In: Finance
Exercise 19-7 Income reporting under absorption costing and variable costing LO P2
[The following
information applies to the questions displayed below.]
Oak Mart, a producer of solid oak tables, reports the following
data from its second year of business.
| Sales price per unit | $ | 330 | per unit |
| Units produced this year | 110,000 | units | |
| Units sold this year | 113,500 | units | |
| Units in beginning-year inventory | 3,500 | units | |
| Beginning inventory costs | |||
| Variable (3,500 units × $130) | $ | 455,000 | |
| Fixed (3,500 units × $75) | 262,500 | ||
| Total | $ | 717,500 | |
| Manufacturing costs this year | |||
| Direct materials | $ | 46 | per unit |
| Direct labor | $ | 70 | per unit |
| Overhead costs this year | |||
| Variable overhead | $ | 3,200,000 | |
| Fixed overhead | $ | 7,400,000 | |
| Selling and administrative costs this year | |||
| Variable | $ | 1,400,000 | |
| Fixed | 4,400,000 |
1. Prepare the current-year income statement for the company using variable costing.
In: Accounting
LO, Inc., is considering an investment of $444,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $283,100 and $88,800, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 2 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $64,000 in nominal terms at that time. The one-time net working capital investment of $19,500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 24 percent. What is the project’s total nominal cash flow from assets for each year? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.)
| Year 0 | |
| Year 1 | |
| Year 2 | |
| Year 3 | |
| Year 4 | |
| Year 5 |
In: Finance
Bryan followed in his father’s footsteps and entered into the carpet business. He owns and operates I Do Carpet (IDC). Bryan prefers to install carpet only, but in order to earn additional revenue, he also cleans carpets and sells carpet-cleaning supplies. IDC contracted with a homebuilder in December of last year to install carpet in 10 new homes being built. The contract price of $92,000 includes $54,800 for materials (carpet). The remaining $37,200 is for IDC’s service of installing the carpet. The contract also stated that all money was to be paid up front. The homebuilder paid IDC in full on December 28 of last year. The contract required IDC to complete the work by January 31 of this year. Bryan purchased the necessary carpet on January 2 and began working on the first home January 4. He completed the last home on January 27 of this year. IDC entered into several other contracts this year and completed the work before year-end. The work cost $178,000 in materials. Bryan billed out $244,800 but only collected $220,000 by year-end. Of the $24,800 still owed to him, Bryan wrote off $4,200 he didn’t expect to collect as a bad debt from a customer experiencing extreme financial difficulties. IDC entered into a three-year contract to clean the carpets of an office building. The contract specified that IDC would clean the carpets monthly from July 1 of this year through June 30 three years hence. IDC received payment in full of $9,504 ($264 a month for 36 months) on June 30 of this year. IDC sold 100 bottles of carpet stain remover this year for $5 per bottle (it collected $500). IDC sold 40 bottles on June 1 and 60 bottles on November 2. IDC had the following carpet-cleaning supplies on hand for this year and it uses the LIFO method of accounting for inventory under a perpetual inventory system: Purchase Date Bottles Total Cost November last year 40 $312 February this year 35 208 July this year 25 205 August this year 40 380 Totals 140 $1,105 On August 1 of this year, IDC needed more room for storage and paid $2,340 to rent a garage for 12 months. On November 30 of this year, Bryan decided it was time to get his logo on the sides of his work van. IDC hired We Paint Anything Inc. (WPA) to do the job. It paid $980 down and agreed to pay the remaining $2,940 upon completion of the job. WPA indicated it wouldn’t be able to begin the job until January 15 of next year, but the job would only take one week to complete. Due to circumstances beyond its control, WPA wasn’t able to complete the job until April 1 of next year, at which time IDC paid the remaining $2,940. In December, Bryan’s son, Aiden, helped him finish some carpeting jobs. IDC owed Aiden $1,080 (reasonable) compensation for his work. However, Aiden did not receive the payment until January of next year. IDC also paid $5,800 for interest on a short-term bank loan relating to the period from November 1 of this year through March 31 of next year. Compute his taxable income for the current year considering the following items: (Negative amounts should be indicated by a minus sign. Enter zero for no effect on taxable income. Do not round intermediate calculations.
