Problem 21-5 Statement of cash flows; direct method [LO21-3, 21-8]

Comparative balance sheets for 2018 and 2017 and a statement of income for 2018 are given below for Metagrobolize Industries. Additional information from the accounting records of Metagrobolize also is provided.

Additional information from the accounting records:

1. Annual payments of $20,000 on the finance lease liability are paid each January 1, beginning in 2018.
2. During 2018, equipment with a cost of $600,000 (90% depreciated) was sold.
3. The statement of shareholders' equity reveals reductions of $225,000 and $370,000 for stock dividends and cash dividends, respectively.

Required:
Prepare the statement of cash flows of Metagrobolize for the year ended December 31, 2018. Present cash flows from operating activities by the direct method. (Enter your answers in thousands (i.e., 5,000 should be entered as 5). Amounts to be deducted should be indicated with a minus sign.)

Distribution, Metabolism, Drug Interactions, and the Effects of Aging, Obesity, and Disease

Problem #4

Please describe 3 different processes through which a drug can exert pharmacokinetic non-linearity and give an example of a drug (different drug for each type) that exerts this type of non-linearity for each example (e.g., saturablemetabolism and phenytoin)

Absorption-related non-linearity – mechanism and example of a drug

Distribution-related non-linearity – mechanism and example of a drug

Metabolism-related non-linearity – mechanism and example of a drug

Problem #5

Please describe the influence of extremes of age, obesity, and a disease state of your choice on the following processes and give an example of a drug that may be affected by each. If none – state “no effect.”

5a. Influence of extremes of age (neonate vs. elderly)

Absorption –

Example of drug:

Distribution –

Example of drug:

Metabolism –

Example of drug:

Excretion –

Example of drug:

5b. Influence of obesity

Absorption –

Example of drug:

Distribution –

Example of drug:

Metabolism –

Example of drug:

Excretion –

Example of drug:

5c. Disease state of your choice (write in disease state) _________________________

Absorption –

Example of drug:

Distribution –

Example of drug:

Metabolism –

Example of drug:

Excretion –

Example of drug:

Problem #6

Explain the influence of aging on each of the following:

Drug metabolism through CYP3A4 (consider both gut and liver)

Glucuronidation

Sulfation

Acetylation

Mercia Chocolates produces gourmet chocolate products with no preservatives. Any production must be sold within a few days, so producing for inventory is not an option. Mercia’s single plant has the capacity to make 97,000 packages of chocolate annually. Currently, Mercia sells to only two customers: Vern’s Chocolates (a specialty candy store chain) and Mega Stores (a chain of department stores). Vern’s orders 60,400 packages and Mega Stores orders 22,000 packages annually. Variable manufacturing costs are $24 per package, and annual fixed manufacturing costs are $627,000.

The gourmet chocolate business has two seasons, holidays and non-holidays. The holiday season lasts exactly four months and the non-holiday season lasts eight months. Vern’s orders the same amount each month, so Vern’s orders 19,200 packages during the holidays and 41,200 packages in the non-holiday season. Mega Stores only carries Mercia’s chocolates during the holidays.

Required:

a. Calculate the product cost for each season with excess capacity costs assigned to season in which it is incurred.

b. Calculate the product cost for each season with excess capacity costs assigned to the season requiring it.

Require A

Product cost

Non-holiday ??? per package

Holiday ??? per package

Require B

Product cost

Non-holiday ???? per package

Holiday ????   per package

. In the retail trade industry, unionized workers earn 19.0% more than non-unionized workers do. As you learned in class, this does not necessarily mean that non-union workers who gained union membership would receive raises of (on average) 19%, nor does it mean that the existence of the union increased the wages of workers who were able to join the union by 19%.

a. As we noted in class, many unions prefer to grant union membership to workers with a significant amount of work experience in the industry. In light of that fact alone, is the 19% difference between union and non-union wages an overestimate or an underestimate of the value of belonging to a labor union? (Other factors might also affect that comparison, but ignore them for this part of the question.)

b. Define the “spillover” and “threat” effects. If the spillover effect were larger in magnitude than the threat effect, would the existence of unions raise or lower the earnings of non-union workers? Would the 19% difference between union and non-union wages overestimate or underestimate the value of belonging to a labor union? (Again, ignore other factors for this part.)

c. Briefly explain how the “product market” effect may operate in this industry. If the product market effect were large, would that suggest that the 19% wage difference is an underestimate or an overestimate of the amount by which unions increase workers’ wages? (Ignore other factors again here.)

