1. (TCO A) Listed below are several information characteristics and accounting principles and assumptions. Match the letter of each with the appropriate phrase that states its application. (Points: 30)
1: Stable dollar assumption
2: Notes as part of necessary information to a fair presentation.
3: Earnings process completed and realized or realizable.
4: Valuing assets at amounts originally paid for them.
5: the impact of an item on the overall financial operations of a company.
6: Accruals and deferrals in adjusting and closing process (Do not use going concern).
7: Affairs of the business distinguished from those of its owners.
8: Presentation of error-free information with representational faithfulness
9: Business enterprise assumed to have a long life.
10: Cost of providing financial information versus the benefits derived from its use.
: Historical cost principle
: Going concern principle
: Matching principle
: Monetary unit
: Revenue recognition principle
: Full disclosure principle
: Reliability characteristic
: Cost-benefit relationship
: Materiality constraint
: Economic entity assumption
Click here for the solution: Listed below are several information characteristics and accounting principles and assumptions
Thursday, November 26, 2015
The comparative balance sheet of House Construction Co. for June 30, 2010 and 2009, is as follows
The comparative balance sheet of House Construction Co. for June 30, 2010 and 2009, is as follows:
Assets June 30, 2010 June 30, 2009
Cash----- 41600 28200
A/R (Net) ----121900 110700
Inventories---------- 175600 170500
Investments---------- 0 60000
Land -------174000 0
Equipment---------- 258000 210600
Accumulated Depreciation--------- -58300 -49600
Total------------ 712800 530400
Liabilities & Stockholders Equity
A/P (Merchandise Creditors) ----------121000 114200
Accrued Expense Payable (Operating Expense)------------ 18000 15800
Dividends Payable--------------- 15000 12000
Common Stock, $1 Par--------------- 67200 60000
Paid-In Capital In Excess Of Par - Common Stock------- 264000 120000
Retained Earnings ------------227600 208400
Total---------- 712800 530400
The following additional information was taken from the records of House Construction Co.:
A. Equipment and land were acquired for cash.
B. There were no disposals of equipment during the year.
C. The investments were sold for $54,000 cash.
D. The common stock was issued for cash.
E. There was a $79,200 credit to Retained Earnings for net income.
F. There was a $60,000 debit to Retained Earnings for cash dividends declared.
A. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
Check: Net Cash Flow from Operating Activities $86,600
Click here for the solution: The comparative balance sheet of House Construction Co. for June 30, 2010 and 2009, is as follows
Assets June 30, 2010 June 30, 2009
Cash----- 41600 28200
A/R (Net) ----121900 110700
Inventories---------- 175600 170500
Investments---------- 0 60000
Land -------174000 0
Equipment---------- 258000 210600
Accumulated Depreciation--------- -58300 -49600
Total------------ 712800 530400
Liabilities & Stockholders Equity
A/P (Merchandise Creditors) ----------121000 114200
Accrued Expense Payable (Operating Expense)------------ 18000 15800
Dividends Payable--------------- 15000 12000
Common Stock, $1 Par--------------- 67200 60000
Paid-In Capital In Excess Of Par - Common Stock------- 264000 120000
Retained Earnings ------------227600 208400
Total---------- 712800 530400
The following additional information was taken from the records of House Construction Co.:
A. Equipment and land were acquired for cash.
B. There were no disposals of equipment during the year.
C. The investments were sold for $54,000 cash.
D. The common stock was issued for cash.
E. There was a $79,200 credit to Retained Earnings for net income.
F. There was a $60,000 debit to Retained Earnings for cash dividends declared.
A. Prepare a statement of cash flows, using the indirect method of presenting cash flows from operating activities.
B. Prepare ratios as required
Check: Net Cash Flow from Operating Activities $86,600
Click here for the solution: The comparative balance sheet of House Construction Co. for June 30, 2010 and 2009, is as follows
ACC 281 Final Exam
ACC 281 FINAL EXAM
PART I — MULTIPLE CHOICE (90 points)
Instructions
Designate the best answer for each of the following questions.
Questions 1 and 2 are based on the following information:
Bono Company recently incurred the following costs:
AND SO ON
1. The building should be recorded on Bono's books at
2. Land should be recorded on Bono's books at
3. Carson Supply bought equipment at a cost of $72,000 on January 2, 2005. It originally had an estimated life of ten years and a salvage value of $12,000. Carson uses the straight-line depreciation method. On December 31, 2008, Carson decided the useful life likely would end on December 31, 2012, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2008, should be
4. In order to be relevant, accounting information must
5. Riodan Company sold old equipment for $35,000. The equipment had a cost of $70,000 and accumulated depreciation of $42,000. The entry to record the sale of the equipment would include a
6. The cost of intangible assets should be
7. In a period of rising prices, the inventory method that results in the lowest income tax payment is
8. On November 30, Thatcher Company issued a $6,000, 6%, 4-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for
9. The inventory methods that result in the most current costs in the income statement and balance sheet are
10. The following information is available for Lighten Company:
11. If ending inventory is understated, net income and assets will be
12. One of the two constraints in accounting is
13. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the
14. All of the following are intangible assets except
15. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a
17. Shipping terms of FOB destination mean that the
18. Bates Company has a $300,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Bates uses a percentage of receivables basis (at 10%)?
19. The constraint of conservatism is best expressed as
20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a
21. Barker Company's records show the following for the month of January:
22. Jetson Company's financial information is presented below.
23. The necessity of making adjusting entries relates mostly to the
24. The preparation of closing entries
25. Allowance for Doubtful Accounts is reported in the
26. Current liabilities are obligations that are reasonably expected to be paid from
27. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was
28. The primary accounting standard-setting body in the United States is the
29. Lawford Company's equipment account increased $600,000 during the period; the related accumulated depreciation increased $45,000. New equipment was purchased at a cost of $1,050,000 and used equipment was sold at a loss of $30,000. Depreciation expense was $150,000. Proceeds from the sale of the used equipment were
30. Which of the following would not be included in the operating activities section of a statement of cash flows?
31. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
32. Nadine Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
33. Which of the following pairs of terms in the area of financial statement analysis are synonymous?
34. Which of the following statements is true?
35. Dividends received are credited to what account under the equity method and cost method, respectively?
36. In accounting for available-for-sale securities, the Unrealized Loss—Equity account should be classified as a
37. Carr Corporation has the following stock outstanding:
38. The statement of cash flows is a(n)
39. The directors of Chandler Corp. are trying to decide whether they should issue par or no par stock. They are considering two alternatives for their new stock, which they are assuming will be issued at $8 per share. The alternatives are: (A) $5 par value and (B) no par, no stated value. If 100,000 shares are issued, what amount will be credited to the common stock account in each of these cases?
40. Fison Corp. purchased 20,000 shares of its $2 par common stock at a cost of $13 per share on April 30, 2008. The stock was originally issued at $11 per share. The entry to record the purchase of the stock should include a debit to
41. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively?
Stock Dividend Stock Split
42. Which of the following should be classified as an extraordinary item?
43. A Discount on Bonds Payable account
44. In order to be considered extraordinary, an item must be
45. If the market rate of interest is lower than the stated rate, bonds will sell at an amount
PART II — MATCHING (50 points)
Instructions
Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once.
1. The periodic write-off of an intangible asset.
2. The total amount subject to depreciation.
3. The principle that efforts be matched with accomplishments.
4. An expenditure charged against revenues as an expense when incurred.
5. The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.
6. Use of the same accounting principles and methods from period to period by the same business enterprise.
Consistency
7. A measure of solvency calculated as cash provided by operating activities divided by average total liabilities.
8. An inventory costing method that assumes that the latest units purchased are the first to be allocated to cost of goods sold.
9. An assumption that economic events can be identified with a particular unit of accountability.
10. A characteristic of information that means it is capable of making a difference in a decision.
11. An assumption that the economic life of a business can be divided into artificial time periods.
12. This method of accounting for uncollectible accounts is required when bad debts are significant in size.
13. An accounting method in which cash dividends received are credited to Dividend Revenue.
14. Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds.
15. The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments.
16. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.
17. The difference between inventory reported using LIFO and inventory reported using FIFO.
18. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.
19. Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period.
20. A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
21. A depreciation method that applies a constant rate to the declining balance book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.
22. A pro rata distribution of a corporation’s own stock to its stockholders.
23. Events and transactions that are unusual in nature and infrequent in occurrence.
24. The disposal of a significant segment of a business.
25. The net income earned by each share of outstanding common stock.
PART III — INVENTORY (5 points)
Elston Company had a beginning inventory of 200 units at a cost of $12 per unit on August 1. During the month, the following purchases and sales were made.
Purchases Sales
August 4 250 units at $13 August 7 150 units
August 15 350 units at $15 August 11 100 units
August 28 200 units at $14 August 17 250 units
August 24 200 units
Elston uses a periodic inventory system.
Instructions
Determine ending inventory and cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO.
PART IV — DEPRECIATION (5 points)
Thomas Company purchased equipment for $640,000 cash on January 1, 2007. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $40,000. Actual activity was 180,000 units in 2007, and 200,000 units in 2008.
Instructions: Compute the annual depreciation expense for 2007 and 2008, and book value at December 31, 2008, under the following depreciation methods: (a) units-of-activity, (b) straight-line, and (c) double-declining-balance.
Click here for the solution: ACC 281 Final Exam
PART I — MULTIPLE CHOICE (90 points)
Instructions
Designate the best answer for each of the following questions.
Questions 1 and 2 are based on the following information:
Bono Company recently incurred the following costs:
AND SO ON
1. The building should be recorded on Bono's books at
2. Land should be recorded on Bono's books at
3. Carson Supply bought equipment at a cost of $72,000 on January 2, 2005. It originally had an estimated life of ten years and a salvage value of $12,000. Carson uses the straight-line depreciation method. On December 31, 2008, Carson decided the useful life likely would end on December 31, 2012, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2008, should be
4. In order to be relevant, accounting information must
5. Riodan Company sold old equipment for $35,000. The equipment had a cost of $70,000 and accumulated depreciation of $42,000. The entry to record the sale of the equipment would include a
6. The cost of intangible assets should be
7. In a period of rising prices, the inventory method that results in the lowest income tax payment is
8. On November 30, Thatcher Company issued a $6,000, 6%, 4-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for
9. The inventory methods that result in the most current costs in the income statement and balance sheet are
10. The following information is available for Lighten Company:
11. If ending inventory is understated, net income and assets will be
12. One of the two constraints in accounting is
13. The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the
14. All of the following are intangible assets except
15. A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?
16. When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a
17. Shipping terms of FOB destination mean that the
18. Bates Company has a $300,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Bates uses a percentage of receivables basis (at 10%)?
19. The constraint of conservatism is best expressed as
20. If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a
21. Barker Company's records show the following for the month of January:
22. Jetson Company's financial information is presented below.
23. The necessity of making adjusting entries relates mostly to the
24. The preparation of closing entries
25. Allowance for Doubtful Accounts is reported in the
26. Current liabilities are obligations that are reasonably expected to be paid from
27. Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was
28. The primary accounting standard-setting body in the United States is the
29. Lawford Company's equipment account increased $600,000 during the period; the related accumulated depreciation increased $45,000. New equipment was purchased at a cost of $1,050,000 and used equipment was sold at a loss of $30,000. Depreciation expense was $150,000. Proceeds from the sale of the used equipment were
30. Which of the following would not be included in the operating activities section of a statement of cash flows?
31. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
32. Nadine Manufacturing declared a 10% stock dividend when it had 200,000 shares of $5 par value common stock outstanding. The market price per common share was $12 per share when the dividend was declared. The entry to record this dividend declaration includes a credit to
33. Which of the following pairs of terms in the area of financial statement analysis are synonymous?
34. Which of the following statements is true?
35. Dividends received are credited to what account under the equity method and cost method, respectively?
36. In accounting for available-for-sale securities, the Unrealized Loss—Equity account should be classified as a
37. Carr Corporation has the following stock outstanding:
38. The statement of cash flows is a(n)
39. The directors of Chandler Corp. are trying to decide whether they should issue par or no par stock. They are considering two alternatives for their new stock, which they are assuming will be issued at $8 per share. The alternatives are: (A) $5 par value and (B) no par, no stated value. If 100,000 shares are issued, what amount will be credited to the common stock account in each of these cases?
