Allmond Corporation, organized on January 3, 2018, had pretax accounting income of $34 million and taxable income of $44 million for the year ended December 31, 2018. The 2018 tax rate is 35%. The only difference between accounting income and taxable income is estimated product warranty costs. Expected payments and scheduled tax rates (based on recent tax legislation) are as follows: 2019 $ 4 million 30 % 2020 2 million 30 % 2021 2 million 30 % 2022 2 million 25 %

Required: 1. Determine the amounts necessary to record Allmond’s income taxes for 2018 and prepare the appropriate journal entry. 2. What is Allmond’s 2018 net income?

Problem 3. On December 31, 2017, the City of Danville received a gift of $10,000,000 to endow a new public library. Terms of the gift provide that the principal be held intact and invested in appropriate securities. The donor specifies that income is to be used for library acquisitions.                      

On January 2, 2018, the gift was invested in securities having an annual yield of 3 percent, payable quarterly. Library acquisitions costing $250,000 were made during 2018; $30,000 remains unpaid at year-end, December 31, 2018.               

Instructions:                                                                                                   

a. Identify the fund in which the above events would be recorded.          

b. Prepare appropriate journal entries (including closing entries) for 2017 and 2018.        

c. Present the fund financial statements for 2018.

Excerpts from Hulkster Company's December 31, 2018 and 2017, financial statements are presented below:

2018 2017

Accounts receivable $ 40,000 $ 36,000

Merchandise inventory    28,000 35,000

Net sales 190,000 186,000

Cost of goods sold 114,000 108,000

Total assets 425,000 405,000

Total shareholders' equity 240,000 225,000

Net income 32,500 28,000

1. Hulkster's 2018 average collection period is____________________

2. Hulkster's 2018 average days in inventory is (rounded)______________________

3. Hulkster's 2018 return on assets is (rounded):___________________________

4. What does the average collection period tell you?

5. What does the average days in inventory tell you?

The 2017 balance sheet of Kerber’s Tennis Shop, Inc., showed $2.15 million in long-term debt, $720,000 in the common stock account, and $6.1 million in the additional paid-in surplus account. The 2018 balance sheet showed $3.65 million, $935,000, and $8.55 million in the same three accounts, respectively. The 2018 income statement showed an interest expense of $290,000. The company paid out $520,000 in cash dividends during 2018. If the firm's net capital spending for 2018 was $730,000, and the firm reduced its net working capital investment by $185,000, what was the firm's 2018 operating cash flow, or OCF?

Multiple Choice

A. $3,725,000

B. $-2,810,000

C. $-3,355,000

D. $-3,850,000

E. $-4,940,000

Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2018. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. A consulting firm, engaged as actuary, recommends 5% as the appropriate discount rate. The service cost is $220,000 for 2018 and $310,000 for 2019. Year-end funding is $230,000 for 2018 and $240,000 for 2019. No assumptions or estimates were revised during 2018.

Required:

Calculate each of the following amounts as of both December 31, 2018, and December 31, 2019: (Enter your answers in thousands (i.e., 200,000 should be entered as 200).)

This information is available for Bramble Corp. for 2018, 2019, and 2020.

a) Calculate inventory turnover for Bramble Corp. for 2018, 2019, and 2020. (Round answers to 2 decimal places, e.g. 1.52.)

b) Calculate days in inventory for Bramble Corp. for 2018, 2019, and 2020. (Round answers to 1 decimal place, e.g. 1.5. Use 365 days for calculation)

c) Calculate gross profit rate for Bramble Corp. for 2018, 2019, and 2020. (Round answers to 0 decimal places, e.g. 125%)

Assume that ACW Corporation has 2018 taxable income of $1,040,000 for purposes of computing the §179 expense. The company acquired the following assets during 2018 (assume no bonus depreciation): (Use MACRS Table 1, Table 2, and Table 5).

1. What is the maximum amount of §179 expense ACW may deduct for 2018?
2. What is the maximum total depreciation that ACW may deduct in 2018 on the assets it placed in service in 2018? (Round your intermediate computations to the nearest whole dollar amount.)

The 2017 balance sheet of Kerber's Tennis Shop, Inc., showed $3 million in long-term debt, $700,000 in the common stock account, and $6.1 million in the additional paid-in surplus account. The 2018 balance sheet showed $3.55 million, $915,000, and $8 million in the same three accounts, respectively. The 2018 income statement showed an interest expense of $380,000. The company paid out $600,000 in cash dividends during 2018. If the firm's net capital spending for 2018 was $750,000 and the firm reduced its net working capital investment by $185,000, what was the firm's 2018 operating cash flow, or OCF?

A. $-1,685,000

B. $-3,450,000

C. $-1,120,000

D. $-2,320,000

E. $2,055,000

At the beginning of 1976 a relative migrated to Australia with $10,000 ‘spare cash’. The money could have been used to buy a block of land or invested in an ‘at-call’ savings account that paid interest at 8% p.a. compounded half-yearly. At the end of 2018, the land was valued by a local real estate agent who was keen to list the property on behalf of his agency, at a price of approximately $400,000.

