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public accounting

Questions and Answers of Public Accounting

=+EX B-1 Adjusting and reversing entries On the basis of the following data, (a) journalize the adjusting entries at June 30, the end of the current fiscal year, and (b) journalize the reversing
=+2. Accrued fees earned but not recorded at December 31, $19,850.
=+1. Sales salaries are uniformly $17,375 for a five-day workweek, ending on Friday. The last payday of the year was Friday, December 26.
=+On the basis of the following data, (a) journalize the adjusting entries at December 31, the end of the current fiscal year, and (b) journalize the reversing entries on January 1, the first day of
=+SA 26-5 Net present value method In one group, find a local business, such as a copy shop, that rents time on desktop computers for an hourly rate. Determine the hourly rate. In the other group,
=+b. Under the assumptions provided here, is the film expected to be financially successful?
=+a. Determine the net present value of the film as of the beginning of 2011 if the desired rate of return is 20%. To simplify present value calculations, assume all annual net cash flows occur at
=+Assume that MGM produces a film during early 2011 at a cost of $195 million, and releases it halfway through the year. During the last half of 2011, the film earns revenues of $235 million at the
=+Metro-Goldwyn-Mayer Studios Inc. (MGM) is a major producer and distributor of theatrical and television filmed entertainment. Regarding theatrical films, MGM states,“Our feature films are
=+Explain the role of capital investment analysis for these companies.
=+Chief Financial Officer of Merck & Co., Inc. (a pharmaceutical company): “ . . . at the individual product level—the development of a successful new product requires on the order of $230
=+SA 26-4 Qualitative issues in investment analysis 1214 Chapter 26 Capital Investment Analysis much more dependent on seeing results over time, tracking and adjusting and readjusting, much more
=+SA 26-3 Changing prices The following are some selected quotes from senior executives:CEO, Worthington Industries (a high technology steel company): “We try to find the best technology, stay
=+b. Assume that the plant produced product in the local economy but exported the product back to the United States for sale. Explain what impact the change in the currency exchange rate would have
=+a. Assume that the plant produced and sold product in the local economy. Explain what impact this change in the currency exchange rate would have on the project’s internal rate of return.
=+SA 26-2 Personal investment analysis International Electronics Inc. invested $1,000,000 to build a plant in a foreign country.The labor and materials used in production are purchased locally. The
=+3. What is the net advantage or disadvantage of pursuing a graduate degree under these assumptions?
=+2. Determine the net present value of cash flows from a Masters of Accountancy degree, assuming no salary is earned during the graduate year of schooling.
=+A Masters of Accountancy degree at Mid-State University would cost $10,000 for an additional fifth year of education beyond the bachelor’s degree. Assume that all tuition is paid at the beginning
=+What is your advice to Dawn?
=+I. M.: Good. Here’s what I want you to do. I see in your analysis that you don’t project greater sales as a result of the warehouse. It seems to me, if we can store more goods, then we will
=+I. M.: Listen, you need to understand something. The headquarters people will not allow me to build the warehouse if the numbers don’t add up. You know as well as I that many assumptions go into
=+SA 26-1 Ethics and professional conduct in business Chapter 26 Capital Investment Analysis 1213 Dawn: No, really, I was being serious. My analysis does not support constructing a new warehouse.
=+Dawn Jeffries was recently hired as a cost analyst by Carenet Medical Supplies Inc. One of Dawn’s first assignments was to perform a net present value analysis for a new warehouse. Dawn
=+8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).Special Activities
=+4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 15% and the present value of $1 table appearing in this chapter.Round to the nearest
=+$130,000 $310,000 _________ __________ The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is
=+PR 26-6B Capital rationing decision involving four proposals objs. 2, 3, 5✔ 5. Proposal B, 1.15 Income from Net Cash Investment Year Operations Flow Proposal D: $180,000 1 $ 54,000 $ 90,000 2
=+$140,000 $ 560,000 __________ __________ Proposal B: $850,000 1 $130,000 $ 300,000 2 130,000 300,000 3 130,000 300,000 4 130,000 300,000 5 80,000 250,000 _________ __________ _________
=+PR 26-5B Evaluate alternative capital investment decisions objs. 3, 4✔ 1. Project II,$79,625 Empire Capital Group is considering allocating a limited amount of capital investment funds among four
=+3. Prepare a report to the investment committee, providing your advice on the relative merits of the two projects.
=+2. For each project, compute the net present value, assuming that Project I is adjusted to a four-year life for purposes of analysis. Use the present value of $1 table appearing in this chapter.
