On October 1, 2018, the Allegheny Corporation purchased machinery for $224,000. The estimated service life of the machinery is 10 years and the estimated residual value is $4,000. The machine is expected to produce 400,000 units during its life.

Required:
Calculate depreciation for 2018 and 2019 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.

1. Straight line.
2. Sum-of-the-years’-digits.
3. Double-declining balance.
4. One hundred fifty percent declining balance.
5. Units of production (units produced in 2018, 20,000; units produced in 2019, 35,000).

Lexington Pharmaceuticals, Inc. was incorporated in the province of British Columbia on October 28, 2011. After gathering manufacturing-related costs over a period of several years, the company determined that machine hours were the best predictor of the company’s maintenance costs. Allison Forsythe, the company’s Chief Financial Officer, is studying the following report relating to the company’s maintenance costs and machine hours usage for the twelve months of the preceding year:

Required: Please answer the following questions using the high-low method:

1. What is the variable maintenance cost per machine hour? 5 marks

2. What is the fixed cost of maintenance each month? 5 marks

3. What is the mixed cost formula for the company’s maintenance cost? 5 marks

4. If Lexington uses 4,800 machine hours in a month, what will its total maintenance cost be for that month? 5 marks

On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 200,000 rubles in four months (on January 31, 2018) and receive $98,000 in U.S. dollars. Exchange rates for the ruble follow:

Sharp's incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Sharp must close its books and prepare financial statements on December 31.

1. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a 200,000 ruble receivable arising from a sale made on October 1, 2017. Include entries for both the sale and the forward contract.
2. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 200,000 ruble sale that will be made on January 31, 2018. Include entries for both the firm commitment and the forward contract. The fair value of the firm commitment is measured by referring to changes in the forward rate.

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October 31, 2019 the end of the current year, Pitman Company’s accounting clerk prepared the following unadjusted trial balance:

Pitman Company

UNADJUSTED TRIAL BALANCE

October 31, 2019

The data needed to determine year-end adjustments are as follows:

On October 1, 2017, Sharp Company (based in Denver, Colorado) entered into a forward contract to sell 230,000 rubles in four months (on January 31, 2018) and receive $119,600 in U.S. dollars. Exchange rates for the ruble follow:

Sharp's incremental borrowing rate is 12 percent. The present value factor for one month at an annual interest rate of 12 percent (1 percent per month) is 0.9901. Sharp must close its books and prepare financial statements on December 31.

1. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a 230,000 ruble receivable arising from a sale made on October 1, 2017. Include entries for both the sale and the forward contract.
2. Prepare journal entries, assuming that Sharp entered into the forward contract as a fair value hedge of a firm commitment related to a 230,000 ruble sale that will be made on January 31, 2018. Include entries for both the firm commitment and the forward contract. The fair value of the firm commitment is measured by referring to changes in the forward rate.

21 Equipment acquired on October 1, 2017, at a cost of $600,000 has an estimated useful life of 8 years. The residual value is estimated to be $80,000 at the end of the equipment's useful life. The company has a December 31 year end.

Instructions

Calculate the depreciation expense for December 31, 2017 and 2018 using:

         (a)           the straight-line method.

         (b)          the double diminishing-balance method.

Question 1: In the October 26th, 2011, edition of The Villager, Joanne Routzahn wrote a letter to the editor titled “Extend student rental moratorium.” Ms. Routzahn is referring to a one-year moratorium on student-rental housing in a designated area surrounding the St. Thomas campus. A particular excerpt from her letter: Macalester-Groveland is known for its stability with houses and families, children and older adults who take pride in their properties. We have respect for our neighbors and do not disfigure houses to make money. Converting small one-story homes into rental properties with absentee landlords does not add value to our neighborhood. It devalues and detracts from not only that house but the houses next door and the neighborhood in general.

(a) What is the specific market (good or service) that this moratorium is aimed at? Who are the “consumers” in this market? Who are the “producers” in this market?

