On May 1, 2021, Hecala Mining entered into an agreement with the state of New Mexico to obtain the rights to operate a mineral mine in New Mexico for $10 million. Additional costs and purchases included the following:
Development costs in preparing the mine.........................$3,200,000
Mining equipment.............................................................................140,000
Construction of various structures on site....................................68,000
After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $10,000. The structures will be torn down. Geologists estimate that 800,000 tons of ore can be extracted from the mine. After the ore is removed the land will revert back to the state of New Mexico.
The contract with the state requires Hecala to restore the land to its original condition after mining operations are completed in approximately four years. Management has provided the following possible outflows for the restoration costs:
Cash Outflow................Probability
$600,000................................30%
700,000..................................30%
800,000.................................40%
Hecala’s credit-adjusted risk-free interest rate is 8%. During 2021, Hecala extracted 120,000 tons of ore from the mine. The company’s fiscal year ends on December 31.
Required:
1. Determine the amount at which Hecala will record the mine.
2. Calculate the depletion of the mine and the depreciation of the mining facilities and equipment for 2021, assuming that Hecala uses the units-of-production method for both depreciation and depletion. Round depletion and depreciation rates to four decimals.
3. How much accretion expense will the company record in its income statement for the 2021 fiscal year?
4. Are depletion of the mine and depreciation of the mining facilities and equipment reported as separate expenses in the income statement? Discuss the accounting treatment of these items in the income statement and balance sheet.
5. During 2022, Hecala changed its estimate of the total amount of ore originally in the mine from 800,000 to 1,000,000 tons. Briefly describe the accounting treatment the company will employ to account for the change and calculate the depletion of the mine and depreciation of the mining facilities and equipment for 2022 assuming Hecala extracted 150,000 tons of ore in 2022.
In: Chemistry
| The company
produces seats for auto, vans, trucks, and boats. The company has
several plants, including the New Jersey plant, which makes car covers. Goodman is the plant manager at the New Jersey plant but also serves as the production manager. Goodman has just heard that Rutgers company has received a bid from an outside vendor to offer the same amount of the entire annual output of the New Jersey plant for $21 million. Goodman was surprised at the low outside bid due to that the budget for the New Jersey Plant's operating costs for the coming year was set at $24.3 million. if this bid is accepted by the plant, the New Jersey plant will go out of bankruptcy. The budget for the New Jersy plant's operating costs for the next year is below. Additional information is given as follows. |
||
| 1. Due to
the New Jersey plant prefer high-quality for all products, the
purchasing department prefers to place orders of good materials for the coming year. If these orders are canceled as consequence of the plant closing, termination fees would amount to 25% of the cost of direct materials. |
||
| 2. Around
350 employees will become unemployed if the plant is closed, which
contain all of the direct laborers and supervisors, management and
staff, and the plumbers, electricians, and other skilled workers
classified as indirect plant workers. Some of the workers would have difficulty finding new jobs. Nearly all the production labors would have difficulty matching the New Jersey plant at $12.5 per hour, which is the highest. Rutgers Company should provide some assistance and job training to its former employees for 12 months after closing a plant. The estimated fees for this service would be $0.8 million. |
||
| 3. Some
employees might choose early retirement because Rutgers Company has
a good pension plan. Actually, $0.7 million of the annual pension expense would continue whether the New Jersey plant is open or not |
||
| 4. Goodman and his coworkers would not be affected by the closing of the New Jersey plant, they would still be responsible for three other area plants | ||
| 5. If the New Jersey plant were closed, Rutgers Company would realize about $2 million salvage value for the equipment in the plant. If the plant remains open, there are no plans to make any significant investments in new equipment or buildings. The old equipment is adequate for the job and should last indefinitely. | ||
| New Jersey Plant | ||
| The annual budget for costs | ||
| Materials | $80,000,000.00 | |
| Labor: | ||
| Direct | $6,700,000.00 | |
| Supervison | $400,000.00 | |
| Indirect Plant | $1,900,000.00 | $9,000,000.00 |
| MOH: | ||
| Deprecation for equipments | $1,300,000.00 | |
| Deprecation for buildings | $2,100,000.00 | |
| Pension expense | $1,600,000.00 | |
| Plant manager and staff | $600,000.00 | |
| Corporate expense | $1,700,000.00 | $7,300,000.00 |
| Total | $24,300,000.00 | |
| *Fixed expenses are allocated to plants and other operating units based on total budgeted wage and salary costs. | ||
| Questions: | ||
| 1.Without regard to costs, find the merits to Rutgers Company of continuing to obtain products from the New Jersey plant. | ||
| 2. Company
is about to prepare a financial analysis that will be used in deciding whether or not to close the New Jersey Plant. CEO has asked you to pay attention to items: a.Show the annual budgeted costs to make the decision about the closing of the New Jersey plant. b.Present the annual budgeted costs that are not relevant to the decision regarding the closing of New Jersey the plant and explain why they are not relevant. c.There are nonrecurring costs that would arise due to the closing of the plant and please explain how they would affect the decision. |
||
| 3.Please
refer to the data you have prepared in (2) above, do you think the
New Jersey plant be closed? Show computations and please explain your answer. |
||
| 4.Please find any sales revenues or costs not specifically provided in the information that Rutgers Compnay should consider before making a decision. | ||
| 5.What suggestions do you think about reducing the costs? | ||
In: Accounting
The Merger of Kmart & Sears
As the engineer of the $11.5 billion planned purchase of Sears, Roebuck & Co. by Kmart Holding Corp.,
Edward Lampert is stepping out of the shadows of Wall Street to make a high‐profile bet that the
fortunes of not just one but two retailing giants can be turned around. He keeps his strategy close to the
vest, and his fortune is uncertain, though it was estimated at $2 billion ahead of the acquisition news.
