Business Law - Case: Contract Law

Facts of the Case:

Bob is a recognized French horn player. Bob has played for several major symphonies. Last year Bob went through bankruptcy and in order to pay his rent for a couple of months took out loans from a small bank - Avarice Bank - and pledged his french horn as collateral. He was unable to make the first payment on the loan so the bank was getting ready to take the french horn for non-payment. Bob approached the director of the Gilroy Philarmonic International Symphony - Joe - for help - asking him to guarantee payment so he does not lose his french horn. Joe agreed to guarantee the payment - partially because Bob is scheduled as the featured performer at the Classic Polka Festival in Gilroy which Joe manages. Joe called Avarice Bank and said if Bob could not pay, he would, and Avarice accepted his guaranty by phone. Bob played for the Polka Festival (it was very successful), but immediately after, left town and his whereabouts are unknown. Avarice has contacted Joe and indicated they have not collected from Bob and they expect Joe to pay the debt. Joe told Avarice they did not have anything in writing from him (though there are witnesses who heard Joe guarantee payment) and he believes he will not be liable for Bob's debt. Avarice has indicated it will file suit for payment against Joe.

Instructions: Please provide your answers to the following questions:

Issue: What is the legal issue/dispute? (Be specific. Don’t just say Contract Law)

Decision: Who should prevail?

Support: Provide support for your decision. Describe what the law says about situations like this, and how it applies to this case.

Answer:

The issue is whether Joe is liable to pay for Bob to Avarice Bank or not.

Joe should prevail.

Explanation:

The original contract is between bank and Bob and in that contract Joe is not involved. Secondly payment on someone' behalf always has to be a written contract.

According to UCC, suretyships have to be written for them to be enforceable. This is mentioned in Statute of Frauds. It clearly states that any gurantee by thrid party for payment of debts has to be in writing.

Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2021. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%. What is the correct entry to record the note? Multiple Choice Notes receivable 605,000 Interest revenue 105,000 Cost of sales 500,000 Notes receivable 605,000 Accounts receivable 605,000 Notes receivable 605,000 Discount on notes receivable 105,000 Sales revenue 500,000 Notes receivable 500,000 Accounts receivable 500,000

X Company acquired land in Costa Rica for a total cost of $45,000,000. Engineers conducted a study at an additional cost of $500,000 to determine that there were oil reserves that should yield approximately 1,000,000 barrels of oil. The purchase agreement includes a requirement that the land be restored when the oil has been extracted, which is expected to cost $1,300,000, after which the land is expected to be worth $4,500,000. In year 8, X Company incurred $200,000 in development costs and extracted and sold 130,000 barrels of oil. How much depletion will X Company recognize during year 8

In December 2016, Custom Mfg. established its predetermined overhead rate for jobs produced during 2017 by using the following cost predictions: overhead costs, $460,000, and direct materials costs, $200,000. At year-end 2017, the company’s records show that actual overhead costs for the year are $1,271,100. Actual direct material cost had been assigned to jobs as follows.

Jobs completed and sold $ 420,000
Jobs in finished goods inventory 76,000
Jobs in work in process inventory 53,000
Total actual direct materials cost $ 549,000

1. Determine the predetermined overhead rate for 2017.
2&3. Enter the overhead costs incurred and the amounts applied during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied.
4. Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

Complete this question by entering your answers in the tabs below.

Req 1

Req 2 and 3

Req 4

Determine the predetermined overhead rate for 2017.

Overhead Rate
Choose Numerator: / Choose Denominator:
Complete this question by entering your answers in the tabs below.

Req 1

Req 2 and 3

Req 4

Enter the overhead costs incurred and the amounts applied during the year using the predetermined overhead rate and determine whether overhead is overapplied or underapplied.

Factory Overhead
Actual overhead
Applied overhead
Underapplied overhead 0 = Overhead Rate
Estimated overhead costs / Estimated direct material costs = Overhead rate
/ = 0
Prepare the adjusting entry to allocate any over- or underapplied overhead to Cost of Goods Sold.

