The Cycle Division of TravelVelocity Company has the following per unit data related to its most recent cycle called Roadbuster

ACC 560 Week 5 Assignment

E8-12 The Cycle Division of TravelVelocity Company has the following per unit data related to its most recent cycle called Roadbuster.

Selling price $2,200
Variable cost of goods sold
Body frame $300
Other variable costs 900 1,200
Contribution margin $1,000

Presently, the Cycle Division buys its body frames from an outside supplier. However TravelVelocity has another division, FrameBody, that makes body frames for other cycle companies. The Cycle Division believes that FrameBody's product is suitable for its new Roadbuster cycle. Presently, FrameBody sells its frames for $350 per frame.The variable cost for FrameBody is $250. The Cycle Division is willing to pay $275 to purchase the frames from FrameBody.

Instructions:
a) Assume that FrameBody has excess capacity and is able to meet all of the Cycle Division's needs. If the Cycle Division buys 1,000 frames from FrameBody, determine the following: (1) effect on the income of the Cycle Division; (2) effect on the income of FrameBody; and (3) effect on the income of TravelVelocity.

b)Assume that FrameBody does not have excess capacity and therefore would lose sales if the frames were sold to the Cycle Division. If the Cycle Division buys 1,000 frames from FrameBody, determine the following: (1) effect on the income of the Cycle Division; (2) effect on the income of FrameBody; and (3) effect on the income of TravelVelocity.

Click here for the solution: The Cycle Division of TravelVelocity Company has the following per unit data related to its most recent cycle called Roadbuster

Maggie Sharrer, a recent graduate of Rolling's accounting program, evaluated the operating performance of Poway Company's six divisions

Exercise 6-10 (E6-10) Make incremental analysis concerning elimination of division.
Maggie Sharrer, a recent graduate of Rolling's accounting program, evaluated the operating performance of Poway Company's six divisions. Maggie made the following presentation to Poway's Board of Directors and suggested the Erie Division be eliminated. “If the Erie Division is eliminated,” she said, “our total profits would increase by $24,500.”
The Other Five Divisions Erie Division Total
Sales $1,664,200 $100,000 $1,764,200
Cost of goods sold 978,520 76,500 1,055,020
Gross profit 685,680 23,500 709,180
Operating expenses 527,940 48,000 575,940
Net income $ 157,740 $(24,500) $ 133,240

In the Erie Division, cost of goods sold is $60,000 variable and $16,500 fixed, and operating expenses are $25,000 variable and $23,000 fixed. None of the Erie Division' fixed costs will be eliminated if the division is discontinued.

Instructions
Is Maggie right about eliminating the Erie Division? Prepare a schedule to support your answer.


Click here for the solution: Maggie Sharrer, a recent graduate of Rolling's accounting program, evaluated the operating performance of Poway Company's six divisions

Following are recent balance sheet accounts for Prime First National Bank

11. Challenge Problem. This problem focuses on bank capital management and various capital ratio measures. Following are recent balance sheet accounts for Prime First National Bank.

Cash assets $ 17 million Demand deposits $50 million
Loans secured by Time & savings
real estate 40 deposits 66
Commercial loans 45 Federal funds
purchased 15
Government Trust-preferred
securities owned 16 securities 2
Goodwill 5
Bank fixed assets 15 Owners’ capital 5
Total assets $138 million Total liabilities $138 million and owners’ capital

All amounts are in millions of dollars.

Note: The bank has loan-loss reserves of $10 million. The real estate and commercial loans shown on the balance sheet are net of the loan-loss reserves.

a. Calculate the equity capital ratio. How could the bank increase its equity capital ratio?
b. Risk-adjusted assets are estimated using the following weightings process: cash and government securities = .00; real estate loans = .50; commercial and other loans = 1.00. Calculate the risk-adjusted assets amount for the bank.
c. Calculate the Tier 1 Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
d. Calculate the Total Capital (Tier 1 plus Tier 2) Ratio based on the information provided and the risk-adjusted assets estimate from Part b.
e. What actions could the bank management team take to improve the bank’s Tier 1 and Total Capital ratios?

