E8-22 (Alternative Inventory Methods—Comprehensive) Tori Amos Corporation began operations on December 1, 2006. The only inventory transaction in 2006 was the purchase of inventory on December 10, 2006, at a cost of $20 per unit. None of this inventory was sold in 2006. Relevant information is as follows.
Ending inventory units
December 31, 2006 100
December 31, 2007, by purchase date
December 2, 2007 100
July 20, 2007 50 150
During the year the following purchases and sales were made:
Purchases Sales
March 15 300 units at $24 April 10 200
July 20 300 units at 25 August 20 300
September 4 200 units at 28 November 18 150
December 2 100 units at 30 December 12 200
The company uses the periodic inventory method.
Determine ending inventory using dollar-value LIFO. Assume that the December 2, 2007, purchase cost is the current cost of inventory. (Hint: The beginning inventory is the base layer priced at $20 per unit.)
Click here for the solution: Tori Amos Corporation began operations on December 1, 2006
Showing posts with label operations. Show all posts
Showing posts with label operations. Show all posts
Friday, April 15, 2016
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
P11-5 Property, plant, and equipment and intangible assets; comprehensive
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel:
a. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
b. Land A and Building A were acquired from a predecessor corporation. Thompson paid $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
c. Land B was acquired on October 2, 2009, in exchange for 3,000 newly issued shares of Thompson's common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $25 per share. During October 2009, Thompson paid $10,400 to demolish an existing building on this land so it could construct a new building.
d. Construction of Building B on the newly acquired land began on October 1, 2010. By September 30, 2011, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2012.
e. Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
f. Machine A's total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2011.
g. On October 1, 2010, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2011. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each numbered item on the schedule. Round each answer to the nearest dollar.
Click here for the solution: The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel:
a. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
b. Land A and Building A were acquired from a predecessor corporation. Thompson paid $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
c. Land B was acquired on October 2, 2009, in exchange for 3,000 newly issued shares of Thompson's common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $25 per share. During October 2009, Thompson paid $10,400 to demolish an existing building on this land so it could construct a new building.
d. Construction of Building B on the newly acquired land began on October 1, 2010. By September 30, 2011, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2012.
e. Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
f. Machine A's total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2011.
g. On October 1, 2010, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2011. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each numbered item on the schedule. Round each answer to the nearest dollar.
Click here for the solution: The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
Wednesday, April 13, 2016
1. Nu Company reported the following pretax data for its first year of operations
MULTIPLE CHOICE
1. Nu Company reported the following pretax data for its first year of operations.
Net sales 2,800 Cost of goods available for sale 2,500 Operating expenses 880 Effective tax rate 40% Ending inventories: If LIFO is elected 820 If FIFO is elected 1,060
What is Nu's gross profit percentage if it elects LIFO? (Points : 1)
2. The use of LIFO during a long inflationary period can result in: (Points : 1)
3. The primary reason for the popularity of LIFO is that it gives: (Points : 1)
4. In determining the cost-to-retail percentage for the current year,: (Points : 1)
5. Inventory does not include: (Points : 1)
6. So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2006. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2006, $300,000; sales and purchases from January 1, 2006, to May 1, 2006, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2006, is: (Points : 1)
7. In a period when prices are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of: (Points : 1)
8. To determine the value of a LIFO layer, using dollar-value LIFO retail: (Points : 1)
9. When using the gross profit method to estimate ending inventory, it is not necessary to know: (Points : 1)
10. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: (Points : 1)
Click here for the solution: 1. Nu Company reported the following pretax data for its first year of operations
1. Nu Company reported the following pretax data for its first year of operations.
Net sales 2,800 Cost of goods available for sale 2,500 Operating expenses 880 Effective tax rate 40% Ending inventories: If LIFO is elected 820 If FIFO is elected 1,060
What is Nu's gross profit percentage if it elects LIFO? (Points : 1)
2. The use of LIFO during a long inflationary period can result in: (Points : 1)
3. The primary reason for the popularity of LIFO is that it gives: (Points : 1)
4. In determining the cost-to-retail percentage for the current year,: (Points : 1)
5. Inventory does not include: (Points : 1)
6. So. California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2006. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2006, $300,000; sales and purchases from January 1, 2006, to May 1, 2006, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2006, is: (Points : 1)
7. In a period when prices are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of: (Points : 1)
8. To determine the value of a LIFO layer, using dollar-value LIFO retail: (Points : 1)
9. When using the gross profit method to estimate ending inventory, it is not necessary to know: (Points : 1)
10. The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: (Points : 1)
Click here for the solution: 1. Nu Company reported the following pretax data for its first year of operations
Monday, March 21, 2016
Derrick Adkins Construction Company began operations in 2007
E18-10 (Long-Term Contract Reporting) Derrick Adkins Construction Company began operations in 2007. Construction activity for the first year is shown below. All contracts are with different customers, and any work remaining at December 31, 2007, is expected to be completed in 2008.
