ACCT 305 FINAL

1.The Higgins Company has just purchased a piece of equipment at a cost of $300,000. This equipment will reduce operating costs by $55,000 each year for the next eleven years. This equipment replaces old equipment which was sold for $14,000 cash. The new equipment has a payback period of: (Ignore income taxes.)  (Round your answer to 1 decimal place.)

A.16.2 Years

B.5.5 Years

C.5.2 Years

D.11.10

 

2.The management of Serpas Corporation is considering the purchase of a machine that would cost $170,000, would last for 5 years, and would have no salvage value. The machine would reduce labor and other costs by $41,000 per year. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)

 

Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

 

 

The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

A.-18,464

B. 35,000

C.-33,811

D. 27,384

3. Lett Corporation is investigating buying a small used aircraft for the use of its executives. The aircraft would have a useful life of 12 years. The company uses a discount rate of 17% in its capital budgeting. The net present value of the investment, excluding the salvage value of the aircraft, is -$578,526. (Ignore income taxes.)

 

Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables.

 

 

Management is having difficulty estimating the salvage value of the aircraft. How large would the salvage value of the aircraft have to be to make the investment in the aircraft financially attractive? (Round discount factor(s) to 3 decimal places and final answers to the nearest dollar amount.)

A.$3,806,092

B.$3,403,094

C.$98,349

D.$578,526

4.

The management of Londo Corporation is investigating buying a small used aircraft to use in making airborne inspections of its above-ground pipelines. The aircraft would have a useful life of 4 years. The company uses a discount rate of 10% in its capital budgeting. The net present value of the investment, excluding the intangible benefits, is −$316,080. (Ignore income taxes.)

 

Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

 

 

How large would the annual intangible benefit have to be to make the investment in the aircraft financially attractive? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)

 

$31,608

 

$316,080

 

$79,020

 

$99,710

 

5.

The management of Melchiori Corporation is considering the purchase of a machine that would cost $360,000, would last for 6 years, and would have no salvage value. The machine would reduce labor and other costs by $116,000 per year. The company requires a minimum pretax return of 14% on all investment projects. (Ignore income taxes.)

 

Click here to view Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

 

 

The present value of the annual cost savings of $116,000 is closest to: (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)

 

$451,124

 

$175,448

 

$1,091,462

 

$696,000

6.

Gull Inc. is considering the acquisition of equipment that costs $550,000 and has a useful life of 6 years with no salvage value. The incremental net cash flows that would be generated by the equipment are: (Ignore income taxes.)

 

Incremental net

cash flows

Year 1$145,000

Year 2$195,000

Year 3$156,000

Year 4$165,000

Year 5$155,000

Year 6$135,000

 

Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables.

 

 

If the discount rate is 13%, the net present value of the investment is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

 

 

$435,000

 

$148,776

 

$89,228

 

$591,264

7.

Charley has a typing service. He estimates that a new computer will result in increased cash inflow $1,100 in Year 1, $1,500 in Year 2 and $2,500 in Year 3. (Ignore income taxes.)

 

Click here to view Exhibit 13B-1 to determine the appropriate discount factor(s) using tables.

 

 

If Charley’s required rate of return is 12%, the most that Charley would be willing to pay for the new computer would be: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

 

$3,459

 

$2,296

 

$3,278

 

$3,958

8.

Shields Company has gathered the following data on a proposed investment project: (Ignore income taxes.)

 

Investment required in equipment$460,000

Annual cash inflows$77,000

Salvage value$0

Life of the investment16 years

Discount rate12%

 

The simple rate of return on the investment is closest to: (Round your answer to the closest interest rate.)

 

5%

 

10%

 

15%

 

11%

 

9.

Sibble Corporation is considering the purchase of a machine that would cost $330,000 and would last for 7 years. At the end of 7 years, the machine would have a salvage value of $25,000. By reducing labor and other operating costs, the machine would provide annual cost savings of $63,000. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)

 

Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

 

The net present value of the proposed project is closest to: (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)

 

−$45,194

 

−$33,144

 

−$8,144

 

−$21,094

 

10.

Shields Company has gathered the following data on a proposed investment project: (Ignore income taxes.)

 

Investment required in equipment$470,000

Annual cash inflows$77,000

Salvage value$0

Life of the investment20 years

Discount rate14%

 

Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables.

 

 

The internal rate of return on the investment is closest to: (Round discount factor(s)  to 3 decimal places and final answer to the closest interest rate.)

 

12%

 

14%

 

16%

 

18%

 

11.

