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Managerial Accounting 2010 Edition John J. Wild, Ken W. Shaw - Solutions

Cerritos Company can invest in each of three cheese-making projects: C1, C2, and C3. Each project requires an initial investment of $438,374 and would yield the following annual cash flows.(1) Assuming that the company requires a 12% return from its investments, use net present value to determine
Following is information on two alternative investments being considered by Jakem Company. The company requires a 10% return from its investments.For each alternative project compute the (a) Net present value, and (b) Profitability index. If the Company can only select one project, which should it
Refer to the information in Exercise 11-8. Create an Excel spreadsheet to compute the internal rate of return for each of the projects. Round the percentage return to two decimals.
This chapter explained two methods to evaluate investments using recovery time, the payback period and break-even time (BET). Refer to QS 11-6 and(1) Compute the recovery time for both the payback period and break-even time,(2) Discuss the advantage(s) of break-even time over the payback period,
Burtle Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $488,000 cost with an expected four-year life and a $15,200 salvage value. All sales are for cash, and all costs are out of pocket except for depreciation on the new
Jackson Company has an opportunity to invest in one of two new projects. Project Y requires a $360,000 investment for new machinery with a four-year life and no salvage value. Project Z requires a $360,000 investment for new machinery with a three-year life and no salvage value. The two projects
Deandra Corporation is considering a new project requiring a $97,500 investment in test equipment with no salvage value. The project would produce $71,000 of pretax income before depreciation at the end of each of the next six years. The company€™s income tax rate is 32%. In compiling its
Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the old machine overhauled. Information about the two alternatives follows. Management requires a 10% rate of return on its investments.Alternative 1: Keep the old machine and have it
Sentinel Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $250,000 and will yield the following expected cash flows. Management requires investments to have a payback period of three years, and it requires a 10% return
Lenitnes Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $250,000 and will yield the following expected cash flows. Management requires investments to have a payback period of three years, and it requires a 10% return
Sorbo Company is planning to add a new product to its line. To manufacture this product, the company needs to buy a new machine at a $600,000 cost with an expected four-year life and a $20,000 salvage value. All sales are for cash and all costs are out of pocket, except for depreciation on the new
Morris Company has an opportunity to invest in one of two projects. Project A requires a $480,000 investment for new machinery with a four-year life and no salvage value. Project B also requires a $480,000 investment for new machinery with a three-year life and no salvage value. The two projects
Lee Corporation is considering a new project requiring a $300,000 investment in an asset having no salvage value. The project would produce $125,000 of pretax income before depreciation at the end of each of the next six years. The company€™s income tax rate is 35%. In compiling its tax
Archer Foods has a freezer that is in need of repair and is considering whether to replace the old freezer with a new freezer or have the old freezer extensively repaired. Information about the two alternatives follows. Management requires a 10% rate of return on its investments.Alternative 1: Keep
Aster Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and yield the following expected cash flows. Management requires investments to have a payback period of two years, and it requires a 10% return on its
Retsa Company is considering an investment in technology to improve its operations. The investment will require an initial outlay of $800,000 and will yield the following expected cash flows. Management requires investments to have a payback period of two years, and it requires a 10% return on its
Adriana Lopez is considering the purchase of equipment for Success Systems that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $300,000 and to have a six-year life and no salvage value. It will be depreciated on a straight-line basis.
In fiscal 2007, Best Buy invested $251 million in store-related projects that included store remodels, relocations, expansions, and various merchandising projects. Assume that these projects have a seven-year life, and that Best Buy requires a 12% internal rate of return on these
In fiscal 2007, Circuit City invested $242 million in capital expenditures, including $108 million related to store relocations, remodeling, and new store construction. Assume that these projects have a seven-year life and that management requires a 15% internal rate of return on those
A consultant commented that “too often the numbers look good but feel bad.” This comment often stems from estimation error common to capital budgeting proposals that relate to future cash flows. Three reasons for this error often exist. First, reliably predicting cash flows several years into
Payback period, accounting rate of return, net present value, and internal rate of return are common methods to evaluate capital investment opportunities. Assume that your manager asks you to identify the type of measurement basis and unit that each method offers and to list the advantages and
Capital budgeting is an important topic and there are Websites designed to help people understand the methods available. Access TeachMeFinance.com’s capital budgeting Webpage (teachmefinance.com/capitalbudgeting.html). This Webpage contains an example of a capital budgeting case involving a
Break into teams and identify four reasons that an international airline such as Southwest, Northwest, or American would invest in a project when its direct analysis using both payback period and net present value indicate it to be a poor investment. Provide an example of an investment project
Read the chapter opener about Brian Scudamore and his company, 1-800-GOT-JUNK. Brian is considering building a new, massive warehousing center to recycle the best of other people’s junk. He expects that this recycling center could double company revenues.Required1. What are some of the management
Visit or call a local auto dealership and inquire about leasing a car. Ask about the down payment and the required monthly payments. You will likely find the salesperson does not discuss the cost to purchase this car but focuses on the affordability of the monthly payments. This chapter gives you
DSG’s annual report includes information about its debt and interest rates. One statement in its annual report reveals that DSG has floating rate borrowings of more than £200 million at 6.125%.RequiredExplain how DSG would use that 6.125% rate to evaluate its investments in capital projects.
