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

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Kelly produced 61,000 units and sold 48,250 units. During its second year of operations, it produced 61,000 units and sold 73,750 units. The selling price of the company’s product is $53 per unit.

Required:

1. Assume the company uses super-variable costing:

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

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

2. Assume the company uses a variable costing system that assigns $13.00 of direct labor cost to each unit produced:

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

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

3. Reconcile the difference between the super-variable costing and variable costing net operating incomes in Years 1 and 2.

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

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Kelly produced 68,000 units and sold 53,500 units. During its second year of operations, it produced 68,000 units and sold 82,500 units. The selling price of the company’s product is $60 per unit.

Required:

1. Assume the company uses super-variable costing:

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

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

2. Assume the company uses a variable costing system that assigns $16.50 of direct labor cost to each unit produced:

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

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

3. Reconcile the difference between the super-variable costing and variable costing net operating incomes in Years 1 and 2.

The following is the income statement for Harry Potter’s business operations last year.

The following information is supplied for preparation of the budgets for coming year:

• Annual sales are expected to increase by 10% each year.
• Expected average gross profit margin is 30%
• Advertising costs are expected to increase by $800 each year.
• Depreciation charges are the same each year.
• Interest paid is the same each year.
• Annual rent is expected to increase by 6% each year.
• Superannuation is 9% of wages
• Wages paid are expected to increase by 5% each year.
• All other operating expenses are expected to increase by 4% each year.

Requirement:

Using the above information, prepare the budget for year 2008. (FNSCORG609A/03-3) Do not use Microsoft word

Ratio of Liabilities to Stockholders' Equity

The Craft Bin, a major competitor of The Building Store in the home improvement business, operates over 1,600 stores. Craft Bin recently reported the following balance sheet data (in millions):

a. Determine the total stockholders' equity at the end of Years 2 and 1.

b. Determine the ratio of liabilities to stockholders' equity for Year 2 and Year 1. Round your answers to two decimal places.

c. Based on (b), which is true regarding the risk to the creditors?
_________________ (increased, decreased, or no change)

d. The Building Store, Inc., is the world's largest home improvement retailer and one of the largest retailers in the United States based on net sales volume. The Building Store operates over 2,200 Building stores that sell a wide assortment of building materials and home improvement and lawn and garden products.

The Building Store reported the following balance sheet data (in millions)

For Year 2, the creditors of which company are more at risk?
The Craft Bin

On January 1, Year 2, PAT Ltd. acquired 90% of SAT Inc. when SAT’s retained earnings were $1,000,000. There was no acquisition differential. PAT accounts for its investment under the cost method. SAT sells inventory to PAT on a regular basis at a markup of 30% of selling price. The intercompany sales were $160,000 in Year 2 and $190,000 in Year 3. The total amount owing by PAT related to these intercompany sales was $60,000 at the end of Year 2 and $50,000 at the end of Year 3. On January 1, Year 3, the inventory of PAT contained goods purchased from SAT amounting to $70,000, while the December 31, Year 3, inventory contained goods purchased from SAT amounting to $80,000. Both companies pay income tax at the rate of 40%.

Selected account balances from the records of PAT and SAT for the year ended December 31, Year 3, were as follows:

Determine the amount to report on the Year 3 consolidated financial statements for the selected accounts noted above.

Your company is contemplating the purchase of a large stamping machine. The machine will cost $161,000. With additional transportation and installation costs of $5,000 and $12,000​, ​respectively, the cost basis for depreciation purposes is $178,000. Its MV at the end of five years is estimated as $39,000. The IRS has assured you that this machine will fall under a three year MACRS class life category. The justifications for this machine include $39,000 savings per year in labor and $26,000 savings per year in reduced materials. The​ before-tax MARR is 25​% per​ year, and the effective income tax rate is 50​%. Assume the stamping machine will be used for only three​ years, owing to the​ company's losing several government contracts. The MV at the end of year three is $50,000. What is the income tax owed at the end of year three owing to depreciation recapture​ (capital gain)?

Choose the correct answer below.

A. The income tax owed at the end of year three is $11,815.

B. The income tax owed at the end of year three is $24,000.

C. The income tax owed at the end of year three is ​$36,810.

D. The income tax owed at the end of year three is ​$23,629.

E. The income tax owed at the end of year three is ​$18,405.

The answer is A. Can you please show the steps to solve this in Excel?