=+1. For each project, compute the net present value. Use the present value of an annuity of $1 table appearing in this chapter. (Ignore the unequal lives of the projects.)
=+The committee has selected a rate of 12% for purposes of net present value analysis. It also estimates that the residual value at the end of each project’s useful life is $0, but at the end of
=+The investment committee of Reliant Insurance Co. is evaluating two projects. The projects have different useful lives, but each requires an investment of $300,000. The estimated net cash flows
=+PR 26-4B Net present value method, internal rate of return method, and analysis obj. 3✔ 1.a. Generating unit, $248,240 Chapter 26 Capital Investment Analysis 1211 Instructions 1. Compute the
=+The generating unit requires an investment of $1,761,460, while the distribution network expansion requires an investment of $665,700. No residual value is expected from either project.
=+PR 26-3B Net present value method, present value index, and analysis obj. 3✔ 2. Railcars, 1.17 The management of Mid South Utilities Inc. is considering two capital investment projects. The
=+3. Which proposal offers the largest amount of present value per dollar of investment? Explain.
=+2. Determine a present value index for each proposal. Round to two decimal places.
=+PR 26-2B Cash payback period, net present value method, and analysis objs. 2, 3✔ 1.b. Plant Expansion, $11,100 Atlantic Coast Railroad Company wishes to evaluate three capital investment
=+2. Prepare a brief report advising management on the relative merits of each project.
=+2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.Be You Apparel Inc. is considering two investment projects. The estimated
=+PR 26-1B Average rate of return method, net present value method, and analysis objs. 2, 3✔ 1.a. 60%1210 Chapter 26 Capital Investment Analysis Instructions 1. Compute the following:a. The average
=+Each project requires an investment of $90,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present
=+The capital investment committee of Windsor Landscaping Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as
=+8. Based on the analyses, comment on the relative attractiveness of the proposals ranked in parts (6) and (7).Problems Series B
=+7. Rank the proposals from most attractive to least attractive, based on the present value indexes computed in part (5). Round to two decimal places.
=+6. Rank the proposals from most attractive to least attractive, based on the present values of net cash flows computed in part (4).
=+5. Compute the present value index for each of the proposals in part (4). Round to two decimal places.
=+4. For the proposals accepted for further analysis in part (3), compute the net present value. Use a rate of 12% and the present value of $1 table appearing in this chapter.Round to the nearest
=+3. Using the following format, summarize the results of your computations in parts (1)and (2). By placing the calculated amounts in the first two columns on the left and by placing a check mark in
=+PR 26-6A Capital rationing decision involving four proposals objs. 2, 3, 5✔ 5. Proposal B, 1.26 Income from Net Cash Investment Year Operations Flow Proposal D: $190,000 1 $ 22,000 $ 60,000 2
=+$100,000 $ 525,000 __________ __________ Proposal B: $610,000 1 $158,000 $ 280,000 2 158,000 280,000 3 78,000 200,000 4 28,000 150,000 5 (22,000) 100,000 _________ __________ _________
=+PR 26-5A Evaluate alternative capital investment decisions objs. 3, 4✔ 1. Site B,$159,920 Grant Communications Inc. is considering allocating a limited amount of capital investment funds among
=+3. Prepare a report to the investment committee, providing your advice on the relative merits of the two sites.
=+2. For each site, compute the net present value, assuming that Site A is adjusted to a four-year life for purposes of analysis. Use the present value of $1 table appearing in this chapter.
=+The committee has selected a rate of 20% for purposes of net present value analysis.It also estimates that the residual value at the end of each restaurant’s useful life is $0, but at the end of
=+The investment committee of Grid Iron Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $565,000.The estimated net cash
=+3. What advantage does the internal rate of return method have over the net present value method in comparing projects?
=+2. Determine the internal rate of return for each project by (a) computing a present value factor for an annuity of $1 and (b) using the present value of an annuity of $1 table appearing in this
=+1. Compute the following for each project:a. The net present value. Use a rate of 10% and the present value of an annuity of $1 table appearing in this chapter.b. A present value index. Round to
=+PR 26-4A Net present value method, internal rate of return method, and analysis obj. 3✔ 1.a. Radio station, $110,250 1208 Chapter 26 Capital Investment Analysis Instructions
=+The radio station requires an investment of $999,250, while the TV station requires an investment of $2,125,900. No residual value is expected from either project.
=+PR 26-3A Net present value method, present value index, and analysis obj. 3✔ 2. Branch office expansion, 1.07 The management of Quest Media Inc. is considering two capital investment projects.The
=+3. Which project offers the largest amount of present value per dollar of investment? Explain.
