Patterson Company pays $262,500 for equipment expected to last four years and have a $30,000 salvage value (A+)

Patterson Company pays $262,500 for equipment expected to last four years and have a $30,000 salvage value. Prepare journal entries to record the following costs related to the equipment.

Required:

1. During the second year of the equipment’s life, $21,000 cash is paid for a new component expected to increase the equipment’s productivity by 10% a year .

2. During the third year, $5,250 cash is paid for normal repairs necessary to keep the equipment in good working order.

3. During the fourth year, $13,950 is paid for repairs expected to increase the useful life of the equipment from four to five years.

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Mulan Enterprises pays $235,200 for equipment that will last five years and have a $52,500 salvage value (A+)

Mulan Enterprises pays $235,200 for equipment that will last five years and have a $52,500 salvage value. By using the equipment in its operations for five years, the company expects to earn $85,500 annually, after deducting all expenses except depreciation.

Required:

Calculate the income before depreciation, depreciation expense, and net (pretax) income for each year and the total for the five-year period, assuming straight-line depreciation.

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BUS 650 Week 3 DQ 1 – GAAP vs. IFRS. The United States uses Generally Accepted Accounting Principles (GAAP)

1st Post Due by Day 3. GAAP vs. IFRS. The United States uses Generally Accepted Accounting Principles (GAAP) as the basis of financial reporting. The International Financial Accounting Standards (IFRS) is an alternative way to report financials. This article from Ernst and Young compares the two methods of financial reporting.

After reading the article from Ernst and Young, answer the following questions:

How does the GAAP reporting method cause cash flows to differ from net income?

How are the features of the Income Statement, Balance Sheet, and Statement of Cash Flow utilized in both the GAAP and the IFRS reporting methods?

Does it make sense to adapt a worldwide standard for financial reporting?

Should this be mandated or voluntary? Calculate some of the potential costs and benefits of switching from GAAP to IFRS.

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BUS 650 Week 2 DQ 2 – Companies often try to keep accounting earnings growing at a relatively

1st Post Due by Day 3. Managing Earnings. Companies often try to keep accounting earnings growing at a relatively steady pace in an effort to avoid large swings in earnings from period to period. They also try to manage earnings targets. Reflect on these practices and discuss the following in your discussion post.

Are these practices ethical?

What are two tactics that a financial manager can use to manage earnings?

What are the implications for cash flow and shareholder wealth?

Using the financial balance sheet as displayed in the text, provide an example of how purchasing an asset or issuing stocks or bonds could potentially impact earnings targets.

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BUS 650 Week 2 DQ 1 – Think of something you want or need for which you currently do not have the funds

1st Post Due by Day 3. Initial Investment. After reading Chapters 3 and 4 of your textbook, address each of the following questions:

a) Think of something you want or need for which you currently do not have the funds. It could be a vehicle, boat, horse, jewelry, property, vacation, college fund, retirement money, etc. Select something which costs somewhere between $2,000 and $50,000. Use the “Present Value Formula”, which computes how much money you need to start with now to achieve the desired monetary goal. Assume you will find an investment that promises somewhere between 5% and 10% interest on your money (you choose the rate) and pretend you want to purchase your desired item in 12 years. (Remember that the higher the return, usually the riskier the investment, so think carefully before deciding on the interest rate.) How much do you need to invest today to reach that desired amount 12 years from now?

b) You wish to leave an endowment for your heirs that goes into effect 50 years from today. You don’t want to be forgotten after you pass so you wish to leave an endowment that will pay for a grand soirée yearly and forever. What amount would you like spent yearly to fund this grand party? How much money do you have to leave to your heirs 50 years from now assuming that will compound at 6% interest? Assuming that you have not invested anything today, how much would you have to invest yearly to fully fund the annuity in 50 years, again assuming a 6% monthly compounding rate?

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2. On April 1, 2010, Stone’s Backhoe Co. purchases a trencher for $250,000 (A+)

On April 1, 2010, Stone’s Backhoe Co. purchases a trencher for $250,000. The machine is expected to last five years and have a salvage value of $25,000.

Required:

Compute depreciation expense for both 2010 and 2011 assuming the company uses the double-declining-balance method

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On April 1, 2010, Stone’s Backhoe Co. purchases a trencher for $250,000 (A+)

On April 1, 2010, Stone’s Backhoe Co. purchases a trencher for $250,000. The machine is expected to last five years and have a salvage value of $25,000.

Required:

Compute depreciation expense for both 2010 and 2011 assuming the company uses the straight-line method.

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The target capital structure for Jowers Manufacturing is 50% common stock, 11% preferred stock, and 39% debt (A+)

The target capital structure for Jowers Manufacturing is 50% common stock, 11% preferred stock, and 39% debt. If the cost of common equity for the firm is 19.9%, the cost of preferred stock is 12%, and the before tax cost of debt is 9.2%, what is Jowers’ cost of capital? The firm’s tax rate is 34%

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The target capital structure for QM Industries is 39% common stock, 9% preferred stock, and 52% debt (A+)

The target capital structure for QM Industries is 39% common stock, 9% preferred stock, and 52% debt. If the cost of common equity for the firm is 18.8%, the cost of preferred stock is 9.7%, the before tax cost of debt is 8.6%, and the firm’s tax rate is 35%, what is QM’s weighted average cost of capital?

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Firm A has $10,000 in assets entirely financed with equity (A+)

Firm A has $10,000 in assets entirely financed with equity. Firm B also has $10,000 in assets, but these assets are financed by $5,000 in debt (with a 10 percent rate of interest) and $5,000 in equity. Both firms sell 10,000 units of output at $2.50 per unit. The variable costs of production are $1, and fixed production costs are $12,000. (To ease the calculation, assume no income tax)

a. What is the operating income (EBIT) for both firms?

b. What are the earnings after interest?

c. If sales increase by 10 percent to 11,000 units, by what percentage will each firm’s earnings after interest increase? To answer the question, determine the earnings after taxes and compute the percentage increase in these earnings from the answers derived in part b.

d. Why are the percentage changes different?

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