(b) According to Ms. Routzahn, does this market exhibit a positive or negative externality? Briefly explain. How are the effects of this externality monetized?

(c) Would the private market over or under produce this good / service, relative to the efficient quantity? Briefly explain how you know.

(d) What is a government policy we learned about in class that could correct (“fix”) this problem? Briefly explain how the policy would work.

Question 1:  In the October 26th, 2011, edition of The Villager, Joanne Routzahn wrote a letter to the editor titled “Extend student rental moratorium.” Ms. Routzahn is referring to a one-year moratorium on student-rental housing in a designated area surrounding the St. Thomas campus. A particular excerpt from her letter:

Macalester-Groveland is known for its stability with houses and families, children and older adults who take pride in their properties. We have respect for our neighbors and do not disfigure houses to make money. Converting small one-story homes into rental properties with absentee landlords does not add value to our neighborhood. It devalues and detracts from not only that house but the houses next door and the neighborhood in general.

1. What is the specific market (good or service) that this moratorium is aimed at? Who are the “consumers” in this market? Who are the “producers” in this market?

2. According to Ms. Routzahn, does this market exhibit a positive or negative externality? Briefly explain.   How are the effects of this externality monetized?

3. Would the private market over or under produce this good / service, relative to the efficient quantity? Briefly explain how you know.

4. What is a government policy we learned about in class that could correct (“fix”) this problem? Briefly explain how the policy would work.

17/ A corporation declared and issued a 20% stock dividend on October 1. The following information was available immediately prior to the dividend:

The amount that contributed capital will increase (decrease) as a result of recording this stock dividend is:

Multiple Choice

$61,000.

$0.

$(195,200).

$(61,000).

$195,200.

18/ Fetzer Company declared a $0.45 per share cash dividend. The company has 440,000 shares authorized, 418,000 shares issued, and 17,600 shares in treasury stock. The journal entry to record the payment of the dividend is:

Multiple Choice

Debit Common Dividends Payable $188,100; credit Cash $188,100.

Debit Retained Earnings $180,180; credit Common Dividends Payable $180,180.

Debit Common Dividends Payable $180,180; credit Cash $180,180.

Debit Retained Earnings $198,000; credit Common Dividends Payable $198,000.

Debit Retained Earnings $188,100; credit Common Dividends Payable $188,100.

19/ A corporation sold 14,500 shares of its $10 par value common stock at a cash price of $14 per share. The entry to record this transaction would include:

Multiple Choice

A debit to Paid-in Capital in Excess of Par Value, Common Stock for $58,000.

A debit to Cash for $145,000.

A credit to Common Stock for $145,000.

A credit to Common Stock for $203,000.

A credit to Paid-in Capital in Excess of Par Value, Common Stock for $203,000.

20/ Hutter Corporation declared a $0.50 per share cash dividend on its common shares. The company has 44,000 shares authorized, 23,400 shares issued, and 17,600 shares of common stock outstanding. The journal entry to record the dividend declaration is:

Multiple Choice

Debit Retained Earnings $8,800; credit Common Dividends Payable $8,800.

Debit Common Dividends Payable $8,800; credit Cash $8,800.

Debit Retained Earnings $11,700; credit Common Dividends Payable $11,700.

Debit Common Dividends Payable $11,700; credit Cash $11,700.

Debit Retained Earnings $22,000; credit Common Dividends Payable $22,000.

On October 22, you plan to purchase a $3,000 computer by using one of your two credit cards. The silver charges 18% interest and calculates interest based on the balance on the first day of the previous month, The Golf Card charges 18% interest and calculates interest based on the average daily balance. Both cards have $0 balance as of October 1. The closing date is the end of the month for each card. Your plan is to make a $1,000 payment in November, make a $1,000 payment in December and pay off the remaining balance in January. All your payments will be received and posted on the 10th of each month. No other charges will be made on the account. Based on this information, calculate the interest charged by the Silver card for this purchase and which card is the better deal?