Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago

BYP 9-6 Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago. At the time, the company was reporting lagging profits, and Robert was brought in to "stir thing up." The company has three divisions, electronics, fiber optics, and plumbing supplies. Robert has no interest in plumbing supplies, and one of the first fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable, net income. Robert felt that this reallocation would shine a favorable light on him in front of the board of directors because it meant that the electronics and fiber optics divisions would look like they were improving.

Given that these are "business of the future," he believed that the stock market would react favorably to these increase, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of fixed costs, the profits of the electronics and fiber optics divisions would not have improved. But now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Phelps their whole lives, would lose their jobs.

Instructions
(a) If a division is reporting losses, does that necessarily mean that it should be closed?
(b) Was the reallocation of fixed costs across division unethical?
(c)What should Robert do?

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A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000

A few years ago, Largo Industries implemented an inventory auditing system at an installed cost of $175,000. Since then, it has taken depreciation deductions totaling $124,250. What is the system's current book value? If Largo sold the system for $110,000 how much recaptured depreciation would result?


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Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000

16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.

a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?


Click here for the solution: Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000

A machine was purchased two years ago for $120,000 and can be sold for $50,000 today

A machine was purchased two years ago for $120,000 and can be sold for $50,000 today. The machine has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gains. Find the firm's tax liability (benefit), if any.


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Steinar loaned a friend $9,500 to buy some stock 3 years ago

Steinar loaned a friend $9,500 to buy some stock 3 years ago. In the current year the debt became worthless.
a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.)
b. What can Steinar do with the deduction not used this year?


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Conda Products Company implemented a JIT work environment in its trowel division eight months ago, and the division has been operating at near capacity since then

E 12. Conda Products Company implemented a JIT work environment in its trowel division eight months ago, and the division has been operating at near capacity since then. At the beginning of May, Work in Process Inventory and Finished Goods Inventory had zero balances. The following transactions took place last week:

May 28 Ordered, received, and used handles and sheet metal costing $11,340.
29 Direct labor costs incurred, $5,400.
29 Overhead costs incurred, $8,100.
30 Completed trowels costing $24,800.
31 Sold trowels costing $24,000.

Using backflush costing, calculate the ending balance in the Work in Process Inventory and Finished Goods Inventory accounts


Click here for the solution: Conda Products Company implemented a JIT work environment in its trowel division eight months ago, and the division has been operating at near capacity since then

A few years ago, Brown Corp. purchased equipment for $20,000,000

A few years ago, Brown Corp. purchased equipment for $20,000,000. Western uses straight-line depreciation for financial reporting and MACRS for tax purposes. At December 31, 2008, the carrying value of the equipment was $18,000,000 and its tax basis was $15,000,000. At December 31, 2009, the carrying value of the equipment was $16,000,000 and the tax basis was $11,000,000. There were no other temporary differences and no permanent differences. Pretax accounting income for the current year was $25,000,000. A tax rate of 35% applies to all years.

Required:
Prepare one journal entry to record Brown's income tax expense for the current year. Show well-labeled computations for the income tax payable and the change in the deferred tax account.

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Ed Koehler started Great Southern Furniture five years ago to assemble prefabricated bedroom furniture for large hotel chains

P 12–15: Great Southern Furniture

Ed Koehler started Great Southern Furniture five years ago to assemble prefabricated bedroom furniture for large hotel chains. Hotels purchase furniture (beds, night stands, and chests of drawers) from manufacturers who ship the furniture to the hotels unassembled. Koehler sends a site supervisor and a small crew of employees to the hotel. The site supervisor first hires additional local employees to help assemble the furniture and then trains them. The locally hired employees along with the small crew of Great Southern employees assemble the furniture at the hotel. This significantly reduces the shipping charges and damage to the furniture. Before sending a crew to the site, Koehler has a crew in his office assemble several sets to make sure there are no problems and also to estimate the expected time required to assemble the particular furniture. The 500-room Hyatt opens in Tampa and Koehler sends a crew to assemble the 500 bedroom sets. He establishes that 4.5 hours are required to assemble one complete room and the estimated cost per hour is $22. Upon completing the job, the crew reports they had total wages of $49,693 for 2,170 hours worked.

Required:
Write a report evaluating the performance of the crew at the Hyatt in Tampa.

Click here for the solution: Ed Koehler started Great Southern Furniture five years ago to assemble prefabricated bedroom furniture for large hotel chains

Various Questions: Viva Inc. had bought machine X for $15,500 two years ago

1) Viva Inc. had bought machine X for $15,500 two years ago. The machine had no residual value and had an estimated useful life of 10 years. If the company uses the straight line depreciation method, calculate the current book value of the machine.