Project Total Contract Price Billings through 12/31/07 Cash Collections through 12/31/07 Contract Costs Incurred through 12/31/07 Estimated Additional Costs to Complete
1 $ 560,000 $ 360,000 $340,000 $450,000 $140,000
2 670,000 220,000 210,000 126,000 504,000
3 500,000 500,000 440,000 330,000 –0–
$1,730,000 $1,080,000 $990,000 $906,000 $644,000
Derrick Adkins Construction Company uses the completed-contract method. Determine the amount of income or loss to be reported for each of the three projects in 2007.
Click here for the solution: Derrick Adkins Construction Company began operations in 2007
Project Total Contract Price Billings through 12/31/07 Cash Collections through 12/31/07 Contract Costs Incurred through 12/31/07 Estimated Additional Costs to Complete
1 $ 560,000 $ 360,000 $340,000 $450,000 $140,000
2 670,000 220,000 210,000 126,000 504,000
3 500,000 500,000 440,000 330,000 –0–
$1,730,000 $1,080,000 $990,000 $906,000 $644,000
Derrick Adkins Construction Company uses the completed-contract method. Determine the amount of income or loss to be reported for each of the three projects in 2007.
Click here for the solution: Derrick Adkins Construction Company began operations in 2007
Thursday, January 14, 2016
Case Development began operations in December 2011
E16-25 Multiple tax rates; balance sheet classification
Case Development began operations in December 2011. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2011 installment income was $600,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2012-2014 are as follows:
2012 $150,000 30%
2013 250,000 40
2014 200,000 40
Pretax accounting income for 2011 was $810,000, which includes interest revenue of $10,000 from municipal bonds. The enacted tax rate for 2011 is 30%.
Required:
1.Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2011 income taxes.
2.What is Case’s 2011 net income?
3.How should the deferred tax amount be classified in a classified balance sheet?
Click here for the solution: Case Development began operations in December 2011
Case Development began operations in December 2011. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2011 installment income was $600,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2012-2014 are as follows:
2012 $150,000 30%
2013 250,000 40
2014 200,000 40
Pretax accounting income for 2011 was $810,000, which includes interest revenue of $10,000 from municipal bonds. The enacted tax rate for 2011 is 30%.
Required:
1.Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2011 income taxes.
2.What is Case’s 2011 net income?
3.How should the deferred tax amount be classified in a classified balance sheet?
Click here for the solution: Case Development began operations in December 2011
Wednesday, November 11, 2015
Zero Mostel Company began operations on January 2, 2008
E13-5 (Compensated Absences) Zero Mostel Company began operations on January 2, 2008. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.
Actual Hourly Vacation Days Used Sick Days Used
Wage Rate by each employee by each employee
2008 2009 2008 2009 2008 2009
$10 $11 0 9 4 5
Zero Mostel Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.
Instructions
a.) Prepare journal entries to record transactions related to compensated absences during 2008 and 2009.
b.) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2008 and 2009
Click here for the solution: Zero Mostel Company began operations on January 2, 2008
Actual Hourly Vacation Days Used Sick Days Used
Wage Rate by each employee by each employee
2008 2009 2008 2009 2008 2009
$10 $11 0 9 4 5
Zero Mostel Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.
Instructions
a.) Prepare journal entries to record transactions related to compensated absences during 2008 and 2009.
b.) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2008 and 2009
Click here for the solution: Zero Mostel Company began operations on January 2, 2008
During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock
E15-1 (Recording the Issuances of Common Stock) During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.
Jan 10 Issued 80,000 shares for case at $6 per share
Mar 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate.
July 1 Issued 30,000 shares for cash at $8 per share
Instructions
a.) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share.
b.) Prepare the journal entries for these transactions assuming that the common stock is no par with a stated value of $3 per share.
Click here for the solution: During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock
Jan 10 Issued 80,000 shares for case at $6 per share
Mar 1 Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate.
July 1 Issued 30,000 shares for cash at $8 per share
Instructions
a.) Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share.
b.) Prepare the journal entries for these transactions assuming that the common stock is no par with a stated value of $3 per share.
Click here for the solution: During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock
Tuesday, November 10, 2015
Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory
E22-2 (Change in Principle—Inventory Methods) Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory. Management is contemplating a change in inventory methods for 2008. The following information is available for the years 2005–2007.
