Aug 29, 2021 | Uncategorized
Renew Energy Ltd. (REL) manufactures and sells directly to customers a special long-lasting rechargeable battery for use in digital electronic equipment. Each battery sold comes with a guarantee that REL will replace free of charge any battery that is found to be defective within six months from the end of the month in which the battery was sold. On June 30, 2011, the Estimated Liability under Battery Warranties account had a balance of $45,000, but by December 31, 2011, this amount had been reduced to $5,000 by charges for batteries returned.
REL has been in business for many years and has consistently experienced an 8% return rate. However, effective October 1, 2011, because of a change in the manufacturing process, the rate increased to 10%. Each battery is stamped with a date at the time of sale so that REL has developed information on the likely pattern of returns during the six-month period, starting with the month following the sale. (Assume no batteries are returned in the month of sale.)
For example, for January sales, 20% of the returns are expected in February, 30% in March, and so on.
Sales of these batteries for the second half of 2011 were:
REL’s warranty also covers the payment of the freight cost on defective batteries returned and on new batteries sent as replacements. This freight cost is 10% of the sales price of the batteries returned. The manufacturing cost of a battery is roughly 60% of its sales price, and the salvage value of the returned batteries averages 14% of the sales price. Assume that REL follows IFRS and that it uses the expense approach to account for warranties.
Aug 29, 2021 | Uncategorized
Tarass Inc. is an accrual-method calendar-year corporation. Tarass, Inc. did not qualify for the domestic production activities deduction. The following information has been provided about the activities occurring in 2013:
| Life insurance proceeds from CFO’s death |
$100,000 |
| Revenue from sales |
$3,500,000 |
| Key person life insurance premium |
$6,800 |
| Utilities cost |
$275,000 |
| Employee benefits expense |
$65,000 |
| Intangible drilling costs |
$40,000 |
| Mining exploration and development costs |
$60,000 |
| Interest income on qualified private activity, tax-exempt bonds |
$25,000 |
| Interest paid on loan to purchase tax-exempt bonds |
$25,000 |
| Alternative Minimum NOL Deduction |
$35,000 |
| Rental income received and earned in 2013 |
$5,000 |
| Rental income received but not earned in 201 |
$10,000 |
| Overhead costs : Expensed in 2013 |
$5,000 |
| Overhead costs expensed for financial reporting in 2012 |
$10,000 |
| Charitable contributions |
$315,000 |
Using Excel, prepare a reconciliation. Set up the Excel spreadsheet using the example below:
| Line Item *a |
2013 Taxable Income *b:
“I” OR” “D“
OR ”N” |
Adjustments OR Preferences
*c: |
AMTI EFFECTS
*d:
Positive(P)
Negative (N)
Either (E) |
Adjustments (A)
Neither(N) |
Preferences (P) |
|
|
|
|
|
NOTE *a: Line Item is each activity recorded for Tarass in 2013.
NOTE *b: “2013 Taxable Income” refers to if the line item would increase, decrease, or have no effect on Tarass’s book income under GAAP. Put an “I” if the line item would increase 2013 taxable income OR “D” if the item would decrease 2013 taxable income OR “N” if the line item would neither increase nor decrease 2013 taxable income.
NOTE *c: “Adjustments OR Preferences” refers to if the line item is an adjustment or a preference. Please place an “A” if the line item is an adjustments OR a “P” if the line item is a preference OR an “N” if the line item is neither an adjustment nor a preference.
NOTE *d: “AMTI Effects” refers to if the line item would have a positive, negative, or no effect on the Alternative Minimum Taxable Income. Please place a (P) for a positive affect OR (N) for a negative effect OR an (E) if the line item could have either a positive or negative effect. If the line item is not applicable to AMTI, leave the block blank.
NOTE: The student might want to consult with the IRS website, downloading the instructions for Form 4626 @ http://www.irs.gov/pub/irs-pdf/i4626.pdf. Form 4626 can be downloaded @ http://www.irs.gov/pub/irs-pdf/f4626.pdf
Aug 29, 2021 | Uncategorized
- Your client is starting a new business. Your client is the sole shareholder and transferred cash in exchange for all of the stock. The corporation will incur various start-up expenses prior to the business opening. Research the tax treatment of start-up expenditures, including the point at which a corporation begins for determining what expenses are included. In your initial discussion post include a summary of a court case that dealt with the above issue. Ensure to provide your reference in APA-Format
- Tina is the only shareholder of Edgecombe Corporation. Tina’s stock basis is $100,000. She materially participates in the business and receives an annual salary of $50,000. Current economic conditions have caused cash flow issues for the corporation so Tina needs to transfer $60,000 to the business. Tina is trying to determine the best way to structure the cash transfer: a capital contribution, a loan to protect the stock investment or a loan to protect her salary. From a tax perspective, how would you advise Tina to structure the transaction in the event economic conditions continue to decline and the corporation may have to file for bankruptcy? Support your position with primary tax authority. Ensure to provide your reference in APA-Format
- State law varies as to the reporting requirements for liquidating a corporation. Using your home region/state/city (U.S.A), research the liquidation reporting requirements at the state and federal level and post the requirements to the discussion board. What are your thoughts on the requirements of your home state as compared to state requirements made by your peers? Ensure to provide your reference in APA-Format
Aug 29, 2021 | Uncategorized
BA213
NPV and IRR Excel Assignment
Problem 1)Consider two mutually exclusive projects, A and B.Project A requires an initial cash outlay of $100,000 followed by five years of $30,000 cash inflows.Project B requires an initial cash outlay of $240,000 with cash inflows of $40,000 in the first two years, $80,000 in the next two years, and $100,000 in the fifth year.
-
Compute the IRR for each project.
-
Compute the NPV for each project for each of the following costs of capital:0%, 4%, 8%, 12% and 16% and record your results in a table.
-
Examine the table created in part “2” and determine the costs of capital for which this project appears feasible. Is your answer consistent with the result of part “1”?Explain your answer.
Problem 2)Jason and Sons is reviewing a project with an initial cash outflow of $250,000.An additional $100,000 will be invested after the first year, followed by an additional investment of $50,000 at the end of the second year.Beginning at the end of year 3, the project is expected to generate cash flows of $90,000 per year for the next eight years.
-
Calculate the project’s NPV at a cost of capital of 8%.Calculate the project’s IRR.
-
Based on these calculations alone, is this project feasible?What concerns might Jason and Sons have regarding this project beyond considering the financial calculations?
Problem 3)The Salem Motor Company is thinking of automating one of its production facilities. The equipment required will cost a total of $10 million and is expected to last 10 years.The company’s cost of capital is 9%.The project’s benefits include labor savings and a quality improvement that will lower warranty costs.Estimated cost savings in $1,000’s are:
Year1574
2864
31,246
42,748
53,367
62,437
72,276
81,839
91,264
10623
- Find the project’s NPV.Evaluate the NPV for each whole integer interest rate (cost of capital) from 6% to 14% (6%, 7%, 8%…14%).
- Determine the project’s IRR.
- Based on this information, is the project feasible?At which costs of capital is this project feasible?
Aug 29, 2021 | Uncategorized
Problem # 1 Marks (9+9=18)
On 1 January, Johnson set up Valleyview Playgyms Company to manufacture and sell children’s outdoor play gyms. He was an engineer by profession but he understood the importance of accounting information and kept his accounting records meticulously throughout the year. At the end of the year he prepared the following income statement for the year:
Valleyview Playgyms Company
Income Statement
for the year ended 31st December, 2012
| Sales |
|
450,000 |
| Less Operating expenses: |
|
|
| Purchase of Raw Material |
$200,000 |
|
| Purchase of factory supplies |
10,000 |
|
| Wages of the factory employees (who worked directly on the playgyms) |
75,000 |
|
| Wages for other factory employees |
10,000 |
|
| Managers’ salary |
40,000 |
|
| Office staff salaries |
10,000 |
|
| Sales Staff salaries |
22,000 |
|
| Advertising |
10,000 |
|
| Administrative Expenses |
8,000 |
|
| Clearing costs |
5,000 |
|
| Rent |
25,000 |
|
| Electricity |
4,500 |
|
| Purchase of factory equipment |
140,000 |
|
| Purchase of Office Equipment |
10,000 |
|
| Purchase of Sales vehicles |
15,000 |
|
| Total Operating expenses |
|
584,500 |
| Net Loss |
|
$(134,500) |
Although disappointed, Johnson was not surprised. He knew that expenses were higher than sales because, throughout the year, he had been able to generate a cash surplus. His bank overdraft had blown out and his bank manager has asked him to present his financial statements for 2012 to the bank.
Required:
You are the bank’s accountant and the bank manager has asked you to:
- Review the performance of Valleyview Playgyms in 2012 and make a recommendation as to whether Johnson’s overdraft facility should be cancelled.
- Prepare a report for Johnson explaining the errors he made in his income statement.
To perform this analysis you will need to recast Johnson’s income statement. The following information may be useful:
- The factory occupies 80 per cent of the rented building, the sales area 15 per cent and the administration area 5 per cent.
- All the company’s fixed assets are estimated to have a useful life for five years and no salvage value at the end of their life.
- Johnson spends 50 per cent of his time as factory manager and spends the remaining time equally on sales and general administration.
- Electricity costs are consumed almost entirely by the factory.
- At 31 December 2012, the following inventories existed:
- Raw Material $20,000
- Work in Process $40 000
Problem # 2 Marks 7
Write a short essay (700 words) on how management accounting can help the managers of an organization to run their business efficiently?
Aug 29, 2021 | Uncategorized
Assigment 1::::
This assignment is based on O’Leary Lab 4: Stock Portfolio Analysis and consists of two (2) parts – an Excel-based assignment and a paper.
You have been assigned to evaluate the stock market performance of firms who manufacture accounting software products. Your evaluation will be based on large- and medium-market firms. The firms are as follows:
Assigment 2::::The Accounting Analysis Project is based on the completion of the Bellwether Garden Supply (BGS) project and consists of two (2) separate parts – textbook questions, and an analysis in response to the BGS project.
Complete the BGS project which is located athttp://highered.mcgraw-hill.com/sites/dl/free/0078025710/999257/Bellwether_Garden_Supply_Project_SCA_2013.pdf. Analyze the following:
Aug 29, 2021 | Uncategorized
Please, there are 3 exercises,EX18-9 and EX 19-14are to prepare income statement and determine inventory. EX 19-15is to develop graph of cost performance
Aug 29, 2021 | Uncategorized
Last year, Delbert Company produced 10,000 units and sold 9,000 units at a price of $9. Costs for last year were as follows:
| Direct materials |
$10,000 |
| Direct labor |
15,000 |
| Variable factory overhead |
5,000 |
| Fixed factory overhead |
20,000 |
| Variable selling expense |
7,200 |
| Fixed selling expense |
5,000 |
| Fixed administrative expense |
12,000 |
|
|
Fixed factory overhead is applied based on expected production. Last year, Delbert expected to produce 10,000 units.
Assuming that beginning inventory was zero, what is the value of ending inventory under absorption costing?
Aug 29, 2021 | Uncategorized
i need it solved and calculated
Aug 29, 2021 | Uncategorized
I wantyou to answer those questions, I uploaded tow files, one of them is the front page of the course book, and the second one is the questions.
The course is Principles of Financial Acct – ACTG_201
Aug 29, 2021 | Uncategorized
Bookdon Public Limited Company manufactures three products in two production departments, a machine shop and a fitting section; it also has two service departments, a canteen and a machine maintenance section. Shown below are next year’s budgeted production data and manufacturing costs for the company.
|
|
Product
|
Product
|
Product
|
|
|
X
|
Y
|
Z
|
|
Production
|
4200 units
|
6900 units
|
1700 units
|
|
Prime cost:
|
|
|
|
|
Direct materials
|
£11 per unit
|
£14 per unit
|
£17 per unit
|
|
Direct labour:
|
|
|
|
|
Machine shop
|
£6 per unit
|
£4 per unit
|
£2 per unit
|
|
Fitting section
|
£12 per unit
|
£3 per unit
|
£21 per unit
|
|
Machine hours per unit
|
6 hours per unit
|
3 hours per unit
|
4 hours per unit
|
|
|
|
|
|
Machine
|
|
|
|
Machine
|
Fitting
|
|
Maintenance
|
|
|
|
shop
|
section
|
Canteen
|
Section
|
Total
|
|
Budgeted overheads (£):
|
|
|
|
|
|
|
Allocated overheads
|
27660
|
19470
|
16600
|
26650
|
90380
|
|
Rent, rates, heat and light
|
|
|
|
|
17000
|
|
Depreciation and insurance of equipment
|
|
|
|
|
25000
|
|
Additional data:
|
|
|
|
|
|
|
Gross book value of equipment (£)
|
150000
|
75000
|
30000
|
45000
|
|
|
Number of employees
|
18
|
14
|
4
|
4
|
|
|
Floor space occupied (square metres)
|
3600
|
1400
|
1000
|
800
|
|
It has been estimated that approximately 70% of the machine maintenance section’s costs are incurred servicing the machine shop and the remainder incurred servicing the fitting section.
Required:
(a) (i) Calculate the following budgeted overhead absorption rates:
A machine hour rate for the machine shop.
A rate expressed as a percentage of direct wages for the fitting section.
All workings and assumptions should be clearly shown.
(ii) Calculate the budgeted manufacturing overhead cost per unit of product X.
(b) The production director of Bookdon PLC has suggested that ‘as the actual over-heads incurred and units produced are usually different from the budgeted and as a consequence profits of each month end are distorted by over/under absorbed overheads, it would be more accurate to calculate the actual overhead cost per unit each month end by dividing the total number of all units actually produced during the month into the actual overheads incurred.’
Critically examine the production director’s suggestion.
Aug 29, 2021 | Uncategorized
Lionel Inc manufactures two products, Product A and Product B. Product B is of recent origin having been a recent addition to the product line to satisfy the demands of the more sophisticated consumer. It is also a more complex product requiring two (2) hours of direct labor time per unit to manufacture in comparison to the one (1) unit required for product A.
The overhead is allocated to the products on the basis of direct labor hours when the traditional costing system is used. The estimated total overhead cost is $ 450,000 and it is expected that 7,500 units of product B will be produced and 30,000 units of product A during the current year. Unit cost for the direct cost is given below:
Product A
Product B
Direct material
$12
$25
Direct labor
$10
$20
The management has recently heard about an emerging management tool called Activity Based Costing. A consultant has advised the management that the company has the following activity information for the two (2) products being produced as shown below:
Activity cost pools
Cost driver
Estimated overhead cost
Expected activity
Expected activity
Product A
Product B
Machine set ups
Set ups required
$ 180,000
600
1,200
Purchased orders
Purchase orders issued
38,382
500
100
Machine hours
Machine hours used
92,650
6,800
10,200
Maintenance
Maintenance request issued
138,968
693
907
$ 450,000
The selling price for the product is calculated at 150% of manufacturing cost.
Required
1. Compute the predetermined overhead rates under the traditional costing system and determine the total production cost for each product as well as the expected selling price.
2. Compute the ABC overhead cost for each product and determine the total production cost for each product and the expected selling price.
3. Discuss the effect to the organization of changing the costing method.
Aug 29, 2021 | Uncategorized
Faculty of Business
BUACC5933 Cost and Management Accounting
Assignment, Semester one 2014
1. General information
As per the course description, this assignment constitutes 30 per cent of the total assessment in this course and is due in week 10 of the semester.
2. Purpose
BUACC5933 covers a range of important cost and management accounting topics. The main purpose of this assignment is to provide students with the opportunity to extend their knowledge, skills, attitudes and values in connection with some of the topics covered during the course. Students are required to complete the assignment in groups of two and this is intended to foster the development of a capacity to work cooperatively with fellow students (as per the objectives for this course).
3. Formation of groups
Students are to complete the assignment in groups of two and do
not have any entitlement to adopt some other arrangement (such as completing the assignment individually or in a group of three) without the permission of the lecturer in-charge of the course at the location where they are studying. Students who have difficulty arranging membership of a group or who encounter other difficulties (for example, a group member withdraws from the course) should consult their lecturer in-charge. Where there are an odd number of students in the class, the lecturer in-charge may grant permission for one group of three students to be formed.
4. Requirements
Each group is to submit essays on Topic 1 and Topic 2 as listed below. Each essay will carry a weighting of 15 marks out of the 30 marks available for this assessment task.
Topic 1: Ethics and budgeting
Budgeting is generally regarded as an essential technique for planning and controlling an organisation’s activities. However, budgeting systems can also create incentives for unethical behaviour.
Using examples to illustrate your discussion, explain:
- How the use of budgets in planning and controlling an organisation’s activities may create incentives for unethical behaviour; and,
- What strategies organisations can adopt to minimise the risk of their budgeting system leading to unethical behaviours.
Topic 2: Accounting for overhead
Modern manufacturing processes are typically characterised by large-scale automation, with machines replacing people. Consequently, manufacturing overhead has often become a much more significant component of total manufacturing costs and this presents a particular challenge for cost and management accountants. Competitive pressures make it essential that firms have accurate and up-to-date cost data, but overhead is an indirect cost and allocating it to individual products and product lines will always involve subjectivity and estimation.
Discuss the difficulties associated with allocating overhead costs in the contemporary manufacturing environment and identify strategies that firms can adopt to help make their overhead allocations more accurate and reliable.
5. Presentation
The assignment is to comply with the University’s
General Guide for the Presentation of Academic Work. Students are required to use the APA style of referencing. See comments below regarding word length. Each group is to submit a single copy of their assignment.
6. Assessment criteria
In assessing submitted assignments consideration will be given to:
- Overall neatness, completeness and quality of presentation. Graduate students are expected to achieve a satisfactory standard with respect to this criterion as a matter of course and for this reason, no credit will be granted for achieving it. However, assignments that fail to achieve the minimum standard in connection with this criterion will be penalised. The expected standard concerning this criterion is as specified by the University’s General Guide for the Presentation of Academic Work.
- Timeliness of submission. Graduate students are expected to be able to meet reasonable deadlines for the submission of assessable work as a matter of course. For this reason, no credit will be given for submitting the assignment by the due date. However, assignments that are submitted late will be penalised at the rate of three marks out of 30 per day that the assignment is late.
- Demonstrated application of appropriate cost and management accounting knowledge, skills, values and attitudes. This criterion pertains to the overall quality of the content of responses to the assignment requirements. Specific factors to be taken into account include: accuracy, comprehensiveness, demonstrated understanding of the topics, and the location and effective use of relevant research materials.
Each essay is expected to be between 1,200 to 1,500 words (1,500 words being the maximum length). These guidelines exclude the cover sheet, abstract and list of references.
Students in a group will normally each be awarded the same mark for their assignment. This is based on the expectation that each student in the group will have contributed equally to the preparation of the assignment. Where this expectation has not been satisfied differential marks may be allocated. Selected students may be required to discuss their assignment with the person responsible for marking it. This discussion may be taken into account in marking an assignment where it provides evidence that a student has not made a fair contribution to the preparation of the assignment. This could, for example, be evidenced by a student being unable to explain the meaning of their assignment, being unable to explain how they contributed to the preparation of the assignment, or being unable to explain why certain information has been included.
Aug 29, 2021 | Uncategorized
Task Ranking
Task Description |
Very poor under- standing of task. Little or no value generated.
(0-20 %) |
Poor understanding of task. Some value generated.
(20-40 %) |
Acceptable under-standing of task. Acceptable value
(40-60 %) |
Good understanding of task. Good value given.
(60-80 %) |
Excellent understanding of task. Excellent value given.
(80-100 %) |
| 1) |
Headings
(5.0) |
Missing a lot or all headings
0.0-1.0 |
Missing one or more essential features and/ /or poorly organised
1.0-2.0 |
All headings but poorly organised and/or difficult to read
2.0-3.0 |
All headings, well organised but some difficulty reading it.
3.0-4.0 |
All headings are clean & easy to read. e.g.
To: XXXXXX
From: YYYYYYYYY
Date: 27/04/2014
Re: Ideally 6 to 12 words
4.0-5.0 |
| 2) |
Context Line
(15.0) |
Little or no insight on the issue with many irrelevancies.
0.0-3.0 |
A confused statement of the issue with some irrelevancies
3.0-6.0 |
A clear statement of the issue
6.0-9.0 |
A clear and concise statement of the issues
9.0-12.0 |
A clear and concise statement of the issues & consequences
12.0-15.0 |
| 2) |
Action Line
(25.0) |
Generally confused with no request or conclusion.
0.0-5.0 |
A confused request or conclusion—may be poorly placed (e.g. at the end or blended with other parts).
5.0-10.0 |
An acceptable request or conclusion, given near the start.
10.0-15.0 |
A good clear concise request or conclusion, given near the start.
15.0-20.0 |
An excellent clear concise statement of how to resolve the issues.
15.0-25.0 |
| 4) |
Rest of the Memo
(25.0) |
Generally confused discussion with little or no linkage to the issues and/or action line.
0.0-5.0 |
Confused and poorly linked to the issues and/or action line.
5.0-10.0 |
Acceptable insight plus clear support for the action line.
10.0-15.0 |
Good insight plus strong, clear, and concise support for the action line.
15.0-20.0 |
Excellent insight plus strong, clear, and concise support for the action line that is clearly tied to it.
15.0-25.0 |
| Total Mark |
/70 |
|
|
|
|
|
| Adj. to 7.0 |
/7.0 |
Student Numbers: |
|
|
|
|
|
|
|
|
Using a standard format memo (i.e. a short report of ½ to 1 ½ pages) please discuss the nature and importance of the “Moral Hazard” issue in financial markets and how it is resolved by accounting and auditing
The marking rubric that will guide the marking
Aug 29, 2021 | Uncategorized
Question 1 Full Costing (10 Marks)
Asterix is a business that prints customised pens for corporate events. It has been decided by the management that the pricing of customer orders will be based upon the plans for the next financial year. The plans for the 2015 financial year are shown below:
$
Sales revenue 163,000
Direct materials (28,000)
Direct labour (21,000)
Variable overheads (12,000)
Advertising and marketing (2,000)
Depreciation of equipment (3,000)
Administration expenses (24,000)
Interest on loan (1,200)
Profit 71,800
Asterix needs to prepare a quote for a customer for an order of pens and has made the following estimates for the direct costs of the job:
Direct materials $1,500
Direct labour $1,100
Required:
- Prepare a quote for the customer using direct labour costs to apportion overheads and profits. Show all workings. (7 marks)
- What assumption does the customer quote in part (a) make regarding the variable overheads of the business? (1 mark)
- Describe an alternative method that Asterix could have used to apportion overheads and profits. (2 marks)
Question 2 CVP Analysis (10 marks)
Nymph Ltd manufactures and sells artificial Christmas trees. Nymph Ltd sold 75,000 Christmas trees in 2013 with the following results:
Sales revenue $1,125,000
Variable labour costs 187,500
Variable machine costs 37,500
Variable material costs 600,000
Fixed Costs 190,000
Operating Profit $110,000
Nymph expects the variable labour costs to increase by $1 per unit and the variable material costs to increase by $1 per unit in 2014.
Required:
- Assuming the sale price for each Christmas tree stays the same in 2014; calculate the contribution margin per Christmas tree for 2014. Show all workings.
(3 marks)
- Nymph Ltd wants to increase its operating profit by 20% in 2014. How many Christmas trees will Nymph Ltd need to sell to reach its desired operating profit? Show all workings. (2 marks)
- Nymph Ltd is also considering purchasing a new piece of machinery that will eliminate the variable labour costs but increase the fixed costs by $50,000. If Nymph purchases this machinery for 2014 how many Christmas trees would Nymph need to sell to reach the desired operating profit calculated in part (b)? Show all workings
(3 marks)
- Discuss the effect that the purchase of the new machine by Nymph Ltd will have on the business’ operational gearing. (2 marks)
Question 3 Capital Investment Decisions (16 marks)
Starbuck Construction is analysing its capital expenditure proposals for the purchase of equipment in the coming year.
The capital budget is limited to $6,000,000 for the year.
|
Project A |
Project B |
Project C |
| Projected cash outflow |
|
|
|
| Net initial investment |
$3,000,000 |
$1,500,000 |
$4,000,000 |
|
|
|
|
| Projected cash inflows |
|
|
|
| Year 1 |
$1,000,000 |
$400,000 |
$2,000,000 |
| Year 2 |
$1,000,000 |
$900,000 |
$2,000,000 |
| Year 3 |
$1,000,000 |
$800,000 |
$200,000 |
| Year 4 |
$1,000,000 |
|
$100,000 |
|
|
|
|
| Required rate of return |
11% |
11% |
11% |
REQUIRED:
- Payback period method.
- Discuss the benefits and limitations of the payback period method. (2 marks)
- Calculate the payback period for each of the three projects. Show all workings (3 marks)
- Using these payback period calculations, discuss which of the three projects, if any, should be undertaken. (2 marks)
- NPV method.
- Discuss the benefits and limitations of the NPV method. (2 marks)
- Calculate the NPV for each of the three projects. (assume all cash flows occur at the end of the year except for initial investment amounts) (5 marks)
- Using these NPV calculations, discuss which of the three projects, if any, should be undertaken. (2 marks)
Question 4: Budgeting (7 marks)
Pandorica Ltd has provided the estimates below for the October-December quarter in 2014:
October November December
$ $ $
Sales 55,000 63,000 57,000
Purchases 31,000 36,000 29,000
Operating expenses 20,000 21,000 23,500
You are also given the following additional information:
- 50% of sales are cash sales, the remaining 50% are credit sales and are collected as follows:
- 25% in the month of sale
- 40% in the month after sale
- 30% 2 months after sale
- 5% lost in bad debts
· Sales in the months of August and September were $53,000 and $51,500 respectively.
· Operating expenses include depreciation each month of $1,350. All expenses and purchases are paid for in the same month they are incurred.
· The firm expects to sell some old machinery for $11,000 in October. New machinery worth $38,000 will be purchased in November (depreciation expense will not change as a result).
· The cash balance on 30
th September 2014 is $2,500.
REQUIRED:
a) Prepare a cash budget for Pandorica Ltd for the three months October to December 2014. Show all workings. (6 marks)
b) Pandorica Ltd is budgeting for a cash deficit at the end of one of the months included in their cash budget. Explain how Pandorica Ltd could prepare for this forecasted deficit. (maximum 150 words) (1 mark)
Question 5 (7 marks) Management of working capital and business structures
Hawkeye Ltd is concerned about its management of working capital and has provided you with the following ratios calculated by its accountant:
2010 2011 2012 2013
Receivables turnover 8.7 8.1 8.0 7.5
Inventory turnover 6.5 6.3 6.0 5.9
Payables turnover 7.6 8 8.1 8.5
Also, you have a friend who has bought $500,000 of shares in Xander Ltd.
For this purchase, your friend was only required to pay 20% of the full purchase of $500,000. The remaining 80% is to be paid at a later date, yet to be settled by Xander Ltd.
Sadly, one week after your friend makes the first payment, Xander Ltd is sued. The case goes to trial immediately due to the serious nature of the circumstances. The legal matter is clear, and within a week the case is finished.
Xander Ltd loses the case and is fined $20 million dollars, which it must pay within the next 28 days.
This fine causes Xander Ltd to declare that it is bankrupt.
Your friend has been following this case in the news media, and has become very worried, and seeks your advice.
- Calculate the cash cycle period for each of the four years for Hawkeye Ltd
(3 marks)
- Comment on the management of working capital by Hawkeye Ltd over the past four years. (maximum 150 words) (2 marks)
- Explain how much money (if any at all), Xander Ltd can demand from your friend. (2 marks)
Aug 29, 2021 | Uncategorized
the helper company manufacture one product.you have obtain the following information for the year ended December 31,19×9,from the corporation’s book and records;
(1) total current manufacturing costs were $1,000,000.
(2) the 19×9 cost of goods manufactured was $970,000.
(3) current factory over head costs 75 percent of direct labor cost and 27 percent of total current manufacturing costs.
(4) beginning work in process ,January 1,was 80 percent of ending work in process ,December 31.
Based on the above data ,calculate;
a) factory over head
b) direct labor cost
c) ending work in process
D) beginning work inprocess
Aug 29, 2021 | Uncategorized
Faculty of Business Studies TMA BE 231 Financial Management Second Semester 2013- 2014 This Tutor-Marked Assignment (TMA) draws mainly on Chapters 1 & 3 of Atrill, Peter “Financial Management for Decision Makers” and other resources. It consists of two questions and accounts for 20% of the total grade assigned to the course.
Aug 29, 2021 | Uncategorized
RevenueEquipmentsales.Supplies,paperandother.Sales.Service,outsourcingandrentals…………………….•……….Financeincome.TotalRevenues.$ 3,857$ 3,550$ 4,6793,3773,0963,646———7,2346,6468,32513,7397,8208,485660713798—21,63315,17917,608continued){erOj~COrporationP(RX}—‘—_..__ .._—-_….._. __…..__ ._-_•.•._._…—-.-.–.._———_.. – —
5-47Module5I ReportingandAnalyzingOperatingIncomecontinuedfrompriorpageCostsandExpensesCostofsales..Costofservice,outsourcingandrentals.Equipmentfinancinginterest.Research,developmentandengineeringexpenses.Selling,administrativeandgeneralexpenses.Restructuringandassetimpairmentcharges.Acquisition-relatedcosts.Amortizationofintangibleassets.Otherexpenses,net.TotalCostsandExpenses.Income(Loss)beforeIncomeTaxes,andEquityIncome.Incometaxexpense(benefrt).-11..Equityinnetincomeofunconsolidatedaffiliates.Netincome.Less:Netincomeattributabletononcontrollinginterests.NetincomeAttributabletoXerox.4,7414,3955,5199,1954,4884,9292462713057818408844,5944,1494,534483(8)429777231260543892851,033—20,81814,55217,687—815627(79)256152(231)7841113—637516265313135—$606$485$230Notes:• TheincomestatementincludessalesofXeroxcopiersandrevenueearnedbya financesubsidiarythatprovidesloanandleasefinancingrelatingtothesalesof thosecopiers.• EquityinnetincomeofunconsolidatedaffiliatesreferstoincomeXeroxhasearnedoninvestmentsin affiliated(butunconsolidated)companies.. Requireda.Xeroxreportsseveralsourcesof income.Howshouldrevenuebe recognizedforeachof thesebusi-nessactivities?Explain.b.Computetherelativesizeof Salesrevenue(total)andof revenuefromService,outsourcingandrent-als.Hint:Scaleeachtypeof revenuebyTotalrevenue.Whichtypeof revenuegrewmorein 20 IO?c.Xeroxreportsresearch,developmentandengineeringexpenses(R&D)eachyear.CompareR&Dspendingoverthethreeyears.Hint:ScaleR&DbyTotalrevenueeachyear.Whatmightexplainthechangein 2010?d.Xeroxreportsrestructuringcostseachyear.(1)Describethethreetypicalcategoriesof restructur-ingcostsandtheaccountingforeach.(2)Howdoyourecommendtreatingthesecostsforanalyspurposes?(3)Shouldregularrecurringrestructuringcostsbetreateddifferentlythanisolatedoccur-.111.rencesof suchcostsforanalysispurposes?(4)Whatdoesthe$(8)expensein 2009implyaboutoneor morepreviousyear’saccruals?~’ .’e. Xeroxreports$389millionin expensesin 2010labeledas “Otherexpenses,net.”Howcana com-~._~_.panyusesuchan accountto potentiallyobscureitsactualfinancialperformance?.. .i:,”~”‘–‘.. >.”c:jiII!—1fZ5’f’E#§iJyzmg-!Jiiti!tpret~~.K;’:
Aug 29, 2021 | Uncategorized
1. A corporation was organized on January 30 of the current year, with an authorization of 20,000 shares of $4 preferred stock, $12 par, and 100,000 shares of $3 par common stock.
The following selected transactions were completed during the first year of operations. Journalize the entries to record the following selected transactions:
|
Jan. 30
|
Issued 15,000 shares of common stock at $21 per share for cash.
|
|
|
|
|
31
|
Issued 1,100 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation.
|
|
|
|
|
Feb. 24
|
Issued 20,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $55,000 $120,000, and $45,000 respectively.
|
|
|
|
|
Mar. 15
|
Issued 2,000 shares of preferred stock at $54 for cash.
|
2. A company has 10,000 shares of $10 par common stock outstanding. Present entries to record the following:
|
(a)
|
Purchased 1,000 shares of treasury stock at $13. The treasury stock is accounted for by the cost method.
|
|
(b)
|
Sold 500 shares of treasury stock at $15.
|
|
(c)
|
Purchased equipment for $75,000, paying $25,000 in cash and issuing 4,000 shares of common stock for the equipment.
|
|
(d)
|
Sold 500 shares of treasury stock at $11.
|
?15?
3.A company issued $2,000,000 of 30-year, 8% callable bonds on April 1, 2005, with interest payable on April 1 and October 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:
|
2005
|
|
|
Apr. 1
|
Issued the bonds for cash at their face amount.
|
|
|
|
|
Oct. 1
|
Paid the interest on the bonds.
|
|
|
|
|
2009
|
|
|
Oct. 1
|
Called the bond issue at 103, the rate provided in the bond indenture. (Omit entry for payment of interest.)
|
Aug 29, 2021 | Uncategorized
you have to create a financial report including balance sheet and sales forecasting for a company with relavent data on word and excel
8:41 pmyou have to do a detailed plan for acquiring and using financial and other resources over a specified period (three years 2014 – 2015 to 2016 – 2017). Subsequently based on the budgeted information income and loss statement you have to create a balance sheet for the next three years . Finally, ratio analysis also need to execute to assess the financial performance over this three year period.
8:42 pmi have a sample document of my coleague which he created for the same…
you can follow the same format with a different company and data
you have to find data for a new company…
8:43 pmand also have to do calculations….
for doing the calculations i have prebuilted excel file that even uploaded along with this
reference is mandatory …we need the report in a high quality. deadline on tuesday 10 am
Aug 29, 2021 | Uncategorized
|
Jay Cutler owns and manages a computer repair service, which had the following trial balance on December 31, 2011 (the end of its fiscal year).
|
MEGA REPAIR SERVICE
Trial Balance
December 31, 2011
|
|
|
Debit
|
|
Credit
|
|
Cash
|
|
$8,892
|
|
|
|
Accounts Receivable
|
|
15,458
|
|
|
|
Supplies
|
|
13,632
|
|
|
|
Prepaid Rent
|
|
1,843
|
|
|
|
Equipment
|
|
20,582
|
|
|
|
Accounts Payable
|
|
|
|
$18,834
|
|
Owner’s Capital
|
|
|
|
41,573
|
|
|
$60,407
|
|
$60,407
|
Summarized transactions for January 2012 were as follows.
|
1.
|
|
Advertising costs, paid in cash, $1,175.
|
|
2.
|
|
Additional supplies acquired on account $4,456.
|
|
3.
|
|
Miscellaneous expenses, paid in cash, $2,044.
|
|
4.
|
|
Cash collected from customers in payment of accounts receivable $12,754.
|
|
5.
|
|
Cash paid to creditors for accounts payable due $12,989.
|
|
6.
|
|
Supplies used during January $3,836.
|
|
7.
|
|
Repair services performed during January: for cash $6,845; on account $9,816.
|
|
8.
|
|
Wages for January, paid in cash, $2,028.
|
|
9.
|
|
Jay’s drawings during January were $2,537.
|
|
|
|
|
|
|
|
|
|
|
|
Your answer is partially correct. Try again.
|
|
|
|
Open T accounts for each of the accounts listed in the trial balance, and enter the opening balances for 2012.
|
Cash
|
|
Bal.
|
|
Bal.
|
|
|
Accounts Receivable
|
|
Bal.
|
|
Bal.
|
|
|
Supplies
|
|
Bal.
|
|
Bal.
|
|
|
Prepaid Rent
|
|
Bal.
|
|
Bal.
|
|
|
Equipment
|
|
Bal.
|
|
Bal.
|
|
|
Accounts Payable
|
|
Bal.
|
|
Bal.
|
|
|
Owner’s Capital
|
|
Bal.
|
|
Bal.
|
|
|
|
|
Aug 29, 2021 | Uncategorized
Benchmarking and Balanced Score card Benchmarking and Balanced Score Card
Introduction
Balanced score card is a measurement device which helps the organization to meet its vision through its performance. With this balanced score card the company is able to take into consideration internal as well as external outcomes which helps in improving the strategic performance of the company so as to meet the set targets. Benchmarking and balanced score card are the non-financial performance measurement that are used by different organizations.
Many organizations across the globe uses benchmarking and balanced score card as one of the tools which helps in analysing the non-financial performance of the organizations from different perspectives. (Dunk, Alan S, 2011)
Balanced Scorecard
The Balanced Scorecard concept, which was developed by Robert Kaplan and David Norton in 1992, this is the tool which assists the organization in setting goals and objectives, and is a comprehensive tool for evaluating an organization’s overall performance (Carpenter, Bauer, & Erdogan, 2010). The Balanced Scorecard summarizes goals and objectives in terms of four key areas: learning and growth, financial performance, customers, and internal processes (Gupta M., 2012).
The balanced score card helps the companies to look outside of the traditional performance indicators, such as financial well-being. While this is one aspect of the Balanced Scorecard framework, it is only one piece of the overall pie. It is helpful to get businesses to see the other important aspects of their business, such as how their customers see them, what they are developing into, and how satisfied their employees are, just for some examples. (Kalpan, Norton R, & David P, 2001)
Another strength of using the Balanced Scorecard is it helps a business not only focus on the past, but on the present and future as well (Bowen, 2011). “Using balanced scorecards allows for stakeholders to determine the health of short, medium, and long term objectives at a glance” (Bowen, 2011, para. 6). Balanced Scorecards also allow an organization to see how its strategic action is measuring up to its desired outcomes (Bowen, 2011).
There are some drawbacks to the use of the Balanced Scorecard as a business strategy tool. One such disadvantage is the fact that preparing and evaluating a Balanced Scorecard costs a company a significant amount of time and money (Richards, 2012). Another disadvantage is that an organization may require additional resources to use a Balanced Scorecard. “Correct use of the tool requires a thorough understanding of the process and, unless someone in the organization has experience with it, may involve the use of an outside consultant to help with the process” (Richards, 2012, para. 2). Two other potential weaknesses of the Balanced Scorecard include its dependence on the value of information being evaluated, and employee or manager resistance to the concept (Richards, 2012).
The balanced score card looks over different perspectives of the company which includes the learning perspective, internal business perspective, financial perspective and customer perspective. With this the company helps in analyzing its overall strategy. The Learning and growth perspective focuses on increasing the capabilities of the employees so as to improve their efficiency and productivity, for this they have a strong focus on the training and development of the employees. (Cook T & Grove H, 2008). With this the company strongly focuses on improving the capabilities of the employees. With a strong focus on the training and development of the employees the organization is able to improve the satisfaction and motivation level of the employees which will in-turn help in reducing the employee turnover rate and enhancing the culture of the organization. (Kalpan, Norton R, & David P, 2001)
The company focuses on mass marketing with a strong focus on providing satisfaction to the consumers, the main focus of the organization in terms of customer perspective will be to create a value preposition, by satisfying them. The organization will focus on satisfying its customers by providing them differentiated and innovated products which will help in meeting the expectations. (Kalpan, Norton R, & David P, 2001)
The internal perspective helps in analyzing the internal process and operations of the company. Financial perspective helps in analyzing the economic effect of the decision that is being taken by the company. This helps in presenting the improvement in the financial performance of the company with the implementation of the new technology. (Kalpan, Norton R, & David P, 2001)
Benchmarking
Benchmarking is also one of the most important aspect which are used by the organizations where the organizations emphasizes on making a benchmark for its performance. For this, the organization emphasizes on benchmarking its quality. A review of published benchmarking literature traces benchmarking origins as a quality improvement approach back to industry (Camp 1989, Zairi & Leonard 1994), with many descriptive accounts of its use since the 1970s in supporting companies to be the best of the best (Camp 1989, p. 3, Bogan & English 1994). The basic principle of benchmarking is that a point for comparison is identi?ed, a benchmark, against which all can compare (Codling 1992). If benchmarking is to be effective as a continuous quality improvement approach, performance benchmarking; considering the product or service to be produced or provided, the what, needs to be supported by benchmarking the processes involved in production or provision, the how (Camp 1989). Benchmarking is therefore about a structured approach to learn from each other recognizing that those who go it alone are doomed to perennially reinvent the wheel, for they do not learn and bene?t from others progress (Choi & Linton, 2011).
Conclusion
The companies has a strong emphasis on the quality improvement through total quality management and supply chain management, with which the organizations are able to provide quality product and services to the customers.
References
Boxwell R.J. (1994) Benchmarking for Competitive Advantage. McGraw-Hill, New York, USA
Camp R.C. (1989) Benchmarking. The Search for Industry Best Practices that Lead to Superior Performance. American Society for Quality Control Quality Press, Quality Resources, Milwaukee, New York, USA.
Camp R.C. (1998) Global Cases in Benchmarking. Best Practices from Organisations Around the World. American Society for Quality Control Quality Press, Quality Resources, Milwaukee, New York, USA.
Carpenter M, Bauer T, & Erdogan, (2010), The principles of Management, Flat world knowledge
Choi T & Linton T, (2011), Don’t let your supply chain control your business, Harvard Business Review
Cook T & Grove H, (2008), Coors balanced scorecard: A decade of experience, IMA Educational case journal, Vol 1, No. 1, Art 5
Dunk, Alan S, (2011), The managerial roles of accounting: A value adding perspective for the new millennium
Gupta M, (2012), Balanced Scorecard and theory of constraints: A synergistic framework, Cost Management, Jul/Aug 2012, Proquest
Kalpan, Norton R, & David P, (2001), The strategy focused organization, Strategy and leadership, May/Jun, 2001, 29, 3
Richard, (2012), Effective performance management with the balanced scorecard
Zairi M. & Leonard P. (1994) Practical Benchmarking: The Complete Guide. Chapman & Hall, London, UK.
Aug 29, 2021 | Uncategorized
what i need is , a summary of my understnding after reading about ENRON and HIH.
Subject Auditing.in A4 size one page about enron and the next page i about hih.
Aug 29, 2021 | Uncategorized
Holmes Institute HI5025 Memo 04 – Semester 01, 2014 Mr Tom White, the president of White Crane Importing Ltd (WCIL), informed you that his firm has an accounting profit before tax (PBT) of $800,000, the corporate tax rate is 25.0 percent, and (during the tax year) WCIL experienced and journalised the following items: i. The WCIL sales people spent $35,000 entertaining customers. ii. WCIL won $60,000 in a lottery. iii. Goodwill was found to be impaired and was written down by $45,000. iv. Prepaid rent of $200,000 was paid for a new warehouse that will be used in the following tax year. v. An accounting depreciation expense of $100,000 and for tax purposes will claim depreciation of $180,000. vi. An accounting Warranty Expense of $210,000 and actual payouts for warranty costs of $260,000. vii. Long-service leave was accrued for accounting purposes at $110,000 and the Long-service leave paid was $65,000. viii. The Bad Debt Expense for accounting purposes was $70,000 and during the year $65,000 in Accounts Receivable (A/R) was written-off. Required: a) Calculate the Income Tax Expense and the Income Tax Payable (show the workings). b) Write a memo to Mr. White that gives him the Income Tax Expense, the Income Tax Payable, and the difference between those two values. Also, name that difference and explain whether its attributes are the same as any other asset/(liability)?
Aug 29, 2021 | Uncategorized
CIS3002 S1 2014 – Assignment 2 instructions
All questions relate to the following Case Study which was used in Assignment 1.
The national health insurance system “Medigood” that pays for patient’s visits to family doctors has provided a new category of service that family doctors can be funded for. This is for a telehealth medical specialist consultation for a qualifying patient. To qualify patients need to be any one of:
– over 65
– indigenous
– diabetic or suffering other chronic disease.
A consultation can occur when a family doctor with a patient in attendance links up for a consultation with a medical specialist using Telehealth equipment. Medigood will make a payment to both the family doctor and the specialist.
Medigood has already provided Telehealth equipment to all doctors and specialists but to date very few doctors have taken advantage of this; it is believed this is because it is a disruption to their normal workflow and takes too long for them to set up a Telehealth consultation with a specialist. You should do a search of the Internet to understand Telehealth and how it can be used.
Your friend Lee has come up with a new business idea and has asked you for help due to your studies in Business Analysis. Lee proposes to develop a software package that will sit on the doctor’s computer alongside any other patient management system (PMS) they may have taking advantage of available interfaces. Most doctors use the same PMS and the APIs are readily available. Lee’s software will monitor appointments and when it sees the doctor is entering notes or searching for a qualifying patient, or if a qualifying patient has an appointment, it will alert the doctor that the patient is eligible for a Telehealth consultation and search for an available medical specialist. Medical specialists are expected to register with the system which will monitor when they are on-line and potentially available for a Telehealth consultation with a patient and their family doctor. When the doctor and the specialist accept the telehealth consultation the Telehealth equipment at either end is activated. Once the consultation is completed the software will process the claim for payment to the insurance.
System Capabilities
The new system should do the following:
?monitor the doctor’s use of their Patient Management System and check the patient’s record to see if the patient qualifies for a Telehealth Consultation
?alert the doctor if the patient they are currently seeing, or next scheduled patient, qualifies for a Medigood Telehealth consultation
?identify through an already-existing on-line register of specialists available for Telehealth consultations to find a suitable specialist who is available to participate in an on-line consultation
?if the doctor and a specialist at both ends accept the consultation then it will switch on their Telehealth equipment (web-cams and voice) to enable the consultation
?update the PMS with any notes taken by the doctor
?issue a claim form to Medigood for both the doctor and the specialist to be paid for the Telehealth consultation
Application Benefits
This system should provide the following benefits:
?automatic alert the doctor that the patient qualifies for Telehealth and invite the doctor to accept the proposed consultation through Telehealth
?search for an available specialist through an already-existing hub
?automatically send a claim to Medigood so both doctors can be paid for the consultation
Your task
Following the work you did for Lee that you undertook in Assignment 1 you have been invited back to participate in the project. At this stage you are well ahead with your university assignments and happy to help. Lee has decided to invite tenders for development of the system and has asked you to develop the specification, evaluation methodology that will be made available to companies that express interest in the development project for Lee.
Lee has decided to go through a 2-phase tendering process involving an RFI (Request for Information) then a closed RFT (Request for Tender). You are asked to support this through the following tasks.
Task 1 20 marks
Draft the RFI (Request for Information) which will be advertised widely. Search for examples.
Task 2 20 marks
Review the case study and prepare an event table for the information system to support the business processes as described. Use at least the following headings for the Event Table:
|
Event
|
Event Type
|
Trigger
|
Source
|
Activity/Use Case
|
System Response/
Output
|
Destination
|
Task 3 20 Marks
Prepare a Use Case intermediate description for theuse case ‘Process the payment claim’, as documented in the event table solution and the use case diagram solution.
Task 4 20 marks
Draw the design class diagramfor the Patientand Family Doctor classes.These two classes should be part of the Domain model class diagram solution for the previous question.
Each of these design class diagrams are expected to have a complete attributes list and a comprehensive methods list which supports the specified functionality as described in the case study.
Solutions must follow the methodology as outlined within the Satzinger et al textbook.
Task 5 10 marks
Draft a summary of the functional specifications which will be included in the RFT (approximately 1 page).
Task 6 10 marks
Presume you have completed the processes of RFI, RFT, evaluation of tenders and selection of a solution. Write the executive summary of the Report to Lee where you explain the processes undertaken and recommend a preferred supplier (approximately 1 page).
Marking guide for questions out of 10
|
10
|
9
|
8
|
7
|
5
|
3
|
0
|
|
Outstanding:
|
High Distinction:
|
Distinction:
|
Credit:
|
Pass:
|
Fail:
|
Not Submitted:
|
|
An outstanding attempt – well formatted and professionally presented piece of work.
|
An excellent piece of work that meets all the specified criteria with very minor omissions or mistakes
|
More than competently meets the criteria specified with only minor mistakes or omissions.
|
Competently meets the criteria as specified with few minor mistakes or omissions.
|
Satisfactorily meets the criteria.
|
Did not sufficiently meet the criteria to pass.
|
No attempt made or different from what is acceptable
|
Marking guide for questions out of 20
|
20
|
18
|
16
|
13
|
10
|
3
|
0
|
|
Outstanding:
|
High Distinction:
|
Distinction:
|
Credit:
|
Pass:
|
Fail:
|
Not Submitted:
|
|
An outstanding attempt – well formatted and professionally presented piece of work.
|
An excellent piece of work that meets all the specified criteria with very minor omissions or mistakes
|
More than competently meets the criteria specified with only minor mistakes or omissions.
|
Competently meets the criteria as specified with few minor mistakes or omissions.
|
Satisfactorily meets the criteria.
|
Did not sufficiently meet the criteria to pass.
|
No attempt made or different from what is acceptable
|
Aug 29, 2021 | Uncategorized
Topic:A number of corporate failures took place in Australia and United states between 2000 and 2002 causing major credibility crisis in the accounting and auditing profession. Discuss briefly the accounting irregularities found in ENRON and HIH’s corporate collapse. Also discuss, the role auditors played and how they could have helped to avoid these collapses.
In your response consider, Ethics, Integrity, Independence, risk, Sampling, planning on behalf of auditors.
Task Details: studentsare to gather and analyse the information about the collapses of ENRON and HIH, and discuss accounting irregularities. They should then present their analysis and solutions in a professionally formatted s report subdivided into 2 sections of ENRON and HIH respectively.
Each student has to submit 1 A4 paper written on both sides summarising their understanding of the assignment and of the audit issues.
Research requirements: student should support their analysis and solutions / recommendations using the text and a minimum of 8 current, relevant and academically acceptable sources.
Presentation: Word .doc or .docx – 2000 + 10% word short report – title page, executive summary, table of contents, suitable headings and subheadings, conclusions, reference list (Harvard – Anglia style). Typed using 12 pt Times New Roman or 11 pt Calibri fonts. Single line spacing,
Marking Guide: Analysis 15+15% for each company
Research – extent and application 15+15% for each company
Recommendations/conclusions 10+10% for each company
Presentation 10%
Individual Part 10%
each company should be done separately
This mark will be scaled to a mark out of 20
Aug 29, 2021 | Uncategorized
Exercise 7-3 (Algorithmic) Budget Performance Report
Warwick Bottle Company (WBC) manufactures plastic two-liter bottles for the beverage industry. The cost standards per 100 two-liter bottles are as follows:
Cost Category
Standard Cost per 100 Two-Liter Bottles
Direct labor Direct materials Factory overhead Total
$1.40 5.30 0.36
$7.06
At the beginning of March, WBC management planned to produce 520,000 bottles. The actual number of bottles produced for March was 560,000 bottles. The actual costs for March of the current year were as follows:
Cost Category Actual Cost for the Month Ended March 31, 2012
Direct labor Direct materials Factory overhead Total
$8,000 28,970 2,040
$39,010
Aug 29, 2021 | Uncategorized
Problem 7-2A
Flexible Budgeting and Variance Analysis
Belgian Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and sugar. The following planning information has been made available:
Standard Amount per Case
Dark Chocolate Light Chocolate Standard Price per Pound
Cocoa 10 lbs. 7 lbs. Sugar 8 lbs. 12 lbs. Standard labor time 0.35 hr. 0.40 hr.
$4.50
0.65
Dark Chocolate Light Chocolate
Planned production Standard labor rate
4,200 cases $14.50 per hr.
10,500 cases 514.50 per hr.
Belgian Chocolate does not expect there to be any beginning or ending inventories of cocoa or sugar. At the end of the budget year, Belgian Chocolate had the following actual results:
Dark Chocolate Light Chocolate
Actual production (cases)
4,000 11,000
Actual Price per Pound Actual Pounds Purchased and Used
Cocoa $4.60 1 I 7,500 Sugar 0.60 160,000 Actual Labor Rate Actual Labor Hours Used
Dark chocolate $13.90 per hr. Light chocolate 14.90 per hr.
1,270
4,500
Aug 29, 2021 | Uncategorized
Determine the price variance, quantity variance, and total direct materials cost variance. Use the minus sign to enter favorable variances as negative numbers.
Price variance: Quantity variance: Total direct materials cost variance:
$
$
Select Select : Select
b. Determine the rate variance, time variance, and total direct labor cost variance. Use the minus sign to enter favorable variances as negative numbers.
Rate variance: Time variance: Total direct labor cost variance:
$
$
$
Select Select ( Select
Aug 29, 2021 | Uncategorized
Standard Factory Overhead Variance Report
Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2012. The company expected to operate the department at 100% of normal capacity of 7,000 hours.
Aug 29, 2021 | Uncategorized
Problem 21–2.
The Bradley Company has just completed its first year of operations. A condensed income statement follows, showing actual and standard amounts and the variances:
Required:
The president of Bradley Company has asked you as controller for the following data:
- a. How much of the variance in income was due to the fact that we sold less than expected of Product B and more of Product A?
- b. What would have happened to income if we had produced the number of units expected?
657658
- c. What would have happened to the total gross margin variance if we had sold the number of units of both A and B that we expected to sell, but at the actual selling prices per unit?
- d. What is the variance due to the fact that actual selling prices were less than expected? (Product A sold for $5.50 per unit.)
Aug 29, 2021 | Uncategorized
RESEARCH TOPIC Polaris Ltd is a public company which is listed on the Australian Securities Exchange and has numerous small shareholders. Polaris Ltd owns 35% of the issued ordinary shares of Beta Ltd. The remaining shares of Beta Ltd are widely distributed among numerous small shareholders, none of which own more than 4% of Beta Ltd. Beta Ltd’s constitution provides that at general meetings of the company, ordinary shareholders are entitled to vote on resolutions and elect directors, on the basis of one vote per ordinary share. At general meetings of Beta Ltd, resolutions proposed by Polaris Ltd are invariable passed, and candidates for directorships nominated by Polaris Ltd are invariable elected, because many small shareholders in Beta Ltd do not exercise their right to attend general meetings and vote. REQUIRED Advise Polaris Ltd whether it is required to produce consolidated financial statements (CFS). Consider the levels of control and the members’ rights in your answer.
Aug 29, 2021 | Uncategorized
I am required to wind up a Family (Discretionery)Trust that operates a tree lopping business. The Trust has a corporate Trustee ( A private company)
I need to know the journals required to wind up the Trust. Income and expense not required, just the balance sheet items. Thje company has received no distributions from the Trust.
Aug 29, 2021 | Uncategorized
You are an accountant at Yves Group
Accountants &
Investment Advisers. You have been approached by a group of investors for your professional advice on investing in Woolworths Ltd. Your client is a strong believer in
Socially Responsible Investing. That would mean adopting an investment strategy which seeks to consider both financial return and social good.
Required:
Go to:
http://www.woolworthslimited.com.au/annualreport/2013/
http://www.woolworthslimited.com.au/CRReport/2013/downloads/Woolworths_Limited_Corporate_Responsibility_Report_2013.pdf
You +1’d this publicly.Undo
and access the company’s annual report and corporate responsibility report for 2013.
Prepare a report for your client. Your report should include:
- A description of the core business of the company including full details of its operating activities.
- A discussion on any significant issues emerging from the Chairman’s Report.
- A discussion on any significant issues emerging from the Managing Director’s Report.
- A discussion on company’s Corporate Governance Statement.
- A calculation of the key financial ratios for 2013.
- An overall assessment of the company and your recommendation on investing in the company.
Aug 29, 2021 | Uncategorized
to compare financial position of two companies in same industries . last three years of financial reports will be considered and ratios such as liquidity and profit is be calculated
Aug 29, 2021 | Uncategorized
Requirement:
Introduction
Word Limit-600
Must be clear with Bargaining power of the suppliers.
Must be plagiarism free.
Aug 29, 2021 | Uncategorized
In January 2013, Mitzu Co. pays $2,800,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will b
|
In January 2013, Mitzu Co. pays $2,800,000 for a tract of land with two buildings on it. It plans to demolish Building 1 and build a new store in its place. Building 2 will be a company office; it is appraised at $780,000, with a useful life of 20 years and an $85,000 salvage value. A lighted parking lot near Building 1 has improvements (Land Improvements 1) valued at $390,000 that are expected to last another 13 years with no salvage value. Without the buildings and improvements, the tract of land is valued at $1,830,000. The company also incurs the following additional costs:
|
|
|
|
| Cost to demolish Building 1 |
$ |
347,400 |
| Cost of additional land grading |
|
193,400 |
Cost to construct new building (Building 3), having a useful life
of 25 years and a $400,000 salvage value |
|
2,202,000 |
| Cost of new land improvements (Land Improvements 2) near Building 2 having a 20-year useful life and no salvage value |
|
173,000 |
| Total costs |
$ |
5,715,800 |
|
e a company office; it is
Aug 29, 2021 | Uncategorized
no word limitation.
A journal entry need to be done
Aug 29, 2021 | Uncategorized
PART B (7 Marks)In January of 2007 the Public Company Accounting Oversight Board (PCAOB) felt itnecessary to issue a 14 page report commenting on over 20 shortcomings it had observed inthe way auditors were addressing their responsibilities with respect to fraud.Refer PCAOB Release 2007-001 January 22 – 2007: Observations on Auditors Implementationof PCAOB Standards Relating to Auditors’ Responsibilities with Respect to Fraudpcaobus.org/Inspections/Documents/2007_01-22_Release_2007-001.pdfIdentify ten shortcomings
Aug 29, 2021 | Uncategorized
A proposed new project has projected sales of $125,000, costs of $59,000 and depreciation of $12,800. The tax rate is 35%. Calculate operating cash flow using the four different approaches described in the chapter and verify that the answer is the same in each case.
4 different approaches:
|
Amount |
| Sales |
$125,000 |
| Costs |
($59,000) |
| Depreciation |
($12,800) |
| EBIT (Earnings before interest and tax) |
$53,200 |
| Taxes @ 35% of EBIT |
($18,620) |
| Net Income |
$34,580 |
Aug 29, 2021 | Uncategorized
let us examine the problem faced by Mr, Hassan, Regional Manager of Alpha pvt. Ltd. Alpha makes and distributes products from more 10 international pharmaceutical and also to get new clients. he manages a number of sales representatives. Important customers have a dedicated sales representatives, while other sales representatives try to get new clients. One day an important customer (Good Health Hospital) called Mr. Hassan and complained that Mr. shareef (the sales representative) was ineffective and insisted he be removed, or else they would not give any business. If you were Mr.Natraj- How will you solve this issue?
Aug 29, 2021 | Uncategorized
| Module 7 Assignment: |
| Amy’s Fashions ended the year 2012 with the following balance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amy’s Fashions |
|
Amy’s Fashions |
| Comparative Balance Sheet |
|
Comparative Income Statement |
| December 31, 20XX |
|
For the Year Ended 2012 |
|
2012 |
2011 |
Increase (Decrease) |
|
|
2012 |
| ASSETS |
|
|
|
|
Revenues: |
|
|
| Current Assets: |
|
|
|
|
sales |
|
1,100,000 |
| Cash and cash equivalents |
140,350 |
95,900 |
44,450 |
|
Cost of Goods Sold |
|
710,000 |
| Accounts receivable |
95,300 |
102,300 |
-7,000 |
|
Gross Profit |
|
390,000 |
| Inventory |
165,200 |
157,900 |
7,300 |
|
Operating Expenses: |
|
|
| Prepaid expenses |
6,240 |
5,860 |
380 |
|
Depreciation |
23,500 |
|
| Investments (long term) |
35,700 |
84,700 |
-49,000 |
|
Patent Amortization |
7,000 |
|
| Plant Assets: |
|
|
|
|
Other operating expenses |
196,000 |
|
| Land |
75,000 |
90,000 |
-15,000 |
|
Total Operating Expenses: |
|
226,500 |
| Buildings (net) |
303,700 |
201,700 |
102,000 |
|
Income from operations |
|
163,500 |
| Equipment, net |
279,800 |
290,300 |
-10,500 |
|
Other Income: |
|
|
| Patents |
58,000 |
65,000 |
-7,000 |
|
Gain on sale of investments |
11,000 |
|
| Total Assets |
1,159,290 |
1,093,660 |
65,630 |
|
Other Expenses: |
|
|
|
|
|
|
|
Interest Expense |
26,000 |
-15,000 |
| LIABILITIES |
|
|
|
|
Income before income tax |
|
148,500 |
| Current Liabilities: |
|
|
|
|
Income tax expense |
|
50,000 |
| Accounts Payable |
43,500 |
46,700 |
-3,200 |
|
Net Income |
|
98,500 |
| Accrued Liabilities |
14,000 |
12,500 |
1,500 |
|
|
|
|
| Income Taxes Payable |
7,900 |
8,400 |
-500 |
|
|
|
|
|
|
|
|
|
|
| Dividends Payable |
14,000 |
10,000 |
4,000 |
|
|
|
|
|
|
|
|
|
|
| Long Term Liabilities: |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
| Mortgage note payable |
40,000 |
|
40,000 |
|
|
|
|
|
|
|
|
|
|
| Bonds Payable |
150,000 |
250,000 |
-100,000 |
|
|
|
|
|
|
|
|
|
|
| Total Liabilities |
269,400 |
327,600 |
-58,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| An examination of the accounting records revealed the following for 2010: |
|
|
|
|
|
|
| Land costing $15,000 was sold for $15,000 |
|
|
|
|
|
|
|
|
|
| A mortgage note was issued for $40,000 |
|
|
|
|
|
|
|
|
|
| A building costing $115,000 was constructed |
|
|
|
|
|
|
|
|
| 2,500 shares of common stock were issued at 40 in exchange for the bonds payable |
|
|
|
|
|
| Cash dividends declared were $74,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1 |
Use the worksheet to calculate changes in Current Assets and Liabilities: |
|
|
|
|
|
|
Account |
Beginning Balance |
Debit |
Credit |
Ending Balance |
|
|
|
|
Accounts Receivable |
102,300 |
7,000 |
|
95,300 |
|
|
|
|
Prepaid Insurance |
5,860 |
|
380 |
6,240 |
|
|
|
|
Accounts Payable |
46,700 |
3,200 |
|
43,500 |
|
|
|
|
Income Tax Payable |
8,400 |
|
500 |
7,900 |
|
|
|
|
Dividends Payable |
10,000 |
4,000 |
|
14,000 |
|
|
|
|
Bonds Payable |
150,000 |
100,000 |
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debit |
Credit |
|
|
|
|
|
Net Income |
98,500 |
|
|
|
|
|
|
Increase in Accounts Receivable |
|
7,000 |
|
|
|
|
|
Decrease in Prepaid Insurance |
380 |
|
|
|
|
|
|
Decrease in Accounts Payable |
|
3,200 |
|
|
|
|
|
Increase in Salary Payable |
10,000 |
|
|
|
|
|
|
Add: Depreciation |
|
|
|
|
|
|
|
Subtract Gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtract Debits from Credits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2 |
Using the indirect method, prepare the statement of cash flows for Amy’s Fashions for the year ended 2012. |
|
|
Amy’s Fashions |
|
Statement of Cash Flows-Indirect Method |
|
For the Year Ended 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aug 29, 2021 | Uncategorized
Which of the following steps is not required in preparing the statement of cash flows?
| Determine the change in current assets. |
|
|
|
|
Determine the change in current assets. |
|
|
Determine the net change in cash. |
|
|
Determine cash from investing and financing activities. |
|
|
Determine the net cash provided by operating activities. |
|
|
|
Determine the change in current assets. |
|
|
Determine the net change in cash. |
|
|
Determine cash from investing and financing activities. |
|
|
Determine the net cash provided by operating activities. |
Aug 29, 2021 | Uncategorized
Faculty of Business BUACC5901Accounting and Finance Assignment, Semester 1, 2014 1. General information and due date This assignment constitutes 35 per cent of the assessment in this unit. The due date will be advised by your lecturer. The assignment is to be submitted via Moodle. 2. Purpose BUACC5901 is concerned primarily with the use of accounting information. The purpose of the assignment is to provide students with the opportunity to apply the knowledge and skills acquired in Accounting and Finance to a practical task involving the use of ‘real-world’ accounting information. This is intended to consolidate students’ accounting knowledge and skills. Students are required to complete the assignment in groups of two or three. The objective of such group work is to foster the development of co-operative work skills. 3. Requirements The basic requirement is to undertake a general financial analysis comparing Webjet Limited (ASX Code: WEB) financial position and performance in the Financial Years 2012 and 2013 compared to that of Wotif Limited (ASX Code: WTF) over the same period. (Note: students are to use the ‘Consolidated’ data in conducting their analysis.) The analysis should consider the ratio categories of : profitability, asset efficiency, liquidity, capital structure, and market performance. Note that for those 2012 ratios which involve Balance Sheet figures students will require the 2012 annual statements (in addition to the 2013 report) to provide the 2012 beginning-ofyear balance sheet figures. The assignment will contain two main elements: Schedule(s) of relevant ratios and other useful calculations A detailed calculation of relevant ratios and other useful calculations should be included as one or more appendices prepared using Excel or a similar spreadsheet. Students are advised to show the formulae used in determining particular ratios and other figures. Data items (for example ‘Sales Revenue’ or ‘Total Assets’) should be entered in a single cell in a specially designated ‘data area’ in the spreadsheet, with any calculation referencing the relevant data cell. A written report The written report should: 2 ? Explain briefly what is revealed by the ratios and other calculations in the context of the company’s profitability, asset efficiency, liquidity, capital structure, and market performance. In particular, any important changes over the period 2012 to 2013 should be identified, discussed and, where possible, explained. ? Provide an overall assessment of whether the company’s performance over the 2013 financial year have been better than 2012, and which of the companies has improved its performance to a greater extent over this period. The judgement should be made from the perspective of existing equity investors (shareholders). 4. Other guidelines ? The written report should not exceed 3,000 words +/- 10%. Assignments with a word count outside of these parameters will be penalised. ? The assignment is to comply with the University’s General Guide for the Presentation of Academic Work. Students are required to use the APA style of referencing. ? Students are encouraged to research additional public information about the company from sources other than the annual report (for example, from the internet, newspapers, and business magazines). However, it is not envisaged that students will be engaged in extensive research of this nature and it is expected that the annual report will be the primary resource relied upon in completing the assignment. Students are requested not to make direct contact with either company (for example by telephone, fax, letter or email) in an attempt to gather further information. ? Do not reproduce company promotional material from the annual report or company website and represent it as critical analysis. It is not and it will not attract any marks! ? Students are expected to obtain relevant share price data for the company so that investment ratios (such as a price earnings ratio) can be calculated. (It is recommended that students obtain the company’s share price as at the 2013 and 2012 balance dates for the purpose of calculating relevant ratios on these dates. Share price data is available from a variety of sources including the internet. ? Students may find it useful to consult accounting references, in addition to the prescribed text, which deal with the analysis and interpretation of company financial reports. 5. Assessment criteria In assessing submitted assignments consideration will be given to: ? Overall neatness, completeness and quality of presentation. Graduate level students are expected to achieve a satisfactory standard with respect to this criterion as a matter of course, and for this reason no credit will be granted for achieving it. However, assignments that fail to achieve the minimum standard in connection with this criterion may be penalised. The expected standard concerning this criterion is compliance with the University’s General Guide for the Presentation of Academic Work (revised edition 2011). 3 ? Demonstrated skill in identifying and calculating relevant ratios and other indicators of profitability, asset efficiency, liquidity, capital structure, and market performance. This criterion relates specifically to the requirement to prepare a schedule (or schedules) of relevant ratios and other calculations and carries a weighting of 10 marks out of the 35 available marks for the whole assignment. ? Demonstrated understanding of financial reports and ratios and other indicators of profitability, asset efficiency, liquidity, capital structure, and market performance. This criterion relates specifically to the requirement to submit a written report and carries a weighting of 25 marks out of the 35 available for the whole assignment. ? A copy of the detailed feedback sheet, showing how the marks are allocated, is attached on the following page. A single copy of the assignment should be submitted, for which each student in the group will usually receive the same mark. This is based on the expectation that each student in a group will contribute equally to the preparation of the assignment. Where this expectation has not been satisfied separate marks may be allocated. Lodgement Group assignments need to be lodged on Moodle by 5pm on Friday 30 May 2014 (Week 10). A lodgement box will be set up in Moodle for this purpose later in the semester. The front page of your lodged assignment must include a word count (exclude appendices, headers, footers and contents page in any word count). Once marked, assignments will be available in Moodle with feedback and marks. 4 BUACC5901 Accounting and Finance Assignment assessment report, TP1 2014 Student Group: _______________________________________________________________ (35 marks) Marks available Marks awarded Comments Introduction / Exec Summary 3 marks 3.0 Findings / Conclusion 5 categories = about 10 ratios 1.0 marks each for interpretation and analysis Valid conclusion 1.5 marks 10.0 1.5 Thinking process + clarity of thought 3.5 marks 3.5 Appendix / Ratio Calculations 5 categories = about 10 ratios 1 mark each for calculations 10.0 Grammar and spelling 4 marks 4.0 Overall quality of assignment 3 marks 4.0 Total Marks _____ / 35
Aug 29, 2021 | Uncategorized
Topic 1: Ethics and budgeting
Budgeting is generally regarded as an essential technique for planning and controlling an organisation’s activities. However, budgeting systems can also create incentives for unethical behaviour.
Using examples to illustrate your discussion, explain:
- How the use of budgets in planning and controlling an organisation’s activities may create incentives for unethical behaviour; and,
- What strategies organisations can adopt to minimise the risk of their budgeting system leading to unethical behaviours.
Topic 2: Accounting for overhead
Modern manufacturing processes are typically characterised by large-scale automation, with machines replacing people. Consequently, manufacturing overhead has often become a much more significant component of total manufacturing costs and this presents a particular challenge for cost and management accountants. Competitive pressures make it essential that firms have accurate and up-to-date cost data, but overhead is an indirect cost and allocating it to individual products and product lines will always involve subjectivity and estimation.
Discuss the difficulties associated with allocating overhead costs in the contemporary manufacturing environment and identify strategies that firms can adopt to help make their overhead allocations more accurate and reliable.
5. Presentation
The assignment is to comply with the University’s
General Guide for the Presentation of Academic Work. Students are required to use the APA style of referencing. See comments below regarding word length. Each group is to submit a single copy of their assignment.
6. Assessment criteria
In assessing submitted assignments consideration will be given to:
- Overall neatness, completeness and quality of presentation. Graduate students are expected to achieve a satisfactory standard with respect to this criterion as a matter of course and for this reason, no credit will be granted for achieving it. However, assignments that fail to achieve the minimum standard in connection with this criterion will be penalised. The expected standard concerning this criterion is as specified by the University’s General Guide for the Presentation of Academic Work.
- Timeliness of submission. Graduate students are expected to be able to meet reasonable deadlines for the submission of assessable work as a matter of course. For this reason, no credit will be given for submitting the assignment by the due date. However, assignments that are submitted late will be penalised at the rate of three marks out of 30 per day that the assignment is late.
- Demonstrated application of appropriate cost and management accounting knowledge, skills, values and attitudes. This criterion pertains to the overall quality of the content of responses to the assignment requirements. Specific factors to be taken into account include: accuracy, comprehensiveness, demonstrated understanding of the topics, and the location and effective use of relevant research materials.
Aug 29, 2021 | Uncategorized
„„npany and it, acti hies. and ant” report ithr’rian ,thould be to help YOU tied the best source an,d,i7,–0, the the events that led to the liquidation. Obtain the company’,1,1,a,tlea,,,,, 2 ye, ;[:s. Is _there any i.ino discuss, in light Of the liquidation. the company’s liquidity and financial :-itaunAtY about cot-pot-ate survival, rniniai report °fishier the usefulness Of the annual report in identifying potential indication of financial distress in the ntiAnagement discuss,ion in the i:crna sources of con
Loan agreement Sharon Rock, assistant accountant for Brady Industrial Products, was discussing the finalisation of the financial statements of the bustin,ss as at 30 June 2011 with the accountant of the business, Tim O’Shea. Both agreed that every lung appeared to be in order. Sharon, however, had t:s. that a large loan had been taken out by the owner with Localtown Bank and that, as part of the loan agreement, Brady Industrial Products was to maintain a ratio of current assets (less invento-ries) to current liabilities of at least 1.1:1. The relevant figuresprepared showed current assets (less im calories) standing at $1 100 000, whereas current liabilities stood at $1 000000. Sharon raised her concerns with Tim O’Shea about not maintaining the desired minimum ratio for the purpose of the loan agreement. Tim replied: ‘Yes, I can see the potential problem here. We could, I suppose, sell some inventory or put pressure on some trade debtors to pay up, but we may not have the time to Izet the ratio right for the bank’s information. The bank will want the 30 June figures. Tim thought about the problem a little further and then explained: ‘I have a better solution. There is a large loan of $120 000 which the business has made to the owner. This is currently classified as a non-current receivable as the loan is not due for repayment for another 14 months. This is probably close enough to be a current receivable, so let us simply reclassify the loan to the owner as a current receivable and this will overcome the potential problem with the bank’s ratio requirement. 1 am sure the owner will agree with me on this.’ Required A. Identify the stakeholders involved in this situation. B. What are the main ethical issues involved? C. What actions are available to Sharon to resolve the dilemma she faces? D. What would you do if you were Sharon?
FINANCIAL ANALYSIS
Refer to the consolidated financial statements and notes in the latest financial report of 313 Limited on its website, www.jbhili.com.au, and answer the following questions: 1. Have the current liabilities of JB Hi-Fi Limited increased or decreased over the year’? By how much? What classes of liabilities are recorded under the classification ‘Current liaties’? 2. What are the major liabilities of JB Hi-Fi Limited at the end of the financial year’? 3. What items are included under the heading ‘Provisions’ in the ‘Current liabilities’ section of the statement of financial position (balance sheet)? Explain the nature of these items. Do these satisfy the definition of provisions as contained in lAS 37/AASB 137? By how much have liabilities for employee benefits increased over the year? 4. How much cash has been raised by interest-bearing loans in the most recent financial ‘yea’? How much of such loans has been repaid’? Flow do these amounts compare with the previous
Aug 29, 2021 | Uncategorized
| Greg’s Bicycle Shop has the following transactions related to its top-selling Mongoose mountain bike for the month of March 2012: |
| Date |
Transactions |
Units |
Cost per Unit |
Total Cost |
| March 1 |
Beginning inventory |
20 |
$200 |
$4,000 |
| March 5 |
Sale ($300 each) |
15 |
|
|
| March 9 |
Purchase |
10 |
220 |
2,200 |
| March 17 |
Sale ($350 each) |
8 |
|
|
| March 22 |
Purchase |
10 |
230 |
2,300 |
| March 27 |
Sale ($375 each) |
12 |
|
|
| March 30 |
Purchase |
8 |
250 |
2,000 |
|
|
|
|
|
|
|
|
|
$10,500 |
|
|
|
|
|
|
16.value:
10.00 points
You did not receive credit for this question in a previous attempt
| Required: |
| 1. |
Calculate ending inventory and cost of goods sold at March 31, 2012, using the specific identification method. The March 5 sale consists of bikes from beginning inventory, the March 17 sale consists of bikes from the March 9 purchase, and the March 27 sale consists of four bikes from beginning inventory and eight bikes from the March 22 purchase.(Omit the “$” sign in your response.)
|
|
|
| Ending inventory |
$ |
| Cost of goods sold |
$ |
|
Aug 29, 2021 | Uncategorized
Apex Printing’s executive team has indicated that an assessment of the project will be due in a week’s time. As you review your calendar for the coming week, you are reminded that the due date for an assessment of the expansion project is fast-approaching. Mary sees you in your office and walks in to talk. “I’m glad I caught you in your office,” she says. “I’ve been thinking about the cost of issuing equity and debt because I know it will be burdensome for Apex,” says Mary. “On the other hand, we know that if we are to grow as a company, we must comply with the requirements of the Securities and Exchange Commission (SEC) and issue equity as well as debt.” “It’s a big decision,” you agree. “Maybe it would help if I identified the costs of issuing equity, as well as any advantages and disadvantages of engaging in this process. I could also isolate two primary compliance requirements, specifically those indicated by the SEC for an initial public offering to which the firm must adhere, as well.” “You know, sometimes it’s helpful to see things written down when making a big decision,” she says. “Thanks.” For this discussion, identify the costs of issuing equity, as well as any advantages and disadvantages of engaging in this process. Also isolate 2 primary compliance requirements, specifically those indicated by the SEC for an initial public offering to which the firm must adhere.
Aug 29, 2021 | Uncategorized
Hype Ltd produces four types of clothes with the use of a special machine. Each labor hour in the special machine costs £10. For the productionof the four products the company has 6,800 special machine labor hours. There will be no shortage of any other factor of production. Costings and break-even quantities for the products are as follows:
|
Products
|
A (Jeans)
|
B (Shirts)
|
C (Jackets)
|
D (Coats)
|
|
Material cost per unit
|
£20
|
£30
|
£60
|
£100
|
|
Special machine labor hours per unit
|
0.25
|
0.5
|
0.4
|
0.55
|
|
Fixed costs
|
£40,000
|
£50,000
|
£70,000
|
£120,000
|
|
BEP (break-even point) quantity
|
1,000
|
1,500
|
1,400
|
2,100
|
For each type of product the management of the firm aims at the following targeted profit levels:
|
Product
|
Target Profit
|
|
A
|
£100,000
|
|
B
|
£120,000
|
|
C
|
£150,000
|
|
D
|
£200,000
|
However, the marketing department has conducted a consumer survey and estimated that the actual demand for the products will be different from that corresponding to the targeted profits. The estimated quantity demanded for each product is given in the table below:
|
Product
|
Estimated Quantity Demanded
|
|
A
|
3,200
|
|
B
|
3,600
|
|
C
|
4,300
|
|
D
|
5,300
|
REQUIRED:
- Calculate the volume of activity that the company will have to achieve in order to meet the targeted level of profit for each one of the four products.
- Calculate the optimal production each of for the four products by taking into account the available labor hours and the estimates of the marketing department.
- Propose ways that could help the company to solve the problem of special machine time shortage (around 300 words)
Aug 29, 2021 | Uncategorized
ASSIGNMENT : Worth 25 %
Due : 28th May 2014-to be handed to tutor in the Tutorial
Question 1(15 marks)
Penray uses a standard costing system in evaluating production operations .The company has had a number of problems with suppliers and employees in recent times so they hired a new production supervisor ,David Smith.David Smith has been working for the company for three months now and the employees appear much happier with the company.
The director of manufacturing commented that employeesappear happier after Smith had been there for the last three months and with the changes in suppliers of material and various morale boosting activities the overall total labour and material variances being low he seemed to have transformed the companyand to have considerably improved its performance from a company which has always struggled to achieve its cost targets and achieve positive material and labour variances .
The following additional information is provided:
– The company purchased and consumed 90,000 kilograms of direct materials
at $7.90 per kilogram and paid $15.50 per hour for 42,000 direct labour
hours
– Total units produced were 19,200
-The company’s standard costs show that each completed unit required 4.4
kilograms of direct materials at $8.50 per kilogram and 2.5 direct
labour hours at $14 per hour.
Required :
1.Calculate the direct material and the direct labour variances.
2.Based on your answer to part 1 should the management of Penray be
concerned about its variances? Explain why.
3.Are things going as smoothly as the director of manufacturing believes?
Evaluate the company’s variances and determine whether or not the changes
in suppliers and the morale boosting activities appear to be working.Explain
why.
Question 2(10 marks)
The accountant for Daily Manufacturing compares each month’s actual results with the monthly budget.The standard direct labour rates and the standard hours allowed based on expected labour output are as follows :
Standard direct labour rate Standard direct labour hours
per hour allowed
Labour class 3 $25 2000
Labour class 2 $22 2000
Labour class1 $16 2000
A new union contract negotiated in March resulted in actual wage rates that were different from the standard rates. The actual wage rates paid and the
actual direct labour hours worked for April were as follows:
Actual direct labour rate Actual direct labour hours
per hour
Labour class 3 $26.20 2100
Labour class 2 $23.80 2350
Labour class 3 $16.80 1900
Required :
1. Calculate the following variances for April indicating
whether each is favourable or unfavourable:
(a)Direct labour rate variance for each labour class
(b)Direct labour efficiency variance for each labour class
2.Discuss the advantages and disadvantages of a standard costing
system in which the standard direct labour rates per hour are not changed during the year to reflect events such as a new labour contract.
3.Construct an Excel or other spreadsheet to demonstrate how the solution to part 1 would change if the following information changes:the actual labour rates were $27.00, $22.90 and $17.00 for labour classes 3,2 and 1 respectively.
Aug 29, 2021 | Uncategorized
| Robbins Company’s cost andproductiondata for two recent months included the following. |
|
January |
February |
| Production (units) |
|
100 |
|
|
250 |
|
| Rent |
$ |
1,500 |
|
$ |
1,500 |
|
| Utilities |
$ |
450 |
|
$ |
1,125 |
|
|
| (a) |
Separately calculate the rental cost per unit and the utilities cost per unit for both January and February.(Round “Rent cost per unit” and “Utility cost per unit” answers to 2 decimal places. Omit the “$” sign in your response.)
|
|
January |
February |
| Units Produced |
100 |
250 |
| Rent cost per unit |
$ |
$ |
| Utility cost per unit |
$ |
$ |
|
Aug 29, 2021 | Uncategorized
First, choose ONE of the following companies: Australian Vintage Ltd, Boundary Bend Ltd, or Treasury Wines Ltd, to illustrate your answers below. Use the company’s 2013 Annual Report/Financial Report. You are a recent graduate working for a Big 4 accounting firm and your manager has asked you to prepare a report which is to be presented to the Chief Financial Officer (CFO) of your selected company. The report should: a) Outline the main changes to the recognition and measurement of bearer plants proposed in Exposure Draft ED/2013/8 Agriculture: Bearer Plants (June 2013); b) Explain why the IASB has proposed the changes, including a discussion of the advantages and disadvantages of fair value measurement (in this context); and c) Advise the CFO on the possible impact of the ED for the company in relation to any agricultural assets the company may have. Your assignment must be set out as a report with the three sections (a) (b) (c) clearly shown. You must link your discussion to relevant accountings standards, and the exposure draft, including references to specific paragraphs. You must carry out independent research to complete this assignment and you must cite relevant academic and practitioner articles that support the material and views you present. Use Harvard style referencing
Aug 29, 2021 | Uncategorized
Advanced Taxation
Saturday Assignment
2014
In April 2010 a new Additional Rate of tax of 50% was introduced for those earning over £150,000. In addition, a phased withdrawal of the personal allowance for those with incomes over £100,000 was also implemented. This top rate was reduced to 45% by the current Coalition Government, but with a general election due next year the debate surrounding the appropriate top rate of tax has re-emerged.
You are required to write a report to evaluate whether the introduction of a new additional rate of tax actually raised as much tax as was estimated by the Government ; and whether theory of tax supports the concept of increasing the rate of tax for high earners.
This assignment contributes 40% towards your total module mark.
All the Learning Outcomes, as set out in the Module Study Guide, are covered by this assignment.
Marks will be allocated as follows:
A discussion on the amount of extra tax that was expected, by the Government, to be collected 25 marks
Evaluation of whether the increase to 50% in 2010 resulted in as much of an increase in the total tax collected as was originally expected 25 marks
Explanation of the theory of the Laffer Curve 20 marks
Conclusion 10 marks
Referencing 5 marks
Bibliography 5 marks
Presentation 10 marks
Total 100 marks
Your report should be between 1,500 – 2,000 words (excluding bibliography) and marks may be lost if you exceed the word limit, as excessive material may not be marked.
You are required to reference your report using the Harvard method, and if you use a direct quote (ie copying sentences or paragraphs from existing material) these must be placed in quotation marks.
Failure to reference is plagiarism and subject to the sanctions set out in the University’s policy on plagiarism.
Reports must be word-processed.
Suggested Readings:
Adam.S. Direct Taxes and Benefits, Institute of Fiscal Studies. 9 April 2009.http://www.ifs.org.uk/budgets/budget2009/tax_benefit.pdf
Brewer, M and Browne, J. Can More Revenue be Raised by Increasing Income Tax Rates for the Very Rich? Institute of Fiscal Studies. http://www.ifs.org.uk/publications/4486
Hmrc. The Exchequer effect of the 50 per cent additional rate of IT.
http://www.hmrc.gov.uk/budget2012/excheq-income-tax-2042.pdf
Johnson, P & Phillips, D. 50p tax – strolling across the summit of the Laffer Curve? Institute of Fiscal Studies. http://www.ifs.org.uk/publications/7066
Mitchell, DJ. The Laffer Curve wreaks havoc in the United Kingdom.Forbes.
http://www.forbes.com/sites/danielmitchell/2012/07/02/the-laffer-curve-wreaks-havoc-in-the-united-kingdom/
Pearson The 50p income tax rate and the Laffer curve (update) pearsonblog.
http://pearsonblog.campaignserver.co.uk/?p=2875
Sentence, Andrew. Tax & Growth – Supply and Demand. Tax Adviser, 10 January 2013
Smith, D. Analysis – Economics focus: The 50% top rate makes a comeback. Tax Journal 7 February 2014
Completed assignments must be submitted via Blackboard by Saturday 14 June 2014. Please note that this submission will be checked by the turnitin software, which checks against published sources as well as other assignments, submitted both to this University and to other Education Establishments.
You will be able to submit draft copies of your assignment from 31 May (2 weeks before the due date) and view the “originality report” which will indicate the similarity your assignment has with other sources.
If the report indicates that your draft is not sufficiently original you will have the opportunity to re-draft it and view the revised report. You can do this as often as you like up to the due date. You will not, however, be able to submit through Blackboard after the due date.
If you submit via Blackboard at the last minute, and your originality report indicates a high degree of similarity with other sources, you will have no opportunity to revise. Obtaining a last minute originality report which indicates your assignment may be too similar to other sources will not be accepted as a reason for an extension or late submission.
If, exceptionally, you have agreed an extension in advance for valid medical or other reasons and are submitting after the due date you must submit by way of an electronic directly to the module leader, Josie Adams.
Aug 29, 2021 | Uncategorized
Accounting for Business Decisions –HI5001
T_1_2014
The assignment allows students to exhibit their knowledge and understanding of the subject matter of Accounting. The students will use the skills of analyzing, comparing, criticizing, evaluating and justifying their responsesin answering theassignment in a report format.
The students need to be well read to answer the questions.
Requirements:
- The students will be working in a group of four (Maximum) or as specified by the concerned lecturer.
- Forming the group is a responsibility of the students, lecturer’s role is to facilitate the group if required.
- Week 5 would be the last date for the students to submit the namesof their group members to the concerned lecturer.
- Assignment work load should be shared equally.
- Each Group member to state and list in front of the assignment, as to what part they have completed and accomplished (i.e.Duties and Responsibilities).
- Each part would be thoroughly answered. Maximum word Limit is 2500 words.
- Students to download assessment criterion available in the blackboard and attach it in front of the assessment.
SECTION A: (16 MARKS)
SECTION B: (14 MARKS)
TOTAL: (30% MARKS)
Due Date: Week 10 before 5.00 pm.
Don’t forget to upload onto Safe assign, one copy per group (do not upload more than one copy). Also, one hard copy to be handed to the lecturer before the schedule time as mentioned above.
SECTION A: (16 MARKS)
Use your kills to Analyze, compare, criticize, evaluate and justify the answers in a process to solve the assignment.
ANZ Limited
Balance Sheet as at 30th June
|
$ |
$ |
| Current Assets |
2012 |
2011 |
| Cash |
40,000 |
60,000 |
| Account Receivables |
650,000 |
300,000 |
| Allowance for doubtful debts |
(50,000) |
(50,000) |
| Inventory |
700,000 |
290,000 |
|
1,340,000 |
600,000 |
| Non-Current Assets |
|
|
| Equipment |
1,800,000 |
1,100,000 |
| Accumulated depreciation |
(550,000) |
(100,000) |
| Capitalized borrowing cost |
200,000 |
——— |
|
1,450,000 |
1,000,000 |
| Total Assets |
2,790,000 |
1,600,000 |
|
|
|
| Current Liabilities |
|
|
| Account payable |
670,000 |
556,000 |
| Tax payable |
60,000 |
44,000 |
|
730,000 |
600,000 |
| Non- Current Liabilities |
|
|
| Loan |
580,000 |
600,000 |
| Total Liabilities |
1,310,000 |
1,200,000 |
|
|
|
| Net Assets |
1,480,000 |
400,000 |
| Shareholder’s Equity |
|
|
| Share Capital |
1,150,000 |
250,000 |
| Retained Profit |
330,000 |
150,000 |
|
1,480,000 |
400,000 |
|
|
|
| Sales (all on credit) |
1000,000 |
640,000 |
| Net profit after tax |
200,000 |
128,000 |
| EBIT |
290,000 |
197,000 |
| Tax expenses |
41,000 |
32,000 |
|
|
|
Required :(Each question is 2 marks)
1.a. What is the interest expense for 2012?
b. How much equipment was purchased during the year?
c. What was the depreciation expense for 2012?
d. Were any share issues? If any, calculate the value.
e. How much in dividend was paid during the year 2012?
f. How much cash was received from customers during the year?
g. How much was paid in tax?
2. Referring to the information in the question, provide four examples of accounting policy choices that ANZ may have made in determining profit that may have increased this year’s profit. (2marks)
SECTION B: (14 MARKS)
(Scenario based)
The general manager of Qantas had two concerns: the company’s worsening cash position ($3000 cash and No bank loan at the end of 2011, No cash and a $7,000 bank loan at the end of 2012) and an inadequate level of net profit. (According to General Manager).
- The general manager was confused because the company had a $9,000 profit, yet seemed, as noted above, $10,000 worse off in its cash position. Explain briefly how, in general, this difference between profit and cash change can happen. (2marks)
- The general manager proposed changes in the company’s accounting policies in a few areas in an attempt to show a higher profit. He met the company’s auditors to discuss these ideas. What do you think the auditors should have said? (2marks)
- For each of the proposed changes below, considered separately and independently, calculate the effect on 2012 net profit and total assets as at 31st December 2012. Assume a company tax rate (Australia) as income tax rate.
- The general manager suggested recognizing revenue at an earlier point. If this were done, net account receivables would be increased by $12,000 at 31st December 2011 and by $23,000 at 31st December 2012. (2marks)
- The general manager suggested changing the inventory cost policy to FIFO (which would still produce costs less than net receivable value). Doing this would increase 31st December 2011 inventories by $4,000 and 31st December 2012 inventories by $1,000. (2marks)
- The general manager suggested that the company not account for deferred income taxes, but rather treat income taxes payable in each year as the income tax expenses. The deferred income tax liability was $2,800 at 31st December 2011 and, without these changes, $2,600 at 31st December 2012. (3marks)
- The general manager suggested capitalizing more of the company’s product development costs and amortizing additional capitalized amounts over five years, using the straight line method. If this were done, $4,000 of 2011 expenses would be capitalized at 31st December 2011 and $6,000 of 2012 expenses would be capitalized at 31st December 2012. (3marks)
Note:
- All answers must be brief and thoroughly explained and not one line answers. Students not to look at the marks allocated of the questions. Marks are for the concerned lecturer to mark accordingly.
- Please keep in mind the Academic Policy of Misconduct (ie Plagiarism and Collusion).
- Late submission of assignment by one day incurs a penalty of 10% each day.
- For students who enroll late, it’s their responsibility to be on the top of their work. All assignment to be submitted as on time or at the discretion of the concerned lecturer.
Aug 29, 2021 | Uncategorized
Duggan Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $301,440 for the year, and machine usage is estimated at 125,600 hours.
For the year, $323,140 of overhead costs are incurred and 132,900 hours are used.
Aug 29, 2021 | Uncategorized
in this paper work,Part A should include(1) the reason for the rationale for consolidating the financial statements of different legal entities.(2) Consolidated financial statement(3) and the reason for consolidationPart B(1) the concept of control(2) Control as the criterion for consolidationit contains about the AASB 10 para. the definition of control(of an investment).see the website: www.aasb.gov.auPart C(1) potential voting rights(2) Majority of voting rights
Aug 29, 2021 | Uncategorized
I need help with this, anyone?
Aug 29, 2021 | Uncategorized
Accounting Information
The Perfect Brew uses the following specialised[1] and general journals to record business transactions.
- Sales Journal – to record all invoices issued for sales of inventory
- Sales Returns Journal – to record all credit notes issued for returned inventory
- Purchases Journal – to record all credit purchases of inventory
- Cash Receipts Journal – to record all cash received
- Cash Payments Journal – to record all cash payments
- General Journal – to record all other transactions
[1] Specialised journals will be covered in Lecture 7
Aug 29, 2021 | Uncategorized
Background and Facts
Antonio de Pandi is the owner of The Perfect Brew, a specialty coffee machine business he started several years ago. The business is GST-registered.
Antonio sells 3 ranges of coffee machines at any time which he purchases from manufacturers. He operates the business himself and employs one person full-time to assist him. Antonio also provides consulting services to coffee shops designing floor plans for coffee shops and restaurants. The Perfect Brew uses a perpetual inventory system and uses FIFO (First In First Out).
The business is operated from a commercial building which the business purchased two years ago.
Antonio has a variety of clients with whom he has built up a strong relationship. He offers them terms of 30 days. Antonio submits his Business Activity Statements (BAS) for GST quarterly to the Australia Taxation Office on an accruals basis.
Currently, the business uses a manual accounting system but plans to test a MYOB accounting system in August.
Accounting Information
The Perfect Brew uses the following specialised[1] and general journals to record business transactions.
- Sales Journal – to record all invoices issued for sales of inventory
- Sales Returns Journal – to record all credit notes issued for returned inventory
- Purchases Journal – to record all credit purchases of inventory
- Cash Receipts Journal – to record all cash received
- Cash Payments Journal – to record all cash payments
- General Journal – to record all other transactions
The Perfect Brew uses a general ledger in the form of a 4 column running balance (as described on page 79 Exhibit 2-13 of Custom Text 3rd ed). An Accounts Receivable and Accounts Payable subsidiary[2] ledger is also used in this format.
Financial Statements are prepared at the end of each month. The accounts are closed off at the end of each month.
All necessary pro-formas are included and are to be used to complete the manual practice set for March 2014. If you wish to use a T account format then you will need to generate your own forms to fill out. The assignment can be completed either manually using the Excel templates provided or by computer in Excel.
Aug 29, 2021 | Uncategorized
“Materiality is nothing more than an informed sense of proportion. In everyday affairs we are quite accustomed to the kind of discrimination that is entailed. It therefore seems scarcely necessary to have an accounting doctrine to tell us to use our common sense. If the idea is extended to discrimination as between methods rather than as between results, it may acquire greater significance but generally the illustrations given of its application relate to formal features of aggregative statements rather than to the quality of the information they convey.”
Chambers, R. J., 1969,
Accounting Finance and Management, Arthur Andersen & Co, Sydney, p. 421.
- With reference to the above statement describe what you understand by materiality. I am going to giv you some scanned papers, you hav to read those papers about materiality so you have to put some stuff from those papers in the assignment and you need to mention in the refrences.
- Discuss materiality in the context of the present IASB framework.
Aug 29, 2021 | Uncategorized
..2RESEARCH ESSAY– SEMESTER 1, 2014 INFORMATION Your research essay must be submitted on 24 sat may 2014. The following matters should be given particular attention its all plagiarism free: Writing assignments must not exceed the word counts indicated. Double space your pages, use a 12-pt Times New Roman font, use 2 cm margins on all four sides of your page. Your essay must include an abstract/synopsis, introduction, essay body that clearly addresses the problem areas, a conclusion and a properly referenced bibliography.
Aug 29, 2021 | Uncategorized
i want to do part A only how much iy gona cost me
Aug 29, 2021 | Uncategorized
my assignment due date is 22nd may. I tried to do it my self but teacher said its not good.
Aug 29, 2021 | Uncategorized
IT Project Description
You are given information about Doha Company which is a service company located in Qatar. You are expected to analyze, record and communicate that information by using Microsoft Excel. You will need to complete the accounting cycle in the following order:
- Prepare journal entries in the general journal.
- Post the entries to the general ledger.
- Prepare the income statement, statement of changes in owners’ equity and balance sheet.
Please note that you will be expected to apply basic Excel applications such linking the cells and using formulas (i.e. adding and subtracting information in the different cells). You will be graded on your ability to complete the accounting cycle by employing Excel functions. Should you need to type in items that are not available in the provided information, such as “current asset” in the balance sheet, then please feel free to do so. Additionally, you will need to:
- Find information from the internet regarding the different risks that are found in companies.
You will need to provide the source (link to the website) from which you have obtain that information. Alternatively, you can submit a printed copy of the information obtained from the internet.
- Please a report write a short report (one page or less) to answer the following:
- Assume that Doha Company asked you for a loan. Based on the information in the financial statements, would you agree to give a loan to the company? Explain your answer.
- In your opinion, how can information technology help businesses.
Please Make sure that the report is in PDF format.
- Please submit the excel sheet, the risk sheet (from the internet) and the report via Blackboard.
- Go to Blackboard
- Go to “Assessment Information”
- Click on “IT Project”
- Submit the three files which are the Excel sheet, risk sheet (from the internet) and the report.
Please use your Qatar University ID number to label the different files
Aug 29, 2021 | Uncategorized
Income Classification Briefly discuss the income tax implications of the following, stating which sections of the ITAA 1997 or ITAA 1936, if any, are most relevant. 1.A $10,000 bonus paid by the Australian Cricket Control Board to the captain of the Australian cricket team for outstanding leadership during a successful tour of England. 2.A boat valued at $35,000 given to an amateur footballer to turn professional. 3.Profit of $25,000 made by a trucking company on the disposal of one of the 30 trucks it has leased to carry on its business. 4.
Aug 29, 2021 | Uncategorized
Cybernetics Inc. issued $60 million of 5% three-year bonds, with coupon paid at the end of every year. The effective interest rate at the beginningof Years 1, 2, and 3 was 8%, 5%, and 2%.
a. Determine what Cybernetics would have raised from the bond issue.
b. Assume Cybernetics decides to account for the bonds using the amortized cost method. Determine the interest and bond amortization for each of the three years.
c. Assume Cybernetics decides to account for the bonds using the fair value method. Determine the interest, unrealized gain/loss, and total expense for each of the three years.
d. Explain why the amounts charged to income every year differ under the two methods
Aug 29, 2021 | Uncategorized
Assignment 2: Accounting and Audit Enforcement
Due Week 7 and worth 320 points
Using the Internet, Strayer databases, or the Securities and Exchange Commission’s Website, located athttp://www.sec.gov/divisions/enforce/friactions/friactions2012.shtml, perform a search on several U.S. health care publicly-traded companies and choose a health care organization that has been accused of committing health care fraud.
Write a five to six (5-6) page paper in which you:
1. Evaluate the level of SOX regulations that applies to for-profit and not-for-profit health care organizations, indicating whether or not mandating SOX requirements for non-profits might reduce fraud and increase corporate governance. Provide support for your rationale.
2. Determine whether SOX has been effective in regulating ethical behavior of for-profit health care organizations. Defend your position.
3. Determine whether deficiencies existed in the IT environment, and suggest ways to improve audit trails, data integrity, and policies and procedures in order to reduce the risk of fraudulent activity.
4. Review the audit report issued by the external auditing firm from the company’s Website for the year it was accused of fraud. Then, determine whether the external auditors were negligent in preparing the audit report for the company. Formulate an opinion regarding which Internal Control was deficient or what GAAP was violated. Defend your position.
5. Determine what provision(s) of SOX was / were violated in the health care fraud case in question. Indicate whether or not SOX adequately provides sanctions to deter the behavior or if changes are needed to the regulations to remedy the issue(s) and thus ensure compliance.
6. Based on the fraudulent activity that occurred, recommend two (2) improvements to the internal control environment to reduce those occurrences. Provide detailed recommendations.
7. Use at least four (4) quality academic resources in this assignment.Note:Wikipedia and other Websites do not qualify as academic resources.
Your assignment must follow these formatting requirements:
? Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
? Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
? Evaluate internal controls within an organization and create a risk assessment.
? Analyze ethical theories to evaluate a decision-making process to determine compliance with professional codes of ethics.
? Evaluate the health of organizations to assess the level of risk in an audit engagement.
? Evaluate financial data for potential fraud and prepare an audit approach for detecting fraud.
? Assess the risk of financial misstatement in an IT-based environment.
? Use technology and information resources to research issues in accounting management.
? Write clearly and concisely about accounting management using proper writing mechanics.
Grading for this assignment will be based on answer quality, logic / organization of the paper, and
Aug 29, 2021 | Uncategorized
Description:
Each student is required to conduct and document a “Critical Analysis” of three of the topics covered in Introduction to Management (ITM).
The critical analysis requires:
· Presenting a brief review of the topic.
· Using research and analysis to discuss the strengths and weaknesses of each topic to a manager in an organisation.
· Presenting CURRENT examples of each ITM topic being reported on in the media (e.g., press, business magazines or TV News programs).
The report mustinclude:
· Table of contents.
· Introduction.
· Discussion of the three topics chosen.
· Presentation of examples of each from the media.
· Conclusion.
You must use a minimum of 15 references:
· Text books: The prescribed text and at least 2 other text books.
· At least 5 different academic journal articles.
· Other sources of your choice: Blog, newspaper, magazine or other Internet source
· Wikipedia is not tobe used and does not count as an academic reference.
The Topics are
· Managing Change and Innovation.
· Strategic Management
· Organizational Structure and Design.
· Social Responsibility and Managerial Ethics.
· Foundations of Behaviors
· Managing in a Global Environment.
Aug 29, 2021 | Uncategorized
Assessment Cover Sheet Faculty of Business and Finance PO Box 42, Holmesglen VIC 3148 Holmesglen: GP: FSD 28-Nov-2013 L:TeachingSharedVocational Programs2014Sem 1AccountingFNSACC507A Provide Mgt Acc InfoAssessmentFNSACC507A PMI Assignmnt S114 gp V1.docx 1 Student Name Student ID No. Teacher Name George Peat Office: C1.2.36 Teacher Contact george.peat@holmesglen.edu.
Aug 29, 2021 | Uncategorized
The installation of Solar Power Panels: the taxation implications As energy costs increase and there is an increasing focus on environmental issues, more individuals and businesses are installing solar power panels on their homes and business premises to generate and supply electricity. Regardless of whether such panels are installed for financial or environmental reasons, it is important to consider the taxation implications of both the installation costs of the panels and the payments or offsets received for electricity fed back into an electricity grid. There is no taxation legislation which specifically refers to solar power panels. You are required to prepare a report in which you consider the general taxation principles in regard to the costs of their installation and the feed-in payments received in the following three applications: private, business, and dual-use.
Aug 29, 2021 | Uncategorized
Alex Shore practiced accounting with a partnership for five years. Recently he
opened his own accounting firm, which he operates as a professional corporation.
The name of the new entity is Alex Shore, CPA, P.C. Shore experienced the following events during the organizing phase of the new business and its first month of operations.
Some of the events were personal and did not affect the business.
4-Feb Shore received $27,000 cash from former accounting partners.*
5 Deposited $50,000 in a new business bank account titled Alex Shore,
CPA, P.C. The business issued common stock to Shore.
6 Paid $100 cash for letterhead stationery for the new office.
7 Purchased office furniture for the office. The business will pay the account
payable, $9,700, within three months.
10 Shore sold personal investment in Amazing.com stock, which he had owned
for several years, receiving $50,000 cash.*
11 Shore deposited the $50,000 cash from sale of the Amazing.com stock in his
personal bank account.*
12 A representative of a large company telephoned Shore and told him of the
18 company’s intention to transfer its accounting business to Shore.
Finished tax hearings on behalf of a client and submitted a bill for
accounting services, $17,000. Shore expected to collect from this client within
two weeks.
25 Paid office rent, $1,500.
28 Paid cash dividends of $1,000.
i need to balance this
studio photography works wedding and pros-type parties . the balance of Ansel capital was $16,000 at December 31,2011, the business accounting records show this balances.
Insurances expenses $8,000Account Receivable $8,000
Cash $37,000Note Payable $12,000
Account payable $7,000 Ansel Capital,Dec 31, 2012 ?
Advertising expenses $3,000 Salary Expenses $ 25,000
Service renew $80,000 Equipment $50,000
Ansel drawing $13,000 Owner investment 2012 29,000
Requirement
Prepare the following for studio photography for the year ended December 31,2012
a. Income statement
b. Statement of owner’ equity
c. Balance sheet
2.
#dmRosAdWrapper-MainNorth iframe{width:100%} <iframe id=”dmRosAd-1-north” width=”560″ height=”315″ frameborder=”0″ marginheight=”0″ marginwidth=”0″ scrolling=”no” src=”http://dmros.ysm.yahoo.com/ros/?c=cbdde9a2&w=678&h=315&ty=noscript&tt=Accounting+homework+help%3F&r=https%3a%2f%2fwww.google.com%2furl%3fsa%3dt%26amp%3brct%3dj%26amp%3bq%3d%26amp%3besrc%3ds%26amp%3bfrm%3d1%26amp%3bsource%3dweb%26amp%3bcd%3d1%26amp%3bved%3d0CCYQFjAA%26amp%3burl%3dhttps%3A%2F%2Fanswers.yahoo.com%2Fquestion%2Findex%3Fqid%3D20120905143139AAl40PN%26amp%3bei%3d7X1-U7msJIqdyATYwYLoDA%26amp%3busg%3dAFQjCNGVBVBN69RSTHx6NrqRMb7680d8QQ%26amp%3bbvm%3dbv.67720277%2cd.aWw”> </iframe>
Aug 29, 2021 | Uncategorized
Purchase of Net Assets Using Bonds
On January 1, 2011, Perez Company acquired all the assets and assumed all the liabilities of Stalton Company and merged Stalton into Perez. In exchange for the net assets of Stalton, Perez gave its bonds payable with a maturity value of $600,000, a stated interest rate of 10%, interest payable semiannually on June 30 and December 31, a maturity date of January 1, 2021, and a yield rate of 12%. Balance sheets for Perez and Stalton (as well as fair value data) on January 1, 2011, were as follows:
|
|
Perez
|
Stadion
|
|
Book Value
|
Book Value
|
Fair Value
|
|
Cash
|
$ 250,000
|
$114,000
|
$114,000
|
|
Receivables
|
352,700
|
150,000
|
135,000
|
|
Inventories
|
848,300
|
232,000
|
310,000
|
|
Land
|
700,000
|
100,000
|
315,000
|
|
Buildings
|
950,000
|
410,000
|
54,900
|
|
Accumulated depreciation-buildings
|
(325,000)
|
(170,500)
|
|
|
Equipment
|
262,750
|
136,450
|
39,450
|
|
Accumulated depreciation-equipment
|
(70,050)
|
(90,450)
|
|
|
Total assets
|
$2,968,700
|
$881,500
|
$968,350
|
|
Current liabilities
|
$ 292,700
|
$ 95,300
|
$ 95,300
|
|
Bonds payable, 8% due 1/1/2016, Interest payable 6/30 and 12/31
|
|
300,000
|
260,000
|
|
Common stock, $15 par value
|
1,200,000
|
|
|
|
Common stock, $5 par value
|
|
236,500
|
|
|
Other contributed capital
|
950,000
|
170,000
|
|
|
Retained earnings
|
526,000
|
79,700
|
|
|
Total equities
|
$2,968,700
|
$881,500
|
|
Required:
Prepare the journal entry on the books of Perez Company to record the acquisition of Stalton Company”s assets and liabilities in exchange for the bonds.
Aug 29, 2021 | Uncategorized
Cash Acquisition, Contingent Consideration
Pham Company acquired the assets (except for cash) and assumed the liabilities of Senn Company on January 1, 2011, paying $720,000 cash. Senn Company”s December 31, 2010, balance sheet, reflecting both book values and fair values, showed:
|
|
Book Value
|
Fair Value
|
|
Accounts receivable (net)
|
$ 72,000
|
$65,000
|
|
Inventory
|
86,000
|
99,000
|
|
Land
|
110,000
|
162,000
|
|
Buildings (net)
|
369,000
|
450,000
|
|
Equipment (net)
|
237,000
|
288,000
|
|
Total
|
$874,000
|
$1,064,000
|
|
Accounts payable
|
$ 83,000
|
$83,000
|
|
Note payable
|
180,000
|
180,000
|
|
Common stock, $2 par value
|
153,000
|
|
|
Other contributed capital
|
229,000
|
|
|
Retained earnings
|
229,000
|
|
|
Total
|
$874,000
|
|
|
|
|
|
As part of the negotiations, Pham Company agreed to pay the former stockholders of Senn Company $135,000 cash if the post combination earnings of the combined company (Pham) reached certain levels during 2011 and 2012.
Required:
- Record the journal entry on the books of Pham Company to record the acquisition on January 1, 2011. It is expected that the earnings target is likely to be met.
- Assuming the earnings contingency is met, prepare the journal entry on Pham Company”s books to settle the contingency on January 2, 2013.
- Assuming the earnings contingency is not met, prepare the necessary journal entry on Pham Company”s books on January 2, 2013.
Aug 29, 2021 | Uncategorized
Asset Acquisition, Pro forma
Balance sheets for Salt Company and Pepper Company on December 31, 2010, follow:
|
|
Salt
|
Pepper
|
|
ASSETS
|
|
|
|
Cash
|
$95,000
|
$180,000
|
|
Receivables
|
117,000
|
230,000
|
|
Inventories
|
134,000
|
231,400
|
|
Plant assets
|
690,000
|
1,236,500
|
|
Total assets
|
$1,036,000
|
$1,877,900
|
|
EQUITIES
|
|
|
|
Accounts payable
|
$180,000
|
$ 255,900
|
|
Mortgage payable
|
152,500
|
180,000
|
|
Common stock, $20 par value
|
340,000
|
900,000
|
|
Other contributed capital
|
179,500
|
270,000
|
|
Retained earnings
|
184,000
|
272,000
|
|
Total equities
|
$1,036,000
|
$1,877,900
|
Pepper Company tentatively plans to issue 30,000 shares of its $20 par value stock, which has a current market value of $37 per share net of commissions and other issue costs. Pepper Company then plans to acquire the assets and assume the liabilities of Salt Company for a cash payment of $800,000 and $300,000 in long-term 8% notes payable. Pepper Company”s receivables include $60,000 owed by Salt Company. Pepper Company is willing to pay more than the book value of Salt Company assets because plant assets are undervalued by $215,000 and Salt Company has historically earned above-normal profits.
Required:
Prepare a pro forma balance sheet showing the effects of these planned transactions.
Aug 29, 2021 | Uncategorized
Acquisition Entry and Deferred Taxes
On January 1, 2012, Pruitt Company issued 30,000 shares of its $2 par value common stock for the net assets of Shah Company in a statutory merger accounted for as a purchase. Pruitt”s common stock had a fair value of $28 per share at that time. A schedule of the Shah Company assets acquired and liabilities assumed at book values (which are equal to their tax bases) and fair values follows:
|
Item
|
Book Value/Tax Basis
|
Fair Value
|
Excess
|
|
Receivables (net)
|
$125,000
|
$ 125,000
|
$ -.0-
|
|
Inventory
|
167,000
|
195,000
|
28,000
|
|
Land
|
86,500
|
120,000
|
33,500
|
|
Plant assets (net)
|
467,000
|
567,000
|
100,000
|
|
Patents
|
95,000
|
200,000
|
105,000
|
|
Total
|
$940,500
|
$1,207,000
|
$266,500
|
|
Current liabilities
|
$ 89,500
|
$ 89,500
|
$-0-
|
|
Bonds payable
|
300,000
|
360,000
|
60,000
|
|
Common stock
|
120,000
|
|
|
|
Other contributed capital
|
164,000
|
|
|
|
Retained earnings
|
267,000
|
|
|
|
Total
|
$940,500
|
|
|
Additional Information:
- Pruitt”s income tax rate is 35%.
- Shah”s beginning inventory was all sold during 2012.
- Useful lives for depreciation and amortization purposes are:
|
Plant assets
|
10 years
|
|
Patents
|
8 years
|
|
Bond premium
|
10 years
|
- Pruitt uses the straight-line method for all depreciation and amortization purposes.
Required:
- Prepare the entry on Pruitt Company”s books to record the acquisition of the assets and assumption of the liabilities of Shah Company.
- Assuming Pruitt Company had taxable income of $468,000 in 2012, prepare the income tax entry for 2012.
Aug 29, 2021 | Uncategorized
Which of the following advantages and/or disadvantages of stock acquisitions relative to asset acquisitions (and subsequent consolidated financial statements) is misstated?
(A) Consolidated statements need not be produced as long as a parent company owns less than 50% of the voting shares of the subsidiary.
(B) Stock can be acquired by open-market purchases or by cash tender offers to the subsidiary”s stockholders.
(C) Control of the subsidiary”s operation can be accomplished with a much smaller investment, since not all of the stock need be acquired.
(D) The separate legal existence of the individual affiliates provides an element of protection of the parent”s assets from attachment by creditors of the subsidiary.
Aug 29, 2021 | Uncategorized
__________ a. In computing the difference between the implied and book values, the implied value of the acquired entity will always equal the purchase price to the parent.
__________ b. In the Computation and Allocation of Difference (between Implied Value and Book Value) schedule for a stock acquisition, the implied value of subsidiary equity is computed as: (purchase price) divided by (percentage acquired by parent).
__________ c. Once the eliminating/adjusting entry columns of the worksheet are completed, the entries are posted to the books of the company”s general ledger and therefore need not be repeated in the following year in the consolidating process.
__________ d. In allocating the difference between implied and book values, if the difference is more than needed to adjust all net assets to market values, then the excess is goodwill.
Aug 29, 2021 | Uncategorized
Business Ethics
Part I. You are working on the valuation of accounts receivable, and bad debt reserves for the current year”s annual report. The CFO stops by and asks you to reduce the reserve by enough to increase the current year”s EPS by 2 cents a share. The company”s policy has always been to use the previous year”s actual bad debt per centage adjusted for a specific economic index. The CFO”s suggested change would still be within acceptable GAAP. However, later, you learn that with the increased EPS, the CFO would qualify for a significant bonus. What do you do and why?
Part II. Consider the following:
Accounting firm KPMG created tax shelters called BLIPS, FLIP, OPIS, and SOS that were based largely in the Cayman Islands and allowed wealthy clients (there were 186) to create $5 billion in losses, which were then deducted from their income for IRS tax purposes. BLIPS (Bond Linked Issue Premium Structures) had clients borrow from an offshore bank for purposes of purchasing currency. The client would then sell the currency back to the lender for a loss. However, the IRS contends the losses were phony and that there was never any risk to the client in the deals. The IRS has indicted eight former KPMG partners and an outside lawyer alleging that the transactions were shams, illegal methods for avoiding taxes. KPMG has agreed to pay a $456 million fine, no longer to do tax shelters, and to cooperate with the government in its prosecution of the nine individuals involved in the tax shelter scheme.
Many argue that the courts have not always held that such tax avoidance schemes show criminal intent because the tax laws permit individuals to minimize taxes. However, the IRS argues that these shelters evidence intent because of the lack of risk.
Question
In this case, the IRS contends that the losses generated by the tax shelters were phony and that the clients never incurred any risk. Do tax avoidance schemes indicate criminal intent if the tax laws permit individuals to minimize taxes? Justify your answer.
Aug 29, 2021 | Uncategorized
Workpaper Elimination Entries: 3 Cases
Prepare in general journal form the workpaper entries to eliminate Prancer Company”s investment in Saltez Company in the preparation of a consolidated balance sheet at the date of acquisition for each of the following independent cases:
|
|
Percent of
|
Investment
|
Salta Company Equity Balances
|
|
|
Common
|
Other Contributed
|
Retained
|
|
Cash
|
Stock Owned
|
Cast
|
Stock
|
Capital
|
Earnings
|
|
a.
|
100%
|
$351,000
|
$160,000
|
$92,000
|
$43,000
|
|
b.
|
90
|
232,000
|
190,000
|
75,000
|
(29,000)
|
|
c.
|
80
|
159,000
|
180,000
|
40,000
|
(4,000)
|
Any difference between book value of net assets and the value implied by the purchase price relates to subsidiary property plant and equipment except for case (c). In case (c) assume that all book values and fair values are the same.
Aug 29, 2021 | Uncategorized
Treasury Stock Held by Subsidiary
Pool Company purchased 90% of the outstanding common stock of Spruce Company on December 31, 2011, for cash. At that time the balance sheet of Spruce Company was as follows:
|
Current assets
|
|
$1,050,000
|
|
Plant and equipment
|
|
990,000
|
|
Land
|
|
170,000
|
|
Total assets
|
|
$2,210,000
|
|
Liabilities
|
|
$ 820,000
|
|
Common stock, $20 par value
|
|
900,000
|
|
Other contributed capital
|
|
440,000
|
|
Retained earnings
|
|
150,000
|
|
Total
|
|
2,310,000
|
|
Less treasury stock at cost, 5,000 shares
|
|
100,000
|
|
Total equities
|
|
$2,210,000
|
Aug 29, 2021 | Uncategorized
Intercompany Receivables and Payables
Polychromasia, Inc. had a number of receivables from subsidiaries at the balance sheet date, as well as several payables to subsidiaries. Of its five subsidiaries, four are consolidated in the financial statements (Green Company, Black Inc., White & Sons, and Silver Co.). Only the Brown Company is not consolidated with Polychromasia and the other affiliates. The following list of receivables and payables shows balances at 12/31/10.
|
Interest receivable from the Brown Company
|
$ 50,000
|
|
Interest payable to Black Inc.
|
75,000
|
|
Intercompany payable to Silver Co.
|
105,000
|
|
Long-term advance to Green Company
|
150,000
|
|
Long-term payable to Silver Co.
|
450,000
|
|
Long-term receivable from Brown Company
|
500,000
|
Required:
- Show the classification and amount(s) that should be reported in the consolidated balance sheet of Polychromasia, Inc. and Subsidiaries at 12/31/10 as receivable from subsidiaries.
- Show the classification and amount(s) that should be reported in the consolidated balance sheet of Polychromasia, Inc. and Subsidiaries at 12/31/10 as payable to subsidiaries.
Aug 29, 2021 | Uncategorized
Deferred Tax Effects, Acquisition Entry and Eliminating Entries
Patel Company issued 95,000 shares of $1 par value common stock (market value of $6/share) for 95% of the common stock of Seely Company on January 1, 2011. Seely Company had the following assets, liabilities, and owners” equity at that time:
|
Book Value/Tax Basis
|
Fair Value
|
Difference
|
|
Cash
|
$ 20,000
|
$ 20,000
|
$–0–
|
|
Accounts receivable
|
112,000
|
112,000
|
-0-
|
|
Inventory (LIFO)
|
82,000
|
134,000
|
52,000
|
|
Land
|
30,000
|
55,000
|
25,000
|
|
Plant assets (net)
|
392,000
|
463,000
|
71,000
|
|
Total assets
|
$636,000
|
$784,000
|
$148,000
|
|
Allowance for uncollectible accounts
|
$ 10,000
|
$ 10,000
|
$-0-
|
|
Accounts payable
|
54,000
|
54,000
|
-0-
|
|
Bonds payable
|
200,000
|
180,000
|
20,000
|
|
Common stock, $1 par value
|
80,000
|
|
|
|
Other contributed capital
|
132,000
|
|
|
|
Retained earnings
|
160,000
|
|
|
|
Total equities
|
$636,000
|
|
|
Required:
- Prepare the stock acquisition entry on the books of Patel Company, taking into account tax effects. Assume an income tax rate of 40%.
- Prepare eliminating entries for the preparation of a consolidated balance sheet workpaper on January 1, 2011.
Aug 29, 2021 | Uncategorized
- BUACC5930
- Accounting Concepts and Practices
- Semester 1, 2014
- Group Assignment
You are an accountant at Yves Group
Accountants &
Investment Advisers. You have been approached by a group of investors for your professional advice on investing in Woolworths Ltd. Your client is a strong believer in
Socially Responsible Investing. That would mean adopting an investment strategy which seeks to consider both financial return and social good.
Required:
Go to:
http://www.woolworthslimited.com.au/annualreport/2013/
http://www.woolworthslimited.com.au/CRReport/2013/downloads/Woolworths_Limited_Corporate_Responsibility_Report_2013.pdf
You +1’d this publicly.Undo
and access the company’s annual report and corporate responsibility report for 2013.
Prepare a report for your client. Your report should include:
- A description of the core business of the company including full details of its operating activities.
- A discussion on any significant issues emerging from the Chairman’s Report.
- A discussion on any significant issues emerging from the Managing Director’s Report.
- A discussion on company’s Corporate Governance Statement.
- A calculation of the key financial ratios for 2013.
- An overall assessment of the company and your recommendation on investing in the company.
In making an overall assessment, you may conduct additional research on Woolworths too. For example, http://www.news.com.au/business/woolworths-betting-on-booze-profits-as-it-looks-to-expand-hotel-empire/story-e6frfm1i-1226223987450
http://www.smh.com.au/nsw/big-retailers-warned-in-nsw-truck-clampdown-20131221-2zrwu.html
Please note the following:
- Format: Business report
- Contribution to overall assessment: 20%
- Length: 2000 – 2200 words
- Due date: ??
- Your work must comply with the University’s General Guide for the Presentation of Academic Work.
- Two Useful links.
- http://federation.edu.au/students/assistance-support-and-services/academic-support/learning-and-study/resources
- http://www.federation.edu.au/current-students/assistance,-support-and-services/academic-support/learning-and-study/resources/general-guide-for-the-presentation-of-academic-work
- This is a group-assignment. Each group needs to have 2 to 3 members in it. Please organise yourselves into groups.
- Please make sure that names and ID numbers of all group members are stated on the cover sheet of your submission.
As this is a group assignment, each member of a group is awarded the same mark. Working in groups has its pros and cons. I am sure that you will hold constructive and energetic group discussions on the issues at hand. In case of any disagreements, you will be able to resolve them in a democratic and rational way. There will be times when you may have to agree to disagree with each other. Invariably different group members bring different skills to a project; it is up to you to make the best of it. I believe one can learn a lot by discussing the issues with one’s colleagues.
If you happen to find your group members are “not pulling their weight” or there are problems with any member’s commitment, then please try to resolve those issues amongst yourselves. Open and honest communication always helps. If you are unable to resolve these issues, you are most welcome to see me and we will try to sort out the problems together. Do this as soon as possible and certainly before the due date.
Thanks – Best wishes – Geeta
Please adapt this for your students .
BUACC5930, Semester 1, 2014, Group Assignment
Names: Student Numbers:
| Bases of assessment |
HD P F |
| Technical component: accuracy in calculations. |
|
| Format: The IBCAR outline as per General Guide for the Presentation of Academic Work. |
|
Content: Identification of relevant issues.
Research: Selection of relevant material.
A demonstration of critical evaluation of the issues. |
|
Expression: clarity, style (formal and academic), coherence in writing, grammar, punctuation, spellings and sentence structure.
Expression of your view (and not a catalogue of quotes/ others’ ideas).
A logical flow of argument at both the paragraph level and the overall text level.
Use of supporting arguments.
Use of literature to support the argument. |
|
Referencing procedure (within the text, and at the end of the text).
Appropriately styled and punctuated bibliography. |
|
| Overall Presentation – including cover page, line spacing, page numbering. |
|
GRADE
:
Aug 29, 2021 | Uncategorized
You are given information about Doha Company which is a service company located in Qatar. You are expected to analyze, record and communicate that information by using Microsoft Excel. You will need to complete the accounting cycle in the following order: a) Prepare journal entries in the general journal. b) Post the entries to the general ledger. c) Prepare the income statement, statement of changes in owners’ equity and balance sheet. Please note that you will be expected to apply basic Excel applications such linking the cells and using formulas (i.e. adding and subtracting information in the different cells). You will be graded on your ability to complete the accounting cycle by employing Excel functions. Should you need to type in items that are not available in the provided information, such as “current asset” in the balance sheet, then please feel free to do so. Additionally, you will need to: 1. Find information from the internet regarding the different risks that are found in companies. You will need to provide the source (link to the website) from which you have obtain that information. Alternatively, you can submit a printed copy of the information obtained from the internet. 2. Please a report write a short report (one page or less) to answer the following: a) Assume that Doha Company asked you for a loan. Based on the information in the financial statements, would you agree to give a loan to the company? Explain your answer. b) In your opinion, how can information technology help businesses. Please Make sure that the report is in PDF format. 3. Please submit the excel sheet, the risk sheet (from the internet) and the report via Blackboard. – Go to Blackboard – Go to “Assessment Information” – Click on “IT Project” – Submit the three files which are the Excel sheet, risk sheet (from the internet) and the report. – Please use your Qatar University ID number to label the different files
Aug 29, 2021 | Uncategorized
Safari Industries makes balls. The fixed costs of operating the workshop for a month is $500. Each ball requires materials that cost $2 and takes one hour to make. The ball maker is paid $10 per hour. The balls are sold to a wholesaler for $14 each and they expect to sale 500 balls a month. To employ a new machine Safari Industries Ltd will increase their fixed cost to $3000 a month but will reduce labour time to half an hour per basket. Ball makers will still be paid $10 per hour.
a. How much profit would the business make each month from selling balls
i. Assuming that ball-making machine is not bought
ii. Assuming that the ball-making machine is bought
b. What is the Break-Even Point if the machine is bought?
Aug 29, 2021 | Uncategorized
This subject emphasises the role of accounting in management decision making, particularly in providing information and analysis to support strategic management activity and the role of social and environmental accounting to support sustainability strategies. These highlight the changing role of accountants and the challenge in balancing the needs of management, customers, employees, shareholders and other stakeholders with ethical and legal concerns. The use of accounting information to evaluate existing competitive strategies, develop new strategies, and monitor and assess progress towards chosen organisational solutions. This subject requires the student to synthesise and integrate the theory and practice learned in subjects undertaken in the Accounting degree to understand, structure and resolve problems for organisations operating with a sustainable business model.
Aug 29, 2021 | Uncategorized
Cost Management and Analysis #22753
ASSESSMENT ITEM 2: GROUP ASSIGNMENT (Group Component)
Weighting: 20%.
Autumn 2014
1. OVERVIEW
Your group is to perform the financial analysis (feasibility study) outlined in Attachment One of this
document. The analysis is for UTS management (i.e., your CMA Lecturer).
Unlike earlier semesters, this assignment allows you to do analysis on a project which if successful,
may actually be implemented by UTS. Details of the assignment and some background information
are available in the attachments.
Your group must submit and present your financial analysis in three formats:
A. Excel – financial modelling
B. Word – written report
C. PowerPoint – for presentation in-class (5 minutes per group).
Extracts from the financial modelling are to be included in your Word report and PowerPoint
presentation.
A key factor to keep in mind is that a feasibility study is not as detailed as a full business plan. Hence,
you have discretion as to what information to keep in the body of the report and what information
to exclude. A key part of this project is that it requires you to identify and obtain the relevant
information via research, analysis and estimation. You need to only include information relevant to
decision-making in the report.
2. EXCEL
UTS management (i.e., your CMA Lecturer) will review your financial modelling. He will need to be
very comfortable with your technical execution. Like many senior managers, he is extremely time
poor and needs to be communicated to very concisely. He needs to quickly understand the design of
your models, as well as assumptions and limitations.
You will email your Excel file to your lecturer for review.
Here is what he will expect to see:
? The model is clearly structured, with supporting tables in separate tabs that build-up from a
detailed breakdown.
? Input and output tables are clear and separate.
? Tables logically present key components (e.g., costs, benefits, assumptions and parameters).
? The model is materially complete and comprehensive.
? The model is technically correct, e.g., cash flows are on an after-tax basis and treatments are
conventional.
? Excel extracts used in the written report or PowerPoint presentation should be appropriately
formatted, e.g., present figures in $M (e.g., $0.18M for $180,000).
2
3. WORD
Remember, the UTS management is your audience and they face budget constraints, so focus on the
numbers. It should be very clear what the document is about, what the analysis implies, and what
recommendations you are making (if any) for future progression of the initiative. Include evaluation
of how the initiatives are aligned with the ‘corporate’ strategy.
You will lose marks if you include superfluous information in the report. He is highly knowledgeable
about the business generally (e.g., its strategy and structure) and will be irritated by time wasted
reading an unfocussed report (although he is often unfamiliar with operational issues). He wants the
report to present only pertinent information and key aspects of the financial modelling.
This is a business style report for a non-academic ‘insider’. It must provide concise and easily
readable information to aid decision-making. It must include explanation of major conceptual points
with simple definitions and explanation of relevant terminology (especially operational matters) and
complexities).
You MUST INCLUDE an Executive Summary. It will be sent to the UTS decision makers so it must be
comprehensive and describe the ‘big picture’ and the main ‘numbers’ (e.g., net savings, Capex, NPV,
IRR). The structure should also include Introduction, Discussion of Key Findings, and Conclusion.
Your report must:
? analyse and discuss the information, and evaluate it critically.
? identify problems and suggest solutions.
? speculate about future trends and impacts.
Aug 29, 2021 | Uncategorized
I need the attached document, Broadening Your Perspective 2-2.pdf, to be fill out not later than tomorrow 18 May 0800 ET. Please let me know if it can be done by that time, Thanks!!!
Aug 29, 2021 | Uncategorized
The adjusted trial balance of Snake Ltd as at 30 June 2017 is as follows:
Debit Credit
$$
Accounts receivable1,350,000
Asset revaluation reserve440,000
Accumulated amortisation – patents & trademarks25,000
Accumulated impairment loss – goodwill180,000
Accumulated depreciation –
Plant & machinery206,000
Fixtures & fittings47,000
Buildings40,000
Administrative staff salaries expense540,000
Advertising expense120,000
Bank loan (unsecured – repayable in annual instalments of $40,000)200,000
Carrying amount of plant and machinery sold24,000
Cost of sales3,424,000
Deposits at call120,000
Dividends revenue43,000
Deferred tax asset210,000
Debentures held in Emerald Ltd (mature on 30/6/2018)214,000
Dividends receivable8,000
Freight inwards90,000
Freight outwards115,000
Ordinary shares, fully paid3,654,000
General reserve680,000
Goodwill732,000
Retained profits – 1/7/2016750,000
Mortgage loan (secured over land and buildings – due 30/9/2020) 254,000
Accounts payable472,000
Current tax liabilities156,000
Provision for long service leave (only 40% is currently eligible)250,000
Deferred tax liability175,000
Allowance for doubtful debts77,000
Provision for annual leave62,000
Freehold land (at fair value)1,276,000
Buildings (at fair value)900,000
Listed investments – at fair value100,000
Loan to Charlie Ltd (due on 30/6/2020)220,000
Patents and trademarks125,000
Plant & machinery – at cost684,000
Preference shares, fully paid240,000
Prepayments40,000
Inventories1,950,000
Income tax expense381,000
Final dividend payable200,000
Fixtures & fittings – at cost118,000
Cash at bank530,000
Sales revenue6,600,000
Sundry revenue46,200
Sales returns and allowances12,000
Sales staff salaries and commission expense500,000
7% debentures – due 30/4/2018 (secured over inventories)85,000
Proceeds on sale of plant and machinery40,000
Other administrative expense370,000
Other selling expense210,000
Other expenses (included interest expense of $68,000)190,000
Underwriting commission and other share issue costs47,000
Interest revenue50,000
Interest payable9,000
Transfer to general reserve50,000
Interim dividend paid – ord131,200
Final dividend declared – ord164,000
Final dividend declared – pref36,000-
14,981,20014,981,200
Additional information:
i)Included in other administrative expense were:
fees paid to auditor (25% for audit & reWhite
of financial reports & 75% for non-audit
consulting services)$60,000
fees paid to related practice of the auditor (for
legal services)$12,000
ii)Inventories, $1,950,000, comprised of:
Raw material – at cost$70,000
Work in progress – at cost800,000
Finished goods – at cost1,054,000
Finished goods – at net realisable value26,000
Finished goods are valued at the lower of cost and net realisable value on a weighted average basis.
iii)Contributed equity as at 1 July 2016 consisted of:
2,000,000 ordinary shares issued at $1 each, fully paid$ 2,000,000
100,000 15 % preference shares issued at $2.40 each, fully paid240,000
45,000 share options22,500
iv)On 14 July 2016, a rights issue of 1,280,000 ordinary shares were madeat $1.25 each. The underwriting commission and other shares issue costs forthe issue amounted to $15,000. The shares issued ranked equally with existing shares for dividend.
v)On 29 May 2017, the 45,000 share options were exercised and 45,000 ordinary shares were allotted at an exercise price of 70 cents each. The allotted shares did not rank for dividend until 2018.
vi)On 17 June 2017, freehold land was revalued to its fair value of $1,276,000 from its carrying amount of $1,076,000. The related deferred tax has been accounted.
vii)On 28 June 2017, Snake entered into a contract with Magnet Ltd for the construction of three new machines at a cost of $245,000 each. The company expects to take delivery of the first machine in January 2018, and the rest in February 2016.
viii)On 30 June 2017, listed investments were revalued to their fair value. They were purchased at a cost of $60,000 in May 2016 and are classified as investments in equity instruments. The related deferred tax liability had been accounted.
Note:Loan receivables and held-to-maturity investments (such as debentures held in another entity) are to be classified as other financial assets.
ix)An amount of $50,000 was transferred to general reserve from retained earnings.
x)Accounting policies adopted are consistent with those of the previous year.
xi)Tax rate is 30%
Required
-
Prepare a statement of profit or loss and other comprehensive income for Snake Ltd for the year ended 30 June 2017 according to the requirements of AASB 101 (classify expenses by functions). Show all workings.
(Note: You will get zero mark if you prepare an internal statement – see demonstration problems 1 & 2 on pages 648 – 658.)
-
Prepare a statement of financial position for Snake Ltd at 30 June 2017 to comply with AASB 101. Use the current and non-current presentation format. Show all workings.
(Note: You will get zero mark if you prepare an internal statement – see demonstration problems 1 & 2 on pages 648 – 658.)
-
Prepare a statement of changes in equity for Snake Ltd for the year ended 30 June 2017 according to the requirements of AASB 101. Show the dividends per share on the statement. Show all workings.
-
Prepare appropriate notes to the following items:
1)summary of significant accounting policies – an extract of the basis of accounting and inventories;
2)inventories;
3)long-term borrowings;
4)auditor’s remuneration;
5)commitments.
Aug 29, 2021 | Uncategorized
ASSIGNMENT QUESTION The following are independent situations and you should refer to APES (Accounting Professional and Ethical Standards 110 “Code of Ethics for Professional Accountants”) and the Corporations Act 2001 as a minimum for each situation. You need to identify any breaches (under what section) and why. You should also consider any remedy or alternative course of action that should have been considered for each where appropriate. There is no word limit set for this assignment but it is expected that each question will be well-covered and considered.
Aug 29, 2021 | Uncategorized
Introduction:
Determining a corporation’s federal tax liability is the first step in the tax research process. This project will require you to review a list of corporate facts and figures in order to properly determine corporate tax liabilities for a given time frame. Madison’s Consulting Corporation was formed in 2011. For that year, the corporation reported the following book income statement and balance sheet, excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities. The following is additional information for 2011:
? The investment in corporate stock consists of less than 20 percent owned corporations.
? The depreciation for tax purposes is $1.4 million under the modified accelerated cost recovery system (MACRS).
? The bad debt expense for tax purposes is $150,000 under the direct write-off method.
? Limitations to charitable contribution deductions and meals and entertainment expenses must be tested and applied if necessary
For 2012, Madison’s Consulting Corporation reported the following book income statement and balance sheet, excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities.
Clickhere for the company’s 2012 income statement and balance sheet.
The following is additional information for 2012:
? The depreciation for tax purposes is $2.45 million under the MACRS.
? The bad debt expense for tax purposes is $425,000 under the direct write-off method.
? The qualified production activities income is $3 million.
Tasks:
Tasks:
1. For the year 2011:
a. Prepare page 1 of Form 1120 for 2011, computing the corporation’s NOL.
b. Determine the corporation’s deferred tax asset and deferred tax liability situation. Complete the income statement and balance sheet to reflect proper
SFAS 109 accounting. Use the balance sheet information to prepare Schedule L of Form 1120.
c. Prepare Schedule M-3 for Form 1120. Fill out all the columns, even though some are designated as optional.
d. Submit all your calculations for this assignment.
To procure the relevant tax forms for the year 2011, click the names of the forms below.
?Form 1120
?Schedule M-3 of Form 1120
2. for the year 2012: Prepare page 1 of Form 1120 for 2012, computing the corporation’s taxableincome.
a. Determine the corporation’s deferred tax asset and deferred tax liabilitysituation. Complete the income statement and balance sheet to reflect proper SFAS 109 accounting. Use the balance sheet information to prepare Schedule
L of Form 1120.
b. Prepare Schedule M-3 of Form 1120. Fill out all the columns, even though some are designated as optional.
c. Submit all your calculations for this assignment.
To procure the relevant tax forms for the year 2012, click the names of the forms below.
Aug 29, 2021 | Uncategorized
(SMA) Good Industries is a large manufacturer of chemicals used in pesticides. The company has been experiencing slow market growth in the last five years and a continued increase in raw materials costs. With a focus on healthier lifestyles, the image of pesticides has deteriorated and people are looking for natural product solutions. The marketplace is now experiencing an increase in the number of producers of natural pesticides.
- What tools of strategic cost management could help Good to develop new strategies for the company?
- Describe specifically how Good could use one of these tools.
Aug 29, 2021 | Uncategorized
AFS1-1 Kraft and Cadbury PLC
On February, 2, 2010, Cadbury”s Board of Directors recommended that Cadbury”s shareholders accept the terms of Kraft”s final offer to acquire Cadbury. This ended one of the larger hostile takeovers that combined one company (Kraft) that reported using U.S. GAAP with an international company (Cadbury) that reported using IFRS as promulgated by the IASB and prepared financial statements in a foreign currency (the pound). The acquisition allowed Kraft to increase its presence in the food processing industry in the developing world and to acquire a company specializing in confectionary products.
On February 2, 2010, Kraft acquired 71.73% of Cadbury”s shares for $13.1 billion. Incremental interest costs for Kraft to finance the deal are estimated to be approximately $500 million (based on borrowing of $9.5 billion). This interest cost is expected to decrease over time. Cadbury earned approximately $428 million in income (exchange rate adjusted) for 2009. One issue that merging companies always face when another company is acquired is whether the merger will be accretive or dilutive in the early years after the acquisition.
(1) Discuss some of the factors that should be considered in analyzing the impact of this merger on the income statement for the next few years.
(2) Discuss the pros and cons that Kraft might have weighed in choosing the medium of exchange to consummate the acquisition. Do you think they made the right decision? If possible, use figures to support your answer.
(3) In addition to the factors mentioned above, there are sometimes factors that cannot be quantified that enter into acquisition decisions. What do you suppose these might be in the case of Kraft”s merger with Cadbury?
(4) This acquisition is complicated by the lack of consistency between the two companies” methods of accounting and currency. Discuss the impact that these issues are likely to have on the merged company in the years following the acquisition.
Aug 29, 2021 | Uncategorized
AFS1-2 Kraft Acquires Cadbury PLC
The following information from the financial statements of Kraft Foods and Cadbury PLC is available for the three years prior to their merger. Evaluate the performance of each company leading up to the year of the acquisition (2010). Note that Cadbury”s financial statements are in millions of pounds, while Kraft”s statements are in millions of dollars.
|
Kraft Foods ($ millions)
|
2007
|
2008
|
2009
|
|
Balance Sheet
|
|
|
|
|
Assets
|
67,993
|
63,173
|
66,714
|
|
Total Liabilities
|
40,698
|
40,817
|
40,742
|
|
Stockholders” Equity
|
27,295
|
22,356
|
25,972
|
|
Selected Balance Sheet items
|
|
|
|
|
Market value of equity
|
50,480
|
48,110
|
40,111
|
|
Current Assets
|
10,737
|
9,917
|
12,454
|
|
Current Liabilities
|
17,086
|
11,044
|
11,491
|
|
Accounts Receivable
|
5,197
|
4,704
|
5,197
|
|
Inventory
|
4,096
|
3,881
|
3,775
|
|
Long-term Debt
|
13,624
|
19,354
|
18,537
|
|
Retained Earnings
|
12,209
|
13,440
|
14,636
|
|
Income Statement
|
|
|
|
|
Total Revenues
|
37,241
|
40,492
|
38,754
|
|
Cost of Goods Sold
|
24,651
|
27,164
|
24,819
|
|
Gross Margin
|
12,590
|
13,328
|
13,935
|
|
Income continuing operations
|
2,590
|
1,678
|
2,810
|
|
Net income
|
2,590
|
2,884
|
3,021
|
|
Selected Income Statement items
|
|
|
|
|
Interest Expense
|
604
|
1,240
|
1,237
|
|
Tax Expense
|
1,137
|
658
|
1,136
|
|
Statement of Cash Flows
|
|
|
|
|
Cash from Operations (CFO)
|
3,571
|
4,141
|
5,084
|
|
Cash interest paid
|
628
|
968
|
1,308
|
|
Cash taxes paid
|
1,366
|
964
|
1,025
|
|
Cadbury (£ millions)
|
2007
|
2008
|
2009
|
|
Balance Sheet
|
|
|
|
|
Assets
|
11,338
|
8,895
|
8,129
|
|
Total Liabilities
|
7,165
|
5,361
|
4,607
|
|
Stockholders” Equity
|
4,173
|
3,534
|
3,522
|
|
Selected Balance Sheet items
|
|
|
|
|
Market value of equity
|
9,581
|
8,241
|
12,266
|
|
Current Assets
|
2,600
|
2,635
|
2,125
|
|
Current Liabilities
|
4,614
|
3,388
|
2,434
|
|
Accounts Receivable
|
1,197
|
1,067
|
978
|
|
Inventory
|
821
|
767
|
748
|
|
Long-term Debt
|
1,120
|
1,194
|
1,349
|
|
Retained Earnings
|
2,677
|
2,498
|
3,502
|
|
Income Statement
|
|
|
|
|
Total Revenues
|
4,699
|
5,384
|
5,975
|
|
Cost of Goods Sold
|
5,504
|
2,870
|
3,210
|
|
Gross Margin
|
2,195
|
2,514
|
2,765
|
|
Income continuing operations
|
149
|
370
|
275
|
|
Net income
|
405
|
364
|
509
|
|
Selected Income Statement items
|
|
|
|
|
Interest Expense
|
88
|
50
|
172
|
|
Tax Expense
|
105
|
30
|
103
|
|
Statement of Cash Flows
|
|
|
|
|
Cash from Operations (CFO)
|
812
|
469
|
523
|
|
Cash interest paid
|
193
|
165
|
122
|
|
Cash taxes paid
|
235
|
153
|
163
|
Required:
- Use the method described in Appendix A to evaluate the health of the target company, and point out any trends that might have been worrisome to Kraft. Also indicate any strengths in the firm”s performance.
- Use the method described in Appendix A to evaluate the health of Kraft Foods, and point out any positive or negative trends.
