Hampton Company: The production department has been investigating possible ways to trim total production costs.

Capital Budgeting Decision

Here is Project 2:

Hampton Company: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the cans instead of purchasing them. The equipment needed would cost $1,000,000, with a disposal value of $200,000, and would be able to produce 27,500,000 cans over the life of the machinery. The production department estimates that approximately 5,500,000 cans would be needed for each of the next 5 years.

The company would hire six new employees. These six individuals would be full-time employees working 2,000 hours per year and earning $15.00 per hour. They would also receive the same benefits as other production employees, 15% of wages in addition to $2,000 of health benefits.

It is estimated that the raw materials will cost 30¢ per can and that other variable costs would be 10¢ per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.

It is expected that cans would cost 50¢ each if purchased from the current supplier. The company's minimum rate of return (hurdle rate) has been determined to be 11% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for the company’s products as well as number of units sold will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased.

Required

1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase.
Annual cash flows over the expected life of the equipment
Payback period
Simple rate of return
Net present value
Internal rate of return
The check figure for the total annual after-tax cash flows is $271,150.

2. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short, double-spaced paper in MS Word elaborating on and supporting your answer.

TUTORIAL PREVIEW

Hampton Company
Cost of new equipment	$1,000,000
Expected life of equipment in years	5
Disposal value in 5 years	$200,000
Life production - number of cans	27,500,000

 File name: Hampton Company.xlsx File type: .xlsx PRICE: $20

LBJ Company -- You have just been contracted as a budget consultant by LBJ Company

You have just been contracted as a budget consultant by LBJ Company

COURSE PROJECT 1 INSTRUCTIONS

You have just been contracted as a budget consultant by LBJ Company, a distributor of bracelets to various retail outlets across the country. The company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.

You have decided to prepare a cash budget for the upcoming fourth quarter in order to show management the benefits that can be gained from proper cash planning.  You have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of bracelets, but all are sold for the same $10 price.  Actual sales of bracelets for the last three months and budgeted sales for the next six months follow:

July (actual)	20,000
August (actual)	26,000
September (actual)	40,000
October (budget)	70,000
November (budget)	110,000
December (budget)	60,000
January (budget)	30,000
February (budget)	28,000
March (budget)	25,000

The concentration of sales in the fourth quarter is due to the Christmas holiday. Sufficient inventory should be on hand at the end of each month to supply 40% of the bracelets sold in the following month.

 Suppliers are paid $4 for each bracelet.  Fifty-percent of a month's purchases is paid for in the month of purchase; the other 50% is paid for in the following month.  All sales are on credit with no discounts.  The company has found, however, that only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale.  Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable expenses:
Sales commissions                         4% of sales
Fixed expenses:
Advertising                                        $220,000
Rent                                                      $20,000
Salaries                                          $110,000
Utilities                                              $10,000
Insurance                                            $5,000
Depreciation                                      $18,000

Insurance is paid on an annual basis, in January of each year.

The company plans to purchase $22,000 in new equipment during October and $50,000 in new equipment during November; both purchases will be for cash. The company declares dividends of $20,000 each quarter, payable in the first month of the following quarter.

 Other relevant data is given below:

Cash balance as of September 30                       $74,000
Inventory balance as of September 30             $112,000
Merchandise purchases for September            $200,000

The company maintains a minimum cash balance of at least $50,000 at the end of each month.  All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow the exact amount needed at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.

Required:

Prepare a cash budget for the three-month period ending December 31. Include the following detailed budgets:
1.
a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.

TUTORIAL PREVIEW

				LBJ Company
SALES BUDGET:
			October	November	December	Quarter
Budgeted unit sales			70,000	110,000	60,000	240,000
Selling price per unit			10	10	10	10
Total Sales			700,000	1,100,000	600,000	2,400,000

 

File name: LBJ Company.xlsx  File type: .xlsx PRICE: $20

ACC 550 INTERMEDIATE ACCOUNTING I -- The following transactions pertain to Ski Training Company for 2015

ACC 550

INTERMEDIATE ACCOUNTING I

PRINCIPLES REVIEW #2

SPRING SEMESTER I 2016

The following transactions pertain to Ski Training Company for 2015:

· Jan 30 Established the business when it acquired $75,000 cash from the issuance of common stock. · Feb 1 Paid rent for office space for two years, $24,000 cash.

· Mar 1 Borrowed $20,000 cash from National Bank. The note issued had a 9% annual rate of interest and matures in one year.

· Apr 10 Purchased $5,300 of supplies on account.

· Jun 1 Paid $27,000 cash for a computer system which had a three-year useful life and no salvage value.

· July 1 Received $50,000 cash in advance for services to be provided over the next year.

· July 20 Paid $1,800 of the accounts payable from April 10.

· Aug 15 Billed a customer $32,000 for services provided during August.

· Sep 15 Completed a job and received $19,000 cash for services rendered.

· Oct 1 Paid employee salaries of $20,000 cash.

· Oct 15 Received $25,000 cash from accounts receivable.

· Nov 16 Billed customers $37,000 for services rendered on account

· Dec 1 Paid a dividend of $6,000 cash to the stockholders.

· Dec 31 Adjusted records to recognize the amount of services provided on contract on July 1 (assume earned ratably).

