Aug 29, 2021 | Uncategorized
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The accounting records of NuTronics, Inc., include the following information for the year ended December 31, 2011.
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Dec. 31 |
Jan. 1 |
| Inventory of materials |
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$ |
24,000 |
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$ |
20,000 |
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| Inventory of work in process |
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8,000 |
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12,000 |
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| Inventory of finished goods |
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90,000 |
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80,000 |
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| Direct materials used |
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195,000 |
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| Direct labor |
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124,000 |
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| Selling expenses |
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170,000 |
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| General and administrative expenses |
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140,000 |
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| Overhead is assigned to production at $192,000. |
| a. |
Prepare a schedule of the cost of finished goods manufactured. (Not all of the data given above are used in this schedule.)(Input all amount as positive values. Omit the “$” sign in your response.)
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| NuTronics, Inc. |
| Schedule of the Cost of Finished Goods Manufactured |
| For the Year Ended December 31, 2011 |
| (Click to select) Work in process, December 31, 2011 Direct materials used Work in process, January 1, 2011 Direct labor Manufacturing overhead |
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$ |
| Manufacturing costs assigned to production: |
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| (Click to select) Manufacturing overhead General and administrative expenses Selling expense Direct labor Direct materials used |
$ |
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| (Click to select) Direct labor General and administrative expenses Selling expense Manufacturing overhead Direct materials used |
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| (Click to select) Direct materials used General and administrative expenses Manufacturing overhead Selling expense Direct labor |
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| Total manufacturing costs |
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| Total cost of all goods in process during the year |
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$ |
| (Click to select) Less: Cost of goods sold Selling expenses Less: Work in process inventory, December 31, 2011 Add: Work in process inventory, December 31, 2011 Add: Cost of goods sold |
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| Cost of finished goods manufactured |
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$ |
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| b. |
Assume that the company manufactures a single product and that 20,000 units were completed during the year. What is the average per unit cost of manufacturing this product?(Round your answer to 2 decimal places. Omit the “$” sign in your response.)
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Aug 29, 2021 | Uncategorized
Please refer to the attached Financial Report of Harvey Norman for the following questions:
1. Demonstrate, with examples from your copy of Financial Reports (take a snapshot of it), how the parent of Harvey Norman control its Subsidiaries. Do this by providing a copy of the note on the list of subsidiaries (on page 129 139) in the body of your report (since the list is long, just provide a short section of it with the first few and last few subsidiaries and any with unusual percentage holdings) and comment on any Subsidiaries that are less than 100% owned by the Parent. In particular look at subsidiaries where less than 50% of the shares are held.
2. Compare the Issued Capital in the Balance Sheet or Statement of Changes in Equity of Harvey Norman with that of the Parent in the note on Parent Entity Disclosures by providing examples and discussing the similarities. Make sure you highlight the relevant numbers in each section and use arrows, or something similar, so the reader knows what are you trying to highlight. Consider why we would expect these amounts to be similar.
3. Refer to Harvey Norman’s note on intangibles or goodwill and demonstrate and explain whether there is evidence of the group purchasing or disposing of subsidiaries in the past two reporting periods. If possible show an acquisition analysis from the notes to the accounts . These are often under a note about acquisition of controlled entities.
Aug 29, 2021 | Uncategorized
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A recent annual report for Target contained the following information (dollars in thousands) at the end of its fiscal year:
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Year 2 |
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Year 1 |
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| Accounts receivable |
$ |
9,085,000 |
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$ |
8,632,000 |
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| Allowance for doubtful accounts |
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(1,018,000 |
) |
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(569,000 |
) |
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$ |
8,067,000 |
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$ |
8,063,000 |
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A footnote to the financial statements disclosed that uncollectible accounts amounting to $828,000 and $419,000 were written off as bad debts during year 2 and year 1, respectively. Assume that the tax rate for Target was 40 percent.
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| Required: |
| 1. |
Determine the bad debt expense for year 2 based on the preceding facts. (Hint:Use the Allowance for Doubtful Accounts T account to solve for the missing value.)(Enter your answer in thousands. Omit the “$” sign in your response.)
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Aug 29, 2021 | Uncategorized
While the accounting profession and regulators still struggle with determining a single measurement regime are whole new class of assets has developed particularly since around the beginning of this century. We are all familiar with physical assets and with most types of intangible assets but virtual assets are the latest items with which the profession needs to contend. Virtual assets arise most commonly from the virtual economy which exists in a virtual world online. Participants in the game Second Life for instance are required to purchase Linden dollars in order to undertake transactions within that world. So real money is being used to purchase virtual goods in these worlds but these goods do not cease to exist when the player ceases playing the game and Linden dollars can be exchanged for real money by selling them to another player. Virtual assets do not consist only of those we find with in online games however. Virtual assets also include electronic data stored on a computer or the Internet, such as digital photos, domain names and Internet bank accounts.There are increasing concerns about how people deal with such assets in terms of their estate planning (in other words, what happens to these items when we die?) and taxation authorities are becoming increasingly interested in the issue as well. Just to confuse things, we now have the situation where some real world companies are offering transaction within the virtual world that is, it is possible to undertake purchases and other transactions with real companies for real goods within some Internet games. The attached article provides students with a starting point but you will need to undertake research into this topic in order to be able to adequately meet the requirements outlined below. Requirements You have been approached by a large accounting firm to provide advice in relation to Virtual assets. In particular, the managers of the firm have requested that you provide a report outlining the following: • what are Virtual assets?How are they different to the commonly understood notion of intangible assets? • Do these items meet the definition criteria for assets contained in the Framework? • Do these items meet the recognition criteria for assets contained in the Framework? • Should these items be recognised on the financial statements or would disclosure in the notes be sufficient? • Is income earned in a virtual world “real”? If so, should such profits be reported? • If we are required to recognise these items on the financial statements then we need to be able to measure them. What measurement model would you recommend?
Aug 29, 2021 | Uncategorized
Identify which accounting principle or assumption best describes each of the following practices:
A. If $51,000 cash is paid to buy land, the land is reported on the buyer’s balance sheet at $51,000.
Business entity assumption
Objectivity principle
Revenue recognition principle
Monetary unit principle
Cost principle or historical cost
Going concern principle
B. Alissa Kees owns both Sailing Passions and Dockside Supplies. In preparing financial statements for Dockside Supplies, Kees makes sure that the expense transactions of Sailing Passions are kept separate from Dockside’s transactions and financial statements.
Revenue recognition principle
Cost principle or historical cost
Monetary unit principle
Business entity assumption
Objectivity principle
Going concern principle
C. In December 2010, Ace Landscaping received a customer’s order and cash prepayment to install sod at a new house that would not be ready for installation until March 2011. Ace should record the revenue from the customer order in March 2011, not in December 2010.
Cost principle or historical cost
Monetary unit principle
Going concern principle
Objectivity principle
Revenue recognition principle
Business entity assumption
Aug 29, 2021 | Uncategorized
. Accounts receivable financing Charmin Paper Company sells to the 12 accounts listed below. Account Receivable Balance Outstanding Average Age of the Account over the Last Year A $ 60,000 28 B 120,000 43 C 70,000 10 D 20,000 52 E 50,000 42 F 220,000 34 G 30,000 16 H 300,000 65 I 40,000 33 J 90,000 50 K 210,000 14 L 60,000 35 Capital Financial Corporation will lend 90 percent against account balances that have averaged 30 days or less; 80 percent for account balances between 31 and 40 days; and 70 percent for account balances between 41 and 45 days. Customers that take over 45 days to pay their bills are not considered acceptable accounts for a loan. The current prime rate is 8.5 percent, and Capital charges 3.5 percent over prime to Charmin as its annual loan rate. a. Determine the maximum loan for which Charmin Paper Company could qualify. b. Determine how much one month’s interest expense would be on the loan balance determined in part a.
Aug 29, 2021 | Uncategorized
a.) Analyze the effects of each of the following transactions on each of the funds and/or the nonfund accounts of the city of Nancy. Identify the fund that typically would be used to record the transaction. b.) Indicate how each transaction would be reported in the operating statement for each fund affected. Example:cash received for licenses during 2011, $8000 Solution. a.) FA RL = FB GCA GLTL = NP $8000 $8000 b.) Revenues of $8000 are reported in the General Fund statement of revenues, expenditures and changes in fund balances. Now the questions. 1. The city paid $5,000,000 to the office building contractor for work done during fiscal year. 2. The city purchased several pc”s by issuing a $60000, 6%, 6month note to the vendor, due march 1st next year. 3. General fund resources of $8,000,000 were paid to a newly established airport enterprise fund to provide initial start up cost. 4. City sold general capital assets with an original cost of $50000 and a $1000 book value for $1500, there are no restrictions on the use of money.
Aug 29, 2021 | Uncategorized
a.) Analyze the effects of each of the following transactions on each of the funds and/or the nonfund accounts of the city of Nancy. Identify the fund that typically would be used to record the transaction. b.) Indicate how each transaction would be reported in the operating statement for each fund affected. Example:cash received for licenses during 2011, $8000 Solution. a.) FA RL = FB GCA GLTL = NP $8000 $8000 b.) Revenues of $8000 are reported in the General Fund statement of revenues, expenditures and changes in fund balances. Now the questions. 1. The city paid $5,000,000 to the office building contractor for work done during fiscal year. 2. The city purchased several pc’s by issuing a $60000, 6%, 6month note to the vendor, due march 1st next year. 3. General fund resources of $8,000,000 were paid to a newly established airport enterprise fund to provide initial start up cost. 4. City sold general capital assets with an original cost of $50000 and a $1000 book value for $1500, there are no restrictions on the use of money.
Aug 29, 2021 | Uncategorized
a. On April 1, the company retained an attorney for a flat monthly fee of $2,500. This amount is paid to the attorney on the 12th day of the following month in which it was earned. b. A $780,000 note payable requires 9.6% annual interest, or $6,240 to be paid at the 20th day of each month. The interest was last paid on April 20 and the next payment is due on May 20. As of April 30, $2,080 of interest expense has accrued. c. Total weekly salaries expense for all employees is $9,000. This amount is paid at the end of the day on Friday of each five day workweek. April 30 falls on Tuesday of this year, which means that the employees had worked two days since the last payday. The next payday is May 3. The above three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expense. (Use 360 days a year. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the “$” sign in your response.) Date General Journal Debit Credit a. Apr. 30 May 12 b. Apr. 30 May 20 c. Apr. 30 May 3
Aug 29, 2021 | Uncategorized
. A company issued 10 year bonds with a par value of $20,000,000 and an 8% annual face on January 2, 2007. The issue price of the bond issue was $19,866,397 which reflected an 8.1% effective interest rate. Required: a) Determine the effect on the accounting equation upon recording the issuance of the bonds. b) Determine the effect on the accounting equation upon recording the recognition of interest expense at December 31, 2007. Any premium or discount should be amortized using the effective interest rate method. c) Determine the effect on the accounting equation upon recording the interest paid to the bondholders on January 2, 2008. d) Determine the effect on the accounting equation upon recognizing the interest expense at December 31, 2008. Any premium or discount should be amortized using the effective interest rate method.
Aug 29, 2021 | Uncategorized
a. It levied and collected property taxes of $110 million. b. It issued $30 million in long term bonds to construct a building. It placed the cash received in a special fund that was set aside to account for the bond proceeds. c. During the year, it constructed the building at a cost of $25 million. It expects to spend the $5 million balance in the following year. The building has an estimated useful life of 25 years. d. It incurred $70 million in general operating costs, of which it paid $63 million. It expects to pay the balance early the following year. e. It transferred $12 million from its general fund to a fund established to account for resources that were set aside to service the debt. Of this amount, $10 million was for repayment of the debt; $2 million was for interest. f. From the special fund established to service the debt, it paid $2 million in interest and $6 million in principal. g. It collected $4 million in hotel taxes restricted to promoting tourism. Because the resources were restricted, they were accounted for in a special restricted fund. During the year, the district spent $3 million on promoting tourism. h. The district established a supplies store, to provide supplies to the district s various departments, by transferring $4 million from the general fund. It accounted for the store in a proprietary fund. During the year, the store purchased (and paid for) $2 million in supplies. Of these, it sold $1 million, at cost (for cash), to departments accounted for in the general fund. During the year, these departments used all of the supplies that they had purchased. 1. Prepare journal entries to record the transactions and other events in appropriate funds. Assume that governmental funds are accounted for on a modified accrual basis, and focus only on current financial resources (and, therefore, do not give balance sheet recognition to either capital assets or longterm debt). Proprietary funds are accounted for on a full accrual basis. 2. Prepare a combined balance sheet one that has a separate column for each of the funds that you established. 3. Prepare a combined statement of revenues, expenditures, and changes in fund balances for all governmental funds one column for each fund. Prepare a separate statement of revenues, expenses, and changes in fund balances for any proprietary funds that you established.
Aug 29, 2021 | Uncategorized
0. The amount debited to the investment account when STU Co. acquires 80% of the common stock of VWY Co. for $300,000 cash is $300,000 1. On January 2, Peach Company purchases 35% of the 20,000 outstanding shares of $10 par common stock of Sharpe Corporation at $18. The amount debited to Investment in Sharpe Corporation Stock is $ 2’4. Sharpe Corporation realizes net income of $75,000 and declares and pays cash dividends of $45,000 in the first year following acquisition by Peach Co. 2. Peach Co.s share of the $75,000 of net income amounts to $ 3. Peach Co.s share of the $45,000 of dividends amounts to $ 4. Peach Co.s net increase in its investment in Sharpe Corporation amounts to $ 5. Pull Corporation purchases 100 shares of Bill Co.s $15 par common stock at $47 a share, plus a brokerage fee of $100. The amount of the debit to record the purchase is $ 6. Pull Corporation sells the shares of Bill Co. in Question 5 at $45 a share, with net proceeds of $4,400. The amount of the gain or loss from the sale is $ 7. In fair value accounting, the change in the reported values of assets and liabilities will be shown in the ________________________ account.
Aug 29, 2021 | Uncategorized
1. The carrying value of a long term note payable: (Points : 2) Is computed as the future value of all remaining future payments, using the market rate as interest Is the face value of the long term note less the total of all future interest payments Is computed as the present value of all remaining future payments, discounted using the market rate of interest at the time of issuance Is computed as the present value of all remaining interest payments, discounted using the note’s rate of interest Decreases each time period the discount on the note is amortized 2. A company’s board of directors votes to declare a cash dividend of $0.75 per share. The company has 15,000 shares authorized, 10,000 issued and 9,500 shares outstanding. The total amount of the cash dividend is: (Points : 2) $375 $4,125 $7,125 $7,500 $11,250 3. The Discount on Bonds Payable account is: (Points : 2) A liability A contra liability An expense A contra expense A contra equity 4. To provide security to creditors and to reduce interest costs, bonds and notes payable can be secured by: (Points : 2) Safe deposit boxes Mortgages Equity The FASB Debentures 5. The amount of income earned per share of a company’s common stock is known as: (Points : 2) Restricted retained earnings per share Earnings per share Continuing operations per share Dividends per share Book value per share 6. A bondholder that owns a $1,000, 10%, 10 year bond has: (Points : 2) Ownership rights The right to receive $10 per year until maturity The right to receive $1,000 at maturity The right to receive $10,000 at maturity The right to receive dividends of $1,000 per year 7. A company has net income of $850,000. It also has 125,000 weighted average common shares outstanding and a market value per share of $115. The company’s price earnings ratio is equal to: (Points : 2) 16.9 14.7 92.0 13.5 8.0 8. Bonds that have interest coupons attached to their certificates, which the bondholders detach during each interest period and present to a bank for collection, are called: (Points : 2) Coupon bonds Callable bonds Serial bonds Convertible bonds 9. Amortizing a bond discount: (Points : 2) Allocates a part of the total discount to each interest period Increases the market value of the Bonds Payable Decreases the Bonds Payable account Decreases interest expense each period Increases cash flows from the bond 10. A corporation’s distribution of additional shares of its own stock to its stockholders without the receipt of any payment in return is called a: (Points : 2) Stock dividend Stock subscription Premium on stock Discount on stock Treasury stock 11. When a bond sells at a premium: (Points : 2) The contract rate is above the market rate The contract rate is equal to the market rate The contract rate is below the market rate It means that the bond is a zero coupon bond The bond pays no interest 12. Dividend yield is the percent of cash dividends paid to common shareholders relative to the: (Points : 2) Common stock’s market value Earnings per share Investors’ purchase price of the stock Amount of retained earnings Amount of cash 13. The market value of a bond is equal to: (Points : 2) The present value of all future cash payments provided by a bond The present value of all future interest payments provided by a bond The present value of the principal for an interest bearing bond The future value of all future cash payments provided by a bond The future value of all future interest payments provided by a bond 14. Bonds with a par value of less than $1,000 are known as: (Points : 2) Junk bonds Baby bonds Callable bonds Unsecured bonds Convertible bonds 15. Bonds that have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity are known as: (Points : 2) Convertible bonds Sinking fund bonds Callable bonds Serial bonds Junk bonds 16. A premium on common stock: (Points : 2) Is the amount paid in excess of par by purchasers of newly issued stock Is the difference between par value and issue price when the amount paid is below par Represents profit from issuing stock Represents capital gain on sale of stock Is prohibited in most states 17. A company issues at par 7% bonds with a par value of $500,000 on June 1, which is 5 months after the most recent interest date. How much total cash interest is received on May 1 by the bond issuer? (Points : 2) $0 $2,916.66 $100,000.00 $14,583.33 $35,000.00 18. A corporation was formed on January 1. The corporate charter authorized 100,000 shares of $10 par value common stock. During the first month of operation, the corporation issued 300 shares to its attorneys in payment of a $5,000 charge for drawing up the articles of incorporation. The entry to record this transaction would include: (Points : 2) A debit to Organization Expenses for $3,000 A debit to Organization Expenses for $5,000 A credit to Common Stock for $5,000 A credit to Contributed Capital in Excess of Par Value, Common Stock for $5,000 A debit to Contributed Capital in Excess of Par Value, Common Stock for $2,000 19. A company issues at 9% bonds at par with a par value of $100,000 on April 1, which is 4 months after the most recent interest date. How much total cash interest is received on April 1 by the bond issuer? (Points : 2) $750 $5,250 $1,500 $3,000 $6,000 20. Stock that was reacquired by the company and is still held by the issuing corporation is called: (Points : 2) Capital stock Treasury stock Redeemed stock Preferred stock 21. A bond sells at a discount when the: (Points : 2) Contract rate is above the market rate Contract rate is equal to the market rate Contract rate is below the market rate Bond has a short term life Bond pays interest only once a year 22. Sinking fund bonds: (Points : 2) Require the issuer to set aside assets in order retire the bonds at maturity Require equal payments of both principal and interest over the life of the bond issue Decline in value over time Are registered bonds Are bearer bonds 23. Installment notes payable that require periodic payments of accrued interest plus equal amounts of principal result in: (Points : 2) Periodic total payments that gradually decrease in amount Periodic total payments that are equal Periodic total payments that gradually increase in amount Increasing amounts of interest each period Increasing amounts of principal each period 24. A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a: (Points : 2) Credit to Interest Income Credit to Premium on Bonds Payable Credit to Discount on Bonds Payable Debit to Premium on Bonds Payable 25. Operating leases differ from capital leases in that (Points : 2) For a capital lease the lessee records the lease payments as rent expense, but for an operating lease the lessee reports the lease payments as depreciation expense For an operating lease the lessee depreciates the asset acquired under lease, but for the capital lease the lessee does not Operating leases create a long term liability on the balance sheet, but capital leases do not Operating leases do not transfer ownership of the asset under the lease, but capital leases often do Operating lease payments are generally greater than capital lease payments
Aug 29, 2021 | Uncategorized
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1. Elkins Company had checks outstanding totaling $5,400 on its June bank reconciliation. In July, Elkins Company issued checks totaling $38,900. The July bank statement shows that $26,300 in checks cleared the bank in July. A check from one of Elkins Company’s customers in the amount of $300 was also returned marked “NSF.” The amount of outstanding checks on Elkins Company’s July bank reconciliation should be
A)$18,000.
B)$17,700.
C)$7,200.
D)$12,600.
| 2.Gagne Company gathered the following reconciling information in preparing its July bank reconciliation:
Cash balance per books, 7/31$4,500
Deposits in transit150
Notes receivable and interest collected by bank850
Bank charge for check printing20
Outstanding checks2,000
NSF check170
The adjusted cash balance per books on July 31 is
A)$3,460.
B)$3,310.
C)$5,160.
D)$5,010.
Hope you can show me the steps. Thank you so much.
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Aug 29, 2021 | Uncategorized
1. Which of the following is not generally classified as a passive activity? (Points : 2) an activity in which the taxpayer does not materially participate a limited partnership interest rental real estate a business in which the taxpayer owns an interest and works 1,000 hours a year 2. Nancy reports the following income and loss in the current year. Salary $ 60,000 Income from activity A 18,000 Loss from activity B ( 9,000) Loss from activity C ( 13,000) All three activities are passive activities with respect to Nancy. Nancy also has $21,000 of suspended losses attributable to activity C carried over from prior years. During the year, Nancy sells activity C and realizes a $15,000 taxable gain. What is Nancy’s AGI as a result of these transactions? (Points : 2) $50,000 $55,000 $64,000 $71,000 3. Tom and Shawn own all of the outstanding stock of Brady Corporation. This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Corporation reports (Points : 2) net income of $42,000. interest income of $22,000 and a passive loss carryover of $8,000. business income of $20,000 and a passive loss carryover of $6,000. business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000. 4. Amy, a single individual and sole shareholder of Brown Corporation, sold all of the Brown stock for $30,000. The stock basis was $150,000. Amy had owned the stock for 3 years. Brown Corporation meets the Section 1244 requirements. Amy has (Points : 2) a $50,000 ordinary loss and $70,000 LTCL. a $50,000 STCL and a $70,000 LTCL. a $100,000 ordinary loss and a $20,000 LTCL. a $100,000 LTCL and a $20,000 ordinary loss. 5. During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, Mark (Points : 2) reports AGI of $80,000. reports AGI of $90,000 with a $10,000 loss carryover. reports AGI of $90,000 with a $30,000 loss carryover. reports AGI of $110,000 with a $30,000 loss carryover. 6. Justin has AGI of $110,000 before considering his $30,000 loss from rental property, which he actively manages. How much of the rental loss can Justin deduct this year? (Points : 2) $10,000 $20,000 $25,000 $30,000 7. Which of the following is most likely not considered a casualty? (Points : 2) fire loss water damage caused by a busted water heater death of a pine tree due to a two day infestation of pine beetles water damage to the walls and ceiling of a taxpayer’s personal residence as the result of gradual deterioration of the roof 8. Sarah had a $30,000 loss on Section 1244 stock, a $15,000 loss on sale of a personal use automobile and a $8,000 loss on stock that is not classified as Section 1244. Without regard to net capital loss limitations, Sarah should recognize (Points : 2) a ordinary loss of $38,000. a capital loss of $53,000. an ordinary loss of $30,000 and a capital loss of $8,000. an ordinary loss of $30,000 and a capital loss of $23,000. 9. All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244) stock with the exception of (Points : 2) the stock must be owned by an individual or a partnership. the stock must have been issued by a domestic corporation. the stock must have been issued for cash or property other than stock or securities. a single taxpayer may deduct, as ordinary losses, up to a maximum of $100,000 per tax year with the remainder treated as capital losses. 10. Shaunda has AGI of $90,000 and owns rental property generating a $27,000 loss. She actively manages the property. Her deductible loss is (Points : 2) $0. $13,500. $25,000. $27,000.
Aug 29, 2021 | Uncategorized
1. Which of the following types of itemized deductions are included in the category of miscellaneous expenses that are deductible only if the aggregate amount of such expenses exceeds 2% of the taxpayer’s adjusted gross income? (Points : 5) unreimbursed employee business expenses charitable contributions medical expenses home mortgage interest expense 2. Charlie makes the following gifts in the current year: $40,000 to his spouse, $30,000 to his church, $18,000 to his nephew, and $25,000 to a friend. Assuming Charlie does not elect gift splitting with his wife, his taxable gifts in the current year will be (Points : 5) $13,000. $17,000. $25,000. $40,000. 3. The unified transfer tax system (Points : 5) imposes a single tax upon transfers of property during an individual’s lifetime only. imposes a single tax upon transfers of property during an individual’s life and at death. imposes a single tax upon transfers of property only at an individual’s death. none of above. 4. A single taxpayer provided the following information for 2011: Salary $80,000 Interest on local government bonds (qualifies as a tax exclusion) 4,000 Allowable itemized deductions 13,000 What is taxable income? (Points : 5) $59,300 $63,300 $67,000 $67,300 5. In December of this year, Jake and Stockard, a married couple, redeemed qualified Series EE U.S. Savings Bonds which they had purchased in January 2000. The proceeds were used to help pay for their daughter’s college tuition. Jake and Stockard received proceeds of $8,000 representing principal of $5,000 and interest of $3,000. The qualified higher educational expenses they paid this year totaled $6,000. What is the amount of interest income Jake and Stockard can exclude from their income this year? (Points : 5) $2,250 $2,500 $3,000 $5,000 6. CT Computer Corporation, an accrual basis taxpayer, sells service contracts on the computers it sells. At the beginning of January of this year, CT Corporation sold contracts with service to begin immediately: One for three months $200 One for 20 months 800 One for 48 months 4,000 The amount of income CT Corporation must report for this year is (Points : 5) $200. $1,000. $1,680. $5,000. 7. Ms. Marple’s books and records for 2011 reflect the following information: Salary earned this year $65,000 Interest on savings account (credited to her account in 2011, withdrawn in 2012) 1,000 Interest on county bonds earned and collected in 2011 2,000 What is the amount Ms. Marple should include in her gross income in 2011? (Points : 5) $66,000 $67,000 $68,000 $65,000 8. Ricky has rented a house from Sarah since last year. The rent is usually $900 per month, but Sarah reduced the monthly rent down to $800 for all twelve months this year in exchange for Ricky constructing an addition to the house. The addition has a fair market value of $33,000. How much total rental income must Sarah report this year? (Points : 5) $9,600 $33,000 $42,600 $43,800 9. Cameron is the beneficiary of a $300,000 policy on the life of his mother. Cameron sells the policy to his brother, Parker, for $100,000. Parker subsequently pays premiums of $55,000. Upon his mother’s death, how much of the insurance proceeds must Parker include in income? (Points : 5) $0 $55,000 $145,000 $300,000 10. Bella transfers a $150,000 life insurance policy on her life to a partnership in which she is a partner. Subsequent to Bella’s transfer, the partnership pays $10,000 of premiums before Bella’s death. How much of the insurance proceeds of $150,000 is includable in income? (Points : 5) $ 0 $75,000 $140,000 $150,000 11. Greg is the beneficiary of a $100,000 policy on the life of his mother. Greg gives the policy to his brother, Don. Don subsequently pays premiums of $40,000. Upon his mother’s death, how much of the insurance proceeds must Don include in income? (Points : 5) $0 $40,000 $60,000 $100,000 12. David has been diagnosed with cancer and is expected to live less than 18 months. David is covered by a life insurance policy with a $400,000 face amount. David cashes in the policy early under a special option and receives 80% of the face amount or $320,000. In the year of collection, David will report (Points : 5) no income. $80,000. $320,000. $400,000. 13. Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000. Sarah later sold the property for $22,000 resulting in a recognized gain of (Points : 5) $ 0 . $4.000. $6,000. $12,000. 14. Kathleen received land as a gift from her grandfather. At the time of the gift, the land had a FMV of $105,000 and an adjusted basis of $85,000 to Kathleen’s grandfather. One year later, Kathleen sold the land for $110,000. What was her gain or (loss) on this transaction? (Points : 5) no gain or loss ($ 5,000) $20,000 $25,000 15. Michelle purchased her home for $150,000, and then added a garage costing $25,000 and a new porch costing $5,000. Repairs to the home’s plumbing cost $1,000. The adjusted basis in the home is (Points : 5) $150,000. $151,000. $180,000. $181,000. 16. Jordan paid $30,000 for equipment two years ago and has claimed depreciation deductions of $15,600 for the two years. The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000. What is Jordan’s adjusted basis in the equipment at the end of the two year period? (Points : 5) $14,400 $16,400 $21,400 $30,000 17. During 2011 and 2012, Danny pays property taxes of $3,500 each year on a piece of land. During 2011, the land is vacant and unproductive. In 2012 Danny uses the land as a parking lot and generates $16,000 in income. Which of the following is true regarding the property taxes? (Points : 5) Capitalize $3,500 each year. Deduct $3,500 each year. Capitalize $3,500 in 2011 and deduct $3,500 in 2012. Either B or C is acceptable. 18. Carole owns 75% of Pet Foods, Inc. As CEO, Carole must travel extensively and does so on the company jet. In addition, she also uses the jet to take several personal vacations. Carole reports the value of the personal use of the jet, $140,000, as additional compensation. Which of the following is true in terms of the corporation? (Points : 5) The corporation includes $140,000 as miscellaneous income. The $140,000 has no impact on the corporation’s income tax. The corporation takes a deduction of $140,000 for compensation expense. The corporation takes a deduction of $140,000 for dividend expense. 19. Which of the following expenditures is tax deductible? (Points : 5) capital expenditures expenses related to tax exempt income expenses related to a trade or business expenses that are illegal or in violation of public policy 20. During the current year, Ivan begins construction of an office building and a hotel. He incurs $10,000 in property taxes during the construction of the office building and $15,000 for the hotel. Which of the following statements is true of the property taxes during the construction period? (Points : 5) Ivan must capitalize the property taxes on both properties each year if an election is made. Ivan must deduct the property taxes on both properties each year. Ivan may elect to capitalize the property taxes on one of the properties while deducting the property taxes on the other for each year. Ivan may elect to capitalize the property taxes for the properties in one year and then deduct the property taxes on the properties the next year. 21. Alan, who is a security officer, is shot while on the job. As a result, Alan suffers from a leg injury and must spend most of his time in a wheelchair until his recovery. Alan’s physician recommends that he install a whirlpool bath in his home for therapy. During the year, Alan makes the following expenditures: Wheelchair $ 1,200 Whirlpool bath 2,000 Maintenance of the whirlpool 250 Increased utility bills associated with whirlpool 450 Entrance ramp, various home modifications 7,200 A professional appraiser tells Alan that the whirlpool has increased the value of his home by $1,000. Alan’s deductible medical expenses (before considering limitations based on AGI) will be (Points : 5) $6,000. $10,100. $7,000. $7,700. 22. Linda had a swimming pool constructed at her house. Her physician advised and prescribed to her that the pool would slow the effects of her degenerative disease. The pool was not suitable for recreational use. Prior to the construction of the pool, the fair market value of her house was $172,000. After the construction of the pool, the appraised fair market value of the house was $181,000. The cost of the pool was $13,000. What is the amount of Linda’s qualified medical expense (before considering limits based on AGI)? (Points : 5) $0 $4,000 $9,000 $13,000 23. Leo spent $6,600 to construct an entrance ramp and to widen doorways in his personal residence to make the home accessible for his wife, who is disabled and confined to a wheelchair. The $6,600 expenditure increased the value of the residence by $2,000. How much of the $6,600 is a deductible medical expense? (Points : 5) $0 $2,000 $4,600 $6,600 24. Mitzi’s medical expenses include the following: Medical premiums $10,850 Doctors fees 2,000 Hospital fees 3,350 Prescription drugs 600 Eyeglasses 350 General purpose vitamins 100 Mitzi’s AGI for the year is $33,000. None of the medical costs are reimbursed by insurance. After considering the AGI floor, Mitzi’s medical expenses total (Points : 5) $13,725. $14,675. $13,850. $17,150. 25. In the current year, Drew paid $6,500 for a piece of equipment to be used in his business. In addition, he had to pay a state sales tax of $500 on the purchase. How should Drew handle the sales tax? (Points : 5) as an itemized deduction on Schedule A as a tax expense deduction on Schedule C Add the tax to the basis of the equipment. Disregard sales tax as it is no longer deductible. 26. Tom and Shawn own all of the outstanding stock of Brady Corporation. This year, Brady generates taxable income of $20,000 from active business operations, and also reports investment interest of $22,000 and losses of $28,000 from a passive activity. As a result, Brady Corporation reports (Points : 5) net income of $42,000. interest income of $22,000 and a passive loss carryover of $8,000. business income of $20,000 and a passive loss carryover of $6,000. business income of $20,000, interest income of $22,000, and a passive loss carryover of $28,000. 27. An individual is considered to materially participate in an activity if any of the following tests are met with the exception of (Points : 5) the individual participates in the activity for more than 500 hours during the year. the individual participates in the activity for 75 hours during the year, and that participation is more than any other individual’s participation for the year. the individual has materially participated in the activity in any five years during the immediate preceding 10 taxable years. the individual’s participation in the activity for the year constitutes substantially all of the participation in the activity by all individuals. 28. Nicole has a weekend home on Pecan Island that she purchased in 2005 for $250,000. Recently, the home was appraised at $260,000. After the appraisal, a hurricane hit Pecan Island, severely damaging Nicole’s home. An appraisal placed the value of the home at $140,000 after the hurricane. Because of its prohibitive cost, Nicole had no hurricane insurance. Before any reductions or limitations, Nicole’s casualty loss amount is (Points : 5) $0. $10,000. $120,000. $140,000. 29. During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, Mark (Points : 5) reports AGI of $80,000. reports AGI of $90,000 with a $10,000 loss carryover. reports AGI of $90,000 with a $30,000 loss carryover. reports AGI of $110,000 with a $30,000 loss carryover. 30. A fire totally destroyed office equipment and furniture which Monica uses in her business. The equipment had an adjusted basis of $15,000 and a FMV of $10,000 before the fire. The furniture’s adjusted basis was $5,000 and its FMV was $2,000 before the fire. Monica’s AGI for the year is $60,000. Monica does not have insurance on the destroyed assets. How much is Monica’s deductible casualty loss? (Points : 5) $5,900 $12,000 $13,900 $20,000 31. Donald takes a new job and moves to a new residence. The distances are as follows: Old residence to new job 70 miles Old residence to old job 8 miles By how many miles does the move exceed the minimum distance requirement for the moving expense deduction? (Points : 5) 12 miles 20 miles 62 miles none of the above 32. Gayle, a doctor with significant investments in the stock market, traveled on a cruise ship to attend a general business seminar that was held at a hotel in a foreign country. The cost of the cruise for four days is $2,500. Gayle can deduct (Points : 5) $0. $1,250. $2,000. $2,500. 33. Norman traveled to San Francisco for four days on vacation, and while there spent another two days conducting business for his employer. Norman’s plane fare for the trip was $500; meals cost $150 per day; hotels cost $300 per day; and a rental car cost $150 per day that was used for all six days. Norman was not reimbursed by his employer for any expenses. Norman’s AGI for the year is $40,000 and he did not have any other miscellaneous itemized deductions. Norman may deduct (after limitations) (Points : 5) $250. $800. $1,050. $1,200. 34. Allison, who is single, incurred $4,000 for unreimbursed employee expenses, $10,000 for mortgage interest and real estate taxes on her home, and $500 for investment counseling fees. Allison’s AGI is $80,000. Allison’s allowable deductions from AGI are (after limitations have been applied) (Points : 5) $10,500. $12,900. $14,000. $14,500. 35. Brett, an employee, makes the following gifts, none of which are reimbursed: Brett’s supervisor $30 Brett’s secretary 40 4 customers ($27 each) 108 Gift wrapping customer gifts 10 What amount of the gifts is deductible before application of the 2% of AGI floor for miscellaneous itemized deductions? (Points : 5) $135 $150 $170 $180
Aug 29, 2021 | Uncategorized
1) When SAP software added a Windows style “back” button to its industrial invoice management software, the new product ___________. A. used a new product line B. added to an existing product line C. improved upon an existing product D. used a marketing diversification strategy 12) In 2003, Toyota introduced its Scion brand with the aim of bringing younger buyers into the “family.” This was a classic example of _________________. A. line featuring B. line cannibalization C. line padding D. line stretching 13) Painting and consulting are considered industrial goods because ______________. A. they are specialty goods B. they are considered “component materials” C. most firms do not seek them directly D. they facilitate developing and managing the finished product 14) Marketers plan their market offerings at five levels. What is the correct order of the levels, going from most fundamental to the level with the most benefits? A. Basic expected augmented core potential B. Expected potential basic augmented core C. Core basic expected augmented potential D. Potential augmented expected core basic 15) Characteristics a buyer can evaluate before purchase are called _______________. A. search qualities B. experience qualities C. credence qualities D. differentiation qualities 16) For $15 a day, Chlena will go to your home and feed, water, and play with your pet while you are on vacation. The service Chlena provides is an example of a _____________. A. tangible good with accompanying service B. hybrid C. pure service D. major service with accompanying minor goods and services 17) Mr. Tse and his family took a vacation to Washington, D.C. While there, they bought souvenirs; t shirts and hats to take home to family and friends who didnt have the opportunity to go. The experience of the Tse family is an example of which offering? A. A tangible good with accompanying services B. A hybrid C. A pure service D. A major service with accompanying minor goods and services 18) Best Buy will often try to sell the buyer of a high end television monitor an extended warranty. This is an example of _______________. A. pure tangible good B. tangible good with accompanying services C. hybrid D. pure service 19) The introduction of a new product to the market using market penetration pricing is most likely to be successful when _____________. A. the unit costs of producing a small volume of the product are high B. there must be no existing demand for the product C. the market is highly price sensitive D. the high price communicates nothing to potential buyers 20) A __________ pricing objective is suitable for a company that has overcapacity, intense competition, and changing customer needs. A. maximum current profit B. survival C. maximum current revenue D. maximum sales growth
Aug 29, 2021 | Uncategorized
May 1 Stockholders invested $20,000 cash in exchange for common stock. 2 Hired a secretary receptionist at a salary of $2,000 per month. 3 Purchased $1,500 of supplies on account from Hartig Supply Company. 7 Paid office rent of $900 cash for the month. 11 Completed a tax assignment and billed client $2,800 for services provided. 12 Received $3,500 advance on a management consulting engagement. 17 Received cash of $1,200 for services completed for Lucille Co. 31 Paid secretary receptionist $2,000 salary for the month. 31 Paid 40% of balance due Hartig Supply Company. Kara 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. 311 Common Stock, No. 400 Service Revenue, No. 726 Salaries and Wages Expense, and No. 729 Rent Expense. Link to Text Link to Text Link to Text Link to Video (a) Journalize the transactions. (Record entries in the order displayed in the problem statement. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit
Aug 29, 2021 | Uncategorized
1. (TCO 3) You have been approved for a $70,000 loan toward the purchase of a new home at 12% interest. The mortgage is for 30 years. How much are the approximately annual payments of the loan? Hint: Assume you pay yearly. (Points : 3) $2613 $8690 $5740 None of the above 2. (TCO 3) First Choice Bank pays 9% APR compounded quarterly on its business loans. National Emerald Bank pays 16% APR compounded daily. The EAR for First Choice and National Emerald Bank are: (Points : 3) 9.31% and 17.35%, respectively 9% and 17.50%, respectively 9.31% and 17.50%, respectively 9% and 17.35%, respectively 3. (TCO 3) Computer Parts, Inc. is considering an investment that will have cash flows of $8,000, $7,000 and $4,000 for years 1 through 3. What is the approximate value of this investment today if the appropriate discount rate is 10% per year? (Points : 3) $24,250 $20,900 $16,060 None of the above 4. (TCO 3) You deposited $3,000 in your bank account today. An increase in which of the following will increase the future value of your deposit assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all answers that apply: (Points : 4) interest rate initial amount of your deposit frequency of the interest payments length of the investment period 5. (TCO 3) If you borrow $50,000 today at 10% interest for eight years. How much of your first payment will be applied towards the principal of the loan? (Points : 3) $5,000 $4,372 $4,790 zero, all will be applied towards the interest
Aug 29, 2021 | Uncategorized
1. (TCO 3) Using the following information regarding actual sales for Sams Ski Supplies, calculate the regression (trend) line: Sales for Sams Ski Supplies ($000s) Month First Year Second Year January 380 400 February 340 360 March 320 330 April 280 290 May 265 270 June 230 235 July 220 230 August 200 205 September 210 220 October 250 270 November 400 450 December 450 502 a) y = 264.92 + 2.79x b) y = 264.92 + 1.67x c) y = 283.64 + 2.79x d) y = 283.64 + 1.67x 2. (TCO 3) Using the following information regarding actual sales for Paradise Pools, project sales for May of Year 3 using simple linear regression: Sales for Paradise Pools ($000s) Month First Year Second Year January 84 84 February 80 82 March 88 98 April 100 120 May 150 160 June 200 210 July 240 250 August 220 215 September 180 195 October 160 165 November 120 130 December 92 100 a) 168.79 b) 174.52 c) 178.35 d) 180.26 3. (TCO 3) Using the following information regarding actual sales for Sams Ski Supplies, calculate the seasonal ratio for January of Year 3: Sales for Sams Ski Supplies ($000s) Month First Year Second Year January 380 400 February 340 360 March 320 330 April 280 290 May 265 270 June 230 235 July 220 230 August 200 205 September 210 220 October 250 270 November 400 450 December 450 502 a) 1.18 b) 1.32 c) 1.40 d) 1.55 4. (TCO 3) Using the following information regarding actual sales for Seafood City, calculate the seasonal forecast of sales for Friday of Week 3: Sales for Seafood City ($) Day Week 1 Week 2 Monday 1,700 1,800 Tuesday 1,900 2,000 Wednesday 2,100 2,100 Thursday 2,300 2,200 Friday 4,200 4,300 Saturday 4,400 4,600 Sunday 2,100 2,200 a) 2,822.29 b) 3,006.17 c) 4,300.00 d) 5,614.30
Aug 29, 2021 | Uncategorized
1. (TCO B) Zeff Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, Year 1, its first year of operations: Pretax financial income $160,000 Nontaxable interest received on municipal securities (5,000) Long term loss accrual in excess of deductible amount 10,000 Depreciation in excess of financial statement amount (25,000) Taxable income $140,000 Zeff’s tax rate for Year 1 is 40%. In its December 31, Year 1, balance sheet, what should Zeff report as deferred income tax liability? a) $2,000 b) $4,000 c) $6,000 d) $8,000 2. (TCO B) On its December 31, Year 2, balance sheet, Shin Co. had income taxes payable of $13,000 and a current deferred tax asset of $20,000 before determining the need for a valuation account. Shin had reported a current deferred tax asset of $15,000 at December 31, Year 1. No estimated tax payments were made during Year 2. At December 31, Year 2, Shin determined that it was more likely than not that 10% of the deferred tax asset would not be realized. In its Year 2 income statement, what amount should Shin report as total income tax expense? a) $8,000 b) $8,500 c) $10,000 d) $13,000 3. (TCO B) Hut Co. has temporary taxable differences that will reverse during the next year and add to taxable income. These differences relate to noncurrent assets. Under U.S. GAAP, deferred income taxes based on these temporary differences should be classified in Hut’s balance sheet as a: a) Current asset. b) Noncurrent asset. c) Current liability. d) Noncurrent liability. 4. (TCO B) For the year ended December 31, 1993, Grim Co.’s pretax financial statement income was $200,000 and its taxable income was $150,000. The difference is due to the following: Interest on municipal bonds $70,000 Premium expense on keyman life insurance (20,000) Total $50,000 Grim’s enacted income tax rate is 30%. In its 1993 income statement, what amount should Grim report as current provision for income tax expense? a) $45,000 b) $51,000 c) $60,000 d) $66,000 5. When accounting for income taxes, a temporary difference occurs in which of the following scenarios? a) An item is included in the calculation of net income, but is neither taxable nor deductible. b) An item is included in the calculation of net income in one year and in taxable income in a different year. c) An item is no longer taxable due to a change in the tax law. d) The accrual method of accounting is used. Complete work will appreciated
Aug 29, 2021 | Uncategorized
Sound Sensation Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the period:
?
.:.
The plant manager is not pleased with the $8,202 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred:
Plant Manager: I just received this factory report for the latest month of operation. I’m not very pleased with these figures. Before these numbers go to headquarters, you and I will need to reach an understanding.
Controller: Go ahead, what’s the problem?
Plant Manager: What’s the problem? Well, everything. Look at the variance. It’s too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well, I don’t believe that these costs are variable at all. I think they are fixed costs. As a result, when we operate below capacity, the costs really don’t go down at all. I’m being penalized for costs I have no control over at all. I need this report to be redone to reflect this fact. If anything, the difference between actual and budget is essentially a volume variance. Listen, I know that you’re a team player. You really need to reconsider your assumptions on this one.
If you were in the controller’s position, how would you respond to the plant manager?
Aug 29, 2021 | Uncategorized
Surgical Products produces latex surgical gloves. Machines perform the majority of the processing for 1,000 pairs of gloves per hour. Each pair of gloves requires 0.85 square foot of latex, which has a standard price of $0.80 per square foot. Machine operators are considered direct labor and are paid $15 per hour.
During one week in May, Surgical Products produced 300,000 pairs of gloves and experienced a $1,440 unfavorable material quantity variance. The company had purchased 2,500 more square feet of material than had been used in production that week. The unfavorable material price variance for the week was $5,186. A $288 unfavorable total labor variance was generated based on 315 total actual labor hours to produce the gloves. Determine the following amounts:
a. Standard quantity of material for production achieved
b. Actual quantity of material used
c. Actual quantity of material purchased
d. Actual price of material purchased
e. Standard hours for actual production
f. Labor efficiency variance
g. Labor rate variance
h. Actual labor rate
Aug 29, 2021 | Uncategorized
Svenson Technology considers direct labor cost too insignificant to separately account for, and, therefore, uses a $22.50 per machine hour predetermined conversion cost rate (of which $16 is related to fixed overhead costs). The conversion rate was established based on expected capacity of 1,008,600 machine hours. One of Svenson Technology’s products requires 4.1 machine hours to manufacture.
In September 2010, the company manufactured 21,000 units of product and used 83,000 machine hours and 840 direct labor hours. Variable and fixed conversion costs incurred for September were $551,230 and $1,330,000, respectively.
a. What is the expected capacity per month in units and machine hours?
b. Prepare a four and three variance analysis of conversion costs for September 2010.
Aug 29, 2021 | Uncategorized
Taylor Industries, Inc., develops standard costs for all its direct materials, direct labor, and overhead costs. It uses these costs to price products, cost inventories, and evaluate the performance of purchasing and production mangers. It updates the standard costs whenever costs, prices, or rate change by 3 percent or more. It also reviews and updates all standard costs each December; this practice provides current standards that are appropriate for use in valuing year end inventories on the company’s financial statement.
Jody Elgar is in charge of standard costing at Taylor Industries. On November 30, she received a memo from the chief financial officer informing her that Taylor Industries was considering purchasing another company and that she and her staff were to postpone adjusting standard costs until late February; they were instead to concentrate on analyzing the proposed purchase.
In the third week of November, prices on more than 20 of Taylor Industries’ direct materials had been reduced by 10 percent or more, and a new labor union contract had reduced several categories of labor rates. A revision of standard costs in December would have resulted in lower valuations of inventories, higher cost of goods sold because of inventory write downs, and lower net income for the year. Elgar believed that the company was facing an operating loss and that the assignment to evaluate the proposed purchase was designed primarily to keep her staff from revising and lowering standard costs. She questioned the chief financial officer about the assignment and reiterated the need for updating the standard costs, but she was again told to ignore the update and concentrate on the proposed purchase. Elgar and her staff were relieved of the evaluation assignment in early February. The purchase never materialized.
Assess Jody Elgar’s actions in this situation. Did she follow all ethical paths to solving the problem? What are the consequences of failing to adjust the standard costs?
Aug 29, 2021 | Uncategorized
Terkelsen Mfg. produces comforter sets with the following standard cost information:
?c Each comforter set requires 0.5 hours of machine time to produce.
?c Variable overhead is applied at the rate of $9 per machine hour.
?c Fixed overhead is applied at the rate of $6 per machine hour, based on an expected annual capacity of 30,000 machine hours.
Production Statistics for 2010
Number of comforter sets produced ………………….62,000 units
Actual number of machine hours ……………………..33,300 hours
Variable overhead cost incurred …………………….. $265,400
Fixed overhead cost incurred ………………………. $177,250
a. Calculate variances using the one variance approach.
b. Calculate variances using the two variance approach.
c. Calculate variances using the three variance approach.
Aug 29, 2021 | Uncategorized
The city of Western Heights has an annual budget cycle that begins on July 1 and ends on June 30. At the beginning of each budget year, an annual budget is established for each department. The annual budget is divided by 12 months to provide a constant monthly static budget. On June 30, all unspent budgeted monies for the budget year from the various city departments must be ?oreturned?? to the General Fund. Thus, if department heads fail to use their budget by year end, they will lose it. A budget analyst prepared a chart of the difference between the monthly actual and budgeted amounts for the recent fiscal year. The chart was as follows:
(a) Interpret the chart.
(b) Suggest an improvement in the budget system.
Aug 29, 2021 | Uncategorized
The December 22, 2009, edition of the Wall Street Journal has an article by Kevin Kelliker entitled ?oIn Risky Move, GM to Run Plants Around Clock.??
Instructions
Read the article and answer the following questions.
(a) According to the article, what is the normal industry standard for plants to be considered operating at full capacity?
(b) What ideal standard is the company hoping to achieve?
(c) What reasons are given in the article for why most companies do not operate a third shift? How does GM propose to overcome these issues?
(d) What are some potential drawbacks of the midnight shift? What implications does this have for variances from standards?
(e) What potential sales/marketing disadvantage does the third shift create?
Aug 29, 2021 | Uncategorized
The executive team at Current Designs has gathered to evaluate the company’s operations for the last month. One of the topics on the agenda is the special order from Huegel Hollow, which was presented in BYP2 1. Recall that Current Designs had a special order to produce a batch of 20 kayaks for a client, and you were asked to determine the cost of the order and the cost per kayak.
Mike Cichanowski asked the others if the special order caused any particular problems in the production process. Dave Thill, the production manager, made the following comments: ?oSince we wanted to complete this order quickly and make a good first impression on this new customer, we had some of our most experienced type I workers run the rotomold oven and do the trimming. They were very efficient and were able to complete that part of the manufacturing process even more quickly than the regular crew. However, the finishing on these kayaks required a different technique than what we usually use, so our type II workers took a little longer than usual for that part of the process.??
Deb Welch, who is in charge of the purchasing function, said, ?oWe had to pay a little more for the polyethylene powder for this order because the customer wanted a color that we don’t usually stock. We also ordered a little extra since we wanted to make sure that we had enough to allow us to calibrate the equipment. The calibration was a little tricky, and we used all of the powder that we had purchased. Since the number of kayaks in the order was fairly small, we were able to use some rope and other parts that were left over from last year’s production in the finishing kits. We’ve seen a price increase for these components in the last year, so using the parts that we already had in inventory cut our costs for the finishing kits.??
Instructions
(a) Based on the comments above, predict whether each of the following variances will be favorable or unfavorable. If you don’t have enough information to make a prediction, use ?oNEI?? to indicate ?oNot Enough Information.??
(1) Quantity variance for polyethylene powder.
(2) Price variance for polyethylene powder.
(3) Quantity variance for finishing kits.
(4) Price variance for finishing kits.
(5) Quantity variance for type I workers.
(6) Price variance for type I workers.
(7) Quantity variance for type II workers.
(8) Price variance for type II workers.
(b) Diane Buswell examined some of the accounting records and reported that Current Designs purchased 1,200 pounds of pellets for this order at a total cost of $2,040. Twenty (20) finishing kits were assembled at a total cost of $3,240. The payroll records showed that the type I employees worked 38 hours on this project at a total cost of $570. The type II finishing employees worked 65 hours at a total cost of $796.25. A total of 20 kayaks were produced for this order.
The standards that had been developed for this model of kayak were used in BYP2 1 and are reproduced here. For each kayak: 54 pounds of polyethylene powder at $1.50 per pound
1 finishing kit (rope, seat, hardware, etc.) at $170
2 hours of type I labor from people who run the oven and trim the plastic at a standard wage rate of $15 per hour
3 hours of type II labor from people who attach the hatches and seat and other hardware at a standard wage rate of $12 per hour.
Calculate the eight variances that are listed in part (a) of this problem.
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
During the year, the Lubbock plant had the following actual production activity:
a. Production of motors totaled 50,000 units.
b. A total of 260,000 pounds of raw materials was purchased at $4.70 per pound.
c. There were 60,000 pounds of raw materials in beginning inventory (carried at $5 per lb.). There was no ending inventory.
d. The company used 82,000 direct labor hours at a total cost of $1,066,000. 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. Complete the materials price and usage variances. Of the two materials variances, which is viewed as the most controllable? To whom would you assign responsibility for the usage variance in this case? Explain.
2. Compute the labor rate and efficiency variances. Who is usually responsible for the labor efficiency variance? What are some possible causes for this variance?
3. Assume that the purchasing agent for the small motors plant purchased a lower quality raw material from a new supplier. Would you recommend that the plant continue to use this cheaper raw material? If so, what standards would likely need revision to reflect this decision? Assume that the end product’s quality is not significantly affected.
4. Prepare all possible journal entries.
Aug 29, 2021 | Uncategorized
The standard cost card for the single product manufactured by Cutter, Inc., is given below:
Manufacturing overhead is applied to production on the basis of standard direct labor hours. During the year, the company worked 37,000 hours and manufactured 9,500 units of product. Selected data relating to the company’s fixed manufacturing overhead cost for the year are shown below:
Required:
1. What were the standard hours allowed for the year’s production?
2. What was the amount of fixed overhead cost contained in the flexible budget for the year?
3. What was the fixed overhead budget variance for the year?
4. What denominator activity level did the company use in setting the predetermined overhead rate for theyear?
Aug 29, 2021 | Uncategorized
The standard operating capacity of Tecate Manufacturing Co. is 1,000 units. A detailed study of the manufacturing data relating to the standard production cost of one product revealed the following:
1. Two pounds of materials are needed to produce one unit.
2. Standard unit cost of materials is $8 per pound.
3. It takes one hour of labor to produce one unit.
4. Standard labor rate is $10 per hour.
5. Standard overhead for this volume is $4,000.
All of the deviations listed in E8 1 and E8 2 took place, and 1,100 units were started and finished.
Each case requires the following:
a. Set up a standard cost summary showing the standard unit cost.
b. Analyze the variances for materials and labor.
c. Make journal entries to record the transfer to Work in Process of:
1. Materials costs
2. Labor costs
3. Overhead costs
When making these entries, include the variances.
d. Prepare the journal entry to record the transfer of costs to the finished goods account.
Aug 29, 2021 | Uncategorized
Tom Belford and Tony Sorrentino own a small business devoted to kitchen and bath granite installations. Recently, building contractors have insisted on up front bid prices for a house rather than the cost plus system that Tom and Tony were used to. They worry because natural flaws in the granite make it impossible to tell in advance exactly how much granite will be used on a particular job. In addition, granite can be easily broken, meaning that Tom or Tony could ruin a slab and would need to start over with a new one. Sometimes the improperly cut pieces could be used for smaller installations, sometimes not. All their accounting is done by a local certified public accounting firm headed by Charlene Davenport. Charlene listened to their concerns and suggested that it might be time to implement tighter controls by setting up a standard costing system. Charlene reviewed the invoices pertaining to a number of Tom and Tony’s previous jobs to determine the average amount of granite and glue needed per square foot. She then updated prices on both materials to reflect current conditions. The standards she developed for one square foot of counter installed were as follows:
Granite, per square foot $50.00
Glue (10 oz. @ $0.15) 1.50
Direct labor hours:
Cutting labor (0.10 hr. @ $15) 1.50
Installation labor (0.25 hr. @ $25) 6.25
These standards assumed that one seamless counter requires one sink cut (the space into which the sink will fit) as well as cutting the counter to fit the space available. Charlene tracked the actual costs incurred by Tom and Tony for granite installation for the next six months. She found that they completed 50 jobs with an average of 32 square feet of granite installed in each one. The following information on actual amounts used and cost was gathered:
Granite purchased and used (1,640 sq. ft.) $79,048
Glue purchased and used (16,000 oz.) $ 2,560
Actual hours cutting labor 180
Actual hours installation labor 390
The actual wage rate for cutting and installation labor remained unchanged from the standard rate.
Required:
1. Calculate the materials price variances and materials usage variances for granite and for glue for the past six months.
2. Calculate the labor rate variances and labor efficiency variances for cutting labor and for installation labor for the past six months.
3. Would it be worthwhile for Charlene to establish standards for atypical jobs (e.g., those with more than one sink cut or wider than normal)?
Aug 29, 2021 | Uncategorized
Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory.
In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:
The president has read in industry journals that throughput time, MCE, and delivery cycle time are important measures of performance, but no one is sure how they are computed. You have been asked to assist the company, and you have gathered the following data relating to these measures:
Required:
1 For each month, compute the following performance measures:
(a) Throughput time.
(b) MCE.
(c) Delivery cycle time.
2. Using the performance measures given in the main body of the problem and the performance measures computed in (1) above, do the following:
(a) Identify areas where the company seems to be improving.
(b)Identify areas where the company seems to be deteriorating.
3. Refer to the inspection time, process time, and so forth, given for month 4.
(a) Assume that in month 5 the inspection time, process time, and so forth, are the same as for month 4, except that the company is able to completely eliminate the queue time during production using Lean Production. Compute the new throughput time and MCE.
(b) Assume that in month 6 the inspection time, process time, and so forth, are the same as in month 4, except that the company is able to eliminate both the queue time during production and the inspection time using Lean Production. Compute the new throughput time andMCE.
Aug 29, 2021 | Uncategorized
Victoria Chocolates, Ltd., makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company’s products, the Empire Truffle. This product is made with the finest white chocolate and various fillings. The data below pertain only to the white chocolate used in the product (the currency is stated in pounds denoted here as ?L):
Required:
1. Determine the standard price of a kilogram of white chocolate.
2. Determine the standard quantity of white chocolate for a dozen truffles.
3. Determine the standard cost of the white chocolate in a dozentruffles.
Aug 29, 2021 | Uncategorized
Warwick Bottle Company (WBC) manufactures plastic two liter bottles for the beverage industry. The cost standards per 100 two liter bottles are as follows:
Standard Cost per 100
Cost Category Two Liter Bottles
Direct labor ……………………… $1.32
Direct materials ………………..….. 5.34
Factory overhead …………………. 0.34
Total ……………………………… $7.00
At the beginning of July, WBC management planned to produce 650,000 bottles. The actual number of bottles produced for July was 700,000 bottles. The actual costs for July of the current year were as follows:
Actual Cost for the
Cost Category Month Ended July 31, 2010
Direct labor ………………….. $ 9,400
Direct materials ……………… 36,500
Factory overhead ……………… 2,400
Total ……………………….. $48,300
a. Prepare the July manufacturing standard cost budget (direct labor, direct materials, and factory overhead) for WBC, assuming planned production.
b. Prepare a budget performance report for manufacturing costs, showing the total cost variances for direct materials, direct labor, and factory overhead for July.
c. Interpret the budget performance report.
Aug 29, 2021 | Uncategorized
Wonderful Not only did our salespeople do a good job in meeting the sales budget this year, but our production people did a good job in controlling costs as well, said Kim Clark, president of Martell Company. ?oOur $18,300 overall manufacturing cost variance is only 1.2% of the $1,536,000 standard cost of products made during the year. That’s well within the 3% parameter set by management for acceptable variances. It looks like everyone will be in line for a bonus this year.??
The company produces and sells a single product. The standard cost card for the product follows:
The following additional information is available for the year just completed:
(a) The company manufactured 30,000 units of product during the year.
(b) A total of 64,000 feet of material was purchased during the year at a cost of $8.55 per foot. All of this material was used to manufacture the 30,000 units. There were no beginnings or ending inventories for the year.
(c) The company worked 43,500 direct labor hours during the year at a direct labor cost of $15.80 per hour.
(d) Overhead is applied to products on the basis of standard direct labor hours. Data relating to manufacturing overhead costsfollow:
Aug 29, 2021 | Uncategorized
?oWhat’s going on in that lab??? asked Derek Warren, chief administrator for Cottonwood Hospital, as he studied the prior month’s reports. ?oEvery month the lab teeters between a profit and a loss. Are we going to have to increase our lab fees again???
?oWe can’t,?? replied Lois Ankers, the controller. ?oWe’re getting lots of complaints about the last increase, particularly from the insurance companies and governmental health units. They’re now paying only about 80% of what we bill. I’m beginning to think the problem is on the cost side.??
To determine if lab costs are in line with other hospitals, Mr. Warren has asked you to evaluate the costs for the past month. Ms. Ankers has provided you with the following information:
a. Two basic types of tests are performed in the lab—smears and blood tests. During the past month, 2,700 smears and 900 blood tests were performed in the lab.
b. Small glass plates are used in both types of tests. During the past month, the hospital purchased 16,000 plates at a cost of $38,400. This cost is net of a 4% purchase discount. A total of 2,000 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.
c. During the past month, 1,800 hours of labor time were used in performing smears and blood tests. The cost of this labor time was $18,450.
d. The lab’s variable overhead cost last month totaled $11,700.
Cottonwood Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:
Plates: Three plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is completed.
Labor: Each smear should require 0.3 hours to complete, and each blood test should require 0.6 hours to complete. The average cost of this lab time is $12 per hour.
Overhead: Overhead cost is based on direct labor hours. The average rate of variable overhead is $6 per hour.
Required:
1. Compute the materials price variance for the plates purchased last month, and compute a materials quantity variance for the plates used last month.
2. For labor cost in the lab:
a. Compute a labor rate variance and a labor efficiency variance.
b. In most hospitals, three fourths of the workers in the lab are certified technicians and one fourth are assistants. In an effort to reduce costs, Cottonwood Hospital employs only one half certified technicians and one half assistants. Would you recommend that this policy be continued? Explain.
3. Compute the variable overhead spending and efficiency variances. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Explain.
Aug 29, 2021 | Uncategorized
General Background. On May 22, 2012, the audit firm of Brock, Schechter & Polakoff LLP (hereafter BSP) was censured and fined $20,000 by the PCAOB in relation to its audits of public companies located in Taiwan and China. These public companies were listed on U.S. stock exchanges. James Waggoner, BSP’s Director of Accounting and Auditing, was the BSP auditor responsible for the audits. The charges against BSP and Waggoner include the following: • BSP failed to develop policies and procedures to assure that the firm undertook only audit engagements that it could expect to conduct with professional competence. Prior to undertaking the audits of the Taiwan and Chinese companies, the firm had no experience auditing public companies in general or companies based in these locations. Further, BSP personnel lacked the abil ity to communicate in Chinese. • BSP failed to develop policies and procedures to assure that the personnel assigned to the audits had the requisite technical training and proficiency. • BM’ failed to monitor the audits during its annual internal review process. • BSP failed to comply with PCAOB standards on the planning, performance, and supervision of the audits. • BSP failed to gather sufficient evidence, failed to use due care, and failed to exercise professional skepticism on the audits. • BSP allowed two other audit firms, which were located in Taiwan and China, to plan and perform the audits. BSP had minimal contact with the foreign.firms, and inadequately reviewed the working papers of the fothign firms. BSP also failed to obtain and review engagement completion documentation from the foreign firms prior to issuing the audit reports. • Waggoner failed to comply with professional auditing standards. Further, he•failed to cooperate with PCAOB inspectors, and he falsified documentation relating to the audits. The Kid Castle Audits. Kid Castle is a company located in Taiwan that provides English language instruction to Chinese speaking chil the IITC. R,dlrrin Rnarti and Pink
Aug 29, 2021 | Uncategorized
NELSON COMPANY
Unadjusted Trial Balance
January 31, 2013 |
|
Debit |
Credit |
| Cash |
$ |
26,150 |
|
|
| Merchandise inventory |
|
14,500 |
|
|
| Store supplies |
|
5,000 |
|
|
| Prepaid insurance |
|
2,100 |
|
|
| Store equipment |
|
42,800 |
|
|
| Accumulated depreciation—Store equipment |
|
|
$ |
19,850 |
| Accounts payable |
|
|
|
12,000 |
| J. Nelson, Capital |
|
|
|
40,000 |
| J. Nelson, Withdrawals |
|
2,150 |
|
|
| Sales |
|
|
|
116,200 |
| Sales discounts |
|
2,000 |
|
|
| Sales returns and allowances |
|
2,250 |
|
|
| Cost of goods sold |
|
38,000 |
|
|
| Depreciation expense—Store equipment |
|
0 |
|
|
| Salaries expense |
|
30,700 |
|
|
| Insurance expense |
|
0 |
|
|
| Rent expense |
|
13,000 |
|
|
| Store supplies expense |
|
0 |
|
|
| Advertising expense |
|
9,400 |
|
|
|
|
|
|
|
| Totals |
$ |
188,050 |
$ |
188,050 |
|
|
|
|
|
|
| Rent expense and salaries expense are equally divided between selling activities and the general and administrative activities. Nelson Company uses a perpetual inventory system. |
| a. |
Store supplies still available at fiscal year end amount to $1,700. |
| b. |
Expired insurance, an administrative expense, for the fiscal year is $1,750. |
| c. |
Depreciation expense on store equipment, a selling expense, is $1,600 for the fiscal year. |
| d. |
To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,300 of inventory is still available at fiscal year end. |
Aug 29, 2021 | Uncategorized
Using the finance or similarly named department link of a city’s Web site, download either the city’s entire comprehensive annual financial report (CAFR) or, if possible, just the portion of the CAFR that contains the basic financial statements. Print a copy of the government wide statement of activities and a copy of the statement of revenue, expenditures, and changes in fund balances, governmental funds, along with the reconciliation between these two statements, and respond to the requirements below. The city manager is concerned that some recently elected members of the city council will get a mixed message since the change in net position reported for governmental activities is noticeably different from the change in fund balances reported on the governmental funds statement of revenues, expenditures, and changes in fund balances. The city manager has requested that you, in your role as finance director, explain to the city council in clear, easy to understand terms for which purposes each operating statement is intended and how and why the operating results differ.
A) Examine the two operating statements in detail, paying particular attention to the lines on which changes in net position and changes in fund balances are reported and develop a list of reasons why the two numbers are not the same.
B) Prepare a succinct and understandable explanation of the results of operations of the government from the perspective of each operating statement, in terms that a non accountant council member would be able to understand.
Aug 29, 2021 | Uncategorized
Madzinga’s Draperies manufactures curtains. Curtain #4571 requires the following:
Direct material standard …………………..10 square yards at $5 per yard
Direct labor standard …………………….. 5 hours at $10 per hour
During the second quarter, the company purchased 17,000 square yards at a cost of $83,300 and used 16,500 square yards to produce 1,500 Curtain #4571s. Direct labor totaled 7,600 hours for $79,800.
a. Compute the material price and usage variances.
b. Prepare the journal entries for the purchase and use of direct material.
c. Compute labor rate and labor efficiency variances.
d. Prepare the journal entry to accrue direct labor cost and record the labor variances for the quarter.
e. Comment on the above variances. Identify possible causes and relationships among the variances that you computed.
Aug 29, 2021 | Uncategorized
Midlands Hospital began using standards to evaluate its Admissions Department. The standard was broken into two types of admissions as follows:
Standard Time to Complete
Type of Admission Admission Record
Unscheduled admission …………… 60 minutes
Scheduled admission ………………. 40 minutes
The unscheduled admission took longer, since name, address, and insurance information needed to be determined at the time of admission. Information was collected on scheduled admissions prior to the admissions, which was less time consuming.
The Admissions Department employs three full time people (40 productive hours per week, with no overtime) at $21 per hour. For the most recent week, the department handled 48 unscheduled and 150 scheduled admissions.
a. How much was actually spent on labor for the week?
b. What are the standard hours for the actual volume for the week? Round to one decimal place.
c. Calculate a time variance, and report how well the department performed for the week.
Aug 29, 2021 | Uncategorized
Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below:
Contains direct materials, direct labor, and variable manufacturing over head.
Janet Dunn, who has just been appointed general manager of the Westwood Plant, has been given instructions to ?oget things under control.?? Upon reviewing the plant’s income statement, Ms. Dunn has concluded that the major problem lies in the variable cost of goods sold. She has been provided with the following standard cost per swimming pool:
*Based on machine hours.
During June the plant produced 15,000 pools and incurred the following costs:
(a) Purchased 60,000 pounds of materials at a cost of $1.95 per pound.
(b)Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)
(c) Worked 11,800 direct labor hours at a cost of $7.00 per hour.
(d) Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine hours was recorded. It is the company’s policy to close all variances to cost of goods sold on a monthly basis.
Required:
1. Compute the following variances for June:
(a) Direct materials price and quantity variances.
(b) Direct labor rate and efficiency variances.
(c) Variable overhead rate and efficiency variances.
2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. What impact did this figure have on the company’s income statement? Show computations.
3. Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of thesevariances.
Aug 29, 2021 | Uncategorized
Morton Company’s variable manufacturing overhead should be $4.50 per standard direct labor hour and fixed manufacturing should be $270,000 per year.
The company manufactures a single product that requires two direct labor hours to complete. The direct labor wage rate is $15 per hour. Four feet of raw material are required for each unit of product; the standard cost of the material is $8.75 per foot.
Although normal activity is 30,000 direct labor hours each year, the company expects to operate at a 40,000 hour level of activity this year.
Required:
1. Assume that the company chooses 30,000 direct labor hours as the denominator level of activity. Compute the predetermined overhead rate, breaking it down into variable and fixed cost elements.
2. Assume that the company chooses 40,000 direct labor hours as the denominator level of activity. Repeat the computations in (1) above.
3.Complete two standard cost cards as outlined below.
4. Assume that the company actually produces 18,000 units and works 38,000 direct labor hours during the year. Actual manufacturing overhead costs for the year are:
Do the following:
(a) Compute the standard direct labor hours allowed for this year’s production.
(b) Complete the Manufacturing Overhead account below. Assume that the company uses 30,000 direct labor hours (normal activity) as the denominator activity figure in computing predetermined overhead rates, as you have done in (1) above.
c. Determine the cause of the underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.
5. Looking at the variances you have computed, what appears to be the major disadvantage of using normal activity rather than expected actual activity as a denominator in computing the predetermined overhead rate? What advantages can you see to offset thisdisadvantage?
Aug 29, 2021 | Uncategorized
Multiple Choice Questions
1. Historical experience should be used with caution in setting standards because
a. Most companies keep poor records.
b. Ideal standards are always better than historical standards.
c. They may not be achievable by operating personnel.
d. They may perpetuate operating inefficiencies.
e. None of the above.
2. Standards set by engineering studies
a. Can determine the most efficient way of operating.
b. Can provide rigorous guidelines.
c. May not be achievable by operating personnel.
d. Often do not allow operating personnel to have much input.
e. All of the above.
3 The standard cost per unit of output for a particular input is calculated using the equation
a. Actual input price per unit 3 Actual input used per unit.
b. Standard input price 3 Inputs allowed for the actual output.
c. Standard input price 3 Actual inputs.
d. Standard price per unit 3 Standard units produced.
e. Standard input price 3 Standard input allowed per unit of output produced.
4 A currently attainable standard is one that
a. Relies on maximum efficiency.
b. Uses only historical experience.
c. Can be achieved under efficient operating conditions.
d. Is based on ideal operating conditions.
e. None of the above.
5 An ideal standard is one that
a. Relies on maximum efficiency.
b. Uses only historical experience.
c. Can be achieved under efficient operating conditions.
d. Makes allowances for normal breakdowns, interruptions, less than perfect skill, and so on.
e. None of the above.
6 Reasons for adopting a standard cost system include
a. To enhance operational control.
b. To imitate most other firms.
c. To encourage purchasing managers to purchase cheap materials.
d. That the weighted average method can be used for process manufacturers.
e. None of the above.
7 Standard costs are developed for
a. Direct materials.
b. Direct labor.
c. Variable overhead.
d. Fixed overhead.
e. All of the above.
8 The underlying details for the standard cost per unit are provided in
a. The balance sheet.
b. The standard production budget.
c. The standard cost sheet.
d. The standard work in process account.
e. None of the above.
9. The standard quantity of materials allowed is computed by the equation
a. Unit quantity standard A? Standard output.
b. Unit quantity standard A? Actual output.
c. Unit quantity standard A? Practical output.
d. Unit quantity standard A? Normal output.
e. None of the above.
10 The standard direct labor hours allowed is given by the equation
a. Unit labor standard A? Normal output.
b. Unit labor standard A? Practical output.
c. Unit labor standard A? Standard output.
d. Unit labor standard 3 Actual output.
e. Unit labor standard 3 Theoretical output.
Aug 29, 2021 | Uncategorized
Multiple Choice Questions
1. The total (budget) variance is given by the equation
a. (AP A? AQ) – (SP A? SQ)P.
b. (SP A? AQ) – (AP A? SQ)P.
c. (SP A? AQ) – (SP A? SQ)P.
d. (AP A? SP) – (AQ A? SQ)P.
e. None of the above.
2 Investigating variances from standard is
a. Always done.
b. Done if the variance is outside of an acceptable range.
c. Not done if the variance is expected to recur.
d. Done if the variance is less than 10 percent of standard cost.
e. None of the above.
3. Responsibility for the materials price variance typically belongs to
a. Production.
b. Marketing.
c. Purchasing.
d. Personnel.
e. The chief executive officer (CEO).
4 The materials price variance is usually computed
a. When materials are purchased.
b. When materials are issued to production.
c. When goods are finished.
d. After suppliers are paid.
e. None of the above.
5 Responsibility for the materials usage variance is usually assigned to
a. Production.
b. Marketing.
c. Purchasing.
d. Personnel.
e. The CEO.
6 Responsibility for the labor rate variance typically is assigned to
a. Labor unions.
b. Labor markets.
c. Personnel.
d. Production.
e. Engineering.
7 Responsibility for the labor efficiency variance typically is assigned to
a. Labor unions.
b. Personnel.
c. Production.
d. Engineering.
e. Outside trainers.
8 Which of the following items describes practices surrounding the recording of variances?
a. All inventories are typically carried at standard.
b. Unfavorable variances appear as debits.
c. Favorable variances appear as credits.
d. Immaterial variances are typically closed to Cost of Goods Sold.
e. All of the above.
9 (Appendix) Which of the following is true concerning significantly large labor variances?
a. They are prorated among Work in Process, Finished Goods, and Cost of Goods Sold.
b. They are closed to Cost of Goods Sold.
c. They are prorated among Materials, Work in Process, Finished Goods, and Cost of Goods Sold.
d. They are reported on the balance sheet at the end of the year.
e. All of the above.
Aug 29, 2021 | Uncategorized
Major League Bat Company manufactures baseball bats. In addition to its goods in process inventories, the company maintains inventories of raw materials and finished goods. It uses raw materials as direct materials in production and as indirect materials. Its factory payroll costs include direct labor for production and indirect labor. All materials are added at the beginning of the process, and direct labor and factory overhead are applied uniformly throughout the production process.
Required
You are to maintain records and produce measures of inventories to reflect the July events of this company.
Set up the following general ledger accounts and enter the June 30 balances: Raw Materials Inventory, $25,000; Goods in Process Inventory, $8,135 ($2,660 of direct materials, $3,650 of direct labor, and $1,825 of overhead); Finished Goods Inventory, $110,000; Sales, $0; Cost of Goods Sold, $0; Factory Payroll, $0; and Factory Overhead, $0.
1. Prepare journal entries to record the following July transactions and events.
a. Purchased raw materials for $125,000 cash (the company uses a perpetual inventory system).
b. Used raw materials as follows: direct materials, $52,440; and indirect materials, $10,000.
c. Incurred factory payroll cost of $227,250 paid in cash (ignore taxes).
d. Assigned factory payroll costs as follows: direct labor, $202,250; and indirect labor, $25,000.
e. Incurred additional factory overhead costs of $80,000 paid in cash.
f. Allocated factory overhead to production at 50% of direct labor costs.
2. Information about the July inventories follows. Use this information with that from part 1 to prepare a process cost summary, assuming the weighted average method is used.
Units
Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . 5,000 units
Started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14,000 units
Ending inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 units
Beginning inventory
Materials—Percent complete . . . . . . . . . . . . . . . . 100%
Labor and overhead—Percent complete . . . . . . . 75%
Ending inventory
Materials—Percent complete . . . . . . . . . . . . . . . . 100%
Labor and overhead—Percent complete . . . . . . . 40%
3. Using the results from part 2 and the available information, make computations and prepare journal entries to record the following:
a. Total costs transferred to finished goods for July (label this entry g).
b. Sale of finished goods costing $265,700 for $625,000 in cash (label this entry h).
4. Post entries from parts 1 and 3 to the ledger accounts set up at the beginning of the problem.
5. Compute the amount of gross profit from the sales in July.
Aug 29, 2021 | Uncategorized
One of Sure Bet Sherbet’s bestselling products is raspberry sherbet, which is manufactured in 10 gallon batches. Each batch requires 6 quarts of raspberries. The raspberries are sorted by hand before entering the production process and, because of imperfections, 1 quart of berries is discarded for every 4 quarts of acceptable berries. The standard direct labor sorting time to obtain 1 quart of acceptable raspberries is 3 minutes. After sorting, raspberries are blended with other ingredients; blending requires 12 minutes of direct labor time per batch. During the blending process, some sherbet is lost because it adheres to the blending vats. After blending, the sherbet is packaged in quart containers. The following cost information is relevant:
?c Raspberries are purchased for $0.80 per quart.
?c All other ingredients cost a total of $0.45 per gallon.
?c Direct labor is paid $9.00 per hour.
?c The total cost of material and labor required to package the sherbet is $0.38 per quart.
a. Develop the standard cost for the direct cost components of a 10 gallon batch of raspberry sherbet. The standard cost should identify standard quantity, standard price/rate, and standard cost per batch for each direct cost component.
b. Discuss the possible causes of unfavorable material price variances, and identify the individual(s) who should be held responsible for these variances.
c. Discuss the possible causes of unfavorable labor efficiency variances, and identify the individual(s) who should be held responsible for these variances.
Aug 29, 2021 | Uncategorized
Operating at a normal level of 30,000 direct labor hours, Lasser Company produces 10,000 units of product each period. The direct labor wage rate is $12 per hour. Two and one half yards of direct materials go into each unit of product; the material costs $8.60 per yard. Variable manufacturing overhead should be $1.90 per standard direct labor hour. Fixed manufacturing overhead should be $168,000 per period.
Required:
1. Using 30,000 direct labor hours as the denominator activity, compute the predetermined overhead rate and break it down into variable and fixed elements.
2. Complete the standard cost card below for one unit ofproduct;
Aug 29, 2021 | Uncategorized
Order Up, Inc., provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Order Up, which pulls the item from storage, packs it, and ships it to the customer. The company uses a predetermined variable overhead rate based on direct labor hours.
In the most recent month, 140,000 items were shipped to customers using 5,800 direct labor hours. The company incurred a total of $15,950 in variable overhead costs.
According to the company’s standards, 0.04 direct labor hours are required to fulfill an order for one item and the variable overhead rate is $2.80 per direct labor hour.
Required:
1. What variable overhead cost should have been incurred to fi ll the orders for the 140,000 items? How much does this differ from the actual variable overhead cost?
2. Break down the difference computed in (1) above into a variable overhead spending variance and a variable overhead efficiency variance.
Aug 29, 2021 | Uncategorized
Pat James, the purchasing agent for a local plant of the Oakden Electronics Division, was considering the possible purchase of a component from a new supplier. The component’s purchase price, $0.90, compared favorably with the standard price of $1.10. Given the quantity that would be purchased, Pat knew that the favorable price variance would help to offset an unfavorable variance for another component. By offsetting the unfavorable variance, his overall performance report would be impressive and good enough to help him qualify for the annual bonus. More importantly, a good performance rating this year would help him to secure a position at division headquarters at a significant salary increase. Purchase of the part, however, presented Pat with a dilemma. Consistent with his past behavior, Pat made inquiries regarding the reliability of the new supplier and the part’s quality. Reports were basically negative. The supplier had a reputation for making the first two or three deliveries on schedule but being unreliable from then on. Worse, the part itself was of questionable quality. The number of defective units was only slightly higher than that for other suppliers, but the life of the component was 25 percent less than what normal sources provided. If the part were purchased, no problems with deliveries would surface for several months. The problem of shorter life would cause eventual customer dissatisfaction and perhaps some loss of sales, but the part would last at least 18 months after the final product began to be used. If all went well, Pat expected to be at headquarters within six months. He saw little personal risk associated with a decision to purchase the part from the new supplier. By the time any problems surfaced, they would belong to his successor. With this rationalization, Pat decided to purchase the component from the new supplier.
Required:
1. Do you agree with Pat’s decision?Why or why not? How important was Pat’s assessment of his personal risk in the decision? Should it be a factor?
2. Do you think that the use of standards and the practice of holding individuals accountable for their achievement played major roles in Pat’s decision?
3. Review the discussion on corporate ethical standards in Chapter 1. Identify the standards that might apply to Pat’s situation. Should every company adopt a set of ethical standards that apply to its employees, regardless of their specialty?
Aug 29, 2021 | Uncategorized
Paul Golding and his wife, Nancy, established Crunchy Chips in 1938. (Nancy sold her piano to help raise capital to start the business.) Paul assumed responsibility for buying potatoes and selling chips to local grocers; Nancy assumed responsibility for production. Since Nancy was already known for her delicious thin potato chips, the business prospered. Over the past 60 years, the company has established distribution channels in 11 western states, with production facilities in Utah, New Mexico, and Colorado. In 1980, Paul Golding died, and his son, Edward, took control of the business. By 2009, the company was facing stiff competition from national snack food companies. Edward was advised that the company’s plants needed to gain better control over production costs. To assist in achieving this objective, he hired a consultant to install a standard costing system. To help the consultant in establishing the necessary standards, Edward sent her the following memo:
To: Diana Craig, Certified Management Accountant
From: Edward Golding, President, Crunchy Chips
Subject: Description and Data Relating to the Production of Our Plain Potato Chips
Date:September 28, 2009
The manufacturing process for potato chips begins when the potatoes are placed into a large vat in which they are automatically washed. After washing, the potatoes flow directly to an automatic peeler. The peeled potatoes then pass by inspectors, who manually cut out deep eyes or other blemishes. After inspection, the potatoes are automatically sliced and are dropped into the cooking oil. The frying process is closely monitored by an employee. After the chips are cooked, they pass under a salting device and then pass by more inspectors, who sort out the unacceptable finished chips (those that are discolored or too small). The chips then continue on the conveyor belt to a bagging machine that bags them in one pound bags. After bagging, the bags are placed in a box and shipped. The box holds 15 bags. The raw potato pieces (eyes and blemishes), peelings, and rejected finished chips are sold to animal feed producers for $0.16 per pound. The company uses this revenue to reduce the cost of potatoes; we would like this reflected in the price standard relating to potatoes. Crunchy Chips purchases high quality potatoes at a cost of $0.245 per pound. Each potato averages 4.25 ounces. Under efficient operating conditions, it takes four potatoes to produce one 16 ounce bag of plain chips. Although we label bags as containing 16 ounces, we actually place 16.3 ounces in each bag. We plan to continue this policy to ensure customer satisfaction. In addition to potatoes, other raw materials are the cooking oil, salt, bags, and boxes. Cooking oil costs $0.04 per ounce, and we use 3.3 ounces of oil per bag of chips. The cost of salt is so small that we add it to overhead. Bags cost $0.11 each and boxes $0.52 each. Our plant produces 8.8 million bags of chips per year. A recent engineering study revealed that we would need the following direct labor hours to produce this quantity if our plant operates at peak efficiency:
Raw potato inspection 3,200
Finished chip inspection 12,000
Frying monitor 6,300
Boxing 16,600
Machine operators 6,300
I’m not sure that we can achieve the level of efficiency advocated by the study. In my opinion, the plant is operating efficiently for the level of output indicated if the hours allowed are about 10 percent higher.
The hourly labor rates agreed upon with the union are:
Raw potato inspectors $15.20
Finished chip inspectors 10.30
Frying monitor 14.00
Boxing 11.00
Machine operators 13.00
Overhead is applied on the basis of direct labor dollars. We have found that variable overhead averages about 116 percent of our direct labor cost. Our fixed overhead is budgeted at $1,135,216 for the coming year.
Required:
1. Discuss the benefits of a standard costing system for Crunchy Chips.
2. Discuss the president’s concern about using the result of the engineering study to set the labor standards. What standard would you recommend?
3. Form a group with two or three other students. Develop a standard cost sheet for Crunchy Chips’ plain potato chips.
4. Suppose that the level of production was 8.8 million bags of potato chips for the year as planned. If 9.5 million pounds of potatoes were used, compute the materials usage variance for potatoes.
Aug 29, 2021 | Uncategorized
Pier Corp. has an expected monthly capacity of 9,000 units but only 5,700 units were produced and 6,000 direct labor hours were used during August 2010 due to a flood in the manufacturing facility. Actual variable overhead for August was $48,165 and actual fixed overhead was $140,220.
Standard cost data follow:
Standard Cost per Unit
(One Unit Takes One Labor Hour)
Direct material …………………..$9.00
Direct labor …………………….15.00
Variable overhead ……………….. 8.00
Fixed overhead …………………16.00
Total …………………………… $48.00
a. Compute and compare the actual overhead cost per unit with the expected overhead cost per unit.
b. Calculate overhead variances using the four variance method.
c. Explain why the volume variance is so large.
Aug 29, 2021 | Uncategorized
Rita Lane is the accountant for Outdoor Living, a manufacturer of outdoor furniture that is sold through specialty stores and Internet companies. Lane is responsible for reviewing the standard costs. While reviewing the standards for the coming year, two ethical issues arise.
Lane has been approached by Casey Henderson, a former colleague who worked with Lane when they were both employed by a public accounting firm. Henderson has recently started his own firm, Henderson Benchmarking Associates, which collects and sells data on industry benchmarks. He offers to provide Lane with benchmarks for the outdoor furniture industry free of charge if she will provide him with the last three years of Outdoor Living’s standard and actual costs. Henderson explains that this is how he obtains most of his firm’s benchmarking data. Lane always has a difficult time with the standard setting process and believes that the benchmark data would be very useful.
Aug 29, 2021 | Uncategorized
Rita Lane is the accountant for Outdoor Living, a manufacturer of outdoor furniture that is sold through specialty stores and Internet companies. Lane is responsible for reviewing the standard costs. While reviewing the standards for the coming year, two ethical issues arise.
Outdoor Living’s management is starting a continuous improvement policy that requires a 10% reduction in standard costs each year for the next three years. Dan Jacobs, manufacturing foreman of the Teak furniture line, asks Lane to set loose standard costs this year before the continuous improvement policy is implemented. Jacobs argues that there is no other way to meet the tightening standards while maintaining the high quality of the Teak line.
Requirements
1. Use the IMA’s ethical guidelines (https://www.imanet.org/PDFs/Statement%20of%20 Ethics_web.pdf) to identify the ethical dilemma in each situation.
2. Identify the relevant factors in each situation and suggest what Lane should recommend to the controller.
Aug 29, 2021 | Uncategorized
Scandia Coat Company makes women’s and men’s coats. Both products require filler and lining material. The following planning information has been made available:
?
Scandia Coat does not expect there to be any beginning or ending inventories of filler and lining material. At the end of the budget year, Scandia Coat experienced the following actual results:
?
The expected beginning inventory and desired ending inventory were realized.
Instructions
1. Prepare the following variance analyses, based on the actual results and production levels at the end of the budget year:
a. Direct materials price, quantity, and total variance.
b. Direct labor rate, time, and total variance.
2. Why are the standard amounts in part (1) based on the actual production at the end of the year instead of the planned production at the beginning of theyear?
Aug 29, 2021 | Uncategorized
Scientific Molded Products Inc. prepared the following factory overhead cost budget for the Trim Department for August 2010, during which it expected to use 10,000 hours for production:
Scientific Molded Products has available 15,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During August, the Trim Department actually used 11,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for August was as follows:
Actual variable factory overhead cost:
Indirect factory labor ……………….. $27,000
Power and light ……………………….. 4,000
Indirect materials ……………………. 13,500
Total variable cost ………………….. $44,500
Construct a factory overhead cost variance report for the Trim Department for August.
Aug 29, 2021 | Uncategorized
Sharp Company manufactures a product for which the following standards have been set:
During March, the company purchased direct materials at a cost of $55,650, all of which were used in the production of 3,200 units of product In addition, 4,900 hours of direct labor time were worked on the product during the month. The cost of this labor time was $36,750. The following variances have been computed for the month:
Required:
1. For direct materials:
(a) Compute the actual cost per foot for materials for March.
(b) Compute the materials price variance and a total variance for materials.
2. For direct labor:
(a) Compute the standard direct labor rate per hour.
(b) Compute the standard hours allowed for the month’s production.
(c) Compute the standard hours allowed per unit ofproduct.
Aug 29, 2021 | Uncategorized
SkyChefs, Inc., prepares in flight meals for a number of major airlines. One of the company’s products is grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week, the company prepared 4,000 of these meals using 960 direct labor hours. The company paid these direct labor workers a total of $9,600 for this work, or $10.00 per hour.
According to the standard cost card for this meal, it should require 0.25 direct labor hours at a cost of $9.75 per hour.
Required:
1. What direct labor cost should have been incurred to prepare 4,000 meals? How much does this differ from the actual direct labor cost?
2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance.
Aug 29, 2021 | Uncategorized
Sommers Company uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated anytime the amount exceeds the lesser of $12,000 or 10 percent of the standard cost. Reports for the past five weeks provided the following information:
?
.:.
Required:
1. Using the rule provided, identify the cases that will be investigated.
2. Suppose investigation reveals that the cause of an unfavorable materials usage variance is the use of lower quality materials than are normally used. Who is responsible? What corrective action would likely be taken?
3. Suppose investigation reveals that the cause of a significant unfavorable materials usage variance is attributable to a new approach to manufacturing that takes less labor time but causes more material waste. Examination of the labor efficiency variance reveals that it is favorable and larger than the unfavorable materials usage variance. Who is responsible? What action should be taken?
Aug 29, 2021 | Uncategorized
Domino’s Pizza L.L.C. operates pizza delivery and carryout restaurants. The annual report describes its business as follows:
We offer a focused menu of high quality, value priced pizza with three types of crust (Hand Tossed, Thin Crust, and Deep Dish), along with buffalo wings, bread sticks, cheesy bread, CinnaStixAc, and Coca ColaAc products. Our hand tossed pizza is made from fresh dough produced in our regional distribution centers. We prepare every pizza using real cheese, pizza sauce made from fresh tomatoes, and a choice of high quality meat and vegetable toppings in generous portions. Our focused menu and use of premium ingredients enable us to consistently and efficiently produce the highest quality pizza.
Over the 41 years since our founding, we have developed a simple, cost efficient model. We offer a limited menu, our stores are designed for delivery and carry out, and we do not generally offer dine in service. As a result, our stores require relatively small, lower rent locations and limited capital expenditures.
How would a master budget support planning, directing, and control for Domino’s?
Aug 29, 2021 | Uncategorized
Erie Company manufactures a small CD player called the Jogging Mate. The company uses standards to control its costs. The labor standards that have been set for one Jogging Mate CD player are as follows:
During August, 5,750 hours of direct labor time were needed to make 20,000 units of the Jogging Mate. The direct labor cost totaled $73,600 for the month.
Required:
I. What direct labor cost should have been incurred to make 20,000 units of the Jogging Mate? By how much does this differ from the cost that was incurred?
2. Break down the difference in cost from (1) above into a labor rate variance and a labor efficiency variance.
3. The budgeted variable manufacturing overhead rate is $4 per direct labor hour. During August, the company incurred $21,850 in variable manufacturing overhead cost. Compute the variable overhead rate and efficiency variances for themonth.
Aug 29, 2021 | Uncategorized
Feldkamp Services, Inc. is trying to establish the standard labor cost of a typical oil change. The following data have been collected from time and motion studies conducted over the past month.
Actual time spent on the oil change …………..1.0 hour
Hourly wage rate ………………………………$10
Payroll taxes ……………………………………10% of wage rate
Setup and downtime ………………………….10% of actual labor time
Cleanup and rest periods ……………………..30% of actual labor time
Fringe benefits ……………………………….. 25% of wage rate
Instructions
(a) Determine the standard direct labor hours per oil change.
(b) Determine the standard direct labor hourly rate.
(c) Determine the standard direct labor cost per oil change.
(d) If an oil change took 1.5 hours at the standard hourly rate, what was the direct labor quantity variance?
Aug 29, 2021 | Uncategorized
For 2010, Riguilio Inc. set predetermined variable and fixed overhead rates, respectively, of $6.50 and $9.35 based on an expected monthly capacity of 4,000 machine hours. Each unit of product requires 1.25 machine hours.
During August 2010, the company produced 3,360 units and incurred $27,000 of variable overhead costs and $41,400 of fixed overhead costs. The firm used 4,100 machine hours during August 2010.
a. Using separate overhead rates, calculate overhead variances using the four variance approach.
b. Using a combined overhead rate, calculate variances using the three variance approach.
c. Using a combined overhead rate, calculate variances using the two variance approach.
d. Using a combined overhead rate, calculate variances using the one variance approach.
Aug 29, 2021 | Uncategorized
FUN Inc. has a fully automated production facility in which almost 97 percent of overhead costs are driven by machine hours. As the company’s cost accountant, you have computed the following overhead variances for May:
Variable overhead spending variance …………………..$34,000 F
Variable overhead efficiency variance …………………. 41,200 F
Fixed overhead spending variance …………………….. 28,000 U
Fixed overhead volume variance ………………………. 20,000 U
The company’s president is concerned about the variance amounts and has asked you to show her how the variances were computed and to answer several questions. Budgeted fixed overhead for the month is $1,000,000; the predetermined variable and fixed overhead rates are, respectively, $20 and $40 per machine hour. Budgeted capacity is 20,000 units.
a. Using the four variance approach, prepare an overhead analysis in as much detail as possible.
b. What is the standard number of machine hours allowed for each unit of output?
c. How many actual hours were worked in May?
d. What is the total spending variance?
e. What additional information about the manufacturing overhead variances is gained by inserting detailed computations into the variable and fixed manufacturing overhead variance analysis?
f. How would the overhead variances be closed if the three variance approach were used?
Aug 29, 2021 | Uncategorized
Genola Fashions began production of a new product on June 1. The company uses a standard cost system and has established the following standards for one unit of the new product:
During June, the following activity was recorded regarding the new product:
(a) Purchasing acquired 10,000 yards of material at a cost of $13.80 per yard.
(b) Production used 8,000 yards of the material to manufacture 3,000 units of the new product.
(c) Production reported that 5,000 direct labor hours were worked on the new product at a cost of $43,000.
Required:
1. For direct materials:
(a)Compute the direct materials price and quantity variances.
(b) Prepare journal entries to record the purchase of materials and the use of materials in production.
2. For direct labor:
(a) Compute the direct labor rate and efficiency variances.
(b) Prepare a journal entry to record the incurrence of direct labor cost for the month.
3. Post the entries you have prepared to the following T accounts:
Aug 29, 2021 | Uncategorized
Georgia Gasket Company budgets 8,000 direct labor hours for the year. The total overhead budget is expected to amount to $20,000. The standard cost for a unit of the company’s product estimates the variable overhead as follows:
Variable factory overhead (3 hours@$2 per direct labor hour) $6 per unit
The actual data for the period follow:
Actual completed units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Actual direct labor hours . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,640
Actual variable overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,100
Actual fixed overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,920
Using the four variance method, calculate the overhead variances.
Aug 29, 2021 | Uncategorized
Goodsmell Company produces a well known cologne. The standard manufacturing cost of the cologne is described by the following standard cost sheet:
Direct materials:
Liquids (4.2 oz. @ $0.25) $1.05
Bottles (1 @ $0.05) 0.05
Direct labor (0.2 hr. @ $12.50) 2.50
Variable overhead (0.2 hr. @ $4.70) 0.94
Fixed overhead (0.2 hr. @ $1.00) 0.20
Standard cost per unit $4.74
Management has decided to investigate only those variances that exceed the lesser of 10 percent of the standard cost for each category or $20,000. During the past quarter, 250,000 four ounce bottles of cologne were produced. Descriptions of actual activity for the quarter follow:
a. A total of 1.15 million ounces of liquids was purchased, mixed, and processed. Evaporation was higher than expected (no inventories of liquids are maintained). The price paid per ounce averaged $0.27.
b. Exactly 250,000 bottles were used. The price paid for each bottle was $0.048.
c. Direct labor hours totaled 48,250, with a total cost of $622,425. Normal production volume for Goodsmell is 250,000 bottles per quarter. The standard overhead rates are computed by using normal volume. All overhead costs are incurred uniformly throughout the year.
Required:
1. Calculate the upper and lower control limits for each manufacturing cost category.
2. Compute the total materials variance, and break it into price and usage variances. Would these variances be investigated?
3. Compute the total labor variance, and break it into rate and efficiency variances. Would these variances be investigated?
Aug 29, 2021 | Uncategorized
Hellier Contractors paints interiors of residences and commercial structures. The firm’s management has established cost standards per 100 square feet of area to be painted.
Direct material ($18 per gallon of paint) …………………………$1.50
Direct labor ………………………………………………………. 2.00
Variable overhead ……………………………………………….. 0.60
Fixed overhead (based on 600,000 square feet per month)……….. 1.25
Management has determined that 400 square feet can be painted by the average worker each hour. During May, the company painted 600,000 square feet of space and incurred the following costs:
Direct material (450 gallons purchased and used) ………………..$8,300.00
Direct labor (1,475 hours) ……………………………………….12,242.50
Variable overhead ……………………………………………….. 3,480.00
Fixed overhead ………………………………………………….. 7,720.00
a. Compute the direct material variances.
b. Compute the direct labor variances.
c. Use a four variance approach to compute overhead variances.
d. Use a three variance approach to compute overhead variances.
e. Use a two variance approach to compute overhead variances.
f. Reconcile your answers for parts (c) through (e).
g. Discuss other cost drivers that could be used as a basis for measuring activity and computing variances for this company.
Aug 29, 2021 | Uncategorized
Highland Company produces a lightweight backpack that is popular with college students. Standard variable costs relating to a single backpack are given below:
| |
Standard Quantity
or Hours
|
Standard Price
or Rate
|
Standard
Cost
|
|
Direct materials
|
?
|
$6.00 per yard
|
$ ?
|
|
Direct labor
|
?
|
?
|
?
|
|
Variable manufacturing overhead
|
?
|
$2 per direct
labor hour
|
?
|
|
|
|
|
|
|
Total standard cost
|
|
|
$?
|
|
|
|
|
|
| |
Overhead is applied to production on the basis of direct labor hours. During March, 770 backpacks were manufactured and sold. Selected information relating to the month’s production is given below:
| |
Materials Used
|
Direct Labor
|
Variable
Manufacturing
Overhead
|
|
Total standard cost allowed*
|
$18,480
|
$16,016
|
$2,464
|
|
Actual costs incurred
|
$16,000
|
?
|
$3,460
|
|
Materials price variance
|
?
|
|
|
|
Materials quantity variance
|
$ 720 U
|
|
|
|
Labor rate variance
|
|
?
|
|
|
Labor efficiency variance
|
|
?
|
|
|
Variable overhead rate variance
|
|
|
?
|
|
Variable overhead efficiency variance
|
|
|
?
|
| |
|
*For the month’s production.
|
|
The following additional information is available for March’s production:
|
| |
|
|
|
Actual direct labor hours
|
1,330
|
|
|
Standard overhead rate per direct labor hour
|
$2.00
|
|
|
Difference between standard and actual cost per backpack produced during March
|
$0.10
|
F
|
| |
|
1.
|
What is the standard cost of a single backpack?
|
| |
|
|
2.
|
What was the actual cost per backpack produced during March? (Round your answers to 2 decimal places.)
|
| |
|
|
3.
|
How many yards of material are required at standard per backpack?
|
| |
|
|
4.
|
What was the materials price variance for March if there were no beginning or ending inventories of materials? (Do not round intermediate calculations. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)
|
| |
|
|
5.
|
What is the standard direct labor rate per hour?
|
| |
|
|
6.
|
What was the labor rate variance for March? The labor efficiency variance? (Do not round your intermediate calculations. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance))
|
| |
|
|
7.
|
What was the variable overhead rate variance for March? The variable overhead efficiency variance? (Do not round intermediate calculations. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance))
|
| |
|
|
8.
|
Prepare a standard cost card for one backpack. (Round your answers to 2 decimal places.)
|
| |
|
Aug 29, 2021 | Uncategorized
Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below:
During the most recent month, the following activity was recorded:
(a)Twenty thousand pounds of material were purchased at a cost of $2.35 per pound.
(b)All of the material purchased was used to produce 4,000 units of Zoom.
(c) 750 hours of direct labor time were recorded at a total labor cost of $10,425.
Required:
1. Compute the direct materials price and quantity variances for the month.
2. Compute the direct labor rate and efficiency variances for themonth.
Aug 29, 2021 | Uncategorized
In December, Sam Antari, president of Antari Inc., received the following information from Denise Sweet, the new controller, in regard to November production of travel bags:
November production ……………………………. 4,800 bags
Actual cost of material purchased and used …… $14,550
Standard material allowed …………………………. 0.5 square yard per bag Material quantity variance ………………………… $600 U
Standard price per yard of material ………………….. $6
Actual hours worked ……………………………… 9,760 hours
Standard labor time per bag ………………………… 2 hours
Labor rate variance ………………………………… $1,464 F
Standard labor rate per hour ………………………. $17
Antari asked Sweet to provide the following information:
a. Standard quantity of material allowed for November production.
b. Standard direct labor hours allowed for November production.
c. Material price variance.
d. Labor efficiency variance.
e. Standard prime (direct material and direct labor) cost to produce one travel bag.
f. Actual cost to produce one travel bag in November.
g. An explanation for the difference between standard and actual cost; be sure that the explanation is consistent with the pattern of the variances.
Aug 29, 2021 | Uncategorized
In this segment of our continuing case, assume that you have been using standard costing to plan and control costs at your cookie store. In a meeting with your budget team, which includes managers and employees from the Purchasing, Product Design, and Production departments, you ask all team members to describe any operating problems they encountered in the last quarter. You explain that you will use this information to analyze the causes of significant cost variances that occurred during the quarter.
For each of the following situations, identify the direct materials and/or direct labor variance (s) that could be affected, and indicate whether the variances are favorable or unfavorable:
1. The production department uses highly skilled, highly paid workers.
2. Machines were improperly adjusted.
3. Direct labor personnel worked more carefully than they had in the past to manufacture the product.
4. The Product Design Department replaced a direct material with one that was less expensive and of lower quality.
5. The Purchasing Department bought higher quality materials at a higher price.
6. A major supplier used a less expensive mode of transportation to deliver the raw materials.
7. Work was halted for 2 hours because of a power failure.
Aug 29, 2021 | Uncategorized
Jackie Iverson was furious. She was about ready to fire Tom Rich, her purchasing agent. Just a month ago, she had given him a salary increase and a bonus for his performance. She had been especially pleased with his ability to meet or beat the price standards. But now, she found out that it was because of a huge purchase of raw materials. It would take months to use that inventory, and there was hardly space to store it. In the meantime, where could the other materials supplies be put that would be ordered and processed on a regular basis? Additionally, it was a lot of capital to tie up in inventory—money that could have been used to help finance the cash needs of the new product just coming on line. Her interview with Tom was frustrating. He was defensive, arguing that he thought she wanted those standards met and that the means were not that important. He also pointed out that quantity purchases were the only way to meet the price standards. Otherwise, an unfavorable variance would have been realized.
Required:
1. Why did Tom Rich purchase the large quantity of raw materials? Do you think that this behavior was the objective of the price standard? If not, what is the objective(s)?
2. Suppose that Tom is right and that the only way to meet the price standards is through the use of quantity discounts. Also, assume that using quantity discounts is not a desirable practice for this company. What would you do to solve this dilemma?
3. Should Tom be fired? Explain.
Aug 29, 2021 | Uncategorized
Kemp Manufacturing set 70,000 direct labor hours as the 2010 capacity measure for computing its predetermined variable overhead rate. At that level, budgeted variable overhead costs are $315,000. Kemp will apply budgeted fixed overhead of $140,400 on the basis of 3,900 budgeted machine hours for the year. Both machine hours and fixed overhead costs are expected to be incurred evenly each month.
During March 2010, Kemp incurred 5,900 direct labor hours and 300 machine hours. Actual variable and fixed overhead were $26,325 and $11,400, respectively. The standard times allowed for March production were 5,980 direct labor hours and 290 machine hours.
a. Using the four variance approach, determine the overhead variances for March 2010.
b. Prepare all journal entries related to overhead for Kemp Manufacturing for March 2010.
Aug 29, 2021 | Uncategorized
Kieffer Company makes men’s suit alterations for a major clothing store chain. No direct materials are used in the alterations process and overhead costs are primarily variable and relate very closely to direct labor charges. The company owner has decided to compute variances on a conversion cost basis. Standards for 2010 are as follows:
Expected direct labor hours (DLHs; to be incurred
evenly throughout the year) ……………………….60,000
Number of suits altered in October ………………………. 1,800
Standard DLHs per suit …………………………………… 3
Actual DLHs worked in October 2010 …………………… 5,490
Budgeted variable conversion cost per DLH …………….. $18
Budgeted annual fixed conversion cost ………………… $72,000
Actual variable conversion cost for October 2010 ………$103,100
Actual fixed conversion cost for October 2010 ………….$5,750
a. How many suits does Kieffer Company expect to alter during 2010?
b. What is the predetermined fixed OH rate for Kieffer Company?
c. How many standard direct labor hours were allowed for October 2010?
d. Calculate the four conversion cost variances assuming that variable and fixed costs are separated.
e. Calculate the three conversion cost variances assuming that fixed and variable costs are combined.
Aug 29, 2021 | Uncategorized
Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows:
During November, the following activity was recorded relative to production of Fludex:
(a) Materials purchased, 12,000 ounces at a cost of $225,000.
(b) There was no beginning inventory of materials; however, at the end of the month, 2,500 ounces of material remained in ending inventory.
(c) The company employs 35 lab technicians to work on the production of Fludex. During November, they worked an average of 160 hours at an average rate of $12 per hour.
(d) Variable manufacturing overhead is assigned to Fludex on the basis of direct labor hours. Variable manufacturing overhead costs during November totaled $18,200.
(e) During November, 3,750 good units of Fludex were produced.
The company’s management is anxious to determine the efficiency of Fludex production activities.
Required:
1. For direct materials used in the production of Fludex:
(a)Compute the price and quantity variances.
(b) The materials were purchased from a new supplier who is anxious to enter into a long term purchase contract. Would you recommend that the company sign the contract? Explain.
2. For direct labor employed in the production of Fludex:
(a) Compute the rate and efficiency variances.
(b) In the past, the 35 technicians employed in the production of Fludex consisted of 20 senior technicians and 15 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to save costs. Would you recommend that the new labor mix be continued? Explain.
3. Compute the variable overhead rate and efficiency variances. What relation can you see between this efficiency variance and the labor efficiencyvariance?
Aug 29, 2021 | Uncategorized
Last year, Biomed Laboratories, inc., researched and perfected a cure for the common cold. Called Cold Gone, the product sells for $28.00 per package, each of which contains five tablets. Standard nit costs for this product were developed late last year for use this year. Per package, the standard unit costs were as follows: chemical ingredients, 6 ounces at $1.00 per ounces; packaging, $1.20; direct labor, 0.8 hour at $14.00 per hour; standard variable overhead, $4.00 per direct labor hour; and standard fixed overhead, $6.40 per direct labor hour. Normal capacity is 46,875 units per week.
In the first quarter of this year, demand for the new product rose well beyond the expectations of management. During those three months, the peak season for colds, the company produced and sold over 500,000 packages of Cold Gone. During the first week in April, it produced 50,000 packages but used materials for 50,200 packages costing $60,240. It also used 305,000 ounces of chemical ingredients costing $292,800. The total cost of direct labor for the week was $579,600; direct labor hours totaled 40,250. Total variable overhead was $161,100, and total fixed overhead was $242,000. Budgeted fixed overhead for the week was $240,000.
Required
1. Compute for the first week of April
(a) All direct materials price variances,
(b) All direct materials quantity variances,
(c) The direct labor rate variance,
(d) The direct labor efficiency variance,
(e) The variable overhead spending variance,
(f) The variable overhead efficiency variance,
(g) The fixed overhead budget variance, and
(h) The fixed overhead volume variance.
2. Prepare a performance report based on your variance analysis, and suggest possible causes for each significant variance.
Aug 29, 2021 | Uncategorized
Case Study Ozi Native Clothing Background Ozi Native Clothing is a clothing manufacturer based in Melbourne which manufactures clothing and accessory items made from the hides of Australian native animals, including emus, kangaroos and wallabies. The company was established in the late 1980s at the time Australia had started to become a highly popular tourist destination and there was a growing general interest in Australia in many overseas markets.
Aug 29, 2021 | Uncategorized
Lynx, Corp., manufactures windows and doors. Lynx has been using a standard cost system that bases price and quantity standards on Lynx’s historical long run average performance. Suppose Lynx’s controller has engaged your team of management consultants to advise him or her whether Lynx should use some basis other than historical performance for setting standards. Requirements
1. List the types of variances you recommend that Lynx compute (for example, direct materials price variance for glass). For each variance, what specific standards would Lynx need to develop? In addition to cost standards, do you recommend that Lynx develop any nonfinancial standards?
2. There are many approaches to setting standards other than simply using long run average historical prices and quantities.
a. List three alternative approaches that Lynx could use to set standards, and explain how Lynx could implement each alternative.
b. Evaluate each alternative method of setting standards, including the pros and cons of each method.
c. Write a memo to Lynx’s controller detailing your recommendations. First, should Lynx retain its historical data based standard cost approach? If not, which of the alternative approaches should it adopt?
Aug 29, 2021 | Uncategorized
1. Stiner Company has a materials price standard of $2.00 per pound. Five thousand pounds of materials were purchased at $2.20 per pound. The actual quantity of materials used was 5,000 pounds, although the standard quantity allowed for the output was 4,500 pounds.
Stiner Company’s materials price variance is
A)$100 U.
B)$1,000 U.
C)$900 U.
D)$1,000 F.
2. Stiner Company has a materials price standard of $2.00 per pound. Five thousand pounds of materials were purchased at $2.20 per pound. The actual quantity of materials used was 5,000 pounds, although the standard quantity allowed for the output was 4,500 pounds.
Stiner Company’s materials quantity variance is
(A)$1,000 U.
(B)$1,000 F.
(C)$1,100 F.
(D)$1,100 U.
3. Stiner Company has a materials price standard of $2.00 per pound. Five thousand pounds of materials were purchased at $2.20 per pound. The actual quantity of materials used was 5,000 pounds, although the standard quantity allowed for the output was 4,500 pounds. Stiner Company’s total materials variance is
(A)$2,000 U.
(B)$2,000 F.
(C)$2,100 U.
(D)$2,100 F.
Aug 29, 2021 | Uncategorized
AirMeals, Inc., prepares in flight meals for a number of major airlines. One of the company’s products is stuffed cannelloni with roasted pepper sauce, fresh baby corn, and spring salad. During the most recent week, the company prepared 6,000 of these meals using 1,150 direct labor hours. The company paid these direct labor workers a total of $11,500 for this work, or $10 per hour.
According to the standard cost card for this meal, it should require 0.20 direct labor hours at a cost of $9.50 per hour.
Required:
1. What direct labor cost should have been incurred to prepare 6,000 meals? How much does this differ from the actual direct labor cost?
2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance.
Aug 29, 2021 | Uncategorized
Aja could tell that this ?opatron?? was not her store’s usual type. She could see he did not care about fashion, and the customers that came to her shop in the Jacksonville mall were all tuned in to the latest styles. He came up to the register and took two pairs of jeans and an expensive sweater out of a bag to return. He didn’t have a receipt. Aja looked at the garments. They weren’t even close to his size. She had not seen him before, but she knew there were shoplifters who had been stealing from her company’s stores throughout the state. They grabbed clothing from one location and returned it to another. He knew—and she knew—that her store had a loose return policy. Receipts were not required and cash was given. She knew it would be pointless to call security; there was no proof. She remained courteous and professional. Although his returns would not impact her own performance stats, she couldn’t help feeling angry. A month later when the company changed its policy, Aja was relieved.
Requirements
1. What factors does a company consider when it decides on a policy for returns?
2. How is theft of this type handled in the accounting system?
Aug 29, 2021 | Uncategorized
Applying Overhead; Overhead Variances Chilezuk, S.A., of Gdansk, Poland, is a major producer of classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor hours. According to the company’s flexible budget, the following manufacturing overhead costs should be incurred at an activity level of 35,000 labor hours (the denominator activity level):
The currency in Poland is the zloty, which is denoted here by PZ.
During the most recent year, the following operating results were recorded:
At the end of the year, the company’s Manufacturing Overhead account contained the following data:
Management would like to determine the cause of the PZ 15,400 under applied overhead.
Required:
1. Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.
2. Show how the PZ 272,000 Applied figure in the Manufacturing Overhead account was computed.
3. Analyze the PZ 15,400 underapplied overhead figure in terms of the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.
4. Explain the meaning of each variance that you computed in (3)above.
Aug 29, 2021 | Uncategorized
At the beginning of October, Cornerstone Printers Company budgeted 16,000 books to be printed in October at standard direct materials and direct labor costs as follows:
Direct materials …… $24,000
Direct labor ………….. 8,000
Total ………………. $32,000
The standard materials price is $0.60 per pound. The standard direct labor rate is $10 per hour. At the end of October, the actual direct materials and direct labor costs were as follows:
Actual direct materials …. $21,600
Actual direct labor ……….. 7,200
Total …………………… $28,800
There were no direct materials price or direct labor rate variances for October. In addition, assume no changes in the direct materials inventory balances in October. Cornerstone Printers Company actually produced 14,000 units during October.
Determine the direct materials quantity and direct labor time variances.
Aug 29, 2021 | Uncategorized
At Timmons Manufacturing Company, production workers in the Painting Department are paid on the basis of productivity. The labor time standard for a unit of production is established through periodic time studies conducted by DeVito Management Consultants. In a time study, the actual time required to complete a specific task by a worker is observed. Allowances are then made for preparation time, rest periods, and clean up time. Don Carmen is one of several veterans in the Painting Department. Don is informed by DeVito that he will be used in the time study for the painting of a new product. The findings will be the basis for establishing the labor time standard for the next 6 months. During the test, Don deliberately slows his normal work pace in an effort to obtain a labor time standard that will be easy to meet. Because it is a new product, the DeVito representative who conducted the test is unaware that Don did not give the test his best effort.
Instructions
(a) Who was benefited and who was harmed by Don’s actions?
(b) Was Don ethical in the way he performed the time study test?
(c) What measure(s) might the company take to obtain valid data for setting the labor time standard?
Aug 29, 2021 | Uncategorized
Auto Brakes Inc. manufactures brake rotors and has always applied overhead to production using direct labor hours. Recently, company facilities were automated, and the accounting system was revised to show only two cost categories: direct material and conversion. Estimated variable and fixed conversion costs for the current month were $170,000 and $76,000, respectively. Expected output for the current month was 5,000 rotors and the estimated number of machine hours was 10,000. During July 2010, the firm actually used 9,000 machine hours to make 4,800 rotors while incurring $228,000 of conversion costs. Of this amount, $150,000 was variable cost.
a. Using the four variance approach, compute the variances for conversion costs.
b. Evaluate the effectiveness of the firm in controlling the current month’s costs.
Aug 29, 2021 | Uncategorized
Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 35,000 helmets, using 22,500 kilograms of plastic. The plastic cost the company RM171,000. (The currency in Malaysia is the ringgit, which is denoted here by RM.)
According to the standard cost card, each helmet should require 0.6 kilograms of plastic, at a cost of RM8 per kilogram.
Required:
1. What cost for plastic should have been incurred to make 35,000 helmets? How much greater or less is this than the cost that was incurred?
2. Break down the difference computed in (1) above into a materials price variance and a materials quantity variance.
Aug 29, 2021 | Uncategorized
Best Bathware Company manufactures faucets in a small manufacturing facility. The faucets are made from zinc. Manufacturing has 50 employees. Each employee presently provides 36 hours of labor per week. Information about a production week is as follows:
Standard wage per hr. ……………………….….. $14.60
Standard labor time per faucet ……………….…. 15 min
Standard number of lbs. of zinc ………………… 1.6 lbs
Standard price per lb. of zinc …………………… $11.50
Actual price per lb. of zinc ……………………… $11.75
Actual lbs. of zinc used during the week ……. 12,400 lbs.
Number of faucets produced during the week …….. 7,500
Actual wage per hr. ………………………………. $15.00
Actual hrs. per week …………………………… 1,800 hrs.
Instructions
Determine
(a) The standard cost per unit for direct materials and direct labor;
(b) The price variance, quantity variance, and total direct materials cost variance; and
(c) The rate variance, time variance, and total direct labor cost variance.
Aug 29, 2021 | Uncategorized
Bliny Corporation makes a product with the following standard costs for direct material and direct labor:
During the most recent month, 5,000 units were produced. The costs associated with the month’s production of this product were as follows:
The standard cost variances for direct material and direct labor are:
Required:
1. Prepare the journal entry to record the purchase of materials on account for the month.
2. Prepare the journal entry to record the use of materials for the month.
3. Prepare the journal entry to record the incurrence of direct labor cost for themonth.
Aug 29, 2021 | Uncategorized
Bonita Labs performs steroid testing services to high schools, colleges, and universities. Because the company deals solely with educational institutions, the price of each test is strictly regulated. Therefore, the costs incurred must be carefully monitored and controlled. Shown below are the standard costs for a typical test.
Direct materials (1 petri dish @ $1.80 per dish) ………….$ 1.80
Direct labor (0.5 hours @ $20.50 per hour) ……………….10.25
Variable overhead (0.5 hours @ $8 per hour) ………………4.00
Fixed overhead (0.5 hours @ $5 per hour) …………………2.50
Total standard cost per test ………………………………$18.55
The lab does not maintain an inventory of petri dishes. Therefore, the dishes purchased each month are used that month. Actual activity for the month of May 2014, when 2,500 tests were conducted, resulted in the following.
Direct materials (2,530 dishes) ………………………$ 5,060
Direct labor (1,240 hours) ……………………………26,040
Variable overhead ……………………………………10,100
Fixed overhead …………………………………………5,700
Monthly budgeted fixed overhead is $6,000. Revenues for the month were $55,000, and selling and administrative expenses were $2,000.
Instructions
(a) Compute the price and quantity variances for direct materials and direct labor.
(b) Compute the total overhead variance.
(c) Prepare an income statement for management.
(d) Provide possible explanations for each unfavorable variance.
Aug 29, 2021 | Uncategorized
Buil Corporation manufactures a single product. The standard cost per unit of product is as follows.
Direct materials—2 pounds of plastic at $6 per pound ……………..$12
Direct labor—2 hours at $13 per hour ………………………………..26
Variable manufacturing overhead ……………………………………..7
Fixed manufacturing overhead ………………………………………..5
Total standard cost per unit ………………………………………….$50
The master manufacturing overhead budget for the month based on normal productive capacity of 20,000 direct labor hours (10,000 units) shows total variable costs of $70,000 ($3.50 per labor hour) and total fixed costs of $50,000 ($2.50 per labor hour). Normal productive capacity is 20,000 direct labor hours. Overhead is applied on the basis of direct labor hours. Actual costs for November in producing 9,700 units were as follows.
Direct materials (20,000 pounds) …………………$119,000
Direct labor (19,600 hours) …………………………256,760
Variable overhead ……………………………………68,800
Fixed overhead ………………………………………50,000
Total manufacturing costs …………………………$494,560
The purchasing department normally buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.
Instructions
(a) Compute all of the materials and labor variances.
(b) Compute the total overhead variance.
Aug 29, 2021 | Uncategorized
Camisa Company produces single colored t shirts. Materials for the shirts are dyed in large vats. After dying the materials for a given color, the vats must be cleaned and prepared for the next batch of materials to be colored. The following standards for changeover for a given batch have been established:
Direct materials (2.5 lbs. @ $0.90) $2.25
Direct labor (0.75 hr. @ $7.00) 5.25
Standard prime cost $7.50
During the year, 53,000 pounds of material were purchased and used for the changeover activity. There were 20,000 batches produced, with the following actual prime costs:
Direct materials $42,000
Direct labor 102,000 (for 14,900 hrs.)
Required:
Compute the materials and labor variances associated with the changeover activity, labeling each variance as favorable or unfavorable.
Aug 29, 2021 | Uncategorized
Company manufactures a single product that requires a great deal of hand labor. Overhead cost is applied on the basis of standard direct labor hours. Variable manufacturing overhead should be $2 per standard direct labor hour and fixed manufacturing overhead should be $480,000 per year. The company’s product requires 3 pounds of material that has a standard cost of $7 per pound and 1.5 hours of direct labor time that has a standard rate of $12 per hour.
The company planned to operate at a denominator activity level of 60,000 direct labor hours and to produce 40,000 units of product during the most recent year. Actual activity and costs for the year were as follows:
Required:
1. Compute the predetermined overhead rate for the year. Break the rate down into variable and fixed elements.
2. Prepare a standard cost card for the company’s product; show the details for all manufacturing costs on your standard cost card.
3. Do the following:
(a)Compute the standard direct labor hours allowed for the year’s production.
(b)Complete the following Manufacturing Overhead T account for the year:
4. Determine the reason for any underapplied or overapplied overhead for the year by computing the variable overhead rate and efficiency variances and the fixed overhead budget and volume variances.
5. Suppose the company had chosen 65,000 direct labor hours as the denominator activity rather than 60,000 hours. State which, if any, of the variances computed in (4) above would have changed, and explain how the variance(s) would have changed. No computations arenecessary.
Aug 29, 2021 | Uncategorized
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:
The standard cost card for the company’s only product is given below:
During the year, the company produced 6,000 units of product and incurred the following costs:
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 direct materials and direct 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 unit standard costs? Is the volume variance a controllable variance from a spending point of view?Explain.
Aug 29, 2021 | Uncategorized
Consider the following terms:
a. Benchmarking
b. Efficiency Variance
c. Fixed Overhead Spending Variance
d. Price Variance
e. Fixed Overhead Volume Variance
f. Standard Cost
Consider the following definitions:
_____1. Measures whether the quantity of materials or labor used to make the actual number of outputs is within the standard allowed for that number of outputs.
_____2. Using standards based on ?obest practice.??
_____3. Measures how well the business keeps unit prices of material and labor inputs within standards.
_____4. A budget for a single unit.
_____5. Compares actual overhead spent to budgeted overhead costs.
_____6. Arises when budgeted overhead differs from applied overhead.
Requirement
1. Match each term to the correct definition.
Aug 29, 2021 | Uncategorized
Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division. In looking over the past several years of quarterly income statements at the Home Security Division, she noticed that the first quarter profits were always poor, the second quarter profits were slightly better, the third quarter profits were again slightly better, and the fourth quarter always ended with a spectacular performance in which the Home Security Division managed to meet or exceed its target profit for the year. She also was concerned to find letters from the company’s external auditors to top management warning about an unusual use of standard costs at the Home Security Division.
When Ms. Cummins ran across these letters, she asked the assistant controller, Gary Farber, if he knew what was going on at the Home Security Division. Gary said that it was common knowledge in the company that the vice president in charge of the Home Security Division, Preston Lansing, had rigged the standards at his division in order to produce the same quarterly income pattern every year. According to company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold.
Favorable variances have the effect of increasing net operating income, and unfavorable variances have the effect of decreasing net operating income. Lansing had rigged the standards so that there were always large favorable variances. Company policy was a little vague about when these variances have to be reported on the divisional income statements. While the intent was clearly to recognize variances on the income statement in the period in which they arise, nothing in the company’s accounting manuals actually explicitly required this. So for many years Lansing had followed a practice of saving up the favorable variances and using them to create a nice smooth pattern of growing profits in the first three quarters, followed by a big ?oChristmas present?? of an extremely good fourth quarter. (Financial reporting regulations forbid carrying variances forward from one year to the next on the annual audited financial statements, so all of the variances must appear on the divisional income statement by the end of the year)
Ms. Cummins was concerned about these revelations and attempted to bring up the subject with the president of Merced Home Products but was told that ?owe all know what Lansing’s doing. But as long as he continues to turn in such good reports, don’t bother him.?? When Ms. Cummins asked if the board of directors was aware of the situation, the president somewhat testily replied. ?oOf course they are aware:’
Required:
1. How did Preston Lansing probably ?orig?? the standard costs—are the standards set too high or too low? Explain.
2. Should Preston Lansing be permitted to continue his practice of managing reported profits?
3. What should Stacy Cummins do in this situation?
Aug 29, 2021 | Uncategorized
Czar Nicholas Chocolatier, Ltd. , makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company’s products, the Imperial Truffle. This product is made with the fi nest white chocolate and various fillings. The data below pertain only to the white chocolate used in the product. (The currency in the United Kingdom is the pound, which is denoted by ?L.):
Material requirements, kilograms of white chocolate per dozen truffles . . . . . . 0.80 kilograms
Allowance for waste, kilograms of white chocolate per dozen truffles. . . . . . . . 0.02 kilograms
Allowance for rejects, kilograms of white chocolate per dozen truffles . . . . . . . 0.03 kilograms
Purchase price, fi nest grade white chocolate . . . . . . . . . . . . . . . . . . . . . . . . ?L9.00 per kilogram
Purchase discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5% of purchase price
Shipping cost from the supplier in Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . ?L0.20 per kilogram
Receiving and handling cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?L0.05 per kilogram
Required:
1. Determine the standard price of a kilogram of white chocolate.
2. Determine the standard quantity of white chocolate for a dozen truffles.
3. Determine the standard cost of the white chocolate in a dozen truffles.
Aug 29, 2021 | Uncategorized
Danson Company is a chemical manufacturer that supplies various products to industrial users. The company plans to introduce a new chemical solution, called Nysap, for which it needs to develop a standard product cost. The following information is available on the production of Nysap:
(a) Nysap is made by combining a chemical compound (nyclyn) and a solution (salex), and boiling the mixture. A 20% loss in volume occurs for both the salex and the nyclyn during boiling. After boiling, the mixture consists of 9.6 liters of salex and 12 kilograms of nyclyn per 10 liter batch of Nysap.
(b) After the boiling process is complete, the solution is cooled slightly before 5 kilograms of protect are added per 10 liter batch of Nysap. The addition of the protect does not affect the total liquid volume. The resulting solution is then bottled in 10 liter containers.
(c) The finished product is highly unstable, and one 10 liter batch out of five is rejected at final inspection. Rejected batches have no commercial value and are thrown out.
(d) It takes a worker 35 minutes to process one 10 liter batch of Nysap. Employees work eight hour day, including one hour per day for rest breaks and cleanup.
Required:
1. Determine the standard quantity for each of the raw materials needed to produce an acceptable 10 liter batch of Nysap.
2. Determine the standard labor time allowed to produce an acceptable 10 liter batch of Nysap.
3.Assuming the following costs, prepare a standard cost card for direct materials and direct labor for one acceptable 10 liter batch ofNysap:
Aug 29, 2021 | Uncategorized
Deer Creek ski resort was for many years a small, family owned resort serving day skiers from nearby towns. Deer Creek was recently acquired by Mountain Associates, a major ski resort operator with destination resorts in several western states. The new owners have plans to upgrade the resort into a destination resort for vacationers staying for a week or more. As part of this plan, the new owners would like to make major improvements in the Lynx Lair Lodge, the resort’s on the hill fast food restaurant. The menu at the Lodge is very limited—hamburgers, hot dogs, chili, tuna fish sandwiches, French fries, and packaged snacks. The previous owners of the resort had felt no urgency to upgrade the food service at the Lodge since there is little competition. If skiers want lunch on the mountain, the only alternatives are the Lynx Lair Lodge or a brown bag lunch brought from home.
As part of the deal when acquiring Deer Creek, Mountain Associates agreed to retain all of the current employees of the resort. The manager of the Lodge, while hardworking and enthusiastic, has very little experience in the restaurant business. The manager is responsible for selecting the menu, finding and training employees, and overseeing daily operations. The kitchen staff prepares food and washes dishes. The dining room staff takes orders, serves as cashiers, and cleans the dining room area.
Shortly after taking over Deer Creek, management of Mountain Associates held a day long meeting with all of the employees of the Lynx Lair Lodge to discuss the future of the ski resort and management’s plans for the Lodge. At the end of this meeting, top management and Lodge employees created a balanced scorecard for the Lodge that would help guide operations for the coming ski season.
Almost everyone who participated in the meeting seemed to be enthusiastic about the scorecard and management’s plans for the Lodge.
The following performance measures were included on the balanced scorecard for the Lynx Lair Lodge:
?c Customer satisfaction with service, as measured by customer surveys.
?c Total Lynx Lair Lodge profit.
?c Dining area cleanliness, as rated by a representative from Mountain Associates management.
?c Average time to prepare an order.
?c Customer satisfaction with menu choices, as measured by surveys.
?c Average time to take an order.
?c Percentage of kitchen staff completing institutional cooking course at the local community college.
?c Sales.
?c Percentage of dining room staff completing hospitality course at the local community college.
?c Number of menu items.
Mountain Associates will pay for the costs of staff attending courses at the local community college.
Required:
1. Using the above performance measures, construct a balanced scorecard for the Lynx Lair Lodge. Use Exhibit 10–12 as a guide. Use arrows to show causal links and indicate with a + or – whether the performance measure should increase or decrease.
2. What hypotheses are built into the balanced scorecard for the Lynx Lair Lodge? Which of these hypotheses do you believe are most questionable? Why?
3. How will management know if one of the hypotheses underlying the balanced scorecard is false?
Aug 29, 2021 | Uncategorized
The president of the retailer Prime Products has just approached the company’s bank with a request for a $30,000, 90 day loan. The purpose of the loan is to assist the company in acquiring inventories. Because the company has had some difficulty in paying off its loans in the past, the loan officer has asked for a cash budget to help determine whether the loans should be made. The following data are available for the months April through June, during which the loan will be used:
(a)On April 1, the start of the loan period, the cash balance will be $24,000. Accounts receivable on April 1, will total $140,000 of which $120,000 will be collected during April and $16,000 will be collected during May. The remainder will be uncollectible.
(b)Past experience shows that 30% of a month’s sales are collected in the month of sale, 60% in the month following sale, and 8% in the second month following sale. The other 2% represents bad debts that are never collected. Budgeted sales and expenses for the three month period follow:
(c) Merchandise purchases are paid in full during the month following purchase. Accounts payable for merchandise purchases during March, which will be paid during April, total $140,000
(d)In preparing the cash budget, assume that the $30,000 loan will be made in April and repaid in June. Interest on the loan will total $1,200.
Required:
1.Prepare a schedule of expected cash collections of April, May and June, and for the three months in total
2.Prepare a cash budget, by month in total, for the three month period.
3.If the company need a minimum cash balance of $20,000 to start each month, can the loan be repaid as planned?Explain.
Aug 29, 2021 | Uncategorized
The production manager of Rordan Corporation has submitted the following of units to be produced by quarter for the upcoming fiscal year:
Each unit requires 0.35 direct labor hours, and direct laborers are paid $12.00 per hour.
Required:
1.Construct the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workface is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.
2.Construct the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is not adjusted each quarter. Instead, assume that the company’s direct labor workforce consists of permanent employees who are guaranteed to be paid for at least 2,600 hours of work each quarter. If the number of required directed labor hours is less than this number, the workers are paid for 2,600 hours anyway. Any hours worked in excess of 2,600 hours in quarter are paid at the rate of 1.5 times the normal hourly rate for directlabor.
Aug 29, 2021 | Uncategorized
Three wealthy friends, Tom, Grant, and Karen, each decided to donate $5,000,000 to the not for profit organization of their choice. Each donation was made on May 21, 2011. Prepare the entries required for each of the recipient organizations under the following scenarios.
1. Tom chose to contribute to a local voluntary health and welfare organization, and no restrictions were placed on the use of the donated resources.
a. Prepare the May 21, 2011, entry.
b. Prepare any entries necessary in 2012 if $2,300,000 of the gift is used to fi nance operating expenses.
2. Grant contributed to a local private university, and the donation was restricted to research.
a. Prepare the May 21, 2011, entry.
b. Prepare any entries necessary in 2012 if $2,300,000 of the gift is used to fi nance research expenses.
3. Karen gave to the local hospital, and the donation was restricted for construction of a fixed asset.
a. Prepare the May 21, 2011, entry.
b. Prepare any entries necessary in 2012 if $2,300,000 of the gift is used to fi nance construction costs.
Aug 29, 2021 | Uncategorized
Advanced Pharmaceuticals, Inc., is a wholesale distributor of prescription drugs to independent retail and hospital based pharmacies. Management believes that top notch customer representatives are the key factor in determining whether the company will be successful in the future. Customer representatives serve as the company’s liaison with customers—helping pharmacies monitor their stocks, delivering drugs when customer stocks run low, and providing up to date information on drugs from many different companies. Customer representatives must be ultra reliable and are highly trained. Good customer representatives are hard to come by and arc not easily replaced.
Customer representatives routinely record the amount of time they spend serving each pharmacy. This time includes travel time to and from the company’s central warehouse as well as time spent replenishing stocks, dealing with complaints, answering questions about drugs, informing pharmacists of the latest developments and newest products, reviewing bills, explaining procedures, and so on. Some pharmacies require more hand holding and attention than others and consequently they consume more of the representatives’ time.
Recently, customer representatives have made more frequent complaints that it is impossible to do their jobs without working well beyond normal working hours. This has led to an alarming increase in the number of customer representatives quitting for jobs in other organizations. As a consequence, management is considering dropping some customers to reduce the workload on customer representatives. Data concerning a representative sample of the company’s customers appears below:
Customer service costs include all of the costs—other than the costs of the drugs themselves that could be avoided by dropping the customer. These costs include the hourly wages of the customer representatives, their sales commissions, the mileage related costs of the customer representatives’ company provided vehicles, and so on.
Required:
1.Rank the four customers in terms of their profitability.
2.Customer representatives are currently paid $25 per hour plus a commission of 1% of sales revenues. If these four pharmacies are indeed representative of the company’s customers, could the company afford to pay its customer representatives more in order to retainthem?
Aug 29, 2021 | Uncategorized
Boston Scientific, a medical device manufacturer, reported net income (amounts in millions) of $1,062 on sales of $5,624 during Year 4. Interest expense totaled $64. The income tax rate was 35 percent. Average total assets were $6,934.5, and average common shareholders’ equity was $3,443.5. The firm did not have preferred stock outstanding or minority interest in its equity.
a. Compute the rate of ROA. Disaggregate ROA into profit margin for ROA and assets turnover components.
b. Compute the rate of ROCE. Disaggregate ROCE into profit margin for ROCE, assets turnover, and capital structure leverage ratio components.
c. Calculate the amount of net income to common shareholders derived from the excess return on creditors’ capital and the amount from the return on common shareholders’ capital.
Aug 29, 2021 | Uncategorized
Exhibit 4.21 presents selected operating data for three retailers for a recent year. Macy’s operates several department store chains selling consumer products such as brand name clothing, china, cosmetics, and bedding and has a large presence in the bridal and formalwear markets (under store names Macy’s and Bloomingdale’s). Home Depot sells a wide range of building materials and home improvement products, which includes lumber and tools, riding lawn mowers, lighting fixtures, and kitchen cabinets and appliances. Supervalu operates grocery stores under numerous brands (including Albertsons, Cub Foods, Jewel Osco, Shaw’s, and Star Market).
a. Compute the rate of ROA for each firm. Disaggregate the rate of ROA into profit margin for ROA and assets turnover components. Assume that the income tax rate is 35 percent for all companies.
b. Based on your knowledge of the three retail stores and their respective industry concentrations, describe the likely reasons for the differences in the profit margins for ROA and assets turnovers.
Aug 29, 2021 | Uncategorized
Hasbro is a leading firm in the toy, game, and amusement industry. Its promoted brands group includes products from Playskool, Tonka, Milton Bradley, Parker Brothers, Tiger, and Wizards of the Coast. Sales of toys and games are highly variable from year to year depending on whether the latest products meet consumer interests. Hasbro also faces increasing competition from electronic and online games. Hasbro develops and promotes its core brands and manufactures and distributes products created by others under license arrangements. Hasbro pays a royalty to the creator of such products. In recent years, Hasbro has attempted to reduce its reliance on license arrangements, placing more emphasis on its core brands. Hasbro also has embarked on a strategy of reducing fixed selling and administrative costs in an effort to offset the negative effects on earnings of highly variable sales. Exhibit 4.28 presents the balance sheets for Hasbro for the years ended December 31, Year 1 through Year 4. Exhibit 4.29 presents the income statements and Exhibit 4.30 presents the statements of cash flows for Year 2 through Year 4.
Required
a. Exhibit 4.31 presents profitability ratios for Hasbro for Year 2 and Year 3. Calculate each of these financial ratios for Year 4. The income tax rate is 35 percent.
b. Analyze the changes in ROA and its components for Hasbro over the three year period, suggesting reasons for the changes observed.
c. Analyze the changes in ROCE and its components for Hasbro over the three year period, suggesting reasons for the changes observed.
Aug 29, 2021 | Uncategorized
Integrative Case 1.1 introduced the industry economics of coffee shops and the business strategy of Starbucks to compete in this industry. Exhibit 1.26 presents balance sheets for Starbucks for the years ending 2005–2008. Exhibit 1.27 presents its income statements and Exhibit 1.28 presents the statement of cash flows for fiscals 2005, 2006, 2007, and 2008. Exhibit 1.29 presents common size balance sheets and Exhibit 1.30 presents common size income statements for Starbucks. Before beginning preparation of Integrative Case 4.1, we recommend that you review Integrative Case 1.1 in Chapter 1. Part A of Integrative Case 4.1 analyzes changes in the profitability of Starbucks for fiscal 2006–2008.