Mr. Lampert’s hedge‐fund firm, ESL Investments inc., which owns 43 million shares of Kmart, and 31
million shares of Sears, recorded paper gains of nearly $600 million in the wake of the takeover news.
He knew that was a spectacular one‐day return given that market interest rates were 6%.
Short‐sellers have been wary of Kmart ever since it emerged from bankruptcy in early May 2003. After
Mr. Lampert bought up some $1 billion of Kmart’s distressed debt in 2002, he kicked off an aggressive
restructuring campaign that included closing stores and selling off real estate to competitors. Investors
were so enamored of his results that they helped to double Kmart’s stock price in the past 18 months
from $58 per share to the current value of $120 per share.
The SEC filing also included a new employment contract for Sears chief executive Alan Lacy, who is
slated to be CEO and vice chairman of the combined company, Sears Holdings Corp. Under the
employment pact, which runs for 5 years after the merger’s effective date, Lacy is entitled to a minimum
base salary of $1.5 million a year and a target annual bonus of 150% of the base salary.
An acquirer’s brand typically is the one that goes forward, but companies have been known to flout the
rule based on whose brand is stronger in the marketplace. When Nations Bank bought Bank of America,
the merged company took the Bank of America name and re‐branded all the Nations Bank branches.
Asked to comment on the Kmart / Sears deal, an analyst said “I don’t think the combined company will
be a much more significant challenge to Wal‐Mart. Consumers think that when they want price they go
to Wal‐Mart. When they want value – a little fashion – they go to Target.” After hearing this, Mr.
Lampert began to wonder if he had made the correct decision. “I wonder,” he thought to himself,
“would I have been better off buying Target instead?” Although it was too late, he began to look at the
financials for Target to see if he would have been better off buying Target.
| Income Statements – January 31, 2004 | ||||
| Wal-Mart | Kmart | Sears | Target | |
| Sales | 258,681,000 | 23,253,000 | 41,124,000 | 48,163,000 |
| Cost of Sales | 198,747,000 | 17,846,000 | 26,231,000 | 31,790,000 |
| Gross_Profit | 59,934,000 | 5,407,000 | 14,893,000 | 16,373,000 |
| Administrative_Expenses | 44,909,000 | 4,998,000 | 9,111,000 | 11,534,000 |
| EBIT | 15,025,000 | 409,000 | 5,782,000 | 4,839,000 |
| Interest | 996,000 | 162,000 | 1,025,000 | 559,000 |
| Taxes (@ 35 %) | 4,910,150 | 86,450 | 1,664,950 | 1,498,000 |
| Net Income | 9,118,850 | 160,550 | 3,092,050 | 2,782,000 |
| Balance Sheets as at January 31, 2004 | ||||
| Wal-Mart | Kmart | Sears | Target | |
| Cash_and_cash_equivalents | 5,199,000 | 2,088,000 | 9,057,000 | 816,000 |
| Receivables | 1,254,000 | 301,000 | 3,397,000 | 5,776,000 |
| Inventory | 26,612,000 | 3,238,000 | 5,335,000 | 5,373,000 |
| Total_Current_Assets | 33,065,000 | 5,627,000 | 17,789,000 | 11,965,000 |
| Property,_Plant_&_Equip. | 58,530,000 | 153,000 | 6,788,000 | 16,969,000 |
| Other_Assets | 6,079,000 | 120,000 | 908,000 | 1,495,000 |
| Total_Assets | 97,674,000 | 5,900,000 | 25,485,000 | 30,429,000 |
| Accounts_Payable | 31,051,000 | 1,772,000 | 7,582,000 | 7,448,000 |
| Other_current_Liabilities | 6,367,000 | 1,050,000 | 5,194,000 | 866,000 |
| Total_current_liabilities | 37,418,000 | 2,822,000 | 12,776,000 | 8,314,000 |
| Long_term_Debt | 20,099,000 | 2,297,000 | 4,718,000 | 10,217,000 |
| Common_stock | 431,000 | 208,000 | 823,000 | 96,000 |
| Retained_Earnings | 39,726,000 | 573,000 | 7,168,000 | 11,802,000 |
| Total_Liabilities_&_Equity | 97,674,000 | 5,900,000 | 25,485,000 | 30,429,000 |
Questions you should consider in reviewing the case:
