Cheaney Corporation owns a number of cruise ships and a chain of hotels. The hotels, which have not been profitable, were discontinued on September 1, 2008. The 2008 operating results for the company were as follows.
Operating revenues $12,850,000
Operating expenses 8,700,000
Operating income $ 4,150,000
Analysis discloses that these data include the operating results of the hotel chain, which were: operating revenues $2,000,000 and operating expenses $2,400,000.The hotels were sold at a gain of $200,000 before taxes. This gain is not included in the operating results. During the year, Cheaney suffered an extraordinary loss of $800,000 before taxes, which is not included in the operating results. In 2008, the company had other revenues and gains of $100,000, which are not included in the operating results. The corporation is in the 30% income tax bracket.
Instructions:
Complete the condensed income statement.
Click here for the solution: Cheaney Corporation owns a number of cruise ships and a chain of hotels
Showing posts with label owns. Show all posts
Showing posts with label owns. Show all posts
Thursday, January 14, 2016
Wednesday, October 14, 2015
Jack Shellenkamp owns and manages a computer repair service, which had the following trial balance on December 31, 2007 (the end of its fiscal year)
P2-3A Jack Shellenkamp owns and manages a computer repair service, which had the following trial balance on December 31, 2007 (the end of its fiscal year).
BYTE REPAIR SERVICE, INC.
Trial Balance
December 31, 2007
Cash $8,000
Accounts Receivable 15,000
Parts Inventory 13,000
Prepaid Rent 3,000
Shop Equipment 21,000
Accounts Payable $19,000
Common Stock 30,000
Retained Earnings 11,000
$60,000 $60,000
Summarized transactions for January 2008 were as follows:
1. Advertising costs, paid in cash, $1,000.
2. Additional repair parts inventory acquired on account $4,000.
3. Miscellaneous expenses, paid in cash, $2,000.
4. Cash collected from customers in payment of accounts receivable $14,000.
5. Cash paid to creditors for accounts payable due $15,000.
6. Repair parts used during January $4,000. (Hint: Debit this to Repair Parts Expense.)
7. Repair services performed during January: for cash $6,000; on account $9,000.
8. Wages for January, paid in cash, $3,000.
9. Dividends paid in January were $3,000.
Instructions
(a) Prepare journal entries to record each of the January transactions.
(b) Open T accounts for each of the accounts listed in the trial balance, and enter the opening balances for 2008. Post the journal entries to the accounts in the ledger.
(c) Prepare a trial balance as of January 31, 2008.
Click here for the solution: Jack Shellenkamp owns and manages a computer repair service, which had the following trial balance on December 31, 2007
BYTE REPAIR SERVICE, INC.
Trial Balance
December 31, 2007
Cash $8,000
Accounts Receivable 15,000
Parts Inventory 13,000
Prepaid Rent 3,000
Shop Equipment 21,000
Accounts Payable $19,000
Common Stock 30,000
Retained Earnings 11,000
$60,000 $60,000
Summarized transactions for January 2008 were as follows:
1. Advertising costs, paid in cash, $1,000.
2. Additional repair parts inventory acquired on account $4,000.
3. Miscellaneous expenses, paid in cash, $2,000.
4. Cash collected from customers in payment of accounts receivable $14,000.
5. Cash paid to creditors for accounts payable due $15,000.
6. Repair parts used during January $4,000. (Hint: Debit this to Repair Parts Expense.)
7. Repair services performed during January: for cash $6,000; on account $9,000.
8. Wages for January, paid in cash, $3,000.
9. Dividends paid in January were $3,000.
Instructions
(a) Prepare journal entries to record each of the January transactions.
(b) Open T accounts for each of the accounts listed in the trial balance, and enter the opening balances for 2008. Post the journal entries to the accounts in the ledger.
(c) Prepare a trial balance as of January 31, 2008.
Click here for the solution: Jack Shellenkamp owns and manages a computer repair service, which had the following trial balance on December 31, 2007
Monday, October 5, 2015
Pruitt Corporation owns 90% of the common stock of Sedbrook Company
Complete Equity with downstream sales:
Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2009, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2013, are presented here.