No Date General Journal Debit Credit
1 Dec 31 Cost of goods sold
1 Factory overhead

In the past, some people believed that the Fed routinely expanded the money supply during the presidential election years to help the incumbent president. For this question, assume that the Fed allows inflation to be 3% in every presidential election year instead of 2% in other years.If people form expectations adaptively, their expectations will ________ inflation so expansionary policy will____________. a) Overestimate; reduce the unemployment rate.b) Overestimate; increase the unemployment ratec) Underestimate; increase the unemployment rated) Underestimate; reduce the unemployment rate.e) Accurately estimate; not change the unemployment rate.

On June 1, 2021, Andres Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2021. Under the terms of the contract, Andres will be paid a fixed fee of $56,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Andres estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract.
Required:
1. Assume Andres estimates variable consideration as the expected value. How much revenue should Andres recognize on this contract in 2021?

The trial balance of Barger Company at the end of the accounting period, immediately prior to recording closing entries, showed the following:________.
Debit Credit
Cash 29,000
Land 56,000
Notes payable 32,400
Common stock 22,000
Retained earnings 15,800
Service revenue 62,000
Expenses 44,900
Dividends 2,300
Total $ 132,200 $ 132,200
What will the balance of the retained earnings account be after the closing entries are recorded?

Bonita Company's inventory records show the following data:
Units Unit Cost
Inventory, January 1 10000 $9.00
Purchases: June 18 9000 9.00
November 8 6000 8.00
A physical inventory on December 31 shows 3500 units on hand. Bonita sells the units for $15 each. The company has an effective tax rate of 20%. Bonita uses the periodic inventory method.
Required:
1. The weighted-average cost per unit is ___________.
O $8.52
O $8.53
O $9.10
O $8.76

The following accounts appear in the ledger of Oriole Company after the books are closed at December 31, 2020.

Common Stock, no par, $2 stated value, 393,000 shares authorized; 284,000 shares issued $ 568,000
Common Stock Dividends Distributable 25,000
Paid-in Capital in Excess of Stated Value—Common Stock 1,110,000
Preferred Stock, $5 par value, 8%, 38,000 shares authorized; 28,700 shares issued 143,500
Retained Earnings 758,000
Treasury Stock (13,800 common shares) 96,600
Paid-in Capital in Excess of Par—Preferred Stock 343,000
Accumulated Other Comprehensive Loss 34,500

Prepare the stockholders’ equity section at December 31, 2020, assuming retained earnings is restricted for plant expansion in the amount of $112,000. For capital stock first enter the preferred stock details.

The following information applies to the questions displayed below.
The December 31, 2021, unadjusted trial balance for Demon Deacons Corporation is presented below.
Debit $ 8,400 13,400 5,280 2,400 Accounts Credit Cash Accounts Receivable Prepaid Rent Supplies Deferred Revenue Common Stock Retained Earnings Service Revenue Salaries Expense 1,400 11,000 4,400 39, 680 27,000 $56,480 $56,480 At year-end, the following additional information is available
1. The balance of Prepaid Rent, $5,280, represents payment on October 31, 2021, for rent from November 1, 2021,
2. The balance of Deferred Revenue, $1,400, represents payment in advance from a customer. By the end of the .
3. An additional $700 in salaries is owed to employees at the end of the year but will not be paid until January 4
4. The balance of Supplies, $2,400, represents the amount of office supplies on hand at the beginning of the year to April 30, 2022 year, $350 of the services have been provided. 2022 of $900 plus an additional $1,500 purchased throughout 2021. By the end of 2021, only $640 of supplies remains.

Pitt Enterprises manufactures jeans. All materials are introduced at the beginning of the manufacturing process in the Cutting Department. Conversion costs are incurred uniformly throughout the manufacturing process. As the cutting of material is completed, the pieces are immediately transferred to the Sewing Department. Information for the Cutting Department for the month of May follows. Work in Process, May 1 (56,500 units, 100% complete for direct materials, 40% complete with respect to conversion costs; includes $83,500 of direct material cost; $47,050 of conversion costs). Units started in May 238,000 Units completed in May 213,000 Work in Process, May 31 (81,500 units, 100% complete for direct materials; 15% complete for conversion costs). Costs incurred in May Direct materials $ 772,280 Conversion costs $ 1,161,810 If Pitt Enterprises uses the weighted average method of process costing, compute the equivalent units for direct materials and conversion respectively for May.

