Cooper Training Services (CTS) provides instruction on the use of computer software for the employees of its corporate clients

Problem 11-25 Effects of operating leverage on profitability

Cooper Training Services (CTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients’ offices on the clients’ equipment. The only major expense CTS incurs is instructor salaries; it pays instructors $3,600 per course taught. CTS recently agreed to offer a course of instruction to the employees of Akers Incorporated at a price of $340 per student. Akers estimated that 20 students would attend the course.

Base your answer on the preceding information.

Part 1:
Required
a. Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost?
b. Determine the profit, assuming that 20 students attend the course.
c. Determine the profit, assuming a 20 percent increase in enrollment (i.e., enrollment increases to 24 students). What is the percentage change in profitability?
d. Determine the profit, assuming a 20 percent decrease in enrollment (i.e., enrollment decreases to 16 students). What is the percentage change in profitability?
e. Explain why a 20 percent shift in enrollment produces more than a 20 percent shift in profitability. Use the term that identifies this phenomenon.

Click here for the solution: Cooper Training Services (CTS) provides instruction on the use of computer software for the employees of its corporate clients

The management of Idaho Produce is considering an increase in its use of financial leverage

16-10A. (Analysis of recessionary cash flows) The management of Idaho Produce is considering an increase in its use of financial leverage. The proposal on the table is to sell $10 million of bonds that would mature in 20 years. The interest rate on these bonds would be 15 percent. The bond issue would have a sinking fund attached to it requiring that one-twentieth of the principal be retired each year. Most business economists are forecasting a recession that will affect the entire economy in the coming year. Idaho’s management has been saying, “If we can make it through this, we can make it through anything.” The firm prefers to carry an operating cash balance of $1 million. Cash collections from sales next year will total $4 million. Miscellaneous cash receipts will be $300,000. Raw material payments will be $800,000. Wage and salary costs will total $1.4 million on a cash basis. On top of this, Idaho will experience nondiscretionary cash outflows of $1.2 million including all tax payments. The firm faces a 50 percent tax rate.

a. At present, Idaho is unlevered. What will be the total fixed financial charges the firm must pay next year?

b. If the bonds are issued, what is your forecast for the firm’s expected cash balance at the end of the recessionary year (next year)?

c. As Idaho’s financial consultant, do you recommend that it issue the bonds?

Click here for the solution: The management of Idaho Produce is considering an increase in its use of financial leverage

Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory

E 9-21 Dollar-value LIFO retail

Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory. Accounting records provides the following information:

Merchandise Inventory, Jan 1, 2011 Cost 160,000 Retail 250,000
Net Purchases Cost 350,200 Retail 510,000
Net Markups Retail 7,000
Net Markdowns Retail 2,000
Net Sales Retail 380,000

Pertinent retail price indexes are as follows
January 1, 2011 1.00
December 31, 2011 1.10

Required:
Determine ending inventory and cost of goods sold.

Click here for the solution: Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory

Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations

ACC 560 Week 2 Assignment

E3-14 Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations. The operation consists of three segments (departments): receiving, shipping, and delivery. Containers are received at Container's docks and sorted according to the ship they will be carried on. The containers are then loaded onto a ship, which carries them to the appropriate port of destination. The containers are then off-loaded and delivered to the receiving company. Container shipping wants to begin to use process costing in the shipping department. Direct materials represent the fuel costs to run the ship, and "Containers in transit" represents work in process. Listed below is information about the shipping department's first month's activity.

Containers in Transit April 1 0
Containers loaded 800
Containers in Transit April 30 350 40% of direct materials and
30% of conversion costs

Determine the physical flow of containers for the month
Compute the equivalent units for direct materials and conversion costs

Click here for the solution: Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations

Use the financial data shown below to calculate the following ratios for the current year

Use the financial data shown below to calculate the following ratios for the current year:

(a) Current ratio.
(b) Acid-test ratio.
(c) Accounts receivable turnover.
(d) Days' sales uncollected.
(e) Inventory turnover.
(f) Days' sales in inventory.

