Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer's defects

Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer's defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2010 were $2,500,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:

Accrued liability and expense
Warranty expense (2% x $2,500,000) 50,000
Estimated warranty liability 50,000

Actual expenditures (summary entry)
Estimated warranty liability 23,000
Cash, wages payable, parts and supplies, etc. 23,000

In late 2011, the company's claims experience was evaluated and it was determined that claims were far more than expected—3% of sales rather than 2%.

Required:
1. Assuming sales of the sprinklers in 2011 were $3,600,000 and warranty expenditures in 2011 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.

Click here for the solution: Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer's defects

A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year

EX 9-2 A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year:

Sales $254,000
Cost of the goods sold $122,000
Gross profit $132,000
Operating expenses $156,000
Loss from operations ($24,000)

It is estimated that 16% of the cost of goods sold represents fixed factory overhead costs and that 20% of the operating expenses are fixed. Since Royal Cola is only one of many products, the fixed costs will not be materially affected if the product is discontinued.

a. Prepare a differential analysis report, dated March 3, 2010, for the proposed discontinuance of Royal Cola.
b. Should Royal Cola be retained?

Click here for the solution: A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year

Optix International is considering a significant expansion to its product line

E9-9 Optix International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’s current offerings, but offer a complementary fit to its existing product line. Frank Renolds, senior production department manager, is very excited about the high-tech new equipment that will have to be acquired to produce the new products. Carol Fischer, the company’s CFO, has provided the following projections based on results with and without the new products.

Without New Products With New Products
Sales $10,000,000 $18,000,000
Net income $800,000 $1,800,000
Average total assets $5,000,000 $15,000,000

Instructions
(a) Compute the company’s return on assets ratio, profit margin ratio, and asset turnover ratio, both with and without the new product line.
(b) Discuss the implications that your findings in part (a) have for the company’s decision.

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The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable

Audit Evidence and Conclusions for Various Fixed Asset Questions

Audit Conclusions or Situations

1. The choice of eight years for straight-line depreciation of the company's trucks appears unreasonable. I would suggest that the client change to a six-year life and use DDB depreciation.

2. Insurance coverage appears to be inadequate, because the client has chosen to carry only liability insurance on the cement trucks. There is no provision for collision or damage done to the trucks.

3. The client acquired a substantial piece of real estate from the town of Baraboo to build a warehouse in the town's new industrial complex. The land was donated to the company provided it maintains operations for a minimum of ten years and pays real estate taxes on its appraised value. The land is carried on the books at the fair market value at the time of donation of $250,000.

4. Several pieces of idle equipment were noted. It is recommended that the equipment be written down to the scrap value of $50,000 from the current net book value of $185,000.

5. The company has self-constructed the warehouse located in the town of Baraboo. It has capitalized all payroll expense directly related to construction of the project. The adjusting entry debited Building for $73,000 and credited Payroll Expense for the same amount.

6. The company completely overhauled ten of its trucks at a significant cost. The overhaul should extend the life of the trucks by at least three years. Because the company performs similar overhauls each year, the cost has been properly charged to repairs and maintenance.

7. The company sold 15 of its old trucks to Virgin Distributors, a new company owned by the brother of the company's chief executive officer. The equipment was old, and a gain of $70,000 on the sale was credited to income.

Required
a. For each conclusion or situation listed, identify the type of audit evidence needed to support the auditor's conclusion.
b. Briefly indicate the audit implications if the auditor's conclusion is justified.


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Task time estimates for a production line setup project at Robert Klassen’s Ontario factory are as follows

Problem 3.7 Task time estimates for a production line setup project at Robert Klassen’s Ontario factory are as follows:

Activity Time In HRS Immediate Predecessor
A 6 -
B 7.2 -
C 5 A
D 6 B,C
E 4.5 B,C
F 7.7 D
G 4 E,F

a) Develop an AON network for this problem.
b) What is the critical path?
c) What is the total project completion time?


Click here for the solution: Task time estimates for a production line setup project at Robert Klassen’s Ontario factory are as follows

At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods

Ethics Case 11-10; Asset impairment

At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for 2009 and 2010.

Late in 2011, it became apparent that sales of the new frozen food line were significantly below expectations. The company decided to continue production for two more years (2012 and 2013) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values.

The controller, Heather Meyer, was asked by Harvey Dent, the company's chief executive officer (CEO), to determine the appropriate treatment of the change in service life of the equipment. Heather determined that there has been impairment of valued requiring an immediate write-down of the equipment of $12,900,000. The remaining book value would then be depreciate over the equipment's revised service life.

The CEO does not like Heather's conclusion because of the effect it would have on 2011 income. "Looks like a simple revision in service life from 10 years to 5 years." Dent concluded. "let's go with it that way, Heather."

Required:
1. What is the difference in before-tax income between the CEO's and Heather's treatment of the situation?
2. Discuss Heather Meyer's ethical dilemma.

Click here for the solution: At the beginning of 2009, the Healthy Life Food Company purchased equipment for $42 million to be used in the manufacture of a new line of gourmet frozen foods

a. What is the difference between budget lapsing and line-item budgets?

P 6–4 Budget Lapsing versus Line-Item Budgets
a. What is the difference between budget lapsing and line-item budgets?
b. What types of organizations would you expect to use budget lapsing?
c. What types of organizations would you expect to use line-item budgets?

Click here for the solution: a. What is the difference between budget lapsing and line-item budgets?

Pack & Carry is debating whether to invest in new equipment to manufacture a line of high-quality luggage

Pack & Carry is debating whether to invest in new equipment to manufacture a line of high-quality luggage. The new equipment would cost $1,728,125, with an estimated five-year life and no salvage value. The estimated annual operating results with the new equipment are as follows:

Revenue from Sales of New Luggage $800,000

Expenses Other Than Depreciation $306,250

Depreciation (Straight-Line Basis) 345,625 651,875

Increase in Net Income from the New Line 148,125

All revenue from the new luggage line and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes. You are to compute the following for the investment in the new equipment to produce the new luggage line:

a. Annual cash flows.

b. Payback period.

c. Return on average investment.

d. Total present value of the expected future annual cash inflows, discounted at an annual rate of 10 percent.

e. Net present value of the proposed investment discounted at 10 percent.

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