1. How could we find the greatest underperforming area for any of the firms?
In: Finance
Is the national crime rate really going down? Some sociologists say yes! They say that the reason for the decline in crime rates in the 1980s and 1990s is demographics. It seems that the population is aging, and older people commit fewer crimes. According to the FBI and the Justice Department, 70% of all arrests are of males aged 15 to 34 years†. Suppose you are a sociologist in Rock Springs, Wyoming, and a random sample of police files showed that of 38 arrests last month, 24 were of males aged 15 to 34 years. Use a 10% level of significance to test the claim that the population proportion of such arrests in Rock Springs is different from 70%.
(a) What is the level of significance?
State the null and alternate hypotheses.
H0: p = 0 .7; H1: p < 0.7H0: p = 0.7; H1: p > 0.7 H0: p < 0 .7; H1: p = 0.7H0: p = 0.7; H1: p ≠ 0.7H0: p ≠ 0.7; H1: p = 0.7
(b) What sampling distribution will you use?
The standard normal, since np > 5 and nq > 5.The Student's t, since np < 5 and nq < 5. The Student's t, since np > 5 and nq > 5.The standard normal, since np < 5 and nq < 5.
What is the value of the sample test statistic? (Round your answer
to two decimal places.)
(c) Find the P-value of the test statistic. (Round your
answer to four decimal places.)
Sketch the sampling distribution and show the area corresponding to
the P-value.
(d) Based on your answers in parts (a) to (c), will you reject or
fail to reject the null hypothesis? Are the data statistically
significant at level α?
At the α = 0.10 level, we reject the null hypothesis and conclude the data are statistically significant.At the α = 0.10 level, we reject the null hypothesis and conclude the data are not statistically significant. At the α = 0.10 level, we fail to reject the null hypothesis and conclude the data are statistically significant.At the α = 0.10 level, we fail to reject the null hypothesis and conclude the data are not statistically significant.
(e) Interpret your conclusion in the context of the
application.
There is sufficient evidence at the 0.10 level to conclude that the true proportion of arrests of males aged 15 to 34 in Rock Springs differs from 70%.There is insufficient evidence at the 0.10 level to conclude that the true proportion of arrests of males aged 15 to 34 in Rock Springs differs from 70%.
In: Statistics and Probability
Is the national crime rate really going down? Some sociologists say yes! They say that the reason for the decline in crime rates in the 1980s and 1990s is demographics. It seems that the population is aging, and older people commit fewer crimes. According to the FBI and the Justice Department, 70% of all arrests are of males aged 15 to 34 years†. Suppose you are a sociologist in Rock Springs, Wyoming, and a random sample of police files showed that of 36 arrests last month, 25 were of males aged 15 to 34 years. Use a 10% level of significance to test the claim that the population proportion of such arrests in Rock Springs is different from 70%.
(a) What is the level of significance?
State the null and alternate hypotheses.
H0: p = 0.7; H1: p ≠ 0.7H0: p < 0 .7; H1: p = 0.7 H0: p = 0 .7; H1: p < 0.7H0: p = 0.7; H1: p > 0.7H0: p ≠ 0.7; H1: p = 0.7
(b) What sampling distribution will you use?
The Student's t, since np > 5 and nq > 5.The standard normal, since np < 5 and nq < 5. The standard normal, since np > 5 and nq > 5.The Student's t, since np < 5 and nq < 5.
What is the value of the sample test statistic? (Round your answer
to two decimal places.)
(c) Find the P-value of the test statistic. (Round your
answer to four decimal places.)
Sketch the sampling distribution and show the area corresponding to
the P-value.
(d) Based on your answers in parts (a) to (c), will you reject or
fail to reject the null hypothesis? Are the data statistically
significant at level α?
At the α = 0.10 level, we reject the null hypothesis and conclude the data are statistically significant.At the α = 0.10 level, we reject the null hypothesis and conclude the data are not statistically significant. At the α = 0.10 level, we fail to reject the null hypothesis and conclude the data are statistically significant.At the α = 0.10 level, we fail to reject the null hypothesis and conclude the data are not statistically significant.
(e) Interpret your conclusion in the context of the
application.
There is sufficient evidence at the 0.10 level to conclude that the true proportion of arrests of males aged 15 to 34 in Rock Springs differs from 70%.There is insufficient evidence at the 0.10 level to conclude that the true proportion of arrests of males aged 15 to 34 in Rock Springs differs from 70%.