Required
a. Exhibit 4.44 presents profitability ratios for Starbucks for fiscals 2006 and 2007. Using the financial statement data in Exhibits 1.26 and 1.27, compute the values of these ratios for fiscal 2008. The income tax rate is 35 percent. For accounts receivable turnover, use only specialty revenues for the numerator, because the accounts receivable are primarily related to licensing and food service operations, not the retail operations. Use cost of sales, including occupancy costs, for the numerator of the inventory turnover because Starbucks does not disclose separately the cost of products sold (the appropriate numerator) and occupancy costs.
b. What are the most important reasons Starbucks’ ROA decreased during the three year period? Analyze the financial ratios to the maximum depth possible with the information given. Using the nomenclature from the schematic in Exhibit 4.20, Exhibit 4.45 provides information for analyzing profitability at Level 1, Level 2, and Level 3. Exhibit 4.45 presents additional information for Starbucks at a business segment level to permit analysis at Level 4. Corporate level expenses not allocated to domestic or international operations, which include depreciation, amortization, general, and administrative expenses, as a percentage of total revenues were 3.3 percent for fiscal 2008, 3.6 percent for fiscal 2007, and 4.3 percent for fiscal 2006.
c. What are the most important reasons Starbucks’ ROCE decreased during the three year period?
Aug 29, 2021 | Uncategorized
JCPenney operates a chain of retail department stores, selling apparel, shoes, jewelry, and home furnishings. It also offers most of its products through catalog distribution. During fiscal Year 5, it sold Eckerd Drugs, a chain of retail drugstores, and used the cash proceeds, in part, to repurchase shares of its common stock. Exhibit 4.26 presents selected data for JCPenney for fiscal Year 3, Year 4, and Year 5.
Required
a. Calculate the rate of ROA for fiscal Year 3, Year 4, and Year 5. Disaggregate ROA into the profit margin for ROA and total assets turnover components. The income tax rate is 35 percent.
b. Calculate the rate of ROCE for fiscal Year 3, Year 4, and Year 5. Disaggregate ROCE into the profit margin for ROCE, assets turnover, and capital structure leverage components.
c. Suggest reasons for the changes in ROCE over the three years.
d. Compute the ratio of ROCE to ROA for each year.
e. Calculate the amount of net income available to common stockholders derived from the use of financial leverage with respect to creditors’ capital, the amount derived from the use of preferred shareholders’ capital, and the amount derived from common shareholders’ capital for each year.
f. Did financial leverage work to the advantage of the common shareholders in each of the three years? Explain.
Aug 29, 2021 | Uncategorized
Microsoft Corporation (Microsoft) and Oracle Corporation (Oracle) engage in the design, manufacture, and sale of computer software. Microsoft sells and licenses a wide range of systems and application software to businesses, computer hardware manufacturers, and consumer retailers. Oracle sells software for information management almost exclusively to businesses. Exhibit 4.22 presents selected data for the two firms for 2006–2008.
Required
a. Calculate the accounts receivable turnover ratio for Microsoft and Oracle for 2006, 2007, and 2008.
b. Suggest possible reasons for the differences in the accounts receivable turnovers of Microsoft and Oracle during the three year period.
c. Suggest possible reasons for the changes in the accounts receivable turnover for the two firms over the three year period.
Aug 29, 2021 | Uncategorized
Part B of Integrative Case 4.1 compares the profitability of Starbucks with Panera Bread Company. Although Starbucks and Panera Bread Company are not direct competitors in terms of the principal food products offered, they compete in the sense of offering a relaxed cafA? experience. Whereas the products of Starbucks center on coffee and related beverages, Panera Bread Company emphasizes freshly baked bread and pastries. Panera Bread Company also sells sandwiches, soups, and similar lunch and light dinner products that build on their bread offerings, as well as coffee and other beverages. The average size of a Panera Bread Company retail outlet is typically larger than that of Starbucks. Both Starbucks and Panera Bread Company own some of their retail stores and franchise or license rights to use their names and products to other parties that own and operate other retail stores. Panera Bread Company prepares fresh dough daily in various regional facilities to use in company owned stores and to sell to franchisees. Unlike Starbucks, it has not expanded beyond the United States. Exhibit 4.46 presents profitability ratios for Panera Bread Company for 2006–2008, and Exhibit 4.47 presents segment profitability and other data. The format of Exhibit 4.46 is similar to that of Exhibit 4.44. However, due to less detailed disclosures by Panera, Exhibit 4.47 does not contain specific cost structures for Panera’s operating segments, similar to what was available from Starbucks and presented in Exhibit 4.45. The proportions of general and administrative expenses not allocated to divisions for Panera Bread Company are similar to the corresponding percentages for Starbucks (suggesting they are not material enough to specifically factor into the analysis).
Required
a. Panera’s ROA has typically been below that of Starbucks prior to 2008. What are the likely reasons for the relative levels of ROA between Panera and Starbucks? Analyze the data to the maximum depth permitted by the information given and speculate on economic explanations for what the analysis indicates.
b. Panera’s ROCE also has typically been below that of Starbucks, but by a large margin. Why?
Aug 29, 2021 | Uncategorized
Sammamish Brick, Inc., manufactures bricks using clay deposits on the company’s property. Raw clays are blended and then extruded into molds to form unfired bricks. The unfired bricks are then stacked onto movable metal platforms and rolled into the kiln where they are fired until dry. The dried bricks are then packaged and shipped to retail outlets and contractors. The bottleneck in the production process is the kiln, which is available for 2,000 hours per year. Data concerning the company’s four main products appear below. Products are sold by the pallet
No fixed costs could be avoided by modifying how much is produced of any product.
Required:
1. Is there sufficient capacity in the kiln to satisfy demand for all products?
2. What is the production plan for the year that would maximize the company’s profit?
3. What would be the total contribution margin for the production plan you have proposed?
4.The kiln could be operated for more than 2,000 hours per year by running it after normal working hours. Up to how much per hour should the company be willing to pay in overtime wages, energy costs, and other incremental costs to operate the kiln additional hours?
5.The company is considering introducing a new product, glazed Venetian bricks, whose variable cost would be $820 per pallet and that would require 10 hours in the kiln per pallet. What is the minimum acceptable selling price for this new product?
6.Salespersons are currently paid a commission of 5% of gross revenues. Will this motivate the salespersons to make the right choices concerning which products to sell mostaggressively?
Aug 29, 2021 | Uncategorized
Seattle’s Top Coffee owns and operates a chain of popular coffee stands that serve over 30 different coffee based beverages. The constraint at the coffee stands is the amount of time required to fill an order, which can be considerable for the more complex beverages. Sales are often lost because customers leave after seeing a long waiting line to place an order. Careful analysis of the company’s existing products has revealed that the opportunity cost of order filling time is $2.70 per minute.
The company is considering introducing a new product, praline cappuccino, to be made with pecan extract and molasses. The variable cost of the standard size praline cappuccino would be
$0.30 and the time required to fill an order for the beverage would be 40 seconds.
Required:
What is the minimum acceptable selling price for the new praline cappuccino product?
Aug 29, 2021 | Uncategorized
The balance sheet for Schultz Bone Company at December 31, 2009 had the following account balances:
Total current liabilities (non interest bearing) …………………..$450,000
Bonds payable, 6% (issued in 1982; due in 2013) ………………..750,000
Preferred stock, 5%, $100 par …………………………………….300,000
Common stock, $10 par …………………………………………..750,000
Premium on common stock ………………………………………150,000
Retained earnings …………………………………………………600,000
Income before income tax was $200,000, and income taxes were $80,000 for the current year.
Required
Calculate each of the following:
a. Return on assets (using ending assets)
b. Return on total equity (using ending total equity)
c. Return on common equity (using ending common equity)
d. Times interest earned
Aug 29, 2021 | Uncategorized
Valero Energy, a petroleum company, reported net income of $1,803.8 on revenues of $54,618.6 for Year 4. Interest expense totaled $359.7, and preferred dividends totaled $12.5. Average total assets for Year 4 were $17,527.9. The income tax rate is 35 percent. Average preferred shareholders’ equity totaled $204.3, and average common shareholders’ equity totaled $6,562.3. All amounts are in millions.
a. Compute the rate of ROA. Disaggregate ROA into profit margin for ROA and assets turnover components.
b. Compute the rate of ROCE. Disaggregate ROCE into profit margin for ROCE, assets turnover, and capital leverage ratio components.
c. Calculate the amount of net income to common shareholders derived from the excess return on creditors’ capital, the excess return on preferred shareholders’ capital, and the return on common shareholders’ capital.
Aug 29, 2021 | Uncategorized
Wal Mart Stores (Walmart) is the world’s largest retailer. It employs an ?oeveryday low price?? strategy and operates stores as three business segments: Wal Mart Stores U.S., International, and Sam’s Club.
1. Wal Mart Stores U.S.: This segment represented 63.7 percent of all 2008 sales and operates stores in three different formats: Discount stores (approximately 108,000 square feet), Supercenters (approximately 186,000 square feet), and Neighborhood Markets (approximately 42,000 square feet). Each format carries a variety of clothing, house wares, electronic equipment, pharmaceuticals, health and beauty products, sporting goods, and similar items, and Supercenters including a full line supermarket.40 WalMart U.S. Stores are in all 50 states, Discount stores are in 47 states, Supercenters are in 48 states, and Neighborhood Markets are in 16 states. Customers also can purchase many items through the company’s website at http://www.walmart.com.
2. International: The International segment includes wholly owned subsidiaries in Argentina, Brazil, Canada, Japan, Puerto Rico, and the United Kingdom; majority owned subsidiaries in five countries in Central America, Chile, and Mexico; and joint ventures in India and China. The merchandising strategy for the International segment is similar to that of the Walmart U.S. segment.
3. Sam’s Clubs: Sam’s Clubs are membership club warehouses that operate in 48 states.
The average Sam’s Club is approximately 133,000 square feet, and customers can purchase many items through the company’s website at http://www.samsclub.com. These warehouses offer bulk displays of brand name merchandise, including hardgoods, some softgoods, institutional size grocery items, and certain private label items. Gross margins for Sam’s Clubs stores are lower than those of the U.S. and International segments.
Required
a. What are the likely reasons for the changes in Walmart’s rate of ROA during the three year period? Analyze the financial ratios to the maximum depth possible.
b. What are the likely reasons for the changes in Walmart’s rate of ROCE during the three year period?
c. How has the short term liquidity risk of Walmart changed during the three year period?
d. How has the long term solvency risk of Walmart changed during the three year period?
Aug 29, 2021 | Uncategorized
Agua Pure is a distributor of bottled water.
Requirement
1. For each of the Items a. through c., compute the amount of cash receipts or payments Agua Pure will budget for September. The solution to one item may depend on the answer to an earlier item.
a. Management expects to sell equipment that cost $20,000 at a gain of $5,000. Accumulated depreciation on this equipment is $5,000.
b. Management expects to sell 7,300 cases of water in August and 9,800 in September. Each case sells for $14. Cash sales average 10% of total sales, and credit sales make up the rest. Three fourths of credit sales are collected in the month of sale, with the balance collected the following month.
c. The company pays rent and property taxes of $4,300 each month. Commissions and other selling expenses average 20% of sales. Agua Pure pays one half of commissions and other selling expenses in the month incurred, with the balance paid in the following month.
Aug 29, 2021 | Uncategorized
Residence Suites operates a regional hotel chain. Each hotel is operated by a manager and an assistant manager/controller. Many of the staff who run the front desk, clean the rooms, and prepare the breakfast buffet work part time or have a second job so turnover is high.
Assistant manager/controller Terry Dunn asked the new bookkeeper to help prepare the hotel’s master budget. The master budget is prepared once a year and is submitted to company headquarters for approval. Once approved, the master budget is used to evaluate the hotel’s performance. These performance evaluations affect hotel managers’ bonuses and they also affect company decisions on which hotels deserve extra funds for capital improvements.
When the budget was almost complete, Dunn asked the bookkeeper to increase amounts budgeted for labor and supplies by 15%. When asked why, Dunn responded that hotel manager Clay Murry told her to do this when she began working at the hotel. Murry explained that this budgetary cushion gave him flexibility in running the hotel. For example, because company headquarters tightly controls capital improvement funds, Murry can use the extra money budgeted for labor and supplies to replace broken televisions or pay ?obonuses?? to keep valued employees. Dunn initially accepted this explanation because she had observed similar behavior at the hotel where she worked previously.
Requirements
Put yourself in Dunn’s position. In deciding how to deal with the situation, answer the following questions:
1. What is the ethical issue?
2. What are my options?
3. What are the possible consequences?
4. What should I do?
Aug 29, 2021 | Uncategorized
Soto Corporation’s balance sheet indicates that the company has $300,000 invested in operating assets. During 2011, Soto earned operating income of $45,000 on $600,000 of sales.
Required
a. Compute Soto’s profit margin for 2011.
b. Compute Soto’s turnover for 2011.
c. Compute Soto’s return on investment for 2011.
d. Recompute Soto’s ROI under each of the following independent assumptions.
(1) Sales increase from $600,000 to $750,000, thereby resulting in an increase in operating income from $45,000 to $60,000.
(2) Sales remain constant, but Soto reduces expenses, resulting in an increase in operating income from $45,000 to $48,000.
(3) Soto is able to reduce its invested capital from $300,000 to $240,000 without affecting operating income.
Aug 29, 2021 | Uncategorized
This problem continues the Draper Consulting, Inc., situation from P21 35 of Chapter 21. Assume Draper Consulting began January with $29,000 cash. Management forecasts that collections from credit customers will be $49,000 in January and $51,500 in February. Projected cash payments include equipment purchases ($17,000 in January and $40,000 in February) and operating expenses ($6,000 each month). Draper’s bank requires a $20,000 minimum balance in the store’s checking account. At the end of any month when the account balance dips below $20,000, the bank automatically extends credit to the store in multiples of $5,000. Draper borrows as little as possible and pays back loans each month in $1,000 increments, plus 5% interest on the entire unpaid principal. The first payment occurs one month after the loan.
Requirements
1. Prepare Draper Consulting’s cash budget for January and February 2013.
2. How much cash will Draper borrow in February if collections from customers that month total $21,500 instead of $51,500?
Aug 29, 2021 | Uncategorized
Reporting Inventory at Lower of Cost or Market – Jones Company is preparing the annual financial statements dated December 31, 2012. Ending inventory information about the five major items stocked for regular sale follows:
|
ENDING INVENTORY, 2012
|
|
Item
|
Quantity on Hand
|
Unit Cost When
Acquired (FIFO)
|
Replacement Cost
(Market) at Year-End
|
|
A
|
50
|
$15
|
$12
|
|
B
|
80
|
30
|
40
|
|
C
|
10
|
48
|
52
|
|
D
|
70
|
25
|
30
|
|
E
|
350
|
10
|
5
|
Required:
Compute the valuation that should be used for the 2012 ending inventory using the LCM rule applied on an item-by-item basis.
Aug 29, 2021 | Uncategorized
Reporting Inventory at Lower of Cost or Market – Parson Company was formed on January 1, 2012, and is preparing the annual financial statements dated December 31, 2012. Ending inventory information about the four major items stocked for regular sale follows:
|
ENDING INVENTORY, 2012
|
|
Item
|
Quantity on Hand
|
Unit Cost When Acquired (FIFO)
|
Replacement Cost
(Market) at Year-End
|
|
A
|
20
|
$10
|
$15
|
|
B
|
55
|
40
|
44
|
|
C
|
35
|
57
|
55
|
|
D
|
10
|
27
|
32
|
Required:
1. Compute the valuation that should be used for the 2012 ending inventory using the LCM rule applied on an item-by-item basis.
2. What will be the effect of the write-down of inventory to lower of cost or market on cost of goods sold for the year ended December 31, 2012?
Aug 29, 2021 | Uncategorized
Analyzing and Interpreting the Effects of the LIFO/FIFO Choice on Inventory Turnover Ratio – The records at the end of January 2012 for Captain Company showed the following for a particular kind of merchandise:
Inventory, December 31, 2011, at FIFO: 19 Units @ $16 = $304
Inventory, December 31, 2011, at LIFO: 19 Units @ $12 = $228
|
Transactions
|
Units
|
Unit Cost
|
Total Cost
|
|
Purchase, January 9, 2012
|
25
|
$14
|
$350
|
|
Purchase, January 20, 2012
|
50
|
19
|
950
|
|
Sale, January 21, 2012 (at $38 per unit)
|
40
|
|
Sale, January 27, 2012 (at $39 per unit)
|
28
|
Required:
Compute the inventory turnover ratio under the FIFO and LIFO inventory costing methods (show computations and round to the nearest dollar). Which costing method is the more accurate indicator of the efficiency of inventory management? Explain.
Aug 29, 2021 | Uncategorized
Interpreting the Effect of Changes in Inventories and Accounts Payable on Cash Flow from Operations – First Team Sports, Inc., is engaged in the manufacture (through independent contractors) and distribution of in-line roller skates, ice skates, street hockey equipment, and related accessory products. Its recent annual report included the following on its balance sheets:
|
CONSOLIDATED BALANCE SHEETS
|
|
Current Year
|
Previous Year
|
|
Inventory (Note 3)
|
$22,813,850
|
$20,838,171
|
|
Trade accounts payable
|
9,462,883
|
9,015,376
|
Required:
Explain the effects of the changes in inventory and trade accounts payable on cash flow from operating activities for the current year.
Aug 29, 2021 | Uncategorized
Brooklyn Furniture, a retail store, has an average gross profit ratio of 42%. The sales forecast for the next four months follows:
May. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,000
July . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,000
August . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Management’s inventory policy is to have ending inventory equal to 80% of the cost of sales for the subsequent month, although it is estimated that the cost of inventory at April 30 will be $45,000.
Required:
Calculate the purchases budget, in dollars, for the months of May and June.
Aug 29, 2021 | Uncategorized
Determining cash receipts from accounts receivable Janice’s Dress Delivery operates a mail order business that sells clothes designed for frequent travelers. It had sales of $560,000 in December. Because Janice’s Dress Delivery is in the mail order business, all sales are made on account. The company expects a 30 percent drop in sales for January. The balance in the Accounts Receivable account on December 31 was $96,400 and is budgeted to be $73,600 as of January 31. Janice’s Dress Delivery normally collects accounts receivable in the month following the month of sale.
Required
a. Determine the amount of cash Janice’s Dress Delivery expects to collect from accounts receivable during January.
b. Is it reasonable to assume that sales will decline in January for this type of business? Why or why not?
Aug 29, 2021 | Uncategorized
Each gallon of Old Guard, a popular aftershave lotion, requires 6 ounces of ocean scent. Budgeted production of Old Guard for the first three quarters of 2010 is:
Quarter I ………..10,000 gallons
Quarter II ………18,000 gallons
Quarter III ………11,000 gallons
Management’s policy is to have on hand at the end of every quarter enough ocean scent inventory to meet 30% of the next quarter’s production needs. At the beginning of Quarter I, 18,000 ounces of ocean scent were on hand.
Required:
a. Calculate the number of ounces of ocean scent to be purchased in each of the first two quarters of 2010.
b. Explain why management plans for an ending inventory instead of planning to purchase each quarter the amount of raw materials needed for that quarter’s production.
Aug 29, 2021 | Uncategorized
Five years ago, Jack Cadence left his position at a large company to start Advanced Technologies Co. (ATC), a software design company. ATC’s first product was a unique software package that seamlessly integrates networked PCs. Robust sales of this initial product permitted the company to begin development of other software products and to hire additional personnel. The staff at ATC quickly grew from three people working out of Cadence’s basement to over 70 individuals working in leased spaces at an industrial park. Continued growth led Cadence to hire seasoned marketing, distribution, and production managers and an experienced accountant, Bill Cross.
Recently, Cadence decided that the company had become too large to run on an informal basis and that a formalized planning and control program centered around a budget was necessary. Cadence asked the accountant, Bill Cross, to work with him in developing the initial budget for ATC.
Cadence forecasted sales revenues based on his projections for both the market growth for the initial software and successful completion of new products. Cross used this data to construct the master budget for the company, which he then broke down into departmental budgets. Cadence and Cross met a number of times over a three week period to hammer out the details of the budgets.
When Cadence and Cross were satisfied with their work, the various departmental budgets were distributed to the department managers with a cover letter explaining ATC’s new budgeting system.
The letter requested everyone’s assistance in working together to achieve the budget objectives.
Several of the department managers were displeased with how the budgeting process was undertaken. In discussing the situation among themselves, they felt that some of the budget projections were overly optimistic and not realistically attainable.
Required:
1. How does the budgeting process Cadence and Cross used at ATC differ from recommended practice?
2. What are the behavioral implications of the way Cadence and Cross went about preparing the master budget?
Aug 29, 2021 | Uncategorized
Garden depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:
The company’s beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a minimum cash balance of $10,000 and may borrow any amount needed from a local bank at a quarterly interest rate of 3%. The company may borrow any amount at the beginning of any quarter and may repay its loans, or any part of its loans, at the end of any quarter. Interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest payments are due on any principal at the time it is repaid. For simplicity, assume that interest is not compounded.
Required:
Prepare the company’s cash budget for the upcoming fiscalyear.
Aug 29, 2021 | Uncategorized
Granger Stokes, managing partner of the venture capital firm of Halston and Stokes, was dissatisfied with the top management of PrimeDrive, a manufacturer of computer disk drives. Halston and Stokes had invested $20 million in PrimeDrive, and the return on their investment had been unsatisfactory for several years. In a tense meeting of the board of directors of PrimeDrive, Stokes exercised his firm’s rights as the major equity investor in PrimeDrive and fi red PrimeDrive’s chief executive officer (CEO). He then quickly moved to have the board of directors of PrimeDrive appoint himself as the new CEO.
Stokes prided himself on his hard driving management style. At the first management meeting, he asked two of the managers to stand and fi red them on the spot, just to show everyone who was in control of the company. At the budget review meeting that followed, he ripped up the departmental budgets that had been submitted for his review and yelled at the managers for their ?owimpy, do nothing targets.?? He then ordered everyone to submit new budgets calling for at least a 40% increase in sales volume and announced that he would not accept excuses for results that fell below budget.
Keri Kalani, an accountant working for the production manager at PrimeDrive, discovered toward the end of the year that her boss had not been scrapping defective disk drives that had been returned by customers. Instead, he had been shipping them in new cartons to other customers to avoid booking losses. Quality control had deteriorated during the year as a result of the push for increased volume, and returns of defective TRX drives were running as high as 15% of the new drives shipped. When she confronted her boss with her discovery, he told her to mind her own business.
And then, to justify his actions, he said, ?oAll of us managers are finding ways to hit Stokes’s targets.??
Required:
1. Is Granger Stokes using budgets as a planning and control tool?
2. What are the behavioral consequences of the way budgets are being used at Prime Drive?
3. What, if anything, do you think Keri Kalani should do?
Aug 29, 2021 | Uncategorized
Lester Company produces a variety of labels, including iron on name labels, which are sold to parents of camp bound children. (The camps require campers to have their name on each article of clothing.) The labels are sold in a roll of 1,000, which requires about 25 yards of paper strip. Each yard of paper strip costs $0.17. Lester has budgeted production of the label rolls for the next four months as follows:
Units
March …………5,000
April …………25,000
May ………….35,000
June …………..6,000
Inventory policy requires that sufficient paper strip be in ending monthly inventory to satisfy 20 percent of the following month’s production needs. The inventory of paper strip at the beginning of March equals exactly the amount needed to satisfy the inventory policy.
Required:
Prepare a direct materials purchases budget for March, April, and May, showing purchases in units and in dollars for each month and in total.
Aug 29, 2021 | Uncategorized
Linda Ellis, division manager, is evaluated and rewarded on the basis of budgetary performance. Linda, her assistants, and the plant managers are all eligible to receive a bonus if actual divisional profits are between budgeted profits and 120 percent of budgeted profits. The bonuses are based on a fixed percentage of actual profits. Profits above 120 percent of budgeted profits earn a bonus at the 120 percent level (in other words, there is an upper limit on possible bonus payments). If the actual profits are less than budgeted profits, no bonuses are awarded. Consider the following actions taken by Linda:
a. Linda tends to overestimate expenses and underestimate revenues. This approach facilitates the ability of the division to attain budgeted profits. Linda believes that the action is justified because it increases the likelihood of receiving bonuses and helps to keep the morale of the managers high.
b. Suppose that toward the end of the fiscal year, Linda saw that the division would not achieve budgeted profits. Accordingly, she instructed the sales department to defer the closing of a number of sales agreements to the following fiscal year. She also decided to write off some inventory that was nearly worthless. Deferring revenues to next year and writing off the inventory in a no bonus year increased the chances of a bonus for next year.
c. Assume that toward the end of the year, Linda saw that actual profits would likely exceed the 120 percent limit and that she took actions similar to those described in item b.
Required:
1. Comment on the ethics of Linda’s behavior. Are her actions right or wrong? What role does the company play in encouraging her actions?
2. Suppose that you are the marketing manager for the division, and you receive instructions to defer the closing of sales until the next fiscal year. What would you do?
3. Suppose that you are a plant manager, and you know that your budget has been padded by the division manager. Further, suppose that the padding is common knowledge among the plant managers, who support it because it increases the ability to achieve the budget and receive a bonus. What would you do?
4. Suppose that you are the division controller, and you receive instructions from the division manager to accelerate the recognition of some expenses that legitimately belong to a future period. What would you do?
Aug 29, 2021 | Uncategorized
Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation:
(a) The Marketing Department has estimated sales as follows for the remainder of the year (in units).
(b)All sales are on account. Based on past experience, sales are collected in the following pattern:
30% in the month of sales
65% in the month following sales
5% uncollectible
Sales for June totaled $300,000.
(c)The company maintains finished goods inventories equal to 15% of the following month’s sales. This requirement will be met at the end of June.
(d)Each beach umbrella requires 4 feet of Gilden, a material that is sometimes hard to acquire. Therefore, the company requires that the ending inventory of Gilden be equal to 50% of the following month’s production needs. The inventory of Gilden on hand at beginning and end of the quarter will be:
(e)Gilden costs $0.80 per foot. One half of a month’s purchases of Gilden is paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $76,000.
Required:
1.Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in both units and dollars.) Also prepare a schedule of expected cash collections, by month and in total, for the third quarter.
2. Prepare a production budget for each of the months July—October.
3. Prepare a direct materials budget for Gilden, by month and in total, for the third quarter. Also prepare a schedule of expected cash disbursements for Gilden, by month and in total, for the third quarter.
4.Cashbudget:
Aug 29, 2021 | Uncategorized
Planning and control
a. Dr. Jones, a dentist, wants to increase the size and profitability of his business by building a reputation for quality and timely service.
b. To achieve this, he plans on adding a dental laboratory to his building so that crowns, bridges, and dentures can be made in house.
c. To add the laboratory, he needs additional money, which he decides must be obtained by increasing revenues. After some careful calculation, Dr. Jones concludes that annual revenues must be increased by 10 percent.
d. Dr. Jones finds that his fees for fillings and crowns are below the average in his community and decides that the 10 percent increase can be achieved by increasing these fees.
e. He then identifies the quantity of fillings and crowns expected for the coming year, the new per unit fee, and the total fees expected.
f. As the year unfolds (on a month by month basis), Dr. Jones compares the actual revenues received with the budgeted revenues. For the first three months, actual revenues were less than planned.
g. Upon investigating, he discovered that he had some reduction in the number of patients because he had also changed his available hours of operation.
h. He returned to his old schedule and found out that the number of patients was restored to the original expected levels.
i. However, to make up the shortfall, he also increased the price of some of his other services.
Required:
Match each statement with the following planning and control elements (a letter may be matched to more than one item):
1. Corrective action
2. Budgets
3. Feedback
4. Investigation
5. Short term plan
6. Comparison of actual with planned
7. Monitoring of actual activity
8. Strategic plan
9. Short term objectives
10. Long term objectives
Aug 29, 2021 | Uncategorized
Raylene Webber, owner of Raylene’s Flowers and Gifts, produces gift baskets for various special occasions. Each gift basket includes fruit or assorted small gifts (e.g., a coffee mug, deck of cards, novelty cocoa mixes, scented soap) in a basket that is wrapped in colorful cellophane. Raylene has estimated the following unit sales of the standard gift basket for the rest of the year and for January of next year.
September ……….200
October ………….150
November ……….180
December ……….250
January ………….100
Raylene likes to have 10 percent of the next month’s sales needs on hand at the end of each month. This requirement was met on August 31.
Two materials are needed for each fruit basket:
Fruit …………….1 pound
Small gifts ………5 items
The materials inventory policy is to have 5 percent of the next month’s fruit needs on hand and 50 percent of the next month’s production needs of small gifts. (The relatively low inventory amount for fruit is designed to prevent spoilage.) Materials inventory on September 1 met this company policy.
Required:
1. Prepare a production budget for September, October, November, and December for gift baskets.
2. Prepare a direct materials purchases budget for the two types of materials used in the production of gift baskets for the months of September, October, and November. (Round answers to the nearest whole unit.)
Aug 29, 2021 | Uncategorized
Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, ad shown in the company’s sales budget for the second quarter given below:
From past experience, the company has learned that 20% of month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000.
Required:
1: Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.
2:Assume that the company will prepare a budgeted balance sheet as of June 30. Compare the accounts receivable as of thatdate.
Aug 29, 2021 | Uncategorized
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:
(a)The gross margin in 25% of sales
(b)Actual and budgeted sales data:
(c)Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.
(d)Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.
(e) One half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.
(f)Monthly expenses are as follows: commissions, 12% of sales; rent, $2,500 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $900 per month (includes depreciation on new assets).
(g)Equipment costing $1,500 will be purchased for cash in April.
(h) Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.
Required:
Using the preceding data:
1. Complete the following schedule:
2. Complete the following:
3.Complete the following:
4. Complete the following cash budget:
5. Prepare an absorption costing income statement, similar to the one shown in Schedule 9 in the chapter, for the quarter ended June 30.
6. Prepare a balance sheet as of June30.
Aug 29, 2021 | Uncategorized
The following information was taken from the accounts and records of the Community Society, a nongovernmental not for profit organization. The balances are as of December 31, 2011, unless otherwise stated:
Unrestricted support—contributions……………………………….. $3,000,000
Unrestricted support—membership dues…………………………… 400,000
Unrestricted revenues—investment income………………………… 83,000
Temporarily restricted gain on sale of investments………………… 5,000
Expenses—education………………………………………………. 300,000
Expenses—research………………………………………………… 2,300,000
Expenses—fund raising……………………………………………. 223,000
Expenses—management and general………………………………. 117,000
Restricted support—contributions………………………………….. 438,000
Restricted revenues—investment income…………………………… 22,500
Permanently restricted support—contributions……………………… 37,000
Unrestricted net assets, January 1, 2011…………………………….. 435,000
Temporarily restricted net assets, January 1, 2011…………………. 5,000,000
Permanently restricted net assets, January 1, 2011…………………. 40,000
The unrestricted support from contributions was all received in cash during the year.
Additionally, the society received pledges totaling $425,000. The pledges should be collected during 2012, except for the estimated uncollectible portion of $16,000. The society spent $3,789,000 of restricted resources on construction of a major capital facility during 2011, and $500,000 of research expenses were for research financed from restricted donations.
REQUIRED
Prepare the statement of activities for the Community Society for 2011.
Aug 29, 2021 | Uncategorized
The following selected items were taken from the accounts of Hometown Memorial Hospital, a not for profit hospital, at December 31, 2011:
Debits
Administrative services……………………………………… $ 310,000
Contractual allowances………………………………………. 400,000
Depreciation…………………………………………………. 200,000
Employee discounts…………………………………………. 100,000
General services……………………………………………… 290,000
Loss on sale of assets………………………………………… 50,000
Nursing services…………………………………………….. 1,000,000
Other professional services………………………………….. 500,000
Provision for bad debts……………………………………… 150,000
Credits
Donated medicine……………………………….. ………….. 300,000
Income from investment in affiliate…………………………. 80,000
Patient service revenues……………………………………… 2,500,000
Television rentals to patients…………………………….…… 50,000
Unrestricted donations…………………………………………… 200,000
Unrestricted income from investments of endowment funds….. 270,000
Restricted donations for fixed asset purchases…………………. 300,000
Restricted donations for specific operating purposes…………… 100,000
REQUIRED
Use the information given to prepare a statement of operations for Hometown Memorial
Hospital at December 31, 2011. Assume that $80,000 of expenses were for purposes for which restricted donations were available and that fixed assets costing $97,000 were purchased from donations restricted for their purchase.
Aug 29, 2021 | Uncategorized
The marketing department of Gaeber Industries has submitted the following sales forecast for the upcoming fiscal year:
The company expects to start due the first quarter with 1,600 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1.700 units. In addition, the beginning raw materials inventory for the first quarter is to be 3,120 pounds and the beginning accounts payable for the first quarter is budgeted to be $14,820.
Each unit requires 2 pounds of raw material that costs $4.00 per pound. Management desires to end each quarter with an inventory of raw materials equals to 20% of the following quarter’s production needs. The desired ending inventory for the fourth quarter is 3,140 pounds. Management plans to pay for 75% of raw materials purchases in the quarter acquired and 25% in the following quarter.
Required:
1.Prepare the company’s production budget for the upcoming fiscal year.
2.Prepare the company’s direct materials budget and schedule of expected cash disbursements for the purchases of materials for the upcoming fiscalyear.
Aug 29, 2021 | Uncategorized
Preparing an Income Statement and Computing the Gross Profit Percentage and Receivables Turnover Ratio with Discounts, Returns, and Bad Debts -Tungsten Company, Inc., sells heavy construction equipment. There are 10,000 shares of capital stock outstanding. The annual fiscal period ends on December 31. The following condensed trial balance was taken from the general ledger on December 31, 2011:
|
Account Titles
|
Debit
|
Credit
|
|
Cash
|
$33,600
|
|
Accounts receivable (net)
|
14,400
|
|
Inventory, ending
|
52,000
|
|
Operational assets
|
40,000
|
|
Accumulated depreciation
|
|
$16,800
|
|
Liabilities
|
24,000
|
|
Capital stock
|
72,000
|
|
Retained earnings, January 1, 2011
|
|
9,280
|
|
Sales revenue
|
147,100
|
|
Sales returns and allowances
|
5,600
|
|
Cost of goods sold
|
78,400
|
|
Selling expense
|
14,100
|
|
Administrative expense
|
15,400
|
|
Bad debt expense
|
1,600
|
|
Sales discounts
|
6,400
|
|
Income tax expense
|
7,680
|
|
Totals
|
$269,180
|
$269,180
|
Required:
1. Beginning with the amount for net sales, prepare an income statement (showing both gross profit and income from operations). Treat sales discounts and sales returns and allowances as a contra-revenue.
2. The beginning balance in Accounts Receivable (net) was $16,000. Compute the gross profit percentage and receivables turnover ratio and explain their meaning.
Aug 29, 2021 | Uncategorized
Computing Outstanding Checks and Deposits in Transit and Preparing a Bank Reconciliation and Journal Entries – The August 2011 bank statement for Allison Company and the August 2011 ledger account for cash follow:
|
BANK STATEMENT
|
|
Date
|
Checks
|
Deposits
|
Balance
|
|
Aug. 1
|
$17,510
|
|
2
|
$320
|
17,190
|
|
3
|
$11,700
|
28,890
|
|
4
|
430
|
28,460
|
|
5
|
270
|
28,190
|
|
9
|
880
|
27,310
|
|
10
|
250
|
27,060
|
|
15
|
4,000
|
31,060
|
|
21
|
350
|
30,710
|
|
24
|
20,400
|
10,310
|
|
25
|
6,500
|
16,810
|
|
30
|
850
|
15,960
|
|
30
|
2,350*
|
18,310
|
|
31
|
120†
|
18,190
|
|
Cash (A)
|
|
Aug. 1 Balance
|
16,490
|
Checks written
|
|
|
Deposits
|
Aug. 2
|
250
|
|
Aug. 2
|
11,700
|
4
|
880
|
|
12
|
4,000
|
15
|
280
|
|
24
|
6,500
|
17
|
510
|
|
31
|
5,200
|
18
|
850
|
|
20
|
350
|
|
23
|
20,400
|
Outstanding checks at the end of July were for $270, $430, and $320. No deposits were in transit at the end of July.
Required:
1. Compute the deposits in transit at the end of August by comparing the deposits on the bank statement to the deposits listed on the cash ledger account.
2. Compute the outstanding checks at the end of August by comparing the checks listed on the bank statement with those on the cash ledger account and the list of outstanding checks at the end of July.
3. Prepare a bank reconciliation for August.
4. Give any journal entries that the company should make as a result of the bank reconciliation. Why are they necessary?
5. What total amount of cash should be reported on the August 31, 2011, balance sheet?
Aug 29, 2021 | Uncategorized
Reporting Net Sales and Expenses with Discounts, Returns, and Bad Debts – The following data were selected from the records of Sharkim Company for the year ended December 31, 2012.
|
Balances January 1, 2012:
|
|
Accounts receivable (various customers)
|
$116,000
|
|
Allowance for doubtful accounts
|
5,200
|
In the following order, except for cash sales, the company sold merchandise and made collections on credit terms 2/10, n/30 (assume a unit sales price of $500 in all transactions and use the gross method to record sales revenue).
Transactions during 2012
a. Sold merchandise for cash, $227,000.
b. Sold merchandise to Karen Corp; invoice price, $12,000.
c. Sold merchandise to White Company; invoice price, $23,500.
d. Karen paid the invoice in ( b ) within the discount period.
e. Sold merchandise to Cavendish Inc; invoice price, $26,000.
f. Two days after paying the account in full, Karen returned one defective unit and received a cash refund.
g. Collected $88,200 cash from customer sales on credit in prior year, all within the discount periods.
h. Three days after purchase date, White returned seven of the units purchased in ( c ) and received account credit.
i. White paid its account in full within the discount period.
j. Sold merchandise to Delta Corporation; invoice price, $18,500.
k. Cavendish paid its account in full after the discount period.
l. Wrote off a 2010 account of $2,400 after deciding that the amount would never be collected.
m. The estimated bad debt rate used by the company was 4 percent of credit sales net of returns.
Required:
1. Using the following categories, indicate the effect of each listed transaction, including the write-off of the uncollectible account and the adjusting entry for estimated bad debts (ignore cost of goods sold). Indicate the sign and amount of the effect or use “NE” to indicate “no effect.” The first transaction is used as an example.
|
Sales Revenue
|
Sales Discounts (taken)
|
Sales Returns and Allowances
|
Bad Debt expense
|
|
227,000
|
NE
|
NE
|
NE
|
2. Show how the accounts related to the preceding sale and collection activities should be reported on the 2012 income statement. (Treat sales discounts as a contra-revenue.)
Aug 29, 2021 | Uncategorized
Recording Bad Debts and Interpreting Disclosure of Allowance for Doubtful Accounts – Under various registered brand names, Saucony, Inc., and its subsidiaries develop, manufacture, and market bicycles and component parts, athletic apparel, and athletic shoes. It recently disclosed the following information concerning the allowance for doubtful accounts on its Form 10-K Annual Report submitted to the Securities and Exchange Commission.
|
Schedule II
|
|
Valuation and Qualifying Accounts
(dollars in thousands)
|
|
Allowances for
Doubtful Accounts
|
Balance at
Beginning
of Year
|
Additions
Charged to Costs
and Expenses
|
Deductions
from Reserve
|
Balance at
End of Year
|
|
Year 3
|
$1,108
|
$6,014
|
$5,941
|
(?)
|
|
Year 2
|
2,406
|
(?)
|
5,751
|
$1,108
|
|
Year 1
|
2,457
|
4,752
|
(?)
|
2,406
|
Required:
1. Record summary journal entries related to bad debts for year 3.
2. Supply the missing dollar amounts noted by (?) for year 1, year 2, and year 3.
Aug 29, 2021 | Uncategorized
Determining Bad Debt Expense Based on Aging Analysis – Briggs & Stratton Engines Inc. uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/45. The balance of each account receivable is aged on the basis of four time periods as follows: (1) not yet due, (2) up to 6 months past due, (3) 6 to 12 months past due, and (4) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the receivable at year-end due to uncollectability is ( a ) 1 percent, ( b ) 5 percent, ( c ) 20 percent, and ( d ) 50 percent, respectively. At December 31, 2011 (end of the current accounting year), the Accounts Receivable balance was $39,500, and the Allowance for Doubtful Accounts balance was $1,550 (credit). In determining which accounts have been paid, the company applies collections to the oldest sales first. To simplify, only five customer accounts are used; the details of each on December 31, 2011, follow:
|
Date
|
Explanation
|
Debit
|
Credit
|
Credit
|
|
R. Devens—Account Receivable
|
|
3/13/2011
|
Sale
|
19,000
|
19,000
|
|
5/12/2011
|
Collection
|
10,000
|
9,000
|
|
9/30/2011
|
Collection
|
7,000
|
2,000
|
|
C. Howard—Account Receivable
|
|
11/1/2010
|
Sale
|
31,000
|
31,000
|
|
6/1/2011
|
Collection
|
20,000
|
11,000
|
|
12/1/2011
|
Collection
|
5,000
|
6,000
|
|
D. McClain—Account Receivable
|
|
10/31/2011
|
Sale
|
12,000
|
12,000
|
|
12/10/2011
|
Collection
|
8,000
|
4,000
|
|
T. Skibinski—Account Receivable
|
|
5/2/2011
|
Sale
|
15,000
|
15,000
|
|
6/1/2011
|
Sale
|
10,000
|
25,000
|
|
6/15/2011
|
Collection
|
15,000
|
10,000
|
|
7/15/2011
|
Collection
|
10,000
|
0
|
|
10/1/2011
|
Sale
|
26,000
|
26,000
|
|
11/15/2011
|
Collection
|
16,000
|
10,000
|
|
12/15/2011
|
Sale
|
4,500
|
14,500
|
|
H. Wu—Account Receivable
|
|
12/30/2011
|
Sale
|
13,000
|
13,000
|
Required:
1. Compute the total accounts receivable in each age category.
2. Compute the estimated uncollectible amount for each age category and in total.
3. Give the adjusting entry for bad debt expense at December 31, 2011.
4. Show how the amounts related to accounts receivable should be presented on the 2011 income statement and balance sheet.
Aug 29, 2021 | Uncategorized
Preparing an Income Statement and Computing the Gross Profit Percentage and Receivables Turnover Ratio with Discounts, Returns, and Bad Debts – Perry Corporation is a local grocery store organized seven years ago as a corporation. At that time, a total of 10,000 shares of common stock were issued to the three organizers. The store is in an excellent location, and sales have increased each year. At the end of 2012, the bookkeeper prepared the following statement (assume that all amounts are correct; note the incorrect terminology and format):
|
PERRY CORPORATION
Profit and Loss
December 31, 2012
|
|
Debit
|
Credit
|
|
Sales
|
$184,000
|
|
Cost of goods sold
|
$98,000
|
|
Sales returns and allowances
|
9,000
|
|
Selling expense
|
17,000
|
|
Administrative and general expense
|
18,000
|
|
Bad debt expense
|
2,000
|
|
Sales discounts
|
8,000
|
|
Income tax expense
|
10,900
|
|
Net profit
|
21,100
|
|
Totals
|
$184,000
|
$184,000
|
Required:
1. Beginning with the amount of net sales, prepare an income statement (showing both gross profit and income from operations). Treat sales discounts as a contra-revenue.
2. The beginning and ending balances in accounts receivable were $16,000 and $18,000, respectively. Compute the gross profit percentage and receivables turnover ratio and explain their meaning.
Aug 29, 2021 | Uncategorized
Computing Outstanding Checks and Deposits in Transit and Preparing a Bank Reconciliation and Journal Entries – The December 31, 2011, bank statement for Rivas Company and the December 2011 ledger accounts for cash follow.
|
BANK STATEMENT
|
|
Date
|
Checks
|
Deposits
|
Balance
|
|
Dec. 1
|
$48,000
|
|
2
|
$400; 300
|
$17,000
|
64,300
|
|
4
|
7,000; 90
|
57,210
|
|
6
|
120; 180; 1,600
|
55,310
|
|
11
|
500; 1,200; 70
|
28,000
|
81,540
|
|
13
|
480; 700; 1,900
|
78,460
|
|
17
|
12,000; 8,000
|
58,460
|
|
23
|
60; 23,500
|
36,000
|
70,900
|
|
26
|
900; 2,650
|
67,350
|
|
28
|
2,200; 5,200
|
59,950
|
|
30
|
17,000; 1,890; 300*
|
19,000
|
59,760
|
|
31
|
1,650; 1,350; 150†
|
5,250‡
|
61,860
|
|
Cash (A)
|
|
Dec. 1
|
Balance
|
64,100
|
Checks
|
written during
|
December:
|
|
Deposits
|
60
|
5,000
|
2,650
|
|
Dec. 11
|
28,000
|
17,000
|
5,200
|
1,650
|
|
23
|
36,000
|
700
|
1,890
|
2,200
|
|
30
|
19,000
|
3,500
|
1,600
|
7,000
|
|
31
|
13,000
|
1,350
|
120
|
300
|
|
180
|
90
|
480
|
|
12,000
|
23,500
|
8,000
|
|
70
|
500
|
1,900
|
|
900
|
1,200
|
The November 2011 bank reconciliation showed the following: correct cash balance at November 30, $64,100; deposits in transit on November 30, $17,000; and outstanding checks on November 30, $400 + $500 = $900.
Required:
1. Compute the deposits in transit December 31, 2011, by comparing the deposits on the bank statement to the deposits listed on the cash ledger account and the list of deposits in transit at the end of November.
2. Compute the outstanding checks at December 31, 2011, by comparing the checks listed on the bank statement with those on the cash ledger account and the list of outstanding checks at the end of November.
3. Prepare a bank reconciliation at December 31, 2011.
4. Give any journal entries that should be made as a result of the bank reconciliation made by the company. Why are they necessary?
5. What total amount of cash should be reported on the December 31, 2011, balance sheet?
Aug 29, 2021 | Uncategorized
Finding Financial Information – Refer to the financial statements of American Eagle Outfitters given in Appendix B at the end of this book.
Required:
1. What does the company include in its category of cash and cash equivalents? How close do you think the disclosed amount is to actual fair market value?
2. What expenses does American Eagle Outfitters subtract from net sales in the computation of gross profit? How does this differ from Deckers’s practice and how might it affect the manner in which you interpret the gross profit percentage?
3. Compute American Eagle Outfitters’s receivables turnover ratio for the current year. What characteristics of its business might cause it to be so high?
4. Does the company report an allowance for doubtful accounts on the balance sheet or in the notes? Explain why it does or does not.
Aug 29, 2021 | Uncategorized
Comparing Companies within an Industry -Refer to the financial statements of American Eagle Outfitters (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book.
Required:
1. Compute the gross profit percentage for both companies for the current and previous years. What do these changes suggest?
2. Knowing that these two companies are specialty or niche retailers compared to some others in their industry (see the list of companies used in the Industry Ratio Report), do you expect their gross profit percentage to be higher or lower than the industry average? Why?
3. Compare the gross profit percentage for each company for the most recent reporting year to the industry average. Are these two companies doing better or worse than the industry average? Does this match your expectations from requirement (2)?
Aug 29, 2021 | Uncategorized
Recording the Cost of Purchases for a Merchandiser – Elite Apparel purchased 90 new shirts and recorded a total cost of $2,735 determined as follows:
|
Invoice cost
|
$2,250
|
|
Shipping charges
|
185
|
|
Import taxes and duties
|
165
|
|
Interest (6.0%) on $2,250 borrowed to finance the purchase
|
135
|
|
$2,735
|
Required:
Make the needed corrections in this calculation. Give the journal entry(ies) to record this purchase in the correct amount, assuming a perpetual inventory system. Show computations.
Aug 29, 2021 | Uncategorized
Identifying the Cost of Inventories for a Manufacturer – Operating costs incurred by a manufacturing company become either (1) part of the cost of nventory to be expensed as cost of goods sold at the time the finished goods are sold or (2) expenses at the time they are incurred. Indicate whether each of the following costs belongs in category (1) or (2).
|
Wages of factory workers
|
|
Costs of raw materials purchased
|
|
Sales salaries
|
|
Heat, light, and power for the factory building
|
|
Heat, light, and power for the headquarters office building
|
Aug 29, 2021 | Uncategorized
Inferring Missing Amounts Based on Income Statement Relationships – Supply the missing dollar amounts for the income statement for each of the following independent cases.
|
Case A
|
Case B
|
Case C
|
|
Net sales revenue
|
|
$7,500
|
$ ?
|
$6,000
|
|
Beginning inventory
|
$11,200
|
$6,500
|
$4,000
|
|
Purchases
|
5,000
|
?
|
9,500
|
|
Goods available for sale
|
?
|
15,050
|
13,500
|
|
Ending inventory
|
10,200
|
11,050
|
?
|
|
Cost of goods sold
|
|
?
|
?
|
4,500
|
|
Gross profit
|
?
|
1,500
|
?
|
|
Expenses
|
400
|
?
|
700
|
|
Pretax income
|
$1,100
|
($400)
|
$800
|
Aug 29, 2021 | Uncategorized
Inferring Missing Amounts Based on Income Statement Relationships – Supply the missing dollar amounts for the income statement for each of the following independent cases:
|
Cases
|
Sales Revenue
|
Beginning Inventory
|
Purchases
|
Total
Available
|
Ending Inventory
|
Cost of
Goods Sold
|
Gross
Profit
|
Expenses
|
Pretax
Income
(Loss)
|
|
A
|
$650
|
$100
|
$700
|
$ ?
|
$500
|
$ ?
|
$ ?
|
$200
|
$ ?
|
|
B
|
1,100
|
200
|
900
|
?
|
?
|
?
|
?
|
150
|
150
|
|
C
|
?
|
150
|
?
|
?
|
300
|
200
|
400
|
100
|
?
|
|
D
|
800
|
?
|
550
|
?
|
300
|
?
|
?
|
200
|
200
|
|
E
|
1,000
|
?
|
900
|
1,100
|
?
|
?
|
500
|
?
|
-50
|
Inferring Merchandise Purchases – Abercrombie and Fitch is a leading retailer of casual apparel for men, women, and children. Assume that you are employed as a stock analyst and your boss has just completed a review of the new Abercrombie annual report. She provided you with her notes, but they are missing some information that you need. Her notes show that the ending inventory for Abercrombie in the current year was $372,422,000 and in the previous year was $333,153,000. Net sales for the current year were $3,540,276,000. Cost of goods sold was $1,178,584,000. Net income was $272,255,000. For your analysis, you determine that you need to know the amount of purchases for the year.
Required:
Can you develop the information from her notes? Explain and show calculations.
Aug 29, 2021 | Uncategorized
Calculating Ending Inventory and Cost of Goods Sold Under FIFO, LIFO, and Average Cost – Star Company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2012, the accounting records provided the following information for product 1:
|
Units
|
Unit Cost
|
|
Inventory, December 31, 2011
|
2,000
|
$5
|
|
For the year 2012:
|
|
|
Purchase, March 21
|
5,000
|
7
|
|
Purchase, August 1
|
3,000
|
8
|
|
Inventory, December 31, 2012
|
4,000
|
Required:
Compute ending inventory and cost of goods sold under FIFO, LIFO, and average cost inventory costing methods.
Aug 29, 2021 | Uncategorized
Calculating Ending Inventory and Cost of Goods Sold Under FIFO, LIFO, and Average Cost – Hamilton Company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2012, the accounting records provided the following information for product 1:
|
Units
|
Unit Cost
|
|
Inventory, December 31, 2011
|
2,000
|
$5
|
|
For the year 2012:
|
|
|
|
Purchase, March 21
|
6,000
|
4
|
|
Purchase, August 1
|
4,000
|
2
|
|
Inventory, December 31, 2012
|
3,000
|
Required:
Compute ending inventory and cost of goods sold under FIFO, LIFO, and average cost inventory costing methods.
Aug 29, 2021 | Uncategorized
Analyzing and Interpreting the Financial Statement Effects of LIFO and FIFO Element Company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2012, the accounting records provided the following information for product 2:
|
Units
|
Unit Cost
|
|
Inventory, December 31, 2011
|
3,000
|
$12
|
|
For the year 2012:
|
|
Purchase, April 11
|
9,000
|
10
|
|
Purchase, June 1
|
8,000
|
15
|
|
Sales ($50 each)
|
11,000
|
|
Operating expenses (excluding income tax expense)
|
$195,000
|
Required:
1. Prepare a separate income statement through pretax income that details cost of goods sold for ( a ) Case A: FIFO and ( b ) Case B: LIFO. For each case, show the computation of the ending inventory.
2. Compare the pretax income and the ending inventory amounts between the two cases. Explain the similarities and differences.
3. Which inventory costing method may be preferred for income tax purposes? Explain.
Aug 29, 2021 | Uncategorized
Analyzing and Interpreting the Financial Statement Effects of LIFO and FIFO – Beck Inc. uses a periodic inventory system. At the end of the annual accounting period, December 31, 2012, the accounting records provided the following information for product 2:
|
Units
|
Unit Cost
|
|
Inventory, December 31, 2011
|
7,000
|
$5
|
|
For the year 2012:
|
|
Purchase, March 5
|
19,000
|
9
|
|
Purchase, September 19
|
10,000
|
11
|
|
Sale ($28 each)
|
8,000
|
|
Sale ($30 each)
|
16,000
|
|
Operating expenses (excluding income tax expense)
|
$500,000
|
Required:
1. Prepare a separate income statement through pretax income that details cost of goods sold for ( a ) Case A: FIFO and ( b ) Case B: LIFO. For each case, show the computation of the ending inventory.
2. Compare the pretax income and the ending inventory amounts between the two cases. Explain the similarities and differences.
3. Which inventory costing method may be preferred for income tax purposes? Explain.
Aug 29, 2021 | Uncategorized
Evaluating the Choice among Three Alternative Inventory Methods Based on Cash Flow Effects – Following is partial information for the income statement of Lumber Company under three different inventory costing methods, assuming the use of a periodic inventory system:
|
FIFO
|
LIFO
|
Average Cost
|
|
Cost of goods sold
|
|
Beginning inventory (400 units)
|
$11,200
|
$11,200
|
$11,200
|
|
Purchases (475 units)
|
17,100
|
17,100
|
17,100
|
|
Goods available for sale
|
|
Ending inventory (545 units)
|
|
Cost of goods sold
|
$
|
$
|
$
|
|
Sales, 330 units; unit sales price, $50
|
|
|
Expenses, $1,700
|
Required:
1. Compute cost of goods sold under the FIFO, LIFO, and average cost inventory costing methods.
2. Prepare an income statement through pretax income for each method.
3. Rank the three methods in order of income taxes paid (favorable cash flow) and explain the basis for your ranking.
Aug 29, 2021 | Uncategorized
Recording Bad Debts and Interpreting Disclosure of Allowance for Doubtful Accounts – Peet’s Coffee & Tea, Inc., is a specialty coffee roaster and marketer of branded fresh roasted whole bean coffee. It recently disclosed the following information concerning the Allowance for Doubtful Accounts on its Form 10-K Annual Report submitted to the Securities and Exchange Commission. A summary of the Allowance for Doubtful Accounts is as follows (dollars in thousands):
|
Allowance for Doubtful Accounts
|
Balance at Beginning
of Period
|
Additions
Charges)
to Expense
|
Write-Offs
|
Balance at
End of
Period
|
|
Year 1
|
$89
|
$ ?
|
$1
|
$145
|
|
Year 2
|
145
|
—
|
?
|
67
|
|
Year 3
|
67
|
7
|
2
|
72
|
Required:
1. Record summary journal entries related to bad debts for year 3.
2. Supply the missing dollar amounts noted by (?) for year 1 and year 2.
Aug 29, 2021 | Uncategorized
Determining Bad Debt Expense Based on Aging Analysis – Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, (2) up to one year past due, and (3) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the receivable at year-end due to uncollectability is ( a ) 2 percent, ( b ) 7 percent, and ( c ) 30 percent, respectively. At December 31, 2011 (end of the current accounting year), the Accounts Receivable balance was $46,700, and the Allowance for Doubtful Accounts balance was $920 (credit). In determining which accounts have been paid, the company applies collections to the oldest sales first. To simplify, only five customer accounts are used; the details of each on December 31, 2011, follow:
|
B. Brown—Account Receivable
|
|
Date
|
Explanation
|
Debit
|
Credit
|
Balance
|
|
3/11/2010
|
Sale
|
13,000
|
13,000
|
|
6/30/2010
|
Collection
|
4,000
|
9,000
|
|
1/31/2011
|
Collection
|
3,800
|
5,200
|
|
D. Donalds—Account Receivable
|
|
2/28/2011
|
Sale
|
21,000
|
21,000
|
|
4/15/2011
|
Collection
|
8,000
|
13,000
|
|
11/30/2011
|
Collection
|
5,000
|
8,000
|
|
N. Napier—Account Receivable
|
|
11/30/2011
|
Sale
|
8,000
|
8,000
|
|
12/15/2011
|
Collection
|
1,000
|
7,000
|
|
S. Strothers—Account Receivable
|
|
3/2/2009
|
Sale
|
4,000
|
4,000
|
|
4/15/2009
|
Collection
|
4,000
|
–0–
|
|
9/1/2010
|
Sale
|
9,000
|
9,000
|
|
10/15/2010
|
Collection
|
4,500
|
4,500
|
|
2/1/2011
|
Sale
|
21,000
|
25,500
|
|
3/1/2011
|
Collection
|
5,000
|
20,500
|
|
12/31/2011
|
Sale
|
2,000
|
22,500
|
|
T. Thomas—Account Receivable
|
|
12/30/2011
|
Sale
|
4,000
|
4,000
|
Required:
1. Compute the total accounts receivable in each age category.
2. Compute the estimated uncollectible amount for each age category and in total.
3. Give the adjusting entry for bad debt expense at December 31, 2011.
4. Show how the amounts related to accounts receivable should be presented on the 2011 income statement and balance sheet.
Aug 29, 2021 | Uncategorized
Determining the Effects of Credit Sales, Sales Discounts, Credit Card Sales, and Sales Returns and Allowances on Income Statement Categories – Brazen Shoe Company records Sales Returns and Allowances, Sales Discounts, and Credit Card Discounts as contra-revenues. Complete the following tabulation, indicating the effect ( + for increase, – for decrease, and NE for no effect) and amount of the effects of each transaction, including related cost of goods sold.
July 12 Sold merchandise to customer at factory store who charged the $300 purchase on her American Express card. American Express charges a 1 percent credit card fee. Cost of goods sold was $175.
July 15 Sold merchandise to Customer T at an invoice price of $5,000; terms 3/10, n/30. Cost of goods sold was $2,500.
July 20 Collected cash due from Customer T.
July 21 Before paying for the order, a customer returned shoes with an invoice price of $1,000, and cost of goods sold was $600.
|
Transaction
|
Net Sales
|
Cost of Goods Sold
|
Gross Profit
|
|
12-Jul
|
|
15-Jul
|
|
20-Jul
|
|
21-Jul
|
Aug 29, 2021 | Uncategorized
Analyzing Gross Profit Percentage on the Basis of an Income Statement and Within-Industry Comparison – Wolverine World Wide Inc. prides itself as being the “world’s leading marketer of U.S. branded nonathletic footwear.” It competes in many markets with Deckers, often offering products at a lower price point. Its brands include Wolverine, Bates, Sebago, and Hush Puppies. The following data were taken from its recent annual report (dollars in thousands):
|
Sales of merchandise
|
$1,220,568
|
|
Income taxes
|
44,763
|
|
Cash dividends declared on common stock
|
21,500
|
|
Selling and administrative expense
|
345,183
|
|
Cost of products sold
|
734,547
|
|
Interest expense
|
2,850
|
|
Other income
|
839
|
|
Items not included in above amounts:
|
|
Number of shares of common stock outstanding, 48,888
|
Required:
1. Based on these data, prepare an income statement (showing both gross profit and income from operations). There were no extraordinary items.
2. How much was the gross profit margin? What was the gross profit percentage ratio? Explain what these two amounts mean. Compare the gross profit percentage with that of Deckers. What do you believe accounts for the difference?
Aug 29, 2021 | Uncategorized
Analyzing Gross Profit Percentage on the Basis of an Income Statement – The following summarized data were provided by the records of Slate, Incorporated, for the year ended December 31, 2012:
|
Sales of merchandise for cash
|
$233,000
|
|
Sales of merchandise on credit
|
40,000
|
|
Cost of goods sold
|
146,000
|
|
Selling expense
|
47,200
|
|
Administrative expense
|
20,000
|
|
Sales returns and allowances
|
8,000
|
|
Items not included in above amounts:
|
|
Estimated bad debt loss, 3% of credit sales
|
|
Average income tax rate, 30%
|
|
Number of shares of common stock outstanding, 4,500
|
Required:
1. Based on these data, prepare an income statement (showing both gross profit and income from operations).
2. What was the amount of gross profit margin? What was the gross profit percentage ratio? Explain what these two amounts mean.
Aug 29, 2021 | Uncategorized
Recording and Determining the Effects of Bad Debt Transactions on Income Statement Categories Using the Percentage of Credit Sales Method – During 2012, Giatras Electronics recorded credit sales of $680,000. Based on prior experience, it estimates a 3.5 percent bad debt rate on credit sales.
Required:
1. Prepare journal entries for each of the following transactions.
a. The appropriate bad debt expense adjustment was recorded for the year 2012.
b. On December 31, 2012, an account receivable for $2,800 from a prior year was determined to be uncollectible and was written off.
2. Complete the following tabulation, indicating the amount and effect (+ for increase, – for decrease, and NE for no effect) of each transaction.
|
Transaction
|
Net Sales
|
Gross Profit
|
Income from Operations
|
|
|
Aug 29, 2021 | Uncategorized
Computing Bad Debt Expense Using Aging Analysis – Gary’s Dairy uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $16,000, (2) up to 120 days past due, $5,500, and (3) more than 120 days past due, $2,500. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 2 percent, (2) 14 percent, and (3) 35 percent, respectively. At December 31, 2011 (end of the current year), the Allowance for Doubtful Accounts balance is $900 (credit) before the end-of-period adjusting entry is made.
Required:
What amount should be recorded as Bad Debt Expense for the current year?
Aug 29, 2021 | Uncategorized
Recording and Reporting a Bad Debt Estimate Using Aging Analysis – Casilda Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $50,000, (2) up to 180 days past due, $14,000, and (3) more than 180 days past due, $4,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 3 percent, (2) 12 percent, and (3) 30 percent, respectively. At December 31, 2011 (end of the current year), the Allowance for Doubtful Accounts balance is $200 (credit) before the end-of-period adjusting entry is made.
Required:
1. Prepare the appropriate bad debt expense adjusting entry for the year 2011.
2. Show how the various accounts related to accounts receivable should be shown on the December 31, 2011, balance sheet.
Aug 29, 2021 | Uncategorized
Recording and Reporting a Bad Debt Estimate Using Aging Analysis – Frederick Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $275,000, (2) up to 120 days past due, $50,000, and (3) more than 120 days past due, $20,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 3.5 percent, (2) 10 percent, and (3) 30 percent, respectively. At December 31, 2012 (end of the current year), the Allowance for Doubtful Accounts balance is $400 (credit) before the end-of-period adjusting entry is made. Required:
1. Prepare the appropriate bad debt expense adjusting entry for the year 2012.
2. Show how the various accounts related to accounts receivable should be shown on the December 31, 2012, balance sheet.
Aug 29, 2021 | Uncategorized
Interpreting Bad Debt Disclosures – Siemens is one of the world’s largest electrical engineering and electronics companies. Headquartered in Germany, the company has been in business for over 160 years and operates in 190 countries. In a recent annual report, it disclosed the following information concerning its allowance for doubtful accounts (euros in millions denoted as €):
|
Balance at
Beginning of Period
|
Charged to Costs
and Expenses
|
Amounts
Written Off
|
Balance at
End of Period
|
|
€ 895
|
€ 271
|
€ 153
|
€ 1,013
|
Required:
1. Record summary journal entries related to the allowance for doubtful accounts for the current year.
2. If Siemens had written off an additional €10 million of accounts receivable during the period, how would receivables, net, and net income have been affected? Explain why.
Aug 29, 2021 | Uncategorized
Inferring Bad Debt Write-Offs and Cash Collections from Customers Microsoft develops, produces, and markets a wide range of computer software, including the Windows operating system. On its recent financial statements, Microsoft reported the following information about net sales revenue and accounts receivable (amounts in millions).
|
Current
Year
|
Prior
Year
|
|
Accounts receivable, net of allowances of $153 and $117
|
$13,589
|
$11,338
|
|
Net revenues
|
60,420
|
51,122
|
According to its Form 10-K, Microsoft recorded bad debt expense of $88 and did not reinstate any previously written-off accounts during the current year. ( Hint: Refer to the summary of the effects of accounting for bad debts on the Accounts Receivable (Gross) and the Allowance for Doubtful Accounts T-accounts. Use the T-accounts to solve for the missing values.)
Required:
1. What amount of bad debts was written off during the current year?
2. Based on your answer to requirement (1), solve for cash collected from customers for the current year, assuming that all of Microsoft’s sales during the period were on open account.
Aug 29, 2021 | Uncategorized
Inferring Bad Debt Expense and Determining the Impact of Uncollectible Accounts on Income and Working Capital – A recent annual report for Target contained the following information (dollars in thousands) at the end of its fiscal year:
|
Year 2
|
Year 1
|
|
Accounts receivable
|
$9,094,000
|
$8,624,000
|
|
Allowance for doubtful accounts
|
-1,010,000
|
-570,000
|
|
$8,084,000
|
$8,054,000
|
A footnote to the financial statements disclosed that uncollectible accounts amounting to $811,000 and $428,000 were written off as bad debts during year 2 and year 1, respectively. Assume that the tax rate for Target was 30 percent.
Required:
1. Determine the bad debt expense for year 2 based on the preceding facts. ( Hint: Use the Allowance for Doubtful Accounts T-account to solve for the missing value.)
2. Working capital is defined as current assets minus current liabilities. How was Target’s working capital affected by the write-off of $811,000 in uncollectible accounts during year 2? What impact did the recording of bad debt expense have on working capital in year 2?
3. How was net income affected by the $811,000 write-off during year 2? What impact did recording bad debt expense have on net income for year 2?
Aug 29, 2021 | Uncategorized
Recording, Reporting, and Evaluating a Bad Debt Estimate – During 2012, Robby’s Camera Shop had sales revenue of $170,000, of which $75,000 was on credit. At the start of 2012, Accounts Receivable showed a $16,000 debit balance, and the Allowance for Doubtful Accounts showed a $900 credit balance. Collections of accounts receivable during 2012 amounted to $60,000. Data during 2012 follows:
a. On December 31, 2012, an Account Receivable (J. Doe) of $1,700 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt.
b. On December 31, 2012, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 1.5 percent of credit sales for the year.
Required:
1. Give the required journal entries for the two items on December 31, 2012 (end of the accounting period).
2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for 2012. Disregard income tax considerations.
3. On the basis of the data available, does the 1.5 percent rate appear to be reasonable? Explain.
Aug 29, 2021 | Uncategorized
Recording, Reporting, and Evaluating a Bad Debt Estimate – During 2011, Dorothy’s Ceramics Shop had sales revenue of $70,000, of which $25,000 was on credit. At the start of 2011, Accounts Receivable showed a $4,000 debit balance, and the Allowance for Doubtful Accounts showed a $300 credit balance. Collections of accounts receivable during 2011 amounted to $19,000. Data during 2011 follows:
a. On December 31, 2011, an Account Receivable (Toby’s Gift Shop) of $700 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt.
b. On December 31, 2011, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2.5 percent of credit sales for the year.
Required:
1. Give the required journal entries for the two items on December 31, 2011 (end of the accounting period).
2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for 2011. Disregard income tax considerations.
3. On the basis of the data available, does the 2.5 percent rate appear to be reasonable? Explain.
Aug 29, 2021 | Uncategorized
Computing and Interpreting the Receivables Turnover Ratio – A recent annual report for FedEx contained the following data:
|
(dollars in thousands)
|
|
Current Year
|
Previous Year
|
|
Accounts receivable
|
$3,587,000
|
$4,517,000
|
|
Less: Allowance for doubtful accounts
|
196,000
|
158,000
|
|
Net accounts receivable
|
$3,391,000
|
$4,359,000
|
|
Net sales (assume all on credit)
|
$35,497,000
|
Required:
1. Determine the receivables turnover ratio and average days sales in receivables for the current year.
2. Explain the meaning of each number.
Aug 29, 2021 | Uncategorized
Computing and Interpreting the Receivables Turnover Ratio – A recent annual report for Dell, Inc., contained the following data:
|
(dollars in thousands)
|
|
Current Year
|
Previous Year
|
|
Accounts receivable
|
$4,843,000
|
$6,064,000
|
|
Less: Allowance for doubtful accounts
|
112,000
|
103,000
|
|
Net accounts receivable
|
$4,731,000
|
$5,961,000
|
|
Net sales (assume all on credit)
|
$61,101,000
|
Required:
1. Determine the receivables turnover ratio and average days sales in receivables for the current year.
2. Explain the meaning of each number.
Aug 29, 2021 | Uncategorized
Interpreting the Effects of Sales Declines and Changes in Receivables on Cash Flow from Operations – Stride Rite Corporation manufactures and markets shoes under the brand names Stride Rite, Keds, and Sperry Top-Sider. Three recent years produced a combination of declining sales revenue and net income culminating in a net loss of $8,430,000. Each year, however, Stride Rite was able to report positive cash flows from operations. Contributing to that positive cash flow was the change in accounts receivable. The current and prior year balance sheets reported the following:
|
(dollars in thousands)
|
|
Current Year
|
Previous Year
|
|
Accounts and notes receivable, less allowances
|
$48,066
|
$63,403
|
Required:
1. On the current year’s cash flow statement (indirect method), how would the change in accounts receivable affect cash flow from operations? Explain why it would have this effect.
2. Explain how declining sales revenue often leads to ( a ) declining accounts receivable and ( b ) cash collections from customers being higher than sales revenue.
Aug 29, 2021 | Uncategorized
Preparing Bank Reconciliation, Entries, and Reporting Cash – The September 30, 2011, bank statement for Bennett Company and the September ledger accounts for cash are summarized here:
|
BANK STATEMENT
|
|
Checks
|
Deposits
|
Balance
|
|
Balance, September 1, 2011
|
$6,500
|
|
Deposits recorded during September
|
$26,900
|
33,400
|
|
Checks cleared during September
|
$27,400
|
6,000
|
|
NSF checks—Betty Brown
|
170
|
5,830
|
|
Bank service charges
|
60
|
5,770
|
|
Balance, September 30, 2011
|
5,770
|
|
Cash (A)
|
|
Sept. 1
|
Balance
|
6,500
|
|
Checks written
|
28,900
|
|
Deposits
|
28,100
|
No outstanding checks and no deposits in transit were carried over from August; however, there are deposits in transit and checks outstanding at the end of September.
Required:
1. Reconcile the bank account.
2. Give any journal entries that should be made as the result of the bank reconciliation.
3. What should the balance in the Cash account be after the reconciliation entries?
4. What total amount of cash should the company report on the September 30 balance sheet?
Aug 29, 2021 | Uncategorized
(Supplement) Recording Credit Sales, Sales Discounts, Sales Returns, and Credit Card Sales – The following transactions were selected from among those completed by Hailey Retailers in 2010:
20 Sold two items of merchandise to Customer B, who charged the $450 sales price on her Visa credit card. Visa charges Hailey a 2 percent credit card fee.
25 Sold 14 items of merchandise to Customer C at an invoice price of $2,800 (total); terms 2/10, n/30.
28 Sold 12 identical items of merchandise to Customer D at an invoice price of $7,200 (total); terms 2/10, n/30.
30 Customer D returned one of the items purchased on the 28th; the item was defective, and credit was given to the customer.
Dec. 6 Customer D paid the account balance in full.
30 Customer C paid in full for the invoice of November 25, 2010.
Required:
Give the appropriate journal entry for each of these transactions, assuming the company records sales revenue under the gross method. Do not record cost of goods sold. Compute Net Sales.
Aug 29, 2021 | Uncategorized
Applying the Revenue Principle – At what point should revenue be recognized in each of the following independent cases?
Case A. For Christmas presents, a Wendy’s restaurant sells coupon books for $15. Each of the $1 coupons may be used in the restaurant any time during the following 12 months. The customer must pay cash when purchasing the coupon book.
Case B. Russell Land Development Corporation sold a lot to Upland Builders to construct a new home. The price of the lot was $50,000. Upland made a down payment of $250 and agreed to pay the balance in six months. After making the sale, Russell learned that Upland Builders often entered into these agreements but refused to pay the balance if it did not find a customer who wanted a house built on the lot.
Case C. Davis Corporation has always recorded revenue at the point of sale of its refrigerators. Recently, it has extended its warranties to cover all repairs for a period of seven years. One young accountant with the company now questions whether Davis has completed its earning process when it sells the refrigerators. She suggests that the warranty obligation for seven years means that a significant amount of additional work must be performed in the future.
Aug 29, 2021 | Uncategorized
Reporting Net Sales and Expenses with Discounts, Returns, and Bad Debts – The following data were selected from the records of Sykes Company for the year ended December 31, 2011.
|
Balances January 1, 2011
|
|
Accounts receivable (various customers)
|
$115,000
|
|
Allowance for doubtful accounts
|
7,000
|
In the following order, except for cash sales, the company sold merchandise and made collections on credit terms 2/10, n/30 (assume a unit sales price of $500 in all transactions and use the gross method to record sales revenue).
Transactions during 2011
a. Sold merchandise for cash, $234,000.
b. Sold merchandise to R. Smith; invoice price, $11,500.
c. Sold merchandise to K. Miller; invoice price, $25,000.
d. Two days after purchase date, R. Smith returned one of the units purchased in ( b ) and received account credit.
e. Sold merchandise to B. Sears; invoice price, $26,000.
f. R. Smith paid his account in full within the discount period.
g. Collected $98,000 cash from customer sales on credit in prior year, all within the discount periods.
h. K. Miller paid the invoice in ( c ) within the discount period.
i. Sold merchandise to R. Roy; invoice price, $17,500.
j. Three days after paying the account in full, K. Miller returned seven defective units and received a cash refund.
k. After the discount period, collected $6,000 cash on an account receivable on sales in a prior year.
l. Wrote off a 2010 account of $3,000 after deciding that the amount would never be collected.
m. The estimated bad debt rate used by the company was 1.5 percent of credit sales net of returns.
Required:
1. Using the following categories, indicate the effect of each listed transaction, including the write-off of the uncollectible account and the adjusting entry for estimated bad debts (ignore cost of goods sold). Indicate the sign and amount of the effect or “NE” for “no effect.” The first transaction is used as an example.
|
Sales
Revenue
|
Sales Discounts
(taken)
|
Sales Returns and
Allowances
|
Bad Debt
Expense
|
|
234,000
|
NE
|
NE
|
NE
|
2. Show how the accounts related to the preceding sale and collection activities should be reported on the 2011 income statement. (Treat sales discounts as a contra-revenue.)
Aug 29, 2021 | Uncategorized
Understanding the Income Statement Based on the Gross Profit Percentage – The following data presented in income statement order were taken from the year-end records of Berugu Export Company. Fill in all of the missing amounts and show computations. ( Hint: In Case B, start from the bottom.)
|
Independent Cases
|
|
Income Statement Items
|
Case A
|
Case B
|
|
Gross sales revenue
|
$259,000
|
$165,000
|
|
Sales returns and allowances
|
20,000
|
?
|
|
Net sales revenue
|
?
|
?
|
|
Cost of goods sold
|
?
|
(70%)?
|
|
Gross profit
|
(30%)?
|
?
|
|
Operating expenses
|
?
|
15,600
|
|
Pretax income
|
22,000
|
?
|
|
Income tax expense (20%)
|
?
|
?
|
|
Income before extraordinary items
|
?
|
?
|
|
Extraordinary gain (loss)
|
2,000
|
10,000
|
|
Less: Income tax (20% of extraordinary item)
|
?
|
?
|
|
Net income
|
?
|
?
|
|
EPS (10,000 shares)
|
?
|
$2.54
|
Aug 29, 2021 | Uncategorized
Analyzing and Evaluating Return on Assets from a Security Analyst’s Perspective – Papa John’s is one of the fastest-growing pizza delivery and carry-out restaurant chains in the country. Presented here are selected income statement and balance sheet amounts (dollars in thousands).
|
Current Year
|
Prior Year
|
|
Net sales
|
$1,132,087
|
$1,063,595
|
|
Net income
|
36,796
|
32,735
|
|
Average shareholders’ equity
|
128,445
|
136,536
|
|
Average total assets
|
394,143
|
390,728
|
Required:
1. Compute ROA for the current and prior years and explain the meaning of the change.
2. Would security analysts more likely increase or decrease their estimates of share value on the basis of this change? Explain.
Aug 29, 2021 | Uncategorized
Matching Transactions with Concepts – Match each transaction or definition with its related concept by entering the appropriate letter in the space provided. Use one letter for each blank.
|
Concepts
|
Transactions/Definitions
|
|
(1) Users of financial statements
|
A. Recorded a $1,000 sale of merchandise on credit.
|
|
(2) Objective of financial statements
|
B. Counted (inventoried) the unsold items at the end of the period and valued them in dollars.
|
|
Qualitative Characteristics
|
|
(3) Relevance
|
C. Acquired a vehicle for use in operating the business.
|
|
(4) Reliability
|
D. Reported the amount of depreciation expense because it likely will affect important decisions of statement users.
|
|
Assumptions
|
|
(5) Separate entity
|
E. The investors, creditors, and others interested in the business.
|
|
(6) Continuity
|
F. Used special accounting approaches because of the uniqueness of the industry.
|
|
(7) Unit of measure
|
G. Sold and issued bonds payable of $1 million.
|
|
(8) Time period
|
H. Used services from outsiders; paid cash for some and put the remainder on credit.
|
|
Elements of Financial Statements
|
|
(9) Revenues
|
I. Engaged an outside independent CPA to audit the financial statements.
|
|
(10) Expenses
|
J. Sold an asset at a loss that was a peripheral or incidental transaction.
|
|
(11) Gains
|
K. Established an accounting policy that sales revenue shall be recognized only when ownership to the goods sold passes to the customer.
|
|
(12) Losses
|
L. To design and prepare the financial statements to assist the users in making decisions.
|
|
(13) Assets
|
M. Established a policy not to include in the financial statements the personal financial affairs of the owners of the business.
|
|
(14) Liabilities
|
N. Sold merchandise and services for cash and on credit during the year; then determined the cost of those goods sold and the cost of rendering those services.
|
|
(15) Stockholders’ equity
|
O. The user value of a special financial report exceeds the cost of preparing it.
|
|
Principles
|
|
(16) Cost
|
P. Valued an asset, such as inventory, at less than its purchase cost because the replacement cost is less.
|
|
(17) Revenue
|
Q. Dated the income statement “For the Year Ended December 31, 2011.”
|
|
(18) Matching
|
R. Paid a contractor for an addition to the building with $10,000 cash and $20,000 market value of the stock of the company ($30,000 was deemed to be the cash-equivalent price).
|
|
(19) Full disclosure
|
S. Acquired an asset (a pencil sharpener that will have a useful life of five years) and recorded it as an expense when purchased for $1.99.
|
|
Constraints of Accounting
|
|
(20) Materiality threshold
|
T. Disclosed in the financial statements all relevant financial information about the business; necessitated the use of notes to the financial statements.
|
|
(21) Cost-benefit constraint
|
U. Sold an asset at a gain that was a peripheral or incidental transaction.
|
|
(22) Conservatism constraint
|
V. Assets of $500,000 – Liabilities of $300,000 = ?
|
|
(23) Special industry practices
|
W. Accounting and reporting assume a “going concern.”
|
Aug 29, 2021 | Uncategorized
Preparing a Balance Sheet and Analyzing Some of Its Parts – Exquisite Jewelers is developing its annual financial statements for 2012. The following amounts were correct at December 31, 2012: cash, $58,000; accounts receivable, $71,000; merchandise inventory, $154,000; prepaid insurance, $1,500; investment in stock of Z corporation (long-term), $36,000; store equipment, $67,000; used store equipment held for disposal, $9,000; accumulated depreciation, store equipment, $19,000; accounts payable, $52,500; long-term note payable, $42,000; income taxes payable, $9,000; retained earnings, $164,000; and common stock, 100,000 shares outstanding, par value $1.00 per share (originally sold and issued at $1.10 per share).
Required:
1. Based on these data, prepare a December 31, 2012 balance sheet. Use the following major captions (list the individual items under these captions):
a. Assets: Current Assets, Long-Term Investments, Fixed Assets, and Other Assets.
b. Liabilities: Current Liabilities and Long-Term Liabilities.
c. Stockholders’ Equity: Contributed Capital and Retained Earnings.
2. What is the net book value of the store equipment? Explain what this value means.
Aug 29, 2021 | Uncategorized
Reporting Stockholders’ Equity on a Balance Sheet and Recording the Issuance of Stock – At the end of the 2011 annual reporting period, Barnard Corporation’s balance sheet showed the following:
|
BARNARD CORPORATION
Balance Sheet
At December 31, 2011
|
|
Stockholders’ Equity
|
|
|
Contributed capital
|
|
|
Common stock (par $15; 6,000 shares)
|
$90,000
|
|
Paid-in capital
|
13,000
|
|
Total contributed capital
|
103,000
|
|
Retained earnings
|
44,000
|
|
Total stockholders’ equity
|
$147,000
|
During 2012, the following selected transactions (summarized) were completed:
a. Sold and issued 1,000 shares of common stock at $25 cash per share (at year-end).
b. Determined net income, $43,000.
c. Declared and paid a cash dividend of $3 per share on the beginning shares outstanding.
Required:
1. Prepare the stockholders’ equity section of the balance sheet at December 31, 2012.
2. Give the journal entry to record the sale and issuance of the 1,000 shares of common stock.
Aug 29, 2021 | Uncategorized
Preparing a Multiple-Step Income Statement – Aeropostale, Inc., is a mall-based specialty retailer of casual apparel and accessories. The company concept is to provide the customer with a focused selection of high-quality, active-oriented fashions at compelling values. The items reported on its income statement for a recent year (ended March 31) are presented here (dollars in thousands) in alphabetical order:
|
Cost of goods sold
|
$1,231,349
|
|
Interest income
|
510
|
|
Net revenue
|
1,885,531
|
|
Other selling, general, and administrative expenses
|
405,883
|
|
Provision for income taxes
|
99,387
|
|
Weighted average shares outstanding
|
66,832
|
Required:
Prepare a multiple-step consolidated income statement (showing gross profit, operating income, and income before income taxes). Include a presentation of basic earnings per share.
Aug 29, 2021 | Uncategorized
Preparing Both an Income Statement and a Balance Sheet from a Trial Balance – Jordan Sales Company (organized as a corporation on April 1, 2011) has completed the accounting cycle for the second year, ended March 31, 2013. Jordan also has completed a correct trial balance as follows:
|
JORDAN SALES COMPANY
Trial Balance
At March 31, 2013
|
|
Account Titles
|
Debit
|
|
Cash
|
$58,000
|
|
Accounts receivable
|
49,000
|
|
Office supplies inventory
|
1,000
|
|
Automobiles (company cars)
|
34,000
|
|
Accumulated depreciation, automobiles
|
|
$14,000
|
|
Office equipment
|
3,000
|
|
Accumulated depreciation, office equipment
|
|
1,000
|
|
Accounts payable
|
22,000
|
|
Income taxes payable
|
|
0
|
|
Salaries and commissions payable
|
|
2,000
|
|
Note payable, long-term
|
|
33,000
|
|
Capital stock (par $1; 33,000 shares)
|
|
33,000
|
|
Paid-in capital
|
5,000
|
|
Retained earnings (on April 1, 2012)
|
|
7,500
|
|
Dividends declared and paid during the current year
|
10,500
|
|
Sales revenue
|
99,000
|
|
Cost of goods sold
|
33,000
|
|
Operating expenses (detail omitted to conserve time)
|
19,000
|
|
Depreciation expense (on autos and including $500 on office equipment)
|
8,000
|
|
Interest expense
|
1,000
|
|
Income tax expense (not yet computed)
|
|
|
|
|
Totals
|
$216,500
|
$216,500
|
Required:
Complete the financial statements as follows:
a. Classified (multiple-step) income statement for the reporting year ended March 31, 2013. Include income tax expense, assuming a 25 percent tax rate. Use the following subtotals: Gross Profit, Total Operating Expenses, Income from Operations, Income before Income Taxes, and Net Income, and show EPS.
b. Classified balance sheet at the end of the reporting year, March 31, 2013. Include (1) income taxes for the current year in Income Taxes Payable and (2) dividends in Retained Earnings. Use the following captions (list each item under these captions).
|
Assets
|
Stockholders’ Equity
|
|
Current assets
|
Contributed capital
|
|
Noncurrent assets
|
Retained earnings
|
|
Liabilities
|
|
Current liabilities
|
|
Long-term liabilities
|
Aug 29, 2021 | Uncategorized
Determining and Interpreting the Effects of Transactions on Income Statement Categories and Return on Assets – Creative Technology, a computer hardware company based in Singapore, developed the modern standard for computer sound cards in the early 1990s. Recently, Creative has released a line of portable audio products to directly compete with Apple’s popular iPod. Presented here is a recent income statement (dollars in millions).
|
Net sales
|
$915
|
|
Costs and expenses
|
|
Cost of sales
|
737
|
|
Research and development
|
64
|
|
Selling, general, and administrative
|
175
|
|
Operating income (loss)
|
61
|
|
Interest and other income (expenses), net
|
112
|
|
Income (loss) before provision (benefit) for income taxes
|
51
|
|
Provision (benefit) for income taxes
|
23
|
|
Net income (loss)
|
$28
|
Its beginning and ending assets were $393 and $409, respectively.
Required:
Listed here are hypothetical additional transactions. Assuming that they also occurred during the fiscal year, complete the following tabulation, indicating the sign of the effect of each additional transaction ( + for increase, – for decrease, and NE for no effect). Consider each item independently and ignore taxes.
a. Recorded sales on account of $500 and related cost of goods sold of $475.
b. Incurred additional research and development expense of $100, which was paid in cash.
c. Issued additional shares of common stock for $200 cash.
d. Declared and paid dividends of $90.
|
Transaction
|
Gross Profit
|
Operating
Income (Loss)
|
Return on
Assets
|
|
|
|
|
Aug 29, 2021 | Uncategorized
(Supplement) Preparing a Multiple-Step Income Statement with Discontinued Operations and Cumulative Effects of Accounting Changes – Newell Rubbermaid Inc. manufactures and markets a broad array of office products, tools and hardware, and home products under a variety of brand names, including Sharpie, Paper Mate, Rolodex, Rubbermaid, Levolor, and others. The items reported on its income statement for the year ended December 31, 2008, are presented here (dollars in thousands) in alphabetical order:
|
Cost of Products Sold
|
$4,347.40
|
|
Income Tax Expense
|
53.6
|
|
Interest and Other Non-operating Expense
|
199
|
|
Loss on Sale of Discontinued Operations,
|
|
Net of Income Taxes
|
0.5
|
|
Net Sales
|
6,470.60
|
|
Other Expense
|
419.7
|
|
Selling, General, and Administrative Expenses
|
1,502.70
|
Required:
Using appropriate headings and subtotals, prepare a multiple-step consolidated income statement (showing gross profit, operating income, and any other subheadings you deem appropriate).
Aug 29, 2021 | Uncategorized
Preparing a Balance Sheet and Analyzing Some of Its Parts – Tango Co is developing its annual financial statements for 2012. The following amounts were correct at December 31, 2012: cash, $48,800; investment in stock of PIL Corporation (long-term), $36,400; store equipment, $67,200; accounts receivable, $71,820; inventory, $154,000; prepaid rent, $1,120; used store equipment held for disposal, $9,800; accumulated depreciation, store equipment, $13,440; income taxes payable, $9,800; long-term note payable, $32,000; accounts payable, $58,800; retained earnings, $165,100; and common stock, 100,000 shares outstanding, par value $1 per share (originally sold and issued at $1.10 per share).
Required:
1. Based on these data, prepare a 2012 balance sheet. Use the following major captions (list the individual items under these captions):
a. Assets: Current Assets, Long-Term Investments, Fixed Assets, and Other Assets.
b. Liabilities: Current Liabilities and Long-Term Liabilities.
c. Stockholders’ Equity: Contributed Capital and Retained Earnings.
2. What is the net book value of the store equipment? Explain what this value means.
Aug 29, 2021 | Uncategorized
Reporting Stockholders’ Equity on a Balance Sheet and Recording the Issuance of Stock – At the end of the 2011 annual reporting period, Mesa Industries’s balance sheet showed the following:
|
MESA INDUSTRIES
Balance Sheet
At December 31, 2011
|
|
Stockholders’ Equity
|
|
Common stock (par $15; 7,000 shares)
|
$105,000
|
|
Additional paid-in capital
|
9,000
|
|
Retained earnings
|
48,000
|
|
Total stockholders’ equity
|
$162,000
|
During 2012, the following selected transactions (summarized) were completed:
a. Sold and issued 1,500 shares of common stock at $26 cash per share (at year- nd).
b. Determined net income, $46,000.
c. Declared and paid a cash dividend of $1 per share on the beginning shares outstanding.
Required:
1. Prepare the stockholders’ equity section of the balance sheet at December 31, 2012.
2. Give the journal entry to record the sale and issuance of the 1,500 shares of common stock.
Aug 29, 2021 | Uncategorized
Preparing Both an Income Statement and a Balance Sheet from a Trial Balance – Dynamite Sales (organized as a corporation on September 1, 2010) has completed the accounting cycle for the second year, ended August 31, 2012. Dynamite also has completed a correct trial balance as follows:
|
DYNAMITE SALES
Trial Balance
At August 31, 2012
|
|
Account Titles
|
Debit
|
Credit
|
|
Cash
|
$47,700
|
|
Accounts receivable
|
38,320
|
|
Office supplies
|
270
|
|
Company vehicles (delivery vans)
|
27,000
|
|
Accumulated depreciation, company vehicles
|
|
$9,000
|
|
Equipment
|
2,700
|
|
Accumulated depreciation, equipment
|
|
900
|
|
Accounts payable
|
16,225
|
|
Income taxes payable
|
|
0
|
|
Salaries payable
|
1,350
|
|
Long-term debt
|
25,000
|
|
Capital stock (par $1; 29,000 shares)
|
|
29,000
|
|
Paid-in capital
|
4,500
|
|
Retained earnings (on September 1, 2011)
|
|
6,615
|
|
Dividends declared and paid during the current year
|
7,200
|
|
Sales revenue
|
81,000
|
|
Cost of goods sold
|
27,000
|
|
Operating expenses (detail omitted to conserve time)
|
16,200
|
|
Depreciation expense (on vehicles and including $3,450 on equipment)
|
4,950
|
|
Interest expense
|
2,250
|
|
Income tax expense (not yet computed)
|
|
|
|
Totals
|
$173,590
|
$173,590
|
Required:
Complete the financial statements, as follows:
a. Classified (multiple-step) income statement for the reporting year ended August 31, 2012. Include income tax expense, assuming a 30 percent tax rate. Use the following subtotals: Gross Profit, Total Operating Expenses, Income from Operations, Income before Income Taxes, and Net Income, and show EPS.
b. Classified balance sheet at the end of the reporting year, August 31, 2012. Include (1) income taxes for the current year in Income Taxes Payable and (2) dividends in Retained Earnings. Use the following captions (list each item under these captions).
|
Assets
|
Stockholders’ Equity
|
|
Current assets
|
Contributed capital
|
|
Noncurrent assets
|
Retained earnings
|
|
Liabilities
|
|
Current liabilities
|
|
Long-term liabilities
|
Aug 29, 2021 | Uncategorized
Determining and Interpreting the Effects of Transactions on Income Statement Categories and Return on Assets – Avon Products, Inc., is a leading manufacturer and marketer of beauty products and related merchandise. The company sells its products in 110 countries through a combination of direct selling and use of individual sales representatives. Presented here is a recent income statement (dollars in millions).
|
Net sales
|
$10,690
|
|
Costs and expenses
|
|
Cost of sales
|
3,949
|
|
Selling, general, and administrative
|
5,402
|
|
Operating income (loss)
|
1,339
|
|
Interest and other income (expenses), net
|
-101
|
|
Income (loss) before provision (benefit) for income taxes
|
1,238
|
|
Provision (benefit) for income taxes
|
363
|
|
Net income (loss)
|
$875
|
Its beginning and ending total assets were $5,716 and $6,074, respectively.
Required:
1. Listed here are hypothetical a dditional transactions. Assuming that they also occurred during the fiscal year, complete the following tabulation, indicating the sign of the effect of each additional transaction ( + for increase, – for decrease, and NE for no effect). Consider each item independently and ignore taxes.
a. Recorded and received additional interest income of $7.
b. Purchased $80 of additional inventory on open account.
c. Recorded and paid additional advertising expense of $16.
d. Issued additional shares of common stock for $40 cash.
|
Transaction
|
Operating Income (Loss)
|
Net Income
|
Return on
Assets
|
|
|
|
|
2. Assume that next period, Avon does not pay any dividends, does not issue or retire stock, and earns 20 percent more than during the current period. If total assets increase by 5 percent, will Avon’s ROA next period be higher, lower, or the same as in the current period? Why?
Aug 29, 2021 | Uncategorized
Finding Financial Information – The following questions illustrate the types of information that you can find in the financial statements and accompanying notes. Required:
1. What items were included as noncurrent assets on the balance sheet?
2. How much land did the company own at the end of the most recent reporting year?
3. What portion of current liabilities were “Unredeemed store value cards and gift certificates” during the current year?
4. At what point were website sales recognized as revenue?
5. The company reported cash flows from operating activities of $302,193,000. However, its cash and cash equivalents increased by $357,281,000 for the year. Explain how that happened.
6. What was the highest stock price for the company during fiscal 2008? ( Note: Some companies will label a year that has a January year-end as having a fiscal year-end dated one year earlier. For example, a January 2009 year-end may be labeled as Fiscal 2008 since the year actually has more months that fall in the 2008 calendar year than in the 2009 calendar year.)
7. Calculate the company’s ROA for fiscal 2008 and 2007. Did it increase or decrease? How would you expect the change in ROA to be reflected in the company’s share price?
Aug 29, 2021 | Uncategorized
At the bottom of each statement, the company warns readers that “The accompanying notes are an integral part of these financial statements.” The following questions illustrate the types of information that you can find in the financial statements and accompanying notes.
Required:
1. What subtotals does Urban Outfitters report on its income statement?
2. The company spent $112,553,000 on capital expenditures (property, plant, and equipment) and $809,039,000 purchasing investments during the most recent year. Were operating activities or financing activities the major source of cash for these expenditures?
3. What was the company’s largest asset (net) at the end of the most recent year?
4. How does the company account for costs associated with developing its websites?
5. Over what useful lives are buildings depreciated?
6. What portion of gross “Property and Equipment” is composed of “Buildings”?
Aug 29, 2021 | Uncategorized
Comparing Companies within an Industry – Refer to the financial statements of American Eagle Outfitters (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book.
Required:
1. Compute return on assets for the most recent year. Which company provided the highest return on invested capital during the current year?
2. Use ROA profit driver analysis to determine the cause(s) of any differences. How might the ownership versus the rental of property, plant, and equipment affect the total asset turnover ratio?
3. Compare the ROA profit driver analysis for American Eagle Outfitters and Urban Outfitters to the ROA profit driver analysis for their industry. Where does American Eagle Outfitters outperform or underperform the industry? Where does Urban Outfitters outperform or underperform the industry?
Aug 29, 2021 | Uncategorized
Using Financial Reports: Financial Statement Inferences – The following amounts were selected from the annual financial statements for Genes is Corporation at December 31, 2012 (end of the third year of operations):
|
From the 2012 income statement:
|
|
Sales revenue
|
$275,000
|
|
Cost of goods sold
|
-170,000
|
|
All other expenses (including income tax)
|
-95,000
|
|
Net income
|
$10,000
|
|
From the December 31, 2012, balance sheet:
|
|
Current assets
|
$90,000
|
|
All other assets
|
212,000
|
|
Total assets
|
$302,000
|
|
Current liabilities
|
$40,000
|
|
Long-term liabilities
|
66,000
|
|
Capital stock (par $10)
|
100,000
|
|
Paid-in capital
|
16,000
|
|
Retained earnings
|
80,000
|
|
Total liabilities and stockholders’ equity
|
$302,000
|
Required:
Analyze the data on the 2012 financial statements of Genesis by answering the questions that follow. Show computations.
1. What was the gross margin on sales?
2. What was the amount of EPS?
3. If the income tax rate was 25%, what was the amount of pretax income?
4. What was the average sales price per share of the capital stock?
5. Assuming that no dividends were declared or paid during 2012, what was the beginning balance (January 1, 2012) of retained earnings?
Aug 29, 2021 | Uncategorized
Making a Decision as an Auditor: Effects of Errors on Income, Assets, and Liabilities – Megan Company (not a corporation) was careless about its financial records during its first year of operations, 2010. It is December 31, 2010, the end of the annual accounting period. An outside CPA has examined the records and discovered numerous errors, all of which are described here. Assume that each error is independent of the others.
Required:
Analyze each error and indicate its effect on 2010 and 2011 net income, assets, and liabilities if not corrected. Do not assume any other errors. Use these codes to indicate the effect of each dollar amount: O = overstated, U = understated, and NE = no effect. Write an explanation of your analysis of each transaction to support your response. The first transaction is used as an example.
|
Independent Errors
|
Effect On
|
|
Net Income
|
Assets
|
Liabilities
|
|
2010
|
2011
|
2010
|
2011
|
2010
|
2011
|
|
1. Depreciation expense for 2010, not
recorded in 2010, $950.
|
|
2. Wages earned by employees during
2010 not recorded or paid in 2010 but
recorded and paid in 2011, $500.
|
|
3. Revenue earned during 2010 but not
collected or recorded until 2011, $600.
|
|
4. Amount paid in 2010 and recorded as
expense in 2010 but not an expense
until 2011, $200.
|
|
5. Revenue collected in 2010 and
recorded as revenue in 2010 but
not earned until 2011, $900.
|
|
6. Sale of services and cash collected in
2010. Recorded as a debit to Cash and
as a credit to Accounts Receivable, $300.
|
|
7. On December 31, 2010, bought land
on credit for $8,000, not recorded until
payment was made on February 1, 2011.
|
Following is a sample explanation of the first error:
Failure to record depreciation in 2010 caused depreciation expense to be too low; therefore, income was overstated by $950. Accumulated depreciation also is too low by $950, which causes assets to be overstated by $950 until the error is corrected.
Aug 29, 2021 | Uncategorized
Interpreting the Revenue Principle – Indicate the most likely time you expect sales revenue to be recorded for each of the listed transactions.
|
Transaction
|
Point A
|
Point B
|
|
a. Sale of inventory to a business customer
on open account
|
Shipment
|
Collection of account
|
|
b. Computer sold by mail order company
on a credit card
|
Shipment
|
Delivery
|
|
c. Airline tickets sold by an airline on a credit card
|
Point of sale
|
Completion of flight
|
Aug 29, 2021 | Uncategorized
Reporting Net Sales with Credit Sales, Sales Discounts, and Credit Card Sales – The following transactions were selected from the records of Ocean View Company:
July 12 Sold merchandise to Customer R, who charged the $3,000 purchase on his Visa credit card. Visa charges Ocean View a 2 percent credit card fee. 15 Sold merchandise to Customer S at an invoice price of $9,000 ; terms 3/10, n/30. 20 Sold merchandise to Customer T at an invoice price of $4,000 ; terms 3/10, n/30. 23 Collected payment from Customer S from July 15 sale. Aug. 25 Collected payment from Customer T from July 20 sale.
Required:
Assuming that Sales Discounts and Credit Card Discounts are treated as contra-revenues, compute net sales for the two months ended August 31.
Aug 29, 2021 | Uncategorized
Reporting Net Sales with Credit Sales, Sales Discounts, Sales Returns, and Credit Card Sales – The following transactions were selected from among those completed by Cadence Retailers in 2011:
Nov. 20 Sold 20 items of merchandise to Customer B at an invoice price of $5,500 (total); terms 3/10, n/30. 25 Sold two items of merchandise to Customer C, who charged the $400 sales price on her Visa credit card. Visa charges Cadence Retailers a 2 percent credit card fee. 28 Sold 10 identical items of merchandise to Customer D at an invoice price of $9,000 (total); terms 3/10, n/30. 29 Customer D returned one of the items purchased on the 28th; the item was defective, and credit was given to the customer. Dec. 6 Customer D paid the account balance in full. 20 Customer B paid in full for the invoice of November 20, 2011.
Required:
Assume that Sales Returns and Allowances, Sales Discounts, and Credit Card Discounts are treated as contra-revenues; compute net sales for the two months ended December 31, 2011.
Aug 29, 2021 | Uncategorized
On October 1, 2011, the $12,000 premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2011 (end of the accounting period), what adjusting entry is needed?
|
a. Insurance Expense ( + E)
|
2000
|
|
Prepaid Insurance ( – A)
|
|
2000
|
|
b. Insurance Expense ( + E)
|
3000
|
|
Prepaid Insurance ( – A)
|
|
3000
|
|
c. Prepaid Insurance ( + A)
|
3000
|
|
Insurance Expense ( – E)
|
|
3000
|
|
d. Prepaid Insurance ( + A)
|
9000
|
|
Insurance Expense ( – E)
|
|
9000
|
Aug 29, 2021 | Uncategorized
Matching Players in the Accounting Communication Process with Their Definitions Match each player with the related definition by entering the appropriate letter in the space provided.
|
Players
|
Definitions
|
|
(1) Independent auditor
|
A. Adviser who analyzes Financial and other economic
information to form forecasts and stock recommendations.
|
|
(2) CEO and CFO
|
B. Institutional and private investors and creditors
(among others).
|
|
(3) Users
|
C. Chief executive of officer and chief Financial officer who have primary responsibility for the information presented in financial
statements.
|
|
(4) Financial analyst
|
D. Independent CPA who examines financial statements and
attests to their fairness.
|
Aug 29, 2021 | Uncategorized
Identifying the Disclosure Sequence Indicate the order in which the following disclosures or reports are normally issued by public companies.
|
Title
|
|
|
Form 10-K
|
|
|
Earnings press release
|
|
|
Annual report
|
Finding Financial Information: Matching Financial Statements with the Elements of Financial Statements Match each financial statement with the items presented on it by entering the appropriate letter in the space provided.
|
Elements of Financial Statements
|
Financial Statements
|
|
(1) Expenses
|
A. Income statement
|
|
(2) Cash from operating activities
|
B. Balance sheet
|
|
(3) Losses
|
C. Cash Flow statement
|
|
(4) Assets
|
D. None of the above
|
|
(5) Revenues
|
|
(6) Cash from financing activities
|
|
(7) Gains
|
|
(8) Owners’ equity
|
|
(9) Liabilities
|
|
(10) Assets personally owned by a stockholder
|
|
Aug 29, 2021 | Uncategorized
Computing and Interpreting Return on Assets Saunders, Inc., recently reported the following December 31 amounts in its financial statements (dollars in thousands):
|
Current Year
|
Prior Year
|
|
Gross profit
|
$170
|
$120
|
|
Net income
|
80
|
40
|
|
Total assets
|
1,000
|
900
|
|
Total shareholders’ equity
|
800
|
600
|
Compute return on assets for the current year. What does this ratio measure?
Aug 29, 2021 | Uncategorized
Matching Players in the Accounting Communication Process with Their Definitions Match each player with the related definition by entering the appropriate letter in the space provided.
|
Players
|
Definitions
|
|
(1) Financial analyst
|
A. Financial institution or supplier that lends money to the company.
|
|
(2) Creditor
|
B. Chief executive officer and chief financial officer who have
primary responsibility for the information presented in financial
statements.
|
|
(3) Independent auditor
|
C. Manager of pension, mutual, and endowment funds that invest
on the behalf of others.
|
|
(4) Private investor
|
D. Securities and Exchange Commission, which regulates
financial disclosure requirements.
|
|
(5) SEC
|
E. A company that gathers, combines, and transmits (paper and
electronic) financial and related information from various sources.
|
|
(6) Information service
|
F. Adviser who analyzes financial and other economic
information to form forecasts and stock recommendations.
|
|
(7) Institutional investor
|
G. Individual who purchases shares in companies.
|
|
(8) CEO and CFO
|
H. Independent CPA who examines financial statements and
attests to their fairness.
|
Aug 29, 2021 | Uncategorized
Matching Definitions with Information Releases Made by Public Companies Following are the titles of various information releases. Match each definition with the related release by entering the appropriate letter in the space provided.
|
Information Release
|
Definitions
|
|
(1) Form 10-Q
|
A. Report of special events (e.g., auditor changes, mergers)
” led by public companies with the SEC.
|
|
(2) Quarterly report
|
B. Brief unaudited report for quarter normally containing
summary income statement and balance sheet.
|
|
(3) Press release
|
C. Quarterly report filed by public companies with the
SEC that contains additional unaudited financial information.
|
|
(4) Annual report
|
D. Written public news announcement that is normally
distributed to major news services.
|
|
(5) Form 10-K
|
E. Annual report filed by public companies with the
SEC that contains additional detailed financial
information.
|
|
(6) Form 8-K
|
F. Report containing the four basic financial statements for
the year, related notes, and often statements by management
and auditors.
|
Aug 29, 2021 | Uncategorized
Finding Financial Information: Matching Information Items to Financial Reports Following are information items included in various financial reports. Match each information item with the report(s) where it would most likely be found by entering the appropriate letter(s) in the space provided.
|
Information Item
|
Report
|
|
(1) Summarized financial data for 5- or 10-year period.
|
A. Form 10-Q
|
|
(2) Notes to financial statements.
|
B. Annual report
|
|
(3) The four basic financial statements for the year.
|
C. Form 8-K
|
|
(4) Summarized income statement information for the quarter.
|
D. Press release
|
|
(5) Detailed discussion of the company’s competition.
|
E. Quarterly report
|
|
(6) Initial announcement of hiring of new vice president for sales.
|
F. Form 10-K
|
|
(7) Initial announcement of quarterly earnings.
|
G. None of the above
|
|
(8) Description of those responsible for the financial statements.
|
|
|
(9) Complete quarterly income statement, balance sheet, and cash flow statement.
|
|
|
(10) Announcement of a change in auditors.
|
|
Aug 29, 2021 | Uncategorized
Ordering the Classifications on a Typical Balance Sheet Following is a list of classifications on the balance sheet. Number them in the order in which they normally appear on a balance sheet.
|
Title
|
|
|
Long-term liabilities
|
|
|
Current liabilities
|
|
|
Long-term investments
|
|
|
Intangible assets
|
|
|
Contributed capital
|
|
|
Current assets
|
|
|
Retained earnings
|
|
|
Property, plant, and equipment
|
|
|
Other noncurrent assets
|
Aug 29, 2021 | Uncategorized
Preparing a Classified Balance Sheet Campbell Soup Company is the world’s leading maker and marketer of soup and sells other well-known brands of food in 120 countries. Presented here are the items listed on its recent balance sheet (dollars in millions) presented in alphabetical order:
|
Accounts payable
|
$569
|
Other assets
|
$105
|
|
Accounts receivable
|
528
|
Other current assets
|
148
|
|
Accrued expenses
|
579
|
Other current debt
|
480
|
|
Cash and cash equivalents
|
51
|
Other noncurrent liabilities
|
3,700
|
|
Common stock, $0.0375 par value
|
352
|
Property, plant, and equipment, net
|
1,977
|
|
Intangible assets
|
2,423
|
Retained earnings
|
376
|
|
Inventories
|
824
|
Required:
Prepare a classified consolidated balance sheet for Campbell Soup for the current year (ended August 2) using the categories presented in the chapter.
Aug 29, 2021 | Uncategorized
Preparing and Interpreting a Classified Balance Sheet with Discussion of Terminology – Lance, Inc., manufactures, markets, and distributes a variety of snack foods. Product categories include sandwich crackers, cookies, restaurant crackers and bread basket items, candy, chips, meat snacks, nuts, and cake items. These items are sold under trade names including Lance, Toastchee, Toasty, Choc-O Lunch, Captain’s Wafers, and Cape Cod. Presented here are the items listed on its recent balance sheet (dollars in millions) in alphabetical order:
|
Accounts payable
|
$25,939
|
Other assets (noncurrent)
|
$4,949
|
|
Accounts receivable, net
|
74,406
|
Other current assets
|
9,778
|
|
Accrued compensation
|
26,312
|
Other intangible assets, net
|
23,966
|
|
Additional paid-in capital
|
49,138
|
Other long-term liabilities
|
48,070
|
|
Cash and cash equivalents
|
807
|
Other payables and accrued liabilities
|
32,318
|
|
Common stock, 28,947,222 shares outstanding
|
26,268
|
Prepaid expenses and other
|
12,933
|
|
Goodwill
|
80,110
|
Property, plant, and equipment, net
|
216,085
|
|
Inventories
|
43,112
|
Retained earnings
|
160,101
|
|
Long-term debt
|
91,000
|
Short-term debt
|
7,000
|
Required:
1. Prepare a classified consolidated balance sheet for Lance, Inc., for the current year (ended December 31) using the categories presented in the chapter.
2. Three of the items end in the term net. Explain what this term means in each case.
Aug 29, 2021 | Uncategorized
Inferring Stock Issuances and Cash Dividends from Changes in Stockholders’ Equity – The Kroger Co. is one of the largest retailers in the United States and also manufactures and processes some of the food for sale in its supermarkets. Kroger reported the following January 31 balances in its stockholders’ equity accounts (dollars in millions):
|
Current Year
|
Prior Year
|
|
Common stock
|
$955
|
$947
|
|
Paid-in capital
|
3,266
|
3,031
|
|
Retained earnings
|
7,489
|
6,480
|
During the current year, Kroger reported net income of $1,249.
Required:
1. How much did Kroger declare in dividends for the year?
2. Assume that the only other transaction that affected stockholders’ equity during the current year was a single stock issuance. Recreate the journal entry reflecting the stock issuance.
Aug 29, 2021 | Uncategorized
Matching Definitions with Income Statement Related Terms – Following are terms related to the income statement. Match each definition with its related term by entering the appropriate letter in the space provided.
|
Terms
|
Definitions
|
|
(1) Net income
|
A. Revenues + Gains – Expenses – Losses including
effects of discontinued operations and extraordinary
items (if any).
|
|
(2) Income tax expense on operations
|
B. Income Tax on Revenues – Operating Expenses.
|
|
(3) Income before extraordinary items
|
C. Sales Revenue – Cost of Goods Sold
|
|
(4) Cost of goods sold
|
D. Sales of services for cash or on credit.
|
|
(5) Operating expenses
|
E. Amount of resources used to purchase or produce the goods that were sold during the reporting period.
|
|
(6) Gross margin on sales
|
F. Total expenses directly related to operations.
|
|
(7) EPS
|
G. Income before all income tax and before discontinued operations and extraordinary items (if any).
|
|
(8) Interest expense
|
H. Cost of money (borrowing) over time.
|
|
(9) Service revenue
|
I. Item that is both unusual and infrequent.
|
|
(10) Pretax income from operations
|
J. Net Income ÷ Average Shares Outstanding.
|
|
K. Income before unusual and infrequent items and the related income tax.
|
|
L. None of the above.
|
Aug 29, 2021 | Uncategorized
Inferring Income Statement Values – Supply the missing dollar amounts for the 2012 income statement of NexTech Company for each of the following independent cases. ( Hint: Organize each case in the format of the classified or multiple-step income statement discussed in the chapter. Rely on the amounts given to infer the missing values.)
|
Case A
|
Case B
|
Case C
|
Case D
|
Case E
|
|
Sales revenue
|
$900
|
$750
|
$420
|
$ ?
|
$ ?
|
|
Selling expense
|
?
|
100
|
80
|
390
|
240
|
|
Cost of goods sold
|
?
|
300
|
?
|
500
|
320
|
|
Income tax expense
|
?
|
30
|
20
|
50
|
20
|
|
Gross margin
|
375
|
?
|
?
|
?
|
430
|
|
Pretax income
|
200
|
200
|
?
|
190
|
?
|
|
Administrative expense
|
125
|
?
|
70
|
120
|
90
|
|
Net income
|
120
|
?
|
60
|
?
|
80
|
Aug 29, 2021 | Uncategorized
Inferring Income Statement Values – Supply the missing dollar amounts for the 2012 income statement of BGT Company for each of the following independent cases. ( Hint: Organize each case in the format of the classified or multiple-step income statement discussed in the chapter. Rely on the amounts given to infer the missing values.)
|
Case A
|
Case B
|
Case C
|
Case D
|
Case E
|
|
Sales revenue
|
$770
|
$ ?
|
$ ?
|
$600
|
$1,050
|
|
Pretax income
|
?
|
?
|
150
|
130
|
370
|
|
Income tax expense
|
65
|
210
|
60
|
45
|
?
|
|
Cost of goods sold
|
?
|
320
|
125
|
250
|
?
|
|
Gross margin
|
?
|
880
|
?
|
?
|
630
|
|
Selling expense
|
90
|
275
|
45
|
70
|
?
|
|
Net income
|
115
|
275
|
?
|
?
|
240
|
|
Administrative expense
|
200
|
120
|
80
|
?
|
175
|
Aug 29, 2021 | Uncategorized
Preparing a Multiple-Step Income Statement – The following data were taken from the records of Township Corporation at December 31, 2012:
|
Sales revenue
|
$79,000
|
|
Gross profit
|
28,000
|
|
Selling (distribution) expense
|
7,000
|
|
Administrative expense
|
?
|
|
Pretax income
|
13,000
|
|
Income tax rate
|
35%
|
|
Shares of stock outstanding
|
3,500
|
Required:
Prepare a complete multiple-step income statement for the company (showing both gross profit and income from operations). Show all computations. ( Hint: Set up the side captions or rows starting with sales revenue and ending with earnings per share; rely on the amounts and percentages given to infer missing values.)
Aug 29, 2021 | Uncategorized
Preparing a Multiple-Step Income Statement – The following data were taken from the records of Cofelt Appliances, Incorporated, at December 31, 2011:
|
Sales revenue
|
$130,000
|
|
Administrative expense
|
17,000
|
|
Selling (distribution) expense
|
19,000
|
|
Income tax rate
|
30%
|
|
Gross profit
|
60,000
|
|
Shares of stock outstanding
|
2,500
|
Required:
Prepare a complete multiple-step income statement for the company (showing both gross profit and income from operations). Show all computations. ( Hint: Set up the side captions or rows starting with sales revenue and ending with earnings per share; rely on the amounts and percentages given to infer missing values.)
Aug 29, 2021 | Uncategorized
Determining the Effects of Transactions on Balance Sheet and Income Statement Categories – Hasbro is one of the world’s leading toy manufacturers and maker of such popular board games as Monopoly, Scrabble, and Clue, among others. Listed here are selected aggregate transactions from the first quarter of a recent year (dollars in millions). Complete the following tabulation, indicating the sign ( + for increase, – for decrease, and NE for no effect) and amount of the effect of each transaction. Consider each item independently.
a. Recorded sales on account of $792.2 and related cost of goods sold of $319.5.
b. Issued debt with a principle amount of $425.0.
c. Incurred research and development expense of $43.5, which was paid in cash.
|
Transaction
|
Current Assets
|
Gross Profit
|
Current Liabilities
|
|
|
|
Aug 29, 2021 | Uncategorized
Determining the Effects of Transactions on Balance Sheet, Income Statement, and Statement of Cash Flows Categories – Listed here are selected aggregate transactions for Modern Style Furniture Company from the first quarter of a recent year (dollars in millions). Complete the following tabulation, indicating the sign ( + for increase, – for decrease, and NE for no effect) and amount of the effect of each additional transaction. Consider each item independently.
a. Recorded collections of cash from customers owed on open account of $35.2.
b. Repaid $3.1 in principal on line of credit with a bank with principal payable within one year.
|
Transaction
|
Current Assets
|
Gross Profit
|
Current Liabilities
|
Cash Flow from
Operating Activities
|
|
|
|
Aug 29, 2021 | Uncategorized
Preparing a Simple Statement of Cash Flows Using the Indirect Method – Avalos Corporation is preparing its annual financial statements at December 31, 2011. Listed here are the items on its statement of cash flows presented in alphabetical order. Parentheses indicate that a listed amount should be subtracted on the cash flow statement. The beginning balance in cash was $25,000 and the ending balance was $50,000.
|
Cash borrowed on three-year note
|
$30,000
|
|
Decrease in accounts payable
|
3,000
|
|
Decrease in inventory
|
1,000
|
|
Increase in accounts receivable
|
9,000
|
|
Land purchased
|
36,000
|
|
Net income
|
25,000
|
|
New delivery truck purchased for cash
|
7,000
|
|
Stock issued for cash
|
24,000
|
Required:
Prepare the 2011 statement of cash flows for Avalos Corporation. The section reporting cash flows from operating activities should be prepared using the indirect method discussed in the chapter.
Aug 29, 2021 | Uncategorized
Analyzing and Interpreting Return on Assets – Tiffany & Co. is one of the world’s premier jewelers and a designer of other fine gifts and housewares. Presented here are selected income statement and balance sheet amounts (dollars in thousands).
|
Current Year
|
Prior Year
|
|
Net sales
|
$2,859,997
|
$2,938,771
|
|
Net income
|
220,022
|
323,478
|
|
Average shareholders’ equity
|
1,652,243
|
1,721,131
|
|
Average total assets
|
3,051,594
|
2,883,833
|
Required:
1. Compute ROA for the current and prior years and explain the meaning of the change.
2. Explain the major cause(s) of the change in ROA using ROA profit driver analysis.
Aug 29, 2021 | Uncategorized
EX 16-6 Cash flows from operating activities—indirect method
The net income reported on the income statement for the current year was $378,000. Depreciation recorded on equipment and a building amounted to $112,500 for the year. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:
|
|
End of Year
|
Beginning of Year
|
|
Cash
|
$100,800
|
$107,100
|
|
Accounts receivable (net)
|
127,800
|
132,120
|
|
Inventories
|
252,000
|
227,700
|
|
Prepaid expenses
|
14,040
|
15,120
|
|
Accounts payable (merchandise creditors)
|
112,680
|
119,520
|
|
Salaries payable
|
16,200
|
14,850
|
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
b. If the direct method had been used, would the net cash flow from operating activities have been the same? Explain.
Aug 29, 2021 | Uncategorized
EX 16-11 Reporting land transactions on statement of cash flows
On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:
|
ACCOUNT Land
|
|
|
|
ACCOUNT NO.
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
Date
|
Item
|
Debit
|
Credit
|
Debit
|
Credit
|
|
2012
|
|
|
|
|
|
|
|
Jan.
|
1
|
Balance
|
|
|
620,000
|
|
|
Apr.
|
6
|
Purchased for cash
|
74,500
|
|
694,500
|
|
|
Nov.
|
23
|
Sold for $68,250
|
|
45,600
|
648,900
|
|
Aug 29, 2021 | Uncategorized
EX 16-13 Reporting land acquisition for cash and mortgage note on statement of cash flows
On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:
|
ACCOUNT Land
|
|
|
|
ACCOUNT NO.
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
Date
|
Item
|
Debit
|
Credit
|
Debit
|
Credit
|
|
2012
|
|
|
|
|
|
|
|
Jan.
|
1
|
Balance
|
|
|
195,000
|
|
|
Feb.
|
10
|
Purchased for cash
|
307,500
|
|
502,500
|
|
|
Nov.
|
20
|
Purchased with long-term mortgage note
|
405,000
|
|
907,500
|
|
Aug 29, 2021 | Uncategorized
EX 16-16 Cash flows from operating activities—indirect method
Selected data derived from the income statement and balance sheet of Jones Soda Co. for a recent year are as follows:
|
Income statement data (in thousands):
|
|
|
Net earnings
|
($10,547)
|
|
Losses on inventory write-down and fi xed assets
|
2,248
|
|
Depreciation expense
|
811
|
|
Stock based compensation expense (noncash)
|
727
|
|
Balance sheet data (in thousands):
|
|
|
Decrease in accounts receivable
|
364
|
|
Decrease in inventory
|
210
|
|
Decrease in prepaid expenses
|
206
|
|
Decrease in accounts payable
|
(165)
|
|
Decrease in accrued liabilities
|
(1,117)
|
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows using the indirect method for Jones Soda Co. for the year.
b. Interpret your results in part (a).
Aug 29, 2021 | Uncategorized
EX 16-17 Statement of cash flows—indirect method
The comparative balance sheet of Hobson Medical Equipment Inc. for December 31, 2013 and 2012, is as follows:
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
|
$294
|
$96
|
|
Accounts receivable (net)
|
168
|
120
|
|
Inventories
|
105
|
66
|
|
Land
|
240
|
270
|
|
Equipment
|
135
|
105
|
|
Accumulated depreciation—equipment
|
(36)
|
(18)
|
|
Total
|
$906
|
$639
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$105
|
$96
|
|
Dividends payable
|
18
|
—
|
|
Common stock, $10 par
|
60
|
30
|
|
Paid-in capital in excess of par—common stock
|
150
|
75
|
|
Retained earnings
|
573
|
438
|
|
Total
|
$906
|
$639
|
The following additional information is taken from the records:
a. Land was sold for $75.
b. Equipment was acquired for cash.
c. There were no disposals of equipment during the year.
d. The common stock was issued for cash.
e. There was a $195 credit to Retained Earnings for net income.
f. There was a $60 debit to Retained Earnings for cash dividends declared. Respond to the following:
a. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
b. Was Hobson Medical Equipment’s cash flow from operations more or less than net income? What is the source of this difference?
Aug 29, 2021 | Uncategorized
EX 16-21 Determining selected amounts for cash flows from operating activities—direct method
Selected data taken from the accounting records of Bentson Inc. for the current year ended December 31 are as follows:
|
|
Balance, December 31
|
Balance, January 1
|
|
Accrued expenses payable (operating expenses)
|
$ 7,826
|
$ 8,554
|
|
Accounts payable (merchandise creditors)
|
58,422
|
64,428
|
|
Inventories
|
108,290
|
117,754
|
|
Prepaid expenses
|
4,550
|
5,460
|
During the current year, the cost of merchandise sold was $627,900, and the operating expenses other than depreciation were $109,200. The direct method is used for presenting the cash flows from operating activities on the statement of cash flows. Determine the amount reported on the statement of cash flows for (a) cash payments for merchandise and (b) cash payments for operating expenses.
Aug 29, 2021 | Uncategorized
EX 16-22 Cash flows from operating activities—direct method
The income statement of Goliath Industries Inc. for the current year ended June 30 is as follows:
|
Sales
|
|
$273,600
|
|
Cost of merchandise sold
|
|
155,400
|
|
Gross profit
|
|
$118,200
|
|
Operating expenses:
|
|
|
|
Depreciation expense
|
$21,000
|
|
|
Other operating expenses
|
55,440
|
|
|
Total operating expenses
|
|
76,440
|
|
Income before income tax
|
|
$41,760
|
|
Income tax expense
|
|
11,580
|
|
Net income
|
|
$30,180
|
Changes in the balances of selected accounts from the beginning to the end of the current year are as follows:
|
|
Increase
|
|
|
Decrease*
|
|
Accounts receivable (net)
|
$6,300*
|
|
Inventories
|
2,100
|
|
Prepaid expenses
|
2,040*
|
|
Accounts payable (merchandise creditors)
|
4,320*
|
|
Accrued expenses payable (operating expenses)
|
660
|
|
Income tax payable
|
1,440*
|
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.
b. What does the direct method show about a company’s cash flow from operating activities that is not shown using the indirect method?
Aug 29, 2021 | Uncategorized
EX 16-23 Cash flows from operating activities—direct method
The income statement for Kipitz Company for the current year ended June 30 and balances of selected accounts at the beginning and the end of the year are as follows:
|
Sales
|
|
$657,800
|
|
Cost of merchandise sold
|
|
227,500
|
|
Gross profit
|
|
$430,300
|
|
Operating expenses:
|
|
|
|
Depreciation expense
|
$ 56,875
|
|
|
Other operating expenses
|
170,300
|
|
|
Total operating expenses
|
|
227,175
|
|
Income before income tax
|
|
$203,125
|
|
Income tax expense
|
|
58,500
|
|
Net income
|
|
$144,625
|
|
|
|
|
|
|
|
Beginning
|
|
|
End of Year
|
of Year
|
|
Accounts receivable (net)
|
$ 52,975
|
$ 46,085
|
|
Inventories
|
136,500
|
118,625
|
|
Prepaid expenses
|
21,450
|
23,595
|
|
Accounts payable (merchandise creditors)
|
99,775
|
92,625
|
|
Accrued expenses payable (operating expenses)
|
28,275
|
30,875
|
|
Income tax payable
|
6,500
|
6,500
|
Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the direct method.
Aug 29, 2021 | Uncategorized
PR 16-1A Statement of cash flows—indirect method
The comparative balance sheet of Flack Inc. for December 31, 2013 and 2012, is shown as follow
|
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$234,660
|
$219,720
|
|
Accounts receivable (net)
|
85,440
|
78,360
|
|
Inventories
|
240,660
|
231,420
|
|
Investments
|
0
|
90,000
|
|
Land
|
123,000
|
0
|
|
Equipment
|
264,420
|
207,420
|
|
Accumulated depreciation—equipment
|
-62,400
|
-55,500
|
|
|
$885,780
|
$771,420
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$159,180
|
$151,860
|
|
Accrued expenses payable (operating expenses)
|
15,840
|
19,740
|
|
Dividends payable
|
9,000
|
7,200
|
|
Common stock, $1 par
|
48,000
|
36,000
|
|
Paid-in capital in excess of par—common stock
|
180,000
|
105,000
|
|
Retained earnings
|
473,760
|
451,620
|
|
$885,780
|
$771,420
|
The following additional information was taken from the records:
a. The investments were sold for $105,000 cash.
b. Equipment and land were acquired for cash.
c. There were no disposals of equipment during the year.
d. The common stock was issued for cash.
e. There was a $58,140 credit to Retained Earnings for net income.
f. There was a $36,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
PR 16-2A Statement of cash flows—indirect method
The comparative balance sheet of Hinson Enterprises, Inc. at December 31, 2013 and 2012, is as follows
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$ 128,275
|
$ 157,325
|
|
Accounts receivable (net)
|
196,525
|
211,750
|
|
Merchandise inventory
|
281,400
|
261,800
|
|
Prepaid expenses
|
11,725
|
8,400
|
|
Equipment
|
573,125
|
469,875
|
|
Accumulated depreciation—equipment
|
(149,450)
|
(115,675)
|
|
|
$1,041,600
|
$ 993,475
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$ 218,925
|
$ 207,900
|
|
Mortgage note payable
|
0
|
294,000
|
|
Common stock, $1 par
|
91,000
|
21,000
|
|
Paid-in capital in excess of par—common stock
|
455,000
|
280,000
|
|
Retained earnings
|
276,675
|
190,575
|
|
|
$1,041,600
|
$ 993,475
|
c
a. Net income, $220,500.
b. Depreciation reported on the income statement, $72,975.
c. Equipment was purchased at a cost of $142,450, and fully depreciated equipmentc osting $39,200 was discarded, with no salvage realized.
d. The mortgage note payable was not due until 2014, but the terms permitted earlier payment without penalty.
e. 7,000 shares of common stock were issued at $35 for cash.
f. Cash dividends declared and paid, $134,400.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
PR 16-4A Statement of cash flows—direct method
The comparative balance sheet of Rowe Products Inc. for December 31, 2013 and 2012, is as follows:
| |
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$ 772,080
|
$ 815,280
|
|
Accounts receivable (net)
|
680,160
|
656,880
|
|
Inventories
|
1,213,200
|
1,179,360
|
|
Investments
|
0
|
288,000
|
|
Land
|
624,000
|
0
|
|
Equipment
|
1,056,000
|
816,000
|
|
Accumulated depreciation
|
(293,280)
|
(240,480)
|
|
|
$4,052,160
|
$3,515,040
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$ 926,160
|
$ 898,080
|
|
Accrued expenses payable (operating expenses)
|
76,080
|
84,960
|
|
Dividends payable
|
10,560
|
7,680
|
|
Common stock, $10 par
|
177,600
|
38,400
|
|
Paid-in capital in excess of par—common stock
|
369,600
|
230,400
|
|
Retained earnings
|
2,492,160
|
2,255,520
|
|
|
$4,052,160
|
$3,515,040
|
The income statement for the year ended December 31, 2012, is as follows:
|
Sales
|
|
$7,176,000
|
|
Cost of merchandise sold
|
|
2,942,400
|
|
Gross profit
|
|
$4,233,600
|
|
Operating expenses:
|
|
|
|
Depreciation expense
|
$ 52,800
|
|
|
Other operating expenses
|
3,720,000
|
|
|
Total operating expenses
|
|
3,772,800
|
|
Operating income
|
|
$ 460,800
|
|
Other expense:
|
|
|
|
Loss on sale of investments
|
|
(76,800)
|
|
Income before income tax
|
|
$ 384,000
|
|
Income tax expense
|
|
123,360
|
|
Net income
|
|
$ 260,640
|
The following additional information was taken from the records:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $211,200 cash.
d. The common stock was issued for cash.
e. There was a $24,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
PR 16-5A Statement of cash flows—direct method applied to PR 16-1A
The comparative balance sheet of Flack Inc. for December 31, 2013 and 2012, is as follows:
| |
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$234,660
|
$219,720
|
|
Accounts receivable (net)
|
85,440
|
78,360
|
|
Inventories
|
240,660
|
231,420
|
|
Investments
|
0
|
90,000
|
|
Land
|
123,000
|
0
|
|
Equipment
|
264,420
|
207,420
|
|
Accumulated depreciation—equipment
|
(62,400)
|
(55,500)
|
|
|
$885,780
|
$771,420
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$159,180
|
$151,860
|
|
Accrued expenses payable (operating expenses)
|
15,840
|
19,740
|
|
Dividends payable
|
9,000
|
7,200
|
|
Common stock, $1 par
|
48,000
|
36,000
|
|
Paid-in capital in excess of par—common stock.
|
180,000
|
105,000
|
|
Retained earnings
|
473,760
|
451,620
|
|
|
$885,780
|
$771,420
|
The income statement for the year ended December 31, 2013, is as follows:
|
Sales
|
|
$1,508,520
|
|
Cost of merchandise sold
|
|
928,320
|
|
Gross profit
|
|
$ 580,200
|
|
Operating expenses:
|
|
|
|
Depreciation expense
|
$ 6,900
|
|
|
Other operating expenses
|
491,400
|
|
|
Total operating expenses
|
|
498,300
|
|
Operating income
|
|
$ 81,900
|
|
Other income:
|
|
|
|
Gain on sale of investments
|
|
15,000
|
|
Income before income tax
|
|
$ 96,900
|
|
Income tax expense
|
|
38,760
|
|
Net income
|
|
$ 58,140
|
The following additional information was taken from the records:
a. The investments were sold for $105,000 cash.
b. Equipment and land were acquired for cash.
c. There were no disposals of equipment during the year.
d. The common stock was issued for cash.
e. There was a $36,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
PR 16-1B Statement of cash flows—indirect method
The comparative balance sheet of Juras Equipment Co. for December 31, 2013 and 2012, is as follows:
|
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$ 99,840
|
$ 67,680
|
|
Accounts receivable (net)
|
292,560
|
265,680
|
|
Inventories
|
421,440
|
409,200
|
|
Investments
|
0
|
144,000
|
|
Land
|
417,600
|
0
|
|
Equipment
|
619,200
|
505,440
|
|
Accumulated depreciation
|
(139,920)
|
(119,040)
|
|
|
$1,710,720
|
$1,272,960
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$ 290,400
|
$ 274,080
|
|
Accrued expenses payable (operating expenses)
|
43,200
|
37,920
|
|
Dividends payable
|
36,000
|
28,800
|
|
Common stock, $1 par
|
162,000
|
144,000
|
|
Paid-in capital in excess of par—common stock
|
594,000
|
288,000
|
|
Retained earnings
|
585,120
|
500,160
|
|
|
$1,710,720
|
$1,272,960
|
The following additional information was taken from the records of Juras Equipment:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $129,600 cash.
d. The common stock was issued for cash.
e. There was a $228,960 credit to Retained Earnings for net income.
f. There was a $144,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
PR 16-2B Statement of cash flows—indirect method
The comparative balance sheet of Beets Industries, Inc. at December 31, 2013 and 2012, is as follows:
| |
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$ 379,920
|
$ 309,360
|
|
Accounts receivable (net)
|
570,240
|
507,600
|
|
Inventories
|
761,040
|
876,480
|
|
Prepaid expenses
|
27,120
|
21,600
|
|
Land
|
259,200
|
259,200
|
|
Buildings
|
1,468,800
|
972,000
|
|
Accumulated depreciation—buildings
|
(399,600)
|
(355,320)
|
|
Machinery and equipment
|
669,600
|
669,600
|
|
Accumulated depreciation—machinery and equipment
|
(183,600)
|
(164,160)
|
|
Patents
|
91,680
|
103,680
|
|
|
$3,644,400
|
$3,200,040
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$ 717,840
|
$ 794,640
|
|
Dividends payable
|
28,080
|
21,600
|
|
Salaries payable
|
67,680
|
74,640
|
|
Mortgage note payable, due 2017
|
192,000
|
0
|
|
Bonds payable
|
0
|
336,000
|
|
Common stock, $2 par
|
99,200
|
43,200
|
|
Paid-in capital in excess of par—common stock
|
388,000
|
108,000
|
|
Retained earnings
|
2,151,600
|
1,821,960
|
|
|
$3,644,400
|
$3,200,040
|
An examination of the income statement and the accounting records revealed the following additional information applicable to 2013:
a. Net income, $441,960.
b. Depreciation expense reported on the income statement: buildings, $44,280; machinery and equipment, $19,440.
c. Patent amortization reported on the income statement, $12,000.
d. A building was constructed for $496,800.
e. A mortgage note for $192,000 was issued for cash.
f. 28,000 shares of common stock were issued at $12 in exchange for the bonds payable.
g. Cash dividends declared, $112,320.
Instructions
Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
PR 16-4B Statement of cash flows—direct method
The comparative balance sheet of Middaugh Restaurant Supplies Inc. for December 31, 2013 and 2012, is as follows:
| |
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$ 330,960
|
$ 341,550
|
|
Accounts receivable (net)
|
496,320
|
457,200
|
|
Inventories
|
697,200
|
681,900
|
|
Investments
|
0
|
216,000
|
|
Land
|
480,000
|
0
|
|
Equipment
|
612,000
|
492,000
|
|
Accumulated depreciation
|
(240,750)
|
(184,200)
|
|
|
$2,375,730
|
$2,004,450
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$ 540,000
|
$ 483,300
|
|
Accrued expenses payable (operating expenses)
|
33,900
|
39,600
|
|
Dividends payable
|
50,400
|
45,600
|
|
Common stock, $10 par
|
108,000
|
15,000
|
|
Paid-in capital in excess of par—common stock
|
364,500
|
225,000
|
|
Retained earnings
|
1,278,930
|
1,195,950
|
|
|
$2,375,730
|
$2,004,450
|
The income statement for the year ended December 31, 2012, is as follows:
|
Sales
|
|
$2,256,000
|
|
Cost of merchandise sold
|
|
1,176,000
|
|
Gross profit
|
|
$1,080,000
|
|
Operating expenses:
|
|
|
|
Depreciation expense
|
$ 56,550
|
|
|
Other operating expenses
|
672,420
|
|
|
Total operating expenses
|
|
728,970
|
|
Operating income
|
|
$ 351,030
|
|
Other income:
|
|
|
|
Gain on sale of investments
|
|
78,000
|
|
Income before income tax
|
|
$ 429,030
|
|
Income tax expense
|
|
149,550
|
|
Net income
|
|
$ 279,480
|
The following additional information was taken from the records:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $294,000 cash.
d. The common stock was issued for cash.
e. There was a $196,500 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
PR 16-5B Statement of cash flows—direct method applied to PR 16-1B
The comparative balance sheet of Juras Equipment Co. for Dec. 31, 2013 and 2012, is:
| |
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Assets
|
|
|
|
Cash
|
$ 99,840
|
$ 67,680
|
|
Accounts receivable (net)
|
292,560
|
265,680
|
|
Inventories
|
421,440
|
409,200
|
|
Investments
|
0
|
144,000
|
|
Land
|
417,600
|
0
|
|
Equipment
|
619,200
|
505,440
|
|
Accumulated depreciation
|
(139,920)
|
(119,040)
|
|
|
$1,710,720
|
$1,272,960
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Accounts payable (merchandise creditors)
|
$ 290,400
|
$ 274,080
|
|
Accrued expenses payable (operating expenses)
|
43,200
|
37,920
|
|
Dividends payable
|
36,000
|
28,800
|
|
Common stock, $1 par
|
162,000
|
144,000
|
|
Paid-in capital in excess of par—common stock
|
594,000
|
288,000
|
|
Retained earnings
|
585,120
|
500,160
|
|
|
$1,710,720
|
$1,272,960
|
The income statement for the year ended December 31, 2013, is as follows:
|
Sales
|
|
$3,246,048
|
|
Cost of merchandise sold
|
|
1,997,568
|
|
Gross profit
|
|
$1,248,480
|
|
Operating expenses:
|
|
|
|
Depreciation expense
|
$ 20,880
|
|
|
Other operating expenses
|
831,600
|
|
|
Total operating expenses
|
|
852,480
|
|
Operating income
|
|
$ 396,000
|
|
Other expenses:
|
|
|
|
Loss on sale of investments
|
|
(14,400)
|
|
Income before income tax
|
|
$ 381,600
|
|
Income tax expense
|
|
152,640
|
|
Net income
|
|
$ 228,960
|
The following additional information was taken from the records:
a. Equipment and land were acquired for cash.
b. There were no disposals of equipment during the year.
c. The investments were sold for $129,600 cash.
d. The common stock was issued for cash.
e. There was a $144,000 debit to Retained Earnings for cash dividends declared.
Instructions
Prepare a statement of cash flows, using the direct method of presenting cash flows from operating activities.
Aug 29, 2021 | Uncategorized
Contingent Bank has the following balance sheet in market value terms (in millions of dollars).
|
Assets
|
Liabilities
|
|
Cash
|
$20
|
Deposits
|
$220
|
|
Mortgages
|
220
|
Equity
|
20
|
|
Total assets
|
$240
|
Total liabilities and equity
|
$240
|
In addition, the bank has contingent assets with $100 million market value and contingent liabilities with $80 million market value. What is the true stock holder net worth? What does the term contingentmean?
