PR 10-6A Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:
a. On December 31, the company determined that $20,000,000 of goodwill was impaired.
b. Governmental and legal costs of $675,000 were incurred on June 30 in obtaining a patent with an estimated economic life of 10 years. Amortization is to be for one-half year.
c. Timber rights on a tract of land were purchased for $1,665,000 on February 16. The stand of timber is estimated at 9,000,000 board feet. During the current year, 2,400,000 board feet of timber were cut and sold.
Instructions
1. Determine the amount of the amortization, depletion, or impairment for the current year for each of the foregoing items.
2. Journalize the adjusting entries to record the amortization, depletion, or impairment for each item.
Click here for the solution: Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows
Sunday, September 27, 2015
Data pertaining to job cost sheets for Reyes Tool & Die are given in BE15-3 and BE15-4
BE 15-5 Data pertaining to job cost sheets for Reyes Tool & Die are given in BE15-3 and BE15-4. Prepare the job cost sheets for each of the three jobs. (Note: You may omit the column for manufacturing overhead).
Data given in BE15-3 and 15-4:
BE 15-3 In January, Reyes Tool & Die requisitions raw materials for production as follows: Job 1 $900, Job 2 $1,200, Job 3 $700, and general factory use $600.
BE 15-4 During January, time tickets show that the factory labor of $5,000 was used as follows: Job 1 $1,200, Job 2 $1,600 Job 3 $1,400, and general factory use $800.
Click here for the solution: Data pertaining to job cost sheets for Reyes Tool & Die are given in BE15-3 and BE15-4
Data given in BE15-3 and 15-4:
BE 15-3 In January, Reyes Tool & Die requisitions raw materials for production as follows: Job 1 $900, Job 2 $1,200, Job 3 $700, and general factory use $600.
BE 15-4 During January, time tickets show that the factory labor of $5,000 was used as follows: Job 1 $1,200, Job 2 $1,600 Job 3 $1,400, and general factory use $800.
Click here for the solution: Data pertaining to job cost sheets for Reyes Tool & Die are given in BE15-3 and BE15-4
Selected transactions completed by Blackwell Company during its first fiscal year ending December 31 were as follow (Chapter 11 Comprehensive Problem 3)
Chapter 11 Comprehensive Problem 3 Selected transactions completed by Blackwell Company during its first fiscal year ending December 31 were as follow:
Jan. 2. Issued a check to establish a petty cash fund of $2,000.
Mar. 4. Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $789; miscellaneous selling expense, $256; miscellaneous administrative expense, $378.
AND SO ON
Click here for the solution: Selected transactions completed by Blackwell Company during its first fiscal year ending December 31 were as follow (Chapter 11 Comprehensive Problem 3)
Jan. 2. Issued a check to establish a petty cash fund of $2,000.
Mar. 4. Replenished the petty cash fund, based on the following summary of petty cash receipts: office supplies, $789; miscellaneous selling expense, $256; miscellaneous administrative expense, $378.
AND SO ON
Click here for the solution: Selected transactions completed by Blackwell Company during its first fiscal year ending December 31 were as follow (Chapter 11 Comprehensive Problem 3)
J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort
P5-4A J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort. At the beginning of the current season, the ledger of Hafner’s Tennis Shop showed Cash $2,500, Merchandise Inventory $1,700, and Common Stock $4,200. The following transactions were completed during April.
Apr. 4 Purchased racquets and balls from Wellman Co. $840, FOB shipping point, terms 2/10, n/30.
6 Paid freight on purchase from Wellman Co. $40.
8 Sold merchandise to members $1,150, terms n/30. The merchandise sold had a cost of $790.
10 Received credit of $40 from Wellman Co. for a damaged racquet that was returned.
11 Purchased tennis shoes from Venus Sports for cash, $420.
13 Paid Wellman Co. in full.
14 Purchased tennis shirts and shorts from Serena’s Sportswear $900, FOB shipping point, terms 3/10, n/60.
15 Received cash refund of $50 from Venus Sports for damaged merchandise that was returned.
17 Paid freight on Serena’s Sportswear purchase $30.
18 Sold merchandise to members $810, terms n/30.The cost of the merchandise sold was $530.
20 Received $500 in cash from members in settlement of their accounts.
21 Paid Serena’s Sportswear in full.
27 Granted an allowance of $30 to members for tennis clothing that did not fit properly.
30 Received cash payments on account from members, $660.
The chart of accounts for the tennis shop includes the following: No. 101 Cash, No. 112 Accounts Receivable, No. 120 Merchandise Inventory, No. 201 Accounts Payable, No. 311 Common Stock, No. 401 Sales, No. 412 Sales Returns and Allowances, No. 505 Cost of Goods Sold.
Instructions
(a) Journalize the April transactions using a perpetual inventory system.
(b) Enter the beginning balances in the ledger accounts and post the April transactions. (Use J1 for the journal reference.)
(c) Prepare a trial balance on April 30, 2008.
Click here for the solution: J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort
Apr. 4 Purchased racquets and balls from Wellman Co. $840, FOB shipping point, terms 2/10, n/30.
6 Paid freight on purchase from Wellman Co. $40.
8 Sold merchandise to members $1,150, terms n/30. The merchandise sold had a cost of $790.
10 Received credit of $40 from Wellman Co. for a damaged racquet that was returned.
11 Purchased tennis shoes from Venus Sports for cash, $420.
13 Paid Wellman Co. in full.
14 Purchased tennis shirts and shorts from Serena’s Sportswear $900, FOB shipping point, terms 3/10, n/60.
15 Received cash refund of $50 from Venus Sports for damaged merchandise that was returned.
17 Paid freight on Serena’s Sportswear purchase $30.
18 Sold merchandise to members $810, terms n/30.The cost of the merchandise sold was $530.
20 Received $500 in cash from members in settlement of their accounts.
21 Paid Serena’s Sportswear in full.
27 Granted an allowance of $30 to members for tennis clothing that did not fit properly.
30 Received cash payments on account from members, $660.
The chart of accounts for the tennis shop includes the following: No. 101 Cash, No. 112 Accounts Receivable, No. 120 Merchandise Inventory, No. 201 Accounts Payable, No. 311 Common Stock, No. 401 Sales, No. 412 Sales Returns and Allowances, No. 505 Cost of Goods Sold.
Instructions
(a) Journalize the April transactions using a perpetual inventory system.
(b) Enter the beginning balances in the ledger accounts and post the April transactions. (Use J1 for the journal reference.)
(c) Prepare a trial balance on April 30, 2008.
Click here for the solution: J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort
At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following
P12-2A At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following.
Partner Drawings Capital
Reese Caplin 23,000 48,000
Phyllis Newell 14,000 30,000
Betty Uhrich 10,000 25,000
The capital balance represents each partner's initial capital investment. Therefore, net income or net loss for 2010 has not been closed to the partners' capital accounts.
a. Journalize the entry to record the division of net income for the year 2010 under each of the following independent assumptions.
1. Net income is $30,000. Income is shared 6 : 3 : 1.
2. Net income is $37,000. Caplin and Newell are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally.
3. Net income is $19,000. Each partner is allowed interest of 10% on beginning capital balances. Caplin is given a $12,000 salary allowance. The remainder is shared equally.
b. Complete the schedule showing the division of net income under assumption (3) above.
c. Complete the partners' capital statement for the year under assumption (3) above.
Click here for the solution: At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following
Partner Drawings Capital
Reese Caplin 23,000 48,000
Phyllis Newell 14,000 30,000
Betty Uhrich 10,000 25,000
The capital balance represents each partner's initial capital investment. Therefore, net income or net loss for 2010 has not been closed to the partners' capital accounts.
a. Journalize the entry to record the division of net income for the year 2010 under each of the following independent assumptions.
1. Net income is $30,000. Income is shared 6 : 3 : 1.
2. Net income is $37,000. Caplin and Newell are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally.
3. Net income is $19,000. Each partner is allowed interest of 10% on beginning capital balances. Caplin is given a $12,000 salary allowance. The remainder is shared equally.
b. Complete the schedule showing the division of net income under assumption (3) above.
c. Complete the partners' capital statement for the year under assumption (3) above.
Click here for the solution: At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following
Peter Catalano's Verde Vineyards in Oakville, California produces three varieties of wine
Peter Catalano's Verde Vineyards in Oakville, California produces three varieties of wine: Merlot, Viognier, and Pinot Noir. His winemaster, Kyle Ward, has identified the following activities as cost pools for accumulating overhead and assigning it to products:
Choices:
Number of bottles
Number of boxes
Gallons of wine or months of aging
Number of cartfuls
Labor hours
Number of shipments
Gallons of juice
Number of gallons processed
Gallons of chemicals
Number or cartruls or labor hours
1. Culling and replanting. Dead or overcrowded vines are culled, and new vines are planted or relocated. (Separate vineyards by variety.)
2. Tying. The posts and wires are reset, and vines are tied to the wires for the dormant season.
3. Trimming. At the end of the harvest the vines are cut and trimmed back in preparation for the next season.
4. Spraying. The vines are sprayed with chemicals for protection against insects and fungi.
5. Harvesting. The grapes are hand-picked, placed in carts, and transported to the crushers.
6. Stemming and crushing. Cartfuls of bunches of grapes of each variety are separately loaded into machines which remove stems and gently crush the grapes.
7. Pressing and filtering. The crushed grapes are transferred to presses which mechanically remove the juices and filter out bulk and impurities.
8. Fermentation. The grape juice, by variety, is fermented in either stainless-steel tanks or oak barrels.
9. Aging. The wines are aged in either stainless-steel tanks or oak barrels for one to three years depending on variety
10. Bottling and corking. Bottles are machine-filled and corked.
11. Labeling and boxing. Each bottle is labeled, as is each nine-bottle case, with the name of the vintner, vintage, and variety.
12. Storing. Packaged and boxed bottles are stored awaiting shipment.
13. Shipping. The wine is shipped to distributors and private retailers.
14. Heating and air-conditioning of plant and offices
15. Maintenance of buildings and equipment. Printing, repairs, replacements, and general maintenance are performed in the off-season.
Choices:
Number of bottles
Number of boxes
Gallons of wine or months of aging
Number of cartfuls
Labor hours
Number of shipments
Gallons of juice
Number of gallons processed
Gallons of chemicals
Number or cartruls or labor hours
1. Culling and replanting. Dead or overcrowded vines are culled, and new vines are planted or relocated. (Separate vineyards by variety.)
2. Tying. The posts and wires are reset, and vines are tied to the wires for the dormant season.
3. Trimming. At the end of the harvest the vines are cut and trimmed back in preparation for the next season.
4. Spraying. The vines are sprayed with chemicals for protection against insects and fungi.
5. Harvesting. The grapes are hand-picked, placed in carts, and transported to the crushers.
6. Stemming and crushing. Cartfuls of bunches of grapes of each variety are separately loaded into machines which remove stems and gently crush the grapes.
7. Pressing and filtering. The crushed grapes are transferred to presses which mechanically remove the juices and filter out bulk and impurities.
8. Fermentation. The grape juice, by variety, is fermented in either stainless-steel tanks or oak barrels.
9. Aging. The wines are aged in either stainless-steel tanks or oak barrels for one to three years depending on variety
10. Bottling and corking. Bottles are machine-filled and corked.
11. Labeling and boxing. Each bottle is labeled, as is each nine-bottle case, with the name of the vintner, vintage, and variety.
12. Storing. Packaged and boxed bottles are stored awaiting shipment.
13. Shipping. The wine is shipped to distributors and private retailers.
14. Heating and air-conditioning of plant and offices
15. Maintenance of buildings and equipment. Printing, repairs, replacements, and general maintenance are performed in the off-season.
Instructions
For each of Verde's fifteen activity cost pools, identify a probable cost driver that might be used to assign overhead costs to its three wine varieties.
Click here for the solution: Peter Catalano's Verde Vineyards in Oakville, California produces three varieties of wine
Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken
P9-4 (Gross Profit Method) Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. Corporate records disclose the following.
Inventory (beginning) $ 80,000 Sales $415,000
Purchases 290,000 Sales returns 21,000
Purchase returns 28,000 Gross profit % based on net selling price 35%
Merchandise with a selling price of $30,000 remained undamaged after the fire, and damaged merchandise has a salvage value of $8,150. The company does not carry fire insurance on its inventory.
Instructions
Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)
Click here for the solution: Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken
Inventory (beginning) $ 80,000 Sales $415,000
Purchases 290,000 Sales returns 21,000
Purchase returns 28,000 Gross profit % based on net selling price 35%
Merchandise with a selling price of $30,000 remained undamaged after the fire, and damaged merchandise has a salvage value of $8,150. The company does not carry fire insurance on its inventory.
Instructions
Prepare a formal labeled schedule computing the fire loss incurred. (Do not use the retail inventory method.)
Click here for the solution: Eastman Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken
At December 31, 2009, certain accounts included in the property, plant, and equipment section of Reagan Company's balance sheet
P10-1 (Classification of Acquisition and Other Asset Costs) At December 31, 2009, certain accounts included in the property, plant, and equipment section of Reagan Company's balance sheet had the following balances.
Land $230,000
Buildings 890,000
Leasehold improvements 660,000
Machinery and equipment 875,000
During 2010 the following transactions occurred.
1. Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000.
2. A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the following costs.
Excavation fees $38,000
Architectural design fees 11,000
Building permit fee 2,500
Imputed interest on funds used during construction (stock financing) 8,500
The building was completed and occupied on September 30, 2010.
3. A third tract of land (site number 623) was acquired for $650,000 and was put on the market for resale.
4. During December 2010 costs of $89,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2012, and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.)
5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $87,000, freight costs were $3,300, installation costs were $2,400, and royalty payments for 2010 were $17,500.
Instructions
(a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2010.
Land Leasehold improvements
Buildings Machinery and equipment
Disregard the related accumulated depreciation accounts.
(b) List the items in the situation that were not used to determine the answer to (a) above, and indicate where, or if, these items should be included in Reagan's financial statements.
Click here for the solution: At December 31, 2009, certain accounts included in the property, plant, and equipment section of Reagan Company's balance sheet
Land $230,000
Buildings 890,000
Leasehold improvements 660,000
Machinery and equipment 875,000
During 2010 the following transactions occurred.
1. Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000.
2. A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the following costs.
Excavation fees $38,000
Architectural design fees 11,000
Building permit fee 2,500
Imputed interest on funds used during construction (stock financing) 8,500
The building was completed and occupied on September 30, 2010.
3. A third tract of land (site number 623) was acquired for $650,000 and was put on the market for resale.
4. During December 2010 costs of $89,000 were incurred to improve leased office space. The related lease will terminate on December 31, 2012, and is not expected to be renewed. (Hint: Leasehold improvements should be handled in the same manner as land improvements.)
5. A group of new machines was purchased under a royalty agreement that provides for payment of royalties based on units of production for the machines. The invoice price of the machines was $87,000, freight costs were $3,300, installation costs were $2,400, and royalty payments for 2010 were $17,500.
Instructions
(a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2010.
Land Leasehold improvements
Buildings Machinery and equipment
Disregard the related accumulated depreciation accounts.
(b) List the items in the situation that were not used to determine the answer to (a) above, and indicate where, or if, these items should be included in Reagan's financial statements.
Click here for the solution: At December 31, 2009, certain accounts included in the property, plant, and equipment section of Reagan Company's balance sheet
Here are the comparative income statements of Winfrey Corporation
E13-6 Here are the comparative income statements of Winfrey Corporation.
WINFREY CORPORATION
Comparative Income Statements
For the Years Ended December 31
2010 2009
Net sales $598,000 $520,000
Cost of goods sold 477,000 450,000
Gross profit $121,000 $ 70,000
Operating expenses 80,000 45,000
Net income $ 41,000 $ 25,000
Instructions
(a) Prepare a horizontal analysis of the income statement data for Winfrey Corporation using 2009 as a base. (Show the amounts of increase or decrease.)
(b) Prepare a vertical analysis of the income statement data for Winfrey Corporation for both years.
Click here for the solution: Here are the comparative income statements of Winfrey Corporation
WINFREY CORPORATION
Comparative Income Statements
For the Years Ended December 31
2010 2009
Net sales $598,000 $520,000
Cost of goods sold 477,000 450,000
Gross profit $121,000 $ 70,000
Operating expenses 80,000 45,000
Net income $ 41,000 $ 25,000
Instructions
(a) Prepare a horizontal analysis of the income statement data for Winfrey Corporation using 2009 as a base. (Show the amounts of increase or decrease.)
(b) Prepare a vertical analysis of the income statement data for Winfrey Corporation for both years.
Click here for the solution: Here are the comparative income statements of Winfrey Corporation
The comparative balance sheets of Nike, Inc. are presented here
E13-5 The comparative balance sheets of Nike, Inc. are presented here.
NIKE, INC.
Comparative Balance Sheets
May 31
($ in millions)
Assets
2007 2006
Current assets $ 8,076 $7,346
Property, plant, and equipment (net) 1,678 1,658
Other assets 934 866
Total assets $10,688 $9,870
Liabilities and Stockholders’ Equity
Current liabilities $ 2,584 $2,612
Long-term liabilities 1,079 973
Stockholders’ equity 7,025 6,285
Total liabilities and stockholders’ equity $10,688 $9,870
Instructions
(a) Prepare a horizontal analysis of the balance sheet data for Nike using 2006 as a base. (Show the amount of increase or decrease as well.)
(b) Prepare a vertical analysis of the balance sheet data for Nike for 2007.
Click here for the solution: The comparative balance sheets of Nike, Inc. are presented here
NIKE, INC.
Comparative Balance Sheets
May 31
($ in millions)
Assets
2007 2006
Current assets $ 8,076 $7,346
Property, plant, and equipment (net) 1,678 1,658
Other assets 934 866
Total assets $10,688 $9,870
Liabilities and Stockholders’ Equity
Current liabilities $ 2,584 $2,612
Long-term liabilities 1,079 973
Stockholders’ equity 7,025 6,285
Total liabilities and stockholders’ equity $10,688 $9,870
Instructions
(a) Prepare a horizontal analysis of the balance sheet data for Nike using 2006 as a base. (Show the amount of increase or decrease as well.)
(b) Prepare a vertical analysis of the balance sheet data for Nike for 2007.
Click here for the solution: The comparative balance sheets of Nike, Inc. are presented here
A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8
E21-9 (Lessor Entries with Bargain Purchase Option) A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8.
Instructions
(Round all numbers to the nearest cent.)
Refer to the data in E21-8 and do the following for the lessor.
(a) Compute the amount of the lease receivable at the inception of the lease.
(b) Prepare a lease amortization schedule for Mooney Leasing Company for the 5-year lease term.
(c) Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2007, 2008, and 2009. The lessor’s accounting period ends on December 31. Reversing entries are not used by Mooney.
Click here for the solution: A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8
Instructions
(Round all numbers to the nearest cent.)
Refer to the data in E21-8 and do the following for the lessor.
(a) Compute the amount of the lease receivable at the inception of the lease.
(b) Prepare a lease amortization schedule for Mooney Leasing Company for the 5-year lease term.
(c) Prepare the journal entries to reflect the signing of the lease agreement and to record the receipts and income related to this lease for the years 2007, 2008, and 2009. The lessor’s accounting period ends on December 31. Reversing entries are not used by Mooney.
Click here for the solution: A lease agreement between Mooney Leasing Company and Rode Company is described in E21-8
The stockholders' equity accounts of Sigma Corporation on January 1, 2010, were as follows
The stockholders' equity accounts of Sigma Corporation on January 1, 2010, were as follows.
Preferred Stock (8%, $100 par noncumulative, 5,000 shares authorized) $300,000
Common Stock ($5 stated value, 300,000 shares authorized) 1,000,000
Paid-in Capital in Excess of Par Value - Preferred Stock 15,000
Paid-in Capital in Excess of Stated Value - Common Stock 480,000
Retained Earnings 688,000
Treasury Stock - Common (5,000 shares) 40,000
During 2010 the corporation had these transactions and events pertaining to its stockholders' equity.
Feb. 1 Issued 5,000 shares of common stock for $30,000.
Mar. 20 Purchased 1,000 additional shares of common treasury stock at $7 per share.
Oct. 1 Declared a 8% cash dividend on preferred stock, payable November 1.
Nov. 1 Paid the dividend declared on October 1.
Dec. 1 Declared a $0.50 per share cash dividend to common stockholders of record on December 15, payable December 31, 2010.
Dec. 31 Determined that net income for the year was $280,000. Paid the dividend declared on December 1.
Instructions
(a) Journalize the transactions. (Include entries to close net income and dividends to Retained Earnings.)
(b) Enter the beginning balances in the accounts and post the journal entries to the stockholders’ equity accounts. (Use T accounts.)
(c) Prepare the stockholders’ equity section of the balance sheet at December 31, 2010.
(d) Calculate the payout ratio, earnings per share, and return on common stockholders’ equity ratio. (Note: Use the common shares outstanding on January 1 and December 31 to determine the average shares outstanding.)
Click here for the solution: The stockholders' equity accounts of Sigma Corporation on January 1, 2010, were as follows
Preferred Stock (8%, $100 par noncumulative, 5,000 shares authorized) $300,000
Common Stock ($5 stated value, 300,000 shares authorized) 1,000,000
Paid-in Capital in Excess of Par Value - Preferred Stock 15,000
Paid-in Capital in Excess of Stated Value - Common Stock 480,000
Retained Earnings 688,000
Treasury Stock - Common (5,000 shares) 40,000
During 2010 the corporation had these transactions and events pertaining to its stockholders' equity.
Feb. 1 Issued 5,000 shares of common stock for $30,000.
Mar. 20 Purchased 1,000 additional shares of common treasury stock at $7 per share.
Oct. 1 Declared a 8% cash dividend on preferred stock, payable November 1.
Nov. 1 Paid the dividend declared on October 1.
Dec. 1 Declared a $0.50 per share cash dividend to common stockholders of record on December 15, payable December 31, 2010.
Dec. 31 Determined that net income for the year was $280,000. Paid the dividend declared on December 1.
Instructions
(a) Journalize the transactions. (Include entries to close net income and dividends to Retained Earnings.)
(b) Enter the beginning balances in the accounts and post the journal entries to the stockholders’ equity accounts. (Use T accounts.)
(c) Prepare the stockholders’ equity section of the balance sheet at December 31, 2010.
(d) Calculate the payout ratio, earnings per share, and return on common stockholders’ equity ratio. (Note: Use the common shares outstanding on January 1 and December 31 to determine the average shares outstanding.)
Click here for the solution: The stockholders' equity accounts of Sigma Corporation on January 1, 2010, were as follows
(Minicase 4 Thomson Corporation) During the current year, Thomson had the following stock transactions
Minicase 4 Thomson Corporation
Thomson Corporation
Stockholder’s Equity
December 31, 2007
Common stock (40,000 authorized, 25,000 issued and outstanding with par value of $10 per share.) $ 250,000.00
Excess paid in capital on common stock $ 125,000.00
Retained Earnings $ 500,000.00
Total stockholder's equity $ 875,000.00
During the current year, Thomson had the following stock transactions:
• The company authorized the sale of 10% preferred stock, 50,000 shares at par value of $50.
• Sold 20,000 shares of preferred stock at $75 per share.
• Purchased 5,000 shares of common stock at $20 per share for cash.
• Declared and distributed a 2% stock dividend to common stockholders when market price was $25 per share.
• Declared and paid $90,000 in cash dividends to common and preferred stockholders.
• Sold 2,000 shares of treasury stock at $16 per share.
• Net loss is $134,000.
Required:
1. Prepare the stockholder’s equity section of the balance sheet for year end 2008.
Click here for the solution: (Minicase 4 Thomson Corporation) During the current year, Thomson had the following stock transactions
Thomson Corporation
Stockholder’s Equity
December 31, 2007
Common stock (40,000 authorized, 25,000 issued and outstanding with par value of $10 per share.) $ 250,000.00
Excess paid in capital on common stock $ 125,000.00
Retained Earnings $ 500,000.00
Total stockholder's equity $ 875,000.00
During the current year, Thomson had the following stock transactions:
• The company authorized the sale of 10% preferred stock, 50,000 shares at par value of $50.
• Sold 20,000 shares of preferred stock at $75 per share.
• Purchased 5,000 shares of common stock at $20 per share for cash.
• Declared and distributed a 2% stock dividend to common stockholders when market price was $25 per share.
• Declared and paid $90,000 in cash dividends to common and preferred stockholders.
• Sold 2,000 shares of treasury stock at $16 per share.
• Net loss is $134,000.
Required:
1. Prepare the stockholder’s equity section of the balance sheet for year end 2008.
Click here for the solution: (Minicase 4 Thomson Corporation) During the current year, Thomson had the following stock transactions
The units of Product YY2 available for sale during the year were as follows
The units of Product YY2 available for sale during the year were as follows:
Apr 1 Inventory 16 units @ $30
Jun 16 Purchase 30 units @ $33
Sep 28 Purchase 45 units @ $37
There are 17 units of the product in the physical inventory at March 31. The periodic inventory system is used.
Determine the difference in gross profit between the LIFO and FIFO inventory cost systems.
Click here for the solution: The units of Product YY2 available for sale during the year were as follows
Apr 1 Inventory 16 units @ $30
Jun 16 Purchase 30 units @ $33
Sep 28 Purchase 45 units @ $37
There are 17 units of the product in the physical inventory at March 31. The periodic inventory system is used.
Determine the difference in gross profit between the LIFO and FIFO inventory cost systems.
Click here for the solution: The units of Product YY2 available for sale during the year were as follows
Beale Management has a noncontributory, defined benefit pension plan
E 17-19 Record pension expense, funding, and gains and losses; determine account balances
Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2011 (the end of Beale's fiscal year), the following pension-related data were available:
Projected Benefit Obligation ($in millions)
Balance, January 1, 2011 $480
Service cost 82
Interest cost, discount rate, 5% 24
Gain due to changes in actuarial assumptions in 2011 (10)
Pension benefits paid (40)
Balance, December 31, 2011 $536
Plant Assets Balance, January 1, 2011 $500
Actual return on plan assets 40
(Expected return on plan assets, $45)
Cash Contributions 70
Pension benefits paid (40)
Balance, December 31, 2011 $570
January 1, 2011, balances:
Pension asset $20
Prior service cost-AOCI (amortization $8 per year) 48
Net gain-AOCI (any amortization over 15 years) 80
Required:
1. Prepare the 2011 journal entry to record pension expense.
2. Prepare the journal entry(s) to record any 2011 gains and losses.
3. Prepare the 2011 journal entries to record the contribution to plan assets and benefit payments to retirees.
4. Determine the balances at December 31, 2011, in the PBO, plan assets, the net gain–AOCI, and prior service cost–AOCI and show how the balances changed during 2011. [Hint: You might find T-accounts useful.]
5. What amount will Beale report in its 2011 balance sheet as a net pension asset or net pension liability for the funded status of the plan?
Click here for the solution: Beale Management has a noncontributory, defined benefit pension plan
Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2011 (the end of Beale's fiscal year), the following pension-related data were available:
Projected Benefit Obligation ($in millions)
Balance, January 1, 2011 $480
Service cost 82
Interest cost, discount rate, 5% 24
Gain due to changes in actuarial assumptions in 2011 (10)
Pension benefits paid (40)
Balance, December 31, 2011 $536
Plant Assets Balance, January 1, 2011 $500
Actual return on plan assets 40
(Expected return on plan assets, $45)
Cash Contributions 70
Pension benefits paid (40)
Balance, December 31, 2011 $570
January 1, 2011, balances:
Pension asset $20
Prior service cost-AOCI (amortization $8 per year) 48
Net gain-AOCI (any amortization over 15 years) 80
Required:
1. Prepare the 2011 journal entry to record pension expense.
2. Prepare the journal entry(s) to record any 2011 gains and losses.
3. Prepare the 2011 journal entries to record the contribution to plan assets and benefit payments to retirees.
4. Determine the balances at December 31, 2011, in the PBO, plan assets, the net gain–AOCI, and prior service cost–AOCI and show how the balances changed during 2011. [Hint: You might find T-accounts useful.]
