• November 5th, 2018

Finance computations

Paper , Order, or Assignment Requirements

P-2 Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1.5 million; $10 million; and $20 million.
P2–5Interest versus dividend expense Michaels Corporation expects earnings before interest and taxes to be $50,000 for the current period. Assuming an ordinary tax rate of 35%, compute the firm’s earnings after taxes and earnings available for common stockholders (earnings after taxes and preferred stock dividends, if any) under the following conditions:
a. The firm pays $12,000 in interest.
b. The firm pays $12,000 in preferred stock dividends.
P2–7 Capital gains taxes As part of its operations, Ferguson’s Plumbing has bought and sold several nondepreciable capital assets. The purchase and sale prices for these assets are contained in the following table. Assuming that Fergurson’s pays a 40% capital gains tax, complete the table by filling in the last two columns.
Asset Sale price Purchase price Capital gain Tax
A $ 3,400 $ 3,000
B  12,000  12,000
C  80,000  62,000
D  45,000  41,000
E  18,000  16,500

E3–1You are a summer intern at the office of a local tax preparer. To test your basic knowledge of financial statements, your manager, who graduated from your alma mater 2 years ago, gives you the following list of accounts and asks you to prepare a simple income statement using those accounts.
Accounts ($000,000)
Depreciation 25
General and administrative expenses 22
Sales 345
Sales expenses 18
Cost of goods sold 255
Lease expense 4
Interest expense 3
a. Arrange the accounts into a well-labeled income statement. Make sure you label and solve for gross profit, operating profit, and net profit before taxes.
b. Using a 35% tax rate, calculate taxes paid and net profit after taxes.

2 Accounting Assignments
Question 1: Bank Reconciliation 18 marks

The following information is available for Brown Basket Company regarding its April 30, 2011, bank statement:

• Balance per books is $7,766.25.
• Balance per bank is $6,489.31.
• Cheque #321 for $734.25 and cheque #368 for $57.48were not returned with the April 30 bank statement.
• A deposit in transit of $2,963.67 had not been received by the bank when the bank statement was generated.
• A bank debit memo indicated an NSF cheque written by Bruce Garrett to Brown Basket Company on April 13 for $325.
• A bank credit memo indicated a bank collection of $1,200 and interest revenue of $45 on April 20.
• The bank statement indicated service charges of $25.


Prepare a bank reconciliation for Brown Basket Company dated April 30, 2011 and any required journal entries.

Bank Reconcilation

Journal Entries
Accounts Debit Credit

Question 2: Petty Cash 8 marks

On October 1, 2011, Thomas Trams established a $100 petty cash fund. At the end of October the petty cash fund contained:

Cash on hand $3.75
– Petty cash tickets for
Entertainment $55.40
Postage 25.80
Miscellaneous items 18.30


a) Prepare the journal entry to establish the petty cash fund on October 1, 2011.

b) Prepare the journal entry on October, 2011, to replenish the petty cash fund.

c) Assume on October 31, 2011, after replenishing the petty cash fund, Thomas Trams desires to increase the petty cash fund to $150. Prepare the necessary journal entry.

Date Accounts Debit Credit

Question 3: Gross Margin Method of Estimating Inventory 5 marks

Late on the night of November 30, 2011, an arsonist destroyed the Christmas House Company warehouse, which was full of inventory. Luckily the accounting records were stored in another facility and not destroyed in the fire. Christmas House Company is in the process of filing a claim with its insurance company for the inventory loss due to the fire.

Beginning inventory $545,500
Purchases through November 30, 2011 250,000
Net sales revenue through November 30, 2011 900,000

The gross margin percent has historically been 25% of net sales revenue.

Estimate the value of the inventory destroyed in the fire using the gross margin method.

Question 4: Inventory Costing

Assume the following data for Smooth Sailing Co. for November 2010:

Beginning inventory Nov. 1 8 units at $40 each
Sale Nov. 3 5 units at $130 each
Nov. 6 purchase 12 units at $44 each
Sale Nov. 8 7 units at $135 each
Sale Nov. 9 3 units at $135 each

1) Calculate ending inventory and Cost of Goods Sold for Smooth Sailing Co. assuming the movingweighted-average cost method is being used.

Received Sold Balance
Date Qty. Cost Amt. Qty. Cost Amt. Qty. Cost Amt.


2) Calculate ending inventory and Cost of Goods Sold for Smooth Sailing Co. assuming the FIFO cost method is being used

Received Sold Balance
Date Qty. Cost Amt. Qty. Cost Amt. Qty. Cost Amt.


Question 5: Lower of Cost and Net Realizable Value 8 marks

Kristy’s KrustyKrutons had the following ending inventory costs:

Product Units on Hand Unit Cost Unit NRV
A 15 6.00 6.00
B 40 7.50 7.25
C 35 15.00 17.00

Calculate the lower of cost and net realizable value (LCNRV) on an item by item basis.

Question 6: Retail Method of Estimating Inventory 10 marks

Apply the retail method to the following information and calculate the cost of the ending inventory:

Cost Retail
Beginning inventory $28,825 $67,500
Net purchases 75,300 230,000
Sales 63,900

Question 7: Gross Profit Method of Estimating Inventory 10 marks

Goodwood Inc. wants to estimate inventory destroyed by flood. Its average gross profit percentage is 65%. The following information is available:

(1) Beginning inventory: $258,120
(2) Purchases: $69,450
(3) Purchases returns and allowances: $3,500
(4) Transportation-in: $1,930
(5) Sales: $455,600
(6) Sales returns and allowances: $5,600

Calculate the value of the destroyed ending inventory using the gross profit method.

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