16.			To apply the gross margin method, the rate of gross margin on sales is multiplied by __________ __________ to arrive at gross margin. The gross margin is then subtracted from net sales to arrive at __________ __________ __________ __________ __________. This figure is then subtracted from __________ __________ __________ __________ __________ __________ to arrive at ending inventory.
17.			Use the following information and the retail inventory method to estimate the ending inventory at cost:
							Cost		Retail
			Beginning inventory				$44,000		$70,000
			Purchases, net				550,000		920,000
			Sales						900,000
18.			The Computational Error Company reported net income of $240,000 and $270,000 for 2006 and 2007. It was discovered later that the ending inventory for 2006 was understated by $28,000. The net income for 2006 was __________, and the net income for 2007 was __________.
19.			A company began an accounting period with 100 units of an item that cost $7.50 each. During the period it purchased 400 units of the item at $9 each and it sold 390 units. In the spaces below give the costs assigned to the ending inventory and to goods sold under each of the three assumptions using periodic inventory procedures.
											Ending Inventory		Cost of Goods Sold
			1.	The costs were assigned on a LIFO basis
			2.	The costs were assigned on a weighted-average cost basis
			3.	Costs were assigned on a FIFO basis

Fill in the blank options questions 16:

0.66:1

cost of goods available for sale

estimated cost of goods sold

FIFO

first-in, first-out

gross margin method

higher      

historical

last-in, first-out

less

LIFO

Lower

Merchandise Inventory

net sales

replacement

retail inventory method

Fill in the blank options questions 17:

$840

$957

$990

$1017

$1525.50

$3360

$3393

$3510

$32250

$32500

$54000

$55880

Fill in the blank options questions 18:

Overstated

understated

Fill in the blank options questions 19(1-3 Ending Inventory/Cost of Goods Sold):

$840

$957

$990

$1017

$1525.50

$3360

$3393

$3510

$32250

$32500

$54000

$55880

Fill in the blank options questions 20:

0.66:1

cost of goods available for sale

estimated cost of goods sold

FIFO

first-in, first-out

gross margin method

higher      

historical

last-in, first-out

less

LIFO

Lower

Merchandise Inventory

net sales

replacement

retail inventory method

Local Cost Smartphones Inc (LCS) is considering launching a new smartphone. with a product life cycle of 4 years. The firm expects to sell 10 million units per year over the next 4 years. The price of the smartphone is expected to be $99 per unit. which will decline by 5% per year.

The cost of production is expected to be $20 per unit. Furthermore, marketing and support costs are expected to be $2.5 million per year during the product life.

Initial capital expenditures are $100 million, 20% of which are expected to be salvaged at the end of year 4. There is an initial increase in NWC of $5 million during each of the first 2 years. In year 3. NWC will remain at the level of Year 2. Investments in NWC will be recovered at the end of year 4.

Note the following assumptions. Purchased capital assets become part of the CCA asset pool depreciated at the rate 40% per year and it is expected that in year 4 there will be a continuing pool and negative net additions. Furthermore, the firm's income tax rate is 35% and its cost of capital is 8%.

a) Determine the impact on NPV of the items listed below. Be careful: for items that have a negative impact on NPV, indicate their amounts as negative numbers.

i.) the initial capital expenditure and salvage of capital assets (ignore CCA tax

shields at this point)?

ii.) the incremental revenues of the project?

iii.) the incremental production costs of the project?

iv.) the changes in net working capital amounts?

v.) the equipment's CCA tax shields?

b) Determine the NPV of the new smartphone product?

c) Should the new smartphone product be launched? Why?

