Cole, Inc., which owes Henry Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty

Cole, Inc., which owes Henry Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty. To settle the debt, Henry agrees to accept from Cole equipment with a fair value of $570,000, an original cost of $840,000, and accumulated depreciation of $195,000.

Instructions
(a) Compute the gain or loss to Cole on the settlement of the debt.
(b) Compute the gain or loss to Cole on the transfer of the equipment.
(c) Prepare the journal entry on Cole's books to record the settlement of this debt.
(d) Prepare the journal entry on Henry's books to record the settlement of the receivable.

Click here for the solution: Cole, Inc., which owes Henry Co. $600,000 in notes payable with accrued interest of $54,000, is in financial difficulty

Nancy Company has budgeted sales of $300,000 with the following budgeted costs

Nancy Company has budgeted sales of $300,000 with the following budgeted costs:

Direct materials $60,000
Direct manufacturing labor 40,000
Factory overhead
Variable 30,000
Fixed 50,000
Selling and administrative expenses
Variable 20,000
Fixed 30,000

Question 1: Compute the average markup percentage for setting prices as a percentage of the full cost of the product (5 points)

Question 2: Compute the average markup percentage for setting prices as a percentage of the variable cost of the product (5 points)

Question 3: Compute the average markup percentage for setting prices as a percentage of the variable manufacturing costs (5 points)

Click here for the solution: Nancy Company has budgeted sales of $300,000 with the following budgeted costs

Bandung Corporation began 2008 with $92,000 balance in Deferred Tax Liability account

E19-3 (One Temporary difference, Future Taxable Amounts, One Rate, No Beginning Deferred Taxes) Bandung Corporation began 2008 with $92,000 balance in Deferred Tax Liability account. At the end of 2008, the related cumulative difference amounts to $350,000 and it will reverse evenly over the next 2 years. Pretax accounting income for 2008 is $525,000, the tax rate for all years is 40% and taxable income for 2008 is $405,000.

Instructions
a.) Compute income taxes payable for 2008
b.) Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2008.
c.) Prepare the income tax expense section of the income statement for 2008 beginning with the line "Income before income taxes"

Click here for the solution: Bandung Corporation began 2008 with $92,000 balance in Deferred Tax Liability account

Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece together with a one year warranty

E13-10 (Warranties) Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece together with a one year warranty. Maintenance on each machine during the warranty period averages $330.

a.) Prepare entries to record the sale of the machines and the related warranty costs, assuming that the accrual method is used. Actual warranty costs incurred in 2008 were $17,000.
b.) Prepare 2008 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs.

Click here for the solution: Soundgarden Company sold 200 copymaking machines in 2008 for $4,000 apiece together with a one year warranty

Ferris Company began 2011 with 6,000 units of its principal product

P 8-5 Various inventory costing methods

Ferris Company began 2011 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2011 are as follows:

Purchases______________________
Date of Purchase Units Unit Cost* Total Cost
Jan. 10 5,000 $ 9 $ 45,000
Jan. 19 6,000 10 60,000
Totals 11,000 $105,000
*Includes purchase price and cost of freight.

Sales_____________
Date of Sale Units
Jan. 5 3,000
Jan. 12 2,000
Jan. 20 4,000
Total 9,000

8,000 units were on hand at the end of the month.

Calculate January’s ending inventory and cost of goods sold for the month using each of the following alternatives:

1. FIFO, periodic system
2. LIFO, periodic system
3. LIFO, perpetual system
4. Average cost, periodic system
5. Average cost, perpetual system

Click here for the solution: Ferris Company began 2011 with 6,000 units of its principal product

Listed below are several terms and phrases associated with leases

E 15-25 Concepts; terminology

Listed below are several terms and phrases associated with leases. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.

