Assignment Task
Question 1: Long-term Debt
Long-term Debt: What was the total net book value of PLUS Corp.’s outstanding long-term debt, including the current portion, on December 31, 2020?
2) Long-term Debt: How much cash did PLUS Corp. raise in total from issuing new long-term debt during fiscal year 2020?
3) Long-term Debt: Consider PLUS Corp.’s $650 million Medium-term note maturing in 2026. Assume that the coupon rate for these notes is 2.10%. What was the amount that PLUS Corp. recorded for these notes during fiscal 2020 as interest expense? Round the amount to the nearest tenth of a million. Enter your answer in the box provided below. 4) (3 pts) Long-term Debt: Consider PLUS Corp.’s $220 million 30-year bond maturing in 2028. Assume that, at the beginning of fiscal 2021 (i.e., the next fiscal year), the fair value of the bond was $216. What journal entry would PLUS Corp. have to make if it were to buy back the bond on January 1, 2021?
5) Long-term Debt: Consider PLUS Corp.’s $220 million 30-year bond maturing in 2028. Assume that the coupon rate for this bond is 7.00%. What summary journal entry would PLUS Corp. have to make next year (i.e., fiscal year 2021) to record coupon payments and interest expense related to these bonds?
6) Long-term Debt: Consider PLUS Corp.’s $650 million Medium-term note maturing in 2026. Assume that the market interest rate for these notes at the end of fiscal 2020 was 2.50%. Which of the following statements regarding PLUS Corp.’s Return on Sales = (Net income / Sales) would be true if it had bought back all of these notes on December 31, 2020?
a) Return on sales would decrease.
b) Return on sales would increase.
c) Return on sales would not change.
Question 2: Income Taxes
1) Income taxes: What summary journal entry did PLUS Corp. make to record its income tax expense for fiscal 2020?
2) Income taxes: What was PLUS Corp.’s effective tax rate (ETR) for fiscal 2020? (Round your answer to the nearest tenth of a percent.)
3) Income taxes: Consider PLUS Corp.’s deferred tax assets related to “Net operating loss carryforwards” (NOLs). For this question, assume a statutory tax rate of 21% and that the Valuation Allowance does not relate to the NOLs. What is the total amount of future taxable income that PLUS Corp. is entitled to offset with these NOLs as of December 31, 2020? (Round your answer to the nearest million.)
4) Income taxes: Consider the Valuation Allowance related to PLUS Corp.’s deferred tax assets. What aggregate journal entry did the firm make to record the change in the Valuation Allowance during fiscal year 2020?
5) Income taxes: Consider PLUS Corp.’s deferred tax liabilities for “Accelerated depreciation” which relate to its property, plant and equipment. Which of the following statements is correct regarding the relation between the firm’s depreciation for tax return purposes and for financial reporting purposes during fiscal year 2020?
a) Depreciation for tax return purposes was higher during 2020.
b) Depreciation for tax return purposes was lower during 2020.
c) Depreciation for tax return and financial reporting purposes were the same during 2020.
6) Income taxes: Assume that the statutory corporate tax rate was cut from 21% to 15% on January 1, 2021. What summary journal entry would PLUS Corp. have to make on January 1, 2021, to revalue its total net position of Deferred Tax Assets/Liabilities? (Round the amounts to the nearest tenth of a million.)
Question 3: Shareholders’ Equity
1) Shareholders’ Equity: How many shares of common stock did PLUS Corp. have outstanding (in millions) on December 31, 2020?
2) Shareholders’ Equity: What was the total fair value of employee stock options that PLUS Corp. granted during fiscal 2020 (rounded to the nearest $ million)?
3) Shareholders’ Equity: What aggregate summary journal entry did PLUS Corp. make to record the declaration of dividends during fiscal 2020?
4) Shareholders’ Equity: Consider the net effect of PLUS Corp.’s repurchases of common stock on Debt to Equity (= Total Liabilities / Total Shareholders’ Equity) as well as on ROE (= Net Income / Average Shareholders’ Equity) during fiscal year 2020. Which of the following statements is true? (More than one statement may be true.)
a) Debt to Equity increased.
b) Debt to Equity decreased.
c) Debt to Equity did not change.
d) ROE increased.
e) ROE decreased.
f) ROE did not change.
