# Acc423 Intermediate Accounting: P16-6 Charles Austin of the controller's office of Thompson

Acc423 Intermediate Accounting P16-6 (Computation of Basic and Diluted EPS) Charles Austin of the controller's office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2013. Austin has compiled the information listed below. 1 The company is authorized to issue 8,000,000 shares of $10 par value common stock. As of December 31, 2012, 2,000,000 shares had been issued and were outstanding. 2 The per share market prices of the common stock on selected dates were as follows. Price per Share 1-Jul-12 20.00 1-Jan-13 21.00 1-Apr-13 25.00 1-Jul-13 11.00 1-Aug-13 10.50 1-Nov-13 9.00 31-Dec-13 10.00 3 A total of 700,000 shares of an authorized 1,200,000 shares of convertible preferred stock had been issued on July 1, 2012. The stock was issued at its par value of $25, and it has a cumulative dividend of $3 per share. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30. 4 Thompson Corporation is subject to a 40% income tax rate. 5 The after-tax net income for the year ended December 31, 2013, was $11,550,000. The following specific activities took place during 2013. 1 January 1-A 5% common stock dividend was issued. The dividend had been declared on December 1, 2012, to all stockholders of record on December 29, 2012. 2 April 1-A total of 400,000 shares of the $3 convertible preferred stock was converted into common stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2013. 3 July 1-A 2-for-1 split of the common stock became effective on this date. The board of directors had authorized the split on June 1. 4 August 1-A total of 300,000 shares of common stock were issued to acquire a factory building. 5 November 1-A total of 24,000 ordinary shares were purchased on the open market at $9 per share. These shares were to be held as treasury stock and were still in the treasury as of December 31, 2013. 6 Common stock cash dividends-Cash dividends to common stockholders were declared and paid as follows. April 15 - $0.30 per share October 15 - $0.20 per share 7 Preferred stock cash dividends-Cash dividends to preferred stockholders were declared and paid as scheduled. Instructions: (a) Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2013. (Round answer to 0 decimal places, e.g. 1,500.) (b) Determine the number of shares used to compute diluted earnings per share for the year ended December 31, 2013. (Round answer to 0 decimal places, e.g. 1,500.) (c) Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2013.

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Acc206 Principles of Accounting

Week 4 Assignment

Chapter 6 Problem 3

3. Comprehensive budgeting

The balance sheet of Watson Company as of December 31, 19X1, follows.

WATSON COMPANY

Balance Sheet

December 31, 19X1

Assets

Cash 4,595

Accounts receivable 10,000

Finished goods (575 units x $7.00) 4,025

Direct materials (2,760 units x $0.50) 1,380

Plant & equipment 50,000

Less: Accumulated depreciation 10,000 40,000

Total assets 60,000

Liabilities & Stockholders' Equity

Accounts payable to suppliers 14,000

Common stock 25,000

Retained earnings 21,000 46,000

Total liabilities &. stockholders' equity 60,000

The following information has been extracted from the firm's accounting records:

1. All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 19X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.

2. Management wants to maintain the finished goods inventory at 30% of the following month's sales.

3. Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month's production needs.

4. Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.

5. Watson's product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.

Instructions:

a. Rounding computations to the nearest dollar, prepare the following for January through March:

1) Sales budget

2) Schedule of cash collections

3) Production budget

4) Direct material purchases budget

5) Schedule of cash disbursements for material purchases

6) Direct labor budget

b. Determine the balances in the following accounts as of March 31:

1) Accounts Receivable

2) Direct Materials

3) Accounts Payable

Week 4 Assignment

Chapter 6 Problem 3

3. Comprehensive budgeting

The balance sheet of Watson Company as of December 31, 19X1, follows.

