Renteria Company applies manufacturing overhead to jobs on the basis of machine hours used

ACC 560 Week 2 Assignment

E2-5 Renteria Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $305,000 for the year, and machine usage is estimated at 125,000 hours. For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.

1. Compute the manufacturing overhead rate for the year.
2. What is the amount of under- or overapplied overhead at December 31?
3. Prepare the adjusting entry to assign the under- or overapplied overhead for the year to cost of goods sold.

Click here for the solution: Renteria Company applies manufacturing overhead to jobs on the basis of machine hours used

At Camden Manufacturing Company, production workers in the Painting Department are paid on the basis of productivity

At Camden Manufacturing Company, production workers in the Painting Department are paid on the basis of productivity. The labor time standard of a unit of production is established through periodic time studies conduct by the Lowery Management Department. In a time study, the actual time required to complete a specific task by a worker is observed. Allowances are then made for preparation time, rest periods, and clean-up time. Ron Orlano is one of several veterans in the Painting Department. Ron is informed by Lowery Management that he will be used in the time study for the painting of a new product. The findings will be the basis for establishing the labor time standard for the next 6 months. During the test, Ron deliberately slows his normal work pace in an effort to obtain a labor time standard that will be easy to meet. Because it is a new product, the Lowery Management representative who conducted the test is unaware that Ron did not give the test his best effort.

1. Who was benefited and who was harmed by Ron's action
2. Was Ron ethical in the way he performed the time study test?
3. What measure(s) might the company take to obtain valid data for setting the labor time standard?

Click here for the solution: At Camden Manufacturing Company, production workers in the Painting Department are paid on the basis of productivity

Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory

E6-9 Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory. The following data are available at December 31.

Item Units Unit Cost Market
Cameras
Minolta 5 $170 $156
Canon 6 150 152
Light Meters
Vivitar 12 125 115
Kodak 14 120 135

Instructions
Determine the amount of the ending inventory by applying the lower-of-cost-or-market basis

Click here for the solution: Americus Camera Shop uses the lower-of-cost-or-market basis for its inventory

Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients. It incurred the following labor costs on services for three corporate clients during March 2006:

Direct Labor
Contract 1 $12,000
Contract 2 7,200
Contract 3 28,800
Total $48,000

Jarman allocated March overhead costs of $21,600 to the contracts based on the amount of direct labor costs incurred on each contract.

Required
a. Assuming the revenue from Contract 3 was $65,600, what amount of income did Jarman earn from this contract?
b. Based on the preceding information, will Jarman report finished goods inventory on its balance sheet for Contract 1? If so, what is the amount of this inventory? If not, explain why not.


Click here for the solution: Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

Garber, Inc. accounts for all sales of its merchandise on the installment basis

Garber, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/12:

Cash $ 90,200
Installment Accounts Receivable—2010 170,000
Installment Accounts Receivable—2011 400,000
Installment Accounts Receivable—2012 750,000
Inventory, 1/1/12 78,000
Repossessed Merchandise 22,000
Accounts Payable $ 136,000
Deferred Gross Profit—2010 84,000
Deferred Gross Profit—2011 195,000
Capital Stock 600,000
Retained Earnings 406,200
Installment Sales 1,000,000
Purchases 758,000
Loss on Repossession 3,000
Operating Expenses 150,000
$2,421,200 $2,421,200

Additional Data: 2010 Gross Profit Rate = 30%; Inventory 12/31/12 = $158,000;
Repossessed merchandise 12/31/12 = $15,000;
Merchandise sold in 2011 was repossessed in 2012 and the following entry was prepared (assume correctly):
Deferred Gross Profit—2011 15,000
Repossessed Merchandise 22,000
Loss on Repossession 3,000
Installment Accounts Receivable—2011 40,000

Instructions
(a) Determine collections during 2012 on Installment A/R for each of the years 2010, 2011, and 2012.

(b) Without prejudice to your answer in Part (a), assume that total collections on Installment Accounts Receivable during 2012 were $1,060,000; $220,000 from 2010, $300,000 from 2011, and $540,000 from 2012. Prepare all necessary adjusting and closing entries at 12/31/12.


Click here for the solution: Garber, Inc. accounts for all sales of its merchandise on the installment basis

Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1, 2010

Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1, 2010. During 2010, the corporation incurred the following expenses:

State fees for incorporation $ 500
Legal and accounting fees incident to organization 1,800
Expenses for the sale of stock 2,100
Organizational meeting expenses 750

Assuming that Beech Corporation does not elect to expense but chooses to amortize organizational expenditures over 15 years, calculate the corporation's deduction for its calendar tax year 2010.


