Kristen Montana operates a retail clothing operation. She purchases all merchandise inventory on credit and uses a periodic inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005, 2006, 2007, and 2008.
2005 2006 2007 2008
Inventory (ending) $13,000 $11,300 $14,700 $12,200
Accounts payable (ending) 20,000
Sales 225,700 227,600 219,500
Purchase of merchandise
inventory on account 146,000 145,000 129,000
Cash payments to suppliers 135,000 161,000 127,000
Instructions:
a. Calculate cost of goods sold for each of the 2009, 2010, and 2011 fiscal years.
b. Calculate the gross profit for each of the 2009, 2010, and 2011 fiscal years.
c. Calculate the ending balance of accounts payable for each of the 2009, 2010, and 2011 fiscal years.
d. Calculate the gross profit rate for each fiscal year.
e. Sales declined in fiscal 2011. Does that mean that profitability, as measured by the gross profit rate, necessarily also declined? Explain, calculating the gross profit rate for each fiscal year to help support year answer.
Click here for the solution: Kristen Montana operates a retail clothing operation
Showing posts with label operates. Show all posts
Showing posts with label operates. Show all posts
Sunday, October 4, 2015
Sunday, September 27, 2015
J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort
P5-4A J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort. At the beginning of the current season, the ledger of Hafner’s Tennis Shop showed Cash $2,500, Merchandise Inventory $1,700, and Common Stock $4,200. The following transactions were completed during April.
Apr. 4 Purchased racquets and balls from Wellman Co. $840, FOB shipping point, terms 2/10, n/30.
6 Paid freight on purchase from Wellman Co. $40.
8 Sold merchandise to members $1,150, terms n/30. The merchandise sold had a cost of $790.
10 Received credit of $40 from Wellman Co. for a damaged racquet that was returned.
11 Purchased tennis shoes from Venus Sports for cash, $420.
13 Paid Wellman Co. in full.
14 Purchased tennis shirts and shorts from Serena’s Sportswear $900, FOB shipping point, terms 3/10, n/60.
15 Received cash refund of $50 from Venus Sports for damaged merchandise that was returned.
17 Paid freight on Serena’s Sportswear purchase $30.
18 Sold merchandise to members $810, terms n/30.The cost of the merchandise sold was $530.
20 Received $500 in cash from members in settlement of their accounts.
21 Paid Serena’s Sportswear in full.
27 Granted an allowance of $30 to members for tennis clothing that did not fit properly.
30 Received cash payments on account from members, $660.
The chart of accounts for the tennis shop includes the following: No. 101 Cash, No. 112 Accounts Receivable, No. 120 Merchandise Inventory, No. 201 Accounts Payable, No. 311 Common Stock, No. 401 Sales, No. 412 Sales Returns and Allowances, No. 505 Cost of Goods Sold.
Instructions
(a) Journalize the April transactions using a perpetual inventory system.
(b) Enter the beginning balances in the ledger accounts and post the April transactions. (Use J1 for the journal reference.)
(c) Prepare a trial balance on April 30, 2008.
Click here for the solution: J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort
Apr. 4 Purchased racquets and balls from Wellman Co. $840, FOB shipping point, terms 2/10, n/30.
6 Paid freight on purchase from Wellman Co. $40.
8 Sold merchandise to members $1,150, terms n/30. The merchandise sold had a cost of $790.
10 Received credit of $40 from Wellman Co. for a damaged racquet that was returned.
11 Purchased tennis shoes from Venus Sports for cash, $420.
13 Paid Wellman Co. in full.
14 Purchased tennis shirts and shorts from Serena’s Sportswear $900, FOB shipping point, terms 3/10, n/60.
15 Received cash refund of $50 from Venus Sports for damaged merchandise that was returned.
17 Paid freight on Serena’s Sportswear purchase $30.
18 Sold merchandise to members $810, terms n/30.The cost of the merchandise sold was $530.
20 Received $500 in cash from members in settlement of their accounts.
21 Paid Serena’s Sportswear in full.
27 Granted an allowance of $30 to members for tennis clothing that did not fit properly.
30 Received cash payments on account from members, $660.
The chart of accounts for the tennis shop includes the following: No. 101 Cash, No. 112 Accounts Receivable, No. 120 Merchandise Inventory, No. 201 Accounts Payable, No. 311 Common Stock, No. 401 Sales, No. 412 Sales Returns and Allowances, No. 505 Cost of Goods Sold.