40. Fison Corp. purchased 20,000 shares of its $2 par common stock at a cost of $13 per share on April 30, 2008. The stock was originally issued at $11 per share. The entry to record the purchase of the stock should include a debit to
41. What is the effect on total paid-in capital of a stock dividend and a stock split, respectively?
Stock Dividend Stock Split
42. Which of the following should be classified as an extraordinary item?
43. A Discount on Bonds Payable account
44. In order to be considered extraordinary, an item must be
45. If the market rate of interest is lower than the stated rate, bonds will sell at an amount
PART II — MATCHING (50 points)
Instructions
Designate the terminology that best represents the definition or statement given below by placing the identifying letter(s) in the space provided. No letter should be used more than once.
1. The periodic write-off of an intangible asset.
2. The total amount subject to depreciation.
3. The principle that efforts be matched with accomplishments.
4. An expenditure charged against revenues as an expense when incurred.
5. The inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold.
6. Use of the same accounting principles and methods from period to period by the same business enterprise.
Consistency
7. A measure of solvency calculated as cash provided by operating activities divided by average total liabilities.
8. An inventory costing method that assumes that the latest units purchased are the first to be allocated to cost of goods sold.
9. An assumption that economic events can be identified with a particular unit of accountability.
10. A characteristic of information that means it is capable of making a difference in a decision.
11. An assumption that the economic life of a business can be divided into artificial time periods.
12. This method of accounting for uncollectible accounts is required when bad debts are significant in size.
13. An accounting method in which cash dividends received are credited to Dividend Revenue.
14. Used by a bank when a previously deposited customer’s check “bounces” because of insufficient funds.
15. The assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments.
16. A system in which detailed records are not maintained and cost of goods sold is determined only at the end of an accounting period.
17. The difference between inventory reported using LIFO and inventory reported using FIFO.
18. The methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records.
19. Revenue, expense, and dividends accounts whose balances are transferred to retained earnings at the end of an accounting period.
20. A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
21. A depreciation method that applies a constant rate to the declining balance book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.
22. A pro rata distribution of a corporation’s own stock to its stockholders.
23. Events and transactions that are unusual in nature and infrequent in occurrence.
24. The disposal of a significant segment of a business.
25. The net income earned by each share of outstanding common stock.
PART III — INVENTORY (5 points)
Elston Company had a beginning inventory of 200 units at a cost of $12 per unit on August 1. During the month, the following purchases and sales were made.
Purchases Sales
August 4 250 units at $13 August 7 150 units
August 15 350 units at $15 August 11 100 units
August 28 200 units at $14 August 17 250 units
August 24 200 units
Elston uses a periodic inventory system.
Instructions
Determine ending inventory and cost of goods sold under (a) average cost, (b) FIFO, and (c) LIFO.
PART IV — DEPRECIATION (5 points)
Thomas Company purchased equipment for $640,000 cash on January 1, 2007. The estimated life is 5 years or 1,000,000 units; salvage value is estimated at $40,000. Actual activity was 180,000 units in 2007, and 200,000 units in 2008.
Instructions: Compute the annual depreciation expense for 2007 and 2008, and book value at December 31, 2008, under the following depreciation methods: (a) units-of-activity, (b) straight-line, and (c) double-declining-balance.
Click here for the solution: ACC 281 Final Exam
On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel
Problem 4-2A Applying The Accounting Cycle
On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel. The following transactions occurred during the company’s first month:
April 1 Stafford invested $20,000 cash and computer equipment worth $40,000 in the business.
2 Rented furnished office space by paying $1,700 cash for the first month’s (April) rent.
3 Purchased $1,100 of office supplies for cash.
10 Paid $3,600 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
14 Paid $1,800 cash for two weeks’ salaries earned by employees.
24 Collected $7,900 cash on commissions from airlines on tickets obtained for customers.
28 Paid another $1,800 cash for two weeks’ salaries earned by employees.
29 Paid $250 cash for minor repairs to the company’s computer.
30 Paid $650 cash for this month’s telephone bill.
30 Stafford withdrew $1,500 cash for personal use.
The company’s chart of accounts follows:
Required
1. Use the balance column format to set up each ledger account listed in its chart of accounts.
2. Prepare journal entries to record the transactions for April and post them to the ledger accounts. The company records prepaid and unearned items in balance sheet accounts.
3. Prepare an unadjusted trial balance as of April 30.
4. Use the following information to journalize and post adjusting entries for the month:
a. Two-thirds of one month’s insurance coverage has expired.
b. At the end of the month, $700 of office supplies are still available.
c. This month’s depreciation on the computer equipment is $600.
d. Employees earned $320 of unpaid and unrecorded salaries as of month-end.
e. The company earned $1,650 of commissions that are not yet billed at month-end.
5. Prepare the income statement and the statement of owner’s equity for the month of April and the balance sheet at April 30, 2005.
6. Prepare journal entries to close the temporary accounts and post these entries to the ledger.
7. Prepare a post-closing trial balance.
Check (3) Unadj. trial balance totals, $67,900
(4a) Dr. Insurance Expense, $200
(5) Net income, $1,830; Capital (4/30/2005), $60,330; Total assets, $60,650
(7) P-C trial balance totals, $61,250
Click here for the solution: On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel
On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel. The following transactions occurred during the company’s first month:
April 1 Stafford invested $20,000 cash and computer equipment worth $40,000 in the business.
2 Rented furnished office space by paying $1,700 cash for the first month’s (April) rent.
3 Purchased $1,100 of office supplies for cash.
10 Paid $3,600 cash for the premium on a 12-month insurance policy. Coverage begins on April 11.
14 Paid $1,800 cash for two weeks’ salaries earned by employees.
24 Collected $7,900 cash on commissions from airlines on tickets obtained for customers.
28 Paid another $1,800 cash for two weeks’ salaries earned by employees.
29 Paid $250 cash for minor repairs to the company’s computer.
30 Paid $650 cash for this month’s telephone bill.
30 Stafford withdrew $1,500 cash for personal use.
The company’s chart of accounts follows:
Required
1. Use the balance column format to set up each ledger account listed in its chart of accounts.
2. Prepare journal entries to record the transactions for April and post them to the ledger accounts. The company records prepaid and unearned items in balance sheet accounts.
3. Prepare an unadjusted trial balance as of April 30.
4. Use the following information to journalize and post adjusting entries for the month:
a. Two-thirds of one month’s insurance coverage has expired.
b. At the end of the month, $700 of office supplies are still available.
c. This month’s depreciation on the computer equipment is $600.
d. Employees earned $320 of unpaid and unrecorded salaries as of month-end.
e. The company earned $1,650 of commissions that are not yet billed at month-end.
5. Prepare the income statement and the statement of owner’s equity for the month of April and the balance sheet at April 30, 2005.
6. Prepare journal entries to close the temporary accounts and post these entries to the ledger.
7. Prepare a post-closing trial balance.
Check (3) Unadj. trial balance totals, $67,900
(4a) Dr. Insurance Expense, $200
(5) Net income, $1,830; Capital (4/30/2005), $60,330; Total assets, $60,650
(7) P-C trial balance totals, $61,250
Click here for the solution: On April 1, 2005, Jennifer Stafford created a new travel agency, See-It-Now Travel
The adjusted trial balance of Kobe Repairs on December 31, 2005, follows
Problem 4-3A Preparing trial balances, closing entries, and financial statements
The adjusted trial balance of Kobe Repairs on December 31, 2005, follows:
KOBE REPAIRS
Adjusted Trial Balance
December 31, 2005
No. Account Title Debit Credit
101 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,000
124 Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
128 Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . 1,950
167 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
168 Accumulated depreciation—Equipment . . . . . . . $ 4,000
201 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 12,000
210 Wages payable . . . . . . . . . . . . . . . . . . . . . . . . . 500
301 S. Kobe, Capital . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
302 S. Kobe, Withdrawals . . . . . . . . . . . . . . . . . . . . . 15,000
401 Repair fees earned . . . . . . . . . . . . . . . . . . . . . . 77,750
612 Depreciation expense—Equipment . . . . . . . . . . 4,000
623 Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . 36,500
637 Insurance expense . . . . . . . . . . . . . . . . . . . . . . . 700
640 Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . 9,600
650 Office supplies expense . . . . . . . . . . . . . . . . . . . 2,600
690 Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . 1,700
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $134,250 $134,250
Required
1. Prepare an income statement and a statement of owner’s equity for the year 2005, and a classified balance sheet at December 31, 2005. There are no owner investments in 2005.
2. Enter the adjusted trial balance in the first two columns of a six-column table. Use columns three and four for closing entry information and the last two columns for a post-closing trial balance. Insert an Income Summary account as the last item in the trial balance.
3. Enter closing entry information in the six-column table and prepare journal entries for them.
Analysis Component
4. Assume for this part only that:
a. None of the $700 insurance expense had expired during the year. Instead, assume it is a prepayment of the next period’s insurance protection.
b. There are no earned and unpaid wages at the end of the year. (Hint: Reverse the $500 wages payable accrual.) Describe the financial statement changes that would result from these two assumptions.
Check (1) Ending capital balance, $47,650
(2) P-C trial balance totals, $64,150
Click here for the solution: The adjusted trial balance of Kobe Repairs on December 31, 2005, follows
The adjusted trial balance of Kobe Repairs on December 31, 2005, follows:
KOBE REPAIRS
Adjusted Trial Balance
December 31, 2005
No. Account Title Debit Credit
101 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,000
124 Office supplies . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
128 Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . 1,950
167 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
168 Accumulated depreciation—Equipment . . . . . . . $ 4,000
201 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 12,000
210 Wages payable . . . . . . . . . . . . . . . . . . . . . . . . . 500
301 S. Kobe, Capital . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
302 S. Kobe, Withdrawals . . . . . . . . . . . . . . . . . . . . . 15,000
401 Repair fees earned . . . . . . . . . . . . . . . . . . . . . . 77,750
612 Depreciation expense—Equipment . . . . . . . . . . 4,000
623 Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . 36,500
637 Insurance expense . . . . . . . . . . . . . . . . . . . . . . . 700
640 Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . 9,600
650 Office supplies expense . . . . . . . . . . . . . . . . . . . 2,600
690 Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . 1,700
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $134,250 $134,250
Required
1. Prepare an income statement and a statement of owner’s equity for the year 2005, and a classified balance sheet at December 31, 2005. There are no owner investments in 2005.
2. Enter the adjusted trial balance in the first two columns of a six-column table. Use columns three and four for closing entry information and the last two columns for a post-closing trial balance. Insert an Income Summary account as the last item in the trial balance.
3. Enter closing entry information in the six-column table and prepare journal entries for them.
Analysis Component
4. Assume for this part only that:
a. None of the $700 insurance expense had expired during the year. Instead, assume it is a prepayment of the next period’s insurance protection.
b. There are no earned and unpaid wages at the end of the year. (Hint: Reverse the $500 wages payable accrual.) Describe the financial statement changes that would result from these two assumptions.