Click here for the solution: Beech Corporation, an accrual basis taxpayer, was organized and began business on July 1, 2010

Jerry transfers property having a $32,000 adjusted basis and a $50,000 FMV to Emerald Corporation in exchange for all of Emerald’s stock

C:2-44. Jerry transfers property having a $32,000 adjusted basis and a $50,000 FMV to Emerald Corporation in exchange for all of Emerald’s stock worth $15,000 and Emerald’s assumption of a $35,000 mortgage on the property.

a. What is the amount of Jerry’s recognized gain or loss?
b. What is Jerry’s basis in the Emerald stock?
c. What is Emerald’s basis in the property?
d. How would your answers to Parts a through c change if the mortgage assumed by Emerald were $15,000 and the Emerald stock were worth $35,000?


Click here for the solution: Jerry transfers property having a $32,000 adjusted basis and a $50,000 FMV to Emerald Corporation in exchange for all of Emerald’s stock

On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest

49. On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest. She purchased the equipment three years ago.

a. What is Patti’s basis in her partnership interest?
b. What is Patti’s holding period of her partnership interest?
c. What is the basis of the equipment in the hands of the partnership?
d. What is the holding period of the equipment in the hands of the partnership?
e. How will the partnership depreciate the equipment in the year of contribution?


Click here for the solution: On June 1 of the current year, Patti contributes equipment with a $45,000 basis and a $35,000 FMV in exchange for a partnership interest

Determine the basis of stock in the hands of the shareholder in each of the following instances

47. Determine the basis of stock in the hands of the shareholder in each of the following instances. Assume that the 80% rule is met in all cases.

a. Contribution of property with a basis of $1,000 and a FMV of $1,400.
b. Contribution of property with a basis of $3,000 and a FMV of $3,800. The stockholder also received $500 cash from the corporation as part of the stock transaction.
c. Contribution of property with a basis of $8,200 and a FMV of $12,500. The stockholder also received property with a FMV of $1,700 from the corporation as part of the stock transaction.
d. Contribution of a building with a FMV of $200,000, a mortgage (assumed by the corporation) of $100,000, and a basis of $125,000.
e. Contribution of a building with a FMV of $1,700,000, a mortgage (assumed by the corporation) of $1,000,000, and a basis of $635,000


Click here for the solution: Determine the basis of stock in the hands of the shareholder in each of the following instances

Using the information from Problem 47, determine the basis of the property contributed in the hands of the corporation in each instance

48. Using the information from Problem 47, determine the basis of the property contributed in the hands of the corporation in each instance. Assume that the 80% rule is met in all cases.


Click here for the solution: Using the information from Problem 47, determine the basis of the property contributed in the hands of the corporation in each instance

On January 1 of the current year, Feller Corporation issued $2,500,000 of 10% debenture bonds on a basis to yield 9%, receiving $2,612,150

On January 1 of the current year, Feller Corporation issued $2,500,000 of 10% debenture bonds on a basis to yield 9%, receiving $2,612,150. Interest is payable annually on December 31 and the bonds mature in 6 years. The effective-interest method is used.

(a) What is the interest expense for the first year?
(b) What is the interest expense for the second year?


Click here for the solution: On January 1 of the current year, Feller Corporation issued $2,500,000 of 10% debenture bonds on a basis to yield 9%, receiving $2,612,150

LaGreca Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items

E9-6 (Lower-of-Cost-or-Market—Error Effect) LaGreca Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items. The inventory at December 31, 2010, included product X. Relevant per-unit data for product X appear below.

Estimated selling price $50
Cost 40
Replacement cost 38
Estimated selling expense 14
Normal profit 9

There were 1,000 units of product X on hand at December 31, 2010. Product X was incorrectly valued at $38 per unit for reporting purposes. All 1,000 units were sold in 2011.

Instructions
Compute the effect of this error on net income for 2010 and the effect on net income for 2011, and indicate the direction of the misstatement for each year.

Click here for the solution: LaGreca Company uses the lower-of-cost-or-market method, on an individual-item basis, in pricing its inventory items

The accountant of Weatherspoon Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2010

E4-6 (Multiple-step and Single-step) The accountant of Weatherspoon Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2010.

Rental revenue $ 29,000
Interest expense 18,000
Market appreciation on land above cost 31,000
Wages and salaries—sales 114,800
Materials and supplies—sales 17,600
Income tax 30,600
Wages and salaries—administrative 135,900
Other administrative expenses 51,700
Cost of goods sold 516,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Cash dividends declared 16,000

There were 20,000 shares of common stock outstanding during the year.

Instructions
(a) Prepare a multiple-step income statement.
(b) Prepare a single-step income statement.
(c) Which format do you prefer? Discuss.