Fire Department Turns to BI Analytics. New York City has nearly one million buildings, and each year, more than 3000 of them experience a major fire. The Fire Department of the City of New York (FDNY) is adding BI analytics to its arsenal of firefighting equipment. It has created a database of over 60 different factors (e.g., building location, age of the building, whether it has electrical issues, the number, and location of sprinklers) in an attempt to determine which buildings are more likely to have a fire than others. The values of these parameters for each building are fed into a BI analytics system that assigns each of the city's 330,000 inspectable buildings a risk score. (FDNY doesn't inspect single and two-family homes.) Building inspectors then use these risk scores to prioritize which buildings to visit on their weekly inspections. The FDNY has roughly 350 inspectors who are trained and certified to perform their duties.
Which set of three parameters all provides measures useful in determining which buildings are more likely to have a fire than others?
a. Year the building was constructed, the number of building occupants, and primary materials used in the construction of the building
b. Primary materials used in the construction of the building, the assessed value for property taxes, and distance from the nearest fire station
c. Distance from the nearest fire hydrant, whether or not the building has an elevator, and the number of stories in the building
d. The amount the building is insured for, distance from the nearest fire hydrant, and primary building materials used in the construction of the building

Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company’s most recent year is given below:
Required:
1-a. Compute the companywide break-even point in dollar sales. (Round "CM ratio" to 2 decimal places and final answer to the nearest whole dollar amount.)
1-b. Compute the break-even point for the Chicago office and for the Minneapolis office. (Round "CM ratio" to 2 decimal places and final answers to the nearest whole dollar amount.)
1-c. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?
Greater than
Less than
Equal to
2. By how much would the company’s net operating income increase if Minneapolis increased its sales by $48,750 per year? Assume no change in cost behavior patterns.
3. Refer to the original data. Assume that sales in Chicago increase by $32,500 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs.
a. Prepare a new segmented income statement for the company. (Round your percentage answers to 1 decimal place (i.e.1234 should be entered as 12.3)

Sheridan, Inc. acquired 40% of Pina Corporation's voting stock on January 1, 2021 for $1060000. During 2021, Pina earned $364000 and paid dividends of $250000. Sheridan's 40% interest in Pina gives Sheridan the ability to exercise significant influence over Pina's operating and financial policies. During 2022, Pina earned $533000 and paid cash dividends of $138000 on April 1 and $138000 on October 1. On July 1, 2022, Sheridan sold half of its stock in Pina for $681000 cash. What should the gain be on sale of this investment in Sheridan's 2022 income statement?

TravelLite and FareLine compete as online travel agencies. Historically, TravelLite has focused more on flights, whereas FareLine has focused on hotel bookings. The following amounts were reported by the two companies in 2015. (in millions) Net Income Total Assets Total Liabilities Total Revenues TravelLite $ 1,080 $ 9,010 $ 6,400 $ 6,430 FareLine 3,020 8,490 4,270 7,660 Required: Calculate each company’s net profit margin expressed as a percent. (Round your answers to 1 decimal place.)

On January 1, Hillcrest Co. acquired a 40% interest in Preston, Inc. with the excess of purchase price over book value solely attributable to equipment with a ten-year life and undervaluation by $250,000. During the year of acquisition, Preston reported net income of $500,000. What amount of Equity Income should Hillcrest report on its income statement for the year of acquisition? Select one: A. $200,000 B. $210,000 C. $190,000 D. $250,000