In: Statistics and Probability
PART 1
You are studying the following regression on earnings of a CEO:
Earnings)= 3.86 - 0.28Female + 0.37MarketValue + 0.004Return
You wonder whether any of the independant variables should be introduced in the model in a nonlinear fashion instead. Right now, they are all present in their original form. Which variables must you test to see if a nonlinear version of them is better suited?
A. Earnings, Female, MarketValue, Returns
B. Earnings, MarketValue, Returns
C. Female, MarketValue, Return
D. MarketValue, Returns
PART 2
"A standard ""money demand"" function used by macroeconomists has the form ln(m) = Beta0 + Beta1 ln(GDP) + Beta2 R, Where m is the quantity of (real) money, GDP is the value of (real) gross domestic product, and R is the value of the nominal interest rate measured in percent per year. Supposed that Beta 1 = 1.05 and Beta 2 = -0.03. What is the expected change in m if the interest rate increases from 5% to 9%? Round to nearest integer"
A. decrease 12%
B. decrease 9%
C. increase 12%
D. "decrease $7,387"
PART 3
"This problem is inspired by a study of the ""gender gap"" in earnings in top corporate jobs [Bertrand and Hallock (2001)]. The study compares total compensation among top executives in a large set of U.S. public corporations in the 1990s. (Each year these publicly traded corporations must report total compensation levels for their top five executives.) Let Female be an indicator variable that is equal to 1 for females and 0 for males. A regression of the logarithm of earnings onto Female yields ln(Earnings) = 6.55 -0.41Female, SER = 2.44. The Standard Errors for the Constant is (0.01) and for the Female variable is (0.05). The SER tells us all of the following, except:"
A. The Standard Error of the regression
B. The % of the variance in Earnings we have explained
C. The standard deviation of the regression error
D. The square root of the variance of the residuals
PART 4
"Assume that you had estimated the following quadratic regression model: Test Score = 607.3 + 3.85Income - 0.0423Income2. If income is in thousands, please interpret the coefficient on the Income2 term:"
A. Cannot interpret that coefficient alone
B. A 1 unit increase in income is associated with a 0.0423 points
decrease in TestScores
C. "A $1,000 increase in income is associated with a 0.0423 points
decrease in TestScores"
D. "A $1,000 increase in income is associated with a 4.23 %
decrease in TestScores"
In: Economics
Is the national crime rate really going down? Some sociologists say yes! They say that the reason for the decline in crime rates in the 1980s and 1990s is demographics. It seems that the population is aging, and older people commit fewer crimes. According to the FBI and the Justice Department, 70% of all arrests are of males aged 15 to 34 years†. Suppose you are a sociologist in Rock Springs, Wyoming, and a random sample of police files showed that of 39 arrests last month, 29 were of males aged 15 to 34 years. Use a 5% level of significance to test the claim that the population proportion of such arrests in Rock Springs is different from 70%.
(a) What is the level of significance?
State the null and alternate hypotheses.
H0: p = 0.7;
H1: p ≠ 0.7H0: p
< 0 .7; H1: p =
0.7 H0: p = 0.7;
H1: p > 0.7H0:
p = 0 .7; H1: p <
0.7H0: p ≠ 0.7; H1:
p = 0.7
(b) What sampling distribution will you use?
The Student's t, since np > 5 and
nq > 5.The standard normal, since np > 5 and
nq > 5. The Student's t,
since np < 5 and nq < 5.The standard normal,
since np < 5 and nq < 5.
What is the value of the sample test statistic? (Round
your answer to two decimal places.)
(c) Find the P-value of the test statistic.
(Round your answer to four decimal places.)
Sketch the sampling distribution and show the area corresponding to the P-value.
(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis? Are the data statistically significant at level α?
At the α = 0.05 level, we reject the null hypothesis
and conclude the data are statistically significant.At the α = 0.05
level, we reject the null hypothesis and conclude the data are not
statistically significant. At the α = 0.05
level, we fail to reject the null hypothesis and conclude the data
are statistically significant.At the α = 0.05 level, we fail to
reject the null hypothesis and conclude the data are not
statistically significant.
(e) Interpret your conclusion in the context of the application.
There is sufficient evidence at the 0.05 level to
conclude that the true proportion of arrests of males aged 15 to 34
in Rock Springs differs from 70%.There is insufficient evidence at
the 0.05 level to conclude that the true proportion of arrests of
males aged 15 to 34 in Rock Springs differs from
70%.
In: Statistics and Probability
In: Operations Management
Discuss the impact on the parent's investment account when the subsidiary issues new shares and either the new shares are purchased ratably by the parent and noncontrolling shareholders?
In: Accounting
If a business builds a new manufacturing plant, is it possible to increase the rate of depreciation on the new facility and equipment? Does this need to be done equally each year?
In: Finance