P16-29B Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company's five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company's continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Click here for the solution: Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
Showing posts with label controller. Show all posts
Showing posts with label controller. Show all posts
Sunday, September 27, 2015
Tuesday, September 8, 2015
You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets
You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets of a product line of Midge Company, a competitor enterprises. The projected acquisition cost is expected to exceed substantially the current fair value of the identifiable net assets to be acquired, which the competitor has agreed to sell because of its substantial net losses of recent years. The board of directors of Software asks if the excess acquisition costs may appropriately be recognized as goodwill.
Prepare a memorandum to the board of directors in answer to the question
Click here for the solution: You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets
Prepare a memorandum to the board of directors in answer to the question
Click here for the solution: You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets
The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months
PR 22-4A The controller of Dash Shoes Inc. instructs you to prepare a
monthly cash budget for the next three months. You are presented with
the following budget information:
June July August
Sales 120,000 150,000 200,000
Manufacturing costs 50,000 65,000 72,000
Selling & admin exp 35,000 40,000 45,000
Capital expenditures ---- --- 48,000
AND SO ON
INSTRUCTIONS:
1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2010.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
Click here for the solution: The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months
June July August
Sales 120,000 150,000 200,000
Manufacturing costs 50,000 65,000 72,000
Selling & admin exp 35,000 40,000 45,000
Capital expenditures ---- --- 48,000
AND SO ON
INSTRUCTIONS:
1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2010.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
Click here for the solution: The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months
The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager
PR 22-3A The budget director of Heads Up Athletic Co., with the
assistance of the controller, treasurer, production manager, and sales
manager, has gathered the following data for use in developing the
budgeted income statement for January 2010.
a. Estimated sales for January:
Batting helmet 3,700 units at $70 per unit
Football helmet 7,200 units at $142 per unit
AND SO ON
INSTRUCTIONS:
1. Prepare a sales budget for January.
2. Prepare a production budget for January.
3. Prepare a direct materials purchases budget for January.
4. Prepare a direct labor cost budget for January.
5. Prepare a factory overhead cost budget for January.
6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $12,500, and work in process at the end of January is desired to be $13,500.
7. Prepare a selling and administrative expenses budget for January.
8. Prepare a budgeted income statement for January.
Click here for the solution: The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager
a. Estimated sales for January:
Batting helmet 3,700 units at $70 per unit
Football helmet 7,200 units at $142 per unit
AND SO ON
INSTRUCTIONS:
1. Prepare a sales budget for January.
2. Prepare a production budget for January.
3. Prepare a direct materials purchases budget for January.
4. Prepare a direct labor cost budget for January.
5. Prepare a factory overhead cost budget for January.
6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $12,500, and work in process at the end of January is desired to be $13,500.
7. Prepare a selling and administrative expenses budget for January.
8. Prepare a budgeted income statement for January.
Click here for the solution: The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager
Wednesday, September 2, 2015
The director of marketing for Eclipse Computer Co., Lori Keller, had the following discussion with the company controller, Deon Johnson
SA 22-1 The director of marketing for Eclipse Computer Co., Lori Keller, had the following discussion with the company controller, Deon Johnson, on July 26 of the current year:
Lori: Deon, it looks like I’m going to spend much less than indicated on my July budget.
Deon: I’m glad to hear it.
Lori: Well, I’m not so sure it’s good news. I’m concerned that the president will see that I’m under budget and reduce my budget in the future. The only reason that I look good is that we’ve delayed an advertising campaign. Once the campaign hits in September, I’m sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers.
Deon: I don’t think that’s anything to worry about. We all expect some variation in actual spending month to month. What’s really important is staying within the budgeted targets for the year. Does that look as if it’s going to be a problem?
Lori: I don’t think so, but just the same, I’d like to be on the safe side.
Deon: What do you mean?
Lori: Well, this is what I’d like to do. I want to pay the convention-related costs in advance this month. I’ll pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can charge all these expenditures to July’s budget. This would cause my actual expenses to come close to budget for July. Moreover, when the big advertising campaign hits in September, I won’t have to worry about expenditures for the convention on my September budget as well. The convention costs will already be paid. Thus, my September expenses should be pretty close to budget.
Deon: I can’t tell you when to make your convention purchases, but I’m not too sure that it should be expensed on July’s budget.
Lori: What’s the problem? It looks like “no harm, no foul” to me. I can’t see that there’s anything wrong with this—it’s just smart management.