Aug 29, 2021 | Uncategorized
A FI has issued a one-year loan commitment of $2 million for an up-front fee of 25 basis points. The back-end fee on the unused portion of the commitment is 10 basis points. The FI requires a compensating balance of 5 percent as demand deposits. The FI’s cost of funds is 6 percent, the interest rate on the loan is 10 percent, and reserve requirements on demand deposits are 8 percent. The customer is expected to draw down 80 percent of the commitment at the beginning of the year.
a. What is the expected return on the loan without taking future values into consideration?
b. What is the expected return using future values? That is, the net fee and interest income are evaluated at the end of the year when the loan is due.
c. How is the expected return in part (b) affected if the reserve requirements on demand deposits are zero?
d. How is the expected return in part (b) affected if compensating balances are paid a nominal interest rate of 5 percent?
e. What is the expected return using future values but with the compensating balance placed in certificates of deposit that have an interest rate of 5.5 percent and no reserve requirements, rather than in demand deposits?
Aug 29, 2021 | Uncategorized
A corporation is planning to issue $1 million of 270-day commercial paper for an effective annual yield of 5 percent. The corporation expects to save 30 basis points on the interest rate by using either an SLC or a loan commitment as collateral for the issue.
a. What are the net savings to the corporation if a bank agrees to provide a 270-day SLC for an up-front fee of 20 basis points (of the face value of the loan commitment) to back the commercial paper issue?
b. What are the net savings to the corporation if a bank agrees to provide a 270-day loan commitment to back the issue? The bank will charge 10 basis points for an up-front fee and 10 basis points for a back-end fee for any unused portion of the loan. Assume the loan is not needed, and that the fees are on the face value of the loan commitment. c. Should the corporation be indifferent to the two alternative collateral methods at the time the commercial paper is issued?
Aug 29, 2021 | Uncategorized
Identify whether the following transactions affect cash flow from operating, investing, or financing activities, and indicate the effect of each on cash ( + for increase and – for decrease). If there is no cash flow effect, write “None.”
|
Transaction
|
Operating, Investing, or
Financing Effect on Cash
|
Direction of
the Effect on Cash
|
|
Cash paid to suppliers
|
|
|
Sale of goods on account
|
|
|
Cash received from customers
|
|
|
Purchase of investments
|
|
|
Cash paid for interest
|
|
|
Issuance of stock for cash
|
|
Aug 29, 2021 | Uncategorized
PR 14-5B Bond discount, entries for bonds payable transactions, interest method of
amortizing bond discount
On July 1, 2012, Hallo Corporation, a wholesaler of communication equipment, issued $34,000,000 of 20-year, 12% bonds at a market (effective) interest rate of 13%, receiving cash of $31,595,241. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
Aug 29, 2021 | Uncategorized
PR 14-6B Bond premium, entries for bonds payable transactions, interest method of amortizing bond premium
Buddie Corporation produces and sells baseball gloves. On July 1, 2012, Buddie Corporation issued $12,500,000 of 10-year, 14% bonds at a market (effective) interest rate of 12%, receiving cash of $13,933,680. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond premium, using the interest method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
Aug 29, 2021 | Uncategorized
CP 14-5 Financing business expansion
You hold a 25% common stock interest in the family-owned business, a construction equipment company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of $10,000,000. Two alternative plans have been suggested as methods of financing the expansion. Each plan is briefly described as follows:
|
Plan 1.
|
Issue $10,000,000 of 20-year, 10% notes at face amount.
|
|
Plan 2.
|
Issue an additional 200,000 shares of $10 par common stock at $20 per share, and $6,000,000 of 20-year, 10% notes at face amount.
|
The balance sheet as of the end of the previous fiscal year is as follows:
|
Thacker, Inc.
|
|
|
Balance Sheet
|
|
|
December 31, 2012
|
|
|
Assets
|
|
|
Current assets
|
$6,000,000
|
|
Property, plant, and equipment
|
9,000,000
|
|
Total assets
|
$15,000,000
|
|
Liabilities and Stockholders’ Equity
|
|
|
Liabilities
|
$4,500,000
|
|
Common stock, $10
|
1,600,000
|
|
Paid-in capital in excess of par
|
200,000
|
|
Retained earnings
|
8,700,000
|
|
Total liabilities and stockholders’ equity
|
$15,000,000
|
Net income has remained relatively constant over the past several years. The expansion program is expected to increase yearly income before bond interest and income tax from $800,000 in the previous year to $1,500,000 for this year. Your sister has asked you, as the company treasurer, to prepare an analysis of each financing plan.
1. Prepare a table indicating the expected earnings per share on the common stock under each plan. Assume an income tax rate of 40%. Round to the nearest cent.
2. a. Discuss the factors that should be considered in evaluating the two plans.
b. Which plan offers the greater benefit to the present stockholders? Give reasons for your opinion.
Aug 29, 2021 | Uncategorized
CP 14-6 Number of times interest charges are earned
The following financial data were taken from the financial statements of Williams-Sonoma, Inc.
|
|
|
Fiscal Year
|
|
|
2009
|
2008
|
2007
|
|
Interest expense
|
$1,480
|
$2,099
|
$2,125
|
|
Earnings before taxes
|
41,953
|
316,340
|
337,186
|
1. What is the number of times interest charges are earned for Williams-Sonoma in 2009, 2008, and 2007? (Round your answers to one decimal place.)
2. Evaluate this ratio for Williams-Sonoma.
Aug 29, 2021 | Uncategorized
EX 15-4 Entries for investment in bonds, interest, and sale of bonds
The following bond investment transactions were completed during 2012 by Mission Company:
|
Jan. 21.
|
Purchased 50, $1,000 par value government bonds at 100 plus 20 days’ accrued interest. The bonds pay 4.5% annual interest on June 30 and January 1.
|
|
June 30.
|
Received semiannual interest on bond investment.
|
|
Sept. 5.
|
Sold 24, $1,000 par value bonds at 97 plus $201 accrued interest.
|
a. Journalize the entries for these transactions.
b. Provide the December 31, 2012, adjusting journal entry for semiannual interest earned from the bond coupon.
Aug 29, 2021 | Uncategorized
PR 15-1A Debt investment transactions, available-for-sale valuation Fleet Inc. is an athletic footware company that began operations on January 1, 2012. The following transactions relate to debt investments acquired by Fleet Inc., which has a fiscal year ending on December 31: 2012 Purchased $36,000 of Madison Co. 5%, 10-year bonds at face value plus accrued interest of $150. The bonds pay interest semiannually on February 1 and August 1. Purchased $45,000 of Westville 4%, 15-year bonds at face value plus accrued interest of $75. The bonds pay interest semiannually on April 1 and October 1. Received semiannual interest on the Madison Co. bonds. Sold $12,000 of Madison Co. bonds at 98 plus accrued interest of $50. Received semiannual interest on Westville bonds. Accrued $500 interest on Madison Co. bonds. Accrued $450 interest on Westville bonds. 2013 Received semiannual interest on the Madison Co. bonds. Received semiannual interest on the Westville bonds. Instructions 1. Journalize the entries to record these transactions. 2. If the bond portfolio was classified as available-for-sale, what impact would this have on financial statement disclosure?
Aug 29, 2021 | Uncategorized
PR 15-2A Stock investment transactions, trading securities
Heritage Insurance Co. is a regional insurance company that began operations on January 1, 2012. The following transactions relate to trading securities acquired by Heritage Insurance Co., which has a fiscal year ending on December 31:
|
2012
|
|
|
Feb. 21.
|
Purchased 4,000 shares of Astor Inc. as a trading security at $30 per share plus a brokerage commission of $600.
|
|
Mar. 9.
|
Purchased 800 shares of Millsaps Inc. as a trading security at $41 per share plus a brokerage commission of $160.
|
|
May 3.
|
Sold 600 shares of Astor Inc. for $27.50 per share less an $80 brokerage commission.
|
|
June 8.
|
Received an annual dividend of $0.22 per share on Astor Inc. stock.
|
|
Dec. 31.
|
The portfolio of trading securities was adjusted to fair values of $32 and $30 per share for Astor Inc. and Millsaps Inc., respectively.
|
|
2013
|
|
|
May 21.
|
Purchased 2,000 shares of Essex Inc. as a trading security at $21 per share plus a $200 brokerage commission.
|
|
June 11.
|
Received an annual dividend of $0.25 per share on Astor Inc. stock.
|
|
Aug. 16.
|
Sold 400 shares of Essex Inc. for $25 per share less an $80 brokerage commission.
|
|
Dec. 31.
|
The portfolio of trading securities had a cost of $169,230 and fair value of $170,560, requiring a debit balance in Valuation Allowance for Trading Investments of $1,330 ($170,560 _ $169,230). Thus, the credit balance from December 31, 2012, is to be adjusted to the new balance.
|
Instructions
1. Journalize the entries to record these transactions.
2. Prepare the investment-related current asset balance sheet disclosures for Heritage Insurance Co. on December 31, 2013.
3. How are unrealized gains or losses on trading investments disclosed on the financial statements of Heritage Insurance Co.?
Aug 29, 2021 | Uncategorized
PR 15-3A Stock investment transactions, equity method and available-for-sale securities
White Way Inc. produces and sells theater set designs and costumes. The company began operations on January 1, 2012. The following transactions relate to securities acquired by White Way Inc., which has a fiscal year ending on December 31:
|
2012
|
|
|
Jan. 10.
|
Purchased 8,000 shares of Lott Inc. as an available-for-sale security at $14 per share, including the brokerage commission.
|
|
Mar. 10.
|
Received the regular cash dividend of $0.12 per share on Lott Inc. stock.
|
|
Sept. 9.
|
Lott Inc. stock was split two for one. The regular cash dividend of $0.06 per share was received on the stock after the stock split.
|
|
Oct. 16.
|
Sold 2,000 shares of Lott Inc. stock at $5 per share, less a brokerage commission of $100.
|
|
Dec. 31.
|
Lott Inc. is classifi ed as an available-for-sale investment and is adjusted to a fair value of $8.50 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.
|
|
2013
|
|
|
Jan. 5.
|
Purchased an infl uential interest in Stage Hand Inc. for $235,000 by purchasing 50,000 shares directly from the estate of the founder of Stage Hand Inc.There are 200,000 shares of Stage Hand Inc. stock outstanding.
|
|
Mar. 9.
|
Received the regular cash divided of $0.07 per share on Lott Inc. stock.
|
|
Sept. 10.
|
Received the regular cash dividend of $0.07 per share plus an extra dividend of $0.03 per share on Lott Inc. stock.
|
|
Dec. 31.
|
Received $21,500 of cash dividends on Stage Hand Inc. stock. Stage Hand Inc. reported net income of $136,000 in 2013. White Way Inc. uses the equity method of accounting for its investment in Stage Hand Inc.
|
|
31.
|
Lott Inc. is classifi ed as an available-for-sale investment and is adjusted to a fair value of $8 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the decrease in fair value from $8.50 to $8.00 per share.
|
Instructions
1. Journalize the entries to record these transactions.
2. Prepare the investment-related asset and stockholders’ equity balance sheet disclosures for White Way Inc. on December 31, 2013, assuming the Retained Earnings balance on December 31, 2013, is $310,000.
Aug 29, 2021 | Uncategorized
PR 15-4A Investment reporting
Luminous Publishing, Inc., is a book publisher. The comparative unclassified balance sheets for December 31, 2013 and 2012 are provided below. Selected missing balances are shown by letters.
|
Luminous Publishing, Inc.
|
|
|
|
Balance Sheet
|
|
|
|
December 31, 2013 and 2012
|
|
|
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Cash
|
$178,000
|
$157,000
|
|
Accounts receivable (net)
|
106,000
|
98,000
|
|
Available-for-sale investments (at cost)—Note 1
|
a.
|
53,400
|
|
Less valuation allowance for available-for-sale investments
|
b.
|
3,900
|
|
Available-for-sale investments (fair value)
|
$ c.
|
$49,500
|
|
Interest receivable
|
$ d.
|
—
|
|
Investment in Quest Co. stock—Note 2
|
e.
|
$55,000
|
|
Offi ce equipment (net)
|
90,000
|
95,000
|
|
Total assets
|
$ f.
|
$454,500
|
|
Accounts payable
|
$56,900
|
$51,400
|
|
Common stock
|
50,000
|
50,000
|
|
Excess of issue price over par
|
160,000
|
160,000
|
|
Retained earnings
|
g.
|
197,000
|
|
Less unrealized gain (loss) on available-for-sale investments
|
h.
|
3,900
|
|
Total liabilities and stockholders’ equity
|
$ i.
|
$454,500
|
Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31, 2012, are as follows:
|
No. of Shares
|
Cost per Share
|
Total Cost
|
Total Fair Value
|
|
Barns Co. Stock
|
1,600
|
$12
|
$19,200
|
$17,500
|
|
Dynasty Co. Stock
|
900
|
38
|
34,200
|
32,000
|
|
|
|
$53,400
|
$49,500
|
Note 2. The investment in Quest Co. stock is an equity method investment representing 32% of the outstanding shares of Quest Co.
The following selected investment transactions occurred during 2013:
|
May 5.
|
Purchased 2,200 shares of Gypsy, Inc., at $22 per share including brokerage commission. Gypsy, Inc., is classified as an available-for-sale security.
|
|
Sept. 1.
|
Purchased $30,000 of Norton Co. 5%, 10-year bonds at 100. The bonds are classified as available for sale. The bonds pay interest on September 1 and March 1.
|
|
9.
|
Dividends of $9,000 are received on the Quest Co. investment.
|
|
Dec. 31.
|
Quest Co. reported a total net income of $80,000 for 2013. Luminous recorded equity earnings for its share of Quest Co. net income.
|
|
31.
|
Accrued four months of interest on the Norton bonds.
|
|
31.
|
Adjusted the available-for-sale investment portfolio to fair value using the following fair value per-share amounts:
|
|
|
Available-for-Sale
|
|
|
|
Investments
|
Fair Value
|
|
|
Barns Co. stock
|
$11 per share
|
|
|
Dynasty Co. stock
|
$33 per share
|
|
|
Gypsy Inc. stock
|
$23 per share
|
|
|
Norton Co. bonds
|
98 per $100 of face value
|
|
Dec. 31.
|
Closed the Luminous Publishing Inc. net income of $114,000 for 2013. Luminous paid no dividends during 2013.
|
Instructions
Determine the missing letters in the unclassified balance sheet. Provide appropriate supporting calculations.
Aug 29, 2021 | Uncategorized
PR 15-1B Debt investment transactions, available-for-sale valuation
Savers Mart Inc. is a general merchandise retail company that began operations on January 1, 2012. The following transactions relate to debt investments acquired by Savers Mart Inc., which has a fiscal year ending on December 31:
|
2012
|
|
|
May 1.
|
Purchased $80,000 of Northridge City 4.5%, 10-year bonds at face value plus accrued interest of $600. The bonds pay interest semiannually on March 1 and September 1.
|
|
June 16.
|
Purchased $38,000 of Hancock Co. 6%, 12-year bonds at face value plus accrued interest of $95. The bonds pay interest semiannually on June 1 and December 1.
|
|
Sept. 1.
|
Received semiannual interest on the Northridge City bonds.
|
|
Oct. 1.
|
Sold $24,000 of Northridge City bonds at 102 plus accrued interest of $90.
|
|
Dec. 1.
|
Received semiannual interest on Hancock Co. bonds.
|
|
31.
|
Accrued $840 interest on Northridge City bonds.
|
|
31.
|
Accrued $190 interest on Hancock Co. bonds.
|
|
2013
|
|
|
Mar. 1.
|
Received semiannual interest on the Northridge City bonds.
|
|
June 1.
|
Received semiannual interest on the Hancock Co. bonds.
|
Instructions
1. Journalize the entries to record these transactions.
2. If the bond portfolio was classified as available-for-sale, what impact would this have on financial statement disclosure?
Aug 29, 2021 | Uncategorized
PR 15-2B Stock investment transactions, trading securities
Ophir Investments Inc. is a regional investment company that began operations on January 1, 2012. The following transactions relate to trading securities acquired by Ophir Investments Inc., which has a fiscal year ending on December 31:
|
2012
|
|
|
Feb. 3.
|
Purchased 2,000 shares of Mapco Inc. as a trading security at $42 per share plus a brokerage commission of $500.
|
|
Mar. 23.
|
Purchased 1,400 shares of Swift Inc. as a trading security at $23 per share plus a brokerage commission of $210.
|
|
May 19.
|
Sold 500 shares of Mapco Inc. for $46 per share less an $80 brokerage commission.
|
|
June 12.
|
Received an annual dividend of $0.14 per share on Mapco stock.
|
|
Dec. 31.
|
The portfolio of trading securities was adjusted to fair values of $40 and $29 per share for Mapco Inc. and Swift Inc., respectively.
|
|
2013
|
|
|
Apr. 9.
|
Purchased 900 shares of Corvair Inc. as a trading security at $62 per share plus a $90 brokerage commission.
|
|
June 15.
|
Received an annual dividend of $0.16 per share on Mapco Inc. stock.
|
|
Aug. 30.
|
Sold 200 shares of Corvair Inc. for $51 per share less a $60 brokerage commission.
|
|
Dec. 31.
|
The portfolio of trading securities had a cost of $139,255 and fair value of $133,470, requiring a credit balance in Valuation Allowance for Trading Investments of $5,785 ($139,255 _ $133,470). Thus, the debit balance from December 31, 2012, is to be adjusted to the new balance.
|
Instructions
1. Journalize the entries to record these transactions.
2. Prepare the investment-related current asset balance sheet disclosures for Ophir Investments Inc. on December 31, 2013.
3. How are unrealized gains or losses on trading investments disclosed on the financial statements of Ophir Investments Inc.?
Aug 29, 2021 | Uncategorized
PR 15-3B Stock investment transactions, equity method and available-for-sale securities
Samson Products, Inc., is a wholesaler of men’s hair products. The company began operations on January 1, 2012. The following transactions relate to securities acquired by Samson Products, Inc., which has a fiscal year ending on December 31:
|
2012
|
|
|
Jan. 3.
|
Purchased 5,000 shares of Merlin Inc. as an available-for-sale investment at $22 per share, including the brokerage commission.
|
|
July 8.
|
Merlin Inc. stock was split two for one. The regular cash dividend of $0.40 per share was received on the stock after the stock split.
|
|
Oct. 19.
|
Sold 1,200 shares of Merlin Inc. stock at $13 per share, less a brokerage commission of $50.
|
|
Dec. 12.
|
Received the regular cash dividend of $0.40 per share.
|
|
31.
|
Merlin Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $9.50 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment.
|
|
2013
|
|
|
Jan. 5.
|
Purchased an influential interest in Juarez Co. for $540,000 by purchasing 60,000 shares directly from the estate of the founder of Juarez. There are 150,000 shares of Juarez Co. stock outstanding.
|
|
July 9.
|
Received the regular cash divided of $0.50 per share on Merlin Inc. stock.
|
|
Dec. 8.
|
Received the regular cash dividend of $0.50 per share plus an extra dividend of $0.05 per share on Merlin Inc. stock.
|
|
Dec. 31.
|
Received $21,000 of cash dividends on Juarez Co. stock. Juarez Co. reported net income of $96,000 in 2013. Samson Products uses the equity method of accounting for its investment in Juarez Co.
|
|
31.
|
Merlin Inc. is classified as an available-for-sale investment and is adjusted to a fair value of $10 per share. Use the valuation allowance for available-for-sale investments account in making the adjustment for the increase in fair value from $9.50 to $10 per share.
|
Instructions
1. Journalize the entries to record the preceding transactions.
2. Prepare the investment-related asset and stockholders’ equity balance sheet disclosures for Samson Products, Inc., on December 31, 2013, assuming the Retained Earnings balance on December 31, 2013, is $395,000.
Aug 29, 2021 | Uncategorized
PR 15-4B Investment reporting
Guardian Devices, Inc., manufactures and sells commercial and residential security equipment. The comparative unclassified balance sheets for December 31, 2013 and 2012 are provided below. Selected missing balances are shown by letters.
|
Guardian Devices, Inc.
|
|
|
|
Balance Sheet
|
|
|
|
December 31, 2013 and 2012
|
|
|
|
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Cash
|
$104,000
|
$ 98,000
|
|
Accounts receivable (net)
|
71,000
|
67,500
|
|
Available-for-sale investments (at cost)—Note 1
|
a.
|
36,000
|
|
Plus valuation allowance for available-for-sale investments
|
b.
|
6,000
|
|
Available-for-sale investments (fair value)
|
$ c.
|
$ 42,000
|
|
Interest receivable
|
$ d.
|
—
|
|
Investment in Omaha Co. stock—Note 2
|
e.
|
$ 62,000
|
|
Offi ce equipment (net)
|
60,000
|
65,000
|
|
Total assets
|
$ f.
|
$334,500
|
|
Accounts payable
|
$ 56,900
|
$ 45,100
|
|
Common stock
|
50,000
|
50,000
|
|
Excess of issue price over par
|
160,000
|
160,000
|
|
Retained earnings
|
g.
|
73,400
|
|
Plus unrealized gain (loss) on available-for-sale investments
|
h.
|
6,000
|
|
Total liabilities and stockholders’ equity
|
$ i.
|
$334,500
|
Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31, 2012, are as follows:
|
|
No. of Shares
|
Cost per Share
|
Total Cost
|
Total Fair Value
|
|
Tyndale Inc. Stock
|
600
|
$24
|
$14,400
|
$17,000
|
|
UR-Smart Inc. Stock
|
1,200
|
18
|
21,600
|
25,000
|
|
|
|
|
$36,000
|
$42,000
|
Note 2. The Investment in Omaha Co. stock is an equity method investment representing 32% of the outstanding shares of Omaha Co.
The following selected investment transactions occurred during 2013:
|
Apr. 21.
|
Purchased 500 shares of Walton Winery, Inc., at $25 including brokerage commission. Walton Winery is classified as an available-for-sale security.
|
|
Sept. 9.
|
Dividends of $7,500 are received on the Omaha Co. investment.
|
|
Oct. 1.
|
Purchased $15,000 of Yokohama Co. 6%, 10-year bonds at 100. The bonds are classified as available for sale. The bonds pay interest on October 1 and April 1.
|
|
Dec. 31.
|
Omaha Co. reported a total net income of $50,000 for 2013. Guardian recorded equity earnings for its share of Omaha Co. net income.
|
|
Dec. 31.
|
Accrued interest for three months on Yokohama bonds purchased on October 1.
|
|
31.
|
Adjusted the available-for-sale investment portfolio to fair value using the following fair value per-share amounts:
|
|
|
Available-for-Sale
|
|
|
|
Investments
|
Fair Value
|
|
|
Tyndale Inc. stock
|
$26 per share
|
|
|
UR-Smart, Inc., stock
|
$15 per share
|
|
|
Walton Winery, Inc., stock
|
$30 per share
|
|
|
Yokohama Co. bonds
|
101 per $100 of face value
|
|
31.
|
Closed the Guardian Devices, Inc., net income of $28,925 for 2013. Guardian paid no dividends during 2013.
|
Instructions
Determine the missing letters in the unclassified balance sheet. Provide appropriate supporting calculations.
Aug 29, 2021 | Uncategorized
CP 15-2 International fair value accounting
International Accounting Standard No. 16 provides companies the option of valuing property, plant, and equipment at either historical cost or fair value. If fair value is selected, then the property, plant, and equipment must be revalued periodically to fair value. Under fair value, if there is an increase in the value of the property, plant, and equipment over the reporting period, then the increase is credited to stockholders’ equity. However, if there is a decrease in fair value, then the decrease is reported as an expense for the period.
1. Why do International Accounting Standards influence U.S. GAAP?
2. What would be some of the disadvantages of using fair value accounting for property, plant, and equipment?
3. How is the international accounting treatment for changes in fair value for property, plant, and equipment similar to investments?
Aug 29, 2021 | Uncategorized
PE 16-3A Changes in current operating assets and liabilities—indirect method
Phelps Corporation’s comparative balance sheet for current assets and liabilities was as follows:
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Accounts receivable
|
$22,500
|
$27,000
|
|
Inventory
|
15,000
|
12,900
|
|
Accounts payable
|
13,500
|
11,850
|
|
Dividends payable
|
41,250
|
44,250
|
Adjust net income of $138,000 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
Aug 29, 2021 | Uncategorized
PE 16-3B Changes in current operating assets and liabilities—indirect method
Dali Corporation’s comparative balance sheet for current assets and liabilities was as follows:
|
|
Dec. 31, 2013
|
Dec. 31, 2012
|
|
Accounts receivable
|
$25,500
|
$20,400
|
|
Inventory
|
49,300
|
42,075
|
|
Accounts payable
|
39,100
|
29,325
|
|
Dividends payable
|
11,900
|
15,300
|
Adjust net income of $240,000 for changes in operating assets and liabilities to arrive at net cash flow from operating activities.
Aug 29, 2021 | Uncategorized
PE 16-8A Free cash flow
Totson Inc. reported the following on the company’s statement of cash flows in 2012 and 2011:
|
|
2012
|
2011
|
|
Net cash fl ow from operating activities
|
$ 210,000
|
$ 200,000
|
|
Net cash fl ow used for investing activities
|
(160,000)
|
(180,000)
|
|
Net cash fl ow used for fi nancing activities
|
(45,000)
|
(30,000)
|
Eighty percent of the cash flow used for investing activities was used to replace existing capacity.
a. Determine Totson’s free cash flow.
b. Has Totson’s free cash flow improved or declined from 2011 to 2012?
Aug 29, 2021 | Uncategorized
PE 16-8B Free cash flow
Burkenfelt Inc. reported the following on the company’s statement of cash flows in 2012 and 2011:
|
|
2012
|
2011
|
|
Net cash fl ow from operating activities
|
$ 340,000
|
$ 325,000
|
|
Net cash fl ow used for investing activities
|
(305,000)
|
(270,000)
|
|
Net cash fl ow used for fi nancing activities
|
(30,000)
|
(42,000)
|
Seventy percent of the cash flow used for investing activities was used to replace existing capacity.
a. Determine Burkenfelt’s free cash flow.
b. Has Burkenfelt’s free cash flow improved or declined from 2011 to 2012?
Aug 29, 2021 | Uncategorized
EX 16-2 Effect of transactions on cash flows
State the effect (cash receipt or payment and amount) of each of the following transactions, considered individually, on cash flows:
a. Sold equipment with a book value of $65,000 for $83,000.
b. Sold a new issue of $400,000 of bonds at 98.
c. Retired $550,000 of bonds, on which there was $5,000 of unamortized discount, for $560,000.
d. Purchased 2,000 shares of $25 par common stock as treasury stock at $50 per share.
e. Sold 5,000 shares of $20 par common stock for $100 per share.
f. Paid dividends of $1.00 per share. There were 50,000 shares issued and 6,000 shares of treasury stock.
g. Purchased land for $320,000 cash.
h. Purchased a building by paying $40,000 cash and issuing a $60,000 mortgage note payable.
Aug 29, 2021 | Uncategorized
EX 16-5 Cash flows from operating activities—indirect method
The net income reported on the income statement for the current year was $720,000. Depreciation recorded on store equipment for the year amounted to $32,700. Balances of the current asset and current liability accounts at the beginning and end of the year are as follows:
|
|
End of Year
|
Beginning of Year
|
|
Cash
|
$78,450
|
$72,300
|
|
Accounts receivable (net)
|
56,250
|
53,400
|
|
Merchandise inventory
|
76,800
|
81,330
|
|
Prepaid expenses
|
9,000
|
6,900
|
|
Accounts payable (merchandise creditors)
|
73,500
|
68,400
|
|
Wages payable
|
40,200
|
44,700
|
a. Prepare the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method.
b. Briefly explain why cash flows from operating activities is different than net income.
Aug 29, 2021 | Uncategorized
PE 14-1B Alternative financing plans
Fly Co. is considering the following alternative financing plans:
|
Plan 1
|
Plan 2
|
|
Issue 12% bonds (at face value)
|
$10,000,000
|
$5,000,000
|
|
Issue preferred $1.75 stock, $20 par
|
—
|
8,000,000
|
|
Issue common stock, $20 par
|
10,000,000
|
7,000,000
|
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock, assuming income before bond interest and income tax is $2,000,000.
Aug 29, 2021 | Uncategorized
EX 14-5 Entries for issuing bonds
Austin Co. produces and distributes semiconductors for use by computer manufacturers. Austin Co. issued $15,000,000 of 12-year, 12% bonds on May 1 of the current year, with interest payable on May 1 and November 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions for the current year:
|
May 1.
|
Issued the bonds for cash at their face amount.
|
|
Nov. 1.
|
Paid the interest on the bonds.
|
|
Dec. 31.
|
Recorded accrued interest for two months.
|
Aug 29, 2021 | Uncategorized
EX 14-6 Entries for issuing bonds and amortizing discount by straight-line method
On the first day of its fiscal year, Keller Company issued $25,000,000 of five–year, 10% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 12%, resulting in Keller Company receiving cash of $23,160,113.
a. Journalize the entries to record the following:
1. Sale of the bonds.
2. First semiannual interest payment. (Amortization of discount is to be recorded annually.)
3. Second semiannual interest payment.
4. Amortization of discount at the end of the first year, using the straight-line method. (Round to the nearest dollar.)
b. Determine the amount of the bond interest expense for the first year.
c. Explain why the company was able to issue the bonds for only $23,160,113 rather than for the face amount of $25,000,000.
Aug 29, 2021 | Uncategorized
EX 14-8 Entries for issuing and calling bonds; loss
Dillip Corp., a wholesaler of office equipment, issued $45,000,000 of 10-year, 10% callable bonds on March 1, 2012, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:
|
2012
|
|
|
Mar. 1.
|
Issued the bonds for cash at their face amount.
|
|
Sept. 1.
|
Paid the interest on the bonds.
|
|
2016
|
|
|
Sept. 1.
|
Called the bond issue at 103, the rate provided in the bond indenture. (Omit entry for payment of interest.)
|
Aug 29, 2021 | Uncategorized
EX 14-9 Entries for issuing and calling bonds; gain
Fogel Corp. produces and sells renewable energy equipment. To finance its operations, Fogel Corp. issued $32,000,000 of 20-year, 11% callable bonds on January 1, 2012, with interest payable on January 1 and July 1. The fiscal year of the company is the calendar year. Journalize the entries to record the following selected transactions:
|
2012
|
|
|
Jan. 1.
|
Issued the bonds for cash at their face amount.
|
|
July 1.
|
Paid the interest on the bonds.
|
|
2018
|
|
|
July 1.
|
Called the bond issue at 97, the rate provided in the bond indenture. (Omit entry for payment of interest.)
|
Aug 29, 2021 | Uncategorized
EX 14-11 Entries for issuing installment note transactions
On January 1, 2012, Averill Company issued a $120,000, 8-year, 10% installment note from Deacon Bank. The note requires annual payments of $22,493, beginning on December 31, 2012. Journalize the entries to record the following:
|
2012
|
|
|
Jan. 1.
|
Issued the notes for cash at their face amount.
|
|
Dec. 31.
|
Paid the annual payment on the note, which consisted of interest of $12,000 and principal of $10,493.
|
|
2017
|
|
|
Dec. 31.
|
Paid the annual payment on the note, which consisted of interest of $5,594 and principal of $16,899.
|
Aug 29, 2021 | Uncategorized
EX 14-14 Number of times interest charges are earned
The following data were taken from recent annual reports of Southwest Airlines, which operates a low-fare airline service to over 50 cities in the United States.
|
Current Year
|
Preceding Year
|
|
Interest expense
|
$105,000,000
|
$69,000,000
|
|
Income before income tax
|
278,000,000
|
1,058,000
|
a. Determine the number of times interest charges were earned for the current and preceding years. Round to one decimal place.
b. What conclusions can you draw?
Aug 29, 2021 | Uncategorized
EX 14-23 Amortize discount by interest method
On the first day of its fiscal year, Ramsey Company issued $35,000,000 of 10-year, 9% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 11%, resulting in Ramsey Company receiving cash of $30,817,399. The company uses the interest method.
a. Journalize the entries to record the following:
1. Sale of the bonds.
2. First semiannual interest payment, including amortization of discount. Round to the nearest dollar.
3. Second semiannual interest payment, including amortization of discount. Round to the nearest dollar.
b. Compute the amount of the bond interest expense for the first year.
c. Explain why the company was able to issue the bonds for only $30,817,399 rather than for the face amount of $35,000,000.
Aug 29, 2021 | Uncategorized
EX 14-25 Compute bond proceeds, amortizing premium by interest method, and interest expense Evans Co. produces and sells motorcycle parts. On the first day of its fiscal year, Evans Co. issued $50,000,000 of five-year, 14% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following, presenting figures used in your computations.
a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibits 4 and 5. Round to the nearest dollar.
b. The amount of premium to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.
c. The amount of premium to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.
d. The amount of the bond interest expense for the first year.
Aug 29, 2021 | Uncategorized
EX 14-26 Compute bond proceeds, amortizing discount by interest method, and interest expense Lewis Co. produces and sells aviation equipment. On the first day of its fiscal year, Lewis Co. issued $60,000,000 of five-year, 10% bonds at a market (effective) interest rate of 13%, with interest payable semiannually. Compute the following, presenting figures used in your computations.
a. The amount of cash proceeds from the sale of the bonds. Use the tables of present values in Exhibits 4 and 5. Round to the nearest dollar.
b. The amount of discount to be amortized for the first semiannual interest payment period, using the interest method. Round to the nearest dollar.
c. The amount of discount to be amortized for the second semiannual interest payment period, using the interest method. Round to the nearest dollar.
d. The amount of the bond interest expense for the first year.
Aug 29, 2021 | Uncategorized
PR 14-1A Effect of financing on earnings per share
Three different plans for financing a $200,000,000 corporation are under consideration
by its organizers. Under each of the following plans, the securities will be issued at their
par or face amount, and the income tax rate is estimated at 40% of income.
|
Plan 1
|
Plan 2
|
Plan 3
|
|
11% bonds
|
—
|
—
|
$100,000,000
|
|
Preferred 5% stock, $40 par
|
—
|
$100,000,000
|
50,000,000
|
|
Common stock, $25 par
|
$200,000,000
|
100,000,000
|
50,000,000
|
|
Total
|
$200,000,000
|
$200,000,000
|
$200,000,000
|
Instructions
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $30,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $16,000,000.
3. Discuss the advantages and disadvantages of each plan.
Aug 29, 2021 | Uncategorized
PR 14-2A Bond discount, entries for bonds payable transactions
On July 1, 2012, Bliss Industries Inc. issued $24,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $19,200,577. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
5. (Appendix 1) Compute the price of $19,200,577 received for the bonds by using the tables of present value in Appendix A at the end of the text. (Round to the nearest dollar.)
Aug 29, 2021 | Uncategorized
PR 14-3A Bond premium, entries for bonds payable transactions
Fabulator, Inc. produces and sells fashion clothing. On July 1, 2012, Fabulator, Inc. issued $120,000,000 of 20-year, 14% bonds at a market (effective) interest rate of 11%, receiving cash of $148,882,608. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest?
5. Compute the price of $148,882,608 received for the bonds by using the tables of present value at the end of the text. (Round to the nearest dollar.)
Aug 29, 2021 | Uncategorized
PR 14-4A Entries for bonds payable and installment note transactions
The following transactions were completed by Simmons Inc., whose fiscal year is the calendar year:
|
2012
|
|
|
July 1.
|
Issued $64,000,000 of 10-year, 12% callable bonds dated July 1, 2012, at a market (effective) rate of 14%, receiving cash of $57,219,878. Interest is payable semiannually on December 31 and June 30.
|
|
Oct. 1.
|
Borrowed $320,000 as a five-year, 6% installment note from Ibis Bank. The note requires annual payments of $75,967, with the first payment occurring on September 30, 2013.
|
|
Dec. 31.
|
Accrued $4,800 of interest on the installment note. The interest is payable on the date of the next installment note payment.
|
|
31.
|
Paid the semiannual interest on the bonds. The bond discount is amortized annually in a separate journal entry.
|
|
31.
|
Recorded bond discount amortization of $339,006, which was determined using the straight-line method.
|
|
31.
|
Closed the interest expense account.
|
|
2013
|
|
|
June 30.
|
Paid the semiannual interest on the bonds.
|
|
Sept. 30.
|
Paid the annual payment on the note, which consisted of interest of $19,200 and principal of $56,767.
|
|
Dec. 31.
|
Accrued $3,948 of interest on the installment note. The interest is payable on the date of the next installment note payment.
|
|
31.
|
Paid the semiannual interest on the bonds. The bond discount is amortized annually in a separate journal entry.
|
|
31.
|
Recorded bond discount amortization of $678,012, which was determined using the straight-line method.
|
|
31.
|
Closed the interest expense account.
|
|
2014
|
|
|
June 30.
|
Recorded the redemption of the bonds, which were called at 98. The balance in the bond discount account is $5,424,098 after payment of interest and amortization of discount have been recorded. (Record the redemption only.)
|
|
Sept. 30.
|
Paid the second annual payment on the note, which consisted of interest of $15,794 and principal of $60,173.
|
Instructions
1. Journalize the entries to record the foregoing transactions.
2. Indicate the amount of the interest expense in (a) 2012 and (b) 2013.
3. Determine the carrying amount of the bonds as of December 31, 2013.
Aug 29, 2021 | Uncategorized
PR 14-5A Bond discount, entries for bonds payable transactions, interest method of amortizing bond discount On July 1, 2012, Bliss Industries, Inc. issued $24,000,000 of 20-year, 11% bonds at a market (effective) interest rate of 14%, receiving cash of $19,200,577. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
Aug 29, 2021 | Uncategorized
PR 14-6A Bond premium, entries for bonds payable transactions, interest method of amortizing bond discount Fabulator, Inc. produces and sells fashion clothing. On July 1, 2012, Fabulator, Inc. issued $120,000,000 of 20-year, 14% bonds at a market (effective) interest rate of 11%, receiving cash of $148,882,608. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond discount, using the interest method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
Aug 29, 2021 | Uncategorized
PR 14-1B Effect of financing on earnings per share
Three different plans for financing a $40,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income.
|
Plan 1
|
Plan 2
|
Plan 3
|
|
10% bonds
|
—
|
—
|
$20,000,000
|
|
Preferred $2.50 stock, $50 par
|
__
|
$20,000,000
|
10,000,000
|
|
Common stock, $25 par
|
$40,000,000
|
20,000,000
|
10,000,000
|
|
Total
|
$40,000,000
|
$40,000,000
|
$40,000,000
|
Instructions
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $6,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $3,200,000.
3. Discuss the advantages and disadvantages of each plan.
Aug 29, 2021 | Uncategorized
PR 14-2B Bond discount, entries for bonds payable transactions
On July 1, 2012, Hallo Corporation, a wholesaler of communication equipment, issued $34,000,000 of 20-year, 12% bonds at a market (effective) interest rate of 13%, receiving cash of $31,595,241. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest?
5. Compute the price of $31,595,241 received for the bonds by using the tables of present value at the end of the text. (Round to the nearest dollar.)
Aug 29, 2021 | Uncategorized
PR 14-3B Bond premium, entries for bonds payable transactions
Buddie Corporation produces and sells baseball gloves. On July 1, 2012, Buddie Corporation issued $12,500,000 of 10-year, 14% bonds at a market (effective) interest rate of 12%, receiving cash of $13,933,680. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1. Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2. Journalize the entries to record the following:
a. The first semiannual interest payment on December 31, 2012, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
b. The interest payment on June 30, 2013, and the amortization of the bond premium, using the straight-line method. (Round to the nearest dollar.)
3. Determine the total interest expense for 2012.
4. Will the bond proceeds always be greater than the face amount of the bonds when the contract rate is greater than the market rate of interest?
5. Compute the price of $13,933,680 received for the bonds by using the tables of present value at the end of the text. (Round to the nearest dollar.)
Aug 29, 2021 | Uncategorized
PR 14-4B Entries for bonds payable and installment note transactions
The following transactions were completed by Wilkerson Inc., whose fiscal year is the calendar year:
|
2012
|
|
|
July 1.
|
Issued $42,000,000 of 10-year, 13% callable bonds dated July 1, 2012, at a market (effective) rate of 10%, receiving cash of $49,851,213. Interest is payable semiannually on December 31 and June 30.
|
|
Oct. 1.
|
Borrowed $510,000 as a six-year, 9% installment note from Challenger Bank. The note requires annual payments of $113,689, with the first payment occurring on September 30, 2013.
|
|
Dec. 31.
|
Accrued $11,475 of interest on the installment note. The interest is payable on the date of the next installment note payment.
|
|
31.
|
Paid the semiannual interest on the bonds. The bond discount is amortized annually in a separate journal entry.
|
|
31.
|
Recorded bond premium amortization of $392,561, which was determined using the straight-line method.
|
|
31.
|
Closed the interest expense account.
|
|
2013
|
|
|
June 30.
|
Paid the semiannual interest on the bonds.
|
|
Sept. 30.
|
Paid the annual payment on the note, which consisted of interest of $45,900 and principal of $67,789.
|
|
Dec. 31.
|
Accrued $9,950 of interest on the installment note. The interest is payable on the date of the next installment note payment.
|
|
Dec. 31.
|
Paid the semiannual interest on the bonds. The bond discount is amortized annually in a separate journal entry.
|
|
31.
|
Recorded bond premium amortization of $785,122, which was determined using the straight-line method.
|
|
31.
|
Closed the interest expense account.
|
|
2014
|
|
|
June 30.
|
Recorded the redemption of the bonds, which were called at 102. The balance in the bond premium account is $6,280,969 after payment of interest and amortization of premium have been recorded. (Record the redemption only.)
|
|
Sept. 30.
|
Paid the second annual payment on the note, which consisted of interest of $39,799 and principal of $73,890.
|
Instructions
1. Journalize the entries to record the foregoing transactions.
2. Indicate the amount of the interest expense in (a) 2012 and (b) 2013.
3. Determine the carrying amount of the bonds as of December 31, 2013.
Aug 29, 2021 | Uncategorized
EX 13-15 Stockholders’ equity section of balance sheet
The following accounts and their balances appear in the ledger of Cline Properties Inc. on April 30 of the current year:
|
Common Stock, $90 par
|
$2,700,000
|
|
Paid-In Capital in Excess of Par
|
120,000
|
|
Paid-In Capital from Sale of Treasury Stock
|
36,000
|
|
Retained Earnings
|
9,173,000
|
|
Treasury Stock
|
352,000
|
Prepare the Stockholders’ Equity section of the balance sheet as of April 30. Fifty thousand shares of common stock are authorized, and 4,000 shares have been reacquired.
Aug 29, 2021 | Uncategorized
EX 13-16 Stockholders’ equity section of balance sheet
Furious and Fast Car Inc. retails racing products for BMWs, Porsches, and Ferraris. The following accounts and their balances appear in the ledger of Furious and Fast Car Inc. on November 30, the end of the current year:
|
Common Stock, $8 par
|
$ 3,000,000
|
|
Paid-In Capital in Excess of Par—Common Stock
|
525,000
|
|
Paid-In Capital in Excess of Par—Preferred Stock
|
280,000
|
|
Paid-In Capital from Sale of Treasury Stock—Common
|
175,000
|
|
Preferred 2% Stock, $125 par
|
5,000,000
|
|
Retained Earnings
|
23,120,000
|
|
Treasury Stock—Common
|
792,000
|
Sixty thousand shares of preferred and 500,000 shares of common stock are authorized. There are 88,000 shares of common stock held as treasury stock.
Prepare the Stockholders’ Equity section of the balance sheet as of November 30, the end of the current year.
Aug 29, 2021 | Uncategorized
EX 13-18 Stockholders’ equity section of balance sheet
List the errors in the following Stockholders’ Equity section of the balance sheet prepared as of the end of the current year.
|
Stockholders’ Equity
|
|
|
|
Paid-in capital:
|
|
|
|
Preferred 1% stock, $200 par (25,000 shares authorized and issued)
|
$5,000,000
|
|
|
Excess of issue price over par
|
75,000
|
$5,075,000
|
|
Retained earnings
|
|
41,750,000
|
|
Treasury stock (45,000 shares at cost)
|
|
648,000
|
|
Dividends payable
|
|
175,000
|
|
Total paid-in capital
|
|
$47,648,000
|
|
Common stock, $14 par (800,000 shares authorized, 500,000 shares issued)
|
|
7,600,000
|
|
Organizing costs
|
|
250,000
|
|
Total stockholders’ equity
|
|
$55,498,000
|
Aug 29, 2021 | Uncategorized
EX 13-19 Statement of stockholders’ equity
The stockholders’ equity T accounts of Life’s Greeting Cards Inc. for the current fiscal year ended December 31, 2012, are as follows. Prepare a statement of stockholders’ equity for the fiscal year ended December 31, 2012.
|
|
|
|
COMMON STOCK
|
|
|
|
|
|
|
Jan. 1
|
Balance
|
3,000,000
|
|
|
|
|
Mar. 7
|
Issued
|
|
|
|
|
|
Dec. 31
|
27,000 shares
|
1,350,000
|
|
|
|
|
|
Balance
|
4,350,000
|
|
|
|
PAID-IN CAPITAL IN EXCESS OF PAR
|
|
|
|
|
|
|
Jan. 1
|
Balance
|
480,000
|
|
|
|
|
Mar. 7
|
Issued
|
|
|
|
|
|
|
27,000 shares
|
324,000
|
|
|
|
|
Dec. 31
|
Balance
|
804,000
|
|
|
|
|
|
|
|
|
|
|
TREASURY STOCK
|
|
|
|
Aug. 7
|
Purchased
|
|
|
|
|
|
|
4,500 shares
|
216,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS
|
|
|
|
Mar. 31
|
Dividend
|
37,500
|
Jan. 1
|
Balance
|
5,220,000
|
|
June 30
|
Dividend
|
37,500
|
Dec. 31
|
Closing
|
|
|
Sept. 30
|
Dividend
|
37,500
|
|
(net income)
|
765,000
|
|
Dec. 31
|
Dividend
|
37,500
|
Dec. 31
|
Balance
|
5,835,000
|
Aug 29, 2021 | Uncategorized
EX 13-21 Effect of cash dividend and stock split
Indicate whether the following actions would (+) increase, (–) decrease, or (0) not affect Indigo Inc.’s total assets, liabilities, and stockholders’ equity:
|
|
|
|
Stockholders’
|
|
|
Assets
|
Liabilities
|
Equity
|
|
(1) Authorizing and issuing stock certificates
|
|
|
|
|
in a stock split
|
|
|
|
|
(2) Declaring a stock dividend
|
|
|
|
|
(3) Issuing stock certificates for the stock
|
|
|
|
|
dividend declared in (2)
|
|
|
|
|
(4) Declaring a cash dividend
|
|
|
|
|
(5) Paying the cash dividend declared in (4)
|
|
|
|
Aug 29, 2021 | Uncategorized
EX 13-22 Selected dividend transactions, stock split
Selected transactions completed by Gene’s Boating Corporation during the current fiscal year are as follows:
|
Feb. 10.
|
Split the common stock 3 for 1 and reduced the par from $60 to $20 per share. After the split, there were 300,000 common shares outstanding.
|
|
May 1.
|
Declared semiannual dividends of $2.00 on 40,000 shares of preferred stock and $0.12 on the common stock payable on June 15.
|
|
Dec. 15.
|
Paid the cash dividends.
|
|
Nov. 1.
|
Declared semiannual dividends of $2.00 on the preferred stock and $0.08 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $28.
|
|
Dec. 15.
|
Paid the cash dividends and issued the certificates for the common stock dividend.
|
|
|
Journalize the transactions.
Aug 29, 2021 | Uncategorized
EX 13-24 EPS
Procter & Gamble (P&G) is one of the largest consumer products companies in the world, famous for such brands as Crest® and Tide®. Financial information for the company for three recent years is as follows:
|
|
Fiscal Years Ended
|
|
|
|
(in millions)
|
|
|
2009
|
2008
|
2007
|
|
Net income
|
$11,293
|
$11,798
|
$10,063
|
|
Preferred dividends
|
$192
|
$176
|
$161
|
|
Average number of common shares outstanding
|
2,952
|
3,081
|
3,159
|
Average number of common shares outstanding 2,952 3,081 3,159
a. Determine the earnings per share for fiscal years 2009, 2008, and 2007. Round to the nearest cent.
b. Evaluate the growth in earnings per share for the three years in comparison to the growth in net income for the three years.
Aug 29, 2021 | Uncategorized
EX 13-25 EPS
OfficeMax and Staples are two companies competing in the retail office supply business. OfficeMax had a net income of $667,000 for a recent year, while Staples had a net income of $738,671,000. OfficeMax had preferred stock of $36,479,000 with preferred dividends of $2,818,000. Staples had no preferred stock. The outstanding common shares for each company were as follows:
|
|
Average Number of
|
|
|
Common Shares Outstanding
|
|
OfficeMax
|
77,483,000
|
|
Staples
|
721,838,000
|
a. Determine the earnings per share for each company. Round to the nearest cent.
b. Evaluate the relative profitability of the two companies.
Aug 29, 2021 | Uncategorized
PR 13-1A Dividends on preferred and common stock
Love Theatre Inc. owns and operates movie theaters throughout New Mexico and Utah. Love Theatre has declared the following annual dividends over a six-year period: 2007, $16,000; 2008, $48,000; 2009, $65,000; 2010, $90,000; 2011, $115,000; and 2012, $140,000. During the entire period ending December 31 of each year, the outstanding stock of the company was composed of 25,000 shares of cumulative, 2% preferred stock, $80 par, and 100,000 shares of common stock, $4 par.
Instructions
1. Calculate the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears on January 1, 2007. Summarize the data in tabular form, using the following column headings:
|
|
|
Preferred Dividends
|
Common Dividends
|
|
Year
|
Dividends
|
Total
|
Per Share
|
Total
|
Per Share
|
|
2007
|
$16,000
|
|
|
|
|
|
2008
|
48,000
|
|
|
|
|
|
2009
|
65,000
|
|
|
|
|
|
2010
|
90,000
|
|
|
|
|
|
2011
|
115,000
|
|
|
|
|
|
2012
|
140,000
|
|
|
|
|
2. Calculate the average annual dividend per share for each class of stock for the six-year period.
3. Assuming a market price per share of $128 for the preferred stock and $7.80 for the common stock, calculate the average annual percentage return on initial shareholders’ investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.
Aug 29, 2021 | Uncategorized
PR 13-2A Stock transactions for corporate expansion
On March 1 of the current year, the following accounts and their balances appear in the ledger of Mocha Corp., a coffee processor:
|
Preferred 2% Stock, $25 par (300,000 shares authorized,
|
|
|
120,000 shares issued)
|
$3,000,000
|
|
Paid-In Capital in Excess of Par—Preferred Stock
|
480,000
|
|
Common Stock, $100 par (800,000 shares authorized,
|
|
|
250,000 shares issued)
|
25,000,000
|
|
Paid-In Capital in Excess of Par—Common Stock
|
2,000,000
|
|
Retained Earnings
|
50,000,000
|
At the annual stockholders’ meeting on April 18, the board of directors presented a plan
for modernizing and expanding plant operations at a cost of approximately $14,000,000. The plan provided (a) that a building, valued at $3,500,000, and the land on which it is located, valued at $5,000,000, be acquired in accordance with preliminary negotiations by the issuance of 80,000 shares of common stock, (b) that 85,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that the corporation borrow $3,000,000. The plan was approved by the stockholders and accomplished by the following transactions:
|
June 5.
|
Issued 80,000 shares of common stock in exchange for land and a building, according to the plan.
|
|
16.
|
Issued 85,000 shares of preferred stock, receiving $30 per share in cash.
|
|
29.
|
Borrowed $3,000,000 from First City Bank, giving a 6% mortgage note.
|
No other transactions occurred during June.
Instructions
Journalize the entries to record the foregoing transactions.
Aug 29, 2021 | Uncategorized
PR 13-3A Selected stock transactions
The following selected accounts appear in the ledger of Patton Environmental Inc. on July 1, 2012, the beginning of the current fiscal year:
|
Preferred 2% Stock, $75 par (40,000 shares authorized,
|
|
|
20,000 shares issued)
|
$ 1,500,000
|
|
Paid-In Capital in Excess of Par—Preferred Stock
|
240,000
|
|
Common Stock, $15 par (500,000 shares authorized,
|
|
|
260,000 shares issued)
|
3,900,000
|
|
Paid-In Capital in Excess of Par—Common Stock
|
400,000
|
|
Retained Earnings
|
12,750,000
|
During the year, the corporation completed a number of transactions affecting the stockholders’ equity. They are summarized as follows:
a. Issued 50,000 shares of common stock at $20, receiving cash.
b. Issued 10,000 shares of preferred 2% stock at $92.
c. Purchased 30,000 shares of treasury common for $480,000.
d. Sold 15,000 shares of treasury common for $322,500.
e. Sold 10,000 shares of treasury common for $155,000.
f. Declared cash dividends of $1.50 per share on preferred stock and $0.04 per share on common stock.
g. Paid the cash dividends.
Instructions
Journalize the entries to record the transactions. Identify each entry by letter.
Aug 29, 2021 | Uncategorized
PR 13-4A Entries for selected corporate transactions
Tolbert Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Tolbert Enterprises Inc., with balances on January 1, 2012, are as follows:
|
Common Stock, $10 stated value (600,000 shares authorized, 400,000 shares issued)
|
$4,000,000
|
|
Paid-In Capital in Excess of Stated Value
|
750,000
|
|
Retained Earnings
|
9,150,000
|
|
Treasury Stock (40,000 shares, at cost)
|
600,000
|
The following selected transactions occurred during the year:
|
Jan. 4.
|
Paid cash dividends of $0.13 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fi scal year for $46,800.
|
|
Apr. 3.
|
Issued 75,000 shares of common stock for $1,200,000.
|
|
June 6.
|
Sold all of the treasury stock for $725,000.
|
|
July 1.
|
Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $18 per share.
|
|
Aug. 15.
|
Issued the certificates for the dividend declared on July 1.
|
|
Nov. 10.
|
Purchased 25,000 shares of treasury stock for $500,000.
|
|
Dec. 27.
|
Declared a $0.16-per-share dividend on common stock.
|
|
31.
|
Closed the credit balance of the income summary account, $950,000.
|
|
31.
|
Closed the two dividends accounts to Retained Earnings.
|
Instructions
1. Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed. Also prepare T accounts for the following: Paid-In Capital from Sale of Treasury Stock; Stock Dividends Distributable; Stock Dividends; Cash Dividends.
2. Journalize the entries to record the transactions, and post to the eight selected accounts.
3. Prepare a retained earnings statement for the year ended December 31, 2012.
4. Prepare the Stockholders’ Equity section of the December 31, 2012, balance sheet.
Aug 29, 2021 | Uncategorized
PR 13-5A Entries for selected corporate transactions
Selected transactions completed by Big Water Boating Corporation during the current fiscal year are as follows:
|
Jan. 3.
|
Split the common stock 3 for 1 and reduced the par from $90 to $30 per share. After the split, there were 750,000 common shares outstanding.
|
|
Apr. 7.
|
Purchased 50,000 shares of the corporation’s own common stock at $33, recording the stock at cost.
|
|
May 1.
|
Declared semiannual dividends of $1.40 on 35,000 shares of preferred stock and $0.09 on the common stock to stockholders of record on May 15, payable on June 1.
|
|
June 1.
|
Paid the cash dividends.
|
|
July 29.
|
Sold 36,000 shares of treasury stock at $40, receiving cash.
|
|
Nov. 15.
|
Declared semiannual dividends of $1.40 on the preferred stock and $0.15 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $41.
|
|
Dec. 31.
|
Paid the cash dividends and issued the certificates for the common stock dividend.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 13-1B Dividends on preferred and common stock
Boise Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Montana, Idaho, Oregon, and Washington. Boise Bike Corp. has declared the following annual dividends over a six-year period ending December 31 of each year: 2007, $8,000; 2008, $24,000; 2009, $60,000; 2010, $75,000; 2011, $80,000; and 2012, 98,000. During the entire period, the outstanding stock of the company was composed of 20,000 shares of 2% cumulative preferred stock, $75 par, and 50,000 shares of common stock, $5 par.
Instructions
1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears on January 1, 2007. Summarize the data in tabular form, using the following column headings:
|
|
Total
|
Preferred Dividends
|
Common Dividends
|
|
Year
|
Dividends
|
Total
|
Per Share
|
Total
|
Per Share
|
|
2007
|
$ 8,000
|
|
|
|
|
|
2008
|
24,000
|
|
|
|
|
|
2009
|
60,000
|
|
|
|
|
|
2010
|
75,000
|
|
|
|
|
|
2011
|
80,000
|
|
|
|
|
|
2012
|
98,000
|
|
|
|
|
2. Determine the average annual dividend per share for each class of stock for the six year period.
3. Assuming a market price of $125 for the preferred stock and $13.75 for the common stock, calculate the average annual percentage return on initial shareholders’ investment, based on the average annual dividend per share (a) for preferred stock and (b) for common stock.
Aug 29, 2021 | Uncategorized
PR 13-2B Stock transaction for corporate expansion
Picasso Optics produces medical lasers for use in hospitals. The accounts and their balances appear in the ledger of Picasso Optics on November 30 of the current year as follows:
|
Preferred 2% Stock, $80 par (150,000 shares authorized, 75,000 shares issued)
|
$ 6,000,000
|
|
Paid-In Capital in Excess of Par—Preferred Stock
|
225,000
|
|
Common Stock, $100 par (500,000 shares authorized, 150,000 shares issued)
|
15,000,000
|
|
Paid-In Capital in Excess of Par—Common Stock
|
1,800,000
|
|
Retained Earnings
|
50,250,000
|
At the annual stockholders’ meeting on December 10, the board of directors presented a plan for modernizing and expanding plant operations at a cost of approximately $15,500,000. The plan provided (a) that the corporation borrow $6,000,000, (b) that 45,000 shares of the unissued preferred stock be issued through an underwriter, and (c) that a building, valued at $5,000,000, and the land on which it is located, valued at $487,500, be acquired in accordance with preliminary negotiations by the issuance of 52,500 shares of common stock. The plan was approved by the stockholders and accomplished by the following transactions:
|
Jan. 12.
|
Borrowed $6,000,000 from Livingston National Bank, giving a 5% mortgage note.
|
|
18.
|
Issued 45,000 shares of preferred stock, receiving $85 per share in cash.
|
|
25.
|
Issued 52,500 shares of common stock in exchange for land and a building, according to the plan.
|
No other transactions occurred during January.
Instructions
Journalize the entries to record the foregoing transactions.
Aug 29, 2021 | Uncategorized
PR 13-3B Selected stock transactions
Daley Welding Corporation sells and services pipe welding equipment in Illinois. The following selected accounts appear in the ledger of Daley Welding Corporation on May 1, 2012, the beginning of the current fiscal year:
|
Preferred 2% Stock, $40 par (50,000 shares authorized, 40,000 shares issued)
|
$ 1,600,000
|
|
Paid-In Capital in Excess of Par—Preferred Stock
|
240,000
|
|
Common Stock, $8 par (1,000,000 shares authorized, 750,000 shares issued)
|
6,000,000
|
|
Paid-In Capital in Excess of Par—Common Stock
|
2,500,000
|
|
Retained Earnings
|
43,175,000
|
During the year, the corporation completed a number of transactions affecting the stockholders’ equity. They are summarized as follows:
a. Purchased 100,000 shares of treasury common for $1,500,000.
b. Sold 60,000 shares of treasury common for $1,080,000.
c. Issued 8,000 shares of preferred 2% stock at $50.
d. Issued 150,000 shares of common stock at $21, receiving cash.
e. Sold 25,000 shares of treasury common for $362,500.
f. Declared cash dividends of $0.80 per share on preferred stock and $0.11 per share on common stock.
g. Paid the cash dividends.
Instructions
Journalize the entries to record the transactions. Identify each entry by letter.
Aug 29, 2021 | Uncategorized
PR 13-4B Entries for selected corporate transactions
Ruffalo Enterprises Inc. produces aeronautical navigation equipment. The stockholders’ equity accounts of Ruffalo Enterprises Inc., with balances on January 1, 2012, are as follows:
|
Common Stock, $8 stated value (250,000 shares authorized, 175,000 shares issued)
|
$1,400,000
|
|
Paid-In Capital in Excess of Stated Value
|
700,000
|
|
Retained Earnings
|
1,840,000
|
|
Treasury Stock (40,000 shares, at cost)
|
400,000
|
The following selected transactions occurred during the year:
|
Jan. 9.
|
Paid cash dividends of $0.10 per share on the common stock. The dividend had been properly recorded when declared on November 30 of the preceding fi scal year for $13,500.
|
|
Mar. 15.
|
Sold all of the treasury stock for $540,000.
|
|
May 13.
|
Issued 50,000 shares of common stock for $680,000.
|
|
June 14.
|
Declared a 2% stock dividend on common stock, to be capitalized at the market price of the stock, which is $15 per share.
|
|
July 16.
|
Issued the certificates for the dividend declared on June 14.
|
|
Oct. 30.
|
Purchased 25,000 shares of treasury stock for $320,000.
|
|
Dec. 30.
|
Declared a $0.12-per-share dividend on common stock.
|
|
31.
|
Closed the credit balance of the income summary account, $775,000.
|
|
31.
|
Closed the two dividends accounts to Retained Earnings.
|
Instructions
1. Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed. Also prepare T accounts for the following: Paid-In Capital from Sale of Treasury Stock; Stock Dividends Distributable; Stock Dividends; Cash Dividends.
2. Journalize the entries to record the transactions, and post to the eight selected accounts.
3. Prepare a retained earnings statement for the year ended December 31, 2012.
4. Prepare the Stockholders’ Equity section of the December 31, 2012, balance sheet.
Aug 29, 2021 | Uncategorized
PR 13-5B Entries for selected corporate transactions
Maui Outfitters Corporation manufactures and distributes leisure clothing. Selected transactions completed by Maui Outfitters during the current fiscal year are as follows:
|
Feb. 19.
|
Split the common stock 4 for 1 and reduced the par from $80 to $20 per share. After the split, there were 600,000 common shares outstanding.
|
|
Mar. 1.
|
Declared semiannual dividends of $1.20 on 75,000 shares of preferred stock and $0.08 on the 600,000 shares of $20 par common stock to stockholders of record on March 31, payable on April 30.
|
|
Apr. 30.
|
Paid the cash dividends.
|
|
June 27.
|
Purchased 90,000 shares of the corporation’s own common stock at $24, recording the stock at cost.
|
|
Aug. 17.
|
Sold 40,000 shares of treasury stock at $30, receiving cash.
|
|
Sept. 1.
|
Declared semiannual dividends of $1.20 on the preferred stock and $0.12 on the common stock (before the stock dividend). In addition, a 1% common stock dividend was declared on the common stock outstanding, to be capitalized at the fair market value of the common stock, which is estimated at $28.
|
|
Oct. 31.
|
Paid the cash dividends and issued the certificates for the common stock dividend.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
CP 13-4 Interpret stock exchange listing
The following stock exchange data for General Electric (GE) were taken from the Yahoo!
Finance Web site on April 29, 2010:
|
Gen Electric Co (NYSE: GE)
|
|
|
|
Last Trade:
|
19.49
|
Prev. Clos:
|
18.95
|
|
Trade Time:
|
4:00 PM EST
|
1y Target Est:
|
22.09
|
|
Change:
|
0.54
|
Day’s Range:
|
19.03–19.49
|
|
|
-2.85%
|
52wk Range:
|
10.50–19.69
|
|
|
|
Volume:
|
70,066,312
|
|
|
|
Div & Yield:
|
0.40 (2.40%)
|
a. If you owned 500 shares of GE, what amount would you receive as a quarterly dividend?
b. Compute the percentage increase in price from the Previous Close to the Last Trade. Round to two decimal places.
c. What is GE’s percentage change in market price from the 52-week low to the Previous Close on April 28, 2010? Round to one decimal place.
d. If you bought 500 shares of GE at the Last Trade price on April 29, 2010, how much would it cost, and who gets the money?
Aug 29, 2021 | Uncategorized
PE 14-1A Alternative financing plans Baker Co. is considering the following alternative financing plans:
|
Plan 1
|
Plan 2
|
|
Issue 5% bonds (at face value)
|
$3,000,000
|
$1,500,000
|
|
Issue preferred $4 stock, $25 par
|
—
|
2,500,000
|
|
Issue common stock, $40 par
|
3,000,000
|
2,000,000
|
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock, assuming income before bond interest and income tax is $1,000,000.
Aug 29, 2021 | Uncategorized
PR 12-6A Statement of partnership liquidation
On October 1, 2012, the firm of Sams, Price, and Ladd decided to liquidate their partnership. The partners have capital balances of $54,000, $77,000, and $12,000, respectively. The cash balance is $26,000, the book values of noncash assets total $155,000, and liabilities total $38,000. The partners share income and losses in the ratio of 2:2:1.
Instructions
1. Prepare a statement of partnership liquidation, covering the period October 1–30 2012, for each of the following independent assumptions:
a. All of the noncash assets are sold for $212,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners.
b. All of the noncash assets are sold for $70,000 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners.
2. Assume the partner with the capital deficiency in part (b) above declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.
Aug 29, 2021 | Uncategorized
PR 12-1B Entries and balance sheet for partnership
On June 1, 2011, Anne Harber and Heather Lamb form a partnership. Harber agrees to invest $16,000 cash and merchandise inventory valued at $42,000. Lamb invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $80,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
|
Lamb’s Ledger
|
Agreed-Upon
|
|
Balance
|
Balance
|
|
Accounts Receivable
|
$21,400
|
$19,400
|
|
Allowance for Doubtful Accounts
|
1,000
|
1,300
|
|
Merchandise Inventory
|
24,300
|
25,900
|
|
Equipment
|
44,000
|
34,000
|
|
Accumulated Depreciation—Equipment
|
14,000
|
7,000
|
|
Accounts Payable
|
7,000
|
5,000
|
|
Notes Payable
|
5,000
|
|
The partnership agreement includes the following provisions regarding the division of net income: interest of 10% on original investments, salary allowances of $36,000 (Harber) and $22,000 (Lamb), and the remainder equally.
Instructions
1. Journalize the entries to record the investments of Harber and Lamb in the partnership accounts.
2. Prepare a balance sheet as of June 1, 2011, the date of formation of the partnership of Harber and Lamb.
3. After adjustments and the closing of revenue and expense accounts at May 31, 2012, the end of the first full year of operations, the income summary account has a credit balance of $102,000, and the drawing accounts have debit balances of $40,000 (Harber) and $25,000 (Lamb). Journalize the entries to close the income summary account and the drawing accounts at May 31, 2012.
Aug 29, 2021 | Uncategorized
PR 12-2B Dividing partnership income
Tim Snyder and Jay Wise have decided to form a partnership. They have agreed that Snyder is to invest $30,000 and that Wise is to invest $40,000. Snyder is to devote full time to the business, and Wise is to devote one-half time. The following plans for the division of income are being considered:
a. Equal division.
b. In the ratio of original investments.
c. In the ratio of time devoted to the business.
d. Interest of 10% on original investments and the remainder in the ratio of 3:2.
e. Interest of 10% on original investments, salary allowances of $34,000 to Snyder and $17,000 to Wise, and the remainder equally.
f. Plan (e), except that Snyder is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances.
Instructions
For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $210,000 and (2) net income of $84,000. Present the data in tabular form, using the following columnar headings:
|
|
$210,000
|
|
$84,000
|
|
|
Plan
|
Snyder
|
Wise
|
Snyder
|
Wise
|
Aug 29, 2021 | Uncategorized
PR 12-3B Financial statements for partnerships
The ledger of Jin Ding and Paul Hoffman, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 2012:
|
Ding and Hoff man
|
|
|
|
Trial Balance
|
|
|
|
December 31, 2012
|
|
|
|
Debit
|
Credit
|
|
Balances
|
Balances
|
|
Cash
|
26,900
|
|
|
Accounts Receivable
|
41,300
|
|
|
Supplies
|
6,700
|
|
|
Land
|
140,000
|
|
|
Building
|
160,000
|
|
|
Accumulated Depreciation—Building
|
|
52,000
|
|
Office Equipment
|
62,000
|
|
|
Accumulated Depreciation—Office Equipment
|
|
21,300
|
|
Accounts Payable
|
|
3,400
|
|
Salaries Payable
|
|
5,200
|
|
Jin Ding, Capital
|
|
130,000
|
|
Jin Ding, Drawing
|
50,000
|
|
|
Paul Hoff man, Capital
|
|
170,000
|
|
Paul Hoff man, Drawing
|
60,000
|
|
|
Professional Fees
|
|
583,200
|
|
Salary Expense
|
315,700
|
|
|
Depreciation Expense—Building
|
75,000
|
|
|
Heating and Lighting Expense
|
11,900
|
|
|
Depreciation Expense—Office Equipment
|
6,700
|
|
|
Property Tax Expense
|
3,500
|
|
|
Supplies Expense
|
3,400
|
|
|
Miscellaneous Expense
|
2,000
|
|
|
|
965,100
|
965,100
|
The balance in Hoffman’s capital account includes an additional investment of $20,000 made on April 5, 2012.
Instructions
1. Prepare an income statement for the current fiscal year, indicating the division of net income. The articles of partnership provide for salary allowances of $60,000 to Ding and $75,000 to Hoffman, allowances of 12% on each partner’s capital balance at the beginning of the fiscal year, and equal division of the remaining net income or net loss.
2. Prepare a statement of partners’ equity for 2012.
3. Prepare a balance sheet as of the end of 2012.
Aug 29, 2021 | Uncategorized
PR 12-4B Admitting new partner
Anthony Simpson and Shawna Ryder have operated a successful firm for many years, sharing net income and net losses equally. Blaine Evans is to be admitted to the partnership on June 1 of the current year, in accordance with the following agreement:
a. Assets and liabilities of the old partnership are to be valued at their book values as
of May 31, except for the following:
• Accounts receivable amounting to $3,400 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
• Merchandise inventory is to be valued at $64,300.
• Equipment is to be valued at $88,000.
b. Evans is to purchase $32,000 of the ownership interest of Ryder for $37,500 cash and to contribute $40,000 cash to the partnership for a total ownership equity of $72,000.
The post-closing trial balance of Simpson and Ryder as of May 31 follows.
|
Simpson and Ryder
|
|
|
|
Post-Closing Trial Balance
|
|
|
|
May 31, 2012
|
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
14,400
|
|
|
Accounts Receivable
|
21,400
|
|
|
Allowance for Doubtful Accounts
|
|
500
|
|
Merchandise Inventory
|
58,600
|
|
|
Prepaid Insurance
|
3,500
|
|
|
Equipment
|
97,000
|
|
|
Accumulated Depreciation—Equipment
|
|
25,700
|
|
Accounts Payable
|
|
14,700
|
|
Notes Payable
|
|
12,000
|
|
Anthony Simpson, Capital
|
|
80,000
|
|
Shawna Ryder, Capital
|
|
62,000
|
|
|
194,900
|
194,900
|
Instructions
1. Journalize the entries as of May 31 to record the revaluations, using a temporary account entitled Asset Revaluations. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Anthony Simpson and Shawna Ryder.
2. Journalize the additional entries to record Evans’ entrance to the partnership on May 31, 2012.
3. Present a balance sheet for the new partnership as of June 1, 2012.
Aug 29, 2021 | Uncategorized
PR 12-5B Statement of partnership liquidation
After the accounts are closed on September 10, 2012, prior to liquidating the partnership, the capital accounts of Randy Campbell, Ken Thayer, and Linda Tipton are $38,000, $6,400, and $28,500, respectively. Cash and noncash assets total $17,700 and $64,200, respectively. Amounts owed to creditors total $9,000. The partners share income and losses in the ratio of 1:1:2. Between September 10 and September 30, the noncash assets are sold for $35,000, the partner with the capital deficiency pays his or her deficiency to the partnership, and the liabilities are paid.
Instructions
1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.
2. Assume the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.
Aug 29, 2021 | Uncategorized
PR 12-6B Statement of partnership liquidation
On June 3, 2012, the firm of Lyon, Malone, and Chen decided to liquidate their partnership. The partners have capital balances of $12,000, $76,000, and $104,000, respectively. The cash balance is $19,000, the book values of noncash assets total $218,000, and liabilities total $45,000. The partners share income and losses in the ratio of 1:2:2.
Instructions
1. Prepare a statement of partnership liquidation, covering the period June 3–29, 2012, for each of the following independent assumptions:
a. All of the noncash assets are sold for $272,000 in cash, the creditors are paid, and the remaining cash is distributed to the partners.
b. All of the noncash assets are sold for $105,000 in cash, the creditors are paid, the partner with the debit capital balance pays the amount owed to the firm, and the remaining cash is distributed to the partners.
2. Assume the partner with the capital deficiency in part (b) above declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.
Aug 29, 2021 | Uncategorized
CP 12-2 Dividing partnership income
Jerry Graves and Bonnie Moss decide to form a partnership. Graves will contribute $300,000 to the partnership, while Moss will contribute only $30,000. However, Moss will be responsible for running the day-to-day operations of the partnership, which are anticipated to require about 45 hours per week. In contrast, Graves will only work five hours per week for the partnership. The two partners are attempting to determine a formula for dividing partnership net income. Graves believes the partners should divide income in the ratio of 7:3, favoring Graves, since Graves provides the majority of the capital. Moss believes the income should be divided 7:3, favoring Moss, since Moss provides the majority of effort in running the partnership business.
How would you advise the partners in developing a method for dividing income?
Aug 29, 2021 | Uncategorized
CP 12-3 Revenue per employee
The following table shows key operating statistics for the four largest public accounting firms:
|
|
U.S. Net
|
|
No. of
|
|
|
Revenues
|
No. of
|
Professional
|
|
|
in millions)
|
Partners
|
Staff
|
|
Deloitte & Touche
|
$10,980
|
2,949
|
32,857
|
|
Ernst & Young
|
8,232
|
2,350
|
20,250
|
|
PricewaterhouseCoopers
|
7,578
|
2,198
|
22,100
|
|
KPMG LLP
|
5,679
|
1,818
|
16,564
|
|
Source: The 2009 Accounting Today Top 100 Firms.
|
|
|
|
a. Determine the revenue per partner and revenue per professional staff for each firm. Round to the nearest dollar.
b. Interpret the differences between the firms in terms of your answer in (a) and the table information.
Aug 29, 2021 | Uncategorized
PE 13-6A Reporting stockholders’ equity
Using the following accounts and balances, prepare the Stockholders’ Equity section of the balance sheet. Fifty thousand shares of common stock are authorized, and 2,500 shares have been reacquired.
|
Common Stock, $120 par
|
$4,800,000
|
|
Paid-In Capital in Excess of Par
|
600,000
|
|
Paid-In Capital from Sale of Treasury Stock
|
59,000
|
|
Retained Earnings
|
7,138,500
|
|
Treasury Stock
|
287,500
|
Aug 29, 2021 | Uncategorized
PE 13-6B Reporting stockholders’ equity
Using the following accounts and balances, prepare the Stockholders’ Equity section of the balance sheet. Two-hundred thousand shares of common stock are authorized, and 24,000 shares have been reacquired.
|
Common Stock, $15 par
|
$2,400,000
|
|
Paid-In Capital in Excess of Par
|
480,000
|
|
Paid-In Capital from Sale of Treasury Stock
|
100,000
|
|
Retained Earnings
|
5,275,000
|
|
Treasury Stock
|
336,000
|
Aug 29, 2021 | Uncategorized
PE 13-8A Earnings per share
Financial statement data for years ending December 31 for Jardine Company are shown
below.
|
2012
|
2011
|
|
Net income
|
$971,000
|
$692,000
|
|
Preferred dividends
|
$35,000
|
$35,000
|
|
Average number of common shares outstanding
|
120,000 shares
|
90,000 shares
|
Average number of common shares outstanding 50,000 shares 40,000 shares
a. Determine the earnings per share for 2012 and 2011.
b. Does the change in the earnings per share from 2011 to 2012 indicate a favorable or an unfavorable trend?
Aug 29, 2021 | Uncategorized
PE 13-8B Earnings per share
Financial statement data for years ending December 31 for Duffner Company are shown below.
|
2012
|
2011
|
|
Net income
|
$117,000
|
$104,000
|
|
Preferred dividends
|
$18,000
|
$18,000
|
|
Average number of common shares outstanding
|
50,000 shares
|
40,000 shares
|
Average number of common shares outstanding 120,000 shares 90,000 shares
a. Determine the earnings per share for 2012 and 2011.
b. Does the change in the earnings per share from 2011 to 2012 indicate a favorable or an unfavorable trend?
Aug 29, 2021 | Uncategorized
EX 13-6 Selected stock transactions
Fantastic Sounds Corp., an electric guitar retailer, was organized by Pam Mikhail, Jane Lo, and Dale Nadal. The charter authorized 400,000 shares of common stock with a par of $50. The following transactions affecting stockholders’ equity were completed during the first year of operations:
a. Issued 20,000 shares of stock at par to Pam Mikhail for cash.
b. Issued 1,000 shares of stock at par to Dale Nadal for promotional services provided in connection with the organization of the corporation, and issued 15,000 shares of stock at par to Dale Nadal for cash.
c. Purchased land and a building from Jane Lo. The building is mortgaged for $300,000 for 20 years at 5%, and there is accrued interest of $2,500 on the mortgage note at the time of the purchase. It is agreed that the land is to be priced at $200,000 and the building at $500,000, and that Jane Lo’s equity will be exchanged for stock at par. The corporation agreed to assume responsibility for paying the mortgage note and the accrued interest.
Journalize the entries to record the transactions.
Aug 29, 2021 | Uncategorized
EX 13-7 Issuing stock
Wildwood Nursery, with an authorization of 50,000 shares of preferred stock and 400,000 shares of common stock, completed several transactions involving its stock on June 1, the first day of operations. The trial balance at the close of the day follows:
|
Cash
|
1,584,000
|
|
|
Land
|
350,000
|
|
|
Buildings
|
910,000
|
|
|
Preferred 3% Stock, $120 par
|
|
1,200,000
|
|
Paid-In Capital in Excess of Par—Preferred Stock
|
|
60,000
|
|
Common Stock, $50 par
|
|
1,500,000
|
|
Paid-In Capital in Excess of Par—Common Stock
|
|
84,000
|
|
|
2,844,000
|
2,844,000
|
All shares within each class of stock were sold at the same price. The preferred stock was issued in exchange for the land and buildings.
Journalize the two entries to record the transactions summarized in the trial balance.
Aug 29, 2021 | Uncategorized
EX 13-8 Issuing stock
Baird Products Inc., a wholesaler of office products, was organized on January 30 of the current year, with an authorization of 80,000 shares of 2% preferred stock, $75 par and 800,000 shares of $20 par common stock. The following selected transactions were completed during the first year of operations:
|
Jan. 30.
|
Issued 300,000 shares of common stock at par for cash.
|
|
31.
|
Issued 750 shares of common stock at par to an attorney in payment of legal fees for organizing the corporation.
|
|
Feb. 21.
|
Issued 32,000 shares of common stock in exchange for land, buildings, and equipment with fair market prices of $150,000, $460,000, and $90,000, respectively.
|
|
Mar. 2.
|
Issued 15,000 shares of preferred stock at $77.50 for cash.
|
Journalize the transactions.
Aug 29, 2021 | Uncategorized
EX 13-10 Entries for stock dividends
Organic Life Co. is an HMO for businesses in the Portland area. The following account balances appear on the balance sheet of Organic Life Co.: Common stock (250,000 shares authorized), $125 par, $17,500,000; Paid-in capital in excess of par—common stock, $560,000; and Retained earnings, $75,496,000. The board of directors declared a 3% stock dividend when the market price of the stock was $132 a share. Organic Life Co. reported no income or loss for the current year.
a. Journalize the entries to record (1) the declaration of the dividend, capitalizing an amount equal to market value, and (2) the issuance of the stock certificates.
b. Determine the following amounts before the stock dividend was declared: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
c. Determine the following amounts after the stock dividend was declared and closing entries were recorded at the end of the year: (1) total paid-in capital, (2) total retained earnings, and (3) total stockholders’ equity.
Aug 29, 2021 | Uncategorized
EX 13-12 Treasury stock transactions
Golden Gardens Inc. develops and produces spraying equipment for lawn maintenance and industrial uses. On June 19 of the current year, Golden Gardens Inc. reacquired 24,000 shares of its common stock at $64 per share. On August 30, 19,000 of the reacquired shares were sold at $68 per share, and on September 6, 3,000 of the reacquired shares were sold at $70.
a. Journalize the transactions of June 19, August 30, and September 6.
b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?
c. What is the balance in Treasury Stock on December 31 of the current year?
d. How will the balance in Treasury Stock be reported on the balance sheet?
Aug 29, 2021 | Uncategorized
EX 13-13 Treasury stock transactions
Conyers Water Inc. bottles and distributes spring water. On July 5 of the current year, Conyers Water Inc. reacquired 12,500 shares of its common stock at $80 per share. On November 3, Conyers Water Inc. sold 7,000 of the reacquired shares at $85 per share. The remaining 5,500 shares were sold at $78 per share on December 10.
a. Journalize the transactions of July 5, November 3, and December 10.
b. What is the balance in Paid-In Capital from Sale of Treasury Stock on December 31 of the current year?
c. Where will the balance in Paid-In Capital from Sale of Treasury Stock be reported on the balance sheet?
d. For what reasons might Conyers Water Inc. have purchased the treasury stock?
Aug 29, 2021 | Uncategorized
EX 13-14 Reporting paid-in capital
The following accounts and their balances were selected from the unadjusted trial balance of CW Group Inc., a freight forwarder, at March 31, the end of the current fiscal year:
|
Preferred 1% Stock, $75 par
|
$4,500,000
|
|
Paid-In Capital in Excess of Par—Preferred Stock
|
180,000
|
|
Common Stock, no par, $8 stated value
|
2,400,000
|
|
Paid-In Capital in Excess of Stated Value—Common Stock
|
450,000
|
|
Paid-In Capital from Sale of Treasury Stock
|
190,000
|
|
Retained Earnings
|
11,570,000
|
Prepare the Paid-In Capital portion of the Stockholders’ Equity section of the balance sheet. There are 500,000 shares of common stock authorized and 100,000 shares of preferred stock authorized.
Aug 29, 2021 | Uncategorized
PR 11-5B Payroll register
The following data for Gridiron Industries, Inc., relate to the payroll for the week ended December 7, 2012:
|
Hours
|
Hourly
|
Weekly
|
Federal
|
U.S. Savings
|
|
Employee
|
Worked
|
Rate
|
Salary
|
Income Tax
|
Bonds
|
|
Aikman
|
50
|
$26.00
|
|
$328.90
|
$45
|
|
Csonka
|
|
|
$3,400
|
731.00
|
0
|
|
Dickerson
|
35
|
28.00
|
|
186.20
|
38
|
|
Elway
|
44
|
34.00
|
|
328.44
|
30
|
|
Harris
|
38
|
22.00
|
|
175.56
|
45
|
|
Motley
|
|
|
2,000
|
480.00
|
68
|
|
Nagurski
|
45
|
26.00
|
|
185.25
|
0
|
|
Sanders
|
45
|
27.00
|
|
282.15
|
45
|
|
Swann
|
42
|
25.00
|
|
215.00
|
0
|
Employees Csonka and Motley are office staff, and all of the other employees are sales personnel. All sales personnel are paid 1½ times the regular rate for all hours in excess of 40 hours per week. The social security tax rate is 6.0% of each employee’s annual earnings, and Medicare tax is 1.5% of each employee’s annual earnings. The next payroll check to be used is No. 328.
Instructions
1. Prepare a payroll register for Gridiron Industries, Inc., for the week ended December 7, 2012. Use the following columns for the payroll register: Name, Total Hours, Regular Earnings, Overtime Earnings, Total Earnings, Social Security Tax, Medicare Tax, Federal Income Tax, U.S. Savings Bonds, Total Deductions, Net Pay, Ck. No., Sales Salaries Expense, and Office Salaries Expense.
2. Journalize the entry to record the payroll sales for the week.
Aug 29, 2021 | Uncategorized
PR 11-6B Payroll accounts and year-end entries
The following accounts, with the balances indicated, appear in the ledger of Codigo Co. on December 1 of the current year:
|
111
|
Salaries Payable
|
—
|
118
|
Bond Deductions Payable
|
$ 2,520
|
|
112
|
Social Security Tax Payable
|
$ 6,847
|
119
|
Medical Insurance Payable
|
2,800
|
|
113
|
Medicare Tax Payable
|
1,763
|
411
|
Sales Salaries Expense
|
778,000
|
|
114
|
Employees Federal Income Tax Payable
|
10,873
|
511
|
Officers Salaries Expense
|
375,000
|
|
115
|
Employees State Income Tax Payable
|
9,874
|
611
|
Office Salaries Expense
|
140,000
|
|
116
|
State Unemployment Tax Payable
|
1,400
|
618
|
Payroll Tax Expense
|
104,610
|
|
117
|
Federal Unemployment Tax Payable
|
400
|
|
|
|
The following transactions relating to payroll, payroll deductions, and payroll taxes occurred during December:
|
Dec. 1.
|
Issued Check No. 615 to Canal Insurance Company for $2,800, in payment of the semiannual premium on the group medical insurance policy.
|
|
1.
|
Issued Check No. 616 to Green Bank for $19,483, in payment for $6,847 of social security tax, $1,763 of Medicare tax, and $10,873 of employees’ federal income tax due.
|
|
2.
|
Issued Check No. 617 for $2,520 to Green Bank to purchase U.S. savings bonds for employees.
|
|
12.
|
Journalized the entry to record the biweekly payroll. A summary of the payroll record follows:
|
|
|
Salary distribution:
|
|
|
|
|
Sales
|
$35,300
|
|
|
|
Officers
|
17,000
|
|
|
|
Office
|
6,300
|
$58,600
|
|
|
Deductions:
|
|
|
|
|
Social security tax
|
$ 3,516
|
|
|
|
Medicare tax
|
879
|
|
|
|
Federal income tax withheld
|
10,431
|
|
|
|
State income tax withheld
|
2,637
|
|
|
|
Savings bond deductions
|
1,260
|
|
|
|
Medical insurance deductions
|
467
|
19,190
|
|
|
Net amount
|
|
$39,410
|
|
12.
|
Issued Check No. 622 in payment of the net amount of the biweekly payroll.
|
|
12.
|
Journalized the entry to record payroll taxes on employees’ earnings of December 12: social security tax, $3,516; Medicare tax, $879; state unemployment tax, $350; federal unemployment tax, $100.
|
|
15.
|
Issued Check No. 630 to Green Bank for $18,635, in payment for $7,032 of social security tax, $1,758 of Medicare tax, and $10,431 of employees’ federal income tax due.
|
|
Dec. 26.
|
Journalized the entry to record the biweekly payroll. A summary of the payroll record follows:
|
|
|
Salary distribution:
|
|
|
|
|
Sales
|
$35,400
|
|
|
|
Officers
|
17,250
|
|
|
|
Office
|
6,400
|
$59,050
|
|
|
Deductions:
|
|
|
|
|
Social security tax
|
$ 3,543
|
|
|
|
Medicare tax
|
886
|
|
|
|
Federal income tax withheld
|
10,511
|
|
|
|
State income tax withheld
|
2,657
|
|
|
|
Savings bond deductions
|
1,260
|
18,857
|
|
|
Net amount
|
|
$40,193
|
|
26.
|
Issued Check No. 640 for the net amount of the biweekly payroll.
|
|
26.
|
Journalized the entry to record payroll taxes on employees’ earnings of December 26: social security tax, $3,543; Medicare tax, $886; state unemployment tax, $170; federal unemployment tax, $45.
|
|
30.
|
Issued Check No. 651 for $15,168 to State Department of Revenue, in payment of employees’ state income tax due on December 31.
|
|
30.
|
Issued Check No. 652 to Green Bank for $2,520 to purchase U.S. savings bonds for employees.
|
|
31.
|
Paid $61,600 to the employee pension plan. The annual pension cost is $72,800. (Record both the payment and the unfunded pension liability.)
|
Instructions
1. Journalize the transactions.
2. Journalize the following adjusting entries on December 31:
a. Salaries accrued: sales salaries, $10,620; officers salaries, $5,175; office salaries, $1,920. The payroll taxes are immaterial and are not accrued.
b. Vacation pay, $14,840.
Aug 29, 2021 | Uncategorized
CP 11-1 Ethics and professional conduct in business
Lisa Deuel is a certified public accountant (CPA) and staff accountant for Bratz and Bratz, a local CPA firm. It had been the policy of the firm to provide a holiday bonus equal to two weeks’ salary to all employees. The firm’s new management team announced on November 15 that a bonus equal to only one week’s salary would be made available to employees this year. Lisa thought that this policy was unfair because she and her coworkers planned on the full two-week bonus. The two-week bonus had been given for 10 straight years, so it seemed as though the firm had breached an implied commitment. Thus, Lisa decided that she would make up the lost bonus week by working an extra six hours of overtime per week over the next five weeks until the end of the year. Bratz and Bratz’s policy is to pay overtime at 150% of straight time. Lisa’s supervisor was surprised to see overtime being reported, since there is generally very little additional or unusual client service demands at the end of the calendar year. However, the overtime was not questioned, since firm employees are on the “honor system” in reporting their overtime.
Discuss whether the firm is acting in an ethical manner by changing the bonus. Is Lisa behaving in an ethical manner?
Aug 29, 2021 | Uncategorized
EX 12-1 Record partner’s original investment
Amber Moss and Latoya Pell decide to form a partnership by combining the assets of their separate businesses. Moss contributes the following assets to the partnership: cash, $15,000; accounts receivable with a face amount of $159,000 and an allowance for doubtful accounts of $9,700; merchandise inventory with a cost of $100,000; and equipment with a cost of $155,000 and accumulated depreciation of $100,000. The partners agree that $6,000 of the accounts receivable are completely worthless and are not to be accepted by the partnership, that $11,400 is a reasonable allowance for the uncollectibility of the remaining accounts, that the merchandise inventory is to be recorded at the current market price of $91,450, and that the equipment is to be valued at $62,500.
Journalize the partnership’s entry to record Moss’s investment.
Aug 29, 2021 | Uncategorized
EX 12-2 Record partner’s original investment
Jessica Kimble and Carlos Segura form a partnership by combining assets of their former businesses. The following balance sheet information is provided by Kimble, sole proprietorship:
|
Cash
|
|
$50,000
|
|
Accounts receivable
|
$100,000
|
|
|
Less: Allowance for doubtful accounts
|
5,900
|
94,100
|
|
Land
|
|
180,000
|
|
Equipment
|
$70,000
|
|
|
Less: Accumulated depreciation—equipment
|
43,000
|
27,000
|
|
Total assets
|
|
$351,100
|
|
Accounts payable
|
|
$22,500
|
|
Notes payable
|
|
80,000
|
|
Jessica Kimble, capital
|
|
248,600
|
|
Total liabilities and owner’s equity
|
|
$351,100
|
Kimble obtained appraised values for the land and equipment as follows:
|
Land
|
$284,000
|
|
Equipment
|
19,000
|
An analysis of the accounts receivable indicated that the allowance for doubtful accounts should be increased to $7,000.
Journalize the partnership’s entry for Kimble’s investment.
Aug 29, 2021 | Uncategorized
EX 12-6 Negotiating income-sharing ratio
Sixty-year-old Mary Filmore retired from her computer consulting business in Boston and moved to Florida. There she met 27-year-old Emily Wright, who had just graduated from Eldon Community College with an associate degree in computer science. Mary and Emily formed a partnership called F&W Computer Consultants. Mary contributed $35,000 for startup costs and devoted one-half time to the business. Emily devoted full time to the business. The monthly drawings were $2,000 for Mary and $4,000 for Emily. At the end of the first year of operations, the two partners disagreed on the division of net income. Mary reasoned that the division should be equal. Although she devoted only one-half time to the business, she contributed all of the startup funds. Emily reasoned that the income-sharing ratio should be 2:1 in her favor because she devoted full time to the business and her monthly drawings were twice those of Mary.
a. Can you identify any flaws in the partners’ reasoning regarding the income-sharing ratio?
b. How could an income-sharing agreement resolve this dispute?
Aug 29, 2021 | Uncategorized
EX 12-8 Dividing LLC net income and statement of members’ equity
Macro Media, LLC, has three members: WLKT Partners, Amanda Nelson, and Daily Sentinel Newspaper, LLC. On January 1, 2012, the three members had equity of $250,000, $50,000, and $140,000, respectively. WLKT Partners contributed an additional $50,000 to Macro Media, LLC, on June 1, 2012. Amanda Nelson received an annual salary allowance of $88,700 during 2012. The members’ equity accounts are also credited with 10% interest on each member’s January 1 capital balance. Any remaining income is to be shared in the ratio of 4:3:3 among the three members. The net income for Macro Media, LLC, for 2012 was $720,000. Amounts equal to the salary and interest allowances were withdrawn by the members.
a. Determine the division of income among the three members.
b. Prepare the journal entry to close the net income and withdrawals to the individual member equity accounts.
c. Prepare a statement of members’ equity for 2012.
d. What are the advantages of an income-sharing agreement for the members of this LLC?
Aug 29, 2021 | Uncategorized
EX 12-9 Partner income and withdrawal journal entries
The notes to the annual report for KPMG LLP (U.K.) indicated the following policies regarding the partners’ capital:
Assume that the partners draw £40 million per month for 2012 and the net income for the year is £600 million. Journalize the partner capital and partner drawing control accounts in the following requirements:
a. Provide the journal entry for the monthly partner drawing for January.
b. Provide the journal entry to close the income summary account at the end of the year.
c. Provide the journal entry to close the drawing account at the end of the year.
d. Why would partner drawings be considered “reclaimable” until profits have been allocated?
Aug 29, 2021 | Uncategorized
EX 12-13 Admitting new partner with bonus
Andrew Hall and Brian Li formed a partnership to provide landscaping services. Hall and Li shared profits and losses equally. After all the tangible assets have been adjusted to current market prices, the capital accounts of Andrew Hall and Brian Li have balances of $54,000 and $71,000, respectively. Kristin Lane has expertise with using the computer to prepare landscape designs, cost estimates, and renderings. Hall and Li deem these skills useful; thus, Lane is admitted to the partnership at a 30% interest for a purchase price of $35,000.
a. Determine the recipient and amount of the partner bonus.
b. Provide the journal entry to admit Lane into the partnership.
c. Why would a bonus be paid in this situation?
Aug 29, 2021 | Uncategorized
EX 12-14 Admitting a new LLC member with bonus
HealthSource, LLC, consists of two doctors, Drew and Moore, who share in all income and losses according to a 2:3 income-sharing ratio. Dr. Mann has been asked to join the LLC. Prior to admitting Mann, the assets of HealthSource were revalued to reflect their current market values. The revaluation resulted in medical equipment being increased by $35,000. Prior to the revaluation, the equity balances for Drew and Moore were $201,000 and $289,000, respectively.
a. Provide the journal entry for the asset revaluation.
b. Provide the journal entry for the bonus under the following independent situations:
1. Mann purchased a 30% interest in HealthSource, LLC, for $285,000.
2. Mann purchased a 25% interest in HealthSource, LLC, for $155,000.
Aug 29, 2021 | Uncategorized
EX 12-16 Partner bonuses, statement of partners’ equity
The partnership of Angel Investor Associates began operations on January 1, 2012, with contributions from two partners as follows:
|
Scott Wilson
|
$120,000
|
|
Michael Goforth
|
80,000
|
The following additional partner transactions took place during the year:
1. In early January, Lance McGinnis is admitted to the partnership by contributing $50,000 cash for a 20% interest.
2. Net income of $250,000 was earned in 2012. In addition, Scott Wilson received a salary allowance of $45,000 for the year. The three partners agree to an income-sharing ratio equal to their capital balances after admitting McGinnis.
3. The partners’ withdrawals are equal to half of the increase in their capital balances from salary allowance and income.
Prepare a statement of partnership equity for the year ended December 31, 2012.
Aug 29, 2021 | Uncategorized
EX 12-17 Withdrawal of partner
David Winner is to retire from the partnership of Winner and Associates as of March 31, the end of the current fiscal year. After closing the accounts, the capital balances of the partners are as follows: David Winner, $210,000; Alexis Richards, $125,000; and Marcus Williams, $140,000. They have shared net income and net losses in the ratio of 3:2:2. The partners agree that the merchandise inventory should be increased by $32,000, and the allowance for doubtful accounts should be increased by $4,000. Winner agrees to accept a note for $150,000 in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Richards and Williams are to share equally in the net income or net loss of the new partnership.
Journalize the entries to record (a) the adjustment of the assets to bring them into agreement with current market prices and (b) the withdrawal of Winner from the partnership.
Aug 29, 2021 | Uncategorized
EX 12-18 Statement of members’ equity, admitting new member
The statement of members’ equity for Bonanza, LLC, is shown below.
|
Bonanza, LLC
|
|
|
|
Statement of Members’ Equity
|
|
|
|
For the Years Ended December 31, 2012 and 2013
|
|
|
|
|
Idaho
|
Silver
|
|
|
|
|
Properties,
|
Holdings,
|
Justin
|
|
|
|
LLC,
|
LLC,
|
Thomas
|
Total
|
|
|
Member
|
Member
|
Member
|
Members’
|
|
|
Equity
|
Equity
|
Equity
|
Equity
|
|
Members’ equity, December 31, 2011
|
$552,000
|
$420,500
|
|
$972,500
|
|
Net income
|
128,000
|
192,000
|
|
320,000
|
|
Members’ equity, December 31, 2012
|
$680,000
|
$612,500
|
|
$1,292,500
|
|
Thomas contribution, January 1, 2013
|
8,000
|
12,000
|
$250,000
|
270,000
|
|
Net income
|
90,000
|
225,000
|
135,000
|
450,000
|
|
Less member withdrawals
|
(32,000)
|
(48,000)
|
(50,000)
|
(130,000)
|
|
Members’ equity, December 31, 2013
|
$746,000
|
$801,500
|
$335,000
|
$1,882,500
|
a. What was the income-sharing ratio in 2012?
b. What was the income-sharing ratio in 2013?
c. How much cash did Justin Thomas contribute to Bonanza, LLC, for his interest?
d. Why do the member equity accounts of Idaho Properties, LLC, and Silver Holdings, LLC, have positive entries for Justin Thomas’ contribution?
e. What percentage interest of Bonanza did Justin Thomas acquire?
f. Why are withdrawals less than net income?
Aug 29, 2021 | Uncategorized
EX 12-25 Statement of LLC liquidation
Hall, Lang, and Das are members of Evergreen Sales, LLC, sharing income and losses in the ratio of 2:2:1, respectively. The members decide to liquidate the limited liability company. The members’ equity prior to liquidation and asset realization on May 1, 2012, are as follows:
|
Hall
|
$37,000
|
|
Lang
|
40,000
|
|
Das
|
18,000
|
|
Total
|
$95,000
|
In winding up operations during the month of May, noncash assets with a book value of $107,000 are sold for $123,000, and liabilities of $25,000 are satisfied. Prior to realization, Evergreen Sales has a cash balance of $13,000.
a. Prepare a statement of LLC liquidation.
b. Provide the journal entry for the final cash distribution to members.
c. What is the role of the income- and loss-sharing ratio in liquidating a LLC?
Aug 29, 2021 | Uncategorized
EX 12-28 Revenue per employee
Commerical Cleaning Services, LLC, provides cleaning services for office buildings. The firm has 10 members in the LLC, which did not change between 2012 and 2013. During 2013, the business terminated two commercial contracts. The following revenue and employee information is provided:
|
2013
|
2012
|
|
Revenues (in thousands)
|
$20,000
|
$22,400
|
|
Number of employees (excluding members)
|
160
|
200
|
a. For 2013 and 2012, determine the revenue per employee (excluding members).
b. Interpret the trend between the two years.
Aug 29, 2021 | Uncategorized
PR 12-1A Entries and balance sheet for partnership
On August 1, 2012, Wardell Cole and Marva Landers form a partnership. Cole agrees to invest $15,600 in cash and merchandise inventory valued at $62,400. Landers invests certain business assets at valuations agreed upon, transfers business liabilities, and contributes sufficient cash to bring her total capital to $60,000. Details regarding the book values of the business assets and liabilities, and the agreed valuations, follow:
|
Landers’ Ledger
|
Agreed-Upon
|
|
Balance
|
Valuation
|
|
Accounts Receivable
|
$25,300
|
$23,700
|
|
Allowance for Doubtful Accounts
|
1,500
|
1,900
|
|
Equipment
|
92,300
|
57,900
|
|
Accumulated Depreciation—Equipment
|
35,600
|
|
Accounts Payable
|
20,000
|
20,000
|
|
Notes Payable
|
30,000
|
30,000
|
The partnership agreement includes the following provisions regarding the division of net income: interest on original investments at 10%, salary allowances of $22,500 (Cole) and $30,400 (Landers), and the remainder equally.
Instructions
1. Journalize the entries to record the investments of Cole and Landers in the partnership accounts.
2. Prepare a balance sheet as of August 1, 2012, the date of formation of the partnership of Cole and Landers.
3. After adjustments and the closing of revenue and expense accounts at July 31, 2013, the end of the first full year of operations, the income summary account has a credit balance of $100,500, and the drawing accounts have debit balances of $25,000 (Cole) and $30,400 (Landers). Journalize the entries to close the income summary account and the drawing accounts at July 31, 2013.
Aug 29, 2021 | Uncategorized
PR 12-2A Dividing partnership income
Dyer and Salinas have decided to form a partnership. They have agreed that Dyer is to invest $120,000 and that Salinas is to invest $40,000. Dyer is to devote one-half time to the business and Salinas is to devote full time. The following plans for the division of income are being considered:
a. Equal division.
b. In the ratio of original investments.
c. In the ratio of time devoted to the business.
d. Interest of 12% on original investments and the remainder equally.
e. Interest of 12% on original investments, salary allowances of $32,000 to Dyer and $64,000 to Salinas, and the remainder equally.
f. Plan (e), except that Salinas is also to be allowed a bonus equal to 20% of the amount by which net income exceeds the total salary allowances.
Instructions
For each plan, determine the division of the net income under each of the following assumptions: (1) net income of $108,000 and (2) net income of $150,000. Present the data in tabular form, using the following columnar headings:
|
|
$108,000
|
|
$150,000
|
|
|
Plan
|
Dyer
|
Salinas
|
Dyer
|
Salinas
|
Aug 29, 2021 | Uncategorized
PR 12-3A Financial statements for partnership
The ledger of Aiden Durant and Jasmine Adkins, attorneys-at-law, contains the following accounts and balances after adjustments have been recorded on December 31, 2012:
|
Aiden, Durant, Adkins
|
|
|
|
Trial Balance
|
|
|
|
December 31, 2012
|
|
|
|
|
Debit
|
Credit
|
|
Balances
|
Balances
|
|
Cash
|
42,000
|
|
|
Accounts Receivable
|
42,300
|
|
|
Supplies
|
1,500
|
|
|
Land
|
100,000
|
|
|
Building
|
108,100
|
|
|
Accumulated Depreciation—Building
|
|
62,500
|
|
Office Equipment
|
46,000
|
|
|
Accumulated Depreciation—Office Equipment
|
|
19,400
|
|
Accounts Payable
|
|
29,800
|
|
Salaries Payable
|
|
3,200
|
|
Aiden Durant, Capital
|
|
100,000
|
|
Aiden Durant, Drawing
|
45,000
|
|
|
Jasmine Adkins, Capital
|
|
60,000
|
|
Jasmine Adkins, Drawing
|
65,000
|
|
|
Professional Fees
|
|
364,500
|
|
Salary Expense
|
146,000
|
|
|
Depreciation Expense—Building
|
14,500
|
|
|
Property Tax Expense
|
9,000
|
|
|
Heating and Lighting Expense
|
7,200
|
|
|
Supplies Expense
|
5,200
|
|
|
Depreciation Expense—Office Equipment
|
4,500
|
|
|
Miscellaneous Expense
|
3,100
|
|
|
|
639,400
|
639,400
|
The balance in Adkins’ capital account includes an additional investment of $10,000 made on August 10, 2012.
Instructions
1. Prepare an income statement for 2012, indicating the division of net income. The articles of partnership provide for salary allowances of $40,000 to Durant and $50,000 to Adkins, allowances of 10% on each partner’s capital balance at the beginning of the fiscal year, and equal division of the remaining net income or net loss.
2. Prepare a statement of partners’ equity for 2012.
3. Prepare a balance sheet as of the end of 2012.
Aug 29, 2021 | Uncategorized
PR 12-4A Admitting new partner
Tosio Kato and Angela Gordon have operated a successful firm for many years, sharing net income and net losses equally. Tricia McCay is to be admitted to the partnership on May 1 of the current year, in accordance with the following agreement:
a. Assets and liabilities of the old partnership are to be valued at their book values as of April 30, except for the following:
• Accounts receivable amounting to $2,400 are to be written off, and the allowance for doubtful accounts is to be increased to 5% of the remaining accounts.
• Merchandise inventory is to be valued at $63,200.
• Equipment is to be valued at $141,900.
b. McCay is to purchase $60,000 of the ownership interest of Gordon for $65,000 cash and to contribute another $35,000 cash to the partnership for a total ownership equity of $95,000.
The post-closing trial balance of Kato and Gordon as of April 30 is as follows:
|
Kato and Gordon
|
|
|
|
Post-Closing Trial Balance
|
|
|
|
April 30, 2012
|
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
6,000
|
|
|
Accounts Receivable
|
38,400
|
|
|
Allowance for Doubtful Accounts
|
|
1,400
|
|
Merchandise Inventory
|
59,000
|
|
|
Prepaid Insurance
|
2,200
|
|
|
Equipment
|
165,000
|
|
|
Accumulated Depreciation—Equipment
|
|
51,700
|
|
Accounts Payable
|
|
9,500
|
|
Notes Payable
|
|
40,000
|
|
Tosio Kato, Capital
|
|
90,000
|
|
Angela Gordon, Capital
|
|
78,000
|
|
|
270,600
|
270,600
|
Instructions
1. Journalize the entries as of April 30 to record the revaluations, using a temporary account entitled Asset Revaluations. The balance in the accumulated depreciation account is to be eliminated. After journalizing the revaluations, close the balance of the asset revaluations account to the capital accounts of Tosio Kato and Angela Gordon. 2. Journalize the additional entries to record McCay’s entrance to the partnership on May 1, 2012.
3. Present a balance sheet for the new partnership as of May 1, 2012.
Aug 29, 2021 | Uncategorized
PR 12-5A Statement of partnership liquidation
After the accounts are closed on July 3, 2012, prior to liquidating the partnership, the capital accounts of Rebecca Adams, Austin Cooper, and Ricardo Ruiz are $22,400, $5,300, and $31,900, respectively. Cash and noncash assets total $8,800 and $68,800, respectively. Amounts owed to creditors total $18,000. The partners share income and losses in the ratio of 2:1:1. Between July 3 and July 29, the noncash assets are sold for $33,200, the partner with the capital deficiency pays his deficiency to the partnership, and the liabilities are paid.
Instructions
1. Prepare a statement of partnership liquidation, indicating (a) the sale of assets and division of loss, (b) the payment of liabilities, (c) the receipt of the deficiency (from the appropriate partner), and (d) the distribution of cash.
2. Assume the partner with the capital deficiency declares bankruptcy and is unable to pay the deficiency. Journalize the entries to (a) allocate the partner’s deficiency and (b) distribute the remaining cash.
Aug 29, 2021 | Uncategorized
EX 11-9 Calculate payroll
Donohue Professional Services has three employees—a consultant, a computer programmer, and an administrator. The following payroll information is available for each employee:
|
Consultant
|
Computer Programmer
|
Administrator
|
|
Regular earnings rate
|
$2,800 per week
|
$30 per hour
|
$42 per hour
|
|
Overtime earnings rate
|
Not applicable
|
1.5 times hourly rate
|
2 times hourly rate
|
|
Number of withholding allowances
|
3
|
2
|
1
|
For the current pay period, the computer programmer worked 60 hours and the administrator worked 50 hours. The federal income tax withheld for all three employees, who are single, can be determined from the wage bracket withholding table in Exhibit 3 in the chapter. Assume further that the social security tax rate was 6.0%, the Medicare tax rate was 1.5%, and one withholding allowance is $70.
Determine the gross pay and the net pay for each of the three employees for the current pay period.
Aug 29, 2021 | Uncategorized
EX 11-10 Summary payroll data
In the following summary of data for a payroll period, some amounts have been intentionally omitted:
|
Earnings:
|
|
|
1. At regular rate
|
?
|
|
2. At overtime rate
|
$135,000
|
|
3. Total earnings
|
?
|
|
Deductions:
|
|
4. Social security tax
|
54,000
|
|
5. Medicare tax
|
13,500
|
|
6. Income tax withheld
|
225,000
|
|
7. Medical insurance
|
31,500
|
|
8. Union dues
|
?
|
|
9. Total deductions
|
335,250
|
|
10. Net amount paid
|
564,750
|
|
Accounts debited:
|
|
11. Factory Wages
|
475,000
|
|
12. Sales Salaries
|
?
|
|
13. Office Salaries
|
200,000
|
a. Calculate the amounts omitted in lines (1), (3), (8), and (12).
b. Journalize the entry to record the payroll accrual.
c. Journalize the entry to record the payment of the payroll.
Aug 29, 2021 | Uncategorized
EX 11-12 Payroll entries
The payroll register for Robinson Company for the week ended November 18 indicated the following:
|
Salaries
|
$1,300,000
|
|
Social security tax withheld
|
61,100
|
|
Medicare tax withheld
|
19,500
|
|
Federal income tax withheld
|
260,000
|
In addition, state and federal unemployment taxes were calculated at the rate of 5.2% and 0.8%, respectively, on $240,000 of salaries.
a. Journalize the entry to record the payroll for the week of November 18.
b. Journalize the entry to record the payroll tax expense incurred for the week of November 18.
Aug 29, 2021 | Uncategorized
EX 11-13 Payroll entries
Faber Company had gross wages of $110,000 during the week ended June 17. The amount of wages subject to social security tax was $110,000, while the amount of wages subject to federal and state unemployment taxes was $15,000. Tax rates are as follows:
|
Social security
|
6.0%
|
|
Medicare
|
1.5%
|
|
State unemployment
|
5.4%
|
|
Federal unemployment
|
0.8%
|
The total amount withheld from employee wages for federal taxes was $22,000.
a. Journalize the entry to record the payroll for the week of June 17.
b. Journalize the entry to record the payroll tax expense incurred for the week of June 17.
Aug 29, 2021 | Uncategorized
EX 11-14 Payroll internal control procedures
Big Dave’s Pizza is a pizza restaurant specializing in the sale of pizza by the slice. The store employs 10 full-time and 15 part-time workers. The store’s weekly payroll averages $5,600 for all 25 workers.
Big Dave’s Pizza uses a personal computer to assist in preparing paychecks. Each week, the store’s accountant collects employee time cards and enters the hours worked into the payroll program. The payroll program calculates each employee’s pay and prints a paycheck. The accountant uses a check-signing machine to sign the paychecks. Next, the restaurant’s owner authorizes the transfer of funds from the restaurant’s regular bank account to the payroll account.
For the week of June 11, the accountant accidentally recorded 200 hours worked instead of 40 hours for one of the full-time employees.
Does Big Dave’s Pizza have internal controls in place to catch this error? If so, how will this error be detected?
Aug 29, 2021 | Uncategorized
EX 11-15 Internal control procedures
Matt’s Bikes is a small manufacturer of specialty bicycles. The company employs 18 production workers and four administrative persons. The following procedures are used to process the company’s weekly payroll:
a. Whenever an employee receives a pay raise, the supervisor must fill out a wage adjustment form, which is signed by the company president. This form is used to change the employee’s wage rate in the payroll system.
b. All employees are required to record their hours worked by clocking in and out on a time clock. Employees must clock out for lunch break. Due to congestion around the time clock area at lunch time, management has not objected to having one employee clock in and out for an entire department.
c. Whenever a salaried employee is terminated, Personnel authorizes Payroll to remove the employee from the payroll system. However, this procedure is not required when an hourly worker is terminated. Hourly employees only receive a paycheck if their time cards show hours worked. The computer automatically drops an employee from the payroll system when that employee has six consecutive weeks with no hours worked.
d. Paychecks are signed by using a check-signing machine. This machine is located in the main office so that it can be easily accessed by anyone needing a check signed.
e. Matt’s Bikes maintains a separate checking account for payroll checks. Each week, the total net pay for all employees is transferred from the company’s regular bank account to the payroll account.
State whether each of the procedures is appropriate or inappropriate after considering the principles of internal control. If a procedure is inappropriate, describe the appropriate procedure.
Aug 29, 2021 | Uncategorized
EX 11-20 Accrued product warranty
General Motors Corporation disclosed estimated product warranty payable for comparative years as follows:
|
(in millions)
|
|
12/31/08
|
12/31/07
|
|
Current estimated product warranty payable
|
$3,792
|
$4,655
|
|
Noncurrent estimated product warranty payable
|
4,699
|
4,960
|
|
Total
|
$8,491
|
$9,615
|
GM’s sales were $177,594 million in 2007 and decreased to $147,732 million in 2008. Assume that the total paid on warranty claims during 2008 was $5,000 million.
a. Why are short- and long-term estimated warranty liabilities separately disclosed?
b. Provide the journal entry for the 2008 product warranty expense.
c. What two conditions must be met in order for a product warranty liability to be reported in the financial statements?
Aug 29, 2021 | Uncategorized
EX 11-21 Contingent liabilities
Several months ago, Reiltz Industries, Inc. experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency (EPA) fined the company $570,000. The company is contesting the fine. In addition, an employee is seeking $560,000 in damages related to the spill. Lastly, a homeowner has sued the company for $364,000. The homeowner lives 35 miles from the plant, but believes that the incident has reduced the home’s resale value by $364,000.
Reiltz’s legal counsel believes that it is probable that the EPA fine will stand. In addition, counsel indicates that an out-of-court settlement of $238,000 has recently been reached with the employee. The final papers will be signed next week. Counsel believes that the homeowner’s case is much weaker and will be decided in favor of Reiltz. Other litigation related to the spill is possible, but the damage amounts are uncertain.
a. Journalize the contingent liabilities associated with the hazardous materials spill. Use the account “Damage Awards and Fines” to recognize the expense for the period.
b. Prepare a note disclosure relating to this incident.
Aug 29, 2021 | Uncategorized
EX 11-22 Quick ratio
CCB Co. had the following current assets and liabilities for two comparative years:
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|
Current assets:
|
|
|
|
Cash
|
$ 506,000
|
$ 524,000
|
|
Accounts receivable
|
354,000
|
364,000
|
|
Inventory
|
240,000
|
200,000
|
|
Total current assets
|
$1,100,000
|
$1,088,000
|
|
Current liabilities:
|
|
|
|
Current portion of long-term debt
|
$ 160,000
|
$ 120,000
|
|
Accounts payable
|
265,000
|
220,000
|
|
Accrued and other current liabilities
|
435,000
|
400,000
|
|
Total current liabilities
|
$ 860,000
|
$ 740,000
|
a. Determine the quick ratio for December 31, 2012 and 2011.
b. Interpret the change in the quick ratio between the two balance sheet dates.
Aug 29, 2021 | Uncategorized
EX 11-23 Quick ratio
The current assets and current liabilities for Apple Computer, Inc., and Dell Inc. are shown as follows at the end of a recent fiscal period:
|
Apple Computer, Inc.
|
Dell Inc.
|
|
(in millions)
|
(in millions)
|
|
Sept. 26, 2009
|
Jan. 29, 2010
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$ 5,263
|
$10,635
|
|
Short-term investments
|
18,201
|
373
|
|
Accounts receivable
|
4,496
|
8,543
|
|
Inventories
|
455
|
1,051
|
|
Other current assets*
|
3,140
|
3,643
|
|
Total current assets
|
$31,555
|
$24,245
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$ 9,453
|
$15,257
|
|
Accrued and other current liabilities
|
2,053
|
3,703
|
|
Total current liabilities
|
$11,506
|
$18,960
|
*These represent prepaid expense and other nonquick current assets.
a. Determine the quick ratio for both companies.
b. Interpret the quick ratio difference between the two companies.
Aug 29, 2021 | Uncategorized
PR 11-1A Liability transactions
The following items were selected from among the transactions completed by Isis Co. during the current year:
|
Feb 15.
|
Purchased merchandise on account from Viper Co., $260,000, terms n/30.
|
|
Mar. 17.
|
Issued a 45-day, 5% note for $260,000 to Viper Co., on account.
|
|
May 1.
|
Paid Viper Co. the amount owed on the note of March 17.
|
|
June 15.
|
Borrowed $300,000 from Ima Bank, issuing a 60-day, 9% note.
|
|
July 21.
|
Purchased tools by issuing a $240,000, 60-day note to Charger Co., which discounted the note at the rate of 7%.
|
|
Aug. 14.
|
Paid Ima Bank the interest due on the note of June 15 and renewed the loan by issuing a new 30-day, 10% note for $300,000. (Journalize both the debit and credit to the notes payable account.)
|
|
Sept. 13.
|
Paid Ima Bank the amount due on the note of August 14.
|
|
19.
|
Paid Charger Co. the amount due on the note of July 21.
|
|
Dec. 1.
|
Purchased office equipment from Challenger Co. for $235,000, paying $35,000 and issuing a series of ten 7.5% notes for $20,000 each, coming due at 30-day intervals.
|
|
12.
|
Settled a product liability lawsuit with a customer for $121,600, payable in January. Isis accrued the loss in a litigation claims payable account.
|
|
31.
|
Paid the amount due Challenger Co. on the fi rst note in the series issued on December 1.
|
Instructions
1. Journalize the transactions.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year: (a) product warranty cost, $26,240; (b) interest on the nine remaining notes owed to Challenger Co.
Aug 29, 2021 | Uncategorized
PR 11-2A Entries for payroll and payroll taxes
The following information about the payroll for the week ended December 30 was obtained from the records of Arnsparger Equipment Co.:
|
Salaries:
|
|
Deductions:
|
|
Sales salaries
|
$270,000
|
Income tax withheld
|
$ 95,920
|
|
Warehouse salaries
|
142,000
|
Social security tax withheld
|
32,700
|
|
Office salaries
|
133,000
|
Medicare tax withheld
|
8,175
|
|
$545,000
|
U.S. savings bonds
|
11,990
|
|
|
Group insurance
|
9,810
|
|
|
|
$158,595
|
Tax rates assumed:
Social security, 6%
Medicare, 1.5%
State unemployment (employer only), 4.5%
Federal unemployment (employer only), 0.8%
Instructions
1. Assuming that the payroll for the last week of the year is to be paid on December 31, journalize the following entries:
a. December 30, to record the payroll.
b. December 30, to record the employer’s payroll taxes on the payroll to be paid on December 31. Of the total payroll for the last week of the year, $30,000 is subject to unemployment compensation taxes.
2. Assuming that the payroll for the last week of the year is to be paid on January 5 of the following fiscal year, journalize the following entries:
a. December 30, to record the payroll.
b. January 5, to record the employer’s payroll taxes on the payroll to be paid on January 5. Since it is a new fiscal year, all $545,000 in salaries is subject to unemployment compensation taxes.
Aug 29, 2021 | Uncategorized
PR 11-3A Wage and tax statement data on employer FICA tax
Courtside Concepts Co. began business on January 2, 2011. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in 2012, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees’ earnings records were inadvertently destroyed.
None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5% on salary. Data on dates of employment, salary rates, and employees’ income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:
|
Employee
|
Date First Employed
|
Monthly Salary
|
Monthly Income Tax Withheld
|
|
Garnett
|
Jan. 2
|
$ 4,400
|
$ 706
|
|
Kidd
|
Oct. 1
|
7,200
|
1,442
|
|
J. O’Neal
|
Apr. 16
|
3,600
|
506
|
|
Bryant
|
Nov. 1
|
3,000
|
356
|
|
S. O’Neal
|
Jan. 16
|
12,800
|
3,012
|
|
Marbury
|
Dec. 1
|
5,000
|
856
|
|
Duncan
|
Feb. 1
|
11,200
|
2,564
|
Instructions
1. Calculate the amounts to be reported on each employee’s Wage and Tax Statement (Form W-2) for 2011, arranging the data in the following form:
|
Gross
|
Federal Income
|
Social Security
|
Medicare
|
|
Employee
|
Earnings
|
Tax Withheld
|
Tax Withheld
|
Tax Withheld
|
2. Calculate the following employer payroll taxes for the year: (a) social security; (b) Medicare; (c) state unemployment compensation at 4.6% on the first $10,000 of each employee’s earnings; (d) federal unemployment compensation at 0.8% on the first $10,000 of each employee’s earnings; (e) total.
Aug 29, 2021 | Uncategorized
PR 11-4A Payroll register
If the working papers correlating with this textbook are not used, omit Problem 11-4A. The payroll register for Knapp Co. for the week ended September 14, 2012, is presented in the working papers.
Instructions
1. Journalize the entry to record the payroll for the week.
2. Journalize the entry to record the issuance of the checks to employees.
3. Journalize the entry to record the employer’s payroll taxes for the week. Assume the following tax rates: state unemployment, 3.6%; federal unemployment, 0.8%. Of the earnings, $2,000 is subject to unemployment taxes.
4. Journalize the entry to record a check issued on September 17 to Fourth National Bank in payment of employees’ income taxes, $2,062.17, social security taxes, $1,463.88, and Medicare taxes, $365.98.
Aug 29, 2021 | Uncategorized
PR 11-5A Payroll register
The following data for Throwback Industries, Inc. relate to the payroll for the week ended December 7, 2012:
|
Employee
|
Hours Worked
|
Hourly Rate
|
Weekly Salary
|
Federal Income Tax
|
U.S. Savings Bonds
|
|
Blanda
|
48
|
$44.00
|
|
$526.24
|
$ 45
|
|
Dawson
|
42
|
38.00
|
|
351.31
|
50
|
|
Fouts
|
44
|
46.00
|
|
402.04
|
55
|
|
Griese
|
36
|
32.00
|
|
241.92
|
65
|
|
Namath
|
45
|
40.00
|
|
399.00
|
0
|
|
Marino
|
|
|
$2,200
|
528.00
|
44
|
|
Staubach
|
35
|
29.00
|
|
152.25
|
110
|
|
Starr
|
|
|
2,450
|
539.00
|
102
|
|
Unitas
|
41
|
38.00
|
|
315.40
|
0
|
Employees Marino and Starr are office staff, and all of the other employees are sales personnel. All sales personnel are paid 1½ times the regular rate for all hours in excess of 40 hours per week. The social security tax rate is 6.0%, and Medicare tax is 1.5% of each employee’s annual earnings. The next payroll check to be used is No. 625.
Instructions
1. Prepare a payroll register for Throwback Industries, Inc. for the week ended December 7, 2012. Use the following columns for the payroll register: Name, Total Hours, Regular Earnings, Overtime Earnings, Total Earnings, Social Security Tax, Medicare Tax, Federal Income Tax, U.S. Savings Bonds, Total Deductions, Net Pay, Ck. No., Sales Salaries Expense, and Office Salaries Expense.
2. Journalize the entry to record the payroll sales for the week.
Aug 29, 2021 | Uncategorized
PR 11-6A Payroll accounts and year-end entries
The following accounts, with the balances indicated, appear in the ledger of Quinn Co. on December 1 of the current year:
|
311
|
Salaries Payable
|
—
|
318
|
Bond Deductions Payable
|
$ 4,200
|
|
312
|
Social Security Tax Payable
|
$10,830
|
319
|
Medical Insurance Payable
|
33,000
|
|
313
|
Medicare Tax Payable
|
2,850
|
511
|
Operations Salaries Expense
|
1,150,000
|
|
314
|
Employees Federal Income Tax Payable
|
17,575
|
611
|
Officers Salaries Expense
|
750,000
|
|
315
|
Employees State Income Tax Payable
|
17,100
|
612
|
Office Salaries Expense
|
190,000
|
|
316
|
State Unemployment Tax Payable
|
1,800
|
619
|
Payroll Tax Expense
|
163,680
|
|
317
|
Federal Unemployment Tax Payable
|
600
|
|
|
|
The following transactions relating to payroll, payroll deductions, and payroll taxes occurred during December:
|
Dec. 2.
|
Issued Check No. 210 for $4,200 to Ace Bank to purchase U.S. savings bonds for employees.
|
|
5.
|
Issued Check No. 211 to Ace Bank for $31,255 in payment of $10,830 of social security tax, $2,850 of Medicare tax, and $17,575 of employees’ federal income tax due.
|
|
16.
|
Journalized the entry to record the biweekly payroll. A summary of the payroll record follows:
|
|
|
Salary distribution:
|
|
|
|
|
Operations
|
$52,200
|
|
|
|
Officers
|
34,100
|
|
|
|
Office
|
8,650
|
$94,950
|
|
|
Deductions:
|
|
|
|
|
Social security tax
|
$ 5,697
|
|
|
|
Medicare tax
|
1,424
|
|
|
|
Federal income tax withheld
|
17,566
|
|
|
|
State income tax withheld
|
4,273
|
|
|
|
Savings bond deductions
|
2,100
|
|
|
|
Medical insurance deductions
|
5,500
|
36,560
|
|
|
Net amount
|
|
$58,390
|
|
|
Issued Check No. 220 in payment of the net amount of the biweekly payroll.
|
|
|
Journalized the entry to record payroll taxes on employees’ earnings of December 16: social security tax, $5,697; Medicare tax, $1,424; state unemployment tax, $450; federal unemployment tax, $150.
|
|
|
Issued Check No. 224 to Ace Bank for $31,048, in payment of $11,394 of social security tax, $2,848 of Medicare tax, and $17,566 of employees’ federal income tax due.
|
|
|
Issued Check No. 229 to Blackwood Insurance Company for $33,000, in payment of the semiannual premium on the group medical insurance policy.
|
|
|
Journalized the entry to record the biweekly payroll. A summary of the payroll record follows:
|
|
|
Salary distribution:
|
|
|
|
|
Operations
|
$51,400
|
|
|
|
Officers
|
34,100
|
|
|
|
Office
|
8,400
|
$93,900
|
|
|
Deductions:
|
|
|
|
|
Social security tax
|
$ 5,634
|
|
|
|
Medicare tax
|
1,409
|
|
|
|
Federal income tax withheld
|
17,184
|
|
|
|
State income tax withheld
|
4,226
|
|
|
|
Savings bond deductions
|
2,100
|
30,553
|
|
|
Net amount
|
|
$63,347
|
|
30.
|
Issued Check No. 341 in payment of the net amount of the biweekly payroll.
|
|
30.
|
Journalized the entry to record payroll taxes on employees’ earnings of December 30: social security tax, $5,634; Medicare tax, $1,409; state unemployment tax, $225; federal unemployment tax, $75.
|
|
30.
|
Issued Check No. 243 for $25,599 to State Department of Revenue in payment of employees’ state income tax due on December 31.
|
|
30.
|
Issued Check No. 245 to Ace Bank for $4,200 to purchase U.S. savings bonds for employees.
|
|
31.
|
Paid $50,000 to the employee pension plan. The annual pension cost is $65,000. (Record both the payment and unfunded pension liability.)
|
Instructions
1. Journalize the transactions.
2. Journalize the following adjusting entries on December 31:
a. Salaries accrued: operations salaries, $5,140; officers salaries, $3,410; office salaries, $840. The payroll taxes are immaterial and are not accrued.
b. Vacation pay, $17,500.
Aug 29, 2021 | Uncategorized
PR 11-1B Liability transactions
The following items were selected from among the transactions completed by Javelin, Inc. during the current year:
|
Mar. 1.
|
Borrowed $80,000 from Nova Company, issuing a 30-day, 9% note for that amount.
|
|
15.
|
Purchased equipment by issuing a $180,000, 180-day note to Shelby Manufacturing Co., which discounted the note at the rate of 7.5%.
|
|
31.
|
Paid Nova Company the interest due on the note of March 1 and renewed the loan by issuing a new 60-day, 9% note for $80,000. (Record both the debit and credit to the notes payable account.)
|
|
May 30.
|
Paid Nova Company the amount due on the note of March 31.
|
|
July 6.
|
Purchased merchandise on account from Pacer Co., $56,000, terms, n/30.
|
|
Aug. 5.
|
Issued a 45-day, 8% note for $56,000 to Pacer Co., on account.
|
|
Sept. 11.
|
Paid Shelby Manufacturing Co. the amount due on the note of March 15.
|
|
19.
|
Paid Pacer Co. the amount owed on the note of August 5.
|
|
Nov. 16.
|
Purchased store equipment from Gremlin Co. for $190,000, paying $40,000 and issuing a series of fifteen 6% notes for $10,000 each, coming due at 30- day intervals.
|
|
Dec. 16.
|
Paid the amount due Gremlin Co. on the first note in the series issued on November 16.
|
|
21.
|
Settled a personal injury lawsuit with a customer for $55,250, to be paid in January. Javelin, Inc. accrued the loss in a litigation claims payable account.
|
Instructions
1. Journalize the transactions.
2. Journalize the adjusting entry for each of the following accrued expenses at the end of the current year:
a. Product warranty cost, $13,520.
b. Interest on the 14 remaining notes owed to Gremlin Co.
Aug 29, 2021 | Uncategorized
PR 11-2B Entries for payroll and payroll taxes
The following information about the payroll for the week ended December 30 was obtained from the records of Dart Co.:
|
Salaries:
|
|
Deductions:
|
|
|
Sales salaries
|
$546,000
|
Income tax withheld
|
$172,480
|
|
Warehouse salaries
|
116,000
|
Social security tax withheld
|
52,800
|
|
Office salaries
|
218,000
|
Medicare tax withheld
|
13,200
|
|
$880,000
|
U.S. savings bonds
|
26,400
|
|
|
Group insurance
|
39,600
|
|
|
|
|
$304,480
|
|
|
|
|
|
Tax rates assumed:
Social security, 6%
Medicare, 1.5%
State unemployment (employer only), 4.0%
Federal unemployment (employer only), 0.8%
Instructions
1. Assuming that the payroll for the last week of the year is to be paid on December 31, journalize the following entries:
a. December 30, to record the payroll.
b. December 30, to record the employer’s payroll taxes on the payroll to be paid on December 31. Of the total payroll for the last week of the year, $26,000 is subject to unemployment compensation taxes.
2. Assuming that the payroll for the last week of the year is to be paid on January 4 of the following fiscal year, journalize the following entries:
a. December 30, to record the payroll.
b. January 4, to record the employer’s payroll taxes on the payroll to be paid on January 4. Since it is a new fiscal year, all $880,000 in salaries is subject to unemployment compensation taxes.
Aug 29, 2021 | Uncategorized
PR 11-3B Wage and tax statement data and employer FICA tax
Diamond Industries, Inc., began business on January 2, 2011. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in 2012, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees’ earnings records were inadvertently destroyed.
None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5% on salary. Data on dates of employment, salary rates, and employees’ income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:
|
Employee
|
Date First Employed
|
Monthly Salary
|
Monthly Income Tax Withheld
|
|
Beltran
|
Jan. 1
|
$ 4,300
|
$ 681
|
|
Jeter
|
Apr. 16
|
11,000
|
2,508
|
|
Lee
|
Aug. 1
|
7,800
|
1,612
|
|
Rodriguez
|
Nov. 16
|
3,000
|
356
|
|
Santana
|
Mar. 1
|
6,120
|
1,145
|
|
Ramirez
|
May 16
|
3,840
|
566
|
|
Ordonez
|
Dec. 1
|
4,000
|
606
|
Instructions
1. Calculate the amounts to be reported on each employee’s Wage and Tax Statement (Form W-2) for 2011, arranging the data in the following form:
|
Gross
|
Federal Income
|
Social Security
|
Medicare
|
|
Employee
|
Earnings
|
Tax Withheld
|
Tax Withheld
|
Tax Withheld
|
2. Calculate the following employer payroll taxes for the year: (a) social security; (b) Medicare; (c) state unemployment compensation at 4.4% on the first $9,000 of each employee’s earnings; (d) federal unemployment compensation at 0.8% on the first $9,000 of each employee’s earnings; (e) total.
Aug 29, 2021 | Uncategorized
PR 11-4B Payroll register
The payroll register for Ritchie Manufacturing Co. for the week ended September 14, 2012, is presented in the working papers.
Instructions
1. Journalize the entry to record the payroll for the week.
2. Journalize the entry to record the issuance of the checks to employees.
3. Journalize the entry to record the employer’s payroll taxes for the week. Assume the following tax rates: state unemployment, 3.4%; federal unemployment, 0.8%. Of the earnings, $2,200 is subject to unemployment taxes.
4. Journalize the entry to record a check issued on September 17 to Second National Bank in payment of employees’ income taxes, $2,464.97, social security taxes, $1,753.92, and Medicare taxes, $438.50.
Aug 29, 2021 | Uncategorized
EX 9-19 Determine due date and interest on notes
Determine the due date and the amount of interest due at maturity on the following notes:
|
Date of Note
|
Face Amount
|
Interest Rate
|
Term of Note
|
|
a.
|
15-May
|
$40,000
|
6%
|
90 days
|
|
b.
|
20-Mar
|
15,000
|
4
|
60 days
|
|
c.
|
19-May
|
24,000
|
3
|
60 days
|
|
d.
|
1-Oct
|
10,500
|
8
|
60 days
|
|
e.
|
30-Aug
|
18,000
|
5
|
120 days
|
Aug 29, 2021 | Uncategorized
EX 9-25 Receivables on the balance sheet
List any errors you can find in the following partial balance sheet:
|
Tulips Company
|
|
|
|
Balance Sheet
|
|
|
|
December 31, 2012
|
|
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash
|
|
$138,000
|
|
Notes receivable
|
$400,000
|
|
|
Less interest receivable
|
20,000
|
380,000
|
|
Accounts receivable
|
$795,000
|
|
|
Plus allowance for doubtful accounts
|
14,500
|
809,500
|
Aug 29, 2021 | Uncategorized
PR 9-1A Entries related to uncollectible accounts
The following transactions were completed by Axiom Management Company during the current fiscal year ended December 31:
|
Feb. 17.
|
Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible.
|
|
Apr. 11.
|
Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account.
|
|
July 6.
|
Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets.
|
|
Nov. 20.
|
Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account.
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers, 6,700.
|
|
31.
|
Based on an analysis of the $1,200,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry.
|
Instructions
1. Record the January 1 credit balance of $40,000 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances:
Allowance for Doubtful Accounts
Bad Debt Expense
3. Determine the expected net realizable value of the accounts receivable as of December 31.
4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ¾ of 1% of the net sales of $7,500,000 for the year, determine the following:
a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.
Aug 29, 2021 | Uncategorized
PR 9-3A Compare two methods of accounting for uncollectible receivables
Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¾% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
|
|
|
|
Year of Origin of
|
|
|
|
|
Accounts Receivable Written
|
|
|
|
|
Off as Uncollectible
|
|
|
|
Uncollectible Accounts
|
|
|
|
|
|
Year
|
Sales
|
Written off
|
1st
|
2nd
|
3rd
|
4th
|
|
1st
|
$700,000
|
$2,000
|
2,000
|
|
|
|
|
2nd
|
900,000
|
3,400
|
1,800
|
$1,600
|
|
|
|
3rd
|
1,200,000
|
6,450
|
1,000
|
3,700
|
$1,750
|
|
|
4th
|
2,000,000
|
9,200
|
|
1,260
|
3,700
|
$4,240
|
Instructions
1. Assemble the desired data, using the following column headings:
|
|
Bad Debt Expense
|
|
|
|
|
|
Increase
|
|
|
|
Expense
|
Expense
|
Decrease)
|
Balance of
|
|
|
Actually
|
Based on
|
in Amount
|
Allowance Account,
|
|
Year
|
Reported
|
Estimate
|
of Expense
|
End of Year
|
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of ¾% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.
Aug 29, 2021 | Uncategorized
PR 9-4A Details of notes receivable and related entries
Old Town Co. wholesales bathroom fixtures. During the current fiscal year, Old Town Co. received the following notes:
|
Date
|
Face Amount
|
Term
|
Interest Rate
|
|
1
|
Apr. 10
|
$45,000
|
60 days
|
4%
|
|
2
|
24 Jun
|
18,000
|
30 days
|
6
|
|
3
|
1 Jul
|
36,000
|
120 days
|
6
|
|
4
|
Oct. 31
|
36,000
|
60 days
|
9
|
|
5
|
Nov. 15
|
54,000
|
60 days
|
6
|
|
6
|
Dec. 27
|
40,500
|
30 days
|
4
|
Instructions
1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.
2. Journalize the entry to record the dishonor of Note (3) on its due date.
3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.
4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January.
Aug 29, 2021 | Uncategorized
PR 9-1B Entries related to uncollectible accounts
The following transactions were completed by The Spencer Gallery during the current fiscal year ended December 31:
|
Mar. 15.
|
Reinstated the account of Brad Atwell, which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,750 cash in full payment of Brad’s account.
|
|
May 20.
|
Wrote off the $15,000 balance owed by Glory Rigging Co., which is bankrupt.
|
|
Aug. 13.
|
Received 40% of the $18,000 balance owed by Coastal Co., a bankrupt business,and wrote off the remainder as uncollectible.
|
|
Sept. 2.
|
Reinstated the account of Lorie Kidd, which had been written off two years earlier as uncollectible. Recorded the receipt of $6,500 cash in full payment.
|
|
Dec. 31.
|
entry): Kimbro Co., $9,000; McHale Co., $2,500; Summit Furniture, $7,500; Wes Riggs, $2,000.
|
|
31.
|
Based on an analysis of the $1,880,000 of accounts receivable, it was estimated that $50,000 will be uncollectible. Journalized the adjusting entry.
|
Instructions
1. Record the January 1 credit balance of $38,500 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following T accounts and determine the new balances:
Allowance for Doubtful Accounts
Bad Debt Expense
3. Determine the expected net realizable value of the accounts receivable as of December 31.
4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ½ of 1% of the net sales of $9,600,000 for the year, determine the following:
a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.
Aug 29, 2021 | Uncategorized
PR 9-3B Compare two methods of accounting for uncollectible receivables
Cyber Tech Company, which operates a chain of 25 electronics supply stores, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ½% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
|
|
|
|
Year of Origin of
|
|
|
|
|
Accounts Receivable Written
|
|
|
|
|
Off as Uncollectible
|
|
|
|
Uncollectible Accounts
|
|
|
|
|
|
Year
|
Sales
|
Written Off
|
1st
|
2nd
|
3rd
|
4th
|
|
1st
|
$1,400,000
|
$ 1,300
|
1,300
|
|
|
|
|
2nd
|
2,000,000
|
3,600
|
1,500
|
$2,100
|
|
|
|
3rd
|
3,000,000
|
13,500
|
4,000
|
3,300
|
$6,200
|
|
|
4th
|
3,600,000
|
17,700
|
|
4,000
|
6,100
|
$7,600
|
: Instructions
1. Assemble the desired data, using the following column headings:
|
|
Bad Debt Expense
|
|
|
|
|
|
Increase
|
|
|
|
Expense
|
Expense
|
(Decrease)
|
Balance of
|
|
|
Actually
|
Based on
|
in Amount
|
Allowance Account,
|
|
Year
|
Reported
|
Estimate
|
of Expense
|
End of Year
|
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of ½% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.
Aug 29, 2021 | Uncategorized
PR 9-4B Details of notes receivable and related entries
Media Ads Co. produces advertising videos. During the last six months of the current fiscal year, Media Ads Co. received the following notes:
|
Date
|
Face Amount
|
Term
|
Interest Rate
|
|
1
|
Apr. 3
|
$15,000
|
60 days
|
4%
|
|
2
|
19-May
|
57,600
|
45 days
|
6
|
|
3
|
Aug. 7
|
50,000
|
90 days
|
5
|
|
4
|
Sept. 4
|
20,000
|
90 days
|
6
|
|
5
|
Nov. 21
|
27,000
|
60 days
|
8
|
|
6
|
Dec. 16
|
21,600
|
60 days
|
6
|
Instructions
1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.
2. Journalize the entry to record the dishonor of Note (3) on its due date.
3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.
4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February.
Aug 29, 2021 | Uncategorized
PR 9-6B Sales and notes receivable transactions
The following were selected from among the transactions completed during the current year by Indigo Co., an appliance wholesale company:
|
Jan. 13.
|
Sold merchandise on account to Boylan Co., $32,000. The cost of merchandise sold was $19,200.
|
|
Mar. 10.
|
Accepted a 60-day, 6% note for $32,000 from Boylan Co. on account.
|
|
May 9.
|
Received from Boylan Co. the amount due on the note of March 10.
|
|
June 10.
|
Sold merchandise on account to Holen for $18,000. The cost of merchandise sold was $10,000.
|
|
15.
|
Loaned $24,000 cash to Angie Jones, receiving a 30-day, 7% note.
|
|
20.
|
Received from Holen the amount due on the invoice of June 10, less 2% discount.
|
|
July 15.
|
renewal of the loan of June 15. (Record both the debit and the credit to the notes receivable account.)
|
|
Sept. 13.
|
Received from Angie Jones the amount due on her note of July 15. Sold merchandise on account to Aztec Co., $40,000. The cost of merchandise sold was $25,000.
|
|
Oct. 12.
|
Accepted a 60-day, 6% note for $40,000 from Aztec Co. on account.
|
|
Dec. 11.
|
Aztec Co. dishonored the note dated October 12.
|
|
26.
|
Received from Aztec Co. the amount owed on the dishonored note, plus interest for 15 days at 12% computed on the maturity value of the note.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
CP 9-2 Estimate uncollectible accounts
For several years, Dolphin Co.’s sales have been on a “cash only” basis. On January 1, 2009, however, Dolphin Co. began offering credit on terms of n/30. The amount of the adjusting entry to record the estimated uncollectible receivables at the end of each year has been ¼ of 1% of credit sales, which is the rate reported as the average for the industry. Credit sales and the year-end credit balances in Allowance for Doubtful Accounts for the past four years are as follows:
|
|
|
Allowance for
|
|
Year
|
Credit Sales
|
Doubtful Accounts
|
|
2009
|
$3,000,000
|
$3,200
|
|
2010
|
3,150,000
|
5,500
|
|
2011
|
3,400,000
|
8,000
|
|
2012
|
3,800,000
|
10,300
|
Hugh Lopez, president of Dolphin Co., is concerned that the method used to account for and write off uncollectible receivables is unsatisfactory. He has asked for your advice in the analysis of past operations in this area and for recommendations for change.
1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and (b) the accounts written off for each of the four years.
2. a. Advise Hugh Lopez as to whether the estimate of ¼ of 1% of credit sales appears reasonable.
b. Assume that after discussing (a) with Hugh Lopez, he asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December 31, 2012, and what possible changes, if any, you might recommend in accounting for uncollectible receivables. How would you respond?
Aug 29, 2021 | Uncategorized
CP 9-4 Accounts receivable turnover and days’ sales in receivables
Apple Computer, Inc., designs, manufactures, and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer, and business customers. Substantially all of the company’s net sales over the last five years are from sales of its Macs, iPods, iPads, and related software and peripherals. For two recent fiscal years, Apple reported the following (in millions):
|
|
Year Ending
|
|
Sept. 26, 2009
|
Sept. 27, 2008
|
|
Net sales
|
$36,537
|
$32,479
|
|
Accounts receivable at end of year
|
3,361
|
2,422
|
Assume that the accounts receivable (in millions) were $1,637 at the beginning of fiscal year 2008.
1. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimal place.
2. Compute the days’ sales in receivables at the end of 2009 and 2008. Round to one decimal place.
3. What conclusions can be drawn from (1) and (2) regarding Apple’s efficiency in collecting receivables?
Aug 29, 2021 | Uncategorized
CP 9-5 Accounts receivable turnover and days’ sales in receivables
EarthLink, Inc., is a nationwide Internet Service Provider (ISP). EarthLink provides a variety of services to its customers, including narrowband access, broadband or high-speed access, and Web hosting services. For two recent years, EarthLink reported the following (in thousands):
|
|
Year Ending
|
|
Dec. 31, 2009
|
Dec. 31, 2008
|
|
Net sales
|
$723,729
|
$955,577
|
|
Accounts receivable at end of year
|
66,623
|
50,823
|
Assume that the accounts receivable (in thousands) were $41,483 at January 1, 2008.
1. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimalplace.
2. Compute the days’ sales in receivables at the end of 2009 and 2008. Round to onedecimal place.
3. What conclusions can be drawn from (1) and (2) regarding EarthLink’s efficiency in collecting receivables?
4. Given the nature of EarthLink’s operations, do you believe EarthLink’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company, such as Boeing or Kellogg Company? Explain.
Aug 29, 2021 | Uncategorized
EX 10-21 Book value of fixed assets
Apple Computer, Inc., designs, manufactures, and markets personal computers and related software. Apple also manufactures and distributes music players (iPod) and mobile phones (iPhone) along with related accessories and services including online distribution of thirdparty music, videos, and applications. The following information was taken from a recent annual report of Apple:
Property, Plant, and Equipment (in millions):
|
Current
|
Preceding
|
|
Year
|
Year
|
|
Land and buildings
|
$ 955
|
$ 810
|
|
Machinery, equipment, and internal-use software
|
1,932
|
1,491
|
|
Offi ce furniture and equipment
|
115
|
122
|
|
Other fi xed assets related to leases
|
1,665
|
1,324
|
|
Accumulated depreciation and amortization
|
1,713
|
1,292
|
a. Compute the book value of the fixed assets for the current year and the preceding year and explain the differences, if any.
b. Would you normally expect the book value of fixed assets to increase or decrease during the year?
Aug 29, 2021 | Uncategorized
EX 10-22 Balance sheet presentation
List the errors you find in the following partial balance sheet:
Total current assets $350,000
|
Replacement
|
Accumulated
|
Book
|
|
Property, plant, and equipment:
|
Cost
|
Depreciation
|
Value
|
|
Land
|
$100,000
|
$ 25,000
|
$ 75,000
|
|
Buildings
|
256,000
|
90,000
|
166,000
|
|
Factory equipment
|
297,000
|
110,000
|
187,000
|
|
Office equipment
|
72,000
|
48,000
|
24,000
|
|
Patents
|
48,000
|
—
|
48,000
|
|
Goodwill
|
27,000
|
7,000
|
20,000
|
|
Total property, plant, and equipment
|
$800,000
|
$280,000
|
$520,000
|
Aug 29, 2021 | Uncategorized
EX 10-23 Fixed asset turnover ratio
Verizon Communications is a major telecommunications company in the United States.
Verizon’s balance sheet disclosed the following information regarding fixed assets:
|
Dec. 31, 2009 (in millions)
|
Dec. 31, 2008 (in millions)
|
|
Plant, property, and equipment
|
$228,518
|
$215,605
|
|
Less accumulated depreciation
|
137,052
|
129,059
|
|
$ 91,466
|
$ 86,546
|
Verizon’s revenue for 2009 was $107,808 million. The fixed asset turnover for the telecommunications industry averages 1.10.
a. Determine Verizon’s fixed asset turnover ratio. Round to two decimal places.
b. Interpret Verizon’s fixed asset turnover ratio.
Aug 29, 2021 | Uncategorized
1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows:
2. Determine the amount debited to Land, Land Improvements, and Building.
3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation.
4. What would be the effect on the income statement and balance sheet if the cost of filling and grading land of $17,500 [payment (h)] was incorrectly classified as Land Improvements rather than Land? Assume Land Improvements are depreciated over a 20-year life using the double-declining-balance method.
Aug 29, 2021 | Uncategorized
1. Assign each payment and receipt to Land (unlimited life), Land Improvements (limited life), Building, or Other Accounts. Indicate receipts by an asterisk. Identify each item by letter and list the amounts in columnar form, as follows:
2. Determine the amount debited to Land, Land Improvements, and Building.
3. The costs assigned to the land, which is used as a plant site, will not be depreciated, while the costs assigned to land improvements will be depreciated. Explain this seemingly contradictory application of the concept of depreciation.
4. What would be the effect on the income statement and balance sheet if the cost of paving the parking lot of $14,500 [payment (o)] was incorrectly classified as Land rather than Land Improvements? Assume Land Improvements are depreciated over a 10-year life using the double-declining-balance method.
Aug 29, 2021 | Uncategorized
PE 11-8A Quick ratio
Grangel Company reported the following current assets and liabilities for December 31, 2012 and 2011:
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|
Cash
|
$ 620
|
$ 560
|
|
Temporary investments
|
1,330
|
1,250
|
|
Accounts receivable
|
850
|
830
|
|
Inventory
|
1,000
|
1,000
|
|
Accounts payable
|
2,800
|
2,200
|
a. Compute the quick ratio for December 31, 2012 and 2011.
b. Interpret the company’s quick ratio. Is the quick ratio improving or declining?
Aug 29, 2021 | Uncategorized
PE 11-8B Quick ratio
Tappert Company reported the following current assets and liabilities for December 31, 2012 and 2011:
|
Dec. 31, 2012
|
Dec. 31, 2011
|
|
Cash
|
$ 990
|
$ 860
|
|
Temporary investments
|
1,910
|
1,500
|
|
Accounts receivable
|
1,600
|
1,280
|
|
Inventory
|
2,000
|
1,400
|
|
Accounts payable
|
3,000
|
2,800
|
a. Compute the quick ratio for December 31, 2012 and 2011.
b. Interpret the company’s quick ratio. Is the quick ratio improving or declining?
Aug 29, 2021 | Uncategorized
EX 11-7 Current portion of long-term debt
Burger King Holdings, Inc., the operator and franchisor of Burger King restaurants, reported the following information about its long-term debt in the notes to a recent financial statement:
Long-term debt is comprised of the following:
|
June 30
|
|
2009
|
2008
|
|
Notes payable
|
$823,100,000
|
$876,200,000
|
|
Less current portion
|
(67,500,000)
|
(7,400,000)
|
|
Long-term debt
|
$755,600,000
|
$868,800,000
|
a. How much of the notes payable was disclosed as a current liability on the June 30, 2009, balance sheet?
b. How much did the total current liabilities change between 2008 and 2009 as a result of the current portion of long-term debt?
c. If Burger King did not issue additional notes payable during 2010, what would be the total notes payable on June 30, 2010?
Aug 29, 2021 | Uncategorized
EX 8-4 Internal controls for bank lending
Evergreen Bank provides loans to businesses in the community through its Commercial Lending Department. Small loans (less than $250,000) may be approved by an individual loan officer, while larger loans (greater than $250,000) must be approved by a board of loan officers. Once a loan is approved, the funds are made available to the loan applicant under agreed-upon terms. The president of Evergreen Bank has instituted a policy whereby he has the individual authority to approve loans up to $10,000,000. The president believes that this policy will allow flexibility to approve loans to valued clients much quicker than under the previous policy.
As an internal auditor of Evergreen Bank, how would you respond to this change in policy?
Aug 29, 2021 | Uncategorized
EX 8-15 Internal control of cash payments
Digit Tech Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Digit Tech’s procedures for the purchase of services. The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, since no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Digit Tech for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed. The fraud scheme involves Loretta Trent, the manager of plant and facilities. Loretta arranged for her uncle’s company, Laser Systems, to be placed on Digit Tech’s approved vendor list. Loretta did not disclose the family relationship. On several occasions, Loretta would submit a requisition for services to be provided by Laser Systems. However, the service requested was really not needed, and it was never performed. Laser Systems would bill Digit Tech for the service and then split the cash payment with Loretta.
Explain what changes should be made to Digit Tech’s procedures for ordering and paying for services in order to prevent such occurrences in the future.
Aug 29, 2021 | Uncategorized
EX 8-16 Bank reconciliation
Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to the company’s records, or (d) a deduction from the cash balance according to the company’s records. (None of the transactions reported by bank debit and credit memos have been recorded by the company.)
1. Bank service charges, $120.
2. Check of a customer returned by bank to company because of insufficient funds, $4,200.
3. Check for $240 incorrectly recorded by the company as $420.
4. Check for $1,000 incorrectly charged by bank as $10,000.
5. Deposit in transit, $24,950.
6. Outstanding checks, $18,100.
7. Note collected by bank, $15,600.
Aug 29, 2021 | Uncategorized
EX 8-18 Bank reconciliation
The following data were accumulated for use in reconciling the bank account of Maplewood Co. for July:
1. Cash balance according to the company’s records at July 31, $15,600.
2. Cash balance according to the bank statement at July 31, $16,230.
3. Checks outstanding, $3,180.
4. Deposit in transit, not recorded by bank, $2,950.
5. A check for $270 in payment of an account was erroneously recorded in the check register as $720.
6. Bank debit memo for service charges, $50.
a. Prepare a bank reconciliation, using the format shown in Exhibit 7.
b. If the balance sheet were prepared for Maplewood Co. on July 31, what amount should be reported for cash?
c. Must a bank reconciliation always balance (reconcile)?
Aug 29, 2021 | Uncategorized
EX 8-22 Bank reconciliation
Identify the errors in the following bank reconciliation:
|
Alma Co.
|
|
|
|
|
Bank Reconciliation
|
|
|
|
|
For the Month Ended November 30, 2012
|
|
|
|
|
Cash balance according to bank statement
|
|
|
$12,090
|
|
Add outstanding checks:
|
|
|
|
|
No. 915
|
|
$850
|
|
|
960
|
|
615
|
|
|
964
|
|
850
|
|
|
965
|
|
775
|
3,090
|
|
|
|
|
$15,180
|
|
Deduct deposit of November 30, not recorded by bank
|
|
|
4,000
|
|
Adjusted balance
|
|
|
$11,180
|
|
Cash balance according to company’s records
|
|
|
$4,430
|
|
Add: Proceeds of note collected by bank:
|
|
|
|
|
Principal
|
$5,000
|
|
|
|
Interest
|
200
|
$5,200
|
|
|
Service charges
|
|
30
|
5,230
|
|
|
|
|
$9,660
|
|
Deduct: Check returned because of insufficient funds
|
|
$1,100
|
|
|
Error in recording November 23 deposit of $6,100 as $1,600
|
|
4,500
|
5,600
|
|
Adjusted balance
|
|
|
$4,060
|
Aug 29, 2021 | Uncategorized
EX 8-23 Using bank reconciliation to determine cash receipts stolen
Lasting Impressions Co. records all cash receipts on the basis of its cash register tapes. Lasting Impressions Co. discovered during April 2012 that one of its sales clerks had stolen an undetermined amount of cash receipts when she took the daily deposits to the bank. The following data have been gathered for April:
|
Cash in bank according to the general ledger
|
$8,900
|
|
Cash according to the April 30, 2012, bank statement
|
20,500
|
|
Outstanding checks as of April 30, 2012
|
6,800
|
|
Bank service charge for April
|
100
|
|
Note receivable, including interest collected by bank in April
|
10,400
|
No deposits were in transit on April 30.
a. Determine the amount of cash receipts stolen by the sales clerk.
b. What accounting controls would have prevented or detected this theft?
Aug 29, 2021 | Uncategorized
EX 8-28 Cash to monthly cash expenses ratio
Allos Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of cancer. Allos Therapeutics reported the following financial data (in thousands)
|
|
For Years Ending December 31
|
|
2008
|
2007
|
2006
|
|
Cash and cash equivalents
|
$30,696
|
$16,103
|
$10,437
|
|
Net cash fl ows from operations
|
(42,850)
|
(30,823)
|
(25,147)
|
a. Determine the monthly cash expenses for 2008, 2007, and 2006. Round to one decimal place.
b. Determine the ratio of cash to monthly cash expenses as of December 31, 2008, 2007, and 2006. Round to one decimal place.
c. Based on (a) and (b), comment on Allos Therapeutics’ ratio of cash to monthly operating expenses for 2008, 2007, and 2006.
Aug 29, 2021 | Uncategorized
PR 8-1A Evaluating internal control of cash
The following procedures were recently installed by Pine Creek Company:
a. Along with petty cash expense receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund.
b. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.
c. At the end of each day, all cash receipts are placed in the bank’s night depository.
d. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval.
e. At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.
f. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.
g. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts.
h. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers.
Instructions
Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.
Aug 29, 2021 | Uncategorized
PR 8-2A Transactions for petty cash, cash short and over
Picasso Restoration Company completed the following selected transactions during August 2012:
|
Aug. 1.
|
Established a petty cash fund of $750.
|
|
10.
|
The cash sales for the day, according to the cash register records, totaled 9,780. The actual cash received from cash sales was $9,800.
|
|
31.
|
Petty cash on hand was $240. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:
|
|
|
Aug. 3. Store supplies, $251.
|
|
|
7. Express charges on merchandise sold, $60 (Delivery Expense).
|
|
|
9. Office ce supplies, $20.
|
|
|
13. Office ce supplies, $30.
|
|
|
19. Postage stamps, $11 (Office ce Supplies).
|
|
|
21. Repair to office ce fi le cabinet lock, $40 (Miscellaneous Administrative Expense).
|
|
|
Aug. 22. Postage due on special delivery letter, $18 (Miscellaneous Administrative Expense).
|
|
|
24. Express charges on merchandise sold, $50 (Delivery Expense).
|
|
|
30. Office ce supplies, $15.
|
|
31.
|
The cash sales for the day, according to the cash register records, totaled $11,200. The actual cash received from cash sales was $11,130.
|
|
31.
|
Decreased the petty cash fund by $100.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 8-3A Bank reconciliation and entries
The cash account for Online Medical Co. at June 30, 2012, indicated a balance of $9,375. The bank statement indicated a balance of $10,760 on June 30, 2012. Comparing the bank statement and the accompanying canceled checks and memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $3,900.
b. A deposit of $4,000, representing receipts of June 30, had been made too late to appear on the bank statement.
c. The bank had collected $2,100 on a note left for collection. The face of the note was $2,000.
d. A check for $550 returned with the statement had been incorrectly recorded by Online Medical Co. as $500. The check was for the payment of an obligation to Hirsch Co. for the purchase on account.
e. A check drawn for $60 had been erroneously charged by the bank as $600.
f. Bank service charges for June amounted to $25.
Instructions
1. Prepare a bank reconciliation.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Online Medical Co. on June 30, 2012, what amount should be reported as cash?
Aug 29, 2021 | Uncategorized
PR 8-4A Bank reconciliation and entries
The cash account for Bravo Bike Co. at May 1, 2012, indicated a balance of $15,085. During May, the total cash deposited was $75,100 and checks written totaled $69,750. The bank statement indicated a balance of $25,460 on May 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $11,360.
b. A deposit of $9,200, representing receipts of May 31, had been made too late to appear on the bank statement.
c. The bank had collected for Bravo Bike Co. $4,725 on a note left for collection. The face of the note was $4,500.
d. A check for $490 returned with the statement had been incorrectly charged by the bank as $940.
e. A check for $410 returned with the statement had been recorded by Bravo Bike Co. as $140. The check was for the payment of an obligation to Portage Co. on account.
f. Bank service charges for July amounted to $40.
Instructions
1. Prepare a bank reconciliation as of May 31.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Bravo Bike Co. on May 31, 2012, what amount should be reported as cash?
Aug 29, 2021 | Uncategorized
PR 8-1B Evaluate internal control of cash
The following procedures were recently installed by The Blind Shop:
a. At the end of a shift, each cashier counts the cash in his or her cash register, unlocks the cash register record, and compares the amount of cash with the amount on the record to determine cash shortages and overages.
b. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank.
c. Each cashier is assigned a separate cash register drawer to which no other cashier has access.
d. Vouchers and all supporting documents are perforated with a PAID designation after being paid by the treasurer.
e. All sales are rung up on the cash register, and a receipt is given to the customer. All sales are recorded on a record locked inside the cash register.
f. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee.
g. The bank reconciliation is prepared by the cashier.
Instructions
Indicate whether each of the procedures of internal control over cash represents
(1) a strength or (2) a weakness. For each weakness, indicate why it exists.
Aug 29, 2021 | Uncategorized
PR 8-2B Transactions for petty cash, cash short and over
Cedar Springs Company completed the following selected transactions during November 2012:
|
Nov. 1.
|
Established a petty cash fund of $850.
|
|
12.
|
The cash sales for the day, according to the cash register records, totaled $16,100. The actual cash received from cash sales was $16,175.
|
|
30.
|
Petty cash on hand was $70. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:
|
|
|
Nov. 2. Store supplies, $100.
|
|
|
10. Express charges on merchandise purchased, $260 (Merchandise Inventory).
|
|
|
14. Office supplies, $125.
|
|
|
15. Office supplies, $80.
|
|
|
18. Postage stamps, $70 (Office Supplies).
|
|
|
20. Repair to fax, $35 (Miscellaneous Administrative Expense).
|
|
|
21. Repair to office door lock, $15 (Miscellaneous Administrative Expense).
|
|
|
22. Postage due on special delivery letter, $40 (Miscellaneous Administrative Expense).
|
|
|
28. Express charges on merchandise purchased, $40 ( Merchandise Inventory).
|
|
30.
|
The cash sales for the day, according to the cash register records, totaled$19,415. The actual cash received from cash sales was $19,350.
|
|
30.
|
Increased the petty cash fund by $150.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 8-3B Bank reconciliation and entries
The cash account for Ambulance Systems at February 29, 2012, indicated a balance of $20,580. The bank statement indicated a balance of $24,750 on February 29, 2012. Comparing the bank statement and the accompanying canceled checks and memos with the records reveals the following reconciling items:
a. Checks outstanding totaled $9,300.
b. A deposit of $12,000, representing receipts of February 29, had been made too late to appear on the bank statement.
c. The bank had collected $6,240 on a note left for collection. The face of the note was $6,000.
d. A check for $140 returned with the statement had been incorrectly recorded by Ambulance Systems as $410. The check was for the payment of an obligation to Holland Co. for the purchase of office supplies on account.
e. A check drawn for $725 had been incorrectly charged by the bank as $275.
f. Bank service charges for February amounted to $90.
Instructions
1. Prepare a bank reconciliation.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Ambulance Systems on February 29, 2012, what amount should be reported as cash?
Aug 29, 2021 | Uncategorized
PR 8-4B Bank reconciliation and entries
The cash account for South Bay Sports Co. on April 1, 2012, indicated a balance of $35,025. During April, the total cash deposited was $83,150, and checks written totaled $90,000. The bank statement indicated a balance of $34,345 on April 30, 2012. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $7,700.
b. A deposit of $3,800, representing receipts of April 30, had been made too late to appear on the bank statement.
c. A check for $960 had been incorrectly charged by the bank as $690.
d. A check for $150 returned with the statement had been recorded by South Bay Sports Co. as $1,500. The check was for the payment of an obligation to Jones Co. on account.
e. The bank had collected for South Bay Sports Co. $2,600 on a note left for collection. The face of the note was $2,500.
f. Bank service charges for June amounted to $50.
g. A check for $1,900 from Valley Schools Academy was returned by the bank because of insufficient funds.
Instructions
1. Prepare a bank reconciliation as of April 30.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for South Bay Sports Co. on April 30, 2012, what amount should be reported as cash?
Aug 29, 2021 | Uncategorized
CP 8-7 Cash to monthly cash expenses ratio
OccuLogix, Inc., is a health care company that specializes in developing diagnostic devices for eye disease. OccuLogix reported the following data (in thousands) for the years ending December 31, 2008, 2007, and 2006:
|
2008
|
2007
|
2006
|
|
Cash and cash equivalents
|
$2,565
|
$2,236
|
$5,741
|
|
Net cash fl ows from operations
|
(9,434)
|
(17,217)
|
(14,548)
|
1. Determine the monthly cash expenses for 2008, 2007, and 2006. Round to one decimal place.
2. Determine the ratio of cash to monthly cash expenses as of December 31, 2008, 2007, and 2006. Round to one decimal place.
3. Based on (1) and (2), comment on OccuLogix’s ratio of cash to monthly operating expenses for 2008, 2007, and 2006.
Aug 29, 2021 | Uncategorized
EX 9-13 Entries for bad debt expense under the direct write-off and allowance methods
The following selected transactions were taken from the records of Aprilla Company for the first year of its operations ending December 31, 2012:
|
Jan. 27.
|
Wrote off account of C. Knoll, $6,000.
|
|
Feb. 17.
|
Received $1,000 as partial payment on the $3,000 account of Joni Lester. Wrote off the remaining balance as uncollectible.
|
|
Mar. 3.
|
Received $6,000 from C. Knoll, which had been written off on January 27. Reinstated the account and recorded the cash receipt.
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (record as one journal entry):
|
|
|
|
|
|
Jason Short
|
$4,500
|
|
|
Kim Snider
|
1,500
|
|
|
Sue Pascall
|
1,100
|
|
|
Tracy Lane
|
3,500
|
|
|
Randy Pape
|
500
|
|
|
|
|
31.
|
If necessary, record the year-end adjusting entry for uncollectible accounts.
|
a. Journalize the transactions for 2012 under the direct write-off method.
b. Journalize the transactions for 2012 under the allowance method. Aprilla Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 1¾% of credit sales are expected to be uncollectible. Aprilla Company recorded $1,600,000 of credit sales during 2012.
c. How much higher (lower) would Aprilla Company’s net income have been under the direct write-off method than under the allowance method?
Aug 29, 2021 | Uncategorized
EX 9-14 Entries for bad debt expense under the direct write-off and allowance methods
The following selected transactions were taken from the records of Silhouette Company for the year ending December 31, 2012:
|
Mar. 4.
|
Wrote off account of Myron Rimando, $7,500.
|
|
May 19.
|
Received $2,000 as partial payment on the $10,000 account of Shirley Mason. Wrote off the remaining balance as uncollectible.
|
|
Aug. 7.
|
Received the $7,500 from Myron Rimando, which had been written off on March 4. Reinstated the account and recorded the cash receipt.
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (record as one journal entry):
|
|
|
|
|
|
Brandon Peele
|
$ 5,000
|
|
|
Clyde Stringer
|
9,000
|
|
|
Ned Berry
|
13,000
|
|
|
Mary Adams
|
2,000
|
|
|
Gina Bowers
|
4,500
|
|
|
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (record as one journal entry):
|
a. Journalize the transactions for 2012 under the direct write-off method.
b. Journalize the transactions for 2012 under the allowance method, assuming that the allowance account had a beginning balance of $45,000 on January 1, 2012, and the company uses the analysis of receivables method. Silhouette Company prepared the following aging schedule for its accounts receivable:
|
Aging Class (Number
|
Receivables Balance
|
Estimated Percent of
|
|
of Days Past Due)
|
on December 31
|
Uncollectible Accounts
|
|
0–30 days
|
$300,000
|
1%
|
|
31–60 days
|
80,000
|
4
|
|
61–90 days
|
20,000
|
15
|
|
91–120 days
|
10,000
|
40
|
|
More than 120 days
|
40,000
|
80
|
|
Total receivables
|
$450,000
|
|
c. How much higher (lower) would Silhouette’s 2012 net income have been under the direct write-off method than under the allowance method?
Aug 29, 2021 | Uncategorized
EX 9-17 Entries for bad debt expense under the direct write-off and allowance methods
Spangler Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31, 2012:
|
Customer
|
Amount
|
|
Will Boyette
|
$10,000
|
|
Stan Frey
|
8,000
|
|
Tammy Imes
|
5,000
|
|
Shana Wagner
|
6,000
|
|
Total
|
$29,000
|
a. Journalize the write-offs for 2012 under the direct write-off method.
b. Journalize the write-offs for 2012 under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $3,000,000 of credit sales during 2012. Based on past history and industry averages, 1½% of credit sales are expected to be uncollectible.
c. How much higher (lower) would Spangler Company’s 2012 net income have been under the direct write-off method than under the allowance method?
Aug 29, 2021 | Uncategorized
EX 9-18 Entries for bad debt expense under the direct write-off and allowance methods
Magnetics International wrote off the following accounts receivable as uncollectible for the year ending December 31, 2012:
|
Customer
|
Amount
|
|
Trey Betts
|
$15,500
|
|
Cheryl Carson
|
9,000
|
|
Irene Harris
|
29,700
|
|
Renee Putman
|
3,100
|
|
Total
|
$57,300
|
The company prepared the following aging schedule for its accounts receivable on December 31, 2012:
|
Aging Class (Number
|
Receivables Balance
|
Estimated Percent of
|
|
of Days Past Due)
|
on December 31
|
Uncollectible Accounts
|
|
0–30 days
|
$600,000
|
1%
|
|
31–60 days
|
150,000
|
2
|
|
61–90 days
|
75,000
|
18
|
|
91–120 days
|
50,000
|
30
|
|
More than 120 days
|
60,000
|
50
|
|
Total receivables
|
$935,000
|
|
a. Journalize the write-offs for 2012 under the direct write-off method.
b. Journalize the write-offs and the year-end adjusting entry for 2012 under the allowance method, assuming that the allowance account had a beginning balance of $55,000 on January 1, 2012, and the company uses the analysis of receivables method.
c. How much higher (lower) would Magnetics International’s 2012 net income have been under the allowance method than under the direct write-off method?
Aug 29, 2021 | Uncategorized
EX 7-17 Inventory turnover and number of days’ sales in inventory
Kroger, Safeway Inc., and Winn-Dixie Stores Inc. are three grocery chains in the United States. Inventory management is an important aspect of the grocery retail business. Recent balance sheets for these three companies indicated the following merchandise inventory information:
|
|
Merchandise Inventory
|
|
|
End of Year (in millions)
|
Beginning of Year (in millions)
|
|
Kroger
|
$4,859
|
$4,855
|
|
Safeway
|
2,591
|
2,798
|
|
Winn-Dixie
|
665
|
649
|
The cost of goods sold for each company were:
|
|
Cost of Goods Sold (in millions)
|
|
Kroger
|
$58,564
|
|
Safeway
|
31,589
|
|
Winn-Dixie
|
5,269
|
a. Determine the number of days’ sales in inventory and inventory turnover for the three companies. Round to the nearest day and one decimal place.
b. Interpret your results in part (a).
c. If Winn-Dixie had Kroger’s number of days’ sales in inventory, how much additional cash flow (round to nearest million) would have been generated from the smaller inventory relative to its actual average inventory position?
Aug 29, 2021 | Uncategorized
PR 7-3A Periodic inventory by three methods
Bulldog Appliances uses the periodic inventory system. Details regarding the inventory of appliances at September 1, 2011, purchases invoices during the next 12 months, and the inventory count at August 31, 2012, are summarized as follows:
|
|
|
Purchases Invoices
|
|
|
Inventory,
|
|
|
|
Inventory Count,
|
|
Model
|
1-Sep
|
1st
|
2nd
|
3rd
|
31-Aug
|
|
AZ09
|
__
|
4 at $ 32
|
4 at $ 35
|
4 at $ 38
|
5
|
|
GA85
|
8 at $ 88
|
4 at $ 79
|
3 at $ 85
|
6 at $ 92
|
7
|
|
HI71
|
3 at 75
|
3 at 65
|
15 at 68
|
9 at 70
|
5
|
|
KS32
|
7 at 242
|
6 at 250
|
5 at 260
|
10 at 259
|
9
|
|
MS17
|
12 at 80
|
10 at 82
|
16 at 89
|
16 at 90
|
13
|
|
ND52
|
2 at 108
|
2 at 110
|
3 at 128
|
3 at 130
|
5
|
|
WV63
|
5 at 160
|
4 at 170
|
4 at 175
|
7 at 180
|
8
|
Instructions
1. Determine the cost of the inventory on August 31, 2012, by the first-in, first-out method. Present data in columnar form, using the following headings:
|
Model
|
Quantity
|
Unit Cost
|
Total Cost
|
If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.
2. Determine the cost of the inventory on August 31, 2012, by the last-in, first-out method, following the procedures indicated in (1).
3. Determine the cost of the inventory on August 31, 2012, by the average cost method, using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
Aug 29, 2021 | Uncategorized
PR 7-1B FIFO perpetual inventory
The beginning inventory of merchandise at Francesca Co. and data on purchases and sales for a three-month period are as follows:
|
|
|
Number
|
Per
|
|
|
Date
|
Transaction
|
of Units
|
Unit
|
Total
|
|
3-Jul
|
Inventory
|
75
|
1,500
|
112,500
|
|
8
|
Purchase
|
150
|
1,800
|
270,000
|
|
11
|
Sale
|
90
|
3,000
|
270,000
|
|
30
|
Sale
|
45
|
3,000
|
135,000
|
|
Aug. 8
|
Purchase
|
125
|
2,000
|
250,000
|
|
10
|
Sale
|
110
|
3,000
|
330,000
|
|
19
|
Sale
|
80
|
3,000
|
240,000
|
|
28
|
Purchase
|
100
|
2,200
|
220,000
|
|
Sept. 5
|
Sale
|
60
|
3,500
|
210,000
|
|
16
|
Sale
|
50
|
3,500
|
175,000
|
|
21
|
Purchase
|
180
|
2,400
|
432,000
|
|
28
|
Sale
|
90
|
3,500
|
315,000
|
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost.
5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?
PR 7-2B LIFO perpetual inventory
The beginning inventory for Francesca Co and data on purchases and sales for a three month period are shown in Problem 7-1B.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Aug 29, 2021 | Uncategorized
PR 7-3B Periodic inventory by three methods
Artic Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, 2012, purchases invoices during the year, and the inventory count at December 31, 2012, are summarized as follows:
|
|
|
Purchases Invoices
|
|
|
Inventory,
|
|
|
|
Inventory Count,
|
|
Model
|
January 1
|
1st
|
2nd
|
3rd
|
December 31
|
|
AK82
|
3 at $520
|
3 at $527
|
3 at $530
|
3 at $535
|
5
|
|
CO62
|
9 at 213
|
7 at 215
|
6 at 222
|
6 at 225
|
12
|
|
DE03
|
5 at 60
|
3 at 65
|
1 at 65
|
1 at 70
|
2
|
|
FL12
|
6 at 305
|
3 at 310
|
3 at 316
|
4 at 317
|
4
|
|
ME09
|
6 at 520
|
8 at 531
|
4 at 549
|
6 at 542
|
7
|
|
NM57
|
—
|
4 at 222
|
4 at 232
|
—
|
2
|
|
TN33
|
4 at 35
|
6 at 36
|
8 at 37
|
7 at 39
|
5
|
Instructions
1. Determine the cost of the inventory on December 31, 2012, by the first-in, first-out method. Present data in columnar form, using the following headings:
|
Model
|
Quantity
|
Unit Cost
|
Total Cost
|
If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.
2. Determine the cost of the inventory on December 31, 2012, by the last-in, first-out method, following the procedures indicated in (1).
3. Determine the cost of the inventory on December 31, 2012, by the average cost method, using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
Aug 29, 2021 | Uncategorized
PR 7-4B Lower-of-cost-or-market inventory
Data on the physical inventory of Chiron Co. as of December 31, 2012, are presented in the working papers. The quantity of each commodity on hand has been determined and recorded on the inventory sheet. Unit market prices have also been determined as of December 31 and recorded on the sheet. The inventory is to be determined at cost and also at the lower of cost or market, using the first-in, first-out method. Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows:
|
|
Last
|
Next-to-the-Last
|
|
|
Purchases Invoice
|
Purchases Invoice
|
|
Quantity
|
Unit
|
Quantity
|
Unit
|
|
Description
|
Purchased
|
Cost
|
Purchased
|
Cost
|
|
Alpha
|
30
|
$60
|
40
|
$59
|
|
Beta
|
25
|
170
|
15
|
180
|
|
Charlie
|
20
|
130
|
15
|
128
|
|
Echo
|
150
|
25
|
100
|
27
|
|
Frank
|
6
|
550
|
15
|
540
|
|
George
|
90
|
16
|
100
|
15
|
|
Killo
|
8
|
395
|
4
|
394
|
|
Quebec
|
500
|
6
|
500
|
7
|
|
Romeo
|
75
|
25
|
80
|
26
|
|
Sierra
|
5
|
250
|
4
|
260
|
|
Whiskey
|
100
|
17
|
115
|
16
|
|
X-Ray
|
10
|
750
|
8
|
740
|
Instructions
Record the appropriate unit costs on the inventory sheet, and complete the pricing of the inventory. When there are two different unit costs applicable to an item:
1. Draw a line through the quantity, and insert the quantity and unit cost of the last purchase.
2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase.
3. Total the cost and market columns and insert the lower of the two totals in the Lower of C or M column. The first item on the inventory sheet has been completed as an example.
Aug 29, 2021 | Uncategorized
PR 7-5B Retail method; gross profit method
Selected data on merchandise inventory, purchases, and sales for Segal Co. and Iroquois Co. are as follows:
|
Cost
|
Retail
|
|
Segal Co.
|
|
|
|
Merchandise inventory, March 1
|
$ 298,000
|
$ 375,000
|
|
Transactions during March:
|
|
|
|
Purchases (net)
|
4,850,000
|
6,225,000
|
|
Sales
|
|
6,320,000
|
|
Sales returns and allowances
|
|
245,000
|
|
|
|
|
|
Iroquois Co.
|
|
|
|
Merchandise inventory, January 1
|
$ 300,000
|
|
|
Transactions during January thru March:
|
|
|
|
Purchases (net)
|
4,150,000
|
|
|
Sales
|
6,900,000
|
|
|
Sales returns and allowances
|
175,000
|
|
|
Estimated gross profi t rate
|
40%
|
|
Instructions
1. Determine the estimated cost of the merchandise inventory of Segal Co. on March 31 by the retail method, presenting details of the computations.
2. a. Estimate the cost of the merchandise inventory of Iroquois Co. on March 31 by the gross profit method, presenting details of the computations.
b. Assume that Iroquois Co. took a physical inventory on March 31 and discovered that $396,500 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during January thru March?
Aug 29, 2021 | Uncategorized
CP 7-3 Costing inventory
White Dove Company began operations in 2012 by selling a single product. Data on purchases and sales for the year were as follows:
|
Purchases:
|
|
|
|
|
Date
|
Units Purchased
|
Unit Cost
|
Total Cost
|
|
6-Apr
|
62,000
|
$12.20
|
$756,400
|
|
18-May
|
66,000
|
13
|
858,000
|
|
6-Jun
|
80,000
|
13.2
|
1,056,000
|
|
10-Jul
|
80,000
|
14
|
1,120,000
|
|
10-Aug
|
54,400
|
14.25
|
775,200
|
|
25-Oct
|
25,600
|
14.5
|
371,200
|
|
4-Nov
|
16,000
|
14.95
|
239,200
|
|
10-Dec
|
16,000
|
16
|
256,000
|
|
400,000
|
|
$5,432,000
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
April
|
32,000 units
|
|
|
|
May
|
32,000
|
|
|
|
June
|
40,000
|
|
|
|
July
|
48,000
|
|
|
|
August
|
56,000
|
|
|
|
September
|
56,000
|
|
|
|
October
|
36,000
|
|
|
|
November
|
20,000
|
|
|
|
December
|
16,000
|
|
|
|
Total units
|
336,000
|
|
|
|
Total sales
|
$5,200,000
|
|
On January 4, 2013, the president of the company, Joel McLees, asked for your advice on costing the 64,000-unit physical inventory that was taken on December 31, 2012. Moreover, since the firm plans to expand its product line, he asked for your advice on the use of a perpetual inventory system in the future.
1. Determine the cost of the December 31, 2012, inventory under the periodic system, using the (a) first-in, first-out method, (b) last-in, first-out method, and (c) average cost method.
2. Determine the gross profit for the year under each of the three methods in (1).
3. a. Explain varying viewpoints why each of the three inventory costing methods may best reflect the results of operations for 2012.
b. Which of the three inventory costing methods may best reflect the replacement cost of the inventory on the balance sheet as of December 31, 2012?
c. Which inventory costing method would you choose to use for income tax purposes? Why?
d. Discuss the advantages and disadvantages of using a perpetual inventory system. From the data presented in this case, is there any indication of the adequacy of inventory levels during the year?
Aug 29, 2021 | Uncategorized
CP 7-4 Inventory ratios for Dell and HP Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock strategy, where the computer is first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days’ sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions): Dell HP Inventory, beginning of period $1,180 $7,879 Inventory, end of period 867 6,128 Cost of goods sold 50,144 87,524 a. Determine the inventory turnover ratio and number of days’ sales in inventory ratio for each company. Round to one decimal place. b. Interpret the difference between the ratios for the two companies.
Aug 29, 2021 | Uncategorized
CP 7-5 Comparing inventory ratios for two companies
Tiffany Co. is a high-end jewelry retailer, while Amazon.com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Tiffany and Amazon.com (in millons) are as follows:
|
End-of-Period Inventory
|
Beginning-of-Period Inventory
|
|
Tiff any Co.
|
$1,601
|
$1,242
|
|
Amazon.com
|
1,399
|
1,200
|
The cost of merchandise sold reported by each company was as follows:
|
Tiff any Co.
|
Amazon.com
|
|
Cost of merchandise sold
|
$1,215
|
$14,896
|
a. Determine the inventory turnover and number of days’ sales in inventory for Tiffany and Amazon.com. Round to two decimal places and nearest day.
b. Interpret your results.
Aug 29, 2021 | Uncategorized
CP 7-6 Comparing inventory ratios for three companies The general merchandise retail industry has a number of segments represented by the following companies: Company Name Merchandise Concept Costco Wholesale Corporation Membership warehouse Wal-Mart Discount general merchandise JCPenney Department store For a recent year, the following cost of merchandise sold and beginning and ending inventories have been provided from corporate annual reports (in millions) for these three companies: Costco Wal-Mart JCPenney Cost of merchandise sold $62,335 $306,158 $11,571 Merchandise inventory, beginning 5,039 35,180 3,641 Merchandise inventory, ending 5,405 34,511 3,259 a. Determine the inventory turnover ratio for all three companies. Round to one decimal place. b. Determine the number of days” sales in inventory for all three companies. Round to one decimal place. c. Interpret these results based on each company”s merchandise concept.
CP 7-5 Comparing inventory ratios for two companies
Tiffany Co. is a high-end jewelry retailer, while Amazon.com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Tiffany and Amazon.com (in millons) are as follows:
|
End-of-Period Inventory
|
Beginning-of-Period Inventory
|
|
Tiff any Co.
|
$1,601
|
$1,242
|
|
Amazon.com
|
1,399
|
1,200
|
The cost of merchandise sold reported by each company was as follows:
|
Tiff any Co.
|
Amazon.com
|
|
Cost of merchandise sold
|
$1,215
|
$14,896
|
a. Determine the inventory turnover and number of days’ sales in inventory for Tiffany and Amazon.com. Round to two decimal places and nearest day.
b. Interpret your results.
Aug 29, 2021 | Uncategorized
PE 8-2B Items on company’s bank statement
The following items may appear on a bank statement:
1. NSF check
2. Bank correction of an error from posting another customer’s check to the company’s account
3. Loan proceeds
4. EFT deposit
Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company’s account.
|
|
Appears on the
|
|
|
|
Bank Statement as
|
Increases or Decreases the
|
|
|
a Debit or Credit
|
Balance of the Company’s
|
|
Item No.
|
Memo
|
Bank Account
|
Aug 29, 2021 | Uncategorized
PE 8-3A Bank reconciliation
The following data were gathered to use in reconciling the bank account of Azalea Company:
|
Balance per bank
|
$25,500
|
|
Balance per company records
|
27,475
|
|
Bank service charges
|
75
|
|
Deposit in transit
|
7,500
|
|
NSF check
|
3,400
|
|
Outstanding checks
|
9,000
|
a. What is the adjusted balance on the bank reconciliation?
b. Journalize any necessary entries for Azalea Company based on the bank reconciliation.
Aug 29, 2021 | Uncategorized
EX 8-2 Internal controls
Joan Whalen has recently been hired as the manager of Jittery Coffee Shop. Jittery Coffee Shop is a national chain of franchised coffee shops. During her first month as store manager, Joan encountered the following internal control situations:
a. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Joan expects each cashier to balance the drawer to the penny every time—no exceptions.
b. Joan caught an employee putting a case of 400 single-serving tea bags in her car. Not wanting to create a scene, Joan smiled and said, “I don’t think you’re putting those tea bags on the right shelf. Don’t they belong inside the coffee shop?” The employee returned the tea bags to the stockroom.
c. Jittery Coffee Shop has one cash register. Prior to Joan’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Joan made one employee on each shift responsible for taking orders and accepting the customer’s payment. Other employees prepare the orders.
State whether you agree or disagree with Joan’s method of handling each situation and explain your answer.
Aug 29, 2021 | Uncategorized
EX 8-3 Internal controls
Meridian Clothing is a retail store specializing in women’s clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31, with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item under $50. If the item is more than $50, a check is mailed to the customer. Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible. This year, returns at Meridian Clothing have reached an all-time high. There are a large number of returns under $50 without receipts.
a. How can sales clerks employed at Meridian Clothing use the store’s return policy to steal money from the cash register?
b. What internal control weaknesses do you see in the return policy that make cash thefts easier?
c. Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft? List some advantages and disadvantages of issuing a store credit in place of a cash refund.
d. Assume that Meridian Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store’s procedures regarding customer refunds in order to improve internal control?
Aug 29, 2021 | Uncategorized
PE 7-4B Periodic inventory using FIFO, LIFO, average cost methods
The units of an item available for sale during the year were as follows:
|
Jan.
|
1
|
Inventory
|
10 units at $120
|
$ 1,200
|
|
Apr.
|
13
|
Purchase
|
130 units at $114
|
14,820
|
|
Sept.
|
30
|
Purchase
|
20 units at $119
|
2,380
|
|
|
Available for sale
|
160 units
|
$18,400
|
There are 23 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the average cost method.
PE 7-5A Lower-of-cost-or-market method
On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item as shown in Exhibit 8.
|
Inventory
|
Unit
|
Unit
|
|
Item
|
Quantity
|
Cost Price
|
Market Price
|
|
IA17
|
200
|
$40
|
$38
|
|
TX24
|
150
|
55
|
60
|
Aug 29, 2021 | Uncategorized
EX 7-1 Control of inventories
A4A Hardware Store currently uses a periodic inventory system. Ray Ballard, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system.
Ray is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Ray has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand.
Ray is also concerned about lost sales while a physical inventory is being taken. A4A Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Ray believes that closing the store is the only way to get an accurate inventory count.
Will switching to a perpetual inventory system strengthen A4A Hardware’s control over inventory items? Will switching to a perpetual inventory system eliminate the need for a physical inventory count? Explain.
Aug 29, 2021 | Uncategorized
EX 7-3 Perpetual inventory using FIFO
Beginning inventory, purchases, and sales data for portable DVD players are as follows:
|
June
|
1
|
Inventory
|
75 units at $40
|
|
|
6
|
Sale
|
60 units
|
|
|
14
|
Purchase
|
90 units at $42
|
|
|
19
|
Sale
|
50 units
|
|
|
25
|
Sale
|
20 units
|
|
|
30
|
Purchase
|
80 units at $45
|
The business maintains a perpetual inventory system, costing by the first-in, first-out method.
a. Determine the cost of the merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3.
b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?
Aug 29, 2021 | Uncategorized
EX 7-9 Periodic inventory by three methods; cost of merchandise sold
The units of an item available for sale during the year were as follows:
|
Jan.
|
1
|
Inventory
|
21 units at $180
|
|
Mar.
|
10
|
Purchase
|
29 units at $195
|
|
Aug.
|
30
|
Purchase
|
10 units at $204
|
|
Dec.
|
12
|
Purchase
|
15 units at $210
|
There are 24 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form:
|
|
Cost
|
|
Inventory Method
|
Merchandise Inventory
|
Merchandise Sold
|
|
a. First-in, fi rst-out
|
$
|
$
|
|
b. Last-in, fi rst-out
|
|
|
|
c. Average cost
|
|
|
Aug 29, 2021 | Uncategorized
EX 7-14 Effect of errors in physical inventory
Eclipse Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 2012, Eclipse Motorcycle Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $338,000.
a. State the effect of the error on the December 31, 2012, balance sheet of Eclipse Motorcycle Shop.
b. State the effect of the error on the income statement of Eclipse Motorcycle Shop for the year ended December 31, 2012.
c. If uncorrected, what would be the effect of the error on the 2013 income statement?
d. If uncorrected, what would be the effect of the error on the December 31, 2013, balance sheet?
Aug 29, 2021 | Uncategorized
EX 7-16 Inventory turnover
The following data were taken from recent annual reports of Apple Computer, Inc., a manufacturer of personal computers and related products, and American Greetings Corporation, a manufacturer and distributor of greeting cards and related products:
|
|
Apple
|
American Greetings
|
|
Cost of goods sold
|
$23,397,000,000
|
$809,956,000
|
|
Inventory, end of year
|
455,000,000
|
203,873,000
|
|
Inventory, beginning of the year
|
509,000,000
|
216,671,000
|
a. Determine the inventory turnover for Apple and American Greetings. Round to one decimal place.
b. Would you expect American Greetings’ inventory turnover to be higher or lower than Apple’s? Why?
Aug 29, 2021 | Uncategorized
Accounting for manufacturing overhead
This exercise continues the Lawlor Lawn Service, Inc., situation from Exercise 16-34
of Chapter 16. Lawlor completed a special landscaping job for Sheldon’s Ideal
Designs. Lawlor collected the following data about the job:
|
Sheldon job details:
|
|
|
Direct materials
|
$ 700
|
|
Direct labor
|
$1,200
|
Requirements
1. Lawlor allocates overhead costs based on 60% of direct labor cost. What is the total cost of the Sheldon job?
2. If the price Sheldon paid for the job is $3,460, what is the profit or loss on the job?
Aug 29, 2021 | Uncategorized
Accounting for manufacturing overhead
This problem continues the Draper Consulting, Inc., situation from Problem 16-35 of Chapter 16. Draper Consulting uses a job order costing system in which each client is a different job. Draper traces direct labor, daily per diem, and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate, computed as a percentage of direct labor costs. At the beginning of 2013, the controller prepared the following budget:
|
Direct labor hours (professional)
|
hours
|
|
Direct labor costs (professional)
|
5,500
|
|
Support staff salaries
|
$990,000
|
|
Computer leases
|
105,000
|
|
Office supplies
|
48,000
|
|
Office rent
|
15,000
|
In November 2013, Draper served several clients. Records for two clients appear here:
|
Tommy’s Trains
|
Marcia’s Cookies
|
|
Direct labor hours
|
730 hours
|
300 hours
|
|
Meal—per diem
|
$ 2,600
|
$ 600
|
|
Travel costs
|
11,000
|
0
|
Requirements
1. Compute Draper’s predetermined indirect cost allocation rate for 2013.
2. Compute the total cost of each job.
3. If Draper wants to earn profits equal to 25% of sales revenue, how much (what fee) should it charge each of these two clients?
4. Why does Draper assign costs to jobs?
Aug 29, 2021 | Uncategorized
A key customer has asked Bob, the Sales Manager, if the Company is able to supply a new guitar-like instrument, the ukulele. The initial order is expected to be 10,000 units. Following information: Production Data for the six months ended 30 June 2013 Additional information: i. Estimated annual overhead and direct labour costs for 2013 are $150,000 and $200,000 respectively. ii. Estimated additional costs to be incurred to produce 10,000 units of ukulele Strings made from a special material $ 20,000 Carpenters $ 3,000 Tuning technicians $ 2,000 iii.
Aug 29, 2021 | Uncategorized
The assignment is a part of the Business Plan of the product and it is(1200 words)about thefollowing pointsonly:
3. Legal establishment and organisation of the business.
4. Business strategy.
8. Assessment of start-up costs and identification of funding sources.
Aug 29, 2021 | Uncategorized
ACT500: Research Evaluation Tables
| Article 1: Measuring Performance |
| Insert reference in APA formatting, 6th ed. 4th printing |
| Research Topic |
| The topic is a broad subject. The topic is not the problem to be solved; that comes later. Example: Balanced Scorecard |
| Problem or Opportunity |
| The problem is established with factual data and is found in the introductory portion of the research article or report. |
| Purpose for the Research |
| The purpose of the study defines what the researcher wants to find out and is found in the introductory section of the research article. Sometimes the purpose contains a research question/s. |
| Research Methods |
| A researcher makes a decision about the broad nature of a research approach: typically quantitative/confirmatory or qualitative/exploratory. Research design strategies are driven by the chosen research approach and the research purpose. Research design strategies include: types of data collected, how the data is collected, and what preparation of data is used, analytical techniques, and presentation of information. |
| Audience |
| The groups, associates, profession, and/or individuals that the researcher suggests might benefit from the findings of this study |
| Research Evaluation |
Assess the study’s Research Methods and Analytic Techniques. Are the research methods and analytic techniques applicable to solving practical management questions? Why or why not? You must substantiate your position with credible resources and examples.
Discuss how your organization might or might not use the findings from these studies. Substantiate your opinion with concrete examples. |
| Article 2: Incremental Analysis |
| Insert reference in APA formatting, 6th ed. 4th printing |
| Research Topic |
| The topic is a broad subject. The topic is not the problem to be solved; that comes later. Example: Cost Behavior |
| Problem or Opportunity |
| The problem is established with factual data and is found in the introductory portion of the research article or report. |
| Purpose for the Research |
| The purpose of the study defines what the researcher wants to find out and is found in the introductory section of the research article. Sometimes the purpose contains a research question/s. |
| Research Methods |
| A researcher makes a decision about the broad nature of a research approach: typically quantitative/confirmatory or qualitative/exploratory. Research design strategies are driven by the chosen research approach and the research purpose. Research design strategies include: types of data collected, how the data is collected, and what preparation of data is used, analytical techniques, and presentation of information. |
| Audience |
| The groups, associates, profession, and/or individuals that the researcher suggests might benefit from the findings of this study |
| Research Evaluation |
Assess the study’s Research Methods and Analytic Techniques. Are the methods and analytic techniques applicable to solving practical management questions? Why or why not? You must substantiate your position with credible resources and examples.
Discuss how your organization might or might not use the findings from these studies. Substantiate your opinion with concrete examples. |
Aug 29, 2021 | Uncategorized
Acme Corporation (a U.S. company located in Sarasota, Florida) has the following import/export transactions in 2004:
March 1 Bought inventory costing 50,000 pesos on credit.
May 1 Sold 60 percent of the inventory for 45,000 pesos on credit
August 1 Collected 40,000 pesos from customers.
September 1 Paid 30,000 pesos to creditors.
Currency exchange rates for 1 peso for 2004 are as follows:
March 1 …………….$0.17
May 1 …………………0.18
August 1 ………………0.19
September 1 ………….0.20
December 31 …………0.21
For each of the following accounts, what will Acme report on its 2004 financial statements?
a. Inventory
b. Cost of Goods Sold: March 1
c. Sales: May 1
d. Accounts Receivable
e. Accounts Payable
f. Cash
Aug 29, 2021 | Uncategorized
M. Evans & Sons manufactures parts for radios. For each job order, they maintain ledger sheets on which they record direct materials, direct labour and factory overhead applied. The factory overhead account contains postings for actual overhead costs. At the end of the month, the overhead variance is closed out to the cost of goods sold account.
Factory overhead is applied on the basis of direct labour hours. M. Evans & Sons pre-determined overhead application rate for 2012 was computed from the following data:
Total estimated factory overheads $480,000
Total estimated direct labour hours$400,000
i) purchased materials on account $50,000
ii) Incurred manufacturing wages of $106,500
iii) Issued direct materials and used direct labour in manufacturing
Direct materialsDirect laborDirect labor hours
Job101$10,000 $22,00012,000
Job102$8,000 $19,00010,000
Job102$9,000 $20,50011,000
Job104$15,000$29,02518,000
iv). Issued indirect materials to productions, $8,000
v) Charged indirect manufacturing wages to production, $15,975
vi).Depreciation expense on factory equipment used on the different jobs, $30,000
vii) Other overhead costs incurred on jobs 101 to 104 amounted to $11,275
viii) Applied factory overhead to the various jobs using the pre-determined factory overhead rate.
ix) Finished jobs 101-103 and transferred to the finished goods inventory account
x) Shipped job 101 and 102 and billed customers at a mark-up of 40percent on cost
You are required to:
-
Calculate the overhead rate for the business.
-
Calculate the total manufacturing costs for each job.
-
Using the total figures, record the preceding events in the general journal.
-
Open T-accounts for Work in Process Inventory and finished Goods Inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.
-
Prepare the adjusting entry for the manufacturing overhead, assuming the balance is allocated entirely to cost of goods sold.
-
Compute the gross profit on the units sold, after adjusting for the manufacturing overhead variance.
Aug 29, 2021 | Uncategorized
On August 1, 2006, ABC Company borrowed $400,000 to finance the purchase of a building. The terms of the mortgage
require payments of $2,100 to be made at the end of every month with the first payment being due on August 31, 2006.
The length of the mortgage is thirty years, and the mortgage carries an annual interest rate of 5%.
The amount of
interest expensethat ABC Company would report in its 2006 income statement related to this mortgage
would be closest to:Question 2 options:
Aug 29, 2021 | Uncategorized
The accountant at Canyon Kites has always prepared a budget that is calculated using only one estimated volume of sales. He has asked you to help him set up a spreadsheet that can be used for sensitivity analysis in the budgeting process. This year it appears that the company may not meet expectations, which could result in a loss. He is concerned that the company will incur a loss again next year and wants to develop a budget that will easily reflect changes in the assumptions. After gathering information about next year’s operations, he will provide information using a what-if sensitivity analysis. The following assumptions will be used to begin your analysis:
Direct materials per kite: Direct Labor: Hours Hrly Rate Cost/kite
Nylon $10 Assembly 0.5 $30 $15.00
Ribs $ 5 Packing 0.1 $15 $ 1.50
String $ 2
Inventory information: Beginning Target Ending
Direct Mat: Nylon $5,000 $7,000
Ribs 3,000 3,200
String 1,000 1,200
Finished Goods (units) 2,000 Kites 2,200 Kites
Finished Goods (cost) $97,850
Revenue assumptions: Selling Price Volume
$75.00 80,000
PART 1:
Create a spreadsheet with a data input box at the top that includes all relevant data. (Put a border around this data to separate). Set up each schedule with cell references to information in the data input box. Any changes made to information in this box should reflect through all of the schedules you create. As you proceed, more information will be given that you will need to add to the data input box, so leave space to add additional data.
- Prepare a revenue budget
- Prepare a production budget in units
- Prepare the direct materials usage budget and a direct materials purchases budget
- Prepare a direct labor budget (in hrs and cost)
In addition to the information given above, the following are estimated manufacturing overhead costs. Both fixed and variable overhead will be allocated based on the number of kites produced.
Estimates variable manufacturing overhead costs: Estimated fixed manufacturing overhead costs:
Supplies $160,250 Depreciation $211,728
Indirect Labor 200,650 Property Taxes 28,872
Maintenance 80,200 Insurance 67,368
Miscellaneous 40,100 Plant management 240,600
Total Variable OH $481,200 Benefits 336,840
Miscellaneous 76,992
Total Fixed OH $962,400
PART 2:
- Prepare a manufacturing overhead budget and determine variable and fixed overhead allocation rates using labor hours for fixed and units for variable.
- Prepare a schedule that calculates the unit costs of ending inventory in finished goods and then prepare the ending inventory budget.
- Prepare a cost of goods sold budget.
Aug 29, 2021 | Uncategorized
Pension Plan Calculation. The Village of Dover administers a defined benefit pension plan for its police and fire personnel. Employees are not required to contribute to the plan. The village received from the actuary and other sources the following information about the Public Safety Employees’ Pension Fund as of December 31, 2011.
Required
Assuming that the Village of Dover contributes $385,000 cash to the plan on December 31, 2011, calculate the employer’s
a. Annual pension cost.
b. Net pension obligation, as of December 31, 2011.
(Wilson 349-350)
Wilson. Accounting for Governmental and Nonprofit Entities, 15th Edition. McGraw-Hill Learning Solutions, 2010. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
Aug 29, 2021 | Uncategorized
- Margin calculations Use the following income statement for McGwire-Sosa Lumber Co. to calculate gross and operating margins. McGwire-Sosa Limber 1999 Income Statement
|
Net sales
|
$4,000
|
|
Cost of goods sold
|
-3,200
|
|
Gross profit
|
$800
|
|
Operating expenses
|
-200
|
|
Operating income
|
$600
|
|
Other income
|
40
|
|
Net interest expense
|
-60
|
|
Pretax income
|
$580
|
|
Income tax
|
232
|
|
Net income
|
$348
|
|
Earnings per share
|
$1.74
|
|
Recent price
|
$38.28
|
Aug 29, 2021 | Uncategorized
Return calculations Use the following balance sheet for McGwire-Sosa Lumber Co. along with the income statement in the previous question to calculate return on assets and return on equity.
|
McGwire-Sosa Lumber 1999 Balance Sheet
|
|
Cash and cash equivalents
|
$ 200
|
|
Operating assets
|
200
|
|
Property, plant, and equipment
|
1,580
|
|
Other assets
|
108
|
|
Total assets
|
$2,088
|
|
Current liabilities
|
$ 370
|
|
Long-term debt
|
306
|
|
Other liabilities
|
20
|
|
Total liabilities
|
$696
|
|
Paid-in capital
|
$ 300
|
|
Retained earnings
|
1,092
|
|
Total shareholder equity
|
$1,392
|
|
Total liabilities and equity
|
$2,088
|
statement, what is the projected stock price (hint: what is the price-earnings ratio?).
Aug 29, 2021 | Uncategorized
Stock repurchase A company repurchase of common stock outstanding has which of the following effects on the balance sheet?
a. an increase in shares outstanding
b. an increase in stockholder equity
c. a decrease in paid-in capital
d. a positive investment cash flow
Use the following raw data to answer the next four questions:
|
Net income
|
$8
|
|
Depreciation/amortization
|
$2
|
|
Repurchase of outstanding common stock
|
$5
|
|
Issuance of new debt
|
$9
|
|
Sale of property
|
$6
|
|
Purchase of equipment
|
$7
|
|
Dividend payments
|
$2
|
Aug 29, 2021 | Uncategorized
Retained Earnings Take a look at the Balance Sheet for Coors (Figure 7.8). On it, retained earnings are about $651 million. How do you interpret this amount? Does it mean that Coors has $651 million in cash available to spend? Use the following financial statement information to answer the next four questions. Amounts are in thousands of dollars (except number of shares and price per share):
|
Dixie Chickens 2000 Balance Sheet
|
|
Cash and cash equivalents
|
$100
|
|
Operating assets
|
300
|
|
Property, plant, and equipment
|
800
|
|
Other assets
|
40
|
|
Total assets
|
$1,240
|
|
Current liabilities
|
$100
|
|
Long-term debt
|
400
|
|
Other liabilities
|
20
|
|
Total liabilities
|
$520
|
|
Paid-in capital
|
$ 30
|
|
Retained earnings
|
690
|
|
Total shareholder equity
|
$720
|
|
Total liabilities and equity
|
$1,240
|
|
Dixie Chickens 2000 Income Statement
|
|
Net sales
|
$2,480
|
|
Cost of goods sold
|
-1,660
|
|
Gross profit
|
$820
|
|
Operating expenses
|
-600
|
|
Operating income
|
$220
|
|
Other income
|
90
|
|
Net interest expense
|
-70
|
|
Pretax income
|
$240
|
|
Income tax
|
-96
|
|
Net income
|
$144
|
|
Earnings er share
|
$1.20
|
|
Shares outstanding
|
1,20,000
|
|
Recent price
|
$24
|
|
Dixie Chickens 2000 Cash Flow Statement
|
|
Net income
|
$144
|
|
Depreciation and amortization
|
100
|
|
Changes in operating assets
|
-50
|
|
Changes in current liabilities
|
40
|
|
Operating cash flow
|
$234
|
|
Net additions to properties
|
$(200)
|
|
Changes in other assets
|
-40
|
|
Investing cash flow
|
$(240)
|
|
Issuance/redemption of long-term debt
|
$94
|
|
Dividends paid
|
-72
|
|
Financing cash flow
|
$22
|
|
Net cash increase
|
$16
|
Aug 29, 2021 | Uncategorized
It’s All Relative Consider the following series of monthly stock prices for two companies:
|
Week
|
Phat Co
|
GRRL
Power
|
|
1
|
$10
|
$80
|
|
2
|
12
|
82
|
|
3
|
16
|
80
|
|
4
|
15
|
84
|
|
5
|
14
|
85
|
|
6
|
12
|
88
|
On a relative basis, how has Phat done compared to GRRL Power?
Aug 29, 2021 | Uncategorized
Advance/Decline Lines Use the data below to construct the advance/decline line for the stock market. Volume figures are in thousands of shares.
|
|
Advancing
|
Adv. Vol.
|
Declining
|
Dec. Vol.
|
|
Monday
|
1,685
|
225,000
|
840
|
66,000
|
|
Tuesday
|
1,720
|
164,000
|
1,000
|
115,000
|
|
Wednesday
|
560
|
59,000
|
2,025
|
265,000
|
|
Thursday
|
880
|
100,000
|
1,625
|
145,000
|
|
Friday
|
1,550
|
185,000
|
950
|
105,000
|
Aug 29, 2021 | Uncategorized
Relative Strength Trends The table below shows end-of-month stock prices for Coca- Cola and Pepsi over a six-month period. Construct the relative strength indicator over this period for Coca-Cola stock relative to Pepsi.
|
Month
|
Coca-Cola
|
Pepsi
|
|
1
|
$40
|
$25
|
|
2
|
45
|
28
|
|
3
|
48
|
32
|
|
4
|
44
|
33
|
|
5
|
49
|
35
|
|
6
|
55
|
36
|
Aug 29, 2021 | Uncategorized
Point-and-Figure Plots Daily closing prices for U.S. Surgical, Inc., are shown below for a six-week period. If you consider a major move to be $3, construct the point-and-figure chart for U.S. Surgical stock over this time period.
|
Week 1
|
80
|
79
|
78
|
75
|
72
|
Week 4
|
58
|
62
|
60
|
57
|
58
|
|
Week 2
|
70
|
66
|
60
|
62
|
63
|
Week 5
|
57
|
62
|
69
|
70
|
70
|
|
Week 3
|
64
|
64
|
62
|
59
|
55
|
Week 6
|
72
|
70
|
68
|
69
|
69
|
Aug 29, 2021 | Uncategorized
Interpreting Efficient Markets For each of the following scenarios, discuss whether profit opportunities exist from trading in the stock of the firm under the conditions that (1) the market is not weak form efficient, (2) the market is weak form but not semi strong form efficient, (3) the market is semi strong form but not strong form efficient, and (4) the market is strong form efficient.
a. The stock price has risen steadily each day for the past 30 days.
b. The financial statements for a company were released three days ago, and you believe you”ve uncovered some anomalies in the company”s inventory and cost control reporting techniques that are understating the firm”s true liquidity strength.
c. You observe that the senior management of a company has been buying a lot of the company’s stock on the open market over the past week.
d. Your next-door neighbor, who happens to be a computer analyst at the local steel plant, casually mentions that a German steel conglomerate hinted yesterday that it might try to acquire the local firm in a hostile takeover.
Aug 29, 2021 | Uncategorized
Mortgage-backed bonds Which of the following are characteristics that would make mortgage-backed securities (MBSs) inappropriate for less sophisticated, conservative investors? (1989 CFA exam)
I. The maturity of MBSs is quite variable and difficult to determine.
II. Due to their convexity, the realized total return on MBSs is often more dependent on interest rate levels than other bonds of similar maturity.
III. Due to a possible unfamiliarity with prepayment concepts, investors may not be able to evaluate the true yield on MBS issues.
IV. Many MBS issues are not quoted widely and are difficult to monitor.
a. I, II and III only
b. I, III and IV only
c II and IV only
d. all of the above
Aug 29, 2021 | Uncategorized
What entry would Gell make to close the manufacturing overhead account?
|
A
|
Manufacturing overhead
|
10,000,000
|
|
|
|
Cost of goods sold
|
|
10,000,000
|
|
B
|
Cost of goods sold
|
41,000,000
|
|
|
|
Manufacturing overhead
|
|
41,000,000
|
|
C
|
Manufacturing overhead
|
41,000,000
|
|
|
|
Cost of goods sold
|
|
41,000,000
|
|
D
|
Cost of goods sold
|
10,000,000
|
|
|
|
Manufacturing overhead
|
|
10,000,000
|
Aug 29, 2021 | Uncategorized
Accounting for materials
Rite Packs manufactures backpacks. Its plant records include the following materials-related transactions:
|
Purchases of canvas (on account)
|
$ 71,000
|
|
Purchases of sewing machine lubricating oil (on account)
|
1,100
|
|
Materials requisitions:
|
|
|
Canvas
|
64,000
|
|
Sewing machine lubricating oil
|
250
|
Requirements
1. Journalize the entries to record these transactions.
2. Post these transactions to the Materials inventory account.
3. If the company had $34,000 of Materials inventory at the beginning of the period, what is the ending balance of Materials inventory?
Aug 29, 2021 | Uncategorized
Accounting for overhead
Teak Outdoor Furniture manufactures wood patio furniture. The company reports the following costs for June 2012:
|
Wood
|
$ 250,000
|
|
Nails, glue, and stain
|
26,000
|
|
Depreciation on saws
|
5,500
|
|
Indirect manufacturing labor
|
38,000
|
|
Depreciation on delivery truck
|
2,300
|
|
Assembly-line workers’ wages
|
57,000
|
Requirement
1. What is the balance in the Manufacturing overhead account before overhead is applied to jobs?
Aug 29, 2021 | Uncategorized
Distinguishing between job order costing and process costing
Consider the following incomplete statements.
a. _____ is used by companies that produce small quantities of many different products.
b. Georgia-Pacific pulverizes wood into pulp to manufacture cardboard. The company uses a _____ system.
c. To record costs of manufacturing thousands of identical files, the file manufacturer will use a _____ system.
d. Companies that produce large numbers of identical products use _____ systems for product costing.
e. The computer repair service that visits your home and repairs your computer uses a _____ system.
f. Apple assembles electronic parts and software to manufacture millions of iPods. Apple uses a ___________ system.
g. Textbook publishers produce titles of a particular book in batches. Textbook publishers use a __________ system.
h. A company that bottles milk into one-gallon containers uses a ________ system. i. A company that makes large quantities of one type of tankless hot water heater uses a __________ system.
j. A particular governmental agency takes bids for specific items it utilizes. Each item requires a separate bid. The agency uses a ___________ system.
Requirement
1. Complete each of the statements with the term job order costing or the term process costing.
Aug 29, 2021 | Uncategorized
Allocating manufacturing overhead
Selected cost data for Antique Print, Co., are as follows:
|
Estimated manufacturing overhead cost for the year
|
$ 115,000
|
|
Estimated direct labor cost for the year
|
71,875
|
|
Actual manufacturing overhead cost for the year
|
119,000
|
|
Actual direct labor cost for the year
|
73,000
|
Requirements
1. Compute the predetermined manufacturing overhead rate per direct labor dollar.
2. Prepare the journal entry to allocate overhead cost for the year.
3. Use a T-account to determine the amount of underallocated or overallocated manufacturing overhead.
4. Prepare the journal entry to close the balance of the Manufacturing overhead account.
Aug 29, 2021 | Uncategorized
Allocating manufacturing overhead
Brooks Foundry uses a predetermined manufacturing overhead rate to allocate overhead to individual jobs, based on the machine hours required. At the beginning of 2012, the company expected to incur the following:
|
Manufacturing overhead costs
|
$ 840,000
|
|
Direct labor costs
|
1,550,000
|
|
Machine hours
|
70,000 hours
|
At the end of 2012, the company had actually incurred:
|
Direct labor cost
|
$ 1,160,000
|
|
Depreciation on manufacturing property, plant,
|
|
|
and equipment
|
600,000
|
|
Property taxes on plant
|
40,000
|
|
Sales salaries
|
26,500
|
|
Delivery drivers’ wages
|
23,500
|
|
Plant janitor’s wages
|
17,000
|
|
Machine hours
|
67,000 hours
|
Requirements
1. Compute Brooks’ predetermined manufacturing overhead rate.
2. Prepare the journal entry to allocate manufacturing overhead.
3. Post the manufacturing overhead transactions to the Manufacturing overhead T-account. Is manufacturing overhead underallocated or overallocated? By how much?
4. Close the Manufacturing overhead account to Cost of goods sold. Does your entry increase or decrease cost of goods sold?
Aug 29, 2021 | Uncategorized
Allocating manufacturing overhead
Refer to the data in E17-19. Brooks’ accountant found an error in her 2012 cost records. Depreciation on manufacturing property, plant, and equipment was actually $550,000, not the $600,000 she originally reported. Unadjusted balances at the end of 2012 include:
|
Finished goods inventory
|
$ 131,000
|
|
Cost of goods sold
|
580,000
|
Requirements
1. Use a T-account to determine whether manufacturing overhead is underallocated or overallocated, and by how much.
2. Prepare the journal entry to close out the underallocated or overallocated manufacturing overhead.
3. What is the adjusted ending balance of Cost of goods sold?
Aug 29, 2021 | Uncategorized
Allocating manufacturing overhead
The manufacturing records for Krazy Kayaks at the end of the 2012 fiscal year show the following information about manufacturing overhead:
|
Overhead allocated to production .
|
$ 405,900
|
|
Actual manufacturing overhead costs
|
$ 428,000
|
|
Overhead allocation rate for the year
|
$ 41 per machine hour
|
Requirements
1. How many machine hours did Krazy Kayaks use in 2012?
2. Was manufacturing overhead over- or underallocated for the year and by how much?
3. Prepare the journal entry to close out the over- or underallocated overhead.
Aug 29, 2021 | Uncategorized
Using the Work in process inventory account
June production generated the following activity in Auto Chassis Company’s Work in process inventory account:
|
Work in process inventory
|
|
Jun 1 Bal
|
20,000
|
|
Direct materials used
|
31,000
|
|
Direct labor assigned to jobs
|
33,000
|
|
Manufacturing overhead allocated to jobs
|
13,000
|
Additionally, Auto has completed Jobs 142 and 143, with total costs of $38,000 and $36,000, respectively.
Requirements
1. Prepare the journal entry for production completed in June.
2. Post the journal entry made in Requirement 1. Compute the ending balance in the Work in process account on June 30.
3. Prepare the journal entry to record the sale (on credit) of Job 143 for $46,000. Also, prepare the journal entry to record Cost of goods sold for Job 143.
4. What is the gross profit on Job 143? What other costs must gross profit cover?
Aug 29, 2021 | Uncategorized
Job order costing in a service company
Martin Realtors, a real estate consulting firm, specializes in advising companies on potential new plant sites. The company uses a job order costing system with a predetermined indirect cost allocation rate, computed as a percentage of direct labor costs. At the beginning of 2012, managing partner Andrew Martin prepared the following budget for the year:
|
Direct labor hours (professionals)
|
19,600 hours
|
|
Direct labor costs (professionals)
|
$ 2,450,000
|
|
Office rent
|
370,000
|
|
Support staff salaries
|
1,282,500
|
|
Utilities
|
430,000
|
Peters Manufacturing, Inc., is inviting several consultants to bid for work. Andrew Martin estimates that this job will require about 240 direct labor hours.
Requirements
1. Compute Martin Realtors’ (a) hourly direct labor cost rate and (b) indirect cost allocation rate.
2. Compute the predicted cost of the Peters Manufacturing job.
3. If Martin wants to earn a profit that equals 45% of the job’s cost, how much should he bid for the Peters Manufacturing job?
Aug 29, 2021 | Uncategorized
Analyzing cost data
Bluebird Manufacturing makes carrying cases for portable electronic devices. Its costing records yield the following information:
|
Date
|
|
|
|
Job No.
|
Started
|
Finished
|
Sold
|
Total Cost of Job at October 31
|
Total Manufacturing Costs Added in November
|
|
1
|
10/3
|
10/12
|
10/13
|
$ 1,900
|
|
|
2
|
10/3
|
10/30
|
11/1
|
1,800
|
|
|
3
|
10/17
|
11/24
|
11/27
|
400
|
$ 1,500
|
|
4
|
10/29
|
11/29
|
12/3
|
800
|
1,200
|
|
5
|
11/8
|
11/12
|
11/14
|
|
550
|
|
6
|
11/23
|
12/6
|
12/9
|
|
700
|
Requirements
1. Which type of costing system is Bluebird using? What piece of data did you base your answer on?
2. Use the dates in the table to identify the status of each job. Compute Bluebird’s account balances at October 31 for Work in process inventory, Finished goods inventory, and Cost of goods sold. Compute, by job, account balances at November 30 for Work in process inventory, Finished goods inventory, and Cost of goods sold.
3. Prepare journal entries to record the transfer of completed units from Work in process to Finished goods for October and November.
4. Record the sale of Job 3 for $2,100.
5. What is the gross profit for Job 3? What other costs must this gross profit cover?
Aug 29, 2021 | Uncategorized
Accounting for construction transactions
Quaint Construction, Inc., is a home builder in Arizona. Quaint uses a job order costing system in which each house is a job. Because it constructs houses, the company uses an account titled Construction overhead. The company applies overhead based on estimated direct labor costs. For the year, it estimated construction overhead of $1,100,000 and total direct labor cost of $2,750,000. The following events occurred during August:
a. Purchased materials on account, $400,000.
b. Requisitioned direct materials and used direct labor in construction. Record the materials requisitioned.
|
Direct materials
|
Direct labor
|
|
House 402
|
$ 54,000
|
$ 42,000
|
|
House 403
|
68,000
|
35,000
|
|
House 404
|
63,000
|
57,000
|
|
House 405
|
85,000
|
53,000
|
c. The company incurred total wages of $200,000. Use the data from item b to assign the wages.
d. Depreciation of construction equipment, $6,200.
e. Other overhead costs incurred on houses 402 through 405:
|
Indirect labor
|
$ 13,000
|
|
Equipment rentals paid in cash
|
37,000
|
|
Worker liability insurance expired
|
3,000
|
f. Allocated overhead to jobs.
g. Houses completed: 402, 404.
h. House sold: 404 for $250,000.
Requirements
1. Calculate Quaint’s construction overhead application rate for the year.
2. Prepare journal entries to record the events in the general journal.
3. Open T-accounts for Work in process inventory and Finished goods inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.
4. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the Work in process inventory account.
5. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished goods inventory.
6. Compute gross profit on the house that was sold. What costs must gross profit cover for Quaint Construction?
Aug 29, 2021 | Uncategorized
Preparing and using a job cost record
Lu Technology, Co., manufactures CDs and DVDs for computer software and entertainment
companies. Lu uses job order costing and has a perpetual inventory system.
On April 2, Lu began production of 5,900 DVDs, Job 423, for Stick People
Pictures for $1.30 sales price per DVD. Lu promised to deliver the DVDs to Stick
People by April 5. Lu incurred the following costs:
|
Date
|
Labor Time Record No.
|
Description
|
Amount
|
|
4/2
|
655
|
10 hours @ $14
|
$ 140
|
|
4/3
|
656
|
20 hours @ $13
|
260
|
|
Date
|
Materials
Requisition
No.
|
Description
|
Amount
|
|
4/2
|
63
|
31 lbs. polycarbonate plastic @ $11
|
$ 341
|
|
4/2
|
64
|
25 lbs. acrylic plastic @ $27
|
675
|
|
4/3
|
74
|
3 lbs. refined aluminum @ $42
|
126
|
Stick People provides the movie file for Lu to burn onto the DVDs at a cost of $0.50 per DVD. Lu Technology allocates manufacturing overhead to jobs based on the relation between estimated overhead of $540,000 and estimated direct labor costs of $432,000. Job 423 was completed and shipped on April 3.
Requirements
1. Prepare a job cost record similar to Exhibit 17-6 for Job 423. Calculate the predetermined overhead rate; then allocate manufacturing overhead to the job.
2. Journalize in summary form the requisition of direct materials (including the movie files) and the assignment of direct labor and manufacturing overhead to Job 423.
3. Journalize completion of the job and the sale of the 5,900 DVDs.
Aug 29, 2021 | Uncategorized
Accounting manufacturing overhead
White Woods manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct labor are traced directly to the products. Manufacturing overhead costs are allocated based on machine hours. Data for 2012 follow:
|
Estimated (Budget)
|
Actual
|
|
Machine hours
|
25,000 hours
|
32,100 hours
|
|
Maintenance labor (repairs to equipment)
|
$12,000
|
28,500
|
|
Plant supervisor’s salary
|
47,000
|
48,000
|
|
Screws, nails, and glue
|
24,000
|
45,000
|
|
Plant utilities
|
41,000
|
96,850
|
|
Freight out
|
37,000
|
46,500
|
|
Depreciation on plant and
|
|
|
|
equipment
|
87,000
|
83,000
|
|
Advertising expense
|
43,000
|
54,000
|
Requirements
1. Compute the predetermined manufacturing overhead rate.
2. Post actual and allocated manufacturing overhead to the Manufacturing overhead T-account.
3. Close the under- or overallocated overhead to Cost of goods sold.
4. The predetermined manufacturing overhead rate usually turns out to be inaccurate. Why don’t accountants just use the actual manufacturing overhead rate?
Aug 29, 2021 | Uncategorized
Job order costing in a service company
Crow Design, Inc., is aWeb site design and consulting firm. The firm uses a job order costing system in which each client is a different job. Crow Design traces direct labor, licensing costs, and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate, computed as a percentage of direct labor costs. At the beginning of 2012, managing partner Sally Simone prepared the following budget estimates:
|
Direct labor hours (professional)
|
6,250 hours
|
|
Direct labor costs (professional)
|
$1,800,000
|
|
Support staff salaries
|
765,000
|
|
Computer leases
|
46,000
|
|
Office supplies
|
27,000
|
|
Office rent
|
62,000
|
In November 2012, Crow Design served several clients. Records for two clients appear here:
|
Delicious Treats
|
Mesilla Chocolates
|
|
Direct labor hours
|
700 hours
|
100 hours
|
|
Software licensing costs
|
$ 4,000
|
$ 400
|
|
Travel costs
|
8,000
|
–
|
Requirements
1. Compute Crow Design’s direct labor rate and its predetermined indirect cost allocation rate for 2012.
2. Compute the total cost of each job.
3. If Simone wants to earn profits equal to 50% of service revenue, how much (what fee) should she charge each of these two clients?
4. Why does Crow Design assign costs to jobs?
Aug 29, 2021 | Uncategorized
Analyzing cost data
Stratton Manufacturing makes carrying cases for portable electronic devices. Its costing records yield the following information:
|
Date
|
Total Cost of Job at October 31
|
Total Manufacturing
Costs Added in November
|
|
Job
No.
|
Started
|
Finished
|
Sold
|
|
|
|
1
|
10/3
|
10/12
|
10/13
|
$ 1,000
|
|
|
2
|
10/3
|
10/30
|
11/1
|
1,100
|
|
|
3
|
10/17
|
11/24
|
11/27
|
700
|
$ 1,400
|
|
4
|
10/29
|
11/29
|
12/3
|
300
|
1,500
|
|
5
|
11/8
|
11/12
|
11/14
|
|
650
|
|
6
|
11/23
|
12/6
|
12/9
|
|
500
|
Requirements
1. Which type of costing system is Stratton using? What piece of data did you base your answer on?
2. Use the dates in the table to identify the status of each job. Compute Stratton’s account balances at October 31 for Work in process inventory, Finished goods inventory, and Cost of goods sold. Compute, by job, account balances at November 30 for Work in process inventory, Finished goods inventory, and Cost of goods sold.
3. Prepare journal entries to record the transfer of completed units from work in process to finished goods for October and November.
4. Record the sale of Job 3 for $2,200.
5. What is the gross profit for Job 3? What other costs must this gross profit cover?
Aug 29, 2021 | Uncategorized
Accounting for construction transactions
Cottage Construction, Inc., is a home builder in Arizona. Cottage uses a job order costing system in which each house is a job. Because it constructs houses, the company uses an account titled Construction overhead. The company applies overhead based on estimated direct labor costs. For the year, it estimated construction overhead of $1,050,000 and total direct labor cost of $3,500,000. The following events occurred during August:
a. Purchased materials on account, $460,000.
b. Requisitioned direct materials and used direct labor in construction. Record the materials requisitioned
|
|
Direct materials
|
Direct labor
|
|
House 402
|
$ 50,000
|
$ 45,000
|
|
House 403
|
69,000
|
30,000
|
|
House 404
|
66,000
|
56,000
|
|
House 405
|
88,000
|
55,000
|
c. The company incurred total wages of $210,000. Use the data from item b to assign the wages.
d. Depreciation of construction equipment, $6,000.
e. Other overhead costs incurred on houses 402 through 405:
|
Indirect labor
|
$ 24,000
|
|
Equipment rentals paid in cash
|
36,000
|
|
Worker liability insurance expired
|
8,000
|
f. Allocated overhead to jobs.
g. Houses completed: 402, 404.
h. House sold: 404 for $200,000.
Requirements
1. Calculate Cottage’s construction overhead application rate for the year.
2. Record the events in the general journal.
3. Open T-accounts for Work in process inventory and Finished goods inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.
4. Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the Work in process inventory account.
5. Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in Finished goods inventory.
6. Compute gross profit on the house that was sold. What costs must gross profit cover for Cottage Construction?
Aug 29, 2021 | Uncategorized
Preparing and using a job cost record
True Technology, Co., manufactures CDs and DVDs for computer software and entertainment companies. True uses job order costing and has a perpetual inventory system.
On November 2, True began production of 5,500 DVDs, Job 423, for Leopard Pictures for $1.60 sales price per DVD. True promised to deliver the DVDs to Leopard by November 5. True incurred the following costs:
|
Date
|
Labor Time Record No.
|
Description
|
Amount
|
|
11/2
|
655
|
10 hours @ $18
|
$ 180
|
|
11/3
|
656
|
20 hours @ $14
|
280
|
|
Date
|
Materials Requisition No.
|
Description
|
Amount
|
|
11/2
|
63
|
31 lbs. polycarbonate plastic @ $12
|
$ 372
|
|
11/2
|
64
|
25 lbs. acrylic plastic @ $29
|
725
|
|
11/3
|
74
|
3 lbs. refined aluminum @ $48
|
144
|
Leopard Pictures provides the movie file for True to burn onto the DVDs at a cost of $0.45 per DVD. True Technology allocates manufacturing overhead to jobs based on the relation between estimated overhead of $550,000 and estimated direct labor costs of $500,000. Job 423 was completed and shipped on November 3.
Requirements
1. Prepare a job cost record similar to Exhibit 17-6 for Job 423. Calculate the predetermined overhead rate, then allocate manufacturing overhead to the job.
2. Journalize in summary form the requisition of direct materials (including the movie files) and the assignment of direct labor and manufacturing overhead to Job 423.
3. Journalize completion of the job and the sale of the 5,500 DVDs.
Aug 29, 2021 | Uncategorized
Comprehensive accounting for manufacturing transactions
School Stars produces stars for elementary teachers to reward their students. School Stars’ trial balance on June 1 follows:
|
SCHOOL STARS Trial Balance June 1, 2012
|
|
Balance
|
|
Account Title
|
Debit
|
Credit
|
|
Cash
|
$ 17,000
|
|
|
Accounts receivable
|
170,000
|
|
|
Inventories:
|
|
|
|
Materials
|
6,200
|
|
|
Work in process
|
43,000
|
|
|
Finished goods
|
21,300
|
|
|
Plant assets
|
250,000
|
|
|
Accumulated depreciation
|
|
$ 71,000
|
|
Accounts payable
|
|
133,000
|
|
Wages payable
|
|
3,300
|
|
Common stock
|
|
144,000
|
|
Retained earnings
|
|
156,200
|
|
Sales revenue
|
—
|
—
|
|
Cost of goods sold
|
—
|
|
|
Manufacturing overhead
|
—
|
|
|
Marketing and general expenses
|
—
|
|
|
Total
|
$ 507,500
|
$ 507,500
|
June 1 balances in the subsidiary ledgers were as follows:
- Materials subledger: $4,300 paper and $1,900 indirect materials
- Work in process subledger: Job 120 $43,000; $0 for Job 121
- Finished goods subledger: $9,300 Large Stars and $12,000 Small Stars
June transactions are summarized as follows:
a. Collections on account, $155,000.
b. Marketing and general expenses incurred and paid, $22,000.
c. Payments on account, $37,000.
d. Materials purchases on credit: Paper, $26,600; indirect materials, $4,200.
e. Materials used in production (requisitioned):
• Job 120: Paper, $900
• Job 121: Paper, $7,850
• Indirect materials, $1,600
f. Wages incurred and assigned during June, $43,000. Labor time records for the month: Job 120, $4,800; Job 121, $18,500; indirect labor, $19,700.
g. Wages paid in June include the balance in the Wages payable account at May 31 and $39,900 of wages incurred during June.
h. Depreciation on plant and equipment, $2,700.
i. Manufacturing overhead was allocated at the predetermined rate of 90% of direct labor cost.
j. Jobs completed during the month: Job 120, 600,000 Large Stars at total cost of $53,020.
k. Credit sales on account: all of Job 120 for $133,000.
l. Closed the Manufacturing overhead account to Cost of goods sold.
Requirements
1. Journalize the transactions for the company. School uses a perpetual inventory system.
2. Open T-accounts for the general ledger, the Materials ledger, the Work in process ledger, and the Finished goods ledger. Insert each account balance as given, and use the reference Bal. Post the journal entries to the T-accounts using the transaction letters as a reference.
3. Prepare a trial balance at June 30, 2012.
4. Use the Work in process inventory T-account to prepare a schedule of cost of goods manufactured for the month of June. (You may want to review Exhibit 16-10.)
5. Prepare an income statement for the month of June. To calculate cost of goods sold, you may want to review Exhibit 16-7. (Hint: In transaction l, you closed any under/overallocated manufacturing overhead to Cost of goods sold. In the income statement, show this correction as an adjustment to Cost of goods sold. If manufacturing overhead is underallocated, the adjustment will increase Cost of goods sold. If overhead is overallocated, the adjustment will decrease Cost of goods sold.)
Aug 29, 2021 | Uncategorized
Job order costing in a service company
Skylark Design, Inc., is a Web site design and consulting firm. The firm uses a job order costing system in which each client is a different job. Skylark Design traces direct labor, licensing costs, and travel costs directly to each job. It allocates indirect costs to jobs based on a predetermined indirect cost allocation rate, computed as a percentage of direct labor costs. At the beginning of 2013, managing partner Judi Jacquin prepared the following budget estimates:
|
Direct labor hours (professional)
|
8,000 hours
|
|
Direct labor costs (professional)
|
$2,000,000
|
|
Support staff salaries
|
664,000
|
|
Computer leases
|
47,000
|
|
Office supplies
|
23,000
|
|
Office rent
|
66,000
|
In November 2013, Skylark Design served several clients. Records for two clients appear here:
|
Food Coop
|
Martin Chocolates
|
|
Direct labor hours
|
900 hours
|
100 hours
|
|
Software licensing costs
|
$ 3,500
|
100
|
|
Travel costs
|
11,000
|
—
|
Requirements
1. Compute Skylark Design’s direct labor rate and its predetermined indirect cost allocation rate for 2012.
2. Compute the total cost of each job.
3. If Jacquin wants to earn profits equal to 50% of sales revenue, how much (what fee) should she charge each of these two clients?
4. Why does Skylark Design assign costs to jobs?
Aug 29, 2021 | Uncategorized
Understanding today’s business environment
a. The following statements relate to understanding today’s business environment.
b. ____ is a management philosophy that focuses on maintaining lean inventories while producing products as needed by the customer. ____ is a philosophy designed to integrate all organizational areas in order to provide customers with superior products and services, while meeting organizational objectives. It requires improving quality and eliminating defects and waste throughout the value chain.
c. ____ can integrate all of a company’s worldwide functions, departments, and data into a single system.
d. Firms adopt ____ to conduct business on the Internet.
Requirement
1. Complete the statements with one of the terms listed here. You may use a term more than once, and some terms may not be used at all.
Aug 29, 2021 | Uncategorized
Ethical decisions
Sue Peters is the controller at Vroom, a car dealership. Dale Miller recently has been hired as bookkeeper. Dale wanted to attend a class on Excel spreadsheets, so Sue temporarily took over Dale’s duties, including overseeing a fund for filling a car’s gas tank before a test drive. Sue found a shortage in this fund and confronted Dale when he returned to work. Dale admitted that he occasionally uses this fund to pay for his own gas. Sue estimated that the amount involved is close to $450.
Requirements
1. What should Sue Peters do?
2. Would you change your answer to the previous question if Sue Peters was the one recently hired as controller and Dale Miller was a well-liked, longtime employee who indicated that he always eventually repaid the fund?
Aug 29, 2021 | Uncategorized
Calculating income and cost per unit for a service company
Fido Grooming provides grooming services in the local community. In April, Kevin Oliver, the owner, incurred the following operating costs to groom 650 dogs:
|
Wages
|
$ 3,900
|
|
Grooming supplies expense
|
1,625
|
|
Building rent expense
|
1,300
|
|
Utilities
|
325
|
|
Depreciation on equipment
|
130
|
Fido Grooming earned $16,300 in revenues from grooming for the month of April. Requirements
1. What is Fido’s net operating income for April?
2. What is the cost to groom one dog?
Aug 29, 2021 | Uncategorized
Preparing an income statement and computing the unit cost for a merchandising company
Snyder Brush Company sells standard hair brushes. The following information summarizes Snyder’s operating activities for 2012:
|
Selling and administrative expenses
|
$ 49,680
|
|
Purchases
|
78,000
|
|
Sales revenue
|
138,000
|
|
Merchandise inventory, January 1, 2012
|
7,500
|
|
Merchandise inventory, December 31, 2012
|
12,360
|
Requirements
1. Prepare an income statement for 2012. Compute the ratio of operating expense to total revenue and operating income to total revenue.
2. Snyder sold 6,000 brushes in 2012. Compute the unit cost for one brush.
Aug 29, 2021 | Uncategorized
Preparing a statement of cost of goods manufactured
Knight, Corp., a lamp manufacturer, provided the following information for the year ended December 31, 2012:
|
Inventories:
|
Beginning
|
|
Ending
|
|
Materials
|
$ 56,000
|
|
$ 23,000
|
|
Work in process
|
103,000
|
|
63,000
|
|
Finished goods
|
41,000
|
|
48,000
|
|
Other information:
|
|
|
|
|
Depreciation: plant building and equipment
|
$ 16,000
|
Repairs and maintenance–plant
|
$ 8,000
|
|
Materials purchases
|
159,000
|
Indirect labor
|
32,000
|
|
Insurance on plant
|
22,000
|
Direct labor
|
122,000
|
|
Sales salaries expense
|
46,000
|
Administrative expenses
|
59,000
|
Requirements
1. Prepare a schedule of cost of goods manufactured.
2. What is the unit product cost if Knight manufactured 2,160 lamps for the year?
Aug 29, 2021 | Uncategorized
Flow of costs through a manufacturer’s inventory accounts
Consider the following data for a manufacturer:
|
Beginning of Year
|
End of Year
|
|
Direct materials inventory
|
$ 29,000
|
$ 32,000
|
|
Work in process inventory
|
44,000
|
37,000
|
|
Finished goods inventory
|
19,000
|
24,000
|
|
Purchases of direct materials
|
|
77,000
|
|
Direct labor
|
|
87,000
|
|
Manufacturing overhead
|
|
45,000
|
Requirement
1. Compute cost of goods manufactured and cost of goods sold.
Aug 29, 2021 | Uncategorized
Calculating income and unit cost for a service company
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 its data?
Aug 29, 2021 | Uncategorized
Preparing an income statement for a merchandising company
In 2012 Charlie Snyder opened Charlie’s Pets, a small retail shop selling pet supplies. On December 31, 2012, Charlie’s accounting records showed the following:
|
Inventory on December 31, 2012
|
$ 10,200
|
|
Inventory on January 1, 2012
|
15,100
|
|
Sales revenue
|
57,000
|
|
Utilities for shop
|
3,900
|
|
Rent for shop
|
4,100
|
|
Sales commissions
|
2,150
|
|
Purchases of merchandise
|
27,000
|
Requirement
1. Prepare an income statement for Charlie’s Pets, a merchandiser, for the year ended December 31, 2012.
Aug 29, 2021 | Uncategorized
Preparing cost of goods manufactured schedule and income statement for a manufacturing company
Charlie’s Pets succeeded so well that Charlie decided to manufacture his own brand of chewing bone—Fido Treats. At the end of December 2012, his accounting records showed the following:
|
Inventories:
|
Beginning
|
Ending
|
|
Materials
|
$ 13,400
|
$ 9,500
|
|
Work in process
|
0
|
2,000
|
|
Finished goods
|
0
|
5,300
|
|
Other information:
|
|
|
|
|
Direct material purchases
|
$ 33,000
|
Utilities for plant
|
$ 1,600
|
|
Plant janitorial services
|
800
|
Rent of plant
|
13,000
|
|
Sales salaries expense
|
5,000
|
Customer service hotline expense
|
1,400
|
|
Delivery expense
|
1,700
|
Direct labor
|
22,000
|
|
Sales revenue
|
109,000
|
|
|
Requirements
1. Prepare a schedule of cost of goods manufactured for Fido Treats for the year ended December 31, 2012.
2. Prepare an income statement for Fido Treats for the year ended December 31, 2012.
3. How does the format of the income statement for Fido Treats differ from the income statement of a merchandiser?
4. Fido Treats manufactured 18,075 units of its product in 2012. Compute the company’s unit product cost for the year.
Aug 29, 2021 | Uncategorized
Flow of costs through a manufacturer’s inventory accounts
Root Shoe Company makes loafers. During the most recent year, Root incurred total manufacturing costs of $26,400,000. Of this amount, $2,100,000 was direct materials used and $19,800,000 was direct labor. Beginning balances for the year were Direct materials inventory, $600,000; Work in process inventory, $800,000; and Finished goods inventory, $700,000. At the end of the year, inventory accounts showed these amounts:
|
Materials
|
Direct Labor
|
Manufacturing Overhead
|
|
Direct materials inventory
|
$ 900,000
|
$ 0
|
$ 0
|
|
Work in process inventory
|
400,000
|
600,000
|
400,000
|
|
Finished goods inventory
|
800,000
|
150,000
|
40,000
|
Requirements
1. Compute Root Shoe Company’s cost of goods manufactured for the year.
2. Compute Root’s cost of goods sold for the year.
3. Compute the cost of materials purchased during the year.
Aug 29, 2021 | Uncategorized
Calculating income and unit cost for a service company
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
Apply ethical standards to decision making
Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company’s fiveyear history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year’s sales are included as this year’s sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company’s continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Aug 29, 2021 | Uncategorized
P16-30B Preparing an income statement for a merchandising company [45–55 min]
In 2012 Craig Gonzales opened Craig’s Pets, a small retail shop selling pet supplies.
On December 31, 2012, Craig’s accounting records showed the following:
|
Inventory on December 31, 2012
|
$ 10,100
|
|
Inventory on January 1, 2012
|
15,400
|
|
Sales revenue
|
58,000
|
|
Utilities for shop
|
3,300
|
|
Rent for shop
|
4,500
|
|
Sales commissions
|
2,850
|
|
Purchases of merchandise
|
26,000
|
Requirement
1. Prepare an income statement for Craig’s Pets, a merchandiser, for the year ended December 31, 2012.
2. What are the main differences between the income statement for a merchandising company and the income statement for a services company?
Aug 29, 2021 | Uncategorized
Preparing cost of goods manufactured schedule and income statement for a manufacturing company
Craig’s Pets succeeded so well that Craig decided to manufacture his own brand of chewing bone—Organic Bones. At the end of December 2012, his accounting records showed the following:
|
Inventories:
|
Beginning
|
Ending
|
|
|
Materials
|
$ 13,200
|
$ 7,000
|
|
|
Work in process
|
0
|
4,000
|
|
|
Finished goods
|
0
|
5,800
|
|
|
Other information:
|
|
|
|
|
Direct material purchases
|
$ 31,000
|
Utilities for plant
|
$ 1,900
|
|
Plant janitorial services
|
200
|
Rent on plant
|
11,000
|
|
Sales salaries expense
|
5,400
|
Customer service hotline expense
|
1,200
|
|
Delivery expense
|
1,400
|
Direct labor
|
23,000
|
|
Sales revenue
|
110,000
|
|
|
Requirements
1. Prepare a schedule of cost of goods manufactured for Organic Bones for the year ended December 31, 2012.
2. Prepare an income statement for Organic Bones for the year ended December 31, 2012.
3. How does the format of the income statement for Organic Bones differ from the income statement of a merchandiser?
4. Organic Bones manufactured 15,400 units of its product in 2012. Compute the company’s unit product cost for the year.
Aug 29, 2021 | Uncategorized
Classifying costs of a manufacturer
This exercise continues the Lawlor Lawn Service, Inc., situation from Exercise 15-34 of Chapter 15. Lawlor is considering manufacturing a weed eater. Lawlor expects to incur the following manufacturing costs:
Shaft and handle of weed eater.
Motor of weed eater.
Factory labor for workers assembling weed eaters.
Nylon thread used by the weed eater (not traced to the job by Lawlor).
Glue to hold housing together.
Plant janitorial wages.
Depreciation on factory equipment.
Rent on plant.
Sales commission expense.
Administrative salaries
Plant utilities.
Shipping costs to deliver finished weed eaters to customers.
Requirement
1. Classify each cost as either direct materials, direct labor, factory overhead, or period costs.
Aug 29, 2021 | Uncategorized
Classifying costs of a manufacturer
This problem continues the Draper Consulting, Inc., situation from Problem 15-35 of Chapter 15. Draper is going to manufacture billing software. During its first month of manufacturing, Draper incurred the following manufacturing costs:
|
Inventories:
|
Beginning
|
Ending
|
|
|
Materials
|
$ 10,800
|
$ 10,300
|
|
|
Work in process
|
0
|
21,000
|
|
|
Finished goods
|
0
|
31,500
|
|
|
Other information:
|
|
|
|
|
Direct material purchases
|
$ 19,000
|
Utilities for plant
|
$ 10,000
|
|
Plant janitorial services
|
700
|
Rent of plant
|
13,000
|
|
Sales salaries expense
|
5,000
|
Customer service hotline expense
|
18,000
|
|
Delivery expense
|
1,700
|
Direct labor
|
190,000
|
|
Sales revenue
|
750,000
|
|
|
Requirement
1. Prepare a schedule of cost of goods manufactured for Draper for the month ended January 31, 2014.
Aug 29, 2021 | Uncategorized
Decision Case 16-1 PowerSwitch, Inc., designs and manufactures switches used in telecommunications. Serious flooding throughout North Carolina affected PowerSwitch’s facilities. Inventory was completely ruined, and the company’s computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Stephen Plum, the company controller, is anxious to salvage whatever records he can to support an insurance claim for the destroyed inventory. He is standing in what is left of the accounting department with Paul Lopez, the cost accountant.
“I didn’t know mud could smell so bad,” Paul says. “What should I be looking for?”
“Don’t worry about beginning inventory numbers,” responds Stephen, “we’ll get them from last year’s annual report. We need first-quarter cost data.”
“I was working on the first-quarter results just before the storm hit,” Paul says. “Look, my report’s still in my desk drawer. All I can make out is that for the first quarter, material purchases were $476,000 and direct labor, manufacturing overhead, and total manufacturing costs to account for were $505,000; $245,000; and $1,425,000; respectively. Wait! Cost of goods available for sale was $1,340,000.”
“Great,” says Stephen. “I remember that sales for the period were approximately $1,700,000. Given our gross profit of 30%, that’s all you should need.”
Paul is not sure about that, but decides to see what he can do with this information. The
beginning inventory numbers are
? Direct materials, $113,000
? Work in process, $229,000
? Finished goods, $154,000
He remembers a schedule he learned in college that may help him get started.
Requirements
1. Exhibit 16-11 resembles the schedule Paul has in mind. Use it to determine the ending inventories of direct materials, work in process, and finished goods.
2. Itemize a list of the book value of inventory lost.
Aug 29, 2021 | Uncategorized
Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer’s regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.
Becky’s former employer, Shamalay Automotive, receives only about 25 cars a month. Consequently, Shamalay was not very profitable.
Becky is surprised to learn that her new employer, Mueller Imports, receives over 200 cars a month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer’s regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma.
Requirement
1. Put yourself in Becky’s place.
a. What is the ethical issue?
b. What are your options?
c. What are the possible consequences?
d. What should you do?
Aug 29, 2021 | Uncategorized
Juan Gomez was the fastest rising star of a small CPA firm in West Palm Beach. Most of his clients traveled in stratospheric circles of wealth, and Juan knew that fitting in with this crowd was essential to his career. Although he made good money, it wasn’t enough to live that kind of lifestyle. Meanwhile, Juan had become friends with one of his clients, Tony Russo. Knowing Russo’s books inside and out, and being on close terms with him, Juan asked Tony for a personal loan. Juan was sure he’d be able to pay it back when he got his next bonus, but things stretched out, and additional loans were made. Two years later, Tony’s company hit some losses, and the numbers were looking grim. Tony reminded Juan that it would not look good for his career if his CPA firm knew Juan had borrowed from a client, and so Juan changed a few numbers and signed off on clean financials for Tony’s firm. This went on for three years, until one morning when Juan got a call. Russo had died; his sons had gone through the books, and the whole scheme came out. Juan did some prison time and lost his license, but he was repentant, and made an instructional video for accounting students to warn them of the temptations they may encounter in the real world of business.
Requirements
1. Although the protagonist of this story worked in public accounting, please refer to the Statement of Ethical Professional Practice in Exhibit 16-3 and discuss which of those issues are reflected in this case.
2. Could Juan have extricated himself from his situation? How?
Aug 29, 2021 | Uncategorized
Search the Internet for a nearby company that also has a Web page. Arrange an interview for your team with a managerial accountant, a controller, or other accounting/finance officer of the company.
Requirements
Before your team conducts the interview, answer the following questions:
1. Is this a service, merchandising, or manufacturing company? What is its primary product or service?
2. Is the primary purpose of the company’s Web site to provide information about the company and its products, to sell online, or to provide financial information for investors?
3. Are parts of the company’s Web site restricted so that you need password authorization to enter? What appears to be the purpose of limiting access?
4. Does the Web site provide an e-mail link for contacting the company?
At the interview, begin by clarifying your team’s answers to questions 1 through 4, and ask the following additional questions:
5. If the company sells over the Web, what benefits has the company derived? Did the company perform a cost-benefit analysis before deciding to begin Web sales?
Or
If the company does not sell over the Web, why not? Has the company performed a costbenefit analysis and decided not to sell over the Web?
6. What is the biggest cost of operating the Web site?
7. Does the company make any purchases over the Internet? What percentage?
8. How has e-commerce affected the company’s managerial accounting system? Have the managerial accountant’s responsibilities become more or less complex? More or less interesting?
9. Does the company use Web-based accounting applications, such as accounts receivable or accounts payable?
10. Does the company use an ERP system? If so, do managers view the system as a success? What have been the benefits? The costs? Your team should summarize your findings in a short paper. Provide any exhibits that enhance your explanation of key items. Provide proper references and a works cited page.
Aug 29, 2021 | Uncategorized
Preparing the direct method statement of cash flows
Rouse Toy Company reported the following comparative balance sheet:
|
ROUSE TOY COMPANY Comparative Balance Sheet December 31, 2012 and 2011
|
|
Assets
|
2012
|
2011
|
Liabilities
|
2012
|
2011
|
|
Current:
|
|
|
Current:
|
|
|
|
Cash
|
$ 17,000
|
$ 11,000
|
Accounts payable
|
$ 43,000
|
$ 38,000
|
|
Accounts receivable
|
59,000
|
49,000
|
Salary payable
|
24,500
|
19,000
|
|
Inventory
|
78,000
|
84,000
|
Accrued liabilities
|
5,000
|
13,000
|
|
Prepaid expenses
|
3,100
|
2,100
|
Long-term notes payable
|
60,000
|
70,000
|
|
Long-term investments
|
75,000
|
85,000
|
Stockholders’ Equity
|
|
|
|
Plant assets, net
|
227,000
|
189,000
|
Common stock
|
42,000
|
39,000
|
|
|
|
Retained earnings
|
284,600
|
241,100
|
|
Total assets
|
$459,100
|
$420,100
|
Total liabilities and stockholders’ equity
|
$459,100
|
$420,100
|
Requirement
1. Compute the following for Rouse Toy Company:
a. Collections from customers during 2012. Sales totaled $143,000.
b. Payments for inventory during 2012. Cost of goods sold was $80,000.
Aug 29, 2021 | Uncategorized
Identifying activity categories—direct method
Consider the following transactions:
a. Collection of accounts receivable.
b. Issuance of note payable to borrow cash.
c. Depreciation.
d. Issuance of preferred stock for cash.
e. Payment of cash dividend.
f. Sale of land.
g. Acquisition of equipment by issuance of note payable.
h. Payment of note payable.
i. Purchase of treasury stock.
j. Issuance of common stock for cash.
k. Payment of account payable.
l. Acquisition of building by issuance of common stock.
m. Purchase of equipment.
n. Payment of wages to employees.
o. Collection of cash interest.
p. Sale of building
Requirement
1. Identify each of the transactions as a(n)
? Operating activity (O)
? Investing activity (I)
? Financing activity (F)
? Noncash investing and financing activity (NIF)
? Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (–) cash. The direct method is used for cash flows from operating activities.
Aug 29, 2021 | Uncategorized
Identifying activity categories of transactions—direct method
Consider the following transactions:
|
a. Land
|
17,000
|
|
g. Salary expense
|
5,200
|
|
|
Cash
|
|
17,000
|
Cash
|
|
5,200
|
|
b. Cash
|
9,800
|
|
h. Cash
|
92,000
|
|
|
Equipment
|
|
9,800
|
Common stock
|
|
92,000
|
|
c. Bonds payable
|
36,000
|
|
i. Treasury stock
|
16,300
|
|
|
Cash
|
|
36,000
|
Cash
|
|
16,300
|
|
d. Building
|
128,000
|
|
j. Cash
|
3,200
|
|
|
Note payable
|
|
128,000
|
Interest revenue
|
|
3,200
|
|
e. Cash
|
2,200
|
|
k. Land
|
64,000
|
|
|
Accounts receivable
|
|
2,200
|
Cash
|
|
64,000
|
|
f. Dividends payable
|
19,800
|
|
l. Accounts payable
|
10,200
|
|
|
Cash
|
|
19,800
|
Cash
|
|
10,200
|
Requirement
1. Indicate where, if at all, each of the transactions would be reported on a statement of cash flows prepared by the direct method and the accompanying schedule of noncash investing and financing activities.
Aug 29, 2021 | Uncategorized
Preparing operating activities cash flow—direct method
The accounting records of Fuzzy Dice Auto Parts reveal the following:
|
Payment of salaries and wages
|
$ 31,000
|
Net income
|
$ 21,000
|
|
Depreciation
|
13,000
|
Payment of income tax
|
11,000
|
|
Payment of interest
|
16,000
|
Collection of dividend revenue
|
6,000
|
|
Payment of dividends
|
6,000
|
Payment to suppliers
|
54,000
|
|
Collections from customers
|
117,000
|
|
|
Requirement
1. Compute cash flows from operating activities using the direct method.
Aug 29, 2021 | Uncategorized
Identifying activity categories of transactions—direct method
Selected accounts of Printing Networks, Inc., show the following:
|
Accounts receivable
|
|
Beginning balance
|
9,100
|
|
|
|
Service revenue
|
40,000
|
Cash collections
|
38,000
|
|
Ending balance
|
11,100
|
|
|
|
Land
|
|
Beginning balance
|
87,000
|
|
Acquisition
|
14,000
|
|
Ending balance
|
101,000
|
|
Long-term notes payable
|
|
|
Beginning balance
|
274,000
|
|
Payments
|
73,000
|
Issuance for cash
|
84,000
|
|
|
Ending balance
|
285,000
|
Requirement
1. For each account, identify the item or items that should appear on a statement of cash flows prepared by the direct method. Also state each item’s amount and where to report the item.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—direct method
The income statement and additional data of Best Corporation follow:
|
BEST CORPORATION Income Statement Year Ended June 30, 2012
|
|
Revenues:
|
|
|
|
Sales revenue
|
$ 231,000
|
|
|
Dividend revenue
|
8,000
|
$ 239,000
|
|
Expenses:
|
|
|
|
Cost of goods sold
|
$ 102,000
|
|
|
Salary expense
|
48,000
|
|
|
Depreciation expense
|
28,000
|
|
|
Advertising expense
|
13,000
|
|
|
Income tax expense
|
11,000
|
|
|
Interest expense
|
3,000
|
205,000
|
|
Net income
|
|
$ 34,000
|
Additional data follow:
a. Collections from customers are $15,500 more than sales.
b. Dividend revenue, interest expense, and income tax expense equal their cash amounts.
c. Payments to suppliers are the sum of cost of goods sold plus advertising expense.
d. Payments to employees are $1,000 more than salary expense.
e. Acquisition of plant assets is $102,000.
f. Cash receipts from sale of land total $24,000.
g. Cash receipts from issuance of common stock total $32,000.
h. Payment of long-term note payable is $17,000.
i. Payment of dividends is $10,500.
j. Cash balance, June 30, 2011, was $25,000; June 30, 2012 was $28,000.
Requirement
1. Prepare Best Corporation’s statement of cash flows for the year ended June 30,
2012. Use the direct method.
Aug 29, 2021 | Uncategorized
Computing cash flow items—direct method
Superb Mobile Homes reported the following in its financial statements for the year ended December 31, 2012:
|
2012
|
2011
|
|
Income Statement
|
|
|
|
Net sales
|
$ 25,118
|
$ 21,115
|
|
Cost of sales
|
18,088
|
15,432
|
|
Depreciation
|
273
|
232
|
|
Other operating expenses
|
4,411
|
4,283
|
|
Income tax expense
|
536
|
481
|
|
Net income
|
$ 1,810
|
$ 687
|
|
Balance Sheet
|
|
|
|
Cash and cash equivalents
|
$ 15
|
$ 13
|
|
Accounts receivable
|
799
|
619
|
|
Inventories
|
3,489
|
2,839
|
|
Property and equipment, net
|
4,346
|
3,436
|
|
Accounts payable
|
1,544
|
1,364
|
|
Accrued liabilities
|
941
|
853
|
|
Long-term liabilities
|
479
|
468
|
|
Common stock
|
671
|
443
|
|
Retained earnings
|
5,014
|
3,779
|
Requirement
1. Determine the following for Superb Mobile Homes during 2012:
a. Collections from customers.
b. Payments for inventory.
c. Payments of operating expenses.
d. Acquisitions of property and equipment (no sales of property during 2012).
e. Borrowing, with Superb paying no long-term liabilities.
f. Cash receipt from issuance of common stock.
g. Payment of cash dividends.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—direct method [35–45 min]
MPG, Inc., accountants have developed the following data from the company’s
accounting records for the year ended April 30, 2012:
a. Purchase of plant assets, $59,400.
b. Cash receipt from issuance of notes payable, $46,100.
c. Payments of notes payable, $44,000.
d. Cash receipt from sale of plant assets, $24,500.
e. Cash receipt of dividends, $4,800.
f. Payments to suppliers, $374,300.
g. Interest expense and payments, $12,000.
h. Payments of salaries, $88,000.
i. Income tax expense and payments, $37,000.
j. Depreciation expense, $59,900.
k. Collections from customers, $605,500.
l. Payment of cash dividends, $49,400.
m. Cash receipt from issuance of common stock, $64,900.
n. Cash balance: April 30, 2011, $40,000; April 30, 2012, $121,700.
Requirement
1. Prepare MPG’s statement of cash flows for the year ended April 30, 2012. Use the direct method for cash flows from operating activities.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—direct method [45–60 min]
To prepare the statement of cash flows, accountants for E-Mobile, Inc., have summarized 2012 activity in the Cash account as follows:
|
|
|
|
|
Beginning balance
|
87,200
|
Payments of operating expenses
|
46,800
|
|
Issuance of common stock
|
60,200
|
Payments of salaries and wages
|
64,500
|
|
Receipts of interest revenue
|
16,100
|
Payment of note payable
|
79,000
|
|
Collections from customers
|
308,400
|
Payment of income tax
|
7,500
|
|
|
Payments on accounts payable
|
101,600
|
|
|
Payments of dividends
|
1,400
|
|
|
Payments of interest
|
21,700
|
|
|
Purchase of equipment
|
49,500
|
|
Ending balance
|
99,900
|
|
|
Requirement
1. Prepare E-Mobile’s statement of cash flows for the year ended December 31, 2012, using the direct method to report operating activities.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—direct method
KSG, Inc., accountants have developed the following data from the company’s accounting records for the year ended June 30, 2012:
a. Purchase of plant assets, $57,400.
b. Cash receipt from issuance of notes payable, $48,100.
c. Payments of notes payable, $45,000.
d. Cash receipt from sale of plant assets, $23,500.
e. Cash receipt of dividends, $4,300.
f. Payments to suppliers, $371,300.
g. Interest expense and payments, $13,500.
h. Payments of salaries, $92,000.
i. Income tax expense and payments, $38,000.
j. Depreciation expense, $56,000.
k. Collections from customers, $607,000.
l. Payment of cash dividends, $45,400.
m. Cash receipt from issuance of common stock, $65,900.
n. Cash balance: June 30, 2011, $39,300; June 30, 2012, $125,500.
Requirement
1. Prepare KSG’s statement of cash flows for the year ended June 30, 2012. Use the direct method for cash flows from operating activities.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—direct method
To prepare the statement of cash flows, accountants for I-M-Mobile, Inc., have summarized 2012 activity in the Cash account as follows:
|
Cash
|
|
Beginning balance
|
87,900
|
Payments of operating expenses
|
46,200
|
|
Issuance of common stock
|
60,700
|
Payments of salaries and wages
|
64,500
|
|
Receipts of interest revenue
|
15,600
|
Payment of note payable
|
78,000
|
|
Collections from customers
|
308,700
|
Payment of income tax
|
8,000
|
|
|
Payments on accounts payable
|
101,200
|
|
|
Payments of dividends
|
1,200
|
|
|
Payments of interest
|
21,400
|
|
|
Purchase of equipment
|
56,500
|
|
Ending balance
|
95,900
|
|
|
Requirement
1. Prepare I-M-Mobile’s statement of cash flows for the year ended December 31, 2012, using the direct method to report operating activities.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method
The 2012 comparative balance sheet and income statement of Appleton Group, Inc., follow. Appleton had no noncash investing and financing transactions during 2012.
|
APPLETON GROUP, INC. Comparative Balance Sheet December 31, 2012 and 2011
|
|
2012
|
2011
|
Increase (Decrease)
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$ 9,300
|
$ 15,300
|
$ (6,000)
|
|
Accounts receivable
|
42,000
|
43,200
|
(1,200)
|
|
Inventories
|
97,100
|
93,700
|
3,400
|
|
Plant assets:
|
|
|
|
|
Land
|
41,100
|
16,000
|
25,100
|
|
Equipment, net
|
101,200
|
94,300
|
6,900
|
|
Total assets
|
290,700
|
$ 262,500
|
$ 28,200
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$ 25,600
|
$ 26,600
|
$ (1,000)
|
|
Accrued liabilities
|
24,000
|
22,800
|
1,200
|
|
Long-term liabilities:
|
|
|
|
|
Notes payable
|
46,000
|
62,000
|
(16,000)
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock
|
140,300
|
131,400
|
8,900
|
|
Retained earnings
|
54,800
|
19,700
|
35,100
|
|
Total liabilities and stockholders’ equity
|
$ 290,700
|
$ 262,500
|
$ 28,200
|
|
APPLETON GROUP, INC. Income Statement Year Ended December 31, 2012
|
|
Revenues:
|
|
|
|
Sales revenue
|
|
$ 439,000
|
|
Interest revenue
|
|
11,800
|
|
Total revenues
|
|
$ 450,800
|
|
Expenses:
|
|
|
|
Cost of goods sold
|
$ 205,500
|
|
|
Salary expense
|
76,500
|
|
|
Depreciation expense
|
15,500
|
|
|
Other operating expense
|
49,500
|
|
|
Interest expense
|
24,300
|
|
|
Income tax expense
|
16,300
|
|
|
Total expenses
|
|
387,600
|
|
Net income
|
|
$ 63,200
|
Requirement
1. Prepare the spreadsheet for the 2012 statement of cash flows. Format cash flows from operating activities by the indirect method.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method with noncash transactions The 2012 comparative balance sheet and income statement of Rolling Hills, Inc., follow:
|
ROLLING HILLS, INC.
Comparative Balance Sheet
December 31, 2012 and 2011
|
| |
2012
|
2011
|
Increase
(Decrease)
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$ 26,400
|
$ 15,900
|
$ 10,500
|
|
Accounts receivable
|
26,700
|
25,500
|
1,200
|
|
Inventories
|
79,800
|
91,700
|
(11,900)
|
|
Plant assets:
|
|
|
|
|
Land
|
34,600
|
11,000
|
23,600
|
|
Equipment, net
|
103,900
|
89,700
|
14,200
|
|
Total assets
|
$ 271,400
|
$ 233,800
|
$ 37,600
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$ 35,500
|
$ 30,600
|
$ 4,900
|
|
Accrued liabilities
|
28,600
|
30,700
|
(2,100)
|
|
Long-term liabilities:
|
|
|
|
|
Notes payable
|
78,000
|
101,000
|
(23,000)
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock
|
88,800
|
64,900
|
23,900
|
|
Retained earnings
|
40,500
|
6,600
|
33,900
|
|
Total liabilities and stockholders’ equity
|
$ 271,400
|
$ 233,800
|
$ 37,600
|
|
ROLLING HILLS, INC.
Income Statement
Year Ended December 31, 2012
|
|
Revenues:
|
|
|
|
Sales revenue
|
|
$ 436,000
|
|
Interest revenue
|
|
8,000
|
|
Total revenues
|
|
444,000
|
|
Expenses:
|
|
|
|
Cost of goods sold
|
$ 202,200
|
|
|
Salary expense
|
78,400
|
|
|
Depreciation expense
|
14,400
|
|
|
Other operating expense
|
10,200
|
|
|
Interest expense
|
21,900
|
|
|
Income tax expense
|
19,100
|
|
|
Total expenses
|
|
346,200
|
|
Net income
|
|
$97,800
|
Additionally, Rolling Hills purchased land of $23,600 by financing it 100% with long-term notes payable during 2012. During the year, there were no sales of land or equipment, no additional issuances of notes payable, no retirements of stock, and no treasury stock transactions.
Requirements
1. Prepare the 2012 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method
The 2012 comparative balance sheet and income statement of Attleboro Group, Inc. follow. Attleboro had no noncash investing and financing transactions during 2012.
|
ATTLEBORO GROUP, INC. Comparative Balance Sheet December 31, 2012 and 2011
|
|
2012
|
2011
|
Increase (Decrease)
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$ 11,800
|
$ 15,200
|
$ (3,400)
|
|
Accounts receivable
|
42,200
|
43,900
|
(1,700)
|
|
Inventories
|
96,800
|
93,500
|
3,300
|
|
Plant assets:
|
|
|
|
|
Land
|
39,800
|
14,000
|
25,800
|
|
Equipment, net
|
101,100
|
93,800
|
7,300
|
|
Total assets
|
$ 291,700
|
$ 260,400
|
$ 31,300
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$ 25,100
|
$ 26,300
|
$ (1,200)
|
|
Accrued liabilities
|
24,200
|
22,500
|
1,700
|
|
Long-term liabilities:
|
|
|
|
|
Notes payable
|
51,000
|
64,000
|
(13,000)
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock
|
136,600
|
128,300
|
8,300
|
|
Retained earnings
|
54,800
|
19,300
|
35,500
|
|
Total liabilities and stockholders’ equity
|
$ 291,700
|
$ 260,400
|
$ 31,300
|
|
ATTLEBORO GROUP, INC. Income Statement Year Ended December 31, 2012
|
|
Revenues:
|
|
|
|
Sales revenue
|
|
$ 441,000
|
|
Interest revenue
|
|
11,300
|
|
Total revenues
|
|
$ 452,300
|
|
Expenses:
|
|
|
|
Cost of goods sold
|
$ 205,300
|
|
|
Salary expense
|
76,500
|
|
|
Depreciation expense
|
15,100
|
|
|
Other operating expense
|
49,600
|
|
|
Interest expense
|
24,700
|
|
|
Income tax expense
|
16,700
|
|
|
Total expenses
|
|
387,900
|
|
Net income
|
|
$ 64,400
|
Requirement
1. Prepare the spreadsheet for the 2012 statement of cash flows. Format cash flows from operating activities by the indirect method.
Aug 29, 2021 | Uncategorized
Management accountability and the stakeholders
Management has the responsibility to manage the resources of an organization in a responsible manner.
Requirement
1. For each of the following management responsibilities, indicate the primary stakeholder group to whom management is responsible. In the space provided, write the letter corresponding to the appropriate stakeholder group.
|
1. Providing high-quality, reliable products/services for a reasonable price in a timely manner.
|
a. Owners
|
|
2. Paying taxes in a timely manner.
|
b. Creditors
|
|
3. Providing a safe, productive work environment.
|
c. Suppliers
|
|
4. Generating a profit.
|
d. Employees
|
|
5. Repaying principal plus interest in a timely manner.
|
e. Customers
|
|
|
f. Government
|
|
|
g. Community
|
Aug 29, 2021 | Uncategorized
Ethical decisions
The Institute of Management Accountants’ Statement of Ethical Professional Practice (Exhibit 16-3) requires managerial accountants to meet standards regarding the following:
• Competence
• Confidentiality
• Integrity
• 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 “perk.”
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
Calculating income and unit cost for a service organization
Duncan and Oates provides hair cutting services in the local community. In February, the business incurred the following operating costs to cut the hair of 230 clients:
|
Hair supplies expense
|
$ 805
|
|
Building rent expense
|
1,150
|
|
Utilities
|
184
|
|
Depreciation on equipment
|
46
|
Duncan and Oates earned $5,200 in revenues from haircuts for the month of February.
Requirements
1. What is the net operating income for the month?
2. What is the cost of one haircut?
Aug 29, 2021 | Uncategorized
Computing cost of goods sold
The Tinted View, a retail merchandiser of auto windshields, has the following information:
|
Web site maintenance
|
$ 7,100
|
|
Delivery expense
|
900
|
|
Freight in
|
2,900
|
|
Purchases
|
39,000
|
|
Ending inventory
|
4,900
|
|
Revenues
|
57,000
|
|
Marketing expenses
|
9,900
|
|
Beginning inventory
|
7,900
|
Requirement
1. Compute The Tinted View’s cost of goods sold.
Aug 29, 2021 | Uncategorized
Computing cost of goods sold
Consider the following partially completed income statements:
|
Fit Apparel
|
Jones, Inc.
|
|
Sales
|
$ 101,000
|
(d)
|
|
Cost of goods sold
|
|
|
|
Beginning inventory
|
(a)
|
$ 29,000
|
|
Purchases and freight in
|
48,000
|
(e)
|
|
Cost of goods available for sale
|
(b)
|
88,000
|
|
Ending inventory
|
1,900
|
1,900
|
|
Cost of goods sold
|
59,000
|
(f)
|
|
Gross margin
|
$ 42,000
|
$ 113,000
|
|
Selling and administrative expenses
|
(c)
|
84,000
|
|
Operating income
|
$ 13,000
|
(g)
|
Requirement
1. Compute the missing amounts.
Aug 29, 2021 | Uncategorized
Management vs. financial accounting and managers’ use of information
The following statements consider how managers use information.
a. Companies must follow GAAP in their ____ accounting systems.
b. Financial accounting develops reports for external parties, such as ____ and ____.
c. When managers compare the company’s actual results to the plan, they are performing the ____ role of management.
d. ____ are decision makers inside a company.
e. ____ accounting provides information on a company’s past performance.
f. ____ accounting systems are not restricted by GAAP but are chosen by comparing the costs versus the benefits of the system.
g. Choosing goals and the means to achieve them is the ____ function of management.
Requirement
1. Complete each blank with one of the terms listed here. You may use a term more
than once, and some terms may not be used at all.
Aug 29, 2021 | Uncategorized
How would the initial break-even operating lease rate change if rapid technological change in limo manufacturing reduces the costs of new limos by 5% per year? 12. Suppose that National Waferonics has before it a proposal for a four-year financial lease. The bottom line of its table shows the lease cash flows:
|
Year 0
|
Year 1
|
Year 2
|
Year 3
|
|
Lease cash flow
|
+62,000
|
-26,800
|
-22,200
|
-17,600
|
These flows reflect the cost of the machine, depreciation tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 10% and faces a 35% marginal tax rate.
a. What is the value of the equivalent loan?
b. What is the value of the lease?
c. Suppose the machine’s NPV under normal financing is -$5,000. Should National Waferonics invest? Should it sign the lease?
Aug 29, 2021 | Uncategorized
Magna Charter has been asked to operate a Beaver bush plane for a mining company exploring north and west of Fort Liard. Magna will have a firm one-year contract with the mining company and expects that the contract will be renewed for the five-year duration of the exploration program. If the mining company renews at year 1, it will commit to use the plane for four more years. Magna Charter has the following choices.
• Buy the plane for $500,000.
• Take a one-year operating lease for the plane. The lease rate is $118,000, paid in advance.
• Arrange a five-year, non cancelable financial lease at a rate of $75,000 per year, paid in advance. These are net leases: all operating costs are absorbed by Magna Charter. How would you advise Agnes Magna, the charter company’s CEO? For simplicity assume five-year, straight-line depreciation for tax purposes. The company’s tax rate is 35%. The weighted-average cost of capital for the bush-plane business is 14%, but Magna can borrow at 9%. The expected inflation rate is 4%. Ms. Magna thinks the plane will be worth $300,000 after five years. But if the contract with the mining company is not renewed (there is a 20% probability of this outcome at year 1), the plane will have to be sold on short notice for $400,000. If Magna Charter takes the five-year financial lease and the mining company cancels at year 1, Magna can sublet the plane, that is, rent it out to another user. Make additional assumptions as necessary.
Aug 29, 2021 | Uncategorized
Obtain the annual reports (or annual report data) of five well-known companies. You can get the reports either from the companies’ Web sites, your college library, or by mailing a request directly to the company (allow two weeks for delivery). Or you can visit the Web and search the SEC EDGAR database, which includes the financial reports of most well-known companies.
Requirements
1. After selecting five companies, examine their income statements to search for the following items:
a. Income from continuing operations
b. Discontinued operations
c. Extraordinary gains and losses
d. Net income or net loss
e. Earnings per share data
2. Study the companies’ balance sheets to see
a. what classes of stock each company has issued.
b. which item carries a larger balance—the Common stock account or Paid-in capital in excess of par (also labeled Additional paid-in capital).
c. the percentage of each company’s total stockholders’ equity made up of retained earnings.
d. whether the company has Treasury stock. If so, how many shares and how much i s the cost?
3. Examine each company’s statement of stockholders’ equity for evidence of
a. cash dividends.
b. stock dividends. (Some companies use the term stock split to refer to a large stock dividend.)
c. treasury stock purchases and sales.
4. As directed by your instructor, either write a report or present your findings to your class. You may not be able to understand everything you find, but neither can the Wall Street analysts! You will be amazed at how much you have learned.
Aug 29, 2021 | Uncategorized
The Plant assets account of Star Media shows the following:
|
Plant assets, net
|
|
Beg
|
80,000
|
Depr
|
34,000
|
|
Purchase
|
428,000
|
Sale
|
42,000
|
|
End
|
432,000
|
|
|
Star Media sold plant assets at an $11,000 loss. Where on the statement of cash flows should Star Media report the sale of plant assets? How much should the business report for the sale?
a. Financing cash flows—cash receipt of $42,000
b. Investing cash flows—cash receipt of $53,000
c. Investing cash flows—cash receipt of $31,000
d. Investing cash flows—cash receipt of $42,000
Aug 29, 2021 | Uncategorized
Classifying items on the indirect statement of cash flows
Destiny Corporation is preparing its statement of cash flows by the indirect method. Destiny has the following items for you to consider in preparing the statement:
a. Increase in accounts payable
b. Payment of dividends
c. Decrease in accrued liabilities
d. Issuance of common stock
e. Gain on sale of building
f. Loss on sale of land
g. Depreciation expense
h. Increase in inventory
i. Decrease in accounts receivable
j. Purchase of equipment
Requirement
1. Identify each item as a(n)
? Operating activity—addition to net income (O+), or subtraction from net income (O–)
? Investing activity—addition to cash flow (I+), or subtraction from cash flow (I–)
• Financing activity—addition to cash flow (F+), or subtraction from cash flow (F–)
• Activity that is not used to prepare the indirect cash flow statement (N)
Aug 29, 2021 | Uncategorized
Computing cash flows from operating activities—indirect method
OMD Equipment, Inc., reported the following data for 2012:
|
Income statement
|
|
|
Net income
|
$44,000
|
|
Depreciation
|
8,000
|
|
Balance sheet
|
|
|
Increase in Accounts receivable
|
7,000
|
|
Decrease in Accounts payable
|
4,000
|
Requirement
1. Compute OMD’s net cash provided by operating activities—indirect method.
Aug 29, 2021 | Uncategorized
Classifying items on the indirect statement of cash flows
The cash flow statement categorizes like transactions for optimal reporting.
Requirement
1. Identify each of the following transactions as one of the following:
? Operating activity (O)
? Investing activity (I)
? Financing activity (F)
? Noncash investing and financing activity (NIF)
? Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (–) cash. The indirectmethod is used to report cash flows from operating activities.3
a. Loss on sale of land.
b. Acquisition of equipment
by issuance of note payable.
c. Payment of long-term debt.
d. Acquisition of building by
issuance of common stock.
e. Increase in salary payable.
f. Decrease in inventory.
g. Increase in prepaid expenses.
h. Decrease in accrued liabilities.
i. Cash sale of land.
j. Issuance of long-term note
payable to borrow cash.
k. Depreciation.
l. Purchase of treasury stock.
m. Issuance of common stock.
n. Increase in accounts payable.
o. Net income.
p. Payment of cash dividend.
Aug 29, 2021 | Uncategorized
Classifying transactions on the statement of cash flows—indirect method
|
a. Cash
|
72,000
|
|
Common stock
|
16,500
|
|
b. Treasury stock
|
88,000
|
|
Cash
|
103,000
|
|
c. Cash
|
6,800
|
|
Sales revenue
|
19,500
|
|
d. Land
|
72,000
|
|
Cash
|
16,500
|
|
e. Depreciation expense
|
88,000
|
|
Accumulated depreciation
|
103,000
|
|
f. Dividends payable
|
6,800
|
|
Cash
|
19,500
|
|
g. Land
|
22,000
|
|
Cash
|
9,600
|
|
h. Cash
|
51,000
|
|
Equipment
|
137,000
|
|
i. Bonds payable
|
1,800
|
|
Cash
|
22,000
|
|
j. Building
|
9,600
|
|
Note payable, long-term
|
51,000
|
|
k. Loss on disposal of equipment
|
137,000
|
|
Equipment, net
|
1,800
|
Requirement
1. Indicate whether each transaction would result in an operating activity, an investing activity, or a financing activity for an indirect method statement of cash flows and the accompanying schedule of noncash investing and financing activities.
Aug 29, 2021 | Uncategorized
Computing operating acitivites cash flow—indirect method
The records of McKnight Color Engraving reveal the following:
|
Net income
|
$ 38,000
|
Depreciation
|
$ 4,000
|
|
Sales revenue
|
51,000
|
Decrease in current liabilities
|
28,000
|
|
Loss on sale of land
|
5,000
|
Increase in current assets other than cash
|
14,000
|
|
Acquisition of land
|
39,000
|
|
|
Requirements
1. Compute cash flows from operating activities by the indirect method.
2. Evaluate the operating cash flow of McKnight Color Engraving. Give the reason for your evaluation.
Aug 29, 2021 | Uncategorized
Identifying and reporting noncash transactions
Dirtbikes, Inc., identified the following selected transactions that occurred during 2012:
a. Issued 1,250 shares of $2 par common stock for cash of $26,000.
b. Issued 5,500 shares of $2 par common stock for a building valued at $101,000.
c. Purchased new company truck with FMV of $28,000. Financed it 100% with a long-term note.
d. Paid short-term notes of $23,000 by issuing 2,400 shares of $2 par common stock.
e. Paid long-term note of $10,500 to Bank of Tallahassee. Issued new long-term note of $21,000 to Bank of Trust.
