Kemmerer Pen, a manufacturer of stationary, is considering a new investment that
requires the use of an existing warehouse, which the firm acquired four years ago for $2
million but is currently redundant (unused).
• The warehouse’s market rental price is $200,000 (pre-tax) per year at year zero.
• Rental price for the warehouse will increase at a growth rate of 5% from year 1 to
year 5.
• In addition to using the warehouse, the project requires an up-front investment into
machines and other equipment of $6 million. This investment can be fully
depreciated straight-line over the next six years for tax purposes with a salvage
value of 0.
• However, the company expects to terminate the project at the end of five years and
to sell the machines and equipment for $1.5 million.
• The project requires an initial investment (incur at Year 0) into net working capital
equal to 5% of predicted first-year sales. Subsequently, net working capital is 5%
of the predicted sales over the following year but will be fully recovered at the
end of year 5.
• Sales of pens are expected to be $5 million in the first year and to stay stable for
five years. Total manufacturing costs and operating expenses (excluding
depreciation) are 60% of sales. And profits are taxed at 30%.

a) What are the free cash flows of the project from Year 0 to Year 5 respectively? (6
marks). If the cost of capital is 10%, what is the NPV of the project?

b) If a borrowing interest payment of $600,000 for this project is made per year
during the investing period, will it change Kemmerer Pen’s investment decision?

import java.util.Random;
import java.util.Scanner;

public class Compass {

public Random r;

public Compass(long seed){
r = new Random(seed);
}
  
public static String numberToDirection(int a){
if(a==0)
return "North";
  
if(a==1)
return "NorthEast";

if(a==2)
return "East";

if(a==3)
return "Southeast";

if(a==4)
return "South";

if(a==5)
return "Southwest";

if(a==6)
return "West";
  
if(a==7)
return "Northwest";
  
return "Invalid Direction" ;
}

public String randomDirection(){
return numberToDirection(r.nextInt()% 4 + 1);
}

public static void main(String[] args) {
Scanner input = new Scanner(System.in);
System.out.print("Enter seed: ");
long seed = input.nextLong();
Compass compass = new Compass(seed);
String direction = compass.randomDirection();
System.out.println("Random direction: " + direction);
}
}

NEED HELP WITH TEST FILE

import static org.junit.Assert.assertEquals;
import org.junit.Test;

public class CompassTest {
@Test
public void test0IsNorth() {
assertEquals("North", Compass.numberToDirection(0));
}

@Test
public void testOutOfRange8() {
assertEquals("Out of range: 8",
Compass.numberToDirection(8));
}

@Test
public void testSeed123() {
Compass c = new Compass(123l);
assertEquals("Southwest",
c.randomDirection());
}

// TODO - write your code below this comment.
// You will need to write at least SEVEN tests for
// your numberToDirection method you wrote in
// Compass.java. Each test should test a different
// behavior of numberToDirection. While you may
// tests which are redundant with the tests above,
// you'll still need to be sure to test each
// behavior.
//
// If you're not sure you're testing all the
// behaviors, don't hesitate to ask!
}

On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $310 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2019 are $120 million instead of $30 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

• Required 1
• Required 2
• Required 3

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in millions. Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time. (Enter your answers in millions. Loss amounts should be indicated with a minus sign.)

In 2018, the initial year of its existence, Dexter Company's accountant, in preparing both the income statement and the tax return, developed the following list of items causing differences between accounting and taxable income:

The company sells its merchandise on an installment contract basis. In 2018, Dexter elected, for tax purposes, to report the gross profit from these sales in the years the receivables are collected. However, for financial statement purposes, the company recognized all the gross profit in 2018. These procedures created a $750,000 difference between book and taxable incomes. The future collection of the installment contracts receivables are expected to result in taxable amounts of $375,000 in each of the next two years. (Note: the company treats installment contracts receivable as a current asset on its balance sheet.)