· Dec 31 Recorded the accrued interest on the note to National Bank (see March 1).

· Dec 31 Recorded depreciation on the computer system used in the business (see June 1).

· Dec 31 Recorded $4,500 of accrued salaries as of December 31.

· Dec 31 Recorded the rent expense for the year (see February 1).

· Dec 31 Physically counted supplies; $480 was on hand at the end of the period.

REQUIRED:

(a) Prepare journal entries for the transactions above. Use good form for the journal entries.

(b) Prepare a trial balance at December 31 based on the journal entries above.

(c) Prepare an income statement for the year.

(d) Prepare a statement of shareholders’ equity for the year.

(e) Prepare a classified balance sheet as of the end of the year.

(f) Prepare closing journal entries for the month.

(g) Prepare a post-closing trial balance after making the closing entries above.

TUTORIAL PREVIEW

(a) Journal entries:
Date	Account Title	Debit	Credit
30-Jan	Cash	75,000
	Common Stock		75,000
01-Feb	Prepaid rent	24,000
	Cash		24,000

File name: Ski Training Company.xlsx File type: .xlsx PRICE: $40

P21-1 P21-4 P21-8 PA-1

P21-1 P21-4 P21-8 PA-1

 

P21-1 Listed below are transactions that might be reported as investing and/or financing activities on a statement of cash flows.

P21-1 Classification of cash flows from investing and financing activities

P21-1 Listed below are transactions that might be reported as investing and/or financing activities on a statement of cash flows. Possible reporting classifications of those transactions are provided also.

 

Required:
Indicate the reporting classification of each transaction by entering the appropriate classification code

P21-4 Statement of cash flows; direct method

P21-4 The comparative balance sheets for 2013 and 2012 and the statement of income for 2013 are given below for Dux Company. Additional information from Dux's accounting records is provided also.

Additional information from the accounting records:

a. A building that originally cost $40,000, and which was three-fourths depreciated, was sold for $7,000.

b. The common stock of Byrd Corporation was purchased for $5,000 as a long-term investment.
c. Property was acquired by issuing a 13%, seven-year, $30,000 note payable to the seller.
d. New equipment was purchased for $15,000 cash.
e. On January 1, 2013, $25,000 of bonds were sold at face value.
f. On January 19, Dux issued a 5% stock dividend (1,000 shares). The market price of the $10 par value common stock was $14 per share at that time.
g. Cash dividends of $13,000 were paid to shareholders.
h. On November 12, 500 shares of common stock were repurchased as treasury stock at a cost of $8,000.

Required:

Prepare the statement of cash flows of Dux Company for the year ended December 31, 2011. Present cash flows from operating activities by the direct method. (You may omit the schedule to reconcile net income to cash flows from operating activities.)

 

P21-8 Cash flows from operating activities (direct method and indirect method)—deferred income tax liability and amortization of bond discount

P21-8 Portions of the financial statements for Parnell Company are provided below.

Required:

1. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the direct method.
2. Prepare the cash flows from operating activities section of the statement of cash flows for Parnell Company using the indirect method.

 

PA-1 Derivatives – interest rate swap
On January 1, 2013, Labtech Circuits borrowed $100,000 from First Bank by issuing a

On January 1, 2013, Labtech Circuits borrowed $100,000 from First Bank by issuing a three-year, 8% note, payable on December 31, 2015. Labtech wanted to hedge the risk that general interest rates will decline, causing the fair value of its debt to increase. Therefore, Labtech entered into a three-year interest rate swap agreement on January 1, 2013, and designated the swap as a fair value hedge. The agreement called for the company to receive payment based on an 8% fixed interest rate on a notional amount of $100,000 and to pay interest based on a floating interest rate tied to LIBOR. The contract called for cash settlement of the net interest amount on December 31 of each year. Floating (LIBOR) settlement rates were 8% at inception and 9%, 7%, and 7% at the end of 2013, 2014, and 2015, respectively. The fair values of the swap are quotes obtained from a derivatives dealer. These quotes and the fair values of the note are as follows:

Required:

1. Calculate the net cash settlement at the end of 2013, 2014, and 2015.

2. Prepare the journal entries during 2013 to record the issuance of the note, interest, and necessary adjustments for changes in fair value.

3. Prepare the journal entries during 2014 to record interest, net cash interest settlement for the interest rate swap, and necessary adjustments for changes in fair value. A-18

4. Prepare the journal entries during 2015 to record interest, net cash interest settlement for the interest rate swap, necessary adjustments for changes in fair value, and repayment of the debt.

5. Calculate the carrying values of both the swap account and the note in each of the three years.

6. Calculate the net effect on earnings of the hedging arrangement in each of the three years. (Ignore income taxes.) 7. Suppose the fair value of the note at December 31, 2013, had been $97,000 rather than $98,241 with the additional decline in fair value due to investors' perceptions that the creditworthiness of Labtech was worsening. How would that affect your entries to record changes in the fair values? 

TUTORIAL PREVIEW

Direct Method

Cash Flows From Operating Activities:
Cash received from customers	$692
Cash paid to suppliers	(103)
Cash paid to employees	(111)

 

File name: P21-1 P21-4 P21-8 PA-1.docx  File type: .doc PRICE: $40