Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 3% of sales. Sales of the awnings in 2020 were $3,800,000. Accordingly, warranty expense and a warranty liability of $114,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 2% of sales rather than 3%. Sales of the awnings in 2021 were $4,300,000, and warranty expenditures in 2021 totaled $97,825.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $1,060,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $730,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $720,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $363,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $230,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $383,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $478,000.

Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.

Described below are six independent and unrelated situations involving accounting changes. Each change occurs during 2021 before any adjusting entries or closing entries were prepared. Assume the tax rate for each company is 25% in all years. Any tax effects should be adjusted through the deferred tax liability account.

1. Fleming Home Products introduced a new line of commercial awnings in 2020 that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 2% of sales. Sales of the awnings in 2020 were $2,900,000. Accordingly, warranty expense and a warranty liability of $58,000 were recorded in 2020. In late 2021, the company’s claims experience was evaluated, and it was determined that claims were far fewer than expected: 1% of sales rather than 2%. Sales of the awnings in 2021 were $3,400,000, and warranty expenditures in 2021 totaled $77,350.
2. On December 30, 2017, Rival Industries acquired its office building at a cost of $880,000. It was depreciated on a straight-line basis assuming a useful life of 40 years and no salvage value. However, plans were finalized in 2021 to relocate the company headquarters at the end of 2025. The vacated office building will have a salvage value at that time of $640,000.
3. Hobbs-Barto Merchandising, Inc., changed inventory cost methods to LIFO from FIFO at the end of 2021 for both financial statement and income tax purposes. Under FIFO, the inventory at January 1, 2021, is $630,000.
4. At the beginning of 2018, the Hoffman Group purchased office equipment at a cost of $264,000. Its useful life was estimated to be 10 years with no salvage value. The equipment was depreciated by the sum-of-the-years’-digits method. On January 1, 2021, the company changed to the straight-line method.
5. In November 2019, the State of Minnesota filed suit against Huggins Manufacturing Company, seeking penalties for violations of clean air laws. When the financial statements were issued in 2020, Huggins had not reached a settlement with state authorities, but legal counsel advised Huggins that it was probable the company would have to pay $140,000 in penalties. Accordingly, the following entry was recorded:

Late in 2021, a settlement was reached with state authorities to pay a total of $284,000 in penalties.

6. At the beginning of 2021, Jantzen Specialties, which uses the sum-of-the-years’-digits method, changed to the straight-line method for newly acquired buildings and equipment. The change increased current year net earnings by $379,000.

Required:
For each situation:
1. Identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change, as well as any adjusting entry for 2021 related to the situation described.

On June 15, 2018, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $260 million. The expected completion date is April 1, 2020, just in time for the 2020 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions):

Required:
1. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion.
2. Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time.
3. Suppose the estimated costs to complete at the end of 2019 are $110 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method.

Required 1

Required 2

Required 3

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in millions. Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. (Enter your answers in millions. Loss amounts should be indicated with a minus sign. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

Show less

Compute the revenue and gross profit will Sanderson report in its 2018, 2019, and 2020 income statements related to this contract assuming this project does not qualify for revenue recognition over time. (Enter your answers in millions. Loss amounts should be indicated with a minus sign.)

Suppose the estimated costs to complete at the end of 2019 are $110 million instead of $60 million. Compute the amount of revenue and gross profit or loss to be recognized in 2019 using the percentage of completion method. (Enter your answers in millions. Use percentages as calculated and rounded in the table below to arrive at your final answer.)

On January 1, 2017, Sunland Industries had stock outstanding as follows.

To acquire the net assets of three smaller companies, Sunland authorized the issuance of an additional 160,800 common shares. The acquisitions took place as shown below.

On May 14, 2017, Sunland realized a $93,600 (before taxes) insurance gain on discontinued operations.

On December 31, 2017, Sunland recorded income of $282,000 from continuing operations (after tax).

Assuming a 50% tax rate, compute the earnings per share data that should appear on the financial statements of Sunland Industries as of December 31, 2017. (Round answer to 2 decimal places, e.g. $2.55.)

1. Iris reads a media article in the New York times that describes how CRISPR is being used to treat genetic disease. She asks her friend if CRISPR could someday be used to cure Wilson’s disease. For CRISPR to be a viable option for curing Wilson’s disease, which of the following must be possible? SELECT ALL

The full sequence of the mutated atp7b gene must be known.

The full sequence of the normal ATP7B gene must be known.

Patients’ liver cells would have to be able to be removed and later reintroduced into the body.

The STRs flanking either side of the mutated atp7b gene must be known.

2.