Check (1) Ending capital balance, $47,650
(2) P-C trial balance totals, $64,150
Click here for the solution: The adjusted trial balance of Kobe Repairs on December 31, 2005, follows
Nonfinancial measures for internal quality performance include all but which of the following
1. (TCO 11) Nonfinancial measures for internal quality performance include all but which of the following? (Points: 3)
2. (TCO 11) _____________________________is a formal means of distinguishing between random and nonrandom variation in an operating process. (Points: 3)
3. (TCO 11) Which of the following is NOT one of the steps in managing bottlenecks under the theory of constraints? (Points: 3)
4. (TCO 11) Design engineering is an example of: (Points: 3)
5. (TCO 11) Regal Products has a budget of $900,000 in 20X6 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures? (Points: 3)
6. (TCO 12) The amount of time between when a customer places an order for a product or requests a service to when the product or service is delivered to that customer is called (Points: 3)
7. (TCO 12) The costs associated with storage are an example of which cost category? (Points: 3)
8. (TCO 12) The economic order quantity ignores: (Points: 3)
9. (TCO 12) ) The ________ describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers. (Points: 3)
10. (TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $30. There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is the estimated total setup cost for the flag displays for the coming year is (Points: 3)
Click here for the solution: Nonfinancial measures for internal quality performance include all but which of the following
2. (TCO 11) _____________________________is a formal means of distinguishing between random and nonrandom variation in an operating process. (Points: 3)
3. (TCO 11) Which of the following is NOT one of the steps in managing bottlenecks under the theory of constraints? (Points: 3)
4. (TCO 11) Design engineering is an example of: (Points: 3)
5. (TCO 11) Regal Products has a budget of $900,000 in 20X6 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 150,000 units. Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories. How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures? (Points: 3)
6. (TCO 12) The amount of time between when a customer places an order for a product or requests a service to when the product or service is delivered to that customer is called (Points: 3)
7. (TCO 12) The costs associated with storage are an example of which cost category? (Points: 3)
8. (TCO 12) The economic order quantity ignores: (Points: 3)
9. (TCO 12) ) The ________ describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers. (Points: 3)
10. (TCO 12) Liberty Celebrations, Inc., manufactures a line of flags. The annual demand for its flag display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory is $1.60, and the cost to initiate a production run is $30. There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year, the first of which is to be run immediately. Liberty Celebrations has 250 business days per year. Assume that sales occur uniformly throughout the year and that production is instantaneous. If Liberty Celebrations does not maintain a safety stock, the estimated total carrying cost for the flag displays for the coming year is the estimated total setup cost for the flag displays for the coming year is (Points: 3)
Click here for the solution: Nonfinancial measures for internal quality performance include all but which of the following
On January 1, 2007, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102
E16-6 (Conversion of Bonds) On January 1, 2007, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Gottlieb Corporation $100 par value common stock after December 31, 2008. On January 1, 2009, $400,000 of debentures are converted into common stock, which is then selling at $110. An additional $400,000 of debentures are converted on March 31, 2009. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis.
Instructions
Make the necessary journal entries for:
(a) December 31, 2008.
(b) January 1, 2009.
(c) March 31, 2009.
(d) June 30, 2009.
Record the conversions using the book value method.
Click here for the solution: On January 1, 2007, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102
Instructions
Make the necessary journal entries for:
(a) December 31, 2008.
(b) January 1, 2009.
(c) March 31, 2009.
(d) June 30, 2009.
Record the conversions using the book value method.
Click here for the solution: On January 1, 2007, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102
Which cost accumulation procedure is most applicable in continuous mass-production manufacturing environments
1. Which cost accumulation procedure is most applicable in continuous mass-production manufacturing environments? (Points : 1)
2. Process costing is used in companies that _______. (Points : 1)
3. A producer of ____ would not use a process costing system. (Points : 1)
4. Equivalent units of production are equal to the _______. (Points : 1)
5. In a process costing system using the weighted average method, cost per equivalent unit for a given cost component is found by dividing which of the following by EUP? (Points : 1)
6. The difference between EUP calculated using FIFO and EUP calculated using weighted average is the equivalent units _______. (Points : 1)
7. In a FIFO process costing system, which of the following are assumed to be completed first in the current period? (Points : 1)
8. The primary difference between the FIFO and weighted average methods of process costing is _______. (Points : 1)
9. In a cost of production report using process costing, transferred-in costs are similar to the ______. (Points : 1)
10. In a process costing system, the journal entry to record the transfer of goods from Department #2 to Finished Goods Inventory is a _______. (Points : 1)
11. Transferred-in cost represents the cost from _______. (Points : 1)
12. A hybrid costing system combines characteristics of _______. (Points : 1)
13. When standard costs are used in process costing, _______. (Points : 1)
14. The cost of abnormal continuous losses is _______. (Points : 1)
15. Normal spoilage units resulting from a continuous process _______. (Points : 1)
16. Listed below are the steps to assign costs to ending inventory using the weighted average method process costing method.
A. Assign the costs to the inventory accounts
B. Calculate the physical units accounted for
C. Calculate the physical units to account for
D. Calculate the equivalent units of production
E. Calculate the total costs to account for
F. Calculate the cost per equivalent units
(Points : 1)
17. Units started and completed during the period equals (Points : 1)
18. In process costing systems, unit costs are found by dividing total costs incurred by (Points : 1)
19. Equivalent units of production using the weighted average method of costing are found using which of the following formulas: (Points : 1)
20. Total costs to account for is: (Points : 1)
Click here for the solution: Which cost accumulation procedure is most applicable in continuous mass-production manufacturing environments
2. Process costing is used in companies that _______. (Points : 1)
3. A producer of ____ would not use a process costing system. (Points : 1)
4. Equivalent units of production are equal to the _______. (Points : 1)
5. In a process costing system using the weighted average method, cost per equivalent unit for a given cost component is found by dividing which of the following by EUP? (Points : 1)
6. The difference between EUP calculated using FIFO and EUP calculated using weighted average is the equivalent units _______. (Points : 1)
7. In a FIFO process costing system, which of the following are assumed to be completed first in the current period? (Points : 1)
8. The primary difference between the FIFO and weighted average methods of process costing is _______. (Points : 1)
9. In a cost of production report using process costing, transferred-in costs are similar to the ______. (Points : 1)
10. In a process costing system, the journal entry to record the transfer of goods from Department #2 to Finished Goods Inventory is a _______. (Points : 1)
11. Transferred-in cost represents the cost from _______. (Points : 1)
12. A hybrid costing system combines characteristics of _______. (Points : 1)
13. When standard costs are used in process costing, _______. (Points : 1)
14. The cost of abnormal continuous losses is _______. (Points : 1)
15. Normal spoilage units resulting from a continuous process _______. (Points : 1)
16. Listed below are the steps to assign costs to ending inventory using the weighted average method process costing method.
A. Assign the costs to the inventory accounts
B. Calculate the physical units accounted for
C. Calculate the physical units to account for
D. Calculate the equivalent units of production
E. Calculate the total costs to account for
F. Calculate the cost per equivalent units
(Points : 1)
17. Units started and completed during the period equals (Points : 1)
18. In process costing systems, unit costs are found by dividing total costs incurred by (Points : 1)
19. Equivalent units of production using the weighted average method of costing are found using which of the following formulas: (Points : 1)
20. Total costs to account for is: (Points : 1)
Click here for the solution: Which cost accumulation procedure is most applicable in continuous mass-production manufacturing environments
For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly
For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:
Annual demand in units 250
Days used per year 250
Lead time, in days 10
Ordering costs $100
Annual unit carrying costs $20
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs (17 points)
Click here for the solution: For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly
Annual demand in units 250
Days used per year 250
Lead time, in days 10
Ordering costs $100
Annual unit carrying costs $20
Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs (17 points)
Click here for the solution: For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly
The Door Company manufactures doors
The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.
a. Retesting of reworked products
b. Downtime due to quality problems
c. Analysis of the cause of defects in production
d. Depreciation of test equipment
e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labor and overhead
i. Net cost of spoilage
j. Technical support provided to suppliers
k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering of data because of keypunch errors
_______________ Prevention costs
_______________ Appraisal costs
_______________ Internal failure costs
_______________ External failure costs
Click here for the solution: The Door Company manufactures doors
a. Retesting of reworked products
b. Downtime due to quality problems
c. Analysis of the cause of defects in production
d. Depreciation of test equipment
e. Warranty repairs
f. Lost sales arising from a reputation for poor quality
g. Quality circles
h. Rework direct manufacturing labor and overhead
i. Net cost of spoilage
j. Technical support provided to suppliers
k. Audits of the effectiveness of the quality system
l. Plant utilities in the inspection area
m. Reentering of data because of keypunch errors
_______________ Prevention costs
_______________ Appraisal costs
_______________ Internal failure costs
_______________ External failure costs
Click here for the solution: The Door Company manufactures doors
Wednesday, November 25, 2015
A stockholder is interested in the ability of a firm to
1. A stockholder is interested in the ability of a firm to (Points: 2)
2. Horizontal analysis is also called (Points: 2)
3. Vertical analysis is also known as (Points: 2)
4. Assume the following cost of goods sold data for a company:
2009 $1,500,000
2008 1,200,000
2007 900,000
If 2007 is the base year, what is the percentage increase in cost of goods sold from 2007 to 2009? (Points: 2)
5. Walker Clothing Store had a balance in the Accounts Receivable account of $780,000 at the beginning of the year and a balance of $820,000 at the end of the year. Net credit sales during the year amounted to $8,000,000. The average collection period of the receivables in terms of days was (Points: 2)
6. Waters Department Store had net credit sales of $12,000,000 and cost of goods sold of $9,000,000 for the year. The average inventory for the year amounted to $2,000,000.
The average number of days in inventory during the year was (Points: 2)
7. Which of the following is not a profitability ratio? (Points: 2)
8. Times interest earned is also called the (Points: 2)
9. The ratio that uses weighted average common shares outstanding in the denominator is the (Points: 2)
10. Each of the following is an extraordinary item except the (Points: 2)
Click here for the solution: A stockholder is interested in the ability of a firm to
2. Horizontal analysis is also called (Points: 2)
3. Vertical analysis is also known as (Points: 2)
4. Assume the following cost of goods sold data for a company:
2009 $1,500,000
2008 1,200,000
2007 900,000
If 2007 is the base year, what is the percentage increase in cost of goods sold from 2007 to 2009? (Points: 2)
5. Walker Clothing Store had a balance in the Accounts Receivable account of $780,000 at the beginning of the year and a balance of $820,000 at the end of the year. Net credit sales during the year amounted to $8,000,000. The average collection period of the receivables in terms of days was (Points: 2)
6. Waters Department Store had net credit sales of $12,000,000 and cost of goods sold of $9,000,000 for the year. The average inventory for the year amounted to $2,000,000.
The average number of days in inventory during the year was (Points: 2)
7. Which of the following is not a profitability ratio? (Points: 2)
8. Times interest earned is also called the (Points: 2)
9. The ratio that uses weighted average common shares outstanding in the denominator is the (Points: 2)
10. Each of the following is an extraordinary item except the (Points: 2)
Click here for the solution: A stockholder is interested in the ability of a firm to
The budget director of Regal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month
The budget director of Regal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for August 2010 is summarized as follows:
a. Estimated sales of King and Prince chairs for August by sales territory:
Northern Domestic:
King.........................5,500 units at $750 per unit
Prince......................6,900 units at $520 per unit
Southern Domestic:
King.........................3,200 units at $690 per unit
Prince......................4,000 units at $580 per unit
International:
King........................1,450 units at $780 per unit
Prince......................900 units at $600 per unit
b. Estimated inventories at August 1:
Direct materials:
Finished Products
Fabric................4,500 sq. yds
King.....................950units
Wood.................6,000 lineal ft.
Prince..................280units
Filler...................2,800 cu, ft
Springs..............6,700 units
c. Desired inventories at August 31:
Direct Materials:
Finished Products:
Fabric..................4300 sq yds
King.............800units
Wood..................6,200 lineal ft.
Prince...........400units
Filler....................3,100 cu. ft
Springs................7,500 units
d. Direct materials used in production:
In manufacture of King:
Fabric..................5.0 sq. yds per unit of product
Wood ..................35 lineal ft. per unit of product
Filler.................... 3.8 cu ft. per units of product
Springs.................14 units per units of product
In manufacture of Prince:
Fabric...............$12.00 per sq. yd.