Net Income Computed Using
2005: Average Cost = $15,000 FIFO: $19,000 LIFO: $12,000
2006: Average Cost = $18,000 FIFO: $23,000 LIFO: $14,000
2007: Average Cost= $20,000 FIFO: $25,000 LIFO: $17,000
Instructions
(Ignore all tax effects.)
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2008.
(b) Determine net income to be reported for 2005, 2006, and 2007, after giving effect to the change in accounting principle.
(c) Assume Holder-Webb Company used the LIFO method instead of the average cost method during the years 2005–2007. In 2008, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.
Click here for the solution: Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory
Net Income Computed Using
2005: Average Cost = $15,000 FIFO: $19,000 LIFO: $12,000
2006: Average Cost = $18,000 FIFO: $23,000 LIFO: $14,000
2007: Average Cost= $20,000 FIFO: $25,000 LIFO: $17,000
Instructions
(Ignore all tax effects.)
(a) Prepare the journal entry necessary to record a change from the average cost method to the FIFO method in 2008.
(b) Determine net income to be reported for 2005, 2006, and 2007, after giving effect to the change in accounting principle.
(c) Assume Holder-Webb Company used the LIFO method instead of the average cost method during the years 2005–2007. In 2008, Holder-Webb changed to the FIFO method. Prepare the journal entry necessary to record the change in principle.
Click here for the solution: Holder-Webb Company began operations on January 1, 2005, and uses the average cost method of pricing inventory
Monday, October 26, 2015
Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations
ACC 560 Week 2 Assignment
E3-14 Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations. The operation consists of three segments (departments): receiving, shipping, and delivery. Containers are received at Container's docks and sorted according to the ship they will be carried on. The containers are then loaded onto a ship, which carries them to the appropriate port of destination. The containers are then off-loaded and delivered to the receiving company. Container shipping wants to begin to use process costing in the shipping department. Direct materials represent the fuel costs to run the ship, and "Containers in transit" represents work in process. Listed below is information about the shipping department's first month's activity.
Containers in Transit April 1 0
Containers loaded 800
Containers in Transit April 30 350 40% of direct materials and
30% of conversion costs
Determine the physical flow of containers for the month
Compute the equivalent units for direct materials and conversion costs
Click here for the solution: Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations
E3-14 Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations. The operation consists of three segments (departments): receiving, shipping, and delivery. Containers are received at Container's docks and sorted according to the ship they will be carried on. The containers are then loaded onto a ship, which carries them to the appropriate port of destination. The containers are then off-loaded and delivered to the receiving company. Container shipping wants to begin to use process costing in the shipping department. Direct materials represent the fuel costs to run the ship, and "Containers in transit" represents work in process. Listed below is information about the shipping department's first month's activity.
Containers in Transit April 1 0
Containers loaded 800
Containers in Transit April 30 350 40% of direct materials and
30% of conversion costs
Determine the physical flow of containers for the month
Compute the equivalent units for direct materials and conversion costs
Click here for the solution: Container Shipping, Inc. is contemplating the use of process costing to track the cost of its operations
Wednesday, October 14, 2015
The T accounts below summarize the ledger of Simon Landscaping Company at the end of the first month of operations
E2-10 The T accounts below summarize the ledger of Simon Landscaping Company at the end of the first month of operations.
Cash No. 101
4/1 15,000 4/15 600
4/12 900 4/25 1,500
4/29 400
4/30 1,000
Accounts Receivable No. 112
4/7 3,200 4/29 400
Supplies No. 126
4/4 1,800
Accounts Payable No. 201
4/25 1,500 4/4 1,800
Unearned Revenue No. 205
4/30 1,000
Common Stock No. 311
4/1 15,000
Service Revenue No. 400
4/7 3,200
4/12 900
Salaries Expense No. 726
4/15 600
Instructions
(a) Prepare the complete general journal from which the postings to Cash were made.
(b) Prepare a trial balance at April 30, 2008.
Click here for the solution: The T accounts below summarize the ledger of Simon Landscaping Company at the end of the first month of operations
Cash No. 101
4/1 15,000 4/15 600
4/12 900 4/25 1,500
4/29 400
4/30 1,000
Accounts Receivable No. 112
4/7 3,200 4/29 400
Supplies No. 126
4/4 1,800
Accounts Payable No. 201
4/25 1,500 4/4 1,800
Unearned Revenue No. 205
4/30 1,000
Common Stock No. 311
4/1 15,000
Service Revenue No. 400
4/7 3,200
4/12 900
Salaries Expense No. 726
4/15 600
Instructions
(a) Prepare the complete general journal from which the postings to Cash were made.