Required:

1. a) Which of the alternative investments had the higher value at the end of 2018? Justify your response with appropriate calculations.

(Students should write no more than 50 words for this part of the question).

b) i) Assuming the half-yearly compounding of interest, what was the rate of growth in the land value over the total period expressed as a nominal annual interest rate?

ii) What was the rate of growth in the land value over the total period expressed as an effective interest rate?

iii) What was the rate of growth in the ‘at-call’ savings account over the total period expressed as an effective interest rate?

1. c) What investment in the savings account would have been necessary at the beginning of 1976, to have the same value as the land was worth at the end of 2018? Briefly explain your response.

(Students should write no more than 50 words for this part of the question).

d) Recognising both your finance skills and ‘common sense’, one of your friends has asked whether your calculations above allow you to determine which of the investments would have been ‘better’ to make at the beginning of 1976, given the outcomes discussed above at the end of 2018. Provide a well-reasoned, complete response to this question taking into consideration various financial and non-financial issues.

(Students should write no more than 100 words for this part of the question).

1. d) i) You have now been provided further information that the investment in the land required the owner to make continuous annual payments of council rates over the total period held. These amounts are determined in accordance with Table 1 below. Assuming the land was sold at the end of 2018 (but ignoring the expected sale value), what is the adjusted present value at the beginning of 1976 of all the cash outflows relating to the acquisition and continued ownership of the land?

Note: For the purposes of this question assume the following:

1. Rates are payable on the anniversary of each year of land ownership.

2. The annual amount of the rates are determined in accordance with the following formula;

Initial Purchase Cost ($) x Factor (times) x Relevant Percentage (%)

3. Rates are still payable for the 2018 year (for the full year).

Table 1

ii) Taking into consideration the calculations from part e) i) of this question, what is the rate of growth in the land value over the total period expressed as an effective interest rate?

(Students should write no more than 50 words for this part of the question).

Price   Size   Pool   Garage
263.1   2300   1   1
182.4   2100   0   0
242.1   2300   0   0
213.6   2200   0   0
139.9   2100   0   0
245.4   2100   1   1
327.2   2500   0   1
271.8   2100   0   1
221.1   2300   1   0
266.6   2400   0   1
292.4   2100   0   1
209   1700   0   1
270.8   2500   0   1
246.1   2100   0   1
194.4   2300   0   0
281.3   2100   0   1
172.7   2200   1   0
207.5   2300   1   0
198.9   2200   1   1
209.3   1900   1   1
252.3   2600   0   1
192.9   1900   1   1
209.3   2100   0   0
345.3   2600   0   1
326.3   2100   0   1
173.1   2200   1   1
187   1900   0   0
257.2   2100   0   1
233   2200   0   1
180.4   2000   0   0
234   1700   0   1
207.1   2000   0   1
247.7   2400   0   1
166.2   2000   1   1
177.1   1900   0   1
182.7   2000   1   0
216   2300   0   0
312.1   2600   0   1
199.8   2100   0   1
273.2   2200   0   1
206   2100   1   0
232.2   1900   1   1
198.3   2100   1   1
205.1   2000   1   0
175.6   2300   1   1
307.8   2400   1   1
269.2   2200   0   1
224.8   2200   0   1
171.6   2000   1   0
216.8   2200   0   1
192.6   2200   1   0
236.4   2200   0   1
172.4   2200   0   0
251.4   1900   0   1
246   2300   0   1
147.4   1700   1   0
176   2200   0   1
228.4   2300   0   1
166.5   1600   1   0
189.4   2200   0   1
312.1   2400   0   1
289.8   2000   0   1
269.9   2200   1   1
154.3   2000   0   0
222.1   2100   0   1
209.7   2200   1   1
190.9   2200   1   1
254.3   2500   1   1
207.5   2100   1   0
209.7   2200   1   1
294   2100   0   1
176.3   2000   1   0
294.3   2400   0   1
224   1900   1   1
125   1900   0   0
236.8   2600   1   1
164.1   2300   0   0
217.8   2500   0   0
192.2   2400   0   0
125.9   2400   0   0
220.9   2300   1   1
294.5   2700   0   1
244.6   2300   0   1
199   2500   1   0
240   2600   0   1
263.2   2300   0   1
188.1   1900   0   1
243.7   2700   0   1
221.5   2300   0   1
175   2500   0   0
253.2   2300   0   1
155.4   2400   1   0
186.7   2500   1   0
179   2400   1   1
188.3   2100   1   1
227.1   2900   0   1
173.6   2100   1   1
188.3   2300   0   0
310.8   2900   0   1
293.7   2400   0   1
179   2400   0   1
188.3   2100   1   1
227.1   2900   0   0
173.6   2100   0   1
188.3   2300   0   1