#5

REVISED PROBLEM 13-42

ACC 650 - Management Accounting

Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions.
The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI.
Last year, the company as a whole produced a 13 percent return on its investment.
During the past week, management of the company’s Northeast Division was approached about the
possibility of buying a competitor that had decided to redirect its retail activities. (If the competitor is
acquired, it will be acquired at its book value.) The data that follow relate to recent performance of the
Northeast Division and the competitor:

Management has determined that in order to upgrade the competitor to Megatronics’ standards, an
additional $275,000 of invested capital would be needed.

REQUIRED:

5. Assume that Megatronics uses residual income to evaluate performance and desires a 12 percent
minimum return on invested capital. Compute the current residual income of the Northeast
Division and the division’s residual income if the competitor is acquired. Will divisional management
be likely to change its attitude toward the acquisition? Why?

On 1 January 2019 Liam Ltd acquired 90% of the issued shares of Ian Ltd. During the year ended 31 December 2019 the following intra group transactions occurred:

• Sales of inventory:

Ian Ltd sold inventory to Liam Ltd $360,000. This inventory costed Ian Ltd $300,000. At 31 December 2019 Liam Ltd held 50% of the inventory acquired from Ian Ltd.

• Intragroup sale of equipment:

An item of equipment originally acquired by Liam Ltd on 1 January 2017 at a cost of $400,000 was sold to Ian Ltd on 1 January 2019 for $340,000. Liam Ltd had depreciated this asset at 10% per annum on a straight-line basis with no scrap value. There is no change in the asset expected life subsequent to the sale.

• During the year ended 31 December 2019 the following dividends were paid:

• Liam Ltd     $100,000
• Ian Ltd        $40,000

• On 30 June 2019 Liam Ltd lent Ian Ltd $100,000. Interest on this loan at 8% was paid up to 31 December 2019.

Required:

Prepare the consolidation journal entries required to eliminate the above intragroup transactions for the year ended 31 December 2019. Assume a tax rate of 30%.

Power Corporation acquired 100 percent ownership of Scrub Company on February 12, 20X9. At the date of acquisition, Scrub Company reported assets and liabilities with book values of $430,000 and $184,000, respectively, common stock outstanding of $86,000, and retained earnings of $160,000. The book values and fair values of Scrub’s assets and liabilities were identical except for land, which had increased in value by $16,000, and inventories, which had decreased by $7,000.

Required:
a. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $271,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A.) Record the basic consolidation entry.

B.) Record the excess value (differential) reclassification entry.

b. Prepare the following consolidation entries required to prepare a consolidated balance sheet immediately after the business combination assuming Power acquired its ownership of Scrub for $242,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

A.) Record the basic consolidation entry.

B.)Record the excess value (differential) reclassification entry.

Gary Farmer had the following sales of business property during the 2018 tax year:

1. Sold land acquired on December 3, 2007, at a cost of $24,000, for $37,000 on January 5, 2018. The cost of selling the land was $500, and there was no depreciation allowable or capital improvements made to the asset over the life of the asset.
2. Sold a business computer with an adjusted basis of $20,700 that was acquired on April 5, 2015. The original cost was $25,875, and accumulated depreciation was $5,175. The computer was sold on May 2, 2018, for $14,000, resulting in a $6,700 loss.
3. Sold equipment on July 22, 2018 for gross proceeds of $16,000. The equipment was acquired on October 21, 2017 at a cost of $25,000 and accumulated depreciation was $4,300 at the time of the sale. Gary used an equipment broker on this sale and paid a sales commission of $1,600.

Calculate Gary’s net gain or loss and determine the character as either capital or ordinary (ignore any depreciation recapture).

The land and computer  are Section 1231 properties, resulting in a net Section 1231 gain  of $. This is treated as a net long-term capital gain . The equipment  is treated as an ordinary asset . As such it results in an ordinary loss  of $._______________

Benjamin, Inc., operates an export/import business. The company has considerable dealings with companies in the country of Camerrand. The denomination of all transactions with these companies is alaries (AL), the Camerrand currency. During 2017, Benjamin acquires 22,000 widgets at a price of 8 alaries per widget. It will pay for them when it sells them. Currency exchange rates for 1 AL are as follows:

1. Assume that Benjamin acquired the widgets on December 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?
2. Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on December 1, 2017. What is the effect of the exchange rate fluctuations on reported income in 2017?
3. Assume that Benjamin acquired the widgets on September 1, 2017, and made payment on March 1, 2018. What is the effect of the exchange rate fluctuations on reported income in 2017 and in 2018?

(Input all amounts as positive values.)

Effect of Exchange Rate Fluctuations

a.2017

2018

b.2017

c.2017

2018

1. Although domiciled in Nebraska, Auto Insurance Company is licensed to sell auto insurance in 10 states. A different set of rates applies in each state. In five states, prior approval of rates is required. Two states have a file-and-use law, and the remaining three states have a flex-rating law. Auto Insurance Company has experienced poor underwriting results and needs to increase its rates.

1. Explain how each of the above rating laws would apply to Auto Insurance Company.

2. Describe some possible problems that Auto Insurance Company may experience in trying to get its rates increased in a prior-approval state.

2. Explain the role of the National Association of Insurance Commissioners in coordinating and serving state insurance regulators.

consider the neon atom in all possible n+1, l-1 excited states that relax down to the ground state and emit light in the process. (a) Write the atomic term symbol for each of these states including the ground state (hint, use the Clebsch-Gordon series, there should be 8 total term symbols). Show your work in how you arrive at these term symbols. (b) Draw an energy level diagram showing decay of these states to the ground state by listing them in the proper order of there energies and indicate which states are allowed transitions by using an arrow to show the decay of energy from one state to the next. This is a qualitative exercise, no need to look up the values or draw the energy levels accurately - just the proper order of energy will suffice.

Select one commercial bank and one NBFI and explain how they are meeting the 17 SDGs of the United Nations.