WATSON COMPANY

Balance Sheet

December 31, 19X1

Assets

Cash 4,595

Accounts receivable 10,000

Finished goods (575 units x $7.00) 4,025

Direct materials (2,760 units x $0.50) 1,380

Plant & equipment 50,000

Less: Accumulated depreciation 10,000 40,000

Total assets 60,000

Liabilities & Stockholders' Equity

Accounts payable to suppliers 14,000

Common stock 25,000

Retained earnings 21,000 46,000

Total liabilities &. stockholders' equity 60,000

The following information has been extracted from the firm's accounting records:

1. All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 19X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.

2. Management wants to maintain the finished goods inventory at 30% of the following month's sales.

3. Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month's production needs.

4. Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.

5. Watson's product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.

Instructions:

a. Rounding computations to the nearest dollar, prepare the following for January through March:

1) Sales budget

2) Schedule of cash collections

3) Production budget

4) Direct material purchases budget

5) Schedule of cash disbursements for material purchases

6) Direct labor budget

b. Determine the balances in the following accounts as of March 31:

1) Accounts Receivable

2) Direct Materials

3) Accounts Payable

Acc206 Principles of Accounting

Week 5 Assignment - Chapter 8

Chapter 8 Exercise 5:

5. Straightforward net present value and internal rate of return

The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has been calculated as follows:

Purchase cost: $450 per acre

Site preparation: $175,000

The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in Bath Township with other municipalities, estimates that the new location will save $40,000 in annual operating costs.

Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-present-value method to determine your answer.

Week 5 Assignment - Chapter 8

Chapter 8 Exercise 5:

5. Straightforward net present value and internal rate of return

The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has been calculated as follows:

Purchase cost: $450 per acre

Site preparation: $175,000

The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in Bath Township with other municipalities, estimates that the new location will save $40,000 in annual operating costs.

Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-present-value method to determine your answer.

Acc206 Principles of Accounting

Week 5 - Chapter 8 Problems

Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

Chapter 8 Exercise 1:

1. Basic present value calculations

Calculate the present value of the following cash flows, rounding to the nearest dollar:

A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.

An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.

A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.

An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return.

Chapter 8 Exercise 4:

4. Cash flow calculations and net present value

On January 2, 19X1, Bruce Greene invested $10,000 in the stock market and purchased 500 shares of Heartland Development, Inc. Heartland paid cash dividends of $2.60 per share in 19X1 and 19X2; the dividend was raised to $3.10 per share in 19X3. On December 31, 19X3, Greene sold his holdings and generated proceeds of $13,000. Greene uses the net-present- value method and desires a 16% return on investments.

a. Prepare a chronological list of the investment's cash flows. Note: Greene is entitled to the 19X3 dividend.

b. Compute the investment's net present value, rounding calculations to the nearest dollar.

c. Given the results of part (b), should Greene have acquired the Heartland stock? Briefly explain.

Chapter 8 exercise 5:

5. Straightforward net present value and internal rate of return

The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has been calculated as follows:

Purchase cost: $450 per acre

Site preparation: $175,000

The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in Bath Township with other municipalities, estimates that the new location will save $40,000 in annual operating costs.

1.Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-present-value method to determine your answer.

2.Compute the internal rate of return on this project.

Chapter 8 Problem 1:

1. Straightforward net-present-value and payback computations

STL Entertainment is considering the acquisition of a sight-seeing boat for summer tours along the Mississippi River. The following information is available:

Cost of boat

$500,000

Service life

10 summer seasons

Disposal value at the end of 10 seasons

$100,000

Capacity per trip

300 passengers

Fixed operating costs per season (including straight-line depreciation)

$160,000

Variable operating costs per trip

$1,000

Ticket price

$5 per passenger

All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 120,000 passengers will be carried each season. Ignore income taxes.

Instructions:

By using the net-present-value method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all investments,- round calculations to the nearest dollar.

Chapter 8 Problem 4:

4. Equipment replacement decision

Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more years of service if $8,700 of major repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell the equipment now for $36,000; the estimated residual value in six years is $5,000.

New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs $103,000, has a service life of six years, and has an estimated residual value of $13,000. Company sales will total $430,000 per year with either the existing or the new equipment. Columbia has a minimum desired return of 12% and depreciates all equipment by the straight-line method.

