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financial accounting 11th
Questions and Answers of
Financial Accounting 11th
During 2009, Arctic Fans \& Blowers has invested $245,000$245,000 of extra cash in securities. Of the total amount invested, $115,000$115,000 was invested in bonds that Arctic plans to hold until
Determine relevance of information (Learning Objective 1)You are trying to decide whether to trade in your ink-jet printer for a more recent model. Your usage pattern will remain unchanged, but the
Special order decision given revised data (Learning Objective 2)Consider the ACDelco special sales order example on pages 419-421. Suppose ACDelco's variable manufacturing cost is \(\$ 1.35\) per oil
Determine pricing approach and target price (Learning Objective 3)SnowDreams operates a Rocky Mountain ski resort. The company is planning its lift ticket pricing for the coming ski season. Investors
Use target pricing to analyze data (Learning Objective 3)Consider SnowDreams from S8-3 . Assume that SnowDreams' reputation has diminished and other resorts in the vicinity are charging only \(\$
Decide whether to drop a department (Learning Objective 4)}Knight Fashion in New York operates three departments: Men's, Women's, and Accessories. Knight Fashion allocates all fixed expenses
Drop a department: revised information (Learning Objective 4)}Consider Knight Fashion from S8-5 . Assume that the fixed expenses assigned to each department include only direct fixed costs of the
Replace a department (Learning Objective 4)}Consider Knight Fashion from S8-5 . Assume once again that all fixed costs are unavoidable. If Knight Fashion drops one of the current departments, it
Product mix decision: unlimited demand (Learming Objective 5)}StoreAll produces plastic storage bins for household storage needs. The company makes two sizes of bins: large ( 50 gallon) and regular (
Product mix decision: limited demand (Learning Objective 5)Consider StoreAll in S8-8 . Assume that demand for regular bins is limited to 30,000 units and demand for large bins is limited to 25,000
Outsourcing production decision (Learning Objectives 1, 6)}Suppose an Olive Garden restaurant is considering whether to (1) bake bread for its restaurant in-house or (2) buy the bread from a local
Relevant information for outsourcing delivery function (Learming Objectives 1, 6) U.S. Food in Lexington, Kentucky, manufactures and markets snack foods. Betsy Gonzalez manages the company's fleet of
Outsourcing qualitative considerations (Learning Objectives 1, 6)}Refer to U.S. Food in S8-11 . What qualitative factors should Gonzalez consider before making a final decision?
Scrap or process further decision (Learning Objective 7)}Auto Components has an inventory of 500 obsolete remote entry keys that are carried in inventory at a manufacturing cost of \(\$ 80,000\).
Determine most profitable final product (Learning Objective 7)Chocolite processes cocoa beans into cocoa powder at a processing cost of \(\$ 10,000\) per batch. Chocolite can sell the cocoa powder as
Determine relevant and irrelevant information (Learning Objective 1)}Joe Roberts, production manager for Fabricut, invested in computer-controlled production machinery last year. He purchased the
Special order decisions given two scenarios (Learning Objective 2)Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Sports-Cardz with a special order. The Hall of Fame wants
Special order decision and considerations (Learning Objective 2)}Maui Jane Sunglasses sell for about \(\$ 150\) per pair. Suppose the company incurs the following average costs per pair:Maui Jane has
Pricing decisions given two scenarios (Learning Objective 3)}Bennett Builders builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Atlanta. Land and labor are cheap, and
Decide whether to drop a product line (Learning Objective 4)}Top managers of Video Avenue are alarmed by their operating losses. They are considering dropping the VCR-tape product line. Company
Dropping a product line (Learning Objective 4)}Suppose Kellogg's is considering dropping its Special-K product line. Assume that during the past year, Special-K's product line income statement showed
Identify constraint, then determine product mix (Learning Objective 5)Lifemaster produces two types of exercise treadmills: Regular and Deluxe. The exercise craze is such that Lifemaster could use
Determine product mix for retailer (Learning Objective 5)Vivace sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants
Determine product mix for retailer-two stocking scenarios (Learning Objective 5) Each morning, Max Imery stocks the drink case at Max's Beach Hut in Myrtle Beach, South Carolina. Max's Beach Hut has
Make-or-buy product component (Learning Objective 6)Fiber Systems manufactures an optical switch that it uses in its final product. Fiber Systems incurred the following manufacturing costs when it