To please be done in excel: Based on a market survey (which cost $100 000), the probable demand for “Tab” in the first year has been estimated. New plant with a maximum annual capacity of 10 000 units can be purchased for $3.5 million. The plant has an estimated useful life for four years, at the end of which the residual value is expected to be $350 000. Variable production costs are estimated at $1 000 per unit, while additional fixed costs, based on a capacity of 10 000 units and before allowing for depreciation, are expected to amount to $250 per unit. These fixed costs will be avoidable if local manufacture does not take place. The “Tab” would sell for $1 700 each, some $500 less than the selling price of the cheap imported tablets currently sold by ABC. This would mean that the current sales of 7 000 units per annum of the cheap imported machines would cease. The contribution generated by sale of these imported machines amounts to $250 per unit. Existing fixed costs amount to $1,75 million per annum, and will still be incurred if local manufacture takes place. The new plant would be written off over 5 years on a straight-line basis for tax purposes. The corporate tax rate is 30% and ABC uses a discount rate of 18% for all projects of this type. There are no expected changes to the working capital of the business. Question: Assuming that all four years have the same net incremental cash flows as calculated, and taking into account any other relevant cash flows, show that the NPV, IRR and Payback Period of the project as a whole are: $274 805.27, 21.8% and 2.66 years respectively.

Lynbrook, Inc. was formed on January 2, 2015 with the authorization to issue 300,000 shares of $10 par value common stock and 20,000 shares of $100 par value cumulative preferred stock. During 2015, all the preferred stock was issued at par, and 170,000 shares of common stock were sold for $25 per share. The preferred stock is entitled to a dividend equal to 8 percent of its par value before any dividends are paid on the common stock.

During its first five years of business (2015 through 2019), the company earned income totaling $4,200,000 and paid dividends of 40 cents per share each year on the common stock outstanding as of December 31.

On January 2, 2017, the company purchased 20,000 shares of its own common stock in the open market for $300,000. On January 2, 2019, it reissued 15,000 shares of this treasury stock for $270,000. The remaining 5,000 were still held in treasury at December 31, 2019.

Instructions

a. Prepare the stockholders' equity section of the balance sheet for Lynbrook, Inc. at December 31, 2019. Include supporting schedules showing (1) your computation of any paid-in capital on treasury stock and (2) retained earnings at the balance sheet date. (use the Review Problem at end of Chapter 10, page 550-552, as a guide for your solution)

b. At December 31, 2019, shares of the company's common stock were trading at $30. Explain what would have happened to the market price per share had the company split its stock 3-for-1 at this date. Also explain what would have happened to the par value of the common stock and to the number of common shares outstanding.

Record the following transactions using the below accounting equation. The first one has been completed for you as an example. Make sure to indicate the specific account name and use a + or – sign to indicate if the overall category is being increased or decreased. Items that effect net income should only be shown in the net income column and not in stockholders’ equity.

After recording all transactions, calculate total assets, total liabilities, stockholders’ equity, revenues and expense. Prove your accounting equation is in balance.

1. Common Stock of $5,000 was sold for cash.
2. A company paid $100 to car servicing store for an oil change and regular maintenance for a corporate owned automobile. Make the entry to record this.
3. Make the entry to record $1500 of depreciation on company owned laptops.
4. Make the entry to record the purchase of equipment for $2,000 along with $200 for installation.
5. Sold land that had originally cost $100,000 for $115,000 in cash.
6. For the payroll period ended on October 19, 2018, gross pay was $22,300, net pay was $17,000, FICA tax withholdings were $1,500, income tax withholdings were $3,000, and medical insurance contributions were $800. Prepare the entry below to show the effects of the payroll accrual on October 19, 2018.  
7. The Defiance College sells season tickets for four home football games at a price of $60. For the 2018 season, 5,000 season tickets were sold.
   (a.) Record the journal entry below to show the effect of the sale of the season tickets.
   (b.) Record the journal entry to show the effect of hosting a home football game

Trans.	Assets	=	Liabilities	+SE	<-	NI
1.	Cash 5,000			Common Stock+5,000
2.