Aug 29, 2021 | Uncategorized
Estimating Goodwill and Potential Offering Price
Plantation Homes Company is considering the acquisition of Condominiums, Inc. early in 2008. To assess the amount it might be willing to pay, Plantation Homes makes the following computations and assumptions.
- Condominiums, Inc. has identifiable assets with a total fair value of $15,000,000 and liabilities of $8,800,000. The assets include office equipment with a fair value approximating book value, buildings with a fair value 30% higher than book value, and land with a fair value 75% higher than book value. The remaining lives of the assets are deemed to be approximately equal to those used by Condominiums, Inc.
- Condominiums, Inc.”s pretax incomes for the years 2005 through 2007 were $1,200,000, $1,500,000, and $950,000, respectively. Plantation Homes believes that an average of these earnings represents a fair estimate of annual earnings for the indefinite future. However, it may need to consider adjustments to the following items included in pretax earnings:
|
Depreciation on buildings (each year)
|
960,000
|
|
Depreciation on equipment (each year)
|
50,000
|
|
Extraordinary loss (year 2007)
|
300,000
|
|
Sales commissions (each year)
|
250,000
|
- The normal rate of return on net assets for the industry is 15%.
Required:
- Assume further that Plantation Homes feels that it must earn a 25% return on its investment and that goodwill is determined by capitalizing excess earnings. Based on these assumptions, calculate a reasonable offering price for Condominiums, Inc. Indicate how much of the price consists of goodwill. Ignore tax effects.
- Assume that Plantation Homes feels that it must earn a 15% return on its investment, but that average excess earnings are to be capitalized for three years only. Based on these assumptions, calculate a reasonable offering price for Condominiums, Inc. Indicate how much of the price consists of goodwill. Ignore tax effects.
Aug 29, 2021 | Uncategorized
Estimating Goodwill and Valuation
Alpha Company is considering the purchase of Beta Company. Alpha has collected the following data about Beta:
|
Beta Company Book Values
|
Estimated Market Values
|
|
Total identifiable assets
|
$585,000
|
$750,000
|
|
Total liabilities
|
320,000
|
320,000
|
|
Owners” equity
|
$265,000
|
|
Cumulative total net cash earnings for the past five years of $850,000 includes extraordinary cash gains of $67,000 and nonrecurring cash losses of $48,000.
Alpha Company expects a return on its investment of 15%. Assume that Alpha prefers to use cash earnings rather than accrual-based earnings to estimate its offering price, and that it estimates the total valuation of Beta to be equal to the present value of cash-based earnings (rather than excess earnings) discounted over five years. (Goodwill is then computed as the amount implied by the excess of the total valuation over the identifiable net assets valuation.)
Required:
- Compute (a) an offering price based on the information above that Alpha might be willing to pay, and (b) the amount of goodwill included in that price.
- Compute the amount of goodwill actually recorded, assuming the negotiations result in a final purchase price of $625,000 cash.
Aug 29, 2021 | Uncategorized
Estimated and Actual Goodwill
Passion Company is trying to decide whether or not to acquire Desiree Inc. The following balance sheet for Desiree Inc. provides information about book values. Estimated market values are also listed, based upon Passion Company”s appraisals.
|
|
Desiree Inc. Book Values
|
Desiree Inc.
Market Values
|
|
Current assets
|
$260,000
|
$ 260,000
|
|
Property, plant & equipment (net)
|
650,000
|
740,000
|
|
Total assets
|
$910,000
|
$1,000,000
|
|
Total liabilities
|
$400,000
|
$ 400,000
|
|
Common stock, $10 par value
|
160,000
|
|
|
Retained earnings
|
350,000
|
|
|
Total liabilities and equities
|
$910,000
|
|
Passion Company expects that Desiree will earn approximately $150,000 per year in net income over the next five years. This income is higher than the 12% annual return on tangible assets considered to be the industry “norm.”
Required:
- Compute an estimation of goodwill based on the information above that Passion might be willing to pay (include in its purchase price), under each of the following additional assumptions:
(1) Passion is willing to pay for excess earnings for an expected life of five years (undiscounted).
(2) Passion is willing to pay for excess earnings for an expected life of five years, which should be capitalized at the industry normal rate of return.
(3) Excess earnings are expected to last indefinitely, but Passion demands a higher rate of return of 20% because of the risk involved.
- Comment on the relative merits of the three alternatives in part (A) above.
- Determine the amount of goodwill to be recorded on the books if Passion pays $800,000 cash and assumes Desiree”s liabilities.
Aug 29, 2021 | Uncategorized
Name the following takeover defense tactics:
- Issuing stock rights to existing shareholders, enabling them to purchase additional shares at a price below market value, but exercisable only in the event of a potential takeover. ________
- The purchase of a controlling interest in the target firm by its managers and third-party investors, who usually incur substantial debt in the process and sub-sequently take the firm private. ________
- Encouraging a third firm, more acceptable to the target company management, to acquire or merge with the target company. ________
Aug 29, 2021 | Uncategorized
Which one of the following statements is incorrect?
- In an asset acquisition, the books of the acquired company are closed out, and its assets and liabilities are transferred to the books of the acquirer.
- In many cases, stock acquisitions entail lower total cost than asset acquisitions.
- Regulations pertaining to one of the firms do not automatically extend to the entire merged entity in a stock acquisition.
- A stock acquisition occurs when one corporation pays cash, issues stock, or issues debt for all or part of the voting stock of another company; and the acquired company dissolves and ceases to exist as a separate legal entity.
Aug 29, 2021 | Uncategorized
Which of the following is incorrect?
- Under acquisition accounting, direct acquisition costs are recorded by decreasing goodwill as a contra account.
- Under acquisition method accounting, indirect acquisition costs (such as expenses incurred by a firm”s permanent M&A department) are expensed.
- Security issue costs, such as brokerage fees, reduce the Excess Paid In Capital account (i.e., are recorded as a debit to that account).
- Accounting and consulting fees incurred in a business combination are expenses under the current standards for acquisitions.
Aug 29, 2021 | Uncategorized
Which of the following statements best describes the current authoritative position with regard to the accounting for contingent consideration?
- If contingent consideration depends on both future earnings and future security prices, an additional cost of the acquired company should be recorded only for the portion of consideration dependent on future earnings.
- The measurement period for adjusting provisional amounts always ends at the year-end of the period in which the acquisition occurred.
- A contingency based on security prices has no effect on the determination of cost to the acquiring company.
- The purpose of the measurement period is to provide a reasonable time to obtain the information necessary to identify and measure the fair value of the acquiree”s assets and liabilities, as well as the fair value of the consideration transferred.
Aug 29, 2021 | Uncategorized
Which of the following statements concerning bargain purchases (purchase price below fair value of identifiable assets) is correct?
- Any previously recorded goodwill on the seller”s books is eliminated and no new goodwill is recorded.
- Long-lived assets, including in-process R&D and excluding marketable securities, are recorded at fair market value minus an adjustment for the bargain, under current GAAP.
- An extraordinary gain is recorded in the event that all long-lived assets other than marketable securities are reduced to the original purchase price, under current GAAP.
- Current assets, long-term investments in marketable securities (other than those accounted for by the equity method), assets to be disposed by sale, deferred tax assets, prepaid assets relating to pension or other post-retirement benefit plans, and assumed liabilities are the only accounts that are always recorded at fair market value, under current GAAP.
Aug 29, 2021 | Uncategorized
There have been several recent cases of a CEO or CFO resigning or being ousted for misrepresenting academic credentials. For instance, during February 2006, the CEO of RadioShack resigned by “mutual agreement” for inflating his educational background. During 2002, Veritas Software Corporation”s CFO resigned after claiming to have an MBA from Stanford University. On the other hand, Bausch & Lomb Inc.”s board refused the CEO”s offer to resign following a questionable claim to have an MBA.
Suppose you have been retained by the board of a company where the CEO has ‘overstated’ credentials. This company has a code of ethics and conduct which states that the employee should always do “the right thing.”
(a) What is the board of directors” responsibility in such matters?
(b) What arguments would you make to ask the CEO to resign? What damage might be caused if the decision is made to retain the current CEO?
Aug 29, 2021 | Uncategorized
eBay Sells Skype
eBay Sells Skype
On November 19, 2009, eBay sold all the capital shares of Skype to Springboard Group. eBay received cash proceeds of approximately $1.9 billion, a subordinated note issued by a subsidiary of the Buyer in the principal amount of $125.0 million and an equity stake of approximately 30 percent in the outstanding capital stock of the Buyer (valued at $620.0 million).
The sale resulted in the removal of all Skype-related assets and liabilities, which offset the proceeds noted above, resulting in a net gain of $1.4 billion recorded in interest and other income. In conjunction with the sale of Skype, eBay reached a legal settlement of a lawsuit between Skype, Joltid, and entities controlled by Joltid”s founders, resulting in a $343.2 million charge to general and administrative expense.
In addition, eBay recorded a charge for impairment of goodwill for $1.39 billion from the Skype acquisition.
From eBay”s 2009 annual report:
eBay Inc. Consolidated Statement of Income
|
Year Ended December 31,
|
|
2007
|
2008
|
2009
|
|
(In thousands, except per-share amounts)
|
|
Net revenues
|
$7.672.329
|
$8,541,261
|
$8,727,362
|
|
Cost of net revenues
|
1,762,972
|
2,228,069
|
2,479,762
|
|
Gross profit
|
5,909,357
|
6,313,192
|
6,247,600
|
|
Operating expenses:
|
|
|
|
|
Sales and marketing
|
1,882,810
|
1,881,551
|
1,885,677
|
|
Product development
|
619,727
|
725,600
|
803,070
|
|
General and administrative
|
904,681
|
998,871
|
1,418,389
|
|
Provision for transaction and loan losses
|
293,917
|
347,453
|
382,825
|
|
Amortization of acquired intangible assets
|
204,104
|
234,916
|
262,686
|
|
Restructuring
|
—
|
49,1 19
|
38,187
|
|
Impairment of goodwill
|
1,390,938
|
—
|
—
|
|
Total operating expenses
|
5,296,177
|
4,237,510
|
4,790,834
|
|
Income from operations
|
613,180
|
2,075,682
|
1,456,766
|
|
Interest and other income, net
|
137,671
|
107,882
|
1,422,385
|
|
Income before income taxes
|
750,851
|
2,183,564
|
2,879,151
|
|
Provision for income taxes
|
(402,600)
|
(404,090)
|
(490,054)
|
|
Net income
|
$ 348,251
|
$1,779,474
|
$2,389,097
|
Skype”s operating performance (2007 through 2009), dollars in thousands:
|
2007
|
2008
|
2009
|
|
Revenues
|
364,564
|
550,841
|
620,403
|
|
Direct expenses
|
337,338
|
434,588
|
462,701
|
|
Income
|
44,484
|
116,253
|
157,702
|
Required:
Examine eBay”s income statement from 2007 to 2009. Reconstruct eBay”s income statement excluding the effects of Skype. Use the following categories in your analysis: Net revenue, Total operating expenses, Operating income, Interest and other income, and Income before taxes.
The sale resulted in the removal of all Skype-related assets and liabilities, which offset the proceeds noted above, resulting in a net gain of $1.4 billion recorded in interest and other income. In conjunction with the sale of Skype, eBay reached a legal settlement of a lawsuit between Skype, Joltid, and entities controlled by Joltid”s founders, resulting in a $343.2 million charge to general and administrative expense.
In addition, eBay recorded a charge for impairment of goodwill for $1.39 billion from the Skype acquisition.
From eBay”s 2009 annual report:
eBay Inc. Consolidated Statement of Income
|
Year Ended December 31,
|
|
2007
|
2008
|
2009
|
|
(In thousands, except per-share amounts)
|
|
Net revenues
|
$7.672.329
|
$8,541,261
|
$8,727,362
|
|
Cost of net revenues
|
1,762,972
|
2,228,069
|
2,479,762
|
|
Gross profit
|
5,909,357
|
6,313,192
|
6,247,600
|
|
Operating expenses:
|
|
|
|
|
Sales and marketing
|
1,882,810
|
1,881,551
|
1,885,677
|
|
Product development
|
619,727
|
725,600
|
803,070
|
|
General and administrative
|
904,681
|
998,871
|
1,418,389
|
|
Provision for transaction and loan losses
|
293,917
|
347,453
|
382,825
|
|
Amortization of acquired intangible assets
|
204,104
|
234,916
|
262,686
|
|
Restructuring
|
—
|
49,1 19
|
38,187
|
|
Impairment of goodwill
|
1,390,938
|
—
|
—
|
|
Total operating expenses
|
5,296,177
|
4,237,510
|
4,790,834
|
|
Income from operations
|
613,180
|
2,075,682
|
1,456,766
|
|
Interest and other income, net
|
137,671
|
107,882
|
1,422,385
|
|
Income before income taxes
|
750,851
|
2,183,564
|
2,879,151
|
|
Provision for income taxes
|
(402,600)
|
(404,090)
|
(490,054)
|
|
Net income
|
$ 348,251
|
$1,779,474
|
$2,389,097
|
Skype”s operating performance (2007 through 2009), dollars in thousands:
|
2007
|
2008
|
2009
|
|
Revenues
|
364,564
|
550,841
|
620,403
|
|
Direct expenses
|
337,338
|
434,588
|
462,701
|
|
Income
|
44,484
|
116,253
|
157,702
|
Required:
Examine eBay”s income statement from 2007 to 2009. Reconstruct eBay”s income statement excluding the effects of Skype. Use the following categories in your analysis: Net revenue, Total operating expenses, Operating income, Interest and other income, and Income before taxes.
Aug 29, 2021 | Uncategorized
Asset Purchase
Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately prior to the acquisition, Saville Company”s balance sheet was as follows:
|
|
Book Value
|
Fair Value
|
|
Cash
|
$120,000
|
$120,000
|
|
Receivables (net)
|
192,000
|
228,000
|
|
Inventory
|
360,000
|
396,000
|
|
Plant and equipment (net)
|
480,000
|
540,000
|
|
Land
|
420,000
|
660,000
|
|
Total assets
|
$1,572,000
|
$1,944,000
|
|
Liabilities
|
$ 540,000
|
$ 594,000
|
|
Common stock ($5 par value)
|
480,000
|
|
|
Other contributed capital
|
132,000
|
|
|
Retained earnings
|
420,000
|
|
|
Total equities
|
$1,572,000
|
|
Required:
- Prepare the journal entries on the books of Preston Company to record the purchase of the assets and assumption of the liabilities of Saville Company if the amount paid was $1,560,000 in cash.
- Repeat the requirement in (A) assuming that the amount paid was $990,000.
Aug 29, 2021 | Uncategorized
Acquisition Method
The balance sheets of Petrello Company and Sanchez Company as of January 1, 2011, are presented below. On that date, after an extended period of negotiation, the two companies agreed to merge. To effect the merger, Petrello Company is to exchange its unissued common stock for all the outstanding shares of Sanchez Company in the ratio of ½ share of Petrello for each share of Sanchez. Market values of the shares were agreed on as Petrello, $48; Sanchez, $24. The fair values of Sanchez Company”s assets and liabilities are equal to their book values with the exception of plant and equipment, which has an estimated fair value of $720,000.
|
|
Petrelto
|
Sanchez
|
|
Cash
|
$ 480,000
|
$ 200,000
|
|
Receivables
|
480,000
|
240,000
|
|
Inventories
|
2,000,000
|
240,000
|
|
Plant and equipment (net)
|
3,840,000
|
800,000
|
|
Total assets
|
$6,800,000
|
$1,480,000
|
|
Liabilities
|
$1,200,000
|
$ 320,000
|
|
Common stock, $16 par value
|
3,440,000
|
800,000
|
|
Other contributed capital
|
400,000
|
—0—
|
|
Retained earnings
|
1,760,000
|
360,000
|
|
Total equities
|
$6,800,000
|
$1,480,000
|
Required:
Prepare a balance sheet for Petrello Company immediately after the merger.
Aug 29, 2021 | Uncategorized
Asset Purchase, Cash
P Company acquired the assets and assumed the liabilities of S Company on January 1, 2010, for $510,000 when S Company”s balance sheet was as follows:
S COMPANY Balance Sheet January 1, 2010
|
Cash
|
$ 96,000
|
|
Receivables
|
55,200
|
|
Inventory
|
110,400
|
|
Land
|
169,200
|
|
Plant and equipment (net)
|
466,800
|
|
Total
|
$897,600
|
|
Accounts payable
|
$ 44,400
|
|
Bonds payable, 10%, due 12/31/2015, Par
|
480,000
|
|
Common stock, $2 par value
|
120,000
|
|
Retained earnings
|
253,200
|
|
Total
|
$897,600
|
Fair values of S Company”s assets and liabilities were equal to their book values except for the following:
- Inventory has a fair value of $126,000.
- Land has a fair value of $198,000.
- The bonds pay interest semiannually on June 30 and December 31. The current yield rate on bonds of similar risk is 8%.
Required:
Prepare the journal entry on P Company”s books to record the acquisition of the assets and assumption of the liabilities of S Company.
Aug 29, 2021 | Uncategorized
Asset Purchase, Contingent Consideration
On January 1, 2010, Platz Company acquired all the net assets of Satz Company by issuing 75,000 shares of its $10 par value common stock to the stockholders of Satz Company. During negotiations Platz Company agreed to issue additional shares of common stock to the stockholders of Satz if the average postcombination earnings over the next three years equaled or exceeded $2,500,000. On January 1, 2010 the market value of Platz stock was $50 per share. Based on the information available at the acquisition date, the additional 10,000 shares are expected to be issued.
Required:
- Prepare the journal entry on Platz Company”s books on January 1, 2010. It is expected that the earnings target is likely to be met. Platz Company records goodwill on acquisition.
- Prepare the journal entry on Platz Company”s books on January 1, 2014, when the additional shares are issued. On this date the market value of Platz stock is valued at $60 per share.
Aug 29, 2021 | Uncategorized
Purchase
Effective December 31, 2010, Zintel Corporation proposes to issue additional shares of its common stock in exchange for all the assets and liabilities of Smith Corporation and Platz Corporation, after which Smith and Platz will distribute the Zintel stock to their stockholders in complete liquidation and dissolution. Balance sheets of each of the corporations immediately prior to merger on December 31, 2010, follow. The common stock exchange ratio was negotiated to be 1:1 for both Smith and Platz.
|
|
Zimtel
|
Smith
|
Matz
|
|
Current assets
|
$1,600,000
|
$ 350,000
|
$ 12,000
|
|
Long-term assets (net)
|
5,700,000
|
1,890,000
|
98,000
|
|
Total
|
$7,300,000
|
$2,240,000
|
$110,000
|
|
Current liabilities
|
$ 700,000
|
$110,000
|
$9,000
|
|
Long-term debt
|
1,100,000
|
430,000
|
61,000
|
|
Common stock, $5 par value
|
2,500,000
|
700,000
|
20,000
|
|
Retained earnings
|
3,000,000
|
1,000,000
|
20,000
|
|
Total
|
$7,300,000
|
$2,240,000
|
$110,000
|
Required:
Prepare journal entries on Zintel”s books to record the combination. Assume the following:
The identifiable assets and liabilities of Smith and Platz are all reflected in the balance sheets (above), and their recorded amounts are equal to their current fair values except for long-term assets. The fair value of Smith”s long-term assets exceed their book value by $20,000, and the fair value of Platz”s long-term assets exceed their book values by $5,000. Zintel”s common stock is traded actively and has a current market price of $15 per share. Prepare journal entries on Zintel”s books to record the combination. (AICPA adapted)
Aug 29, 2021 | Uncategorized
Relation between Purchase Price, Goodwill, and Negative Goodwill
The following balance sheets were reported on January 1, 2011, for Peach Company and Stream Company:
|
|
Peach
|
&ream
|
|
Cash
|
$ 100,000
|
$ 20,000
|
|
Inventory
|
300,000
|
100,000
|
|
Equipment (net)
|
880,000
|
380,000
|
|
Total
|
$1,280,000
|
$500,000
|
|
Total Liabilities
|
$ 300,000
|
$100,000
|
|
Common stock, $20 par value
|
400,000
|
200,000
|
|
Other contributed capital
|
250,000
|
70,000
|
|
Retained earnings
|
330,000
|
130,000
|
|
Total
|
$1,280,000
|
$500,000
|
Required:
Appraisals reveal that the inventory has a fair value of $120,000, and the equipment has a current value of $410,000. The book value and fair value of liabilities are the same. Assuming that Peach Company wishes to acquire Stream for cash in an asset acquisition, determine the following cutoff amounts:
- The purchase price above which Peach would record goodwill.
- The purchase price below which the equipment would be recorded at less than its fair market value.
- The purchase price below which Peach would record a gain.
- The purchase price below which Peach would obtain a “bargain.”
- The purchase price at which Peach would record $50,000 of goodwill.
Aug 29, 2021 | Uncategorized
A Acquisition Entry, Deferred Taxes
Patel Company issued 100,000 shares of $1 par value common stock (market value of $6/share) for the net assets of Seely Company on January 1, 2011, in a statutory merger. Seely Company had the following assets, liabilities, and owners” equity at that time:
Book Value
|
|
Tax Basis
|
Fair Value
|
Difference
|
|
Cash
|
$ 20,000
|
$ 20,000
|
$-0-
|
|
Accounts receivable
|
112,000
|
112,000
|
-0-
|
|
Inventory (LIFO)
|
82,000
|
134,000
|
52,000
|
|
Land
|
30,000
|
55,000
|
25,000
|
|
Plant assets (net)
|
392,000
|
463,000
|
71,000
|
|
Total assets
|
$636,000
|
$784,000
|
|
|
Allowance for uncollectible accounts
|
$ 10,000
|
$ 10,000
|
$-0-
|
|
Accounts payable
|
54,000
|
54,000
|
-0-
|
|
Bonds payable
|
200,000
|
180,000
|
20,000
|
|
Common stock, $1 par value
|
80,000
|
|
|
|
Other contributed capital
|
132,000
|
|
|
|
Retained earnings
|
160,000
|
|
|
|
Total equities
|
$636,000
|
|
|
Required:
Prepare the journal entry to record the assets acquired and liabilities assumed. Assume an income tax rate of 40%.
Aug 29, 2021 | Uncategorized
(Profit Budget and Cash Forecast) Griffin Metals Co. has provided the following data:
Anticipated volumes (assume production equals sales each quarter):
|
Quarter 1
|
100,000 tonnes
|
|
Quarter 2
|
110,000 tonnes
|
|
Quarter 3
|
105,000 tonnes
|
|
Quarter 4
|
120,000 tonnes
|
The selling price is expected to be $300 per tonne for the first six months and $310 per tonne thereafter. Variable costs per tonne are predicted as $120 in the first quarter, $125 in the second and third quarters, and $130 in the fourth quarter.
Fixed costs (in $”000 per quarter) are estimated as follows:
|
Salaries and wages
|
$3,000 for the first half-year, increasing by 10% for the second half-year
|
|
Maintenance
|
$1,500
|
|
Rates
|
$400
|
|
Insurance
|
$120
|
|
Electricity
|
$1,000
|
|
Depreciation
|
$5,400
|
|
Other costs
|
$2,500 in the first and fourth quarters, $1,800 in the second and third quarters
|
|
Interest
|
$600
|
|
Capital expenditure
|
$6,500 in the first quarter, $2,000 in the second quarter, $1,000 in the third quarter, and $9,000 in the fourth quarter
|
|
Dividend payment
|
$10,000 in the third quarter
|
|
Debt repayments
|
$1,000 in the first quarter, $5,000 in the second quarter, $4,000 in the third quarter and $3,000 in the fourth quarter
|
Griffin has asked you to produce a profit budget and a cash forecast for the year (in four quarters) using the above data.
Aug 29, 2021 | Uncategorized
(Budget Information for Strategic Planning) Mega Stores is a chain of 125 retail outlets selling clothing under the strong Mega brand. Its sales have increased from $185 million to $586 million over the last five years. The company”s gross profit is currently 17% of sales, giving it a little more than 20% mark-up on the cost of goods and retail store running costs. Corporate overhead is $19 million and the operating profit is $81 million.
Mega Stores” finance director has produced a budget, which has been approved by the board of directors, to increase sales by 35% next year and to improve operating profit margin to 15% of sales. Corporate overhead costs will be contained at $22 million.
The marketing director”s strategy is to continue expanding the company”s sales by winning market share from competitors and by increasing the volume of sales to existing customers. It aims to increase its direct mailing of catalogues to customers and its television advertising. The company also intends to open new stores to extend its geographic coverage.
Mega Stores also plans to improve its cost-effectiveness by continuing its investments in major regional warehouses and distribution facilities servicing its national network of stores, together with upgrading its information systems to reduce inventory and delivery lead times to its retail network.
- Produce a report for the senior management team identifying the financial information that is required to support the business strategy.
- Identify any non-financial issues arising from the strategy.
Aug 29, 2021 | Uncategorized
(Budgeted Contribution Margin and Product Mix Decisions) Jaguar Hotel Corporation has a hotel, dining room, and conference centre facility. The accountant has presented the following budget data:
|
|
Hotel
|
Dining Room
|
Conference Centre
|
|
Capacity
|
100 rooms
|
100 seats
|
200 seats
|
|
Selling price/unit
|
$75
|
$35
|
$40
|
|
Material costs/unit
|
$5 laundry
|
$15 food
|
$5 refreshments
|
|
Other variable costs/unit
|
$5 cleaning
|
$10 labour
|
$1 light & heat
|
- Produce a budget that shows the contribution for each of the three facilities. Rank the three facilities based on the greatest contributions to profitability. What are the constraints?
- The marketing manager has asked your advice as to whether to accept either 200 people attending a conference and staying for dinner in two sittings but with no hotel accommodation (which will make it very difficult to sell hotel rooms) or to refuse the conference booking but to maintain the average 60% hotel occupancy, of which half use the dining room.
Aug 29, 2021 | Uncategorized
(Profit Budget, Cash Forecast, and DCF Analysis) Phonic Solutions is considering creating a new division, which will require an investment in computer and telecommunications equipment of $10 million. The company has a cost of capital of 12%.
The sales department has forecast sales for each of the next five years for this new division as follows:
|
Year 1
|
$4 million
|
|
Year 2
|
$6 million
|
|
Year 3
|
$8 million
|
|
Year 4
|
$6 million
|
|
Year 5
|
$4 million
|
Operations staff has predicted the cost of sales as 30% of revenue. Rent and office expenses are $300,000 each year. Selling and administration salaries will be $400,000 in the first year, increasing each year by 5%. Repairs & maintenance will be $100,000 in each of Years 1 and 2, $200,000 in each of Years 3 and 4, and $300,000 in Year 5. The company depreciates its equipment over four years.
- Produce the following:
- Profit budget for each of the five years, showing both gross profit and operating profit
- Cash flow for each of the five years
- Discounted cash flow analysis and use this to recommend whether the new division and capital investment should proceed
- What does theory tell us about the strengths and limitations of budgeting and the discounted cash flow technique?
Aug 29, 2021 | Uncategorized
The direct materials efficiency variance for January is
- $500 U
- $500 F
- $750 F
- $750 U
A company makes bulk cookies sold in restaurants. The following standards have been developed:
|
|
Standard Inputs for Each batch of cookies
|
Standard price per input
|
|
Direct materials
|
25 kilograms
|
$2 per kilogram
|
|
Direct labour
|
4 hours
|
$15 per hour
|
Each batch of cookies contains 1,000 cookies. During January, production of 100,000 cookies was planned, but 105,000 cookies were actually made. At an actual price of $2.15 per kilogram, 2,250 kilograms of direct materials were purchased and used. The total direct labour cost for the month was $5,600, and the actual pay per hour was $14.00.
Aug 29, 2021 | Uncategorized
The direct labour rate variance for January is
- $300 F
- $300 U
- $400 F
- $400 U
A company makes bulk cookies sold in restaurants. The following standards have been developed:
|
|
Standard Inputs for Each batch of cookies
|
Standard price per input
|
|
Direct materials
|
25 kilograms
|
$2 per kilogram
|
|
Direct labour
|
4 hours
|
$15 per hour
|
Each batch of cookies contains 1,000 cookies. During January, production of 100,000 cookies was planned, but 105,000 cookies were actually made. At an actual price of $2.15 per kilogram, 2,250 kilograms of direct materials were purchased and used. The total direct labour cost for the month was $5,600, and the actual pay per hour was $14.00.
Aug 29, 2021 | Uncategorized
Granddad”s Sauce Company”s costing system shows the following information for the month of October:
|
Actual price per kg of direct material
|
$3.50
|
|
Standard price per kg of direct material
|
$4.00
|
|
Direct material efficiency variance
|
$800 F
|
|
Actual # of units produced
|
2,600
|
|
Standard inputs used to produce
|
|
|
Actual output of 2,600 units
|
5,200
|
What quantity of direct materials was purchased and used in October?
- 5,200 kg
- 4,350 kg
- 5,714 kg
- 5,000 kg
Aug 29, 2021 | Uncategorized
(Material Variances) Creature Comforts makes beds for cat and dogs. The beds are made from flannel fabric and cotton stuffing. In June, the company purchased 1,000 metres of flannel at a price of $5 per metre and 700 kg of cotton stuffing at a price of $2 per kg. During June, 750 kg of cotton and 975 metres of flannel were used in the production of 390 beds (190 dog beds and 200 cat beds). Each type of bed requires the following:
|
|
Dog Bed
|
Cat Bed
|
|
Metres of flannel
|
3
|
1.5
|
|
Kg of cotton
|
2
|
1.5
|
|
Price of flannel
|
$5
|
$5
|
|
Price of cotton
|
$2
|
$2
|
Determine the materials price and efficiency variances for the company.
Aug 29, 2021 | Uncategorized
(Overhead Variances) Abby”s Fine Meats manufactures packaged meats that are sold in grocery stores. The company uses a standard costing system and applies variable manufacturing overhead to each product based on the kilograms of raw meat used in production. The standard variable overhead rate for the company is $0.35 per kg of raw meat. Each product uses an average of 0.50 kg of raw meat. For the year ended December 31, 2012, the actual variable overhead was $258,000. During 2012, a total of 860,000 kg of raw meat was used in the production of 1,800,000 packages of processed meat.
- Determine the variable overhead variances for 2012.
- What are the potential causes of these variances?
Aug 29, 2021 | Uncategorized
(Flexible Budget Variances) Providore Contractors shows the following actual versus budget report:
|
|
Budget
|
Actual
|
|
Units
|
25,000
|
23,000
|
|
Selling price per unit
|
$4
|
$4.10
|
|
Revenue
|
$100,000
|
$94,300
|
|
Variable costs
|
@ $2.50/unit
|
@ $2.35/unit
|
|
|
$62,500
|
$54,050
|
|
Contribution margin
|
$37,500
|
$40,250
|
|
Fixed expenses
|
$30,000
|
$31,500
|
|
Operating profit
|
$7,500
|
$8,750
|
- Prepare a variance report and reconcile the budget and actual result.
- Prepare a flexible budget that explains the variances.
Aug 29, 2021 | Uncategorized
(Flexible and Master Budget) Jones Hardware Division estimated that it would sell 125,000 units this past year. The division planned to ship 1,000 shipments to customers and to utilize 280 m2 of the corporate warehouse during the year. Its estimated overhead costs for the current year were as follows:
|
Materials handling
|
$10.50 per 100 units
|
|
Inventory storage
|
$20.00 per m2
|
|
Shipping
|
$15.00 per shipment
|
During the year, the division sold 112,000 units in 980 shipments. It utilized 260 m2 of the corporate warehouse. The actual costs for the year were
|
Materials handling
|
$12,040
|
|
Inventory storage
|
$5,460
|
|
Shipping
|
$14,896
|
- Prepare a static and flexible budget for Jones Hardware Division.
- Calculate the price and efficiency variance for each type of overhead cost.
Aug 29, 2021 | Uncategorized
(Flexible Budget Analysis) Ny-eve Consulting Group”s accountant has produced the following budget, actual, and variance report, showing that profits were behind expectations by almost $18,000.
Ny-eve Consulting Group: Variance Report
|
|
Budget
|
Actual
|
Variance
|
|
Hours sold Average price/hour
|
1,200
$100
|
1,100
$90
|
|
|
Revenue
|
$120,000
|
$99,000
|
$(21,000)
|
|
Direct labour hours
|
1,200
|
1,150
|
|
|
Average salary cost
|
$40
|
$38.50
|
|
|
Direct labour cost
|
$48,000
|
$44,275
|
$3,725
|
|
Variable overhead costs
|
|
|
|
|
“Travel: 5% of revenue
|
$6,000
|
$5,200
|
$800
|
|
Fixed overhead costs
|
$35,000
|
$36,500
|
$(1,500)
|
|
Total costs
|
$89,000
|
$85,975
|
$3,025
|
|
Operating profit
|
$31,000
|
$13,025
|
$(17,975)
|
- What does the report tell the reader? What is its limitation?
- Construct a flexible budget and determine the variances. How does that provide more information to users?
Aug 29, 2021 | Uncategorized
(Flexible Budget: Fill in the Unknowns) Complete the following variance analysis worksheet for Serif Industries.
|
|
Actual Results
|
flexible Budget Variance
|
flexible Volume
Budget Variance
|
Master Budget
|
|
Units sold
|
50,000
|
|
|
60,000
|
|
Revenues
|
$725,000
|
|
|
$900,000
|
|
Variable costs
|
275,000
|
|
|
300,000
|
|
Contribution margin
|
|
S(50,000)
|
$(100,000)
|
600,000
|
|
Fixed costs
|
175,000
|
S(I0,000)
|
|
185,000
|
|
Profit
|
|
|
|
|
Aug 29, 2021 | Uncategorized
(Variance Analysis) Elsie”s Muffins makes two types of muffin that are sold to grocery stores: the standard muffin (which comes in various flavours such as carrot, chocolate chip, bran, and apple spice) and the gourmet muffin (which is injected with homemade jelly and topped with a nut crumble). The direct materials and labour used to make a package of 24 of both the standard and the deluxe brand muffins and their standard costs are shown in the following table:
|
|
Standard Muffins
|
Deluxe Muffin
|
|
Quantity
|
Cost
|
Quantity
|
Cost
|
|
Baking mix
|
1 kg
|
$2 per kg
|
1.1 kg
|
$2 per kg
|
|
Paper cups
|
24
|
$0.005 per cup
|
24
|
$0.006 per cup
|
|
Jelly and nut crumble
|
n/a
|
n/a
|
350g
|
$0.005 per gram
|
|
Direct labour
|
7 minutes
|
$20 per hour
|
9 minutes
|
$20 per hour
|
Variable overhead is assigned to each package based on direct labour dollars at a rate of 40% of direct labour costs. The factory has total fixed overhead costs budgeted at $50,000 for the year, based on a total production volume of 50,000 packages of muffins per year.
During 2012, Elsie”s sold 54,000 packages of muffins: 42,000 standard and 12,000 deluxe. The company used 51,500 kg of baking mix; 1,325,000 paper cups; 3,800 kg of jelly and nut crumble; and 6,800 direct labour hours. Elsie”s spent a total of $100,000 on baking mix; $7500 on paper cups; $22,500 for jelly and nut crumble; and $147,000 on direct labour. For 2012, actual fixed overhead costs were $48,500 and variable overhead costs were $52,000.
- Calculate the materials, labour, variable overhead, and fixed overhead variances.
- Which variances need further investigation?
- Provide a possible explanation for each significant variance.
Aug 29, 2021 | Uncategorized
The following customers purchase goods from the Abilleet Company on a monthly basis.
|
|
Customer A
|
Customer B
|
Customer C
|
|
Units sold
|
10,000
|
9,500
|
20,000
|
|
Revenues
|
$50,000
|
$45,000
|
$100,000
|
|
Cost of goods sold
|
$25,000
|
$22,500
|
$50,000
|
|
Gross margin
|
$25,000
|
$22,500
|
$50,000
|
In addition to the above costs, Customer A requires 5 deliveries per month at a cost of $1,000 per delivery. Customers B and C each require 10 deliveries a month at a cost of $800 per delivery. Customer C normally requires more customer service support than Customers A and B. Customer C uses 40 hours of customer support, while A and B use 20 hours each. Customer support staff is paid $30 per hour. What is the customer profitability for Customers A, B, and C?
- $19,400 for A, $13,900 for B, $40,800 for C
- $25,000 for A, $22,500 for B, $50,000 for C
- $$44,400 for A, $36,400 for B, $90,800 for C
- $23,400 for A, $21,100 for B, $48,000 for C
Aug 29, 2021 | Uncategorized
Bronry Box Company is evaluating a new product that may be introduced in the upcoming year. The product is a new insulated box that will be used by food distributors. The company is planning to make the new boxes in 12 production runs a year of 1,000 boxes each. Each production run will incur $3,000 in costs to change over the equipment for this new style of box. At this date, the insulated box has incurred $12,000 in research and development costs. The other costs of producing the boxes are $5 for direct materials, $1 for direct labour, and $2 for overhead. Shipping and customer service costs will be $1 per box. The boxes are going to sell for $15 each for Year 1, $15.50 for Year 2, and $16.00 for Year 3. What is the life-cycle operating income for the insulated box?
- $114,000
- $126,000
- $96,000
- $104,000
Aug 29, 2021 | Uncategorized
(Target Costing) Skiff Company manufactures sails for small sailboats. Its most popular model, the Aquatic, sells for $3,500. It has variable costs totalling $1,900 per sail and fixed costs of $800 per sail (based on current demand of 4 production runs of 2,000 sails per year). Set-up costs are $50,000 per production run (which are not included in the fixed or variable costs already given). Skiff”s current plant capacity is 12,000 sails.
Sky to Sea Inc., Skiff”s main competitor, is introducing a new sail similar to the Aquatic that will sell for $2,999. Skiff management feels it must lower the price of the Aquatic in order to compete. The company marketing department believes that the new price will increase demand for the Aquatic by 40% per year.
- What is the target cost per unit for the new price if the target profit is 25% of sales?
- Is this target cost achievable with the possible increase in demand?
- Outline areas of cost reduction that could be investigated by Skiff.
Aug 29, 2021 | Uncategorized
(Target Costing) Driftwood Industries currently sells coffee tables for $450 each. It has costs per table of $330. A new competitor is opening in the same mall as Driftwood and offers a similar coffee table for $390. The company believes it must lower its price in order to not lose customers to this new company. Bob Jonas, the owner of Driftwood Industries, feels that he may be able to increase his sales of coffee tables by 20% if he lowers his price to $380. He currently sells 1,000 coffee tables per year. Bob was able to compile the following information about the costs of the coffee tables:
|
Direct materials
|
$120
|
|
Direct labour
|
$100
|
|
Variable overhead
|
$40
|
|
Fixed overhead
|
$70
|
|
Total cost
|
$330
|
Fixed overhead is based on production of 1000 tables per year.
Bob feels he can reduce direct labour costs by 15% if he purchases a new saw for $6,000 that will be depreciated over 3 years.
- What is the target cost if the target operating income is 25% of sales?
- Is this cost achievable? Show your calculations.
- By how much would Bob need to increase production to make the purchase of the new saw worthwhile?
Aug 29, 2021 | Uncategorized
(Target Costing) Great Escapes Company manufactures scooters. The X14 model has total variable costs totalling $4,800 and total fixed costs of $500,000 per month based on annual production of 5,000 scooters. Great Escapes normally has 6 production runs per year, with $280,000 in set-up costs each time. The company currently has plant capacity for 10,000 scooters per year. A competitor”s scooter similar to X14 currently sells for $7,500. The marketing department at Great Escapes believes that if the company charges $7,400 there will be an annual demand of 10,000 scooters. An $8,500 price will result in an annual demand of 7,500 scooters. A price of $10,000 will result in an annual demand of 5,000 scooters.
- What is the annual operating income if the price is set at $7,400? At $8,500? At $10,000?
- If Great Escapes wants to achieve a target cost of 75% of the target price, at which price should the company set the scooter?
Aug 29, 2021 | Uncategorized
(Customer Profitability Analysis) The following information pertains to lumber sales for the Timber Company for 2012.
|
|
Boards Sold
|
Demand
|
Customer-Specific Costs
|
|
Customer 1
|
122,000
|
140,000
|
$20,000
|
|
Customer 2
|
135,000
|
140,000
|
$20,000
|
|
Customer 3
|
205,000
|
220,000
|
$39,000
|
|
Customer 4
|
105,000
|
120,000
|
$15,000
|
|
Customer 5
|
150,000
|
175,000
|
$28,000
|
The company also has a discount policy in place. If a customer purchases more than 125,000 boards, a discount of $0.50 per board will apply. If a customer purchases in excess of 200,000 boards, a discount of $1.00 per board will apply. The average price per board is $2.50 and the costs to produce each board are $0.50.
- Prepare a report showing the customer profitability for each customer.
- What is the optimal sales mix for the company, considering the demand volumes for each customer?
Aug 29, 2021 | Uncategorized
The manager of Buff’s Buffet is preparing next year’s budget. She wants to prepare a flexible budget for three different annual revenue levels using a contribution margin income statement. Three levels of sales revenue are to be used: $800,000, $900,000, $1,000,000. The following information is available to help in preparing the flexible budget.
Food cost averages 40% of sales revenue.
Variable labor costs average 25% of sales revenue.
Fixed labor cost is $60,000 annually, and other fixed costs are $120,000.
Other variable costs average 12% of sales revenue. Income tax rate is estimated to be 30% on operating income (before tax).
From this information, prepare Buff’s flexible three-level budget using the contribution margin method. Also calculate the breakeven sales. Comment on the results of each budget level with particular reference to the effect of higher sales on net income (after tax).
Aug 29, 2021 | Uncategorized
A resort hotel has a dining room that has no business from street trade; it is dependent solely on the occupancy of its rooms for its sales revenue. It has 150 rooms. During the month of June it expects 80 percent occupancy of those rooms. Because the resort caters to the family trade, there are on average three people per occupied room per night. From experience, management knows that 95 percent of the people occupying rooms eat breakfast, 25 percent eat lunch, and 75 percent eat dinner in the hotel dining room (some of the units have kitchen facilities, which is why some of the resort’s guests do not use the dining room). The dining room is open seven days a week for all three meals. Its average meal prices are
|
Breakfast:
|
$ 7.50
|
|
Lunch:
|
$12.50
|
|
Dinner:
|
$25.20
|
Calculate the budgeted dining room revenue for the month of June.
Aug 29, 2021 | Uncategorized
a. Budgeted liquor sales at a banquet were 1,500 drinks at $3.15 each. Actual sales were 1,550 drinks at $2.85 each. Determine the price and sales volume variances.
b. Banquet food sales for a month were estimated to be 20,000 covers at $10.80 each. Actual sales were 21,000 customers at $11.25 each. Determine the price and sales volume variances.
c. Budgeted banquet food cost for a week was 1,000 covers at $6.00 each. Actual covers were 980 at $6.20 each. Determine the cost and sales volume variances.
d. A snack bar budgets 12,000 covers with an average check of $5.45, and an average cost per customer of $2.05. Actual results were 12,800 customers, and an average check of $5.27; average cost per cover was $2.01. Determine the price and sales volume variances for sales revenue, and the cost and sales volume variances for the expense.
e. At a convention buffet, 450 customers are expected, and it is estimated that one waitress will be required for each 30 anticipated guests (for serving beverages). Basic wage rate is $7.25 an hour, and a minimum of four hours must be paid each waitress. No overtime is anticipated, but it might occur. Calculate the budgeted payroll cost for this function. After the event, payroll records indicate that a total of 64 hours were actually worked at a total actual labor cost of $453.12. Analyze total payroll for cost and quantity variances.
Aug 29, 2021 | Uncategorized
An 80-room motel forecasts its average room rate to be $66.00 for next year at 75 percent occupancy. The rooms department has a fixed wage cost of $171,450. Variable wage cost for housekeeping is $7.50 an hour; it takes one-half hour to clean a room. Fringe benefits are 15 percent of total wages. Linen, laundry, supplies, and other direct costs are $2.50 per occupied room per day. The motel also has a 50-seat, limited-menu snack bar. Breakfast revenue is derived solely from customers staying overnight in the motel. On average, 30 percent of occupied rooms are occupied by two persons and, on average, 80 percent of overnight guests will eat breakfast. Average breakfast check is $4.00. Lunch seat turnover is 1.0, with an average check of $6.50. The average dinner check is $9.50 and there are 1.25 seat turns for dinner. The snack bar is open 365 days a year for all three meals. Direct costs for the snack bar are 75 percent of total snack bar revenue. Indirect costs for the motel are estimated at $578,800 for next year.
a. Calculate the budgeted net income of the motel for next year.
b. Assume that at the end of next year, actual revenue was on 21,700 rooms occupied at an average rate of $66.30; actual housekeeping wages (before employee fringe benefits) were $87,957. Analyze room revenue for price and sales volume variances and housekeeping wages for cost, quantity, and sales volume variances; assume it took 32 minutes to clean each room actually occupied (sold).
Aug 29, 2021 | Uncategorized
You have been asked to help prepare the operating budget for a proposed new 100-room motel, with a 65-seat coffee shop, 75-seat dining room, and 90-seat cocktail lounge. The operating budget for the first year will be based on the following information:
Rooms Department
Occupancy is 60 percent with an average room rate of $63. Fixed wages for bellpeople, front-office employees, and other personnel attached to the rooms department are estimated at $326,900. In addition, for every 15 rooms occupied each day, one housekeeper will be required for an eight-hour shift at a rate of $6.50 an hour. Staff fringe benefits will be 12 percent of total wages. Linen and laundry costs will be 6 percent of total rooms’ revenue. Supplies and other items will be 3 percent of total rooms’ sales revenue.
Food Department
The dining room is open 6 days a week, 52 weeks a year for lunch and dinner only. Lunch seat turnover is 1.5, with an average food check of $8.00. Dinner seat turnover is 1.0, with an average food check of $14.00. The coffee shop is open 7 days a week for all meal periods. Breakfast seat turnover is 1.0, with an average food check of $5.50. Lunch seat turnover is 1.5 with an average food check of $8.00. Dinner seat turnover is 0.75, with a $12.00 average food check. Coffee shop seat turnover for coffee breaks and snacks is 6.0 with an average check of $2.25.
The cocktail lounge serves an estimated 20 food orders per day, with an $8.50 average check. The lounge is closed on Sundays and certain holidays and only operates for 310 days during the year.
Total payroll costs, including fringe benefits in the food department, will be 45 percent of total food revenue. Other costs, variable as a percentage of total food revenue are:
|
Food cost
|
35%
|
|
Laundry and linen
|
2%
|
|
Supplies
|
5%
|
|
Other costs
|
2%
|
Beverage Department (310 operating days a year)
Each seat in the cocktail lounge is expected to generate $5,250 per year. In addition, the lounge will be credited with any alcoholic beverages served in the coffee shop and dining room. In the coffee shop, beverage revenue is estimated to be 15 percent of combined lunch and dinner food sales revenue, and in the dining room 25 percent of combined lunch and dinner food sales revenue. The beverage department operating costs are as follows:
Liquor cost is 32 percent of total beverage sales revenue. Payroll and fringe benefits are 25 percent of total beverage revenue. Supplies and other operating costs are 5 percent of total beverage sales revenue. From the preceding information, prepare income statements for the first year of operating for each of the three departments. Then combine departmental contributory incomes into one figure and deduct the following undistributed, indirect costs to arrive at a budgeted income before depreciation, interest, and income tax. (In this problem, round all final numbers to the nearest dollar
|
Administrative and general
|
$156,800
|
|
Marketing
|
147,600
|
|
Utilities costs
|
58,900
|
|
Property operation & maintenance
|
52,400
|
|
Insurance
|
15,300
|
|
Property taxes
|
82,100
|
Aug 29, 2021 | Uncategorized
The following lists current asset and current liability accounts. Identify each account as a current asset (CA) or a current liability (CL) account. After classifying each account, determine how the change in the account balance is treated in the conversion of accrual net income to the cash basis, indirect method. If cash increases, use the word source; if cash decreases, use the word use.
|
Account Title
|
CA or CL
|
Increase
|
or Decrease
|
|
Credit card receivables
|
–
|
–
|
–
|
|
Accounts payable
|
–
|
–
|
–
|
|
Inventory (for resale)
|
–
|
–
|
–
|
|
Accounts receivable
|
–
|
–
|
–
|
|
Prepaid expenses
|
–
|
–
|
–
|
|
Accrued payroll payable
|
–
|
–
|
–
|
|
Interest payable
|
–
|
–
|
–
|
|
Marketable securities
|
–
|
–
|
–
|
Aug 29, 2021 | Uncategorized
A hotel provided the following information for year 2006: The cash flow from operating activities was $143,200, average current liabilities were $68,300, average total liabilities were $823,300, and total revenue for the year was $2,406,800. Interest was $68,000. Calculate the following ratios:
a. The cash flow from operating activities to current liabilities ratio
b. The cash flow for operating activities to total liabilities ratio
c. The cash flow from operating activities margin ratio
d. The cash flow from operating activities to interest ratio
Aug 29, 2021 | Uncategorized
A review of a balance sheet indicated the beginning and ending totals of current current liabilities for a one-year operating period. Determine the working capital at the beginning and the end of the year. Calculate the change in current assets, current liabilities, and working capital.
|
Current Assets
|
Current Liabilities
|
Working Capital
|
|
January 1, 2004
|
$178,500
|
$99,250
|
$
|
|
December 31, 2004
|
122400
|
76,500
|
|
|
Change, current assets
|
$
|
$
|
|
|
Change, current liabilities
|
|
|
|
|
Change in working capital
|
|
|
$
|
Aug 29, 2021 | Uncategorized
Balance sheet information for a resort hotel reflects the changes to current accounts that occurred over the annual operating period ended December 31, 2005. Cash account balance at December 31, 2004, was $14,000 and the ending cash balance at December 31, 2005, is $27,600.
|
Current Asset Accounts
|
Change
|
Amount
|
|
Cash
|
Increased
|
$13,600
|
|
Credit card receivables
|
Increased
|
1,680
|
|
Accounts receivable
|
Increased
|
1,120
|
|
Inventories
|
Increased
|
800
|
|
Prepaid expenses
|
Decreased
|
500
|
|
Current Liability Accounts
|
|
|
|
Accounts payable
|
Decreased
|
$ 1,100
|
|
Accrued payroll payable
|
Increased
|
1,200
|
|
Taxes payable
|
Decreased
|
800
|
Additional information applying to the current year ending December 31,
2005:
a. Net income for the year 2005 was $113,400.
b. Depreciation expense for the year 2005 was $121,500.
c. Furnishings with a book value of $1,400 were sold for $5,400.
d. Equipment with a book value of $2,200 was sold for $1,800.
e. New furnishings were purchased for $14,800.
f. New equipment was purchased for $22,200.
g. A total of $55,600 was paid to reduce long-term debt.
h. Cash dividends of $128,300 were declared and paid.
Using the information provided, complete an SCF, in good form using the indirect method.
Aug 29, 2021 | Uncategorized
You have the following comparative balance sheets for a restaurant for the years ending December 31, 2004, and December 31, 2005. Calculate the change in working capital and prepare the restaurant’s statement of sources and uses of working capital for the year ending December 31,
|
Yr. 2004
|
Yr. 2005
|
|
ASSETS
|
|
|
|
Cash
|
$14,800
|
$15,600
|
|
Accounts receivable
|
8,300
|
7,700
|
|
Food and beverage inventories
|
7,900
|
9,700
|
|
Furniture and equipment
|
15,500
|
19,500
|
|
Accumulated depreciation
|
(3500)
|
(4500)
|
|
Total
|
$43000
|
$48000
|
|
LIABILITIES & STOCKHOLDERS’ EQUITY
|
|
|
|
Accounts payable
|
$ 5,600
|
$ 7,800
|
|
Income tax payable
|
1,400
|
200
|
|
Long-term loan
|
25,800
|
27,800
|
|
Common stock
|
4,200
|
5,200
|
|
Retained earnings
|
6000
|
7000
|
|
Total
|
$43000
|
$48000
|
a. Net income for year $7,000. Annual depreciation of $1,000 was included as an expense to arrive at net income.
b. New equipment costing $4,000 was purchased.
c. Dividends of $6,000 were paid out.
d. New shares (100 at $10 each) were issued.
e. The long-term loan was increased by $2,000.
Aug 29, 2021 | Uncategorized
With the balance sheet information from, and the additional information from the income statement and statement of retained earnings, prepare the motel’s statement of changes to working capital for the year ending December 31, 2005.
|
Income Statement for Year Ended December 31, 2005
|
|
Sales revenue
|
$204,900
|
|
Operating costs
|
(173,800)
|
|
Income before depreciation and interest and tax
|
31,100
|
|
Depreciation, building
|
(8,300)
|
|
Depreciation, furniture and equipment
|
(3,700)
|
|
Income before interest and tax
|
$19100
|
|
Interest
|
(10800)
|
|
Operating income (before tax)
|
$8300
|
|
Income tax
|
(1500)
|
|
Net income
|
$6800
|
|
Statement of Retained Earnings for Year Ended December 31, 2005
|
|
Retained earnings, January 1, 2005
|
$ 22,800
|
|
Add: Net income for year
|
6800
|
|
Subtotal
|
$29600
|
|
Deduct: Dividends paid
|
(3200)
|
|
Retained earnings December 31, 2005
|
$26,400
|
Aug 29, 2021 | Uncategorized
A catering company reported the following additional financial statements and information for two successive years:
Additional financial information:
1. In Year 2005, the building that was previously rented was purchased for $150,000. The company paid $10,000 cash and assumed a long term mortgage for $140,000. Depreciation on the building is $7,500 for Year 2005. At the end of year 2005, $7,100 of the mortgage payable was reclassified as a current liability payable in Year 2006.
2. New stock was issued for cash, 200 shares at $50.00 each.
|
Statement of Retained Earnings For the Year Ended December 31, 2005
|
|
Retained earnings December 31, 2004
|
$29,900
|
|
Operating loss for Year 2005
|
(81,00)
|
|
Retained earnings December 31, 2005
|
$21800
|
The equipment account, and its accumulated depreciation account, is shown below:
|
Equipment
|
Accum. Depr.
|
|
Balance December 31, 2004
|
$31,700
|
$5,800
|
|
Purchased new equipment
|
6,300
|
|
|
Disposed of fully depreciated old equipment
|
(41,00)
|
(41,00)
|
|
Depreciation expense year 2005
|
|
4500
|
|
Balance December 31, 2005
|
33900
|
$6200
|
|
Comparative Balance Sheet
|
|
|
|
12-31-2004
|
12-31-2005
|
|
Current Assets
|
|
|
|
Cash
|
$ 8,600
|
$ 15,000
|
|
Accounts receivable
|
19,800
|
15,800
|
|
Inventory, food
|
6,100
|
6,300
|
|
Prepaid expenses
|
1200
|
1700
|
|
Total Current Assets
|
$35,700
|
$35,800
|
|
Noncurrent, Fixed Assets
|
|
|
|
Building
|
-0-
|
150,000
|
|
Accumulated depreciation, building
|
-0-
|
(7500)
|
|
Equipment
|
31,700
|
33900
|
|
Accumulated depreciation, equipment
|
(5800)
|
(6200)
|
|
Total Non-current, Fixed Assets
|
$25,900
|
$170,200
|
|
Total Assets
|
$61,600
|
$209,000
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current Liabilities
|
|
|
|
Accounts payable
|
$21,200
|
$ 25,400
|
|
Accrued expenses
|
7,500
|
8,800
|
|
Current portion of mortgage payable
|
-0-
|
7,100
|
|
Total Current Liabilities
|
$28,700
|
$41300
|
|
Long-Term Liabilities
|
|
|
|
Long-term mortgage payable
|
-0-
|
$132,900
|
|
Stockholders’ Equity
|
|
|
|
Common stock
|
$ 3,000
|
$13,000
|
|
Retained earnings
|
29,900
|
21,800
|
|
Total Stockholders’ Equity
|
$32,900
|
$34,800
|
|
Total Liabilities and Stockholders’ Equity
|
$61,600
|
$209,000
|
Calculate the changes in working capital and prepare the company’s statement of sources (inflows) and uses (outflows) for the year ended December 31, 2005.
Aug 29, 2021 | Uncategorized
Bobby Jones Inc. is planning sales of 55,000 units for the next three months. The company has a beginning inventory of 10,000 units and would like to have an ending inventory of 15,000 at the end of the three months. It requires 4 kg of direct materials to make 1 unit of finished product. The opening inventory of direct materials is 50,000 kg and the target ending inventory is 60,000 kg. How many kilograms of direct materials does Bobby Jones need to purchase for the three-month period?
- 250,000 kg
- 60,000 kg
- 110,000 kg
- 132,000 kg
Munch Enterprises makes a small toy car that is voice activated. Projected sales for the next four months are
|
Month
|
Planned Sales (Units)
|
|
April
|
5,500
|
|
May
|
6,500
|
|
June
|
4,500
|
|
July
|
5,600
|
The cars sell for $35 each. To produce each car requires $12.50 in direct materials and $6.00 in direct labour. Fixed overhead costs related to manufacturing the car are $10,000 per month, while variable overhead is $4.50 per car. Munch normally produces a month”s supply of inventory to ensure that it will not fall short in case sales are unexpectedly high. At the end of March, for instance, the company will have inventory to cover April sales.
Aug 29, 2021 | Uncategorized
What is Munch”s expected profit for April?
- $192,500
- $56,000
- $66,000
- $59,000
Munch Enterprises makes a small toy car that is voice activated. Projected sales for the next four months are
|
Month
|
Planned Sales (Units)
|
|
April
|
5,500
|
|
May
|
6,500
|
|
June
|
4,500
|
|
July
|
5,600
|
The cars sell for $35 each. To produce each car requires $12.50 in direct materials and $6.00 in direct labour. Fixed overhead costs related to manufacturing the car are $10,000 per month, while variable overhead is $4.50 per car. Munch normally produces a month”s supply of inventory to ensure that it will not fall short in case sales are unexpectedly high. At the end of March, for instance, the company will have inventory to cover April sales.
Aug 29, 2021 | Uncategorized
The production budget for cars for May (in units) is
- 6,500
- 11,000
- 4,500
- 10,100
Munch Enterprises makes a small toy car that is voice activated. Projected sales for the next four months are
|
Month
|
Planned Sales (Units)
|
|
April
|
5,500
|
|
May
|
6,500
|
|
June
|
4,500
|
|
July
|
5,600
|
The cars sell for $35 each. To produce each car requires $12.50 in direct materials and $6.00 in direct labour. Fixed overhead costs related to manufacturing the car are $10,000 per month, while variable overhead is $4.50 per car. Munch normally produces a month”s supply of inventory to ensure that it will not fall short in case sales are unexpectedly high. At the end of March, for instance, the company will have inventory to cover April sales.
Aug 29, 2021 | Uncategorized
April Co. receives payment from customers for credit sales as follows:
- 30% in the month of sale
- 60% in the month following sale
- 8% in the second month following the sale
- 2% become bad debts and are never collected
The following sales are expected:
|
January
|
$100,000
|
|
February
|
$120,000
|
|
March
|
$110,000
|
How much will be received in March?
- $96,000
- $113,000
- $30,000
- $110,000
Grobots Company prepared the following information for the upcoming four month period:
|
Month
|
Budgeted Sales
|
|
January
|
$75,000
|
|
February
|
78,000
|
|
March
|
90,000
|
|
April
|
110,000
|
|
Budgeted Expenses per Month
|
|
Salaries
|
$25,000
|
Selling Cost
|
$20,000
|
|
Depreciation
|
$5,000
|
Insurance
|
$3,000
|
Salaries and selling costs are paid during the month they are incurred. Insurance is paid quarterly on March 31, June 30, September 30, and Dec 31.
Sales are collected as follows: 30% in the month of sale, 65% in the month after sale, and 5% are uncollectable. Purchases are 30% of sales of a given month and are paid in full the following month.
Aug 29, 2021 | Uncategorized
Calculate the cash disbursements for March.
- $81,000
- $71,400
- $82,400
- $77,400
Grobots Company prepared the following information for the upcoming four month period:
|
Month
|
Budgeted Sales
|
|
January
|
$75,000
|
|
February
|
78,000
|
|
March
|
90,000
|
|
April
|
110,000
|
|
Budgeted Expenses per Month
|
|
Salaries
|
$25,000
|
Selling Cost
|
$20,000
|
|
Depreciation
|
$5,000
|
Insurance
|
$3,000
|
Salaries and selling costs are paid during the month they are incurred. Insurance is paid quarterly on March 31, June 30, September 30, and Dec 31.
Sales are collected as follows: 30% in the month of sale, 65% in the month after sale, and 5% are uncollectable. Purchases are 30% of sales of a given month and are paid in full the following month.
Aug 29, 2021 | Uncategorized
Calculate the cash receipts for April.
- $110,000
- $91,500
- $96,000
- $68,400
Grobots Company prepared the following information for the upcoming four month period:
|
Month
|
Budgeted Sales
|
|
January
|
$75,000
|
|
February
|
78,000
|
|
March
|
90,000
|
|
April
|
110,000
|
|
Budgeted Expenses per Month
|
|
Salaries
|
$25,000
|
Selling Cost
|
$20,000
|
|
Depreciation
|
$5,000
|
Insurance
|
$3,000
|
Salaries and selling costs are paid during the month they are incurred. Insurance is paid quarterly on March 31, June 30, September 30, and Dec 31.
Sales are collected as follows: 30% in the month of sale, 65% in the month after sale, and 5% are uncollectable. Purchases are 30% of sales of a given month and are paid in full the following month.
Aug 29, 2021 | Uncategorized
(Profit Budget and Cash Forecast) Creassos Ltd. was formed in July 2012 with $20,000 of capital. $7,500 of this was used to purchase equipment. The owner budgeted for the following:
|
|
Sales
|
Receipts of
Accounts Receivable
|
Purchases
|
Payments on Accounts Payable
|
Wages
|
Other Expenses
|
|
July
|
$20,000
|
–
|
$ 8,000
|
$ 5,000
|
$3,000
|
$2,000
|
|
30,000
|
$20,000
|
15,000
|
10,000
|
4,000
|
2,000
|
|
40,000
|
30,000
|
20,000
|
20,000
|
5,000
|
3,000
|
Wages and other expenses are paid in cash. In addition to the above, depreciation is $2,400 per year. No inventory is held by the company.
- Calculate the profit for each of the three months from July through September and the total profit for the three months.
- Calculate the cash balance at the end of each month.
- Prepare a statement of financial position at the end of September.
Aug 29, 2021 | Uncategorized
(Profit Budget) Highjinks Corporation”s sales department has estimated revenue of $2,250,000 for your division. 60% of this will be achieved in the first half-year and 40% in the remaining half-year. Variable operating costs are typically 30% of revenue and fixed operating costs are expected to be $35,000 per month for the first six months and $40,000 per month thereafter.
The selling expense allocated to your department from the sales department is $15,000 per month for the first half-year; thereafter, $12,000. Salaries are $25,000 per month, depreciation is $5,000 per month, and rent is $8,000 per month. Light, heat, and power are expected to cost $3,000 per month for the first half-year, falling to $2,000 thereafter.
- Construct a budget for the year based on the above figures.
- What can you say about the rate of gross profit?
Aug 29, 2021 | Uncategorized
Each of the given situations is independent of the other. For each, list the programmed input validation check that would prevent or detect the error.
- The ZIP code field was left blank on an input screen requesting a mailing address.
- A state abbreviation of “NX” was entered in the state field.
- A number was accidentally entered in the last name field.
- For a weekly payroll, the hours entry in the “hours worked” field was 400.
- A pay rate of $50.00 per hour was entered for a new employee. The job code indicates an entry-level receptionist.
Aug 29, 2021 | Uncategorized
Control totals include batch totals, hash totals, and record counts. Which of these totals would be useful in preventing or detecting IT system input and processing errors or fraud described as follows?
- A payroll clerk accidentally entered the same time card twice.
- The accounts payable department overlooked an invoice and did not enter it into the system because it was stuck to another invoice.
- A systems analyst was conducting payroll fraud by electronically adding to his “hours worked” field during the payroll computer run.
- To create a fictitious employee, a payroll clerk removed a time card for a recently terminated employee and inserted a new time card with the same hours worked.
Aug 29, 2021 | Uncategorized
The EnviroCons Company, a small business with 100 employees, sells environmental consulting services to large companies around the United States. It employs 40 consultants who travel the United States, assisting clients with environmental compliance. To conduct business, the company must maintain a website so that potential customers can learn of its services and contact its consultants. The company maintains an internal network with an extensive database of environmental regulations and environmental data. Each of its consultants carries a laptop computer; the company has installed a wireless network so that when the consultants are in the office they can easily connect to the company”s network. Consultants visit off-site clients much of the time, but while on-site consulting with clients, they must use their laptops to access the company database to look up environmental regulations and data.
Required:
- From the list of general controls shown, list each authentication and hacking control that you think the EnviroCons Company should have in place.
- Explain how each control that you list can prevent IT related risks for EnviroCons.
- Are there any general controls that you think would not be cost beneficial?
Aug 29, 2021 | Uncategorized
Plaskor, Inc., is a manufacturer of plastic knobs for lawn and garden tractors and lawn mowers. The company has always used traditional paper-based systems to conduct transactions with its customers. For example, when a customer ordered knobs, Plaskor personnel filled out a sales order acknowledgement and mailed it to the customer. Plaskor would like to expand its business opportunities by becoming a supplier, as management believes the company can manufacture interior parts for automotive manufacturers. Automotive manufacturing companies use EDI extensively as they transact business with suppliers and expect any suppliers that they buy from to have the appropriate systems to conduct transactions via EDI. Therefore, Plaskor must buy or develop systems that would allow it to use Internet EDI.
Required:
- Describe the extra IT system risks that Plaskor should consider as it evaluates whether to buy or develop an Internet EDI system.
- Describe the IT internal controls that should be incorporated into an Internet EDI system.
Aug 29, 2021 | Uncategorized
Which of the following is not true regarding the requirements for reporting on internal controls under Section 404 of the Sarbanes–Oxley Act of 2002?
- Management must accept responsibility for the establishment and maintenance of internal controls and provide its assessment of their effectiveness.
- The independent auditor must issue a report on the effectiveness of internal controls.
- Management must identify the framework used for evaluating its internal controls.
- Management must achieve a control environment that has no significant deficiencies.
Aug 29, 2021 | Uncategorized
A restaurant with an average check of $10 per guest has the following average monthly figures:
|
Sales revenue
|
$500,000
|
|
Variable costs
|
260,000
|
|
Fixed costs
|
160,000
|
a. What is breakeven sales revenue?
b. If actual sales revenue was $440,000, what would the restaurant’s operating income be?
c. If actual sales revenue was $440,000, how many fewer customers per month would be served than at the forecasted sales level of $500,000 (average check remains at $10)?
Aug 29, 2021 | Uncategorized
A restaurant is being planned that will require an investment of $150,000 in equipment by the owner. The following shows forecasted variable cost percentages, identifiable fixed, and semifixed costs.
Variable costs will be:
Food cost is 40% of sales revenue
Wage cost is 25% of sales revenue
Other variable costs are 10% of sales revenue
|
Other known costs will be:
|
|
Management salary and wages
|
$48,000
|
|
Insurance expense
|
2,800
|
|
Advertising expense
|
4,500
|
|
Utilities and telephone expense
|
1,020
|
|
Rent expense
|
12,000
|
|
Equipment depreciation expense
|
20%
|
a. What is the breakeven level of sales revenue for the restaurant? Prepare a contribution margin income statement to confirm the breakeven calculations.
b. What required sales revenue is needed if the owner wants a 15 percent before-tax return on investment? Prepare a contribution margin income statement to confirm the CVP calculations.
Aug 29, 2021 | Uncategorized
A cocktail bar is presently doing $500,000 a year in sales. Liquor cost is 40 percent and other variable costs at this level of sales revenue total $140,000. Fixed costs are $120,000.
a. What is the present annual operating income (before tax)?
b. The owner wants to increase the manager’s salary by $10,000 a year. By how much will sales revenue have to increase to provide this additional salary and maintain the current level of operating income? (Any added revenue will come from increasing seat turnover by increasing customer service.)
c. Rather than increasing sales revenue by increasing seat turnover and customer service, the owner decides to increase menu prices by 5 percent. The owner believes the price increase can be made without losing any customers and without increasing cost of sales or other variable costs. The original variable cost functions and the manager salary increase still apply. What will the bar’s operating income (before tax) be?
d. With the new pricing structure as indicated in part c, how much can sales revenue decrease before operating income falls below $30,000 per year?
Aug 29, 2021 | Uncategorized
A motel has 70 rooms it usually rents out, in the following proportions:
|
45% singles at:
|
$48.00 per night
|
|
35% doubles at:
|
$60.00 per night
|
|
20% triples at:
|
$72.00 per night
|
he motel has annual fixed costs of $345,000 and variable costs averages $15.00 per room occupied.
a. Calculate the motel’s breakeven level and its occupancy percentage.
b. Calculate the occupancy percentage that will provide operating income (before tax) of $60,000 a year.
c. Calculate the occupancy percentage necessary to provide an operating income (before tax) of $60,000, if the average room rate were decreased by 15 percent.
d. Calculate the occupancy percentage necessary to provide an operating income (before tax) of $60,000, assuming the average room rate will increase by 10 percent. Variable cost per unit sold will increase to $16.20, and $30,000 per year will be spent on advertising.
Aug 29, 2021 | Uncategorized
The Relax Inn’s rooms department has annual sales of $600,000 and variable costs of $180,000. The inn’s food department has annual sales revenue of $200,000 and variable costs of $160,000. The inn’s fixed costs are $220,000. The total sales revenue of the inn is $800,000 jointly.
a. Calculate the inn’s breakeven point, assuming the ratio of room’s sales to food sales remains constant at any level of total sales.
b. The owners want to increase their restaurant’s sales revenue, and they plan to spend $1,000 on brochures to be displayed in the inn’s entry lobby and in the guest rooms. What level of incremental food sales must be achieved to cover the brochure cost? (Assume that room sales remain constant.)
c. If the inn’s owners want to increase operating income by $40,000 by increasing rooms occupancy rate, what is the incremental room’s sales revenue required to support the $40,000 increase to operating income? (Assume no effect on restaurant sales.)
Aug 29, 2021 | Uncategorized
A restaurant has a café and bar operation. The café provides 65 percent of total revenue with a 48 percent variable cost. The bar provides 35 percent of total revenue with a 38 percent variable cost. Answer the following:
a. What is the contribution margin of the café?
b. What is the contribution margin of the bar?
c. What is the combined contribution margin of the café and bar?
d. Assume the owner wants operating income to increase by $50,000, with the increase being provided jointly by the café and bar. What is the additional sales revenue required?
Aug 29, 2021 | Uncategorized
A motel has a rooms department and a dining room, and fixed cost is $335,000. Annual sales revenue and cost figures are as follows:
|
Rooms
|
Food
|
Totals
|
|
Sales revenue
|
$440,000
|
$110,000
|
$550,000
|
|
Variable costs
|
(132,000)
|
(66,000)
|
(198,000)
|
|
Contribution margin
|
$308,000
|
$44000
|
$352,000
|
a. What will be the increase in contribution margin if there is a $20,000 increase in sales revenue only in the rooms department?
b. What will be the increase in contribution margin if there is a $20,000 increase in sales revenue only in the food department?
c. If we want to double the current operating income before tax with variable costs remaining the same and covering fixed costs, what increase in room revenue is needed?
d. If we want to double the current total operating income before tax with direct costs remaining the same and covering fixed costs, what increase in food sales revenue is needed?
e. If we want to double the current operating income before tax with direct costs remaining the same, what will increase in sales revenue have to be if the increase is provided jointly by both departments combined? Assume sales revenue ratios stay as originally stated.
f. What would total sales revenue have to be to achieve all of the following: A doubling of present operating income before tax. $5,000 more spent on advertising. The revenue ratio to change from its present 80 percent for rooms and 20 percent for food to 75 percent for rooms, and 25 percent for food. Food variable costs to be decreased to 55 percent.
Aug 29, 2021 | Uncategorized
An owner has $200,000 to invest in a new restaurant. Equipment and furniture are to be purchased for $160,000, and $40,000 will be used for initial working capital. First-year estimates anticipate variable costs as a percentage of sales revenue and food costs at 35 percent, variable wage costs at 30 percent, and other variable costs of 15 percent. Other fixed and semifixed costs estimates are as follows:
|
Management salaries
|
$49,200
|
|
Rent expense
|
32,000
|
|
Insurance expense
|
4,800
|
|
Depreciation, furniture, and equipment
|
20%
|
The owner wants a 15 percent operating income (before tax) on his initial investment. As an alternative, the owner is considering borrowing $60,000 from a bank at a 10 percent interest rate instead of using his own money for the investment. Rather than purchasing $40,000 of the needed equipment, it would be rented at a cost of $10,000 per year. Analyze each alternative, (1) using invested capital or (2) borrowing $60,000, and renting some of the equipment. Calculate the annual sales revenue needed to provide operating income (before tax) of 15 percent of the initial investment. Recommend to the owner how to finance the operation.
Aug 29, 2021 | Uncategorized
A resort hotel has total annual sales revenue of $1,000,000, variable costs of $350,000, and fixed costs of $570,000. The fixed costs include $80,000 a year for land rental lease.
a. Calculate the hotel’s breakeven point.
b. If the owners had an equity investment in the hotel of $1,200,000, what level of sales revenue is required for an operating income (before tax) representing a 12 percent return on their investment?
c. In a renegotiation of the land lease, the landowner has offered management an alternative to the current fixed lease currently being paid. The alternative is 10 percent of the resort’s contribution margin.
i. If management accepts this proposal, what would be the resort hotel’s new breakeven point?
ii. Calculate the indifference point.
iii. Explain whether management should accept this proposal if next year’s total sales revenue is expected to be $1,200,000?
iv. Should management accept this proposal if next year’s total sales revenue is expected to be $1,400,000?
Aug 29, 2021 | Uncategorized
An analysis of the 4C Company’s restaurant costs for the Year 2004 revealed the following:
Food and beverage: Directly variable with total revenue.
Salary and wages: $156,400 fixed, the remainder are directly variable with total sales revenue.
Laundry: Directly variable with total sales revenue.
Kitchen fuel: $3,800 fixed, the remainder are directly variable with total sales revenue.
China and tableware: Directly variable with total sales revenue.
Glassware: Directly variable with total sales revenue.
Contract cleaning: Fixed.
Licenses: Fixed.
Other operating expenses: Directly variable with total sales revenue.
Administrative and general: Fixed.
Marketing: Fixed.
Utilities costs: $3,100 fixed, the remainder directly variable with total sales revenue.
Insurance: Fixed.
Rent: Fixed.
Interest: Fixed
Depreciation: Fixed.
b. Calculate the restaurant’s total fixed costs.
c. Calculate the restaurant’s breakeven sales revenue and also express the breakeven in terms of the number of guests.
d. In Year 2004, the restaurant’s operating income (before tax) is 6.9 percent of total sales revenue. To increase operating income to 10 percent, how many extra guests are required?
Aug 29, 2021 | Uncategorized
A motel had budgeted an occupancy of 6,000 rooms with a selling price of $80 per room and a variable housekeeping cost of $3.70 per room. Actual data indicated that a total of 6,240 rooms were sold at an average selling price of $76 per room and the actual cost of housekeeping per room was $4.20 per room. Answer the following about the housekeeping costs:
a. What is the budget variance? Is it favorable or unfavorable?
b. What is the cost variance? Is it favorable or unfavorable?
c. What is the sales volume variance? Is it favorable or unfavorable?
Aug 29, 2021 | Uncategorized
An 80-seat coffee shop is open for all three meals every day of the year. Calculate sales revenue for the coming year. Seat turnover and average check figures are as follows:
|
Turnover
|
Average Check
|
|
Breakfast
|
2.25
|
$ 7.60
|
|
Lunch
|
1.75
|
8.00
|
|
Dinner
|
2.75
|
11.60
|
Aug 29, 2021 | Uncategorized
Calculate the room revenue for a 60-room motel for the first three months of the year. Assume February is not in a leap year and has 28 days. The following information is given:
|
Room Rate
|
Occupancy
|
|
January
|
$ 84
|
60%
|
|
February
|
$ 96
|
70%
|
|
March
|
$108
|
78%
|
Aug 29, 2021 | Uncategorized
A dining room has 75 seats. It is open only for lunch and dinner six days a week (closed Sundays). This particular August has four Sundays. Round your calculations to the nearest dollar. Management has forecast the following:
|
Seat Turnover
|
Average Food Check
|
|
Lunch
|
1.5
|
$10.50
|
|
Dinner
|
2.0
|
$15.50
|
Beverage revenue normally averages 15 percent of lunch food sales revenue and 30 percent of dinner food sales revenue. Calculate total budgeted food sales revenue and beverage sales revenue for the month.
Aug 29, 2021 | Uncategorized
A hotel coffee shop has 130 seats and is open seven days a week for all three-meal periods. During the month of January, it anticipates the following seat turnovers and average food checks:
|
Turnover
|
Average Check
|
|
Breakfast
|
1.50
|
$ 4.00
|
|
Lunch
|
1.75
|
$ 7.50
|
|
Dinner
|
1.25
|
$12.50
|
Calculate the budgeted sales revenue for the coffee shop for January.
Aug 29, 2021 | Uncategorized
Officials for the City of Artichoke, West Virginia, have recently formed a transit authority to create a public transportation system for the community. These same officials are now preparing the city’s CAFR for the most recent year. The transit authority has already lost a considerable amount of money and the officials have become interested in its reporting and whether it qualifies as a component unit of the city. Following are several articles written about the reporting of component units by a state or local government:
“Financial Reporting for Affiliated Organizations,” The Journal of Government Financial Management, Winter 2003.
“How to Implement GASB Statement No. 34,” The Journal of Accountancy, November 2001. “Accounting for Affiliated Organizations,” Government Finance Review, December 2002.
“Component Unit Reporting in the New Reporting Model,” The CPA Journal, October 2001.
Required
Read one or more of the above articles and any others that you may discover about component units. Write a memo to these city officials providing as much detailed information about component units and their reporting as you can to help these individuals understand the challenges and difficulties of this reporting.
Aug 29, 2021 | Uncategorized
Read the following journal article: “25 Years of State and Local Governmental Financial Reporting—An Accounting Standards Perspective,” The Government Accountants Journal, Fall 1992. Or, as a second possibility, do a search of books in the college library for advanced accounting textbooks or government accounting textbooks that were published prior to 2000.
Required
Accounting for state and local governments has changed considerably in just the last 10–20 years. Write a report to highlight some of the differences you noted between the process described before 2000 and that which has been presented in Chapters 16 and 17 of this textbook.
Aug 29, 2021 | Uncategorized
The City of Larissa recently opened a solid waste landfill to serve the area’s citizens and businesses. The city’s accountant has gone to city officials for guidance as to whether to record the landfill within the General Fund or as a separate enterprise fund. Officials have asked for guidance on how to make that decision and how the answer will impact the government’s financial reporting.
Required
Write a memo to the government officials describing the factors that should influence the decision as to the fund in which to report the landfill. Describe the impact that this decision will have on the city’s future comprehensive annual financial reports.
Aug 29, 2021 | Uncategorized
A hotel manager has set a rack rate for all rooms in the hotel of $149 for next year. Corporations, conventions, and conference groups were advised that early next year the rack rate charged could be reduced to a lower rate of $99, and the potential reduction will depend on the volume of business they provide. Travel agencies, which book a good number of hotel reservations for independent travelers, were advised that room rate discounts are available for $139, $129, and $119, with restrictions. The travel agencies were also advised that rooms booked at the $149 rate would increase their commission to 15 percent rather than the normal 10 percent for a discounted rate reservation. Individuals that telephone the hotel directly for a reservation are first quoted the $149 rate; however, employees booking reservations have been trained to lower this rate to $139, $129, and $119, but never lower than $119. In addition, room-booking employees are required to advise potential guests of the restrictions that apply at each rate level. Discuss the ethics of this situation.
Aug 29, 2021 | Uncategorized
A 25-room budget motel expects its occupancy next year to be 80 percent. The owners’ investment is $401,600. They want an after-tax return on their investment of 10 percent. Tax rate is 28 percent. Interest on a long-term mortgage is 10 percent. Present balance outstanding is $806,400. Depreciation rate on the building is 10 percent of the present book value of $700,200. Depreciation on the furnishings and equipment is at 20 percent of the consolidated present book value of $150,400. Other known fixed costs total $141,800 a year. At 80% occupancy rate, the motel’s operating expenses, wages, supplies, laundry, etc. are calculated to be $55,400 a year.
The motel has other income from vending machines of $5,200 a year.
a. To cover all costs and produce the required net income after tax, what should the motel’s average room rate be next year?
b. If the motel operates at 30 percent double occupancy and has an $8.00 spread between its single and double rates, what will the single- and double-room rates be? Assume only one common room size, all with the same rates.
Aug 29, 2021 | Uncategorized
A 140-seat dining room had a weekly customer count by meal period and day:
|
Lunch
|
Dinner
|
|
Sunday
|
Closed
|
180
|
|
Monday
|
160
|
110
|
|
Tuesday
|
170
|
112
|
|
Wednesday
|
175
|
108
|
|
Thursday
|
160
|
120
|
|
Friday
|
180
|
210
|
|
Saturday
|
50
|
250
|
a. For each meal period and for each day of the week calculate the seat turnover.
b. Calculate the average number of customers per day and the average seat turnover for the week for each meal period.
c. List some of the ways in which the information in parts a and b would be useful to the restaurant manager or owner.
Aug 29, 2021 | Uncategorized
You have the following information about Beech Tree Café’s lunch menu with 10 entrées:
|
Menu Item
|
Number Sold (MM)
|
Menu Item Food Cost
|
Menu Item Selling Price
|
|
1. Corn beef on rye
|
328
|
$1.35
|
$5.95
|
|
2. Salmon salad sandwich
|
288
|
1.18
|
5.50
|
|
3. Club sandwich
|
420
|
1.36
|
5.95
|
|
4. Egg and tomato sandwich
|
192
|
0.76
|
4.95
|
|
5. Roast beef and lettuce sandwich
|
164
|
1.05
|
6.95
|
|
6. Chicken wings
|
236
|
2.21
|
8.95
|
|
7. Hot dog and fries
|
152
|
0.84
|
4.50
|
|
8. Hamburger and fries
|
536
|
0.97
|
6.50
|
|
9. Cheeseburger and fries
|
312
|
1.12
|
6.95
|
|
10. Veggie burger and salad
|
185
|
1.85
|
6.95
|
Aug 29, 2021 | Uncategorized
An owner invested $180,000 in a new family-style restaurant, of which $160,000 was immediately used to purchase equipment and $20,000 was retained for working cash. Estimates for the first year of business are as follows:
Menu selling prices to be established to give a markup of 150 percent over cost of food sold Variable wages, 28 percent of revenue
Fixed wages, $51,600
Other variable costs, 7 percent of revenue
Rent, $36,000
Insurance, $4,800
Depreciation on equipment, 20 percent
Return on investment desired, 12 percent
Income tax rate, 30 percent
The restaurant has 60 seats and is open 5 days a week for lunch and dinner only. Lunch revenue is expected to be 40 percent of total volume with 2 seat turnovers. Dinner revenue will be 60 percent of total volume, with 1.25 turnovers. Calculate the average check per meal period that will cover all costs, including desired return on investment.
Aug 29, 2021 | Uncategorized
You have been given the following information on the next page about a hotel for the next year. The hotel has 40 rooms and expected occupancy rate of 70 percent. Rooms department, operating expenses, wages, supplies, laundry, and so on is 27 percent of room’s sales revenue.
a. Calculate the hotel’s average room rate for next year.
b. If the hotel did operate at 30 percent double occupancy and management wanted a $15 spread between the single- and double-room rates, what would these rates be?
|
Administrative and general
|
$ 38,300
|
|
Marketing
|
28,900
|
|
Energy costs
|
35,100
|
|
Repairs and maintenance
|
28,800
|
|
Property taxes
|
17,600
|
|
Insurance
|
4,800
|
|
Telephone department operating loss
|
(9,700)
|
|
Contributory income, food and beverage departments
|
103,200
|
|
First mortgage, at 8% interest, present balance
|
601,000
|
|
Second mortgage, at 12% interest, present balance
|
402,000
|
|
Ownership equity (after-tax return of 15% is expected)
|
280,000
|
|
Book value of fixed assets before depreciation charges:
|
|
|
Land
|
250,000
|
|
Building
|
1,860,000
|
|
Furniture and equipment (combined)
|
382,000
|
|
Depreciation rate on building
|
5%
|
|
Depreciation rate on furniture and equipment (combined)
|
20%
|
|
Income tax rate
|
25%
|
Aug 29, 2021 | Uncategorized
A motel has 30 rooms and expects a 70 percent occupancy next year. The owners’ investment is presently $520,000, and they expect a 12 percent after-tax annual return on their investment. The motel is in a 24 percent tax bracket. The motel is carrying two mortgages: the first mortgage in the amount of $359,000 at a 10 percent interest rate and the second mortgage in the amount of $140,000 at a 14 percent interest rate. Present book value of building is $632,000, and depreciation rate is 5 percent. Present combined book value of furniture and equipment is $117,000, and the combined depreciation rate is 20 percent. Indirect costs are $44,800 and direct costs are $59,300. The motel also receives an additional $12,000 a year leasing out its restaurant.
a. Calculate the motel’s required average room rate to cover all expenses and provide the owners with their desired return on investment.
b. Calculate the average single and double rates, assuming a 60 percent double occupancy and a $12 difference between singles and doubles.
Aug 29, 2021 | Uncategorized
Motley Motel’s potential average room rate is calculated to be $62. Assume that this motel had three market segments. Vacation travelers use 75 percent of the room nights and are charged 100 percent of the rack rate. Business travelers use 15 percent of the room nights and are charged 90 percent of the rack rate. Sports teams account for 10 percent of the room nights and are charged 80 percent of the rack rate.
a. Calculate the room rate by market segment.
b. Prove that your calculations are correct, assuming that total annual room nights are 7,300.
Aug 29, 2021 | Uncategorized
The Inviting Inn has 500 available guest rooms. For a certain week next month, the anticipated transient demand for rooms is as follows:
|
Monday
|
200
|
|
Tuesday
|
200
|
|
Wednesday
|
200
|
|
Thursday
|
200
|
|
Friday
|
100
|
|
Saturday
|
50
|
|
Sunday
|
50
|
The Inn also has committed the following number of rooms for group sales during the same week:
|
Monday
|
200
|
|
Tuesday
|
200
|
|
Wednesday
|
300
|
|
Thursday
|
300
|
|
Friday
|
100
|
|
Saturday
|
100
|
|
Sunday
|
100
|
The Inn has the possibility of booking another group of 100 rooms for the nights of Tuesday, Wednesday, Thursday, and Friday of that week at a discounted rate of $60 per room. The Inn’s rack rate for transient guests is $80, and its marginal cost per room sold is $15.
a. Assuming the new group is booked, calculate the additional net sales revenue (gross sales revenue less marginal costs) to the Inn.
b. What factors, other than net sales revenue, might you consider before committing to this new group sale?
Aug 29, 2021 | Uncategorized
In the case at the end of Chapter 3, you calculated the average food and beverage check for the 4C Company’s 84-seat restaurant in Year 2004. The restaurant was open for 52 weeks, 6 days a week for lunch, and 5 days a week for dinner. An analysis of sales checks indicated that the average turnover was 1.5 times for lunch and 1.25 times for dinner. Lunch contributes about 45 percent of total sales revenue and dinner, 55 percent. Total beverage sales revenue is 20 percent at lunch and 80 percent at dinner.
a. Calculate the average lunch and average dinner checks for food and beverages.
This information will be used in a later case.
b. Suggest to Charlie a number of ways in which he could attempt to raise the average check and the total food and beverage sales revenue for Year 2005.
c. In part b, one of the ways might be to substitute, on the food menu, items with a low selling price for items with a high selling price. Write a short report to Charlie about the effect this might have on the restaurant’s guests, its food cost percentage, and its gross margin and net income.
Aug 29, 2021 | Uncategorized
You are planning to purchase a range and have to make a choice among the following three models:
|
Model 1
|
Model 2
|
Model 3
|
|
Cash cost
|
$ 5,000
|
$ 5,500
|
$ 5,300
|
|
Estimate life
|
5 years
|
5 years
|
5 years
|
|
Trade-in value at end of life
|
$ 1,000
|
$ 1,200
|
$ 800
|
|
Cash from sale of old machine
|
$ 200
|
$ 200
|
$ 200
|
|
Installation of new machine
|
$ 75
|
$ 100
|
$ 100
|
|
Initial training cost in year 1
|
$ 350
|
$ 300
|
$ 250
|
|
Annual maintenance contract
|
$ 300
|
$ 275
|
$ 200
|
|
Annual cost of supplies
|
$ 200
|
$ 200
|
$ 200
|
|
Annual wage costs of employees
|
$32,000
|
$32,000
|
$32,000
|
Aug 29, 2021 | Uncategorized
You have the following monthly information about a large restaurant complex comprising three departments:
|
Dining
|
Coffee
|
|
|
|
Room
|
Shop
|
Lounge
|
Total
|
|
Sales revenue
|
$184,800
|
$135,600
|
$152,900
|
$473,300
|
|
Direct costs
|
(154,600)
|
(129,000)
|
(127,600)
|
(411,200)
|
|
Department income
|
$30,200
|
6600
|
$ 25,300
|
$62,100
|
|
Indirect costs
|
|
|
|
(52,100)
|
|
Operating income
|
|
|
|
$10,100
|
The owner wants to allocate indirect costs to each department based on
square footage to get a better picture of how each department is doing.
|
Dining room
|
1,200 sq. ft.
|
|
Coffee shop
|
840 sq. ft.
|
|
Lounge
|
960 sq. ft.
|
a. Allocate the indirect costs as indicated.
b. The owner has an offer from the souvenir store operator who is willing to rent the coffee shop space for $8,000 a year. Advise the owner whether to accept the offer.
c. Before making a final decision, the owner of the restaurant decides to evaluate the changes to indirect costs if the coffee shop space is rented.
|
Present
|
Costs if Coffee
|
|
Indirect Costs
|
Costs
|
Shop Rented
|
|
Administrative and general
|
$14,100
|
$13,400
|
|
Advertising and promotion
|
9,800
|
9,200
|
|
Utilities
|
4,500
|
4,300
|
|
Repairs and maintenance
|
4,200
|
3,900
|
|
Insurance
|
3,600
|
3,300
|
|
Interest
|
5,400
|
5,400
|
|
Depreciation
|
10,400
|
7,100
|
If the coffee shop is not operated, it is estimated that lounge revenue will decline by $13,600 a year and lounge direct costs will go down by $10,200. Dining room revenue and direct costs will not be affected. Should the owner accept the offer to rent out the coffee shop?
Aug 29, 2021 | Uncategorized
You have the following income statements for each of the four quarters of a restaurant operation:
|
1st Qtr.
|
2nd Qtr.
|
3rd Qtr.
|
4th Qtr.
|
|
Sales revenue
|
$34,200
|
$44,800
|
$37,200
|
$20,300
|
|
Cost of sales
|
(12800)
|
(16,900)
|
(14,700)
|
(8400)
|
|
Gross Margin
|
$21400
|
$27900
|
$22500
|
$11900
|
|
Operating Expenses
|
|
|
|
|
Wages
|
$ 9,800
|
$11,600
|
$10,200
|
$ 7,400
|
|
Supplies
|
1,600
|
1,900
|
1,700
|
900
|
|
Advertising
|
600
|
800
|
700
|
400
|
|
Utilities
|
2,500
|
2,900
|
2,600
|
1,900
|
|
Maintenance
|
300
|
400
|
300
|
200
|
|
Insurance
|
500
|
500
|
500
|
500
|
|
Interest
|
600
|
600
|
600
|
600
|
|
Depreciation
|
400
|
400
|
400
|
400
|
|
Rent
|
3000
|
3000
|
3000
|
3000
|
|
Total expenses
|
$19300
|
$22100
|
$20000
|
$15300
|
|
Operating income (loss)
|
$2,100
|
$5800
|
$2500
|
$3400
|
The owner is contemplating closing the restaurant in the fourth quarter in order to eliminate the loss and take a three-month vacation. The owner has asked for your help, and after an analysis of the fourth-quarter expenses, you determine the following:
Wages: $3,000 is a fixed cost of key personnel who would be kept on the payroll even if the operation were closed for three months.
Supplies: Cost varies directly with sales revenue; none of the supplies costs are fixed.
Advertising: Half of the cost is fixed, the rest is variable.
Utilities: Even if closed for three months, the restaurant will still require some heating; this is expected to cost $100 a month.
Maintenance: Some light maintenance work could be done during the closed period; estimated cost $100.
Insurance: Insurance cost will be reduced $200 if closed for three months.
Interest: Will still have to be paid, even if closed.
Depreciation: With less customer traffic and reduced wear and tear on equipment, there would be a 75 percent reduction in depreciation expense for the fourth quarter.
Rent: This is an annual expense of $12,000 that must be paid regardless of whether the restaurant is open or closed. Explain what advice you would give the owner.
Aug 29, 2021 | Uncategorized
An entrepreneur is contemplating purchasing one of two similar competitive motels and has asked for your advice. Present revenue of each motel is $450,000 per year. Jack’s motel has annual variable costs of 50 percent of sales revenue and fixed costs of $200,000; Jock’s motel has annual variable costs of 60 percent of sales revenue and fixed costs of $155,000. The entrepreneur thinks that, if he purchased Jack’s motel, he could save $10,000 a year on interest expense (a fixed cost). Alternatively, if he purchased Jock’s motel, he could improve staff scheduling to the point that the wage saving would reduce total variable cost to 55 percent. In the case of either purchase, he thinks that sales revenue can be increased by 20 percent a year. Calculate the present net income of each motel, then, given these assumptions, advise the entrepreneur which one he should buy, including any cautionary comments.
Aug 29, 2021 | Uncategorized
A hotel wishes to analyze its electricity cost in its rooms department in terms of fixed and variable elements. Monthly income statements show that during its busiest and slowest months, cost and rooms occupied information is as follows:
|
Rooms Cost
|
Rooms Sold
|
|
Busiest
|
$2,600
|
2,400
|
|
Slowest
|
2,000
|
1,200
|
Use the high–low method to calculate the following:
a. Variable cost per room occupied
b. Total variable cost for the busiest and the slowest month
c. Total fixed cost per month
Aug 29, 2021 | Uncategorized
You have the following information from the records of a restaurant:
|
Sales Revenue
|
Wage Costs
|
|
January
|
$11,100
|
$5,500
|
|
February
|
13,100
|
5,900
|
|
March
|
14,900
|
6,100
|
|
April
|
19,100
|
7,100
|
|
May
|
22,000
|
9,000
|
|
June
|
24,200
|
9,600
|
|
July
|
26,300
|
9,700
|
|
August
|
27,000
|
9,900
|
|
September
|
23,900
|
8,500
|
|
October
|
20,100
|
7,600
|
|
November
|
18,200
|
8,000
|
|
December
|
16,000
|
7,100
|
Use the high–low method to calculate total fixed cost and total variable cost for the year.
Aug 29, 2021 | Uncategorized
Charlie is thinking of spending $3,000 more in year 2004 on advertising (part of marketing expense). Because of his marketing courses, he believes he can design appealing advertisements to be placed in local newspapers and aimed at the business luncheon trade. He estimates that if the ads are placed, they will bring in 15 more people at lunch each day.
The average check for the additional lunch guests would be the same as that calculated in Case 6. Use a 52-week year and the days open from. Assume that the food and beverage total cost of sales percentage will be the same as in year 2004.
To serve the extra guests, a new employee will have to be hired at lunch for four hours. Hourly rate of pay including fringe benefits (a free meal while on duty, vacation pay, and so on) will be $5.42 an hour. The following variable expenses will remain at the same percentage to sales revenue as they were in year 2004:
Laundry
China and tableware
Glassware
Other operating expenses
All other expenses are assumed to be fixed and are unaffected by the increased volume of business. Prepare calculations to show whether the $3,000 should be spent. Refer to the income statement for the 4C Company’s restaurant for year 2004.
Aug 29, 2021 | Uncategorized
The following information pertains to the City of Williamson for 2010, its first year of legal existence. For convenience, assume that all transactions are for the General Fund, which has three separate functions: general government, public safety, and health and sanitation.
|
Receipts:
|
|
Property taxes
|
$320,000
|
|
Franchise taxes
|
42,000
|
|
Charges for general government services
|
5,000
|
|
Charges for public safety services
|
3,000
|
|
Charges for health and sanitation services
|
42,000
|
|
Issued long-term note payable
|
200,000
|
|
Receivables at end of year:
|
|
Property taxes (90 percent estimated to be collectible)
|
90,000
|
|
Payments:
|
|
Salary:
|
|
General government
|
66,000
|
|
Public safety
|
39,000
|
|
Health and sanitation
|
22,000
|
|
Rent:
|
|
General government
|
11,000
|
|
Public safety
|
18,000
|
|
Health and sanitation
|
3,000
|
|
Maintenance:
|
|
General government
|
21,000
|
|
Public safety
|
5,000
|
|
Health and sanitation
|
9,000
|
|
Insurance:
|
|
General government
|
8,000
|
|
Public safety ($2,000 still prepaid at end of year)
|
11,000
|
|
Health and sanitation
|
12,000
|
|
Interest on debt
|
16,000
|
|
Principal payment on debt
|
4,000
|
|
Building
|
120,000
|
|
Equipment
|
80,000
|
|
Supplies (20 percent still held) (public safety)
|
15,000
|
|
Investments
|
90,000
|
|
Ordered but not received:
|
|
Equipment
|
12,000
|
|
Due in one month at end of year:
|
|
Salaries:
|
|
General government
|
4,000
|
|
Public safety
|
7,000
|
|
Health and sanitation
|
8,000
|
Compensated absences for general government workers at year-end total $13,000. These amounts will not be taken until late in the year 2011.
The city received a piece of art this year valued at $14,000 that it is using for general government purposes. There are no eligibility requirements. The city chose not to capitalize this property.
The general government uses the building that was acquired and is depreciating it over 10 years using the straight-line method with no salvage value. The city uses the equipment for health and sanitation and depreciates it using the straight-line method over five years with no salvage value. The investments are valued at $103,000 at the end of the year.
For the equipment that has been ordered but not yet received, the City Council (the highest decision-making body in the government) has voted to honor the commitment when the equipment is received.
a. Prepare a statement of activities and a statement of net assets for governmental activities for December 31, 2010, and the year then ended.
b. Prepare a statement of revenues, expenditures, and other changes in fund balances and a balance sheet for the General Fund as of December 31, 2010, and the year then ended. Assume that the city applies the consumption method.
Aug 29, 2021 | Uncategorized
The City of Bernard starts the year of 2010 with the following unrestricted amounts in its General Fund: cash of $20,000 and investments of $70,000. In addition, it holds a building bought on January 1, 2009, for general government purposes for $300,000 and related long-term debt of $240,000. The building is being depreciated on the straight-line method over 10 years. The interest rate is 10 percent. The General Fund has four separate functions: general government, public safety, public works, and health and sanitation. Other information includes the following:
|
Receipts:
|
|
Property taxes
|
$510,000
|
|
Sales taxes
|
99,000
|
|
Dividend income
|
20,000
|
|
Charges for general government services
|
15,000
|
|
Charges for public safety services
|
8,000
|
|
Charges for public works
|
4,000
|
|
Charges for health and sanitation services
|
31,000
|
|
Charges for landfill
|
8,000
|
|
Grant to be used for salaries for health workers
|
|
(no eligibility requirements)
|
25,000
|
|
Issued long-term note payable
|
200,000
|
|
Sold above investments
|
84,000
|
|
Receivables at year end:
|
|
Property taxes ($10,000 is expected to be uncollectible)
|
130,000
|
|
Payments:
|
|
Salary:
|
|
General government
|
90,000
|
|
Public safety
|
94,000
|
|
Public works
|
69,000
|
|
Health and sanitation (all from grant)
|
22,000
|
|
Utilities:
|
|
General government
|
9,000
|
|
Public safety
|
16,000
|
|
Public works
|
13,000
|
|
Health and sanitation
|
4,000
|
|
Insurance:
|
|
General government
|
25,000
|
|
Public safety
|
12,000
|
|
Public works (all prepaid as of the end of the year)
|
6,000
|
|
Health and sanitation
|
4,000
|
|
Miscellaneous:
|
|
General government
|
12,000
|
|
Public safety
|
10,000
|
|
Public works
|
9,000
|
|
Health and sanitation
|
7,000
|
|
Interest on previous debt
|
24,000
|
|
Principal payment on previous debt
|
10,000
|
|
Interest on new debt
|
18,000
|
|
Building (public works)
|
210,000
|
|
Equipment (public safety)
|
90,000
|
|
Public works supplies (30 percent still held)
|
20,000
|
|
Investments
|
111,000
|
|
Ordered but not received:
|
|
Equipment
|
24,000
|
|
Supplies
|
7,000
|
|
Due at end of year:
|
|
Salaries:
|
|
General government
|
14,000
|
|
Public safety
|
17,000
|
|
Public works
|
5,000
|
The city leased a truck on the last day of the year. The first payment will be made at the end of the next year. Total payments will amount to $90,000 but have a present value of $64,000.
The city started a landfill this year that it is recording within its General Fund. It is included as a public works function. Closure costs today would be $260,000 although the landfill is not expected to be filled for nine more years. The city has incurred no costs to date although the landfill is now 15 percent filled.
For the equipment and supplies that have been ordered but not yet received, the City Council (the highest decision-making body in the government) has voted to honor the commitment when the items are received.
The new building is being depreciated over 20 years using the straight-line method and no salvage value, whereas depreciation of the equipment is similar except that its life is only 10 years.
Assume the city records a full year’s depreciation in the year of acquisition. The investments are valued at $116,000 at year-end.
a. Prepare a statement of activities and a statement of net assets for governmental activities for December 31, 2010, and the year then ended.
b. Prepare a statement of revenues, expenditures, and changes in fund balances and a balance sheet for the General Fund as of December 31, 2010, and the year then ended. Assume that the purchases method is being applied.
Aug 29, 2021 | Uncategorized
The City of Pfeiffer starts the year of 2010 with the General Fund and an enterprise fund. The General Fund has two activities: education and parks/recreation. For convenience, assume that the General Fund holds $123,000 cash and a new school building costing $1 million. The city utilizes straight-line depreciation. The building has a 20-year life and no salvage value. The enterprise fund has $62,000 cash and a new $600,000 civic auditorium with a 30-year life and no salvage value. The enterprise fund monitors just one activity, the rental of the civic auditorium for entertainment and other cultural affairs.
The following transactions for the city take place during 2010. Assume that the city’s fiscal year ends on December 31.
a. Decides to build a municipal park and transfers $70,000 into a capital projects fund and immediately expends $20,000 for a piece of land. The creation of this fund and this transfer were made by the highest level of government authority.
b. Borrows $110,000 cash on a long-term bond for use in creating the new municipal park.
c. Assesses property taxes on the first day of the year. The assessment, which is immediately enforceable, totals $600,000. Of this amount, $510,000 will be collected during 2010 and another $50,000 is expected in the first month of 2011. The remainder is expected about halfway through 2011.
d. Constructs a building in the park in (b) for $80,000 cash for playing basketball and other sports. It is put into service on July 1 and should last 10 years with no salvage value.
e. Builds a sidewalk around the new park for $10,000 cash and puts it into service on July 1. It should last for 10 years, but the city plans to keep it up to a predetermined quality level so that it will last almost indefinitely.
f. Opens the park and charges an entrance fee of only a token amount so that it records the park, therefore, in the General Fund. Collections during this first year total $8,000.
g. Buys a new parking deck for $200,000, paying $20,000 cash and signing a long-term note for the rest. The parking deck, which is to go into operation on July 1, is across the street from the civic auditorium and is considered part of that activity. It has a 20-year life and no salvage value.
h. Receives a $100,000 cash grant for the city school system that must be spent for school unches for the poor. Appropriate spending of these funds is viewed as an eligibility requirement of this grant. During the current year, $37,000 of the amount received was properly spent.
i. Charges students in the school system a total fee of $6,000 for books and the like. Of this amount, 90 percent is collected during 2010 with the remainder expected to be collected in the first few weeks of 2011.
j. Buys school supplies for $22,000 cash and uses $17,000 of them. The General Fund uses the purchases method.
k. Receives a painting by a local artist to be displayed in the local school. It qualifies as a work of art, and officials have chosen not to capitalize it. The painting has a value of $80,000. It is viewed as inexhaustible.
l. Transfers $20,000 cash from the General Fund to the Enterprise Fund as a capital contribution.
m. Orders a school bus for $99,000.
n. Receives the school bus and pays an actual cost of $102,000. The bus is put into operation on October 1 and should last for five years with no salvage value.
o. Pays salaries of $240,000 to schoolteachers. In addition, owes and will pay $30,000 during the first two weeks of 2011. Vacations worth $23,000 have also been earned but will not be taken until July 2011.
p. Pays salaries of $42,000 to city auditorium workers. In addition, owes and will pay $3,000 in the first two weeks of 2011. Vacations worth $5,000 have also been earned but will not be taken until July 2011.
q. Charges customers $130,000 for the rental of the civic auditorium. Of this balance, collected $110,000 in cash and will collect the remainder in April 2011.
r. Pays $9,000 maintenance charges for the building and sidewalk in (d) and (e).
s. Pays $14,000 on the bond in (b) on the last day of 2010: $5,000 principal and $9,000 interest.
t. Accrues interest of $13,000 on the note in (g) as of the end of 2010, an amount that it will pay in June 2011.
u. Assumes that a museum that operates within the city is a component unit that will be discretely presented. The museum reports to city officials that it had $42,000 of direct expenses this past year and $50,000 in revenues from admission charges. The only assets that it had at year-end were cash of $24,000, building (net of depreciation) of $300,000, and a long-term liability of $210,000.
Prepare the 2010 government-wide financial statements for this city. Assume the use of the modified approach.
Aug 29, 2021 | Uncategorized
The City of Wolfe has issued its financial statements for Year 4 (assume that the city uses a calendar year). The city maintains the General Fund made up of two functions: (1) education and (2) parks. The city also utilizes capital projects funds for ongoing construction and an enterprise fund to account for its art museum. It also has one discretely presented component unit.
The government-wide financial statements indicated the following Year 4 totals:
Education had net expenses of $710,000.
Parks had net expenses of $130,000.
Art museum had net revenues of $80,000.
General revenues were $900,000; the overall increase in net assets was $140,000.
The fund-based financial statements issued for Year 4 indicated the following:
The General Fund had an increase of $30,000 in its fund balance.
The Capital Projects Fund had an increase of $40,000 in its fund balance.
The Enterprise Fund had an increase of $60,000 in its net assets.
Officials for Wolfe define “available” as current financial resources to be paid or collected within 60 days.
On the first day of Year 4, the city receives a painting as a gift that qualifies as a work of art. It has a 30-year life, is worth $15,000, and is being displayed at one of the local parks. The accountant accidentally capitalized and depreciated it although officials had wanted to use the allowed alternative. Respond to the following:
a. According to the information provided, the General Fund reported a $30,000 increase in its fund balance. If city officials had used proper alternatives in this reporting, what would have been the correct change in the fund balance for the General Fund for the year?
b. According to the information provided, the parks reported net expenses of $130,000. If city officials had used proper alternatives in this reporting, what was the correct net expense for parks for the year?
c. Assume the same information except that the art was given to the art museum but not recorded at all. What should have been the overall change in net assets for Year 4 on government-wide financial statements, assuming that officials still preferred the allowed alternative?
Aug 29, 2021 | Uncategorized
The City of Wolfe has issued its financial statements for Year 4 (assume that the city uses a calendar year). The city maintains the General Fund made up of two functions: (1) education and (2) parks. The city also utilizes capital projects funds for ongoing construction and an enterprise fund to account for its art museum. It also has one discretely presented component unit.
The government-wide financial statements indicated the following Year 4 totals:
Education had net expenses of $710,000.
Parks had net expenses of $130,000.
Art museum had net revenues of $80,000.
General revenues were $900,000; the overall increase in net assets was $140,000.
The fund-based financial statements issued for Year 4 indicated the following:
The General Fund had an increase of $30,000 in its fund balance.
The Capital Projects Fund had an increase of $40,000 in its fund balance.
The Enterprise Fund had an increase of $60,000 in its net assets.
Officials for Wolfe define “available” as current financial resources to be paid or collected within 60 days.
On January 1, Year 4, the government leased a police car for five years at $20,000 per year with the first payment being made on December 31, Year 4. This is a capitalized lease. Assume that, at a reasonable interest rate of 10 percent, the present value of a five-year annuity due is $62,000. In the government-wide financial statements, the government recorded a $20,000 increase in expense and a $20,000 reduction in cash as its only entry. In the fund-based financial statements, the government increased Expenditures by $20,000 and reduced Cash for $20,000 as its only entry.
a. According to the information provided, the overall increase in net assets reported was $140,000. What was the correct overall change in the net assets in the government-wide financial statements?
b. According to the information provided, the General Fund reported an increase of $30,000 in its fund balance. What was the correct change in the fund balance for the General Fund?
Aug 29, 2021 | Uncategorized
The City of Wolfe has issued its financial statements for Year 4 (assume that the city uses a calendar year). The city maintains the General Fund made up of two functions: (1) education and (2) parks. The city also utilizes capital projects funds for ongoing construction and an enterprise fund to account for its art museum. It also has one discretely presented component unit.
The government-wide financial statements indicated the following Year 4 totals:
Education had net expenses of $710,000.
Parks had net expenses of $130,000.
Art museum had net revenues of $80,000.
General revenues were $900,000; the overall increase in net assets was $140,000.
The fund-based financial statements issued for Year 4 indicated the following:
The General Fund had an increase of $30,000 in its fund balance.
The Capital Projects Fund had an increase of $40,000 in its fund balance.
The Enterprise Fund had an increase of $60,000 in its net assets.
Officials for Wolfe define “available” as current financial resources to be paid or collected within 60 days.
Assume that the one component unit had program revenues of $30,000 and expenses of $42,000 and spent $10,000 for land during Year 4. However, it should have been handled as a blended component unit, not as a discretely presented component unit. According to the information provided, the overall increase in net assets reported was $140,000. What was the correct overall change in the net assets in the government-wide financial statements?
Aug 29, 2021 | Uncategorized
The City of Wolfe has issued its financial statements for Year 4 (assume that the city uses a calendar year). The city maintains the General Fund made up of two functions: (1) education and (2) parks. The city also utilizes capital projects funds for ongoing construction and an enterprise fund to account for its art museum. It also has one discretely presented component unit.
The government-wide financial statements indicated the following Year 4 totals:
Education had net expenses of $710,000.
Parks had net expenses of $130,000.
Art museum had net revenues of $80,000.
General revenues were $900,000; the overall increase in net assets was $140,000.
The fund-based financial statements issued for Year 4 indicated the following:
The General Fund had an increase of $30,000 in its fund balance.
The Capital Projects Fund had an increase of $40,000 in its fund balance.
The Enterprise Fund had an increase of $60,000 in its net assets.
Officials for Wolfe define “available” as current financial resources to be paid or collected within 60 days.
The city maintains a landfill that has been recorded within its parks. The landfill generated program revenues of $4,000 in Year 4 and cash expenses of $15,000. It also paid $3,000 cash for a piece of land. These transactions were recorded as would have been anticipated, but no other recording was made this year. The city assumes that it will have to pay $200,000 to clean up the landfill when it is closed in several years. The landfill was 18 percent filled at the end of Year 3 and is 26 percent filled at the end of Year 4. No payments will be necessary for several more years. For convenience, assume that the entries in all previous years were correctly handled regardless of the situation.
a. The city believes that the landfill was included correctly in all previous years as one of its Enterprise Funds. According to the information provided, the overall increase in net assets reported was $140,000. What is the correct overall change in the net assets in the government-wide financial statements?
b. The city believes that the landfill was included correctly in all previous years in one of the Enterprise Funds. According to the information provided, the Enterprise Fund reported an increase in its net assets of $60,000. What is the correct change in the net assets of the Enterprise Fund in the fund-based financial statements?
c. The city believes that the landfill was included correctly in all previous years within the General Fund. What is the correct change in the fund balance of the General Fund?
Aug 29, 2021 | Uncategorized
Identify whether each of the following activities represents preventive controls, detective controls, or corrective controls:
o Job rotation
o Preparation of a bank reconciliation
o Segregation of duties
o Recalculating totals on computer reports
o Use of passwords
o Preparing batch totals for check processing
o Establishing a code of ethics
o Use of a security guard
o Verifying source documents before recording transactions
o Matching supporting documents before paying an invoice
o Independent review of accounting reports
o Performing comparisons of financial statement items
Aug 29, 2021 | Uncategorized
Shown are a list of selected sources of internal control guidelines, given in order of issuance, followed by a list of primary purposes. Match each guideline with its primary purpose.
- Foreign Corrupt Practices Act
- COSO
- SAS 99
- Sarbanes–Oxley Act
- Trust Services Principles
- Required auditors to focus on risks and controls and to conduct audits with skepticism
- Prevented bribery and established internal control guidelines
- Curbed fraud by requiring additional internal control reporting within annual reports
- Established internal control concepts based on comprehensive study
- Established essential criteria for evaluating reliability of business systems
Aug 29, 2021 | Uncategorized
Using a search engine on the Internet, search for articles on fraud that occurred in 2000 to 2002 in the following companies:
Adelphia
Enron
Global Crossing
WorldCom
Xerox
Try to locate articles or information about stock prices, how the fraud was conducted. You might wish to look at the following websites: edgar.sec.gov,
Required:
A. Find information to help you complete the following table:
|
Compmy Name
|
Met
Description
a Fraud
|
Position of Those Conducting Fraud
|
Stock Price
When Fraud
Itia.s
Unmyered
|
Stock Price
One Year
Later
|
Shares
Outstanding
|
Loss to
Investors
|
|
Adelphia
|
|
|
|
|
|
|
|
Enron
|
|
|
|
|
|
|
|
Global Crossing
|
|
|
|
|
|
|
|
WorldCom
|
|
|
|
|
|
|
|
Xerox
|
|
|
|
|
|
|
B. Discuss the common characteristics that you see in each of these examples.
Aug 29, 2021 | Uncategorized
The following description is excerpted from “Coupon Accounting Abuse,” Management Accounting, January 1993, p. 47.
It”s November 15, and Larry, brand manager for a major consumer products firm, is contemplating his year-end bonus. It is becoming increasingly obvious that unless he takes action, he will not achieve his brand profitability target for the year. Larry”s eyes fall to the expense estimate for the new coupon “drop” slated for later in the month. His hand trembles slightly as he erases the 4 percent anticipated redemption rate on his estimate sheet and replaces the figure with 2 percent. Larry knows from experience that 2 percent is an unrealistically low figure, but he also knows that neither the firm”s independent nor internal auditors will seriously challenge the estimate. This way, Larry”s product profitability report will reflect the increased revenue associated with the coupon “drop” this year, but the entire redemption cost will not be expressed until next year.
“That should put me over,” he muses. A wry smile crosses his face. “If the auditors question the rate, I”ll give them a story about seasonality and shifting consumer patterns. They won”t know enough about marketing to question my story.” Eventually, of course, the real cost of the coupon drop will have to be expensed, and that will hurt next year”s profit figure. “But, that”s next year,” Larry reasons, “and I can always figure out a way to make it up. Besides, by the end of next quarter, I”ll be handling a bigger brand—if I can show a good profit this year.”
A brief description of coupons and proper accounting for coupons might help us to interpret the situation just presented. Coupons are “cents-off” privileges, such as $0.50 off when you buy a certain brand of yogurt. When a company offers coupons to consumers, it must estimate the redemption rate and record an expense and the corresponding liability. This is similar in concept to warranty expenses.
Required:
- Discuss whether the situation described can happen to a company with a good control environment.
- Describe any steps a company could take to prevent such abuse.
- List those parties who might be harmed by this situation.
- Do you consider this example to be management fraud or employee fraud? Describe how it fits the definition of your choice.
Aug 29, 2021 | Uncategorized
The CEO of Mega Motor Company, Leland Brocamp, resigned on November 1, 2002. His resignation had been negotiated with the Board of Directors of Mega Motor after it was revealed that Mr. Brocamp violated the company”s corporate ethics policy by having an affair with a subordinate employee. The policy forbids intimate relationships with anyone who “works through his or her management chain.” This resignation essentially forced him into early retirement.
During the next year, the College of Business at Bozeman State University hired Mr. Brocamp as a part-time instructor to teach business strategy courses. The dean of the college suggested that the relationship was a personal matter and that Mr. Brocamp”s wealth of experience is beneficial to students. Some who supported the hiring pointed out that other faculty members are not questioned about their personal lives. Others suggested that since management ethics is so important, someone who violated a company ethics policy should not be teaching students about the proper management of organizations.
Required:
- Discuss whether Mr. Brocamp”s violation of corporate ethics policy affects or reflects the control environment of the company.
- Since the violation is personal in nature, should Mr. Brocamp have been forced to resign?
- Should Bozeman State have hired him to teach business strategy courses?
Aug 29, 2021 | Uncategorized
Janie Ray frequently makes purchases from mail-order catalogs. Recently, she ordered a dress she intended to wear to her cousin”s wedding. Unfortunately, she did not receive the package on time, and on the evening before the wedding, Janie went shopping and purchased another outfit at a local dress shop.
Janie”s neighbor, Steve, actually received the mail order package intended for Janie. Because Steve had been out of town last week, he had not had the chance to promptly bring the package to Janie”s house. Even though the box correctly showed Janie”s name and address, it appears that the carrier merely left the package on the doorstep of the wrong house.
Disgusted with this chain of events, Janie decided to claim that she had never received the package. After all, she was not able to wear the dress for its intended purposes; she should not have to pay for it. Moreover, the carrier was not able to provide proof of delivery.
Required:
- Discuss which type of fraud is involved in this case, from the perspective of the mail order company.
- Which of the AICPA Trust Services Principles most closely relates to this situation?
- Describe a preventive control that could be performed by the carrier to avoid the possible recurrence of this type of fraud.
Aug 29, 2021 | Uncategorized
Evan Charter agreed to help his fraternity obtain sponsors for its annual charitable event to be held during Homecoming week. He accepted this responsibility at the recommendation of last year”s fund-raiser, who told Evan that the task would require approximately ten hours of time and would likely result in total sponsorships of $1000.
After spending approximately ten hours calling on previous sponsors, Evan felt that he had hit a brick wall. For many reasons, most of last year”s sponsors were unwilling to continue their involvement with this annual fund-raiser. Evan needed to look for additional sources of funding. He spent several hours researching potential new contributors and finally located a database containing a list of businesses within the local zip code. Since the list included e-mail addresses, Evan developed a letter of request and e-mailed it to all these businesses.
The response was overwhelming. Evan collected over $3000 from this new pool of business contacts. While compiling the checks received to turn over to the fraternity treasurer, Evan noticed that one business had made its $200 check payable to Evan personally.
Rationalizing that the additional time he had spent on the project and the success he was able to achieve were worthy of compensation, Evan decided to keep this one check. He wrote a letter of acknowledgment to the donor and deposited the $200 in his personal account.
Required:
- Do you think Evan”s actions were justified? What would you have advised him to do in this situation?
- What internal control activities could the fraternity have implemented in order to prevent Evan”s actions?
- Can you think of a detective control that could uncover the omission of the $200 check?
Aug 29, 2021 | Uncategorized
A company has the following invoices in a batch:
|
Invoice no.
|
Product I.D.
|
Quantity
|
Unit price
|
|
401
|
H42
|
150
|
$30.00
|
|
402
|
K56
|
200
|
$25.00
|
|
403
|
H42
|
250
|
$10.00
|
|
404
|
L27
|
300
|
$5.00
|
Which of the following numbers represents a valid record count?
- 1
- 4
- 70
- 900
Aug 29, 2021 | Uncategorized
A police department leases a car on July 1, Year 1, with five annual payments of $20,000 each. It immediately makes the first payment, and the present value of the annuity due is $78,000 based on an assumed rate of 10 percent. The car has a five-year life. Assume that this is a capitalized lease. Indicate whether each of the following independent statements is true or false and briefly explain each answer.
a. The fund-based financial statements will show a total liability of $3,900 at the end of Year 1.
b. The government-wide financial statements will show a total liability of $58,000 at the end of Year 1.
c. The government-wide financial statements will show total interest expense of $2,900 in Year 1.
d. The fund-based financial statements will show total expenditures of $20,000 in Year 1.
e. The government-wide financial statements will show a net leased asset of $70,200 at the end of Year 1.
f. If this were an ordinary annuity so that the first payment was made in Year 2, no expenditure would be reported in the fund-based financial statements in Year 1.
g. If the car had an eight-year useful life, this contract could not be a capitalized lease.
h. Over the entire life of the car, the amount of expense recognized in the government-wide financial statements will be the same as the amount of expenditures recognized in the fund-based financial statements.
Aug 29, 2021 | Uncategorized
A city has a solid waste landfill that was filled 12 percent in Year 1 and 26 percent in Year 2. During those periods, the government expected that total closure costs would be $2 million. As a result, it paid $50,000 to an environmental company on July 1 of each of these two years. Such payments will continue for several years to come. Indicate whether each of the following independent statements is true or false and briefly explain each answer.
a. The government-wide financial statements will show a $230,000 expense in Year 2 but only if reported in an enterprise fund.
b. The fund-based financial statements will show a $50,000 liability in Year 2 if this landfill is reported in the General Fund.
c. The fund-based financial statements will show a $50,000 liability at the end of Year 2 if this landfill is reported in an enterprise fund.
d. If this landfill is reported in an enterprise fund, the government-wide financial statements and the fund-based financial statements will basically have the same reporting.
e. The government-wide financial statements will show a $420,000 liability at the end of Year 2.
f. Over the landfill’s entire life, the amount of expense recognized in the government-wide financial statements will be the same as the amount of expenditures recognized in the fund-based financial statements.
Aug 29, 2021 | Uncategorized
Use the same information as in problem 50 except that, by the end of Year 3, the landfill is 40 percent filled. The city realizes that the total closure costs will be $3 million. Indicate whether each of the following independent statements is true or false and briefly explain each answer.
a. If the city had known the costs were going to be $3 million from the beginning, the reporting on the fund-based financial statements would have been different in the past years if the landfill had been reported in an enterprise fund.
b. If the landfill is monitored in the General Fund, a liability will be reported for the governmental activities in the government-wide financial statements at the end of Year 3.
c. A $680,000 expense should be recognized in Year 3 in the government-wide financial statements.
d. Because the closure costs reflect a future flow of cash, any liability reported in the governmentwide financial statements must be reported at present value.
Aug 29, 2021 | Uncategorized
A city receives a copy of its original charter from the year 1799 as a gift from a citizen. The document will be put under glass and displayed in the city hall for all to see. The fair value is estimated at $10,000. Indicate whether each of the following independent statements is true or false and briefly explain each answer.
a. If the city government does not have a policy for handling any proceeds if it ever sells the document, the city must report a $10,000 asset within its government-wide financial statements.
b. Assume that this gift qualifies for optional handling and that the city chooses to report it as an asset. For the government-wide financial statements, depreciation is required.
c. Assume this gift qualifies for optional handling and the document is deemed to be exhaustible.
The city must report an immediate expense of $10,000 in the government-wide financial statements.
d. Assume that this gift qualifies for optional handling. The city must make a decision as to whether to recognize a revenue of $10,000 in the government-wide financial statements.
e. Assume that this gift qualifies for optional handling. The city can choose to report the gift in the statement of net activities for the government-wide financial statements in a way so that there is no overall net effect.
Aug 29, 2021 | Uncategorized
A city starts a public library that has separate incorporation and gets some of its money from the state and some from private donations. Indicate whether each of the following independent statements is true or false and briefly explain each answer.
a. If the city appoints 7 of the 10 directors, it must report the library as a component unit.
b. If the library is a component unit and its financial results are shown as part of the governmental activities of the city, it is known as a blended component unit.
c. If the library appoints its own board but the city must approve its budget, the library must be reported as a blended component unit.
d. The choice of whether a component unit is blended or reported discretely is up to the city’s discretion.
Aug 29, 2021 | Uncategorized
Which of the following is not correct regarding the ways that real-time systems differ from batch systems?
|
Real-time Systems
|
Batch Systems
|
|
a. Must use direct access files.
|
Can use simple sequential files.
|
|
b. Processing occurs on demand.
|
Processing must be scheduled.
|
|
c. Processing choices are menu-driven.
|
Processing is interactive.
|
|
d. Supporting documents are prepared as items are processed.
|
Supporting documents are prepared during scheduled runs.
|
Aug 29, 2021 | Uncategorized
A company in Florida provides certified flight-training programs for aspiring new pilots of small aircraft. Although awarding a pilot”s license requires one-on-one flight time, there is also much preparatory training conducted in classroom settings. The company needs to create a conceptual data model for its classroom training program, using an entity-relationship diagram. The company provided the following information:
Floridian Flight, Inc., has ten instructors who can teach up to 30 pilot trainees per class. The company offers ten different courses, and each course may generate up to eight classes.
Identify the entities that should be included in the entity-relationship diagram:
- Instructor, Floridian Flight Inc., pilot trainee
- Instructor, Floridian Flight Inc., course, enrollment, class
- Floridian Flight Inc., enrollment, course, class, pilot trainee
- Instructor, course, enrollment, class, pilot trainee
Aug 29, 2021 | Uncategorized
A city government has a nine-year capital lease for property being used within the General Fund. The lease was signed on January 1, 2010. Minimum lease payments total $90,000 starting at the end of the first year but have a current present value of $69,000. Annual payments are $10,000, and the interest rate being applied is 10 percent. When the first payment is made on December 31, 2010, which of the following recordings is made?
|
Government-Wide Statements
|
Fund-Based Statements
|
|
a. Interest Expense $–0–
|
Interest Expense $–0–
|
|
b. Interest Expense $6,900
|
Expenditures $6,900
|
|
c. Expenditures $10,000
|
Expenditures $10,000
|
|
d. Interest Expense $6,900
|
Expenditures $10,000
|
Aug 29, 2021 | Uncategorized
A city starts a solid waste landfill that it expects to fill to capacity gradually over a 10-year period. At the end of the first year, it is 8 percent filled. At the end of the second year, it is 19 percent filled. Currently, the cost of closure and postclosure is estimated at $1 million. None of this amount will be paid until the landfill has reached its capacity.
Which of the following is true for the Year 2 government-wide financial statements?
a. Both expense and liability will be zero.
b. Both expense and liability will be $110,000.
c. Expense will be $110,000 and liability will be $190,000.
d. Expense will be $100,000 and liability will be $200,000.
Aug 29, 2021 | Uncategorized
A city starts a solid waste landfill that it expects to fill to capacity gradually over a 10-year period. At the end of the first year, it is 8 percent filled. At the end of the second year, it is 19 percent filled. Currently, the cost of closure and postclosure is estimated at $1 million. None of this amount will be paid until the landfill has reached its capacity.
If this landfill is judged to be a proprietary fund, what liability will be reported at the end of the second year on fund-based financial statements?
a. $–0–.
b. $110,000.
c. $190,000.
d. $200,000.
Aug 29, 2021 | Uncategorized
A city starts a solid waste landfill that it expects to fill to capacity gradually over a 10-year period. At the end of the first year, it is 8 percent filled. At the end of the second year, it is 19 percent filled. Currently, the cost of closure and postclosure is estimated at $1 million. None of this amount will be paid until the landfill has reached its capacity.
If this landfill is judged to be a governmental fund, what liability will be reported at the end of the second year on fund-based financial statements?
a. $–0–.
b. $110,000.
c. $190,000.
d. $200,000.
Aug 29, 2021 | Uncategorized
For component units, what is the difference in discrete presentation and blending?
a. A blended component unit is shown to the left of the statements; a discretely presented component unit is shown to the right.
b. A blended component unit is shown at the bottom of the statements; a discretely presented component unit is shown within the statements like a fund.
c. A blended component unit is shown within the statements like a fund; a discretely presented component unit is shown to the right.
d. A blended component unit is shown to the right of the statements; a discretely presented component unit is shown in completely separate statements.
Aug 29, 2021 | Uncategorized
Government-wide financial statements make a distinction between program revenues and general revenues. How is that difference shown?
a. Program revenues are offset against the expenses of a specific function; general revenues are assigned to governmental activities and business-type activities in general.
b. General revenues are shown at the top of the statement of revenues and expenditures; program revenues are shown at the bottom.
c. General revenues are labeled as operating revenues; program revenues are shown as miscellaneous income.
d. General revenues are broken down by type; program revenues are reported as a single figure for the government.
Aug 29, 2021 | Uncategorized
Which of the following is true about the statement of cash flows for the proprietary funds of a state or local government?
a. The indirect method of reporting cash flows from operating activities is allowed although the direct method is recommended.
b. The structure of the statement is virtually identical to that of a for-profit business.
c. The statement is divided into four separate sections of cash flows.
d. Amounts spent on capital assets are reported in a separate section from amounts raised to finance those capital assets.
Aug 29, 2021 | Uncategorized
Which of the following is most likely to be true about the financial reporting of a public college or university?
a. It resembles the financial reporting of private colleges and universities.
b. It will continue to use its own unique style of financial reporting.
c. It resembles the financial reporting made by a proprietary fund within the fund-based financial statements for a state or local government.
d. It will soon be reported using a financial statement format unique to the needs of public colleges and universities that GASB is scheduled to create.
Aug 29, 2021 | Uncategorized
On January 1, 2010, a city entered into the following leases for equipment items. Each of the leases qualifies as a capital lease. Initial payments are on December 31, 2010. An interest rate of 12 percent is viewed as appropriate. No bargain purchase options exist.
|
Fund
|
Annual Payments
|
Total Payments
|
Present Value of Total Payments
|
|
General (10-year life)
|
$3,000
|
$30,000
|
$19,000
|
|
Enterprise (4-year life)
|
9,000
|
36,000
|
30,600
|
a. Prepare journal entries for the year 2010 for both of these leases for government-wide financial statements.
b. Prepare journal entries for the year 2010 for both of these leases for fund-based financial statements.
Aug 29, 2021 | Uncategorized
On January 1, 2010, the City of Verga leased a large truck for five years and made the initial annual payment of $22,000 immediately. The present value of these payments based on an 8 percent interest rate is assumed to be $87,800. The truck has an expected useful life of five years.
a. Assuming that the city’s fire department will use the truck, what journal entries should be made for 2010 and 2011 on the government-wide financial statements?
b. Assuming that city’s fire department will use the the truck, what journal entries should be made for 2010 and 2011 on the fund-based financial statements?
c. Assuming that the airport (an enterprise fund) operated by the city will use the truck, what journal entries should be made for 2010 and 2011 on the fund-based financial statements?
Aug 29, 2021 | Uncategorized
On January 1, 2010, the City of Hastings created a solid waste landfill that it expects to reach capacity gradually over the next 20 years. If the landfill were to be closed at the current time, closure costs would be approximately $1.2 million plus an additional $700,000 for postclosure work. Of these totals, the city must pay $50,000 on December 31 of each year for preliminary closure work. At the end of 2010, the landfill reached 3 percent of capacity. At the end of 2011, the landfill reached 9 percent of capacity. Also at the end of 2011, a reassessment is made; total closure costs are determined to be $1.4 million rather than $1.2 million.
a. Assuming that the landfill is viewed as an enterprise fund, what journal entries are made in 2010 and 2011 on the government-wide financial statements?
b. Assuming that the landfill is reported within the general fund, what journal entries are made in 2010 and 2011 on the government-wide financial statements?
c. Assuming that the landfill is viewed as an enterprise fund, what journal entries are made in 2010 and 2011 on fund-based financial statements?
d. Assuming that the landfill is reported within the general fund, what journal entries are made in 2010 and 2011 on fund-based financial statements?
Aug 29, 2021 | Uncategorized
The City of Lawrence opens a solid waste landfill in 2010 that is at 54 percent of capacity on December 31, 2010. The city had initially anticipated closure costs of $2 million but later that year decided that closure costs would actually be $2.4 million. None of these costs will be incurred until 2017 when the landfill is scheduled to be closed.
a. What will appear on the government-wide financial statements for this landfill for the year ended December 31, 2010?
b. Assuming that the landfill is recorded within the General Fund, what will appear on the fundbased financial statements for this landfill for the year ended December 31, 2010?
Aug 29, 2021 | Uncategorized
Mary T. Lincoln works for the City of Columbus. She volunteered to work over the 2010 Christmas break to earn a short vacation during the first week of January 2011. She earns three vacation days and will be paid $400 per day. She takes her vacation in January and is paid for those days.
a. Prepare the journal entries on the government-wide financial statements for 2010 and 2011 because of these events.
b. Assume that Lincoln works in an activity reported within the General Fund. Prepare journal entries for the fund-based financial statements for 2010 and 2011 because of these events.
c. Assume that Lincoln works in an activity reported within the General Fund but that she does not plan to take her three vacation days until near the end of 2011. What journal entries should be made for the fund-based financial statements in 2010 and 2011?
Aug 29, 2021 | Uncategorized
On January 1, 2010, a rich citizen of the Town of Ristoni donates a painting valued at $300,000 to be displayed to the public in a government building. Although this painting meets the three criteria to qualify as an artwork, town officials choose to record it as an asset. There are no eligibility requirements for the gift. The asset is judged to be inexhaustible so that depreciation will not be reported.
a. For the year ended December 31, 2010, what will be reported on government-wide financial statements in connection with this gift?
b. How does the answer to requirement (a) change if the government decides to depreciate this asset over a 10-year period using straight-line depreciation?
c. How does the answer to requirement (a) change if the government decides not to capitalize the asset?
Aug 29, 2021 | Uncategorized
On January 1, 2010, a city pays $60,000 for a work of art to display in the local library. The city will take appropriate measures to protect and preserve the piece. However, if the work is ever sold, the money received will go into unrestricted funds. The work is viewed as inexhaustible, but the city has opted to depreciate this cost over 20 years (using the straight-line method).
a. How is this work be reported on the government-wide financial statements for the year ended December 31, 2010?
b. How is this work be reported in the fund-based financial statements for the year ended December 31, 2010?
Aug 29, 2021 | Uncategorized
A city government adds street lights within its boundaries at a total cost of $100,000. The lights should burn for at least 10 years but can last significantly longer if maintained properly. The city sets up a system to monitor these lights with the goal that 97 percent will be working at any one time. During the year, the city spends $6,300 to clean and repair the lights so that they are working according to the specified conditions. However, it spends another $9,000 to construct lights for several new streets in the city.
Describe the various ways these costs could be reported on government-wide statements.
Aug 29, 2021 | Uncategorized
The City of Francois, Texas, has begun the process of producing its current comprehensive annual financial report (CAFR). Several organizations that operate within the city are related in some way to the primary government. The city’s accountant is attempting to determine how these organizations should be included in the reporting process.
a. What is the major criterion for inclusion in a government’s CAFR?
b. How does an activity or function qualify as a special purpose government?
c. How is the legal separation of a special purpose government evaluated?
d. How is the fiscal independence of a special purpose government evaluated?
e. What is a component unit, and how is it normally reported on government-wide financial statements?
f. How does a primary government prove that it can impose its will on a component unit?
g. What does the blending of a component unit mean?
Aug 29, 2021 | Uncategorized
The County of Maxnell decides to create a sanitation department and offer its services to the public for a fee. As a result, county officials plan to account for this activity within the enterprise funds. Make journal entries for this operation for the following 2010 transactions as well as necessary adjusting entries at the end of the year. Assume that the information is being gathered for fund-based financial statements. Only entries for the sanitation department are required here:
January 1—Received unrestricted funds of $90,000 from the General Fund as permanent financing.
February 1—Borrowed an additional $130,000 from a local bank at a 12 percent annual interest rate.
March 1—Ordered a truck at an expected cost of $108,000.
April 1—Received the truck and made full payment. The actual cost amounted to $110,000. The truck has a 10-year life and no salvage value. Straight-line depreciation is to be used.
May 1—Received a $20,000 cash grant from the state to help supplement the pay of the sanitation workers. The money must be used for that purpose.
June 1—Rented a garage for the truck at a cost of $1,000 per month and paid 12 months of rent in advance.
July 1—Charged citizens $13,000 for services. Of this amount, $11,000 has been collected.
August 1—Made a $10,000 cash payment on the 12 percent note of February 1. This payment covers both interest and principal.
September 1—Paid salaries of $18,000 using the grant received on May 1.
October 1—Paid truck maintenance costs of $1,000.
November 1—Paid additional salaries of $10,000, first using the rest of the grant money received May 1.
December 31—Sent invoices totaling $19,000 to customers for services over the past six months. Collected $3,000 cash immediately.
Aug 29, 2021 | Uncategorized
Prepare journal entries for a local government to record the following transactions, first for fundbased financial statements and then for government-wide financial statements.
a. The government sells $900,000 in bonds at face value to finance construction of a warehouse.
b. A $1.1 million contract is signed for construction of the warehouse.
c. A $130,000 transfer of unrestricted funds was made for the eventual payment of the debt in (a).
d. Equipment for the fire department is received with a cost of $12,000. When it was ordered, an anticipated cost of $11,800 had been recorded.
e. Supplies to be used in the schools are bought for $2,000 cash. The consumption method is used.
f. A state grant of $90,000 is awarded to supplement police salaries. The money will be paid to reimburse the government after the supplements have been paid to the police officers.
g. Property tax assessments are mailed to citizens of the government. The total assessment is $600,000, although officials anticipate that 4 percent will never be collected. There is an enforceable legal claim for this money and the government can use it immediately.
Aug 29, 2021 | Uncategorized
Following are descriptions of transactions and other financial events for the City of Tetris for the year ending December 2010. Not all transactions have been included here. Only the General Fund formally records a budget. No encumbrances were carried over from 2009.
|
Paid salary for police officers
|
$21,000
|
|
Received government grant to pay ambulance drivers
|
40,000
|
|
Estimated revenues
|
232,000
|
|
Received invoices for rent on equipment used by fire department
during last four months of the year
|
3,000
|
|
Paid for newly constructed city hall
|
1,044,000
|
|
Made commitment to acquire ambulance
|
111,000
|
|
Received cash from bonds sold for construction purposes
|
300,000
|
|
Placed order for new sanitation truck
|
154,000
|
|
Paid salary to ambulance drivers—money derived from state
government grant given for that purpose
|
24,000
|
|
Paid for supplies for school system
|
16,000
|
|
Made transfer from General Fund to eventually pay off a long-term debt
|
33,000
|
|
Received but did not pay for new ambulance
|
120,000
|
|
Levied property tax receivables for 2010 City anticipates that
|
|
95 percent ($190,000) will be collected during the year and 5 percent
will be uncollectible
|
200,000
|
|
Acquired and paid for new school bus
|
40,000
|
|
Received cash from business licenses and parking meters
(not previously accrued)
|
14,000
|
|
Made appropriations
|
225,000
|
The following questions are independent although each is based on the preceding information. Assume that the government is preparing information for its fund-based financial statements.
a. What is the balance in the Budgetary Fund Balance account for the budget for the year? Is it a debit or credit?
b. Assume that 60 percent of the school supplies are used during the year so that 40 percent remain. If the consumption method is being applied, how is this recorded?
c. The sanitation truck that was ordered was not received before the end of the year. The commitment will be honored in the subsequent year when the truck arrives. What reporting is made at the end of 2010?
d. Assume that the ambulance was received on December 31, 2010. Provide all necessary journal entries on that date.
e. Give all journal entries that should have been made when the $33,000 transfer was made to eventually pay off a long-term debt.
f. What amount of revenue would be recognized for the period? Explain the composition of this total.
g. What are the total expenditures? Explain the makeup of this total. Include (b) here.
h. What journal entry or entries were prepared when the bonds were issued?
Aug 29, 2021 | Uncategorized
The following trial balance is taken from the General Fund of the City of Jennings for the year ending December 31, 2010. Prepare a condensed statement of revenues, expenditures, and other changes in fund balance and also prepare a condensed balance sheet.
|
Debit
|
Credit
|
|
Accounts Payable
|
$90,000
|
|
Cash
|
$30,000
|
|
Contracts Payable
|
90,000
|
|
Deferred Revenues
|
40,000
|
|
Due from Capital Projects Funds
|
60,000
|
|
Due to Debt Service Funds
|
40,000
|
|
Expenditures
|
510,000
|
|
Fund Balance—Unassigned
|
170,000
|
|
Investments
|
410,000
|
|
Revenues
|
740,000
|
|
Other Financing Sources—Bond Proceeds
|
300,000
|
|
Other Financing Sources—Transfers In
|
50,000
|
|
Other Financing Uses—Transfers Out
|
470,000
|
|
Taxes Receivable
|
220,000
|
|
Vouchers Payable
|
180,000
|
|
Totals
|
$1,700,000
|
$1,700,000
|
Aug 29, 2021 | Uncategorized
A city has only one activity, its school system. The school system is accounted for within the General Fund. For convenience, assume that, at the start of 2010, the school system and the city have no assets. During the year, the city assessed $400,000 in property taxes. Of this amount, it collected $320,000 during the year, received $50,000 within a few weeks after the end of the year, and expected the remainder to be collected about six months later. The city makes the following payments during 2010: salary expense, $100,000; rent expense, $70,000; equipment (received on January 1 with a five-year life and no salvage value), $50,000; land, $30,000; and maintenance expense, $20,000. In addition, on the last day of the year, the city purchased a $200,000 building by signing a long-term liability. The building has a 20-year life and no salvage value, and the liability accrues interest at a 10 percent annual rate. The city also buys two computers on the last day of the year for $4,000 each. One will be paid for in 30 days and the other in 90 days. The computers should last for four years and have no salvage value. During the year, the school system charged students $3,000 for school fees and collected the entire amount. Any depreciation is recorded using the straight-line method.
a. Produce a statement of net assets and a statement of activities for this city’s government-wide financial statements.
b. Produce a balance sheet and a statement of revenues, expenditures, and changes in fund balance for the fund-based financial statements. Assume that available is defined by the city as anything to be received within 60 days.