5) Shareholders’ Equity: Ignoring income taxes, what aggregate summary journal entry did PLUS Corp. make to record stock-based compensation expense for fiscal 2020?
6) Shareholders’ Equity: What was the average price per share (in $) that PLUS Corp. paid for the repurchase of its own stock during fiscal 2020?
Question 4: Managerial Accounting
Farrow Corporation manufactures two products: A and B. Farrow has total overhead costs of $78,350. Under an ABC system, the firm could assign indirect manufacturing overhead costs to three cost pools that use the following cost drivers:
Under a traditional costing system, the firm could assign indirect manufacturing overhead costs solely based on direct labor cost. Information on total direct costs and total units produced are as follows:
1) Activity-Based Costing:
How much overhead cost will be assigned to each unit of Product A, if Farrow decides to use an activity-based costing system?
2) Activity-Based Costing:
How much overhead cost will be assigned to each unit of Product A, if Farrow decides to use a traditional costing system?
3) Budgeting:
As of the end of December Year 0, Joy Manufacturing Company needs to assess its anticipated monthly cash inflows for the next few months. Cash sales are 25 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 30 percent in the month after the sale, and the remaining 20 percent two months after the sale.
Total sales for the quarter are projected as $20,000 in January, $10,000 in February, and $40,000 in March. Accounts receivable on December 31, Year 0, were $30,000.
What are Joy’s expected cash collections for the month of March? (Indicate the correct answer.)
a) $28,250
b) $30,250
c) $32,000
d) $37,000
e) $47,200
4) Budgeting:
At the end of December Year 0, Florida Curtain Works is in the process of preparing its budget for next year. Fabric costs have been estimated at 60 percent of sales. Fabric purchases and payments are made during the month preceding the month of sale.
Sales revenue is forecasted as $220,000 in January, $225,000 in February, $240,000 in March, and $250,000 in April. Fabric inventory on December 31, Year 0, was $40,000.
What is the amount of budgeted fabric purchases during the month of February? (Indicate the correct answer.)
a) $135,000
b) $144,000
c) $150,000
d) $240,000
e) $288,000
Situation: Walid Corp is a decentralized company that rewards division managers based on division profits. The City Division (“City”) produces a component that is used by the County Division (“County”). City’s per unit cost of manufacturing 2,500 components (which is its maximum capacity) is:
Variable costs $12
Fixed costs $10
Total costs $22
City can sell up to 2,000 units to an external customer for $30 each by incurring selling costs of $2 per unit, but then City is left with idle capacity of 500 units.
County needs the 2,500 components to make finished goods. An outside supplier has offered to provide County the entire 2,500 units of this same component for a per unit price of $27 each.
County’s manager has approached City’s manager with an offer to purchase the entire 2,500 units from City for a total cost of $65,000 ($26 per unit). If this internal transaction is completed, City would not incur the $2 per unit selling costs. County will either buy all or nothing internally (externally).
5) Contribution Margin, Make or Buy, and Transfer Pricing:
How much contribution margin per unit will the City Division earn if they sell their components to the external customer?
6) Contribution Margin, Make or Buy, and Transfer Pricing:
How much contribution margin per unit will the City Division earn if they sell their components to the County Division?
7) Contribution Margin, Make or Buy, and Transfer Pricing:
How much higher or lower would the profits of Walid Corp. (the parent company that owns both City and County) be if the components are transferred internally, as opposed to having the City and County Divisions buy/sell from external parties? (Indicate the correct answer.)
a) $37,500 lower.
b) $5,500 lower.
c) $500 lower.
d) $500 higher.
e) $5,500 higher.
f) $32,500
8) Contribution Margin, Make or Buy, and Transfer Pricing:
How much higher or lower will the City Division’s profits be if they accept the offer to sell 2,500 units to County Division for $26, as compared to selling 2,000 components to the external customer? (Indicate the correct answer.)
a) $17,000 lower.
b) $5,000 lower.
c) $3,000 lower.
d) $3,000 higher.
e) $5,000 higher.
f) $17,000 higher.