Cezar Corporation’s comparative balance sheet appears below:

 

Cezar Corporation

Comparative Balance Sheet

Ending

BalanceBeginning

Balance

Assets:

Current assets:

Cash and cash equivalents$ 84,000   $ 51,000

Accounts receivable33,900   41,000

Inventory76,200   71,000

Total current assets194,100   163,000

Property, plant, and equipment535,500   510,000

Less accumulated depreciation195,500   171,000

Net property, plant, equipment340,000   339,000

Total assets$534,100   $502,000

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable$ 27,800   $ 31,000

Accrued liabilities61,800   71,000

Income taxes payable63,600   61,000

Total current liabilities153,200   163,000

Bonds payable96,200   91,000

Total liabilities249,400   254,000

Stockholders’ equity:

Common stock42,000   51,000

Retained earnings242,700   197,000

Total stockholders’ equity284,700   248,000

Total liabilities and stockholders’ equity$534,100   $502,000

 

The company did not dispose of any property, plant, and equipment during the year. Its net income for the year was $48,400 and its cash dividends were $2,700. The company did not retire any bonds payable or issue any common stock during the year. Its net cash provided by operating activities and net cash used in financing activities are:

 

net cash provided by operating activities, $31,600; net cash used in financing activities,$7,900

 

net cash provided by operating activities, $31,600; net cash used in financing activities,$6,500

 

net cash provided by operating activities, $65,000; net cash used in financing activities,$6,500

 

net cash provided by operating activities, $65,000; net cash used in financing activities,$7,900

 

12.

Nordquist Company’s net income last year was $31,000. The company did not sell or retire any property, plant, and equipment last year. Changes in selected balance sheet accounts for the year appear below:

 

Increases

(Decreases)

Asset and Contra-Asset Accounts:

Accounts receivable$15,500

Inventory$(4,000)

Prepaid expenses$11,000

Accumulated depreciation$28,000

Liability Accounts:

Accounts payable$15,000

Accrued liabilities$(8,500)

Income taxes payable$3,100

 

Based solely on this information, the net cash provided by operating activities under the indirect method on the statement of cash flows would be:

 

$68,600

 

$15,900

 

$46,100

 

$91,100

 

13.  Last year Burford Company’s cash account decreased by $33,000. Net cash used in investing activities was $8,800. Net cash provided by financing activities was $29,500. On the statement of cash flows, the net cash flow provided by (used in) operating activities was:

 

$20,700

 

$(53,700)

 

$(33,000)

 

$(12,300)

 

 

 

14.

Mccloe Corporation’s balance sheet and income statement appear below:

 

Mccloe Corporation

Comparative Balance Sheet

Ending

BalanceBeginning

Balance

Assets:

Cash and cash equivalents$ 58      $ 43

Accounts receivable48      62

Inventory78      62

Property, plant and equipment535      520

Less: accumulated depreciation275      262

Total assets$444      $425

Liabilities and stockholders’ equity:

Accounts payable$ 71      $ 57

Accrued liabilities44      28

Income taxes payable57      57

Bonds payable77      144

Common stock47      42

Retained earnings148      97

Total liabilities and stockholders’ equity$444      $425

 

Income Statement

Sales$568

Cost of goods sold360

Gross margin208

Selling and administrative expenses141

Net operating income67

Gain on sale of plant and equipment22

Income before taxes89

Income taxes32

Net income$ 57

 

Cash dividends were $6. The company did not issue any bonds or repurchase any of its own common stock during the year. The net cash provided by (used in) financing activities for the year was:

 

rev: 05_24_2013_QC_31013

 

$(67)

 

$(68)

 

$(6)

 

$5

 

15.

Lueckenhoff Corporation’s most recent balance sheet appears below:

 

Lueckenhoff Corporation

Comparative Balance Sheet

Ending

BalanceBeginning

Balance

Assets:

Cash and cash equivalents$ 44      $ 40

Accounts receivable59      52

Inventory86      80

Property, plant and equipment790      732

Less: accumulated depreciation289      206

Total assets$690      $698

Liabilities and stockholders’ equity:

Accounts payable$ 37      $ 34

Bonds payable460      668

Common stock72      64

Retained earnings121      (68)

Total liabilities and stockholders’ equity$690      $698

 

The company’s net income for the year was $242 and it did not sell or retire any property, plant, and equipment during the year. Cash dividends were $53. The net cash provided by (used in) operating activities for the year was:

 

$315

 

$73

 

$169

 

$368

 

16.