Pruitt Sedbrook Corporation Company
Cash $ 83,000 $ 80,000
Accounts Receivable 213,000 112,500
Inventory 150,000 110,000
Investment in Sedbrook Co. 568,250
Other Assets 500,000 400,000
Dividends Declared 100,000 30,000
Purchases 850,000 350,000
Other expenses 180,000 137,500
$2, 644,250 $1,220,000
Accounts Payable 70,000 30,000
Other Liabilities 75,000 40,000
Common Stock 800,000 500,000
Retained Earnings 1/1 532,000 120,000
Sales 1,100,000 530,000
Equity in Subsidiary Income 67,250 $2,644,250 $1,220,000
Ending Inventory $ 200,000 $ 120,000
The January 1, 2013, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2012 sales. During 2013, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending inventory of Sedbrook Company includes goods purchased in 2013 from Pruitt for $50,000. Pruitt Corporation uses the complete equity method to record its investment in Sedbrook Company.
a. Prepare the consolidated statements workpaper for the year ended December 31, 2013.
b. Calculate consolidated retained earnings on December 31, 2013, using the analytical or t-account approach.
Click here for the solution: Pruitt Corporation owns 90% of the common stock of Sedbrook Company
Pruitt Corporation owns 90% of the common stock of Sedbrook Company. The stock was purchased for $540,000 on January 1, 2009, when Sedbrook Company’s retained earnings were $100,000. Preclosing trial balances for the two companies at December 31, 2013, are presented here.
Pruitt Sedbrook Corporation Company
Cash $ 83,000 $ 80,000
Accounts Receivable 213,000 112,500
Inventory 150,000 110,000
Investment in Sedbrook Co. 568,250
Other Assets 500,000 400,000
Dividends Declared 100,000 30,000
Purchases 850,000 350,000
Other expenses 180,000 137,500
$2, 644,250 $1,220,000
Accounts Payable 70,000 30,000
Other Liabilities 75,000 40,000
Common Stock 800,000 500,000
Retained Earnings 1/1 532,000 120,000
Sales 1,100,000 530,000
Equity in Subsidiary Income 67,250 $2,644,250 $1,220,000
Ending Inventory $ 200,000 $ 120,000
The January 1, 2013, inventory of Sedbrook Company includes $30,000 of profit recorded by Pruitt Corporation on 2012 sales. During 2013, Pruitt Corporation made intercompany sales of $200,000 with a markup of 25% on cost. The ending inventory of Sedbrook Company includes goods purchased in 2013 from Pruitt for $50,000. Pruitt Corporation uses the complete equity method to record its investment in Sedbrook Company.
a. Prepare the consolidated statements workpaper for the year ended December 31, 2013.
b. Calculate consolidated retained earnings on December 31, 2013, using the analytical or t-account approach.
Click here for the solution: Pruitt Corporation owns 90% of the common stock of Sedbrook Company
Sunday, September 27, 2015
The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store. It was agreed as of June 30, 2008, to combine the partnerships to form a new partnership to be known as Discount Partnership. Trial balances of the two original partnerships as of June 30, 2008 follow.
Up & Down Back & Forth
Trial Balance Trial Balance
June 30, 2008 June 30, 2008
Cash $ 25,000 $ 20,000
Accounts Receivable 90,000 140,000
Allowance for Doubtful Accounts $ 2,000 $ 6,000
Merchandise Inventory 180,000 115,000
Land 25,000 35,000
Buildings and Equipment 80,000 125,000
Allowance for Depreciation 24,000 61,000
Prepaid Expenses 6,000 8,000
Accounts Payable 42,000 54,000
Notes Payable 65,000 74,000
Accrued Expenses 34,000 44,000
Up, Capital 95,000
Down, Capital 144,000
Back, Capital 65,000
Forth, Capital 139,000
Totals $406,000 $406,000 $443,000 $443,000
The following additional information is available.
1. The profit- and loss-sharing ratios for the former partnerships were 40% to Up and 60% to Down; 30% to Back and 70% to Forth. The profit- and loss-sharing ratio for the new partnership will be Up, 20%; Down, 30%; Back, 15%; and Forth, 35%.
2. The opening capital ratios for the new partnership are to be the same as the profit- and loss-sharing ratios for the new partnership. The capital assigned to Up & Down will total $225,000. Any cash settlements among the partners arising from capital account adjustments will be a private matter and will not be recorded on the partnership books.
3. The partners agreed that the allowance for bad debts for the new partnership is to be 4% of the accounts receivable balances.
4. The opening inventory of the new partnership is to be valued by the FIFO method. The inventory of Up & Down was valued by the FIFO method and the Back & Forth inventory was valued by the LIFO method. The LIFO inventory represents 80% of its FIFO value.
5. Depreciation is to be computed by the double-declining balance method with a 10-year life for the depreciable assets. Depreciation for three years is to be accumulated in the opening balance of the Allowance for Depreciation account. Up & Down computed depreciation by the straight-line method, and Back & Forth used the double-declining balance method. All assets were obtained on July 1, 2005.
6. After the books were closed, an unrecorded merchandise purchase of $4,000 by Back & Forth was discovered. The merchandise had been sold by June 30, 2008.
7. The accounts of Up & Down include a vacation pay accrual. It was agreed that Back & Forth should make a similar accrual for their 10 employees, who will receive a two-week vacation of $200 per employee per week.
Required:
A. Prepare a worksheet to determine the opening balances of a new partnership after giving effect to the information above. Formal journal entries are not required. Supporting computations, including the computation of goodwill, should be in good form.
B. Prepare a schedule computing the cash to be exchanged between Up & Down and between Back & Forth, in settlement of the affairs of each original partnership.
Click here for the solution: The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
Up & Down Back & Forth
Trial Balance Trial Balance
June 30, 2008 June 30, 2008
Cash $ 25,000 $ 20,000
Accounts Receivable 90,000 140,000
Allowance for Doubtful Accounts $ 2,000 $ 6,000
Merchandise Inventory 180,000 115,000
Land 25,000 35,000
Buildings and Equipment 80,000 125,000
Allowance for Depreciation 24,000 61,000
Prepaid Expenses 6,000 8,000
Accounts Payable 42,000 54,000
Notes Payable 65,000 74,000
Accrued Expenses 34,000 44,000
Up, Capital 95,000
Down, Capital 144,000
Back, Capital 65,000
Forth, Capital 139,000
Totals $406,000 $406,000 $443,000 $443,000
The following additional information is available.
1. The profit- and loss-sharing ratios for the former partnerships were 40% to Up and 60% to Down; 30% to Back and 70% to Forth. The profit- and loss-sharing ratio for the new partnership will be Up, 20%; Down, 30%; Back, 15%; and Forth, 35%.
2. The opening capital ratios for the new partnership are to be the same as the profit- and loss-sharing ratios for the new partnership. The capital assigned to Up & Down will total $225,000. Any cash settlements among the partners arising from capital account adjustments will be a private matter and will not be recorded on the partnership books.
3. The partners agreed that the allowance for bad debts for the new partnership is to be 4% of the accounts receivable balances.
4. The opening inventory of the new partnership is to be valued by the FIFO method. The inventory of Up & Down was valued by the FIFO method and the Back & Forth inventory was valued by the LIFO method. The LIFO inventory represents 80% of its FIFO value.
5. Depreciation is to be computed by the double-declining balance method with a 10-year life for the depreciable assets. Depreciation for three years is to be accumulated in the opening balance of the Allowance for Depreciation account. Up & Down computed depreciation by the straight-line method, and Back & Forth used the double-declining balance method. All assets were obtained on July 1, 2005.
6. After the books were closed, an unrecorded merchandise purchase of $4,000 by Back & Forth was discovered. The merchandise had been sold by June 30, 2008.
7. The accounts of Up & Down include a vacation pay accrual. It was agreed that Back & Forth should make a similar accrual for their 10 employees, who will receive a two-week vacation of $200 per employee per week.
Required:
A. Prepare a worksheet to determine the opening balances of a new partnership after giving effect to the information above. Formal journal entries are not required. Supporting computations, including the computation of goodwill, should be in good form.