Through the payment of $12,377,000 in cash, Drexel Company acquires voting control over Young Company. This price is paid for 60 percent of the subsidiary's 110,000 outstanding common shares ($50 par value) as well as all 10,000 shares of 7 percent, cumulative, $100 par value preferred stock. Of the total payment, $3.8 million is attributed to the fully participating preferred stock with the remainder paid for the common. This acquisition is carried out on January 1, 2021, when Young reports retained earnings of $10.7 million and a total book value of $17.2 million. The acquisition-date fair value of the noncontrolling interest in Young's common stock was $5,718,000. On this same date, a building owned by Young (with a 5-year remaining life) is undervalued in the financial records by $350,000, while equipment with a 15-year remaining life is overvalued by $120,000. Any further excess acquisition-date fair value is assigned to a brand name with a 20-year remaining life.

During 2021, Young reports net income of $970,000 while declaring $470,000 in cash dividends. Drexel uses the initial value method to account for both of these investments.

Prepare appropriate consolidation entries for 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars and not in millions.)

1. Prepare a combined entry for Consolidation Entries S and A.

2. Prepare Consolidation Entry I1 for the dividends declared on preferred stock.

3. Prepare Consolidation Entry I1 for the dividends declared on common stock.

4. Prepare Consolidation Entry E to record amortization.

You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $2.9 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $3.1 million on an aftertax basis. In four years, the land could be sold for $3.3 million after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $375,000. An excerpt of the marketing report is as follows: The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 7,100, 7,800, 8,400, and 6,700 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $525 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued. PUTZ believes that fixed costs for the project will be $755,000 per year, and variable costs are 15 percent of sales. The equipment necessary for production will cost $3.65 million and qualifies for 100 percent bonus depreciation in the first year. At the end of the project, the equipment can be scrapped for $615,000. Net working capital of $325,000 will be required immediately. PUTZ has a tax rate of 25 percent, and the required return on the project is 13 percent. What is the NPV of the project?

A company employs plumbers to service, repair and replace pipes and other fittings for customers throughout the country. These plumbers are based at different locations. Four requests for service have been received and the company finds that four plumbers are available. The distances each of the plumbers is from the various customers are given in the following table. The company wishes to assign plumbers to customers to minimise the total distance to be travelled.

PLUMBERS		CUSTOMERS
	1	2	3	4
1	25	18	23	14
2	38	15	53	23
3	15	17	41	30
4	26	28	36	29

1. Using the Hungarian (manual) method, determine the optimal assignment of plumbers to customers in order to minimize the total distance travelled. Indicate this overall distance and show all working.                                                                              [12 marks]
2. Write an LP formulation that could be used to solve this problem with the relevant LP software packages.       [13 marks]

[TOTAL 25 MARKS]

QUESTION 4

A manufacturer of car transmissions wants to develop a cost estimate for a customer’s order for 25 transmissions. It is estimated that the first transmission will take 100 hours of shop time and an 80% learning curve is expected. Using the learning curve tables:-

1. How many labour-hours should the 25^th transmission require?                                 [5 marks]
2. How many labour-hours should the whole order for 25 transmission require?    [5 marks]
3. If the labour hour rate is $50 per hour and the pricing policy of the company is to double the labour costs of the order, what is the customer price for each transmission?     [6 marks]
4. Total Quality Management (TQM) can be an excellent quality management technique if properly implemente Discuss the obstacles associated with the implementation of TQM. [9 marks]

Today is 1 August 2018. Jimmy is 30 years old today and he is considering purchasing 5,000 units of XYZ shares today (XYZ’s current share price is $20). Jimmy will use his own savings to cover 20% of the purchase cost (i.e., $20,000) and he is planning to borrow the remaining 80% of the purchase cost (i.e., $80,000) using a 5-year personal loan (it starts from 1 August 2018) from MQU Bank. Jimmy now has two loan package to choose between

• Package 1.

– Jimmy will make 60 monthly repayments at the beginning of each month over the following five years (from 1 August 2018 to 31 July 2023) with the first payment being made today. This loan needs to be fully repaid by the end of 5 years (i.e., when Jimmy is 35 years old.).

