Google managers must select depreciation methods. Why does the use of the accelerated depreciation method (instead of straight-line) for income tax reporting increase an investment’s value?
A new company, is being established to manufacture and sell an electronic tracking device:
the Trackit. The owners are excited about the future profits that the business will generate.
They have forecast that sales will grow to 2,600 Trackits per month within five months and
will be at that level for the remainder of the first year.
The owners will invest a total of $250,000 in cash on the first day of operations (that is the
first day of July). They will also transfer non-current assets into the company.
Extracts from the company’s business plan are shown below.
The forecast sales for the first five months are:
Month Trackits (units)
The selling price has been set at $140 per Trackit.
Sales will be mainly through large retail outlets. The pattern for the receipt of payment is
expected to be as follows:
Time of payment % of sales value
Immediately 15 *
One month later 25
Two months later 40
Three months later 15
The balance represents anticipated bad debts.
* A 4% discount will be given for immediate payment
The budget production volumes in units are:
July August September October
1,450 1,650 2,120 2,460
Variable production cost
The budgeted variable production cost is $90 per unit, comprising:
Direct materials 60
Direct labour 10
Variable production overheads 20
Total variable cost 90
Direct materials: Payment for purchases will be made in the month following receipt of
materials. There will be no opening inventory of materials in July. It will be company policy to
hold inventory at the end of each month equal to 20% of the following month’s production
Direct labour will be paid in the month in which the production occurs.
Variable production overheads: 65% will be paid in the month in which production occurs and
the remainder will be paid one month later.
Fixed overhead costs
Fixed overheads are estimated at $840,000 per annum and are expected to be incurred in
equal amounts each month. 60% of the fixed overhead costs will be paid in the month in
which they are incurred and 15% in the following month. The balance represents depreciation
of noncurrent assets.
a) Prepare a cash receipts budget schedule for each of the first three months
(July – September), including the total receipts per month.
b) Prepare a material purchases budget schedule for each of the first three
months (July – September), including the total purchases per month.
c) Prepare a cash budget for the month of July. Include the owners’ cash contributions
On January 1, 2018 ABC Corporation issued a five-year $1,000,000, 8%, at $1,250,000. Interest is paid annually on December 31. The market rate of interest is 5%.
a) Using the effective interest rate method, what is the interest expense at December 31, 2018? Interest Expense at December 31,2018 = $___________________________
B)What is the carrying value of the bond at December 31, 2018? Carrying value of bond on December 31, 2018 = $ ________________________
C)What is the carrying value of the bond at January 1, 2023? Carrying value of the bond at January 1, 2023 =$_________________________
A segmented income statement for Smith & Eason’s Armory as shown below:
|Shield||Club||Tear Gas Grenade||Total|
|Sales Revenue||$ 400,000||$ 200,000||$ 300,000||$ 900,000|
|Less: Variable Expenses||225,000||120,000||250,000||595,000|
|Contribution Margin||$ 175,000||$ 80,000||$ 50,000||$ 305,000|
|Less Direct Fixed Expenses:|
|Segment Margin||$ 120,000||$ 40,000||$ (45,000)||$ 115,000|
Refer to the information for Smith & Eason’s Armory above. Smith & Eason’s management is deciding whether to keep or drop the Tear Gas Grenade product line. Smith & Eason's’s mob control product line has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant. Relevant fixed costs associated with this line include 80% of Tear Gas Grenade’s machine rent and all of Grenade’s supervision salaries.
List factors that Smith & Eason should consider in deciding whether to drop the Tear Gas Grenade line (at least 2 factors).
Use the net FUTA tax rate of 0.6% on the first $7,000 of taxable wages.
Ted Carman worked for Rivertide Country Club and earned $28,500 during the year. He also worked part time for Harrison Furniture Company and earned $12,400 during the year. The SUTA tax rate for Rivertide Country Club is 4.2% on the first $8,000, and the rate for Harrison Furniture Company is 5.1% on the first $8,000. Calculate the FUTA and SUTA taxes paid by the employers on Carman's earnings.
|a. Rivertide Country Club||$fill in the blank 1||$fill in the blank 2|
|b. Harrison Furniture Company||$fill in the blank 3||$fill in the blank 4|
Compute days’ payable outstanding and explain its use in assessing payments to suppliers.