Principles of Accounting II1. (Ignore income taxes in this problem.) Gull Inc. is considering the acquisition of equipment that costs $570,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are:Incremental net cash flowsYear 1$148,000Year 2$204,000Year 3$153,500Year 4$170,500Year 5$160,500Year 6$139,500If the discount rate is 10%, the net present value of the investment is closest to: (Use exhibit11b-1, exhibit11b-2) rev: 12_14_2012, 12_21_2012$406,000$262,884$143,116$713,1162.Jerston Company has an annual plant capacity of 3,000 units. Data concerning this product are given below:Annual sales at regular selling prices2,800 unitsManufacturing costs:Variable$26 per unitFixed (annual) $ 74,500Selling and administrative expenses:Variable (sales commissions) $ 9 per unitFixed (annual)$17,000The company has received a special order for 200 units at a selling price of $60 each. Regular sales would not be affected, and sales commissions on the 200 units would be reduced by one-third. This special order would have no impact on total fixed costs.Required:a.Determine the net advantage (disadvantage) for the special order. (Input the amount as a positivevalue.)(Click to select)$b. The company should accept the special order.YesNo3. Coakley Beet Processors, Inc., processes sugar beets in batches. A batch of sugar beetscosts $52 to buy from farmers and $14 to crush in the company’s plant. Two intermediateproducts, beet fiber and beet juice, emerge from the crushing process. The beet fiber canbe sold as is for $30.00 or processed further for $19.00 to make the end product industrialfiber that is sold for $39.00. The beet juice can be sold as is for $47.20 or processedfurther for $33.04 to make the end product refined sugar that is sold for $78. How muchprofit (loss) does the company make by processing the intermediate product beet juiceinto refined sugar rather than selling it as is?$(68.24)$(26.04)$(16.24)$(2.24)4.The Litton Company has established standards as follows:Direct material: 3 pounds per unit @ $5.20 per pound = $15.60 per unitDirect labor: 2 hours per unit @ $8 per hour = $16 per unitVariable manufacturing overhead: 2 hours per unit @ $3 per hour = $6 per unitActual production figures for the past year are given below. The company records the materials price variance whenmaterials are purchased.Units produced 1,800 unitsDirect material used 5,660 poundsDirect material purchased (6,660) pounds $23,976Direct labor cost (3,500 hours) 29,050Variable manufacturing overhead cost incurred $10,520The company applies variable manufacturing overhead to products on the basis of standard direct labor-hours.The materials quantity variance is:$260 F$1,352 U$5,660 U$260 U5. Financial statements of Ansbro Corporation follow:Comparative Balance SheetEnding BalanceBeginning BalanceAssets:Cash and cash equivalents$78$59Accounts receivable127102Inventory7253Property, plant and equipment658620Less accumulated depreciation402313Total assets$533$521Liabilities and stockholder’s equity:Accounts payable$79$106Bonds payable230236Common stock121118Retained earnings10361Total liabilities and stockholder’s equity$533$521Income StatementSales$875Cost of goods sold506Gross margin369Selling and administrative expenses209Net operating income160Income taxes48Net income$112Cash dividends were $70. The company did not dispose of any property, plant, and equipment. It did not issue any bonds payable or repurchase any of its own common stock. The following question pertain to the company’s statement of cash flows. The net cash provided by (used in) operating activities for the year was:$130$112$160$186. (Ignore income taxes in this problem.) Rushforth Manufacturing has $126,000 to invest in either Project A or Project B. The following data are available on these projects:Project AProject BCost of equipment needed now$126,000$58,000Working capital investment needed now$68,000Annual cash operating inflows$56,000$30,400Salvage value of equipment in 6 years$19,000Both projects will have a useful life of 6 years. At the end of 6 years, the working capital investment will be released for use elsewhere. Rushforth’s required rate of return is 11%. The net present value of Project B is: (Round your ‘PV factors’ to three decimal places. Round your other intermediate calculations and final answer to the nearest whole dollar.) (Use exhibit11b-1, exhibit11b-2) rev: 12_14_2012, 12_21_2012$13,860$70,622$39,002$2,6227. Carpon Lumber sells lumber and general building supplies to building contractors in a medium-sized town in Montana. Data regarding the