– This package has an annual fee of $200. The package fee is paid on 1 August of each year during the following five years period (from 1 August 2018 to 31 July 2023). The first one being paid today. – The interest rate of this package is j12 = 10% p.a.

• Package 2.

– Jimmy will make 60 monthly repayments at the beginning of each month over the following five years with the first payment being made today. This loan needs to be fully repaid by the end of 5 years (i.e., when Jimmy is 35 years old.).

– Jimmy can have a one year interest-only-period at the beginning of the mortgage. Jimmy’s repayments will be interest-only1 for the first year (i.e., first 12 payments will be interest-only payments), followed by payments of principal plus interest for the following 4 years.

– This package has an annual fee of $400. The package fee is paid on 1 August of each year during the following five year period (from 1 August 2018 to 31 July 2023). The first one being paid today.

– The interest rate of this package is j12 = 12% p.a. Jimmy also plans to sell all the XYZ shares in 5 years’ time (on 1 August 2023). He predicts that the XYZ share price will grow at a rate of y% p.a.

Jimmy assumes that

y = the Australian 10-year Government Bond Yield for 2017 + 10%. (For example, if the XYZ share price is 30 on 1 August 2018 and y is assumed be 15%, the XYZ share price will be 30 from 1 August 2018 to 31 July 2019 and will be 30 × (1 + 15%) from 1 August 2019 to 31 July 2020.) The Australian 10-year Government Bond Yield for 2017 is 2.63.

Jimmy assumes that XYZ shares will pay a dividend on 1 January and 1 July of each year. Jimmy predicts that there are two potential outcomes for the dividend amount.

• Outcome 1: the dividend amount is assumed to be $1 on 1 January 2019 and will increase at a rate of 5% per half-year.

• Outcome 2: the dividend amount is assumed to be $3 on 1 January 2019 and will increase at a rate of 2% per half-year.

NB: Interest-only repayment means your repayments only cover the interest on the amount you have borrowed, during the interest-only period. For example, if you borrow $1,000 through a fiveyear mortgage on 1 July 2018 with a one year interest-only period at j12 = 6% during the first year (1 July 2018–30 June 2019), your monthly repayment is $1, 000×6%/12 = $5 per month. On 1 July 2019, you need to use the remaining four years to repay the borrowed $1,000. The present value on 1 July 2019 of all payments in the remaining four years should be equal to $1,000.

SHOW ALL STEPS AND WORKING ON EXCEL:

– Calculate the loan repayment amount (excluding the annual fee) for each month of package 1 and package 2.

– Use Goal Seek to find the net borrowing cost for package 1 and package 2 by including the annual fee (expressed as a rate p.a. compounded monthly).

– Use a bar or column chart to compare the loan repayment amount of package 1 and package 2 over the five-year loan period.

This is an exercise to design and write a Python program in good programming style for a simulation of stock price over a period of 100 days. In this exercise, you are asked to simulate the stock price starting at $100.00 for 100 days with a daily fluctuation based on the Normal Distribution with mean = 0.0 & sigma = 0.0125. The program will show the daily stock price, the 7-day minimum, the 7-day maximum, the 7-day average, and the 50-day average. The program should also give an indication of "***" when the stock price drops beyond the 50-day average!

Some More Notes & Hints for Assignment #1

1. Make use of the random module to simulate the fluctuation of stock price.

Here is the function and codes for simulating the changes in the stock prices:

import random

random.seed(37) # I like to set the random seed at 37!

def fluctuation():

    return (random.normalvariate(0.0, 0.0125))

…

StockPrice = 100.0 # StockPrice starts at $100.00

…

for i in range(100):

    StockPrice *= (1 + fluctuation()) # Calculate the next StockPrice

    Print(StockPrice)

2. Use a list StockHistory to keep track of the stock prices. Starting with an empty list, append to the end of the list the stock price of the day. Keep appending the stock price to the list until the length of the list is greater than 50. You can then delete the first item from the list and keep the list just to contain the last 50 records of the stock prices. And thus, you can calculate the 50-Day Average for the stock.

