Strong Tool Company has been considering purchasing a new lathe to replace a fully depreciated lathe that would otherwise last 5 more years. The new lathe is expected to have a​ 5-year life and depreciation charges of $2,060i n Year​ 1; $3,296 in Year​ 2; $1,957 in Year​ 3; $1,236 in both Year 4 and Year​ 5; and $515 in Year 6. The firm estimates the revenues and expenses​ (excluding depreciation and​ interest) for the new and the old lathes to be as shown in the following table

. The firm is subject to a 40% tax rate on ordinary income.

a. Calculate the operating cash inflows associated with each lathe.​ (Note: Be sure to consider the depreciation in year​ 6.)

b. Calculate the operating cash inflows resulting from the proposed lathe replacement.

c. Depict on a time line the incremental operating cash inflows calculated in part b.

Question one: 75 marks

United Sports Company prepares monthly financial statements. Below are listed some selected accounts and their balances in the September 30 trial balance before any adjustments have been made for the month of September.

UNITED SPORTS COMPANY

Trial Balance (Selected Accounts)

September 30, 2019

—————————————————————————————————————————

An analysis of the account balances by the company's accountant provided the following additional information:

1. A physical count of office supplies revealed $1,200 on hand on September 30.
2. A two-year life insurance policy was purchased on June 1 for $3,600.
3. Office equipment depreciated $3,000 per year.
4. The amount of rent received in advance that remains unearned at September 30 is $400.

Instructions

Complete the balances of the following accounts in a partial adjusted Trial balance for United Sports Company on September 30.

UNITED SPORTS COMPANY

Trial Balance (Selected Accounts)

September 30, 2019

The following information was disclosed during the audit of Elbert Inc.

Question: Prepare the journal entry to record income taxes for 2018.

Consider the following data for Nike​ Inc.: In 2009 it had $ 19 comma 150 million in sales with a 10​% growth rate in​ 2010, but then slows by 1 % to the​ long-run growth rate of 5​% by 2015. Nike expects EBIT to be 10​% of​ sales, increases in net working capital requirements to be​ 10% of any increases in​ sales, and capital expenditures to equal depreciation expenses. Nike also has ​$2 comma 300 million in​ cash, ​$32 million in​ debt, 486 million shares​ outstanding, a tax rate of 24​%, and a weighted average cost of capital of 10​%. a. Suppose you believe​ Nike's initial revenue growth rate will be between 7 % and 11 % ​(with growth slowing linearly to 5​% by year​ 2015). What range of prices for Nike stock is consistent with these​ forecasts? b. Suppose you believe​ Nike's initial revenue EBIT margin will be between 9 % and 11 % of sales. What range of prices for Nike stock is consistent with these​ forecasts? c. Suppose you believe​ Nike's weighted average cost of capital is between 9.5​% and 12​%. What range of prices for Nike stock is consistent with these​ forecasts? d. What range of stock prices is consistent if you vary the estimates as in parts ​(a​), ​(b​), and ​(c​) ​simultaneously?

A new accounting intern at Gibson Corporation lost the only copy of this period's master budget. The CFO wants to evaluate performance for this period but needs the master budget to do so. Actual results for the period follow:  
  

The company planned to produce and sell 103,200 units for $6.00 each. At that volume, the contribution margin would have been $433,440. Variable marketing and administrative costs are budgeted at 10 percent of sales revenue. Manufacturing fixed costs are estimated at $2.40 per unit at the normal volume of 103,200 units. Management notes, "We budget an operating profit of $1.00 per unit at the normal volume."

Required:

a. Construct the master budget for the period. (Do not round intermediate calculations.)

b. Prepare a profit variance analysis. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

References

eBook & Resources

WorksheetLearning Objective: 16-02 Develop and use flexible budgets.

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.

Required:

1. Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs: Fixed Cost per Month Cost per Car Washed Cleaning supplies $ 0.70 Electricity $ 1,400 $ 0.08 Maintenance $ 0.15 Wages and salaries $ 4,300 $ 0.40 Depreciation $ 8,300 Rent $ 2,200 Administrative expenses $ 1,700 $ 0.04 For example, electricity costs are $1,400 per month plus $0.08 per car washed. The company expects to wash 8,400 cars in August and to collect an average of $6.80 per car washed. The actual operating results for August appear below. Lavage Rapide Income Statement For the Month Ended August 31 Actual cars washed 8,500 Revenue $ 59,220 Expenses: Cleaning supplies 6,380 Electricity 2,042 Maintenance 1,500 Wages and salaries 8,020 Depreciation 8,300 Rent 2,400 Administrative expenses 1,936 Total expense 30,578 Net operating income $ 28,642 Required: Calculate the company's revenue and spending variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

You are running a small software firm producing games for mobile devices and are considering introducing a new adventure game to customers. You plan to sell the product for the next 3 years and then exit before the competition catches up.  Based on the market research done last year for $30,000, you believe that, in year 1, the project will generate $4,800,000 of revenue with the cost of goods sold of $2,850,000. The revenue and the cost will diminish by 2% each year after that. The project will immediately require new computer equipment valued at $1,800,000. This equipment will be depreciated to $0 over 3 years using the straight-line method. The net working capital will increase immediately by $400,000 from the current level, stay at the level in year 1 and then decrease by $250,000 in year 2 and again decrease by $150,000 in year 3, returning to the current level. The introduction of the new game will affect the revenues from your other existing adventure games negatively by $190,000 per year.

Forecast all of the annual free cash flows for this project, and then compute its net present value and IRR using a discount rate of 9%. Is this project worth taking? Your company’s tax rate is 35%.

26. If average labor productivity increases, then the same number of employed workers will always produce:

A) more total output. B) less total output. C) less output per person. D) more output per person.

27. When jobs are hard to find, profits are low, few wage increases are given, and many companies go out of business, the economy is most likely in a(n):

A) expansion.  B)recession.  C) boom.  D) shortage.

28. The rate at which prices in general are increasing is called:

A) the unemployment rate. B) the inflation rate.  C) the trade balance. D) the standard of living.

29.  A trade deficit occurs when:
A)   exports are less than imports.
B)   government revenue exceeds government spending.
C)   government spending exceeds government revenue.
D)   exports exceed imports.

30. Major macroeconomic issues include differences across countries in all of the following EXCEPT:

A) inflation rates B) economic growth rates C) unemployment rates  D) infant mortality rates

31. Macroeconomic issues include all of the following EXCEPT:

A) energy reserves B) productivity  C) economic growth  D) recessions and expansions