1) Britt Slais owns a garage and is contemplating purchasing a tire retreading machine
for $20,350. After estimating costs and revenues, Britt projects a net cash flow from the
retreading machine of $3,500 annually for 8 years. Britt hopes to earn a return of 11%
on such investments. What is the present value of the retreading operation? Should Britt
Slais purchase the retreading machine?
2) Baden’s Hardware Store prepared the following analysis of cost of goods sold for the
previous three years:
2013 2014 2015
Beginning inventory 1/1$40,000$18,000$25,000
Cost of goods purchased 50,000 55,000 70,000
Cost of goods available for sale90,00073,00095,000
Ending inventory 12/31 18,000 25,000 40,000
Cost of goods sold$72,000$48,000$55,000
Net income for the years 2013, 2014, and 2015 was $70,000, $60,000, and $55,000,
respectively. Since net income was consistently declining, Mr. Baden hired a new
accountant to investigate the cause(s) for the declines.
The accountant determined the following:
1>Purchases of $25,000 were not recorded in 2013 .
2>The 2013 December 31 inventory should have been $24,000.
3>The 2014 ending inventory included inventory costing $5,000 that was purchased
FOB destination and in transit at year end.
4>The 2015 ending inventory did not include goods costing $4,000 that were shipped
on December 29 to Sampson Plumbing Company, FOB shipping point. The goods were
still in transit at the end of the year.
Instructions
Determine the correct net income for each year. (Show all computations.)
3) Par value of stock represents the __________________ per share that must be
retained in the business for the protection of corporate ___________________.
4) Grub Cleaners, Inc. has the following production data for January:
Transferred out 50,000 units
Ending work in process 6,000 units
The units in ending work in process are 100% complete for materials and 60%
complete for conversion costs. There is no beginning work in process. Materials cost is
$6 per unit and conversion costs are $11 per unit.
Instructions
Determine the costs to be assigned to the units transferred out and the units in ending
work in process.
5) Dednam, Inc. is the manufacturer of miniature models, especially of automobiles
with historical interest. The company is developing new standard costs. Jeo Hancock
suggests that the new standards for materials should not include any waste for liquid
plastics that spill out of the molds. “After all,” he says, “we’re trying to be a world class
company. When we build in waste, we tell the workers it’s okay to waste some.” Nona
Kirkham, another manager, disagrees. “If we don’t allow for some normal human error,”
she says, “we’ll have a mighty unhappy work force. Also, I think that these kinds of
perfection standards exploit the workers. I certainly wouldn’t want to be held up to
perfection every daywhat could I do but fail?”
6) Bay States Chemical Corporation produces an oil-based chemical product which it
sells to paint manufacturers. In 2014, the company incurred $344,000 of costs to
produce 40,000 gallons of the chemical. The selling price of the chemical is $11.00 per
gallon. The costs per unit to manufacture a gallon of the chemical are presented below:
Direct materials$6.00
Direct labor1.20
Variable manufacturing overhead.80
Fixed manufacturing overhead .60
Total manufacturing costs$8.60
The company is considering manufacturing the paint itself. If the company processes
the chemical further and manufactures the paint itself, the following additional costs per
gallon will be incurred: Direct materials $1.80, Direct labor $.60, Variable
manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected.
The company can sell the paint at $15.00 per gallon.
Instructions
Determine the incremental per gallon increase in net income and the total increase in
net income if the company manufactures the paint.
7) Presented below is information related to plant assets, natural resources, and
intangibles at year end on December 31, 2014, for Hanley Company:
Buildings$1,280,000
Goodwill650,000
Patents480,000
Coal Mine440,000
Accumulated DepreciationBldg.670,000
Accumulated Depletion275,000
Instructions
Prepare a partial balance sheet for Hanley Company that shows how the above listed
items would be presented.
8) Harnish Company needs to make adjusting entries for each of the following
reconciling items. Identify the account to be debited and the account to be credited in
each case.
1>A check for $127 written to the company by J. Chandler was returned NSF.
2>The monthly service charge by the bank was $20.
3>The bank collected a $1,000 note plus interest of $100 on the companys behalf. The
company had not accrued the interest.
9) The HK Partnership is liquidated when the ledger shows:
Cash$60,000
Noncash Assets90,000
Liabilities44,000
Howell, Capital100,000
Kenton, Capital6,000
Henson and Kaenzig income ratios are 3:2, respectively.
Instructions
Prepare a schedule of cash payments, assuming that the noncash assets were sold for
$65,000. Assume that any partners capital deficiencies cannot be paid to the
partnership.
10) A new partner may be admitted to the partnership by ______________ the interest
of an existing partner, or by ______________ assets in the partnership.