Straight-Line and Units-of-Production Methods

Assume that Sample Company purchased factory equipment on January 1, 2017, for $70,000. The equipment has an estimated life of five years and an estimated residual value of $7,000. Sample's accountant is considering whether to use the straight-line or the units-of-production method to depreciate the asset. Because the company is beginning a new production process, the equipment will be used to produce 10,000 units in 2017, but production subsequent to 2017 will increase by 10,000 units each year.

Required:

1. Calculate the depreciation expense, accumulated depreciation, and book value of the equipment under both methods for each of the five years of its life. Enter all amounts as positive values.

Straight-line method:

Units-of-production method:

2. In this exercise, The units of production method results in a depreciation pattern opposite to which depreciation method?

Prepare all the necessary journal entries for the transactions listed above for Parker Corporation.

5. On December 1, 2018, Folks Wagon Company adopted a stock-option plan that granted options

to key executives to purchase 50,000 shares of the company’s $10 par value common stock. The

options were granted on January 1, 2019, and were exercisable 3 years after the date of grant if the

grantee was still an employee of the company. The options expired 5 years from the date of grant.

The option price was set at $35, and the fair value option-pricing model determines the total

compensation expense to be $450,000.

All of the options were exercised during the year 2022: 20,000 on February 23 when the market

price was $46, and 30,000 on August 8 when the market price was $85 a share.

a. Prepare the journal entries relating to the stock option plan for the years 2019, 2020, and 2021.

Assume that the employee performs services equally in 2019, 2020, and 2021.

b. Prepare the journal entries that record the two events of exercising the options in 2022

On Jan 1, 2018, Rising Star purchased a crane for $ 1,200,000 and paid $200,000 as a downpyament while the balance will be paid over the next five years in installments of $100,000 every six months , starting July 1, 2018. The market rate on Jan 1, 2018 was 9%.

Requirements:
a.   For the how much the company should recognize the crane on Jan 1, 2018? Show your calculation along with your accounting entry to recognize the purchase of the crane.
b.   On Jan 1, 2020, the company will pay installment payment of $100,000. How much of this payment represents a payment of the principal and how much of it represents a payment of the interest? Show your calculation (fill in the following table Jan 1 2018 – Jan 2020).

c.   What is the total interest expense for the year ended on Dec 31, 2018?
d.   What will be the carrying value of the notes on Dec 31, 2019?

Michael’s Corporation Data for 2020

1. Depreciation reported on the tax return exceeded depreciation reported on the income statement by $75,000. This

difference will reverse in equal amounts of $25,000 over the years 201–202 .

2. Interest received on municipal bonds was $24,000.

3. Rent collected in advance on January 1, 2020, totaled $45,000 for a 3- year period. Of this amount, $30,000 was reported as unearned at December 31, 2020, for book purposes.

4. The tax rates are 30% for 2020 and 20% for 2021 and subsequent years.

5. Income taxes of $270,000 are due per the tax return for 2020.

6. No deferred taxes existed at the beginning of 2020.

Required

(a) Compute taxable income for 2020.

(b) Compute pretax financial income for 2020.

(c) Prepare the journal entries to record income tax expense, deferred income taxes, and income taxes payable for 2020 and

2021. Assume taxable income was $760,000 in 2021.

(d) Prepare the income tax expense section of the income statement for 20 , beginning with “Income

before income taxes.”

In which case did the taxpayer derive assessable income during the year ended 30 June 2020?

Ms. Taylor is 21 years old and she just obtained her MBA degree. She is considering the following two career options:

(a)Start working now, earning an annual salary of $60,000 in each of next 44 years.

(b)Enroll in a PhD program, in 4 years and subsequent work for 40 years, earning each year the salary of $120,000.

Assume that her educational expenses at the end of each of 4 years will be $30,000. Also, assume that the relevant annual interest rate is 6% throughout, and all the annuities in the question are ordinary annuities. Based on the above information, find the implied or imputed monetary value of her PhD as of now.

Suppose the market demand and supply functions are Qd= 32,000-20P and Qs=30P+750. You have just graduated and moved to this city; as a new MBA and an entrepreneur, you are considering entering the market for this product.
a. Determine the equilibrium price and quantity in this market.

b. TC=5000+1000Q-12Q^2+0.08Q^3. Determine whether or not you should enter this market.

c. Due to unforeseen delays, you don’t enter the market. However, a year later the market supply has changed to Qs=30P+1500. Are you surprised at this shift in supply?

d. Given the new supply conditions, determine whether or not you should enter the market.

It appears that George is running a profitable business. George is aware you are in an MBA Managerial Finance class and comes to you for advice on his working capital practices. More specifically George asks you to do the following:

View the following video: http://searchcenter.intelecomonline.net/playClipDirect.aspx?id=4870EEC7664070BB9D6744FDA7325EE44F45E0E47862343D60FAA8E3325D1A83C46D5C6FAB3D01A758FA30144214BB3D

Describe his working capital practices, including his methods of capital budgeting analysis techniques.

Analyze the potential pitfalls in his capital budgeting practices that George should be aware of.

Develop a simple statement of cash flows for George’s Trains using any information gleaned from the video. What areas of improvement do you recommend and why?

On February 1, 2018, Cromley Motor Products issued 6% bonds, dated February 1, with a face amount of $50 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 8%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $50,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Required:
1. Determine the price of the bonds issued on February 1, 2018.
2-a. Prepare amortization schedules that indicate Cromley’s effective interest expense for each interest period during the term to maturity.
2-b. Prepare amortization schedules that indicate Barnwell’s effective interest revenue for each interest period during the term to maturity.
3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell’s investment on February 1, 2018.
4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.