Requirement
1. Identify any noncash transactions that occurred during the year and show how they would be reported in the noncash section of the cash flow statement.
Aug 29, 2021 | Uncategorized
Purpose of the statement and preparing the statement of cash flows—indirect method
Classic Reserve Rare Coins (CRRC) was formed on January 1, 2012. Additional data for the year follows:
a. On January 1, 2012, CRRC issued common stock for $425,000.
b. Early in January, CRRC made the following cash payments:
1. For store fixtures, $54,000.
2. For inventory, $270,000.
3. For rent expense on a store building, $10,000.
c. Later in the year, CRRC purchased inventory on account for $243,000. Before year-end, CRRC paid $163,000 of this account payable.
d. During 2012, CRRC sold 2,100 units of inventory for $350 each. Before year-end, the company collected 80% of this amount. Cost of goods sold for the year was $260,000, and ending inventory totaled $253,000.
e. The store employs three people. The combined annual payroll is $94,000, of which CRRC still owes $4,000 at year-end.
f. At the end of the year, CRRC paid income tax of $23,000.
g. Late in 2012, CRRC paid cash dividends of $41,000.
h. For equipment, CRRC uses the straight-line depreciation method, over five years, with zero residual value.
Requirements
1. What is the purpose of the cash flow statement?
2. Prepare CRRC’s income statement for the year ended December 31, 2012. Use the single-step format, with all revenues listed together and all expenses listed together.
3. Prepare CRRC’s balance sheet at December 31, 2012.
4. Prepare CRRC’s statement of cash flows using the indirect method for the year ended December 31, 2012.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method
Accountants for Johnson, Inc., have assembled the following data for the year ended December 31, 2012:
|
December 31,
|
|
2012
|
2011
|
|
|
Current Accounts:
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$ 92,100
|
$ 17,000
|
|
|
Accounts receivable
|
64,500
|
69,200
|
|
|
Inventories
|
87,000
|
80,000
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
57,900
|
56,200
|
|
|
Income tax payable
|
14,400
|
17,100
|
|
|
Transaction Data for 2012:
|
|
|
|
|
Issuance of common stock for cash
|
$ 40,000
|
Payment of note payable
|
$48,100
|
|
Depreciation expense
|
25,000
|
Payment of cash dividends
|
54,000
|
|
Purchase of equipment
|
75,000
|
Issuance of note payable
to borrow cash
|
67,000
|
|
Acquisition of land by issuing long-term note payable
|
122,000
|
Gain on sale of building
|
5,500
|
|
Cost basis of building sold
|
53,000
|
Net income
|
70,500
|
Requirement
1. Prepare Johnson’s statement of cash flows using the indirect method. Include an accompanying schedule of noncash investing and financing activities.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method, evaluating cash flows, and measuring free cash flows
The comparative balance sheet of Jackson Educational Supply at December 31,
2012, reported the following:
|
December 31,
|
|
2012
|
2011
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$ 88,200
|
$ 22,500
|
|
|
Accounts receivable
|
14,400
|
21,700
|
|
|
Inventories
|
63,600
|
60,400
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable .
|
28,600
|
27,100
|
|
|
Accrued liabilities .
|
10,600
|
11,200
|
|
|
Jackson’s transactions during 2012 included the following:
|
Depreciation expense
|
$ 16,700
|
|
Payment of cash dividend
|
$ 17,200
|
Purchase of building
|
100,000
|
|
Purchase of equipment
|
54,400
|
Net income
|
59,600
|
|
Issuance of long-term note payable to borrow cash
|
50,000
|
Issuance of common stock for cash
|
106,000
|
Requirements
1. Prepare the statement of cash flows of Jackson Educational Supply for the year ended December 31, 2012. Use the indirect method to report cash flows from operating activities.
2. Evaluate Jackson’s cash flows for the year. Mention all three categories of cash flows and give the reason for your evaluation.
3. If Jackson plans similar activity for 2013, what is its expected free cash flow?
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method with noncash transactions
The 2012 comparative balance sheet and income statement of Rolling Hills, Inc., follow:
|
ROLLING HILLS, INC. Comparative Balance Sheet December 31, 2012 and 2011
|
|
2012
|
2011
|
Increase (Decrease)
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$ 26,400
|
$ 15,900
|
$ 10,500
|
|
Accounts receivable
|
26,700
|
25,500
|
1,200
|
|
Inventories
|
79,800
|
91,700
|
(11,900)
|
|
Plant assets:
|
|
|
|
|
Land
|
34,600
|
11,000
|
23,600
|
|
Equipment, net
|
103,900
|
89,700
|
14,200
|
|
Total assets
|
$ 271,400
|
$ 233,800
|
$ 37,600
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$ 35,500
|
$ 30,600
|
$ 4,900
|
|
Accrued liabilities
|
28,600
|
30,700
|
(2,100)
|
|
Long-term liabilities:
|
|
|
|
|
Notes payable
|
78,000
|
101,000
|
(23,000)
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock
|
88,800
|
64,900
|
23,900
|
|
Retained earnings
|
40,500
|
6,600
|
33,900
|
|
Total liabilities and stockholders’ equity
|
$ 271,400
|
$ 233,800
|
$ 37,600
|
|
ROLLING HILLS, INC. Income Statement Year Ended December 31, 2012
|
|
|
Revenues:
|
|
|
|
|
Sales revenue
|
|
$ 436,000
|
|
Interest revenue
|
|
8,000
|
|
|
Total revenues
|
|
444,000
|
|
|
Expenses:
|
|
|
|
|
Cost of goods sold
|
$ 202,200
|
|
|
Salary expense
|
78,400
|
|
|
|
Depreciation expense
|
14,400
|
|
|
|
Other operating expense
|
10,200
|
|
|
|
Interest expense
|
21,900
|
|
|
|
Income tax expense
|
19,100
|
|
|
|
Total expenses
|
|
346,200
|
|
|
Net income
|
|
$ 97,800
|
|
Additionally, Rolling Hills purchased land of $23,600 by financing it 100% with long-term notes payable during 2012. During the year, there were no sales of land or equipment, no additional issuances of notes payable, no retirements of stock, and no treasury stock transactions.
Requirements
1. Prepare the 2012 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method
Accountants for Smithson, Inc., have assembled the following data for the year ended December 31, 2012:
|
December 31,
|
|
2012
|
2011
|
|
Current Accounts:
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$ 106,100
|
$ 26,000
|
|
Accounts receivable
|
64,300
|
68,900
|
|
Inventories
|
80,000
|
75,000
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
57,700
|
56,100
|
|
Income tax payable
|
14,500
|
17,000
|
|
|
|
|
Transaction Data for 2012:
|
|
|
|
Issuance of common stock for cash
|
$ 45,000
|
|
|
Depreciation expense
|
18,000
|
|
|
Purchase of equipment
|
70,000
|
|
|
Acquisition of land by issuing long-term note payable
|
113,000
|
|
|
Payment of note payable
|
$46,100
|
|
|
Payment of cash dividends
|
52,000
|
|
|
Issuance of note payable to borrow cash
|
68,000
|
|
|
Gain on sale of building
|
3,500
|
|
|
Net income
|
68,500
|
|
|
Cost basis of building sold
|
$50,000
|
|
Requirement
1. Prepare Smithson’s statement of cash flows using the indirect method. Include an accompanying schedule of noncash investing and financing activities.
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method with noncash transactions
The 2012 comparative balance sheet and income statement of All Wired, Inc., follow:
|
ALL WIRED, INC. Comparative Balance Sheet December 31, 2012 and 2011
|
|
2012
|
2011
|
Increase (Decrease)
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$ 26,700
|
$ 15,600
|
$ 11,100
|
|
Accounts receivable
|
26,500
|
25,300
|
1,200
|
|
Inventories
|
79,900
|
91,900
|
(12,000)
|
|
Plant assets:
|
|
|
|
|
Land
|
35,500
|
11,000
|
24,500
|
|
Equipment, net
|
102,900
|
90,700
|
12,200
|
|
Total assets
|
$ 271,500
|
$ 234,500
|
$ 37,000
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$ 35,600
|
$ 30,500
|
$ 5,100
|
|
Accrued liabilities
|
28,900
|
30,600
|
(1,700)
|
|
Long-term liabilities:
|
|
|
|
|
Notes payable
|
77,000
|
103,000
|
(26,000)
|
|
Stockholders’ equity:
|
|
|
|
|
Common stock
|
88,200
|
64,300
|
23,900
|
|
Retained earnings
|
41,800
|
6,100
|
35,700
|
|
Total liabilities and stockholders’ equity
|
$ 271,500
|
$ 234,500
|
$ 37,000
|
|
ALL WIRED, INC. Income Statement Year Ended December 31, 2012
|
|
Revenues:
|
|
|
|
Sales revenue
|
|
$ 438,000
|
|
Interest revenue
|
|
8,500
|
|
Total revenues
|
|
446,500
|
|
Expenses:
|
|
|
|
Cost of goods sold
|
$ 209,200
|
|
|
Salary expense
|
72,400
|
|
|
Depreciation expense
|
14,500
|
|
|
Other operating expense
|
10,000
|
|
|
Interest expense
|
21,500
|
|
|
Income tax expense
|
19,400
|
|
|
Total expenses
|
|
347,000
|
|
Net income
|
|
$ 99,500
|
Additionally, All Wired purchased land of $24,500 by financing it 100% with longterm notes payable during 2012. During the year, there were no sales of land or equipment, no additional issuances of notes payable, no retirements of stock, and no treasury stock transactions.
Requirements
1. Prepare the 2012 statement of cash flows, formatting operating activities by the indirect method.
2. How will what you learned in this problem help you evaluate an investment?
Aug 29, 2021 | Uncategorized
Preparing the statement of cash flows—indirect method
This exercise continues the Lawlor Lawn Service, Inc., situation from Exercise 13-36 of Chapter 13. Refer to the comparative balance sheet for Lawlor Lawn Service.
|
DRAPER CONSULTING, INC. Comparative Balance Sheet December 31, 2013 and 2012
|
|
Assets
|
2013
|
2012
|
|
Cash
|
$ 514,936
|
$ 16,350
|
|
Accounts receivable
|
37,500
|
1,750
|
|
Supplies
|
2,200
|
200
|
|
Equipment
|
16,000
|
1,800
|
|
Furniture
|
5,700
|
4,200
|
|
Building
|
125,000
|
0
|
|
Accumulated depreciation
|
(2,753)
|
(100)
|
|
Total assets
|
$ 698,583
|
$ 24,200
|
|
Liabilities
|
|
|
|
Accounts payable
|
$ 10,000
|
$ 4,650
|
|
Salary payable
|
4,100
|
685
|
|
Unearned service revenue
|
0
|
700
|
|
Interest payable
|
10,667
|
0
|
|
Notes payable
|
40,000
|
0
|
|
Bonds payable
|
400,000
|
0
|
|
Discount on bonds payable
|
(36,184)
|
0
|
|
Stockholders’ Equity
|
|
|
|
Common stock
|
130,000
|
18,000
|
|
Retained earnings
|
140,000
|
165
|
|
Total liabilities and stockholders’ equity
|
$ 698,583
|
$ 24,200
|
Requirement
1. Prepare the statement of cash flows using the indirect method.
Aug 29, 2021 | Uncategorized
Theater by Design and Showcase Cinemas are asking you to recommend their stock to your clients. Because Theater by Design and Showcase earn about the same net income and have similar financial positions, your decision depends on their cash flow statements, summarized as follows:
|
Theater by Design
|
|
Showcase Cinemas
|
|
Net cash provided by operating activities
|
|
$ 30,000
|
|
$ 70,000
|
|
Cash provided by (used for) investing activities:
|
|
|
|
|
|
Purchase of plant assets
|
|
|
|
|
|
Sale of plant assets
|
$(20,000)
|
|
$(100,000)
|
|
Cash provided by (used for) financing activities:
|
40,000
|
20,000
|
10,000
|
(90,000)
|
|
Issuance of common stock
|
|
–
|
|
30,000
|
|
Paying off long-term debt
|
|
(40,000)
|
|
–
|
|
Net increase in cash
|
|
$ 10,000
|
|
$ 10,000
|
Requirement
1. Based on their cash flows, which company looks better? Give your reasons.
Aug 29, 2021 | Uncategorized
Moss Exports is having a bad year. Net income is only $60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss’s accounts receivable are ballooning.
The company desperately needs a loan. The Moss Exports board of directors is considering ways to put the best face on the company’s financial statements. Moss’s bank closely examines cash flow from operations. Daniel Peavey, Moss’s controller, suggests reclassifying the receivables from the slow-paying clients as long-term. He explains to the board that removing the $80,000 rise in accounts receivable from current assets will increase net cash provided by operations. This approach may help Moss get the loan.
Requirements
1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better?
2. Under what condition would the reclassification of the receivables be ethical? Unethical?
Aug 29, 2021 | Uncategorized
Frank Lou had recently been promoted to construction manager at a development firm. He was responsible for dealing with contractors who were bidding on a multi-million dollar excavation job for the new high-rise. Times were tough, several contractors had gone under recently, and the ones left standing were viciously competitive. That morning, four bids were sitting on Frank’s desk. The deadline was midnight, and the bids would be opened the next morning. The first bidder, Bo Freely, was a tough but personable character that Frank had known for years. Frank had lunch with him today, and after a few beers, Bo hinted that if Frank “inadvertently” mentioned the amount of the lowest bid, he’d receive a “birthday card” with a gift of cash. After lunch, Frank carefully unsealed the bids and noticed that another firm had underbid Bo’s company by a small margin. Frank took Bo’s bid envelope, wrote the low bid amount in pencil on it, and carried it downstairs where Bo’s son William was waiting. Later that afternoon, a new bid came in from Bo’s company. The next day, Bo’s company got the job, and Frank got a birthday card in his mailbox.
Requirements
1. Was Frank’s company hurt in any way by this fraudulent action?
2. How could this action hurt Frank?
3. How can a business protect against this kind of fraud?
Aug 29, 2021 | Uncategorized
Costs of Financial Distress – Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies’ economists agree that the probability of the continuation of the current expansion is 80 percent for the next year, and the probability of a recession is 20 percent. If the expansion continues, each firm will generate earnings before interest and taxes (EBIT) of $2.4 million. If a recession occurs, each firm will generate earnings before interest and taxes (EBIT) of $900,000. Steinberg’s debt obligation requires the firm to pay $800,000 at the end of the year. Dietrich’s debt obligation requires the firm to pay $1.1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 percent.
1. What is the value today of Steinberg’s debt and equity? What about that for Dietrich’s?
2. Steinberg’s CEO recently stated that Steinberg’s value should be higher than Dietrich’s because the firm has less debt and therefore less bankruptcy risk. Do you agree or disagree with this statement?
Aug 29, 2021 | Uncategorized
Agency Costs – Fountain Corporation’s economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of Fountain must choose between two mutually exclusive projects. Assume that the project Fountain chooses will be the firm’s only activity and that the firm will close one year from today. Fountain is obligated to make a $2,500 payment to bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following information pertaining to the two projects:
|
Economy
|
Probability
|
Low-Volatility Project Payoff
|
High-Volatility Project Payoff
|
|
Bad
|
.50
|
$2,500
|
$2,100
|
|
Good
|
.50
|
2,700
|
2,800
|
1. What is the expected value of the firm if the low-volatility project is undertaken? What if the high-volatility project is undertaken? Which of the two strategies maximizes the expected value of the firm?
2. What is the expected value of the firm’s equity if the low-volatility project is undertaken?
What is it if the high-volatility project is undertaken?
3. Which project would Fountain’s stockholders prefer? Explain.
4. Suppose bondholders are fully aware that stockholders might choose to maximize equity value rather than total firm value and opt for the high-volatility project. To minimize this agency cost, the firm’s bondholders decide to use a bond covenant to stipulate that the bondholders can demand a higher payment if Fountain chooses to take on the high-volatility project. What payment to bondholders would make stockholders indifferent between the two projects?
Aug 29, 2021 | Uncategorized
Personal Taxes, Bankruptcy Costs, and Firm Value – Overnight Publishing Company (OPC) has $2.5 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm’s debt is held by one institution that is willing to sell it back to OPC for $2.5 million. The institution will not charge OPC any transaction costs. Once OPC becomes an all-equity firm, it will remain unlevered forever. If OPC does not retire the debt, the company will use the $2.5 million in cash to buy back some of its stock on the open market. Repurchasing stock also has no transaction costs. The company will generate $1,300,000 of annual earnings before interest and taxes in perpetuity regardless of its capital structure. The firm immediately pays out all earnings as dividends at the end of each year. OPC is subject to a corporate tax rate of 35 percent, and the required rate of return on the firm’s unlevered equity is 20 percent. The personal tax rate on interest income is 25 percent, and there are no taxes on equity distribution. Assume there are no bankruptcy costs.
1. What is the value of OPC if it chooses to retire all of its debt and become an unlevered firm?
2. What is the value of OPC if is decides to repurchase stock instead of retiring its debt? (Hint: Use the equation for the value of a levered firm with personal tax on interest income from the previous problem.)
3. Assume that expected bankruptcy costs have a present value of $400,000. How does this influence OPC’s decision?
Aug 29, 2021 | Uncategorized
Dividend Reinvestment Plans – The DRK Corporation has recently developed a dividend reinvestment plan, or DRIP. The plan allows investors to reinvest cash dividends automatically in DRK in exchange for new shares of stock. Over time, investors in DRK will be able to build their holdings by reinvesting dividends to purchase additional shares of the company.
Over 1,000 companies offer dividend reinvestment plans. Most companies with DRIPs charge no brokerage or service fees. In fact, the shares of DRK will be purchased at a 10 percent discount from the market price.
A consultant for DRK estimates that about 75 percent of DRK’s shareholders will take part in this plan. This is somewhat higher than the average.
Evaluate DRK’s dividend reinvestment plan. Will it increase shareholder wealth? Discuss the advantages and disadvantages involved here.
Aug 29, 2021 | Uncategorized
Investment and Dividends – The Phew Charitable Trust pays no taxes on its capital gains or on its dividend income or interest income. Would it be irrational for it to have low-dividend, high growth stocks in its portfolio? Would it be irrational for it to have municipal bonds in its portfolio? Explain.
Use the following information to answer the next two questions:
Historically, the U.S. tax code treated dividend payments made to shareholders as ordinary income. Thus, dividends were taxed at the investor’s marginal tax rate, which was as high as 38.6 percent in 2002. Capital gains were taxed at a capital gains tax rate, which was the same for most investors and fluctuated through the years. In 2002, the capital gains tax rate stood at 20 percent.
In an effort to stimulate the economy, President George W. Bush presided over a tax plan overhaul that included changes in dividend and capital gains tax rates. The new tax plan, which was implemented in 2003, called for a 15 percent tax rate on both dividends and capital gains for investors in higher tax brackets. For lower tax bracket investors, the tax rate on dividends and capital gains was set at 5 percent through 2007, dropping to zero in 2008.
Aug 29, 2021 | Uncategorized
Regular Dividends – The balance sheet for Levy Corp. is shown here in market value terms. There are 8,000 shares of stock outstanding.
|
Market Value Balance Sheet
|
|
Cash
|
$30,000
|
Equity
|
$380,000
|
|
Fixed assets
|
350,000
|
|
Total
|
$380,000
|
Total
|
$380,000
|
The company has declared a dividend of $1.60 per share. The stock goes ex dividend tomorrow. Ignoring any tax effects, what is the stock selling for today? What will it sell for tomorrow? What will the balance sheet look like after the dividends are paid?
Aug 29, 2021 | Uncategorized
Stock Dividends – The market value balance sheet for Outbox Manufacturing is shown here. Outbox has declared a 25 percent stock dividend. The stock goes ex dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). There are 20,000 shares of stock outstanding. What will the ex-dividend price be?
|
Market Value Balance Sheet
|
|
Cash
|
$230,000
|
Debt
|
$190,000
|
|
Fixed assets
|
415,000
|
Equity
|
455,000
|
|
Total
|
$645,000
|
Total
|
$645,000
|
Aug 29, 2021 | Uncategorized
Dividends and Stock Price – The Mann Company belongs to a risk class for which the appropriate discount rate is 10 percent. Mann currently has 150,000 outstanding shares selling at $120 each. The firm is contemplating the declaration of a $5 dividend at the end of the fiscal year that just began. Assume there are no taxes on dividends. Answer the following questions based on the Miller and Modigliani model, which is discussed in the text.
1. What will be the price of the stock on the ex-dividend date if the dividend is declared?
2. What will be the price of the stock at the end of the year if the dividend is not declared?
3. If Mann makes $3 million of new investments at the beginning of the period, earns net income of $1.4 million, and pays the dividend at the end of the year, how many shares of new stock must the firm issue to meet its funding needs?
4. Is it realistic to use the MM model in the real world to value stock? Why or why not?
Aug 29, 2021 | Uncategorized
Dividends and Firm Value – The net income of Novis Corporation is $45,000. The company has 20,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,635,000. The appropriate discount rate for Novis is 12 percent, and the dividend tax rate is zero.
1. What is the current value of the firm assuming the current dividend has not yet been paid?
2. What is the ex-dividend price of Novis’s stock if the board follows its current policy?
3. At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing Novis’s price. They proposed that Novis sell enough new shares to finance a $4.60 dividend.
1. Comment on the claim that the low dividend is depressing the stock price. Support your argument with calculations.
2. If the proposal is adopted, at what price will the new shares sell? How many will be sold?
Aug 29, 2021 | Uncategorized
Dividends and Taxes – As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price:
(P0– PX)/D = (1 – tP)/(1 – tG)
Here P0 is the price just before the stock goes ex, PX is the ex-dividend share price, D is the amount of the dividend per share, tP is the relevant marginal personal tax rate on dividends, and tGis the effective marginal tax rate on capital gains.
1. If tP= tG= 0, how much will the share price fall when the stock goes ex?
2. If tP= 15 percent and tG= 0, how much will the share price fall?
3. If tP= 15 percent and tG= 20 percent, how much will the share price fall?
4. Suppose the only owners of stock are corporations. Recall that corporations get at least a 70 percent exemption from taxation on the dividend income they receive, but they do not get such an exemption on capital gains. If the corporation’s income and capital gains tax rates are both 35 percent, what does this model predict the ex-dividend share price will be?
5. What does this problem tell you about real-world tax considerations and the dividend policy of the firm?
Aug 29, 2021 | Uncategorized
Dividends versus Reinvestment – National Business Machine Co. (NBM) has $3 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets. The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in either Treasury bills yielding 5 percent or 7 percent preferred stock. IRS regulations allow the company to exclude from taxable income 70 percent of the dividends received from investing in another company’s stock. Another alternative is to pay out the cash now as dividends. This would allow the shareholders to invest on their own in Treasury bills with the same yield or in preferred stock. The corporate tax rate is 35 percent. Assume the investor has a 31 percent personal income tax rate, which is applied to interest income and preferred stock dividends. The personal dividend tax rate is 15 percent on common stock dividends. Should the cash be paid today or in three years? Which of the two options generates the highest after tax income for the shareholders?
Aug 29, 2021 | Uncategorized
Lease or Buy – Wolfson Corporation has decided to purchase a new machine that costs $5.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $5.1 million. The repayment schedule is four yearly principal repayments of $1,275,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1.5 million per year are due at the beginning of each of the four years of the lease.
1. Should Wolfson lease the machine or buy it with bank financing?
2. What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it?
Aug 29, 2021 | Uncategorized
Automobile Lease Payments – Automobiles are often leased, and there are several terms unique to auto leases. Suppose you are considering leasing a car. The price you and the dealer agree on for the car is $28,000. This is the base capitalized cost. Other costs added to the capitalized cost price include the acquisition (bank) fee, insurance, or extended warranty.
Assume these costs are $450. Capitalization cost reductions include any down payment, credit for trade-in, or dealer rebate. Assume you make a down payment of $2,000, and there is no trade-in or rebate. If you drive 12,000 miles per year, the lease-end residual value for this car will be $16,500 after three years. The lease or “money” factor, which is the interest rate on the loan, is the APR of the loan divided by 2,400. (We’re not really sure where the 2,400 comes from either.) The lease factor the dealer quotes you is .00342. The monthly lease payment consists of three parts: a depreciation fee, a finance fee, and sales tax.
The depreciation fee is the net capitalization cost minus the residual value divided by the term of the lease. The net capitalization cost is the cost of the car minus any cost reductions plus any additional costs. The finance fee is the net capitalization cost plus the residual times the money factor, and the monthly sales tax is simply the monthly lease payment times the tax rate. What APR is the dealer quoting you? What is your monthly lease payment for a 36-month lease if the sales tax is 7 percent?
Aug 29, 2021 | Uncategorized
Lease or Buy – High electricity costs have made Farmer Corporation’s chicken-plucking machine economically worthless. Only two machines are available to replace it. The International Plucking Machine (IPM) model is available only on a lease basis. The lease payments will be $27,000 for five years, due at the beginning of each year. This machine will save Farmer $12,000 per year through reductions in electricity costs in every year. As an alternative, Farmer can purchase a more energy efficient machine from Basic Machine Corporation (BMC) for $150,000. This machine will save $20,000 per year in electricity costs. A local bank has offered to finance the machine with a $150,000 loan. The interest rate on the loan will be 10 percent on the remaining balance and will require five annual principal payments of $30,000. Farmer has a target debt-to-asset ratio of 67 percent. Farmer is in the 34 percent tax bracket. After five years, both machines will be worthless. The machines will be depreciated on a straight-line basis.
1. Should Farmer lease the IPM machine or purchase the more efficient BMC machine?
2. Does your answer depend on the form of financing for direct purchase?
3. How much debt is displaced by this lease?
Aug 29, 2021 | Uncategorized
Lease or Buy – Wolfson Corporation has decided to purchase a new machine that costs $5.1 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 35 percent. The Sur Bank has offered Wolfson a four-year loan for $5.1 million. The repayment schedule is four yearly principal repayments of $1,275,000 and an interest charge of 9 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1.5 million per year are due at the beginning of each of the four years of the lease.
1. Should Wolfson lease the machine or buy it with bank financing?
2. What is the annual lease payment that will make Wolfson indifferent to whether it leases the machine or purchases it?
Aug 29, 2021 | Uncategorized
Lease Terms. The following tenns are often used to describe leases:
i. Direct
ii. Full-service
iii. Operating
iv. Financial
v. Rental
VII. Leveraged
VIII. Sale and lease-back
ix. Full-payout
Match one or more of these terms with each of the following statements:
a. The initializes period is shorter than the economic life of the asset.
b. The initial 1ease period is long enough for the lessor to recover the cost of the asset.
c. The lessor provides maintenance and insurance.
d. The lessor provides maintenance and insurance.
e. The lessor buys the equipment from the manufacturer.
f. The lessor buys the equipment from the prospective lessee.
g. The lessor finances the lease contract by issuing debt and equity claims against it.
Aug 29, 2021 | Uncategorized
Understanding leases. True or false?
a. Lease payments are usually made at the start of each period. Thus the first payment is usually made as soon as the lease contract is signed.
b. Financial leases can still provide Of-balance-sheet financing.
c. The cost of capital for a financial lease is the interest rate the company would pay on a bank loan.
d An equivalent loan”s principal plus after-tax interest payments exactly match the after• tax cash flows of the lease.
e. A financial lease should not be undertaken unless it provides more financing than the equivalent loan.
f. It makes sense for firms that pay no taxes to lease from firms that do.
g. Other things being equal, the net tax advantage of leasing increases as nominal interest rates increase.
Aug 29, 2021 | Uncategorized
Lease Valuation. Suppose that National Waferonics has before it a proposal for a four’ year financial lease.
The firm constructs a table like Table . The bottom line of its table shows the lease cash flows:
|
year
|
0
|
1
|
2
|
3
|
|
Lease cash flow
|
+62,000
|
-26,800
|
-22,200
|
-17,600
|
These flows reflect the cost of the machine, CCA tax shields, and the after-tax lease payments. Ignore salvage value. Assume the firm could borrow at 10 percent and faces a 30 percent marginal tax rate.
a. What is the value of the equivalent loan?
b. What is the value of the lease?
c. Suppose the machine’s NPV under normal financing is $5,000. Should National Waferonics invest?
Should it sign the lease?
Aug 29, 2021 | Uncategorized
The following terms are often used to describe leases:
a. Direct
b. Full-service
c. Operating
d. Financial
e. Rental
f. Net
g. Leveraged
h. Sale and lease-back
i. Full-payout
Match one or more of these terms with each of the following statements:
A. The initial lease period is shorter than the economic life of the asset.
B. The initial lease period is long enough for the lessor to recover the cost of the asset.
C. The lessor provides maintenance and insurance.
D. The lessee provides maintenance and insurance.
E. The lessor buys the equipment from the manufacturer.
F. The lessor buys the equipment from the prospective lessee.
G. The lessor finances the lease contract by issuing debt and equity claims against it.
Aug 29, 2021 | Uncategorized
True or false?
a. Lease payments are usually made at the start of each period. Thus the first payment is usually made as soon as the lease contract is signed.
b. Some financial leases can provide off-balance-sheet financing.
c. The cost of capital for a financial lease is the interest rate the company would pay on a bank loan.
d. An equivalent loan’s principal plus after-tax interest payments exactly match the aftertax cash flows of the lease.
e. A financial lease should not be undertaken unless it provides more financing than the equivalent loan.
f. It makes sense for firms that pay no taxes to lease from firms that do.
g. Other things equal, the net tax advantage of leasing increases as nominal interest rates increase.
Aug 29, 2021 | Uncategorized
Consider the following multifactor (APT) model of security returns for a particular
|
Factor
|
Factor Beta
|
Factor Risk Premium
|
|
Inflation
|
1.2
|
6%
|
|
Industrial production
|
0.5
|
8
|
|
Oil prices
|
0.3
|
3
|
a. If T-bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced.
b. Suppose that the market expected the values for the three macro factors given in
column 1 below, but that the actual values turn out as given in
column 2. Calculate the revised expectations for the rate of return on the stock once the “surprises” become known.
|
Factor
|
Expected Rate of Change
|
Actual Rate of Change
|
|
Inflation
|
5%
|
4%
|
|
Industrial production
|
3
|
6
|
|
Oil prices
|
2
|
0
|
Aug 29, 2021 | Uncategorized
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.
|
Factor
|
Risk Premium
|
|
Industrial production (I)
|
6%
|
|
Interest rates (R)
|
2
|
|
Consumer confidence (C)
|
4
|
The return on a particular stock is generated according to the following equation:
r =15% + 1.0I + .5R + .75C + e
Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. Is the stock over- or underpriced? Explain.
Aug 29, 2021 | Uncategorized
Here are four industries and four forecasts for the macro economy. Match the industry to the scenario in which it is likely to be the best performer.
|
Industry
|
Economic Forecast
|
|
a. Housing construction
|
(i.) Deep recession: falling inflation,
|
|
b. Health care
|
rates, and GDP
|
|
c. Gold mining
|
(ii.) Superheated economy: rapidly
|
|
d. Steel production
|
increasing inflation and interest
|
|
(iii.) Healthy expansion: rising GDP,
|
|
inflation, low unemployment
|
|
(iv.) Stagflation: falling GDP, high
|
Aug 29, 2021 | Uncategorized
Universal Auto is a large multinational corporation headquartered in the United States. For segment reporting purposes, the company is engaged in two businesses: production of motor vehicles and information processing services. The motor vehicle business is by far the larger of Universal’s two segments. It consists mainly of domestic U.S. passenger car production, but it also includes small truck manufacturing operations in the United States and passenger car production in other countries. This segment of Universal has had weak operating results for the past several years, including a large loss in 1996. Although the company does not reveal the operating results of its domestic assenger car segments, that part of Universal’s business is generally believed to be primarily responsible for the weak performance of its motor vehicle segment. Idata, the information processing services segment of Universal, was started by Universal about 15 years ago. This business has shown strong, steady growth that has been entirely internal; no acquisitions have been made. An excerpt from a research report on Universal prepared by Paul Adams, a CFA candidate, states: “Based on our assumption that Universal will he able to increase prices significantly on U.S. passenger cars in 1997, we project a multibillion dollar profit improvement.”
a. Discuss the concept of an industrial life cycle by describing each of its four phases.
b. Identify where each of Universal’s two primary businesses—passenger cars and information processing—is in such a cycle.
c. Discuss how product pricing should differ between Universal’s two businesses, based on the location of each in the industrial life cycle.
Aug 29, 2021 | Uncategorized
Your business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $30,000, and variable costs equal to one-third of revenue.
a. What are expected profits based on these expectations?
b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits?
c. If sales are 10% below expectation, what will be the decrease in profits?
d. Show that the percentage decrease in profits equals DOL times the 10% drop in sales.
e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before profits turn negative? What are break-even sales at this point?
f. Confirm that your answer to (e) is correct by calculating profits at the break-even level of sales. 20. The following problems appeared on past CFA examinations.
a. The supply-side view stresses that:
i. Aggregate demand is the major determinant of real output and aggregate employment.
ii. An increase in government expenditures and tax rates will cause real income to rise.
iii. Tax rates are a major determinant of real output and aggregate employment.
iv. Expansionary monetary policy will cause real output to expand without causing the rate of inflation to accelerate.
b. In macroeconomics, the crowding-out effect refers to:
i. The impact of government deficit spending on inflation.
ii. Increasing population pressures and associated movements toward zero population growth.
iii. A situation where the unemployment rate is below its natural rate.
iv. The impact of government borrowing on interest rates and private investment.
c. Based on historical data and assuming less-than-full employment, periods of sharp acceleration in the growth rate of the money supply tend to be associated initially with:
i. Periods of economic recession.
ii. An increase in the velocity of money.
iii. A rapid growth of gross domestic product.
iv. Reductions in real gross domestic product.
d. If the exchange rate value of the British pound goes from U.S.$1.80 to U.S.$1.60, then the pound has:
i. Appreciated and the British will find U.S. goods cheaper.
ii. Appreciated and the British will find U.S. goods more expensive.
iii. Depreciated and the British will find U.S. goods more expensive.
iv. Depreciated and the British will find U.S. goods cheaper.
e. The consumer price index is:
i. Ameasure of the increase in the prices of the goods that are included in the calculation of GDP.
ii. The ratio of the average price of a typical market basket of goods compared to the cost of producing those goods during the previous year.
iii. A comparison of the cost of a typical bundle of goods during a given period with the cost of the same bundle during a prior base period.
iv. Computed in the same manner as the GDP deflator.
f. Changes in which of the following are likely to affect interest rates?
I. Inflation expectations.
II. Size of the federal deficit.
III. Money supply.
i. I and II only.
ii. II and III only.
iii. I and III only.
iv. I, II, and III.
g. According to the supply-side view of fiscal policy, if the impact of tax revenues is the same, does it make any difference whether the government cuts taxes by either reducing marginal tax rates or increasing the personal exemption allowance?
i. No, both methods of cutting taxes will exert the same impact on aggregate supply.
ii. No, people in both cases will increase their saving expecting higher future taxes and thereby offset the stimulus effect of lower current taxes.
iii. Yes, the lower marginal tax rates alone will increase the incentive to earn marginal income and thereby stimulate aggregate supply.
iv. Yes, interest rates will increase if marginal tax rates are lowered, whereas they will tend to decrease if the personal exemption allowance is raised.
h. If the Federal Reserve wanted to reduce the supply of money as part of an antiinflation policy, it might:
i. Increase the reserve requirements.
ii. Buy U.S. securities on the open market.
iii. Lower the discount rate.
iv. Buy U.S. securities directly from the Treasury.
Aug 29, 2021 | Uncategorized
Your preliminary analysis of two stocks has yielded the information set forth below. The market capitalization rate for both Stock A and Stock B is 10% per year.
|
Stock A
|
Stock B
|
|
Expected return on equity, ROE
|
14%
|
12%
|
|
Estimated earnings per share, E1
|
$ 2.00
|
$ 1.65
|
|
Estimated dividends per share, D1
|
$ 1.00
|
$ 1.00
|
|
Current market price per share, P0
|
$27.00
|
$25.00
|
a. What are the expected dividend payout ratios for the two stocks?
b. What are the expected dividend growth rates of each?
c. What is the intrinsic value of each stock?
d. In which, if either, of the two stocks would you choose to invest?
Aug 29, 2021 | Uncategorized
Phoebe Black’s investment club wants to buy the stock of either New Soft Inc. or Capital Corp. In this connection, Black prepared the following table. You have been asked to help her interpret the data, based on your forecast for a healthy economy and a strong stock market over the next 12 months.
|
New Soft Inc.
|
Capital Corp.
|
S&P 500 Index
|
|
Current price
|
$30
|
$32
|
|
|
Industry
|
Computer software
|
Capital goods
|
|
|
P/E ratio (current) P/E ratio
|
25
|
14
|
16
|
|
(5-year average)
|
27
|
16
|
16
|
|
P/B ratio (current) P/B ratio
|
10
|
3
|
3
|
|
(5-year average)
|
12
|
4
|
2
|
|
Beta
|
1.5
|
1.1
|
1.0
|
|
Dividend yield
|
.3%
|
2.7%
|
2.8%
|
a. Newsoft’s shares have higher price–earnings (P/E) and price–book value (P/B) ratios than those of Capital Corp. (The price–book ratio is the ratio of market value to book value.) Briefly discuss why the disparity in ratios may not indicate that New Soft’s shares are overvalued relative to the shares of Capital Corp. Answer the question in terms of the two ratios, and assume that there have been no extraordinary events affecting either company.
b. Using a constant-growth dividend discount model, Black estimated the value of New Soft to be $28 per share and the value of Capital Corp. to be $34 per share. Briefly discuss weaknesses of this dividend discount model and explain why this model may be less suitable for valuing NewSoft than for valuing Capital Corp.
c. Recommend and justify a more appropriate dividend discount model for valuing NewSoft’s common stock.
Aug 29, 2021 | Uncategorized
“Growth” and “value” can be defined in several ways, but “growth” usually conveys the idea of a portfolio emphasizing or including only issues believed to possess above- average future rates of per-share earnings growth. Low current yield, high price-to-book ratios, and high price-to-earnings ratios are typical characteristics of such portfolios. “Value” usually conveys the idea of portfolios emphasizing or including only issues currently showing low price-to-book ratios, low price-to-earnings ratios, above average levels of dividend yield, and market prices believed to be below the issues’ intrinsic values.
a. Identify and explain three reasons why, over an extended period of time, value stock investing might outperform growth stock investing.
b. Explain why the outcome suggested in part (a) above should not be possible in a market widely regarded as being highly efficient
Aug 29, 2021 | Uncategorized
The stock of Ngoro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Ngoro’s investors require?
b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested?
c. If Nogro were to cut its dividend payout ratio to 25%, what would happen to its stock price? What if Nogro eliminated the dividend?
Aug 29, 2021 | Uncategorized
Chipset, Inc., is an established computer chip firm with several profitable existing products as well as some promising new products in development. The company earned $1 a share last year, and just paid out a dividend of $.50 per share. Investors believe the company plans to maintain its dividend payout ratio at 50%. ROE equals 20%. Everyone in the market expects this situation to persist indefinitely.
a. What is the market price of Chiptech stock? The required return for the computer chip industry is 15%, and the company has just gone ex-dividend (i.e., the next dividend will be paid a year from now, at t _ 1).
b. Suppose you discover that Chiptech’s competitor has developed a new chip that will eliminate Chiptech’s current technological advantage in this market. This new product, which will be ready to come to the market in two years, will force Chiptech to reduce the prices of its chips to remain competitive. This will decrease ROE to 15%, and, because of falling demand for its product, Chiptech will decrease the plowback ratio to .40. The plowback ratio will be decreased at the end of the second year, at t _ 2: The annual year-end dividend for the second year (paid at t _ 2) will be 60% of that year’s earnings. What is your estimate of Chiptech’s intrinsic value per share? (Hint: Carefully prepare a table of Chiptech’s earnings and dividends for each of the next three years. Pay close attention to the change in the payout ratio in t _ 2.)
c. No one else in the market perceives the threat to Chiptech’s market. In fact, you are confident that no one else will become aware of the change in Chiptech’s competitive status until the competitor firm publicly announces its discovery near the end of year 2. What will be the rate of return on Chiptech stock in the coming year (i.e., between t _ 0 and t _ 1)? In the second year (between t _ 1 and t _ 2)? The third year (between t _ 2 and t _ 3)? (Hint: Pay attention to when the market catches on to the new situation. A table of dividends and market prices over time might help.)
Aug 29, 2021 | Uncategorized
Janet Ludlow’s firm requires all its analysts to use a two-stage dividend discount model (DDM) and the Capital Asset Pricing Model (CAPM) to value stocks. Using the CAPM and DDM, Ludlow has valued QuickBrush Company at $63 per share. She now must value SmileWhite Corporation.
a. Calculate the required rate of return for SmileWhite using the information in the following table:
|
QuickBrush
|
SmileWhite
|
|
Beta
|
1.35
|
1.15
|
|
Market price
|
$45.00
|
$30.00
|
|
Intrinsic value
|
$63.00
|
?
|
|
Notes:
|
|
Risk-free rate
|
4.50%
|
|
Expected market return
|
14.50%
|
b. Ludlow estimates the following EPS and dividend growth rates for SmileWhite:
|
First three years:
|
12% per year
|
|
Years thereafter:
|
9% per year
|
Estimate the 1999 intrinsic value of SmileWhite using the table above, and the twostage DDM. Dividends per share in 1999 were $1.72.
c. Recommend QuickBrush or SmileWhite stock for purchase by comparing each company’s intrinsic value with its current market price.
d. Describe one strength of the two-stage DDM in comparison with the constantgrowth DDM. Describe one weakness inherent in all DDMs.
Aug 29, 2021 | Uncategorized
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting six years from now the firm’s ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 15% per year.
a. What is your estimate of DEQS’s intrinsic value per share?
b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? The year after?
c. What effect would it have on your estimate of DEQS’s intrinsic value if you expected DEQS to pay out only 20% of earnings starting in year 6?
Aug 29, 2021 | Uncategorized
The following questions are from past CFA examinations.
a. The constant-growth DDM will not produce a finite value if the dividend growth rate is:
i. Above its historical average.
ii. Above the market capitalization rate.
iii. Below its historical average.
iv. Below the market capitalization rate.
b. According to the constant-growth DDM, a fall in the market capitalization rate will cause a stock’s intrinsic value to:
i. Decrease.
ii. Increase.
iii. Remain unchanged.
iv. Decrease or increase, depending on other factors.
c. You plan to buy a common stock and hold it for one year. You expect to receive both $1.50 in dividends and $26 from the sale of stock at the end of the year. If you wanted to earn a 15% return, what is the maximum price you would pay for the stock today?
d. In the dividend discount model, a factor not affecting the discount rate, k, is the:
i. Real risk-free rate.
ii. Risk premium for stocks.
iii. Return on assets.
iv. Expected inflation rate.
e. Ashare of stock is expected to pay a dividend of $1.00 one year from now and grow at 5% thereafter. In the context of a dividend discount model, the stock is correctly priced today at $10. According to the single-stage, constant-growth DDM, if the required return is 15%, what should be the value of the stock two years from now?
f. Astock is not expected to pay dividends until three years from now. The dividend is then expected to be $2.00 per share, the dividend payout ratio is expected to be 40%, and the return on equity is expected to be 15%. If the required rate of return is 12%, what should be the value of the stock today?
g. The constant-growth DDM would typically be most appropriate in valuing the stock of a:
i. New venture expected to retain all earnings for several years.
ii. Rapidly growing company.
iii. Moderate-growth, “mature” company.
iv. Company with valuable assets not yet generating profits.
h. Astock has a required return of 15%, a constant-growth rate of 10%, and a dividend payout ratio of 45%. The stock’s price–earnings ratio should be:
i. 3.
ii. 4.5.
iii. 9.
iv. 11.
Aug 29, 2021 | Uncategorized
EBIT and Leverage – Money, Inc., has no debt outstanding and a total market value of $225,000. Earnings before interest and taxes, EBIT, are projected to be $19,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 30 percent higher. If there is a recession, then EBIT will be 60 percent lower. Money is considering a $90,000 debt issue with an 8 percent interest rate. The proceeds will be used to repurchase shares of stock.
There are currently 5,000 shares outstanding. Ignore taxes for this problem.
1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also calculate the percentage changes in EPS when the economy expands or enters a recession.
2. Repeat part (a) assuming that Money goes through with recapitalization. What do you observe?
Aug 29, 2021 | Uncategorized
Break-Even EBIT and Leverage – Kolby Corp. is comparing two different capital structures. Plan I would result in 1,500 shares of stock and $20,000 in debt. Plan II would result in 1,100 shares of stock and $30,000 in debt. The interest rate on the debt is 10 percent.
1. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $12,000. The all-equity plan would result in 2,300 shares of stock outstanding. Which of the three plans has the highest EPS? The lowest?
2. In part (a) what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? Is one higher than the other? Why?
3. Ignoring taxes, when will EPS be identical for Plans I and II?
4. Repeat parts (a), (b), and (c) assuming that the corporate tax rate is 40 percent. Are the break-even levels of EBIT different from before? Why or why not?
Aug 29, 2021 | Uncategorized
Homemade Leverage – Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 40 percent debt. Currently there are 5,000 shares outstanding and the price per share is $65. EBIT is expected to remain at $37,500 per year forever. The interest rate on new debt is 8 percent, and there are no taxes.
1. Ms. Brown, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?
2. What will Ms. Brown’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.
3. Suppose Star does convert, but Ms. Brown prefers the current all-equity capital structure.
Show how she could unlever her shares of stock to recreate the original capital structure.
4. Using your answer to part (c), explain why Star’s choice of capital structure is irrelevant.
Aug 29, 2021 | Uncategorized
MM Proposition I without Taxes – Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all-equity firm, has 10,000 shares of stock outstanding, currently worth $20 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta’s debt is $50,000, and its cost of debt is 12 percent. Each firm is expected to have earnings before interest of $55,000 in perpetuity. Neither firm pays taxes.
Assume that every investor can borrow at 12 percent per year.
1. What is the value of Alpha Corporation?
2. What is the value of Beta Corporation?
3. What is the market value of Beta Corporation’s equity?
4. How much will it cost to purchase 20 percent of each firm’s equity?
5. Assuming each firm meets its earnings estimates, what will be the dollar return to each position in part (d) over the next year?
6. Construct an investment strategy in which an investor purchases 20 percent of Alpha’s equity and replicates both the cost and dollar return of purchasing 20 percent of Beta’s equity.
7. Is Alpha’s equity more or less risky than Beta’s equity? Explain.
Aug 29, 2021 | Uncategorized
Homemade Leverage – The Veblen Company and the Knight Company are identical in every respect except that Veblen is not levered. The market value of Knight Company’s 6 percent bonds is $1.2 million. Financial information for the two firms appears here. All earnings streams are perpetuities. Neither firm pays taxes. Both firms distribute all earnings available to common stockholders immediately.
|
Veblen
|
Knight
|
|
Projected operation income
|
$400,000
|
$400,000
|
|
Year-end interest on debt
|
–
|
72,000
|
|
Market value of stock
|
3,600,000
|
2,532,000
|
|
Market value of debt
|
–
|
1,200,000
|
1. An investor who can borrow at 6 percent per year wishes to purchase 5 percent of Knight’s equity. Can he increase his dollar return by purchasing 5 percent of Veblen’s equity if he borrows so that the initial net costs of the two strategies are the same?
2. Given the two investment strategies in (a), which will investors choose? When will this process cease?
Aug 29, 2021 | Uncategorized
MM Propositions – Locomotive Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt–equity ratio is expected to rise from 40 percent to 50 percent. The firm currently has $4.3 million worth of debt outstanding. The cost of this debt is 10 percent per year. Locomotive expects to have an EBIT of $1.68 million per year in perpetuity. Locomotive pays no taxes.
1. What is the market value of Locomotive Corporation before and after the repurchase announcement?
2. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan?
3. What is the expected return on the equity of an otherwise identical all-equity firm?
4. What is the expected return on the firm’s equity after the announcement of the stock repurchase plan?
Aug 29, 2021 | Uncategorized
Stock Value and Leverage – Green Manufacturing, Inc., plans to announce that it will issue $3 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 6 percent annual coupon rate. Green is currently an all-equity firm worth $9.5 million with 600,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $1.8 million. This level of earnings is expected to remain constant in perpetuity. Green is subject to a corporate tax rate of 40 percent.
1. What is the expected return on Green’s equity before the announcement of the debt issue?
2. Construct Green’s market value balance sheet before the announcement of the debt issue. What is the price per share of the firm’s equity?
3. Construct Green’s market value balance sheet immediately after the announcement of the debt issue.
4. What is Green’s stock price per share immediately after the repurchase announcement?
5. How many shares will Green repurchase as a result of the debt issue? How many shares of common stock will remain after the repurchase?
6. Construct the market value balance sheet after the restructuring.
7. What is the required return on Green’s equity after the restructuring?
Aug 29, 2021 | Uncategorized
PE 7-1B Cost flow methods
Three identical units of Item ZE9 are purchased during April, as shown below.
|
|
|
Item WH4
|
Units
|
Cost
|
|
|
Apr.
|
2
|
Purchase
|
1
|
$10
|
|
|
|
12
|
Purchase
|
1
|
12
|
|
|
|
23
|
Purchase
|
1
|
14
|
|
|
|
Total
|
|
3
|
$36
|
|
|
|
Average cost per unit
|
|
$12
|
($36 ÷ 3 units)
|
Assume that one unit is sold on April 27 for $29.
Determine the gross profit for April and ending inventory on April 30 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.
Aug 29, 2021 | Uncategorized
Stock Quotations You found the following stock quote for DRK Enterprises, Inc., in the financial pages of today’s newspaper. What was the closing price for this stock that appeared in yesterday’s paper? How many round lots of stock were traded yesterday?
|
52 Weeks
|
|
|
|
|
|
|
Yld
|
|
Vol
|
|
|
|
Net
|
|
Hi
|
Lo
|
Stock
|
Sym
|
Div
|
%
|
PE
|
100s
|
Hi
|
Lo
|
Close
|
Chg
|
|
117
|
52 1/2
|
DRK
|
DRK
|
3.6
|
4.6
|
16
|
7295
|
81 3/4
|
76
|
??
|
–3/8
|
Aug 29, 2021 | Uncategorized
Dividend Yields The following stock quote for Ehrhardt-Daves Corporation (EDC) appeared in the financial press:
|
52 Weeks
|
|
|
|
|
|
|
Yld
|
|
Vol
|
|
|
|
Net
|
|
Hi
|
Lo
|
Stock
|
Sym
|
Div
|
%
|
PE
|
100s
|
Hi
|
Lo
|
Close
|
Chg
|
|
77
|
62 1/2
|
EDC
|
EDC
|
??
|
4.6
|
26
|
295
|
71 3/4
|
66
|
67
|
–3/8
|
What was the last quarterly dividend paid for EDC?
Aug 29, 2021 | Uncategorized
Stock Quotations You found the following stock quotes for Gigantus Corporation in today’s newspaper. Which preferred stock issue of the company has the largest dividend yield? Which one was the most actively traded yesterday? Which one has traded at the highest dividend yield over the past year?
|
52 Weeks
|
|
|
|
|
|
|
Yld
|
|
Vol
|
|
|
|
Net
|
|
Hi
|
Lo
|
Stock
|
Sym
|
Div
|
%
|
P/E
|
100s
|
Hi
|
Lo
|
Close
|
Chg
|
|
92
|
50 3/4
|
Gigan
|
GIG
|
2.5
|
4.2
|
22
|
12690
|
60 3/4
|
60
|
60
|
–1/8
|
|
13
|
10 1/2
|
Gigan pfA
|
|
1.2
|
??
|
…
|
59
|
11 3/4
|
11 1/2
|
11 5/8
|
…
|
|
34
|
30 1/2
|
Gigan pfB
|
|
3
|
??
|
…
|
85
|
32
|
31 1/2
|
32
|
0.125
|
Aug 29, 2021 | Uncategorized
Futures Quotations The following quotations for the cotton futures trading on the New York Cotton Exchange appear in today’s newspaper. How many of the March 1996 contracts are currently open? How many of these contracts should you sell if you wish to hedge 400,000 pounds of cotton for March delivery? If you actually make delivery, how much will you receive?
COTTON (CTN) — 50,000 lbs.; cents per lb.
|
|
|
|
|
|
|
Lifetime
|
Open
|
|
|
Open
|
High
|
Low
|
Settle
|
Change
|
High
|
Low
|
Interest
|
|
Oct-95
|
83.75
|
85.9
|
81.16
|
83.19
|
0.85
|
99.54
|
58.72
|
30,129
|
|
Dec
|
85
|
87.3
|
83.02
|
85.22
|
1
|
99.24
|
60.19
|
42,522
|
|
Mar-96
|
84.15
|
86.75
|
82.35
|
84
|
1.25
|
98.75
|
61.3
|
18,752
|
|
May
|
83.42
|
84.55
|
82.16
|
83.68
|
0.66
|
87.67
|
74.14
|
8,616
|
|
Jul
|
79.77
|
80.83
|
78.48
|
79.44
|
0.39
|
81.23
|
75.25
|
3,456
|
Est vol 19,000; vol Wed 11,313; open int 103,475, +255
Aug 29, 2021 | Uncategorized
Options Quotations Suppose the following stock options quotations for GNR, Inc., appear in today’s financial pages. What was the closing share price of the underlying stock? If you wanted to purchase the right to sell 1,500 shares of GNR stock in December at a strike price of $40 per share, how much would this cost you?
|
|
|
|
—Call—
|
—Put—
|
|
Option/Strike
|
|
|
Last
|
|
Last
|
|
GNR
|
30
|
Sep
|
49
|
9 7/8
|
…
|
…
|
|
39 7/8
|
35
|
Sep
|
228
|
5
|
69
|
¼
|
|
39 7/8
|
35
|
Dec
|
5
|
7
|
…
|
…
|
|
39 7/8
|
40
|
Sep
|
707
|
1 3/8
|
142
|
1 ½
|
|
39 7/8
|
40
|
Oct
|
598
|
2 7/8
|
30
|
2 7/16
|
|
39 7/8
|
40
|
Dec
|
47
|
3 5/8
|
25
|
3 3/8
|
|
39 7/8
|
45
|
Sep
|
645
|
5/16
|
33
|
5 1/8
|
|
39 7/8
|
45
|
Oct
|
584
|
1
|
20
|
6
|
|
39 7/8
|
50
|
Dec
|
43
|
1 ½
|
5
|
13
|
Aug 29, 2021 | Uncategorized
Options versus Stock You’ve located the following option quote for Eric-Cartman, Inc.
(ECI):
|
|
|
|
—Call—
|
—Put—
|
|
Option/Strike
|
|
|
Last
|
|
Last
|
|
ECI
|
10
|
Sep
|
29
|
5 7/8
|
…
|
…
|
|
201/8
|
15
|
Sep
|
333
|
7
|
69
|
1 1/4
|
|
201/8
|
25
|
Dec
|
5
|
2
|
…
|
…
|
|
201/8
|
30
|
Sep
|
76
|
1 3/8
|
188
|
11 1/2
|
|
201/8
|
35
|
Oct
|
89
|
7/8
|
…
|
…
|
One of the premiums shown can’t possibly be correct. Which one? Why?
Aug 29, 2021 | Uncategorized
Lanni Products is a start-up computer software development firm. It currently owns computer equipment worth $30,000 and has cash on hand of $20,000 contributed by Lanni’s owners. For each of the following transactions, identify the real and/or financial assets that trade hands. Are any financial assets created or destroyed in the transaction?
a. Lanni takes out a bank loan. It receives $50,000 in cash and signs a note promising to pay back the loan over three years.
b. Lanni uses the cash from the bank plus $20,000 of its own funds to finance the development of new financial planning software.
c. Lanni sells the software product to Microsoft, which will market it to the public under the Microsoft name. Lanni accepts payment in the form of 1,500 shares of Microsoft stock.
d. Lanni sells the shares of stock for $80 per share, and uses part of the proceeds to pay off the bank loan.
Aug 29, 2021 | Uncategorized
The following multiple-choice problems are based on questions that appeared in past CFA examinations.
a. A firm’s preferred stock often sells at yields below its bonds because:
i. Preferred stock generally carries a higher agency rating.
ii. Owners of preferred stock have a prior claim on the firm’s earnings.
iii. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation.
iv. Corporations owning stock may exclude from income taxes most of the dividend income they receive.
b. A municipal bond carries a coupon of 6 3/4% and is trading at par; to a taxpayer in a 34% tax bracket, this bond would provide a taxable equivalent yield of:
i. 4.5%
ii. 10.2%
iii. 13.4%
iv. 19.9%
c. Which is the most risky transaction to undertake in the stock index option markets if the stock market is expected to increase substantially after the transaction is completed?
i. Write a call option.
ii. Write a put option
iii. Buy a call option.
iv. Buy a put option.
Aug 29, 2021 | Uncategorized
Consider the three stocks in the following table. Pt represents price at time t, and Qtr. represents shares outstanding at time t. Stock C splits two for one in the last period.
|
P0
|
Q0
|
P1
|
Q1
|
P2
|
Q2
|
|
A
|
90
|
100
|
95
|
100
|
95
|
100
|
|
B
|
50
|
200
|
45
|
200
|
45
|
200
|
|
C
|
100
|
200
|
110
|
200
|
55
|
400
|
a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t =0 to t =1).
b. What must happen to the divisor for the price-weighted index in year 2?
c. Calculate the rate of return for the second period (t =1 to t =2).
Aug 29, 2021 | Uncategorized
Consider the following limit-order book of a specialist. The last trade in the stock took place at a price of $50.
|
Limit-Buy Orders
|
Limit-Sell Orders
|
|
Price ($)
|
Shares
|
Price ($)
|
Shares
|
|
49.75
|
500
|
50.25
|
100
|
|
49.50
|
800
|
51.50
|
100
|
|
49.25
|
500
|
54.75
|
300
|
|
49.00
|
200
|
58.25
|
100
|
|
48.50
|
600
|
|
|
a. If a market-buy order for 100 shares comes in, at what price will it be filled?
b. At what price would the next market-buy order be filled?
c. If you were the specialist, would you desire to increase or decrease your inventory of this stock?
Aug 29, 2021 | Uncategorized
Consider the following data concerning the NYSE:
|
Year
|
Average Daily Trading Volume
(Thousands of Shares)
|
Annual High Price of an
Exchange Membership
|
|
1991
|
178,917
|
$ 440,000
|
|
1992
|
202,266
|
600,000
|
|
1993
|
264,519
|
775,000
|
|
1994
|
291,351
|
830,000
|
|
1995
|
346,101
|
1,050,000
|
|
1996
|
411,953
|
1,450,000
|
What do you conclude about the short-run relationship between trading activity and the value of a seat?
Aug 29, 2021 | Uncategorized
Suppose that Intel currently is selling at $40 per share. You buy 500 shares, using $15,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.
a. What is the percentage increase in the net worth of your brokerage account if the price of Intel immediately changes to (i) $44; (ii) $40; (iii) $36? What is the relationship between our percentage return and the percentage change in the price of Intel?
b. If the maintenance margin is 25%, how low can Intel’s price fall before you get a margin call?
c. How would your answer to (b) change if you had financed the initial purchase with only $10,000 of your own money?
d. What is the rate of return on your margined position (assuming again that you invest $15,000 of your own money) if Intel is selling after one year at
(i) $44
(ii) $40
(iii) $36 what is the relationship between your percentage return and the percentage change in the price of Intel? Assume that Intel pays no dividends.
e. Continue to assume that a year has passed. How low can Intel’s price fall before you get a margin call?
Aug 29, 2021 | Uncategorized
The composition of the Fin group Fund portfolio is as follows:
|
Stock
|
Shares
|
Price
|
|
A
|
200,000
|
$35
|
|
B
|
300,000
|
$40
|
|
C
|
400,000
|
$20
|
|
D
|
600,000
|
$25
|
The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals $30,000. There are 4 million shares outstanding. What is the net asset value of the fund?
Aug 29, 2021 | Uncategorized
Consider the following table, which gives a security analyst’s expected return on two stocks for two particular market returns:
|
Market Return
|
Aggressive Stock
|
Defensive Stock
|
|
5%
|
-2%
|
6%
|
|
25
|
38
|
12
|
a. What are the betas of the two stocks?
b. What is the expected rate of return on each stock if the market return is equally likely to be 5% or 25%?
c. If the T-bill rate is 6% and the market return is equally likely to be 5% or 25%, draw the SML for this economy.
d. Plot the two securities on the SML graph. What are the alphas of each?
e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm’s stock? If the simple CAPM is valid, which of the following situations in problems 6 to 12 are possible? Explain. Consider each situation independently
Aug 29, 2021 | Uncategorized
According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0 is:
a. Between r M and rf.
b. The risk-free rate, r f.
c. =(r M = r f).
d. The expected return on the market, r M. The following table shows risk and return measures for two portfolios.
|
Portfolio
|
Average Annual
Rate of Return
|
Standard
Deviation
|
Beta
|
|
R
|
11%
|
10%
|
0.5
|
|
S&P 500
|
14%
|
12%
|
1
|
Aug 29, 2021 | Uncategorized
The following are estimates for two of the stocks in problem 1.
|
Stock
|
Expected Return
|
Beta
|
Firm-Specific
Standard Deviation
|
|
A
|
13
|
0.8
|
30
|
|
B
|
18
|
1.2
|
40
|
The market index has a standard deviation of 22% and the risk-free rate is 8%.
a. What is the standard deviation of stocks A and B?
b. Suppose that we were to construct a portfolio with proportions:
|
Stock A:
|
0.3
|
|
Stock B:
|
0.45
|
|
T-bills:
|
0.25
|
Compute the expected return, standard deviation, beta, and nonsystematic standard deviation of the portfolio.
Aug 29, 2021 | Uncategorized
Consider the two (excess return) index model regression results for A and B:
RA =1% =1.2RM
R-SQR =.576
RESID STD DEV-N=10.3%
RB_=2% = .8RM
R-SQR =.436
RESID STD DEV-N =9.1%
a. Which stock has more firm-specific risk?
b. Which has greater market risk?
c. For which stock does market movement explain a greater fraction of return variability?
d. Which stock had an average return in excess of that predicted by the CAPM?
e. If rf were constant at 6% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? Use the following data for problems 5 through 11. Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 3% =.7RM =eA
RB = -2% = 1.2RM=eB
=M =20%; R-SQRA =.20; R-SQRB =.12
Aug 29, 2021 | Uncategorized
When the annualized monthly percentage rates of return for a stock market index were regressed against the returns for ABC and XYZ stocks over the period 1992–2001 in an ordinary least squares regression, the following results were obtained:
|
Statistic
|
ABC
|
XYZ
|
|
Alpha
|
-3.20%
|
7.30%
|
|
Beta
|
0.6
|
0.97
|
|
R2
|
0.35
|
17.00%
|
|
Residual standard deviation
|
13.02%
|
21.45%
|
Explain what these regression results tell the analyst about risk–return relationships for each stock over the 1992–2001 period. Comment on their implications for future risk–return relationships, assuming both stocks were included in a diversified common stock portfolio, especially in view of the following additional data obtained from two brokerage houses, which are based on two years of weekly data ending in December 2001.
|
Brokerage House
|
Beta of ABC
|
Beta of XYZ
|
|
A
|
0.62
|
1.45
|
|
B
|
0.71
|
1.25
|
Aug 29, 2021 | Uncategorized
Assume that security returns are generated by the single-index model, Ri=ai+ßiRM+ ei
Where Riis the excess return for security i and RM is the market’s excess return. The risk free rate is 2%. Suppose also that there are three securities A, B, and C, characterized By the following data:
|
Security
|
ßi
|
E(Ri )
|
µ(ei)
|
|
A
|
0.8
|
10%
|
25%
|
|
B
|
1
|
12%
|
10%
|
|
C
|
1.2
|
14%
|
20%
|
a.If =M = 20%, calculate the variance of returns of Securities A, B, and C.
b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and Crespectively. If one forms a well-diversified portfolio of type Asecurities, what will be the mean and variance of the portfolio’s excess returns? What about portfolios composed only of type Bor Cstocks?
c.Is there an arbitrage opportunity in this market? What is it? Analyze the opportunity graphically.
Aug 29, 2021 | Uncategorized
EX 6-31 Ratio of net sales to assets
Kroger, a national supermarket chain, reported the following data (in millions) in its financial statements for the year ended January 31, 2009:
|
Total revenue
|
$76,000
|
|
Total assets at end of year
|
23,211
|
|
Total assets at beginning of year
|
22,299
|
a. Compute the ratio of net sales to assets for 2009. Round to two decimal places.
b. Tiffany & Co. is a large North American retailer of jewelry, with a ratio of net sales to assets of 0.95. Why would Tiffany’s ratio of net sales to assets be lower than that of Kroger?
Aug 29, 2021 | Uncategorized
EX 6-33 Cost of merchandise sold and related items
The following data were extracted from the accounting records of Danhof Company for the year ended June 30, 2012:
|
Merchandise inventory, July 1, 2011
|
$ 250,000
|
|
Merchandise inventory, June 30, 2012
|
325,000
|
|
Purchases
|
2,100,000
|
|
Purchases returns and allowances
|
50,000
|
|
Purchases discounts
|
39,000
|
|
Sales
|
3,250,000
|
|
Freight in
|
12,500
|
a. Prepare the cost of merchandise sold section of the income statement for the year ended June 30, 2012, using the periodic inventory system.
b. Determine the gross profit to be reported on the income statement for the year ended June 30, 2012.
c. Would gross profit be different if the perpetual inventory system was used instead of the periodic inventory system?
Aug 29, 2021 | Uncategorized
EX 6-36 Cost of merchandise sold
Identify the errors in the following schedule of cost of merchandise sold for the current year ended March 31, 2012:
|
Cost of merchandise sold:
|
|
|
|
|
Merchandise inventory, March 31, 2012
|
|
|
$ 75,000
|
|
Purchases
|
|
$900,000
|
|
|
Plus: Purchases returns and allowances
|
$18,000
|
|
|
|
Purchases discounts
|
12,000
|
30,000
|
|
|
Gross purchases
|
|
$930,000
|
|
|
Less freight in
|
|
10,000
|
|
|
Cost of merchandise purchased
|
|
|
920,000
|
|
Merchandise available for sale
|
|
|
$995,000
|
|
Less merchandise inventory, April 1, 2011
|
|
|
80,000
|
|
Cost of merchandise sold
|
|
|
$915,000
|
Aug 29, 2021 | Uncategorized
EX 6-37 Rules of debit and credit for periodic inventory accounts
Complete the following table by indicating for (a) through (g) whether the proper answer is debit or credit.
|
Account
|
Increase
|
Decrease
|
Normal Balance
|
|
Purchases
|
(a)
|
credit
|
(b)
|
|
Purchases Discounts
|
(c)
|
debit
|
credit
|
|
Purchases Returns and Allowances
|
(d)
|
debit
|
(e)
|
|
Freight in
|
(f )
|
(g)
|
debit
|
Aug 29, 2021 | Uncategorized
EX 6-38 Journal entries using the periodic inventory system
The following selected transactions were completed by Burton Company during July of the current year. Burton Company uses the periodic inventory system.
|
July 2.
|
Purchased $24,000 of merchandise on account, FOB shipping point, terms2/15, n/30.
|
|
5.
|
Paid freight of $500 on the July 2 purchase.
|
|
6.
|
Returned $4,000 of the merchandise purchased on July 2.
|
|
13.
|
Sold merchandise on account, $15,000, FOB destination, 1/10, n/30. The cost of merchandise sold was $9,000.
|
|
15.
|
Paid freight of $100 for the merchandise sold on July 13.
|
|
17.
|
Paid for the purchase of July 2 less the return and discount.
|
|
23.
|
Received payment on account for the sale of July 13 less the discount.
|
Journalize the entries to record the transactions of Burton Company.
Aug 29, 2021 | Uncategorized
Ex 6-40 Closing entries using periodic inventory system
Pyramid Company is a small rug retailer owned and operated by Rosemary Endecott. After the accounts have been adjusted on January 31, the following selected account balances were taken from the ledger:
|
Advertising Expense
|
$ 40,000
|
|
Depreciation Expense
|
15,000
|
|
Freight In
|
8,000
|
|
Merchandise Inventory, January 1
|
250,000
|
|
Merchandise Inventory, January 31
|
300,000
|
|
Miscellaneous Expense
|
29,000
|
|
Purchases
|
750,000
|
|
Purchases Discounts
|
12,000
|
|
Purchases Returns and Allowances
|
8,000
|
|
Rosemary Endecott, Drawing
|
60,000
|
|
Salaries Expense
|
175,000
|
|
Sales
|
1,200,000
|
|
Sales Discounts
|
20,000
|
|
Sales Returns and Allowances
|
30,000
|
Journalize the closing entries on January 31.
Aug 29, 2021 | Uncategorized
PR 6-1A Multiple-step income statement and report form of balance sheet
The following selected accounts and their current balances appear in the ledger of Carpet Land Co. for the fiscal year ended October 31, 2012:
|
Cash
|
$ 274,000
|
Sales Returns and Allowances
|
$ 70,000
|
|
Accounts Receivable
|
425,000
|
Sales Discounts
|
55,000
|
|
Merchandise Inventory
|
525,000
|
Cost of Merchandise Sold
|
3,600,000
|
|
Office Supplies
|
12,000
|
Sales Salaries Expense
|
925,000
|
|
Prepaid Insurance
|
9,000
|
Advertising Expense
|
150,000
|
|
Office Equipment
|
315,000
|
Depreciation Expense—
|
|
|
Accumulated Depreciation—
|
|
Store Equipment
|
35,000
|
|
Office Equipment
|
187,000
|
Miscellaneous Selling Expense
|
40,000
|
|
Store Equipment
|
900,000
|
Office Salaries Expense
|
315,000
|
|
Accumulated Depreciation—
|
|
Rent Expense
|
115,000
|
|
Store Equipment
|
293,000
|
Depreciation Expense—
|
|
|
Accounts Payable
|
193,000
|
Office Equipment
|
22,000
|
|
Salaries Payable
|
12,000
|
Insurance Expense
|
18,000
|
|
Note Payable
|
|
Office Supplies Expense
|
9,000
|
|
(final payment due 2037)
|
400,000
|
Miscellaneous Administrative Exp.
|
11,000
|
|
Maggie Young, Capital
|
750,000
|
Interest Expense
|
15,000
|
|
Maggie Young, Drawing
|
150,000
|
|
|
|
Sales
|
6,155,000
|
|
|
Instructions
1. Prepare a multiple-step income statement.
2. Prepare a statement of owner’s equity.
3. Prepare a report form of balance sheet, assuming that the current portion of the note payable is $16,000.
4. Briefly explain (a) how multiple-step and single-step income statements differ and (b) how report-form and account-form balance sheets differ.
Aug 29, 2021 | Uncategorized
PR 6-3A Sales-related transactions
The following selected transactions were completed by Artic Supply Co., which sells office supplies primarily to wholesalers and occasionally to retail customers:
|
Jan. 2.
|
Sold merchandise on account to Mammoth Co., $15,000, terms FOB destination, 1/10, n/30. The cost of the merchandise sold was $9,000.
|
|
3.
|
Sold merchandise for $8,000 plus 8% sales tax to retail cash customers. The cost of merchandise sold was $6,000.
|
|
4.
|
Sold merchandise on account to Sando Co., $12,500, terms FOB shipping point, n/eom. The cost of merchandise sold was $7,500.
|
|
5.
|
Sold merchandise for $10,000 plus 8% sales tax to retail customers who used MasterCard. The cost of merchandise sold was $6,000.
|
|
12.
|
Received check for amount due from Mammoth Co. for sale on January 2.
|
|
14.
|
Sold merchandise to customers who used American Express cards, $9,000. The cost of merchandise sold was $5,500.
|
|
16.
|
Sold merchandise on account to Malloy Co., $18,700, terms FOB shipping point, 1/10, n/30. The cost of merchandise sold was $11,250.
|
|
Jan. 18.
|
Issued credit memo for $2,700 to Malloy Co. for merchandise returned from sale on January 16. The cost of the merchandise returned was $1,600.
|
|
19.
|
Sold merchandise on account to Savin Co., $21,500, terms FOB shipping point, 2/10, n/30. Added $500 to the invoice for prepaid freight. The cost of merchandise sold was $12,900.
|
|
26.
|
Received check for amount due from Malloy Co. for sale on January 16 less credit memo of January 18 and discount.
|
|
28.
|
Received check for amount due from Savin Co. for sale of January 19.
|
|
31.
|
Received check for amount due from Sando Co. for sale of January 4.
|
|
31.
|
Paid Eagle Delivery Service $6,190 for merchandise delivered during January to customers under shipping terms of FOB destination.
|
|
Feb. 3.
|
Paid City Bank $1,350 for service fees for handling MasterCard and American Express sales during January.
|
|
15.
|
Paid $2,100 to state sales tax division for taxes owed on sales.
|
Instructions
Journalize the entries to record the transactions of Artic Supply Co.
Aug 29, 2021 | Uncategorized
PR 6-4A Purchase-related transactions
The following selected transactions were completed by Gourmet Company during January of the current year:
|
Jan. 1.
|
Purchased merchandise from Bearcat Co., $19,000, terms FOB destination, n/30.
|
|
3.
|
Purchased merchandise from Alvarado Co., $28,500, terms FOB shipping point, 2/10, n/eom. Prepaid freight of $650 was added to the invoice.
|
|
4.
|
Purchased merchandise from Fogel Co., $11,000, terms FOB destination, 2/10, n/30.
|
|
6.
|
Issued debit memo to Fogel Co. for $1,000 of merchandise returned from purchase on January 4.
|
|
13.
|
Paid Alvarado Co. for invoice of January 3, less discount.
|
|
14.
|
Paid Fogel Co. for invoice of January 4, less debit memo of January 6 and discount.
|
|
19.
|
Purchased merchandise from Unitrust Co., $32,900, terms FOB shipping point, n/eom.
|
|
19.
|
Paid freight of $750 on January 19 purchase from Unitrust Co.
|
|
20.
|
Purchased merchandise from Lenn Co., $10,000, terms FOB destination, 1/10, n/30.
|
|
30.
|
Paid Lenn Co. for invoice of January 20, less discount.
|
|
31.
|
Paid Bearcat Co. for invoice of January 1.
|
|
31.
|
Paid Unitrust Co. for invoice of January 19.
|
Instructions
Journalize the entries to record the transactions of Gourmet Company for January.
Aug 29, 2021 | Uncategorized
PR 6-5A Sales-related and purchase-related transactions
The following were selected from among the transactions completed by The Grill Company during April of the current year:
|
Apr. 3.
|
Purchased merchandise on account from Grizzly Co., discount 30%, terms FOB destination, 2/10, n/30.
|
|
4.
|
Sold merchandise for cash, $23,750. The cost of the merchandise sold was $14,000.
|
|
Apr. 5.
|
Purchased merchandise on account from Ferraro Co., $26,000, terms FOB shipping point, 2/10, n/30, with prepaid freight of $600 added to the invoice.
|
|
6.
|
Returned $7,000 ($10,000 list price less trade discount of 30%) of merchandise purchased on April 3 from Grizzly Co.
|
|
11.
|
Sold merchandise on account to Logan Co., list price $12,000, trade discount 25%, terms 1/10, n/30. The cost of the merchandise sold was $5,000.
|
|
13.
|
Paid Grizzly Co. on account for purchase of April 3, less return of April 6 and discount.
|
|
14.
|
Sold merchandise on VISA, $90,000. The cost of the merchandise sold was $55,000.
|
|
15.
|
Paid Ferraro Co. on account for purchase of April 5, less discount.
|
|
21.
|
Received cash on account from sale of April 11 to Logan Co., less discount.
|
|
24.
|
Sold merchandise on account to Half Moon Co., $17,500, terms 1/10, n/30. The cost of the merchandise sold was $10,000.
|
|
28.
|
Paid VISA service fee of $4,000.
|
|
30.
|
Received merchandise returned by Half Moon Co. from sale on April 24, $2,500. The cost of the returned merchandise was $1,400.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 6-6A Sales-related and purchase-related transactions for seller and buyer
The following selected transactions were completed during May between Sky Company and Big Co.:
|
May 1.
|
Sky Company sold merchandise on account to Big Co., $72,000, terms FOB destination, 2/15, n/eom. The cost of the merchandise sold was $43,200.
|
|
2.
|
Sky Company paid freight of $3,000 for delivery of merchandise sold to Big Co. on May 1.
|
|
5.
|
Sky Company sold merchandise on account to Big Co., $48,500, terms FOB shipping point, n/eom. The cost of the merchandise sold was $30,000.
|
|
6.
|
Big Co. returned $12,000 of merchandise purchased on account on May 1 from Sky Company. The cost of the merchandise returned was $7,200.
|
|
9.
|
Big Co. paid freight of $1,800 on May 5 purchase from Sky Company.
|
|
15.
|
Sky Company sold merchandise on account to Big Co., $64,000, terms FOB shipping point, 1/10, n/30. Sky Company paid freight of $2,500, which was added to the invoice. The cost of the merchandise sold was $38,400.
|
|
16.
|
Big Co. paid Sky Company for purchase of May 1, less discount and less return of May 6.
|
|
25.
|
Big Co. paid Sky Company on account for purchase of May 15, less discount.
|
|
31.
|
Big Co. paid Sky Company on account for purchase of May 5.
|
Instructions
Journalize the May transactions for (1) Sky Company and (2) Big Co.
Aug 29, 2021 | Uncategorized
PR 6-10A Periodic inventory accounts, multiple-step income statement, closing entries
On July 31, 2012, the balances of the accounts appearing in the ledger of Sagebrush Company are as follows:
|
Cash
|
$ 18,300
|
Sales Discounts
|
$ 8,000
|
|
Accounts Receivable
|
72,000
|
Purchases
|
700,000
|
|
Merchandise Inventory,
|
|
Purchases Returns and Allowances
|
6,000
|
|
August 1, 2011
|
90,000
|
Purchases Discounts
|
4,000
|
|
Office Supplies
|
3,000
|
Freight In
|
30,000
|
|
Prepaid Insurance
|
4,500
|
Sales Salaries Expense
|
300,000
|
|
Land
|
300,000
|
Advertising Expense
|
55,000
|
|
Store Equipment
|
270,000
|
Delivery Expense
|
9,000
|
|
Accumulated Depreciation—
|
|
Depreciation Expense—
|
|
|
Store Equipment
|
55,900
|
Store Equipment
|
6,000
|
|
Office Equipment
|
78,500
|
Miscellaneous Selling Expense
|
10,000
|
|
Accumulated Depreciation—
|
|
Office Salaries Expense
|
150,000
|
|
Office Equipment
|
16,000
|
Rent Expense
|
30,000
|
|
Accounts Payable
|
27,800
|
Insurance Expense
|
3,000
|
|
Salaries Payable
|
3,000
|
Office Supplies Expense
|
2,000
|
|
Unearned Rent
|
8,300
|
Depreciation Expense—
|
|
|
Notes Payable
|
50,000
|
Office Equipment
|
1,500
|
|
Peter Richards, Capital
|
355,300
|
Miscellaneous Administrative Expense
|
3,500
|
|
Peter Richards, Drawing
|
35,000
|
Rent Revenue
|
7,000
|
|
Sales
|
1,660,000
|
Interest Expense
|
2,000
|
|
Sales Returns and Allowances
|
12,000
|
|
|
Instructions
1. Does Sagebrush Company use a periodic or perpetual inventory system? Explain.
2. Prepare a multiple-step income statement for Sagebrush Company for the year ended
July 31, 2012. The merchandise inventory as of July 31, 2012, was $80,000.
3. Prepare the closing entries for Sagebrush Company as of July 31, 2012.
4. What would be the net income if the perpetual inventory system had been used?
Aug 29, 2021 | Uncategorized
PR 6-1B Multiple-step income statement and report form of balance sheet
The following selected accounts and their current balances appear in the ledger of Black
Lab Co. for the fiscal year ended April 30, 2012:
|
Cash
|
$ 42,000
|
Sales Returns and Allowances
|
$ 40,000
|
|
Accounts Receivable
|
150,000
|
Sales Discounts
|
15,000
|
|
Merchandise Inventory
|
180,000
|
Cost of Merchandise Sold
|
1,855,000
|
|
Office Supplies
|
5,000
|
Sales Salaries Expense
|
400,000
|
|
Prepaid Insurance
|
12,000
|
Advertising Expense
|
120,000
|
|
Office Equipment
|
120,000
|
Depreciation Expense—
|
|
|
Accumulated Depreciation—
|
|
Store Equipment
|
15,000
|
|
Office Equipment
|
28,000
|
Miscellaneous Selling Expense
|
18,000
|
|
Store Equipment
|
500,000
|
Office Salaries Expense
|
240,000
|
|
Accumulated Depreciation—
|
|
Rent Expense
|
38,000
|
|
Store Equipment
|
87,500
|
Insurance Expense
|
24,000
|
|
Accounts Payable
|
48,500
|
Depreciation Expense—
|
|
|
Salaries Payable
|
4,000
|
Office Equipment
|
7,000
|
|
Note Payable
|
|
Office Supplies Expense
|
4,000
|
|
(fi nal payment due 2032)
|
140,000
|
Miscellaneous Administrative Exp.
|
6,000
|
|
Cindy Worley, Capital
|
386,000
|
Interest Expense
|
8,000
|
|
Cindy Worley, Drawing
|
45,000
|
|
|
|
Sales
|
3,150,000
|
|
|
Instructions
1. Prepare a multiple-step income statement.
2. Prepare a statement of owner’s equity.
3. Prepare a report form of balance sheet, assuming that the current portion of the note payable is $7,000.
4. Briefly explain (a) how multiple-step and single-step income statements differ and (b) how report-form and account-form balance sheets differ.
Aug 29, 2021 | Uncategorized
PR 6-3B Sales-related transactions
The following selected transactions were completed by Lawn Supplies Co., which sellsirrigation supplies primarily to wholesalers and occasionally to retail customers:
|
Mar. 1.
|
Sold merchandise on account to Green Grass Co., $18,000, terms FOB shipping point, n/eom. The cost of merchandise sold was $11,000.
|
|
2.
|
Sold merchandise for $42,000 plus 7% sales tax to retail cash customers. The cost of merchandise sold was $25,200.
|
|
5.
|
Sold merchandise on account to Jones Company, $30,000, terms FOB destination, 1/10, n/30. The cost of merchandise sold was $19,500.
|
|
Mar. 8.
|
Sold merchandise for $20,000 plus 7% sales tax to retail customers who used VISA cards. The cost of merchandise sold was $14,000.
|
|
13.
|
Sold merchandise to customers who used MasterCard cards, $15,800. The cost of merchandise sold was $9,500.
|
|
14.
|
Sold merchandise on account to Haynes Co., $8,000, terms FOB shipping point, 1/10, n/30. The cost of merchandise sold was $5,000.
|
|
15.
|
Received check for amount due from Jones Company for sale on March 5.
|
|
16.
|
Issued credit memo for $1,800 to Haynes Co. for merchandise returned from sale on March 14. The cost of the merchandise returned was $1,000.
|
|
18.
|
Sold merchandise on account to Horton Company, $6,850, terms FOB shipping point, 2/10, n/30. Paid $210 for freight and added it to the invoice. The cost of merchandise sold was $4,100.
|
|
24.
|
Received check for amount due from Haynes Co. for sale on March 14 less credit memo of March 16 and discount.
|
|
28.
|
Received check for amount due from Horton Company for sale of March 18.
|
|
31.
|
Paid First Delivery Service $5,750 for merchandise delivered during March to customers under shipping terms of FOB destination.
|
|
31.
|
Received check for amount due from Green Grass Co. for sale of March 1.
|
|
Apr. 3.
|
Paid First Federal Bank $1,650 for service fees for handling MasterCard and VISA sales during March.
|
|
10.
|
Paid $6,175 to state sales tax division for taxes owed on sales.
|
Instructions
Journalize the entries to record the transactions of Lawn Supplies Co.
Aug 29, 2021 | Uncategorized
PR 6-4B Purchase-related transactions
The following selected transactions were completed by Britt Co. during October of the current year:
|
Oct. 1.
|
Purchased merchandise from Mable Co., $17,500, terms FOB shipping point, 2/10, n/eom. Prepaid freight of $300 was added to the invoice.
|
|
5.
|
Purchased merchandise from Conway Co., $22,600, terms FOB destination, n/30.
|
|
10.
|
Paid Mable Co. for invoice of October 1, less discount.
|
|
13.
|
Purchased merchandise from Larson Co., $12,750, terms FOB destination, 2/10, n/30.
|
|
14.
|
Issued debit memo to Larson Co. for $1,500 of merchandise returned from purchase on October 13.
|
|
18.
|
Purchased merchandise from Lakey Company, $12,250, terms FOB shipping point, n/eom.
|
|
18.
|
Paid freight of $275 on October 18 purchase from Lakey Company.
|
|
19.
|
Purchased merchandise from Adler Co., $14,200, terms FOB destination, 2/10, n/30.
|
|
23.
|
Paid Larson Co. for invoice of October 13, less debit memo of October 14 and discount.
|
|
29.
|
Paid Adler Co. for invoice of October 19, less discount.
|
|
31.
|
Paid Lakey Company for invoice of October 18.
|
|
31.
|
Paid Conway Co. for invoice of October 5.
|
Instructions
Journalize the entries to record the transactions of Britt Co. for October.
Aug 29, 2021 | Uncategorized
PR 6-5B Sales-related and purchase-related transactions
The following were selected from among the transactions completed by Wild Adventures Company during December of the current year:
|
Dec. 3.
|
Purchased merchandise on account from Miramar Co., list price $45,000, trade discount 20%, terms FOB shipping point, 2/10, n/30, with prepaid freight of $1,200 added to the invoice.
|
|
5.
|
Purchased merchandise on account from Grand Canyon Co., $19,000, terms FOB destination, 2/10, n/30.
|
|
6.
|
Sold merchandise on account to Arches Co., list price $30,000, trade discount 25%, terms 2/10, n/30. The cost of the merchandise sold was $14,000.
|
|
7.
|
Returned $3,000 of merchandise purchased on December 5 from Grand Canyon Co.
|
|
13.
|
Paid Miramar Co. on account for purchase of December 3, less discount.
|
|
15.
|
Paid Grand Canyon Co. on account for purchase of December 5, less return of December 7 and discount.
|
|
16.
|
Received cash on account from sale of December 6 to Arches Co., less discount.
|
|
19.
|
Sold merchandise on MasterCard, $41,950. The cost of the merchandise sold was $25,000.
|
|
22.
|
Sold merchandise on account to Yellowstone River Co., $20,000, terms 2/10, n/30. The cost of the merchandise sold was $9,000.
|
|
23.
|
Sold merchandise for cash, $57,500. The cost of the merchandise sold was $34,500.
|
|
28.
|
Received merchandise returned by Yellowstone River Co. from sale on December 22, $4,000. The cost of the returned merchandise was $1,800.
|
|
31.
|
Received merchandise returned by Yellowstone River Co. from sale on
December 22, $4,000. The cost of the returned merchandise was $1,800.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 6-6B Sales-related and purchase-related transactions for seller and buyer
The following selected transactions were completed during June between Salinas Company and Brokaw Company:
|
June 2.
|
Salinas Company sold merchandise on account to Brokaw Company, $20,000, terms FOB shipping point, 2/10, n/30. Salinas Company paid freight of $675, which was added to the invoice. The cost of the merchandise sold was $12,000.
|
|
8.
|
Salinas Company sold merchandise on account to Brokaw Company, $34,750, terms FOB destination, 1/15, n/eom. The cost of the merchandise sold was $19,850.
|
|
8.
|
Salinas Company paid freight of $800 for delivery of merchandise sold to Brokaw Company on June 8.
|
|
12.
|
Brokaw Company returned $5,750 of merchandise purchased on account on June 8 from Salinas Company. The cost of the merchandise returned was $3,000.
|
|
12.
|
Brokaw Company paid Salinas Company for purchase of June 2, less discount.
|
|
23.
|
Brokaw Company paid Salinas Company for purchase of June 8, less discount and less return of June 12.
|
|
24.
|
Salinas Company sold merchandise on account to Brokaw Company, $31,800, terms FOB shipping point, n/eom. The cost of the merchandise sold was $20,500.
|
|
26.
|
Brokaw Company paid freight of $475 on June 24 purchase from Salinas Company.
|
|
30.
|
Brokaw Company paid Salinas Company on account for purchase of June 24.
|
Instructions
Journalize the June transactions for (1) Salinas Company and (2) Brokaw Company.
Aug 29, 2021 | Uncategorized
PR 6-10B Periodic inventory accounts, multiple-step income statement, closing entries
On April 30, 2012, the balances of the accounts appearing in the ledger of Heritage Company are as follows:
|
Cash
|
$ 60,000
|
Sales Discounts
|
$ 35,000
|
|
Accounts Receivable
|
150,000
|
Purchases
|
1,770,000
|
|
Merchandise Inventory, May 1, 2011
|
290,000
|
Purchases Returns and Allowances
|
12,000
|
|
Office Supplies
|
7,000
|
Purchases Discounts
|
8,000
|
|
Prepaid Insurance
|
18,000
|
Freight In
|
25,000
|
|
Land
|
70,000
|
Sales Salaries Expense
|
450,000
|
|
Store Equipment
|
400,000
|
Advertising Expense
|
200,000
|
|
Accumulated Depreciation—
|
|
Delivery Expense
|
18,000
|
|
Store Equipment
|
190,000
|
Depreciation Expense—
|
|
|
Office Equipment
|
250,000
|
Store Equipment
|
12,000
|
|
Accumulated Depreciation—
|
|
Miscellaneous Selling Expense
|
28,000
|
|
Office Equipment
|
110,000
|
Office Salaries Expense
|
200,000
|
|
Accounts Payable
|
85,000
|
Rent Expense
|
45,000
|
|
Salaries Payable
|
9,000
|
Insurance Expense
|
6,000
|
|
Unearned Rent
|
6,000
|
Office Supplies Expense
|
5,000
|
|
Notes Payable
|
50,000
|
Depreciation Expense—
|
|
|
Mary Diaz, Capital
|
525,000
|
Office Equipment
|
3,000
|
|
Mary Diaz, Drawing
|
100,000
|
Miscellaneous Administrative Expense
|
13,000
|
|
Sales
|
3,175,000
|
Rent Revenue
|
27,000
|
|
Sales Returns and Allowances
|
40,000
|
Interest Expense
|
2,000
|
Instructions
1. Does Heritage Company use a periodic or perpetual inventory system? Explain.
2. Prepare a multiple-step income statement for Heritage Company for the year ended April 30, 2012. The merchandise inventory as of April 30, 2012, was $315,000.
3. Prepare the closing entries for Heritage Company as of April 30, 2012.
4. What would be the net income if the perpetual inventory system had been used?
Aug 29, 2021 | Uncategorized
Ocean Atlantic Co. is a merchandising business. The account balances for Ocean Atlantic Co. as of July 1, 2012 (unless otherwise indicated), are as follows:
|
110
|
Cash
|
$63,600
|
|
112
|
Accounts Receivable
|
153,900
|
|
115
|
Merchandise Inventory
|
602,400
|
|
116
|
Prepaid Insurance
|
16,800
|
|
117
|
Store Supplies
|
11,400
|
|
123
|
Store Equipment
|
469,500
|
|
124
|
Accumulated Depreciation—Store Equipment
|
56,700
|
|
210
|
Accounts Payable
|
96,600
|
|
211
|
Salaries Payable
|
—
|
|
310
|
Kevin Gilmour, Capital, August 1, 2011
|
555,300
|
|
311
|
Kevin Gilmour, Drawing
|
135,000
|
|
312
|
Income Summary
|
—
|
|
410
|
Sales
|
3,221,100
|
|
411
|
Sales Returns and Allowances
|
92,700
|
|
412
|
Sales Discounts
|
59,400
|
|
510
|
Cost of Merchandise Sold
|
1,623,000
|
|
520
|
Sales Salaries Expense
|
334,800
|
|
521
|
Advertising Expense
|
81,000
|
|
522
|
Depreciation Expense
|
—
|
|
523
|
Store Supplies Expense
|
—
|
|
529
|
Miscellaneous Selling Expense
|
12,600
|
|
530
|
Office Salaries Expense
|
182,100
|
|
531
|
Rent Expense
|
83,700
|
|
532
|
Insurance Expense
|
—
|
|
539
|
Miscellaneous Administrative Expense
|
7,800
|
During July, the last month of the fiscal year, the following transactions were completed:
|
July 1.
|
Paid rent for July, $4,000.
|
|
3.
|
Purchased merchandise on account from Lingard Co., terms 2/10, n/30, FOB
shipping point, $25,000.
|
|
4.
|
Paid freight on purchase of July 3, $1,000.
|
|
6.
|
Sold merchandise on account to Holt Co., terms 2/10, n/30, FOB shipping
point, $40,000. The cost of the merchandise sold was $24,000.
|
|
7.
|
Received $18,000 cash from Flatt Co. on account, no discount.
|
|
10.
|
Sold merchandise for cash, $90,000. The cost of the merchandise sold was
$50,000.
|
|
13.
|
Paid for merchandise purchased on July 3, less discount.
|
|
14.
|
Received merchandise returned on sale of July 6, $7,000. The cost of the
merchandise returned was $4,500.
|
|
15.
|
Paid advertising expense for last half of July, $9,000.
|
|
16.
|
Received cash from sale of July 6, less return of July 14 and discount.
|
|
19.
|
Purchased merchandise for cash, $22,000.
|
|
19.
|
Paid $23,100 to Carino Co. on account, no discount.
|
|
20.
|
Sold merchandise on account to Reedley Co., terms 1/10, n/30, FOB shipping
point, $40,000. The cost of the merchandise sold was $25,000.
|
|
21.
|
For the convenience of the customer, paid freight on sale of July 20, $1,100.
|
|
21.
|
Received $17,600 cash from Owen Co. on account, no discount.
|
|
21.
|
Purchased merchandise on account from Munson Co., terms 1/10, n/30, FOB
destination, $32,000.
|
|
July 24.
|
Returned $5,000 of damaged merchandise purchased on July 21, receiving
credit from the seller.
|
|
26.
|
Refunded cash on sales made for cash, $12,000. The cost of the merchandise
returned was $7,200.
|
|
28.
|
Paid sales salaries of $22,800 and office salaries of $15,200.
|
|
29.
|
Purchased store supplies for cash, $2,400.
|
|
30.
|
Sold merchandise on account to Dix Co., terms 2/10, n/30, FOB shipping
point, $18,750. The cost of the merchandise sold was $11,250.
|
|
30.
|
Received cash from sale of July 20, less discount, plus freight paid on July 21.
|
|
31.
|
Paid for purchase of July 21, less return of July 24 and discount.
|
Instructions
1. Enter the balances of each of the accounts in the appropriate balance column of a four-column account. Write Balance in the item section, and place a check mark (v) in the Posting Reference column. Journalize the transactions for July starting on Page 20 of the journal.
2. Post the journal to the general ledger, extending the month-end balances to the appropriate balance columns after all posting is completed. In this problem, you are not required to update or post to the accounts receivable and accounts payable subsidiary ledgers.
3. Prepare an unadjusted trial balance.
4. At the end of July, the following adjustment data were assembled. Analyze and use these data to complete (5) and (6).
|
a.
|
Merchandise inventory on July 31
|
|
$565,000
|
|
b.
|
Insurance expired during the year
|
|
13,400
|
|
c.
|
Store supplies on hand on July 31
|
|
3,900
|
|
d.
|
Depreciation for the current year
|
|
11,500
|
|
e.
|
Accrued salaries on July 31:
|
|
|
|
|
Sales salaries
|
$3,200
|
|
|
|
Office salaries
|
1,300
|
4,500
|
5. Optional: Enter the unadjusted trial balance on a 10-column end-of-period spreadsheet (work sheet), and complete the spreadsheet.
6. Journalize and post the adjusting entries. Record the adjusting entries on Page 22 of the journal.
7. Prepare an adjusted trial balance.
8. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
9. Prepare and post the closing entries. Record the closing entries on Page 23 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry. Insert the new balance in the owner’s capital account.
10. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PE 7-1A Cost flow methods
Three identical units of Item K113 are purchased during July, as shown below.
|
|
|
Item JC07
|
Units
|
Cost
|
|
|
July
|
9
|
Purchase
|
1
|
$160
|
|
|
|
17
|
Purchase
|
1
|
168
|
|
|
|
26
|
Purchase
|
1
|
176
|
|
|
|
Total
|
|
3
|
$504
|
|
|
|
Average cost per unit
|
|
$168
|
($504 ÷ 3 units)
|
Assume that one unit is sold on July 31 for $225.
Determine the gross profit for July and ending inventory on July 31 using the (a) first-in, first-out (FIFO); (b) last-in, first-out (LIFO); and (c) average cost methods.
Aug 29, 2021 | Uncategorized
PR 5-4A Purchases and cash payments journals; accounts payable and general ledgers
Green Mountain Water Testing Service was established on November 16, 2012. Green Mountain uses field equipment and field supplies (chemicals and other supplies) to analyze water for unsafe contaminants in streams, lakes, and ponds. Transactions related to purchases and cash payments during the remainder of November are as follows:
|
Nov. 16.
|
Issued Check No. 1 in payment of rent for the remainder of November, $1,700.
|
|
16.
|
Purchased fi eld supplies on account from Hydro Supply Co., $4,380.
|
|
16.
|
Purchased fi eld equipment on account from Test-Rite Equipment Co., $16,900.
|
|
17.
|
Purchased office supplies on account from Best Office Supply Co., $375.
|
|
19.
|
Issued Check No. 2 in payment of fi eld supplies, $2,560, and office supplies, $300.
|
|
|
Post the journals to the accounts payable subsidiary ledger.
|
|
23.
|
Purchased office supplies on account from Best Office Supply Co., $580.
|
|
23.
|
Issued Check No. 3 to purchase land, $45,000.
|
|
24.
|
Issued Check No. 4 to Hydro Supply Co. in payment of invoice, $4,380.
|
|
26.
|
Issued Check No. 5 to Test-Rite Equipment Co. in payment of invoice, $16,900.
|
|
|
Post the journals to the accounts payable subsidiary ledger.
|
|
30.
|
Acquired land in exchange for fi eld equipment having a cost of $8,000.
|
|
30.
|
Purchased fi eld supplies on account from Hydro Supply Co., $5,900.
|
|
30.
|
Issued Check No. 6 to Best Office Supply Co. in payment of invoice, $375.
|
|
30.
|
Purchased the following from Test-Rite Equipment Co. on account: fi eld supplies, $900, and fi eld equipment, $3,700.
|
|
30.
|
Issued Check No. 7 in payment of salaries, $22,400.
|
|
|
Post the journals to the accounts payable subsidiary ledger.
|
Instructions
Journalize the transactions for November. Use a purchases journal and a cash payments journal, similar to those illustrated in this chapter, and a two-column general journal. Use debit columns for Field Supplies, Office Supplies, and Other Accounts in the purchases journal. Refer to the following partial chart of accounts:
|
11
|
Cash
|
19
|
Land
|
|
14
|
Field Supplies
|
21
|
Accounts Payable
|
|
15
|
Office Supplies
|
61
|
Salary Expense
|
|
17
|
Field Equipment
|
71
|
Rent Expense
|
At the points indicated in the narrative of transactions, post to the following accounts in the accounts payable subsidiary ledger:
Best Office Supply Co.
Hydro Supply Co.
Test-Rite Equipment Co.
2. Post the individual entries (Other Accounts columns of the purchases journal and the cash payments journal and both columns of the general journal) to the appropriate general ledger accounts.
3. Total each of the columns of the purchases journal and the cash payments journal, and post the appropriate totals to the general ledger. (Because the problem does not include transactions related to cash receipts, the cash account in the ledger will have a credit balance.)
4. Sum the balances of the accounts payable subsidiary ledger.
5. Why might Green Mountain consider using a subsidiary ledger for the field equipment?
Aug 29, 2021 | Uncategorized
PR 5-5A All journals and general ledger; trial balance
The transactions completed by Sure N’ Safe Courier Company during July 2012, the first month of the fiscal year, were as follows:
|
July 1.
|
Issued Check No. 610 for July rent, $7,500.
|
|
2.
|
Issued Invoice No. 940 to Capps Co., $2,680.
|
|
3.
|
Received check for $6,700 from Trimble Co. in payment of account.
|
|
5.
|
Purchased a vehicle on account from Browning Transportation, $34,600.
|
|
6.
|
Purchased office equipment on account from Austin Computer Co., $5,200.
|
|
6.
|
Issued Invoice No. 941 to Dawar Co., $5,970.
|
|
9.
|
Issued Check No. 611 for fuel expense, $900.
|
|
10.
|
Received check from Sing Co. in payment of $3,980 invoice.
|
|
10.
|
Issued Check No. 612 for $1,040 to Office To Go Inc. in payment of invoice.
|
|
10.
|
Issued Invoice No. 942 to Joy Co., $2,640.
|
|
11.
|
Issued Check No. 613 for $3,670 to Essential Supply Co. in payment of account.
|
|
11.
|
Issued Check No. 614 for $725 to Porter Co. in payment of account.
|
|
12.
|
Received check from Capps Co. in payment of $2,680 invoice.
|
|
13.
|
Issued Check No. 615 to Browning Transportation in payment of $34,600 balance.
|
|
16.
|
Issued Check No. 616 for $42,100 for cash purchase of a vehicle.
|
|
16.
|
Cash fees earned for July 1–16, $18,900.
|
|
17.
|
Issued Check No. 617 for miscellaneous administrative expense, $750.
|
|
18.
|
Purchased maintenance supplies on account from Essential Supply Co., $1,950.
|
|
19.
|
Purchased the following on account from McClain Co.: maintenance supplies, $1,900; office supplies, $470.
|
|
20.
|
Issued Check No. 618 in payment of advertising expense, $2,350.
|
|
20.
|
Used $4,000 maintenance supplies to repair delivery vehicles.
|
|
23.
|
Purchased office supplies on account from Office To Go Inc., $600.
|
|
24.
|
Issued Invoice No. 943 to Sing Co., $7,000.
|
|
24.
|
Issued Check No. 619 to J. Bourne as a personal withdrawal, $3,000.
|
|
25.
|
Issued Invoice No. 944 to Dawar Co., $6,450.
|
|
25.
|
Received check for $4,500 from Trimble Co. in payment of balance.
|
|
26.
|
Issued Check No. 620 to Austin Computer Co. in payment of $5,200 invoice of July 6.
|
|
30.
|
Issued Check No. 621 for monthly salaries as follows: driver salaries, $18,900; office salaries, $8,300.
|
|
31.
|
Cash fees earned for July 17–31, $21,400.
|
|
31.
|
Issued Check No. 622 in payment for office supplies, $800.
|
Instructions
1. Enter the following account balances in the general ledger as of July 1:
|
11
|
Cash
|
$167,900
|
32
|
J. Bourne, Drawing
|
—
|
|
12
|
Accounts Receivable
|
15,180
|
41
|
Fees Earned
|
—
|
|
14
|
Maintenance Supplies
|
10,850
|
51
|
Driver Salaries Expense
|
—
|
|
15
|
Office Supplies
|
4,900
|
52
|
Maintenance Supplies Exp.
|
—
|
|
16
|
Office Equipment
|
28,500
|
53
|
Fuel Expense
|
—
|
|
17
|
Accum. Depr.—Office Equip.
|
6,900
|
61
|
Office Salaries Expense
|
—
|
|
18
|
Vehicles
|
95,900
|
62
|
Rent Expense
|
—
|
|
19
|
Accum. Depr.—Vehicles
|
14,700
|
63
|
Advertising Expense
|
—
|
|
21
|
Accounts Payable
|
5,435
|
64
|
Miscellaneous Administrative Expense
|
—
|
|
31
|
J. Bourne, Capital
|
296,195
|
|
|
|
Journalize the transactions for July 2012, using the following journals similar to those illustrated in this chapter: cash receipts journal, purchases journal, with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts), single column revenue journal, cash payments journal, and two-column general journal. Assume that the daily postings to the individual accounts in the accounts payable ledger and the accounts receivable ledger have been made.
3. Post the appropriate individual entries to the general ledger.
4. Total each of the columns of the special journals, and post the appropriate totals to the general ledger; insert the account balances.
5. Prepare a trial balance.
Aug 29, 2021 | Uncategorized
PR 5-1B Revenue journal; accounts receivable and general ledgers
Sentinel Security Services was established on March 15, 2012, to provide security services.The services provided during the remainder of the month are listed below.
|
Mar. 18.
|
Issued Invoice No. 1 to Murphy Co. for $410 on account.
|
|
20.
|
Issued Invoice No. 2 to Qwik-Mart Co. for $290 on account.
|
|
24.
|
Issued Invoice No. 3 to Goforth Co. for $625 on account.
|
|
27.
|
Issued Invoice No. 4 to Carson Co. for $510 on account.
|
|
28.
|
Issued Invoice No. 5 to Amber Waves Co. for $100 on account.
|
|
28.
|
Provided security services, $90, to Qwik-Mart Co. in exchange for supplies.
|
|
30.
|
Issued Invoice No. 6 to Qwik-Mart Co. for $140 on account.
|
|
31.
|
Issued Invoice No. 7 to Goforth Co. for $245 on account.
|
Instructions
1. Journalize the transactions for March, using a single-column revenue journal and a two-column general journal. Post to the following customer accounts in the accounts receivable ledger, and insert the balance immediately after recording each entry: Amber Waves Co.; Carson Co.; Goforth Co.; Murphy Co.; Qwik-Mart Co.
2. Post the revenue journal to the following accounts in the general ledger, inserting the account balances only after the last postings:
|
12
|
Accounts Receivable
|
|
14
|
Supplies
|
|
41
|
Fees Earned
|
3. a. What is the sum of the balances of the accounts in the subsidiary ledger at March 31?
b. What is the balance of the controlling account at March 31?
4. Assume Sentinel Security Services began using a computerized accounting system to record the sales transactions on April 1. What are some of the benefits of the computerized system over the manual system?
Aug 29, 2021 | Uncategorized
PR 5-2B Revenue and cash receipts journals; accounts receivable and general ledgers
Transactions related to revenue and cash receipts completed by Pinnacle Engineering Services during the period April 2–30, 2012, are as follows:
|
Apr. 2.
|
Issued Invoice No. 717 to Yee Co., $950.
|
|
3.
|
Received cash from Auto-Flex Co. for the balance owed on its account.
|
|
7.
|
Issued Invoice No. 718 to Park Development Co., $530.
|
|
10.
|
Issued Invoice No. 719 to Ridge Communities, $2,350.
|
|
|
Post revenue and collections to the accounts receivable subsidiary ledger.
|
|
Apr. 14.
|
Received cash from Park Development Co. for the balance owed on April 1.
|
|
16.
|
Issued Invoice No. 720 to Park Development Co., $325.
|
|
|
Post revenue and collections to the accounts receivable subsidiary ledger.
|
|
18.
|
Received cash from Yee Co. for the balance due on invoice of April 2.
|
|
20.
|
Received cash from Park Development Co. for invoice of April 7.
|
|
23.
|
Issued Invoice No. 721 to Auto-Flex Co., $790.
|
|
30.
|
Recorded cash fees earned, $3,950.
|
|
30.
|
Received office equipment of $1,500 in partial settlement of balance due on the Ridge Communities account.
|
|
|
Post revenue and collections to the accounts receivable subsidiary ledger.
|
Instructions
1. Insert the following balances in the general ledger as of April 1:
|
11
|
Cash
|
$18,340
|
|
12
|
Accounts Receivable
|
2,260
|
|
18
|
Office Equipment
|
34,700
|
|
41
|
Fees Earned
|
—
|
2. Insert the following balances in the accounts receivable subsidiary ledger as of April 1:
|
Auto-Flex Co.
|
$1,460
|
|
Park Development Co.
|
800
|
|
Ridge Communities
|
—
|
|
Yee Co.
|
—
|
3. Prepare a single-column revenue journal and a cash receipts journal. Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. The Fees Earned column is used to record cash fees. Insert a check mark (v) in the Post. Ref. column when recording cash fees.
4. Using the two special journals and the two-column general journal, journalize the transactions for April. Post to the accounts receivable subsidiary ledger, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customer’s account before recording a cash receipt.
5. Total each of the columns of the special journals, and post the individual entries and totals to the general ledger. Insert account balances after the last posting.
6. Determine that the subsidiary ledger agrees with the controlling account in the general ledger.
7. Why would an automated system omit postings to a control account as performed in step 5 for Accounts Receivable?
Aug 29, 2021 | Uncategorized
PR 5-3B Purchases, accounts payable account, and accounts payable ledger
True Plumb Surveyors provides survey work for construction projects. The office staff use office supplies, while surveying crews use field supplies. Purchases on account completed by True Plumb Surveyors during August 2012 are as follows:
|
Aug. 1.
|
Purchased fi eld supplies on account from Wendell Co., $2,670.
|
|
3.
|
Purchased office supplies on account from Lassiter Co., $290.
|
|
8.
|
Purchased fi eld supplies on account from Ready Supplies, $3,900.
|
|
12.
|
Purchased fi eld supplies on account from Wendell Co., $2,950.
|
|
15.
|
Purchased office supplies on account from J-Mart Co., $400.
|
|
19.
|
Purchased office equipment on account from Accu-Vision Supply Co., $7,350.
|
|
23.
|
Purchased fi eld supplies on account from Ready Supplies, $2,140.
|
|
26.
|
Purchased office supplies on account from J-Mart Co., $205.
|
|
30.
|
Purchased fi eld supplies on account from Ready Supplies, $2,750.
|
Instructions
1. Insert the following balances in the general ledger as of August 1:
|
14
|
Field Supplies
|
$ 6,200
|
|
15
|
Office Supplies
|
1,490
|
|
18
|
Office Equipment
|
19,400
|
|
21
|
Accounts Payable
|
4,715
|
2. Insert the following balances in the accounts payable subsidiary ledger as of August 1:
|
Accu-Vision Supply Co.
|
$3,600
|
|
J-Mart Co.
|
690
|
|
Lassiter Co.
|
425
|
|
Ready Supplies
|
—
|
|
Wendell Co.
|
—
|
3. Journalize the transactions for August, using a purchases journal similar to the one illustrated in this chapter. Prepare the purchases journal with columns for Accounts Payable, Field Supplies, Office Supplies, and Other Accounts. Post to the creditor accounts in the accounts payable ledger immediately after each entry.
4. Post the purchases journal to the accounts in the general ledger.
5. a. What is the sum of the balances in the subsidiary ledger at August 31?
b. What is the balance of the controlling account at August 31?
6. What type of e-commerce application would be used to plan and coordinate suppliers?
Aug 29, 2021 | Uncategorized
PR 5-4B Purchases and cash payments journals; accounts payable and general ledgers
Texas Tea Exploration Co. was established on July 15, 2012, to provide oil-drilling services. Texas Tea uses field equipment (rigs and pipe) and field supplies (drill bits and lubricants) in its operations. Transactions related to purchases and cash payments during the remainder of July are as follows:
|
July 16.
|
Issued Check No. 1 in payment of rent for the remainder of July, $6,000.
|
|
16.
|
Purchased fi eld equipment on account from Petro Services Inc., $26,400.
|
|
17.
|
Purchased fi eld supplies on account from Culver Supply Co., $8,750.
|
|
18.
|
Issued Check No. 2 in payment of fi eld supplies, $3,150, and office supplies, $500.
|
|
20.
|
Purchased office supplies on account from A-One Office Supply Co., $1,200.
|
|
|
Post the journals to the accounts payable subsidiary ledger.
|
|
24.
|
Issued Check No. 3 to Petro Services Inc., in payment of July 16 invoice.
|
|
26.
|
Issued Check No. 4 to Culver Supply Co. in payment of July 17 invoice.
|
|
28.
|
Issued Check No. 5 to purchase land, $190,000.
|
|
28.
|
Purchased office supplies on account from A-One Office Supply Co., $2,970.
|
|
|
Post the journals to the accounts payable subsidiary ledger.
|
|
30.
|
Purchased the following from Petro Services Inc. on account: fi eld supplies, $22,980 and office equipment, $4,200.
|
|
30.
|
Issued Check No. 6 to A-One Office Supply Co. in payment of July 20 invoice.
|
|
30.
|
Purchased fi eld supplies on account from Culver Supply Co., $10,200.
|
|
31.
|
Issued Check No. 7 in payment of salaries, $29,000.
|
|
31.
|
Rented building for one year in exchange for fi eld equipment having a cost of $14,000.
|
|
|
Post the journals to the accounts payable subsidiary ledger.
|
Instructions
1. Journalize the transactions for July. Use a purchases journal and a cash payments journal, similar to those illustrated in this chapter, and a two-column general journal. Set debit columns for Field Supplies, Office Supplies, and Other Accounts in the purchases journal. Refer to the following partial chart of accounts:
|
11
|
Cash
|
18
|
Office Equipment
|
|
14
|
Field Supplies
|
19
|
Land
|
|
15
|
Office Supplies
|
21
|
Accounts Payable
|
|
16
|
Prepaid Rent
|
61
|
Salary Expense
|
At the points indicated in the narrative of transactions, post to the following subsidiary accounts in the accounts payable ledger:
A-One Office Supply Co.
Culver Supply Co.
Petro Services Inc.
2. Post the individual entries (Other Accounts columns of the purchases journal and the cash payments journal; both columns of the general journal) to the appropriate general ledger accounts.
3. Total each of the columns of the purchases journal and the cash payments journal, and post the appropriate totals to the general ledger. (Because the problem does not include transactions related to cash receipts, the cash account in the ledger will have a credit balance.)
4. Sum the balances of the accounts payable subsidiary ledger.
5. Why might Texas Tea consider using a subsidiary ledger for the field equipment?
Aug 29, 2021 | Uncategorized
PR 5-5B All journals and general ledger; trial balance
The transactions completed by By Tomorrow Express Company during May 2012, the first month of the fiscal year, were as follows:
|
May 1.
|
Issued Check No. 205 for May rent, $1,500.
|
|
2.
|
Purchased a vehicle on account from McIntyre Sales Co., $23,700.
|
|
3.
|
Purchased office equipment on account from Office Mate Inc., $640.
|
|
5.
|
Issued Invoice No. 91 to Martin Co., $6,000.
|
|
6.
|
Received check for $6,890 from Chavez Co. in payment of invoice.
|
|
7.
|
Issued Invoice No. 92 to Trent Co., $8,650.
|
|
9.
|
Issued Check No. 206 for fuel expense, $710.
|
|
10.
|
Received check for $9,500 from Sajeev Co. in payment of invoice.
|
|
10.
|
Issued Check No. 207 to Office City in payment of $500 invoice.
|
|
10.
|
Issued Check No. 208 to Bastille Co. in payment of $1,450 invoice.
|
|
11.
|
Issued Invoice No. 93 to Jarvis Co., $6,900.
|
|
11.
|
Issued Check No. 209 to Porter Co. in payment of $375 invoice.
|
|
12.
|
Received check for $6,000 from Martin Co. in payment of invoice.
|
|
13.
|
Issued Check No. 210 to McIntyre Sales Co. in payment of $23,700 invoice.
|
|
16.
|
Cash fees earned for May 1–16, $24,600.
|
|
16.
|
Issued Check No. 211 for purchase of a vehicle, $24,000.
|
|
17.
|
Issued Check No. 212 for miscellaneous administrative expense, $4,360.
|
|
18.
|
Purchased maintenance supplies on account from Bastille Co., $1,790.
|
|
18.
|
Received check for rent revenue on office space, $2,500.
|
|
19.
|
Purchased the following on account from Master Supply Co.: maintenance supplies, $2,500, and office supplies, $2,000.
|
|
20.
|
Issued Check No. 213 in payment of advertising expense, $7,810.
|
|
20.
|
Used maintenance supplies with a cost of $4,200 to repair vehicles.
|
|
21.
|
Purchased office supplies on account from Office City, $790.
|
|
24.
|
Issued Invoice No. 94 to Sajeev Co., $8,000.
|
|
25.
|
Received check for $12,500 from Chavez Co. in payment of invoice.
|
|
May 25.
|
Issued Invoice No. 95 to Trent Co., $5,900.
|
|
26.
|
Issued Check No. 214 to Office Mate Inc. in payment of $640 invoice.
|
|
27.
|
Issued Check No. 215 to J. Wu as a personal withdrawal, $3,500.
|
|
30.
|
Issued Check No. 216 in payment of driver salaries, $29,300.
|
|
31.
|
Issued Check No. 217 in payment of office salaries, $19,400.
|
|
31.
|
Issued Check No. 218 for office supplies, $560.
|
|
31.
|
Cash fees earned for May 17–31, $22,400.
|
Instructions
1. Enter the following account balances in the general ledger as of May 1:
|
11
|
Cash
|
$ 65,200
|
32
|
J. Wu, Drawing
|
—
|
|
12
|
Accounts Receivable
|
28,890
|
41
|
Fees Earned
|
—
|
|
14
|
Maintenance Supplies
|
7,240
|
42
|
Rent Revenue
|
—
|
|
15
|
Office Supplies
|
3,690
|
51
|
Driver Salaries Expense
|
—
|
|
16
|
Office Equipment
|
17,300
|
52
|
Maintenance Supplies Expense
|
—
|
|
17
|
Accum. Depr.—Office Equip.
|
4,250
|
53
|
Fuel Expense
|
—
|
|
18
|
Vehicles
|
62,400
|
61
|
Office Salaries Expense
|
—
|
|
19
|
Accum. Depr.—Vehicles
|
17,800
|
62
|
Rent Expense
|
—
|
|
21
|
Accounts Payable
|
2,325
|
63
|
Advertising Expense
|
—
|
|
31
|
J. Wu, Capital
|
160,345
|
64
|
Miscellaneous Administrative Exp.
|
—
|
2. Journalize the transactions for May 2012, using the following journals similar to those illustrated in this chapter: single-column revenue journal, cash receipts journal, purchases journal, with columns for Accounts Payable, Maintenance Supplies, Office Supplies, and Other Accounts), cash payments journal, and two-column general journal. Assume that the daily postings to the individual accounts in the accounts payable ledger and the accounts receivable ledger have been made.
3. Post the appropriate individual entries to the general ledger.
4. Total each of the columns of the special journals, and post the appropriate totals to the general ledger; insert the account balances.
5. Prepare a trial balance.
Aug 29, 2021 | Uncategorized
CP 5-1 Ethics and professional conduct in business
E-Biz Financial, Inc., provides accounting applications for business customers on the Internet for a monthly subscription. E-Biz Financial customers run their accounting system on the Internet; thus, the business data and accounting software reside on the servers of E-Biz Financial, Inc. The senior management of E-Biz believes that once a customer begins to use E-Biz Financial it would be very difficult to cancel the service. That is, customers are “locked in” because it would be difficult to move the business data from E-Biz Financial to another accounting application, even though the customers own their own data. Therefore, E-Biz Financial has decided to entice customers with an initial low monthly price that is half of the normal monthly rate for the first year of services. After a year, the price will be increased to the regular monthly rate. E-Biz Financial management believes that customers will have to accept the full price because customers will be “locked in” after one year of use.
a. Discuss whether the half-price offer is an ethical business practice.
b. Discuss whether customer “lock in” is an ethical business practice.
Aug 29, 2021 | Uncategorized
PE 6-4A Freight terms
Determine the amount to be paid in full settlement of each of invoices (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.
|
|
Merchandise
|
Freight Paid by Seller
|
Freight Terms
|
Returns and Allowances
|
|
a.
|
$120,000
|
$5,000
|
FOB shipping point, 1/10, n/30
|
$15,000
|
|
b.
|
90,000
|
1,000
|
FOB destination, 2/10, n/30
|
2,000
|
Aug 29, 2021 | Uncategorized
PE 6-4B Freight terms
Determine the amount to be paid in full settlement of each of invoices (a) and (b), assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.
|
|
Merchandise
|
Freight Paid by Seller
|
Freight Terms
|
Returns and Allowances
|
|
a.
|
$20,000
|
$500
|
FOB destination, 1/10, n/30
|
$2,000
|
|
b.
|
18,000
|
250
|
FOB shipping point, 2/10, n/30
|
1,000
|
Aug 29, 2021 | Uncategorized
PE 6-7A Ratio of net sales to assets
The following financial statement data for years ending December 31 for Foodworks Company are shown below.
|
|
2012
|
2011
|
|
Net sales
|
$880,000
|
$787,500
|
|
Total assets:
|
|
|
|
Beginning of year
|
500,000
|
375,000
|
|
End of year
|
600,000
|
500,000
|
a. Determine the ratio of net sales to assets for 2012 and 2011.
b. Does the change in the ratio of net sales to assets from 2011 to 2012 indicate a favorable or an unfavorable trend?
Aug 29, 2021 | Uncategorized
EX 6-6 Multiple-step income statement
Identify the errors in the following income statement:
|
Keepsakes Company
Income Statement
For the Year Ended February 29, 2012
|
|
Revenue from sales:
|
|
|
|
|
Sales
|
|
$7,200,000
|
|
|
Add: Sales returns and allowances
|
$275,000
|
|
|
|
Sales discounts
|
130,000
|
405,000
|
|
|
Gross sales
|
|
|
$7,605,000
|
|
Cost of merchandise sold
|
|
|
4,075,000
|
|
Income from operations
|
|
|
$3,530,000
|
|
Expenses:
|
|
|
|
|
Selling expenses
|
|
$950,000
|
|
|
Administrative expenses
|
|
475,000
|
|
|
Delivery expense
|
|
125,000
|
|
|
Total expenses
|
|
|
1,550,000
|
|
|
|
|
$1,980,000
|
|
Other expense
|
|
|
|
|
Interest revenue
|
|
|
30,000
|
|
Gross profit
|
|
|
$1,950,000
|
Aug 29, 2021 | Uncategorized
EX 6-7 Determining amounts for items omitted from income statement
Two items are omitted in each of the following four lists of income statement data. Determine the amounts of the missing items, identifying them by letter.
|
Sales
|
$300,000
|
$600,000
|
$850,000
|
$ (g)
|
|
Sales returns and allowances
|
(a)
|
30,000
|
(e)
|
10,000
|
|
Sales discounts
|
20,000
|
18,000
|
70,000
|
25,000
|
|
Net sales
|
250,000
|
(c)
|
775,000
|
(h)
|
|
Cost of merchandise sold
|
(b)
|
330,000
|
(f)
|
400,000
|
|
Gross profit
|
100,000
|
(d)
|
300,000
|
115,000
|
Aug 29, 2021 | Uncategorized
EX 6-8 Multiple-step income statement
On December 31, 2012, the balances of the accounts appearing in the ledger of Warm Place Furnishings Company, a furniture wholesaler, are as follows:
|
Administrative Expenses
|
$ 250,000
|
Rhonda Sipes, Capital
|
$ 741,000
|
|
Building
|
1,025,000
|
Rhonda Sipes, Drawing
|
50,000
|
|
Cash
|
97,000
|
Salaries Payable
|
6,000
|
|
Cost of Merchandise
|
1,700,000
|
Sales
|
3,000,000
|
|
Interest Expense
|
30,000
|
Sales Discounts
|
40,000
|
|
Merchandise Inventory
|
260,000
|
Sales Returns and Allowances
|
160,000
|
|
Notes Payable
|
400,000
|
Selling Expenses
|
450,000
|
|
Office Supplies
|
20,000
|
Store Supplies
|
65,000
|
a. Prepare a multiple-step income statement for the year ended December 31, 2012.
b. Compare the major advantages and disadvantages of the multiple-step and single-step forms of income statements.
Aug 29, 2021 | Uncategorized
EX 6-9 Chart of accounts
Do-Right Paints Co. is a newly organized business with a list of accounts arranged in alphabetical order below.
|
Accounts Payable
|
Miscellaneous Administrative Expense
|
|
Accounts Receivable
|
Miscellaneous Selling Expense
|
|
Accumulated Depreciation—Office Equipment
|
Notes Payable
|
|
Accumulated Depreciation—Store Equipment
|
Office Equipment
|
|
Advertising Expense
|
Office Salaries Expense
|
|
Cash
|
Office Supplies
|
|
Cost of Merchandise Sold
|
Office Supplies Expense
|
|
Delivery Expense
|
Prepaid Insurance
|
|
Depreciation Expense—Office Equipment
|
Rent Expense
|
|
Depreciation Expense—Store Equipment
|
Salaries Payable
|
|
Income Summary
|
Sales
|
|
Insurance Expense
|
Sales Discounts
|
|
Interest Expense
|
Sales Returns and Allowances
|
|
Jamie Ricardi, Capital
|
Sales Salaries Expense
|
|
Jamie Ricardi, Drawing
|
Store Equipment
|
|
Land
|
Store Supplies
|
|
Merchandise Inventory
|
Store Supplies Expense
|
Construct a chart of accounts, assigning account numbers and arranging the accounts in balance sheet and income statement order, as illustrated in Exhibit 5. Each account number is three digits: the first digit is to indicate the major classification (“1” for assets, and so on); the second digit is to indicate the subclassification (“11” for current assets, and so on); and the third digit is to identify the specific account (“110” for Cash, “112” for Accounts Receivable, “114” for merchandise Inventory, “115” for Store Supplies, and so on).
Aug 29, 2021 | Uncategorized
EX 6-13 Sales-related transactions
The debits and credits for three related transactions are presented in the following T accounts. Describe each transaction.
|
|
Cash
|
|
|
|
Sales
|
|
|
(5)
|
32,340
|
|
|
|
|
|
(1)
|
35,000
|
|
|
Accounts Receivable
|
|
|
|
Sales Discounts
|
|
|
(1)
|
35,000
|
(3)
|
2,000
|
|
(5)
|
660
|
|
|
|
|
|
(5)
|
33,000
|
|
Sales Returns and Allowances
|
|
|
Merchandise Inventory
|
|
|
(3)
|
2,000
|
|
|
|
(4)
|
1,200
|
(2)
|
21,000
|
|
Cost of Merchandise Sold
|
|
|
|
|
|
|
(2)
|
21,000
|
(4)
|
1,200
|
Aug 29, 2021 | Uncategorized
EX 6-17 Purchase-related transactions
The debits and credits from four related transactions are presented in the following T accounts. Describe each transaction.
|
|
Cash
|
|
|
|
Accounts Payable
|
|
|
|
|
2)
|
400
|
|
(3)
|
3,000
|
(1)
|
15,000
|
|
|
|
4)
|
11,760
|
|
(4)
|
12,000
|
|
|
|
|
Merchandise Inventory
|
|
|
|
|
|
|
(1)
|
15,000
|
(3)
|
3,000
|
|
|
|
|
|
|
(2)
|
400
|
(4)
|
240
|
|
|
Aug 29, 2021 | Uncategorized
EX 6-20 Determining amounts to be paid on invoices
Determine the amount to be paid in full settlement of each of the following invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period.
|
|
Merchandise
|
Freight Paid by Seller
|
Freight Terms
|
Returns and Allowances
|
|
a.
|
$36,000
|
—
|
FOB destination, n/30
|
$1,000
|
|
b.
|
10,000
|
$375
|
FOB shipping point, 2/10, n/30
|
1,200
|
|
|
8,250
|
—
|
FOB shipping point, 1/10, n/30
|
750
|
|
|
4,000
|
200
|
FOB shipping point, 2/10, n/30
|
500
|
|
|
8,500
|
—
|
FOB destination, 1/10, n/30
|
—
|
Aug 29, 2021 | Uncategorized
EX 6-29 Closing entries
On August 31, 2012, the balances of the accounts appearing in the ledger of Wood Interiors Company, a furniture wholesaler, are as follows:
|
Accumulated Depr.—Building
|
$142,000
|
Notes Payable
|
$ 25,000
|
|
Administrative Expenses
|
90,000
|
Sales
|
800,000
|
|
Building
|
400,000
|
Sales Discounts
|
18,000
|
|
Cash
|
55,000
|
Sales Returns and Allow.
|
12,000
|
|
Cost of Merchandise Sold
|
350,000
|
Sales Tax Payable
|
3,000
|
|
Interest Expense
|
1,000
|
Selling Expenses
|
150,000
|
|
Kate Archer, Capital
|
172,000
|
Store Supplies
|
15,000
|
|
Kate Archer, Drawing
|
5,000
|
Store Supplies Expenses
|
20,000
|
|
Merchandise Inventory
|
26,000
|
|
|
Prepare the August 31, 2012, closing entries for Wood Interiors Company.
Aug 29, 2021 | Uncategorized
EX 6-30 Ratio of net sales to assets
The Home Depot reported the following data (in millions) in its financial statements:
|
|
2009
|
2008
|
|
Net sales
|
$71,288
|
$77,349
|
|
Total assets at the end of the year
|
41,164
|
44,324
|
|
Total assets at the beginning of the year
|
44,324
|
52,263
|
a. Determine the ratio of net sales to assets for The Home Depot for 2009 and 2008. Round to two decimal places.
b. What conclusions can be drawn from these ratios concerning the trend in the ability of The Home Depot to effectively use its assets to generate sales?
Aug 29, 2021 | Uncategorized
EX 5-8 Accounts receivable subsidiary ledger
The revenue and cash receipts journals for Amazon Productions Inc. are shown below. The accounts receivable control account has a May 1, 2012, balance of $3,910, consisting of an amount due from Bishop Studios Inc.
|
|
|
REVENUE JOURNAL
|
|
|
|
|
Invoice
|
|
Post.
|
Accounts Rec. Dr.
|
|
Date
|
No.
|
Account Debited
|
Ref.
|
Fees Earned Cr.
|
|
2012
|
|
|
|
|
|
|
May 6
|
1
|
Chandler Broadcasting Co.
|
v
|
1,250
|
|
|
14
|
2
|
Gold Coast Media Inc
|
v
|
5,700
|
|
|
22
|
3
|
Chandler Broadcasting Co.
|
v
|
2,200
|
|
|
27
|
4
|
Bishop Studios Inc.
|
v
|
1,250
|
|
|
28
|
5
|
Amber Communications Inc.
|
v
|
2,040
|
|
|
30
|
|
|
|
12,440
|
|
|
|
|
|
|
(12) (41)
|
|
|
|
|
|
|
|
|
|
|
CASH RECEIPTS JOURNAL
|
|
|
|
|
|
|
|
|
Post.
|
Fees
|
Accts Rec.
|
Cash
|
|
|
Date
|
Account Debited
|
Ref.
|
Earned Cr.
|
Dr.
|
Dr.
|
|
|
2012
|
|
|
|
|
|
|
|
May 6
|
Bishop Studios Inc.
|
v
|
—
|
3,910
|
3,910
|
|
|
11
|
Fees Earned
|
|
3,200
|
|
3,200
|
|
|
18
|
Chandler Broadcasting Co.
|
v
|
—
|
1,250
|
1,250
|
|
|
28
|
Gold Coast Media Inc
|
v
|
—
|
5,700
|
5,700
|
|
|
30
|
|
|
3,200
|
10,860
|
14,060
|
|
|
|
|
|
(41)
|
(12)
|
(11)
|
|
|
|
|
|
|
|
|
|
Prepare a listing of the accounts receivable subsidiary ledger account balances and verify that the total agrees with the ending balance of the accounts receivable account.
Aug 29, 2021 | Uncategorized
EX 5-9 Revenue and cash receipts journals
Transactions related to revenue and cash receipts completed by Main Line Inc. during the month of August 2012 are as follows:
|
Aug. 2.
|
Issued Invoice No. 512 to Boston Co., $780.
|
|
4.
|
Received cash from CMI Inc., on account, for $195.
|
|
8.
|
Issued Invoice No. 513 to Gabriel Co., $275.
|
|
12.
|
Issued Invoice No. 514 to Dockers Inc., $690.
|
|
19.
|
Received cash from Dockers Inc., on account, $525.
|
|
22.
|
Issued Invoice No. 515 to Electronic Central Inc., $150.
|
|
27.
|
Received cash from Marshall Inc. for services provided, $115.
|
|
29.
|
Received cash from Boston Co. for invoice of August 2.
|
|
31.
|
Received cash from McCleary Co. for services provided, $65.
|
Prepare a single-column revenue journal and a cash receipts journal to record these transactions. Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. Place a check mark (v) in the Post. Ref. column to indicate when the accounts receivable subsidiary ledger should be posted.
Aug 29, 2021 | Uncategorized
EX 5-10 Revenue and cash receipts journals
Essential Paris, Inc. has $2,290 in the December 1 balance of the accounts receivable account consisting of $940 from Chrystal Co. and $1,350 from Venus Co. Transactions related to revenue and cash receipts completed by Essential Paris, Inc. during the month of December 2012 are as follows:
|
Dec. 3.
|
Issued Invoice No. 622 for services provided to Palace Corp., $1,920.
|
|
5.
|
Received cash from Chrystal Co., on account, for $940.
|
|
8.
|
Issued Invoice No. 623 for services provided to Sunstream Aviation Inc., $3,450.
|
|
12.
|
Received cash from Venus Co., on account, for $1,350.
|
|
18.
|
Issued Invoice No. 624 for services provided to Amex Services Inc., $2,600.
|
|
23.
|
Received cash from Palace Corp. for Invoice No. 622.
|
|
28.
|
Issued Invoice No. 625 to Venus Co., on account, for $2,190.
|
|
30.
|
Received cash from Rogers Co. for services provided, $80.
|
a. Prepare a single-column revenue journal and a cash receipts journal to record these transactions. Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. Place a check mark (v) in the Post. Ref. column to indicate when the accounts receivable subsidiary ledger should be posted.
b. Prepare a listing of the accounts receivable subsidiary ledger account balances and verify that the total of the accounts receivable subsidiary ledger equals the balance of the accounts receivable account on December 31, 2012.
c. Why does Essential Paris use a subsidiary ledger for accounts receivable?
Aug 29, 2021 | Uncategorized
EX 5-11 Identify postings from purchases journal
Using the following purchases journal, identify each of the posting references, indicated by a letter, as representing (1) a posting to a general ledger account, (2) a posting to a subsidiary ledger account, or (3) that no posting is required.
|
|
|
|
PURCHASES JOURNAL
|
|
|
|
|
|
|
|
Accounts
|
Store
|
Office
|
Other
|
|
|
|
Date
|
|
Post.
|
Payable
|
Supplies
|
Supplies
|
Accounts
|
Post.
|
|
|
2012
|
Account Credited
|
Ref.
|
Cr.
|
Dr.
|
Dr.
|
Dr.
|
Ref.
|
Amount
|
|
Mar. 4
|
Arrow Supply Co.
|
(a)
|
4,000
|
|
4,000
|
|
|
|
|
6
|
Coastal Equipment Co.
|
(b)
|
5,325
|
|
|
Warehouse Equipment
|
(c)
|
5,325
|
|
9
|
Thorton Products
|
(d)
|
1,875
|
1,600
|
275
|
|
|
|
|
14
|
Office Warehouse
|
(e)
|
2,200
|
|
|
Office Equipment
|
(f)
|
2,200
|
|
20
|
Office Warehouse
|
(g)
|
6,000
|
|
|
Store Equipment
|
(h)
|
6,000
|
|
25
|
Monroe Supply Co.
|
(i)
|
2,740
|
2,740
|
|
|
|
|
|
30
|
|
|
22,140
|
4,340
|
4,275
|
|
|
13,525
|
|
|
|
|
(j)
|
(k)
|
(l)
|
|
|
(m)
|
Aug 29, 2021 | Uncategorized
EX 5-12 Identify postings from cash payments journal
Using the following cash payments journal, identify each of the posting references, indicated by a letter, as representing (1) a posting to a general ledger account, (2) a posting to a subsidiary ledger account, or (3) that no posting is required.
|
|
|
CASH PAYMENTS JOURNAL
|
|
|
|
|
|
|
|
|
Other
|
Accounts
|
|
|
|
Ck.
|
|
Post.
|
Accounts
|
Payable
|
|
|
Date
|
No.
|
Account Debited
|
Ref.
|
Dr.
|
Dr.
|
Cash Cr.
|
|
2012
|
|
|
|
|
|
|
|
Aug. 3
|
611
|
Energy Systems Co.
|
(a)
|
|
4,000
|
4,000
|
|
5
|
612
|
Utilities Expense
|
(b)
|
310
|
|
310
|
|
10
|
613
|
Prepaid Rent
|
(c)
|
3,200
|
|
3,200
|
|
16
|
614
|
Flowers to Go, Inc.
|
(d)
|
|
1,250
|
1,250
|
|
19
|
615
|
Advertising Expense
|
(e)
|
640
|
|
640
|
|
22
|
616
|
Office Equipment
|
(f)
|
3,600
|
|
3,600
|
|
25
|
617
|
Office Supplies
|
(g)
|
250
|
|
250
|
|
26
|
618
|
Echo Co.
|
(h)
|
|
5,500
|
5,500
|
|
31
|
619
|
Salaries Expense
|
(i)
|
1,750
|
|
1,750
|
|
31
|
|
|
|
9,750
|
10,750
|
20,500
|
|
|
|
|
|
(j)
|
(k)
|
(l)
|
Aug 29, 2021 | Uncategorized
EX 5-13 Identify transactions in accounts payable ledger account
The debits and credits from three related transactions are presented in the following creditor’s account taken from the accounts payable ledger.
|
NAME
|
Apex Performance Co.
|
|
|
|
|
|
ADDRESS
|
101 W. Stratford Ave.
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
2012
|
|
|
|
|
|
|
Mar. 6
|
|
P44
|
|
12,000
|
12,000
|
|
11
|
|
J12
|
400
|
|
11,600
|
|
16
|
|
CP23
|
11,600
|
|
—
|
Describe each transaction, and identify the source of each posting.
