E 9-21 Dollar-value LIFO retail
Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory. Accounting records provides the following information:
Merchandise Inventory, Jan 1, 2011 Cost 160,000 Retail 250,000
Net Purchases Cost 350,200 Retail 510,000
Net Markups Retail 7,000
Net Markdowns Retail 2,000
Net Sales Retail 380,000
Pertinent retail price indexes are as follows
January 1, 2011 1.00
December 31, 2011 1.10
Required:
Determine ending inventory and cost of goods sold.
Click here for the solution: Lance-Hefner Specialty Shoppes decided to use the dollar-value LIFO retail method to value its inventory
Showing posts with label retail. Show all posts
Showing posts with label retail. Show all posts
Tuesday, November 10, 2015
Sunday, October 4, 2015
Kristen Montana operates a retail clothing operation
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
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
Sunday, September 27, 2015
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
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
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
Toyco, a retail toy chain, honors two bank credit cards and makes daily deposits of credit card sales in two credit card bank accounts
12-42 Toyco, a retail toy chain, honors two bank credit cards and makes
daily deposits of credit card sales in two credit card bank accounts.
(Bank A and Bank B). Each day, Toyco batches its credit card sales
slips, bank deposit slips and authorized sales return documents and
sends them to data processing for data entry. Each week detailed
computer printouts of the general ledger credit card cash accounts are
prepared. Credit card banks have been instructed to make an automatic
weekly transfer of cash to Toyco's general bank account. The credit card
banks charge back deposits that include sales to holders of stolen or
expired cards.
The auditor examining Toyco financial statements has obtained copies of the detailed general ledger cash account printouts, a summary of the bank statements and the manually prepared bank reconciliations, all for the week of December 31, as shown here. (see attachment)
Required:
Review the December 31 bank reconciliation and the related information contained in the following schedules and describe what actions the auditor should take to obtain satisfaction for each item on the bank reconciliation. Assume that all amounts are material and that all computations are accurate. Organize your answer sheet as follows, using the code contained on the bank reconciliation:
Code Number Actions to Be Taken by the Auditor to Gain Satisfaction
Click here for the solution: Toyco, a retail toy chain, honors two bank credit cards and makes daily deposits of credit card sales in two credit card bank accounts
The auditor examining Toyco financial statements has obtained copies of the detailed general ledger cash account printouts, a summary of the bank statements and the manually prepared bank reconciliations, all for the week of December 31, as shown here. (see attachment)
Required:
Review the December 31 bank reconciliation and the related information contained in the following schedules and describe what actions the auditor should take to obtain satisfaction for each item on the bank reconciliation. Assume that all amounts are material and that all computations are accurate. Organize your answer sheet as follows, using the code contained on the bank reconciliation:
Code Number Actions to Be Taken by the Auditor to Gain Satisfaction
Click here for the solution: Toyco, a retail toy chain, honors two bank credit cards and makes daily deposits of credit card sales in two credit card bank accounts
Tuesday, September 8, 2015
Landmark Book Store uses the conventional retail method
Landmark Book Store uses the conventional retail method.
Instructions
Given the following data, prepare a neat, labeled schedule showing the computation of the cost of inventory on hand at 12/31/10.
Cost Retail
Inventory 1/1/10 $ 28,900 $ 40,000
Purchases 353,600 610,000
Purchases Returns 9,000 20,000
Purchase Discounts 7,000
Sales (Gross) 615,000
Sales Returns 20,000
Employee Discounts 5,000
Freight-in 23,500
Freight-out 50,000
Loss from Breakage 2,500
Markups 38,000
Markup Cancellations 18,000
Markdowns 13,500
Markdown Cancellations 8,500
B. Landmark Book Store has decided to switch to the LIFO retail method for the period beginning 1/1/11.
Instructions
Prepare a schedule showing the computation of the 12/31/11 inventory under the LIFO retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without prejudice to your answer in requirement A above, assume that the 12/31/10 inventory computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost, respectively, for purposes of this requirement. Data for 2011 follows:
Cost Retail
Purchases (net) $375,000 $485,000
Sales (net) 420,000
Markups (net) 30,000
Markdowns (net) 15,000
2010 Price Index 100
2011 Price Index 120
Click here for the solution: Landmark Book Store uses the conventional retail method
Instructions
Given the following data, prepare a neat, labeled schedule showing the computation of the cost of inventory on hand at 12/31/10.