Filler..............$3.50 per cu. ft.
Wood................ 8.00 per lineal ft.
Springs........... 4.50 per unit
f. Direct labor requirements:
King:
Framing Department............ 2.5hrs. at $12 per hr.
Cutting Department.............. 1.5 hrs. at $11 per hr.
Upholstery Department.......... 2.4hrs. at $14 per hr.
Prince: Framing Department............ 1.8 hrs. at $12 per hr.
Cutting Department............. 0.5 hrs. at $11 per hr.
Upholstery Department......... 2.0hrs. at $14 per hr.
3.) Prepare a direct materials purchases budget for August.
Click here for the solution: The budget director of Regal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month
a. Estimated sales of King and Prince chairs for August by sales territory:
Northern Domestic:
King.........................5,500 units at $750 per unit
Prince......................6,900 units at $520 per unit
Southern Domestic:
King.........................3,200 units at $690 per unit
Prince......................4,000 units at $580 per unit
International:
King........................1,450 units at $780 per unit
Prince......................900 units at $600 per unit
b. Estimated inventories at August 1:
Direct materials:
Finished Products
Fabric................4,500 sq. yds
King.....................950units
Wood.................6,000 lineal ft.
Prince..................280units
Filler...................2,800 cu, ft
Springs..............6,700 units
c. Desired inventories at August 31:
Direct Materials:
Finished Products:
Fabric..................4300 sq yds
King.............800units
Wood..................6,200 lineal ft.
Prince...........400units
Filler....................3,100 cu. ft
Springs................7,500 units
d. Direct materials used in production:
In manufacture of King:
Fabric..................5.0 sq. yds per unit of product
Wood ..................35 lineal ft. per unit of product
Filler.................... 3.8 cu ft. per units of product
Springs.................14 units per units of product
In manufacture of Prince:
Fabric...............$12.00 per sq. yd.
Filler..............$3.50 per cu. ft.
Wood................ 8.00 per lineal ft.
Springs........... 4.50 per unit
f. Direct labor requirements:
King:
Framing Department............ 2.5hrs. at $12 per hr.
Cutting Department.............. 1.5 hrs. at $11 per hr.
Upholstery Department.......... 2.4hrs. at $14 per hr.
Prince: Framing Department............ 1.8 hrs. at $12 per hr.
Cutting Department............. 0.5 hrs. at $11 per hr.
Upholstery Department......... 2.0hrs. at $14 per hr.
3.) Prepare a direct materials purchases budget for August.
4.)Prepare a direct labor cost budget for August
Click here for the solution: The budget director of Regal Furniture Company requests estimates of sales, production, and other operating data from the various administrative units every month
Sepracor, Inc., a U.S. drug company, reported the following information
International Reporting Case
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer.
Click here for the solution: Sepracor, Inc., a U.S. drug company, reported the following information
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
2007 (,000)
Current Liabilities $ 554,114
Convertible Subordinated Debt 648,020
Total Liabilities 1,228,313
Stockholders’ Equity 176,413
Net Income 58,333
Analysts attempting to compare Sepracor to international drug companies may face a challenge due to differences in accounting for convertible debt under iGAAP. Under IAS 32, Financial Instruments, convertible bonds, at issuance, must be classified separately into their debt and equity components based on estimated fair value.
INSTRUCTIONS:
(a) Compute the following rations for Sepracor, Inc. (assume that year-end balances approximate annual averages.)
(1) Return on assets.
(2) Return on stockholders’ equity
(3) Debt to asset ratio
(b) Briefly discuss the operating performance and financial position of Sepracor. Industry averages for these ratios in 2007were: ROA 3.5%; return on equity 16%; and debt to assets 75%. Based on this analysis would you make an investment in the company's 5% convertible bonds? Explain.
(c) Assume you want to compare Sepracor to an international company, like Bayer (which prepares its financial statements in accordance with iGAAP). Assuming that the fair value of the equity components of Sepracor's convertible bonds is $150,000, how would you adjust the analysis above to make valid comparisons between Sepracor and Bayer.
Click here for the solution: Sepracor, Inc., a U.S. drug company, reported the following information
On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest
On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2016. Amortization is recorded when interest is received by the straight-line method (by months and rounded to the nearest dollar). (Assume bonds are available for sale.)
Instructions
(a) Prepare the entry for May 1, 2010.
(b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.
Click here for the solution: On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest
Instructions
(a) Prepare the entry for May 1, 2010.
(b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.
Click here for the solution: On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest
If intangible assets are acquired for stock, how is the cost of the intangible determined?
If intangible assets are acquired for stock, how is the cost of the intangible determined?
Click here for the solution: If intangible assets are acquired for stock, how is the cost of the intangible determined?
Click here for the solution: If intangible assets are acquired for stock, how is the cost of the intangible determined?
Describe the journal entry for a stock dividend on a common stock (which has a par value)
Describe the journal entry for a stock dividend on a common stock (which has a par value).
Click here for the solution: Describe the journal entry for a stock dividend on a common stock (which has a par value)
Click here for the solution: Describe the journal entry for a stock dividend on a common stock (which has a par value)
For the following investments identify whether they are
Exercise 17-1 (E17-1) (Investment Classifications) For the following investments identify whether they are:
1. Trading Securities
2. Available-for-Sale Securities
3. Held-to-Maturity Securities
Each case is independent of the other.
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock.
(c) 10-year bonds were purchased this year. The bonds mature at the first of next year.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now.
Click here for the solution: For the following investments identify whether they are
1. Trading Securities
2. Available-for-Sale Securities
3. Held-to-Maturity Securities
Each case is independent of the other.
(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold.
(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock.
(c) 10-year bonds were purchased this year. The bonds mature at the first of next year.
(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold.
(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.
(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now.
Click here for the solution: For the following investments identify whether they are
Presented on page 890 are two independent situations
Exercise 17-12 (E17-12) (Journal Entries for Fair Value and Equity Methods) Presented on page 890 are two independent situations.
Situation 1
Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2007. On June 30, Martinez declared and paid a $75,000 cash dividend. On December 31, Martinez reported net income of $122,000 for the year. At December 31, the market price of Martinez Fashion was $15 per share. The securities are classified as available-for-sale.
Situation 2
Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2007. On June 15, Seles declared and paid a cash dividend of $36,000. On December 31, Seles reported a net income of $85,000 for the year.
Instructions
Prepare all necessary journal entries in 2007 for both situations.
Click here for the solution: Presented on page 890 are two independent situations
Situation 1
Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of $13 per share on March 18, 2007. On June 30, Martinez declared and paid a $75,000 cash dividend. On December 31, Martinez reported net income of $122,000 for the year. At December 31, the market price of Martinez Fashion was $15 per share. The securities are classified as available-for-sale.
Situation 2
Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 30,000 outstanding shares of common stock at a total cost of $9 per share on January 1, 2007. On June 15, Seles declared and paid a cash dividend of $36,000. On December 31, Seles reported a net income of $85,000 for the year.
Instructions
Prepare all necessary journal entries in 2007 for both situations.
Click here for the solution: Presented on page 890 are two independent situations
On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589
E17-5 (Effective-Interest versus Straight line bond amortization) On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589. The interest is payable each December 31, and the bonds mature December 31, 2010. The investment will provide Phantom Company a 12% yield. The bonds are classified as held to maturity.
Instructions
a.) Prepare a 3 yr schedule of interest revenue and bond discount amortization, applying the straight line method.
b.) Prepare a 3 year schedule of interest revenue and bond discount amortization, applying effective interest method.
c.) Prepare the journal entry for the interest receipt of Dec 31, 2009, and the discount amortization under the straight line method.
d.) Prepare the journal entry for the interest receipt of Dec 31 2008, and the discount amortization under the effective interest method.
Click here for the solution: On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589
Instructions
a.) Prepare a 3 yr schedule of interest revenue and bond discount amortization, applying the straight line method.
b.) Prepare a 3 year schedule of interest revenue and bond discount amortization, applying effective interest method.
c.) Prepare the journal entry for the interest receipt of Dec 31, 2009, and the discount amortization under the straight line method.
d.) Prepare the journal entry for the interest receipt of Dec 31 2008, and the discount amortization under the effective interest method.
Click here for the solution: On January 1, 2008. Phantom Company acquires $200,000 of Spiderman Products Inc,, 9% bonds at a price of $185,589
Glesen Company sponsors a defined benefit pension plan for its employees
Glesen Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 2008 and 2009.
AND SO ON
Instructions
(a) Prepare a pension worksheet presenting both years 2008 and 2009 and accompanying computations including the computation of the minimum liability (2008 and 2009) and amortization of the unrecognized loss (2009) using the corridor approach.
(b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year.
(c) At December 31, 2009, prepare a schedule reconciling the funded status of the pension plan with the pension amounts reported in the financial statements.
Click here for the solution: Glesen Company sponsors a defined benefit pension plan for its employees
AND SO ON
Instructions
(a) Prepare a pension worksheet presenting both years 2008 and 2009 and accompanying computations including the computation of the minimum liability (2008 and 2009) and amortization of the unrecognized loss (2009) using the corridor approach.
(b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year.
(c) At December 31, 2009, prepare a schedule reconciling the funded status of the pension plan with the pension amounts reported in the financial statements.
Click here for the solution: Glesen Company sponsors a defined benefit pension plan for its employees
Wednesday, November 11, 2015
Bandung Corporation began 2008 with $92,000 balance in Deferred Tax Liability account
E19-3 (One Temporary difference, Future Taxable Amounts, One Rate, No Beginning Deferred Taxes) Bandung Corporation began 2008 with $92,000 balance in Deferred Tax Liability account. At the end of 2008, the related cumulative difference amounts to $350,000 and it will reverse evenly over the next 2 years. Pretax accounting income for 2008 is $525,000, the tax rate for all years is 40% and taxable income for 2008 is $405,000.
Instructions
a.) Compute income taxes payable for 2008
b.) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2008.
c.) Prepare the income tax expense section of the income statement for 2008 beginning with the line "Income before income taxes"
Click here for the solution: Bandung Corporation began 2008 with $92,000 balance in Deferred Tax Liability account
Instructions
a.) Compute income taxes payable for 2008
b.) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2008.
c.) Prepare the income tax expense section of the income statement for 2008 beginning with the line "Income before income taxes"
Click here for the solution: Bandung Corporation began 2008 with $92,000 balance in Deferred Tax Liability account
South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts
E19-1 (One Temporary difference, Future Taxable Amounts, One Rate, No Beginning Deferred Taxes) South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts of $55,000 in 2009, $60,000 in 2010, and $65,000 in 2011. South Carolina's pretax financial income for 2008 is $300,000 and the tax rate us 30% for all years. There are no deferred taxes at the beginning of 2008.
Instructions
a.) Compute taxable income and income taxes payable for 20008.
b.) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2008.
c.) Prepare the income tax expense section of the income statement for 2008, beginning with the line "Income before income taxes"
Click here for the solution: South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts
Instructions
a.) Compute taxable income and income taxes payable for 20008.
b.) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2008.
c.) Prepare the income tax expense section of the income statement for 2008, beginning with the line "Income before income taxes"
Click here for the solution: South Carolina Corporation has one temporary difference at the end of 2008 that will reverse and cause taxable amounts
Zero Mostel Company began operations on January 2, 2008
E13-5 (Compensated Absences) Zero Mostel Company began operations on January 2, 2008. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.
Actual Hourly Vacation Days Used Sick Days Used
Wage Rate by each employee by each employee
2008 2009 2008 2009 2008 2009
$10 $11 0 9 4 5
Zero Mostel Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.