In: Accounting
Bryan followed in his father’s footsteps and entered into the carpet business. He owns and operates I Do Carpet (IDC). Bryan prefers to install carpet only, but in order to earn additional revenue, he also cleans carpets and sells carpet cleaning supplies. Compute his taxable income for the current year considering the following items:
a) IDC contracted with a homebuilder in December of last year to install carpet in 10 new homes being built. The contract price of $80,000 includes $50,000 for materials (carpet). The remaining $30,000 is for IDC’s service of installing the carpet. The contract also stated that all money was to be paid up front. The homebuilder paid IDC in full on December 28 of last year. The contract required IDC to complete the work by January 31 of this year. Bryan purchased the necessary carpet on January 2 and began working on the first home January 4. He completed the last home on January 27 of this year.
b) IDC entered into several other contracts this year and completed the work before year-end. The work cost $130,000 in materials and IDC elects to immediately deduct his supplies. Bryan billed out $240,000 but only collected $220,000 by year-end. Of the $20,000 still owed to him, Bryan wrote off $3,000 he didn’t expect to collect as a bad debt from a customer experiencing extreme financial difficulties.
c) IDC entered into a three-year contract to clean the carpets of an office building. The contract specified that IDC would clean the carpets monthly from July 1 of this year through June 30 three years hence. IDC received payment in full of $8,640 ($240 a month for 36 months) on June 30 of this year.
d) IDC sold 100 bottles of carpet stain remover this year for $5 per bottle (it collected $500). IDC sold 40 bottles on June 1 and 60 bottles on November 2. IDC had the following carpet cleaning supplies on hand for this year, and IDC has elected to use the LIFO method of accounting for inventory under a perpetual inventory system: Purchase Date Bottles Total Cost November last year 40 $120 February this year 35 $112 July this year 25 $85 August this year 40 $140 Totals 140 $457
e) On August 1 of this year, IDC needed more room for storage and paid $900 to rent a garage for 12 months.
f) On November 30 of this year, Bryan decided it was time to get his logo on the sides of his work van. IDC hired We Paint Anything, Inc. (WPA), to do the job. It paid $500 down and agreed to pay the remaining $1,500 upon completion of the job. WPA indicated it wouldn’t be able to begin the job until January 15 of next year, but the job would only take one week to complete. Due to circumstances beyond its control, WPA wasn’t able to complete the job until April 1of next year, at which time IDC paid the remaining $1,500.
g) In December, Bryan’s son, Aiden, helped him finish some carpeting jobs. IDC owed Aiden $600 (reasonable) compensation for his work. However, Aiden did not receive the payment until January of next year.
h) IDC also paid $1,000 for interest on a short-term bank loan relating to the period from November 1 of this year through March 31 of next year.
In: Accounting
The Go-Shop Company wishes to introduce a new line of pressure cooker (PC) to the audience. The followings are the detailed of the new product:
|
Items |
Explanation |
|
Retail price |
RM759.00 per piece |
|
Fixed cost |
RM500,000 per year |
|
Variable cost |
25% of the retail price |
|
Working Capital Requirement |
Cash in hand: 1% of sales revenues |
|
Inventory: 1.5% of sales revenues |
|
|
Account receivables: 2% of sales revenues |
|
|
Account Payables: 3% of variable costs |
The project cost is expected to be RM1.2 million. The projected sales of the PC 2,000 units in the first year and expected to increase by 20% year on year until year 4, and then decline by 30% in the final year.
The project also requires the company to upgrade the showroom fixtures and fittings which will costs RM120,000, to be depreciated based on MACRS 5-year convention, and in Year 5, RM25,000 can be salvaged. The tax rate is 28% and cost of capital is 5.28%.
1. The book value of the fixtures and fittings at Year 5 is RM_________. (2 decimals)
2. The net proceed after tax of the fixtures and fittings at Year 5 is RM________. (2 decimals)
3 Earning Before Interest and Tax in Year 1 is RM__________. (2 decimals)
4 The Net Profit After Tax in Year 2 is RM____________. (2 decimals)
5 Sales Revenues in Year 3 is RM__________. (2 decimals)
6 . Variable Cost in Year 4 is RM_________. (2 decimals)
7 . Net Profit After Tax in Year 5 is RM__________. (2 decimals)
8 . Working Capital Requirement in Year 1 is RM___________. (2 decimals)
9 .Working Capital Requirement in Year 3 is RM___________. (2 decimals)
10 . Working Capital Requirement in Year 5 is RM___________. (2 decimals)
11. The initial outlay of the project is RM__________. (2 decimals)
12 . The cash flow/ free cash flow in Year 1 is RM____________. (2 decimals)
Item 14 is unpinned. Click to pin.
