A machine was purchased two years ago for $120,000 and can be sold for $50,000 today. The machine has been depreciated using the MACRS 5-year recovery period and the firm pays 40 percent taxes on both ordinary income and capital gains. Find the firm's tax liability (benefit), if any.
Click here for the solution: A machine was purchased two years ago for $120,000 and can be sold for $50,000 today
Monday, August 31, 2015
Steinar loaned a friend $9,500 to buy some stock 3 years ago
Steinar loaned a friend $9,500 to buy some stock 3 years ago. In the current year the debt became worthless.
a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.)
b. What can Steinar do with the deduction not used this year?
Click here for the solution: Steinar loaned a friend $9,500 to buy some stock 3 years ago
a. How much is Steinar's deduction for the bad debt for this year? (Assume he has no other capital gains or losses.)
b. What can Steinar do with the deduction not used this year?
Click here for the solution: Steinar loaned a friend $9,500 to buy some stock 3 years ago
Ken paid the following amounts for interest during 2010
Ken paid the following amounts for interest during 2010:
Qualified interest on home mortgage $4,700
Auto loan interest 850
“Points" on the mortgage for acquisition of his 300 personal residence
Service charges on his checking account 40
Mastercard interest 300
Calculate Ken's itemized deduction for interest on Schedule A.
Click here for the solution: Ken paid the following amounts for interest during 2010
Qualified interest on home mortgage $4,700
Auto loan interest 850
“Points" on the mortgage for acquisition of his 300 personal residence
Service charges on his checking account 40
Mastercard interest 300
Calculate Ken's itemized deduction for interest on Schedule A.
Click here for the solution: Ken paid the following amounts for interest during 2010
In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000
In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000. During the year they incurred the following expenses:
Hospitalization insurance premiums $1,050
Premiums on an insurance policy that pays 300
$100 per day for each day Margaret is hospitalized
Medical care lodging (two people, one night) 65
Hospital bills 2.200
Doctor bills 850
Dentist bills 175
Prescription drugs and medicines 340
Psychiatric-care 300
In addition, during the year they drove 109 miles for medical transportation, and their insurance company reimbursed them $900 for the above expenses. Calculate the Murphy's medical expense deduction.
Click here for the solution: In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000
Hospitalization insurance premiums $1,050
Premiums on an insurance policy that pays 300
$100 per day for each day Margaret is hospitalized
Medical care lodging (two people, one night) 65
Hospital bills 2.200
Doctor bills 850
Dentist bills 175
Prescription drugs and medicines 340
Psychiatric-care 300
In addition, during the year they drove 109 miles for medical transportation, and their insurance company reimbursed them $900 for the above expenses. Calculate the Murphy's medical expense deduction.
Click here for the solution: In 2010, Margaret and John Murphy are married taxpayers who file a joint tax return with AGI of $25,000
Match the numbered statements below with the lettered terms
Match the numbered statements below with the lettered terms. An answer (letter) may used more than once, and some terms require more than one answer (letter).
1. Key ingredients in quality of relevance.
2. Traditional assumptions that influence the FASB's conceptual framework.
3. The idea that information should represent what it purports to represent.
4. An important constraint relating to costs and benefits.
5. An example of conservatism
6. The availability of information when it is needed.
7. Recording an item in the accounting records.
8. Determines the threshold for recognition.
9. Implies consensus.
10. Transactions between independent parties.
a) Cost-effectiveness
b) Representational faithfulness
c) Recognition
d) Verifiability
e) Time periods
f) Unrealized
g) Completeness
h) Timeliness
i) Materiality
j) Predictive value
k) Economic entity
l) Lower-of-cost-or-market rule
m) Phrenology
n) Arm's-length transactions
Click here for the solution: Match the numbered statements below with the lettered terms
1. Key ingredients in quality of relevance.
2. Traditional assumptions that influence the FASB's conceptual framework.
3. The idea that information should represent what it purports to represent.
4. An important constraint relating to costs and benefits.
5. An example of conservatism
6. The availability of information when it is needed.
7. Recording an item in the accounting records.
8. Determines the threshold for recognition.
9. Implies consensus.
10. Transactions between independent parties.
a) Cost-effectiveness
b) Representational faithfulness
c) Recognition
d) Verifiability
e) Time periods
f) Unrealized
g) Completeness
h) Timeliness
i) Materiality
j) Predictive value
k) Economic entity
l) Lower-of-cost-or-market rule
m) Phrenology
n) Arm's-length transactions
Click here for the solution: Match the numbered statements below with the lettered terms
For each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied
For each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied. A letter may be used more than once, and more than one characteristic or concept may apply to a particular situation. Explain why you chose your answer.
1. Goodwill is recorded in the accounts only when it arises from the purchase of another entity at a price higher than the fair market value of the purchased entity's identifiable assets.
2. Land is valued at cost.
3. All payments out of petty cash are debited to Miscellaneous Expense.
4. Plant assets are classified separately as land or buildings, with an accumulated depreciation account for buildings.
5. Periodic payments of $1,500 per month for services of H. Hay, who is the sole proprietor of the company, are reported as withdrawals.
6. Small tools used by a large manufacturing firm are^ recorded as expenses when purchased.
7. Investments in equity securities are initially recorded at cost.
8. A retail store estimates inventory rather than taking a complete physical count for purposes of preparing monthly financial statements.
9. A note describing the company's possible liability in a lawsuit is included with the financial statements even though no formal liability exists at the balance sheet date.
10. Depreciation on plant assets is consistently computed each year by the straight-line method.
a) Understandability
b) Verifiability
c) Timeliness
d) Representational faithfulness
e) Neutrality
f) Relevance
g) Going concern
h) Economic entity
i) Historical cost
j) Measurability
k) Materiality
l) Comparability
Click here for the solution: For each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied
1. Goodwill is recorded in the accounts only when it arises from the purchase of another entity at a price higher than the fair market value of the purchased entity's identifiable assets.
2. Land is valued at cost.
3. All payments out of petty cash are debited to Miscellaneous Expense.
4. Plant assets are classified separately as land or buildings, with an accumulated depreciation account for buildings.
5. Periodic payments of $1,500 per month for services of H. Hay, who is the sole proprietor of the company, are reported as withdrawals.
6. Small tools used by a large manufacturing firm are^ recorded as expenses when purchased.
7. Investments in equity securities are initially recorded at cost.
8. A retail store estimates inventory rather than taking a complete physical count for purposes of preparing monthly financial statements.
9. A note describing the company's possible liability in a lawsuit is included with the financial statements even though no formal liability exists at the balance sheet date.
10. Depreciation on plant assets is consistently computed each year by the straight-line method.
a) Understandability
b) Verifiability
c) Timeliness
d) Representational faithfulness
e) Neutrality
f) Relevance
g) Going concern
h) Economic entity
i) Historical cost
j) Measurability
k) Materiality
l) Comparability
Click here for the solution: For each situation listed below, indicate by letter the appropriate qualitative characteristic(s) or accounting concept(s) applied
Joan is a self-employed-attorney in New York City
Joan is a self-employed-attorney in New York City. Joan took a trip to San Diego, CA, primarily for business, to' consult with a client and take a short vacation. On the trip, Joan incurred the following expenses:
Airfare to and from San Diego 575
Hotel charges while on business 340
Meals while on business 210
Car rental while on business 120
Hotel charges while on vacation 460
Meals while on vacation 290
Car rental while on vacation 180
Total 2,175
Calculate Joan's travel expense deduction for the trip, assuming the trip was made in 2010.
Click here for the solution: Joan is a self-employed-attorney in New York City
Airfare to and from San Diego 575
Hotel charges while on business 340
Meals while on business 210
Car rental while on business 120
Hotel charges while on vacation 460
Meals while on vacation 290
Car rental while on vacation 180
Total 2,175
Calculate Joan's travel expense deduction for the trip, assuming the trip was made in 2010.
Click here for the solution: Joan is a self-employed-attorney in New York City
Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts
Problem 9-30 Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts. Design a substantive audit procedure that provides reasonable assurance of detecting each misstatement.
1. A bonus earned by the president of the company has not been recorded.
2. Several accounts payable to vendors that the company has never purchased from before are omitted from the accounts payable listing.
3. When client employees counted the physical inventory, they included a number of items that were consigned to, but do not belong to, the company.
4. There is no disclosure in the financial statements that a large accounts payable is due to a related party.
5. Accrued payroll is understated.
6. One-third of the inventory of diamond jewelry is actually cubic zircona or white sapphires.
7. The client paid the same vendor invoice twice, although it is still shown as an account payable.
8. Client personnel informed the auditors that underground petroleum tanks contained an inventory of high-octane gasoline when they actually contained water.
9. The client failed to record warranty expenses incurred after year-end applicable to sales made before year-end.
10. Inventory in one corner of the warehouse is overlooked and not counted during the client’s physical inventory count.
Click here for the solution: Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts
1. A bonus earned by the president of the company has not been recorded.
2. Several accounts payable to vendors that the company has never purchased from before are omitted from the accounts payable listing.
3. When client employees counted the physical inventory, they included a number of items that were consigned to, but do not belong to, the company.
4. There is no disclosure in the financial statements that a large accounts payable is due to a related party.
5. Accrued payroll is understated.
6. One-third of the inventory of diamond jewelry is actually cubic zircona or white sapphires.
7. The client paid the same vendor invoice twice, although it is still shown as an account payable.
8. Client personnel informed the auditors that underground petroleum tanks contained an inventory of high-octane gasoline when they actually contained water.
9. The client failed to record warranty expenses incurred after year-end applicable to sales made before year-end.
10. Inventory in one corner of the warehouse is overlooked and not counted during the client’s physical inventory count.
Click here for the solution: Listed below are several misstatements of inventory, accounts payable, and accrued liabilities accounts
For each of the following problems, provide an audit procedure that would have identified the problem
Problem 10-28 For each of the following problems, provide an audit procedure that would have identified the problem.
(a) The allowance for doubtful accounts estimated by management is too small.
(b) Cash received in payment of an account receivable is deposited in the bank in the current period but is not posted to the accounts receivable record, trial balance, or general ledger until the subsequent period.
(c) For a month, sales are transacted using an outdated price list with amounts that are too low. The transactions are recorded accurately based on the price list used. Management is not aware the problem occurred.
(d) Cash for the exact amounts of sales are regularly pocketed by employees and not recorded on the sales terminal. Customers do not ask for receipts.
(e) Management records false sales close to year end and posts them as Accounts Receivable.
(f) Sales on account for services that take place in the first two days of the subsequent year are posted in the current year.
Click here for the solution: For each of the following problems, provide an audit procedure that would have identified the problem
(a) The allowance for doubtful accounts estimated by management is too small.
(b) Cash received in payment of an account receivable is deposited in the bank in the current period but is not posted to the accounts receivable record, trial balance, or general ledger until the subsequent period.
(c) For a month, sales are transacted using an outdated price list with amounts that are too low. The transactions are recorded accurately based on the price list used. Management is not aware the problem occurred.
(d) Cash for the exact amounts of sales are regularly pocketed by employees and not recorded on the sales terminal. Customers do not ask for receipts.
(e) Management records false sales close to year end and posts them as Accounts Receivable.
(f) Sales on account for services that take place in the first two days of the subsequent year are posted in the current year.