Click here for the solution: Following are recent balance sheet accounts for Prime First National Bank

You are provided with the following transactions that took place during a recent fiscal year

P12-1A You are provided with the following transactions that took place during a recent fiscal year.

Transaction Where Reported on Statement Cash Inflow, Outflow, or No Effect?
a. Recorded depreciation expense on the plant assets.
b. Recorded and paid interest expense.
c. Recorded cash proceeds from a sale of plant assets.
d. Acquired land by issuing common stock.
e. Paid a cash dividend to preferred stockholders.
f. Distributed a stock dividend to common stockholders.
g. Recorded cash sales.
h. Recorded sales on account.
i. Purchased inventory for cash.
j. Purchased inventory on account.

Distinguish among operating, investing, and financing activities.

Instructions
Complete the table, indicating whether each item (1) should be reported as an operating (O) activity, investing (I) activity, financing (F) activity, or as a noncash (NC) transaction reported in a separate schedule, and (2) represents a cash inflow or cash outflow or has no cash flow effect. Assume use of the indirect approach.

Click here for the solution: You are provided with the following transactions that took place during a recent fiscal year

Springsteen Co. had the following activity in its most recent year of operations

E23-1 (Classification of Transactions) Springsteen Co. had the following activity in its most recent year of operations.

(a) Pension expense exceeds amount funded. (e) Exchange of equipment for furniture.
(b) Redemption of bonds payable. (f) Issuance of capital stock.
(c) Sale of building at book value. (g) Amortization of intangible assets.
(d) Depreciation. (h) Purchase of treasury stock. (i) Issuance of bonds for land. (k) Increase in interest receivable on notes receivable. (j) Payment of dividends. (l) Purchase of equipment.

Instructions
Classify the items as (1) operating—add to net income; (2) operating—deduct from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.

Click here for the solution: Springsteen Co. had the following activity in its most recent year of operations

The yields for Treasuries with differing maturities on a recent day were as shown in the table on page 253

E6–2 The yields for Treasuries with differing maturities on a recent day were as shown in the table on page 253.

a. Use the information to plot a yield curve for this date.
b. If the expectations hypothesis is true, approximately what rate of return do investors expect a 5-year Treasury note to pay 5 years from now?
c. If the expectations hypothesis is true, approximately (ignoring compounding) what rate of return do investors expect a 1-year Treasury security to pay starting 2 years from now?
d. Is it possible that even though the yield curve slopes up in this problem, investors do not expect rising interest rates? Explain.

Click here for the solution: The yields for Treasuries with differing maturities on a recent day were as shown in the table on page 253

The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table

E6–3 The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table:

Maturity Yield Real rate of interest
3 months 1.41% 0.80%
6 months 1.71 0.80
2 years 2.68 0.80
3 years 3.01 0.80
5 years 3.70 0.80
10 years 4.51 0.80
30 years 5.25 0.80

Use the information in the preceding table to calculate the inflation expectation for each maturity.

Click here for the solution: The yields for Treasuries with differing maturities, including an estimate of the real rate of interest, on a recent day were as shown in the following table

The demand for solvent, one of numerous products manufactured by Hipp Industries Inc., has dropped sharply because of recent competition from a similar product

The demand for solvent, one of numerous products manufactured by Hipp Industries Inc., has dropped sharply because of recent competition from a similar product. The company's chemists are currently completing tests of various new formulas, and it is anticipated that the manufacture of a superior product can be started on June 1, one month in the future. No changes will be needed in the present production facilities to manufacture the new product because only the mixture of the various materials will be changed.