The company has also chosen to depreciate all of its depreciable assets on an accelerated basis for tax purposes but on a straight-line basis for accounting purposes. These procedures resulted in $90,000 excess depreciation for tax purposes over accounting depreciation. The temporary difference due to excess tax depreciation will reverse equally over the three year period from 2019-2021.

Dexter leased some of its property to Baker Company on July 1, 2018. The lease was to expire on July 1, 2020 and the monthly rentals were to be $90,000. Baker, however, paid the first year's rent in advance and Dexter reported this entire amount on its tax return. These procedures resulted in a $540,000 difference between book and taxable incomes. (Note: this lease was an operating lease and Dexter classified the unearned rent as a current liability on its balance sheet.)

Dexter owns $300,000 of bonds issued by the State of Oregon upon which 5% interest is paid annually. In 2018, Dexter showed $15,000 of income from the bonds on its income statement but did not show any of this amount on its tax return. (Note: these bonds are classified as long-term investments on Dexter's balance sheet.)

In 2018, Dexter insured the lives of its chief executives. The premiums paid amounted to $18,000 and this amount was shown as an expense on the income statement. However, this amount was not deducted on the tax return. The company is the beneficiary.

Instructions

Assuming that the income statement of Dexter Company showed "Income before income taxes" of $1,500,000; that the enacted tax rates are 30% for all years; and that no other differences between book and taxable incomes existed, except for those mentioned above:

Compute the income taxes payable.

Prepare a schedule of future taxable and (deductible) amounts at the end of 2018.

Prepare a schedule of deferred tax (asset) and liability at the end of 2018.

Compute the net deferred tax expense (benefit) for 2018.

Make the journal entry recording income tax expense, income taxes payable, and deferred income taxes for 2018.

Indicate how income tax expense and any deferred income taxes should be disclosed on the financial statements under generally accepted accounting principles. Show the amounts for these items and indicate specifically where they would be disclosed.

On the designated worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information (round all numbers to the nearest dollar). Letter entries to correspond to the below information and present them in alphabetical order. Add any new accounts as needed to the trial balance. Each entry must be entirely correct to receive allocated points. Before preparing entries, finish the story by filling in the blanks.

Accounting Creations was authorized to issue 3,000,000 shares of $1 par Common Stock but has only issued 650,000 shares of common stock as of 12/31/2018. No new shares were issued during 2018.

I.) Accounting Creations Double Entry has two loans outstanding as of 12/31/2018. Interest is paid annually on January 1st.  The facts on each loan are as follows:

Onstar Bank Loan - outstanding since January 1, 2018 with a 4.0% interest rate. This loan was taken out to finance the construction of the Storage Building. Interest for the year and 10% of the principle will be paid to the bank on January 1, 2019. Except for recording the initial cash received and loan, no additional entries have been made.

Coldstar Bank Loan - also outstanding all of 2018 with 3.03 % interest rate Interest is due on January 1, 2019. Principle is due on January 1, 2024. Since interest will not be paid to the Bank until 2019, Accounting Creations' office staff did not accrue any interest.

J.) On March 1, 2018 (enter your birthday month), Accounting Creations recorded a patent in the amount of $150,000. The company paid outside legal fees of $80,000 to have the patent registered. The other $70,000 represents internal costs in developing the patent. The patent is good for 20 years, but the company estimates that the patent will have a useful life of 6 years with no residual value. Amortization is straight line. The company depreciates using partial years for intangible assets. No amortization has been recorded for 2018.

K.) As of 12/31/2018 the Available for Sale Securities have a fair value of $290,553 (enter the last three digits of your student number). Due to the market conditions, the company does not plan on selling the assets in 2019, but their intent is to sell at some point in time.  You can ignore the tax effect on unrealized gains and losses.

