Morning Sky, Inc. (MSI), manufactures and sells computer games. The company has several product lines based on the age range of the target market. MSI sells both individual games as well as packaged sets. All games are in CD format, and some utilize accessories such as steering wheels, electronic tablets, and hand controls. To date, MSI has developed and manufactured all the CDs itself as well as the accessories and packaging for all of its products.

The gaming market has traditionally been targeted at teenagers and young adults; however, the increasing affordability of computers and the incorporation of computer activities into junior high and elementary school curriculums has led to a significant increase in sales to younger children. MSI has always included games for younger children but now wants to expand its business to capitalize on changes in the industry. The company currently has excess capacity and is investigating several possible ways to improve profitability.

MSI has been approached by a fourth-grade teacher from Portland about the possibility of creating a specially designed game that would be customized for her classroom and environment. The teacher would like an educational game to correspond to her classroom coverage of the history of the Pacific Northwest, and the state of Oregon in particular. MSI has not sold its products directly to teachers or school systems in the past, but its Marketing Department identified that possibility during a recent meeting.

The teacher has offered to buy 2,500 copies of the CD at a price of $6.00 each. MSI could easily modify one of its existing educational programs about U.S. history to accommodate the request. The modifications would cost approximately $470. A summary of the information related to production of MSI’s current history program follows:

Required:
1. Compute the incremental profit (or loss) from accepting the special order.

2. Should MSI accept the special order?

3. Suppose that the special order had been to purchase 2,500 copies of the program for $2.50 each. Compute the incremental profit (or loss) from accepting the special order under this scenario.

4. Suppose that MSI is operating at full capacity. To accept the special order, it would have to reduce production of the history program. Compute the special order price at which MSI would be indifferent between accepting or rejecting the special order.

MSI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Monte Legend Co. (MLC) to produce 21,000 units of the module per year for $24.00 each. The following information pertains to MSI’s production of the control modules:

MSI has determined that it could eliminate all variable costs if the control modules were produced externally, but none of the fixed overhead is avoidable. At this time, MSI has no specific use in mind for the space that is currently dedicated to the control module production.

Required:
1. Compute the difference in cost between making and buying the control module.

2. Should MSI buy the modules from MLC or continue to make them?

3-a. Suppose that the MSI space currently used for the modules could be utilized by a new product line that would generate $29,000 in annual profit. Recompute the difference in cost between making and buying under this scenario.

3-b. Does this change your recommendation to MSI?

Magical Elves Theater

Magical Elves Theater is located in the Brooklyn Mall. A cashier’s booth is located near the entrance to the theater. Three cashiers are employed. One works from 1–5 p.m., another from 5–9 p.m. The shifts are rotated among the three cashiers. The cashiers receive cash from customers and operate a machine that ejects serially numbered tickets. The rolls of tickets are inserted and locked into the machine by the theater manager at the beginning of each cashier’s shift.

After purchasing a ticket, the customer takes the ticket to an usher stationed at the entrance of the theater lobby some 60 feet from the cashier’s booth. The usher tears the ticket in half, admits the customer, and returns the ticket stub to the customer. The other half of the ticket is dropped into a locked box by the usher.

At the end of each cashier’s shift, the theater manager removes the ticket rolls from the machine and makes a cash count. The cash count sheet is initialed by the cashier. At the end of the day, the manager deposits the receipts in total in a bank night deposit vault located in the mall. The manager also sends copies of the deposit slip and the initialed cash count sheets to the theater company treasurer for verification and to the company’s accounting department. Receipts from the first shift are stored in a safe located in the manager’s office.

Required:

1. Identify the measures in place to make sure that the cash receipt transactions are properly accounted for.
2. If the usher and cashier decide to collaborate to misappropriate/steal cash, what actions might they take?

Hasagama Middle School

Hasagama Middle School wants to raise money for a new sound system for its auditorium. The primary fund-raising event is a dance at which the famous disc jockey D.J. Rivet will play classic and not-so-classic dance tunes. Will Schuester, the music and theater instructor, has been given the responsibility for coordinating the fund-raising efforts. This is Will’s first experience with fund-raising. He decides to put the eighth-grade choir in charge of the event; he will be a relatively passive observer.

Will had 500 unnumbered tickets printed for the dance. He left the tickets in a box on his desk and told the choir students to take as many tickets as they thought they could sell for $5 each. In order to ensure that no extra tickets would be floating around, he told them to dispose of any unsold tickets. When the students received payment for the tickets, they were to bring the cash back to Will and he would put it in a locked box in his desk drawer. Some of the students were responsible for decorating the gymnasium for the dance. Will gave each of them a key to the money box and told them that if they took money out to purchase materials, they should put a note in the box saying how much they took and what it was used for. After 2 weeks the money box appeared to be getting full, so Will asked Luke Gilmor to count the money, prepare a deposit slip, and deposit the money in a bank account Will had opened.