Instructions
(a) Journalize the April transactions using a perpetual inventory system.
(b) Enter the beginning balances in the ledger accounts and post the April transactions. (Use J1 for the journal reference.)
(c) Prepare a trial balance on April 30, 2008.
Click here for the solution: J. Hafner, a former professional tennis star, operates Hafner’s Tennis Shop at the Miller Lake Resort
Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
P5-6B Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products. The company purchases all merchandise inventory on credit and uses a periodic inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005 through 2008, inclusive.
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
Thursday, September 24, 2015
(ACC 560 Week 10 Assignment) Nordstrom, Inc. operates department stores in numerous states
ACC 560 Week 10 Assignment
E14-5 Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data for the year ending January 29, 2005, are as follows.
NORDSTROM, INC.
Balance Sheet (partial)
(in millions) End-of-Year Beginning-of-Year
Cash and cash equivalents $ 361 $ 340
Receivables (less allowance of 19 and 20) 646 667
Merchandise inventory 917 902
Prepaid expenses 53 46
Other current assets 595 570
Total current assets $2,572 $2,525
Total current liabilities $1,341 $1,123
For the year, net sales were $7,131, and cost of goods sold was $4,559 (in millions).
Instructions
(a) Compute the four liquidity ratios at the end of the year.
(b) Using the data in the chapter, compare Nordstrom’s liquidity with (1) that of J.C. Penney Company, and (2) the industry averages for department stores.
Click here for the solution: (ACC 560 Week 10 Assignment) Nordstrom, Inc. operates department stores in numerous states
E14-5 Nordstrom, Inc. operates department stores in numerous states. Selected financial statement data for the year ending January 29, 2005, are as follows.
NORDSTROM, INC.
Balance Sheet (partial)
(in millions) End-of-Year Beginning-of-Year
Cash and cash equivalents $ 361 $ 340
Receivables (less allowance of 19 and 20) 646 667
Merchandise inventory 917 902
Prepaid expenses 53 46
Other current assets 595 570
Total current assets $2,572 $2,525
Total current liabilities $1,341 $1,123
For the year, net sales were $7,131, and cost of goods sold was $4,559 (in millions).
Instructions
(a) Compute the four liquidity ratios at the end of the year.
(b) Using the data in the chapter, compare Nordstrom’s liquidity with (1) that of J.C. Penney Company, and (2) the industry averages for department stores.
Click here for the solution: (ACC 560 Week 10 Assignment) Nordstrom, Inc. operates department stores in numerous states
Wednesday, September 23, 2015
Beige Corporation operates retail stores in both downtown (city) and Suburban (Mall) locations
1-18 Cost Data for Managerial Purposes
Beige Corporation operates retail stores in both downtown (city) and Suburban (Mall) locations. The company has two responsibility centers; the City Division, which contains stores in downtown locations, and the Mall Division, which contains stores in suburban locations. Beige’s CEO is concern about the profitability of the City Division, which has been operating at a loss for the last several years. The most recent income statement follows. The CEO has asked for your advice on shutting down the City Division’s operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs of the Mall Division.
Beige Computers, City Division
Divisional Income Statement
For the Year Ending January 31
Sales revenue ………………………………………………………………. $12,900,000
Costs
Advertising – City Division ………………………………………… 525,000
Cost of goods sold ………………………………………………… 6,450,000
Divisional administrative salaries ……………………………… 870,000
Selling costs (sales commissions) ……………………………… 1,730,000
Rent …………………………………………………………………………. 2,215,000
Share of corporate administration ……………………….. 1,425,000
Total costs ……………………………………………………………. $13,215,000
Net loss before income tax benefit …………………… $(315,000)
Tax benefit at 40% rate …………………………………………… 126,200
Net loss …………………………………………………………….. $189,000
Required
What revenues and costs are probably differential for the decision to discontinue City division’s operations? What will be the effect on Beige’s profits if the division is eliminated?