B. Prepare a schedule computing the cash to be exchanged between Up & Down and between Back & Forth, in settlement of the affairs of each original partnership.
Click here for the solution: The partnerships of Up & Down and Back & Forth started in business on July 1, 2005; each partnership owns one retail appliance store
Sunday, September 20, 2015
Cheaney Corporation owns a number of cruise ships and a chain of hotels
P14-8A Cheaney Corporation owns a number of cruise ships and a chain of
hotels. The hotels, which have not been profitable, were discontinued on
September 1, 2008. The 2008 operating results for the company were as
follows.
Operating revenues $12,850,000
Operating expenses 8,700,000
Operating income $ 4,150,000
Analysis discloses that these data include the operating results of the hotel chain, which were: operating revenues $2,000,000 and operating expenses $2,400,000. The hotels were sold at a gain of $200,000 before taxes. This gain is not included in the operating results. During the year, Cheaney suffered an extraordinary loss of $800,000 before taxes, which is not included in the operating results. In 2008, the company had other revenues and gains of $100,000, which are not included in the operating results. The corporation is in the 30% income tax bracket.
Instructions
Prepare a condensed income statement.
Click here for the solution: Cheaney Corporation owns a number of cruise ships and a chain of hotels
Operating revenues $12,850,000
Operating expenses 8,700,000
Operating income $ 4,150,000
Analysis discloses that these data include the operating results of the hotel chain, which were: operating revenues $2,000,000 and operating expenses $2,400,000. The hotels were sold at a gain of $200,000 before taxes. This gain is not included in the operating results. During the year, Cheaney suffered an extraordinary loss of $800,000 before taxes, which is not included in the operating results. In 2008, the company had other revenues and gains of $100,000, which are not included in the operating results. The corporation is in the 30% income tax bracket.
Instructions
Prepare a condensed income statement.
Click here for the solution: Cheaney Corporation owns a number of cruise ships and a chain of hotels
Mark Cotteleer owns a company that manufactures sailboats
Problem 4.27 Mark Cotteleer owns a company that manufactures sailboats.
Actual demand for Mark’s sailboats during each season in 2004 through
2007 was as follows:
Year
Season 2004 2005 2006 2007
Winter 1,400 1,200 1,000 900
Spring 1,500 1,400 1,600 1,500
Summer 1,000 2,100 2,000 1,900
Fall 600 750 650 500
Mark has forecasted that annual demand for his sailboats in 2009 will equal 5,600 sailboats. Based on this data and the multiplicative seasonal model, what will the demand level be for Mark’s sailboats in the spring of 2009?
Click here for the solution: Mark Cotteleer owns a company that manufactures sailboats
Year
Season 2004 2005 2006 2007
Winter 1,400 1,200 1,000 900
Spring 1,500 1,400 1,600 1,500
Summer 1,000 2,100 2,000 1,900
Fall 600 750 650 500
Mark has forecasted that annual demand for his sailboats in 2009 will equal 5,600 sailboats. Based on this data and the multiplicative seasonal model, what will the demand level be for Mark’s sailboats in the spring of 2009?
Click here for the solution: Mark Cotteleer owns a company that manufactures sailboats
Tuesday, September 15, 2015
Cheaney Corporation owns a number of cruise ships and a chain of hotels
P15-8A Cheaney Corporation owns a number of cruise ships and a chain of
hotels. The hotels, which have not been profitable, were discontinued on
September 1, 2008. The 2008 operating results for the company were as
follows.
Operating revenues $12,850,000
Operating expenses 8,700,000
Operating income $ 4,150,000
Analysis discloses that these data include the operating results of the hotel chain, which were: operating revenues $2,000,000 and operating expenses $2,400,000. The hotels were sold at a gain of $200,000 before taxes. This gain is not included in the operating results. During the year, Cheaney suffered an extraordinary loss of $800,000 before taxes, which is not included in the operating results. In 2008, the company had other revenues and gains of $100,000, which are not included in the operating results. The corporation is in the 30% income tax bracket.
Instructions
Prepare a condensed income statement.
Click here for the solution: Cheaney Corporation owns a number of cruise ships and a chain of hotels
Operating revenues $12,850,000
Operating expenses 8,700,000
Operating income $ 4,150,000
Analysis discloses that these data include the operating results of the hotel chain, which were: operating revenues $2,000,000 and operating expenses $2,400,000. The hotels were sold at a gain of $200,000 before taxes. This gain is not included in the operating results. During the year, Cheaney suffered an extraordinary loss of $800,000 before taxes, which is not included in the operating results. In 2008, the company had other revenues and gains of $100,000, which are not included in the operating results. The corporation is in the 30% income tax bracket.
Instructions
Prepare a condensed income statement.
Click here for the solution: Cheaney Corporation owns a number of cruise ships and a chain of hotels
Tuesday, September 8, 2015
Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
MULTIPLE CHOICE
1. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants.
2. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence?
3. Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior:
4. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct:
5. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs:
6. “Independence” in auditing means:
7. Interpretations of the rules regarding independence allow an auditor to serve as:
8. Which of the following statements is true? The CPA firm will lose its independence if:
9. Which of the following statements is not true with respect to audit committees?
10. According to the Principles section of the Code of Professional Conduct, all members:
Click here for the solution: Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
1. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants.
2. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence?
3. Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior:
4. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct:
5. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs:
6. “Independence” in auditing means:
7. Interpretations of the rules regarding independence allow an auditor to serve as:
8. Which of the following statements is true? The CPA firm will lose its independence if:
9. Which of the following statements is not true with respect to audit committees?
10. According to the Principles section of the Code of Professional Conduct, all members:
Click here for the solution: Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
Monday, August 31, 2015
Dick owns a house that he rents to college students
Dick owns a house that he rents to college students. Dick receives $750 per month rent and incurs the following expenses during the year:
Real estate taxes $ 1,250
Mortgage interest 1,500
Insurance 375
Repairs 562
Association Dues 1,600
Dick purchased the house in 1975 for $48,000. The house is fully depreciated. Calculate Dick's net rental income for the year, assuming the house was rented for a full 12 months.
Click here for the solution: Dick owns a house that he rents to college students
Real estate taxes $ 1,250
Mortgage interest 1,500
Insurance 375
Repairs 562
Association Dues 1,600
Dick purchased the house in 1975 for $48,000. The house is fully depreciated. Calculate Dick's net rental income for the year, assuming the house was rented for a full 12 months.
Click here for the solution: Dick owns a house that he rents to college students
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
Beka Company owns equipment that cost $50,000 when purchased on January 1, 2008
E9-10 Beka Company owns equipment that cost $50,000 when purchased on January 1, 2008. It has been depreciated using the straight-line method based on estimated salvage value of $5,000 and an estimated useful life of 5 years.
Instructions
Prepare Beka Company's journal entries to record the sale of the equipment in these four independent situations.
(a) Sold for $28,000 on January 1, 2011.
(b) Sold for $28,000 on May 1, 2011.
(c) Sold for $11,000 on January 1, 2011.
(d) Sold for $11,000 on October 1, 2011.
Click here for the solution: Beka Company owns equipment that cost $50,000 when purchased on January 1, 2008
Instructions
Prepare Beka Company's journal entries to record the sale of the equipment in these four independent situations.
(a) Sold for $28,000 on January 1, 2011.
(b) Sold for $28,000 on May 1, 2011.
(c) Sold for $11,000 on January 1, 2011.
(d) Sold for $11,000 on October 1, 2011.
Click here for the solution: Beka Company owns equipment that cost $50,000 when purchased on January 1, 2008
Saturday, July 11, 2015
Portia Carter is the president of a company that owns six multiplex movie theaters
Portia Carter is the president of a company that owns six multiplex movie theaters. Carter has delegated decision-making authority to the theater managers for all decisions except those relating to capital expenditures and film selection. The theater managers' compensation depends on the profitability of their theaters. Max Burgman, the manager of the Park Theater, had the following master budget and actual results for the month.
