On January 1, 2018, Cameron Inc. bought 30% of the outstanding common stock of Lake Construction Company for $600 million cash. At the date of acquisition of the stock, Lake's net assets had a fair value of $800 million. Their book value was $700 million. The difference was attributable to the fair value of Lake's buildings and its land exceeding book value, each accounting for one-half of the difference. Lake’s net income for the year ended December 31, 2018, was $300 million. During 2018, Lake declared and paid cash dividends of $20 million. The buildings have a remaining life of 5 years.

Required:
1. Complete the table below and prepare all appropriate journal entries related to the investment during 2018, assuming Cameron accounts for this investment by the equity method.
2. Determine the amounts to be reported by Cameron.

ABC Company is preparing to launch a new product. They are considering three different product designs and will select only the one product that yields the highest revenue. A feasibility study suggest that product development, regardless of which of the three products is selected, will cost $1,250,000 initially, which includes all design, testing, set-up and initial operating costs. Annual operating cost, once the selected product is placed into production, will cost $125,000 and the net revenue for the first year is projected to be $450,000. Both the project costs and revenues are independent of the option selected. Market analysis for each of the three products suggest that subsequent revenues, i.e. the revenues received at the end of each year starting in year 2, will differ as described below

•  Design 1: The revenue will increases by $75,000 per year.

•  Design 2: Revenues will remain the same for the next two years (i.e. years 2 and

  3) and then will increase by 10% each year, over the previous year, in each

  subsequent year.

•  Design 3: Revenues will increase in years 2 through 4 by 10% per year, then in

  years five through seven, revenues will be $300,000, $225,000, and 150,000 per year, respectively.

• If the product’s life is 7 years and the market interest rate is 8% per year, which of the threeproduct designs should ABC Company launch? To answer this question compare the future values of the cash flows for each of the three designs over the first seven years.

Curtiss Construction Company, Inc., entered into a fixed-price contract with Axelrod Associates on July 1, 2018, to construct a four-story office building. At that time, Curtiss estimated that it would take between two and three years to complete the project. The total contract price for construction of the building is $5,020,000. Curtiss concludes that the contract does not qualify for revenue recognition over time. The building was completed on December 31, 2020. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to Axelrod under the contract were as follows:

Required:
1. Compute gross profit or loss to be recognized as a result of this contract for each of the three years.
2. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute gross profit or loss to be recognized in each of the three years.
3. Assuming Curtiss recognizes revenue over time according to percentage of completion, compute the amount to be shown in the balance sheet at the end of 2018 and 2019 as either cost in excess of billings or billings in excess of costs.

CVP Analysis of Multiple Products

Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 80,000 regular models and 16,000 deluxe models. A segmented income statement for the two products is as follows:

Required:

1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit.

2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.

Arnold Vimka is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year’s operations of the two firms he is considering and give him some business advice.

Required

1. Use the contribution margin approach to compute the operating leverage for each firm.

2. If the economy expands in coming years, Larson and Benson will both enjoy a 10 percent per year increase in sales, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage. (Note: Since the number of units increases, both revenue and variable cost will increase.)

3. If the economy contracts in coming years, Larson and Benson will both suffer a 10 percent decrease in sales volume, assuming that the selling price remains unchanged. Compute the change in net income for each firm in dollar amount and in percentage. (Note: Since the ­number of units decreases, both total revenue and total variable cost will decrease.)

Q1：

A partial adjusted trial balance of Rosenberg Company at January 31, 2007 shows the following:

Rosenberg Company

Adjusted Trial Balance

January 31, 2007

                                                                                       Debit              Credit

Supplies                                                                       $1,850

Prepaid Insurance 3,500

Salaries Payable                                                                                   $1,800

Unearned Revenue 1,750

Supplies Expense 1,950

Insurance Expense 500

Salaries Expense 2,800

Service Revenue                                                                                    2,500

Use only the above partial account information to answer questions 44—47 assuming the year begins January 1.

If the amount in Supplies Expense is the January 31 adjusting entry and $1,000 of supplies was purchased in January, what was the beginning balance in Supplies on January 1?

Group of answer choices

$ 950

$ 850

$ 900

$2,800

$1,100

Refer to question Q1

If $2,000 cash was received in January for services performed in January, what was the balance in Unearned Revenue at January 1?

Group of answer choices

$3,750

$2,250

$1,250

$ 250

$1,750

Refer to question Q1

If $3,500 of salaries was paid in January, and $2,800 of salaries expense was accrued in January, what was the balance in Salaries Payable at January 1?

Group of answer choices

$2,500

$5,300

$4,500

$4,600

$2,450

Refer to question Q1

If the amount in insurance expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the total premium?

Group of answer choices

$3,000

$6,000

$5,500

$4,000

$8,000

Greco Resort opened for business on June 1 with eight air-conditioned units. Its trial balance on August 31 is as follows.

Other data:

1. The balance in prepaid insurance is a one-year premium paid on June 1, 2017.

2. An inventory count on August 31 shows $450 of supplies on hand.

3. Annual depreciation rates are buildings (4%) and equipment (10%). Salvage value is estimated to be 10% of cost.

4. Unearned Rent Revenue of $3,800 was earned prior to August 31.

5. Salaries of $375 were unpaid at August 31.

6. Rentals of $800 were due from tenants at August 31.

7. The mortgage interest rate is 8% per year.

Instructions:

(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31. (Omit explanations.)

(b) Prepare an adjusted trial balance on August 31.

Eastern Inc. is considering one of the two machines available to produce garden tools. The Artic1 costs $360,000, has a four-year life and has to be depreciated on a straight-line method to zero. In order to operate Artic 1, it requires an initial working capital of $9,000. This working capital will be recovered at the end of the life of the asset. It is estimated that the Artic1 will generate a revenue of $150,000 in the first year, and the revenue will increase by 2.5% per year for its remaining life. It’s pretax operating cost is $40,000 per year. At the end of the fourth year, Artic1 can be sold of $28,000.

The other machine Eastern considering is TelestoneII. It costs $480,000, has a five-year life and has to be depreciated on a straight-line method to zero salvage value. It requires an initial working capital of $7,000. At the end of the fifth year the entire working capital will be recouped. It is estimated that TelestoneII will generate an annual revenue $175,000. Its pretax operating cost is $58,000. At the end of the fifth year, the machine will be sold for $41,500. The tax rate of Eastern is 35%, and the discount rate is 12%. Which do you prefer? Why?

1) Correct net investment of Artic1.

2) Correct net cash flow of Artic1 for each year.

3) Correct NPV of Artic1.

4) Correct net investment of TelestoneII.

5) Correct net cash flow of TelestoneII for each year.

6) Correct NPV of TelestoneII.

Which one do you prefer? Why?

Kingston Company produces precision components. Kingston has 2 customer groups. One group, with 4 large customers, accounts for 60 percent of the sales. The remaining group, consisting of 20 small customers, accounts for the rest of the sales. Data for Q1 2020 concerning Kingston's customer group activity follow:

Q1 indirect costs consist of order-filling costs of $360,000 and sales-force costs of $300,000.

Kingston defines Group Profit = Sales revenue – Manufacturing costs – indirect costs

Required:

1. Allocate the indirect costs to the customer groups based on sales revenue. This represents a traditional allocation approach. Determine the group profit of each of the two groups of customers.
2. Allocate the indirect costs to the customer groups using an activity-based costing approach. Order-filling costs should be allocated based on orders placed and sales force costs allocated based on number of sales calls. Determine the group profit of each of the two groups of customers.
3. Briefly compare the results of the two alternatives. Which method of allocation provides a better assessment of actual performance?

Chamberlain Enterprises Inc. reported the following receivables in its December 31, 2016, year-end balance sheet:

Additional Information:

1.  The notes receivable account consists of two notes, a $60,000 note and a $200,000 note. The $60,000 note is dated October 31, 2016, with principal and interest payable on October 31, 2017. The $200,000 note is dated June 30, 2016, with principal and 6% interest payable on June 30, 2017.

2.  During 2017, sales revenue totaled $1,340,000, $1,280,000 cash was collected from customers, and $22,000 in accounts receivable were written off. All sales are made on a credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account to an amount equal to 10% of year-end accounts receivable.

3.  On March 31, 2017, the $200,000 note receivable was discounted at the Bank of Commerce. The bank’s discount rate is 8%. Chamberlain accounts for the discounting as a sale.

Required:

1.  In addition to sales revenue, what revenue and expense amounts related to receivables will appear in Chamberlain’s 2017 income statement?

2.  What amounts will appear in the 2017 year-end balance sheet for accounts receivable?

3.  Calculate the receivables turnover ratio for 2017.