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Problem 12-09 Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016
Income Statement for December 31, 2016
Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $162,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
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In: Finance
Chelsea Inc. reports tax revenues (income) using the installment method (cash basis), but reports book revenues on an accrual basis. As a result, it has a book-tax difference in that it is recording book revenues prior to recording tax revenues (income). Assume the tax rate is 40%
Chelsea INC. GAAP Reporting
| 2014 | 2015 | 2016 | Total | |
| Revenues | 130000 | 130000 | 130000 | |
| Expenses | 60000 | 60000 | 60000 | |
| Pretax Financial Income | 70000 | 70000 | 70000 | 210000 |
| Income Tax Expense (40%) | 28000 | 28000 | 28000 | 84000 |
Chelsea INC. Tax Reporting
| 2014 | 2015 | 2016 | Total | |
| Revenues | 100000 | 150000 | 140000 | |
| Expenses | 60000 | 60000 | 60000 | |
| Taxable Income | 40000 | 90000 | 80000 | 210000 |
| Income Taxes Payable (40%) | 16000 | 36000 | 32000 | 84000 |
Based on the information provided, complete the following charts and answer the related questions:
GAAP versus Tax Reporting
| GAAP Versus Tax Reporting | ||||
| 2014 | 2015 | 2016 | Total | |
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GAAP Revenues |
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| Tax Revenues | ||||
| Book-Tax Difference |
| Income | Expense and | Income Tax | Payable Reporting | |
| 2014 | 2015 | 2016 | Total | |
| Income Tax Expense | ||||
| Income Tax Payable | ||||
| Book-Tax Difference |
A) In this situation, do GAAP Revenues and Tax Revenues in 2014 reverse out in future years? YES / NO
B) In this situation, the differences result in a deferred tax liability. Which of the following statements below best describes why?
a. The difference is temporary and results in a future tax obligation
b. The difference is temporary and results in a future tax benefit
c. The difference is permanent and results in a future tax obligation
d. The difference is permanent and results in a future tax benefit
C) How much will be reported for the deferred tax liability at the end of each of the following three years:
2014: ___________________
2015: ___________________
2016: ___________________
In: Accounting
| Presented below are the 2016 income statement and comparative balance sheets for Santana Industries. |
| SANTANA INDUSTRIES Income Statement For the Year Ended December 31, 2016 ($ in thousands) |
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| Sales revenue | $ | 16,250 | ||
| Service revenue | 5,400 | |||
| Total revenue | $ | 21,650 | ||
| Operating expenses: | ||||
| Cost of goods sold | 8,200 | |||
| Selling | 3,400 | |||
| General and administrative | 2,500 | |||
| Total operating expenses | 14,100 | |||
| Operating income | 7,550 | |||
| Interest expense | 300 | |||
| Income before income taxes | 7,250 | |||
| Income tax expense | 3,500 | |||
| Net income | $ | 3,750 | ||
| Balance Sheet Information ($ in thousands) | Dec. 31, 2016 |
Dec. 31, 2015 |
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| Assets: | ||||||
| Cash | $ | 8,350 | $ | 3,100 | ||
| Accounts receivable | 4,500 | 3,200 | ||||
| Inventory | 6,000 | 4,000 | ||||
| Prepaid rent | 250 | 500 | ||||
| Plant and equipment | 16,500 | 14,000 | ||||
| Less: Accumulated depreciation | (6,100 | ) | (5,500 | ) | ||
| Total assets | $ | 29,500 | $ | 19,300 | ||
| Liabilities and Shareholders’ Equity: | ||||||
| Accounts payable | $ | 3,400 | $ | 2,100 | ||
| Interest payable | 200 | 0 | ||||
| Deferred service revenue | 1,000 | 700 | ||||
| Income taxes payable | 650 | 1,000 | ||||
| Loan payable (due 12/31/2015) | 7,000 | 0 | ||||
| Common stock | 11,000 | 11,000 | ||||
| Retained earnings | 6,250 | 4,500 | ||||
| Total liabilities and shareholders' equity | $ | 29,500 | $ | 19,300 | ||
| Additional information for the 2016 fiscal year ($ in thousands): | |
| 1. | Cash dividends of $2,000 were declared and paid. |
| 2. | Equipment costing $6,000 was purchased with cash. |
| 3. |
Equipment with a book value of $1,500 (cost of $3,500 less accumulated depreciation of $2,000) was sold for $1,500. |
| 4. | Depreciation of $2,600 is included in operating expenses. |
| Required: |
|
Prepare Santana Industries' 2016 statement of cash flows, using the indirect method to present cash flows from operating activities. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in thousands.) |
In: Finance
Berne Company (lessor) enters into a lease with Fox Company to lease equipment to Fox beginning January 1, 2016. The lease terms, provisions, and related events are as follows:
| 1. | The lease term is 4 years. The lease is noncancelable and requires annual rental payments of $50,000 to be made at the end of each year. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2. | The equipment costs $130,000. The equipment has an estimated life of 4 years and an estimated residual value at the end of the lease term of zero. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3. | Fox agrees to pay all executory costs. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4. | The interest rate implicit in the lease is 12%. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5. | The initial direct costs are insignificant and assumed to be zero. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6. | The collectibility of the rentals is reasonably assured, and
there are no important uncertainties surrounding the amount of
unreimbursable costs yet to be incurred by the lessor.