=+2. Determine a present value index for each project. Round to two decimal places.
=+PR 26-2A Cash payback period, net present value method, and analysis objs. 2, 3✔ 1.b. Home &Garden, $127,158 United Bankshores, Inc. wishes to evaluate three capital investment projects by using
=+2. Prepare a brief report advising management on the relative merits of each of the two products.
=+b. The net present value. Use the present value of $1 table appearing in this chapter.
=+1. Compute the following for each product:a. Cash payback period.
=+Each product requires an investment of $270,000. A rate of 10% has been selected for the net present value analysis.Instructions
=+2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two projects.At Home Publications Inc. is considering two new magazine products. The
=+PR 26-1A Average rate of return method, net present value method, and analysis objs. 2, 3✔ 1.a. 17.5%Chapter 26 Capital Investment Analysis 1207 Instructions 1. Compute the following:
=+Year Operations Flow Operations Flow 1 $ 42,000 $138,000 $ 89,000 $185,000 2 42,000 138,000 69,000 165,000 3 42,000 138,000 34,000 130,000 4 42,000 138,000 14,000 110,000 5 42,000 138,000 4,000
=+EX 26-22 Net present value—unequal lives objs. 3, 4 Problems Series A The capital investment committee of Cross Continent Trucking Inc. is considering two investment projects. The estimated
=+Assume there is sufficient capital to fund only one of the projects. Determine which project should be selected, comparing the (a) net present values and (b) present value indices of the two
=+EX 26-21 Net present value—unequal lives objs. 3, 4✔ Net present value, Apartment Complex, $24,530 Al a Mode, Inc. is considering one of two investment options. Option 1 is a $40,000 investment
=+The estimated residual value of the apartment complex at the end of Year 4 is $325,000.Determine which project should be favored, comparing the net present values of the two projects and assuming a
=+EX 26-20 Identify error in capital investment analysis calculations obj. 3 Lordsland Development Company has two competing projects: an apartment complex and an office building. Both projects have
=+Do you see any reason to question the validity of the data presented? Explain.
=+EX 26-19 Net present value method and internal rate of return method obj. 3✔a. ($10,582)1206 Chapter 26 Capital Investment Analysis Horizon Solutions Inc. is considering the purchase of automated
=+c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented in the text.
=+b. Based on the analysis prepared in part (a), is the rate of return (1) more than 15%, (2) 15%, or (3) less than 15%? Explain.
=+EX 26-18 Internal rate of return method—two projects obj. 3✔a. Delivery truck, 15%Buckeye Healthcare Corp. is proposing to spend $109,296 on an eight-year project that has estimated net cash
=+The new machine would require three fewer hours of direct labor per day. Direct labor is $18 per hour. There are 250 operating days in the year. Both the truck and the bagging machine are
=+EX 26-17 Internal rate of return method obj. 3 Cousin’s Salted Snack Company is considering two possible investments: a delivery truck or a bagging machine. The delivery truck would cost $39,287
=+Determine the expected internal rate of return of this project for 10 years, using the present value of an annuity of $1 table found in Exhibit 2.
=+EX 26-16 Internal rate of return method obj. 3✔a. 3.326 The Canyons Resort, a Utah ski resort, recently announced a $400 million expansion to lodging properties, lifts, and terrain. Assume that
=+b. Using the factor determined in part (a) and the present value of an annuity of $1 table appearing in this chapter, determine the internal rate of return for the proposal.
=+a. Determine a present value factor for an annuity of $1 which can be used in determining the internal rate of return.
=+EX 26-15 Payback period, net present value analysis, and qualitative considerations objs. 2, 3, 4✔a. 4 years The internal rate of return method is used by Carlisle Construction Co. in analyzing a
=+c. What else should the manager consider in the analysis?
=+b. What is the net present value, assuming a 10% rate of return?
=+a. What is the payback period on this project?
=+EX 26-14 Average rate of return, cash payback period, net present value method objs. 2, 3✔b. 4 years The plant manager of Shannon Electronics Company is considering the purchase of new automated
=+c. The net present value. Use the table of the present value of an annuity of $1 appearing in this chapter. Round to the nearest dollar.
=+b. The cash payback period.
=+a. The average rate of return, giving effect to straight-line depreciation on the investment.
=+EX 26-13 Net present value method and present value index obj. 3✔b. Packing Machine, 1.18 Chapter 26 Capital Investment Analysis 1205 Great Plains Transportation Inc. is considering acquiring

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