Aug 29, 2021 | Uncategorized
EX 5-14 Prepare journal entries in a purchases journal
Sentry Security Company had the following transactions during the month of January:
|
Jan. 4.
|
Purchased office supplies from Office Universe Inc. on account, $550.
|
|
9
|
Purchased office equipment on account from Tek Village, Inc., $2,300.
|
|
16
|
Purchased office supplies from Office Universe Inc. on account, $90.
|
|
21
|
Purchased office supplies from Paper-to-Go Inc. on account, $170.
|
|
27
|
Paid invoice on January 4 purchase from Office Universe Inc.
|
a. Prepare a purchases journal with the following headings to record the January purchase transactions for Sentry Security Company.
|
|
|
|
PURCHASES JOURNAL
|
|
|
|
|
|
|
|
Accts.
|
Office
|
Other
|
|
|
|
|
|
Post.
|
Payable
|
Supplies
|
Accounts
|
Post.
|
|
|
Date
|
Account Credited
|
Ref.
|
Cr.
|
Dr.
|
Dr.
|
Ref.
|
Amount
|
b. What is the total amount posted to the accounts payable and office supplies accounts from the purchases journal for January?
c. What is the January 31 balance of the Office Universe Inc. creditor account assuming a zero balance on January 1?
Aug 29, 2021 | Uncategorized
EX 5-15 Posting a purchases journal
The purchases journal for Crystal View Window Cleaners Inc. is shown below. The accounts payable account has a January 1, 2012, balance of $365 of an amount due from Little Co. There were no payments made on creditor invoices during January.
|
|
|
PURCHASES JOURNAL
|
|
|
|
|
|
|
|
Accts.
|
Cleaning
|
Other
|
|
|
|
|
|
Post.
|
Payable
|
Supplies
|
Accounts
|
Post.
|
|
|
Date
|
Account Credited
|
Ref.
|
Cr.
|
Dr.
|
Dr.
|
Ref.
|
Amount
|
|
2012
|
|
|
|
|
|
|
|
|
Jan. 4
|
Kleen-Mate Supplies Inc.
|
|
570
|
570
|
|
|
|
|
15
|
Little Co.
|
|
250
|
250
|
|
|
|
|
19
|
Office Mate Inc.
|
|
2,700
|
|
Office Equipment
|
|
2,700
|
|
26
|
Kleen-Mate Supplies Inc.
|
|
330
|
330
|
|
|
|
|
31
|
|
|
3,850
|
1,150
|
|
|
2,700
|
a. Prepare a T account for the accounts payable creditor accounts.
b. Post the transactions from the purchases journal to the creditor accounts, and determine their ending balances.
c. Prepare T accounts for the accounts payable control and cleaning supplies accounts. Post control totals to the two accounts, and determine their ending balances.
d. Prepare a schedule of the creditor account balances to verify the equality of the sum of the creditor account balances and the accounts payable account balance.
e. How might a computerized accounting system differ from the use of a purchases journal in recording purchase transactions?
Aug 29, 2021 | Uncategorized
EX 5-16 Accounts payable subsidiary ledger
The cash payments and purchases journals for Out of Eden Landscaping Co. are shown below. The accounts payable control account has a June 1, 2012, balance of $2,450, consisting of an amount owed to Augusta Sod Co.
|
|
|
CASH PAYMENTS JOURNAL
|
|
|
|
|
|
|
|
|
|
Other
|
Accounts
|
|
|
|
Ck.
|
|
Post.
|
Accounts
|
Payable
|
Cash
|
|
Date
|
No.
|
Account Debited
|
Ref.
|
Dr.
|
Dr.
|
Cr.
|
|
2012
|
|
|
|
|
|
|
|
Jun. 4
|
203
|
Augusta Sod Co
|
v
|
|
2,450
|
4,000
|
|
5
|
204
|
Utilities Expense
|
54
|
410
|
|
|
|
15
|
205
|
Kopp Lumber Co.
|
v
|
|
5,135
|
|
|
24
|
206
|
Schott’s Fertilizer
|
v
|
|
820
|
|
|
30
|
|
|
|
410
|
8,405
|
|
|
|
|
|
|
(v)
|
(21)
|
|
|
|
|
|
|
|
|
|
|
|
|
PURCHASES JOURNAL
|
|
|
|
|
|
|
|
Accounts
|
Landscaping
|
Other
|
|
|
|
|
|
Post.
|
Payable
|
Supplies
|
Accounts
|
Post.
|
|
|
Date
|
Account Credited
|
Ref.
|
Cr.
|
Dr.
|
Dr
|
Ref.
|
Amount
|
|
2012
|
|
|
|
|
|
|
|
|
June 3
|
Kopp Lumber Co.
|
v
|
5,135
|
5,135
|
|
|
|
|
7
|
Concrete Equipment Co,
|
v
|
2,650
|
|
Equipment
|
18
|
2,650
|
|
14
|
Schott’s Fertilizer
|
v
|
820
|
820
|
|
|
|
|
24
|
Augusta Sod Co.
|
v
|
6,010
|
6,010
|
|
|
|
|
29
|
Kopp Lumber Co.
|
v
|
7,200
|
7,200
|
|
|
|
|
30
|
|
|
21,815
|
19,165
|
|
|
2,650
|
|
|
|
|
(21)
|
(14)
|
|
|
()
|
Prepare a schedule of the accounts payable subsidiary ledger balances, and determine that the total agrees with the ending balance of the accounts payable account.
Aug 29, 2021 | Uncategorized
EX 5-17 Purchases and cash payments journals
Transactions related to purchases and cash payments completed by Marion Cleaning Services Inc. during the month of August 2012 are as follows:
|
Aug. 1.
|
Issued Check No. 57 to Liquid Klean Supplies Inc. in payment of account, $275.
|
|
3
|
Purchased cleaning supplies on account from Sani-Fresh Products Inc., $160.
|
|
8
|
Issued Check No. 58 to purchase equipment from Carson Equipment Sales, $2,400.
|
|
12
|
Purchased cleaning supplies on account from Porter Products Inc., $250.
|
|
15
|
Issued Check No. 59 to Abbott Laundry Service in payment of account, $120.
|
|
18
|
Purchased supplies on account from Liquid Klean Supplies Inc., $265.
|
|
20
|
Purchased laundry services from Abbott Laundry Service on account, $140.
|
|
26
|
Issued Check No. 60 to Sani-Fresh Products Inc. in payment of August 3 invoice.
|
|
31
|
Issued Check No. 61 in payment of salaries, $5,200.
|
Prepare a purchases journal and a cash payments journal to record these transactions. The forms of the journals are similar to those illustrated in the text. Place a check mark (v) in the Post. Ref. column to indicate when the accounts payable subsidiary ledger should be posted. Marion Cleaning Services Inc. uses the following accounts:
|
Cash
|
11
|
|
Cleaning Supplies
|
14
|
|
Equipment
|
18
|
|
Accounts Payable
|
21
|
|
Salary Expense
|
51
|
|
Laundry Service Expense
|
53
|
Aug 29, 2021 | Uncategorized
EX 5-18 Purchases and cash payments journals
Happy Tails Inc. has a September 1 accounts payable balance of $525, which consists of $340 due Labradore Inc. and $185 due Meow Mart Inc. Transactions related to purchases and cash payments completed by Happy Tails Inc. during the month of September 2012 are as follows:
|
Sept. 4.
|
Purchased pet supplies from Best Friend Supplies Inc. on account, $230.
|
|
6.
|
Issued Check No. 345 to Labradore Inc. in payment of account, $340.
|
|
13.
|
Purchased pet supplies from Poodle Pals Inc., $660.
|
|
18.
|
Issued Check No. 346 to Meow Mart Inc. in payment of account, $185.
|
|
19.
|
Purchased office equipment from Office Helper Inc. on account, $2,250.
|
|
23.
|
Issued Check No. 347 to Best Friend Supplies Inc. in payment of account from purchase made on September 4.
|
|
27.
|
Purchased pet supplies from Meow Mart Inc. on account, $350.
|
|
30.
|
Issued Check No. 348 to Sanders Inc. for cleaning expenses, $50.
|
a. Prepare a purchases journal and a cash payments journal to record these transactions. The forms of the journals are similar to those used in the text. Place a check mark (v) in the Post. Ref. column to indicate when the accounts payable subsidiary ledger should be posted. Happy Tails Inc. uses the following accounts:
|
Cash
|
11
|
|
Office Equipment
|
13
|
|
Pet Supplies
|
14
|
|
Accounts Payable
|
21
|
|
Cleaning Expense
|
54
|
b. Prepare a listing of accounts payable subsidiary ledger balances on September 30, 2012. Verify that the total of the accounts payable subsidiary ledger balances equals the balance of the accounts payable control account on September 30, 2012.
c. Why does Happy Tails use a subsidiary ledger for accounts payable?
Error in accounts payable ledger and accounts payable subsidiary ledger
After Gold Rush Assay Services Inc. had completed all postings for March in the current year (2012), the sum of the balances in the following accounts payable ledger did not agree with the $37,900 balance of the controlling account in the general ledger.
|
NAME
|
C. D. Greer and Son
|
|
|
|
|
|
ADDRESS
|
972 S. Tenth Street
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
2012
|
|
|
|
|
|
|
Mar. 17
|
|
P30
|
|
3,750
|
3,750
|
|
27
|
|
P31
|
|
12,000
|
15,750
|
|
|
|
|
|
|
|
|
NAME
|
Chester Chemical Supplies Inc.
|
|
|
|
|
|
ADDRESS
|
1170 Mattis Avenue
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
2012
|
|
|
|
|
|
|
Mar. 1
|
Balance
|
(v)
|
|
|
8,300
|
|
9
|
|
P30
|
|
6,200
|
14,000
|
|
12
|
|
J7
|
300
|
|
13,700
|
|
20
|
|
CP23
|
5,800
|
|
7,900
|
|
|
|
|
|
|
|
|
NAME
|
Cutler and Powell
|
|
|
|
|
|
ADDRESS
|
717 Elm Street
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
2012
|
|
|
|
|
|
|
Mar. 1
|
Balance
|
(v)
|
|
|
6,100
|
|
18
|
|
CP23
|
6,100
|
|
—
|
|
29
|
|
P31
|
|
7,800
|
7,800
|
|
|
|
|
|
|
|
|
NAME
|
Montana Minerals Co.
|
|
|
|
|
|
ADDRESS
|
1240 W. Main Street
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
2012
|
|
|
|
|
|
|
Mar. 1
|
Balance
|
(v)
|
|
|
4,750
|
|
10
|
|
CP22
|
4,750
|
|
—
|
|
17
|
|
P30
|
|
3,700
|
3,700
|
|
25
|
|
J7
|
900
|
|
1,800
|
|
|
|
|
|
|
|
|
NAME
|
Valley Power
|
|
|
|
|
|
ADDRESS
|
915 E. Walnut Street
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
2012
|
|
|
|
|
|
|
Mar. 5
|
|
P30
|
|
3,150
|
3,150
|
Assuming that the controlling account balance of $37,900 has been verified as correct, (a) determine the error(s) in the preceding accounts and (b) prepare a listing of accounts payable subsidiary ledger balances (from the corrected accounts payable subsidiary ledger).
Aug 29, 2021 | Uncategorized
EX 5-20 Identify postings from special journals
ViewPoint Consulting Company makes most of its sales and purchases on credit. It uses the five journals described in this chapter (revenue, cash receipts, purchases, cash payments, and general journals). Identify the journal most likely used in recording the postings for selected transactions indicated by letter in the T accounts below:
|
|
Cash
|
|
|
|
Prepaid Rent
|
|
|
a.
|
10,940
|
b.
|
6,500
|
|
|
|
e.
|
1,200
|
|
|
Accounts Receivable
|
|
|
|
Accounts Payable
|
|
|
c.
|
11,790
|
a.
|
10,940
|
|
b.
|
6,500
|
d.
|
7,400
|
|
|
Office Supplies
|
|
|
|
Fees Earned
|
|
|
d.
|
7,400
|
|
|
|
|
|
c.
|
11,790
|
|
|
|
|
|
Rent Expense
|
|
|
|
|
|
|
|
e.
|
1,200
|
|
|
|
|
Aug 29, 2021 | Uncategorized
EX 5-21 Cash receipts journal
The following cash receipts journal headings have been suggested for a small service firm. List the errors you find in the headings.
|
|
|
CASH RECEIPTS JOURNAL
|
|
|
|
|
|
|
|
Fees
|
Accts.
|
|
Other
|
|
|
Account
|
Post.
|
Earned
|
Rec.
|
Cash
|
Accounts
|
|
Date
|
Credited
|
Ref.
|
Cr.
|
Cr.
|
Cr.
|
Dr.
|
Aug 29, 2021 | Uncategorized
EX 5-23 Computerized accounting systems and e-commerce
Apple Corporation’s iTunes® provides digital products, such as music, video, and software, which can be downloaded to portable devices such as iPhone® and iPod®. Purchases made on iTunes are made with a credit card that is on file with the credit card processing company. Such transactions are considered cash transactions. Once the purchase is made, the consumer can download the requested digital product to their portable device for their enjoyment and the charge will show up on their credit card bill.
a. What kind of e-commerce application is described by Apple iTunes?
b. Assume you purchased 12 songs for $1 each on iTunes. Provide the journal entry generated by Apple’s e-commerce application.
c. If a special journal were used, what type of special journal would be used to record this sales transaction?
d. If an electronic form were used, what type of electronic form would be used to record this sales transaction?
e. How might you expect revenues to be recorded for a B2C e-commerce transaction?
Aug 29, 2021 | Uncategorized
EX 5-25 Segment revenue horizontal analysis
Starbucks Corporation reported the following geographical segment revenues for fiscal years 2009 and 2008:
|
|
2009
|
2008
|
|
|
(in millions)
|
(in millions)
|
|
United States
|
$7,104
|
$ 7,532
|
|
International
|
1,920
|
2,103
|
|
Global consumer products
|
750
|
748
|
|
Total revenues
|
$9,774
|
$10,383
|
a. Prepare a horizontal analysis of the segment data using 2008 as the base year.
b. Prepare a vertical analysis of the segment data.
c. What conclusions can be drawn from your analyses?
Aug 29, 2021 | Uncategorized
EX 5-26 Segment revenue vertical analysis
News Corporation is one of the world’s largest entertainment companies that includes Twentieth Century Fox films, Fox Broadcasting, Fox News, the FX, and various satellite, cable, and publishing properties. The company provided revenue disclosures by its major product segments in the notes to its financial statements as follows:
|
|
For the Year Ended
|
|
|
June 30, 2009
|
|
Major Product Segments
|
(in millions)
|
|
Filmed Entertainment
|
$ 5,936
|
|
Television
|
4,602
|
|
Cable Network Programming
|
5,580
|
|
Direct Broadcast Satellite Television
|
3,760
|
|
Magazines and Inserts
|
1,168
|
|
Newspapers and Information Services
|
5,858
|
|
Book Publishing
|
1,141
|
|
Other
|
2,378
|
|
Total revenues
|
$30,423
|
a. Provide a vertical analysis of the product segment revenues.
b. Are the revenues of News Corporation diversified or concentrated within a product segment? Explain.
Aug 29, 2021 | Uncategorized
EX 5-27 Segment revenue horizontal and vertical analyses
The comparative regional segment revenues for McDonald’s Corporation is as follows:
|
|
2009
|
2008
|
|
|
(in millions)
|
(in millions)
|
|
United States
|
$ 7,943.8
|
$ 8,078.3
|
|
Europe
|
9,273.8
|
9,922.9
|
|
APMEA*
|
4,337.0
|
4,230.8
|
|
Other Countries & Corporate
|
1,190.1
|
1,290.4
|
|
Total revenues
|
$22,744.7
|
$23,522.4
|
|
*APMEA = Asia/Pacific, Middle East, Africa
|
|
|
a. Provide a horizontal analysis of the regional segment revenues using 2008 as the base year. Round whole percents to one digit.
b. Provide a vertical analysis of the regional segment revenues for both years. Round whole percents to one digit.
c. What conclusions can be drawn from your analyses?
Aug 29, 2021 | Uncategorized
PR 5-1A Revenue journal; accounts receivable and general ledgers
Newton Learning Centers was established on October 20, 2012, to provide educational services. The services provided during the remainder of the month are as follows:
|
Oct. 21.
|
Issued Invoice No. 1 to J. Dunlop for $60 on account.
|
|
22.
|
Issued Invoice No. 2 to K. Todd for $255 on account.
|
|
24.
|
Issued Invoice No. 3 to T. Patrick for $55 on account.
|
|
25.
|
Provided educational services, $100, to K. Todd in exchange for educational supplies.
|
|
27.
|
Issued Invoice No. 4 to F. Mintz for $150 on account.
|
|
30.
|
Issued Invoice No. 5 to D. Chase for $135 on account.
|
|
30.
|
Issued Invoice No. 6 to K. Todd for $105 on account.
|
|
31.
|
Issued Invoice No. 7 to T. Patrick for $70 on account.
|
Instructions
1. Journalize the transactions for October, using a single-column revenue journal and a two-column general journal. Post to the following customer accounts in the accounts receivable ledger, and insert the balance immediately after recording each entry: D. Chase; J. Dunlop; F. Mintz; T. Patrick; K. Todd.
2. Post the revenue journal and the general journal to the following accounts in the general ledger, inserting the account balances only after the last postings:
|
12
|
Accounts Receivable
|
|
13
|
Supplies
|
|
41
|
Fees Earned
|
3. a. What is the sum of the balances of the accounts in the subsidiary ledger at October 31?
b. What is the balance of the controlling account at October 31?
4. Assume Newton Learning Centers began using a computerized accounting system to record the sales transactions on November 1. What are some of the benefits of the computerized system over the manual system?
Aug 29, 2021 | Uncategorized
PR 5-2A Revenue and cash receipts journals; accounts receivable and general ledgers
Transactions related to revenue and cash receipts completed by Aspen Architects Co. during the period June 2–30, 2012, are as follows:
|
June 2.
|
Issued Invoice No. 793 to Nickle Co., $4,900.
|
|
5.
|
Received cash from Mendez Co. for the balance owed on its account.
|
|
6.
|
Issued Invoice No. 794 to Preston Co., $1,760.
|
|
13.
|
Issued Invoice No. 795 to Shilo Co., $2,630.
|
|
|
Post revenue and collections to the accounts receivable subsidiary ledger.
|
|
15.
|
Received cash from Preston Co. for the balance owed on June 1.
|
|
16.
|
Issued Invoice No. 796 to Preston Co., $5,500.
|
|
|
Post revenue and collections to the accounts receivable subsidiary ledger.
|
|
19.
|
Received cash from Nickle Co. for the balance due on invoice of June 2.
|
|
20.
|
Received cash from Preston Co. for invoice of June 6.
|
|
22.
|
Issued Invoice No. 797 to Mendez Co., $7,240.
|
|
25.
|
Received $2,000 note receivable in partial settlement of the balance due on the Shilo Co. account.
|
|
30.
|
Recorded cash fees earned, $12,350.
|
|
|
Post revenue and collections to the accounts receivable subsidiary ledger.
|
Instructions
1. Insert the following balances in the general ledger as of June 1:
|
11
|
Cash
|
$11,350
|
|
12
|
Accounts Receivable
|
13,860
|
|
14
|
Notes Receivable
|
6,000
|
|
41
|
Fees Earned
|
—
|
2. Insert the following balances in the accounts receivable subsidiary ledger as of June 1:
|
Mendez Co.
|
$7,970
|
|
Nickle Co.
|
—
|
|
Preston Co.
|
5,890
|
3. Prepare a single-column revenue journal and a cash receipts journal. Use the following column headings for the cash receipts journal: Fees Earned Cr., Accounts Receivable Cr., and Cash Dr. The Fees Earned column is used to record cash fees. Insert a check mark (v) in the Post. Ref. column when recording cash fees.
4. Using the two special journals and the two-column general journal, journalize the transactions for June. Post to the accounts receivable subsidiary ledger, and insert the balances at the points indicated in the narrative of transactions. Determine the balance in the customer’s account before recording a cash receipt.
5. Total each of the columns of the special journals, and post the individual entries and totals to the general ledger. Insert account balances after the last posting.
6. Determine that the subsidiary ledger agrees with the controlling account in the general ledger.
7. Why would an automated system omit postings to a control account as performed in step 5 for Accounts Receivable?
Aug 29, 2021 | Uncategorized
PR 5-3A Purchases, accounts payable account, and accounts payable ledger
English Garden Landscaping designs and installs landscaping. The landscape designers and office staff use office supplies, while field supplies (rock, bark, etc.) are used in the actual landscaping. Purchases on account completed by English Garden Landscaping during January 2012 are as follows:
|
Jan. 2.
|
Purchased office supplies on account from Meade Co., $350.
|
|
5.
|
Purchased office equipment on account from Peach Computers Co., $3,150.
|
|
9.
|
Purchased office supplies on account from Executive Office Supply Co., $290.
|
|
13.
|
Purchased fi eld supplies on account from Yamura Co., $1,140.
|
|
14.
|
Purchased fi eld supplies on account from Naples Co., $2,680.
|
|
17.
|
Purchased fi eld supplies on account from Yamura Co., $1,050.
|
|
24.
|
Purchased fi eld supplies on account from Naples Co., $3,240.
|
|
29.
|
Purchased office supplies on account from Executive Office Supply Co., $260.
|
|
31.
|
Purchased fi eld supplies on account from Naples Co., $1,000.
|
Instructions
1. Insert the following balances in the general ledger as of January 1:
|
14
|
Field Supplies
|
$ 5,920
|
|
15
|
Office Supplies
|
750
|
|
18
|
Office Equipment
|
12,300
|
|
21
|
Accounts Payable
|
1,035
|
2. Insert the following balances in the accounts payable subsidiary ledger as of January 1:
|
Executive Office Supply Co.
|
$340
|
|
Meade Co.
|
695
|
|
Naples Co.
|
—
|
|
Peach Computers Co.
|
—
|
|
Yamura Co.
|
—
|
3. Journalize the transactions for January, using a purchases journal similar to the one illustrated in this chapter. Prepare the purchases journal with columns for Accounts Payable, Field Supplies, Office Supplies, and Other Accounts. Post to the creditor accounts in the accounts payable subsidiary ledger immediately after each entry.
4. Post the purchases journal to the accounts in the general ledger.
5. a. What is the sum of the balances in the subsidiary ledger at January 31?
b. What is the balance of the controlling account at January 31?
6. What type of e-commerce application would be used to plan and coordinate suppliers?
Aug 29, 2021 | Uncategorized
PR 4-3B T accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet (work sheet)
The unadjusted trial balance of Laundry Basket at January 31, 2012, the end of the current fiscal year, is shown below.
|
Laundry Basket
|
|
|
|
Unadjusted Trial Balance
|
|
|
|
January 31, 2012
|
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
3,480
|
|
|
Laundry Supplies
|
9,000
|
|
|
Prepaid Insurance
|
5,760
|
|
|
Laundry Equipment
|
130,800
|
|
|
Accumulated Depreciation
|
|
49,200
|
|
Accounts Payable
|
|
7,440
|
|
Stacy Martinell, Capital
|
|
45,360
|
|
Stacy Martinell, Drawing
|
2,400
|
|
|
Laundry Revenue
|
|
198,000
|
|
Wages Expense
|
85,800
|
|
|
Rent Expense
|
43,200
|
|
|
Utilities Expense
|
16,320
|
|
|
Miscellaneous Expense
|
3,240
|
|
|
|
300,000
|
300,000
|
The data needed to determine year-end adjustments are as follows:
a. Wages accrued but not paid at January 31 are $900.
b. Depreciation of equipment during the year is $7,000.
c. Laundry supplies on hand at January 31 are $2,100.
d. Insurance premiums expired during the year are $4,000.
Instructions
1. For each account listed in the unadjusted trial balance, enter the balance in a T account. Identify the balance as “Jan. 31 Bal.” In addition, add T accounts for Wages Payable, Depreciation Expense, Laundry Supplies Expense, Insurance Expense, and Income Summary.
2. Optional: Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the spreadsheet. Add the accounts listed in part (1) as needed.
3. Journalize and post the adjusting entries. Identify the adjustments by “Adj.” and the new balances as “Adj. Bal.”
4. Prepare an adjusted trial balance.
5. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.
6. Journalize and post the closing entries. Identify the closing entries by “Clos.”
7. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PR 4-4B Ledger accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet (work sheet)
If the working papers correlating with this textbook are not used, omit Problem 4-4B. The ledger and trial balance of Sweetwater Services Co. as of July 31, 2012, the end of the first month of its current fiscal year, are presented in the working papers. Data needed to determine the necessary adjusting entries are as follows:
a. Service revenue accrued at July 31 is $1,500.
b. Supplies on hand at July 31 are $3,800.
c. Insurance premiums expired during July are $1,200.
d. Depreciation of the building during July is $1,400.
e. Depreciation of equipment during July is $1,100.
f. Unearned rent at July 31 is $900.
g. Wages accrued but not paid at July 31 are $200.
Instructions
1. Optional: Complete the end-of-period spreadsheet data shown on the previous page.
2. Journalize and post the adjusting entries, inserting
3. Prepare an adjusted trial balance.
4. Prepare an income statement, a statement of
5. Journalize and post the closing entries. Indicate both Balance columns opposite the closing entry. account.
6. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PR 4-5B Ledger accounts, adjusting entries, financial statements, and closing entries; Optional end-of-period spreadsheet (work sheet)
The unadjusted trial balance of Oak and Brass Interiors at December 31, 2012, the end of the current year, is shown below.
|
|
Oak and Brass Interiors
|
|
|
|
|
Unadjusted Trial Balance
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
Debit
|
Credit
|
|
|
|
Balances
|
Balances
|
|
11
|
Cash
|
3,100
|
|
|
13
|
Supplies
|
6,000
|
|
|
14
|
Prepaid Insurance
|
7,500
|
|
|
16
|
Equipment
|
90,000
|
|
|
17
|
Accumulated Depreciation—Equipment
|
|
12,000
|
|
18
|
Trucks
|
50,000
|
|
|
19
|
Accumulated Depreciation—Trucks
|
|
27,100
|
|
21
|
Accounts Payable
|
|
4,500
|
|
31
|
Sally Kriebel, Capital
|
|
66,400
|
|
32
|
Sally Kriebel, Drawing
|
3,000
|
|
|
41
|
Service Revenue
|
|
140,000
|
|
51
|
Wages Expense
|
72,000
|
|
|
52
|
Rent Expense
|
7,600
|
|
|
53
|
Truck Expense
|
5,350
|
|
|
59
|
Miscellaneous Expense
|
5,450
|
|
|
|
|
250,000
|
250,000
|
The data needed to determine year-end adjustments are as follows:
a. Supplies on hand at December 31 are $1,750.
b. Insurance premiums expired during the year are $2,000.
c. Depreciation of equipment during the year is $5,000.
d. Depreciation of trucks during the year is $2,200.
e. Wages accrued but not paid at December 31 are $1,000.
Instructions
1. For each account listed in the unadjusted trial balance, enter the balance in the appropriate Balance column of a four-column account and place a check mark (v) in the Posting Reference column.
2. Optional: Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the spreadsheet. Add the accounts listed in part (3) as needed.
3. Journalize and post the adjusting entries, inserting balances in the accounts affected. Record the adjusting entries on Page 26 of the journal. The following additional accounts from Oak and Brass Interiors’ chart of accounts should be used: Wages Payable, 22; Depreciation Expense—Equipment, 54; Supplies Expense, 55; Depreciation Expense—Trucks, 56; Insurance Expense, 57.
4. Prepare an adjusted trial balance.
5. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.
6. Journalize and post the closing entries. Record the closing entries on Page 27 of the journal. (Income Summary is account #33 in the chart of accounts.) Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry.
7. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PR 4-6B Complete accounting cycle
For the past several years, Abby Brown has operated a part-time consulting business from her home. As of June 1, 2012, Abby decided to move to rented quarters and to operate the business, which was to be known as Square One Consulting, on a full-time basis. Square One Consulting entered into the following transactions during June:
June 1. The following assets were received from Abby Brown: cash, $30,000; accounts receivable, $7,500; supplies, $2,000; and offi ce equipment, $15,000. There were no liabilities received.
1. Paid three months’ rent on a lease rental contract, $6,000.
2. Paid the premiums on property and casualty insurance policies, $3,600.
4. Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $5,000.
5. Purchased additional offi ce equipment on account from Offi ce Depot Co., $6,000.
6. Received cash from clients on account, $4,000.
10. Paid cash for a newspaper advertisement, $200.
12. Paid Offi ce Depot Co. for part of the debt incurred on June 5, $1,200.
12. Recorded services provided on account for the period June 1–12, $13,000.
14. Paid part-time receptionist for two weeks’ salary, $1,500.
17. Recorded cash from cash clients for fees earned during the period June 1–16, $9,000.
18. Paid cash for supplies, $1,400.
20. Recorded services provided on account for the period June 13–20, $8,500.
24. Recorded cash from cash clients for fees earned for the period June 17–24, $6,300.
26. Received cash from clients on account, $12,100.
27. Paid part-time receptionist for two weeks’ salary, $1,500.
29. Paid telephone bill for June, $150.
30. Paid electricity bill for June, $400.
30. Recorded cash from cash clients for fees earned for the period June 25–30, $3,900.
30. Recorded services provided on account for the remainder of June, $2,500.
30. Abby withdrew $10,000 for personal use.
Instructions
1. Journalize each transaction in a two-column journal starting on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.)
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Rent
16 Prepaid Insurance
18 Offi ce Equipment
19 Accumulated Depreciation
21 Accounts Payable
22 Salaries Payable
23 Unearned Fees
31 Abby Brown, Capital
32 Abby Brown, Drawing
41 Fees Earned
51 Salary Expense
52 Supplies Expense
53 Rent Expense
54 Depreciation Expense
55 Insurance Expense
59 Miscellaneous Expense
2. Post the journal to a ledger of four-column accounts.
3. Prepare an unadjusted trial balance.
4. At the end of June, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6).
a. Insurance expired during June is $200.
b. Supplies on hand on June 30 are $600.
c. Depreciation of office equipment for June is $250.
d. Accrued receptionist salary on June 30 is $350.
e. Rent expired during June is $2,500.
f. Unearned fees on June 30 are $3,200.
5. Optional: Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the spreadsheet.
6. Prepare an adjusted trial balance.
7. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
8. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
CP 4-3 Financial statements
Assume that you recently accepted a position with Frontier National Bank as an assistant loan officer. As one of your first duties, you have been assigned the responsibility of evaluating a loan request for $150,000 a small proprietorship. In support of the loan application, Tess Ramey, owner, submitted a “Statement of Accounts” (trial balance) for the first year of operations ended July 31, 2012.
|
Cash
|
5,000
|
|
|
Billings Due from Others
|
40,000
|
|
|
Supplies (chemicals, etc.)
|
7,500
|
|
|
Building
|
122,300
|
|
|
Equipment
|
25,000
|
|
|
Amounts Owed to Others
|
|
11,000
|
|
Investment in Business
|
|
74,000
|
|
Service Revenue
|
|
215,000
|
|
Wages Expense
|
75,000
|
|
|
Utilities Expense
|
10,000
|
|
|
Rent Expense
|
8,000
|
|
|
Insurance Expense
|
6,000
|
|
|
Other Expenses
|
1,200
|
|
|
|
300,000
|
300,000
|
1. Explain to Tess Ramey why a set of financial statements (income statement, statement of owner’s equity, and balance sheet) would be useful to you in evaluating the loan request.
2. In discussing the “Statement of Accounts” with Tess Ramey, you discovered that the accounts had not been adjusted at July 31. Analyze the “Statement of Accounts” and indicate possible adjusting entries that might be necessary before an accurate set of financial statements could be prepared.
3. Assuming that an accurate set of financial statements will be submitted by Tess Ramey in a few days, what other considerations or information would you require before making a decision on the loan request?
Aug 29, 2021 | Uncategorized
PE 5-1A Revenue journal
The following revenue transactions occurred during October:
|
Oct. 7.
|
Issued Invoice No. 121 to Darcy Co. for services provided on account, $320.
|
|
17
|
Issued Invoice No. 122 to Triple A Inc. for services provided on account, $470.
|
|
21
|
Issued Invoice No. 123 to Whaley Co. for services provided on account, $530.
|
Record these three transactions into the following revenue journal format:
|
|
|
REVENUE JOURNAL
|
|
|
|
|
Invoice
|
|
Post.
|
Accts. Rec. Dr.
|
|
Date
|
No.
|
Account Debited
|
Ref.
|
Fees Earned Cr.
|
Aug 29, 2021 | Uncategorized
PE 5-1B Revenue journal
The following revenue transactions occurred during May:
|
May 6.
|
Issued Invoice No. 78 to Lemon Co. for services provided on account, $1,240.
|
|
9.
|
Issued Invoice No. 79 to Hitchcock Inc. for services provided on account, $3,420.
|
|
19.
|
Issued Invoice No. 80 to Conrad Inc. for services provided on account, $1,470.
|
Record these three transactions into the following revenue journal format:
|
|
|
REVENUE JOURNAL
|
|
|
|
|
Invoice
|
|
Post.
|
Accts. Rec. Dr.
|
|
Date
|
No.
|
Account Debited
|
Ref.
|
Fees Earned Cr.
|
Aug 29, 2021 | Uncategorized
PE 5-2A Accounts receivable subsidiary ledger
The debits and credits from two transactions are presented in the following customer account:
|
NAME
|
Signal Communications Inc.
|
|
|
|
|
|
ADDRESS
|
76 Oak Ridge Rd.
|
|
|
|
|
|
|
|
Post
|
|
|
|
|
Date
|
Item
|
Ref.
|
Debit
|
Credit
|
Balance
|
|
June 1
|
Balance
|
v
|
|
|
280
|
|
20
|
Invoice 579
|
CR106
|
|
95
|
185
|
|
28
|
Invoice 527
|
R92
|
75
|
260
|
260
|
Describe each transaction and the source of each posting.
Aug 29, 2021 | Uncategorized
PE 5-2B Accounts receivable subsidiary ledger
The debits and credits from two transactions are presented in the following customer account:
|
NAME
|
Mobility Products Inc.
|
|
|
|
|
|
ADDRESS
|
46 W. Main St.
|
|
|
|
|
|
|
|
Post
|
|
|
|
|
Date
|
Item
|
Ref.
|
Debit
|
Credit
|
Balance
|
|
Sept 1
|
Balance
|
|
|
|
1,200
|
|
8
|
Invoice 119
|
R24
|
840
|
|
2,040
|
|
17
|
Invoice 106
|
CR46
|
|
590
|
1,450
|
Describe each transaction and the source of each posting.
Aug 29, 2021 | Uncategorized
PE 5-3A Purchases journal
The following purchase transactions occurred during August for Elegance Catering Service:
|
Aug. 11.
|
Purchased party supplies for $390, on account from Party Zone Supplies Inc.
|
|
14.
|
Purchased party supplies for $290, on account from Fun 4 All Supplies Inc.
|
|
29.
|
Purchased office furniture for $3,560, on account from Office Space Inc.
|
Record these transactions in the following purchases journal format:
|
|
|
|
PURCHASES JOURNAL
|
|
|
|
|
|
|
|
Accounts
|
Office
|
Other
|
|
|
|
|
Account
|
Post.
|
Payable
|
Supplies
|
Account
|
Post
|
|
|
Date
|
Credited
|
Ref.
|
Cr.
|
Dr.
|
Dr.
|
Ref.
|
Amount
|
Aug 29, 2021 | Uncategorized
PE 5-3B Purchases journal
The following purchase transactions occurred during December for Rehoboth Inc.:
|
Dec. 6.
|
Purchased office supplies for $415, on account from Supply Hut Inc.
|
|
14.
|
Purchased office equipment for $1,950, on account from Zell Computer Inc.
|
|
19.
|
Purchased office supplies for $450, on account from Supply Hut Inc.
|
Record these transactions in the following purchases journal format:
|
|
|
|
PURCHASES JOURNAL
|
|
|
|
|
|
|
|
Accounts
|
Office
|
Other
|
|
|
|
|
|
Post.
|
Payable
|
Supplies
|
Account
|
Post.
|
|
|
Date
|
Accounts Credited
|
Ref.
|
Cr.
|
Dr.
|
Dr.
|
Ref.
|
Amount
|
Aug 29, 2021 | Uncategorized
PE 5-4A Accounts payable subsidiary ledger
The debits and credits from two transactions are presented in the following supplier’s (creditor’s) account:
|
NAME
|
Newton Computer Services Inc.
|
|
|
|
|
|
ADDRESS
|
2199 Technology Place
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
Nov. 1
|
Balance
|
|
|
|
9,400
|
|
11
|
Invoice 75
|
P8
|
|
2,790
|
12,190
|
|
21
|
Invoice 43
|
CP46
|
6,550
|
|
5,640
|
Describe each transaction and the source of each posting.
Aug 29, 2021 | Uncategorized
PE 5-4B Accounts payable subsidiary ledger
The debits and credits from two transactions are presented in the following supplier’s (creditor’s) account:
|
NAME
|
Daisy Inc.
|
|
|
|
|
|
ADDRESS
|
5000 Grand Ave.
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
Feb. 1
|
Balance
|
|
|
|
92
|
|
11
|
Invoice 122
|
CP71
|
79
|
|
13
|
|
20
|
Invoice 139
|
P55
|
|
57
|
70
|
Describe each transaction and the source of each posting.
Aug 29, 2021 | Uncategorized
PE 5-5A Segment analysis
Harrow Company does business in two customer segments, Retail and Wholesale. The following annual revenue information was determined from the accounting system’s invoice information:
|
|
2012
|
2011
|
|
Retail
|
$ 80,000
|
$ 75,000
|
|
Wholesale
|
120,000
|
140,000
|
|
Total Revenue
|
$200,000
|
$215,000
|
Prepare a horizontal and vertical analysis of the segments. Round to one decimal place.
Aug 29, 2021 | Uncategorized
PE 5-5B Segment analysis
Outdoor Country, Inc. does business in two product segments, Camping and Fishing. The following annual revenue information was determined from the accounting system’s invoice information:
|
|
2012
|
2011
|
|
Camping
|
$250,000
|
$280,000
|
|
Fishing
|
100,000
|
60,000
|
|
Total Revenue
|
$350,000
|
$340,000
|
Prepare a horizontal and vertical analysis of the segments. Round to one decimal place.
Aug 29, 2021 | Uncategorized
EX 5-3 Identify journals
Assuming the use of a two-column (all-purpose) general journal, a revenue journal, and a cash receipts journal as illustrated in this chapter, indicate the journal in which each of the following transactions should be recorded:
a. Sale of office supplies on account, at cost, to a neighboring business.
b. Receipt of cash from sale of office equipment.
c. Closing of drawing account at the end of the year.
d. Providing services for cash.
e. Receipt of cash refund from overpayment of taxes.
f. Adjustment to record accrued salaries at the end of the year.
g. Receipt of cash for rent.
h. Receipt of cash on account from a customer.
i. Providing services on account.
j. Investment of additional cash in the business by the owner.
Aug 29, 2021 | Uncategorized
EX 5-4 Identify journals
Assuming the use of a two-column (all-purpose) general journal, a purchases journal, and a cash payments journal as illustrated in this chapter, indicate the journal in which each of the following transactions should be recorded:
a. Purchase of an office computer on account.
b. Purchase of services on account.
c. Purchase of office supplies on account.
d. Adjustment to prepaid rent at the end of the month.
e. Adjustment to record accrued salaries at the end of the period.
f. Purchase of office supplies for cash.
g. Advance payment of a one-year fire insurance policy on the office.
h. Purchase of office equipment for cash.
i. Adjustment to prepaid insurance at the end of the month.
j. Adjustment to record depreciation at the end of the month.
k. Payment of six months’ rent in advance.
Aug 29, 2021 | Uncategorized
EX 5-5 Identify transactions in accounts receivable ledger
The debits and credits from three related transactions are presented in the following customer’s account taken from the accounts receivable subsidiary ledger.
|
NAME
|
Casey By Design
|
|
|
|
|
|
ADDRESS
|
1319 Elm Street
|
|
|
|
|
|
Date
|
Item
|
Post Ref.
|
Debit
|
Credit
|
Balance
|
|
2012
|
|
|
|
|
|
|
Feb. 3
|
|
R44
|
740
|
|
740
|
|
6
|
|
J11
|
|
80
|
660
|
|
16
|
|
CR81
|
|
660
|
—
|
Describe each transaction and identify the source of each posting.
Aug 29, 2021 | Uncategorized
EX 5-6 Prepare journal entries in a revenue journal
Madison Services Company had the following transactions during the month of April:
|
Apr. 2.
|
Issued Invoice No. 201 to Triple Play Corp. for services rendered on account, $345.00
|
|
3.
|
Issued Invoice No. 202 to Mid States Inc. for services rendered on account, $410.00
|
|
14.
|
Issued Invoice No. 203 to Triple Play Corp. for services rendered on account, $110.00
|
|
25.
|
Issued Invoice No. 204 to Parker Co. for services rendered on account, $830. Collected Invoice No. 201 from Triple Play Corp.
|
- Prepare a revenue journal with the following headings to record the April revenue transactions for Madison Services Company.
|
|
|
REVENUE JOURNAL
|
|
|
|
|
Invoice
|
|
Post.
|
Accounts Rec. Dr.
|
|
Date
|
No.
|
Account Debited
|
Ref.
|
Fees Earned Cr.
|
b. What is the total amount posted to the accounts receivable and fees earned accounts from the revenue journal for April?
c. What is the April 30 balance of the Triple Play Corp. customer account assuming a zero balance on April 1?
Aug 29, 2021 | Uncategorized
EX 5-7 Posting a revenue journal
The revenue journal for Tech-Aid Consulting Inc. is shown below. The accounts receivable control account has a July 1, 2012, balance of $805 consisting of an amount due from Astro Star Co. There were no collections during July.
|
|
|
REVENUE JOURNAL
|
|
|
|
|
Invoice
|
|
Post.
|
Accounts Rec. Dr.
|
|
Date
|
No.
|
Account Debited
|
Ref.
|
Fees Earned Cr.
|
|
2012
|
|
|
|
|
|
July 4
|
355
|
Borman Co.
|
|
1,960
|
|
9
|
356
|
Life Star Inc.
|
|
3,220
|
|
14
|
357
|
Astro Star Co.
|
|
1,490
|
|
22
|
359
|
Borman Co.
|
|
2,650
|
|
|
|
|
|
9,320
|
a. Prepare a T account for the accounts receivable customer accounts.
b. Post the transactions from the revenue journal to the customer accounts, and determine their ending balances.
c. Prepare T accounts for the accounts receivable and fees earned accounts. Post control totals to the two accounts, and determine the ending balances.
d. Prepare a schedule of the customer account balances to verify the equality of the sum of the customer account balances and the accounts receivable account balance.
e. How might a computerized system differ from a revenue journal in recording revenue transactions?
Aug 29, 2021 | Uncategorized
EX 4-19 Post-closing trial balance
An accountant prepared the following post-closing trial balance:
|
Gypsy Treasures Co.
|
|
|
|
Post-Closing Trial Balance
|
|
|
|
March 31, 2012
|
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
18,000
|
|
|
Accounts Receivable
|
31,000
|
|
|
Supplies
|
|
5,500
|
|
Equipment
|
|
75,000
|
|
Accumulated Depreciation—Equipment
|
19,000
|
|
|
Accounts Payable
|
11,000
|
|
|
Salaries Payable
|
|
1,000
|
|
Unearned Rent
|
6,000
|
|
|
Leticia Aloni, Capital
|
92,500
|
|
|
|
177,500
|
81,500
|
Prepare a corrected post-closing trial balance. Assume that all accounts have normal balances and that the amounts shown are correct.
Aug 29, 2021 | Uncategorized
EX 4-21 Working capital and current ratio
The following data (in thousands) were taken from recent financial statements of Under Armour, Inc.:
|
|
December 31
|
|
|
2008
|
2007
|
|
Current assets
|
$396,423
|
$322,245
|
|
Current liabilities
|
113,110
|
95,699
|
a. Compute the working capital and the current ratio as of December 31, 2008 and 2007. Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations can you draw from part (a)?
Aug 29, 2021 | Uncategorized
EX 4-22 Working capital and current ratio
The following data (in thousands) were taken from recent financial statements of Starbucks Corporation:
|
|
Sept. 27, 2009
|
Sept. 28, 2008
|
|
Current assets
|
$2,035,800
|
$1,748,000
|
|
Current liabilities
|
1,581,000
|
2,189,700
|
a. Compute the working capital and the current ratio as of September 27, 2009, and September 28, 2008. Round to two decimal places.
b. What conclusions concerning the company’s ability to meet its financial obligations can you draw from part (a)?
Aug 29, 2021 | Uncategorized
EX 4-23 Completing an end-of-period spreadsheet (work sheet) List (a) through (j) in the order they would be performed in preparing and completing an end-of-period spreadsheet (work sheet).
a. Add the Debit and Credit columns of the Unadjusted Trial Balance columns of the spreadsheet (work sheet) to verify that the totals are equal.
b. Add the Debit and Credit columns of the Balance Sheet and Income Statement columns of the spreadsheet (work sheet) to verify that the totals are equal.
c. Add or deduct adjusting entry data to trial balance amounts, and extend amounts to the Adjusted Trial Balance columns.
d. Add the Debit and Credit columns of the Adjustments columns of the spreadsheet (work sheet) to verify that the totals are equal.
e. Add the Debit and Credit columns of the Balance Sheet and Income Statement columns of the spreadsheet (work sheet) to determine the amount of net income or net loss for the period.
f. Add the Debit and Credit columns of the Adjusted Trial Balance columns of the spreadsheet (work sheet) to verify that the totals are equal.
g. Enter the adjusting entries into the spreadsheet (work sheet), based on the adjustment data.
h. Enter the amount of net income or net loss for the period in the proper Income Statement column and Balance Sheet column.
i. Enter the unadjusted account balances from the general ledger into the Unadjusted Trial Balance columns of the spreadsheet (work sheet).
j. Extend the adjusted trial balance amounts to the Income Statement columns and the Balance Sheet columns.
Aug 29, 2021 | Uncategorized
EX 4-24 Adjustment data on an end-of-period spreadsheet (work sheet)
Zeidman Security Services Co. offers security services to business clients. The trial balance for Zeidman Security Services Co. has been prepared on the end-of-period spreadsheet (work sheet) for the year ended July 31, 2012, shown below.
|
|
Zeidman Security Services Co.
|
|
|
|
|
End-of-Period Spreadsheet (Work Sheet)
|
|
|
|
|
For the Year Ended July 31, 2012
|
|
|
|
|
Unadjusted
|
|
|
Adjusted
|
|
|
Trial Balance
|
Adjustments
|
Trial Balance
|
|
Account Title
|
|
|
|
|
|
|
|
Cash
|
12
|
|
|
|
|
|
|
Accounts Receivable
|
80
|
|
|
|
|
|
|
Supplies
|
8
|
|
|
|
|
|
|
Prepaid Insurance
|
12
|
|
|
|
|
|
|
Land
|
100
|
|
|
|
|
|
|
Equipment
|
40
|
|
|
|
|
|
|
Accum. Depr.—Equipment
|
k
|
4
|
|
|
|
|
|
Accounts Payable
|
k
|
36
|
|
|
|
|
|
Wages Payable
|
K
|
0
|
|
|
|
|
|
Alex Zeidman, Capital
|
K
|
170
|
|
|
|
|
|
Alex Zeidman, Drawing
|
8
|
|
|
|
|
|
|
Fees Earned
|
K
|
90
|
|
|
|
|
|
Wages Expense
|
20
|
|
|
|
|
|
|
Rent Expense
|
12
|
|
|
|
|
|
|
Insurance Expense
|
0
|
|
|
|
|
|
|
Utilities Expense
|
6
|
|
|
|
|
|
|
Supplies Expense
|
0
|
|
|
|
|
|
|
Depreciation Expense
|
0
|
|
|
|
|
|
|
Miscellaneous Expense
|
2
|
|
|
|
|
|
|
|
300
|
300
|
|
|
|
|
The data for year-end adjustments are as follows:
a. Fees earned, but not yet billed, $9.
b. Supplies on hand, $3.
c. Insurance premiums expired, $8.
d. Depreciation expense, $4.
e. Wages accrued, but not paid, $1.
Enter the adjustment data, and place the balances in the Adjusted Trial Balance columns.
Aug 29, 2021 | Uncategorized
EX 4-25 Completing an end-of-period spreadsheet (work sheet)
Zeidman Security Services Co. offers security services to business clients. Complete the following end-of-period spreadsheet (work sheet) for Zeidman Security Services Co.
|
|
Zeidman Security Services Co.
|
|
|
|
|
End-of-Period Spreadsheet (Work Sheet)
|
|
|
|
|
For the Year Ended July 31, 2012
|
|
|
|
|
Adjusted
|
Income
|
Balance
|
|
|
Trial Balance
|
Statement
|
Sheet
|
|
Account Title
|
Dr. |
Cr. |
Dr. |
Cr. |
Dr. |
Cr. |
|
Cash
|
12
|
|
|
|
|
|
|
Accounts Receivable
|
89
|
|
|
|
|
|
|
Supplies
|
3
|
|
|
|
|
|
|
Prepaid Insurance
|
4
|
|
|
|
|
|
|
Land
|
100
|
|
|
|
|
|
|
Equipment
|
40
|
|
|
|
|
|
|
Accum. Depr.—Equipment
|
|
8
|
|
|
|
|
|
Accounts Payable
|
|
36
|
|
|
|
|
|
Wages Payable
|
|
1
|
|
|
|
|
|
Alex Zeidman, Capital
|
|
170
|
|
|
|
|
|
Alex Zeidman, Drawing
|
8
|
|
|
|
|
|
|
Fees Earned
|
|
99
|
|
|
|
|
|
Wages Expense
|
21
|
|
|
|
|
|
|
Rent Expense
|
12
|
|
|
|
|
|
|
Insurance Expense
|
8
|
|
|
|
|
|
|
Utilities Expense
|
6
|
|
|
|
|
|
|
Supplies Expense
|
5
|
|
|
|
|
|
|
Depreciation Expense
|
4
|
|
|
|
|
|
|
Miscellaneous Expense
|
2
|
|
|
|
|
|
|
|
314
|
314
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
Aug 29, 2021 | Uncategorized
PR 4-3A T accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet (work sheet)
The unadjusted trial balance of Launderland at November 30, 2012, the end of the current fiscal year, is shown below.
|
Launderland
|
|
|
|
Unadjusted Trial Balance
|
|
|
|
Launderland
|
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
9,000
|
|
|
Laundry Supplies
|
20,900
|
|
|
Prepaid Insurance
|
9,600
|
|
|
Laundry Equipment
|
290,000
|
|
|
Accumulated Depreciation
|
|
150,400
|
|
Accounts Payable
|
|
11,800
|
|
Gene Halsey, Capital
|
|
105,600
|
|
Gene Halsey, Drawing
|
8,400
|
|
|
Laundry Revenue
|
|
232,200
|
|
Wages Expense
|
97,000
|
|
|
Rent Expense
|
40,000
|
|
|
Utilities Expense
|
19,700
|
|
|
Miscellaneous Expense
|
5,400
|
|
|
|
500,000
|
500,000
|
The data needed to determine year-end adjustments are as follows:
a. Laundry supplies on hand at November 30 are $5,000.
b. Insurance premiums expired during the year are $6,400.
c. Depreciation of equipment during the year is $7,000.
d. Wages accrued but not paid at November 30 are $1,500.
Instructions
1. For each account listed in the unadjusted trial balance, enter the balance in a T account. Identify the balance as “November 30 Bal.” In addition, add T accounts for Wages Payable, Depreciation Expense, Laundry Supplies Expense, Insurance Expense, and Income Summary.
2. Optional: Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the spreadsheet. Add the accounts listed in part (1) as needed.
3. Journalize and post the adjusting entries. Identify the adjustments by “Adj.” and the new balances as “Adj. Bal.”
4. Prepare an adjusted trial balance.
5. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.
6. Journalize and post the closing entries. Identify the closing entries by “Clos.”
7. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PR 4-4A Ledger accounts, adjusting entries, financial statements, and closing entries; optional end-of-period spreadsheet (work sheet)
The ledger and trial balance of Wizard Services Co. as of July 31, 2012, the end of the first month of its current fiscal year, are presented in the working papers.
Data needed to determine the necessary adjusting entries are as follows:
a. Service revenue accrued at July 31 is $1,000.
b. Supplies on hand at July 31 are $3,900.
c. Insurance premiums expired during July are $1,100.
d. Depreciation of the building during July is $1,400.
e. Depreciation of equipment during July is $900.
f. Unearned rent at July 31 is $700.
g. Wages accrued at July 31 are $100.
Instructions
1. Optional: Complete the end-of-period spreadsheet (work sheet) using the adjustment data shown above.
2. Journalize and post the adjusting entries, inserting balances in the accounts affected.
3. Prepare an adjusted trial balance.
4. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
5. Journalize and post the closing entries. Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry. Insert the new balance of the capital account.
6. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PR 4-5A Ledger accounts, adjusting entries, financial statements, and closing entries;
optional spreadsheet (work sheet)
The unadjusted trial balance of Bruno’s Hauling at February 29, 2012, the end of the current year, is shown below.
|
|
Bruno’s Hauling
|
|
|
|
|
Unadjusted Trial Balance
|
|
|
|
|
February 29, 2012
|
|
|
|
|
|
Debit
|
Credit
|
|
|
|
Balances
|
Balances
|
|
11
|
Cash
|
5,000
|
|
13
|
Supplies
|
12,000
|
|
|
14
|
Prepaid Insurance
|
3,600
|
|
|
16
|
Equipment
|
110,000
|
|
|
17
|
Accumulated Depreciation—Equipment
|
|
25,000
|
|
18
|
Trucks
|
60,000
|
|
|
19
|
Accumulated Depreciation—Trucks
|
|
15,000
|
|
21
|
Accounts Payable
|
|
4,000
|
|
31
|
Bruno Shelton, Capital
|
|
71,000
|
|
32
|
Bruno Shelton, Drawing
|
15,000
|
|
|
41
|
Service Revenue
|
|
160,000
|
|
51
|
Wages Expense
|
45,000
|
|
|
53
|
Rent Expense
|
10,600
|
|
|
54
|
Truck Expense
|
9,000
|
|
|
59
|
Miscellaneous Expense
|
4,800
|
|
|
|
|
275,000
|
275,000
|
The data needed to determine year-end adjustments are as follows:
a. Supplies on hand at February 29 are $1,000.
b. Insurance premiums expired during year are $2,400.
c. Depreciation of equipment during year is $8,000.
d. Depreciation of trucks during year is $5,000.
e. Wages accrued but not paid at February 29 are $500.
Instructions
1. For each account listed in the trial balance, enter the balance in the appropriate Balance column of a four-column account and place a check mark (v) in the Posting Reference column.
2. Optional: Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the spreadsheet. Add the accounts listed in part (3) as needed.
3. Journalize and post the adjusting entries, inserting balances in the accounts affected. Record the adjusting entries on Page 26 of the journal. The following additional accounts from Bruno’s Hauling’s chart of accounts should be used: Wages Payable, 22; Supplies Expense, 52; Depreciation Expense—Equipment, 55; Depreciation Expense—Trucks, 56; Insurance Expense, 57.
4. Prepare an adjusted trial balance.
5. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.
6. Journalize and post the closing entries. Record the closing entries on Page 27 of the journal. (Income Summary is account #33 in the chart of accounts.) Indicate closed accounts by inserting a line in both Balance columns opposite the closing entry.
7. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PR 4-6A Complete accounting cycle
For the past several years, Shane Banovich has operated a part-time consulting business from his home. As of October 1, 2012, Shane decided to move to rented quarters and to operate the business, which was to be known as Epic Consulting, on a full-time basis. Epic Consulting entered into the following transactions during October:
Oct. 1. The following assets were received from Shane Banovich: cash, $12,000; accounts receivable, $6,000; supplies, $1,500; and offi ce equipment, $9,000. There were no liabilities received.
1. Paid three months’ rent on a lease rental contract, $4,800.
2. Paid the premiums on property and casualty insurance policies, $3,000.
4. Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $4,000.
5. Purchased additional offi ce equipment on account from Offi ce Station Co., $2,000.
6. Received cash from clients on account, $3,500.
10. Paid cash for a newspaper advertisement, $400.
12. Paid Offi ce Station Co. for part of the debt incurred on October 5, $1,000.
12. Recorded services provided on account for the period October 1–12, $6,000.
14. Paid part-time receptionist for two weeks’ salary, $1,000.
17. Recorded cash from cash clients for fees earned during the period October 1–17, $7,500.
18. Paid cash for supplies, $750.
20. Recorded services provided on account for the period October 13–20, $5,200.
24. Recorded cash from cash clients for fees earned for the period October 17–24, $3,700.
26. Received cash from clients on account, $5,500.
27. Paid part-time receptionist for two weeks’ salary, $1,000.
29. Paid telephone bill for October, $250.
31. Paid electricity bill for October, $300.
31. Recorded cash from cash clients for fees earned for the period October 25–31, $2,800.
31. Recorded services provided on account for the remainder of October, $3,000.
31. Shane withdrew $8,000 for personal use.
Instructions
1. Journalize each transaction in a two-column journal starting on Page 1, referring tothe following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.)
11 Cash
12 Accounts Receivable
14 Supplies
15 Prepaid Rent
16 Prepaid Insurance
18 Offi ce Equipment
19 Accumulated Depreciation
21 Accounts Payable
22 Salaries Payable
23 Unearned Fees
31 Shane Banovich, Capital
32 Shane Banovich, Drawing
41 Fees Earned
51 Salary Expense
52 Rent Expense
53 Supplies Expense
54 Depreciation Expense
55 Insurance Expense
59 Miscellaneous Expense
2. Post the journal to a ledger of four-column accounts.
3. Prepare an unadjusted trial balance.
4. At the end of October, the following adjustment data were assembled. Analyze and use these data to complete parts (5) and (6).
a. Insurance expired during October is $250.
b. Supplies on hand on October 31 are $700.
c. Depreciation of office equipment for October is $300.
d. Accrued receptionist salary on October 31 is $250.
e. Rent expired during October is $1,600.
f. Unearned fees on October 31 are $1,800.
5. Optional: Enter the unadjusted trial balance on an end-of-period spreadsheet (work sheet) and complete the spreadsheet.
6. Journalize and post the adjusting entries. Record the adjusting entries on Page 3 of the journal.
7. Prepare an adjusted trial balance.
8. Prepare an income statement, a statement of owner’s equity, and a balance sheet.
9. Prepare and post the closing entries. (Income Summary is account #33 in the chart of accounts.) Record the closing entries on Page 4 of the journal. Indicate closed accounts by inserting a line in both the Balance columns opposite the closing entry.
10. Prepare a post-closing trial balance.
Aug 29, 2021 | Uncategorized
PE 4-4A Closing entries
After the accounts have been adjusted at October 31, the end of the fiscal year, the following balances were taken from the ledger of Silver Gate Delivery Services Co.:
|
Mira Craig, Capital
|
$800,000
|
|
Mira Craig, Drawing
|
125,000
|
|
Fees Earned
|
700,000
|
|
Wages Expense
|
400,000
|
|
Rent Expense
|
75,000
|
|
Supplies Expense
|
16,000
|
|
Miscellaneous Expense
|
5,000
|
Journalize the four entries required to close the accounts.
Aug 29, 2021 | Uncategorized
PE 4-4B Closing entries
After the accounts have been adjusted at June 30, the end of the fiscal year, the following balances were taken from the ledger of Hillcrest Landscaping Co.:
|
Bryan Orr, Capital
|
$275,000
|
|
Bryan Orr, Drawing
|
25,000
|
|
Fees Earned
|
400,000
|
|
Wages Expense
|
280,000
|
|
Rent Expense
|
40,000
|
|
Supplies Expense
|
3,000
|
|
Miscellaneous Expense
|
12,000
|
Journalize the four entries required to close the accounts.
Aug 29, 2021 | Uncategorized
EX 4-5 Income statement
The following account balances were taken from the adjusted trial balance for On-Time Messenger Service, a delivery service firm, for the current fiscal year ended April 30, 2012:
|
Depreciation Expense
|
$6,400
|
Rent Expense
|
$48,400
|
|
Fees Earned
|
340,000
|
Salaries Expense
|
171,040
|
|
Insurance Expense
|
1,200
|
Supplies Expense
|
2,200
|
|
Miscellaneous Expense
|
2,600
|
Utilities Expense
|
18,560
|
Prepare an income statement.
Aug 29, 2021 | Uncategorized
EX 4-6 Income statement; net loss
The following revenue and expense account balances were taken from the ledger of Graphics Services Co. after the accounts had been adjusted on February 29, 2012, the end of the current fiscal year:
|
Depreciation Expense
|
$ 9,000
|
Service Revenue
|
$250,000
|
|
Insurance Expense
|
4,000
|
Supplies Expense
|
3,000
|
|
Miscellaneous Expense
|
5,000
|
Utilities Expense
|
14,600
|
|
Rent Expense
|
36,000
|
Wages Expense
|
215,000
|
Prepare an income statement.
Aug 29, 2021 | Uncategorized
EX 4-7 Income statement
FedEx Corporation had the following revenue and expense account balances (in millions) at its fiscal year-end of May 31, 2009:
|
Depreciation
|
$1,975
|
Purchased Transportation
|
$ 4,534
|
|
Fuel
|
3,811
|
Rentals and Landing Fees
|
2,429
|
|
Maintenance and Repairs
|
1,898
|
Revenues
|
35,497
|
|
Other Expense (Income) Net
|
6,406
|
Salaries and Employee Benefi ts
|
13,767
|
|
Provision for Income Taxes
|
579
|
|
|
a. Prepare an income statement.
Aug 29, 2021 | Uncategorized
EX 4-8 Statement of owner’s equity
Fouts Systems Co. offers its services to residents in the Chicago area. Selected accounts from the ledger of Fouts Systems Co. for the current fiscal year ended October 31, 2012, are as follows:
|
|
Lisa DuBois, Capital
|
|
|
Lisa DuBois, Drawing
|
|
|
Oct. 31
|
20,000
|
Nov. 1 (2011)
|
550,000
|
Jan. 31
|
5,000
|
Oct. 31
|
20,000
|
|
|
|
Oct. 31
|
105,000
|
Apr. 30
|
5,000
|
|
|
|
|
|
|
31-Jul
|
5,000
|
|
|
|
|
|
|
Oct. 31
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Summary
|
|
|
|
|
|
|
Oct. 31
|
375,000
|
Oct. 31
|
480,000
|
|
|
|
|
31
|
105,000
|
|
|
|
Prepare a statement of owner’s equity for the year.
Aug 29, 2021 | Uncategorized
EX 4-9 Statement of owner’s equity; net loss
Selected accounts from the ledger of Balboa Sports for the current fiscal year ended June 30, 2012, are as follows:
|
|
Erica Kilty, Capital
|
|
|
Erica Kilty, Drawing
|
|
|
June 30
|
42,000
|
July 1 (2011)
|
398,500
|
Sept. 30
|
2,500
|
June 30
|
10,000
|
|
30
|
10,000
|
|
|
Dec. 31
|
2,500
|
|
|
|
|
|
|
May 31
|
2,500
|
|
|
|
|
|
|
June 30
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Summary
|
|
|
|
|
|
|
June 30
|
402,000
|
June 30
|
360,000
|
|
|
|
|
|
|
|
30
|
42,000
|
|
|
Prepare a statement of owner’s equity for the year.
Aug 29, 2021 | Uncategorized
EX 4-12 Balance sheet
My-Best Weight Co. offers personal weight reduction consulting services to individuals. After all the accounts have been closed on November 30, 2012, the end of the current fiscal year, the balances of selected accounts from the ledger of My-Best Weight Co. are as follows:
|
Accounts Payable
|
$34,500
|
Land
|
$400,000
|
|
Accounts Receivable
|
83,120
|
Prepaid Insurance
|
19,200
|
|
Accumulated Depreciation—Equipment
|
103,900
|
Prepaid Rent
|
12,000
|
|
Blanca Tierney, Capital
|
692,000
|
Salaries Payable
|
13,500
|
|
Cash
|
?
|
Supplies
|
2,080
|
|
Equipment
|
300,000
|
Unearned Fees
|
10,000
|
Prepare a classified balance sheet that includes the correct balance for Cash.
Aug 29, 2021 | Uncategorized
EX 4-13 Balance sheet
List the errors you find in the following balance sheet. Prepare a corrected balance sheet.
|
|
Poshe Services Co.
|
|
|
|
|
Balance Sheet
|
|
|
|
|
For the Year Ended May 31, 2012
|
|
|
|
Current assets:
|
|
|
Current liabilities:
|
|
|
|
Cash
|
$14,000
|
|
Accounts receivable
|
$32,500
|
|
|
Accounts payable
|
24,000
|
|
Accum. depr.—building
|
155,000
|
|
|
Supplies
|
6,500
|
|
Accum. depr.—equipment
|
25,000
|
|
|
Prepaid insurance
|
12,000
|
|
Net income
|
135,000
|
|
|
Land
|
180,000
|
|
Total liabilities
|
|
$347,500
|
|
Total current assets
|
|
$236,500
|
|
|
|
|
Property, plant,
|
|
|
Owner’s Equity
|
|
|
|
and equipment:
|
|
|
|
|
|
|
Building
|
$375,000
|
|
Wages payable
|
$2,500
|
|
|
Equipment
|
85,000
|
|
Hector Delgado, capital
|
498,500
|
|
|
Total property, plant,
|
|
|
Total owner’s equity
|
|
501,000
|
|
and equipment
|
|
612,000
|
Total liabilities and
|
|
|
Total assets .
|
|
$848,500
|
owner’s equity
|
|
$848,500
|
Aug 29, 2021 | Uncategorized
EX 4-17 Closing entries with net loss
Imex Services Co. offers its services to individuals desiring to improve their personal images. After the accounts have been adjusted at March 31, the end of the fiscal year, the following balances were taken from the ledger of Imex Services Co.
|
Margo Hoskins, Capital
|
$300,000
|
Rent Expense
|
$40,000
|
|
Margo Hoskins, Drawing
|
15,000
|
Supplies Expense
|
20,000
|
|
Fees Earned
|
180,000
|
Miscellaneous Expense
|
7,500
|
|
Wages Expense
|
90,000
|
Aug 29, 2021 | Uncategorized
EX 3-2 Classifying adjusting entries
The following accounts were taken from the unadjusted trial balance of Orion Co., a congressional lobbying firm. Indicate whether or not each account would normally require an adjusting entry. If the account normally requires an adjusting entry, use the following notation to indicate the type of adjustment:
AE—Accrued Expense
AR—Accrued Revenue
PE—Prepaid Expense
UR—Unearned Revenue
To illustrate, the answer for the first account is shown below.
|
Account
|
Answer
|
|
Accounts Receivable
|
Normally requires adjustment (AR).
|
|
Cash
|
|
Interest Expense
|
|
|
Interest Receivable
|
|
|
Johann Atkins, Capital
|
|
|
Land
|
|
|
Office Equipment
|
|
|
Prepaid Rent
|
|
|
Supplies
|
|
|
Unearned Fees
|
|
|
Wages Expense
|
|
Aug 29, 2021 | Uncategorized
EX 3-23 Effects of errors on financial statements
The accountant for Hallmark Medical Co., a medical services consulting firm, mistakenly omitted adjusting entries for (a) unearned revenue earned during the year ($18,000) and (b) accrued wages ($3,000). Indicate the effect of each error, considered individually, on the income statement for the current year ended May 31. Also indicate the effect of each error on the May 31 balance sheet. Set up a table similar to the following, and record your answers by inserting the dollar amount in the appropriate spaces. Insert a zero if the error does not affect the item.
|
|
|
Error (a)
|
Error (b)
|
|
|
|
Over-stated
|
Under-stated
|
Over-stated
|
Under-stated
|
| 1. |
Revenue for the year would be
|
$ ____
|
$ ____
|
$ ____
|
$ ____
|
| 2. |
Expenses for the year would be
|
$ ____
|
$ ____
|
$ ____
|
$ ____
|
| 3. |
Net income for the year would be
|
$ ____
|
$ ____
|
$ ____
|
$ ____
|
| 4. |
Assets at May 31 would be
|
$ ____
|
$ ____
|
$ ____
|
$ ____
|
| 5. |
Liabilities at May 31 would be
|
$ ____
|
$ ____
|
$ ____
|
$ ____
|
| 6. |
Owner’s equity at May 31 would be
|
$ ____
|
$ ____
|
$ ____
|
$ ____
|
Aug 29, 2021 | Uncategorized
EX 3-26 Adjusting entries from trial balances
The unadjusted and adjusted trial balances for McWay Services Co. on August 31, 2012, are shown below.
|
McWay Services Co.
|
|
|
|
|
Trial Balance
|
|
|
|
|
August 31, 2012
|
|
|
|
|
|
Unadjusted
|
Adjusted
|
|
|
Debit
|
Credit
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
Balances
|
Balances
|
|
Cash
|
8
|
|
8
|
|
|
Accounts Receivable
|
19
|
|
21
|
|
|
Supplies
|
6
|
|
5
|
|
|
Prepaid Insurance
|
10
|
|
6
|
|
|
Land
|
13
|
|
13
|
|
|
Equipment
|
20
|
|
20
|
|
|
Accumulated Depreciation—Equipment
|
|
4
|
|
5
|
|
Accounts Payable
|
|
13
|
|
13
|
|
Wages Payable
|
|
0
|
|
1
|
|
Chad McWay, Capital
|
|
46
|
|
46
|
|
Chad McWay, Drawing
|
4
|
|
4
|
|
|
Fees Earned
|
|
37
|
|
39
|
|
Wages Expense
|
12
|
|
13
|
|
|
Rent Expense
|
4
|
|
4
|
|
|
Insurance Expense
|
0
|
|
4
|
|
|
Utilities Expense
|
2
|
|
2
|
|
|
Depreciation Expense
|
0
|
|
1
|
|
|
Supplies Expense
|
0
|
|
1
|
|
|
Miscellaneous Expense
|
2
|
|
2
|
|
|
|
100
|
100
|
104
|
104
|
Journalize the five entries that adjusted the accounts at August 31, 2012. None of the accounts were affected by more than one adjusting entry.
Aug 29, 2021 | Uncategorized
EX 3-27 Adjusting entries from trial balances
The accountant for E-Z Laundry prepared the following unadjusted and adjusted trial balances. Assume that all balances in the unadjusted trial balance and the amounts of the adjustments are correct. Identify the errors in the accountant’s adjusting entries assuming that none of the accounts were affected by more than one adjusting entry.
|
E-Z Laundry
|
|
|
|
|
Trial Balance
|
|
|
|
|
July 31, 2012
|
|
|
|
|
|
Unadjusted
|
Adjusted
|
|
|
Debit
|
Credit
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
Balances
|
Balances
|
|
Cash
|
7,500
|
|
7,500
|
|
|
Accounts Receivable
|
18,250
|
|
22,000
|
|
|
Laundry Supplies
|
3,750
|
|
5,500
|
|
|
Prepaid Insurance*
|
5,200
|
|
1,400
|
|
|
Laundry Equipment
|
190,000
|
|
184,000
|
|
|
Accumulated Depreciation—Laundry Equipment
|
|
48,000
|
|
48,000
|
|
Accounts Payable
|
|
9,600
|
|
9,600
|
|
Wages Payable
|
|
|
|
1,200
|
|
Myrna Lundy, Capital
|
|
110,300
|
|
110,300
|
|
Myrna Lundy, Drawing
|
28,775
|
|
28,775
|
|
|
Laundry Revenue
|
|
182,100
|
|
182,100
|
|
Wages Expense
|
49,200
|
|
49,200
|
|
|
Rent Expense
|
25,575
|
|
25,575
|
|
|
Utilities Expense
|
18,500
|
|
18,500
|
|
|
Depreciation Expense
|
|
|
6,000
|
|
|
Laundry Supplies Expense
|
|
|
1,750
|
|
|
Insurance Expense
|
|
|
800
|
|
|
Miscellaneous Expense
|
3,250
|
|
3,250
|
|
|
|
350,000
|
350,000
|
354,250
|
351,200
|
* 3,800 of insurance expired during the year.
Aug 29, 2021 | Uncategorized
EX 3-28 Vertical analysis of income statement
The following data (in millions) are taken from the financial statements of Nike Inc. for the years ending May 31, 2009 and 2008:
|
|
2009
|
2008
|
|
Net sales (revenues)
|
$19,176
|
$18,627
|
|
Net income
|
1,487
|
1,883
|
a. Determine the amount of change (in millions) and percent of change in net income for 2009. Round to one decimal place.
b. Determine the percentage relationship between net income and net sales (net income divided by net sales) for 2009 and 2008. Round to one decimal place.
c. What conclusions can you draw from your analysis?
Aug 29, 2021 | Uncategorized
EX 3-29 Vertical analysis of income statement
The following income statement data (in millions) for Dell Inc. and Hewlett-Packard Company (HP) were taken from their recent annual reports:
|
|
Dell
|
Hewlett-Packard
|
|
Net sales
|
$61,101
|
$118,364
|
|
Cost of goods sold (expense)
|
-50,144
|
-89,592
|
|
Operating expenses
|
-7,767
|
-17,970
|
|
Operating income (loss)
|
$3,190
|
$10,802
|
a. Prepare a vertical analysis of the income statement for Dell. Round to one decimal place.
b. Prepare a vertical analysis of the income statement for HP. Round to one decimal place.
c. Based on (a) and (b), how does Dell compare to HP?
Aug 29, 2021 | Uncategorized
PR 3-1A Adjusting entries
On October 31, 2012, the following data were accumulated to assist the accountant in preparing the adjusting entries for Dependable Realty:
a. The supplies account balance on October 31 is $3,975. The supplies on hand on October 31 are $1,050.
b. The unearned rent account balance on October 31 is $11,000, representing the receipt of an advance payment on October 1 of four months’ rent from tenants.
c. Wages accrued but not paid at October 31 are $2,500.
d. Fees accrued but unbilled at October 31 are $4,900.
e. Depreciation of office equipment is $1,100.
Instructions
1. Journalize the adjusting entries required at October 31, 2012.
2. Briefly explain the difference between adjusting entries and entries that would be made to correct errors.
Aug 29, 2021 | Uncategorized
PR 3-2A Adjusting entries
Selected account balances before adjustment for Newhouse Realty at March 31, 2012, the end of the current year, are as follows:
|
|
Debits
|
Credits
|
|
Accounts Receivable
|
$80,000
|
|
|
Equipment
|
150,000
|
|
|
Accumulated Depreciation
|
|
$28,000
|
|
Prepaid Rent
|
6,000
|
|
|
Supplies
|
$ 3,000
|
|
|
Wages Payable
|
|
—
|
|
Unearned Fees
|
|
10,500
|
|
Fees Earned
|
|
410,000
|
|
Wages Expense
|
190,000
|
|
|
Rent Expense
|
—
|
|
|
Depreciation Expense
|
—
|
|
|
Supplies Expense
|
—
|
|
Data needed for year-end adjustments are as follows:
a. Unbilled fees at March 31, $13,500.
b. Supplies on hand at March 31, $950.
c. Rent expired, $4,000.
d. Depreciation of equipment during year, $1,500.
e. Unearned fees at March 31, $2,500.
f. Wages accrued but not paid at March 31, $2,200.
Instructions
1. Journalize the six adjusting entries required at March 31, based on the data presented.
2. What would be the effect on the income statement if adjustments (a) and (f) were omitted at the end of the year?
3. What would be the effect on the balance sheet if adjustments (a) and (f) were omitted at the end of the year?
4. What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if adjustments (a) and (f) were omitted at the end of the year?
Aug 29, 2021 | Uncategorized
PR 3-3A Adjusting entries
Econo Company, an electronics repair store, prepared the unadjusted trial balance shown below at the end of its first year of operations.
|
Econo Company
|
|
|
Unadjusted Trial Balance
|
|
|
April 30, 2012
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
13,800
|
|
|
Accounts Receivable
|
90,000
|
|
|
Supplies
|
21,600
|
|
|
Equipment
|
454,800
|
|
|
Accounts Payable
|
|
21,000
|
|
Unearned Fees
|
|
24,000
|
|
Randy Huntsinger, Capital
|
|
312,000
|
|
Randy Huntsinger, Drawing
|
18,000
|
|
|
Fees Earned
|
|
543,000
|
|
Wages Expense
|
126,000
|
|
|
Rent Expense
|
96,000
|
|
|
Utilities Expense
|
69,000
|
|
|
Miscellaneous Expense
|
10,800
|
|
|
|
900,000
|
900,000
|
For preparing the adjusting entries, the following data were assembled:
a. Fees earned but unbilled on April 30 were $10,000.
b. Supplies on hand on April 30 were $8,150.
c. Depreciation of equipment was estimated to be $13,800 for the year.
d. The balance in unearned fees represented the April 1 receipt in advance for services to be provided. Only $19,000 of the services was provided between April 1 and April 30.
e. Unpaid wages accrued on April 30 were $1,770.
Instructions
1. Journalize the adjusting entries necessary on April 30, 2012.
2. Determine the revenues, expenses, and net income of Econo Company before the adjusting entries.
3. Determine the revenues, expense, and net income of Econo Company after the adjusting entries.
4. Determine the effect on Randy Huntsinger, Capital of the adjusting entries.
Aug 29, 2021 | Uncategorized
PR 3-4A Adjusting entries
Timken Company specializes in the repair of music equipment and is owned and operated by Secilia Timken. On April 30, 2012, the end of the current year, the accountant for Timken Company prepared the following trial balances:
|
Timken Company
|
|
|
|
|
Trial Balance
|
|
|
|
|
April 30, 2012
|
|
|
|
|
|
Unadjusted
|
Adjusted
|
|
|
Debit
|
Credit
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
Balances
|
Balances
|
|
Cash
|
38,250
|
|
38,250
|
|
|
Accounts Receivable
|
109,500
|
|
109,500
|
|
|
Supplies
|
11,250
|
|
3,500
|
|
|
Prepaid Insurance
|
14,250
|
|
2,700
|
|
|
Equipment
|
360,450
|
|
360,450
|
|
|
Accumulated Depreciation—Equipment
|
|
94,500
|
|
107,000
|
|
Automobiles
|
109,500
|
|
109,500
|
|
|
Accumulated Depreciation—Automobiles
|
|
54,750
|
|
57,500
|
|
Accounts Payable
|
|
24,930
|
|
26,000
|
|
Salaries Payable
|
|
—
|
|
7,500
|
|
Unearned Service Fees
|
|
18,000
|
|
6,000
|
|
Secilia Timken, Capital
|
|
394,020
|
|
394,020
|
|
Secilia Timken, Drawing
|
75,000
|
|
75,000
|
|
|
Service Fees Earned
|
|
733,800
|
|
745,800
|
|
Salary Expense
|
516,900
|
|
524,400
|
|
|
Rent Expense
|
54,000
|
|
54,000
|
|
|
Supplies Expense
|
—
|
|
7,750
|
|
|
Depreciation Expense—Equipment
|
—
|
|
12,500
|
|
|
Depreciation Expense—Automobiles
|
—
|
|
2,750
|
|
|
Utilities Expense
|
12,900
|
|
13,970
|
|
|
Taxes Expense
|
8,175
|
|
8,175
|
|
|
Insurance Expense
|
—
|
|
11,550
|
|
|
Miscellaneous Expense
|
9,825
|
|
9,825
|
|
|
|
1,320,000
|
1,320,000
|
1,343,820
|
1,343,820
|
Instructions
Journalize the seven entries that adjusted the accounts at June 30. None of the accounts were affected by more than one adjusting entry.
Aug 29, 2021 | Uncategorized
PR 3-5A Adjusting entries and adjusted trial balances
Galloway Company is a small editorial services company owned and operated by Fran Briggs. On July 31, 2012, the end of the current year, Galloway Company’s accounting clerk prepared the unadjusted trial balance shown on the next page.
The data needed to determine year-end adjustments are as follows:
a. Unexpired insurance at July 31, $4,800.
b. Supplies on hand at July 31, $600.
c. Depreciation of building for the year, $3,100.
d. Depreciation of equipment for the year, $2,700.
e. Rent unearned at July 31, $1,750.
f. Accrued salaries and wages at July 31, $3,000.
g. Fees earned but unbilled on July 31, $10,750.
|
Galloway Company
|
|
|
Unadjusted Trial Balance
|
|
|
July 31, 2012
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
7,500
|
|
|
Accounts Receivable
|
38,400
|
|
|
Prepaid Insurance
|
7,200
|
|
|
Supplies
|
1,980
|
|
|
Land
|
112,500
|
|
|
Building
|
200,250
|
|
|
Accumulated Depreciation—Buildin.
|
|
137,550
|
|
Equipment
|
135,300
|
|
|
Accumulated Depreciation—Equipment
|
|
97,950
|
|
Accounts Payable
|
|
12,150
|
|
Unearned Rent
|
|
6,750
|
|
Fran Briggs, Capital
|
|
221,000
|
|
Fran Briggs, Drawing
|
15,000
|
|
|
Fees Earned
|
|
324,600
|
|
Salaries and Wages Expense
|
193,370
|
|
|
Utilities Expense
|
42,375
|
|
|
Advertising Expense
|
22,800
|
|
|
Repairs Expense
|
17,250
|
|
|
Miscellaneous Expense
|
6,075
|
|
|
|
800,000
|
800,000
|
Instructions
1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense.
2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.
Aug 29, 2021 | Uncategorized
PR 3-6A Adjusting entries and errors
At the end of June, the first month of operations, the following selected data were taken from the financial statements of Beth Cato, an attorney:
|
Net income for June
|
$80,000
|
|
Total assets at June 30
|
500,000
|
|
Total liabilities at June 30
|
200,000
|
|
Total owner’s equity at June 30
|
300,000
|
In preparing the financial statements, adjustments for the following data were overlooked:
a. Supplies used during June, $1,500.
b. Unbilled fees earned at June 30, $18,000.
c. Depreciation of equipment for June, $3,000.
d. Accrued wages at June 30, $1,200.
Instructions
1. Journalize the entries to record the omitted adjustments.
2. Determine the correct amount of net income for June and the total assets, liabilities, and owner’s equity at June 30. In addition to indicating the corrected amounts, indicate the effect of each omitted adjustment by setting up and completing a columnar table similar to the following. Adjustment (a) is presented as an example.
|
|
Net
|
Total
|
Total
|
Total Owner’s
|
|
|
Income
|
Assets =
|
Liabilities +
|
Equity
|
|
Reported amounts
|
$80,000
|
$500,000
|
$200,000
|
$300,000
|
|
Corrections:
|
|
|
|
|
|
Adjustment (a)
|
–1,500
|
–1,500
|
0
|
–1,500
|
|
Adjustment (b)
|
|
|
|
|
|
Adjustment (c)
|
|
|
|
|
|
Adjustment (d)
|
|
|
|
|
|
Corrected amounts
|
|
|
|
|
Aug 29, 2021 | Uncategorized
PR 3-2B Adjusting entries
Selected account balances before adjustment for Skylight Realty at June 30, 2012, the end of the current year, are shown below.
|
|
Debits
|
Credits
|
|
Accounts Receivable
|
$75,000
|
|
Accumulated Depreciation
|
|
$12,000
|
|
Depreciation Expense
|
—
|
|
|
Equipment
|
250,000
|
—
|
|
Fees Earned
|
|
400,000
|
|
Prepaid Rent
|
12,000
|
|
|
Rent Expense
|
—
|
|
|
Supplies
|
3,170
|
|
|
Supplies Expense
|
—
|
|
|
Unearned Fees
|
|
10,000
|
|
Wages Expense
|
140,000
|
|
|
Wages Payable
|
|
|
Data needed for year-end adjustments are as follows:
a. Supplies on hand at June 30, $800.
b. Depreciation of equipment during year, $750.
c. Rent expired during year, $9,000.
d. Wages accrued but not paid at June 30, $1,700.
e. Unearned fees at June 30, $6,500.
f. Unbilled fees at June 30, $15,000.
Instructions
1. Journalize the six adjusting entries required at June 30, based on the data presented.
2. What would be the effect on the income statement if adjustments (b) and (e) were omitted at the end of the year?
3. What would be the effect on the balance sheet if adjustments (b) and (e) were omitted at the end of the year?
4. What would be the effect on the “Net increase or decrease in cash” on the statement of cash flows if adjustments (b) and (e) were omitted at the end of the year?
Aug 29, 2021 | Uncategorized
PR 3-3B Adjusting entries
Brown Trout Outfitters Co., an outfitter store for fishing treks, prepared the following unadjusted trial balance at the end of its first year of operations:
|
Brown Trout Outfi tters Co.
|
|
|
Unadjusted Trial Balance
|
|
|
September 30, 2012
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
26,400
|
|
|
Accounts Receivable
|
87,600
|
|
|
Supplies
|
7,200
|
|
|
Equipment
|
162,000
|
|
Accounts Payable
|
|
12,200
|
|
Unearned Fees
|
|
19,200
|
|
Jon Wolfe, Capital
|
|
222,800
|
|
Jon Wolfe, Drawing
|
10,000
|
|
|
Fees Earned
|
|
295,800
|
|
Wages Expense
|
152,800
|
|
|
Rent Expense
|
55,000
|
|
|
Utilities Expense
|
42,000
|
|
|
Miscellaneous Expense
|
7,000
|
|
|
|
550,000
|
550,000
|
For preparing the adjusting entries, the following data were assembled:
a. Supplies on hand on September 30 were $1,850.
b. Fees earned but unbilled on September 30 were $6,500.
c. Depreciation of equipment was estimated to be $2,800 for the year.
d. Unpaid wages accrued on September 30 were $1,275.
e. The balance in unearned fees represented the September 1 receipt in advance for services to be provided. Only $3,000 of the services was provided between September 1 and September 30.
Instructions
1. Journalize the adjusting entries necessary on September 30, 2012.
2. Determine the revenues, expenses, and net income of Brown Trout Outfitters Co. before the adjusting entries.
3. Determine the revenues, expense, and net income of Brown Trout Outfitters Co. after the adjusting entries.
4. Determine the effect on Jon Wolfe, Capital of the adjusting entries.
Aug 29, 2021 | Uncategorized
PR 3-4B Adjusting entries
Goldfinch Company specializes in the maintenance and repair of signs, such as billboards. On January 31, 2012, the accountant for Goldfinch Company prepared the following trial balances:
|
Goldfinch Company
|
|
|
|
|
Trial Balance
|
|
|
|
|
January 31, 2012
|
|
|
|
|
|
Unadjusted
|
Adjusted
|
|
|
Debit
|
Credit
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
Balances
|
Balances
|
|
Cash
|
4,750
|
|
4,750
|
|
Accounts Receivable
|
17,400
|
|
17,400
|
|
|
Supplies
|
6,200
|
|
1,475
|
|
|
Prepaid Insurance
|
9,000
|
|
2,700
|
|
|
Land
|
50,000
|
|
50,000
|
|
|
Buildings
|
120,000
|
|
120,000
|
|
|
Accumulated Depreciation—Buildings
|
|
51,500
|
|
60,000
|
|
Trucks
|
75,000
|
|
75,000
|
|
Accumulated Depreciation—Trucks
|
|
12,000
|
|
13,550
|
|
Accounts Payable
|
|
6,920
|
|
8,000
|
|
Salaries Payable
|
|
—
|
|
750
|
|
Unearned Service Fees
|
|
10,500
|
|
6,000
|
|
Marsha Parlik, Capital
|
|
156,400
|
|
156,400
|
|
Marsha Parlik, Drawing
|
7,500
|
|
7,500
|
|
|
Service Fees Earned
|
|
162,680
|
|
167,180
|
|
Salary Expense
|
80,000
|
|
80,750
|
|
|
Depreciation Expense—Trucks
|
—
|
|
1,550
|
|
|
Rent Expense
|
11,900
|
|
11,900
|
|
|
Supplies Expense
|
—
|
|
4,725
|
|
|
Utilities Expense
|
6,200
|
|
7,280
|
|
|
Depreciation Expense—Buildings
|
—
|
|
8,500
|
|
|
Taxes Expense
|
2,900
|
|
2,900
|
|
|
Insurance Expense
|
—
|
|
6,300
|
|
|
Miscellaneous Expense
|
9,150
|
|
9,150
|
|
|
|
400,000
|
400,000
|
411,880
|
411,880
|
Instructions
Journalize the seven entries that adjusted the accounts at January 31. None of the accounts were affected by more than one adjusting entry.
Aug 29, 2021 | Uncategorized
PR 3-5B Adjusting entries and adjusted trial balances
Pacific Financial Services Co., which specializes in appliance repair services, is owned and operated by Eileen Hastings. Pacific Financial Services Co.’s accounting clerk prepared the unadjusted trial balance at October 31, 2012, shown below.
|
Pacifi c Financial Services Co.
|
|
|
Unadjusted Trial Balance
|
|
|
October 31, 2012
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
10,200
|
|
Accounts Receivable
|
34,750
|
|
|
Prepaid Insurance
|
6,000
|
|
|
Supplies
|
1,725
|
|
|
Land
|
50,000
|
|
|
Building
|
80,750
|
|
Accumulated Depreciation—Building
|
|
37,850
|
|
Equipment
|
45,000
|
|
|
Accumulated Depreciation—Equipment
|
|
17,650
|
|
Accounts Payable
|
|
3,750
|
|
Unearned Rent
|
|
3,600
|
|
Eileen Hastings, Capital
|
|
103,550
|
|
Eileen Hastings, Drawing
|
8,000
|
|
|
Fees Earned
|
|
158,600
|
|
Salaries and Wages Expense
|
56,850
|
|
|
Utilities Expense
|
14,100
|
|
|
Advertising Expense
|
7,500
|
|
|
Repairs Expense
|
6,100
|
|
|
Miscellaneous Expense
|
4,025
|
|
|
|
325,000
|
325,000
|
The data needed to determine year-end adjustments are as follows:
a. Depreciation of building for the year, $1,900.
b. Depreciation of equipment for the year, $2,400.
c. Accrued salaries and wages at October 31, $1,375.
d. Unexpired insurance at October 31, $2,700.
e. Fees earned but unbilled on October 31, $9,400.
f. Supplies on hand at October 31, $325.
g. Rent unearned at October 31, $1,800.
Instructions
1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense.
2. Determine the balances of the accounts affected by the adjusting entries and prepare an adjusted trial balance.
Aug 29, 2021 | Uncategorized
PR 3-6B Adjusting entries and errors
At the end of March, the first month of operations, the following selected data were taken from the financial statements of Kurt Reibel, an attorney:
|
Net income for March
|
$150,000
|
|
Total assets at March 31
|
1,000,000
|
|
Total liabilities at March 31
|
350,000
|
|
Total owner’s equity at March 31
|
650,000
|
In preparing the financial statements, adjustments for the following data were overlooked:
a. Unbilled fees earned at March 31, $15,000.
b. Depreciation of equipment for March, $9,000.
c. Accrued wages at March 31, $3,500.
d. Supplies used during March, $2,000.
Instructions
1. Journalize the entries to record the omitted adjustments.
2. Determine the correct amount of net income for March and the total assets, liabilities, and owner’s equity at March 31. In addition to indicating the corrected amounts, indicate the effect of each omitted adjustment by setting up and completing a columnar table similar to the following. Adjustment (a) is presented as an example.
|
|
Net
|
Total
|
Total
|
Total Owner’s
|
|
|
Income
|
Assets +
|
Liabilities =
|
Equity
|
|
Reported amounts
|
$150,000
|
$1,000,000
|
$350,000
|
$650,000
|
|
Corrections:
|
+ 15,000
|
+ 15,000
|
0
|
+ 15,000
|
|
Adjustment (a)
|
|
|
|
|
|
Adjustment (b)
|
|
|
|
|
|
Adjustment (c)
|
|
|
|
|
|
Adjustment (d)
|
|
|
|
|
|
Corrected amounts
|
|
|
|
|
Aug 29, 2021 | Uncategorized
CP 3-1 Ethics and professional conduct in business
Joshua Thorp opened Laser Co. on January 1, 2011. At the end of the first year, the business needed additional capital. On behalf of Laser, Joshua applied to Vermont National Bank for a loan of $500,000. Based on Laser financial statements, which had been prepared on a cash basis, the Vermont National Bank loan officer rejected the loan as too risky. After receiving the rejection notice, Joshua instructed his accountant to prepare the financial statements on an accrual basis. These statements included $90,000 in accounts receivable and $35,000 in accounts payable. Joshua then instructed his accountant to record an additional $25,000 of accounts receivable for commissions on property for which a contract had been signed on December 28, 2011. The title to the property is to transfer on January 5, 2012, when an attorney formally records the transfer of the property to the buyer. Joshua then applied for a $500,000 loan from NYC Bank, using the revised financial statements. On this application, Joshua indicated that he had not previously been rejected for credit.
Discuss the ethical and professional conduct of Joshua Thorp in applying for the loan from NYC Bank.
Aug 29, 2021 | Uncategorized
CP 3-4 Adjustments and financial statements
Several years ago, your brother opened Granite Appliance Repairs. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an assistant. He is now considering adding more employees, purchasing additional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent financial statements (shown below) prepared from accounts maintained by a part-time bookkeeper.
|
Granite Appliance Repairs
|
|
Income Statement
|
|
For the Year Ended July 31, 2012
|
|
Service revenue
|
k
|
$225,000
|
|
Less: Rent paid
|
$62,400
|
|
|
Wages paid
|
49,500
|
|
|
Supplies paid
|
14,000
|
|
|
Utilities paid
|
13,000
|
|
|
Insurance paid
|
7,200
|
|
|
Miscellaneous payments
|
18,200
|
164,300
|
|
Net income
|
k
|
$60,700
|
|
|
|
Granite Appliance Repairs
|
|
Balance Sheet
|
|
July 31, 2012
|
|
Assets
|
|
|
Cash
|
$ 31,800
|
|
Amounts due from customers
|
37,500
|
|
Truck
|
110,700
|
|
Total assets
|
$180,000
|
|
Equities
|
|
Owner’s capital
|
$180,000
|
After reviewing the financial statements, the loan officer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your brother responded that he did and that is why he included an account for “Amounts Due from Customers.” The loan officer then asked whether or not the accounts were adjusted prior to the preparation of the statements. Your brother answered that they had not been adjusted.
a. Why do you think the loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements?
b. Indicate possible accounts that might need to be adjusted before an accurate set of financial statements could be prepared.
Aug 29, 2021 | Uncategorized
CP 3-4 Adjustments and financial statements
Several years ago, your brother opened Granite Appliance Repairs. He made a small initial investment and added money from his personal bank account as needed. He withdrew money for living expenses at irregular intervals. As the business grew, he hired an assistant. He is now considering adding more employees, purchasing additional service trucks, and purchasing the building he now rents. To secure funds for the expansion, your brother submitted a loan application to the bank and included the most recent financial statements (shown below) prepared from accounts maintained by a part-time bookkeeper.
The fiscal years for several well-known companies are as follows:
|
Company
|
Fiscal Year Ending
|
Company
|
Fiscal Year Ending
|
|
Sears
|
30-Jan
|
Home Depot
|
31-Jan
|
|
JCPenney
|
30-Jan
|
Tiff any & Co.
|
31-Jan
|
|
Target Corp.
|
30-Jan
|
Limited Brands, Inc.
|
31-Jan
|
What general characteristic shared by these companies explains why they do not have fiscal years ending December 31?
After reviewing the financial statements, the loan officer at the bank asked your brother if he used the accrual basis of accounting for revenues and expenses. Your brother responded that he did and that is why he included an account for “Amounts Due from Customers.” The loan officer then asked whether or not the accounts were adjusted prior to the preparation of the statements. Your brother answered that they had not been adjusted.
a. Why do you think the loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements?
b. Indicate possible accounts that might need to be adjusted before an accurate set of financial statements could be prepared.
Aug 29, 2021 | Uncategorized
EX 2-17 Effect of errors on trial balance
Indicate which of the following errors, each considered individually, would cause the trial balance totals to be unequal:
a. A fee of $15,000 earned and due from a client was not debited to Accounts Receivable or credited to a revenue account, because the cash had not been received.
b. A receipt of $6,000 from an account receivable was journalized and posted as a debit of $6,000 to Cash and a credit of $6,000 to Fees Earned.
c. A payment of $1,200 to a creditor was posted as a debit of $1,200 to Accounts Payable and a debit of $1,200 to Cash.
d. A payment of $10,000 for equipment purchased was posted as a debit of $1,000 to Equipment and a credit of $1,000 to Cash.
e. Payment of a cash withdrawal of $10,000 was journalized and posted as a debit of $1,000 to Salary Expense and a credit of $10,000 to Cash.
Indicate which of the preceding errors would require a correcting entry.
Aug 29, 2021 | Uncategorized
EX 2-18 Errors in trial balance
The following preliminary unadjusted trial balance of Seats-For-You Co., a sports ticket agency, does not balance:
|
|
Seats-For-You Co.
|
|
|
|
Unadjusted Trial Balance
|
|
|
|
March 31, 2012
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
98,000
|
|
|
Accounts Receivable
|
17,800
|
|
|
Prepaid Insurance
|
|
9,000
|
|
Equipment
|
7,500
|
|
|
Accounts Payable
|
|
16,500
|
|
Unearned Rent
|
|
11,600
|
|
Gina Ness, Capital
|
81,700
|
|
|
Gina Ness, Drawing
|
13,000
|
|
|
Service Revenue
|
|
125,000
|
|
Wages Expense
|
|
60,000
|
|
Advertising Expense
|
11,300
|
|
|
Miscellaneous Expense
|
|
15,400
|
|
|
229,300
|
237,500
|
When the ledger and other records are reviewed, you discover the following: (1) the debits and credits in the cash account total $98,000 and $82,500, respectively; (2) a billing of $8,000 to a customer on account was not posted to the accounts receivable account; (3) a payment of $3,600 made to a creditor on account was not posted to the accounts payable account; (4) the balance of the unearned rent account is $5,400; (5) the correct balance of the equipment account is $75,000; and (6) each account has a normal balance.
Prepare a corrected unadjusted trial balance.
Aug 29, 2021 | Uncategorized
EX 2-19 Effect of errors on trial balance
The following errors occurred in posting from a two-column journal:
1. A credit of $7,150 to Accounts Payable was not posted.
2. An entry debiting Accounts Receivable and crediting Fees Earned for $11,000 was not posted.
3. A debit of $1,000 to Accounts Payable was posted as a credit.
4. A debit of $800 to Supplies was posted twice.
5. A debit of $900 to Cash was posted to Miscellaneous Expense.
6. A credit of $360 to Cash was posted as $630.
7. A debit of $9,420 to Wages Expense was posted as $9,240.
Considering each case individually (i.e., assuming that no other errors had occurred), indicate: (a) by “yes” or “no” whether the trial balance would be out of balance; (b) if answer to (a) is “yes,” the amount by which the trial balance totals would differ; and (c) whether the Debit or Credit column of the trial balance would have the larger total.Answers should be presented in the following form, with error (1) given as an example:
|
|
(a)
|
(b)
|
(c)
|
|
Error
|
Out of Balance
|
Diff erence
|
Larger Total
|
|
1
|
yes
|
$7,150
|
debit
|
Aug 29, 2021 | Uncategorized
EX 2-24 Horizontal analysis of income statement
The following data were adapted from the financial statements of Kmart Corporation, prior to its filing for bankruptcy:
|
|
In millions
|
|
For years ending January 31
|
2000
|
1999
|
|
Sales
|
$37,028
|
$35,925
|
|
Cost of sales (expense)
|
-29,658
|
-28,111
|
|
Selling, general, and administrative expenses
|
-7,415
|
-6,514
|
|
Operating income (loss)
|
($45)
|
$1,300
|
a. Prepare a horizontal analysis for the income statement showing the amount and percent of change in each of the following:
1. Sales
2. Cost of sales
3. Selling, general, and administrative expenses
4. Operating income (loss)
b. Comment on the results of your horizontal analysis in part (a).
Aug 29, 2021 | Uncategorized
PR 2-1A Entries into T accounts and trial balance
Leila Durkin, an architect, opened an office on May 1, 2012. During the month, she completed the following transactions connected with her professional practice:
a. Transferred cash from a personal bank account to an account to be used for the business, $30,000.
b. Paid May rent for office and workroom, $3,500.
c. Purchased used automobile for $25,000, paying $5,000 cash and giving a note payable for the remainder.
d. Purchased office and computer equipment on account, $9,000.
e. Paid cash for supplies, $1,200.
f. Paid cash for annual insurance policies, $2,400.
g. Received cash from client for plans delivered, $8,150.
h. Paid cash for miscellaneous expenses, $300.
i. Paid cash to creditors on account, $2,500.
j. Paid installment due on note payable, $400.
k. Received invoice for blueprint service, due in June, $1,200.
l. Recorded fee earned on plans delivered, payment to be received in June, $12,900.
m. Paid salary of assistant, $1,800.
n. Paid gas, oil, and repairs on automobile for May, $600.
Instructions
1. Record the above transactions directly in the following T accounts, without journalizing: Cash; Accounts Receivable; Supplies; Prepaid Insurance; Automobiles; Equipment; Notes Payable; Accounts Payable; Leila Durkin, Capital; Professional Fees; Rent Expense; Salary Expense; Blueprint Expense; Automobile Expense; Miscellaneous Expense. To the left of the amount entered in the accounts, place the appropriate letter to identify the transaction.
2. Determine account balances of the T accounts. Accounts containing a single entry only (such as Prepaid Insurance) do not need a balance.
3. Prepare an unadjusted trial balance for Leila Durkin, Architect, as of May 31, 2012.
4. Determine the net income or net loss for May.
Aug 29, 2021 | Uncategorized
PR 2-2A Journal entries and trial balance
On October 1, 2012, Faith Schultz established Heavenly Realty, which completed the following transactions during the month:
a. Faith Schultz transferred cash from a personal bank account to an account to be used for the business, $20,000.
b. Paid rent on office and equipment for the month, $3,750.
c. Purchased supplies on account, $1,100.
d. Paid creditor on account, $400.
e. Earned sales commissions, receiving cash, $16,750.
f. Paid automobile expenses (including rental charge) for month, $1,000, and miscellaneous expenses, $700.
g. Paid office salaries, $2,150.
h. Determined that the cost of supplies used was $600.
i. Withdrew cash for personal use, $1,000.
Instructions
1. Journalize entries for transactions (a) through (i), using the following account titles: Cash; Supplies; Accounts Payable; Faith Schultz, Capital; Faith Schultz, Drawing; Sales Commissions; Rent Expense; Office Salaries Expense; Automobile Expense; Supplies Expense; Miscellaneous Expense. Explanations may be omitted.
2. Prepare T accounts, using the account titles in (1). Post the journal entries to these accounts, placing the appropriate letter to the left of each amount to identify the transactions. Determine the account balances, after all posting is complete. Accounts containing only a single entry do not need a balance.
3. Prepare an unadjusted trial balance as of October 31, 2012.
4. Determine the following:
a. Amount of total revenue recorded in the ledger.
b. Amount of total expenses recorded in the ledger.
c. Amount of net income for October.
5. Determine the increase or decrease in owner’s equity for October.
Aug 29, 2021 | Uncategorized
PR 2-3A Journal entries and trial balance
On April 1, 2012, Kathleen Alvarez established an interior decorating business, Intrex Designs. During the month, Kathleen completed the following transactions related to the business:
Apr. 1. Kathleen transferred cash from a personal bank account to an account to be used for the business, $17,000.
2. Paid rent for period of April 2 to end of month, $3,400.
6. Purchased office equipment on account, $10,000.
8. Purchased a used truck for $21,000, paying $2,000 cash and giving a note payable for the remainder.
10. Purchased supplies for cash, $1,800.
12. Received cash for job completed, $13,000.
Apr. 15. Paid annual premiums on property and casualty insurance, $1,800.
23. Recorded jobs completed on account and sent invoices to customers, $9,000.
24. Received an invoice for truck expenses, to be paid in April, $1,000.
Enter the following transactions on Page 2 of the two-column journal.
29. Paid utilities expense, $1,500.
29. Paid miscellaneous expenses, $750.
30. Received cash from customers on account, $7,800.
30. Paid wages of employees, $4,000.
30. Paid creditor a portion of the amount owed for equipment purchased on April 6, $2,500.
30. Withdrew cash for personal use, $2,000.
Instructions
1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Explanations may be omitted.
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11
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Cash
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31
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Kathleen Alvarez, Capital
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|
12
|
Accounts Receivable
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32
|
Kathleen Alvarez, Drawing
|
|
13
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Supplies
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41
|
Fees Earned
|
|
14
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Prepaid Insurance
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51
|
Wages Expense
|
|
16
|
Equipment
|
53
|
Rent Expense
|
|
18
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Truck
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54
|
Utilities Expense
|
|
21
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Notes Payable
|
55
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Truck Expense
|
|
22
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Accounts Payable
|
59
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Miscellaneous Expense
|
2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
3. Prepare an unadjusted trial balance for Intrex Designs as of April 30, 2012.
4. Determine the excess of revenues over expenses for April.
5. Can you think of any reason why the amount determined in (4) might not be the net income for April?
Aug 29, 2021 | Uncategorized
PR 2-4A Journal entries and trial balance
Utopia Realty acts as an agent in buying, selling, renting, and managing real estate. The unadjusted trial balance on October 31, 2012, is shown below.
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|
Utopia Realty
|
|
|
|
|
Unadjusted Trial Balance
|
|
|
|
|
31-Oct-12
|
|
|
|
|
|
Debit
|
Credit
|
|
|
|
Balances
|
Balances
|
|
11
|
Cash
|
13,150
|
|
12
|
Accounts Receivable
|
30,750
|
|
13
|
Prepaid Insurance
|
1,500
|
|
14
|
Office Supplies
|
900
|
|
16
|
Land
|
—
|
|
21
|
Accounts Payable
|
7,000
|
|
22
|
Unearned Rent
|
|
—
|
|
23
|
Notes Payable
|
|
—
|
|
31
|
Ian Rogstad, Capital
|
|
23,000
|
|
32
|
Ian Rogstad, Drawing
|
1,000
|
|
|
41
|
Fees Earned
|
|
120,000
|
|
51
|
Salary and Commission Expense
|
74,100
|
|
|
52
|
Rent Expense
|
15,000
|
|
|
53
|
Advertising Expense
|
8,900
|
|
|
54
|
Automobile Expense
|
2,750
|
|
|
59
|
Miscellaneous Expense
|
1,950
|
|
|
|
150,000
|
150,000
|
The following business transactions were completed by Utopia Realty during November 2012:
Nov. 1. Paid rent on offi ce for month, $5,000.
2. Purchased offi ce supplies on account, $1,300.
5. Paid annual insurance premiums, $3,600.
10. Received cash from clients on account, $25,000.
15. Purchased land for a future building site for $90,000, paying $10,000 in cash and giving a note payable for the remainder.
17. Paid creditors on account, $4,500.
20. Returned a portion of the offi ce supplies purchased on November 2, receiving full credit for their cost, $200.
23. Paid advertising expense, $2,000.
Enter the following transactions on Page 19 of the two-column journal.
27. Discovered an error in computing a commission; received cash from the salesperson for the overpayment, $1,000.
28. Paid automobile expense (including rental charges for an automobile), $1,500.
29. Paid miscellaneous expenses, $450.
30. Recorded revenue earned and billed to clients during the month, $30,000.
30. Paid salaries and commissions for the month, $7,500.
30. Withdrew cash for personal use, $1,000.
30. Rented land purchased on November 15 to local merchants association for use as a parking lot in December and January, during a street rebuilding program; received advance payment of $3,000.
Instructions
1. Record the November 1, 2010, balance of each account in the appropriate balance column of a four-column account, write Balance in the item section, and place a check mark (v) in the Posting Reference column.
2. Journalize the transactions for November in a two-column journal beginning on Page 18. Journal entry explanations may be omitted.
3. Post to the ledger, extending the account balance to the appropriate balance column after each posting.
4. Prepare an unadjusted trial balance of the ledger as of November 30, 2012.
5. Assume that the November 30 transaction for salaries and commissions should have been $5,700. (a) Why did the unadjusted trial balance in (4) balance? (b) Journalize the correcting entry. (c) Is this error a transposition or slide?
Aug 29, 2021 | Uncategorized
PR 2-5A Errors in trial balance
The following records of A-Aall Electronic Repair are presented in the working papers:
• Journal containing entries for the period May 1–31.
• Ledger to which the May entries have been posted.
• Preliminary trial balance as of May 31, which does not balance.
Locate the errors, supply the information requested, and prepare a corrected trial balance according to the following instructions. The balances recorded in the accounts as of May 1 and the entries in the journal are correctly stated. If it is necessary to correct any posted amounts in the ledger, a line should be drawn through the erroneous figure and the correct amount inserted above. Corrections or notations may be inserted on the preliminary trial balance in any manner desired. It is not necessary to complete all of the instructions if equal trial balance totals can be obtained earlier. However, the requirements of instructions (6) and (7) should be completed in any event.
Instructions
1. Verify the totals of the preliminary trial balance, inserting the correct amounts in the schedule provided in the working papers.
2. Compute the difference between the trial balance totals.
3. Compare the listings in the trial balance with the balances appearing in the ledger, and list the errors in the space provided in the working papers.
4. Verify the accuracy of the balance of each account in the ledger, and list the errors in the space provided in the working papers.
5. Trace the postings in the ledger back to the journal, using small check marks to identify items traced. Correct any amounts in the ledger that may be necessitated by errors in posting, and list the errors in the space provided in the working papers.
6. Journalize as of May 31 the payment of $100 for advertising expense. The bill had been paid on May 31 but was inadvertently omitted from the journal. Post to the ledger. (Revise any amounts necessitated by posting this entry.)
7. Prepare a new unadjusted trial balance.
Aug 29, 2021 | Uncategorized
PR 2-6A Corrected trial balance
Imperial Carpet has the following unadjusted trial balance as of March 31, 2012.
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Imperial Carpet
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|
|
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Unadjusted Trial Balance
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|
|
|
March 31, 2012
|
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
38,200
|
|
|
Accounts Receivable
|
81,000
|
|
|
Supplies
|
16,690
|
|
|
Prepaid Insurance
|
3,600
|
|
Equipment
|
392,000
|
|
Notes Payable
|
200,000
|
|
Accounts Payable
|
|
54,000
|
|
Leonardo Pepin, Capital
|
|
254,300
|
|
Leonardo Pepin, Drawing
|
116,000
|
|
Fees Earned
|
|
858,900
|
|
Wages Expense
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490,000
|
|
Rent Expense
|
112,600
|
|
|
Advertising Expense
|
50,400
|
|
|
Miscellaneous Expense
|
10,200
|
|
|
|
1,310,690
|
508,300
|
The debit and credit totals are not equal as a result of the following errors:
a. The balance of cash was understated by $12,000.
b. A cash receipt of $13,900 was posted as a debit to Cash of $19,300.
c. A debit of $15,000 to Accounts Receivable was not posted.
d. A return of $90 of defective supplies was erroneously posted as a $900 credit to Supplies.
e. An insurance policy acquired at a cost of $2,500 was posted as a credit to Prepaid Insurance.
f. The balance of Notes Payable was understated by $35,200.
g. A credit of $7,600 in Accounts Payable was overlooked when determining the balance of the account.
h. A debit of $10,000 for a withdrawal by the owner was posted as a credit to Leonardo Pepin, Capital.
i. The balance of $116,200 in Rent Expense was entered as $112,600 in the trial balance.
j. Gas, Electricity, and Water Expense, with a balance of $48,300 was omitted from the trial balance.
Instructions
1. Prepare a corrected unadjusted trial balance as of March 31, 2012.
2. Does the fact that the unadjusted trial balance in (1) is balanced mean that there are no errors in the accounts? Explain.
Aug 29, 2021 | Uncategorized
PR 2-1B Entries into T accounts and trial balance
April Layton, an architect, opened an office on June 1, 2012. During the month, she completed the following transactions connected with her professional practice:
a. Transferred cash from a personal bank account to an account to be used for the business, $25,000.
b. Purchased used automobile for $24,000, paying $5,000 cash and giving a note payable for the remainder.
c. Paid June rent for office and workroom, $2,000.
d. Paid cash for supplies, $1,450.
e. Purchased office and computer equipment on account, $8,000.
f. Paid cash for annual insurance policies on automobile and equipment, $3,600.
g. Received cash from a client for plans delivered, $10,500.
h. Paid cash to creditors on account, $1,750.
i. Paid cash for miscellaneous expenses, $600.
j. Received invoice for blueprint service, due in July, $1,500.
k. Recorded fee earned on plans delivered, payment to be received in July, $12,800.
l. Paid salary of assistant, $1,600.
m. Paid cash for miscellaneous expenses, $200.
n. Paid installment due on note payable, $350.
o. Paid gas, oil, and repairs on automobile for June, $550.
Instructions
1. Record the above transactions directly in the following T accounts, without journalizing: Cash; Accounts Receivable; Supplies; Prepaid Insurance; Automobiles; Equipment; Notes Payable; Accounts Payable; April Layton, Capital; Professional Fees; Rent Expense; Salary Expense; Blueprint Expense; Automobile Expense; Miscellaneous Expense. To the left of each amount entered in the accounts, place the appropriate letter to identify the transaction.
2. Determine account balances of the T accounts. Accounts containing a single entry only (such as Prepaid Insurance) do not need a balance.
3. Prepare an unadjusted trial balance for April Layton, Architect, as of June 30, 2012.
4. Determine the net income or net loss for June.
Aug 29, 2021 | Uncategorized
PR 2-2B Journal entries and trial balance
On March 1, 2012, Mitch Quade established Marine Realty, which completed the following transactions during the month:
a. Mitch Quade transferred cash from a personal bank account to an account to be used for the business, $18,000.
b. Purchased supplies on account, $1,200.
c. Earned sales commissions, receiving cash, $14,000.
d. Paid rent on office and equipment for the month, $3,000.
e. Paid creditor on account, $750.
f. Withdrew cash for personal use, $2,000.
g. Paid automobile expenses (including rental charge) for month, $1,500, and miscellaneous expenses, $400.
h. Paid office salaries, $2,800.
i. Determined that the cost of supplies used was $800.
Instructions
1. Journalize entries for transactions (a) through (i), using the following account titles: Cash; Supplies; Accounts Payable; Mitch Quade, Capital; Mitch Quade, Drawing; Sales Commissions; Rent Expense; Office Salaries Expense; Automobile Expense; Supplies Expense; Miscellaneous Expense. Journal entry explanations may be omitted.
2. Prepare T accounts, using the account titles in (1). Post the journal entries to these accounts, placing the appropriate letter to the left of each amount to identify the transactions. Determine the account balances, after all posting is complete. Accounts containing only a single entry do not need a balance.
3. Prepare an unadjusted trial balance as of March 31, 2012.
4. Determine the following:
a. Amount of total revenue recorded in the ledger.
b. Amount of total expenses recorded in the ledger.
c. Amount of net income for March.
5. Determine the increase or decrease in owner’s equity for March
Aug 29, 2021 | Uncategorized
PR 2-3B Journal entries and trial balance
On July 1, 2012, Kim Wheeler established an interior decorating business, Aztec Designs. During the month, Kim completed the following transactions related to the business:
July 1. Kim transferred cash from a personal bank account to an account to be used for the business, $21,000.
4. Paid rent for period of July 4 to end of month, $2,750.
10. Purchased a used truck for $18,000, paying $4,000 cash and giving a note payable for the remainder.
13. Purchased equipment on account, $9,000.
14. Purchased supplies for cash, $1,500.
15. Paid annual premiums on property and casualty insurance, $3,600.
15. Received cash for job completed, $12,000.
Enter the following transactions on Page 2 of the two-column journal.
21. Paid creditor a portion of the amount owed for equipment purchased on July 13, $2,000.
24. Recorded jobs completed on account and sent invoices to customers, $9,800.
26. Received an invoice for truck expenses, to be paid in August, $700.
27. Paid utilities expense, $1,000.
27. Paid miscellaneous expenses, $300.
29. Received cash from customers on account, $4,600.
30. Paid wages of employees, $2,800.
31. Withdrew cash for personal use, $2,500.
Instructions
1. Journalize each transaction in a two-column journal beginning on Page 1, referring to the following chart of accounts in selecting the accounts to be debited and credited. (Do not insert the account numbers in the journal at this time.) Journal entry explanations may be omitted.
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11
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Cash
|
31
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Kim Wheeler, Capital
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12
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Accounts Receivable
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32
|
Kim Wheeler, Drawing
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|
13
|
Supplies
|
41
|
Fees Earned
|
|
14
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Prepaid Insurance
|
51
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Wages Expense
|
|
16
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Equipment
|
53
|
Rent Expense
|
|
18
|
Truck
|
54
|
Utilities Expense
|
|
21
|
Notes Payable
|
55
|
Truck Expense
|
|
22
|
Accounts Payable
|
59
|
Miscellaneous Expense
|
2. Post the journal to a ledger of four-column accounts, inserting appropriate posting references as each item is posted. Extend the balances to the appropriate balance columns after each transaction is posted.
3. Prepare an unadjusted trial balance for Aztec Designs as of July 31, 2012.
4. Determine the excess of revenues over expenses for July.
5. Can you think of any reason why the amount determined in (4) might not be the net income for July?
Aug 29, 2021 | Uncategorized
PR 2-4B Journal entries and trial balance
Prime Time Realty acts as an agent in buying, selling, renting, and managing real estate. The unadjusted trial balance on July 31, 2012, is shown below.
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Prime Time Realty
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|
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Unadjusted Trial Balance
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|
|
|
|
July 31, 2012
|
|
|
|
|
|
Debit
|
Credit
|
|
|
|
Balances
|
Balances
|
|
11
|
Cash
|
30,000
|
|
|
12
|
Accounts Receivable
|
57,200
|
|
|
13
|
Prepaid Insurance
|
7,200
|
|
|
14
|
Office Supplies
|
1,600
|
|
|
16
|
Land
|
—
|
|
21
|
Accounts Payable
|
12,000
|
|
22
|
Unearned Rent
|
|
—
|
|
23
|
Notes Payable
|
|
—
|
|
31
|
Sandy Ulrich, Capital
|
|
50,000
|
|
32
|
Sandy Ulrich, Drawing
|
25,600
|
|
41
|
Fees Earned
|
|
338,000
|
|
51
|
Salary and Commission Expense
|
220,000
|
|
52
|
Rent Expense
|
28,000
|
|
|
53
|
Advertising Expense
|
18,400
|
|
|
54
|
Automobile Expense
|
9,000
|
|
|
59
|
Miscellaneous Expense
|
3,000
|
|
|
|
|
400,000
|
400,000
|
The following business transactions were completed by Prime Time Realty during August 2012:
Aug. 1. Purchased office supplies on account, $1,800.
2. Paid rent on office for month, $5,000.
3. Received cash from clients on account, $40,000.
5. Paid annual insurance premiums, $6,000.
9. Returned a portion of the office supplies purchased on August 1, receivingfull credit for their cost, $400.
17. Paid advertising expense, $5,500.
23. Paid creditors on account, $7,000
Enter the following transactions on Page 19 of the two-column journal.
29. Paid miscellaneous expenses, $500.
30. Paid automobile expense (including rental charges for an automobile), $2,500.
31. Discovered an error in computing a commission; received cash from the salesperson for the overpayment, $8,000.
31. Paid salaries and commissions for the month, $18,000.
31. Recorded revenue earned and billed to clients during the month, $112,000.
31. Purchased land for a future building site for $75,000, paying $10,000 in cash and giving a note payable for the remainder.
31. Withdrew cash for personal use, $12,000.
31. Rented land purchased on August 31 to a local university for use as a parking lot during football season (September, October, and November); received advance payment of $4,000.
Instructions
1. Record the August 1 balance of each account in the appropriate balance column of a four-column account, write Balance in the item section, and place a check mark (v) in the Posting Reference column.
2. Journalize the transactions for August in a two-column journal beginning on Page 18. Journal entry explanations may be omitted.
3. Post to the ledger, extending the account balance to the appropriate balance column after each posting.
4. Prepare an unadjusted trial balance of the ledger as of August 31, 2012.
5. Assume that the August 31 transaction for Sandy Ulrich’s cash withdrawal should have been $1,200. (a) Why did the unadjusted trial balance in (4) balance? (b) Journalize the correcting entry. (c) Is this error a transposition or slide?
Aug 29, 2021 | Uncategorized
PR 2-5B Errors in trial balance
The following records of A-Aall Electronic Repair are presented in the working papers:
• Journal containing entries for the period May 1–31.
• Ledger to which the May entries have been posted.
• Preliminary trial balance as of May 31, which does not balance.
Locate the errors, supply the information requested, and prepare a corrected trial balance according to the following instructions. The balances recorded in the accounts as of May 1 and the entries in the journal are correctly stated. If it is necessary to correct any posted amounts in the ledger, a line should be drawn through the erroneous figure and the correct amount inserted above. Corrections or notations may be inserted on the preliminary trial balance in any manner desired. It is not necessary to complete all of the instructions if equal trial balance totals can be obtained earlier. However, the requirements of instructions (6) and (7) should be completed in any event.
Instructions
1. Verify the totals of the preliminary trial balance, inserting the correct amounts in the schedule provided in the working papers.
2. Compute the difference between the trial balance totals.
3. Compare the listings in the trial balance with the balances appearing in the ledger, and list the errors in the space provided in the working papers.
4. Verify the accuracy of the balance of each account in the ledger, and list the errors in the space provided in the working papers.
5. Trace the postings in the ledger back to the journal, using small check marks to identify items traced. Correct any amounts in the ledger that may be necessitated by errors in posting, and list the errors in the space provided in the working papers.
6. Journalize as of May 31 the payment of $275 for gas and electricity. The bill had been paid on May 31 but was inadvertently omitted from the journal. Post to the ledger. (Revise any amounts necessitated by posting this entry.)
7. Prepare a new unadjusted trial balance.
Aug 29, 2021 | Uncategorized
PR 2-6B Corrected trial balance
Elite Video has the following unadjusted trial balance as of October 31, 2012.
|
Elite Video
|
|
|
|
Unadjusted Trial Balance
|
|
|
|
October 31, 2012
|
|
|
|
|
Debit
|
Credit
|
|
|
Balances
|
Balances
|
|
Cash
|
11,100
|
|
|
Accounts Receivable
|
17,560
|
|
|
Supplies
|
2,520
|
|
|
Prepaid Insurance
|
1,840
|
|
Equipment
|
64,800
|
|
|
Notes Payable
|
31,600
|
|
Accounts Payable
|
|
6,160
|
|
Aimee Desanti, Capital
|
|
39,140
|
|
Aimee Desanti, Drawing
|
11,600
|
|
Fees Earned
|
|
213,600
|
|
Wages Expense
|
122,400
|
|
Rent Expense
|
25,020
|
|
|
Advertising Expense
|
13,140
|
|
|
Gas, Electricity, and Water Expense
|
6,800
|
|
|
|
276,780
|
290,500
|
The debit and credit totals are not equal as a result of the following errors:
a. The balance of cash was overstated by $7,500.
b. A cash receipt of $7,200 was posted as a debit to Cash of $2,700.
c. A debit of $5,000 to Accounts Receivable was not posted.
d. A return of $350 of defective supplies was erroneously posted as a $530 credit to Supplies.
e. An insurance policy acquired at a cost of $1,000 was posted as a credit to Prepaid Insurance.
f. The balance of Notes Payable was overstated by $10,000.
g. A credit of $500 in Accounts Payable was overlooked when the balance of the account was determined.
h. A debit of $4,000 for a withdrawal by the owner was posted as a debit to Aimee Desanti, Capital.
i. The balance of $11,340 in Advertising Expense was entered as $13,140 in the trial balance.
j. Miscellaneous Expense, with a balance of $1,840, was omitted from the trial balance. Instructions
1. Prepare a corrected unadjusted trial balance as of October 31 of the current year.
2. Does the fact that the unadjusted trial balance in (1) is balanced mean that there are no errors in the accounts? Explain.
Aug 29, 2021 | Uncategorized
The following transactions were completed during July, the second month of the business’s operations:
July 1. Pat Sharpe made an additional investment in PS Music by depositing $4,000 in PS Music’s checking account.
1. Instead of continuing to share offi ce space with a local real estate agency, Pat decided to rent offi ce space near a local music store. Paid rent for July, $1,800.
1. Paid a premium of $2,700 for a comprehensive insurance policy covering liability, theft, and fi re. The policy covers a one-year period.
2. Received $1,250 on account.
3. On behalf of PS Music, Pat signed a contract with a local radio station, WHBD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours per month for a monthly fee of $3,600. Any additional hours beyond 80 will be billed to WHBD at $40 per hour. In accordance with the contract, Pat received $7,200 from WHBD as an advance payment for the fi rst two months.
3. Paid $250 on account.
4. Paid an attorney $800 for reviewing the July 3rd contract with WHBD. (Record as Miscellaneous Expense.)
5. Purchased office equipment on account from One-Stop Office Mart, $6,000.
8. Paid for a newspaper advertisement, $200.
11. Received $900 for serving as a disc jockey for a party.
13. Paid $600 to a local audio electronics store for rental of digital recording equipment.
14. Paid wages of $1,200 to receptionist and part-time assistant.
Enter the following transactions on Page 2 of the two-column journal.
16. Received $2,100 for serving as a disc jockey for a wedding reception.
18. Purchased supplies on account, $1,080.
21. Paid $620 to Upload Music for use of its current music demos in making various music sets.
22. Paid $800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July.
23. Served as disc jockey for a party for $2,500. Received $750, with the remainder due August 4, 2012.
27. Paid electric bill, $760.
28. Paid wages of $1,200 to receptionist and part-time assistant.
29. Paid miscellaneous expenses, $370.
30. Served as a disc jockey for a charity ball for $1,800. Received $400, with the remainder due on August 9, 2012.
31. Received $2,800 for serving as a disc jockey for a party.
31. Paid $1,400 royalties (music expense) to National Music Clearing for use of various artists’ music during July.
31. Withdrew $1,500 cash from PS Music for personal use.
PS Music’s chart of accounts and the balance of accounts as of July 1, 2012 (all normal
balances), are as follows:
|
11
|
Cash
|
$5,310
|
41
|
Fees Earned
|
$6,650
|
|
12
|
Accounts Receivable
|
1,250
|
50
|
Wages Expense
|
400
|
|
14
|
Supplies
|
170
|
51
|
Offi ce Rent Expense
|
750
|
|
15
|
Prepaid Insurance
|
—
|
52
|
Equipment Rent Expense
|
700
|
|
17
|
Offi ce Equipment
|
—
|
53
|
Utilities Expense
|
300
|
|
21
|
Accounts Payable
|
250
|
54
|
Music Expense
|
1,590
|
|
23
|
Unearned Revenue
|
—
|
55
|
Advertising Expense
|
450
|
|
31
|
Pat Sharpe, Capital
|
5,000
|
56
|
Supplies Expense
|
180
|
|
32
|
Pat Sharpe, Drawing
|
500
|
59
|
Miscellaneous Expense
|
300
|
Instructions
1. Enter the July 1, 2012, account balances in the appropriate balance column of a four column account. Write Balance in the Item column, and place a check mark (??) in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.)
2. Analyze and journalize each transaction in a two-column journal beginning on Page 1, omitting journal entry explanations.
3. Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting.
4. Prepare an unadjusted trial balance as of July 31, 2012.
Aug 29, 2021 | Uncategorized
CP 2-5 Transactions and income statement
Anwar Askari is planning to manage and operate AA Caddy Service at Mission Valley Golf and Country Club during June through August 2012. Anwar will rent a small maintenance building from the country club for $700 per month and will offer caddy services, including cart rentals, to golfers. Anwar has had no formal training in record keeping.
Anwar keeps notes of all receipts and expenses in a shoe box. An examination of Anwar’s shoe box records for June revealed the following:
June 1. Transferred $3,500 from personal bank account to be used to operate the caddy service.
1. Paid rent expense to Mission Valley Golf and Country Club, $700.
2. Paid for golf supplies (practice balls, etc.), $800.
3. Arranged for the rental of 25 regular (pulling) golf carts and 10 gasoline driven carts for $3,000 per month. Paid $500 in advance, with the remaining $2,500 due June 20.
7. Purchased supplies, including gasoline, for the golf carts on account, $600. Mission Valley Golf and Country Club has agreed to allow Anwar to store the gasoline in one of its fuel tanks at no cost.
15. Received cash for services from June 1–15, $4,150.
17. Paid cash to creditors on account, $600.
20. Paid remaining rental on golf carts, $2,500.
22. Purchased supplies, including gasoline, on account, $400.
25. Accepted IOUs from customers on account, $1,800.
28. Paid miscellaneous expenses, $350.
30. Received cash for services from June 16–30, $6,350.
30. Paid telephone and electricity (utilities) expenses, $340.
30. Paid wages of part-time employees, $850.
30. Received cash in payment of IOUs on account, $1,200.
30. Determined the amount of supplies on hand at the end of June, $500.
Anwar has asked you several questions concerning his financial affairs to date, and he has asked you to assist with his record keeping and reporting of financial data.
a. To assist Anwar with his record keeping, prepare a chart of accounts that would be appropriate for AA Caddy Service.
b. Prepare an income statement for June in order to help Anwar assess the profitability of AA Caddy Service. For this purpose, the use of T accounts may be helpful in analyzing the effects of each June transaction.
c. Based on Anwar’s records of receipts and payments, compute the amount of cash on hand on June 30. For this purpose, a T account for cash may be useful.
d. A count of the cash on hand on June 30 totaled $8,390. Briefly discuss the possible causes of the difference between the amount of cash computed in (c) and the actual amount of cash on hand.
Aug 29, 2021 | Uncategorized
PE 3-10A Vertical analysis
Two income statements for Fortson Company are shown below.
|
Fortson Company
|
|
|
Income Statements
a |
|
|
For Years Ended December 31
|
|
|
|
2012
|
2011
|
|
Fees earned
|
$425,000
|
$375,000
|
|
Operating expenses
|
263,500
|
225,000
|
|
Operating income
|
$161,500
|
$150,000
|
a. Prepare a vertical analysis of Fortson Company’s income statements.
b. Does the vertical analysis indicate a favorable or unfavorable trend?
Aug 29, 2021 | Uncategorized
PE 3-10B Vertical analysis
Two income statements for Bradford Company are shown below.
|
Bradford Company
|
|
|
Income Statements
|
|
|
For Years Ended December 31
|
|
|
|
2012
|
2011
|
|
Fees earned
|
$825,000
|
$700,000
|
|
Operating expenses
|
684,750
|
602,000
|
|
Operating income
|
$140,250
|
$ 98,000
|
a. Prepare a vertical analysis of Bradford Company’s income statements.
b. Does the vertical analysis indicate a favorable or unfavorable trend?
Aug 29, 2021 | Uncategorized
PR 1-1B Transactions
Cody Macedo established an insurance agency on January 1 of the current year and completed the following transactions during January:
a. Opened a business bank account with a deposit of $75,000 from personal funds.
b. Purchased supplies on account, $3,000.
c. Paid creditors on account, $1,000.
d. Received cash from fees earned on insurance commissions, $11,800.
e. Paid rent on office and equipment for the month, $4,000.
f. Paid automobile expenses for month, $600, and miscellaneous expenses, $200.
g. Paid office salaries, $2,500.
h. Determined that the cost of supplies on hand was $1,900; therefore, the cost of supplies used was $1,100.
i. Billed insurance companies for sales commissions earned, $12,500.
j. Withdrew cash for personal use, $5,000.
Instructions
1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
|
Assets
|
= Liabilities +
|
Owner’s Equity
|
|
Accounts
|
|
Cody
|
Cody
|
|
|
|
|
|
|
|
|
Accounts
|
Macedo,
|
Macedo,
|
Fees
|
Rent
|
Salaries
|
Supplies
|
Auto
|
Misc. |
|
Cash + Receivable + Supplies
|
Payable
|
+ Capital
|
– Drawing
|
+ Earned
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.
3. Determine the net income for January.
4. How much did January’s transactions increase or decrease Cody Macedo’s capital?
Aug 29, 2021 | Uncategorized
PR 1-2B Financial statements
The amounts of the assets and liabilities of St. Simon Travel Service at June 30, 2012, the end of the current year, and its revenue and expenses for the year are listed below. The capital of Gwen Perez, owner, was $150,000 at July 1, 2011, the beginning of the current year, and the owner withdrew $30,000 during the current year.
|
Accounts payable
|
$25,000
|
Supplies
|
$12,000
|
|
Accounts receivable
|
90,000
|
Supplies expense
|
10,000
|
|
Cash
|
123,000
|
Taxes expense
|
8,000
|
|
Fees earned
|
500,000
|
Utilities expense
|
36,000
|
|
Miscellaneous expense
|
11,000
|
Wages expense
|
280,000
|
|
Rent expense
|
75,000
|
Instructions
1. Prepare an income statement for the current year ended June 30, 2012.
2. Prepare a statement of owner’s equity for the current year ended June 30, 2012.
3. Prepare a balance sheet as of June 30, 2012.
4. What item appears on both the income statement and statement of owner’s equity?
Aug 29, 2021 | Uncategorized
PR 1-3B Financial statements
Rory Kalur established Computers 4 Less on February 1, 2012. The effect of each transaction and the balances after each transaction for February are shown below.
|
|
|
Assets
|
|
= Liabilities +
|
|
|
Owner’s Equity
|
|
|
|
|
|
|
Accounts
|
|
Accounts
|
Rory Kalur,
|
Rory Kalur,
|
Fees
|
Salaries
|
Rent
|
Auto
|
Supplies
|
|
|
|
Cash
|
+ Receivable
|
+ Supplies
|
Payable
|
+ Capital
|
– Drawing
|
+ Earned
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
|
a.
|
+ 120,000
|
|
|
|
+ 120,000
|
|
|
|
|
|
|
|
|
b.
|
|
|
+ 10,400
|
+ 10,400
|
|
|
|
|
|
|
|
|
| Bal. |
120,000
|
|
10,400
|
10,400
|
120,000
|
|
|
|
|
|
|
|
| c. |
+ 118,000
|
|
|
|
|
|
+ 118,000
|
|
|
|
|
|
| Bal. |
238,000
|
|
10,400
|
10,400
|
120,000
|
|
118,000
|
|
|
|
|
|
| d. |
–32,000
|
|
|
|
|
|
|
|
–32,000
|
|
|
|
| Bal. |
206,000
|
|
10,400
|
10,400
|
120,000
|
|
118,000
|
|
–32,000
|
|
|
|
| e. |
–5,000
|
|
|
–5000
|
|
|
|
|
|
|
|
|
| Bal. |
$201,000
|
|
10,400
|
5,400
|
120,000
|
|
118,000
|
|
–32,000
|
|
|
|
| f. |
|
+ 83,000
|
|
|
|
|
+ 83,000
|
|
|
|
|
|
| Bal. |
201,000
|
83,000
|
10,400
|
5,400
|
120,000
|
|
201,000
|
|
–32,000
|
|
|
|
| g. |
–23,000
|
|
|
|
|
|
|
|
|
–15,500
|
|
–7,500
|
| Bal. |
178,000
|
83,000
|
10,400
|
5,400
|
120,000
|
|
201,000
|
|
–32,000
|
–15,500
|
|
–7,500
|
| h. |
–48,000
|
|
|
|
|
|
|
–48,000
|
|
|
|
|
| Bal. |
130,000
|
83,000
|
10,400
|
5,400
|
120,000
|
|
201,000
|
–48,000
|
–32,000
|
–15,500
|
|
–7,500
|
| i. |
|
|
–6,100
|
|
|
|
|
|
|
|
–6,100
|
|
| Bal. |
130,000
|
83,000
|
4,300
|
5,400
|
120,000
|
|
201,000
|
–48,000
|
–32,000
|
–15,500
|
–6,100
|
–7,500
|
| j. |
–30,000
|
|
|
|
|
–30,000
|
|
|
|
|
|
|
| Bal. |
100,000
|
83,000
|
$4,300
|
$5,400
|
120,000
|
–30,000
|
201,000
|
–48,000
|
–32,000
|
–15,500
|
–6,100
|
–7,500
|
Instructions
1. Prepare an income statement for the month ended February 29, 2012.
2. Prepare a statement of owner’s equity for the month ended February 29, 2012.
3. Prepare a balance sheet as of February 29, 2012.
4. (Optional). Prepare a statement of cash flows for the month ending February 29, 2012.
Aug 29, 2021 | Uncategorized
PR 1-4B Transactions; financial statements
On June 1, 2012, Lindsey Brown established Equity Realty. Lindsey completed the following transactions during the month of June:
a. Opened a business bank account with a deposit of $15,000 from personal funds.
b. Paid rent on office and equipment for the month, $4,000.
c. Paid automobile expenses (including rental charge) for month, $1,200, and miscellaneous expenses, $800.
d. Purchased supplies (pens, file folders, and copy paper) on account, $1,000.
e. Earned sales commissions, receiving cash, $18,500.
f. Paid creditor on account, $600.
g. Paid office salaries, $2,500.
h. Withdrew cash for personal use, $5,000.
i. Determined that the cost of supplies on hand was $300; therefore, the cost of supplies used was $700.
Instructions
1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
|
Assets
|
= Liabilities +
|
Owner’s Equity
|
|
|
|
Lindsey
|
Lindsey
|
|
|
Office
|
|
|
|
|
|
Accounts
|
Brown,
|
Brown,
|
Sales
|
Rent
|
Salaries
|
Auto
|
Supplies
|
|
|
Cash + Supplies
|
Payable
|
+ Capital
|
– Drawing
|
Commissions
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
2. Prepare an income statement for June, a statement of owner’s equity for June, and a balance sheet as of June 30.
Aug 29, 2021 | Uncategorized
PR 1-5B Transactions; financial statements
Anny’s Dry Cleaners is owned and operated by Anny Brum. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company at wholesale rates. The assets and the liabilities of the business on June 1, 2012, are as follows: Cash, $25,000; Accounts Receivable, $30,000; Supplies, $5,000; Land, $50,000; Accounts Payable, $18,000. Business transactions during June are summarized as follows:
a. Anny Brum invested additional cash in the business with a deposit of $15,000 in the business bank account.
b. Purchased land for use as a parking lot, paying cash of $20,000.
c. Paid rent for the month, $3,000.
d. Charged customers for dry cleaning revenue on account, $22,000.
e. Paid creditors on account, $13,000.
f. Purchased supplies on account, $1,000.
g. Received cash from cash customers for dry cleaning revenue, $28,000.
h. Received cash from customers on account, $27,000.
i. Received monthly invoice for dry cleaning expense for June (to be paid on July 10), $21,500.
j. Paid the following: wages expense, $14,000; truck expense, $2,100; utilities expense, $1,800; miscellaneous expense, $1,300.
k. Determined that the cost of supplies on hand was $3,400; therefore, the cost of supplies used during the month was $2,600.
l. Withdrew $1,000 for personal use.