List A
___ 1. Effective rate times balance.
___ 2. Realization principle.
___ 3. Minimum lease payments plus unguaranteed residual value.
___ 4. Periodic lease payments plus lessee-guaranteed residual value.
___ 5. PV of minimum lease payments plus PV of unguaranteed residual value.
___ 6. Initial direct costs.
___ 7. Rent revenue.
___ 8. Bargain purchase option.
___ 9. Leasehold improvements.
___10. Cash to satisfy residual value guarantee.
___11. Capital lease expense.
___12. Deducted in lessor’s computation of lease payments.
___13. Title transfers to lessee.
___14. Contingent rentals.
___15. Lease payments plus lessee-guaranteed and third-part-guaranteed residual value.

List B
a. PV of BPO price.
b. Lessor’s net investment.
c. Lessor’s gross investment.
d. Operating lease.
e. Depreciable assets.
f. Loss to lessee.
g. Executory costs.
h. Depreciation longer than lessee term.
i. Disclosure only.
j. Interest expense.
k. Additional lessor conditions.
l. Lessee’s minimum lease payments.
m. Purchase price less than fair value.
n. Sales-type lease selling expense.
o. Lessor’s minimum lease payments.

Click here for the solution: Listed below are several terms and phrases associated with leases

On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary

ADVANCE ACCOUNTING Multiple Choice

1. On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary, Scully Company, for $200,000. Scully adopted a four-year economic life, no residual value, and the sum-of-the-years'-digits method of depreciation for the machine. If correct working paper eliminations are prepared for Passey Corporation and subsidiary on November 30, 2007, the end of the fiscal year, Passey's net income to be included in consolidated net income is (disregarding income taxes): (Points : 1)

2. In the measurement of minority interest in net income of a partially owned subsidiary, the credit for Depreciation Expense¾Parent in the working paper elimination (in journal entry format) for intercompany gain in a depreciable plant asset is attributed to net income of: (Points : 1)

3. A material realized gain on a subsidiary's open-market acquisition of its parent company's outstanding bonds at a discount is displayed in the consolidated income statement as: (Points : 1)

4. The starting point for the computation of net cash provided by operating activities in a consolidated statement of cash flows (indirect method) for a parent company and its partially owned subsidiary is: (Points : 1)

5. The realized but unrecognized gain on extinguishment of debt resulting from a parent company's open-market acquisition of the subsidiary's outstanding bonds is recorded in subsequent journal entries by: (Points : 1)

6. In the preparation of a consolidated statement of cash flows, dividends declared and paid to minority shareholders of a subsidiary are: (Points : 1)

7. Included in a working paper elimination (in journal entry format) for intercompany sales of merchandise was a debit to Minority Interest in Net Assets of Subsidiary. This debit indicates that: (Points : 1)

8. Included in a working paper elimination (in journal entry format) for intercompany sales was a credit of $60,000 to Cost of Goods Sold¾Subsidiary. The credit indicates that, for the accounting period involved: (Points : 1)

9. In the installment acquisition of a controlling interest in a subsidiary, the Retained Earnings of Subsidiary/Investee ledger account is first credited in a journal entry of the parent company/investor to: (Points : 1)

10. Intercompany loans, operating leases of property, and rendering of services do not include an element of intercompany profit gain or loss for the consolidated entity because: (Points : 1)


Click here for the solution: On December 1, 2006, Passey Corporation sold a machine with a carrying amount of $150,000 to its 80%-owned subsidiary

The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs)

Auditing P 3-33 The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB):

Independent Auditor's Report

To the Shareholders of Les Meridian, Inc.

We have audited the accompanying financial statements of Les Meridian, Inc,. which comprise the balance sheet as of December 31, 2009, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary significant accounting policies and other explanatory notes.

AND SO ON


Required:
a. For each of the seven distinct parts of the standard unqualified report prepared in accordance with generally accepted auditing standards in the United States, describe whether key elements of each of those seven parts are present in hte audit report based on International Standards on Auditing for Les Meridian's financial statements.
b. Describe elements in the audit report based on International Standards on Auditing that are more extensive than an audit report based on US auditing standards.