Income statement data
Sales (all on credit)……………………………………………….. $650,000
Cost of goods sold…………………………………………………. 425,000
Income before taxes……………………………………………. 78,000
Net Income…………………………………………………………… 54,000

Ending Beginning
Balances Balances
Cash…………………………………………………………….. $ 19,500 $ 15,000
Accounts receivable (net)………………………….. 65,000 60,000
Inventory…………………………………………………… 71,500 64,500
Plant and equipment (net) ………………………… 195,000 183,900
Total assets………………………………………………… $351,000 $323,400

Current liabilities…………………………………………. $ 62,400 $ 52,700
Long-term notes payable ……………………………. 97,500 100,000

Click here for the solution: Use the financial data shown below to calculate the following ratios for the current year

Crest Industries sells a single model of satellite radio receivers for use in the home

Exercise 3-33 CVP with Income Taxes

Crest Industries sells a single model of satellite radio receivers for use in the home. The radios have the following price and cost characteristics:

Sales Price …………………………….. $ 80 per radio
Variable costs ………………………. $32 per radio
Fixed costs ……………………………... $360.00 per month

Crest is subject to an income tax rate of 40 percent.

Required
How many receivers must Crest sell earn a monthly operating profit of $90,000 after taxes?



Click here for the solution: Crest Industries sells a single model of satellite radio receivers for use in the home

Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products

11-8A. A question of Ethics: Revocation. Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products. Between July and September 2004, Scotwood delivered thirty-seven shipments of flake to Frank Miller & Sons, Inc. After each delivery, Scotwood billed Miller, which paid thirty-five of the invoices and processed 30 to 50 percent of the flake. In August, Miller began complaining about the product’s quality. Scotwood assured Miller that it would remedy the situation. Finally, in October, Miller told Scotwood, “This is totally unacceptable. We are willing to discuss Scotwood picking up the material. “ Miller claimed that the flake was substantially defective because it was chunked. Calcium chloride maintains its purity for up to five years, but if it is exposed to and absorbs moisture, it chunks and becomes unusable. In response to Scotwood’s suit to collect payment in the unpaid invoices, Miller filed a counterclaim in a federal district court for breach of contract, seeking to recover based on revocation of acceptance, among other things. [Scotwood Industries, Inc . v. Frank Miller & Sons, Inc., 435 F. Supp.2d 1160 (D.Kan.2006)]

(a) What is revocation of acceptance? How does a buyer effectively exercise this option? Do the facts in this case support this theory as a ground for Miller to recover damages? Why or why not?

(b) Is there an ethical basis for allowing a buyer to revoke acceptance of goods and recover damages? If so, is there an ethical limit to this right? Discuss.


Click here for the solution: Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products

Use the basic accounting equation to answer these questions

BE 1-8 Use the basic accounting equation to answer these questions.
(a) The liabilities of Cummings Company are $90,000 and the stockholders' equity is $230,000. What is the amount of Cummings Company's total assets?
(b) The total assets of Haldeman Company are $170,000 and its stockholders' equity is $90,000. What is the amount of its total liabilities?
(c) The total assets of Dain Co. are $800,000 and its liabilities are equal to one-fourth of its total assets. What is the amount of Dain Co.'s stockholders' equity?


Click here for the solution: Use the basic accounting equation to answer these questions

When would you advise a firm to use direct intervention to set transfer prices?

When would you advise a firm to use direct intervention to set transfer prices? What are the disadvantages of such a practice?


Click here for the solution: When would you advise a firm to use direct intervention to set transfer prices?

List two examples of audit evidence the auditor can use in support of each of the following

Auditing P 7-31

List two examples of audit evidence the auditor can use in support of each of the following:
a. Recorded amount of entries in the acquisitions journal
b. Physical existence of inventory
c. Accuracy of accounts receivable
d. Ownership of fixed assets
e. Liability for accounts payable
f. Obsolescence of inventory
g. Existence of petty cash


Click here for the solution: List two examples of audit evidence the auditor can use in support of each of the following

On January 1, 2008, Pele Company purchased the following two machines for use in its production process

On January 1, 2008, Pele Company purchased the following two machines for use in its production process.