Instructions
1. Determine the amount of Anny Brum’s capital as of June 1.
2. State the assets, liabilities, and owner’s equity as of June 1 in equation form similar to that shown in this chapter. In tabular form below the equation, indicate increases and decreases resulting from each transaction and the new balances after each transaction.
3. Prepare an income statement for June, a statement of owner’s equity for June, and a balance sheet as of June 30.
4. (Optional) Prepare a statement of cash flows for June.
Aug 29, 2021 | Uncategorized
PR 1-6B Missing amounts from financial statements
The financial statements at the end of Cyber Realty’s first month of operations are shown below.
|
Cyber Realty
|
|
Income Statement
|
|
For the Month Ended October 31, 2012
|
|
Fees earned
|
$250,000
|
|
Expenses:
|
|
Wages expense
|
$ (a)
|
|
Rent expense
|
30,000
|
|
Supplies expense
|
11,000
|
|
Utilities expense
|
9,000
|
|
Miscellaneous expense
|
3,000
|
|
Total expenses
|
$180,000
|
|
Net income
|
$ (b)
|
|
Cyber Realty
|
|
Statement of Owner’s Equity
|
|
For the Month Ended October 31, 2012
|
|
Kendra Garcia, capital, October 1, 2012
|
$ (c)
|
|
Investment on October 1, 2012
|
$ (d)
|
|
Net income for October
|
(e)
|
|
$ (f )
|
|
Less withdrawals
|
(g)
|
|
Increase in owner’s equity
|
(h)
|
|
Kendra Garcia, capital, October 31, 2012
|
$ (i)
|
|
Cyber Realty
|
|
Balance Sheet
|
|
October 31, 2012
|
|
Assets
|
|
Liabilities
|
|
Cash
|
$77,000
|
Accounts payable
|
$30,000
|
|
Supplies
|
8,000
|
Owner’s Equity
|
|
Land
|
(j)
|
Kendra Garcia, capital
|
(l)
|
|
Total assets
|
$ (k)
|
Total liabilities and owner’s equity
|
$ (m)
|
|
Cyber Realty
|
|
Statement of Cash Flows
|
|
For the Month Ended October 31, 2012
|
|
Cash flows from operating activities:
|
|
Cash received from customers
|
$ (n)
|
|
Deduct cash payments for expenses and payments to creditors
|
158,000
|
|
Net cash flow from operating activities
|
$0
|
|
Cash flows from investing activities:
|
|
Cash payments for acquisition of land
|
-75,000
|
|
Cash flows from financing activities:
|
|
Cash received as owner’s investment
|
$100,000
|
|
Deduct cash withdrawal by owner
|
40,000
|
|
Net cash flow from financing activities
|
(p)
|
|
Net cash flow and October 31, 2012, cash balance
|
$ (q)
|
Instructions
By analyzing the interrelationships among the four financial statements, determine the proper amounts for (a) through (q).
Aug 29, 2021 | Uncategorized
CP 1-1 Ethics and professional conduct in business
Group Project
Vince Hunt, president of Sabre Enterprises, applied for a $200,000 loan from First National Bank. The bank requested financial statements from Sabre Enterprises as a basis for granting the loan. Vince has told his accountant to provide the bank with a balance sheet. Vince has decided to omit the other financial statements because there was a net loss during the past year. In groups of three or four, discuss the following questions:
1. Is Vince behaving in a professional manner by omitting some of the financial statements?
2. a. What types of information about their businesses would owners be willing to provide bankers? What types of information would owners not be willing to provide?
b. What types of information about a business would bankers want before extending a loan?
c. What common interests are shared by bankers and business owners?
Aug 29, 2021 | Uncategorized
CP 1-3 Transactions and financial statements
Jan Martinelli, a junior in college, has been seeking ways to earn extra spending money. As an active sports enthusiast, Jan plays tennis regularly at the Naples Tennis Club, where her family has a membership. The president of the club recently approached Jan with the proposal that she manage the club’s tennis courts. Jan’s primary duty would be to supervise the operation of the club’s four indoor and 10 outdoor courts, including court
In return for her services, the club would pay Jan $300 per week, plus Jan could keep whatever she earned from lessons and the fees from the use of the ball machine. The club and Jan agreed to a one-month trial, after which both would consider an arrangement for the remaining two years of Jan’s college career. On this basis, Jan organized Topspin. During April 2012, Jan managed the tennis courts and entered into the following transactions:
a. Opened a business account by depositing $1,000.
b. Paid $300 for tennis supplies (practice tennis balls, etc.).
c. Paid $200 for the rental of video equipment to be used in offering lessons during April.
d. Arranged for the rental of two ball machines during April for $250. Paid $100 in advance, with the remaining $150 due May 1.
e. Received $1,600 for lessons given during April.
f. Received $500 in fees from the use of the ball machines during April.
g. Paid $800 for salaries of part-time employees who answered the telephone and took reservations while Jan was giving lessons.
h. Paid $225 for miscellaneous expenses.
i. Received $1,200 from the club for managing the tennis courts during April.
j. Determined that the cost of supplies on hand at the end of the month totaled $180; therefore, the cost of supplies used was $120.
k. Withdrew $250 for personal use on April 30.
As a friend and accounting student, you have been asked by Jan to aid her in assessing
the venture.
1. Indicate the effect of each transaction and the balances after each transaction, using
the following tabular headings:
|
Assets
|
= Liabilities +
|
Owner’s Equity
|
|
|
|
Jan
|
Jan
|
|
Office
|
|
|
|
|
|
Accounts
|
Martinelli,
|
Martinelli,
|
Service
|
Salaries
|
Rent
|
Supplies
|
Misc. |
|
Cash + Supplies
|
Payable
|
+ Capital
|
– Drawing
|
Revenue
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
2. Prepare an income statement for April.
3. Prepare a statement of owner’s equity for April.
4. Prepare a balance sheet as of April 30.
5. a. Assume that Jan Martinelli could earn $9 per hour working 30 hours a week as a waitress. Evaluate which of the two alternatives, working as a waitress or operating Topspin, would provide Jan with the most income per month.
b. Discuss any other factors that you believe Jan should consider before discussing a long-term arrangement with the Naples Tennis Club.
Aug 29, 2021 | Uncategorized
PE 2-6ATrial balance errors
For each of the following errors, considered individually, indicate whether the error would cause the trial balance totals to be unequal. If the error would cause the trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much.
a. The payment of an insurance premium of $4,800 for a two-year policy was debited to Prepaid Insurance for $4,800 and credited to Cash for $8,400.
b. A payment of $318 on account was debited to Accounts Payable for $381 and credited to Cash for $381.
c. A purchase of supplies on account for $1,200 was debited to Supplies for $1,200 and debited to Accounts Payable for $1,200.
Aug 29, 2021 | Uncategorized
PE 2-8BHorizontal analysis
Two income statements for Hitt Company are shown below.
|
Hitt Company
|
|
Income Statements
|
|
For Years Ended December 31
|
|
|
2012
|
2011
|
|
Fees earned
|
$937,500
|
$750,000
|
|
Operating expenses
|
612,500
|
500,000
|
|
Net income
|
$325.00
|
$250,000
|
Prepare a horizontal analysis of Hitt Company’s income statements.
Aug 29, 2021 | Uncategorized
EX 2-1 Chart of accounts
The following accounts appeared in recent financial statements of Continental Airlines:
|
Accounts Payable
|
Flight Equipment
|
|
Air Traffi c Liability
|
Landing Fees (Expense)
|
|
Aircraft Fuel Expense
|
Passenger Revenue
|
|
Cargo and Mail Revenue
|
Purchase Deposits for Flight Equipment
|
|
Commissions (Expense)
|
Spare Parts and Supplies
|
Identify each account as either a balance sheet account or an income statement account. For each balance sheet account, identify it as an asset, a liability, or owner’s equity. For each income statement account, identify it as a revenue or an expense.
Aug 29, 2021 | Uncategorized
EX 2-2 Chart of accounts
Innerscape Interiors is owned and operated by Jean Cartier, an interior decorator. In the ledger of Innerscape Interiors, the first digit of the account number indicates its major account classification (1—assets, 2—liabilities, 3—owner’s equity, 4—revenues, 5— expenses). The second digit of the account number indicates the specific account within each of the preceding major account classifications.
Match each account number with its most likely account in the list below. The account numbers are 11, 12, 13, 21, 31, 32, 41, 51, 52, and 53.
|
Accounts Payable
|
Jean Cartier, Drawing
|
|
Accounts Receivable
|
Land
|
|
Cash
|
Miscellaneous Expense
|
|
Fees Earned
|
Supplies Expense
|
|
Jean Cartier, Capital
|
Wages Expense
|
Aug 29, 2021 | Uncategorized
EX 2-3 Chart of accounts
Alpha School is a newly organized business that teaches people how to inspire and influence others. The list of accounts to be opened in the general ledger is as follows:
|
Accounts Payable
|
Miscellaneous Expense
|
|
Accounts Receivable
|
Prepaid Insurance
|
|
Cash
|
Rent Expense
|
|
Equipment
|
Supplies
|
|
Fees Earned
|
Supplies Expense
|
|
Jan Pulver, Capital
|
Unearned Rent
|
|
Jan Pulver, Drawing
|
Wages Expense
|
List the accounts in the order in which they should appear in the ledger of Alpha School and assign account numbers. Each account number is to have two digits: the first digit is to indicate the major classification (1 for assets, etc.), and the second digit is to identify the specific account within each major classification (11 for Cash, etc.).
Aug 29, 2021 | Uncategorized
EX 2-4 Rules of debit and credit
The following table summarizes the rules of debit and credit. For each of the items (a) through (l), indicate whether the proper answer is a debit or a credit.
|
d
|
Increase
|
Decrease
|
Normal Balance
|
|
Balance sheet accounts:
|
|
Asset
|
(a)
|
Credit
|
(b)
|
|
Liability
|
Credit
|
(c)
|
(d)
|
|
Owner’s equity:
|
|
Capital
|
Credit
|
(e)
|
(f )
|
|
Drawing
|
(g)
|
(h)
|
(i)
|
|
Income statement accounts:
|
|
Revenue
|
Credit
|
(j)
|
(k)
|
|
Expense
|
(l)
|
Credit
|
Debit
|
Aug 29, 2021 | Uncategorized
EX 2-5 Normal entries for accounts
During the month, Iris Labs Co. has a substantial number of transactions affecting each of the following accounts. State for each account whether it is likely to have (a) debit entries only, (b) credit entries only, or (c) both debit and credit entries.
| 1. |
Accounts Payable
|
| 2. |
Accounts Receivable
|
| 3. |
Cash
|
| 4. |
Fees Earned
|
| 5. |
Insurance Expense
|
| 6. |
Nicki Swanson, Drawing
|
| 7. |
Utilities Expense
|
Aug 29, 2021 | Uncategorized
EX 2-6 Normal balances of accounts
Identify each of the following accounts of Advanced Services Co. as asset, liability, owner’s equity, revenue, or expense, and state in each case whether the normal balance is a debit or a credit.
| a. |
Accounts Payable
|
| b. |
Accounts Receivable
|
| c. |
Barbara Mallary, Capital
|
| d. |
Barbara Mallary, Drawing
|
| e. |
Cash
|
| f. |
Fees Earned
|
| g. |
Office Equipment
|
| h. |
Rent Expense
|
| i. |
Supplies
|
| j. |
Wages Expense
|
Aug 29, 2021 | Uncategorized
EX 2-7 Transactions
Chalet Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts Payable; Andee Freese, Capital; Andee Freese, Drawing; Fees Earned; Rent Expense; Advertising Expense; Utilities Expense; Miscellaneous Expense.
Journalize the following selected transactions for October 2012 in a journal. Journal entry explanations may be omitted.
|
Oct. 1
|
Paid rent for the month, $2,000.
|
| 2. |
Paid advertising expense, $900.
|
| 5. |
Paid cash for supplies, $1,300.
|
| 6. |
Purchased offi ce equipment on account, $16,000.
|
| 10. |
Received cash from customers on account, $6,700.
|
| 15. |
Paid creditor on account, $1,200.
|
| 27. |
Paid cash for repairs to offi ce equipment, $600.
|
| 30. |
Paid telephone bill for the month, $180.
|
| 31. |
Fees earned and billed to customers for the month, $26,800.
|
| 31. |
Paid electricity bill for the month, $400.
|
| 31. |
Withdrew cash for personal use, $3,000.
|
Aug 29, 2021 | Uncategorized
EX 2-9 Transactions and T accounts
The following selected transactions were completed during August of the current year:
1. Billed customers for fees earned, $35,700.
2. Purchased supplies on account, $2,000.
3. Received cash from customers on account, $26,150.
4. Paid creditors on account, $800.
a. Journalize the above transactions in a two-column journal, using the appropriate number to identify the transactions. Journal entry explanations may be omitted.
b. Post the entries prepared in (a) to the following T accounts: Cash, Supplies, Accounts Receivable, Accounts Payable, Fees Earned. To the left of each amount posted in the accounts, place the appropriate number to identify the transactions.
c. Assume that the unadjusted trial balance on August 31 shows a credit balance for Accounts Receivable. Does this credit balance mean an error has occurred?
Aug 29, 2021 | Uncategorized
EX 2-13 Identifying transactions
Southwest Tours Co. is a travel agency. The nine transactions recorded by Southwest Tours during May 2012, its first month of operations, are indicated in the following T accounts:
|
|
Cash
|
|
|
Equipment
|
|
Mickey O’Dell, Drawing
|
|
(1)
|
40,000
|
(2)
|
2,000
|
(3)
|
18,000
|
|
|
(9)
|
4,000
|
|
|
|
(7)
|
10,000
|
(3)
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
(9)
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
Accounts Payable
|
|
Service Revenue
|
|
(5)
|
18,500
|
(7)
|
10,000
|
(6)
|
9,000
|
(3)
|
14,400
|
|
|
(5)
|
18,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies
|
|
|
Mickey O’Dell, Capital
|
Operating Expenses
|
|
(2)
|
2,000
|
(8)
|
1,050
|
|
|
(1)
|
40,000
|
(4)
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
(8)
|
1,050
|
|
|
Indicate for each debit and each credit: (a) whether an asset, liability, owner’s equity, drawing, revenue, or expense account was affected and (b) whether the account was increased (+) or decreased (–). Present your answers in the following form, with transaction given as an example:
|
Account Debited
|
Account Credited
|
|
Transaction
|
Type
|
Eff ect
|
Type
|
Eff ect
|
|
(1)
|
asset
|
+
|
owner’s equity
|
+
|
Aug 29, 2021 | Uncategorized
EX 2-16 Trial balance
The accounts in the ledger of Diva Co. as of July 31, 2012, are listed in alphabetical order as follows. All accounts have normal balances. The balance of the cash account has been intentionally omitted.
|
Accounts Payable
|
$28,000
|
Notes Payable
|
$50,000
|
|
Accounts Receivable
|
40,000
|
Prepaid Insurance
|
6,400
|
|
Cash
|
?
|
Rent Expense
|
36,000
|
|
Cheryl Sievert, Capital
|
49,900
|
Supplies
|
4,000
|
|
Cheryl Sievert, Drawing
|
25,000
|
Supplies Expense
|
9,000
|
|
Fees Earned
|
350,000
|
Unearned Rent
|
13,500
|
|
Insurance Expense
|
6,000
|
Utilities Expense
|
18,000
|
|
Land
|
125,000
|
Wages Expense
|
195,000
|
|
Miscellaneous Expense
|
12,000
|
Prepare an unadjusted trial balance, listing the accounts in their normal order and inserting the missing figure for cash.
Aug 29, 2021 | Uncategorized
EX 1-1 Types of businesses
The following is a list of well-known companies.
|
H&R Block
|
|
Procter & Gamble
|
|
eBay Inc.
|
|
FedEx
|
|
Wal-Mart Stores, Inc.
|
|
Gap Inc.
|
|
Ford Motor Company
|
|
Hilton Hospitality, Inc.
|
|
Citigroup
|
|
CVS
|
|
Boeing
|
|
Caterpillar
|
|
SunTrust
|
|
The Dow Chemical Company
|
|
Alcoa Inc.
|
|
|
a. Indicate whether each of these companies is primarily a service, merchandise, or manufacturing business. If you are unfamiliar with the company, use the Internet to locate the company’s home page or use the finance Web site of Yahoo (http://finance. yahoo.com).
b. For which of the preceding companies is the accounting equation relevant?
Aug 29, 2021 | Uncategorized
EX 1-3 Business entity concept
Rocky Mountain Sports sells hunting and fishing equipment and provides guided hunting and fishing trips. Rocky Mountain Sports is owned and operated by Mike Weber, a well-known sports enthusiast and hunter. Mike’s wife, Susan, owns and operates Madison Boutique, a women’s clothing store. Mike and Susan have established a trust fund to finance their children’s college education. The trust fund is maintained by National Bank in the name of the children, Kerri and Kyle.
a. For each of the following transactions, identify which of the entities listed should record the transaction in its records.
|
Entities
|
|
R
|
Rocky Mountain Sports
|
|
B
|
National Bank Trust Fund
|
|
M
|
Madison Boutique
|
|
X
|
None of the above
|
1. Susan authorized the trust fund to purchase mutual fund shares.
2. Susan purchased two dozen spring dresses from a Chicago designer for a special spring sale.
3. Mike paid a breeder’s fee for an English springer spaniel to be used as a hunting guide dog.
4. Susan deposited a $3,000 personal check in the trust fund at National Bank.
5. Mike paid a local doctor for his annual physical, which was required by the workmen’s compensation insurance policy carried by Rocky Mountain Sports.
6. Mike received a cash advance from customers for a guided hunting trip.
7. Susan paid her dues to the YWCA.
8. Susan donated several dresses from inventory for a local charity auction for the benefit of a women’s abuse shelter.
9. Mike paid for dinner and a movie to celebrate their fifteenth wedding anniversary.
10. Mike paid for an advertisement in a hunters’ magazine.
b. What is a business transaction?
Aug 29, 2021 | Uncategorized
EX 1-6 Accounting equation
Determine the missing amount for each of the following
|
|
Assets
|
=
|
Liabilities
|
+
|
Owner’s Equity
|
|
a.
|
×
|
=
|
$150,000
|
+
|
$450,000
|
|
b.
|
$275,000
|
=
|
×
|
+
|
50,000
|
|
c.
|
615,000
|
=
|
190,000
|
+
|
×
|
Aug 29, 2021 | Uncategorized
EX 1-7 Accounting equation
Todd Olson is the owner and operator of Alpha, a motivational consulting business. At the end of its accounting period, December 31, 2011, Alpha has assets of $800,000 and liabilities of $350,000. Using the accounting equation and considering each case independently, determine the following amounts:
a. Todd Olson, capital, as of December 31, 2011.
b. Todd Olson, capital, as of December 31, 2012, assuming that assets increased by $150,000 and liabilities increased by $70,000 during 2012.
c. Todd Olson, capital, as of December 31, 2012, assuming that assets decreased by $60,000 and liabilities increased by $20,000 during 2012.
d. Todd Olson, capital, as of December 31, 2012, assuming that assets increased by $100,000 and liabilities decreased by $40,000 during 2012.
e. Net income (or net loss) during 2012, assuming that as of December 31, 2012, assets were $975,000, liabilities were $400,000, and there were no additional investments or withdrawals.
Aug 29, 2021 | Uncategorized
EX 1-12 Transactions
The following selected transactions were completed by Speedy Delivery Service during October:
1. Received cash from owner as additional investment, $30,000.
2. Purchased supplies for cash, $1,500.
3. Paid rent for October, $4,000.
4. Paid advertising expense, $2,500.
5. Received cash for providing delivery services, $18,750.
6. Billed customers for delivery services on account, $41,500.
7. Paid creditors on account, $6,000.
8. Received cash from customers on account, $26,200.
9. Determined that the cost of supplies on hand was $250; therefore, $1,250 of supplies had been used during the month.
10. Paid cash to owner for personal use, $2,000.
Indicate the effect of each transaction on the accounting equation by listing the numbers identifying the transactions, (1) through (10), in a column, and inserting at the right of each number the appropriate letter from the following list:
a. Increase in an asset, decrease in another asset.
b. Increase in an asset, increase in a liability.
c. Increase in an asset, increase in owner’s equity.
d. Decrease in an asset, decrease in a liability.
e. Decrease in an asset, decrease in owner’s equity.
Aug 29, 2021 | Uncategorized
EX 1-13 Nature of transactions
Jeremy Zabel operates his own catering service. Summary financial data for February are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in owner’s equity, except transaction (5), affects net income.
|
|
Assests
|
=
|
Liabilities +
|
Owner’s Equity
|
|
|
|
|
|
|
Accounts
|
Jeremy Zabel,
|
Jeremy Za-
|
Fees
|
|
|
|
Cash
|
+Supplies
|
+Land
|
=
|
Payable
|
+ Capital
|
– bel, Drawing
|
+ Earned
|
– Expenses
|
|
25,000
|
2,000
|
75,000
|
|
12,000
|
90,000
|
|
|
|
|
1
|
+ 29,000
|
|
|
|
|
|
|
29,000
|
|
|
2
|
–20,000
|
|
+ 20,000
|
|
|
|
|
|
|
|
3
|
–14,000
|
|
|
|
|
|
|
|
-14,000
|
|
4
|
|
+ 1,000
|
|
|
+ 1,000
|
|
|
|
|
|
5
|
– 2,000
|
|
|
|
|
|
– 2,000
|
|
|
|
6
|
– 7,000
|
|
|
|
–7,000
|
|
|
|
|
|
7
|
|
–1800
|
|
|
|
|
|
|
–1,800
|
|
11,000
|
1,200
|
95,000
|
|
6,000
|
90,000
|
– 2,000
|
29,000
|
–15,800
|
a. Describe each transaction.
b. What is the amount of net decrease in cash during the month?
c. What is the amount of net increase in owner’s equity during the month?
d. What is the amount of the net income for the month?
e. How much of the net income for the month was retained in the business?
Aug 29, 2021 | Uncategorized
EX 1-15 Net income and owner’s equity for four businesses Four different proprietorships, Aries, Gemini, Leo, and Pisces, show the same balance sheet data at the beginning and end of a year. These data, exclusive of the amount of owner’s equity, are summarized as follows:
|
|
Total Assets
|
Total Liabilities
|
|
Beginning of the year
|
$400,000
|
$100,000
|
|
End of the year
|
750,000
|
300,000
|
On the basis of the above data and the following additional information for the year, determine the net income (or loss) of each company for the year. (Hint: First determine the amount of increase or decrease in owner’s equity during the year.)
Aries: The owner had made no additional investments in the business and had made no withdrawals from the business.
Gemini: The owner had made no additional investments in the business but had withdrawn $40,000.
Leo: The owner had made an additional investment of $90,000 but had made no withdrawals.
Pisces: The owner had made an additional investment of $90,000 and had withdrawn $40,000.
Aug 29, 2021 | Uncategorized
EX 1-20 Missing amounts from balance sheet and income statement data
One item is omitted in each of the following summaries of balance sheet and income statement data for the following four different proprietorships:
|
|
Aquarius
|
Libra
|
Scorpio
|
Taurus
|
|
Beginning of the year:
|
|
|
|
|
|
Assets
|
$300,000
|
$500,000
|
$100,000
|
(d)
|
|
Liabilities
|
120,000
|
260,000
|
76,000
|
120,000
|
|
End of the year:
|
|
|
|
|
|
Assets
|
420,000
|
700,000
|
90,000
|
248,000
|
|
Liabilities
|
110,000
|
220,000
|
80,000
|
136,000
|
|
During the year:
|
|
|
|
|
|
Additional investment in the business
|
(a)
|
100,000
|
10,000
|
40,000
|
|
Withdrawals from the business
|
25,000
|
32,000
|
(c)
|
60,000
|
|
Revenue
|
190,000
|
(b)
|
115,000
|
112,000
|
|
Expenses
|
80,000
|
128,000
|
122,500
|
128,000
|
Aug 29, 2021 | Uncategorized
EX 1-21 Balance sheets, net income
Financial information related to the proprietorship of Lady Interiors for July and August 2012 is as follows:
|
|
July 31, 2012
|
August 31, 2012
|
|
Accounts payable
|
$90,000
|
$100,000
|
|
Accounts receivable
|
200,000
|
240,000
|
|
Garth Jacobs, capital
|
?
|
?
|
|
Cash
|
80,000
|
95,000
|
|
Supplies
|
20,000
|
15,000
|
a. Prepare balance sheets for Lady Interiors as of July 31 and August 31, 2012.
b. Determine the amount of net income for August, assuming that the owner made no additional investments or withdrawals during the month.
c. Determine the amount of net income for August, assuming that the owner made no additional investments but withdrew $35,000 during the month.
Aug 29, 2021 | Uncategorized
EX 1-22 Financial statements
Each of the following items is shown in the financial statements of ExxonMobil Corporation.
| 1. |
Accounts payable
|
9. |
Marketable securities
|
| 2. |
Cash equivalents
|
10. |
Notes and loans payable
|
| 3. |
Crude oil inventory
|
11. |
Notes receivable
|
| 4. |
Equipment
|
12. |
Operating expenses
|
| 5. |
Exploration expenses
|
13. |
Prepaid taxes
|
| 6. |
Income taxes payable
|
14. |
Sales
|
| 7. |
Investments
|
15. |
Selling expenses
|
| 8. |
Long-term debt
|
|
|
a. Identify the financial statement (balance sheet or income statement) in which each item would appear.
b. Can an item appear on more than one financial statement?
c. Is the accounting equation relevant for ExxonMobil Corporation?
Aug 29, 2021 | Uncategorized
EX 1-24 Statement of cash flows
A summary of cash flows for Absolute Consulting Group for the year ended July 31, 2012, is shown below.
|
Cash receipts:
|
|
|
Cash received from customers
|
$187,500
|
|
Cash received from additional investment of owner
|
40,000
|
|
Cash payments:
|
|
|
Cash paid for operating expenses
|
127,350
|
|
Cash paid for land
|
30,000
|
|
Cash paid to owner for personal use
|
5,000
|
The cash balance as of August 1, 2011, was $27,100.
Prepare a statement of cash flows for Absolute Consulting Group for the year ended July 31, 2012.
Aug 29, 2021 | Uncategorized
EX 1-25 Financial statements
Empire Realty, organized May 1, 2012, is owned and operated by Bertram Mitchell. How many errors can you find in the following statements for Empire Realty, prepared after its first month of operations?
|
Empire Realty
|
|
|
Income Statement
|
|
|
May 31, 2012
|
|
|
Sales commissions
|
$233,550
|
|
Expenses:
|
|
|
Office salaries expense
|
$145,800
|
|
|
Rent expense
|
49,500
|
|
|
Automobile expense
|
11,250
|
|
|
Miscellaneous expense
|
3,600
|
|
|
Supplies expense
|
1,350
|
|
|
Total expenses
|
211,500
|
|
Net income
|
$67,050
|
|
Bertram Mitchell
|
|
|
Statement of Owner’s Equity
|
|
|
May 31, 2011
|
|
|
Bertram Mitchell, capital, May 1, 2012
|
$46,800
|
|
Less withdrawals during May
|
9,000
|
|
$37,800
|
|
Additional investment during May
|
11,250
|
|
$49,050
|
|
Net income for May
|
67,050
|
|
Bertram Mitchell, capital, May 31, 2012
|
$116,100
|
|
Balance Sheet
|
|
|
For the Month Ended May 31, 2012
|
|
|
Assets
|
|
Liabilities
|
|
Cash
|
$14,850
|
Accounts receivable
|
$64,350
|
|
Accounts payable
|
17,100
|
Supplies
|
9,000
|
|
K
|
|
Owner’s Equity
|
|
k
|
|
Bertram Mitchell, capital
|
116,100
|
|
Total assets
|
$31,950
|
Total liabilities and owner’s equity
|
$189,450
|
Aug 29, 2021 | Uncategorized
EX 1-26 Ratio of liabilities to stockholders’ equity
The Home Depot, Inc., is the world’s largest home improvement retailer and one of the largest retailers in the United States based on net sales volume. The Home Depot operates over 2,000 Home Depot® stores that sell a wide assortment of building materials and home improvement and lawn and garden products.
The Home Depot reported the following balance sheet data (in millions):
|
|
Feb. 1, 2009
|
Feb. 3, 2008
|
|
Total assets
|
$41,164
|
$44,324
|
|
Total stockholders’ equity
|
17,777
|
17,714
|
a. Determine the total liabilities as of February 1, 2009, and February 3, 2008.
b. Determine the ratio of liabilities to stockholders’ equity for 2009 and 2008. Round to two decimal places.
c. What conclusions regarding the margin of protection to the creditors can you draw from (b)?
Aug 29, 2021 | Uncategorized
EX 1-27 Ratio of liabilities to stockholders’ equity
Lowe’s, a major competitor of The Home Depot in the home improvement business, operates over 1,600 stores. For the years ending January 30, 2009, and February 1, 2008, Lowe’s reported the following balance sheet data (in millions):
|
|
Jan. 30, 2009
|
Feb. 1, 2008
|
|
Total assets
|
$32,686
|
$30,869
|
|
Total liabilities
|
14,631
|
14,771
|
a. Determine the total stockholders’ equity as of January 30, 2009, and February 1, 2008.
b. Determine the ratio of liabilities to stockholders’ equity for 2009 and 2008. Round to two decimal places.
c. What conclusions regarding the margin of protection to the creditors can you draw from (b)?
d. Using the balance sheet data for The Home Depot in Exercise 1-26, how does the ratio of liabilities to stockholders’ equity of Lowe’s compare to that of The Home Depot?
Aug 29, 2021 | Uncategorized
PR 1-1A Transactions
On September 1 of the current year, Maria Edsall established a business to manage rental property. She completed the following transactions during September:
a. Opened a business bank account with a deposit of $40,000 from personal funds.
b. Purchased supplies (pens, file folders, and copy paper) on account, $2,200.
c. Received cash from fees earned for managing rental property, $6,000.
d. Paid rent on office and equipment for the month, $2,700.
e. Paid creditors on account, $1,000.
f. Billed customers for fees earned for managing rental property, $5,000.
g. Paid automobile expenses (including rental charges) for month, $600, and miscellaneous expenses, $300.
h. Paid office salaries, $1,900.
i. Determined that the cost of supplies on hand was $1,300; therefore, the cost of supplies used was $900.
j. Withdrew cash for personal use, $1,800.
Instructions
1. Indicate the effect of each transaction and the balances after each transaction, using
the following tabular headings:
|
Assets
|
= Liabilities +
|
Owner’s Equity
|
|
Accounts
|
Accounts
|
Maria Edsall,
|
Maria Edsall,
|
Fees
|
Rent
|
Salaries
|
Supplies
|
Auto
|
|
|
Cash + Receivable + Supplies
|
Payable
|
+ Capital
|
– Drawing
|
+ Earned
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
2. Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.
3. Determine the net income for September.
4. How much did September’s transactions increase or decrease Maria Edsall’s capital?
Aug 29, 2021 | Uncategorized
PR 1-2A Financial statements
Following are the amounts of the assets and liabilities of New World Travel Agency at December 31, 2012, the end of the current year, and its revenue and expenses for the year. The capital of Kris Taber, owner, was $120,000 on January 1, 2012, the beginning of the current year. During the current year, Kris withdrew $10,000.
|
Accounts payable
|
$25,000
|
Rent expense
|
$45,000
|
|
Accounts receivable
|
60,000
|
Supplies
|
5,000
|
|
Cash
|
110,000
|
Supplies expense
|
3,000
|
|
Fees earned
|
200,000
|
Utilities expense
|
18,000
|
|
Miscellaneous expense
|
4,000
|
Wages expense
|
90,000
|
Instructions
1. Prepare an income statement for the current year ended December 31, 2012.
2. Prepare a statement of owner’s equity for the current year ended December 31, 2012.
3. Prepare a balance sheet as of December 31, 2012.
4. What item appears on both the statement of owner’s equity and the balance sheet?
Aug 29, 2021 | Uncategorized
PR 1-3A Financial statements
Heidi Fritz established Freedom Financial Services on March 1, 2012. Freedom Financial Services offers financial planning advice to its clients. The effect of each transaction and the balances after each transaction for March are shown below.
|
|
|
Assets
|
|
= Liabilities +
|
|
|
Owner’s Equity
|
|
|
|
|
|
|
|
|
|
Heidi
|
Heidi
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
Accounts
|
Fritz,
|
Fritz,
|
Fees
|
Salaries
|
Rent
|
Auto
|
Supplies
|
|
|
|
Cash
|
+ Receivable
|
+ Supplies
|
Payable
|
+ Capital
|
– Drawing
|
+ Earned
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
| a. |
+ 45,000
|
|
|
|
+ 45,000
|
|
|
|
|
|
|
|
| b. |
|
|
+ 6,540
|
+ 6,540
|
|
|
|
|
|
|
|
|
| Bal. |
45,000
|
|
6,540
|
6,540
|
45,000
|
|
|
|
|
|
|
|
| c. |
–1,800
|
|
|
– 1,800
|
|
|
|
|
|
|
|
|
| Bal. |
43,200
|
|
6,540
|
4,740
|
45,000
|
|
|
|
|
|
|
|
| d. |
+ 84,000
|
|
|
|
|
|
+ 84,000
|
|
|
|
|
|
| Bal. |
127,200
|
|
6,540
|
4,740
|
45,000
|
84,000
|
|
|
|
|
|
| e. |
–22,500
|
|
|
|
|
|
|
|
–22,500
|
|
|
|
| Bal. |
104,700
|
|
6,540
|
4,740
|
45,000
|
84,000
|
–22,500
|
|
|
|
| f. |
-17,100
|
|
|
|
|
|
|
|
|
–13,500
|
|
–3,600
|
| Bal. |
87,600
|
|
6,540
|
4,740
|
45,000
|
84,000
|
–22,500
|
–13,500
|
|
–3,600
|
| g. |
-48,000
|
|
|
|
|
|
|
-48,000
|
|
|
|
|
| Bal. |
39,600
|
|
6,540
|
4,740
|
45,000
|
|
84,000
|
-48,000
|
–22,500
|
–13,500
|
|
–3,600
|
| h. |
|
|
–4,500
|
|
|
|
|
|
|
|
–4,500
|
|
| Bal. |
39,600
|
|
2,040
|
4,740
|
45,000
|
|
84,000
|
-48,000
|
–22,500
|
–13,500
|
–4,500
|
–3,600
|
| i. |
|
+ 34,500
|
|
|
|
|
+ 34,500
|
|
|
|
|
|
| Bal. |
39,600
|
34,500
|
2,040
|
4,740
|
45,000
|
118,500
|
-48,000
|
–22,500
|
–13,500
|
–4,500
|
–3,600
|
| j. |
–15,000
|
|
|
|
|
–15,000
|
|
|
|
|
|
|
| Bal. |
24,600
|
34,500
|
2,040
|
4,740
|
45,000
|
–15,000
|
118,500
|
-48,000
|
–22,500
|
–13,500
|
–4,500
|
–3,600
|
Instructions
1. Prepare an income statement for the month ended March 31, 2012.
2. Prepare a statement of owner’s equity for the month ended March 31, 2012.
3. Prepare a balance sheet as of March 31, 2012.
4. (Optional). Prepare a statement of cash flows for the month ending March 31, 2012.
Aug 29, 2021 | Uncategorized
PR 1-4A Transactions; financial statements
On January 1, 2012, Carlton Myers established Vista Realty. Carlton completed the following transactions during the month of January:
a. Opened a business bank account with a deposit of $25,000 from personal funds.
b. Purchased supplies (pens, file folders, paper, etc.) on account, $2,500.
c. Paid creditor on account, $1,600.
d. Earned sales commissions, receiving cash, $25,500.
e. Paid rent on office and equipment for the month, $5,000.
f. Withdrew cash for personal use, $8,000.
g. Paid automobile expenses (including rental charge) for month, $2,500, and miscellaneous expenses, $1,200.
h. Paid office salaries, $3,000.
i. Determined that the cost of supplies on hand was $850; therefore, the cost of supplies used was $1,650.
Instructions
1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:
|
Assets
|
= Liabilities +
|
Owner’s Equity
|
|
|
|
|
Carlton
|
Carlton
|
|
Office
|
|
|
|
|
|
|
Accounts
|
Myers
|
Myers,
|
Sales
|
Rent
|
Salaries
|
Auto
|
Supplies
|
|
|
Cash
|
+ Supplies
|
Payable
|
+ Capital
|
Drawing
|
+ Commissions
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
– Expense
|
2. Prepare an income statement for January, a statement of owner’s equity for January, and a balance sheet as of January 31.
Aug 29, 2021 | Uncategorized
PR 1-5A Transactions; financial statements
Kean Dry Cleaners is owned and operated by Wally Lowman. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company at wholesale rates. The assets and the liabilities of the business on March 1, 2012, are as follows: Cash, $15,000; Accounts Receivable, $31,000; Supplies, $3,000; Land, $36,000; Accounts Payable, $13,000. Business transactions during March are summarized as follows:
a. Wally Lowman invested additional cash in the business with a deposit of $28,000 in the business bank account.
b. Paid $14,000 for the purchase of land as a future building site.
c. Received cash from cash customers for dry cleaning revenue, $17,000.
d. Paid rent for the month, $5,000.
e. Purchased supplies on account, $2,500.
f. Paid creditors on account, $12,800.
g. Charged customers for dry cleaning revenue on account, $34,000.
h. Received monthly invoice for dry cleaning expense for March (to be paid on April 10), $13,500.
i. Paid the following: wages expense, $7,500; truck expense, $2,500; utilities expense, $1,300; miscellaneous expense, $2,700.
j. Received cash from customers on account, $28,000.
k. Determined that the cost of supplies on hand was $1,900; therefore, the cost of supplies used during the month was $3,600.
l. Withdrew $8,000 cash for personal use.
Instructions
1. Determine the amount of Wally Lowman’s capital as of March 1 of the current year.
2. State the assets, liabilities, and owner’s equity as of March 1 in equation form similar to that shown in this chapter. In tabular form below the equation, indicate increases and decreases resulting from each transaction and the new balances after each transaction.
3. Prepare an income statement for March, a statement of owner’s equity for March, and a balance sheet as of March 31.
4. (Optional). Prepare a statement of cash flows for March.
Aug 29, 2021 | Uncategorized
PR 1-6A Missing amounts from financial statements
The financial statements at the end of Alpine Realty’s first month of operations are as follows:
|
Alpine Realty
|
|
|
Income Statement
|
|
|
For the Month Ended June 30, 2012
|
|
|
Fees earned
|
$ (a)
|
|
Expenses:
|
|
Wages expense
|
$120,000
|
|
Rent expense
|
40,000
|
|
Supplies expense
|
(b)
|
|
Utilities expense
|
8,000
|
|
Miscellaneous expense
|
10,000
|
|
Total expenses
|
190,000
|
|
Net income
|
$110,000
|
|
Alpine Realty
|
|
|
Statement of Owner’s Equity
|
|
|
For the Month Ended June 30, 2012
|
|
|
Aaron Gilbert, capital, June 1, 2012
|
$ (c)
|
|
Investment on June 1, 2012
|
$150,000
|
|
Net income for June
|
(d)
|
|
Less withdrawals
|
$ (e)
|
|
Increase in owner’s equity
|
50,000
|
(f )
|
|
Aaron Gilbert, capital, June 30, 2012
|
$ (g)
|
|
Alpine Realty
|
|
|
Balance Sheet
|
|
|
June 30, 2012
|
|
|
Assets
|
Liabilities
|
|
|
Cash
|
$185,000
|
Accounts payable
|
$40,000
|
|
Supplies
|
5,000
|
Owner’s Equity
|
|
Land
|
60,000
|
Aaron Gilbert, capital
|
(i)
|
|
Total assets
|
$ (h)
|
Total liabilities and owner’s equity
|
$ (j)
|
|
Alpine Realty
|
|
Statement of Cash Flows
|
|
For the Month Ended June 30, 2012
|
|
Cash flows from operating activities:
|
|
Cash received from customers
|
$ (k)
|
|
Deduct cash payments for expenses and payments to creditors
|
155,000
|
|
Net cash flow from operating activities
|
$ (l)
|
|
Cash flows from investing activities:
|
|
Cash payments for acquisition of land
|
(m)
|
|
Cash flows from financing activities:
|
$ (n)
|
|
Cash received as owner’s investment
|
(o)
|
|
Deduct cash withdrawal by owner
|
|
Net cash flow from financing activities
|
(p)
|
|
Net cash flow and June 30, 2012, cash balance
|
$ (q)
|
Instructions
By analyzing the interrelationships among the four financial statements, determine the proper amounts for (a) through (q).
Aug 29, 2021 | Uncategorized
Journalizing stockholders’ equity transactions
Summerborn Manufacturing, Co., completed the following transactions during 2012:
|
Jan
|
16
|
Declared a cash dividend on the 5%, $100 par preferred stock (900 shares outstanding). Declared a $0.30 per share dividend on the 80,000 shares of common stock outstanding. The date of record is January 31, and the payment due date is February 15.
|
|
Feb
|
15
|
Paid the cash dividends.
|
|
Jun
|
10
|
Split common stock 2 for 1. Before the split, Summerborn had 80,000 shares of $6 par common stock outstanding.
|
|
Jul
|
30
|
Distributed a 50% stock dividend on the common stock. The market value of the common stock was $9 per share.
|
|
Oct
|
26
|
Purchased 1,000 shares of treasury stock at $13 per share.
|
|
Nov
|
8
|
Sold 500 shares of treasury stock for $15 per share.
|
|
Nov
|
30
|
Sold 300 shares of treasury stock for $8 per share.
|
Requirement
1.Record the transactions in Summerborn’s general journal.
Aug 29, 2021 | Uncategorized
Journalizing dividend and treasury stock transactions, and preparing stockholders’ equity
The balance sheet of Lennox Health Foods, at December 31, 2011, reported 120,000 shares of no-par common stock authorized, with 25,000 shares issued and a Common stock balance of $190,000. Retained earnings had a balance of $115,000. During 2012, the company completed the following selected transactions:
|
Mar
|
15
|
Purchased 9,000 shares of treasury stock at $8 per share.
|
|
Apr
|
30
|
Distributed a 10% stock dividend on the outstanding shares of common stock.
The market value of common stock was $9 per share.
|
|
Dec
|
31
|
Earned net income of $110,000 during the year. Closed net income to Retained earnings.
|
Requirements
1.Record the transactions in the general journal. Explanations are not required.
2.Prepare the stockholders’ equity section of Lennox Health Foods’ balance sheet at December 31, 2012.
Aug 29, 2021 | Uncategorized
Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity
The balance sheet of Goldstein Management Consulting, Inc., at December 31, 2011, reported the following stockholders’ equity:
|
Paid-in capital:
|
|
|
Common stock, $10 par, 200,000 shares authorized, 15,000 shares issued
|
$150,000
|
|
Paid-in capital in excess of par—common
|
310,000
|
|
Total paid-in capital
|
460,000
|
|
Retained earnings
|
162,000
|
|
Total stockholders’ equity
|
$622,000
|
During 2012, Goldstein completed the following selected transactions:
|
Feb
|
6
|
Distributed a 5% stock dividend on the common stock. The market value of Goldstein’s stock was $21 per share.
|
|
Jul
|
29
|
Purchased 2,300 shares of treasury stock at $21 per share.
|
|
Nov
|
27
|
Declared a $0.10 per share cash dividend on the 13,450 shares of common stock outstanding. The date of record is December 17, 2012, and the payment date is January 7, 2013.
|
|
Dec
|
31
|
Closed the $81,000 net income to Retained earnings.
|
Requirements
1.Record the transactions in the general journal.
2.Prepare a retained earnings statement for the year ended December 31, 2012.
3.Prepare the stockholders’ equity section of the balance sheet at December 31, 2012.
Aug 29, 2021 | Uncategorized
Computing EPS and reporting a retained earnings restriction
The capital structure of Blacksmith, Inc., at December 31, 2011, included 18,000 shares of $1 preferred stock and 38,000 shares of common stock. Common stock outstanding during 2012 totaled 38,000 shares. Income from continuing operations during 2012 was $108,000. The company discontinued a segment of the business at a gain of $26,000 and also had an extraordinary gain of $12,000. The Blacksmith board of directors restricts $99,000 of retained earnings for contingencies. Retained earnings at December 31, 2011, was $99,000, and the company declared preferred dividends of $18,000 during 2012.
Requirements
1.Compute Blacksmith’s earnings per share for 2012. Start with income from continuing operations. All income and loss amounts are net of income tax.
2.Show two ways of reporting Blacksmith’s retained earnings restriction.
Aug 29, 2021 | Uncategorized
Preparing a detailed income statement
The following information was taken from the records of Clarkson Motorsports, Inc., at November 30, 2012:
|
Selling expenses
|
$ 125,000
|
Common stock, $10 par, 21,000 shares authorized and issued
|
$ 210,000
|
|
General expenses
|
134,000
|
|
|
|
Income from discontinued operations
|
5,000
|
Preferred stock, $4, no-par 6,000 shares issued
|
240,000
|
|
Retained earnings, beginning
|
90,000
|
|
|
|
Cost of goods sold
|
430,000
|
Income tax expense:
|
|
Treasury stock, common
|
|
Continuing operations
|
70,000
|
|
(1,000 shares)
|
11,000
|
|
|
|
Net sales revenue
|
834,000
|
Income from discontinued operations
|
2,000
|
Requirement
1. Prepare a multi-step income statement for Clarkson Motorsports for the fiscal year ended November 30, 2012. Include earnings per share.
Aug 29, 2021 | Uncategorized
Journalizing stockholders’ equity transactions
Dearborn Manufacturing, Co., completed the following transactions during 2012:
|
Jan
|
16
|
Declared a cash dividend on the 6%, $95 par preferred stock (1,000 shares outstanding). Declared a $0.55 per share dividend on the 90,000 shares of common stock outstanding. The date of record is January 31, and the payment due date is February 15.
|
|
Feb
|
15
|
Paid the cash dividends.
|
|
Jun
|
10
|
Split common stock 2 for 1. Before the split, Dearborn had 90,000 shares of $10 par common stock outstanding.
|
|
Jul
|
30
|
Distributed a 30% stock dividend on the common stock. The market value of the common stock was $12 per share.
|
|
Oct
|
26
|
Purchased 3,000 shares of treasury stock at $10 per share.
|
|
Nov
|
8
|
Sold 1,500 shares of treasury stock for $11 per share.
|
|
Nov
|
30
|
Sold 700 shares of treasury stock for $7 per share.
|
Requirement
- Record the transactions in Dearborn’s general journal.
Aug 29, 2021 | Uncategorized
Journalizing dividend and treasury stock transactions, and preparing stockholders’ equity
The balance sheet of Franklin Foods, at December 31, 2011, reported 110,000 shares of no-par common stock authorized, with 30,000 shares issued and a Common stock balance of $180,000. Retained earnings had a balance of $120,000. During 2012, the company completed the following selected transactions:
|
Mar
|
15
|
Purchased 8,000 shares of treasury stock at $6 per share.
|
|
Apr
|
30
|
Distributed a 5% stock dividend on the outstanding shares of common stock. The market value of common stock was $8 per share.
|
|
Dec
|
31
|
Earned net income of $109,000 during the year. Closed net income to Retained earnings.
|
Requirements
1. Record the transactions in the general journal. Explanations are not required.
2. Prepare the stockholders’ equity section of Franklin Foods’ balance sheet at December 31, 2012.
Aug 29, 2021 | Uncategorized
Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity
The balance sheet of MacMillan Management Consulting, Inc., at December 31, 2011, reported the following stockholders’ equity:
|
Paid-in capital:
|
|
|
Common stock, $12 par, 100,000 shares authorized, 20,000 shares issued
|
$ 240,000
|
|
Paid-in capital in excess of par—common
|
330,000
|
|
Total paid-in capital
|
570,000
|
|
Retained earnings
|
159,000
|
|
Total stockholders’ equity
|
$ 729,000
|
During 2012, MacMillan completed the following selected transactions:
|
Feb
|
6
|
Distributed a 15% stock dividend on the common stock. The market value of MacMillan’s stock was $26 per share.
|
|
Jul
|
29
|
Purchased 1,800 shares of treasury stock at $26 per share.
|
|
Nov
|
27
|
Declared a $0.30 per share cash dividend on the 21,200 shares of common stock outstanding. The date of record is December 17, 2012, and the payment date is January 7, 2013.
|
|
Dec
|
31
|
Closed the $82,000 net income to Retained earnings.
|
Requirements
1. Record the transactions in the general journal.
2. Prepare the retained earnings statement for the year ended December 31, 2012.
3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2012.
Aug 29, 2021 | Uncategorized
Computing EPS and reporting a retained earnings restriction
The capital structure of Hillstride, Inc., at December 31, 2011, included 26,000 shares of $2 preferred stock and 42,000 shares of common stock. Common stock outstanding during 2012 totaled 42,000 shares. Income from continuing operations during 2012 was $118,000. The company discontinued a segment of the business at a gain of $28,000 and also had an extraordinary gain of $18,000. The Hillstride board of directors restricts $97,000 of retained earnings for contingencies. Retained earnings at December 31, 2011, was $97,000, and the company declared preferred dividends of $52,000 during 2012.
Requirements
1. Compute Hillstride’s earnings per share for 2012. Start with income from continuing operations. Income and loss amounts are net of income tax.
2. Show two ways of reporting Hillstride’s retained earnings restriction.
Aug 29, 2021 | Uncategorized
Accounting for the purchase and sale of treasury stock
This problem continues the Draper Consulting, Inc., situation from Problem 12-45 of Chapter 12. In October, Draper has the following transactions related to its common shares:
|
Oct
|
1
|
Draper repurchased 200 of its common shares for $50 per share.
|
|
Oct
|
10
|
Draper reissued 90 of its treasury common shares for $65 per share.
|
|
Oct
|
20
|
Draper reissued 100 of its treasury common shares for $60 per share.
|
Requirements
1. Journalize the entry related to the transactions.
2. Calculate the balance in the T-accounts affected by the transactions.
Aug 29, 2021 | Uncategorized
Decision Case 13-2 The following accounting issues have arisen at T-Shirts Plus, Inc.:
Requirements
1. Corporations sometimes purchase their own stock. When asked why they do so, T-Shirts Plus management responds that the stock is undervalued. What advantage would T-Shirts Plus gain by buying and selling its own undervalued stock?
2. T-Shirts Plus earned a significant profit in the year ended December 31, 2012, because land that it held was purchased by the State of Nebraska for a new highway. The company proposes to treat the sale of land as operating revenue. Why do you think the company is proposing this plan? Is this disclosure appropriate?
3. The treasurer of T-Shirts Plus wants to report a large loss as an extraordinary item because the company produced too much product and cannot sell it. (Under the rules of the lower of cost or market, this situation, in which the net realizable value of inventory is less than the book value, would trigger a write-down of inventory.) Why do you think the treasurer wants to report the loss as extraordinary? Would that be acceptable?
Aug 29, 2021 | Uncategorized
The following is a true case. General Electric (GE), like many other large corporations, is scrutinized by financial analysts who develop quarterly forecast EPS figures for the company. The companies are under intense pressure to meet or exceed these EPS forecasts. But when earnings fall short, some companies resort to accounting tricks. A few years ago, GE found itself facing this problem. In one case, it “sold” six locomotive engines to a financial institution at year-end with the idea that the financial institution would resell them to GE’s regular railroad customers in the first quarter of the following year. GE booked the revenue at year-end, which helped it hit its forecast EPS numbers. Later, upon investigation by the SEC, the transaction was found to be a “sham,” or phony transaction, because the financial institutions were not taking over full ownership of the engines. In early 2009, GE was fined $50,000,000 for misrepresenting its financial results.
Requirements
1. What are the criteria for recording a sale of goods?
2. Why do company managers feel pressure to meet or exceed EPS forecasts of outside analysts?
Aug 29, 2021 | Uncategorized
Mr. Rosen is the manager of a division of Jokkmok Industries. He is one of several managers being considered for the position of CEO, as the current CEO is retiring in a year.
All divisions use standard absorption costing. The division has the capacity to produce 50,000 units a quarter and quarterly fixed overhead amounts to $600,000. Mr. Rosen has been looking at the report for the first three months of the year and is not happy with the results.
| Division Income Statement |
| For the Quarter Ending March 31, 2013 |
| Production: 25,000 units |
|
|
| Sales (25,000 units) |
|
$2,500,000 |
| Cost of goods sold |
|
1,800,000 |
| Gross profit |
|
$700,000 |
| Selling & general expenses |
|
350,000 |
| Net income |
|
$350,000 |
The sales forecast for the second quarter is 25,000 units. Mr. Rosen had budgeted second quarter production at 25,000 units but changes it to 50,000 units, which is total capacity for a quarter. The sales forecasts for each of the last two quarters of the year remain at 25,000 units. Actual fixed costs incurred remain constant in total and variable costs remain constant on per unit basis.
Computations:
- Convert the divisional absorption income statement to a contribution margin income statement for the quarter.
- Prepare absorption and contribution margin income statements for the succeeding quarter for the division.
- Compute production costs per unit for both approaches and for both quarters.
Discussion:
- Did Mr. Rosen improve his performance for the second quarter? Indicate the information you used for your assessment.
- Can you make any suggestions for reporting in the future?
- Do you think Mr. Rosen should be seriously considered for the CEO position? Why or why not?
- Discuss three shortcomings of the absorption approach for internal decision-making.
Aug 29, 2021 | Uncategorized
http://investors.linkedin.com/releasedetail.cfm?ReleaseID=782275 http://investor.fb.com/releasedetail.cfm?ReleaseID=802760http://investor.fb.com/releasedetail.cfm?ReleaseID=802760 Make a comparison of the following items and note trends. Revenues Cost of good sold Accounts receivable Accounts payable Inventory Keeping the case analysis in mind, discuss and interpret the changes over the two-year period.
Aug 29, 2021 | Uncategorized
A meeting of senior managers at the Pringly Division has been called to discuss the pricing strategy for a new product. Part of the discussion will focus on estimating sales for the new product. Over the past years, a number of new products have failed to meet their sales targets. It appears that the company’s profit for the year will be lower than budget and the main reason for this is the disappointing sales of new products. This time a range of possible sales targets – rather than only one goal – will be established and evaluated.
Aug 29, 2021 | Uncategorized
Prepare a flexible budget for next year for Facebook ( http://investor.fb.com/releasedetail.cfm?ReleaseID=802760http://investor.fb.com/releasedetail.cfm?ReleaseID=802760 ) The budget needs to be realistic and based on corporate and economic trends. Companies prepare budgets based on absorption and/or variable costing. Due to lack of information, we’re limiting our budgeting to the absorption approach. Don’t forget that the presentation of the information is important. Set up the flexible budget showing three different growth rates.
Aug 29, 2021 | Uncategorized
PE 1-3A Transactions
Queens Delivery Service is owned and operated by Lisa Dewar. The following selected transactions were completed by Queens Delivery Service during June:
1. Received cash from owner as additional investment, $18,000.
2. Paid creditors on account, $1,800.
3. Billed customers for delivery services on account, $12,500.
4. Received cash from customers on account, $6,900.
5. Paid cash to owner for personal use, $4,000.
Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense). Also, indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below.
(1) Asset (Cash) increases by $18,000; Owner’s Equity (Lisa Dewar, Capital) increases by $18,000.
Aug 29, 2021 | Uncategorized
PE 1-3B Transactions
Motor-cross Delivery Service is owned and operated by Jim Smith. The following selected transactions were completed by Motor-cross Delivery Service during February:
1. Received cash from owner as additional investment, $30,000.
2. Paid advertising expense, $1,200.
3. Purchased supplies on account, $450.
4. Billed customers for delivery services on account, $7,500.
5. Received cash from customers on account, $4,900.
Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense). Also, indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below.
(1) Asset (Cash) increases by $30,000; Owner’s Equity (Jim Smith, Capital) increases by $30,000.
Aug 29, 2021 | Uncategorized
PE 1-7A Statement of cash flows
A summary of cash flows for Dynasty Travel Service for the year ended June 30, 2012, is shown below.
|
Cash receipts:
|
|
|
Cash received from customers
|
$920,000
|
|
Cash received from additional investment of
|
60,000
|
|
owner
|
|
|
Cash payments:
|
|
|
Cash paid for operating expenses
|
710,000
|
|
Cash paid for land
|
208,000
|
|
Cash paid to owner for personal use
|
36,000
|
The cash balance as of July 1, 2011, was $130,000.
Prepare a statement of cash flows for Dynasty Travel Service for the year ended June 30, 2012.
Aug 29, 2021 | Uncategorized
PE 1-7B Statement of cash flows
A summary of cash flows for Escape Travel Service for the year ended November 30,
2012, is shown below.
|
Cash receipts:
|
|
Cash received from customers
|
$875,000
|
|
Cash received from additional investment of owner
|
45,000
|
|
Cash payments:
|
|
|
Cash paid for operating expenses
|
912,500
|
|
Cash paid for land
|
67,500
|
|
Cash paid to owner for personal use
|
25,000
|
The cash balance as of December 1, 2011, was $141,750.
Prepare a statement of cash flows for Escape Travel Service for the year ended November 30, 2012.
Aug 29, 2021 | Uncategorized
Issuing stock and preparing the stockholders’ equity section of the balance sheet
The charter for KCAS-TV, Inc., authorizes the company to issue 100,000 shares of $4, no-par preferred stock and 500,000 shares of common stock with $1 par value. During its start-up phase, KCAS completed the following transactions:
|
Sep 6
|
Issued 275 shares of common stock to the promoters who organized the corporation, receiving cash of $8,250.
|
|
12
|
Issued 400 shares of preferred stock for cash of $20,000.
|
|
14
|
Issued 1,600 shares of common stock in exchange for land valued at $18,000.
|
|
30
|
Closed net income of $32,000 into Retained earnings.
|
Requirements
1.Record the transactions in the general journal.
2.Prepare the stockholders’ equity section of the KCAS-TV balance sheet at September 30, 2012.
Aug 29, 2021 | Uncategorized
Stockholders’ equity section of the balance sheet
The charter of Evergreen Capital Corporation authorizes the issuance of 900 shares of preferred stock and 1,250 shares of common stock. During a twomonth period, Evergreen completed these stock-issuance transactions:
|
Mar 23
|
Issued 230 shares of $4 par common stock for cash of $15 per share.
|
|
Apr 12
|
Received inventory valued at $23,000 and equipment with a market value $20,000 for 320 shares of the $4 par common stock.
|
|
17
|
Issued 900 shares of 5%, $20 par preferred stock for $20 per share.
|
Requirements
1.Record the transactions in the general journal.
2.Prepare the stockholders’ equity section of the Evergreen balance sheet for the transactions given in this exercise. Retained earnings has a balance of $79,000.
Aug 29, 2021 | Uncategorized
Calculating retained earnings
Oulette Publishing Company has the following selected account balances at June 30, 2012.
|
Inventory
|
$ 112,000
|
Common stock, no par with $0.50
|
|
|
Machinery and equipment
|
108,000
|
stated value, 900 shares
|
|
|
Dividends
|
8,000
|
authorized and issued
|
$ 450
|
|
Depreciation expense
|
9,000
|
Accumulated depreciation
|
61,000
|
|
Rent expense
|
19,000
|
Salary expense
|
85,000
|
|
Utilities expense
|
5,000
|
Retained earnings, June 30, 2011
|
114,000
|
|
Cost of goods sold
|
81,000
|
Sales revenue
|
240,000
|
Requirements
1.Journalize all required closing entries for the year.
2.Calculate the balance in Retained earnings at June 30, 2012. Use a T-account to show your calculations.
Aug 29, 2021 | Uncategorized
Dividing dividends between preferred and common stock
|
NORTHERN COMMUNICATIONS Stockholders’ Equity
|
|
Paid-in Capital:
|
|
|
Preferred stock, 6%, $11 par, 150,000 shares authorized
|
|
|
20,000 shares issued and outstanding
|
$ 220,000
|
|
Common stock, $3 par, 575,000 shares authorized
|
|
|
400,000 shares issued and outstanding
|
1,200,000
|
|
Paid-in capital in excess of par—common
|
1,000,000
|
|
Total paid-in capital
|
2,420,000
|
|
Retained earnings
|
190,000
|
|
Total stockholders’ equity
|
$2,610,000
|
Requirements
1.First, determine whether preferred stock is cumulative or noncumulative.
2.Compute the amount of dividends to preferred and to common for 2011 and 2012 if total dividends are $12,200 in 2011 and $55,000 in 2012.
3.What is the average price at which each preferred share sold for? What is the average price at which each common share sold for?
Aug 29, 2021 | Uncategorized
Book value per share of common stock
The balance sheet of Mark Todd Wireless, Inc., reported the following:
|
Preferred stock, 9%, $20 par, 1,300 shares authorized, issued and outstanding
|
$ 26,000
|
|
Common stock, no-par value, 12,000 shares authorized, 5,300 shares issued
|
200,000
|
|
Retained earnings
|
50,000
|
|
Total stockholders’ equity
|
$ 276,000
|
Assume that Todd has paid preferred dividends for the current year and all prior years (no dividends in arrears).
Requirement
1.Compute the book value per share of the common stock.
Aug 29, 2021 | Uncategorized
Book value per share of common stock, and preferred dividends in arrears
The balance sheet of Moe Taylor, Inc., reported the following:
|
Preferred stock, 7%, $30 par, 1,000 shares authorized, and outstandingissued
|
$ 30,000
|
|
Common stock, no-par value, 11,000 shares authorized, 5,600 shares issued
|
226,000
|
|
Retained earnings
|
80,000
|
|
Total stockholders’ equity
|
$ 336,000
|
Requirement
1.Compute the book value per share of Taylor’s preferred and common stock if three years’ preferred dividends (including dividends for the current year) are in arrears.
Aug 29, 2021 | Uncategorized
Evaluating profitability
|
2012
|
2011
|
|
Income Statement—partial:
|
|
|
|
Interest expense
|
12,400,000
|
17,400,000
|
|
Net Income
|
17,900,000
|
19,100,000
|
|
2012
|
2011
|
|
Balance Sheet—partial:
|
|
|
|
Total assets
|
$ 328,000,000
|
$ 318,000,000
|
|
Preferred stock, $2, no-par, 150,000 shares authorized, issued and outstanding
|
$ 2,400,000
|
$ 2,400,000
|
|
Common stockholders’ equity
|
178,000,000
|
171,000,000
|
|
Retained earnings
|
4,000,000
|
3,000,000
|
|
Total stockholders’ equity
|
$ 184,400,000
|
$ 176,400,000
|
Requirements
1.Compute rate of return on total assets and rate of return on common stockholders’ equity for 2012.
2.Do these rates of return suggest strength or weakness? Give your reason.
Aug 29, 2021 | Uncategorized
Organizing a corporation and issuing stock
Jay and Mike are opening a paint store. There are no competing paint stores in the area. Their fundamental decision is how to organize the business. They anticipate profits of $300,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
1.What is the main advantage they gain by selecting a corporate form of business now?
2.Would you recommend they initially issue preferred or common stock? Why?
3.If they decide to issue $2 par common stock and anticipate an initial market price of $30 per share, how many shares will they need to issue to raise $1,800,000?
Aug 29, 2021 | Uncategorized
Sources of equity, stock issuance, and dividends
Terrific Comfort Specialists, Inc., reported the following stockholders’ equity on its
balance sheet at June 30, 2012:
|
TERRIFIC COMFORT SPECIALISTS, INC. Stockholders’ Equity June 30, 2012
|
|
Paid-in Capital:
|
|
|
Preferred stock, 5%, ? par, 650,000 shares authorized, 280,000 shares issued
|
$ 1,400,000
|
|
Common stock, par value $1 per share, 5,000,000 shares authorized, 1,350,000 shares issued and outstanding
|
1,350,000
|
|
Paid in capital in excess of par—common
|
2,400,000
|
|
Total paid-in capital
|
5,150,000
|
|
Retained earnings
|
12,300,000
|
|
Total stockholders’ equity
|
$ 17,450,000
|
Requirements
1.Identify the different issues of stock that Terrific has outstanding.
2.What is the par value per share of Terrific’s preferred stock?
3.Make two summary journal entries to record issuance of all the Terrific stock for cash. Explanations are not required.
4.No preferred dividends are in arrears. Journalize the declaration of a $600,000 dividend at June 30, 2012. Use separate Dividends payable accounts for preferred and common. An explanation is not required.
Aug 29, 2021 | Uncategorized
Analyzing the stockholders’ equity section of the balance sheet
The balance sheet of Buzzcraft, Inc., reported the following:
|
Preferred stock, $7 par, 5%,
|
|
|
1,000 shares authorized and issued
|
$ 7,000
|
|
Common stock, $1.50 par value, 43,000 shares authorized; 11,000 shares issued
|
16,500
|
|
Paid-in capital in excess of par—common
|
224,000
|
|
Total paid-in capital
|
247,500
|
|
Retained earnings
|
80,000
|
|
Total stockholders’ equity
|
$ 327,500
|
Preferred dividends are in arrears for two years, including the current year. On the balance sheet date, the market value of the Buzzcraft common stock was $28 per share.
Requirements
1.Is the preferred stock cumulative or noncumulative? How can you tell?
2.What is the total paid-in capital of the company?
3.What was the total market value of the common stock?
4.Compute the book value per share of the common stock.
Aug 29, 2021 | Uncategorized
Journalizing corporate transactions and preparing the stockholders’ equity section of the balance sheet
B-Mobile Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes B-Mobile to issue 70,000 shares of 5%, $100-par preferred stock, and 110,000 shares of no-par common stock. B-Mobile completed the following transactions:
|
Oct 2
|
Issued 19,000 shares of common stock for equipment with a market value
of $110,000.
|
|
6
|
Issued 800 shares of preferred stock to acquire a patent with a market
value of $80,000.
|
|
9
|
Issued 15,000 shares of common stock for cash of $90,000.
|
Requirements
1.Record the transactions in the general journal.
2.Prepare the stockholders’ equity section of the B-Mobile balance sheet at October 31. The ending balance of Retained earnings is $92,000.
Aug 29, 2021 | Uncategorized
Organizing a corporation and issuing stock
Ben and Eric are opening a comic book store. There are no competing comic book stores in the area. Their fundamental decision is how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be
best for the long term. They seek your advice.
Requirements
1. What is the main advantage they gain by selecting a corporate form of business now?
2. Would you recommend they initially issue preferred or common stock? Why?
3. If they decide to issue $1 par common stock and anticipate an initial market price of $80 per share, how many shares will they need to issue to raise $4,000,000?
Aug 29, 2021 | Uncategorized
Journalizing corporate transactions and preparing the stockholders’ equity section of the balance sheet
Cell Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia authorizes Cell to issue 40,000 shares of 10%, $50 par preferred stock and 100,000 shares of no-par common stock. Cell completed the following transactions:
|
Jan 2
|
Issued 21,000 shares of common stock for equipment with a market value of $140,000.
|
|
6
|
Issued 600 shares of preferred stock to acquire a patent with a market value of $30,000.
|
|
9
|
Issued 11,000 shares of common stock for cash of $66,000.
|
Requirements
1. Record the transactions in the general journal.
2. Prepare the stockholders’ equity section of the Cell balance sheet at January 31.
The ending balance of Retained earnings is $93,000.
Aug 29, 2021 | Uncategorized
Stockholders’ equity section of the balance sheet
The following summaries for Maryland Service, Inc., and Grapone, Co., provide the information needed to prepare the stockholders’ equity section of each company’s balance sheet. The two companies are independent.
Maryland Service, Inc.: Maryland is authorized to issue 44,000 shares of $1 par common stock. All the stock was issued at $11 per share. The company incurred net losses of $47,000 in 2009 and $15,000 in 2010. It earned net income of $32,000 in 2011 and $178,000 in 2012. The company declared no dividends during the four-year period.
Grapone, Co.: Grapone’s charter authorizes the issuance of 70,000 shares of 5%, $14 par preferred stock and 470,000 shares of no-par common stock. Grapone issued 1,400 shares of the preferred stock at $14 per share. It issued 130,000 shares of the common stock for $260,000. The company’s retained earnings balance at the beginning of 2012 was $60,000. Net income for 2012 was $98,000, and the company declared the specified preferred dividend for 2012. Preferred dividends for 2011 were in arrears.
Requirement
1. For each company, prepare the stockholders’ equity section of its balance sheet at December 31, 2012. Show the computation of all amounts. Entries are not required.
Aug 29, 2021 | Uncategorized
Computing and recording a corporation’s income tax
The accounting records of Reflection Glass Corporation provide income statement data for 2012.
|
Total revenue
|
$ 910,000
|
|
Total expenses
|
670,000
|
|
Income before tax
|
$ 240,000
|
Total expenses include depreciation of $54,000 computed on the straight-line method. In calculating taxable income on the tax return, Reflection Glass uses the modified accelerated cost recovery system (MACRS). MACRS depreciation was $75,000 for 2012. The corporate income tax rate is 36%. Requirements
1. Compute taxable income for the year. For this computation, substitute MACRS depreciation in place of straight-line depreciation.
2. Journalize the corporation’s income tax for 2012.
3. Show how to report the two income tax liabilities on Reflection’s classified balance sheet.
Aug 29, 2021 | Uncategorized
Sources of equity, journalizing stock issuance, and calculating book value per share
This problem continues the Draper Consulting, Inc., situation from Problem 11-34 of Chapter 11. After issuing the bonds in Chapter 11, Draper decides to raise additional capital for the planned business expansion by issuing 20,000 additional no par common shares for $40,000 and by issuing 3,000, 6%, $80 par preferred shares at $100 per share.
Requirements
1. Assuming total stockholders’ equity is $18,165 and includes 100 shares of common stock and 0 shares of preferred stock issued and outstanding immediately before the previously described transactions, journalize the entry related to the issuances of both common and preferred shares.
2. Calculate book value per preferred and book value per common share after the issuance.
Aug 29, 2021 | Uncategorized
Decision Case 12-1 Lena Kay and Kathy Lauder have a patent on a new line of cosmetics. They need additional capital to market the products, and they plan to incorporate the business. They are considering the capital structure for the corporation. Their primary goal is to raise as much capital as possible without giving up control of the business. Kay and Lauder plan to invest the patent (an intangible asset, which will be transferred to the company’s ownership in lieu of cash) in the company and receive 100,000 shares of the corporation’s common stock. They have been offered $100,000 for the patent, which provides an indication of the “fair value” of the patent.
The corporation’s plans for a charter include an authorization to issue 5,000 shares of preferred stock and 500,000 shares of $1 par common stock. Kay and Lauder are uncertain about the most desirable features for the preferred stock. Prior to incorporating, they are discussing their plans with two investment groups. The corporation can obtain capital from outside investors under either of the following plans:
? Plan 1. Group 1 will invest $150,000 to acquire 1,500 shares of 6%, $100 par nonvoting, noncumulative preferred stock.
? Plan 2. Group 2 will invest $100,000 to acquire 1,000 shares of $5, no-par preferred stock and $70,000 to acquire 70,000 shares of common stock. Each preferred share receives 50 votes on matters that come before the stockholders.
Requirements
Assume that the corporation has been chartered (approved) by the state.
1. Journalize the issuance of common stock to Kay and Lauder. Explanations are not required.
2. Journalize the issuance of stock to the outsiders under both plans. Explanations are not required.
3. Net income for the first year is $180,000 and total dividends are $30,000. Prepare the stockholders’ equity section of the corporation’s balance sheet under both plans.
4. Recommend one of the plans to Kay and Lauder. Give your reasons.
Aug 29, 2021 | Uncategorized
The Amazon.com financial statements appear in Appendix A at the end of this book. Answer the following questions about Amazon’s stock. The Accumulated Deficit account is Retained earnings with a negative (debit) balance.
Requirements
1. How much of Amazon’s preferred stock was outstanding at December 31, 2009? How can you tell?
2. Examine Amazon’s balance sheet. Which stockholders’ equity account increased the most during 2009? What caused this increase? The Consolidated Statements of Stockholders’ Equity helps to answer this question.
3. Use par value and the number of shares to show how to compute the balances in Amazon’s Common stock account at the end of both 2009 and 2008, as shown in the balance sheet.
4. Would it be meaningful to compute Amazon’s return on equity? Explain your answer.
Aug 29, 2021 | Uncategorized
Competitive pressures are the norm in business. Lexus automobiles (made in Japan) have cut into the sales of Mercedes Benz (a German company), General Motors’ Cadillac Division, and Ford’s Lincoln Division. Dell, Gateway (now owned by Acer, Inc.), and Compaq computers (now owned by Hewlett-Packard) have siphoned business away from IBM. Foreign steelmakers have reduced the once-massive U.S. steel industry to a fraction of its former size. Indeed, corporate downsizing has occurred on a massive scale. During the past few years, companies mentioned here have pared down their plant and equipment, laid off employees, or restructured operations.
Requirements
1. Identify all the stakeholders of a corporation and the stake each group has in the company. A stakeholder is a person or a group who has an interest (that is, a stake) in the success of the organization.
2. Identify several areas of deficiency that may indicate a corporation’s need for downsizing. How can downsizing help to solve this problem? Discuss how each measure can indicate the need for downsizing.
3. Debate the downsizing issue. One group of students takes the perspective of the company and its stockholders, and another group of students takes the perspective of other stakeholders of the company.
Aug 29, 2021 | Uncategorized
Preparing a combined statement of income and retained earnings
During 2012, St. Bernard, Corp., earned income from continuing operations of $139,000. The company also sold a segment of the business (discontinued operations) at a loss of $37,000 and had an extraordinary gain of $11,000. At year-end, St. Bernard had an unrealized loss on investments of $5,000.
Requirements
1.Compute St. Bernard’s net income and comprehensive income for 2012. All amounts are net of income taxes.
2.What final EPS figure should St. Bernard report for 2012? What is the correct title of this calculation? What is the amount of this calculation? St. Bernard had 30,000 shares of common stock (and no preferred stock) outstanding.
Aug 29, 2021 | Uncategorized
Your business plan for your proposed start-up firm envisions first-year revenues of $120,000, fixed costs of $30,000, and variable costs equal to one-third of revenue.
a. What are expected profits based on these expectations?
b. What is the degree of operating leverage based on the estimate of fixed costs and expected profits?
c. If sales are 10% below expectation, what will be the decrease in profits?
d. Show that the percentage decrease in profits equals DOL times the 10% drop in sales.
e. Based on the DOL, what is the largest percentage shortfall in sales relative to original expectations that the firm can sustain before profits turn negative? What are break-even sales at this point?
f. Confirm that your answer to (e) is correct by calculating profits at the break-even level of sales. 20. The following problems appeared on past CFA examinations.
a. The supply-side view stresses that:
i. Aggregate demand is the major determinant of real output and aggregate employment.
ii. An increase in government expenditures and tax rates will cause real income to rise.
iii. Tax rates are a major determinant of real output and aggregate employment.
iv. Expansionary monetary policy will cause real output to expand without causing the rate of inflation to accelerate.
b. In macroeconomics, the crowding-out effect refers to:
i. The impact of government deficit spending on inflation.
ii. Increasing population pressures and associated movements toward zero population growth.
iii. A situation where the unemployment rate is below its natural rate.
iv. The impact of government borrowing on interest rates and private investment.
c. Based on historical data and assuming less-than-full employment, periods of sharp acceleration in the growth rate of the money supply tend to be associated initially with:
i. Periods of economic recession.
ii. An increase in the velocity of money.
iii. A rapid growth of gross domestic product.
iv. Reductions in real gross domestic product.
d. If the exchange rate value of the British pound goes from U.S.$1.80 to U.S.$1.60, then the pound has:
i. Appreciated and the British will find U.S. goods cheaper.
ii. Appreciated and the British will find U.S. goods more expensive.
iii. Depreciated and the British will find U.S. goods more expensive.
iv. Depreciated and the British will find U.S. goods cheaper.
e. The consumer price index is:
i. Ameasure of the increase in the prices of the goods that are included in the calculation of GDP.
ii. The ratio of the average price of a typical market basket of goods compared to the cost of producing those goods during the previous year.
iii. A comparison of the cost of a typical bundle of goods during a given period with the cost of the same bundle during a prior base period.
iv. Computed in the same manner as the GDP deflator.
f. Changes in which of the following are likely to affect interest rates?
I. Inflation expectations.
II. Size of the federal deficit.
III. Money supply.
i. I and II only.
ii. II and III only.
iii. I and III only.
iv. I, II, and III.
g. According to the supply-side view of fiscal policy, if the impact of tax revenues is the same, does it make any difference whether the government cuts taxes by either reducing marginal tax rates or increasing the personal exemption allowance?
i. No, both methods of cutting taxes will exert the same impact on aggregate supply.
ii. No, people in both cases will increase their saving expecting higher future taxes and thereby offset the stimulus effect of lower current taxes.
iii. Yes, the lower marginal tax rates alone will increase the incentive to earn marginal income and thereby stimulate aggregate supply.
iv. Yes, interest rates will increase if marginal tax rates are lowered, whereas they will tend to decrease if the personal exemption allowance is raised.
h. If the Federal Reserve wanted to reduce the supply of money as part of an antiinflation policy, it might:
i. Increase the reserve requirements.
ii. Buy U.S. securities on the open market.
iii. Lower the discount rate.
iv. Buy U.S. securities directly from the Treasury.
Aug 29, 2021 | Uncategorized
The market consensus is that Analog Electronic Corporation has an ROE _ 9%, has a beta of 1.25, and plans to maintain indefinitely its traditional plowback ratio of 2/3. This year’s earnings were $3 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 14%, and T-bills currently offer a 6% return.
a. Find the price at which Analog stock should sell.
b. Calculate the P/E ratio.
c. Calculate the present value of growth opportunities.
d. Suppose your research convinces you Analog will announce momentarily that it will immediately reduce its plowback ratio to 1/3. Find the intrinsic value of the stock. The market is still unaware of this decision. Explain why V0 no longer equals P0 and why V0 is greater or less than P0.
Aug 29, 2021 | Uncategorized
Imelda Emma, a financial analyst at Del Advisors, Inc. (DAI), has been asked to assess the impact that construction of Disney’s new theme parks might have on its stock. DAI uses a dividend discount valuation model that incorporates beta in the derivation of risk-adjusted required rates of return on stocks. Until now, Emma has been using a five-year earnings and dividends per share growth rate of 15% and a beta estimate of 1.00 for Disney. Taking construction of the new theme parks into account, however, she has raised her growth rate and beta estimates to 25% and 1.15, respectively. The complete set of Emma’s current assumptions is:
|
Current stock price
|
$37.75
|
|
Beta
|
1.15
|
|
Risk-free rate of return (T-bill)
|
4.0%
|
|
Required rate of return on the market
|
10.0%
|
|
Short-term growth rate (five years) for earnings and dividends
|
25.0%
|
|
Long-term growth rate (beyond five years) for earnings and dividends
|
9.3%
|
|
Dividend forecast for 1994 (per share)
|
$.287
|
a. Calculate the risk-adjusted required rate of return on Disney stock using Emma’s current beta assumption.
b. Using the results of part (a), Emma’s current assumptions, and DAI’s dividend iscount model, calculate the intrinsic, or fair, value of Disney stock at September 30, 1993.
c. After calculating the intrinsic value of Disney stock using her new assumptions and DAI’s dividend discount model, Emma finds that her recommendation for Disney should be changed from a “buy” to a “sell.” Explain how the construction of the new theme parks could have a negative impact on the valuation of Disney stock, despite Emma’s assumption of sharply higher growth rates (25%).
Aug 29, 2021 | Uncategorized
Your preliminary analysis of two stocks has yielded the information set forth below. The market capitalization rate for both Stock A and Stock B is 10% per year.
|
Stock A
|
Stock B
|
|
Expected return on equity, ROE
|
14%
|
12%
|
|
Estimated earnings per share, E1
|
$ 2.00
|
$ 1.65
|
|
Estimated dividends per share, D1
|
$ 1.00
|
$ 1.00
|
|
Current market price per share, P0
|
$27.00
|
$25.00
|
a. What are the expected dividend payout ratios for the two stocks?
b. What are the expected dividend growth rates of each?
c. What is the intrinsic value of each stock?
d. In which, if either, of the two stocks would you choose to invest?
Aug 29, 2021 | Uncategorized
Phoebe Black’s investment club wants to buy the stock of either New Soft Inc. or Capital Corp. In this connection, Black prepared the following table. You have been asked to help her interpret the data, based on your forecast for a healthy economy and a strong stock market over the next 12 months.
|
New Soft Inc.
|
Capital Corp.
|
S&P 500 Index
|
|
Current price
|
$30
|
$32
|
|
|
Industry
|
Computer software
|
Capital goods
|
|
|
P/E ratio (current) P/E ratio
|
25
|
14
|
16
|
|
(5-year average)
|
27
|
16
|
16
|
|
P/B ratio (current) P/B ratio
|
10
|
3
|
3
|
|
(5-year average)
|
12
|
4
|
2
|
|
Beta
|
1.5
|
1.1
|
1.0
|
|
Dividend yield
|
.3%
|
2.7%
|
2.8%
|
a. Newsoft’s shares have higher price–earnings (P/E) and price–book value (P/B) ratios than those of Capital Corp. (The price–book ratio is the ratio of market value to book value.) Briefly discuss why the disparity in ratios may not indicate that New Soft’s shares are overvalued relative to the shares of Capital Corp. Answer the question in terms of the two ratios, and assume that there have been no extraordinary events affecting either company.
b. Using a constant-growth dividend discount model, Black estimated the value of New Soft to be $28 per share and the value of Capital Corp. to be $34 per share. Briefly discuss weaknesses of this dividend discount model and explain why this model may be less suitable for valuing NewSoft than for valuing Capital Corp.
c. Recommend and justify a more appropriate dividend discount model for valuing NewSoft’s common stock.
Aug 29, 2021 | Uncategorized
“Growth” and “value” can be defined in several ways, but “growth” usually conveys the idea of a portfolio emphasizing or including only issues believed to possess above- average future rates of per-share earnings growth. Low current yield, high price-to-book ratios, and high price-to-earnings ratios are typical characteristics of such portfolios. “Value” usually conveys the idea of portfolios emphasizing or including only issues currently showing low price-to-book ratios, low price-to-earnings ratios, above average levels of dividend yield, and market prices believed to be below the issues’ intrinsic values.
a. Identify and explain three reasons why, over an extended period of time, value stock investing might outperform growth stock investing.
b. Explain why the outcome suggested in part (a) above should not be possible in a market widely regarded as being highly efficient
Aug 29, 2021 | Uncategorized
The stock of Ngoro Corporation is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate of return per year. This situation is expected to continue indefinitely. a. Assuming the current market price of the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Ngoro’s investors require?
b. By how much does its value exceed what it would be if all earnings were paid as dividends and nothing were reinvested?
c. If Nogro were to cut its dividend payout ratio to 25%, what would happen to its stock price? What if Nogro eliminated the dividend?
Aug 29, 2021 | Uncategorized
Chipset, Inc., is an established computer chip firm with several profitable existing products as well as some promising new products in development. The company earned $1 a share last year, and just paid out a dividend of $.50 per share. Investors believe the company plans to maintain its dividend payout ratio at 50%. ROE equals 20%. Everyone in the market expects this situation to persist indefinitely.
a. What is the market price of Chiptech stock? The required return for the computer chip industry is 15%, and the company has just gone ex-dividend (i.e., the next dividend will be paid a year from now, at t _ 1).
b. Suppose you discover that Chiptech’s competitor has developed a new chip that will eliminate Chiptech’s current technological advantage in this market. This new product, which will be ready to come to the market in two years, will force Chiptech to reduce the prices of its chips to remain competitive. This will decrease ROE to 15%, and, because of falling demand for its product, Chiptech will decrease the plowback ratio to .40. The plowback ratio will be decreased at the end of the second year, at t _ 2: The annual year-end dividend for the second year (paid at t _ 2) will be 60% of that year’s earnings. What is your estimate of Chiptech’s intrinsic value per share? (Hint: Carefully prepare a table of Chiptech’s earnings and dividends for each of the next three years. Pay close attention to the change in the payout ratio in t _ 2.)
c. No one else in the market perceives the threat to Chiptech’s market. In fact, you are confident that no one else will become aware of the change in Chiptech’s competitive status until the competitor firm publicly announces its discovery near the end of year 2. What will be the rate of return on Chiptech stock in the coming year (i.e., between t _ 0 and t _ 1)? In the second year (between t _ 1 and t _ 2)? The third year (between t _ 2 and t _ 3)? (Hint: Pay attention to when the market catches on to the new situation. A table of dividends and market prices over time might help.)
Aug 29, 2021 | Uncategorized
Janet Ludlow’s firm requires all its analysts to use a two-stage dividend discount model (DDM) and the Capital Asset Pricing Model (CAPM) to value stocks. Using the CAPM and DDM, Ludlow has valued QuickBrush Company at $63 per share. She now must value SmileWhite Corporation.
a. Calculate the required rate of return for SmileWhite using the information in the following table:
|
QuickBrush
|
SmileWhite
|
|
Beta
|
1.35
|
1.15
|
|
Market price
|
$45.00
|
$30.00
|
|
Intrinsic value
|
$63.00
|
?
|
|
Notes:
|
|
Risk-free rate
|
4.50%
|
|
Expected market return
|
14.50%
|
b. Ludlow estimates the following EPS and dividend growth rates for SmileWhite:
|
First three years:
|
12% per year
|
|
Years thereafter:
|
9% per year
|
Estimate the 1999 intrinsic value of SmileWhite using the table above, and the twostage DDM. Dividends per share in 1999 were $1.72.
c. Recommend QuickBrush or SmileWhite stock for purchase by comparing each company’s intrinsic value with its current market price.
d. Describe one strength of the two-stage DDM in comparison with the constantgrowth DDM. Describe one weakness inherent in all DDMs.
Aug 29, 2021 | Uncategorized
The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five years is 20% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting six years from now the firm’s ROE on new investments is expected to fall to 15%, and the company is expected to start paying out 40% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 15% per year.
a. What is your estimate of DEQS’s intrinsic value per share?
b. Assuming its current market price is equal to its intrinsic value, what do you expect to happen to its price over the next year? The year after?
c. What effect would it have on your estimate of DEQS’s intrinsic value if you expected DEQS to pay out only 20% of earnings starting in year 6?
Aug 29, 2021 | Uncategorized
The following questions are from past CFA examinations.
a. The constant-growth DDM will not produce a finite value if the dividend growth rate is:
i. Above its historical average.
ii. Above the market capitalization rate.
iii. Below its historical average.
iv. Below the market capitalization rate.
b. According to the constant-growth DDM, a fall in the market capitalization rate will cause a stock’s intrinsic value to:
i. Decrease.
ii. Increase.
iii. Remain unchanged.
iv. Decrease or increase, depending on other factors.
c. You plan to buy a common stock and hold it for one year. You expect to receive both $1.50 in dividends and $26 from the sale of stock at the end of the year. If you wanted to earn a 15% return, what is the maximum price you would pay for the stock today?
d. In the dividend discount model, a factor not affecting the discount rate, k, is the:
i. Real risk-free rate.
ii. Risk premium for stocks.
iii. Return on assets.
iv. Expected inflation rate.
e. Ashare of stock is expected to pay a dividend of $1.00 one year from now and grow at 5% thereafter. In the context of a dividend discount model, the stock is correctly priced today at $10. According to the single-stage, constant-growth DDM, if the required return is 15%, what should be the value of the stock two years from now?
f. Astock is not expected to pay dividends until three years from now. The dividend is then expected to be $2.00 per share, the dividend payout ratio is expected to be 40%, and the return on equity is expected to be 15%. If the required rate of return is 12%, what should be the value of the stock today?
g. The constant-growth DDM would typically be most appropriate in valuing the stock of a:
i. New venture expected to retain all earnings for several years.
ii. Rapidly growing company.
iii. Moderate-growth, “mature” company.
iv. Company with valuable assets not yet generating profits.
h. Astock has a required return of 15%, a constant-growth rate of 10%, and a dividend payout ratio of 45%. The stock’s price–earnings ratio should be:
i. 3.
ii. 4.5.
iii. 9.
iv. 11.
Aug 29, 2021 | Uncategorized
Suppose that the stock prices in the following three scenarios are
|
Scenario
|
S(0)
|
S(1)
|
S(2)
|
|
?1
|
100
|
110
|
120
|
|
?2
|
100
|
105
|
100
|
|
?3
|
100
|
90
|
100
|
with probabilities 1/4, 1/4, 1/2, respectively. Find the expected returns E(K(1)), E(K(2)) and E(K(0,2)). Compare 1 + E(K(0,2)) with (1 + E(K(1)))(1 + E(K(2))).
Aug 29, 2021 | Uncategorized
Suppose Value Home and Garden Imports issued 400,000 shares of $0.10 par common stock at $4 per share. Which journal entry correctly records the issuance of this stock?
|
a
|
Common stock
|
1,600,000
|
|
Cash
|
40,000
|
|
Paid-in capital in excess of par—common
|
1,560,000
|
|
|
|
|
b
|
Common stock
|
1,600,000
|
|
Cash
|
1,600,000
|
|
|
|
|
c
|
Cash
|
1,600,000
|
|
Common stock
|
40,000
|
|
Paid-in capital in excess of par—common
|
1,560,000
|
|
|
|
|
d
|
Cash
|
1,600,000
|
|
Common stock
|
1,600,000
|
Aug 29, 2021 | Uncategorized
Issuing stock and interpreting stockholders’ equity
Scifilink.com issued stock beginning in 2012 and reported the following on its balance sheet at December 31, 2012:
|
Common stock, $ 2.00 par value
|
|
|
Authorized: 6,000 shares
|
|
|
Issued: 4,000 shares
|
$ 8,000
|
|
Paid-in capital in excess of par
|
4,000
|
|
Retained earnings
|
26,500
|
Requirement
- Journalize the company’s issuance of the stock for cash.
Aug 29, 2021 | Uncategorized
Preparing the stockholders’ equity section of the balance sheet
Mountainview Corporation reported the following accounts:
|
Cost of goods sold
|
$ 60,500
|
Accounts payable
|
$ 6,500
|
|
Paid-in capital in excess of par
|
90,000
|
Retained earnings
|
18,000
|
|
Common stock, $ 3 par value,
|
|
Unearned revenue
|
5,300
|
|
60,000 shares issued
|
180,000
|
Total assets
|
?
|
|
Cash
|
22,500
|
Long-term note payable
|
7,700
|
Requirements
1.Prepare the stockholders’ equity section of Mountainview’s balance sheet.
2.What was the average selling price of each common share?
Aug 29, 2021 | Uncategorized
Closing entries
The data for Amanda’s Tax Service, Inc., for the year ended August 31, 2012, follow:
|
Cost of goods sold
|
$ 62,000
|
Sales revenue
|
$ 125,000
|
|
Dividends
|
14,000
|
Operating expenses
|
44,000
|
|
Interest revenue
|
1,800
|
Retained earnings
|
24,000
|
Requirements
1.Journalize the required closing entries for the year.
2.What is the balance in Retained earnings after the closing entries are posted?
Aug 29, 2021 | Uncategorized
Dividing cash dividends between preferred and common stock
Precious Metal Trust has the following stockholders’ equity:
|
Paid-in capital:
|
|
|
Preferred stock, 5%, $15 par, 7,000 shares authorized, 5,500 shares issued
|
$ 82,500
|
|
Common stock, $0.30 par, 1,200,000 shares authorized and issued
|
360,000
|
|
Paid-in capital in excess of par—common
|
400,000
|
|
Total paid-in capital
|
$ 842,500
|
|
Retained earnings
|
260,000
|
|
Total stockholders’ equity
|
$1,102,500
|
Requirements
1.Is Precious Metal’s preferred stock cumulative or noncumulative? How can you tell?
2.Precious Metal declares cash dividends of $25,000 for 2010. How much of the dividends goes to preferred? How much goes to common?
3.Precious Metal passed the preferred dividend in 2011 and 2012. In 2013 the company declares cash dividends of $35,000. How much of the dividend goes to preferred? How much goes to common?
Aug 29, 2021 | Uncategorized
Book value per share of common stock
Bronze Tint Trust has the following stockholders’ equity:
|
Paid-in capital:
|
|
|
Preferred stock, 5%, $10 par, 6,000 shares authorized, 4,500 shares issued
|
$ 45,000
|
|
Common stock, $0.20 par, 1,200,000 shares authorized and issued
|
240,000
|
|
Paid-in capital in excess of par—common
|
400,000
|
|
Total paid-in capital
|
$ 685,000
|
|
Retained earnings
|
255,000
|
|
Total stockholders’ equity
|
$ 940,000
|
Bronze Tint has not declared preferred dividends for five years (including the current year).
Requirement
- Compute the book value per share of Bronze Tint’s preferred and common stock.
Aug 29, 2021 | Uncategorized
Computing return on assets and return on equity
Godhi’s 2012 financial statements reported the following items—with 2011 figures given for comparison:
|
GODHI Balance Sheet
|
|
2012
|
2011
|
|
Total assets
|
$ 33,538
|
$ 29,562
|
|
Total liabilities
|
17,100
|
14,962
|
|
Total stockholders’ equity (all common)
|
16,438
|
14,600
|
|
Total liabilities and equity
|
$ 33,538
|
$ 29,562
|
|
|
|
|
GODHI Income Statement
|
|
Net sales
|
|
$ 21,960
|
|
Cost of goods sold
|
|
7,900
|
|
Gross profit
|
|
$ 14,060
|
|
Selling, administrative, and general expenses
|
8,600
|
|
Interest expense
|
|
210
|
|
All other expenses
|
|
1,360
|
|
Net income
|
|
$ 3,890
|
Requirement
1.Compute Godhi’s rate of return on total assets and rate of return on common stockholders’ equity for 2012. Do these rates of return look high or low?
Aug 29, 2021 | Uncategorized
Issuing stock
Susie Systems completed the following stock issuance transactions:
|
May 19
|
Issued 2,000 shares of $1 par common stock for cash of $9.50 per share.
|
|
Jun 3
|
Sold 300 shares of $3, no-par preferred stock for $15,000 cash.
|
|
11
|
Received equipment with market value of $78,000. Issued 3,000 shares of the $1 par common stock in exchange.
|
Requirements
1.Journalize the transactions. Explanations are not required.
2.How much paid-in capital did these transactions generate for Susie Systems?
Aug 29, 2021 | Uncategorized
PR 9-4A Details of notes receivable and related entries
Old Town Co. wholesales bathroom fixtures. During the current fiscal year, Old Town Co. received the following notes:
|
Date
|
Face Amount
|
Term
|
Interest Rate
|
|
1
|
Apr. 10
|
$45,000
|
60 days
|
4%
|
|
2
|
24 Jun
|
18,000
|
30 days
|
6
|
|
3
|
1 Jul
|
36,000
|
120 days
|
6
|
|
4
|
Oct. 31
|
36,000
|
60 days
|
9
|
|
5
|
Nov. 15
|
54,000
|
60 days
|
6
|
|
6
|
Dec. 27
|
40,500
|
30 days
|
4
|
Instructions
1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.
2. Journalize the entry to record the dishonor of Note (3) on its due date.
3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.
4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January.
Aug 29, 2021 | Uncategorized
PR 9-5A Notes receivable entries
The following data relate to notes receivable and interest for Viking Co., a cable manufacturer and supplier. (All notes are dated as of the day they are received.)
|
June 3.
|
Received a $24,000, 4%, 60-day note on account.
|
|
July 26.
|
Received a $27,000, 5%, 120-day note on account.
|
|
Aug. 2.
|
Received $24,160 on note of June 3.
|
|
Sept. 4.
|
Received a $60,000, 3%, 60-day note on account.
|
|
Nov. 3.
|
Received $60,300 on note of September 4.
|
|
5
|
Received a $36,000, 7%, 30-day note on account.
|
|
23
|
Received $27,450 on note of July 26.
|
|
30
|
Received an $18,000, 5%, 30-day note on account.
|
|
Dec. 5.
|
Received $36,210 on note of November 5.
|
|
30
|
Received $18,075 on note of November 30.
|
Instructions
Journalize entries to record the transactions.
Aug 29, 2021 | Uncategorized
PR 9-6A Sales and notes receivable transactions
The following were selected from among the transactions completed by Sorento Co. during the current year. Sorento Co. sells and installs home and business security systems.
|
Jan. 5.
|
Loaned $17,500 cash to Marc Jager, receiving a 90-day, 8% note.
|
|
Feb. 4.
|
Sold merchandise on account to Tedra & Co., $19,000. The cost of the merchandise sold was $11,000.
|
|
13.
|
Sold merchandise on account to Centennial Co., $30,000. The cost of merchandise sold was $17,600.
|
|
Mar. 6.
|
Accepted a 60-day, 6% note for $19,000 from Tedra & Co. on account.
|
|
14.
|
Accepted a 60-day, 9% note for $30,000 from Centennial Co. on account.
|
|
Apr. 5.
|
Received the interest due from Marc Jager and a new 120-day, 9% note as a renewal of the loan of January 5. (Record both the debit and the credit to the notes receivable account.)
|
|
May 5.
|
Received from Tedra & Co. the amount due on the note of March 6.
|
|
13.
|
Centennial Co. dishonored its note dated March 14.
|
|
July 12.
|
Received from Centennial Co. the amount owed on the dishonored note, plus interest for 60 days at 12% computed on the maturity value of the note.
|
|
Aug. 3.
|
Received from Marc Jager the amount due on his note of April 5.
|
|
Sept. 7.
|
Sold merchandise on account to Lock-It Co., $9,000. The cost of the merchandise sold was $5,000.
|
|
17.
|
Received from Lock-It Co. the amount of the invoice of September 7, less 1% discount.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 9-1B Entries related to uncollectible accounts
The following transactions were completed by The Spencer Gallery during the current fiscal year ended December 31:
|
Mar. 15.
|
Reinstated the account of Brad Atwell, which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,750 cash in full payment of Brad’s account.
|
|
May 20.
|
Wrote off the $15,000 balance owed by Glory Rigging Co., which is bankrupt.
|
|
Aug. 13.
|
Received 40% of the $18,000 balance owed by Coastal Co., a bankrupt business,and wrote off the remainder as uncollectible.
|
|
Sept. 2.
|
Reinstated the account of Lorie Kidd, which had been written off two years earlier as uncollectible. Recorded the receipt of $6,500 cash in full payment.
|
|
Dec. 31.
|
entry): Kimbro Co., $9,000; McHale Co., $2,500; Summit Furniture, $7,500; Wes Riggs, $2,000.
|
|
31.
|
Based on an analysis of the $1,880,000 of accounts receivable, it was estimated that $50,000 will be uncollectible. Journalized the adjusting entry.
|
Instructions
1. Record the January 1 credit balance of $38,500 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following T accounts and determine the new balances:
Allowance for Doubtful Accounts
Bad Debt Expense
3. Determine the expected net realizable value of the accounts receivable as of December 31.
4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ½ of 1% of the net sales of $9,600,000 for the year, determine the following:
a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.
Aug 29, 2021 | Uncategorized
PR 9-3B Compare two methods of accounting for uncollectible receivables
Cyber Tech Company, which operates a chain of 25 electronics supply stores, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ½% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
|
|
|
|
Year of Origin of
|
|
|
|
|
Accounts Receivable Written
|
|
|
|
|
Off as Uncollectible
|
|
|
|
Uncollectible Accounts
|
|
|
|
|
|
Year
|
Sales
|
Written Off
|
1st
|
2nd
|
3rd
|
4th
|
|
1st
|
$1,400,000
|
$ 1,300
|
1,300
|
|
|
|
|
2nd
|
2,000,000
|
3,600
|
1,500
|
$2,100
|
|
|
|
3rd
|
3,000,000
|
13,500
|
4,000
|
3,300
|
$6,200
|
|
|
4th
|
3,600,000
|
17,700
|
|
4,000
|
6,100
|
$7,600
|
: Instructions
1. Assemble the desired data, using the following column headings:
|
|
Bad Debt Expense
|
|
|
|
|
|
Increase
|
|
|
|
Expense
|
Expense
|
(Decrease)
|
Balance of
|
|
|
Actually
|
Based on
|
in Amount
|
Allowance Account,
|
|
Year
|
Reported
|
Estimate
|
of Expense
|
End of Year
|
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of ½% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.
Aug 29, 2021 | Uncategorized
PR 9-4B Details of notes receivable and related entries
Media Ads Co. produces advertising videos. During the last six months of the current fiscal year, Media Ads Co. received the following notes:
|
Date
|
Face Amount
|
Term
|
Interest Rate
|
|
1
|
Apr. 3
|
$15,000
|
60 days
|
4%
|
|
2
|
19-May
|
57,600
|
45 days
|
6
|
|
3
|
Aug. 7
|
50,000
|
90 days
|
5
|
|
4
|
Sept. 4
|
20,000
|
90 days
|
6
|
|
5
|
Nov. 21
|
27,000
|
60 days
|
8
|
|
6
|
Dec. 16
|
21,600
|
60 days
|
6
|
Instructions
1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.
2. Journalize the entry to record the dishonor of Note (3) on its due date.
3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.
4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February.
Aug 29, 2021 | Uncategorized
PR 9-5B Notes receivable entries
The following data relate to notes receivable and interest for El Rayo Co., a financial services company. (All notes are dated as of the day they are received.)
|
Mar. 1.
|
Received a $90,000, 6%, 60-day note on account.
|
|
25.
|
Received a $10,000, 4%, 90-day note on account.
|
|
Apr. 30.
|
Received $90,900 on note of March 1.
|
|
May 16.
|
Received a $36,000, 7%, 90-day note on account.
|
|
31.
|
Received a $25,000, 6%, 30-day note on account.
|
|
June 23.
|
Received $10,100 on note of March 25.
|
|
30.
|
Received $25,125 on note of May 31.
|
|
July 1.
|
Received a $28,000, 9%, 30-day note on account.
|
|
31.
|
Received $28,210 on note of July 1.
|
|
Aug. 14.
|
Received $36,630 on note of May 16.
|
Instructions
Journalize the entries to record the transactions.
Aug 29, 2021 | Uncategorized
PR 9-6B Sales and notes receivable transactions
The following were selected from among the transactions completed during the current year by Indigo Co., an appliance wholesale company:
|
Jan. 13.
|
Sold merchandise on account to Boylan Co., $32,000. The cost of merchandise sold was $19,200.
|
|
Mar. 10.
|
Accepted a 60-day, 6% note for $32,000 from Boylan Co. on account.
|
|
May 9.
|
Received from Boylan Co. the amount due on the note of March 10.
|
|
June 10.
|
Sold merchandise on account to Holen for $18,000. The cost of merchandise sold was $10,000.
|
|
15.
|
Loaned $24,000 cash to Angie Jones, receiving a 30-day, 7% note.
|
|
20.
|
Received from Holen the amount due on the invoice of June 10, less 2% discount.
|
|
July 15.
|
renewal of the loan of June 15. (Record both the debit and the credit to the notes receivable account.)
|
|
Sept. 13.
|
Received from Angie Jones the amount due on her note of July 15. Sold merchandise on account to Aztec Co., $40,000. The cost of merchandise sold was $25,000.
|
|
Oct. 12.
|
Accepted a 60-day, 6% note for $40,000 from Aztec Co. on account.
|
|
Dec. 11.
|
Aztec Co. dishonored the note dated October 12.
|
|
26.
|
Received from Aztec Co. the amount owed on the dishonored note, plus interest for 15 days at 12% computed on the maturity value of the note.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
CP 9-2 Estimate uncollectible accounts
For several years, Dolphin Co.’s sales have been on a “cash only” basis. On January 1, 2009, however, Dolphin Co. began offering credit on terms of n/30. The amount of the adjusting entry to record the estimated uncollectible receivables at the end of each year has been ¼ of 1% of credit sales, which is the rate reported as the average for the industry. Credit sales and the year-end credit balances in Allowance for Doubtful Accounts for the past four years are as follows:
|
|
|
Allowance for
|
|
Year
|
Credit Sales
|
Doubtful Accounts
|
|
2009
|
$3,000,000
|
$3,200
|
|
2010
|
3,150,000
|
5,500
|
|
2011
|
3,400,000
|
8,000
|
|
2012
|
3,800,000
|
10,300
|
Hugh Lopez, president of Dolphin Co., is concerned that the method used to account for and write off uncollectible receivables is unsatisfactory. He has asked for your advice in the analysis of past operations in this area and for recommendations for change.
1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and (b) the accounts written off for each of the four years.
2. a. Advise Hugh Lopez as to whether the estimate of ¼ of 1% of credit sales appears reasonable.
b. Assume that after discussing (a) with Hugh Lopez, he asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December 31, 2012, and what possible changes, if any, you might recommend in accounting for uncollectible receivables. How would you respond?
Aug 29, 2021 | Uncategorized
CP 9-3 Accounts receivable turnover and days’ sales in receivables
Best Buy is a specialty retailer of consumer electronics, including personal computers, entertainment software, and appliances. Best Buy operates retail stores in addition to the Best Buy, Media Play, On Cue, and Magnolia Hi-Fi Web sites. For two recent years, Best Buy reported the following (in millions):
|
|
Year Ending
|
|
Feb. 28, 2009
|
Mar. 1, 2008
|
|
Net sales
|
$45,015
|
$40,023
|
|
Accounts receivable at end of year
|
1,868
|
549
|
Assume that the accounts receivable (in millions) were $548 at the beginning of fiscal year 2008.
1. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimal place.
2. Compute the days’ sales in receivables at the end of 2009 and 2008. Round to one decimal place.
3. What conclusions can be drawn from (1) and (2) regarding Best Buy’s efficiency in collecting receivables?
4. What assumption did we make about sales for the Best Buy ratio computations that might distort the ratios and therefore cause the ratios not to be comparable for 2009 and 2008?
Aug 29, 2021 | Uncategorized
CP 9-4 Accounts receivable turnover and days’ sales in receivables
Apple Computer, Inc., designs, manufactures, and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer, and business customers. Substantially all of the company’s net sales over the last five years are from sales of its Macs, iPods, iPads, and related software and peripherals. For two recent fiscal years, Apple reported the following (in millions):
|
|
Year Ending
|
|
Sept. 26, 2009
|
Sept. 27, 2008
|
|
Net sales
|
$36,537
|
$32,479
|
|
Accounts receivable at end of year
|
3,361
|
2,422
|
Assume that the accounts receivable (in millions) were $1,637 at the beginning of fiscal year 2008.
1. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimal place.
2. Compute the days’ sales in receivables at the end of 2009 and 2008. Round to one decimal place.
3. What conclusions can be drawn from (1) and (2) regarding Apple’s efficiency in collecting receivables?
Aug 29, 2021 | Uncategorized
CP 9-5 Accounts receivable turnover and days’ sales in receivables
EarthLink, Inc., is a nationwide Internet Service Provider (ISP). EarthLink provides a variety of services to its customers, including narrowband access, broadband or high-speed access, and Web hosting services. For two recent years, EarthLink reported the following (in thousands):
|
|
Year Ending
|
|
Dec. 31, 2009
|
Dec. 31, 2008
|
|
Net sales
|
$723,729
|
$955,577
|
|
Accounts receivable at end of year
|
66,623
|
50,823
|
Assume that the accounts receivable (in thousands) were $41,483 at January 1, 2008.
1. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimalplace.
2. Compute the days’ sales in receivables at the end of 2009 and 2008. Round to onedecimal place.
3. What conclusions can be drawn from (1) and (2) regarding EarthLink’s efficiency in collecting receivables?
4. Given the nature of EarthLink’s operations, do you believe EarthLink’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company, such as Boeing or Kellogg Company? Explain.
Aug 29, 2021 | Uncategorized
CP 9-6 Accounts receivable turnover
The accounts receivable turnover ratio will vary across companies, depending on the nature of the company’s operations. For example, an accounts receivable turnover of 6 for an Internet Service Provider is unacceptable but might be excellent for a manufacturer of specialty milling equipment. A list of well-known companies follows.
|
Alcoa Inc.
|
The Coca-Cola Company
|
Kroger
|
|
|
AutoZone, Inc.
|
Delta Air Lines
|
Procter & Gamble
|
|
Barnes & Noble, Inc.
|
The Home Depot
|
Wal-Mart
|
|
|
Caterpillar
|
IBM
|
Whirlpool Corporation
|
1. Categorize each of the preceding companies as to whether its turnover ratio is likely to be above or below 15.
2. Based on (1), identify a characteristic of companies with accounts receivable turnover ratios above 15.
Aug 29, 2021 | Uncategorized
PE 10-9A Fixed asset turnover ratio
Financial statement data for years ending December 31 for Winnett Company are shown below.
|
2012
|
2011
|
|
Net sales
|
$3,572,000
|
$3,526,000
|
|
Fixed assets:
|
|
|
|
Beginning of year
|
900,000
|
820,000
|
|
End of year
|
980,000
|
900,000
|
a. Determine the fixed asset turnover ratio for 2012 and 2011.
b. Does the change in the fixed asset turnover ratio from 2011 to 2012 indicate a favorable or an unfavorable trend?
Aug 29, 2021 | Uncategorized
PE 10-9B Fixed asset turnover ratio
Financial statement data for years ending December 31 for Fallon Company are shown below.
|
2012
|
2011
|
|
Net sales
|
$740,000
|
$520,000
|
|
Fixed assets:
|
|
|
|
Beginning of year
|
425,000
|
375,000
|
|
End of year
|
500,000
|
425,000
|
a. Determine the fixed asset turnover ratio for 2012 and 2011.
b. Does the change in the fixed asset turnover ratio from 2011 to 2012 indicate a favorable or an unfavorable trend?
Aug 29, 2021 | Uncategorized
EX 10-1 Costs of acquiring fixed assets
Les Bancroft owns and operates Crown Print Co. During January, Crown Print Co. incurred the following costs in acquiring two printing presses. One printing press was new, and the other was used by a business that recently filed for bankruptcy.
Costs related to new printing press:
1. Sales tax on purchase price
2. Insurance while in transit
3. Freight
4. Special foundation
5. Fee paid to factory representative for installation
6. New parts to replace those damaged in unloading
Costs related to used printing press:
7. Fees paid to attorney to review purchase agreement
8. Freight
9. Installation
10. Replacement of worn-out parts
11. Repair of damage incurred in reconditioning the press
12. Repair of vandalism during installation
a. Indicate which costs incurred in acquiring the new printing press should be debited to the asset account.
b. Indicate which costs incurred in acquiring the used printing press should be debited to the asset account.
Aug 29, 2021 | Uncategorized
EX 10-4 Capital and revenue expenditures
Emerald Lines Co. incurred the following costs related to trucks and vans used in operating its delivery service:
1. Installed security systems on four of the newer trucks.
2. Rebuilt the transmission on one of the vans that had been driven 40,000 miles. The van was no longer under warranty.
3. Installed a hydraulic lift to a van.
4. Replaced a truck’s suspension system with a new suspension system that allows for
the delivery of heavier loads.
5. Removed a two-way radio from one of the trucks and installed a new radio with a greater range of communication.
6. Repaired a flat tire on one of the vans.
7. Changed the radiator fluid on a truck that had been in service for the past four years.
8. Tinted the back and side windows of one of the vans to discourage theft of contents.
9. Changed the oil and greased the joints of all the trucks and vans.
10. Overhauled the engine on one of the trucks purchased three years ago.
Classify each of the costs as a capital expenditure or a revenue expenditure.
Aug 29, 2021 | Uncategorized
EX 10-5 Capital and revenue expenditures
Aubrey Seagars owns and operates Diamond Transport Co. During the past year, Aubrey incurred the following costs related to an 18-wheel truck:
1. Installed a television in the sleeping compartment of the truck.
2. Replaced the old radar detector with a newer model that is fastened to the truck with a locking device that prevents its removal.
3. Installed a wind deflector on top of the cab to increase fuel mileage.
4. Modified the factory-installed turbo charger with a special-order kit designed to add 50 more horsepower to the engine performance.
5. Replaced a headlight that had burned out.
6. Replaced the hydraulic brake system that had begun to fail during his latest trip through the Rocky Mountains.
7. Changed engine oil.
8. Replaced a shock absorber that had worn out.
9. Replaced fog and cab light bulbs.
10. Removed the old CB radio and replaced it with a newer model with a greater range.
Classify each of the costs as a capital expenditure or a revenue expenditure.
Aug 29, 2021 | Uncategorized
Here are four industries and four forecasts for the macro economy. Match the industry to the scenario in which it is likely to be the best performer.
|
Industry
|
Economic Forecast
|
|
a. Housing construction
|
(i.) Deep recession: falling inflation,
|
|
b. Health care
|
rates, and GDP
|
|
c. Gold mining
|
(ii.) Superheated economy: rapidly
|
|
d. Steel production
|
increasing inflation and interest
|
|
(iii.) Healthy expansion: rising GDP,
|
|
inflation, low unemployment
|
|
(iv.) Stagflation: falling GDP, high
|
Aug 29, 2021 | Uncategorized
Universal Auto is a large multinational corporation headquartered in the United States. For segment reporting purposes, the company is engaged in two businesses: production of motor vehicles and information processing services. The motor vehicle business is by far the larger of Universal’s two segments. It consists mainly of domestic U.S. passenger car production, but it also includes small truck manufacturing operations in the United States and passenger car production in other countries. This segment of Universal has had weak operating results for the past several years, including a large loss in 1996. Although the company does not reveal the operating results of its domestic assenger car segments, that part of Universal’s business is generally believed to be primarily responsible for the weak performance of its motor vehicle segment. Idata, the information processing services segment of Universal, was started by Universal about 15 years ago. This business has shown strong, steady growth that has been entirely internal; no acquisitions have been made. An excerpt from a research report on Universal prepared by Paul Adams, a CFA candidate, states: “Based on our assumption that Universal will he able to increase prices significantly on U.S. passenger cars in 1997, we project a multibillion dollar profit improvement.”
a. Discuss the concept of an industrial life cycle by describing each of its four phases.
b. Identify where each of Universal’s two primary businesses—passenger cars and information processing—is in such a cycle.
c. Discuss how product pricing should differ between Universal’s two businesses, based on the location of each in the industrial life cycle.
Aug 29, 2021 | Uncategorized
EX 9-2 Nature of uncollectible accounts
The MGM Mirage owns and operates casinos including the MGM Grand and the Bellagio in Las Vegas, Nevada. As of December 31, 2009, The MGM Mirage reported accounts and notes receivable of $465,580,000 and allowance for doubtful accounts of $97,106,000. Johnson & Johnson manufactures and sells a wide range of health care products including Band-Aids and Tylenol. As of December 31, 2009, Johnson & Johnson reported accounts receivable of $9,979,000,000 and allowance for doubtful accounts of $333,000,000.
a. Compute the percentage of the allowance for doubtful accounts to the accounts and notes receivable as of December 31, 2009, for The MGM Mirage. Round to one decimal place.
b. Compute the percentage of the allowance for doubtful accounts to the accounts receivable as of December 31, 2009, for Johnson & Johnson. Round to one decimal place.
c. Discuss possible reasons for the difference in the two ratios computed in (a) and (b).
Aug 29, 2021 | Uncategorized
EX 9-3 Entries for uncollectible accounts, using direct write-off method
Journalize the following transactions in the accounts of Cecena Medical Co., a medical equipment company that uses the direct write-off method of accounting for uncollectible receivables:
|
Feb. 13.
|
Sold merchandise on account to Dr. Ben Katz, $120,000. The cost of the merchandise sold was $72,000.
|
|
May 4.
|
Received $90,000 from Dr. Ben Katz and wrote off the remainder owed on the sale of February 13 as uncollectible.
|
|
Nov. 19.
|
Reinstated the account of Dr. Ben Katz that had been written off on May 4 and received $30,000 cash in full payment.
|
Aug 29, 2021 | Uncategorized
EX 9-4 Entries for uncollectible receivables, using allowance method
Journalize the following transactions in the accounts of Metromark Company, a restaurant supply company that uses the allowance method of accounting for uncollectible receivables:
|
Feb. 11.
|
Sold merchandise on account to Dakota Co., $29,000. The cost of the merchandise sold was $17,400.
|
|
Apr. 15.
|
Received $7,500 from Dakota Co. and wrote off the remainder owed on the sale of February 11 as uncollectible.
|
|
Sept. 3.
|
Reinstated the account of Dakota Co. that had been written off on April 15 and received $21,500 cash in full payment.
|
Aug 29, 2021 | Uncategorized
EX 9-6 Providing for doubtful accounts
At the end of the current year, the accounts receivable account has a debit balance of $1,275,000 and net sales for the year total $16,000,000. Determine the amount of the adjusting entry to provide for doubtful accounts under each of the following assumptions:
a. The allowance account before adjustment has a debit balance of $5,000. Bad debt expense is estimated at ½ of 1% of net sales.
b. The allowance account before adjustment has a debit balance of $5,000. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $77,000.
c. The allowance account before adjustment has a credit balance of $7,500. Bad debt expense is estimated at ¼ of 1% of net sales.
d. The allowance account before adjustment has a credit balance of $7,500. An aging of the accounts in the customer ledger indicates estimated doubtful accounts of $43,500.
Aug 29, 2021 | Uncategorized
EX 9-7 Number of days past due
Honest Abe’s Auto Supply distributes new and used automobile parts to local dealers throughout the Northeast. Honest Abe’s credit terms are n/30. As of the end of business on July 31, the following accounts receivable were past due:
|
Account
|
Due Date
|
Amount
|
|
Alpha Auto
|
15-May
|
$9,000
|
|
Best Auto
|
8-Jul
|
3,000
|
|
Downtown Repair
|
18-Mar
|
7,500
|
|
Lucky’s Auto Repair
|
1-Jun
|
5,000
|
|
Pit Stop Auto
|
3-Jun
|
750
|
|
Sally’s
|
12-Apr
|
13,000
|
|
Trident Auto
|
31-May
|
1,500
|
|
Washburn Repair & Tow
|
2-Mar
|
1,500
|
Aug 29, 2021 | Uncategorized
EX 9-11 Estimating doubtful accounts
Imperial Bikes Co. is a wholesaler of motorcycle supplies. An aging of the company’s accounts receivable on December 31, 2012, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows:
|
|
Percent
|
|
Age Interval
|
Balance
|
Uncollectible
|
|
Not past due
|
$600,000
|
¼%
|
|
1–30 days past due
|
120,000
|
2
|
|
31–60 days past due
|
60,000
|
3
|
|
61–90 days past due
|
45,000
|
10
|
|
91–180 days past due
|
26,000
|
40
|
|
Over 180 days past due
|
24,000
|
75
|
|
$875,000
|
|
Estimate what the proper balance of the allowance for doubtful accounts should be as of December 31, 2012.
Aug 29, 2021 | Uncategorized
EX 9-13 Entries for bad debt expense under the direct write-off and allowance methods
The following selected transactions were taken from the records of Aprilla Company for the first year of its operations ending December 31, 2012:
|
Jan. 27.
|
Wrote off account of C. Knoll, $6,000.
|
|
Feb. 17.
|
Received $1,000 as partial payment on the $3,000 account of Joni Lester. Wrote off the remaining balance as uncollectible.
|
|
Mar. 3.
|
Received $6,000 from C. Knoll, which had been written off on January 27. Reinstated the account and recorded the cash receipt.
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (record as one journal entry):
|
|
|
|
|
|
Jason Short
|
$4,500
|
|
|
Kim Snider
|
1,500
|
|
|
Sue Pascall
|
1,100
|
|
|
Tracy Lane
|
3,500
|
|
|
Randy Pape
|
500
|
|
|
|
|
31.
|
If necessary, record the year-end adjusting entry for uncollectible accounts.
|
a. Journalize the transactions for 2012 under the direct write-off method.
b. Journalize the transactions for 2012 under the allowance method. Aprilla Company uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, 1¾% of credit sales are expected to be uncollectible. Aprilla Company recorded $1,600,000 of credit sales during 2012.
c. How much higher (lower) would Aprilla Company’s net income have been under the direct write-off method than under the allowance method?
Aug 29, 2021 | Uncategorized
EX 9-14 Entries for bad debt expense under the direct write-off and allowance methods
The following selected transactions were taken from the records of Silhouette Company for the year ending December 31, 2012:
|
Mar. 4.
|
Wrote off account of Myron Rimando, $7,500.
|
|
May 19.
|
Received $2,000 as partial payment on the $10,000 account of Shirley Mason. Wrote off the remaining balance as uncollectible.
|
|
Aug. 7.
|
Received the $7,500 from Myron Rimando, which had been written off on March 4. Reinstated the account and recorded the cash receipt.
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (record as one journal entry):
|
|
|
|
|
|
Brandon Peele
|
$ 5,000
|
|
|
Clyde Stringer
|
9,000
|
|
|
Ned Berry
|
13,000
|
|
|
Mary Adams
|
2,000
|
|
|
Gina Bowers
|
4,500
|
|
|
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (record as one journal entry):
|
a. Journalize the transactions for 2012 under the direct write-off method.
b. Journalize the transactions for 2012 under the allowance method, assuming that the allowance account had a beginning balance of $45,000 on January 1, 2012, and the company uses the analysis of receivables method. Silhouette Company prepared the following aging schedule for its accounts receivable:
|
Aging Class (Number
|
Receivables Balance
|
Estimated Percent of
|
|
of Days Past Due)
|
on December 31
|
Uncollectible Accounts
|
|
0–30 days
|
$300,000
|
1%
|
|
31–60 days
|
80,000
|
4
|
|
61–90 days
|
20,000
|
15
|
|
91–120 days
|
10,000
|
40
|
|
More than 120 days
|
40,000
|
80
|
|
Total receivables
|
$450,000
|
|
c. How much higher (lower) would Silhouette’s 2012 net income have been under the direct write-off method than under the allowance method?
Aug 29, 2021 | Uncategorized
EX 9-17 Entries for bad debt expense under the direct write-off and allowance methods
Spangler Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31, 2012:
|
Customer
|
Amount
|
|
Will Boyette
|
$10,000
|
|
Stan Frey
|
8,000
|
|
Tammy Imes
|
5,000
|
|
Shana Wagner
|
6,000
|
|
Total
|
$29,000
|
a. Journalize the write-offs for 2012 under the direct write-off method.
b. Journalize the write-offs for 2012 under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded $3,000,000 of credit sales during 2012. Based on past history and industry averages, 1½% of credit sales are expected to be uncollectible.
c. How much higher (lower) would Spangler Company’s 2012 net income have been under the direct write-off method than under the allowance method?
Aug 29, 2021 | Uncategorized
EX 9-18 Entries for bad debt expense under the direct write-off and allowance methods
Magnetics International wrote off the following accounts receivable as uncollectible for the year ending December 31, 2012:
|
Customer
|
Amount
|
|
Trey Betts
|
$15,500
|
|
Cheryl Carson
|
9,000
|
|
Irene Harris
|
29,700
|
|
Renee Putman
|
3,100
|
|
Total
|
$57,300
|
The company prepared the following aging schedule for its accounts receivable on December 31, 2012:
|
Aging Class (Number
|
Receivables Balance
|
Estimated Percent of
|
|
of Days Past Due)
|
on December 31
|
Uncollectible Accounts
|
|
0–30 days
|
$600,000
|
1%
|
|
31–60 days
|
150,000
|
2
|
|
61–90 days
|
75,000
|
18
|
|
91–120 days
|
50,000
|
30
|
|
More than 120 days
|
60,000
|
50
|
|
Total receivables
|
$935,000
|
|
a. Journalize the write-offs for 2012 under the direct write-off method.
b. Journalize the write-offs and the year-end adjusting entry for 2012 under the allowance method, assuming that the allowance account had a beginning balance of $55,000 on January 1, 2012, and the company uses the analysis of receivables method.
c. How much higher (lower) would Magnetics International’s 2012 net income have been under the allowance method than under the direct write-off method?
Aug 29, 2021 | Uncategorized
EX 9-19 Determine due date and interest on notes
Determine the due date and the amount of interest due at maturity on the following notes:
|
Date of Note
|
Face Amount
|
Interest Rate
|
Term of Note
|
|
a.
|
15-May
|
$40,000
|
6%
|
90 days
|
|
b.
|
20-Mar
|
15,000
|
4
|
60 days
|
|
c.
|
19-May
|
24,000
|
3
|
60 days
|
|
d.
|
1-Oct
|
10,500
|
8
|
60 days
|
|
e.
|
30-Aug
|
18,000
|
5
|
120 days
|
Aug 29, 2021 | Uncategorized
EX 9-21 Entries for notes receivable
The series of seven transactions recorded in the following T accounts were related to a sale to a customer on account and the receipt of the amount owed. Briefly describe each transaction.
|
|
CASH
|
|
|
|
NOTES RECEIVABLE
|
|
|
(7)
|
40,602
|
|
|
|
(5)
|
40,000
|
(6)
|
40,000
|
|
ACCOUNTS RECEIVABLE
|
|
SALES RETURNS AND ALLOWANCES
|
|
(1)
|
50,000
|
(3)
|
10,000
|
|
(3)
|
10,000
|
|
|
|
(6)
|
40,400
|
(5)
|
40,000
|
|
|
|
|
|
|
|
|
(7)
|
40,400
|
|
|
|
|
|
|
MERCHANDISE INVENTORY
|
|
COST OF MERCHANDISE SOLD
|
|
(4)
|
6,000
|
(2)
|
30,000
|
|
(2)
|
30,000
|
(4)
|
6,000
|
|
|
SALES
|
|
|
|
INTEREST REVENUE
|
|
|
|
|
(1)
|
50,000
|
|
|
|
(6)
|
400
|
|
|
|
|
|
|
|
|
(7)
|
202
|
Aug 29, 2021 | Uncategorized
EX 9-22 Entries for notes receivable, including year-end entries
The following selected transactions were completed by Zip-Up Co., a supplier of zippers for clothing:
|
2011
|
|
|
Dec. 10.
|
Received from Point Loma Clothing & Bags Co., on account, a $36,000, 90-day, 4% note dated December 10.
|
|
31
|
Recorded an adjusting entry for accrued interest on the note of December 10.
|
|
31
|
Recorded the closing entry for interest revenue.
|
|
2012
|
|
|
Mar. 9.
|
Received payment of note and interest from Point Loma Clothing & Bags Co.
|
Journalize the transactions.
Aug 29, 2021 | Uncategorized
EX 9-24 Entries for receipt and dishonor of notes receivable
Journalize the following transactions in the accounts of Jamba Co., which operates a riverboat casino:
|
Mar. 1.
|
Received an $80,000, 60-day, 6% note dated March 1 from Tomekia Co. on account.
|
|
18.
|
Received a $75,000, 60-day, 8% note dated March 18 from Mystic Co. on account.
|
|
Apr. 30.
|
The note dated March 1 from Tomekia Co. is dishonored, and the customer’s account is charged for the note, including interest.
|
|
May 17.
|
The note dated March 18 from Mystic Co. is dishonored, and the customer’s account is charged for the note, including interest.
|
|
July 29.
|
Cash is received for the amount due on the dishonored note dated March 1 plus interest for 90 days at 8% on the total amount debited to Tomekia Co. on April 30.
|
|
Aug. 23.
|
Wrote off against the allowance account the amount charged to Mystic Co. on May 17 for the dishonored note dated March 18.
|
Aug 29, 2021 | Uncategorized
EX 9-25 Receivables on the balance sheet
List any errors you can find in the following partial balance sheet:
|
Tulips Company
|
|
|
|
Balance Sheet
|
|
|
|
December 31, 2012
|
|
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash
|
|
$138,000
|
|
Notes receivable
|
$400,000
|
|
|
Less interest receivable
|
20,000
|
380,000
|
|
Accounts receivable
|
$795,000
|
|
|
Plus allowance for doubtful accounts
|
14,500
|
809,500
|
Aug 29, 2021 | Uncategorized
EX 9-26 Accounts receivable turnover and days’ sales in receivables
Polo Ralph Lauren Corporation designs, markets, and distributes a variety of apparel, home decor, accessory, and fragrance products. The company’s products include such brands as Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren, Polo Jeans Co., and Chaps. Polo Ralph Lauren reported the following (in thousands):
|
|
For the Period Ending
|
|
March 29, 2009
|
March 29, 2008
|
|
Net sales
|
$5,018,900
|
$4,880,100
|
|
Accounts receivable
|
576,700
|
585,000
|
Assume that accounts receivable (in millions) were $511,900 at the beginning of the 2008 fiscal year.
a. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimal place.
b. Compute the days’ sales in receivables for 2009 and 2008. Round to one decimal place.
c. What conclusions can be drawn from these analyses regarding Ralph Lauren’s efficiency in collecting receivables?
Aug 29, 2021 | Uncategorized
EX 9-27 Accounts receivable turnover and days’ sales in receivables
H.J. Heinz Company was founded in 1869 at Sharpsburg, Pennsylvania, by Henry J. Heinz. The company manufactures and markets food products throughout the world, including ketchup, condiments and sauces, frozen food, pet food, soups, and tuna. For the fiscal years 2009 and 2008, H.J. Heinz reported the following (in thousands):
|
|
Year Ending
|
|
April 29, 2009
|
April 30, 2008
|
|
Net sales
|
$10,148,082
|
$10,070,778
|
|
Accounts receivable
|
1,171,797
|
1,161,481
|
Assume that the accounts receivable (in thousands) were $996,852 at the beginning of
fiscal year 2008.
a. Compute the accounts receivable turnover for 2009 and 2008. Round to one decimal place.
b. Compute the days’ sales in receivables at the end of 2009 and 2008. Round to one decimal place.
c. What conclusions can be drawn from these analyses regarding Heinz’s efficiency in collecting receivables?
Aug 29, 2021 | Uncategorized
EX 9-28 Accounts receivable turnover and days’ sales in receivables
The Limited Brands Inc. sells women’s clothing and personal health care products through specialty retail stores including Victoria’s Secret and Bath & Body Works stores. The Limited Brands reported the following (in millions):
|
|
For the Period Ending
|
|
Jan. 31, 2010
|
Jan. 31, 2009
|
|
Net sales
|
$8,632
|
$9,043
|
|
Accounts receivable
|
249
|
313
|
Assume that accounts receivable (in millions) were $355 at the beginning of fiscal year 2009.
a. Compute the accounts receivable turnover for 2010 and 2009. Round to one decimal place.
b. Compute the day’s sales in receivables for 2010 and 2009. Round to one decimal place.
c. What conclusions can be drawn from these analyses regarding The Limited Brands’ efficiency in collecting receivables?
Aug 29, 2021 | Uncategorized
PR 9-1A Entries related to uncollectible accounts
The following transactions were completed by Axiom Management Company during the current fiscal year ended December 31:
|
Feb. 17.
|
Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible.
|
|
Apr. 11.
|
Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account.
|
|
July 6.
|
Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets.
|
|
Nov. 20.
|
Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account.
|
|
Dec. 31.
|
Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers, 6,700.
|
|
31.
|
Based on an analysis of the $1,200,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry.
|
Instructions
1. Record the January 1 credit balance of $40,000 in a T account for Allowance for Doubtful Accounts.
2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances:
Allowance for Doubtful Accounts
Bad Debt Expense
3. Determine the expected net realizable value of the accounts receivable as of December 31.
4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ¾ of 1% of the net sales of $7,500,000 for the year, determine the following:
a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.
Aug 29, 2021 | Uncategorized
PR 9-3A Compare two methods of accounting for uncollectible receivables
Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¾% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
|
|
|
|
Year of Origin of
|
|
|
|
|
Accounts Receivable Written
|
|
|
|
|
Off as Uncollectible
|
|
|
|
Uncollectible Accounts
|
|
|
|
|
|
Year
|
Sales
|
Written off
|
1st
|
2nd
|
3rd
|
4th
|
|
1st
|
$700,000
|
$2,000
|
2,000
|
|
|
|
|
2nd
|
900,000
|
3,400
|
1,800
|
$1,600
|
|
|
|
3rd
|
1,200,000
|
6,450
|
1,000
|
3,700
|
$1,750
|
|
|
4th
|
2,000,000
|
9,200
|
|
1,260
|
3,700
|
$4,240
|
Instructions
1. Assemble the desired data, using the following column headings:
|
|
Bad Debt Expense
|
|
|
|
|
|
Increase
|
|
|
|
Expense
|
Expense
|
Decrease)
|
Balance of
|
|
|
Actually
|
Based on
|
in Amount
|
Allowance Account,
|
|
Year
|
Reported
|
Estimate
|
of Expense
|
End of Year
|
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of ¾% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.
Aug 29, 2021 | Uncategorized
EX 8-3 Internal controls
Meridian Clothing is a retail store specializing in women’s clothing. The store has established a liberal return policy for the holiday season in order to encourage gift purchases. Any item purchased during November and December may be returned through January 31, with a receipt, for cash or exchange. If the customer does not have a receipt, cash will still be refunded for any item under $50. If the item is more than $50, a check is mailed to the customer. Whenever an item is returned, a store clerk completes a return slip, which the customer signs. The return slip is placed in a special box. The store manager visits the return counter approximately once every two hours to authorize the return slips. Clerks are instructed to place the returned merchandise on the proper rack on the selling floor as soon as possible. This year, returns at Meridian Clothing have reached an all-time high. There are a large number of returns under $50 without receipts.
a. How can sales clerks employed at Meridian Clothing use the store’s return policy to steal money from the cash register?
b. What internal control weaknesses do you see in the return policy that make cash thefts easier?
c. Would issuing a store credit in place of a cash refund for all merchandise returned without a receipt reduce the possibility of theft? List some advantages and disadvantages of issuing a store credit in place of a cash refund.
d. Assume that Meridian Clothing is committed to the current policy of issuing cash refunds without a receipt. What changes could be made in the store’s procedures regarding customer refunds in order to improve internal control?
Aug 29, 2021 | Uncategorized
EX 8-4 Internal controls for bank lending
Evergreen Bank provides loans to businesses in the community through its Commercial Lending Department. Small loans (less than $250,000) may be approved by an individual loan officer, while larger loans (greater than $250,000) must be approved by a board of loan officers. Once a loan is approved, the funds are made available to the loan applicant under agreed-upon terms. The president of Evergreen Bank has instituted a policy whereby he has the individual authority to approve loans up to $10,000,000. The president believes that this policy will allow flexibility to approve loans to valued clients much quicker than under the previous policy.
As an internal auditor of Evergreen Bank, how would you respond to this change in policy?
Aug 29, 2021 | Uncategorized
EX 8-15 Internal control of cash payments
Digit Tech Company, a communications equipment manufacturer, recently fell victim to a fraud scheme developed by one of its employees. To understand the scheme, it is necessary to review Digit Tech’s procedures for the purchase of services. The purchasing agent is responsible for ordering services (such as repairs to a photocopy machine or office cleaning) after receiving a service requisition from an authorized manager. However, since no tangible goods are delivered, a receiving report is not prepared. When the Accounting Department receives an invoice billing Digit Tech for a service call, the accounts payable clerk calls the manager who requested the service in order to verify that it was performed. The fraud scheme involves Loretta Trent, the manager of plant and facilities. Loretta arranged for her uncle’s company, Laser Systems, to be placed on Digit Tech’s approved vendor list. Loretta did not disclose the family relationship. On several occasions, Loretta would submit a requisition for services to be provided by Laser Systems. However, the service requested was really not needed, and it was never performed. Laser Systems would bill Digit Tech for the service and then split the cash payment with Loretta.
Explain what changes should be made to Digit Tech’s procedures for ordering and paying for services in order to prevent such occurrences in the future.
Aug 29, 2021 | Uncategorized
EX 8-16 Bank reconciliation
Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to the company’s records, or (d) a deduction from the cash balance according to the company’s records. (None of the transactions reported by bank debit and credit memos have been recorded by the company.)
1. Bank service charges, $120.
2. Check of a customer returned by bank to company because of insufficient funds, $4,200.
3. Check for $240 incorrectly recorded by the company as $420.
4. Check for $1,000 incorrectly charged by bank as $10,000.
5. Deposit in transit, $24,950.
6. Outstanding checks, $18,100.
7. Note collected by bank, $15,600.
Aug 29, 2021 | Uncategorized
EX 8-18 Bank reconciliation
The following data were accumulated for use in reconciling the bank account of Maplewood Co. for July:
1. Cash balance according to the company’s records at July 31, $15,600.
2. Cash balance according to the bank statement at July 31, $16,230.
3. Checks outstanding, $3,180.
4. Deposit in transit, not recorded by bank, $2,950.
5. A check for $270 in payment of an account was erroneously recorded in the check register as $720.
6. Bank debit memo for service charges, $50.
a. Prepare a bank reconciliation, using the format shown in Exhibit 7.
b. If the balance sheet were prepared for Maplewood Co. on July 31, what amount should be reported for cash?
c. Must a bank reconciliation always balance (reconcile)?
Aug 29, 2021 | Uncategorized
EX 8-21 Bank reconciliation
An accounting clerk for Muskegon Co. prepared the following bank reconciliation:
|
Muskegon Co.
|
|
|
|
Bank Reconciliation
|
|
|
|
May 31, 2012
|
|
|
|
Cash balance according to company’s records
|
|
$5,110
|
|
Add: Outstanding checks
|
$2,500
|
|
|
Error by Muskegon Co. in recording Check
|
|
|
|
No. 2219 as $810 instead of $180
|
630
|
|
|
Note for $8,000 collected by bank, including interest
|
8,320
|
11,450
|
|
|
|
$16,560
|
|
Deduct: Deposit in transit on May 31
|
$5,200
|
|
|
Bank service charges
|
60
|
5,260
|
|
Cash balance according to bank statement
|
|
$11,300
|
a. From the data in the above bank reconciliation, prepare a new bank reconciliation for Muskegon Co., using the format shown in the illustrative problem.
b. If a balance sheet were prepared for Muskegon Co. on May 31, 2012, what amount should be reported for cash?