Instructions
a.) Prepare journal entries to record transactions related to compensated absences during 2008 and 2009.
b.) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2008 and 2009
Click here for the solution: Zero Mostel Company began operations on January 2, 2008
Actual Hourly Vacation Days Used Sick Days Used
Wage Rate by each employee by each employee
2008 2009 2008 2009 2008 2009
$10 $11 0 9 4 5
Zero Mostel Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.
Instructions
a.) Prepare journal entries to record transactions related to compensated absences during 2008 and 2009.
b.) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2008 and 2009
Click here for the solution: Zero Mostel Company began operations on January 2, 2008
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
The management of Idaho Produce is considering an increase in its use of financial leverage
16-10A. (Analysis of recessionary cash flows) The management of Idaho Produce is considering an increase in its use of financial leverage. The proposal on the table is to sell $10 million of bonds that would mature in 20 years. The interest rate on these bonds would be 15 percent. The bond issue would have a sinking fund attached to it requiring that one-twentieth of the principal be retired each year. Most business economists are forecasting a recession that will affect the entire economy in the coming year. Idaho’s management has been saying, “If we can make it through this, we can make it through anything.” The firm prefers to carry an operating cash balance of $1 million. Cash collections from sales next year will total $4 million. Miscellaneous cash receipts will be $300,000. Raw material payments will be $800,000. Wage and salary costs will total $1.4 million on a cash basis. On top of this, Idaho will experience nondiscretionary cash outflows of $1.2 million including all tax payments. The firm faces a 50 percent tax rate.
a. At present, Idaho is unlevered. What will be the total fixed financial charges the firm must pay next year?
b. If the bonds are issued, what is your forecast for the firm’s expected cash balance at the end of the recessionary year (next year)?
c. As Idaho’s financial consultant, do you recommend that it issue the bonds?
Click here for the solution: The management of Idaho Produce is considering an increase in its use of financial leverage
a. At present, Idaho is unlevered. What will be the total fixed financial charges the firm must pay next year?
b. If the bonds are issued, what is your forecast for the firm’s expected cash balance at the end of the recessionary year (next year)?
c. As Idaho’s financial consultant, do you recommend that it issue the bonds?
Click here for the solution: The management of Idaho Produce is considering an increase in its use of financial leverage
Joy Cunningham Co. purchased a machine on January 1, 2005 for $550,000
E22-9 (Error and Change in Estimate-Depreciation) Joy Cunningham Co. purchased a machine on January 1, 2005 for $550,000. At that time it was estimated that the machine would have a 10 year life and no salvage value. On December 31, 2008, the firm’s accountant found that the entry for depreciation expense had been omitted in 2006. In addition, management has informed the accountant that the company plans to switch to straight-line depreciation, starting with the year 2008. At present the company uses the sum of the year’s digits method for depreciating equipment.
Instructions
Prepare the general journal entries that should be made at December, 31 2008 to record these events. (Ignore the effects)
Click here for the solution: Joy Cunningham Co. purchased a machine on January 1, 2005 for $550,000
Instructions
Prepare the general journal entries that should be made at December, 31 2008 to record these events. (Ignore the effects)
Click here for the solution: Joy Cunningham Co. purchased a machine on January 1, 2005 for $550,000
Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2008
E21-6 (Lessor Entries; Sales Type Lease) Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2008. The lease is for an 8 year period and requires equal annual payments of $35,013 at the beginning of each year. The first payment is received on January 1, 2008. Crosley had purchased the machine during 2007 for $160,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Crosley. Crosley set the annual rental to ensure an 11% rate of return. The machine has an economic life of 10 yrs with no residual value and reverts to Crosley at the termination of the lease.
Instructions
Prepare all necessary journal entries for Crosley for 2008.
Click here for the solution: Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2008
Instructions
Prepare all necessary journal entries for Crosley for 2008.
Click here for the solution: Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2008
Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company
E21-3 (Lessee Entries; Capital Lease with Executory Costs) Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company. The following information pertains to this lease agreement.
1.) The agreement requires equal rental payments of $72,000 beginning on January 1, 2008.
2.) The fair value of the building on January 1, 2008 is $440,000
3.) The building has an estimated economic life of 12 years, with an unguaranteed residual value of $10,000. Kimberly Clark depreciates similar buildings on the straight line method.
4.) The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5.) Kimberly Clark's incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly Clark.
6.) The yearly rental payment includes $2,470.51 of executory costs related to taxes on property.
Instructions
Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the years 2008 and 2009, Kimberly Clark's corporate year end is December 31.
Click here for the solution: Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company
1.) The agreement requires equal rental payments of $72,000 beginning on January 1, 2008.
2.) The fair value of the building on January 1, 2008 is $440,000
3.) The building has an estimated economic life of 12 years, with an unguaranteed residual value of $10,000. Kimberly Clark depreciates similar buildings on the straight line method.
4.) The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5.) Kimberly Clark's incremental borrowing rate is 12% per year. The lessor’s implicit rate is not known by Kimberly Clark.
6.) The yearly rental payment includes $2,470.51 of executory costs related to taxes on property.
Instructions
Prepare the journal entries on the lessee's books to reflect the signing of the lease agreement and to record payments and expenses related to this lease for the years 2008 and 2009, Kimberly Clark's corporate year end is December 31.
Click here for the solution: Assume that on January 1, 2008, Kimberly Clark Corp. signs a 10 year noncancelable lease agreement to lease a storage building from Sheffield Storage Company
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposed investment, estimated income from operations, and net cash flow for each proposal are as follows:
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Investments Year Income from Net cash operations flow
Proposal A: $425,000 1 $ 40,000 $125,000
2 40,000 125,000
3 40,000 125,000
4 15,000 100,000
5 (35,000) 50,000
------------- -------------
$100,000 $525,000
-------------- -------------
Proposal B: $610,000 1 $ 158,000 $280,000
2 158,000 280,000
3 78,000 200,000
4 28,000 150,000
5 (22,000) 100,000
----------------- -------------
$400,000 $1,010,000
--------------- ---------------
Proposal C: $275,000 1 $45,000 $ 100,000
2 45,000 100,000
3 45,000 100,000
4 45,000 100,000
5 35,000 90,000
----------- -------------
$215,000 $490,000
------------ -------------
Investment Year Income From Net Cash
operations Flow
Proposal D: $190,000 1 $22,000 $60,000
2 22,000 60,000
3 22,000 60,000
4 2,000 40,000
5 2,000 40,000
---------- -------------
$70,000 $260,000
The company’s capital rationing policy requires a maximum cash payback period of three years. In addition, a minimum average rate of return of 12% is required on all projects. If the preceding standards are met, the net present value method and present value indexes are used to rank the remaining proposals.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
2. Giving effect to straight-line depreciation on the investments and assuming no estimated residual value, compute the average rate of return for each of the four proposals. Round to 1 decimal place.
Average rate of return
Proposal A:_______________%
Proposal B:_______________%
Proposal C:_______________%
Proposal D:_______________%
5.Compute the present value index for each of the proposals in (4). Round to 2 decimal places.
Select proposal to compute Present value index. __A or B___ __ C or D___
Present value index (rounded): ___________ ___________
Click here for the solution: Grant Communications Inc. is considering allocating a limited amount of capital investment funds among four proposals
Harmony Audio Inc. manufactures two products: receivers and CD players
Harmony Audio Inc. manufactures two products: receivers and CD players. The factory overhead incurred is as follows
Indirect labor $210,000
Subassembly Dept 145,000
Final Assembly Dept 95,000
Total $450,000
The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows:
Activity Activity Cost Activity Base
Setup $90,000 Number of setups
Quality control 120,000 Number of inspections
Total $210,000
The activity-base usage quantities and units produced for the two products are shown below.
# of # of Direct Labor Direct Labor Units
Setups Inspections Hours-- Hours-- produce
Subassembly Final Assembly
Receivers 200 1,000 600 400 5.000
CD players 40 250 400 600 5,000
Total 240 1250 1,000 1,000 10,000
1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $250,000 and $200,000 for the Subassembly and Final Assembly departments, respectively.
Department Production department rate
Subassembly Dept $__________ per dlh
Final Assembly Dept $__________ per dlh
2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1).
Product Total factory overhead Factory overhead per unit
Receivers: $______________ $___________
Cd Player: $______________ $___________
3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments.
Activity Activity rate
Setup $____________ per setup
Quality Control $____________ per insp.
Subassembly Dept $____________ per dhl
Final Assembly Dept $____________ per dhl
4. Determine the total and per-unit cost assigned to each product under activity-based costing. Round the per unit amounts to the nearest whole cent.
Product Total Activity Cost Activity Cost per Unit
Receivers $___________ $_____________
CD Players $___________ $______________
5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate method and activity-based costing method. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Click here for the solution: Harmony Audio Inc. manufactures two products: receivers and CD players
Indirect labor $210,000
Subassembly Dept 145,000
Final Assembly Dept 95,000
Total $450,000
The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows:
Activity Activity Cost Activity Base
Setup $90,000 Number of setups
Quality control 120,000 Number of inspections
Total $210,000
The activity-base usage quantities and units produced for the two products are shown below.
# of # of Direct Labor Direct Labor Units
Setups Inspections Hours-- Hours-- produce
Subassembly Final Assembly
Receivers 200 1,000 600 400 5.000
CD players 40 250 400 600 5,000
Total 240 1250 1,000 1,000 10,000
1. Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is $250,000 and $200,000 for the Subassembly and Final Assembly departments, respectively.
Department Production department rate
Subassembly Dept $__________ per dlh
Final Assembly Dept $__________ per dlh
2. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1).
Product Total factory overhead Factory overhead per unit
Receivers: $______________ $___________
Cd Player: $______________ $___________
3. Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments.
Activity Activity rate
Setup $____________ per setup
Quality Control $____________ per insp.
Subassembly Dept $____________ per dhl
Final Assembly Dept $____________ per dhl
4. Determine the total and per-unit cost assigned to each product under activity-based costing. Round the per unit amounts to the nearest whole cent.
Product Total Activity Cost Activity Cost per Unit
Receivers $___________ $_____________
CD Players $___________ $______________
5. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate method and activity-based costing method. The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Click here for the solution: Harmony Audio Inc. manufactures two products: receivers and CD players
Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs
13-52 Choice of Cost-Allocation Bases in Accounting Firm
Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs to jobs than just direct labor. In this way, the firm will be able to justify billings to clients.
Last year’s costs were
Direct-professional labor $ 5,000,000
Overhead 10,000,000
Total costs $15,000,000
The following costs were included in overhead:
Computer time $ 750,000
Secretarial cost 700,000
Photocopying 250,000
Fringe benefits to direct labor 800,000
Phone call time with clients (estimated but not tabulated) 500,000
Total $3,000,000
The firm’s data processing techniques now make it feasible to document and trace these costs to individual jobs. As an experiment, in December Brenda McCoy arranged to trace these costs to six audit engagements.
Two job records showed the following:
Engagement
Eagledale Company First Valley Bank
Direct-professional labor $15,000 $15,000
Fringe benefits to direct labor 3,000 3,000
Phone call time with clients 1,500 500
Computer time 3,000 700
Secretarial costs 2,000 1,500
Photocopying 500 300
Total direct costs $25,000 $21,000
1. Compute the overhead application rate based on last year’s costs.
2. Suppose last year’s costs were reclassified so that $3 million would be regarded as direct costs instead of overhead. Compute the overhead application rate as a percentage of direct labor and as a percentage of total direct costs.
3. Using the three rates computed in numbers 1 and 2, compute the total costs of engagements for Eagledale Company and First Valley Bank.
4. Suppose that client billing was based on a 30% markup of total job costs. Compute the billings that would be forthcoming in number 3.
5. Which method of costing and overhead application do you favor? Explain.
Click here for the solution: Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs
Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs to jobs than just direct labor. In this way, the firm will be able to justify billings to clients.