Machine A: The cash price of this machine was $38,000. Related expenditures included: sales tax $1,700, shipping costs $150, insurance during shipping $80, installation and testing costs $70, and $100 of oil and lubricants to be used with the machinery during its first year of operations. Pele estimates that the useful life of the machine is 5 years with a $5,000 salvage value remaining at the end of that time period. Assume that the straight-line method of depreciation is used.

Machine B: The recorded cost of this machine was $160,000. Pele estimates that the useful life of the machine is 4 years with a $10,000 salvage value remaining at the end of that time period.

Instructions
(a) Prepare the following for Machine A.
(1) The journal entry to record its purchase on January 1, 2008.
(2) The journal entry to record annual depreciation at December 31, 2008.
(b) Calculate the amount of depreciation expense that Pele should record for machine B each year of its useful life under the following assumptions.
(1) Pele uses the straight-line method of depreciation.
(2) Pele uses the declining-balance method. The rate used is twice the straight-line rate.
(3) Pele uses the units-of-activity method and estimates that the useful life of the machine is 125,000 units. Actual usage is as follows: 2008, 45,000 units; 2009, 35,000 units; 2010, 25,000 units; 2011, 20,000 units


Click here for the solution: On January 1, 2008, Pele Company purchased the following two machines for use in its production process

You are the accountant for a division of a company that is constructing a building for its own use

C10-11 (Ethics and Construction Cost) You are the accountant for a division of a company that is constructing a building for its own use. It is January 2011, and you are working on closing the books for 2010. The CEO of the division stops by your office and says, “I have some questions about our building. Although we started construction at the beginning of “June this year, we started planning it at the beginning of the previous year. I believe we can capitalize interest since then. Check to see if we did capitalize some in 2009. If not we can take it out of this year’s expense and get a double dose. Also I want you to add lots of overhead to the cost of the building so we can increase our profit for this year. For example, you spent quite a bit of time on the project. So perhaps we could add 1/12 of your salary to the cost of the cost of the building. You get the idea?” when the CEO leaves you check the files and find a letter to an architect dated January 2, 2009. There are numerous subsequent letters to and from the architect. From financial reporting and ethical perspectives, how would you reply to the CEO?


Click here for the solution: You are the accountant for a division of a company that is constructing a building for its own use

Use the financial statements for Bernard Company from Problem 9-22 to calculate the following for 2012 and 2011

Chapter 9 Problem. Complete the following problem from Chapter 9 and submit to your instructor. Problem: 9-23. This problem will be graded for accuracy.

Use the financial statements for Bernard Company from Problem 9-22 to calculate the following for 2012 and 2011.

a. Working capital
b. Current Ratio
c. Quick Ratio
d. Accounts receivable turnover (beginning receivables at 01/01/2011, was $47,000)
e. Average number of days to collect accounts receivable
f. Inventory turnover (beginning inventory at 01/01/2011, was $140,000)
g. Average number of days to sell inventory
h. Debt to asset ratio
i. Debt to equity ratio
j. Times interest earned
k. Plant assets to long-term debt
l. Net margin
m. Asset turnover
n. Return on investment (ROI)
o. Return on Equity (ROE)
p. Earnings per share
q. Book value per share of common stock
r. Price-earnings ratio (market price per share, 2011, $11.75; 2012, $12.50)
s. Dividend yield on common stock

Click here for the solution: Use the financial statements for Bernard Company from Problem 9-22 to calculate the following for 2012 and 2011

Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution

Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution. In deciding the allocation of assets, what issues should the partnership consider to minimize each partner’s taxable gains?

Click here for the solution: Use the assets and partners’ bases from Problem 28. Assume the partnership distributes all its assets in a liquidating distribution

Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc

4-5A (Pro forma balance sheet construction) Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc.