Master Actual
Budget Results
Tickets sold 120,000 110,000
Revenue--tickets $ 840,000 $ 880,000
Revenue--concessions 480,000 330,000
Total revenue $1,320,000 $1,210,000
Controllable variable costs
Concessions 120,000 99,000
Direct labor 420,000 330,000
Variable overhead 540,000 550,000
Contribution margin $ 240,000 $ 231,000
Controllable fixed costs
Rent 55,000 55,000
Other administrative expenses 45,000 50,000
Theater operating income $ 140,000 $ 126,000
1. Assuming that the theaters are profit centers, prepare a performance report for the Park Theater using the chart below. Include a flexible budget. Determine the variances between actual results, the flexible budget, and the master budget.
2. Evaluate Burgman's performance as a manager. 3. Assume that the managers are assigned responsibility for capital expenditures and that the theaters are thus investment centers. Park Theater is expected to generate a desired ROI of at least 6 percent on average invested assets of $2,000,000.
a. Compute the theater’s return on investment and residual income using the chart below.
b. Using the ROI and residual income, evaluate Burgman’s performance as a manager.
Click here for the solution: Portia Carter is the president of a company that owns six multiplex movie theaters
Master Actual
Budget Results
Tickets sold 120,000 110,000
Revenue--tickets $ 840,000 $ 880,000
Revenue--concessions 480,000 330,000
Total revenue $1,320,000 $1,210,000
Controllable variable costs
Concessions 120,000 99,000
Direct labor 420,000 330,000
Variable overhead 540,000 550,000
Contribution margin $ 240,000 $ 231,000
Controllable fixed costs
Rent 55,000 55,000
Other administrative expenses 45,000 50,000
Theater operating income $ 140,000 $ 126,000
1. Assuming that the theaters are profit centers, prepare a performance report for the Park Theater using the chart below. Include a flexible budget. Determine the variances between actual results, the flexible budget, and the master budget.
2. Evaluate Burgman's performance as a manager. 3. Assume that the managers are assigned responsibility for capital expenditures and that the theaters are thus investment centers. Park Theater is expected to generate a desired ROI of at least 6 percent on average invested assets of $2,000,000.
a. Compute the theater’s return on investment and residual income using the chart below.
b. Using the ROI and residual income, evaluate Burgman’s performance as a manager.
Click here for the solution: Portia Carter is the president of a company that owns six multiplex movie theaters
Wednesday, June 17, 2015
Quentin Giordano owns a small retail ice cream parlor
Problem 16-17 Using the Payback Period and Unadjusted Rate of Return to Evaluate Alternative Investment Opportunities
Quentin Giordano owns a small retail ice cream parlor. He is considering expanding the business and has identifies two attractive alternatives. One involves purchasing a machine that would enable him to serve frozen yogurt to customers. The machine would cost $4,050 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $2,970 and $450, respectively.
Alternatively, he could purchase for $5,040 the equipment necessary to serve cappuccinos. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenue and cash operating expenses associated with selling cappuccinos are expected to be $4,140 and $1,215, respectively.
Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.
A. Determine the payback period and unadjusted rate of return (use average investment.) for each alternative.
B. Indicate which investment alternative you would recommend. Explain your choice.
Check:
a. Payback Period of the Yogurt Investment: 1.77 Years
Unadjusted Rate of Return of the Cappuccino Investment: 52.86%
Click here for the solution: Quentin Giordano owns a small retail ice cream parlor
Quentin Giordano owns a small retail ice cream parlor. He is considering expanding the business and has identifies two attractive alternatives. One involves purchasing a machine that would enable him to serve frozen yogurt to customers. The machine would cost $4,050 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $2,970 and $450, respectively.
Alternatively, he could purchase for $5,040 the equipment necessary to serve cappuccinos. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenue and cash operating expenses associated with selling cappuccinos are expected to be $4,140 and $1,215, respectively.
Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.
A. Determine the payback period and unadjusted rate of return (use average investment.) for each alternative.
B. Indicate which investment alternative you would recommend. Explain your choice.
Check:
a. Payback Period of the Yogurt Investment: 1.77 Years
Unadjusted Rate of Return of the Cappuccino Investment: 52.86%
Click here for the solution: Quentin Giordano owns a small retail ice cream parlor
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