Determine if the lease is a sales-type or direct financing lease from Berne’s point of view. Sales-type lease Calculate the selling price and assume that this is also the fair value. Additional Instruction Prepare a table summarizing the lease receipts and interest revenue earned by the lessor. Additional Instructions
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In: Accounting
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $200,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 9%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
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| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
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| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
MERMED Inc. is a medical device manufacturer.
The company’s headquarters is located in Houston, Texas. It is a
global leader in developing, manufacturing, selling and servicing
diagnostic imaging and therapeutic medical devices used to diagnose
and treat cardiovascular and other diseases. MERMED earned $300
million of revenue in 2015, while employing more than 10,000 people
worldwide. One of it’s manufacturing plants is located in Dingle,
Co. Kerry, Ireland. Tom Jones is the plant manager at the Dingle
facility.
The Dingle site runs 12 hour shifts, 7 days a week. It has 1000
employees. It manufactures a variety of of medical devices
(including Class III devices). A number of it's products are sold
in the US and European markets. The facility has a Quality
Management System in place. Their Quality Management System is in
compliance with ISO 13485:2016 and 21 CFR 820. Their facility is
frequently audited by Notified Bodies and the FDA.
The site was recently audited by corporate. The corporate auditing team were checking the site's compliance with ISO 13485:2016 and 21 CFR 820. The auditors found a number of potential non-conformances to ISO 13485:2016 and 21 CFR 820.
You must complete 4 tasks (for each of the 5 incidents/questions):
1. Review each of these potential non-conformances (5 incidents in total)
2. Determine if they are non-conformances against the requirements of the ISO13485:2016 AND 21 CFR 820.
3. If they are non-compliances, write down the specific clause numbers in ISO 13485:2016 AND specific section number of 21 CFR 820 which is applicable (write down the main clause/section in each regulation that the non-compliance is against).
4. Briefly EXPLAIN your decision.
The company has not established a sampling plan for the evaluation of products during incoming inspection of Component ID Z2906.
In: Operations Management
Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016 Cash $ 180,000 Accounts payable $ 360,000 Receivables 360,000 Notes payable 156,000 Inventories 720,000 Line of credit 0 Total current assets $1,260,000 Accruals 180,000 Fixed assets 1,440,000 Total current liabilities $ 696,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000 Income Statement for December 31, 2016 Sales $3,600,000 Operating costs 3,279,720 EBIT $ 320,280 Interest 18,280 Pre-tax earnings $ 302,000 Taxes (40%) 120,800 Net income 181,200 Dividends $ 108,000 Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $148,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations. Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 Sales $ Operating costs $ EBIT $ Interest $ Pre-tax earnings $ Taxes (40%) $ Net income $ Dividends: $ Addition to RE: $ Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 Cash $ Receivables $ Inventories $ Total current assets $ Fixed assets $ Total assets $ Accounts payable $ Notes payable $ Accruals $ Total current liabilities $ Common stock $ Retained earnings $ Total liabilities and equity $
In: Finance
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $170,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 10%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
Problem 12-09 Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016 Cash $ 180,000 Accounts payable $ 360,000 Receivables 360,000 Notes payable 156,000 Inventories 720,000 Line of credit 0 Total current assets $1,260,000 Accruals 180,000 Fixed assets 1,440,000 Total current liabilities $ 696,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000 Income Statement for December 31, 2016 Sales $3,600,000 Operating costs 3,279,720 EBIT $ 320,280 Interest 18,280 Pre-tax earnings $ 302,000 Taxes (40%) 120,800 Net income 181,200 Dividends $ 108,000 Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $136,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 10%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations. Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 Sales $ Operating costs $ EBIT $ Interest $ Pre-tax earnings $ Taxes (40%) $ Net income $ Dividends: $ Addition to RE: $ Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 Cash $ Receivables $ Inventories $ Total current assets $ Fixed assets $ Total assets $ Accounts payable $ Notes payable $ Accruals $ Total current liabilities $ Common stock $ Retained earnings $ Total liabilities and equity
In: Finance
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $118,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 14%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance