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# Proposals L and K each cost \$500,000, have 6-year lives, and have expected total cash flows of \$720,000.

Proposals L and K each cost \$500,000, have 6-year lives, and have expected total cash flows of \$720,000. Proposal L is expected to provide equal annual net cash flows of \$120,000, while the net cash flows for Proposal K are as follows:

Year 1 \$250,000
Year 2 200,000
Year 3 100,000
Year 4 90,000
Year 5 60,000
Year 6 20,000
\$720,000

Determine the cash payback period for each proposal.

2.On January 1 of the current year, C. F. Hartley Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January:

Units
Production: 50,000
Sales (\$18 per unit) 42,000
Inventory, January 31 8,000
=====

Total Cost or Expense:
Manufacturing costs:
Variable \$575,000
Fixed 75,000
Total \$650,000
=======
Variable \$ 33,600
Fixed 10,500
Total \$ 44,100
=======

(a) Prepare an income statement in accordance with absorption costing.
(b) Prepare an income statement in accordance with variable costing.

3.On the basis of the following data for Seller Co. for 2008 and the preceding year ended December 31, 2007, prepare a statement of cash flows. Use the indirect method of reporting cash flows from operating activities. Assume that equipment costing \$125,000 was purchased for cash and equipment costing \$85,000 with accumulated depreciation of \$65,000 was sold for \$15,000; that the stock was issued for cash; and that the only entries in the retained earnings account were net income of \$51,000 and cash dividends declared of \$13,000.

Year Year
2008 2007
Cash \$90,000 \$ 78,000
Accounts receivable (net) 78,000 85,000
Inventories 106,500 90,000
Equipment 410,000 370,000
Accumulated depreciation (150,000) (158,000)
\$534,500 \$465,000

Accounts payable (merchandise creditors) \$53,50\$55,000
Cash dividends payable 5,000 4,000
Common stock, \$10 par 200,000 170,000
Paid-in capital in excess of par--
common stock 62,000 60,000
Retained earnings 214,000 176,000
\$534,500 \$465,000

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