On January 1, Year 1, Hart Company issued bonds with a face value of $128,000, a stated rate of interest of 12 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 11 percent at the time the bonds were issued. The bonds sold for $132,731. Hart used the effective interest rate method to amortize the bond premium. (Round your intermediate calculations and final answers to the nearest whole number.)

Required
a. Prepare an amortization table.

b. What is the carrying value that would appear on the Year 4 balance sheet?
c. What is the interest expense that would appear on the Year 4 income statement?
d. What is the amount of cash outflow for interest that would appear in the operating activities section of the Year 4 statement of cash flows?

The following information was drawn from the annual report of Machine Imports Company (MIC).

*By definition, Infrequent items are not likely to recur in the future.

Required
a-1. Compute the percentage of growth in net income from Year 1 to Year 2.
a-2. Can stockholders expect a similar increase between Year 2 and Year 3?
c. Assuming that MIC experiences the same percentage of growth from Year 2 to Year 3 as it did from Year 1 to Year 2, determine the amount of income from continuing operations that the owners can expect to see on the Year 3 income statement.
d. During Year 3, MIC experienced a $59,000 loss due to storm damage. Liabilities and common stock were unchanged from Year 2 to Year 3. Use the information that you computed in Requirement c plus the additional information provided in the previous two sentences to prepare an income statement and balance sheet as of December 31, Year 3.
  

The City of Gurnee is preparing its Government-Wide financial statements for the year. Its accountant must prepare a number of journal entries to recognize assets and liabilities previously omitted from the Fund financial statements and to recognize revenues and expenses for the year under accrual accounting that were not recognized under the current financial resources measurement focus and the modified accrual basis of accounting used to prepare the Statement of Revenues, Expenditures, and Changes in Fund Balances for its Funds. The accountant identifies the following journal entries that must be made:

Recognize Capital Assets of $120,440 as of the beginning of the year.

Record Depreciation Expense of $6,850 for the year and reverse Expenditures of $7,360 for Capital Outlays during the year.

Recognize $21,000 of Bonds Payable as of the beginning of the year.

Reverse Other Financing Sources of $8,000 and Expenditures – Debt Payments of $3,100 relating to increases and decreases in the bond liability during the year.

Reverse Deferred Revenue of $10,340 as of the beginning of the year.

Reverse $1,430 of Deferred Revenue recognized during the year.

Recognize Compensated Absences of $1,980 as of the beginning of the year and an increase in that liability of $230 during the year.

Recognize $140 of Accrued Interest Payable as of the beginning of the year and an increase in that liability of $260 during the year.

Recognize a liability of $4,210 relating to the City’s landfill as of the beginning of the year. The estimate for this liability did not change during the year.

Required: Prepare journal entries for each of the items above.

The project will last for 8 years, beginning in 2011 (year 0) and ending in 2019 (year 8). Depreciation is straight line to zero, and taxation (at the time) is 35% in the United States. In any year with a negative EBIT, there is no tax. The capital investment for the fibre line project is $350,000,000 (invested in year 0), including costs of amplification sites, earthmoving equipment, easements etc. Working capital is expected to be $60,000,000, returned at the end of the project. A 24 hours a day, 7 days a week maintenance team is required to ensure 99.99% operational capacity, costing $60 million per year, and increasing at 3% per year. The project success hinges on access to the fibre ports in the exchanges, they know this and charge $50,000,000 per year (combined), declining by 5% p.a. as demand declines.      A team of surveyors and builders who inspected the 1400 km path cost $1.5 million. At the end of the project, the technology is obsolete for its purpose in investment banking, but it can be sold to a telecom provider (contributing to the revenue for year 8) for $127,000,000. Revenue is subscription based at $3,600,000 per year, per subscription. In year 1 there will be 200 subscriptions, year 2 is 150, year 3 is 100, year 4 is 50. In year 5, 6, 7, 8 only 20 subscriptions are taken in per year. The all-important discount rate is 14.5%.

Question: What is the NPV and IRR using excel?