Cost Retail
Inventory 1/1/10 $ 28,900 $ 40,000
Purchases 353,600 610,000
Purchases Returns 9,000 20,000
Purchase Discounts 7,000
Sales (Gross) 615,000
Sales Returns 20,000
Employee Discounts 5,000
Freight-in 23,500
Freight-out 50,000
Loss from Breakage 2,500
Markups 38,000
Markup Cancellations 18,000
Markdowns 13,500
Markdown Cancellations 8,500
B. Landmark Book Store has decided to switch to the LIFO retail method for the period beginning 1/1/11.
Instructions
Prepare a schedule showing the computation of the 12/31/11 inventory under the LIFO retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without prejudice to your answer in requirement A above, assume that the 12/31/10 inventory computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost, respectively, for purposes of this requirement. Data for 2011 follows:
Cost Retail
Purchases (net) $375,000 $485,000
Sales (net) 420,000
Markups (net) 30,000
Markdowns (net) 15,000
2010 Price Index 100
2011 Price Index 120
Click here for the solution: Landmark Book Store uses the conventional retail method
Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers
P5-2A Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June the following merchandising transactions occurred.
June 1 Purchased books on account for $960 (including freight) from Barnum Publishers, terms 2/10, n/30.
3 Sold books on account to the Flint Hills bookstore for $1,200 each. The cost of the merchandise sold was $720.
6 Received $60 credit for books returned to Barnum Publishers.
9 Paid Barnum Publishers in full.
15 Received payment in full from the Flint Hills bookstore.
17 Sold books on account to Town Crier Bookstore for $1,400. The cost of the merchandise sold was $840.
20 Purchased books on account for $720 from Good Book Publishers, terms 1/15, n/30.
24 Received payment in full from Town Crier Bookstore.
26 Paid Good Book Publishers in full.
28 Sold books on account to HomeTown Bookstore for $1,300. The cost of the merchandise sold was $780.
30 Granted HomeTown Bookstore $150 credit for books returned costing $90.
Instructions
Journalize the transactions for the month of June for Goldenrod Warehouse, using a perpetual inventory system.
Click here for the solution: Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers
June 1 Purchased books on account for $960 (including freight) from Barnum Publishers, terms 2/10, n/30.
3 Sold books on account to the Flint Hills bookstore for $1,200 each. The cost of the merchandise sold was $720.
6 Received $60 credit for books returned to Barnum Publishers.
9 Paid Barnum Publishers in full.
15 Received payment in full from the Flint Hills bookstore.
17 Sold books on account to Town Crier Bookstore for $1,400. The cost of the merchandise sold was $840.
20 Purchased books on account for $720 from Good Book Publishers, terms 1/15, n/30.
24 Received payment in full from Town Crier Bookstore.
26 Paid Good Book Publishers in full.
28 Sold books on account to HomeTown Bookstore for $1,300. The cost of the merchandise sold was $780.
30 Granted HomeTown Bookstore $150 credit for books returned costing $90.
Instructions
Journalize the transactions for the month of June for Goldenrod Warehouse, using a perpetual inventory system.
Click here for the solution: Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers
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
Brewster Company began operations on January 1, 2010, adopting the conventional retail inventory system
E9-22 (Retail Inventory Method—Conventional and LIFO) Brewster Company began operations on January 1, 2010, adopting the conventional retail inventory system. None of the company’s merchandise was marked down in 2010 and, because there was no beginning inventory, its ending inventory for 2010 of $41,100 would have been the same under either the conventional retail system or the LIFO retail system.
On December 31, 2011, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2011, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.
Cost Retail
Inventory, Jan. 1, 2011 $ 41,100 $ 60,000
Markdowns (net) 13,000
Markups (net) 22,000
Purchases (net) 150,000 191,000
Sales (net) 167,000
Instructions
Determine the cost of the 2011 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method.