StockHistory = [] # Start with an empty list

…

StockHistory.append(StockPrice) # To append StockPrice to the end of the list

…

If (len(StockHistory) > 50): # If the list contains more than 50 records,

    StockHistory.pop(0)      # delete the first record which is indexed by zero

…

# Calculate the 50-Day Average here

3. Here is the suggested flow of the program:

• Construct the Program Header with program name, author’s name, program description, … etc
• Import the module(s) needed
• Define the function(s) needed
• Set the random seed by simply adding “random.seed(37)” into the program
• Setup the global variable(s) with their initial value(s)
• Print the “Table Header”
• For the next 100 days do the followings:
  • Calculate the StockPrice according to the random fluctuation
  • Print the Number of Days and the current StockPrice
  • Append the StockPrice to the StockHistory list
  • The list should contain up to 50 records, delete the first record if necessary
  • Print out the 7-Day Min, Max, and Average if you have 7 or more records
  • Print out the 50-Day Average if you have reached and maintained at 50 records
  • Print out the indication of “***” if the StockPrice drops below the 50-Day Average

Sample Run:

Day Price   7DayMin 7DayMax 7DayAve 50DayAve

===========================================================

   1 100.430    N/A     N/A     N/A    N/A: 1 record only!

   2 102.035    N/A     N/A     N/A    N/A: 2 record only!

   3 103.544    N/A     N/A     N/A    N/A: 3 record only!

   4 104.005    N/A     N/A     N/A    N/A: 4 record only!

   5 104.075    N/A     N/A     N/A    N/A: 5 record only!

   6 105.098    N/A     N/A     N/A    N/A: 6 record only!

   7 104.307 100.430 105.098 103.356 N/A: 7 record only!

   8 105.257 102.035 105.257 104.046 N/A: 8 record only!

   9 103.909 103.544 105.257 104.314 N/A: 9 record only!

10 102.860 102.860 105.257 104.216 N/A: 10 record only!

11 104.508 102.860 105.257 104.288 N/A: 11 record only!

12 105.239 102.860 105.257 104.454 N/A: 12 record only!

13 103.018 102.860 105.257 104.157 N/A: 13 record only!

14 101.931 101.931 105.257 103.817 N/A: 14 record only!

15 102.110 101.931 105.239 103.368 N/A: 15 record only!

16 101.724 101.724 105.239 103.056 N/A: 16 record only!

17 104.617 101.724 105.239 103.307 N/A: 17 record only!

18 105.754 101.724 105.754 103.485 N/A: 18 record only!

19 107.406 101.724 107.406 103.794 N/A: 19 record only!

20 107.700 101.724 107.700 104.463 N/A: 20 record only!

21 108.102 101.724 108.102 105.345 N/A: 21 record only!

22 109.072 101.724 109.072 106.339 N/A: 22 record only!

23 107.316 104.617 109.072 107.138 N/A: 23 record only!

24 105.429 105.429 109.072 107.254 N/A: 24 record only!

25 105.558 105.429 109.072 107.226 N/A: 25 record only!

26 105.927 105.429 109.072 107.015 N/A: 26 record only!

27 106.443 105.429 109.072 106.835 N/A: 27 record only!

28 106.460 105.429 109.072 106.601 N/A: 28 record only!

29 106.592 105.429 107.316 106.246 N/A: 29 record only!

30 106.976 105.429 106.976 106.198 N/A: 30 record only!

31 106.377 105.558 106.976 106.333 N/A: 31 record only!

32 107.154 105.927 107.154 106.561 N/A: 32 record only!

33 107.715 106.377 107.715 106.817 N/A: 33 record only!

34 107.870 106.377 107.870 107.021 N/A: 34 record only!

35 108.851 106.377 108.851 107.362 N/A: 35 record only!

36 108.319 106.377 108.851 107.609 N/A: 36 record only!

37 110.846 106.377 110.846 108.162 N/A: 37 record only!

