PROBLEM #3: Inventory Flow
Part A: Cost of Goods Sold Using FIFO and LIFO Methods (40 Points)
Fischer, Inc. had the following inventory in fiscal 2013. Compute the company’s cost of goods sold for fiscal 2013 assuming the company used a) FIFO and b) LIFO methods of accounting for inventory: PLEASE SHOW YOUR WORKINGS IN EXCEL. ONCE YOU COMPLETED YOUR WORK IN EXCEL TAKE A SCREENSHOT AND PASTE IT IN THIS DOCUMENT.
Beginning Inventory, January 1, 2013: 130 units @ $10.00
Purchase 200 units @ $12.00
Purchase 50 units @ $9.00
Purchase 110 units @ $10.50
Ending Inventory, December 31, 2013: 120 units
PROBLEM# 4:Depreciation
Depreciation Expense Calculations
The Rialto Theatre purchased a new projector costing $74,000 on January 1, XXXXXXXXXXBecause of changing technologies, the projector is estimated to last five years after which it will be obsolete and have a salvage value of $2,000 as a collectors’ item. Compute the depreciation expense for ALL YEARS using:
a. The straight-line method
. Double-declining-balance method
Please show your workings in Excel. ONCE YOU COMPLETED YOUR WORK IN EXCEL TAKE A SCREENSHOT AND PASTE IT IN THIS DOCUMENT.
PROBLEM # 6: Accounting for Bonds
Billabong Inc. needed financing to build a new plant. On June 30th, 2012, Billabong issued $1,000,000 of 10-year bonds with a 10% coupon rate (payments due on December 31st and June 30th). The effective interest rate (i.e. yield) was 8%.
Use the financial statement effects template below to record the bond issue and Billabong’s first interest payments. PLEASE SHOW YOUR CALUCLATIONS IN EXCEL. Please use the EXCEL Sheet and make the appropriate adjustments for your present value calculations.
Balance Sheet
Income Statement
Transaction
Cash Asset
+
Noncash Assets
=
Liabil-
ities
+
Contrib. Capital
+
Earned
Capital
Rev-enues
–
Expen-ses
=
Net
Income
Bond issue
=
–
=
Interest 12/31
=
–
=
UPLOAD THE EXCEL FILE WITH YOUR CALCULATIONS
PROBLEM # 7: Early Retirement of Bonds.
Assume further that after 5 years (10 periods left), Billabong wants to buy back the bonds they issued in Problem 1). At this time interest rates have fallen to 4% and the yield equals the coupon rate. Please calculate all the relevant present values PLEASE SHOW YOUR CALUCLATIONS IN EXCEL.
Answer the following questions.
What would be the price of the bonds in the market at the time of repurchase?
Would Billabong generate an economic gain/loss? Show the present value differential of the old vs. the new bond.
Would Billabong generate an accounting gain/ loss?
Would you retire the bonds early? Give one reason for why and one reason for why not.
PROBLEM # 10: Jimmy Fu and Moog Corporation
If you were in Jimmy’s shoes and are considering taking a job at Moog, how would you assess the following stock option grant? The strike and stock price are $30, volatility is 40%, the riskless rate is 1.5%, the vesting period is 4 years, the term is 10 years and the expected life is 5 years.
What price would you like to see the stock price reach at the minimum after you are vested to make the stock options worth considering? PLEASE SHOW YOUR CALUCLATIONS IN EXCEL.
1. Discuss the implications if the stock price is $60 when your options vest. Consider the strike price, option price at grant and stock price at vesting.
2. If Jimmy get 1000 options, use the same criteria as in 1, and the stock price is $60 at exercise, show the financial statement effects entry at issuance of the options and at exercise.
Balance Sheet
Income Statement
Transaction
Cash Asset
+
Noncash Assets
=
Liabil-
ities
+
Contrib. Capital
+
Earned
Capital
Rev-enues
–
Expen-ses
=
Net
Income
Issue
=
–
=
Exercise
=
–
=
UPLOAD THE EXCEL FILE WITH YOUR CALCULATIONS