QUESTION TWO

1. Discuss the capital allowances available to hotel owners and the capital expenditures that qualify for such allowances.                                                                                                            
2. Wageni tourist hotel ltd. Is a five star hotel in Mombasa. The hotel provided the following information,

1. Written down values as at 31.12.2018

Disposals during the year.

2. Additions during the year

1. Computer            350,000.00
2. Fax Machine        40,000.00
3. Photocopier         160,000.00
4. Beds                    500,000.00
5. New hotel building                      5,000,000.00

      The new hotel building was brought to use on 1.9.2019

3. The old hotel building was first brought in to use on 1.1.2014 at a cost of Sh. 8,000,000.00
4. A saloon car which cost sh. 1,200,000 in 2014 was traded in for a new car costing Sh. 900,000.00. The old car was valued at Shs. 600,000 and the company paid a balance of shs. 300,000.00

Required

1. Compute capital allowances due to the company for the year ended 31.12.2019.            
2. Show the written down value of all the assets as at 31.12.2019. Comment on Class I balance.

1. Purchase-Related Transactions Using Perpetual Inventory System

   The following selected transactions were completed by Niles Co. during March of the current year:

   Mar. 1.	Purchased merchandise from Haas Co., $18,800, terms FOB shipping point, 2/10, n/eom. Prepaid freight of $525 was added to the invoice.
   5.	Purchased merchandise from Whitman Co., $15,350, terms FOB destination, n/30.
   10.	Paid Haas Co. for invoice of March 1.
   13.	Purchased merchandise from Jost Co., $4,900, terms FOB destination, 1/10, n/30.
   14.	Issued debit memo to Jost Co. for $900 of merchandise returned from purchase on March 13.
   18.	Purchased merchandise from Fairhurst Company, $12,750, terms FOB shipping point, n/eom.
   18.	Paid freight of $260 on March 18 purchase from Fairhurst Company.
   19.	Purchased merchandise from Bickle Co., $11,350, terms FOB destination, 2/10, n/30.
   23.	Paid Jost Co. for invoice of March 13, less debit memo of March 14.
   29.	Paid Bickle Co. for invoice of March 19.
   31.	Paid Fairhurst Company for invoice of March 18.
   31.	Paid Whitman Co. for invoice of March 5.

   Required: Journalize the entries to record the transactions of Britt Co. for March.Sales-Related Transactions Using Perpetual Inventory System

Sales-Related Transactions Using Perpetual Inventory System

The following selected transactions were completed by Green Lawn Supplies Co., which sells irrigation supplies primarily to wholesalers and occasionally to retail customers:

Required:

Journalize the entries to record the transactions of Green Lawn Supplies Co. For a compound transaction, if no entry is required, leave the entry box blank.

Net Present Value Method—Annuity

E & T Excavation Company is planning an investment of $222,900 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $130 per hour for bulldozer work. The bulldozer operator costs $26 per hour in wages and benefits. The bulldozer is expected to require annual maintenance costing $10,000. The bulldozer uses fuel that is expected to cost $34 per hour of bulldozer operation.

a. Determine the equal annual net cash flows from operating the bulldozer. Enter all amounts as positive numbers.

b. Determine the net present value of the investment, assuming that the desired rate of return is 10%. Use the table of present value of an annuity of $1 above. If required, round to the nearest dollar and use the minus sign to indicate a negative net present value.

c. E & T Excavation should Selectsupportnot supportItem 14 the investment because the bulldozer cost is SelectgreaterlessItem 15 than the present value of the cash flows at the SelectmaximumminimumItem 16 desired rate of return of 10%.

Question 37

1. A monopolist maximizes profits by

   	a.	producing an output level where marginal revenue equals marginal cost.
   	b.	charging a price equal to marginal revenue and marginal cost.
   	c.	charging a price where marginal cost equals average total cost.
   	d.	Both a and b are correct.

Question 38

1. A monopoly is an inefficient way to produce a product because

   	a.	it faces a downward-sloping demand curve.
   	b.	it can earn both short-run and long-run profits.
   	c.	the cost to the monopolist of producing one more unit exceeds the value of that unit to potential buyers.
   	d.	it produces a smaller level of output than would be produced in a competitive market.