How should Deon Johnson respond to Lori Keller’s request to expense the advanced payments for convention-related costs against July’s budget?
Click here for the solution: The director of marketing for Eclipse Computer Co., Lori Keller, had the following discussion with the company controller, Deon Johnson
Lori: Deon, it looks like I’m going to spend much less than indicated on my July budget.
Deon: I’m glad to hear it.
Lori: Well, I’m not so sure it’s good news. I’m concerned that the president will see that I’m under budget and reduce my budget in the future. The only reason that I look good is that we’ve delayed an advertising campaign. Once the campaign hits in September, I’m sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers.
Deon: I don’t think that’s anything to worry about. We all expect some variation in actual spending month to month. What’s really important is staying within the budgeted targets for the year. Does that look as if it’s going to be a problem?
Lori: I don’t think so, but just the same, I’d like to be on the safe side.
Deon: What do you mean?
Lori: Well, this is what I’d like to do. I want to pay the convention-related costs in advance this month. I’ll pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can charge all these expenditures to July’s budget. This would cause my actual expenses to come close to budget for July. Moreover, when the big advertising campaign hits in September, I won’t have to worry about expenditures for the convention on my September budget as well. The convention costs will already be paid. Thus, my September expenses should be pretty close to budget.
Deon: I can’t tell you when to make your convention purchases, but I’m not too sure that it should be expensed on July’s budget.
Lori: What’s the problem? It looks like “no harm, no foul” to me. I can’t see that there’s anything wrong with this—it’s just smart management.
How should Deon Johnson respond to Lori Keller’s request to expense the advanced payments for convention-related costs against July’s budget?
Click here for the solution: The director of marketing for Eclipse Computer Co., Lori Keller, had the following discussion with the company controller, Deon Johnson
Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year
BYP1-7 Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him—advertising. During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell whether the advertising campaign was successful. There had been much internal debate as how to report advertising cost. The vice president of finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. Terrago believed that this cost should be reported as an expense of the current period, based on the conservatism principle. Others argued that it should be reported as Prepaid Advertising and reported as a current asset.
The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community.
Instructions
1. Who are the stakeholders in this situation?
2. What are the ethical issues involved in this situation?
3. What would you do if you were Wayne Terrago?
Click here for the solution: Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year
The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community.
Instructions
1. Who are the stakeholders in this situation?
2. What are the ethical issues involved in this situation?
3. What would you do if you were Wayne Terrago?
Click here for the solution: Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year
Saturday, August 22, 2015
Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey
Chapter 16 Ethical Issue 16-1 Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey. Becky has just started a new job as controller for Mueller Imports, a much larger dealer for the same car manufacturer. Demand for this particular make of car is exploding, and the manufacturer cannot produce enough to satisfy demand. The manufacturer's regional sales managers are each given a certain number of cars. Each sales manager then decides how to divide the cars among the independently owned dealerships in the region. Because of high demand for these cars, dealerships all want to receive as many cars as they can from the regional sales manager.
Becky's former employer, Shamalay Automotive, receives only about 25 cars a month. Consequently, Shamalay was not very profitable.
Becky is surprised to learn that her new employer, Mueller Imports, receives over 200 cars a month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer's regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma.
Requirement
Put yourself in Becky's place.
a. What is the ethical issue?
b. What are your options?
c. What are the possible consequences?
d. What should you do?
Click here for the solution: Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey
Becky's former employer, Shamalay Automotive, receives only about 25 cars a month. Consequently, Shamalay was not very profitable.
Becky is surprised to learn that her new employer, Mueller Imports, receives over 200 cars a month. Becky soon gets another surprise. Every couple of months, a local jeweler bills the dealer $5,000 for “miscellaneous services.” Franz Mueller, the owner of the dealership, personally approves payment of these invoices, noting that each invoice is a “selling expense.” From casual conversations with a salesperson, Becky learns that Mueller frequently gives Rolex watches to the manufacturer's regional sales manager and other sales executives. Before talking to anyone about this, Becky decides to work through her ethical dilemma.
Requirement
Put yourself in Becky's place.
a. What is the ethical issue?
b. What are your options?
c. What are the possible consequences?
d. What should you do?
Click here for the solution: Becky Knauer recently resigned from her position as controller for Shamalay Automotive, a small, struggling foreign car dealer in Upper Saddle River, New Jersey
Friday, August 21, 2015
You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting
You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting. Sheila is an excellent consultant, but not a good accountant. She has attempted to prepare the first month’s financial statements, however, the statements do not balance. Her financial statements are a good starting point, but your job is to correct the errors.