(b) Prepare a trial balance at April 30, 2008.
Click here for the solution: The T accounts below summarize the ledger of Simon Landscaping Company at the end of the first month of operations
A tabular analysis of the transactions made during August 2012 by Nigel Company during its first month of operations is shown below
E3-4 A tabular analysis of the transactions made during August 2012 by Nigel Company during its first month of operations is shown below. Each increase and decrease in stockholders’ equity is explained.
Instructions
(a) Describe each transaction.
(b) Determine how much stockholders’ equity increased for the month.
(c) Compute the net income for the month.
Click here for the solution: A tabular analysis of the transactions made during August 2012 by Nigel Company during its first month of operations is shown below
Instructions
(a) Describe each transaction.
(b) Determine how much stockholders’ equity increased for the month.
(c) Compute the net income for the month.
Click here for the solution: A tabular analysis of the transactions made during August 2012 by Nigel Company during its first month of operations is shown below
Sunday, September 27, 2015
At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following
P12-2A At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following.
Partner Drawings Capital
Reese Caplin 23,000 48,000
Phyllis Newell 14,000 30,000
Betty Uhrich 10,000 25,000
The capital balance represents each partner's initial capital investment. Therefore, net income or net loss for 2010 has not been closed to the partners' capital accounts.
a. Journalize the entry to record the division of net income for the year 2010 under each of the following independent assumptions.
1. Net income is $30,000. Income is shared 6 : 3 : 1.
2. Net income is $37,000. Caplin and Newell are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally.
3. Net income is $19,000. Each partner is allowed interest of 10% on beginning capital balances. Caplin is given a $12,000 salary allowance. The remainder is shared equally.
b. Complete the schedule showing the division of net income under assumption (3) above.
c. Complete the partners' capital statement for the year under assumption (3) above.
Click here for the solution: At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following
Partner Drawings Capital
Reese Caplin 23,000 48,000
Phyllis Newell 14,000 30,000
Betty Uhrich 10,000 25,000
The capital balance represents each partner's initial capital investment. Therefore, net income or net loss for 2010 has not been closed to the partners' capital accounts.
a. Journalize the entry to record the division of net income for the year 2010 under each of the following independent assumptions.
1. Net income is $30,000. Income is shared 6 : 3 : 1.
2. Net income is $37,000. Caplin and Newell are given salary allowances of $15,000 and $10,000, respectively. The remainder is shared equally.
3. Net income is $19,000. Each partner is allowed interest of 10% on beginning capital balances. Caplin is given a $12,000 salary allowance. The remainder is shared equally.
b. Complete the schedule showing the division of net income under assumption (3) above.
c. Complete the partners' capital statement for the year under assumption (3) above.
Click here for the solution: At the end of its first year of operations on December 31, 2010, CNU Company's accounts show the following
Friday, September 25, 2015
Webster Consulting experienced the following transactions for 2012, its first year of operations and 2013
Problem 1-30 Prepare Financial Statements for Two Complete Accounting Cycles
Webster Consulting experienced the following transactions for 2012, its first year of operations and 2013. Assume that all transactions involve the receipt or payment of cash.
Transactions for 2012
1. Acquired $20,000 by issuing common stock.
2. Received $35,000 cash for providing services to customers.
3. Borrowed $25,000 cash from creditors
4. Paid expenses amounting to $22,000
5. Purchased land for $30,000 cash
Transactions for 2013
Beginning account balances for 2013 are:
Cash $28,000
Land $30,000
Notes payable 25,000
Common stock 20,000
Retained earnings 13,000
1. Acquired an additional $24,000 from the issue of common stock
2. Received $95,000 for providing services
3. Paid $15,000 to creditors to reduce loan
4. Paid expenses amounting to $71,500
5. Paid a $3,000 dividend to the stockholders
6. Determined that the market value of the land is $47,000.
Required
a. Write an accounting equation and record the effects of each accounting event under the appropriate headings for each year. Record the amounts of revenue expense and dividends in the retained earnings column. Provide appropriate titles for these accounts in the last column of the table.
b. Prepare an income statement, statement of changes in stockholders equity, year end balance sheet and statement of cash flows for each year.
c. Determine the amount of cash that is in the retained earnings account at the end of 2012 and 2013.
d. Examine the balance sheets for the two years. How did assets change from 2012 to 2013?
e. Determine the balance in the retained earnings account immediately after event 2 in 2012 and in 2013 are recorded.