5. What amount will Beale report in its 2011 balance sheet as a net pension asset or net pension liability for the funded status of the plan?
Click here for the solution: Beale Management has a noncontributory, defined benefit pension plan
Abbott and Abbott has a noncontributory, defined benefit pension plan
E 17-10 Determine pension expense
Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2011, Abbott and Abbott received the following information:
($in millions)
Projected Benefit Obligation
Balance, January 1 $120
Service cost 20
Interest cost 12
Benefits paid (9)
Balance, December 31 $143
Plant Assets
Balance, January 1 $80
Actual return on plan assets 9
Contribution 2011 20
Benefits paid (9)
Balance, December 31 $100
The expected long-term rate of return on plan assets was 10%. There was no prior service cost and a negligible net loss AOCI on January 1, 2011.
Required:
Determine Abbott and Abbott’s pension expense for 2011. Prepare the journal entries to record Abbott and Abbott’s pension expense, funding, and payment for 2011.
Click here for the solution: Abbott and Abbott has a noncontributory, defined benefit pension plan
Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2011, Abbott and Abbott received the following information:
($in millions)
Projected Benefit Obligation
Balance, January 1 $120
Service cost 20
Interest cost 12
Benefits paid (9)
Balance, December 31 $143
Plant Assets
Balance, January 1 $80
Actual return on plan assets 9
Contribution 2011 20
Benefits paid (9)
Balance, December 31 $100
The expected long-term rate of return on plan assets was 10%. There was no prior service cost and a negligible net loss AOCI on January 1, 2011.
Required:
Determine Abbott and Abbott’s pension expense for 2011. Prepare the journal entries to record Abbott and Abbott’s pension expense, funding, and payment for 2011.
Click here for the solution: Abbott and Abbott has a noncontributory, defined benefit pension plan
You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet aircraft
Ethics Case 17-6 401(k) plan contributions
You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet aircraft. VXI began a defined contribution pension plan three years ago. The plan is a so-called 401(k) plan (named after the Tax Code section that specifies the conditions for the favorable tax treatment of these plans) that permits voluntary contributions by employees. Employees' contributions are matched with one dollar of employer contribution for every two dollars of employee contribution. Approximately $500,000 of contributions is deducted from employee paychecks each month for investment in one of three employer-sponsored mutual funds.
While performing some preliminary audit tests, you happen to notice that employee contributions to these plans usually do not show up on mutual fund statements for up to two months following the end of pay periods from which the deductions are drawn. On further investigation, you discover that when the plan was first begun, contributions were invested within one week of receipt of the funds. When you question the firm's investment manager about the apparent change in the timing of investments, you are told, “Last year Mr. Maxwell (the CFO) directed me to initially deposit the contributions in the corporate investment account. At the close of each quarter, we add the employer matching contribution and deposit the combined amount in specific employee mutual funds.”
Required:
1. What is Mr. Maxwell's apparent motivation for the change in the way contributions are handled?
2. Do you perceive an ethical dilemma?
Click here for the solution: You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet aircraft
You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet aircraft. VXI began a defined contribution pension plan three years ago. The plan is a so-called 401(k) plan (named after the Tax Code section that specifies the conditions for the favorable tax treatment of these plans) that permits voluntary contributions by employees. Employees' contributions are matched with one dollar of employer contribution for every two dollars of employee contribution. Approximately $500,000 of contributions is deducted from employee paychecks each month for investment in one of three employer-sponsored mutual funds.
While performing some preliminary audit tests, you happen to notice that employee contributions to these plans usually do not show up on mutual fund statements for up to two months following the end of pay periods from which the deductions are drawn. On further investigation, you discover that when the plan was first begun, contributions were invested within one week of receipt of the funds. When you question the firm's investment manager about the apparent change in the timing of investments, you are told, “Last year Mr. Maxwell (the CFO) directed me to initially deposit the contributions in the corporate investment account. At the close of each quarter, we add the employer matching contribution and deposit the combined amount in specific employee mutual funds.”
Required:
1. What is Mr. Maxwell's apparent motivation for the change in the way contributions are handled?
2. Do you perceive an ethical dilemma?
Click here for the solution: You are in your third year as internal auditor with VXI International, manufacturer of parts and supplies for jet aircraft
Williams-Santana, Inc. is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training
Integrating Case 16–5 Tax effects of accounting changes and error correction; six situations
Williams-Santana, Inc. is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training. In 2011, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2011 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.
a. A five-year casualty insurance policy was purchased at the beginning of 2009 for $35,000. The full amount was debited to insurance expense at the time.
b. On December 31, 2010, merchandise inventory was overstated by $25,000 due to a mistake in the physical inventory count using the periodic inventory system.
c. The company changed inventory cost methods to FIFO from LIFO at the end of 2011 for both financial statement and income tax purposes. The change will cause a $960,000 increase in the beginning inventory at January 1, 2010.
d. At the end of 2010, the company failed to accrue $15,500 of sales commissions earned by employees during 2010. The expense was recorded when the commissions were paid in early 2011.
e. At the beginning of 2009, the company purchased a machine at a cost of $720,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double declining-balance method. Its carrying amount on December 31, 2010, was $460,800. On January 1, 2011, the company changed to the straight-line method.
f. Additional industrial robots were acquired at the beginning of 2008 and added to the company's assembly process. The $1,000,000 cost of the equipment was inadvertently recorded as repair expense. Robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for both financial reporting and income tax reporting.
Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2011 related to the situation described. Any tax effects should be adjusted for through the deferred tax liability account.
3. Briefly describe any other steps that should be taken to appropriately report the situation.
Click here for the solution: Williams-Santana, Inc. is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training
Williams-Santana, Inc. is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training. In 2011, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2011 before any adjusting entries or closing entries were prepared. The income tax rate is 40% for all years.
a. A five-year casualty insurance policy was purchased at the beginning of 2009 for $35,000. The full amount was debited to insurance expense at the time.
b. On December 31, 2010, merchandise inventory was overstated by $25,000 due to a mistake in the physical inventory count using the periodic inventory system.
c. The company changed inventory cost methods to FIFO from LIFO at the end of 2011 for both financial statement and income tax purposes. The change will cause a $960,000 increase in the beginning inventory at January 1, 2010.
d. At the end of 2010, the company failed to accrue $15,500 of sales commissions earned by employees during 2010. The expense was recorded when the commissions were paid in early 2011.
e. At the beginning of 2009, the company purchased a machine at a cost of $720,000. Its useful life was estimated to be 10 years with no salvage value. The machine has been depreciated by the double declining-balance method. Its carrying amount on December 31, 2010, was $460,800. On January 1, 2011, the company changed to the straight-line method.
f. Additional industrial robots were acquired at the beginning of 2008 and added to the company's assembly process. The $1,000,000 cost of the equipment was inadvertently recorded as repair expense. Robots have 10-year useful lives and no material salvage value. This class of equipment is depreciated by the straight-line method for both financial reporting and income tax reporting.
Required:
For each situation:
1. Identify whether it represents an accounting change or an error. If an accounting change, identify the type of change.
2. Prepare any journal entry necessary as a direct result of the change or error correction as well as any adjusting entry for 2011 related to the situation described. Any tax effects should be adjusted for through the deferred tax liability account.
3. Briefly describe any other steps that should be taken to appropriately report the situation.
Click here for the solution: Williams-Santana, Inc. is a manufacturer of high-tech industrial parts that was started in 1997 by two talented engineers with little business training
Preston Library, a nonprofit organization, presented the following statement of financial position and statement of activities
PROBLEM 19-5 Journal Entries—Financial Statements—Library
Preston Library, a nonprofit organization, presented the following statement of financial position and statement of activities for its fiscal year ended February 28, 2007.
Preston Library
Statement of Financial Position
February 28, 2007
Temporarily
Assets Unrestricted Restricted
Current Assets
Cash $ 285,000 $80,000
Grants Receivable 80,000
Prepaid Expenses 65,000
Total 430,000
Investments (at market) 1,020,000
Land, Building, and Equipment
(less accumulated depreciation of $50,000) 530,000
Total Assets $1,980,000 $80,000
Liabilities and Fund Balances
Current Liabilities
Accounts Payable and Accrued Expenses $ 150,000
Total 150,000
Long-Term Debt 200,000
Fund Balances 1,630,000 80,000
Total Liabilities and Fund Balances $1,980,000 $80,000Preston Library
Statement of Activities
for Year Ended February 28, 2007
Temporarily
Support and Revenue Unrestricted Restricted
Support
Grants $ 70,000 $—0—
Gifts 300,000 80,000
Total 370,000 80,000
Revenue
Service Fees 22,000
Book Rentals and Fines 107,000
Investment Income 71,000
Total 200,000 —0—
Total Support and Revenue $ 570,000 $80,000
Expenses
Program Services
Circulating library $ 212,000
Research library 86,000
Exhibits 20,000
Community services 10,000
Total 328,000 —0—
Supporting Services
General and administrative 175,000
Fund raising 111,000
Total 286,000 —0—
Total Expenses 614,000 —0—
Increase (decrease) in net assets (44,000) 80,000
Fund Balances—beginning of year 1,674,000 —0—
Fund Balances—end of year $1,630,000 $80,000
The following transactions occurred during the fiscal year ended February 28, 2008.
1. Fees were billed as follows:
Service fees $30,000
Book rentals 43,000
Book fines 78,000
2. $40,000 of the Grant Receivable was received. Another grant in the amount of $20,000 was promised.
3. Contributions in the amounts summarized below were received:
Unrestricted $215,000
Restricted 108,000
4. Investment income totaled $75,000 for the year.
5. Vouchers for the year were approved as follows:
Circulating library $189,000
Research library 74,000
Exhibits 15,000
Community services 12,000
General and administrative 166,000
Fund raising 103,000
Total $559,000
6. During the year, $500,000 worth of vouchers were paid.
Adjustment Data
7. Accounts Payable and Accrued Expenses at February 28, 2008, should be $217,000. The difference should be allocated to the following expenses:
Research library $5,000
General and administrative 3,000
8. Additions to the research library in the amount of $68,000 that were approved in (5) above were made in accordance with the terms of a contribution that had been received earlier and that was restricted for that purpose.
9. The current market value of the investments is $1,035,000 (no investment transactions occurred).
10. Depreciation amounted to $9,000 for the year. It should be allocated as follows:
Circulating library $3,500
Research library 2,900
General and administrative 2,600
11. Prepaid Expenses should be $60,000. The difference should be allocated to:
Exhibits $3,700
General and administrative 1,300
Required:
A. Prepare journal entries to record the transactions.
B. Prepare the statement of financial position and the statement of activities for the year ended February 28, 2008.
Click here for the solution: Preston Library, a nonprofit organization, presented the following statement of financial position and statement of activities
Preston Library, a nonprofit organization, presented the following statement of financial position and statement of activities for its fiscal year ended February 28, 2007.
Preston Library
Statement of Financial Position
February 28, 2007
Temporarily
Assets Unrestricted Restricted
Current Assets
Cash $ 285,000 $80,000
Grants Receivable 80,000
Prepaid Expenses 65,000
Total 430,000
Investments (at market) 1,020,000
Land, Building, and Equipment
(less accumulated depreciation of $50,000) 530,000
Total Assets $1,980,000 $80,000
Liabilities and Fund Balances
Current Liabilities
Accounts Payable and Accrued Expenses $ 150,000
Total 150,000
Long-Term Debt 200,000
Fund Balances 1,630,000 80,000
Total Liabilities and Fund Balances $1,980,000 $80,000Preston Library
Statement of Activities
for Year Ended February 28, 2007
Temporarily
Support and Revenue Unrestricted Restricted
Support
Grants $ 70,000 $—0—
Gifts 300,000 80,000
Total 370,000 80,000
Revenue
Service Fees 22,000
Book Rentals and Fines 107,000
Investment Income 71,000
Total 200,000 —0—
Total Support and Revenue $ 570,000 $80,000
Expenses
Program Services
Circulating library $ 212,000
Research library 86,000
Exhibits 20,000
Community services 10,000
Total 328,000 —0—
Supporting Services
General and administrative 175,000
Fund raising 111,000
Total 286,000 —0—
Total Expenses 614,000 —0—
Increase (decrease) in net assets (44,000) 80,000
Fund Balances—beginning of year 1,674,000 —0—
Fund Balances—end of year $1,630,000 $80,000
The following transactions occurred during the fiscal year ended February 28, 2008.
1. Fees were billed as follows:
Service fees $30,000
Book rentals 43,000
Book fines 78,000
2. $40,000 of the Grant Receivable was received. Another grant in the amount of $20,000 was promised.
3. Contributions in the amounts summarized below were received:
Unrestricted $215,000
Restricted 108,000
4. Investment income totaled $75,000 for the year.
5. Vouchers for the year were approved as follows:
Circulating library $189,000
Research library 74,000
Exhibits 15,000
Community services 12,000
General and administrative 166,000
Fund raising 103,000
Total $559,000
6. During the year, $500,000 worth of vouchers were paid.
Adjustment Data
7. Accounts Payable and Accrued Expenses at February 28, 2008, should be $217,000. The difference should be allocated to the following expenses:
Research library $5,000
General and administrative 3,000
8. Additions to the research library in the amount of $68,000 that were approved in (5) above were made in accordance with the terms of a contribution that had been received earlier and that was restricted for that purpose.
9. The current market value of the investments is $1,035,000 (no investment transactions occurred).
10. Depreciation amounted to $9,000 for the year. It should be allocated as follows:
Circulating library $3,500
Research library 2,900
General and administrative 2,600
11. Prepaid Expenses should be $60,000. The difference should be allocated to:
Exhibits $3,700
General and administrative 1,300
Required:
A. Prepare journal entries to record the transactions.
B. Prepare the statement of financial position and the statement of activities for the year ended February 28, 2008.
Click here for the solution: Preston Library, a nonprofit organization, presented the following statement of financial position and statement of activities
(Ethics Case) International Network Solutions provides products and services related to remote access networking
Ethics Case 19-7 International Network Solutions
International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.
One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane's office.
Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.
Mashburn: To begin this year, you mean?
Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She's probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.