L.) The office building was bought in January 1, 2016 and Accounting Creations plans to use the building for 40 years and believes it will have a salvage value of $250,000 at the end of 40 years. Accounting Creations depreciates the building on a straight line basis. Due to the location of the building and use potential, Accounting Creations is concerned about impairment. At 12/31/2018 it is determined that the future cash flows for the building are $3,000,000. The fair value of the building is $3,400,000 (last digit of your student number) at 12/31/2018.

ETech Company was organized on January 1, 2017 to produce and sell a revolutionary smart watch. At the beginning of its second year (2018) finished goods inventory was 2,000 watches. During 2018 ETech accountant resigned and the accounting was done by an accounting student who worked part-time for the company. The income statement below was prepared by the accounting student.

ETech Company

Income Statement

As of December 31, 2018

Revenues:

   Sales revenue (38,000 watches)……………………………….                       $1,140,000

   Royalty revenue……………………………………………….                                     500

   Gain on sale of trading investment……………………………                                 7,000

   Deferred rent revenue …………..……………………………                                3,500

   Interest payable………………………………………………...                                 3,700

Total revenues …………………………………………………..                        $1,154,700

Operating expenses:

    Cost of goods manufactured. ..………………………………    $1,113,000    

    Selling and distribution expense………………………..……        195,000

    General and administrative expense…………………………           95,000

    Restructuring costs………………………………………….            25,000

    Short-term investments………………………………………           17,000

    Interest expense………………. ……………………………..           5,000

    Dividend paid………………………………………………..             1,000

Total operating expenses ………………………………………                           1,451,000

Net loss …………………………………………………………                          ($296,300)    

ETech Company

                         Schedule of Cost of Goods Manufactured

                                      As of December 31, 2018

    Purchase of direct materials…………………………………….                           360,000

    Direct manufacturing labor costs ………………………………                             79,000

    Indirect Manufacturing Overhead:

       Factory maintenance.…..…….………………………………       $35,000

       Factory insurance …. ………………………………………..           3,000
       Indirect manufacturing labor costs.…………………………..       105,000

       Rent expense …………………………………………………        84,000

       Utilities expense ………………………………………………      30,000

       Research & development expense…………………………...         15,000

       Prepaid factory insurance…………………………………….          2,000

       Factory equipment …………………………………………...       500,000

       Accumulated depreciation - factory equipment ……………….   (100,000)

   Total indirect manufacturing overhead…………………………                            674,000

    Cost of goods manufactured …………………………………..                        $1,113,000

Additional information about the company’s activities during the year is as follows:

     a. In 2018 the company produced 40,000 watches.

     b. Inventories at the beginning and end of the year were as follows:

                                                                  January1, 2018      December 31, 2018

            Direct materials………………          $8,000                       $10,000

            Work in process ……………..       $25,200                         49,000

             Finished goods ………………         $37,800                              ?

c. Seventy five percent (75%) of rent expense relates to manufacturing, 15% to general and administrative expense and 10% to selling and distribution expense.

Also, 90% of utilities expense relates to manufacturing, 6% to general and administrative expense and 4% to selling and distribution expense.

d. Factory equipment was purchased January 2, 2017 and is estimated to have a useful life of 10 years with a $5,000 salvage value remaining at the end of its useful life. The company uses the double-declining-balance method of depreciation. The accumulated depreciation of $100,000 reported in the Schedule of Cost of Goods Manufactured resulted from 2017 factory equipment depreciation. No depreciation was charged for 2018.

e. The company’s tax rate is 21 %.

The company’s CEO is concerned about the large net loss and hires your accounting firm to review the above financial statements.

Required:

1. Prepare a corrected Schedule of Cost of Goods Manufactured for the year ended December 31, 2018.
2. Calculate the cost of producing one watch (show calculation)
3. Prepare a revised multiple-step income statement for the year ended December 31, 2018.

Two Company purchased a one-year insurance policy on July 1, 2018 for $2,400. The company debited the entire amount to insurance expense. The adjusting entry on December 31, 2018 would include