Day: April 27, 2018

ACC 206 Week Two Assignment

 

Please complete the following exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

 

 

1. Analysis of stockholders’ equity

Star Corporation issued both common and preferred stock during 20X6. The stockholders’ equity sections of the company’s balance sheets at the end of 20X6 and 20X5 follow:

 

 

 

20X6

20X5

Preferred stock, $100 par value, 10%

$580,000

$500,000

Common stock, $10 par value

2,350,000

1,750,000

 

Paid-in capital in excess of par value

 

Preferred

24,000

—

Common

4,620,000

3,600,000

Retained earnings

8,470,000

6,920,000

Total stockholders’ equity

$16,044,000

$12,770,000

 

a.       Compute the number of preferred shares that were issued during 20X6.

b.      Calculate the average issue price of the common stock sold in 20X6.

c.       By what amount did the company’s paid-in capital increase during 20X6?

d.      Did Star’s total legal capital increase or decrease during 20X6? By what amount?

 

 

 

2. Bond computations: Straight-line amortization

Southlake Corporation issued $900,000 of 8% bonds on March 1, 20X1. The bonds pay interest on March 1 and September 1 and mature in 10 years. Assume the independent cases that follow.

·         Case A—The bonds are issued at 100.

·         Case B—The bonds are issued at 96.

·         Case C—The bonds are issued at 105.

 

Southlake uses the straight-line method of amortization.

 

Instructions:

Complete the following table:

 

Case A

Case B

Case C

1.  Cash inflow on the issuance date

_______

_______

_______

1. Total cash outflow through maturity

_______

_______

_______

1. Total borrowing cost over the life of the bond issue

_______

_______

_______

1. Interest expense for the year ended December 31, 20X1

_______

_______

_______

1. Amortization for the year ended December 31, 20X1

_______

_______

_______

1. Unamortized premium as of December 31, 20X1

_______

_______

_______

1. Unamortized discount as of December 31, 20X1

_______

_______

_______

1. Bond carrying value as of December 31, 20X1

_______

_______

_______

 

 

 

 

3. Definitions of manufacturing concepts

Interstate Manufacturing produces brass fasteners and incurred the following costs for the year just ended:

Materials and supplies used

Brass                                                    $75,000

Repair parts                                         16,000

Machine lubricants                              9,000

Wages and salaries Machine operators             128,000

Production supervisors                                    64,000

Maintenance personnel                                    41,000

Other factory overhead Variable         35,000

Fixed                                                   46,000

Sales commissions                               20,000

 

Compute:

a.       Total direct materials consumed

b.      Total direct labor

c.       Total prime cost

d.      Total conversion cost

 

 

 

 

 

4. Schedule of cost of goods manufactured, income statement

The following information was taken from the ledger of Jefferson Industries, Inc.:

Direct labor

$85,000

 

Administrative expenses

$59,000

Selling expenses

34,000

 

Work in. process:

 

Sales

300,000

 

Jan. 1

29,000

Finished goods

 

Dec. 31

21,000

Jan. 1

115,000

 

Direct material purchases

88,000

Dec. 31

131,000

 

Depreciation: factory

18,000

Raw (direct) materials on hand

Indirect materials used

10,000

Jan. 1

31,000

 

Indirect labor

24,000

Dec. 31

40,000

 

Factory taxes

8,000

 

Factory utilities

11,000

Prepare the following:

a.       A schedule of cost of goods manufactured for the year ended December 31.

b.      An income statement for the year ended December 31.

 

5. Manufacturing statements and cost behavior

Tampa Foundry began operations during the current year, manufacturing various products for industrial use. One such product is light-gauge aluminum, which the company sells for $36 per roll. Cost information for the year just ended follows.

Per Unit

Variable Cost

Fixed Cost

Direct materials

$4.50

$ —

Direct labor

6.5

—

Factory overhead

9

50,000

Selling

—

70,000

Administrative

—

135,000

                              

 

 

 

 

 

 

 

Production and sales totaled 20,000 rolls and 17,000 rolls, respectively There is no work in process. Tampa carries its finished goods inventory at the average unit cost of production.

Instructions:

a.       Determine the cost of the finished goods inventory of light-gauge aluminum.

b.      Prepare an income statement for the current year ended December 31

c.       On the basis of the information presented:

1.      Does it appear that the company pays commissions to its sales staff? Explain.

2.       What is the likely effect on the $4.50 unit cost of direct materials if next year’s production increases? Why?

Week Five Assignment

 

Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

 

1. Basic present value calculations

Calculate the present value of the following cash flows, rounding to the nearest dollar:

a.       A single cash inflow of $12,000 in five years, discounted at an 11% rate of return.

b.      An annual receipt of $16,000 over the next 12 years, discounted at an 11% rate of return.

c.       A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 12% rate of return.

d.      An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has an 11% rate of return.

 

 

2. Cash flow calculations and net present value

On January 2, 20X7, Brian Rein invested $10,000 in the stock market and purchased 500 shares of Heartland Development, Inc. Heartland paid cash dividends of $2.70 per share in 20X7 and 20X8; the dividend was raised to $3.30 per share in 20X9. On December 31, 20X9, Rein sold his holdings and generated proceeds of $13,100. Rein uses the net-present- value method and desires a 16% return on investments.

a.       Prepare a chronological list of the investment’s cash flows. Note: Rein is entitled to the 20X9 dividend.

b.      Compute the investment’s net present value, rounding calculations to the nearest dollar.

c.       Given the results of part (b), should Rein have acquired the Heartland stock? Briefly explain.

 

3. Net present value

The City of Brighton is studying a 550-acre site on Route 401 for a new landfill. The startup cost has been calculated as follows:

Purchase cost: $400 per acre

Site preparation: $180,000

 

The site can be used for 20 years before it reaches capacity. Brighton, which shares a facility in Bath Township with other municipalities, estimates that the new location will save $40,000 in annual operating costs.

a.       Should the landfill be acquired if Brighton desires an 8% return on its investment? Use the net-present-value method to determine your answer.

 

4. Net-present-value

ABC Entertainment is considering the acquisition of a sight-seeing boat for summer tours along the Mississippi River. The following information is available:

Cost of boat$550,000

Service life10 summer seasons

Disposal value at the end of 10 seasons$100,000

Capacity per trip260 passengers

Fixed operating costs per season (including straight-line depreciation)$160,000

Variable operating costs per trip$1,000

Ticket price$6 per passenger

 

All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 130,000 passengers will be carried each season. Ignore income taxes.

 

Instructions:

By using the net-present-value method, determine whether ABC Entertainment should acquire the boat. Assume a 14% desired return on all investments,- round calculations to the nearest dollar.

 

 

5. Equipment replacement decision

Richardson Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more years of service if $8,500 of major repairs are performed in two years. Annual cash operating costs total $28,000. Richardson  can sell the equipment now for $37,000; the estimated residual value in six years is $5,000.

New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs $105,000, has a service life of six years, and has an estimated residual value of $13,000. Company sales will total $430,000 per year with either the existing or the new equipment. Richardson has a minimum desired return of 12% and depreciates all equipment by the straight-line method.

 

Instructions:

a.       By using the net-present-value method, determine whether Richardson should keep its present equipment or acquire the new equipment. Round all calculations to the nearest dollar, and ignore income taxes.

b.      Richardson’s management feels that the time value of money should be considered in all long-term decisions. Briefly discuss the rationale that underlies management’s belief.

ACC 206 Week 5 Assignment  ABC company’s Risk Profile

You’ve just been hired onto ABC Company as the corporate controller. ABC Company is a manufacturing firm that specializes in making cedar roofing and siding shingles. The company currently has annual sales of around $1.2 million, a 25% increase from the previous year. The company has an aggressive growth target of reaching $3 million annual sales within the next 3 years. The CEO has been trying to find additional products that can leverage the current ABC employee skillset as well as the manufacturing facilities.

As the controller of ABC Company, the CEO has come to you with a new opportunity that he’s been working on. The CEO would like to use the some of the shingle scrap materials to build cedar dollhouses. While this new product line would add additional raw materials and be more time-intensive to manufacture than the cedar shingles, this new product line will be able to leverage ABC’s existing manufacturing facilities as well as the current staff. Although this product line will require added expenses, it will provide additional revenue and gross profit to help reach the growth targets. The CEO is relying on you to help decide how this project can be afforded  Provide details about the estimated product costs, what is needed to break even on the project, and what level of return this product is expected to provide.