2) Henry Tax Planning Service bought production equipment for $9,600 on January 1, 2015. It has an estimated useful life of 5 years and zero residual value. Henry uses the straight-line method to calculate depreciation and records depreciation expense in the books at the end of every month. As of June 30, 2015, the book value of this equipment shown on Henry's balance sheet will be:

3) Real Weight Losers, a diet magazine, collected $480,000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. Provide the adjusting entry needed on June Assume the magazine initially records a liability for the subscription revenue.

4) On July 1, Alpha Company prepaid rent for a small equipment storage area. They paid $20,000 to rent the area for the period of July 1 through the end of the year. Provide the journal entry needed on July 1 when the payment is made. Assume the prepaid expense is initially recorded as an asset.

5) Luminous Electrical Repair performed services costing $8,000 on January 24 and invoiced the customer. Luminous received the $8,000 on January 31. Provide the journal entry on January 31 when the cash was received.

6) On January 1, 2015, the Accounts Receivable of Linda Company had a debit balance of $20,000. During January, the company provided services for $600,000 on account. The company collected $250,000 from its customers on account in January. What was the ending balance in the Accounts Receivable account at the end of January?

7) A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this is

8) On July 1, Alpha Company paid rent of $15,000 for a small equipment storage area for the period of July 1 till December 31. Provide the adjusting journal entry on July 31. Assume the prepaid expense is initially recorded as an asset.

9) ABC Company signed a one-year $48,000 note payable at 8% interest on May 1, 2014. If ABC only adjusts their accounts once a year at year-end, how much interest expense was accrued on December 31, 2014?

10) The balances of select accounts of Sandra Company as at December 31, 2015 are given below:

Debit Credit

Building $120,000

Cash 5,000

Office Supplies 700

Furniture 3,000

Prepaid Insurance 450

Accumulated Depreciation—Furniture $1,000

Land 35,000

Accumulated Depreciation—Building 4,800

Accounts Receivable 2,500

The insurance has been prepaid for the next half year. What are the total current assets that would be shown on the balance sheet?

11) Education for All sells tickets in advance for their weekly productions and records the proceeds as Unearned Revenue. At the end of each month, Education for All makes an adjusting entry to account for the tickets used during the month (ticket revenue.) On March 1, the Unearned Revenue account had a credit balance of $4,000. During March, they sold 300 tickets at $20 each and 250 tickets were used during the month. What is the balance in Unearned Revenue at the end of March?

12) Golden Oak Antique Shop had the following account balances at the end of the current accounting period:

Beginning inventory $73,000

Net purchases 58,250

Net sales revenue 87,500

The normal gross profit for the company is $45%. What was the company's estimated cost of goods sold for the accounting period?

13) Samson Company had the following balances and transactions during 2014:

Beginning Merchandise Inventory 10 units at $95

March 10 Sold 8 units

June 10 Purchased 20 units at $100

October 30 Sold 15 units

What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2014 balance sheet as per the periodic first-in, first-out (FIFO) costing method?

14) Collins Computers stored its inventory in a warehouse which suffered a fire in late November, 2014. Their sales office was at a different location. In order to file a claim with the insurance company, the owners ask you to estimate the inventory in the warehouse. The following information is available:

Beginning inventory for November $375,500

Purchases through November 30 470,250

Net sales revenue through November 31 793,000

The company's gross profit has historically been 40% of Net sales revenue. Estimate the value of the inventory destroyed in the fire using the gross profit method.

15) The Allowance for Bad Debts account has a credit balance of $2,000. The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015. Net credit sales for the year amounted to $250,000. What will be the amount of Bad Debts Expense reported on the income statement for 2015?

16) Art Parrish, the sole employee of Parrish Sales, has gross salary for March of $4,000. The entire amount is under the OASDI limit of $110,100, and thus subject to FICA. He is also subject to federal income tax at a rate of 18%. Art has a deduction of $320 for health insurance and $80 for United Way. Provide the Provide the journal entry to record salaries expense and payroll withholdings. (Assume a FICA—OASDI Tax of 4.2% and FICA—Medicare Tax of 1.45%.)

17) A $35,000, two-month, 7% note payable was issued on December 1, 2015. What is the amount of interest expense recorded in the year 2016?

18) The following information is needed to reconcile the cash balance for Fire Steel Inc.

• A deposit of $5,800 is in transit.

• Outstanding checks total $1,500.

• The book balance is $6,800 at February 28, 2013.

• The bookkeeper recorded a $1,740 check as $17,400 in payment of the current month's rent.

• The bank balance at February 28, 2013 was $18,000.

• A deposit of $400 was credited by the bank for $4,000.

• A customer's check for $3,700 was returned for nonsufficient funds.

• The bank service charge is $60.

Based on this information, prepare a bank reconciliation for Fire Steel Inc. as of February 28, 2013.

Answer:

Bank Book

Balance, February 28, 2013 Balance, February 28,2013

Adjusted balance Feb. 28, 2013 Adjusted balance Feb. 28, 2013

Click here for the solution: Various Questions: Viva Inc. had bought machine X for $15,500 two years ago