WBG manufactures and sells electronic transducers that are used in military and commercial products. WBG has three divisions: Transducer Division. Military Division, and Commercial Division. The Transducer Division designs and produces transducers that are sold externally as well as internally to the Military Division and the Commercial Division. Both the Military Division and the Commercial Division incorporate transducers in their final products that are sold to non- WBG end users. Because of the unique proprietary design of the WBG transducers. Military and Commercial Divisions only use WBG transducers in their products. All of WBG's sales are in the United States.
The three divisions are profit centers and about 50 percent of the Transducer Division output is sold externally, while the remainder is sold internally to the Military Division and the Commercial Division. WBG currently uses a full-cost transfer pricing policy for the transducers. The senior managers of the three divisions receive about 40 percent of their compensation tied to the performance of their division and the balance is received as base salary.
Because of the incessant bickering among WBG's three divisions' management teams over its current transfer pricing policy, the CEO of WBG attended a seminar on transfer pricing. After attending the seminar, the CEO proposed the following new policy for transducers: “Each month the transfer price of transducers will be the same as the external market price the Transducer Division receives for transducers sold to external customers, if. and only if. the Transducer Division is at capacity for the month. Otherwise, the transfer price is the Transducer Division's variable cost for the month.”
Required:
You work for the CEO. Write a memo to the CEO that (a) explains the benefits of the proposed policy, (b) explains the likely changes in behavior among the three divisions that the new policy is likely to produce, and (c) states what additional data the CEO and you should collect and how you would analyze the data before making a decision regarding whether or not the new transfer pricing policy should be adopted.
In: Accounting
Applying Interrelations of Financial Statements
Fill in the missing amounts, a through t, for each of the three separate companies.
| Case 1 | Case 2 | Case 3 | |
|---|---|---|---|
| Net income, 2020 | $42,000 | h) | $135,000 |
| Retained earnings, December 31, 2020 | a) | 1,305,000 | n) |
| Retained earnings, December 31, 2019 | 15,000 | 1,170,000 | 381,750 |
| Dividends, 2020 | 12,000 | 52,500 | o) |
| Common stock, December 31, 2020 | b) | i) | 225,000 |
| Total stockholders’ equity, December 31, 2020 | 168,000 | j) | 720,000 |
| Other comprehensive income, 2020 | c) | 0 | p) |
| Accumulated other comprehensive income, December 31, 2019 | 4,500 | 0 | 3,750 |
| Accumulated other comprehensive income, December 31, 2020 | 3,000 | 0 | q) |
| Comprehensive income, 2020 | d) | k) | 154,500 |
| Total assets, December 31, 2020 | e) | 3,300,000 | 1,320,000 |
| Total assets, excluding cash, December 31, 2020 | f) | l) | 1,237,500 |
| Total liabilities, December 31, 2020 | 138,000 | 1,350,000 | r) |
| Cash, December 31, 2019 | 7,500 | 112,500 | s) |
| Cash, December 31, 2020 | 15,000 | m) | t) |
| Change in cash, 2020 | g) | (15,000) | 15,000 |
In: Accounting
Cherry Wood Corporation sells blenders under a three-year warranty contract that requires it to replace defective parts and provide necessary repair and labour. During 2019, the corporation sold 1,000 blenders for cash at a unit price of $800 each. Similar three-year warranty agreements are available separately and are estimated to have a stand-alone value of $120. On the basis of past experience, the per-unit, three-year warranty costs are estimated to be $20 for parts and $30 for labour. For simplicity, assume that all sales occurred on December 31, 2019 rather than evenly throughout the year and any warranty revenue (if applicable) is earned evenly over the three-year period. In 2020, the actual warranty costs to Cherry Wood are $5,000 for parts and $10,000 for labour.
Instructions:
1 Assurance Method:
a) Assume the company uses the assurance method and record any necessary journal
entries in 2019 and 2020 applying the expense approach.
b) What liability relative to these transactions would appear on the December 31, 2019
statement of financial position and how would it be classified.
2. Service Type Method:
a) Assume the company uses the service-type method and record any necessary
journal entries in 2019 and 2020 applying the revenue approach.
b) What liability relative to these transactions would appear on the December 31, 2019
statement of financial position and how would it be classified.
In: Accounting
Recording Goodwill upon Acquisition
On January 1, 2020, the balance sheet of Naperville Company (a sole proprietorship) was as follows.
| Assets | Liabilities | |||
| Accounts receivable (net of allowance) | $96,000 | Current | $60,800 | |
| Inventory | 144,000 | Noncurrent | 128,000 | $188,800 |
| Plant and equipment (net of depreciation) | 320,000 | Equity | ||
| Land | 48,000 | Owners’ equity | 419,200 | |
| Total | $608,000 | Total liabilities and owners’ equity | $608,000 |
On January 1, 2020, Chicago Corporation purchased all of the assets and assumed all of the liabilities listed on the above balance sheet for $464,000 cash. The assets, on date of purchase, were valued by Chicago Corporation as follows: accounts receivable (net), $80,000; inventory, $136,000; plant and equipment (net), $320,000; and land, $72,000. In addition, Chicago Corporation estimated purchased intangible assets of $3,200 for customer list and $12,800 for trade names (both previously unrecorded). The liabilities were valued at their carrying amounts.
Required
a. Compute the amount of goodwill included in the purchase price paid by Chicago Corporation.
$Answer???
b. Provide the entry that Chicago Corporation should make to record the purchase of Naperville Company.
| Account Name | Dr. | Cr. |
|---|---|---|
| Accounts Receivable (net) | ||
| Inventory | ||
| Plant and Equipment (net) | ||
| Land | ||
| Intangible Asset—Customer List | ||
| Intangible Asset—Trade names | ||
| Goodwill | ||
| Current Liabilities | ||
| Noncurrent Liabilities | ||
| Cash |
c. What is the minimum amount of goodwill that Chicago Corporation can amortize at the end of 2020?