Make-or-buy with alternative use of facilities (Learning Objective 6)Refer to E8-24. Fiber Systems needs 80,000 optical switches next year (assume same relevant range). By outsourcing them, Fiber
Determine maximum outsourcing price (Learning Objective 6)DefTone's sales have increased; as a result, the company needs 400,000 jewel-case liners rather than 250,000 . DefTone has enough existing
Sell as is or process further (Learning Objective 7)}Dairymaid processes organic milk into plain yogurt. Dairymaid sells plain yogurt to hospitals, nursing homes, and restaurants in bulk, one-gallon
Special order decision and considerations (Learning Objective 2)}Buoy manufactures flotation vests in Tampa, Florida. Buoy's contribution margin income statement for the most recent month contains
Pricing of nursery plants (Learning Objective 3)}GreenThumb operates a commercial plant nursery where it propagates plants for garden centers throughout the region. GreenThumb has \(\$ 5\) million in
Prepare and use contribution margin statements for dropping a line decision (Learning Objective 4) \\ Members of the board of directors of Security Systems have received the following operating
Product mix decision under constraint (Learning Objective 5)Brun, located in St. Cloud, Minnesota, produces two lines of electric toothbrushes: deluxe and standard. Because Brun can sell all of the
Outsourcing decision given alternative use of capacity (Learning Objective 6)}X-Perience manufactures snowboards. Its cost of making 1,800 bindings is:Suppose O'Brien will sell bindings to X-Perience
Sell or process further decisions (Learning Objective 7)}Vision Chemical has spent \(\$ 240,000\) to refine 72,000 gallons of acetone, which can be sold for \$2.16 a gallon. Alternatively, Vision
Special order decision and considerations (Learning Objective 2)United Packaging's contribution margin income statement follows:Wallace Farms wants to buy 5,000 produce boxes from United Packaging.
Pricing of facial tissues (Learning Objective 3)}Softies produces facial tissues. Softies has \(\$ 50\) million in assets. Its yearly fixed costs are \(\$ 12\) million, and the variable cost of
Prepare and use contribution margin statements for dropping a line decision (Learning Objective 4)}The following operating income data of Abalone Seafood highlight the losses of the fresh seafood
Product mix under constraint (Learning Objective 5)}Easy Living of Charlotte, North Carolina, specializes in outdoor furniture and spas. Owner Linda Spring is expanding the store. She is deciding
Outsourcing: alternative use of capacity (Learning Objective 6)}Morning Grain makes organic cereal. Costs of producing 140,000 boxes of cereal each year follow:Suppose Kellogg's will sell Morning
Sell or process further decision (Learning Objective 7)}Acme Petroleum has spent \(\$ 200,000\) to refine 60,000 gallons of petroleum distillate. Suppose Acme Petroleum can sell the distillate for
Outsourcing e-mail (Learning Objective 6)}BKFin.com provides banks access to sophisticated financial information and analysis systems via the Web. The company combines these tools with benchmarking
Outsourcing and ethics (Learning Objective 6)}Mary Tan is the controller for Duck Associates, a property management company in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with
Relevant information to outsourcing decision (Learning Objective 6) John Menard is the founder and sole owner of Menards. Analysts have estimated that his chain of home improvement stores scattered
Which of the following methods uses accrual accounting rather than net cash flows as a basis for calculations?a. paybackb. ARRc. NPVd. IRR
Which of the following is true regarding capital rationing decisions?a. Companies should always choose the investment with the shortest payback period.b. Companies should always choose the investment
Your rich aunt has promised to give you \(\$ 3,000\) a year at the end of each of the next four years to help you pay for college. With a discount rate of \(10 \%\), the present value of the gift can
Which of the following affects the present value of an investment?a. the interest rateb. the number of time periods (length of the investment)c. the type of investment (annuity versus single lump
When making capital rationing decisions, the size of the initial investment required may differ between alternative investments. The profitability index can be used in conjunction with which of the
Which of the following is the most reliable method for making capital budgeting decisions?a. NPV methodb. ARR methodc. payback methodd. post-audit method
Describe the importance of capital investments and the capital budgeting process
Use the payback and accounting rate of return methods to make capital investment decisions
Use the time value of money to compute the present and future values of single lump sums and annuities
Use discounted cash flow models to make capital investment decisions