Mashburn: Our shareholders are accustomed to increases every year.
Required:
1. How will a buyback of shares provide a “quick fix” for EPS?
2. Is the proposal ethical?
3. Who would be affected if the proposal is implemented?
Click here for the solution: (Ethics Case) International Network Solutions provides products and services related to remote access networking
International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.
One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane's office.
Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.
Mashburn: To begin this year, you mean?
Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She's probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.
Mashburn: Our shareholders are accustomed to increases every year.
Required:
1. How will a buyback of shares provide a “quick fix” for EPS?
2. Is the proposal ethical?
3. Who would be affected if the proposal is implemented?
Click here for the solution: (Ethics Case) International Network Solutions provides products and services related to remote access networking
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity
Communication Case 18-10 Should the present two-category distinction between liabilities and equity be retained? Group interaction.
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:
View 1: The distinction should be maintained.
View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.
One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.
Required:
1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned.
2. In class, your instructor will pair you (and everyone else) with a classmate (who also has independently developed an argument).
a. You will be given three minutes to argue your view to your partner. Your partner likewise will be given three minutes to argue his or her view to you. During these three-minute presentations, the listening partner is not permitted to speak.
b. Then after each person has had a turn attempting to convince his or her partner, the two partners will have a three-minute discussion in which they will decide which view is more convincing and arguments will be merged into a single view for each pair.
3. After the allotted time, a spokesperson for each of the two views will be selected by the instructor. Each spokesperson will field arguments from the class in support of that view's position and list the arguments on the board. The class then will discuss the merits of the two lists of arguments and attempt to reach a consensus view, though a consensus is not necessary.
Click here for the solution: The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity
The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and equity and the difficulty of drawing a distinction have led many to conclude that the present two-category distinction between liabilities and equity should be eliminated. Two opposing viewpoints are:
View 1: The distinction should be maintained.
View 2: The distinction should be eliminated and financial instruments should instead be reported in accordance with the priority of their claims to enterprise assets.
One type of security that often is mentioned in the debate is convertible bonds. Although stock in many ways, such a security also obligates the issuer to transfer assets at a specified price and redemption date. Thus it also has features of debt. In considering this question, focus on conceptual issues regarding the practicable and theoretically appropriate treatment, unconstrained by GAAP.
Required:
1. Which view do you favor? Develop a list of arguments in support of your view prior to the class session for which the case is assigned.
2. In class, your instructor will pair you (and everyone else) with a classmate (who also has independently developed an argument).
a. You will be given three minutes to argue your view to your partner. Your partner likewise will be given three minutes to argue his or her view to you. During these three-minute presentations, the listening partner is not permitted to speak.
b. Then after each person has had a turn attempting to convince his or her partner, the two partners will have a three-minute discussion in which they will decide which view is more convincing and arguments will be merged into a single view for each pair.
3. After the allotted time, a spokesperson for each of the two views will be selected by the instructor. Each spokesperson will field arguments from the class in support of that view's position and list the arguments on the board. The class then will discuss the merits of the two lists of arguments and attempt to reach a consensus view, though a consensus is not necessary.
Click here for the solution: The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity
Lasso Corp. budgeted $250,000 of overhead cost for 2008
1) Lasso Corp. budgeted $250,000 of overhead cost for 2008. Actual overhead costs for the year were $240,000. Lasso's plant-wide allocation base, machine hours, was budgeted at 50,000 hours. Actual machine hours were 40,000. Budgeted units to be produced are 100,000 units. Lasso's single plant-wide factory overhead rate for 2008 is
2) Stewart Marketing Inc. manufactures two products, A and B. Presently, the company uses a single Plant-Wide factory overhead rate for allocating overhead to products. From the following information, determine the single-wide factory overhead rate:
Direct Labor
Overhead Hours (dlh) A B
Painting Dept. $248,000 10,000 dlh 16 dlh 4 dlh
Finishing Dept. 72,000 10,000 dlh 4 dlh 16 dlh
Totals $320,000 20,000 dlh 20 dlh 20 dlh
3) The Kaumajet Factory produces two products - small lamps and desk lamps. It has two separate departments - finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a small lamp will require 2 hours of finishing and 1 hours of production, how much factory overhead will be allocated to each unit of small lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours?
4) Stewart Marketing Inc. manufactures two products, A and B. From the following information, determine the overhead from both production departments allocated to each unit of product A if the company uses a multiple department rate system.
Product
Direct Labor
Overhead Hours (dlh) A B
Painting Dept. $248,000 10,000 dlh 16 dlh 4 dlh
Finishing Dept. 72,000 10,000 dlh 4 dlh 16 dlh
Totals $320,000 20,000 dlh 20 dlh 20 dlh
5) It would make sense to use any of the following as an allocation base for calculating factory overhead rates except:
6) Phelan Systems Corporation is estimating activity costs associated with producting disk drives tapes drives, and wire drives. The indirect labor can be traced for four separate activity pools. The budgeted activity cost and activity base information, along with the estimated activity-based information, is provided below.
Procurement $36000 Number of purchased order
Scheduling $240000 Number of production orders
Material handling $48000 Number of moves
Product development $72000 Number of engineering changes
Production $1420000 Machine hours
Disk Drives 4000(# XXXXX purchase orders) 300(# XXXXX production orders) 1400(# XXXXX moves) 10(# XXXXX engineering changes) 2000(machine hours) 2000(# XXXXX units)
Tape drives 2000(# XXXXX purchase orders) 150(# XXXXX production orders) 600(# XXXXX moves) 5(# XXXXX engineering changes) 8000(machine hours) 4000(# XXXXX units)
Wire drive 12000(# XXXXX purchase orders) 800(# XXXXX production orders) 4000(# XXXXX moves) 25(# XXXXX engineering changes) 10000(machine hours) 2500(# XXXXX units)
Determine the activity rate for the procurement per purchase order.
7) The Nite Lite Factory has determined that its budgeted factory overhead budget for the year is $6,750,000 and budgeted direct labor hours are 5,000,000. Using the single plantwide factory overhead rate based on direct labor hours, determine the factory overhead rate for the year.
8) The southwest leather company manufactures leather handbages (H) and moccasins (M). For Simplicity reasons, they have decided to use single plantwide factory overhead rate method to allocate factory overhead. The factory overhead estimated per unit together with materials and direct labor will help determine selling prices. Calculate the amount of factory overhead to be allocated to each unit using direct labor hours.
Handbags =60,000 units 2 hours of direct labor
Moccasins = 40,000 units, 3 hours of direct labor
Total Budgeted factory overhead cost = 360,000
9) Using multiple department factory overhead rates instead of single plant - wide factory overhead rate:
10) Using a Plant-wide factory overhead rate distorts product costs when:
Click here for the solution: Lasso Corp. budgeted $250,000 of overhead cost for 2008
2) Stewart Marketing Inc. manufactures two products, A and B. Presently, the company uses a single Plant-Wide factory overhead rate for allocating overhead to products. From the following information, determine the single-wide factory overhead rate:
Direct Labor
Overhead Hours (dlh) A B
Painting Dept. $248,000 10,000 dlh 16 dlh 4 dlh
Finishing Dept. 72,000 10,000 dlh 4 dlh 16 dlh
Totals $320,000 20,000 dlh 20 dlh 20 dlh
3) The Kaumajet Factory produces two products - small lamps and desk lamps. It has two separate departments - finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a small lamp will require 2 hours of finishing and 1 hours of production, how much factory overhead will be allocated to each unit of small lamps using the multiple production department factory overhead rate method with an allocation base of direct labor hours?
4) Stewart Marketing Inc. manufactures two products, A and B. From the following information, determine the overhead from both production departments allocated to each unit of product A if the company uses a multiple department rate system.
Product
Direct Labor
Overhead Hours (dlh) A B
Painting Dept. $248,000 10,000 dlh 16 dlh 4 dlh
Finishing Dept. 72,000 10,000 dlh 4 dlh 16 dlh
Totals $320,000 20,000 dlh 20 dlh 20 dlh
5) It would make sense to use any of the following as an allocation base for calculating factory overhead rates except:
6) Phelan Systems Corporation is estimating activity costs associated with producting disk drives tapes drives, and wire drives. The indirect labor can be traced for four separate activity pools. The budgeted activity cost and activity base information, along with the estimated activity-based information, is provided below.
Procurement $36000 Number of purchased order
Scheduling $240000 Number of production orders
Material handling $48000 Number of moves
Product development $72000 Number of engineering changes
Production $1420000 Machine hours
Disk Drives 4000(# XXXXX purchase orders) 300(# XXXXX production orders) 1400(# XXXXX moves) 10(# XXXXX engineering changes) 2000(machine hours) 2000(# XXXXX units)
Tape drives 2000(# XXXXX purchase orders) 150(# XXXXX production orders) 600(# XXXXX moves) 5(# XXXXX engineering changes) 8000(machine hours) 4000(# XXXXX units)
Wire drive 12000(# XXXXX purchase orders) 800(# XXXXX production orders) 4000(# XXXXX moves) 25(# XXXXX engineering changes) 10000(machine hours) 2500(# XXXXX units)
Determine the activity rate for the procurement per purchase order.
7) The Nite Lite Factory has determined that its budgeted factory overhead budget for the year is $6,750,000 and budgeted direct labor hours are 5,000,000. Using the single plantwide factory overhead rate based on direct labor hours, determine the factory overhead rate for the year.
8) The southwest leather company manufactures leather handbages (H) and moccasins (M). For Simplicity reasons, they have decided to use single plantwide factory overhead rate method to allocate factory overhead. The factory overhead estimated per unit together with materials and direct labor will help determine selling prices. Calculate the amount of factory overhead to be allocated to each unit using direct labor hours.
Handbags =60,000 units 2 hours of direct labor
Moccasins = 40,000 units, 3 hours of direct labor
Total Budgeted factory overhead cost = 360,000
9) Using multiple department factory overhead rates instead of single plant - wide factory overhead rate:
10) Using a Plant-wide factory overhead rate distorts product costs when:
Click here for the solution: Lasso Corp. budgeted $250,000 of overhead cost for 2008
Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
P5-6B Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products. The company purchases all merchandise inventory on credit and uses a periodic inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005 through 2008, inclusive.
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30
E5-4 On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30. Meredith pays the freight costs of $400 on June 11. Damaged goods totaling $300 are returned to Leinert for credit on June 12. The scrap value of these goods is $150. On June 19, Meredith pays Leinert Company in full, less the purchase discount. Both companies use a perpetual inventory system.
Instructions
(a) Prepare separate entries for each transaction on the books of Meredith Company.
(b) Prepare separate entries for each transaction for Leinert Company. The merchandise purchased by Meredith on June 10 had cost Leinert $5,000.
Click here for the solution: On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30
Instructions
(a) Prepare separate entries for each transaction on the books of Meredith Company.
(b) Prepare separate entries for each transaction for Leinert Company. The merchandise purchased by Meredith on June 10 had cost Leinert $5,000.
Click here for the solution: On June 10, Meredith Company purchased $8,000 of merchandise from Leinert Company FOB shipping point, terms 2/10, n/30
Presented is information related to Rogers Co. for the month of January 2008
E5-8 Presented is information related to Rogers Co. for the month of January 2008.
Ending inventory per perpetual records $21,600
Ending inventory actually on hand 21,000
Cost of goods sold 218,000
Freight-out 7,000
Insurance expense 12,000
Rent expense 20,000
Salary Expense 61,000
Sales Discounts 10,000
Sales Returns and Allowances 13,000
Sales 350,000
Instructions
(a) Prepare the necessary adjusting entry for inventory.
(b) Prepare the necessary closing entries.
Click here for the solution: Presented is information related to Rogers Co. for the month of January 2008
Ending inventory per perpetual records $21,600
Ending inventory actually on hand 21,000
Cost of goods sold 218,000
Freight-out 7,000
Insurance expense 12,000
Rent expense 20,000
Salary Expense 61,000
Sales Discounts 10,000
Sales Returns and Allowances 13,000
Sales 350,000
Instructions
(a) Prepare the necessary adjusting entry for inventory.
(b) Prepare the necessary closing entries.
Click here for the solution: Presented is information related to Rogers Co. for the month of January 2008
Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory
E6-9 Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory. The following data are available at December 31.
Item Units Unit Cost Market
Cameras
Minolta 5 $170 $156
Canon 6 150 152
Light Meters
Vivitar 12 125 115
Kodak 14 120 135
Instructions
Determine the amount of the ending inventory by applying the lower-of-cost-or-market basis
Click here for the solution: Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory
Item Units Unit Cost Market
Cameras
Minolta 5 $170 $156
Canon 6 150 152
Light Meters
Vivitar 12 125 115
Kodak 14 120 135
Instructions
Determine the amount of the ending inventory by applying the lower-of-cost-or-market basis
Click here for the solution: Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory
Jones Company had 100 units in beginning inventory at a total cost of $10,000
E6-7 Jones Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending inventory.
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance sheet?
(d) Which cost flow method would result in Jones paying the least taxes in the first year?
Click here for the solution: Jones Company had 100 units in beginning inventory at a total cost of $10,000
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2) LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance sheet?
(d) Which cost flow method would result in Jones paying the least taxes in the first year?
Click here for the solution: Jones Company had 100 units in beginning inventory at a total cost of $10,000
Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
P16-29B Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company's five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company's continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Click here for the solution: Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company's continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Click here for the solution: Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
Certain item descriptions and amounts are missing from the monthly schedule of cost of goods manufactured and the income statement of Pinta Manufacturing Company
P16-32B Certain item descriptions and amounts are missing from the monthly schedule of cost of goods manufactured and the income statement of Pinta Manufacturing Company.
Requirement
1. Fill in the missing words (___) and amounts (X).
Click here for the solution: Certain item descriptions and amounts are missing from the monthly schedule of cost of goods manufactured and the income statement of Pinta Manufacturing Company
Requirement
1. Fill in the missing words (___) and amounts (X).
Click here for the solution: Certain item descriptions and amounts are missing from the monthly schedule of cost of goods manufactured and the income statement of Pinta Manufacturing Company
You are provided with the following information for Pavey Inc. for the month ended October 31, 2008
P6-5A You are provided with the following information for Pavey Inc. for the month ended October 31, 2008. Pavey uses a periodic method for inventory.