Revenue Recognition for ABC Software Company under ASC 606

ABC COMPANY was stumped by U.S. accounting rules for revenue recognition and gave up trying to comply with them.  The Japanese giant recognized this would lead to the delisting of its ADR shares on NASDAQ.  ABC also said it would be able to file its 2006 annual report under U.S. GAAP and it couldn’t vouch for its financial statements since 2000.  ABC COMPANY said a restatement was not practicable because of the complexities.  ABC noted that its financial statements under Japanese GAAP are current and not affected by this announcement.  

Under accounting principles generally accepted in the United States of America, revenue recognition rules are complicated for software companies whose contracts combine the sale of software with maintenance service agreements.  Previously, a standard called SOP 97-2 for companies wishing to recognize the software-sales revenue up front must perform an analysis of such contracts that provides “vendor specific objective evidence” (VSOP) of consistent treatment of sales and service.  That analysis, which ABC COMPANY says it has been unable to complete, required before portions of revenue from a single contract can be broken out and recognized at different times.  ABC says it is unable to complete the VSOE analysis for its auditor in time to file the annual report for the year ending March 31, 2006 even though ABC had previously been warned by NASDAQ and received an extension.  

On June 17, 2008 the Securities and Exchange Commission instituted proceedings against ABC pursuant to the Securities and Exchange Act of 1934.  The resulting order revoked the U.S. registration of each class of ABC’s registered securities and ordered ABC to cease and desist from committing certain violations based on ABC’s failure to file annual reports and maintain sufficient internal controls, and failure to make and keep accurate books and records.  Following the revocation order ABC securities remain listed for trading, and actively trade, in Japan.  ABC's American Depositary Receipt Program was subsequently terminated as of March 31, 2010.  

Recently, new revenue recognition standards have been adopted in the USA.  ABC’s management would like your advice on whether it might be a good time to apply for the company to be listed on a US stock exchange by complying with revenue recognition requirements.

ABC has the following sources of income that should be evaluated.

1. Licensing of product.  Customers pay an upfront fee of $12,000 for 12 months to use ABC’s software.  Customers can access ABC’s software at any time during the period.  The contract term starts on July 1 and go through June 30.  ABC provides hosting and maintenance of the site.
2. Implementation . ABC software will provide training, project management, data conversion and process consulting to onboard new clients. Implementation services typically require full-time work for 3-months on average with a team of 3 providing hourly billing at a rate of $150 per hour.
3. Hardware sales.  ABC is a reseller of key components.  ABC has no inventory obligations and drop ships produce from the manufacturer’s distribution site.  The mark-up on hardware sales is 10% for ABC.

Other considerations:

Does the customer have the ability to forgo the hosting provided by the Company and instead host it on their own servers, or some other remote server (e.g., AWS, Microsoft Azure)
Yes, this is an option we make available, though we highly discourage it. Out of 2000+ customers, less than two dozen forgo the hosting services.

·         How integral are the implementation services to using the software?
Highly integral. We provide no generic services. For example, as part of implementation, we provide an overview of the ABC database, but we do not educate customers on relational database management systems.

·         Could the customer source the implementation services from some other third party?
A customer has only one option for sourcing implementation services: 1) Company ABC if the system was purchased through direct sales, or 2) a channel partner if the system was purchased through that channel partner.

·         Does ABC perform regular upgrades to the software?
Yes

·         Does the customer have to pay separately to get access to such upgrades?
No, upgrades are included as part of the annual license subscription.

·         If ABC provides upgrades, are they promised (explicitly or implicitly) at any sort of regular cadence?
Releases (i.e., upgrades) are delivered every four weeks like clockwork.

·         Is there a minimum number of upgrades promised or implied during the term of the contract?
License subscriptions run on an annual basis, though contracts are often times multiple-year subscriptions. Thirteen releases per year are implied in an annual subscription.

Explain the following

1.       A.  Would the license meet the definition of a performance obligation?

B. Would the license be classified as a license of functional intellectual property or symbolic intellectual property?

C. Would the revenue be recognized at the point in time that access to the license is granted to the customer or over the license term?

2.          Discuss the revenue recognition for Implementation

3.          Discuss revenue recognition for Hardware sales.

4.          Discuss a factor that could change one of your answers.

Financial information for Powell Panther Corporation is shown below:

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

   2018:  $  

   2019:  $  

2. What was the 2019 free cash flow?

   $  

3. How would you explain the large increase in 2019 dividends?

   1. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
   2. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.
   3. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
   4. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
   5. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.

   -Select-

Powell Panther Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)

Powell Panther Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Write out your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest dollar, if necessary. Negative values, if any, should be indicated by a minus sign.