Click here for the solution: Brewster Company began operations on January 1, 2010, adopting the conventional retail inventory system
On December 31, 2011, the store management considers adopting the LIFO retail system and desires to know how the December 31, 2011, inventory would appear under both systems. All pertinent data regarding purchases, sales, markups, and markdowns are shown below. There has been no change in the price level.
Cost Retail
Inventory, Jan. 1, 2011 $ 41,100 $ 60,000
Markdowns (net) 13,000
Markups (net) 22,000
Purchases (net) 150,000 191,000
Sales (net) 167,000
Instructions
Determine the cost of the 2011 ending inventory under both (a) the conventional retail method and (b) the LIFO retail method.
Click here for the solution: Brewster Company began operations on January 1, 2010, adopting the conventional retail inventory system
Monday, August 3, 2015
You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country
Case 9-30 Master Budget with Supporting Schedules
EARRINGS UNLIMITED
Minimum ending cash balance $50,000
Selling price $10
Recent and forecast sales: January (actual) 20,000 February (actual) 26,000 March (actual) 40,000 April 65,000 May 100,000 June 50,000 July 30,000 August 28,000 September 25,000
Desired ending inventories (percentage 40% of next month's sales)
Cost of earrings 4
Purchases paid as follows: In month of purchase 50% In following month 50% Collection on sales: Sales collected current month 20% Sales collected following month 70% Sales collected 2nd month following 10% Variable monthly expenses: Sales commissions (% of sales) 4% Fixed monthly expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 7,000
Insurance (12 months paid in November) 3,000
Depreciation 14,000
Equipment purchased in May 16,000
Equipment purchased in June 40,000
Dividends declared each quarter 15,000
Balance sheet at March 31:
Assets Cash $74,000
Accounts receivable 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000
Liabilities and Stockholders' Equity
Accounts payable $100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings 580,000
Total liabilities and stockholders' equity $1,495,000
Agreement with Bank:
Borrowing increments $1,000
Interest rate per month 1%
Repayment increments $1,000
Total of interest paid each quarter 100%
Required minimum cash balance $50,000
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchase, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.XX
Click here for the solution: You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country
EARRINGS UNLIMITED
Minimum ending cash balance $50,000
Selling price $10
Recent and forecast sales: January (actual) 20,000 February (actual) 26,000 March (actual) 40,000 April 65,000 May 100,000 June 50,000 July 30,000 August 28,000 September 25,000
Desired ending inventories (percentage 40% of next month's sales)
Cost of earrings 4
Purchases paid as follows: In month of purchase 50% In following month 50% Collection on sales: Sales collected current month 20% Sales collected following month 70% Sales collected 2nd month following 10% Variable monthly expenses: Sales commissions (% of sales) 4% Fixed monthly expenses:
Advertising 200,000
Rent 18,000
Salaries 106,000
Utilities 7,000
Insurance (12 months paid in November) 3,000
Depreciation 14,000
Equipment purchased in May 16,000
Equipment purchased in June 40,000
Dividends declared each quarter 15,000
Balance sheet at March 31:
Assets Cash $74,000
Accounts receivable 346,000
Inventory 104,000
Prepaid insurance 21,000
Property and equipment (net) 950,000
Total assets $1,495,000
Liabilities and Stockholders' Equity
Accounts payable $100,000
Dividends payable 15,000
Capital stock 800,000
Retained earnings 580,000
Total liabilities and stockholders' equity $1,495,000
Agreement with Bank:
Borrowing increments $1,000
Interest rate per month 1%
Repayment increments $1,000
Total of interest paid each quarter 100%
Required minimum cash balance $50,000
Required:
Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections from sales, by month and in total.
c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise purchase, by month and in total.