Last year’s costs were
Direct-professional labor $ 5,000,000
Overhead 10,000,000
Total costs $15,000,000
The following costs were included in overhead:
Computer time $ 750,000
Secretarial cost 700,000
Photocopying 250,000
Fringe benefits to direct labor 800,000
Phone call time with clients (estimated but not tabulated) 500,000
Total $3,000,000
The firm’s data processing techniques now make it feasible to document and trace these costs to individual jobs. As an experiment, in December Brenda McCoy arranged to trace these costs to six audit engagements.
Two job records showed the following:
Engagement
Eagledale Company First Valley Bank
Direct-professional labor $15,000 $15,000
Fringe benefits to direct labor 3,000 3,000
Phone call time with clients 1,500 500
Computer time 3,000 700
Secretarial costs 2,000 1,500
Photocopying 500 300
Total direct costs $25,000 $21,000
1. Compute the overhead application rate based on last year’s costs.
2. Suppose last year’s costs were reclassified so that $3 million would be regarded as direct costs instead of overhead. Compute the overhead application rate as a percentage of direct labor and as a percentage of total direct costs.
3. Using the three rates computed in numbers 1 and 2, compute the total costs of engagements for Eagledale Company and First Valley Bank.
4. Suppose that client billing was based on a 30% markup of total job costs. Compute the billings that would be forthcoming in number 3.
5. Which method of costing and overhead application do you favor? Explain.
Click here for the solution: Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs
On January 1, 2008, Diana Peter Company has the following defined benefit pension plan balances
P20-1 (Two-Year Worksheet) On January 1, 2008, Diana Peter Company has the following defined benefit pension plan balances.
Projected benefit obligation $4,200,000
Fair value of plan assets $4,200,000
The interest (settlement) rate applicable to the plan is 10%. On January 1, 2009 the company amends its pension agreement so that prior service costs of $500,000 area created. Other data related to the pension plan are as follows.
2008 2009
Services costs 150,000 180,000
Prior service costs amortization 0 90,000
Contributions (funding) to plan 140,000 185,000
Benefits paid 200,000 280,000
Actual return on plan assets 252,000 260,000
Expected rate of return on assets 6% 8%
Instructions
a.) Prepare a pension worksheet for the pension plan for 2008 & 2009
b.) For 2009, prepare the journal entry to record pension related amounts.
Click here for the solution: On January 1, 2008, Diana Peter Company has the following defined benefit pension plan balances
Projected benefit obligation $4,200,000
Fair value of plan assets $4,200,000
The interest (settlement) rate applicable to the plan is 10%. On January 1, 2009 the company amends its pension agreement so that prior service costs of $500,000 area created. Other data related to the pension plan are as follows.
2008 2009
Services costs 150,000 180,000
Prior service costs amortization 0 90,000
Contributions (funding) to plan 140,000 185,000
Benefits paid 200,000 280,000
Actual return on plan assets 252,000 260,000
Expected rate of return on assets 6% 8%
Instructions
a.) Prepare a pension worksheet for the pension plan for 2008 & 2009
b.) For 2009, prepare the journal entry to record pension related amounts.
Click here for the solution: On January 1, 2008, Diana Peter Company has the following defined benefit pension plan balances
Star Wars Company pays its office employee payroll weekly
P13-3 (Payroll Tax Entries) Star Wars Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also listed.
Employee Earnings to July 31 Weekly Pay Vacation Pay to be Received in Aug
Mark Hamell $4,200 $180 -----------
Carrie Fisher $3,500 150 $300
Harrison Ford $2,700 110 $220
Alec Guinness $7,400 250 -----------
Peter Cushing $8,000 290 $580
Assume that the federal income tax withheld is 10% of wages. Union dues withheld are 2% of wages. Vacations are taken the second and third weeks of August by Fisher, Ford, and Cushing. The state unemployment tax rate is 2.5% and the federal is 0.8%, both on a $7,000 maximum. The F.I.C.A. rate is 7.65% on employee and employer on a maximum of $97,500 per employee. In addition, a 1.45% rate is charged both employer and employee for an employee’s wage in excess of $97,500.
Instructions
Make the journal entries necessary for each of the four August payrolls. The entries for the payroll and for the company’s liability are made separately. Also make the entry to record the monthly payment of accrued payroll liabilities.
Click here for the solution: Star Wars Company pays its office employee payroll weekly
Employee Earnings to July 31 Weekly Pay Vacation Pay to be Received in Aug
Mark Hamell $4,200 $180 -----------
Carrie Fisher $3,500 150 $300
Harrison Ford $2,700 110 $220
Alec Guinness $7,400 250 -----------
Peter Cushing $8,000 290 $580
Assume that the federal income tax withheld is 10% of wages. Union dues withheld are 2% of wages. Vacations are taken the second and third weeks of August by Fisher, Ford, and Cushing. The state unemployment tax rate is 2.5% and the federal is 0.8%, both on a $7,000 maximum. The F.I.C.A. rate is 7.65% on employee and employer on a maximum of $97,500 per employee. In addition, a 1.45% rate is charged both employer and employee for an employee’s wage in excess of $97,500.
Instructions
Make the journal entries necessary for each of the four August payrolls. The entries for the payroll and for the company’s liability are made separately. Also make the entry to record the monthly payment of accrued payroll liabilities.
Click here for the solution: Star Wars Company pays its office employee payroll weekly
On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44
E17-3 (Entries for Held-to-Maturity Securities) On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44. The bonds provide the bondholders with a 10%yield. They are dated January 1, 2008, and mature January 1, 2013, with interest receivable Dec 21 of each year. Hi and Lois Company uses effective interest method to allocate unamortized discount or premium. The bonds are classified in the held to maturity category.
Instructions
a.) Prepare the journal entry at the date of the bond purchase.
b.) Prepare a bond amortization schedule.
c.) Prepare the journal entry to record the interest received and the amortization for 2008.
d.) Prepare the journal entry to record the interest received and the amortization for 2009.
Click here for the solution: On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44
Instructions
a.) Prepare the journal entry at the date of the bond purchase.
b.) Prepare a bond amortization schedule.
c.) Prepare the journal entry to record the interest received and the amortization for 2008.
d.) Prepare the journal entry to record the interest received and the amortization for 2009.
Click here for the solution: On January 1 2008, Hi and Lois Company purchased 12% bonds having a maturity value of $300,000 for $322,744.44
The following data were taken from the balance sheet accounts of Masefield Corporation on December 31, 2007
E15-15 (Dividend Entries) The following data were taken from the balance sheet accounts of Masefield Corporation on December 31, 2007.
Current Assets $540,000
Investments $624,000
Common Stock (par value $10) $500,000
Paid in Capital in excess of par $150,000
Retained Earnings $840,000
Instructions
Prepare the required journal entries for the following unrelated items.
a.) A 5% stock dividend is declared and distributed at a time when the market value of the shares is $39 per share.
b.) The par value of the capital stock is reduced to $2 with a 5-for-1 stock split.
c.) A dividend is declared January 5, 2008, and paid January 25, 2008 in bonds held as an investment. The bonds have a book value of $100,000 and a fair market value of $135,000.
Click here for the solution: The following data were taken from the balance sheet accounts of Masefield Corporation on December 31, 2007
Current Assets $540,000
Investments $624,000
Common Stock (par value $10) $500,000
Paid in Capital in excess of par $150,000
Retained Earnings $840,000
Instructions
Prepare the required journal entries for the following unrelated items.
a.) A 5% stock dividend is declared and distributed at a time when the market value of the shares is $39 per share.
b.) The par value of the capital stock is reduced to $2 with a 5-for-1 stock split.
c.) A dividend is declared January 5, 2008, and paid January 25, 2008 in bonds held as an investment. The bonds have a book value of $100,000 and a fair market value of $135,000.
Click here for the solution: The following data were taken from the balance sheet accounts of Masefield Corporation on December 31, 2007
During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock
E15-1 (Recording the Issuances of Common Stock) During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.
Jan 10 Issued 80,000 shares for case at $6 per share
Mar 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate.
July 1 Issued 30,000 shares for cash at $8 per share
Instructions
a.) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share.
b.) Prepare the journal entries for these transactions assuming that the common stock is no par with a stated value of $3 per share.
Click here for the solution: During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock
Jan 10 Issued 80,000 shares for case at $6 per share
Mar 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate.
July 1 Issued 30,000 shares for cash at $8 per share
Instructions
a.) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share.
b.) Prepare the journal entries for these transactions assuming that the common stock is no par with a stated value of $3 per share.
Click here for the solution: During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock
Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece together with a one year warranty
E13-10 (Warranties) Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece together with a one year warranty. Maintenance on each machine during the warranty period averages $330.
a.) Prepare entries to record the sale of the machines and the related warranty costs, assuming that the accrual method is used. Actual warranty costs incurred in 2008 were $17,000.
b.) Prepare 2008 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs.
Click here for the solution: Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece together with a one year warranty
a.) Prepare entries to record the sale of the machines and the related warranty costs, assuming that the accrual method is used. Actual warranty costs incurred in 2008 were $17,000.
b.) Prepare 2008 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs.
Click here for the solution: Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece together with a one year warranty
Presented below are two independent situations
E14-3 (Entries for Bond Transactions) Presented below are two independent situations.
1.) On January 1. 2008, Paul Simon Company issued $200,000 of 9%. 10-year bonds dated June 1 at par. Interest quarterly on April 1, July 1, October 1 and January 1.
2.) On January 1, 2008, Graceland Company issued $100,000 of 12%, 10-year bonds dated June 1 at par. Interest is payable semiannually on July 1 and January 1.
Instructions
For each of these two independent situations, prepare journal entries to record:
a.) The issuance of bonds
b.) The payment of interest on July 1
c.) The accrual of interest on December 31
Click here for the solution: Presented below are two independent situations
1.) On January 1. 2008, Paul Simon Company issued $200,000 of 9%. 10-year bonds dated June 1 at par. Interest quarterly on April 1, July 1, October 1 and January 1.
2.) On January 1, 2008, Graceland Company issued $100,000 of 12%, 10-year bonds dated June 1 at par. Interest is payable semiannually on July 1 and January 1.
Instructions
For each of these two independent situations, prepare journal entries to record:
a.) The issuance of bonds
b.) The payment of interest on July 1
c.) The accrual of interest on December 31
Click here for the solution: Presented below are two independent situations
Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012
Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012:
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012
Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets
E12-6 (Recording and Amortization of Intangibles) Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets. The following summary discloses the debit entries that been recorded during 2008.
1/2/08 Purchased patent (8 yr life) $350,000
4/1/08 Purchased goodwill (indefinite life) $360,000
7/1/08 Purchased franchise with 10 yr life; expires 7/1/18 $450,000
8/1/08 Payment of copyright (5 yr life) $156,00
9/1/08 Research and development costs $215,000
Total: $1,531,000
Instructions:
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types pf intangibles. Make the entries ad of 12/31/08 recording any necessary amortization and reflecting all balances accurately as of that date. (Use the straight line amortization)
Click here for the solution: Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets
1/2/08 Purchased patent (8 yr life) $350,000
4/1/08 Purchased goodwill (indefinite life) $360,000
7/1/08 Purchased franchise with 10 yr life; expires 7/1/18 $450,000
8/1/08 Payment of copyright (5 yr life) $156,00
9/1/08 Research and development costs $215,000
Total: $1,531,000
Instructions:
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types pf intangibles. Make the entries ad of 12/31/08 recording any necessary amortization and reflecting all balances accurately as of that date. (Use the straight line amortization)
Click here for the solution: Rolanda Marshall Company, organized in 2007, has set up a single account for all intangible assets
Joni Hyde Inc. has the following amounts included in its general ledger at December 31, 2008
E12-3 (Classification Issues - Intangible Asset) Joni Hyde Inc. has the following amounts included in its general ledger at December 31, 2008.
