Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time

E22-11 (Change in Estimate—Depreciation) Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time. Depreciation has been entered for 7 years on a straight-line basis. In 2008, it is determined that the total estimated life should be 15 years with a salvage value of $5,000 at the end of that time.

Instructions
(a) Prepare the entry (if any) to correct the prior years’ depreciation.
(b) Prepare the entry to record depreciation for 2008.

Click here for the solution: Peter M. Dell Co. purchased equipment for $510,000 which was estimated to have a useful life of 10 years with a salvage value of $10,000 at the end of that time

Webber Fabricating estimated the following annual costs (MT 425)

MT 425

Chapter 2, Exercise 2-12 Allocating Manufacturing Overhead to Jobs [LO 6, 7] Webber Fabricating estimated the following annual costs.

Expected annual direct labor hours 40,000
Expected annual direct labor cost 625,000
Expected machine hours 20,000
Expected material cost for the year 800,000
Expected manufacturing overhead$1,000,000

Required
a. Calculate overhead allocation rates using each of the four possible allocation bases provided.
b. Determine the cost of the following job (number 253) using each of the four overhead allocation rates.


Click here for the solution: Webber Fabricating estimated the following annual costs (MT 425)

A machine cost $500,000 on April 1, 2010. Its estimated salvage value is $50,000 and its expected life is eight years

A machine cost $500,000 on April 1, 2010. Its estimated salvage value is $50,000 and its expected life is eight years.

Instructions:
Calculate the depreciation expense (to the nearest dollar) by each of the following methods, showing the figures used
a) straight-line for 2010
b) Double-declining balance for 2011
c) Sum-of-the-years digits for 2011


Click here for the solution: A machine cost $500,000 on April 1, 2010

Estimated cost and operating data for three companies for the upcoming year follow

Estimated cost and operating data for three companies for the upcoming year follow:

Company X Company Y Company Z
Direct labor-hours 80,000 45,000 60,000
Machine-hours 30,000 70,000 21,000
Direct materials cost $400,000 $290,000 $300,000
Manufacturing overhead cost $536,000 $315,000 $480,000

Predetermined overhead rates are computed using the following allocation bases in the three companies:

Allocation Base
Company X Direct labor-hours
Company Y Machine-hours
Company Z Direct materials cost

1. Compute each company's predetermined overhead rate.
2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total $530,000 for the year, will overhead be underapplied or overapplied? By how much?


Click here for the solution: Estimated cost and operating data for three companies for the upcoming year follow

Williams Glassware has estimated, at various debt ratios, the expected earnings per share

P12-21 (EPS and Optimal Debt Ratio) Williams Glassware has estimated, at various debt ratios, the expected earnings per share and the standard deviation of the earnings per share as shown in the following table.

Debt ratio Earnings per share (EPS) Standard deviation of EPS
0% $2.30 $1.15
20 3.00 1.80
40 3.50 2.80
60 3.95 3.95
80 3.80 5.53

a. Estimate the optimal debt ratio on the basis of the relationship between earnings per share and the debt ratio. You will probably find it helpful to graph the relationship.
b. Graph the relationship between the coefficient of variation and the debt ratio. Label the areas associated with business risk and financial risk.


Click here for the solution: Williams Glassware has estimated, at various debt ratios, the expected earnings per share

Paschal’s Parasailing Enterprises has estimated that fixed costs per month are $115,600 and variable cost per dollar of sales is $0.38

Paschal’s Parasailing Enterprises has estimated that fixed costs per month are $115,600 and variable cost per dollar of sales is $0.38.

(a) What is the break-even point per month in sales?
(b) What level of sales is needed for a monthly profit of $67,000?
(c) For the month of August, Paschal’s anticipates sales of $585,000. What is the expected level of profit?

Click here for the solution: Paschal’s Parasailing Enterprises has estimated that fixed costs per month are $115,600 and variable cost per dollar of sales is $0.38

Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure

Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure.

debt ratio pretax cost cost of equity weighted average
[B/(B+E)] of debt cost of capital

0.00 12.00
0.15 13.00 11.68
0.30 8.00 14.50
0.45 16.50 11.775
14.00 19.00 12.64

The company’s income tax rate is 40 percent.

a. Fill in the missing entries in the table.
b. Determine the capital structure (i.e., debt ratio) that minimizes the firm’s weighted average cost of capital


Click here for the solution: Colorado Coal Company has estimated the costs of debt and equity capital (with bankruptcy and agency costs) for various proportions of debt in its capital structure

Piedmont Instruments Corporation has estimated the following costs of debt and equity capital for various fractions of debt in its capital structure

Piedmont Instruments Corporation has estimated the following costs of debt and equity capital for various fractions of debt in its capital structure.

Debt Fractions ki ke with financial ke with financial distress w/o agency costs distress with agency costs
0.00 12.00% 12.00%
0.10 4.80% 12.05% 12.05%
0.30 4.90% 12.10% 12.20%
0.40 5.00% 12.20% 12.60%
0.45 5.20% 12.40% 13.40%
0.50 5.70% 12.80% 14.80%
0.60 7.00% 15.00% 18.00%

a. Based on these data, determine the company’s optimal capital structure (i) with financial distress costs and without agency costs and (ii) with financial distress and agency costs.
b. Suppose the company’s actual capital structure is 50 percent debt and 50 percent equity. How much higher is ka at this capital structure than at the optimal value of ka with financial distress and agency costs?

c. Is it necessary in practice for the company to know precisely its optimal capital structure? Why?

Click here for the solution: Piedmont Instruments Corporation has estimated the following costs of debt and equity capital for various fractions of debt in its capital structure