Total asset turnover 2 times
Average collection period (assume a 365-day year) 9 days
Fixed asset turnover 5 times
Inventory turnover (based on cost of goods sold) 3 times
Current ratio 2 times
Sales (all on credit) $4.0 million
Cost of goods sold 75% of sales
Debt ratio 50%

Cash _____ Current liabilities _____
Inventory _____ Long-term debt _____
Accounts receivable _____ Common stock plus _____
Net fixed assets _____ Retained earnings _____
Total $ _____ Total $ _____

Click here for the solution: Use the following industry average ratios to construct a pro forma balance sheet for Carlos Menza, Inc

Use your knowledge of balance sheets to fill in the missing amounts

Use your knowledge of balance sheets to fill in the missing amounts:

ASSETS
Cash $50,000
Accounts receivable 80,000
Inventory 100,000
Total current assets ---------
Gross plant and equipment --------
Less: accumulated depreciation 130,000
Net plant and equipment 600,000
Total assets

LIABILITIES
Accounts payable $12,000
Notes payable 50,000
Total current liabilities _____
Long-term debt _____
Total liabilities ------
Common stock ($1 par, 100,000 shares)_____
Paid-in capital 250,000
Retained earnings 200,000
Total stockholders' equity _____
Total liabilities and equity 830,000

Click here for the solution: Use your knowledge of balance sheets to fill in the missing amounts

Use your knowledge of balance sheets and common-size statements to fill in the missing dollar amounts

Use your knowledge of balance sheets and common-size statements to fill in the missing dollar amounts:

ASSETS
Cash $25,000 3.4%
Accounts receivable $125,000 _____
Inventory _______ 27.1%
Total current assets $350,000 ______
Gross plant and equipment _______ 95.0%
Less: accumulated depreciation $313,000 42.5%
Net plant and equipment _______ ______
Total assets $737,000 100.0%

LIABILITIES
Accounts payable _______ 15.7%
Notes payable $29,000 3.9%
Total current liabilities _______ _____
Long-term debt $248,000 33.6%
Total liabilities $393,000 _____
Common stock ($.01 par, 450,000 shares) $4,500 0.6%
Paid-in capital $220,500 29.9%
Retained earnings _______ _____
Total stockholders’ equity $344,000 46.7%
Total liabilities and equity _______ 100.0%

Click here for the solution: Use your knowledge of balance sheets and common-size statements to fill in the missing dollar amounts

Use the following information to construct an income statement

Use the following information to construct an income statement:
Interest $25,000
Sales $950,000
Income tax rate 25%
Selling and marketing expenses $160,000
General & administrative expenses $200,000
Gross Profit $550,000
Depreciation $30,000
Cost of Goods sold $400,000

Click here for the solution: Use the following information to construct an income statement

(Forward Exchange Rate) Use the information in Figure 21.1 to answer the following questions

(Forward Exchange Rate) Use the information in Figure 21.1 to answer the following questions:

a) What is the six-month forward rate for the Japanese yen in yen per U.S. dollar? Is the yen selling at a premium or a discount? Explain.

b) What is the three-month forward rate for Canadian dollars in U.S. dollars per Canadian dollar? Is the dollar selling at a premium or a discount? Explain.

c) What do you think will happen to the value of the dollar relative to the yen and the pound, based on the information in the figure? Explain.

Click here for the solution: (Forward Exchange Rate) Use the information in Figure 21.1 to answer the following questions

Use the following information to prepare a multistep income statement and a classified balance sheet for Reza Equipment Co. for 2010

Problem 5-24 Multistep Income Statement and Balance Sheet

Use the following information to prepare a multistep income statement and a classified balance sheet for Reza Equipment Co. for 2010. (Hint: Some of the items will not appear on either
and ending retained earnings must be calculated.)

AND SO ON

Check:
Total Current Assets: $250,300
Total Current Liabilities: $109,600

Click here for the solution: Use the following information to prepare a multistep income statement and a classified balance sheet for Reza Equipment Co. for 2010