The day of the dance, Will wrote a check from the account to pay the DJ. D.J. Rivet, however, said that he accepted only cash and did not give receipts. So Will took $200 out of the cash box and gave it to D.J. At the dance Will had Mel Harris working at the entrance to the gymnasium, collecting tickets from students, and selling tickets to those who had not prepurchased them. Will estimated that 400 students attended the dance.

The following day Will closed out the bank account, which had $250 in it, and gave that amount plus the $180 in the cash box to Principal Foran. Principal Foran seemed surprised that, after generating roughly $2,000 in sales, the dance netted only $430 in cash. Will did not know how to respond.

Required: Identify as many cash control weaknesses/ improper handling of cash as you can in this scenario, and suggest how each can be addressed.

Reba Dixon is a fifth-grade schoolteacher who earned a salary of $38,000 in 2019. She is 45 years old and has been divorced for four years. She receives $1,200 of alimony payments each month from her former husband (divorced in 2016). Reba also rents out a small apartment building. This year Reba received $50,000 of rental payments from tenants and she incurred $19,500 of expenses associated with the rental.                                                         

Reba and her daughter heather (20 years old at the end of the year) moved to Georgia in January of this year. Reba provides more than one-half of heather’s support. they had been living in Colorado for the past 15 years, but ever since her divorce, Reba has been wanting to move back to Georgia to be closer to her family. luckily, last December, a teaching position opened up and Reba and heather decided to make the move. Reba paid a moving company $2,010 to move their personal belongings, and she and heather spent two days driving the 1,426 miles to Georgia.
Reba rented a home in Georgia. Heather decided to continue living at home with her mom, but she started attending school full-time in January and throughout the rest of the year at a nearby university. She was awarded a $3,000 partial tuition scholarship this year, and Reba out by paying the remaining $500 tuition cost. If possible, Reba thought it would be best to claim the education credit for these expenses.                                                                                                    

   Reba wasn't sure if she would have enough items to her benefit from itemizing on her tax return. However, she kept track of several expenses this year that she thought might qualify if she was able to itemize. Reba paid $5,800 in state income taxes and $12,500 in charitable contributions during the year. she also paid the following medical-related expenses for herself and heather:

insurance premiums                            $ 7,952
medical care expenses                        $ 1,100
prescription medicine                         $ 350
nonprescription medicine                   $ 100
new contact lenses for heather           $ 200

            Shortly after the move, Reba got distracted while driving and she ran into a street sign. the accident caused $900 in damage to the car and gave her whiplash. because the repairs were less than her insurance deductible, she paid the entire cost of the repairs. Reba wasn’t able to work for two months after the accident. fortunately, she received $2,000 from her disability insurance. her employer, the central Georgia school district, paid 60 percent of the premiums on the policy as a nontaxable fringe benefit and Reba paid the remaining 40 percent portion.
            A few years ago, Reba acquired several investments with her portion of the divorce settlement. This year she reported the following income from her investments: $2,200 of interest income from corporate bonds and $1,500 interest income from city of Denver municipal bonds. overall, Reba’s stock portfolio appreciated by $12,000 but she did not sell any of her stocks.                                Heather reported $6,200 of interest income from corporate bonds she received as gifts from her father over the last several years. this was heather’s only source of income for the year.

Required:

1. Determine Reba’s federal income taxes due to taxes payable for the current year.

Complete pages 1 and 2, Schedule 1, and Schedule 3 of Form 1040 for Reba.

2. Determine the amount of FICA taxes Reba was required to pay on her salary.
3. Determine Heather’s federal income taxes due or payable.