Assume that you must make future value estimates using the future value of 1 table (Table B.2). Which interest rate column do you use when working with the following rates?1. 8% compounded quarterly2. 12% compounded annually3. 6% compounded semiannually4. 12% compounded monthly
Ken Francis is offered the possibility of investing $2,745 today and in return to receive $10,000 after 15 years. What is the annual rate of interest for this investment? (Use Table B.1.)
Megan Brink is offered the possibility of investing $6,651 today at 6% interest per year in a desire to accumulate $10,000. How many years must Brink wait to accumulate $10,000? (Use Table B.1.)
Flaherty is considering an investment that, if paid for immediately, is expected to return $140,000 five years from now. If Flaherty demands a 9% return, how much is she willing to pay for this investment?
CII, Inc., invests $630,000 in a project expected to earn a 12% annual rate of return. The earnings will be reinvested in the project each year until the entire investment is liquidated 10 years later. What will the cash proceeds be when the project is liquidated?
Beene Distributing is considering a project that will return $150,000 annually at the end of each year for six years. If Beene demands an annual return of 7% and pays for the project immediately, how much is it willing to pay for the project?
Claire Fitch is planning to begin an individual retirement program in which she will invest $1,500 at the end of each year. Fitch plans to retire after making 30 annual investments in the program earning a return of 10%. What is the value of the program on the date of the last payment?
Bill Thompson expects to invest $10,000 at 12% and, at the end of a certain period, receive $96,463. How many years will it be before Thompson receives the payment? (Use Table B.2.)
Ed Summers expects to invest $10,000 for 25 years, after which he wants to receive $108,347. What rate of interest must Summers earn? (Use Table B.2.)
Jones expects an immediate investment of $57,466 to return $10,000 annually for eight years, with the first payment to be received one year from now. What rate of interest must Jones earn? (Use Table B.3.)
Keith Riggins expects an investment of $82,014 to return $10,000 annually for several years. If Riggins earns a return of 10%, how many annual payments will he receive? (Use Table B.3.)
Algoe expects to invest $1,000 annually for 40 years to yield an accumulated value of $154,762 on the date of the last investment. For this to occur, what rate of interest must Algoe earn? (Use Table B.4.)
Kate Beckwith expects to invest $10,000 annually that will earn 8%. How many annual investments must Beckwith make to accumulate $303,243 on the date of the last investment? (Use Table B.4.)
Sam Weber finances a new automobile by paying $6,500 cash and agreeing to make 40 monthly payments of $500 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile?
Spiller Corp. plans to issue 10%, 15-year, $500,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2008, and are issued on that date. If the market rate of interest for the bonds is 8% on the date of issue, what will be the total
McAdams Company expects to earn 10% per year on an investment that will pay $606,773 six years from now. Use Table B.1 to compute the present value of this investment. (Round the amount to the nearest dollar.)
Compute the amount that can be borrowed under each of the following circumstances:1. A promise to repay $90,000 seven years from now at an interest rate of 6%.2. An agreement made on February 1, 2008, to make three separate payments of $20,000 on February 1 of 2009, 2010, and 2011. The annual
On January 1, 2008, a company agrees to pay $20,000 in three years. If the annual interest rate is 10%, determine how much cash the company can borrow with this agreement.
Find the amount of money that can be borrowed today with each of the following separate debt agreements a through f. (Round amounts to the nearestdollar.)