Click here for the solution: For each of the following problems, provide an audit procedure that would have identified the problem
Describe insider trading. Why is it illegal?
Describe insider trading. Why is it illegal?
Click here for the solution: Describe insider trading. Why is it illegal?
Click here for the solution: Describe insider trading. Why is it illegal?
Corporate executives sometimes abuse their positions by overpaying themselves at the expense of stockholders
Corporate executives sometimes abuse their positions by overpaying themselves at the expense of stockholders. When that happens are the executives' gains dollar-for-dollar losses to stockholders or can investors lose more or less than the amounts by which the executives profit? Explain thoroughly.
Click here for the solution: Corporate executives sometimes abuse their positions by overpaying themselves at the expense of stockholders
Click here for the solution: Corporate executives sometimes abuse their positions by overpaying themselves at the expense of stockholders
Interest is said to drive the stock market
Interest is said to drive the stock market. But interest is paid on bonds and loans, while stocks pay dividends, never interest. It would seem that interest has nothing to do with the stock market. Explain this apparent contradiction.
Click here for the solution: Interest is said to drive the stock market
Click here for the solution: Interest is said to drive the stock market
Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets
Use the following information for Problems 12-30 and 12-31:
Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets.
AND SO ON
Problem 12-30 Identify and list the company controls in place related to purchase transactions and cash disbursements.
(a) For each control identified:
• state the purpose of the control.
• state which management assertion(s) are related to the control.
• list the procedures and documents needed to test the control.
(b) What are some additional controls that could be implemented to improve Raptor Manufacturing’s control environment pertaining to its purchases and cash disbursements cycle?
Problem 12-31 Which of the controls identified in Problem 12-30 could be audited using a dual purpose test. How would this change the procedures and documents needed?
Click here for the solution: Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets
Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets.
AND SO ON
Problem 12-30 Identify and list the company controls in place related to purchase transactions and cash disbursements.
(a) For each control identified:
• state the purpose of the control.
• state which management assertion(s) are related to the control.
• list the procedures and documents needed to test the control.
(b) What are some additional controls that could be implemented to improve Raptor Manufacturing’s control environment pertaining to its purchases and cash disbursements cycle?
Problem 12-31 Which of the controls identified in Problem 12-30 could be audited using a dual purpose test. How would this change the procedures and documents needed?
Click here for the solution: Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets
Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits
Problem 13-31 Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits. You are the staff auditor on the engagement. Sam asks you to make a start on the audit program for the human resources and payroll tests.
Required: Create a chart with two columns. Column A (shown below) lists different types of tests the team can utilize for testing ICFR and financial statement audits. In Column B give one example for each type of test listed in Column (a).
Column A Column B
Tests of controls for human resources transactions
Tests of controls for payroll cash disbursements
Dual purpose tests for human resources transactions
Dual purpose tests for payroll disbursements
Substantive analytical procedures for payroll-related expenses
Substantive analytical procedures for payroll-related liabilities
Tests of details of balances for payroll-related expenses
Tests of details of balances for payroll-related liabilities
Click here for the solution: Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits
Required: Create a chart with two columns. Column A (shown below) lists different types of tests the team can utilize for testing ICFR and financial statement audits. In Column B give one example for each type of test listed in Column (a).
Column A Column B
Tests of controls for human resources transactions
Tests of controls for payroll cash disbursements
Dual purpose tests for human resources transactions
Dual purpose tests for payroll disbursements
Substantive analytical procedures for payroll-related expenses
Substantive analytical procedures for payroll-related liabilities
Tests of details of balances for payroll-related expenses
Tests of details of balances for payroll-related liabilities
Click here for the solution: Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits
Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts
Problem 14-31 Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts or, alternatively, identify material misstatements in the amounts presented. Audit procedures can only be selected after the auditor determines specific audit objectives related to management assertions.
Management Assertions
1. Existence or occurrence
2. Completeness
3. Rights and obligations
4. Valuation or allocation
5. Presentation and disclosure
Required: For each audit procedure below, identify the related management assertion(s) that the audit procedure tests and explain the audit objective of the procedure.
(a) Trace totals of inventory files to the general ledger, including proper classification as raw materials, WIP, or finished goods.
(b) Test additions to inventory by selecting a sample of recorded purchases from the inventory records and examining supporting documents.
(c) Review consignment contracts and scan inventory records for inclusion of amounts for any consigned items not owned.
(c) Reperform calculations supporting decisions about write-downs or write-offs of inventory and trace any adjustment amounts to the inventory records.
(d) Using computer-assisted auditing techniques reperform calculations testing mathematical accuracy, including totals extensions of price and quantity and unit or batch aggregations; recalculation is based on appropriate application of the client costing method (FIFO, LIFO, weighted average, specific identification, etc.).
Click here for the solution: Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts
Management Assertions
1. Existence or occurrence
2. Completeness
3. Rights and obligations
4. Valuation or allocation
5. Presentation and disclosure
Required: For each audit procedure below, identify the related management assertion(s) that the audit procedure tests and explain the audit objective of the procedure.
(a) Trace totals of inventory files to the general ledger, including proper classification as raw materials, WIP, or finished goods.
(b) Test additions to inventory by selecting a sample of recorded purchases from the inventory records and examining supporting documents.
(c) Review consignment contracts and scan inventory records for inclusion of amounts for any consigned items not owned.
(c) Reperform calculations supporting decisions about write-downs or write-offs of inventory and trace any adjustment amounts to the inventory records.
(d) Using computer-assisted auditing techniques reperform calculations testing mathematical accuracy, including totals extensions of price and quantity and unit or batch aggregations; recalculation is based on appropriate application of the client costing method (FIFO, LIFO, weighted average, specific identification, etc.).
Click here for the solution: Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts
For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client
Problem 15-40 For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client. Jocelyn has assessed the control risk for the company at the maximum for all financial statement assertions involving investments. Consequently, the ICFR audit report will indicate material weaknesses and rather than relying on ICFR during the financial statement audit, all audit evidence will come from substantive procedures. Jocelyn determines that Rogers is unable to exercise significant influence over any investee and there are no related parties.
Morris receives an investment analysis from Rogers’s management revealing the following:
• There is a notation indicating that all securities either are in the treasurer’s safe or held by an independent bank custodian.
• Investments are classified as current or non-current.
• The beginning and ending balances are shown at cost and market.
• Unamortized premiums or discounts are associated with bonds.
• The face amount of bonds or number of shares of stock are given for the beginning and ending of the year.
• Accrued investment income for each investment at the beginning and ending of the year is presented.
• Investment income earned and collected is presented.
• Valuation allowances at the beginning and ending of the year are shown.
• Any sales or additions to portfolios for the year include date, number of shares, face amount of bonds, proceeds, cost, and realized gain/loss.
Required: Explain the audit objective for each of the listed management financial statement assertions relative to investments.
Assertion Audit Objective
1. Existence
2. Completeness
3. Rights
4. Valuation/allocation
Presentation and Disclosure
Click here for the solution: For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client
Morris receives an investment analysis from Rogers’s management revealing the following:
• There is a notation indicating that all securities either are in the treasurer’s safe or held by an independent bank custodian.
• Investments are classified as current or non-current.
• The beginning and ending balances are shown at cost and market.
• Unamortized premiums or discounts are associated with bonds.
• The face amount of bonds or number of shares of stock are given for the beginning and ending of the year.
• Accrued investment income for each investment at the beginning and ending of the year is presented.
• Investment income earned and collected is presented.
• Valuation allowances at the beginning and ending of the year are shown.
• Any sales or additions to portfolios for the year include date, number of shares, face amount of bonds, proceeds, cost, and realized gain/loss.
Required: Explain the audit objective for each of the listed management financial statement assertions relative to investments.
Assertion Audit Objective
1. Existence
2. Completeness
3. Rights
4. Valuation/allocation
Presentation and Disclosure
Click here for the solution: For the year ended 2010, Jocelyn Morris, CPA, has been engaged to audit Rogers, Inc., which is a continuing client
Janie graduates from high school in 2010 and enrolls in college in the fall
Janie graduates from high school in 2010 and enrolls in college in the fall. Her parents pay $4,000 for her tuition and fees.
a. Assuming Janie's parents have AGI of $170,000, what is the American Opportunity credit they can claim for Janie?
b. Assuming Janie's parents have AGI of $75,000, what is the American Opportunity credit they can claim for Janie?
Click here for the solution: Janie graduates from high school in 2010 and enrolls in college in the fall
a. Assuming Janie's parents have AGI of $170,000, what is the American Opportunity credit they can claim for Janie?
b. Assuming Janie's parents have AGI of $75,000, what is the American Opportunity credit they can claim for Janie?
Click here for the solution: Janie graduates from high school in 2010 and enrolls in college in the fall
Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases
Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases, assuming the taxpayers had no income other than the stated amounts.
a. William and Carla file a joint tax return. Carla earned $26,000 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl.
b. Raymond and Michele file a joint tax return. Raymond earned $32,500 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13.
c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $23,500 in wages during the year and paid $6,700 for the care of her children.
Click here for the solution: Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases
a. William and Carla file a joint tax return. Carla earned $26,000 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl.
b. Raymond and Michele file a joint tax return. Raymond earned $32,500 during the year, while Michele earned $9,000 for the year from a part-time job. They paid $7,000 for the care of their two children under age 13.
c. Beth is a single taxpayer who has two dependent children under age 5. Beth earned $23,500 in wages during the year and paid $6,700 for the care of her children.
Click here for the solution: Calculate the amount of the child and dependent care credit allowed for 2010 in each of the following cases
Dick owns a house that he rents to college students
Dick owns a house that he rents to college students. Dick receives $750 per month rent and incurs the following expenses during the year:
Real estate taxes $ 1,250
Mortgage interest 1,500
Insurance 375
Repairs 562
Association Dues 1,600
Dick purchased the house in 1975 for $48,000. The house is fully depreciated. Calculate Dick's net rental income for the year, assuming the house was rented for a full 12 months.
Click here for the solution: Dick owns a house that he rents to college students
Real estate taxes $ 1,250
Mortgage interest 1,500
Insurance 375
Repairs 562
Association Dues 1,600
Dick purchased the house in 1975 for $48,000. The house is fully depreciated. Calculate Dick's net rental income for the year, assuming the house was rented for a full 12 months.
Click here for the solution: Dick owns a house that he rents to college students
Phil and Linda are 25 year-old newlyweds and file a joint tax return
Phil and Linda are 25 year-old newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not.
a. Assuming Phil's wages were $27,000 and Linda's wages were $18,500 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
b. Assuming Phil's wages were $49,000 and Linda's wages were $63,000 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
Click here for the solution: Phil and Linda are 25 year-old newlyweds and file a joint tax return
a. Assuming Phil's wages were $27,000 and Linda's wages were $18,500 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
b. Assuming Phil's wages were $49,000 and Linda's wages were $63,000 for 2010 and they had no other income, what is the maximum amount of their deductible contributions to an IRA for 2010?
Click here for the solution: Phil and Linda are 25 year-old newlyweds and file a joint tax return
Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled
Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled to claim on their 2010 income tax returns.