Organization costs $24,000
Trademarks $15,000
Discount on bonds payable $35,000
Deposits with advertising agency for ads to promote goodwill of company $10,000
Excess of cost over fair value of net identifiable assets of acquired subsidiary $75,000
Cost of equipment acquired for research and development projects; the equipment has an alternative future use $90,000
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years. $80,000
Instructions
a.) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at December 31, 2008.
b.) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.
Click here for the solution: Joni Hyde Inc. has the following amounts included in its general ledger at December 31, 2008
Organization costs $24,000
Trademarks $15,000
Discount on bonds payable $35,000
Deposits with advertising agency for ads to promote goodwill of company $10,000
Excess of cost over fair value of net identifiable assets of acquired subsidiary $75,000
Cost of equipment acquired for research and development projects; the equipment has an alternative future use $90,000
Costs of developing a secret formula for a product that is expected to be marketed for at least 20 years. $80,000
Instructions
a.) On the basis of the information above, compute the total amount to be reported by Hyde for intangible assets on its balance sheet at December 31, 2008.
b.) If an item is not to be included in intangible assets, explain its proper treatment for reporting purposes.
Click here for the solution: Joni Hyde Inc. has the following amounts included in its general ledger at December 31, 2008
Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000
E10-11 (Entries for Equipment Acquisitions) Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000. The vendors credit terms were 2/10, n/30. Presented below are two independent cases related to equipment. Assume that the purchases of equipment are recorded gross. (Round to nearest dollar)
a.) Geddes paid cash for the equipment 8 days after the purchase.
b.) Geddes traded in equipment with a book value of $2,000 (initial cost $8,000) and paid $9,500 in case one month after the purchase. The old equipment could have been sold for $400 at the date of trade. Assume the exchange has commercial substance.
Instructions
Prepare the general journal entries required to record the acquisition and payment in cash of the independent cases above. Round to the nearest dollar.
Click here for the solution: Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000
a.) Geddes paid cash for the equipment 8 days after the purchase.
b.) Geddes traded in equipment with a book value of $2,000 (initial cost $8,000) and paid $9,500 in case one month after the purchase. The old equipment could have been sold for $400 at the date of trade. Assume the exchange has commercial substance.
Instructions
Prepare the general journal entries required to record the acquisition and payment in cash of the independent cases above. Round to the nearest dollar.
Click here for the solution: Jane Geddes Engineering Corporation purchased conveyor equipment with a list price of $10,000
Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows
12-49 Direct and Step-Down Methods of Allocation
Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows:
Building and grounds $ 20,000
Personnel 1,200
General factory administration* 28,020
Cafeteria operating loss 1,430
Storeroom 2,750
Machining 35,100
Assembly 56,500
Total $145,000
*To be allocated before cafeteria.
Management has decided that the most sensible product costs are achieved by using departmental overhead rates. These rates are developed after allocating appropriate service department costs to production departments.
Cost-allocation bases for allocation are to be selected from the following data:
Square Feet of Direct-Labor Number of Floor Space Total Number of Department Hours Employees Occupied Labor Hours Requisitions
Building and grounds — — — — —
Personnel* — — 2,000 — —
General factory administration — 35 7,000 — —
Cafeteria operating loss — 10 4,000 1,000 —
Storeroom — 5 7,000 1,000 —
Machining 5,000 50 30,000 8,000 3,000
Assembly 15,000 100 50,000 17,000 1,500
20,000 200 100,000 27,000 4,500
*Basis used is number of employees.
1. Allocate service department costs by the step-down method. Develop overhead rates per direct labor hour for machining and assembly.
2. Same as in number 1, using the direct method.
3. What would be the plantwide factory-overhead application rate, assuming that direct-labor hours are used as a cost-allocation base?
4. Using the following information about two jobs, prepare three different total overhead costs for each job, using rates developed in numbers 1, 2, and 3.
Direct-Labor Hours
Machining Assembly
Job K10 19 2
Job K12 3 18
Click here for the solution: Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows
Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows:
Building and grounds $ 20,000
Personnel 1,200
General factory administration* 28,020
Cafeteria operating loss 1,430
Storeroom 2,750
Machining 35,100
Assembly 56,500
Total $145,000
*To be allocated before cafeteria.
Management has decided that the most sensible product costs are achieved by using departmental overhead rates. These rates are developed after allocating appropriate service department costs to production departments.
Cost-allocation bases for allocation are to be selected from the following data:
Square Feet of Direct-Labor Number of Floor Space Total Number of Department Hours Employees Occupied Labor Hours Requisitions
Building and grounds — — — — —
Personnel* — — 2,000 — —
General factory administration — 35 7,000 — —
Cafeteria operating loss — 10 4,000 1,000 —
Storeroom — 5 7,000 1,000 —
Machining 5,000 50 30,000 8,000 3,000
Assembly 15,000 100 50,000 17,000 1,500
20,000 200 100,000 27,000 4,500
*Basis used is number of employees.
1. Allocate service department costs by the step-down method. Develop overhead rates per direct labor hour for machining and assembly.
2. Same as in number 1, using the direct method.
3. What would be the plantwide factory-overhead application rate, assuming that direct-labor hours are used as a cost-allocation base?
4. Using the following information about two jobs, prepare three different total overhead costs for each job, using rates developed in numbers 1, 2, and 3.
Direct-Labor Hours
Machining Assembly
Job K10 19 2
Job K12 3 18
Click here for the solution: Griffin Company has prepared departmental overhead budgets for normal activity levels before allocations as follows
(ACC 422 Week 5) On January 1, 2007, Bensen Company leased equipment to Flynn Corporation
ACC 422 Week 5
Chapter 13 and Chapter 21
E21-7 (Lessee-Lessor Entries; Sales-Type Lease) On January 1, 2007, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease.
1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2. Equal rental payments are due on January 1 of each year, beginning in 2007.
3. The fair value of the equipment on January 1, 2007, is $150,000, and its cost is $120,000.
4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Flynn depreciates all of its equipment on a straight-line basis.
5. Bensen set the annual rental to ensure an 11% rate of return. Flynn’s incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown.
6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.
Instructions
(Both the lessor and the lessee’s accounting period ends on December 31.)
(a) Discuss the nature of this lease to Bensen and Flynn.
(b) Calculate the amount of the annual rental payment.
(c) Prepare all the necessary journal entries for Flynn for 2007.
(d) Prepare all the necessary journal entries for Bensen for 2007
Click here for the solution: (ACC 422 Week 5) On January 1, 2007, Bensen Company leased equipment to Flynn Corporation
Chapter 13 and Chapter 21
E21-7 (Lessee-Lessor Entries; Sales-Type Lease) On January 1, 2007, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease.
1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
2. Equal rental payments are due on January 1 of each year, beginning in 2007.
3. The fair value of the equipment on January 1, 2007, is $150,000, and its cost is $120,000.
4. The equipment has an economic life of 8 years, with an unguaranteed residual value of $10,000. Flynn depreciates all of its equipment on a straight-line basis.
5. Bensen set the annual rental to ensure an 11% rate of return. Flynn’s incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown.
6. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.
Instructions
(Both the lessor and the lessee’s accounting period ends on December 31.)
(a) Discuss the nature of this lease to Bensen and Flynn.
(b) Calculate the amount of the annual rental payment.
(c) Prepare all the necessary journal entries for Flynn for 2007.
(d) Prepare all the necessary journal entries for Bensen for 2007
Click here for the solution: (ACC 422 Week 5) On January 1, 2007, Bensen Company leased equipment to Flynn Corporation
The Central Railroad allocates all central corporate overhead costs to its divisions
12-A3 Allocation of Central Costs
The Central Railroad allocates all central corporate overhead costs to its divisions. Some costs, such as specified internal auditing and legal costs are identified on the basis of time spent. However, other costs are harder to allocate so the revenue achieved by each division is used as an allocation base. Examples of such costs are executive salaries, travel, secretarial, utilities, rent, depreciation, donations, corporate planning, and general marketing costs.
Allocations on the basis of revenue for 20X7 were (in millions):
Division Revenue Allocated Costs
Northern $120 $ 6
Midwest 240 12
Texas-Oklahoma 240 12
Total $600 $30
In 20X8, Northern’s revenue remained unchanged. However, Texas-Oklahoma’s revenue soared to $280 million because of unusually large imports from Mexico. The latter are troublesome to forecast because of variations in world markets. Midwest had expected a sharp rise in revenue, but severe competitive conditions resulted in a decline to $200 million. The total cost allocated on the basis of revenue was again $30 million, despite rises in other costs. The president was pleased that central costs did not rise for the year.
1. Compute the allocations of costs to each division for 20X8.
2. How would each division manager probably feel about the cost allocation in 20X8 as compared with 20X7? What are the weaknesses of using revenue as a basis for cost allocation?
3. Suppose the budgeted revenues for 2002 were $120 million, $240, and $280, respectively, and the budgeted revenues were used as a cost driver for allocation. Compute the allocations of costs to each division for 20X8. Do you prefer this method to the one used in requirement 1? Why?
4. Many accountants and managers oppose allocating any central costs. Why?
Click here for the solution: The Central Railroad allocates all central corporate overhead costs to its divisions
The Central Railroad allocates all central corporate overhead costs to its divisions. Some costs, such as specified internal auditing and legal costs are identified on the basis of time spent. However, other costs are harder to allocate so the revenue achieved by each division is used as an allocation base. Examples of such costs are executive salaries, travel, secretarial, utilities, rent, depreciation, donations, corporate planning, and general marketing costs.
Allocations on the basis of revenue for 20X7 were (in millions):
Division Revenue Allocated Costs
Northern $120 $ 6
Midwest 240 12
Texas-Oklahoma 240 12
Total $600 $30
In 20X8, Northern’s revenue remained unchanged. However, Texas-Oklahoma’s revenue soared to $280 million because of unusually large imports from Mexico. The latter are troublesome to forecast because of variations in world markets. Midwest had expected a sharp rise in revenue, but severe competitive conditions resulted in a decline to $200 million. The total cost allocated on the basis of revenue was again $30 million, despite rises in other costs. The president was pleased that central costs did not rise for the year.
1. Compute the allocations of costs to each division for 20X8.
2. How would each division manager probably feel about the cost allocation in 20X8 as compared with 20X7? What are the weaknesses of using revenue as a basis for cost allocation?
3. Suppose the budgeted revenues for 2002 were $120 million, $240, and $280, respectively, and the budgeted revenues were used as a cost driver for allocation. Compute the allocations of costs to each division for 20X8. Do you prefer this method to the one used in requirement 1? Why?
4. Many accountants and managers oppose allocating any central costs. Why?
Click here for the solution: The Central Railroad allocates all central corporate overhead costs to its divisions
Tuesday, November 10, 2015
The standard cost card contains quantities and costs for
MULTIPLE CHOICE
1. The standard cost card contains quantities and costs for _______. (Points : 1)
2. A total variance is best defined as the difference between total _______. (Points : 1)
3. The term standard hours allowed measures _______. (Points : 1)
4. Which of the following factors should not be considered when deciding whether to investigate a variance? (Points : 1)
5. A company wishing to isolate variances at the point closest to the point of responsibility will determine its material price variance when ______. (Points : 1)
6. The standard predominantly used in Western cultures for motivational purposes is a(n) ____ standard. (Points : 1)
7. Gallagher Corporation. incurred 2,300 direct labor hours to produce 600 units of product. Each unit should take 4 direct labor hours. Gallagher Corporation applies variable overhead to production on a direct labor hour basis. The variable overhead efficiency variance _______. (Points : 1)
8. A variable overhead spending variance is caused by ________. (Points : 1)
9. McCoy Company has the following information available for October when 3,500 units were produced (round answers to the nearest dollar).
Standards:
Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour
Actual:
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour
What is the labor rate variance? (Points : 1)
10. McCoy Company has the following information available for October when 3,500 units were produced (round answers to the nearest dollar).