Instructions:

1. By using the net-present-value method, determine whether Columbia should keep its present equipment or acquire the new equipment. Round all calculations to the nearest dollar, and ignore income taxes.

2. Columbia's management feels that the time value of money should be considered in all long-term decisions. Briefly discuss the rationale that underlies management's belief.

Week 5 - Chapter 8 Problems

Please complete the following 5 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.

Chapter 8 Exercise 1:

1. Basic present value calculations

Calculate the present value of the following cash flows, rounding to the nearest dollar:

A single cash inflow of $12,000 in five years, discounted at a 12% rate of return.

An annual receipt of $16,000 over the next 12 years, discounted at a 14% rate of return.

A single receipt of $15,000 at the end of Year 1 followed by a single receipt of $10,000 at the end of Year 3. The company has a 10% rate of return.

An annual receipt of $8,000 for three years followed by a single receipt of $10,000 at the end of Year 4. The company has a 16% rate of return.

Chapter 8 Exercise 4:

4. Cash flow calculations and net present value

On January 2, 19X1, Bruce Greene invested $10,000 in the stock market and purchased 500 shares of Heartland Development, Inc. Heartland paid cash dividends of $2.60 per share in 19X1 and 19X2; the dividend was raised to $3.10 per share in 19X3. On December 31, 19X3, Greene sold his holdings and generated proceeds of $13,000. Greene uses the net-present- value method and desires a 16% return on investments.

a. Prepare a chronological list of the investment's cash flows. Note: Greene is entitled to the 19X3 dividend.

b. Compute the investment's net present value, rounding calculations to the nearest dollar.

c. Given the results of part (b), should Greene have acquired the Heartland stock? Briefly explain.

Chapter 8 exercise 5:

5. Straightforward net present value and internal rate of return

The City of Bedford is studying a 600-acre site on Route 356 for a new landfill. The startup cost has been calculated as follows:

Purchase cost: $450 per acre

Site preparation: $175,000

The site can be used for 20 years before it reaches capacity. Bedford, which shares a facility in Bath Township with other municipalities, estimates that the new location will save $40,000 in annual operating costs.

1.Should the landfill be acquired if Bedford desires an 8% return on its investment? Use the net-present-value method to determine your answer.

2.Compute the internal rate of return on this project.

Chapter 8 Problem 1:

1. Straightforward net-present-value and payback computations

STL Entertainment is considering the acquisition of a sight-seeing boat for summer tours along the Mississippi River. The following information is available:

Cost of boat

$500,000

Service life

10 summer seasons

Disposal value at the end of 10 seasons

$100,000

Capacity per trip

300 passengers

Fixed operating costs per season (including straight-line depreciation)

$160,000

Variable operating costs per trip

$1,000

Ticket price

$5 per passenger

All operating costs, except depreciation, require cash outlays. On the basis of similar operations in other parts of the country, management anticipates that each trip will be sold out and that 120,000 passengers will be carried each season. Ignore income taxes.

Instructions:

By using the net-present-value method, determine whether STL Entertainment should acquire the boat. Assume a 14% desired return on all investments,- round calculations to the nearest dollar.

Chapter 8 Problem 4:

4. Equipment replacement decision

Columbia Enterprises is studying the replacement of some equipment that originally cost $74,000. The equipment is expected to provide six more years of service if $8,700 of major repairs are performed in two years. Annual cash operating costs total $27,200. Columbia can sell the equipment now for $36,000; the estimated residual value in six years is $5,000.

New equipment is available that will reduce annual cash operating costs to $21,000. The equipment costs $103,000, has a service life of six years, and has an estimated residual value of $13,000. Company sales will total $430,000 per year with either the existing or the new equipment. Columbia has a minimum desired return of 12% and depreciates all equipment by the straight-line method.

Instructions:

1. By using the net-present-value method, determine whether Columbia should keep its present equipment or acquire the new equipment. Round all calculations to the nearest dollar, and ignore income taxes.

2. Columbia's management feels that the time value of money should be considered in all long-term decisions. Briefly discuss the rationale that underlies management's belief.