Aug 29, 2021 | Uncategorized
The following transactions relate to the General Fund of the city of Lost Angel for the year ending December 31, 2010. Prepare a statement of revenues, expenditures, and other changes in fund balance for the General Fund for the period to be included in the fund-based financial statements. Assume that the fund balance at the beginning of the year was $180,000. Assume also that the purchases method is applied to the supplies and that receipt within 60 days is used as the definition of available resources.
a. Collected property tax revenue of $700,000. A remaining assessment of $100,000 will be collected in the subsequent period. Half of that amount should be collected within 30 days, and the remainder will be received in about five months after the end of the year.
b. Spent $200,000 on four new police cars with 10-year lives. A price of $207,000 had been anticipated when the cars were ordered. The city calculates all depreciation using the straight-line method with no salvage value. The half-year convention is used.
c. Transferred $90,000 to a debt service fund.
d. Issued a long-term bond for $200,000 on July 1. Interest at a 10 percent annual rate will be paid each year starting on June 30, 2011.
e. Ordered a new computer with a five-year life for $40,000.
f. Paid salaries of $30,000. Another $10,000 will be owed at the end of the year but will not be paid for 30 days.
g. Received the new computer but at a cost of $41,000; payment to be made in 45 days.
h. Bought supplies for $10,000 in cash.
i. Used $8,000 of the supplies in (h).
Aug 29, 2021 | Uncategorized
Government officials of the City of Jones expect to receive General Fund revenues of $400,000 in 2010 but approve spending only $380,000. Later in the year, as they receive more information, they increase the revenue projection to $420,000. Officials approve the spending of an additional $15,000. For each of the following, indicate whether the statement is true or false and, if false, explain why.
a. In recording this budget, appropriations should be credited initially for $380,000.
b. The city must disclose this budgetary data within the required supplemental information section reported after the notes to the financial statements.
c. When reporting budgetary information for the year, three figures should be reported: amended budget, initial budget, and actual figures.
d. In making the budgetary entry, a debit must be made to some type of Fund Balance account to indicate the projected surplus.
e. The reporting of the budget is reflected in the government-wide financial statements.
Aug 29, 2021 | Uncategorized
On December 1, 2010, a state government awards a city government a grant of $1 million to be used specifically to provide hot lunches for all schoolchildren. No money is received until June 1, 2011. For each of the following, indicate whether the statement is true or false and, if false, explain why.
a. Because the government received no money until June 1, 2011, no amount of revenue can be recognized in 2010 on the government-wide financial statements.
b. If this grant has no eligibility requirements and the money is properly spent in September 2011 for the hot lunches, the revenue should be recognized during that September.
c. Because the money came from the state government and because the government specified the use, this is a government-mandated nonexchange transaction.
d. If the government had received the money on December 1, 2010, but eligibility requirements had not been met yet, a deferred revenue of $1 million would have been recognized on the governmentwide financial statements.
e. The rules for recognition of this revenue were created by GASB Statement 34.
Aug 29, 2021 | Uncategorized
Fund A transfers $20,000 to Fund B. For each of the following, indicate whether the statement is true or false and, if false, explain why.
a. If Fund A is the General Fund and Fund B is an Enterprise Fund, nothing will be shown for this transfer on the statement of activities within the government-wide financial statements.
b. If Fund A is the General Fund and Fund B is a Debt Service Fund, nothing will be shown for this transfer on the statement of activities within the government-wide financial statements.
c. If Fund A is the General Fund and Fund B is an Enterprise Fund, a $20,000 reduction will be reported on the statement of revenues, expenditures, and other changes for the governmental funds within the fund-based financial statements.
d. If Fund A is the General Fund and Fund B is a Special Revenue Fund (which is not considered a major fund), no changes will be shown on the statement of revenues, expenditures, and other changes within the fund-based financial statements.
e. If Fund A is the General Fund and Fund B is an Internal Service Fund and this is for work done, the General Fund will report an expense of $20,000 within the fund-based financial statements.
Aug 29, 2021 | Uncategorized
Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended. The city’s General Fund was only for education and parks. Its Capital Projects Funds worked with each of these functions at times. The city also had established an Enterprise Fund to account for its art museum.
The government-wide financial statements indicated the following figures:
• Education reported net expenses of $600,000.
• Parks reported net expenses of $100,000.
• Art museum reported net revenues of $50,000.
• General government revenues for the year were $800,000 with an overall increase in the city’s net assets of $150,000.
The fund-based financial statements indicated the following for the entire year:
• The General Fund reported a $30,000 increase in its fund balance.
• The Capital Projects Fund reported a $40,000 increase in its fund balance.
• The Enterprise Fund reported a $60,000 increase in its net assets.
The CPA firm of Abernethy and Chapman has been asked to review several transactions that occurred during 2010 and indicate how to correct any erroneous reporting and the impact of each error. View each situation as independent.
During 2010, the City of Coyote contracted to build a sidewalk costing $10,000 as a special assessments project for which it collected $10,000 from affected citizens. The government had no obligation in connection with this project. Both a $10,000 revenue and a $10,000 expenditure were recorded in the Capital Projects Fund. In preparing government-wide financial statements, an asset and a general revenue were recorded for $10,000.
a. In the general information, the Capital Projects Fund reported a $ 40,000 increase in its fund balance. What was the correct overall change in the Capital Projects Fund’s balance during 2010?
b. In the general information, a $150,000 overall increase in the city’s net assets was found on the government-wide financial statements. What was the correct overall change in the city’s net assets on the government-wide financial statements?
Aug 29, 2021 | Uncategorized
Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended. The city’s General Fund was only for education and parks. Its Capital Projects Funds worked with each of these functions at times. The city also had established an Enterprise Fund to account for its art museum.
The government-wide financial statements indicated the following figures:
• Education reported net expenses of $600,000.
• Parks reported net expenses of $100,000.
• Art museum reported net revenues of $50,000.
• General government revenues for the year were $800,000 with an overall increase in the city’s net assets of $150,000.
The fund-based financial statements indicated the following for the entire year:
• The General Fund reported a $30,000 increase in its fund balance.
• The Capital Projects Fund reported a $40,000 increase in its fund balance.
• The Enterprise Fund reported a $60,000 increase in its net assets.
The CPA firm of Abernethy and Chapman has been asked to review several transactions that occurred during 2010 and indicate how to correct any erroneous reporting and the impact of each error. View each situation as independent.
An art display set up for the community was recorded within the General Fund and generated revenues of $9,000 but had expenditures of $45,000 ($15,000 in expenses and $30,000 to buy land for the display). The CPA firm has determined that this program should have been recorded as an Enterprise Fund activity because it was offered in association with the art museum.
a. What was the correct change in the General Fund’s balance for 2010?
b. What was the correct overall change in the city’s net assets on the government-wide financial statements?
c. What was the correct change in the net assets of the Enterprise Fund on the fund-based financial statements?
Aug 29, 2021 | Uncategorized
Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended. The city’s General Fund was only for education and parks. Its Capital Projects Funds worked with each of these functions at times. The city also had established an Enterprise Fund to account for its art museum.
The government-wide financial statements indicated the following figures:
• Education reported net expenses of $600,000.
• Parks reported net expenses of $100,000.
• Art museum reported net revenues of $50,000.
• General government revenues for the year were $800,000 with an overall increase in the city’s net assets of $150,000.
The fund-based financial statements indicated the following for the entire year:
• The General Fund reported a $30,000 increase in its fund balance.
• The Capital Projects Fund reported a $40,000 increase in its fund balance.
• The Enterprise Fund reported a $60,000 increase in its net assets.
The CPA firm of Abernethy and Chapman has been asked to review several transactions that occurred during 2010 and indicate how to correct any erroneous reporting and the impact of each error. View each situation as independent.
The City of Coyote mailed property tax bills for 2011 to its citizens during August 2010. Payments could be made early to receive a discount. The levy becomes legally enforceable on February 15, 2011. All money received must be spent during 2011 or later. The total assessment is $300,000; 40 percent of that amount, less a 10 percent discount, is collected in 2010. The city expects to receive all of the remaining money during 2011 with no discount. During 2010, the government increased cash as well as a revenue for the amount received. No change was made in creating the governmentwide financial statements.
a. What was the correct overall change in the city’s net assets as shown on the government-wide financial statements?
b. What was the correct change for 2010 in the fund balance reported in the General Fund?
Aug 29, 2021 | Uncategorized
Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended. The city’s General Fund was only for education and parks. Its Capital Projects Funds worked with each of these functions at times. The city also had established an Enterprise Fund to account for its art museum.
The government-wide financial statements indicated the following figures:
• Education reported net expenses of $600,000.
• Parks reported net expenses of $100,000.
• Art museum reported net revenues of $50,000.
• General government revenues for the year were $800,000 with an overall increase in the city’s net assets of $150,000.
The fund-based financial statements indicated the following for the entire year:
• The General Fund reported a $30,000 increase in its fund balance.
• The Capital Projects Fund reported a $40,000 increase in its fund balance.
• The Enterprise Fund reported a $60,000 increase in its net assets.
The CPA firm of Abernethy and Chapman has been asked to review several transactions that occurred during 2010 and indicate how to correct any erroneous reporting and the impact of each error. View each situation as independent.
The City of Coyote mailed property tax bills for 2011 to its citizens during August 2010. Payments could be made early to receive a discount. The levy becomes legally enforceable on February 15, 2011. All money received must be spent during 2011 or later. The total assessment is $300,000, and 40 percent of that amount is collected in 2010 less a 10 percent discount. The city expects to receive all the rest of the money during 2011 with no discount. During 2010, the government increased cash and a revenue for the amount received. In addition, a receivable account and a deferred revenue account for $180,000 were recognized.
a. In the general information, an overall increase in the city’s net assets of $150,000 was found on the government-wide financial statements. What was the correct overall change in the city’s net assets as reported on the government-wide financial statements?
b. In the general information, an overall increase of $30,000 was reported in the General Fund balance. What was the correct change during 2010 in the General Fund’s balance?
Aug 29, 2021 | Uncategorized
Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended. The city’s General Fund was only for education and parks. Its Capital Projects Funds worked with each of these functions at times. The city also had established an Enterprise Fund to account for its art museum.
The government-wide financial statements indicated the following figures:
• Education reported net expenses of $600,000.
• Parks reported net expenses of $100,000.
• Art museum reported net revenues of $50,000.
• General government revenues for the year were $800,000 with an overall increase in the city’s net assets of $150,000.
The fund-based financial statements indicated the following for the entire year:
• The General Fund reported a $30,000 increase in its fund balance.
• The Capital Projects Fund reported a $40,000 increase in its fund balance.
• The Enterprise Fund reported a $60,000 increase in its net assets.
The CPA firm of Abernethy and Chapman has been asked to review several transactions that occurred during 2010 and indicate how to correct any erroneous reporting and the impact of each error. View each situation as independent.
In 2010, the City of Coyote received a $320,000 cash grant from the state to stop air pollution. Assume that although a special revenue fund could have been set up, the money remained in the General Fund. Cash was received immediately but had to be returned if the city had not lowered air pollution by 25 percent by 2013. On December 31, 2010, Coyote spent $210,000 of this money for a large machine to help begin to reduce pollution. The machine is expected to last for five years and was recorded as an expenditure in the General Fund and as an asset on the government-wide financial statements where it was depreciated based on the straight-line method and the half-year convention. Because the money had been received, all $320,000 was recorded as a revenue on both the fund-based and the government-wide financial statements.
a. What was the correct change for 2010 in the General Fund’s balance?
b. What was the correct overall change in the net assets reported on the government-wide financial statements?
Aug 29, 2021 | Uncategorized
Assume that the City of Coyote has already produced its financial statements for December 31, 2010, and the year then ended. The city’s General Fund was only for education and parks. Its Capital Projects Funds worked with each of these functions at times. The city also had established an Enterprise Fund to account for its art museum.
The government-wide financial statements indicated the following figures:
• Education reported net expenses of $600,000.
• Parks reported net expenses of $100,000.
• Art museum reported net revenues of $50,000.
• General government revenues for the year were $800,000 with an overall increase in the city’s net assets of $150,000.
The fund-based financial statements indicated the following for the entire year:
• The General Fund reported a $30,000 increase in its fund balance.
• The Capital Projects Fund reported a $40,000 increase in its fund balance.
• The Enterprise Fund reported a $60,000 increase in its net assets.
The CPA firm of Abernethy and Chapman has been asked to review several transactions that occurred during 2010 and indicate how to correct any erroneous reporting and the impact of each error. View each situation as independent.
During 2010, the City of Coyote’s General Fund received $10,000, which was recorded as a general revenue when it was actually a program revenue earned by its park program.
a. What was the correct overall change for 2010 in the net assets reported on the government-wide financial statements?
b. In the general information, the parks reported net expenses for the period of $100,000. What was the correct amount of net expenses reported by the parks?
Aug 29, 2021 | Uncategorized
The City of Hampshore is currently preparing financial statements for the past fiscal year. The city manager is concerned because the city encountered some unusual transactions during the current fiscal period and is unsure as to their handling.
Required
Use a copy of GASB Statement 34 to answer each of the following questions.
1. For government accounting, what is the definition of extraordinary item?
2. For government accounting, what is the definition of special item?
3. On government-wide financial statements, how should extraordinary items and special items be reported?
Aug 29, 2021 | Uncategorized
Search the Internet for the official Web site of one or more state or local governments. After reviewing this Web site, determine whether the latest comprehensive annual financial report (CAFR) is available on the site. For example, the most recent comprehensive annual financial report for the City of Sacramento can be found at www.cityofsacramento.org/cafr/ and the comprehensive annual financial report for the City of Phoenix can be found at http://phoenix.gov/menu/cityfinfinance.html. Use the financial statements that you locate to answer the following questions.
Required
1. How does the audit opinion given to this city by its independent auditors differ from the audit opinion rendered on the financial statements for a for-profit business?
2. A reconciliation should be presented to explain the difference between the net changes in fund balances for the governmental funds (fund-based financial statements) and the change in net assets for the governmental activities (government-wide financial statements). What were several of the largest reasons for the difference?
3. What were the city’s largest sources of general revenues?
4. What was the total amount of expenditures recorded by the General Fund during the period? How were those expenditures classified?
5. What assets are reported for the General Fund?
6. Review the notes to the financial statements and then determine the number of days the government uses to define the end-of-year financial resources that are viewed as currently available.
7. Did the size of the General Fund balance increase or decrease during the most recent year and by how much?
Aug 29, 2021 | Uncategorized
The following is a series of transactions for a city. Indicate how the city reports each transaction within the government-wide financial statements and then on the fund-based financial statements. Assume that the city follows a policy of considering resources as available if they will be received within 60 days. Incurred liabilities are assumed to be claims to current resources if they will be paid within 60 days.
1. Borrowed money by issuing a 20-year bond for $3 million, its face value. This money is to be used to construct a highway around the city.
2. Transferred cash of $100,000 from the General Fund to the debt service funds to make the first payment of principal and interest on the bond in (1).
3. Paid the cash in (2) on the bond. Of this total, $70,000 represents interest; the remainder reduces the principal of the bond payable.
4. Completed construction of the highway and paid the entire $3 million.
5. The highway is expected to last for 30 years. However, the government qualifies to use the modified approach, which it has adopted for this system. A $35,000 cost is incurred during the year to maintain the highway at an appropriate, predetermined condition. Of this amount, $29,000 was paid immediately but the other $6,000 will not be paid until the sixth month of the subsequent year.
6. Received lights for the new highway donated from a local business. The lights are valued at $200,000 and should last for 20 years. The modified approach is not used for this network of infrastructure, but straight-line depreciation is applied using the half-year convention.
7. Leased a truck to maintain the new highway. The lease qualifies as a capital lease. The present value of the minimum payments is $70,000. Depreciation for this year is $10,000 and interest is $6,000. A single $11,000 payment in cash is made.
8. Recorded cash revenues of $2 million from the local subway system and made salary expense payments of $300,000 to its employees.
9. Opened a solid waste landfill at the beginning of the year that will be used for 20 years. This year an estimated 4 percent of the capacity was filled. The city anticipates closure and post closure requirements will be $2 million based on current cost figures although no costs have been incurred to date.
Aug 29, 2021 | Uncategorized
Classify each of the following as a revenue process, expenditure process, conversion process, or administrative process:
- Selling common stock to raise capital
- Purchasing electronic components to manufacture DVD players
- Moving electronic components from the stockroom to the production floor to begin making DVD players
- Paying employees at the end of a payroll period
- Preparing financial statements
- Receiving cash payments from customers
- Buying fixed assets
- Moving manufactured DVD players from the production floor to the warehouse
Aug 29, 2021 | Uncategorized
Each of the points listed next represents an internal control that may be implemented within a company”s accounting information system to reduce various risks. For each point, identify the appropriate business process (revenue, expenditure, conversion, administrative). In addition, refer to the description of business processes under Study Objective 2 in this chapter, and identify the appropriate subprocess. (Some subprocesses may be used more than once, and others may not be used at all.)
- Customer credit must be authorized before a business transaction takes place.
- An authorized price list of goods for sale is provided.
- A shipping report is prepared for all shipments of goods so that customers may be billed in a timely manner.
- Access to personnel files and paycheck records is available only in accordance with management specifications.
- New vendors are required to be authorized before a business transaction takes place.
- Access to cash is restricted to those employees authorized by management.
- Costs of goods manufactured is properly summarized, classified, recorded, and reported.
- Amounts due to vendors are reconciled by comparing company records with statements received from the vendors.
- Employee wage rates and paycheck deductions must be authorized by management.
- Specific procedures such as the performance of a background check are carried out for all new employee hires.
- The purchasing manager is notified when stock levels are low so that items may be restocked to prevent backorders.
- Two signatures are required on checks for payments in excess of $5000.
- When excess cash is on hand, the funds are invested in short-term securities.
- Goods received are inspected, and any damaged or unmatched items are promptly communicated to the vendor.
- The monthly bank statement is reconciled to the company”s cash records by an outside accountant.
Aug 29, 2021 | Uncategorized
Culpe”s Cues Co. is a small manufacturing operation that makes and sells pool cues for sporting goods stores and billiard halls in Baltimore, Maryland, and the surrounding local area. James Culpe and his wife, Rebecca, are the owners and only employees.
James Culpe purchases all of the materials needed to make pool cues, including wood, paint, hardware, and supplies. All purchases are made from local suppliers, and all payments are made in cash at the time of the purchase. James Culpe is responsible for making the pool cues. He also handles all telephone calls and replacements, and he personally delivers all finished products.
All sales are conducted on account via the Internet. An order is received electronically through the company’s Rebecca Culpe prints the orders and forwards them to her husband in the workshop. Mrs. Culpe is also responsible for website design and maintenance, as well as all accounting and customer collections.
Address the following questions regarding Culpe”s Cues:
- What are the business processes that apply to this business?
- How the business would processes change if Culpe”s Cues expanded to a regional focus?
- How the business would processes change if Culpe”s Cues began selling pool balls and other billiard equipment in addition to cues?
Aug 29, 2021 | Uncategorized
A partnership has gone through liquidation and now reports the following account balances:
|
Cash
|
$16,000
|
|
Loan from Jones
|
3,000
|
|
Wayman, capital
|
(2,000) (deficit)
|
|
Jones, capital
|
(5,000) (deficit)
|
|
Fuller, capital
|
13,000
|
|
Rogers, capital
|
7,000
|
Profits and losses are allocated on the following basis: Wayman, 30 percent; Jones, 20 percent;
Fuller, 30 percent; and Rogers, 20 percent. Which of the following events should occur now?
a. Jones should receive $3,000 cash because of the loan balance.
b. Fuller should receive $11,800 and Rogers $4,200.
c. Fuller should receive $10,600 and Rogers $5,400.
d. Jones should receive $3,000, Fuller $8,800, and Rogers $4,200.
Aug 29, 2021 | Uncategorized
A local partnership has only two assets (cash of $10,000 and land with a cost of $35,000). All liabilities have been paid and the following capital balances are currently being recorded. The partners share profits and losses as follows. All partners are insolvent.
|
Brown, capital (40%)
|
$25,000
|
|
Fish, capital (30%)
|
15,000
|
|
Stone, capital (30%)
|
5,000
|
a. If the land is sold for $25,000, how much cash does each partner receive in a final settlement?
b. If the land is sold for $15,000, how much cash does each partner receive in a final settlement?
c. If the land is sold for $5,000, how much cash does each partner receive in a final settlement?
Aug 29, 2021 | Uncategorized
A local dental partnership has been liquidated and the final capital balances are as follows:
|
Atkinson, capital (40% of all profits and losses)
|
$60,000
|
|
Kaporale, capital (30%)
|
20,000
|
|
Dennsmore, capital (20%)
|
30,000
|
|
Rasputin, capital (10%)
|
50,000
|
If Rasputin contributes additional cash of $20,000 to the partnership, what should happen to it?
Aug 29, 2021 | Uncategorized
A partnership currently holds three assets: cash, $10,000; land, $35,000; and a building, $50,000.
The partners anticipate that expenses required to liquidate their partnership will amount to $5,000. Capital balances are as follows:
|
Ace, capital
|
$25,000
|
|
Ball, capital
|
28,000
|
|
Eaton, capital
|
20,000
|
|
Lake, capital
|
22,000
|
The partners share profits and losses as follows: Ace (30%), Ball (30%), Eaton (20%), and Lake (20%). If a preliminary distribution of cash is to be made, how much will each partner receive?
Aug 29, 2021 | Uncategorized
The following condensed balance sheet is for the partnership of Hardwick, Saunders, and Ferris, who share profits and losses in the ratio of 4:3:3, respectively:
|
Cash
|
$90,000
|
Accounts payable
|
$210,000
|
|
Other assets
|
820,000
|
Ferris, loan
|
40,000
|
|
Hardwick, loan
|
30,000
|
Hardwick, capital
|
300,000
|
|
Saunders, capital
|
200,000
|
|
Ferris, capital
|
190,000
|
|
Total assets
|
$940,000
|
Total liabilities and capital
|
$940,000
|
The partners decide to liquidate the partnership. Forty percent of the other assets are sold for $200,000. Prepare a proposed schedule of liquidation.
Aug 29, 2021 | Uncategorized
The following condensed balance sheet is for the partnership of Miller, Tyson, and Watson, who share profits and losses in the ratio of 6:2:2, respectively:
|
Cash
|
$40,000
|
Liabilities
|
$70,000
|
|
Other assets
|
140,000
|
Miller, capital
|
50,000
|
|
Tyson, capital
|
50,000
|
|
Watson, capital
|
10,000
|
|
Total assets
|
$180,000
|
Total liabilities and capital
|
$180,000
|
For how much money must the other assets be sold so that each partner receives some amount of cash in a liquidation?
Aug 29, 2021 | Uncategorized
A partnership has liquidated all assets but still reports the following account balances:
|
Loan from White
|
$6,000
|
|
Black, capital
|
3,000
|
|
White, capital
|
(9,000) (deficit)
|
|
Green, capital
|
(3,000) (deficit)
|
|
Brown, capital
|
15,000
|
|
Blue, capital
|
(12,000) (deficit)
|
The partners split profits and losses as follows: Black, 30 percent; White, 30 percent; Green, 10 percent; Brown, 20 percent; and Blue, 10 percent.
Assuming that all partners are personally insolvent except for Green and Brown, how much cash must Green now contribute to this partnership?
Aug 29, 2021 | Uncategorized
The following balance sheet is for a local partnership in which the partners have become very unhappy with each other.
|
Cash
|
$40,000
|
Liabilities
|
$30,000
|
|
Land
|
130,000
|
Adams, capital
|
80,000
|
|
Building
|
120,000
|
Baker, capital
|
30,000
|
|
Carvil, capital
|
60,000
|
|
Dobbs, capital
|
90,000
|
|
Total assets
|
$290,000
|
Total liabilities and capital
|
$290,000
|
To avoid more conflict, the partners have decided to cease operations and sell all assets. Using this information, answer the following questions. Each question should be viewed as an independent situation related to the partnership’s liquidation.
a. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 2:3:3:2 basis, respectively, how will the $10,000 be divided?
b. The $10,000 cash that exceeds the partnership liabilities is to be disbursed immediately. If profits and losses are allocated on a 2:2:3:3 basis, respectively, how will the $10,000 be divided?
c. The building is immediately sold for $70,000 to give total cash of $110,000. The liabilities are then paid, leaving a cash balance of $80,000. This cash is to be distributed to the partners. How much of this money will each partner receive if profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:3:3 basis, respectively?
d. Assume that profits and losses are allocated to Adams, Baker, Carvil, and Dobbs on a 1:3:4:2 basis, respectively. How much money must the firm receive from selling the land and building to ensure that Carvil receives a portion?
Aug 29, 2021 | Uncategorized
The partnership of Larson, Norris, Spencer, and Harrison has decided to terminate operations and liquidate all business property. During this process, the partners expect to incur $8,000 in liquidation expenses. All partners are currently solvent.
The balance sheet reported by this partnership at the time that the liquidation commenced follows. The percentages indicate the allocation of profits and losses to each of the four partners.
|
Cash
|
$28,250
|
Liabilities
|
$47,000
|
|
Accounts receivable
|
44,000
|
Larson, capital (20%)
|
15,000
|
|
Inventory
|
39,000
|
Norris, capital (30%)
|
60,000
|
|
Land and buildings
|
23,000
|
Spencer, capital (20%)
|
75,000
|
|
Equipment
|
104,000
|
Harrison, capital (30%)
|
41,250
|
|
Total assets
|
$238,250
|
Total liabilities and capital
|
$238,250
|
Based on the information provided, prepare a predistribution plan for liquidating this partnership.
Aug 29, 2021 | Uncategorized
The following partnership is being liquidated:
|
Cash
|
$36,000
|
Liabilities
|
$50,000
|
|
Noncash assets
|
174,000
|
Able, loan
|
10,000
|
|
Able, capital (20%)
|
40,000
|
|
Moon, capital (30%)
|
60,000
|
|
Yerkl, capital (50%)
|
50,000
|
a. Liquidation expenses are estimated to be $12,000. Prepare a predistribution schedule to guide the distribution of cash.
b. Assume that assets costing $28,000 are sold for $40,000. How is the available cash to be divided?
Aug 29, 2021 | Uncategorized
A local partnership is to be liquidated. Commissions and other liquidation expenses are expected to total $19,000. The business’s balance sheet prior to the commencement of liquidation is as follows:
|
Cash
|
$27,000
|
Liabilities
|
$40,000
|
|
Noncash assets
|
254,000
|
Simpson, capital (20%)
|
18,000
|
|
Hart, capital (40%)
|
40,000
|
|
Bobb, capital (20%)
|
48,000
|
|
Reidl, capital (20%)
|
135,000
|
|
Total assets
|
$281,000
|
Total liabilities and capital
|
$281,000
|
Prepare a predistribution plan for this partnership.
Aug 29, 2021 | Uncategorized
Part B
The partnership of Sampson, Klingon, Carton, and Romulan is being liquidated. It currently holds cash of $9,000 but no other assets. Liabilities amount to $24,000. The capital balances are as follows:
|
Sampson
|
$9,000
|
|
Klingon
|
17,000
|
|
Carton
|
5,000
|
|
Romulan
|
12,000
|
Profits and losses are allocated on the following basis: Sampson, 40 percent, Klingon, 20 percent, Carton, 30 percent, and Romulan, 10 percent.
a. If both Klingon and Romulan are personally insolvent, how much money must Carton contribute to this partnership?
b. If only Romulan is personally insolvent, how much money must Klingon contribute? How will these funds be disbursed?
c. If only Klingon is personally insolvent, how much money should Sampson receive from the liquidation?
Aug 29, 2021 | Uncategorized
March, April, and May have been in partnership for a number of years. The partners allocate all profits and losses on a 2:3:1 basis, respectively. Recently, each partner has become personally insolvent and, thus, the partners have decided to liquidate the business in hope of remedying their personal financial problems. As of September 1, the partnership’s balance sheet is as follows:
|
Cash
|
$11,000
|
Liabilities
|
$61,000
|
|
Accounts receivable
|
84,000
|
March, capital
|
25,000
|
|
Inventory
|
74,000
|
April, capital
|
75,000
|
|
Land, building, and equipment (net)
|
38,000
|
May, capital
|
46,000
|
|
Total assets
|
$207,000
|
Total liabilities and capital
|
$207,000
|
Prepare journal entries for the following transactions:
a. Sold all inventory for $56,000 cash.
b. Paid $7,500 in liquidation expenses.
c. Paid $40,000 of the partnership’s liabilities.
d. Collected $45,000 of the accounts receivable.
e. Distributed safe cash balances; the partners anticipate no further liquidation expenses.
f. Sold remaining accounts receivable for 30 percent of face value.
g. Sold land, building, and equipment for $17,000.
h. Paid all remaining liabilities of the partnership.
i. Distributed cash held by the business to the partners.
Aug 29, 2021 | Uncategorized
The partnership of W, X, Y, and Z has the following balance sheet:
|
Cash
|
$30,000
|
Liabilities
|
$42,000
|
|
Other assets
|
220,000
|
W, capital (50% of profits and losses)
|
60,000
|
|
X, capital (30%)
|
78,000
|
|
Y, capital (10%)
|
40,000
|
|
Z, capital (10%)
|
30,000
|
Z is personally insolvent, and one of his creditors is considering suing the partnership for the $5,000 that is currently due. The creditor realizes that liquidation could result from this litigation and does not wish to force such an extreme action unless the creditor is reasonably sure of getting the money that is due. If the partnership sells the other assets, how much money must it receive to ensure that $5,000 would be available from Z’s portion of the business? Liquidation expenses are expected to be $15,000.
Aug 29, 2021 | Uncategorized
On January 1, the partners of Van, Bakel, and Cox (who share profits and losses in the ratio of 5:3:2, respectively) decide to liquidate their partnership. The trial balance at this date follows:
|
Debit
|
Credit
|
|
Cash
|
$18,000
|
|
Accounts receivable
|
66,000
|
|
Inventory
|
52,000
|
|
Machinery and equipment, net
|
189,000
|
|
Van, loan
|
30,000
|
|
Accounts payable
|
$53,000
|
|
Bakel, loan
|
20,000
|
|
Van, capital
|
118,000
|
|
Bakel, capital
|
90,000
|
|
Cox, capital
|
74,000
|
|
Totals
|
$355,000
|
$355,000
|
The partners plan a program of piecemeal conversion of the business’s assets to minimize liquidation losses. All available cash, less an amount retained to provide for future expenses, is to be distributed to the partners at the end of each month. A summary of the liquidation transactions follows:
|
January
|
Collected $51,000 of the accounts receivable; the balance is deemed
|
|
Received $38,000 for the entire inventory.
|
|
Paid $2,000 in liquidation expenses.
|
|
Paid $50,000 to the outside creditors after offsetting a $3,000 credit memorandum received by the partnership on January 11.
|
|
Retained $10,000 cash in the business at the end of January to cover any
unrecorded liabilities and anticipated expenses. The remainder is distributed to
the partners.
|
|
February
|
Paid $3,000 in liquidation expenses.
|
|
Retained $6,000 cash in the business at the end of the month to cover
unrecorded liabilities and anticipated expenses.
|
|
March
|
Received $146,000 on the sale of all machinery and equipment.
|
|
Paid $5,000 in final liquidation expenses.
|
|
Retained no cash in the business.
|
Prepare a schedule to compute the safe installment payments made to the partners at the end of each of these three months.
Aug 29, 2021 | Uncategorized
A client of the CPA firm of Harston and Mendez is a medical practice of seven local doctors. One doctor has been sued for several million dollars as the result of a recent operation. Because of what appears to be this doctor’s very poor judgment, a patient died. Although that doctor was solely involved with the patient in question, the lawsuit names the entire practice as a defendant. Originally, four of these doctors formed this business as a general partnership. However, five years ago, the partners converted the business to a limited liability partnership based on the laws of the state in which they operate.
Read the following articles as well as any other published information that is available on partner and partnership liability:
“Partners Forever? Within Andersen, Personal Liability May Bring Ruin,” The Wall Street Journal, April 2, 2002, p. C1.
“Collapse: Speed of Andersen’s Demise Amazing,” Milwaukee Journal Sentinel, June 16, 2002, p. D1.
Required
Based on the facts presented in this case, answer these questions:
1. What liability do the other six partners in this medical practice have in connection with this lawsuit?
2. What factors will be important in determining the exact liability (if any) of these six doctors?
Aug 29, 2021 | Uncategorized
The partnership of Wilson, Cho, and Arrington has the following account information:
|
Partner
|
Capital Balance
|
Share of Profits and Losses
|
|
Wilson
|
$200,000
|
40%
|
|
Cho
|
180,000
|
20
|
|
Arrington
|
110,000
|
40
|
This partnership will be liquidated, and the partners are scheduled to receive cash equal to any ending positive capital balance. If a negative capital balance results, the partner is expected to contribute that amount.
Assume that losses of $50,000 occur during the liquidation followed later by additional and final losses of $100,000.
Required
1. Create a spreadsheet to determine the capital balances that remain for each of the three partners after these two losses are incurred.
2. Modify this spreadsheet so that it can be used for different capital balances, different allocation patterns, and different liquidation gains and losses.
Aug 29, 2021 | Uncategorized
A city constructs a special assessment project (a sidewalk) for which it is secondarily liable. The city issues bonds of $90,000. It authorizes another $10,000 that is transferred out of the General Fund. The sidewalk is built for $100,000. The citizens are billed for $90,000. They pay this amount and the debt is paid off. Where is the $100,000 expenditure for construction recorded?
a. It is not recorded by the city.
b. It is recorded in the Agency Fund.
c. It is recorded in the General Fund.
d. It is recorded in the Capital Projects Fund.
Aug 29, 2021 | Uncategorized
A local government has the following transactions during the current fiscal period. Prepare journal entries without dollar amounts, first for fund-based financial statements and then for governmentwide financial statements.
a. The budget for the police department, ambulance service, and other ongoing activities is passed. Funding is from property taxes, transfers, and bond proceeds. All monetary outflows will be for expenses and fixed assets. A deficit is projected.
b. A bond is issued at face value to fund the construction of a new municipal building.
c. A computer is ordered for the tax department.
d. The computer is received.
e. The invoice for the computer is paid.
f. The city council agrees to transfer money from the General Fund as partial payment for a special assessments project but has not done so. The city will be secondarily liable for any money borrowed for this work.
g. The city council creates a motor pool to service all government vehicles. Money is transferred from the General Fund to permanently finance this facility.
h. Property taxes are levied. Although officials believe that most of these taxes should be collected during the current period, a small percentage is estimated to be uncollectible.
i. The city collects grant money from the state that must be spent as a supplement to the salaries of the police force. No entry has been recorded.
j. A portion of the grant money in (i) is properly spent.
Aug 29, 2021 | Uncategorized
Prepare journal entries for the City of Pudding’s governmental funds to record the following transactions, first for fund-based financial statements and then for government-wide financial statements.
a. A new truck for the sanitation department was ordered at a cost of $94,000.
b. The city print shop did $1,200 worth of work for the school system (but has not yet been paid).
c. An $11 million bond was issued to build a new road.
d. Cash of $140,000 is transferred from the General Fund to provide permanent financing for a municipal swimming pool that will be viewed as an Enterprise Fund.
e. The truck ordered in (a) is received at an actual cost of $96,000. Payment is not made at this time.
f. Cash of $32,000 is transferred from the General Fund to the Capital Projects Fund.
g. A state grant of $30,000 is received that must be spent to promote recycling.
h. The first $5,000 of the state grant received in (g) is appropriately expended.
Aug 29, 2021 | Uncategorized
Inc.”s financial statements are presented in. Financial statements for Wal-Mart Stores, Inc. are presented. Instructions for accessing and using the complete annual reports of Amazon and Wal-Mart, including the notes to the financial statements, are also provided in Appendices D and E, respectively.
Instructions
(a) Based on the information contained in these financial statements, determine the following for Amazon at December 31, 2011, and Wal-Mart at January 31, 2012.
(1) Total current assets.
(2) Net amount of property and equipment (fixed assets), net.
(3) Total current liabilities.
(4) Total equity.
(b) What conclusions concerning these two companies can be drawn from these data?
Aug 29, 2021 | Uncategorized
As the controller of Take No Prisoners Perfume Company, you discover a misstatement that overstated net income in the prior year”s financial statements. The misleading financial statements appear in the company”s annual report which was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president, Jeb Wilde, about this misstatement, you gather your courage to inform him. Jeb says, “Hey! What they don”t know won”t hurt them. But, just so we set the record straight, we”ll adjust this year”s financial statements for last year”s misstatement. We can absorb that misstatement better in this year than in last year anyway! Just don”t make such a mistake again.”
Instructions
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues in this situation?
(c) What would you do as a controller in this situation?
Aug 29, 2021 | Uncategorized
Companies prepare balance sheets in order to know their financial position at a specific point in time. This enables them to make a comparison to their position at previous points in time, and gives them a basis for planning for the future. In order to evaluate your financial position, you need to prepare a personal balance sheet. Assume that you have compiled the following information regarding your finances. (Hint: Some of the items might not be used in your personal balance sheet.)
|
Amount owed on student loan balance (long-term)
|
$ 5,000
|
|
Balance in checking account
|
1,200
|
|
Certificate of deposit (6-month)
|
3,000
|
|
Annual earnings from part-time job
|
11,300
|
|
Automobile
|
7,000
|
|
Balance on automobile loan (current portion)
|
1,500
|
|
Balance on automobile loan (long-term portion)
|
4,000
|
|
Home computer
|
800
|
|
Amount owed to you by younger brother
|
300
|
|
Balance in money market account
|
1,800
|
|
Annual tuition
|
6,400
|
|
Video and stereo equipment
|
1,250
|
|
Balance owed on credit card (current portion)
|
150
|
|
Balance owed on credit card (long-term portion)
|
1,650
|
Instructions
Prepare a personal balance sheet using the format you have learned for a classified balance sheet for a company. For the capital account, use Owner”s Capital.
Aug 29, 2021 | Uncategorized
If your school has a subscription to the FASB Codification, prepare responses to the following.
Instructions
(a) Access the glossary (“Master Glossary”) at the FASB Codification website to answer the following.
(1) What is the definition of current assets?
(2) What is the definition of current liabilities?
(b) A company wants to offset its accounts payable against its cash account and show a cash amount net of accounts payable on its balance sheet. Identify the criteria (found in the FASB Codification) under which a company has the right of set off. Does the company have the right to offset accounts payable against the cash account?
Aug 29, 2021 | Uncategorized
Glarus Company recently received the following information related to the company”s December 31, 2014, statement of financial position (in Swiss francs).
|
Inventory
|
CHF 2,900
|
Debt investments (short-term)
|
CHF 120
|
|
Cash
|
13,400
|
Accumulated depreciation—
|
|
|
Equipment
|
21,700
|
equipment
|
5,700
|
|
Share investments
|
|
Accounts receivable
|
4,300
|
|
(long-term)
|
6,500
|
|
|
Prepare the assets section of the company”s classified statement of financial position.
Aug 29, 2021 | Uncategorized
On September 5, De La Hoya Company buys merchandise on account from Junot Diaz Company. The selling price of the goods is $1,500, and the cost to Diaz Company was $800. On September 8, De La Hoya returns defective goods with a selling price of $200 and a fair value of $30. Record the transactions on the books of Junot Diaz Company.
Seller records both the sale and the cost of goods sold at the time of the sale.
When goods are returned, the seller records the return in a contra account, Sales Returns and Allowances, and reduces Accounts Receivable.
Any goods returned increase Inventory and reduce Cost of Goods Sold. Defective or damaged inventory is recorded at fair value (scrap value).
Aug 29, 2021 | Uncategorized
You are presented with the following list of accounts from the adjusted trial balance for merchandiser Gorman Company. Indicate in which financial statement and under what classification each of the following would be reported.
|
Accounts Payable
|
Interest Payable
|
|
Accounts Receivable
|
Inventory
|
|
Accumulated Depreciation—Buildings
|
Land
|
|
Accumulated Depreciation—Equipment
|
Notes Payable (due in 3 years)
|
|
Advertising Expense
|
Owner”s Capital (beginning balance)
|
|
Buildings
|
Owner”s Drawings
|
|
Cash
|
Property Taxes Payable
|
|
Depreciation Expense
|
Salaries and Wages Expense
|
|
Equipment
|
Salaries and Wages Payable
|
|
Freight-Out
|
Sales Returns and Allowances
|
|
Gain on Disposal of Plant Assets
|
Sales Revenue
|
|
Insurance Expense
|
Utilities Expense
|
|
Interest Expense
|
|
Review the major sections of the income statement: sales revenues, cost of goods sold, operating expenses, other revenues and gains, and other expenses and losses.
Add net income and investments to beginning capital and deduct drawings to arrive at ending capital in the owner”s equity statement.
Review the major sections of the balance sheet, income statement, and owner”s equity statement.
Aug 29, 2021 | Uncategorized
The adjusted trial balance columns of Falcetto Company”s worksheet for the year ended December 31, 2014, are as follows.
|
Cash
|
Debit
|
Accumulated Depreciation
|
Credit
|
|
14,500
|
|
|
Accounts Receivable
|
11,100
|
Equipment
|
18,000
|
|
Inventory
|
29,000
|
Notes Payable
|
25,000
|
|
Prepaid Insurance
|
2,500
|
Accounts Payable
|
10,600
|
|
Equipment
|
95,000
|
Owner”s Capital
|
81,000
|
|
Owner”s Drawings
|
12,000
|
Sales Revenue
|
536,800
|
|
Sales Returns and Allowances
|
6,700
|
Interest Revenue
|
2,500
|
|
Sales Discounts
|
5,000
|
|
673,900
|
|
Cost of Goods Sold
|
363,400
|
|
|
|
|
|
Freight-Out
|
7,600
|
|
|
|
Advertising Expense
|
12,000
|
|
|
|
Salaries and Wages Expense
|
56,000
|
|
|
|
Utilities Expense
|
18,000
|
|
|
|
Rent Expense
|
24,000
|
|
|
|
Depreciation Expense
|
9,000
|
|
|
|
Insurance Expense
|
4,500
|
|
|
|
Interest Expense
|
3,600
|
|
|
|
|
673,900
|
|
|
Remember that the key components of the income statement are net sales, cost of goods sold, gross profit, total operating expenses, and net income (loss). Report these components in the right-hand column of the income statement.
Put nonoperating items after income from operations.
Instructions
Prepare a multiple-step income statement for Falcetto Company.
Aug 29, 2021 | Uncategorized
To record the sale of goods for cash in a perpetual inventory system:
(a) only one journal entry is necessary to record cost of goods sold and reduction of inventory.
(b) only one journal entry is necessary to record the receipt of cash and the sales revenue.
(c) two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.
(d) two journal entries are necessary: one to record the receipt of cash and reduction of inventory, and one to record the cost of goods sold and sales revenue.
Aug 29, 2021 | Uncategorized
Estes Company is preparing its multiple-step income statement, owner”s equity statement, and classified balance sheet. Using the column heads Account, Financial Statement, and Classification, indicate in which financial statement and under what classification each of the following would be reported.
|
Account
|
Financial Statement
|
Classification
|
|
Accounts Payable
Accounts Receivable
Accumulated Depreciation—Buildings
Cash
Casualty Loss from Vandalism
Cost of Goods Sold
Depreciation Expense
Equipment
Freight-Out
Insurance Expense
Interest Payable
Inventory
Land
Notes Payable (due in 5 years)
Owner”s Capital (beginning balance)
Owner”s Drawings
Property Taxes Payable
Salaries and Wages Expense
Salaries and Wages Payable
Sales Returns and Allowances
Sales Revenue
Unearned Rent Revenue
Utilities Expense
|
|
|
Aug 29, 2021 | Uncategorized
Mr. Etemadi has prepared the following list of statements about service companies and merchandisers.
- Measuring net income for a merchandiser is conceptually the same as for a service company.
- For a merchandiser, sales less operating expenses is called gross profit.
- For a merchandiser, the primary source of revenues is the sale of inventory.
- Sales salaries and wages is an example of an operating expense.
- The operating cycle of a merchandiser is the same as that of a service company.
- In a perpetual inventory system, no detailed inventory records of goods on hand are maintained.
- In a periodic inventory system, the cost of goods sold is determined only at the end of the accounting period.
- A periodic inventory system provides better control over inventories than a perpetual system.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Aug 29, 2021 | Uncategorized
Information related to Harwick Co. is presented below.
- On April 5, purchased merchandise from Botham Company for $23,000, terms 2/10, net/30, FOB shipping point.
- On April 6, paid freight costs of $900 on merchandise purchased from Botham.
- On April 7, purchased equipment on account for $26,000.
- On April 8, returned damaged merchandise to Botham Company and was granted a $3,000 credit for returned merchandise.
- On April 15, paid the amount due to Botham Company in full.
Instructions
(a)Prepare the journal entries to record these transactions on the books of Harwick Co. under a perpetual inventory system.
(b)Assume that Harwick Co. paid the balance due to Botham Company on May 4 instead of April 15. Prepare the journal entry to record this payment.
Aug 29, 2021 | Uncategorized
On September 1, Boylan Office Supply had an inventory of 30 calculators at a cost of $18 each. The company uses a perpetual inventory system. During September, the following transactions occurred.
|
6
|
Purchased with cash 80 calculators at $20 each from Guthrie.
|
|
9
|
Paid freight of $80 on calculators purchased from Guthrie Co.
|
|
10
|
Returned 3 calculators to Guthrie Co. for $63 credit (including freight) because they did not meet specifications.
|
|
12
|
Sold 26 calculators costing $21 (including freight) for $31 each to Lee Book Store, terms n/30.
|
|
14
|
Granted credit of $31 to Lee Book Store for the return of one calculator that was not ordered.
|
|
20
|
Sold 30 calculators costing $21 for $32 each to Orr”s Card Shop, terms n/30.
|
Instructions
Journalize the September transactions.
Aug 29, 2021 | Uncategorized
On June 10, Tuzun Company purchased $8,000 of merchandise from Epps Company, FOB shipping point, terms 2/10, n/30. Tuzun pays the freight costs of $400 on June 11. Damaged goods totaling $300 are returned to Epps for credit on June 12. The fair value of these goods is $70. On June 19, Tuzun pays Epps Company in full, less the purchase discount. Both companies use a perpetual inventory system.
Instructions
(a)Prepare separate entries for each transaction on the books of Tuzun Company.
(b)Prepare separate entries for each transaction for Epps Company. The merchandise purchased by Tuzun on June 10 had cost Epps $4,800.
Aug 29, 2021 | Uncategorized
In 2014, Matt Cruz Company had net sales of $900,000 and cost of goods sold of $522,000. Operating expenses were $225,000, and interest expense was $11,000. Cruz prepares a multiple-step income statement.
Instructions
(a) Compute Cruz”s gross profit.
(b) Compute the gross profit rate. Why is this rate computed by financial statement users?
(c) What is Cruz”s income from operations and net income?
(d) If Cruz prepared a single-step income statement, what amount would it report for net income?
(e) In what section of its classified balance sheet should Cruz report merchandise inventory?
Aug 29, 2021 | Uncategorized
This information relates to Rana Co.
1. On April 5, purchased merchandise from Craig Company for $25,000, terms 2/10, net/30, FOB shipping point.
2. On April 6, paid freight costs of $900 on merchandise purchased from Craig Company.
3. On April 7, purchased equipment on account for $30,000.
4. On April 8, returned some of April 5 merchandise, which cost $2,800, to Craig Company.
5. On April 15, paid the amount due to Craig Company in full.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Rana Co. using a periodic inventory system.
(b) Assume that Rana Co. paid the balance due to Craig Company on May 4 instead of April 15. Prepare the journal entry to record this payment.
Aug 29, 2021 | Uncategorized
Presented below is information related to Lor Co.
1. On April 5, purchased merchandise from Garcia Company for $19,000, terms 2/10, net/30, FOB shipping point.
2. On April 6, paid freight costs of $800 on merchandise purchased from Garcia.
3. On April 7, purchased equipment on account from Holifield Mfg. Co. for $23,000.
4. On April 8, returned merchandise, which cost $4,000, to Garcia Company.
5. On April 15, paid the amount due to Garcia Company in full.
Instructions
(a) Prepare the journal entries to record these transactions on the books of Lor Co. using a periodic inventory system.
(b) Assume that Lor Co. paid the balance due to Garcia Company on May 4 instead of April 15. Prepare the journal entry to record this payment.
Aug 29, 2021 | Uncategorized
A local partnership is considering possible liquidation because one of the partners (Bell) is insolvent. Capital balances at the current time are as follows. Profits and losses are divided on a 4:3:2:1 basis, respectively.
|
Bell, capital
|
$50,000
|
|
Hardy, capital
|
56,000
|
|
Dennard, capital
|
14,000
|
|
Suddath, capital
|
80,000
|
Bell’s creditors have filed a $21,000 claim against the partnership’s assets. The partnership currently holds assets reported at $300,000 and liabilities of $100,000. If the assets can be sold for $190,000, what is the minimum amount that Bell’s creditors would receive?
a. –0–
b. $2,000.
c. $2,800.
d. $6,000.
Aug 29, 2021 | Uncategorized
A partnership has the following balance sheet just before final liquidation is to begin:
|
Cash
|
$26,000
|
Liabilities
|
$50,000
|
|
Inventory
|
31,000
|
Art, capital (40% of profits and losses)
|
18,000
|
|
Other assets
|
62,000
|
Raymond, capital (30%)
|
25,000
|
|
Darby, capital (30%)
|
26,000
|
|
Total
|
$119,000
|
Total
|
$119,000
|
Liquidation expenses are estimated to be $12,000. The other assets are sold for $40,000. What distribution can be made to the partners?
a. –0– to Art, $1,500 to Raymond, $2,500 to Darby.
b. $1,333 to Art, $1,333 to Raymond, $1,334 to Darby.
c. –0– to Art, $1,200 to Raymond, $2,800 to Darby.
d. $600 to Art, $1,200 to Raymond, $2,200 to Darby.
Aug 29, 2021 | Uncategorized
A partnership is currently holding $400,000 in assets and $234,000 in liabilities. The partnership is to be liquidated, and $20,000 is the best estimation of the expenses that will be incurred during this process. The four partners share profits and losses as shown. Capital balances at the start of the liquidation follow:
|
Kevin, capital (40%)
|
$59,000
|
|
Michael, capital (30%)
|
39,000
|
|
Brendan, capital (10%)
|
34,000
|
|
Jonathan, capital (20%)
|
34,000
|
The partners realize that Brendan will be the first partner to start receiving cash. How much cash will Brendan receive before any of the other partners collect any cash?
a. $12,250.
b. $14,750.
c. $17,000.
d. $19,500.
Aug 29, 2021 | Uncategorized
The adjusted trial balance columns of the worksheet for Alshwer Company, owned by M. Alshwer, are as follows.
|
AL5HWER COMPANY Worksheet For the Year Ended December 31, 2014
|
|
Account
No.
|
Account Titles
|
Adjusted
Trial Balance
|
|
|
|
101 112 126 130
157
|
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
|
5,300 10,800 1,500 2,000 27,000
|
|
|
158
|
Accumulated Depreciation—Equipment
|
|
5,600
|
|
200
|
Notes Payable
|
|
15,000
|
|
201
|
Accounts Payable
|
|
6,100
|
|
212
|
Salaries and Wages Payable
|
|
2,400
|
|
230
|
Interest Payable
|
|
600
|
|
301
|
Owner”s Capital
|
|
13,000
|
|
306
|
Owner”s Drawings
|
7,000
|
|
|
400
|
Service Revenue
|
|
61,000
|
|
610
|
Advertising Expense
|
8,400
|
|
|
631
|
Supplies Expense
|
4,000
|
|
|
711
|
Depreciation Expense
|
5,600
|
|
|
722
|
Insurance Expense
|
3,500
|
|
|
726
|
Salaries and Wages Expense
|
28,000
|
|
|
905
|
Interest Expense
|
600
|
|
|
|
Totals
|
103,700
|
103,700
|
Instructions
(a) Complete the worksheet by extending the balances to the financial statement columns.
(b) Prepare an income statement, owner”s equity statement, and a classified balance sheet. (Note: $5,000 of the notes payable become due in 2015.) M. Alshwer did not make any additional investments in the business during the year.
(c) Prepare the closing entries. Use J14 for the journal page.
(d) Post the closing entries. Use the three-column form of account. Income Summary is No. 350.
(e) Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
The completed financial statement columns of the worksheet for Fleming Company are shown on the next page.
|
FLEMING COMPANY Worksheet For the Year Ended December 31, 2014
|
|
|
|
Income Statement
|
Balance Sheet
|
|
Account No.
|
Account Titles
|
|
|
|
|
|
101
112
130
157
|
Cash
Accounts Receivable
Prepaid Insurance
Equipment
|
|
|
8,900 10,800 2,800 24,000
|
|
|
158
|
Accumulated Depreciation—Equip.
|
|
|
|
4,500
|
|
201
|
Accounts Payable
|
|
|
|
9,000
|
|
212
|
Salaries and Wages Payable
|
|
|
|
2,400
|
|
301
|
Owner”s Capital
|
|
|
|
19,500
|
|
306
|
Owner”s Drawings
|
|
|
11,000
|
|
|
400
|
Service Revenue
|
|
60,000
|
|
|
|
622
|
Maintenance and Repairs Expense
|
1,600
|
|
|
|
|
711
|
Depreciation Expense
|
3,100
|
|
|
|
|
722
|
Insurance Expense
|
1,800
|
|
|
|
|
726
|
Salaries and Wages Expense
|
30,000
|
|
|
|
|
732
|
Utilities Expense
|
1,400
|
|
|
|
|
|
Totals
|
37,900
|
60,000
|
57,500
|
35,400
|
|
|
Net Income
|
22,100
|
|
|
22,100
|
|
|
|
60,000
|
60,000
|
57,500
|
57,500
|
Instructions
(a) Prepare an income statement, an owner”s equity statement, and a classified balance sheet.
(b) Prepare the closing entries. J. Fleming did not make any additional investments during the year.
(c) Post the closing entries and underline and balance the accounts. (Use T-accounts.) Income Summary is account No. 350.
(d) Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
Jarmuz Management Services began business on January 1, 2014, with a capital investment of $120,000. The company manages condominiums for owners (Service Revenue) and rents space in its own office building (Rent Revenue). The trial balance and adjusted trial balance columns of the worksheet at the end of the first year are as follows.
|
JARMUZ MANAGEMENT SERVICES Worksheet For the Year Ended December 31, 2014
|
|
Account Titles
|
Trial Balance
|
Adjusted
Trial Balance
|
|
|
|
|
|
Cash
|
13,800
|
|
13,800
|
|
|
Accounts Receivable
|
28,300
|
|
28,300
|
|
|
Prepaid Insurance
|
3,600
|
|
2,400
|
|
|
Land
|
67,000
|
|
67,000
|
|
|
Buildings
|
127,000
|
|
127,000
|
|
|
Equipment
|
59,000
|
|
59,000
|
|
|
Accounts Payable
|
|
12,500
|
|
12,500
|
|
Unearned Rent Revenue
|
|
6,000
|
|
1,500
|
|
Mortgage Payable
|
|
120,000
|
|
120,000
|
|
Owner”s Capital
|
|
144,000
|
|
144,000
|
|
Owner”s Drawings
|
22,000
|
|
22,000
|
|
|
Service Revenue
|
|
90,700
|
|
90,700
|
|
Rent Revenue
|
|
29,000
|
|
33,500
|
|
Salaries and Wages Expense
|
42,000
|
|
42,000
|
|
|
Advertising Expense
|
20,500
|
|
20,500
|
|
|
Utilities Expense
|
19,000
|
|
19,000
|
|
|
Totals
|
402,200
|
402,200
|
|
|
|
Trial Balance
|
Adjusted
Trial Balance
|
|
Account TitlesDr. Cr.
|
|
|
|
Insurance Expense Depreciation Expense
|
1,200
6,600
|
|
|
Accumulated Depreciation—Buildings
|
|
3.000
|
|
Accumulated Depreciation—Equipment
|
|
3.600
|
|
Interest Expense
|
10,000
|
|
|
Interest Payable
|
|
10,000
|
|
Totals
|
418,800
|
418,800
|
Instructions
(a) Prepare a complete worksheet.
(b) Prepare a classified balance sheet. (Note: $30,000 of the mortgage note payable is due for payment next year.)
(c) Journalize the adjusting entries.
(d) Journalize the closing entries.
(e) Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
Heidi Jara opened Jara”s Cleaning Service on July 1, 2014. During July, the following transactions were completed.
|
July
|
1
|
Jara invested $20,000 cash in the business.
|
|
1
|
Purchased used truck for $9,000, paying $4,000 cash and the balance on account.
|
|
3
|
Purchased cleaning supplies for $2,100 on account.
|
|
5
|
Paid $1,800 cash on a 1-year insurance policy effective July 1.
|
|
12
|
Billed customers $4,500 for cleaning services.
|
|
18
|
Paid $1,500 cash on amount owed on truck and $1,400 on amount owed on cleaning supplies.
|
|
20
|
Paid $2,500 cash for employee salaries.
|
|
21
|
Collected $3,400 cash from customers billed on July 12.
|
|
25
|
Billed customers $6,000 for cleaning services.
|
|
31
|
Paid $350 for the monthly gasoline bill for the truck.
|
|
31
|
Withdraw $5,600 cash for personal use.
|
The chart of accounts for Jara”s Cleaning Service contains the following accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 130 Prepaid Insurance, No. 157 Equipment, No. 158 Accumulated Depreciation—Equipment, No. 201 Accounts Payable, No. 212 Salaries and Wages Payable, No. 301 Owner”s Capital, No. 306 Owner”s Drawings, No. 350 Income Summary, No. 400 Service Revenue, No. 631 Supplies Expense, No. 633 Gasoline Expense, No. 711 Depreciation Expense, No. 722 Insurance Expense, and No. 726 Salaries and Wages Expense.
Instructions
(a) Journalize and post the July transactions. Use page J1 for the journal and the three-column form of account.
(b) Prepare a trial balance at July 31 on a worksheet.
(c) Enter the following adjustments on the worksheet and complete the worksheet.
(1) Unbilled and uncollected revenue for services performed at July 31 were $2,700.
(2) Depreciation on equipment for the month was $500.
(3) One-twelfth of the insurance expired.
(4) An inventory count shows $600 of cleaning supplies on hand at July 31.
(5) Accrued but unpaid employee salaries were $1,000.
(d) Prepare the income statement and owner”s equity statement for July and a classified balance sheet at July 31.
(e) Journalize and post adjusting entries. Use page J2 for the journal.
(f) Journalize and post closing entries and complete the closing process. Use page J3 for the journal.
(g) Prepare a post-closing trial balance at July 31.
Aug 29, 2021 | Uncategorized
Dao Vang, CPA, was retained by Universal Cable to prepare financial statements for April 2014. Vang accumulated all the ledger balances per Universal”s records and found the following.
|
UNIVERSAL CABLE Trial Balance April 30, 2014
|
|
Cash
Accounts Receivable Supplies
Equipment
|
Debit
|
Credit
|
|
$ 4,100
3,200
800
10,600
|
|
|
Accumulated Depreciation—Equip.
|
|
$ 1,350
|
|
Accounts Payable
|
|
2,100
|
|
Salaries and Wages Payable
|
|
700
|
|
Unearned Service Revenue
|
|
890
|
|
Owner”s Capital
|
|
12,900
|
|
Service Revenue
|
|
5,450
|
|
Salaries and Wages Expense
|
3,300
|
|
|
Advertising Expense
|
600
|
|
|
Miscellaneous Expense
|
290
|
|
|
Depreciation Expense
|
500
|
|
|
|
$23,390
|
$23,390
|
Dao Vang reviewed the records and found the following errors.
1. Cash received from a customer on account was recorded as $950 instead of $590.
2. A payment of $75 for advertising expense was entered as a debit to Miscellaneous Expense $75 and a credit to Cash $75.
3. The first salary payment this month was for $1,900, which included $700 of salaries payable on March 31. The payment was recorded as a debit to Salaries and Wages Expense $1,900 and a credit to Cash $1,900. (No reversing entries were made on April 1.)
4. The purchase on account of a printer costing $310 was recorded as a debit to Supplies and a credit to Accounts Payable for $310.
5. A cash payment of repair expense on equipment for $96 was recorded as a debit to Equipment $69 and a credit to Cash $69.
Instructions
(a) Prepare an analysis of each error showing (1) the incorrect entry, (2) the correct entry, and (3) the correcting entry. Items 4 and 5 occurred on April 30, 2014.
(b) Prepare a correct trial balance.
Aug 29, 2021 | Uncategorized
Michael Pevnick began operations as a private investigator on January 1, 2014. The trial balance columns of the worksheet for Michael Pevnick, P.I., at March 31 are as follows.
|
MICHAEL PEVNICK, Worksheet For the Quarter Ended March 31, 2014
|
|
Account Titles
|
Trial Balance
|
- Cr.
|
|
Cash
|
11,400
|
|
Accounts Receivable
|
5,620
|
|
Supplies
|
1,050
|
|
Prepaid Insurance
|
2,400
|
|
Equipment
|
30,000
|
|
Account Titles
|
Trial Balance
|
|
|
|
Notes Payable
Accounts Payable Owner”s Capital
|
|
10,000
12,350
20,000
|
|
Owner”s Drawings
|
600
|
|
|
Service Revenue
|
|
13,620
|
|
Salaries and Wages Expense
|
2,200
|
|
|
Travel Expense
|
1,300
|
|
|
Rent Expense
|
1,200
|
|
|
Miscellaneous Expense
|
200
|
|
|
|
55,970
|
55,970
|
Other data:
1. Supplies on hand total $480.
2. Depreciation is $800 per quarter.
3. Interest accrued on 6-month note payable, issued January 1, $300.
4. Insurance expires at the rate of $200 per month.
5. Services performed but unbilled at March 31 total $1,030.
Instructions
(a) Enter the trial balance on a worksheet and complete the worksheet.
(b) Prepare an income statement and owner”s equity statement for the quarter and a classified balance sheet at March 31. M. Pevnick did not make any additional investments in the business during the quarter ended March 31, 2014.
(c) Journalize the adjusting entries from the adjustments columns of the worksheet.
(d) Journalize the closing entries from the financial statement columns of the worksheet.
Aug 29, 2021 | Uncategorized
The adjusted trial balance columns of the worksheet for Greenwood Company are as follows.
|
GREENWOOD COMPANY Worksheet For the Year Ended December 31, 2014
|
|
Account
No.
|
Account Titles
|
Adjusted
Trial Balance
|
|
|
|
101 112 126 130
157
|
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
|
18,800 16,200 2,300 4,400 46,000
|
|
|
158
|
Accumulated Depreciation—Equipment
|
|
20,000
|
|
200
|
Notes Payable
|
|
20,000
|
|
201
|
Accounts Payable
|
|
8,000
|
|
212
|
Salaries and Wages Payable
|
|
2,600
|
|
230
|
Interest Payable
|
|
1,000
|
|
301
|
Owner”s Capital
|
|
26,000
|
|
306
|
Owner”s Drawings
|
12,000
|
|
|
400
|
Service Revenue
|
|
87,800
|
|
610
|
Advertising Expense
|
10,000
|
|
|
631
|
Supplies Expense
|
3,700
|
|
|
711
|
Depreciation Expense
|
8,000
|
|
|
722
|
Insurance Expense
|
4,000
|
|
|
726
|
Salaries and Wages Expense
|
39,000
|
|
|
905
|
Interest Expense
|
1,000
|
|
|
|
Totals
|
165,400
|
165,400
|
(a) Complete the worksheet by extending the balances to the financial statement columns.
(b) Prepare an income statement, owner”s equity statement, and a classified balance sheet. (Note: $5,000 of the notes payable become due in 2015.) T. Greenwood did not make any additional investments in the business during 2014.
(c) Prepare the closing entries. Use J14 for the journal page.
(d) Post the closing entries. Use the three-column form of account. Income Summary is account No. 350.
(e) Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
Avalon Amusement Park has a fiscal year ending on September 30. Selected data from the September 30 worksheet are presented below.
|
AVALON AMUSEMENT PARK Worksheet For the Year Ended September 30, 2014
|
|
|
Trial Balance
|
Adjusted Trial Balance
|
|
|
Dr. Cr.
|
- Cr.
|
|
Cash
|
41,400
|
41,400
|
|
Supplies
|
18,600
|
2,200
|
|
Prepaid Insurance
|
31,900
|
10,900
|
|
Land
|
80,000
|
80,000
|
|
Equipment
|
120,000
|
120,000
|
|
|
Trial Balance
|
Adjusted
Trial Balance
|
|
1)1
|
|
|
|
|
Accumulated Depreciation-Equip.
|
|
36,200
|
|
42,200
|
|
Accounts Payable
|
|
14,600
|
|
14,600
|
|
Unearned Ticket Revenue
|
|
3,700
|
|
1,000
|
|
Mortgage Payable
|
|
50,000
|
|
50,000
|
|
Owner”s Capital
|
|
109,700
|
|
109,700
|
|
Owner”s Drawings
|
14,000
|
|
14,000
|
|
|
Ticket Revenue
|
|
277,500
|
|
280,200
|
|
Salaries and Wages Expense
|
105,000
|
|
105,000
|
|
|
Maintenance and Repairs Expense
|
30,500
|
|
30,500
|
|
|
Advertising Expense
|
9,400
|
|
9,400
|
|
|
Utilities Expense
|
16,900
|
|
16,900
|
|
|
Property Tax Expense
|
18,000
|
|
21,000
|
|
|
Interest Expense
|
6,000
|
|
10,000
|
|
|
Totals
|
491,700
|
491,700
|
|
|
|
Insurance Expense
|
|
|
21,000
|
|
|
Supplies Expense
|
|
|
16,400
|
|
|
Interest Payable
|
|
|
|
4,000
|
|
Depreciation Expense
|
|
|
6,000
|
|
|
Property Taxes Payable
|
|
|
|
3,000
|
|
Totals
|
|
|
504,700
|
504,700
|
Instructions
(a) Prepare a complete worksheet.
(b) Prepare a classified balance sheet. (Note: $15,000 of the mortgage note payable is due for payment in the next fiscal year.)
(c) Journalize the adjusting entries using the worksheet as a basis.
(d) Journalize the closing entries using the worksheet as a basis.
(e) Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
Kristin Malone opened Kristin”s Maids Cleaning Service on July 1, 2014. During July, the company completed the following transactions.
|
July
|
1
|
Invested $14,000 cash in the business.
|
|
1
|
Purchased a used truck for $10,000, paying $3,000 cash and the balance on account.
|
|
3
|
Purchased cleaning supplies for $800 on account.
|
|
5
|
Paid $1,800 on a 1-year insurance policy, effective July 1.
|
|
12
|
Billed customers $3,800 for cleaning services.
|
|
18
|
Paid $1,000 of amount owed on truck, and $400 of amount owed on cleaning supplies. 20 Paid $1,600 for employee salaries.
|
|
21
|
Collected $1,400 from customers billed on July 12.
|
|
25
|
Billed customers $1,500 for cleaning services.
|
|
31
|
Paid gasoline for the month on the truck, $400.
|
|
31
|
Withdrew $600 cash for personal use.
|
The chart of accounts for Kristin”s Maids Cleaning Service contains the following accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 130 Prepaid Insurance, No. 157 Equipment, No. 158 Accumulated Depreciation—Equipment, No. 201 Accounts Payable, No. 212 Salaries and Wages Payable, No. 301 Owner”s Capital, No. 306 Owner”s Drawings, No. 350 Income Summary, No. 400 Service Revenue, No. 631 Supplies Expense, No. 633 Gasoline Expense, No. 711 Depreciation Expense, No. 722 Insurance Expense, and No. 726 Salaries and Wages Expense.
Instructions
(a) Journalize and post the July transactions. Use page J1 for the journal.
(b) Prepare a trial balance at July 31 on a worksheet.
(c) Enter the following adjustments on the worksheet, and complete the worksheet.
(1) Unbilled fees for services performed at July 31 were $1,300.
(2) Depreciation on equipment for the month was $200.
(3) One-twelfth of the insurance expired.
(4) An inventory count shows $100 of cleaning supplies on hand at July 31.
(5) Accrued but unpaid employee salaries were $500.
(d) Prepare the income statement and owner”s equity statement for July, and a classified balance sheet at July 31, 2014.
(e) Journalize and post the adjusting entries. Use page J2 for the journal.
(f) Journalize and post the closing entries, and complete the closing process. Use page J3 for the journal.
(g) Prepare a post-closing trial balance at July 31.
Aug 29, 2021 | Uncategorized
Natalie had a very busy December. At the end of the month, after journalizing and posting the December transactions and adjusting entries, Natalie prepared the following adjusted trial balance.
|
COOKIE CREATIONS Adjusted Trial Balance December 31, 2013
|
|
|
Cash
Accounts Receivable Supplies
Prepaid Insurance Equipment
|
Debit
|
Credit
|
|
|
$1,180
875
350 1,210 1,200
|
|
|
|
Accumulated Depreciation—Equipment
|
|
$ 40
|
|
|
Accounts Payable
|
|
|
|
75
|
|
|
Salaries and Wages Payable
|
|
56
|
|
|
Interest Payable
|
|
15
|
|
|
Unearned Service Revenue
|
|
300
|
|
|
Notes Payable
|
|
2,000
|
|
|
Owner”s Capital
|
|
800
|
|
|
Owner”s Drawings
|
500
|
|
|
|
Service Revenue
|
|
4,515
|
|
|
Salaries and Wages Expense
|
1,006
|
|
|
|
Utilities Expense
|
125
|
|
|
|
Advertising Expense
|
165
|
|
|
|
Supplies Expense
|
1,025
|
|
|
|
Depreciation Expense
|
40
|
|
|
|
Insurance Expense
|
110
|
|
|
|
Interest Expense
|
15
|
|
|
|
|
$7,801
|
$7,801
|
|
Aug 29, 2021 | Uncategorized
The financial statements of Apple Inc. are presented at the end of this textbook. Instructions for accessing and using the company”s complete annual report, including the notes to the financial statements, are also provided.
Instructions
Answer the questions below using Apple”s Consolidated Balance Sheets.
(a) What were Apple”s total current assets at September 24, 2011, and September 25, 2010?
(b) Are assets that Apple included under current assets listed in proper order? Explain.
(c) How are Apple”s assets classified?
(d) What was Apple”s “Cash and cash equivalents” at September 24, 2011?
(e) What were Apple”s total current liabilities at September 24, 2011, and September 25, 2010?
Aug 29, 2021 | Uncategorized
PepsiCo”s financial statements are presented. Financial statements for The Coca-Cola Company are presented. Instructions for accessing and using the complete annual reports of PepsiCo and Coca-Cola, including the notes to the financial statements, are also provided in Appendices B and C, respectively.
Instructions
(a) Based on the information contained in these financial statements, determine each of the following for PepsiCo at December 31, 2011, and for Coca-Cola at December 31, 2011.
(1) Total current assets.
(2) Net amount of property, plant, and equipment (land, buildings, and equipment).
(3) Total current liabilities.
(4) Total equity.
(b) What conclusions concerning the companies’ respective financial positions can be drawn?
Aug 29, 2021 | Uncategorized
The adjustments columns of the worksheet for Misra Company are shown below.
|
Account Titles
|
Adjustments
|
|
Debit
|
Credit
|
|
Accounts Receivable
|
1,100
|
|
|
Prepaid I nsurance
|
|
300
|
|
Accumulated Depreciation—Equipment
|
|
900
|
|
Salaries and Wages Payable
|
|
500
|
|
Service Revenue
|
|
1,100
|
|
Salaries and Wages Expense
|
500
|
|
|
Insurance Expense
|
300
|
|
|
Depreciation Expense
|
900
|
|
|
|
2,800
|
2,800
|
Istructions
(a) Prepare the adjusting entries.
(b) Assuming the adjusted trial balance amount for each account is normal, indicate the financial statement column to which each balance should be extended.
Aug 29, 2021 | Uncategorized
Kay Magill Company had the following adjusted trial balance.
|
KAY MAGILL COMPANY Adjusted Trial Balance For the Month Ended June 30, 2014
|
|
Account Titles
|
Adjusted Trial Balance
|
|
Debit
|
Credit
|
|
Cash
Accounts Receivable Supplies
|
$ 3,712
3,904
480
|
|
|
Accounts Payable
|
|
$ 1,556
|
|
Unearned Service Revenue
|
|
160
|
|
Owner”s Capital
|
|
5,760
|
|
Owner”s Drawings
|
628
|
|
|
Service Revenue
|
|
4,300
|
|
Salaries and Wages Expense
|
1,344
|
|
|
Miscellaneous Expense
|
256
|
|
|
Supplies Expense
|
1,900
|
|
|
Salaries and Wages Payable
|
|
448
|
|
|
$12,224
|
$12,224
|
Instructions
(a) Prepare closing entries at June 30, 2014.
(b) Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
Plevin Company ended its fiscal year on July 31, 2014. The company”s adjusted trial balance as of the end of its fiscal year is shown below.
|
PLEVIN COMPANY Adjusted Trial Balance July 31, 2014
|
|
Account Titles
|
Debit
|
Credit
|
|
101
112
157
|
Cash
Accounts Receivable Equipment
|
$ 9,840
8,780
15,900
|
|
|
158
|
Accumulated Depreciation—Equip.
|
|
$ 7,400
|
|
201
|
Accounts Payable
|
|
4,220
|
|
208
|
Unearned Rent Revenue
|
|
1,800
|
|
301
|
Owner”s Capital
|
|
45,200
|
|
306
|
Owner”s Drawings
|
16,000
|
|
|
400
|
Service Revenue
|
|
64,000
|
|
429
|
Rent Revenue
|
|
6,500
|
|
711
|
Depreciation Expense
|
8,000
|
|
|
726
|
Salaries and Wages Expense
|
55,700
|
|
|
732
|
Utilities Expense
|
14,900
|
|
|
|
|
$129,120
|
$129,120
|
Instructions
(a) Prepare the closing entries using page J15.
(b) Post to Owner”s Capital and No. 350 Income Summary accounts. (Use the three-column form.)
(c) Prepare a post-closing trial balance at July 31.
Aug 29, 2021 | Uncategorized
The adjusted trial balance for Plevin Company is presented below.
|
PLEVIN COMPANY Adjusted Trial Balance July 31, 2014
|
|
Account Titles
|
Debit
|
Credit
|
|
101
112
157
|
Cash
Accounts Receivable Equipment
|
$ 9,840
8,780
15,900
|
|
|
158
|
Accumulated Depreciation—Equip.
|
|
$ 7,400
|
|
201
|
Accounts Payable
|
|
4,220
|
|
208
|
Unearned Rent Revenue
|
|
1,800
|
|
301
|
Owner”s Capital
|
|
45,200
|
|
306
|
Owner”s Drawings
|
16,000
|
|
|
400
|
Service Revenue
|
|
64,000
|
|
429
|
Rent Revenue
|
|
6,500
|
|
711
|
Depreciation Expense
|
8,000
|
|
|
726
|
Salaries and Wages Expense
|
55,700
|
|
|
732
|
Utilities Expense
|
14,900
|
|
|
|
|
$129,120
|
$129,120
|
Instructions
(a) Prepare an income statement and an owner”s equity statement for the year. Plevin did not make any capital investments during the year.
(b) Prepare a classified balance sheet at July 31.
Aug 29, 2021 | Uncategorized
Janis Engle has prepared the following list of statements about the accounting cycle.
1. “Journalize the transactions” is the first step in the accounting cycle.
2. Reversing entries are a required step in the accounting cycle.
3. Correcting entries do not have to be part of the accounting cycle.
4. If a worksheet is prepared, some steps of the accounting cycle are incorporated into the worksheet.
5. The accounting cycle begins with the analysis of business transactions and ends with the preparation of a post-closing trial balance.
6. All steps of the accounting cycle occur daily during the accounting period.
7. The step of “post to the ledger accounts” occurs before the step of “journalize the transactions.”
8. Closing entries must be prepared before financial statements can be prepared.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Aug 29, 2021 | Uncategorized
The adjusted trial balance for Martell Bowling Alley at December 31, 2014.
|
|
Debit
|
|
Credit
|
|
Buildings
|
$128,800
|
Owner”s Capital
|
$115,000
|
|
Accounts Receivable
|
14,520
|
Accumulated Depreciation—Buildings
|
42,600
|
|
Prepaid Insurance
|
4,680
|
Accounts Payable
|
12,300
|
|
Cash
|
18,040
|
Notes Payable
|
97,780
|
|
Equipment
|
62,400
|
Accumulated Depreciation—Equipment
|
18,720
|
|
Land
|
67,000
|
Interest Payable
|
2,600
|
|
Insurance Expense
|
780
|
Service Revenue
|
17,180
|
|
Depreciation Expense
|
7,360
|
|
$306,180
|
|
Interest Expense
|
2,600
|
|
|
|
|
|
|
$306,180
|
|
|
Instructions
(a) Prepare a classified balance sheet; assume that $22,000 of the note payable will be paid in 2015.
(b) Comment on the liquidity of the company.
Aug 29, 2021 | Uncategorized
The following are the major balance sheet classifications.
|
Current assets (CA)
|
Current liabilities (CL)
|
|
Long-term investments (LTI)
|
Long-term liabilities (LTL)
|
|
Property, plant, and equipment (PPE)
|
Owner”s equity (OE)
|
|
Intangible assets (IA)
|
|
Instructions
Classify each of the following accounts taken from Raman Company”s balance sheet.
|
Accounts payable
|
Accumulated depreciation—equipment
|
|
Accounts receivable
|
Buildings
|
|
Cash
|
Land (in use)
|
|
Owner”s capital
|
Notes payable (due in 2 years)
|
|
Patents
|
Supplies
|
|
Salaries and wages payable
|
Equipment
|
|
Inventory
|
Prepaid expenses
|
|
Stock investments (to be sold in 7 months)
|
|
Aug 29, 2021 | Uncategorized
The following items were taken from the financial statements of D. Gygi Company. (All amounts are in thousands.)
|
Long-term debt
|
$1,000
|
Accumulated depreciation—equipment
|
$5,665
|
|
Prepaid insurance
|
880
|
Accounts payable
|
1,444
|
|
Equipment
|
11,500
|
Notes payable (due after 2015)
|
400
|
|
Stock investments (long-term)
|
264
|
Owner”s capital
|
12,995
|
|
Debt investments (short-term)
|
3,690
|
Accounts receivable
|
1,696
|
|
Notes payable (due in 2015)
|
500
|
Inventory
|
1,256
|
|
Cash
|
2,668
|
|
|
Instructions
Prepare a classified balance sheet in good form as of December 31, 2014.
Aug 29, 2021 | Uncategorized
(ROI, EVA) Speed Boats Inc. has two divisions, Economy and Elite. The tax rate for the company is 40%. The following information pertains to the 2011 year:
|
|
Economy
|
Elite
|
|
Revenues
|
$3,800,000
|
$2,500,000
|
|
Current liabilities
|
250,000
|
300,000
|
|
Total assets
|
1,800,000
|
1,100,000
|
|
Before-tax operating income
|
350,000
|
160,000
|
|
WACC
|
11.5%
|
11.5%
|
- What is the ROI for each division?
- What is the EVA for each division?
- What other ratio could be used to evaluate each division?
Aug 29, 2021 | Uncategorized
(WACC and EVA) Elsie Vinton Laboratories is evaluating the purchase of five new MRI machines for its labs at various locations in Vancouver for $9,000,000, which will increase the company’s before-tax profit by $1.2 million per year. The company uses both long-term debt and equity capital to raise funds. The value of long-term debt held by the company is $15,200,000. Its equity market value is $21,345,000. The costs of debit and equity are 12% and 9%, respectively. Elsie Vinton reports total assets of $45,000,000 and before-tax profit of $8,325,000. The tax rate for Elsie Vinton is 32%. The current liabilities at the end of the period totalled $825,000.
Note: the new investment will not impact the company’s WACC, current liabilities, or tax rate.
- What is Elsie Vinton’s EVA prior to the investment in the MRI machines?
- How will the company’s EVA change with the MRI investment?
- Based on the EVA calculations, should Elsie Vinton pursue this investment?
Aug 29, 2021 | Uncategorized
(ROI, RI) Managers at The Tea Company are currently working on the company’s 2011 budget, which holds total assets of $3,500,000. For the 2011 year, The Tea Company is expecting its average selling price per box of tea to be $10 and its variable costs to be $3 per box. Total fixed costs are expected to be $200,000. The company’s cost of capital is 12%.
- How many boxes of tea need to be sold in 2011 to achieve a 15% ROI?
- The manager for The Tea Company receives 15% of residual income. What is the manager’s anticipated bonus for 2011, assuming that the company attains the 15% ROI.
Aug 29, 2021 | Uncategorized
(ROI, RI) Brummy Limited consists of several investment centres. One investment centre, the Green Division, has a controllable investment of $750,000, and profits are expected to be $150,000 this year. An investment opportunity is offered to Green that will yield a profit of $15,000 from an additional investment of $100,000. Brummy accepts projects if the ROI exceeds the cost of capital, which is 12%.
- Calculate Green’s ROI currently, for the additional investment, and after the investment.
- How will Green and Brummy view this investment opportunity?
- Calculate the effect of the new investment opportunity on Green’s residual income.
Aug 29, 2021 | Uncategorized
(ROI and RI) Magna Products has three divisions, A, B, and C. The current investments in and net profits earned by each division are as follows:
|
Division A
|
|
|
Investment
|
$1,000,000
|
|
Net profit
|
$75,000
|
|
Division B
|
|
|
Investment
|
$1,500,000
|
|
Net profit
|
$90,000
|
|
Division C
|
|
|
Investment
|
$2,000,000
|
|
Net profit
|
$150,000
|
Each division has put forward to the parent board a capital expenditure proposal for $500,000. Each expects to produce net profits of $40,000 from that investment. Magna’s cost of capital is 7% per year.
Use ROI and RI calculations to
- Evaluate the current performance of each division.
- Evaluate which proposal the board should approve if finance limits the decision to a single proposal.
Aug 29, 2021 | Uncategorized
(Transfer Pricing) Golf Holdings has two divisions: Alpha and Bravo. Alpha has a variable cost of sales of $11 per unit, which is its transfer price to Bravo. However, Alpha can sell its product on the open market for a variable selling cost of $17 per unit. It is unable to do so, however, as Bravo takes the entire product that Alpha can produce. Bravo uses the product it buys from Alpha as a raw material and adds its own cost of sales of $12. Bravo’s market selling price is $45, although it incurs variable selling expenses of $10 per unit.
How does the transfer price influence the performance evaluation of Alpha and Bravo? What changes would you suggest?
Aug 29, 2021 | Uncategorized
(Transfer Pricing) The Umber Company is a multidivisional company that manufactures toys. The Truck Division of the Umber Company has asked the Wheel Division to provide wheels that are required in the production of its toy monster trucks. Currently, the Wheel Division sells wheels only to outside customers for $4 per set of 4 wheels and is operating at capacity. The Truck Division, which is operating below capacity, wants to pay the Wheel Division $3 per set. The Wheel Division’s variable costs per set are $2. The toy monster truck made by the Truck Division currently costs $15 to make, as follows:
|
Plastic parts
|
$ 6
|
|
Wheels (purchased outside)
|
4
|
|
Conversion costs
|
3
|
|
Fixed overhead
|
2
|
|
Total cost per monster truck
|
$15
|
The manager of Truck Division believes that the $3 price is fair since it covers the division’s variable costs.
- As manager of the Wheel Division, would you recommend that your division provide wheels to the Truck Division? If so, at what transfer price?
- How would your decision change if you had excess capacity?
Aug 29, 2021 | Uncategorized
(Transfer Pricing) Eva Petersen Professional Products has recently purchased a perfume factory that will be used to provide scents for its hair care products. The new factory has a capacity of 100,000 litres of scented oils per year. Last year, it sold 25,000 litres of scented oils at a price of $100 per litre. The Hair Care Division of Eva Peterson requires 80,000 litres of scented oil per year and, in the past, has been purchasing perfumes from external providers for $95 per litre. The management of Eva Petersen is trying to develop a transfer price between the perfume factory and the Hair Care Division. The costs to produce one litre of scented oils by the perfume factory are as follows:
|
Direct materials per litre
|
$35
|
|
Direct labour
|
20
|
|
Variable overhead
|
10
|
|
Fixed overhead
|
15
|
|
Total
|
$80
|
The manager of the Hair Care Division, therefore, feels that an $80 transfer price is appropriate to reflect the cost of making the scented oils. The perfume factory manager, however, suggests the price should be $100 per litre to reflect what the factory sells the product for on the open market. The perfume factory, under new ownership, is still planning to continue to sell product to outside markets.
- Calculate the operating income for the perfume factory using a transfer price of $80.
- How does the income change when using a transfer price of $100?
- What transfer price(s) do you recommend and why?
Aug 29, 2021 | Uncategorized
(Transfer Pricing) Maja and Mina are both divisions of Arbor Group. Both divisions trade on the open market but Maja also provides almost a quarter of its production output to Mina. Maja believes that Mina pays less than Maja could sell the product for on the open market. As evidence, Maja has calculated its cost of sales as 40% of external sales and 60% of intercompany sales.
The operating results of the company are shown below. The divisional managers are rewarded on the basis of achieving an ROI, provided that it is greater than the cost of capital of 12%. The higher the ROI over that base, the higher the divisional manager’s performance bonus.
|
|
Maja
|
Mina
|
Total
|
|
Total assets
|
$3,500,000
|
$6,500,000
|
$10,000,000
|
|
Sales revenue
|
1,200,000
|
2,400,000
|
3,600,000
|
|
Intercompany sales
|
350,000
|
—350,000
|
0
|
|
Variable costs
|
—690,000
|
—720,000
|
—1,400,000
|
|
Gross profit
|
860,000
|
1,330,000
|
2,190,000
|
|
Fixed selling & admin expense
|
—250,000
|
—300,000
|
—550,000
|
|
Operating profit before interest
|
610,000
|
1,030,000
|
1,640,000
|
|
Gross margin
|
71.7%
|
55.4%
|
60.8%
|
|
Return on investment
|
17.4%
|
15.8%
|
16.4%
|
|
Cost of capital @ 12%
|
420,000
|
780,000
|
1,200,000
|
|
Residual income
|
190,000
|
250,000
|
440,000
|
The management team of Mina has argued that it has been unfairly treated due to the transfer price from Maja. It has recalculated its performance (and that of Maja) based on a reduction in the transfer price by 20%. The revised figures produced by Mina’s financial controller are shown below:
|
|
Maja
|
Mina
|
Total
|
|
Total assets
|
$3,500,000
|
$6,500,000
|
$10,000,000
|
|
Sales revenue
|
1,200,000
|
2,400,000
|
3,600,000
|
|
Intercompany sales
|
280,000
|
—280,000
|
0
|
|
Variable costs
|
—690,000
|
—720,000
|
—1,410,000
|
|
Gross profit
|
790,000
|
1,400,000
|
2,190,000
|
|
Fixed selling & admin expense
|
—250,000
|
—300,000
|
—550,000
|
|
Operating profit before interest
|
540,000
|
1,100,000
|
1,640,000
|
|
Gross margin
|
65.8%
|
58.3%
|
60.8%
|
|
Return on investment
|
15.4%
|
16.9%
|
16.4%
|
|
Cost of capital @ 12%
|
420,000
|
780,000
|
1,200,000
|
|
Residual income
|
120,000
|
320,000
|
440,000
|
o What are the strengths and weaknesses of Mina’s argument?
o What position would you take if you were on the management team of Maja?
o How should Arbor Group resolve this issue?
Aug 29, 2021 | Uncategorized
The financial statements of Zetar plc are presented. Instructions for accessing and using the company”s complete annual report, including the notes to its financial statements, are also provided.
Instructions
Visit Zetar”s corporate website and answer the following questions from Zetar”s 2011 annual report.
(a) From the notes to the financial statements, how does the company determine the amount of revenue to record at the time of a sale?
(b) From the notes to the financial statements, how does the company determine whether a sale has occurred?
(c) Using the consolidated income statement and consolidated statement of financial position, identify items that may result in adjusting entries for deferrals.
(d) Using the consolidated income statement, identify two items that may result in adjusting entries for accruals.
Aug 29, 2021 | Uncategorized
Balance sheet: Extend assets to debit column. Extend liabilities to credit column. Extend contra assets to credit column. Extend drawings account to debit column.
Income statement: Extend expenses to debit column. Extend revenues to credit column.
Susan Elbe is preparing a worksheet. Explain to Susan how she should extend the following adjusted trial balance accounts to the financial statement columns of the worksheet.
|
Cash
|
Owner”s Drawings
|
|
Accumulated Depreciation—Equipment
|
Service Revenue
|
|
Accounts Payable
|
Salaries and Wages Expense
|
Aug 29, 2021 | Uncategorized
Name two industries today which are probably rated low on the reputational characteristics of “being trusted” and “having high ethical standards.”
Present current assets first. Current assets are cash and other resources that the company expects to convert to cash or use up within one year.
Present current assets in the order in which the company expects to convert them into cash.
Subtract accumulated depreciation—equipment from equipment to determine the book value of equipment.
Baxter Hoffman recently received the following information related to Hoffman Company”s December 31, 2014, balance sheet.
|
Prepaid insurance
|
$ 2,300
|
|
Cash
|
800
|
|
Equipment
|
10,700
|
|
Inventory
|
$3,400
|
|
Accumulated depreciation—equipment
|
2,700
|
|
Accounts receivable
|
1,100
|
Prepare the assets section of Hoffman Company”s classified balance sheet.
Aug 29, 2021 | Uncategorized
At the end of its first month of operations, Watson Answering Service has the following unadjusted trial balance.
In completing the worksheet, be sure to (a) key the adjustments; (b) start at the top of the adjusted trial balance columns and extend adjusted balances to the correct statement columns; and (c) enter net income (or net loss) in the proper columns.
In preparing a classified balance sheet, know the contents of each of the sections.
In journalizing closing entries, remember that there are only four entries and that Owner”s Drawings is closed to Owner”s Capital.
|
WATSON ANSWERING SERVICE August 31,2014 Trial Balance
|
|
|
Debit
|
Credit
|
|
Cash
|
$ 5,400
|
|
|
Accounts Receivable
|
2,800
|
|
|
Supplies
|
1,300
|
|
|
Prepaid Insurance
|
2,400
|
|
|
Equipment
|
60,000
|
|
|
Notes Payable
|
|
$40,000
|
|
Accounts Payable
|
|
2,400
|
|
Owner”s Capital
|
|
30,000
|
|
Ownees Drawings
|
1,000
|
|
|
Service Revenue
|
|
4,900
|
|
Salaries and Wages Expense
|
3,200
|
|
|
Utilities Expense
|
800
|
|
|
Advertising Expense
|
400
|
|
|
|
$77,300
|
$77,300
|
Other data:
1. Insurance expires at the rate of $200 per month.
2. $1,000 of supplies are on hand at August 31.
3. Monthly depreciation on the equipment is $900.
4. Interest of $500 on the notes payable has accrued during August.
Instructions
(a) Prepare a worksheet.
(b) Prepare a classified balance sheet assuming $35,000 of the notes payable are long-term.
(c) Journalize the closing entries
Aug 29, 2021 | Uncategorized
In the unadjusted trial balance of its worksheet for the year ended December 31, 2014, Knox Company reported Equipment of $120,000. The year-end adjusting entries require an adjustment of $15,000 for depreciation expense for the equipment. After adjustment, the following adjusted amount should be reported:
(a) a debit of $105,000 for Equipment in the balance sheet column.
(b) a credit of $15,000 for Depreciation Expense— Equipment in the income statement column.
(c) a debit of $120,000 for Equipment in the balance sheet column.
(d) a debit of $15,000 for Accumulated Depreciation— Equipment in the balance sheet column.
Aug 29, 2021 | Uncategorized
The steps in the accounting cycle are listed in random order below. List the steps in proper sequence, assuming no worksheet is prepared, by placing numbers 1–9 in the blank spaces.
(a) Prepare a trial balance.
(b) Journalize the transactions.
(c) Journalize and post closing entries.
(d) Prepare financial statements.
(e) Journalize and post adjusting entries.
(f) Post to ledger accounts.
(g) Prepare a post-closing trial balance.
(h) Prepare an adjusted trial balance.
(i) Analyze business transactions.
Aug 29, 2021 | Uncategorized
Ryan Newton recently received the following information related to Ryan Company”s December 31, 2014, balance sheet.
|
Inventory
|
$ 2,900
|
|
Cash
|
4,300
|
|
Equipment
|
21,700
|
|
Stock investments (long-term)
|
6,500
|
|
Debt investments (short-term)
|
$1,200
|
|
Accumulated depreciation
|
5,700
|
|
Accounts receivable
|
4,300
|
Prepare the assets section of Ryan Company”s classified balance sheet.
Aug 29, 2021 | Uncategorized
The following accounts were taken from the financial statements of Lee Company.
|
Interest revenue
|
Owner”s capital
|
|
Utilities payable
|
Accumulated depreciation—equipment
|
|
Accounts payable
|
Equipment
|
|
Supplies
|
Salaries and wages expense
|
|
Bonds payable
|
Debt investments (long-term)
|
|
Goodwill
|
Unearned rent revenue
|
Match each of the accounts to its proper balance sheet classification, as shown below. If the item would not appear on a balance sheet, use “NA.”
|
Current assets (CA)
|
Current liabilities (CL)
|
|
Long-term investments (LTI)
|
Long-term liabilities (LTL)
|
|
Property, plant, and equipment (PPE)
|
Owner”s equity (OE)
|
|
Intangible assets (IA)
|
|
Aug 29, 2021 | Uncategorized
The trial balance columns of the worksheet for Nanduri Company at June 30, 2014, are as follows.
|
NANDURI COMPANY Worksheet For the Month Ended June 30, 2014
|
|
Account Titles
|
Thal Balance
|
|
|
|
Cash
Accounts Receivable Supplies
|
2,320
2,440
1,880
|
|
|
Accounts Payable
|
|
1,120
|
|
Unearned Service Revenue
|
|
240
|
|
Owner”s Capital
|
|
3,600
|
|
Service Revenue
|
|
2,400
|
|
Salaries and Wages Expense
|
560
|
|
|
Miscellaneous Expense
|
160
|
|
|
|
7,360
|
7,360
|
Other data:
1. A physical count reveals $500 of supplies on hand.
2. $100 of the unearned revenue is still unearned at month-end.
3. Accrued salaries are $210.
Instructions
Enter the trial balance on a worksheet and complete the worksheet.
Aug 29, 2021 | Uncategorized
The adjusted trial balance columns of the worksheet for DeSousa Company are as follows.
|
DESOUSA COMPANY Worksheet (partial) For the Month Ended April 30, 2014
|
|
|
Adjusted
Trial Balance
|
Income
Statement
|
Balance Sheet
|
|
Account Titles
|
- Cr.
- Cr.
|
|
|
|
|
Cash
|
10,000
|
|
|
|
|
Accounts Receivable
|
7,840
|
|
|
|
|
Prepaid Rent
|
2,280
|
|
|
|
|
Equipment
|
23,050
|
|
|
|
|
Accumulated Depreciation—Equip.
|
|
4,921
|
|
|
|
Notes Payable
|
|
5,700
|
|
|
|
Accounts Payable
|
|
4,920
|
|
|
|
Owner”s Capital
|
|
27,960
|
|
|
|
Owner”s Drawings
|
3,650
|
|
|
|
|
Service Revenue
|
|
15,590
|
|
|
|
Salaries and Wages Expense
|
10,840
|
|
|
|
|
Rent Expense
|
760
|
|
|
|
|
Depreciation Expense
|
671
|
|
|
|
|
Interest Expense
|
57
|
|
|
|
|
Interest Payable
|
|
57
|
|
|
|
Totals
|
59.148
|
59.148
|
|
|
|
Instructions
|
|
|
|
|
|
Complete the worksheet.
|
|
|
|
|
Aug 29, 2021 | Uncategorized
Worksheet data for DeSousa Company are presented below. The owner did not make any additional investments in the business in April.
|
DESOUSA COMPANY Worksheet (partial) For the Month Ended April 30, 2014
|
|
|
Adjusted
Trial Balance
|
Income
Statement
|
Balance Sheet
|
|
Account Titles
|
- Cr.
- Cr.
|
|
|
|
|
Cash
|
10,000
|
|
|
|
|
Accounts Receivable
|
7,840
|
|
|
|
|
Prepaid Rent
|
2,280
|
|
|
|
|
Equipment
|
23,050
|
|
|
|
|
Accumulated Depreciation—Equip.
|
|
4,921
|
|
|
|
Notes Payable
|
|
5,700
|
|
|
|
Accounts Payable
|
|
4,920
|
|
|
|
Owner”s Capital
|
|
27,960
|
|
|
|
Owner”s Drawings
|
3,650
|
|
|
|
|
Service Revenue
|
|
15,590
|
|
|
|
Salaries and Wages Expense
|
10,840
|
|
|
|
|
Rent Expense
|
760
|
|
|
|
|
Depreciation Expense
|
671
|
|
|
|
|
Interest Expense
|
57
|
|
|
|
|
Interest Payable
|
|
57
|
|
|
|
Totals
|
59.148
|
59.148
|
|
|
|
Instructions
|
|
|
|
|
|
Complete the worksheet.
|
|
|
|
|
Instructions
Prepare an income statement, an owner”s equity statement, and a classified balance sheet.
Aug 29, 2021 | Uncategorized
(ABC Costing) Database Design does just what its name indicates: It provides a database design service for its clients. The cost of designing a database can be broken down into three elements:
- Designing the database. The amount of work is based on the accuracy of the customer’s specifications and how much time is spent with the customer to understand those specifications.
- Writing program code. This is a function of the number of (input) screens, file records, and (output) reports, all of which are determined in the design phase.
- Testing. This is also a function of the number of (input) screens, file records, and (output) reports.
Database Design has budgeted for staff and staff-related costs for each of the following:
|
Design Dept.
|
6 staff @ $30,000
|
|
Programming Dept.
|
4 staff @ $25,000
|
|
Testing Dept.
|
2 staff @ $20,000
|
|
Manager
|
1 person @ $45,000
|
Apart from for staff members, the main budget costs are for accommodation (rental and utilities), which costs $100,000 per year; lease costs of computer equipment of $25,000 per year; and travel costs of $10,000.
Accommodation and computer lease costs are primarily attributable to programming and testing staff while travel costs are attributable wholly to design staff. The manager’s costs are split equally among the three functions.
Direct costs and overhead costs are to be allocated on an activity-costing basis, using the following estimates as cost drivers:
|
|
Driver
|
|
Design
|
1,000 design days
|
|
Programming & Testing
|
10,000 screens, records, and reports
|
- Calculate the total budgeted costs for the company.
- Calculate the cost driver rates for each activity.
- Estimate the cost for a job requiring 15 days of design and 150 screens, records, and reports.
Aug 29, 2021 | Uncategorized
(Contrasting Traditional and ABC Costing) Zammit Engineering manufactures a number of components that are sold to the electronics industry. Most of the manufacturing processes are common to the products, and the direct costs (raw materials and labour) are relatively small in relation to the overhead costs, a consequence of the investment in sophisticated technology to mass-produce large numbers of items.
Zammit Engineering has divided its product range into four product groups: liggles, kicklets, zonnets, and carusos. Each product group is manufactured across three departments: Design, Machining, and Assembly. While design and assembly are labour-intensive, machining is capital-intensive.
Overhead costs have been estimated for each of the cost centres as follows:
|
|
Design
|
Machining
|
Assembly & Distribution
|
|
Overhead costs
|
$150,000
|
$250,000
|
$200,000
|
The number of direct labour hours (DLH) available for each department for the same period has been estimated as follows:
|
|
Design
|
Machining
|
Assembly & Distribution
|
|
Direct Labour hours
|
10,000 DLH
|
12,500 DLH
|
20,000 DLH
|
The four product groups require direct labour hours in each of the departments as follows:
|
|
Design DLH
|
Machining DLH
|
Assembly & Distribution DLH
|
Total DLH
|
|
Liggles
|
2,000
|
1,500
|
10,000
|
13,500
|
|
Kicklets
|
3,000
|
1,000
|
5,000
|
9,000
|
|
Zonnets
|
3,000
|
7,000
|
2,000
|
12,000
|
|
Carttsos
|
2,000
|
3,000
|
3,000
|
8,000
|
The Accounting Department recently carried out an activity-based costing exercise that has determined the following cost pool and cost driver information for the business:
|
Cost pool
|
|
Cost driver
|
No. of drivers
|
|
Order entry
|
100,000
|
Customer orders
|
5,000
|
|
Production
|
350,000
|
Production orders
|
2,000
|
|
Delivery
|
150,000
|
Delivery orders
|
5,000
|
Analysis has also shown the number of cost drivers associated with each product:
|
|
Customer Orders
|
Production Orders
|
Delivery Orders
|
|
Liggles
|
1,500
|
500
|
1,000
|
|
Kicldets
|
500
|
1,000
|
1,000
|
|
Zonnets
|
1,000
|
250
|
1,000
|
|
Carusos
|
2,000
|
250
|
2,000
|
- Calculate the overhead per direct labour hour using a departmental rate.
- Calculate the total overhead cost allocated to each of the four product groups using the departmental rate.
- Calculate the costs per cost driver under activity-based costing.
- Calculate the total overhead cost allocated to each of the four product groups using activity-based costing.
- Comment on the approaches to costing and the differences between your answers to (b) and (d) above.
Aug 29, 2021 | Uncategorized
(Absorption and Variable Costing) Clear Auto Glass sold 3,500 windshields in 2011 and produced a total of 4,000 windshields. Total costs incurred for the year included the following:
|
Direct materials
|
$450,000
|
|
Direct labour
|
300,000
|
|
Variable manufacturing overhead
|
150,000
|
|
Variable selling expenses
|
175,000
|
|
Fixed administrative expenses
|
200,000
|
|
Fixed manufacturing overhead
|
350,000
|
In January 2011, the beginning inventory of windshields was zero.
- Compute the ending finished goods inventory under both absorption and variable costing.
- Compute the cost of goods sold under both absorption and variable costing
Aug 29, 2021 | Uncategorized
(Absorption and Variable Costing) Burchell Products sells a product for $25. Unit-level manufacturing costs for each unit are as follows:
- Direct materials, $5.00
- Direct manufacturing labour, $4.50
- Variable manufacturing overhead, $3.25
Marketing expenses are $1.50 per unit plus $35,000 per year. Total fixed manufacturing overhead costs are $60,000 per year. The current production level is 25,000 units per year and the company is budgeting for the sale of 22,000 units in the next year.
- Prepare a budgeted statement of comprehensive income for the year using variable costing.
- Prepare a budgeted statement of comprehensive income for the year using absorption costing.
Aug 29, 2021 | Uncategorized
(Overallocated/Underallocated Overhead) Bob’s Bicycles manufactures high-quality trail bikes. The company has two divisions: Painting and Assembly. Painting is fully automated, as each bike part is run through a paint-spraying machine. Assembly, on the other hand, is highly labour-intensive, as most of the bike parts are assembled by hand. The company allocates overhead costs for the Painting Department based on machine hours and allocates overhead for the Assembly Department based on labour hours. The following are the budgeted overheads and estimated cost drivers for 2012 by department:
|
|
Painting
|
Assembly
|
|
Overhead costs
|
$400,000
|
$175,000
|
|
Estimated DLH
|
2,500
|
30,000
|
|
Estimated machine hours
|
45,000
|
3,125
|
During 2012, Job 445 required the following labour and machine hours:
|
Painting
|
Assembly
|
|
Actual DLH
|
20
|
300
|
|
Actual machine hours
|
475
|
18
|
- How much overhead would be assigned to this job?
- How much was overhead under- or overallocated if the actual overhead costs incurred during 2012 were $625,000, and the actual machine hours for painting were 47,500, and the actual labour hours for assembly were 33,000?
Aug 29, 2021 | Uncategorized
The projected net cash flows for three projects are (in $thousands):
|
Project
|
Year 0
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
|
A
|
$(350)
|
$100
|
$200
|
$100
|
$100
|
$140
|
|
B
|
(350)
|
40
|
100
|
210
|
260
|
160
|
|
C
|
(350)
|
200
|
150
|
2240
|
40
|
0
|
The payback period for each project (in years) is
|
|
A
|
B
|
C
|
|
3
|
3
|
2
|
|
2.5
|
3
|
2
|
|
3
|
2
|
3
|
|
2.5
|
2
|
3
|
Aug 29, 2021 | Uncategorized
The present values of cash flows for projects, each of which has an initial capital outlay of $350,000, are
|
Project A
|
$450,000
|
|
Project B
|
$400,000
|
|
Project C
|
$375,000
|
The cash value added (or profitability index) for each project suggests that the preferred project is
- Project A
- Project B
- Project C
- All projects are the same because the initial capital outlay is the same
Aug 29, 2021 | Uncategorized
Rex Products has been considering the purchase of a new machine. The existing machine will operate for 4 more years and will then have a zero disposal value. If the machine is disposed of now, it may be sold for $60,000. The new machine costs $250,000 and will result in labour savings of $60,000 in additional cash inflows each year.
What is the net present value of the investment, assuming that the cost of capital is 10%? Would the company want to purchase the new machine?
- $(200); no
- $(59,800); no
- $59,800; yes
- $200; yes
Aug 29, 2021 | Uncategorized
Wally’s Plumbing provides commercial plumbing services to large factories. The company is looking at purchasing some new equipment that will have a useful life of 4 years. Information on the investment is as follows:
|
Initial investment:
|
|
|
Asset
|
$90,000
|
|
Changes in annual cash flows
|
|
|
Cash receipts
|
$60,000
|
|
Cash expenditures
|
$35,000
|
|
Salvage value equipment at end of 4 years
|
$10,000
|
In what range is the internal rate of return?
- 8% and 9%
- 9% and 10%
- 7% and 8%
- 10% and 11%
Aug 29, 2021 | Uncategorized
(Payback, ARR, NPV) Greystone Hotel projects the cash flows for three alternative investment projects (in $thousands) as follows:
|
Project
|
Year 0
|
1
|
2
|
3
|
4
|
5
|
|
A
|
$(350)
|
$100
|
$200
|
$100
|
$100
|
$140
|
|
B
|
(350)
|
40
|
100
|
210
|
260
|
160
|
|
C
|
(350)
|
200
|
150
|
240
|
40
|
0
|
Depreciation is $70,000 per year for all three projects.
For each project, calculate
- Payback period
- Accounting rate of return (average)
- Net present value (assuming a cost of capital of 9%)
- Which (if any) project should be accepted?
- Explain why.
Aug 29, 2021 | Uncategorized
(CVA) Freddie Company has $5 million to invest this year. Three projects are available and all are divisible; that is, part of a project may be accepted and the cash flow returns will be pro rata. Details of the projects are as follows:
|
Project
|
1
|
2
|
3
|
|
Cash outlay ($M)
|
3.0
|
2.0
|
1.5
|
|
NPV($M)
|
1.7
|
1.1
|
1.0
|
What is the ranking of the projects that should be accepted? Use CVA to help rank the projects.
Aug 29, 2021 | Uncategorized
(Payback, ARR, NPV) Tropic Investments is considering a project involving an initial cash outlay for an asset of $200,000. The asset is depreciated over five years at 20% per year (based on the value of the investment at the beginning of each year). The cash flows from the project are expected to be as follows:
|
|
Inflow
|
Outflow
|
|
Year 1
|
$ 75,000
|
$30,000
|
|
Year 2
|
90,000
|
40,000
|
|
Year 3
|
100,000
|
45,000
|
|
Year 4
|
100,000
|
50,000
|
|
Year 5
|
75,000
|
40,000
|
- What is the payback period?
- What is the return on investment (each year and average)?
- Assuming a cost of capital of 10% and ignoring inflation, what is the net present value of the cash flows?
- Should the project be accepted?
Aug 29, 2021 | Uncategorized
(Interpreting ARR, Payback, and NPV) The Board of Grudgework Holdings has received a presentation supporting a $600,000 capital investment. The calculations for accounting rate of return, payback, and discounted cash flows are shown below.
|
Accounting Rate of Return
|
Year 0
|
Year 1
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
|
Initial investment
|
$600,000
|
|
|
|
|
|
|
Depreciation @ 20%
|
|
$120,000
|
$120,000
|
$120,000
|
$120,000
|
$120,000
|
|
Book value at year-end
|
|
480,000
|
360,000
|
240,000
|
120,000
|
0
|
|
Cash flows
|
|
150,000
|
250,000
|
200,000
|
150,000
|
100,000
|
|
Profit
|
|
30,000
|
130,000
|
80,000
|
30,000
|
(20,000)
|
|
ARR
|
|
6.3%
|
36.1%
|
33.3%
|
25.0%
|
|
|
Average profits
|
$ 50,000
|
|
|
|
|
|
|
Average investment
|
300,000
|
|
|
|
|
|
|
Average ARR
|
16.7%
|
|
|
|
|
|
|
Payback
|
Year 0
|
Year!
|
Year 2
|
Year 3
|
Year 4
|
Year 5
|
|
Initial investment
|
$(600,000)
|
|
|
|
|
|
|
Cash flows
|
|
$150,000
|
$250,000
|
$200,000
|
$150,000
|
$100,000
|
|
Cumulative cash flow
|
|
150,000
|
400,000
|
600,000
|
|
|
|
Payback
|
|
|
|
= 3 years
|
|
|
|
Net Present Value
|
Year 0
|
Year!
|
Year 2
|
Year 3
|
Year 4
|
Years
|
|
Cash flows
|
$(600,000)
|
$150,000
|
$250,000
|
$200,000 $150,000 $100,000
|
|
Net present value @ 8%
|
$90,303
|
|
|
|
|
What issues would you draw to the attention of the board in considering these figures?
Aug 29, 2021 | Uncategorized
(NPV, Profitability Index, IRR) Criterion Sales is considering three alternative investment proposals but can accept only one of these. The investments and cash flows are shown below:
|
Cash Flows
|
Year 0
|
Year!
|
Year 2
|
Year 3
|
Year 4
|
|
Project A
|
|
|
|
|
|
|
Cash inflows
|
$(150,000)
|
$50,000
|
$75,000
|
$75,000
|
$50,000
|
|
Project B
|
|
|
|
|
|
|
Cash inflows
|
(200,000)
|
75,000
|
75,000
|
75,000
|
75,000
|
|
Project C
|
|
|
|
|
|
|
Cash inflows
|
(300,000)
|
50,000
|
100,000
|
150,000
|
100,000
|
Compare for each alternative investment the
- Net present value
- Profitability index
- Internal rate of return
Which of the three investment proposals would you prefer and why?
Aug 29, 2021 | Uncategorized
(Compare/Contrast NPV and IRR) Glenda’s High Fashion Boutique is looking for a new location for its store. Glenda wants to purchase a small building rather than leasing space in a mall, as she has done in previous years. Her realtor has shown her four possible locations and her accountant has compiled the following information about each of the locations:
|
Location A
|
Location B
|
Location C
|
Location D
|
|
IRR
|
22%
|
16%
|
12%
|
15%
|
|
NPV
|
$25,000
|
$40,000
|
$30,000
|
$45,000
|
Glenda is bewildered by the fact that Location A has the highest IRR but the lowest NPV. She is confused as to which measure to use in order to assess each of the investments.
- Explain to Glenda why Location A might have a higher IRR but lower NPV than the other two locations.
- Which is a better indicator of future potential—IRR or NPV? Explain why.
- What other factors should Glenda consider in order to make a good decision?
Aug 29, 2021 | Uncategorized
What is the value of the total assets for the Frizzle Company?
- $625,000
- $375,000
- $1,000,000
- $6,000,000
In a recent electrical storm, the Frizzle Company lost a portion of its accounting records. The IT manager at Frizzle was able to retrieve the following information:
|
Sales
|
$2,500,000
|
|
Net operating income
|
$1,500,000
|
|
Total assets
|
|
|
Return on investment
|
0.25
|
|
Residual Income
|
|
Aug 29, 2021 | Uncategorized
What is the residual income for the Frizzle Company if the firms cost of capital is 15%?
- $600,000
- $1,406,250
- $1,443,750
- $1,350,000
In a recent electrical storm, the Frizzle Company lost a portion of its accounting records. The IT manager at Frizzle was able to retrieve the following information:
|
Sales
|
$2,500,000
|
|
Net operating income
|
$1,500,000
|
|
Total assets
|
|
|
Return on investment
|
0.25
|
|
Residual Income
|
|
Aug 29, 2021 | Uncategorized
JRT Enterprises has long-term debt with a market value of $2,000,000 and equity with a market value of $3,000,000. For the company, the cost of debt is 15%, while the cost of equity is 10%. The company’s total assets are $800,000. During 2011, JRT reported after-tax profit of $550,000. Information related to the company’s debt on its statement of financial position is shown below:
|
Liabilities
|
|
|
Accounts payable
|
$50,000
|
|
Current portion of long-term loan
|
150,000
|
|
Total current liabilities
|
$200,000
|
|
Long-term debt
|
|
|
Bank loan
|
1,850,000
|
|
Total long-term debt
|
1,850,000
|
|
Total liabilities
|
$2,050,000
|
What is the EVA for JRT Enterprises?
- $478,000
- $460,000
- $472,000
- $490,000
Aug 29, 2021 | Uncategorized
The management of PaperPlus, a paperboard manufacturer, expects a return of 20% on investments. The company currently has total assets of $10,000,000, earns a contribution margin of 60% on sales, has variable costs of $3,000,000 and reports profits of $2,000,000. The manager is considering acquiring another factory, which will increase sales by 40% and will maintain a 60% contribution margin on sales. Fixed costs for the new factory will be $1,000,000. What is the maximum amount of investment the company should make in the new factory in order to meet its ROI expectation?
- $2,800,000
- $4,000,000
- $15,000,000
- None of the above
Aug 29, 2021 | Uncategorized
(ROI, RI) A farm equipment company, with three divisions, shows the following results for 2011:
|
|
Tractor Division
|
Mower Division
|
Harvester Division
|
|
Sales
|
$ 8,000,000
|
$ 9,000,000
|
$10,000,000
|
|
Contribution margin
|
2,000,000
|
2,500,000
|
3,500,000
|
|
Operating income
|
1,500,000
|
1,500,000
|
2,750,000
|
|
Investment base
|
12,000,000
|
14,000,000
|
16,000,000
|
The company’s desired rate of return is 15%.
- Compute each division’s ROI.
- Compute each division’s residual income.
- Rank each division by both ROI and residual income.
- Which division had the best performance in 2001? Why?
Aug 29, 2021 | Uncategorized
Bromide Partners provides three services: accounting, auditing, and tax services. The total business overhead of $650,000 has been divided into two cost pools, as shown below:
|
Partners
|
$200,000
|
|
Juniors
|
$450,000
|
The hours spent by each type of staff are as shown below:
|
|
Accounting
|
Auditing
|
Tax Services
|
Total
|
|
Partner hours Junior hours
|
150
1,200
|
250
2,800
|
400
1,000
|
800
5,000
|
What is the total cost of providing audit services?
- $314,500
- $341,810
- $722,500
- $650,000
Aug 29, 2021 | Uncategorized
(Outsourcing Decision) Cardinal Co. needs 20,000 units of a certain part to use in one of its products. The following information is available.
Cost to Cardinal to make each part:
|
Materials
|
$ 4
|
|
Variable labour
|
16
|
|
Variable manufacturing overhead
|
8
|
|
Fixed manufacturing overhead
|
10
|
|
Total
|
$38
|
The cost to outsource the production of the part to Oriole Co. is $36. If Cardinal buys the part from Oriole instead of making it, Cardinal would have no use for the spare capacity. Additionally, 60% of the fixed manufacturing overhead would continue regardless of what decision is made. Cardinal decides that labour is an avoidable cost for the purposes of this decision.
By comparing the relevant costs, decide whether to make or buy the 20,000 parts.
Aug 29, 2021 | Uncategorized
(Outsourcing Decision) Bendix Ltd. is considering the alternatives of either outsourcing component VX-1 to an outside supplier or producing the component itself. Production costs to Bendix are estimated as follows:
|
Labour
|
$ 200
|
|
Materials
|
600
|
|
Variable overhead
|
100
|
|
Fixed overhead
|
300
|
|
Total
|
$1,200
|
An outside supplier, Cosmo PLC, has quoted a price of $1,000 for each VX-1 for an order of 100 of these components. However, if Bendix accepts the quote from Cosmo, the company will need to give three months’ notice of redundancy to staff.
- Calculate the relevant costs of the alternative choices (show your work) and make a recommendation to management about which choice to accept.
- How would your recommendation differ if Bendix employees were on temporary contracts with no notice period?
- Explain the significance of an inventory valuation of $1,300 for the VX-1 at the end of the last accounting period.
Aug 29, 2021 | Uncategorized
(Relevant Costs of Labour) Call Centre Services (CCS) operates two divisions: a call centre that answers incoming customer service calls on behalf of its clients and a telemarketing operation that makes outgoing sales calls to seek new business for its clients. Each CCS operator can handle on average about 6,000 calls per year.
Although staff are allocated to one division or the other, when there is a high volume of incoming calls, sales staff from the telemarketing division assist customer service staff in the call centre division. This is a result of a current recruitment “freeze.”
The finance department has produced the information shown below.
|
|
Call Centre
|
Telemarketing
|
Total
|
|
Number of calls Fee per call
|
70,000
$5
|
25,000
$10
|
|
|
Revenue
|
350,000
|
250,000
|
$600,000
|
|
Less expenses
|
|
|
|
|
Staff costs: 10 @ $15,000 per year; 5 @ $22,000 per year
|
150,000
|
110,000
|
260,000
|
|
Lease costs equipment (shared 50/50)
|
20,000
|
20,000
|
40,000
|
|
Rent (shared in proportion to staffing: 2/3, 1/3)
|
80,000
|
40,000
|
120,000
|
|
Telephone call charges
|
|
20,000
|
20,000
|
|
Total expenses
|
250,000
|
190,000
|
440,000
|
|
Operating profit
|
$100,000
|
$60,000
|
$160,000
|
What conclusions can you draw about the performance of each of the two divisions?
Aug 29, 2021 | Uncategorized
(Relevant Costs of Labour) Magic Solutions Consultants (MSC) wants to bid for a market research project. The cost estimates on which MSC will base its bid are shown below:
- 200 hours of work in initial data collection and preparation of research questionnaire
- 100 hours can be provided by existing staff who are not currently utilized—their total employment cost is $22 per hour
- 100 hours will have to be provided by temporary staff at a cost of $15 per hour
- MSC’s in-house, existing database resources will be utilized to provide data for the project. The research data that will be used was purchased some months previously at a cost of $2,500. The data have never been used before and are unlikely to be used again. An additional updated report will, however, have to be purchased at a cost of $500.
- Printing and postage of questionnaires will cost $1,000.
- The in-house computer processing facility will process returned questionnaires. The computer facility charges $2,000 for each survey it processes internally.
- The consultancy will have to purchase a specialist software package to undertake the sophisticated statistical analysis required. The software will cost $1,750 and training costs of $500 will be incurred for employees to learn how to use the package. The package may be used again in the future.
- A manager will be involved in the detailed planning, design, and logistics for the research. The manager’s time has been costed at 14 days @ $500 or $7,000, but he is very busy and will have to be remunerated through overtime at an additional cost of $3,500 in order for him to carry out other work that he is committed to complete.
- A partner will supervise the entire project. An estimate of her time has been costed at $1,500, but the consultancy will not incur any additional costs for the project.
- Calculate the cost for the market research project based on the full costs for the project.
- Calculate the relevant cost of the market research project.
- What are the standard costs identified in this case? What are the marginal or variable costs identified in this case? Explain why there is a difference between the costs calculated in (a) and (b).
Aug 29, 2021 | Uncategorized
(Cost of Labour) Sly & Partners is a city law firm with 12 partners and 30 associates. Charge-out rates are based on the following calculations:
|
|
Partners
|
Associates
|
|
Total employment costs
|
$1,000,000
|
$1,350,000
|
|
Target chargeable hours
|
16,000
|
60,000
|
|
Hourly labour cost (rounded)
|
$62.50
|
$22.50
|
|
Total cost per hour (Add 100% to cover fixed costs as these are 100% of total employment costs)
|
$124
|
$44
|
|
Charge-out rate (Add 50% profit margin on total cost base of firm)
|
$186
|
$66
|
At year-end, the partners consider the profit report which shows the following:
|
|
Budget
|
Actual
|
|
Revenue
|
$6,936,000
|
$6,036,000
|
|
Employment costs
|
2,350,000
|
2,250,000
|
|
Other fixed costs
|
2,350,000
|
2,300,000
|
|
Net profit
|
$2,236,000
|
$1,486,000
|
Due to a shortage of work, only 14,000 partner hours and 52,000 associate hours have been billed. To offset this reduction in revenues, the firm was able to reduce expected employment costs by $100,000 ($2,350,000 less $2,250,000) since three associates left the firm and their positions were left vacant.
Provide some explanations for the profit shortfall.
Aug 29, 2021 | Uncategorized
(Labour Efficiency) The Recruitment Department of a major company has 13 staff members: a manager, seven recruiters, and five administrators. The department is continually exceeding its budget for expenses, particularly in relation to overtime payments. There have been some complaints against the department for poor recruitment decisions and the time taken to fill vacant positions.
After holidays, training, and non-recruitment activity, each recruiter has an average of 170 days to carry out recruitment activity, working 7 hours per day. An analysis of business processes has revealed that the average time spent by recruiters is 18 hours on each vacancy. An average of 45 vacancies per month require recruitment action, although there are seasonal fluctuations in this workload.
What steps could the department take to overcome its difficulties?
Aug 29, 2021 | Uncategorized
(Relevant Costs of Labour) Harris Construction Ltd. has been asked to tender for a job to build and install a large customized shed. Harris’s estimator has calculated the following costs associated with satisfying the tender:
- Variable labour to build the shed in the factory: 25 hours. The cost of staff is $30 per hour, including all payroll-related costs; however, Harris has insufficient work at the moment to keep its employees busy.
- Delivery/installation: 4 hours. This will have to be subcontracted at $50 per hour.
- Supervision: Harris always charges 20% of the direct labour in the factory as the cost of supervision. This is an allocation of the costs of the factory manager, store man, and administration staff.
- Materials:
- The timber needed for the shed is regularly used in the factory. Sufficient timber is held in stock to build the shed. The cost of the timber from the stock records is $1,000, but it will cost $1,100 to replace at current prices.
- The shed also needs a metal frame. A suitable frame was purchased 2 years ago for $750 but has never been used. A supplier who saw the frame last week offered Harris $500 for it.
- Indirect materials (paint, fixings, etc.) will cost about $100.
- Overhead: Harris uses a simple method of fixed overhead allocation, charging $250 for every job produced by the factory.
- Other costs: Because the customer requires quality certificates for everything it buys, Harris will need to have the completed shed inspected by a registered inspector at a cost of $175.
- Calculate both the total product cost (using standard accounting practices) and the relevant cost for this custom job.
- What is the lowest price at which the tender should be submitted, assuming that Harris Construction wants to make a profit of $200? What will be the impact of such a price on profits reported in the management profits report? What are the opportunity costs of not undertaking this job?
- Would the lowest price change if Harris’s employees were fully employed with other projects and Harris would need to hire additional staff to handle the job at the same rate as existing employees? Why?
Aug 29, 2021 | Uncategorized
The accounting records of Turner Industries, a manufacturer of flash drives, shows the following costs for the year ended December 31, 2011.
|
Direct materials
|
$700,000
|
|
Direct labour
|
220,000
|
|
Indirect materials
|
100,000
|
|
Indirect labour
|
135,000
|
|
Variable overhead
|
220,000
|
|
Fixed overhead
|
325,000
|
|
Variable selling costs
|
100,000
|
|
Fixed S&A costs
|
185,000
|
The amount of prime costs incurred in 2011 were
920,000
$1,140,000
$1,240,000
$765,000
Aug 29, 2021 | Uncategorized
BCF Ltd. manufactures a product known as a Grunge. Direct material and labour costs for each Grunge are $300 and $150, respectively. To produce a Grunge requires 20 labour hours: 10 hours in machining, 7 hours in assembly, and 3 hours in finishing. Information for each department is as follows:
|
|
Machining
|
Assembly
|
Finishing
|
|
Overhead costs
Labour hours
|
$120,000
20,000
|
$80,000
10,000
|
$30,000
10,000
|
What is the product cost of a Grunge using departmental overhead rates?
$455.75
$467.00
$450.00
$575.00
Aug 29, 2021 | Uncategorized
Haridan Co. uses activity-based costing. The company has two products, A and B. The annual production and sales of Products A and B are 8,000 units and 6,000 units, respectively. There are three activity cost pools, with estimated total cost and expected activity as follows:
|
|
|
Expected Activity
|
|
|
Activity Cost Pool
|
Estimated Cost
|
Product A
|
Product B
|
Total
|
|
Activity 1
|
$20,000
|
100
|
400
|
500
|
|
Activity 2
|
37,000
|
800
|
200
|
1,000
|
|
Activity 3
|
91,200
|
800
|
3,000
|
3,800
|
What is the overhead cost per unit for Product A under activity-based costing?
$18.53
$5.94
$6.60
$21.46
Aug 29, 2021 | Uncategorized
Elandem Ltd. produces 20,000 units of Product L and 20,000 units of Product M. Under activity-based costing, $120,000 of costs are purchasing-related. Each period, 240 purchase orders are produced and the number of orders used by each product is as follows:
|
|
Product L
|
Product M
|
|
Number of Orders
|
80
|
160
|
What is the per-unit activity-based cost of purchasing for Products L and M, respectively?
$2; $4
$3; $3
$500 each
$6; $4
Aug 29, 2021 | Uncategorized
Heated Tools Ltd. uses activity-based costing. It has identified three cost pools and their drivers as follows:
|
|
Purchasing
|
Quality Control
|
Dispatch
|
|
|
Purchase Orders
|
Stores issues
|
Deliveries
|
|
Cost pool Driver
|
$60,000
|
$40,000
|
$30,000
|
|
Quantity
|
12,000
|
4,000
|
2,000
|
What is the cost driver rate for quality control?
$10
$4
$15
$5
Aug 29, 2021 | Uncategorized
Gyro Industries makes hub caps for the car industry. Direct materials are $12 per unit, while direct labour is $2.00 per unit. Variable overhead is $0.50 per unit and fixed overhead is $500,000 per year. Gyro produces 100,000 hub caps per year. 80,000 hub caps were sold this year.
What is the cost per hub cap under absorption costing?
$20.75
$14.00
$14.50
$19.50
Ariana Corp. makes pencils. The actual and budgeted overhead for the year was $350,000. The company produced 5,000,000 pencils during the year and sold 4,760,000 pencils. The cost per batch of 1,000 pencils is as follows:
|
Direct materials
|
$20
|
|
Direct labour
|
$10
|
|
Variable overhead
|
$5
|
Aug 29, 2021 | Uncategorized
What is the cost per batch of pencils if absorption costing is used?
$35
$105
$109
$45
Ariana Corp. makes pencils. The actual and budgeted overhead for the year was $350,000. The company produced 5,000,000 pencils during the year and sold 4,760,000 pencils. The cost per batch of 1,000 pencils is as follows:
|
Direct materials
|
$20
|
|
Direct labour
|
$10
|
|
Variable overhead
|
$5
|
Aug 29, 2021 | Uncategorized
What is the cost per batch of pencils if variable costing is used?
$45
$105
$35
$109
Ariana Corp. makes pencils. The actual and budgeted overhead for the year was $350,000. The company produced 5,000,000 pencils during the year and sold 4,760,000 pencils. The cost per batch of 1,000 pencils is as follows:
|
Direct materials
|
$20
|
|
Direct labour
|
$10
|
|
Variable overhead
|
$5
|
Aug 29, 2021 | Uncategorized
Andy’s Office Warehouse makes office chairs. The following information was reported for the year ended 2011.
|
Total sales
|
$2,300,000
|
|
Direct materials
|
$20 per chair
|
|
Direct labour
|
$25 per chair
|
|
Variable overhead
|
$18 per chair
|
|
Fixed overhead
|
$665,000
|
|
Selling and admin. costs
|
$124,000
|
|
Total production
|
19,000
|
|
Sales
|
18,400
|
The operating profit for 2011 using absorption costing would be
$372,800
$351,800
$314,000
$360,800
Aug 29, 2021 | Uncategorized
(Determination of Overhead Rate) Wolf Creek Industries produces custom uniforms. The company uses machine hours to allocate manufacturing overhead costs to jobs. The following yearly information was compiled for Wolf Creek:
|
Direct materials
|
$245,000
|
|
Direct labour
|
$325,000
|
|
Manufacturing overhead
|
$454,000
|
|
Machine hours
|
45,000
|
During the year, Wolf Creek completed a job for Carston College’s cheerleading team; details are as follows:
|
Direct materials cost per uniform
|
$35
|
|
Direct labour cost per uniform
|
$38
|
|
Total machine hours per uniform
|
3.5
|
|
Total number of uniforms sold
|
65
|
What is the manufacturing overhead rate used by Wolf Creek?
What is the cost of making one uniform for Carston College?
What is the total cost of the Carston College job?
Aug 29, 2021 | Uncategorized
(Activity-Based Costing) Cooper’s Components uses an activity-based costing system for its product costing. For the last quarter, the following data relate to costs, output volume, and cost drivers:
|
Total Overhead Costs
|
$
|
|
Machinery (driven by machine hours)
|
172,000
|
|
Set-ups (driven by production runs)
|
66,000
|
|
Materials handling (driven by store orders)
|
45,000
|
|
Total overhead
|
283,000
|
|
Product
|
A
|
B
|
C
|
|
Production and sales
|
4,000 units
|
3,000 units
|
2,000 units
|
|
Number of production runs
|
12
|
5
|
8
|
|
Number of stores orders
|
12
|
6
|
4
|
|
|
per unit
|
per unit
|
per unit
|
|
Direct costs
|
$25
|
$35
|
$15
|
|
Machine hours
|
5
|
2
|
3
|
|
Direct labour hours
|
4
|
2
|
4
|
What is the total overhead cost assigned to each product?
What is the overhead cost per unit for each product?
What is the total cost per unit for each product?
Aug 29, 2021 | Uncategorized
(Activity-Based Costing) Samuelson uses activity-based costing. The company manufactures two products, X and Y. The annual production and sales of Products X Y are 3,000 and 2,000 units, respectively. There are three activity cost pools, with estimated total cost and expected activity as follows:
|
|
|
Expected Activity
|
|
|
Cost Pool
|
Estimated Cost
|
X
|
Y
|
Total
|
|
Activity 1
|
$12,000
|
300
|
500
|
800
|
|
Activity 2
|
15,000
|
100
|
400
|
SOO
|
|
Activity 3
|
32,000
|
400
|
1,200
|
1,600
|
|
Total costs
|
$59,000
|
|
|
|
- Calculate the overhead cost per unit of Products X and Y under activity-based costing.
- Samuelson wants to contrast its overhead allocation with that under the traditional costing method it previously used. Samuelson previously charged its overhead costs of $59,000 to products in proportion to machine hours. Each unit of X and Y consumed five machine hours in production. Calculate the overhead cost per unit of Products X and Y under the traditional method of overhead allocation.
Aug 29, 2021 | Uncategorized
(CVP Analysis) Clinical Services imports and sells surgical instrument kits to hospitals at a price of $150 per kit. The cost of each kit is $85. Average sales per month are 1,000 kits, which results in the following profit:
|
Sales 1,000 @ $150
|
$150,000
|
|
Cost of goods sold 1,000 @ $85
|
85,000
|
|
Gross profit
|
65,000
|
|
Fixed costs
|
50,000
|
|
Net profit
|
$15,000
|
The national Hospital Purchasing Authority is negotiating with Clinical Services to reduce its selling price by 20%, promising to buy at least 1,200 kits per month. Should Clinical Services accept this offer? If so, why? If not, what would be your suggestion in order for Clinical Services to maintain its current level of profitability?
Aug 29, 2021 | Uncategorized
(Keep or Drop a Product Line) General Consultants Ltd. has four divisions, whose summary profit reports are shown below (in thousands of dollars):
|
|
IT
|
Finance
|
Strategy
|
M&A
|
Total
|
|
Income
|
$1,200
|
$1,700
|
$ 900
|
$1,500
|
$5,300
|
|
Variable staff costs
|
600
|
900
|
350
|
600
|
2,450
|
|
Contribution margin
|
600
|
800
|
550
|
900
|
2,850
|
|
Fixed costs
|
471
|
885
|
804
|
490
|
2,650
|
|
Operating profit/(loss)
|
$ 129
|
$(85)
|
$(254)
|
$ 410
|
$ 200
|
The senior partners are considering whether to continue with the Finance and Strategy consulting activities, as these have consistently been loss makers. The chief accountant has advised the senior partners that businesswide costs, which are included in fixed costs, total $1,200,000. Business-wide costs will continue irrespective of the closure of any division. Those costs are allocated to the four divisions in proportion to their income. The remaining fixed costs in each division are attributable to that division and cover the cost of staff whose expertise means that they can work only in that division. If a division is closed, these fixed costs would be avoidable.
- Present the financial information in a more meaningful form, showing the contribution each division makes to total profitability.
- Advise the senior partners as to
- which, if any, divisions should be closed
- the likely profit, assuming constant sales, if those divisions were closed
- By presenting the financial information in a different form, explain the consequences to remaining divisional profitability if any division is closed.
Aug 29, 2021 | Uncategorized
(Transfer Pricing, Special Orders) The India Company manufactures handmade Persian rugs. Within the India Company, there are two divisions: the Dye Division makes dyes and colours the wool, while the Weaving Division hand weaves each rug. The dyed wool can be sold to outside companies for a price of $20 per kilogram. The finished rugs sell for $1,000 each, and 10 kg of wool are used to make each rug. The following information relates to operations of the India Company for 2011:
|
Number of rugs sold in 2011
|
2,000
|
|
Wool sold to external parties
|
30,000 kg
|
|
Wool sold internally to Weaving Division
|
20,000 kg
|
|
Capacity of Dye Division
|
60,000 kg
|
|
Dye Division: Direct material costs
|
$4 per kg
|
|
Dye Division: Direct labour costs
|
$1 per kg
|
|
Weaving Division: Direct material costs
|
$50 per rug
|
|
Weaving Division: Direct labour costs
|
$300 per rug
|
|
Fixed costs
|
$600,000
|
- Calculate the operating income for each division and for the company as a whole. Use market value as the transfer price.
- If a special order of 20,000 kg of dyed wool was received from an external party during the year at a price of $15 per kg, should the company accept this order?
- What other factors need to be considered, outside of profits?
Aug 29, 2021 | Uncategorized
(Transfer Pricing) The Oak Company is made up of two divisions: the Cutting Division cuts oak to the desired lengths and the Assembly Division uses the oak to manufacture tables. During its first year of operation, the Cutting Division cut 500 cords of oak at a cost of $50,000. This division transferred all of this production to the Assembly Division, which processed the oak into tables for an additional cost of $45 per table. (Note: There are approximately 1,500 board feet in one cord and each table uses approximately 75 board feet). The finished tables are sold by the assembly division for $80 per table.
- Determine the operating income for each division and for the company as a whole if the transfer price from Cutting to Assembly is $100 per cord.
- Determine the operating income for each division and for company as a whole if the Cutting Division uses a cost plus 20% transfer price on wood sold to Assembly.
- What price would the Cutting Division manager prefer: the transfer price in (a) or (b)?
- In this situation, what are the advantages of using a market-based price? A cost-based price?
Aug 29, 2021 | Uncategorized
Nathan Eldridge is a lawyer whose services are in very high demand. He currently has five clients seeking his services but only 80 hours of available time. He has provided the following estimates for each of his clients:
|
Client
|
A
|
B
|
C
|
D
|
E
|
|
Revenue
|
$5,000
|
$7,500
|
$10,000
|
$3,000
|
$3,500
|
|
Costs
|
$2,000
|
$3,500
|
$6,000
|
$1,000
|
$1,000
|
|
Estimated hours
|
15
|
25
|
30
|
5
|
10
|
How should Nathan spend his time? Rank the jobs in order of highest return per hour.
- D, E, A, B, C
- E, D, A, C, B
- C, B, A, E, D
- D, C, A, E, B
Aug 29, 2021 | Uncategorized
Pawistik Corporation makes computer screens that are used in the assembly of laptops which Pawistik sells to the general public. The costs per screen are as follows:
|
Direct materials
|
$12.00
|
|
Direct labour
|
15.00
|
|
Variable overhead
|
15.00
|
|
Fixed overhead
|
22.00
|
Computer Accessories Inc. has offered to sell Pawistik 50,000 of the screens for $45 each. If Pawistik accepts this offer, the company will be able to eliminate $200,000 in fixed manufacturing overhead costs. What is the cost or benefit of purchasing from Computer Accessories?
- $50,000 benefit
- $750,000 cost
- $150,000 cost
- $200,000 benefit
Aug 29, 2021 | Uncategorized
Halls Medical Labs makes medical examining tables for hospitals. The current equipment used to manufacture the tables has a book value of $250,000. Halls is considering replacing the existing equipment because it will increase the company’s production capacity by 500 tables per year. Currently, Halls is operating at full capacity and is not able meet all of the demand for its tables. The cost of the new equipment is $500,000 and the manufacturer will provide a $45,000 trade-in for the old equipment. The tables sell for $2,000 each and have variable costs of $500 each. What is the cost or benefit of purchasing the new equipment if they expect to recoup the cost in one year?
- $455,000 cost
- $45,000 benefit
- $295,000 benefit
- $545,000 benefit
Aug 29, 2021 | Uncategorized
Barb’s Fine Bakery is considering purchasing a new truck for the business. Barb’s existing truck is a gas guzzler, and with increases in the costs of fuel, she feels she may be able to save a great deal of money if she bought a new hybrid truck. Both the old and new trucks are expected to last five years. The following information relates to both the new and the old truck:
|
|
Old Delivery Truck
|
New Delivery Truck
|
|
Original cost
|
$45,000
|
$60,000
|
|
Market value
|
15,000
|
60,000
|
|
Annual operating costs
|
10,000
|
5,000
|
What is the cost or benefit of purchasing the new truck?
- $40,000 cost
- $45,000 cost
- $10,000 benefit
- $20,000 cost
Aug 29, 2021 | Uncategorized
(Product Mix Decisions under Capacity Constraints) Magnificent Products makes three products: Macro, Mezzo, and Micro. The following information has been provided in relation to each product:
|
|
Macro
|
Mezzo
|
Micro
|
|
Budgeted sales units
|
10,000
|
7,500
|
5,000
|
|
Selling price per unit
|
$12
|
$16
|
$18
|
|
Direct materials
|
$ 3
|
$ 6
|
$ 1
|
|
Direct labour
|
$ 3
|
$ 1
|
$ 3
|
|
Machine hours per unit
|
3
|
3
|
5
|
- If the company has a limited production capacity, preventing all of its budgeted sales from being produced, how should Magnificent rank its products for manufacture in order to maximize profitability?
- If the production operation at Magnificent has a set production schedule for the next two months, which means that employees’ work schedules are fixed regardless of the sales mix or production volumes, how will this change your recommended product mix?
Aug 29, 2021 | Uncategorized
(Product Mix) The Ontario Toy Car Company makes two types of tin toy cars: the sedan and the SUV. These tin cars have become a fad among many children and adults. Both cars are made on the same machine but use a slightly different process. In normal operating circumstances, the machine has a capacity of 360 machine hours per month to make both types of cars. The following information relates to the two types of car:
|
Sedan
|
SUV
|
|
Cars made per hour
|
10
|
8
|
|
Selling price
|
528
|
$35
|
|
Direct materials
|
5 9
|
$12
|
|
Direct labour
|
S 5
|
$7
|
|
Variable overhead per car
|
S8
|
$9
|
|
Annual fixed manufacturing costs
|
$75,000 in total
|
- Since these cars are so popular, the Ontario Toy Car Company believes that demand will exceed its supply for the next two years. What is the optimal product mix that maximizes net income for Ontario Toy Cars?
- Assume that the sedan is not quite as popular as the SUV. The company believes that it can sell no more than 1000 sedans per month. Does this change the optimal production mix? How?
- What other factors will the company want to consider before committing to a particular product mix?
Aug 29, 2021 | Uncategorized
(Capacity Utilization) HiTek Industries spends $20,000 per year on Component A. NewIdea Co. has a product that can be used instead of Component A, and it would cost HiTek $30,000 per year, compared to HiTek’s current costs for Component A of $20,000 per year. NewIdea believes that it can justify the additional price through productivity improvements.
NewIdea’s sales representative visits HiTek and is able to determine that HiTek has a maximum capacity of 25,000 units per year. The sales price is $100 per unit and the contribution margin is 30%. HiTek has currently been experiencing a 7.5% scrap rate and a 7.5% downtime rate. NewIdea’s product is expected to reduce scrap to 5% and downtime to 5%.
- Produce a financial justification that will support NewIdea’s proposal, assuming that NewIdea’s products will reduce the downtime and waste to the target levels.
- If you received such a proposal from NewIdea, what would you want to be sure of before accepting it?
Aug 29, 2021 | Uncategorized
(Capacity Utilization) Maximus Company has met all production requirements for the current month and has an opportunity to produce additional units of product with its excess capacity. Unit selling prices and unit costs for three models of one of its product lines are as follows:
|
|
Plain Model
|
Regular Model
|
Super Model
|
|
Selling price
|
$30.00
|
$32.50
|
$40.00
|
|
Direct material
|
9.00
|
10.00
|
9.50
|
|
Direct labour (@ $5 per hour)
|
5.00
|
7.50
|
10.00
|
|
Variable overhead
|
4.00
|
6.00
|
8.00
|
|
Fixed overhead
|
8.00
|
7.50
|
7.50
|
Variable overhead is applied on the basis of direct-labour dollars, while fixed overhead is applied on the basis of machine hours. There is sufficient demand for the additional production of any model of the product line.
- If Maximus Company has excess machine capacity and can add more labour as needed (i.e., neither machine capacity nor labour is a constraint), which product is the most attractive to produce? Provide calculations and reasons to support your answer.
- If Maximus Company has excess machine capacity but a limited amount of labour time available, to which product or products should the excess production capacity be devoted? Provide calculations and reasons to support your answer.
Aug 29, 2021 | Uncategorized
(Product Mix Decision) Process Solutions provides a computer-based document processing service. The accountant has produced the following analysis.
|
|
Standard
|
Modified
|
Advanced
|
|
Sales quantity
|
1,000
|
1,100
|
1,200
|
|
Selling price
|
$5
|
$5
|
$6
|
|
Sales revenue
|
$5,000
|
$5,500
|
$7,200
|
|
Labour hours
|
100
|
120
|
160
|
|
Labour cost @ $20/hour
|
$2,000
|
$2,400
|
$3,200
|
|
Contribution margin
|
$3,000
|
$3,100
|
$4,000
|
|
Contribution margin per unit sold
|
$3
|
$2.82
|
$3.33
|
The sales manager, whose team is paid a commission on sales revenue, prefers to sell the higher priced Advanced service. This is also the preferred service for the accountant, although not for the same reason. The accountant argues that the Advanced service is better because of the higher contribution margin per unit sold. The operations manager argues that the advanced service consumes more labour hours than the Standard or Modified services and as labour availability limits his ability to process work, this should also be taken into account. The operations manager prefers the Standard or Modified service, as these provide greater ability to use his capacity more flexibly.
The general manager has asked for your advice in relation to this disagreement within the management team. What advice would you give her?
Aug 29, 2021 | Uncategorized
(Product Mix Decisions) Swift Airlines has a daily return flight from Saskatoon, Saskatchewan, to Calgary, Alberta. The aircraft for the flight has a capacity of 120 passengers. Swift sells its tickets at a range of prices. Its business plan works on the basis of the following mix of ticket prices for each day’s flight:
|
Business
|
30 @ $300
|
$9,000
|
|
Economy regular
|
40 @ $200
|
$8,000
|
|
Advance purchase
|
20 @ $120
|
$2,400
|
|
Seven-thy purchase
|
20 @ $65
|
$1,300
|
|
Standby
|
10 @ $30
|
$300
|
|
Revenue
|
120 tickets
|
$21,000
|
Swift’s head office accounting department has calculated its costs per flight as follows:
|
Cost per passenger (additional fuel,
|
$25 per passenger X 120 tickets sold = $3,000
|
|
insurance, baggage handling, etc.)
|
|
|
Flight costs (aircraft lease, flight and cabin
|
$7,500 per flight
|
|
crew, airport and landing charges, etc.)
|
|
|
Route costs (support needed for each
|
$2,000 (based on one-half of the daily cost of
|
|
destination)
|
$4,000-balance charged to return flight)
|
|
Business overhead
|
$3,000 (allocation of head office overhead)
|
|
Total
|
$15,500
|
This results in a budgeted profit of $5,500 per flight, assuming that all seats are sold at the budgeted price. The head office accountant for western Canada routes has advised the route manager for Calgary that while the Saskatoon-Calgary inbound leg is breaking even, losses are being made on the Calgary-Saskatoon outbound leg. If profits cannot be generated, the route may need to be closed, with the aircraft and crew being assigned to another route. The route manager for Calgary has extracted recent sales figures, a typical flight having the following sales mix:
|
Business
|
18 @ $300
|
$5,400
|
|
Economy regular
|
28 @ $200
|
$5,600
|
|
Advance purchase
|
16 @ $120
|
$1,920
|
|
Seven-day purchase
|
15 @ $65
|
$ 975
|
|
Standby
|
10 @ $30
|
$ 300
|
|
Revenue
|
87 tickets
|
$14,195
|
The route manager has calculated a loss on each outbound flight of $1,305. She believes that there is a market for 48-hour ticket purchases if a new fare of $40 is introduced, as this would be $5 less than the price charged by a competitor for the same ticket. She estimates that she could sell 15 seats per flight on this basis. This would not affect either the seven-day purchase or standby fares, which are usually oversubscribed. The additional revenue of $600 (15 @ $40) would cover almost half of the loss. The route manager has prepared a report for her manager asking that the new fare be approved and allowing her three months to prove that the new tickets could be sold.
Comment on the route manager’s proposal.
Aug 29, 2021 | Uncategorized
(New Equipment Decision) Harry’s Pizzeria currently uses a gas pizza oven to cook pizzas. Harry was approached by a sales representative from Superior Restaurant Supplies, who offered a new wood-burning pizza oven from Italy that will be cheaper to operate and may increase the sales at the restaurant due to overall demand for “authentic wood-fired” pizzas. Harry has compiled the following information about the two types of ovens:
|
|
Current Oven
|
Wood-Burning Oven
|
|
Original cost
|
$10,000
|
$45,000
|
|
Accumulated depreciation
|
$ 3,000
|
–
|
|
Current salvage value
|
$ 5,000
|
–
|
|
Remaining life
|
10 years
|
10 years
|
|
Annual operating expenses
|
$ 5,000
|
$ 2,000
|
|
Expected increase in sales
|
|
$ 7,000
|
|
Disposal value in 10 years
|
$ 2,000
|
$ 5,000
|
- What costs are relevant to this decision?
- What costs are not relevant?
- What is the overall cost or benefit of replacing the oven over the next 10 years?
- Are there other factors that need to be considered before Harry makes a decision?
Aug 29, 2021 | Uncategorized
(Make or Buy Decision) Power Skateboards sold 15,000 skateboards during 2011, but the company expects to sell 20,000 skateboards in 2012. The company is proud that all components of its skateboards are made in-house. Overall, Power Skateboards is known by the boarding community as a quality skateboard manufacturer. During 2011, the company incurred the following costs to manufacture the skateboard wheels:
|
Direct materials
|
$2 per wheel
|
|
Direct labour
|
$1 per wheel
|
|
Variable overhead
|
$0.50 per wheel
|
|
Set-up costs
|
$2,000 per batch
|
|
Quality control
|
$250 per batch
|
|
Depreciation
|
$10,000 per year
|
Power Skateboards received an offer from an outside supplier of skateboard wheels to supply wheels at a cost of $4.50 per wheel.
Additional information: Depreciation costs relate to the manufacturing plant where the skateboards are made. A percentage share of total depreciation is assigned to manufacturing wheels based on the Wheel Division’s share of the physical space in the plant. The set-up and quality control costs are based on each batch of wheels that is manufactured; at this time, Power Skateboards manufactures 5,000 wheels in each batch. Both set-up and quality control costs will be avoided if the outside supplier sells the wheels to Power Skateboards.
- Assume that the company purchases the wheels from the outside supplier and the plant where the wheels are manufactured remains idle. If this is the case, what is the financial benefit or cost of purchasing the wheels outside?
- Assume that the company will be able to use the idle facilities to provide custom painting on the skateboard decks if the wheels are purchased outside. Power Skateboards anticipates that 5,000 skateboards per year will feature custom painting, for a total price of $25 per board and at variable costs of $18 per board. What is the financial benefit or cost of purchasing the wheels outside but using the idle space to provide a custom painting service?
- What other non-financial factors should be considered before Power Skateboards decides to outsource skateboard wheels?
Aug 29, 2021 | Uncategorized
(Theory of Constraints) Jolly Inc. makes men’s work shirts in two divisions: cutting and assembly. The Cutting Department is highly automated and the Assembly Department uses manual labour to sew the shirts. The Assembly Department is limited by the number of labour-hours available. The company has had to slow down the cutting process so that the sewers do not become overwhelmed by the amount of cut fabric entering the Assembly Department. Further, demand has increased to 10,000 shirts per month and management is considering adding another sewer to the Assembly Department or having the existing sewers work overtime 1.5 hours per day at an overtime rate of one and half times their regular pay. The cost of each sewer is $12 per hour, averaging 8 hours per day and 20 days per month. Currently, the company has 5 sewers and makes 10 shirts per day.
- What is the total production that the company could make in a month if it hired a new sewer?
- What is the total production that the company could make in a month if it had the staff work an additional 1.5 hours per day?
- What is the overall cost difference between hiring a new sewer and having employees work extra time? Should the company hire a new sewer or pay existing sewers overtime to provide the capacity needed?
- What other factors would need to be considered when deciding which approach to take?
Aug 29, 2021 | Uncategorized
(Costs of Quality) CompuTrain creates instructional DVDs that provide instruction on various software applications. Maya Sloan, the company president, just received a report of the company’s quality costs and was surprised to see a dramatic decline in prevention costs as a percentage of total sales over the last two years. Maya was happy to see this decrease in quality costs.
Is Maya correct in thinking this is a good thing? What negative outcomes may occur from this decrease in prevention costs?
P9.15 (Cost of Quality and Environmental Costing) The Ceramic Coffee House has been experiencing declining sales over the last two quarters and has noticed a reduction in the number of customers. Gupta Sanjay, the store owner, recently negotiated a new supply contract with Bargain Beans. He has been able to purchase his coffee beans for a 20% discount over his last supplier.
- Discuss the implications of using a cheaper coffee bean. Be specific as to how this will impact costs of quality.
- What environmental costs might a coffee house need to consider? What are some suggestions to reduce its overall environmental costs?
Aug 29, 2021 | Uncategorized
Grant & McKenzie is a firm of financial advisers that needs to calculate an hourly rate to charge customers for its services.
The average salary cost for its advisers is $50,000. The employer’s share of CPP and EI is paid to the government as 4.95% and 2.52%, respectively. Each adviser has a four-week annual holiday and there are 10 days per year when the firm closes for holidays. Each adviser is expected to do 25 chargeable hours of work per week for clients; the remainder of the 40-hour week is spent on administrative work.
What hourly rate (to the nearest hour) would cover the cost of each financial adviser?
- $46.72
- $29.20
- $43.78
- $41.33
Local Bank does not know how much of its salaries related to cheque processing are fixed and how much are variable. However, total costs have been estimated at $750,000 for processing of 1,000,000 transactions and $850,000 for processing of 1,200,000 transactions.
Aug 29, 2021 | Uncategorized
Zipper Ltd. incurs the following costs to provide each “Special Delivery Service” for its customers:
|
Variable labour
|
$25
|
|
Variable vehicle costs (fuel, etc.)
|
$10
|
|
Fixed vehicle costs
|
$18
|
|
Administrative support (overtime cost)
|
$ 5
|
Zipper is considering outsourcing the service and wants to determine the relevant cost of each Special Delivery Service, assuming that its variable labour could be made redundant at no cost to the business and vehicles could be sold at statement of financial position values. The unavoidable cost for each Special Delivery Service is
- $35
- $28
- $10
- $5
Aug 29, 2021 | Uncategorized
(Process Costing: FIFO Method) Red Coffee Company packages coffee beans for use in restaurants and coffee shops. Direct materials are added at the end of the process. The following data were presented for September:
|
Work in process, beginning inventory
|
85,000 units
|
|
Direct materials (0% complete)
|
|
|
Conversion costs (90% complete)
|
|
|
Started during current period
|
300,000 units
|
|
Completed and transferred out
|
350,000 units
|
|
Work in process, ending inventory
|
|
|
Direct materials (0% complete)
|
|
|
Conversion costs (65% complete)
|
|
The following were costs reported by Red Coffee Company:
|
Beginning WIP inventory:
|
|
|
Direct materials
|
$85,000
|
|
Conversion costs
|
$15,000
|
|
Added in September:
|
|
|
Direct materials
|
$320,000
|
|
Conversion costs
|
$85,000
|
Determine the value of the finished goods inventory and the ending inventory for the month of September using the FIFO method of process costing.
Aug 29, 2021 | Uncategorized
(Process Costing: Weighted Average and FIFO Method) Green Machine is a company that makes ride-on mowers for home use. The company utilizes an assembly-line manufacturing system to make the mowers. The company uses process costing as it does not keep track of each individual mower’s costs. Materials are added at the beginning of the process and conversion costs are uniformly incurred. At the beginning of September, the beginning work-in-process inventory was 75% complete and at the end of the month it was 50% complete. The following information pertains to the month of September:
|
Beginning work-in-process inventory
|
1,200 mowers
|
|
Units started
|
2,000 mowers
|
|
Units placed in finished goods
|
2,800 mowers
|
|
Conversion costs added in September
|
$250,000
|
|
Cost of direct materials for September
|
$800,000
|
|
Beginning work-in-process costs include
|
|
|
Materials
|
$450,000
|
|
Conversion
|
$180,000
|
Determine the cost of units completed in September using the FIFO and the weighted average methods of process costing.
Aug 29, 2021 | Uncategorized
(Process Costing: Weighted Average) Massive Mining Co. refines iron ore for export markets. The following data relates to the company’s mine for the month of April:
25,000 units of work in process existed on April 1, the costs for which were as follows:
|
Direct materials
|
$18,500
|
|
Conversion
|
$36,750
|
Production of 35,000 units commenced during April. The costs incurred during the month for refining were as follows:
|
Direct material
|
$300,000
|
|
Conversion
|
$230,000
|
The closing work in process on April 30 was 15,000 units. Materials were added at the beginning of the refining process and conversion was one-third complete at month end.
- Calculate the cost per equivalent unit for the month of April using the weighted average method of process costing.
- Calculate the value of work in process and the value of completed inventory transferred to finished goods during the month.
Aug 29, 2021 | Uncategorized
(Job Costing) The job cost records for Azzizi Company for the month of June show the following information:
|
Job No.
|
Date Finished
|
Date Sold
|
Job Cost at June 30
|
|
101
|
June 10
|
June 25
|
$10,500
|
|
102
|
June 21
|
June 25
|
8,900
|
|
103
|
July 6
|
July 10
|
13,600
|
|
104
|
June 29
|
July 1
|
8,800
|
|
105
|
July 9
|
July 15
|
14,000
|
- Determine the value of the work-in-process inventory for June 30 and the finished goods for June 30.
- What is the value of the cost of goods sold for June?
Aug 29, 2021 | Uncategorized
(Job Costing) Schell, Pickings, and Matthews is a law firm that focuses on environmental law. It employs ten lawyers and three partners. During the last year, each lawyer and partner charged 1,500 billable hours to clients. Lawyer salaries for the current year are $1,800,000 in total and partner salaries averaged $375,000 per partner. Other costs including administrative support, computer services, and legal assistance are charged at a rate of 50% of direct wages. For a recent client, the company billed 50 hours of lawyer time and 10 hours of partner time. What is the cost of the client? If the firm charges a rate of 200% of cost to its clients, what will be the fee charged to the client?
Aug 29, 2021 | Uncategorized
(Job Costing) Fisher Ltd. manufactures custom furniture and uses a job costing system. On January 1, 2012, there were no balances in work-in-process or finished goods inventories. The following events occurred in January 2012:
- The company began two jobs: Job A101 (comprising 40 tables) and Job B202 (comprising 60 chairs).
- 400 square metres of timber were purchased at a total cost of $5,800.
- 80 litres of glue were purchased at a cost of $6 per litre.
- The following materials were issued during the month:
Issue 1: Job A101—200 square metres of timber
Issue 2: Job B202—150 square metres of timber
Issue 3: 20 litres of glue to be used on each job
- The following number of direct labour hours were spent on the two jobs:
Job A101: 200 direct labour hours
Job B202: 100 direct labour hour
Actual direct labour cost per hour was $30.
- Overhead should be charged to each job on the basis of $25 per direct labour hour.
- Job A101 was completed and 30 tables from the job were sold for a total price of $15,000. Job B202 was unfinished at month-end.
- Calculate the inventory value at month-end of
- Raw materials
- Work in process
- Finished goods
- Calculate the cost of goods sold and gross profit for the month.
Aug 29, 2021 | Uncategorized
(Long Term Contracts) Smiley Homes recently purchased a large piece of land and has begun construction of ten new homes, which are anticipated to cost a total of $280,000 each to manufacture. At the end of Year 1, Smiley Homes has incurred the following costs:
|
Land purchase
|
$1,200,000
|
|
Materials
|
500,000
|
|
Salaries and wages
|
750,000
|
|
Overhead
|
250,000
|
The homes will be sold for $450,000 each. At the end of Year 1, $1,300,000 of certified work was completed. What profit will be reported in Year 1 for the project?
Aug 29, 2021 | Uncategorized
(Long-Term Contract Pricing) The Children’s Hospital has hired Fared Construction as the contractor to build the new cancer wing for the hospital. The project, earning Fared Construction $52,000,000 in revenues, is expected to extend over four years and cost $47,500,000. At the end of Year 1, Fared Construction has spent the following on construction:
|
Materials
|
$ 6,500,000
|
|
Labour
|
3,600,000
|
|
Overhead
|
2,800,000
|
|
Total
|
12,900,000
|
A progress payment of $15,000,000 was paid to Fared Construction at the end of Year 1.
How much will Fared Construction report on their income tax for Year 1, using the percentage of completion method?
Aug 29, 2021 | Uncategorized
(Economic Order Quantity) Houston Publishing purchases paper by the ream for the production of textbooks for colleges and universities. One ream of paper is equivalent to approximately 500 pages of paper. The publisher normally purchases 4,000 reams of paper a year. The paper is ordered in quantities of 400 reams, approximately 10 times per year. The carrying cost of one ream of paper is $5, while the ordering cost is $35 per order.
- What is the economic order quantity of reams of paper?
- What are the overall cost savings if the company changes from an order size of 400 reams to the economic order size?
Aug 29, 2021 | Uncategorized
(Economic Order Quantity) UltraFit Organic Foods orders many of its grocery items in lot sizes of 50 units. Average demand for organic coffee is 20,000 one-kilogram bags per year. Ordering cost is $12.50 per order, with an average purchasing price of $8. Annual inventory carrying cost is $1.50 per one-kilogram bag of coffee.
- What is the economic order quantity for coffee?
- What are the annual cost savings if the shop orders the economic order quantity as opposed to the 50-unit lots?
- If the coffee beans have a shelf life of only 90 days, what is the optimal order size?
Aug 29, 2021 | Uncategorized
At Goldfish Enterprises, the costs for 15,000 hours of consultant services are $345,000 and the costs for 7,000 hours are $185,000. What are the variable costs per unit for Goldfish?
- $20.00
- $23.00
- $26.43
- $10.67
Midlands Products estimates the costs of one unit of a product as
|
Direct materials
|
40 kg @ $2.50 per kg
|
|
Direct labour
|
7 hours machining @ $12 per hour
|
|
4 hours finishing @ $7 per hour
|
Variable production overhead is applied at a rate of $5 per direct labour hour
Fixed production overhead is $1,000,000, based on a production volume of 12,500 units
Aug 29, 2021 | Uncategorized
What is the variable cost of producing one unit?
- $100
- $202
- $267
- $265
Midlands Products estimates the costs of one unit of a product as
|
Direct materials
|
40 kg @ $2.50 per kg
|
|
Direct labour
|
7 hours machining @ $12 per hour
|
|
4 hours finishing @ $7 per hour
|
Variable production overhead is applied at a rate of $5 per direct labour hour
Fixed production overhead is $1,000,000, based on a production volume of 12,500 units
Aug 29, 2021 | Uncategorized
What is the total production cost for one unit?
- $106.50
- $297.00
- $347.00
- $267.00
Midlands Products estimates the costs of one unit of a product as
|
Direct materials
|
40 kg @ $2.50 per kg
|
|
Direct labour
|
7 hours machining @ $12 per hour
|
|
4 hours finishing @ $7 per hour
|
Variable production overhead is applied at a rate of $5 per direct labour hour
Fixed production overhead is $1,000,000, based on a production volume of 12,500 units
Aug 29, 2021 | Uncategorized
Hall Company produces 1,000,000 widgets per year and has a total plant capacity of 1,200,000 widgets. Based on making 1,000,000 widgets a year, the revenues and costs for one widget are
|
Revenue
|
$23.00
|
|
Direct materials
|
5.00
|
|
Direct labour
|
2.50
|
|
Variable overhead
|
2.00
|
|
Fixed overhead
|
10.00
|
|
Total cost
|
$19.50
|
The company was approached by a key customer to provide 200,000 widgets at a reduced price. What is the minimum price the company could accept on this special order?
- $9.50
- $19.50
- $23.00
- None of the above
Aug 29, 2021 | Uncategorized
Gigantic Motors has just developed a new SUV—the Rage. The costs associated with making the Rage include
|
Direct materials
|
$13,400
|
|
Direct labour
|
$15,000
|
|
Variable overhead
|
$ 5,000
|
|
Fixed overhead
|
$ 8,000
|
What is its prospective selling price, using cost-plus pricing, if the company wants a mark-up of 15%?
- $52,850
- $38,410
- $41,400
- $47,610
Aug 29, 2021 | Uncategorized
(Cost Classification) The table below shows cost items for Gobblers Restaurant. Classify each of the items as a variable, fixed, mixed, or step cost and explain your reasoning.
|
Cost
|
Variable
|
Fixed
|
Mixed
|
Step
|
|
Food
|
|
|
|
|
|
Napkins
|
|
|
|
|
|
Tablecloths
|
|
|
|
|
|
Server wages
|
|
|
|
|
|
Kitchen manager salary
|
|
|
|
|
|
Electricity
|
|
|
|
|
|
Rent
|
|
|
|
|
|
Depreciation on kitchen
|
|
|
|
|
|
equipment
|
|
|
|
|
|
Telephone
|
|
|
|
|
|
Oil for deep fryer
|
|
|
|
|
|
Internet service
|
|
|
|
|
(Optimum Selling Price) Luffer Enterprises estimates the following demand for its services at different selling prices. All demand is within Luffer’s relevant range. Variable costs are $15 per unit and fixed costs are $10,000.
|
Price ($)
|
Quantity
|
|
26
|
1,075
|
|
27
|
1,000
|
|
28
|
925
|
|
29
|
850
|
|
30
|
775
|
- Calculate the level of sales that will generate the highest profit.
- If fixed costs increased by 5% at volumes of 900 units or over, how would this change your answer to (a)?
Aug 29, 2021 | Uncategorized
(Pricing Decision) Godfrey Associates adopts a target rate of return pricing system for its services and expects a target rate of return of 25% on an investment of $750,000. Its labour costs are $25 per hour and other variable costs are $4 per hour. The company anticipates charging 20,000 hours per year to clients and has fixed overheads of $250,000.
- Calculate Godfrey’s target selling price per hour.
- Assume Godfrey operates in a competitive market where the average market price is $50 per hour. What price should Godfrey charge per hour? Is this price feasible with its current cost structure?
- Assume the competitive market price is still $50 per hour, if Godfrey was able to charge 30,000 hours per year, how would this impact its profitability?
Aug 29, 2021 | Uncategorized
(Optimum Selling Price) The marketing department of Giggo Hotels has estimated the number of hotel rooms (it has a capacity of 200) that could be sold at different price levels. This information is shown below:
|
Number of Rooms Sold
|
Price per Room per Night
|
|
120
|
$ 90
|
|
100
|
105
|
|
80
|
135
|
|
60
|
155
|
|
50
|
175
|
Giggo has estimated its variable costs at $25 per room per night. It also incurs costs of $10 per room per night for utilities, depreciation, and security, regardless of the occupancy rate.
- Calculate the occupancy rate that Giggo needs in order to maximize its profits.
- What occupancy rate does Giggo need to break even if its price was set at $125 and fixed costs were $15,000?
Aug 29, 2021 | Uncategorized
(CVP Analysis) Jacobean Creek Corporation has provided the following data for last year:
|
Sales
|
5,000 units
|
|
Sales price
|
$80 per unit
|
|
Variable cost
|
$55 per unit
|
|
Fixed cost
|
$25,000
|
For the current year, Jacobean Creek believes that although sales volume will remain constant, the contribution margin per unit can be increased by 20% and total fixed cost can be reduced by 10%.
- Calculate the operating profit for last year and the current year.
- What is the increase in profit between the two years?
Aug 29, 2021 | Uncategorized
(Keep or Drop a Product Line) Travesty Stores are considering deleting its porcelain product due to losses being experienced. Travesty’s summary profit report shows the following:
|
|
Cutlery
|
Glassware
|
Porcelain
|
Total
|
|
Sales
|
$30,000
|
$35,000
|
$10,000
|
$75,000
|
|
Variable costs
|
15,000
|
20,000
|
7,000
|
42,000
|
|
Avoidable product-related fixed costs
|
5,000
|
7,500
|
2,500
|
15,000
|
|
Allocated corporate fixed costs
|
5,000
|
5,833
|
1,667
|
12,500
|
|
Operating profit
|
S 5,000
|
$ (1,667)
|
S(1,167)
|
$ 5,500
|
- What allocation basis is the company using to allocate the corporate fixed costs?
- What is the effect on Travesty’s operating profit if it drops the porcelain product line?
- If the allocated corporate fixed costs could be decreased by 25% overall, would this change the decision in (a)? Show calculations.
Aug 29, 2021 | Uncategorized
Cindy’s Restaurant has three revenue divisions with direct costs and average monthly figures given in the following information:
|
Dining Room
|
Banquet Room
|
Beverages
|
|
Sales revenue
|
$202,000
|
$108,000
|
$90,000
|
|
Cost of sales
|
81,000
|
41,000
|
28,000
|
|
Wages and salaries cost
|
64,455
|
34,795
|
12,000
|
|
Other direct costs
|
18,640
|
8,960
|
1,600
|
The restaurant also has the following indirect, undistributed costs:
|
Administrative and general expenses
|
$13,000
|
|
Marketing expenses
|
9,000
|
|
Utilities expense
|
6,000
|
|
Property operation and maintenance
|
12,000
|
|
Depreciation expense
|
14,000
|
|
Insurance expense
|
2,000
|
a. Prepare a consolidated contributory income statement showing each of the three divisions side by side for comparison. Do not allocate indirect costs.
b. Allocate the indirect costs to the divisions and prepare a departmental income statement for each division. Administrative, general, and marketing costs are allocated based on sales revenue. The remaining indirect costs are allocated based on square footage used by each division: Dining 2,400 sq. ft. Banquet 3,000, sq. ft. Beverage 600 sq. ft.
c. After allocating the indirect costs, would you consider closing any of the divisions? Why or why not?
Aug 29, 2021 | Uncategorized
a. Calculate the contributory income percentage for each of the three divisions.
b. If there were a shift of $16,000 in sales revenue from the banquet area to the dining room, would you expect the restaurant’s overall operating income to increase or decrease? Explain your reasoning to support your answer.
c. Assuming that the shift of sales revenue does occur, there is no change in total sales revenue and undistributed (indirect) costs. Other direct costs will remain fixed. Wages and salaries costs must be recalculated. Calculate the new operating income for each department and the restaurant’s new total operating income. In calculating such items as cost of sales percentage, gross margin percentage, and wages and salaries, round your percentages to the first decimal place.
d. After allocating the indirect costs, would you now consider closing any of the divisions? Why or why not?
Aug 29, 2021 | Uncategorized
Using the adjusted trial balance shown below, prepare a balance sheet in vertical report format. Identify each account using specific categories and classifications such as current assets, current liabilities, and so on. After completing the balance sheet, check off each item in the trial balance to ensure each item is shown in the balance sheet.
|
Accounts
|
Debit
|
Credit
|
|
Cash
|
$ 4,100
|
|
|
Credits cards receivable
|
7,560
|
|
|
Accounts receivable
|
1,940
|
|
|
Inventories
|
8,200
|
|
|
Prepaid expenses
|
1,900
|
|
|
Land
|
80,000
|
|
|
Building
|
712,800
|
|
|
Accumulated depreciation: (Building)
|
|
$ 186,400
|
|
Equipment
|
119,080
|
|
|
Accumulated depreciation: (Equipment)
|
|
35,625
|
|
Furnishings
|
64,120
|
|
|
Accumulated depreciation: (Furnishings)
|
|
11,875
|
|
China and tableware
|
9,680
|
|
|
Glassware
|
2,420
|
|
|
Accounts payable
|
|
8,600
|
|
Accrued expenses payable
|
|
2,700
|
|
Income taxes payable
|
|
6,100
|
|
Current portion, mortgage payable
|
|
13,100
|
|
Mortgage payable
|
|
406,900
|
|
Capital stock
|
|
151,000
|
|
Retained earnings.
|
|
189,500
|
|
Trial Balance Totals
|
$1,011,800
|
$1,011,800
|
Aug 29, 2021 | Uncategorized
George Jarvis purchased a trailer park on January 1, 0004. It is now March 31. George has no accounting training but has kept a record of his cash receipts and cash payments for the three months (see next page): As Mr. Jarvis’s accountant, you discover the following additional information:
a. The building has an estimated life of 20 years and straight-line depreciation is used.
b. The office equipment has a five-year life with a trade-in value of $500.
c. The insurance was prepaid on January 1 for the entire year.
|
Cash Receipts
|
Cash Payments
|
|
Jarvis investment for trailer
|
$100,000
|
|
|
park shares
|
|
|
|
Land
|
|
$168,600
|
|
Building
|
|
216,000
|
|
Office equipment
|
|
8,000
|
|
Mortgage payable
|
350,000
|
|
|
Insurance
|
|
4,800
|
|
Wages
|
|
4,500
|
|
Maintenance
|
|
400
|
|
Office supplies
|
|
300
|
|
Utilities
|
|
900
|
|
Property taxes
|
|
6,000
|
|
Jarvis, salary
|
|
10,500
|
|
Rental sales revenue
|
60,000
|
|
|
Mortgage interest expense
|
|
4,667
|
|
Mortgage principal payments, Jan.
|
|
2,000
|
|
and Feb.
|
|
|
d. The wages are for the maintenance worker who worked but has not yet been paid for five days during the period ending March 31. The wage is $9.00 per hour and the work day is eight hours.
e. An invoice for grounds maintenance expense of $80 has not yet been paid.
f. There are $100 in office supplies remaining in inventory.
g. The March utility bill has not yet been received. It is estimated to be $400.
h. The property taxes were paid in January for the entire year.
i. A rental tenant whose rent is $200 has not yet paid for March.
j. Included in the $60,000 received for rental income to date is the amount for a tenant who has prepaid for the entire year. The rent is $175 per month.
k. No interest or principal has been paid on the mortgage for March. Interest for March is $2,333. Principal payments for the balance of the year (including March) are $12,000.
l. The income tax is 25 percent of operating income and is payable in April. Using accrual based accounting, prepare an income statement for the three months ending March 31 and a balance sheet as of March 31.
Aug 29, 2021 | Uncategorized
A motel has established a petty cash fund of $100 that is controlled by the day shift desk clerk. During October, the following disbursements supported by receipts or memoranda were made from the fund. Calculate the amount of the reimbursement check to the fund at the end of October 2003.
|
October 2
|
$13.51
|
flowers for a VIP guest
|
|
2
|
4.30
|
postage stamps
|
|
5
|
15.28
|
cleaning supplies
|
|
7
|
7.11
|
freight on delivery of linen
|
|
8
|
1.58
|
office supplies
|
|
15
|
11.50
|
postage stamps
|
|
16
|
5.00
|
refund to guest
|
|
20
|
12.00
|
replacement light bulbs
|
|
22
|
0.48
|
postage due
|
|
28
|
3.75
|
cutting new keys
|
|
31
|
6.45
|
gas for the lawnmower
|
In the same establishment, the following disbursements were made from the petty cash fund in November 2003:
|
November 1
|
$ 3.07
|
office supplies
|
|
4
|
14.20
|
flowers for lobby
|
|
7
|
1.30
|
office supplies
|
|
7
|
12.00
|
casual wages to cut the lawn
|
|
10
|
0.32
|
postage due
|
|
13
|
11.50
|
postage stamps
|
|
14
|
4.60
|
COD parcel for owner
|
|
18
|
11.00
|
taxi cost for owner
|
|
21
|
3.26
|
collect telegram
|
|
24
|
4.02
|
freight on linen delivery
|
|
24
|
1.16
|
office supplies
|
|
29
|
10.50
|
postage stamps (note there was no receipt for this)
|
|
30
|
1.16
|
stamps
|
The desk clerk has added these items and requests a reimbursement check for $86.09. A count of the cash by the manager shows there is $1.91 still in the fund, plus an IOU from the clerk for $12.00. What comments do you have about the petty cash fund for November 2003?
Aug 29, 2021 | Uncategorized
Tavara’s Tavern reconciles its bank statement monthly. At the beginning of July, it found the following concerning the June reconciliation: The bank balance on the bank statement was $4,810, and the bank balance according to the tavern’s records was $5,112. Checks #306 in the amount of $27, #309 in the amount of $108, and #311 in the amount of $87 were still unpaid by the bank at June 30. At the end of June, the bank had added to the tavern’s bank account an amount of $38 for interest earned on a separate savings account it has at the bank and had deducted $8 for a service charge. A deposit made by the tavern on June 30 in the amount of $554 did not appear on the bank’s statement. Prepare Tavara’s bank reconciliation for June 30, 2003.
Aug 29, 2021 | Uncategorized
The bookkeeper who has worked for a small hotel for more than 30 years is retiring. Because he was such a reliable employee, he was given more and more responsibility over the years and did virtually all of the work, such as keeping all the accounting records, approving invoices for payment, preparing checks, and, in the absence of the hotel’s owner, signing checks that needed to be sent to suppliers. His daily duties included collecting the cash at the end of the day from the front office and restaurant, clearing the machine tapes, counting and verifying cash against tapes, depositing the cash in the bank, and making the necessary entries in the hotel’s bookkeeping records. At month-end he would do the bank reconciliation. The hotel’s owner realizes that she cannot hire and train someone to take over all the responsibilities of the retiring bookkeeper and that it would not be desirable for internal control purposes to do so. She knows that she will have to assume some of the retiring employee’s duties. She is busy already, since, as well as generally managing the hotel she does all the ordering of food supplies for the restaurant and all the ordering and receiving of bar supplies. From an internal control point of view, discuss which of the retiring bookkeeper’s responsibilities the owner should take over while, at the same time, minimizing the amount of time this would require.
Aug 29, 2021 | Uncategorized
The owner of Charlene’s Restaurant believes that her food cost is higher than it should be. Charlene thinks that the problem might be in the receiving area and/or the dining area because she says she has good control over food in storage and production. She has asked you to see what you can determine. By observation, you notice that when drivers make deliveries they obtain a signature from any restaurant employee who happens to be near the receiving dock in the absence of the receiver/ storekeeper. Deliveries are then left at the receiving dock until the goods received can be moved to a storage area. Sometimes invoices are left with food containers; at other times no documentation is left. It is assumed that suppliers will mail the missing invoices to Charlene’s office.
In the dining area you notice that the servers do not use printed sales checks to record customers’ orders but simply note orders on scratch pads. They then tell the cooks what they need and pick up and deliver food to the customers. When the customers wish to pay, the servers jot down the total amount due on the scratch pad page, present the page to the customer, collect the cash, and put it into a cash drawer. No sales are recorded in the cash register. “Used” scratch pad pages are placed in a box beside the cash drawer.
In both receiving and dining areas, outline the possible problems that current procedures create and suggest to Charlene practices that would probably solve the problems.
Aug 29, 2021 | Uncategorized
A restaurant has been in operation for the past five years and has successfully increased its revenue each year. One of the reasons is that in the third year the owner began extending credit to local businesspeople who regularly used the restaurant. They were allowed to sign their sales checks and were then sent an invoice at each month-end. The owner is concerned that this credit policy may have led to increases in losses from bad debts (uncollectable accounts receivable) that were not justified by increases in revenue. The restaurant operates at a 60 percent gross profit ratio, and other operating expenses (not including bad debts) are 50 percent of revenue. Following are the credit revenue and bad debt figures for the past five years:
|
Year
|
Credit Revenue
|
Bad Debts
|
|
1
|
$160,000
|
$ 960
|
|
2
|
180,000
|
900
|
|
3
|
240,000
|
3,840
|
|
4
|
300,000
|
4,500
|
|
5
|
360,000
|
5,400
|
In a columnar schedule for each year, record the credit revenue, cost of sales, gross profit, operating expenses, income before bad debts, bad debts, and net income. In addition, for each year, calculate the bad debts as a percentage of charge or credit revenue. Write a brief report to the owner with particular reference to control over bad debt losses and the restaurant’s credit policy.
Aug 29, 2021 | Uncategorized
At some of the banquets held in a hotel, the bar is operated on a cash basis. All drinks are the same price. Banquet customers buy drink tickets from a cashier at the door. The customers then present the tickets to the bartender to obtain drinks. The bartender will not serve any drink without a ticket. As each ticket is presented, it is torn in half by the bartender to prevent its reuse. Torn tickets are subsequently discarded. At the end of the function the amount of drinks sold, calculated by taking an inventory of liquor still in bottles and deducting from the opening inventory, is compared with the cash taken in by the cashier and with the number of tickets sold.
In order to cut costs, the hotel is considering eliminating the cashier’s position and the sale of tickets. The customers will pay the bartender directly for the drinks. From an internal control point of view, what comments do you have about this proposal?
Aug 29, 2021 | Uncategorized
A fast-food restaurant features only three entree items on its menu with the following cost and selling prices:
|
Item
|
Cost
|
Selling Price
|
|
1
|
$2.00
|
$6.60
|
|
2
|
4.40
|
8.80
|
|
3
|
3.90
|
9.75
|
a. For each item calculate the food cost percentage.
b. If 50 of each item are sold each day, what will the standard food cost percentage be? What is the contribution margin in dollars?
c. If only 25 each of items one and three were sold and 100 of item two, what effect will this have on the standard cost percentage? What is the contribution margin in dollars?
d. Comment on the results of this analysis.
Aug 29, 2021 | Uncategorized
The sales records for a coffee shop that has only six items on its menu show the following quantities sold during the month of January. Item standard cost and selling prices are also indicated.
|
Item
|
Cost
|
Selling Price
|
Quantity Sold
|
|
1
|
$2.00
|
$6.00
|
654
|
|
2
|
1.10
|
4.50
|
2,196
|
|
3
|
2.25
|
7.00
|
1,110
|
|
4
|
1.75
|
5.00
|
990
|
|
5
|
2.25
|
5.00
|
295
|
|
6
|
2.00
|
7.95
|
259
|
Actual cost for the month of January was $9,201. Actual revenue for the month of January was $30,060.
a. Calculate the standard cost percentage and the actual cost percentage for January. Round all dollar amounts to the nearest dollar.
b. Compare the results. If you were the dining room manager, explain why you would or would not be satisfied with the results.
Aug 29, 2021 | Uncategorized
A fast-food restaurant uses a standard cost approach to aid in controlling its food cost. The following are the standard cost, sales prices, and quantities sold of each of the five items featured on the menu during a particular week:
|
Item
|
Standard Cost
|
Sales Price
|
Quantity Sold
|
|
1
|
$1.80
|
$3.95
|
260
|
|
2
|
2.10
|
4.95
|
411
|
|
3
|
4.20
|
8.95
|
174
|
|
4
|
3.05
|
6.95
|
319
|
|
5
|
1.40
|
3.95
|
522
|
Total actual cost for the week was $3,804.10 and total actual sales revenue was $8,873.40.
a. Calculate actual and standard food cost percentages and comment on the results.
b. The following week, with no change in menu or standard cost and selling prices, there was a change in the sales mix. Although quantities sold of items two, three, and five were virtually the same, many more of item four and many less of item one was sold. As a result of this, would you expect the overall standard cost percentage to increase or decrease? Explain your answer.
Aug 29, 2021 | Uncategorized
Jerry’s Engineering has a three-year contract to construct a large piece of capital equipment for its client. The contract price is $4 million. At the end of the first financial year of the project, material, labour, and overheads charged to the job totalled $850,000. Jerry estimates that a further $2.65 million will be required to complete the job. An independent evaluation has certified the value of the work completed as $850,000, which the client has paid under the contract as a progress payment.
The profit that Jerry can recognize as having been earned in the current year is
- $500,000
- $331,250
- $121,500
- None of the above
Aug 29, 2021 | Uncategorized
The following information has been recorded for Model B manufactured by JKL Enterprises:
|
Annual ordering costs
|
$4,000
|
|
Annual carrying costs
|
$6,000
|
|
Average inventory level of Model B
|
300
|
|
Orders per year
|
40
|
|
Average daily demand
|
36
|
|
Working days per year
|
250
|
The EOQ for Model B is
- 1,639
- 300
- 110
- None of the above
Aug 29, 2021 | Uncategorized
(Cost of Goods Manufactured and Cost of Goods Sold) Goodman Products has the following balances for its accounts for the quarter ending March 31:
|
Direct manufacturing labour
|
$150,000
|
|
Direct materials used
|
120,000
|
|
Depreciation of manufacturing equipment
|
80,000
|
|
Depreciation of computer equipment
|
41,000
|
|
Plant utilities
|
38,000
|
|
Property taxes on building
|
5,500
|
|
Miscellaneous plant overhead
|
46,000
|
|
Finished goods inventory
|
165,000
|
|
General office expenses
|
98,000
|
|
Marketing costs
|
22,000
|
|
Work-in-process inventory
|
65,000
|
At the beginning of the quarter (January 1), the following balances for inventories were reported:
|
Work-in-process inventory
|
$46,000
|
|
Finished goods inventory
|
$192,000
|
Prepare a cost of goods manufactured schedule and a cost of goods sold schedule for the quarter.
Aug 29, 2021 | Uncategorized
(Statement of Comprehensive Income Presentation) Acme Fireworks had sales in June of $350,000 for its stores in Hamilton, Vancouver, and Calgary. The beginning merchandise inventories for June and July were $120,000 and $135,000, respectively. June purchases totalled $220,000. All sales are on account (terms 2/15, net 30 days) and 50% is collected in the month of the sale and 50% is collected in the following month. As a result, one-half of all sales discounts are taken. May sales totalled $285,000, while July sales were $385,000. Additional information for June is as follows:
|
Supplies used
|
$1,000,000
|
|
Salaries and benefits
|
1,500,000
|
|
Maintenance
|
45,000
|
|
Amortization
|
9,000
|
|
Utilities
|
35,000
|
Prepare a statement of comprehensive income for the company for the month of June.
Aug 29, 2021 | Uncategorized
(Cost of Goods Manufactured and Statement of Comprehensive Income Presentation) The following information is taken from the records of Harry Jingle Pens for September:
|
Purchases of direct materials
|
$ 8,000,000
|
|
Sales
|
32,000,000
|
|
Selling and administrative costs
|
3,800,000
|
|
Direct manufacturing labour
|
5,500,000
|
|
Rent
|
3,000,000
|
|
Utilities
|
1,500,000
|
|
Advertising
|
800,000
|
|
Purchases of indirect materials
|
500,000
|
|
Purchases of office supplies
|
200,000
|
The following balances were recorded in its inventory accounts:
|
|
September 1
|
September 30
|
|
Direct materials
|
S 4,800,000
|
S 1,960,000
|
|
Indirect materials
|
420,000
|
720,000
|
|
Work in Progress
|
3,850,000
|
4,700,000
|
|
Office supplies
|
110,000
|
120,000
|
|
Finished Goods
|
6,800,000
|
4,200,000
|
Prepare a schedule of cost of goods manufactured and a statement of comprehensive income for the month of September.
Aug 29, 2021 | Uncategorized
(Process Costing) The Micron Corporation produces semiconductor chips that are used by the computer industry. The direct materials are added at the beginning of the production process, while conversion costs are added uniformly throughout the production process. During the month of June, there was no beginning inventory. Direct materials cost for the month totalled $650,000 and conversion costs totalled $1,895,000. During June, a total of 490,000 chips were started and 290,000 chips were completed. The ending inventory was 75% complete as to conversion costs.
- What is the total manufacturing cost per chip for June?
- Determine the costs that would be assigned to
- Finished goods inventory
- Ending work-in-process inventory
Aug 29, 2021 | Uncategorized
(Process Costing: Weighted Average) Arnold’s Custom Log Beds manufactures log beds in a production line. Direct materials are added at the beginning of the production process. Conversion costs are consumed evenly throughout production. The following information pertains to the month of April:
|
Work in process, beginning inventory:
|
85 units
|
|
Direct materials (100% complete)
|
|
|
Conversion costs (45% complete)
|
|
|
Units started during April
|
125 units
|
|
Work in process, ending inventory:
|
60 units
|
|
Direct materials (100% complete)
|
|
|
Conversion costs (65% complete)
|
|
|
Costs added in April:
|
|
|
Direct materials
|
$38,000
|
|
Conversion costs
|
$28,000
|
|
Work in process, beginning inventory:
|
|
|
Direct materials
|
$24,000
|
|
Conversion costs
|
$19,500
|
Determine the value of the finished goods during April and the value of the ending work-in-process inventory for April if Arnold’s used the weighted average method of process costing.
Aug 29, 2021 | Uncategorized
A partnership has the following capital balances:
|
Allen, Capital
|
$60,000
|
|
Burns, Capital
|
30,000
|
|
Costello, Capital
|
90,000
|
Profits and losses are split as follows: Allen (20%), Burns (30%), and Costello (50%). Costello wants to leave the partnership and is paid $100,000 from the business based on provisions in the articles of partnership. If the partnership uses the bonus method, what is the balance of Burns’s capital account after Costello withdraws?
a. $24,000.
b. $27,000.
c. $33,000.
d. $36,000.
Aug 29, 2021 | Uncategorized
At year-end, the Cisco partnership has the following capital balances:
|
Montana, Capital
|
$130,000
|
|
Rice, Capital
|
110,000
|
|
Craig, Capital
|
80,000
|
|
Taylor, Capital
|
70,000
|
Profits and losses are split on a 3:3:2:2 basis, respectively. Craig decides to leave the partnership and is paid $90,000 from the business based on the original contractual agreement. If the goodwill method is to be applied, what is the balance of Montana’s capital account after Craig withdraws?
a. $133,000.
b. $137,500.
c. $140,000.
d. $145,000.
Aug 29, 2021 | Uncategorized
|
William (40% of gains and losses)
|
$220,000
|
|
Jennings (40%)
|
160,000
|
|
Bryan (20%)
|
110,000
|
Darrow invests $270,000 in cash for a 30 percent ownership interest. The money goes to the original partners. Goodwill is to be recorded. How much goodwill should be recognized, and what is Darrow’s beginning capital balance?
a. $410,000 and $270,000.
b. $140,000 and $270,000.
c. $140,000 and $189,000.
d. $410,000 and $189,000.
Aug 29, 2021 | Uncategorized
|
William (40% of gains and losses)
|
$220,000
|
|
Jennings (40%)
|
160,000
|
|
Bryan (20%)
|
110,000
|
Darrow invests $250,000 in cash for a 30 percent ownership interest. The money goes to the business. No goodwill or other revaluation is to be recorded. After the transaction, what is Jennings’s capital balance?
a. $160,000.
b. $168,000.
c. $170,200.
d. $171,200.
Aug 29, 2021 | Uncategorized
The Distance Plus partnership has the following capital balances at the beginning of the current year:
|
Tiger (50% of profits and losses)
|
$85,000
|
|
Phil (30%)
|
60,000
|
|
Ernie (20%)
|
55,000
|
Each of the following questions should be viewed independently.
a. If Sergio invests $100,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
b. If Sergio invests $60,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.
c. If Sergio invests $72,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the goodwill method is used.
Aug 29, 2021 | Uncategorized
On January 1, 2010, the dental partnership of Left, Center, and Right was formed when the partners contributed $20,000, $60,000, and $50,000, respectively. Over the next three years, the business reported net income and (loss) as follows:
|
2010
|
($30,000)
|
|
2011
|
20,000
|
|
2012
|
40,000
|
During this period, each partner withdrew cash of $10,000 per year. Right invested an additional $12,000 in cash on February 9, 2011. At the time that the partnership was created, the three partners agreed to allocate all profits and losses according to a specified plan written as follows:
• Each partner is entitled to interest computed at the rate of 12 percent per year based on the individual capital balances at the beginning of that year.
• Because of prior work experience, Left is entitled to an annual salary allowance of $12,000, and Center is credited with $8,000 per year.
• Any remaining profit will be split as follows: Left, 20 percent; Center, 40 percent; and Right, 40 percent. If a loss remains, the balance will be allocated: Left, 30 percent; Center, 50 percent; and Right, 20 percent.
Determine the ending capital balance for each partner as of the end of each of these three years.
Aug 29, 2021 | Uncategorized
In the early part of 2011, the partners of Page, Childers, and Smith sought assistance from a local accountant. They had begun a new business in 2010 but had never used an accountant’s services. Page and Childers began the partnership by contributing $80,000 and $30,000 in cash, respectively. Page was to work occasionally at the business, and Childers was to be employed full-time. They decided that year-end profits and losses should be assigned as follows:
• Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the period.
• A compensation allowance of $5,000 was to go to Page with a $20,000 amount assigned to Childers.
• Any remaining income would be split on a 4:6 basis to Page and Childers, respectively.
In 2010, revenues totaled $90,000, and expenses were $64,000 (not including the compensation allowance assigned to the partners). Page withdrew cash of $8,000 during the year, and Childers took out $11,000. In addition, the business paid $5,000 for repairs made to Page’s home and charged it to repair expense.
On January 1, 2011, the partnership sold a 20 percent interest to Smith for $43,000 cash. This money was contributed to the business with the bonus method used for accounting purposes.
Answer the following questions:
a. Why was the original profit and loss allocation, as just outlined, designed by the partners?
b. Why did the drawings for 2010 not agree with the compensation allowances provided for in the partnership agreement?
c. What journal entries should the partnership have recorded on December 31, 2010?
d. What journal entry should the partnership have recorded on January 1, 2011?
Aug 29, 2021 | Uncategorized
Following is the current balance sheet for a local partnership of doctors:
|
Cash and current
|
Liabilities
|
$40,000
|
|
assets
|
$30,000
|
A, capital
|
20,000
|
|
Land
|
180,000
|
B, capital
|
40,000
|
|
Building and equipment (net)
|
100,000
|
C, capital
|
90,000
|
|
Totals
|
$310,000
|
D, capital
|
120,000
|
|
Totals
|
$310,000
|
The following questions represent independent situations:
a. E is going to invest enough money in this partnership to receive a 25 percent interest. No goodwill or bonus is to be recorded. How much should E invest?
b. E contributes $36,000 in cash to the business to receive a 10 percent interest in the partnership.
Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: A, 30 percent; B, 10 percent; C, 40 percent; and D, 20 percent. After E makes this investment, what are the individual capital balances?
c. E contributes $42,000 in cash to the business to receive a 20 percent interest in the partnership.
Goodwill is to be recorded. The four original partners share all profits and losses equally. After E makes this investment, what are the individual capital balances?
d. E contributes $55,000 in cash to the business to receive a 20 percent interest in the partnership.
No goodwill or other asset revaluation is to be recorded. Profits and losses have previously been split according to the following percentages: A, 10 percent; B, 30 percent; C, 20 percent; and D, 40 percent. After E makes this investment, what are the individual capital balances?
e. C retires from the partnership and, as per the original partnership agreement, is to receive cash equal to 125 percent of her final capital balance. No goodwill or other asset revaluation is to be recognized. All partners share profits and losses equally. After the withdrawal, what are the individual capital balances of the remaining partners?
Aug 29, 2021 | Uncategorized
Gray, Stone, and Lawson open an accounting practice on January 1, 2009, in San Diego, California, to be operated as a partnership. Gray and Stone will serve as the senior partners because of their years of experience. To establish the business, Gray, Stone, and Lawson contribute cash and other properties valued at $210,000, $180,000, and $90,000, respectively. An articles of partnership agreement is drawn up. It has the following stipulations:
• Personal drawings are allowed annually up to an amount equal to 10 percent of the beginning capital balance for the year.
• Profits and losses are allocated according to the following plan:
(1) A salary allowance is credited to each partner in an amount equal to $8 per billable hour worked by that individual during the year.
(2) Interest is credited to the partners’ capital accounts at the rate of 12 percent of the average monthly balance for the year (computed without regard for current income or drawings).
(3) An annual bonus is to be credited to Gray and Stone. Each bonus is to be 10 percent of net income after subtracting the bonus, the salary allowance, and the interest. Also included in the agreement is the provision that the bonus cannot be a negative amount.
(4) Any remaining partnership profit or loss is to be divided evenly among all partners.
Because of monetary problems encountered in getting the business started, Gray invests an additional $9,100 on May 1, 2009. On January 1, 2010, the partners allow Monet to buy into the partnership. Monet contributes cash directly to the business in an amount equal to a 25 percent interest in the book value of the partnership property subsequent to this contribution. The partnership agreement as to splitting profits and losses is not altered upon Monet’s entrance into the firm; the general provisions continue to be applicable.
The billable hours for the partners during the first three years of operation follow:
|
2009
|
2010
|
2011
|
|
Gray
|
1,710
|
1,800
|
1,880
|
|
Stone
|
1,440
|
1,500
|
1,620
|
|
Lawson
|
1,300
|
1,380
|
1,310
|
|
Monet
|
–0–
|
1,190
|
1,580
|
The partnership reports net income for 2009 through 2011 as follows:
|
2009
|
$65,000
|
|
2010
|
20,400
|
|
2011
|
152,800
|
Each partner withdraws the maximum allowable amount each year.
a. Determine the allocation of income for each of these three years (to the nearest dollar).
b. Prepare in appropriate form a statement of partners’ capital for the year ending December 31, 2011.
Aug 29, 2021 | Uncategorized
A partnership of attorneys in the St. Louis, Missouri, area has the following balance sheet accounts as of January 1, 2011:
|
Assets
|
$320,000
|
Liabilities
|
$120,000
|
|
Athos, capital
|
80,000
|
|
Porthos, capital
|
70,000
|
|
Aramis, capital
|
50,000
|
According to the articles of partnership, Athos is to receive an allocation of 50 percent of all partnership profits and losses while Porthos receives 30 percent and Aramis, 20 percent. The book value of each asset and liability should be considered an accurate representation of fair value. For each of the following independent situations, prepare the journal entry or entries to be recorded by the partnership. (Round to nearest dollar.)
a. Porthos, with permission of the other partners, decides to sell half of his partnership interest to D’Artagnan for $50,000 in cash. No asset revaluation or goodwill is to be recorded by the partnership.
b. All three of the present partners agree to sell 10 percent of each partnership interest to D’Artagnan for a total cash payment of $25,000. Each partner receives a negotiated portion of this amount. Goodwill is recorded as a result of the transaction.
c. D’Artagnan is allowed to become a partner with a 10 percent ownership interest by contributing $30,000 in cash directly into the business. The bonus method is used to record this admission.
d. Use the same facts as in requirement (c) except that the entrance into the partnership is recorded by the goodwill method.
e. D’Artagnan is allowed to become a partner with a 10 percent ownership interest by contributing $12,222 in cash directly to the business. The goodwill method is used to record this transaction.
f. Aramis decides to retire and leave the partnership. An independent appraisal of the business and its assets indicates a current fair value of $280,000. Goodwill is to be recorded. Aramis will then be given the exact amount of cash that will close out his capital account.
Aug 29, 2021 | Uncategorized
For the past several years, the Andrews, Caso, Quinn, and Sheridan partnership has operated a local department store. Based on the provisions of the original articles of partnership, all profits and losses have been allocated on a 4:3:2:1 ratio, respectively. Recently, both Caso and Quinn have undergone personal financial problems and, as a result, are now insolvent. Caso’s creditors have filed a $20,000 claim against the partnership’s assets, and $22,000 is being sought to repay Quinn’s personal debts. To satisfy these legal obligations, the partnership property must liquidate. The partners estimate that they will incur $12,000 in expenses to dispose of all noncash assets. At the time that active operations cease and the liquidation begins, the following partnership balance sheet is produced. All measurement accounts have been closed out to arrive at the current capital balances.
|
Cash
|
$20,000
|
Liabilities
|
$140,000
|
|
Noncash assets
|
280,000
|
Caso, loan
|
10,000
|
|
Andrews, capital (40%)
|
76,000
|
|
Caso, capital (30%)
|
14,000
|
|
Quinn, capital (20%)
|
51,000
|
|
Sheridan, capital (10%)
|
9,000
|
|
Total assets
|
$300,000
|
Total liabilities and capital
|
$300,000
|
During the lengthy liquidation process, the following transactions take place:
• Sale of noncash assets with a book value of $190,000 for $140,000 cash.
• Payment of $14,000 liquidation expenses. No further expenses are expected.
• Distribution of safe capital balances to the partners.
• Payment of all business liabilities.
• Sale of the remaining noncash assets for $10,000.
• Determination of deficit capital balances for any insolvent partners as uncollectible.
• Receipt of appropriate cash contributions from any solvent partner who is reporting a negative capital balance.
• Distribution of final cash.
Required
a. Using the information available prior to the start of the liquidation process, develop a predistribution plan for this partnership.
b. Prepare journal entries to record the actual liquidation transactions.
Aug 29, 2021 | Uncategorized
Equipment was purchased for $98,000. The equipment is estimated to have a serviceable life of 10 years and a residual value of $2,000. Using straight-line depreciation, answer the following:
a. What is the depreciation expense per month and per year?
b. Give the journal entry to record the depreciation expense for one year.
|
Account Title
|
Debit
|
Credit
|
|
|
|
|
|
|
|
|
|
Aug 29, 2021 | Uncategorized
A restaurant paid $9,600 cash in advance for liability and casualty insurance for two years of coverage:
a. Journalize the transaction for the payment.
|
Account Title
|
Debit
|
Credit
|
|
|
|
|
|
|
|
|
|
b. What is the amount of insurance expense for one year and one month?
c. Record the journal entry for six months of insurance expense.
|
Account Title
|
Debit
|
Credit
|
|
|
|
|
|
|
|
|
|
Aug 29, 2021 | Uncategorized
Study the restaurant transactions for the month of March 2004 shown below, and record the necessary journal entries, skipping a line between each entry. Journal entries and modified T ledger accounts can be prepared easily on lined paper following the examples shown in the text. To further simplify the problem, use the following account titles shown by category to prepare modified T accounts. Balance sheet accounts, Assets: Cash, Credit Cards Receivable, Accounts Receivable, Food Inventory, Beverage Inventory, Prepaid Rent, Prepaid Insurance, Supplies, Equipment, and Furnishings. Liabilities: Accounts Payable, Note Payable. Ownership Equity: Capital. Income Statement Accounts: Sales Revenue, Salaries Expense, Wages Expense, and Interest Expense.
a. Owner opened a business account and deposited $65,000 in the bank.
b. Owner borrowed and deposited $20,000 on a note payable to the bank.
c. Owner paid one year of rent in advance on the restaurant space, $14,400 cash.
d. Equipment was purchased for $44,000—$15,000 in cash and the balance on account.
e. Furnishings were purchased for $28,400 cash.
f. Owner purchased $3,000 of food inventory on account and paid $4,000 cash for beverage inventory.
g. Owner purchased supplies for $2,650 cash.
h. Owner purchased $3,800 of food inventory on account.
i. Owner paid $2,400 for a one-year liability and casualty insurance policy.
j. Employees were paid wages of $12,800 and salaries of $2,400.
k. Revenue for the first month was $32,800—92 percent cash, 6 percent on credit cards, and 2 percent on accounts receivable.
l. Owner paid $12,000 on accounts payable.
m. Owner paid $2,000 on notes payable, plus interest of $200. After journalizing and posting each transaction, prepare an unadjusted trial balance for the month ended March 31, 2004.
Aug 29, 2021 | Uncategorized
A friend has asked you to look at the accounts of his small restaurant and recommend the end-of-period adjusting entries. After viewing the accounts, it was apparent that the following adjusting entries were required.
Complete journal entries for each required adjustment.
a. A total of $2,040 of prepaid insurance must be expensed.
b. A total of $5,000 of prepaid rent has been consumed.
c. Kitchen equipment depreciation in the amount of $3,500 must be recognized.
d. Wages earned and due employees but not paid total $692.
e. Supplies of $874 have been used.
f. Interest on a note payable in the amount of $290 must be accrued.
Aug 29, 2021 | Uncategorized
The following transactions occurred for a new motel prior to and during the first month of business operations. Study the motel transactions shown below and record the necessary journal entries, skipping a line between each entry. Journal entries and modified T ledger accounts can be prepared easily on lined paper following the examples shown in the text.
a. Owner invested $360,000 cash deposited in the business bank account.
b. Owner paid $128,000 cash for land.
c. Owner borrowed $330,000 on a mortgage payable at 6% interest.
d. Owner paid cash for building $395,400.
e. Equipment was purchased for $62,000, paying $22,000 cash and the balance on a note payable.
f. Furnishings were purchased for $98,000 cash.
g. Linen inventory was purchased for $6,474 on account.
h. Supplies were purchased for $2,800 on account.
i. Vending inventory was purchased for $380 cash.
j. Room revenue during month was $44,000 cash.
k. Vending revenue from vending machines was $800 cash.
l. Wages of $2,900 cash were paid.
m. Owner paid $2,200 on accounts payable.
n. Owner paid $4,800 on annual liability and casualty insurance policy.
o. Owner paid $1,000 on the mortgage payable and $1,650 for interest.
After journalizing and posting the operating transactions, journalize the following adjusting entries: (Use separate entries for clarity.)
a. Estimated closing value of the linen inventory is $5,700.
b. Wages earned by employees but unpaid are $400.
c. One-twelfth of the prepaid insurance has been consumed.
d. Interest owing, but not yet paid, on the equipment notes payable account is 1 percent of the balance owing at month-end.
e. Equipment depreciation is based on a life of 12 years with a $5,000 residual value, straight-line depreciation.
f. Furnishings depreciation is based on an eight-year life with a $4,000 residual (salvage) value, straight-line depreciation.
g. Building has a 20-year life with a residual (salvage) value of $45,000, straight-line depreciation.
h. Supplies used during the first month are $600.
Aug 29, 2021 | Uncategorized
Art Angel operated a small seasonal lake marina, renting boats and selling snacks. He rents marina space for four months in Year 2004, from May 15 to September 15, for $800 per month. He started the current season with $15,000 in the bank and paid the marina seasonal rent in advance. In May, he bought three new boats for cash at $12,500 each and borrowed $25,000 at 6 percent interest. The new boats are estimated to have a 10-season life and a residual (trade-in) value of $2,500 each. Straight-line depreciation will be used. Purchase invoices show he paid $7,458 cash for food and beverage inventory. One unpaid invoice for food in the amount of $73 remains unpaid.
No food or beverage inventory remained at season end. Other costs incurred during the season were boat maintenance, $1,211, and casual labor costs, $1,440. He paid the interest for the year based on the amount of the loan outstanding on May 15 and repaid $10,000 of the loan. In addition, Art said he withdrew $2,000 per month during the season. The season-ending cash balance in the bank is $14,697. No records exist regarding the amount of cash sales.
Cash sales revenue must be determined using only the information already noted. Show him how you determine the unknown cash sales and prepare an accrual income statement to show him operating income before tax for the year.
Aug 29, 2021 | Uncategorized
This is the first part of an ongoing case that will appear at the end of most subsequent chapters. It is recommended that you keep case solutions, notes, and other case information in a separate file or binder for quick reference. Charlie Driver has $30,000 saved and has decided to attend college, taking courses in marketing and retailing. To help pay his tuition and living expenses, he contracted with a mobile catering company as an independent driver. Charlie will run his mobile catering business on a cash basis; he has named his business Charlie’s Convenient Catering, or the 3C Company for short. He opened a company bank account with $30,000. He bought a used, fully equipped mobile catering truck for $26,000, and operated from January 4 to December 31, 2003.
At the end of the year, Charlie had $26,010 in the bank and $148 in a cash drawer. Invoices show he purchased food, beverages, and supplies inventories for $45,296; ending inventory remaining on the truck was $350. His invoices for truck operating expenses total $3,828 paid, and he has one unpaid truck repair invoice for $254. Charlie withdrew $2,000 a month for personal expenses.
The truck has a five-year life and no residual value, and straight-line depreciation is to be used. Charlie asks you to help him put together his business information and reconstruct his cash sales. He recorded his daily cash sales in a notebook that cannot be found. Calculate 3C Company’s revenue and prepare an accrual income statement. Charlie is concerned that he has less cash now than he had when he started. Explain why
Aug 29, 2021 | Uncategorized
Match each of the terms in the left column with the account categories given in the right column.
|
a. Total assets—Total liabilities
|
1. Fixed asset
|
|
b. Revenue—Total expenses
|
2. Liabilities
|
|
c. Depreciable asset
|
3. Contributory income
|
|
d. Debt owed to creditors
|
4. Net assets, owners’ equity
|
|
e. Revenue—Direct costs
|
|
Aug 29, 2021 | Uncategorized
A food division reported cost of sales—food of $48,280. Employees meals cost $800, complimentary meals $80, and transfers in were received from the bar operation with a cost of $120. Determine the net cost of sales.
|
Perpetual Inventory Control Record
|
|
Description: M & B Supreme
|
|
Date
|
Purchase Received
|
Issued Sales
|
Units
|
Unit Cost
|
|
June 1
|
Balance forward
|
2
|
3
|
$10.00
|
|
4
|
|
|
|
|
|
6
|
8
|
|
9
|
$10.50
|
|
9
|
|
3
|
6
|
|
|
12
|
|
2
|
4
|
|
|
15
|
6
|
|
10
|
$11.00
|
|
18
|
|
2
|
8
|
|
|
20
|
|
3
|
5
|
|
|
22
|
6
|
|
11
|
$9.50
|
|
25
|
|
2
|
9
|
|
|
28
|
|
3
|
6
|
|
For each of the following inventory valuation methods, calculate the value of ending inventory and the cost of sales as of June 30. Use formats of Exhibits 2.4(a), 2.4(b), and 2.4(c).
a. First-in, first-out method
b. Last-in, first-out method
c. Weighted average method
Aug 29, 2021 | Uncategorized
Ristoni Company is in the process of emerging from a Chapter 11 bankruptcy. It will apply fresh start accounting as of December 31, 2010. The company currently has 30,000 shares of common stock outstanding with a $240,000 par value. As part of the reorganization, the owners will contribute 18,000 shares of this stock back to the company. A retained earnings deficit balance of $330,000 exists at the time of this reorganization.
The company has the following asset accounts:
|
Book Value
|
Fair Value
|
|
Accounts receivable
|
$100,000
|
$80,000
|
|
Inventory
|
112,000
|
90,000
|
|
Land and buildings
|
420,000
|
500,000
|
|
Equipment
|
78,000
|
65,000
|
The company’s liabilities will be settled as follows. Assume that all notes will be issued at reasonable interest rates.
• Accounts payable of $80,000 will be settled with a note for $5,000. These creditors will also get 1,000 shares of the stock contributed by the owners.
• Accrued expenses of $35,000 will be settled with a note for $4,000.
• Note payable of $100,000 (due 2014) was fully secured and has not been renegotiated.
• Note payable of $200,000 (due 2013) will be settled with a note for $50,000 and 10,000 shares of the stock contributed by the owners.
• Note payable of $185,000 (due 2011) will be settled with a note for $71,000 and 7,000 shares of the stock contributed by the owners.
• Note payable of $200,000 (due 2012) will be settled with a note for $110,000.
The company has a reorganization value of $780,000.
Prepare all journal entries for Ristoni so that the company can emerge from the bankruptcy proceeding.
Aug 29, 2021 | Uncategorized
Ambrose Corporation reports the following information:
|
Book Value
|
Liquidation Value
|
|
Assets pledged with fully secured creditors
|
$220,000
|
$245,000
|
|
Assets pledged with partially secured creditors
|
111,000
|
103,000
|
|
Other assets
|
140,000
|
81,000
|
|
Liabilities with priority
|
36,000
|
|
Fully secured liabilities
|
200,000
|
|
Partially secured liabilities
|
180,000
|
|
Accounts payable (unsecured)
|
283,000
|
In liquidation, what amount of cash should each class of liabilities expect to collect?
Aug 29, 2021 | Uncategorized
Creditors of Jones Corporation are considering petitioning the courts to force the company into Chapter 7 bankruptcy. The following information has been determined. Administrative expenses in connection with the liquidation are estimated to be $22,000. Indicate the amount of money that each class of creditors can anticipate receiving.
|
Book Value
|
Net Realizable Value
|
|
Cash
|
$6,000
|
$6,000
|
|
Accounts receivable
|
32,000
|
18,000
|
|
Inventory
|
45,000
|
31,000
|
|
Supplies
|
3,000
|
–0–
|
|
Investments
|
2,000
|
8,000
|
|
Land
|
60,000
|
72,000
|
|
Buildings
|
90,000
|
68,000
|
|
Equipment
|
50,000
|
35,000
|
|
Notes payable (secured by land)
|
65,000
|
|
Notes payable (secured by buildings)
|
78,000
|
|
Bonds payable (secured by equipment)
|
115,000
|
|
Accounts payable
|
70,000
|
|
Salaries payable (two weeks’ salary for three employees)
|
6,000
|
|
Taxes payable
|
10,000
|
Aug 29, 2021 | Uncategorized
Anteium Company owes $80,000 on a note payable that is currently due. The note is held by a local bank and is secured by a mortgage lien attached to three acres of land worth $48,000. The land originally cost Anteium $31,000 when acquired several years ago. The only other account balances for this company are Investments of $20,000 (but worth $25,000), Accounts Payable of $20,000, Common Stock of $40,000, and a deficit of $89,000. Anteium is insolvent and attempting to arrange a reorganization so that the business can continue to operate. The reorganization value of the company is $82,000.
View each of the following as an independent situation:
a. On a statement of financial affairs, how would this note be reported? How would the land be shown?
b. Assume that Anteium develops an acceptable reorganization plan. Sixty percent of the common stock is transferred to the bank to settle that particular obligation. A 7 percent, three-year note payable for $5,000 is used to settle the accounts payable. How would Anteium record the reorganization?
c. Assume that Anteium is liquidated. The land and investments are sold for $50,000 and $26,000, respectively. Administrative expenses amount to $11,000. How much will the various parties collect?
Aug 29, 2021 | Uncategorized
The following balance sheet has been produced for Litz Corporation as of August 8, 2011, the date on which the company is to begin selling assets as part of a corporate liquidation:
|
LITZ CORPORATION
Balance Sheet
August 8, 2011
|
|
Assets
|
|
Cash
|
$16,000
|
|
Accounts receivable (net)
|
82,000
|
|
Investments
|
32,000
|
|
Inventory (net realizable value is expected to approximate cost)
|
69,000
|
|
Land
|
30,000
|
|
Buildings (net)
|
340,000
|
|
Equipment (net)
|
210,000
|
|
Total assets
|
$779,000
|
|
Liabilities and Equities
|
|
Accounts payable
|
$150,000
|
|
Notes payable—current (secured by inventory)
|
132,000
|
|
Notes payable—long term (secured by land and buildings [valued at $300,000])
|
259,000
|
|
Common stock
|
135,000
|
|
Retained earnings
|
103,000
|
|
Total liabilities and equities
|
$779,000
|
The following events occur during the liquidation process:
• The investments are sold for $39,000.
• The inventory is sold at auction for $48,000.
• The money derived from the inventory is applied against the current notes payable.
• Administrative expenses of $15,000 are incurred in connection with the liquidation.
• The land and buildings are sold for $315,000. The long-term notes payable are paid.
• The accountant determines that $34,000 of the accounts payable are liabilities with priority.
• The company’s equipment is sold for $84,000.
• Accounts receivable of $34,000 are collected. The remainder of the receivables is considered uncollectible.
• The administrative expenses are paid.
a. Prepare a statement of realization and liquidation for the period just described.
b. What percentage of their claims should the unsecured creditors receive?
Aug 29, 2021 | Uncategorized
Becket Corporation’s accountant has prepared the following balance sheet as of November 10, 2010, the date on which the company is to release a plan for reorganizing operations under Chapter 11 of the Bankruptcy Reform Act:
|
BECKET CORPORATION
Balance Sheet
November 10, 2010
|
|
Assets
|
|
Cash
|
$12,000
|
|
Accounts receivable (net)
|
61,000
|
|
Investments
|
26,000
|
|
Inventory (net realizable value is expected to approximate 80% of cost)
|
80,000
|
|
Land
|
57,000
|
|
Buildings (net)
|
248,000
|
|
Equipment (net)
|
117,000
|
|
Total assets
|
$601,000
|
|
Liabilities and Equities
|
|
Accounts payable
|
$129,000
|
|
Notes payable—current (secured by equipment)
|
220,000
|
|
Notes payable—(due in 2013) (secured by land and buildings)
|
325,000
|
|
Common stock ($10 par value)
|
60,000
|
|
Retained earnings (deficit)
|
133,000
|
|
Total liabilities and equities
|
$601,000
|
The company presented the following proposal:
• The reorganization value of the company’s assets just prior to issuing additional shares below, selling the company’s investment, and conveying title to the land is set at $650,000.
• Accounts receivable of $20,000 are written off as uncollectible. Investments are worth $40,000, land is worth $80,000, the buildings are worth $300,000, and the equipment is worth $86,000.
• An outside investor has been found to buy 7,000 shares of common stock at $11 per share.
• The company’s investments are to be sold for $40,000 in cash with the proceeds going to the holders of the current note payable. The remainder of these short-term notes will be converted into $130,000 of notes due in 2014 and paying 10 percent annual cash interest.
• All accounts payable will be exchanged for $40,000 in notes payable due in 2011 that pay 8 percent annual interest.
• Title to land costing $20,000 but worth $50,000 will be transferred to the holders of the note payable due in 2013. In addition, these creditors will receive $180,000 in notes payable (paying 10 percent annual interest) coming due in 2017. These creditors also are issued 3,000 shares of previously unissued common stock.
Prepare journal entries for Becket to record the transactions as put forth in this reorganization plan.
Aug 29, 2021 | Uncategorized
Oregon Corporation has filed a voluntary petition to reorganize under Chapter 11 of the Bankruptcy Reform Act. Its creditors are considering an attempt to force liquidation. The company currently holds cash of $6,000 and accounts receivable of $25,000. In addition, the company owns four plots of land. The first two (labeled A and B) cost $8,000 each. Plots C and D cost the company $20,000 and $25,000, respectively. A mortgage lien is attached to each parcel of land as security for four different notes payable of $15,000 each. Presently, the land can be sold for the following:
|
Plot A
|
$16,000
|
|
Plot B
|
$11,000
|
|
Plot C
|
$14,000
|
|
Plot D
|
$27,000
|
Another $25,000 note payable is unsecured. Accounts payable at this time total $32,000. Of this amount, $12,000 is salary owed to the company’s workers. No employee is due more than $1,800. The company expects to collect $12,000 from the accounts receivable if liquidation becomes necessary. Administrative expenses required for liquidation are anticipated to be $16,000. a. Prepare a statement of financial affairs for Oregon Corporation.
b. If the company is liquidated, how much cash would be paid on the note payable secured by plot B?
c. If the company is liquidated, how much cash would be paid on the unsecured note payable?
d. If the company is liquidated and plot D is sold for $30,000, how much cash would be paid on the note payable secured by plot B?
Aug 29, 2021 | Uncategorized
Lynch, Inc., is a hardware store operating in Boulder, Colorado. Management recently made some poor inventory acquisitions that have loaded the store with unsalable merchandise. Because of the drop in revenues, the company is now insolvent. The entire inventory can be sold for only $33,000. Following is a trial balance as of March 14, 2011, the day the company files for a Chapter 7 liquidation:
|
Debit
|
Credit
|
|
Accounts payable
|
$33,000
|
|
Accounts receivable
|
$25,000
|
|
Accumulated depreciation, building
|
50,000
|
|
Accumulated depreciation, equipment
|
16,000
|
|
Additional paid-in capital
|
8,000
|
|
Advertising payable
|
4,000
|
|
Building
|
80,000
|
|
Cash
|
1,000
|
|
Common stock
|
50,000
|
|
Equipment
|
30,000
|
|
Inventory
|
100,000
|
|
Investments
|
15,000
|
|
Land
|
10,000
|
|
Note Payable—Colorado Savings and Loan (secured by lien on land and building)
|
70,000
|
|
Note Payable—First National Bank (secured by equipment)
|
150,000
|
|
Payroll taxes payable
|
1,000
|
|
Retained earnings (deficit)
|
126,000
|
|
Salaries payable (owed equally to two employees)
|
5,000
|
|
Totals
|
$387,000
|
$387,000
|
Company officials believe that 60 percent of the accounts receivable can be collected if the company is liquidated. The building and land have a fair value of $75,000, and the equipment is worth $19,000. The investments represent shares of a nationally traded company that can be sold at the current time for $21,000. Administrative expenses necessary to carry out a liquidation would approximate $16,000.
Prepare a statement of financial affairs for Lynch, Inc., as of March 14, 2011.
Aug 29, 2021 | Uncategorized
Use the trial balance presented for Lynch, Inc., in problem 45. Assume that the company will be liquidated and the following transactions will occur:
• Accounts receivable of $18,000 are collected with remainder written off.
• All of the company’s inventory is sold for $40,000.
• Additional accounts payable of $10,000 incurred for various expenses such as utilities and maintenance are discovered.
• The land and building are sold for $71,000.
• The note payable due to the Colorado Savings and Loan is paid.
• The equipment is sold at auction for only $11,000 with the proceeds applied to the note owed to the First National Bank.
• The investments are sold for $21,000.
• Administrative expenses total $20,000 as of July 23, 2011, but no payment has yet been made.
a. Prepare a statement of realization and liquidation for the period from March 14, 2011, through July 23, 2011.
b. How much cash would be paid to an unsecured, nonpriority creditor that Lynch, Inc., owes a total of $1,000?
Aug 29, 2021 | Uncategorized
An investment analyst has been studying the long-term prospects of Congoleum Corp. and has asked for your assistance. Go to www.congoleum.com and click on “Corporate Information” on the bottom of the page. Then, click on “Investor Relations” on the right side of the next page. Finally, click on “2008 Annual Report.” Scroll down until you find the company’s financial statements and look them over very carefully. Focus on Note 1: “Basis of Presentation.”
Required
Write a memo to summarize the information found in this financial statement note and in the rest of the financial statements that could be helpful to the investment analyst who is investigating this company.
Aug 29, 2021 | Uncategorized
Heyman and Mullins begin a partnership on January 1, 2010. Heyman invests $40,000 cash and inventory costing $15,000 but with a current appraised value of only $12,000. Mullins contributes a building with a $40,000 book value and a $48,000 fair value. The partnership also accepts responsibility for a $10,000 note payable owed in connection with this building. The partners agree to begin operations with equal capital balances. The articles of partnership also provide that at each year-end, profits and losses are allocated as follows:
1. For managing the business, Heyman is credited with a bonus of 10 percent of partnership income after subtracting the bonus. No bonus is accrued if the partnership records a loss.
2. Both partners are entitled to interest equal to 10 percent of the average monthly capital balance for the year without regard for the income or drawings of that year.
3. Any remaining profit or loss is divided 60 percent to Heyman and 40 percent to Mullins.
4. Each partner is allowed to withdraw $800 per month in cash from the business.
On October 1, 2010, Heyman invested an additional $12,000 cash in the business. For 2010, the partnership reported income of $33,000.
Lewis, an employee, is allowed to join the partnership on January 1, 2011. The new partner invests $66,000 directly into the business for a one-third interest in the partnership property. The revised partnership agreement still allows for both the bonus to Heyman and the 10 percent interest, but all remaining profits and losses are now split 40 percent each to Heyman and Lewis with the remaining 20 percent to Mullins. Lewis is also entitled to $800 per month in drawings.
Mullins chooses to withdraw from the partnership a few years later. After negotiations, all parties agree that Mullins should be paid a $90,000 settlement. The capital balances on that date were as follows:
|
Heyman, capital
|
$88,000
|
|
Mullins, capital
|
78,000
|
|
Lewis, capital
|
72,000
|
Required
a. Assuming that this partnership uses the bonus method exclusively, make all necessary journal entries. Entries for the monthly drawings of the partners are not required.
b. Assuming that this partnership uses the goodwill method exclusively, make all necessary journal entries. Again, entries for the monthly drawings are not required.
Aug 29, 2021 | Uncategorized
A vice president of marketing for your company has been charged with embezzling nearly $100,000 from the company. The vice president allegedly submitted fraudulent vendor invoices in order to receive payments. As the vice president of marketing for the company, the vice president is authorized to approve the payment of invoices submitted by third-party vendors who did work for the company. After the activities were uncovered, the company responded by stating: “All employees are accountable to our ethics guidelines and procedures. We do not tolerate violations of our ethics policy and will consistently enforce these policies and procedures.”
- How would you evaluate the internal controls of the company?
- Do you think there are companies that develop comprehensive ethics and compliance programs for mid- and lower-level employees and ignore upper-level executives and managers?
- Is it an ethical issue if companies are not forthcoming concerning fraudulent activities of top executives in an effort to minimize negative publicity?
Aug 29, 2021 | Uncategorized
IFRS Balance Sheet
Air France reports the following balance sheet for the year ended March 31, 2007.
Required:
- In what order are assets listed on the balance sheet?
- Comment on other differences (IFRS relative to U.S. GAAP) that you might notice on the balance sheet.
- What is the current ratio for the years ending March 31, 2006 and 2007?
- What is the ratio of long-term debt to equity for the years ending March 31, 2006 and 2007?
- Are there any typical balance sheet ratios that cannot be readily computed using the IFRS-based financial statement? If so, what are they?
Aug 29, 2021 | Uncategorized
Many companies with defined benefit plans are curtailing or eliminating the plans altogether. With a defined benefit plan, the company guarantees some set amount (or formula-determined payment) when the employee retires. Because most pension assets are invested in the stock market, whether a pension plan is fully funded often depends on the strength of the stock market. Because of this volatility, companies often find themselves unexpectedly in a position where they must either increase funding or disclose significant underfunding. Because of this, many companies simply reduce or eliminate the plan. Consider the pension plan of Golden Years Company (GYC). Historically, GYC has been a great company to work for, with strong employee benefits. GYC”s pension liability is approximately $15 million. However, recently the company has been experiencing minor financial troubles in a decreasing stock market and, consequently, announced the termination of the pension plan in an effort to save costs. However, the pension plan was fully funded by $9 million (the fair value of assets exceeded the expected liability).
- How does the firm reconcile the trade-off between financial performance and the responsibility to its employees?
Aug 29, 2021 | Uncategorized
Which of the following best describes the articles of partnership agreement?
a. The purpose of the partnership and partners’ rights and responsibilities are required elements of the articles of partnership.
b. The articles of partnership are a legal covenant and must be expressed in writing to be valid.
c. The articles of partnership are an agreement that limits partners’ liability to partnership assets.
d. The articles of partnership are a legal covenant that may be expressed orally or in writing, and forms the central governance for a partnership’s operations.
Aug 29, 2021 | Uncategorized
Pat, Jean Lou, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. These three partners share profits and losses equally. For an investment of $50,000 cash (paid to the business), MaryAnn will be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, which of the following best justifies the amount of MaryAnn’s investment?
a. MaryAnn will receive a bonus from the other partners upon her admission to the partnership.
b. Assets of the partnership were overvalued immediately prior to MaryAnn’s investment.
c. The book value of the partnership’s net assets was less than the fair value immediately prior to MaryAnn’s investment.
d. MaryAnn is apparently bringing goodwill into the partnership, and her capital account will be credited for the appropriate amount.
Aug 29, 2021 | Uncategorized
A partnership has the following capital balances:
|
Albert (50% of gains and losses)
|
$80,000
|
|
Barrymore (20%)
|
60,000
|
|
Candroth (30%)
|
140,000
|
Danville is going to invest $70,000 into the business to acquire a 30 percent ownership interest. Goodwill is to be recorded. What will be Danville’s beginning capital balance?
a. $70,000.
b. $90,000.
c. $105,000.
d. $120,000.
Aug 29, 2021 | Uncategorized
A partnership has the following capital balances:
|
Elgin (40% of gains and losses)
|
$100,000
|
|
Jethro (30%)
|
200,000
|
|
Foy (30%)
|
300,000
|
Oscar is going to pay a total of $200,000 to these three partners to acquire a 25 percent ownership interest from each. Goodwill is to be recorded. What is Jethro’s capital balance after the transaction?
a. $150,000.
b. $175,000.
c. $195,000.
d. $200,000.
Aug 29, 2021 | Uncategorized
A partnership begins its first year with the following capital balances:
|
Arthur, Capital
|
$60,000
|
|
Baxter, Capital
|
80,000
|
|
Cartwright, Capital
|
100,000
|
The articles of partnership stipulate that profits and losses be assigned in the following manner:
• Each partner is allocated interest equal to 10 percent of the beginning capital balance.
• Baxter is allocated compensation of $20,000 per year.
• Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.
• Each partner is allowed to withdraw up to $5,000 cash per year.
Assuming that the net income is $50,000 and that each partner withdraws the maximum amount allowed, what is the balance in Cartwright’s capital account at the end of that year?
a. $105,800.
b. $106,200.
c. $106,900.
d. $107,400.
Aug 29, 2021 | Uncategorized
A partnership begins its first year of operations with the following capital balances:
|
Winston, Capital
|
$110,000
|
|
Durham, Capital
|
80,000
|
|
Salem, Capital
|
110,000
|
According to the articles of partnership, all profits will be assigned as follows:
• Winston will be awarded an annual salary of $20,000 with $10,000 assigned to Salem.
• The partners will be attributed interest equal to 10 percent of the capital balance as of the first day of the year.
• The remainder will be assigned on a 5:2:3 basis, respectively.
• Each partner is allowed to withdraw up to $10,000 per year.
Assume that the net loss for the first year of operations is $20,000 and that net income for the subsequent year is $40,000. Assume also that each partner withdraws the maximum amount from the business each period. What is the balance in Winston’s capital account at the end of the second year?
a. $102,600.
b. $104,400.
c. $108,600.
d. $109,200.
Aug 29, 2021 | Uncategorized
Trustee Accounting
TRX Company has been forced into receivership, and you have been appointed trustee. You decide to open your own set of books in order to distinguish more clearly between transactions occurring before and after your appointment. The following account balances were reported on September 1, 2012:
|
Cash
|
|
$ 26,700
|
|
Accounts Receivable
|
|
130,400
|
|
Inventory
|
|
191,900
|
|
Property and Equipment
|
|
590,400
|
|
Total
|
|
$939,400
|
|
Allowance for Uncollectibles
|
|
$ 16,000
|
|
Accumulated Depreciation
|
|
211,500
|
|
Accounts Payable
|
|
308,400
|
|
Capital Stock
|
|
800,000
|
|
Retained Earnings (deficit)
|
|
(396,500)
|
|
Total
|
|
$939,400
|
In the four months immediately after your appointment, the following transaction occurred:
- Sales were made in the amount of $296,000, of which $31,500 were cash sales.
- Receivables were collected in the following amounts:
|
Old receivables
|
$ 76,800
|
|
|
New receivables
|
242,200
|
|
3 Additional inventory was purchased on account in the amount of $127,500.
4 Cash payments were made as follows:
|
On old accounts payable
|
$206,500
|
|
|
On new accounts payable
|
61,600
|
|
|
For operating expenses
|
46,000
|
|
|
For trustee fees
|
13,000
|
|
- Journal entries were made to record:
(a) Bad debt expense of $21,600, of which $8,600 related to new accounts receivable.
(b) Depreciation expense of $32,400.
(c) Write-off of old accounts receivable of $21,000.
The inventory balance at the end of your first four months as trustee (the end of the fiscal year for TRX Company) was $149,700.
Required:
Prepare journal entries to record the foregoing on your set of books. Include appropriate closing entries.
Aug 29, 2021 | Uncategorized
Realization and Liquidation Account
A balance sheet for Bran Company on June 30, 2012, the date Jim Brown was appointed trustee, is presented here:
Bran Company Balance Sheet
June 30, 2012
|
Cash
|
|
$ 15,000
|
|
Accounts Receivable
|
$ 45,000
|
|
|
Less: Allowance for Uncollectibles
|
6,000
|
39,000
|
|
Inventory
|
|
104,000
|
|
Plant and Equipment
|
215,000
|
|
|
Less: Accumulated Depreciation
|
70,000
|
145,000
|
|
Total Assets
|
|
$303,000
|
|
Accounts Payable
|
|
$145,000
|
|
Common Stock
|
|
225,000
|
|
Retained Earnings (deficit)
|
|
(67,000)
|
|
Total Liabilities and Equities
|
|
$303,000
|
The following information concerning the period from June 30, 2012, to December 31, 2012, is also available:
- All Bran Company”s assets were transferred to the trustee.
- Sales for the period were $130,000, of which $30,000 were cash sales.
- Receivables collected by the trustee in cash were:
- Merchandise inventory was purchased on account by the trustee in the amount of $35,000.
- Cash payments were made by the trustee for:
(a) Accounts payable (old), $110,000
(b) Accounts payable (new), $30,000
(c) Operating expenses, $47,000
(d) Trustee expense, $2,000
- Adjusting entries recorded by the trustee on December 31, 2009, were:
(a) Estimated uncollectibles
(b) Accounts receivable written off (old), $7,000
(c) Depreciation expense, $10,000
- The merchandise inventory balance on December 31 was $75,000.
- The plant and equipment included a parcel of land and a piece of equipment, both of which were sold by the trustee for cash. The land cost $14,000 and was sold for $25,000. The equipment, which had a book value of $25,000 (cost, $50,000; accumulated depreciation, $25,000), was sold for $13,000.
Aug 29, 2021 | Uncategorized
Lisali Company gathered the following information related to inventory that it owned on December 31, 2011:
|
Historical cost
|
$100,000
|
|
Replacement cost
|
95,000
|
|
Net realizable value
|
98,000
|
|
Normal profit margin
|
20%
|
a. Determine the amount at which Lisali should carry inventory on the December 31, 2011, balance sheet and the amount, if any, that should be reported in net income related to this inventory using (1) U.S. GAAP and (2) IFRS.
b. Determine the adjustments that Lisali would make in 2011 to reconcile net income and stockholders’ equity under U.S. GAAP to IFRS.
Aug 29, 2021 | Uncategorized
Lisali Company gathered the following information related to inventory that it owned on December 31, 2011:
|
Historical cost
|
$100,000
|
|
Replacement cost
|
95,000
|
|
Net realizable value
|
98,000
|
|
Normal profit margin
|
20%
|
Ilmanov Ltd. sold a building to a bank at the beginning of 2011 at a gain of $50,000 and immediately leased the building back for a period of five years. The lease is accounted for as an operating lease.
a. Determine the amount of gain on the sale and leaseback that Ilmanov should recognize in 2011 under (1) U.S. GAAP and (2) IFRS.
b. Determine the adjustments that Ilmanov would make in 2011 and 2012 to reconcile net income and stockholders’ equity under U.S. GAAP to IFRS.
Aug 29, 2021 | Uncategorized
Lisali Company gathered the following information related to inventory that it owned on December 31, 2011:
|
Historical cost
|
$100,000
|
|
Replacement cost
|
95,000
|
|
Net realizable value
|
98,000
|
|
Normal profit margin
|
20%
|
Ramshare Company acquired equipment at the beginning of 2011 at a cost of $100,000. The equipment has a five-year life with no expected salvage value and is depreciated on a straight-line basis. At December 31, 2011, Ramshare compiled the following information related to this equipment:
|
Expected future cash flows from use of the equipment
|
$85,000
|
|
Present value of expected future cash flows from use of the equipment
|
75,000
|
|
Fair value (net selling price), less costs to dispose
|
72,000
|
a. Determine the amount at which Ramshare should carry this equipment on its December 31, 2011, balance sheet and the amount, if any, that it should report in net income related to this inventory using (1) U.S. GAAP and (2) IFRS.
b. Determine the adjustments that Ramshare would make in 2011 and 2012 to reconcile net income and stockholders’ equity under U.S. GAAP to IFRS. Ignore the possibility of any additional impairment at the end of 2010.
Aug 29, 2021 | Uncategorized
RECONCILIATION OF IFRS TO U.S. GAAP
Quantacc Ltd. began operations on January 1, 2009, and uses IFRS to prepare its consolidated financial statements. Although not required to do so, to facilitate comparisons with companies in the United States, Quantacc reconciles its net income and stockholders’ equity to U.S. GAAP. Information relevant for preparing this reconciliation is as follows:
1. Quantacc carries fixed assets at revalued amounts. Fixed assets were revalued upward on January 1, 2011, by $35,000. At that time, fixed assets had a remaining useful life of 10 years.
2. On January 1, 2010, Quantacc realized a gain on the sale and leaseback of an office building in the amount of $200,000. The lease is classified as an operating lease and has a term of 20 years.
3. Quantacc capitalized development costs related to a new pharmaceutical product in 2010 in the amount of $80,000. Quantacc began selling the new product on January 1, 2011, and expects the product to be marketable for a total of 5 years. Net income under IFRS in 2011 is $100,000 and stockholders’ equity under IFRS at December 31, 2011, is $1,000,000.
Required
a. Prepare a schedule to reconcile Quantacc’s 2011 net income and December 31, 2011, stockholders’ equity under IFRS to U.S. GAAP.
b. Provide a brief title/description for each reconciling adjustment made, indicate the dollar amount of the adjustment, and calculate total amounts for net income and stockholders’ equity under U.S. GAAP.
Aug 29, 2021 | Uncategorized
RECONCILIATION TO U.S. GAAP
Unless they use IFRS, foreign companies with securities listed in the United States (in the form of ADRs) are required to reconcile their net income and stockholder’s equity to U.S. GAAP in the annual report (Form 20–F) they file with the Securities and Exchange Commission (SEC). Lists of foreign SEC registrants are available on the Internet at www.adrbnymellon.com; click on DR Directory & Profiles. Annual reports of foreign SEC registrants may be accessed through the SEC’s EDGAR system at www.sec.gov (under Filing Type, search for 20–F). However, not all foreign registrants file their reports with the SEC electronically. Many non-U.S. companies make annual reports available on their corporate Internet home page. Access a recent annual report (Form 20–F) for a foreign company listed on the NewYork Stock Exchange that does not use IFRS to complete the following requirements.
Required
a. Determine the nationality of the company selected and the accounting rules and regulations it used (company GAAP) to prepare its financial statements.
b. Summarize the major differences in measuring net income between company GAAP and U.S. GAAP.
c. Compare the company’s profitability using company GAAP and U.S. GAAP.
Aug 29, 2021 | Uncategorized
What is the difference between Regulation S–K and Regulation S–X?
a. Regulation S–K establishes reporting requirements for companies in their initial issuance of securities whereas Regulation S–X is directed toward the subsequent issuance of securities.
b. Regulation S–K establishes reporting requirements for companies smaller than a certain size whereas Regulation S–X is directed toward companies larger than that size.
c. Regulation S–K establishes regulations for nonfinancial information filed with the SEC whereas Regulation S–X prescribes the form and content of financial statements included in SEC filings.
d. Regulation S–K establishes reporting requirements for publicly held companies whereas Regulation S–X is directed toward private companies.
Aug 29, 2021 | Uncategorized
Roth Company is insolvent and in the process of filing for relief under the provisions of the Bankruptcy Reform Act of 1978. Roth has no cash, and the company’s balance sheet currently shows Accounts Payable of $48,000. Roth owes an additional $8,000 in connection with various expenses but has not yet recorded these amounts. The company’s assets with an indication of both book value and anticipated net realizable value follow:
|
Book
Value
|
Expected Net
Realizable Value
|
|
Accounts receivable
|
$ 31,000
|
$9,000
|
|
Inventory
|
48,000
|
36,000
|
|
Investments
|
10,000
|
18,000
|
|
Land
|
80,000
|
75,000
|
|
Buildings
|
190,000
|
160,000
|
|
Accumulated depreciation
|
38,000
|
|
Equipment
|
110,000
|
20,000
|
|
Accumulated depreciation
|
61,000
|
|
Other assets
|
5,000
|
–0–
|
|
Totals
|
$375,000
|
$318,000
|
Roth has three notes payable, each with a different maturity date:
• Note 1 due in 5 years—$220,000, secured by a mortgage lien on Roth’s land and buildings.
• Note 2 due in 8 years—$30,000, secured by Roth’s investments.
• Note 3 due in 10 years—$35,000, unsecured.
Of the accounts payable that Roth owes, $10,000 represents salaries to employees. However, no individual is entitled to receive more than $4,100. An additional $3,000 due to the U.S. government in connection with taxes is included in this liability amount.
The company reported the stockholders’ equity balance of $42,000 at the current date: common stock of $140,000 and a deficit of $98,000. Liquidating the company will lead to administrative expenses of approximately $20,000.
Required
a. Prepare a statement of financial affairs for Roth to indicate the expected availability of funds if the company is liquidated.
b. Assume that Roth owes Philip, Inc., $2,000. This liability is unsecured. If Roth is liquidated, what amount can Philip expect to receive?
c. What amount will be paid on note 2 if Roth is liquidated?
d. Assume that Roth is immediately reorganized. Assume that the company has a reorganization value of $330,000, based on discounted cash flows, and the net realizable value is to be the assigned balance for each asset. The accounts payable and accrued expenses are reduced to $20,000. Note 1 is decreased to a $130,000 note due in four years with a 7 percent annual interest rate. This creditor also receives half of the company’s outstanding stock from the owners. Note 2 is reduced to a $12,000 note due in five years with an 8 percent annual interest rate. This creditor also receives 10 percent of the outstanding stock of the company from the owners. Note 3 is decreased to $5,000 due in three years with a 9 percent annual interest rate. Prepare a trial balance for this company after it emerges from bankruptcy.
Aug 29, 2021 | Uncategorized
A company is to be liquidated and has the following liabilities:
|
Income taxes
|
$8,000
|
|
Notes payable (secured by land)
|
120,000
|
|
Accounts payable
|
85,000
|
|
Salaries payable (evenly divided between two employees)
|
6,000
|
|
Bonds payable
|
70,000
|
|
Administrative expenses for liquidation
|
20,000
|
|
Book Value
|
Fair Value
|
|
Current assets
|
$80,000
|
$35,000
|
|
Land
|
100,000
|
90,000
|
|
Buildings and equipment
|
100,000
|
110,000
|
How much money will the holders of the notes payable collect following the liquidation?
Aug 29, 2021 | Uncategorized
Xavier Company is going through a Chapter 7 bankruptcy. All assets have been liquidated, and the company retains only $25,200 in free cash. The following debts, totaling $38,050, remain:
|
Government claims to unpaid taxes
|
$6,000
|
|
Salary during last month owed to Mr Key (not an officer)
|
17,050
|
|
Administrative expenses
|
2,450
|
|
Salary during last month owed to Ms Rankin (not an officer)
|
6,000
|
|
Unsecured accounts payable
|
6,550
|
Indicate how much money will be paid to the creditor associated with each debt.
Aug 29, 2021 | Uncategorized
Mondesto Company has the following:
|
Unsecured creditors
|
$230,000
|
|
Liabilities with priority
|
110,000
|
|
Secured liabilities:
|
|
Debt 1, $210,000; value of pledged asset
|
180,000
|
|
Debt 2, $170,000; value of pledged asset
|
100,000
|
|
Debt 3, $120,000; value of pledged asset
|
140,000
|
The company also has a number of other assets that are not pledged in any way. The creditors holding debt 2 want to receive at least $142,000. For how much do these free assets have to be sold so that the creditors associated with debt 2 would receive exactly $142,000?
Aug 29, 2021 | Uncategorized
A statement of financial affairs created for an insolvent corporation that is beginning the process of liquidation discloses the following data (assets are shown at net realizable values):
|
Assets pledged with fully secured creditors
|
$200,000
|
|
Fully secured liabilities
|
150,000
|
|
Assets pledged with partially secured creditors
|
380,000
|
|
Partially secured liabilities
|
490,000
|
|
Assets not pledged
|
300,000
|
|
Unsecured liabilities with priority
|
160,000
|
|
Accounts payable (unsecured)
|
390,000
|
a. This company owes $3,000 to an unsecured creditor (without priority). How much money can this creditor expect to collect?
b. This company owes $100,000 to a bank on a note payable that is secured by a security interest attached to property with an estimated net realizable value of $80,000. How much money can this bank expect to collect?
Aug 29, 2021 | Uncategorized
A company preparing for a Chapter 7 liquidation has the following liabilities:
• Note payable A of $90,000 secured by land having a book value of $50,000 and a fair value of $70,000.
• Note payable B of $120,000 secured by a building having a $60,000 book value and a $40,000 fair value.
• Note payable C of $60,000, unsecured.
• Administrative expenses payable of $20,000.
• Accounts payable of $120,000.
• Income taxes payable of $30,000.
It has these other assets:
• Cash of $10,000.
• Inventory of $100,000 but with fair value of $60,000.
• Equipment of $90,000 but with fair value of $50,000.
How much will each of the company’s liabilities be paid at liquidation?
Aug 29, 2021 | Uncategorized
Olds Company declares Chapter 7 bankruptcy. The following are the accounts at that time; administrative expenses are estimated to be $12,000:
|
Cash
|
$24,000
|
|
Accounts receivable
|
60,000
|
(worth $28,000)
|
|
Inventory
|
70,000
|
(worth $56,000)
|
|
Land (secures note A)
|
200,000
|
(worth $160,000)
|
|
Building (secures bonds)
|
400,000
|
(worth $320,000)
|
|
Equipment
|
120,000
|
(worth unknown)
|
|
Accounts payable
|
180,000
|
|
Taxes payable to government
|
20,000
|
|
Note payable A
|
170,000
|
|
Note payable B
|
250,000
|
|
Bonds payable
|
300,000
|
The holders of note payable B want to collect at least $125,000. To achieve that goal, how much does the company have to receive in the liquidation of its equipment?
Aug 29, 2021 | Uncategorized
A company going through a Chapter 7 bankruptcy has the following account balances:
|
Cash
|
$30,000
|
|
Receivables (30% collectible)
|
50,000
|
|
Inventory (worth $39,000)
|
90,000
|
|
Land (worth $120,000) (secures note payable)
|
100,000
|
|
Buildings (worth $180,000) (secures bonds payable)
|
200,000
|
|
Salaries payable (7 workers owed equal amounts for last 2 weeks)
|
10,000
|
|
Accounts payable
|
90,000
|
|
Note payable (secured by land)
|
110,000
|
|
Bonds payable (secured by building)
|
300,000
|
|
Common stock
|
100,000
|
|
Retained earnings
|
140,000
|
How much will be paid to each of the following?
Salaries payable
Accounts payable
Note payable
Bonds payable
Aug 29, 2021 | Uncategorized
A company is coming out of reorganization with the following accounts:
|
Book Value
|
Fair Value
|
|
Receivables
|
$80,000
|
$90,000
|
|
Inventory
|
200,000
|
210,000
|
|
Buildings
|
300,000
|
400,000
|
|
Liabilities
|
300,000
|
300,000
|
|
Common stock
|
330,000
|
|
Additional paid-incapital
|
20,000
|
|
Retained earnings (deficit)
|
-70,000
|
The company’s assets have a $760,000 reorganization value. As part of the reorganization, the company’s owners transferred 80 percent of the outstanding stock to the creditors.
Prepare the journal entry that is necessary to adjust the company’s records to fresh start accounting.
Aug 29, 2021 | Uncategorized
Addison Corporation is currently going through a Chapter 11 bankruptcy. The company has the following account balances for the current year. Prepare an income statement for this organization. The effective tax rate is 20 percent (realization of any tax benefits is anticipated).
|
Debit
|
Credit
|
|
Advertising expense
|
$24,000
|
|
Cost of goods sold
|
211,000
|
|
Depreciation expense
|
22,000
|
|
Interest expense
|
4,000
|
|
Interest revenue
|
$32,000
|
|
Loss on closing of branch
|
109,000
|
|
Professional fees
|
71,000
|
|
Rent expense
|
16,000
|
|
Revenues
|
467,000
|
|
Salaries expense
|
70,000
|
Aug 29, 2021 | Uncategorized
Kansas City Corporation holds three assets when it comes out of Chapter 11 bankruptcy:
|
Book Value
|
Fair Value
|
|
Inventory
|
$86,000
|
$50,000
|
|
Land and buildings
|
250,000
|
400,000
|
|
Equipment
|
123,000
|
110,000
|
The company has a reorganization value of $600,000.
a. Describe the rules to determine whether to apply fresh start accounting to Kansas City.
b. If fresh start accounting is appropriate, how will this company’s assets be reported?
c. If a Goodwill account is recognized in a reorganization, where should it be reported? What happens to this balance?
Aug 29, 2021 | Uncategorized
Jaez Corporation is in the process of going through a reorganization. As of December 31, 2010, the company’s accountant has determined the following information although the company is still several months away from emerging from the bankruptcy proceeding. Prepare a balance sheet in appropriate form.
|
Book Value
|
Fair Value
|
|
Assets
|
|
Cash
|
$23,000
|
$23,000
|
|
Inventory
|
45,000
|
47,000
|
|
Land
|
140,000
|
210,000
|
|
Buildings
|
220,000
|
260,000
|
|
Equipment
|
154,000
|
157,000
|
|
Allowed Claims
|
Expected Settlement
|
|
Liabilities as of the date of the order for relief
|
|
Accounts payable
|
$123,000
|
$20,000
|
|
Accrued expenses
|
30,000
|
4,000
|
|
Income taxes payable
|
22,000
|
18,000
|
|
Note payable (due 2013, secured by land)
|
100,000
|
100,000
|
|
Note payable (due 2015)
|
170,000
|
80,000
|
|
Liabilities since the date of the order for relief
|
|
Accounts payable
|
$60,000
|
|
Note payable (due 2012)
|
110,000
|
|
Stockholders’ equity
|
|
Common stock
|
$200,000
|
|
Deficit
|
233,000
|
Aug 29, 2021 | Uncategorized
(Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2013, and September 30, 2013. Another note of $6,000 is due on March 31, 2014, but he expects no difficulty in paying this note on its due date. Brown explained that Bradburn’s cash flow problems are due primarily to the company’s desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds. The commercial loan officer of Topeka National Bank requested financial reports for the last 2 fiscal years. These reports are reproduced below and on page 1562.
|
BRADBURN CORPORATION
BALANCE SHEET
MARCH 31
|
|
Assets
|
2013
|
2012
|
|
Cash
|
$ 18,200
|
$ 12,500
|
|
Notes receivable
|
148,000
|
132,000
|
|
Accounts receivable (net)
|
131,800
|
125,500
|
|
Inventories (at cost)
|
105,000
|
50,000
|
|
Plant & equipment (net of depreciation)
|
1,449,000
|
1,420,500
|
|
Total assets
|
$1,852,000
|
$1,740,500
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable
|
$ 79,000
|
$ 91,000
|
|
Notes payable
|
76,000
|
61,500
|
|
Accrued liabilities
|
9,000
|
6,000
|
|
Common stock (130,000 shares, $10 par)
|
1,300,000
|
1,300,000
|
|
Retained earningsa
|
388,000
|
282,000
|
|
Total liabilities and stockholders’ equity
|
$1,852,000
|
$1,740,500
|
|
BRADBURN CORPORATION
INCOME STATEMENT
FOR THE FISCAL YEARS ENDED MARCH 31
|
|
2013
|
2012
|
|
Sales revenue
|
$3,000,000
|
$2,700,000
|
|
Cost of goods solda
|
1,530,000
|
1,425,000
|
|
Gross margin
|
1,470,000
|
1,275,000
|
|
Operating expenses
|
860,000
|
780,000
|
|
Income before income taxes
|
610,000
|
495,000
|
|
Income taxes (40%)
|
244,000
|
198,000
|
|
Net income
|
$ 366,000
|
$ 297,000
|
Instructions
(a) Compute the following items for Bradburn Corporation.
(1) Current ratio for fiscal years 2012 and 2013.
(2) Acid-test (quick) ratio for fiscal years 2012 and 2013.
(3) Inventory turnover for fiscal year 2013.
(4) Return on assets for fiscal years 2012 and 2013. (Assume total assets were $1,688,500 at 3/31/11.)
(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2012 to 2013.
(b) Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown’s request for a time extension on Bradburn’s notes.
(c) Assume that the percentage changes experienced in fiscal year 2013 as compared with fiscal year 2012 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn’s desire to finance the plant expansion from internally generated funds realistic? Discuss.
(d) Should Topeka National Bank grant the extension on Bradburn’s notes considering Daniel Brown’s statement about financing the plant expansion through internally generated funds? Discuss.
Aug 29, 2021 | Uncategorized
(Horizontal and Vertical Analysis) Presented below are comparative balance sheets for the Gilmour Company.
|
GILMOUR COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2013 AND 2012
|
|
December 31
|
|
2013
|
2012
|
|
Assets
|
|
|
|
Cash
|
$ 180,000
|
$ 275,000
|
|
Accounts receivable (net)
|
220,000
|
155,000
|
|
Short-term investments
|
270,000
|
150,000
|
|
Inventories
|
1,060,000
|
980,000
|
|
Prepaid expenses
|
25,000
|
25,000
|
|
Fixed assets
|
2,585,000
|
1,950,000
|
|
Accumulated depreciation
|
(1,000,000)
|
(750,000)
|
|
$3,340,000
|
$2,785,000
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable
|
$ 50,000
|
$ 75,000
|
|
Accrued expenses
|
170,000
|
200,000
|
|
Bonds payable
|
450,000
|
190,000
|
|
Capital stock
|
2,100,000
|
1,770,000
|
|
Retained earnings
|
570,000
|
550,000
|
|
$3,340,000
|
$2,785,000
|
Instructions
(Round to two decimal places.)
(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity.
(b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.
(c) Of what value is the additional information provided in part (a)?
(d) Of what value is the additional information provided in part (b)?
Aug 29, 2021 | Uncategorized
(Dividend Policy Analysis) Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared. Presented below is a brief financial summary of Matheny Inc. operations.
|
2013
|
2012
|
2011
|
2010
|
2009
|
|
Sales revenue
|
$20,000
|
$16,000
|
$14,000
|
$6,000
|
$4,000
|
|
Net income
|
2,400
|
1,400
|
800
|
700
|
250
|
|
Average total assets
|
22,000
|
19,000
|
11,500
|
4,200
|
3,000
|
|
Current assets
|
8,000
|
6,000
|
3,000
|
1,200
|
1,000
|
|
Working capital
|
3,600
|
3,200
|
1,200
|
500
|
400
|
|
Common shares:
|
|
|
|
|
|
|
Number of shares
outstanding (000)
|
2,000
|
2,000
|
2,000
|
20
|
20
|
|
Average market price
|
$9
|
$6
|
$4
|
—
|
—
|
Instructions
(a) Suggest factors to be considered by the board of directors in establishing a dividend policy.
(b) Compute the rate of return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc.
(c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.
Aug 29, 2021 | Uncategorized
(Disclosures, Conditional and Contingent Liabilities) Presented below are three independent situations.
Situation 1
A company offers a one-year warranty for the product that it manufactures. A history of warranty claims has been compiled, and the probable amounts of claims related to sales for a given period can be determined.
Situation 2
Subsequent to the date of a set of financial statements but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the company. The amount of the loss can be reasonably estimated.
Situation 3
A company has adopted a policy of recording self-insurance for any possible losses resulting from injury to others by the company’s vehicles. The premium for an insurance policy for the same risk from an independent insurance company would have an annual cost of $4,000. During the period covered by the financial statements, there were no accidents involving the company’s vehicles that resulted in injury to others.
Instructions
Discuss the accrual or type of disclosure necessary (if any) and the reason(s) why such disclosure is appropriate for each of the three independent sets of facts above.
Aug 29, 2021 | Uncategorized
(Segment Reporting—Theory) The following article appeared in the Wall Street Journal. washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider . . . various factors . . . to determine whether products and services should be grouped together or reported as segments.
Instructions
(a) What does financial reporting for segments of a business enterprise involve?
(b) Identify the reasons for requiring financial data to be reported by segments.
(c) Identify the possible disadvantages of requiring financial data to be reported by segments.
(d) Identify the accounting difficulties inherent in segment reporting.
Aug 29, 2021 | Uncategorized
(Interim Reporting) Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its stockholders and the Securities and Exchange Commission (SEC) at the end of the first quarter of the 2012–2013 fiscal year. Snider’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year.
|
Sales revenue
|
$60,000,000
|
|
Cost of goods sold
|
36,000,000
|
|
Variable selling expenses
|
1,000,000
|
|
Fixed selling expenses
|
3,000,000
|
Included in the fixed selling expenses was the single lump-sum payment of $2,000,000 for television advertisements for the entire year.
Instructions
(a) Snider Corporation must issue its quarterly financial statements in accordance with generally accepted accounting principles regarding interim financial reporting.
(1) Explain whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period.
(2) State how the sales revenue, cost of goods sold, and fixed selling expenses would be reflected in Snider Corporation’s quarterly report prepared for the first quarter of the 2012–2013 fiscal year. Briefly justify your presentation.
(b) What financial information, as a minimum, must Snider Corporation disclose to its stockholders in its quarterly reports?
Aug 29, 2021 | Uncategorized
(Treatment of Various Interim Reporting Situations) The following statement is an excerpt from the FASB pronouncement related to interim reporting. Interim financial information is essential to provide investors and others with timely information as to the progress of the enterprise. The usefulness of such information rests on the relationship that it has to the annual results of operations. Accordingly, the Board has concluded that each interim period should be viewed primarily as an integral part of an annual period. In general, the results for each interim period should be based on the accounting principles and practices used by an enterprise in the preparation of its latest annual financial statements unless a change in an accounting practice or policy has been adopted in the current year. The Board has concluded, however, that certain accounting principles and practices followed for annual reporting purposes may require modification at interim reporting dates so that the reported results for the interim period may better relate to the results of operations for the annual period.
Instructions
Listed below are six independent cases on how accounting facts might be reported on an individual company’s interim financial reports. For each of these cases, state whether the method proposed to be used for interim reporting would be acceptable under generally accepted accounting principles applicable to interim financial data. Support each answer with a brief explanation.
(a) J. D. Long Company takes a physical inventory at year-end for annual financial statement purposes. Inventory and cost of sales reported in the interim quarterly statements are based on estimated gross profit rates, because a physical inventory would result in a cessation of operations. Long Company does have reliable perpetual inventory records.
(b) Rockford Company is planning to report one-fourth of its pension expense each quarter.
(c) Republic Company wrote inventory down to reflect lower-of-cost-or-market in the first quarter. At year-end, the market exceeds the original acquisition cost of this inventory. Consequently, management plans to write the inventory back up to its original cost as a year-end adjustment.
(d) Gansner Company realized a large gain on the sale of investments at the beginning of the second quarter. The company wants to report one-third of the gain in each of the remaining quarters.
(e) Fredonia Company has estimated its annual audit fee. It plans to pro rate this expense equally over all four quarters.
(f) LaBrava Company was reasonably certain it would have an employee strike in the third quarter. As a result, it shipped heavily during the second quarter but plans to defer the recognition of the sales in excess of the normal sales volume. The deferred sales will be recognized as sales in the third quarter when the strike is in progress. LaBrava Company management thinks this is more representative of normal second- and third-quarter operations.
Aug 29, 2021 | Uncategorized
(Financial Forecasts) An article in Barron’s noted the following.
Okay. Last fall, someone with a long memory and an even longer arm reached into that bureau drawer and came out with a moldy cheese sandwich and the equally moldy notion of corporate forecasts. We tried to find out what happened to the cheese sandwich—but, rats!, even recourse to the Freedom of Information Act didn’t help. However, the forecast proposal was dusted off, polished up and found quite serviceable. The SEC, indeed, lost no time in running it up the old flagpole—but no one was very eager to salute. Even after some of the more objectionable features—compulsory corrections and detailed explanations of why the estimates went awry—were peeled off the original proposal. Seemingly, despite the Commission’s smiles and sweet talk, those craven corporations were still afraid that an honest mistake would lead them down the primrose path to consent decrees and class action suits. To lay to rest such qualms, the Commission last week approved a “Safe Harbor” rule that, providing the forecasts were made on a reasonable basis and in good faith, protected corporations from litigation should the projections prove wide of the mark (as only about 99% are apt to do).
Instructions
(a) What are the arguments for preparing profit forecasts?
(b) What is the purpose of the “safe harbor” rule?
(c) Why are corporations concerned about presenting profit forecasts?
Aug 29, 2021 | Uncategorized
(Disclosure of Estimates) Nancy Tercek, the financial vice president, and Margaret Lilly, the controller, of Romine Manufacturing Company are reviewing the financial ratios of the company for the years 2012 and 2013. The financial vice president notes that the profit margin on sales ratio has increased from 6% to 12%, a hefty gain for the 2-year period. Tercek is in the process of issuing a media release that emphasizes the efficiency of Romine Manufacturing in controlling cost. Margaret Lilly knows that the difference in ratios is due primarily to an earlier company decision to reduce the estimates of warranty and bad debt expense for 2013. The controller, not sure of her supervisor’s motives, hesitates to suggest to Tercek that the company’s improvement is unrelated to efficiency in controlling cost. To complicate matters, the media release is scheduled in a few days.
Instructions
(a) What, if any, is the ethical dilemma in this situation?
(b) Should Lilly, the controller, remain silent? Give reasons.
(c) What stakeholders might be affected by Tercek’s media release?
(d) Give your opinion on the following statement and cite reasons: “Because Tercek, the vice president, is most directly responsible for the media release, Lilly has no real responsibility in this matter.”
Aug 29, 2021 | Uncategorized
(Reporting of Subsequent Events) In June 2012, the board of directors for McElroy Enterprises Inc. authorized the sale of $10,000,000 of corporate bonds. Jennifer Grayson, treasurer for McElroy Enterprises Inc., is concerned about the date when the bonds are issued. The company really needs the cash, but she is worried that if the bonds are issued before the company’s year-end (December 31, 2012) the additional liability will have an adverse effect on a number of important ratios. In July, she explains to company president William McElroy that if they delay issuing the bonds until after December 31 the bonds will not affect the ratios until December 31, 2013. They will have to report the issuance as a subsequent event which requires only footnote disclosure. Grayson expects that with expected improved financial performance in 2013 ratios should be better.
Instructions
(a) What are the ethical issues involved?
(b) Should McElroy agree to the delay?
Aug 29, 2021 | Uncategorized
(Effect of Transactions on Financial Statements and Ratios) The transactions listed below relate to Wainwright Inc. You are to assume that on the date on which each of the transactions occurred, the corporation’s accounts showed only common stock ($100 par) outstanding, a current ratio of 2.7:1, and a substantial net income for the year to date (before giving effect to the transaction concerned). On that date, the book value per share of stock was $151.53. Each numbered transaction is to be considered completely independent of the thers, and its related answer should be based on the effect(s) of that transaction alone. Assume that all numbered transactions occurred during 2013 and that the amount involved in each case is sufficiently material to distort reported net income if improperly included in the determination of net income. Assume further that each transaction was recorded in accordance with generally accepted accounting principles and, where applicable, in conformity with the all-inclusive concept of the income statement. For each of the numbered transactions you are to decide whether it:
(a) Increased the corporation’s 2013 net income.
(b) Decreased the corporation’s 2013 net income.
(c) Increased the corporation’s total retained earnings directly (i.e., not via net income).
(d) Decreased the corporation’s total retained earnings directly.
(e) Increased the corporation’s current ratio.
(f) Decreased the corporation’s current ratio.
(g) Increased each stockholder’s proportionate share of total stockholders’ equity.
(h) Decreased each stockholder’s proportionate share of total stockholders’ equity.
(i) Increased each stockholder’s equity per share of stock (book value).
(j) Decreased each stockholder’s equity per share of stock (book value).
(k) Had none of the foregoing effects.
Instructions
List the numbers 1 through 9. Select as many letters as you deem appropriate to reflect the effect(s) of each transaction as of the date of the transaction by printing beside the transaction number the letter(s) that identifies that transaction’s effect(s).
Transactions
1. In January, the board directed the write-off of certain patent rights that had suddenly and unexpectedly become worthless.
2. The corporation sold at a profit land and a building that had been idle for some time. Under the terms of the sale, the corporation received a portion of the sales price in cash immediately, the balance maturing at 6-month intervals.
3. Treasury stock originally repurchased and carried at $127 per share was sold for cash at $153 per share.
4. The corporation wrote off all of the unamortized discount and issue expense applicable to bonds that it refinanced in 2013.
5. The corporation called in all its outstanding shares of stock and exchanged them for new shares on a 2-for-1 basis, reducing the par value at the same time to $50 per share.
6. The corporation paid a cash dividend that had been recorded in the accounts at time of declaration.
7. Litigation involving Wainwright Inc. as defendant was settled in the corporation’s favor, with the plaintiff paying all court costs and legal fees. In 2010, the corporation had appropriately established a special contingency for this court action. (Indicate the effect of reversing the contingency only.)
8. The corporation received a check for the proceeds of an insurance policy from the company with which it is insured against theft of trucks. No entries concerning the theft had been made previously, and the proceeds reduce but do not cover completely the loss.
9. Treasury stock, which had been repurchased at and carried at $127 per share, was issued as a stock dividend. In connection with this distribution, the board of directors of Wainwright Inc. had authorized a transfer from retained earnings to permanent capital of an amount equal to the aggregate market value ($153 per share) of the shares issued. No entries relating to this dividend had been made previously.
Aug 29, 2021 | Uncategorized
(Subsequent Events) For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.
1. Settlement of a tax case at a cost considerably in excess of the amount expected at year-end.
2. Introduction of a new product line.
3. Loss of assembly plant due to fi re.
4. Sale of a significant portion of the company’s assets.
5. Retirement of the company president.
6. Issuance of a significant number of ordinary shares.
7. Loss of a significant customer.
8. Prolonged employee strike.
9. Material loss on a year-end receivable because of a customer’s bankruptcy.
10. Hiring of a new president.
11. Settlement of prior year’s litigation against the company.
12. Merger with another company of comparable size.
Aug 29, 2021 | Uncategorized
Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first quarter of the 2012–2013 fiscal year. Snider’s financial accounting department has compiled the following summarized revenue and expense data for the first quarter of the year.
|
Sales revenue
|
$60,000,000
|
|
Cost of goods sold
|
36,000,000
|
|
Variable selling expenses
|
1,000,000
|
|
Fixed selling expenses
|
3,000,000
|
Included in the fixed selling expenses was the single lump-sum payment of $2,000,000 for television advertisements for the entire year.
Instructions
(a) Snider Corporation must issue its quarterly financial statements in accordance with IFRS regarding interim financial reporting.
(1) Explain whether Snider should report its operating results for the quarter as if the quarter were a separate reporting period in and of itself, or as if the quarter were an integral part of the annual reporting period.
(2) State how the sales revenue, cost of goods sold, and fixed selling expenses would be reflected in Snider Corporation’s quarterly report prepared for the first quarter of the 2012–2013 fiscal year. Briefly justify your presentation.
(b) What financial information, as a minimum, must Snider Corporation disclose to its shareholders in its quarterly reports?
Aug 29, 2021 | Uncategorized
Which of the following could explain why accounting is more conservative in some countries than in others?
a. Accounting is oriented toward stockholders as a major source of financing.
b. Published financial statements are the basis for taxation.
c. A common law legal system is used.
d. Full disclosure in financial statements is emphasized.
Which of the following is not a problem caused by differences in financial reporting practices across countries?
a. Consolidation of financial statements by firms with foreign operations is more difficult.
b. Firms incur additional costs when attempting to obtain financing in foreign countries.
c. Firms face double taxation on income earned by foreign operations.
d. Comparisons of financial ratios across firms in different countries may not be meaningful.
Which of the following is not a reason for establishing international accounting standards?
a. Some countries do not have the resources to develop accounting standards on their own.
b. Comparability is needed between companies operating in different areas of the world.
c. It would simplify the preparation of consolidated financial statements by multinational corporations.
d. Demand in the United States is heavy for an alternative to U.S. generally accepted accounting principles.
Aug 29, 2021 | Uncategorized
What is the so-called Norwalk Agreement?
a. An agreement between the FASB and SEC to allow foreign companies to use IFRSs in their filing of financial statements with the SEC.
b. An agreement between the U.S. FASB and the U.K. Accounting Standards Board to converge their respective accounting standards as soon as practicable.
c. An agreement between the SEC chairman and the EU Internal Market commissioner to allow EU companies to list securities in the United States without providing a U.S. GAAP reconciliation.
d. An agreement between the FASB and the IASB to make their existing standards compatible as soon as practicable and to work together to ensure compatibility in the future.
Aug 29, 2021 | Uncategorized
Which of the following is not one of the FASB’s initiatives to converge with IASB standards?
a. The FASB eliminates differences between FASB and IASB standards by adopting IASB requirements, or vice versa, in a short-term convergence project.
b. The FASB considers the possibility of convergence with IASB standards when deciding which topics to add to its work agenda.
c. A member of the FASB serves as a liaison with the IASB by working out of the IASB’s offices in London.
d. A joint project develops a common conceptual framework that both the FASB and IASB could use as a basis for future standards.
Aug 29, 2021 | Uncategorized
- Freeman Company ceased doing business and is in bankruptcy. Among the claimants are employees seeking unpaid wages. The following statements describe the possible status of such claims in a bankruptcy proceeding or legal limitations placed upon them. Which one is an incorrect statement?
(a) The amounts of excess wages not entitled to a priority are mere unsecured claims.
(b) Such claims include wages earned within 180 days before the filing of the bankruptcy petition, but not to exceed $4,650 in amount.
(c) Such claims are entitled to priority.
(d) If a priority is afforded such claims, it cannot exceed $4,650 per wage earner.
Aug 29, 2021 | Uncategorized
True or False
Indicate whether each of the following is true or false. If an answer is false, explain why.
- Insolvency means that a debtor has more current liabilities than current assets.
- Voluntary bankruptcy petitions may be filed under either of the Reform Act.
- If an insolvent debtor has more than 12 creditors, an involuntary petition must be signed by at least three of those creditors.
- Unsecured creditors with priority will receive full satisfaction before secured creditors are paid.
- Either a debtor or its creditors may file a petition for reorganization the Reform Act.
- In a reorganization involving a transfer of assets, the debtor will recognize a gain on restructuring measured by the excess of the carrying value of the payable settled over the book value of the assets transferred.
- Restructuring gains that arise from troubled debt restructurings are reported by the debtor as extraordinary gains.
8. The statement of affairs is a report designed to estimate the amount expected to be earned by a debtor company during the time period needed to complete a reorganization.
Aug 29, 2021 | Uncategorized
Modification of Terms
Lake Company, a major creditor of financially troubled Spain Company, has agreed to modify the terms of a debt owed to Lake Company. The debt consists of a $900,000, 12% note that is due currently along with accrued interest of $95,000. Lake Company agreed to extend the due date of the note and accrued interest for three years and to reduce the interest rate to 5% per annum (on both maturity value and accrued interest), with interest to be paid annually.
Required:
- Should a gain on restructuring be recognized by Spain Company? Explain.
- Prepare the entry that should be made on Spain Company”s books on the date of restructure.
Aug 29, 2021 | Uncategorized
Reorganization Balance Sheet
The following balance sheet was prepared for Crane Company on December 31, 2012:
|
Crane Company Balance Sheet December 31, 2012
|
|
|
|
Cash
|
|
$ 33,000
|
|
Accounts Receivable
|
$52,500
|
|
|
Less. Allowance for Uncollectibles
|
3,800
|
48,700
|
|
Inventory
|
|
71,000
|
|
Property and Equipment (net)
|
|
142,000
|
|
Goodwill
|
|
20,000
|
|
Total Assets
|
|
$314,700
|
|
Accounts Payable
|
|
$ 66,000
|
|
10% Bonds Payable, due 6/30/15
|
|
130,000
|
|
Common Stock, $20 par, 10,000 Shares Outstanding
|
|
200,000
|
|
Retained Earnings (deficit)
|
|
(81,300)
|
|
Total Equities
|
|
$314.700
|
Crane Company has had operating difficulties, accumulating a deficit over several years before 2012. During 2012, however, Crane reported a significantly lower operating loss, and prospects for the future are relatively bright. Although management and stockholders are optimistic about the future, it is almost certain that the company will lack the necessary working capital to handle existing obligations and expected future growth. In light of these facts, Crane has filed for reorganization the Bankruptcy Reform Act of 1978. The reorganization plan, the provisions of which are set out below, has received the approval of stockholders, creditors, and the court. Provisions of the reorganization plan are as follows:
- Accounts receivable are to be written down to $40,000 to reflect their current expected realizable value.
- Inventory is fairly valued, but goodwill is to be written off, and property and equipment is to be written down to its fair value of $118,000.
- The $20 par value common stock is to be replaced with $4 par value common stock on a share-for-share basis in order to create some reorganization capital, which will be used to eliminate the deficit.
- The bondholders agree to exchange their bonds for new 8% bonds in the same maturity amount, but with a due date of June 30, 2019, and 6,000 shares of $4 par value common stock. The stock will be divided ratably among the bondholders. The fair value of the common stock is equal to its par value.
- Accounts payable are expected to be paid in full, although creditors have agreed to extend due dates by as much as six months.
- Any accumulated deficit is to be eliminated.
Required:
- Prepare journal entries to record the effects of the reorganization plan.
- Prepare a balance sheet as it would appear immediately after the reorganization.
Aug 29, 2021 | Uncategorized
(SCF—Direct Method) Mortonson Company has not yet prepared a formal statement of cash flows for the 2012 fiscal year. Comparative balance sheets as of December 31, 2011 and 2012, and a statement of income and retained earnings for the year ended December 31, 2012, are presented below and on page 1492.
|
MORTONSON COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2012
($000 OMITTED)
|
|
Sales
|
|
$3,800
|
|
Expenses
|
|
|
|
Cost of goods sold
|
$1,200
|
|
|
Salaries and benefits
|
725
|
|
|
Heat, light, and power
|
75
|
|
|
Depreciation
|
80
|
|
|
Property taxes
|
19
|
|
|
Patent amortization
|
25
|
|
|
Miscellaneous expenses
|
10
|
|
|
Interest
|
30
|
2,164
|
|
MORTONSON COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2012
(CONTINUED)
|
|
|
Income before income taxes
|
1,636
|
|
Income taxes
|
818
|
|
Net income
|
818
|
|
Retained earnings—Jan. 1, 2012
|
310
|
|
1,128
|
|
Stock dividend declared and issued
|
600
|
|
Retained earnings—Dec. 31, 2012
|
$ 528
|
|
MORTONSON COMPANY
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31
($000 OMITTED)
|
|
Assets
|
2012
|
2011
|
|
Current assets
|
|
|
|
Cash
|
$ 333
|
$ 100
|
|
U.S. Treasury notes (available-for-sale)
|
10
|
50
|
|
Accounts receivable
|
780
|
500
|
|
Inventory
|
720
|
560
|
|
Total current assets
|
1,843
|
1,210
|
|
Long-term assets
|
|
|
|
Land
|
150
|
70
|
|
Buildings and equipment
|
910
|
600
|
|
Accumulated depreciation
|
(200)
|
(120)
|
|
Patents (less amortization)
|
105
|
130
|
|
Total long-term assets
|
965
|
680
|
|
Total assets
|
$2,808
|
$1,890
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable
|
$ 420
|
$ 330
|
|
Income taxes payable
|
40
|
30
|
|
Notes payable
|
320
|
320
|
|
Total current liabilities
|
780
|
680
|
|
Long-term notes payable—due 2014
|
200
|
200
|
|
Total liabilities
|
980
|
880
|
|
Stockholders’ equity
|
|
|
|
Common stock
|
1,300
|
700
|
|
Retained earnings
|
528
|
310
|
|
Total stockholders’ equity
|
1,828
|
1,010
|
|
Total liabilities and stockholders’ equity
|
$2,808
|
$1,890
|
Instructions
Prepare a statement of cash flows using the direct method. Changes in accounts receivable and accounts payable relate to sales and cost of goods sold. Do not prepare a reconciliation schedule.
Aug 29, 2021 | Uncategorized
(SCF—Direct Method) Michaels Company had available at the end of 2012 the information shown below.
|
MICHAELS COMPANY
COMPARATIVE BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND 2011
|
|
2012
|
2011
|
|
Cash
|
$ 10,000
|
$ 4,000
|
|
Accounts receivable
|
20,500
|
12,950
|
|
Short-term investments
|
22,000
|
30,000
|
|
Inventory
|
42,000
|
35,000
|
|
Prepaid rent
|
3,000
|
12,000
|
|
Prepaid insurance
|
2,100
|
900
|
|
Supplies
|
1,000
|
750
|
|
Land
|
125,000
|
175,000
|
|
Buildings
|
350,000
|
350,000
|
|
Accumulated depreciation—buildings
|
(105,000)
|
(87,500)
|
|
Equipment
|
525,000
|
400,000
|
|
Accumulated depreciation—equipment
|
(130,000)
|
(112,000)
|
|
Patents
|
45,000
|
50,000
|
|
Total assets
|
$910,600
|
$871,100
|
|
Accounts payable
|
$ 22,000
|
$ 32,000
|
|
Income taxes payable
|
5,000
|
4,000
|
|
Salaries and wages payable
|
5,000
|
3,000
|
|
Short-term notes payable
|
10,000
|
10,000
|
|
Long-term notes payable
|
60,000
|
70,000
|
|
Bonds payable
|
400,000
|
400,000
|
|
Premium on bonds payable
|
20,303
|
25,853
|
|
Common stock
|
240,000
|
220,000
|
|
Paid-in capital in excess of
par—common stock
|
25,000
|
17,500
|
|
Retained earnings
|
123,297
|
88,747
|
|
Total liabilities and stockholders’ equity
|
$910,600
|
$871,100
|
|
MICHAEL S COMPANY
INCOME STATEMENT AND DIVIDEND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 2012
|
|
Sales revenue
|
|
$1,160,000
|
|
Cost of goods sold
|
|
748,000
|
|
Gross margin
|
|
412,000
|
|
Operating expenses
|
|
|
|
Selling expenses
|
$ 79,200
|
|
|
Administrative expenses
|
156,700
|
|
|
Depreciation/Amortization expense
|
40,500
|
|
|
Total operating expenses
|
|
276,400
|
|
Income from operations
|
|
135,600
|
|
Other revenues/expenses
|
|
|
|
Gain on sale of land
|
8,000
|
|
|
Gain on sale of short-term investment
|
4,000
|
|
|
Dividend revenue
|
2,400
|
|
|
Interest expense
|
51,750)
|
(37,350)
|
|
Income before taxes
|
|
98,250
|
|
Income tax expense
|
|
39,400
|
|
Net income
|
|
58,850
|
|
Dividends to common stockholders
|
|
(24,300)
|
|
To retained earnings
|
|
$ 34,550
|
Instructions
Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are classified as available-for-sale.
Aug 29, 2021 | Uncategorized
(SCF—Indirect Method, and Net Cash Flow from Operating Activities, Direct Method) Comparative balance sheet accounts of Marcus Inc. are presented below.
|
MARCUS INC.
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31, 2012 AND 2011
|
|
December
31
|
|
Debit Accounts
|
2012
|
2011
|
|
Cash
|
$ 42,000
|
33,750
|
|
Accounts Receivable
|
70,500
|
60,000
|
|
Inventory
|
30,000
|
24,000
|
|
Investments (available-for-sale)
|
22,250
|
38,500
|
|
Machinery
|
30,000
|
18,750
|
|
Buildings
|
67,500
|
56,250
|
|
Land
|
7,500
|
7,500
|
|
$269,750
|
238,750
|
|
Credit Accounts
|
|
|
|
Allowance for Doubtful Accounts
|
$ 2,250
|
1,500
|
|
Accumulated Depreciation—Machinery
|
5,625
|
2,250
|
|
Accumulated Depreciation—Buildings
|
13,500
|
9,000
|
|
Accounts Payable
|
35,000
|
24,750
|
|
Accrued Payables
|
3,375
|
2,625
|
|
Long-Term Notes Payable
|
21,000
|
31,000
|
|
Common Stock, no-par
|
150,000
|
125,000
|
|
Retained Earnings
|
39,000
|
42,625
|
|
$269,750
|
238,750
|
Additional data (ignoring taxes):
1. Net income for the year was $42,500.
2. Cash dividends declared and paid during the year were $21,125.
3. A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized.
4. Investments that cost $25,000 were sold during the year for $28,750.
5. Machinery that cost $3,750, on which $750 of depreciation had accumulated, was sold for $2,200. Marcus’s 2012 income statement follows (ignoring taxes).
|
Sales
|
|
$540,000
|
|
Less: cost of goods sold
|
|
380,000
|
|
Gross margin
|
|
160,000
|
|
Less: Operating expenses (includes $8,625 depreciation and $5,400 bad debts)
|
|
120,450
|
|
Income from operations
|
|
39,550
|
|
Other: Gain on sale of investments
|
$3,750
|
|
|
Loss on sale of machinery
|
(800)
|
2,950
|
|
Net income
|
|
$ 42,500
|
Instructions
(a) Compute net cash flow from operating activities using the direct method.
(b) Prepare a statement of cash flows using the indirect method.
Aug 29, 2021 | Uncategorized
(SCF—Direct and Indirect Methods from Comparative Financial Statements) Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative balance sheet and income statement for Chapman as of May 31, 2012, are shown on the next page. The company is preparing its statement of cash flows.
|
CHAPMAN COMPANY
COMPARATIVE BALANCE SHEET
AS OF MAY 31
|
|
2012
|
2011
|
|
Current assets
|
|
|
|
Cash
|
$ 28,250
|
$ 20,000
|
|
Accounts receivable
|
75,000
|
58,000
|
|
Inventory
|
220,000
|
250,000
|
|
Prepaid expenses
|
9,000
|
7,000
|
|
Total current assets
|
332,250
|
335,000
|
|
Plant assets
|
|
|
|
Plant assets
|
600,000
|
502,000
|
|
Less: Accumulated
|
|
|
|
depreciation—plant assets
|
150,000
|
125,000
|
|
Net plant assets
|
450,000
|
377,000
|
|
Total assets
|
$782,250
|
$712,000
|
|
Current liabilities
|
|
|
|
Accounts payable
|
$123,000
|
$115,000
|
|
Salaries and wages payable
|
47,250
|
72,000
|
|
Interest payable
|
27,000
|
25,000
|
|
Total current liabilities
|
197,250
|
212,000
|
|
Long-term debt
|
|
|
|
Bonds payable
|
70,000
|
100,000
|
|
Total liabilities
|
267,250
|
312,000
|
|
Stockholders’ equity
|
|
|
|
Common stock, $10 par
|
370,000
|
280,000
|
|
Retained earnings
|
145,000
|
120,000
|
|
Total stockholders’ equity
|
515,000
|
400,000
|
|
Total liabilities and stockholders’ equity
|
$782,250
|
$712,000
|
|
CHAPMAN COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 2012
|
|
|
Sales
|
$1,255,250
|
|
Cost of goods sold
|
722,000
|
|
Gross profit
|
533,250
|
|
Expenses
|
|
|
Salaries and wages expense
|
252,100
|
|
Interest expense
|
75,000
|
|
Depreciation expense
|
25,000
|
|
Other expenses
|
8,150
|
|
Total expenses
|
360,250
|
|
Operating income
|
173,000
|
|
Income tax expense
|
43,000
|
|
Net income
|
$ 130,000
|
The following is additional information concerning Chapman’s transactions during the year ended May 31, 2012.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.
7. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2012, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2012.
Aug 29, 2021 | Uncategorized
(SCF—Direct and Indirect Methods) Comparative balance sheet accounts of Sharpe Company are presented below.
|
SHARPE COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
AS OF DECEMBER 31
|
|
Debit Balances
|
2012
|
2011
|
|
Cash
|
$ 70,000
|
$ 51,000
|
|
Accounts Receivable
|
155,000
|
130,000
|
|
Inventory
|
75,000
|
61,000
|
|
Investments (Available-for-sale)
|
55,000
|
85,000
|
|
Equipment
|
70,000
|
48,000
|
|
Buildings
|
145,000
|
145,000
|
|
Land
|
40,000
|
25,000
|
|
Totals
|
$610,000
|
$545,000
|
|
Credit Balances
|
|
|
|
Allowance for Doubtful Accounts
|
$ 10,000
|
$ 8,000
|
|
Accumulated Depreciation—Equipment
|
21,000
|
14,000
|
|
Accumulated Depreciation—Buildings
|
37,000
|
28,000
|
|
Accounts Payable
|
66,000
|
60,000
|
|
Income Taxes Payable
|
12,000
|
10,000
|
|
Long-Term Notes Payable
|
62,000
|
70,000
|
|
Common Stock
|
310,000
|
260,000
|
|
Retained Earnings
|
92,000
|
95,000
|
|
Totals
|
$610,000
|
$545,000
|
Additional data:
1. Equipment that cost $10,000 and was 60% depreciated was sold in 2012.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Investments that cost $35,000 were sold during the year.
5. There were no write-offs of uncollectible accounts during the year.
Sharpe’s 2012 income statement is as follows.
|
Sales
|
|
$950,000
|
|
Less: Cost of goods sold
|
|
600,000
|
|
Gross profit
|
|
350,000
|
|
Less: Operating expenses (includes depreciation expense and bad debt expense)
|
|
250,000
|
|
Income from operations
|
|
100,000
|
|
Other revenues and expenses
|
|
|
|
Gain on sale of investments
|
$15,000
|
|
|
Loss on sale of equipment
|
(3,000)
|
12,000
|
|
Income before taxes
|
|
112,000
|
|
Income taxes
|
|
45,000
|
|
Net income
|
|
$ 67,000
|
Instructions
(a) Compute net cash provided by operating activities under the direct method.
(b) Prepare a statement of cash flows using the indirect method.
Aug 29, 2021 | Uncategorized
(Indirect SCF) Dingel Corporation has contracted with you to prepare a statement of cash flows. The controller has provided the following information.
|
December 31
|
|
2012
|
2011
|
|
Cash
|
$ 38,500
|
$13,000
|
|
Accounts receivable
|
12,250
|
10,000
|
|
Inventory
|
12,000
|
10,000
|
|
Investments
|
–0–
|
3,000
|
|
Buildings
|
–0–
|
29,750
|
|
Equipment
|
40,000
|
20,000
|
|
Copyrights
|
5,000
|
5,250
|
|
Totals
|
$107,750
|
$91,000
|
|
Allowance for doubtful accounts
|
$ 3,000
|
$ 4,500
|
|
Accumulated depreciation—equipment
|
2,000
|
4,500
|
|
Accumulated depreciation—buildings
|
–0–
|
6,000
|
|
Accounts payable
|
5,000
|
4,000
|
|
Dividends payable
|
–0–
|
5,000
|
|
Notes payable, short-term (nontrade)
|
3,000
|
4,000
|
|
Long-term notes payable
|
36,000
|
25,000
|
|
Common stock
|
38,000
|
33,000
|
|
Retained earnings
|
20,750
|
5,000
|
|
$107,750
|
$91,000
|
Additional data related to 2012 are as follows.
1. Equipment that had cost $11,000 and was 30% depreciated at time of disposal was sold for $2,500.
2. $5,000 of the long-term note payable was paid by issuing common stock.
3. Cash dividends paid were $5,000.
4. On January 1, 2012, the building was completely destroyed by a flood. Insurance proceeds on the building were $33,000 (net of $4,000 taxes).
5. Investments (available-for-sale) were sold at $1,500 above their cost. The company has made similar sales and investments in the past.
6. Cash and long-term note for $16,000 were given for the acquisition of equipment.
7. Interest of $2,000 and income taxes of $5,000 were paid in cash.
Instructions
(a) Use the indirect method to analyze the above information and prepare a statement of cash flows for Dingel. Flood damage is unusual and infrequent in that part of the country.
(b) What would you expect to observe in the operating, investing, and financing sections of a statement of cash flows of:
(1) A severely financially troubled firm?
(2) A recently formed firm that is experiencing rapid growth?
Aug 29, 2021 | Uncategorized
(Purpose and Elements of SCF) GAAP requires the statement of cash flows be presented when financial statements are prepared.
Instructions
(a) Explain the purposes of the statement of cash flows.
(b) List and describe the three categories of activities that must be reported in the statement of cash flows.
(c) Identify and describe the two methods that are allowed for reporting cash flows from operations.
(d) Describe the financial statement presentation of noncash investing and financing transactions. Include in your description an example of a noncash investing and financing transaction.
Aug 29, 2021 | Uncategorized
(Cash Flow Reporting) Brockman Guitar Company is in the business of manufacturing top-quality, steel-string folk guitars. In recent years, the company has experienced working capital problems resulting from the procurement of factory equipment, the unanticipated buildup of receivables and inventories, and the payoff of a balloon mortgage on a new manufacturing facility. The founder and president of the company, Barbara Brockman, have attempted to raise cash from various financial institutions, but to no avail because of the company’s poor performance in recent years. In particular, the company’s lead bank, First Financial, is especially concerned about Brockman’s inability to maintain a positive cash position. The commercial loan officer from First Financial told Barbara, “I can’t even consider your request for capital financing unless I see that your company is able to generate positive cash flows from operations.” Thinking about the banker’s comment, Barbara came up with what she believes is a good plan: With a more attractive statement of cash flows, the bank might be willing to provide long-term financing. To “window dress” cash flows, the company can sell its accounts receivables to factors and liquidate its raw materials inventories. These rather costly transactions would generate lots of cash. As the chief accountant for Brockman Guitar, it is your job to tell Barbara what you think of her plan.
Instructions
Answer the following questions.
(a) What are the ethical issues related to Barbara Brockman’s idea?
(b) What would you tell Barbara Brockman?
Aug 29, 2021 | Uncategorized
What are the major types of subsequent events? Indicate how each of the following “subsequent events” would be reported.
(a) Collection of a note written off in a prior period.
(b) Issuance of a large preferred stock offering.
(c) Acquisition of a company in a different industry.
(d) Destruction of a major plant in a flood.
(e) Death of the company’s chief executive officer (CEO).
(f) Additional wage costs associated with settlement of a four-week strike.
(g) Settlement of a federal income tax case at considerably more tax than anticipated at year-end.
(h) Change in the product mix from consumer goods to industrial goods.
Aug 29, 2021 | Uncategorized
An annual report of Ford Motor Corporation states, “Net income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10¢ in the current year and 3¢ in the previous year. . . . As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by 6¢.” What information is provided by this note?
Aug 29, 2021 | Uncategorized
Foley Corporation has seven industry segments with total revenues as follows.
|
Penley
|
$600
|
|
Konami
|
650
|
|
KSC
|
250
|
|
Red Moon
|
275
|
|
Cheng
|
$225
|
|
Takuhi
|
200
|
|
Molina
|
700
|
Aug 29, 2021 | Uncategorized
Answer each of the questions in the following unrelated situations.
(a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $500,000, what is the amount of current liabilities?
(b) A company had an average inventory last year of $200,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year?
(c) A company has current assets of $90,000 (of which $40,000 is inventory and prepaid items) and current liabilities of $40,000. What is the current ratio? What is the acid-test ratio? If the company borrows $15,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?
(d) A company has current assets of $600,000 and current liabilities of $240,000. The board of directors declares a cash dividend of $180,000. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend?
Aug 29, 2021 | Uncategorized
(Post-Balance-Sheet Events) Keystone Corporation issued its financial statements for the year ended December 31, 2012, on March 10, 2013. The following events took place early in 2013.
(a) On January 10, 10,000 shares of $5 par value common stock were issued at $66 per share.
(b) On March 1, Keystone determined after negotiations with the Internal Revenue Service that income taxes payable for 2012 should be $1,320,000. At December 31, 2012, income taxes payable were recorded at $1,100,000.
Instructions
Discuss how the preceding post-balance-sheet events should be reflected in the 2012 financial statements.
Aug 29, 2021 | Uncategorized
(Post-Balance-Sheet Events) For each of the following subsequent (post-balance-sheet) events, indicate whether a company should
(a) adjust the financial statements,
(b) disclose in notes to the financial statements, or
(c) neither adjust nor disclose.
1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end.
2. Introduction of a new product line.
3. Loss of assembly plant due to fire.
4. Sale of a significant portion of the company’s assets.
5. Retirement of the company president.
6. Issuance of a significant number of shares of common stock.
7. Loss of a significant customer.
8. Prolonged employee strike.
9. Material loss on a year-end receivable because of a customer’s bankruptcy.
10. Hiring of a new president.
11. Settlement of prior year’s litigation against the company.
12. Merger with another company of comparable size.
Aug 29, 2021 | Uncategorized
(Segmented Reporting) LaGreca Company is involved in four separate industries. The following information is available for each of the four industries.
|
Operating Segment
|
Total Revenue
|
Operating Profit (Loss)
|
Identifiable Assets
|
|
W
|
$ 60,000
|
$15,000
|
$167,000
|
|
X
|
10,000
|
1,500
|
83,000
|
|
Y
|
23,000
|
(2,000)
|
21,000
|
|
Z
|
9,000
|
1,000
|
19,000
|
|
$102,000
|
$15,500
|
$290,000
|
Instructions
Determine which of the operating segments are reportable based on the:
(a) Revenue test.
(b) Operating profit (loss) test.
(c) Identifiable assets test.
Aug 29, 2021 | Uncategorized
(Ratio Computation and Analysis; Liquidity) As loan analyst for Madison Bank, you have been presented the following information.
|
Plunkett Co.
|
Herring Co.
|
|
Assets
|
|
|
|
Cash
|
$ 120,000
|
$ 320,000
|
|
Receivables
|
220,000
|
302,000
|
|
Inventories
|
570,000
|
518,000
|
|
Total current assets
|
910,000
|
1,140,000
|
|
Other assets
|
500,000
|
612,000
|
|
Total assets
|
$1,410,000
|
$1,752,000
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities
|
$ 300,000
|
$ 350,000
|
|
Long-term liabilities
|
400,000
|
500,000
|
|
Common stock and retained earnings
|
710,000
|
902,000
|
|
Total liabilities and stockholders’ equity
|
$1,410,000
|
$1,752,000
|
|
Annual sales
|
$ 930,000
|
$1,500,000
|
|
Rate of gross profit on sales
|
30%
|
40%
|
Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. In as much as your bank has reached its quota for loans of this type, only one of these requests is to be granted.
Instructions
Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year.
Aug 29, 2021 | Uncategorized
(Analysis of Given Ratios) Robbins Company is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2011–2013. The firm’s total assets at the end of 2013 amounted to $850,000. The president of Robbins Company has asked the controller to prepare a report that summarizes the financial aspects of the company’s operations for the past 3 years. This report will be presented to the board of directors at their next meeting. In addition to comparative financial statements, the controller has decided to present a number of relevant financial ratios which can assist in the identification and interpretation of trends. At the request of the controller, the accounting staff has calculated the following ratios for the 3-year period 2011–2013.
|
2011
|
2012
|
2013
|
|
Current ratio
|
1.80
|
1.89
|
1.96
|
|
Acid-test (quick) ratio
|
1.04
|
0.99
|
0.87
|
|
Accounts receivable turnover
|
8.75
|
7.71
|
6.42
|
|
Inventory turnover
|
4.91
|
4.32
|
3.72
|
|
Total debt to total assets
|
51.0%
|
46.0%
|
41.0%
|
|
Long-term debt to total assets
|
31.0%
|
27.0%
|
24.0%
|
|
Sales to fixed assets (fixed asset turnover)
|
1.58
|
1.69
|
1.79
|
|
Sales as a percent of 2011 sales
|
1.00
|
1.03
|
1.05
|
|
Gross margin percentage
|
36.0%
|
35.1%
|
34.6%
|
|
Net income to sales
|
6.9%
|
7.0%
|
7.2%
|
|
Return on total assets
|
7.7%
|
7.7%
|
7.8%
|
|
Return on stockholders’ equity
|
13.6%
|
13.1%
|
12.7%
|
Any other data to determine if the ratios themselves reveal any significant trends over the 3-year period.
Instructions
(a) The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend.
(b) In terms of the ratios provided, what conclusion(s) can be drawn regarding the company’s use of financial leverage during the 2011–2013 period?
(c) Using the ratios provided, what conclusion(s) can be drawn regarding the company’s net investment in plant and equipment?
Aug 29, 2021 | Uncategorized
(Ratio Analysis) Howser Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Howser and the industry averages for firms of similar size are presented below.
|
Howser
|
2013
Industry
Average
|
|
2011
|
2012
|
2013
|
|
Current ratio
|
2.09
|
2.27
|
2.51
|
2.24
|
|
Quick ratio
|
1.15
|
1.12
|
1.19
|
1.22
|
|
Inventory turnover
|
2.40
|
2.18
|
2.02
|
3.50
|
|
Net sales to stockholders’ equity
|
2.75
|
2.80
|
2.95
|
2.85
|
|
Net income to stockholders’ equity
|
0.14
|
0.15
|
0.17
|
0.11
|
|
Total liabilities to stockholders’ equity
|
1.41
|
1.37
|
1.44
|
0.95
|
Howser is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the parties listed below must recommend an action based on its evaluation of Howser’s financial position. Citizens National Bank. The bank is processing Howser’s application for a new 5-year term note. Citizens National has been Howser’s banker for several years but must reevaluate the company’s financial position for each major transaction. Charleston Company. Charleston is a new supplier to Howser and must decide on the appropriate credit terms to extend to the company. Shannon Financial. A brokerage firm specializing in the stock of electronics firms that are sold over the counter, Shannon Financial must decide if it will include Howser in a new fund being established for sale to Shannon Financial’s clients. Working Capital Management Committee. This is a committee of Howser’s management personnel chaired by the chief operating officer. The committee is charged with the responsibility of periodically reviewing the company’s working capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
Instructions
(a) Describe the analytical use of each of the six ratios presented above.
(b) For each of the four entities described above, identify two financial ratios, from those ratios presented in Illustration 24A-1 (on page 1549), that would be most valuable as a basis for its decision regarding Howser.
(c) Discuss what the financial ratios presented in the question reveal about Howser. Support your answer by citing specific ratio levels and trends as well as the interrelationships between these ratios.
Aug 29, 2021 | Uncategorized
(Subsequent Events) Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2012. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2007. The client provides you with the information on the next page.
|
ALMADEN CORPORATION
BALANCE SHEET
DECEMBER 31, 2012
|
|
Assets
|
Liabilities
|
|
Current assets
|
$1,881,100
|
Current liabilities
|
$ 962,400
|
|
Other assets
|
5,171,400
|
Long-term liabilities
|
1,439,500
|
|
$7,052,500
|
Capital
|
4,650,600
|
|
|
|
$7,052,500
|
|
An analysis of current assets discloses the following.
|
|
|
Cash (restricted in the amount of $300,000 for plant expansion)
|
$ 571,000
|
|
Investments in land
|
185,000
|
|
Accounts receivable less allowance of $30,000
|
480,000
|
|
Inventories (LIFO flow assumption)
|
645,100
|
|
$1,881,100
|
|
Other assets include:
|
|
|
Prepaid expenses
|
$ 62,400
|
|
Plant and equipment less accumulated depreciation of $1,430,000
|
4,130,000
|
|
Cash surrender value of life insurance policy
|
84,000
|
|
Unamortized bond discount
|
34,500
|
|
Notes receivable (short-term)
|
162,300
|
|
Goodwill
|
252,000
|
|
Land
|
446,200
|
|
$5,171,400
|
|
Current liabilities include:
|
|
|
Accounts payable
|
$ 510,000
|
|
Notes payable (due 2015)
|
157,400
|
|
Estimated income taxes payable
|
145,000
|
|
Premium on common stock
|
150,000
|
|
$ 962,400
|
|
Long-term liabilities include:
|
|
|
Unearned revenue
|
$ 489,500
|
|
Dividends payable (cash)
|
200,000
|
|
8% bonds payable (due May 1, 2017)
|
750,000
|
|
$1,439,500
|
|
Capital includes:
|
|
|
Retained earnings
|
$2,810,600
|
|
Common stock, par value $10; authorized 200,000 shares, 184,000 shares issued
|
1,840,000
|
|
$4,650,600
|
The supplementary information below is also provided.
1. On May 1, 2012, the corporation issued at 95.4, $750,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.
2. The bookkeeper made the following mistakes.
(a) In 2010, the ending inventory was overstated by $183,000. The ending inventories for 2011 and 2012 were correctly computed.
(b) In 2012, accrued wages in the amount of $225,000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
(c) In 2012, a gain of $175,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.
3. A major competitor has introduced a line of products that will compete directly with Almaden’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor’s line will be of comparable quality but priced 50% below Almaden’s line. The competitor announced its new line on January 14, 2013. Almaden indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs.
4. You learned on January 28, 2013, prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail.
Instructions
Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.
Aug 29, 2021 | Uncategorized
(Segmented Reporting) Cineplex Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2013.
|
A
|
B
|
C
|
D
|
E
|
|
Sales revenue
|
$40,000
|
$ 75,000
|
$580,000
|
$35,000
|
$55,000
|
|
Cost of goods sold
|
19,000
|
50,000
|
270,000
|
19,000
|
30,000
|
|
Operating expenses
|
10,000
|
40,000
|
235,000
|
12,000
|
18,000
|
|
Total expenses
|
29,000
|
90,000
|
505,000
|
31,000
|
48,000
|
|
Operating profit (loss)
|
$11,000
|
$(15,000)
|
$ 75,000
|
$ 4,000
|
$ 7,000
|
|
Identifiable assets
|
$35,000
|
$ 80,000
|
$500,000
|
$65,000
|
$50,000
|
Sales of segments B and C included intersegment sales of $20,000 and $100,000, respectively.
Instructions
(a) Determine which of the segments are reportable based on the:
(1) Revenue test.
(2) Operating profit (loss) test.
(3) Identifiable assets test.
(b) Prepare the necessary disclosures required by GAAP.
Aug 29, 2021 | Uncategorized
(Change in Principle, Estimate) As a certified public accountant, you have been contacted by Joe Davison, CEO of Sports-Pro Athletics, Inc., a manufacturer of a variety of athletic equipment. He has asked you how to account for the following changes.
1. Sports-Pro appropriately changed its depreciation method for its production machinery from the double-declining-balance method to the production method effective January 1, 2012.
2. Effective January 1, 2012, Sports-Pro appropriately changed the salvage values used in computing depreciation for its office equipment.
3. On December 31, 2012, Sports-Pro appropriately changed the specific subsidiaries constituting the group of companies for which consolidated financial statements are presented.
Instructions
Write a 1–1.5 page letter to Joe Davison explaining how each of the above changes should be presented in the December 31, 2012, financial statements.
Aug 29, 2021 | Uncategorized
(Change in Estimate) Mike Crane is an audit senior of a large public accounting firm who has just been assigned to the Frost Corporation’s annual audit engagement. Frost has been a client of Crane’s firm for many years. Frost is a fast-growing business in the commercial construction industry. In reviewing the fixed asset ledger, Crane discovered a series of unusual accounting changes, in which the useful lives of assets, depreciated using the straight-line method, were substantially lowered near the midpoint of the original estimate. For example, the useful life of one dump truck was changed from 10 to 6 years during its fifth year of service. Upon further investigation, Mike was told by Kevin James, Frost’s accounting manager, “I don’t really see your problem. After all, it’s perfectly legal to change an accounting estimate. Besides, our CEO likes to see big earnings!”
Instructions
Answer the following questions.
(a) What are the ethical issues concerning Frost’s practice of changing the useful lives of fixed assets?
(b) Who could be harmed by Frost’s unusual accounting changes?
(c) What should Crane do in this situation?
Aug 29, 2021 | Uncategorized
Joblonsky Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the following accounting changes in connection with Joblonsky Inc.’s 2012 financial statements.
1. At December 31, 2011, the client had a receivable of $820,000 from Hendricks Inc. on its statement of financial position. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item.
2. The client proposes the following changes in depreciation policies.
(a) For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2011, would have been $250,000 less. The effect of the change on 2012 income alone is a reduction of $60,000.
(b) For its equipment in the leasing division, the client proposes to adopt the sum of-the-years’-digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2012. If straight-line depreciation were used, 2012 income would be $110,000 greater.
3. In preparing its 2011 statements, one of the client’s bookkeepers overstated ending inventory by $235,000 because of a mathematical error. The client proposes to treat this item as a prior period adjustment.
4. In the past, the client has spread preproduction costs in its furniture division over
5 years. Because its latest furniture is of the “fad” type, it appears that the largest volume of sales will occur during the fi rst 2 years after introduction. Consequently, the client proposes to amortize preproduction costs on a per-unit basis, which will result in expensing most of such costs during the fi rst 2 years after the furniture’s introduction. If the new accounting method had been used prior to 2012, retained earnings at December 31, 2011, would have been $375,000 less.
5. For the nursery division, the client proposes to switch from FIFO to average cost inventories because it believes that average cost will provide a better matching of current costs with revenues. The effect of making this change on 2012 earnings will be an increase of $320,000. The client says that the effect of the change on December 31, 2011, retained earnings cannot be determined.
6. To achieve a better matching of revenues and expenses in its building construction division, the client proposes to switch from the cost-recovery method of accounting to the percentage-of-completion method. Had the percentage-of-completion method been employed in all prior years, retained earnings at December 31, 2011, would have been $1,075,000 greater.
Instructions
(a) For each of the changes described above, decide whether:
(1) The change involves an accounting policy, accounting estimate, or correction of an error.
(2) Restatement of opening retained earnings is required.
(b) What would be the proper adjustment to the December 31, 2011, retained earnings?
Aug 29, 2021 | Uncategorized
Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2012. State where each item is to be shown in the statement, if at all.
(a) Plant assets that had cost $18,000 6½ years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $4,000.
(b) During the year, 10,000 shares of common stock with a stated value of $20 a share were issued for $41 a share.
(c) Uncollectible accounts receivable in the amount of $22,000 were written off against Allowance for Doubtful Accounts.
(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of availablefor- sale securities for $38,000 cash.
Aug 29, 2021 | Uncategorized
Novak Corporation is preparing its 2012 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2012 statement of cash flows.
|
Code Letter
|
Effect
|
|
A
|
Added to net income in the operating section
|
|
D
|
Deducted from net income in the operating section
|
|
R-I
|
Cash receipt in investing section
|
|
P-I
|
Cash payment in investing section
|
|
R-F
|
Cash receipt in financing section
|
|
P-F
|
Cash payment in financing section
|
|
N
|
Noncash investing and financing activity
|
Items
(a) Purchase of land and building.
(b) Decrease in accounts receivable.
(c) Issuance of stock.
(d) Depreciation expense.
(e) Sale of land at book value.
(f) Sale of land at a gain.
(g) Payment of dividends.
(h) Increase in accounts receivable.
(i) Purchase of available-for-sale investment.
(j) Increase in accounts payable.
(k) Decrease in accounts payable.
(l) Loan from bank by signing note.
(m) Purchase of equipment using a note.
(n) Increase in inventory.
(o) Issuance of bonds.
(p) Retirement of bonds payable.
(q) Sale of equipment at a loss.
(r) Purchase of treasury stock.
Aug 29, 2021 | Uncategorized
Bloom Corporation had the following 2012 income statement.
|
Sales
|
$200,000
|
|
Cost of goods sold
|
120,000
|
|
Gross profit
|
80,000
|
|
Operating expenses (includes depreciation of $21,000)
|
50,000
|
|
Net income
|
$ 30,000
|
The following accounts increased during 2012: Accounts Receivable $12,000; Inventory $11,000; Accounts Payable $13,000. Prepare the cash flows from operating activities section of Bloom’s 2012 statement of cash flows using the direct method.
Aug 29, 2021 | Uncategorized
Hendrickson Corporation reported net income of $50,000 in 2012. Depreciation expense was $17,000. The following working capital accounts changed.
|
Accounts receivable
|
$11,000 increase
|
|
Available-for-sale securities
|
16,000 increase
|
|
Inventory
|
7,400 increase
|
|
Nontrade note payable
|
15,000 decrease
|
|
Accounts payable
|
12,300 increase
|
Compute net cash provided by operating activities.
Aug 29, 2021 | Uncategorized
(Statement Presentation of Transactions—Indirect Method) Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Granderson Inc. for the year ended December 31, 2012.
(a) Plant assets that had cost $25,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold at the beginning of the year for $5,300.
(b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $33 a share.
(c) Uncollectible accounts receivable in the amount of $27,000 were written off against Allowance for Doubtful Accounts.
(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash.
(e) A 3-month U.S. Treasury bill was purchased for $100,000. The company uses a cash and cash equivalent basis for its cash flow statement.
(f) Patent amortization for the year was $20,000.
(g) The company exchanged common stock for a 70% interest in Plumlee Co. for $900,000.
(h) During the year, treasury stock costing $47,000 was purchased.
Instructions
State where each item is to be shown in the statement of cash flows, if at all.
Aug 29, 2021 | Uncategorized
(Preparation of Operating Activities Section—Indirect Method, Periodic Inventory) The income statement of Rodriquez Company is shown below.
|
RODRIQUEZ COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2012
|
|
Sales
|
|
$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 $310,000 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 $120,000 during the year.
5. Administrative expenses include depreciation expense of $60,000.
Instructions
Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2012, for Rodriquez Company, using the indirect method.
Aug 29, 2021 | Uncategorized
(Preparation of Operating Activities Section—Direct Method) Norman Company’s income statement for the year ended December 31, 2012, contained the following condensed information.
|
Service revenue
|
|
$840,000
|
|
Operating expenses (excluding depreciation)
|
$624,000
|
|
|
Depreciation expense
|
60,000
|
|
|
Loss on sale of equipment
|
26,000
|
710,000
|
|
Income before income taxes
|
|
130,000
|
|
Income tax expense
|
|
40,000
|
|
Net income
|
|
$ 90,000
|
Norman’s balance sheet contained the following comparative data at December 31.
|
2012
|
2011
|
|
Accounts receivable
|
$37,000
|
$59,000
|
|
Accounts payable
|
46,000
|
31,000
|
|
Income taxes payable
|
4,000
|
8,500
|
(Accounts payable pertains to operating expenses.)
Instructions
Prepare the operating activities section of the statement of cash flows using the direct method.
Aug 29, 2021 | Uncategorized
(Schedule of Net Cash Flow from Operating Activities—Indirect Method) Messner Co. reported $145,000 of net income for 2012. The accountant, in preparing the statement of cash flows, noted several items occurring during 2012 that might affect cash flows from operating activities. These items are listed below and on page 1484.
1. Messner purchased 100 shares of treasury stock at a cost of $20 per share. These shares were then resold at $25 per share.
2. Messner sold 100 shares of IBM common at $200 per share. The acquisition cost of these shares was $165 per share. This investment was shown on Messner’s December 31, 2011, balance sheet as an available-for-sale security.
3. Messner revised its estimate for bad debts. Before 2012, Messner’s bad debt expense was 1% of its net sales. In 2012, this percentage was increased to 2%. Net sales for 2012 were $500,000, and net accounts receivable decreased by $12,000 during 2012.
4. Messner issued 500 shares of its $10 par common stock for a patent. The market price of the shares on the date of the transaction was $23 per share.
5. Depreciation expense is $39,000.
6. Messner Co. holds 30% of the Sanchez Company’s common stock as a long-term investment. Sanchez Company reported $27,000 of net income for 2012.
7. Sanchez Company paid a total of $2,000 of cash dividends to all investees in 2012.
8. Messner declared a 10% stock dividend. One thousand shares of $10 par common stock were distributed. The market price at date of issuance was $20 per share.
Instructions
Prepare a schedule that shows the net cash flow from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2012 net cash flow from operating activities.
Aug 29, 2021 | Uncategorized
(SCF—Direct Method) Waubansee Corp. uses the direct method to prepare its statement of cash flows. Relevant balances for Waubansee at December 31, 2012 and 2011, are as follows.
|
December 31
|
|
2012
|
2011
|
|
Debits
|
|
|
|
Cash
|
$ 35,000
|
$ 32,000
|
|
Accounts receivable
|
33,000
|
30,000
|
|
Inventory
|
31,000
|
47,000
|
|
Property, plant, & equipment
|
100,000
|
95,000
|
|
Unamortized bond discount
|
4,500
|
5,000
|
|
Cost of goods sold
|
250,000
|
380,000
|
|
Selling expenses
|
141,500
|
172,000
|
|
General and administrative expenses
|
137,000
|
151,300
|
|
Interest expense
|
4,300
|
2,600
|
|
Income tax expense
|
20,400
|
61,200
|
|
$756,700
|
$976,100
|
|
Credits
|
|
|
|
Allowance for doubtful accounts
|
$ 1,300
|
$ 1,100
|
|
Accumulated depreciation
|
16,500
|
13,500
|
|
Trade accounts payable
|
25,000
|
17,000
|
|
Income taxes payable
|
21,000
|
29,100
|
|
Deferred income taxes
|
5,300
|
4,600
|
|
8% callable bonds payable
|
45,000
|
20,000
|
|
Common stock
|
50,000
|
40,000
|
|
Paid-in capital in excess of par—common stock
|
9,100
|
7,500
|
|
Retained earnings
|
44,700
|
64,600
|
|
Sales revenue
|
538,800
|
778,700
|
|
$756,700
|
$976,100
|
Additional information:
1. Waubansee purchased $5,000 in equipment during 2012.
2. Waubansee allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
3. Bad debt expense for 2012 was $5,000, and write-offs of uncollectible accounts totaled $3,800.
Instructions
Determine what amounts Waubansee should report in its statement of cash flows for the year ended December 31, 2012, for the following items.
(a) Cash collected from customers.
(b) Cash paid to suppliers.
(c) Cash paid for interest.
(d) Cash paid for income taxes.
(e) Cash paid for selling expenses.
Aug 29, 2021 | Uncategorized
(Classification of Transactions) Following are selected balance sheet accounts of Sander Bros. Corp. at December 31, 2012 and 2011, and the increases or decreases in each account from 2011 to 2012. Also presented is selected income statement information for the year ended December 31, 2012, and additional information.
Additional information:
1. During 2012, equipment costing $45,000 was sold for cash.
2. Accounts receivable relate to sales of merchandise.
3. During 2012, $25,000 of bonds payable was issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium.
Instructions
Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
(a) Payments for purchase of property, plant, and equipment.
(b) Proceeds from the sale of equipment.
(c) Cash dividends paid.
(d) Redemption of bonds payable.
Aug 29, 2021 | Uncategorized
(SCF—Indirect Method) Condensed financial data of Fairchild Company for 2012 and 2011 are presented below and on page 1486.
|
Selected balance sheet accounts
|
2012
|
2011
|
Increase
(Decrease)
|
|
Assets
|
|
|
|
|
Accounts receivable
|
$ 34,000
|
$ 24,000
|
$ 10,000
|
|
Property, plant, and equipment
|
277,000
|
247,000
|
30,000
|
|
Accumulated depreciation
|
(178,000)
|
(167,000)
|
(11,000)
|
|
2012
|
2011
|
Increase
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
Bonds payable
|
$ 49,000
|
$46,000
|
$ 3,000
|
|
Dividends payable
|
8,000
|
5,000
|
3,000
|
|
Common stock, $1 par
|
22,000
|
19,000
|
3,000
|
|
Paid-in capital in excess of par—common stock
|
9,000
|
3,000
|
6,000
|
|
Retained earnings
|
104,000
|
91,000
|
13,000
|
|
Selected income statement information for the year ended December 31, 2012
|
|
Sales revenue
|
$155,000
|
|
|
Depreciation
|
38,000
|
|
|
Gain on sale of equipment
|
14,500
|
|
|
Net income
|
31,000
|
|
Additional information:
1. During 2012, equipment costing $45,000 was sold for cash.
2. Accounts receivable relate to sales of merchandise.
3. During 2012, $25,000 of bonds payable was issued in exchange for property, plant, and equipment. There was no amortization of bond discount or premium.
Instructions
Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.
(a) Payments for purchase of property, plant, and equipment.
(b) Proceeds from the sale of equipment.
(c) Cash dividends paid.
(d) Redemption of bonds payable.
Aug 29, 2021 | Uncategorized
(Cash Provided by Operating, Investing, and Financing Activities) The balance sheet data of Wyeth Company at the end of 2012 and 2011 are shown on page 1488.
|
2012
|
2011
|
|
Cash
|
$ 30,000
|
$ 35,000
|
|
Accounts receivable (net)
|
55,000
|
45,000
|
|
Inventory
|
65,000
|
45,000
|
|
Prepaid expenses
|
15,000
|
25,000
|
|
Equipment
|
90,000
|
75,000
|
|
Accumulated depreciation—equipment
|
(18,000)
|
(8,000)
|
|
Land
|
70,000
|
40,000
|
|
$307,000
|
$257,000
|
|
Accounts payable
|
$ 65,000
|
$ 52,000
|
|
Accrued expenses
|
15,000
|
18,000
|
|
Notes payable—bank, long-term
|
–0–
|
23,000
|
|
Bonds payable
|
30,000
|
–0–
|
|
Common stock, $10 par
|
189,000
|
159,000
|
|
Retained earnings
|
8,000
|
5,000
|
|
$307,000
|
$257,000
|
Land was acquired for $30,000 in exchange for common stock, par $30,000, during the year; all equipment purchased was for cash. Equipment costing $13,000 was sold for $3,000; book value of the equipment was $6,000. Cash dividends of $9,000 were declared and paid during the year.
Instructions
Compute net cash provided (used) by:
(a) Operating activities.
(b) Investing activities.
(c) Financing activities.
Aug 29, 2021 | Uncategorized
(SCF—Indirect Method and Balance Sheet) Ochoa Inc., had the following condensed balance sheet at the end of operations for 2011.
|
OCHOA INC.
BALANCE SHEET
DECEMBER 31, 2011
|
|
Cash
|
$ 8,500
|
Current liabilities
|
$ 15,000
|
|
Current assets other than cash
|
29,000
|
Long-term notes payable
|
25,500
|
|
Investments
|
20,000
|
Bonds payable
|
25,000
|
|
Plant assets (net)
|
67,500
|
Common stock
|
75,000
|
|
Land
|
40,000
|
Retained earnings
|
24,500
|
|
$165,000
|
|
$165,000
|
During 2012, the following occurred.
1. A tract of land was purchased for $11,000.
2. Bonds payable in the amount of $20,000 were retired at par.
3. An additional $10,000 in common stock was issued at par.
4. Dividends totaling $9,375 were paid to stockholders.
5. Net income was $30,250 after deducting depreciation of $13,500.
6. Land was purchased through the issuance of $22,500 in bonds.
7. Ochoa Inc. sold part of its investment portfolio for $12,875. This transaction resulted in a gain of $2,000 for the company. The company classifies the investments as available-for-sale.
8. Both current assets (other than cash) and current liabilities remained at the same amount.
Instructions
(a) Prepare a statement of cash flows for 2012 using the indirect method.
(b) Prepare the condensed balance sheet for Ochoa Inc. as it would appear at December 31, 2012.
Aug 29, 2021 | Uncategorized
(Worksheet Analysis of Selected Transactions) The transactions below took place during the year 2012.
1. Convertible bonds payable with a par value of $300,000 were exchanged for unissued common stock with a par value of $300,000. The market price of both types of securities was par.
2. The net income for the year was $360,000.
3. Depreciation expense for the building was $90,000.
4. Some old office equipment was traded in on the purchase of some newer office equipment and the following entry was made. (The exchange has commercial substance.)
|
Equipment
|
45,000
|
|
Accum. Depreciation—Equipment
|
30,000
|
|
Equipment
|
40,000
|
|
Cash
|
34,000
|
|
Gain on Disposal of Plant Assets
|
1,000
|
The Gain on Disposal of Plant Assets was credited to current operations as ordinary income.
5. Dividends in the amount of $123,000 were declared. They are payable in January of next year.
Instructions
Show by journal entries the adjustments that would be made on a worksheet for a statement of cash flows.
Aug 29, 2021 | Uncategorized
(Worksheet Preparation) Below is the comparative balance sheet for Lowenstein Corporation.
|
Dec. 31,
2012
|
Dec. 31,
2011
|
|
Cash
|
$ 16,500
|
$ 24,000
|
|
Short-term investments
|
25,000
|
19,000
|
|
Accounts receivable
|
43,000
|
45,000
|
|
Allowance for doubtful accounts
|
(1,800)
|
(2,000)
|
|
Prepaid expenses
|
4,200
|
2,500
|
|
Inventory
|
81,500
|
57,000
|
|
Land
|
50,000
|
50,000
|
|
Buildings
|
125,000
|
78,500
|
|
Accumulated depreciation—buildings
|
(30,000)
|
(23,000)
|
|
Equipment
|
53,000
|
46,000
|
|
Accumulated depreciation—equipment
|
(19,000)
|
(15,500)
|
|
Delivery equipment
|
39,000
|
39,000
|
|
Accumulated depreciation—delivery equipment
|
(22,000)
|
(20,500)
|
|
Patents
|
15,000
|
–0–
|
|
$379,400
|
$300,000
|
|
Dec. 31,
2012
|
Dec. 31,
2011
|
|
Accounts payable
|
$ 26,000
|
$ 16,000
|
|
Short-term notes payable (trade)
|
4,000
|
6,000
|
|
Accrued payables
|
3,000
|
4,600
|
|
Mortgage payable
|
73,000
|
53,400
|
|
Bonds payable
|
50,000
|
62,500
|
|
Common stock
|
140,000
|
102,000
|
|
Paid-in capital in excess of par—common stock
|
10,000
|
4,000
|
|
Retained earnings
|
73,400
|
51,500
|
|
$379,400
|
$300,000
|
Dividends in the amount of $10,000 were declared and paid in 2012.
Instructions
From this information, prepare a worksheet for a statement of cash flows. Make reasonable assumptions as appropriate. The short-term investments are considered available-for-sale, and no unrealized gains or losses have occurred on these securities.
Aug 29, 2021 | Uncategorized
(SCF—Indirect Method) The following are Sullivan Corp.’s comparative balance sheet accounts at December 31, 2012 and 2011, with a column showing the increase (decrease) from 2011 to 2012.
|
COMPARATIVE BALANCE SHEETS
|
|
2012
|
2011
|
Increase
(Decrease)
|
|
Cash
|
$ 815,000
|
$ 700,000
|
$115,000
|
|
Accounts receivable
|
1,128,000
|
1,168,000
|
(40,000)
|
|
Inventory
|
1,850,000
|
1,715,000
|
135,000
|
|
Property, plant, and equipment
|
3,307,000
|
2,967,000
|
340,000
|
|
Accumulated depreciation
|
(1,165,000)
|
(1,040,000)
|
(125,000)
|
|
Investment in Myers Co.
|
310,000
|
275,000
|
35,000
|
|
Loan receivable
|
250,000
|
—
|
250,000
|
|
Total assets
|
$6,495,000
|
$5,785,000
|
$710,000
|
|
Accounts payable
|
$1,015,000
|
$ 955,000
|
$ 60,000
|
|
Income taxes payable
|
30,000
|
50,000
|
(20,000)
|
|
Dividends payable
|
80,000
|
100,000
|
(20,000)
|
|
Capital lease obligation
|
400,000
|
—
|
400,000
|
|
Common stock, $1 par
|
500,000
|
500,000
|
—
|
|
Paid-in capital in excess of
par—common stock
|
1,500,000
|
1,500,000
|
—
|
|
Retained earnings
|
2,970,000
|
2,680,000
|
290,000
|
|
Total liabilities and stockholders’ equity
|
$6,495,000
|
$5,785,000
|
$710,000
|
Additional information:
1. On December 31, 2011, Sullivan acquired 25% of Myers Co.’s common stock for $275,000. On that date, the carrying value of Myers’s assets and liabilities, which approximated their fair values, was $1,100,000. Myers reported income of $140,000 for the year ended December 31, 2012. No dividend was paid on Myers’s common stock during the year.
2. During 2012, Sullivan loaned $300,000 to TLC Co., an unrelated company. TLC made the first semiannual principal repayment of $50,000, plus interest at 10%, on December 31, 2012.
3. On January 2, 2012, Sullivan sold equipment costing $60,000, with a carrying amount of $38,000, for $40,000 cash.
4. On December 31, 2012, Sullivan entered into a capital lease for an office building. The present value of the annual rental payments is $400,000, which equals the fair value of the building. Sullivan made the first rental payment of $60,000 when due on January 2, 2013.
5. Net income for 2012 was $370,000.
6. Sullivan declared and paid cash dividends for 2012 and 2011 as shown on the next page.
|
2012
|
2011
|
|
Declared
|
December 15, 2012
|
December 15, 2011
|
|
Paid
|
February 28, 2013
|
February 28, 2012
|
|
Amount
|
$80,000
|
$100,000
|
Instructions
Prepare a statement of cash flows for Sullivan Corp. for the year ended December 31, 2012, using the indirect method.
Aug 29, 2021 | Uncategorized
(SCF—Indirect Method) The comparative balance sheets for Hinckley Corporation show the following information.
|
December
31
|
|
2012
|
2011
|
|
Cash
|
$ 33,500
|
$13,000
|
|
Accounts receivable
|
12,250
|
10,000
|
|
Inventory
|
12,000
|
9,000
|
|
Investments
|
–0–
|
3,000
|
|
Buildings
|
–0–
|
29,750
|
|
Equipment
|
45,000
|
20,000
|
|
Patents
|
5,000
|
6,250
|
|
$107,750
|
$91,000
|
|
Allowance for doubtful accounts
|
$ 3,000
|
$ 4,500
|
|
Accumulated depreciation—equipment
|
2,000
|
4,500
|
|
Accumulated depreciation—building
|
–0–
|
6,000
|
|
Accounts payable
|
5,000
|
3,000
|
|
Dividends payable
|
–0–
|
5,000
|
|
Notes payable, short-term (nontrade)
|
3,000
|
4,000
|
|
Long-term notes payable
|
31,000
|
25,000
|
|
Common stock
|
43,000
|
33,000
|
|
Retained earnings
|
20,750
|
6,000
|
|
$107,750
|
$91,000
|
Additional data related to 2012 are as follows.
1. Equipment that had cost $11,000 and was 40% depreciated at time of disposal was sold for $2,500.
2. $10,000 of the long-term note payable was paid by issuing common stock.
3. Cash dividends paid were $5,000.
4. On January 1, 2012, the building was completely destroyed by a flood. Insurance proceeds on the building were $30,000 (net of $2,000 taxes).
5. Investments (available-for-sale) were sold at $1,700 above their cost. The company has made similar sales and investments in the past.
6. Cash was paid for the acquisition of equipment.
7. A long-term note for $16,000 was issued for the acquisition of equipment.
8. Interest of $2,000 and income taxes of $6,500 were paid in cash.
Instructions
Prepare a statement of cash flows using the indirect method. Flood damage is unusual and infrequent in that part of the country.
Aug 29, 2021 | Uncategorized
Assessing the effectiveness of a fixed for variable interest rate swap. Tesker International has loaned $20,000,000 to a foreign company that Tesker has a 20% equity interest in. Interest, paid June 30 and December 31, and principal on the loan is to be paid in U.S. dollars. The loan matures on December 31, 20X5, and has a fixed interest rate of 8%. Tesker anticipates that variable interest rates will be increasing in the near term and is therefore considering an interest rate swap.
Tesker’s bank has agreed to swap a variable rate, based on LIBOR, plus 1% in exchange for receipt of a fixed rate through the maturity date of the foreign loan. The swap will cover a notional amount of $10,000,000. Reset dates will be January 1 and July 1, with net settlement occurring at the same time. Assumed rates and values are as follows:
|
Reset Dates
|
LIBOR Rates for
Next Period
|
Assumed
Value of Swap
|
|
January 1, 20X4
|
70%
|
|
|
July 1, 20X4
|
72
|
$27,698
|
|
January 1, 20X5
|
74
|
37,614
|
|
July 1, 20X5
|
73
|
14,402
|
1. Tesker’s management is uncertain as to whether or not they should engage in a swap. In order to assist them in their decision, complete the following schedule for all interest periods based on the assumed rates and values.
|
Value of
|
Value of
|
Unrealized
|
Unrealized
|
Fixed
|
Variable
|
|
Interest
|
Interest
|
Note
|
Gain (Loss)
|
Gain (Loss)
|
Interest
|
Interest
|
|
Period
|
Swap
|
Receivable
|
on Derivative
|
on Note
|
Cash
|
Income
|
Income
|
|
|
|
|
|
|
|
|
2. Summarize the effect on Tesker’s income with and without the interest rate swap.
3. If LIBOR rates declined by 0.1% each period from the January 1, 20X4 reset rate of 7%, what would be the overall effect on earnings of this scenario?
Aug 29, 2021 | Uncategorized
Prepare entries to account for a cash flow hedge involving an option. The Industrial Plating Corporation coats manufactured parts with a variety of coatings such as Teflon, gold, and silver. The company intends to purchase 100,000 troy ounces of silver in September. The purchase is highly probable, and the company has become concerned that the prices of silver may increase, and, therefore, the forecasted purchase will become even more expensive. In order to reduce the exposure to rising silver prices, on July 10 the company purchased 20 September call (buy) options on silver. Each option is for 5,000 troy ounces and has a strike price of $5.00 per troy ounce. The company excludes from hedge effectiveness changes in the time value of the option. Spot prices and option value per troy ounce of silver are as follows:
|
July 10
|
July 31
|
August 31
|
September 10
|
|
Spot price
|
$510
|
$514
|
$535
|
$5.32
|
|
Option value
|
20
|
23
|
37
|
0.33
|
On September 10, the company settled the option and on September 15 purchased 100,000 troy ounces of silver on account at $5.33 per ounce. The silver was used in the company’s production process over the next three months. In September and October, plating services were provided as follows:
|
September
|
October
|
|
Units of silver used
|
15,000
|
50,000
|
|
Other costs
|
$105,000
|
$350,000
|
|
Plating revenues
|
$225,000
|
$750,000
|
Prepare all necessary entries to account for the above activities through October. Assume that the hedge satisfies all necessary criteria for special hedge accounting.
Aug 29, 2021 | Uncategorized
Prepare a schedule to determine the earnings effect of various hedging relationships. During the third quarter of the current year, the Beamer Manufacturing Company had invested in derivative instruments for a variety of reasons. The various investments and hedging relationships are as follows:
a. Call Option A—This option was purchased on July 10 and provided for the purchase of 10,000 units of commodity A in October at a strike price of $45 per unit. The company designated the option as a hedge of a commitment to sell 10,000 units of commodity A in October at a fixed price of $45 per unit. Information regarding the option and commodity A is as follows:
| |
July 10
|
July 31
|
August 31
|
September 30
|
|
Spot price
|
$ 45
|
$ 46
|
$ 44
|
$ 46.50
|
|
Value of option
|
2,000
|
12,400
|
1,000
|
16,000
|
b. Call Option B—This option provided for the purchase of 10,000 units of commodity B in October at a strike price of $30 per unit. The company designated the option as a hedge of a forecasted purchase of commodity B in October. Information regarding the option and commodity B is as follows:
| |
July 1
|
July 31
|
August 31
|
September 30
|
|
Spot price
|
$ 29
|
$29 50
|
$ 29
|
$28.75
|
|
Value of option
|
1,100
|
900
|
600
|
200
|
c. Put Option C—This option provided for the sale of 10,000 units of commodity C in September at a strike price of $30 per unit. The company designated the option as a hedge of a forecasted sale of 10,000 units of commodity C on September 10. Information regarding the option and commodity C is as follows:
| |
July 1
|
July 31
|
August 31
|
September 10
|
|
Spot price
|
$ 30
|
$2,950
|
$ 29
|
$ 28.75
|
|
Value of option
|
500
|
5,600
|
10,200
|
12,600
|
The company settled the option on September 10 and sold 10,000 units of commodity C at the spot price. The manufacturing cost of the units sold was $20 per unit.
d. Futures Contract D—The contract calls for the sale of 10,000 units of commodity D in October at a future price of $10 per unit. The company designated the contract as a hedge on a forecasted sale of commodity D in October. Information regarding the contract and commodity D is as follows:
| |
July 1
|
July 31
|
August 31
|
September 30
|
|
Spot price
|
$995
|
$992
|
$989
|
$9.85
|
|
Futures price
|
994
|
990
|
987
|
9.84
|
e. Interest Rate Swap—The company has a 12-month note receivable with a face value of $10,000,000 that matures on June 30 of next year. The note calls for interest to be paid at the end of each month based on the LIBOR variable interest rate at the beginning of each month. On July 31, the company entered into an agreement to receive a 7% fixed rate of interest beginning in August in exchange for payment of a variable rate based on LIBOR. The reset date is at the beginning of each month, and net settlement occurs at the end of each month. LIBOR rates and swap values are as follows:
| |
July
|
August
|
September
|
|
LIBOR for month
|
68%
|
68%
|
67%
|
|
Swap value at end of month
|
$17,729
|
$24,249
|
$21,884
|
In all of the above cases, the change in the time value of the derivative instrument is excluded from the assessment of hedge effectiveness. Furthermore, the company assesses hedge effectiveness on a continuing basis. Such an assessment at the end of June concluded that call option B was not effective.
Prepare a schedule to reflect the effect on current earnings of the above hedging relationships.
The schedule should show relevant amounts for each month from July through September.
Aug 29, 2021 | Uncategorized
Prepare entries to record a variable for fixed interest rate swap. The Hauser Corporation has $20,000,000 of outstanding debt that bears interest at a variable rate and matures on June 30, 20X4. At inception of the debt, the company had a lower credit rating, and most available financing carried a variable rate. The company’s variable rate is the LIBOR rate plus 1%. However, the company’s credit rating has improved, and the company feels that a fixed, lower rate of interest would be most appropriate. Furthermore, the company is of the opinion that variable rates will increase over the next 24 months. In May 20X2, the company negotiated with First Bank of Boston an interest rate swap that would allow the company to pay a fixed rate of 7% in exchange for receiving interest based on the LIBOR rate. The terms of the swap call for settlement at the end of June and December, which coincides with the company’s interest payment dates. The variable rates are reset at the end of each 6-month period for the following 6-month period. The terms of the swap are effective for the 6-month period beginning July 20X2.
The hedging relationship has been properly documented, and management has concluded that the hedge will be highly effective in offsetting changes in the cash flows due to changes in interest rates. The criteria for special accounting have been satisfied. Relevant LIBOR rates and swap values are as follows:
|
June 30, 20X2
|
Dec 31, 20X2
|
June 30, 20X3
|
Dec. 31, 20X3
|
|
LIBOR rate
|
70%
|
71%
|
69%
|
6.8%
|
|
Swap value
|
$27,990
|
$(19,011)
|
$(19,342)
|
1. Prepare the necessary entries to record the activities related to the debt and the hedge from July 1, 20X2, through June 30, 20X4.
2. Prepare a schedule to evaluate the positive or negative impact the hedge had on each 6-month period of earnings.
3. What would the LIBOR rate on December 31, 20X3, have had to be in order for the interest expense to be the same whether or not there was a cash flow hedge?
Aug 29, 2021 | Uncategorized
(Analysis of Various Accounting Changes and Errors) Joblonsky Inc. has recently hired a new independent auditor, Karen Ogleby, who says she wants “to get everything straightened out.” Consequently, she has proposed the accounting changes shown below and on the next page in connection with Joblonsky Inc.’s 2012 financial statements.
1. At December 31, 2011, the client had a receivable of $820,000 from Hendricks Inc. on its balance sheet. Hendricks Inc. has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item.
2. The client proposes the following changes in depreciation policies.
(a ) For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2011, would have been $250,000 less. The effect of the change on 2012 income alone is a reduction of $60,000.
(b ) F or its equipment in the leasing division, the client proposes to adopt the sum-of-the-years’-digits depreciation method. The client had never used SYD before. The first year the client operated a leasing division was 2012. If straight-line depreciation were used, 2012 income would be $110,000 greater.
3. In preparing its 2011 statements, one of the client’s bookkeepers overstated ending inventory by $235,000 because of a mathematical error. The client proposes to treat this item as a prior period adjustment.
4. In the past, the client has spread preproduction costs in its furniture division over 5 years. Because its latest furniture is of the “fad” type, it appears that the largest volume of sales will occur during the first 2 years after introduction. Consequently, the client proposes to amortize preproduction costs on a per-unit basis, which will result in expensing most of such costs during the first 2 years after the furniture’s introduction. If the new accounting method had been used prior to 2012, retained earnings at December 31, 2011, would have been $375,000 less.
5. For the nursery division, the client proposes to switch from FIFO to LIFO inventories because it believes that LIFO will provide a better matching of current costs with revenues. The effect of making this change on 2012 earnings will be an increase of $320,000. The client says that the effect of the change on December 31, 2011, retained earnings cannot be determined.
6. To achieve a better matching of revenues and expenses in its building construction division, the client proposes to switch from the completed-contract method of accounting to the percentage-of-completion method. Had the percentage-of-completion method been employed in all prior years, retained earnings at December 31, 2011, would have been $1,075,000 greater.
Instructions
(a) For each of the changes described above, decide whether:
(1) The change involves an accounting principle, accounting estimate, or correction of an error.
(2) Restatement of opening retained earnings is required.
(b) What would be the proper adjustment to the December 31, 2011, retained earnings?
Aug 29, 2021 | Uncategorized
(Analysis of Various Accounting Changes and Errors) Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material effect on the financial statements for the current year of your business enterprise.
1. A change from the completed-contract method to the percentage-of-completion method of accounting for long-term construction-type contracts.
2. A change in the estimated useful life of previously recorded fixed assets as a result of newly acquired information.
3. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.
4. A change from including the employer share of FICA taxes with payroll tax expenses to including it with “Retirement benefits” on the income statement.
5. Correction of a mathematical error in inventory pricing made in a prior period.
6. A change from presentation of statements of individual companies to presentation of consolidated statements.
7. A change in the method of accounting for leases for tax purposes to conform to the financial accounting method. As a result, both deferred and current taxes payable changed substantially.
8. A change from the FIFO method of inventory pricing to the LIFO method of inventory pricing.
Instructions
Identify the type of change that is described in each item above and indicate whether the prior year’s financial statements should be retrospectively applied or restated when presented in comparative form with the current year’s financial statements.
Aug 29, 2021 | Uncategorized
(Analysis of Three Accounting Changes and Errors) Listed below and on the next page are three independent, unrelated sets of facts relating to accounting changes.
Situation 1
Sanford Company is in the process of having its first audit. The company has used the cash basis of accounting for revenue recognition. Sanford president, B. J. Jimenez, is willing to change to the accrual method of revenue recognition.
Situation 2
Hopkins Co. decides in January 2013 to change from FIFO to weighted-average pricing for its inventories.
Situation 3
Marshall Co. determined that the depreciable lives of its fixed assets are too long at present to fairly match the cost of the fixed assets with the revenue produced. The company decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years.
Instructions
For each of the situations described, provide the information indicated below.
(a) Type of accounting change.
(b) Manner of reporting the change under current generally accepted accounting principles including a discussion, where applicable, of how amounts are computed.
(c) Effect of the change on the balance sheet and income statement.
Aug 29, 2021 | Uncategorized
(Analysis of Various Accounting Changes and Errors) Katherine Irving, controller of Lotan Corp., is aware of a pronouncement on accounting changes. After reading the pronouncement, she is confused about what action should be taken on the following items related to Lotan Corp. for the year 2012.
1. In 2012, Lotan decided to change its policy on accounting for certain marketing costs. Previously, the company had chosen to defer and amortize all marketing costs over at least 5 years because Lotan believed that a return on these expenditures did not occur immediately. Recently, however, the time differential has considerably shortened, and Lotan is now expensing the marketing costs as incurred.
2. In 2012, the company examined its entire policy relating to the depreciation of plant equipment. Plant equipment had normally been depreciated over a 15-year period, but recent experience has indicated that the company was incorrect in its estimates and that the assets should be depreciated over a 20-year period.
3. One division of Lotan Corp., Hawthorne Co., has consistently shown an increasing net income from period to period. On closer examination of its operating statement, it is noted that bad debt expense and inventory obsolescence charges are much lower than in other divisions. In discussing this with the controller of this division, it has been learned that the controller has increased his net income each period by knowingly making low estimates related to the write-off of receivables and inventory.
4. In 2012, the company purchased new machinery that should increase production dramatically. The company has decided to depreciate this machinery on an accelerated basis, even though other machinery is depreciated on a straight-line basis.
5. All equipment sold by Lotan is subject to a 3-year warranty. It has been estimated that the expense ultimately to be incurred on these machines is 1% of sales. In 2012, because of a production breakthrough, it is now estimated that 1/2 of 1% of sales is sufficient. In 2010 and 2011, warranty expense was computed as $64,000 and $70,000, respectively. The company now believes that these warranty costs should be reduced by 50%.
6. In 2012, the company decided to change its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to increase 2010 income by $65,000 and increase 2011 income by $20,000.
Instructions
Katherine Irving has come to you, as her CPA, for advice about the situations above. Prepare a report, indicating the appropriate accounting treatment that should be given each of these situations.
Aug 29, 2021 | Uncategorized
(Change from Fair Value to Equity Method) On January 3, 2011, Martin Company p urchased for $500,000 cash a 10% interest in Renner Corp. On that date, the net assets of Renner had a book value of $3,700,000. The excess of cost over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life of 10 years from the date of Martin’s purchase. The fair value of Martin’s investment in Renner securities is as follows: December 31, 2011, $560,000, and December 31, 2012, $515,000. On January 2, 2013, Martin purchased an additional 30% of Renner’s stock for $1,545,000 cash when the book value of Renner’s net assets was $4,150,000. The excess was attributable to depreciable assets having a remaining life of 8 years. During 2011, 2012, and 2013, the following occurred.
|
Renner
Net Income
|
Dividends Paid by
Renner to Martin
|
|
2011
|
$350,000
|
$15,000
|
|
2012
|
450,000
|
20,000
|
|
2013
|
550,000
|
70,000
|
Instructions
On the books of Martin Company, prepare all journal entries in 2011, 2012, and 2013 that relate to its investment in Renner Corp., reflecting the data above and a change from the fair value method to the equity method.
Aug 29, 2021 | Uncategorized
Statement of realization and liquidation, asset distribution. You have been appointed as the trustee in bankruptcy liquidation involving the Kramer Manufacturing Corporation. After the order for relief, Kramer submitted the following inventory of assets and liabilities as of June 1.
|
Assets
|
|
Liabilities
|
|
|
Cash and cash equivalents
|
$ 40,000
|
Accounts payable:
|
$ 400,000
|
|
Accounts receivable
|
450,000
|
Partially secured
|
300,000
|
|
Inventory
|
630,000
|
Fully secured
|
320,000
|
|
Equipment (net)
|
1,560,000
|
Line of credit
|
1,500,000
|
|
Patents
|
210,000
|
Note payable
|
400,000
|
|
Other assets
|
135,000
|
Other liabilities
|
$2,920,000
|
|
Total assets
|
$3,025,000
|
Total liabilities
|
|
During the two-month period ending July 31, the following activities took place:
a. The debt on the line of credit was settled through the collection of accounts receivable that secured the debt. Receivables with a book value of $400,000 were collected in the amount of $385,000.
b. Raw materials inventory with a book value of $300,000 was returned to vendors with fully secured claims of $300,000.
c. Raw materials with a book value of $50,000 were introduced into production in order to finish work in process that had a book value of $120,000. In addition to the raw materials, labor costs of $24,000 and overhead costs of $12,000 (excluding depreciation) were incurred to finish the inventory. Vendors providing the overhead items secured their claims with the inventory produced. The resulting finished goods were sold for $250,000. Remaining proceeds of the sale were remitted to the partially secured vendors with balances due of $300,000.
d. The remaining inventory included in the June 1 inventory consisted of finished goods that were sold for $180,000. Of the proceeds from the sale, $90,000 was remitted to the balance of the vendors with claims partially secured by inventory.
e. The equipment served as collateral on the note payable. Various equipment brokers sold the equipment for $1,180,000, net of commissions, and the proceeds were applied toward the note.
f. Of the remaining accounts receivable, only $32,000 was collected. The balance of the accounts is deemed to be uncollectible.
g. The company has been making every attempt to transfer the patent rights to another party.
Unfortunately, no progress has been made to date. However, on July 10 the company did receive a $4,000 invoice for legal services in connection with a potential sale.
h. The other assets were liquidated for $120,000.
i. The other liabilities included in the June 1 inventory consisted of the following: a $250,000 note payable to various shareholders of the corporation, a $25,000 contribution to the corporate pension fund, $10,000 of legal fees in connection with the bankruptcy proceeding, $35,000 due to federal and state tax authorities for past income and sales taxes, and $30,000 of various miscellaneous unsecured claims without priority. The balance of the other liabilities is traceable to unsecured claims that were incurred after commencement of the bankruptcy but before the order for relief.
j. Since the date of the inventory, the company has fallen behind in its rental payments, and $10,000 is due the lessor. Additional attorney and accounting fees in connection with the bankruptcy proceeding have been incurred in the amount of $9,000. 1. Prepare a statement of realization and liquidation for the period from June 1 through July 31. 2. Prepare a schedule indicating in what order assets remaining as of July 31 will be distributed among the remaining creditors.
Aug 29, 2021 | Uncategorized
Statement of realization and liquidation, unsecured creditors with and without priority. The past several years have been extremely difficult for Avery Manufacturing Company, Inc. During this time, the company lost significant market share and was successfully sued with respect to several product liability cases. In response to those problems, the company filed a voluntary petition to liquidate the company on May 15, 20X9, at which time the company had the following condensed trial balance:
|
Cash
|
$ 30,000
|
|
|
Noncash assets
|
2,958,000
|
|
|
Liabilities:
|
|
|
|
Fully secured
|
|
$1,720,000
|
|
Partially secured
|
|
762,000
|
|
Unsecured—with priority
|
|
20,000
|
|
Unsecured—without priority
|
|
230,000
|
|
Owners’ equity
|
|
256,000
|
|
Total
|
$2,988,000
|
$2,988,000
|
The bankruptcy court issued an order of relief on June 1, 20X9. The following liquidation transaction occurred through July 15, 20X9:
a. The inventory of raw materials was disposed of as follows:
| |
Cost
|
Fair
Value
|
|
Returned to fully secured vendors
|
$180,000
|
$180,000
|
|
Sold to liquidations broker
|
70,000
|
50,000
|
|
Transferred to work in process
|
40,000
|
40,000
|
| |
$290,000
|
$270,000
|
b. Work in process with a cost prior to liquidation of $117,000 was completed with the addition
of the following costs:
|
Raw materials per (a)
|
$40,000
|
|
Additional unpaid labor (individually less than $4,000)
|
17,000
|
|
Overhead:
|
|
|
Depreciation
|
1,000
|
|
Additional liabilities incurred
|
4,000*
|
| |
$62,000
|
These debts were incurred between May 17, 20X9, and May 28, 20X9.
The finished work in process was sold for $160,000.
c. Remaining finished goods with a cost of $204,000 were sold to a liquidation broker for
$154,000.
d. The company’s Indiana manufacturing facility, which had a net book value of $1,240,000, was sold for $1,000,000. The $800,000 mortgage on the property and related accrued interest of $34,000 were paid off with the sales proceeds.
e. The company’s warehouse with a net book value of $430,000 and an appraised value of $380,000 was assigned to the bank that held the $450,000 mortgage on the property.
f. Equipment with a net book value of $450,000 was sold at auction for $330,000. Lenders with equipment loans of $272,000, including accrued interest, received $220,000 upon sale of the equipment. Leased equipment was returned to the lessors and the company forfeited $15,000 in lease deposits.
g. Unassigned accounts receivable were realized as follows:
| |
Book
Value
|
Fair
Value
|
|
Collected in full
|
$ 72,000
|
$72,000
|
|
Written off:
|
|
|
|
Against a $30,000 allowance
|
30,000
|
0
|
|
In excess of allowance
|
14,000
|
0
|
| |
$116,000
|
$72,000
|
h. Assigned accounts receivable totaling $40,000 were disposed of as follows:
|
Collected in full
|
$32,000
|
|
Returned to the company with recourse
|
8,000
|
i. Expenses totaling $14,000 have been incurred by the trustee.
j. The company was just assessed another $15,000 of property taxes, which brings the total amount of taxes owed to governmental units to $35,000.
1. Prepare a statement of realization and liquidation for the period June 1, 20X9, to July 15, 20X9.
2. Determine the amount to be paid to unsecured creditors with and without priority assuming the remaining noncash assets have a net realizable value of (a) $10,000 and (b) $64,000. If only unsecured creditors with priority will receive a distribution, indicate which specific class of creditors will be paid.
Aug 29, 2021 | Uncategorized
Procedures for 100% account adjustment including goodwill. Baker Inc. purchased 80% of the outstanding stock of Flour Inc. for $830,000. Baker also paid $10,000 in direct acquisition costs and $3,000 for indirect acquisition costs. Just before the investment, the two companies had the following balance sheets:
|
Assets
|
|
|
| |
Baker Inc
|
Flour Inc
|
|
Accounts receivable
|
$ 900,000
|
$ 500,000
|
|
Inventory
|
600,000
|
200,000
|
|
Property, plant, and equipment (net)
|
1,500,000
|
600,000
|
|
Total assets
|
$3,000,000
|
$1,300,000
|
|
Liabilities and Equity
|
|
|
|
Current liabilities
|
$ 950,000
|
$ 400,000
|
|
Bonds payable
|
500,000
|
200,000
|
|
Common stock ($10 par)
|
400,000
|
300,000
|
|
Paid-in capital in excess of par
|
400,000
|
380,000
|
|
Retained earnings
|
750,000
|
20,000
|
|
Total liabilities and equity
|
$3,000,000
|
$1,300,000
|
Appraisals for the assets of Flour Inc. indicate that fair values differ from recorded book values for the inventory and for the property, plant, and equipment which have fair values of $250,000 and $700,000, respectively.
Part A.
Using the Economic Unit Concept—Full Goodwill, complete the following:
1. Prepare the entry to record the purchase of the Flour Inc. common stock, including all acquisition costs.
2. Prepare a determination and distribution of excess schedule for the investment in Flour Inc.
The D&D need not include amortization amounts.
3. Prepare the elimination entries that would be made on a consolidated worksheet on the date of acquisition.
Part B.
Using the Economic Unit Concept—Goodwill Only on the Controlling Interest, complete the following:
1. Prepare the entry to record the purchase of the Flour Inc. common stock, including all acquisition costs.
2. Prepare a determination and distribution of excess schedule for the investment in Flour Inc.
The D&D need not include amortization amounts.
3. Prepare the elimination entries that would be made on a consolidated worksheet on the date of acquisition.
Aug 29, 2021 | Uncategorized
Procedures for 100% account adjustment except goodwill. Copper Company purchased 80% of the common stock of Adco Company for $700,000 plus direct acquisition costs of $30,000. At the time of the purchase, Adco Company had the following balance sheet:
|
Assets
|
|
Liabilities and Equity
|
|
Cash equivalents
|
$ 120,000
|
Current liabilities
|
$ 200,000
|
|
Inventory
|
200,000
|
Bonds payable
|
400,000
|
|
Land
|
100,000
|
Common stock ($5 par)
|
100,000
|
|
Building (net)
|
450,000
|
Paid-in capital
|
|
|
Equipment (net)
|
230,000
|
in excess of par
|
150,000
|
|
Total assets
|
$1,100,000
|
Retained earnings
|
250,000
|
|
|
Total liabilities and equity
|
$1,100,000
|
Fair values differ from book values for all assets other than cash equivalents. The fair values are as follows:
|
Inventory
|
$300,000
|
|
Land
|
200,000
|
|
Building
|
600,000
|
|
Equipment
|
200,000
|
Using the Economic Unit Concept—Goodwill Only on the Controlling Interest, complete the following:
1. Prepare a determination and distribution of excess schedule. The D&D need not include amortization amounts.
2. Prepare the elimination entries that would be made on a consolidated worksheet prepared on the date of purchase.
Aug 29, 2021 | Uncategorized
Examples that do and do not meet the 80% test. Modum Corporation was formed on January 1, 20X1, by issuing 4,000 shares of $10 par stock for $20 per share. Modum Corporation is going to engage in a leveraged buyout of Antique Company. Antique Company had the following stockholders’ equity on January 1, 20X1:
|
Common stock ($10 par, 10,000 shares outstanding)
|
$100,000
|
|
Paid-in capital in excess of par
|
150,000
|
|
Retained earnings
|
80,000
|
|
Total equity
|
$330,000
|
The fair value of Antique Company shares is $40 each. 1,000 Antique shares will be acquired from continuing members of Antique Company’s control group in exchange for 2,000 Modum Corporation shares. The equity-adjusted cost of the control group’s shares is $25 per share. Calculate the total cost of Antique Company under each of the following assumptions:
1. Modum Corporation borrows $280,000 and purchases for $40 each the remaining 9,000 shares held by parties outside the control group of Antique Company.
2. Modum Corporation borrows $240,000 and purchases 8,000 noncontrol group shares for $40 each. Modum issues 2,000 of its shares in exchange for 1,000 Antique Company shares held by noncontrol group members.
3. Modum Corporation borrows $200,000 and purchases 7,000 noncontrol group shares for $40 each. Modum issues 4,000 of its shares in exchange for 2,000 Antique Company shares held by noncontrol group members.
Aug 29, 2021 | Uncategorized
LBO does not meet 80% test. Old Time Company has the following balance sheet on January 1, 20X1, when it is the target of a leveraged buyout by Hercules Corporation:
|
Assets
|
|
Stockholders’ Equity
|
|
|
Cash
|
$ 50,000
|
Common stock ($5 par, 10,000
|
|
|
Inventory
|
100,000
|
shares)
|
$ 50,000
|
|
Property and plant
|
200,000
|
Paid-in capital in excess of par
|
160,000
|
|
Total assets
|
$350,000
|
Retained earnings
|
140,000
|
|
|
Total equity
|
$350,000
|
The property and plant have a fair value of $230,000.
Hercules Corporation incorporated by issuing 3,000 shares of $10 par common stock for $40 each. The company also borrowed $160,000 from long-term lenders. The leveraged buyout was accomplished as follows:
|
1,000
|
shares exchanged on a 1-to-1 basis with continuing members of the old control group The equityadjusted cost per share for these shares was $38 These shares do not need the criteria to be Included in the fair value block
|
|
2,000
|
shares exchanged on a 1-to-1 basis with noncontrol group members
|
|
7,000
|
shares of Old Time purchased from noncontrol group members for $40 per share
|
Prepare the balance sheet of Hercules Corporation immediately after the leveraged buyout. Provide supporting calculations in good form.
Aug 29, 2021 | Uncategorized
LBO, 80% test not met. Newtone Company was formed on January 1, 20X5. The shareholder group issued 4,000 shares of $10 par common stock for $25 per share. The company was formed by an employee group to purchase Oldtime (a subsidiary of Gigantic Corporation) which had the following balance sheet on the January 3, 20X5 acquisition date:
|
Assets
|
|
Liabilities and Stockholders’ Equity
|
|
Cash
|
$ 60,000
|
Bonds payable
|
$150,000
|
|
Inventory
|
130,000
|
Common stock ($10 par)
|
100,000
|
|
Accounts receivable
|
40,000
|
Paid-in capital in excess of par
|
120,000
|
|
Equipment
|
75,000
|
Retained earning
|
85,000
|
|
Building (net)
|
120,000
|
Total liabilities and
|
|
|
Land
|
30,000
|
stockholders’ equity
|
$455,000
|
|
Total assets
|
$455,000
|
|
|
The fair values differed from book values in the case of the inventory, equipment, and building which were appraised at $150,000, $100,000, and $200,000, respectively.
The fair value of Newtone stock is $25 per share. 2,000 Newtone shares were exchanged for 1,000 Oldtime shares with parties who were continuing members of the control group of Oldtime. These shares do not qualify for inclusion in the fair value block. The equity-adjusted cost of the shares held by Oldtime’s control group was $45 per share. These individuals also will be part of the control group of Newtone. The 9,000 remaining shares of Oldtime were acquired from parties that are not part of Newtone’s control group.
1. Assume Newtone borrowed $250,000 on a long-term note. Newtone then paid $50 per share for 7,000 shares of Oldtime and issued 4,000 of its shares in exchange for 2,000 Oldtime shares. Prepare all entries to record the formation of Newtone Corporation, the borrowing, and the buyout of Oldtime. Include a support schedule for the values assigned to the accounts.
2. Assume Newtone borrowed $300,000 on a long-term note. Newtone then paid $50 per share for 8,000 shares of Oldtime and issued 2,000 of its shares in exchange for 1,000 Oldtime shares. Prepare all entries to record the formation of Newtone Corporation, the borrowing, and the buyout of Oldtime. Include a support schedule for the values assigned to the accounts.
Suggestion: Be sure to determine if the 80% test is met in each case before proceeding to assign values to the accounts.
Aug 29, 2021 | Uncategorized
Terminology and valuation relating to a call option. A Milwaukee manufacturer uses copper in its manufacturing operations and anticipates that copper prices will increase over the next several months. On February 1, the company purchased an at-the-money May call (buy) option for $800. The option has a notional amount of 25,000 pounds and a strike price of $0.80 per pound. Copper spot rates and option values at selected dates are as follows:
|
Spot Rate per Pound
|
Option Value
|
|
28-Feb
|
$79
|
$700
|
|
31-Mar
|
81
|
800
|
|
30-Apr
|
85
|
1,400
|
|
15-May
|
87
|
1,750
|
1. For each of the above dates, calculate the intrinsic value and the time value of the option.
2. If the call option were designated as a hedge of a forecasted purchase of copper, explain how the changing value of the option would be recognized in the income statement over time.
3. If the price of copper remained below $0.80 per pound subsequent to February 1, calculate the effect on earnings traceable to the hedge.
4. Explain why the pure time value of the option would be expected to decrease over time.
Aug 29, 2021 | Uncategorized
Fair value hedge—an interest rate swap’s effect on interest and the carrying value of a note. On July 1, 20X2, the Hargrove Corporation issued a 2- year note with a face value of $4,000,000 and a fixed interest rate of 9%, payable on a semiannual basis. On January 15, 20X3, the company entered into an interest rate swap with a financial institution in anticipation of lower variable rates. At the initial date of the swap, the company paid a premium of $9,200. The swap had a notional amount of $4,000,000 and called for the payment of a variable rate of interest in exchange for a 9% fixed rate. The variable rates are reset semiannually beginning with January 1, 20X3, in order to determine the next interest payment. Differences between rates on the swap will be settled on a semiannual basis. Variable interest rates and the value of the swap on selected dates are as follows:
|
Reset Date
|
Variable Interest Rate
|
Value of the Swap
|
|
January 1, 20X3
|
875%
|
|
|
June 30, 20X3
|
850
|
$14,000
|
|
December 31, 20X3
|
885
|
3,500
|
For each of the above dates, determine:
1. The net interest expense.
2. The carrying value of the note payable.
3. The net unrealized gain or loss on the swap.
Aug 29, 2021 | Uncategorized
Entries to record a hedge of a firm commitment with an option. The Glasner Candy Corporation has a firm commitment dated April 1 to purchase cocoa with delivery on June 15. The commitment is for 1,000 metric tons of cocoa at $700 per ton. In order to hedge against decreases in the spot prices of cocoa, the company designated an option as a hedge against changes in the fair value of the commitment. The put (sell) option was acquired on April 1 for a premium of $1,000 and has a strike price of $700 per ton. The option has a notional amount of 1,000 tons and an expiration date of June 15. Spot prices per ton and the value of the option at selected dates are as follows:
|
April 1
|
April 30
|
May 31
|
June 15
|
|
Spot price per ton
|
$ 701
|
$ 696
|
$ 697
|
$ 695
|
|
Fair value of option
|
1,000
|
4,300
|
3,500
|
5,000
|
The change in the option’s time value will be excluded from an assessment of hedge effectiveness.
1. Prepare all entries to record this hedging relationship.
2. If the option’s strike price would have been $698, would the hedge have been totally effective?
Aug 29, 2021 | Uncategorized
Entries to record fixed for variable interest rate swap. Several years ago, the Traker Corporation borrowed $5,000,000 from the New West Bank of Albuquerque at a fixed rate of 8.5%. The loan becomes due on December 31, 20X3, and has interest due dates of June 30 and December 31. Prior to 20X2, variable interest rates were typically higher than the 8.5% fixed rate. However, Traker feels that variable interest rates are likely to decline.
Therefore, on January 1, 20X2, Traker entered into an interest rate swap with the First National Bank of Denver. The swap has a notional amount of $3,000,000 and requires Traker to receive a fixed rate of 8.5% and pay a variable rate. The variable interest rate is a LIBOR rate and reset dates are January 1 and July 1. Settlement payments are made on June 30 and December 31. Relevant information regarding rates and values is as follows:
|
Reset Date
|
LIBOR Rate
|
Value of Swap
|
|
January 1, 20X2
|
81%
|
|
|
July 1, 20X2
|
76
|
$62,677
|
|
January 1, 20X3
|
73
|
56,868
|
|
July 1, 20X3
|
79
|
14,430
|
Prepare all entries to record the transactions involving the loan payable and the interest rate swap through December 31, 20X3.
Problem M-2 (LO 7) Entries to record fair value hedge involving a futures contract. The Filter Oil Company is the largest distributor of home heating oil throughout the Chicago area. Because of the seasonal nature of the company’s business, it builds up its inventory of heating oil throughout the summer months. The inventory of heating oil is then withdrawn primarily during the fall and winter months. The company has decided to hedge its inventory of 420,000 gallons of heating oil by acquiring a futures contract to sell heating oil in October. The cost of the company’s heating oil is $0.720 per gallon.
The contract that is acquired on August 1 has a notional amount of 420,000 gallons of heating oil and a futures price of $0.740 per gallon. The company properly documents the hedging relationship, and all criteria for special accounting as a fair value hedge are satisfied. The change in the time value of the futures contract is to be excluded from the assessment of hedge effectiveness.
The futures contract is settled in early October, and the company sells its inventory of heating oil in mid-October at the spot rate of $0.734 per gallon. Relevant spot prices and futures prices for the remaining term of the contract are as follows:
|
Spot Price per Gallon
|
Futures Price per Gallon
|
|
1-Aug
|
$741
|
$740
|
|
31-Aug
|
738
|
739
|
|
30-Sep
|
732
|
731
|
|
Early October
|
734
|
734
|
1. Prepare all entries necessary to account for the inventory of heating oil and the related hedge.
2. Prepare a schedule to illustrate the effect on current earnings, with and without the hedge.
3. Show the balance sheet effect as of September 30.
Aug 29, 2021 | Uncategorized
(Error and Change in Estimate—Depreciation) Tarkington Co. purchased a machine on January 1, 2009, for $440,000. At that time it was estimated that the machine would have a 10-year life and no salvage value. On December 31, 2012, the firm’s accountant found that the entry for depreciation expense had been omitted in 2010. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2012. At present, the company uses the sum of the years’ digits method for depreciating equipment.
Instructions
Prepare the general journal entries that should be made at December 31, 2012, to record these events.
Aug 29, 2021 | Uncategorized
(Depreciation Changes) On January 1, 2008, McElroy Company purchased a building and equipment that have the following useful lives, salvage values, and costs. Building, 40-year estimated useful life, $50,000 salvage value, $1,200,000 cost Equipment, 12-year estimated useful life, $10,000 salvage value, $130,000 cost the building has been depreciated under the double-declining-balance method through 2011. In 2012, the company decided to switch to the straight-line method of depreciation. McElroy also decided to change the total useful life of the equipment to 9 years, with a salvage value of $5,000 at the end of that time. The equipment is depreciated using the straight-line method.
Instructions
(a) Prepare the journal entry (ies) necessary to record the depreciation expense on the building in 2012.
(b) Compute depreciation expense on the equipment for 2012.
Aug 29, 2021 | Uncategorized
(Change in Principle—Long-Term Contracts) Bryant Construction Company began operations in 2011 and changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2012. For tax purposes, the company employs the completed contract method and will continue this approach in the future. The appropriate information related to this change is as follows.
|
Pretax Income from
|
|
Percentage-of-Completion
|
Completed-Contract
|
Difference
|
|
2011
|
$980,000
|
$730,000
|
$250,000
|
|
2012
|
900,000
|
480,000
|
420,000
|
Instructions
(a) Assuming that the tax rate is 40%, what is the amount of net income that would be reported in 2012?
(b) What entry (ies) are necessary to adjust the accounting records for the change in accounting principle?
Aug 29, 2021 | Uncategorized
(Various Changes in Principle—Inventory Methods) Below is the net income of Benchley Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.
|
FIFO
|
Average Cost
|
LIFO
|
|
2010
|
$26,000
|
$23,000
|
$20,000
|
|
2011
|
30,000
|
25,000
|
21,000
|
|
2012
|
29,000
|
27,000
|
24,000
|
|
2013
|
34,000
|
30,000
|
26,000
|
Instructions
(a) Assume that in 2013 Benchley decided to change from the FIFO method to the average cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2013, and show net income reported for 2010, 2011, 2012, and 2013.
(b) Assume that in 2013 Benchley, which had been using the LIFO method since incorporation in 2010, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2013 and show net income reported for 2010, 2011, 2012, and 2013.
Aug 29, 2021 | Uncategorized
(Error Correction Entries) The first audit of the books of Fenimore Company was made for the year ended December 31, 2012. In examining the books, the auditor found that certain items had been overlooked or incorrectly handled in the last 3 years. These items are:
1. At the beginning of 2010, the company purchased a machine for $510,000 (salvage value of $51,000) that had a useful life of 5 years. The bookkeeper used straight-line depreciation, but failed to deduct the salvage value in computing the depreciation base for the 3 years.
2. At the end of 2011, the company failed to accrue sales salaries of $45,000.
3. A tax lawsuit that involved the year 2010 was settled late in 2012. It was determined that the company owed an additional $85,000 in taxes related to 2010. The company did not record a liability in 2010 or 2011 because the possibility of loss was considered remote, and debited the $85,000 to a loss account in 2012 and credited Cash for the same amount.
4. Fenimore Company purchased a copyright from another company early in 2010 for $50,000. Fenimore has not amortized the copyright because management believes that its value had not diminished. The copyright has a useful life at purchase of 20 years.
5. In 2012, the company wrote off $87,000 of inventory considered to be obsolete; this loss was charged directly to Retained Earnings and credited to Inventory.
Instructions
Prepare the journal entries necessary in 2012 to correct the books, assuming that the books have not been closed. Disregard effects of corrections on income tax.
Aug 29, 2021 | Uncategorized
(Error Analysis and Correcting Entry) You have been engaged to review the financial statements of Longfellow Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows.
1. Year-end wages payable of $3,400 were not recorded because the bookkeeper thought that “they were immaterial.”
2. Accrued vacation pay for the year of $31,100 was not recorded because the bookkeeper “never heard that you had to do it.”
3. Insurance for a 12-month period purchased on November 1 of this year was charged to insurance expense in the amount of $3,300 because “the amount of the check is about the same every year.”
4. Reported sales revenue for the year is $1,908,000. This includes all sales taxes collected for the year. The sales tax rate is 6%. Because the sales tax is forwarded to the state’s Department of Revenue, the Sales Tax Expense account is debited. The bookkeeper thought that “the sales tax is a selling expense.” At the end of the current year, the balance in the Sales Tax Expense account is $103,400.
Instructions
Prepare the necessary correcting entries, assuming that Longfellow uses a calendar-year basis.
Aug 29, 2021 | Uncategorized
(Error Analysis and Correcting Entry) The reported net incomes for the first 2 years of Sinclair Products, Inc., were as follows: 2012, $147,000; 2013, $185,000. Early in 2014, the following errors were discovered.
1. Depreciation of equipment for 2012 was overstated $19,000.
2. Depreciation of equipment for 2013 was understated $38,500.
3. December 31, 2012, inventory was understated $50,000.
4. December 31, 2013, inventory was overstated $14,200.
Instructions
Prepare the correcting entry necessary when these errors are discovered. Assume that the books for 2013 are closed. (Ignore income tax considerations.)
Aug 29, 2021 | Uncategorized
(Error Analysis) Emerson Tool Company’s December 31 year-end financial statements contained the following errors.
|
December 31, 2011
|
December 31, 2012
|
|
Ending inventory
|
$9,600 understated
|
$7,100 overstated
|
|
Depreciation expense
|
$2,300 understated
|
—
|
An insurance premium of $60,000 was prepaid in 2011 covering the years 2011, 2012, and 2013. The entire amount was charged to expense in 2011. In addition, on December 31, 2012, fully depreciated machinery was sold for $15,000 cash, but the entry was not recorded until 2013. There were no other errors during 2011 or 2012, and no corrections have been made for any of the errors. (Ignore income tax considerations.)
Instructions
(a) Compute the total effect of the errors on 2012 net income.
(b) Compute the total effect of the errors on the amount of Emerson’s working capital at December 31, 2012.
(c) Compute the total effect of the errors on the balance of Emerson’s retained earnings at December 31, 2012.
Aug 29, 2021 | Uncategorized
(Error Analysis and Correcting Entries) A partial trial balance of Dickinson Corporation is as follows on December 31, 2012.
|
Dr.
|
Cr.
|
|
Supplies
|
$ 2,500
|
|
|
Salaries and Wages Payable
|
|
$ 1,500
|
|
Interest Receivable
|
5,100
|
|
|
Prepaid Insurance
|
90,000
|
|
|
Unearned Rent
|
|
–0–
|
|
Interest Payable
|
|
15,000
|
Additional adjusting data:
1. A physical count of supplies on hand on December 31, 2012, totaled $1,100.
2. Through oversight, the Salaries and Wages Payable account was not changed during 2012. Accrued salaries and wages on December 31, 2012, amounted to $4,400.
3. The Interest Receivable account was also left unchanged during 2012. Accrued interest on investments amounts to $4,350 on December 31, 2012.
4. The unexpired portions of the insurance policies totaled $65,000 as of December 31, 2012.
5. $24,000 was received on January 1, 2012, for the rent of a building for both 2012 and 2013. The entire amount was credited to Rent Revenue.
6. Depreciation for the year was erroneously recorded as $5,000 rather than the correct figure of $50,000.
7. A further review of depreciation calculations of prior years revealed that depreciation of $7,200 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.
Instructions
(a) Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2012? (Ignore income tax considerations.)
(b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2012? (Ignore income tax considerations.)
Aug 29, 2021 | Uncategorized
(Error Analysis) The before-tax income for Fitzgerald Co. for 2012 was $101,000 and $77,400 for 2013. However, the accountant noted that the following errors had been made.
1. Sales for 2012 included amounts of $38,200 which had been received in cash during 2012, but for which the related products were delivered in 2013. Title did not pass to the purchaser until 2013.
2. The inventory on December 31, 2012, was understated by $8,640.
3. The bookkeeper in recording interest expense for both 2012 and 2013 on bonds payable made the following entry on an annual basis.
|
Interest Expense
|
15,000
|
|
Cash
|
15,000
|
The bonds have a face value of $250,000 and pay a stated interest rate of 6%. They were issued at a discount of $10,000 on January 1, 2012, to yield an effective-interest rate of 7%. (Assume that the effective-interest method should be used.)
4. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2012 and 2013. Repairs in the amount of $8,000 in 2012 and $9,400 in 2013 were so charged. The company applies a rate of 10% to the balance in the Equipment account at the end of the year in its determination of depreciation charges.
Instructions
Prepare a schedule showing the determination of corrected income before taxes for 2012 and 2013.
Aug 29, 2021 | Uncategorized
(Change from Fair Value to Equity) On January 1, 2012, Sandburg Co. purchased 25,000 shares (a 10% interest) in Yevette Corp. for $1,400,000. At the time, the book value and the fair value of Yevette’s net identifiable assets were $13,000,000. On July 1, 2013, Sandburg paid $3,040,000 for 50,000 additional shares of Yevette common stock, which represented a 20% investment in Yevette. The fair value of Yevette’s identifiable assets net of liabilities was equal to their carrying amount of $14,200,000. As a result of this transaction, Sandburg owns 30% of Yevette and can exercise significant influence over Yevette’s operating and financial policies. Any excess of the cost over the fair value of the identifiable net assets is attributed to goodwill. Yevette reported the following net income and declared and paid the following dividends.
|
Net Income
|
Dividend per Share
|
|
Year ended 12/31/12
|
$900,000
|
None
|
|
Six months ended 6/30/13
|
500,000
|
None
|
|
Six months ended 12/31/13
|
815,000
|
$1.40
|
Instructions
Determine the ending balance that Sandburg Co. should report as its investment in Yevette Corp. at the end of 2013.
Aug 29, 2021 | Uncategorized
(Change in Estimate and Error Correction) Holtzman Company is in the process of preparing its financial statements for 2012. Assume that no entries for depreciation have been recorded in 2012. The following information related to depreciation of fixed assets is provided to you.
1. Holtzman purchased equipment on January 2, 2009, for $85,000. At that time, the equipment had an estimated useful life of 10 years with a $5,000 salvage value. The equipment is depreciated on a straight-line basis. On January 2, 2012, as a result of additional information, the company determined that the equipment has a remaining useful life of 4 years with a $3,000 salvage value.
2. During 2012, Holtzman changed from the double-declining-balance method for its building to the straight-line method. The building originally cost $300,000. It had a useful life of 10 years and asalvage value of $30,000. The following computations present depreciation on both bases for 2010 and 2011.
|
2011
|
2010
|
|
Straight-line
|
$27,000
|
$27,000
|
|
Declining-balance
|
48,000
|
60,000
|
3. Holtzman purchased a machine on July 1, 2010, at a cost of $120,000. The machine has a salvage value of $16,000 and a useful life of 8 years. Holtzman’s bookkeeper recorded straight-line depreciation in 2010 and 2011 but failed to consider the salvage value.
Instructions
(a) Prepare the journal entries to record depreciation expense for 2012 and correct any errors made to date related to the information provided.
(b) Show comparative net income for 2011 and 2012. Income before depreciation expense was $300,000 in 2012, and was $310,000 in 2011.
Aug 29, 2021 | Uncategorized
(Comprehensive Accounting Change and Error Analysis Problem) Botticelli Inc. was organized in late 2010 to manufacture and sell hosiery. At the end of its fourth year of operation, the company has been fairly successful, as indicated by the following reported net incomes.
|
2010
|
$140,000a
|
|
2011
|
160,000b
|
|
2012
|
$205,000
|
|
2013
|
276,000
|
The company has decided to expand operations and has applied for a sizable bank loan. The bank officer has indicated that the records should be audited and presented in comparative statements to facilitate analysis by the bank. Botticelli Inc. therefore hired the auditing firm of Check & Doublecheck Co. and has provided the following additional information.
1. In early 2011, Botticelli Inc. changed its estimate from 2% to 1% on the amount of bad debt expense to be charged to operations. Bad debt expense for 2010, if a 1% rate had been used, would have been $10,000. The company therefore restated its net income for 2010.
2. In 2013, the auditor discovered that the company had changed its method of inventory pricing from LIFO to FIFO. The effect on the income statements for the previous years is as follows.
|
2010
|
2011
|
2012
|
2013
|
|
Net income unadjusted—LIFO basis
|
$140,000
|
$160,000
|
$205,000
|
$276,000
|
|
Net income unadjusted—FIFO basis
|
155,000
|
165,000
|
215,000
|
260,000
|
|
$ 15,000
|
$ 5,000
|
$ 10,000
|
$ (16,000)
|
3. In 2013, the auditor discovered that:
(a) The company incorrectly overstated the ending inventory by $14,000 in 2012.
(b) A dispute developed in 2011 with the Internal Revenue Service over the deductibility of entertainment expenses. In 2010, the company was not permitted these deductions, but a tax settlement was reached in 2013 that allowed these expenses. As a result of the court’s finding, tax expenses in 2013 were reduced by $60,000.
Instructions
(a) Indicate how each of these changes or corrections should be handled in the accounting records.
(b) Present comparative income statements for the years 2010 to 2013, starting with income before extraordinary items.
Aug 29, 2021 | Uncategorized
(Error Corrections and Accounting Changes) Penn Company is in the process of adjusting and correcting its books at the end of 2012. In reviewing its records, the following information is compiled.
1. Penn has failed to accrue sales commissions payable at the end of each of the last 2 years, as follows.
|
December 31, 2011
|
$3,500
|
|
December 31, 2012
|
$2,500
|
2. In reviewing the December 31, 2011, inventory, Penn discovered errors in its inventory-taking procedures that have caused inventories for the last 3 years to be incorrect, as follows.
|
December 31, 2010
|
Understated
|
$16,000
|
|
December 31, 2011
|
Understated
|
$19,000
|
|
December 31, 2012
|
Overstated
|
$ 6,700
|
Penn has already made an entry that established the incorrect December 31, 2012, inventory amount.
3. At December 31, 2012, Penn decided to change the depreciation method on its office equipment from double-declining-balance to straight-line. The equipment had an original cost of $100,000 when purchased on January 1, 2010. It has a 10-year useful life and no salvage value. Depreciation expense recorded prior to 2012 under the double-declining-balance method was $36,000. Penn has already recorded 2012 depreciation expense of $12,800 using the double-declining-balance method.
4. Before 2012, Penn accounted for its income from long-term construction contracts on the completed contract basis. Early in 2012, Penn changed to the percentage-of-completion basis for accounting purposes. It continues to use the completed-contract method for tax purposes. Income for 2012 has been recorded using the percentage-of-completion method. The following information is available.
|
Pretax Income
|
|
Percentage-of-Completion
|
Completed-Contract
|
|
Prior to 2012
|
$150,000
|
$105,000
|
|
2012
|
60,000
|
20,000
|
Instructions
Prepare the journal entries necessary at December 31, 2012, to record the above corrections and changes. The books are still open for 2012. The income tax rate is 40%. Penn has not yet recorded its 2012 income tax expense and payable amounts so current-year tax effects may be ignored. Prior-year tax effects must be considered in item 4.
Aug 29, 2021 | Uncategorized
(Accounting Changes) Aston Corporation performs year-end planning in November of each year before its calendar year ends in December. The preliminary estimated net income is $3 million. The CFO, Rita Warren, meets with the company president, J. B. Aston, to review the projected numbers. She presents the following projected information.
|
ASTON CORPORATION
PROJECTED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2012
|
|
Sales
|
|
$29,000,000
|
|
Cost of goods sold
|
$14,000,000
|
|
|
Depreciation
|
2,600,000
|
|
|
Operating expenses
|
6,400,000
|
23,000,000
|
|
Income before income tax
|
|
6,000,000
|
|
Income tax
|
|
3,000,000
|
|
Net income
|
|
$ 3,000,000
|
|
ASTON CORPORATION
SELECTED BALANCE SHEET INFORMATION
AT DECEMBER 31, 2012
|
|
Estimated cash balance
|
$ 5,000,000
|
|
Available-for-sale securities (at cost)
|
10,000,000
|
|
Fair value adjustment (1/1/12)
|
200,000
|
Estimated market value at December 31, 2012:
|
Security
|
Cost
|
Estimated Market
|
|
A
|
$ 2,000,000
|
$ 2,200,000
|
|
B
|
4,000,000
|
3,900,000
|
|
C
|
3,000,000
|
3,000,000
|
|
D
|
1,000,000
|
1,800,000
|
|
Total
|
$10,000,000
|
$10,900,000
|
Other information at December 31, 2012:
|
Equipment
|
$ 3,000,000
|
|
Accumulated depreciation (5-year SL)
|
1,200,000
|
|
New robotic equipment (purchased 1/1/12)
|
5,000,000
|
|
Accumulated depreciation (5-year DDB)
|
2,000,000
|
The corporation has never used robotic equipment before, and Warren assumed an accelerated method because of the rapidly changing technology in robotic equipment. The company normally uses straight line depreciation for production equipment. Aston explains to Warren that it is important for the corporation to show a $7,000,000 income before taxes because Aston receives a $1,000,000 bonus if the income before taxes and bonus reaches $7,000,000. Aston also does not want the company to pay more than $3,000,000 in income taxes to the government.
Instructions
(a) What can Warren do within GAAP to accommodate the president’s wishes to achieve $7,000,000 in income before taxes and bonus? Present the revised income statement based on your decision.
(b) Are the actions ethical? Who are the stakeholders in this decision, and what effect do Warren’s actions have on their interests?
Aug 29, 2021 | Uncategorized
(Change in Principle—Inventory—Periodic) The management of Utrillo Instrument Company had concluded, with the concurrence of its independent auditors, that results of operations would be more fairly presented if Utrillo changed its method of pricing inventory from last-in, first-out (LIFO) to average cost in 2012. Given below is the 5-year summary of income under LIFO and a schedule of what the inventories would be if stated on the average cost method.
|
UTRILLO INSTRUMENT COMPANY
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED MAY 31
|
|
2008
|
2009
|
2010
|
2011
|
2012
|
|
Sales—net
|
$13,964
|
$15,506
|
$16,673
|
$18,221
|
$18,898
|
|
Cost of goods sold
|
|
|
|
|
|
|
Beginning inventory
|
1,000
|
1,100
|
1,000
|
1,115
|
1,237
|
|
Purchases
|
13,000
|
13,900
|
15,000
|
15,900
|
17,100
|
|
Ending inventory
|
(1,100)
|
(1,000)
|
(1,115)
|
(1,237)
|
(1,369)
|
|
Total
|
12,900
|
14,000
|
14,885
|
15,778
|
16,968
|
|
Gross profit
|
1,064
|
1,506
|
1,788
|
2,443
|
1,930
|
|
Administrative expenses
|
700
|
763
|
832
|
907
|
989
|
|
Income before taxes
|
364
|
743
|
956
|
1,536
|
941
|
|
Income taxes (50%)
|
182
|
372
|
478
|
768
|
471
|
|
Net income
|
182
|
371
|
478
|
768
|
470
|
|
Retained earnings—beginning
|
1,206
|
1,388
|
1,759
|
2,237
|
3,005
|
|
Retained earnings—ending
|
$ 1,388
|
$ 1,759
|
$ 2,237
|
$ 3,005
|
$ 3,475
|
|
Earnings per share
|
$1.82
|
$3.71
|
$4.78
|
$7.68
|
$4.70
|
|
SCHEDULE OF INVENTORY BALANCES USING AVERAGE COST METHOD
FOR THE YEARS ENDED MAY 31
|
|
2007
|
2008
|
2009
|
2010
|
2011
|
2012
|
|
$1,010
|
$1,124
|
$1,101
|
$1,270
|
$1,500
|
$1,720
|
Instructions
Prepare comparative statements for the 5 years, assuming that Utrillo changed its method of inventory pricing to average cost. Indicate the effects on net income and earnings per share for the years involved. Utrillo Instruments started business in 2007.
Aug 29, 2021 | Uncategorized
(Error Corrections) You have been assigned to examine the financial statements of Zarle Company for the year ended December 31, 2012. You discover the following situations.
1. Depreciation of $3,200 for 2012 on delivery vehicles was not recorded.
2. The physical inventory count on December 31, 2011, improperly excluded merchandise costing $19,000 that had been temporarily stored in a public warehouse. Zarle uses a periodic inventory system.
3. A collection of $5,600 on account from a customer received on December 31, 2012, was not recorded until January 2, 2013.
4. In 2012, the company sold for $3,700 fully depreciated equipment that originally cost $25,000. The company credited the proceeds from the sale to the Equipment account.
5. During November 2012, a competitor company filed a patent-infringement suit against Zarle claiming damages of $220,000. The company’s legal counsel has indicated that an unfavorable verdict is probable and a reasonable estimate of the court’s award to the competitor is $125,000. The company has not reflected or disclosed this situation in the financial statements.
6. Zarle has a portfolio of trading securities. No entry has been made to adjust to market. Information on cost and market value is as follows.
|
Cost
|
Market
|
|
December 31, 2011
|
$95,000
|
$95,000
|
|
December 31, 2012
|
$84,000
|
$82,000
|
7. At December 31, 2012, an analysis of payroll information shows accrued salaries of $12,200. The accrued salaries account had a balance of $16,000 at December 31, 2012, which was unchanged from its balance at December 31, 2011.
8. A large piece of equipment was purchased on January 3, 2012, for $40,000 and was charged to Maintenance and Repairs Expense. The equipment is estimated to have a service life of 8 years and no residual value. Zarle normally uses the straight-line depreciation method for this type of equipment.
9. A $12,000 insurance premium paid on July 1, 2011, for a policy that expires on June 30, 2014, was charged to insurance expense.
10. A trademark was acquired at the beginning of 2011 for $50,000. No amortization has been recorded since its acquisition. The maximum allowable amortization period is 10 years.
Instructions
Assume the trial balance has been prepared but the books have not been closed for 2012. Assuming all amounts are material, prepare journal entries showing the adjustments that are required.
Aug 29, 2021 | Uncategorized
(Comprehensive Error Analysis) On March 5, 2013, you were hired by Hemingway Inc., a closely held company, as a staff member of its newly created internal auditing department. While reviewing the company’s records for 2011 and 2012, you discover that no adjustments have yet been made for the items listed below.
Items
1. Interest income of $14,100 was not accrued at the end of 2011. It was recorded when received in February 2012.
2. A computer costing $4,000 was expensed when purchased on July 1, 2011. It is expected to have a 4-year life with no salvage value. The company typically uses straight-line depreciation for all fixed assets.
3. Research and development costs of $33,000 were incurred early in 2011. They were capitalized and were to be amortized over a 3-year period. Amortization of $11,000 was recorded for 2011 and $11,000 for 2012.
4. On January 2, 2011, Hemingway leased a building for 5 years at a monthly rental of $8,000. On that date, the company paid the following amounts, which were expensed when paid.
|
Security deposit
|
$20,000
|
|
First month’s rent
|
8,000
|
|
Last month’s rent
|
8,000
|
|
$36,000
|
5. The company received $36,000 from a customer at the beginning of 2011 for services that it is to perform evenly over a 3-year period beginning in 2011. None of the amount received was reported as unearned revenue at the end of 2011.
6. Merchandise inventory costing $18,200 was in the warehouse at December 31, 2011, but was incorrectly omitted from the physical count at that date. The company uses the periodic inventory method.
Instructions
Indicate the effect of any errors on the net income figure reported on the income statement for the year ending December 31, 2011, and the retained earnings figure reported on the balance sheet at December 31, 2012. Assume all amounts are material, and ignore income tax effects. Using the following format, enter the appropriate dollar amounts in the appropriate columns. Consider each item independent of the other items. It is not necessary to total the columns on the grid.
Aug 29, 2021 | Uncategorized
(Error Analysis) Lowell Corporation has used the accrual basis of accounting for several years. A review of the records, however, indicates that some expenses and revenues have been handled on a cash basis because of errors made by an inexperienced bookkeeper. Income statements prepared by the bookkeeper reported $29,000 net income for 2011 and $37,000 net income for 2012. Further examination of the records reveals that the following items were handled improperly.
1. Rent was received from a tenant in December 2011. The amount, $1,000, was recorded as revenue at that time even though the rental pertained to 2012.
2. Wages payable on December 31 have been consistently omitted from the records of that date and have been entered as expenses when paid in the following year. The amounts of the accruals recorded in this manner were:
|
December 31, 2010
|
$1,100
|
|
December 31, 2011
|
1,200
|
|
December 31, 2012
|
940
|
3. Invoices for office supplies purchased have been charged to expense accounts when received. Inventories of supplies on hand at the end of each year have been ignored, and no entry has been made for them.
|
December 31, 2010
|
$1,300
|
|
December 31, 2011
|
940
|
|
December 31, 2012
|
1,420
|
Instructions
Prepare a schedule that will show the corrected net income for the years 2011 and 2012. All items listed should be labeled clearly.
Aug 29, 2021 | Uncategorized
(Error Analysis and Correcting Entries) You have been asked by a client to review the records of Roberts Company, a small manufacturer of precision tools and machines. Your client is interested in buying the business, and arrangements have been made for you to review the accounting records. Your examination reveals the following information.
1. Roberts Company commenced business on April 1, 2010, and has been reporting on a fiscal year ending March 31. The company has never been audited, but the annual statements prepared by the bookkeeper reflect the following income before closing and before deducting income taxes.
|
Year Ended March 31
|
Income Before Taxes
|
|
2011
|
$ 71,600
|
|
2012
|
111,400
|
|
2013
|
103,580
|
2. A relatively small number of machines have been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such. On March 31 of each year, machines billed and in the hands of consignees amounted to:
|
2011
|
$6,500
|
|
2012
|
None
|
|
2013
|
5,590
|
Sales price was determined by adding 25% to cost. Assume that the consigned machines are sold the following year.
3. On March 30, 2012, two machines were shipped to a customer on a C.O.D. basis. The sale was not entered until April 5, 2012, when cash was received for $6,100. The machines were not included in the inventory at March 31, 2012. (Title passed on March 30, 2012.)
4. All machines are sold subject to a 5-year warranty. It is estimated that the expense ultimately to be incurred in connection with the warranty will amount to 1/2 of 1% of sales. The company has charged an expense account for warranty costs incurred. Sales per books and warranty costs were as follows.
|
Warranty Expense
for Sales Made in
|
|
Year Ended
March 31
|
Sales
|
2011
|
2012
|
2013
|
Total
|
|
2011
|
$ 940,000
|
$760
|
|
|
$ 760
|
|
2012
|
1,010,000
|
360
|
$1,310
|
|
1,670
|
|
2013
|
1,795,000
|
320
|
1,620
|
$1,910
|
3,850
|
5. Bad debts have been recorded on a direct write-off basis. Experience of similar enterprises indicates that losses will approximate 1/ of 1% of sales. Bad debts written off were:
|
Bad Debts Incurred on Sales Made in
|
|
2011
|
2012
|
2013
|
Total
|
|
2011
|
$750
|
|
|
$ 750
|
|
2012
|
800
|
$ 520
|
|
1,320
|
|
2013
|
350
|
1,800
|
$1,700
|
3,850
|
6. The bank deducts 6% on all contracts financed. Of this amount, 1/2% is placed in a reserve to the credit of Roberts Company that is refunded to Roberts as finance contracts are paid in full. The reserve established by the bank has not been reflected in the books of Roberts. The excess of credits over debits (net increase) to the reserve account with Roberts on the books of the bank for each fiscal year were as follows.
|
2011
|
$ 3,000
|
|
2012
|
3,900
|
|
2013
|
5,100
|
|
$12,000
|
7. Commissions on sales have been entered when paid. Commissions payable on March 31 of each year were as follows.
|
2011
|
$1,400
|
|
2012
|
900
|
|
2013
|
1,120
|
8. A review of the corporate minutes reveals the manager is entitled to a bonus of 1% of the income before deducting income taxes and the bonus. The bonuses have never been recorded or paid.
Instructions
(a) Present a schedule showing the revised income before income taxes for each of the years ended March 31, 2011, 2012, and 2013. Make computations to the nearest whole dollar.
(b) Prepare the journal entry or entries you would give the bookkeeper to correct the books. Assume the books have not yet been closed for the fiscal year ended March 31, 2013. Disregard correction of income taxes.
Aug 29, 2021 | Uncategorized
Cash flows, debt restructuring, effect on income under bankruptcy and nonbankruptcy law. In an attempt to avoid liquidating the company, the management of Carter, Inc., is considering a reorganization that calls for the restructuring of $2,100,000 of debt maturing in three years and related accrued interest payable of $72,737. The restructuring agreement calls for monthly payments over the next 60 months, a reduction in the interest rate to 8%, and the cancellation of $200,000 of debt. The market rate of interest for such a refinancing would be 13%. In addition to the debt restructuring, management is proposing to reduce the par value of its common stock in order to generate enough paid-in capital in excess of par value to absorb a $500,000 deficit in retained earnings. The present balance of paid-in capital in excess of par value is $80,000.
1. Prepare a schedule to determine the total gain resulting from the forgiveness and restructuring of debt and the amount of future interest expense assuming (a) a nonbankruptcy approach and (b) a bankruptcy approach to the reorganization.
2. Determine by how much the par value of common stock would have to be reduced in order to absorb the deficit in retained earnings assuming (a) a nonbankruptcy approach and (b) a bankruptcy approach.
Aug 29, 2021 | Uncategorized
Cash flows, debt restructuring, effect on income under bankruptcy and nonbankruptcy law. Rather than entering into a lengthy bankruptcy proceeding, Peltzer manufacturing has reached agreement with its long-term creditors to restructure various loans. The restructured loans are described below.
Loan A—This debt has a principal balance of $4,000,000 and accrued interest of $80,000. Under the restructuring agreement, $500,000 of debt would be forgiven, and the balance of the amounts due would be refinanced at a rate of 10% with monthly installment payments of $50,000 and a term of eight years. Assets with a net realizable value of $2,500,000 would also be pledged as additional security against the restructured loan.
Loan B—This debt has a principal balance of $1,000,000 and accrued interest of $25,000. Under the restructuring agreement, the accrued interest would be forgiven, and the principal amount would be exchanged for preferred stock with a par value of $500,000 and a fair value of $900,000.
Loan C—This debt has a principal balance of $2,000,000 and accrued interest of $37,500. Under the restructuring agreement, the creditor would receive a parcel of land with a book value of $200,000 and a net realizable value of $250,000. The remaining unpaid balance would be refinanced over five years at a 9% interest rate. Installment payments would be on a quarterly basis.
1. Determine the total quarterly cash outflows that will be required by Peltzer’s debt restructuring.
2. Covering the first quarter subsequent to restructuring, prepare a schedule that compares the effect on Peltzer’s net income of accounting for the restructuring as part of a formal bankruptcy filing versus it not being part of such a filing.
Aug 29, 2021 | Uncategorized
Statement of affairs, dividend to unsecured creditors without priority. Tabco Industries, Inc., has submitted to the bankruptcy courts a plan of reorganization seeking relief under In order to evaluate the reasonableness of the plan, it must be evaluated against the alternative of a corporate liquidation. The following condensed trial balance and estimates of net realizable values have been prepared as of July 1, 20X9.
| |
Book Values
|
Estimated Net Realizable
Value
|
| |
Debit
|
Credit
|
|
|
Cash
|
$ 2,000
|
|
$ 2,000
|
|
Accounts receivable
|
158,000
|
|
126,400
|
|
Inventory
|
74,000
|
|
60,600
|
|
Other current assets
|
16,000
|
|
12,000
|
|
Property, plant, and equipment (net)
|
420,000
|
|
440,000
|
|
Other assets
|
12,000
|
|
0
|
|
Accounts payable
|
|
$180,000
|
|
|
Other current liabilities
|
|
134,000
|
|
|
Mortgage and related interest payable
|
|
300,000
|
|
|
Other noncurrent debt
|
|
50,000
|
|
|
Owners’ equity
|
|
18,000
|
|
|
Total
|
$682,000
|
$682,000
|
$641,000
|
Accounts payable totaling $50,000 are secured by inventory with a book value of $50,000 and a fair value of $42,000. The mortgage and the related interest payable are fully secured by land and building having a book value of $284,000 and a net realizable value of $330,000. The other noncurrent debt represents an unsecured loan from officers of the corporation. The other current liabilities, in part, include:
|
Unpaid wages (less than $4,000 per individual)
|
$ 20,000
|
|
Customer deposits (less than $1,800 per customer)
|
14,000
|
|
Real estate taxes (having a lien on the land and building)
|
18,000
|
|
Undeposited payroll taxes
|
8,000
|
|
Accounts receivable assigned (receivables are estimated to be 90% collectible)
|
64,000
|
|
Total
|
$124,000
|
The trial balance does not include $7,000 of estimated expenses to administer the liquidation.
Prepare a statement of affairs for Tabco and calculate the estimated dividend to general unsecured creditors with and without priority.
Aug 29, 2021 | Uncategorized
Statement of realization and liquidation, dividend to unsecured creditors without priority. A partially completed statement of realization and liquidation is as follows:
|
The Rodak Corporation
Statement of Realization and Liquidation
For the Period of July 1, 20X9, to August 12, 20X9
|
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
Unsecured
|
|
|
|
|
Cash
|
Noncash
|
Fully
Secured
|
Partially
Secured
|
With
Priority
|
Without
Priority
|
Owners’
Equity
|
|
Beginning balances, assigned July 1, 20X9
|
$12,000
|
$590,000
|
$200,000
|
$175,000
|
$54,000
|
$150,000
|
$23,000
|
|
Cash receipts: Sale of inventory
|
30,000
|
(25,000)
|
|
|
|
|
5,000
|
The following additional transactions have occurred through August 12, 20X9:
a. Receivables collected amount to $39,000. Receivables with a book value of $15,000 that were not allowed for were written off.
b. A $12,000 loan that was fully secured was paid off.
c. A valid claim is received from a leasing company seeking payment of $15,000 for equipment rentals.
d. Securities costing $18,000 are sold for $23,000, minus brokerage fee of $500.
e. Depreciation on machinery is $3,200.
f. Payments on accounts payable total $25,000, of which the entire amount was secured by the inventory sold.
g. Machinery that originally cost $85,000 and has a book value of $45,000 sold for $36,000.
h. Proceeds from the sale of machinery in (g) are remitted to the bank, which holds a $50,000 loan on the machinery.
1. Update the statement of realization and liquidation to properly reflect transactions (a) through (h).
2. Assuming the remaining noncash assets can be realized for $410,000, determine the estimated dividend to be received by unsecured creditors without priority.
Aug 29, 2021 | Uncategorized
Restructuring versus liquidation. Atoyo Fabricating, Inc., has not been able to service its debts adequately. The company is a family business which has been in existence for 35 years. The shareholders want to avoid liquidating the business and are seeking your help in formulating a plan of reorganization which a. Provides creditors with at least as much consideration as, if not more than, they would receive if the company were liquidated.
b. Does not require monthly debt service in excess of $75,000. Information regarding the various creditor claims and possible restructuring parameters is as follows:
a. Accounts payable due vendors total $134,000. Terms are generally 2/10 net 30, and virtually all accounts are past due. Vendors with balances of $40,000 due have indicated that in satisfaction of the amount due, they would accept equal monthly installment payments bearing no less than 12% and not exceeding three months in duration. These vendors have secured their claims with inventory which has a book value and net realizable value of $55,000 and $42,000, respectively. Vendors with a balance due of $74,000 have a secured interest in inventory with a book value of $60,000 and a net realizable value of $46,000. These vendors would accept three monthly installment payments of $20,000 including interest at the rate of 12% in satisfaction of the amount due. The remaining payables represent unsecured amounts which would be paid $3,000 per month for the next five months including interest at 12%.
b. The equipment note has a balance due of $320,000 plus accrued interest of $18,000. Equipment with a book value of $280,000 and a net realizable value of $325,000 serves as collateral for this loan. The original loan had an interest rate of 11% and a remaining term of 30 months. The creditor will not agree to a change in the interest rate but will accept a revised term of 36 to 42 months in exchange for a personal guarantee of the amount due by each of the shareholders of record.
c. The note due a shareholder in the amount of $20,000 is secured by the cash surrender value of an insurance policy in the amount of $15,000 and is payable on demand. The shareholder would accept four semiannual payments, including interest at 12%, if the present value of these payments is equal to 120% of what would have been received if the company had been liquidated.
d. The mortgage payable of $420,000 plus accrued interest of $28,000 is fully secured by real estate with a book value of $310,000 and a net realizable value of $460,000. The original mortgage has a remaining term of 334 months and an interest rate of 9%. The mortgage company would agree to a restructuring of 360 months and an interest rate of 11%.
e. All other creditors totaling $160,000 are unsecured without priority. Management would like to propose that these creditors receive monthly payments over the next eight months with interest at 12%. The net present value of these payments should equal 110% of what would have been received had the company been liquidated.
The book values and net realizable values of the company’s assets are as follows:
| |
Book
Value
|
Net
Realizable
Value
|
|
Cash and cash equivalents
|
$ 5,000
|
$ 5,000
|
|
Accounts receivable (net)
|
120,000
|
85,000
|
|
Inventory
|
145,000
|
100,000
|
|
Equipment (net)
|
330,000
|
345,000
|
|
Real property (net)
|
310,000
|
460,000
|
|
Cash surrender values
|
25,000
|
25,000
|
|
Licensing agreement
|
30,000
|
10,000
|
|
Furniture and fixtures
|
25,000
|
12,000
|
| |
$990,000
|
$1,042,000
|
Prepare a schedule which analyzes the proposed restructuring against the goals set by management.
Aug 29, 2021 | Uncategorized
Cash budget during a period of reorganization. Mayne Manufacturing Company has incurred substantial losses for several years and has become insolvent.
On March 31, 20X5, Mayne petitioned the court for protection from creditors and submitted the following statement of financial position:
|
Mayne Manufacturing Co
Statement of Financial Position
March 31, 20X5
|
|
Assets
|
Book
Value
|
Liquidation
Value
|
|
Accounts receivable
|
$100,000
|
$ 50,000
|
|
Inventories
|
90,000
|
40,000
|
|
Plant and equipment
|
150,000
|
160,000
|
|
Total
|
$340,000
|
$250,000
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable—general creditors
|
$600,000
|
|
|
Common stock outstanding
|
60,000
|
|
|
Deficit
|
(320,000)
|
|
|
Total
|
$340,000
|
|
Mayne’s management informed the court that the company has developed a new product. A prospective customer is willing to sign a contract for the purchase of 10,000 units of this product during the year ending March 31, 20X6; 12,000 units of this product during the year ending March 31, 20X7; and 15,000 units of this product during the year ending March 31, 20X8; all at a price of $90 per unit. This product can be manufactured using Mayne’s present facilities.
Monthly production with immediate delivery is expected to be uniform within each year. Receivables are expected to be collected during the calendar month following sales.
Unit production costs of the new product are expected to be as follows:
|
Direct materials
|
$20
|
|
Direct labor
|
30
|
|
Variable overhead
|
10
|
Fixed costs (excluding depreciation) will amount to $130,000 per year.
Purchases of direct materials will be paid during the calendar month following purchase. Fixed costs, direct labor, and variable overhead will be paid as incurred. Inventory of direct materials will be equal to 60 days’ usage. After the first month of operations, 30 days’ usage of direct materials will be ordered each month.
The general creditors have agreed to reduce their total claims to 60% of their March 31, 20X5 balances, under the following conditions:
a. Existing accounts receivable and inventories are to be liquidated immediately, with the proceeds turned over to the general creditors.
b. The balance of reduced accounts payable is to be paid as cash is generated from future operations, but in no event later than March 31, 20X7. No interest will be paid on these obligations. Under this proposed plan, the general creditors would receive $110,000 more than the current liquidation value of Mayne’s assets. The court has engaged you to determine the feasibility of this plan. Ignoring any need to borrow and repay short-term funds for working capital purposes, prepare a cash budget for the years ending March 31, 20X6, and 20X7, showing the cash expected to be available to pay the claims of the general creditors and payments to general creditors and the cash remaining after payment of claims. Support the cash budget with two schedules showing collections from customers and disbursements for direct materials.
Aug 29, 2021 | Uncategorized
Cash flows, restructuring, income effect of a restructuring under bankruptcy law and nonbankruptcy law. Milton Company has developed a plan to restructure a major portion of its debt. The provisions of the restructuring of debt existing at February 1, 20X9, are as follows:
a. Accounts payable with a book value of $800,000 will be paid off within two months at the rate of $0.80 on the dollar.
b. Loans from officers with a book value of $300,000 and accrued interest of $16,000 will be satisfied by conveying land with a fair value of $290,000.
c. A bank note payable with a maturity value of $1,400,000 and delinquent accrued interest of $131,237 will be exchanged for a new note. The new note in the amount of $1,480,000 will be serviced over five years with monthly payments reflecting a market interest rate of 12.9%.
d. An unpaid balance on the corporate line of credit of $112,000, including accrued interest, will be converted into a $100,000, 12-month note payable. Interest for the first four months will be waived, after which time the first of eight monthly payments will begin, bearing interest at 12%.
e. A $500,000 mortgage payable with five years to maturity will be refinanced over 15 years at a rate of 10.2%.
1. Prepare a schedule for management that details the estimated cash outflows over the next six months resulting from the debt restructuring.
2. Prepare a schedule for management that details the estimated effect on net income over the next six months resulting from the debt restructuring assuming:
a. The restructuring is not part of a formal bankruptcy filing.
b. The restructuring is part of a formal bankruptcy filing.
Aug 29, 2021 | Uncategorized
Dividend to unsecured creditors without priority if corporation liquidation. Jensen Manufacturing, Inc., has filed under Chapter 11 of the Bankruptcy Act. At the time of filing the plan of reorganization, the company had total assets of $2,040,000 and liabilities and equity as follows:
|
Accounts payable
|
$210,000
|
|
Note payable—officer
|
120,000
|
|
Equipment note payable
|
500,000
|
|
Line of credit payable
|
360,000
|
|
Mortgage payable
|
625,000
|
|
Convertible bonds
|
200,000
|
|
Common stock at par
|
100,000
|
|
Paid-in capital
|
50,000
|
|
Deficit retained earnings
|
(125,000)
|
The plan of reorganization contains the following proposals:
a. The accounts payable due vendors will be settled for $180,000, and all subsequent purchases will be on a C.O.D. basis. The payables are secured by inventory with a book value and net realizable value of $165,000.
b. The amount due the officer will be settled by conveying vacant land with a cost basis of $60,000 and a net realizable value of $85,000.
c. The equipment note is collateralized by equipment with a net book value of $410,000 and a net realizable value of $440,000. The proposal calls for servicing the debt as follows: 60 monthly payments of $10,010 including interest at 12% per annum.
d. The line of credit is secured by receivables and inventory which have a combined book value and net realizable value of $400,000, and the line will not be affected by the reorganization.
e. The mortgage will be restructured to provide for 120 monthly payments of $8,590 including interest at 10% per annum. The mortgage is secured by a building and underlying land which has a combined book value and net realizable value of $450,000 and $650,000, respectively.
f. The convertible bonds will be retired in exchange for a promise to make four annual payments of $40,000 each. The market rate for a similar loan is 11%.
g. The par value of the common stock will be reduced to $10,000, and the deficit will be eliminated against the additional paid-in capital.
Before confirming the plan of reorganization, the bankruptcy court must verify that each holder of a claim or interest will not receive or retain property of a value less than the amount such holder would have received liquidation. Calculate the minimum net realizable value of assets available to unsecured creditors—without priority which would be necessary to meet the “test” referred to above. Assume that if the company were liquidated, $40,000 of liquidation expenses would be incurred.
Aug 29, 2021 | Uncategorized
Creditor’s remedy under a liquidation versus a restructuring. Your client, Imax Financial, originally lent Wiedemeyer Manufacturing $1,000,000. Unfortunately, the loan is in default, and $900,000 of principal and $20,000 of accrued interest remains unpaid. Imax is deciding whether to encourage other creditors to commence an involuntary bankruptcy proceeding against Wiedemeyer or to restructure their unpaid loans. Details surrounding the assets and liabilities of Wiedemeyer are as follows:
| |
Book Value
|
|
|
| |
Debit
|
Credit
|
Estimated Net
Realizable Value
|
Note
|
|
Cash and cash equivalents
|
$ 115,000
|
|
$ 115,000
|
|
|
Accounts receivable
|
650,000
|
|
580,000
|
1
|
|
Inventory
|
875,000
|
|
750,000
|
2
|
|
Other current assets
|
180,000
|
|
177,100
|
|
|
Property, plant, and equipment (net)
|
3,500,000
|
|
3,600,000
|
3
|
|
Goodwill
|
250,000
|
|
|
|
|
Accounts payable
|
|
$1,100,000
|
|
|
|
Other current liabilities
|
|
285,000
|
|
4
|
|
Bank line of credit
|
|
400,000
|
|
|
|
Mortgage payable
|
|
2,800,000
|
|
|
|
Loan to Imax
|
|
920,000
|
|
|
Notes:
1. Receivables with a book value of $500,000 and a net realizable value of $460,000 were used to secure the bank line of credit. Under the terms of the line of credit an amount equal to 80% of the qualified receivables could be loaned.
2. Inventory was used to secure $800,000 of accounts payable. The relevant inventory has a book value of $700,000 and a net realizable value of $670,000.
3. Land and buildings with a combined book value of $2,900,000 and a net realizable value of $3,000,000 serve as collateral for the mortgage payable. Additional land with a book value of
$300,000 and a net realizable value of $500,000 serves as collateral on the Imax loan.
4. Other current liabilities consist of the following:
a. A vehicle loan with an unpaid balance of $15,000. The subject vehicle has a book value of $20,000 and a fair value of $12,000.
b. A $40,000 note due officers of the corporation. The note is unsecured.
c. Unpaid wages of $160,000.
d. Unpaid contributions to the corporate pension plan in the amount of $20,000.
e. Miscellaneous general creditors in the amount of $50,000.
Rather than forcing Wiedemeyer into bankruptcy, Imax would possibly consider restructuring their loan. However, any possible restructuring would have to include a stated interest rate of 8.5% with interest payments due on a quarterly basis. Furthermore, the term of the restructured loan could not exceed five years.
Prepare a schedule that would determine how much of the Imax loan would have to be forgiven in a restructuring in order to place Imax in the same position as it would have been if Wiedemeyer had been liquidated. Also, determine the periodic payment to be made by Wiedemeyer if the loan were restructured.
Aug 29, 2021 | Uncategorized
Inc.’s financial statements are presented. Financial statements for Wal-Mart Stores, Inc. are presented. Instructions for accessing and using the complete annual reports of Amazon and Wal-Mart, including the notes to the financial statements, are also provided in Appendices D and E, respectively.
Instructions
Based on information contained in these financial statements, determine the following for each company.
1. (a) Increase (decrease) in interest expense from 2010 to 2011.
(b) Increase (decrease) in net income from 2010 to 2011.
(c) Increase (decrease) in cash flow from operations from 2010 to 2011.
2. Cash flow from operations and net income for each company is different. What are some possible reasons for these differences?
Aug 29, 2021 | Uncategorized
No financial decision-maker should ever rely solely on the financial information reported in the annual report to make decisions. It is important to keep abreast of financial news. This activity demonstrates how to search for financial news on the Internet.
Instructions
(a) What was the source of the article (e.g., Reuters, Businesswire, Prnewswire)?
(b) Assume that you are a personal financial planner and that one of your clients owns stock in the company. Write a brief memo to your client summarizing the article and explaining the implications of the article for their investment.
Aug 29, 2021 | Uncategorized
The July 6, 2011, edition of the Wall Street Journal Online includes an article by Michael Rapoport entitled “U.S. Firms Clash Over Accounting Rules.” The article discusses why some U.S. companies favored adoption of International Financial Reporting Standards (IFRS) while other companies opposed it.
Instructions
Read the article and answer the following questions.
(a) The articles says that the switch to IFRS tends to be favored by “larger companies, big accounting firms, and rule makers.” What reasons are given for favoring the switch?
(b) What two reasons are given by many smaller companies that oppose the switch?
(c) What criticism of IFRS is raised with regard to regulated companies?
(d) Explain what is meant by “condorsement.”
Aug 29, 2021 | Uncategorized
Happy Camper Park was organized on April 1, 2013, by Barbara Evans. Barbara is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Barbara prepared the following income statement for the quarter that ended March 31, 2014.
|
HAPPY CAMPER PARK Income Statement For the Quarter Ended March 31, 2014
|
|
Revenues
|
|
|
|
Rent revenue
|
|
$90,000
|
|
Operating expenses
|
|
|
|
Advertising
|
$ 5,200
|
|
|
Salaries and wages
|
29,800
|
|
|
Utilities
|
900
|
|
|
Depreciation
|
800
|
|
|
Maintenance and repairs
|
4,000
|
|
|
Total operating expenses
|
|
40,700
|
|
Net income
|
|
$49,300
|
Barbara thought that something was wrong with the statement because net income had never exceeded $20,000 in any one quarter. Knowing that you are an experienced accountant, she asks you to review the income statement and other data.
You first look at the trial balance. In addition to the account balances reported above in the income statement, the ledger contains the following additional selected balances at March 31, 2014.
|
Supplies
|
$ 6,200
|
|
Prepaid Insurance
|
7,200
|
|
Notes Payable
|
12,000
|
You then make inquiries and discover the following.
1. Rent revenues include advanced rentals for summer occupancy $15,000.
2. There were $1,700 of supplies on hand at March 31.
3. Prepaid insurance resulted from the payment of a one-year policy on January 1, 2014.
4. The mail on April 1, 2014, brought the following bills: advertising for week of March 24, $110; repairs made March 10, $260; and utilities, $180.
5. There are four employees, who receive wages totaling $300 per day. At March 31, 2 days’ salaries and wages have been incurred but not paid.
6. The note payable is a 3-month, 10% note dated January 1, 2014.
Instructions
With the class divided into groups, answer the following.
(a) Prepare a correct income statement for the quarter ended March 31, 2014.
(b) Explain to Barbara the generally accepted accounting principles that she did not recognize in preparing her income statement and their effect on her results.
Aug 29, 2021 | Uncategorized
Kellner Company is a pesticide manufacturer. Its sales declined greatly this year due to the passage of legislation outlawing the sale of several of Kellner’s chemical pesticides. In the coming year, Kellner will have environmentally safe and competitive chemicals to replace these discontinued products. Sales in the next year are expected to greatly exceed any prior year’s. The decline in sales and profits appears to be a one-year aberration. But even so, the company president fears a large dip in the current year’s profits. He believes that such a dip could cause a significant drop in the market price of Kellner’s stock and make the company a takeover target.
To avoid this possibility, the company president calls in Melissa Ray, controller, to discuss this period’s year-end adjusting entries. He urges her to accrue every possible revenue and to defer as many expenses as possible. He says to Melissa, “We need the revenues this year, and next year can easily absorb expenses deferred from this year. We can’t let our stock price be hammered down!” Melissa didn’t get around to recording the adjusting entries until January 17, but she dated the entries December 31 as if they were recorded then. Melissa also made every effort to comply with the president’s request.
Instructions
(a) Who are the stakeholders in this situation?
(b) What are the ethical considerations of (1) the president’s request and (2) Melissa dating the adjusting entries December 31?
(c) Can Melissa accrue revenues and defer expenses and still be ethical?
Aug 29, 2021 | Uncategorized
Companies must report or disclose in their financial statement information about all liabilities, including potential liabilities related to environmental cleanup. There are many situations in which you will be asked to provide personal financial information about your assets, liabilities, revenue, and expenses. Sometimes you will face difficult decisions regarding what to disclose and how to disclose it.
Instructions
Suppose that you are putting together a loan application to purchase a home. Based on your income and assets, you qualify for the mortgage loan, but just barely. How would you address each of the following situations in reporting your financial position for the loan application? Provide responses for each of the following situations.
(a) You signed a guarantee for a bank loan that a friend took out for $20,000. If your friend doesn’t pay, you will have to pay. Your friend has made all of the payments so far, and it appears he will be able to pay in the future.
(b) You were involved in an auto accident in which you were at fault. There is the possibility that you may have to pay as much as $50,000 as part of a settlement. The issue will not be resolved before the bank processes your mortgage request.
(c) The company for which you work isn’t doing very well, and it has recently laid off employees. You are still employed, but it is quite possible that you will lose your job in the next few months.
Aug 29, 2021 | Uncategorized
(Change in Principle—Long-Term Contracts) Cherokee Construction Company began operations in 2011 and changed from the completed-contract to the percentage-of-completion method of accounting for long-term construction contracts during 2012. For tax purposes, the company employs the completed contract method and will continue this approach in the future. (Hint: Adjust all tax consequences through the Deferred Tax Liability account.) The appropriate information related to this change is as follows.
|
Pretax Income from
|
|
Percentage-of-Completion
|
Completed-Contract
|
Difference
|
|
2011
|
$780,000
|
$610,000
|
$170,000
|
|
2012
|
700,000
|
480,000
|
220,000
|
Instructions
(a) Assuming that the tax rate is 35%, what is the amount of net income that would be reported in 2012?
(b) What entry(ies) are necessary to adjust the accounting records for the change in accounting principle?
Aug 29, 2021 | Uncategorized
(Change in Principle—Inventory Methods) Whitman Company began operations on January 1, 2010, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2013. The following information is available for the years 2010–2012.
|
Net Income Computed Using
|
|
Average Cost Method
|
FIFO Method
|
LIFO Method
|
|
2010
|
$16,000
|
$19,000
|
$12,000
|
|
2011
|
18,000
|
21,000
|
14,000
|
|
2012
|
20,000
|
25,000
|
17,000
|
Instructions
(Ignore all tax effects.)
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2013.
(b) Determine net income to be reported for 2010, 2011, and 2012, after giving effect to the change in accounting principle.
(c) Assume Whitman Company used the LIFO method instead of the average cost method during the years 2010–2012. In 2013, Whitman changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.
Aug 29, 2021 | Uncategorized
(Accounting Change) Ramirez Co. decides at the beginning of 2012 to adopt the FIFO method of inventory valuation. Ramirez had used the LIFO method for financial reporting since its inception on January 1, 2010, and had maintained records adequate to apply the FIFO method retrospectively. Ramirez concluded that FIFO is the preferable inventory method because it reflects the current cost of inventory on the balance sheet. The table presents the effects of the change in accounting principle on inventory and cost of goods sold.
|
Inventory Determined by
|
Cost of Goods Sold Determined by
|
|
Date
|
LIFO Method
|
FIFO Method
|
LIFO Method
|
FIFO Method
|
|
January 1, 2010
|
$ 0
|
$ 0
|
$ 0
|
$ 0
|
|
December 31, 2010
|
100
|
80
|
800
|
820
|
|
December 31, 2011
|
200
|
240
|
1,000
|
940
|
|
December 31, 2012
|
320
|
390
|
1,130
|
1,100
|
Retained earnings reported under LIFO are as follows.
|
Retained Earnings Balance
|
|
December 31, 2010
|
$2,200
|
|
December 31, 2011
|
4,200
|
|
December 31, 2012
|
6,070
|
Other information:
1. For each year presented, sales are $4,000 and operating expenses are $1,000.
2. Ramirez provides two years of financial statements. Earnings per share information is not required.
Instructions
(a) Prepare income statements under LIFO and FIFO for 2010, 2011, and 2012.
(b) Prepare income statements reflecting the retrospective application of the accounting change from the LIFO method to the FIFO method for 2012 and 2011.
(c) Prepare the note to the financial statements describing the change in method of inventory valuation. In the note, indicate the income statement line items for 2012 and 2011 that were affected by the change in accounting principle.
(d) Prepare comparative retained earnings statements for 2011 and 2012 under FIFO.
Aug 29, 2021 | Uncategorized
(Change in Estimate and Error; Financial Statements) Presented below are the comparative income statements for Pannebecker Inc. for the years 2011 and 2012.
|
2012
|
2011
|
|
Sales
|
$340,000
|
$270,000
|
|
Cost of sales
|
200,000
|
142,000
|
|
Gross profit
|
140,000
|
128,000
|
|
Expenses
|
88,000
|
50,000
|
|
Net income
|
$ 52,000
|
$ 78,000
|
|
Retained earnings (Jan. 1)
|
$125,000
|
$ 72,000
|
|
Net income
|
52,000
|
78,000
|
|
Dividends
|
(30,000)
|
(25,000)
|
|
Retained earnings (Dec. 31)
|
$147,000
|
$125,000
|
The following additional information is provided.
1. In 2012, Pannebecker Inc. decided to switch its depreciation method from sum-of-the-years’-digits to the straight-line method. The assets were purchased at the beginning of 2011 for $90,000 with an estimated useful life of 4 years and no salvage value. (The 2012 income statement contains depreciation expense of $27,000 on the assets purchased at the beginning of 2011.)
2. In 2012, the company discovered that the ending inventory for 2011 was overstated by $20,000; ending inventory for 2012 is correctly stated.
Instructions
Prepare the revised retained earnings statement for 2011 and 2012, assuming comparative statements.
Aug 29, 2021 | Uncategorized
(Accounting for Accounting Changes and Errors) Listed below are various types of accounting changes and errors.
1. Change from FIFO to average cost inventory method.
2. Change due to overstatement of inventory.
3. Change from sum-of-the-years’-digits to straight-line method of depreciation.
4. Change from presenting unconsolidated to consolidated financial statements.
5. Change from LIFO to FIFO inventory method.
6. Change in the rate used to compute warranty costs.
7. Change from an unacceptable accounting principle to an acceptable accounting principle.
8. Change in a patent’s amortization period.
9. Change from completed-contract to percentage-of-completion method on construction contracts.
10. Change in a plant asset’s salvage value.
Instructions
For each change or error, indicate how it would be accounted for using the following code letters:
(a) Accounted for prospectively.
(b) Accounted for retrospectively.
(c) Neither of the above.
Aug 29, 2021 | Uncategorized
The financial statements of Apple Inc. are presented at the end of this textbook. Instructions for accessing and using the company’s complete annual report, including the notes to the financial statements, are also provided.
Instructions
(a) Using the consolidated financial statements and related information, identify items that may result in adjusting entries for prepayments.
(b) Using the consolidated financial statements and related information, identify items that may result in adjusting entries for accruals.
(c) What has been the trend since 2009 for net income?
Aug 29, 2021 | Uncategorized
PepsiCo’s financial statements are presented. Financial statements for The Coca-Cola Companyare presented. Instructions for accessing and using the complete annual reports of PepsiCo and Coca-Cola, including the notes to the financial statements, are also provided in Appendices B and C, respectively.
Instructions
Based on information contained in these financial statements, determine the following for each company.
(a) Net increase (decrease) in property, plant, and equipment (net) from 2010 to 2011.
(b) Increase (decrease) in selling, general, and administrative expenses from 2010 to 2011.
(c) Increase (decrease) in long-term debt (obligations) from 2010 to 2011.
(d) Increase (decrease) in net income from 2010 to 2011.
(e) Increase (decrease) in cash and cash equivalents from 2010 to 2011.
Aug 29, 2021 | Uncategorized
Estate tax and distribution, general legacies. The estate of Marlene Johnson consists of assets having a fair value of $308,785. As of the date of her death, the following claims exist against the estate:
|
Claims Existing at Date of Death
|
Amount of Claim
|
|
Mortgage balance including principal and accrued interest due on
|
|
|
personal residence with a fair value of $180,000
|
$142,580
|
|
Funeral expenses
|
6,300
|
|
Expenses incurred by executor of estate for administration purposes
|
2,100
|
|
Income and estate taxes
|
12,400
|
|
Brokerage commissions associated with the sale of the personal residence
|
16,000
|
|
A lien against the personal residence for unpaid real estate taxes
|
4,200
|
|
Unreimbursed medical claims for the last three months prior to death
|
27,000
|
|
Unpaid balance of personal loan received from her brother
|
14,700
|
|
Unpaid balance of automobile repair expenses A mechanic’s lien has
|
|
|
been placed on the automobile which has a fair value of $5,000
|
750
|
|
Unpaid balance of other personal expenses
|
3,950
|
|
Total of all claims
|
$229,980
|
Legacies addressed in the decedent’s will include the following:
1. $30,000 from the sale of the personal residence, after payment of mortgages, real estate taxes, and sales costs, will be paid to the decedent’s nephew.
2. The collection of Edward S. Curtis photographs, valued at $22,000, to be given to the decedent’s nephew.
3. Cash of $40,000 to be divided equally among the decedent’s two sisters.
Prepare a schedule, in order of priority, indicating how the assets of the estate will be disbursed.
Aug 29, 2021 | Uncategorized
Estate tax and distribution of remaining estate. The will of Donna Kaiser, an unmarried individual, contained the following provisions regarding her estate:
a. The dairy farm located in Watertown is to be deeded to her nephew, James Quade.
b. The collection of Navajo Indian rugs is to be given to the Museum of Native American Arts.
c. Michael Kaiser, Donna’s brother, is to receive $98,000 in cash.
d. Michele Kaiser, Donna’s sister, is to receive all of the cash deposited in the First Bank of Watertown savings account.
e. Michele Kaiser shall receive a demonstrative legacy of $150,000 from the net proceeds of insurance policies on Donna Kaiser’s life.
f. All personal effects (clothing, furniture, housewares, etc.) are to be given to Goodwill Industries.
g. All of the IBM stock is to be distributed to the World Wildlife Fund (a charitable organization).
h. All remaining assets are to be placed in trust for Donna’s foster child, Emily Natal. Other claims against the estate include:
|
Heavenly Hands, funeral expenses
|
$ 10,000
|
|
Attorney B J Wells, administrative expenses
|
5,000
|
|
Northwestern Mutual Life, insurance policy loans
|
30,000
|
|
Note due to First Bank of Watertown
|
20,000
|
|
Federal and state income taxes due on final tax return
|
3,000
|
|
Watertown treasurer, accrued property taxes on the farm
|
12,000
|
The inventory of Donna Kaiser’s estate consists of:
|
Cash—checking account
|
$ 3,500
|
|
Cash—savings account, First Bank of Watertown
|
18,000
|
|
Cash—savings account, Federal Savings and Loan
|
73,000
|
|
Personal effects
|
8,000
|
|
Navajo rug collection
|
49,000
|
|
Life insurance death benefit
|
128,000
|
|
Watertown dairy farm
|
370,000
|
|
Investment in IBM stock
|
220,000
|
|
Investment in US Treasury bonds
|
20,500
|
|
Dividends declared on IBM stock
|
13,000
|
As executor of the estate, (a) explain why no federal estate taxes are due and (b) prepare a listing of all items comprising estate principal, and for each item, indicate who will receive the item and in what amount.
Aug 29, 2021 | Uncategorized
Effect of a trust on estate taxes. Robert Wagner has become extremely ill and is doing some estate planning in contemplation of his death. Robert is married and has two minor children. It is estimated that Robert’s estate would have a value of $3,600,000 and his executor would be responsible for paying $100,000 in medical/funeral expenses and $20,000 in administrative fees. In the event of Mrs. Wagner’s death, it is estimated that allowable expenses of her estate would be approximately $60,000. Valid other claims against the estate are estimated to be $800,000. The estate assets are not very liquid and consist primarily of investments in stocks, bonds, and land. Mr. and Mrs. Wagner are considering establishing a trust whereby Mrs. Wagner would be the income beneficiary for the duration of her life, and the children would be the remainder men.
1. Considering both Mr. and Mrs. Wagner, determine the minimum measure of estate assets exposed to net federal estate tax if the trust were not established. (Ignore possible homestead and family allowances.)
2. Considering both Mr. and Mrs. Wagner, determine the minimum measure of trust assets required so that there are no federal estate taxes due. (Ignore possible homestead and family allowances.) Assume that the unified credit is $229,800, which corresponds with an applicable exclusion amount of $700,000.
Aug 29, 2021 | Uncategorized
Effect of a charitable remainder trust on estate taxes. Jason and Roberta Granger are both in their early 80s. They have approached you regarding estate tax planning issues that are important because their total gross estate is estimated to be approximately $4,000,000. All assets of the estate are held in joint tenancy equally between the parties. It is estimated that upon the first spouse’s death, claims against the estate will consist of the following:
|
Funeral expenses
|
$ 30,000
|
|
Income taxes
|
60,000
|
|
Personal debts
|
250,000
|
|
Accounting and legal expenses
|
30,000
|
The Grangers are considering two possible alternatives regarding the disposition of their estate.
One alternative is to leave the entire estate to their three children in equal amounts. It is assumed that the income from the combined estate of the surviving spouse would provide the surviving spouse with adequate assets to pay for living expenses and any final expenses associated with settlement of the estate. The other alternative reflects their deep commitment to the performing arts. Under this alternative, their children would receive a total of $1,000,000 in some combination from the estate of Jason and/or Roberta Granger. The balance of the estate would be used by the surviving spouse to create a charitable remainder trust. The Santa Fe Symphony, a charitable organization, will be the beneficiary of the trust. It is assumed that the income from the trust will provide the surviving spouse with adequate assets to pay for living expenses and any final expenses associated with the settlement of their estate.
Prepare a schedule that shows the estate taxes associated with the two alternatives, keeping in mind that all attempts should be made to reduce estate taxes. Assume that full advantage is taken of the unified credit associated with an applicable exclusion amount of $700,000.
Aug 29, 2021 | Uncategorized
Recording the activities of a trust. Prior to his death, Winston Weber placed the following assets in a trust on November 15, 20X8:
|
Assets
|
Fair Value
|
|
Stock in Norland Medical including a $1,000 declared dividend to
|
|
|
shareholders of record on November 1, 20X8 The dividend was paid
|
|
|
on December 1, 20X8
|
$101,000
|
|
8% corporate bonds (originally aquired at the face value of $210,000)
|
|
|
including accrued interest of $7,700 Semiannual interest was paid
|
|
|
on December 1, 20X8
|
217,000
|
|
Farmland that is leased to an adjacent landowner for a monthly rent of
|
|
|
$500 The lease covers a 12-month period beginning June 1, 20X8
|
|
|
All monthly lease payments are due on the first of the month and have
|
|
|
been made when due
|
240,000
|
|
Cash
|
5,000
|
At the date of transfer to the trust, the farmland had an outstanding mortgage that was also transferred to the trust. The principal mortgage balance after the September 1, 20X8 payment was $46,937 and had the following terms: quarterly payments of $2,000 with the next payment due on December 1, 20X8, annual interest of 8% (assume each month represents a 30-day period). Income from the trust will be paid out to the income beneficiary on the last day of each year.
As trustee for the trust, prepare the necessary entries for the trust through the end of 20X8 assuming that the trust uses the cash basis of accounting.
Aug 29, 2021 | Uncategorized
Analysis of trust activity. Jack Mason is a single parent with three minor children. His will provides for the creation of a trust for the benefit of his three children. His entire net estate is to be placed into the trust, and the trustee is authorized to approve disbursements to the children until they reach the age of 25. Upon reaching the age of 25, each child is to receive their proportionate share of the trust principal and income. For example, the first child to reach age 25 will receive one-third of the trust principal and income. The next child to reach age 25 will receive one-half of the trust principal and income at that time.
The following facts relate to the trust:
1. The following assets were transferred to the trust after the settlement of Jack Mason’s estate:
Cash—$100,000, stock in IBM—$150,000, investment in real estate partnership—$400,000, and forest land—$200,000.
2. Subsequent to Mason’s death, an investment in a limited partnership was discovered. The investment was valued at $40,000.
3. One-half of the investment in the real estate partnership was sold for $220,000.
4. Dividends on the IBM stock were received in the amount of $20,000. The dividend was declared prior to Mason’s death.
5. All cash balances were invested in a short-term interest bearing account, and the trust received $5,000 in interest.
6. The trustee for the benefit of the children approved disbursements in the amount of $32,000.
Disbursements are first considered to be a distribution of available trust income and then as a distribution of trust principal.
7. Trustee’s fees in the amount of $10,000 were paid. All such fees are to be allocated equally between principal and income.
8. Eight percent bonds with a face value of $80,000 were purchased for $84,000. The bonds have a remaining life of five years, and any premium is to be amortized.
9. Income from the harvest of timber in the amount of $22,000 was received. The trust document calls for a charge against income for depletion. Depletion is calculated based on a unitsof- output method that is based on board feet of timber harvested. Approximately 11% of the total board feet is represented by this harvest. The land is expected to have a residual value of $60,000 after removal of the timber.
10. Real estate taxes on the land in the amount of $6,000 were paid. Such taxes are considered a component of trust income.
11. The real estate partnership made a distribution of income in the amount of $22,000 to the trust.
12. A semiannual interest payment on the bonds was received by the trust.
13. The trustee paid $6,000 of taxes on trust income.
14. IBM stock with a basis of $60,000 was sold for $80,100.
Prepare a schedule to determine the amount of trust principal to be received by the first child to reach the age of 25. The schedule should show the cash balance available at any point in time.