Click here for the solution: Webster Consulting experienced the following transactions for 2012, its first year of operations and 2013
Webster Consulting experienced the following transactions for 2012, its first year of operations and 2013. Assume that all transactions involve the receipt or payment of cash.
Transactions for 2012
1. Acquired $20,000 by issuing common stock.
2. Received $35,000 cash for providing services to customers.
3. Borrowed $25,000 cash from creditors
4. Paid expenses amounting to $22,000
5. Purchased land for $30,000 cash
Transactions for 2013
Beginning account balances for 2013 are:
Cash $28,000
Land $30,000
Notes payable 25,000
Common stock 20,000
Retained earnings 13,000
1. Acquired an additional $24,000 from the issue of common stock
2. Received $95,000 for providing services
3. Paid $15,000 to creditors to reduce loan
4. Paid expenses amounting to $71,500
5. Paid a $3,000 dividend to the stockholders
6. Determined that the market value of the land is $47,000.
Required
a. Write an accounting equation and record the effects of each accounting event under the appropriate headings for each year. Record the amounts of revenue expense and dividends in the retained earnings column. Provide appropriate titles for these accounts in the last column of the table.
b. Prepare an income statement, statement of changes in stockholders equity, year end balance sheet and statement of cash flows for each year.
c. Determine the amount of cash that is in the retained earnings account at the end of 2012 and 2013.
d. Examine the balance sheets for the two years. How did assets change from 2012 to 2013?
e. Determine the balance in the retained earnings account immediately after event 2 in 2012 and in 2013 are recorded.
Click here for the solution: Webster Consulting experienced the following transactions for 2012, its first year of operations and 2013
Case Development began operations in December 2011
E16-25 Multiple tax rates; balance sheet classification
Case Development began operations in December 2011. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2011 installment income was $600,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2012-2014 are as follows:
2012 $150,000 30%
2013 250,000 40
2014 200,000 40
Pretax accounting income for 2011 was $810,000, which includes interest revenue of $10,000 from municipal bonds. The enacted tax rate for 2011 is 30%.
Required:
1.Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2011 income taxes.
2.What is Case’s 2011 net income?
3.How should the deferred tax amount be classified in a classified balance sheet?
Click here for the solution: Case Development began operations in December 2011
Case Development began operations in December 2011. When property is sold on an installment basis, Case recognizes installment income for financial reporting purposes in the year of the sale. For tax purposes, installment income is reported by the installment method. 2011 installment income was $600,000 and will be collected over the next three years. Scheduled collections and enacted tax rates for 2012-2014 are as follows:
2012 $150,000 30%
2013 250,000 40
2014 200,000 40
Pretax accounting income for 2011 was $810,000, which includes interest revenue of $10,000 from municipal bonds. The enacted tax rate for 2011 is 30%.
Required:
1.Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2011 income taxes.
2.What is Case’s 2011 net income?
3.How should the deferred tax amount be classified in a classified balance sheet?
Click here for the solution: Case Development began operations in December 2011
The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers
PR 24-5B The vice president of operations of Six Layer Computers Inc. is
evaluating the performance of two divisions organized as investment
centers. Invested assets and condensed income statement data for the
past year for each division are as follows:
Network Equipment Division Personal Computing Division
Sales $1,400,000 $1,120,000
Cost of goods sold 845,000 690,000
Operating expenses 345,000 206,000
Invested assets 1,000,000 1,400,000
1. Prepare condensed divisional income statements for the year ended December 31, 2010, assuming that there were no service department charges. Enter all amounts as positive numbers.
2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division. Round investment turnover to one decimal place. Do not enter in the percent sign.
3. If management's minimum acceptable rate of return is 14%, determine the residual income for each division. If required, use the minus sign to indicate a negative.
4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3). The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Check: 2. Network Equipment Division ROI, 21%
Click here for the solution: The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers
Network Equipment Division Personal Computing Division
Sales $1,400,000 $1,120,000
Cost of goods sold 845,000 690,000
Operating expenses 345,000 206,000
Invested assets 1,000,000 1,400,000
1. Prepare condensed divisional income statements for the year ended December 31, 2010, assuming that there were no service department charges. Enter all amounts as positive numbers.
2. Using the DuPont formula for rate of return on investment, determine the profit margin, investment turnover, and rate of return on investment for each division. Round investment turnover to one decimal place. Do not enter in the percent sign.
3. If management's minimum acceptable rate of return is 14%, determine the residual income for each division. If required, use the minus sign to indicate a negative.