Date Description Units Unit Cost or Selling Price
October 1 Beginning inventory 60 $25
October 9 Purchase 120 26
October 11 Sale 100 35
October 17 Purchase 70 27
October 22 Sale 60 40
October 25 Purchase 80 28
October 29 Sale 110 40
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods.
(b) Compare results for the three cost flow assumptions. What cost flow results in the lowest inventory value. What cost flow results in the lowest cost of goods sold. What cost flow results in the lowest gross profit. What cost flow results in the lowest gross profit rate.
Click here for the solution: You are provided with the following information for Pavey Inc. for the month ended October 31, 2008
Date Description Units Unit Cost or Selling Price
October 1 Beginning inventory 60 $25
October 9 Purchase 120 26
October 11 Sale 100 35
October 17 Purchase 70 27
October 22 Sale 60 40
October 25 Purchase 80 28
October 29 Sale 110 40
Instructions
(a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods.
(b) Compare results for the three cost flow assumptions. What cost flow results in the lowest inventory value. What cost flow results in the lowest cost of goods sold. What cost flow results in the lowest gross profit. What cost flow results in the lowest gross profit rate.
Click here for the solution: You are provided with the following information for Pavey Inc. for the month ended October 31, 2008
Jennings Co. has earnings after interest but before taxes of $3,000
Jennings Co. has earnings after interest but before taxes of $3,000. The Company's times interest earned ratio is 7.00. Calculate the company's interest charges.
Click here for the solution: Jennings Co. has earnings after interest but before taxes of $3,000
Click here for the solution: Jennings Co. has earnings after interest but before taxes of $3,000
Hillman Inc. has the following relationships
Hillman Inc. has the following relationships:
Sales/Total assets 2
Return on assets (ROA) 5.0%
Return on equity (ROE) 8.0%
What are Hillman's profit margin and debt ratio?
Click here for the solution: Hillman Inc. has the following relationships
Sales/Total assets 2
Return on assets (ROA) 5.0%
Return on equity (ROE) 8.0%
What are Hillman's profit margin and debt ratio?
Click here for the solution: Hillman Inc. has the following relationships
A partial statement of financial position of Century University is shown below
P19-3: Various Funds-University
A partial statement of financial position of Century University is shown below.
Century University
Partial Statement of Financial Position
June 30, 2007
Assets
Current Funds
Unrestricted
Cash $210,000
Accounts Receivable (less allowance for doubtful accounts, $9,000) 341,000
State Appropriations Receivable 75,000
Total Unrestricted 626,000
Restricted
Cash 7,000
Investments 60,000
Total Restricted 67,000
Total Current $693,000
Liabilities and Fund Balances
Current Funds
Unrestricted
Accounts Payable $ 45,000
Deferred Revenues 66,000
Fund Balance 515,000
Total Unrestricted 626,000
Restricted
Fund Balance 67,000
Total Restricted 67,000
Total Current $693,000
During the fiscal year ended June 30, 2008, the following transactions occurred:
1. A gift of $100,000 was received from an alumnus on July 7, 2007. One-half of the gift was to be used for the purchase of books for the university’s library and the rest was to be used to establish a scholarship fund per the alumnus’s request. It was also requested that the income generated by the scholarship fund be awarded annually as a scholarship for a qualified disadvantaged student. The board decided that the funds for the new scholarship should be invested in savings certificates on July 20, 2007. These savings certificates were puchased on July 21, 2007.
2. Revenue for the fiscal period from student tuition and fees amounted to $1,900,000. During the fiscal year, $1,686,000 of this amount was collected; $66,000 had been collected in the prior year. The university had also received $158,000 by June 30, 2008, for fees for the session beginning July 1, 2008.
3. During the year ended June 30, 2008, the university collected $349,000 of the outstanding accounts receivable at the beginning of the year. The balance was determined to be uncollectible and was written off against the allowance account. At June 30, 2008, the allowance account was increased by $3,000.
4. Because of late student fee payments, $6,000 in interest charges were earned and collected.
5. The state appropriation was received. Another unrestricted appropriation of $50,000 was made by the state. This had not been paid to the university by the fiscal year-end.
6. An unrestricted gift of $25,000 cash was received from alumni of the university.
7. During the year, investments of $21,000 were sold for $26,000. Investment income amounting to $1,900 was received.
8. Unrestricted operating expenses were recorded at $1,777,000, $59,000 of which remains unpaid.
9. Restricted current funds of $13,000 were spent for authorized purposes during the year.
10. The accounts payable at June 30, 2007, were paid during the year.
11. During the year, $7,000 interest was earned and received on the savings certificates purchased in accordance with the board’s resolution [in item (1)].
Required:
A. Prepare journal entries to record in summary form the transactions above for the year ended June 30, 2008. Each journal entry should be numbered to correspond with the transaction described above. Set up the following headings:
B. Prepare a statement of activities for the year ended June 30, 2008.
C. Prepare a statement of activities for the current funds for the year ended June 30, 2008. Include more details about the revenues and expenses.
Click here for the solution: A partial statement of financial position of Century University is shown below
A partial statement of financial position of Century University is shown below.
Century University
Partial Statement of Financial Position
June 30, 2007
Assets
Current Funds
Unrestricted
Cash $210,000
Accounts Receivable (less allowance for doubtful accounts, $9,000) 341,000
State Appropriations Receivable 75,000
Total Unrestricted 626,000
Restricted
Cash 7,000
Investments 60,000
Total Restricted 67,000
Total Current $693,000
Liabilities and Fund Balances
Current Funds
Unrestricted
Accounts Payable $ 45,000
Deferred Revenues 66,000
Fund Balance 515,000
Total Unrestricted 626,000
Restricted
Fund Balance 67,000
Total Restricted 67,000
Total Current $693,000
During the fiscal year ended June 30, 2008, the following transactions occurred:
1. A gift of $100,000 was received from an alumnus on July 7, 2007. One-half of the gift was to be used for the purchase of books for the university’s library and the rest was to be used to establish a scholarship fund per the alumnus’s request. It was also requested that the income generated by the scholarship fund be awarded annually as a scholarship for a qualified disadvantaged student. The board decided that the funds for the new scholarship should be invested in savings certificates on July 20, 2007. These savings certificates were puchased on July 21, 2007.
2. Revenue for the fiscal period from student tuition and fees amounted to $1,900,000. During the fiscal year, $1,686,000 of this amount was collected; $66,000 had been collected in the prior year. The university had also received $158,000 by June 30, 2008, for fees for the session beginning July 1, 2008.
3. During the year ended June 30, 2008, the university collected $349,000 of the outstanding accounts receivable at the beginning of the year. The balance was determined to be uncollectible and was written off against the allowance account. At June 30, 2008, the allowance account was increased by $3,000.
4. Because of late student fee payments, $6,000 in interest charges were earned and collected.
5. The state appropriation was received. Another unrestricted appropriation of $50,000 was made by the state. This had not been paid to the university by the fiscal year-end.
6. An unrestricted gift of $25,000 cash was received from alumni of the university.
7. During the year, investments of $21,000 were sold for $26,000. Investment income amounting to $1,900 was received.
8. Unrestricted operating expenses were recorded at $1,777,000, $59,000 of which remains unpaid.
9. Restricted current funds of $13,000 were spent for authorized purposes during the year.
10. The accounts payable at June 30, 2007, were paid during the year.
11. During the year, $7,000 interest was earned and received on the savings certificates purchased in accordance with the board’s resolution [in item (1)].
Required:
A. Prepare journal entries to record in summary form the transactions above for the year ended June 30, 2008. Each journal entry should be numbered to correspond with the transaction described above. Set up the following headings:
B. Prepare a statement of activities for the year ended June 30, 2008.
C. Prepare a statement of activities for the current funds for the year ended June 30, 2008. Include more details about the revenues and expenses.
Click here for the solution: A partial statement of financial position of Century University is shown below
During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation
Problem 12-7 Foreign Currency Risk
During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation, was distressed to notice the company’s transaction loss had been steadily increasing each month. HAL is a publicly held manufacturer of “PC clone” personal computers. Like most manufacturers of its kind, HAL does not manufacture domestically but utilizes lower cost offshore suppliers for components and subcontractors for assembly. As it is HAL’s policy to denominate foreign contracts in U.S. dollars whenever possible, the increase in transaction losses was particularly puzzling. Subsequent conversations with HAL’s controller, Tom Stewart, revealed all new contracts had been denominated in foreign currencies (primarily the South Korean won and Taiwanese dollar) in order to obtain more favorable purchase terms. Further, Mr. Stewart believed that the U.S. dollar would strengthen due to it being an election year. Since these contracts specify delivery and payment at various dates over the next 12 months, tremendous potential for exposure exists for the company if the dollar continues to decline against the major foreign currencies.
Required:
A. Mr. Stewart executed all new foreign contracts in foreign currencies in the belief it would help the company. (1) Do you think he was justified in his actions given the company policy? (2) On what basis did you decide if the controller was justified or not? (3) Was the loss a factor in your decision? Is this appropriate?
B. A substantial amount of foreign denominated contracts already exist for goods and services not yet received. (1) What actions may HAL take to minimize potential losses? (2) What are the advantages and disadvantages of these actions? (3) What implication does each of these scenarios have for financial statement disclosure?
C. Assume that you are Ms. Bell, and you are concerned about how the Board of Directors and the stockholders may react. Additionally, you are about to purchase a new home and are planning to sell some HAL stock for the down payment. (1) After carefully considering all of your options, what action do you decide to take? (2) Did concern over the Board, stockholders, or HAL’s stock price enter into your decision? Why or why not?
Click here for the solution: During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation
During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation, was distressed to notice the company’s transaction loss had been steadily increasing each month. HAL is a publicly held manufacturer of “PC clone” personal computers. Like most manufacturers of its kind, HAL does not manufacture domestically but utilizes lower cost offshore suppliers for components and subcontractors for assembly. As it is HAL’s policy to denominate foreign contracts in U.S. dollars whenever possible, the increase in transaction losses was particularly puzzling. Subsequent conversations with HAL’s controller, Tom Stewart, revealed all new contracts had been denominated in foreign currencies (primarily the South Korean won and Taiwanese dollar) in order to obtain more favorable purchase terms. Further, Mr. Stewart believed that the U.S. dollar would strengthen due to it being an election year. Since these contracts specify delivery and payment at various dates over the next 12 months, tremendous potential for exposure exists for the company if the dollar continues to decline against the major foreign currencies.
Required:
A. Mr. Stewart executed all new foreign contracts in foreign currencies in the belief it would help the company. (1) Do you think he was justified in his actions given the company policy? (2) On what basis did you decide if the controller was justified or not? (3) Was the loss a factor in your decision? Is this appropriate?
B. A substantial amount of foreign denominated contracts already exist for goods and services not yet received. (1) What actions may HAL take to minimize potential losses? (2) What are the advantages and disadvantages of these actions? (3) What implication does each of these scenarios have for financial statement disclosure?
C. Assume that you are Ms. Bell, and you are concerned about how the Board of Directors and the stockholders may react. Additionally, you are about to purchase a new home and are planning to sell some HAL stock for the down payment. (1) After carefully considering all of your options, what action do you decide to take? (2) Did concern over the Board, stockholders, or HAL’s stock price enter into your decision? Why or why not?
Click here for the solution: During her first quarter review of the financial statements, Debra Bell, the CFO of HAL Computer Corporation
On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand
Problem 13-1 Translation—Local Currency Is the Functional Currency
On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here.
VENTANA GRAINS
Comparative Balance Sheets
January 1 and December 31, 2008
Jan. 1 Dec. 31
Cash and Receivables 500,000 880,000
Inventories 600,000 500,000
Land 400,000 400,000
Buildings (net) 650,000 605,000
Equipment (net) 465,000 470,000
Totals 2,615,000 2,855,000
Jan. 1 Dec. 31
Short-Term Accounts and Notes 295,000 210,000
Long-Term Notes (600,000 issued
September 1, 2000, 80,000 issued
July 1, 2008) 600,000 680,000
Common Stock 800,000 800,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 720,000 965,000
Total 2,615,000 2,855,000
VENTANA GRAINS
Consolidated Income and Retained Earnings Statement
for the Year Ended December 31, 2008
Revenues 3,225,000
Cost of Goods Sold:
Beginning Inventory 600,000
Purchases 2,100,000
Goods Available for Sale 2,700,000
Less: Ending Inventory 500,000
Cost of Goods Sold 2,200,000
Gross Profit on Sales 1,025,000
Depreciation Expense 140,000
Other Expenses 540,000 680,000
Net Income 345,000
Jan. 1 Retained Earnings 720,000
Total 1,065,000
Less: Dividends Paid 100,000
Dec. 31 Retained Earnings 965,000
The account balances are computed in conformity with U.S. generally accepted accounting standards.
Other information is as follows:
1. Direct exchange rates for the New Zealand dollar on various dates were:
Date Exchange Rate
January 1, 1994 $.8011
September 1, 2004 .5813
January 1, 2008 .7924
July 1, 2008 .7412
December 31, 2008 .7298
Average for 2008 .7480
Average for the last four months of 2008 .7476
2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash.
3. Sales were made and purchases and “Other Expenses” were incurred evenly throughout the year.
4. Depreciation for the period in New Zealand dollars was computed as follows:
Building 45,000
Equipment—Purchased before 1/1/2008 85,000
Equipment—Purchased July 1, 2008 10,000
5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008.
6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31.
Required:
A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency.
B. Prepare a schedule to verify the translation adjustment determined in requirement A. Describe how the translation adjustment would be reported in the financial statements.
Click here for the solution: On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand
On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired when the company was organized. The business combination was accounted for as a purchase transaction. The 2008 financial statements for Ventana Grains, prepared in its local currency, the New Zealand dollar, are given here.