Number of Exemptions
a. Donna, a 20-year-old single taxpayer, supports her mother, who lives in her own home. Her mother has income of $1,350. ___________________
b. William, age 43, and Mary, age 45, are married and support William’s 19-year-old sister, who is not a student. The sister’s income from a part-time job is $3,500. ___________________
c. Devi was divorced in 2010 and receives child support of $250 per month from her ex-husband for the support of their 8-year-old son, John, who lives with her. Devi is 45 and provides more than half of her son’s support. ___________________
d. Wendell, an 89-year-old single taxpayer, supports his son, who is 67 years old and earns no income. ___________________
e. Wilma, age 65, and Morris, age 66, are married. They file a joint return.
Click here for the solution: Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled
Number of Exemptions
a. Donna, a 20-year-old single taxpayer, supports her mother, who lives in her own home. Her mother has income of $1,350. ___________________
b. William, age 43, and Mary, age 45, are married and support William’s 19-year-old sister, who is not a student. The sister’s income from a part-time job is $3,500. ___________________
c. Devi was divorced in 2010 and receives child support of $250 per month from her ex-husband for the support of their 8-year-old son, John, who lives with her. Devi is 45 and provides more than half of her son’s support. ___________________
d. Wendell, an 89-year-old single taxpayer, supports his son, who is 67 years old and earns no income. ___________________
e. Wilma, age 65, and Morris, age 66, are married. They file a joint return.
Click here for the solution: Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled
Linda and Richard are married and file a joint return for 2010
Linda and Richard are married and file a joint return for 2010. During the year, Linda, who works as an accountant for a national airline, used $2,100 worth of free passes for travel on the airline; Richard used the same amount. Linda and Richard also used $750 worth of employee discount coupons for hotel rooms at the hotel chain that is also owned by the airline. Richard is employed at State University as an accounting clerk. Under a tuition reduction plan, Richard saved $1,000 in tuition fees during 2010. He is studying for a master's degree in business. Richard also had $30 worth of personal typing done by his secretary at the University.
What is the amount of fringe benefits that should be included in Linda and Richard’s gross income on their 2010 tax return?
Click here for the solution: Linda and Richard are married and file a joint return for 2010
What is the amount of fringe benefits that should be included in Linda and Richard’s gross income on their 2010 tax return?
Click here for the solution: Linda and Richard are married and file a joint return for 2010
How much of each of the following prizes or awards is taxable
How much of each of the following prizes or awards is taxable?
a. Cheline received a $50,000 gift bag at the Oscars in 2010.
b. Jon received a gold watch worth $350 for 25 years of service to his accounting firm,
c. Kerry won $1,000,000 in her state lottery.
d. Deborah is a professor who received $50,000 as an award for her scientific research from the University that employs her.
Click here for the solution: How much of each of the following prizes or awards is taxable
a. Cheline received a $50,000 gift bag at the Oscars in 2010.
b. Jon received a gold watch worth $350 for 25 years of service to his accounting firm,
c. Kerry won $1,000,000 in her state lottery.
d. Deborah is a professor who received $50,000 as an award for her scientific research from the University that employs her.
Click here for the solution: How much of each of the following prizes or awards is taxable
Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010
Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010. The truck is not considered a passenger automobile for purposes of the listed property and luxury automobile limitations. The truck has a depreciable basis of $39,080 and an estimated useful life of 5 years. Its estimated salvage value is $1,080. Assume no election to expense is made and no bonus depreciation is taken.
a. Calculate the amount of depreciation for 2010 using financial accounting straight-line depreciation (not the straight-line MACRS election) over the truck's estimated useful life.
b. Calculate the amount of depreciation for 2010 using the straight-line depreciation election under MACRS over the minimum number of years.
c. Calculate the amount of accelerated depreciation for 2010 that Mike could deduct using MACRS.
Click here for the solution: Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010
a. Calculate the amount of depreciation for 2010 using financial accounting straight-line depreciation (not the straight-line MACRS election) over the truck's estimated useful life.
b. Calculate the amount of depreciation for 2010 using the straight-line depreciation election under MACRS over the minimum number of years.
c. Calculate the amount of accelerated depreciation for 2010 that Mike could deduct using MACRS.
Click here for the solution: Mike purchases a heavy-duty truck (5-year class recovery property) for his delivery service on April 30, 2010
JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation
JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation. Z Corporation is owned 80 percent by John and 20 percent by an unrelated party. Brian and Charlie are brothers. Answer each of the following questions about JBC under the constructive ownership rules of Section 267:
a. What is John's percentage ownership?
b. What is Brian's percentage ownership?
Click here for the solution: JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation
a. What is John's percentage ownership?
b. What is Brian's percentage ownership?
Click here for the solution: JBC Corporation is owned 20 percent by John, 30 percent by Brian, 30 percent by Charlie, and 20 percent by Z Corporation
Jill Loomis believes a current liability is a debt that can be expected to be paid in one year
1. Jill Loomis believes a current liability is a debt that can be expected to be paid in one year. Is Jill correct? Explain.
2. Frederickson Company obtains $40,000 in cash by signing a 9%, 6-month, $40,000 note payable to First Bank on July 1. Frederickson’s fiscal year ends on September 30. What
information should be reported for the note payable in the annual financial statements?
Click here for the solution: Jill Loomis believes a current liability is a debt that can be expected to be paid in one year
2. Frederickson Company obtains $40,000 in cash by signing a 9%, 6-month, $40,000 note payable to First Bank on July 1. Frederickson’s fiscal year ends on September 30. What
information should be reported for the note payable in the annual financial statements?
Click here for the solution: Jill Loomis believes a current liability is a debt that can be expected to be paid in one year
On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note
E11-2 On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note.
Instructions
(a) Prepare the entry on June 1.
(b) Prepare the adjusting entry on June 30.
(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30.
(d) What was the total financing cost (interest expense)?
Click here for the solution: On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note
Instructions
(a) Prepare the entry on June 1.
(b) Prepare the adjusting entry on June 30.
(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have been made through November 30.
(d) What was the total financing cost (interest expense)?
Click here for the solution: On June 1, Melendez Company borrows $90,000 from First Bank on a 6-month, $90,000, 12% note
Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
E15-18 Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012. To answer this question, you gather the following data:
2012 2011
Cash $ 58,000 $ 57,000
Short-term investments 31,000 —
Net receivables 110,000 132,000
Inventory 247,000 297,000
Total assets 585,000 535,000
Total current liabilities 255,000 222,000
Long-term note payable 46,000 48,000
Income from operations 180,000 153,000
Interest expense 52,000 39,000
Requirement
• 1.Compute the following ratios for 2012 and 2011:
o a.Current ratio
o b.Acid-test ratio
o c.Debt ratio
o d.Debt to equity ratio
Click here for the solution: Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
2012 2011
Cash $ 58,000 $ 57,000
Short-term investments 31,000 —
Net receivables 110,000 132,000
Inventory 247,000 297,000
Total assets 585,000 535,000
Total current liabilities 255,000 222,000
Long-term note payable 46,000 48,000
Income from operations 180,000 153,000
Interest expense 52,000 39,000
Requirement
• 1.Compute the following ratios for 2012 and 2011:
o a.Current ratio
o b.Acid-test ratio
o c.Debt ratio
o d.Debt to equity ratio
Click here for the solution: Large Land Photo Shop has asked you to determine whether the company's ability to pay current liabilities and total liabilities improved or deteriorated during 2012
On January 1, 2008, the ledger of Mane Company contains the following liability accounts
P11-1A On January 1, 2008, the ledger of Mane Company contains the following liability accounts.
Accounts Payable $52,000
Sales Taxes Payable 7,700
Unearned Service Revenue 16,000
During January the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $22,680, which includes 8% sales taxes.
12 Provided services for customers who had made advance payments of $10,000. (Credit Service Revenue.)
14 Paid state revenue department for sales taxes collected in December 2007 ($7,700).
20 Sold 800 units of a new product on credit at $50 per unit, plus 8% sales tax.
21 Borrowed $18,000 from UCLA Bank on a 3-month, 8%, $18,000 note.
25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.
Instructions
(a) Journalize the January transactions.
(b) Journalize the adjusting entries at January 31 for the outstanding notes payable. (Hint: Use one-third of a month for the UCLA Bank note.)
(c) Prepare the current liabilities section of the balance sheet at January 31, 2008. Assume no
change in accounts payable.
Click here for the solution: On January 1, 2008, the ledger of Mane Company contains the following liability accounts
Accounts Payable $52,000
Sales Taxes Payable 7,700
Unearned Service Revenue 16,000
During January the following selected transactions occurred.
Jan. 5 Sold merchandise for cash totaling $22,680, which includes 8% sales taxes.
12 Provided services for customers who had made advance payments of $10,000. (Credit Service Revenue.)
14 Paid state revenue department for sales taxes collected in December 2007 ($7,700).
20 Sold 800 units of a new product on credit at $50 per unit, plus 8% sales tax.
21 Borrowed $18,000 from UCLA Bank on a 3-month, 8%, $18,000 note.
25 Sold merchandise for cash totaling $12,420, which includes 8% sales taxes.
Instructions
(a) Journalize the January transactions.
(b) Journalize the adjusting entries at January 31 for the outstanding notes payable. (Hint: Use one-third of a month for the UCLA Bank note.)
(c) Prepare the current liabilities section of the balance sheet at January 31, 2008. Assume no
change in accounts payable.
Click here for the solution: On January 1, 2008, the ledger of Mane Company contains the following liability accounts
On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet
MULTIPLE CHOICE / TRUE OR FALSE
1. On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet:
Stockholders' equity
Common stock, $1 par 100,000 shares authorized $40,000
40,000 shares issued
Paid-in capital in excess of par 260,000
Retained earnings 940,000
Total stockholder's equity $1,240,000
On July 1, 2013, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would be the new number of shares issued shown on the balance sheet? (Points : 1)
2. Stock sold for amounts in excess of par value results in a gain reported on the income statement. (Points : 1)
3. The account to be debited when a stock dividend is declared and distributed on the same date would be: (Points : 1)
4. A corporation must record a gain on sale for the sale of treasury stock at an amount greater than its purchase price. (Points : 1)
5. If preferred stock is non-cumulative, then the company does NOT need to pay dividends that were passed in previous years. (Points : 1)
6. Please refer to the following information for Petra Sales Company:
Common stock, $1.00 par, 200,000 issued, 180,000 outstanding
Paid-in capital in excess of par: $1,600,000
Retained earnings: $2,440,000
Treasury stock: 20,000 shares purchased at $12 per share
If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, the total equity of the company will go down by $70,000. (Points : 1)
7. Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4% non-cumulative, with $100 par value. On October 15, 2014, the company declares a total dividend payment of $40,000. What is the total amount of dividends that will be paid to the common shareholders? (Points : 1)
8. Which of the following describes the term outstanding stock? (Points : 1)
9. A corporation is a separate legal entity formed under the laws of a particular state. (Points : 1)
10. All forms and classes of stock carry voting rights. (Points : 1)
Click here for the solution: On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet
1. On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet:
Stockholders' equity
Common stock, $1 par 100,000 shares authorized $40,000
40,000 shares issued
Paid-in capital in excess of par 260,000
Retained earnings 940,000
Total stockholder's equity $1,240,000
On July 1, 2013, Stephans distributed a 5% stock dividend. The market value of the stock at that time was $13 per share. Following this transaction, what would be the new number of shares issued shown on the balance sheet? (Points : 1)
2. Stock sold for amounts in excess of par value results in a gain reported on the income statement. (Points : 1)
3. The account to be debited when a stock dividend is declared and distributed on the same date would be: (Points : 1)
4. A corporation must record a gain on sale for the sale of treasury stock at an amount greater than its purchase price. (Points : 1)
5. If preferred stock is non-cumulative, then the company does NOT need to pay dividends that were passed in previous years. (Points : 1)
6. Please refer to the following information for Petra Sales Company:
Common stock, $1.00 par, 200,000 issued, 180,000 outstanding
Paid-in capital in excess of par: $1,600,000
Retained earnings: $2,440,000
Treasury stock: 20,000 shares purchased at $12 per share
If Petra Sales purchases an additional 5,000 shares of treasury stock at $14 per share, the total equity of the company will go down by $70,000. (Points : 1)
7. Occidental Produce Company has 40,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $0.01 par value; the preferred stock is 4% non-cumulative, with $100 par value. On October 15, 2014, the company declares a total dividend payment of $40,000. What is the total amount of dividends that will be paid to the common shareholders? (Points : 1)
8. Which of the following describes the term outstanding stock? (Points : 1)
9. A corporation is a separate legal entity formed under the laws of a particular state. (Points : 1)
10. All forms and classes of stock carry voting rights. (Points : 1)
Click here for the solution: On June 30, 2013, Stephans Company showed the following data on the equity section of their balance sheet
Sunday, August 23, 2015
Sherene Nili manages a company that produces wedding gowns
Sherene Nili manages a company that produces wedding gowns. She produces both a custom product that is made to order and a standard product that is sold in bridal salons. Her accountant prepared the following forecasted income statement for March, which is a busy month:
…………………………………Custom Dresses……Standard Dresses…….Total
Number of dresses…………………….10……………...……20…………..…..…30
Sales revenue……………………..50,000………………25,000……….……75,000
Materials………………………….10,000……………..…8,000………….…18,000
Labor……………………………..20,000…………..……9,000……….……29,000
Machine depreciation…………..600…………….……300…………..……900
Rent………………………………..4,200…………..……2,800……..….……7,000
Heat and Light………………..1,000…………………600…………...….1,600
Other production costs………..........................................2,800
Marketing and administration……………………………………………..7,700
Total costs………………………………………………………………..……67,000
Operating profit…………………………………………………………………8,000
Ms. Nili already has orders for the 10 custom dresses reflect in the March forecasted income statement. The depreciation charges are for march used in the respective product lines. Machines depreciate at the rate of $1 per hour based on hours used, so these are variable cost. In March, cutting and sewing machines are expected to operate for 900 hours, of which 600 hours will be used to make custom dresses. The rent is for the building space, which has been leased for several years at $7,000 per month. The rent, heat, and light are allocated to the product lines based on the amount of floor space occupied.
A valued customer, who is a wedding consultant, has asked Ms. Nili for a special favor. This customer has a client who wants to get married in early April. Ms. Nili’s company is working at capacity and would have to give up some other business to make this dress. She can’t renege on custom orders already agreed to, but she can reduce the number of standard dresses produced in March to 10. Ms Nili would lose permanently the opportunity to make up the lost production of standard dresses because she has no unused capacity for the foreseeable future. The customer is willing to pay $25,000 for the special order. Materials and labor for the order will cost $6,000 and $10,000, respectively. The special order would require 140 hours of machine time. Ms. Nili’s company would save 150 hours of machine time from the standard dress business given up. Rent, heat and light, and other production cost would not be affected by the special order.
Question
1. Should Ms. Nili take the order? Explain?
2. What is the minimum price Ms. Nili should accept to take the special order?
3. What are the other factors, if any, besides price that she should consider?
Click here for the solution: Sherene Nili manages a company that produces wedding gowns
…………………………………Custom Dresses……Standard Dresses…….Total
Number of dresses…………………….10……………...……20…………..…..…30
Sales revenue……………………..50,000………………25,000……….……75,000
Materials………………………….10,000……………..…8,000………….…18,000
Labor……………………………..20,000…………..……9,000……….……29,000
Machine depreciation…………..600…………….……300…………..……900
Rent………………………………..4,200…………..……2,800……..….……7,000
Heat and Light………………..1,000…………………600…………...….1,600
Other production costs………..........................................2,800
Marketing and administration……………………………………………..7,700
Total costs………………………………………………………………..……67,000
Operating profit…………………………………………………………………8,000
Ms. Nili already has orders for the 10 custom dresses reflect in the March forecasted income statement. The depreciation charges are for march used in the respective product lines. Machines depreciate at the rate of $1 per hour based on hours used, so these are variable cost. In March, cutting and sewing machines are expected to operate for 900 hours, of which 600 hours will be used to make custom dresses. The rent is for the building space, which has been leased for several years at $7,000 per month. The rent, heat, and light are allocated to the product lines based on the amount of floor space occupied.
A valued customer, who is a wedding consultant, has asked Ms. Nili for a special favor. This customer has a client who wants to get married in early April. Ms. Nili’s company is working at capacity and would have to give up some other business to make this dress. She can’t renege on custom orders already agreed to, but she can reduce the number of standard dresses produced in March to 10. Ms Nili would lose permanently the opportunity to make up the lost production of standard dresses because she has no unused capacity for the foreseeable future. The customer is willing to pay $25,000 for the special order. Materials and labor for the order will cost $6,000 and $10,000, respectively. The special order would require 140 hours of machine time. Ms. Nili’s company would save 150 hours of machine time from the standard dress business given up. Rent, heat and light, and other production cost would not be affected by the special order.
Question
1. Should Ms. Nili take the order? Explain?
2. What is the minimum price Ms. Nili should accept to take the special order?
3. What are the other factors, if any, besides price that she should consider?
Click here for the solution: Sherene Nili manages a company that produces wedding gowns
Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000
Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000. The asset is expected to have a service life of 12 years and a salvage value of $50,000.
(a) Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method.
(b) Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years’-digits method.
(c) Compute the amount of depreciation for each of Years 1 through 3 using the double-declining balance method. (In performing your calculations, round constant percentage to the nearest one hundredth of a point and round answers to the nearest dollar)
Click here for the solution: Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000
(a) Compute the amount of depreciation for each of Years 1 through 3 using the straight-line depreciation method.
(b) Compute the amount of depreciation for each of Years 1 through 3 using the sum-of-the-years’-digits method.
(c) Compute the amount of depreciation for each of Years 1 through 3 using the double-declining balance method. (In performing your calculations, round constant percentage to the nearest one hundredth of a point and round answers to the nearest dollar)
Click here for the solution: Lansbury Company purchases equipment on January 1, Year 1, at a cost of $518,000
Shabbona Corporation operates a retail computer store
Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2010. The terms of acquisition for each truck are described below.
1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900.
2. Truck #2 has a list price of $20,000 and is acquired for a down payment of $2,000 cash and a zero-interest-bearing note with a face amount of $18,000. The note is due April 1, 2011. Shabbona would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Shabbona carries in inventory. The computer system cost $12,000 and is normally sold by Shabbona for $15,200. Shabbona uses a perpetual inventory system.
4. Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of $10 and a market value of $13 per share.
Prepare the appropriate journal entries for the foregoing transactions for Shabbona Corporation. (Round computations to the nearest dollar)
Click here for the solution: Shabbona Corporation operates a retail computer store
1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900.
2. Truck #2 has a list price of $20,000 and is acquired for a down payment of $2,000 cash and a zero-interest-bearing note with a face amount of $18,000. The note is due April 1, 2011. Shabbona would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Shabbona carries in inventory. The computer system cost $12,000 and is normally sold by Shabbona for $15,200. Shabbona uses a perpetual inventory system.
4. Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of $10 and a market value of $13 per share.
Prepare the appropriate journal entries for the foregoing transactions for Shabbona Corporation. (Round computations to the nearest dollar)
Click here for the solution: Shabbona Corporation operates a retail computer store
Pollachek Co. purchased land as a factory site for $450,000
Pollachek Co. purchased land as a factory site for $450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor’s charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.
Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building.
Click here for the solution: Pollachek Co. purchased land as a factory site for $450,000
Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building.
Click here for the solution: Pollachek Co. purchased land as a factory site for $450,000
Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales
P 6. Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales. DMI’s basic package of services includes the design of a mailing piece (either a Direct Mailer or a Store Mailer), creation and maintenance of marketing databases containing information about the client’s target group, and a production process that prints a promotional piece and prepares it for mailing. In its marketing strategies, DMI targets working women ages 25 to 54 who are married with children and who have an annual household income in excess of $50,000. DMI has adopted activity-based management, and its controller is in the process of developing an ABC system. The controller has identified the following primary activities of the
company:
Use database of customers Accounting
Service sales Mailer assembly
Deliver mailers to post office Process orders
Supplies storage Purchase supplies
Client follow-up Design mailer
Database research trends Building maintenance
Schedule order processing Processing cleanup
Personnel Mailer rework
Required
1. Identify the activities that do not add value to DMI’s services.
2. Assist the controller’s analysis by grouping the value-adding activities into the activity areas of the value chain shown in Figure 22-1.
3. State whether each non-value-adding activity is necessary or unnecessary. Suggest how each unnecessary activity could be reduced or eliminated.
Click here for the solution: Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales
company:
Use database of customers Accounting
Service sales Mailer assembly
Deliver mailers to post office Process orders
Supplies storage Purchase supplies
Client follow-up Design mailer
Database research trends Building maintenance
Schedule order processing Processing cleanup
Personnel Mailer rework
Required
1. Identify the activities that do not add value to DMI’s services.
2. Assist the controller’s analysis by grouping the value-adding activities into the activity areas of the value chain shown in Figure 22-1.
3. State whether each non-value-adding activity is necessary or unnecessary. Suggest how each unnecessary activity could be reduced or eliminated.
Click here for the solution: Direct Marketing Inc. (DMI) offers database marketing strategies to help companies increase their sales
Ramirez Company manufactures goods to special order and uses a job order cost system
Job order cost; journal entries; ending work in process; inventory analysis
Problem 1-8 Ramirez Company manufactures goods to special order and uses a job order cost system. During its first month of operations, the following selected transactions took place:
a. Materials purchased on account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,000
b. Materials issued to the factory:
Job 101 $ 2,200
Job 102 5,700
Job 103 7,100
Job 104 1,700
For general use in the factory 1,350
c. Factory wages and salaries earned:
Job 101 $ 2,700
Job 102 6,800
Job 103 9,200
Job 104 2,100
For general work in the factory 2,250
d. Miscellaneous factory overhead costs on account . . . . . . . . . . . . . . . $ 2,400
e. Depreciation of $2,000 on the factory machinery recorded.
f. Factory overhead allocated as follows:
Job 101 $ 1,200
Job 102 2,000
Job 103 3,800
Job 104 1,000
g. Jobs 101, 102, and 103 completed.
h. Jobs 101 and 102 shipped to the customer and billed at $30,900.
Required:
1. Prepare a schedule reflecting the cost of each of the four jobs.
2. Prepare journal entries to record the transactions. (One control account is used for Work in Process.)
3. Compute the ending balance in Work in Process.
4. Compute the ending balance in Finished Goods.
Click here for the solution: Ramirez Company manufactures goods to special order and uses a job order cost system
Problem 1-8 Ramirez Company manufactures goods to special order and uses a job order cost system. During its first month of operations, the following selected transactions took place:
a. Materials purchased on account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,000
b. Materials issued to the factory:
Job 101 $ 2,200
Job 102 5,700
Job 103 7,100
Job 104 1,700
For general use in the factory 1,350
c. Factory wages and salaries earned:
Job 101 $ 2,700
Job 102 6,800
Job 103 9,200
Job 104 2,100
For general work in the factory 2,250
d. Miscellaneous factory overhead costs on account . . . . . . . . . . . . . . . $ 2,400
e. Depreciation of $2,000 on the factory machinery recorded.
f. Factory overhead allocated as follows:
Job 101 $ 1,200
Job 102 2,000
Job 103 3,800
Job 104 1,000
g. Jobs 101, 102, and 103 completed.
h. Jobs 101 and 102 shipped to the customer and billed at $30,900.
Required:
1. Prepare a schedule reflecting the cost of each of the four jobs.
2. Prepare journal entries to record the transactions. (One control account is used for Work in Process.)
3. Compute the ending balance in Work in Process.
4. Compute the ending balance in Finished Goods.
Click here for the solution: Ramirez Company manufactures goods to special order and uses a job order cost system
Conda Products Company implemented a JIT work environment in its trowel division eight months ago, and the division has been operating at near capacity since then
E 12. Conda Products Company implemented a JIT work environment in its trowel division eight months ago, and the division has been operating at near capacity since then. At the beginning of May, Work in Process Inventory and Finished Goods Inventory had zero balances. The following transactions took place last week:
May 28 Ordered, received, and used handles and sheet metal costing $11,340.
29 Direct labor costs incurred, $5,400.
29 Overhead costs incurred, $8,100.
30 Completed trowels costing $24,800.
31 Sold trowels costing $24,000.
Using backflush costing, calculate the ending balance in the Work in Process Inventory and Finished Goods Inventory accounts
Click here for the solution: Conda Products Company implemented a JIT work environment in its trowel division eight months ago, and the division has been operating at near capacity since then
May 28 Ordered, received, and used handles and sheet metal costing $11,340.
29 Direct labor costs incurred, $5,400.
29 Overhead costs incurred, $8,100.
30 Completed trowels costing $24,800.
31 Sold trowels costing $24,000.
Using backflush costing, calculate the ending balance in the Work in Process Inventory and Finished Goods Inventory accounts
Click here for the solution: Conda Products Company implemented a JIT work environment in its trowel division eight months ago, and the division has been operating at near capacity since then
On May 31, the inventory balances of Princess Designs, a manufacturer of high-quality children’s clothing, were as follows
P 3. On May 31, the inventory balances of Princess Designs, a manufacturer of high-quality children’s clothing, were as follows: Materials Inventory, $21,360; Work in Process Inventory, $15,112; and Finished Goods Inventory, $17,120. Job order cost cards for jobs in process as of June 30 had these totals:
The predetermined overhead rate is 130 percent of direct labor costs. Materials
purchased and received in June were as follows:
June 4 $33,120
June 16 28,600
June 22 31,920
Direct labor costs for June were as follows:
June 15 payroll $23,680
June 29 payroll 25,960
Direct materials requested by production during June were as follows:
June 6 $37,240
June 23 38,960
On June 30, Princess Designs sold on account finished goods with a 75 percent markup over cost for $320,000.
Required
1. Using T accounts for Materials Inventory, Work in Process Inventory, Finished Goods Inventory, Overhead, Accounts Receivable, Payroll Payable, Sales, and Cost of Goods Sold, reconstruct the transactions in June.
2. Compute the cost of units completed during the month.
3. What was the total cost of goods sold during June?
4. Determine the ending inventory balances.
5. Jobs 24-A and 24-C were completed during the first week of July. No additional materials costs were incurred, but Job 24-A required $960 more of direct labor, and Job 24-C needed an additional $1,610 of direct labor. Job 24-A was composed of 1,200 pairs of trousers; Job 24-C, of 950 shirts. Compute the product unit cost for each job. (Round your answers to two
decimal places.)
Click here for the solution: On May 31, the inventory balances of Princess Designs, a manufacturer of high-quality children’s clothing, were as follows
The predetermined overhead rate is 130 percent of direct labor costs. Materials
purchased and received in June were as follows:
June 4 $33,120
June 16 28,600
June 22 31,920
Direct labor costs for June were as follows:
June 15 payroll $23,680
June 29 payroll 25,960
Direct materials requested by production during June were as follows:
June 6 $37,240
June 23 38,960
On June 30, Princess Designs sold on account finished goods with a 75 percent markup over cost for $320,000.
Required
1. Using T accounts for Materials Inventory, Work in Process Inventory, Finished Goods Inventory, Overhead, Accounts Receivable, Payroll Payable, Sales, and Cost of Goods Sold, reconstruct the transactions in June.
2. Compute the cost of units completed during the month.
3. What was the total cost of goods sold during June?
4. Determine the ending inventory balances.
5. Jobs 24-A and 24-C were completed during the first week of July. No additional materials costs were incurred, but Job 24-A required $960 more of direct labor, and Job 24-C needed an additional $1,610 of direct labor. Job 24-A was composed of 1,200 pairs of trousers; Job 24-C, of 950 shirts. Compute the product unit cost for each job. (Round your answers to two
decimal places.)
Click here for the solution: On May 31, the inventory balances of Princess Designs, a manufacturer of high-quality children’s clothing, were as follows
Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation
Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda's basis in her stock is $25,000. On July 31, 2010, Bill sells his stock, with a basis of $40,000, to Loraine for $50,000. For the 2010 tax year, Radiata Corporation has a loss of $100,375.
a. Calculate the amount of the corporation's loss that may be deducted by Bill on his 2010 tax return.
b. Calculate the amount of the corporation's loss that may be deducted by Guilda on her 2010 tax return.
c. Calculate the amount of the corporation's loss that may be deducted by Loraine on her 2010 tax return.
Click here for the solution: Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation
a. Calculate the amount of the corporation's loss that may be deducted by Bill on his 2010 tax return.
b. Calculate the amount of the corporation's loss that may be deducted by Guilda on her 2010 tax return.
c. Calculate the amount of the corporation's loss that may be deducted by Loraine on her 2010 tax return.
Click here for the solution: Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation
Cedar Corporation has an S corporation election in effect
Cedar Corporation has an S corporation election in effect. During the 2010 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2010, the corporation paid dividends to shareholders in the amount of $120,000. How much taxable income, in total, must the shareholders of the corporation report on their 2010 tax returns? Explain your answer.
Click here for the solution: Cedar Corporation has an S corporation election in effect
Click here for the solution: Cedar Corporation has an S corporation election in effect
Grevilla Corporation is a manufacturing company
Grevilla Corporation is a manufacturing company. The corporation has accumulated earnings of $950,000, and it can establish reasonable needs for $400,000 of that amount. Calculate the amount of the accumulated earnings tax (if any) that Grevilla Corporation is subject to for this year.
Click here for the solution: Grevilla Corporation is a manufacturing company
Click here for the solution: Grevilla Corporation is a manufacturing company
Cypress Corporation has regular taxable income of $170,000
Cypress Corporation has regular taxable income of $170,000 (assume annual gross receipts are greater than $5 million) and regular tax liability of $49,550 for 2010. The corporation also has tax preference items amounting to $105,000. Calculate Cypress Corporation's alternative minimum tax liability. Assume Cypress Corporation is not a "small corporation".
Click here for the solution: Cypress Corporation has regular taxable income of $170,000
Click here for the solution: Cypress Corporation has regular taxable income of $170,000
Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding
P12-32A Computing dividends on preferred and common stock.
Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding. During a three-year period, Fashionista declared and paid cash dividends as follows: 2010, $3,000; 2011, $13,000; and 2012, $17,000.
Requirements:
Compute the total dividends to preferred and to common for each of the three years if
a. preferred is noncumulative.
b. referred is cumulative,
For requirement 1.b., journalize the declaration of the 2012 dividends on December 22, 2012, and payment on January 14,2013. Use separate Dividends payable accounts for preferred and common.
Click here for the solution: Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding
Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding. During a three-year period, Fashionista declared and paid cash dividends as follows: 2010, $3,000; 2011, $13,000; and 2012, $17,000.
Requirements:
Compute the total dividends to preferred and to common for each of the three years if
a. preferred is noncumulative.
b. referred is cumulative,
For requirement 1.b., journalize the declaration of the 2012 dividends on December 22, 2012, and payment on January 14,2013. Use separate Dividends payable accounts for preferred and common.
Click here for the solution: Fashionista Skincare has 10,000 shares of 3%, $20 par value preferred stock and 90,000 shares $2 par common stock outstanding
Lincoln-Priest, Inc., was organized in 2011
P12-30A Issuing stock and preparing the stockholders' equity section of the balance sheet
Lincoln-Priest, Inc., was organized in 2011. At December 31, 2011, the Lincoln- Priest balance sheet reported the following stockholders' equity:
LINCOLN-PRIEST, INC.
Stockholders' Equity
December 31,2011
Paid-in Capital:
Preferred stock, 7%, $40 par, 110,000 shares authorized, none issued $0
Common stock, $1 par, 520,000 shares authorized, 61,000 shares issued and outstanding
………………………………………………………………………. $61,000
Paid-in capital in excess of par—common $41,000
Total paid-in capital $102,000
Retained earnings $29,000
Total stockholders' equity………………………………. $131,000
Requirements
1. During 2012, the company completed the following transactions. Journalize each transaction. Explanations are not required.
a. Issued for cash 1,300 shares of preferred stock at par value.
b. Issued for cash 2,400 shares of common stock at a price of $5 per share.
c. Net income for the year was $74,000, and the company declared no dividends. Make the closing entry for net income.
2. Prepare the stockholders' equity section of the Lincoln-Priest December 31, 2012.
Click here for the solution: Lincoln-Priest, Inc., was organized in 2011
Lincoln-Priest, Inc., was organized in 2011. At December 31, 2011, the Lincoln- Priest balance sheet reported the following stockholders' equity:
LINCOLN-PRIEST, INC.
Stockholders' Equity
December 31,2011
Paid-in Capital:
Preferred stock, 7%, $40 par, 110,000 shares authorized, none issued $0
Common stock, $1 par, 520,000 shares authorized, 61,000 shares issued and outstanding
………………………………………………………………………. $61,000
Paid-in capital in excess of par—common $41,000
Total paid-in capital $102,000
Retained earnings $29,000
Total stockholders' equity………………………………. $131,000
Requirements
1. During 2012, the company completed the following transactions. Journalize each transaction. Explanations are not required.
a. Issued for cash 1,300 shares of preferred stock at par value.
b. Issued for cash 2,400 shares of common stock at a price of $5 per share.
c. Net income for the year was $74,000, and the company declared no dividends. Make the closing entry for net income.
2. Prepare the stockholders' equity section of the Lincoln-Priest December 31, 2012.
Click here for the solution: Lincoln-Priest, Inc., was organized in 2011
The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized
P13-25A 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
Requirements:
Record the transactions in the general journal. Explanations are not required. Prepare the stockholders' equity section of Lennox Health Foods' balance sheet at December 31, 2012.
Click here for the solution: The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized
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
Requirements:
Record the transactions in the general journal. Explanations are not required. Prepare the stockholders' equity section of Lennox Health Foods' balance sheet at December 31, 2012.
Click here for the solution: The balance sheet of Lennox Health Foods, at December 31, 2011 reported 120,000 shares of no-par common stock authorized
Summerborn Manufacturing, Co., completed the following transactions during 2012
P13-24A 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.
Nov30 - Sold 300 shares of treasury stock for $8 per share.
Requirement
1. Record the transactions in Surnmerborn's general journal..
Click here for the solution: Summerborn Manufacturing, Co., completed the following transactions during 2012
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.
Nov30 - Sold 300 shares of treasury stock for $8 per share.
Requirement
1. Record the transactions in Surnmerborn's general journal..
Click here for the solution: Summerborn Manufacturing, Co., completed the following transactions during 2012
Bill Novak is working on an audit of an iGAAP client
Bill Novak is working on an audit of an iGAAP client. In his review of the client’s interim reports, he notes that the reports are prepared on a discrete basis. That is, each interim report is viewed as a distinct period. Is this acceptable under iGAAP? If so, explain how that treatment could affect comparisons to U.S. GAAP company?
Click here for the solution: Bill Novak is working on an audit of an iGAAP client
Click here for the solution: Bill Novak is working on an audit of an iGAAP client
For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000
For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000. Calculate Ilex Corporation's tax liability for 2010.
Click here for the solution: For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000
Click here for the solution: For its 2010 tax year, Ilex Corporation has ordinary income of $240,000, a short-term capital loss of $60,000, and a long-term capital gain of $20,000
Fisafolia Corporation has gross income from operations of $220,000 and operating expenses of $160,000 for 2010
Fisafolia Corporation has gross income from operations of $220,000 and operating expenses of $160,000 for 2010. The corporation also has $20,000 in dividends from publicly traded domestic corporations (ownership in all corporations was less than 20 percent).
a. Calculate the corporation's dividends received deduction for 2010.
b. Assume that instead of $220,000, Fisafolia Corporation has gross income from operations of $135,000. Calculate the corporation's dividends received deduction for 2010.
Click here for the solution: Fisafolia Corporation has gross income from operations of $220,000 and operating expenses of $160,000 for 2010
a. Calculate the corporation's dividends received deduction for 2010.
b. Assume that instead of $220,000, Fisafolia Corporation has gross income from operations of $135,000. Calculate the corporation's dividends received deduction for 2010.
Click here for the solution: Fisafolia Corporation has gross income from operations of $220,000 and operating expenses of $160,000 for 2010
Citradoria Corporation is a regular corporation that contributes $35,000 cash to qualified charitable organizations during 2010
Citradoria Corporation is a regular corporation that contributes $35,000 cash to qualified charitable organizations during 2010. The corporation has net operating income of $140,000 before deducting the contributions, and dividends received from domestic corporations (ownership in all corporations is less than 20 percent) in the amount of $20,000.
a. What is the amount of Citradoria Corporation's allowable deduction for charitable contributions for the current year?
b. What may the corporation do with any excess amount of contributions?
Click here for the solution: Citradoria Corporation is a regular corporation that contributes $35,000 cash to qualified charitable organizations during 2010
a. What is the amount of Citradoria Corporation's allowable deduction for charitable contributions for the current year?
b. What may the corporation do with any excess amount of contributions?
Click here for the solution: Citradoria Corporation is a regular corporation that contributes $35,000 cash to qualified charitable organizations during 2010
Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1, 2010
Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1, 2010. During 2010, the corporation incurred the following expenses:
State fees for incorporation $ 500
Legal and accounting fees incident to organization 1,800
Expenses for the sale of stock 2,100
Organizational meeting expenses 750
Assuming that Beech Corporation does not elect to expense but chooses to amortize organizational expenditures over 15 years, calculate the corporation's deduction for its calendar tax year 2010.
Click here for the solution: Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1, 2010
State fees for incorporation $ 500
Legal and accounting fees incident to organization 1,800
Expenses for the sale of stock 2,100
Organizational meeting expenses 750
Assuming that Beech Corporation does not elect to expense but chooses to amortize organizational expenditures over 15 years, calculate the corporation's deduction for its calendar tax year 2010.
Click here for the solution: Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1, 2010
Ulmus Corporation has $1,230,000 in taxable income for 2010
Ulmus Corporation has $1,230,000 in taxable income for 2010. Calculate the corporation's income tax liability for 2010.
Click here for the solution: Ulmus Corporation has $1,230,000 in taxable income for 2010
Click here for the solution: Ulmus Corporation has $1,230,000 in taxable income for 2010
Quince Corporation has taxable income of $450,000 for its 2010 calendar tax year
Quince Corporation has taxable income of $450,000 for its 2010 calendar tax year. Calculate the corporation's income tax liability for 2010 before tax credits.
Click here for the solution: Quince Corporation has taxable income of $450,000 for its 2010 calendar tax year
Click here for the solution: Quince Corporation has taxable income of $450,000 for its 2010 calendar tax year
William sold Section 1245 property for $25,000 in 2010
William sold Section 1245 property for $25,000 in 2010. The property cost $35,000 when it was purchased 5 years ago. The depreciation claimed on the property was $16,000.
a. Calculate the adjusted basis of the property.
b. Calculate the recomputed basis of the property.
c. Calculate the amount of ordinary income under Section 1245.
d. Calculate the Section 1231 gain.
Click here for the solution: William sold Section 1245 property for $25,000 in 2010
a. Calculate the adjusted basis of the property.
b. Calculate the recomputed basis of the property.
c. Calculate the amount of ordinary income under Section 1245.
d. Calculate the Section 1231 gain.
Click here for the solution: William sold Section 1245 property for $25,000 in 2010
Martin sells a stock investment for $25,000 on August 2, 2010
Martin sells a stock investment for $25,000 on August 2, 2010. Martin's adjusted basis in the stock is $14,000.
a. If Martin acquired the stock on November 15, 2008, calculate the amount and the nature of the gain or loss.
b. If Martin had acquired the stock on September 11, 2007, calculate the amount and nature of the gain or loss.
Click here for the solution: Martin sells a stock investment for $25,000 on August 2, 2010
a. If Martin acquired the stock on November 15, 2008, calculate the amount and the nature of the gain or loss.
b. If Martin had acquired the stock on September 11, 2007, calculate the amount and nature of the gain or loss.
Click here for the solution: Martin sells a stock investment for $25,000 on August 2, 2010
Journalize the following transactions for Wilson Company using the gross method of accounting for purchase discounts
Journalize the following transactions for Wilson Company using the gross method of accounting for purchase discounts. Assume a perpetual inventory system.
June 2 Purchased goods from Peterson Company on account, $13,600, terms 3/10, n/30.
June 8 Returned merchandise to Peterson Company that was previously purchased on account, $3,400.
June 12 Paid the amount due to Peterson Company.
Click here for the solution: Journalize the following transactions for Wilson Company using the gross method of accounting for purchase discounts
June 2 Purchased goods from Peterson Company on account, $13,600, terms 3/10, n/30.
June 8 Returned merchandise to Peterson Company that was previously purchased on account, $3,400.
June 12 Paid the amount due to Peterson Company.
Click here for the solution: Journalize the following transactions for Wilson Company using the gross method of accounting for purchase discounts
Comparative balance sheet accounts of Jensen Company are presented below
P23-8 Comparative balance sheet accounts of Jensen Company are presented below.
JENSEN COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
DECEMBER 31,
Debit Balances 2007 2006
Cash $80,000 $51,000
Accounts receivable 145,000 130,000
Merchandise inventory 75,000 61,000
Investments
(Available-for-sale) 55,000 85,000
Equipment 70,000 48,000
Buildings 145,000 145,000
Land 40,000 25,000
Totals $610,000 $545,000
Credit Balances
Allowance for Doubtful Accounts $10,000 $8,000
Accumulated Depreciation - Equipment 21,000 14,000
Accumulated Depreciation - Building 37,000 28,000
Accounts payable 70,000 60,000
Income taxes payable 12,000 10,000
Long-term notes payable 62,000 70,000
Common stock 310,000 260,000
Retained earnings 88,000 95,000
Totals $610,000 $545,000
Additional data:
1. Equipment that cost $10,000 and was 40% depreciated was sold in 2007.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Investments that cost $35,000 were sold during the year.
Jensen's 2007 income statement is as follows.
Sales $950,000
Less: Cost of goods sold 600,000
Gross profit 350,000
Less: Operating expenses (includes deprecation and bad debt expense)
250,000
Income from operations 100,000
Other revenues and expenses
Gain on sale of investments $15,000
Loss on sale of equipment (3,000) 12,000
Income before taxes 112,000
Income taxes 45,000
Net income $67,000
Instructions
a. Compute net cash provided by operating activities under the direct method.
b. Prepare a statement of cash flows using the indirect method.
Click here for the solution: Comparative balance sheet accounts of Jensen Company are presented below
JENSEN COMPANY
COMPARATIVE BALANCE SHEET ACCOUNTS
DECEMBER 31,
Debit Balances 2007 2006
Cash $80,000 $51,000
Accounts receivable 145,000 130,000
Merchandise inventory 75,000 61,000
Investments
(Available-for-sale) 55,000 85,000
Equipment 70,000 48,000
Buildings 145,000 145,000
Land 40,000 25,000
Totals $610,000 $545,000
Credit Balances
Allowance for Doubtful Accounts $10,000 $8,000
Accumulated Depreciation - Equipment 21,000 14,000
Accumulated Depreciation - Building 37,000 28,000
Accounts payable 70,000 60,000
Income taxes payable 12,000 10,000
Long-term notes payable 62,000 70,000
Common stock 310,000 260,000
Retained earnings 88,000 95,000
Totals $610,000 $545,000
Additional data:
1. Equipment that cost $10,000 and was 40% depreciated was sold in 2007.
2. Cash dividends were declared and paid during the year.
3. Common stock was issued in exchange for land.
4. Investments that cost $35,000 were sold during the year.
Jensen's 2007 income statement is as follows.
Sales $950,000
Less: Cost of goods sold 600,000
Gross profit 350,000
Less: Operating expenses (includes deprecation and bad debt expense)
250,000
Income from operations 100,000
Other revenues and expenses
Gain on sale of investments $15,000
Loss on sale of equipment (3,000) 12,000
Income before taxes 112,000
Income taxes 45,000
Net income $67,000
Instructions
a. Compute net cash provided by operating activities under the direct method.
b. Prepare a statement of cash flows using the indirect method.
Click here for the solution: Comparative balance sheet accounts of Jensen Company are presented below
Longchamps Electric is faced with a capital budget of $150,000 for the coming year
Longchamps Electric is faced with a capital budget of $150,000 for the coming year. It is considering six investment projects and has a cost of capital of 7%. The six projects are listed in the following table, along with their initial investments and their IRRs. Using the data given, prepare an investment opportunities schedule (IOS). Which projects does the IOS suggest be funded? Does this group of projects maximize NPV? Explain.
Project Initial Investment IRR
1 $75,000 8%
2 40,000 10%
3 35,000 7%
4 50,000 11%
5 45,000 9%
6 20,000 6%
Click here for the solution: Longchamps Electric is faced with a capital budget of $150,000 for the coming year
Project Initial Investment IRR
1 $75,000 8%
2 40,000 10%
3 35,000 7%
4 50,000 11%
5 45,000 9%
6 20,000 6%
Click here for the solution: Longchamps Electric is faced with a capital budget of $150,000 for the coming year
Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?