4. Discuss the evaluation of the two divisions, using the performance measures determined in parts (1), (2), and (3). The input in the box below will not be graded, but may be reviewed and considered by your instructor.
Check: 2. Network Equipment Division ROI, 21%
Click here for the solution: The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers
Thursday, September 24, 2015
The following transactions apply to Artesia Co for 2012 its first year of operations
P7-26 The following transactions apply to Artesia Co for 2012 its first year of operations.
1. Received 40,000 cash from the issue of a short term note with a five percent interest rate and a one year maturity. The note was issued on April 1, 2012.
2. Received 120,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of six percent.
3. Paid 72,000 cash for other operating expenses during the year.
4. Paid the sales tax due on 100,000 of the services revenue for the year. Sales tax balance on the balance of the revenue is not due until 2013.
5. Recognized the accrued interest at December 31, 2012.
The following transactions apply to Artesia Co for 2013.
1. Paid the balance of the sales tax due for 2012.
2. Received $145,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Repaid the principal of the note and applicable interest on April 1, 2013.
4. Paid $85,000 of other operating expenses during the year.
5. Paid the sales tax due on $120,000 of the services revenue. The sales tax on the balance of the revenue is not due until 2014.
Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare an income statement, a statement of changes in stockholders equity a balance sheet and a statement of cash flow for 2012 and 2013.
Click here for the solution: The following transactions apply to Artesia Co for 2012 its first year of operations
1. Received 40,000 cash from the issue of a short term note with a five percent interest rate and a one year maturity. The note was issued on April 1, 2012.
2. Received 120,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of six percent.
3. Paid 72,000 cash for other operating expenses during the year.
4. Paid the sales tax due on 100,000 of the services revenue for the year. Sales tax balance on the balance of the revenue is not due until 2013.
5. Recognized the accrued interest at December 31, 2012.
The following transactions apply to Artesia Co for 2013.
1. Paid the balance of the sales tax due for 2012.
2. Received $145,000 cash plus applicable sales tax from performing services. The services are subject to a sales tax rate of 6 percent.
3. Repaid the principal of the note and applicable interest on April 1, 2013.
4. Paid $85,000 of other operating expenses during the year.
5. Paid the sales tax due on $120,000 of the services revenue. The sales tax on the balance of the revenue is not due until 2014.
Required
a. Organize the transaction data in accounts under an accounting equation.
b. Prepare an income statement, a statement of changes in stockholders equity a balance sheet and a statement of cash flow for 2012 and 2013.
Click here for the solution: The following transactions apply to Artesia Co for 2012 its first year of operations
Wednesday, September 23, 2015
Argentine Partners is concerned about the possible effects of inflation on its operations
Argentine Partners is concerned about the possible effects of inflation
on its operations. Presently, the company sells 60,000 units for $30 per
unit. The variable production costs are $15 and fixed costs amount to
$700,000. Production engineers have advised management that they expect
unit labor costs to rise by 15 percent and unit materials costs to rise
by 10 percent in the coming year. Of the $15 variable costs, 50 percent
are from labor and 25 percent are from materials. Variable overhead
costs are expected to increase by 20 percent. Sales prices cannot
increase more than 10 percent. It is also expected that fixed costs will
rise by 5 percent as a result of increased taxes and other
miscellaneous fixed charges. The company wishes to maintain the same
level of profit in real dollar terms. It is expected that to accomplish
this objective, profits must increase by 6 percent during the year.
a. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.
b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increase is implemented.
c. If the volume of sales were to remain at 60,000 units, what price would be required to attain the 6 percent increase in profits?
Click here for the solution: Argentine Partners is concerned about the possible effects of inflation on its operations
a. Compute the volume in units and the dollar sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.
b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increase is implemented.
c. If the volume of sales were to remain at 60,000 units, what price would be required to attain the 6 percent increase in profits?
Click here for the solution: Argentine Partners is concerned about the possible effects of inflation on its operations
Sunday, September 13, 2015
P4-3 For the year ending December 31, 2011, Micron Corporation had income from continuing operations before taxes
P4-3 Income statement presentation
For the year ending December 31, 2011, Micron Corporation had income from continuing operations before taxes of $1,200,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should be considered material.
1. During 2011, one of Micron's factories was damaged in an earthquake. As a result, the firm recognized a loss of $800,000. The event is considered unusual and infrequent.
2. In November of 2011, Micron sold its Waffle House restaurant chain that qualified as a component of an entity. The company had adopted a plan to sell the chain in May of 2011. The operating income of the chain from January 1, 2011, through November was $160,000 and the loss on sale of the chain's assets was $300,000.