1. What was net operating working capital for 2018 and 2019? Assume the firm has no excess cash.

   2018:  $  

   2019:  $  

2. What was the 2019 free cash flow?

   $  

3. How would you explain the large increase in 2019 dividends?

   1. The large increase in net income from 2018 to 2019 explains the large increase in 2019 dividends.
   2. The large increase in EBIT from 2018 to 2019 explains the large increase in 2019 dividends.
   3. The large increase in free cash flow from 2018 to 2019 explains the large increase in 2019 dividends.
   4. The large increase in sales from 2018 to 2019 explains the large increase in 2019 dividends.
   5. The large increase in retained earnings from 2018 to 2019 explains the large increase in 2019 dividends.

Tax Breaks for Education

In 2018, Margery and Philip Brown have three children attending college full-time and they claim all three as dependents. Philip also has education related expenses for himself. They paid for the following expenses:

1. Their daughter, Amy, is a Masters student in both Spring 2018 and Fall 2018 at Wake Forest where she received a scholarship for part of her tuition. Her parents paid a total of tuition of $10,000 and room & board of $6,000 (all paid in 2018). Amy purchased her own textbooks at a cost of $1,000.

2. Their son, Brad, is a freshman in Spring 2018 and a sophomore in Fall 2018 at Western Carolina. His parents paid a total of tuition and fees of $6,400 and room & board of $5,800 (all paid in 2018).

3. Their daughter, Elizabeth, started at UNC-CH as a freshman in Fall 2018. She receives a scholarship that covers her tuition but her parents paid required fees of $1,000. Her parents also paid room & board of $4,600 and textbooks for $1,400.

4. Philip is a self-employed lawyer. He completed continuing education courses that are required to meet the requirements of North Carolina State law and cost $3,000. (You can ignore any effects on self-employment tax.)

6. Philip is also paying off student loans from law school. He paid $3,200 of interest in 2018.

The following outlines the application of the tax formula to Assignment 6:

AGI before education deductions

Subtract: for AGI education related deductions

Professional education for a self-employed individual

Student loan interest deduction

AGI

Subtract: Itemized Deductions

Taxes, interest, and charitable

Taxable Income

Tax – calculate tax on taxable income using the tax rate schedule (write an Excel formula to do the calculation)

Subtract: Credits

American Opportunity Credit (AOC)

Lifetime Learning Credit (LL)

Be certain to consider any phase outs

Tax after Credits

Fullerton, Inc. makes and sells a single snowboard model, the Titan. Fullerton’s CEO expects to sell 3,910 snowboards at an estimated retail price of $1,320 per board during 2018. In the fall of 2017, Fullerton gathered the following data to prepare budgets for 2018: Materials and Labor Requirements Wood 17 board feet (b.f.) per snowboard Fiberglass 15 yards per snowboard Direct labor 7 hours per snowboard ​ CEO expects to sell 3,910 snowboards during 2018 at an estimated retail price of $ 1,320 per board.​ Further, the CEO expects 2018 beginning inventory of 700 snowboards and would like to end 2018 with 900 snowboards in stock. The inventoriable unit cost for beginning finished goods inventory on January 1, 2018 ​is ​$230.00. Data pertaining to the direct materials inventories are as follows: Beginning Inventory Ending Inventory Wood 2,100 b.f. 1,600 b.f. Fiberglass 1,100 yards 2,100 yards Variable manufacturing overhead is $20 per direct labor-hour. There are also $28,770 in fixed manufacturing overhead cots budgeted for 2018. Both variable and fixed overhead costs are allocated based on direct manufacturing labor-hours. Other data include the following: 2017 Unit Price 2018 Unit Price Wood $38.00 per b.f. $40.00 per b.f. Fiberglass $14 per yard $15 per yard Direct labor $34.00 per hour $35.00 per hour Assume Fullerton uses a FIFO inventory method for both direct materials and finished goods. Ignore work in process in your calculations.

1. What is the total direct manufacturing labor costs budget?

a.987,180

b. 882,980

c. 1,006,950

d.908,950

2. What are the total manufacturing overhead costs?

a. 102,970

b. 604,170

c.548,170

d. 110,970

3. What is the cost of target ending inventories of finished goods?

a. 1,116,900

b. 965,200

c. 978,300

d. 1,167,300

4. What is the budgeted cost of goods sold for 2018?

a. 4,369,470

b. 4,508,070

c. 4,319,070

d. 4,521,170

5. What are total finished good units to be produced?

a. 4110

b. 4,700

c. 3,900

d. 3,710