Compare and contrast the four capital budgeting methods
Order the capital budgeting process (Learning Objective 1)Place the following activities in sequence to illustrate the capital budgeting process:a. Budget capital investmentsb. Project investments'
Compute payback period-equal cash inflows (Learning Objective 2)}Refer to the Allegra Data Set. Calculate the CD-player project's payback period. If the CD project had a residual value of \(\$
Compute payback period-unequal cash inflows (Learning Objective 2)Refer to the Allegra Data Set. Calculate the DVR project's payback period. If the DVR project had a residual value of \(\$ 100,000\),
Compute ARR-equal cash inflows (Learning Objective 2)}Refer to the Allegra Data Set. Calculate the CD-player project's ARR. If the CD project had a residual value of \(\$ 100,000\), would the ARR
Compute ARR-unequal cash inflows (Learning Objective 2)}Refer to the Allegra Data Set. Calculate the DVR project's ARR. If the DVR project had a residual value of \(\$ 100,000\), would the ARR
Compute annual cash savings (Learning Objective 2)}Suppose Allegra is deciding whether to invest in a DVD-HD project. The payback period for the \(\$ 5\) million investment is four years, and the
Find the present values of future cash flows (Learning Objective 3)Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios
Show how timing affects future values (Learning Objective 3)Assume that you make the following investments:a. You invest a lump sum of \(\$ 5,000\) for four years at \(12 \%\) interest. What is the
Compare payout options at their future values (Learning Objective 3)Refer to the lottery payout options on page 486. Rather than compare the payout options at their present values (as is done in the
Relationship between the PV tables (Learning Objective 3)Use the Present Value of \(\$ 1\) table (Appendix 9A, Table A) to determine the present value of \(\$ 1\) received one year from now. Assume a
Compute NPV-equal net cash inflows (Learning Objective 4)Skyline Music is considering investing \(\$ 750,000\) in private lesson studios that will have no residual value. The studios are expected to
Compute IRR-equal net cash inflows (Learning Objective 4)Refer to Skyline Music in S9-11 . What is the approximate internal rate of return (IRR) of the studio investment?
Compute NPV-unequal net cash inflows (Learning Objective 4)The local Giant Eagle supermarket is considering investing in self-check-out kiosks for its customers. The self-check-out kiosks will cost
Compute IRR-unequal net cash inflows (Learning Objective 4)Refer to Giant Eagle in S9-13 . What is the approximate internal rate of return (IRR) of the kiosk investment?
Write a memo to employees about capital budgeting (Learning Objectives 1, 5) You have just started a business and want your new employees to be well informed about capital budgeting. Write a memo to
Compute payback period-equal cash inflows (Learning Objective 2)Quiksilver is considering acquiring a manufacturing plant. The purchase price is \(\$ 1,236,100\). The owners believe the plant will
Compute payback period-unequal cash inflows (Learning Objective 2)Sikes Hardware is adding a new product line that will require an investment of \(\$ 1,454,000\). Managers estimate that this
ARR with unequal cash inflows (Learning Objective 2)Refer to the Sikes Hardware information in E9-17. Compute the ARR for the investment.
Compute and compare ARR (Learning Objective 2)Engineered Products is shopping for new equipment. Managers are considering two investments. Equipment manufactured by Atlas costs \(\$ 1,000,000\) and
Compare retirement savings plans (Learning Objective 3)Assume that you want to retire early at age 52 . You plan to save using one of the following two strategies: (1) save \(\$ 3,000\) a year in an
Show the effect of interest rate on future values (Learning Objective 3)Your best friend just received a gift of \(\$ 5,000\) from his favorite aunt. He wants to save the money to use as starter
Fund future cash flows (Learning Objective 3)Janet wants to take the next five years off work to travel around the world. She estimates her annual cash needs at \(\$ 30,000\) (if she needs more,
Choosing a lottery payout option (Learning Objective 3)Congratulations! You've won a state lotto. The state lottery offers you the following (after-tax) payout options:Assuming that you can earn \(8
Solve various time value of money scenarios (Learning Objective 3)}1. Suppose you invest a sum of \(\$ 2,500\) in an account bearing interest at the rate of \(14 \%\) per year. What will the
Calculate NPV-equal annual cash inflows (Learning Objective 4)}Use the NPV method to determine whether Salon Products should invest in the following projects:- Project A: Costs \(\$ 272,000\) and
Calculate IRR-equal cash inflows (Learning Objective 4)Refer to Salon Products in E9-25. Compute the IRR of each project and use this information to identify the better investment.