At which point during ATPB7B gene expression does the copper-transporting ATPase 2 ER signal get manufactured? What would be the result if the SRP is inhibited such that it cannot bind to the ER signal?

Rump Industries is considering the purchase of a new production machine for $100,000. The introduction of the machine will result in an increase in earnings before interest and tax of $25,000 per year. Set-up of the machine will involve installation costs of $5,000 after-tax. Additionally, the machine will require workers to undergo training that will cost the company $5,000 after-tax. An initial increase in raw materials and inventory of $25,000 will also be required. The machine has an expected life of 10 years and is expected to have no salvage value at the end of its life. To purchase the new machine the company will have to borrow $80,000 at 10 per cent interest from the bank, which will require interest payments of $8,000 per year. The company will depreciate the machine straight-line over its life. The tax rate is 30 per cent and tax is paid in the year of income. Rump Industries’ required rate of return (WACC) is 12 per cent.

Required: 1. Calculate the initial outlay associated with the project

2. Calculate the annual after-tax cash flows for years 1-9

3. Calculate the after-tax cash flow in year 10

4. Calculate the Net Present Value.

Ducks inc has provided the following data to be used to evaluate a proposed investment project:

                        Investment $880,000

                        Annual Cash Receipt $660,000

                        Life of the project 8 years

                        Annual cash expenses $330,000

                        Salvage value $88,000

                        Tax rate 30%

For tax purpose the entire initial investment without any reduction for salvage value will be depreciated over 7 years. The company uses a discount rate of 12%.

1. When computing the net present value of the project, what are the annual after-tax cash expense before discounting?

1. $462,000
2. $396,000
3. $198,000
4. $69,300

2. When computing the net present value of the project, what are the annual after-tax cash expenses after discounting?

1. 429,000
2. $242,000
3. $99,000
4. $231,000

3. When computing the net present value of the project, what is the annual amount of the depreciation tax-shield? In other words, by how much does the depreciation deduction reduce taxes each year in which the depreciation deduction reduce taxes each year in which the depreciation deduction is taken?

1. $37,714
2. $242,000
3. $99,000
4. $231,000

4. When computing the net present value of the project, what is the after-tax cash from the salvage value in the final year

1. $0
2. $88,000
3. $26,400
4. $61,600

Firm C currently has 250,000 shares outstanding with current market value of $47.40 per share and generates an annual EBIT of $1,250,000. Firm C also has $1 million of debt outstanding. The current cost of equity is 8 percent and the current cost of debt is 5 percent. The firm is considering issuing another $2 million of debt and using the proceeds of the debt issue to repurchase shares (a pure capital structure change). It is estimated that the cost of the new debt will be 5.5 percent and that the cost of equity will rise to 9 percent with the additional debt. The marginal tax rate is 21 percent.

1. What is the current market value of the firm?

2. Before the capitalization, what is the firm's weighted average cost of capital? Answer in decimal form.

3. What will the firm’s market value be after the announcement of the new debt issue?

4. What will the estimated new share price be after the capital structure change announcement?

5. What is the firm's net income after the recapitalization?

Note: The total interest costs that must be subtracted from EBIT must be calculated in two parts and then added.

6. How many shares are outstanding after the repurchase?

A bank wants to know if the enrollment for new savings accounts has improved at various branches after offering a free iPhone X to customers. Use the data from "iphoneX" sheet in excel

Run the appropriate statistical test with α=0.05. Which of the following are correct? More than one answer is possible.

(Calculating project cash flows and​ NPV)  The Chung Chemical Corporation is considering the purchase of a chemical analysis machine. Although the machine being considered will result in an increase in earnings before interest and taxes of

$ 34 comma 000$34,000

per​ year, it has a purchase price of

​$85 comma 00085,000​,

and it would cost an additional

​$8 comma 0008,000

after tax to correctly install this machine. In​ addition, to properly operate this​ machine, inventory must be increased by

​$3 comma 5003,500.

This machine has an expected life of

1010

​years, after which it will have no salvage value. ​ Also, assume simplified​ straight-line depreciation, that this machine is being depreciated down to​ zero, a

3636

percent marginal tax​ rate, and a required rate of return of

99

percent.

a.  What is the initial outlay associated with this​ project?

b.  What are the annual​ after-tax cash flows associated with this project for years 1 through

99​?

c.  What is the terminal cash flow in year

1010

​(that is, the annual​ after-tax cash flow in year

1010

plus any additional cash flows associated with termination of the​ project)?

d.  Should this machine be​ purchased?

a.  The initial cash outlay associated with this project is

​$nothing.

​ (Round to the nearest​ dollar.)