Click here for the solution: Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Click here for the solution: Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million
Chippewas Company sells one product
(Periodic versus Perpetual Entries) Chippewas Company sells one product. Presented below is information for January for Chippewas Company.
Jan. 1 Inventory 100 units at $6 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6.50 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Chippewas uses the FIFO cost flow assumption. All purchases and sales are on account.
(a) Assume Chippewas uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.
(b) Compute gross profit using the periodic system.
(c) Assume Chippewas uses a perpetual system. Prepare all necessary journal entries.
(d) Compute gross profit using the perpetual system.
Click here for the solution: Chippewas Company sells one product
Jan. 1 Inventory 100 units at $6 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6.50 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Chippewas uses the FIFO cost flow assumption. All purchases and sales are on account.
(a) Assume Chippewas uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.
(b) Compute gross profit using the periodic system.
(c) Assume Chippewas uses a perpetual system. Prepare all necessary journal entries.
(d) Compute gross profit using the perpetual system.
Click here for the solution: Chippewas Company sells one product
Staley Watch Company reported the following income statement data for a 2-year period
E6-12 Staley Watch Company reported the following income statement data for a 2-year period.
2008 2009
Sales $210,000 $250,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 173,000 202,000
Cost of goods available for sale 205,000 246,000
Ending inventory 44,000 52,000
Cost of goods sold 161,000 194,000
Gross profit $ 49,000 $ 56,000
Staley uses a periodic inventory system. The inventories at January 1, 2008, and December 31, 2009, are correct. However, the ending inventory at December 31, 2008, was overstated $5,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c) Explain in a letter to the president of Staley Company what has happened—i.e., the nature of the error and its effect on the financial statements.
Click here for the solution: Staley Watch Company reported the following income statement data for a 2-year period
2008 2009
Sales $210,000 $250,000
Cost of goods sold
Beginning inventory 32,000 44,000
Cost of goods purchased 173,000 202,000
Cost of goods available for sale 205,000 246,000
Ending inventory 44,000 52,000
Cost of goods sold 161,000 194,000
Gross profit $ 49,000 $ 56,000
Staley uses a periodic inventory system. The inventories at January 1, 2008, and December 31, 2009, are correct. However, the ending inventory at December 31, 2008, was overstated $5,000.
Instructions
(a) Prepare correct income statement data for the 2 years.
(b) What is the cumulative effect of the inventory error on total gross profit for the 2 years?
(c) Explain in a letter to the president of Staley Company what has happened—i.e., the nature of the error and its effect on the financial statements.
Click here for the solution: Staley Watch Company reported the following income statement data for a 2-year period
The following is a list (in random order) of the December 31, 2010 balance sheet accounts of the International Products Company
The following is a list (in random order) of the December 31, 2010 balance sheet accounts of the International Products Company.
Additional paid-in capital on preferred stock $ 1,600
Accounts receivable 13,800
Dividends payable 1,800
Buildings 50,000
Bonds payable (due 2016) 29,000
Retained earnings 25,800
Office supplies 1,900
Current income tax payable 4,200
Accumulation depreciation equipment 8,300
Patents (net) 2,400
Notes payable (due January 1, 2013) 17,000
Inventory 24,400
Additional paid in capital on common stock 7,700
Sinking fund for bond retirement 4,000
Accounts payable $16,500
Prepaid insurance 900
Discount on bonds payable 2,000
Common stock $10 par 15,000
Equipment 29,000
Allowance for doubtful accounts 700
Preferred stock $50 par 10,000
Accumulated depreciation Buildings 12,400
Current interest payable 2,900
Investment in held- to- Maturity bonds 9.000
Cash 8,200
Treasury stock (at cost) 1,500
Accrued wages 3,700
Land 9,500
1 .Prepare a property classified balance sheet for the International Products Company on December 31, 20101.
2. Assume instead that International Products Company uses IFRS. Prepare its balance sheet on December 31, 2010.
Click here for the solution: The following is a list (in random order) of the December 31, 2010 balance sheet accounts of the International Products Company
Additional paid-in capital on preferred stock $ 1,600
Accounts receivable 13,800
Dividends payable 1,800
Buildings 50,000
Bonds payable (due 2016) 29,000
Retained earnings 25,800
Office supplies 1,900
Current income tax payable 4,200
Accumulation depreciation equipment 8,300
Patents (net) 2,400
Notes payable (due January 1, 2013) 17,000
Inventory 24,400
Additional paid in capital on common stock 7,700
Sinking fund for bond retirement 4,000
Accounts payable $16,500
Prepaid insurance 900
Discount on bonds payable 2,000
Common stock $10 par 15,000
Equipment 29,000
Allowance for doubtful accounts 700
Preferred stock $50 par 10,000
Accumulated depreciation Buildings 12,400
Current interest payable 2,900
Investment in held- to- Maturity bonds 9.000
Cash 8,200
Treasury stock (at cost) 1,500
Accrued wages 3,700
Land 9,500
1 .Prepare a property classified balance sheet for the International Products Company on December 31, 20101.
2. Assume instead that International Products Company uses IFRS. Prepare its balance sheet on December 31, 2010.
Click here for the solution: The following is a list (in random order) of the December 31, 2010 balance sheet accounts of the International Products Company
Comprehensive Problem 5: Essence of Persia, Inc., began operations on January 1, 2010
Comprehensive Problem 5: Essence of Persia, Inc., began operations on January 1, 2010. The company produces a hand and body lotion in an eight-ounce bottle called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $80 per case. There is a selling commission of $16 per case. The January direct materials, direct labor, and factory overhead costs are as follows:
Part A—Break-Even Analysis
The management of Essence of Persia, Inc., wishes to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost:
Instructions
1. Determine the fixed and variable portion of the utility cost using the high-low method.
2. Determine the contribution margin per case.
3. Determine the fixed costs per month, including the utility fixed cost from part (1).
4. Determine the break-even number of cases per month.
Part B—August Budgets
During July of the current year, the management of Essence of Persia, Inc., asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,400 cases at $80 per case for August. Inventory planning information is provided as follows:
Finished Goods Inventory:
Materials Inventory:
There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.
Instructions
5. Prepare the August production budget.
6. Prepare the August direct materials purchases budget.
7. Prepare the August direct labor budget.
8. Prepare the August factory overhead budget.
9. Prepare the August budgeted income statement, including selling expenses.
Part C—August Variance Analysis
During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 200 more cases than planned at the beginning of the month. Actual data for August were as follows:
The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.
Instructions
10. Determine and interpret the direct materials price and quantity variances for the three materials.
11. Determine and interpret the direct labor rate and time variances for the two departments.
12. Determine and interpret the factory overhead controllable variance.
13. Determine and interpret the factory overhead volume variance.
14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,300 cases of production used in the budgets for parts (6) and(7)?
Click here for the solution: Comprehensive Problem 5: Essence of Persia, Inc., began operations on January 1, 2010
Part A—Break-Even Analysis
The management of Essence of Persia, Inc., wishes to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost:
Instructions
1. Determine the fixed and variable portion of the utility cost using the high-low method.
2. Determine the contribution margin per case.
3. Determine the fixed costs per month, including the utility fixed cost from part (1).
4. Determine the break-even number of cases per month.
Part B—August Budgets
During July of the current year, the management of Essence of Persia, Inc., asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,400 cases at $80 per case for August. Inventory planning information is provided as follows:
Finished Goods Inventory:
Materials Inventory:
There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.
Instructions
5. Prepare the August production budget.
6. Prepare the August direct materials purchases budget.
7. Prepare the August direct labor budget.
8. Prepare the August factory overhead budget.
9. Prepare the August budgeted income statement, including selling expenses.
Part C—August Variance Analysis
During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 200 more cases than planned at the beginning of the month. Actual data for August were as follows:
The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.
Instructions
10. Determine and interpret the direct materials price and quantity variances for the three materials.
11. Determine and interpret the direct labor rate and time variances for the two departments.
12. Determine and interpret the factory overhead controllable variance.
13. Determine and interpret the factory overhead volume variance.
14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,300 cases of production used in the budgets for parts (6) and(7)?
Click here for the solution: Comprehensive Problem 5: Essence of Persia, Inc., began operations on January 1, 2010
Incomplete manufacturing cost data for Ikerd Company for 2010 are presented as follows for four different situations
E19-11 Incomplete manufacturing cost data for Ikerd Company for 2010 are presented as follows for four different situations.
Indicate the missing amount for each letter.
Direct Materials Used Direct Labor Used Manufacturing Overhead total manufacturing costs work in process 1/1 work in process 12/31 cost of goods manufactured
1. $127,000 140,000 77,000 a: $ $33,000 b:$ $360,000
2. c: $ $200,000 132,000 450,000 d: $ 40,000 $470,000
3. $80,000 $100,000 e: $ $245,000 $60,000 $80,000 f:$
4. 70,000 g:$ 75,000 288,000 $45,000 h: $ $270,000
Instructions
(a) Indicate the missing amount for each letter.
(b) Prepare a condensed cost of goods manufactured schedule for situation (1) for the year ended December 31,2010.
Click here for the solution: Incomplete manufacturing cost data for Ikerd Company for 2010 are presented as follows for four different situations
Indicate the missing amount for each letter.
Direct Materials Used Direct Labor Used Manufacturing Overhead total manufacturing costs work in process 1/1 work in process 12/31 cost of goods manufactured
1. $127,000 140,000 77,000 a: $ $33,000 b:$ $360,000
2. c: $ $200,000 132,000 450,000 d: $ 40,000 $470,000
3. $80,000 $100,000 e: $ $245,000 $60,000 $80,000 f:$
4. 70,000 g:$ 75,000 288,000 $45,000 h: $ $270,000
Instructions
(a) Indicate the missing amount for each letter.
(b) Prepare a condensed cost of goods manufactured schedule for situation (1) for the year ended December 31,2010.
Click here for the solution: Incomplete manufacturing cost data for Ikerd Company for 2010 are presented as follows for four different situations
Bjerg Company specializes in manufacturing a unique model of bicycle helmet
Bjerg Company specializes in manufacturing a unique model of bicycle helmet. The model is well accepted by consumers, and the company has enough orders to keep the factory production at 10,000 helmets per month (80% of its full capacity). Bjerg's monthly manufacturing cost and other expense data are as follows.
Rent on factory equipment $ 7,000
Insurance on factory building 1,500
Raw materials (plastics, polystyrene, etc.) 75,000
Utility costs for factory 900
Supplies for general office 300
Wages for assembly line workers 43,000
Depreciation on office equipment 800
Miscellaneous materials (glue, thread, etc.) 1,100
Factory manager's salary 5,700
Property taxes on factory building 400
Advertising for helmets 14,000
Sales commissions 7,000
Depreciation on factory building 1,500
Required:
1. Complete the answer sheet. Enter each cost item on your answer sheet, placing the dollar amount under the appropriate headings. Total the dollar amounts in each of the columns.