Click here for the solution: Beige Corporation operates retail stores in both downtown (city) and Suburban (Mall) locations
Beige Corporation operates retail stores in both downtown (city) and Suburban (Mall) locations. The company has two responsibility centers; the City Division, which contains stores in downtown locations, and the Mall Division, which contains stores in suburban locations. Beige’s CEO is concern about the profitability of the City Division, which has been operating at a loss for the last several years. The most recent income statement follows. The CEO has asked for your advice on shutting down the City Division’s operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs of the Mall Division.
Beige Computers, City Division
Divisional Income Statement
For the Year Ending January 31
Sales revenue ………………………………………………………………. $12,900,000
Costs
Advertising – City Division ………………………………………… 525,000
Cost of goods sold ………………………………………………… 6,450,000
Divisional administrative salaries ……………………………… 870,000
Selling costs (sales commissions) ……………………………… 1,730,000
Rent …………………………………………………………………………. 2,215,000
Share of corporate administration ……………………….. 1,425,000
Total costs ……………………………………………………………. $13,215,000
Net loss before income tax benefit …………………… $(315,000)
Tax benefit at 40% rate …………………………………………… 126,200
Net loss …………………………………………………………….. $189,000
Required
What revenues and costs are probably differential for the decision to discontinue City division’s operations? What will be the effect on Beige’s profits if the division is eliminated?
Click here for the solution: Beige Corporation operates retail stores in both downtown (city) and Suburban (Mall) locations
Friday, September 18, 2015
Nordstrom, Inc. operates department stores in numerous states
E15-5 Nordstrom, Inc. operates department stores in numerous states.
Selected financial statement data for the year ending January 29, 2005,
are as follows.
NORDSTROM, INC.
Balance Sheet (partial)
(in millions) End-of-Year Beginning-of-Year
Cash and cash equivalents $ 361 $ 340
Receivables (less allowance of 19 and 20) 646 667
Merchandise inventory 917 902
Prepaid expenses 53 46
Other current assets 595 570
Total current assets $2,572 $2,525
Total current liabilities $1,341 $1,123
For the year, net sales were $7,131, and cost of goods sold was $4,559 (in millions).
Instructions
(a) Compute the four liquidity ratios at the end of the year.
(b) Using the data in the chapter, compare Nordstrom’s liquidity with (1) that of J.C. Penney Company, and (2) the industry averages for department stores.
Click here for the solution: Nordstrom, Inc. operates department stores in numerous states
NORDSTROM, INC.
Balance Sheet (partial)
(in millions) End-of-Year Beginning-of-Year
Cash and cash equivalents $ 361 $ 340
Receivables (less allowance of 19 and 20) 646 667
Merchandise inventory 917 902
Prepaid expenses 53 46
Other current assets 595 570
Total current assets $2,572 $2,525
Total current liabilities $1,341 $1,123
For the year, net sales were $7,131, and cost of goods sold was $4,559 (in millions).
Instructions
(a) Compute the four liquidity ratios at the end of the year.
(b) Using the data in the chapter, compare Nordstrom’s liquidity with (1) that of J.C. Penney Company, and (2) the industry averages for department stores.
Click here for the solution: Nordstrom, Inc. operates department stores in numerous states
Sunday, September 6, 2015
Evergreen Industries operates a chain of lumber stores
Evergreen Industries operates a chain of lumber stores. In 2010, corporate management examined industry-level data and determined the following performance targets for lumber retail stores:
Asset turnover 1.9
Profit margin 7.0%
The actual 2010 results for the company’s lumber retail stores are as follows:
Total assets at the beginning of year $10,200,000
Total assets at end of year 12,300,000
Sales 28,250,000
Operating expenses 25,885,000
a. For 2010, how did the lumber retail stores perform relative to their industry norms?
b. Which, as indicated by the performance measures, are the most likely areas to improve performance in the retail lumber stores?
c. What are the advantages and disadvantages of setting a performance target at the start of the year compared with one that is determined at the end of the year based on actual industry performance?