Aug 29, 2021 | Uncategorized
Determination of estate tax and planning alternatives. Early in 20X0, Alex Bowe dies, leaving a gross estate of $1,400,000. He had outstanding debts of $50,000. Administrative expenses of the estate amounted to $50,000. Later that year, his wife dies, leaving an estate of $250,000 in addition to the property left to her by her husband. Administrative expenses on Mrs. Bowe’s estate were $60,000.
You are provided with the following partial unified estate and gift tax table:
|
|
|
Rate of Tax
|
|
Not
|
|
on Excess over
|
|
Exceeding
|
Exceeding
|
Tax on Amount
|
Amount in
|
|
(A)
|
(B)
|
in Column (A)
|
Column (A)
|
|
$ 500,000
|
$ 750,000
|
$155,800
|
37%
|
|
750,000
|
1,000,000
|
248,300
|
39
|
|
1,000,000
|
1,250,000
|
345,800
|
41
|
|
1,250,000
|
1,500,000
|
448,300
|
43
|
Assume that the unified credit is $229,800, which corresponds with an applicable exclusion amount of $700,000.
1. Ignoring state gift and estate taxes, determine the amount of federal estate tax on both estates if:
a. Mr. Bowe left his total estate to his wife, exercising the unlimited marital deduction.
b. Mr. Bowe left his wife an estate that will equate his taxable estate with the maximum unified credit.
2. What does the estate tax computation demonstrate in relation to exercising the unlimited marital deduction?
Aug 29, 2021 | Uncategorized
Determination of estate tax and planning alternatives. Paul and Patrice Wilmoth are a retired couple who have become very involved in supporting the performing arts. Paul and Patrice have a combined estate of $5,000,000 that is to be shared equally for estate tax purposes. Over the next three years, the Wilmoths want to accomplish the following:
1. Make the maximum nontaxable gifts allowed to each of their three children.
2. Donate to charitable organizations supporting the performing arts all annual realized income in excess of annual expenses.
3. At the end of the first year, place $200,000 in a charitable remainder trust for the benefit of the Boy Scouts of America. It is estimated that various sources of income and expenses over the next three years are as follows:
|
Year 1
|
Year 2
|
Year 3
|
|
Sources of realized income:
|
|
|
|
|
Income on assets in the charitable remainder trust
|
|
$ 11,000
|
$ 13,000
|
|
Income from other assets
|
$400,000
|
370,000
|
520,000
|
|
Sources of unrealized income:
|
|
|
|
|
Income on assets in the charitable remainder trust
|
|
15,000
|
22,000
|
|
Income from other assets
|
220,000
|
330,000
|
510,000
|
|
Annual expenses
|
300,000
|
300,000
|
350,000
|
Upon the death of the first spouse, the Wilmoths have agreed to convey as much as is possible to their children without incurring any estate tax. Assume that the unified credit is $229,800, which corresponds with an applicable exclusion amount of $700,000.
1. Given the desires of the Wilmoths and the various sources of income and expense, what is the minimum estate tax exposure assuming that Paul and Patrice both pass away early in the fourth year. Assume that Paul dies shortly before Patrice and that funeral and administrative expenses are $30,000 for each individual.
2. What is the maximum additional amount that could be conveyed to a charitable remainder trust at the end of year three in order to provide a surviving spouse with an estate of $1,000,000? Furthermore, no estate taxes should be incurred other than those traceable to the conveyance to the three children.
3. Why is it advantageous to use the unified credit upon the death of the first spouse rather than merely transferring all the estate to the surviving spouse?
Aug 29, 2021 | Uncategorized
Charge and discharge statement, general legacies. Adam Ryerson has been named executor of the estate of his sister Jessica Ryerson Trump who died on March 17 of the current year. Adam Ryerson is overwhelmed by the complexity of his sister’s estate and requested your firm to provide an accounting of the estate. Your firm has also been requested to prepare the decedent’s final income tax return and the estate tax return.
The following information is relevant to the principal of the estate and the will of Jessica Ryerson Trump:
1. The gross estate consisted of $10,200,000.
2. Debts of the estate were $560,000.
3. Funeral expenses and other administrative expenses were $120,000.
4. The final income tax return was filed, and an additional $35,000 was due with the return.
5. Jessica’s will calls for transfers to charitable organizations in the amount of $5,000,000.
6. The will provides for specific legacies traceable to assets included in the gross estate at a value of $125,000.
7. Bank accounts totaling $430,000 were subsequently discovered.
8. Demonstrative legacies are as follows:
|
Intended
Amount
|
Actual Net
Proceeds
|
|
Net proceeds from the sale of Nantucket home to
|
|
|
|
Adam Ryerson
|
$400,000
|
$500,000
|
|
Net proceeds from the sale of the Chinese porcelain
|
|
|
|
collection to Jason Ross
|
200,000
|
170,000
|
|
Net proceeds from the sale of the interest in Grace
|
|
|
|
Restoration Galleries, Inc to Michael Ross, III
|
300,000
|
200,000
|
|
Net proceeds from the sale of the antique carriage
|
|
|
|
collection to Adam Ryerson
|
300,000
|
325,000
|
9. All principal assets were realized at a total net gain of $400,000.
10. General legacies of $200,000 to each of 10 named individuals.
1. Prepare a charge and discharge statement for the estate of Jessica Ryerson Trump.
2. Ten individuals were named as recipients of a general legacy. Indicate how much each of those individuals actually received.
Aug 29, 2021 | Uncategorized
Recording estate activities, charge and discharge statement. Sheri Shannon died on June 1, 20X3, leaving a valid will that named her friend, Steve Chevalier, the executor of the estate.
a. Steve prepared the following inventory of assets, listing their fair values as of June 1:
|
Cash
|
$31,000
|
|
1,000 shares of Pal Corp common stock
|
60,000
|
|
2,000 shares of BVD Corp common stock
|
40,000
|
|
Rapid Transit Corp (RTC) 8% bonds, interest payable April 1 and
|
|
|
October 1, $30,000 face amount
|
30,300
|
|
Time-share condominium unit at Lake Tahoe, used for her two-week vacations
|
10,000
|
|
Sheri’s one-half interest in Sheri Limo Service Co
|
70,000
|
b. On June 15, after filing the inventory of assets with the probate court, Steve discovered Sheri’s gold coin collection that was appraised at $18,000.
c. On June 20, a $250 check was received from Pal Corporation for dividends declared on May 10, 20X3, to owners on record as of May 30.
d. Steve sold the time-share condominium for $14,000 on July 7.
e. The following items were paid between June 1 and July 31:
|
Sheri’s charge card purchases
|
$1,900
|
|
Funeral costs
|
6,000
|
|
Lawyer’s fee to probate the will
|
800
|
|
Cost to paint condominium prior to sale
|
1,100
|
|
Payment to executor approved by the court
|
1,700
|
f. On July 5, a $15,000 check was received for Sheri’s portion of partnership earnings for the quarter ended June 30. Earnings are fairly constant from one month to the next and are available for withdrawal on a monthly basis if a partner so desires. Otherwise, payments are made quarterly.
g. Sheri’s partner offered Steve $90,000 for her interest in the partnership. Steve accepted the offer and received full payment.
h. On October 1, a check for interest was received from Rapid Transit Corp.
i. On December 1, Steve completed Sheri’s final income tax return, paying the additional tax due of $18,200.
1. Prepare journal entries to record the events.
2. Prepare a charge and discharge statement as of December 31, 20X3.
Aug 29, 2021 | Uncategorized
Charge and discharge statement. Maxwell Stevens, a single person, died on August 12, 20X8. His will indicated the following:
1. His nephew should receive any income from the estate until such time as the estate is liquidated.
2. All assets of the estate should be converted to cash in a timely manner, and the final remaining estate principal should be conveyed to Ducks Unlimited, a not-for-profit organization, with the stipulation that these funds be used for wetland preservation efforts in the state of
3. Maxwell’s attorney, Janice Edquist, is to serve as executrix of the estate.
The following events occurred regarding the estate of Maxwell Stevens:
1. Various bank accounts totaling $34,000 were consolidated for estate purposes.
2. An insurance policy with a death benefit of $300,000 was discovered subsequent to death. The policy names Maxwell Stevens’ niece, Cynthia Townsend, beneficiary of the policy.
3. Stocks with a fair value of $278,000 at date of death were sold for $267,000. Dividends on the above stocks were received in the amount of $3,400, of which $1,200 represented amounts that had been declared to shareholders of record on August 1, 20X8.
4. Bonds with a fair value of $138,000 at date of death were sold for $143,000, including accrued interest. The accrued interest subsequent to the date of death was $850.
5. Real estate with a fair value of $380,000 at date of death was sold for $390,000 less broker’s commission of 8% and closing fees of $750. Prior to the closing on the sale of real estate, rental income in the amount of $14,500 was received and expenses (not including interest) totaling $6,550 were paid. Rental income and expenses in the amounts of $6,250 and $3,600, respectively, were traceable to the period prior to the decedent’s death.
6. A land contract note on the real estate in the amount of $97,000 was paid off upon sale of the real estate. In addition to the principal amount, accrued interest in the amount of $2,550 was also paid. Of the interest, $1,230 had accrued prior to the decedent’s death.
7. The following claims against the estate existed: funeral and administrative expenses, $11,200; decedent’s final personal income tax liability, $3,200; and miscellaneous personal bills, $1,300.
1. Explain why the estate was not subject to any federal estate tax.
2. Assuming that the above information describes the activities of the estate and that all provisions of the decedent’s will have been carried out, prepare a charge and discharge statement.c
Aug 29, 2021 | Uncategorized
Recording estate principal and income. Laurel Rose has been the executrix of her brother’s estate since his death on February 1, 20X6. The following events occurred during her administration:
a. Included in the principal assets were 40, $1,000, 8% City of Pittsburgh bonds paying interest on January 1 and July 1. The bonds had a fair value of 101 on February 1, 20X6. Rose sold the bonds at 103, plus accrued interest, on March 1, 20X6.
b. On March 1, 20X6, Rose purchased 50, $1,000, 5% City of Detroit bonds at 98, plus accrued interest. The bonds pay interest on April 1 and October 1. The bonds mature on April 1, 20X8.
c. On March 1, 20X6, she also purchased $10,000 (face value), 7% City of Newark bonds at
102 plus accrued interest. The bonds pay interest on June 1 and December 1. The bonds mature on December 1, 20X7.
d. On April 1, 20X6, she received a check for the interest on the Detroit bonds.
e. On June 1, 20X6, she received a check for the interest on the Newark bonds.
f. On September 1, 20X6, she sold the Detroit bonds at 101, plus accrued interest.
Prepare journal entries to record each of these events. Use the straight-line method of amortization where applicable.
Aug 29, 2021 | Uncategorized
Recording activity of an estate and trust. You are given the following trial balance of the estate of Sheri Shannon as of December 31, 20X3. Her will stipulated that the executor should be granted $30,000 from principal cash. The remainder of the estate’s principal assets and its income assets are to be transferred to Community Bank, which will act as trustee of an endowment fund. Income from trust assets shall be used for scholarships for accounting majors at a local university.
|
Debit
|
Credit
|
|
Cash—Principal
|
115,950
|
|
|
Cash—Income
|
5,800
|
|
|
Pal Corp Stock
|
60,000
|
|
|
BVD Corp Stock
|
40,000
|
|
|
Rapid Transit Corp Bonds
|
30,300
|
|
|
Coin Collection
|
18,000
|
|
|
Estate Principal
|
|
241,700
|
|
Estate Income
|
|
5,800
|
|
Assets Subsequently Discovered
|
|
28,250
|
|
Gain on Realization of Principal Assets
|
|
24,000
|
|
Funeral and Administrative Expenses
|
8,500
|
|
|
Debts of Decedent Paid
|
20,100
|
|
|
Expenses Chargeable against Principal
|
1,100
|
|
|
Total
|
299,750
|
299,750
|
1. Record the payment to the executor and the transfer of all remaining assets to the trustee.
2. Prepare journal entries to close the executor’s records.
3. Prepare journal entries to record receipt of assets by the trustee. Explain why it was unnecessary to accrue the interest on the Rapid Transit Corp. bonds to the date of actual transfer.
Aug 29, 2021 | Uncategorized
Recording the activities of a trust. Prior to his death, Gordon Mayer created a trust for the benefit of his two children, Gretta and Gary. At date of death, all assets of the estate and related liabilities would pass to the trust. The trust contains the following provisions:
1. Fifty percent of the trust income in the year of the decedent’s death and for the following calendar year will be paid to Gretta. Payments will be made at year-end.
2. Fifty percent of the trust income in the year of the decedent’s death and for the next two calendar years will be held on behalf of Gary. The accumulated trust income, less applicable trust income taxes, will be disbursed to Gary in the month following the end of the final calendar year to which this provision relates.
3. On the one-month anniversary of the decedent’s death, $200,000 will be conveyed to the Cedarburg Community Library. In the first month following the year of the decedent’s death, 40% of the principal balance measured as of the prior year-end will be conveyed to St. Cecil’s Community Hospital.
4. All costs associated with managing the trust’s investments in stocks and bonds will be charged to principal.
5. All dividends and interest earned subsequent to the date of the decedent’s death will be included in income.
6. Fees and expenses incurred by the trustee for administration purposes will be allocated equally between trust principal and income.
7. All capital improvements to maintain rental properties in good condition will be charged against trust principal.
8. All normal maintenance costs associated with rental properties will be charged against trust income.
9. The interest portion of mortgage payments on rental properties accruing after the date of death will be allocated equally between trust principal and income.
10. Depreciation will not be considered in determining trust income.
11. On November 1 in each of the two calendar years following the year of the decedent’s death, $25,000 will be contributed to the Boy Scouts of America.
12. All taxes associated with the decedent’s estate and final income are to be paid out of the trust principal.
Gordon Mayer died on September 18, 20X6, when his estate consisted of the following assets at fair value: cash—$32,000; stocks and bonds—$570,000; rental properties—$1,234,000. The following additional events occurred subsequent to his death during 20X6:
a. Estate taxes in the amount of $256,000 and final personal income taxes in the amount of $27,000 were paid in 20X6.
b. Dividends and interest were received on investments in the amounts of $23,000 and $27,000, respectively. Of the dividends, $13,000 was declared as payable to shareholders of record as of September 15, 20X6. The interest received included $8,400 of accrued interest as of the decedent’s death.
c. Stocks with a fair value of $320,000 at date of death were sold for $335,000.
d. A new roof and siding were installed on rental properties in the amount of $134,000. Ordinary repairs on rental properties were $25,000, of which $6,700 had been incurred prior to the decedent’s death.
e. Expenses associated with managing the trust’s investment in stocks and bonds totaled $9,200, and the trustee’s expenses were $6,000.
f. Mortgage payments on rental property totaled $94,000, of which $45,000 represented interest. Of the interest, $8,200 represented interest that had accrued as of the date of the decedent’s death.
g. Gross rents of $124,000 were received.
h. Estimated taxes of $21,434 were paid on trust income which was not distributed.
Prepare all necessary entries to record the activities of the trust subsequent to the decedent’s death through the end of 20X6.
Aug 29, 2021 | Uncategorized
Effect of various restructuring alternatives. The Ames Corporation has been experiencing difficulties servicing its long-term debt which has a current balance of $620,000 including accrued interest. Ames is considering two possible alternatives to restructuring the debt. Alternative #1 would consist of conveying vacant land with a fair value of $350,000 and a book value of $275,000 to the creditor. In addition, Ames would make two annual payments of $120,000 each. Alternative #2 would call for Ames to make five annual payments of $135,000. All payments are to be made at the end of the respective years. The market rates of interest for a 2-year and 5-year note are 10% and 12%, respectively.
1. Prepare a schedule to compare the total effect on net income of Alternatives #1 and #2 related to the restructuring.
2. Discuss whether the alternative with the most favorable effect on net income provides the company with the greatest economic advantage.
Aug 29, 2021 | Uncategorized
Effect of a quasi-reorganization. For the last several years, the Manion Corporation has encountered a declining market for its major product line. Attempts to diversify have led to additional disappointments. This unfortunate set of circumstances has left the company with significant debt and an inability to service its debt. The existing debt consists of $20,000,000 of principal and $875,000 of accrued interest. Discussions with the creditors have resulted in a proposed restructuring of debt. The restructuring would consist of the following actions:
1. Exchanging preferred stock with a fair value of $5,100,000 and a par value of $5,000,000 in exchange for full settlement of $5,500,000 of principal debt.
2. Exchanging land with a value of $4,000,000 and a book value of $3,000,000 in exchange for $4,500,000 of principal debt.
3. The remaining debt and accrued interest would be repaid over the next 10 years with semiannual payments due every six months. The annual stated rate would be 8.5%.
Past operating losses have resulted in a deficit in retained earnings of $3,400,000. In addition to the deficit, the company’s equity includes common stock at par value of $6,000,000 and contributed capital in excess of par value in the amount of $1,000,000.
Prepare a scedule that determines the effect on current income of the debt restructuring and the reduction in par value of the common stock necessary to eliminate any deficit in retained earnings.
Assume that the restructuring is not part of a formal bankruptcy filing.
Aug 29, 2021 | Uncategorized
Record a quasi-reorganization. The stockholders of Vegas Corporation have authorized the company to conduct a quasi-reorganization in order to revise asset valuations and eliminate its deficit. A condensed balance sheet at October 1, 20X5, just prior to the uasire organization, is as follows:
|
Assets
|
|
Liabilities and Equity
|
|
Current assets
|
$ 400,000
|
Liabilities
|
$ 600,000
|
|
Property and equipment
|
|
Capital stock ($10 par)
|
2,200,000
|
|
(net)
|
2,000,000
|
Deficit
|
(400,000)
|
|
Total assets
|
$2,400,000
|
Total liabilities
|
|
|
|
and equity
|
$2,400,000
|
a. Inventories have been overvalued by $80,000.
b. Plant assets have been appraised at $1,500,000.
c. Stockholders have approved a reduction in the par value of capital stock to $5 per share.
1. Prepare journal entries to record the quasi-reorganization.
2. Prepare a balance sheet for immediately after the quasi-reorganization.
Aug 29, 2021 | Uncategorized
Record a quasi-reorganization. Montrose Manufacturing, Inc. has designed and built timber-harvesting equipment for over 25 years. Due to declining demand and increased foreign competition, the company has accumulated significant operating losses. The company has been able to withstand these pressures through the use of heavy debt financing. The company as just completed development of a new product line unrelated to the timber industry and it expects that significant profits will be generated over the next 5 to 10 years. Unfortunately, the income generated from this new line of business will not be available to shareholders in the form of dividends due to the large deficits traceable to prior operations.
In order to provide for dividend opportunities in the near future, the shareholders of the corporation have authorized a quasi-reorganization. A condensed balance sheet and related information prior to the reorganization is as follows:
|
Assets
|
Book Value
|
Fair Value
|
|
Cash and cash equivalents
|
$ 220,000
|
$ 220,000
|
|
Accounts receivable
|
800,000
|
740,000
|
|
Inventory
|
1,280,000
|
1,100,000
|
|
Other current assets
|
240,000
|
280,000
|
|
Depreciable assets (net)
|
4,300,000
|
3,800,000
|
|
Total assets
|
$ 6,840,000
|
$6,140,000
|
|
Liabilities and Equity
|
|
Current liabilities
|
$ 1,700,000
|
|
|
Contingent liabilities
|
580,000
|
$ 500,000
|
|
Other liabilities
|
3,700,000
|
|
|
Common stock at par value
|
1,000,000
|
|
|
Contributed capital in excess of par
|
1,800,000
|
|
|
Retained earnings (deficit)
|
(1,940,000)
|
|
|
Total liabilities and equity
|
$ 6,840,000
|
|
Aug 29, 2021 | Uncategorized
The income statement of Gopitkumar Co. for the month of July shows net income of $1,400 based on Service Revenue $5,500, Salaries and Wages Expense $2,300, Supplies Expense $1,200, and Utilities Expense $600. In reviewing the statement, you discover the following.
1. Insurance expired during July of $400 was omitted.
2. Supplies expense includes $250 of supplies that are still on hand at July 31.
3. Depreciation on equipment of $150 was omitted.
4. Accrued but unpaid salaries and wages at July 31 of $300 were not included.
5. Services performed but unrecorded totaled $650.
Instructions
Prepare a correct income statement for July 2014.
Aug 29, 2021 | Uncategorized
The trial balances before and after adjustment for Frinzi Company at the end of its fiscal year are presented below.
|
PRINZ! COMPANY Trial Balance August 31, 2014
|
|
Cash
Accounts Receivable Supplies
Prepaid Insurance Equipment
|
Before
Adjustment
|
After
Adjustment
|
|
|
|
|
|
$10,400 8,800 2,300 4,000 14,000
|
|
$10,400
10,800
900
2,500
14,000
|
|
|
Accumulated Depreciation-Equipment
|
|
$ 3,600
|
|
$ 4,500
|
|
Accounts Payable
|
|
5,800
|
|
5,800
|
|
Salaries and Wages Payable
|
|
-0-
|
|
1,100
|
|
Unearned Rent Revenue
|
|
1,500
|
|
600
|
|
Owner’s Capital
|
|
15,600
|
|
15,600
|
|
Service Revenue
|
|
34,000
|
|
36,000
|
|
Rent Revenue
|
|
11,000
|
|
11,900
|
|
Salaries and Wages Expense
|
17,000
|
|
18,100
|
|
|
Supplies Expense
|
-0-
|
|
1,400
|
|
|
Rent Expense
|
15,000
|
|
15,000
|
|
|
Insurance Expense
|
-0-
|
|
1,500
|
|
|
Depreciation Expense
|
-0-
|
|
900
|
|
|
|
$71,500
|
$71,500
|
$75,500
|
$75,500
|
Instructions
Prepare the adjusting entries that were made.
Aug 29, 2021 | Uncategorized
The following data are taken from the comparative balance sheets of Cascade Billiards Club, which prepares its financial statements using the accrual basis of accounting.
|
31-Dec
|
2014
|
2013
|
|
Accounts receivable from members
|
$14,000
|
$9,000
|
|
Unearned service revenue
|
17,000
|
25,000
|
Members are billed based upon their use of the club’s facilities. Unearned service revenues arise from the sale of gift certificates, which members can apply to their future use of club facilities. The 2014 income statement for the club showed that service revenue of $161,000 was earned during the year.
Instructions
a) Prepare journal entries for each of the following events that took place during 2014.
(1) Accounts receivable from 2013 were all collected.
(2) Gift certificates outstanding at the end of 2013 were all redeemed.
(3) An additional $38,000 worth of gift certificates were sold during 2014. A portion of these was used by the recipients during the year; the remainder was still outstanding at the end of 2014.
(4) Services performed for members for 2014 were billed to members.
(5) Accounts receivable for 2014 (i.e., those billed in item [4] above) were partially collected.
(b) Determine the amount of cash received by the club, with respect to member services, during 2014.
Aug 29, 2021 | Uncategorized
Aaron Lynch Company has the following balances in selected accounts on December 31, 2014.
|
Service Revenue
|
$40,000
|
|
Insurance Expense
|
2,700
|
|
Supplies Expense
|
2,450
|
All the accounts have normal balances. Aaron Lynch Company debits prepayments to expense accounts when paid, and credits unearned revenues to revenue accounts when received. The following information below has been gathered at December 31, 2014.
1. Aaron Lynch Company paid $2,700 for 12 months of insurance coverage on June 1, 2014.
2. On December 1, 2014, Aaron Lynch Company collected $40,000 for consulting services to be performed from December 1, 2014, through March 31, 2015.
3. A count of supplies on December 31, 2014, indicates that supplies of $900 are on hand.
Instructions
Prepare the adjusting entries needed at December 31, 2014.
Aug 29, 2021 | Uncategorized
At Cambridge Company, prepayments are debited to expense when paid, and unearned revenues are credited to revenue when cash is received. During January of the current year, the following transactions occurred.
|
2
|
Paid $1,920 for fire insurance protection for the year.
|
|
10
|
Paid $1,700 for supplies.
|
|
15
|
Received $6,100 for services to be performed in the future.
|
On January 31, it is determined that $2,500 of the services were performed and that there are $650 of supplies on hand.
Instructions
(a) Journalize and post the January transactions. (Use T-accounts.)
(b) Journalize and post the adjusting entries at January 31.
(c) Determine the ending balance in each of the accounts.
Aug 29, 2021 | Uncategorized
Presented below are the assumptions and principles discussed in this chapter.
1. Full disclosure principle.
2. Going concern assumption.
3. Monetary unit assumption.
4. Time period assumption.
5. Historical cost principle.
6. Economic entity assumption.
Instructions
Identify by number the accounting assumption or principle that is described below. Do not use a number more than once.
(a) Is the rationale for why plant assets are not reported at liquidation value.
(b) Indicates that personal and business record-keeping should be separately maintained.
(c) Assumes that the monetary unit is the “measuring stick” used to report on financial performance.
(d) Separates financial information into time periods for reporting purposes.
(e) Measurement basis used when a reliable estimate of fair value is not available.
(f) Dictates that companies should disclose all circumstances and events that make a difference to financial statement users.
Aug 29, 2021 | Uncategorized
The following characteristics, assumptions, principles, or constraint guide the FASB when it creates accounting standards.
|
Relevance
|
Expense recognition principle
|
|
Faithful representation
|
Time period assumption
|
|
Comparability
|
Going concern assumption
|
|
Consistency
|
Historical cost principle
|
|
Monetary unit assumption
|
Full disclosure principle
|
|
Economic entity assumption
|
Materiality
|
Match each item above with a description below.
1. Ability to easily evaluate one company’s results relative to another’s.
2. Belief that a company will continue to operate for the foreseeable future.
3. The judgment concerning whether an item’s size is large enough to matter to decision-makers.
4. The reporting of all information that would make a difference to financial statement users.
5. The practice of preparing financial statements at regular intervals.
6. The quality of information that indicates the information makes a difference in a decision.
7. A belief that items should be reported on the balance sheet at the price that was paid to acquire them.
8. A company’s use of the same accounting principles and methods from year to year.
9. Tracing accounting events to particular companies.
10. The desire to minimize bias in financial statements.
11. Reporting only those things that can be measured in monetary units.
12. Dictates that efforts (expenses) be matched with results (revenues).
Aug 29, 2021 | Uncategorized
Net Nanny Software International Inc., headquartered in Vancouver, Canada, specializes in Internet safety and computer security products for both the home and commercial markets. In a recent balance sheet, it reported a deficit of US$5,678,288. It has reported only net losses since its inception. In spite of these losses, Net Nanny’s shares of stock have traded anywhere from a high of $3.70 to a low of $0.32 on the Canadian Venture Exchange.
Net Nanny’s financial statements have historically been prepared in Canadian dollars. Recently, the company adopted the U.S. dollar as its reporting currency.
Instructions
(a) What is the objective of financial reporting? How does this objective meet or not meet Net Nanny’s investors’ needs?
(b) Why would investors want to buy Net Nanny’s shares if the company has consistently reported losses over the last few years? Include in your answer an assessment of the relevance of the information reported on Net Nanny’s financial statements.
(c) Comment on how the change in reporting information from Canadian dollars to U.S. dollars likely affected the readers of Net Nanny’s financial statements. Include in your answer an assessment of the comparability of the information.
Aug 29, 2021 | Uncategorized
A friend of yours, Ana Gehrig, recently completed an undergraduate degree in science and has just started working with a biotechnology company. Ana tells you that the owners of the business are trying to secure new sources of financing which are needed in order for the company to proceed with development of a new health-care product. Ana said that her boss told her that the company must put together a report to present to potential investors.
Ana thought that the company should include in this package the detailed scientific findings related to the Phase I clinical trials for this product. She said, “I know that the biotech industry sometimes has only a 10% success rate with new products, but if we report all the scientific findings, everyone will see what a sure success this is going to be! The president was talking about the importance of following some set of accounting principles. Why do we need to look at some accounting rules? What they need to realize is that we have scientific results that are quite encouraging, some of the most talented employees around, and the start of some really great customer relationships. We haven’t made any sales yet, but we will. We just need the funds to get through all the clinical testing and get government approval for our product. Then these investors will be quite happy that they bought in to our company early!”
Instructions
(a) What is accounting information?
(b) Comment on how Ana’s suggestions for what should be reported to prospective investors conforms to the qualitative characteristics of accounting information. Do you think that the things that Ana wants to include in the information for investors will conform to financial reporting guidelines?
Aug 29, 2021 | Uncategorized
Deanna Nardelli started her own consulting firm, Nardelli Consulting, on May 1, 2014. The trial balance at May 31 is as follows.
|
NARDELLI CONSULTING Trial Balance May 31, 2014
|
|
Account Number
|
|
Debit
|
Credit
|
|
101
|
Cash
|
$ 4,500
|
|
|
112
|
Accounts Receivable
|
6,000
|
|
|
126
|
Supplies
|
1,900
|
|
|
130
|
Prepaid Insurance
|
3,600
|
|
|
149
|
Equipment
|
11,400
|
|
|
201
|
Accounts Payable
|
|
$ 4,500
|
|
209
|
Unearned Service Revenue
|
|
2,000
|
|
301
|
Owner’s Capital
|
|
17,700
|
|
400
|
Service Revenue
|
|
7,500
|
|
726
|
Salaries and Wages Expense
|
3,400
|
|
|
729
|
Rent Expense
|
900
|
|
|
|
|
$31,700
|
$31,700
|
In addition to those accounts listed on the trial balance, the chart of accounts for Nardelli Consulting also contains the following accounts and account numbers: No. 150 Accumulated Depreciation—Equipment, No. 212 Salaries and Wages Payable, No. 631 Supplies Expense, No. 717 Depreciation Expense, No. 722 Insurance Expense, and No. 732 Utilities Expense.
Other data:
1. $900 of supplies have been used during the month.
2. Utilities expense incurred but not paid on May 31, 2014, $250.
3. The insurance policy is for 2 years.
4. $400 of the balance in the unearned service revenue account remains unearned at the end of the month.
5. May 31 is a Wednesday, and employees are paid on Fridays. Nardelli Consulting has two employees, who are paid $900 each for a 5-day work week.
6. The office furniture has a 5-year life with no salvage value. It is being depreciated at $190 per month for 60 months.
7. Invoices representing $1,700 of services performed during the month have not been recorded as of May 31.
Instructions
(a) Prepare the adjusting entries for the month of May. Use J4 as the page number for your journal.
(b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances and place a check mark in the posting reference column.
(c) Prepare an adjusted trial balance at May 31, 2014.
Aug 29, 2021 | Uncategorized
Everett Co. was organized on July 1, 2014. Quarterly financial statements are prepared. The unadjusted and adjusted trial balances as of September 30 are shown below.
|
EVERETT CO. Trial Balance September 30, 2014
|
|
Cash
Accounts Receivable Supplies
Prepaid Rent
Equipment
|
Unadjusted
|
Adjusted
|
|
|
|
|
|
$ 8,700 10,400 1,500 2,200 18,000
|
|
$ 8,700
11,500
650
1,200
18,000
|
|
|
Accumulated Depreciation-Equipment
|
|
$ -0-
|
|
$ 700
|
|
Notes Payable
|
|
10,000
|
|
10,000
|
|
Accounts Payable
|
|
2,500
|
|
2,500
|
|
Salaries and Wages Payable
|
|
-0-
|
|
725
|
|
Interest Payable
|
|
-0-
|
|
100
|
|
Unearned Rent Revenue
|
|
1,900
|
|
1,050
|
|
Owner’s Capital
|
|
22,000
|
|
22,000
|
|
Owner’s Drawings
|
1,600
|
|
1,600
|
|
|
Service Revenue
|
|
16,000
|
|
17,100
|
|
Rent Revenue
|
|
1,410
|
|
2,260
|
|
Salaries and Wages Expense
|
8,000
|
|
8,725
|
|
|
Rent Expense
|
1,900
|
|
2,900
|
|
|
Depreciation Expense
|
|
|
700
|
|
|
Supplies Expense
|
|
|
850
|
|
|
Utilities Expense
|
1,510
|
|
1,510
|
|
|
Interest Expense
|
|
|
100
|
|
|
|
$53,810
|
$53,810
|
$56,435
|
$56,43 5
|
Instructions
(a) Journalize the adjusting entries that were made.
(b) Prepare an income statement and an owner’s equity statement for the 3 months ending September 30 and a balance sheet at September 30.
(c) If the note bears interest at 12%, how many months has it been outstanding?
Aug 29, 2021 | Uncategorized
A review of the ledger of Carmel Company at December 31, 2014, produces the following data pertaining to the preparation of annual adjusting entries.
1. Prepaid Insurance $10,440. The company has separate insurance policies on its buildings and its motor vehicles. Policy B4564 on the building was purchased on April 1, 2013, for $7,920. The policy has a term of 3 years. Policy A2958 on the vehicles was purchased on January 1, 2014, for $4,500. This policy has a term of 2 years.
2. Unearned Rent Revenue $429,000. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.
|
Date
|
Term(in months)
|
Monthly Rent
|
No. of Leases
|
|
Nov.1
|
9
|
$5,000
|
5
|
|
Dec.1
|
6
|
$8,500
|
4
|
3. Notes Payable $120,000. This balance consists of a note for 9 months at an annual interest rate of 9%, dated November 1.
4. Salaries and Wages Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $700 each per week, and three employees earn $500 each per week. Assume December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
Instructions
Prepare the adjusting entries at December 31, 2014.
Aug 29, 2021 | Uncategorized
On November 1, 2014, the account balances of Schilling Equipment Repair were as follows.
|
Cash
|
Debit
|
|
Credit
|
|
101
|
$ 2,400
|
154 Accumulated Depreciation—Equipment $ 2,000
|
|
112
|
Accounts Receivable
|
4,250
|
201 Accounts Payable
|
2,600
|
|
126
|
Supplies
|
1,800
|
209 Unearned Service Revenue
|
1,200
|
|
153
|
Equipment
|
12,000
|
212 Salaries and Wages Payable
|
700
|
|
|
|
|
301 Owner’s Capital
|
13,950
|
|
|
|
$20,450
|
|
$20,450
|
During November, the following summary transactions were completed.
|
8
|
Paid $1,700 for salaries due employees, of which $700 is for October salaries.
|
|
10
|
Received $3,420 cash from customers on account.
|
|
12
|
Received $3,100 cash for services performed in November.
|
|
15
|
Purchased equipment on account $2,000.
|
|
17
|
Purchased supplies on account $700.
|
|
20
|
Paid creditors on account $2,700.
|
|
22
|
Paid November rent $400.
|
|
25
|
Paid salaries $1,700.
|
|
27
|
Performed services on account and billed customers for services provided $1,900.
|
|
29
|
Received $600 from customers for future service.
|
Adjustment data consist of:
1. Supplies on hand $1,400.
2. Accrued salaries payable $350.
3. Depreciation for the month is $200.
4. Services related to unearned service revenue of $1,250 were performed.
Instructions
(a) Enter the November 1 balances in the ledger accounts.
(b) Journalize the November transactions.
(c) Post to the ledger accounts. Use J1 for the posting reference. Use the following additional accounts: No. 407 Service Revenue, No. 615 Depreciation Expense, No. 631 Supplies Expense, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.
(d) Prepare a trial balance at November 30.
(e) Journalize and post adjusting entries.
(f) Prepare an adjusted trial balance.
(g) Prepare an income statement and an owner’s equity statement for November and a balance sheet at November 30.
Aug 29, 2021 | Uncategorized
Sommer Graphics Company was organized on January 1, 2014, by Krystal Sommer. At the end of the first 6 months of operations, the trial balance contained the accounts shown below.
|
|
Debit
|
|
Credit
|
|
Cash
|
$ 8,600
|
Notes Payable
|
$ 20,000
|
|
Accounts Receivable
|
14,000
|
Accounts Payable
|
9,000
|
|
Equipment
|
45,000
|
Owner’s Capital
|
22,000
|
|
Insurance Expense
|
2,700
|
Sales Revenue
|
52,100
|
|
Salaries and Wages Expense
|
30,000
|
Service Revenue
|
6,000
|
|
Supplies Expense
|
3,700
|
|
|
|
Advertising Expense
|
1,900
|
|
|
|
Rent Expense
|
1,500
|
|
|
|
Utilities Expense
|
1,700
|
|
|
|
|
$109,100
|
|
$109,100
|
Analysis reveals the following additional data.
1. The $3,700 balance in Supplies Expense represents supplies purchased in January. At June 30, $1,500 of supplies are on hand.
2. The note payable was issued on February 1. It is a 9%, 6-month note.
3. The balance in Insurance Expense is the premium on a one-year policy, dated March 1, 2014.
4. Service revenues are credited to revenue when received. At June 30, services revenue of $1,300 are unearned.
5. Revenue for services performed but unrecorded at June 30 totals $2,000.
6. Depreciation is $2,250 per year.
Instructions
(a) Journalize the adjusting entries at June 30. (Assume adjustments are recorded every 6 months.)
(b) Prepare an adjusted trial balance.
(c) Prepare an income statement and owner’s equity statement for the 6 months ended June 30 and a balance sheet at June 30.
Aug 29, 2021 | Uncategorized
Jason Elsner started his own consulting firm, Elsner Company, on June 1, 2014. The trial balance at June 30 is shown below.
|
ELSNER COMPANY Trial Balance June 30, 2014
|
|
Account Number
|
|
Debit
|
Credit
|
|
101
|
Cash
|
$ 7,150
|
|
|
112
|
Accounts Receivable
|
6,000
|
|
|
126
|
Supplies
|
2,000
|
|
|
130
|
Prepaid Insurance
|
3,000
|
|
|
157
|
Equipment
|
15,000
|
|
|
201
|
Accounts Payable
|
|
$ 4,500
|
|
209
|
Unearned Service Revenue
|
|
4,000
|
|
301
|
Owner’s Capital
|
|
21,750
|
|
400
|
Service Revenue
|
|
7,900
|
|
726
|
Salaries and Wages Expense
|
4,000
|
|
|
729
|
Rent Expense
|
1,000
|
|
|
|
|
$38,150
|
$38,150
|
In addition to those accounts listed on the trial balance, the chart of accounts for Elsner Company also contains the following accounts and account numbers: No. 158 Accumulated Depreciation—Equipment, No. 212 Salaries and Wages Payable, No. 631 Supplies Expense, No. 711 Depreciation Expense, No. 722 Insurance Expense, and No. 732 Utilities Expense.
1. Supplies on hand at June 30 are $750.
2. A utility bill for $150 has not been recorded and will not be paid until next month.
3. The insurance policy is for a year.
4. $2,800 of unearned service revenue is recognized for services performed during the month.
5. Salaries of $1,900 are accrued at June 30.
6. The equipment has a 5-year life with no salvage value. It is being depreciated at $250 per month for 60 months.
7. Invoices representing $1,200 of services performed during the month have not been recorded as of June 30.
Instructions
(a) Prepare the adjusting entries for the month of June. Use J3 as the page number for your journal.
(b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances and place a check mark in the posting reference column.
(c) Prepare an adjusted trial balance at June 30, 2014.
Aug 29, 2021 | Uncategorized
Maquoketa River Resort opened for business on June 1 with eight air-conditioned units. Its trial balance before adjustment on August 31 is as follows.
|
MAQUOKETA RIVER RESORT Trial Balance August 31, 2014
|
|
Account Number
|
|
Debit
|
Credit
|
|
101
|
Cash
|
$ 19,600
|
|
|
126
|
Supplies
|
3,300
|
|
|
130
|
Prepaid Insurance
|
6,000
|
|
|
140
|
Land
|
25,000
|
|
|
143
|
Buildings
|
125,000
|
|
|
149
|
Equipment
|
26,000
|
|
|
201
|
Accounts Payable
|
|
$ 6,500
|
|
208
|
Unearned Rent Revenue
|
|
7,400
|
|
275
|
Mortgage Payable
|
|
80,000
|
|
301
|
Owner’s Capital
|
|
100,000
|
|
306
|
Owner’s Drawings
|
5,000
|
|
|
429
|
Rent Revenue
|
|
80,000
|
|
622
|
Maintenance and Repairs Expense
|
3,600
|
|
|
726
|
Salaries and Wages Expense
|
51,000
|
|
|
732
|
Utilities Expense
|
9,400
|
|
|
|
|
$273,900
|
$273,900
|
In addition to those accounts listed on the trial balance, the chart of accounts for Maquoketa River Resort also contains the following accounts and account numbers: No. 112 Accounts Receivable, No. 144 Accumulated Depreciation—Buildings, No. 150 Accumulated Depreciation—Equipment, No. 212 Salaries and Wages Payable, No. 230 Interest Payable, No. 620 Depreciation Expense, No. 631 Supplies Expense, No. 718 Interest Expense, and No. 722 Insurance Expense.
1. Insurance expires at the rate of $300 per month.
2. A count on August 31 shows $800 of supplies on hand.
3. Annual depreciation is $6,000 on buildings and $2,400 on equipment.
4. Unearned rent revenue of $4,800 was earned prior to August 31.
5. Salaries of $400 were unpaid at August 31.
6. Rentals of $4,000 were due from tenants at August 31. (Use Accounts Receivable.)
7. The mortgage interest rate is 9% per year. (The mortgage was taken out on August 1.)
Instructions
(a) Journalize the adjusting entries on August 31 for the 3-month period June 1–August 31.
(b) Prepare a ledger using the three-column form of account. Enter the trial balance amounts and post the adjusting entries. (Use J1 as the posting reference.)
(c) Prepare an adjusted trial balance on August 31.
(d) Prepare an income statement and an owner’s equity statement for the 3 months ending August 31 and a balance sheet as of August 31.
Aug 29, 2021 | Uncategorized
Delgado Advertising Agency was founded by Maria Delgado in January of 2013. Presented below are both the adjusted and unadjusted trial balances as of December 31, 2014.
|
DELGADO ADVERTISING AGENCY Trial Balance December 31, 2014
|
|
Cash
Accounts Receivable Supplies
Prepaid Insurance Equipment
|
Unadjusted
|
Adjusted
|
|
|
|
|
|
$ 11,000 20,000 8,600 3,350 60,000
|
|
$ 11,000 21,500 4,800 2,500 60,000
|
|
|
Accumulated Depreciation-Equipment
|
|
$ 28,000
|
|
$ 34,000
|
|
Accounts Payable
|
|
5,000
|
|
5,000
|
|
Interest Payable
|
|
-0-
|
|
150
|
|
Notes Payable
|
|
5,000
|
|
5,000
|
|
Unearned Service Revenue
|
|
7,200
|
|
5,900
|
|
Salaries and Wages Payable
|
|
-0-
|
|
2,100
|
|
Owner’s Capital
|
|
25,500
|
|
25,500
|
|
Owner’s Drawings
|
12,000
|
|
12,000
|
|
|
Service Revenue
|
|
58,600
|
|
61,400
|
|
Salaries and Wages Expense
|
10,000
|
|
12,100
|
|
|
Insurance Expense
|
|
|
850
|
|
|
Interest Expense
|
350
|
|
500
|
|
|
Depreciation Expense
|
|
|
6,000
|
|
|
Supplies Expense
|
|
|
3,800
|
|
|
Rent Expense
|
4,000
|
|
4,000
|
|
|
|
$129,300
|
$129,300
|
$139,050
|
$139,050
|
Instructions
(a) Journalize the annual adjusting entries that were made.
(b) Prepare an income statement and an owner’s equity statement for the year ending December 31, 2014, and a balance sheet at December 31.
(c) Answer the following questions.
(1) If the note has been outstanding 6 months, what is the annual interest rate on that note?
(2) If the company paid $12,500 in salaries in 2014, what was the balance in Salaries and Wages Payable on December 31, 2013?
Aug 29, 2021 | Uncategorized
A review of the ledger of Almquist Company at December 31, 2014, produces the following data pertaining to the preparation of annual adjusting entries.
1. Salaries and Wages Payable $0. There are eight salaried employees. Salaries are paid every Friday for the current week. Five employees receive a salary of $900 each per week, and three employees earn $700 each per week. Assume December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
2. Unearned Rent Revenue $354,000. The company began subleasing office space in its new building on November 1. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.
|
Date
|
Term(in months)
|
Monthly Rent
|
No. of Leases
|
|
Nov.1
|
6
|
$5,000
|
5
|
|
Dec.1
|
6
|
$8,500
|
4
|
3. Prepaid Advertising $15,600. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as follows.
|
Contract
|
Date
|
Amount
|
Number of Magazine Issues
|
|
A650
|
May 1
|
$6,000
|
12
|
|
B974
|
Oct. 1
|
9,600
|
24
|
The first advertisement runs in the month in which the contract is signed.
4. Notes Payable $120,000. This balance consists of a note for one year at an annual interest rate of 9%, dated June 1.
Instructions
Prepare the adjusting entries at December 31, 2014. (Show all computations.)
Aug 29, 2021 | Uncategorized
On September 1, 2014, the account balances of Percy Equipment Repair were as follows.
|
Cash
|
Debit
|
|
Credit
|
|
101
|
$ 4,880
|
154 Accumulated Depreciation—Equipment $ 1,500
|
|
112
|
Accounts Receivable
|
3,520
|
201 Accounts Payable
|
3,400
|
|
126
|
Supplies
|
2,000
|
209 Unearned Service Revenue
|
1,400
|
|
153
|
Equipment
|
15,000
|
212 Salaries and Wages Payable
|
500
|
|
|
|
|
301 Owner’s Capital
|
18,600
|
|
|
|
$25,400
|
|
$25,400
|
During September, the following summary transactions were completed.
|
8
|
Paid $1,400 for salaries due employees, of which $900 is for September.
|
|
10
|
Received $1,200 cash from customers on account.
|
|
12
|
Received $3,400 cash for services performed in September.
|
|
15
|
Purchased store equipment on account $3,000.
|
|
17
|
Purchased supplies on account $1,200.
|
|
20
|
Paid creditors $4,500 on account.
|
|
22
|
Paid September rent $500.
|
|
25
|
Paid salaries $1,250.
|
|
27
|
Performed services on account and billed customers $2,100 for these services.
|
|
29
|
Received $650 from customers for future service.
|
Adjustment data consist of:
1. Supplies on hand $1,300.
2. Accrued salaries payable $300.
3. Depreciation is $100 per month.
4. Services related to unearned service revenue of $1,450 were performed.
Instructions
(a) Enter the September 1 balances in the ledger accounts.
(b) Journalize the September transactions.
(c) Post to the ledger accounts. Use J1 for the posting reference. Use the following additional accounts: No. 407 Service Revenue, No. 615 Depreciation Expense, No. 631 Supplies Expense, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.
(d) Prepare a trial balance at September 30.
(e) Journalize and post adjusting entries.
(f) Prepare an adjusted trial balance.
(g) Prepare an income statement and an owner’s equity statement for September and a balance sheet at September 30.
Aug 29, 2021 | Uncategorized
It is the end of November and Natalie has been in touch with her grandmother. Her grandmother asked Natalie how well things went in her first month of business. Natalie, too, would like to know if she has been profitable or not during November. Natalie realizes that in order to determine Cookie Creations’ income, she must first make adjustments.
Natalie puts together the following additional information.
1. A count reveals that $35 of baking supplies were used during November.
2. Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months. (Assume Natalie decides to record a full month’s worth of depreciation, regardless of when the equipment was obtained by the business.)
3. Natalie’s grandmother has decided to charge interest of 6% on the note payable extended on November 16. The loan plus interest is to be repaid in 24 months. (Assume that half a month of interest accrued during November.)
4. On November 30, a friend of Natalie’s asks her to teach a class at the neighborhood school. Natalie agrees and teaches a group of 35 first-grade students how to make gingerbread cookies. The next day, Natalie prepares an invoice for $300 and leaves it with the school principal. The principal says that he will pass the invoice along to the head office, and it will be paid sometime in December.
5. Natalie receives a utilities bill for $45. The bill is for utilities consumed by Natalie’s business during November and is due December 15.
Instructions
Using the information that you have gathered through and based on the new information above, do the following.
(a) Prepare and post the adjusting journal entries.
(b) Prepare an adjusted trial balance.
(c) Using the adjusted trial balance, calculate Cookie Creations’ net income or net loss for the month of November. Do not prepare an income statement.
Aug 29, 2021 | Uncategorized
If you haven’t already done so, in the not-too-distant future you will prepare a résumé. In some ways, your résumé is like a company’s annual report. Its purpose is to enable others to evaluate your past, in an effort to predict your future.
A résumé is your opportunity to create a positive first impression. It is important that it be impressive—but it should also be accurate. In order to increase their job prospects, some people are tempted to “inflate” their résumés by overstating the importance of some past accomplishments or positions. In fact, you might even think that “everybody does it” and that if you don’t do it, you will be at a disadvantage.
David Edmondson, the president and CEO of well-known electronics retailer Radio Shack, overstated his accomplishments by claiming that he had earned a bachelor’s of science degree, when in fact he had not. Apparently, his employer had not done a background check to ensure the accuracy of his résumé. Should Radio Shack have fired him?
Instructions
Write a response indicating your position regarding this situation. Provide support for your view.
Aug 29, 2021 | Uncategorized
Every company needs to plan in order to move forward. Its top management must consider where it wants the company to be in three to five years. Like a company, you need to think about where you want to be three to five years from now, and you need to start taking steps now in order to get there.
Instructions
Provide responses to each of the following items.
(a) Where would you like to be working in three to five years? Describe your plan for getting there by identifying between five and 10 specific steps that you need to take.
(b) In order to get the job you want, you will need a résumé. Your résumé is the equivalent of a company’s annual report. It needs to provide relevant and reliable information about your past accomplishments so that employers can decide whether to “invest” in you. Do a search on the Internet to find a good résumé format. What are the basic elements of a résumé?
(c) A company’s annual report provides information about a company’s accomplishments. In order for investors to use the annual report, the information must be reliable; that is, users must have faith that the information is accurate and believable. How can you provide assurance that the information on your résumé is reliable?
(d) Prepare a résumé assuming that you have accomplished the five to 10 specific steps you identified in part (a). Also, provide evidence that would give assurance that the information is reliable.
Aug 29, 2021 | Uncategorized
Auditors provide a type of certification of corporate financial statements. Certification is used in many other aspects of business as well. For example, it plays a critical role in the sustainability movement. The February 7, 2012, issue of the New York Times contained an article by S. Amanda Caudill entitled “Better Lives in Better Coffee,” which discusses the role of certification in the coffee business.
Instructions
Read the article and answer the following questions.
(a) The article mentions three different certification types that coffee growers can obtain from three different certification bodies. Using financial reporting as an example, what potential problems might the existence of multiple certification types present to coffee purchasers?
(b) According to the author, which certification is most common among coffee growers? What are the possible reasons for this?
(c) What social and environmental benefits are coffee certifications trying to achieve? Are there also potential financial benefits to the parties involved?
Aug 29, 2021 | Uncategorized
Several timing concepts are discussed on pages 100–101. A list of concepts is provided in the left column below, with a description of the concept in the right column below. There are more descriptions provided than concepts. Match the description of the concept to the concept.
- Accrual-basis accounting.
|
(a) Monthly and quarterly time periods.
|
- Calendar year.
|
(b) Efforts (expenses) should be matched with results (revenues).
|
- Time period assumption.
|
(c) Accountants divide the economic life of a business into artificial time periods.
|
- Expense recognition principle.
|
(d) Companies record revenues when they receive cash and record expenses when they pay out cash.
(e) An accounting time period that starts on January 1 and ends on December 31.
(f) Companies record transactions in the period in which the events occur.
|
Aug 29, 2021 | Uncategorized
The ledger of Hammond Company, on March 31, 2014, includes these selected accounts before adjusting entries are prepared.
|
Debit
|
Credit
|
|
Prepaid Insurance
|
$3,600
|
|
|
Supplies
|
2,800
|
|
|
Equipment
|
25,000
|
|
|
Accumulated Depreciation—Equipment
|
|
$5,000
|
|
Unearned Service Revenue
|
|
9,200
|
An analysis of the accounts shows the following.
1. Insurance expires at the rate of $100 per month.
2. Supplies on hand total $800.
3. The equipment depreciates $200 a month.
4. During March, services were performed for one-half of the unearned service revenue.
Prepare the adjusting entries for the month of March.
Accrual accounting is often considered superior to cash accounting. Why, then, were some people critical of China’s use of accrual accounting in this instance?
Aug 29, 2021 | Uncategorized
Skolnick Co. was organized on April 1, 2014. The company prepares quarterly financial statements. The adjusted trial balance amounts at June 30 are shown below.
|
Cash
|
Debit
|
Accumulated Depreciation-
|
Credit
|
|
$ 6,700
|
|
|
Accounts Receivable
|
600
|
Equipment
|
$ 850
|
|
Prepaid Rent
|
900
|
Notes Payable
|
5,000
|
|
Supplies
|
1,000
|
Accounts Payable
|
1,510
|
|
Equipment
|
15,000
|
Salaries and Wages Payable
|
400
|
|
Owner’s Drawings
|
600
|
Interest Payable
|
50
|
|
Salaries and Wages Expense
|
9,400
|
Unearned Rent Revenue
|
500
|
|
Rent Expense
|
1,500
|
Owner’s Capital
|
14,000
|
|
Depreciation Expense
|
850
|
Service Revenue
|
14,200
|
|
Supplies Expense
|
200
|
Rent Revenue
|
800
|
|
Utilities Expense
|
510
|
|
|
|
Interest Expense
|
50
|
|
|
|
|
$37,310
|
|
$37,310
|
(a) Determine the net income for the quarter April 1 to June 30.
(b) Determine the total assets and total liabilities at June 30, 2014, for Skolnick Co.
(c) Determine the amount of Owner’s Capital at June 30, 2014.
Aug 29, 2021 | Uncategorized
Rivera Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows.
(a) Depreciation Expense
Accumulated Depreciation
Rivera Company
(b) Depreciation Expense
Equipment
(c) Depreciation Expense
Accumulated Depreciation
Equipment
(d) Equipment Expense
Accumulated Depreciation
Equipment
|
1,000
|
|
|
1,000
|
|
1,000
|
|
|
1,000
|
|
1,000
|
|
|
1,000
|
|
1,000
|
|
|
1,000
|
Aug 29, 2021 | Uncategorized
Anika Wilson earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Anika’s employer at September 30 is:
(a) No entry is required.
(b) Salaries and Wages Expense
Salaries and Wages Payable
(c) Salaries and Wages Expense
Cash
(d) Salaries and Wages Payable
Cash
Aug 29, 2021 | Uncategorized
The trial balance of Yewlett Company includes the following balance sheet accounts, which may require adjustment. For each account that requires adjustment, indicate (a) the type of adjusting entry (prepaid expenses, unearned revenues, accrued revenues, and accrued expenses) and (b) the related account in the adjusting entry.
|
Accounts Receivable
|
Interest Payable
|
|
Prepaid Insurance
|
Unearned Service Revenue
|
|
Accumulated Depreciation—Equipment
|
|
Aug 29, 2021 | Uncategorized
Here are some qualitative characteristics of useful accounting information:
1. Predictive value
2. Neutral
3. Verifiable
4. Timely
Match each qualitative characteristic to one of the following statements.
(a) Accounting information should help provide accurate expectations about future events.
(b) Accounting information cannot be selected, prepared, or presented to favor one set of interested users over another.
(c) The quality of information that occurs when independent observers, using the same methods, obtain similar results.
(d) Accounting information must be available to decision-makers before it loses its capacity to influence their decisions.
Define full disclosure principle.
Aug 29, 2021 | Uncategorized
Several timing concepts are discussed on pages 100–101. A list of concepts is provided below in the left column, with a description of the concept in the right column. There are more descriptions provided than concepts. Match the description of the concept to the concept.
- Cash-basis accounting.
|
(a) Monthly and quarterly time periods.
|
- Fiscal year.
|
(b) Accountants divide the economic life of a business into artificial time periods.
|
- Revenue recognition principle.
|
(c) Efforts (expenses) should be matched with accomplishments (revenues).
|
- Expense recognition principle.
|
(d)Companies record revenues when they receive cash and record expenses when they pay out cash.
(e)An accounting time period that is one year in length.
(f)An accounting time period that starts on January 1 and ends on December 31.
(g)Companies record transactions in the period in which the events occur.
(h)Recognize revenue in the accounting period in which a performance obligation is satisfied.
|
Aug 29, 2021 | Uncategorized
The ledger of Herrera, Inc. on March 31, 2014, includes the following selected accounts before adjusting entries.
|
Debit
|
Credit
|
|
Prepaid Insurance
|
2,400
|
|
|
Supplies
|
2,500
|
|
|
Equipment
|
30,000
|
|
|
Unearned Service Revenue
|
|
9,000
|
An analysis of the accounts shows the following.
- Insurance expires at the rate of $300 per month.
- Supplies on hand total $1,100.
- The equipment depreciates $500 per month.
- During March, services were performed for two-fifths of the unearned service revenue.
Prepare the adjusting entries for the month of March.
Aug 29, 2021 | Uncategorized
Lumina Co. was organized on April 1, 2014. The company prepares quarterly financial statements. The adjusted trial balance amounts at June 30 are shown below.
|
Cash
|
Debit
|
Accumulated Depreciation
|
Credit
|
|
$ 5,360
|
|
|
Accounts Receivable
|
480
|
Equipment
|
$ 700
|
|
Prepaid Rent
|
720
|
Notes Payable
|
4,000
|
|
Supplies
|
920
|
Accounts Payable
|
790
|
|
Equipment
|
12,000
|
Salaries and Wages Payable
|
300
|
|
Owner’s Drawings
|
500
|
Interest Payable
|
40
|
|
Salaries and Wages Expense
|
7,400
|
Unearned Rent Revenue
|
400
|
|
Rent Expense
|
1,200
|
Owner’s Capital
|
11,200
|
|
Depreciation Expense
|
700
|
Service Revenue
|
11,360
|
|
Supplies Expense
|
160
|
Rent Revenue
|
1,100
|
|
Utilities Expense
|
410
|
|
$29,890
|
|
Interest Expense
|
40
|
|
|
|
|
|
|
$29,890
|
|
|
(a) Determine the net income for the quarter April 1 to June 30.
(b) Determine the total assets and total liabilities at June 30, 2014 for Lumina Company.
(c) Determine the amount that appears for Owner’s Capital at June 30, 2014.
Aug 29, 2021 | Uncategorized
Ian Muse has prepared the following list of statements about the time period assumption.
1. Adjusting entries would not be necessary if a company’s life were not divided into artificial time periods.
2. The IRS requires companies to file annual tax returns.
3. Accountants divide the economic life of a business into artificial time periods, but each transaction affects only one of these periods.
4. Accounting time periods are generally a month, a quarter, or a year.
5. A time period lasting one year is called an interim period.
6. All fiscal years are calendar years, but not all calendar years are fiscal years.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Aug 29, 2021 | Uncategorized
Hart Corporation encounters the following situations:
1. Hart collects $1,300 from a customer in 2014 for services to be performed in 2015.
2. Hart incurs utility expense which is not yet paid in cash or recorded.
3. Hart’s employees worked 3 days in 2014 but will not be paid until 2015.
4. Hart performs services for customers but has not yet received cash or recorded the transaction.
5. Hart paid $2,400 rent on December 1 for the 4 months starting December 1.
6. Hart received cash for future services and recorded a liability until the service was performed.
7. Hart performed consulting services for a client in December 2014. On December 31, it had not billed the client for services provided of $1,200.
8. Hart paid cash for an expense and recorded an asset until the item was used up.
9. Hart purchased $900 of supplies in 2014; at year-end, $400 of supplies remain unused.
10. Hart purchased equipment on January 1, 2014; the equipment will be used for 5 years.
11. Hart borrowed $10,000 on October 1, 2014, signing an 8% one-year note payable.
Instructions
Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense, or accrued revenue) is needed in each situation at December 31, 2014.
Aug 29, 2021 | Uncategorized
Verne Cova Company has the following balances in selected accounts on December 31, 2014.
|
Accounts Receivable
|
$ -0-
|
|
Accumulated Depreciation—Equipment
|
-0-
|
|
Equipment
|
7,000
|
|
Interest Payable
|
-0-
|
|
Notes Payable
|
10,000
|
|
Prepaid Insurance
|
2,100
|
|
Salaries and Wages Payable
|
-0-
|
|
Supplies
|
2,450
|
|
Unearned Service Revenue
|
30,000
|
All the accounts have normal balances. The information below has been gathered at December 31, 2014.
1. Verne Cova Company borrowed $10,000 by signing a 12%, one-year note on September 1, 2014.
2. A count of supplies on December 31, 2014, indicates that supplies of $900 are on hand.
3. Depreciation on the equipment for 2014 is $1,000.
4. Verne Cova Company paid $2,100 for 12 months of insurance coverage on June 1, 2014.
5. On December 1, 2014, Verne Cova collected $30,000 for consulting services to be performed from December 1, 2014, through March 31, 2015.
6. Verne Cova performed consulting services for a client in December 2014. The client will be billed $4,200.
7. Verne Cova Company pays its employees total salaries of $9,000 every Monday for the preceding 5-day week (Monday through Friday). On Monday, December 29, employees were paid for the week ending December 26. All employees worked the last 3 days of 2014.
Instructions
Prepare adjusting entries for the seven items described above.
Aug 29, 2021 | Uncategorized
Lei Company accumulates the following adjustment data at December 31.
1. Services performed but not recorded total $1,000.
2. Supplies of $300 have been used.
3. Utility expenses of $225 are unpaid.
4. Services related to unearned service revenue of $260 were performed.
5. Salaries of $800 are unpaid.
6. Prepaid insurance totaling $350 has expired.
Instructions
For each of the above items indicate the following.
(a) The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense).
(b) The status of accounts before adjustment (overstatement or understatement).
Aug 29, 2021 | Uncategorized
The ledger of Perez Rental Agency on March 31 of the current year includes the selected accounts, shown below, before adjusting entries have been prepared.
|
|
Debit
|
Credit
|
|
Prepaid Insurance
|
$ 3,600
|
|
|
Supplies
|
2,800
|
|
|
Equipment
|
25,000
|
|
|
Accumulated Depreciation—Equipment
|
|
$ 8,400
|
|
Notes Payable
|
|
20,000
|
|
Unearned Rent Revenue
|
|
10,200
|
|
Rent Revenue
|
|
60,000
|
|
Interest Expense
|
-0-
|
|
|
Salaries and Wages Expense
|
14,000
|
|
An analysis of the accounts shows the following.
1. The equipment depreciates $400 per month.
2. One-third of the unearned rent revenue was earned during the quarter.
3. Interest of $500 is accrued on the notes payable.
4. Supplies on hand total $900.
5. Insurance expires at the rate of $200 per month.
Instructions
Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expense, Insurance Expense, Interest Payable, and Supplies Expense.
Aug 29, 2021 | Uncategorized
Robin Shalit, D.D.S., opened a dental practice on January 1, 2014. During the first month of operations, the following transactions occurred.
1. Performed services for patients who had dental plan insurance. At January 31, $875 of such services were performed but not yet recorded.
2. Utility expenses incurred but not paid prior to January 31 totaled $650.
3. Purchased dental equipment on January 1 for $80,000, paying $20,000 in cash and signing a $60,000, 3-year note payable. The equipment depreciates $400 per month. Interest is $500 per month.
4. Purchased a one-year malpractice insurance policy on January 1 for $24,000.
5. Purchased $1,600 of dental supplies. On January 31, determined that $400 of supplies were on hand.
Instructions
Prepare the adjusting entries on January 31. Account titles are Accumulated Depreciation—Equipment, Depreciation Expense, Service Revenue, Accounts Receivable, Insurance Expense, Interest Expense, Interest Payable, Prepaid Insurance, Supplies, Supplies Expense, Utilities Expense, and Utilities Payable.
Aug 29, 2021 | Uncategorized
The trial balance for Pioneer Advertising Agency is shown. Instead of the adjusting entries shown in the text at October 31, assume the following adjustment data.
1. Supplies on hand at October 31 total $500.
2. Expired insurance for the month is $100.
3. Depreciation for the month is $50.
4. Services related to unearned service revenue in October worth $600 were performed.
5. Services performed but not recorded at October 31 are $300.
6. Interest accrued at October 31 is $95.
7. Accrued salaries at October 31 are $1,625.
Instructions
Prepare the adjusting entries for the items above.
Aug 29, 2021 | Uncategorized
Presented below is information related to Lachapelle Real Estate Agency.
|
1
|
Arthur Lachapelle begins business as a real estate agent with a cash investment of $15,000.
|
|
2
|
Hires an administrative assistant.
|
|
3
|
Purchases office furniture for $1,900, on account.
|
|
6
|
Sells a house and lot for J. Baxter; bills J. Baxter $3,600 for realty services performed.
|
|
27
|
Pays $1,100 on the balance related to the transaction of October 3.
|
|
30
|
Pays the administrative assistant $2,500 in salary for October.
|
Instructions
Prepare the debit-credit analysis for each transaction.
Aug 29, 2021 | Uncategorized
Transaction data for Lachapelle Real Estate Agency are presented.
|
1
|
Arthur Lachapelle begins business as a real estate agent with a cash investment of $15,000.
|
|
2
|
Hires an administrative assistant.
|
|
3
|
Purchases office furniture for $1,900, on account.
|
|
6
|
Sells a house and lot for J. Baxter; bills J. Baxter $3,600 for realty services performed.
|
|
27
|
Pays $1,100 on the balance related to the transaction of October 3.
|
|
30
|
Pays the administrative assistant $2,500 in salary for October.
|
Instructions
Journalize the transactions. (You may omit explanations.)
Aug 29, 2021 | Uncategorized
Janet Miyoshi has prepared the following list of statements about the general ledger.
1. The general ledger contains all the asset and liability accounts but no owner’s equity accounts.
2. The general ledger is sometimes referred to as simply the ledger.
3. The accounts in the general ledger are arranged in alphabetical order.
4. Each account in the general ledger is numbered for easier identification.
5. The general ledger is a book of original entry.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Aug 29, 2021 | Uncategorized
The T-accounts below summarize the ledger of Zimmer Landscaping Company at the end of the first month of operations.
|
|
Cash
|
No. 101
|
|
4/1
|
12,000
|
4/15
|
1,300
|
|
4/12
|
900
|
4/25
|
1,500
|
|
4/29
|
400
|
|
|
|
4/30
|
1,000
|
|
|
|
|
Accounts Receivable
|
No. 112
|
|
4/7
|
3,200
|
14/29
|
400
|
|
|
Supplies
|
No. 126
|
|
4/4
|
1,800
|
1
|
|
|
|
Accounts Payable
|
No. 201
|
|
4/25
|
1,500 14/4
|
1,800
|
|
Unearned Service Revenue No. 209
|
|
4/30
|
1,000
|
|
Owner’s Capital No. 301
|
|
4/1
|
12,000
|
|
Service Revenue No. 400
|
|
4/7
|
3,200
|
|
4/12
|
900
|
|
Salaries and Wages Expense No. 726
|
|
4/15
|
1,300
|
Instructions
(a) Prepare the complete general journal (including explanations) from which the postings to Cash were made.
(b) Prepare a trial balance at April 30, 2014.
Aug 29, 2021 | Uncategorized
Selected transactions for Sandra Linke Company during its first month in business are presented below.
|
1
|
Invested $10,000 cash in the business.
|
|
5
|
Purchased equipment for $12,000 paying $4,000 in cash and the balance on account.
|
|
25
|
Paid $3,000 cash on balance owed for equipment.
|
|
30
|
Withdrew $700 cash for personal use.
|
Linke’s chart of accounts shows: No. 101 Cash, No. 157 Equipment, No. 201 Accounts Payable, No. 301 Owner’s Capital, and No. 306 Owner’s Drawings.
Instructions
(a) Journalize the transactions on page J1 of the journal. (Omit explanations.)
(b) Post the transactions using the standard account form.
Aug 29, 2021 | Uncategorized
The bookkeeper for Jeff Sobol Equipment Repair made a number of errors in journalizing and posting, as described below.
1. A credit posting of $525 to Accounts Receivable was omitted.
2. A debit posting of $750 for Prepaid Insurance was debited to Insurance Expense.
3. A collection from a customer of $100 in payment of its account owed was journalized and posted as a debit to Cash $100 and a credit to Service Revenue $100.
4. A credit posting of $415 to Property Taxes Payable was made twice.
5. A cash purchase of supplies for $250 was journalized and posted as a debit to Supplies $25 and a credit to Cash $25.
6. A debit of $475 to Advertising Expense was posted as $457.
Instructions
For each error:
(a) Indicate whether the trial balance will balance.
(b) If the trial balance will not balance, indicate the amount of the difference.
(c) Indicate the trial balance column that will have the larger total.
Aug 29, 2021 | Uncategorized
The accounts in the ledger of Longoria Delivery Service contain the following balances on July 31, 2014.
|
Accounts Receivable
|
$ 7,642
|
Prepaid Insurance
|
$ 1,968
|
|
Accounts Payable
|
8,396
|
Maintenance and Repairs Expense
|
961
|
|
Cash
|
|
Service Revenue
|
10,610
|
|
Equipment
|
49,360
|
Owner’s Drawings
|
700
|
|
Gasoline Expense
|
758
|
Owner’s Capital
|
42,000
|
|
Utilities Expense
|
523
|
Salaries and Wages Expense
|
4,428
|
|
Notes Payable
|
17,000
|
Salaries and Wages Payable
|
815
|
Aug 29, 2021 | Uncategorized
McKay Disc Golf Course was opened on March 1 by Evan McKay. The following selected events and transactions occurred during March.
|
1
|
Invested $20,000 cash in the business.
|
|
3
|
Purchased Sable’s Golf Land for $15,000 cash. The price consists of land $12,000, shed $2,000, and equipment $1,000. (Make one compound entry.)
|
|
5
|
Paid advertising expenses of $700.
|
|
6
|
Paid cash $600 for a one-year insurance policy.
|
|
10
|
Purchased golf discs and other equipment for $1,050 from Taylor Company payable in 30 days.
|
|
18
|
Received $1,100 in cash for golf fees (McKay records golf fees as service revenue).
|
|
19
|
Sold 150 coupon books for $10 each. Each book contains 4 coupons that enable the holder to play one round of disc golf.
|
|
25
|
Withdrew $800 cash for personal use.
|
|
30
|
Paid salaries of $250.
|
|
30
|
Paid Taylor Company in full.
|
|
31
|
Received $2,100 cash for golf fees.
|
McKay Disc Golf uses the following accounts: Cash, Prepaid Insurance, Land, Buildings, Equipment, Accounts Payable, Unearned Service Revenue, Owner’s Capital, Owner’s Drawings, Service Revenue, Advertising Expense, and Salaries and Wages Expense.
Instructions
Journalize the March transactions.
Aug 29, 2021 | Uncategorized
Bridgette Keyes is a licensed dentist. During the first month of the operation of her business, the following events and transactions occurred.
|
1
|
Invested $20,000 cash in the business.
|
|
1
|
Hired a secretary-receptionist at a salary of $700 per week payable monthly.
|
|
2
|
Paid office rent for the month $1,100.
|
|
3
|
Purchased dental supplies on account from Smile Company $4,000.
|
|
10
|
Performed dental services and billed insurance companies $5,100.
|
|
11
|
Received $1,000 cash advance from Heather Greene for an implant.
|
|
20
|
Received $2,100 cash for services performed from James Chang.
|
|
30
|
Paid secretary-receptionist for the month $2,800.
|
|
30
|
Paid $2,400 to Smile Company for accounts payable due.
|
Bridgette uses the following chart of accounts: No. 101 Cash, No. 112 Accounts Receivable, No. 126 Supplies, No. 201 Accounts Payable, No. 209 Unearned Service Revenue, No. 301 Owner’s Capital, No. 400 Service Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.
Instructions
(a) Journalize the transactions.
(b) Post to the ledger accounts.
(c) Prepare a trial balance on April 30, 2014.
Aug 29, 2021 | Uncategorized
Santa Ana Services was formed on May 1, 2014. The following transactions took place during the first month.
Transactions on May 1:
1. Don Humes invested $40,000 cash in the company, as its sole owner.
2. Hired two employees to work in the warehouse. They will each be paid a salary of $3,050 per month.
3. Signed a 2-year rental agreement on a warehouse; paid $24,000 cash in advance for the first year.
4. Purchased furniture and equipment costing $30,000. A cash payment of $10,000 was made immediately; the remainder will be paid in 6 months.
5. Paid $1,800 cash for a one-year insurance policy on the furniture and equipment.
Transactions during the remainder of the month:
6. Purchased basic office supplies for $500 cash.
7. Purchased more office supplies for $1,500 on account.
8. Total revenues earned were $20,000—$8,000 cash and $12,000 on account.
9. Paid $400 to suppliers for accounts payable due.
10. Received $3,000 from customers in payment of accounts receivable.
11. Received utility bills in the amount of $350, to be paid next month.
12. Paid the monthly salaries of the two employees, totalling $6,100.
Instructions
(a) Prepare journal entries to record each of the events listed. (Omit explanations.)
(b) Post the journal entries to T-accounts.
(c) Prepare a trial balance as of May 31, 2014.
Aug 29, 2021 | Uncategorized
The Lunt Theater, owned by Beth Saxena, will begin operations in March. The Lunt will be unique in that it will show only triple features of sequential theme movies. As of March 1, the ledger of Lunt showed: No. 101 Cash $3,000, No. 140 Land $24,000, No. 145 Buildings (concession stand, projection room, ticket booth, and screen) $10,000, No. 157 Equipment $10,000, No. 201 Accounts Payable $7,000, and No. 301 Owner’s Capital $40,000. During the month of March, the following events and transactions occurred.
|
2
|
Rented the three Indiana Jones movies to be shown for the first 3 weeks of March. The film rental was $3,500; $1,500 was paid in cash and $2,000 will be paid on March 10.
|
|
3
|
Ordered the Lord of the Rings movies to be shown the last 10 days of March. It will cost $200 per night.
|
|
9
|
Received $4,000 cash from admissions.
|
|
10
|
Paid balance due on Indiana Jones movies rental and $2,100 on March 1 accounts payable.
|
|
11
|
Lunt Theater contracted with John Blume to operate the concession stand. Blume is to pay 15% of gross concession receipts, payable monthly, for the rental of the concession stand.
|
|
12
|
Paid advertising expenses $800.
|
|
20
|
Received $5,000 cash from customers for admissions.
|
|
20
|
Received the Lord of the Rings movies and paid the rental fee of $2,000.
|
|
31
|
Paid salaries of $3,100.
|
|
31
|
Received statement from John Blume showing gross receipts from concessions of $6,000 and the balance due to Lunt Theater of $900 ($6,000 × 15%) for March. Blume paid one-half the balance due and will remit the remainder on April 5.
|
|
31
|
Received $9,000 cash from customers for admissions.
|
In addition to the accounts identified above, the chart of accounts includes: No. 112 Accounts Receivable, No. 400 Service Revenue, No. 429 Rent Revenue, No. 610 Advertising Expense, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.
Instructions
(a) Enter the beginning balances in the ledger. Insert a check mark ( ) in the reference column of the ledger for the beginning balance.
(b) Journalize the March transactions. Lunt records admission revenue as service revenue, rental of the concession stand as rent revenue, and film rental expense as rent expense.
(c) Post the March journal entries to the ledger. Assume that all entries are posted from page 1 of the journal.
(d) Prepare a trial balance on March 31, 2014.
Aug 29, 2021 | Uncategorized
Frontier Park was started on April 1 by M. Preston. The following selected events and transactions occurred during April.
|
1
|
Preston invested $35,000 cash in the business.
|
|
4
|
Purchased land costing $27,000 for cash.
|
|
8
|
Incurred advertising expense of $1,800 on account.
|
|
11
|
Paid salaries to employees $1,500.
|
|
12
|
Hired park manager at a salary of $4,000 per month, effective May 1.
|
|
13
|
Paid $1,650 cash for a one-year insurance policy.
|
|
17
|
Withdrew $1,000 cash for personal use.
|
|
20
|
Received $6,800 in cash for admission fees.
|
|
25
|
Sold 100 coupon books for $25 each. Each book contains 10 coupons that entitle the holder to one admission to the park.
|
|
30
|
Received $8,900 in cash admission fees.
|
|
30
|
Paid $900 on balance owed for advertising incurred on April 8.
|
Frontier Park uses the following accounts: Cash, Prepaid Insurance, Land, Accounts Payable, Unearned Service Revenue, Owner’s Capital, Owner’s Drawings, Service Revenue, Advertising Expense, and Salaries and Wages Expense.
Instructions
Journalize the April transactions.
Aug 29, 2021 | Uncategorized
Tony Vian owns and manages a computer repair service, which had the following trial balance on December 31, 2013 (the end of its fiscal year).
|
VIAN REPAIR SERVICE Trial Balance December 31, 2013
|
|
|
Debit
|
Credit
|
|
Cash
|
$ 8,000
|
|
|
Accounts Receivable
|
15,000
|
|
|
Supplies
|
13,000
|
|
|
Prepaid Rent
|
3,000
|
|
|
Equipment
|
20,000
|
|
|
Accounts Payable
|
|
$19,000
|
|
Owner’s Capital
|
|
40,000
|
|
Total
|
$59,000
|
$59,000
|
Summarized transactions for January 2014 were as follows.
1. Advertising costs, paid in cash, $1,000.
2. Additional supplies acquired on account $4,200.
3. Miscellaneous expenses, paid in cash, $2,000.
4. Cash collected from customers in payment of accounts receivable $14,000.
5. Cash paid to creditors for accounts payable due $15,000.
6. Repair services performed during January: for cash $6,000; on account $9,000.
7. Wages for January, paid in cash, $3,500.
8. Tony’s drawings during January were $3,000.
Instructions
(a) Open T-accounts for each of the accounts listed in the trial balance, and enter the opening balances for 2014.
(b) Prepare journal entries to record each of the January transactions. (Omit explanations.)
(c) Post the journal entries to the accounts in the ledger. (Add accounts as needed.)
(d) Prepare a trial balance as of January 31, 2014.
Aug 29, 2021 | Uncategorized
The Classic Theater is owned by Kim Lockerby. All facilities were completed on March 31. At this time, the ledger showed: No. 101 Cash $4,000, No. 140 Land $10,000, No. 145 Buildings (concession stand, projection room, ticket booth, and screen) $8,000, No. 157 Equipment $6,000, No. 201 Accounts Payable $2,000, No. 275 Mortgage Payable $8,000, and No. 301 Owner’s Capital $18,000. During April, the following events and transactions occurred.
|
2
|
Paid film rental of $1,100 on first movie.
|
|
3
|
Ordered two additional films at $1,000 each.
|
|
9
|
Received $2,800 cash from admissions.
|
|
10
|
Made $2,000 payment on mortgage and $1,000 for accounts payable due.
|
|
11
|
Classic Theater contracted with Rhonda Humes to operate the concession stand. Humes is to pay Classic Theater 17% of gross concession receipts, payable monthly, for the rental of the concession stand.
|
|
12
|
Paid advertising expenses $500.
|
|
20
|
Received one of the films ordered on April 3 and was billed $1,000. The film will be shown in April.
|
|
25
|
Received $5,200 cash from admissions.
|
|
29
|
Paid salaries $2,000.
|
|
30
|
Received statement from Rhonda Humes showing gross concession receipts of $1,000 and the balance due to The Classic Theater of $170 ($1,000 × 17%) for April. Humes paid one-half of the balance due and will remit the remainder on May 5.
|
|
30
|
Prepaid $1,200 rental on special film to be run in May.
|
In addition to the accounts identified above, the chart of accounts shows: No. 112 Accounts Receivable, No. 136 Prepaid Rent, No. 400 Service Revenue, No. 429 Rent Revenue, No. 610 Advertising Expense, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense.
Instructions
(a) Enter the beginning balances in the ledger as of April 1. Insert a check mark ( ) in the reference column of the ledger for the beginning balance.
(b) Journalize the April transactions. Classic records admission revenue as service revenue, rental of the concession stand as rent revenue, and film rental expense as rent expense.
(c) Post the April journal entries to the ledger. Assume that all entries are posted from page 1 of the journal.
(d) Prepare a trial balance on April 30, 2014.
Aug 29, 2021 | Uncategorized
After researching the different forms of business organization. Natalie Koebel decides to operate “Cookie Creations” as a proprietorship. She then starts the process of getting the business running. In November 2013, the following activities take place.
|
8
|
Natalie cashes her U.S. Savings Bonds and receives $520, which she deposits in her personal bank account.
|
|
8
|
She opens a bank account under the name “Cookie Creations” and transfers $500 from her personal account to the new account.
|
|
11
|
Natalie pays $65 for advertising.
|
|
13
|
She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $125 cash. (Hint: Use Supplies account.)
|
|
14
|
Natalie starts to gather some baking equipment to take with her when teaching the cookie classes. She has an excellent top-of-the-line food processor and mixer that originally cost her $750. Natalie decides to start using it only in her new business. She estimates that the equipment is currently worth $300. She invests the equipment in the business.
|
|
16
|
Natalie realizes that her initial cash investment is not enough. Her grandmother lends her $2,000 cash, for which Natalie signs a note payable in the name of the business. Natalie deposits the money in the business bank account. (Hint: The note does not have to be repaid for 24 months. As a result, the note payable should be reported in the accounts as the last liability and also on the balance sheet as the last liability.)
|
|
17
|
She buys more baking equipment for $900 cash.
|
|
20
|
She teaches her first class and collects $125 cash.
|
|
25
|
Natalie books a second class for December 4 for $150. She receives $30 cash in advance as a down payment.
|
|
30
|
Natalie pays $1,320 for a one-year insurance policy that will expire on December 1, 2014.
|
Instructions
(a) Prepare journal entries to record the November transactions.
(b) Post the journal entries to general ledger accounts.
(c) Prepare a trial balance at November 30.
Aug 29, 2021 | Uncategorized
Inc.’s financial statements are presented. Financial statements for Wal-Mart Stores, Inc. are presented. Instructions for accessing and using the complete annual reports of Amazon and Wal-Mart, including the notes to the financial statements, are also provided in Appendices D and E, respectively.
Instructions
(a) Based on the information contained in the financial statements, determine the normal balance of the listed accounts for each company.
|
Amazon
|
Wal-Mart
|
|
Interest Expense
|
Net Sales Revenues
|
|
Cash and Cash Equivalents
|
Inventories
|
|
Accounts Payable
|
Cost of Sales
|
(b) Identify the other account ordinarily involved when:
(1) Accounts Receivable is increased.
(2) Interest Expense is increased.
(3) Salaries and Wages Payable is decreased.
(4) Service Revenue is increased.
Real-World Focus
Aug 29, 2021 | Uncategorized
Much information about specific companies is available on the Internet. Such information includes basic descriptions of the company’s location, activities, industry, financial health, and financial performance.
Instructions
Answer the following questions.
(a) What is the company’s industry?
(b) What is the company’s total sales?
(c) What is the company’s net income?
(d) What are the names of four of the company’s competitors?
(e) Choose one of these competitors.
(f) What is this competitor’s name? What are its sales? What is its net income?
(g) Which of these two companies is larger by size of sales? Which one reported higher net income?
Aug 29, 2021 | Uncategorized
The January 27, 2011, edition of the New York Times contains an article by Richard Sandomir entitled “N.F.L. Finances, as Seen Through Packers’ Records.” The article discusses the fact that the Green Bay Packers are the only NFL team that publicly publishes its annual report.
Instructions
Read the article and answer the following questions.
(a) Why are the Green Bay Packers the only professional football team to publish and distribute an annual report?
(b) Why is the football players’ labor union particularly interested in the Packers’ annual report?
(c) In addition to the players’ labor union, what other outside party might be interested in the annual report?
(d) Even though the Packers’ revenue increased in recent years, the company’s operating profit fell significantly. How does the article explain this decline?
Aug 29, 2021 | Uncategorized
Dyanna Craig operates Craig Riding Academy. The academy’s primary sources of revenue are riding fees and lesson fees, which are paid on a cash basis. Dyanna also boards horses for owners, who are billed monthly for boarding fees. In a few cases, boarders pay in advance of expected use. For its revenue transactions, the academy maintains the following accounts: Cash, Accounts Receivable, and Service Revenue.
The academy owns 10 horses, a stable, a riding corral, riding equipment, and office equipment. These assets are accounted for in these accounts: Horses, Buildings, and Equipment.
The academy also maintains the following accounts: Supplies, Prepaid Insurance, Accounts Payable, Salaries and Wages Expense, Advertising Expense, Utilities Expense, and Maintenance and Repairs Expense.
Dyanna makes periodic withdrawals of cash for personal living expenses. To record Dyanna’s equity in the business and her drawings, two accounts are maintained: Owner’s Capital and Owner’s Drawings.
During the first month of operations, an inexperienced bookkeeper was employed. Dyanna Craig asks you to review the following eight entries of the 50 entries made during the month. In each case, the explanation for the entry is correct.
|
May 1
|
Cash
|
18,000
|
|
|
|
Owner’s Capital
|
|
18,000
|
|
|
(Invested $18,000 cash in business)
|
|
|
|
5
|
Cash
|
250
|
|
|
|
Service Revenue
|
|
250
|
|
|
(Received $250 cash for lessons provided)
|
|
|
|
7
|
Cash
|
300
|
|
|
|
Service Revenue
|
|
300
|
|
|
(Received $300 for boarding of horses beginning June 1)
|
|
|
|
‘4
|
Equipment
|
80
|
|
|
|
Cash
|
|
800
|
|
|
(Purchased desk and other office equipment for $800 cash)
|
|
|
|
15
|
Salaries and Wages Expense
|
400
|
|
|
|
Cash
|
|
400
|
|
|
(Issued check to Dyanna Craig for personal use)
|
|
|
|
20
|
Cash
|
148
|
|
|
|
Service Revenue
|
|
184
|
|
|
(Received $184 cash for riding fees)
|
|
|
|
30
|
Maintenance and Repairs Expense
|
75
|
|
|
|
Accounts Payable
|
|
75
|
|
|
(Received bill of $75 from carpenter for repair services performed)
|
|
|
|
31
|
Supplies
|
1,700
|
|
|
|
Cash
|
|
1,700
|
|
|
(Purchased an estimated 2 months’
supply of feed and hay for $1,700 on account)
|
|
|
Instructions
With the class divided into groups, answer the following.
(a) Identify each journal entry that is correct. For each journal entry that is incorrect, prepare the entry that should have been made by the bookkeeper.
(b) Which of the incorrect entries would prevent the trial balance from balancing?
(c) What was the correct net income for May, assuming the bookkeeper reported net income of $4,500 after posting all 50 entries?
(d) What was the correct cash balance at May 31, assuming the bookkeeper reported a balance of $12,475 after posting all 50 entries (and the only errors occurred in the items listed above)?
Aug 29, 2021 | Uncategorized
Meredith Ward is the assistant chief accountant at Frazier Company, a manufacturer of computer chips and cellular phones. The company presently has total sales of $20 million. It is the end of the first quarter. Meredith is hurriedly trying to prepare a trial balance so that quarterly financial statements can be prepared and released to management and the regulatory agencies. The total credits on the trial balance exceed the debits by $1,000. In order to meet the 4 p.m. deadline, Meredith decides to force the debits and credits into balance by adding the amount of the difference to the Equipment account. She chooses Equipment because it is one of the larger account balances; percentage-wise, it will be the least misstated. Meredith “plugs” the difference! She believes that the difference will not affect anyone’s decisions. She wishes that she had another few days to find the error but realizes that the financial statements are already late.
Instructions
(a) Who are the stakeholders in this situation?
(b) What are the ethical issues involved in this case?
(c) What are Meredith’s alternatives?
Aug 29, 2021 | Uncategorized
Bill Anderson owns The Eatery in Miami, Florida. The Eatery is an affordable restaurant located near tourist attractions. Bill accepts cash and checks. Checks are deposited immediately. The bank charges $0.50 per check; the amount per check averages $75. Bad checks that Bill cannot collect make up 2 percent of check revenue. During a typical month, The Eatery has sales of $75,000. About 75 percent are cash sales. Estimated sales for the next three months are as follows:
July ………………. $60,000
August ……………. 75,000
September ………… 80,000
Bill thinks that it may be time to refuse to accept checks and to start accepting credit cards. He is negotiating with VISA/MasterCard and American Express, and he would start the new policy on April 1. Bill estimates that with the drop in sales from the no checks policy and the increase in sales from the acceptance of credit cards, the net increase in sales will be 20 percent. The credit cards involve added costs as follows:
VISA/MasterCard: Bill will accumulate these credit card receipts throughout the month and will submit them in one bundle for payment on the last day of the month. The money will be credited to his account by the fifth day of the following month. A fee of 3.5 percent is charged by the credit card company. American Express: Bill will accumulate these receipts throughout the month and mail them to American Express for payment on the last day of the month. American Express will credit his account by the sixth day of the following month. A fee of 5.5 percent is charged by American Express. Bill estimates the following breakdown of revenues among the various payment methods:
Cash ………………………..5%
VISA/Mastercard ………….75%
American Express …………20%
Required:
1. Prepare a schedule of cash receipts for August and September under the current policy of accepting checks.
2. Prepare a schedule of cash receipts for August and September that incorporates the changes in policy.
Aug 29, 2021 | Uncategorized
Boger Company provided the following information relating to cash payments:
a. Boger purchased direct materials on account in the following amounts:
June …………….40,000
July …………….45,000
August …………50,000
b. Boger pays 30 percent of accounts payable in the month of purchase and the remaining 70 percent in the following month.
c. In July, direct labor cost is $39,000. August direct labor cost was $48,000. The company finds that typically 90 percent of direct labor cost is paid in cash during the month, with the remainder paid in the following month.
d. August overhead amounted to $73,700, including $6,100 of depreciation.
e. Boger had taken out a loan of $112,000 on May 1. Interest, due with payment of principal, accrued at the rate of 12 percent per year. The loan and all interest were repaid on August 31.
Required:
Prepare a schedule of cash payments for Boger Company for the month of August.
Aug 29, 2021 | Uncategorized
(Intangible Assets) Robert Kaplan and David Norton (2004) state that “intangible assets almost never create value by themselves.” The value of intangible assets is strong only if the intangible assets support the strategy the company is pursuing. For example, consider McDonald”s, which pursues a low-cost strategy. Staff training and knowledge related to process improvements (such as just-in-time [JIT] inventory management and total quality management [TQM]) will be valuable for a company like McDonald”s, since this intangible resource supports the overall strategy of cost leadership.
Describe an example of an intangible asset that might be valuable to each of the following companies:
- Dell Computers
- Lululemon Athletica (a high-quality athletic clothing company)
- Canadian Tire
- Walmart
- Tim Hortons
- Research In Motion
Aug 29, 2021 | Uncategorized
(Balanced Scorecard) Goodall Corporation makes a wireless computer keyboard called the Blackbird. The following information was compiled for 2010 and 2011.
|
|
2010
|
2011
|
|
Number of keyboards sold
|
28,000
|
29,500
|
|
Plastic used (kilograms)
|
14,000
|
15,100
|
|
Direct materials costs per kilogram
|
$7
|
$10
|
|
Manufacturing capacity
|
35,000
|
35,000
|
|
Spoilage
|
18%
|
25%
|
|
Total manufacturing costs
|
$495,000
|
$585,000
|
|
Total customer service costs
|
$152,000
|
$161,650
|
|
Number of customers
|
608
|
610
|
|
Cost per customer
|
$250
|
$265
|
Due to increases in direct materials costs, Goodall is concerned that the profitability of its Blackbird line is decreasing. The company would like to reduce manufacturing costs and also reduce the amount of materials that are spoiled in a given year. Goodall also wants to grow its customer base more rapidly, as the industry market size for wireless keyboards increased over 25% from 2010 to 2011, but its results did not reflect this growth.
Identify three measures that you could use to help the company achieve its plans in each of the BSC perspectives.
Aug 29, 2021 | Uncategorized
(Balanced Scorecard) Mandy”s Magic Cleaners manufacturers cleaning products for the restaurant industry, including industrial strength degreasers and dishwasher products. Her products have an average sales price of $40 per litre. The following information relates to her sales for 2011 and 2012.
|
|
2011
|
2012
|
|
Litres of cleaner sold
|
8,500
|
10,600
|
|
Chemical purchases
|
$37,000
|
$58,500
|
|
Manufacturing capacity
|
15,000
|
15,000
|
|
Spoilage (percentage)
|
8%
|
7.3%
|
|
Total manufacturing costs
|
$102,000
|
$183,500
|
|
Number of products
|
14
|
25
|
During 2012, Mandy began selling 11 new products. Some of the new products required specialized equipment and she had to invest in new machinery in order to produce these lines. She is concerned that overall manufacturing costs have increased dramatically over 2011 and she is not sure if her investment in the new machinery was worth it. She realizes it may take some time for her new products to gain market share. Overall, Mandy wants to expand her company to be more diverse and offer products that her competitors do not provide.
Identify three measures that you could use to help the company achieve its plans in each of the BSC perspectives.
Aug 29, 2021 | Uncategorized
(Financial and Non-Financial Measures) Phone-Tech manufactures cellphones that utilize a touch-screen platform. Part of its overall strategy is to provide a high-quality phone that customers NEVER return for warranty repair. The company wants to be able to measure its quality performance by using both financial and non-financial measures of quality.
- List the merits of both financial and non-financial performance measures. Can one exist without the other?
- Describe both financial and non-financial measures that Phone-Tech could utilize to help it ensure that it is meeting its quality standards.
Aug 29, 2021 | Uncategorized
(Performance Management) No-One-Home is a security system provider in western Canada. Over the years, the company has implemented many management techniques (such as flexible budgeting, just-in-time inventory management, and value chain analysis) that have increased its level of customer service and quality. Last year, the CFO of No-One-Home mentioned that he felt that the company has a good handle on management control but that it has not gone far enough in terms of improving its processes. The president asked the CFO to present some ideas for how to take this next step of improving performance.
List some ideas that No-One-Home could implement to increase its focus on performance improvement.
Aug 29, 2021 | Uncategorized
National Retail Stores has identified the following data from its accounting records for the year ended December 31: Sales, $1,100,000; purchases, $650,000; and general and administrative expenses, $275,000. It had an opening inventory of $150,000 and a closing inventory of $200,000. Based on this information, the gross profit and operating profit/loss is
- A gross profit of $450,000 and an operating profit of $185,000
- A gross profit of $500,000 and an operating profit of $225,000
- A gross profit of $400,000 and an operating profit of $125,000
- A gross profit of $500,000 and an operating loss of $185,000
Aug 29, 2021 | Uncategorized
An item of inventory is purchased for $1,500. The sales price was $2,000, but as the item has now been replaced by a new model, it can only be sold for a discounted price of $1,350. The scrap value of the item is $1,100. To sell or scrap the inventory will involve transport costs of $100. The value of the inventory for statement of financial position purposes is
- $1,500
- $1,350
- $1,250
- $1,000
Purchases made during the month:
|
Feb 10
|
6,000 @ $2
|
|
Feb 20
|
3,000 @ $2.20
|
|
Feb 28
|
2,000 @ $2.30
|
Aug 29, 2021 | Uncategorized
The cost of 8,000 units sold in the month and the value of ending inventory using the weighted average method are
- $16,873; $6,327
- $16,400; $6,800
- $17,000; $7,000
- $52,000; $19,500
Purchases made during the month:
|
Feb 10
|
6,000 @ $2
|
|
Feb 20
|
3,000 @ $2.20
|
|
Feb 28
|
2,000 @ $2.30
|
Aug 29, 2021 | Uncategorized
Bluesky Limited”s Assembly Department had 20,000 units in its WIP inventory on March 1, 2012. Direct materials are added at the beginning of the assembly process. An additional 60,000 units were started during March, and 15,000 units were in the WIP inventory on March 31, 2012. The units in the WIP inventory on March 31 were 30% complete with respect to conversion.
Costs incurred in the Assembly Department for March 2012 were as follows:
|
WIP March 1Costs Incurred in March
|
|
Direct material
|
$62,000
|
$192,000
|
|
Conversion
|
$25,000
|
$85,150
|
Using the weighted average method of process costing, the cost of goods completed and transferred to finished goods inventory during March and the cost of work-in-process inventory on March 31, 2012, are
- $277,150; $87,000
- $309,400; $54,757
- $295,872; $20,483
- $295,872; $68,278
Aug 29, 2021 | Uncategorized
H. Xiao has the following transactions during August of the current year. Indicate (a) the effect on the accounting equation and (b) the debit-credit analysis illustrated on pages 66–70 of the text.
|
1
|
Opens an office as a financial advisor, investing $8,000 in cash.
|
|
4
|
Pays insurance in advance for 6 months, $1,800 cash.
|
|
16
|
Receives $3,400 from clients for services performed.
|
|
27
|
Pays secretary $1,000 salary.
|
Aug 29, 2021 | Uncategorized
Journalize the transactions. (You may omit explanations.)
|
1
|
Opens an office as a financial advisor, investing $8,000 in cash.
|
|
4
|
Pays insurance in advance for 6 months, $1,800 cash.
|
|
16
|
Receives $3,400 from clients for services performed.
|
|
27
|
Pays secretary $1,000 salary.
|
Aug 29, 2021 | Uncategorized
Selected transactions for the Joel Berges Company are presented in journal form below. Post the transactions to T-accounts. Make one T-account for each item and determine each account’s ending balance.
|
Date
|
Account Mies and Explanation
|
|
Debit
|
Credit
|
|
May 5
|
Accounts Receivable
|
|
4,100
|
|
|
|
Service Revenue
|
|
|
4.100
|
| |
(Billed for services performed)
|
|
|
|
|
12
|
Cash
|
|
2.400
|
|
| |
Accounts Receivable
|
|
|
2.400
|
| |
(Received cash in payment of account)
|
|
|
|
|
15
|
Cash
|
|
3,000
|
|
| |
Service Revenue
|
|
|
3,000
|
| |
(Received cash for services performed)
|
|
|
|
Aug 29, 2021 | Uncategorized
An inexperienced bookkeeper prepared the following trial balance. Prepare a correct trial balance, assuming all account balances are normal.
HUEWITT COMPANY Trial Balance December 31, 2014
|
Cash
|
Debit
|
Credit
|
|
$10,800
|
|
|
Prepaid Insurance
|
|
$ 3,500
|
|
Accounts Payable
|
|
3,000
|
|
Unearned Service Revenue
|
2,200
|
|
|
Owner’s Capital
|
|
9,000
|
|
Owner’s Drawings
|
|
4,500
|
|
Service Revenue
|
|
25,600
|
|
Salaries and Wages Expense
|
18,600
|
|
|
Rent Expense
|
|
2,400
|
|
|
$31,600
|
$48,000
|
Aug 29, 2021 | Uncategorized
Ivan Klumb engaged in the following activities in establishing his photography studio, Picture This!:
1. Opened a bank account in the name of Picture This! and deposited $6,300 of his own money into this account as his initial investment.
2. Purchased photography supplies at a total cost of $1,100. The business paid $400 in cash and the balance is on account.
3. Obtained estimates on the cost of photography equipment from three different manufacturers.
In what form (type of record) should Ivan record these three activities? Prepare the entries to record the transactions.
Aug 29, 2021 | Uncategorized
Ivan Klumb recorded the following transactions during the month of April.
|
April 3
|
Cash
|
3.400
|
|
|
|
Service Revenue
|
|
3.400
|
|
April 16
|
Rent Expense
|
700
|
|
|
|
Cash
|
|
700
|
|
April 20
|
Salaries and Wages Expense
|
300
|
|
|
|
Cash
|
|
300
|
Post these entries to the Cash T-account of the general ledger to determine the ending balance in cash. The beginning balance in cash on April 1 was $1,600.
Aug 29, 2021 | Uncategorized
The following accounts are taken from the ledger of Recha Company at December 31, 2014.
|
200
|
Notes Payable
|
$20,000
|
|
301
|
Owner’s Capital
|
28,000
|
|
157
|
Equipment
|
80,000
|
|
306
|
Owner’s Drawings
|
8,000
|
|
726
|
Salaries and Wages Expense
|
38,000
|
|
400
|
Service Revenue
|
88,000
|
|
101
|
Cash
|
$ 6,000
|
|
126
|
Supplies
|
6,000
|
|
729
|
Rent Expense
|
4,000
|
|
212
|
Salaries and Wages Payable
|
3,000
|
|
201
|
Accounts Payable
|
11,000
|
|
112
|
Accounts Receivable
|
8,000
|
Prepare a trial balance in good form.
Aug 29, 2021 | Uncategorized
Selected transactions for R. Sparks, an interior decorator, in her first month of business, are as follows.
|
2
|
Invested $10,000 cash in business.
|
|
3
|
Purchased used car for $4,000 cash for use in business.
|
|
9
|
Purchased supplies on account for $500.
|
|
11
|
Billed customers $2,100 for services performed.
|
|
16
|
Paid $350 cash for advertising.
|
|
20
|
Received $700 cash from customers billed on January 11.
|
|
23
|
Paid creditor $300 cash on balance owed.
|
|
28
|
Withdrew $1,000 cash for personal use by owner.
|
Instructions
For each transaction, indicate the following.
(a) The basic type of account debited and credited (asset, liability, owner’s equity).
(b) The specific account debited and credited (Cash, Rent Expense, Service Revenue, etc.).
(c) Whether the specific account is increased or decreased.
(d) The normal balance of the specific account.
Aug 29, 2021 | Uncategorized
Data for R. Sparks, interior decorator, are presented.
|
2
|
Invested $10,000 cash in business.
|
|
3
|
Purchased used car for $4,000 cash for use in business.
|
|
9
|
Purchased supplies on account for $500.
|
|
11
|
Billed customers $2,100 for services performed.
|
|
16
|
Paid $350 cash for advertising.
|
|
20
|
Received $700 cash from customers billed on January 11.
|
|
23
|
Paid creditor $300 cash on balance owed.
|
|
28
|
Withdrew $1,000 cash for personal use by owner.
|
Instructions
Journalize the transactions using journal page J1. (You may omit explanations.)
Aug 29, 2021 | Uncategorized
Multiple Choice Questions
1. The practice of delegating authority to division level managers by top management is
a. Centralization.
b. Good business practice.
c. Decentralization.
d. Autonomy.
e. Never done in business today.
2. Which of the following is a reason for decentralizing?
a. Training and motivating managers.
b. Unmasking inefficiencies in subdivisions of an overall profitable company.
c. Allowing top management to focus on strategic decision making.
d. Allowing top management to make all key operating decisions throughout the company.
e. All of the above are reasons for decentralizing.
3 A responsibility center in which a manager is responsible for both revenues and costs is a(n)
a. Cost center.
b. Profit center.
c. Revenue center.
d. Investment center.
4 A responsibility center in which a manager is responsible for revenues, costs, and investments is a(n)
a. Cost center.
b. Profit center.
c. Revenue center.
d. Investment center.
5 If sales and average operating assets for year 2 are identical to their values in year 1, yet operating income is higher, year 2 return on investment (compared with year 1 ROI) will
a. Increase.
b. Decrease.
c. Stay the same.
d. The direction of change in ROI cannot be determined by this information.
6. If sales and average operating assets for year 2 are identical to their values in year 1, yet operating income is higher, year 2 turnover (compared with year 1 turnover) will
a. Increase.
b. Decrease.
c. Stay the same.
d. The direction of change in turnover cannot be determined by this information.
Aug 29, 2021 | Uncategorized
Owens Company has a decentralized organization with a divisional structure. Two of these divisions are the Appliance Division and the Manufactured Housing Division. Each divisional manager is evaluated on the basis of ROI. The Appliance Division produces a small automatic dishwasher that the Manufactured Housing Division can use in one of its models. Appliance can produce up to 10,000 of these dishwashers per year. The variable costs of manufacturing the dishwashers are $44. The Manufactured Housing Division inserts the dishwasher into the model house and then sells the manufactured house to outside customers for $23,000 each. The division’s capacity is 2,000 units. The variable costs of the manufactured house (in addition to the cost of the dishwasher itself) are $12,600.
Required:
Assume each part is independent, unless otherwise indicated.
1. Assume that all of the dishwashers produced can be sold to external customers for $120 each. The Manufactured Housing Division wants to buy 2,000 dishwashers per year. What should the transfer price be?
2. Refer to Requirement 1. Assume $12 of avoidable distribution costs. Identify the maximum and minimum transfer prices. Identify the actual transfer price, assuming that negotiation splits the difference.
3. Assume that the Appliance Division is operating at 75 percent capacity. The Manufactured Housing Division is currently buying 2,000 dishwashers from an outside supplier for $90 each. Assume that any joint benefit will be split evenly between the two divisions. What is the expected transfer price? How much will the profits of the firm increase under this arrangement? How much will the profits of the Appliance Division increase, assuming that it sells the extra 2,000 dishwashers internally?
Aug 29, 2021 | Uncategorized
Pueblo Service is a fast growing chain of oil change stores. The following data are available for last year’s services:
?c Pueblo Service performed 396,000 oil changes last year. It had budgeted 360,000 oil changes, averaging 10 minutes each.
?c Standard variable labor and support costs per oil change were as follows:
Direct oil specialist services: 10 minutes at $12 per hour . . . . . . . . . $2
Variable support staff and overhead: 7.5 minutes at $8 per hour. . . . 1
?c Fixed overhead costs:
Annual budget. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $432,000
?c Fixed overhead is applied at the rate of $1.20 per oil change.
?c Actual oil change costs:
Direct oil specialist services: 396,000 changes averaging
12 minutes at $13.00 per hour. . . . . . . . . . . . . . . . . . . . . . . $1,029,600
Variable support staff and overhead: 0.14 labor hours at
$7.50 per hour A? 396,000 changes. . . . . . . . . . . . . . . . . . . . . . 415,800
Fixed overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
Required
a. Prepare a cost variance analysis for each variable cost for last year.
b. Prepare a fixed overhead cost variance analysis like the one in Exhibit 16.13.
Aug 29, 2021 | Uncategorized
Salomon Company uses a cost of capital rate of 12 percent in making investment decisions. It currently is considering two mutually exclusive projects, each requiring an initial investment of $10 million. The first project has a net present value of $21 million and an internal rate of return of 20 percent. The firm will complete this project within one year. It will raise accounting income and earnings per share almost immediately thereafter. The second project has a net present value of $51 million and an internal rate of return of 30 percent. The second project requires incurring large, noncapitalizable expenses over the next few years before net cash inflows from sales revenue result. Thus accounting income and earnings per share for the next few years will not only be lower than if the first project is accepted but will also be lower than earnings currently reported.
a. Should the short run effects on accounting income and earnings per share influence the decision about the choice of projects? Explain.
b. Should either of the projects be accepted? If so, which one? Why?
Aug 29, 2021 | Uncategorized
Senior Security Co. offers a range of security services for senior citizens. Each type of service is considered within a separate department. Mary Pincus, the overall manager, is compensated partly on the basis of departmental performance by staying within the quarterly cost budget. She often revises operations to make sure departments stay within budget. Says Pincus, ?oI will not go over budget even if it means slightly compromising the level and quality of service. These are minor compromises that don’t significantly affect my clients, at least in the short term.??
Required
1. Is there an ethical concern in this situation? If so, which parties are affected? Explain.
2. Can Mary Pincus take action to eliminate or reduce any ethical concerns? Explain.
3. What is Senior Security’s ethical responsibility in offering professional services?
Aug 29, 2021 | Uncategorized
Spring Waters, Inc., produces bottled drinks. The New York Division acquires the water, adds carbonation, and sells it in bulk quantities to the New Jersey Division of Spring Waters and to outside buyers. The New Jersey Division buys carbonated water in bulk, adds flavoring, bottles it, and sells it.
Last year, the New York Division produced 1,500,000 gallons, of which it sold 1,300,000 gallons to the New Jersey Division and the remaining 200,000 gallons to outsiders for $0.40 per gallon. The New Jersey Division processed the 1,300,000 gallons, which it sold for $1,500,000. New York’s variable costs were $440,000 and its fixed costs were $120,000.
The New Jersey Division incurred an additional variable cost of $320,000 and $200,000 of fixed costs. Both divisions operated below capacity.
a. Prepare division income statements assuming the transfer price is at the external market price of $0.40 per gallon.
b. Repeat part a. assuming a negotiated transfer price of $0.30 per gallon is used.
c. Respond to the statement: ?~?~The choice of a particular transfer price is immaterial to the company as a whole.
Aug 29, 2021 | Uncategorized
Technovia Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize ROI and EVA. Managers are essentially free to determine whether goods will be transferred internally and what will be the internal transfer prices. Headquarters has directed that all internal prices be expressed on a full cost plus basis. The markup in the full cost pricing arrangement, however, is left to the discretion of the divisional managers. Recently, the two divisional managers met to discuss a pricing agreement for a subwoofer that would be sold with a personal computer system. Production of the subwoofers is at capacity. Subwoofers can be sold for $31 to outside customers. The Audio Systems Division can also buy the subwoofer from external sources for the same price; however, the manager of this division is hoping to obtain a price concession by buying internally. The full cost of manufacturing the subwoofer is $20. If the manager of the Auxiliary Components Division sells the subwoofer internally, $5 of selling and distribution costs can be avoided. The volume of business would be 250,000 units per year, which is well within the capacity of the producing division. After some discussion, the two managers agreed on a full cost plus pricing scheme that would be reviewed annually. Any increase in the outside selling price would be added to the transfer price by simply increasing the markup by an appropriate amount. Any major changes in the factors that led to the agreement could initiate a new round of negotiation; otherwise, the full cost plus arrangement would continue in force for subsequent years.
Required:
1. Calculate the minimum and maximum transfer prices.
2. Assume that the transfer price agreed on between the two managers is halfway between the minimum and maximum transfer prices. Calculate this transfer price. What markup over full cost is implied by this transfer price?
3. Refer to Requirement 2. Assume that in the following year, the outside price of subwoofers increases to $32. What is the new full cost plus transfer price?
4. Assume that two years after the initial agreement, the market for subwoofers has softened considerably, causing excess capacity for the Auxiliary Components Division. Would you expect a renegotiation of the full cost plus pricing arrangement for the coming year? Explain.
Aug 29, 2021 | Uncategorized
The balance sheet for the New Products Division of NuBone Corporation showed invested assets of $200,000 at the beginning of the year and $300,000 at the end of the year. During the year, the division’s operating income was $12,500 on sales of $500,000.
Required
1. Compute the division’s residual income if the desired ROI is 6 percent.
2. Compute the following performance measures for the division:
(a) Profit margin,
(b) Asset turnover, and
(c) Return on investment
3. Recompute the division’s ROI under each of the following independent assumptions:
a. Sales increase from $500,000 to $600,000, causing operating income to rise from $12,500 to $30,000.
b. Invested assets at the beginning of the year are reduced from $200,000 to $100,000.
c. Operating expenses are reduced, causing operating income to rise from $12,500 to $20,000.
4. Compute NuBone’s EVA if total corporate assets are $500,000, current liabilities are $80,000, after tax operating income is $50,000, and the cost of capital is 8 percent.
Aug 29, 2021 | Uncategorized
The Caribbean Division of Mega Entertainment Corporation just started operations. It purchased depreciable assets costing $30 million and having a four year expected life, after which the assets can be salvaged for $6 million. In addition, the division has $30 million in assets that are not depreciable. After four years, the division will have $30 million available from these non depreciable assets. This means that the division has invested $60 million in assets with a salvage value of $36 million. Annual depreciation is $6 million. Annual operating cash flows are $15 million. In computing ROI, this division uses end of year asset values in the denominator. Depreciation is computed on a straight line basis, recognizing the salvage values noted. Ignore taxes.
Required
a. Compute ROI, using net book value for each year.
b. Compute ROI, using gross book value for each year.
Aug 29, 2021 | Uncategorized
The following list gives a number of measures associated with the Balanced Scorecard:
a. Number of new customers
b. Percentage of customer complaints resolved with one contact
c. Unit product cost
d. Cost per distribution channel
e. Suggestions per employee
f. Warranty repair costs
g. Consumer satisfaction (from surveys)
h. Cycle time for solving a customer problem
i. Strategic job coverage ratio
j. On time delivery percentage
k. Percentage of revenues from new products
Required:
1. Classify each performance measure as belonging to one of the following perspectives: financial, customer, internal business process, or learning and growth.
2. Suggest an additional measure for each of the four perspectives.
Aug 29, 2021 | Uncategorized
The October 5, 1998, issue of BusinessWeek includes the article ?oWho Can You Trust??? authored by Sarah Bartlett. Among other dubious accounting practices, the article describes a trick known as the ?obig bath,?? which occurs when a company makes huge unwarranted asset write offs that drastically overstate expenses. Outside auditors (CPAs) permit companies to engage in the practice because the assets being written off are of questionable value.
Because the true value of the assets cannot be validated, auditors have little recourse but to accept the valuations suggested by management. Recent examples of questionable write offs include Motorola’s $1.8 billion restructuring charge and the multibillion dollar write offs for ?oin process?? research taken by high tech companies such as Compaq Computer Corp. and WorldCom, Inc.
Required
a. Why would managers want their companies to take a big bath?
b. Annual reports are financial reports issued to the public. The reports are the responsibility of auditors who are CPAs who operate under the ethical standards promulgated by the American Institute of Certified Public Accountants. As a result, attempts to manipulate annual report data are not restricted by the Institute of Management Accountants Standards of Ethical Conduct shown in Exhibit 10.14 of Chapter 10. Do you agree or disagree with this conclusion? Explain your position.
Aug 29, 2021 | Uncategorized
Tondamakers produced and sold 1,000 Tonda riding lawnmowers in Year 2. Relevant data follow:
Actual Results for Year 2:
Direct Materials: 11,000 Pounds at $19 …………………………………………………. $209,000
Direct Labor: 2,050 Hours at $31…………………………………………………………….. $ 63,550
Manufacturing Overhead ($205,000 fixed) ……………………………………………… $245,000
Actual Marketing and Administrative Costs ($320,000 fixed) …………………. $380,000
Total Revenue: 1,000 Units at $940………………………………………………………… $940,000
Actual Machine Hours Worked……………………………………………………………… 550 Hours
Standards and budgets for Year 1: Variable Costs per Unit:
Materials: 10 Pounds at $20…………………………………………………………………….. $ 200
Labor: 2 Hours at $30………………………………………………………………………………. $ 60
Variable Overhead: .5 Machine Hours at $80 ……………………………………………… $ 40
Fixed Manufacturing Costs ………………………………………………………………… $200,000
Sales Volume……………………………………………………………………………………. 900 Units
Marketing and Administrative Costs…………………………$350,000 + $50 per Unit Sold
Sales Price………………………………………………………………………………… $1,000 per Unit
Using the profit and cost variance framework that appears in Exhibit 10.7, explain the differences in operating profit between the budgeted and actual amounts.
Aug 29, 2021 | Uncategorized
Using data from the CVS Corporation annual report in the Supplement to Chapter 5, conduct a comprehensive ratio analysis that compares the company’s performance in 2008 and 2007. If you have computed ratios for CVS in previous chapters, you may prepare a table that summarizes the ratios and show calculations only for the ratios not previously calculated. If this is the first ratio analysis you have done for CVS, show all your computations. In either case, after each group of ratios, comment on the performance of CVS. Round your calculations to one decimal place. Prepare and comment on the following categories of ratios:
Liquidity analysis: current ratio, quick ratio, receivable turnover, days’ sales uncollected, inventory turnover, days’ inventory on hand, payables turnover, and days’ payable. (Accounts Receivable, Inventories, and Accounts Payable were [in millions] $2,381.7, $7,108.9, and $2,521.5, respectively, in 2006.)
Profitability analysis: profit margin, asset turnover, return on assets, and return on equity. (Total assets and total shareholders’ equity were [in millions] $20,574.1 and $9,917.6, respectively, in 2006.)
Long term solvency analysis: debt to equity ratio and interest coverage ratio.
Cash flow adequacy analysis: cash flow yield, cash flows to sales, cash flows to assets, and free cash flow.
Market strength analysis: price/earnings (P/E) ratio and dividends yield.
Aug 29, 2021 | Uncategorized
VSOP, Inc., has a number of divisions that produce liquors, malt beverages, and glassware. The Glassware Division manufactures a variety of bottles that can be sold externally (to soft drink and juice bottlers) or internally to VSOP’s Malt Beverage Division. Sales and cost data on a case of 24 basic 12 ounce bottles are as follows:
Unit selling price ……………………$2.80
Unit variable cost ……………………$1.15
Unit product fixed cost* …………….$0.70
Practical capacity in cases ………….. 500,000
*$350,000/500,000.
During the coming year, the Glassware Division expects to sell 390,000 cases of this bottle. The Malt Beverage Division currently plans to buy 100,000 cases on the outside market for $2.80 each. Jill Von Holstein, manager of the Glassware Division, approached Eric Alman, manager of the Malt Beverage Division, and offered to sell the 100,000 cases for $2.75 each. Jill explained to Eric that she can avoid selling costs of $0.10 per case by selling internally and that she would split the savings by offering a $0.05 discount on the usual price.
Required:
1. What is the minimum transfer price that the Glassware Division would be willing to accept? What is the maximum transfer price that the Malt Beverage Division would be willing to pay? Should an internal transfer take place? What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place?
2. Suppose Eric knows that the Glassware Division has idle capacity. Do you think that he would agree to the transfer price of $2.75? Suppose he counters with an offer to pay $2.40. If you were Jill, would you be interested in this price? Explain with supporting computations.
3. Suppose that VSOP’s policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be? Would the transfer take place?
Aug 29, 2021 | Uncategorized
Wood4Fun makes wooden playground equipment for the institutional and consumer markets. The company strives for low cost, high quality production because it operates in a highly competitive market in which product price is set by the marketplace and is not based on production costs. The company is organized into responsibility centers. The vice president of manufacturing is responsible for three manufacturing plants. The vice president of sales is responsible for four sales regions. Recently, these two vice presidents began to disagree about whether the manufacturing plants are cost centers or profit centers. The vice president of manufacturing views the plants as cost centers because the managers of the plants control only product related costs. The vice president of sales believes the plants are profit centers because product quality and product cost strongly affect company profits.
1. Identify the controllable performance that Wood4Fun values and wants to measure. Give at least three examples of performance measures that Wood4Fun could use to monitor such performance.
2. For the manufacturing plants, what type of responsibility center is most consistent with the controllable performance Wood4Fun wants to measure?
3. For the manufacturing plants, what type of responsibility center is most appropriate?
Aug 29, 2021 | Uncategorized
1.The information provided below is related to equipment owned by Collier
Company at December 31, 2012:
Cost $7,500,000
Accumulated Depreciation 2,000,000
Expected future net cash flows (undiscounted) 3,000,000
Expected future net cash flows (discounted) 2,700,000
Fair value 2,500,000
Remaining useful life of asset 3 Years
What is the impairment loss for Collier Company under IFRS?
2.
Jones Company purchased a building on January 1, 2007 for $15 million. As ofDecember 31, 2010 the accumulated depreciation on the building was $4 million.Assuming Jones Company intends to revalue the building to its current fair value of$18 million, by what amount should the company credit its revaluation surplus?
Aug 29, 2021 | Uncategorized
1. A budget
a. Is a long term plan.
b. Covers at least two years.
c. Is only a control tool.
d. Is necessary only for large firms.
e. Is a short term financial plan.
2. Which of the following is not part of the control process?
a. Monitoring of actual activity
b. Comparison of actual with planned activity
c. Investigating
d. Developing a strategic plan
e. Taking corrective action
3. Which of the following is not an advantage of budgeting?
a. It forces managers to plan.
b. It provides information for decision making.
c. It guarantees an improvement in organizational efficiency.
d. It provides a standard for performance evaluation.
e. It improves communication and coordination.
4. The budget committee
a. Reviews the budget.
b. Resolves differences that arise as the budget is prepared.
c. Approves the final budget.
d. Is directed (typically) by the controller.
e. Does all of the above.
5. A moving, 12 month budget that is updated monthly is
a. A waste of time and effort.
b. A continuous budget.
c. A master budget.
d. Not used by industrial firms.
e. Always used by firms that prepare a master budget.
6. Which of the following is not part of the operating budget?
a. The capital budget
b. The cost of goods sold budget
c. The production budget
d. The direct labor budget
e. The selling and administrative expenses budget
7. Before a direct materials purchases budget can be prepared, you should first
a. Prepare a sales budget.
b. Prepare a production budget.
c. Decide on the desired ending inventory of materials.
d. Obtain the expected price of each type of material.
e. Do all of the above.
8. The first step in preparing the sales budget is to
a. Talk with past customers.
b. Review the production budget carefully.
c. Assess the desired ending inventory of finished goods.
d. Prepare a sales forecast.
e. Increase sales beyond the forecast level.
9. Which of the following is needed to prepare the production budget?
a. Direct materials needed for production
b. Expected unit sales
c. Direct labor needed for production
d. Units of materials in ending inventory
e. None of the above
10. A company requires 100 pounds of plastic to meet the production needs of a small toy. It currently has 10 pounds of plastic inventory. The desired ending inventory of plastic is 30 pounds. How many pounds of plastic should be budgeted for purchasing during the coming period?
a. 100 pounds
b. 120 pounds
c. 130 pounds
d. 140 pounds
e. None of the above
Aug 29, 2021 | Uncategorized
1. A nongovernmental VHWO receives $20,000 of unconditional promises to give with no donor imposed restrictions. Of this amount $14,000 is due during the current period and $6,000 is due in the next period. The organization estimates that 3% of the pledges will be uncollectible.
2. A nongovernmental VHWO receives a $200 cash gift that is restricted for use in a project to provide immediate assistance to qualified people with temporary hardships. Money is given to a qualified individual during the same period.
3. The Uptown Restaurant donated restaurant equipment to the Food Kitchen, a nongovernmental VHWO. The equipment had a fair value of $6,000 and a remaining useful life of four years, with no scrap value. No restrictions were imposed on the use of the equipment, either by the Uptown Restaurant or the Food Kitchen.
4. A donor contributed $8,000 to a homeless shelter that was restricted to the purchase of a new truck. The money was invested in a CD that pays 5% interest. Accrued interest on the investment totaled $215 at year end. The income from the investment was also restricted for the purchase of a truck.
5. Orleans Community College assessed its students $750,000 tuition for the 2011 fall term. The college estimates bad debts will be 1% of the gross assessed tuition. Orleans’s scholarship program provides for tuition waivers totaling $65,000. Because of class cancellations, $15,000 is refunded to the students.
6. Your State University received donations of $3 million in 2011 that were restricted to certain research projects on the feasibility of growing tobacco for pharmaceutical uses. The university incurred $1.2 million of expenses on this research in 2011.
REQUIRED
Prepare journal entries to account for these transactions. Include net asset classifications, where applicable.
Aug 29, 2021 | Uncategorized
1. Contributions that are restricted by a donor to a nongovernmental not for profit organization are reported as a part of:
a. Permanently restricted net assets
b. Temporarily restricted net assets
c. Unrestricted net assets
d. Either permanently restricted or temporarily restricted net assets, depending on the terms of the restriction
2. Unconditional promises to give are recognized as contribution revenue under GAAP when:
a. The promise is received
b. The related receivable is collected
c. The time or purpose restriction is satisfied
d. The future event that binds the promise occurs
3. Which of the following is not a characteristic of a conditional promise to give?
a. It depends on the occurrence of a specified future and uncertain event to bind the promise.
b. The gift may have to be returned to the donor if the condition is not met.
c. It is recognized as contribution revenue when the conditions are substantially met.
d. It depends on demand by the promises for performance.
4. Contributed long lived assets that are donor restricted for a certain time period are reported by a nongovernmental not for profit entity as:
a. Unrestricted support in unrestricted net assets
b. Restricted support in permanently restricted net assets
c. Restricted support in temporarily restricted net assets
d. Unrestricted support in temporarily restricted net assets
5. Long lived assets are purchased by a nongovernmental not for profit entity with cash that was restricted for that purpose. The assets are reported in temporarily restricted net assets. Depreciation expense is reported in unrestricted net assets.
a. The depreciation expense is incorrectly reported.
b. An amount equal to the depreciation is reclassified from temporarily restricted to unrestricted net assets.
c. An amount equal to the depreciation is reclassified from unrestricted to temporarily restricted net assets.
d. An amount equal to the depreciation is reported as revenues.
Aug 29, 2021 | Uncategorized
Analyzing budget data for the United States government The annual budget of the United States is very complex, but this case requires that you analyze only a small portion of the historical tables that are presented as a part of each year’s budget. The fiscal year of the federal government ends on September 30. Obtain the budget documents needed at www.gpoaccess.gov/usbudget by following these steps:
¦ Under the ?oPrevious Budgets?? heading, click on ?oBrowse??
¦ Under the Barack H. Obama heading, click on ?oFiscal Y ear 2010??
¦ There are two options that can be used on the page that appears next:
?c Under the ?oBudget Documents?? heading, you can select the PDF link beside the ?oHistorical Table?? subheading.
?c Scroll down to the ?oSpreadsheets?? heading and click on the ?oHistorical Tables?? subheading. This option provides the data in an Excel compatible format.
¦ Under whichever option you choose above, you will need to review Table 1.1, Table 1.2, and Table 4.2 to complete the requirements below.
Required
a. Table 1.2 shows the budget as a percentage of gross domestic product (GDP). Using the data in the third column, ?oSurplus of Deficit,?? determine how many years since 1960 the budget has shown a surplus and how many times it has shown a deficit. Ignore the ?oTQ?? data between 1976 and 1977. This was a year that the government changed the ending date of its fiscal year.
b. Based on the data in Table 1.2, identify the three years with the highest deficits as a percentage of GDP. What were the deficit percentages for these years? Which year had the largest surplus and by what percentage?
c. Using your findings for Requirement b, regarding the year with the highest deficit as a percentage of GDP, go to Table 1.1 and calculate the deficit for that year as a percentage of revenues.
d. The president of the United States from 1993 through 2000 was Bill Clinton, a Democrat. The president from 2001 through 2009 was George Bush, a Republican. These men had significant input into the federal budget for the fiscal years 1994–2001 and 2002–2009, respectively. Table 4.2 shows what percentage of the total federal budget was directed toward each department within the government. Compare the data on Table 4.2 for 1994–2001, the Clinton years, to the data for 2002–2009, the Bush years. Identify the five departments that appear to have changed the most from the Clinton years to the Bush years. Ignore ?oAllowances?? and ?oUndistributed offsetting receipts.?? Note, if you wish to approach this assignment more accurately, you can compute the average percentage for each department for the eight years each president served, and compare the two averages. The gpoaccess website includes a spreadsheet version of the historical data tables, allowing for a reasonably easy Excel analysis.
Aug 29, 2021 | Uncategorized
Chapin, Inc., owns a number of food service companies. Two divisions are the Coffee Division and the Donut Shop Division. The Coffee Division purchases and roasts coffee beans for sale to supermarkets and specialty shops. The Donut Shop Division operates a chain of donut shops where the donuts are made on the premises. Coffee is an important item for sale along with the donuts and, to date, has been purchased from the Coffee Division. Company policy permits each manager the freedom to decide whether or not to buy or sell internally. Each divisional manager is evaluated on the basis of return on investment and residual income. Recently, an outside supplier has offered to sell coffee beans, roasted and ground, to the Donut Shop Division for $4.00 per pound. Since the current price paid to the Coffee Division is $4.50 per pound, Brandi Alzer, the manager of the Donut Shop Division, was interested in the offer. However, before making the decision to switch to the outside supplier, she decided to approach Raymond Jasson, manager of the Coffee Division, to see if he wanted to offer an even better price. If not, then Brandi would buy from the outside supplier. Upon receiving the information from Brandi about the outside offer, Raymond gathered the following information about the coffee:
Direct materials ……………….$0.90
Direct labor …………………… 0.40
Variable overhead ……………. 0.70
Fixed overhead* ……………… 1.50
Total unit cost …………………$3.50
*Fixed overhead is based on $1,500,000/1,000,000 pounds.
Selling price per pound ………………. $4.50
Production capacity ……………………1,000,000 pounds
Internal sales ………………………….. 100,000 pounds
Required:
1. Suppose that the Coffee Division is producing at capacity and can sell all that it produces to outside customers. How should Raymond respond to Brandi’s request for a lower transfer price? What will be the effect on firmwide profits? Compute the effect of this response on each division’s profits.
2. Now, assume that the Coffee Division is currently selling 950,000 pounds. If no units are sold internally, total coffee sales will drop to 850,000 pounds. Suppose that Raymond refuses to lower the transfer price from $4.50. Compute the effect on firm wide profits and on each division’s profits.
3. Refer to Requirement 2. What are the minimum and maximum transfer prices? Suppose that the transfer price is the maximum price less $1. Compute the effect on the firm’s profits and on each division’s profits. Who has benefited from the outside bid?
4. Refer to Requirement 2. Suppose that the Coffee Division has operating assets of $2,000,000. What is divisional ROI based on the current situation? Now, refer to Requirement 3. What will divisional ROI be if the transfer price of the maximum price less $1 is implemented? How will the change in ROI affect Raymond? What information has he gained as a result of the transfer pricing negotiations?
Aug 29, 2021 | Uncategorized
Chicago Corporation has just received its marketing expense report for July, which follows.
Item Amount
Sales Commissions ……………………………………………………… $140,000
Sales Staff Salaries………………………………………………………….. 60,000
Telephone and Mailing…………………………………………………….. 16,000
Building Lease Payment …………………………………………………. 20,000
Heat, Light, and Water ……………………………………………………. 5,000
Packaging and Delivery………………………………………………….. 28,000
Depreciation ………………………………………………………………… 15,000
Marketing Consultants……………………………………………………. 20,000
You have been asked to develop budgeted costs for July of next year. Here are additional data relevant to July of next year:
_ Sales volume is expected to increase by 5 percent.
_ Sales prices are expected to increase by 10 percent.
_ Commissions are based on a percentage of sales revenue.
_ Sales staff salaries will increase 4 percent next year regardless of sales volume.
_ Telephone and mailing expenses are scheduled to increase by 8 percent even with no change in sales volume. However, these costs are variable with the number of units sold, as are packaging and delivery costs.
_ Building rent is based on a five year lease that expires in three years.
_ Heat, light, and water are scheduled to increase by 12 percent regardless of sales volume.
_ Packaging and delivery vary with the number of units sold.
_ Depreciation includes furniture and fixtures used by the sales staff. The company has just acquired an additional $1,900 in furniture that will be received at the start of next year and will be depreciated over a 10 year life using the straight line method.
_ Marketing consultant expenses were for a special advertising campaign that runs from time to time. During the coming year, the costs are expected to average $35,000 per month.
Prepare a budget for marketing expenses for July in the coming year. Management hopes to keep the total marketing expense budget under $350,000 in Year 2. Based on your budget, are the expected marketing expenses for Year 2 under $350,000?
If not, which expenses are budgeted to increase the most?
Aug 29, 2021 | Uncategorized
Consider each of the following independent scenarios:
a. Terrin Belson, plant manager for the laser printer factory of Compugear Inc., brushed his hair back and sighed. December had been a bad month; two machines had broken down, and some factory production workers (all on salary) were idled for part of the month. Materials prices increased, and insurance premiums on the factory increased. No way out of it; costs were going up. He hoped that the marketing vice president would be able to push through some price increases, but that really wasn’t his department.
b. Joanna Pauly was delighted to see that her ROI figures had increased for the third straight year. She was sure that her campaign to lower costs and use machinery more efficiently (enabling her factories to sell several older machines) was the reason why. Joanna planned to take full credit for the improvements at her semiannual performance review.
c. Gil Rodriguez, sales manager for ComputerWorks, was not pleased with a memo from headquarters detailing the recent cost increases for the laser printer line. Headquarters suggested raising prices. ?~?~Great,’’ thought Gil, ?~?~an increase in price will kill sales and revenue will go down. Why can’t the plant shape up and cut costs like every other company in America is doing? Why turn this into my problem?’’
d. Susan Whitehorse looked at the quarterly profit/loss statement with disgust. Revenue was down, and cost was up—what a combination! Then she had an idea. If she cut back on maintenance of equipment and let a product engineer go, expenses would decrease—perhaps enough to reverse the trend in income.
e. Shonna Lowry had just been hired to improve the fortunes of the Southern Division of ABC Inc. She met with top staff and hammered out a three year plan to improve the situation. A centerpiece of the plan is the retiring of obsolete equipment and the purchasing of state of the art, computer assisted machinery. The new machinery would take time for the workers to learn to use, but once that was done, waste would be virtually eliminated.
Required:
For each of the above independent scenarios, indicate the type of responsibility center involved (cost, revenue, profit, or investment).
Aug 29, 2021 | Uncategorized
Consider the following key performance indicators: a. Number of customer complaints b. Number of information system upgrades completed c. EVA d. New product development time e. Employee turnover rate f. Percentage of products with online help manuals g. Customer retention h. Percentage of compensation based on performance i. Percentage of orders filled each week j. Gross margin growth k. Number of new patents l. Employee satisfaction ratings m. Manufacturing cycle time (average length of production process) n. Earnings growth o. Average machine setup time p. Number of new customers q. Employee promotion rate r. Cash flow from operations s. Customer satisfaction ratings t. Machine downtime u. Finished products per day per employee v. Percentage of employees with access to upgraded system w. Wait time per order prior to start of production Requirement 1. Classify each indicator according to the balanced scorecard perspective it addresses. Choose from the financial perspective, customer perspective, internal business perspective, or the learning and growth perspective.
Aug 29, 2021 | Uncategorized
Determining labor price and usage variances As noted in Problem 8 21B, Tiffany Swimsuit makes swimsuits. In 2011, Tiffany produced its most popular swimsuit, the Sarong, for a standard labor price of $30 per hour. The standard amount of labor was 1.0 hour per swimsuit. The company had planned to produce 100,000 Sarong swimsuits. At the end of 2011, the company’s cost accountant reported that Tiffany had used 107,000 hours of labor to make 102,000 swimsuits. The total labor cost was $3,295,600.
Required
a. Should the labor variances be based on the planned volume of 100,000 swimsuits or on the actual volume of 102,000 swimsuits?
b. Prepare a table that shows the standard labor price, the actual labor price, the standard labor hours, and the actual labor hours.
c. Compute the labor price variance and indicate whether it is favorable (F) or unfavorable (U).
d. Compute the labor usage variance and indicate whether it is favorable (F) or unfavorable (U).
Aug 29, 2021 | Uncategorized
During the current year International Business Company’s Asian Division incurred differential production costs of $6 million for parts that are transferred to its European Division. Asian Division has substantial excess capacity. European Division uses those parts to produce the final product. In addition to the costs of the units transferred from Asian Division, European Division incurred differential costs of $8 million to produce the final product in addition to the costs of parts shipped to it from the Asian Division. Sales revenue for the final product sold by European Division is $30 million. Other companies in the same country import similar parts as European Division at a cost of $7 million. International Business Company has set its transfer price at $14 million. The tax rate in the country where Asian Division is located is 40% while the tax rate for the country in which European Division is located is 70%.
a. What would International Business Company’s total tax liability for both divisions be if it used the $ 7 million transfer price?
b. What would the liability be if it used the $14 million transfer price?
c. What is the optimal transfer price from an incentive point of view, ignoring taxes? What would be each division’s operating profit if this optimal incentive transfer price were used?
Aug 29, 2021 | Uncategorized
Eric Dawson is a department manager at Lemhi, Inc., a manufacturing company. His department is responsible for assembling various products. Lemhi uses a standard costing system to help manage operations and evaluate its managers. In addition to his salary, Mr. Dawson has the potential to earn a bonus based on how well his department performs, and he, in turn, evaluates the workers in his department based on how well they perform their duties, based on the standard costing system.
Lemhi, Inc., has just received a contract to manufacture a new toy, called Logic Block, for the Toys for the Imagination Company, and Mr. Dawson’s department will be responsible for its assembly. The product designers and engineers at Lemhi believe it should take the workers in Mr. Dawson’s department 23 minutes to assemble each toy. However, Mr. Dawson told his workers the standard time allowed to assemble each unit of Logic Block is 21 minutes.
Required
a. Explain what Mr. Dawson is hoping to achieve by telling workers the time expected to assemble a toy is 21 minutes versus 23 minutes.
b. What do you think the short term and long term implications of this strategy are likely to be? Explain.
Aug 29, 2021 | Uncategorized
Everybody knew Ed McAlister was a brilliant businessman. He had taken a small garbage collection company in Kentucky and built it up to be one of the largest and most profitable waste management companies in the Midwest. But when he was convicted of a massive financial fraud, what surprised everyone was how crude and simple the scheme was. To keep the earnings up and the stock prices soaring, he and his cronies came up with an almost foolishly simple scheme: First, they doubled the useful lives of the dumpsters. That allowed them to cut depreciation expense in half. The following year, they simply increased the estimated salvage value of the dumpsters, allowing them to further reduce depreciation expense. With thousands of dumpsters spread over 14 states, these simple adjustments gave the company an enormous boost to the bottom line. When it all came tumbling down, McAlister had to sell everything he owned to pay for his legal costs and was left with nothing.
Requirements
1. If an asset has either too long a useful life or too high an estimated salvage value, what happens, from an accounting perspective, when that asset is worn out and has to be disposed of?
2. Do the rules of GAAP (generally accepted accounting principles) mandate specific lives for different types of assets? What is the role of the outside auditor in evaluating the reasonableness of depreciation lives and salvage values?
Aug 29, 2021 | Uncategorized
Grandpa Joe’s Cookie Company sells homemade cookies made with organic ingredients. His sales are strictly Web based. The business is taking off more than Grandpa Joe ever expected, with orders coming from across the country from both consumers and corporate event planners. Grandpa decides to decentralize and hires a full time baker who will manage production and product cost and a Web designer/sales manager who will focus on increasing sales through the Web site. Grandpa Joe can no longer handle the business on his own, so he hires a business manager to work with the other employees to ensure the company is best utilizing its assets to produce profit. Grandpa will then have time to focus on new product development.
Requirement
1. Now that Grandpa Joe’s Cookie Company has decentralized, identify the type of responsibility center that each manager is managing.
Aug 29, 2021 | Uncategorized
Grate Care Company specializes in producing products for personal grooming. The company operates six divisions, including the Hair Products Division. Each division is treated as an investment center. Managers are evaluated and rewarded on the basis of ROI performance. Only those managers who produce the best ROIs are selected to receive bonuses and to fill higher level managerial positions. Fred Olsen, manager of the Hair Products Division, has always been one of the top performers. For the past two years, Fred’s division has produced the largest ROI; last year, the division earned an operating income of $2.56 million and employed average operating assets valued at $16 million. Fred is pleased with his division’s performance and has been told that if the division does well this year, he will be in line for a headquarters position. For the coming year, Fred’s division has been promised new capital totaling $1.5 million. Any of the capital not invested by the division will be invested to earn the company’s required rate of return (9 percent). After some careful investigation, the marketing and engineering staff recommended that the division invest in equipment that could be used to produce a crimping and waving iron, a product currently not produced by the division. The cost of the equipment was estimated at $1.2 million. The division’s marketing manager estimated operating earnings from the new line to be $156,000 per year. After receiving the proposal and reviewing the potential effects, Fred turned it down. He then wrote a memo to corporate headquarters, indicating that his division would not be able to employ the capital in any new projects within the next eight to 10 months. He did note, however, that he was confident that his marketing and engineering staff would have a project ready by the end of the year. At that time, he would like to have access to the capital.
Required:
1. Explain why Fred Olsen turned down the proposal to add the capability of producing a crimping and waving iron. Provide computations to support your reasoning.
2. Compute the effect that the new product line would have on the profitability of the firm as a whole. Should the division have produced the crimping and waving iron?
3. Suppose that the firm used residual income as a measure of divisional performance. Do you think Fred’s decision might have been different? Why?
4. Explain why a firm like Grate Care might decide to use both residual income and return on investment as measures of performance.
5. Did Fred display ethical behavior when he turned down the investment? In discussing this issue, consider why he refused to allow the investment.
Aug 29, 2021 | Uncategorized
GreenWorld Inc. is a nursery products firm. It has three divisions that grow and sell plants: the Western Division, the Southern Division, and the Canadian Division. Recently, the Southern Division of GreenWorld acquired a plastics factory that manufactures green plastic pots. These pots can be sold both externally and internally. Company policy permits each manager to decide whether to buy or sell internally. Each divisional manager is evaluated on the basis of ROI and EVA. The Western Division had bought its plastic pots in lots of 100 from a variety of vendors. The average price paid was $75 per box of 100 pots. However, the acquisition made Rosario Sanchez Ruiz, manager of the Western Division, wonder whether or not a more favorable price could be arranged. She decided to approach Lorne Matthews, manager of the Southern Division, to see if he wanted to offer a better price for an internal transfer. She suggested a transfer of 3,500 boxes at $70 per box. Lorne gathered the following information regarding the cost of a box of 100 pots:
Direct materials ……………… $35
Direct labor ………………….. 8
Variable overhead …………… 10
Fixed overhead* …………….. 10
Total unit cost ……………….$63
* Fixed overhead is based on $200,000/20,000 boxes.
Selling price ………………..$75
Production capacity ……….. 20,000 boxes
Required:
1. Suppose that the plastics factory is producing at capacity and can sell all that it produces to outside customers. How should Lorne respond to Rosario’s request for a lower transfer price?
2. Now assume that the plastics factory is currently selling 16,000 boxes. What are the minimum and maximum transfer prices? Should Lorne consider the transfer at $70 per box?
3. Suppose that GreenWorld’s policy is that all transfer prices be set at full cost plus 20 percent. Would the transfer take place? Why or why not?
Aug 29, 2021 | Uncategorized
Greg Peterson has recently been appointed vice president of operations for Webster Corporation. Greg has a manufacturing background and previously served as operations manager of Webster’s Tractor Division. The business segments of Webster include the manufacture of heavy equipment, food processing, and financial services. In a recent conversation with Carol Andrews, Webster’s chief financial officer, Greg suggested that segment managers be evaluated on the basis of the segment data appearing in Webster’s annual financial report. This report presents revenues, earnings, identifiable assets, and depreciation for each segment for a five year period. Greg believes that evaluating segment managers by criteria similar to that used in evaluating the company’s top management would be appropriate. Carol has expressed her reservations about using segment information from the annual financial report for this purpose and has suggested that Greg consider other ways to evaluate the performance of segment managers.
Required:
1. Explain why the segment information prepared for public reporting purposes may not be appropriate for the evaluation of segment management performance.
2. Describe the possible behavioral impact of Webster Corporation’s segment managers if their performance is evaluated on the basis of the information in the annual financial report.
3. Identify and describe several types of financial information that would be more appropriate for Greg to review when evaluating the performance of segment managers.
(CMA adapted)
Aug 29, 2021 | Uncategorized
Identify each of the following as a cost center, a discretionary cost center, a revenue center, a profit center, or an investment center:
1. The manger of center A is responsible for generating cash inflows and incurring costs with the goal of making money for the company. The manager has no responsibility for assets.
