ACCT 421 Final: LABORATORY #5
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Williams-Santana, Inc., is a manufacturer of high-techindustrial parts that was started in 2004 by two talented engineerswith little business training. In 2016, the company was acquired byone of its major customers. As part of an internal audit, thefollowing facts were discovered. The audit occurred during 2016before any adjusting entries or closing entries were prepared. Theincome tax rate is 40% for all years. |
a | A five-year casualty insurance policy was purchased at thebeginning of 2014 for $38,000. The full amount was debited toinsurance expense at the time. | |
b. | Effective January 1, 2016, the company changed the salvage valueused in calculating depreciation for its office building. Thebuilding cost $624,000 on December 29, 2005, and has beendepreciated on a straightline basis assuming a useful life of 40years and a salvage value of $100,000. Declining real estate valuesin the area indicate that the salvage value will be no more than$25,000. | |
c. | On December 31, 2015, merchandise inventory was overstated by$28,000 due to a mistake in the physical inventory count using theperiodic inventory system. | |
d. | The company changed inventory cost methods to FIFO from LIFO atthe end of 2016 for both financial statement and income taxpurposes. The change will cause a $990,000 increase in thebeginning inventory at January 1, 2017. | |
e. | At the end of 2015, the company failed to accrue $16,100 ofsales commissions earned by employees during 2015. The expense wasrecorded when the commissions were paid in early 2016. | |
f. | At the beginning of 2014, the company purchased a machine at acost of $780,000. Its useful life was estimated to be ten yearswith no salvage value. The machine has been depreciated by thedouble-declining balance method. Its book value on December 31,2015, was $499,200. On January 1, 2016, the company changed to thestraight-line method. | |
g. | Warranty expense is determined each year as 1% of sales. Actualpayment experience of recent years indicates that 0.75% is a betterindication of the actual cost. Management effects the change in2016. Credit sales for 2016 are $4,600,000; in 2015 they were$4,300,000.
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Exercise 13-8 Payback Period and Simple Rate of Return [LO13-1,LO13-6]
Nickâs Novelties, Inc., is considering the purchase of newelectronic games to place in its amusement houses. The games wouldcost a total of $225,000, have an fifteen-year useful life, andhave a total salvage value of $22,500. The company estimates thatannual revenues and expenses associated with the games would be asfollows: |
Revenues | $ | 220,000 | ||||
Less operatingexpenses: | ||||||
Commissions to amusement houses | $ | 70,000 | ||||
Insurance | 25,000 | |||||
Depreciation | 13,500 | |||||
Maintenance | 80,000 | 188,500 | ||||
Net operatingincome | $ | 31,500 | ||||
Garrison 15e Recheck 2014-12-29, 03_03_2015_QC_CS-9557
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Section BreakExercise 13-8 Payback Period andSimple Rate of Return [LO13-1, LO13-6]
Exercise 13-8 Part 1
Required: | |
1a. | Compute the pay back period associated with the new electronicgames. |
1b. | Assume that Nickâs Novelties, Inc., will not purchase new gamesunless they provide a payback period of five years or less. Wouldthe company purchase the new games? | ||||
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Garrison 15e Recheck 2014-12-29, 03_03_2015_QC_CS-9557
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Expanded tableExercise 13-8 Part 1
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3.
Exercise 13-8 Part 2
2a. | Compute the simple rate of return promised by the games.(Round your answer to 1 decimal place. i.e. 0.123 should beconsidered as 12.3%.) |
2b. | If the company requires a simple rate of return of at least 13%,will the games be purchased? | ||||
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