The Carseat is a data set containing sales of child car seats at 400 different stores. Your task is to develop a regression model to predict sales and use this data to estimate your model.

Description of variables:
Sales: Unit sales (in thousands) at each location
CompPrice: Price charged by competitor at each location
Income: Community income level (in thousands of dollars)
Advertising: Local advertising budget for company at each location (in thousands of dollars)
Population: Population size in region (in thousands)
Price: Price company charges for car seats at each site
ShelveLoc: A factor with levels Bad, Good and Medium indicating the quality of the shelving location for the car seats at each site
Age: Average age of the local population
Education: Education level at each location
Urban: A factor with levels No and Yes to indicate whether the store is in an urban or rural location
US: A factor with levels No and Yes to indicate whether the store is in the US or not

a. Which variables are categorical variable? For each categorical variable, define the corresponding dummy variables. [1pt]

JCX Ltd operates in a highly competitive market and is involved in the production of parts for the farming industry. It has plants in Auckland, Wellington, Christchurch and Dunedin. One of its plants, the Wellington Plant, specialises in the production of two parts: JCX-1 and JCX-2. Part JCX-1 produced the highest volume of activity, and for many years, it was the only part produced by the plant. Five years ago, Part JCX-2 was added. Profits increased for the first few years after the addition of the new product. However, in the last two years the plant has faced intense competition and its sales of Part JCX-2 has dropped. In fact, the plant showed a small gross loss in the most recent reporting period. Much of the competition was from foreign sources, and the plant manager was convinced that the foreign producers were guilty of selling parts below their cost of production. The plant currently uses a traditional costing system where only manufacturing overhead costs are allocated to products using a predetermined plant-wide overhead rate based on direct labour hours. The company’s CEO Jim James has recently attended a leadership conference in London and was very impressed by a presentation given by Nicola Toms, CFO of a large manufacturing company, on ABC. Jim managed to arrange a private meeting with Nicola to explore her experiences with the development and implementation of ABC in her organisation. After the meeting, Jim was convinced that JCX could benefit from the implementation of ABC. He agreed with Nicola’s view that as the level of external environment factors increases, more reliable product cost information is needed. He was very impressed with how Nicola went about her implementation strategy. In particular, he noted Nicola’s emphasis on the importance of clearly addressing up-front major issues that are likely to arise when seeking buy-in of the managers in the organisation. Jim took notes of those issues as follows. ABC is too complex and expensive to implement. ABC can be prone to misuse by constant revision of the cost pools or cost drivers. In ABC, not all overhead costs, such as CEO salary, can be allocated to specific activities. If ABC is implemented, other systems, such as variance analysis, may have to be changed resulting in disruptions and costs. While many organisations have experimented with ABC as a one-off exercise, not many adopted ABC as an ongoing costing system.

Present five arguments to support why ABC should be implemented given the issues raised. Your arguments must address the five issues, which are: a) ABC is too complex and expensive to implement b) ABC can be prone to misuse by constant revision of the cost pools or cost drivers c) In ABC, not all overhead costs, such as CEO salary, can be allocated to specific activities d) If ABC is implemented, other systems, such as variance analysis, may have to be changed resulting in disruptions and costs e) While many organisations have experimented with ABC, not many organisations have adopted it.

The following selected transactions relate to investment activities of Ornamental Insulation Corporation during 2021. The company buys debt securities, not intending to profit from short-term differences in price and not necessarily to hold debt securities to maturity, but to have them available for sale in years when circumstances warrant. Ornamental’s fiscal year ends on December 31. No investments were held by Ornamental on December 31, 2020.

(Hint: Interest must be accrued.)

Required:
1. Prepare the appropriate journal entry for each transaction or event during 2021, as well as any adjusting entries necessary at year end. For any sales, prepare entries to update the fair-value adjustment, record any reclassification adjustment, and record the sale.
2. Indicate any amounts that Ornamental Insulation would report in its 2021 income statement, 2021 statement of comprehensive income, and 12/31/2021 balance sheet as a result of these investments. Include totals for net income, comprehensive income, and retained earnings as a result of these investments.

Journal entry worksheet

• Record the acquisition of 5% Distribution Transformers Corporation bonds costing $600,000 at face value.

Note: Enter debits before credits.

• Record the acquisition of $1,200,000 of American Instruments’ 7% bonds at face value.

Note: Enter debits before credits.

• 
  Record the entry for the semiannual interest received on the Distribution Transformers bonds.

Note: Enter debits before credits.

• Record the entry to adjust to fair value on the date of sale of the Distribution Transformers bonds.

Note: Enter debits before credits.

• 
  Record the entry for the reclassification adjustment on the date of sale.

Note: Enter debits before credits.

• 
  Record the entry for sale of Distribution Transformers bonds for $645,000.

Note: Enter debits before credits.

• 
  Record the acquisition of $1,600,000 of M&D Corporation 3% bonds at face value.

Note: Enter debits before credits.

• 
  Record the interest accrual for American Instruments bonds.

Note: Enter debits before credits.

• 
  Record the interest accrual for M&D bonds.

Note: Enter debits before credits.

• 
  Record the entry to adjust fair value of the investments at year-end.

Note: Enter debits before credits.