George Wynn is a salesperson for EGC whose primary responsibility is to contact engineers in charge of constructing commercial buildings. One such engineer is Don Snyder, who is in charge of building the new Texas A&M College of Business Administration facility. Don’s Houston-based engineering firm purchased three new EGI portable generators for this project. George learned that Don’s company will build four more buildings on the Texas A&M campus, and he felt that Don might buy more machines. Salesperson: Don, I understand you have three of our new model electric generators. Buyer: Yeah, you’re not kidding. Salesperson: I’m sure you’ll need additional units on these new jobs. Buyer: Yeah, we sure will. Salesperson: I’ve gone over the building’s proposed floor plans and put together the type of products you need. Buyer: They buy down in Houston; you need to see them! Salesperson: I was just in there yesterday, and they said it was up to you. Buyer: Well, I’m busy today. Salesperson: Can I see you tomorrow? Buyer: No need; I don’t want any more of your lousy generators! Salesperson: What do you mean? That is our most modern design! Buyer: Those so-called new fuses of yours are exploding after five minutes’ use. The autotransformer starter won’t start. . . . Did you see the lights dim? That’s another fuse blowing. Question George Wynn feels pressured to sell the new EGI. Don Snyder’s business represents an important sale both now and in the future. If you were George, what would you do?1. Have EGC’s best engineer contact Don to explain the generator’s capabilities.2. Come back after Don has cooled down.3. Get Don to talk about problems and then solve them.

Lincoln Company issued $ 90,000 of​ 10-year, 9 % bonds payable on January​ 1, 2018. Lincoln Company pays interest each January 1 and July 1 and amortizes discount or premium by the​ straight-line amortization method. The company can issue its bonds payable under various conditions.

Requirements
1. Journalize Anderson Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at face value. Explanations are not required.
2. Journalize Anderson Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 92. Explanations are not required.
3. Journalize Anderson Company's issuance of the bonds and first semiannual interest payment assuming the bonds were issued at 103. Explanations are not required.
4. Which bond price results in the most interest expense for Anderson Company? Explain in detail.

ChipMaker is a company that produces computer chips. To gain an advantage over other computer chip makers, ChipMaker focuses on reducing its costs below all of its competitors and has aligned its value chain accordingly. Recently, several of ChipMaker's competitors have begun to reduce the company's competitive advantage. In response to this threat, ChipMaker has decided to add production capacity in an effort to lower costs. By increasing production volume in an effort to reduce costs, the company is pursuing which sources of cost advantage? technological advantages size differences and economies of scale first-mover advantage differential access to productive inputs

Process further or sell Benjamin Signal Company produces products R, J, and C from a joint production process. Each product may be sold at the split-off point or be processed further. Joint production costs of $92,000 per year are allocated to the products based on the relative number of units produced Data for Benjamin's operations for the current year are as follows: Sales Value at Split-off $76,000 $71,000 $48,000
Units Produced 8,000 10,000 5,000 Allocated Joint Production Cost $32,000 $40,000 $20,000 Product R... Product J... Product C... Product R can be processed beyond the split-off point for an additional cost of $26,000 and can then be sold for $105,000. Product J can be processed beyond the split-off point for an additional cost of $38,000 and can then be sold for $117,000. Product C can be processed beyond the split-off point for an additional cost of $12,000 and can then be sold for $57,000
Required: Which products should be processed beyond the split-off point?
A. R $3,000 profit
B. J 8,000 profit
C (3,000) loss
So R and J should be processed beyond the split off point. (Show computations)

Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent. What is the net present value of this project? (Do not round intermediate computations. Round final answer to nearest million dollars) Group of answer choices $10 mil. $14 mil. $12 mil. $16 mil.

A department using the FIFO method for process costing begins the month with 10,000 units which were 70% complete at the end of the previous month. They started and completed 50,000 units and their ending work in process inventory consisted of 5,000 units which were 10% complete. The costs incurred were $200,000.
Required:
A) The cost per equivalent unit of production, using the FIFO method is $ ____________ . Round your answer to two decimal places.

Turk Manufacturing is considering purchasing two machines. Each machine costs $9,000 and will produce cash flows as follows:

End of Year Machine A Machine B
1 $ 5,000 $ 1,000
2 4,000 2,000
3 2,000 11,000

Turk Manufacturing uses the net present value method to make the decision, and it requires a 15% annual return on its investments. The present value factors of 1 at 15% are: 1 year, 0.8696; 2 years, 0.7561; 3 years, 0.6575.

Which machine should Turk purchase?