Click here for the solution: Evergreen Industries operates a chain of lumber stores
Asset turnover 1.9
Profit margin 7.0%
The actual 2010 results for the company’s lumber retail stores are as follows:
Total assets at the beginning of year $10,200,000
Total assets at end of year 12,300,000
Sales 28,250,000
Operating expenses 25,885,000
a. For 2010, how did the lumber retail stores perform relative to their industry norms?
b. Which, as indicated by the performance measures, are the most likely areas to improve performance in the retail lumber stores?
c. What are the advantages and disadvantages of setting a performance target at the start of the year compared with one that is determined at the end of the year based on actual industry performance?
Click here for the solution: Evergreen Industries operates a chain of lumber stores
Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z
C:16-39 Translation of Foreign Tax Payments.
Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z. In Year 1, he reports 500,000 doubles of pretax profits. On June 1 of Year 2, he pays Country Z income taxes of 150,000 doubles for calendar Year 1. Double-U.S. dollar exchange rates on various dates in Year 1 and Year 2 are as follows:
December 31, Year 1 4.00 doubles $1 (U.S.)
Year 1 average 3.75 doubles $1 (U.S.)
June 1, Year 2 4.25 doubles $1 (U.S.)
a. What is the U.S. dollar amount of Arnie’s foreign tax credit? In what year can Arnie claim the credit?
b. How would your answer to Part a change if Arnie elected to accrue his foreign income taxes on December 31 of Year 1, and filed his Year 1 U.S. income tax return on April 15 of Year 2?
c. What adjustment to the credit claimed in Part b would Arnie have to make when he pays his Country Z taxes on June 1 of Year 2?
Click here for the solution: Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z
Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z. In Year 1, he reports 500,000 doubles of pretax profits. On June 1 of Year 2, he pays Country Z income taxes of 150,000 doubles for calendar Year 1. Double-U.S. dollar exchange rates on various dates in Year 1 and Year 2 are as follows:
December 31, Year 1 4.00 doubles $1 (U.S.)
Year 1 average 3.75 doubles $1 (U.S.)
June 1, Year 2 4.25 doubles $1 (U.S.)
a. What is the U.S. dollar amount of Arnie’s foreign tax credit? In what year can Arnie claim the credit?
b. How would your answer to Part a change if Arnie elected to accrue his foreign income taxes on December 31 of Year 1, and filed his Year 1 U.S. income tax return on April 15 of Year 2?
c. What adjustment to the credit claimed in Part b would Arnie have to make when he pays his Country Z taxes on June 1 of Year 2?
Click here for the solution: Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z
Sunday, August 23, 2015
Shabbona Corporation operates a retail computer store
Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2010. The terms of acquisition for each truck are described below.
1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900.
2. Truck #2 has a list price of $20,000 and is acquired for a down payment of $2,000 cash and a zero-interest-bearing note with a face amount of $18,000. The note is due April 1, 2011. Shabbona would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Shabbona carries in inventory. The computer system cost $12,000 and is normally sold by Shabbona for $15,200. Shabbona uses a perpetual inventory system.
4. Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of $10 and a market value of $13 per share.
Prepare the appropriate journal entries for the foregoing transactions for Shabbona Corporation. (Round computations to the nearest dollar)
Click here for the solution: Shabbona Corporation operates a retail computer store
1. Truck #1 has a list price of $15,000 and is acquired for a cash payment of $13,900.
2. Truck #2 has a list price of $20,000 and is acquired for a down payment of $2,000 cash and a zero-interest-bearing note with a face amount of $18,000. The note is due April 1, 2011. Shabbona would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%.
3. Truck #3 has a list price of $16,000. It is acquired in exchange for a computer system that Shabbona carries in inventory. The computer system cost $12,000 and is normally sold by Shabbona for $15,200. Shabbona uses a perpetual inventory system.
4. Truck #4 has a list price of $14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of $10 and a market value of $13 per share.
Prepare the appropriate journal entries for the foregoing transactions for Shabbona Corporation. (Round computations to the nearest dollar)
Click here for the solution: Shabbona Corporation operates a retail computer store
Saturday, August 15, 2015
Dunn Inc. owns and operates a number of hardware stores in the New England region
P6-10 (Analysis of Lease vs. Purchase) Dunn Inc. owns and operates a number of hardware stores in the New England region. Recently the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities.
Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,850,000. An immediate down payment of $400,000 is required, and the remaining $1,450,000 would be paid off over 5 years at $350,000 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $500,000. As the owner of the property, the company will have the following out-of-pocket expenses each period.
Property taxes (to be paid at the end of each year) $40,000
Insurance (to be paid at the beginning of each year)27,000
Other (primarily maintenance which occurs at the end of each year)16,000
$83,000
Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Dunn Inc. if Dunn will lease the completed facility for 12 years. The annual costs for the lease would be $270,000. Dunn would have no responsibility related to the facility over the 12 years. The terms of the lease are that Dunn would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $100,000 is required when the store is opened. This deposit will be returned at the end of the twelfth year, assuming no unusual damage to the building structure or fixtures.
Currently the cost of funds for Dunn Inc. is 10%.
Instructions
Which of the two approaches should Dunn Inc. follow?
Click here for the solution: Dunn Inc. owns and operates a number of hardware stores in the New England region
Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,850,000. An immediate down payment of $400,000 is required, and the remaining $1,450,000 would be paid off over 5 years at $350,000 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $500,000. As the owner of the property, the company will have the following out-of-pocket expenses each period.
Property taxes (to be paid at the end of each year) $40,000
Insurance (to be paid at the beginning of each year)27,000
Other (primarily maintenance which occurs at the end of each year)16,000
$83,000
Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Dunn Inc. if Dunn will lease the completed facility for 12 years. The annual costs for the lease would be $270,000. Dunn would have no responsibility related to the facility over the 12 years. The terms of the lease are that Dunn would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $100,000 is required when the store is opened. This deposit will be returned at the end of the twelfth year, assuming no unusual damage to the building structure or fixtures.
Currently the cost of funds for Dunn Inc. is 10%.
Instructions
Which of the two approaches should Dunn Inc. follow?
Click here for the solution: Dunn Inc. owns and operates a number of hardware stores in the New England region
Monday, August 3, 2015
Springfield Corporation operates on a calendar-year basis
Problem 9-8 (Evaluating a Company's Budget Procedures) Springfield Corporation operates on a calendar-year basis. It begins the annual budgeting process in late August, when the president establishes targets for total sales dollars and net operating income before taxes for the next year. The sales target is given to the marketing Department, where the marketing manager formulates a sales budget by product line in both units and dollars. From this budget, sales quotas by product line in units and dollars are established for each of the corporation’s sales districts. The marketing manager also estimates the cost of the marketing activities required to support the target sales volume and prepares a tentative marketing expenses budget. The executive vice president uses the sales and profits targets, the sales budget by product line, and the tentative marketing expense budget to determine the dollar amounts that can be devoted to manufacturing and corporate office expense. The executive vice president prepares the budget for corporate expenses, and then forwards that can be devoted to manufacturing. The production manager meets with the factory managers to develop a manufacturing plan that will produce the required units when needed within the cost constraints set by the executive vice president. The budgeting process usually comes to a halt at this point because the Production Department does not consider the financial resources allocated to it to be adequate. When this standstill occurs, the vice president of finance, the executive vice president, the marketing manager, and the production manager meet to determine ht final budgets for each of the areas. This normally results in a modest increase in the total amount available for manufacturing costs, while the marketing expense and corporate office expense budget are cut. The total sales and net operating income figures proposed by the president are seldom changed. Although the participants are seldom pleased with the compromise, these budgets are final. Each executive then develops a new detailed budget for the operations in his or her area.
None of the areas has achieved its budget in recent years. Sales often run below the target. When budgeted sales are not achieved, each area is expected to cut costs so that the president’s profits target can still be met. However, the profits target is seldom met because cost are not cut enough. In fact, costs often run above the original budget in all functional areas. The president is disturbed that Springfield has not been able to meet the sales and profit targets. He hired a consultant with considerable relevant industry experience. The consultant reviewed the budgets for the past four years. He concluded that the product-line sales budgets were reasonable and that the cost and expenses budgets were adequate for the budgeted sales and production levels.
Required:
1. Discuss how the budgeting process as employed by Springfield Corporation contributes to the failure to achieve the president’s sales and profits targets.
2. Suggest how Springfield Corporation’s budgeting process could be revised to correct problem.
3. Should the functional areas be expected to cut their costs when sales volume falls below budget? Explain your answer.
Click here for the solution: Springfield Corporation operates on a calendar-year basis
None of the areas has achieved its budget in recent years. Sales often run below the target. When budgeted sales are not achieved, each area is expected to cut costs so that the president’s profits target can still be met. However, the profits target is seldom met because cost are not cut enough. In fact, costs often run above the original budget in all functional areas. The president is disturbed that Springfield has not been able to meet the sales and profit targets. He hired a consultant with considerable relevant industry experience. The consultant reviewed the budgets for the past four years. He concluded that the product-line sales budgets were reasonable and that the cost and expenses budgets were adequate for the budgeted sales and production levels.
Required:
1. Discuss how the budgeting process as employed by Springfield Corporation contributes to the failure to achieve the president’s sales and profits targets.
2. Suggest how Springfield Corporation’s budgeting process could be revised to correct problem.
3. Should the functional areas be expected to cut their costs when sales volume falls below budget? Explain your answer.
Click here for the solution: Springfield Corporation operates on a calendar-year basis
Saturday, August 1, 2015
Swift Corp., a capital goods manufacturing business that started on January 4, 2010, and operates on a calendar-year basis
E18-15 (Installment-Sales Method and Cost-Recovery Method) Swift Corp., a capital goods manufacturing business that started on January 4, 2010, and operates on a calendar-year basis, uses the installment sales method of profit recognition in accounting for all its sales. The following data were taken from the 2010 and 2011 records.
2010 2011
Installment sales $480,000 $620,000
Gross profit as a percent of costs 25% 28%
Cash collections on sales of 2010 $130,000 $240,000
Cash collections on sales of 2011 –0– $160,000
The amounts given for cash collections exclude amounts collected for interest charges.
Instructions
(a) Compute the amount of realized gross profit to be recognized on the 2011 income statement, prepared using the installment-sales method.
(b) State where the balance of Deferred Gross Profit would be reported on the financial statements for 2011.
(c) Compute the amount of realized gross profit to be recognized on the income statement, prepared using the cost-recovery method.
Click here for the solution: Swift Corp., a capital goods manufacturing business that started on January 4, 2010, and operates on a calendar-year basis
2010 2011
Installment sales $480,000 $620,000
Gross profit as a percent of costs 25% 28%
Cash collections on sales of 2010 $130,000 $240,000
Cash collections on sales of 2011 –0– $160,000
The amounts given for cash collections exclude amounts collected for interest charges.
Instructions
(a) Compute the amount of realized gross profit to be recognized on the 2011 income statement, prepared using the installment-sales method.
(b) State where the balance of Deferred Gross Profit would be reported on the financial statements for 2011.
(c) Compute the amount of realized gross profit to be recognized on the income statement, prepared using the cost-recovery method.
Click here for the solution: Swift Corp., a capital goods manufacturing business that started on January 4, 2010, and operates on a calendar-year basis
Wednesday, July 15, 2015
Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
P23-7 Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Chapman as of May 31, 2010, are shown on the next page. The company is preparing its statement of cash flows.
AND SO ON
The following is additional information concerning Chapman's transactions during the year ended May 31, 2010.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of stock.
4. The other expenses are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2010, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2010.
Click here for the solution: Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
AND SO ON
The following is additional information concerning Chapman's transactions during the year ended May 31, 2010.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $28,000 in cash and issuing 7,000 shares of stock.
4. The other expenses are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Chapman issued 2,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Chapman Company for the year ended May 31, 2010, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Chapman Company for the year ended May 31, 2010.
Click here for the solution: Chapman Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
Tuesday, July 14, 2015
Nomar Industries, Inc. operates in several lines of business, including the construction and real estate industries
Nomar Industries, Inc. operates in several lines of business, including the construction and real estate industries. While the majority of its revenues are recognized at point of sale, Nomar appropriately recognizes revenue long-term construction contracts using the percentage-complete method. It recognizes sales of some properties using the installment-sales approach. Income data for 2013 from operations other than construction and real estate are as follows:
Revenues 5,500,000
Expenses 4,200,000
1. Nomar started a construction project during 2012. The total contract price is 500,000, and 100,000 in costs were incurred in 2013. Estimated costs to complete the project in 2014 are 200,000. In 2012 Nomar incurred 100,000 of costs and recognized 25,000 gross profit on this project. Total billings at the end of 2013 were 230,00, and total cash collected as the end of 2013 was 202,500.
2. During this year, Nomar sold real estate parcels at a price of 480,000. Nomar recognizes gross profit at an 18% rate when cash is received. Nomar collected 220,000 during the year on these sales.
Solve
A) Determine net income for Nomar for 2013. Ignore income taxes.
B) Prepare the journal entries to record the costs incurred and gross profit recognized in 2013 on the construction project.
C) For 2013, show how the details related to this construction contract would be disclosed on the balance sheet.
D) Nomar is negotiating real estate sales with some new customers which are more uncertain as to the customers’ ability to make all payments. Is there a more appropriate revenue recognition policy for these customers? Explain.
Click here for the solution: Nomar Industries, Inc. operates in several lines of business, including the construction and real estate industries
Revenues 5,500,000
Expenses 4,200,000
1. Nomar started a construction project during 2012. The total contract price is 500,000, and 100,000 in costs were incurred in 2013. Estimated costs to complete the project in 2014 are 200,000. In 2012 Nomar incurred 100,000 of costs and recognized 25,000 gross profit on this project. Total billings at the end of 2013 were 230,00, and total cash collected as the end of 2013 was 202,500.
2. During this year, Nomar sold real estate parcels at a price of 480,000. Nomar recognizes gross profit at an 18% rate when cash is received. Nomar collected 220,000 during the year on these sales.
Solve
A) Determine net income for Nomar for 2013. Ignore income taxes.
B) Prepare the journal entries to record the costs incurred and gross profit recognized in 2013 on the construction project.
C) For 2013, show how the details related to this construction contract would be disclosed on the balance sheet.
D) Nomar is negotiating real estate sales with some new customers which are more uncertain as to the customers’ ability to make all payments. Is there a more appropriate revenue recognition policy for these customers? Explain.
Click here for the solution: Nomar Industries, Inc. operates in several lines of business, including the construction and real estate industries
Tuesday, July 7, 2015
North Shore Railroad operates between Chicago and upper Michigan and Wisconsin
North Shore Railroad operates between Chicago and upper Michigan and Wisconsin. Dallas Ingold, purchasing manager of North Shore Railroad, anticipates the price of diesel fuel will increase over the next few months. On September 4th, Ingold purchased an out-of-the-money November call option for $1,100. The option has a notional amount of 80,000 barrels and a strike price of $2.16 per barrel. Diesel fuel spot rates and option values at selected dates follow:
Spot Rate Option
Date per Barrel Value
September 30 $2.17 $1,130
October 31 2.13 1,026
November 27 2.19 2,400
a. For each of the above dates, calculate the intrinsic value and the time value of the option.
b. How much is the Intrinsic Value on September 4th.
Click here for the solution: North Shore Railroad operates between Chicago and upper Michigan and Wisconsin
Spot Rate Option
Date per Barrel Value
September 30 $2.17 $1,130
October 31 2.13 1,026
November 27 2.19 2,400
a. For each of the above dates, calculate the intrinsic value and the time value of the option.
b. How much is the Intrinsic Value on September 4th.
Click here for the solution: North Shore Railroad operates between Chicago and upper Michigan and Wisconsin
Wednesday, June 17, 2015
George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
ACC 421 Week 5
Problem 23-7 (P23-7) (SCF-Direct and Indirect Methods from Comparative Financial Statements) George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Winston as of May 31, 2008, are shown on the next page. The company is preparing its statement of cash flows.
AND SO ON
The following is additional information concerning Winston’s transactions during the year ended
May 31, 2008.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $48,000 in cash and issuing 5,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Winston issued 4,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Winston Company for the year ended May 31, 2008, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Winston Company for the year ended May 31, 2008.
Click here for the solution: George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
Problem 23-7 (P23-7) (SCF-Direct and Indirect Methods from Comparative Financial Statements) George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Winston as of May 31, 2008, are shown on the next page. The company is preparing its statement of cash flows.
AND SO ON
The following is additional information concerning Winston’s transactions during the year ended
May 31, 2008.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $48,000 in cash and issuing 5,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Winston issued 4,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Winston Company for the year ended May 31, 2008, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Winston Company for the year ended May 31, 2008.
Click here for the solution: George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
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