store’s operations follow: • Sales are budgeted at $450,000 for November, $460,000 for December, and $480,000 for January. • Collections are expected to be 70% in the month of sale, 27% in the month following the sale, and 3% uncollectible. • The cost of goods sold is 75% of sales. • The company desires to have an ending merchandise inventory equal to 60% of the next month’s cost of goods sold. Payment for merchandise is made in the month following the purchase. • Other monthly expenses to be paid in cash are $26,600. • Monthly depreciation is $19,000. • Ignore taxes.Statement of Financial Position October 31AssetsCash$22,000Accounts receivable (net of allowance for uncollectible accounts)80,000Inventory202,500Property, plant and equipment (net of $609,000 accumulated depreciation)1,149,000Total assets$1,453,500Liabilities and Stockholders’ EquityAccounts payable$135,000Common stock700,000Retained earnings618,500Total liabilities and stockholders’ equity$1,453,500The accounts receivable balance, net of uncollectible accounts, at the end of December would be:$138,000$124,200$115,000$322,0008. LHU Corporation makes and sells a product called Product WZ. Each unit of Product WZ requires 1.6 hours of direct labor at the rate of $6.00 per direct labor-hour. Management would like you to prepare a Direct Labor Budget for June. The company plans to sell 19,500 units of Product WZ in June. The finished goods inventories on June 1 and June 30 are budgeted to be 600 and 140 units, respectively. Budgeted direct labor costs for June would be:$191,616$187,200$182,784$114,2409.Diorio Corporation keeps careful track of the time required to fill orders. The times recorded for a particular order appear below:HoursMove time4.6Wait time24.9Queue time7.2Process time3.3Inspection time0.2The throughput time was:32.1 hours40.2 hours15.3 hours8.1 hours10. (Ignore income taxes in this problem.) Czaplinski Corporation is considering a project that would require an investment of $823,000 and would last for 6 years. The incremental annual revenues and expenses generated by the project during those 6 years would be as follows:Sales$224,000Variable expenses30,000Contribution margin194,000Fixed expenses:Salaries29,000Rents21,000Depreciation83,000Total fixed expenses133,000Net operating income$61,000The scrap value of the project’s assets at the end of the project would be $42,000. The payback period of the project is closest to:6.6 years5.7 years12.9 years13.5 years11. The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $744,000. If these microcomputers are upgraded at a total cost of $103,000, they can be sold for a total of $208,000. As an alternative, the microcomputers can be sold in their present condition for $51,200. Suppose the selling price of the upgraded computers has not been set. At what selling price per unit would the company be as well off upgrading the computers as if it just sold the computers in their present condition? (Round your answer to one decimal place.)$308.4$795.2$216.24$102.412. Aide Industries is a division of a major corporation. Data concerning the most recent year appears below:Sales $18,000,000Net operating income $918,000Average operating assets $4,600,000The division’s margin is closest to:30.7%20.0%25.6%5.1%13.Eckels Wares is a division of a major corporation. The following data are for the latest year of operations:Sales $ 32,400,000Net operating income $ 1,782,000Average operating assets $ 12,000,000The company’s minimum required rate of return 12 %Required:a. What is the division’s margin? (Round your answer to 2 decimal places.)Margin %b. What is the division’s turnover? (Round your answer to 2 decimal places.)Turnover timesc.What is the division’s return on investment (ROI)? (Do not round intermediate calculations andround your final answer to 2 decimal places.)Return on investment %d. What is the division’s residual income?Residual income $14.Gentile Corporation makes a product with the following standard costs:StandardQuality or HoursStandard Price orRateInputsDirect materials 7.5 kilos $6.00 per kiloDirect labor 0.9 hours $12.40 per hourVariable overhead 0.9 hours $6.90 per hourThe company produced 6,100 units in May using 38,530 kilos of direct material and 4,600 directlabor-hours. During the month, the company purchased 40,870 kilos of the direct material at$7.30 per kilo. The actual direct labor rate was $18.90 per hour and the actual variable overheadrate was $6.60 per hour.The company applies variable overhead on the basis of direct labor-hours. The direct materialspurchases variance is computed when the materials are purchased.The variable overhead efficiency variance for May is:$6,141 U$5,874 F$6,141 F$5,874 U15.(Ignore income taxes in this problem.) Farah Corporation has provided the following data concerning aproposed investment project:Initial investment $ 460,000Life of the project 9 yearsWorking capital required $ 15,000Annual net cash inflows $ 92,000Salvage value $ 48,000The company uses a discount rate of 12%. The working capital would be released at the end of theproject.Required:Compute the net present value of the project. (Round “PV Factor” to 3 decimal places. Round yourother intermediate calculations and final answers to the nearest whole dollar.)(Use Exhibit 11B-1,Exhibit 11B-2)Net present value $16. The West Division of Shekarchi Corporation had average operating assets of $622,000 andnet operating income of $80,300 in March. The minimum required rate of return for performanceevaluation purposes is 15%.What was the West Division’s residual income in March?-$12,045-$13,000$13,000$12,04517. (Ignore income taxes in this problem.) Sibble Corporation is considering the purchase of a machine that would cost $320,000 and would last for 5 years. At the end of 5 years, the machine would have a salvage value of $49,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $74,000. The company requires a minimum pretax return of 12% on all investment projects. The net present value of the proposed project is closest to: (Round your ‘PV factors’ to three decimal places.) (Use Exhibit11B-1 and Exhibit11B-2) rev: 12_14_2012-$25,447-$4,230-$41,958-$53,23018. A customer has requested that Inga Corporation fill a special order for 3,200 units of product K81 for $27 a unit. While the product would be modified slightly for the special order, product K81’s normal unit product cost is $22.10:Direct materials$6.00Direct labor4.60Variable manufacturing overhead3.30Fixed manufacturing overhead8.20Unit product cost$22.10Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like modifications made to product K81 that would increase the variable manufacturing costs by $1.50 per unit and that would require an investment of $11,200 in special molds that would have no salvage value. This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company’s overall net operating income would increase (decrease) by:$(320)$15,680$25,920$(22,720)19. Diltex Farm Supply is located in a small town in the rural west. Data regarding the store’s operations follow: • Sales are budgeted at $280,000 for November, $260,000 for December, and $270,000 for January. • Collections are expected to be 65% in the month of sale, 32% in the month following the sale, and 3% uncollectible. • The cost of goods sold is 60% of sales. • The company desires to have an ending merchandise inventory at the end of each month equal to 50% of the next month’s cost of goods sold. Payment for merchandise is made in the month following the purchase. • Other monthly expenses to be paid in cash are $25,500. • Monthly depreciation is $16,500. • Ignore taxes.Statement of Financial Position October 31AssetsCash$22,000Accounts receivable (net of allowance for uncollectible accounts)78,000Merchandise inventory84,000Property, plant and equipment (net of $50 accumulated depreciation)962,000Total assets$1,146,000Liabilities and Stockholder’ EquityAccounts payable$130,000Common stock900,000Retained earnings116,000Total liabilities and stockholder’ equity$1,146,000Accounts payable at the end of December would be:$159,000$78,000$156,000$81,00020. Newburn Corporation’s most recent balance sheet appears below:Comparative Balance SheetEnding BalanceBeginning BalanceAsset:Cash and cash equivalents$52$46Accounts receivable7967Inventory6373Property, plant and equipment526480Less accumulated depreciation233220Total assets$487$446Liabilities and stockholders’ equity:Accounts payable$66$73Bonds payable326360Common stock6160Retained earnings34(47)Total liabilities and stockholders’ equity.$487$446The company’s net income for the year was $86 and it did not sell or retire any property, plant, and equipment during the year. Cash dividends were $5. The net cash provided by (used in) investing activities for the year was:$(46)$(13)$13$4621. Nussey Clinic uses client-visits as its measure of activity. During May, the clinic budgeted for 2,600 client-visits, but its actual level of activity was 2,530 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for May:Data used in budgeting:Fixed element per monthVariable element per client-visitRevenue−$52.00Personal expenses$18,95011.60Medical supplies6757.30Occupancy expenses5,6001.40Administrative expenses3,6000.50Total expenses$ 28,825$ 20.80Actual results for May:Revenue$134,090Personal expenses$47,000Medical supplies$19,500Occupancy expenses$9,042Administrative expenses$4,100The spending variance for occupancy expenses in May would be closest to:$100 F$100 U$198 U$198 F22. Schleich Corporation’s most recent balance sheet appears below:Comparative Balance SheetEnding BalanceBeginning BalanceAssets:Cash and cash equivalents$91$61Accounts receivable5339Inventory5669Property, plant and equipment749578Less accumulated depreciation276255Total assets$673$492Liabilities and stockholder’s equity:Accounts payable$65$79Accrued liabilities3223Income taxes payable5243Bonds payable163218Common stock9988Retained earnings26241Total liabilities and stockholder’s equity$673$492Net income for the year was $282. Cash dividends were $61. The company did not sell or retire any property, plant, and equipment during the year. The net cash provided by operating activities for the year was:$416$367$306$2423. Last year Burford Company’s cash account decreased by $31,800. Net cash used in investing activities was $10,500. Net cash provided by financing activities was $24,300. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:$13,800$(45,600)$(31,800)$(18,000)24. The Varone Company makes a single product called a Hom. The company has the capacity to produce 46,000 Homs per year. Per unit costs to produce and sell one Hom at that activity level are:Direct materials$35Direct labor$25Variable manufacturing overhead$20Fixed manufacturing overhead$7Variable selling & administrative expense$23Fixed selling & administrative expense$7The regular selling price for one Hom is $135. A special order has been received at Varone from the Fairview Company to purchase 9,500 Homs next year at 15% off the regular selling price. If this special order were accepted, the variable selling expense would be reduced by 25%. However, Varone would have to purchase a specialized machine to engrave the Fairview name on each Hom in the special order. This machine would cost $13,500 and it would have no use after the special order was filled. The total fixed costs, both manufacturing and selling, are constant within the relevant range of 34,500 to 46,000 Homs per year. Assume direct labor is a variable cost. If Varone can expect to sell 32,000 Homs next year through regular channels, at what special order price from Fairview should Varone be economically indifferent between either accepting or not accepting this special order? (Round your answer to two decimal places.)$103.00$105.72$98.67$114.7525. Young Enterprises has budgeted sales in units for the next five months as follows:June5,900 unitsJuly8,500 unitsAugust6,700 unitsSeptember8,100 unitsOctober5,100 unitsPast experience has shown that the ending inventory for each month should be equal to 24% of the next month’s sales in units. The inventory on May 31 fell short of this goal since it contained only 1,400 units. The company needs to prepare a Production Budget for the next five months. The total number of units to be produced in July is:8,068 units10,108 units8,932 units8,500 units26. The Gomez Company, a merchandising firm, has budgeted its activity for December according to the following information: • Sales at $540,000, all for cash. • Merchandise Inventory on November 30 was $270,000. • The cash balance at December 1 was $24,000. • Selling and administrative expenses are budgeted at $32,000 for December and are paid for in cash. • Budgeted depreciation for December is $26,000. • The planned merchandise inventory on December 31 is $280,000. • The cost of goods sold represents 62% of the selling price. • All purchases are paid for in cash.The budgeted cash receipts for December are:$205,200$566,000$540,000$334,80027.Yewston Hotel bases its budgets on guest-days. The hotel’s static budget for April appears below:Budgeted number of guest-days3,800Budgeted variable costs:Supplies (@$3.60 per guest-day)$13,680Laundry (@$9.60 per guest-day)36,480Total variable cost50,160Budgeted fixed costs:Wages and salaries17,480Occupancy costs57,000Total fixed cost74,480Total cost$124,640The total variable cost at the activity level of 5,450 guest-days per month should be:$71,940$159,140$50,160$67,64028. Austin Wool Products purchases raw wool and processes it into yarn. The spindles of yarn can then be sold directly to stores or they can be used by Austin Wool Products to make afghans. Each afghan requires one spindle of yarn. Current cost and revenue data for the spindles of yarn and for the afghans are as follows:Data for one spindle of yarn:Selling price$20Variable production cost$12.0Fixed production cost (based on 4,800 spindles of yarn produced)$6.0Data for one afghan:Selling price$56Production cost per spindle of yarn$18Variable production cost to process the yarn into an afghan$17Avoidable fixed production cost to process the yarn into an afghan (based on 4,800 afghans produced)$9.0Each month 4,800 spindles of yarn are produced that can either be sold outright or processed into afghans. If Austin chooses to produce 4,800 afghans each month, the change in the monthly net operating income as compared to selling 4,800 spindles of yarn is:$48,000 decrease.$57,600 decrease.$48,000 increase.$57,600 increase.29. Resendes Refiners, Inc., processes sugar cane that it purchases from farmers. Sugar cane is processed in batches. A batch of sugar cane costs $53 to buy from farmers and $21 to crush in the company’s plant. Two intermediate products, cane fiber and cane juice, emerge from the crushing process. The cane fiber can be sold as is for $31.50 or processed further for $20.75 to make the end product industrial fiber that is sold for $41.75. The cane juice can be sold as is for$38.00 or processed further for $26.60 to make the end product molasses that is sold for $86. How much profit (loss) does the company make by processing the intermediate product cane juice into molasses rather than selling it as is?$(0.40)$21.40$52.60$(14.35)30. Tolentino Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During November, the kennel budgeted for 3,300 tenant-days, but its actual level of activity was 3,340 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for November:Data used in budgeting:Fixed element per monthVariable element per tenant-dayRevenue−$29.40Wages and salaries$2,100$6.30Expendables80010.60Facility expenses7,6003.10Administrative expenses5,8000.30Total expenses$16,300$20.30Actual results for November:Revenue$92,996Wages and salaries$22,582Expendables$37,560Facility expenses$14,060Administrative expenses$6,455The net operating income in the flexible budget for November would be closest to:$30,030$30,394$14,094$13,73031. Hocking Corporation’s comparative balance sheet appears below:Ending BalanceBeginning BalanceAssets:Current assets:Cash and cash equivalents$70,800$31,200Accounts receivable26,80033,200Inventory69,80068,200Prepaid expenses14,80018,200Total current assets182,200150,800Property, plant and equipment373,000347,000Loss accumulated depreciation169,600145,000Net property, plant, and equipment203,400202,000Total assets$385,600$352,800Liabilities and Stockholder’s Equity:Current liabilities:Accounts payable$20,200$15,200Accrued liabilities68,20056,200Income taxes payable57,20053,200Total current liabilities145,600124,600Bonds payable85,20087,200Total liabilities230,800211,800Stockholder’s equity:Common stock34,80030,000Retained earnings120,000111,000Total stockholder’s equity154,800141,000Total liabilities and stockholder’s equity$385,600352,800The company’s net income (loss) for the year was $11,600 and its cash dividends were $2,600. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities. The company’s net cash provided by operating activities is:$65,400$28,000$67,000$52,20032. (Ignore income taxes in this problem.) Rogers Company is studying a project that would have a ten-year life and would require an $1,100,000 investment in equipment which has no salvage value. The project would provide net operating income each year as follows for the life of the project:Sales$650,000Less cash variable expenses122,000Contribution margin528,000Less fixed expenses:Fixed cash expenses$260,000Depreciation expenses92,000352,000Net operating income$176,000The company’s required rate of return is 8%. What is the payback period for this project? (Round your answer to two decimal places.)6.25 years4.10 years2.08 years3.09 years33. The following transactions occurred last year at Jogger Company:Issuance of shares of the company’s own common stock.$116,000Dividends paid to the company’s own shareholders$3,600Sale of long-term investment$4,600Interest paid to lenders$9,200Retirement of the company’s own bonds payable$106,000Proceeds from sale of the company’s used equipment$30,800Purchase of new equipment$174,500Based solely on the above information, the net cash provided by financing activities for the year on the statement of cash flows would be:$(2,800)$444,700$(146,800)$6,400
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