VENTANA GRAINS
Comparative Balance Sheets
January 1 and December 31, 2008
Jan. 1 Dec. 31
Cash and Receivables 500,000 880,000
Inventories 600,000 500,000
Land 400,000 400,000
Buildings (net) 650,000 605,000
Equipment (net) 465,000 470,000
Totals 2,615,000 2,855,000
Jan. 1 Dec. 31
Short-Term Accounts and Notes 295,000 210,000
Long-Term Notes (600,000 issued
September 1, 2000, 80,000 issued
July 1, 2008) 600,000 680,000
Common Stock 800,000 800,000
Additional Paid-in Capital 200,000 200,000
Retained Earnings 720,000 965,000
Total 2,615,000 2,855,000
VENTANA GRAINS
Consolidated Income and Retained Earnings Statement
for the Year Ended December 31, 2008
Revenues 3,225,000
Cost of Goods Sold:
Beginning Inventory 600,000
Purchases 2,100,000
Goods Available for Sale 2,700,000
Less: Ending Inventory 500,000
Cost of Goods Sold 2,200,000
Gross Profit on Sales 1,025,000
Depreciation Expense 140,000
Other Expenses 540,000 680,000
Net Income 345,000
Jan. 1 Retained Earnings 720,000
Total 1,065,000
Less: Dividends Paid 100,000
Dec. 31 Retained Earnings 965,000
The account balances are computed in conformity with U.S. generally accepted accounting standards.
Other information is as follows:
1. Direct exchange rates for the New Zealand dollar on various dates were:
Date Exchange Rate
January 1, 1994 $.8011
September 1, 2004 .5813
January 1, 2008 .7924
July 1, 2008 .7412
December 31, 2008 .7298
Average for 2008 .7480
Average for the last four months of 2008 .7476
2. Ventana Grains purchased additional equipment for 100,000 New Zealand dollars on July 1, 2008, by issuing a note for 80,000 New Zealand dollars and paying the balance in cash.
3. Sales were made and purchases and “Other Expenses” were incurred evenly throughout the year.
4. Depreciation for the period in New Zealand dollars was computed as follows:
Building 45,000
Equipment—Purchased before 1/1/2008 85,000
Equipment—Purchased July 1, 2008 10,000
5. The inventory is valued on a FIFO basis. The beginning inventory was acquired when the exchange rate was $.7480. The ending inventory was acquired during the last four months of 2008.
6. Dividends of 50,000 New Zealand dollars were paid on July 1 and December 31.
Required:
A. Translate the financial statements into dollars assuming that the local currency of the foreign subsidiary was identified as its functional currency.
B. Prepare a schedule to verify the translation adjustment determined in requirement A. Describe how the translation adjustment would be reported in the financial statements.
Click here for the solution: On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand
Accounts are listed below for a foreign subsidiary that maintains its books in its local currency
Exercise 13-1 Identifying the Exchange Rate
Accounts are listed below for a foreign subsidiary that maintains its books in its local currency. The equity interest in the subsidiary was acquired in a purchase transaction. In the space provided, indicate the exchange rate that would be used to translate the accounts into dollars assuming that the functional currency was identified (a) as the U.S. dollar and (b) as the foreign entity’s local currency. Use the following letters to identify the exchange rate:
H—historical exchange rate
C—current exchange rate
A—average exchange rate for the current period
Exchange Rate if the
Functional Currency Is:
Account U.S. Dollar Local Currency
Cash _____ __________
Accounts receivable _____ __________
Inventory carried at cost _____ __________
Inventory carried at market _____ __________
Prepaid rent _____ __________
Property, plant, and equipment _____ __________
Goodwill _____ __________
Accounts payable _____ __________
Bonds payable _____ __________
Unamortized premium on bonds payable _____ __________
Preferred stock carried at issuance price _____ __________
Common stock _____ __________
Sales _____ __________
Cost of goods sold _____ __________
Depreciation expense
Click here for the solution: Accounts are listed below for a foreign subsidiary that maintains its books in its local currency
Accounts are listed below for a foreign subsidiary that maintains its books in its local currency. The equity interest in the subsidiary was acquired in a purchase transaction. In the space provided, indicate the exchange rate that would be used to translate the accounts into dollars assuming that the functional currency was identified (a) as the U.S. dollar and (b) as the foreign entity’s local currency. Use the following letters to identify the exchange rate:
H—historical exchange rate
C—current exchange rate
A—average exchange rate for the current period
Exchange Rate if the
Functional Currency Is:
Account U.S. Dollar Local Currency
Cash _____ __________
Accounts receivable _____ __________
Inventory carried at cost _____ __________
Inventory carried at market _____ __________
Prepaid rent _____ __________
Property, plant, and equipment _____ __________
Goodwill _____ __________
Accounts payable _____ __________
Bonds payable _____ __________
Unamortized premium on bonds payable _____ __________
Preferred stock carried at issuance price _____ __________
Common stock _____ __________
Sales _____ __________
Cost of goods sold _____ __________
Depreciation expense
Click here for the solution: Accounts are listed below for a foreign subsidiary that maintains its books in its local currency
Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade
Problem 12-2 Importing/Exporting Transactions with a Forward Contract Hedge
Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company uses a periodic inventory system and is on a calendar-year basis. All exchange rates are direct quotations.
Dec. 1 Crystal Exporting purchased merchandise from Chang’s Ltd., a Hong Kong manufacturer. The invoice was for 210,000 Hong Kong dollars, payable on April 1. On this same date, Crystal Exporting acquired a forward contract to buy 210,000 Hong Kong dollars on April 1 for $.1314.
Dec. 29 Crystal Exporting sold merchandise to Zintel Retailers for 120,000 Hong Kong dollars, receivable in 90 days. No hedging was involved.
April 1 Crystal Exporting received 120,000 Hong Kong dollars from Zintel Retailers.
1 Crystal Exporting submitted full payment of 210,000 Hong Kong dollars to Chang’s, Ltd., after obtaining the 210,000 Hong Kong dollars on its forward contract.
Spot rates and the forward rates for the Hong Kong dollar were as follows:
Forward Rate for
Spot Rate April 1 Delivery
Dec. 1 $.1265 $.1314
Dec. 29 .1240 .1305
Dec. 31 .1259 .1308
April 1 .1430
Required:
A. Prepare journal entries for the transactions including the necessary adjustments on December 31.
B. Explain the income statement treatment given to any transaction gains and losses recognized at December 31.
Click here for the solution: Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade
Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade. The following transactions are representative of its business dealings. The company uses a periodic inventory system and is on a calendar-year basis. All exchange rates are direct quotations.
Dec. 1 Crystal Exporting purchased merchandise from Chang’s Ltd., a Hong Kong manufacturer. The invoice was for 210,000 Hong Kong dollars, payable on April 1. On this same date, Crystal Exporting acquired a forward contract to buy 210,000 Hong Kong dollars on April 1 for $.1314.
Dec. 29 Crystal Exporting sold merchandise to Zintel Retailers for 120,000 Hong Kong dollars, receivable in 90 days. No hedging was involved.
April 1 Crystal Exporting received 120,000 Hong Kong dollars from Zintel Retailers.
1 Crystal Exporting submitted full payment of 210,000 Hong Kong dollars to Chang’s, Ltd., after obtaining the 210,000 Hong Kong dollars on its forward contract.
Spot rates and the forward rates for the Hong Kong dollar were as follows:
Forward Rate for
Spot Rate April 1 Delivery
Dec. 1 $.1265 $.1314
Dec. 29 .1240 .1305
Dec. 31 .1259 .1308
April 1 .1430
Required:
A. Prepare journal entries for the transactions including the necessary adjustments on December 31.
B. Explain the income statement treatment given to any transaction gains and losses recognized at December 31.
Click here for the solution: Crystal Exporting Co. is a U.S. wholesaler engaged in foreign trade
On January 1, 2008, a new Board of Directors was elected for Bradley Hospital
Problem 19-2 Various Funds—Hospital
On January 1, 2008, a new Board of Directors was elected for Bradley Hospital. The new board switched to a different accountant. After reviewing the hospital’s books, the accountant decided that the accounts should be adjusted. Effective January 1, 2008, the board decided that
1. Separate funds should be established for the General Fund, the Bradley Endowment Fund, and the Plant Replacement and Expansion Fund (the old balances will be reversed to eliminate them).
2. The accounts should be maintained in accordance with fund accounting principles. The balances in the general ledger at January 1, 2008, are presented here:
Cash $ 50,000
Investment in U.S. treasury bills 105,000
Investment in common stock 417,000
Interest receivable 4,000
Accounts receivable 40,000
Inventory 25,000
Land 407,000
Building 245,000
Equipment 283,000
Allowance for depreciation $ 376,000
Accounts payable 70,000
Bank loan 150,000
Endowment fund balance 119,500
Other fund balances 860,500
Total $1,576,000 $1,576,000
The following additional information is available:
1. Under the terms of the will of J. Ethington, founder of the hospital, “The principal of the bequest is to be fully invested in trust forevermore in mortgages secured by productive real estate in Central City and/or in U.S. Government securities . . . and the income therefrom is to be used to defray current expenses.”
2. The Endowment Fund consists of the following:
Cash received in 1898 by bequest from Ethington $ 81,500
Net gains realized from 1956 through 1989 from the sale of real estate acquired in mortgage foreclosures 23,500
Income received from 1990 through 2007 from 90-day U.S. treasury bill investments 14,500
Balance per general ledger on January 1, 2008 $119,500
3. The land account balance is composed of 1900 appraisal of land at $10,000 and building at $5,000, received by donation at that time. The building was demolished in 1934. $15,000 Appraisal increase based on insured value in land title policies issued in 1954. 380,000
Landscaping costs for trees planted. 12,000
Balance per general ledger on January 1, 2008 $407,000
4. The building balance is composed of
Cost of present hospital building completed in January 1961, when the
hospital commenced operations $ 300,000
Adjustment to record appraised value of building in 1971. (100,000)
Cost of elevator installed in hospital building in January 1987. 45,000
Balance per general ledger on January 1, 2008 $ 245,000
The estimated useful lives of the hospital building and the elevator when new were 50 years
and 20 years, respectively.
5. The hospital’s equipment was inventoried on January 1, 2008. The costs shown in the inventory
agreed with the equipment account balance in the general ledger. The allowance
for depreciation account at January 1, 2008, included $158,250 applicable to equipment,
and that amount was determined to be accurate. All depreciation is computed on a
straight-line basis.
6. A bank loan was obtained to finance the cost of new operating room equipment purchased
in 2004. Interest was paid to December 31, 2007.
7. Common stock with a market value of $417,000 was donated to Bradley Hospital with the stipulation that the proceeds from the sale of the stock must be used for facilities expansion. The hospital plans to undertake expansion of its facilities next year and to sell these securities at that time.
Required:
Using the workpaper form below, prepare the entries necessary to establish the correct balances as of January 1, 2008.
Plant
Endowment Replacement
Trial Balance Adjustments General Fund Fund Fund
Account
Description Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Click here for the solution: On January 1, 2008, a new Board of Directors was elected for Bradley Hospital
On January 1, 2008, a new Board of Directors was elected for Bradley Hospital. The new board switched to a different accountant. After reviewing the hospital’s books, the accountant decided that the accounts should be adjusted. Effective January 1, 2008, the board decided that
1. Separate funds should be established for the General Fund, the Bradley Endowment Fund, and the Plant Replacement and Expansion Fund (the old balances will be reversed to eliminate them).
2. The accounts should be maintained in accordance with fund accounting principles. The balances in the general ledger at January 1, 2008, are presented here:
Cash $ 50,000
Investment in U.S. treasury bills 105,000
Investment in common stock 417,000
Interest receivable 4,000
Accounts receivable 40,000
Inventory 25,000
Land 407,000
Building 245,000
Equipment 283,000
Allowance for depreciation $ 376,000
Accounts payable 70,000
Bank loan 150,000
Endowment fund balance 119,500
Other fund balances 860,500
Total $1,576,000 $1,576,000
The following additional information is available:
1. Under the terms of the will of J. Ethington, founder of the hospital, “The principal of the bequest is to be fully invested in trust forevermore in mortgages secured by productive real estate in Central City and/or in U.S. Government securities . . . and the income therefrom is to be used to defray current expenses.”
2. The Endowment Fund consists of the following:
Cash received in 1898 by bequest from Ethington $ 81,500
Net gains realized from 1956 through 1989 from the sale of real estate acquired in mortgage foreclosures 23,500
Income received from 1990 through 2007 from 90-day U.S. treasury bill investments 14,500
Balance per general ledger on January 1, 2008 $119,500
3. The land account balance is composed of 1900 appraisal of land at $10,000 and building at $5,000, received by donation at that time. The building was demolished in 1934. $15,000 Appraisal increase based on insured value in land title policies issued in 1954. 380,000
Landscaping costs for trees planted. 12,000
Balance per general ledger on January 1, 2008 $407,000
4. The building balance is composed of
Cost of present hospital building completed in January 1961, when the
hospital commenced operations $ 300,000
Adjustment to record appraised value of building in 1971. (100,000)
Cost of elevator installed in hospital building in January 1987. 45,000
Balance per general ledger on January 1, 2008 $ 245,000
The estimated useful lives of the hospital building and the elevator when new were 50 years
and 20 years, respectively.
5. The hospital’s equipment was inventoried on January 1, 2008. The costs shown in the inventory
agreed with the equipment account balance in the general ledger. The allowance
for depreciation account at January 1, 2008, included $158,250 applicable to equipment,
and that amount was determined to be accurate. All depreciation is computed on a
straight-line basis.
6. A bank loan was obtained to finance the cost of new operating room equipment purchased
in 2004. Interest was paid to December 31, 2007.
7. Common stock with a market value of $417,000 was donated to Bradley Hospital with the stipulation that the proceeds from the sale of the stock must be used for facilities expansion. The hospital plans to undertake expansion of its facilities next year and to sell these securities at that time.
Required:
Using the workpaper form below, prepare the entries necessary to establish the correct balances as of January 1, 2008.
Plant
Endowment Replacement
Trial Balance Adjustments General Fund Fund Fund
Account
Description Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Click here for the solution: On January 1, 2008, a new Board of Directors was elected for Bradley Hospital
Brian Snow and Wendy Waite formed a partnership on July 1, 2007
P15.8 Comprehensive Partnership Problem
Brian Snow and Wendy Waite formed a partnership on July 1, 2007. Brian invested $20,000 cash, inventory valued at $15,000, and equipment valued at $67,000. Wendy invested $50,000 cash, and land valued at $120,000. The partnership assumed the $40,000 mortgage on the land.