Click here for the solution: The accountant of Weatherspoon Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2010

As of January 1 of last year, Dylan’s outside basis and at-risk limitation for his 40% interest in the DEF Partnership were $60,000

As of January 1 of last year, Dylan’s outside basis and at-risk limitation for his 40% interest in the DEF Partnership were $60,000. Dylan and the partnership use the calendar year for tax purposes. The partnership incurred an operating loss of $200,000 for last year and a profit of $120,000 for the current year. Dylan is a material participant in the partnership.

a. How much loss, if any, may Dylan recognize for last year?
b. How much net reportable income must Dylan recognize for the current year?

Click here for the solution: As of January 1 of last year, Dylan’s outside basis and at-risk limitation for his 40% interest in the DEF Partnership were $60,000

In 2008, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits

In 2008, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits. In 2011, the partnership distributes this property to Isabel, also a 25% partner, in a no liquidating distribution. The fair market value has increased to $30,000 at the time the property is distributed. Isabel’s and Adrianna’s bases in their partnership interests are each $40,000 at the time of the distribution.

a. How much gain or loss, if any, does Adrianna recognize on the distribution to Isabel? What is Adrianna’s basis in her partnership interest following the distribution?
b. What is Isabel’s basis in the land she received in the distribution?
c. How much gain or loss, if any, does Isabel recognize on the distribution? What is Isabel’s basis in her partnership interest following the distribution?
d. How much gain or loss would Isabel recognize if she later sells the land for its $30,000 fair market value? Is this result equitable?
e. Would your answers to (a) and (b) change if Adrianna originally contributed the property to the partnership in 2000?

Click here for the solution: In 2008, Adrianna contributed land with a basis of $16,000 and a fair market value of $25,000 to the A&I Partnership in exchange for a 25% interest in capital and profits

Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value

P 5–6: Metal Press

Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value. When the historical cost of the asset is updated, a price index is used to approximate replacement value. For example, a metal fabrication press, which bends and shapes metal, was bought seven years ago for $522,000. The company will add 19 percent to this cost, representing the change in the wholesale price index over the seven years. This new, higher cost figure is depreciated using the straight-line method over the same 12-year assumed life (no salvage value).

Required:
a. Calculate depreciation expense and book value of the metal press under both historical cost and price-level-adjusted historical cost.
b. In general, what is the effect on ROA of changing valuation bases from historical cost to current values?
c. The manager of the investment center with the metal press is considering replacing it because it is becoming obsolete. Will the manager’s incentives to replace the metal press change if the firm shifts from historical cost valuation to the proposed price-level adjusted historical cost valuation?

Click here for the solution: Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value

Spinone Corporation directs its sole shareholder to exchange all of his common stock valued at $200,000 (basis of $50,000) for $100,000 of common stock, $80,000 of preferred stock, and $20,000 in cash

Spinone Corporation directs its sole shareholder to exchange all of his common stock valued at $200,000 (basis of $50,000) for $100,000 of common stock, $80,000 of preferred stock, and $20,000 in cash. In addition, Spinone directs its sole bondholder to exchange her $150,000 of bonds paying 6.0% for $170,000 of bonds paying 5.3% How are these transactions treated for tax purposes by the shareholder, the bondholder, and Spinone?

Click here for the solution: Spinone Corporation directs its sole shareholder to exchange all of his common stock valued at $200,000 (basis of $50,000) for $100,000 of common stock, $80,000 of preferred stock, and $20,000 in cash

(Overhead application: Working backward) The Towson Manufacturing Corporation applies overhead on the basis of machine hours

Overhead application: Working backward

The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review:

Division A Division B
Actual machine hours 22,500 ?
Estimated machine hours 20,000 ?
Overhead application rate $4.50 $5.00
Actual overhead $110,000 ?
Estimated overhead ? $90,000
Applied overhead ? $86,000
Over- (under-) applied overhead ? $6,500

Find the unknowns for each of the divisions.

Click here for the solution: (Overhead application: Working backward) The Towson Manufacturing Corporation applies overhead on the basis of machine hours

(Multiple-step and Single-step). The accountant of Whitney Houston Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2007

Exercise 4-6 (E4-6) (Multiple-step and Single-step). The accountant of Whitney Houston Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2007.
Rental revenue $ 29,000
Interest on notes payable 18,000
Market appreciation on land above cost 31,000
Wages and salaries—sales 114,800
Materials and supplies—sales 17,600
Income tax 37,400
Wages and salaries—administrative 135,900
Other administrative expenses 51,700
Cost of goods sold 496,000
Net sales 980,000
Depreciation on plant assets (70% selling, 30% administrative) 65,000
Cash dividends declared 16,000
There were 20,000 shares of common stock outstanding during the year.

Instructions
(a) Prepare a multiple-step income statement.
(b) Prepare a single-step income statement.
(c) Which format do you prefer? Discuss.

Click here for the solution: (Multiple-step and Single-step). The accountant of Whitney Houston Shoe Co. has compiled the following information from the company’s records as a basis for an income statement for the year ended December 31, 2007