The statements are presented here.
SHEILA SHAW CONSULTING
Balance Sheet
August 31, 2007
Assets Liabilities
Current assets: Current liabilities:
Cash................................ $ 21,300 Accounts payable........ $ 1,250
Accounts receivable....... 3,800 Prepaid rent................. 2,050
Supplies........................... 875 Unearned fees.............. 1,150
Salaries payable.............. 150 Total liabilities................ $ 4,450
Prepaid insurance.......... 1,670
Total current assets..... $ 27,795
Property, plant, and
Equipment:...................... Owner's Equity
Office equipment............ $ 21,250 Sheila Shaw, capital....... 47,720
Less accum. depr............ 675
Total Property, plant,
and equipment............. 20,575 Total liabilities and
Total assets......................... $ 48,370 owner's equity............. $ 52,170
SHEILA SHAW CONSULTING
Income Statement
For the Month Ended August 31, 2007
Fees earned.................................................................................... $ 24,325
Expenses:
Salary expense....................................................................... $1,550
Rent expense.......................................................................... 1,200
Supplies expense.................................................................... 1,250
Insurance expense................................................................. 1,000
Miscellaneous expense.......................................................... 715
Interest expense..................................................................... 65
Bad Debt expense.................................................................. 150
Repairs and Maintenance.................................................... 200
Utilities expense..................................................................... 150
Payroll Tax expense.............................................................. 125
Office expense....................................................................... 525
Total expenses................................................................... 6,930
Net income..................................................................................... $ 17,395
SHEILA SHAW CONSULTING
Statement of Owner's Equity
For the Month Ended August 31, 2007
Sheila Shaw, capital, August 1, 2007........................................... $ 0
Additional investments during the month................................... 36,000
Total............................................................................................... $ 36,000
Net income for the month............................................................. $ 17,395
Less withdrawals........................................................................... 5,000
Increase in owner's equity............................................................ 12,395
Sheila Shaw, capital, August 31, 2007......................................... $ 48,395
SHEILA SHAW CONSULTING
Statement of Cash Flows
For the Month Ended August 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the month:................................................... $17,395
Adjustment for depreciation....................................... 675
Cash provided by operating activities................................. 18,070
(Increase) in working capital items
Accounts receivable.......................................................... (3,800)
Supplies.............................................................................. (875)
Prepaid expenses............................................................... 3,720
Accounts payable.............................................................. 1,250
Salaries payable................................................................. 150
Unearned fees.................................................................... 1,150
Cash flows from operating activities........................................... $18,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment........................................... (21,250)
Cash flows from investing activities............................................ $(21,250)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from shareholder (net of withdrawals).............. 31,000
Cash flows from financing activities........................................... $31,000
Net increase in cash....................................................................... $28,740
CASH-BEGINNING OF PERIOD............................................. 0
CASH-END OF PERIOD............................................................ $21,300
Sheila is grateful to have you on board as her controller, and you are eager to make a good impression on her by finding the errors in her statements. Download Sheila’s statements and make the changes to them. All the information you need to find the errors is contained in these statements.
Hint: There are 2 errors in the Balance Sheet, 1 error in the Income Statement, 1 error in the Statement of Owner’s Equity, and 2 errors in the Statement of Cash Flows. You will want to keep in mind all that you have learned in terms of the items on financial statements which are duplicated and flow from one statement to another.
Assignment Checklist:
1. Report 2 balance sheet errors
2. Produces 1 statement of owner’s equity errors
3. Report 2 errors on the statement of cash
4. Prepare corrected financial statements
Click here for the solution: You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting
The statements are presented here.
SHEILA SHAW CONSULTING
Balance Sheet
August 31, 2007
Assets Liabilities
Current assets: Current liabilities:
Cash................................ $ 21,300 Accounts payable........ $ 1,250
Accounts receivable....... 3,800 Prepaid rent................. 2,050
Supplies........................... 875 Unearned fees.............. 1,150
Salaries payable.............. 150 Total liabilities................ $ 4,450
Prepaid insurance.......... 1,670
Total current assets..... $ 27,795
Property, plant, and
Equipment:...................... Owner's Equity
Office equipment............ $ 21,250 Sheila Shaw, capital....... 47,720
Less accum. depr............ 675
Total Property, plant,
and equipment............. 20,575 Total liabilities and
Total assets......................... $ 48,370 owner's equity............. $ 52,170
SHEILA SHAW CONSULTING
Income Statement
For the Month Ended August 31, 2007
Fees earned.................................................................................... $ 24,325
Expenses:
Salary expense....................................................................... $1,550
Rent expense.......................................................................... 1,200
Supplies expense.................................................................... 1,250
Insurance expense................................................................. 1,000
Miscellaneous expense.......................................................... 715
Interest expense..................................................................... 65
Bad Debt expense.................................................................. 150
Repairs and Maintenance.................................................... 200
Utilities expense..................................................................... 150
Payroll Tax expense.............................................................. 125
Office expense....................................................................... 525
Total expenses................................................................... 6,930
Net income..................................................................................... $ 17,395
SHEILA SHAW CONSULTING
Statement of Owner's Equity
For the Month Ended August 31, 2007
Sheila Shaw, capital, August 1, 2007........................................... $ 0
Additional investments during the month................................... 36,000
Total............................................................................................... $ 36,000
Net income for the month............................................................. $ 17,395
Less withdrawals........................................................................... 5,000
Increase in owner's equity............................................................ 12,395
Sheila Shaw, capital, August 31, 2007......................................... $ 48,395
SHEILA SHAW CONSULTING
Statement of Cash Flows
For the Month Ended August 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the month:................................................... $17,395
Adjustment for depreciation....................................... 675
Cash provided by operating activities................................. 18,070
(Increase) in working capital items
Accounts receivable.......................................................... (3,800)
Supplies.............................................................................. (875)
Prepaid expenses............................................................... 3,720
Accounts payable.............................................................. 1,250
Salaries payable................................................................. 150
Unearned fees.................................................................... 1,150
Cash flows from operating activities........................................... $18,990
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment........................................... (21,250)
Cash flows from investing activities............................................ $(21,250)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from shareholder (net of withdrawals).............. 31,000
Cash flows from financing activities........................................... $31,000
Net increase in cash....................................................................... $28,740
CASH-BEGINNING OF PERIOD............................................. 0
CASH-END OF PERIOD............................................................ $21,300
Sheila is grateful to have you on board as her controller, and you are eager to make a good impression on her by finding the errors in her statements. Download Sheila’s statements and make the changes to them. All the information you need to find the errors is contained in these statements.
Hint: There are 2 errors in the Balance Sheet, 1 error in the Income Statement, 1 error in the Statement of Owner’s Equity, and 2 errors in the Statement of Cash Flows. You will want to keep in mind all that you have learned in terms of the items on financial statements which are duplicated and flow from one statement to another.
Assignment Checklist:
1. Report 2 balance sheet errors
2. Produces 1 statement of owner’s equity errors
3. Report 2 errors on the statement of cash
4. Prepare corrected financial statements
Click here for the solution: You have accepted a job as the controller of a start-up company–a consulting firm, called Sheila Shaw Consulting
Thursday, August 13, 2015
Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division
Case 11-22 (Ethics and the Manager; Rigging Standards) Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division. In looking over the past several years of quarterly income statements at the Home Security Division, she noticed that the first-quarter profits were always poor, the second-quarter profits were slightly better, the third-quarter profits were again slightly better, and the fourth quarter always ended with a spectacular performance in which the Home Security Division managed to meet or exceed its target profit for the year. She also was concerned to find letters from the company’s external auditors to top management warning about an unusual use of standard costs at the Home Security Division.
When Ms. Cummins ran across these letters, she asked the assistant controller, Gary barber, if he knew what was going on at the Home Security Division. Gary said that it was common knowledge in the company that the vice president in charge of the Home Security Division, Preston Lansing, had rigged the standards at his division in order to produce the same quarterly income pattern every year. According to the company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold.
Favorable variances have the effect of increasing net operating income, and unfavorable variances have the effect of decreasing net operating income. Lansing had rigged the standards so that there were always large favorable variances. Company policy was a little vague about when these variances have to be reported on the divisional income statements. While the intent was clearly to recognize variances on the income statement in the period in which they arise, nothing in the company’s accounting manuals actually explicitly required this. So for many years Lansing had followed a practice of saving up the favorable variances and using them to create a nice smooth pattern of growing profits in the first three quarters, followed by a big “Christmas present” of an extremely good fourth quarter. (Financial reporting regulations forbid carrying variances forward from one year to the next on the annual audited financial statements, so all of the variances must appear on the divisional income statement by the end of the year.)
Ms. Cummins was concerned about these revalations and attempted to bring up the subject with the president of Merced Home Products, but was told that “we all know what Landing’s doing, but as long as he continues to turn in such good reports, don’t bother him.” When Ms. Cummins asked if the board of directors was aware of the situation, the president somewhat testily replied, “Of course they are aware.”
Required:
1. How did Preston Lansing probably “rig” the standard costs – are the standards set too high or too low? Explain.
2. Should Preston Lansing be permitted to continue his practice of managing reported profits?
3. What should Stacy Cummins do in this situation?
Click here for the solution: Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division
When Ms. Cummins ran across these letters, she asked the assistant controller, Gary barber, if he knew what was going on at the Home Security Division. Gary said that it was common knowledge in the company that the vice president in charge of the Home Security Division, Preston Lansing, had rigged the standards at his division in order to produce the same quarterly income pattern every year. According to the company policy, variances are taken directly to the income statement as an adjustment to cost of goods sold.
Favorable variances have the effect of increasing net operating income, and unfavorable variances have the effect of decreasing net operating income. Lansing had rigged the standards so that there were always large favorable variances. Company policy was a little vague about when these variances have to be reported on the divisional income statements. While the intent was clearly to recognize variances on the income statement in the period in which they arise, nothing in the company’s accounting manuals actually explicitly required this. So for many years Lansing had followed a practice of saving up the favorable variances and using them to create a nice smooth pattern of growing profits in the first three quarters, followed by a big “Christmas present” of an extremely good fourth quarter. (Financial reporting regulations forbid carrying variances forward from one year to the next on the annual audited financial statements, so all of the variances must appear on the divisional income statement by the end of the year.)
Ms. Cummins was concerned about these revalations and attempted to bring up the subject with the president of Merced Home Products, but was told that “we all know what Landing’s doing, but as long as he continues to turn in such good reports, don’t bother him.” When Ms. Cummins asked if the board of directors was aware of the situation, the president somewhat testily replied, “Of course they are aware.”
Required:
1. How did Preston Lansing probably “rig” the standard costs – are the standards set too high or too low? Explain.
2. Should Preston Lansing be permitted to continue his practice of managing reported profits?
3. What should Stacy Cummins do in this situation?
Click here for the solution: Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division
Tuesday, July 7, 2015
The budget director of Feathered Friends Inc., with the assistance of the controller, treasurer, production manager, and sales manager
The budget director of Feathered Friends Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for October 2012
a. Estimated sales for December:
Bird House . . . . . . . . . . . . . . . . . . . . 3,500 units at $45 per unit
Bird Feeder. . . . . . . . . . . . . . . . . . . . 3,700 units at $65 per unit
AND SO ON
Instructions
1. Prepare a sales budget for October.
2. Prepare a production budget for October.
3. Prepare a direct materials purchases budget for October.
4. Prepare a direct labor cost budget for October.
5. Prepare a factory overhead cost budget for October.
6. Prepare a cost of goods sold budget for October. Work in process at the beginning of October is estimated to be $27,000, and work in process at the end of October is estimated to be $32,400.
7. Prepare a selling and administrative expenses budget for October.
8. Prepare a budgeted income statement for October.
Check: 4. Total Direct Labor Cost in Fabrication Dept., $32,760
Click here for the solution: The budget director of Feathered Friends Inc., with the assistance of the controller, treasurer, production manager, and sales manager
a. Estimated sales for December:
Bird House . . . . . . . . . . . . . . . . . . . . 3,500 units at $45 per unit
Bird Feeder. . . . . . . . . . . . . . . . . . . . 3,700 units at $65 per unit
AND SO ON
Instructions
1. Prepare a sales budget for October.
2. Prepare a production budget for October.
3. Prepare a direct materials purchases budget for October.
4. Prepare a direct labor cost budget for October.
5. Prepare a factory overhead cost budget for October.
6. Prepare a cost of goods sold budget for October. Work in process at the beginning of October is estimated to be $27,000, and work in process at the end of October is estimated to be $32,400.