38 110.038 107.154 110.846 108.685 N/A: 38 record only!

39 112.567 107.715 112.567 109.458 N/A: 39 record only!

40 111.409 107.870 112.567 109.986 N/A: 40 record only!

41 111.210 108.319 112.567 110.463 N/A: 41 record only!

42 112.808 108.319 112.808 111.028 N/A: 42 record only!

43 114.457 110.038 114.457 111.905 N/A: 43 record only!

44 112.541 110.038 114.457 112.147 N/A: 44 record only!

45 113.414 111.210 114.457 112.630 N/A: 45 record only!

46 110.535 110.535 114.457 112.339 N/A: 46 record only!

47 113.114 110.535 114.457 112.583 N/A: 47 record only!

48 110.396 110.396 114.457 112.467 N/A: 48 record only!

49 109.363 109.363 114.457 111.974 N/A: 49 record only!

50 108.904 108.904 113.414 111.181 107.106

51 107.142 107.142 113.414 110.410 107.240 ***

52 107.967 107.142 113.114 109.632 107.359

53 109.558 107.142 113.114 109.492 107.479

54 107.356 107.142 110.396 108.669 107.546 ***

55 108.697 107.142 109.558 108.427 107.638

56 106.906 106.906 109.558 108.076 107.675 ***

57 108.727 106.906 109.558 108.050 107.763

58 108.526 106.906 109.558 108.248 107.828

59 106.926 106.906 109.558 108.099 107.889 ***

60 106.773 106.773 108.727 107.702 107.967 ***

61 107.399 106.773 108.727 107.708 108.025 ***

62 106.325 106.325 108.727 107.369 108.046 ***

63 105.409 105.409 108.727 107.155 108.094 ***

64 103.058 103.058 108.526 106.345 108.117 ***

65 104.850 103.058 107.399 105.820 108.172 ***

66 105.534 103.058 107.399 105.621 108.248 ***

67 105.582 103.058 107.399 105.451 108.267 ***

68 105.656 103.058 106.325 105.202 108.265 ***

69 105.801 103.058 105.801 105.127 108.233 ***

70 105.770 103.058 105.801 105.179 108.195 ***

71 106.881 104.850 106.881 105.725 108.170 ***

72 108.815 105.534 108.815 106.291 108.165

73 109.718 105.582 109.718 106.889 108.213

74 109.935 105.656 109.935 107.511 108.303

75 111.708 105.770 111.708 108.376 108.426

76 110.394 105.770 111.708 109.032 108.515

77 110.657 106.881 111.708 109.730 108.600

78 108.628 108.628 111.708 109.979 108.643 ***

79 108.190 108.190 111.708 109.890 108.675 ***

80 107.816 107.816 111.708 109.618 108.692 ***

81 108.890 107.816 111.708 109.469 108.742

82 107.755 107.755 110.657 108.904 108.754 ***

83 107.756 107.755 110.657 108.528 108.755 ***

84 107.046 107.046 108.890 108.012 108.739 ***

85 109.494 107.046 109.494 108.135 108.751

86 108.003 107.046 109.494 108.109 108.745 ***

87 107.984 107.046 109.494 108.133 108.688 ***

88 107.121 107.046 109.494 107.880 108.629 ***

89 108.025 107.046 109.494 107.918 108.539 ***

90 107.489 107.046 109.494 107.880 108.460 ***

91 107.331 107.121 109.494 107.921 108.383 ***

92 110.167 107.121 110.167 108.017 108.330

93 108.463 107.121 110.167 108.083 108.210

94 106.691 106.691 110.167 107.898 108.093 ***

95 103.771 103.771 110.167 107.420 107.900 ***

96 104.179 103.771 110.167 106.870 107.773 ***

97 106.573 103.771 110.167 106.739 107.642 ***

98 108.709 103.771 110.167 106.936 107.608

99 106.547 103.771 108.709 106.419 107.552 ***

100 104.034 103.771 108.709 105.786 107.455 ***