NBC Universal, Condé Nast, the Hearst Corporation, Fox Searchlight, and even Charlie Rose have been or are defendants in class action lawsuits brought against them by unpaid interns who served internships at these companies or for individuals. The suits seek to have back wages paid to those who have served as interns. Traditionally, an unpaid internship was an opportunity for those who lack experience to break into a particular field and gain contacts and experiences by working in that field. The arrangement was viewed as a win-win opportunity. Young people had the opportunity to get a foot in the door for a job, make contacts for future employment, and gain experience. The companies who had the unpaid interns had the opportunity to see their work habits, abilities, and fit within the organization. The companies also held their help—and all without paying wages. However, the U.S. Department of Labor has held that an internship can be unpaid only if the intern is part of an educational training program. If the employer uses the intern in lieu of hiring additional employees or using existing staff, then they are not interns and must be paid compensation according to the terms of the FLSA. The U.S. Supreme Court has ruled on this standard in Walling v. Portland Terminal Co., 330 U.S. 148 (1947). Examples of students involved in the intern litigation include the following: • Matthew Lieb served as an intern at the New Yorker (owned by Condé Nast) in 2009 and 2010. During his time there, he proofed and edited articles, did research for articles, and maintained an online cartoon database. He worked three days per week from 10:00 a.m. until 5:30 p.m. and was paid less than $1 per hour. • Lauren Ballinger served as an intern at W magazine in 2009 and was paid $12 per day to run errands for editors and deliver items to vendors. A court has already found that Fox Searchlight Pictures violated the FLSA when it used unpaid interns in its making of the film Black Swan. The film grossed $300 million, and the class group that brought the suit had worked for very little or nothing on the film. [Glaat, et al. v. Fox Searchlight Pictures, Inc., 2 F.R.D. 516 (S.D.N.Y. 2013)] However, other cases have held that the Department of Labor test for paying interns is too rigid. [Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518 (6th Cir. 2011)] But see Winfield v. Babylon Beauty School of Smithtown Inc., 89 F. Supp. 3d 556 (E.D.N.Y. 2015). Charlie Rose faced a lawsuit from 190 unpaid interns who worked for him from 2006 through 2012 and settled the case for $110,000. The interns will receive $110 for each week that they worked, for a maximum of 10 weeks. The litigation is likely to continue because a 2013 survey by the National Association of Colleges and Employers (NACE) found that one-half of college students report that their internships were unpaid. The survey was conducted in 2013 and involved 30,000 students. The survey also found that students who held paid internships were more likely to obtain a job with that employer and that their salaries were higher: 60% of students with paid internships got jobs with their employers at a $51,930 starting salary, whereas 37% of students with unpaid internships got jobs with their employers at a starting salary of $35,721.

Please review the For the Manager's Desk section and address the following elements:

Discuss the ethical issues in long-hour internships.

What about internships for no pay?

Are there benefits?

Do both sides benefit from the internship programs?

Which statement is true regarding the energies of the bonds that break and form during a highly endothermic reaction?

A company is thinking about replacing an old machine with a new one. The old machine cost $1.3 million. The new machine will cost $1.56 million. The new machine will be depreciated according to 5-year MACRS, and will be sold at $300,000 after 5 years. The new machine will require an investment of $150,000 in working capital, which can be recovered after 5 years. The old machine is being depreciated at a rate of $130,000 per year, and can be sold for $50,000 after 5 years. It can be sold for $300,000 now. The company is in a 30% tax bracket and applies a 12% discount rate. Should the company replace the old machine with the new one?

Workers place a value of a 2% decline in injuries sustained while on-the-job at $1500/year. To reduce worker injury rates by 2% would cost employers $300/year per worker. Without safety improvements, current companies offer a salary of $20,000/year. A new company enters the industry with an annual pay rate of $19,000 with the added bonus of reducing injuries by 2%. Given this information:

A. no workers would be willing to work at the new company.

B. the new company would not be able to compete with the existing companies.

C. workers would want to work at the new company.

D. only injury prone workers would want to work at the new company.

For the state of New Mexico and Colorado, I need the following questions answered please:

a) To what extent does New Mexico and Colorado follow the rulings of the Multistate Tax Commission?

b) Does New Mexico and Colorado adopt pertinent changes to the Internal Revenue Code? If so, as of what date?

c) Is the tax effectiveness of a passive investment company limited in some way? Has New Mexico and Colorado adopted the Geoffrey approach to the taxation of income from intangibles? Explain.

d) Does New Mexico and Colorado apply entity-level income taxes for S Corporations, partnerships, and LLCs? If so, what are the terms of those taxes?

Thank you.

18. New Jet Airlines plans to issue 16-year bonds with a par value of $1,000 that will pay $40 every six months. The bonds have a market price of $1,340. Flotation costs on new debt will be 7%. If the firm has a 35% marginal tax bracket, what is cost of existing debt?

22. GHJ Inc. is investing in a new project of $16 million. It will raise $4 million of bonds, $4 million of preferred stock, and $8 million of new common stock. If the after-tax cost of debt is 6%, cost of preferred stock is 10%, the cost of retained earnings is 16%, and the cost of new common stock is 19%, what is the WACC?

An oil company is drilling a series of new wells on the perimeter of a producing oil field. About 17% of the new wells will be dry holes. Even if a new well strikes oil, there is still uncertainty about the amount of oil produced: 40% of new wells that strike oil produce only 2,200 barrels a day; 60% produce 6,200 barrels per day.

a. Forecast the annual cash revenues from a new perimeter well. Use a future oil price of $97 per barrel. (Use 365 days a year. Enter your answer in dollars not in millions and round your answer to the nearest whole dollar amount.)

Expected annual cash revenues $