2. Center B produces a product that is not sold to an external party but transferred to another center for further processing.
3. The manager of center C is responsible for the telephone order operations of a large retailer.
4. Center D designs, produces, and sells products to external parties. The manager makes both long term and short term decisions.
5. Center E provides human resource support for the other centers in the company.
Aug 29, 2021 | Uncategorized
Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of $310,000 based on sales of $3.45 million; without any new investments, the division will have average operating assets of $3 million. The division is considering a capital investment project—adding knitting machines to produce gaiters—that requires an additional investment of $600,000 and increases net income by $57,500 (sales would increase by $575,000). If made, the investment would increase beginning operating assets by $600,000 and ending operating assets by $400,000. Assume that the actual cost of capital for the company is 7 percent.
Required:
1. Compute the ROI for the division without the investment.
2. Compute the margin and turnover ratios without the investment. Show that the product of the margin and turnover ratios equals the ROI computed in Requirement 1.
3. Compute the ROI for the division with the new investment. Do you think the divisional manager will approve the investment?
4. Compute the margin and turnover ratios for the division with the new investment. Compare these with the old ratios.
5. Compute the EVA of the division with and without the investment. Should the manager decide to make the knitting machine investment?
Aug 29, 2021 | Uncategorized
Lansing Electronics Inc. manufactures a variety of printers, scanners, and fax machines in its two divisions: the PSF Division and the Components Division. The Components Division produces electronic components that can be used by the PSF Division. All the components this division produces can be sold to outside customers; however, from the beginning, nearly 90 percent of its output has been used internally. The current policy requires that all internal transfers of components be transferred at full cost. Recently, Cam DeVonn, the chief executive officer of Lansing Electronics, decided to investigate the transfer pricing policy. He was concerned that the current method of pricing internal transfers might force decisions by divisional managers that would be suboptimal for the firm. As part of his inquiry, he gathered some information concerning Component Y34, which is used by the PSF Division in its production of a basic scanner, Model SC67. The PSF Division sells 40,000 units of Model SC67 each year at a unit price of $42. Given current market conditions, this is the maximum price that the division can charge for Model SC67. The cost of manufacturing the scanner follows:
Component Y34 …………. $ 6.50
Direct materials ………….. 12.50
Direct labor ………………. 3.00
Variable overhead ……….. 1.00
Fixed overhead …………… 15.00
Total unit cost …………….$38.00
The scanner is produced efficiently, and no further reduction in manufacturing costs is possible. The manager of the Components Division indicated that she could sell 40,000 units (the division’s capacity for this part) of Component Y34 to outside buyers at $12 per unit. The PSF Division could also buy the part for $12 from external suppliers. She supplied the following details on the manufacturing cost of the component:
Direct materials …………….$2.50
Direct labor ………………… 0.50
Variable overhead ………….. 1.00
Fixed overhead …………….. 2.50
Total unit cost ………………$6.50
Required:
1. Compute the firmwide contribution margin associated with Component Y34 and Model SC67. Also, compute the contribution margin earned by each division.
2. Suppose that Cam DeVonn abolishes the current transfer pricing policy and gives divisions autonomy in setting transfer prices. Can you predict what transfer price the manager of the Components Division will set? What should be the minimum transfer price for this part? The maximum transfer price?
3. Given the new transfer pricing policy, predict how this will affect the production decision of the PSF Division manager for Model SC67. How many units of Component Y34 will the manager of the PSF Division purchase, either internally or externally?
4. Given the new transfer price set by the Components Division and your answer to Requirement 3, how many units of Y34 will be sold externally?
5. Given your answers to Requirements 3 and 4, compute the firmwide contribution margin. What has happened? Was Cam’s decision to grant additional decentralization good or bad?
Aug 29, 2021 | Uncategorized
Listed below are a number of scorecard measures for a manufacturing company.
a. Number of new customers
b. Percentage of customers who place multiple orders
c. Percentage of on time deliveries
d. Number of worker accidents
e. Number of customer complaints about products
f. Number of employees who attended training seminars
g. Percentage of product defects
h. Percentage of back ordered products
i. Customer satisfaction, as measured through periodic surveys
j. Unit product cost
k. Earnings per share
1. Gross margin on products
m. Employee turnover
n. Costs to retain customers
o. Amount of time spent in teamwork
Classify each performance measure according to the following:
1. Perspective: financial, customer, internal processes, or learning and growth
2. Focus: cost, quality, time, or overall financial (Note: Some measures may have more than one focus.)
3. Relationship: leading or outcome (Note: Evaluate how the measure relates to other measures within its own perspective.)
Aug 29, 2021 | Uncategorized
Macalester, Inc., manufactures heating and air conditioning units in its six divisions. One division, the Components Division, produces electronic components that can be used by the other five. All the components produced by this division can be sold to outside customers; however, from the beginning, about 70 percent of its output has been used internally. The current policy requires that all internal transfers of components be transferred at full cost. Recently, Loren Ferguson, the new chief executive officer of Macalester, decided to investigate the transfer pricing policy. He was concerned that the current method of pricing internal transfers might force decisions by divisional managers that would be suboptimal for the firm. As part of his inquiry, he gathered some information concerning Part 4CM, used by the Small AC Division in its production of a window air conditioner, Model 7AC. The Small AC Division sells 100,000 units of Model 7AC each year at a unit price of $55. Given current market conditions, this is the maximum price that the division can charge for Model 7AC. The cost of manufacturing the air conditioner is computed as follows:
Part 4CM …………………… $ 7
Direct materials …………….. 20
Direct labor ………………… 16
Variable overhead ………….. 3
Fixed overhead ……………… 6
Total unit cost ……………….$52
The window unit is produced efficiently, and no further reduction in manufacturing costs is possible. The manager of the Components Division indicated that she could sell 10,000 units (the division’s capacity for this part) of Part 4CM to outside buyers at $12 per unit. The Small AC Division could also buy the part for $12 from external suppliers. She supplied the following detail on the manufacturing cost of the component:
Direct materials ……………………$3.00
Direct labor ……………………….. 0.50
Variable overhead ………………… 1.50
Fixed overhead …………………… 2.00
Total unit cost ……………………$7.00
Required:
1. Compute the firmwide contribution margin associated with Part 4CM and Model 7AC. Also, compute the contribution margin earned by each division.
2. Suppose that Loren Ferguson abolishes the current transfer pricing policy and gives divisions autonomy in setting transfer prices. Can you predict what transfer price the manager of the Components Division will set? What should be the minimum transfer price for this part? The maximum transfer price?
3. Given the new transfer pricing policy, predict how this will affect the production decision for Model 7AC of the manager of the Small AC Division. How many units of Part 4CM will the manager of the Small AC Division purchase, either internally or externally?
4. Given the new transfer price set by the Components Division and your answer to Requirement 3, how many units of 4CM will be sold externally?
5. Given your answers to Requirements 3 and 4, compute the firmwide contribution margin. What has happened? Was Loren’s decision to grant additional decentralization good or bad?
Aug 29, 2021 | Uncategorized
Melody Lovelady is the most highly rewarded sales representative at Swift Corporation. Her secret to success is always to understate her abilities. Ms. Lovelady is assigned to a territory in which her customer base is increasing at approximately 25 percent per year. Each year she estimates that her budgeted sales will be 10 percent higher than her previous year’s sales. With little effort, she is able to double her budgeted sales growth. At Swift’s annual sales meeting, she receives an award and a large bonus. Of course, Ms. Lovelady does not disclose her secret to her colleagues. Indeed, she always talks about how hard it is to continue to top her previous performance. She tells herself: ?oIf they are dumb enough to fall for this rubbish, I’ll milk it for all it’s worth.??
Required
a. What is the name commonly given to the budget game Ms. Lovelady is playing?
b. Does Ms. Lovelady’s behavior violate any of the standards of ethical conduct shown in Exhibit 1.15 of Chapter 1?
c. Recommend how Ms. Lovelady’s budget game could be stopped.
Aug 29, 2021 | Uncategorized
MidCoast Airlines uses the following performance measures. Classify each of the performance measures below into the most likely balanced scorecard perspective it relates to. Label your answers using C (customer), P (internal process), I (innovation and growth), or F (financial).
1. Percentage of ground crew trained _________
2. On time flight percentage _________
3. Percentage of on time departures _________
4. Market value _________
5. Flight attendant training sessions attended _________
6. Revenue per seat _________
7. Customer complaints _________
8. Time airplane is on ground between flights _________
9. Number of reports of mishandled or lost baggage _________
10. Cash flow from operations _________
11. Accidents or safety incidents per mile flown _________
12. Airplane miles per gallon of fuel _________
13. Return on investment _________
14. Cost of leasing airplanes _________
Aug 29, 2021 | Uncategorized
Multiple Choice Questions
1. The key difference between residual income and economic value added is that EVA
a. Uses the actual cost of capital for the company rather than a minimum required cost of capital.
b. Uses the minimum required cost of capital for a company rather than the actual percentage cost of capital.
c. Is a ratio rather than an absolute dollar amount.
d. Cannot be negative.
e. There is no difference between residual income and EVA.
2. If return on investment for a division is 15 percent and the company’s minimum required cost of capital is 18 percent, then
a. Residual income for the division is negative.
b. Residual income for the division takes on a value between zero and positive one.
c. Residual income cannot be computed.
d. EVA must be negative.
e. Residual income is positive.
3. Division A, operating at full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing. The maximum transfer price (the ceiling of the bargaining range) is
a. $38.
b. $50.
c. $44.
d. $47.
e. There is no bargaining range.
4. Division A, operating at less than full capacity, manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing. The minimum transfer price (the floor of the bargaining range) is
a. $38.
b. $50.
c. $44.
d. $47.
e. There is no bargaining range.
5. (Appendix) Which of the following is not a perspective of the Balanced Scorecard?
a. Learning and growth (infrastructure)
b. Internal business process
c. Customer
d. Financial
e. All of the above are perspectives of the Balanced Scorecard.
6. The number of units of output that can be produced in a given period of time is called
a. Velocity.
b. Cycle time.
c. Manufacturing cycle efficiency.
d. Theoretical cycle time.
e. Theoretical MCE.
Aug 29, 2021 | Uncategorized
Shellhammer Company is considering the purchase of a new machine. The invoice price of the machine is $170,000, freight charges are estimated to be $4,000, and installation costs are expected to be $6,000. Salvage value of the new equipment is expected to be zero after a useful life of 4 years. Existing equipment could be retained and used for an additional 4 years if the new machine is not purchased. At that time, the salvage value of the equipment would be zero. If the new machine is purchased now, the existing machine would be scrapped. Shellhammer’s accountant, Tracy Greene, has accumulated the following data regarding annual sales and expenses with and without the new machine.
1. Without the new machine, Shellhammer can sell 10,000 units of product annually at a per unit selling price of $100. If the new unit is purchased, the number of units produced and sold would increase by 20%. The selling price would remain the same.
2. The new machine is faster than the old machine, and it is more efficient in its usage of materials. With the old machine, the gross profit rate will be 25% of sales. With the new machine, the rate will be 28% of sales.
3. Annual selling expenses are $135,000 with the current equipment. Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10% if it is purchased.
4. Annual administrative expenses are expected to be $100,000 with the old machine and $113,000 with the new machine.
5. The current book value of the existing machine is $36,000. Shellhammer uses straight line depreciation.
6. Shellhammer’s management wants a minimum rate of return of 15% on its investment and a payback period of no more than 3 years.
Instructions
With the class divided into groups, answer the following. (Ignore income tax effects.)
(a) Prepare an incremental analysis for the 4 years showing whether Shellhammer should keep the existing machine or buy the new machine.
(b) Calculate the annual rate of return for the new machine. (Round to two decimals.)
(c) Compute the payback period for the new machine. (Round to two decimals.)
(d) Compute the net present value of the new machine. (Round to the nearest dollar.)
(e) On the basis of the foregoing data, would you recommend that Shellhammer buy the machine? Why?
Aug 29, 2021 | Uncategorized
Al Ordan Furniture Company manufactures only custom furniture and uses a job order costing system to accumulate costs. Actual direct materials and direct labor costs are accumulated for each job, but a predetermined overhead rate is used to apply manufacturing overhead costs to individual jobs.
Manufacturing overhead is applied on the basis of direct labor hours. In computing a predetermined overhead rate, the controller estimated that manufacturing overhead costs for 2011 would be $100,000 and direct labor hours would be 25,000. The following information is available for the year 2011:
a. Direct materials purchased, $25,000
b. Direct materials used in production, $20,000
c. Wages and salaries paid for the year: direct labor (20,000 hours), $125,000; indirect labor,
$25,000; sales and administrative salaries, $35,000
d. Depreciation on machinery and equipment, $7,500
e. Rent and utilities for building (75% factory), $20,000
f. Miscellaneous manufacturing overhead, $40,000
g. Advertising costs, $15,500
h. Manufacturing overhead is applied to Work in Process Inventory.
i. Seventy five percent of Work in Process Inventory was completed and transferred to Finished Goods Inventory.
Required:
1. Compute the predetermined overhead rate at which manufacturing overhead costs will be applied to jobs.
2. Set up T accounts and post the transactions.
3. Compute the under or over applied manufacturing overhead. Prepare a journal entry to close Manufacturing Overhead and transfer the balance to Cost of Goods Sold.
Aug 29, 2021 | Uncategorized
An annual report of the Maytag Corporation contained the following excerpt: The Company announced the restructuring of its major appliance operations in an effort to strengthen its position in the industry and to deliver improved performance to both customers and shareowners. This included the consolidation of two separate organizational units into a single operation responsible for all activities associated with the manufacture and distribution of the Company’s brands of major appliances and the closing of a cooking products plant in Indianapolis, Indiana, with transfer of that production to an existing plant in Cleveland, Tennessee. The restructuring cost Maytag $40 million and disrupted the lives of many of the company’s employees.
Required
Assume that you are Maytag’s vice president of human relations. Write a letter to the employees who are affected by the restructuring. The letter should explain why it was necessary for the company to undertake the restructuring. Y our explanation should refer to the ideas discussed in the section ?oEmerging Trends in Managerial Accounting?? of this chapter (see Appendix A).
Aug 29, 2021 | Uncategorized
During 2011, Gallo Manufacturing Company incurred $90,000,000 of research and development (R&D) costs to create a long life battery to use in computers. In accordance with FASB standards, the entire R&D cost was recognized as an expense in 2011. Manufacturing costs (direct materials, direct labor, and overhead) are expected to be $260 per unit. Packaging, shipping, and sales commissions are expected to be $50 per unit. Gallo expects to sell 2,000,000 batteries before new research renders the battery design technologically obsolete. During 2011, Gallo made 440,000 batteries and sold 400,000 of them.
Required
a. Identify the upstream and downstream costs.
b. Determine the 2011 amount of cost of goods sold and the ending inventory balance.
c. Determine the sales price assuming that Gallo desires to earn a profit margin that is equal to 25 percent of the total cost of developing, making, and distributing the batteries.
d. Prepare an income statement for 2011. Use the sales price developed in Requirement c.
e. Why would Gallo price the batteries at a level that would generate a loss for the 2011 accounting period?
Aug 29, 2021 | Uncategorized
Following are transactions for Itabuna Manufacturing Company. Assume that the company has no beginning work in process inventory or finished goods inventory.
a. Itabuna purchased $575,000 of raw materials, paying 12% down, with the remainder to be paid in 10 days.
b. The production manager requisitioned $280,000 of materials (85% for direct use and the remainder for indirect purposes).
c. The liability incurred in (a) was paid in full.
d. 25,000 hours of direct labor and 2,750 hours of indirect labor were incurred. (Assume an average hourly wage rate of $9 for both direct and indirect labor.)
e. The following salaries were paid:
Factory supervisor (a product cost) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,000
Administrative executives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,000
Sales personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000
f. Rent and utilities for the building of $33,000 and $9,000, respectively, were paid. Three fourths of these expenses are applicable to manufacturing and the remainder to administration.
g. Depreciation on factory equipment was $17,000.
h. Advertising costs for the year totaled $16,000.
i. Manufacturing overhead is applied at a rate of $6.84 per direct labor hour.
j. All but $35,000 of Work in Process Inventory was completed and transferred to Finished Goods Inventory.
k. The sales price of finished goods that were sold was 130% of manufacturing costs. Assume a perpetual inventory system and that all finished goods were sold.
l. Close over or under applied overhead directly to cost of goods sold.
Required:
Prepare journal entries for the transactions.
Aug 29, 2021 | Uncategorized
From the choices presented in parentheses, choose the appropriate term for completing each of the following sentences:
a. Feedback is often used to (improve, direct) operations.
b. A product, sales territory, department, or activity to which costs are traced is called a (direct cost, cost object).
c. Payments of cash or the commitment to pay cash in the future for the purpose of generating revenues are (costs, expenses).
d. The balance sheet of a manufacturer would include an account for (cost of goods sold, work in process inventory).
e. Factory overhead costs combined with direct labor costs are called (prime, conversion) costs.
f. Advertising costs are usually viewed as (period, product) costs.
g. The implementation of automatic, robotic factory equipment normally (increases, decreases) the direct labor component of product costs.
Aug 29, 2021 | Uncategorized
Goree Company began operations on January 1, 2011, by issuing common stock for $30,000 cash. During 2011, Goree received $40,000 cash from revenue and incurred costs that required $60,000 of cash payments.
Required
Prepare an income statement and a balance sheet for Goree Company for 2011, under each of the following independent scenarios.
a. Goree is a promoter of rock concerts. The $60,000 was paid to provide a rock concert that produced the revenue.
b. Goree is in the car rental business. The $60,000 was paid to purchase automobiles. The automobiles were purchased on January 1, 2011, have four year useful lives, with no expected salvage value. Goree uses straight line depreciation. The revenue was generated by leasing the automobiles.
c. Goree is a manufacturing company. The $60,000 was paid to purchase the following items:
(1) Paid $8,000 cash to purchase materials that were used to make products during the year.
(2) Paid $20,000 cash for wages of factory workers who made products during the year.
(3) Paid $2,000 cash for salaries of sales and administrative employees.
(4) Paid $30,000 cash to purchase manufacturing equipment. The equipment was used solely to make products. It had a three year life and a $6,000 salvage value. The company uses straight line depreciation.
(5) During 2011, Goree started and completed 2,000 units of product. The revenue was earned when Goree sold 1,500 units of product to its customers.
d. Refer to Requirement c. Could Goree determine the actual cost of making the 907th unit of product? How likely is it that the actual cost of the 907th unit of product was exactly the same as the cost of producing the 908th unit of product? Explain why management may be more interested in average cost than in actual cost.
Aug 29, 2021 | Uncategorized
Greg Madrid, a HealthSouth billing clerk, filed a suit under the False Claims Act charging that HealthSouth purchased computer equipment from a company owned by Richard Scrushy’s parents at prices two and three times the normal price. At the time, Richard Scrushy was the CEO of HealthSouth. The overcharges inflated HealthSouth’s expense ratios that the government used when calculating a Medicare reimbursement rate. As a result, the government was overcharged for services provided by HealthSouth. While refusing to recognize any wrongdoing, HealthSouth agreed to pay an $8 million settlement related to the lawsuit brought by the whistleblower.
Required
Explain how the provisions of Sarbanes Oxley would provide protection to a whistleblower such as Greg Madrid.
Aug 29, 2021 | Uncategorized
Identifying product versus selling, general, and administrative costs
Required
Indicate whether each of the following costs should be classified as a product cost or as a general, selling, and administrative cost.
a. The salary of the cell phone manufacturing plant manager.
b. The depreciation on administrative buildings.
c. The depreciation on the company treasurer’s computer.
d. The fabric used in making a customized sofa for a customer.
e. The salary of an engineer who maintains all manufacturing plant equipment.
f. Wages paid to workers in a manufacturing plant.
g. The salary of the receptionist working in the sales department.
h. Supplies used in the sales department.
i. Wages of janitors who clean the factory floor.
j. The salary of the company president.
Aug 29, 2021 | Uncategorized
Jordan Industries is a manufacturing company that produces solid oak office furniture. During the year, the following costs were incurred. The building depreciation and the utilities are allocated three fourths to production and one fourth to administration. The cost of furniture parts can be traced to specific production runs.
Oak wood. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $90,000
Miscellaneous supplies (glue, saw blades, varnish, etc.) . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Furniture parts (wheels, locks, etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,500
Payroll—plant manager’s salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Payroll—administrative salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Payroll—production line employees’ wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,500
Building depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Maintenance—plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
1. Classify the costs into the following four categories: direct materials, direct labor, manufacturing overhead, and period costs.
2. Calculate the total amount of cost for each category.
Aug 29, 2021 | Uncategorized
Puzzled Limited would like to increase its sales during the year to 3l May 2012. To do so, it has several mutually exclusive options open to it:
Reduce the selling price per unit by 15 per cent;
Improve the product resulting in an increase in the variable cost per unit of ?L1.30;
Spend ?L15,000 on an advertising campaign;
Improve factory efficiency by purchasing more machinery at a fixed extra annual cost of ?L22,500.
During the year to 31 May 2011, the company sold 20,000 units. The cost details were as follows:
?L000
Sales ………………………………….200
Variable costs ………………………..150
Contribution …………………………. 50
Fixed costs …………………………… 40
Profit …………………………………. 10
These cost relationships are expected to hold in 2012.
Required:
State which option you would recommend and why.
Aug 29, 2021 | Uncategorized
Richard Larkin has prepared the following list of statements about managerial accounting and financial accounting.
1. Financial accounting focuses on providing information to internal users.
2. Analyzing cost volume profit relationships is part of managerial accounting.
3. Preparation of budgets is part of financial accounting.
4. Managerial accounting applies only to merchandising and manufacturing companies.
5. Both managerial accounting and financial accounting deal with many of the same economic events.
6. Managerial accounting reports are prepared only quarterly and annually.
7. Financial accounting reports are general purpose reports.
8. Managerial accounting reports pertain to subunits of the business.
9. Managerial accounting reports must comply with generally accepted accounting principles.
10. Although managerial accountants are expected to behave ethically, there is no code of ethical standards for managerial accountants.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
Aug 29, 2021 | Uncategorized
The accounting records of Rice Manufacturing Company (RMC) revealed that the company incurred $3 million of materials, $5 million of production labor, $4 million of manufacturing overhead, and $6 million of selling, general, and administrative expense during 2011. It was discovered that RMC’s chief financial officer (CFO) included $2.6 million dollars of upstream research and development expense in the manufacturing overhead account when it should have been classified as selling, general, and administrative expense. RMC made 5,000 units of product and sold 4,000 units of product in 2011.
Required
a. Indicate whether the elements on the 2011 financial statements (i.e., assets, liabilities, equity, revenue, expense, and net income) would be overstated or understated as a result of the misclassification of the upstream research and development expense. Determine the amount of the overstatement or understatement for each element.
b. Speculate as to what would cause the CFO to intentionally misclassify the research and development expense.
Aug 29, 2021 | Uncategorized
The following information is available for a particular consulting contract performed by Newland Business Consultants in 2012:
Consulting labor costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500
Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ?
Newland applies overhead on the basis of client consulting hours. The estimated total overhead costs for 2012 are $6.2 million, and the estimated total consulting hours are 150,000. Newland pays its consultants $40 per hour.
1. Compute the predetermined overhead rate.
2. What are the allocated overhead cost and the total cost of this particular contract?
Aug 29, 2021 | Uncategorized
As a result of studying past cost behavior and adjusting for expected price increases in the future, Nicholson Company estimates that its manufacturing costs will be as follows:
Direct Materials………………………………………………………………………. $10.00 per Unit
Direct Labor……………………………………………………………………………….$6.00 per Unit
Manufacturing Overhead:
Variable …………………………………………………………………………………… $3.00 per Unit
Fixed……………………………………………………………………………….. $100,000 per Period
Nicholson uses these estimates for planning and control purposes.
a. Nicholson expects to produce 20,000 units during the next period. Prepare a schedule of the expected manufacturing costs.
b. Suppose that Nicholson produces only 16,000 units during the next period. Prepare a flexible budget of manufacturing costs for the 16,000 unit level of activity.
c. Suppose that Nicholson produces 25,000 units during the next period. Prepare a flexible budget of manufacturing costs for the 25,000 unit level of activity.
Aug 29, 2021 | Uncategorized
As we continue with this case, assume that your cookie store is now part of a national chain. The store has been consistently profitable, and sales remain satisfactory despite a temporary economic downturn in your area.
At the first of the year, corporate headquarters set a targeted return on investment of 20 percent for your store. The store currently averages $140,000 in invested assets (beginning invested assets, $130,000; ending invested assets, $150,000) and is projected to have an operating income of $30,800. You are considering whether to take one or both of the following actions before the end of the year:
Hold off recording and paying $5,000 in bills owed until the start of the next fiscal year.
Write down to zero value $3,000 in store inventory (nonperishable containers) that you have been unable to sell.
Currently, your bonus is based on store profits. Next year, corporate head quarters is changing its performance incentive program so that bonuses will be based on a store’s actual return on investment.
1. What effect would each of the actions that you are considering have on the store’s operating income this year?
2. Independent of question 1, how would the inventory write down affect next year’s income and return on investment if the inventory is sold for $4,000 next year, when corporate headquarters changes its performance incentive plan for store managers? In your opinion, do you have an ethical dilemma?
Aug 29, 2021 | Uncategorized
Assume Near and Far Burgers has two categories of direct labor: unskilled, which has a standard cost of $6 per hour, and skilled, which has a standard cost of $10 per hour. Management established standards per ?~?~equivalent meal,’’ which it has defined as a typical meal consisting of a sandwich, a drink, and a side order. Managers set standards as follows: skilled labor, 6 minutes per equivalent meal; unskilled labor, 15 minutes per equivalent meal. During July, Near and Far Burgers sold 10,000 equivalent meals and incurred the following actual labor costs:
Skilled Labor: 900 Hours…………………………………………………………… $ 9,600
Unskilled Labor: 2,300 Hours……………………………………………………… 14,000
Compute labor price and efficiency variances.
Aug 29, 2021 | Uncategorized
Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $40. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year.
Required:
1. Which division sets the maximum transfer price? Which division sets the minimum transfer price?
2. Suppose the company policy is that all transfers take place at full cost. What is the transfer price?
3. Do you think that the transfer will occur at the company mandated transfer price? Why or why not?
Aug 29, 2021 | Uncategorized
Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of $210,000 after income taxes. Capital employed equaled $2 million. Brewster is 50 percent equity and 50 percent 10 year bonds paying 6 percent interest. Brewster’s marginal tax rate is 35 percent. The company is considered a fairly risky investment and therefore commands a premium of 12 percentage points above the 6 percent rate on long term Treasury bonds. Mortimer Brewster’s aunts, Abby and Martha, have just retired, and Mortimer is the new CEO of Brewster Company. He would like to improve EVA for the company. Compute EVA under each of the following independent scenarios that Mortimer is considering.
(Use a spreadsheet to perform your calculations.)
Required:
1. No changes are made; calculate EVA using the original data.
2. Sugar will be used to replace another natural ingredient (arsenic) in the elderberry wine. This should not affect costs but will begin to affect the market assessment of Brewster Company, bringing the premium above long term Treasury bills to 9 percent the first year and 6 percent the second year. Calculate revised EVA for both years.
3. Brewster is considering expanding but needs additional capital. The company could borrow money, but it is considering selling more common stock, which would increase equity to 80 percent of total financing. Total capital employed would be $5,000,000. The new after tax operating income would be $750,000. Using the original data, calculate EVA. Then, recalculate EVA assuming the materials substitution described in Requirement 2. New yearly after tax income will be $750,000. In Year 1, the premium will be 9 percent above the long term Treasury rate. In Year 2, it will be 6 percent above the long term Treasury rate.
Aug 29, 2021 | Uncategorized
Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines. Indian Division produces the h20 model pump that can be used by Maple Division in the production of motors that regulate the raising and lowering of the boat engine’s stern drive unit. The market price of the h20 model is $720, and the full cost of the h20 model is $540.
Required:
1. If Burt Inc. has a transfer pricing policy that requires transfer at full cost, what will the transfer price be? Do you suppose that Indian and Maple divisions will choose to transfer at that price?
2. If Burt Inc. has a transfer pricing policy that requires transfer at market price, what would the transfer price be? Do you suppose that Indian and Maple divisions would choose to transfer at that price?
3. Now suppose that Burt Inc. allows negotiated transfer pricing and that Indian Division can avoid $120 of selling expense by selling to Maple Division. Which division sets the minimum transfer price, and what is it? Which division sets the maximum transfer price, and what is it? Do you suppose that Indian and Maple divisions would choose to transfer somewhere in the bargaining range?
Aug 29, 2021 | Uncategorized
Setting materials, labor, and overhead standards is challenging. If standards are set too low, companies might purchase inferior products and employees might not work to their full potential. If standards are set too high, companies could be unable to offer a quality product at a profitable rate and employees could be overworked. The ethical challenge is to set a high but reasonable standard. Assume that as a manager, you are asked to set the standard materials price and quantity for the new 1,000 CKB Mega Max chip, a technically advanced product. To properly set the price and quantity standards, you assemble a team of specialists to provide input.
Required
Identify four types of specialists that you would assemble to provide information to help set the materials price and quantity standards. Briefly explain why you chose each individual.
Aug 29, 2021 | Uncategorized
Several years ago, Westmont Corporation developed a comprehensive budgeting system for profit planning and control purposes. While departmental supervisors have been happy with the system, the factory manager has expressed considerable dissatisfaction with the information being generated by the system.
A typical departmental cost report for a recent period follows:
?
After receiving a copy of this cost report, the supervisor of the Assembly Department stated, ?oThese reports are super. It makes me feel really good to see how well things are going in my department. I can’t understand why those people upstairs complain so much about the reports.??
For the last several years, the company’s marketing department has chronically failed to meet the sales goals expressed in the company’s monthly budgets.
Required:
1. The company’s president is uneasy about the cost reports and would like you to evaluate their usefulness to the company.
2. What changes, if any, should be made in the reports to give better insight into how well departmental supervisors are controlling costs?
3. Prepare a new performance report for the quarter, incorporating any changes you suggested in question (2) above.
4. How well were costs controlled in the Assembly Department inMarch?
Aug 29, 2021 | Uncategorized
Shumaker Company manufactures a line of high top basketball shoes. At the beginning of the year, the following plans for production and costs were revealed:
Pairs of shoes to be produced and sold ………………55,000
Standard cost per unit:
Direct materials ……………………………………… $15
Direct labor ………………………………………….. 12
Variable overhead …………………………………… 6
Fixed overhead ……………………………………… 3
Total unit cost ………………………………………. $36
During the year, a total of 50,000 units were produced and sold. The following actual costs were incurred:
Direct materials ……………………$775,000
Direct labor ………………………. 590,000
Variable overhead ……………….. 310,000
Fixed overhead …………………… 180,000
There were no beginning or ending inventories of raw materials. In producing the 50,000 units, 63,000 hours were worked, 5 percent more hours than the standard allowed for the actual output. Overhead costs are applied to production using direct labor hours.
Required:
1. Using a flexible budget, prepare a performance report comparing expected costs for the actual production with actual costs.
2. Determine the following:
a. Fixed overhead spending and volume variances.
b. Variable overhead spending and efficiency variances.
Aug 29, 2021 | Uncategorized
Tavera Company uses a standard cost system. The direct labor standard indicates that six direct labor hours should be used for every unit produced. Tavera produces one product. The normal production volume is 120,000 units of this product. The budgeted overhead for the coming year is as follows:
Fixed overhead …………$2,160,000*
Variable overhead …….. 1,440,000
* At normal volume.
Tavera applies overhead on the basis of direct labor hours. During the year, Tavera produced 119,000 units, worked 731,850 direct labor hours, and incurred actual fixed overhead costs of $2.25 million and actual variable overhead costs of $1.425 million.
Required:
1. Calculate the standard fixed overhead rate and the standard variable overhead rate.
2. Compute the applied fixed overhead and the applied variable overhead. What is the total fixed overhead variance? Total variable overhead variance?
3. Break down the total fixed overhead variance into a spending variance and a volume variance. Discuss the significance of each.
4. Compute the variable overhead spending and efficiency variances. Discuss the significance of each.
5. Journal entries for overhead variances were not discussed in this chapter. Typically, the overhead variance entries happen at the end of the year. Assume that applied fixed (variable) overhead is accumulated on the credit side of the fixed (variable overhead) control account. Actual fixed (variable) overhead costs are accumulated on the debit side of the respective control accounts. At the end of the year, the balance in each control account is the total (fixed) variable variance. Create accounts for each of the four overhead variances and close out the total variances to each of these four variance accounts. These four variance accounts are then usually disposed of by closing them to Cost of Goods Sold.
Form a group with two to four other students, and prepare the journal entries that isolate the four variances. Finally, prepare the journal entries that close these variances to Cost of Goods Sold.
Aug 29, 2021 | Uncategorized
The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers that it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 50 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:
?
For example, administrative expenses should be $3,270 per month plus $15 per course plus $4 per student. The company’s sales should average $800 per student. The actual operating results for September appear below:
?
Required:
1.The Gourmand Cooking School expects to run three courses with a total of 45 students in September. Prepare the company’s planning budget for this level of activity.
2.The school actually ran three courses with a total of 42 students in September. Prepare the company’s flexible budget for this level of activity.
3.Prepare a flexible budget performance report that shows both activity variances and revenue and spending variances forSeptember.
Aug 29, 2021 | Uncategorized
The Lubbock plant of Morril’s Small Motor Division produces a major subassembly for a 6.0 horsepower motor for lawn mowers. The plant uses a standard costing system for production costing and control. The standard cost sheet for the subassembly follows:
Direct materials (6.0 lbs. @ $5.00) ………………. $30.00
Direct labor (1.6 hrs. @ $12.00) …………………. 19.20
Variable overhead (1.6 hrs. @ $10.00) ………….. 16.00
Fixed overhead (1.6 hrs. @ $6.00) ………………. 9.60
Standard unit cost ……………….………………. $74.80
During the year, the Lubbock plant had the following actual production activity:
a. Production of motors totaled 50,000 units.
b. The company used 82,000 direct labor hours at a total cost of $1,066,000.
c. Actual fixed overhead totaled $556,000.
d. Actual variable overhead totaled $860,000. The Lubbock plant’s practical activity is 60,000 units per year. Standard overhead rates are computed based on practical activity measured in standard direct labor hours.
Required:
1. Compute the variable overhead spending and efficiency variances.
2. Compute the fixed overhead spending and volume variances. Interpret the volume variance. What can be done to reduce this variance?
Aug 29, 2021 | Uncategorized
The St. Lucia Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands causing many injuries. The hurricane largely bypassed St. Lucia, but residents of St. Lucia willingly donated their blood to help people on other islands. As a consequence, the blood bank collected and processed over 20% more blood than had been originally planned for the month. A report prepared by a government official comparing actual costs to budgeted costs for the blood bank appears below. (The currency on St. Lucia is the East Caribbean dollar) Continued support from the government depends on the blood bank’s ability to demonstrate control over its costs.
?
?
The managing director of the blood bank was very unhappy with this report, claiming that his costs were higher than expected due to the emergency on the neighboring islands. He also pointed out that the additional costs had been fully covered by payments from grateful recipients on the other islands. The government official who prepared the report countered that all of the figures had been submitted by the blood bank to the government; he was just pointing out that actual costs were a lot higher than promised in the budget. The following cost formulas were used to construct the planning budget:
?
Required:
1. Prepare a new performance report for September using the flexible budget approach.
2. Do you think any of the variances in the report you prepared should be investigated?Why?
Aug 29, 2021 | Uncategorized
Tom Kemper is the controller of the Wichita manufacturing facility of Prudhom Enterprises, Inc. The annual cost control report is one of the many reports that must be filed with corporate headquarters and is due at corporate headquarters shortly after the beginning of the New Year. Kemper does not like putting work off to the last minute, so just before Christmas he prepared a preliminary draft of the cost control report. Some adjustments would later be required for transactions that occur between Christmas and New Year’s Day. A copy of the preliminary draft report, which Kemper completed on December 21, follows:
?
Melissa Ilianovitch, the general manager at the Wichita facility, asked to see a copy of the preliminary .i draft report. Kemper carried a copy of the report to her office where the following discussion took place:
Ilianovitch:
Ouch! Almost all of the variances on the report are unfavorable. The only favorable variances are for supervisory salaries and industrial engineering. How did we have an unfavorable variance for depreciation?
Kemper:
Do you remember that milling machine that broke down because the wrong lubricant was used by the machine operator?
Ilianovitch:
Yes.
Kemper:
We couldn’t fix it. We had to scrap the machine and buy a new one.
Ilianovitch:
This report doesn’t look good. I was raked over the coals last year when we had just a few unfavorable variances.
Kemper:
I’m afraid the final report is going to look even worse.
Ilianovitch:
Oh?
Kemper:
The line item for industrial engineering on the report is for work we hired Ferguson Engineering to do for us. The original contract was for $210,000, but we asked them to do some additional work that was not in the contract. We have to reimburse Ferguson Engineering for the costs of that additional work. The $189,000 in actual costs that appears on the preliminary draft report reflects only their billings up through December21. The last bill they had sent us was on November 28, and they completed the project just last week. Yesterday I got a call from Laura Sunder over at Ferguson and she said they would be sending us a final bill for the project before the end of the year. The total bill, including the reimbursements for the additional work, is going to be.
Ilianovitch:
I am not sure I want to hear this.
Kemper:
$225,000
Ilianovitch:
Ouch!
Kemper:
The additional work added $15,000 to the cost of the project.
Ilianovitch:
I can’t turn in a report with an overall unfavorable variance! They’ll kill me at corporate headquarters. Call up Laura at Ferguson and ask her not to send the bill until after the first of the year. We have to have that $21,000 favorable variance for industrial engineering on the report.
Required:
What should Tom Kemper do?Explain.
Aug 29, 2021 | Uncategorized
Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:
?
For example, vessel operating costs should be $5,200 per month plus $480 per cruise plus $2 per passenger. The company’s sales should average $25 per passenger. The company’s planning budget for July is based on 24 cruises and 1,400 passengers.
Required:
Prepare the company’s planning budget forJuly.
Aug 29, 2021 | Uncategorized
Angie Donohue recently opened her own basketweaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Angie has put together a variety of raw material kits, each including materials at various stages of completion. Unfortunately, owing to space limitations, Angie is unable to carry all varieties of kits originally assembled and must choose between two basic packages. The basic introductory kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Angie $12 and sells for $27. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit the customer need only soak the reeds and weave the basket. Angie is able to produce the second kit by using the basic materials included in the first kit and adding one hour of her own time (to produce two kits), which she values at $18 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Angie is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The kit of dyed and cut reeds sells for $33.
Instructions
Determine whether Angie’s basketweaving shop should carry the basic introductory kit with undyed and uncut reeds, or the Stage 2 kit with reeds already dyed and cut. Prepare an incremental analysis to support your answer.
Aug 29, 2021 | Uncategorized
Aurora Company is considering the purchase of a new machine. The invoice price of the machine is $140,000, freight charges are estimated to be $4,000, and installation costs are expected to be $6,000. Salvage value of the new equipment is expected to be zero after a useful life of 5 years. Existing equipment could be retained and used for an additional 5 years if the new machine is not purchased. At that time, the salvage value of the equipment would be zero. If the new machine is purchased now, the existing machine would have to be scrapped. Aurora’s accountant, Lisah Huang, has accumulated the following data regarding annual sales and expenses with and without the new machine.
1. Without the new machine, Aurora can sell 12,000 units of product annually at a per unit selling price of $100. If the new machine is purchased, the number of units produced and sold would increase by 10%, and the selling price would remain the same.
2. The new machine is faster than the old machine, and it is more efficient in its usage of materials. With the old machine the gross profit rate will be 25% of sales, whereas the rate will be 30% of sales with the new machine.
3. Annual selling expenses are $180,000 with the current equipment. Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10% if it is purchased.
4. Annual administrative expenses are expected to be $100,000 with the old machine, and $113,000 with the new machine.
5. The current book value of the existing machine is $36,000. Aurora uses straight line depreciation.
Instructions
With the class divided into groups, prepare an incremental analysis for the 5 years showing whether Aurora should keep the existing machine or buy the new machine.
Aug 29, 2021 | Uncategorized
Blake Romney became Chief Executive Officer of Peters Inc. two years ago. At the time, the company was reporting lagging profits, and Blake was brought in to ?ostir things up.?? The company has three divisions, electronics, fiber optics, and plumbing supplies. Blake has no interest in plumbing supplies, and one of the first things he did was to put pressure on his accountants to reallocate some of the company’s fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable, net income. Blake felt that this reallocation would shine a favorable light on him in front of the board of directors because it meant that the electronics and fiber optics divisions would look like they were improving. Given that these are ?obusinesses of the future,?? he believed that the stock market would react favorably to these increases, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of fixed costs, the profits of the electronics and fiber optics divisions would not have improved.
But now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Peters their whole lives, would lose their jobs.
Instructions
(a) If a division is reporting losses, does that necessarily mean that it should be closed?
(b) Was the reallocation of fixed costs across divisions unethical?
(c) What should Blake do?
Aug 29, 2021 | Uncategorized
Current Designs faces a number of important decisions that require incremental analysis. Consider each of the following situations independently.
Situation 1
Recently, Mike Cichanowski, owner and CEO of Current Designs, received a phone call from the president of a brewing company. He was calling to inquire about the possibility of Current Designs producing ?ofloating coolers?? for a promotion his company was planning. These coolers resemble a kayak but are about one third the size. They are used to fl oat food and beverages while paddling down the river on a weekend leisure trip. The company would be interested in purchasing 100 coolers for the upcoming summer. It is willing to pay $250 per cooler. The brewing company would pick up the coolers upon completion of the order.
Mike met with Diane Buswell, controller, to identify how much it would cost Current Designs to produce the coolers. After careful analysis, the following costs were identified.
Direct materials ………….. $80/unit
Variable overhead ………… $20/unit
Direct labor ………………. $60/unit
Fixed overhead …………… $1,000
Current Designs would be able to modify an existing mold to produce the coolers. The cost of these modifications would be approximately $2,000.
Instructions
(a) Prepare an incremental analysis to determine whether Current Designs should accept this special order to produce the coolers.
(b) Discuss additional factors that Mike and Diane should consider if Current Designs is currently operating at full capacity.
Situation 2
Current Designs is always working to identify ways to increase efficiency while becoming more environmentally conscious. During a recent brainstorming session, one employee suggested to Diane Buswell, controller, that the company should consider replacing the current rotomold oven as a way to realize savings from reduced energy consumption. The oven operates on natural gas, using 17,000 therms of natural gas for an entire year. A new, energy efficient rotomold oven would operate on 15,000 therms of natural gas for an entire year. After seeking out price quotes from a few suppliers, Diane determined that it would cost approximately $250,000 to purchase a new, energy efficient rotomold oven. She determines that the expected useful life of the new oven would be 10 years, and it would have no salvage value at the end of its useful life. Current Designs would be able to sell the current oven for $10,000.
Instructions
(a) Prepare an incremental analysis to determine if Current Designs should purchase the new rotomold oven, assuming that the average price for natural gas over the next 10 years will be $0.65 per therm.
(b) Diane is concerned that natural gas prices might increase at a faster rate over the next 10 years. If the company projects that the average natural gas price of the next 10 years could be as high as $0.85 per therm, discuss how that might change your conclusion in (a).
Situation 3
One of Current Designs’ competitive advantages is found in the ingenuity of its owner and CEO, Mike Cichanowski. His involvement in the design of kayak molds and production techniques has led to Current Designs being recognized as an industry leader in the design and production of kayaks. This ingenuity was evident in an improved design of one of the most important components of a kayak, the seat. The ?oRevolution Seating System?? is a one of a kind, rotating axis seat that gives unmatched, full contact, under leg support. It is quickly adjustable with a lever lock system that allows for a customizable seat position that maximizes comfort for the rider.
Having just designed the ?oRevolution Seating System,?? Current Designs must now decide whether to produce the seats internally or buy them from an outside supplier. The costs for Current Designs to produce the seats are as follows.
Direct materials ………….. $20/unit
Direct labor ……………… $15/unit
Variable overhead ………. $12/unit
Fixed overhead ………… $20,000
Current Designs will need to produce 3,000 seats this year; 25% of the fixed overhead will be avoided if the seats are purchased from an outside vendor. After soliciting prices from outside suppliers, the company determined that it will cost $50 to purchase a seat from an outside vendor.
Instructions
(a) Prepare an incremental analysis showing whether Current Designs should make or buy the ?oRevolution Seating System.??
(b) Would your answer in (a) change if the productive capacity released by not making the seats could be used to produce income of $20,000?
Aug 29, 2021 | Uncategorized
Hank Jewell is a production manager at a metal fabricating plant. Last night, he read an article about a new piece of equipment that would dramatically reduce his division’s costs. Hank was very excited about the prospect, and the first thing he did this morning was to bring the article to his supervisor, Preston Thiese, the plant manager. The following conversation occurred:
Hank: Preston, I thought you would like to see this article on the new PDD1130; they’ve made some fantastic changes that could save us millions of dollars.
Preston: I appreciate your interest, Hank, but I actually have been aware of the new machine for two months. The problem is that we just bought a new machine last year. We spent $2 million on that machine, and it was supposed to last us 12 years. If we replace it now, we would have to write its book value off of the books for a huge loss. If I go to top management now and say that I want a new machine, they will fi re me. I think we should use our existing machine for a couple of years, and then when it becomes obvious that we have to have a new machine, I will make the proposal.
Instructions
Hank just completed a course in managerial accounting, and he believes that Preston is making a big mistake. Write a memo from Hank to Preston explaining Preston’s decision making error.
Aug 29, 2021 | Uncategorized
Harmon Company purchases sails and produces sailboats. It currently produces 1,200 sailboats per year, operating at normal capacity, which is about 80% of full capacity.
Harmon purchases sails at $260 each, but the company is considering using the excess capacity to manufacture the sails instead. The manufacturing cost per sail would be $100 for materials, $80 for direct labor, and $100 for overhead. The $100 overhead is based on $72,000 of annual fixed overhead that is allocated using normal capacity.
The president of Harmon has come to you for advice. “It would cost me $280 to make the sails,” she says, “but only $260 to buy them. Should I continue buying them, or have I missed something?”
Instructions
(a) Prepare a per unit analysis of the differential costs. Briefly explain whether Harmon should make or buy the sales.
(b) If Harmon suddenly finds an opportunity to rent out the unused capacity of its factory for $80,000 per year, would your answer to part (a) change? Briefly explain.
(c) Identify three qualitative factors that should be considered by Harmon in this make or buy decision.
(CGA adapted)
Aug 29, 2021 | Uncategorized
Innova uses 1,000 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows.
Direct materials ………. $ 65.00
Direct labor …………….. 45.00
Overhead ……………… 126.50
Total …………………. $236.50
Overhead costs include variable material handling costs of $6.50, which are applied to products on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labor dollars and consist of 60% variable costs and 40% fixed costs.
A vendor has offered to supply the IMC2 component at a price of $200 per unit.
Instructions
(a) Should Innova purchase the component from the outside vendor if Innova’s capacity remains idle?
(b) Should Innova purchase the component from the outside vendor if it can use its facilities to manufacture another product? What information will Innova need to make an accurate decision? Show your calculations.
(c) What are the qualitative factors that Innova will have to consider when making this decision?
Aug 29, 2021 | Uncategorized
Managerial accounting techniques can be used in a wide variety of settings. As we have frequently pointed out, you can use them in many personal situations. They also can be useful in trying to find solutions for societal issues that appear to be hard to solve.
Instructions
Read the Fortune article ?oThe Toughest Customers: How Hardheaded Business Metrics Can Help the Hard core Homeless,?? by Cait Murphy, available at Answer the following questions.
(a) How does the article define ?ochronic?? homelessness?
(b) In what ways does homelessness cost a city money? What are the estimated costs of a chronic homeless person to various cities?
(c) What are the steps suggested to address the problem?
(d) What is the estimated cost of implementing this program in New York? What results have been seen?
(e) In terms of incremental analysis, frame the relevant costs in this situation.
Aug 29, 2021 | Uncategorized
Morganstern Company is considering the purchase of a new machine. The invoice rice of the machine is $170,000, freight charges are estimated to be $4,000, and installation costs are expected to be $6,000. Salvage value of the new equipment is expected to be zero after a useful life of 4 years. Existing equipment could be retained and used for an additional 4 years if the new machine is not purchased. At that time, the salvage value of the equipment would be zero. If the new machine is purchased now, the existing machine would be scrapped. Morganstern’s accountant, Diane Gallup, has accumulated the following data regarding annual sales and expenses with and without the new machine.
1. Without the new machine, Morganstern can sell 10,000 units of product annually at a per unit selling price of $100. If the new unit is purchased, the number of units produced and sold would increase by 20%. The selling price would remain the same.
2. The new machine is faster than the old machine, and it is more efficient in its usage of materials. With the old machine the gross profit rate will be 25% of sales. With the new machine the rate will be 28% of sales.
3. Annual selling expenses are $135,000 with the current equipment. Because the new equipment would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10% if it is purchased.
4. Annual administrative expenses are expected to be $100,000 with the old machine and $113,000 with the new machine.
5. The current book value of the existing machine is $36,000. Morganstern uses straight line depreciation.
6. Morganstern’s management wants a minimum rate of return of 15% on its investment and a payback period of no more than 3 years.
Instructions
With the class divided into groups, answer the following. (Ignore income tax effects.)
(a) Prepare an incremental analysis for the 4 years showing whether Morganstern should keep the existing machine or buy the new machine.
(b) Calculate the annual rate of return for the new machine. (Round to two decimals.)
(c) Compute the payback period for the new machine. (Round to two decimals.)
(d) Compute the net present value of the new machine. (Round to the nearest dollar.)
(e) On the basis of the foregoing data, would you recommend that Morganstern buy the machine?
Why?
Aug 29, 2021 | Uncategorized
On January 2, 2011, Kinnaird Hospital purchased a $100,000 special radiology scanner from Rickard Inc. The scanner has a useful life of 5 years and will have no disposal value at the end of its useful life. The straight line method of depreciation is used on this scanner. Annual operating costs with this scanner are $105,000.
Approximately one year later, the hospital is approached by Harmon Technology salesperson, Jane Black, who indicated that purchasing the scanner in 2011 from Rickard Inc. was a mistake. She points out that Harmon has a scanner that will save Kinnaird Hospital $27,000 a year in operating expenses over its 4 year useful life. She notes that the new scanner will cost $120,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of equal quality. The new scanner will have no disposal value. Black agrees to buy the old scanner from Kinnaird Hospital for $30,000.
Instructions
(a) If Kinnaird Hospital sells its old scanner on January 2, 2012, compute the gain or loss on the sale.
(b) Using incremental analysis, determine if Kinnaird Hospital should purchase the new scanner on January 2, 2012.
(c) Explain why Kinnaird Hospital might be reluctant to purchase the new scanner, regardless of the results indicated by the incremental analysis in (b).
Aug 29, 2021 | Uncategorized
Shandling Company manufactures toasters. For the first 8 months of 2011, the company reported the following operating results while operating at 75% of plant capacity:
Sales (350,000 units) …………………..$4,375,000
Cost of goods sold ……………………. 2,500,000
Gross profit ……………………………. 1,875,000
Operating expenses ……………………. 875,000
Net income ……………………………..$1,000,000
Cost of goods sold was 70% variable and 30% fixed; operating expenses were also 70% variable and 30% fixed.
In September, Shandling Company receives a special order for 15,000 toasters at $7.50 each from Bierko Company of Mexico City. Acceptance of the order would result in an additional $3,000 of shipping costs but no increase in fixed operating expenses.
Instructions
(a) Prepare an incremental analysis for the special order.
(b) Should Shandling Company accept the special order? Why or why not?
Aug 29, 2021 | Uncategorized
Type your homework question here, like help me understand this chemistry proFinkler Residential Treatment Facility anticipates that it will have 25,000 patient days next year. This is substantially below its capacity of 35,000 patient days per year. The facility has variable costs of $75 per patient day. Its fixed costs are $1,500,000 per year.
a. Calculate the average cost per patient day for Finkler Residential Treatment Facility at a volume of 25,000 patient days and at 30,000patient days.
b. Assume that an HMO offers to generate 5,000 patient days per year. It currently sends no patients to Finkler Residential Treatment Facility. It is willing to pay a maximum flat amount of $90 per patient day. Assuming that its case mix is similar to the current 25,000 patient days, should Finkler accept its business? (Finkler, Ward & Baker, 2007, p. 95)
3. The health hospital has been pushed by its physician to add an open heart surgery unit. This has always been resisted on the grounds that there was not adequate demand to make the unit financially reasonable. Under the DRG system, Healthy could expect to receive average reimbursement of $56000 per open heart surgery for each of an anticipated 100 open heart surgeries per year. Incremental costs would be expected to $60000 per case so a loss would be incurred.
However, the prestige associated with offering open heart surgery would attract new affiliations. It is expected that 10 additional general practice physicians would join the staff and each of these 10 physicians would generate 20 patients per year, spread across a wide variety of DRGs. Struggling has excess capacity and would welcome additional patients.
It is expected that the average DRG reimbursement for these new patients would be $28000. The average cost is expected to be $27800. The average marginal cost is expected to be $26400. Should health add open heart surgery as a loss leader/
Aug 29, 2021 | Uncategorized
At the beginning of the year, Raydom Company had the following standard cost sheet for one of its chemical products:
Direct materials (5 lbs. @ $6.40) ……………….$32.00
Direct labor (2 hrs. @ $18.00) …………………. 36.00
Fixed overhead (2 hrs. @ $4.00) ………………. 8.00
Variable overhead (2 hrs. @ $1.50) …………… 3.00
Standard cost per unit ………………………….$79.00
Raydom computes its overhead rates using practical volume, which is 144,000 units. The actual results for the year are as follows:
a. Units produced: 140,000
b. Direct labor: 290,000 hours at $9.05
c. Fixed overhead: $1,160,000
d. Variable overhead: $436,000
Required:
1. Compute the variable overhead spending and volume variances.
2. Compute the fixed overhead spending and efficiency variances.
Aug 29, 2021 | Uncategorized
Boyne University offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool operated with 20 vehicles until February, when an additional automobile was acquired at the request of the university administration. The motor pool furnishes gasoline, oil, and other supplies for its automobiles. A mechanic does routine maintenance and minor repairs. Major repairs are performed at a nearby commercial garage. Each year, the supervisor of the motor pool prepares an annual budget, which is reviewed by the university and approved after suitable modifications.
The following cost control report shows actual operating costs for March of the current year compared to one twelfth of the annual budget.
?
The annual budget was based on the following assumptions:
(a)$0.15 per mile for gasoline
(b)$0.04 per mile for oil, minor repairs, and parts
(c)$900 per automobile per year for outside repairs
(d)$1,200 per automobile per year for insurance
(e)$7,540 per month for salaries and benefits
(f)$3,000 per automobile per year for depreciation
The supervisor of the motor pool is unhappy with the report, claiming it paints an unfair picture of the motor pool’s performance.
Required:
1. Prepare a new performance report for March based on a flexible budget that shows spending variances.
2. What are the deficiencies in the original cost control report? How does the report that you prepared in part (I) above overcome thesedeficiencies?
Aug 29, 2021 | Uncategorized
Budgeted selling and administrative expenses for Cruise Tire Company in P7 2 for the year ended December 31, 2011, were as follows:
Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $942,000
Office rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Office salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821,000
Office supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,500
Officers’ salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .661,000
Sales salaries expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 868,000
Telephone and fax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,500
Travel expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443,000
Required:
1. Prepare a selling and administrative expenses budget, in good form, for the year 2011.
2. Using the information above and the budgets prepared in P7 2, prepare a budgeted income statement for the year 2011, assuming an income tax rate of 40%.
Aug 29, 2021 | Uncategorized
Dresser Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor hours. The following data are taken from the company’s budget for the current year:
Denominator activity (direct labor hours) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000
Variable manufacturing overhead cost at 9,000 direct labor hours . . . . . . . $34,200
Fixed manufacturing overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,000
The standard cost card for the company’s only product is given below:
Direct materials, 4 pounds at $2.60 per pound . . . . . . . . . . . . . . . . . . $10.40
Direct labor, 2 direct labor hours at $9 per direct labor hour . . . . . . . . 18.00
Overhead, 120% of direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . 21.60
Standard cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50.00
During the year, the company produced 4,800 units of product and incurred the following costs:
Materials purchased, 30,000 pounds at $2.50 per pound . . . . . . . $75,000
Materials used in production (in pounds) . . . . . . . . . . . . . . . . . . . . 20,000
Direct labor cost incurred, 10,000 direct labor hours at
$8.60 per direct labor hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $86,000
Variable manufacturing overhead cost incurred . . . . . . . . . . . . . . . $35,900
Fixed manufacturing overhead cost incurred . . . . . . . . . . . . . . . . . $64,800
Required:
1. Redo the standard cost card in a clearer, more usable format by detailing the variable and fixed overhead cost elements.
2. Prepare an analysis of the variances for materials and labor for the year.
3. Prepare an analysis of the variances for variable and fixed overhead for the year.
4. What effect, if any, does the choice of a denominator activity level have on standard unit costs? Is the volume variance a controllable variance from a spending point of view? Explain.
Aug 29, 2021 | Uncategorized
Durrant Company has had great difficulty in controlling manufacturing overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget, and he has hired you to implement this budgeting program in Durrant Company. After some effort, you have developed the following cost formulas for the company’s Machining Department. These costs are based on a normal operating range of 10,000 to 20,000 machine hours per month:
Overhead Cost Cost Formula
Utilities . . . . . . . . . . . . . $0.70 per machine hour
Lubricants . . . . . . . . . . . $1.00 per machine hour plus $8,000 per month
Machine setup . . . . . . . $0.20 per machine hour
Indirect labor . . . . . . . . . $0.60 per machine hour plus $120,000 per month
Depreciation . . . . . . . . . $32,000 per month
During March, the first month after your preparation of the above data, the Machining Department worked 18,000 machine hours and produced 9,000 units of product. The actual manufacturing overhead costs for March were as follows:
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,000
Lubricants. . . . . . . . . . . . . . . . . . . . . . . . . . . 24,500
Machine setup . . . . . . . . . . . . . . . . . . . . . . . 4,800
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . 132,500
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Total manufacturing overhead cost. . . . . . . . $205,800
Fixed costs had no budget variances. The department had originally been budgeted to work 20,000 machine hours during March.
Required:
1. Prepare a flexible budget for the Machining Department in increments of 5,000 hours. Include both variable and fixed costs in your budget.
2. Prepare an overhead performance report for the Machining Department for the month of March. Include both variable and fixed costs in the report (in separate sections). Show only a spending variance on the report.
3. What additional information would you need to compute an overhead efficiency variance for the department?
Aug 29, 2021 | Uncategorized
Exchange Corp. is a company that acts as a facilitator in tax favored real estate swaps. Such swaps, know as 1031 exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwise be due. The bookkeeper for the company has been asked to prepare a report for the company to help its owner/manager analyze performance. The first such report appears below:
?
Note that the revenues and costs in the above report are unit revenues and costs. For example, the average office expense is $135 per exchange completed on the planning budget; whereas, the average actual office expense is $112 per exchange completed.
Legal and search fees is a variable cost; office expenses is a mixed cost; and equipment depreciation, rent, and insurance are fixed costs. In the planning budget, the fixed component of office expenses was $5,200.
All of the company’s revenues come from fees collected when an exchange is completed.
Required:
1. Evaluate the report prepared by the bookkeeper.
2. Prepare a performance report that would help the owner/manager assess the performance of the company in May.
3. Using the report you created, evaluate the performance of the company inMay.
Aug 29, 2021 | Uncategorized
Fernando’s is a hole in the wall sandwich shop just off the State University campus. Customers enter off the street into a small counter area to order one of 10 varieties of sandwiches and a soft drink. All orders must be taken out because there is no space for dining in. The owner of Fernando’s is Luis Azaria, son of Fernando Azaria who founded the shop. Luis is attempting to construct a series of budgets. He has accumulated the following information:
a. The average sandwich (which sells for $4.50) requires 1 roll, 4 ounces of meat, 2 ounces of cheese, 0.05 head of lettuce, 0.25 of a tomato, and a healthy squirt (1 ounce) of secret sauce. (We can’t reveal the recipe here, but it includes Serrano pepper and hoisin sauce.)
b. Each customer typically orders one soft drink (average price $1.50) consisting of a cup and 12 ounces of soda. Refills on the soda are free, but this offer is seldom taken advantage of because the typical customer carries his/her sandwich and soda back to the office or common area.
c. Use of paper supplies (napkins, bag, sandwich wrap, cups) varies somewhat from customer to customer but averages $1,650 per month.
d. Fernando’s is open for two 4 hour shifts. The noon shift on Monday through Friday requires two workers earning $10 per hour. The evening shift is only worked on Friday, Saturday, and Sunday nights. The two evening shift employees also earn $10 per hour. There are 4.3 weeks in a month.
e. Rent is $575 per month. Other monthly cash expenses average $1,800.
f. Food costs are:
Meat …………………….………………………………$7.00/lb
Cheese …………………..…………………….………..$6.00/lb
Rolls …………………….…………………….………..$28.80/gross
Lettuce (a box contains 24 heads) …………….………..$12.00/box
Tomatoes (a box contains about 20 tomatoes) …………$4/box
Secret sauce …………………..…………………….…..$6.40/gallon
Soda (syrup and carbonated water) ………..…………..$2.56/gallon
In a normal month when school is in session, Fernando’s sells 5,000 sandwiches and 5,000 sodas. In October, State U holds its homecoming celebration. Therefore, Luis figured that if he added a noon shift on Saturday and Sunday of homecoming weekend, October sales would be 30 percent higher than normal. To advertise his noon shifts during homecoming weekend, Luis bought cups emblazoned with the State U Homecoming schedule. This added $200 to paper costs for the month. Last year, he added two additional shifts, and his sales goal was realized.
Required:
1. Prepare a flexible budget for a normal school month.
2. Prepare a flexible budget for October.
3. Do you think it was worthwhile for Luis to add the additional shifts for homecoming weekend last October?
Aug 29, 2021 | Uncategorized
Harry Johnson, the chief financial officer of Ur Thrift, Inc, a large retailer, had just finished a meeting with the Roger Swasey, the chief financial officer of the large retailer, and Connie Baker, its environmental officer. Over the years, Harry had overseen the development of a number of cost formulas that allowed Ur Thrift to budget the variable costs of a variety of items. For example, packaging for one of its private line of dolls had a cost formula of Y ?1 $2.20X, where X represented the number of dolls sold. The formula was used to calculate the expected packaging costs which were then compared with the actual packaging costs. Over the last several years, the actual costs and budgeted costs were virtually on target, prompting Harry to claim that packaging costs were well controlled. Connie Baker, however, argued that the packaging costs were not well controlled. In fact, she was adamant in her view that the packaging was excessive and that by reducing the packaging, costs could be reduced and the environmental impacts reduced as well. She argued that the company had an ethical obligation to reduce environmental impacts and that cost savings would also be captured, improving the profitability of the company. As another example, Connie discussed the fleet of trucks used by Ur Thrift to move goods from its warehouses to retail outlets. The fuel cost formula was $3X, where X represented gallons of fuel consumed. She pointed out that the performance data also revealed that fuel costs were in control. Yet her office had recently recommended the installation of an auxiliary power unit to heat and cool the cabs of the trucks during the mandatory ten hour breaks required of its drivers, thus avoiding the need to have the engine idle during this rest period. She claimed that this would significantly reduce fuel costs and easily pay for the new auxiliary units in a short period of time. Connie had also made some comments that caused Harry to pause and do some soul searching. She noted that the financial officers of the company should be more concerned about reducing costs than simply predicting what they should be. Thus (according to her view), cost formulas are useful only to tell us where we currently are so that they can be used to assess how to reduce costs. The so called flexible budgets are simply a means of enforcing static standards. She also said that the company’s managers had an ethical obligation to not overconsume the resources of the planet. She urged both Harry and Roger to help position the company so that it could reduce its environmental impacts.
Required:
1. Do financial officers have an ethical obligation to help in reducing negative environmental impacts? Identify and discuss which of the Institute of Management Accountant’s ethical standards might be used to sustain this point of view. Also, describe the role that flexible budgeting may play in reducing environmental impacts.
2. Suppose that Harry and Connie embark on a cooperative effort to eliminate any excessive packaging. The projected results are impressive. The expected reductions will save $3 million in shipping costs ($0.50 per package), $1.5 million in packaging materials ($0.40 per package), 5,000 trees, and 1.25 million barrels of oil. Are there any ethical issues associated with these actions? What standards might apply?
3. Identify two potential ethical dilemmas that might surface in the use of flexible budgeting for performance evaluation (the dilemmas do not need to be connected with environmental activities).
Aug 29, 2021 | Uncategorized
It certainly is nice to see that small variance on the income statement after all the trouble we’ve had lately in controlling manufacturing costs,?? said Linda White, vice president of Molina Company. ?oThe $12,250 overall manufacturing variance reported last period is well below the 3% limit we have set for variances. We need to congratulate everybody on a job well done.??
The company produces and sells a single product. The standard cost card for the product follows:
Standard Cost Card—Per Unit
Direct materials, 4 yards at $3.50 per yard . . . . . . . . . . . . . . . . . . . . . . . . . . . $14
Direct labor, 1.5 direct labor hours at $12 per direct labor hour . . . . . . . . . . . . 18
Variable overhead, 1.5 direct labor hours at $2 per direct labor hour . . . . . . . . 3
Fixed overhead, 1.5 direct labor hours at $6 per direct labor hour . . . . . . . . . . 9
Standard cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44
The following additional information is available for the year just completed:
a. The company manufactured 20,000 units of product during the year.
b. A total of 78,000 yards of material was purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year.
c. The company worked 32,500 direct labor hours during the year at a cost of $11.80 per hour.
d. Overhead cost is applied to products on the basis of standard direct labor hours. Data relating to manufacturing overhead costs follow:
Denominator activity level (direct labor hours) . . . . . . . . . . . . . . . . 25,000
Budgeted fixed overhead costs (from the flexible budget) . . . . . . . $150,000
Actual fixed overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $148,000
Actual variable overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . $68,250
Required:
1. Compute the direct materials price and quantity variances for the year.
2. Compute the direct labor rate and efficiency variances for the year.
3. For manufacturing overhead, compute the following:
a. The variable overhead spending and efficiency variances for the year.
b. The fixed overhead budget and volume variances for the year.
4. Total the variances you have computed, and compare the net amount with the $12,250 mentioned by the vice president. Do you agree that everyone should be congratulated for a job well done? Explain.
Aug 29, 2021 | Uncategorized
Jessel Corporation bases its variable overhead performance report on the actual direct labor hours of the period. Data concerning the most recent year that ended on December 31 are as follows:
Budgeted direct labor hours . . . . . . . . . . . . . 42,000
Actual direct labor hours . . . . . . . . . . . . . . . . 44,000
Standard direct labor hours allowed . . . . . . . 45,000
Cost formula (per direct labor hour):
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . $0.90
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.15
Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . $0.05
Actual costs incurred:
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . $42,000
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,900
Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,800
Required:
Prepare a variable overhead performance report using the format in Exhibit 11–6. Compute just the variable overhead spending variances; do not compute the variable overhead efficiency variances.
Aug 29, 2021 | Uncategorized
Joven Inc. operates a delivery service for over 70 restaurants. The corporation has a fleet of vehicles and has invested in a sophisticated, computerized communications system to coordinate its deliveries. Joven has gathered the following actual data on last year’s delivery operations:
Deliveries made ……………………………….42,000
Direct labor ……………..……………………..30,000 direct labor hours @ $7.00
Actual variable overhead ……………………… $138,000
Joven employs a standard costing system. During the year, a variable overhead rate of $4.05 per hour was used. The labor standard requires 0.75 hour per delivery.
Required:
1. Compute the standard hours allowed for actual deliveries made last year.
2. Compute the variable overhead spending and efficiency variances.
Aug 29, 2021 | Uncategorized
Lorale Company, a producer of recreational vehicles, recently decided to begin producing a major subassembly for jet skis. The subassembly would be used by Lorale’s jet ski plants and also would be sold to other producers. The decision was made to lease two large buildings in two different locations: Little Rock, Arkansas, and Athens, Georgia. The company agreed to a 11 year, renewable lease contract. The plants were of the same size, and each had 10 production lines. New equipment was purchased for each line and workers were hired to operate the equipment. The company also hired production line supervisors for each plant. A supervisor is capable of directing up to two production lines per shift. Two shifts are run for each plant. The practical production capacity of each plant is 300,000 subassemblies per year. Two standard direct labor hours are allowed for each subassembly. The costs for leasing, equipment depreciation, and supervision for a single plant are as follows (the costs are assumed to be the same for each plant):
Supervision (10 supervisors @ $50,000) ……………$ 500,000
Building lease (annual payment) …………………… 800,000
Equipment depreciation (annual) ……………………1,100,000
Total fixed overhead costs* …………………………. $2,400,000
* For simplicity, assume these are the only fixed overhead costs.
After beginning operations, Lorale discovered that demand for the product in the region covered by the Little Rock plant was less than anticipated. At the end of the first year, only 240,000 units were sold. The Athens plant sold 300,000 units as expected. The actual fixed overhead costs at the end of the first year were $2,500,000 (for each plant).
Required:
1. Calculate a fixed overhead rate based on standard direct labor hours.
2. Calculate the fixed overhead spending and volume variances for the Little Rock and Athens plants. What is the most likely cause of the spending variance? Why are the volume variances different for the two plants?
3. Suppose that from now on the sales for the Little Rock plant are expected to be no more than 240,000 units. What actions would you take to manage the capacity costs (fixed overhead costs)?
4. Calculate the fixed overhead cost per subassembly for each plant. Do they differ? Should they differ? Explain. Do ABC concepts help in analyzing this issue?
Aug 29, 2021 | Uncategorized
Lynwood Company produces surge protectors. To help control costs, Lynwood employs a standard costing system and uses a flexible budget to predict overhead costs at various levels of activity. For the most recent year, Lynwood used a standard overhead rate of $18 per direct labor hour. The rate was computed using practical activity. Budgeted overhead costs are $396,000 for 18,000 direct labor hours and $540,000 for 30,000 direct labor hours. During the past year, Lynwood generated the following data:
a. Actual production: 100,000 units
b. Fixed overhead volume variance: $20,000 U
c. Variable overhead efficiency variance: $18,000 F
d. Actual fixed overhead costs: $200,000
e. Actual variable overhead costs: $310,000
Required:
1. Calculate the fixed overhead rate.
2. Determine the fixed overhead spending variance.
3. Determine the variable overhead spending variance.
4. Determine the standard hours allowed per unit of product.
Aug 29, 2021 | Uncategorized
Messner Company is planning to produce 280,000 units for the coming year. The company uses direct labor hours to assign overhead to products. Each unit requires 0.9 standard hour of labor for completion. The total variable overhead budgeted was $801,360. The total fixed overhead budgeted for the coming year is $1,386,000. Predetermined overhead rates are calculated using direct labor hours based on expected production.
Actual results for the year are:
Actual production (units) …………….291,000
Actual direct labor hours …………….259,000
Actual fixed overhead ………………. $1,410,000
Actual variable overhead …………… $829,000
Required:
1. Compute the fixed overhead rate.
2. Compute the applied fixed overhead.
3. Compute the fixed overhead spending and volume variances.
4. Compute the applied variable overhead.
5. Compute the variable overhead spending and efficiency variances.
Aug 29, 2021 | Uncategorized
Mosbach Corporation has a standard cost system in which it applies overhead to products based on the standard direct labor hours allowed for the actual output of the period. Data concerning the most recent year appear below:
Variable overhead cost per direct labor hour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.50
Total fixed overhead cost per year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000
Budgeted standard direct labor hours (denominator level of activity) . . . . . . . . 80,000
Actual direct labor hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,000
Standard direct labor hours allowed for the actual output . . . . . . . . . . . . . . . . . 82,000
Required:
1. Compute the predetermined overhead rate for the year.
2. Determine the amount of overhead that would be applied to the output of the period.
Aug 29, 2021 | Uncategorized
Multiple Choice Questions
1. For performance reporting, it is best to compare actual costs with budgeted costs using
a. Flexible budgets.
b. Static budgets.
c. Master budgets.
d. Short term budgets.
e. None of the above.
2. To create a meaningful performance report, actual costs and expected costs should be compared
a. At the budgeted level of activity.
b. Weekly.
c. At the actual level of activity.
d. At the average level of activity.
e. Hourly.
3. To help deal with uncertainty, managers should use
a. A static budget.
b. A master budget.
c. An after the fact flexible budget.
d. A before the fact flexible budget.
e. None of the above.
4. To help assess performance, managers should use
a. A static budget.
b. A master budget.
c. An after the fact flexible budget.
d. A before the fact flexible budget.
e. None of the above.
5. A firm comparing the actual variable costs of producing 10,000 units with the total variable costs of a static budget based on 9,000 units would probably see
a. No variances.
b. Small favorable variances.
c. Small unfavorable variances.
d. Large favorable variances.
e. Large unfavorable variances.
6. The total variable overhead variance is the difference between
a. The budgeted variable overhead and the actual variable overhead.
b. The actual variable overhead and the applied variable overhead.
c. The budgeted variable overhead and the applied variable overhead.
d. The applied variable overhead and the budgeted total overhead.
e. None of the above.
7. A variable overhead spending variance can occur because
a. Prices for individual overhead items have increased.
b. Prices for individual overhead items have decreased.
c. More of an individual overhead item was used than expected.
d. Less of an individual overhead item was used than expected.
e. All of the above.
8. Because the calculation of both variances is based on direct labor hours, an unfavorable labor efficiency variance implies that
a. The variable overhead efficiency variance will also be unfavorable.
b. The variable overhead efficiency variance will be favorable.
c. There will be no variable overhead efficiency variance.
d. The variable overhead spending variance will be unfavorable.
e. The variable overhead is overapplied.
9. The total variable overhead variance can be expressed as the sum of
a. The underapplied variable overhead and the spending variance.
b. The efficiency variance and the overapplied variable overhead.
c. The spending and efficiency variances.
d. The spending, efficiency, and volume variances.
e. None of the above.
Aug 29, 2021 | Uncategorized
Multiple Choice Questions
1. In a performance report that details the spending and efficiency variances, which of the following columns will be found?
a. A cost formula for each item
b. A budget for actual hours for each item
c. A budget of standard hours for each item
d. All of the above.
e. Only a and b.
2. The total fixed overhead variance is
a. The difference between actual and budgeted fixed overhead costs.
b. The difference between budgeted and applied fixed overhead costs.
c. The difference between budgeted fixed and variable overhead costs.
d. The difference between actual and applied fixed overhead costs.
e. None of the above.
3. The total fixed overhead variance can be expressed as the sum of
a. The spending and efficiency variances.
b. The spending and volume variances.
c. The efficiency and volume variances.
d. The flexible budget and the volume variances.
e. None of the above.
4. Because of the nature of fixed overhead items, the difference between the actual fixed overhead cost and the budgeted fixed overhead is
a. Likely to be small.
b. Likely to be large.
c. Usually a major concern.
d. Often attributable to labor inefficiency.
e. None of the above.
5. An unfavorable volume variance can occur because
a. Too much finished goods inventory was held.
b. The company overproduced.
c. The actual output was less than expected or practical capacity.
d. The actual output was greater than expected or practical capacity.
e. All of the above.
6. Responsibility for the volume variance usually is assigned to
a. The purchasing department.
b. The receiving department.
c. The shipping department.
d. The manufacturing department.
e. None of the above.
7. In activity based budgeting, costs are classified as variable or fixed with respect to
a. The activity driver.
b. Only the units produced.
c. Only the units sold.
d. Only the direct labor hours.
e. None of the above.
8. Activity flexible budgeting makes it possible to
a. Predict what activity costs will be as activity output changes.
b. Improve traditional budgetary performance reporting.
c. Enhance the ability to manage activities.
d. All of the above.
e. Only a and c.
9. In activity based budgeting, flexible budget formulas are created
a. Using only unit level drivers.
b. Using only nonunit level drivers.
c. Using both unit level and nonunit level drivers.
d. Using only direct labor hours.
e. All of the above.
Aug 29, 2021 | Uncategorized
Refer to the data for The Terminator Inc. in Exercise 10—6. A management intern has suggested that the budgeted revenues and costs should be adjusted for the actual level of activity in April before they are compared to the actual revenues and costs. Because the actual level of activity was 5% higher than budgeted, the intern suggested that all budgeted revenues and costs should be adjusted upward by 5%. A report comparing the budgeted revenues and costs, with this adjustment, to the actual revenues and costs appears on the following page.
?
Required:
Is the above variance report useful for evaluating how well revenues and costs were controlled during April? Why, or whynot?
Aug 29, 2021 | Uncategorized
Selected information relating to the fixed overhead costs of Westwood Company for the most recent year is given below:
Activity:
Number of units produced . . . . . . . . . . . . . . . . . . . 9,500
Standard machine hours allowed per unit . . . . . . . 2
Denominator activity (machine hours) . . . . . . . . . 20,000
Costs:
Actual fixed overhead costs incurred . . . . . . . . . . . $79,000
Budget variance . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000 F
Overhead cost is applied to products on the basis of standard machine hours.
Required:
1. What was the fixed portion of the predetermined overhead rate?
2. What were the standard machine hours allowed for the period’s production?
3. What was the volume variance?
Aug 29, 2021 | Uncategorized
Fair Lakes Hospital Corporation has been operating ambulatory surgery centers in Groveton and Stockdale, two small communities each about an hour away from its main hospital. As a cost control measure the hospital has decided that it needs only one of those two centers permanently, so one must be shut down. The decision regarding which center to close will be made on financial considerations alone. The following information is available:
a. The Groveton center was built 15 years ago at a cost of $5 million on land leased from the City of Groveton at a cost of $40,000 per year. The land and buildings will immediately revert back to the city if the center is closed. The center has annual operating costs of $2.5 million, all of which will be saved if the center is closed. In addition, Fair Lakes allocates $800,000 of common administrative costs to the Groveton center. If the center is closed, these costs would be reallocated to other ambulatory centers.
If the center is kept open, Fair Lakes plans to invest $1 million in a fixed income note, which will earn the $40,000 that Fair Lakes needs for the lease payments.
b. The Stockdale center was built 20 years ago at a cost of $4.8 million, of which Fair Lakes and the City of Stockdale each paid half, on land donated by a hospital benefactor. Two years ago, Fair Lakes spent $2 million to renovate the facility. If the center is closed, the property will be sold to developers for $7 million. The operating costs of the center are $3 million per year, all of which will be saved if the center is closed. Fair Lakes allocates $1 million of common administrative costs to the Stockdale center. If the center is closed, these costs would be reallocated to other ambulatory centers.
c. Fair Lakes estimates that the operating costs of whichever center remains open will be $3.5 million per year.
Required
The City Council of Stockdale has petitioned Fair Lakes to close the Groveton facility, thus sparing the Stockdale center. The Council argues that otherwise the $2 million spent on recent renovations would be wasted. Do you agree with the Stockdale City Council’s arguments and conclusions? In your answer, identify and explain all costs that you consider relevant and all costs that you consider irrelevant for the center closing decision.
Aug 29, 2021 | Uncategorized
Lawn World, a manufacturer of lawn mowers, predicts that it will purchase 264,000 spark plugs next year. Lawn World estimates that 22,000 spark plugs will be required each month. A supplier quotes a price of $7 per spark plug. The supplier also offers a special discount option:
If all 264,000 spark plugs are purchased at the start of the year, a discount of 2% off the $7 price will be given.
Lawn World can invest its cash at 10% per year. It costs Lawn World $260 to place each purchase order.
Required
1. What is the opportunity cost of interest forgone from purchasing all 264,000 units at the start of the year instead of in 12 monthly purchases of 22,000 units per order?
2. Would this opportunity cost be recorded in the accounting system? Why?
3. Should Lawn World purchase 264,000 units at the start of the year or 22,000 units each month? Show your calculations.
Aug 29, 2021 | Uncategorized
Make versus buy, activity based costing, opportunity costs. The Weaver Company produces gas grills. This year’s expected production is 20,000 units. Currently, Weaver makes the side burners for its grills. Each grill includes two side burners. Weaver’s management accountant reports the following costs for making the 40,000 burners:
?
Weaver has received an offer from an outside vendor to supply any number of burners Weaver requires at $9.25 per burner. The following additional information is available:
a. Inspection, setup, and materials handling costs vary with the number of batches in which the burners are produced. Weaver produces burners in batch sizes of 1,000 units. Weaver will produce the 40,000 units in 40 batches.
b. Weaver rents the machine used to make the burners. If Weaver buys all of its burners from the outside vendor, it does not need to pay rent on this machine.
Required
1. Assume that if Weaver purchases the burners from the outside vendor, the facility where the burners are currently made will remain idle. On the basis of financial considerations alone, should Weaver accept the outside vendor’s offer at the anticipated volume of 40,000 burners? Show your calculations.
2. For this question, assume that if the burners are purchased outside, the facilities where the burners are currently made will be used to upgrade the grills by adding a rotisserie attachment. (Note: Each grill contains two burners and one rotisserie attachment.) As a consequence, the selling price of grills will be raised by $30. The variable cost per unit of the upgrade would be $24, and additional tooling costs of $100,000 per year would be incurred. On the basis of financial considerations alone, should Weaver make or buy the burners, assuming that 20,000 grills are produced (and sold)? Show your calculations.
3. The sales manager at Weaver is concerned that the estimate of 20,000 grills may be high and believes that only 16,000 grills will be sold. Production will be cut back, freeing up work space. This space can be used to add the rotisserie attachments whether Weaver buys the burners or makes them in house. At this lower output, Weaver will produce the burners in 32 batches of 1,000 units each. On the basis of financial considerations alone, should Weaver purchase the burners from the outside vendor? Show yourcalculations.
Aug 29, 2021 | Uncategorized
Relevant and irrelevant costs. Answer the following questions.
1. DeCesare Computers makes 5,200 units of a circuit board, CB76 at a cost of $280 each. Variable cost per unit is $190 and fixed cost per unit is $90. Peach Electronics offers to supply 5,200 units of CB76 for $260. If DeCesare buys from Peach it will be able to save $10 per unit in fixed costs but continue to incur the remaining $80 per unit. Should DeCesare accept Peach’s offer? Explain.
2. LN Manufacturing is deciding whether to keep or replace an old machine. It obtains the following information:
?
LN Manufacturing uses straight line depreciation. Ignore the time value of money and income taxes.
Should LN Manufacturing replace the old machine?Explain.
Aug 29, 2021 | Uncategorized
The contribution format income statement for Huerra Company for last year is given below:
?
The company had average operating assets of $2,000,000 during the year.
Required:
1. Compute the company’s return on investment (ROT) for the period using the ROT formula stated in terms of margin and turnover.
For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROl figure. Consider each question separately, starting in each case from the data used to compute the original ROI in (I) above.
2. Using Lean Production, the company is able to reduce the average level of inventory by $400,000. (The released funds are used to pay off short term creditors.)
3. The company achieves a cost savings of $32,000 per year by using Tess costly materials.
4. The company issues bonds and uses the proceeds to purchase $500,000 in machinery and equipment at the beginning of the period. Interest on the bonds is $60,000 per year. Sales remain unchanged. The new, more efficient equipment reduces production costs by $20,000 per year.
5. As a result of a more intense effort by salespeople, sales are increased by 20%; operating assets remain unchanged.
6. Obsolete inventory carried on the books at a cost of $40,000 is scrapped and written off as a loss.
7. The company uses $200,000 of cash (received on accounts receivable) to repurchase and retire some of its commonstock.
Aug 29, 2021 | Uncategorized
The following is a list of terms related to performance evaluation.
(1) Balanced scorecard
(2) Variance
(3) Learning and growth perspective
(4) Nonfinancial measures
(5) Customer perspective
(6) Internal process perspective
(7) Ideal standards
(8) Normal standards
Instructions
Match each of the following descriptions with one of the terms above.
(a) The difference between total actual costs and total standard costs.
(b) An efficient level of performance that is attainable under expected operating conditions.
(c) An approach that incorporates financial and nonfinancial measures in an integrated system that links performance measurement and a company’s strategic goals.
(d) A viewpoint employed in the balanced scorecard to evaluate how well a company develops and retains its employees.
(e) An evaluation tool that is not based on dollars.
(f) A viewpoint employed in the balanced scorecard to evaluate the company from the perspective of those people who buy and use its products or services.
(g) An optimum level of performance under perfect operating conditions.
(h) A viewpoint employed in the balanced scorecard to evaluate the efficiency and effectiveness of the company’s value chain.
Aug 29, 2021 | Uncategorized
The loan department of Local Bank uses standard costs to determine the overhead cost of processing loan applications. During the current month a fire occurred, and the accounting records for the department were mostly destroyed. The following data were salvaged from the ashes.
Standard variable overhead rate per hour ………………………….$9
Standard hours per application ………………………………………2
Standard hours allowed …………………………………………2,000
Standard fixed overhead rate per hour ……………………………..$6
Actual fixed overhead cost …………………………………..$13,200
Variable overhead budget based on standard hours allowed …$18,000
Fixed overhead budget ………………………………………$13,200
Overhead controllable variance ……………………………… $ 1,500 U
Instructions
(a) Determine the following.
(1) Total actual overhead cost.
(2) Actual variable overhead cost.
(3) Variable overhead cost applied.
(4) Fixed overhead cost applied.
(5) Overhead volume variance.
(b) Determine how many loans were processed.
Aug 29, 2021 | Uncategorized
The Midwest Consulting Group (MCG) helps companies build balanced scorecards. As part of its marketing efforts, MCG conducts an annual balanced scorecard workshop for prospective clients. As MCG’s newest employee, your boss has asked you to participate in this year’s work shop by explaining to attendees how a company’s strategy determines the measures that are appropriate for its balanced scorecard. Your boss has provided you with the excerpts below from the annual reports of two current MCG clients. She has asked you to use these excerpts in your portion of the workshop. Excerpt from Applied Pharmaceuticals’ annual report: The keys to our business are consistent and timely new product introductions and manufacturing process integrity. The new product introduction side of the equation is a function of research and development (R&D) yield (e.g., the number of marketable drug compounds created relative to the total number of potential compounds pursued). We seek to optimize our R&D yield and first to market capability by investing in state of the art technology, hiring the highest possible percentage of the ?obest and the brightest?? engineers that we pursue, and providing world class training to those engineers. Manufacturing process integrity is all about establishing world class quality specifications and then relentlessly engaging in prevention and appraisal activities to minimize defect rates. Our customers must have an awareness of and respect for our brand image of being ?ofirst to market and first in quality.?? If we deliver on this pledge to our customers, then our financial goal of increasing our return on stockholders’ equity should take care of itself. Excerpt from Destination Resorts International’s annual report:
Our business succeeds or fails based on the quality of the service that our front line employees provide to customers. Therefore, it is imperative that we strive to maintain high employee morale and minimize employee turnover. In addition, it is critical that we train our employees to use technology to create one seamless worldwide experience for our repeat customers. Once an employee enters a customer preference (e.g., provide two extra pillows in the room, deliver fresh brewed coffee to the room at 8:00 A.M., etc.) into our database, our worldwide workforce strives to ensure that a customer will never need to repeat it at any of our destination resorts. If we properly train and retain a motivated workforce, we should see continuous improvement in our percentage of error free repeat customer check ins, the time taken to resolve customer complaints, and our independently assessed room cleanliness. This in turn should drive improvement in our customer retention, which is the key to meeting our revenue growth goals.
Required:
1. Based on the excerpts above, compare and contrast the strategies of Applied Pharmaceuticals and Destination Resorts International.
2. Select balanced scorecard measures for each company and link the scorecard measures using the framework from Exhibit 12—8. Use arrows to show the causal links between the performance measures and show whether the performance measure should increase or decrease over time. Feel free to create measures that may not be specifically mentioned in the chapter, but nonetheless make sense given the strategic goals of each company.
3. What hypotheses are built into each balanced scorecard? Why do the hypotheses differ between the two companies?
Aug 29, 2021 | Uncategorized
The Northeast District of Vidovich Beverages, Inc., is organized as a cost center. The budget for the Northeast District of Vidovich Beverages, Inc., for the month ended May 31, 2010, is as follows:
Sales salaries $ 569,400
System administration salaries 311,220
Customer service salaries 106,000
Billing salaries 68,560
Maintenance 188,480
Depreciation of plant and equipment 64,050
Insurance and property taxes 28,670
Total $1,336,380
During May, the costs incurred in the Northeast District were as follows:
Sales salaries $ 568,680
System administration salaries 310,900
Customer service salaries 125,080
Billing salaries 68,145
Maintenance 189,530
Depreciation of plant and equipment 64,050
Insurance and property taxes 28,770
Total $1,355,155
Instructions
1. Prepare a budget performance report for the manager of the Northeast District of Vidovich Beverages for the month of May.
2. For which costs might the supervisor be expected to request supplemental reports?
Aug 29, 2021 | Uncategorized
The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for the past year for each division are as follows:
?
Instructions
1. Prepare condensed divisional income statements for the year ended December 31, 2010, assuming that there were no service department charges.
2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division.
3. If management’s minimum acceptable rate of return is 14%, determine the residual income for each division.
4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and(3).
Aug 29, 2021 | Uncategorized
Train X Railroad Company organizes its three divisions, the North (N), south (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluate divisional performance, using income from operation as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 2012:
Revenues N Region …………………..…….. $ 2,625,000
Revenue –S Region ………………..………….. 3,940,000
Revenue – W Region …………………………… 3,562,500
Operating expenses N Region ………………….. 1,856,250
Operating expense – S Region ………………….. 3,081,000
Operating Expenses W Region ………………….. 2,525,625
Corporate Expenses Dispatching ……………………180,000
Corporate expense – Equipment Management …… 1,110,000
Corporate Expenses Treasure’s ……………………. 510,000
General Corporate Officers’ Salaries ………………. 960,000
The company operates three service departments: the dispatching department, the Equipment Management Department, and the Treasurer’s Department. The dispatching Department Manages the scheduling and releasing of completed trains. The Equipment Management department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:
Instructions
1. Prepare quarterly income statement showing income from operations for the three regions. Use three column beadings: North, South and West.
2. Identify the most successful region according to the profit margin.
3. Provide a recommendation to the CEO for a better method for Evaluating the performance of the regions. In your to the CEO for a better method for evaluating the performance of the regions. In your recommendation, identify the major weakness of the present method.
Aug 29, 2021 | Uncategorized
Trans Continental Airlines, Inc., has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared:
?
The service department charge rate for the service department costs was based on revenues. Since the revenues of the two divisions were the same, the service department charges to each division were also the same. The following additional information is available:
(a) Does the income from operations for the two divisions accurately measure performance?
(b) Correct the divisional income statements, using the activity bases provided on the preceding page in revising the service departmentcharges.
Aug 29, 2021 | Uncategorized
Tupelo Industries Inc., is privately held diversified company with five separate divisions organized as investment centers. A condensed income statement for the Specially Products Divisions for the past year, assuming no service department charges, is as follows:
The manager of the specially Products Division was recently presented with the opportunity to add an additional product line, which would require invested assets of$14,400,000. A projected statement for the new product line is as follows:
The Specialty Products Division currently has $33,750,000 in invested assets, and Tupelo Industries Inc,’s overall rate of return on investment, including all divisions, is 10% Each division manager is evaluated on the basis of divisional rate of return on investment. A bonus is paid, in $3,000 increments, for each whole percentage point that the division’s rate of return on investment, for each whole percentage point that the division’s rate of return on investment exceeds the company average.
The president is connected that the manager of the Specialty Products Division rejected the addition of the new product line, even though all estimates indicated that the product line would be profitable and would increase overall company income. You have been asked to analyze the possible reasons why the Specialty Products Division manger rejected the new product line.
1. Determine the rate of return on investment for the Specialty Products Division for the past year.
2. Determine the Specialty Products Division manager’s bonus for the past year.
3. Determine the estimated rate of return on investment for the new product line. Round whore percents to one decimal place and investment turnover to two decimal places.
4. Why might the manager of the Specialty Products Division decide to reject the new product line? Support your answer by determine the projected rate of return on investment for 2012, assuming that the new product line was launched rate of return on investment for 2012, actual operating results were similar to those of 2011.
5. Can suggest as alternative performance measure for motivating division managers to accept new investment opportunities that would increase the over all company income and rate on return on investment?
Aug 29, 2021 | Uncategorized
Vulcan Company’s contribution format income statement for June is given below:
?
Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:
(a) The company is divided into two sales territories—Northern and Southern. The Northern territory recorded $300,000 in sales and $156,000 in variable expenses during June; the remaining sales and variable expenses were recorded in the Southern territory. Fixed expenses of $120,000 and $108,000 are traceable to the Northern and Southern territories, respectively. The rest of the fixed expenses are common to the two territories.
(b) The company is the exclusive distributor for two products—Paks and Tibs. Sales of Paks and Tibs totaled $50,000 and $250,000, respectively, in the Northern territory during June. Variable expenses are 22% of the selling price for Paks and 58% for Tibs. Cost records show that $30,000 of the Northern territory’s fixed expenses are traceable to Paks and $40,000 to Tibs, with the remainder common to the two products.
Required:
1. Prepare contribution format segmented income statements first showing the total company broken down between sales territories and then showing the Northern territory broken down by product line. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales.
2.Look at the statement you have prepared showing the total company segmented by sales territory. What insights revealed by this statement should be brought to the attention of management?
3. Look at the statement you have prepared showing the Northern territory segmented by product lines. What insights revealed by this statement should be brought to the attention ofmanagement?
Aug 29, 2021 | Uncategorized
Wingate Company, a wholesale distributor of videotapes, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement, which follows:
?
In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordingly, the Accounting Department has developed the following information:
?
Required:
1. Prepare a contribution format income statement segmented by divisions, as desired by the president.
2. As a result of a marketing study, the president believes that sales in the West Division could be increased by 20% if monthly advertising in that division were increased by $15,000. Would you recommend the increased advertising? Show computations to support youranswer.
Aug 29, 2021 | Uncategorized
Woodpoint Furniture Manufacturing produces various lines of pine furniture. The plant is organized so that all similar functions are performed in one area, as shown in Exhibit 7 17. Most pieces of furniture are made in batches of 10 units.
Raw materials are ordered and stored in the raw materials storage area. When an order is issued for a batch of production, the wood needed to complete that batch is withdrawn from the raw materials storage area and taken to the saw area. There the wood is sawed into the pieces that are required for the production lot
The pieces are then transferred to the sanding and planing area, where they are stored awaiting processing in that area. When the machines are free, any sanding or planing is done on all the pieces in the batch. Any pieces that are damaged by the planing or sanding are reordered from the saw area.
The other pieces in the lot are set aside in a storage area when pieces have to be reordered from the saw area. When all of the pieces have been sanded or planed, the pieces are then transferred to the assembly area, where they are placed in a large bin to await assembly. Pieces are withdrawn from the bin as assembly proceeds. Defective pieces are returned to the saw or sand and plane area, where they are remanufactured.
As assembly proceeds or when assembly is completed, depending on the product, any required painting or staining is done in the painting area. Pieces to be stained or painted are transferred back and forth on a trolley between the assembly and paint areas. The paint department has a storage area for pieces awaiting painting. Whenever assembly is halted to await pieces that have been sent for painting and staining, the rest of the pieces in that batch are put into the storage bin to await the return of the stained or painted pieces.
When assembly is completed, the quality inspector checks the product. Any defective products are returned to the appropriate department for rework. When the product is approved, it is packaged and put into final storage to await an order by the customer.
Required
(a) Chart the process (that is, specify, from start to finish, the activities used) for making furniture at Woodpoint Furniture Manufacturing. Which activities do you think add value from the customer’s perspective?
(b) What performance indicators do you think are critical in evaluating the performance of this manufacturing operation from the standpoint of customers and the company?
Aug 29, 2021 | Uncategorized
Bernie’s Bears, Inc., manufactures plush toys in a facility in Cleveland, Ohio.
Recently, the company designed a group of collectible resin figurines to go with the plush toy line. Management is trying to decide whether to manufacture the figurines themselves in existing space in the Cleveland facility or to accept an offer from a manufacturing company in Indonesia. Data concerning the decision follows:
Expected annual sales of figurines (in units)……………………………………………… 400,000
Average selling price of a figurine……………………………………………………………… $5
Price quoted by Indonesian company, in Indonesian Rupiah (IDR), for each figurine…27,300 IDR
Current exchange rate……………………………………………………………….9,100 IDR = $1
Variable manufacturing costs…………………………………………………………$2.85 per unit
Incremental annual fixed manufacturing costs associated with the new product line……..$200,000
Variable selling and distribution costsa………………………………………………$0.50 per unit
Annual fixed selling and distribution costsa……………………………………………….$285,000
a Selling and distribution costs are the same regardless of whether the figurines are manufactured in Cleveland or imported.
Required
1. Should Bernie’s Bears manufacture the 400,000 figurines in the Cleveland facility or purchase them from the Indonesian supplier? Explain.
2. Bernie’s Bears believes that the US dollar may weaken in the coming months against the Indonesian
Rupiah and does not want to face any currency risk. Assume that Bernie’s Bears can enter into a forward contract today to purchase 27,300 IDRs for $3.40. Should Bernie’s Bears manufacture the 400,000 figurines in the Cleveland facility or purchase them from the Indonesian supplier? Explain.
3. What are some of the qualitative factors that Bernie’s Bears should consider when deciding whether to outsource the figurine manufacturing to Indonesia?
Aug 29, 2021 | Uncategorized
Closing down divisions. Belmont Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2011 follows:
?
Further analysis of costs reveals the following percentages of variable costs in each division:
?
Closing down any division would result in savings of 40% of the fixed costs of that division.
Top management is very concerned about the unprofitable divisions (A and B) and is considering closing them for the year.
Required
1. Calculate the increase or decrease in operating income if Belmont closes division A.
2. Calculate the increase or decrease in operating income if Belmont closes division B.
3. What other factors should the top management of Belmont consider before making adecision?
Aug 29, 2021 | Uncategorized
Dropping a customer, activity based costing, ethics. Jack Arnoldson is the management accountant for Valley Restaurant Supply (VRS). Bob Gardner, the VRS sales manager, and Jack are meeting to discuss the profitability of one of the customers, Franco’s Pizza. Jack hands Bob the following analysis of Franco’s activity during the last quarter, taken from Valley’s activity based costing system:
Sales…………………………………………………………………….$15,600
Cost of goods sold (all variable)…………………………………………..9,350
Order processing (25 orders processed at $200 per order)………………..5,000
Delivery (2,500 miles driven at $0.50 per mile)…………………………..1,250
Rush orders (3 rush orders at $110 per rush order)…………………………330
Sales calls (3 sales calls at $100 per call)…………………………………..300
Profits…………………………………………………………………….($ 630)
Bob looks at the report and remarks, ?oI’m glad to see all my hard work is paying off with Franco’s. Sales have gone up 10% over the previous quarter!??
Jack replies, ?oIncreased sales are great, but I’m worried about Franco’s margin, Bob. We were showing a profit with Franco’s at the lower sales level, but now we’re showing a loss. Gross margin percentage this quarter was 40%, down five percentage points from the prior quarter. I’m afraid that corporate will push hard to drop them as a customer if things don’t turn around.??
?oThat’s crazy,?? Bob responds. ?oA lot of that overhead for things like order processing, deliveries, and sales calls would just be allocated to other customers if we dropped Franco’s. This report makes it look like we’re losing money on Franco’s when we’re not. In any case, I am sure you can do something to make its profitability look closer to what we think it is. No one doubts that Franco is a very good customer.??
Required
1. Assume that Bob is partly correct in his assessment of the report. Upon further investigation, it is determined that 10% of the order processing costs and 20% of the delivery costs would not be avoidable if VRS were to drop Franco’s. Would VRS benefit from dropping Franco’s? Show your calculations.
2. Bob’s bonus is based on meeting sales targets. Based on the preceding information regarding gross margin percentage, what might Bob have done last quarter to meet his target and receive his bonus?
How might VRS revise its bonus system to address this?
3. Should Jack rework the numbers? How should he respond to Bob’s comments about making Franco look more profitable?
Aug 29, 2021 | Uncategorized
Equipment replacement decisions and performance evaluation. Bob Moody manages the Knoxville plant of George Manufacturing. He has been approached by a representative of Darda Engineering regarding the possible replacement of a large piece of manufacturing equipment that George uses in its process with a more efficient model. While the representative made some compelling arguments in favor of replacing the 3 year old equipment, Moody is hesitant. Moody is hoping to be promoted next year to manager of the larger Chicago plant, and he knows that the accrual basis net operating income of the Knoxville plant will be evaluated closely as part of the promotion decision. The following information is available concerning the equipment replacement decision:
? The historic cost of the old machine is $300,000. It has a current book value of $120,000, two remaining years of useful life, and a market value of $72,000. Annual depreciation expense is $60,000. It is expected to have a salvage value of $0 at the end of its useful life.
? The new equipment will cost $180,000. It will have a two year useful life and a $0 salvage value. George uses straight line depreciation on all equipment.
? The new equipment will reduce electricity costs by $35,000 per year, and will reduce direct manufacturing labor costs by $30,000 per year.
For simplicity, ignore income taxes and the time value of money.
Required
1. Assume that Moody’s priority is to receive the promotion, and he makes the equipment replacement decision based on next year’s accrual based net operating income. Which alternative would he choose? Show your calculations.
2. What are the relevant factors in the decision? Which alternative is in the best interest of the company over the next two years? Show your calculations.
3. At what cost of the new equipment would Moody be willing to purchase it? Explain.
Aug 29, 2021 | Uncategorized
Diversified Products, Inc., has recently acquired a small publishing company that Diversified Products intends to operate as one of its investment centers. The newly acquired company has three books that it offers for sale—a cookbook, a travel guide, and a handy speller. Each book sells for $10. The publishing company’s most recent monthly income statement is given below:
?
The following additional information is available about the company:
(a) Only printing costs and sales commissions are variable; all other costs are fixed. The printing costs (which include materials, labor, and variable overhead) are traceable to the three product lines as shown in the statement above. Sales commissions are 10% of sales for any product.
(b) The same equipment is used to produce all three books, so the equipment depreciation cost has been allocated equally among the three product lines. An analysis of the company’s activities indicates that the equipment is used 30% of the time to produce cookbooks, 50% of the time to produce travel guides, and 20% of the time to produce handy spellers.
(c) The warehouse is used to store finished units of product, so the rental cost has been allocated to the product lines on the basis of sales dollars. The warehouse rental cost is $3 per square foot per year. The warehouse contains 48.000 square feet of space, of which 7,200 square feet is used by the cookbook line, 24,000 square feet by the travel guide line, and 16,800 square feet by the handy speller line.
(d) The general sales cost above includes the salary of the sales manager and other sales costs not traceable to any specific product line. This cost has been allocated to the product lines on the basis of sales dollars.
(e) The general administration cost and depreciation of office facilities both relate to administration of the company as a whole. These costs have been allocated equally to the three product lines.
(f) All other costs are traceable to the three product lines in the amounts shown on the statement above.
The management of Diversified Products, Inc., is anxious to improve the new investment center’s 5% return on sales.
Required:
1. Prepare a new contribution format segmented income statement for the month. Adjust allocations of equipment depreciation and of warehouse rent as indicated by the additional information provided.
2.After seeing the income statement in the main body of the problem, management has decided to eliminate the cookbook because it is not returning a profit, and to focus all available resources on promoting the travel guide.
a. Based on the statement you have prepared, do you agree with the decision to eliminate the cookbook? Explain.
b. Based on the statement you have prepared, do you agree with the decision to focus all available resources on promoting the travel guide? Assume that an ample market is available for all three product lines. (Hint: Compute the contribution margin ratio for eachproduct.)
Aug 29, 2021 | Uncategorized
Division A manufactures electronic circuit boards. The boards can be sold either to Division of the same company or to outside customers. Last year, the following activity occurred Division A:
?
Sales to Division B were at the same price as sales to outside customers. The circuit boards purchased by Division B were used in an electronic instrument manufactured by that division (one board per instrument). Division B incurred $100 in additional variable cost per instrument and then sold the instruments for $300 each.
Required:
1. Prepare income statements for Division A, Division B, and the company as a whole.
2. Assume that Division A’s manufacturing capacity is 20,000 circuit boards. Next year, Division B wants to purchase 5,000 circuit boards from Division A rather than 4,000. (Circuit boards of this type are not available from outside sources.) From the standpoint of the company as a whole, should Division A sell the 1,000 additional circuit boards to Division B or continue to sell them to outside customers?Explain.
Aug 29, 2021 | Uncategorized
Division A manufactures picture tubes for TVs. The tubes can be sold either to Division B of the same company or to outside customers. Last year, the following activity was recorded in Division A:
Selling price per tube . . . . . . . . . . . . . $175
Variable cost per tube . . . . . . . . . . . . . $130
Number of tubes:
Produced during the year . . . . . . . . 20,000
Sold to outside customers . . . . . . . . 16,000
Sold to Division B . . . . . . . . . . . . . . 4,000
Sales to Division B were at the same price as sales to outside customers. The tubes purchased by Division B were used in a TV set manufactured by that division. Division B incurred $300 in additional variable cost per TV and then sold the TVs for $600 each.
Required:
1. Prepare income statements for last year for Division A, Division B, and the company as a whole.
2. Assume that Division A’s manufacturing capacity is 20,000 tubes per year. Next year, Division B wants to purchase 5,000 tubes from Division A, rather than only 4,000 tubes as in last year. (Tubes of this type are not available from outside sources.) From the standpoint of the company as a whole, should Division A sell the 1,000 additional tubes to Division B, or should it continue to sell them to outside customers? Explain.
Aug 29, 2021 | Uncategorized
Dobbs Manufacturing Company uses a standard cost accounting system. In 2010,
50,000 units were produced. Each unit took several pounds of direct materials and 2 standard hours of direct labor at a standard hourly rate of $12.00. Normal capacity was 96,000 direct labor hours. During the year, 200,000 pounds of raw materials were purchased at $1.00 per pound. All materials purchased were used during the year.
Instructions
(a) If the materials price variance was $8,000 unfavorable, what was the standard materials price per pound?
(b) If the materials quantity variance was $24,000 favorable, what was the standard materials quantity per unit?
(c) What were the standard hours allowed for the units produced?
(d) If the labor quantity variance was $10,800 unfavorable, what were the actual direct labor hours worked?
(e) If the labor price variance was $25,225 favorable, what was the actual rate per hour?
(f) If total budgeted manufacturing overhead was $792,000 at normal capacity, what was the predetermined overhead rate per direct labor hour?
(g) What was the standard cost per unit of product?
(h) How much overhead was applied to production during the year?
(i) Using selected answers above, what were the total costs assigned to work in process?
Aug 29, 2021 | Uncategorized
Eccles, Inc., manufacturing electronics products, with two operating divisions, the Electronics and Instruments divisions. Condensed divisional income statements, which involve no intracompany transfers and which include a breakdown of expenses into variable and fixed components, are as follows:
The electronics division is presently producing 12,000 units out of a total capacity of 14,400 units. Materials used in producing the Instruments Division’s product are currently purchased from out side suppliers at a price of $ 126 per unit. The Electronics Division is able to produce the materials used by the Instruments Division. Except for the possible transfer of materials between divisions, no changes are expected in sales and expenses.
Instructions
1. Would the market price of $ 126 per unit be an appropriate transfer price for Eccles, Inc.? Explain.
2. if the instrument division purchases 2,400 units from the Electronics division, rather than externally, at a negotiated transfer price of $96 per unit, how much would the income from operations of each division and the total company income from operations increase?
3. Prepare condensed divisional income statements for Eccles, Inc., based in the data in part (2)
(4) if a transfer price of $105 per unit is negotiated, how much would the income from operations of each division and the total company income from operations increase?
5. (a) What is the range of possible negotiated transfer prices that would be acceptable for Eccles, Inc.?
(b) Assuming that the managers of the two divisions cannot agree on a transfer price, what price would you suggest as the transfer price ?
Aug 29, 2021 | Uncategorized
Ed Widner and Associates is a medium sized company located near a large metropolitan area in the Midwest. The company manufactures cabinets of mahogany, oak, and other fine woods for use in expensive homes, restaurants, and hotels. Although some of the work is custom, many of the cabinets are a standard size.
One such non custom model is called Luxury Base Frame. Normal production is 1,000 units. Each unit has a direct labor hour standard of 5 hours. Overhead is applied to production based on standard direct labor hours. During the most recent month, only 900 units were produced; 4,500 direct labor hours were allowed for standard production, but only 4,000 hours were used.
Standard and actual overhead costs were as follows.
?
Instructions
(a) Determine the overhead application rate.
(b) Determine how much overhead was applied to production.
(c) Calculate the controllable overhead variance and the overhead volume variance.
(d) Decide which overhead variances should be investigated.
(e) Discuss causes of the overhead variances. What can management do to improve its performance nextmonth?
Aug 29, 2021 | Uncategorized
Effects of Changes in Sales, Expenses, and Assets on ROl CommercialServiees.com Corporation provides business to business services on the Internet. Data concerning the most recent year appear below:
?
Required:
Consider each question below independently. Carry out all computations to two decimal places.
1. Compute the company’s return on investment (ROI).
2. The entrepreneur who founded the company is convinced that sales will increase next year by 50% and that net operating income will increase by 200%, with no increase in average operating assets. What would be the company’s ROT?
3. The chief financial officer of the company believes a more realistic scenario would be a $1,000,000 increase in sales, requiring a $250,000 increase in average operating assets, with a resulting $200,000 increase in net operating income. What would he the company’s ROT in thisscenario?
Aug 29, 2021 | Uncategorized
Encounter Sporting Goods Company has two divisions, Whole sale and Retail, and two corporate service departments, Tech Support and Accounts Payable. The corporate expenses for the year ended December 31, 2010, are as follows:
Tech Support Department $ 705,000
Accounts Payable Department 278,000
Other corporate administrative e expenses 415,000
Total corporate expense $1,398,000
The other corporate administrative expenses include officers’ salaries and other expenses required by the corporation. The Tech Support Department charges the divisions for services rendered, based on the number of computers in the department, and the Accounts Payable Department charges divisions for services, based on the number of checks issued. The usage of service by the two divisions is as follows:
?
The service department charges of the Tech Support Department and the Accounts Payable Department are considered controllable by the divisions. Corporate administrative expenses are not considered controllable by the divisions. The revenues, cost of goods sold, and operating expenses for the two divisions are as follows:
?
Prepare the divisional income statements for the twodivisions.
Aug 29, 2021 | Uncategorized
Financial data for Joel de Paris, Inc., for last year follow:
?
?
The company paid dividends of $15,000 last year. The ?oInvestment in Buisson, S.A.,?? on the balance sheet represents an investment in the stock of another company.
Required:
1. Compute the company’s margin, turnover, and return on investment (ROT) for last year.
2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 15%. What was the company’s residual income lastyear?
Aug 29, 2021 | Uncategorized
Haglund Department Store is located in the downtown area of a small city. While the store had been profitable for many years, it is facing increasing competition from large national chains that have set up stores on the outskirts of the city. Recently the downtown area has been undergoing revitalization, and the owners of Haglund Department Store are somewhat optimistic that profitability can be restored. In an attempt to accelerate the return to profitability, management of Haglund Department Store is in the process of designing a balanced scorecard for the company. Management believes the company should focus on two key problems. First, customers are taking longer and longer to pay the bills they incur using the department store’s charge card, and the company has far more bad debts than are normal for the industry. If this problem were solved, the company would have more cash to make much needed renovations. Investigation has revealed that much of the problem with late payments and unpaid bills results from customers disputing incorrect charges on their bills. These incorrect charges usually occur because salesclerks incorrectly enter data on the charge account slip. Second, the company has been incurring large losses on unsold seasonal apparel. Such items are ordinarily resold at a loss to discount stores that specialize in such distress items. The meeting in which the balanced scorecard approach was discussed was disorganized and ineffectively led—possibly because no one other than one of the vice presidents had read anything about how to build a balanced scorecard. Nevertheless, a number of potential performance measures were suggested by various managers. These potential performance measures are:
(a) Percentage of charge account bills containing errors.
(b) Percentage of salesclerks trained to correctly enter data on charge account slips.
(c) Average age of accounts receivables.
(d) Profit per employee.
(e) Customer satisfaction with accuracy of charge account bills from monthly customer survey.
(f) Total sales revenue.
(g) Sales per employee.
(h) Travel expenses for buyers for trips to fashion shows.
(i) Unsold inventory at the end of the season as a percentage of total cost of sales.
(j) Courtesy shown by junior staff members to senior staff members based on surveys of senior staff.
(k) Percentage of suppliers making just in time deliveries.
(l)Sales per square foot of floor space.
(m) Written off accounts receivable (bad debts) as a percentage of sales.
(n) Quality of food in the staff cafeteria based on staff surveys.
(o) Percentage of employees who have attended the city’s cultural diversity workshop.
(p) Total profit.
Required:
1.As someone with more knowledge of the balanced scorecard than almost anyone else in the company, you have been asked to build an integrated balanced scorecard. In your scorecard, use only performance measures listed previously. You do not have to use all of the performance measures suggested by the managers, but you should build a balanced scorecard that reveals a strategy for dealing with the problems with accounts receivable and with unsold merchandise. Construct the balanced scorecard following the format used in Exhibit 12—8. Do not be concerned with whether a specific performance measure falls within the learning and growth, internal business process, customer, or financial perspective. However, use arrows to show the causal links between performance measures within your balanced scorecard and explain whether the performance measures should show increases or decreases.
2. Assume that the company adopts your balanced scorecard. After operating for a year, some performance measures show improvements, but not others. What should management do next?
3. (a) Suppose that customers express greater satisfaction with the accuracy of their charge account bills but the performance measures for the average age of accounts receivable and for bad debts do not improve. Explain why this might happen.
(b) Suppose that the performance measures for the average age of accounts receivable, bad debts, and unsold inventory improve, but total profits do not. Explain why this might happen. Assume in your answer that the explanation lies within the company.
Aug 29, 2021 | Uncategorized
Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the company’s mine to its two steel mills—the Northern Plant and the Southern Plant. Budgeted costs for the Transport Services Department total $350,000 per year, consisting of $0.25 per ton variable cost and $300,000 fixed cost. The level of fixed cost is determined by peak period requirements. During the peak period, the Northern Plant requires 70% of the Transport Services Department’s capacity and the Southern Plant requires 30%. During the year, the Transport Services Department actually hauled the following amounts of ore for the two plants: Northern Plant, 130,000 tons; Southern Plant, 50,000 tons. The Transport Services Department incurred $364,000 in cost during the year, of which $54,000 was variable cost and $310,000 was fixed cost.
Required:
1. Determine how much of the $54,000 in variable cost should be charged to each plant.
2. Determine how much of the $310,000 in fixed cost should be charged to each plant.
3. Should any of the $364,000 in the Transport Services Department cost not be charged to the plants? Explain.
Aug 29, 2021 | Uncategorized
Konig Enterprises, Ltd., owns and operates three restaurants in Vancouver, B.C. The company allocates its fixed administrative expenses to the three restaurants on the basis of sales dollars. During 2008, the fixed administrative expenses totaled $2,000,000. These expenses were allocated as follows:
?
During 2009, the following year, the Imperial Garden restaurant increased its sales by $10 million. The sales levels in the other two restaurants remained unchanged. The company’s 2009 sales data were as follows:
?
Fixed administrative expenses remained unchanged at $2,000,000 during 2009.
Required:
1. Using sales dollars as an allocation base, show the allocation of the fixed administrative expenses among the three restaurants for 2009.
2. Compare your allocation from (1) above to the allocation for 2008. As the manager of the imperial Garden, how would you feel about the amount that has been charged to you for 2009?
3. Comment on the usefulness of sales dollars as an allocation base.
Aug 29, 2021 | Uncategorized
Losses have been incurred at Millard Corporation for some time. In an effort to isolate the problem and improve the company’s performance, management has requested that the monthly income statement be segmented by sales region. The company’s first effort at preparing a segmented statement is given below. This statement is for May, the most recent month of activity.
?
Cost of goods sold and shipping expense are both variable; other costs are all fixed.
Millard Corporation is a wholesale distributor of office products. It purchases office products from manufacturers and distributes them in the three regions given above. The three regions are about the same size, and each has its own manager and sales staff. The products that the company distributes vary widely in profitability.
Required:
1. List any disadvantages or weaknesses that you see to the statement format illustrated above.
2. Explain the basis that is apparently being used to allocate the corporate expenses to the regions. Do you agree with these allocations? Explain.
3. Prepare a new contribution format segmented income statement for May. Show a Total column as well as data for each region. In addition, for the company as a whole and for each sales region, show each item on the segmented income statement as a percent of sales.
4. Analyze the statement that you prepared in part (3) above. What points that might help to improve the company’s performance would you bring to management’sattention?
Aug 29, 2021 | Uncategorized
Meiji Isetan Corp. of Japan has two regional divisions with headquarters in Osaka and Yokohama. Selected data on the two divisions follow (in millions of yen, denoted by):
?
Required:
1. For each division, compute the return on investment (ROl) in terms of margin and turnover. Where necessary, carry computations to two decimal places.
2. Assume that the company evaluates performance using residual income and that the minimum required rate of return for any division is 15%. Compute the residual income for each division.
3. Is Yokohama’s greater amount of residual income an indication that it is better managed?explain.
Aug 29, 2021 | Uncategorized
Nelcro Company’s Electrical Division produces a high quality transformer. Sales and cost data on the transformer follow:
Selling price per unit on the outside market . . . . . . . $40
Variable costs per unit . . . . . . . . . . . . . . . . . . . . . . . . $21
Fixed costs per unit (based on capacity) . . . . . . . . . . . $9
Capacity in units . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Nelcro Company has a Motor Division that would like to begin purchasing this transformer from the Electrical Division. The Motor Division is currently purchasing 10,000 transformers each year from another company at a cost of $38 per transformer. Nelcro Company evaluates its division managers on the basis of divisional profits.
Required:
1. Assume that the Electrical Division is now selling only 50,000 transformers each year to outside customers.
a. From the standpoint of the Electrical Division, what is the lowest acceptable transfer price for transformers sold to the Motor Division?
b. From the standpoint of the Motor Division, what is the highest acceptable transfer price for transformers acquired from the Electrical Division?
c. If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 10,000 transformers from the Electrical Division to the Motor Division? Why or why not?
d. From the standpoint of the entire company, should a transfer take place? Why or why not?
2. Assume that the Electrical Division is now selling all of the transformers it can produce to outside customers.
a. From the standpoint of the Electrical Division, what is the lowest acceptable transfer price for transformers sold to the Motor Division?
b. From the standpoint of the Motor Division, what is the highest acceptable transfer price for transformers acquired from the Electrical Division?
c. If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 10,000 transformers from the Electrical Division to the Motor Division? Why or why not?
d. From the standpoint of the entire company, should a transfer take place? Why or why not?
Aug 29, 2021 | Uncategorized
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. By how much would the company’s net operating income increase if Minneapolis increased its sales by $75,000 per year? Assume no change in cost behavior patterns.
2. Refer to the original data. Assume that sales in Chicago increase by $50,000 next year and that sale in Minneapolis remain unchanged. Assume no change in fixed costs.
(a)Prepare a new segmented income statement for the company using the above format. Show both amounts and percentages.
(b) Observe from the income statement you have prepared that the contribution margin ratio for Chicago has remained unchanged at 70% (the same as in the above data) but that the segment margin ratio has changed. How do you explain the change in the segment marginratio?
Aug 29, 2021 | Uncategorized
Refer to the data in Exercise 12 13. Assume that Minneapolis’ sales by major market are:
?
The company would like to initiate an intensive advertising campaign in one of the two market segments during the next month. The campaign would cost $5,000. Marketing studies indicate that such a campaign would increase sales in the Medical market by $40,000 or increase sales in the Dental market by $35,000.
Required:
1. In which of the markets would you recommend that the company focus its advertising campaign? Show computations to support your answer.
2. In Exercise 12—13, Minneapolis shows $48,000 in traceable fixed expenses. What happened to the $48,000 in thisexercise?
Aug 29, 2021 | Uncategorized
Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow:
?
Sako Company has a Hi Fi Division that could use this speaker in one of its products. The Hi Fi Division will need 5,000 speakers per year. It has received a quote of $57 per speaker from another manufacturer. Sako Company evaluates division managers on the basis of divisional profits.
Required:
1. Assume that the Audio Division is now selling only 20,000 speakers per year to outside customers.
(a) From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi Fi Division?
(b)From the standpoint of the Hi Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?
(c) If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 5,000 speakers from the Audio Division to the Hi Fi Division? Why or why not?
(d) From the standpoint of the entire company, should the transfer take place? Why or why not?
2. Assume that the Audio Division is selling all of the speakers it can produce to outside customers.
(a) From the standpoint of the Audio Division, what is the lowest acceptable transfer price for speakers sold to the Hi Fi Division?
(b) From the standpoint of the Hi Fi Division, what is the highest acceptable transfer price for speakers acquired from the Audio Division?
(c)If left free to negotiate without interference, would you expect the division managers to voluntarily agree to the transfer of 5,000 speakers from the Audio Division to the Hi Fi Division? Why or why not?
(d) From the standpoint of the entire company, should the transfer take place? Why or whynot?
Aug 29, 2021 | Uncategorized
Selected sales and operating data for three divisions of different structural engineering firms are given as follows:
?
Required:
1. Compute the return on investment (ROT) for each division using the formula stated in terms of margin and turnoven.
2. Compute the residual income for each division.
3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return.
(a) If performance is being measured by ROT, which division or divisions will probably accept the opportunity? Reject? Why?
(b) If performance is being measured by residual income, which division or divisions will probably accept the opportunity? Reject?Why?
Aug 29, 2021 | Uncategorized
Stavos Company’s Cabinet Division manufactures a standard cabinet for television sets. The cost per cabinet is:
?
Part of the Cabinet Division’s output is sold to outside manufacturers of television sets and part is sold to Stavos Company’s Quark Division, which produces a TV set under its own name. The Cabinet Division charges $140 per cabinet for all sales.
The costs, revenue, and net operating income associated with the Quark Division’s TV set is given below:
?
The Quark Division has an order from an overseas source for 1,000 TV sets. The overseas source wants to pay only $340 per set.
Required:
1. Assume that the Quark Division has enough idle capacity to fill the 1,000 set order. Is the division likely to accept the $340 price or to reject it? Explain.
2. Assume that both the Cabinet Division and the Quark Division have idle capacity. Under these conditions, would it be advantageous for the company as a whole if the Quark Division rejects the $340 price? Show computations to support your answer.
3. Assume that the Quark Division has idle capacity but that the Cabinet Division is operating at capacity and could sell all of its cabinets to outside manufacturers. Compute the profit impact to the Quark Division of accepting the 1,000 set order at the $340 unit price.
4. What conclusions do you draw concerning the use of market price as a transfer price in intracompanytransactions?
Aug 29, 2021 | Uncategorized
Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company’s balance sheet accounts as of January 1, the beginning of its fiscal year, are given on the following page.
?
Because the videos differ in length and in complexity of production, the company uses a job order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera hours of activity. At the beginning of the year, the company estimated that it would work 7,000 camera hours and incur $280,000 in studio overhead cost. The following transactions were recorded for the year:
a. Film, costumes, and similar raw materials purchased on account, $185,000.
b. Film, costumes, and other raw materials issued to production, $200,000 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
c. Utility costs incurred in the production studio, $72,000.
d. Depreciation recorded on the studio, cameras, and other equipment, $84,000. Three fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration.
e. Advertising expense incurred $130,000.
f. Costs for salaries and wages were incurred as follows:
?
g. Prepaid insurance expired during the year, $7,000 (80% related to production of videos, and 20% related to marketing and administrative activities).
h. Miscellaneous marketing and administrative expenses incurred, $8,600.
i. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera hours of activity during the year.
j. Videos that cost $550,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
k. Sales for the year totaled $925,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $600,000.
l. Collections from customers during the year totaled $850,000.
m. Payments to suppliers on account during the year, $500,000; payments to employees for salaries and wages, $285,000.
Required:
1. Prepare a T account for each account on the company’s balance sheet and enter the beginning balances.
2. Record the transactions directly into the T accounts. Prepare new T accounts as needed. Key your entries to the letters (a) through (m) above. Compute the ending balance in each account.
3. Is the Studio (manufacturing) Overhead account underapplied or overapplied for the year? Make an entry in the T accounts to close any balance in the Studio Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in theT accounts.)
Aug 29, 2021 | Uncategorized
Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the upcoming year. The accuracy of the rate is important because it is used throughout the year and any overapplied or under applied overhead is closed out to Cost of Goods Sold at the end of the year. National Home Products uses direct labor hours in all of its divisions as the allocation base for manufacturing overhead.
To compute the predetermined overhead rate, Tern divided her estimate of the total manufacturing overhead for the coming year by the production manager’s estimate of the total direct labor hours for the coming year. She took her computations to the division’s general manager for approval but was quite surprised when he suggested a modification in the base. Her conversation with the general manager of the Home Security Systems Division. Harry Irving, went like this:
Ronsin:
Here are my calculations for next year’s predetermined overhead rate. If you approve, we can enter the rate into the computer on January 1 and be up and running in the job order costing system right away this year.
Irving:
Thanks for coming up with the calculations so quickly, and they look just fine. There is, however, one slight modification I would like to see. Your estimate of the total direct labor hours for the year is 440.000 hours. How about cutting that to about 420,000 hours?
Ronsin:
I don’t know if I can do that. The production manager says she will need about 440,000 direct labor hours to meet the sales projections for the year. Besides, there are going to be over 430,000 direct labor hours during the current year and sales are projected to be higher next year.
Irving:
Ten, I know all of that. I would still like to reduce the direct labor hours in the base to something like 420,000 hours. You probably don’t know that I had an agreement with your predecessor as divisional controller to shave 5% or so off the estimated direct labor hours every year. That way, we kept a reserve that usually resulted in a big boost to net operating income at the end of the fiscal year in December. We called it our Christmas bonus. Corporate headquarters always seemed as pleased as punch that we could pull off such a miracle at the end of the year. This system has worked well for many years, and I don’t want to change it now.
Required:
1. Explain how shaving 5% off the estimated direct labor hours in the base for the predetermined overhead rate usually results in a big boost in net operating income at the end of the fiscal year.
2. Should Tern Ronsin go along with the general manager’s request to reduce the direct labor hours in the predetermined overhead rate computation to 420,000 direct labor hours?
Aug 29, 2021 | Uncategorized
The consulting firm of Tilton and Henderson accumulates costs associated with individual cases, using a job order cost system. The following transactions occurred during June:
June 4. Charged 600 hours of professional (lawyer) time to the Rucker Co. breech of contract suit to prepare for the trial, at a rate of $200 per hour.
8. Reimbursed travel costs to employees for depositions related to the Rucker case, $21,000.
12. Charged 300 hours of professional time for the Rucker trial at a rate of $260 per hour. 16. Received invoice from consultants Wenzel and Lachgar for $64,000 for expert testimony related to the Rucker trial.
24. Applied office overhead at a rate of $55 per professional hour charged to the Rucker case.
30. Paid secretarial and administrative salaries of $35,000 for the month.
30. Used office supplies for the month, $12,000.
June 30. Paid professional salaries of $180,000 for the month.
30. Billed Rucker $380,000 for successful defense of the case.
a. Provide the journal entries for each of the above transactions.
b. How much office overhead is over or underapplied?
c. Determine the gross profit on the Rucker case, assuming that over or underapplied office overhead is closed monthly to cost of services.
Aug 29, 2021 | Uncategorized
The debits to Work in Process%u2014Roasting Department for St. Arbucks Coffee Company for July 2012, together with information concerning production, are as follows:
Aug 29, 2021 | Uncategorized
The following information is taken from the accounts of Latta Company. The entries in the T accounts are summaries of the transactions that affected those accounts during the year.
?
The overhead that had been applied to production during the year is distributed among the ending balances in the accounts as follows:
?
For example, of the $40,000 ending balance in Work in Process, $19,500 was overhead that had been applied during the year.
Required:
1. Identify reasons for entries (a) through (d).
2. Assume that the company closes any balance in the Manufacturing Overhead account directly to Cost of Goods Sold. Prepare the necessary journal entry.
3. Assume instead that the company allocates any balance in the Manufacturing Overhead account to the other accounts in proportion to the overhead applied in their ending balances. Prepare the necessary journal entry, with supportingcomputations.
Aug 29, 2021 | Uncategorized
The Hershey Foods Company manufactures chocolate confectionery products. The three largest raw materials are cocoa beans, sugar, and dehydrated milk. These raw materials first go into the Blending Department. The blended product is then sent to the Molding Department, where the bars of candy are formed. The candy is then sent to the Packing Department, where the bars are wrapped and boxed. The boxed candy is then sent to the distribution center, where it is eventually sold to food brokers and retailers. Show the accounts increased and decreased for each of the following business events:
a. Materials used by the Blending Department
b. Transfer of blended product to the Molding Department
c. Transfer of chocolate to the Packing Department
d. Transfer of boxed chocolate to the distribution center
e. Sale of boxed chocolate
Aug 29, 2021 | Uncategorized
The Polaris Company uses a job order costing system. The following data relate to October, the first month of the company’s fiscal year.
a. Raw materials purchased on account, $210,000.
b. Raw materials issued to production, $190,000 ($178,000 direct materials and $12,000 indirect materials).
c. Direct labor cost incurred, $90,000; indirect labor cost incurred, $110,000.
d. Depreciation recorded on factory equipment, $40,000.
e. Other manufacturing overhead costs incurred during October, $70,000 (credit Accounts Payable).
f. The company applies manufacturing overhead cost to production on the basis of $8 per machine hour. A total of 30,000 machine hours were recorded for October.
g. Production orders costing $520,000 according to their job cost sheets were completed during October and transferred to Finished Goods.
h. Production orders that had cost $480,000 to complete according to their job cost sheets were shipped to customers during the month. These goods were sold on account at 25% above cost.
Required:
1. Prepare journal entries to record the information given above.
2. Prepare T accounts for Manufacturing Overhead and Work in Process. Post the relevant information above to each account. Compute the ending balance in each account, assuming that
Work in Process has a beginning balance of $42,000.
Aug 29, 2021 | Uncategorized
The Sendai Co., Ltd. of Japan has budgeted costs in its various departments as follows for the coming year:
The Japanese currency is the yen, denoted by. The company allocates service department costs to other departments in the order listed below.
Machining and Assembly are operating departments; the other departments are service departments. Factory Administration is allocated on the basis of labor hours: Custodial Services on the basis of square feet occupied; Personnel on the basis of number of employees; and Maintenance on the basis of machine hours.
Required:
1. Allocate service department costs to consuming departments by the step down method. Then compute predetermined overhead rates in the operating departments using a machine hours basis in Machining and a direct labor hours basis in Assembly.
2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in Machining and Assembly.
3. Assume that the company doesn’t bother with allocating service department costs service department and operating department costs) divided by total direct labor hours. Compute the plant wide overhead rate.
4. Suppose a job requires machine and labor time as follows:
Using the overhead rates computed in (1), (2), and (3) above, compute the amount of overhead cost that would be assigned to the job if the overhead rates were developed using the step down method, the direct method, and the plantwidemethod.
Aug 29, 2021 | Uncategorized
This is really an odd situation, said Jim Carter, general manager of Highland Publishing Company. ?oWe get most of the jobs we bid on that require a lot of press time in the Printing Department, yet profits on those jobs are never as high as they ought to be. On the other hand, we lose most of the jobs we bid on that require a lot of time in the Binding Department. I would he inclined to think that the problem is with our overhead rates, but we’re already computing separate overhead rates for each department. So what else could be wrong??? Highland Publishing Company is a large organization that offers a variety of printing and binding work. The Printing and Binding departments are supported by three service departments. The costs of these service departments arc allocated to other departments in the order listed on the following page. (For each service department, use the allocation base that provides the best measure of service provided, as discussed in the chapter.)
Budgeted overhead costs in each department for the current year are shown below:
Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments.
Required:
1. Using the step down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates for the current year using machine hours as the allocation base in the Printing Department and direct labor hours as the allocation base in the Binding Department.
2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments.
3. Assume that during the current year the company bids on a job that requires machine and labor time as follows:
a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (I) above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (2) above.
b.Explain to Mr. Carter, the general manager, why the step down method provides a better basis for computing predetermined overhead rates than the directmethod.
Aug 29, 2021 | Uncategorized
Towerton Financial Services13 Towerton Financial Services, a brokerage firm, started with a focus on stock trading and mutual funds. As the business grew, Towerton diversified into two new product lines, investment account management and financial planning. Although revenue has grown with the new product lines, Towerton’s management is disappointed with the firm’s profitability. (See Exhibit 5 13 for the most recent monthly income statement, which is typical for the company.)
Towerton’s three groups of professional staff deal directly with customers across the four product and service lines. Brokers execute stock trades and mutual fund transactions and provide advice and recommendations.
However, Towerton’s brokerage customers make their own buy and sell decisions. Towerton charges a flat fee per stock trade that depends on the total amount of assets a customer has on deposit with the company. Last month, these fees averaged $8.80 per transaction. For mutual fund transactions, Towerton charges 1.5% of the value of the mutual fund shares purchased. This fee averaged $41.45 per mutual fund transaction last month. There is no charge when customers later sell their shares.
Investment account managers actively manage customers’ investments by buying and selling stocks to meet customer objectives. These managers meet initially with customers to learn about their investment goals, interests, and risk tolerance. Thereafter, the parties meet quarterly to review account performance and investment strategy. Towerton charges each customer an annual asset management fee of 1.5% of the customer’s assets under management.
Financial planners prepare financial plans for customers. The planners help customers develop a budget and determine how much to save and how much insurance to purchase. Towerton charges $1,200 for the first financial plan and $125 per hour thereafter for ongoing advice. Planners typically meet quarterly with customers to discuss any needed changes in plans.
Among the support personnel, principals manage and supervise brokers, investment account managers, and financial planners. Customer service representatives handle customer requests over the telephone for sales and account services.
Towerton uses two types of computer equipment: servers and desktop computers. Servers, in centralized clusters, process customer transactions, maintain customer accounts, and perform various administrative functions. Server capacity is measured in millions of computer instructions processed (MIPS). Towerton also leases a desktop computer for every employee.
Towerton’s remaining expenses include office space rental and miscellaneous corporate expenses. Office space consists of individual offices for each of the professional staff and support personnel, as well as conference rooms for face to face meetings with customers to open accounts or service existing accounts. Miscellaneous expenses include administrative expenses for finance, human resources, audits, taxes, professional fees, and compliance.
Because of management’s concern about the company’s profitability, Towerton’s accountants have gathered the following information:
1. After taking into account weekends, holidays, and vacations, the professional staff and support personnel work about 20 days per month on average.
2. Brokers, account managers, financial planners, and principals show up for 8 hours of work per day, but spend an average of 1.5 hours per day on breaks, training, education, and professional activities, with the remaining workday spent interacting with customers.
3. Like the other personnel, customer service representatives show up for 8 hours of work per day, but they spend an average of 1 hour per day on breaks, training, and education.
4. Each server costs $3,168 per month and operates 24 hours per day for 22 days each month. The cost per server hour is therefore $6. The server processing capacity is 50 MIPS per hour. Peak server usage occurs for 8 hours each day; during these hours, all 76 servers are operated. During the nonpeak hours, only 19 of the servers are operated. Towerton has computed the cost per MIPS as $0.12 for nonpeak hours and $0.30 for peak hours.
5. The costs per month in Exhibit 5 14 include compensation, fringe benefits, and the costs of space assigned on the basis of square feet of space occupied and individual information technology resources used for other than for customer related activities.
Towerton’s enterprise resource planning (ERP) system provided the activity report, average time utilizations, and peak and nonpeak transactions detailed in Exhibits 5 15, 5 16, and 5 17, respectively.
Required
(a) Calculate the practical capacity and the capacity cost rates for each of Towerton’s personnel resources: brokers, account managers, financial planners, principals, and customer service representatives.
(b) Using the data in Exhibits 5 15, and 5 16, calculate the time utilization for each category of personnel for each of the four product lines.
(c) Using the data in Exhibit 5 17, Calculate the MIPS during peak usage for each of the product lines and the MIPS during nonpeak usage for each of the product lines.
(d) Assume that the average price per mutual fund trade is $41.45. Prepare an income statement showing costs and profits for each of Towerton’s four product lines, as well as the cost of unused capacity. What are reasons for the large differences in profits across the product lines?
(e) What actions might Towerton’s management team take to improve the company’s profitability?
Aug 29, 2021 | Uncategorized
Weston Products manufactures an industrial cleaning compound that goes through three processing departments—Grinding, Mixing, and Cooking. All raw materials are introduced at the start of work in the Grinding Department. The Work in Process T account for the Grinding Department for May is given below:
The May 1 work in process inventory consisted of 18,000 pounds with $14,600 in materials cost and $7,200 in conversion cost. The May 1 work in process inventory was 100% complete with respect to materials and 30% complete with respect to conversion. During May, 167,000 pounds were started into production. The May 31 inventory consisted of 15,000 pounds that werel00% complete with respect to materials and 60%complete with respect to conversion. The company uses the weighted average method to account for units and costs.
Required:
1. Determine the equivalent units of production for May.
2. Determine the costs per equivalent unit for May.
3. Determine the cost of the units completed and transferred to the Mixing Department duringMay.
Aug 29, 2021 | Uncategorized
Wilmington Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.
The balance in the account Work in Process—Filling was as follows on December 1, 2010:
Work in Process—Filling Department
(2,800 units, 60% completed):
Direct materials (2,800 A? $14.60)………………….$40,880
Conversion (2,800 A? 60% A? $9.25)………………….15,540
$56,420
The following costs were charged to Work in Process—Filling during December:
Direct materials transferred from Reaction
Department: 36,200 units at $14.40 a unit…………$521,280
Direct labor…………………………………………..167,900
Factory overhead…………………………………….166,025
During December, 35,900 units of specialty chemicals were completed. Work in
Process—Filling Department on December 31 was 3,100 units, 30% completed.
Instructions
1. Prepare a cost of production report for the Filling Department for December.
2. Journalize the entries for costs transferred from Reaction to Filling and the cost transferred from filling to finished goods.
3. Determine the increase or decrease in the cost per equivalent unit from November to December for direct materials and conversion costs.
4. Discuss the uses of the cost of production report and the results of part (3).
Aug 29, 2021 | Uncategorized
Woodbury Hospital has three service departments and three operating departments. Estimated cost and operating data for all departments in the hospital for the forthcoming quarter arc presented in the table below:
The costs of the service departments are allocated by the step down method using the allocation bases and in the order shown in the following table:
All billing in the hospital is done through Laboratory, Radiology, or General Hospital. The hospital’s administrator wants the costs of the three service departments allocated to these three billing centers.
Required:
Prepare the cost allocation desired by the hospital administrator. (Use the step down method.) Include under each billing center the direct costs of the center, as well as the costs allocated from the servicedepartments.
Aug 29, 2021 | Uncategorized
KEM Company has begun studying customer lifetime value for its customers and has prepared the information below for selected customers. For simplicity, management has assumed that for a given customer, the retention rate is the same every year until the customer departs. For Customer 4, costs (ct) were incurred to promote customer retention in years 1 and 2.
Required
(a) Compute the customer lifetime value for each customer for the stated number of years.
(b) Discuss the reasons for differences in customer lifetime value between Customers 1 and 2, Customers 1 and 3, Customers 1 and 4, and Customers 3 and 4.
(c) Compute the customer lifetime value for Customers 1, 2, and 3 assuming that n is very large and the numbers in the table remain about the same each year.
(d) How does information on a customer’s estimated lifetime value help a company manage its customer acquisition and loyalty programs?
Aug 29, 2021 | Uncategorized
Randolph Company’s product mix has become more diverse over the past few years. Consequently the company undertook an activity based costing initiative to develop accurate costs for production, as well as marketing, selling, distribution, and administration. The company set list prices that would provide a profit regardless of whether the customer orders were complex or routine. Nevertheless, profits have been falling. The company’s management team decided to examine discounts that had been granted to determine whether these are the reason for poor profit performance.
Management was surprised to learn that customers were taking advantage of a large number of possible discounts or allowances, including the following:
1. Volume discount if 20 or more units are ordered 2%
2. Pay in full in 15 days 3%
3. Cooperative advertising allowance for featuring the company’s products in its advertisements 4%
4. Take a large shipment before the end of the quarter in advance of an expected seasonal increase in demand 5%
5. Online ordering discount 2%
6. Rebate on sales during specific promotional periods 2%
The management team believed that some discounting was necessary to acquire and retain large customers. On deeper investigation, they learned that some of their smaller customers, who were often the most cost conscious, took advantage of every discount or allowance offered. To compare discounts or allowances taken, they compared Customer 1 and Customer 2.
Customer 1 is a long time customer with sales of $200,000 at list prices. This customer takes advantage of each discount or allowance listed in the preceding table. Moreover, this customer has been a loyal customer since Randolph Company’s inception. In appreciation, Randolph’s sales representative offers free freight, which amounts to 3% of the customer’s list price purchases from Randolph.
Customer 2 is a more recently acquired customer with sales of $1,000,000 at list prices. This customer only takes advantage of items 1, 3, and 5 in the preceding table.
Required
(a) Compute the total sales discount percentage for Customer 1 and for Customer 2.
(b) Why might Randolph Company’s management team have been unaware of the potentially large total discounts offered to its customers?
(c) What advice do you have for Randolph Company regarding managing its discounts and allowances?
Aug 29, 2021 | Uncategorized
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:
?
Managers are free to decide if they will participate in any internal transfers. All transfer prices are negotiated.
Required:
1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division. Will the managers agree to a transfer, and if so, within what range will the transfer price be? Explain.
2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.
(a) Would you expect any disagreement between the two divisional managers over what the transfer price should be? Explain.
(b) Assume that Alpha Division offers to sell 30.000 units to Beta Division for $88 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?
3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 8% price discount from the outside supplier.
(a) Will the managers agree to a transfer? If so, what is the range within which the transfer price would be?
(b) Assume that Beta Division offers to purchase 20,000 units from Alpha Division at $60 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? Why?
4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 120.000 units of a different product from the one that Alpha Division is now producing. The new product would require $21 per unit in variable costs and would require that Alpha Division cut back production of its present product by 45,000 units annually. What is the lowest acceptable transfer price from Alpha Division’sperspective?
Aug 29, 2021 | Uncategorized
Cesar Company uses a standard cost accounting system. Some of the ledger accounts have been destroyed in a fire. The controller asks your help in reconstructing some missing entries and balances.
Instructions
Answer the following questions.