You are an employee of University Consultants, Ltd and have been given the following information. You are to present an investment analysis of a new small income-producing property for sale to a potential inventor. The asking price for the property is $8.5 million. You determine that the building was worth $7.225 million and could be depreciated over 39 years (use 1/39 per year). NOIs are estimated to be $901,375 for year 1, $900,681 for year 2, $899,962 for year 3, $943,700 for year 4, $961,855 for year 5 and expected to increase by 3.16% thereafter. A fully amortizing 70 percent loan can be obtained at 10 percent interest for 20 years (total annual payments will be monthly payments *12). The property is expected to be sold for $9,360,805 after 5 years. Capital gains from price appreciation will be taxed at 15 percent and depreciation recapture will be taxed at 25 percent. Your ordinary income will be taxed at 35 percent. Assume that there is no selling cost and equity discount rate is 13%.

a. What is mortgage loan balance by the end of year 5?

b. What is the annual interest dollar amount in year 2?

c. What is the debt service for year 4?

d. What is the first-year debt coverage ratio?

e. What is the first-year equity dividend rate?

Delizzia, a family owned business, produces and delivers potato chips to supermarkets and mom & pop stores. Located in Buenos Aires, Argentina, Delizzia is planning to expand its operations to cover other major Argentinian cities such as Cordoba and Rosario. This expansion will require Delizzia to set up a new distribution center and acquire new vehicles for last-mile distribution. Due to budget constraints, the company will only be able to expand to one city at a time. Therefore, Delizzia needs to decide if investing in Cordoba or Rosario makes more economic sense. The company is considering a time horizon of five years to make the decision. Assume the tax rate is 40% and the discount rate for Delizzia is 15%. Ignore inflation.

The table below shows the projections (incremental sales, COGS, operating expenses and depreciation) anticipated for expanding Delizzia's operations to Cordoba in millions of Argentine pesos.

Expanding to Cordoba will require an investment of 30,000,000 Argentine pesos (to be paid in Year 0) to remodel the rented space for the distribution center and purchase the vehicles. Similarly, additional working capital will be required, but it comes in the second half of Year 1 after the remodeling is finished. That is why there is no working capital in Year 0. See table below:

Note.- A negative number for the capital expenditure and working capital represents a cash outflow. The positive working capital cash flow in the final period may not equal the sum of the previous investments due to accounting assumptions, such as not collecting all receivables.

The company uses straight-line depreciation over 5 years. The terminal value is zero.

What are the projected Free Cash Flows for year 5 associated with expanding to Cordoba?

Part 1

The table below shows the projections (incremental sales, COGS, operating expenses and depreciation) anticipated for expanding Delizzia's operations to Rosario in millions of Argentine pesos.

They company uses straight-line depreciation over 5 years. Assume terminal value of zero.

Calculate the projected NOPAT (Net Operating Profit After Tax) for years 1-5.

What would be the projected NOPAT for year 1 associated with expanding to Rosario?

What would be the projected NOPAT for year 2 associated with expanding to Rosario?

What would be the projected NOPAT for year 3 associated with expanding to Rosario?

What would be the projected NOPAT for year 4 associated with expanding to Rosario?

What would be the projected NOPAT for year 5 associated with expanding to Rosario?

Part 2

Expanding to Rosario will require an investment of 50,000,000 Argentine pesos (to be paid in Year 0) to remodel the rented space for the distribution center and purchase the vehicles. Similarly, additional working capital will be required, but it comes in the second half of Year 1 after the remodeling is finished. That is why there is no working capital in Year 0. See table below:

Note.- A negative number for the capital expenditure and working capital represents a cash outflow. The positive working capital cash flow in the final period may not equal the sum of the previous investments due to accounting assumptions, such as not collecting all receivables.

Calculate the projected Free Cash Flows immediately and for years 1-5.

What are the projected Free Cash Flows immediately associated with expanding to Rosario?

What are the projected Free Cash Flows for year 1 associated with expanding to Rosario?

What are the projected Free Cash Flows for year 2 associated with expanding to Rosario?

What are the projected Free Cash Flows for year 3 associated with expanding to Rosario?

What are the projected Free Cash Flows for year 4 associated with expanding to Rosario?

What are the projected Free Cash Flows for year 5 associated with expanding to Rosario?