Ethics Case: It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements

Ethics Case 1-8 The auditors’ responsibility

It is the responsibility of management to apply accounting standards when communicating with investors and creditors through financial statements. Another group, auditors, serves as an independent intermediary to help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements. Auditors examine (audit) financial statements to express a professional, independent opinion. The opinion reflects the auditors' assessment of the statements' fairness, which is determined by the extent to which they are prepared in compliance with GAAP.

Some feel that it is impossible for an auditor to give an independent opinion on a company's financial statement because the auditors' fees for performing the audit are paid for by the company. In addition to the audit fee, quite often the auditor performs other services for the company such as preparing the company's income tax returns.

How might an auditor's ethics be challenged while performing an audit?

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Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

P 12-7 Securities held-to-maturity, securities available for sale, and trading securities

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31.

2011
Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are expected to cause their fair value to continue to fall.
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest rate is payable May 31 and November 30.
20 Purchased U.S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices.
21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities, hoping to earn profits on short-term differences in prices.
23 Sold the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market share of the Millwork Ventures Company preferred stock was up $27.50 per share and $11.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.

2012
Jan. 7 Sold the NXS Corporation common shares for $43 million.

Required:
Prepare the appropriate journal entry for each transaction or event.

Click here for the solution: Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a= .4 and a forecast for year 1 of 6

Problem 4.3 Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a= .4 and a forecast for year 1 of 6. Plot your new forecast on a graph with the actual data and the naive forecast. Based on a visual inspection, which forecast is better
Year 1 2 3 4 5 6 7 8 9 10 11
Demand 7 9 5 9 13 8 12 13 9 11 7


Click here for the solution: Refer to Problem 4.2. Develop a forecast for years 2 through 12 using exponential smoothing with a= .4 and a forecast for year 1 of 6

How do manufacturing costs flow through inventory accounts?

3. How do manufacturing costs flow through inventory accounts?


Click here for the solution: How do manufacturing costs flow through inventory accounts?

A U.S. manufacturer wants to conduct business through a foreign subsidiary organized in a low tax jurisdiction

A U.S. manufacturer wants to conduct business through a foreign subsidiary organized in a low tax jurisdiction. How might it do so without being currently taxed on the subsidiary’s foreign earnings?


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Blue & Noble is a small law firm that does all of its business through billings (no cash sales)

Blue & Noble is a small law firm that does all of its business through billings (no cash sales). Historically, the firm has collected 40% of its revenue in the month of billing, 50% during the first month after billing, and 8% during the second month after billing. Two percent typically remains uncollectible. Revenue projections for the coming year are $47,500 for January and $50,000 for February. Cash receipts of $50,600 are expected in March. What revenues are projected for March?


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Dickinson Corporation is considering the acquisition of Williston Company through the acquisition of Williston’s common stock

Dickinson Corporation is considering the acquisition of Williston Company through the acquisition of Williston’s common stock. Dickinson Corporation will issue 15,000 shares of its $5 par common stock, with a fair value of $30 per share, in exchange for all 10,000 outstanding shares of Williston Company’s voting common stock. The acquisition meets the criteria for a tax-free exchange as to the seller. Because of this, Dickinson Corporation will be limited for future tax returns to the book value of the depreciable assets. Dickinson Corporation falls into the 30% tax bracket. The appraisal of the assets of Williston Company shows that the inventory has a fair value of $120,000, and the depreciable fixed assets have a fair value of $250,000 and a 10-year life. Any remaining excess is attributed to goodwill. Williston Company has the following balance sheet just before the acquisition: Assets Cash $ 40,000 Accts Rec 150,000 Inventory 100,000 Depreciable Assets 210,000 $500,000 Liabilities & Equities Current Liabilities $ 50,000 Bonds Payable 100,000 C Stk ($10 par) 100,000 Retained Earnings 250,000 $500,000

Required: Prepare the elimination entries that would be made on the consolidated worksheet on the date of acquisition.


Click here for the solution: Dickinson Corporation is considering the acquisition of Williston Company through the acquisition of Williston’s common stock

The Franc Zeppo Venture manufactures a product that goes through two processing departments

The Franc Zeppo Venture manufactures a product that goes through two processing departments. Information relating to the activity in the first department during April is given below :

Work in process, April 1: 50,000 units (80% completed for materials and 60% completed for conversion.
Work in process, April 30: 45,000 units (70% completed for materials and 60% completed for conversion.

The department started 380,000 units into production during the month and transferred 385,000 completed units to the next department.

Compute and calculate the equivalent units of production for the first department for April, assuming the company uses the weighted-average method of accounting for units and costs.