Suppose that the Statistical Institute uses information about three goods to construct the basket to be used for construction of Consumer Price Index (CPI). The set of prices and the set of quantites describing the basket of goods at the year of t respectively is the following: Pt = {Pat , Pbt , Pct } ; Qt = {Qat , Qbt , Qct }
i) Please show the CPI for the year of t = 2 (2 years after base year- at the base year t=0) which would contain elements belong to sets of Pt and Qt. (Hint: The formulation should include summation over goods for t = 0 and t=2 ).   

ii)Suppose at the base year (t=0) all prices are doubled. Construct the CPI under the new setting for the year of t=2. (5 points)

iii) Suppose that a year after the base year (at t=1) all prices are freezed, was not allowed to change. Additionally, suppose that all price controls were lifted at the second year after the base year (at t=2). Pta increased by %150, Pbt increased by %100 and Pct increased by %200 at the year of t=2. Under these settings calculate the inflation from the year of t=0 to the year of t =1 and the inflation from the year of t=1 to the year of t =2. (Please solve (only) 1.iii) by assigning numbers to elements for the set of Pt and for the set of Qt ) (10 points)

Assume revenues decrease and expenses increase with the age of the machine as given in the table below and it can be sold for $200,000 at the end of year five. Calculate NPV, payback, BCR, and IRR, should the equipment be purchased if the discount rate is 6% or 10%?

           Revenue   Expense

   Year 0       -      $1,500,000 (investment)

   Year 1       $850,000   $200,000

   Year 2       $750,000   $250,000

   Year 3       $650,000   $300,000

   Year 4       $550,000   $350,000

   Year 5       $450,000   $400,000

EXERCISE 2: Cost and Benefit Analysis Techniques

Assuming economic benefits of an information system at $95,000 at year 1, $125,000 at year 2, and $145,000 at year 3, development costs are $235,000 and operating costs are $15,000 at year 1, $16,000 at year 2, and $18,000 at year 3, a discount rate of 5%, and a 3-year time horizon,

1. net present value (NPV)?
2. ROI?
3. break-even point (BEP)?

Please show all work.

ALL COMPONENTS / QUESTIONS MUST BE FULLY ANSWERED -- DO NOT USE THE SIMILAR TEXTBOOK SOLUTIONS ALREADY IN PLACE

IF YOU ARE UNABLE TO ANSWER ALL COMPONENTS, PLEASE DO NOT ANSWER. INCOME STATEMENTS SHOULD BE IN THE MOST BASIC FORM. OPENING AND CLOSING INVENTORY, ETC., ARE NOT TO BE INCLUDED.  

Ciroc Company manufactures and sells one specific product. The following information pertains to each of Ciroc's first three years of operations:

Variable costs per unit:
Manufacturing:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . $ 32
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20
Variable manufacturing overhead . . . . . . . . . . $ 4
Variable selling and administrative . . . . . . . . . $ 3
Fixed costs per year:
Fixed manufacturing overhead . . . . . . . . . . . . $ 660,000
Fixed selling and administrative expenses . . . $ 120,000
During its first year of operations, Ciroc produced 100,000 units and sold 80,000 units. During its second year of operations, it produced 75,000 units and sold 90,000 units. In its third year, Ciroc produced 80,000 units and sold 75,000 units. The selling price of the company’s product is $ 75 per unit.

Required: (ALL COMPONENTS OF ALL 4 QUESTIONS MUST BE ANSWERED -- DO NOT USE THE TEXTBOOK SOLUTIONS ALREADY FOUND IN THIS BOOK)

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 -- Do not include OPENING and CLOSING inventory.

2. Assume the company uses variable costing and a LIFO inventory flow assumption (LIFO meanslast-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 -- Do not include OPENING and CLOSING inventory.

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO meansfirst-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 -- Do not include OPENING and CLOSING inventory.

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 -- Do not include OPENING and CLOSING inventory.

Assume the following year 2 income statement for Johnstone Corporation, which was a C corporation in year 1 and elected to be taxed as an S corporation beginning in year 2. Johnstone’s earnings and profits at the end of year 1 were $10,650. Marcus is Johnstone’s sole shareholder, and he has a stock basis of $42,500 at the end of year

What is Johnstone's accumulated adjustments account at the end of year 2, and what amount of dividend income does Marcus recognize on the year 2 distribution in each of the following alternative scenarios? (Leave no answer blank. Enter zero if applicable.)

a. Johnstone distributed $6,500 to Marcus in year 2.

b. Johnstone distributed $10,500 to Marcus in year 2.

c. Johnstone distributed $16,500 to Marcus in year 2.

d. Johnstone distributed $26,500 to Marcus in year 2.