In order to help out the CEO, you need to prepare a six- to eight-page report that will contain the following information (including exhibits, but excluding your references and title page). Refer to the accompanying Excel spreadsheet (available through your online course) for some specific cost and profit information to complete the calculations.

Final Paper Spreadsheet

I. An overall risk profile of the company based on current economic and industry issues that it may be facing.

II. Current company cash flow

a. You need to complete a cash flow statement for the company using the direct method.

b. Once you’ve completed the cash flow statement, answer the following questions:

i. What does this statement of cash flow tell you about the sources and uses of the company?

ii. Is there anything ABC Company can do to improve the cash flow?

iii. Can this project be financed with current cash flow from the company? Why or why not?

iv. If the company needs additional financing beyond what ABC Company can provide internally (either now or sometime throughout the life of the project), how would you suggest the company obtain the additional financing, equity or corporate debt, and why?

III. Product cost: ABC Company believes that it has an additional 5,000 machine hours available in the current facility before it would need to expand. ABC Company uses machine hours to allocate the fixed factory overhead, and units sold to allocate the fixed sales expenses. ABC Company expects that it will take twice as long to produce the expansion product as it currently takes to produce its existing product.

a. What is the product cost for the expansion product?

b. By adding this new expansion product, it helps to absorb the fixed factory and sales expenses. How much cheaper does this expansion make the existing product?

c. Assuming ABC Company wants a 40% gross margin for the new product, what selling price should it set for the expansion product?

d. Assuming the same sales mix of these two products, what are the contribution margins and break-even points by product?

IV. Potential investments to accelerate profit: ABC company has the option to purchase additional equipment that will cost about $42,000, and this new equipment will produce the following savings in factory overhead costs over the next five years:

Year 1, $15,000

Year 2, $13,000

Year 3, $10,000

Year 4, $10,000

Year 5, $6,000

ABC Company uses the net-present-value method to analyze investments and desires a minimum rate of return of 12% on the equipment.

a. What is the net present value of the proposed investment ignore income taxes and depreciation?

b. Assuming a 5-year straight-line depreciation, how will this impact the factory’s fixed costs for each of the 5 years (and the implied product costs)? What about cash flow?

c. Considering the cash flow impact of the equipment as well as the time-value of money, would you recommend that ABC Company purchases the equipment? Why or why not?

V. Conclusion:

a. What are the major risk factors that you see in this project?

b. As the controller and a management accountant, what is your responsibility to this project?

c. What do you recommend the CEO do?

Writing the Final Paper

1.    Must be six to eight double-spaced pages in length, and formatted according to APA style as outlined in the Ashford Writing Center.

2.    Must include a title page with the following:

a.    Title of paper

b.    Student’s name

c.    Course name and number

d.    Instructor’s name

e.    Date submitted

3.    Must begin with an introductory paragraph that has a succinct thesis statement.

4.    Must address the topic of the paper with critical thought.

5.    Must end with a conclusion that reaffirms your thesis.

6.    Must document all sources in APA style

Analyzing inventory reductions at Supervalue

On January 12, 2010, Supervalu, Inc., announced it was planning to reduce the number of different items it carries in its inventory by as much as 25 percent. Supervalu is one of the largest grocery store companies in the United States. It operates more than 2,400 stores under 14 different brand names, including Albertsons, Farm Fresh, Jewel-Osco, and Save-A-Lot. The company also has a segment that provides third-party supply-chain services. The planned reduction in inventory items was going to be accomplished more by reducing the number of different package sizes than by reducing entire product brands. The new approach was also intended to allow the company to get better prices from its vendors and to put more emphasis on its own store brands.

Required

a. Identify some costs savings Supervalu might realize by reducing the number of items it carries in inventory by 25 percent. Be as specific as possible and use your imagination.

b. Consider the additional information presented below, which is hypothetical. All dollar amounts are in thousands; unit amounts are not.

Assume that Supervalu decides to eliminate one product line, Sugar-Bits, for one of its segments that currently produces three products. As a result, the following are expected to occur:

(1)  The number of units sold for the segment is expected to drop by only 40,000 because of the elimination of Sugar-Bits, since most customers are expected to purchase a

Fiber-Treats or Carbo-Crunch product instead. The shift of sales from Sugar-Bits to Fiber-Treats and Carbo-Crunch is expected to be evenly split.