Interpreting Acquisition Footnote with In-Process Research and Development

On October 3, 2017, Gilead Sciences, Inc. (Gilead) acquired 100% of the outstanding common stock

of Kite Pharma, Inc. (Kite). According to Gilead’s December 31, 2017 Securities and Exchange Com-

mission Form 10-K, “[t]he acquisition of Kite was accounted for as a business combination using the

acquisition method of accounting.” The following excerpt is from Note 5 (i.e., Acquisitions) of Gilead’s

2017 10-K:

The following table summarizes the preliminary acquisition date fair values of assets acquired and

liabilities assumed, and the consideration transferred (in millions):

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 652

Identifiable intangible assets

Indefinite-lived intangible assets—IPR&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,950

Outlicense acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,606)

Other assets acquired (liabilities assumed), net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Total identifiable net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,168

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,987

Total consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,155

a. What did Gilead need to demonstrate for the Kite acquisition to qualify as a business

combination? (In answering this question, ignore the information in part d of this problem.)

b. Given the individual identifiable net assets acquired, describe why business combination

accounting might seem unusual for the Kite acquisition. (In answering this question, ignore the

information in part d of this problem.)

c. For this question only, assume the Kite acquisition qualified as an asset acquisition that is not a

business combination. How would the accounting for the acquisition of Kite’s net assets differ?

d. According to Gilead’s 2017 10-K, in October 2017, after the acquisition date of Kite, the “FDA

approv[ed] Yescarta for the treatment of adult patients with relapsed or refractory DLBCL after

two or more lines of systemic therapy.” (This technology was technically considered unproven

and presented as part of in-process research and development at the balance acquisition date.)

The footnote states that the fair value of the technology for this proven Yescarta therapy is $6,200

million. If this technology was proven and patented, how will the above-presented information in

the acquisition footnote change in the December 31, 2017 financial statements of Gilead?

#4

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:

4. Would the division be better off if it didn’t upgrade the competitor to Megatronics’ standards?
Show computations to support your answer.

Imagine that you are working as manager of the Information Technology Department, ASCS College, King Saud University, Riyadh, Saudi Arabia. Write a business letter (Alternative block format) to Sales Manager, Dell Company situated at the following address

Dell Computer Corporation,
One Dell Way Round Rock,
Texas 78682,
United States of America.

Requesting them to send the price quotation of 100 workstations with the following configuration.

Precision T3630;Tower Workstation; Intel Xeon E-2174G, 4 Core HT, 8MB Cache, 3.8Ghz, 4.7GHz; Windows 10 Pro 64bit English.

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty.

On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares.

Aston Blue’s annual net cash flows will be $1,350,000 if the summer remains hot for 12 weeks and $600,000 if the summer is warm for 6 weeks. Assume that the cash flows are received at year-end. In each year the objective probability that the summer is hot for 12 weeks is 65% and warm for 6 weeks 35%. The interest rate in the economy is 8% in both years.

Aston Blue will pay a dividend of $110,000 at the end of each year of operations.

Assume that in 2020 that the season is hot for 12 weeks.

A. Calculate the present value of the equipment on January 1, 2020.

B. Determine the following items that would appear on the December 31, 2020 financial statements: Cash, equipment, total assets, common shares, retained earnings, net income/loss.

C. Assuming that Aston Blue paid the present value for the equipment, calculate the net income/loss for the year ended December 31, 2021 on a historical cost basis. The equipment is amortized on a straight-line basis.

Aston Blue plans to manufacture bicycle helmets. Sales will be dependent on the length of the summer season. The company operates under ideal conditions of uncertainty.

On January 1, 2020, Aston Blue started operations by acquiring the necessary equipment which will last 2 years at which time there will be no salvage value. Aston Blue financed the equipment purchase through a $950,000 bank loan at a 8% interest rate and the balance was financed through the issuance of common shares.

Aston Blue’s annual net cash flows will be $1,350,000 if the summer remains hot for 12 weeks and $600,000 if the summer is warm for 6 weeks. Assume that the cash flows are received at year-end. In each year the objective probability that the summer is hot for 12 weeks is 65% and warm for 6 weeks 35%. The interest rate in the economy is 8% in both years.

Aston Blue will pay a dividend of $110,000 at the end of each year of operations.

Assume that in 2020 that the season is hot for 12 weeks.

A. Calculate the present value of the equipment on January 1, 2020.

B. Determine the following items that would appear on the December 31, 2020 financial statements: Cash, equipment, total assets, common shares, retained earnings, net income/loss.

C. Assuming that Aston Blue paid the present value for the equipment, calculate the net income/loss for the year ended December 31, 2021 on a historical cost basis. The equipment is amortized on a straight-line basis.

Sunland Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $38,800 would have been the same under either the conventional retail system or the LIFO retail system. On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level. Cost Retail Inventory, Jan. 1, 2020 $38,800 $60,000 Markdowns (net) 13,100 Markups (net) 22,100 Purchases (net) 130,800 181,300 Sales (net) 167,500 Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.) (a) Ending inventory using conventional retail method $enter a dollar amount rounded to 0 decimal places (b) Ending inventory LIFO retail method $enter a dollar amount rounded to 0 decimal places

Grouper Company began operations on January 1, 2019, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2019 and, because there was no beginning inventory, its ending inventory for 2019 of $37,700 would have been the same under either the conventional retail system or the LIFO retail system.

On December 31, 2020, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2020, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.

Determine the cost of the 2020 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method. (Round ratios for computational purposes to 2 decimal place, e.g. 78.72% and final answers to 0 decimal places, e.g. 28,987.)