2. Compute the cost to produce one helmet.
Click here for the solution: Bjerg Company specializes in manufacturing a unique model of bicycle helmet
Rent on factory equipment $ 7,000
Insurance on factory building 1,500
Raw materials (plastics, polystyrene, etc.) 75,000
Utility costs for factory 900
Supplies for general office 300
Wages for assembly line workers 43,000
Depreciation on office equipment 800
Miscellaneous materials (glue, thread, etc.) 1,100
Factory manager's salary 5,700
Property taxes on factory building 400
Advertising for helmets 14,000
Sales commissions 7,000
Depreciation on factory building 1,500
Required:
1. Complete the answer sheet. Enter each cost item on your answer sheet, placing the dollar amount under the appropriate headings. Total the dollar amounts in each of the columns.
2. Compute the cost to produce one helmet.
Click here for the solution: Bjerg Company specializes in manufacturing a unique model of bicycle helmet
(Consolidated Financial Statements: Various Issues) Algo Company and Bevo Corporation
Case 16-1 Consolidated Financial Statements: Various Issues
Because of irreconcilable differences of opinion, a dissenting group within the management and board of directors of the Algo Company resigned and formed the Bevo Corporation to purchase a manufacturing division of the Algo Company. After negotiation of the agreement, but just before closing and actual transfer of the property, a minority stockholder of Algo notified Bevo that a prior stockholder’s agreement with Algo empowered him to prevent the sale. The minority stockholder’s claim was acknowledged by Bevo’s board of directors. Bevo’s board then organized Casco, Inc. to acquire the minority stockholder’s interest in Algo for $75,000, and Bevo advanced the cash to Casco. Bevo exercised control over Casco as a subsidiary corporation with common officers and directors. Casco paid the minority stockholder $75,000 (about twice the market value of the Algo stock) for his interest in Algo. Bevo then purchased the manufacturing division from Algo.
Required:
a. What expenditures are usually included in the cost of property, plant, and equipment acquired in a purchase?
b. i. What are the criteria for determining whether to consolidate the financial statements of Bevo Corporation and Casco, Inc.?
ii. Should the financial statements of Bevo and Casco be consolidated? Discuss.
c. Assume that unconsolidated financial statements are prepared. Discuss the propriety of treating the $75,000 expenditure in the financial statements of the Bevo as
i. an account receivable from Casco
ii. an investment in Casco
iii. part of the cost of the property, plant, and equipment
iv. a loss
Click here for the solution: (Consolidated Financial Statements: Various Issues) Algo Company and Bevo Corporation
Because of irreconcilable differences of opinion, a dissenting group within the management and board of directors of the Algo Company resigned and formed the Bevo Corporation to purchase a manufacturing division of the Algo Company. After negotiation of the agreement, but just before closing and actual transfer of the property, a minority stockholder of Algo notified Bevo that a prior stockholder’s agreement with Algo empowered him to prevent the sale. The minority stockholder’s claim was acknowledged by Bevo’s board of directors. Bevo’s board then organized Casco, Inc. to acquire the minority stockholder’s interest in Algo for $75,000, and Bevo advanced the cash to Casco. Bevo exercised control over Casco as a subsidiary corporation with common officers and directors. Casco paid the minority stockholder $75,000 (about twice the market value of the Algo stock) for his interest in Algo. Bevo then purchased the manufacturing division from Algo.
Required:
a. What expenditures are usually included in the cost of property, plant, and equipment acquired in a purchase?
b. i. What are the criteria for determining whether to consolidate the financial statements of Bevo Corporation and Casco, Inc.?
ii. Should the financial statements of Bevo and Casco be consolidated? Discuss.
c. Assume that unconsolidated financial statements are prepared. Discuss the propriety of treating the $75,000 expenditure in the financial statements of the Bevo as
i. an account receivable from Casco
ii. an investment in Casco
iii. part of the cost of the property, plant, and equipment
iv. a loss
Click here for the solution: (Consolidated Financial Statements: Various Issues) Algo Company and Bevo Corporation
Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent
AFN equation - Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent. Its assets totaled $3 million at the end of 2005. Carter is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2005, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. The after-tax profit margin is forecasted to be 5 percent, and the forecasted retention ratio is 30 percent. Use the AFN equation to forecast Carter's additional funds needed for the coming year.
Click here for the solution: Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent
Click here for the solution: Carter Corporation's sales are expected to increase from $5 million in 2005 to $6 million in 2006, or by 20 percent
A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each
A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each. The normal selling price of this product is $48.00 each. The normal unit product cost of product M97 is computed as follows:
Direct Materials..............$18.50
Direct Labor......................$1.20
Variable Manufacturing Overhead.......$8.40
Unit Product Cost= $32.00
Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product M97 that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $31,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.
Required:
Determine the effect on the company's total net operating income of accepting the special order.
Click here for the solution: A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each
Direct Materials..............$18.50
Direct Labor......................$1.20
Variable Manufacturing Overhead.......$8.40
Unit Product Cost= $32.00
Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product M97 that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $31,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.
Required:
Determine the effect on the company's total net operating income of accepting the special order.
Click here for the solution: A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each
GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types
MULTIPLE CHOICE
1. GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types?
2. In the Statement of Net Assets for proprietary funds, GASB requires a classified format where current assets, noncurrent assets, current liabilities and noncurrent liabilities are presented:
3. Funds that are used to account for activities similar to those often engaged in by profit-seeking businesses are:
4. The operations of agency funds will be included in which of the following statements?
Click here for the solution: GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types
1. GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types?
2. In the Statement of Net Assets for proprietary funds, GASB requires a classified format where current assets, noncurrent assets, current liabilities and noncurrent liabilities are presented:
3. Funds that are used to account for activities similar to those often engaged in by profit-seeking businesses are:
4. The operations of agency funds will be included in which of the following statements?
Click here for the solution: GASB Statement 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, does not apply to which of the following investment types
Saturday, August 22, 2015
Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery
MULTIPLE CHOICE
1. Which of the following statements is true? (Points : 2)
2. Which of the following is not a possible commonly used term for costs that can be eliminated by taking a specified course of action? (Points : 2)
3. Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below:
Case Goods Division Upholstery Division
Sales $800,000 $200,000
Less: cost of goods sold:
Unit-level production cost 620,000 150,000
Gross margin 180,000 50,000
Less: operating expenses:
Unit-level selling and admin.expense 30,000 25,000
Corporate-level facility exp. (fixed) 26,000 26,000
Net income (loss) $124,000 $ (1,000)
If unit sales for both divisions increased 10%, the company would report which of the following? (Points : 2)
4. Select the correct statement regarding relevant costs and revenues. (Points : 2)
5. Home Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $12 each. The company is considering making the switches internally and has conducted a study to determine what the cost would be. Below are projected annual costs:
Unit-level costs $ 8
Batch-level costs per year $15,000
Product-level costs per year $10,000
Allocated facility-level costs $20,000
The company needs 10,000 of the switches each year. If Home Safety decides to make the parts under these conditions, the relevant cost per unit will be: (Points : 2)
6. Centennial Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below:
Tour A Tour B
Projected revenue $7,000 $11,000
Variable costs 1,000 6,000
Fixed costs 3,000 3,000
Profit $3,000 $1,000
What are the incremental (differential) costs of Tour B? (Points : 2)
7. For purposes of decision making, avoidable costs are costs that: (Points : 2)
8. Expected future revenues that differ among the alternatives under consideration are referred to as: (Points : 2)
9. Which of the following costs generally is an example of a product-level cost? (Points : 2)
10. Brannon Company plans to add a new item to its product line. Two possible products are under consideration. Each unit of Product A costs $12 to produce and has a contribution margin of $6, while each unit of Product B costs twice as much and has a contribution margin of $8. What is the differential revenue for this decision? (Points : 2)
11. Planning concerned with long-range decisions such as defining the scope of the business is referred to as: (Points : 2)
12. Expressing plans for a business in financial terms is commonly called: (Points : 2)
13. Select the incorrect statement about budgeting and human behavior. (Points : 2)
14. Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? (Points : 2)
15. Which of the following is not a budgeted financial statement? (Points : 2)
16. Which of the following items will not appear on a cash budget? (Points : 2)
17. Select the incorrect statement. (Points : 2)
18. Maddon Company estimated that its inventory purchases for January and February 2010 would be $300,000 and $370,000, respectively. The company generally pays for 60% of its inventory purchases in the month of purchase because it receives a 2% discount for timely payment. The remaining 40% of purchases are paid for in the following month, and there is no discount for these payments. What will be the amount of cash payments for inventory in February 2010? (Points : 2)
19. The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as: (Points : 2)
20. Select the correct equation format for the purchases budget. (Points : 2)
Click here for the solution: Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery
1. Which of the following statements is true? (Points : 2)
2. Which of the following is not a possible commonly used term for costs that can be eliminated by taking a specified course of action? (Points : 2)
3. Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below:
Case Goods Division Upholstery Division
Sales $800,000 $200,000
Less: cost of goods sold:
Unit-level production cost 620,000 150,000
Gross margin 180,000 50,000
Less: operating expenses:
Unit-level selling and admin.expense 30,000 25,000
Corporate-level facility exp. (fixed) 26,000 26,000
Net income (loss) $124,000 $ (1,000)
If unit sales for both divisions increased 10%, the company would report which of the following? (Points : 2)
4. Select the correct statement regarding relevant costs and revenues. (Points : 2)
5. Home Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $12 each. The company is considering making the switches internally and has conducted a study to determine what the cost would be. Below are projected annual costs:
Unit-level costs $ 8
Batch-level costs per year $15,000
Product-level costs per year $10,000
Allocated facility-level costs $20,000
The company needs 10,000 of the switches each year. If Home Safety decides to make the parts under these conditions, the relevant cost per unit will be: (Points : 2)
6. Centennial Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below:
Tour A Tour B
Projected revenue $7,000 $11,000
Variable costs 1,000 6,000
Fixed costs 3,000 3,000
Profit $3,000 $1,000
What are the incremental (differential) costs of Tour B? (Points : 2)
7. For purposes of decision making, avoidable costs are costs that: (Points : 2)
8. Expected future revenues that differ among the alternatives under consideration are referred to as: (Points : 2)
9. Which of the following costs generally is an example of a product-level cost? (Points : 2)
10. Brannon Company plans to add a new item to its product line. Two possible products are under consideration. Each unit of Product A costs $12 to produce and has a contribution margin of $6, while each unit of Product B costs twice as much and has a contribution margin of $8. What is the differential revenue for this decision? (Points : 2)
11. Planning concerned with long-range decisions such as defining the scope of the business is referred to as: (Points : 2)
12. Expressing plans for a business in financial terms is commonly called: (Points : 2)
13. Select the incorrect statement about budgeting and human behavior. (Points : 2)
14. Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? (Points : 2)
15. Which of the following is not a budgeted financial statement? (Points : 2)
16. Which of the following items will not appear on a cash budget? (Points : 2)
17. Select the incorrect statement. (Points : 2)
18. Maddon Company estimated that its inventory purchases for January and February 2010 would be $300,000 and $370,000, respectively. The company generally pays for 60% of its inventory purchases in the month of purchase because it receives a 2% discount for timely payment. The remaining 40% of purchases are paid for in the following month, and there is no discount for these payments. What will be the amount of cash payments for inventory in February 2010? (Points : 2)
19. The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as: (Points : 2)
20. Select the correct equation format for the purchases budget. (Points : 2)
Click here for the solution: Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery
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