3. In 2011, Micron sold one of its six factories for $1,200,000. At the time of the sale, the factory had a carrying value of $1,100,000. The factory was not considered a component of the entity.
4. In 2009, Micron's accountant omitted the annual adjustment for patent amortization expense of $120,000. The error was not discovered until December 2011.
Required:
1. Prepare Micron's income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2011. Assume an income tax rate of 30%. Ignore EPS disclosures.
2. Briefly explain the motivation for segregating certain income statement events from income from continuing operations.
Click here for the solution: P4-3 For the year ending December 31, 2011, Micron Corporation had income from continuing operations before taxes
For the year ending December 31, 2011, Micron Corporation had income from continuing operations before taxes of $1,200,000 before considering the following transactions and events. All of the items described below are before taxes and the amounts should be considered material.
1. During 2011, one of Micron's factories was damaged in an earthquake. As a result, the firm recognized a loss of $800,000. The event is considered unusual and infrequent.
2. In November of 2011, Micron sold its Waffle House restaurant chain that qualified as a component of an entity. The company had adopted a plan to sell the chain in May of 2011. The operating income of the chain from January 1, 2011, through November was $160,000 and the loss on sale of the chain's assets was $300,000.
3. In 2011, Micron sold one of its six factories for $1,200,000. At the time of the sale, the factory had a carrying value of $1,100,000. The factory was not considered a component of the entity.
4. In 2009, Micron's accountant omitted the annual adjustment for patent amortization expense of $120,000. The error was not discovered until December 2011.
Required:
1. Prepare Micron's income statement, beginning with income from continuing operations before taxes, for the year ended December 31, 2011. Assume an income tax rate of 30%. Ignore EPS disclosures.
2. Briefly explain the motivation for segregating certain income statement events from income from continuing operations.
Click here for the solution: P4-3 For the year ending December 31, 2011, Micron Corporation had income from continuing operations before taxes
During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity
E 18-5 Issuance of shares; noncash consideration
During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share.
Required:
Prepare the appropriate journal entries to record each transaction.
Feb. 12 Sold 2 million common shares, for $9 per share.
13 Issued 40,000 common shares to attorneys in exchange for legal services.
13 Sold 80,000 of its common shares and 4,000 preferred shares for a total of $945,000.
Nov. 15 Issued 380,000 of its common shares in exchange for equipment for which the cash price was known to be $3,688,000
Click here for the solution: During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity
During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million preferred shares, $50 par per share.
Required:
Prepare the appropriate journal entries to record each transaction.
Feb. 12 Sold 2 million common shares, for $9 per share.
13 Issued 40,000 common shares to attorneys in exchange for legal services.
13 Sold 80,000 of its common shares and 4,000 preferred shares for a total of $945,000.
Nov. 15 Issued 380,000 of its common shares in exchange for equipment for which the cash price was known to be $3,688,000
Click here for the solution: During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders' equity
Sunday, September 6, 2015
The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan
4-62 (Lincoln Federal Savings and Loan) The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan, a California savings and loan (S&L) that was a subsidiary of American Continental Company, a real estate development company run by Charles Keating.
Required:
a. After reading the discussion of Lincoln Federal Savings and Loan, identify the risk areas that should be identified in planning for the audit.
b. Briefly discuss the risks identified and the implication of those risks for the conduct of the audit.
c. The auditor did review a few independent appraisals indicating the market value of the real estate in folders for loans. How convincing are such appraisals? In other words, what attributes are necessary in order for the appraisals to constitute persuasive evidence?
Lincoln Federal Savings & Loan
Savings and Loan industry background-the S&L industry was developed in the early part of the century in response to a perceived need to provide low-cost financing to encourage home ownership. As such, legislation by Congress made the S&L industry the primary financial group allowed low-cost home ownership loans (mortgages).
For many years, the industry operated by accepting relatively long-term deposits from customers and making 25- to – 30-year loans at fixed rates on home mortgages. The industry was generally considered to be safe. Most of the S&Ls (also known as thrifts) were small, federally chartered institutions with deposits insured by the FSLIC. “Get your deposits in, make loans, sit back, and earn your returns. Get to work by 9 A.M. and out to the golf course by noon” Seemed to be the motto of many S&L managers.,
Changing economic environment-During the 1970s, two major economic events hit the S&L industry. First, the rate of inflation had reached an all-time high. Prime interest rates had gone as high as 19.5%. Second, deposits were being drawn away from the S&Ls by new competitors that offered short-term variable rates substantially higher than current passbook savings rates. The S&Ls responded by increasing the rates on certificates of deposit to extraordinary levels (15 or 16%) while servicing mortgages with 20-to 30-year maturities made at old rates of 7 to 8%. The S&Ls attempted to mitigate the problem by offering variable-rate mortgages or by selling off some of their mortgages (at substantial losses) to other firms.