7. Prepare a selling and administrative expenses budget for October.
8. Prepare a budgeted income statement for October.
Check: 4. Total Direct Labor Cost in Fabrication Dept., $32,760
Click here for the solution: The budget director of Feathered Friends Inc., with the assistance of the controller, treasurer, production manager, and sales manager
(Cash Budget) The Controller of Santa Fe Housewares Inc. instructs you to prepare a monthly cash budget for the next three months
PR22-4A Cash Budget
The Controller of Santa Fe Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
March April May
Sales 70,000 84,000 92,000
Manufacturing cost 32,000 39,000 42,500
Selling and administrative expenses 12,000 18,000 21,000
Capital expenditures 20,000
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $3,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of August 1 include cash of $10,000, marketable securities of $40,000, and accounts receivable of $75,600 ($60,000 from February sales and $15,600 from January sales).Sales on account for January and February were $52,000 and $60,000, respectively.
Current liabilities as of August 1 include s $12,000, 15%, 90-day note payable due May 20 and $4,000 of accounts payable incurred in July for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $1,800 in dividends will be received in March. An estimated income tax payment of $16,000 will be made in April. Santa Fe's regular quarterly dividend of $3,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $30,000.
Instructions:
1. Prepare a monthly cash budget and supporting schedules for August, September, and October. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculation.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
Click here for the solution: (Cash Budget) The Controller of Santa Fe Housewares Inc. instructs you to prepare a monthly cash budget for the next three months
The Controller of Santa Fe Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
March April May
Sales 70,000 84,000 92,000
Manufacturing cost 32,000 39,000 42,500
Selling and administrative expenses 12,000 18,000 21,000
Capital expenditures 20,000
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $3,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of August 1 include cash of $10,000, marketable securities of $40,000, and accounts receivable of $75,600 ($60,000 from February sales and $15,600 from January sales).Sales on account for January and February were $52,000 and $60,000, respectively.
Current liabilities as of August 1 include s $12,000, 15%, 90-day note payable due May 20 and $4,000 of accounts payable incurred in July for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $1,800 in dividends will be received in March. An estimated income tax payment of $16,000 will be made in April. Santa Fe's regular quarterly dividend of $3,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $30,000.
Instructions:
1. Prepare a monthly cash budget and supporting schedules for August, September, and October. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculation.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
Click here for the solution: (Cash Budget) The Controller of Santa Fe Housewares Inc. instructs you to prepare a monthly cash budget for the next three months
Thursday, July 2, 2015
You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems
(Issues Raised about Investment Securities) You have just started work
for Warren Co. as part of the controller’s group involved in current
financial reporting problems. Jane Henshaw, controller for Warren, is
interested in your accounting background because the company has
experienced a series of financial reporting surprises over the last few
years. Recently, the controller has learned from the company’s auditors
that there is authoritative literature that may apply to its investment
in securities. She assumes that you are familiar with this pronouncement
and asks how the following situations should be reported in the
financial statements
Situation 1
Trading securities in the current assets section have a fair value that is $4,200 lower than cost.
Situation 2
A trading security whose fair value is currently less than cost is transferred to the available-for-sale category.
Situation 3
An available-for-sale security whose fair value is currently less than cost is classified as noncurrent but is to be reclassified as current.
Situation 4
A company’s portfolio of available-for-sale securities consists of the common stock of one company. At the end of the prior year, the fair value of the security was 50% of original cost, and this reduction in fair value was reported as an other than temporary impairment. However, at the end of the current year the fair value of the security had appreciated to twice the original cost.
Situation 5
The company has purchased some convertible debentures that it plans to hold for less than a year. The fair value of the convertible debentures is $7,700 below its cost.
Instructions
What is the effect upon carrying value and earnings for each of the situations above? Assume that these situations are unrelated.