Click here for the solution: The Franc Zeppo Venture manufactures a product that goes through two processing departments

Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities

Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities. The VizslaCo. stock was exchanged for all of the Puli shareholders. Then Puli liquidated. The net value of Puli's assets at the time of the restructuring was $500,000, and the Federal long-term tax-exempt rate was 5%. Puli held business tax credit carryovers of $61,250. If VizslaCo is always in the 35% tax bracket, what is the value of these credits to VizslaCo., assuming that it uses a discount rate of 8%?

Click here for the solution: Through a "Type A" reorganization, VizslaCo acquires 100% of Puli Corporation by exchanging 30% of its stock for all of Puli's assets and liabilities

Through a "Type B" reorganization, Golden Corporation acquired 90% of RetrieverCo stock by October 2 of the current tax year ending December 31

Through a "Type B" reorganization, Golden Corporation acquired 90% of RetrieverCo stock by October 2 of the current tax year ending December 31. At the time the 90% was acquired, RetrieverCo was worth $800,000 and the Federal long-term tax-exempt rate was 3%. RetrieverCo holds captial loss carryovers of $50,000. If Golden reports taxable income of $300,000 which includes $30,000 of capital gains, how much of the RetrieverCo capital loss carryover may Golden use in the current year to offset its income?

Click here for the solution: Through a "Type B" reorganization, Golden Corporation acquired 90% of RetrieverCo stock by October 2 of the current tax year ending December 31

Mastery Problem: Barry Bird opened the Barry Bird Basketball Camp for children ages 10 through 18

Mastery Problem: Barry Bird opened the Barry Bird Basketball Camp for children ages 10 through 18.

AND SO ON

Check Figures:

Cash Bal, June 30: $45,495

Trial Bal, Total Debits: $96,200

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Kasten Company manufactures bowling balls through two processes: Molding and Packaging

Problem 3-1A (P3-1A) Kasten Company manufactures bowling balls through two processes: Molding and Packaging. In the Molding Department, the urethane, rubber, plastics, and other materials are molded into bowling balls. In the Packaging Department, the balls are placed in cartons and sent to the finished goods warehouse. All materials are entered at the beginning of each process. Labor and manufacturing overhead are incurred uniformly throughout each process. Production and cost data for the Molding Department during June 2008 are presented below.

Production Data June
Beginning work in process units –0–
Units started into production 20,000
Ending work in process units 2,000
Percent complete—ending inventory 60%
Cost Data
Materials $198,000
Labor 50,400
Overhead 112,800
Total $361,200

Hint:
Complete four steps necessary to prepare a production cost report.

Instructions
(a) Prepare a schedule showing physical units of production.
(b) Determine the equivalent units of production for materials and conversion costs.
(c) Compute the unit costs of production.
(d) Determine the costs to be assigned to the units transferred and in process for June.
(e) Prepare a production cost report for the Molding Department for the month of June.

Check:
(c) Materials $9.90; CC $8.50
(d) Transferred out $331,200; WIP $30,000

Click here for the solution: Kasten Company manufactures bowling balls through two processes: Molding and Packaging

Awtrey Quilting Company makes blankets that it markets through a variety of department stores

Problem 13-23 Effect of Order Quantity on Special Order Decision

Awtrey Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Awtrey made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.

AND SO ON

Check:
a. Relevant Cost per Unit: $53

Click here for the solution: Awtrey Quilting Company makes blankets that it markets through a variety of department stores

Problem 3-1A (P3-1A) Kasten Company manufactures bowling balls through two processes: Molding and Packaging

Problem 3-1A (P3-1A) Kasten Company manufactures bowling balls through two processes: Molding and Packaging. In the Molding Department, the urethane, rubber, plastics, and other materials are molded into bowling balls. In the Packaging Department, the balls are placed in cartons and sent to the finished goods warehouse. All materials are entered at the beginning of each process. Labor and manufacturing overhead are incurred uniformly throughout each process. Production and cost data for the Molding Department during June 2008 are presented below.

Production Data June
Beginning work in process units –0–
Units started into production 20,000
Ending work in process units 2,000
Percent complete—ending inventory 60%
Cost Data
Materials $198,000
Labor 50,400
Overhead 112,800
Total $361,200

Hint:
Complete four steps necessary to prepare a production cost report.

Instructions
(a) Prepare a schedule showing physical units of production.
(b) Determine the equivalent units of production for materials and conversion costs.
(c) Compute the unit costs of production.
(d) Determine the costs to be assigned to the units transferred and in process for June.
(e) Prepare a production cost report for the Molding Department for the month of June.

Check:
(c) Materials $9.90; CC $8.50
(d) Transferred out $331,200; WIP $30,000
 

Click here for the solution: Problem 3-1A (P3-1A) Kasten Company manufactures bowling balls through two processes: Molding and Packaging