Question 39

1. A movie theater can increase its profits through price discrimination by charging a higher price to adults and a lower price to children if it

   	a.	can prevent children from buying the lower-priced tickets and selling them to adults.
   	b.	has some degree of monopoly pricing power.
   	c.	can easily distinguish between the two groups of customers.
   	d.	All of the above are correct.

Raphael Ltd. is a small engineering business that has annual credit sales revenue of $2.4 million. In recent years, the business has experienced credit control problems. The average collection period for sales has risen to 50 days even though the stated policy of the business is for payment to be made within 30 days. In addition, 1.5% of sales are written off as bad debts each year. The accounts receivable are currently financed through a bank overdraft, which has an interest rate of 12% a year.

The business has recently communicated with a factor that is prepared to make an advance to the business equivalent to 80% of receivables, based on the assumption that customers will, in future, adhere to a 30-day payment period. The interest rate for the advance will be 11% a year. The factor will take over the credit control procedures of the business and this will result in a saving to the business of $18,000 a year; however, the factor will charge 2% of sales revenue for this service. The use of the factoring service is expected to eliminate the bad debts incurred by the business.

Required:

Calculate the net cost of the factor agreement to the business and state whether the business should take advantage of the opportunity to factor its accounts receivables.

1.Calculate the Chi-Squared value for the observed data

2. Calculate the degree of freedom

3. Find the critical value using the Chi-Square critical value table linked below

1. If the Ortiz Corporation purchases 100 washing machines from the Whirlpool Corporation FOB Shipping Point, who pays for the cost of shipping the machines from Whirlpool to Ortiz?

2. Rodriguez Company reported the following balances at November 30, 2019:

                                Gross Sales Revenue                                                 $16,000

                                Sales Returns and Allowances                                          600

                                Sales Discounts                                                                300

                                Cost of Goods Sold                                                        7,600

1. What are the net sales for the month?

2. What is the gross margin for the month?

3. Reid Supply sells backpacks and other school supplies. The company uses a perpetual inventory system. During June, the following transactions and events occurred:

June           4 Sold 70 backpacks at $25 each to Hunter Company, terms 2/10, n/30, F.O.B. Shipping Point.

June           6 Gave credit of $150 for the return of 6 backpacks purchased on Sept. 4 that were defective.

June 14 Received a check as payment in full from Hunter Company.

Instructions: Please write the journal entries for the June sales transactions for Reid Supply.

For the following investments, identify whether they are:

      A. Trading                                                           

      B. Available-for-Sale                                          

      C. Held-to-Maturity

      D. None of the above

A letter may be used more than once or not at all. (5 points)

____    1. Preferred stock was purchased in the previous year. The company intends to hold it

                 for several more years.

____    2. 5-year bonds were purchased this year. The company plans to sell the bonds

                 immediately after the next interest payment which will occur one month after the

                 purchase.

____    3. 5% of the common stock of Atkinson, Inc. is owned as an investment. The holding

                 company intends sell the stock as soon as the price increases which is expected to

                 occur in two weeks.

____    4.    A bond that matures in ten years was purchased. The company intends to hold the bond for the full ten years in order to receive the interest revenue. Cash needs, however, may result in the bond being sold in the next year.

____   5.    A bond that matures in two years was purchased as a means of funding the purchase

                  of new capital equipment that is projected to be needed two years from now.

Pato Corporation produces leather sandals. The company uses a standard costing system and has set the following standards for direct materials and direct labor (for one pair of sandals): Leather (3 strips @ $5) $15 Direct labor (2 hrs. @ $6) 12 Total prime cost $27 During the year, Pato produced 4,000 pairs of sandals. The actual leather purchased was 12,400 strips at $4.98 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 8,400 hours at $6.25 per hour. Required: 1. Compute the costs of leather and direct labor that should have been incurred for the production of 4,000 pairs of sandals. 2. Compute the total budget variances for direct materials and direct labor. 3. Break down the total budget variance for direct materials into a price variance and a usage variance. Prepare the journal entries associated with these variances. 4. Break down the total budget variance for direct labor into a rate variance and an efficiency variance. Prepare the journal entries associated with these variances.