The controller has been asked by the president of the company for advice on whether to continue production during May or to suspend the manufacture of solvent until June 1. The controller has assembled the following pertinent data:

Hipp Industries Inc.
Income Statement-Solvent
For the Month Ended April 31,2013

Sales (2,800 units)…................... $215,600
Cost of good sold……..................... 187,320
Gross profit………………..................... $28,280
Selling and administrative expenses….... 41,780
Loss from operations…………………........... $(13,500)

The production costs and selling and administrative expenses, based on production of 2,800 units in April, are as follows:

Direct Materials $30.00 Per unit
Direct labor 10.50 per unit
Variable manufacturing cost 9.90 per unit
Variable selling and administrative expenses 5.60 Per unit
Fixed manufacturing cost $46,200 for April
Fixed selling and administrative expense 26,100 For April

Sales for May are expected to drop about 25% below those of the preceding month. No significant changes are anticipated in the fixed costs or variable costs per unit. No extra costs will be incurred in discontinuing operations in the portion of the plant associated with solvent. The inventory of solvent at the beginning and end of May is expected to be inconsequential.

1. Prepare an estimated income statement in absorption costing form for May for solvent, assuming that production continues during the month. Round amounts to two decimals. Enter all amounts as positive numbers.
2. Prepare an estimated income statement in variable costing form for May for solvent, assuming that production continues during the month. Round amounts to two decimals. Enter all amounts as positive numbers
3. What would be the estimated loss in income from operations if the solvent production were temporarily suspended for May?

Click here for the solution: The demand for solvent, one of numerous products manufactured by Hipp Industries Inc., has dropped sharply because of recent competition from a similar product

The most recent financial information for Golf Pro Inc. are shown here

The most recent financial information for Golf Pro Inc. are shown here:

Income Statement 

Sales $3,400

Costs 2,800

Taxable Income 600

Taxes @ 34% 204

Net Income $ 396

Balance Sheet

Current Assets $4,400        Current Liabilities $880

Fixed Assets 5,700              Long Term Debt 3,580

                                            Equity 5,640

Total 10,100                       Total $10,100

Assets, costs and current liabilities are proportional to sales. Long–term debt and equity are not. The company maintains a constant 50% dividend payout ratio. As with every other firm in its industry, the next year’s sales are projected to increase by exactly 15%. What is the external financing needed?

Click here for the solution: The most recent financial information for Golf Pro Inc. are shown here

Selected financial data of Target and Wal-Mart for a recent year are presented here (in millions)

Problem 18–5A (P18-5A) Selected financial data of Target and Wal-Mart for a recent year are presented here (in millions).

Target Wal-Mart
Corporation Stores, Inc.
Income Statement Data for Year
Net sales $61,471 $374,526
Cost of goods sold 41,895 286,515
Selling and administrative expenses 16,200 70,847
Interest expense 647 1,798
Other income (expense) 1,896 4,273
Income tax expense 1,776 6,908
Net income $ 2,849 $ 12,731

Balance Sheet Data (End of Year)
Current assets $18,906 $ 47,585
Noncurrent assets 25,654 115,929
Total assets $44,560 $163,514

Current liabilities $ 11,782 $ 58,454
Long-term debt 17,471 40,452
Total stockholders' equity 15,307 64,608
Total liabilities and stockholders' equity $44,560 $163,514

Beginning-of-Year Balances
Total assets $37,349 $151,587
Total stockholders' equity 15,633 61,573
Current liabilities 11,117 52,148
Total liabilities 21,716 90,014

Other Data
Average net receivables $7,124 $ 3,247
Average inventory 6,517 34,433
Net cash provided by operating activities 4,125 20,354

Instructions
For each company, compute the following ratios. (Round answers to 1 decimal place, e.g. 10.5.)
Target Walmart
(1) Current
(2) Receivables turnover
(3) Average collection period
(4) Inventory turnover
(5) Days in inventory
(6) Profit margin
(7) Asset turnover
(8) Return on assets
(9) Return on common stockholders' equity
(10) Debt to total assets
(11) Times interest earned

Click here for the solution: Selected financial data of Target and Wal-Mart for a recent year are presented here (in millions)