$Answer???
In: Accounting
Summit Energy is an alternative energy producer. Your hedge fund is interested in investing into the company. As an analyst, you need to estimate firm value and its price per share using the NPV method and report it to the energy portfolio manager. So far you’ve partially forecasted its earnings for 2020-2022 (numbers are in millions).
| Actual earnings | Forecasted earnings | |||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
| Revenues | 25,137 | 25,650 | 24,368 | 25,220 | 26,481 | 26,746 |
| Cost of goods sold | 18,375 | 17,894 | 19,750 | 21,230 | 20,381 | 19,973 |
| Gross Profit | 6,762 | 7,756 | 4,618 | 3,990 | 6,101 | 6,773 |
| SG&A | 2,235 | 2,110 | 2,050 | 2,200 | 2,200 | 2,200 |
| Depreciation | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 |
| EBIT | ||||||
| Tax expense (25%) | ||||||
| Net income | ||||||
Assume that annual net working capital represents 10% of revenues. In 2021 Summit plans to purchase new equipment for its new generation of wind mills for $200 million. No other purchases are planned in 2020 or 2022.
Please enter the answer in the following format: XX (no decimals)
A. If Summit has 50 million shares outstanding and $200 million of debt, what is its estimated price per share?
B. If Summit’s stock is currently trading for $500, should your fund invest in the company?
In: Accounting
Question 1
Sandhill Company has the following securities in its portfolio on December 31, 2020. None of these investments are accounted for under the equity method.
|
Investments |
Cost |
Fair Value |
||
| 1,500 shares of Gordon, Inc., Common | $75,700 | $71,000 | ||
| 5,000 shares of Wallace Corp., Common | 185,100 | 180,200 | ||
| 400 shares of Martin, Inc., Preferred | 61,900 | 63,700 | ||
| $322,700 | $314,900 |
All of the securities were purchased in 2020.
In 2021, Sandhill completed the following securities
transactions.
| March 1 | Sold the 1,500 shares of Gordon, Inc., Common, @ $45 less fees of $1,200. | |
| April 1 | Bought 700 shares of Earnhart Corp., Common, @ $75 plus fees of $1,300. |
Sandhill’s portfolio of equity securities appeared as follows on
December 31, 2021.
|
Investments |
Cost |
Fair Value |
||
| 5,000 shares of Wallace Corp., Common | $185,100 | $180,200 | ||
| 700 shares of Earnhart Corp., Common | 53,800 | 50,100 | ||
| 400 shares of Martin, Inc., Preferred | 61,900 | 60,100 | ||
| $300,800 | $290,400 |
Prepare the general journal entries for Sandhill Company for:
| (a) | The 2020 adjusting entry. | |
| (b) | The sale of the Gordon stock. | |
| (c) | The purchase of the Earnhart stock. | |
| (d) | The 2021 adjusting entry for the trading portfolio. |
(Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the
amounts.)
|
No. |
Account Titles and Explanation |
Debit |
Credit |
|
(a) |
|||
|
(b) |
|||
|
(c) |
|||
|
(d) |
|||
In: Accounting
A study of North York University students showed the mean age of
all students in the first year of university to be 19.6 years old
with a standard deviation of 1.06 years. A randomly selected
subgroup of these first-year students also averaged 19.4 years in
age with a standard deviation 1.05 years.
a) Are the numbers 19.6 and 1.06 statistics or parameters?
Explain.
b) Are the numbers 19.4 and 1.05 statistics or parameters? Explain.
c) Select any correct pair of labels and values below:
In: Statistics and Probability
Delta Machine Company purchased a computerized assembly machine for $135,000 on January 1, 2018. Delta Machine Company estimated that the machine would have a life of four years and a $25,000 salvage value. Delta Machine Company uses the straight-line method to compute depreciation expense. At the beginning of year 3 (2020) Delta discovered that the machine was quickly becoming obsolete and would have little value at the end of its useful life. Consequently, Delta Machine Company revised the estimated salvage to only $5,000. It did not change the estimated useful life of the machine. Compute the depreciation expense for each of the four years.
In: Accounting
On January 1, 2019, JP Chemical Company purchases $10,000 of 6% bonds in American Airline at a price of 95. JP Chemical Company intends to hold the bonds until the maturity date on January 1, 2029. The interest dates are January 1 and July 1. JP Chemical Company amortizes any discount or premium using the straight-line method. The fiscal year end of JP Chemical Company is December 31.
Required:
Prepare the journal entries on:
1. January 1, 2019
2. July 1, 2019
3. December 31, 2019
4. January 1, 2020
Explanations are required.
In: Accounting
Stelling Corporation had the following transactions during 2020. Identify whether each transaction should be considered a cash flow from operating, investing, or financing activities, or whether the transaction is a significant non-cash activity.
| 1. |
Issued $120,000 worth of preferred shares in exchange for land |
| 2. |
Exchanged a vehicle worth $30,000 for computer system worth $30,000 |
| 3. |
Received a cash dividend of $40,000. - if ASPE Received a cash dividend of $40,000. - if IFRS |
| 4. | Paid $12,000 due to suppliers for goods and services |
| 5. | Purchased shares in another company as a long-term investment for $50,000 cash |
| 6. | Paid $135,000 in salaries and wages |
| 7. | Collected $30,000 from customers that had purchased on account |
| 8. | Issued preferred shares for $75,000 cash |
| 9. | Sold a long-term investment with a cost of $80,000 for $80,000 cash |
| 10. | Collected $90,000 cash from customers for goods sold |
In: Accounting