C&H Ski Club recently borrowed money and agrees to pay it back with a series of six annual payments of $5,000 each. C&H subsequently borrows more money and agrees to pay it back with a series of four annual payments of $7,500 each. The annual interest rate for both loans is 6%.1. Use Table B.1 to
Otto Co. borrows money on April 30, 2008, by promising to make four payments of $13,000 each on November 1, 2008; May 1, 2009; November 1, 2009; and May 1, 2010.1. How much money is Otto able to borrow if the interest rate is 8%, compounded semiannually?2. How much money is Otto able to borrow if
Mark Welsch deposits $7,200 in an account that earns interest at an annual rate of 8%, compounded quarterly. The $7,200 plus earned interest must remain in the account 10 years before it can be withdrawn. How much money will be in the account at the end of 10 years?
Kelly Malone plans to have $50 withheld from her monthly paycheck and deposited in a savings account that earns 12% annually, compounded monthly. If Malone continues with her plan for two and one-half years, how much will be accumulated in the account on the date of the last deposit?
Starr Company decides to establish a fund that it will use 10 years from now to replace an aging production facility. The company will make a $100,000 initial contribution to the fund and plans to make quarterly contributions of $50,000 beginning in three months. The fund earns 12%, compounded
Catten, Inc., invests $163,170 today earning 7% per year for nine years. Use Table B.2 to compute the future value of the investment nine years from now. (Round the amount to the nearest dollar.)
For each of the following situations, identify (1) the case as either (a) a present or a future value and (b) a single amount or an annuity, (2) the table you would use in your computations (but do not solve the problem), and (3) the interest rate and time periods you would use.a. You need to
Provide the names of two (a) asset accounts, (b) liability accounts, and (c) equity accounts.
What is the difference between a note payable and an account payable?
Discuss the steps in processing business transactions.
What kinds of transactions can be recorded in a general journal?
Are debits or credits typically listed first in general journal entries? Are the debits or the credits indented?
If assets are valuable resources and asset accounts have debit balances, why do expense accounts also have debit balances?
Should a transaction be recorded first in a journal or the ledger?Why?
Why does the recordkeeper prepare a trial balance?
If an incorrect amount is journalized and posted to the accounts, how should the error be corrected?
Identify the four financial statements of a business.
What information is reported in an income statement?
Why does the user of an income statement need to know the time period that it covers?
What information is reported in a balance sheet?
Define (a) assets, (b) liabilities, (c) equity, and (d) net assets.
Which financial statement is sometimes called the statement of financial position?
Review the Best Buy balance sheet in Appendix A. Identify three accounts on its balance sheet that carry debit balances and three accounts on its balance sheet that carry credit balances.
Refer to Circuit City’s balance sheet in Appendix A. What does Circuit City title its current liability for the purchase of merchandise?
Review the RadioShack balance sheet in Appendix A. Identify an asset with the word receivable in its account title and a liability with the word payable in its account title.
Locate Apple’s income statement in Appendix A. What is the title of its revenue account?
Identify the items from the following list that are likely to serve as source documents.a. Trial balance b. Telephone bill c. Sales ticket d. Income statement e. Company revenue account f. Invoice from supplier g. Prepaid insuranceh. Bank statementi. Balance sheet
Identify the financial statement(s) where each of the following items appears. Use I for income statement, E for statement of retained earnings, and B for balance sheet.a. Service fees earned b. Cash dividends c. Office equipment d. Accounts payable e. Cash f. Utilities expenses g. Office
Identify the normal balance (debit or credit) for each of the following accounts.a. Office supplies b. Dividends c. Fees Earned d. Wages Expense e. Cash f. Prepaid Insurance g. Wages Payableh. Buildingi. Common Stock
Indicate whether a debit or credit decreases the normal balance of each of the following accounts.a. Repair Services Revenue b. Interest Payable c. Accounts Receivable d. Salaries Expense e. Common Stock f. Prepaid Insurance g. Buildings h. Interest Revenue i. Dividendsj. Unearned Revenuek.
Identify whether a debit or credit yields the indicated change for each of the following accounts.a. To increase Land b. To decrease Cash c. To increase Utilities Expense d. To increase Fees Earned e. To decrease Unearned Revenue f. To decrease Prepaid Insuranceg. To increase Notes Payableh. To
Prepare journal entries for each of the following selected transactions.a. On January 13, DeShawn Tyler opens a landscaping company called Elegant Lawns by investing $80,000 cash along with equipment having a $30,000 value in exchange for common stock.b. On January 21, Elegant Lawns purchases
A trial balance has total debits of $20,000 and total credits of $24,500. Which one of the following errors would create this imbalance? Explain.a. A $2,250 credit to Consulting Fees Earned in a journal entry is incorrectly posted to the ledger as a $2,250 debit, leaving the Consulting Fees Earned
Indicate the financial statement on which each of the following items appears. Use I for income statement, E for statement of retained earnings, and B for balance sheet.a. Rental Revenue b. Insurance Expense c. Services Revenue d. Interest Payable e. Accounts Receivable f. Salaries Expense g.