Hocking Corporation’s comparative balance sheet appears below:

 

Hocking Corporation

Comparative Balance Sheet

Ending

BalanceBeginning

Balance

Assets:

Current assets:

Cash and cash equivalents$ 47,000   $ 27,000

Accounts receivable22,300   27,000

Inventory61,700   57,000

Prepaid expenses15,300   17,000

Total current assets146,300   128,000

Property, plant, and equipment356,000   337,000

Less accumulated depreciation176,000   144,000

Net property, plant, and equipment180,000   193,000

Total assets$326,300   $321,000

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable$ 21,700   $ 18,000

Accrued liabilities65,700   57,000

Income taxes payable49,700   47,000

Total current liabilities137,100   122,000

Bonds payable64,500   77,000

Total liabilities201,600   199,000

Stockholders’ equity:

Common stock34,300   38,000

Retained earnings90,400   84,000

Total stockholders’ equity124,700   122,000

Total liabilities and stockholders’ equity$326,300   $321,000

 

The company’s net income (loss) for the year was $8,800 and its cash dividends were $2,400. It did not sell or retire any property, plant, and equipment during the year.

 

The company’s net cash used in investing activities is:

 

$19,000

 

$36,700

 

$13,000

 

$51,000

 

 

17. Hocking Corporation’s comparative balance sheet appears below:

 

Hocking Corporation

Comparative Balance Sheet

Ending

BalanceBeginning

Balance

Assets:

Current assets:

Cash and cash equivalents$ 57,000   $ 37,000

Accounts receivable31,300   37,000

Inventory72,700   67,000

Prepaid expenses24,300   27,000

Total current assets185,300   168,000

Property, plant, and equipment374,000   347,000

Less accumulated depreciation196,000   164,000

Net property, plant, and equipment178,000   183,000

Total assets$363,300   $351,000

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable$ 32,700   $ 28,000

Accrued liabilities76,700   67,000

Income taxes payable60,700   57,000

Total current liabilities170,100   152,000

Bonds payable59,000   87,000

Total liabilities229,100   239,000

Stockholders’ equity:

Common stock45,400   48,000

Retained earnings88,800   64,000

Total stockholders’ equity134,200   112,000

Total liabilities and stockholders’ equity$363,300   $351,000

 

The company’s net income (loss) for the year was $31,000 and its cash dividends were $6,200. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.

 

The company’s net cash provided by operating activities is:

 

$89,500

 

$78,100

 

$83,800

 

$51,800

 

18. Boole Corporation’s net cash provided by operating activities was $125; its capital expenditures were $68; and its cash dividends were $27. The company’s free cash flow was:

 

$30

 

$98

 

$57

 

$220

 

19.

Financial statements of Ansbro Corporation follow:

 

Ansbro Corporation

Comparative Balance Sheet

Ending

BalanceBeginning

Balance

Assets:

Cash and cash equivalents$ 38      $ 35

Accounts receivable94      86

Inventory53      45

Property, plant and equipment738      620

Less: accumulated depreciation358      313

Total assets$565      $473

Liabilities and stockholders’ equity:

Accounts payable$ 71      $ 80

Bonds payable165      250

Common stock104      86

Retained earnings225      57

Total liabilities and stockholders’ equity$565      $473

 

Income Statement

Sales$775

Cost of goods sold438

Gross margin337

Selling and administrative expenses104

Net operating income233

Income taxes40

Net income$ 193

 

Cash dividends were $25. The company did not dispose of any property, plant, and equipment. It did not issue any bonds payable or repurchase any of its own common stock. The following questions pertain to the company’s statement of cash flows.

 

The net cash provided by (used in) investing activities for the year was:

$118

$(73)

$73

$(118)

 

 

 

 

20.

Schleich Corporation’s most recent balance sheet appears below:

 

Schleich Corporation

Comparative Balance Sheet

Ending

BalanceBeginning

Balance

Assets:

Cash and cash equivalents$ 42      $ 31

Accounts receivable40      27

Inventory52      67

Property, plant and equipment744      552

Less: accumulated depreciation286      264

Total assets$592      $413

Liabilities and stockholders’ equity:

Accounts payable$ 57      $ 74

Accrued liabilities22      20

Income taxes payable45      30

Bonds payable107      168

Common stock87      82

Retained earnings274      39

Total liabilities and stockholders’ equity$592      $413

 

Net income for the year was $330. Cash dividends were $62. The company did not sell or retire any property, plant, and equipment during the year. The net cash provided by (used in) operating activities for the year was:

 

$306

 

$24

 

$465

 

$354

 

 

 

 

 
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