Calculate NPV-unequal cash flows (Learning Objective 4)}Bevil Industries is deciding whether to automate one phase of its production process. The manufacturing equipment has a six-year life and will
Compute IRR-unequal cash flows (Learning Objective 4)}Ritter Razors is considering an equipment investment that will cost \(\$ 950,000\). Projected net cash inflows over the equipment's three-year
Capital rationing decision (Learning Objective 4)}Sheffield Manufacturing is considering three capital investment proposals. At this time, Sheffield Manufacturing has funds available to pursue only
Compare the capital budgeting methods (Learning Objective 5)Fill in each statement with the appropriate capital budgeting method: payback period, ARR, NPV, or IRR. a. b. c. d. e. and incorporate the
Compute payback and ARR with residual value (Learning Objective 2)}Refer to the Deer Valley Expansion Data Set.1. Compute the average annual net cash inflow from the expansion.2. Compute the average
Continuation of E9-31: Compute payback and ARR with no residual value (Learning Objective 2)Refer to the Deer Valley Expansion Data Set. Assume that the expansion has zero residual
Calculate NPV with and without residual value (Learning Objective 4)Refer to the Deer Valley Expansion Data Set.1. What is the project's NPV? Is the investment attractive? Why or why not?2. Assume
Calculate IRR with no residual value (Learning Objective 4)Refer to the Deer Valley Expansion Data Set. Assume that the expansion has no residual value. What is the project's IRR? Is the investment
Continuation of E9-32, E9-33, E9-34: memo (Learning Objective 5)}Use your results from E9-32, E9-33, and E9-34 to write a memo to Deer Valley's Director of Finance Jim Madsen recommending whether
Apply capital budgeting to a current event (Learning Objective 1)}Look through the business section of the newspaper. Find a company that has recently made a capital investment. Summarize the
Solve various time value of money scenarios (Learning Objectives 3, 4)}1. Jeff just hit the jackpot in Las Vegas and won \(\$ 25,000\) ! If he invests it now at a \(12 \%\) interest rate, how much
Retirement planning in two stages (Learning Objective 3)}You are planning for a very early retirement. You would like to retire at age 40 and have enough money saved to be able to draw \(\$ 225,000\)
Evaluate an investment using all four methods (Learning Objectives 2, 4)Water World is considering purchasing a water park in San Antonio, Texas, for \(\$ 1,850,000\). The new facility will generate
Compare investments with different cash flows and residual values (Learning} Objectives 2, 4)Locos operates a chain of sandwich shops. The company is considering two possible expansion plans. Plan A
Apply capital budgeting to a current event (Learning Objective 1)Look through a recent copy of a business magazine, such as Forbes or Fortune. Find a company that has recently made a capital
Solve various time value of money scenarios (Learning Objectives 3, 4)1. Curt just hit the jackpot in Las Vegas and won \(\$ 50,000\) ! If he invests it now at a \(10 \%\) interest rate, how much
Retirement planning in two stages (Learning Objective 3)}You are planning for an early retirement. You would like to retire at age 50 and have enough money saved to be able to draw \(\$ 225,000\) per
Evaluate an investment using all four methods (Learning Objectives 2, 4)}Zippi manufactures motorized scooters in Oakland, California. The company is considering an expansion. The plan calls for a
Compare investments with different cash flows and residual values (Learning} Objectives 2, 4)Java Café is considering two possible expansion plans. Plan A is to open eight cafés at a cost of \(\$
Apply time value of money to a personal decision (Learning Objective 3)}Ted Christensen, a second-year business student at the University of Utah, will graduate in two years with an accounting major
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