However, following regulatory accounting principles, the S&Ls were not required to recognize market values of loans that were not sold. Thus, even if loan values were substantially less than the book value, they would continue to be carried at book value as long as the mortgage holder was not in default.
Changing regulatory environment-Congress moved to deregulate the S&L industry. During the first half of 1982, the S&L industry lost a record $3.3 billion (even without marking loans down to real value). In August 1982, President Reagan signed the Garn-St Germain Depository Institutions Act of 1982, hailing it as “the most important legislation for financial institutions in 50 years.” The bill had several key elements:
• S&Ls would be allowed to offer money market funds free from withdrawal penalties or interest rate regulation.
• S&Ls could invest up to 40% of their assets in nonresidential real estate lending. Commercial lending was much riskier than home lending, but the potential returns were greater. In addition, the regulators helped the deregulatory fever by removing a regulation that had required a saving and loan institution to have 400 stockholders with no one owning more than 25% to allowing a single shareholder to own a savings and loan institution.
• The bill allowed thrifts to stop requiring traditional down payments and to provide 100% financing, with the borrower not required to invest a dime of personal money in the deal.
• The bill permitted thrifts to make real estate loans anywhere. They had previously been required to make loans on property located only in their own geographic area.
Click here for the solution: The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan
Required:
a. After reading the discussion of Lincoln Federal Savings and Loan, identify the risk areas that should be identified in planning for the audit.
b. Briefly discuss the risks identified and the implication of those risks for the conduct of the audit.
c. The auditor did review a few independent appraisals indicating the market value of the real estate in folders for loans. How convincing are such appraisals? In other words, what attributes are necessary in order for the appraisals to constitute persuasive evidence?
Lincoln Federal Savings & Loan
Savings and Loan industry background-the S&L industry was developed in the early part of the century in response to a perceived need to provide low-cost financing to encourage home ownership. As such, legislation by Congress made the S&L industry the primary financial group allowed low-cost home ownership loans (mortgages).
For many years, the industry operated by accepting relatively long-term deposits from customers and making 25- to – 30-year loans at fixed rates on home mortgages. The industry was generally considered to be safe. Most of the S&Ls (also known as thrifts) were small, federally chartered institutions with deposits insured by the FSLIC. “Get your deposits in, make loans, sit back, and earn your returns. Get to work by 9 A.M. and out to the golf course by noon” Seemed to be the motto of many S&L managers.,
Changing economic environment-During the 1970s, two major economic events hit the S&L industry. First, the rate of inflation had reached an all-time high. Prime interest rates had gone as high as 19.5%. Second, deposits were being drawn away from the S&Ls by new competitors that offered short-term variable rates substantially higher than current passbook savings rates. The S&Ls responded by increasing the rates on certificates of deposit to extraordinary levels (15 or 16%) while servicing mortgages with 20-to 30-year maturities made at old rates of 7 to 8%. The S&Ls attempted to mitigate the problem by offering variable-rate mortgages or by selling off some of their mortgages (at substantial losses) to other firms.
However, following regulatory accounting principles, the S&Ls were not required to recognize market values of loans that were not sold. Thus, even if loan values were substantially less than the book value, they would continue to be carried at book value as long as the mortgage holder was not in default.
Changing regulatory environment-Congress moved to deregulate the S&L industry. During the first half of 1982, the S&L industry lost a record $3.3 billion (even without marking loans down to real value). In August 1982, President Reagan signed the Garn-St Germain Depository Institutions Act of 1982, hailing it as “the most important legislation for financial institutions in 50 years.” The bill had several key elements:
• S&Ls would be allowed to offer money market funds free from withdrawal penalties or interest rate regulation.
• S&Ls could invest up to 40% of their assets in nonresidential real estate lending. Commercial lending was much riskier than home lending, but the potential returns were greater. In addition, the regulators helped the deregulatory fever by removing a regulation that had required a saving and loan institution to have 400 stockholders with no one owning more than 25% to allowing a single shareholder to own a savings and loan institution.
• The bill allowed thrifts to stop requiring traditional down payments and to provide 100% financing, with the borrower not required to invest a dime of personal money in the deal.
• The bill permitted thrifts to make real estate loans anywhere. They had previously been required to make loans on property located only in their own geographic area.
Click here for the solution: The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan
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