The following are the job cost related accounts for the law firm of Colaw Associates

And their manufacturing equivalents:

Law firm accounts

Supplies

Salaries and Wages Payable

Operating Overhead

Service Contracts in Process

Cost of Completed Service Contracts

Manufacturing Firm Accounts

Raw Materials

Factory Wages Payable

Manufacturing Overhead

Work in Process

Cost of Goods Sold

Cost data for the month of March follow.

1. Purchased supplies on account $1800

2. Issued supplies $1200 (60% direct and 40% indirect)

3. Assigned labor costs based on time cards for the month which indicated labor costs of $70,000 (80% direct and 20% indirect)

4. Operating overhead costs incurred for cash totaled $40,000

5. Operating overhead is applied at a rate of 90% of direct labor cost.

6. Work completed totaled $75,000

Instructions

1. Journalize the transactions for March. (Omit explanations.)

2. Determine the balance of the Service Contracts in Process account. (Use a T-account)

Hints: This is a little different than what we did in lecture as this is for a service company, not a manufacturer. Use the following accounts to make your entries and answer (b)  

• Cash

• Supplies

• Accounts Payable

• Service Salaries and Wages Payable

• Service Contracts in Process (Replaces the Work In Process Account)

• Operating Overhead ( Replaces Manufacturing Overhead)

• Cost of Completed Service Contracts (COGS) – This is related to the last transaction

Ture or False.

1. In addition to the fact the opportunity cost of using a commodity as the medium of exchange is substantially greater than the opportunity cost of using a commodity as the medium of exchange is substantially greater than the opportunity cost of using fiat money, the monetary authority in an economy in which the medium of exchange is fiat money has greater discretion in its pursuit of monetary policies that deliver price stability.

2. According to fisher equation, if expected inflation increase by x percent the nominal interest rate will also increase by x percent but th real interest rate will not be affect.

3. The demand curve for loanable funds reflects the behavior of deficit spending units while the behavior underlying the bond demand curve is that of surplus spending units.

4. The ex-post real interest rate is most useful for planning purposes while the ex-ante real interest rate is more useful for ecaluating results of prior decisions.

5.A fundamental problem with yield curves based on corporate bonds is that differing degrees of default risk among corporate bonds would make it difficult to unambiguously assign responsibility for observed yield differentials to variation in length of time to maturity.

1. In an article about the cost of health care, Money magazine reported that a visit to a hospital emergency room for something as simple as a sore throat has a mean cost of $328 (Money, January 2009). Assume that the cost for this type of hospital emergency room visit is normally distributed with a standard deviation of $92. Answer the following questions about the cost of a hospital emergency room visit for this medical service.

1. What is the probability that the cost will be more than $500?

2. What is the probability that the cost will be less than $250?

3. What is the probability that the cost will be between $300 and $400?

4. If the cost to a patient is in the lower 8% of charges the cost of this patient’s emergency room visits?

"A firm is considering purchasing a computer system.
-Cost of system is $198,000. The firm will pay for the computer system in year 0.
-Project life: 5 years
-Salvage value in year 0 (constant) dollars: $10,000
-Depreciation method: five-years MACRS
-Marginal income-tax rate = 40% (remains constant over time)
-Annual revenue = $147,000 (year-0 constant dollars)
-Annual expenses (not including depreciation) = $88,000 (year-0 constant dollars)
-The general inflation rate is 4.9% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation).
-The firm borrows the entire $198,000 at 14.9% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate.
Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100."

Wildhorse Co. acquires a delivery truck at a cost of $77,000. The truck is expected to have a salvage value of $8,000 at the end of its 5-year useful life. Assuming the declining-balance depreciation rate is double the straight-line rate, compute annual depreciation for the first and second years under the declining-balance method.

"A firm is considering purchasing a computer system.
-Cost of system is $198,000. The firm will pay for the computer system in year 0.
-Project life: 5 years
-Salvage value in year 0 (constant) dollars: $10,000
-Depreciation method: five-years MACRS
-Marginal income-tax rate = 40% (remains constant over time)
-Annual revenue = $147,000 (year-0 constant dollars)
-Annual expenses (not including depreciation) = $88,000 (year-0 constant dollars)
-The general inflation rate is 4.9% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation).
-The firm borrows the entire $198,000 at 14.9% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate.
Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100."

"A firm is considering purchasing a computer system.
-Cost of system is $198,000. The firm will pay for the computer system in year 0.
-Project life: 5 years
-Salvage value in year 0 (constant) dollars: $10,000
-Depreciation method: five-years MACRS
-Marginal income-tax rate = 40% (remains constant over time)
-Annual revenue = $147,000 (year-0 constant dollars)
-Annual expenses (not including depreciation) = $88,000 (year-0 constant dollars)
-The general inflation rate is 4.9% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation).
-The firm borrows the entire $198,000 at 14.9% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate.
Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100."

"A firm is considering purchasing a computer system.
-Cost of system is $198,000. The firm will pay for the computer system in year 0.
-Project life: 5 years
-Salvage value in year 0 (constant) dollars: $10,000
-Depreciation method: five-years MACRS
-Marginal income-tax rate = 40% (remains constant over time)
-Annual revenue = $147,000 (year-0 constant dollars)
-Annual expenses (not including depreciation) = $88,000 (year-0 constant dollars)
-The general inflation rate is 4.9% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation).
-The firm borrows the entire $198,000 at 14.9% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate.
Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100."

"A firm is considering purchasing a computer system.
-Cost of system is $198,000. The firm will pay for the computer system in year 0.
-Project life: 5 years
-Salvage value in year 0 (constant) dollars: $10,000
-Depreciation method: five-years MACRS
-Marginal income-tax rate = 40% (remains constant over time)
-Annual revenue = $147,000 (year-0 constant dollars)
-Annual expenses (not including depreciation) = $88,000 (year-0 constant dollars)
-The general inflation rate is 4.9% during the project period (which will affect all revenues, expenses, and the salvage value but not depreciation).
-The firm borrows the entire $198,000 at 14.9% interest to be repaid in 2 annual payments. The debt interest paid and the principal payment SHOULD NOT be changed by the inflation rate. Lending agencies set the interest rate of borrowing to account for the inflation rate.
Calculate the effects of borrowing and include the debt interest paid and the principal repayment into the income statement and cash flow statement. Determine the INFLATION-FREE IRR' of the computer system. Enter your answer as a percentage between 0 and 100."

Kolby’s Korndogs is looking at a new sausage system with an installed cost of $882,000. This cost will be depreciated straight-line to zero over the project’s seven-year life, at the end of which the sausage system can be scrapped for $97,000. The sausage system will save the firm $185,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $43,000. If the tax rate is 30 percent and the discount rate is 6 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV