Saturday, April 18, 2015

BU330 Accounting


Part 1:

Factoring resource constraints into product mix decisions

Rose Incorporated manufactures two types of vases, small and large. The following per-unit data are available.

Small Vase Large Vase
Sale price $60 $100
Variable costs $35 $60
Machine hours required for 1 vase 1 2

Total fixed costs are $600,000, and Rose Incorporated can sell a maximum of 25,000 units of each type of vase annually. Machine hour capacity is 50,000 hours per year.

a. Determine the contribution margin per unit for each type of vase.
b. Determine the contribution margin per machine hour for each type of vase.
c. Determine the number of units of each style of vase that Rose Incorporated should produce to maximize operating income.
d. What is the dollar amount of the maximum operating income as calculated in C above?

Part 2:

Financial Statement Analysis

The following information relates to Harris Corporation.

Account Current year Prior year
Net sales (all credit) $520,125 $499,500
Cost of goods sold $375,960 $353,600
Gross profit $144,165 $145,900
Income from operations $ 95,500 $ 79,900
Interest expense $ 23,500 $ 19,500
Net income $ 57,600 $ 51,600
Cash $ 30,600 $ 15,900
Accounts receivable, net $ 33,800 $ 23,200
Inventory $ 42,000 $ 30,300
Prepaid expenses $ 2,000 $ 1,500
Total current assets $ 108,400 $ 70,900
Total long-term assets $ 62,000 $ 38,000
Total current liabilities $ 46,000 $ 41,600
Total long-term liabilities $ 20,000 $ 22,700
Common stock, no par,
3,000 shares, value $50/share $ 30,000 $ 30,000

Required:

a. What is the acid-test ratio for the current year?
b. What is the inventory turnover for the current year?
c. What is days' sales in receivables for the current year?
d. What is the book value per share of common stock for the current year?
e. What is the price-earnings ratio for the current year?
f. What is the rate of return on total assets for the current year?
g. What is the times-interest-earned ratio for the current year?
h. What is the current ratio for the current year?


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Alliance is considering automating their production process to become more efficient

Alliance is considering automating their production process to become more efficient. In order to do so they will buy a new monorail manufacturing system at a cost of $500,000. The system will be depreciated using seven-year MACRS (15%, 25%, 17%, 12%, 9%, 9%, 9%, 4%). The system will be sold in five years for $200,000. If they buy the system they will Trade In their current trolleys for $100,000. The trolleys were originally bought four years ago for $500,000 and are being depreciated using straight-line depreciation over five years. If Alliance does not replace the trolleys, they will be kept for the next five years when they will be sold for $10,000. The new system will not affect Alliance’s sales but will reduce Costs of Goods Sold by $1,000,000. However, Fixed Costs will rise by $50,000 per year if the monorail system is installed. The tax rate is 40%. What are the incremental cash flows associated with this proposed project?
Balance Sheet Effects |----------Depreciation Expenses-------------|
Today Year 1 Year 2 Year 3 Year 4 Year 5 End
1. Buy New Assets
2. Trade In Old Assets
3. Keep Old Assets
4. Change in NWC
Income Statement Effects
Year 1 Year 2 Year 3 Year 4 Year 5
Net Sales
- Net COGS
- Net Depreciation
- Net Fixed Costs
= Net OEBT
- Net Taxes
= Net OEAT
+ Net Depreciation
= Net Operating CF
Total Cash Flows
CF0 =
C01 =
C02 =
C03 =
C04 =
C05 =
C06 =
1. What is the Initial Cost of this project?
a) $300,000
b) $400,000
c) $500,000
d) $600,000
2. What is net depreciation expense on the income statement in Year 1?
a) -$75,000
b) -$25,000
c) $100,000
d) $175,000
3. What is the After Tax Salvage Value of selling the equipment at the end?
a) $164,000
b) $182,000
c) $218,000
d) $236,000
4. What is the Operating Cash Flow in Year 2
a) $430,000
b) $510,000
c) $560,000
d) $620,000
5. What is the NPV of this project?
a) $500,000
b) $1,000,000
c) $1,500,000
d) $2,000,000
Kaffie Frederick is considering an expansion of it's operations by introducing a new product line. In order to expand, they will have to buy new machinery for $1,000,000. The machinery will be depreciated using three-year MACRS (33%, 45%, 15%, 7%). In four years they will be able to sell the machinery for $250,000. If they go through with the planned expansion, Sales of the new product will be $750,000 per year and sales of the old product will rise by $50,000 per year. Variable Costs on the new product are 75% of new product sales while variable costs on the old product are 65% of old product sales. The new project will require additional fixed costs of $20,000 per year. The tax rate is 40%. What are the incremental cash flows associated with this proposed project?
Balance Sheet Effects
Today Year 1 Year 2 Year 3 Year 4 Year 5 End
1. Buy New Assets
2. Trade In Old Assets
3. Keep Old Assets
4. Change in NWC
Income Statement Effects
Year 1 Year 2 Year 3 Year 4 Year 5
Net Sales
- Net COGS
- Net Depreciation
- Net Fixed Costs
= Net OEBT
- Net Taxes
= Net OEAT
+ Net Depreciation
= Net Operating CF
Total Cash Flows
CF0 =
C01 =
C02 =
C03 =
C04 =
C05 =
C06 =
6. What is the Initial Cost of this project?
a) $500,000
b) $1,000,000
c) $1,500,000
d) $2,000,000
7. What is net depreciation expense on the income statement in Year 1?
a) $175,000
b) $250,000
c) $330,000
d) $475,000
8. What is the After Tax Salvage Value of selling the equipment at the end?
a) $110,000
b) $150,000
c) $175,000
d) $215,000
9. What is the Operating Cash Flow in Year 2
a) $238,000
b) $291,000
c) $363,000
d) $422,000
10. What is the IRR of this project?
a) 0%
b) 5%
c) 10%
d) 15%



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Thursday, April 16, 2015

Managerial Accounting: Tools for Business Decision Making

BYP2-2 In the course of routine checking of all journal entries prior to preparing year-end reports, Diane Riser discovered several strange entries. She recalled that the president's son Ron had come in to
help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Ron made were: 1. Work in
Process Inventory 25,000 Cash 25,000 (This is for materials put into process. I don't find the record that we paid for these, so I'm crediting Cash, because I know we'll have to pay for them sooner or later.) 2. Manufacturing Overhead 12,000 Cash 12,000 (This
is for bonuses paid to salespeople. I know they're part of overhead, and I can't find an account called “Non-factory Overhead” or “Other Overhead” so I'm putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.) 3. Wages Expense
120,000 Cash 120,000 (This is for the factory workers' wages. I have a note that payroll taxes are $15,000. I still think that's part of wages expense, and that we'll have to pay it all in cash sooner or later, so I credited Cash for the wages and the taxes.)
4. Work in Process Inventory 3,000 Raw Materials Inventory 3,000 (This is for the glue used in the factory. I know we used this to make the products, even though we didn't use very much on any one of the products. I got it out of inventory, so I credited an
inventory account.) Instructions (a) How should Ron have recorded each of the four events? (b) If the entry was not corrected, which financial statements (income statement or balance sheet) would be affected? (C) What balances would be overstated or understated?



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A manufacturing company is thinking of launching a new product.

A manufacturing company is thinking of launching a new product. The company expects to sell $950,000 of the new product in the first year and $1,500,000 each year thereafter. Direct costs including labor and materials will be 45% of sales. Indirect incremental costs are estimated at $95,000 a year. The project requires a new plant that will cost a total of $1,500,000, which will be a depreciated straight line over the next 5 years. The new line will also require an additional net investment in inventory and receivables in the amount of $200,000.
Assume there is no need for additional investment in building the land for the project. The firm's marginal tax rate is 35%, and its cost of capital is 10%.
To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values.
Assignment Guidelines
Using the information in the assignment description:
Prepare a statement showing the incremental cash flows for this project over an 8-year period.
Calculate the payback period (P/B) and the net present value (NPV) for the project.
Answer the following questions based on your P/B and NPV calculations:
Do you think the project should be accepted? Why?
Assume the company has a P/B (payback) policy of not accepting projects with life of over 3 years.
If the project required additional investment in land and building, how would this affect your decision? Explain.
Your submitted assignment (125 points) must include the following:
A double-spaced Word document of 2–3 pages that contains your calculation values, your complete calculations, any formulae that you used, and your answers to the two questions listed in the assignment guidelines.
You must include your explanation of how you used Excel for your calculations if applicable.

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What is Plato’s Inc.’s weighted average cost of capital (WACC) given the following information? Dollar amounts are in millions

26. What is Plato’s Inc.’s weighted average cost of capital (WACC) given the following information? Dollar amounts are in millions. There are two debt components and YTM (yield to maturity) for these two components are: 4% for notes due in May 2015, and 6% for notes due in January 2020. The risk-free rate is 3%, and market risk premium is 8%. The company has a beta of 1.5. The firm’s tax rate is 35%. (7 points)
Book Value Market Value
Notes due 2015 15 17
Notes due 2020 12 16
Equity 54 74
Total 81 107
27. Calculate the traditional payback period, IRR, NPV, and PVI (present value index) for the project with the following cash flows. The opportunity cost of capital for the project is 14%. (8 points)
Cash
Year Flows
0 -1,500,000
1 400,000
2 600,000
3 550,000
4 450,000
5 200,000
28. Calculate the relevant cash flows (for each year) for the following capital budgeting proposal. Enter the total net cash flows for each year in the answer sheet. (10 points)
• $90,000 initial cost for machinery;
• depreciated straight-line over 4 years to a book value of $10,000;
• 35% marginal tax rate;
• $55,000 additional annual revenues;
• $25,000 additional annual cash expense;
• annual expense for debt financing is $7,500.
• $3,500 previously spent for engineering study;
• The project requires inventory increase by $32,000 and accounts payable increase by $14,000 at the beginning of the project;
• The investment in working capital occurs one time at the beginning of the project and it requires working capital return to the original level when the project ends in 4 years;
• 11% cost of capital;
• life of the project is 4 years; and
• The new equipment will be sold at the end of 4 years; expected market value of the new equipment at the end of 4 years is $15,000;
29. You are analyzing a capital budgeting project and, as shown by ???, some numbers are unreadable. You can read the following information:
Cash Flows at the end of:
Year 0 = -$25,000
Year 1 = +$8,000
Year 2 = +$ 6,000
Year 3 = +$ 2,600
Year 4 = $ ???
Year 5 = +$ 9,500
The Cost of Capital is 13%, the NPV = -$5,650.01 and the IRR = ???%. Your superior, ignoring the important fact that we should reject the project, is demanding to know the Cash Flow in Year 4.
Calculate the cash flow in Year 4. (5 points)
31. For the following project, calculate the NPV break-even level of annual revenue, assuming that the operating cash flows will be stable for an 8 year horizon and that the discount rate is 12%. (10 points)
• The project requires an initial investment of $600,000.
• Expected annual sales are $770,000.
• Annual fixed costs (excluding depreciation and any other non cash expenses) will be $100,000.
• Straight-line depreciation of the initial investment over 8 years to a book value of 0.
• Variable costs (all of which are cash expenses) of 65% of revenues.
• Working capital will not be affected.
• Market values for salvage purposes in 8 years are estimated to be $40,000.
• 35% tax rate.


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Objective: To analysis the financial statements of a publicly traded company

Objective: To analysis the financial statements of a publicly traded company.
Obtain an annual report from a corporation that is interesting to you. Using techniques you have learned in the previous weeks, respond to the following questions:
1. Who are the firm’s auditors? Do they provide a clean opinion on the financial statements?
2. Have there been any subsequent events, errors and irregularities, illegal acts, or related-party transactions that have a material effect on the financial statements?
3. Describe the trend in total assets and total liabilities for the years presented.
4. What are the company’s three largest assets for the most recent year presented? 
5. What are the company’s three largest liabilities for the most recent year presented? 
6. What types of stock does the company have? How many shares are there outstanding for each type of stock for the most recent year presented?
7. Does the company use the single-step or multiple-step income statement or a variation?
8. Does the income statement contain any separately reported items in any year presented, included discontinued operations or extraordinary items? If it does, describe the even that caused the item. Hint: there should be a related footnote.
9. Describe the trend in net income over the years presented.
10. Does the company have other comprehensive income? If yes, what is the nature of the transaction(s)?
11. Does the company use the indirect or direct method of the cash flow statement?
12. What is the trend in cash from operations for the years presented?
13. What are the 2 largest items included in cash from investing activities? 

Guidelines
• Papers must 8 to 10 pages in length (this would be roughly 1/2 page per area included in the report), 10 point font, double-spaced, include a cover page, table of contents, introduction, body of the report, summary or conclusion and works cited. 
• Even though this is not a scientific-type writing assignment, references are still very important. At least 3 authoritative, outside references are required (anonymous authors or web pages are not acceptable). These should be listed on the last page titled "Works Cited". 
• Appropriate citations are required. 
• All DeVry University policies are in effect including the plagiarism policy. 
• Papers are due during Week 6 of this course. 
• Any questions about this paper may be discussed in the weekly Q&A Discussion topic. 
• This paper is worth 155 total points and will be graded on quality of research topic, quality of paper information, use of citations, grammar and sentence structure.

Grading Rubrics
Category Points % Description
Documentation & Formatting 15 10
Organization & Cohesiveness 15 10
Editing 15 10
Content 110 70
Total 155 100 A quality paper will meet or exceed all of the above requirements.

Best Practices
The following are the best practices in preparing this paper. 
• Cover Page - Include who you prepared the paper for, who prepared, and date.
• Table of Contents - List the main ideas and section of your paper and the pages in which they are located. The illustrations should be included separately. 
• Introduction - Use a header on your paper. This will indicate you are introducing your paper. 

The purpose of an introduction or opening:
1. Introduce the subject and why the subject is important. 
2. Preview the main ideas and the order in which they will be covered. 
3. Establish a tone of the document.
Include in the introduction a reason for the audience to read the paper. Also, include an overview of what you are going to cover in your paper and the importance of the material. (This should include or introduce the questions you are asked to answer on each assignment.)
• Body of Your Report - Use a header titled with the name of your project. Example: “An Analysis of the Financial Statements of Nike”. Then proceed to break out the main ideas. State the main ideas, state major points in each idea, provide evidence. Break out each main idea you will use in the body of your paper. Show some type of division like separate sections that are labeled; separate group of paragraphs; or headers. You would include the information you found during your research and investigation.
• Summary and Conclusion - Summarizing is similar to paraphrasing but presents the gist of the material in fewer words than the original. An effective summary identifies the main ideas and major support points from the body of your report. Minor details are left out. Summarize the benefits of the ideas and how they affect the tourism industry. 
• Work Cited - Use the citation format as specified in the Syllabus.


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Wednesday, April 15, 2015

For the following types of income, determine if represents active income, portfolio income or passive income

Question 1 (6 points) Question 1 Unsaved For the following types of income, determine if represents active income, portfolio income or passive income. Question 1 options:
123 Investment in a limited limited liability company where the only involvement is attending one annual meeting 123 Self employment income 123 Investment as a limited partner in a partnership 123 Dividends 123 Wages from a job 123 Interest 1. Active Income
2. Portfolio Income 3. Passive income Save Question 2 (1 point) Question 2 Unsaved Question 2 options: In 2014, Eric B. purchased for $500,000 a 20% interest in a business venture that is not subject to the passive activity rules. During 2014, his share of
the entity’s loss was $400,000. How much is Eric at risk for in 2014 prior to considering the loss?  Question 3 (1 point) Question 3 Unsaved Question 3 options: Refer to question #2. How much of the $400,000 loss in 2014 can Eric deduct?
Question 3 options:Refer to question #2.How much of the $400,000 loss in 2014 can Eric deduct?
Question 4 (1 point)
Question 4  4 options:Use the information from questions 2 & 3 to answer this question.At the beginning of 2015, the entity obtained $1,000,000 of recourse financing. During 2015, Eric withdrew cash of $30,000, and his share of the entity’s loss was $20,000.How much is Eric at risk for at the end of 2015?Question 5 (1 point)
Question 5  5 options:In 2014, Andy has passive income of $100,000 and passive losses of $250,000.How much of the passive losses can Andy deduct in 2014?Question 6 (1 point)
Question 6  6 options:Refer back to question 5.In 2015 Andy generates $200,000 of passive income and $40,000 of passive losses.How much passive loss in total can Andy deduct in 2015?
Question 7 (1 point)
Question 7  7 options:Sherry rents her vacation home for 6 months and lives in it for 6 months during the year. Her gross rental income during the year is $4,000. Total real estate taxes for the home are $950, and interest on the home mortgage is $3,000. Annual utilities and maintenance expenses total $1,800, and depreciation expense is $4,500. Calculate Sherry's net income or loss from the vacation home for this tax year.Question 8 (1 point)
Question 8  8 options:In June of 2014, Keith accepts a new job with the same employer in San Diego. He formerly commuted 12 miles to a job in Canton, OH; San Diego is 2,150 miles from his old home. He incurs the following expenses in his move from Ohio in 2014:Moving and Packing Charges $5,100Travel during the move (including mileage at $0.235 per mile) $600Lodging during the move $900Meals during the move $300Total $6,900Keith is not reimbursed for any of these expenses by his employer. What is the amount of Keith's moving expense deduction?Question 9 (1 point)
Question 9  9 options:
What is the maximum amount a 45-year-old taxpayer and 45-year-old spouse can put into a Traditional or Roth IRA for 2014 (assuming they have sufficient earned income, but do not have an income limitation and are not covered by another pension plan)?
10 (1 point)
Question 10  10 options:Anthony, a self-employed plumber, makes a maximum contribution to his SEP. His net earned income is $40,000. How much is he allowed to contribute to the plan?Question 11 (1 point)
Question 11  11 options:Allen (age 32) takes a distribution of $20,000 from his Traditional IRA account which he plans to deposit into an IRA with a different bank. During the 60-day rollover period, he gambles and loses the entire IRA balance. What income must he show on his tax return related to the failed rollover?Question 12 (1 point)
Question 12  12 options:Refer to Allen's situation above. How much must Allen pay in penalties for withdrawing the funds from the IRA and not repaying within 60 days?

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