On June 30, 2008, the partnership reported a net loss of $24,000. The partnership contract specified that income and losses were to be allocated by allowing 10% interest on the original capital investment, salaries of $15,000 to Brian and $20,000 to Wendy, and the remainder to be divided in the ratio of 40:60.
On July 1, 2008, Alan Young was admitted into the partnership with a $70,000 cash investment. Alan was given a 30% interest in the partnership because of his special skills. The partners elect to use the bonus method to record the admission. Any bonus should be divided in the old ratio of 40:60.
On June 30, 2009, the partnership reported a net income of $150,000. The new parntership contract stipulated that income and losses were to be divided in a fixed ratio of 20:50:30.
On July 2, 2009, Brian withdrew from the partnership for personal reasons. Brian was given $40,000 cash and a $60,000 note for his capital interest.
Required:
Prepare journal entries for each of the following events. Show computations.
1. Formation of the partnership.
2. Distribution of the net loss for the first year.
3. Admission of Alan into the partnership.
4. Distribution of the net income for the second year.
5. Withdrawal of Brian from the partnership.
Click here for the solution: Brian Snow and Wendy Waite formed a partnership on July 1, 2007
Brian Snow and Wendy Waite formed a partnership on July 1, 2007. Brian invested $20,000 cash, inventory valued at $15,000, and equipment valued at $67,000. Wendy invested $50,000 cash, and land valued at $120,000. The partnership assumed the $40,000 mortgage on the land.
On June 30, 2008, the partnership reported a net loss of $24,000. The partnership contract specified that income and losses were to be allocated by allowing 10% interest on the original capital investment, salaries of $15,000 to Brian and $20,000 to Wendy, and the remainder to be divided in the ratio of 40:60.
On July 1, 2008, Alan Young was admitted into the partnership with a $70,000 cash investment. Alan was given a 30% interest in the partnership because of his special skills. The partners elect to use the bonus method to record the admission. Any bonus should be divided in the old ratio of 40:60.
On June 30, 2009, the partnership reported a net income of $150,000. The new parntership contract stipulated that income and losses were to be divided in a fixed ratio of 20:50:30.
On July 2, 2009, Brian withdrew from the partnership for personal reasons. Brian was given $40,000 cash and a $60,000 note for his capital interest.
Required:
Prepare journal entries for each of the following events. Show computations.
1. Formation of the partnership.
2. Distribution of the net loss for the first year.
3. Admission of Alan into the partnership.
4. Distribution of the net income for the second year.
5. Withdrawal of Brian from the partnership.
Click here for the solution: Brian Snow and Wendy Waite formed a partnership on July 1, 2007
The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store. It was agreed as of June 30, 2008, to combine the partnerships to form a new partnership to be known as Discount Partnership. Trial balances of the two original partnerships as of June 30, 2008 follow.
Up & Down Back & Forth
Trial Balance Trial Balance
June 30, 2008 June 30, 2008
Cash $ 25,000 $ 20,000
Accounts Receivable 90,000 140,000
Allowance for Doubtful Accounts $ 2,000 $ 6,000
Merchandise Inventory 180,000 115,000
Land 25,000 35,000
Buildings and Equipment 80,000 125,000
Allowance for Depreciation 24,000 61,000
Prepaid Expenses 6,000 8,000
Accounts Payable 42,000 54,000
Notes Payable 65,000 74,000
Accrued Expenses 34,000 44,000
Up, Capital 95,000
Down, Capital 144,000
Back, Capital 65,000
Forth, Capital 139,000
Totals $406,000 $406,000 $443,000 $443,000
The following additional information is available.
1. The profit- and loss-sharing ratios for the former partnerships were 40% to Up and 60% to Down; 30% to Back and 70% to Forth. The profit- and loss-sharing ratio for the new partnership will be Up, 20%; Down, 30%; Back, 15%; and Forth, 35%.
2. The opening capital ratios for the new partnership are to be the same as the profit- and loss-sharing ratios for the new partnership. The capital assigned to Up & Down will total $225,000. Any cash settlements among the partners arising from capital account adjustments will be a private matter and will not be recorded on the partnership books.
3. The partners agreed that the allowance for bad debts for the new partnership is to be 4% of the accounts receivable balances.
4. The opening inventory of the new partnership is to be valued by the FIFO method. The inventory of Up & Down was valued by the FIFO method and the Back & Forth inventory was valued by the LIFO method. The LIFO inventory represents 80% of its FIFO value.
5. Depreciation is to be computed by the double-declining balance method with a 10-year life for the depreciable assets. Depreciation for three years is to be accumulated in the opening balance of the Allowance for Depreciation account. Up & Down computed depreciation by the straight-line method, and Back & Forth used the double-declining balance method. All assets were obtained on July 1, 2005.
6. After the books were closed, an unrecorded merchandise purchase of $4,000 by Back & Forth was discovered. The merchandise had been sold by June 30, 2008.
7. The accounts of Up & Down include a vacation pay accrual. It was agreed that Back & Forth should make a similar accrual for their 10 employees, who will receive a two-week vacation of $200 per employee per week.
Required:
A. Prepare a worksheet to determine the opening balances of a new partnership after giving effect to the information above. Formal journal entries are not required. Supporting computations, including the computation of goodwill, should be in good form.
B. Prepare a schedule computing the cash to be exchanged between Up & Down and between Back & Forth, in settlement of the affairs of each original partnership.
Click here for the solution: The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
Up & Down Back & Forth
Trial Balance Trial Balance
June 30, 2008 June 30, 2008
Cash $ 25,000 $ 20,000
Accounts Receivable 90,000 140,000
Allowance for Doubtful Accounts $ 2,000 $ 6,000
Merchandise Inventory 180,000 115,000
Land 25,000 35,000
Buildings and Equipment 80,000 125,000
Allowance for Depreciation 24,000 61,000
Prepaid Expenses 6,000 8,000
Accounts Payable 42,000 54,000
Notes Payable 65,000 74,000
Accrued Expenses 34,000 44,000
Up, Capital 95,000
Down, Capital 144,000
Back, Capital 65,000
Forth, Capital 139,000
Totals $406,000 $406,000 $443,000 $443,000
The following additional information is available.
1. The profit- and loss-sharing ratios for the former partnerships were 40% to Up and 60% to Down; 30% to Back and 70% to Forth. The profit- and loss-sharing ratio for the new partnership will be Up, 20%; Down, 30%; Back, 15%; and Forth, 35%.
2. The opening capital ratios for the new partnership are to be the same as the profit- and loss-sharing ratios for the new partnership. The capital assigned to Up & Down will total $225,000. Any cash settlements among the partners arising from capital account adjustments will be a private matter and will not be recorded on the partnership books.
3. The partners agreed that the allowance for bad debts for the new partnership is to be 4% of the accounts receivable balances.
4. The opening inventory of the new partnership is to be valued by the FIFO method. The inventory of Up & Down was valued by the FIFO method and the Back & Forth inventory was valued by the LIFO method. The LIFO inventory represents 80% of its FIFO value.
5. Depreciation is to be computed by the double-declining balance method with a 10-year life for the depreciable assets. Depreciation for three years is to be accumulated in the opening balance of the Allowance for Depreciation account. Up & Down computed depreciation by the straight-line method, and Back & Forth used the double-declining balance method. All assets were obtained on July 1, 2005.
6. After the books were closed, an unrecorded merchandise purchase of $4,000 by Back & Forth was discovered. The merchandise had been sold by June 30, 2008.
7. The accounts of Up & Down include a vacation pay accrual. It was agreed that Back & Forth should make a similar accrual for their 10 employees, who will receive a two-week vacation of $200 per employee per week.
Required:
A. Prepare a worksheet to determine the opening balances of a new partnership after giving effect to the information above. Formal journal entries are not required. Supporting computations, including the computation of goodwill, should be in good form.
B. Prepare a schedule computing the cash to be exchanged between Up & Down and between Back & Forth, in settlement of the affairs of each original partnership.
Click here for the solution: The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
In each of the following independent cases the company closes its books on December 31
Problem: P14-5 -- Reporting Liabilities (Comprehensive Bond Problem)
In each of the following independent cases the company closes its books on December 31.
1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2010. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2013. The bonds yield 12%. Give entries through December 31, 2011.
2. Titania Co. sells $400,000 of 12% bonds on June 1, 2010. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 10%. On October 1, 2011. Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2012.
Instructions
(Round to the nearest dollar.)
For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)
Click here for the solution: In each of the following independent cases the company closes its books on December 31
In each of the following independent cases the company closes its books on December 31.
1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2010. The bonds pay interest on September 1 and March 1. The due date of the bonds is September 1, 2013. The bonds yield 12%. Give entries through December 31, 2011.
2. Titania Co. sells $400,000 of 12% bonds on June 1, 2010. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 10%. On October 1, 2011. Titania buys back $120,000 worth of bonds for $126,000 (includes accrued interest). Give entries through December 1, 2012.
Instructions
(Round to the nearest dollar.)
For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective-interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest dates and at year-end. (Assume that no reversing entries were made.)
Click here for the solution: In each of the following independent cases the company closes its books on December 31
Cost-based pricing assumes costs
1. Cost-based pricing assumes costs:
2. The last price a consumer paid or what they expect to pay is their:
3. Marketers of new and innovative products or services are more likely to use a price skimming strategy if:
4. While the manufacturers of the first electric cars charged relatively high prices to innovators and early adopters, they had to use a price skimming strategy because of:
5. The ____________ occurs when firms find the unit cost drops as increased volume is sold.
6. The primary reasons manufacturers offer seasonal discounts to retailers are to more easily plan production schedules and:
7. Mona is selling her artwork at a local festival. Her art is selling well, but t-shirts she had made up with her artwork are not selling. She decides to offer a package price for her art with a t-shirt included. Mona is using:
8. Retailers might offer targeted coupons to loyal customers using kiosk-type technology and ____________.
9. If a telecommunications company drastically cut their price for cellular phone service in order to eliminate local competitors, the company could be charged with:
10. It is the responsibility of ___________________ to determine the ethical approach to setting prices so consumers find value and the firm can make a profit.
11. For a price skimming strategy to work, the product or service must:
12. In addition to merchandise and payments, information flows throughout a supply chain. Which of the following is NOT a good characterization of the flow of information in a supply chain?
13. International supply chains add layers of complexity to the flow of information, merchandise and payments. Neiman Marcus has been able to develop expedited shipments through customs, which gives it an advantage in having the most up-to-date merchandise, by _____________________.
14. Today, when a customer orders merchandise from an online vendor, he or she immediately receives a confirmation message by e-mail. Usually within a day or two, a second message arrives stating that the order is in the mail. This is a type of a(n):
15. If two companies use an electronic data interchange (EDI) to negotiate prices, specify product details, display pictures of new products, and offer sales promotions, the EDI is being used for the ____________ function in the four P's of marketing.
16. An effective CPFR system manages:
17. _______________ have dramatically reduced the time and labor associated with checking and receiving merchandise.
18. At the BMW plant in Spartanburg, South Carolina, suppliers deliver parts every four hours when the plant is in operation and are responsible for removing any packaging or pallets used to deliver their products. BMW uses a ______________ inventory control system.
19. After installing a(n)_______________ in their JIT system, Chocolate Tree, a retail chocolate store, was able to reduce lead time between the recognition that an order needed to be placed and the arrival of the needed merchandise.
20. With more frequent shipments associated with QR systems, a retailer is:
21. RFID offers the participants in the supply chain a powerful tool for tracking inventories and reducing handling. The main reason why it has NOT BEEN more widely adopted is:
22. One of retailers' most fundamental activities is providing the right mix of merchandise and services.
A) True
B) False
23. Retailers like Wal-Mart, Home Depot, and Kroger dictate to their suppliers all of the following EXCEPT:
24. Some companies want to get its products into as many outlets as possible, understanding that the more exposure it gets, the more of its products it will sell. If this is consistent with the company's overall strategy, it will choose __________________.
25. Retailers that offer a broad variety of merchandise, limited services and low prices are known as ______________________.
26. Category killers are also known as:
27. Many retail golf stores have driving ranges, some with visual imaging of famous golf courses. These driving ranges allow:
28. Which of the following retail stores would emphasize personal selling the most as part of the firm's promotional efforts?
29. Traditionally, retailers treated all their customers:
30. Jordan directs her salespeople to increase their "share of wallet." Jordan is directing her salespeople to:
31. Because the Internet offers little opportunity to touch, feel or try on merchandise before purchasing it, on-line retailers must addresses customers' need by ______________.
32. ______________________ is the term used to describe when retailers use some combination of stores, catalogs and the Internet to sell merchandise.
33. Which of the following is NOT one of the reasons a firm might employ electronic channels in multichannel retailing?
34. As the old cliché claims, the three most import things in retailing are:
35. Though a picture may be worth a thousand words, the most important facet of encoding is not what is received but what is sent.
A) True
B) False
36. If there is a difference between the message that is sent and the message that is received, it is probably due to noise.
A) True
B) False
37. Even the best marketing communication can be wasted if the sender does not gain the attention of the consumer.
A) True
B) False
38. "Top-of-mind awareness" is when consumers indicate they know the brand when the name is presented to them.
