Expert Answers

Zeigler Manufacturing Company purchased a robot for $720,000 at the beginning of year 1. The robot has an estimated useful life of four years and an estimated residual value of $60,000. The robot, which should last 20,000 hours, was operated 6,000 hours in year 1; 8,000 hours in year 2; 4,000 hours in year 3; and 2,000 hours in year 4.

Required

1. Compute the annual depreciation and carrying value for the robot for each year assuming the following depreciation methods:

(a) Straight-line,

(b) Production,

(c) Double-declining-balance.

2. If the robot is sold for $750,000 after year 2, what would be the amount of gain or loss under each method?

3. What conclusions can you draw from the patterns of yearly depreciation and carrying value in requirement 1? Do the three methods differ in their effect on the company’s profitability? Do they differ in their effect on the company’s operating cash flows? Explain.

Zarson’s Netballs is a manufacturer of high-quality basketballs and volleyballs. Setup costs are driven by the number of batches. Equipment and maintenance costs increase with the number of machine-hours, and lease rent is paid per square foot. Capacity of the facility is 14,000 square feet, and Zarson is using only 80% of this capacity. Zarson records the cost of unused capacity as a separate line item and not as a product cost. The following is the budgeted information for Zarson:

1. Calculate the budgeted cost per unit of cost driver for each indirect cost pool.
2. What is the budgeted cost of unused capacity?
3. What is the budgeted total cost and the cost per unit of resources used to produce (a) basketballs and (b) volleyballs?
4. Why might excess capacity be beneficial for Zarson? What are some of the issues Zarson should con-sider before increasing production to use thespace?

The president of Zaro Company cannot understand how the company was able to pay cash dividends that were greater than net income and at the same time increase the cash bal-ance. He notes that business was down slightly in 2011.

Required
a. Comment on the statement of cash flows.
b. Compute the following liquidity ratios for 2011:
1. Current ratio
2. Acid- test ratio
3. Operating cash flow/current maturities of long- term debt and current notes payable
4. Cash ratio
c. Compute the following debt ratios for 2011:
1. Times interest earned
2. Debt ratio
d. Compute the following profitability ratios for 2011:
1. Return on assets (using average assets)
2. Return on common equity (using average common equity)
e. Give your opinion as to the liquidity of Zaro.
f. Give your opinion as to the debt position of Zaro.
g. Give your opinion as to the profitability of Zaro.
h. Explain to the president how Zaro was able to pay cash dividends that were greater than net income and at the same time increase the cashbalance.

Zapala Corporation has $10,000,000 of 9 percent, 20-year bonds dated June 1, 2014, with interest payment dates of May 31 and November 30. The company’s fiscal year ends November 30. It uses the effective interest method to amortize bond premiums or discounts.

Required

1. Assume the bonds are issued at 109.9 on June 1 to yield an effective interest rate of 8 percent. Prepare the journal entries for June 1, 2014, November 30, 2014, and May 31, 2015. (Round to the nearest dollar.)

2. Assume the bonds are issued at 91.4 on June 1 to yield an effective interest rate of 10 percent. Prepare the journal entries for June 1, 2014, November 30, 2014, and May 31, 2015. (Round to the nearest dollar.)

3. Explain the role that market interest rates play in causing a premium in requirement 1 and a discount in requirement 2.

Zanella’s Smart Shawls, Inc., is a small business that Zanella developed while in college. She began hand-knitting shawls for her dorm friends to wear while studying. As demand grew, she hired some workers and began to manage the operation. Zanella’s shawls require wool and labor. She experiments with the type of wool that she uses, and she has great variety in the shawls she produces. Zanella has bimodal turnover in her labor. She has some employees who have been with her for a very long time and others who are new and inexperienced.

Zanella uses standard costing for her shawls. She expects that a typical shawl should take 3 hours to produce, and the standard wage rate is $ 9.00 per hour. An average shawl uses 13 skeins of wool.

Zanella shops around for good deals and expects to pay $ 3.40 per skein. Zanella uses a just-in-time inventory system, as she has clients tell her what type and color of wool they would like her to use.

For the month of April, Zanella’s workers produced 200 shawls using 580 hours and 3,500 skeins of wool. Zanella bought wool for $ 9,000 (and used the entire quantity) and incurred labor costs of $ 5,520.

Required

1. Calculate the price and efficiency variances for the wool and the price and efficiency variances for direct manufacturing labor.

2. Record the journal entries for the variances incurred.

3. Discuss logical explanations for the combination of variances that Zanella experienced.

Required
Round your financial figures to the nearest whole dollar.
a. Compute the net present value of the expected cash flows as of the beginning of the investment.
b. Compute the net present value of the actual cash flows as of the beginning of the investment.
c. What do you conclude from thispostaudit?

Yuri Co. operates a chain of gift shops. The company maintains a defined contribution pension plan for its employees. The plan requires quarterly installments to be paid to the funding agent, Whims Funds, by the fifteenth of the month following the end of each quarter. Assume that the pension cost is $365,000 for the quarter ended December 31.

a. Journalize the entries to record the accrued pension liability on December 31 and the payment to the funding agent on January 15.

b. How does a defined contribution plan differ from a defined benefit plan?

Yung Corporation sold $2,000,000, 7%, 5-year bonds on January 1, 2014. The bonds were dated January 1, 2014, and pay interest on January 1. Yung Corporation uses the straight-line method to amortize bond premium or discount.

Instructions

(a) Prepare all the necessary journal entries to record the issuance of the bonds and bond interest expense for 2014, assuming that the bonds sold at 102.

(b) Prepare journal entries as in part (a) assuming that the bonds sold at 97.

(c) Show the balance sheet presentation for the bond issue at December 31, 2014, using (1) the 102 selling price, and then (2) the 97 selling price.