For each of the following (1) identify the type of account as an asset, liability, equity, revenue, or expense, (2) enter debit (Dr.) or credit (Cr.) to identify the kind of entry that would increase the account balance, and (3) identify the normal balance of the account.a. Common Stock b. Accounts
Use the information in each of the following separate cases to calculate the unknown amount. a. During October, Alcorn Company had $104,750 of cash receipts and $101,607 of cash disbursements. The October 31 Cash balance was $17,069. Determine how much cash the company had at the close of business
Nology Co. bills a client $65,000 for services provided and agrees to accept the following three items in full payment: (1) $12,000 cash, (2) Computer equipment worth $90,000, and (3) To assume responsibility for a $37,000 note payable related to the computer equipment. The entry Nology makes to
Prepare general journal entries for the following transactions of a new company called Special Pics.Aug. 1 Madison Harris, the owner, invested $14,250 cash and $61,275 of photography equipment in the company in exchange for its common stock.2 The company paid $3,300 cash for an insurance policy
Use the information in Exercise C-4 to prepare an August 31 trial balance for Special Pics. Begin by opening these T-accounts: Cash; Office Supplies; Prepaid Insurance; Photography Equipment; Common Stock; Photography Fees Earned; and Utilities Expense. Then, post the general journal entries to
Record the transactions below for Amena Company by recording the debit and credit entries directly in the following T-accounts: Cash; Accounts Receivable; Office Supplies; Office Equipment; Accounts Payable; Common Stock; Dividends; Fees Earned; and Rent Expense. Use the letters beside each
After recording the transactions of Exercise C-6 in T-accounts and calculating the balance of each account, prepare a trial balance. Use May 31, 2009, as its report date.
Examine the following transactions and identify those that create expenses for Thomas Services. Prepare general journal entries to record those expense transactions and explain why the other transactions did not create expenses.a. The company paid $12,200 cash for office supplies that were
Examine the following transactions and identify those that create revenues for Thomas Services, a company owned by Brina Thomas. Prepare general journal entries to record those revenue transactions and explain why the other transactions did not create revenues.a. Brina Thomas invests $39,350 cash
On October 1, Diondre Shabazz organized a new consulting firm called Tech Talk. On October 31, the company€™s records show the following accounts and amounts. Use this information to prepare an October income statement for thebusiness.
Use the information in Exercise C-10 to prepare an October statement of retained earnings for Tech Talk.
Use the information in Exercise C-10 (if completed, you can also use your solution to Exercise C-11) to prepare an October 31 balance sheet for Tech Talk.
A corporation had the following assets and liabilities at the beginning and end of a recent year.Determine the net income earned or net loss incurred by the business during the year for each of the following separate cases:a. Owner made no investments in the business and no dividends were paid
Compute the missing amount in each of the following separate companies a throughd.
Assume the following T-accounts reflect Belle Co.€™s general ledger and that seven transactions a through g are posted to them. Provide a short description of each transaction. Include the amounts in yourdescriptions.
Use information from the T-accounts in Exercise C-15 to prepare general journal entries for each of the seven transactions a through g.
Several posting errors are identified in the following table. In column (1), enter the amount of the difference between the two trial balance columns (debit and credit) due to the error. In column (2), identify the trial balance column (debit or credit) with the larger amount if they are not equal.
You are told the column totals in a trial balance are not equal. After careful analysis, you discover only one error. Specifically, a correctly journalized credit purchase of a computer for $11,250 is posted from the journal to the ledger with a $11,250 debit to Office Equipment and another $11,250
a. Calculate the debt ratio and the return on assets using the year-end information for each of the following six separate companies ($ thousands).b. Of the six companies, which business relies most heavily on creditor financing?c. Of the six companies, which business relies most heavily on equity
Lancet Engineering completed the following transactions in the month of June.a. Jenna Lancet, the owner, invested $195,000 cash, office equipment with a value of $8,200, and $80,000 of drafting equipment to launch the company in exchange for its common stock.b. The company purchased land worth
Denzel Brooks opens a Web consulting business called Venture Consultants and completes the following transactions in March.March 1 Brooks invested $180,000 cash along with $30,000 of office equipment in the company in exchange for its common stock.2 The company prepaid $8,000 cash for six months’

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