Click here for the solution: You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems
Saturday, June 27, 2015
Tiana Shar, the controller for Bondi Furniture Company, is in the process of analyzing the overhead costs for the month of November
Tiana Shar, the controller for Bondi Furniture Company, is in the
process of analyzing the overhead costs for the month of November. She
has gathered the following data for the month. Labor: Direct Labor Hours
Job 77: 3,500 Job 78: 3,000 Job 79: 2,000 Labor Cost: Direct-Labor
Wages: $204,000 Indirect-Labor Wages: 15,000 Supervisory Salaries:6,000
Material: Inventories, November 1: Raw Materials and Supplies: $10,500
Work in Progress (job 77): 54,000 Finished goods: 112,500 Purchases of
raw material and supplies: Raw Material: $135,000 Supplies (indirect
material): 15,000 Direct material and Supplies requisitioned for
production Job 77: $45,000 Job 78: 37,500 Job 79: 25,500 Supplies
(indirect material): 12,000 Total: $120,000 Other Building occupancy
cost (heat, light, depreciation, etc) Factory Facilites: $6,400 Sales
Offices: 1,600 Administrative Offices: 1,000 Total: $9,000 Production
equipment costs: Power:$4,100 Repairs and maintenance: 1,500
Depreciation: 1,500 Other: 1,000 Total: $8,100 The firms job order
costing system uses direct labor hours as the cost driver for overhead
application. In december of the preceeding year. Shar has prepared the
following budget for direct labor and manufacturing overhead costs for
the current year. the plant is capable of operating at 150,000 direct
labor hours per year. However, Shar estimates that the normal usage is
120,000 hours in a typical year. Manufacturing Overhead Direct Labor
Hours Variable Fixed 100,000 $325,000 $216,000 120,000 390,000 216,000
140,000 455,000 216,000 During November the following jobs were
completed: Job 77: side chairs Job 78: end tables
1. Calculate the predetermined overhead rate for the entire year.
2. Calculate the total cost of job 77.
3. Compute the amount of manufacturing overhead applied to job 79 during November.
4. What was the total amount of manufacturing overhead applied during November?
5. Compute the actual manufacturing overhead incurred during November.
6. Calculate the overapplied or underapplied overhead for November.
Click here for the solution: Tiana Shar, the controller for Bondi Furniture Company, is in the process of analyzing the overhead costs for the month of November
1. Calculate the predetermined overhead rate for the entire year.
2. Calculate the total cost of job 77.
3. Compute the amount of manufacturing overhead applied to job 79 during November.
4. What was the total amount of manufacturing overhead applied during November?
5. Compute the actual manufacturing overhead incurred during November.
6. Calculate the overapplied or underapplied overhead for November.
Click here for the solution: Tiana Shar, the controller for Bondi Furniture Company, is in the process of analyzing the overhead costs for the month of November
Tuesday, June 16, 2015
During 2010 the controller of the Ryel Company asked you to prepare correcting journal entries for the following three situations
Problem 11-14 (P11-14) Changes and Corrections of Depreciation
During 2010 the controller of the Ryel Company asked you to prepare correcting journal entries for the following three situations:
1. Machine A was purchased for $50,000 on January 1, 2005. Straight-line depreciation has been recorded for 5 years, and the Accumulated depreciation account has a balance of $25,000. The estimated residual value remains at $5,000, but the service life is now estimated to be one year longer than estimated originally.
2. Machine B was purchased for $40,000 on January 1, 2008. It had an estimated residual value of $5,000 and an estimated service life of 10 years. It has been depreciated under the double-declining-balance method for two years. Now, at the beginning of the third year, Ryel has decided to change to the straight-line method.
3. Machine C was purchased for $20,000 on January 1, 2009. Double-declining-balance depreciation has been recorded for one year. The estimated residual value of the machine is $2,000 and the estimated service life is five years. The computation of the depreciation erroneously included the estimated residual value.
Prepare the necessary correcting journal entries for each situation. Also prepare the journal entry necessary for each situation to record the depreciation for 2010. (Assume that the debit is to Depreciation Expense.)
Click here for the solution: During 2010 the controller of the Ryel Company asked you to prepare correcting journal entries for the following three situations
During 2010 the controller of the Ryel Company asked you to prepare correcting journal entries for the following three situations:
1. Machine A was purchased for $50,000 on January 1, 2005. Straight-line depreciation has been recorded for 5 years, and the Accumulated depreciation account has a balance of $25,000. The estimated residual value remains at $5,000, but the service life is now estimated to be one year longer than estimated originally.
2. Machine B was purchased for $40,000 on January 1, 2008. It had an estimated residual value of $5,000 and an estimated service life of 10 years. It has been depreciated under the double-declining-balance method for two years. Now, at the beginning of the third year, Ryel has decided to change to the straight-line method.
3. Machine C was purchased for $20,000 on January 1, 2009. Double-declining-balance depreciation has been recorded for one year. The estimated residual value of the machine is $2,000 and the estimated service life is five years. The computation of the depreciation erroneously included the estimated residual value.
Prepare the necessary correcting journal entries for each situation. Also prepare the journal entry necessary for each situation to record the depreciation for 2010. (Assume that the debit is to Depreciation Expense.)
Click here for the solution: During 2010 the controller of the Ryel Company asked you to prepare correcting journal entries for the following three situations
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