#### This problem requires that we separate fixed costs from variable costs. The fixed costs are depreciation, interest and taxes, \$39.750; the variable costs are gas, lighting, and maintenance, \$8,250. We were told that each floor has 3,000 square feet. We were also told that the first floor is valued twice as much as the second floor. In other words, the first floor will bear 2/3 (66.67%) of the fixed costs, and the second floor will bear 1/3 or 33.33% of the fixed costs. We then allocate to the first floor 66.67% of \$39,750, or \$26,501/3000 sq. ft. = \$8.83/sq.ft. We allocate the balance of the fixed costs, \$13, 249 to the second floor, \$13,249/3,000 sq. ft. = \$4.42/sq.ft.The variable expenses \$8,250/6000 sq.ft.= \$1.38I am almost there :)Allocate to first floor 1100 * (\$8.83 + \$1.38) = \$11,231

Allocate to second floor 1700 * (\$4.42 + \$1.38) = \$9,860

Plug the numbers in, and you'll have plenty of time partying and fun this weekend.

Try these for practice - Equipment will be purchased at a cost of \$250,000. It will have no salvage value. The cash flows are expected to be: \$37,000, \$48,000, \$65,000, \$71,000, \$73,000, and \$53,000 over the life of the equipment. What is the payback period?

A)           3.43 years.
x  B)            4.40 years.
C)            5.25 years.
D)           6.00 years.
E)            In some other time.

An asset was purchased for \$66,000. The asset is expected to last for 6 years and will have a salvage value of \$16,000. The company expects the income before tax to be \$7,200 and the tax rate of the company is 30%. What is the average return on investment (accounting rate of return)?

A)           17.6%.
B)            7.6%.
C)            10.9%.
x   D)           12.3%.
E)            None of the above.

Which of the following methods of evaluating capital investment proposals computes the rate that yields a net present value of zero for an investment?

A)           Cash payback.
B)            Net present value.
C)            Accounting rate of return.
x  D)           Internal rate of return.
E)            None of the above.

Exercise 12-15

Presented below is net asset information related to the Carlos Division of Santana, Inc.

CARLOS DIVISION NET ASSETS
AS OF DECEMBER 31, 2014
(IN MILLIONS)

Cash                                                             \$    74
Accounts receivable                                      212
Property, plant, and equipment (net)     2,616
Goodwill                                                          213
Less: Notes payable                                  (2,623)
Net assets                                                   \$  492

The purpose of the Carlos Division is to develop a nuclear-powered aircraft. If successful, traveling delays associated with refueling could be substantially reduced. Many other benefits would also occur. To date, management has not had much success and is deciding whether a write-down at this time is appropriate. Management estimated its future net cash flows from the project to be \$422 million. Management has also received an offer to purchase the division for \$336 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same.

Fair Value                                                    \$336 million
Less: Net Assets (exclude Goodwill)         279
______________
Implied Value of Goodwill                        \$ 57 million

The difference between Goodwill and the Implied Value of Goodwill, \$156 million, is the Loss on Impairment.

Accounting problems that some students have difficulty with are those that have something to do with non-interest bearing notes.

Teachers love to ask these type of questions in quizzes or on tests.  For example, the effective interest on a 12-month (1 year), zero-interest-bearing note payable of \$300,000, discounted at the bank at 10% is

a.   10.87%.

b.   10%.

c.   9.09%.

x  d.   11.11%.

There is a formula to solve this kind of problem, but I am going to show you how to solve it without remembering the formula, step by step.

The face value of this note is \$300,000. The note is discounted at 10% (\$30,000). The net proceed is \$270,000. Agree?
The first step is to divide \$300,000/\$270,000 = 1.1111; you understand so far?

The second step is to divide 1 by the number of years for this note; in this case the 12-month=1 year. The operation is like this 1/1=1.

The third step is to raise 1.1111 to the power of 1 (the answer to the second step) and the answer is 1.1111.

The fourth step is to take away 1 from the answer in step 3 , 1.1111-1=0.1111

The last step is to multiply the answer in step 4 (0.1111) x 100% and you'll get 11.1%. This is the effective interest rate on the note.

Another way of solving this kind of problem is by using your present value of 1 table. But instead of dividing \$300.000 by \$270,000, we reverse the numerator and denominator \$270,000/\$300,000=0.9000. The rest is easy. Look on the present value page from left to right under n=1, and look for .90090 and there it is under the 11% column.

I know not everyone likes my answer, especially the hookers (hackers). You don't have to read it or like it. Just listen to this
song that I have "composed" especially for you and other hackers like you. Enjoy.

EXERCISE 16:12

On June 1, 2012, Andre Company and Agassi Company merged to form Lancaster Inc. A total of 812,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.
On April 1, 2014, the company issued an additional 643,000 shares of stock for cash. All 1,455,000 shares were outstanding on December 31, 2014.
Lancaster Inc. also issued \$843,000 of 20-year, 8% convertible bonds at par on July 1, 2014. Each \$1,000 bond converts to 50 shares of common at any interest date. None of the bonds have been converted to date.
Lancaster Inc. is preparing its annual report for the fiscal year ending December 31, 2014. The annual report will show earnings per share figures based upon a reported after-tax net income of \$1,615,000. (The tax rate is 40%.)

Determine the following for 2014:
The numbers of shares to be used for calculating

(a) Basic Earnings per Share  1,294,250 shares                  {812,000 + (643,000 X 9/12)}

(b) Diluted Earnings per Share  1,315,325 shares *        * Jan 1 - April 1 shares outstanding 812,000 X 3/12 = 203,000.
April 1- July 1 shares outstanding 1,455,000 X 3/12 = 363,750
July 1 - Dec. 31 shares outstanding 1,497,150 X 6/12 = 748,575 **                                                                                                ** \$843,000/1000 X 50 shares = 42,150 + 1,455,000 X 6/12 = 748,575
The Earnings figure to be used for Calculating                  Total number of shares outstanding 1,315,325

(a) Basic Earnings per Share  \$1,615,000
(b) Diluted Earnings per Share  \$1,635,232

INDONESIAN  CUISINES  - Soytempeh

Wild, John J., Shaw, Ken W., Chiapetta, Barbara (2013). Fundamental Accounting Principles, 21st ed. McGraw Hill