(a) Materials Price Variance shows a $2,000 favorable balance. Accounts Payable shows $128,000 of raw materials purchases. What was the amount debited to Raw Materials Inventory for raw materials purchased?
(b) Materials Quantity Variance shows a $3,000 unfavorable balance. Raw Materials Inventory shows a zero balance. What was the amount debited to Work in Process Inventory for direct materials used?
(c) Labor Price Variance shows a $1,500 unfavorable balance. Factory Labor shows a debit of
$140,000 for wages incurred. What was the amount credited to Wages Payable?
(d) Factory Labor shows a credit of $140,000 for direct labor used. Labor Quantity Variance shows a $900 unfavorable balance. What was the amount debited to Work in Process for direct labor used?
(e) Overhead applied to Work in Process totaled $165,000. If the total overhead variance was $1,200 unfavorable, what was the amount of overhead costs debited to Manufacturing Overhead?
Aug 29, 2021 | Uncategorized
Companhia Bradesco, S.A., of Brazil, an industrial supply store chain, has two divisions. The company’s contribution format income statement segmented by divisions for last year is given below (the currency in Brazil is the real, denoted here by R):
?
Top management doesn’t understand why the Glass Division has such a low segment margin when its sales are only one third less than sales in the Plastics Division. Accordingly, management has directed that the Glass Division be further segmented into product lines. The following information is available on the product lines in the Glass Division:
?
Analysis shows that R60,000 of the Glass Division’s administration expenses are common to the product lines.
Required:
1.Prepare a contribution format segmented income statement for the Glass Division with segments defined as product lines.
2. Management is surprised by Specialty Glass’s poor showing and would like to have the product line segmented by market. The following information is available about the two markets in which Specialty Glass is sold:
?
All of Specialty Glass’s depreciation and administration expenses are common to the markets in which the product is sold. Prepare a contribution format segmented income statement for Specialty Glass with segments defined as markets.
3. Refer to the statement prepared in (1) above. The sales manager wants to run a special promotional campaign on one of the products over the next month. A market study indicates that such a campaign would increase sales of Flat Glass by R40,000 or sales of Auto Glass by R30,000. The campaign would cost R8,000. Show computations to determine which product line should bechosen.
Aug 29, 2021 | Uncategorized
Cost Volume Profit Analysis and Return on Investment (ROl) posters.com is a small Internet retailer of high quality posters. The company has $1,000,000 in operating assets and fixed expenses of $150,000 per year. With this level of operating assets and fixed expenses, the company can support sales of up to $3,000,000 per year. The company’s contribution margin ratio is 25%, which means that an additional dollar of sales results in additional contribution margin, and net operating income, of 25 cents.
Required:
1. Complete the following table showing the relation between sales and return on investment (ROl).
?
2. What happens to the company’s return on investment (ROl) as sales increase?Explain.
Aug 29, 2021 | Uncategorized
Dinkel Manufacturing Corporation accumulates the following data relative to jobs started and finished during the month of June 2010.
?
Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000.Assume that the amount of raw materials purchased equaled the amount used.
Instructions
(a) Compute all of the variances for (1) direct materials and (2) direct labor.
(b) Compute the total overhead variance.
(c) Prepare an income statement for management. Ignore incometaxes.
Aug 29, 2021 | Uncategorized
High Desert Potteryworks makes a variety of pottery products that it sells to retailers such as Home Depot. The company uses a job order costing system in which predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in the Molding Department is based on machine hours, and the rate in the Painting Department is based on direct labor cost. At the beginning of the year, the company’s management made the following estimates:
?
Job 205 was started on August 1 and completed on August 10. The company’s cost records show the following information concerning the job:
?
Required:
1. Compute the predetermined overhead rate used during the year in the Molding Department. Compute the rate used in the Painting Department.
2. Compute the total overhead cost applied to Job 205.
3. What would be the total cost recorded for Job 205? If the job contained 50 units, what would be the unit product cost?
4. At the end of the year, the records of High Desert Potteryworks revealed the following actual cost and operating data for all jobs worked on during the year:
?
What was the amount of underapplied or overapplied overhead in each department at the end of theyear?
Aug 29, 2021 | Uncategorized
Hobart, Evans, and Nix is a small law firm that employs 10 partners and 12 support persons. The firm uses a job order costing system to accumulate costs chargeable to each client, and it is organized into two departments—the Research and Documents Department and the Litigation Department. The firm uses predetermined overhead rates to charge the costs of these departments to its clients. At the beginning of the year, the firm’s management made the following estimates for the year:
?
The predetermined overhead rate in the Research and Documents Department is based on research hours, and the rate in the Litigation Department is based on direct attorney cost. The costs charged to each client are made up of three elements: legal forms and supplies used, direct attorney costs incurred, and an applied amount of overhead from each department in which work is performed on the case. Case 418 3 was initiated on February 23 and completed on May 16. During this period, the following costs and time were recorded on the case:
?
Required:
1. Compute the predetermined overhead rate used during the year in the Research and Documents Department. Compute the rate used in the Litigation Department.
2. Using the rates you computed in (1) above, compute the total overhead cost applied to Case 418 3.
3. What would be the total cost charged to Case 418 3? Show computations by department and in total for the case.
4. At the end of the year, the firm’s records revealed the following actual cost and operating data for all cases handled during the year:
?
Determine the amount of underapplied or overapplied overhead cost in each department for theyear.
Aug 29, 2021 | Uncategorized
Hudson Company’s trial balance as of January 1, the beginning of its fiscal year, is given below:
?
Hudson Company uses a job order costing system. During the year, the following transactions took place:
a. Raw materials purchased on account, $40,000.
b. Raw materials were requisitioned for use in production, $38,000 (85% direct and 15% indirect).
c. Factory utility costs incurred $19,100.
d. Depreciation was recorded on plant and equipment, $36,000. Three fourths of the depreciation related to factory equipment, and the remainder related to selling and administrative equipment.
e. Advertising expense incurred $48,000.
f. Costs for salaries and wages were incurred as follows:
?
g. Prepaid insurance expired during the year, $3,000 (80% related to factory operations, and 20% related to selling and administrative activities).
h. Miscellaneous selling and administrative expenses incurred $9,500.
i. Manufacturing overhead was applied to production. The company applies overhead on the basis of $8 per machine hour; 7,500 machine hours were recorded for the year.
j. Goods that cost $140,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse.
k. Sales for the year totaled $250,000 and were all on account. The total cost to manufacture these goods according to their job cost sheets was $130,000.
1. Collections from customers during the year totaled $245,000.
m. Payments to suppliers on account during the year, $150,000; payments to employees for salaries and wages, $84,000.
Required:
1. Prepare a T account for each account in the company’s trial balance and enter the opening balances shown on the prior page.
2. Record the transactions above directly into the T accounts. Prepare new T accounts as needed. Key your entries to the letters (a) through (m) above. Find the ending balance in each account.
3. Is manufacturing overhead underapplied or overapplied for the year? Make an entry in the T accounts to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in theT accounts.)
Aug 29, 2021 | Uncategorized
I think we goofed when we hired that new assistant controller,?? said Ruth Scarpino, president of Provost Industries. ?oJust look at this report that he prepared for last month for the Finishing Department. I can’t make heads or tails out of it.??
?oHe’s struggling to learn our system,?? replied Frank Harrop, the operations manager. ?oThe problem is that he’s been away from process costing for a long time, and it’s coming back slowly’
?oIt’s not just the format of his report that I’m concerned about. Look at that $25.71 unit cost that he’s come up with for April. Doesn’t that seem high to you??? said Ms. Scarpino.
?oYes. it does seem high; but on the other hand, I know we had an increase in materials prices during April, and that may be the explanation.?? replied Mr. Harrop. ?oI’ll get someone else to redo this report and then we may be able to see what’s going on.??
Provost Industries manufactures a ceramic product that goes through two processing departments—Molding and Finishing. The company uses the weighted average method in its process costing.
Required:
1. Prepare a report for the Finishing Department showing how much cost should have been assigned to the units completed and transferred to finished goods, and how much cost should have been assigned to ending work in process inventory in the Finishing Department.
2. Explain to the president why the unit cost on the new assistant controller’s report is sohigh.
Aug 29, 2021 | Uncategorized
Jarvene Corporation uses the FIFO method in its process costing system. The following data are for the most recent month of operations in one of the company’s processing departments:
The cost of beginning inventory according to the company’s costing system was $11,040 of which $8,120 was for materials and the remainder was for conversion cost. The costs added during the month amounted to $132,730. The costs per equivalent unit for the month were:
Required:
1. Compute the total cost per equivalent unit for the month.
2. Compute the equivalent units of material and of conversion costs in the ending inventory.
3. Compute the equivalent units of material and of conversion costs that were required to complete the beginning inventory.
4. Determine the number of units started and completed during the month.
5. Determine the costs of ending inventory and units transferredout.
Aug 29, 2021 | Uncategorized
Kingsport Containers, Ltd, of the Bahamas experiences wide variation in demand for the 200 liter steel drums it fabricates. The leakproof, rustproof steel drums have a variety of uses from storing liquids and bulk materials to serving as makeshift musical instruments. The drums are made to order and are painted according to the customer’s specifications—often in bright patterns and designs. The company is well known for the artwork that appears on its drums. Unit product costs are computed on a quarterly basis by dividing each quarter’s manufacturing costs (materials, labor, and overhead) by the quarter’s production in units. The company’s estimated costs, by quarter, for the coming year follow:
?
Management finds the variation in unit costs confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product. After some analysis, you have determined that the company’s overhead costs are mostly fixed and therefore show little sensitivity to changes in the level of production.
Required:
I. The company uses a job order costing system. How would you recommend that manufacturing overhead cost be assigned to production? Be specific, and show computations.
2. Re compute the company’s unit product costs in accordance with your recommendations in (1)above.
Aug 29, 2021 | Uncategorized
Lubricants, Inc., produces a special kind of grease that is widely used by race car drivers. The grease is produced in two processing departments: Refining and Blending. Raw materials are introduced at various points in the Refining Department. The following incomplete Work in Process account is available for the Refining Department for March:
The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $25,000; direct labor, $4,000; and overhead, $9,000. Costs incurred during March in the Blending Department were: materials used, $115,000; direct labor, $18,000; and overhead cost applied to production, $42,000.
Required:
1.Prepare journal entries to record the costs incurred in both the Refining Department and Blending Department during March. Key your entries to the items (a) through (g) below.
a. Raw materials were issued for use in production.
b. Direct labor costs were incurred.
c. Manufacturing overhead costs for the entire factory were incurred, $225,000. (Credit Accounts Payable.)
d. Manufacturing overhead cost was applied to production using a predetermined overhead rate.
e. Units that were complete with respect to processing in the Refining Department were transferred to the Blending Department, $740,000.
f Units that were complete with respect to processing in the Blending Department were transferred to Finished Goods, $950,000.
g. Completed units were sold on account, $1,500,000. The Cost of Goods Sold was $900,000.
2. Post the journal entries from (1) above to T accounts. The following account balances existed at the beginning of March. (The beginning balance in the Refining Department’s Work in Process account is given on the prior page.)
After posting the entries to the T accounts, find the ending balance in the inventory accounts and the manufacturing overheadaccount.
Aug 29, 2021 | Uncategorized
Oasis Bottling Company bottles popular beverages in the Bottling Department. The beverages are produced by blending concentrate with water and sugar. The concentrate is purchased from a concentrate producer. The concentrate producer sets higher prices for the more popular concentrate flavors. Below is a simplified Bottling Department cost of production report separating the costs of bottling the four flavors.
Beginning and ending work in process inventories are negligible, so they are omitted from the cost of production report. The flavor changeover cost represents the cost of cleaning the bottling machines between production runs of different flavors.
Prepare a memo to the production manager analyzing this comparative cost information. In your memo, provide recommendations for further action, along with supporting schedules showing the total cost per case and the cost per case by costelement.
Aug 29, 2021 | Uncategorized
Olde Stone Mill Flour Company manufactures flour by a series of three processes, beginning in the Milling Department. From the Milling Department, the materials pass through the Sifting and Packaging departments, emerging as packaged refined flour. The balance in the account Work in Process—Sifting Department was as follows on December 1, 2010:
Work in Process—Sifting Department (1,200 units, 75% completed)……………………..$4,500
The following costs were charged to Work in Process—Sifting Department during December:
Direct materials transferred from Milling Department: 14,500 units……………………$51,400
Direct labor………………………………………………………………………………..14,350
Factory overhead……………………………………………………………………………7,125
During December, 14,800 units of flour were completed. Work in Process—Sifting
Department on December 31 was 900 units, 75% completed.
Instructions
Prepare a cost of production report for the Sifting Department for December, using the average cost method.
Aug 29, 2021 | Uncategorized
Original activity based costing for shared services, outsourcing, implementation issues Smithers, Inc., manufactures and sells a wide variety of consumer products. The products are viewed as sufficiently profitable, but recently some product line managers have complained about the charges for the call center that handles phone calls from customers about the products. Product lines are currently charged for call center support costs on the basis of product sales revenues. The manager of product X is particularly upset because he has just obtained a report that includes the following information for last year:
Product X is simple to use and consumers have little concern about adverse health effects. Product Y is more complex to use and has many health hazard warnings on its label. Smithers currently allocates call center support costs using a rate of 5% of net sales dollars. The manager of product X argues that the current system does not trace call center resource usage to specific products. For example, product X bears four times the call center costs that product Y does, although fewer calls are related to product X, and the calls consume far less time.
Required
(a) What activity cost driver would you recommend to improve the current system of assigning call center support costs to product lines? Why is your method an improvement?
(b) Suppose Smithers announces that it will now assign call center support costs on the basis of an activity based cost system that uses minutes of calls (calls for information and calls for complaints) as the activity cost driver. Suppose also that the rate is 70 cents per minute. Compare the call center cost assignments to product X and product Y under the previous system and the new activity based cost system.
(c) What actions can the product managers take to reduce the center costs assigned to their product lines under the previous system and the new system? What other functional areas might help reduce the number of minutes of calls for product Y?
(d) Who might resist implementation of the new activity based cost system? In your response, discuss possible reactions of the call center staff and other staff who might be affected by efforts to reduce minutes of calls.
(e) From the company’s point of view, how might the activity based costing system help in the assessment of whether to outsource the call center activities?
Aug 29, 2021 | Uncategorized
Part proliferation: role for activity based costing An article in the Wall Street Journal by Neal Templin and Joseph B. White (June 23, 1993) reported on the major changes occurring at General Motors. Its new chief executive officer, John Smith, had been installed after the board of directors requested the resignation of Robert Stempel, the previous chief.
John Smith’s North American Strategy Board identified 30 components that could be simplified for 1994 models. GM had 64 different versions of the cruise control/turn signal mechanism. It planned to reduce that to 24 versions the next year and the following year to just 8. The tooling for each one cost GM’s A. C. Rochester division about $250,000. Smith said, ?oWe’ve been talking about too many parts doing the same job for 25 years, but we weren’t focused on it.?? (Note that the tooling cost is only one component of the cost of proliferating components. Other costs include the design and engineering costs for each different component, purchasing costs, setup and scheduling costs, plus the stocking and service costs for every individual component in each GM dealership around the United States.)
GM’s proliferation of parts was mind boggling. GM made or bought 139 different hood hinges, compared with one for Ford. Saginaw’s Plant Six juggled parts for 167 different steering columns down from 250 the previous year but still far from the goal of fewer than 40 by decade’s end.
This approach increased GM’s costs exponentially. Not only did the company pay far more engineers than competitors did to design steering columns, but it also needed extra tools and extra people to move parts around, and it suffered from quality glitches when workers confused one steering column with another.
Required
(a) How could an inaccurate and distorted product costing system have contributed to the overproliferation of parts and components at General Motors?
(b) What characteristics should a new cost system have that would enable it to signal accurately to product designers and market researchers about the cost of customization and variety?
Aug 29, 2021 | Uncategorized
Pittsburgh Aluminum Company uses a process cost system to record the costs of manufacturing rolled aluminum, which requires a series of four processes. Materials are entered at the beginning of the Rolling process. The inventory of Work in Process— Rolling on June 1, 2010, and debits to the account during June were as follows:
Bal., 3,000 units, 1/4 completed:
Direct materials (3,000 A? $14.00)……………..$42,000
Conversion (3,000 A? 1/4 A? $8.30)………………..6,225
$48,225
From Smelting Department, 42,000 units……$596,400
Direct labor……………………………………212,435
Factory overhead………………………………156,040
During June, 3,000 units in process on June 1 were completed, and of the 42,000 units entering the department, all were completed except 4,500 units that were 4/5 completed. Charges to Work in Process—Rolling for July were as follows:
From Smelting Department, 45,000 units………………$652,500
Direct labor……………………………………………….219,900
Factory overhead…………………………………………160,800
During July, the units in process at the beginning of the month were completed, and of the 45,000 units entering the department, all were completed except 6,000 units that were 2/5 completed.
Instructions
1. Enter the balance as of June 1, 2010, in a four column account for Work in Process— Rolling. Record the debits and the credits in the account for June. Construct a cost of production report and present computations for determining (a) equivalent units of production for materials and conversion, (b) costs per equivalent unit, (c) cost of goods finished, differentiating between units started in the prior period and units started and finished in June, and (d) work in process inventory.
2. Provide the same information for July by recording the July transactions in the four column work in process account. Construct a cost of production report, and present the July computations (a through d) listed in part (1).
3. Comment on the change in costs per equivalent unit for May through July for direct materials and conversion cost.
Aug 29, 2021 | Uncategorized
Plantwide versus Departmental Overhead Rates; Underapplied or Overapplied Overhead ?oBlast it!?? said David Wilson, president of Teledex Company. ?oWe’ve just lost the bid on the Koopers job by $2,000. It seems we’re either too high to get the job or too low to make any money on half the jobs we bid.?? Teledex Company manufactures products to customers’ specifications and operates a job order costing system. Manufacturing overhead cost is applied to jobs on the basis of direct labor cost. The following estimates were made at the beginning of the year:
?
Jobs require varying amounts of work in the three departments. The Koopers job, for example, would have required manufacturing costs in the three departments as follows:
?
The company uses a plantwide overhead rate to apply manufacturing overhead cost to jobs.
Required:
1. Assuming use of a plantwide overhead rate:
a. Compute the rate for the current year.
b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.
2. Suppose that instead of using a plantwide overhead rate, the company had used a separate predetermined overhead rate in each department. Under these conditions:
a.Compute the rate for each department for the current year.
b. Determine the amount of manufacturing overhead cost that would have been applied to the Koopers job.
3. Explain the difference between the manufacturing overhead that would have been applied to the Koopers job using the plantwide rate in question 1 (b) above and using the departmental rates in question 2 (b).
4. Assume that it is customary in the industry to bid jobs at 150% of total manufacturing cost (direct materials, direct labor, and applied overhead). What was the company’s bid price on the Koopers job? What would the bid price have been if departmental overhead rates had been used to apply overhead cost?
Compute the underapplied or overapplied overhead for the year (a) assuming that a plantwide overhead rate is used, and (b) assuming that departmental overhead rates are used.
5. At the end of the year, the company assembled the following actual cost data relating to all jobs worked on during theyear.
Aug 29, 2021 | Uncategorized
Platinum Tracks, Inc., is a small audio recording studio located in Los Angeles. The company handles work for advertising agencies—primarily for radio ads—and has a few singers and bands as clients. Platinum Tracks handles all aspects of recording from editing to making a digital master from which CDs can be copied. The competition in the audio recording industry in Los Angeles has always been tough, but it has been getting even tougher over the last several years. The studio has been losing customers to newer studios that are equipped with more up to date equipment and that are able to offer very attractive prices and excellent service. Summary data concerning the last two years of operations follow:
?
The company applies studio overhead to recording jobs on the basis of the hours of studio service provided. For example, 40 hours of studio time were required to record, edit, and master the Verde Baja music CD for a local Latino band. All of the studio overhead is fixed, and the actual overhead cost incurred was exactly as estimated at the beginning of the year in both 2008 and 2009.
Required:
1. Platinum Tracks computes its predetermined overhead rate at the beginning of each year based on the estimated studio overhead and the estimated hours of studio service for the year. How much overhead would have been applied to the Verde Baja job if it had been done in 2008? In 2009? By how much would overhead have been underapplied or overapplied in 2008? In 2009?
2. The president of Platinum Tracks has heard that some companies in the industry have changed to a system of computing the predetermined overhead rate at the beginning of each year based on the hours of studio service that could be provided at capacity. He would like to know what effect this method would have on job costs. How much overhead would have been applied using this method to the Verde Baja job if it had been done in 2008? In 2009? By how much would overhead have been underapplied or overapplied in 2008 using this method? In 2009?
3. How would you interpret the underapplied or overapplied overhead that results from using studio hours at capacity to compute the predetermined overhead rate?
4. What fundamental business problem is Platinum Tracks facing? Which method of computing the predetermined overhead rate is likely to be more helpful in facing this problem?Explain.
Aug 29, 2021 | Uncategorized
Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead Bieler & Cie of Altdorf Switzerland, makes furniture using the latest automated technology. The cornpamiy uses a job order costing system and applies manufacturing overhead cost to products on the basis of machine hours. The currency in Switzerland is the Swiss franc, which is denoted by Sfr. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:
?
During the year, a glut of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:
?
Required:
1. Compute the company’s predetermined overhead rate.
2. Compute the underapplied or overapplied overhead.
3. Assume that the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry.
4. Assume that the company allocates any underapplied or overapplied overhead to Work in Process, Finished Goods, and Cost of Goods Sold on the basis of the amount of overhead applied that remains in each account at the end of the year. Prepare the journal entry to show the allocation for the year.
5. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated rather than closed directly to Cost of GoodsSold?
Aug 29, 2021 | Uncategorized
Pureform. Inc., manufactures a product that passes through two departments. Data for a recent month for the first department follow:
The beginning work in process inventory was 80% complete with respect to materials and 60% complete with respect to labor and overhead. The ending work in process inventory was 75% complete with respect to materials and 50% complete with respect to labor and overhead.
Required:
Assume that the company uses the weighted average method of accounting for units and costs.
I. Compute the equivalent units for the month for the first department.
2. Determine the costs per equivalent unit for themonth.
Aug 29, 2021 | Uncategorized
Selected T accounts of Moore Company are given below for the just completed year:
?
Required:
1. What was the cost of raw materials put into production during the year?
2. How much of the materials in (1) above consisted of indirect materials?
3. How much of the factory labor cost for the year consisted of indirect labor?
4. What was the cost of goods manufactured for the year?
5. What was the cost of goods sold for the year (before considering underapplied or overapplied overhead)?
6. If overhead is applied to production on the basis of direct labor cost, what rate was in effect during the year?
7. Was manufacturing overhead underapplied or overapplied? By how much?
8. Compute the ending balance in the Work in Process inventory account. Assume that this balance consists entirely of goods started during the year. If $8,000 of this balance is direct labor cost, how much of it is direct materials cost? Manufacturing overheadcost?
Aug 29, 2021 | Uncategorized
Selzik Company makes super premium cake mixes that go through two processing departments, Blending and Packaging. The following activity was recorded in the Blending Department during July:
All materials are added at the beginning of work in the Blending Department. The company uses the FIFO method in its process costing system.
Required:
1. Determine the equivalent units for July for the Blending Department.
2. Compute the costs per equivalent unit for July for the Blending Department.
3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the next process for the Blending Department in July.
4. Prepare a cost reconciliation report for the Blending Department forJuly.
Aug 29, 2021 | Uncategorized
Sunspot Beverages, Ltd., of Fiji makes blended tropical fruit drinks in two stages. Fruit juices arc extracted from fresh fruits and then blended in the Blending Department. The blended juices are then bottled and packed for shipping in the Bottling Department. The following information pertains to the operations of the Blending Department for June. (The currency in Fiji is the Fijian dollar.)
Required:
Assume that the company uses the weighted average method.
1. Determine the equivalent units for June for the Blending Department.
2. Compute the costs per equivalent unit for the Blending Department.
3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the Bottling Department.
4. Prepare a cost reconciliation report for the Blending Department forJune.
Aug 29, 2021 | Uncategorized
Superior Micro Products uses the weighted average method in its process costing system. During January, the Delta Assembly Department completed its processing of 25,000 units and transferred them to the next department. The cost of beginning inventory and the costs added during January amounted to $599,780 in total. The ending inventory in January consisted of 3,000 units, which were 80% complete with respect to materials and 60% complete with respect to labor and overhead. The costs per equivalent unit for the month were as follows:
Required:
1. Compute the equivalent units of materials, labor, and overhead in the ending inventory for the month.
2. Compute the cost of ending inventory and of the units transferred to the next department for January.
3. Prepare a cost reconciliation for January.
Aug 29, 2021 | Uncategorized
The following data relating to units shipped and total shipping expense have been assembled by Archer
Company, a wholesaler of large, custom built air conditioning units for commercial buildings;
Required:
1. Using the high low method, estimate a cost formula for shipping expense.
2. The president of the company has no confidence in the high low method and would like you to check your results using a scattergraph.
a. Prepare a scattergraph, using the data given above. Plot cost on the vertical axis and activity on the horizontal axis. Use a ruler to fit a straight line to your plotted points.
b. Using your scattergraph, estimate the approximate variable cost per unit shipped and the approximate fixed cost per month with the quick and dirty method.
3. What factors, other than the number of units shipped, are likely to affect the company’s total shipping expense?Explain.
Aug 29, 2021 | Uncategorized
The Last Outpost is a tourist stop in a western resort community. Kerry Yost, the owner of the shop, sells hand woven blankets for an average price of $30 per blanket. Kerry buys the blankets from weavers at an average cost of $21. In addition, he has selling expenses of $3 per blanket. Kerry rents the building for $300 per month and pays one employee a fixed salary of $500 per month.
1. Determine the number of blankets Kerry must sell to break even.
2. Determine the number of blankets Kerry must sell to generate a profit of $1,000 per month.
3. Assume that Kerry can produce and sell his own blankets at a total variable cost of $16 per blanket, but that he would need to hire one additional employee at a monthly salary of $600.
a. Determine the number of blankets Kerry must sell to break even.
b. Determine the number of blankets Kerry must sell to generate a profit of $1,000 per month.
Aug 29, 2021 | Uncategorized
The left column lists several cost classifications. The right column presents short definitions of those costs. In the blank space beside each of the numbers in the right column, write the letter of the cost best described by the definition.
A. Total cost
B. Variable cost
C. Fixed cost
D. Mixed cost
E. Curvilinear cost
F. Step wise cost
1. This cost is the combined amount of all the other costs.
2. This cost remains constant over a limited range of volume; when it reaches the end of its limited range, it changes by a lump sum and remains at that level until it exceeds another limited range.
3. This cost has a component that remains the same over all volume levels and another component that increases in direct proportion to increases in volume.
4. This cost increases when volume increases, but the increase is not constant for each unit produced.
5. This cost remains constant over all volume levels within the productive capacity for the planning period.
6. This cost increases in direct proportion to increases in volume; its amount is constant for each unit produced.
Aug 29, 2021 | Uncategorized
Value added, nonvalue added costs. The Marino Repair Shop repairs and services machine tools. A summary of its costs (by activity) for 2011 is as follows:
a. Materials and labor for servicing machine tools……………………$800,000
b. Rework costs…………………………………………………………..75,000
c. Expediting costs caused by work delays……………………………….60,000
d. Materials handling costs………………………………………………50,000
e. Materials procurement and inspection costs………………………….35,000
f. Preventive maintenance of equipment…………………………………15,000
g. Breakdown maintenance of equipment……………………………….55,000
Required
1. Classify each cost as value added, nonvalue added, or in the gray area between.
2. For any cost classified in the gray area, assume 65% is value added and 35% is nonvalue added. How much of the total of all seven costs is value added and how much is nonvalue added?
3. Marino is considering the following changes: (a) introducing quality improvement programs whose net effect will be to reduce rework and expediting costs by 75% and materials and labor costs for servicing machine tools by 5%; (b) working with suppliers to reduce materials procurement and inspection costs by 20% and materials handling costs by 25%; and (c) increasing preventive maintenance costs by 50% to reduce breakdown maintenance costs by 40%. Calculate the effect of programs (a), (b), and (c) on value added costs, nonvalue added costs, and total costs. Comment briefly.
Aug 29, 2021 | Uncategorized
Visit a local fast food restaurant. Observe all aspects of the operation and take notes on the entire process. Describe the procedures used to take, process, and fill an order and deliver the order to the customer. Based on your observations, make a list of the costs incurred by the operation. Identify at least three variable costs and three fixed costs. Can you identify any potential mixed costs? Why is the restaurant willing to sell a large drink for only a few cents more than medium drink? How is the restaurant able to offer a ?ovalue meal?? (e.g., sandwich, drink, and fries) for considerably less than those items terms would cost if they were bought separately? Bring your notes to class and be prepared to discuss your findings.
Your instructor will divide the class into groups to discuss the case. Summarize your group’s discussion, and ask one member of the group to present the summary to the rest of the class.
Aug 29, 2021 | Uncategorized
What follows are a number of resources that are used by a manufacturer of futons. Assume that the output measure or cost driver is the number of futons produced. All direct labor is paid on an hourly basis, and hours worked can be easily changed by management.
All other factory workers are salaried.
a. Power to operate a drill (to drill holes in the wooden frames of the futons)
b. Cloth to cover the futon mattress
c. Salary of the factory receptionist
d. Cost of food and decorations for the annual Fourth of July party for all factory employees
e. Fuel for a forklift used to move materials in a factory
f. Depreciation on the factory
g. Depreciation on a forklift used to move partially completed goods
h. Wages paid to workers who assemble the futon frame
i. Wages paid to workers who maintain the factory equipment
j. Cloth rags used to wipe the excess stain off the wooden frames
Required:
Classify the resource costs as variable or fixed.
Aug 29, 2021 | Uncategorized
Activity based budgeting, Balanced Scorecard, and strategy Sippican Corporation (B)12
Refer to Case 5 36, the Sippican Corporation (A) case, which required time driven ABC analysis. Sippican’s senior executive committee met to consider the implications from its time driven ABC model. Frankly all had been shocked to learn that their apparently highest margin product line, flow controllers, could actually be losing money because of its many shipments, short production runs, and heavy use of engineering time. The team contemplated action steps to restore profitability.
After some deliberation, the executive team crafted a new strategy that involved the following principles:
Improve Revenue Quality: Product Focus and Menu Based Pricing
?c Focus on core products: valves and pumps.
?c Increase market share in valves by offering discounts for large orders.
?c Reduce discounting for pumps, especially in small order sizes.
?c Aggressively raise prices for small orders of flow controllers.
Productivity
?c Reduce set up times.
Based on the new strategy, Peggy Knight developed the forecasted monthly sales and production plan shown in Exhibit 5 12. She wondered whether the shift in product mix, new pricing model, and forecasted productivity improvement in setup times would be sufficient to restore Sippican’s historic margins. Sippican’s machines were leased monthly and had staggered expiration times; Knight believed she could, on short notice, make 10% to 15% adjustments up or down to accommodate changes in demand for machine capacity. Also, Knight felt that she had some flexibility with the size and composition of the labor force as well. The company had recently hired quite a few production employees on short term contracts to meet the expanded demand for the newly introduced flow controller line.
Required
(a) Estimate the resource demands from Knight’s forecasted sales production plan in Exhibit 5 12.
(b) Prepare a pro forma product line income statement based on the new plan.
(c) Comment on the magnitude of the change in profit with the new plan in relation to the change in production and sales under the previous plan.
Aug 29, 2021 | Uncategorized
Alcoa Inc. is the world’s largest producer of aluminum products. One product that Alcoa manufactures is aluminum sheet products for the aerospace industry. The entire output of the Smelting Department is transferred to the Rolling Department. Part of the fully processed goods from the Rolling Department are sold as rolled sheet, and the remainder of the goods are transferred to the Converting Department for further processing into sheared sheet. Prepare a chart of the flow of costs from the processing department accounts into the finished goods accounts and then into the cost of goods sold account.
The relevant accounts are as follows:
Cost of Goods Sold Finished Goods—Rolled Sheet
Materials Finished Goods—Sheared Sheet
Factory Overhead—Smelting Department Work in Process—Smelting Department
Factory Overhead—Rolling Department Work in Process—Rolling Department
Factory Overhead—Converting Department Work in Process—Converting Department
Aug 29, 2021 | Uncategorized
AOZT Volzhskije Motory of St. Petersburg, Russia, makes marine motors for vessels ranging in size from harbor tugs to open water icebreakers. (The Russian currency is the ruble, which is denoted by RUR. All currency amounts below are in thousands of RUR.)
The company uses a job order costing system. Only three jobs—Job 208, Job 209, and Job 210—were worked on during May and June. Job 208 was completed on June 20; the other two jobs were uncompleted on June 30. Job cost sheets on the three jobs are given below:
?
The following additional information is available:
a. Manufacturing overhead is applied to jobs on the basis of direct labor cost.
b. Balances in the inventory accounts at May 31 were:
?
Required:
1. Prepare T accounts for Raw Materials, Work in Process, Finished Goods, and Manufacturing Overhead. Enter the May 31 balances given above; in the case of Work in Process, compute the May 31 balance and enter it into the Work in Process T account.
2. Prepare journal entries for June as follows:
a. Prepare an entry to record the issue of materials into production and post the entry to appropriate T accounts. (In the case of direct materials, it is not necessary to make a separate entry for each job.) Indirect materials used during June totaled RUR 3,600.
b. Prepare an entry to record the incurrence of labor cost and post the entry to appropriate T accounts. (In the case of direct labor cost, it is not necessary to make a separate entry for each job.) Indirect labor cost totaled RUR 7,000 for June.
c. Prepare an entry to record the incurrence of RUR 19,400 in various actual manufacturing overhead costs for June. (Credit Accounts Payable.) Post this entry to the appropriate T accounts.
3. What apparent predetermined overhead rate does the company use to assign overhead cost to jobs? Using this rate, prepare a journal entry to record the application of overhead cost to jobs for June (it is not necessary to make a separate entry for each job). Post this entry to appropriate T accounts.
4. As stated earlier, Job 208 was completed during June. Prepare a journal entry to show the transfer of this job off of the production line and into the finished goods warehouse. Post the entry to appropriate T accounts.
5. Determine the balance at June 30 in the Work in Process inventory account. How much of this balance consists of costs charged to Job 209? To Job210?
Aug 29, 2021 | Uncategorized
Bullock Furniture Company manufactures furniture. Bullock uses a job order cost system. Balances on June 1 from the materials ledger are as follows:
Fabric $25,000
Polyester filling 7,500
Lumber 56,000
Glue 2,400
The materials purchased during June are summarized from the receiving reports as follows:
Fabric $126,000
Polyester filling 175,000
Lumber 345,000
Glue 12,000
Materials were requisitioned to individual jobs as follows:
?
The glue is not a significant cost, so it is treated as indirect materials (factory overhead).
a. Journalize the entry to record the purchase of materials in June.
b. Journalize the entry to record the requisition of materials in June.
c. Determine the June 30 balances that would be shown in the materials ledgeraccounts.
Aug 29, 2021 | Uncategorized
Capacity costs Ken’s Cornerspot, a popular university eatery in a competitive market, has seating and staff capacity to serve about 600 lunch customers every day. For the past two months, demand has fallen from its previous near capacity level. Concerned about his declining profit, Ken decided to take a closer look at his costs. He concluded that food was the primary cost that varied with meals served; the remaining costs of $3,300 per day were fixed. With demand averaging lunches per day for the past two months, Ken thought it was reasonable to divide the $3,300 fixed costs by the current average demand of lunches to arrive at an estimate of $6 of support costs per meal served. Noting that his support costs per meal had now increased, he contemplated raising his meal prices.
Required
(a) What is likely to happen if Ken continues to recompute his costs using the same approach if demand decreases further?
(b) Advise Ken on choosing a cost driver quantity for computing support costs per meal and explain why you advocate your choice of quantity.
Aug 29, 2021 | Uncategorized
Comparison of two costing systems, original activity based costs, implementing change The Redwood City plant of Crimson Components Company makes two types of rotators for automobile engines: R361 and R572. The old cost accounting system at the plant traced support costs to four cost pools:
Pool S1 included service activity costs related to setups, production scheduling, plant administration, janitorial services, materials handling, and shipping. Pool S2 included activity costs related to machine maintenance and repair, rent, insurance, power, and utilities. Pools P1 and P2 included supervisors’ wages, idle time, and indirect materials for the two production departments, casting and machining, respectively.
The old accounting system allocated support costs in pools S1 and S2 to the two production departments using direct labor cost and machine hours, respectively, as the cost drivers. Then the accumulated support costs in pools P1 and P2 were applied to the products on the basis of direct labor hours. A separate rate was determined for each of the two production departments. The direct labor wage rate is $15 per hour in casting and $18 per hour in machining.
Now the plant has implemented an activity based costing system. The following table presents the amounts from the old cost pools that are traced to each of the new activity cost pools:
Setups for R572 are 50% more complex than those for R361; that is, each R572 setup takes 1.5 times as long as one R361 setup.
Required
(a) Determine the product costs per unit using the old system. Show all intermediate steps for allocations, including departmental cost driver rates and a breakdown of product costs into each of their components.
(b) Determine the product costs per unit using the new system.
(c) Explain the intuitive reason that the product costs differ under the two accounting systems.
(d) What should Crimson Components do to improve the profitability of its Redwood City plant? Include marketing and product related changes among your recommendations.
(e) Describe how experienced production and sales managers are likely to react to the new product costs.
Aug 29, 2021 | Uncategorized
Compute activity based cost rate, time equations CAN Company sells multiple products and uses a time driven ABC system. The company’s products must be wrapped individually before shipping. The packaging and shipping department employs 24 people. Each person works 20 days per month on average. Employees in this department work an eight hour shift that includes a total of 75 minutes for breaks and a meal. The full compensation, including fringe benefits, for each packaging and shipping employee is $4,050 per month.
Required
(a) Using the principles discussed in this chapter and time driven ABC, what is the rate per hour for each packaging and shipping employee at CAN?
(b) On average, it takes one packaging and shipping employee 15 minutes to prepare a package and label, independent of the number or types of items in the shipment, plus 6 minutes per item to bubble wrap and pack it in the carton. Using CAN’s time driven ABC system, what is the packaging and shipping cost assigned to Order 705, which consisted of 40 items?
Aug 29, 2021 | Uncategorized
Cooperative San JosA? of southern Sonora State in Mexico makes a unique syrup using cane sugar and local herbs. The syrup is sold in small bottles and is prized as a flavoring for drinks and for use in desserts. The bottles are sold for $12 each. (The Mexican currency is the peso and is denoted by $.) The first stage in the production process is carried out in the Mixing Department, which removes foreign matter from the raw materials and mixes them in the proper proportions in large vats. The company uses the weighted average method in its process costing system.
A hastily prepared report for the Mixing Department for April appears below:
Management would like some additional information about Cooperative San JosA?’s operations.
Required:
1. What were the equivalent units for the month?
2. What were the costs per equivalent unit for the month? The beginning inventory consisted of the following costs: materials, $67,800; and conversion cost. $30,200. The costs added during the month consisted of: materials, $579,000; and conversion cost, $248,000.
3. How many of the units transferred to the next department were started and completed during the month?
4. The manager of the Mixing Department stated, ?oMaterials prices jumped from about $2.50 per unit in March to $3 per unit in April, but due to good cost control I was able to hold our materials cost to less than $3 per Unit for the month.?? Should this manager be rewarded for good cost control?Explain.
Aug 29, 2021 | Uncategorized
Cost rates for peak and non–peak hour capacity usage XZ Discount Brokerage is trying to determine the cost of supplying computing resources in order to determine how much to charge for trades. The company’s cost analyst is perplexed because XZ has acquired 80 servers to meet peak capacity needs, which occur between 9 A.M. and 5 P.M. local time, but only needs the capacity of 20 servers during the remaining time. The costs associated with each server are $3,696 per month and each server is available for use for 24 hours per day for an average of 22 days per month.
Required
(a) What cost per hour would you advise for peak hour capacity consumption? Explain why you think this cost rate is appropriate.
(b) What cost per hour would you advise for non–peak hour capacity consumption? Explain why you think this cost rate is appropriate.
Aug 29, 2021 | Uncategorized
Davidson Outdoor Equipment Company manufactures kayaks in a wide variety of lengths and styles. The following incomplete ledger accounts refer to transactions that are summarized for August:
?
In addition, the following information is available:
a. Materials and direct labor were applied to six jobs in August:
?
b. Factory overhead is applied to each job at a rate of 50% of direct labor cost.
c. The August 1 Work in Process balance consisted of two jobs, as follows:
?
d. Customer jobs completed and units sold in August were as follows:
?
Instructions
1. Determine the missing amounts associated with each letter. Provide supporting calculations by completing a table with the following headings:
?
2. Determine the August 31 balances for each of the inventory accounts and factoryoverhead.
Aug 29, 2021 | Uncategorized
Ethics; Predetermined Overhead Rate and Capacity Pat Miranda, the new controller of Vault Hard Drives, Inc., has just returned from a seminar on the choice of the activity level in the predetermined overhead rate. Even though the subject did not sound exciting at first, she found that there were some important ideas presented that should get a hearing at her company. After returning from the seminar, she arranged a meeting with the production manager, J. Stevens, and the assistant production manager, Marvin Washington.
Pat:
I ran across an idea that I wanted to check out with both of you. It’s about the way we compute predetermined overhead rates.
J.:
We’re all ears.
Pat:
We compute the predetermined overhead rate by dividing the estimated total factory overhead for the coming year by the estimated total units produced for the coming year.
Marvin:
We’ve been doing that as long as I’ve been with the company.
J.:
And it has been done that way at every other company I’ve worked at, except at most places they divide by direct labor hours.
Pat:
We use units because it is simpler and we basically make one product with minor variations. But, there’s another way to do it. Instead of basing the overhead rate on the estimated total units produced for the coming year, we could base it on the total units produced at capacity.
Marvin:
Oh, the Marketing Department will love that. It will drop the costs on all of our products. They’ll go wild over there cutting prices.
Pat:
That is a worry, but I wanted to talk to both of you first before going over to Marketing.
J.:
Aren’t you always going to have a lot of underapplied overhead?
Pat:
That’s correct, but let me show you how we would handle it. Here’s an example based on our budget for next year.
?
Traditional Approach to Computation of the Predetermined Overhead Rate
?
?
New Approach to Computation of the Predetermined Overhead Rate
Using Capacity in the Denominator
?
?
J.:
Whoa!! I don’t think I like the looks of that ?oCost of unused capacity:’ If that thing shows up on the income statement, someone from headquarters is likely to come down here looking for some people to lay off.
Marvin:
I’m worried about something else too. What happens when sales are not up to expectations? Can we pull the ?ohat trick???
Pat:
I’m sorry, I don’t understand.
J.:
Marvin’s talking about something that happens fairly regularly. When sales are down and profits look like they are going to be lower than the president told the owners they were going to be, the president comes down here and asks us to deliver some more profits.
Marvin:
And we pull them out of our hat.
j.:
Yeah, we just increase production until we get the profits we want.
Pat:
I still don’t understand. You mean you increase sales?
J.:
Nope, we increase production. We’re the production managers, not the sales managers.
Pat:
I get it. Since you have produced more, the sales force has more units it can sell.
J.:
Nope, the marketing people don’t do a thing. We just build inventories and that does the trick.
Required:
In all of the questions below, assume that the predetermined overhead rate under the traditional method is $25 per unit, and under the new method it is $20 per unit. Also assume that under the traditional method any underapplied or overapplied overhead is taken directly to the income statement as an adjustment to Cost of Goods Sold.
1.Suppose actual production is 160,000 units. Compute the net operating incomes that would be realized under the traditional and new methods if actual sales are 150,000 units and everything else turns out as expected.
2. How many units would have to be produce under each of the methods in order to realize the budgeted net operating income of $500,000 if actual sales are 150,000 units and everything else turns out as expected?
3. What effect does the new method based on capacity have on the volatility of net operating income?
4. Will the ?ohat trick?? be easier or harder to perform if the new method based on capacity is used?
5. Do you think the ?ohat trick?? isethical?
Aug 29, 2021 | Uncategorized
Floor Guard Carpet Company manufactures carpets. Fiber is placed in process in the Spinning Department, where it is spun into yarn. The output of the Spinning Department is transferred to the Tufting Department, where carpet backing is added at the beginning of the process and the process is completed. On July 1, Floor Guard Carpet Company had the following inventories:
Finished Goods $51,200
Work in Process—Spinning Department 8,500
Work in Process—Tufting Department 23,600
Materials 41,100
Departmental accounts are maintained for factory overhead, and both have zero balances on July 1.
Manufacturing operations for July are summarized as follows:
?
Instructions
1. Journalize the entries to record the operations, identifying each entry by letter.
2. Compute the July 31 balances of the inventory accounts.
3. Compute the July 31 balances of the factory overheadaccounts.
Aug 29, 2021 | Uncategorized
Gold Nest Company of Guandong, China, is a family owned enterprise that makes birdcages for the South China market. A popular pastime among older Chinese men is to take their pet birds on daily excursions to teahouses and public parks where they meet with other bird owners to talk and play mahjong. A great deal of attention is lavished on these birds, and the birdcages are often elaborately constructed from exotic woods and contain porcelain feeding bowls and silver roosts. Gold Nest Company makes a broad range of birdcages that it sells through an extensive network of Street vendors who receive commissions on their sales. The Chinese currency is the renminbi, which is denoted by Rmb. All of the company’s transactions with customers, employees, and suppliers are conducted in cash; there is no credit.
The company uses a job order costing system in which overhead is applied to jobs on the basis of direct labor cost. At the beginning of the year, it was estimated that the total direct labor cost for the year would be Rmb200,000 and the total manufacturing overhead cost would be Rmb330,000. At the beginning of the year, the inventory balances were as follows:
?
During the year, the following transactions were completed:
a. Raw materials purchased for cash, Rmb275,000.
b. Raw materials requisitioned for use in production, Rmb280,000 (materials costing Rmb220,000 were charged directly to jobs; the remaining materials were indirect).
c. Costs for employee services were incurred as follows:
?
d. Rent for the year was Rmb18,000 (Rmb13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities).
e. Utility costs incurred in the factory, Rmb57,000.
f. Advertising costs incurred, Rmb140,000.
g. Depreciation recorded on equipment, Rmb100,000. (Rmb8 8,000 of this amount was on equipment used in factory operations; the remaining Rmbl2,000 was on equipment used in selling and administrative activities.)
h. Manufacturing overhead cost was applied to jobs, Rmb?
i. Goods that had cost Rmb675,000 to manufacture according to their job cost sheets were completed.
j. Sales for the year totaled Rmb1,250,000. The total cost to manufacture these goods according to their job cost sheets was Rmb700,000.
Required:
1. Prepare journal entries to record the transactions for the year.
2. Prepare T accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T accounts (don’t forget to enter the beginning balances in your inventory accounts). Compute an ending balance in each account.
3. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the journal entries and T accounts you haveprepared.)
Aug 29, 2021 | Uncategorized
Hearty Soup Co. uses a process cost system to record the costs of processing soup, which requires a series of three processes. Materials are entered at the beginning of the Filling process. The inventory of Work in Process—Filling on February 1 and debits to the account during February 2010 were as follows:
Bal., 3,200 units, 30% completed:
Direct materials (3,200 A? $4.50) $14,400
Conversion (3,200 A? 30% A? $2.00) 1,920
$16,320
From Cooking Department, 65,900 units $303,140
Direct labor 87,450
Factory overhead 61,908
During February, 3,200 units in process on February 1 were completed, and of the 65,900 units entering the department, all were completed except 2,500 units that were 90% completed.
Charges to Work in Process—Filling for March were as follows:
From Cooking Department, 73,500 units $352,800
Direct labor 103,345
Factory overhead 74,530
During March, the units in process at the beginning of the month were completed, and of the 73,500 units entering the department, all were completed except 4,000 units that were 35% completed.
Instructions
1. Enter the balance as of February 1, 2010, in a four column account for Work in Process—Filling. Record the debits and the credits in the account for February. Construct a cost of production report, and present computations for determining (a) equivalent units of production for materials and conversion, (b) costs per equivalent unit, (c) cost of goods finished, differentiating between units started in the prior period and units started and finished in February, and (d) work in process inventory.
2. Provide the same information for March by recording the March transactions in the four column work in process account. Construct a cost of production report, and present the March computations (a through d) listed in part (1).
3. Comment on the change in costs per equivalent unit for January through March for direct materials and conversion costs.
Aug 29, 2021 | Uncategorized
Milagro Co. manufactures and sells three products: product 1, product 2, and product 3. Their unit sales prices are product 1, $200; product 2, $150; and product 3, $100. The per unit variable costs to manufacture and sell these products are product 1, $150; product 2, $75; and product 3, $40. Their sales mix is reflected in a ratio of 6: 4: 2. Annual fixed costs shared by all three products are $5,400,000. One type of raw material has been used to manufacture products 1 and 2. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: product 1 by $50, and product 2, by $25. However, the new material requires new equipment, which will increase annual fixed costs by $200,000.
Required
1. If the company continues to use the old material, determine its break even point in both sales units and sales dollars of each individual product.
2. If the company uses the new material, determine its new break even point in both sales units and sales dollars of each individual product.
Analysis Component
3. What insight does this analysis offer management for long term planning?
Aug 29, 2021 | Uncategorized
Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas:
Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the related shipping expenses over the last eight quarters follow:
Milden Company’s president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter.
Required:
1. Using the least squares regression method, estimate a cost formula for shipping expense.
(Since the Units Sold above are in thousands of units, the variable cost you compute will also he in thousands of units. It can be left in this form, or you can convert your variable cost to a per unit basis by dividing it by 1,000.)
2. In the first quarter of Year 3, the company plans to sell 12,000 units at a selling price of $100 per unit. Prepare a contribution format income statement for thequarter.
Aug 29, 2021 | Uncategorized
Modern Fun Corporation sells electronic games. Its five salespersons are currently being paid fixed salaries of $30,000 each; however, the sales manager has suggested that it might be more profitable to pay the salespersons on a straight commission basis. He has suggested a commission of 15% of sales. Current data for Modern Fun Corporation are as follows:
Sales volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 units
Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $40 per unit
Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29 per unit
Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000
1. Assuming that Modern Fun Corporation has a target income of $50,000 for next year, which alternative is more attractive?
2. The sales manager believes that by switching to a commission basis, sales will increase
20%. What is the estimated profit under this assumption?
Aug 29, 2021 | Uncategorized
Patriot Co. manufactures and sells three products: red, white, and blue. Their unit sales prices are red, $74; white, $108; and blue, $99. The per unit variable costs to manufacture and sell these products are red, $48; white, $75; and blue, $90. Their sales mix is reflected in a ratio of 5:4:2 (red: white: blue). Annual fixed costs shared by all three products are $179,200. One type of raw material has been used to manufacture all three products. The company has developed a new material of equal quality for less cost. The new material would reduce variable costs per unit as follows: red, by $10; white, by $16; and blue, by $13. However, the new material requires new equipment, which will increase annual fixed costs by $22,400. (Round answers to whole composite units.)
Required
1. If the company continues to use the old material, determine its break even point in both sales units and sales dollars of each individual product.
2. If the company uses the new material, determine its new break even point in both sales units and sales dollars of each individual product.
Analysis Component
3. What insight does this analysis offer management for long term planning?
Aug 29, 2021 | Uncategorized
Peerless Company has a maximum capacity of 500,000 units per year. Variable manufacturing costs are $25 per unit. Fixed overhead is $900,000 per year. Variable selling and administrative costs are $5 per unit, and fixed selling and administrative costs are $300,000 per year. The current sales price is $36 per unit.
Required
1. What is the breakeven point in (a) sales units and (b) sales dollars?
2. How many units must Peerless Company sell to earn a profit of $600,000 per year?
3. A strike at one of the company’s major suppliers has caused a shortage of materials, so the current year’s production and sales are limited to 400,000 units. To partially offset the effect of the reduced sales on profit, management is planning to reduce fixed costs to $1,000,000. Variable cost per unit is the same as last year. The company has already sold 30,000 units at the regular selling price of $36 per unit.
a. What amount of fixed costs was covered by the total contribution margin of the first 30,000 units sold?
b. What contribution margin per unit will be needed on the remaining 370,000 units to cover the remaining fixed costs and to earn a profit of $300,000 this year?
Aug 29, 2021 | Uncategorized
PhotoQuik is a film developing company. Customers mail their undeveloped rolls of film to the company and receive the completed photographs in return mail. The PhotoQuik facility is built and staffed to handle the processing of 100,000 rolls of film per year. The lab facility cost $330,000 to build and is expected to last 20 years. Processing equipment cost $592,500 and has a life expectancy of five years. Both facility and equipment are depreciated on a straight line basis. PhotoQuik has five salaried processing technicians, each of whom is paid $15,000. In addition to the salaries, facility, and equipment, PhotoQuik expects to spend $400,000 for chemicals, photo paper, envelopes, and other supplies (assuming 100,000 rolls of film are processed). Last year, 96,000 rolls of film were processed.
Required:
1. Classify the resources associated with the film processing activity into one of the following types:
(1) Committed resources and
(2) Flexible resources.
2. Calculate the total activity rate for the film processing activity. Break the activity rate into fixed and variable components.
3. Compute the total activity availability, and break this into activity output and unused activity.
4. Calculate the total cost of resources supplied, and break this into the cost of activity used and the cost of unused activity.
Aug 29, 2021 | Uncategorized
Professor John Morton has just been appointed chairperson of the Finance Department at Westland University. In reviewing the department’s cost records, Professor Morton has found the following total cost associated with Finance 101 over the last several terms:
Professor Morton knows that there are some variable costs, such as amounts paid to graduate assistants, associated with the course. He would like to have the variable and fixed costs separated for planning purposes.
Required:
1. Using the least squares regression method, estimate the variable cost per section and the total fixed cost per term for Finance 101.
2. Express the cost data derived in (1) above in the linear equation form Y = a + bX.
3. Assume that because of the small number of sections offered during the Winter Term this year, Professor Morton will have to offer eight sections of Finance 101 during the Fall Term. Compute the expected total cost for Finance 101. Can you see any problem with using the cost formula from (2) above to derive this total cost figure? Explain.
4. Prepare a scattergraph and fit a straight line to the plotted points using the cost formula expressed in (2)above.
Aug 29, 2021 | Uncategorized
Refer to the Farnsworth Company information in Problem 3 41. However, now assume that Tracy has used the method of least squares on the receiving data and has gotten the following results:
Intercept …………….3,212
Slope ………………..15.15
Required:
1. Using the results from the method of least squares, prepare a cost formula for the receiving activity.
2. Using the formula from Requirement 1, what is the predicted cost of receiving for a month in which 1,450 receiving orders are processed? (Round your answer to the nearest dollar.)
3. Prepare a cost formula for the receiving activity for a quarter. Based on this formula, what is the predicted cost of receiving for a quarter in which 4,650 receiving orders are anticipated? Prepare a cost formula for the receiving activity for a year. Based on this formula, what is the predicted cost of receiving for a year in which 18,000 receiving orders are anticipated?
Aug 29, 2021 | Uncategorized
Refer to the information in C 3. In January 2011, Sophia Callas, the president of Datura, Ltd., conducted a strategic planning meeting. Duting the meeting, phillipe Mazzeo, vice president of distribution, noted that because of a new contract with an international shipping line, the company’s fixed distribution costs for 2011 would be reduced by 10 percent and its variable distribution costs by 4 percent. Gino Roma, vice president of sales, offered the following information:
We plan to sell 15,000 sets of pottery again in 2011, but based on review of the competition, we are going to lower the selling price to €890 per set. To encourage increased sales, we will raise sales commissions to 12 percent of the selling price.
Sophia Callas is concerned that the changes described by Roma and Mazzeo may not improve operating income sufficiently in 2011. If operating income does not increase by at least 10 percent, she will want to find other ways to reduce the company’s costs. She asks you to evaluate the situation in a written report. Because it is already January of 2011 and changes need to be made quickly, she requests your report within five days.
1. Prepare a budgeted contribution margin income statement for 2011. Your report should show the budgeted (estimated) operating income based on the information provided above and in C3. Will the changes improve operating income sufficiently? Explain.
2. In preparation for writing your report, answer the following questions:
a. Why are you preparing the report?
b. Who needs the report?
c. What sources of information will you use?
d. When is the report due?
Aug 29, 2021 | Uncategorized
Relevant cost approach to pricing decisions. Burst, Inc., cans peaches for sale to food distributors. All costs are classified as either manufacturing or marketing. Burst prepares monthly budgets. The March 2012 budgeted absorption costing income statement is as follows:
Revenues (1,000 crates * $117 a crate)……….$117,000
Cost of goods sold……….……………………….65,000
Gross margin….………………………………….52,000
Marketing costs……………….………………….30,000
Operating income………………………………$ 22,000
Gross margin markup percentage: $52,000 A? $65,000
= 80% of cost of goods sold (full manufacturing cost)
Monthly costs are classified as fixed or variable (with respect to the number of crates produced for manufacturing costs and with respect to the number of crates sold for marketing costs):
?
Burst has the capacity to can 2,000 crates per month. The relevant range in which monthly fixed manufacturing costs will be ?ofixed?? is from 500 to 2,000 crates per month.
Required
1. Calculate the markup percentage based on total variable costs.
2. Assume that a new customer approaches Burst to buy 200 crates at $55 per crate for cash. The customer does not require any marketing effort. Additional manufacturing costs of $3,000 (for special packaging) will be required. Burst believes that this is a one time only special order because the customer is discontinuing business in six weeks’ time. Burst is reluctant to accept this 200 crate special order because the $55 per crate price is below the $65 per crate full manufacturing cost. Do you agree with this reasoning? Explain.
3. Assume that the new customer decides to remain in business. How would this longevity affect your willingness to accept the $55 per crate offer?Explain.
Aug 29, 2021 | Uncategorized
Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably from year to year according to increases and decreases in the number of direct labor hours worked in the factory. Total factory overhead costs (in Japanese yen, denoted V) at high and low levels of activity for recent years are given below:
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000 hour level of activity as follows:
To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the ?Yl7,625,000 factory overhead cost at the high level of activity consists of maintenance cost.
2. Using the high low method, estimate a cost formula for maintenance.
3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 directlabor hours?
Aug 29, 2021 | Uncategorized
Short run pricing, capacity constraints. Colorado Mountains Dairy, maker of specialty cheeses, produces a soft cheese from the milk of Holstein cows raised on a special corn based diet. One kilogram of soft cheese, which has a contribution margin of $10, requires 4 liters of milk. A well known gourmet restaurant has asked Colorado Mountains to produce 2,600 kilograms of a hard cheese from the same milk of Holstein cows. Knowing that the dairy has sufficient unused capacity, Elise Princiotti, owner of Colorado Mountains, calculates the costs of making one kilogram of the desired hard cheese:
Milk (8 liters * $2.00 per liter)………………………..$16
Variable direct manufacturing labor…………………….5
Variable manufacturing overhead………………………4
Fixed manufacturing cost allocated……………………..6
Total manufacturing cost…………………………….$31
Required
1. Suppose Colorado Mountains can acquire all the Holstein milk that it needs. What is the minimum price per kilogram it should charge for the hard cheese?
2. Now suppose that the Holstein milk is in short supply. Every kilogram of hard cheese produced by
Colorado Mountains will reduce the quantity of soft cheese that it can make and sell. What is the minimum price per kilogram it should charge to produce the hard cheese?
Aug 29, 2021 | Uncategorized
Short term automobile rentals are the specialty of ASAP Auto Rentals, Inc. Average variable operating costs have been $12.50 per day per automobile. The company owns 60 automobiles. Fixed operating costs for the next year are expected to be $145,500. Average daily rental revenue per automobile is expected to be $34.50. Management would like to earn a profit of $47,000 during the year.
1. Calculate the total number of daily rentals the company must have during the year to earn the targeted profit.
2. On the basis of your answer to 1, determine the average number of days each automobile must be rented.
3. Determine the total revenue needed to achieve the targeted profit of $47,000.
4. What would the total rental revenue be if fixed operating costs could be lowered by $5,180 and the targeted profit increased to $70,000?
Aug 29, 2021 | Uncategorized
St. Mark’s Hospital contains 450 beds. The average occupancy rate is 80% per month. In other words, on average, 80% of the hospital’s beds are occupied by patients. At this level of occupancy, the hospital’s operating costs are $32 per occupied bed per day, assuming a 30 day month. This $32 figure contains both variable and fixed cost elements.
During June, the hospital’s occupancy rate was only 60%. A total of $326,700 in operating cost was incurred during the month.
Required:
1. Using the high low method, estimate:
a. The variable cost per occupied bed on a daily basis.
b. The total fixed operating costs per month.
2. Assume an occupancy rate of 70% per month. What amount of total operating cost would you expect the hospital to incur?
Aug 29, 2021 | Uncategorized
Steven Newman, Inc., estimates 2012 costs to be as follows:
Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6 per unit
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8 per unit
Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$5 per unit
Variable selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2 per unit
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000
1. Assuming that Newman will sell 50,000 units, what sales price per unit will be needed to achieve a $75,000 profit?
2. Assuming that Newman decides to sell its product for $23 per unit, determine the break even sales volume in dollars and units.
3. Assuming that Newman decides to sell its product for $23 per unit, determine the number of units it must sell to generate a $100,000 profit.
Aug 29, 2021 | Uncategorized
Target operating income, value added costs, service company. Calvert Associates prepares architectural drawings to conform to local structural safety codes. Its income statement for 2012 is as follows:
Revenues………………………………………………………….$701,250
Salaries of professional staff (7,500 hours * $52 per hour)……….390,000
Travel……………………………………………………………….15,000
Administrative and support costs………………………………….171,600
Total costs…………………………………………………………576,600
Operating income…………………………………………………$124,650
Following is the percentage of time spent by professional staff on various activities:
Making calculations and preparing drawings for clients……………………77%
Checking calculations and drawings………………………………………….3
Correcting errors found in drawings (not billed to clients)……………………8
Making changes in response to client requests (billed to clients)…………….5
Correcting own errors regarding building codes (not billed to clients)………7
Total…………………………………………………………………………100%
Assume administrative and support costs vary with professional labor costs.
Consider each requirement independently.
Required
1. How much of the total costs in 2012 are value added, nonvalue added, or in the gray area between?
Explain your answers briefly. What actions can Calvert take to reduce its costs?
2. Suppose Calvert could eliminate all errors so that it did not need to spend any time making corrections and, as a result, could proportionately reduce professional labor costs. Calculate Calvert’s operating income for 2012.
3. Now suppose Calvert could take on as much business as it could complete, but it could not add more professional staff. Assume Calvert could eliminate all errors so that it does not need to spend any time correcting errors. Assume Calvert could use the time saved to increase revenues proportionately.
Assume travel costs will remain at $15,000. Calculate Calvert’s operating income for 2012.
Aug 29, 2021 | Uncategorized
The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement for the company’s Ski Department for a recent quarter is presented below:
Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair of skis sold. The remaining selling expenses are fixed. The administrative expenses are 20% variable and 80% fixed. The company does not manufacture its own skis; it purchases them from a supplier for $450 per pair.
Required:
1. Prepare a contribution format income statement for the quarter.
2. For every pair of skis sold during the quarter, what was the contribution toward covering fixed expenses and toward earningprofits?
Aug 29, 2021 | Uncategorized
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy days over the last year. An occupancy day represents a room rented out for one day. The hotel’s business is highly seasonal, with peaks occurring during the ski season and in the summer.
1. Using the high low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy day. Round off the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent.
2. What other factors other than occupancy days are likely to affect the variation in electrical costs from month tomonth?
Aug 29, 2021 | Uncategorized
The Colorado Outdoors Federation sponsors an annual banquet. This year, the guest speaker is a noted wildlife photographer and lecturer. In planning for the event, the group’s treasurer has determined the following costs:
Rental of meeting facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$1,250
Honorarium for speaker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800
Tickets and advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Cost of dinner (per person) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Door prizes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800
Last year, tickets were sold at $25 per person, and 350 people attended the banquet. This year, the planning committee is hoping for an attendance of 450 at a price of $30 each.
1. a. At $30 per person, how many people must attend the banquet for the Federation to break even?
b. How much profit (loss) will occur if 450 people attend?
2. Should the Federation increase its advertising costs by $200 and its door prizes by $300 if it can expect 500 people to attend the banquet?
3. If the Federation maintains its original expected costs but reduces the price per ticket from $30 to $27, it can expect 500 people to attend the banquet. Should the Federation reduce the price of its tickets to $27 per person?
Aug 29, 2021 | Uncategorized
The following data apply to Gordon Company for 2012:
Sales revenue (120 units at $35 each) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,200
Variable selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 630
Variable administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425
Fixed selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620
Fixed administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .750
Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .840
Fixed manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
1. Prepare a contribution margin income statement. Assume there were no beginning or ending inventories in 2012.
2. How much would Gordon Company have lost if only 80 units had been sold during
2012?
Aug 29, 2021 | Uncategorized
Cost plus, time and materials, ethics. R & C Mechanical sells and services plumbing, heating, and air conditioning systems. R & C’s cost accounting system tracks two cost categories: direct labor and direct materials. R & C uses a time and materials pricing system, with direct labor marked up 100% and direct materials marked up 60% to recover indirect costs of support staff, support materials, and shared equipment and tools, and to earn a profit. R & C technician Greg Garrison is called to the home of Ashley Briggs on a particularly hot summer day to investigate her broken central air conditioning system. He considers two options: replace the compressor or repair it. The cost information available to Garrison follows:
?
Required
1. If Garrison presents Briggs with the replace or repair options, what price would he quote for each?
2. If the two options were equally effective for the three years that Briggs intends to live in the home, which option would she choose?
3. If Garrison’s objective is to maximize profits, which option would he recommend to Briggs? What would be the ethical course ofaction?
Aug 29, 2021 | Uncategorized
Effects of operating leverage on profitability Webster Training Services (WTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients’ offices on the clients’ equipment. The only major expense WTS incurs is instructor salaries; it pays instructors $5,000 per course taught. WTS recently agreed to offer a course of instruction to the employees of Chambers Incorporated at a price of $400 per student. Chambers estimated that 20 students would attend the course. Base your answers on the preceding information.
Part 1:
Required
a. Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost?
b. Determine the profit, assuming that 20 students attend the course.
c. Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). What is the percentage change in profitability?
d. Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases to 18 students). What is the percentage change in profitability?
e. Explain why a 10 percent shift in enrollment produces more than a 10 percent shift in profitability. Use the term that identifies this phenomenon.
Part 2:
The instructor has offered to teach the course for a percentage of tuition fees. Specifically, she wants $250 per person attending the class. Assume that the tuition fee remains at $400 per student.
Required
f. Is the cost of instruction a fixed or a variable cost?
g. Determine the profit, assuming that 20 students take the course.
h. Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). What is the percentage change in profitability?
i. Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases to 18 students). What is the percentage change in profitability?
j. Explain why a 10 percent shift in enrollment produces a proportional 20 percent shift in profitability.
Part 3:
WTS sells a workbook with printed material unique to each course to each student who attends the course. Any workbooks that are not sold must be destroyed. Prior to the first class, WTS printed 20 copies of the books based on the client’s estimate of the number of people who would attend the course. Each workbook costs $25 and is sold to course participants for $40. This cost includes a royalty fee paid to the author and the cost of duplication.
Required
k. Calculate the workbook cost in total and per student, assuming that 18, 20, or 22 students attempt to attend the course.
l. Classify the cost of workbooks as fixed or variable relative to the number of students attending the course.
m. Discuss the risk of holding inventory as it applies to the workbooks.
n. Explain how a just in time inventory system can reduce the cost and risk of holding inventory.
Aug 29, 2021 | Uncategorized
Estimating fixed and variable costs using the high low method Conry Ice Cream Company produces various ice cream products for which demand is highly seasonal. The company sells more ice cream in warmer months and less in colder ones. Last year, the high point in production activity occurred in August when Conry produced 50,000 gallons of ice cream at a total cost of $42,000. The low point in production activity occurred in February when the company produced 20,000 gallons of ice cream at a total cost of $33,000.
Required
a. Use the high low method to estimate the amount of fixed cost per month incurred by Conry Ice Cream Company.
b. Determine the total estimated monthly cost when 40,000 gallons of ice cream are produced.
c. What factors could cause the estimate determined in Requirement b to be inaccurate?
d. Explain how regression analysis could be used to improve accuracy. Y our explanation should include a discussion of the R2 statistic as well as the potential impact of multiple regression analysis.
Aug 29, 2021 | Uncategorized
Ethics and pricing. Apex Art has been requested to prepare a bid on 500 pieces of framed artwork for a new hotel. Winning the bid would be a big boost for sales representative Jason Grant, who works entirely on commission. Sonja Gomes, the cost accountant for Apex, prepares the bid based on the following cost information:
?
Based on the company policy of pricing at 125% of full cost, Gomes gives Grant a figure of $151,250 to submit for the job. Grant is very concerned. He tells Gomes that at that price, Apex has no chance of winning the job. He confides in her that he spent $500 of company funds to take the hotel’s purchasing agent to a basketball playoff game where the purchasing agent disclosed that a bid of $145,000 would win the job. He hadn’t planned to tell Gomes because he was confident that the bid she developed would be below that amount. Gomes reasons that the $500 he spent will be wasted if Apex doesn’t capitalize on this valuable information. In any case, the company will still make money if it wins the bid at $145,000 because it is higher than the full cost of $121,000.
Required
1. Is the $500 spent on the basketball tickets relevant to the bid decision? Why or why not?
2. Gomes suggests that if Grant is willing to use cheaper materials for the frame, he can achieve a bid of $145,000. The artwork has already been selected and cannot be changed, so the entire amount of reduction in cost will need to come from framing materials. What is the target cost of framing materials that will allow Grant to submit a bid of $145 assuming a target markup of 25% of full cost?
3. Evaluate whether Gomes’ suggestion to Grant to use the purchasing agent’s tip is unethical. Would it be unethical for Grant to redo the project’s design to arrive at a lower bid? What steps should Grant and Gomes take to resolve thissituation?
Aug 29, 2021 | Uncategorized
Following is a list of various costs incurred in producing toy robotic helicopters. With respect to the production and sale of these toy helicopters, classify each cost as either variable, fixed, or mixed.
1. Oil used in manufacturing equipment
2. Hourly wages of inspectors
3. Electricity costs, $0.20 per kilowatt hour
4. Property insurance premiums, $1,500 per month plus $0.006 for each dollar of property over $2,000,000
5. Janitorial costs, $4,000 per month
6. Pension cost, $0.80 per employee hour on the job
7. Computer chip (purchased from a vendor)
8. Hourly wages of machine operators
9. Straight line depreciation on the production equipment
10. Metal
11. Packaging
12. Rent on warehouse, $10,000 per month plus $10 per square foot of storage used
13. Plastic
14. Property taxes, $100,000 per year on factory building and equipment
15. Salary of plant manager
Aug 29, 2021 | Uncategorized
For the past five years, Garner Company has had a policy of producing to meet customer demand. As a result, finished goods inventory is minimal, and for the most part, units produced equal units sold.
Recently, Garner’s industry entered a recession, and the company is producing well below capacity (and expects to continue doing so for the coming year). The president is willing to accept orders that at least cover their variable costs so that the company can keep its employees and avoid layoffs. Also, any orders above variable costs will increase overall profitability of the company. Toward that end, the president of Garner Company implemented a policy that any special orders will be accepted if they cover the costs that the orders cause.
To help implement the policy, Garner’s controller developed the following cost formulas:
Direct material usage = $94X, R2 = 0.90
Direct labor usage = $16X, R2 = 0.92
Overhead = $350,000 5 $80X, R2 = 0.56
Selling costs = $50,000 5 $7X, R2 = 0.86
where X = direct labor hours
Required:
1. Compute the total unit variable cost. Suppose that Garner has an opportunity to accept an order for 20,000 units at $212 per unit. Each unit uses one direct labor hour for production. Should Garner accept the order? (The order would not displace any of Garner’s regular orders.)
2. (Appendix) Explain the significance of the coefficient of determination measures for the cost formulas. Did these measures have a bearing on your answer in Requirement 1? Should they have a bearing? Why?
3. (Appendix) Suppose that a multiple regression equation is developed for overhead costs: Y = $100,000 + $85X1 + $5,000X2 + $300X3, where X1 = Direct labor hours, X2 = Number of setups, and X3 = Engineering hours. The coefficient of determination for the equation is 0.89. Assume that the order of 20,000 units requires 12 setups and 600 engineering hours. Given this new information, should the company accept the special order referred to in Requirement 1? Is there any other information about cost behavior that you would like to have? Explain.
Aug 29, 2021 | Uncategorized
Garden Marbles manufactures birdbaths, statues, and other decorative items, which it sells to florists and retail home and garden centers. Its design department has proposed a new product, a statue of a frog, that it believes will be popular with home gardeners. Expected variable unit costs are direct materials, $3.05.
The following are fixed costs: depreciation, building, and equipment, $33,000; advertising, $40,000; and other, $6,000. Management plans to sell the product for $29.25.
Required
1. Using the contribution margin approach, compute the number of statues the company must sell to (a) break even and (b) earn a profit of $50,000.
2. Using the same data, compute the number of statues that must be sold to earn a profit of $70,000 if advertising costs rise by $20,000.
3. Using the original data and sales of 15,000 units, compute the selling price the company must charge to make a profit of $100,000.
4. According to the vice president of marketing, Yvonne Palmer, if the price of the statues is reduced and advertising is increased, the most optimistic annual sales estimate is 25,000 units. How much more can be spent on fixed advertising costs if the selling price is reduced to $28.00 per statue, if the variable costs cannot be reduced, and if the targeted profit for sales of 25,000 statues is $120,000?
Aug 29, 2021 | Uncategorized
George Caloz & FrA?res, located in Grenchen, Switzerland, makes prestige high end custom watches in small lots. One of the company’s products, a platinum diving watch, goes through an etching process. The company has observed etching costs (expressed in Swiss Francs. SFr) as follows over the last six weeks:
For planning purposes, management would like to know the amount of variable etching cost per unit and the total fixed etching cost per week.
Required:
1. Using the least squares regression method, estimate the variable and fixed elements of etching cost.
2. Express the cost data in (1) above in the form Y = a + bX.
3. If the company processes five units next week, what would be the expected total etchingcost?
Aug 29, 2021 | Uncategorized
Gordon Company’s controller, Eric Junior, estimated the following formula, based on monthly data, for overhead cost:
Overhead cost = $109,743 + ($80.75 A? Direct labor hours)
Required:
1. Link each term in column A to the corresponding term in column B.
Column A Column B
Overhead cost ………….Variable rate (slope)
$109,743 ………………..Independent variable
$80.75 …………………..Fixed cost (intercept)
Direct labor hours ………Dependent variable
2. If next month’s budgeted direct labor hours equal 5,000, what is the budgeted overhead cost?
3. If next quarter’s budgeted direct labor hours equal 18,000, what is the budgeted overhead cost?
4. If next year’s budgeted machine hours equal 58,000, what is the budgeted overhead cost?
Aug 29, 2021 | Uncategorized
Hand Made Furniture Company manufactures sofas for distribution to several major retail chains. The following costs are incurred in the production and sale of sofas:
a. Wood for framing the sofas
b. Salary of production vice president
c. Rent on experimental equipment, $50 for every sofa produced
d. Rental costs of warehouse, $30,000 per month
e. Insurance premiums on property, plant, and equipment, $25,000 per year plus $25 per $25,000 of insured value over $16,000,00
f. consulting fee of $120,000 paid to efficiency specialist
g. Salesperson’s salary, $80,000 plus 4% of the selling price of each sofa sold
h. Janitorial supplies, $25 for each sofa produced
i. Employer’s FICA taxes on controller’s salary of $180,000
j. Fabric for sofa coverings
k. Hourly wages of sewing machine operators
l. Sewing supplies
m. Salary of designers
n. Foam rubber for cushion fillings
o. Electricity costs of $0,13 per kilowatt hour
p. springs
q. Property taxes on property, plant, and equipment
r. Straight line depreciation on factory equipment
s. Cartons used to ship sofas
t. legal fees paid to attorneys in defense of the company in a patent infringement suit, $25,000 plus $160 per hour
Instructions
Classify the preceding costs as either fixed, variable, or mixed. Use the following tabular heading and place an ?oX?? in the appropriate column. Identify each cost by letter in the cost column.
Cost Fixed Cost Variable Cost Mixed Cost
Aug 29, 2021 | Uncategorized
Hokuriku Seika Co., Ltd., of Yokohama, Japan, is a subcontractor to local manufacturing companies. The company specializes in precision metal cutting using focused high pressure water jets and high energy lasers. The company has a traditional job order costing system in which direct labor and direct materials costs are assigned directly to jobs, but factory overhead is applied to jobs using a predetermined overhead rate based on direct labor hours. Management uses this job cost data for valuing cost of goods sold and inventories for external reports. For internal decision making, management has largely ignored this cost data because direct labor costs are basically fixed and management believes overhead costs actually have little to do with direct labor hours. Recently, management has become interested in activity based costing (ABC) as a way of estimating job costs and other costs for decision making purposes. Management assembled a cross functional team to design a prototype ABC system. Electrical costs were among the first factory overhead costs investigated by the team. Electricity is used to provide light, to power equipment, and to heat the building in the winter and cool it in the summer. The ABC team proposed allocating electrical costs to jobs based on machine hours because running the machines consumes significant amounts of electricity. Data assembled by the team concerning actual direct labor hours, machine hours, and electrical costs over a recent eight week period appear below. (The Japanese currency is the yen, which is denoted by ?Y.)
To help assess the effect of the proposed change to machine hours as the allocation base, the eight week totals were converted to annual figures by multiplying them by six,
Required:
1. Assume that the estimated annual totals from the above table are used to compute the company’s predetermined overhead rate. What would be the predetermined overhead rate for electrical costs if the allocation base is direct labor hours? Machine hours?
2. Hokuriku Seika Co. intends to bid on a job for a shipyard that would require 350 direct labor hours and 270 machine hours. How much electrical cost would be charged to this job using the predetermined overhead rate computed in (t) above if the allocation base is direct labor hours? Machine hours?
3. Prepare a scattergraph in which you plot direct labor hours on the horizontal axis and electrical costs on the vertical axis. Prepare another scattergraph in which you plot machine hours on the horizontal axis and electrical costs on the vertical axis. Do you agree with the ABC team that machine hours is a better allocation base for electrical costs than direct labor hours? Why?
4. Using machine hours as the measure of activity, estimate the fixed and variable components of electrical costs using least squares regression.
5. How much electrical cost do you think would actually be caused by the shipyard job in (2) above? Explain.
6. What factors, apart from direct labor hours and machine hours, are likely to affect consumption of electrical power in thecompany?
Aug 29, 2021 | Uncategorized
House of Organs, Inc., purchases organs from a well known manufacturer and sells them at the retail level. The organs sell, on the average, for $2,500 each. The average cost of an organ from the manufacturer is $1,500. House of Organs, Inc., has always kept careful records of its costs. The costs that the company incurs in a typical month are presented below in the form of a spreadsheet:
Costs Cost Formula
Selling:
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . $950 per month
Delivery of organs . . . . . . . . . . . . . . . . . . . $60 per organ sold
Sales salaries and commissions . . . . . . . . .$4,800 per month, plus 4% of sales
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650 per month
Depreciation of sales facilities . . . . . . . . . . $5,000 per month
Administrative:
Executive salaries . . . . . . . . . . . . . . . . . . . $13,500 per month
Depreciation of office equipment . . . . . . . $900 per month
Clerical . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,500 per month, plus $40 per organ sold
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . $700 per month
During November, the company sold and delivered 60 organs.
Required:
1. Prepare an income statement for November using the traditional format with costs organized by function.
2. Redo (1) above, this time using the contribution format with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.
3. Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis?
Aug 29, 2021 | Uncategorized
Icon Industries is considering a new product for its Trophy Division. The product, which would feature an alligator, is expected to have global market appeal and to become the mascot for many high school and university athletic teams. Expected variable unit costs are as follows: direct materials, $18.50; direct labor, $4.25; production supplies, $1.10; selling costs, $2.80; and other, $1.95. Annual fixed costs are depreciation, building, and equipment, $36,000; advertising, $45,000; and other, $11,400. Icon Industries plans to sell the product for $55.00.
Required
1. Using the contribution margin approach, compute the number of units the company must sell to (a) break even and (b) earn a profit of $70,224.
2. Using the same data, compute the number of units that must be sold to earn a profit of $139,520 if advertising costs rise by $40,000.
3. Using the original information and sales of 10,000 units, computer the selling price the company must use to make a profit of $131,600.
4. According to the vice president of marketing, Albert Flora, the most optimistic annual sales estimate for the product would be 15,000 units, and the highest competitive selling price is $52, if the variable costs cannot be reduced, and if the targeted profit for 15,000 unit sales is $251,000?
Aug 29, 2021 | Uncategorized
Identifying variable costs, committed fixed costs, and discretionary fixed costs
Required:
Classify each of the following costs for a jeans manufacturing company as a variable cost, committed fixed cost, or discretionary fixed cost.
a. The cost of buttons.
b. The cost to lease warehouse space for completed jeans. The lease contract runs for two years at $5,000 per year.
c. The salary of a summer intern.
d. The cost of landscaping and mowing the grass. The contract with a local mowing company runs from month to month.
e. Advertising in a national magazine for teenage girls.
f. Electricity to run the sewing machines.
g. Oil and spare needles for the sewing machines.
h. Quality training for employees—typically given for four hours at a time, every six months.
i. Food and beverages for the company Fourth of July picnic.
j. Natural gas to heat the factory during the winter.
Aug 29, 2021 | Uncategorized
Knox Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During 2011, the high point in activity occurred in June when it produced 200 boats at a total cost of $140,000. The low point in production occurred in January when it produced 40 boats at a total cost of $44,000.
Required
a. Use the high low method to estimate the amount of fixed cost incurred each month by Knox Boat Company.
b. Determine the total estimated cost if 100 boats are made.
c. Comment on the strengths and weaknesses of the high low method.
d. Explain how a visual fit scattergraph could be used to improve accuracy.
Aug 29, 2021 | Uncategorized
Lesley Chomski is the supervisor of the New Product Division of MCO Corporation. Her annual bonus is based on the success of new products and is computed on the number of sales that exceed each new product’s projected breakeven point. In reviewing the computations supporting her most recent bonus, Chomski found that although an order for 7,500 units of a new product called R56 had been refused by a customer and returned to the company, the order had been included in the bonus calculations. She later discovered that the company’s accountant had labeled the return an overhead expense and had charged the entire cost of the returned order to the plant wide Overhead account. The result was that product R56 appeared to exceed breakeven by more than 5,000 units and Chomski’s bonus from this product amounted to over $1,000. What actions should Chomski take? Be prepared to discuss your response in class.
Aug 29, 2021 | Uncategorized
Life cycle product costing. Gadzooks, Inc., develops and manufactures toys that it then sells through infomercials. Currently, the company is designing a toy robot that it intends to begin manufacturing and marketing next year. Because of the rapidly changing nature of the toy industry, Gadzooks management projects that the robot will be produced and sold for only three years. At the end of the product’s life cycle, Gadzooks plans to sell the rights to the robot to an overseas company for $250,000. Cost information concerning the robot follows:
?
For simplicity, ignore the time value of money.
Required
1. Suppose the managers at Gadzooks price the robot at $50 per unit. How many units do they need to sell to break even?
2. The managers at Gadzooks are thinking of two alternative pricing strategies.
a. Sell the robot at $50 each from the outset. At this price they expect to sell 500,000 units over its life cycle.
b. Boost the selling price of the robot in year 2 when it first comes out to $70 per unit. At this price they expect to sell 100,000 units in year 2. In years 3 and 4 drop the price to $40 per unit. The managers expect to sell 300,000 units each year in years 3 and 4. Which pricing strategy would you recommend?Explain.
Aug 29, 2021 | Uncategorized
Life cycle costing. New Life Metal Recycling and Salvage has just been given the opportunity to salvage scrap metal and other materials from an old industrial site. The current owners of the site will sign over the site to New Life at no cost. New Life intends to extract scrap metal at the site for 24 months, and then will clean up the site, return the land to useable condition, and sell it to a developer. Projected costs associated with the project follow:
?
Ignore time value of money.
Required
1. Assuming that New Life expects to salvage 50,000 tons of metal from the site, what is the total project life cycle cost?
2. Suppose New Life can sell the metal for $150 per ton and wants to earn a profit (before taxes) of $40 per ton.
At what price must New Life sell the land at the end of the project to achieve its target profit per ton?
3. Now suppose New Life can only sell the metal for $140 per ton and the land at $100,000 less than what you calculated in requirement 2. If New Life wanted to maintain the same mark up percentage on total project life cycle cost as in requirement 2, by how much would it have to reduce its total project life cyclecost?
Aug 29, 2021 | Uncategorized
Louise McDermott, controller for the Galvin plant of Veromar Inc., wanted to determine the cost behavior of moving materials throughout the plant. She accumulated the following data on the number of moves (from 100 to 800 in increments of 100) and the total cost of moving materials at those levels of moves:
Number of Moves Total Cost ($)
100 ……………………………..3,000
200 ……………………………..4,650
300 ……………………………..3,400
400 ……………………………..8,500
500 ……………………………10,000
600 ……………………………12,600
700 ……………………………13,600
800 ……………………………14,560
Required:
1. Prepare a scattergraph based on these data. Use cost for the vertical axis and number of moves for the horizontal. Based on an examination of the scattergraph, does there appear to be a linear relationship between the total cost of moving materials and the number of moves?
2. Compute the cost formula for moving materials by using the high low method. Calculate the predicted cost for a month with 550 moves by using the high low formula.
3. Compute the cost formula for moving materials using the method of least squares. Using the regression cost formula, what is the predicted cost for a month with 550 moves? What does the coefficient of determination tell you about the cost formula computed by regression?
4. Evaluate the cost formula using the least squares coefficients. Could it be improved? Try dropping the third data point (300, $3,400), and rerun the regression.
Aug 29, 2021 | Uncategorized
Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $2,450 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianos to its customers at an average price of $3,125 each. The selling and administrative costs that the company incurs in a typical month are presented below:
During August, Marwick’s Pianos, Inc., sold and delivered 40 pianos.
Required:
1. Prepare an income statement for Marwick’s Pianos, Inc., for August. Use the traditional format, with costs organized by function.
2. Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.
3. Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a pet unitbasis?
Aug 29, 2021 | Uncategorized
1. A factor that causes or leads to a change in a cost or activity is a (n)
a. Driver.
b. Intercept.
c. Slope.
d. Variable term.
e. Cost object.
2. Which of the following would probably be a variable cost in a soda bottling plant?
a. Direct labor
b. Bottles
c. Carbonated water
d. Power to run the bottling machine
e. All of the above
3. Which of the following would probably be a fixed cost in an automobile insurance company?
a. Application forms
b. Time spent by adjusters to evaluate accidents
c. The salary of customer service representatives
d. All of the above
4. The following cost formula was developed by using monthly data for a hospital.
Total cost = $51,400 + ($125 A? Number of patient days)
The term $51,400
a. Is the variable rate.
b. Is the intercept.
c. Is the dependent variable.
d. Is the independent variable.
e. Cannot be determined from the above formula.
5. The following cost formula was developed using monthly data for a hospital.
Total cost = $51,400 + ($125 A? Number of patient days)
The term $125
a. Is the variable rate.
b. Is the intercept.
c. Is the dependent variable.
d. Is the independent variable.
e. Cannot be determined from the above formula.
6. The following cost formula was developed using monthly data for a hospital.
Total cost = $51,400 + ($125 A? Number of patient days)
The term ?~?~Number of patient days’’
a. Is the variable rate.
b. Is the intercept.
c. Is the dependent variable.
d. Is the independent variable.
e. Cannot be determined from the above formula.
7. The following cost formula was developed using monthly data for a hospital.
Total cost = $51,400 + ($125 A? Number of patient days)
The term ?~?~Total cost’’
a. Is the variable rate.
b. Is the intercept.
c. Is the dependent variable.
d. Is the independent variable.
e. Cannot be determined from the above formula.
Aug 29, 2021 | Uncategorized
A local movie theater owner explains to you that ticket sales on weekends and evenings are strong, but attendance during the weekdays, Monday through Thursday, is poor. The owner proposes to offer a contract to the local grade school to show educational materials at the theater for a set charge per student during school hours. The owner asks your help to prepare a CVP analysis listing the cost and sales projections for the proposal. The owner must propose to the school’s administration a charge per child. At a minimum, the charge per child needs to be sufficient for the theater to break even.
Required
Your team is to prepare two separate lists of questions that enable you to complete a reliable CVP analysis of this situation. One list is to be answered by the school’s administration, the other by the owner of the movie theater.
Aug 29, 2021 | Uncategorized
A number of graphs displaying cost behavior patterns are shown below. The vertical axis on each graph represents total cost, and the horizontal axis represents level of activity (volume).
Required:
1. For each of the following situations, identify the graph below that illustrates the cost behavior pattern involved. Any graph may be used more than once.
a. Cost of raw materials used.
b. Electricity bill—a flat fixed charge, plus a variable cost after a certain number of kilowatt hours are used.
c. City water bill, which is computed as follows:
d. Depreciation of equipment, where the amount is computed by the straight line method. When the depreciation rate was established, it was anticipated that the obsolescence factor would be greater than the wear and tear factor.
e. Rent on a factory building donated by the city, where the agreement calls for a fixed fee payment unless 200,000 labor hours or more are worked, in which case no rent need be paid.
f Salaries of maintenance workers, where one maintenance worker is needed for every 1,000 hours of machine hours or less (that is, 0 to 1,000 hours requires one maintenance worker, 1.001 to 2,000 hours requires two maintenance workers, etc.).
g. Cost of raw materials, where the cost starts at $7.50 per unit and then decreases by 5 cents per unit for each of the first 100 units purchased, after which it remains constant at $2.50 per unit.
h. Rent on a factory building donated by the county, where the agreement calls for rent of $100,000 less $1 for each direct labor hour worked in excess of 200,000 hours, but a minimum rental payment of $20,000 must be paid.
i. Use of a machine under a lease, where a minimum charge of $1,000 is paid for up to 400 hours of machine time. After 400 hours of machine time, an additional charge of $2 per hour is paid up to a maximum charge of $2,000 per period.
How would a knowledge of cost behavior patterns such as those above be of help to a manager in analyzing the cost structure of his or hercompany?
Aug 29, 2021 | Uncategorized
About eight years ago, Kicker faced the problem of rapidly increasing costs associated with workplace accidents. The costs included the following:
State unemployment insurance premiums ………………….$100,000
Average cost per injury ………………….……………………$1,500
Number of injuries per year ………………….……………………15
Number of serious injuries ………………….………………………4
Number of workdays lost ………………….………………………30
A safety program was implemented with the following features: hiring a safety director, new employee orientation, stretching required four times a day, and systematic monitoring of adherence to the program by directors and supervisors. A year later, the indicators were as follows:
State unemployment insurance premiums …………………………$50,000
Average cost per injury …………………………………………………$50
Number of injuries per year ……………………………………………..10
Number of serious injuries ……………………………………………….0
Number of workdays lost …………………………………………………0
Safety director’s starting salary ………………………………………$60,000
Required:
1. Discuss the safety related costs listed. Are they variable or fixed with respect to speakers sold? With respect to other independent variables (describe)?
2. Did the safety program pay for itself? Discuss your reasoning.
Aug 29, 2021 | Uncategorized
Abrams Company manufactures miniature speakers that are built into the headrests of high end lounge chairs. Based on past experience, Abrams has found that its total annual overhead costs can be represented by the following formula: Overhead cost = $350,000 + $2.20X, where X = number of speakers. Last year, Abrams produced 70,000 speakers. Actual overhead costs for the year were as expected.
Required:
1. What is the driver for the overhead activity?
2. What is the total overhead cost incurred by Abrams last year?
3. What is the total fixed overhead cost incurred by Abrams last year?
4. What is the total variable overhead cost incurred by Abrams last year?
5. What is the overhead cost per unit produced?
6. What is the fixed overhead cost per unit?
7. What is the variable overhead cost per unit?
8. Recalculate Requirements 5, 6, and 7 for the following levels of production:
(a) 50,000 units and
(b) 100,000 units. Explain this outcome.
Aug 29, 2021 | Uncategorized
Airline pricing, considerations other than cost in pricing. Air Eagle is about to introduce a daily round trip flight from New York to Los Angeles and is determining how it should price its round trip tickets. The market research group at Air Eagle segments the market into business and pleasure travelers. It provides the following information on the effects of two different prices on the number of seats expected to be sold and the variable cost per ticket, including the commission paid to travel agents:
?
Pleasure travelers start their travel during one week, spend at least one weekend at their destination, and return the following week or thereafter. Business travelers usually start and complete their travel within the same work week. They do not stay over weekends. Assume that round trip fuel costs are fixed costs of $24,000 and that fixed costs allocated to the roundtrip flight for airplane lease costs, ground services, and flight crew salaries total $188,000.
Required
1. If you could charge different prices to business travelers and pleasure travelers, would you? Show your computations.
2. Explain the key factor (or factors) for your answer in requirement 1.
3. How might Air Eagle implement price discrimination? That is, what plan could the airline formulate so that business travelers and pleasure travelers each pay the price desired by theairline?
Aug 29, 2021 | Uncategorized
Alisha Incorporated manufactures medical stints for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance cost = $310,000 + $18.50X, where X = Number of heart stints. Last year, Alisha produced 150,000 stints. Actual maintenance costs for the year were as expected. Round all answers to two decimal places.
Required:
1. What is the total maintenance cost incurred by Alisha last year?
2. What is the total fixed maintenance cost incurred by Alisha last year?
3. What is the total variable maintenance cost incurred by Alisha last year?
4. What is the maintenance cost per unit produced?
5. What is the fixed maintenance cost per unit?
6. What is the variable maintenance cost per unit?
Aug 29, 2021 | Uncategorized
Angora Wraps of Pendleton, Oregon, makes fine sweaters out of pure angora wool. The business is seasonal, with the largest demand during the fall, the winter, and Christmas holidays. The company must increase production each summer to meet estimated demand. The company has been analyzing its costs to determine which costs are fixed and variable for planning purposes. Below are data for the company’s activity and direct labor costs over the last year.
The number of workdays varies from month to month due to the number of weekdays, holidays, and days of vacation in the month. The paid days include paid vacations (in July) and paid holidays (in November and December). The number of units produced in a month varies depending on demand and the number of workdays in the month. The company has eight workers who are classified as direct labor.
Required:
1. Plot the direct labor cost and units produced on a scattergraph. (Place cost on the vertical axis and units produced on the horizontal axis.)
2. Plot the direct labor cost and number of paid days on a scattergraph. (Place cost on the vertical axis and the number of paid days on the horizontal axis.)
3. Which measure of activity—number of units produced or paid days—should be used as the activity base for explaining direct labor cost?Explain
Aug 29, 2021 | Uncategorized
As noted in C 3 4, Datura, Ltd., sold 15,000 sets of pottery in 2010. For the next year, 2011, Datura’s strategic planning team targeted sales of 15,000 sets of pottery, reduced the selling price to €890 per set, increased sales commissions to 12 percent of the selling price, and decreased fixed distribution costs by 10 percent and variable distribution costs by 4 percent. It was assumed that all other costs would stay the same.
Based on an analysis of these changes, Sophia Callas, Datura’s president, is concerned that the proposed strategic plan will not meet her goal of increasing Datura’s operating income by 10 percent over last year’s income and that the operating income will be less than last year’s income. She has come to you for spreadsheet analysis of the proposed strategic plan and for analysis of a special order she just received from an Australian distributor for 4,500 sets of pottery. The order’s selling price, variable purchases cost per unit, sales commission, and total fixed costs will be the same as for the rest of the business, but the variable distribution costs will be €160 per unit.
Using an Excel spreadsheet, complete the following tasks:
1. Calculate the targeted operating income for 2011 using just the proposed strategic plan.
2. Prepare a budgeted contribution margin income statement for 2011 based on just the strategic plan. Do you agree with Datura’s president that the company’s projected operating income for 2010? Explain your answer.
3. Calculate the total contribution margin from the Australian sales.
4. Prepare a revised budgeted contribution margin income statement for 2011 that includes the Australian order.
5. Does Datura need the Australian sales to achieve its targeted operating income for 2011?
Aug 29, 2021 | Uncategorized
At the beginning of each year, the Accounting Department at Moon Glow Lighting, Ltd., must find the point at which projected sales revenue will equal total budgeted variable and fixed costs. The company produces custom made, low voltage outdoor lighting systems. Each system sells for an average of $435. Variable costs per unit are $210. Total fixed costs for the year are estimated to be $166,500.
Required
1. Compute the breakeven point in sales units.
2. Compute the breakeven point in sales dollars.
3. Find the new breakeven point in sales units if the fixed costs go up by $10,125.
4. Using the original figures, compute the breakeven point in sales units if the selling price decreases to $425 per unit, fixed costs go up by $ 15,200, and variable costs decrease by $15 per unit.
Aug 29, 2021 | Uncategorized
B&B Company reports the following items:
Direct materials per unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.25
Direct labor per unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.25
Variable overhead per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.80
Monthly rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200.00
Monthly depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741.00
Other monthly fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400.00
Sales price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.75
Using the above information, compute the company’s monthly break even point (in units).
Aug 29, 2021 | Uncategorized
Ben Palman owns an art gallery. He accepts paintings and sculpture on consignment and then receives 20 percent of the price of each piece as his fee. Space is limited, and there are costs involved, so Ben is careful about accepting artists. When he does accept one, he arranges for an opening show (usually for three hours on a weekend night) and sends out invitations to his customer list. At the opening, he serves wine, soft drinks, and appetizers to create a comfortable environment for prospective customers to view the new works and to chat with the artist. On average, each opening costs $500. Ben has given as many as 20 opening shows in a year. The total cost of running the gallery, including rent, furniture and fixtures, utilities, and a part time assistant, amounts to $80,000 per year.
Required:
1. Prepare a graph that illustrates the relationship between the cost of giving opening shows and the number of opening shows given. (Let opening show cost be the vertical axis and number of opening shows given the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a mixed cost?
2. Prepare a graph that illustrates the relationship between the cost of running the gallery and the number of opening shows given. (Let gallery cost be the vertical axis and number of opening shows given the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a mixed cost?
3. Prepare a graph that illustrates the relationship between Ben’s total costs (the sum of the costs of giving opening shows and running the gallery) and the number of opening shows given. (Let total cost be the vertical axis and number of opening shows given the horizontal axis.) Would you classify this cost as a strictly variable cost, a fixed cost, or a mixed cost?
Aug 29, 2021 | Uncategorized
Big Thumbs Company manufactures portable flash drives for computers. Big Thumbs incurs monthly depreciation costs of $15,000 on its plant equipment and monthly advertising costs of $3,000 to place advertisements in magazines. Also, each drive requires materials and manufacturing overhead resources. On average, the company uses 10,000 ounces of materials to manufacture 5,000 flash drives per month. Each ounce of material costs $3.00. In addition, manufacturing overhead resources are driven by machine hours. On average, the company incurs $22,500 of manufacturing overhead resources to produce 5,000 flash drives per month.
Required:
1. Create a formula for the monthly cost of flash drives for Big Thumbs.
2. If the department expects to manufacture 6,000 flash drives next month, what is the expected fixed cost (assume that 6,000 units is within the company’s current relevant range)? Total variable cost? Total manufacturing cost (i.e., both fixed and variable)?
Aug 29, 2021 | Uncategorized
Bill Lewis, manager of the Thomas Electronics Division, called a meeting with his controller, Brindon Peterson, and his marketing manager, Patty Fritz. The following is a transcript of the conversation that took place during the meeting:
Bill: Brindon, the variable costing system that you developed has proved to be a big plus for our division. Our success in winning bids has increased, and as a result our revenues have increased by 25 percent. However, if we intend to meet this year’s profit targets, we are going to need something extra—am I not right, Patty?
Patty: Absolutely. While we have been able to win more bids, we still are losing too many, particularly to our major competitor, Kilborn Electronics. If we knew more about their bidding strategy, we could be more successful at competing with them.
Brindon: Would knowing their variable costs help?
Patty: Certainly. It would give me their minimum price. With that knowledge, I’m sure that we could find a way to beat them on several jobs, particularly on those jobs where we are at least as efficient. It would also help us to identify where we are not cost competitive. With this information, we might be able to find ways to increase our efficiency.
Brindon: Well, I have good news. I’ve been talking with Carl Penobscot, Kilborn’s assistant controller. Carl doesn’t feel appreciated by Kilborn and wants to make a change. He could easily fit into our team here. Plus, Carl has been preparing for a job switch by quietly copying Kilborn’s accounting files and records. He’s already given me some data that reveal bids that Kilborn made on several jobs. If we can come to a satisfactory agreement with Carl, he’ll bring the rest of the information with him. We’ll easily be able to figure out Kilborn’s prospective bids and find ways to beat them. Besides, I could use another accountant on my staff. Bill, would you authorize my immediate hiring of Carl with a favorable compensation package?
Bill: I know that you need more staff, Brindon, but is this the right thing to do?
It sounds like Carl is stealing those files, and surely Kilborn considers this information confidential. I have real ethical and legal concerns about this. Why don’t we meet with Laurie, our attorney, and determine any legal problems?
Required:
1. Is Carl’s behavior ethical? What would Kilborn think?
2. Is Bill correct in supposing that there are ethical and/or legal problems involved with the hiring of Carl? (Reread the section on corporate codes of conduct in Chapter 1.) What would you do if you were Bill? Explain.
Aug 29, 2021 | Uncategorized
Carlia Weaver has decided to start Carlia Cleaning, a residential housecleaning service company. She is able to rent cleaning equipment at a cost of $750 per month. Labor costs are expected to be $75 per house cleaned and supplies are expected to cost $6 per house.
Required
a. Determine the total expected cost of equipment rental and the average expected cost of equipment rental per house cleaned, assuming that Carlia Cleaning cleans 10, 20, or 30 houses during one month. Is the cost of equipment a fixed or a variable cost?
b. Determine the total expected cost of labor and the average expected cost of labor per house cleaned, assuming that Carlia Cleaning cleans 10, 20, or 30 houses during one month. Is the cost of labor a fixed or a variable cost?
c. Determine the total expected cost of supplies and the average expected cost of supplies per house cleaned, assuming that Carlia Cleaning cleans 10, 20, or 30 houses during one month. Is the cost of supplies a fixed or a variable cost?
d. Determine the total expected cost of cleaning houses, assuming that Carlia Cleaning cleans 10, 20, or 30 houses during one month.
e. Determine the average expected cost per house, assuming that Carlia Cleaning cleans 10, 20, or 30 houses during one month. Why does the cost per unit decrease as the number of houses increases?
f. If Ms. Weaver tells you that she prices her services at 25 percent above cost, would you assume that she means average or actual cost? Why?
Aug 29, 2021 | Uncategorized
Consider each of the following independent situations:
a. A computer service agreement in which a company pays $150 per month and $15 per hour of technical time.
b. Fuel cost of the company’s fleet of motor vehicles.
c. The cost of beer for a bar.
d. The cost of computer of computer printers and copiers in your college.
e. Rent for a dental office.
f. The salary of a receptionist in a law firm.
g. The wages of counter help in a fast food restaurant.
h. The salaries of dental hygienists in a three dentist office. One hygienist can take care of 120 cleanings per month.
i. Electricity cost, which includes a $15 per month billing charge and an additional amount depending on the number of kilowatt hours used.
Required:
1. For each situation, describe the cost as one of the following: fixed cost, variable cost, mixed cost, or step cost.
Example: Raw materials used in production—Variable cost
2. Change your assumption(s) for each situation so that the cost type changes to a different cost type. List the new cost type and the changed assumption(s) that gave rise to it.
Example: Raw materials used in production. Changed assumption—the materials are difficult to obtain, and a year’s worth must be contracted for in advance. Now, this is a fixed cost. (This is the case with diamond sales by DeBeers Inc. to its sightholders. See the following website for information: http://www.keyguide .net/sightholders/.)
Aug 29, 2021 | Uncategorized
Cost plus and market based pricing. Florida Temps, a large labor contractor, supplies contract labor to building construction companies. For 2012, Florida Temps has budgeted to supply 84,000 hours of contract labor. Its variable costs are $13 per hour, and its fixed costs are $168,000. Roger Mason, the general manager, has proposed a cost plus approach for pricing labor at full cost plus 20%.
Required
1. Calculate the price per hour that Florida Temps should charge based on Mason’s proposal.
2. The marketing manager supplies the following information on demand levels at different prices:
Price per Hour Demand (Hours)
$16……………………..124,000
17………………………104,000
18………………………..84,000
19………………………..74,000
20……………………….61,000
Florida Temps can meet any of these demand levels. Fixed costs will remain unchanged for all the demand levels. On the basis of this additional information, calculate the price per hour that Florida
Temps should charge to maximize operating income.
3. Comment on your answers to requirements 1 and 2. Why are they the same or different?
Aug 29, 2021 | Uncategorized
Cost plus target return on investment pricing. John Blodgett is the managing partner of a business that has just finished building a 60 room motel. Blodgett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room nights). All rooms are similar and will rent for the same price. Blodgett estimates the following operating costs for next year:
Variable operating costs…………………………….$5 per room night
Fixed costs
Salaries and wages……………………………………………$173,000
Maintenance of building and pool………………………………52,000
Other operating and administration costs………………………150,000
Total fixed costs………………………………………………$375,000
The capital invested in the motel is $900,000. The partnership’s target return on investment is 25%. Blodgett expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. For simplicity, ignore the time value of money.
Required
1. What price should Blodgett charge for a room night? What is the markup as a percentage of the full cost of a room night?
2. Blodgett’s market research indicates that if the price of a room night determined in requirement 1 is reduced by 10%, the expected number of room nights Blodgett could rent would increase by 10%.
Should Blodgett reduce prices by 10%? Show your calculations.
Aug 29, 2021 | Uncategorized
Cost plus, target pricing, working backward. Road Warrior manufactures and sells a model of motorcycle, XR500. In 2011, it reported the following:
Units produced and sold…………………..1,500
Investment…………………………..$8,400,000
Markup percentage on full cost……………..9%
Rate of return on investment………………18%
Variable cost per unit……………………$8,450
Required
1. What was Road Warrior’s operating income on XR500 in 2011? What was the full cost per unit? What was the selling price? What was the percentage markup on variable cost?
2. Road Warrior is considering increasing the annual spending on advertising for the XR500 by $500,000.
The company believes that the investment will translate into a 10% increase in unit sales. Should the investment be made? Show your calculations.
3. Refer back to the original data. In 2012, Road Warrior believes that it will only be able to sell 1,400 units at the price calculated in requirement 1. Management has identified $125,000 in fixed cost that can be eliminated. If Road Warrior wants to maintain a 9% markup on full cost, what is the target variable cost per unit?
Aug 29, 2021 | Uncategorized
Cost plus, target pricing, working backward. The new CEO of Radco Manufacturing has asked for a variety of information about the operations of the firm from last year. The CEO is given the following information, but with some data missing:
Total sales revenue………………………………..?
Number of units produced and sold……………..500,000 units
Selling price………………………………………?
Operating income………………………………$195,000
Total investment in assets……………………$2,000,000
Variable cost per unit………………………………$3.75
Fixed costs for the year………………………$3,000,000
Required
1. Find (a) total sales revenue, (b) selling price, (c) rate of return on investment, and (d) markup percent age on full cost for this product.
2. The new CEO has a plan to reduce fixed costs by $200,000 and variable costs by $0.60 per unit while continuing to produce and sell 500,000 units. Using the same markup percentage as in requirement 1, calculate the new selling price.
3. Assume the CEO institutes the changes in requirement 2 including the new selling price. However, the reduction in variable cost has resulted in lower product quality resulting in 10% fewer units being sold compared to before the change. Calculate operating income (loss).
Aug 29, 2021 | Uncategorized
The following events took place for Air Temp Manufacturing Company during January, the first month of its operations as a producer of digital thermometers:
a. Purchased $68,000 of materials.
b. Used $48,000 of direct materials in production.
c. Incurred $92,000 of direct labor wages.
d. Incurred $108,000 of factory overhead.
e. Transferred $217,000 of work in process to finished goods.
f. Sold goods with a cost of $170,000.
g. Earned revenues of $325,000.
h. Incurred $80,000 of selling expense.
i. Incurred $39,000 of administrative expense.
Using the above information, complete the following:
a. Prepare the January income statement for Air Temp Manufacturing Company.
b. Determine the inventory balances at the end of the first month of operations.
Aug 29, 2021 | Uncategorized
The following report was prepared for evaluating the performance of the plant manager of Second Hand Inc. Evaluate and correct this report.
Second Hand Inc.
Manufacturing Costs
For the Quarter Ended March 31, 2010
Materials used in production (including
$50,000 of indirect materials) . . . . . . . . . . . . . . . . . . . . . .$ 540,000
Direct labor (including $75,000 maintenance salaries) . . . 500,000
Factory overhead:
Supervisor salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 460,000
Heat, light, and power . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Sales salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,000
Promotional expenses . . . . . . . . . . . . . . . . . . . . . . . . 280,000
Insurance and property taxes—plant . . . . . . . . . . . . . 135,000
Insurance and property taxes—corporate offices . . . . 195,000
Depreciation—plant and equipment . . . . . . . . . . . . . . 110,000
Depreciation—corporate offices . . . . . . . . . . . . . . . . . 80,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,735,000
Aug 29, 2021 | Uncategorized
The Institute of Management Accountants’ Statement of Ethical Professional Practice (Exhibit 16 3) requires managerial accountants to meet standards regarding the following:
?c Competence
?c Confidentiality
?c Integrity
?c Credibility
Requirement
1. Consider the following situations. Which guidelines are violated in each situation?
(a) You tell your brother that your company will report earnings significantly above financial analysts’ estimates.
(b) You see that others take home office supplies for personal use. As an intern, you do the same thing, assuming that this is a ?operk.??
(c) At a conference on e commerce, you skip the afternoon session and go sightseeing.
(d) You failed to read the detailed specifications of a new general ledger package that you asked your company to purchase. After it is installed, you are surprised that it is incompatible with some of your company’s older accounting software.
(e) You do not provide top management with the detailed job descriptions they requested because you fear they may use this information to cut a position from your department.
Aug 29, 2021 | Uncategorized
The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company.
Required:
For each not, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, marketing and selling, or an administrative cost.
1. The cost of a hard drive installed in a computer.
2. The cost of advertising in the Puget Sound Computer User newspaper.
3. The wages of employees who assemble computers from components.
4. Sales commissions paid to the company’s sales people.
5. The wages of the assembly shops supervisor.
6. The wages of the company’s accountant.
7. Depreciation on equipment used to test assembled computers before release to customers.
8. Rent on the facility in the industrial park.
Aug 29, 2021 | Uncategorized
The questions in this exercise are based on one of the fastest growing food retailers in the United States—Whole Foods Market, Inc. To answer the questions, you will need to download Whole Foods Market’s 2004 Annual Report and 10 K/A at www.wholefoodsmarket.com/investor/annualreportsl. In addition, you’ll need to download the company’s mission statement (which it refers to as a Declaration of Interdependence) at www.wholefoodsmarket.com/company/declarationl and its code of conduct and ethics at www.wholefoodsmarket.com/investor/codeofconduct.pdf. You do not need to print these documents in order to answer the questions.
Required:
1. What is Whole Foods Market’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion?
2. What business risks does Whole Foods Market face that may threaten its ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks?
3. Create an excerpt of an organization chart for Whole Foods Market. Do not try to create an organization chart for the entire company—it would be overwhelming! Pick a portion of the company and depict how the company organizes itself. Mention by name three employees that occupy line positions and three employees that occupy staff positions.
4. Compare and contrast Whole Foods Market’s mission statement with the Johnson & Johnson Credo shown on page 24.
5. Compare and contrast Whole Foods Market’s mission statement and its code of conduct and ethics.
6. Is Whole Foods Market’s Annual Report and 10 K/A primarily a financial accounting document or a managerial accounting document? What evidence supports your conclusion?
Aug 29, 2021 | Uncategorized
1. Based on the information provided in the chapter, describe the basic features of German accounting at the time Volkswagen adopted IAS. What developmental factors cause these features?
2. What differences between the accounting requirements in the HGB and IAS are highlighted in Volkswagen’s disclosure? Are the German requirements consistent with your characterizations in requirement 1?
3. What is the relevance of Volkswagen’s adoption of IAS to the classifications studied in this chapter?
MINI CASE
The Volkswagen Group adopted International Accounting Standards (IAS, now International Financial Reporting, or IFRS) for its 2001 fiscal year. The following is taken from Volkswagen’s 2001 annual report. It discusses major differences between the German Commercial Code (HGB) and IAS as they apply to Volkswagen.
General
In 2001 VOLKSWAGEN AG has for the first time published its consolidated financial statements in accordance with International Accounting Standards (IAS) and the interpretations of the Standing Interpretations Committee (SIC). All mandatory International Accounting Standards applicable to the financial year 2001 were complied with. The previous year’s figures are also based on those standards. IAS 12 (revised 2000) and IAS 39, in particular, were already complied with in the year 2000 consolidated financial statements. The financial statements thus give a true and fair view of the net assets, financial position and earning performance of the Volkswagen Group. The consolidated financial statements were drawn up in Euros. Unless otherwise stated, all amounts are quoted in millions of Euros (million). The income statement was produced in accordance with the internationally accepted cost of sales method. |
Aug 29, 2021 | Uncategorized
The Windshield People repair chips in car windshields in the company’s home county. Rocky Chip, the owner, incurred the following operating costs for the month of February 2012:
Salaries and wages . . . . . . . . . . . . . . . . . . . . . $ 9,000
Windshield repair materials . . . . . . . . . . . . . . 4,900
Depreciation on truck . . . . . . . . . . . . . . . . . . 250
Depreciation on building and equipment . . . . 800
Supplies expense . . . . . . . . . . . . . . . . . . . . . . . 600
Gasoline and utilities . . . . . . . . . . . . . . . . . . . 2,130
The Windshield People earned $26,000 in revenues for the month of February by repairing 500 windshields. All costs shown are considered to be directly related to the repair service.
Requirements
1. Prepare an income statement for the month of February. Compute the ratio of total operating expense to total revenue and operating income to total revenue.
2. Compute the per unit cost of repairing one windshield.
3. The manager of The Windshield People must keep unit operating cost below $50 per windshield in order to get his bonus. Did he meet the goal?
4. What kind of system could The Windshield People use to integrate all itsdata?
Aug 29, 2021 | Uncategorized
Total Glass Company repairs chips in car windshields in the company’s home county. Gary White, the owner, incurred the following operating costs for the month of July 2012:
Salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . $ 11,000
Windshield repair materials . . . . . . . . . . . . . . . . . . . 4,800
Depreciation on truck . . . . . . . . . . . . . . . . . . . . . . . . . 550
Depreciation on building and equipment . . . . . . . . . 1,200
Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Gasoline and utilities . . . . . . . . . . . . . . . . . . . . . . . . 2,620
Total Glass Company earned $23,000 in revenues for the month of July by repairing 200 windshields. All costs shown are considered to be directly related to the repair service.
Requirements
1. Prepare an income statement for the month of July. Compute the ratio of total operating expense to total revenue and operating income to total revenue.
2. Compute the per unit cost of repairing one windshield.
3. The manager of Total Glass Company must keep unit operating cost below $70 per windshield in order to get his bonus. Did he meet the goal?
4. What kind of system could Total Glass Company use to integrate all its data?
Aug 29, 2021 | Uncategorized
Tubb Pet Supplies purchases its inventory from a variety of suppliers, some of which require a six week lead time before delivery. To ensure that she has a sufficient supply of goods on hand, Ms. Gibson, the owner, must maintain a large supply of inventory. The cost of this inventory averages $42,000. She usually finances the purchase of inventory and pays a 9 percent annual finance charge. Ms. Gibson’s accountant has suggested that she establish a relationship with a single large distributor who can satisfy all of her orders within a two week time period. Given this quick turnaround time, she will be able to reduce her average inventory balance to $8,000. Ms. Gibson also believes that she could save $8,000 per year by reducing phone bills, insurance, and warehouse rental space costs associated with ordering and maintaining the larger level of inventory.
Required
a. Is the new inventory system available to Ms. Gibson a pure or approximate just in time system?
b. Based on the information provided, how much of Ms. Gibson’s inventory holding cost could be eliminated by taking the accountant’s advice?
Aug 29, 2021 | Uncategorized
Various cost and sales data for Meriwell Company for the just completed year appear in the worksheet below:
Finished goods inventory, beginning ? $20,000
??Finished goods inventory, ending? $40,000??
Depreciation, factory? $27,000
??Administrative expenses?$110,000
??Utilities, factory? $8,000??
Maintenance, factory ? $40,000??
Supplies, factory? $11,000
??Insurance, factory? $4,000
??Purchases of raw materials ?$125,000
??Raw materials inventory, beginning? $9,000??
Raw materials inventory, ending? $6,000
??Direct labor? $70,000
??Indirect labor? $15,000
??Work in process inventory, beginning ? $17,000
?? Work in process inventory, ending? $30,000??
Sales?$500,000??Selling expenses? $80,000??
1. Prepare a schedule of cost of goods manufactured.
2. Prepare an income statement.
3. Assume that the company produced the equivalent of 10,000 units of product the year juts completed. What was the average cost per nit for direct materials? What was the average cost per unit for factory depreciation?
4. Assume that the company expects to produce 15,000 units of product during the coming year. What average cost per unit and what total cost would you expect the company to incur for direct materials at this level of activity for factory depreciation? (In preparing you answer, assume that direct materials are a variable cost and that depreciation is a fixed cost; also assume that deprecation is computed on a straight line basis).
5. As the manger responsible for production costs, explain to the president any difference in the average costs per unit between (3) and (4) above.
Aug 29, 2021 | Uncategorized
Various costs associated with manufacturing operations are given below:
1. Plastic washers used to assemble autos.
2. Production superintendent’s salary.
3. Wages of workers who assemble a product.
4. Electricity to run production equipment.
5. Janitorial salaries.
6. Clay used to make bricks.
7. Rent on a factory building.
8. Wood used to make skis.
9. Screws used to make furniture.
10. A supervisor’s salary.
11. Cloth used to make shirts.
12. Depreciation of cafeteria equipment.
13. Glue used to make textbooks.
14. Lubricants for production equipment.
15. Paper used to make textbooks.
?
.:.
Required:
Classify each cost as being either variable or fixed with respect to the number of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost or an indirect cost with respect to units of product. Prepare your answer sheet as shown below:
Aug 29, 2021 | Uncategorized
Visic Corporation, a manufacturing company, produces a single product. The following information has been taken from the companys production, sales, and cost records for the just completed year.
?
The finished goods inventory is being carried at the average unit production cost for the year. The selling price of the product is $50 per unit.
?
Required:
1. Prepare a schedule of cost of goods manufactured for the year.
2. Compute the following.
a. The number of units in the finished goods in inventory at the end of the year.
b. The cost of the units in the finished goods in inventory at the end of the year.
3. Prepare an income statement for the year.
Aug 29, 2021 | Uncategorized
W. W. Phillips Company produced 4,000 leather recliners during the year. These recliners sell for $400 each. Phillips had 500 recliners in finished goods inventory at the beginning of the year. At the end of the year, there were 700 recliners in finished goods inventory. Phillips’ accounting records provide the following information:
Purchases of raw materials ………………………………….$320,000
Beginning materials inventory …………………………………46,800
Ending materials inventory ……………………………………66,800
Direct labor …………………………………………………..200,000
Indirect labor ………………………………………………….40,000
Rent, factory building …………………………………………42,000
Depreciation, factory equipment ………………………………60,000
Utilities, factory ……………………………………………….11,900
Salary, sales supervisor ………………………………………..90,000
Commissions, salespersons …………………………………..180,000
General administration ……………………………………….300,000
Beginning work in process inventory …………………………13,040
Ending work in process inventory …………………………….14,940
Beginning finished goods inventory …………………………..80,000
Ending finished goods inventory …………………………….114,100
Required:
1. Prepare a statement of cost of goods manufactured.
2. Compute the average cost of producing one unit of product in the year.
3. Prepare an income statement for external users.
Aug 29, 2021 | Uncategorized
Waterways Corporation is a private corporation formed for the purpose of providing the products and the services needed to irrigate farms, parks, commercial projects, and private lawns. It has a centrally located factory in a U.S. city that manufactures the products it markets to retail outlets across the nation. It also maintains a division that provides installation and warranty servicing in six metropolitan areas.
The mission of Waterways is to manufacture quality parts that can be used for effective irrigation projects that also conserve water. By that effort, the company hopes to satisfy its customers, provide rapid and responsible service, and serve the community and the employees who represent them in each community.
The company has been growing rapidly, so management is considering new ideas to help the company continue its growth and maintain the high quality of its products.
Waterways were founded by Will Winkman, who is the company president and chief executive officer (CEO). Working with him from the company’s inception was Will’s brother, Ben, whose sprinkler designs and ideas about the installation of proper systems have been a major basis of the company’s success. Ben is the vice president who oversees all aspects of design and production in the company.
The factory itself is managed by Todd Senter who hires his line managers to supervise the factory employees. The factory makes all of the parts for the irrigation systems. The purchasing department is managed by Hector Hines.
The installation and training division is overseen by vice president Henry Writer, who supervises the managers of the six local installation operations. Each of these local managers hires his or her own local service people. These service employees are trained by the home office under Henry Writer’s direction because of the uniqueness of the company’s products.
There is a small human resources department under the direction of Sally Fenton, a vice president who handles the employee paperwork, though hiring is actually performed by the separate departments. Sam Totter is the vice president who heads the sales and marketing area; he oversees 10 well trained salespeople.
The accounting and finance division of the company is headed by Abe Headman, who is the chief financial officer (CFO) and a company vice president; he is a member of the Institute of Management Accountants and holds a certificate in management accounting. He has a small staff of Certified Public Accountants, including a controller and a treasurer, and a staff of accounting input operators who maintain the financial records.
A partial list of Waterways’ accounts and their balances for the month of November follows.
Accounts Receivable …………………….. $290,000
Advertising Expenses ……………………… 54,000
Cash ………………………………………. 260,000
Depreciation—Factory Equipment ………… 16,800
Depreciation—Office Equipment ………….. 2,400
Direct Labor ……………………………….. 22,000
Factory Supplies Used …………………….. 16,000
Factory Utilities ……………………………. 10,200
Finished Goods Inventory, November 30 …. 68,800
Finished Goods Inventory, October 31 ……. 72,550
Indirect Labor ……………………………… 48,000
Office Supplies Expense ……………………. 1,600
Other Administrative Expenses ……………. 72,000
Prepaid Expenses ………………………….. 42,150
Raw Materials Inventory, November 30 …… 52,700
Raw Materials Inventory, October 31 ……… 38,000
Raw Materials Purchases ………………….. 184,500
Rent—Factory Equipment …………………. 47,000
Repairs—Factory Equipment ……………….. 4,500
Salaries Expense (administrative) ………….. 325,000
Sales ……………………………..……… 1,350,000
Sales Commissions ………………………… 40,500
Work in Process Inventory, October 31 ……. 52,900
Work in Process Inventory, November 30 ….. 42,000
Instructions
(a) Based on the information given, construct an organizational chart of Waterways Corporation.
(b) A list of accounts and their values are given above. From this information, prepare a cost of goods manufactured schedule, an income statement, and a partial balance sheet for Waterways Corporation for the month of November.
Aug 29, 2021 | Uncategorized
Wendall Company specializes in producing fashion outfits. On July 31, 2014, a tornado touched down at its factory and general office. The inventories in the warehouse and the factory were completely destroyed as was the general office nearby. Next morning, through a careful search of the disaster site, however, Bill Francis, the company’s controller, and Elizabeth Walton, the cost accountant, were able to recover a small part of manufacturing cost data for the current month. ?oWhat a horrible experience,?? sighed Bill ?oAnd the worst part is that we may not have enough records to use in fi ling an insurance claim.?? ?oIt was terrible,?? replied Elizabeth. ?oHowever, I managed to recover some of the manufacturing cost data that I was working on yesterday afternoon. The data indicate that our direct labor cost in July totaled $250,000 and that we had purchased $365,000 of raw materials. Also, I recall that the amount of raw materials used for July was $350,000. But I’m not sure this information will help. The rest of our records are blown away.?? ?oWell, not exactly,?? said Bill. ?oI was working on the year to date income statement when the tornado warning was announced. My recollection is that our sales in July were $1,240,000 and our gross profit ratio has been 40% of sales. Also, I can remember that our cost of goods available for sale was $770,000 for July.??
?oMaybe we can work something out from this information!?? exclaimed Elizabeth. ?oMy experience tells me that our manufacturing overhead is usually 60% of direct labor.?? ?oHey, look what I just found,?? cried Elizabeth. ?oIt’s a copy of this June’s balance sheet, and it shows that our inventories as of June 30 are Finished goods $38,000, Work in process $25,000, and Raw materials $19,000.?? ?oSuper,?? yelled Bill. ?oLet’s go work something out.?? In order to fi le an insurance claim, Wendall Company must determine the amount of its inventories as of July 31, 2014, the date of the tornado touchdown.
Instructions
With the class divided into groups, determine the amount of cost in the Raw Materials, Work in Process, and Finished Goods inventory accounts as of the date of the tornado touchdown.
Aug 29, 2021 | Uncategorized
While snoozing at the controls of his Pepper Six airplane, Dunse P. Sluggard leaned heavily against the door; suddenly, the door flew open and a startled Dunse tumbled out. As he parachuted to the ground, Dunse watched helplessly as the empty plane smashed into Operex Products’ plant and administrative offices. ?oThe insurance company will never believe this,?? cried Mercedes Juliet, the company’s controller, as she watched the ensuing fi re burn the building to the ground. ?oThe entire company is wiped out!?? ?oThere’s no reason to even contact the insurance agent,?? replied Ford Romero, the company’s operations manager. ?oWe can’t fi le a claim without records, and all we have left is this copy of last year’s annual report. It shows that raw materials at the beginning of this year (January 1) totaled $30,000, work in process totaled $50,000, and finished goods totaled $90,000. But what we need is a record of these inventories as of today, and our records are up in smoke.?? ?oAll except this summary page I was working on when the plane hit the building,?? said Mercedes. ?oIt shows that our sales to date this year have totaled $1,350,000 and that manufacturing overhead cost has totaled $520,000.?? ?oHey! This annual report is more helpful than I thought,?? exclaimed Ford. ?oI can see that our gross margin was 40% of sales. I can also see that direct labor cost is one quarter of the manufacturing overhead cost.?? ?oWe may have a chance after all,?? cried Mercedes. ?oMy summary sheet lists the sum of direct labor and direct materials at $510,000 for the year, and it says that our goods available for sale to customers this year has totaled $960,000 at cost. Now if we just knew the amount of raw materials purchased so far this year.?? ?oI know that figure,?? yelled Ford. ?oIt’s $420,000! The purchasing agent gave it to me in our planning meeting yesterday.?? ?oFantastic,?? shouted Mercedes. ?oWe’ll have our claim ready before the day is over!?? To fi le a claim with the insurance company, Operex Products must determine the amount of cost in its inventories as of the date of the accident. You may assume that all of the materials used in production during the year were direct materials.
Required:
Determine the amount of cost in the raw materials, work in process, and finished goods inventories as of the date of the accident.
Aug 29, 2021 | Uncategorized
Wollongong Group Ltd, of New South Wales, Australia, acquired its factory building about 10 years ago. For several years the company has rented out a small annex attached to the rear of the building. The company has received a rental income of $30.000 per year on this space. The renter’s lease will expire soon, and rather than renewing the lease, the company has decided to use the space itself to manufacture a new product.
Direct materials cost for the new product will total $80 per unit. To have a place to store finished units of product, the company will rent a small warehouse nearby. The rental cost will be $500 per month. In addition, the company must rent equipment for use in producing the new product; the rental cost will be $4,000 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $60 per unit. The space in the annex will continue to be depreciated on a straight line basis, as in prior. This depreciation is $8,000 per year.
Advertising costs for the new product will total $50,000 per year. A supervisor will be hired to oversee production; her salary will be $1,500 per month. Electricity for operating machines will be $1.20 per unit. Costs of shipping the new product to customers will be $9 per unit. To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are presently yielding a return of about $3,000 per year. Required:
Prepare and answer sheet with the following column headings:
??Product Cost?Period
(Selling and????Name
Of the
Cost?Variable
Cost?Fixed
Cost
?Direct
Materials?Direct
Labor?Manufacturing
Overhead?Administrative)
Cost?Opportunity
Cost?Sunk
Cost??List the different costs associated with the new product decision down the extreme left column (under Name of the Cost). Then place an X under each heading that helps to describe the type of cost involved. There may be X’s under several column headings for a single cost. (Foe example, a cost may be a fixed cost, a period cost, and a sunk cost; you would place an X under each of these column headings opposite the cost).
Aug 29, 2021 | Uncategorized
In 2012, Micah Johnson (SSN 000 22 1111) incurs the following unreimbursed employee
business expenses:
Airplane and taxi fares $ 4,000
Lodging away from home 5,000
Meals while away from home 1,000
Automobile expenses (related to 100% of the use of his personal automobile):
Gasoline and oil 8,500
Repairs 1,000
Insurance 900
Depreciation 1,775
Parking and tolls (includes only business use) 100
Total 22,275
Johnson receives a $7,800 reimbursement for the travel expenses. He did not receive
any reimbursement for the auto expenses. He uses his personal automobile 80% for
business use and placed his current automobile in service on October 1, 2008. Total
business miles driven during the year (evenly throughout the year) amount to 26,400,
his commuting miles in 2011 amount to 2,000, and other personal miles amount to
4,600 miles. Johnson’s AGI is $60,000, and he has no other miscellaneous itemized
deductions.
a. Calculate Johnson’s expense deduction using the 2011 Form 2106 (Employee Business
Expenses) based on actual automobile expenses and other employee business expenses.
b. Calculate Johnson’s expense deduction for 2011 using the standard mileage rate
method and other employee business expenses. (Assume that none of the restrictions
on the use of the standard mileage rate method are applicable.)
Aug 29, 2021 | Uncategorized
You have just been hired by EduRom Company, which was organized on January 2 of the current year. The company manufactures and sells a variety of educational DVDs for personal computers. It is your responsibility to supervise the employees who take orders from customers over the phone and to arrange for shipping orders via Federal Express, UPS, and other freight carriers. The company is unsure how to classify your annual salary in its cost records. The company’s cost analyst says that your salary should be classified as a manufacturing (product) cost; the controller says that it should be classified as a selling expense; and the president says that it doesn’t matter which way your salary cost is classified.
Required:
1. Which viewpoint is correct? Why?
2. From the point of view of the reported net operating income for the year, is the president correct in saying that it doesn’t matter which way your salary cost is classified? Explain.
Aug 29, 2021 | Uncategorized
Your Boat, Inc., assembles custom sailboats from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a Gig Harbor, Washington, boathouse. Below are listed some of the costs that are incurred at the company.
Required:
For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost.
1. The wages of employees who build the sailboats.
2. The cost of advertising in the local newspapers.
3. The cost of an aluminum mast installed in a sailboat.
4. The wages of the assembly shop’s supervisor.
5. Rent on the boathouse.
6. The wages of the company’s bookkeeper.
7. Sales commissions paid to the company’s salespeople.
8. Depreciation on power tools.
Aug 29, 2021 | Uncategorized
Madison Seniors Care Center is a non profit organization that provides a variety of health services to the elderly. The center is organized into a number of departments, one of which is the meals on wheels program that delivers hot meals to seniors in their homes on a daily basis. Below are listed a number of costs of the center and the meals on wheels program.
Example the cost of groceries used in meal preparation.
a. The cost of leasing the meals on wheels van.
b. The cost of incidental supplies such as salt, pepper, napkins, and so on.
c. The cost of gasoline consumed by the meals on wheels van.
d. The rent on the facility that houses Madison Seniors Care Center, including the meals in wheels program.
e. The salary of the part time manager of the meals on wheels program.
f. Depreciation on the kitchen equipment used in the meals on wheels program.
g. The hourly wages of the caregiver who drives the van and delivers the meals.
h. The costs of complying with health safety regulations in the kitchen.
i. The costs of mailing letters soliciting donations to the meals in wheels program.
Required:
Fore ach cost listed above, indicate whether it is a direct or indirect cost of the meals on wheels program, whether, it is a direct or indirect cost of particular seniors served by the program, and whether it is variable or fixed with respect to the number of seniors served. Use the below form for your answer.
??
?
Aug 29, 2021 | Uncategorized
Manager: If I can reduce my costs by $40,000 during this last quarter, my division will show a profit that is 10 percent above the planned level, and I will receive a $10,000 bonus. However, given the projections for the fourth quarter, it does not look promising.
I really need that $10,000. I know of one way that I can qualify. All I have to do is lay off my three most expensive salespeople. After all, most of the orders are in for the fourth quarter, and I can always hire new sales personnel at the beginning of the next year.
Required:
What is the right choice for the manager to make? Why did the ethical dilemma arise? Is there any way to redesign the accounting reporting system to discourage the type of behavior that the manager is contemplating?
Aug 29, 2021 | Uncategorized
Mercury, Inc., produces pagers at its plant in Texas. In recent years, the company’s market share has been eroded by stiff competition from overseas. Price and product quality are the two key areas in which companies compete in this market.
A year ago, the company’s pagers had been ranked low in product quality in a consumer survey. Shocked by this result, Jorge Gomez, Mercury’s president, initiated a crash effort to improve product quality. Gomez set up task force to implement a formal quality improvement program. Included on this task force were representatives from the Engineering, Marketing, Customer Service, Production, and Accounting department. The broad representation was needed because Gomez believed that this was a companywide program and that all employees should share the responsibility for its success. After the first meeting of the task force, Holly Elsoe, manager of the Marketing Department, asked John Tran, production manager, what he thought of the proposed program. Tran replied, ?oI have reservations. Quality is too abstract to be attaching costs to it and then to be holding your and me responsible for cost improvement. I like to work with goals that I can see and count! I’m nervous about having my annual bonus based on a decrease in quality costs; there are too many variables that we have no control over.?? Mercury’s quality improvement program has now been in operation for one year. The company’s most recent quality cost report is shown below:
Mercury, Inc.
Quality Cost Report
(in thousands)
?This year?Last Year??Prevention costs:
Machine maintenance……………..?
$ 120?
$ 70??Training suppliers…………………? 10? 0??Quality circles…………………….? 20? 0??Total prevention costs……………? 150? 70??Appraisal costs:
Incoming inspection………………?
40?
20??Final testing……………………….? 90? 80??Total appraisal costs………………? 130?100??Internal failure costs:
Rework………………………….. ?
130?
50??Scrap…………………………….? 70? 40??Total Internal failure costs………? 200? 90??External failure costs.? 30? 90??Customer returns………………..? 80? 320??Total external failure costs……… ? 110? 410??Total quality cost…………………? $590?$670??Total production cost……………? $4,800? $4,200??As they were reviewing the report, Elsoe asked Tran what he now thought of the quality improvement program. Tran replied. ?oI?? m relieved that the new quality improvement program hasn’t hurt our bonuses, but the program has increased the workload in the Production Department. It is true that; customer returns are way down, but the pagers that were returned by customer to detail outlets were rarely sent back to us for rework.
Required:
1. Expand the company’s quality cost report by showing the costs in both years as percentages of both total production cost and total quality cost. Carry all computations to one decimal place. BY analyze and the report, determine if Mercury, Inc.’s quality improvement program has been successful. List specific evidence to support your answer
2. Do you expect the improvement program as it progresses to continue to increase the work load in the Production Department?
3. Jorge Gomez believed that the quality improvement program was essential and that Mercury, Inc., could no longer afford to ignore the importance of product quality. Discuss how Mercury, Inc., could measure the cost of not implementing the quality improvement program.
(CMA, adapted)
Aug 29, 2021 | Uncategorized
Mismatch Manufacturing Company specializes in producing fashion outfits. On July 31, 2010, a tornado touched down at its factory and general office. The inventories in the warehouse and the factory were completely destroyed as was the general office nearby. Next morning, through a careful search of the disaster site, however, Ross Clarkson, the company’s controller, and Catherine Harper, the cost accountant, were able to recover a small part of manufacturing cost data for the current month.
?oWhat a horrible experience,?? sighed Ross. ?oAnd the worst part is that we may not have enough records to use in filing an insurance claim.??
?oIt was terrible,?? replied Catherine. ?oHowever, I managed to recover some of the manufacturing cost data that I was working on yesterday afternoon. The data indicate that our direct labor cost in July totaled $240,000 and that we had purchased $345,000 of raw materials. Also, I recall that the amount of raw materials used for July was $350,000. But I’m not sure this information will help. The rest of our records are blown away.??
?oWell, not exactly,?? said Ross. ?oI was working on the year to date income statement when the tornado warning was announced. My recollection is that our sales in July were $1,260,000 and our gross profit ratio has been 40% of sales. Also, I can remember that our cost of goods available for sale was $770,000 for July.??
?oMaybe we can work something out from this information!?? exclaimed Catherine. ?oMy experience tells me that our manufacturing overhead is usually 60% of direct labor.??
?oHey, look what I just found,?? cried Catherine. ?oIt’s a copy of this June’s balance sheet, and it shows that our inventories as of June 30 are Finished goods $38,000,Work in process $25,000, and Raw materials $19,000.??
?oSuper,?? yelled Ross. ?oLet’s go work something out.??
In order to file an insurance claim, Mismatch Company must determine the amount of its inventories as of July 31, 2010, the date of the tornado touchdown.
Instructions
With the class divided into groups, determine the amount of cost in the Raw Materials, Work in Process, and Finished Goods inventory accounts as of the date of the tornado touchdown.
Aug 29, 2021 | Uncategorized
Net Play Company, a manufacturer of tennis rackets, started production in November 2010. For the preceding 5 years Net Play had been a retailer of sports equipment. After a thorough survey of tennis racket markets, Net Play decided to turn its retail store into a tennis racket factory. Raw materials cost for a tennis racket will total $23 per racket. Workers on the production lines are paid on average $13 per hour. A racket usually takes 2 hours to complete. In addition, the rent on the equipment used to produce rackets amounts to $1,300 per month. Indirect materials cost $3 per racket. A supervisor was hired to oversee production; her monthly salary is $3,500. Janitorial costs are $1,400 monthly. Advertising costs for the rackets will be $6,000 per month. The factory building depreciation expense is $8,400 per year. Property taxes on the factory building will be $7,200 per year.
Instructions
(a) Prepare an answer sheet with the following column headings.
?
Assuming that Net Play manufactures, on average, 2,500 tennis rackets per month, enter each cost item on your answer sheet, placing the dollar amount per month under the appropriate headings. Total the dollar amounts in each of the columns.
(b) Compute the cost to produce oneracket.
Aug 29, 2021 | Uncategorized
Northwest Hospital is a full service hospital that provides everything from major surgery and emergency room care to outpatient clinics. The hospital’s Radiology Department is considering replacing an old inefficient X ray machine with a state of the art digital X ray machine. The new machine would provide higher quality X rays in less time and at a lower cost per W ray. It would also require less power and would use a color laser printer to produce easily readable X ray images. Instead of investing the funds in the new X ray machine, the Laboratory Department is lobbying the hospital’s management to but a new DNA analyzer.
Required:
For each of the items below, indicate by placing an X in the appropriate column whether it should be considered a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old X ray machine with a new machine. If none of the categories apply for a particular item, leave all columns blank.
?
Item?Differential
Item?Opportunity
Cost?Sunk
Cost??Ex.?Cost of X ray film used in the old machine……………?X????1.?Cost of the old X ray machine…………………………?????2.?The salary of the head of the Radiology Department…?????3.?The salary of the head of the Pediatrics Department….?????4.?Cost of the new color laser printer…………………….?????5.?Rent on the space occupied by Radiology…………….?????6.?The cost of maintaining the old machine………………?????7.?Benefits from a new DNA analyzer……………………?????8.?Cost of electricity to run the X ray machines………….?????
Aug 29, 2021 | Uncategorized
Northwest Hospital is a full service hospital that provides everything from major surgery and emergency room care to outpatient clinics.
Required:
For each cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object placing an X in the appropriate column.
???Direct
Cost?Indirect
Cost ???Cost?Cost Object????Ex.?Catered food served to patients ?A particular patient?X???1.?The wages of pediatric nurses?The pediatric department????2.?Prescription drugs?A particular patient????3.?Heating the hospital?The pediatric department????4.?The salary of the head of pediatrics?The pediatric department????5.?The salary of the head of pediatrics?A particular pediatric patient????6.?Hospital chaplain’s salary?A particular patient????7.?Lab tests by outside contractor?A particular patient????8.?Lab tests by outside contractor ?A particular department????
Aug 29, 2021 | Uncategorized
Paul Sarver is the controller of a corporation whose stock is not listed on a national stock exchange. The company has just received a patent on a product that is expected to yield substantial profits in a year or two. At the moment, however, the company is experiencing financial difficulties; and because of inadequate working capital, it is on the verge of defaulting on a note held by its bank. At the end of the most recent fiscal year, the company’s president instructed Sarver not to record several invoices as accounts payable. Sarver objected since the invoices represented bona fi de liabilities. However, the president insisted that the invoices not be recorded until after year end, at which time it was expected that additional financing could be obtained. After several very strenuous objections—expressed to both the president and other members of senior management—Sarver finally complied with the president’s instructions.
Required:
1. Did Sarver act in an ethical manner? Explain.
2. If the new product fails to yield substantial profits and the company becomes insolvent, can Sarver’s actions be justified by the fact that he was following orders from a superior? Explain.
Aug 29, 2021 | Uncategorized
Pohl Motor Company manufactures automobiles. During September 2012 the company purchased 5,000 head lamps at a cost of $9 per lamp. Todd withdrew 4,650 lamps from the warehouse during the month. Fifty of these lamps were used to replace the head lamps in autos used by traveling sales staff. The remaining 4,600 lamps were put in autos manufactured during the month.
Of the autos put into production during September 2012, 90% were completed and transferred to the company’s storage lot. Of the cars completed during the month, 75% were sold by September 30.
Instructions
(a) Determine the cost of head lamps that would appear in each of the following accounts at September 30, 2012: Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold, and Selling Expenses.
(b) Write a short memo to the chief accountant, indicating whether and where each of the accounts in (a) would appear on the income statement or on the balance sheet at September 30, 2012.
coperate-Tax.doc
EX-18-9.png
EX-19-15.png
EX19-14.png
Accounting-20….pdf
sample.xlsx
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
Screen-Shot-2….png
image–2-.jpeg
image.jpeg
D0743772-4E1B….jpg