A) True
B) False
39. Commercial speech is defined as anything contained in a commercial.
A) True
B) False
40. Gerald knows which IMC communication channels are available and knows how he will measure the results of his IMC efforts. To implement his IMC efforts, Gerald also needs to:
41. The right communication channel to use in IMC is:
42. The sender of an IMC message hopes the receiver is:
43. National manufacturers and retailers pay a service company to monitor television ads around the country to ensure that their ads are seen in their entirety during the time frames that had been purchased. This service company helps avoid the IMC noise problem associated with:
44. Which of the following is NOT one of the steps in the AIDA model?
45. The IMC communications process:
46. Integrated marketing communications include all of the following except:
47. New technologies like PDAs, podcasts, and cell phones allow greater potential for ___________________ IMC efforts.
48. Companies can gain a competitive advantage using the Internet to:
49. Research has shown that IMC can make communications expenditures more effective and efficient by:
50. Competitive parity, percentage-of-sales, and affordable budget are types of ________________________ IMC budgeting.
Click here for the solution: Cost-based pricing assumes costs
2. The last price a consumer paid or what they expect to pay is their:
3. Marketers of new and innovative products or services are more likely to use a price skimming strategy if:
4. While the manufacturers of the first electric cars charged relatively high prices to innovators and early adopters, they had to use a price skimming strategy because of:
5. The ____________ occurs when firms find the unit cost drops as increased volume is sold.
6. The primary reasons manufacturers offer seasonal discounts to retailers are to more easily plan production schedules and:
7. Mona is selling her artwork at a local festival. Her art is selling well, but t-shirts she had made up with her artwork are not selling. She decides to offer a package price for her art with a t-shirt included. Mona is using:
8. Retailers might offer targeted coupons to loyal customers using kiosk-type technology and ____________.
9. If a telecommunications company drastically cut their price for cellular phone service in order to eliminate local competitors, the company could be charged with:
10. It is the responsibility of ___________________ to determine the ethical approach to setting prices so consumers find value and the firm can make a profit.
11. For a price skimming strategy to work, the product or service must:
12. In addition to merchandise and payments, information flows throughout a supply chain. Which of the following is NOT a good characterization of the flow of information in a supply chain?
13. International supply chains add layers of complexity to the flow of information, merchandise and payments. Neiman Marcus has been able to develop expedited shipments through customs, which gives it an advantage in having the most up-to-date merchandise, by _____________________.
14. Today, when a customer orders merchandise from an online vendor, he or she immediately receives a confirmation message by e-mail. Usually within a day or two, a second message arrives stating that the order is in the mail. This is a type of a(n):
15. If two companies use an electronic data interchange (EDI) to negotiate prices, specify product details, display pictures of new products, and offer sales promotions, the EDI is being used for the ____________ function in the four P's of marketing.
16. An effective CPFR system manages:
17. _______________ have dramatically reduced the time and labor associated with checking and receiving merchandise.
18. At the BMW plant in Spartanburg, South Carolina, suppliers deliver parts every four hours when the plant is in operation and are responsible for removing any packaging or pallets used to deliver their products. BMW uses a ______________ inventory control system.
19. After installing a(n)_______________ in their JIT system, Chocolate Tree, a retail chocolate store, was able to reduce lead time between the recognition that an order needed to be placed and the arrival of the needed merchandise.
20. With more frequent shipments associated with QR systems, a retailer is:
21. RFID offers the participants in the supply chain a powerful tool for tracking inventories and reducing handling. The main reason why it has NOT BEEN more widely adopted is:
22. One of retailers' most fundamental activities is providing the right mix of merchandise and services.
A) True
B) False
23. Retailers like Wal-Mart, Home Depot, and Kroger dictate to their suppliers all of the following EXCEPT:
24. Some companies want to get its products into as many outlets as possible, understanding that the more exposure it gets, the more of its products it will sell. If this is consistent with the company's overall strategy, it will choose __________________.
25. Retailers that offer a broad variety of merchandise, limited services and low prices are known as ______________________.
26. Category killers are also known as:
27. Many retail golf stores have driving ranges, some with visual imaging of famous golf courses. These driving ranges allow:
28. Which of the following retail stores would emphasize personal selling the most as part of the firm's promotional efforts?
29. Traditionally, retailers treated all their customers:
30. Jordan directs her salespeople to increase their "share of wallet." Jordan is directing her salespeople to:
31. Because the Internet offers little opportunity to touch, feel or try on merchandise before purchasing it, on-line retailers must addresses customers' need by ______________.
32. ______________________ is the term used to describe when retailers use some combination of stores, catalogs and the Internet to sell merchandise.
33. Which of the following is NOT one of the reasons a firm might employ electronic channels in multichannel retailing?
34. As the old cliché claims, the three most import things in retailing are:
35. Though a picture may be worth a thousand words, the most important facet of encoding is not what is received but what is sent.
A) True
B) False
36. If there is a difference between the message that is sent and the message that is received, it is probably due to noise.
A) True
B) False
37. Even the best marketing communication can be wasted if the sender does not gain the attention of the consumer.
A) True
B) False
38. "Top-of-mind awareness" is when consumers indicate they know the brand when the name is presented to them.
A) True
B) False
39. Commercial speech is defined as anything contained in a commercial.
A) True
B) False
40. Gerald knows which IMC communication channels are available and knows how he will measure the results of his IMC efforts. To implement his IMC efforts, Gerald also needs to:
41. The right communication channel to use in IMC is:
42. The sender of an IMC message hopes the receiver is:
43. National manufacturers and retailers pay a service company to monitor television ads around the country to ensure that their ads are seen in their entirety during the time frames that had been purchased. This service company helps avoid the IMC noise problem associated with:
44. Which of the following is NOT one of the steps in the AIDA model?
45. The IMC communications process:
46. Integrated marketing communications include all of the following except:
47. New technologies like PDAs, podcasts, and cell phones allow greater potential for ___________________ IMC efforts.
48. Companies can gain a competitive advantage using the Internet to:
49. Research has shown that IMC can make communications expenditures more effective and efficient by:
50. Competitive parity, percentage-of-sales, and affordable budget are types of ________________________ IMC budgeting.
Click here for the solution: Cost-based pricing assumes costs
Calibri Company produces three products
Calibri Company produces three products: F, G, and H. The selling price, variable costs, and contribution margin for one unit of each product follow:
Product
F G H
Selling price $40 $110 $50
Variable costs:
Direct materials $16 $25 $20
Direct labor $11 $20 $12
Variable manufacturing $10 $10 $8
overhead
Total variable costs $37 $55 $40
Contribution margin $3 $55 $10
Contribution margin ratio 7.5% 50% 20%
One of two major machines used to produce these products has broken down and a new one is on backorder, so the company is down to one machine. Product F takes 0.20 machine hours to produce one unit, Product G takes 11 machine hours to produce one unit, and Product H takes 2.5 machine hours. There are 1,000 machine hours available on the new machine.
a. What is the amount of contribution margin that will be obtained per machine hour on each product?
b. Which product would you recommend that the company work on next week – the orders for product F, product G or product H? Show your computations.
Click here for the solution: Calibri Company produces three products
Product
F G H
Selling price $40 $110 $50
Variable costs:
Direct materials $16 $25 $20
Direct labor $11 $20 $12
Variable manufacturing $10 $10 $8
overhead
Total variable costs $37 $55 $40
Contribution margin $3 $55 $10
Contribution margin ratio 7.5% 50% 20%
One of two major machines used to produce these products has broken down and a new one is on backorder, so the company is down to one machine. Product F takes 0.20 machine hours to produce one unit, Product G takes 11 machine hours to produce one unit, and Product H takes 2.5 machine hours. There are 1,000 machine hours available on the new machine.
a. What is the amount of contribution margin that will be obtained per machine hour on each product?
b. Which product would you recommend that the company work on next week – the orders for product F, product G or product H? Show your computations.
Click here for the solution: Calibri Company produces three products
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance. Total retained earnings is $250,000 and total paid in capital is $500,000.
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Required
Show how to report stockholder's equity on Patterson's balance sheet, assuming the following:
A. Patterson discloses the restrictions in a note. Write the note.
B. Patterson appropriates retained earnings in the amount of the restriction and includes no note in its statements.
C. Patterson's cash balance is $100,000. What is the maximum amount of dividends Patterson can declare?
Click here for the solution: The agreement under which Patterson, Inc., issued its long-term debt requires the restriction of $200,000 of the company's retained earnings balance
Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool
EX 10-4 Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 9,000 units at $42 each. The new manufacturing equipment will cost $156,000 and is expected to have a 10-year life and $12,000 residual value. Selling expenses related to the new product are expected to be 5% of sales revenues. The cost to manufacture the product includes the following on a per-unit basis:
Direct labor $7.00
Direct materials 23.40
Fixed factory overhead-depreciation 1.60
Variable factory overhead 3.60
Total $35.60
Determine the net cash flows for the first year of the project, Years 2-9 and for the last year of the project.
Click here for the solution: Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool
Direct labor $7.00
Direct materials 23.40
Fixed factory overhead-depreciation 1.60
Variable factory overhead 3.60
Total $35.60
Determine the net cash flows for the first year of the project, Years 2-9 and for the last year of the project.
Click here for the solution: Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool
The following data are accumulated by Reynolds Company in evaluating the purchase of $104,000 of equipment, having a four-year useful life
EX 10-7 The following data are accumulated by Reynolds Company in evaluating the purchase of $104,000 of equipment, having a four-year useful life:
Net income net cash flow
Year 1 $38,000 $64,000
Year2 $23,000 $49,000
Year 3 $11,000 $37,000
Year 4 (1,000) $25,000
a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 1 of this chapter.
b. Would management be likely to look with favor on the proposal?
Click here for the solution: The following data are accumulated by Reynolds Company in evaluating the purchase of $104,000 of equipment, having a four-year useful life
Net income net cash flow
Year 1 $38,000 $64,000
Year2 $23,000 $49,000
Year 3 $11,000 $37,000
Year 4 (1,000) $25,000
a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 appearing in Exhibit 1 of this chapter.
b. Would management be likely to look with favor on the proposal?
Click here for the solution: The following data are accumulated by Reynolds Company in evaluating the purchase of $104,000 of equipment, having a four-year useful life
A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year
EX 9-2 A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:
Sales $254,000
Cost of the goods sold $122,000
Gross profit $132,000
Operating expenses $156,000
Loss from operations ($24,000)
It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.
a. Prepare a differential analysis report, dated March 3, 2010, for the proposed discontinuance of Royal Cola.
b. Should Royal Cola be retained?
Click here for the solution: A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year
Sales $254,000
Cost of the goods sold $122,000
Gross profit $132,000
Operating expenses $156,000
Loss from operations ($24,000)
It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.
a. Prepare a differential analysis report, dated March 3, 2010, for the proposed discontinuance of Royal Cola.
b. Should Royal Cola be retained?
Click here for the solution: A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year
Companion Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 per unit
EX 9-6 Companion Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direct labor cost. The fully absorbed unit costs to produce comparable carrying cases are expected to be as follows:
Direct materials $25.00
Direct labor 32.00
Factory overhead (40% of direct labor) $12.80
Total cost per unit $69.80
If Companion Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 15% of the direct labor costs.
a. Prepare a differential analysis report, dated October 11, 2010, for the make-or-buy decision.
b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them?
Click here for the solution: Companion Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 per unit
Direct materials $25.00
Direct labor 32.00
Factory overhead (40% of direct labor) $12.80
Total cost per unit $69.80
If Companion Computer Company manufactures the carrying cases, fixed factory overhead costs will not increase and variable factory overhead costs associated with the cases are expected to be 15% of the direct labor costs.
a. Prepare a differential analysis report, dated October 11, 2010, for the make-or-buy decision.
b. On the basis of the data presented, would it be advisable to make the carrying cases or to continue buying them?
Click here for the solution: Companion Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 per unit
Bunyon Lumber Company incurs a cost of $490 per hundred board feet in processing certain "rough-cut" lumber
EX 9-10 Bunyon Lumber Company incurs a cost of $490 per hundred board feet in processing certain "rough-cut" lumber, which it sells for $635 per hundred board feet. An alternative is to produce a "finished cut" at a total processing cost of $565 per hundred board feet, which can be sold for $840 per hundred board feet.
What is the amount of (a) the differential revenue, (b) differential cost, and (c) differential income for processing rough-cut lumber into finished cut?
Click here for the solution: Bunyon Lumber Company incurs a cost of $490 per hundred board feet in processing certain "rough-cut" lumber
What is the amount of (a) the differential revenue, (b) differential cost, and (c) differential income for processing rough-cut lumber into finished cut?
Click here for the solution: Bunyon Lumber Company incurs a cost of $490 per hundred board feet in processing certain "rough-cut" lumber
Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;
Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue; capital lease; sublease of a leased asset
“I don't see that in my intermediate accounting text I saved from college,” you explain to another member of the accounting division of Dowell Chemical Corporation. “This will take some research.” Your comments pertain to the appropriate accounting treatment of a proposed sublease of warehouses Dowell has used for product storage.
Required:
1. After the first full year under the warehouse lease, what is the balance in Dowell's lease liability? An amortization schedule will be helpful in determining this amount.
2. After the first full year under the warehouse lease, what is the carrying amount (after accumulated depreciation) of Dowell's leased warehouses?
3. Obtain the relevant authoritative literature on accounting for derecognition of capital leases by lessees using the FASB's Codification Research System. You might gain access from the FASB website (www.fasb.org), from your school library, or some other source. Determine the appropriate accounting treatment for the proposed sublease. What is the specific Codification citation that Dowell would rely on to determine:
a. if the proposal to sublease will qualify as a termination of a capital lease, and
b. the appropriate accounting treatment for the sublease?
4. What, if any, journal entry would Dowell record in connection with the sublease?
Click here for the solution: Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;
“I don't see that in my intermediate accounting text I saved from college,” you explain to another member of the accounting division of Dowell Chemical Corporation. “This will take some research.” Your comments pertain to the appropriate accounting treatment of a proposed sublease of warehouses Dowell has used for product storage.
Required:
1. After the first full year under the warehouse lease, what is the balance in Dowell's lease liability? An amortization schedule will be helpful in determining this amount.
2. After the first full year under the warehouse lease, what is the carrying amount (after accumulated depreciation) of Dowell's leased warehouses?
3. Obtain the relevant authoritative literature on accounting for derecognition of capital leases by lessees using the FASB's Codification Research System. You might gain access from the FASB website (www.fasb.org), from your school library, or some other source. Determine the appropriate accounting treatment for the proposed sublease. What is the specific Codification citation that Dowell would rely on to determine:
a. if the proposal to sublease will qualify as a termination of a capital lease, and
b. the appropriate accounting treatment for the sublease?
4. What, if any, journal entry would Dowell record in connection with the sublease?
Click here for the solution: Research 15-2 FASB codification; locate and extract relevant information and authoritative support for a financial reporting issue;
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