The following information pertains to each of the company’s first three years of operations:

Variable costs per unit:     

Manufacturing:     

Direct materials   $   27

Direct labor   $   15

Variable manufacturing overhead   $   5

Variable selling and administrative   $   3

Fixed costs per year:     

Fixed manufacturing overhead   $   600,000

Fixed selling and administrative expenses   $   170,000

During its first year of operations, O’Brien produced 97,000 units and sold 73,000 units. During its second year of operations, it produced 79,000 units and sold 98,000 units. In its third year, O’Brien produced 89,000 units and sold 84,000 units. The selling price of the company’s product is $73 per unit.

Required:

1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

2. Assume the company uses variable costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

4. Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

Calculate the accumulated value at time 5 years of payments that are received continuously over each year with payment of $100 during 1st year, $110 in 2nd year, $130 in 3rd year, $140 in 4th year and $200 in 5th year. Assume EAR = 5%.

In year 1, GSL Corp,'s alternative minimum tax base was $2,000,000 and its regular tax liability is $350,000.

a. What is GSL's total tax liability for years 1,2,3 and 4 (by year) assuming the following

Year 2: AMT base $600,000: Regular Tax liability $100,000

Year 3: AMT base $500,000: Regular tax liability $160,000

Year 4: AMT base $1,000,000: Regular tax liability $150,000

Total Tax Liability

Year 1

Year 2

Year 3

Year 4

A business process outsourcing has the following avoided costs, incurred costs, and other characteristics:

• Costs avoided by outsourcing:
  • Salaries, wages, and benefits = $450,000 a year
  • Furniture and equipment = $100,000 a year
  • Supplies = $150,000 a year
  • Software = $10,000 a year
  • Facility rent/lease = $75,000 a year
  • Utilities and communications = $20,000 a year
  • Transition revenue now
    • Sale of unused assets = $10,000
• Costs incurred by outsourcing:
  • Payments to supplier = $440,000 a year
  • Contract administration = $30,000 a year
  • Transition cost now
    • Severance pay = $40,000
• 4-year time horizon
• Discount rate = 4% per year
• Assume all cash flows occur at the beginning of each year
• Assume “now” is the beginning of Year 1.

Use Excel to answer the following question. Based on the NPV of the cash flows, should this business process be outsourced?

Please show all the formulas used in excel.

13. How long will it take $800 to double if it earns the following rates? Compounding occurs once a year. Round your answers to two decimal places.

1. 6%.

   year(s)

2. 9%.

   year(s)

3. 19%.

   year(s)

4. 100%.

   year(s)

14. Find the future values of these ordinary annuities. Compounding occurs once a year. Do not round intermediate calculations. Round your answers to the nearest cent.

1. $600 per year for 10 years at 14%.

   $  

2. $300 per year for 5 years at 7%.

   $  

3. $800 per year for 5 years at 0%.

   $  

4. Rework parts a, b, and c assuming they are annuities due.

   Future value of $600 per year for 10 years at 14%: $  

   Future value of $300 per year for 5 years at 7%: $  

   Future value of $800 per year for 5 years at 0%: $  

Part 1) Linda just sold all the shares of company A stock that she owned for $156/share. She purchased the stock one year ago for $150/share. Over the year, she received $1/share in dividend. Calculate the return on her investment.

Part 2) The interest rate on one-year Treasury-bond is 0.4%, the rate on two-year Treasury bond is 0.8%, the rate on three-year T-bond is 1.1%.

a. Compute the expected interest rate in the second year (year 2)

b. Compute the expected interest rate in the third year (year 3).

Part 3) The expected inflation rate for the next three years are estimated: 2.5% for 2020, 3.5% for 2021, and 4.2% for 2022. Calculate the inflation premiums (IP) for 1-year bond, for 2-year bond and 3- year bond.

Question 5:

The country of Pantherville produces two goods: footballs and basketballs. Below is a table showing prices and quantities of output for three years:

1. Calculate Nominal GDP for Years 1, 2 and 3

2. Using Year 1 as the base Year, calculate Real GDP for years 1, 2 and 3

3. What is the economic growth rate from year 1 to 2 and from year 2 to 3?

4. What is the GDP per capita in Pantherville in years 1, 2 and 3?

5. What is the inflation rate from year 1 to year 2 and from year 2 to year 3?