Aug 29, 2021 | Uncategorized
EX 8-22 Bank reconciliation
Identify the errors in the following bank reconciliation:
|
Alma Co.
|
|
|
|
|
Bank Reconciliation
|
|
|
|
|
For the Month Ended November 30, 2012
|
|
|
|
|
Cash balance according to bank statement
|
|
|
$12,090
|
|
Add outstanding checks:
|
|
|
|
|
No. 915
|
|
$850
|
|
|
960
|
|
615
|
|
|
964
|
|
850
|
|
|
965
|
|
775
|
3,090
|
|
|
|
|
$15,180
|
|
Deduct deposit of November 30, not recorded by bank
|
|
|
4,000
|
|
Adjusted balance
|
|
|
$11,180
|
|
Cash balance according to company’s records
|
|
|
$4,430
|
|
Add: Proceeds of note collected by bank:
|
|
|
|
|
Principal
|
$5,000
|
|
|
|
Interest
|
200
|
$5,200
|
|
|
Service charges
|
|
30
|
5,230
|
|
|
|
|
$9,660
|
|
Deduct: Check returned because of insufficient funds
|
|
$1,100
|
|
|
Error in recording November 23 deposit of $6,100 as $1,600
|
|
4,500
|
5,600
|
|
Adjusted balance
|
|
|
$4,060
|
Aug 29, 2021 | Uncategorized
EX 8-23 Using bank reconciliation to determine cash receipts stolen
Lasting Impressions Co. records all cash receipts on the basis of its cash register tapes. Lasting Impressions Co. discovered during April 2012 that one of its sales clerks had stolen an undetermined amount of cash receipts when she took the daily deposits to the bank. The following data have been gathered for April:
|
Cash in bank according to the general ledger
|
$8,900
|
|
Cash according to the April 30, 2012, bank statement
|
20,500
|
|
Outstanding checks as of April 30, 2012
|
6,800
|
|
Bank service charge for April
|
100
|
|
Note receivable, including interest collected by bank in April
|
10,400
|
No deposits were in transit on April 30.
a. Determine the amount of cash receipts stolen by the sales clerk.
b. What accounting controls would have prevented or detected this theft?
Aug 29, 2021 | Uncategorized
EX 8-25 Variation in cash flows
Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie™ fashion dolls and accessories, Hot Wheels™, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands):
|
First quarter ending March 31
|
($214,807)
|
|
Second quarter ending June 30
|
-135,003
|
|
Third quarter ending September 30
|
31,003
|
|
Fourth quarter December 31
|
1,102,915
|
Explain why Mattel reported negative net cash flows from operating activities during the first two quarters, a small positive net cash flow in the third quarter, and a large positive cash flow for the fourth quarter with overall net positive cash flow for the year.
Aug 29, 2021 | Uncategorized
EX 8-27 Cash to monthly cash expenses ratio
Delta Air Lines, one of the world’s largest airlines, provides passenger and cargo services throughout the United States and the world. Delta reported the following financial data (in millions) for the year ended December 31, 2008:
|
Net cash fl ows from operating activities
|
$(1,7 07)
|
|
Cash and cash equivalents, December 31, 2008
|
4,255
|
a. Determine the monthly cash expenses. Round to one decimal place.
b. Determine the ratio of cash to monthly cash expenses. Round to one decimal place.
c. Based on your analysis, do you believe that Delta will remain in business?
Aug 29, 2021 | Uncategorized
EX 8-28 Cash to monthly cash expenses ratio
Allos Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of cancer. Allos Therapeutics reported the following financial data (in thousands)
|
|
For Years Ending December 31
|
|
2008
|
2007
|
2006
|
|
Cash and cash equivalents
|
$30,696
|
$16,103
|
$10,437
|
|
Net cash fl ows from operations
|
(42,850)
|
(30,823)
|
(25,147)
|
a. Determine the monthly cash expenses for 2008, 2007, and 2006. Round to one decimal place.
b. Determine the ratio of cash to monthly cash expenses as of December 31, 2008, 2007, and 2006. Round to one decimal place.
c. Based on (a) and (b), comment on Allos Therapeutics’ ratio of cash to monthly operating expenses for 2008, 2007, and 2006.
Aug 29, 2021 | Uncategorized
PR 8-1A Evaluating internal control of cash
The following procedures were recently installed by Pine Creek Company:
a. Along with petty cash expense receipts for postage, office supplies, etc., several postdated employee checks are in the petty cash fund.
b. After necessary approvals have been obtained for the payment of a voucher, the treasurer signs and mails the check. The treasurer then stamps the voucher and supporting documentation as paid and returns the voucher and supporting documentation to the accounts payable clerk for filing.
c. At the end of each day, all cash receipts are placed in the bank’s night depository.
d. The accounts payable clerk prepares a voucher for each disbursement. The voucher along with the supporting documentation is forwarded to the treasurer’s office for approval.
e. At the end of each day, an accounting clerk compares the duplicate copy of the daily cash deposit slip with the deposit receipt obtained from the bank.
f. The bank reconciliation is prepared by the cashier, who works under the supervision of the treasurer.
g. All mail is opened by the mail clerk, who forwards all cash remittances to the cashier. The cashier prepares a listing of the cash receipts and forwards a copy of the list to the accounts receivable clerk for recording in the accounts.
h. At the end of the day, cash register clerks are required to use their own funds to make up any cash shortages in their registers.
Instructions
Indicate whether each of the procedures of internal control over cash represents (1) a strength or (2) a weakness. For each weakness, indicate why it exists.
Aug 29, 2021 | Uncategorized
PR 8-2A Transactions for petty cash, cash short and over
Picasso Restoration Company completed the following selected transactions during August 2012:
|
Aug. 1.
|
Established a petty cash fund of $750.
|
|
10.
|
The cash sales for the day, according to the cash register records, totaled 9,780. The actual cash received from cash sales was $9,800.
|
|
31.
|
Petty cash on hand was $240. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:
|
|
|
Aug. 3. Store supplies, $251.
|
|
|
7. Express charges on merchandise sold, $60 (Delivery Expense).
|
|
|
9. Office ce supplies, $20.
|
|
|
13. Office ce supplies, $30.
|
|
|
19. Postage stamps, $11 (Office ce Supplies).
|
|
|
21. Repair to office ce fi le cabinet lock, $40 (Miscellaneous Administrative Expense).
|
|
|
Aug. 22. Postage due on special delivery letter, $18 (Miscellaneous Administrative Expense).
|
|
|
24. Express charges on merchandise sold, $50 (Delivery Expense).
|
|
|
30. Office ce supplies, $15.
|
|
31.
|
The cash sales for the day, according to the cash register records, totaled $11,200. The actual cash received from cash sales was $11,130.
|
|
31.
|
Decreased the petty cash fund by $100.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 8-4A Bank reconciliation and entries
The cash account for Bravo Bike Co. at May 1, 2012, indicated a balance of $15,085. During May, the total cash deposited was $75,100 and checks written totaled $69,750. The bank statement indicated a balance of $25,460 on May 31. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $11,360.
b. A deposit of $9,200, representing receipts of May 31, had been made too late to appear on the bank statement.
c. The bank had collected for Bravo Bike Co. $4,725 on a note left for collection. The face of the note was $4,500.
d. A check for $490 returned with the statement had been incorrectly charged by the bank as $940.
e. A check for $410 returned with the statement had been recorded by Bravo Bike Co. as $140. The check was for the payment of an obligation to Portage Co. on account.
f. Bank service charges for July amounted to $40.
Instructions
1. Prepare a bank reconciliation as of May 31.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for Bravo Bike Co. on May 31, 2012, what amount should be reported as cash?
Aug 29, 2021 | Uncategorized
PR 8-1B Evaluate internal control of cash
The following procedures were recently installed by The Blind Shop:
a. At the end of a shift, each cashier counts the cash in his or her cash register, unlocks the cash register record, and compares the amount of cash with the amount on the record to determine cash shortages and overages.
b. Checks received through the mail are given daily to the accounts receivable clerk for recording collections on account and for depositing in the bank.
c. Each cashier is assigned a separate cash register drawer to which no other cashier has access.
d. Vouchers and all supporting documents are perforated with a PAID designation after being paid by the treasurer.
e. All sales are rung up on the cash register, and a receipt is given to the customer. All sales are recorded on a record locked inside the cash register.
f. Disbursements are made from the petty cash fund only after a petty cash receipt has been completed and signed by the payee.
g. The bank reconciliation is prepared by the cashier.
Instructions
Indicate whether each of the procedures of internal control over cash represents
(1) a strength or (2) a weakness. For each weakness, indicate why it exists.
Aug 29, 2021 | Uncategorized
PR 8-2B Transactions for petty cash, cash short and over
Cedar Springs Company completed the following selected transactions during November 2012:
|
Nov. 1.
|
Established a petty cash fund of $850.
|
|
12.
|
The cash sales for the day, according to the cash register records, totaled $16,100. The actual cash received from cash sales was $16,175.
|
|
30.
|
Petty cash on hand was $70. Replenished the petty cash fund for the following disbursements, each evidenced by a petty cash receipt:
|
|
|
Nov. 2. Store supplies, $100.
|
|
|
10. Express charges on merchandise purchased, $260 (Merchandise Inventory).
|
|
|
14. Office supplies, $125.
|
|
|
15. Office supplies, $80.
|
|
|
18. Postage stamps, $70 (Office Supplies).
|
|
|
20. Repair to fax, $35 (Miscellaneous Administrative Expense).
|
|
|
21. Repair to office door lock, $15 (Miscellaneous Administrative Expense).
|
|
|
22. Postage due on special delivery letter, $40 (Miscellaneous Administrative Expense).
|
|
|
28. Express charges on merchandise purchased, $40 ( Merchandise Inventory).
|
|
30.
|
The cash sales for the day, according to the cash register records, totaled$19,415. The actual cash received from cash sales was $19,350.
|
|
30.
|
Increased the petty cash fund by $150.
|
Instructions
Journalize the transactions.
Aug 29, 2021 | Uncategorized
PR 8-4B Bank reconciliation and entries
The cash account for South Bay Sports Co. on April 1, 2012, indicated a balance of $35,025. During April, the total cash deposited was $83,150, and checks written totaled $90,000. The bank statement indicated a balance of $34,345 on April 30, 2012. Comparing the bank statement, the canceled checks, and the accompanying memos with the records revealed the following reconciling items:
a. Checks outstanding totaled $7,700.
b. A deposit of $3,800, representing receipts of April 30, had been made too late to appear on the bank statement.
c. A check for $960 had been incorrectly charged by the bank as $690.
d. A check for $150 returned with the statement had been recorded by South Bay Sports Co. as $1,500. The check was for the payment of an obligation to Jones Co. on account.
e. The bank had collected for South Bay Sports Co. $2,600 on a note left for collection. The face of the note was $2,500.
f. Bank service charges for June amounted to $50.
g. A check for $1,900 from Valley Schools Academy was returned by the bank because of insufficient funds.
Instructions
1. Prepare a bank reconciliation as of April 30.
2. Journalize the necessary entries. The accounts have not been closed.
3. If a balance sheet were prepared for South Bay Sports Co. on April 30, 2012, what amount should be reported as cash?
Aug 29, 2021 | Uncategorized
CP 8-7 Cash to monthly cash expenses ratio
OccuLogix, Inc., is a health care company that specializes in developing diagnostic devices for eye disease. OccuLogix reported the following data (in thousands) for the years ending December 31, 2008, 2007, and 2006:
|
2008
|
2007
|
2006
|
|
Cash and cash equivalents
|
$2,565
|
$2,236
|
$5,741
|
|
Net cash fl ows from operations
|
(9,434)
|
(17,217)
|
(14,548)
|
1. Determine the monthly cash expenses for 2008, 2007, and 2006. Round to one decimal place.
2. Determine the ratio of cash to monthly cash expenses as of December 31, 2008, 2007, and 2006. Round to one decimal place.
3. Based on (1) and (2), comment on OccuLogix’s ratio of cash to monthly operating expenses for 2008, 2007, and 2006.
Aug 29, 2021 | Uncategorized
PE 9-6A Accounts receivable turnover and number of days’ sales in receivables
Financial statement data for years ending December 31 for Blum Company are shown below.
|
|
2012
|
2011
|
|
Net sales
|
$2,430,000
|
$1,920,000
|
|
Accounts receivable:
|
|
|
|
Beginning of year
|
180,000
|
120,000
|
|
End of year
|
225,000
|
180,000
|
a. Determine the accounts receivable turnover for 2012 and 2011.
b. Determine the number of days’ sales in receivables for 2012 and 2011. Round to one decimal place.
c. Does the change in accounts receivable turnover and the number of days’ sales in receivables from 2011 to 2012 indicate a favorable or an unfavorable trend?
Aug 29, 2021 | Uncategorized
PE 9-6B Accounts receivable turnover and number of days’ sales in receivables
Financial statement data for years ending December 31 for Sherick Company are shown below.
|
2012
|
2011
|
|
Net sales
|
$4,514,000
|
$4,200,000
|
|
Accounts receivable:
|
|
|
|
Beginning of year
|
280,000
|
320,000
|
|
End of year
|
330,000
|
280,000
|
a. Determine the accounts receivable turnover for 2012 and 2011.
b. Determine the number of days’ sales in receivables for 2012 and 2011. Round to one decimal place.
c. Does the change in accounts receivable turnover and the number of days’ sales in receivables from 2011 to 2012 indicate a favorable or an unfavorable trend?
Aug 29, 2021 | Uncategorized
EX 7-11 Lower-of-cost-or-market inventory
On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 8.
|
|
Inventory
|
Unit
|
Unit
|
|
Commodity
|
Quantity
|
Cost Price
|
Market Price
|
|
AL65
|
40
|
$28
|
$30
|
|
CA22
|
50
|
70
|
65
|
|
LA98
|
110
|
6
|
5
|
|
SC16
|
30
|
40
|
30
|
|
UT28
|
75
|
60
|
62
|
Aug 29, 2021 | Uncategorized
EX 7-14 Effect of errors in physical inventory
Eclipse Motorcycle Shop sells motorcycles, ATVs, and other related supplies and accessories. During the taking of its physical inventory on December 31, 2012, Eclipse Motorcycle Shop incorrectly counted its inventory as $350,000 instead of the correct amount of $338,000.
a. State the effect of the error on the December 31, 2012, balance sheet of Eclipse Motorcycle Shop.
b. State the effect of the error on the income statement of Eclipse Motorcycle Shop for the year ended December 31, 2012.
c. If uncorrected, what would be the effect of the error on the 2013 income statement?
d. If uncorrected, what would be the effect of the error on the December 31, 2013, balance sheet?
Aug 29, 2021 | Uncategorized
EX 7-17 Inventory turnover and number of days’ sales in inventory
Kroger, Safeway Inc., and Winn-Dixie Stores Inc. are three grocery chains in the United States. Inventory management is an important aspect of the grocery retail business. Recent balance sheets for these three companies indicated the following merchandise inventory information:
|
|
Merchandise Inventory
|
|
|
End of Year (in millions)
|
Beginning of Year (in millions)
|
|
Kroger
|
$4,859
|
$4,855
|
|
Safeway
|
2,591
|
2,798
|
|
Winn-Dixie
|
665
|
649
|
The cost of goods sold for each company were:
|
|
Cost of Goods Sold (in millions)
|
|
Kroger
|
$58,564
|
|
Safeway
|
31,589
|
|
Winn-Dixie
|
5,269
|
a. Determine the number of days’ sales in inventory and inventory turnover for the three companies. Round to the nearest day and one decimal place.
b. Interpret your results in part (a).
c. If Winn-Dixie had Kroger’s number of days’ sales in inventory, how much additional cash flow (round to nearest million) would have been generated from the smaller inventory relative to its actual average inventory position?
Aug 29, 2021 | Uncategorized
EX 7-21 Retail inventory method
On the basis of the following data, estimate the cost of the merchandise inventory at November 30 by the retail method:
|
|
|
Cost
|
Retail
|
|
November 1
|
Merchandise inventory
|
$ 300,000
|
$ 400,000
|
|
November 1–30
|
Purchases (net)
|
2,100,000
|
2,800,000
|
|
November 1–30
|
Sales (net)
|
|
2,750,000
|
Aug 29, 2021 | Uncategorized
EX 7-22 Gross profit inventory method
The merchandise inventory was destroyed by fire on December 13. The following were obtained from the accounting records:
|
Jan. 1
|
Merchandise inventory
|
$ 500,000
|
|
Jan. 1–Dec. 13
|
Purchases (net)
|
4,280,000
|
|
|
Sales (net)
|
6,500,000
|
|
|
Estimated gross profi t rate
|
36%
|
a. Estimate the cost of the merchandise destroyed.
b. Briefly describe the situations in which the gross profit method is useful.
Aug 29, 2021 | Uncategorized
PR 7-1A FIFO perpetual inventory
The beginning inventory at Keats Office Supplies and data on purchases and sales for a three-month period are as follows:
|
|
|
Number
|
Per
|
|
|
Date
|
Transaction
|
of Units
|
Unit
|
Total
|
|
Mar. 1
|
Inventory
|
300
|
$20
|
$6,000
|
|
10
|
Purchase
|
500
|
21
|
10,500
|
|
28
|
Sale
|
400
|
35
|
14,000
|
|
30
|
Sale
|
250
|
40
|
10,000
|
|
Apr. 5
|
Sale
|
80
|
40
|
3,200
|
|
10
|
Purchase
|
450
|
22
|
9,900
|
|
16
|
Sale
|
250
|
42
|
10,500
|
|
28
|
Sale
|
150
|
45
|
6,750
|
|
5-May
|
Purchase
|
175
|
24
|
4,200
|
|
14
|
Sale
|
160
|
50
|
8,000
|
|
25
|
Purchase
|
150
|
25
|
3,750
|
|
30
|
Sale
|
140
|
50
|
7,000
|
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost.
5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?
Aug 29, 2021 | Uncategorized
PR 7-3A Periodic inventory by three methods
Bulldog Appliances uses the periodic inventory system. Details regarding the inventory of appliances at September 1, 2011, purchases invoices during the next 12 months, and the inventory count at August 31, 2012, are summarized as follows:
|
|
|
Purchases Invoices
|
|
|
Inventory,
|
|
|
|
Inventory Count,
|
|
Model
|
1-Sep
|
1st
|
2nd
|
3rd
|
31-Aug
|
|
AZ09
|
__
|
4 at $ 32
|
4 at $ 35
|
4 at $ 38
|
5
|
|
GA85
|
8 at $ 88
|
4 at $ 79
|
3 at $ 85
|
6 at $ 92
|
7
|
|
HI71
|
3 at 75
|
3 at 65
|
15 at 68
|
9 at 70
|
5
|
|
KS32
|
7 at 242
|
6 at 250
|
5 at 260
|
10 at 259
|
9
|
|
MS17
|
12 at 80
|
10 at 82
|
16 at 89
|
16 at 90
|
13
|
|
ND52
|
2 at 108
|
2 at 110
|
3 at 128
|
3 at 130
|
5
|
|
WV63
|
5 at 160
|
4 at 170
|
4 at 175
|
7 at 180
|
8
|
Instructions
1. Determine the cost of the inventory on August 31, 2012, by the first-in, first-out method. Present data in columnar form, using the following headings:
|
Model
|
Quantity
|
Unit Cost
|
Total Cost
|
If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.
2. Determine the cost of the inventory on August 31, 2012, by the last-in, first-out method, following the procedures indicated in (1).
3. Determine the cost of the inventory on August 31, 2012, by the average cost method, using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
Aug 29, 2021 | Uncategorized
PR 7-1B FIFO perpetual inventory
The beginning inventory of merchandise at Francesca Co. and data on purchases and sales for a three-month period are as follows:
|
|
|
Number
|
Per
|
|
|
Date
|
Transaction
|
of Units
|
Unit
|
Total
|
|
3-Jul
|
Inventory
|
75
|
1,500
|
112,500
|
|
8
|
Purchase
|
150
|
1,800
|
270,000
|
|
11
|
Sale
|
90
|
3,000
|
270,000
|
|
30
|
Sale
|
45
|
3,000
|
135,000
|
|
Aug. 8
|
Purchase
|
125
|
2,000
|
250,000
|
|
10
|
Sale
|
110
|
3,000
|
330,000
|
|
19
|
Sale
|
80
|
3,000
|
240,000
|
|
28
|
Purchase
|
100
|
2,200
|
220,000
|
|
Sept. 5
|
Sale
|
60
|
3,500
|
210,000
|
|
16
|
Sale
|
50
|
3,500
|
175,000
|
|
21
|
Purchase
|
180
|
2,400
|
432,000
|
|
28
|
Sale
|
90
|
3,500
|
315,000
|
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method.
2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost.
5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?
PR 7-2B LIFO perpetual inventory
The beginning inventory for Francesca Co and data on purchases and sales for a three month period are shown in Problem 7-1B.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Aug 29, 2021 | Uncategorized
PR 7-3B Periodic inventory by three methods
Artic Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, 2012, purchases invoices during the year, and the inventory count at December 31, 2012, are summarized as follows:
|
|
|
Purchases Invoices
|
|
|
Inventory,
|
|
|
|
Inventory Count,
|
|
Model
|
January 1
|
1st
|
2nd
|
3rd
|
December 31
|
|
AK82
|
3 at $520
|
3 at $527
|
3 at $530
|
3 at $535
|
5
|
|
CO62
|
9 at 213
|
7 at 215
|
6 at 222
|
6 at 225
|
12
|
|
DE03
|
5 at 60
|
3 at 65
|
1 at 65
|
1 at 70
|
2
|
|
FL12
|
6 at 305
|
3 at 310
|
3 at 316
|
4 at 317
|
4
|
|
ME09
|
6 at 520
|
8 at 531
|
4 at 549
|
6 at 542
|
7
|
|
NM57
|
—
|
4 at 222
|
4 at 232
|
—
|
2
|
|
TN33
|
4 at 35
|
6 at 36
|
8 at 37
|
7 at 39
|
5
|
Instructions
1. Determine the cost of the inventory on December 31, 2012, by the first-in, first-out method. Present data in columnar form, using the following headings:
|
Model
|
Quantity
|
Unit Cost
|
Total Cost
|
If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.
2. Determine the cost of the inventory on December 31, 2012, by the last-in, first-out method, following the procedures indicated in (1).
3. Determine the cost of the inventory on December 31, 2012, by the average cost method, using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
Aug 29, 2021 | Uncategorized
PR 7-4B Lower-of-cost-or-market inventory
Data on the physical inventory of Chiron Co. as of December 31, 2012, are presented in the working papers. The quantity of each commodity on hand has been determined and recorded on the inventory sheet. Unit market prices have also been determined as of December 31 and recorded on the sheet. The inventory is to be determined at cost and also at the lower of cost or market, using the first-in, first-out method. Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows:
|
|
Last
|
Next-to-the-Last
|
|
|
Purchases Invoice
|
Purchases Invoice
|
|
Quantity
|
Unit
|
Quantity
|
Unit
|
|
Description
|
Purchased
|
Cost
|
Purchased
|
Cost
|
|
Alpha
|
30
|
$60
|
40
|
$59
|
|
Beta
|
25
|
170
|
15
|
180
|
|
Charlie
|
20
|
130
|
15
|
128
|
|
Echo
|
150
|
25
|
100
|
27
|
|
Frank
|
6
|
550
|
15
|
540
|
|
George
|
90
|
16
|
100
|
15
|
|
Killo
|
8
|
395
|
4
|
394
|
|
Quebec
|
500
|
6
|
500
|
7
|
|
Romeo
|
75
|
25
|
80
|
26
|
|
Sierra
|
5
|
250
|
4
|
260
|
|
Whiskey
|
100
|
17
|
115
|
16
|
|
X-Ray
|
10
|
750
|
8
|
740
|
Instructions
Record the appropriate unit costs on the inventory sheet, and complete the pricing of the inventory. When there are two different unit costs applicable to an item:
1. Draw a line through the quantity, and insert the quantity and unit cost of the last purchase.
2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase.
3. Total the cost and market columns and insert the lower of the two totals in the Lower of C or M column. The first item on the inventory sheet has been completed as an example.
Aug 29, 2021 | Uncategorized
PR 7-5B Retail method; gross profit method
Selected data on merchandise inventory, purchases, and sales for Segal Co. and Iroquois Co. are as follows:
|
Cost
|
Retail
|
|
Segal Co.
|
|
|
|
Merchandise inventory, March 1
|
$ 298,000
|
$ 375,000
|
|
Transactions during March:
|
|
|
|
Purchases (net)
|
4,850,000
|
6,225,000
|
|
Sales
|
|
6,320,000
|
|
Sales returns and allowances
|
|
245,000
|
|
|
|
|
|
Iroquois Co.
|
|
|
|
Merchandise inventory, January 1
|
$ 300,000
|
|
|
Transactions during January thru March:
|
|
|
|
Purchases (net)
|
4,150,000
|
|
|
Sales
|
6,900,000
|
|
|
Sales returns and allowances
|
175,000
|
|
|
Estimated gross profi t rate
|
40%
|
|
Instructions
1. Determine the estimated cost of the merchandise inventory of Segal Co. on March 31 by the retail method, presenting details of the computations.
2. a. Estimate the cost of the merchandise inventory of Iroquois Co. on March 31 by the gross profit method, presenting details of the computations.
b. Assume that Iroquois Co. took a physical inventory on March 31 and discovered that $396,500 of merchandise was on hand. What was the estimated loss of inventory due to theft or damage during January thru March?
Aug 29, 2021 | Uncategorized
CP 7-3 Costing inventory
White Dove Company began operations in 2012 by selling a single product. Data on purchases and sales for the year were as follows:
|
Purchases:
|
|
|
|
|
Date
|
Units Purchased
|
Unit Cost
|
Total Cost
|
|
6-Apr
|
62,000
|
$12.20
|
$756,400
|
|
18-May
|
66,000
|
13
|
858,000
|
|
6-Jun
|
80,000
|
13.2
|
1,056,000
|
|
10-Jul
|
80,000
|
14
|
1,120,000
|
|
10-Aug
|
54,400
|
14.25
|
775,200
|
|
25-Oct
|
25,600
|
14.5
|
371,200
|
|
4-Nov
|
16,000
|
14.95
|
239,200
|
|
10-Dec
|
16,000
|
16
|
256,000
|
|
400,000
|
|
$5,432,000
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
April
|
32,000 units
|
|
|
|
May
|
32,000
|
|
|
|
June
|
40,000
|
|
|
|
July
|
48,000
|
|
|
|
August
|
56,000
|
|
|
|
September
|
56,000
|
|
|
|
October
|
36,000
|
|
|
|
November
|
20,000
|
|
|
|
December
|
16,000
|
|
|
|
Total units
|
336,000
|
|
|
|
Total sales
|
$5,200,000
|
|
On January 4, 2013, the president of the company, Joel McLees, asked for your advice on costing the 64,000-unit physical inventory that was taken on December 31, 2012. Moreover, since the firm plans to expand its product line, he asked for your advice on the use of a perpetual inventory system in the future.
1. Determine the cost of the December 31, 2012, inventory under the periodic system, using the (a) first-in, first-out method, (b) last-in, first-out method, and (c) average cost method.
2. Determine the gross profit for the year under each of the three methods in (1).
3. a. Explain varying viewpoints why each of the three inventory costing methods may best reflect the results of operations for 2012.
b. Which of the three inventory costing methods may best reflect the replacement cost of the inventory on the balance sheet as of December 31, 2012?
c. Which inventory costing method would you choose to use for income tax purposes? Why?
d. Discuss the advantages and disadvantages of using a perpetual inventory system. From the data presented in this case, is there any indication of the adequacy of inventory levels during the year?
Aug 29, 2021 | Uncategorized
CP 7-4 Inventory ratios for Dell and HP Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock strategy, where the computer is first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days’ sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions): Dell HP Inventory, beginning of period $1,180 $7,879 Inventory, end of period 867 6,128 Cost of goods sold 50,144 87,524 a. Determine the inventory turnover ratio and number of days’ sales in inventory ratio for each company. Round to one decimal place. b. Interpret the difference between the ratios for the two companies.
Aug 29, 2021 | Uncategorized
CP 7-5 Comparing inventory ratios for two companies
Tiffany Co. is a high-end jewelry retailer, while Amazon.com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Tiffany and Amazon.com (in millons) are as follows:
|
End-of-Period Inventory
|
Beginning-of-Period Inventory
|
|
Tiff any Co.
|
$1,601
|
$1,242
|
|
Amazon.com
|
1,399
|
1,200
|
The cost of merchandise sold reported by each company was as follows:
|
Tiff any Co.
|
Amazon.com
|
|
Cost of merchandise sold
|
$1,215
|
$14,896
|
a. Determine the inventory turnover and number of days’ sales in inventory for Tiffany and Amazon.com. Round to two decimal places and nearest day.
b. Interpret your results.
Aug 29, 2021 | Uncategorized
CP 7-6 Comparing inventory ratios for three companies The general merchandise retail industry has a number of segments represented by the following companies: Company Name Merchandise Concept Costco Wholesale Corporation Membership warehouse Wal-Mart Discount general merchandise JCPenney Department store For a recent year, the following cost of merchandise sold and beginning and ending inventories have been provided from corporate annual reports (in millions) for these three companies: Costco Wal-Mart JCPenney Cost of merchandise sold $62,335 $306,158 $11,571 Merchandise inventory, beginning 5,039 35,180 3,641 Merchandise inventory, ending 5,405 34,511 3,259 a. Determine the inventory turnover ratio for all three companies. Round to one decimal place. b. Determine the number of days” sales in inventory for all three companies. Round to one decimal place. c. Interpret these results based on each company”s merchandise concept.
CP 7-5 Comparing inventory ratios for two companies
Tiffany Co. is a high-end jewelry retailer, while Amazon.com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Tiffany and Amazon.com (in millons) are as follows:
|
End-of-Period Inventory
|
Beginning-of-Period Inventory
|
|
Tiff any Co.
|
$1,601
|
$1,242
|
|
Amazon.com
|
1,399
|
1,200
|
The cost of merchandise sold reported by each company was as follows:
|
Tiff any Co.
|
Amazon.com
|
|
Cost of merchandise sold
|
$1,215
|
$14,896
|
a. Determine the inventory turnover and number of days’ sales in inventory for Tiffany and Amazon.com. Round to two decimal places and nearest day.
b. Interpret your results.
Aug 29, 2021 | Uncategorized
PE 8-2A Items on company’s bank statement
The following items may appear on a bank statement:
1. EFT payment
2. Note collected for company
3. Bank correction of an error from recording a $7,200 deposit as $2,700
4. Service charge
Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company’s account.
|
|
Appears on the
|
|
|
|
Bank Statement as
|
Increases or Decreases the
|
|
|
a Debit or Credit
|
Balance of the Company’s
|
|
Item No.
|
Memo
|
Bank Account
|
Aug 29, 2021 | Uncategorized
PE 8-2B Items on company’s bank statement
The following items may appear on a bank statement:
1. NSF check
2. Bank correction of an error from posting another customer’s check to the company’s account
3. Loan proceeds
4. EFT deposit
Using the format shown below, indicate whether each item would appear as a debit or credit memo on the bank statement and whether the item would increase or decrease the balance of the company’s account.
|
|
Appears on the
|
|
|
|
Bank Statement as
|
Increases or Decreases the
|
|
|
a Debit or Credit
|
Balance of the Company’s
|
|
Item No.
|
Memo
|
Bank Account
|
Aug 29, 2021 | Uncategorized
PE 8-3A Bank reconciliation
The following data were gathered to use in reconciling the bank account of Azalea Company:
|
Balance per bank
|
$25,500
|
|
Balance per company records
|
27,475
|
|
Bank service charges
|
75
|
|
Deposit in transit
|
7,500
|
|
NSF check
|
3,400
|
|
Outstanding checks
|
9,000
|
a. What is the adjusted balance on the bank reconciliation?
b. Journalize any necessary entries for Azalea Company based on the bank reconciliation.
Aug 29, 2021 | Uncategorized
PE 8-3B Bank reconciliation
The following data were gathered to use in reconciling the bank account of Bradford Company:
|
Balance per bank
|
$17,400
|
|
Balance per company records
|
5,765
|
|
Bank service charges
|
125
|
|
Deposit in transit
|
3,000
|
|
Note collected by bank with $360 interest
|
9,360
|
|
Outstanding checks
|
5,400
|
a. What is the adjusted balance on the bank reconciliation?
b. Journalize any necessary entries for Bradford Company based on the bank reconciliation.
Aug 29, 2021 | Uncategorized
EX 8-2 Internal controls
Joan Whalen has recently been hired as the manager of Jittery Coffee Shop. Jittery Coffee Shop is a national chain of franchised coffee shops. During her first month as store manager, Joan encountered the following internal control situations:
a. Since only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Joan expects each cashier to balance the drawer to the penny every time—no exceptions.
b. Joan caught an employee putting a case of 400 single-serving tea bags in her car. Not wanting to create a scene, Joan smiled and said, “I don’t think you’re putting those tea bags on the right shelf. Don’t they belong inside the coffee shop?” The employee returned the tea bags to the stockroom.
c. Jittery Coffee Shop has one cash register. Prior to Joan’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Joan made one employee on each shift responsible for taking orders and accepting the customer’s payment. Other employees prepare the orders.
State whether you agree or disagree with Joan’s method of handling each situation and explain your answer.
Aug 29, 2021 | Uncategorized
The subtle nature of corporate collapse ensures collapses are given wide attention in news media. Whilst some funds may be recovered from various parties that include the auditors under the regulatory system we adopt in Australia, investors are going to bear a significant share of losses suffered in corporate collapses.
Choose any 2 corporate collapse companies in the year 2011-13 from ASX 200(Public Listed Companies) and answer the following questions.
- Locate the Annual Report of both the companies and their Unmodified Audit Report. Identify the major reasons of their collapse.
- Identify any breach committed by the Auditors under the Corporations Act 2001 and APES 110- Code of Ethics for Professional Accountants.
- Use analytical procedures to support your financial statement analysis and identify which were the major factors in collapse companies. For example- Liquidity issues or Long term debts.
- Investigate the current situation of the auditors of your corporate collapse companies and what is the current civil/criminal penalty status.
- Compare and contrast major auditor duties outlined under Corporations Act 2001 in Australia and Sarbanes Oxley Act 2002 in U.S.
- Record all your group discussion on assessment and attached evidence as part of your assessment submission.
- Use academic journals to support your answer.
Aug 29, 2021 | Uncategorized
The following section 8-1 as listed below is described as the cornerstone if the Income Tax Assessment Act (1997).
“
S8-1(
1) you can deduct from your assessable income any loss or outgoing to
The extent
that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a business for the purpose of
gaining or producing your assessable income.
S8-1(2) However, you cannot deduct a loss or outgoing under this section to
the extent that:
(a) it is a loss or outgoing of capital or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your exempt income; or
(d) a provision of this Act prevents you from deducting it.
S8-1(3) A loss or outgoing that you can deduct under this section is called a
general deduction.”
REQUIRED:
EXPLAIN and
VALIDATE Section 8-1 of ITAA97 by reference to
Case Law,
Taxation Office Rulings and other sections of the ITAA97 and ITAA36. You are required to address under separate headings the underlined words in the course of your explanation.
PART B 10 MARKS
SALE OF ASSETS INFORMATION
Carole Mc Donald sold the following assets during the year ended 30th June 2014.
Details Date Purchased Cost Date Sold Consideration
$ $
NBA Ltd 1 May 2014 35,000 1 June 2014 20,000
XYZ Ltd shares* 1 Sept 1965 65,000 30 May 2014 160,000
XRO Ltd 1 May 1998 15,000 1 March 2014 35,000
CBD Ltd 1 Jun 2014 $25000 28 June 2014 $50,000
FBU Ltd 15 Nov 1998 30,000 1 July 2013 33,000
Diamond Ring 18 July 1993 501 1 Feb 2014 200
Houseboat 21 Sep 1985 20,000 1 March 2014 25,000
Private Residence** 16 June 1986 300,000 12 March 2014 600,000
Gold Charms 31 March 1986 300*** 13 March 2014 2,500
Caravan 1 January 2010 12,000 15 June 2014 5,000
Motor Cycle 1 July 2012 5,500 15 June 2014 6,300
Sports Car 1 July 2011 6,500 30 June 2014 22,000
*These shares were purchased by the taxpayer’s father on 1st September 1965. They were bequeathed to the taxpayer on 1 January 2009 (date of death of James’ father). The market value of the shares at date of the father’s death was $150,000.
**The private residence was rented for the period from 1 February 1988 to 1 July 2008 while he lived overseas.
***Purchased as a set which cost $600
REQUIRED:
CALCULATE the
minimum amount of net capital gain which is to be included in his assessable income for the year ended 30 June 2014. You must indicate how every item mentioned above is treated for tax purposes. You must refer to the relevant sections of the Income Tax Assessment Act 1997.
PART C 10 MARKS
John Smith is a resident of Australia and a full-time employee for Paladin Ltd. He provides you with the following information for the year ended 30 June 2014.
RECEIPTS
$
Net salary received (PAYGW $18,000) 80,000
Fringe benefits – low interest loan 15,000
Fully franked dividend paid by Exmouth Ltd – reinvested 7,000
Share of income – The Estate of Harry Smith 2,500
Loss on sale of shares 3,600
Gross Profit on sale of Jet ski – purchased 01/01/2001 5,000
PAYMENTS
Motor Vehicle expenses –
see Note 1
Superannuation contribution for John Smith – made by Paladin Ltd 6,000
Superannuation contribution – made by John Smith 3,000
Donation – Royal Children’s Hospital 150
Net rental loss on investment property- No 1 3,500
Loss on capital investment- investment property – No 2 35,000
Education Expenses-
see Note 2 3,500
Membership fees – Master Chefs Association 250
Note 1
MOTOR VEHICLE INFORMATION
John uses his car for work purposes for
9 months of the financial year. He maintained a log book for the whole of the financial year. His private kilometres were 20,000 and his total kilometres were 40,000 for the year. The Motor Vehicle (4200ccs) cost $125,000 on 1/03/2014. It has an effective life of 8 years. Expenses for the year ended 30 June 2014 are as follows:
$
Fuel 3,104
Cost of repairs –accident 9,500
Insurance 855
Repairs 427
Parking fees 22
Registration and 3rd Party 438
Road Tolls 54
Car washes 45
New Motor – purchased 1 March 2014 – not separate asset 10,500
Note 2
John is employed as an IT manager and is a member of the IT Association of Australia, a professional accrediting body providing among other services continuing professional education (CPE) to members.
Members must complete a minimum 20 hours per year of CPE. John attended a four day conference in Hawaii in October 2013 of the International IT Association. John arranged a package that included:
Conference fees 800
Air fares 1,600
Accommodation and meals – 8 days 1,100
John spent an extra 4 days holidaying.
REQUIRED:
CALCULATE the TAXABLE INCOME and TAX PAYABLE of John for the year ended 30 June 2014.
Aug 29, 2021 | Uncategorized
1) Capital structure and the value of the firm
2) Dividend policy and value of the firm
3) International financial management
4)Interduction to risk management
5)Options Contract: Their valuation and use in hedging risk
6)Mergers and Acquisition
7) Leasing
Aug 29, 2021 | Uncategorized
Apnea Video Rental Store is considering the purchase of an almost new minivan to deliver and pick up video tapes from customers. The minivan will cost $95,000 and is expected to last 10 years. However, the minivans engine will need to be overhauled at a cost of $5,000 at the end of year 3. In addition, purchasing this minivan would require an immediate investment of $15,000 in working capital which would be replaced for investment elsewhere at the end of the 10 years. The minivan is expected to have a $10,000 salvage value at the end of 10 years. This delivery service is expected to generate net cash inflows of $20,000 per year in each of the 10 years. Apnea’s cost of capital is 9%. Calculate the NPV of this investment opportunity. Don’t use decimals in answer.
Aug 29, 2021 | Uncategorized
ACCG 399 Discussion Forum One Normative Theory: How specified must a conceptual framework be? At their joint meeting in October 2004, the IASB and the US FASB decided to add to their respective agendas a joint project to develop a common conceptual framework, based on both the existing IASB Framework and the FASB Conceptual Framework, that both Boards would use as a basis for their accounting standards. The two boards reached the following tentative decisions about the approach to the project: – The project should initially focus on concepts applicable to business entities in the private sector. Later, the boards should consider the applicability of those concepts to other sectors, beginning with not-for-profit organisations in the private sector. – The project should be divided into phases, with the initial focus being on achieving the convergence of the frameworks and improving particular aspects of the frameworks dealing with objectives, qualitative characteristics, elements, recognition, and measurement. Furthermore, as the frameworks converge and are improved, priority should be given to addressing issues that are likely to yield benefits to the boards in the short term, that is, cross-cutting issues that affect a number of their projects for new or revised standards. – The converged framework should be in the form of a single document. It should include a summary and a basis for conclusions. The project is being conducted in eight phases: A: Objectives and Qualitative Characteristics (completed), Phase B: Elements and Recognition, Phase C: Measurement, Phase D: Reporting Entity, Phase E: Presentation and Disclosure, Phase F: Purpose and Status, Phase G: Application to Not-for-profit Entities, Phase H: Remaining Issues (Deloitte, http://www.iasplus.com/agenda/framework.htm, last retrieved: August 23, 2012). In its last meeting concerning Phase C: Measurement in July 2010, the IASB discussed amongst other issues what the measurement chapter of the revised conceptual framework should accomplish. The Board was presented by staff with five alternatives with View A being the most basic specifications and each alternative thereafter, building onto the specifications of the previous alternative. ACCG 399 – Accounting in Context S1-2014 A Board member started the discussion with noting that the measurement chapter should not be neutral (view A), but should also not specify which assets and liabilities should be measured using a specific basis (view E). Most Board members were either supporting View B (discussing the relationship between qualitative characteristics and measurement bases on a conceptual level) or View C (expanding on view B by prescribing a hierarchy of measurement bases). One Board member was concerned that view C would ‘box in’ the Board with regards to future assets and liabilities and how they should be measured. Other Board members agreed that measurement should be based on principles and that the measurement chapter should not be too prescriptive. This was the main objection against view C (Deloitte, http://www.iasplus.com/agenda/framework-c.htm, last retrieved: August 23, 2012) Use these meeting notes as a starting point to discuss how specified a conceptual framework in the area of measurement rules should be. Some suggestions: • You may wish to review the following websites for an overview of the latest discussions about Phase C: Measurement: http://www.iasplus.com/agenda/framework-c.htm http://www.fasb.org/project/cf_phase-c.shtml • Then you may wish to review the related meeting materials, observer notes and minutes on: http://www.fasb.org/project/cf_materials&minutes.shtml • You should also review certain perspectives of normative accounting theories associated with measurement and use these to inform your critical judgement. Following the guidelines for posting supplied, your group should make a minimum of one contribution for this case study and this is due by 4.00pm, Friday 04 April 2014.
Aug 29, 2021 | Uncategorized
CANYON KITE MANUFACTURING CO.
The accountant at Canyon Kites has always prepared a budget that is calculated using only one estimated volume of sales. He has asked you to help him set up a spreadsheet that can be used for sensitivity analysis in the budgeting process. This year it appears that the company may not meet expectations, which could result in a loss. He is concerned that the company will incur a loss again next year and wants to develop a budget that will easily reflect changes in the assumptions. After gathering information about next year’s operations, he will provide information using a what-if sensitivity analysis. The following assumptions will be used to begin your analysis:
Direct materials per kite: Direct Labor: Hours Hrly Rate Cost/kite
Nylon $10 Assembly 0.5 $30 $15.00
Ribs $ 5 Packing 0.1 $15 $ 1.50
String $ 2
Inventory information: Beginning Target Ending
Direct Mat: Nylon $5,000 $7,000
Ribs 3,000 3,200
String 1,000 1,200
Finished Goods (units) 2,000 Kites 2,200 Kites
Finished Goods (cost) $97,850
Revenue assumptions: Selling Price Volume
$75.00 80,000
PART 1:
Create a spreadsheet with a data input box at the top that includes all relevant data. (Put a border around this data to separate). Set up each schedule with cell references to information in the data input box. Any changes made to information in this box should reflect through all of the schedules you create. As you proceed, more information will be given that you will need to add to the data input box, so leave space to add additional data.
- Prepare a revenue budget
- Prepare a production budget in units
- Prepare the direct materials usage budget and a direct materials purchases budget
- Prepare a direct labor budget (in hrs and cost)
In addition to the information given above, the following are estimated manufacturing overhead costs. Both fixed and variable overhead will be allocated based on the number of kites produced.
Estimates variable manufacturing overhead costs: Estimated fixed manufacturing overhead costs:
Supplies $160,250 Depreciation $211,728
Indirect Labor 200,650 Property Taxes 28,872
Maintenance 80,200 Insurance 67,368
Miscellaneous 40,100 Plant management 240,600
Total Variable OH $481,200 Benefits 336,840
Miscellaneous 76,992
Total Fixed OH $962,400
PART 2:
- Prepare a manufacturing overhead budget and determine variable and fixed overhead allocation rates using labor hours for fixed and units for variable.
- Prepare a schedule that calculates the unit costs of ending inventory in finished goods and then prepare the ending inventory budget.
- Prepare a cost of goods sold budget.
Adding to the information above, the following data includes costs collected in regards to support departments:
Support Department: Fixed Cost
Administration $1,034,580
Marketing 620,748
Distribution 310,374
Customer Service 103,458
Total SD Cost $2,069,160
PART 3:
- Prepare the support department costs budget
- Prepare a budgeted income statement (assume tax rate of 25%)
- Calculate break even in revenue and units
Lastly, the Company’s managers budget cash flows on a quarterly basis so they can plan short-term investments & borrowings. Kite sales are highest during the spring and summer. Sales are fairly even within each quarter, but vary across quarters as follows:
January – March 10% April – June 50%
July – September 30% October – December 10%
Accounts receivable at the end of the prior year, consisting of sales made during December, totaled $90,000. Payments from customers are usually received as follows:
Pay during the month goods are received 50%
Pay the next month 47%
Bad Debt 3%
The managers plan to maintain beginning inventory quantities during January and February, but plan to increase inventories to targeted levels by the end of March and maintain those levels throughout the rest of the year. The company pays its vendors 10 days after raw materials are received, therefore approximately two-thirds of all purchases are paid in the month of production and one-third paid the following month. Accounts Payable at the end of the prior year totaled $13,000. Employee wages and other production costs are paid during the month incurred. Property taxes are paid in two equal installments on March 31 and September 30, and insurance is paid annually on June 30. Support costs are paid evenly throughout the year. Estimated income tax payments are made at the end of each quarter based on 25% of total estimated taxes for the year.
In addition to customer receipts, the company expects to receive $10,000 in proceeds from the sale of equipment in January. The company also plans to purchase and pay for new equipment costing $50,000 during January.
The Company finances its short-term operations with a line of credit from the bank, which had a balance of $150,000 at the end of the prior year. The line of credit agreement requires the company maintain a minimum cash balance of $100,000. The company’s line of credit requires quarterly interest payments at an annual rate of 5.5% and is paid on the last day of the quarter.
PART 4:
- Prepare quarterly budgets for cash receipts, cash disbursements and short term financing.
- Was the company able to increase its cash reserves?
- What is the best use of cash for this firm?
Aug 29, 2021 | Uncategorized
PE 7-2A Perpetual inventory using FIFO
Beginning inventory, purchases, and sales for Item B901 are as follows:
|
Aug.
|
1
|
Inventory
|
50 units at $80
|
|
|
9
|
Sale
|
30 units
|
|
|
13
|
Purchase
|
40 units at $85
|
|
|
28
|
Sale
|
25 units
|
Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on August 28 and (b) the inventory on August 31.
Aug 29, 2021 | Uncategorized
PE 7-3B Perpetual inventory using LIFO
Beginning inventory, purchases, and sales for Item MMM8 are as follows:
|
Jan.
|
1
|
Inventory
|
90 units at $17
|
|
|
8
|
Sale
|
75 units
|
|
|
15
|
Purchase
|
125 units at $18
|
|
|
27
|
Sale
|
80 units
|
Assuming a perpetual inventory system and using the last-in, first-out (LIFO) method, determine (a) the cost of merchandise sold on January 27 and (b) the inventory on January 31.
Aug 29, 2021 | Uncategorized
PE 7-4A Periodic inventory using FIFO, LIFO, average cost methods
The units of an item available for sale during the year were as follows:
|
Jan.
|
1
|
Inventory
|
12 units at $45
|
$ 540
|
|
July
|
7
|
Purchase
|
18 units at $50
|
900
|
|
Nov.
|
23
|
Purchase
|
15 units at $54
|
810
|
|
|
Available for sale
|
45 units
|
45 units
|
There are 11 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the average cost method.
Aug 29, 2021 | Uncategorized
PE 7-4B Periodic inventory using FIFO, LIFO, average cost methods
The units of an item available for sale during the year were as follows:
|
Jan.
|
1
|
Inventory
|
10 units at $120
|
$ 1,200
|
|
Apr.
|
13
|
Purchase
|
130 units at $114
|
14,820
|
|
Sept.
|
30
|
Purchase
|
20 units at $119
|
2,380
|
|
|
Available for sale
|
160 units
|
$18,400
|
There are 23 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the average cost method.
PE 7-5A Lower-of-cost-or-market method
On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item as shown in Exhibit 8.
|
Inventory
|
Unit
|
Unit
|
|
Item
|
Quantity
|
Cost Price
|
Market Price
|
|
IA17
|
200
|
$40
|
$38
|
|
TX24
|
150
|
55
|
60
|
Aug 29, 2021 | Uncategorized
PE 7-7A Inventory turnover and number of days’ sales in inventory
The following financial statement data for years ending December 31 for Gillispie Company are shown below.
|
2012
|
2011
|
|
Cost of merchandise sold
|
$882,000
|
$680,000
|
|
Inventories:
|
|
|
|
Beginning of year
|
$200,000
|
$140,000
|
|
End of year
|
290,000
|
200,000
|
a. Determine inventory turnover for 2012 and 2011.
b. Determine the number of days’ sales in inventory for 2012 and 2011. Round to one decimal place.
c. Does the change in inventory turnover and the number of days’ sales in inventory from 2011 to 2012 indicate a favorable or unfavorable trend?
Aug 29, 2021 | Uncategorized
PE 7-7B Inventory turnover and number of days’ sales in inventory
The following financial statement data for years ending December 31 for Pinnell Company are shown below.
|
2012
|
2011
|
|
Cost of merchandise sold
|
$1,800,000
|
$1,428,000
|
|
Inventories:
|
|
|
|
Beginning of year
|
$570,000
|
$450,000
|
|
End of year
|
630,000
|
570,000
|
a. Determine inventory turnover for 2012 and 2011.
b. Determine the number of days’ sales in inventory for 2012 and 2011. Round to one decimal place.
c. Does the change in inventory turnover and the number of days’ sales in inventory from 2011 to 2012 indicate a favorable or unfavorable trend?
Aug 29, 2021 | Uncategorized
EX 7-1 Control of inventories
A4A Hardware Store currently uses a periodic inventory system. Ray Ballard, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system.
Ray is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Ray has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand.
Ray is also concerned about lost sales while a physical inventory is being taken. A4A Hardware currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Ray believes that closing the store is the only way to get an accurate inventory count.
Will switching to a perpetual inventory system strengthen A4A Hardware’s control over inventory items? Will switching to a perpetual inventory system eliminate the need for a physical inventory count? Explain.
Aug 29, 2021 | Uncategorized
EX 7-2 Control of inventories
Lincoln Luggage Shop is a small retail establishment located in a large shopping mall. This shop has implemented the following procedures regarding inventory items:
a. Since the shop carries mostly high-quality, designer luggage, all inventory items are tagged with a control device that activates an alarm if a tagged item is removed from the store.
b. Since the display area of the store is limited, only a sample of each piece of luggage is kept on the selling floor. Whenever a customer selects a piece of luggage, the salesclerk gets the appropriate piece from the store’s stockroom. Since all salesclerks need access to the stockroom, it is not locked. The stockroom is adjacent to the break room used by all mall employees.
c. Whenever Lincoln receives a shipment of new inventory, the items are taken directly to the stockroom. Lincoln’s accountant uses the vendor’s invoice to record the amount of inventory received.
State whether each of these procedures is appropriate or inappropriate. If it is inappropriate, state why.
Aug 29, 2021 | Uncategorized
EX 7-3 Perpetual inventory using FIFO
Beginning inventory, purchases, and sales data for portable DVD players are as follows:
|
June
|
1
|
Inventory
|
75 units at $40
|
|
|
6
|
Sale
|
60 units
|
|
|
14
|
Purchase
|
90 units at $42
|
|
|
19
|
Sale
|
50 units
|
|
|
25
|
Sale
|
20 units
|
|
|
30
|
Purchase
|
80 units at $45
|
The business maintains a perpetual inventory system, costing by the first-in, first-out method.
a. Determine the cost of the merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3.
b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?
Aug 29, 2021 | Uncategorized
EX 7-5 Perpetual inventory using LIFO
Beginning inventory, purchases, and sales data for prepaid cell phones for July are as follows:
|
Inventory
|
|
Purchases
|
|
Sales
|
|
|
July 1
|
800 units at $45
|
July 10
|
500 units at $50
|
July 12
|
700 units
|
|
|
|
20
|
450 units at $52
|
14
|
300 units
|
|
|
|
|
|
31
|
250 units
|
a. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4.
b. Based upon the preceding data, would you expect the inventory to be higher or lower using the first-in, first-out method?
Aug 29, 2021 | Uncategorized
EX 7-7 FIFO, LIFO costs under perpetual inventory system
The following units of a particular item were available for sale during the year:
|
Beginning inventory
|
180 units at $80
|
|
Sale
|
120 units at $125
|
|
First purchase
|
400 units at $82
|
|
Sale
|
300 units at $125
|
|
Second purchase
|
300 units at $84
|
|
Sale
|
275 units at $125
|
The firm uses the perpetual inventory system, and there are 185 units of the item on hand at the end of the year. What is the total cost of the ending inventory according to (a) FIFO, (b) LIFO?
Aug 29, 2021 | Uncategorized
EX 7-8 Periodic inventory by three methods
The units of an item available for sale during the year were as follows:
|
Jan.
|
1
|
Inventory
|
9 units at $360
|
|
Feb.
|
17
|
Purchase
|
18 units at $414
|
|
July
|
21
|
Purchase
|
21 units at $468
|
|
Nov.
|
23
|
Purchase
|
12 units at $495
|
There are 16 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out method, (b) the last-in, first-out method, and (c) the average cost method.
Aug 29, 2021 | Uncategorized
EX 7-9 Periodic inventory by three methods; cost of merchandise sold
The units of an item available for sale during the year were as follows:
|
Jan.
|
1
|
Inventory
|
21 units at $180
|
|
Mar.
|
10
|
Purchase
|
29 units at $195
|
|
Aug.
|
30
|
Purchase
|
10 units at $204
|
|
Dec.
|
12
|
Purchase
|
15 units at $210
|
There are 24 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form:
|
|
Cost
|
|
Inventory Method
|
Merchandise Inventory
|
Merchandise Sold
|
|
a. First-in, fi rst-out
|
$
|
$
|
|
b. Last-in, fi rst-out
|
|
|
|
c. Average cost
|
|
|
Aug 29, 2021 | Uncategorized
EX 7-10 Comparing inventory methods
Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results.
a. In each space below, place the correct sign [less than (<), greater than (>), or equal
(=)] for each comparison, assuming periods of rising prices.
|
1.
|
FIFO inventory
|
|
LIFO inventory
|
|
2.
|
FIFO cost of goods sold
|
|
LIFO cost of goods sold
|
|
3.
|
FIFO net income
|
|
LIFO net income
|
|
4.
|
FIFO income tax
|
|
LIFO income tax
|
b. Why would management prefer to use LIFO over FIFO in periods of rising prices?
Aug 29, 2021 | Uncategorized
Question 2: Suggested time 15 minutes: 10% points:
Lincoln Corporation acquires a one-year old building at a cost of $500,000 at the beginning of January 2012. The building has an estimated useful life of 50 years. However, based on reliable historical data, the company believes the carpeting will need to be replaced in 5 years, the roof will need to be replaced in the HVAC system will need to be replaced in 10 years. On the date of acquisition, the cost to replace these items would have been carpeting, $10,000; roof $15,000; HVAC $30,000. Assume no residual value.
Instructions:Determine the amount to be recognized as depreciation expense in December 31, 2012.
Question 3: Suggested time 15 minutes: 15% points:
The Miesel Company has a defined benefit pension plan for its employees. At December 31, 2012, the following information is available regarding Miesel’s plan:
|
Fair value of plan assets
|
$30,000,000
|
|
PV of defined benefit obligation
|
$38,000,000
|
|
Interest costs
|
$1,200,000
|
|
Net unrecognized actuarial gains
|
$300,000
|
|
Recognized actuarial gains
|
$150,000
|
|
Unrecognized past service costs
|
$375,000
|
Instructions: Determine the amount that Miesel will report on the balance sheet as of December 31, 2012 for this pension plan under:
(a) IFRS
(b) US GAAP.
Question 4: Suggested time 15 minutes: 10% points:
The Michael Porter Company sells a powder coating equipment at a sales price of $50,000 per unit. The sales price includes delivery, installation and initial testing of the equipment, as well as a monthly service call for one year in which the a techinician checks to make sure the equipment is working properly and makes adjustments as needed. After the first year, customers are given the opportunity to enter into an extended service agreement. Michael Porter prices these extended service agreements to earn an expected gross profit of 50 percent. Given the wages paid to technicians and the time required to make a service call, the company estimates that the cost of providing each monthly service call is $200.
Instructions:Develop a revenue recognition policy consistent with IAS 18 for the Michael Porter Company for tis sales of powder coating equipment.
Question 5: Suggested time 15 minutes: 15% points:
On December 1, 2012, The Number One Company purchases inventory from a foreign supplier for 40,000 corunas. Payment will be made in 90 days after Number One has sold this merchandise. Sales are made rather quickly and Number One pays the entire obligation on February 15, 2013. The following exchange rates for 1 corona apply:
|
Date
|
USD per Corona
|
|
December 1, 2012
|
$0.87
|
|
December 31, 2012
|
$0.82
|
|
February 15, 2013
|
$0.91
|
Instructions
Prepare all the journal entries for Number One in connection with the purchase and payment.
Question 6: Suggested time 40 minutes: 25% points:
Corcovado Company was created as a wholly owned subsidiary of Campinhas Corporation on January 1, 2012. On that date Campinhas invested $42,000 in Corcovado’s capital stock. Given the exchange rate on that date of $0.84 per cruzeiro, the initial investment of $42,000 was converted into 50,000 cruzeiros (Cz). Other than the capital investment in January 1, there were no transactions involving stockholder’s equity for 2012. Corcovado’s Cz denominated financial statements for December 31, 2013 are as follows:
Income Statement
For the year ended December 31, 2013
(in Cz)
|
Sales
|
540,000
|
|
COGS
|
310,000
|
|
Gross Profit
|
230,000
|
|
Operating expenses
|
108,000
|
|
Income before tax
|
122,000
|
|
Income taxes
|
40,000
|
|
Net Income
|
82,000
|
Statement of Retained Earnings
December 31, 2013
(in Cz)
|
Retained earnings, January 1, 2013
|
154,000
|
|
Net Income
|
82,000
|
|
Dividends paid, December 1, 2013
|
20,000
|
|
Retained earnings, December 31, 2013
|
216,000
|
Balance Sheet
December 31, 2013
(in Cz)
|
Cash
|
50,000
|
|
Receivables
|
100,000
|
|
Inventory
|
72,000
|
|
Plant and equipment, net
|
300,000
|
|
Accumulated Depreciation
|
70,000
|
|
TOTAL ASSETS
|
452,000
|
|
Liabilities
|
186,000
|
|
Capital stock
|
50,000
|
|
Retained earnings, December 31, 2013
|
216,000
|
|
TOTAL LIABILITIES AND EQUITY
|
452,000
|
The Cz is the primary currency that Corcovado uses in its day to day operations. The Cz has steadily fallen in value against the USD since Campinhas made the investment Corcovado on January 1, 2012. Relevant exchange rates for 2012 and 2013 are as follows:
|
January 1, 2012
|
$0.84
|
|
Average for 2012 (year)
|
$0.80
|
|
December 31, 2012
|
$0.75
|
|
Average for 2013 (year)
|
$0.72
|
|
December 1, 2013
|
$0.71
|
|
December 31, 2013
|
$0.70
|
Instructions
a) Translate Corcovado’s Year 2013 financial statements into dollars.
b) Compute the translation adjustments for Year 2012 and Year 2013 and reconcile these amounts to the cumulative translation adjustment reported in the translated balance sheet at December 31, 2013.
Question 7: Suggested time 40 minutes: 25% points:
Sandestino Company contributes cash of $170,000 and Costa Grande Company contributes net assets of $170,000 to create Grand Sand Company on January 1, 2012. Sandestino and Costa each receive a 50% equity interest in the Grand Sand. Grand Sand’s financial statements for its first year of operations are as follows:
|
Income Statement
|
December 31, 2012
|
|
Revenues
|
$80,000
|
|
Expenses
|
$50,000
|
|
Income before tax
|
$30,000
|
|
Tax expense
|
$10,000
|
|
Net income
|
$20,000
|
|
Balance Sheet
|
December 31, 2012
|
|
Cash
|
$40,000
|
|
Inventory
|
$60,000
|
|
PP&E, net
|
$320,000
|
|
TOTAL
|
$420,000
|
|
Payables
|
$60,000
|
|
Common stock
|
$340,000
|
|
Retained earnings
|
$20,000
|
|
TOTAL
|
$420,000
|
Before making any accounting entries related to its investment in Grand Sand, Sandestino’s financial statements for the year ended December 31, 2012, are as follows:
|
Income Statement
|
December 31, 2012
|
|
Revenues
|
$800,000
|
|
Expenses
|
$450,000
|
|
Income before tax
|
$350,000
|
|
Tax expense
|
$120,000
|
|
Net income
|
$250,000
|
|
Balance Sheet
|
December 31, 2012
|
|
Cash
|
$130,000
|
|
Inventory
|
$200,000
|
|
PP&E, net
|
$650,000
|
|
Investment in Grand (cost)
|
$170,000
|
|
TOTAL
|
$1,150,000
|
|
Payables
|
$250,000
|
|
Common stock
|
$600,000
|
|
Retained earnings
|
$300,000
|
|
TOTAL
|
$1,150,000
|
Instructions
a) Restate Sandestino’s December 31, 2012 financial statements to properly account for its investment in Grand under (1) the proportionate consolidation method and (2) equity method.
b) Calculate and compare the following ratios for Sandestino under the two different methods of accounting for its investment in Grand: (1) profit margin (net income/revenues) and (2) debt to equity (total liabilities/total equity).
Aug 29, 2021 | Uncategorized
Green has been an audit client of LH&H for about 10 years. It is a private company in which the owner is very involved on a day-to-day basis. Materiality for the current year has been set at $50,000. Green’s year-end is December 31, and the audit for 2009 is essentially complete. The audit report is currently dated April 15, 2010, the same date that the file was reviewed by Don.
Only three issues have been identified as outstanding. The following is information regarding these issues that was obtained by the staff.
I. A legal letter was received indicating that an outstanding lawsuit against Green that arose in 2009 had been settled on April 10, 2010. Green will have to pay $125,000 plus costs. Following receipt of this letter, the lawsuit was discussed with the owner of Green and he said that they are not going to appeal the judgment. In previous discussions, Don had advised Green’s controller that the loss must be recorded and the liability accrued in the 2009 statements. Both Green’s controller and owner refused to make the adjustment, because they did not have enough time to adjust the financial statements.
2. The file included a note from Don that Green had requested we not send out accounts payable confirmations to two of the company’s major suppliers because of ongoing volume-rebate disputes with these suppliers.
3. Green has set up a receivable of $500,000 related to inventory destroyed and business interruption losses suffered as a result of a warehouse fire that occurred before year-end. No procedures have been performed on this amount.
Aug 29, 2021 | Uncategorized
Wilco Corporation has the following account balances at December 31, 2012.
|
Common stock, $5 par value |
$536,340 |
|
Treasury stock |
99,730 |
|
Retained earnings |
2,363,710 |
|
Paid-in capital in excess of par |
1,325,180 |
Prepare Wilco’s December 31, 2012, stockholders’ equity section.
Warning
|
Don’t show me this message again for the assignment
|
Ok Cancel
Aug 29, 2021 | Uncategorized
CH. 15 MULTIPLE CHOICE QUESTION
8.If the assets in which borrowed funds are invested are able to earn a rate of return greater than the interest rate required by the lender, then financial leverage is positive.
TrueFalse
9.One would expect the book value of a share of stock to be about the same as the stock’s market value.
TrueFalse
10.The acid-test ratio is always smaller than the current ratio.
TrueFalse
11.All debt is considered in the computation of the acid-test ratio.
TrueFalse
12.When computing the acid-test ratio, a short-term note receivable would be included in the numerator.
TrueFalse
13.The purchase of marketable securities for cash will lower a firm’s acid-test ratio.
TrueFalse
14.As the inventory turnover increases, the number of days required to sell the inventory one time also increases.
TrueFalse
15.Negative working capital indicates that the sum of all current assets is negative.
TrueFalse
16.The formula for the gross margin percentage is:
A.(Sales – Cost of goods sold)/Cost of goods sold
B.(Sales – Cost of goods sold)/Sales
C.Net income/Sales
D.Net income/Cost of goods sold
17.The gross margin percentage is most likely to be used to assess:
A.how quickly accounts receivables can be collected.
B.how quickly inventories are sold.
C.the efficiency of administrative departments.
D.the overall profitability of the company’s products.
20.Financial leverage is negative when:
A.the return on total assets is less than the rate of return on common stockholders’ equity.
B.total liabilities are less than stockholders’ equity.
C.total liabilities are less than total assets.
D.the return on total assets is less than the rate of return demanded by creditors.
23.A company’s current ratio and acid-test ratios are both greater than 1. Issuing bonds to finance purchase of an office building with the first installment of the bonds due in the current year would:
A.decrease net working capital.
B.decrease the current ratio.
C.decrease the acid-test ratio.
D.affect all of the above as indicated.
24.What is the effect of a purchase of inventory on account on the current ratio and on working capital, respectively? (Assume a current ratio greater than one prior to this transaction.)
A.Option A
B.Option B
C.Option C
D.Option D
25.At the beginning of the year, a company’s current ratio is 2.2. At the end of the year, the company has a current ratio of 2.5. Which of the following could help explain the change in the current ratio?
A.An increase in inventories.
B.An increase in accounts payable.
C.An increase in property, plant, and equipment.
D.An increase in bonds payable.
26.A company’s current ratio and acid-test ratios are both greater than 1. The collection of a current accounts receivable of $29,000 would:
A.increase the current ratio.
B.decrease the current ratio.
C.not affect the current ratio or the acid-test ratio.
D.decrease the acid-test ratio.
27.Assume a company has a current ratio that is greater than 1. Which of the following transactions will reduce the company’s current ratio?
A.Selling office equipment at book value.
B.Paying a cash dividend already declared.
C.Borrowing by taking out a short-term loan.
D.Selling equipment at a loss.
28.Higgins Company presently has a current ratio of 0.6. It is currently negotiating a loan, but it has been informed it must improve its current ratio before the loan will be approved. Which of the following actions would improve its current ratio?
A.Pay off a portion of its long-term debt.
B.Use cash to pay off some current liabilities.
C.Purchase additional inventory on credit.
D.Collect some of the current accounts receivable.
33.Ozols Corporation’s most recent income statement appears below:
The gross margin percentage is closest to:
A.33.2%
B.55.7%
C.300.8%
D.125.6%
38.The following data have been taken from your company’s financial records for the current year:
The price-earnings ratio is:
A.12.5
B.6.0
C.8.0
D.7.5
42.Last year the return on total assets in Jeffrey Company was 8.5%. The total assets were 2.9 million at the beginning of the year and 3.1 million at the end of the year. The tax rate was 30%, interest expense totaled $110 thousand, and sales were $5.2 million. Net income for the year was:
A.$145,000
B.$222,000
C.$332,000
D.$178,000
Aug 29, 2021 | Uncategorized
please provide a detailed solution
Aug 29, 2021 | Uncategorized
1. 8,000 units of CISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each CISCO unit were:
direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40.
3. Fixed manufacturing costs applicable to the production of CISCO were:
| Cost Item |
|
Direct |
|
Allocated |
|
| Depreciation |
|
$2,100 |
|
$900 |
|
|
| Property taxes |
|
500 |
|
200 |
|
|
| Insurance |
|
900 |
|
600 |
|
|
|
|
$3,500 |
|
$1,700 |
|
|
All variable manufacturing and direct fixed costs will be eliminated if CISCO is purchased. Allocated costs will have to be absorbed by other production departments.
4. The lowest quotation for 8,000 CISCO units from a supplier is $80,000.
5. If CISCO units are purchased, freight and inspection costs would be $0.35 per unit, and receiving costs totaling $1,300 per year would be incurred by the Machining Department.
|
|
|
 |
|
Would the decision be different if Shatner Company has the opportunity to produce $3,000 of net income with the facilities currently being used to manufacture CISCO?
NoYes
|
|
|
Aug 29, 2021 | Uncategorized
Stereo City is a retailer of stereos and televisions. The firm has operating income of $150 million, after operating lease expenses of $50 million. The firm has operating lease commitments for the next 5 years and beyond.
|
Year
|
Operating lease commitment
|
|
1
|
55
|
|
2
|
60
|
|
3
|
60
|
|
4
|
55
|
|
5
|
50
|
|
yr 6-15
|
40Each year
|
The book value of equity is $1 billion and the firm has no debt outstanding. The firm has a cost of equity of 11% and a pre-tax cost of borrowing of 6%. The tax rate is 40%.
a. Estimate the capital invested in the firm, before and after adjusting for operating leases.
b. Estimate the return on capital, before and after adjusting for operating leases.
c. Estimate the economic value added, before and after adjusting for operating leases. (The market value of equity is $2 billion.)
Aug 29, 2021 | Uncategorized
Jeeves Software is a small software firm in high growth. The firm is all equity financed. In the current year, the firm earned $20 million in after-tax operating income on capital invested of $60 million. The firm’s cost of equity is 15%.
a. Assume that the firm will be able to grow its economic value added 15% a year for the next 5 years and that there will be no excess returns after year 5. Estimate the value of the firm. How much of this value comes from the EVA and how much from capital invested?
b. Now, assume the firm is able to reduce its capital invested this year by $20 million by selling its assets and leasing them back. Assuming operating income and cost of capital do not change as a result of the sale-lease back, estimate the value of the firm now. How much of the value of the firm now comes from EVA and how much from capital invested?
Aug 29, 2021 | Uncategorized
Healthy Soups is a company that manufactures canned soups made without preservatives. The firm has assets that have a book value of $100 million. The assets are 5 years old and have been depreciated $50 million over that period. In addition, the inflation rate over those 5 years has averaged 2% a year. The assets are currently earning $15 million in after-tax operating income. They have a remaining life of 10 years and the depreciation each year is expected to be $5 million. At the end of these 10 years, the assets will have an expected salvage value, in current dollars, of $50 million.
a. Estimate the CFROI of Healthy Foods, using the conventional CFROI approach.
b. Estimate the CFROI of Healthy Foods, using the economic depreciation approach.
c. If Healthy Foods has a cost of capital in nominal terms of 10% and the expected inflation rate is 2%, evaluate whether Healthy Foods’ existing investments are value creating or destroying.
Aug 29, 2021 | Uncategorized
ITC Corporation has convertible bonds outstanding with the following features:
- The bonds mature in fifteen years; there are 100,000 bonds outstanding.
- Each bond can be converted into 50 shares of stock any time until expiration.
- The coupon rate on the bond is 5%; straight bonds issued by the company are yielding 10%.
- The current stock price is $15 per share and the standard deviation in ln(stock prices return) is 40%.
- There are 20 million shares outstanding.
a. Value the conversion option.
b. Estimate the value of the straight bond portion.
c. If these bonds were issued at par, who would be gaining? Who would be losing?
d. What impact would forced conversion have on the value of this convertible bond?
Aug 29, 2021 | Uncategorized
The following is an excerpt from the Wall Street Journal futures page. It includes the futures prices of gold. The current cash (spot) price of gold is $403.25. Make your best estimates of the implied interest rates (from the arbitrage relationship) in the futures prices.
(You can assume zero carrying costs for gold.)
|
Contract expiring in
|
Trading at
|
|
1 month
|
$404.62
|
|
2 months
|
$406.11
|
|
3 months
|
$407.70
|
|
6 months
|
$412.51
|
|
12 months
|
$422.62
|
Aug 29, 2021 | Uncategorized
You are a portfolio manager who has just been exposed to the possibilities of stock index futures. Respond to the following situations.
(a) Assume that you have the resources to buy and hold the stocks in the S&P 500. You are given the following data. (Assume that today is January 1.)
Level of the S&P 500 index = 258.90
June S&P 500 futures contract = 260.15
Annualized Rate on T.Bill expiring June 26 (expiration date) = 6%
Annualized Dividend yield on S&P 500 stocks = 3%
Assume that dividends are paid out continuously over the year. Is there potential for arbitrage? How would you go about setting up the arbitrage?
(b) Assume now that you are known for your stock selection skills. You have 10,000 shares of Texaco in your portfolio (now selling for 38) and are extremely worried about the direction of the market until June. You would like to protect yourself against market risk by using the December S&P 500 futures contract (which is at 260.15). If Texaco”s beta is 0.8, how would you go about creating this protection?
Aug 29, 2021 | Uncategorized
The following is a set of prices for stock index futures on the S&P 500.
|
Maturity
|
Futures price
|
|
March
|
246.25
|
|
June
|
247.75
|
The current level of the index is 245.82 and the current annualized T.Bill rate is 6%. The annualized dividend yield is 3%. (Today is January 14. The March futures expire on March 18 and the June futures on June 17.)
(a) Estimate the theoretical basis and actual basis in each of these contracts.
(b) Using one of the two contracts, set up an arbitrage. Also show how the arbitrage will be resolved at expiration. [You can assume that you can lend or borrow at the risk free rate and that you have no transaction costs or margins.]
(c) Assume that a good economic report comes out on the wire. The stock index goes up to 247.82 and the T.Bill rate drops to 5%. Assuming arbitrage relationships hold and that the dollar dividends paid do not change, how much will the March future go up by?
Aug 29, 2021 | Uncategorized
What is a fund of funds?
You own a portfolio of common stocks that more or less tracks the stock index in the preceding table. The statistics are historical but you believe they are reasonable forecasts of future returns. Rely on the following table to answer questions 2.13 to 2.17.
Performance of Hedge Fund Styles (Hypothetical)
|
Fund Style
|
Return
|
Standard
Deviation
|
Correlation
to Stocks
|
|
Convertible arbitrage
|
8.00%
|
4.33%
|
10.00%
|
|
Global macro
|
12.00%
|
12.99%
|
25.00%
|
|
Long/short equity
|
10.00%
|
8.66%
|
50.00%
|
|
Stock index
|
10.00%
|
17.32%
|
100.00%
|
Aug 29, 2021 | Uncategorized
Suppose a fund of funds invests equally in four hedge funds. The re- turns for three months are listed for the individual funds. Each return is before management fees and incentive fees. Assume for simplicity that each hedge fund charges an annual management fee of 2 percent and an incentive fee equal to 20 percent of returns (after management fees have been deducted). Also, assume that the fund of funds charges a management fee of 0.5 percent annually and an incentive fee of 10 percent of return (after individual fund fees and fund of funds management fee).
|
Fund A
|
Fund B
|
Fund C
|
Fund D
|
|
1.00%
|
6.25%
|
–2.25%
|
3.12%
|
|
2.50%
|
–4.24%
|
6.15%
|
2.40%
|
|
3.45%
|
2.25%
|
–3.22%
|
1.65%
|
What is the average return on the fund of funds?
Aug 29, 2021 | Uncategorized
Thomas felt that the 85:15 split was still reasonable for the durable equipment use, and, in any case, the relatively small size of this resource expense category probably did not wan-ant additional study and data collection.
Required (2) Use the information on the distribution of nursing and machine operator resources to calculate revised product-line income
statements and profit and loss for individ-ual treatments. (3) Analyze the newly produced information and assess its implications for managers at Western Dialysis Clinic. What deci-sions might managers of the clinic make with this new information that might dif-fer from those made using information from the RCC method only? (4) What improvements, if any, would you make in developing an ABC model for Western Dialysis Clinic? •
Aug 29, 2021 | Uncategorized
Income Tax Calculations (50 Points)
Complete the following exercise. Submit journal entries in an Excel file and written segments in an MS Word document. Label each question clearly. For written answers, please make sure your responses are well-written, formatted per CSU-Global guidelines for APA Style, and have proper citation(s), if needed.
Johnny Bravo Company began operations in 2012 and has provided the following information.
1. Pretax financial income for 2012 is $100,000.
2. The tax rate enacted for 2012 and future years is 40%.
3. Differences between the 2012 income statement and tax return are listed below.
(a) Warranty expense accrued for financial reporting purposes amounts to $5,000. Warranty deductions
per the tax return amount to $2,000.
(b) Gross profit on construction contracts using the percentage-of-completion method for book purposes
amounts to $92,000. Gross profit on construction contracts for tax purposes amounts to $62,000.
(c) Depreciation of property, plant, and equipment for financial reporting purposes amounts to $60,000.
Depreciation of these assets amounts to $80,000 for the tax return.
(d) A $3,500 fine paid for violation of pollution laws was deducted in computing pretax financial income.
(e) Interest revenue earned on an investment in tax-exempt municipal bonds amounts to $1,400.
4. Taxable income is expected for the next few years.
Click here to download the Excel workbook containing the spreadsheets you will need for this exercise.
- Use the spreadsheetJournal Entries to prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2012.
- Draft the income tax expense section of the income statement, beginning with “Income before income taxes”
Aug 29, 2021 | Uncategorized
After reading case 2-2 in your text, “The Dangerous Morality of Managing Earnings” write an essay that includes the following elements:
- A formal introduction.
- Discussion of the five generalizations from the findings in this study relating to managing earnings.Please Note: Do not simply restate the generalizations. You are being asked to discuss each in the context of professional experiences or examples given in the case itself.
- Discussion of management’s ability to manage earnings in the long-term given the operational manipulations discussed in the case.
Your submitted paper should be at 2-3 pages and written according to APA style, and properly referenced.
Please note that the textbook author is citing a source in this case, which must be considered when forming your references and citations.
Aug 29, 2021 | Uncategorized
B. Bonds Company The following is a single-step income statement for the B. Bonds Company:
| B. Bonds Company Income Statement |
| For the Year Ended December 31, 2004 |
| Revenues |
|
|
| Net Sales |
$200,000 |
|
| Interest Income |
17,500 |
|
| Total Revenues |
|
$217,500 |
| Expenses |
|
|
| Cost of Goods Sold |
$50,000 |
|
| Selling Expenses |
20,000 |
|
| General and Administrative Expenses |
27,500 |
|
| Interest Expense |
12,500 |
|
| Income Tax Expense |
39,000 |
|
| Total Expenses |
|
149,000 |
| Net Income |
|
$68,500 |
Refer to B. Bonds Company. If the income statement were prepared in a multiple-step format, income from operations would be
Aug 29, 2021 | Uncategorized
JumpinJehosaPhats is a small business owned by JJ Phats as the sole proprietor.JJphats is incorporating the business.
On January 1, 2012 JumpinJehosaPhats Inc. has been authorized to issue 1,000,000 common shares with a Par Value of $1.In the process of incorporating, the sole proprietor owner’s equity accounts must be closed and the equity must now reflect a corporate stockholders’ equity account.
The books for the Sole Proprietorship indicate the following:
JJ Phats deposited $35,000 to start JumpinJehosaPhats
JJ Phats contributed $50,000 of equipment to start JumpinJehosaPhats
Retained Earnings December 31, 2011= $150,000
Prepare the Stockholder’s Equity Portion of the Balance Sheet on January 1, 2012.
Aug 29, 2021 | Uncategorized
Cool Café is a well-regarded restaurant in the Denver area, owned and operated by Joanne Arapacio, a star chef specializing in Southwestern cuisine. You are interested in buying the restaurant and have been provided the income statement for the firm for the most recent year (in ‘000s).
|
Revenues
|
$5,000
|
|
-Operating Expenses
|
$3,500
|
|
EBIT
|
$1,500
|
|
Interest Expenses
|
$300
|
|
Taxes
|
$480
|
|
Net Income
|
$720
|
The owner did not pay herself a salary last year, but you believe that you will have to pay $200,000 a year for a new chef. The restaurant is in stable growth and is expected to grow 5% a year for the next decade. You estimate the unlevered beta of publicly traded restaurants to be 0.80. The average debt to capital ratio for these firms is 30% and you believe that Cool Café will have to operate at close to this average. The riskfree rate is 6%, the market risk premium is 4% and the cost of debt is 7%.
a. Estimate the value of Cool Café
b. Now assume that you will see a drop off in revenues of 15% if Joanne Arapacio leaves the restaurant. Assuming that 70% of the current operating expenses are variable and that the remaining 30% is fixed, estimate the value Ms. Arapacio to the restaurant.
Aug 29, 2021 | Uncategorized
Sick and tired of the investment banking grind, you decide to quit and buy a franchise for a fast-growing bagel chain in your town. You have been able to get information on what another franchise for the same chain is generating in revenues in the neighboring town.
a. The franchise has revenues of $1 million and earnings before interest and taxes of $150,000 last year but the owner did not assess a salary for himself. He does the accounting and oversees the bagel shop and you believe that hiring someone else to do what he does will cost you $50,000 annually.
b. The revenues and operating income are expected to grow 3% a year in perpetuity.
c. You expect to pay 35% of your income in taxes and use all of your investment savings to buy the shop. The unlevered beta for franchise food chains is 0.80.
d. The owner has a bank loan outstanding of $300,000 and the book value of equity in the business is $700,000. However, the average market debt to capital ratio of publicly traded restaurants is 20% and the average pre-tax cost of debt for restaurants is 8%.
e. The riskless rate is 5% and the market risk premium is 4%. Estimate the value of the bagel shop to you.
Aug 29, 2021 | Uncategorized
You have been asked to value the practice of Dr. Vong, a pediatrician in your town and are provided with the following facts.
- The practice generated $800,000 in revenues last year and these revenues are expected to grow 4% a year for the next 10 years.
- Employee expenses (including nurses and secretarial help) amounted to $200,000 last year and are expected to grow 4% a year for the next 10 years.
- The annual rent for the facilities last year was $100,000 and is expected to grow 4% a year for the next 10 years.
- Rentals of medical equipment cost $75,000 last year and this expense is expected to grow 5% for the next 10 years.
- The cost of medical insurance last year was $75,000 and is expected to grow 7% a year for the next 10 years.
- The tax rate on the income, including state and local taxes, is 40%.
- The cost of capital is 11%.
Assuming that there will be no drop-off in revenues if a new pediatrician takes over the practice, estimate the value of the practice.
Aug 29, 2021 | Uncategorized
You are trying to decide how much you should bid on a Ken Griffey Jr. rookie baseball card in good condition on Ebay. You notice that there have been 8 transactions involving Ken Griffey Jr. cards in the last month on Ebay.
|
Transaction #
|
Condition of card
|
Price paid for card
|
|
1
|
Excellent
|
$800
|
|
2
|
Poor
|
$200
|
|
3
|
Good
|
$550
|
|
4
|
Good
|
$500
|
|
5
|
Excellent
|
$850
|
|
6
|
Good
|
$400
|
|
7
|
Poor
|
$350
|
|
8
|
Excellent
|
$650
|
a. Estimate how much you would be willing to pay for the card.
b. Now assume that the seller of the card has been rated poorly by other buyers because he has misrepresented other items he has sold to them. What effect would this information have on how much you would be willing to bid for the card?
Aug 29, 2021 | Uncategorized
You are examining the financial viability of investing in some abandoned copper mines in Chile, which still have significant copper deposits in them. A geologist survey suggests that there might be 10 million pounds of copper in the mines still and that the cost of opening up the mines will be $3 million (in present value dollars). The capacity output rate is 400,000 pounds a year and the price of copper is expected to increase 4% a year. The Chilean Government is willing to grant a twenty-five year lease on the mine. The average production cost is expected to be 40 cents a pound and the current price per pound of copper is 85 cents. (The production cost is expected to grow 3% a year, once initiated.) The annualized standard deviation in copper prices is 25% and the twenty-five year bond rate is 7%.
a. Estimate the value of the mine using traditional capital budgeting techniques.
b. Estimate the value of the mine based upon an option pricing model.
c. How would you explain the difference between the two values?
Aug 29, 2021 | Uncategorized
Cyclops Inc, a high technology company specializing in state-of-the-art visual technology, is considering going public. While the company has no revenues or profits yet on its products, it has a ten-year patent to a product that will enable contact lens users to get no-maintenance lens that will last for years. While the product is technically viable, it is exorbitantly expensive to manufacture and the potential market for it will be relatively small initially. (A cash flow analysis of the project suggests that the present value of the cash inflows on the project, if adopted now, would be $250 million, while the cost of the project will be $500 million.) The technology is rapidly evolving and a simulation of alternative scenarios yields a wide range of present values, with an annualized standard deviation of 60%. To move towards this adoption, the company will have to continue to invest $10 million a year in research. The ten-year bond rate is 6%.
a. Estimate the value of this company.
b. How sensitive is this value estimate to the variance in project cash flows? What broader lessons would you draw from this analysis?
Aug 29, 2021 | Uncategorized
You are analyzing Skates Inc., a firm that manufactures skateboards. The firm is currently unlevered and has a cost of equity of 12%. You estimate that Skates would have a cost of capital of 11% at its optimal debt ratio of 40%. The management, however, insists that it will not borrow the money because of the value of maintaining financial flexibility and they have provided you with the following information.
- Over the last 10 years, reinvestments (net capital expenditures + working capital investments) have amounted to 10% of firm value, on an annual basis. The standard deviation in this reinvestment has been 0.30.
- The firm has traditionally used only internal funding (net income + depreciation) to meet these needs and these have amounted to 6% of firm value.
- In the most recent year, the firm earned $180 million in net income on a book value of equity of $1 billion and it expects to earn these excess returns on new investments in the future.
- The riskless rate is 5%.
a. Estimate the value of financial flexibility as a percent of firm value, on an annual basis.
b. Based upon part a, would you recommend that Skates use its excess debt capacity?
Aug 29, 2021 | Uncategorized
Disney is considering entering into a joint venture to build condominiums in Vail, Colorado, with a local real estate developer. The development is expected to cost $1 billion overall and, based on Disney’s estimate of the cash flows, generate $900 million in present value cash flows. Disney will have a 40% share of the joint venture (requiring it to put up $400 million of the initial investment and entitling it to 40% of the cash flows) but it will have the right to sell its share of the venture back to the developer for $300 million.
a. If the standard deviation in real estate values in Vail is 30% and the riskless rate is 5%, estimate the value of the abandonment option to Disney.
b. Would you advice Disney to enter into the joint venture?
c. If you were advising the developer, how much would he need to generate in present value cashflows from the investment to make this a good investment?
Aug 29, 2021 | Uncategorized
Quality Wireless is considering making an investment in China. While it knows that the investment will cost $1 billion and generate only $800 million in cash flows (in present value terms), the proponents of expansion are arguing that the potential market is huge and that Quality should go ahead with its investment.
a. Under what conditions will the expansion potential have option value?
b. Assume now that there is an option value to expansion that exactly offsets the negative net present value on the initial investment. If the cost of the subsequent expansion in 5 years is $2.5 billion, what is your current estimate of the present value of the cash flows from expansion? (You can assume that the standard deviation in the present value of the cashflows is 25% and that the riskless rate is 6%.)
Aug 29, 2021 | Uncategorized
Reliable Machinery Inc. is considering expanding its operations in Thailand. The initial analysis of the projects yields the following results.
- The project is expected to generate $85 million in after-tax cash flows every year for the next 10 years.
- The initial investment in the project is expected to be $750 million.
- The cost of capital for the project is 12%. If the project generates much higher cash flows than anticipated, you will have the exclusive right for the next 10 years (from a manufacturing license) to expand operations into the rest of South East Asia. A current analysis suggests the following about the expansion opportunity.
- The expansion will cost $2 billion (in current dollars).
- The expansion is expected to generate $150 million in after tax cash flows each year for 15 years. There is substantial uncertainty about these cash flows and the standard deviation in the present value is 40%.
- The cost of capital for this investment is expected to be 12% as well. The riskfree rate is 6.5%.
a. Estimate the net present value of the initial investment.
b. Estimate the value of the expansion option.
Aug 29, 2021 | Uncategorized
Designate the following statements as true or false.
a. Equity can be viewed as an option because equity investors have limited liability (limited to their equity investment in the firm).
b. Equity investors will sometimes take bad projects (with negative net present value) because they can add to the value of the firm.
c. Investing in a good project (with positive NPV) — which is less risky than the average risk of the firm – can negatively impact equity investors.
d. The value of equity in a firm is an increasing function of the duration of the debt in the firm (i.e., equity will be more valuable in a firm with longer term debt than an otherwise similar firm with short term debt).
e. In a merger in which two risky firms merge and do not borrow more money, equity can become less valuable because existing debt will become less risky.
Aug 29, 2021 | Uncategorized
McCaw Cellular Communications reported earnings before interest and taxes of $850 million in 1993 and had a depreciation allowance of $400 million in that year (which was offset by capital spending of an equivalent amount). The earnings before interest and taxes are expected to grow 20% a year for the next five years and 5% a year after that. The cost of capital is 10%. The firm has $10 billion in debt outstanding with the following characteristics.
|
Duration
|
Debt
|
|
1 year
|
$2 billion
|
|
2 years
|
$4 billion
|
|
5 years
|
$4 billion
|
The annualized standard deviation in the firm”s stock price is 35%, while the annualized standard deviation in the traded bonds is 15%. The correlation between stock and bond prices has been 0.5. The firm has a debt/equity ratio of 50% and the after-tax cost of debt is 6%. (The beta of the stock is 1.50; the 30-year treasury bond rate is 7%.) The three year bond rate is 5%.
a. Estimate the value of the firm.
b. Estimate the value of the equity.
c. The stock was trading at $60 and there were 210 million shares outstanding in January 1994. Estimate the implied standard deviation in firm value.
d. Estimate the market value of the debt.
Aug 29, 2021 | Uncategorized
You have been asked to analyze the value of equity in a company that has the following features.
- The earnings before interest and taxes is $25 million and the corporate tax rate is 40%. There is no net capital expenditures or working capital requirements and the earnings are expected to grow 5% a year in perpetuity. The cost of capital of comparable firms is 10%.
- The firm has two types of debt outstanding – 2-year zero-coupon bonds with a face value of $250 million and bank debt with ten years to maturity with a face value of $250 million (The duration of this debt is 4 years.).
- The firm is in two businesses – food processing and auto repair. The average standard deviation in firm value for firms in food processing is 25%, whereas the standard deviation for firms in auto repair is 40%. The correlation between the businesses is 0.5.
- The riskless rate is 7%.
Use the option pricing model to value equity as an option.
Aug 29, 2021 | Uncategorized
Universal Health Care (UHC) is a company whose stock price has declined by 40% in the last year. In the current year, UHC earned $300 million in pre-tax operating income on revenues of $10 billion. The new CEO of the firm has proposed cost-cutting measures she anticipates will save the firm $100 million in expenses, without any effect on revenues. Assume the firm is growing at a stable rate of 5% a year and its cost of capital is 10%; neither number is expected to change as a consequence of the cost cutting. The firm’s tax rate is 40%. (You can assume that the firm reinvests $100 million each year and that this reinvestment will not change as the firm cuts costs.)
- What effect will the cost cutting have on value?
- What effect will the cost cutting have on value, if the expected growth rate will drop to 4.5% as a consequence? (Some of the costs cut were designed to generate future growth)
Aug 29, 2021 | Uncategorized
Furniture Depot is a retail chain selling furniture and appliances. The firm has after-tax operating income of $250 million in the current year on revenues of $5 billion. The firm also has non-cash working capital of $1 billion. The net capital expenditures this year is $100 million and expects revenues, operating income and net capital expenditures to grow 5% a year forever. The firm’s cost of capital is 9%.
a. Assume that non-cash working capital remains at the existing percent of revenues, estimate the value of the firm.
b. Assume now that the firm is able to reduce its non-cash working capital requirement by 50%. Estimate the effect on value of this change.
c. If as a consequence of this non-cash working capital change, earnings growth declines to 4.75%, what would the effect on value be of the drop in non-cash working capital?
Aug 29, 2021 | Uncategorized
General Systems is a firm that manufactures personal computers. As a top manager in the firm, you are considering changes in the way the firm is run. Currently, the firm has after-tax operating income of $50 million on capital invested of $250 million (at the beginning of the year). The firm also reinvests $25 million in net capital expenditures and working capital.
a. Estimate the expected growth rate in earnings, given the firm’s current return on capital and reinvestment rate.
b. Holding the return on capital constant, what would happen to the expected growth rate if the firm increased its reinvestment rate to 80%?
c. What would the effect on growth be, if as the reinvestment rate increases to 80%, the return on capital on investments drops by 5%? (For instance, if the return on capital is currently 18%, it will drop to 13%.)
Aug 29, 2021 | Uncategorized
Coca Cola is considered to have one of the most valuable brand names in the world. The firm has an after-tax operating margin of 20% on revenues of $25 billion. The capital invested in the firm is $10 billion. In addition, Coca Cola reinvests 50% of its after-tax operating earnings.
a. Estimate the expected growth in operating earnings, assuming Coca Cola can sustain these values for the foreseeable future.
b. Assume generic soft drink manufacturers have after-tax operating margins of only 7.5%. If Coca Cola maintains its existing reinvestment rate but loses its brand name value, estimate the expected growth rate in operating earning. (You can assume that, with the loss in brand name value, Coca Cola’s operating margins would drop to 7.5%, as well.)
Aug 29, 2021 | Uncategorized
BioMask Genetics is a biotechnology firm with only one patent to its name. The after tax operating earnings in the current year is $100 million and the firm has no reinvestment needs. The patent will expire in 3 years and the firm will have a 15% growth rate in earnings during that period. After year 3, operating earnings are expected to remain constant forever. The firm’s management is considering an advertising plan designed to build up the brand name of its patented product. The advertising campaign will cost $50 million (pre-tax) a year over the next 3 years; the firm’s tax rate is 40%. The firm believes this campaign will allow it to maintain a 15% growth rate for 10 years, as the brand name compensates for the loss of the patent protection. After year 10, the operating earnings are expected to remain constant forever. The firm has a cost of capital of 10%.
a. Estimate the value of the firm, assuming it does not embark on the advertising campaign.
b. Estimate the value of the firm, with the advertising campaign.
c. Assume there is no guarantee the growth rate will last 10 years as a result of the campaign. What would the probability of success need to be for the campaign to be financially viable?
Aug 29, 2021 | Uncategorized
Sunmask is a cosmetics firm that has seen its stock price fall and its earnings decline in the last year. You have been hired as the new CEO of the company and a careful analysis of Sunmask’s current financials reveals the following.
– The firm currently has after-tax operating earnings of $300 million on revenues of $10 billion and a capital turnover ratio (sales/book value of capital) of 2.5.
– The firm is expected to reinvest 60% of its after-tax operating income.
– The firm is all equity financed and has a cost of capital of 10%.
a. Estimate the value of the firm, assuming existing policies continue forever. (Returns on capital and reinvestment rates remain constant forever, as well.)
b. Assume that you can increase operating margins from 3% to 5% without affecting the capital turnover ratio, that you can lower the reinvestment rate to 40%, and that the cost of capital will become 9%, if you shift to your optimal debt ratio. How much would your firm value increase if you were able to make these changes?
Aug 29, 2021 | Uncategorized
Everlast Batteries Inc. has hired you as a consultant. The firm had after-tax operating earnings in 1998 of $180 million, net income of $100 million and it paid a dividend of $50 million. The book value of equity at the end of 1998 was $1.25 billion and the book value of debt was $350 million. The firm raised $50 million of new debt during 1998. The market value of equity at the end of 1998 was twice the book value of equity and the market value of debt was the same as the book value of debt. The firm has a cost of equity of 12% and an after-tax cost of debt of 5%.
a. Estimate the return on capital earned by Everlast Batteries
b. Estimate the cost of capital earned by Everlast Batteries
c. Estimate the economic value added by Everlast Batteries
Aug 29, 2021 | Uncategorized
You have regressed price/sales ratios against fundamentals for NYSE stocks in 1994 and come up with the following regression.
PS = 0.42 + 0.33 PAYOUT + 0.73 GROWTH – 0.43 BETA + 7.91 MARGIN
For instance, a firm with a 35% payout, a 15% growth rate, a beta of 1.25 and a profit margin of 10% would have had a price/sales ratio of:
PS = 0.42 + 0.33 * 0.35 + 0.73 * 0.15 – 0.43 * 1.25 + 7.91 * 0.10 = 0.8985
a. What do the coefficients on this regression tell you about the independent variables relationship with the dependent variable? What statistical concerns might you have with this regression?
b. Estimate the price/sales ratios for all the drugstore chains described in question 2. Why might this answer be different from the one obtained from the regression of only the drug store firms? Which one would you consider more reliable and why?
Aug 29, 2021 | Uncategorized
You are now valuing the Southwest Bank, a small bank that is growing rapidly. The bank reported earnings per share of $2.00 in the just-completed financial year and paid out dividends per share of $0.20. The book value of equity at the beginning of the year was $14.00. The beta for the stock is 1.10, the risk free rate is 6% and the risk premium is 4%.
a. Assuming that it will maintain its current return on equity and payout ratio for the next 5 years, estimate the expected growth rate in earnings per share.
b. Assuming that the firm will start growing at a constant rate of 5% a year beyond that point in time, estimate the value per share today. (You can assume that the return on equity will drop to 12% in stable growth and that the beta will become 1.)
Aug 29, 2021 | Uncategorized
Now assume that you are comparing the price to book ratios of the 13 largest banks in the United States in 2000. The following table summarizes the price to book ratios and the returns on equity earned by these firms.
|
Company Name
|
P/BV ROE
|
|
Wachovia Corp.
|
2.05 18.47%
|
|
PNC Financial Serv.
|
2.54 21.56%
|
|
SunTrust Banks
|
1.91 15.35%
|
|
State Street Corp.
|
6.63 19.52%
|
|
Mellon Financial Corp.
|
4.59 23.95%
|
|
Morgan (J.P.) & Co
|
1.74 19.39%
|
|
First Union Corp.
|
1.52 19.66%
|
|
FleetBoston Fin”l
|
2.25 20.15%
|
|
Bank of New York
|
7.01 25.36%
|
|
Chase Manhattan Corp.
|
2.60 24.60%
|
|
Wells Fargo
|
3.07 17.72%
|
|
Bank of America
|
1.69 19.31%
|
|
Bank of Montreal
|
1.23 18.08%
|
a. If you were valuing SunTrust Banks, relative to these firms, would you expect it to have a higher or lower price to book ratio than the average for the group? Explain why.
b. If you regress price to book ratios against returns on equity, what would yourpredicted price to book ratios be for each of these companies?
Aug 29, 2021 | Uncategorized
Intermet Corporation, the largest independent iron foundry organization in the country, reported a deficit per share of $0.15 in 1993. The earnings per share from 1984 to 1992, were as follows:
|
Year
|
EPS
|
|
1984
|
$0.69
|
|
1985
|
$0.71
|
|
1986
|
$0.90
|
|
1987
|
$1.00
|
|
1988
|
$0.76
|
|
1989
|
$0.68
|
|
1990
|
$0.09
|
|
1991
|
$0.16
|
|
1992
|
<$0.07>
|
The firm had capital expenditures of $1.60 per share and depreciation per share of $1.20 in 1993. Working capital was expected to increase $0.10 per share in 1994. The stock has a beta of 1.2, which is expected to remain unchanged, and finances its capital expenditure and working capital requirements with 40% debt (D/(D+E)). The firm is expected, in the long term, to grow at the same rate as the economy (6%).
a. Estimate the normalized earnings per share in 1994, using the average earnings approach.
b. Estimate the normalized free cash flow to equity per share in 1994, using the average earnings approach.
Aug 29, 2021 | Uncategorized
General Motors Corporation reported a deficit per share in 1993 of $4.85, following losses in the two earlier years (The average earnings per share is negative.) The company had assets, with a book value of $25 billion, and spent almost $7 billion on capital expenditures in 1993, which was partially offset by a depreciation charge of $6 billion. The firm had $19 billion in debt outstanding, on which it paid interest expenses of $1.4 billion. It intends to maintain a debt ratio (D/(D+E)) of 50%. The working capital requirements of the firm are negligible and the stock has a beta of 1.10. In the last normal period of operations for the firm between 1986 and 1989, the firm earned an average return on assets of 12%. (Return on Assets = Earnings before interest and taxes (1- tax rate)/ Total Assets; The tax rate was 40%.) The treasury bond rate is 7%. Once earnings are normalized, GM expects them to grow 5% a year forever and capital expenditures and depreciation to keep track.
a. Estimate the value per share for GM, assuming earnings are normalized instantaneously.
b. How would your valuation be affected if GM is not going to reach its normalized earnings until 1995 (in two years)?
Aug 29, 2021 | Uncategorized
Toro Corporation, which manufactures lawn mowers and tractors, had revenues of $635 million in 1992, on which it reported a loss of $7 million (largely as a consequence of the recession). It had interest expenses of $17 million in 1992 and its bonds were rated BBB. (A typical BBB rated company had an interest coverage ratio (EBIT/Interest Expenses) of 3.10.) The company faced a 40% tax rate. The stock had a beta of 1.10. (The treasury bond rate is 7%.) Toro spent $25 million on capital expenditures in 1992, and had depreciation of $20 million. Working capital amounted to 25% of sales. The company expects to maintain a debt ratio of 25%. In the long term, growth in revenues and profits is expected to be 4%, once earnings return to normal levels.
a. Assuming that the bond rating reflects normalized earnings, estimate the normalized earnings for Toro Corporation.
b. Allowing for the long term growth rate on normalized earnings, estimate the value of equity for Toro Corporation.
Aug 29, 2021 | Uncategorized
Kollmorgen Corporation, a diversified technology company, reported sales of $194.9 million in 1992 and had a net loss of $1.9 million in that year. Its net income had traced a fairly volatile course over the previous five years.
|
Year
|
Net Income
|
|
1987
|
$0.3 million
|
|
1988
|
$11.5 million
|
|
1989
|
-$2.4 million
|
|
1990
|
$7.2 million
|
|
1991
|
-$4.6 million
|
The stock had a beta of 1.20 and the normalized net income is expected to increase 6% a year until 1996, after which the growth rate is expected to stabilize at 5% a year (The beta will drop to 1.00). The depreciation amounted to $8 million in 1992 and capital spending amounted to $10 million in that year. Both items are expected to grow 5% a year in the long term. The firm expects to maintain a debt ratio of 35%. (The treasury bond rate is 7%.)
a. Assuming that the average earnings from 1987 to 1992 represents the normalized earnings, estimate the normalized earnings and free cash flow to equity.
b. Estimate the value per share.
Aug 29, 2021 | Uncategorized
OHM Corporation, an environmental service provider, had revenues of $209 million in 1992 and reported losses of $3.1 million. It had earnings before interest and taxes of $12.5 million in 1992 and had debt outstanding of $104 million (in market value terms). There are 15.9 million shares outstanding, trading at $11 per share. The pre-tax interest rate on debt owed by the firm is 8.5% and the stock has a beta of 1.15. The firm”s EBIT is expected to increase 10% a year from 1993 to 1996, after which the growth rate is expected to drop to 4% in the long term. Capital expenditures will be offset by depreciation and working capital needs are negligible. (The corporate tax rate is 40% and the treasury bond rate is 7%.)
a. Estimate the cost of capital for OHM.
b. Estimate the value of the firm.
c. Estimate the value of equity (both total and on a per share basis).
Aug 29, 2021 | Uncategorized
You have been asked by the owner of a small firm, that produces and sells computer software, to come up with an estimate of value for his firm. The firm had revenues of $20 million in the most recent year, on which it made earnings before interest and taxes of $2 million. The firm had debt outstanding of $10 million, on which pre-tax interest expenses amounted to $ 1million. The book value of equity is $10 million. The average beta of publicly traded firms that are in the same business is 1.30 and the average debt-equity ratio if 0.2 (based upon the market value of equity). The market value of equity of these firms is, on average, three times the book value of equity.) All firms face a 40% tax rate. Capital expenditures amounted to $1 million in the most recent year and were twice the depreciation charge in that year. Both items are expected to grow at the same rate as revenues for the next five years and to offset each other in steady state. The revenues of this firm are expected to grow 20% a year for the next five years and 5% after that. Net income is expected to increase 25% a year for the next five years and 8% after that. The treasury bond rate is 7%.
a. Estimate the cost of equity for this private firm.
b. Estimate the cost of capital for this private firm.
c. Estimate the value of the owner”s stake in this private firm, using both the firm approach and the equity approach.
Aug 29, 2021 | Uncategorized
You have been provided the following information on CEL Inc, a manufacturer of highend stereo systems.
- In the most recent year, which was a bad one, the company made only $40 million in net income. It expects next year to be more normal. The book value of equity at the company is $1 billion and the average return on equity over the previous 10 years (assumed to be a normal period) was 10%.
- The company expects to make $80 million in new capital expenditures next year. It expects depreciation, which was $60 million this year, to grow 10% next year.
- The company had revenues of $1.5 billion this year and it maintained a non-cash working capital investment of 10% of revenues. It expects revenues to increase 20% next year and working capital to decline to 9.5% of revenues.
- The firm expects to maintain its existing debt policy (in market value terms). The market value of equity is $1.5 billion and the book value of equity is $500 million. The debt outstanding (in both book and market terms) is $500 million. Estimate the FCFE next year.
Aug 29, 2021 | Uncategorized
You are trying to estimate the trailing 12-month earnings for Fiber Networks. The firm has just reported an operating loss for the first quarter of 2001 of $180 million on revenues of $600 million, a jump from the operating loss of $30 million on revenues of $120 million in the first quarter of 2000. In its annual report for 2000, Fiber Networks reported an operating loss of $330 million on revenues of $1.1 billion. Estimate the operating loss and revenues for the last four quarters. 3. Verispace Software sells inventory management software and reported revenues of $25 million in the most recent financial year. You estimate that the total market for inventory management software to be $25 billion, growing at 5% a year for the foreseeable future. If you expect Verispace to have 10% market share of this market in 10 years, estimate the compounded revenue growth rate over that period.
Aug 29, 2021 | Uncategorized
You have been asked to value Barrista Espresso, a chain of espresso coffee shops that have opened on the east coast of the United States. You have collected the following information.
- The company had earnings before interest and taxes of $10.50 million in the most recent year. However, the founders of the company had never charged themselves a salary, which would have amounted to $1 million, if based upon comparable companies.
- The tax rate is 36%
- The capital expenditures in the most recent year amounted to $4.5 million, while depreciation was only $1 million.
- Working capital is expected to remain at 10% of revenues.
- Earnings, revenues and net capital expenditures are expected to grow 30% a year for 5 years, and 6% after that forever.
- There are three comparable companies, which are publicly traded.
|
|
Beta
|
D/E
|
kd
|
|
Starbucks:
|
1.74
|
9.53%
|
9.00%
|
|
Au Bon Pain:
|
1.21
|
31.43%
|
8.50%
|
|
Sbarro:
|
1.12
|
0.00%
|
NA
|
Barrista Espresso is expected to maintain a debt ratio of 12% and face a cost of debt of 8.75%.
a. Estimate the value of Barrista Espresso as a firm.
b. Estimate the value of equity in Barrista Espresso.
c. Would your valuation be any different if you were valuing the company for an initial public offering rather than a private valuation.
Aug 29, 2021 | Uncategorized
You are trying to value a bed-and-breakfast business in Vermont for its owner based upon the following information.
- The business had pre-tax operating income of $100,000 in the most recent year. This income has grown 5% a year for the last three years and is expected to continue growing at that rate for the foreseeable future.
- About 40% of this operating income can be attributed to the fact that the owner is a master chef. He does not plan to stay on if the business is sold.
- The business is financed equally with debt and equity. The pre-tax cost of borrowing is 8.00%. The beta for publicly traded firms in the hospitality business is 1.10. The treasury bond rate is 7.00%.
- The capital maintenance expenditure, net of depreciation, was $10,000 in the most recent year and it is expected to grow at the same rate as operating income.
- The business is expected to have an operating life of 10 years, after which the building will be sold at an anticipated price of $1.5 million, net of capital gains taxes.
a. Value the business, for sale.
b. How much would the value change if the owner offered to stay on for the next three years.
Aug 29, 2021 | Uncategorized
The following are the details of two potential merger candidates, Northrop and Grumman, in 1993.
|
|
Northrop
|
Grumman
|
|
Revenues
|
$4,400.00
|
$3,125.00
|
|
Cost of Goods Sold (w/o Depreciation)
|
87.50%
|
89.00%
|
|
Depreciation
|
$200.00
|
$74.00
|
|
Tax Rate
|
35.00%
|
35.00%
|
|
Working Capital
|
10% of Revenue
|
10% of Revenue
|
|
Market Value of Equity
|
$2,000.00
|
$1,300.00
|
|
Outstanding Debt
|
$160.00
|
$250.00
|
Both firms are expected to grow 5% a year in perpetuity. Capital spending is expected to be offset by depreciation. The beta for both firms is 1 and both firms are rated BBB, with an interest rate on their debt of 8.5% (the treasury bond rate is 7%). As a result of the merger, the combined firm is expected to have a cost of goods sold of only 86% of total revenues. The combined firm does not plan to borrow additional debt.
a. Estimate the value of Grumman, operating independently.
b. Estimate the value of Northrop, operating independently.
c. Estimate the value of the combined firm, with no synergy.
d. Estimate the value of the combined firm, with synergy.
e. How much is the operating synergy worth?
Aug 29, 2021 | Uncategorized
In April 1994, Novell, Inc. announced its plan to acquire WordPerfect Corporation for $1.4 billion. At the time of the acquisition, the relevant information about the two companies was as follows:
|
Revenues
|
Novell
|
WordPerfect
|
|
Cost of Goods Sold (w/o Depreciation)
|
$1,200.00
|
$600.00
|
|
Depreciation
|
57.00%
|
75.00%
|
|
Tax Rate
|
$42.00
|
$25.00
|
|
Capital Spending
|
35.00%
|
35.00%
|
|
Working Capital (as % of Revenue)
|
$75.00
|
$40.00
|
|
Beta
|
40.00%
|
30.00%
|
|
Expected Growth Rate in Revenues/EBIT
|
1.45
|
1.25
|
|
Expected Period of High Growth
|
25.00%
|
15.00%
|
|
Growth rate After High-Growth Period
|
10 years
|
10 years
|
|
Beta After High-Growth period
|
6.00%
|
6.00%
|
|
|
1.1
|
1.1
|
Capital spending will be offset by depreciation after the high-growth period. Neither firm has any debt outstanding. The treasury bond rate is 7%.
a. Estimate the value of Novell, operating independently.
b. Estimate the value of WordPerfect, operating independently.
c. Estimate the value of the combined firm, with no synergy.
d. As a result of the merger, the combined firm is expected to grow 24% a year for the high-growth period. Estimate the value of the combined firm with the higher growth.
e. What is the synergy worth? What is the maximum price Novell can pay for WordPerfect?
Aug 29, 2021 | Uncategorized
IH Corporation, a farm equipment manufacturer, has accumulated almost $2 billion in losses over the last seven years of operations and is in danger of not being able to carry forward these losses. EG Corporation, an extremely profitable financial service firm, which had $3 billion in taxable income in its most recent year, is considering acquiring IH Corporation. The tax authorities will allow EG Corporation to offset its taxable income with the carried-forward losses. The tax rate for EG Corporation is 40% and the cost of capital is 12%.
a. Estimate the value of the tax savings that will occur as a consequence of the merger.
b. What is the value of the tax savings, if the tax authorities allow EG Corporation to spread the carried-forward losses over four years, i.e., allow $200 million of the carried forward losses to offset income each year for the next four years.
Aug 29, 2021 | Uncategorized
You are considering a takeover of PMT Corporation, a firm that has significantly underperformed its peer group over the last five years and you wish to estimate the value of control. The data on PMT Corporation, the peer group, and the best managed firm in the group are given below.
|
|
PMT
Corp.
|
Peer Group
|
Best
Managed
|
|
Return on Assets (After-tax)
|
8.00%
|
12.00%
|
18.00%
|
|
Dividend Payout Ratio
|
50.00%
|
30.00%
|
20.00%
|
|
Debt Equity Ratio
|
10.00%
|
50.00%
|
50.00%
|
|
Interest Rate on Debt
|
7.50%
|
8.00%
|
8.00%
|
|
Beta
|
Not Available
|
1.3
|
1.3
|
PMT Corporation reported earnings per share of $2.50 in the most recent time period and is expected to reach stable growth in five years, after which the growth rate is expected to be 6% for all firms in this group. The beta during the stable growth period is expected to be 1 for all firms. There are 100 million shares outstanding and the treasury bond rate is 7% (the tax rate is 40% for all firms).
a. Value the equity in PMT Corporation, assuming that the current management continues in place.
b. Value the equity in PMT Corporation, assuming that it improves its performance to peer group levels.
c. Value the equity in PMT Corporation, assuming that it improves its performance to the level of the best managed firm in the group.
Aug 29, 2021 | Uncategorized
You are attempting to do a leveraged buyout of Boston Turkey but have run into some roadblocks. You have some partially completed projected cash flow statements and need help to complete them.
|
Year
|
1
|
2
|
3
|
|
Revenues
|
$1,100,000
|
$1,210,000
|
$1,331,000
|
|
(Less) Expenses
|
$440,000
|
$484,000
|
$532,400
|
|
(Less) Deprec”n
|
$100,000
|
$110,000
|
$121,000
|
|
Net Income
|
$560,000
|
$616,000
|
$677,600
|
|
(Less) Interest
|
$360,000
|
$324,000
|
$288,000
|
|
Taxable Income
|
$200,000
|
$292,000
|
$389,600
|
|
(Less) Tax
|
$80,000
|
$116,800
|
$155,840
|
|
Net Income
|
$120,000
|
$175,200
|
$233,760
|
|
Year
|
4
|
5
|
Term. Year
|
|
Revenues
|
$1,464,100
|
$1,610,510
|
$1,707,141
|
|
(Less) Expenses
|
$585,640
|
$644,204
|
$682,856
|
|
(Less) Deprec”n
|
$133,100
|
$146,410
|
$155,195
|
|
Net Income
|
$745,360
|
$819,896
|
$869,090
|
|
(Less) Interest
|
$252,000
|
$216,000
|
$180,000
|
|
Taxable Income
|
$493,360
|
$603,896
|
$689,090
|
|
(Less) Tax
|
$197,344
|
$241,558
|
$275,636
|
|
Net Income
|
$296,016
|
$362,338
|
$413,454
|
The capital expenditures are expected to be $120,000 next year and to grow at the same rate as revenues for the rest of the period. Working capital will be kept at 20% of revenues (Revenues this year were $1,000,000). The leveraged buyout will be financed with a mix of $1,000,000 of equity and $3,000,000 of debt (at an interest rate of 12%). Part of the debt will be repaid by the end of year 5 and the debt remaining at the end of year 5 will remain on the books permanently.
a. Estimate the cash flows to equity and the firm for the next five years.
b. The cost of equity in year 1 has been computed. Compute the cost of equity each year for the rest of the period (use book value of equity for the calculation).
c. Compute the terminal value of the firm.
d. Evaluate whether the leveraged buyout will create value.
Aug 29, 2021 | Uncategorized
You have been asked to value an office building in Orlando, Florida with the following characteristics.
• The building was built in 1988 and has 300,000 square feet of rentable area.
• There would be an initial construction and renovation cost of $3.0 million.
• It will take two years to fill the building. The expected vacancy rates in the first two years are as follows.
|
Year
|
Vacancy Rate
|
|
1
|
30%
|
|
2
|
20%
|
|
After year 2
|
10%
|
• The market rents in the building were expected to average $15.00 per square foot in the current year based upon average rents in the surrounding buildings.
• The market rents were assumed to grow 5% a year for five years and at 3% a year forever afterwards.
• The variable operating expenses were assumed to be $3.00 per square foot and are expected to grow at the same rate as rents. The fixed operating expense in 1994 amounted to $300,000 and was expected to grow at 3% forever.
• The real estate taxes are expected to amount to $300,000 in the first year and grow at 3% a year after that. It is assumed that all tenants will pay their pro rate share of increases in real estate taxes that exceed 3% a year.
• The tax rate on income was assumed to be 42%.
The cost of borrowing was assumed to be 8.25%, pre-tax. It was also assumed that the building would be financed with 30% equity and 70% debt.
A survey suggests that equity investors in real estate require a return of 12.5% of their investments.
a. Estimate the value of the building, based upon expected cash flows.
b. Estimate the value of just the equity stake in this building.
Aug 29, 2021 | Uncategorized
You are trying to value the same building based upon “comparable properties” sold in recent years. There have been six property sales of buildings of comparable size in the surrounding area.
|
Property
|
Sale Price
|
Size (Sq. Ft)
|
Gross Rent
|
|
A
|
$20,000,000
|
400,000
|
$5,000,000
|
|
B
|
$18,000,000
|
425,000
|
$4,750,000
|
|
C
|
$22,000,000
|
450,000
|
$5,100,000
|
|
D
|
$25,000,000
|
400,000
|
$5,500,000
|
|
E
|
$15,000,000
|
350,000
|
$4,000,000
|
|
F
|
$12,000,000
|
300,000
|
$3,000,000
|
a. Estimate the value of the building, based upon price/square foot.
b. Estimate the value of the building, based upon price/gross rent.
c. What are some of the assumptions you make when you value a building based upon comparable buildings.
Aug 29, 2021 | Uncategorized
Kimberly-Clark, a household product manufacturer, reported earnings per share of $3.20 in 1993 and paid dividends per share of $1.70 in that year. The firm reported depreciation of $315 million in 1993 and capital expenditures of $475 million. (There were 160 million shares outstanding, trading at $51 per share.) This ratio of capital expenditures to depreciation is expected to be maintained in the long term. The working capital needs are negligible. Kimberly-Clark had debt outstanding of $1.6 billion andi ntends to maintain its current financing mix (of debt and equity) to finance future investment needs. The firm is in steady state and earnings are expected to grow 7% ay ear. The stock had a beta of 1.05. (The treasury bond rate is 6.25%.)
a. Estimate the value per share, using the Dividend Discount Model.
b. Estimate the value per share, using the FCFE Model.
c. How would you explain the difference between the two models and which one would you use as your benchmark for comparison to the market price?
Aug 29, 2021 | Uncategorized
Ecolab Inc. sells chemicals and systems for cleaning, sanitizing and maintenance. It reported earnings per share of $2.35 in 1993 and expected earnings growth of 15.5% a year from 1994 to 1998 and 6% a year after that. The capital expenditure per share was $2.25 and depreciation was $1.125 per share in 1 93. Both are expected to grow at the same rate as earnings from 1994 to 1998. Working capital is expected to remain at 5% of revenues and revenues, which were $1,000 million in 1993, are expected to increase 6% a year from 1994 to 1998, and 4% a year after that. The firm currently has a debt ratio
(D/(D+E)) of 5%, but plans to finance future investment needs (including working capital investments) using a debt ratio of 20%. The stock is expected to have a beta of 1.00 for the period of the analysis and the treasury bond rate is 6.50%. (There are 63 million shares outstanding)
a. Assuming that capital expenditures and depreciation offset each other after 1998, estimate the value per share.
b. Assuming that capital expenditures continue to be 200% of depreciation even after 1998, estimate the value per share.
c. What would the value per share have been, if the firm had continued to finance new investments with its old financing mix (5%)? Is it fair to use the same beta for thisa nalysis?
Aug 29, 2021 | Uncategorized
Dionex Corporation, a leader in the development and manufacture of ion chromog raphy systems (used to identify contaminants in electronic devices), reported earnings per share of $2.02 in 1993 and paid no dividends. These earnings are expected to grow 14% a year for five years (1994 to 1998) and 7% a year after that. The firm reported depreciation of $2 million in 1993 and capital spending of $4.20 million, and had 7 million shares outstanding. The working capital is expected to remain at 50% of revenues, which were $106 million in 1993, and are expected to grow 6% a year from 1994 to 1998 and 4% a year after that. The firm is expected to finance 10% of its capital expenditures and working capital needs with debt. Dionex had a beta of 1.20 in 1993, and this beta is expected to drop to 1.10 after 1998. (The treasury bond rate is 7%)
a. Estimate the expected free cash flow to equity from 1994 to 1998, assuming that capital expenditures and depreciation grow at the same rate as earnings.
b. Estimate the terminal price per share (at the end of 1998). Stable firms in this industry have capital expenditures which are 150% of revenues and maintain working capital at 25% of revenues.
c. Estimate the value per share today, based upon the FCFE model.
Aug 29, 2021 | Uncategorized
Biomet Inc. designs, manufactures and markets reconstructive and trauma devices and reported earnings per share of $0.56 in 1993, on which it paid no dividends (It had revenues per share in 1993 of $2.91). It had capital expenditures of $0.13 per share in 1993 and depreciation in the same year of $0.08 per share. The working capital was 60% of revenues in 1993 and will remain at that level from 1994 to 1998, while earnings and revenues are expected to grow 17% a year. Thee arnings growth rate is expected to decline linearly over the following five years to a rate of 5% in 2003. During the high growth and transition periods, capital spending and depreciation are expected to grow at the same rate as earnings, but are expected to offset each other when the firm reaches steady state. Working capital is expected to drop from 60% of revenues during the 1994-1998 period to 30% of revenues after 2003. The firm has no debt currently, but plans to finance 10% of its net capital investment and working capital requirements with debt.
The stock is expected to have a beta of 1.45 for the high growth period (1994-1998) and it is expected to decline to 1.10 by the time the firm goes into steady state (in 2003). The treasury bond rate is 7%.
a. Estimate the value per share, using the FCFE model.
b. Estimate the value per share, assuming that working capital stays at 60% of revenues forever.
c. Estimate the value per share, assuming that the beta remains unchanged at 1.45 forever.
Aug 29, 2021 | Uncategorized
Which of the following firms is likely to have a higher value from the dividend discount model, a higher value from the FCFE model or the same value from both models?
(a) A firm that pays out less in dividends than it has available in FCFE, but which invests the balance in treasury bonds.
(b) A firm which pays out more in dividends than it has available in FCFE, and then issues stock to cover the difference.
(c) A firm which pays out, on average, its FCFE as dividends.
(d) A firm which pays out less in dividends that it has available in FCFE, but which uses the cash at regular intervals to acquire other firms, with the intent of diversifying.
(e) A firm which pays out more in dividends than it has available in FCFE, but borrows money to cover the difference. (The firm is over-levered to begin with.)
Aug 29, 2021 | Uncategorized
Union Pacific Railroad reported net income of $770 million in 1993, after interest expenses of $320 million. (The corporate tax rate was 36%.) It reported depreciation of $960 million in that year, and capital spending was $1.2 billion. The firm also had $4 billion in debt outstanding on the books, rated AA (carrying a yield to maturity of 8%), trading at par (up from $3.8 billion at the end of 1992). The beta of the stock is 1.05, and there were 200 million shares outstanding (trading at $60 per share), with a book value of $5 billion. Union Pacific paid 40% of its earnings as dividends and working capital requirements are negligible. (The treasury bond rate is 7%.)
a. Estimate the free cash flow to the firm in 1993.
b. Estimate the value of the firm at the end of 1993.
c. Estimate the value of equity at the end of 1993 and the value per share, using the FCFF approach.
Aug 29, 2021 | Uncategorized
Lockheed Corporation, one of the largest defense contractors in the US, reported EBITDA of $1290 million in 1993, prior to interest expenses of $215 million and depreciation charges of $400 million. Capital Expenditures in 1993 amounted to $450 million and working capital was 7% of revenues (which were $13,500 million). The firm had debt outstanding of $3.068 billion (in book value terms), trading at a market value of $3.2 billion and yielding a pre-tax interest rate of 8%. There were 62 million shares outstanding trading at $64 per share and the most recent beta is 1.10. The tax rate for the firm is 40%. (The treasury bond rate is 7%.) The firm expects revenues, earnings, capital expenditures and depreciation to grow at 9.5% a year from 1994 to 1998, after which the growth rate is expected to drop to 4%. (Capital spending will offset depreciation in the steady state period.) The company also plans to lower its debt/equity ratio to 50% for the steady state (which will result in the pre-tax interest rate dropping to 7.5%).
a. Estimate the value of the firm.
b. Estimate the value of the equity in the firm, and the value per share.
Aug 29, 2021 | Uncategorized
In the face of disappointing earnings results and increasingly assertive institutional stockholders, Eastman Kodak was considering a major restructuring in 1993. As part of this restructuring, it was considering the sale of its health division, which earned $560 million in earnings before interest and taxes in 1993, on revenues of $5.285 billion. The expected growth in earnings was expected to moderate to 6% between 1994 and 1998, and to 4% after that. Capital expenditures in the health division amounted to $420 million in 1993, while depreciation was $350 million. Both are expected to grow 4% a year in the long term. Working capital requirements are negligible. The average beta of firms competing with Eastman Kodak”s health division is 1.15. While Eastman Kodak has a debt ratio (D/(D+E)) of 50%, the health division can sustain a debt ratio (D/(D+E)) of only 20%, which is similar to the average debt ratio of firms competing in the health sector. At this level of debt, the health division can expect to pay 7.5% on its debt, before taxes. (The tax rate is 40% and the treasury bond rate is 7%.)
a. Estimate the cost of capital for the division.
b. Estimate the value of the division.
c. Why might an acquirer pay more than this estimated value for the division?
Aug 29, 2021 | Uncategorized
Santa Fe Pacific, a major rail operator with diversified operations, had earnings before interest, taxes and depreciation, of $637 million in 1993, with depreciation amounting to $235 million (offset by capital expenditure of an equivalent amount). The firm is in steady state and expected to grow 6% a year in perpetuity. Santa Fe Pacific had a beta of 1.25 in 1993 and debt outstanding of $1.34 billion. The stock price was $18.25 at the end of 1993, and there were 183.1 million shares outstanding. The expected ratings and the costs of debt at different levels of debt for Santa Fe are shown in the following table (The treasury bond rate is 7% and the firm faced a tax rate of 40%.).
D/(D+E) Rating Cost of Debt (Pre-tax)
|
0%
|
AAA
|
6.23%
|
|
10%
|
AAA
|
6.23%
|
|
20%
|
A+
|
6.93%
|
|
30%
|
A-
|
7.43%
|
|
40%
|
BB
|
8.43%
|
|
50%
|
B+
|
8.93%
|
|
60%
|
B-
|
10.93%
|
|
70%
|
CCC
|
11.93%
|
|
80%
|
CCC
|
11.93%
|
|
90%
|
CC
|
13.43%
|
The earnings before interest and taxes are expected to grow 3% a year in perpetuity with capital expenditures offset by depreciation. (The tax rate is 40%, the treasury bond rate is 7% and the market risk premium is 5.5%.)
a. Estimate the cost of capital at the current debt ratio.
b. Estimate the costs of capital at debt ratios ranging from 0% to 90%.
c. Estimate the value of the firm at debt ratios ranging from 0% to 90%.
Aug 29, 2021 | Uncategorized
International Flavors and Fragrances, a leading creator and manufacturer of flavors and fragrances, paid out dividends of $0.91 per share on earnings per share of $1.64 in 1992. The firm is expected to have a return on equity of 20% between 1993 and 1997, after which the firm is expected to have stable growth of 6% a year. The return on equity is expected to drop to 15% in the stable growth phase. The dividend payout ratio is expected to remain at the current level from 1993 to 1997. The stock has a beta of 1.10, which is not expected to change. The treasury bond rate is 7%.
a. Estimate the PE ratio for International Flavors, based upon fundamentals.
b. Estimate how much of this PE ratio can be ascribed to the extraordinary growth in earnings that the firm expects to have between 1993 and 1997.
Aug 29, 2021 | Uncategorized
Cracker Barrel, which operates restaurants and gift shops, reported dramatic growth in earnings and revenues between 1983 and 1992. During this period, earnings grew from $0.08 per share in 1983 to $0.78 per share in 1993. The dividends paid in 1993 amounted to only $0.02 per share. The earnings growth rate was expected to ease to 15% a year from 1994 to 1998 and to 6% a year after that. The payout ratio is expected to increase to 10% from 1994 to 1998 and to 50% after that. The beta of the stock is currently 1.55, but it is expected to decline to 1.25 for the 1994-98 time period and to 1.10 after that. The treasury bond rate is 7%.
a. Estimate the PE ratio for Cracker Barrel.
b. Estimate how much higher the PE ratio would have been, if it had been able to maintain the growth rate in earnings that it had posted between 1983 and 1993. (Assume that the dividend payout ratios are unaffected.)
c. Now assume that disappointing earnings reports in the near future lower the expected growth rate between 1994 and 1998 to 10%. Estimate the PE ratio. (Again, assume that the dividend payout ratio is unaffected.)
Aug 29, 2021 | Uncategorized
The following were the PE ratios of firms in the aerospace/defense industry at the end of December 1993, with additional data on expected growth and risk.
|
Company
|
PE Ratio
|
Expected
Growth
|
Beta
|
Payout
|
|
Boeing
|
17.3
|
3.50%
|
1.1
|
28%
|
|
General Dynamics
|
15.5
|
11.50%
|
1.25
|
40%
|
|
General Motors – Hughes
|
16.5
|
13.00%
|
0.85
|
41%
|
|
Grumman
|
11.4
|
10.50%
|
0.8
|
37%
|
|
Lockheed Corporation
|
10.2
|
9.50%
|
0.85
|
37%
|
|
Logicon
|
12.4
|
14.00%
|
0.85
|
11%
|
|
Loral Corporation
|
13.3
|
16.50%
|
0.75
|
23%
|
|
Martin Marietta
|
11
|
8.00%
|
0.85
|
22%
|
|
McDonnell Douglas
|
22.6
|
13.00%
|
1.15
|
37%
|
|
Northrop
|
9.5
|
9.00%
|
1.05
|
47%
|
|
Raytheon
|
12.1
|
9.50%
|
0.75
|
28%
|
|
Rockwell
|
13.9
|
11.50%
|
1
|
38%
|
|
Thiokol
|
8.7
|
5.50%
|
0.95
|
15%
|
|
United Industrial
|
10.4
|
4.50%
|
0.7
|
50%
|
a. Estimate the average and median PE ratios. What, if anything, would these averages tell you?
b. An analyst concludes that Thiokol is undervalued, because its PE ratio is lower than the industry average. Under what conditions is this statement true? Would you agree with it here?
c. Using a regression, control for differences across firms on risk, growth and payout. Specify how you would use this regression to spot under and over valued stocks. What are the limitations of this approach?
Aug 29, 2021 | Uncategorized
The following was the result of a regression of PE ratios on growth rates, betas and payout ratios, for stocks listed on the Value Line Database, in April 1993.
|
PE = 18.69 + 0.0695 GROWTH – 0.5082 BETA – 0.4262 PAYOUT R2 =0.35
|
Thus, a stock with an earnings growth rate of 20%, a beta of 1.15 and a payout ratio of 40%, would have had an expected PE ratio of:
PE = 18.69 + 0.0695 * 20 – 0.5082 (1.15) – 0.4262 * 0.40 = 19.33[NOTE: Is it 20 or 0.20?]
You are attempting to value a private firm, with the following characteristics:
(a) The firm had net profits of $10 million. It did not pay dividends, but had depreciation allowances of $5 million and capital expenditures of $12 million, in the most recent year. Working capital requirements were negligible.
(b) The earnings had grown 25% over the previous five years and are expected to grow at the same rate over the next five years.
(c) The average beta of publicly traded firms, in the same line of business, is 1.15, and the average debt/equity ratio of these firms is 25%. The tax rate is 40%. The private firm is an all-equity financed firm, with no debt.
a. Estimate the appropriate PE ratio for this private firm, using the regression.
b. What would some of your concerns be, in using this regression in valuation?
Aug 29, 2021 | Uncategorized
You are analyzing the price/book value ratios for firms in the trucking industry, relative to returns on equity and required rates of return. The data on the companies is provided below:
|
Company
|
PBV
|
ROE
|
Beta
|
|
Builders Transport
|
2
|
11.50%
|
1
|
|
Carolina Freight
|
0.6
|
5.50%
|
1.2
|
|
Consolidated Freight
|
2.6
|
12.00%
|
1.15
|
|
J.B. Hunt
|
2.5
|
14.50%
|
1
|
|
M.S. Carriers
|
2.5
|
12.50%
|
1.15
|
|
Roadway Services
|
3
|
14.00%
|
1.15
|
|
Ryder System
|
2.25
|
13.00%
|
1.05
|
|
Xtra Corporation
|
2.8
|
16.50%
|
1.1
|
The treasury bond rate is 7%.
a. Compute the average PBV ratio, return on equity and beta for the industry.
b. Based upon these averages, are stocks in the industry under or over valued relative to book values.
Aug 29, 2021 | Uncategorized
United Healthcare, a health maintenance organization, is expected to have earnings growth of 30% for the next five years and 6% after that. The dividend payout ratio will be only 10% during the high growth phase, but will increase to 60% in steady state. The return on equity was 21% in the most recent time period. The stock has a beta of 1.65 currently, but the beta is expected to drop to 1.10 in steady state. (The treasury bond rate is 7.25%.)
(a) Estimate the price/book value ratio for United Healthcare, given the inputs above.
(b) How sensitive is the price/book value ratio to estimates of growth during the high growth period?
(c) United Healthcare trades at a price/book value ratio of 7.00. How long would extraordinary growth have to last (at a 30% annual rate) to justify this PBV ratio.
Aug 29, 2021 | Uncategorized
Johnson and Johnson, a leading manufacturer of health care products, had a return on equity of 31.5% in 1993 and paid out 37% of its earnings as dividends. The stock had a beta of 1.25. (The treasury bond rate is 6%.) The extraordinary growth is expected to last for ten years, after which the growth rate is expected to drop to 6% and the return on equity to 15%. (The beta will move to 1.)
a. Assuming the return on equity and dividend payout ratio continue at current levels for the high growth period, estimate the PBV ratio for Johnson and Johnson.
b. If health care reform passes, it is believed that Johnson and Johnson”s return on equity will drop to 20% for the high growth phase. If they choose to maintain their existing dividend payout ratio, estimate the new PBV ratio for Johnson and Johnson.
(You can assume that the inputs for the steady state period are unaffected.)
Aug 29, 2021 | Uncategorized
Assume that you have done a regression of PBV ratios for all firms on the New York Stock Exchange and arrived at the following result.
PBV = 0.88 +0.82 PAYOUT +7.79 GROWTH -0.41 BETA + 13.81 ROE{R2=0.65}
where,
Payout = Dividend Payout ratio during most recent period
Beta = Beta of the stock in most current period
Growth = Projected Growth rate in Earnings over next five years
To illustrate, a firm with a payout ratio of 40%, a beta of 1.25, a ROE of 25% and expected growth rate of 15%, would have had a price/book value ratio of:
PBV = 0.88 +0.82 (0.4) +7.79 (0.15) – 0.41 (1.25)+ 13.81 (0.25) = 5.3165
a. What, if any, use would you put the R squared of the regression to?
b. Assume that you have also run a sector regression on a company and estimated a price to book ratio based upon that regression. Why might your result from the market regression yield a different result from the sector regression?
Aug 29, 2021 | Uncategorized
You are examining the wide differences in price/sales ratios that you can observe among firms in the retail store industry and trying to come up with a rationale to explain these differences.
|
Company
|
Price
|
Sales
|
Earnings
|
Expected
Growth
|
Beta
|
Payout
|
|
Bombay Co.
|
$38
|
$9.70
|
0.68
|
29%
|
145%
|
0%
|
|
Bradlees
|
15
|
16860.00%
|
1.75
|
12%
|
115%
|
34
|
|
Caldor
|
32
|
14745.00%
|
2.7
|
13%
|
155%
|
0
|
|
Consolidated
|
21
|
2300.00%
|
0.95
|
27%
|
135%
|
0
|
|
Dayton Hudson
|
73
|
27290.00%
|
4.65
|
13%
|
130%
|
38
|
|
Federated
|
22
|
5890.00%
|
1.4
|
10%
|
145%
|
0
|
|
Kmart
|
23
|
10145.00%
|
1.75
|
12%
|
130%
|
59
|
|
Nordstrom
|
36
|
4385.00%
|
1.6
|
12%
|
145%
|
20
|
|
Penney
|
54
|
8105.00%
|
3.5
|
11%
|
110%
|
41
|
|
Sears
|
57
|
15000.00%
|
4.55
|
11%
|
135%
|
36
|
|
Tiffany”s
|
32
|
3565.00%
|
1.5
|
11%
|
150%
|
19
|
|
Wal-Mart
|
30
|
2935.00%
|
1.05
|
19%
|
130%
|
11
|
|
Woolworth
|
23
|
7415.00%
|
1.35
|
13%
|
125%
|
65
|
a. There are two companies that sell for more than revenues, the Bombay company and Wal-Mart. Why?
b. What is the variable that is most highly correlated with price-sales ratios?
c. Which of these companies is most likely to be over/under valued? How did you arrive at this judgment?
Aug 29, 2021 | Uncategorized
Tambrands, a leading producer of tampons, reported net income of $122 million on revenues of $684 million in 1992. Earnings growth was anticipated to be 11% over the next five years, after which it was expected to be 6%. The firm paid out 45% of its earnings as dividends in 1992 and this payout ratio was expected to increase to 60% during the stable period. The beta of the stock was 1.00. During the course of 1993, erosion of brand loyalty and increasing competition for generic brands led to a drop in net income to $100 million on revenues of $700 million. The sales/book value ratio was comparable to 1992 levels.
(The treasury bond rate in 1992 and 1993 was 7%.)
a. Estimate the price/sales ratio, based upon 1992 profit margins and expected growth.
b. Estimate the price/sales ratio, based upon 1993 profit margins and expected growth (Assume that the extraordinary growth period remains 5 years, but that the growth rate will be impacted by the lower margins.)
2013 Annual R….pdf
Financial Acc….docx
Total stockholders’ equityRetained earningsCashTreasury stockCommon stock $5 par valuePaid-in capital in excess of par
Kellie-Pierso….xlsx