A) Both machines are acceptable, but B should be selected because it has the greater net present value.
B) Only Machine A is acceptable.
C) Both machines are acceptable, but A should be selected because it has the greater net present value.
D) Neither machine is acceptable.
E) Only Machine B is acceptable.

Sundance Systems has the following transactions during July. July 5 Purchases 56 LCD televisions on account from Red River Supplies for $3,300 each, terms 3/10, n/30. July 8 Returns to Red River two televisions that had defective sound. July 13 Pays the full amount due to Red River. July 28 Sells remaining 54 televisions from July 5 for $3,800 each on account.

Required:
Record the transactions of Sundance Systems, assuming the company uses a perpetual inventory system.

The income statement of Vince Gill Company is shown below.

VINCE GILL COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2017

Sales revenue
$6,900,000

Cost of goods sold
Beginning inventory
$1,900,000

Purchases
4,400,000

Goods available for sale
6,300,000

Ending inventory
1,600,000

Cost of goods sold
4,700,000

Gross profit
2,200,000

Operating expenses
Selling expenses
450,000

Administrative expenses
700,000

1,150,000

Net income
$1,050,000


Additional information:

1. Accounts receivable decreased $360,000 during the year.
2. Prepaid expenses increased $170,000 during the year.
3. Accounts payable to suppliers of merchandise decreased $275,000 during the year.
4. Accrued expenses payable decreased $100,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Vince Gill Company, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Veys Limos, Inc., is considering the purchase of a limousine that would cost $155,776, would have a useful life of 7 years, and would have no salvage value. The limousine would bring in cash inflows of $32,000 per year in excess of its cash operating costs. Determine the internal rate of return on the investment in the new limousine.

Caba Corporation’s sales budget for the first half of the year is as follows: Budgeted Sales January $ 115,000 February $ 198,000 March $ 220,000 April $ 250,000 May $ 210,000 June $ 290,000 Total: $ 1,283,000 Sales are 30% cash and 70% on account. Sales on account are to be collected over a three-month period, with 20% collected in the month of the sale, 65% collected in the first month following the sale, and 15% collected in the second month following the sale. What is the budgeted balance in the Accounts Receivable account as of June 30?

On January 1, 2019, Shay Company issues $290,000 of 11%, 20-year bonds. The bonds sell for $282,750. Six years later, on January 1, 2025, Shay retires these bonds by buying them on the open market for $303,050. All interest is accounted for and paid through December 31, 2024, the day before the purchase. The straight-line method is used to amortize any bond discount.
Required:
1. What is the amount of the discount on the bonds at issuance?
2. What is the carrying (book) value of the bonds as of the close of business on December 31, 2024?3. Prepare the journal entry to record the bond retirement.

ne year ago, a U.S. investor converted dollars to yen and purchased 100 shares of stock in a Japanese company at a price of 3,150 yen per share. The stock's total purchase cost was 315,000 yen. At the time of purchase, in the currency market 1 yen equaled $0.00952. Today, the stock is selling at a price of 3,465 yen per share, and in the currency market $1 equals 145 yen. The stock does not pay a dividend. If the investor were to sell the stock today and convert the proceeds back to dollars, what would be his realized return on his initial dollar investment from holding the stock

Waterway Industries owned 22500 shares of Carla Vista Co. purchased in 2017 for $618750. On December 15, 2020, Waterway declared a property dividend of all of its Carla Vista Co. shares on the basis of one share of Carla Vista for every 10 shares of Waterway common stock held by its stockholders. The property dividend was distributed on January 15, 2021. On the declaration date, the aggregate market price of the Carla Vista shares held by Waterway was $910000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of:________

Phillip is actively engaged in the oil business and owns numerous oil leases in the Southwest. During the current year he made several trips to inspect oil wells on the leases and to consult about future oil wells to be drilled on these sites. As a result of these overnight trips, he paid the following:

Plane fares $4,000
Hotels 1,000
Meals 800
Entertaining lessees 500

Of the $6,300 in expenses incurred, he can claim as deductible expenses:

a. $6,300
b. $6,040
c. $5,650
d. $5,000