2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.XX
Click here for the solution: You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country
Tuesday, July 7, 2015
Modern Building Supply sells various building materials to retail outlets
Common-Size Statements and Financial Ratios for Creditors
Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow
MODERN BUILDING SUPPLY
Comparative Balance Sheet
Assets This Year Last Year
Current assets:
Cash . . . . . . . . . . . . . . . . .. $ 90,000 $ 200,000
Marketable securities . . . . . . . . . . –0– 50,000
Accounts receivable, net . . . .. . . . . 650,000 400,000
Inventory . . . . . . . . . . . . . . . 1,300,000 800,000
Prepaid expenses . . . . . . . . . . . 20,000 20,000
Total current assets . . . . . . . . . 2,060,000 1,470,000
Plant and equipment, net . . . . . . . 1,940,000 1,830,000
Total assets . . . . . . . . .. . . . . $4,000,000 $3,300,000
AND SO ON
Assume that the following ratios are typical of firms in the building supply industry:
Current ratio . . . . . . . . . . . . . . 2.5 to 1
Acid-test ratio . . . . . . . . . . . . . 1.2 to 1
Average age of receivables . . . . . 18 days
Inventory turnover in days . . . . . .. . 50 days
Debt-to-equity ratio . . . . . . . .. . . . 0.75 to 1
Times interest earned . . . . . .. . . . 6.0 times
Return on total assets . . . . . . . . . . 10%
Price-earnings ratio . . . . . . . . . . 9
Net income as a percentage of sales . . . . . 4%
Required:
1. Linden Bank is uncertain whether the loan should be made. To assist it in making a decision, you have been asked to compute the following ratios for both this year and last year:
a. The amount of working capital.
b. The current ratio.
c. The acid-test ratio.
d. The average age of receivables. (The accounts receivable at the beginning of last year totalled $350,000.)
e. The inventory turnover in days. (The inventory at the beginning of last year totalled $720,000.)
f. The debt-to-equity ratio.
g. The number of times interest was earned.
2. For both this year and last year (carry computations to one decimal place):
a. Present the balance sheet in common-size form.
b. Present the income statement in common-size form down through net income.
3. From your analysis in (1) and (2) above, what problems or strengths do you see existing in Modern Building Supply? Make a recommendation as to whether the loan should be approved.
Click here for the solution: Modern Building Supply sells various building materials to retail outlets
Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow
MODERN BUILDING SUPPLY
Comparative Balance Sheet
Assets This Year Last Year
Current assets:
Cash . . . . . . . . . . . . . . . . .. $ 90,000 $ 200,000
Marketable securities . . . . . . . . . . –0– 50,000
Accounts receivable, net . . . .. . . . . 650,000 400,000
Inventory . . . . . . . . . . . . . . . 1,300,000 800,000
Prepaid expenses . . . . . . . . . . . 20,000 20,000
Total current assets . . . . . . . . . 2,060,000 1,470,000
Plant and equipment, net . . . . . . . 1,940,000 1,830,000
Total assets . . . . . . . . .. . . . . $4,000,000 $3,300,000
AND SO ON
Assume that the following ratios are typical of firms in the building supply industry:
Current ratio . . . . . . . . . . . . . . 2.5 to 1
Acid-test ratio . . . . . . . . . . . . . 1.2 to 1
Average age of receivables . . . . . 18 days
Inventory turnover in days . . . . . .. . 50 days
Debt-to-equity ratio . . . . . . . .. . . . 0.75 to 1
Times interest earned . . . . . .. . . . 6.0 times
Return on total assets . . . . . . . . . . 10%
Price-earnings ratio . . . . . . . . . . 9
Net income as a percentage of sales . . . . . 4%
Required:
1. Linden Bank is uncertain whether the loan should be made. To assist it in making a decision, you have been asked to compute the following ratios for both this year and last year:
a. The amount of working capital.
b. The current ratio.
c. The acid-test ratio.
d. The average age of receivables. (The accounts receivable at the beginning of last year totalled $350,000.)
e. The inventory turnover in days. (The inventory at the beginning of last year totalled $720,000.)
f. The debt-to-equity ratio.
g. The number of times interest was earned.
2. For both this year and last year (carry computations to one decimal place):
a. Present the balance sheet in common-size form.
b. Present the income statement in common-size form down through net income.
3. From your analysis in (1) and (2) above, what problems or strengths do you see existing in Modern Building Supply? Make a recommendation as to whether the loan should be approved.
Click here for the solution: Modern Building Supply sells various building materials to retail outlets
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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