Standards:
Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour
Actual:
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour
What is the labor efficiency variance? (Points : 1)
11. Joint costs are useful for _______. (Points : 1)
12. Each of the following is a method to allocate joint costs except _______. (Points : 1)
13. When allocating joint process cost based on tons of output, all products will _______. (Points : 1)
14. Scrap is defined as a _______. (Points : 1)
15. Waste created by a production process is _______. (Points : 1)
16. In a lumber mill, which of the following would most likely be considered a primary product? (Points : 1)
17. Fisher Company produces three products from a joint process. The products can be sold at split-off or processed further. In deciding whether to sell at split-off or process further, management should _______. (Points : 1)
18. The split-off point is the point at which _______. (Points : 1)
19. A product may be processed beyond the split-off point if management believes that _______. (Points : 1)
20. Which of the following is a commonly used joint cost allocation method? (Points : 1)
Click here for the solution: The standard cost card contains quantities and costs for
1. The standard cost card contains quantities and costs for _______. (Points : 1)
2. A total variance is best defined as the difference between total _______. (Points : 1)
3. The term standard hours allowed measures _______. (Points : 1)
4. Which of the following factors should not be considered when deciding whether to investigate a variance? (Points : 1)
5. A company wishing to isolate variances at the point closest to the point of responsibility will determine its material price variance when ______. (Points : 1)
6. The standard predominantly used in Western cultures for motivational purposes is a(n) ____ standard. (Points : 1)
7. Gallagher Corporation. incurred 2,300 direct labor hours to produce 600 units of product. Each unit should take 4 direct labor hours. Gallagher Corporation applies variable overhead to production on a direct labor hour basis. The variable overhead efficiency variance _______. (Points : 1)
8. A variable overhead spending variance is caused by ________. (Points : 1)
9. McCoy Company has the following information available for October when 3,500 units were produced (round answers to the nearest dollar).
Standards:
Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour
Actual:
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour
What is the labor rate variance? (Points : 1)
10. McCoy Company has the following information available for October when 3,500 units were produced (round answers to the nearest dollar).
Standards:
Material 3.5 pounds per unit @ $4.50 per pound
Labor 5.0 hours per unit @ $10.25 per hour
Actual:
Material purchased 12,300 pounds @ $4.25
Material used 11,750 pounds
17,300 direct labor hours @ $10.20 per hour
What is the labor efficiency variance? (Points : 1)
11. Joint costs are useful for _______. (Points : 1)
12. Each of the following is a method to allocate joint costs except _______. (Points : 1)
13. When allocating joint process cost based on tons of output, all products will _______. (Points : 1)
14. Scrap is defined as a _______. (Points : 1)
15. Waste created by a production process is _______. (Points : 1)
16. In a lumber mill, which of the following would most likely be considered a primary product? (Points : 1)
17. Fisher Company produces three products from a joint process. The products can be sold at split-off or processed further. In deciding whether to sell at split-off or process further, management should _______. (Points : 1)
18. The split-off point is the point at which _______. (Points : 1)
19. A product may be processed beyond the split-off point if management believes that _______. (Points : 1)
20. Which of the following is a commonly used joint cost allocation method? (Points : 1)
Click here for the solution: The standard cost card contains quantities and costs for
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
PR 7-2A LIFO Perpetual Inventory
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Click here for the solution: The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Click here for the solution: The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
Artic Appliances uses the periodic inventory system
PR 7-3A LIFO Periodic inventory by three methods
Artic Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, 2010, purchases invoices during the year, and the inventory count at December 31, 2010, are summarized as follows:
Inventory,
Purchases Invoices
Inventory Count,
Model January 1 1st 2nd 3rd December 31
BB900 27 at $213 21 at $215 18 at $222 18 at $225 30
C911 10 at 60 6 at 65 2 at 65 2 at 70 4
L100 6 at 305 3 at 310 3 at 316 4 at 317 4
N201 2 at 520 2 at 527 2 at 530 2 at 535 4
Q73 6 at 520 8 at 531 4 at 549 6 at 542 7
Z120 — 4 at 222 4 at 232 — 2
ZZRF 8 at 70 12 at 72 16 at 74 14 at 78 12
Instructions
1. Determine the cost of the inventory on December 31, 2010, by the first-in, first-out method. Present data in columnar form, using the following headings:
Model Quantity Unit Cost Total Cost
If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.
2. Determine the cost of the inventory on December 31, 2010, by the last-in, first-out method, following the procedures indicated in (1).
3. Determine the cost of the inventory on December 31, 2010, by the average cost method, using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
Click here for the solution: Artic Appliances uses the periodic inventory system
Artic Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, 2010, purchases invoices during the year, and the inventory count at December 31, 2010, are summarized as follows:
Inventory,
Purchases Invoices
Inventory Count,
Model January 1 1st 2nd 3rd December 31
BB900 27 at $213 21 at $215 18 at $222 18 at $225 30
C911 10 at 60 6 at 65 2 at 65 2 at 70 4
L100 6 at 305 3 at 310 3 at 316 4 at 317 4
N201 2 at 520 2 at 527 2 at 530 2 at 535 4
Q73 6 at 520 8 at 531 4 at 549 6 at 542 7
Z120 — 4 at 222 4 at 232 — 2
ZZRF 8 at 70 12 at 72 16 at 74 14 at 78 12
Instructions
1. Determine the cost of the inventory on December 31, 2010, by the first-in, first-out method. Present data in columnar form, using the following headings:
Model Quantity Unit Cost Total Cost
If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.
2. Determine the cost of the inventory on December 31, 2010, by the last-in, first-out method, following the procedures indicated in (1).
3. Determine the cost of the inventory on December 31, 2010, by the average cost method, using the columnar headings indicated in (1).
4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.
Click here for the solution: Artic Appliances uses the periodic inventory system
Selected balances from a company's financial statements are shown below
Selected balances from a company's financial statements are shown below. Calculate the following ratios for 2012:
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below
(a) accounts receivable turnover
(b) inventory turnover
(c) days' sales uncollected
(d) days' sales in inventory
(e) profit margin.
(f) return on total assets.
December 31 December 31
For the 2012 2011 Year 2012
Accounts receivable……………………. $ 27,000 $ 24,000
Merchandise inventory………………. 25,000 20,000
Total assets…………………………………. 296,000 244,000
Accounts payable………………………… 26,000 32,000
Salaries payable…………………………… 3,000 4,400
Sales (all on credit)………………………. $312,000
Cost of goods sold……………………….. 165,600
Salaries expenses………………………… 48,000
Other expenses…………………………… 75,000
Net income………………………………….. 24,000
Click here for the solution: Selected balances from a company's financial statements are shown below
Regal Company produces hospital uniforms
P19-33B Regal Company produces hospital uniforms. The company allocates manufacturing overhead based on the machine hours each job uses. Regal reports the following cost data for 2009:
Accounting for manufacturing overhead
Budget
Actual
Machine hours
7,000 hours
6,500 hours
Indirect materials
50,000
52,000
Depreciation on trucks used to deliver uniforms to customers
14,000
12,000
Depreciation on plant and equipment
65,000
67,000
Indirect manufacturing labor
40,000
43,000
Customer service hotline
19,000
21,000
Plant utilities
27,000
20,000
Requirements
1. Compute the predetermined manufacturing overhead rate. (p. 955)
2. Post actual and allocated manufacturing overhead to the Manufacturing Overhead T-account. (pp. 957–958)
3. Close the under- or overallocated overhead to Cost of Goods Sold. (pp. 958–959)
4. How can managers use accounting information to help control manufacturing overhead costs? (pp. 955–956)
Click here for the solution: Regal Company produces hospital uniforms
Accounting for manufacturing overhead
Budget
Actual
Machine hours
7,000 hours
6,500 hours
Indirect materials
50,000
52,000
Depreciation on trucks used to deliver uniforms to customers
14,000
12,000
Depreciation on plant and equipment
65,000
67,000
Indirect manufacturing labor
40,000
43,000
Customer service hotline
19,000
21,000
Plant utilities
27,000
20,000
Requirements
1. Compute the predetermined manufacturing overhead rate. (p. 955)
2. Post actual and allocated manufacturing overhead to the Manufacturing Overhead T-account. (pp. 957–958)
3. Close the under- or overallocated overhead to Cost of Goods Sold. (pp. 958–959)
4. How can managers use accounting information to help control manufacturing overhead costs? (pp. 955–956)
Click here for the solution: Regal Company produces hospital uniforms
PowerSwitch, Inc: Determine ending inventories after flood; insurance claim letter
PowerSwitch, Inc: Determine ending inventories after flood; insurance claim letter
PowerSwitch, Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout North Carolina affected PowerSwitch's facilities. Inventory was completely ruined, and the company's computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Stephen Plum, the company controller, is anxious to salvage whatever records he can to support an insurance claim for the destroyed inventory. He is standing in what is left of the accounting department with Paul Lopez, the cost accountant.
"I didn't know mud could smell so bad, " Paul says. "What would I be looking for?" "Don't worry about beginning inventory numbers, " responds Stephen, "we'll get them from last year's annual report. We need first quarter cost data."
I was working on the first quarter results just before the storm hit, Paul says. Look, my reports still in my desk drawer. All I can make out is that for the first quarter, material purchases were $476,000 and direct labor, manufacturing overhead, and total manufacturing costs to account for were $505,000, $245,000, and $1,425,000, respectively. Wait, and cost of goods available for sale was $1,340,000."
"Great, "says Stephen. "I remember that sales for the period were approximately $1.7 million. Given our gross profit of 30%, thats all you should need." Paul is not sure about that, but decides to see what he can do with this information. The beginning inventory numbers are
Direct materials - $113,000
Work in process - $229,000
Finished goods - $154,000
He remembers a schedule he learned in college that may help him get started.
Requirements:
1. Determine the ending inventories of direct materials, work in process, and finished goods.
2. Draft an insurance claim letter for the controller, seeking reimbursment for the flood damage to inventory. PowerSwitch's insurance representative is Gary Ogleby, at Industrial Insurance Co., 1122 Main Street, Hartford, CT 06268. The policy number is #3454340-23. PowerSwitch address is 5 Research Triangle Way, Raleigh, NC 27698
Click here for the solution: PowerSwitch, Inc: Determine ending inventories after flood; insurance claim letter
PowerSwitch, Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout North Carolina affected PowerSwitch's facilities. Inventory was completely ruined, and the company's computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Stephen Plum, the company controller, is anxious to salvage whatever records he can to support an insurance claim for the destroyed inventory. He is standing in what is left of the accounting department with Paul Lopez, the cost accountant.
"I didn't know mud could smell so bad, " Paul says. "What would I be looking for?" "Don't worry about beginning inventory numbers, " responds Stephen, "we'll get them from last year's annual report. We need first quarter cost data."
I was working on the first quarter results just before the storm hit, Paul says. Look, my reports still in my desk drawer. All I can make out is that for the first quarter, material purchases were $476,000 and direct labor, manufacturing overhead, and total manufacturing costs to account for were $505,000, $245,000, and $1,425,000, respectively. Wait, and cost of goods available for sale was $1,340,000."
"Great, "says Stephen. "I remember that sales for the period were approximately $1.7 million. Given our gross profit of 30%, thats all you should need." Paul is not sure about that, but decides to see what he can do with this information. The beginning inventory numbers are
Direct materials - $113,000
Work in process - $229,000
Finished goods - $154,000
He remembers a schedule he learned in college that may help him get started.
Requirements:
1. Determine the ending inventories of direct materials, work in process, and finished goods.
2. Draft an insurance claim letter for the controller, seeking reimbursment for the flood damage to inventory. PowerSwitch's insurance representative is Gary Ogleby, at Industrial Insurance Co., 1122 Main Street, Hartford, CT 06268. The policy number is #3454340-23. PowerSwitch address is 5 Research Triangle Way, Raleigh, NC 27698
Click here for the solution: PowerSwitch, Inc: Determine ending inventories after flood; insurance claim letter
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