In other words, the sales of Fiber-Treats and Carbo-Crunch will each increase by 100,000 units.

(2)  Rent is paid for the entire production facility, and the space used by Sugar-Bits cannot be sublet.

(3)  Utilities costs are expected to be reduced by $24,000.

(4) T he supervisors for Sugar-Bits were all terminated. No new supervisor will be hired for Fiber-Treats or Carbo-Crunch.

(5)  Half of the equipment being used to produce Sugar-Bits is also used to produce the other two products, and its depreciation must be absorbed by those products.

The company believes that as a result of eliminating Sugar-Bits it can eliminate equipment that has a remaining useful life of five years,

and a projected salvage value of $20,000. Its current market value is $35,000.

(6)  Facility-level costs will continue to be allocated between the product lines based on the number of units produced.

2. How do managers go about making segment or product line elimination decisions?

Product-line Earnings Statements (Dollar amounts are in thousands)

Annual Costs of Operating        Fiber TreatsCarbo treatsSugar BitsTotal

Sales in units480,000480,000240,0001,200,000

Sales in dolllars$480,000$480,000$240,000$1,200,000

Units level costs:

Cost of production48,00048,00026,400122,400

Sales Comissions6,0006,0002,40014,400

Shipping and Handling10,8009,6004,80025,200

Miscellaneous3,6002,4002,4008,400

Total-Unit level costs68,40066,00036,000170,400

Product Level costs:

Supervisors salaries4,8003,6001,2009600

Facility Level costs:

Rent48,00048,00024,000120,000

Utilities60,00060,00030,000150,000

Depreciation on equip.192,000192,00096,000480,000

Allcated Co. wide exp.12,00012,0006,00030,000

Total Facility level costs312,000312,000156,000780,000

Total Production costs385,200381,600193,200$960,000

Profit on products94,80098,40046,800$240,000

 

Prepare revised product-line earnings statements based on the elimination of Sugar-Bits. It will be necessary to calculate some per-unit data to accomplish this.

1. A company purchased a truck on October 1 of the current year at a cost of $40,000. The truck is expected to last six years and has a salvage value of $2,200.

The company’s annual accounting period ends on December 31.

a. What is the depreciation expense for the current year, assuming the straight-line method is used?

b. What is the depreciation expense for the current year, assuming the double-decliningbalance method is used?

2. A machine was purchased for $37,000 and depreciated for five years on a straight-line basis under the assumption it would have a ten-year life and a $1,000 salvage value.

At the beginning of the machine’s sixth year it was recognized the machine had three years of remaining life instead of five and that at the end of the remaining three years

its salvage value would be $1,600. What amount of depreciation should be recorded in each of the machine’s remaining three years?

3. On April 1, Year 1, SAS Corp. purchased and placed in service a plant asset. The following information is available regarding the plant asset:

Acquiition cost130,000

Estimates Salvage value15,000

Estimates Useful life5years

Make the necessary adjusting journal entries at December 31, Year 1, and December 31, Year 2 to record depreciation for each year under the following depreciation methods:

a. Straight-line. b. Double-declining-balance.

a) Straight line method

4. A corporation received its charter and began business this year. The company is authorized to issue 50,000 shares of $100 par, 10%, noncumulative,

nonparticipating preferred stock, and 500,000 shares of no-par common stock. The following selected transactions occurred during this year:

Apr-05issued 250 shares of preferred stock for $104 cash oer share.

Jun-15Exchanged 750 shares of common stock for $15,000 in legal services

incurred in the organisation of the company

Prepare journal entries to record these transactions.

5. Marble Corporation had the following balances in its stockholders’ equity accounts at December 31, 2010:

 

Comon Stock, $10 par, 50,000 shares authorsied,

20,000 shares issued200,000

Paid In Capital in Excess of Par vale, Common250,000

Retained Earnings500,000

Traesury Stock, 1,000 shares-20,000

Total Stockholder Equity930,000

The following transactions occurred during 2011:

Feb-03Sold and issued 3,000 shares of common stock for $22 per share

May-10Declared a $0.50 per share dividend on common stock

Oct-12Sold 500 shares of traesury stock for $20 per share

Dec-31Net Income for the Year was determined to be $75,000

Based on the above information, prepare a statement of stockholders’ equity for 2011. Use the form below.