After months of study and spending $60,000 in researching its options, Black & Decker Company purchased and installed a made-to-order machine tool for fabricating parts for small appliances this morning. The machine cost $286,000. This afternoon, Square D Company offered a similar machine tool that will do exactly the same work, but costs only $176,000 and could be installed in less than two hours. There will be no differences in either revenues or operating costs between the machines. The only annual cash flow difference will be the income tax savings due to the depreciation tax shield.

Both machines will last for six years (don’t worry about the few hours that have elapsed). Black & Decker would depreciate either machine on a straight-line basis to a $15,000 salvage value for income tax purposes. However, each machine is expected to be worth $20,000 at the end of its useful life year. The relevant income tax rate is 40%, and Black & Decker earns sufficient income from its other operations so that it can utilize any annual operating losses or losses on disposal of equipment.

The after-tax discount rate, also known as the hurdle rate or MARR, is 16%.

Required:

Using after-tax cash flow analysis, determine the minimum resale value of the “old” machine tool (“old” because it was purchased this morning) that would justify Black & Decker’s purchase of the Square D machine tool at this time.

Hint: If Black & Decker could sell the “old” machine for $1,000,000 and buy the Square D machine, they would do it in a heartbeat. On the other hand, if they could sell the “old’ machine for only $1, they would not do it. Clearly, there is a selling price between $1 and $1,000,000 where it makes sense to sell the “old” machine -- find that value. If they sell the “old” machine, there will be income tax consequences at the time of the sale (time zero).

The country has an initiative for students in underperforming schools. To get funding, schools provide each student with eight 2-hour-long group teachering sessions each month. Also, parents must agree to pay $10 per month for each child they register for the program. The county will pay each school $200 per enrolled child, per month.

Schools must provide one teacher for every five students enrolled in the program, at a cost of

$50 per hour at a teacher’s home school, or $60 per hour if the teacher has to commute from another school in the system.

Schools that participate also need to acquire a site license for a self-study computer program, at a cost of $2,400 per year regardless of the number of students. The school also incurs a cost of $1.50 per child, per teachering session, for workbooks that are tied to the self-study program.

Generally, the county takes one month to pay bills submitted by schools. Parents pay all tuition bills at the beginning of each month. Participating teachers are paid for all after-school programs at the end of each month. The full cost of the software must be paid by the end of the first month of the program. Workbooks are paid for in the month they are used.

You are the budget manager for Typical County School (TCS). Five teachers in your school have agreed to be teachers. Since you expect to need 15 teachers by the end of the year, you will also use 10 teachers from other schools, as needed. Your calculations indicate an expected 25 students in the program during the first month it is offered. 41 in the second month and 52 in the third month. As budget manager:

1. Prepare operating budgets for each of the first three months of the program.
2. Summarize the three monthly budgets into a quarterly operating budget
3. Starting from a zero cash-balance, prepare a cash budget for the first quarter (three months) of the program. You do not have to prepare monthly cash budgets.

Cost of Goods Sold

Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 54,200 units will be produced, with the following total costs:

Next year, Pietro expects to purchase $116,000 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows:

Pietro expects to produce 54,200 units and sell 53,500 units. Beginning inventory of finished goods is $39,500, and ending inventory of finished goods is expected to be $31,000.

Required:

1. Prepare a statement of cost of goods sold in good form.

2. What if the beginning inventory of finished goods decreased by $3,000? What would be the effect on the cost of goods sold?

• increase
• decrease
• no change

by $

George Young Industries (GYI) acquired industrial robots at the beginning of 2018 and added them to the company’s assembly process. During 2021, management became aware that the $2.8 million cost of the equipment was inadvertently recorded as repair expense on GYI’s books and on its income tax return. The industrial robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for financial reporting purposes and for tax purposes it is considered to be MACRS 7-year property. Cost deducted over 7 years by the modified accelerated recovery system as follows:

The tax rate is 25% for all years involved.

Required:
1. & 3. Prepare any journal entry necessary as a direct result of the error described and the adjusting entry for 2021 depreciation.
2. Will GYI account for the change (a) retrospectively or (b) prospectively?

Net Present Value of Payouts The NPV of a series of values is calculated using a discount rate applied to those values. Apply the NPV function to the series of expected benefit payouts using .075 as the discount rate. You can hard-code the discount rate. How would you calculate this in Excel? Please show calculation and logic used in excel, so I understand. Below are the values:

These financial statement items are for Ivanhoe Company at year-end, July 31, 2022.

1. Prepare an income statement for the year. Ivanhoe Company did not issue any new stock during the year. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

2. Prepare a retained earnings statement for the year. Ivanhoe Company did not issue any new stock during the year.

3. Prepare a classified balance sheet at July 31. (List Current Assets in order of liquidity.)

On January 1, 2020, Flounder Company purchased 11% bonds, having a maturity value of $320,000 for $344,893.28. The bonds provide the bondholders with a 9% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Flounder Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

(Round answers to 2 decimal places, e.g. 2,525.25. 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.)