The cash flow/ free cash flow in Year 3 is RM____________. (2 decimals)
Answer value
Item at position 15
15
1 point
Item 15 is unpinned. Click to pin.
The cash flow/ free cash flow in Year 4 is RM____________. (2 decimals)
Answer value
Item at position 16
16
1 point
Item 16 is unpinned. Click to pin.
The cash flow/ free cash flow in Year 5 is RM____________. (2 decimals)
Answer value
Item at position 17
17
1 point
Item 17 is unpinned. Click to pin.
Total Present Value of the cash flow/ free cash flow is RM____________. (2 decimals)
Answer value
Item at position
Item 18 is unpinned. Click to pin.
The Net Present Value (NPV) of the project is RM__________. (2 decimals)
Answer value
Item at position 19
19
1 point
Item 19 is unpinned. Click to pin.
The Internal Rate of Return (IRR) of the project is __________%. (2 decimals)
Answer value
Item at position 20
20
1 point
Item 20 is unpinned. Click to pin.
Total Future Value of the cash flow/ free cash flow invested at the same rate is RM____________. (2 decimals)
Answer value
In: Finance
Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights to property that has strong potential for copper production from an open pit mine. Managers project the following net cash flows ($ millions):
Year 1: $0
Year 2: $0
Year 3: $19
Year 4: $29
Year 5: $28
Year 6: $22
After year 6, the copper mine will be played out and not profitable to continue mining.
Based on the risk of this project, the managers believe that an appropriate annual discount rate is 11%. What is the value of this project, based on this discount rate?
Express your answer in $ millions to 3 decimal places. (For example, type “10” for “$10 million” or “$10,000,000”; or 11.253 for “$11.253 million” or “$11,253,000”.)
In: Finance
Copperhead Resources Corp. is a Wyoming natural resources company. The managers are considering buying the rights to property that has strong potential for copper production from an open pit mine. Managers project the following net cash flows ($ millions):
Year 1: $0
Year 2: $0
Year 3: $12
Year 4: $30
Year 5: $35
Year 6: $18
After year 6, the copper mine will be played out and not profitable to continue mining.
Based on the risk of this project, the managers believe that an appropriate annual discount rate is 11%. What is the value of this project, based on this discount rate?
Express your answer in $ millions to 3 decimal places. (For example, type “10” for “$10 million” or “$10,000,000”; or 11.253 for “$11.253 million” or “$11,253,000”.)
In: Finance
Analysts on Wall Street get paid enormous amounts of money to leave their current firm and bring their clients and business with them to a new firm. The bonus structure for bringing new business to a firm was spread over 6 years. The average analyst was paid $16 million immediately to leave their old firm, $6.5 million at the end of year 1, $7 million at the end of year 2, $8.5 million at the end of year 3, $9 million at the end of year 4, $9 million at the end of year 5, and $11.5 million at the end of year 6. If the appropriate interest rate is 8% APR, what is the value of the deal today? Assume all payments other than the first $16 million are paid at the end of the year.
a. $38,754,932.47
b. $54,754,932.47
c. $49,209,439.75
d. $22,754,932.47
In: Finance
What would the journal entry be for these adjusting entries?
1. On October 1, the company loaned $3,000 to an officer who will repay the loan in one year at an annual interest rate of 12%.
2. On November 1, the company deposited $10,000 in a savings account that earned 3% interest per year.
3. Paid $1,100 for an 11-month insurance premium on July 1, this year. The entry in July increased the Prepaid insurance account.
4. Purchased equipment for $12,000 cash on January 1, this year; estimated a useful life of five years with a residual value of $2,000.
5. Unearned rent revenue of $900 was for rent for the period December 1, this year, to March 1, next year.
6. On July 1, the company took out a 1 year note for $3,000 at an interest rate of 10%
In: Accounting