Question:

*Please note they are two different exercises. and need to be done in excel with formulas.

Exercise 1

Exercise 13-12Outsourcing decision with qualitative factors

Daisuke Corporation, which makes and sells 85,000 radios annually, currently purchases the radio speakers it uses for $5 each. Each radio uses one speaker. The company has idle capacity and is considering the possibility of making the speakers that it needs. Daisuke estimates that the cost of materials and labor needed to make speakers would be a total of $4.50 for each speaker. In addition, supervisory salaries, rent, and other manufacturing costs would be $89,000. Allocated facility-level costs would be $50,000.

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Required

a.Determine the change in net income Daisuke would experience if it decides to make the speakers.

b.Discuss the qualitative factors that Daisuke should consider.

Exercise 2

Problem 13-24Effect of order quantity on special order decision

Levy Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Levy made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized as follows.

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Materials cost ($20 per unit × 20,000)                             $  400,000

Labor cost ($18 per unit × 20,000)                                         360,000

Manufacturing supplies ($3 × 20,000)                                    60,000

Batch-level costs (20 batches at $4,000 per batch)              80,000

Product-level costs                                                                   160,000

Facility-level costs                                                                     290,000

Total costs                                                                             $1,350,000

examine the importance of the audit committee oversight related to the quality of the internal controls of an organization. Analyze the audit committee’s responsibilities regarding risk assessment and internal control monitoring. Indicate whether or not the audit committee is the best to perform the function.•Contrast the opinion provided by the independent auditor concerning management’s assessment of internal controls over the financial reporting system with the audit opinion on the financial statements in general. Argue for providing both a qualified opinion over the financial reporting system and an unqualified opinion on the financial statements

You are a CPA with an office in NearLakes City and clients consisting primarily of professionals, entrepreneurs, and small business owners. John Smith, Esq., a practicing attorney with offices near yours, walks in your office and wants advice from you relating to a recent influx of cash he received as a result of winning a large jury verdict on behalf of his client in a personal injury case. His wife Jane Smith accompanies him during your meeting because she has some additional tax planning advice to ask of you. Role After reviewing John and Jane Smith’s points of view, it will be your turn as a tax professional to decide on the best course of action from a tax perspective on their issues. Prepare a three page memo (at least 300 words per page) to John and Jane Smith addressing the issues presented. 1. John Smith tax issues: a. How is the $300,000 treated for purposes of Federal tax income? b. How is the $25,000 treated for purposes of Federal tax income? c. What is your determination regarding reducing the taxable amount of income for both (a) and (b) above? 2. Jane Smith tax issues: a. What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for Federal income tax purposes? b. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John’s case? c. Does Jane have a business or hobby? Why is this distinction important? d. Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry making activities? e. What tax benefits would John realize if he invested $15,000 in Jane’s jewelry making? f. Can Jane depreciate her vehicle or jewelry making equipment? How? 3. John and Jane Smith tax issue: a. Should John and Jane file separate tax returns or jointly? You Decide: It’s your turn as a tax professional to decide on the best course of action from a tax perspective on their issues as presented above. For each issue, begin by restating the issue and numbering as shown above, i.e., 1(a), 1(b), and so on. Then, explain and discuss the tax rules that apply to the issue, which you gleaned from your tax research. Then, conclude with a definitive answer to the issue, supported by citations to the sources used. So, for each issue, you should: 1. State the issue, 2. Explain and discuss the applicable law (IRC sections, regulations, court decision, etc.), and 3. Present your answer in the form of a concluding paragraph that refers to specific language from the IRC sections, regulations, court decisions, and other sources (if applicable) to support the conclusion. CITATIONS Citations are required. You must provide cites whenever you refer to the sources of tax law used in this memorandum. You may cite your sources in numbered footnotes, numbered endnotes, or in parentheses immediately after the sentence mentioning the cited source.AC553 W4 You Decide . Key Players John Smith, Esq. <graphic: Lawyer with briefcase, suit> I worked on this case for over two years. The jury awarded my client $2,000,000 in damages, of which my fee was $300,000 plus recovery of expenses paid up front in the amount of $25,000. How is the $300,000 taxed? What about the $25,000? What can I do to minimize the tax consequences of each? Also, I am thinking about buying the building that I currently lease my office space in. My current lease is $3,500 per month. How is this lease reported on my income tax returns (either personally or for my business which is a separate law practice established as an LLC)? Do I get better tax benefits for paying the lease or for buying the building? What are the differences? Jane Smith <graphic: Professional looking woman> I think that the fees would be better used for paying off our house and buying a new, bigger house that I’ve had my eye on. Does it make better tax sense for us to pay off the mortgage, sell the house, and buy a new house, or should we just use the money to buy the new house after selling the old house? Also, I sell handcrafted jewelry which earned me $20,000 last year. Do my business activities constitute a trade or business for federal income tax purposes? Or, is this just a hobby? Should I establish a separate trade or business to get tax benefits on these earnings? Does it make any difference that I use my car primarily for transporting my jewelry to different shops around town? Finally, I think I can earn more money if John were willing to invest $15,000 for new jewelry making equipment since my original equipment, which cost $10,000 five years ago, is almost obsolete. Does this make sense from a tax perspective?

Scenario: A firm has projected free cash flows of $575,000 for Year 1, $625,000 for Year 2, and 750,000 for Year 3. The projected terminal value at the end of Year 3 is $8,000,000. The firm’s Weighted Average cost of Capital (WACC) is 12.5%.