Click here for the solution: The following is an auditor's report prepared in accordance with International Standards on Auditing (ISAs)

“I always go for the investment with the shortest payback period.” Is this a sound strategy?

19. “I always go for the investment with the shortest payback period.” Is this a sound strategy? Why or why not?


Click here for the solution: “I always go for the investment with the shortest payback period.” Is this a sound strategy?

The client has presented all required financial statements with the exception of the statement of cash flows

MULTIPLE CHOICE

Question 1
The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that all other statements are presented fairly. The auditor:

Question 2
A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is:

Question 3
Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:

Question 4
When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue:

Question 5
Which of the following is not a change that affects consistency and, therefore, does not
require an explanatory paragraph?

Question 6
The audit report date on a standard unqualified report indicates:

Question 7
GAAP requires that changes in accounting principles be to a:

Question 8
If the balance sheet of a company is dated December 31, 2009, the audit report is dated February 8, 2010, and both are released on February 15, 2010, this indicates that the auditor has searched for subsequent events that occurred up to:

Question 9
The purpose of the introductory paragraph in the standard unqualified report is:

Question 10
The introductory paragraph of the standard audit report states that the auditor is:


Click here for the solution: The client has presented all required financial statements with the exception of the statement of cash flows

Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating

B2. (Choosing financial targets) Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified six comparable firms and calculated the credit statistics shown here.

a. Sanderson’s return on assets is 5.3%. It has a total capitalization of $600 million. What are reasonable targets for long-term debt/cap, funds from operations/LT debt, and fixed charge coverage?

b. Are there any firms among the six who are particularly good or bad comparable? Explain.
c. Suppose Sanderson’s current ratio of long-term debt to total cap is 60% but its fixed charge coverage is 3.00. What would you recommend?

FIRM A B C D E F
Senior debt rating Baa2/BBB Baa3/BBB− Baa2/BBB Baa1/A− Baa1/BBB− Baa2/BBB+
Return on assets 5.2% 5.0% 5.4% 5.7% 5.2% 5.3%
Long-term debt/cap 38% 41% 45% 40% 25% 43%
Total cap ($MM) 425 575 525 650 210 375
Funds from operations/LT debt 39% 43% 28% 46% 57% 43%
Fixed charge cov 2.57 2.83 2.75 2.38 3.59 2.15


Click here for the solution: Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating

Stockman Co. began 2010 with three jobs in process

Stockman Co. began 2010 with three jobs in process:

Type of Cost
Job No. Direct Material Direct Labor Overhead Total
247 $77,200 $91,400 36,560 $205,160
251 176,600 209,800 83,920 470,320
253 145,400 169,600 67,840 382,840
Totals $399,200 $470,800 $188,320 $1,058,320

During 2010, the following transactions occurred:

1. The firm purchased and paid for $542,000 of raw material.
Factory payroll records revealed the following:
- Indirect labor incurred was $54,000.
- Direct labor incurred was $602,800 and was associated with the jobs as follows:

Job No. Direct Labor Cost
247 $ 17,400
251 8,800
253 21,000
254 136,600
255 145,000
256 94,600
257 179,400

3. Material requistion forms issued during the year revealed the following:
- Indirect material issued totaled $ 76,000
- Direct material issued totaled $ 466,400 and was associated with jobs follows:

Job No. Direct Material Cost 247 $ 12,400
251 6,200
253 16,800
254 105,200
255 119,800
256 72,800
257 133,200

4. Overhead is applied to jobs on the basis of direct labor cost. Managment budgeted overhead of $ 240,000 and total direct labor cost of $ 600,000 for 2010. Actual total factory overhead costs ( including indirect labor and indirect material for the year totaled $ 244,400.

5. Jobs #247 through #255 were completed and delivered to customers, who paid for the goods in cash. The revenue on these jobs was $ 2,264,774.

a. Journalize all preceding events.
b. Determine the ending balances for the jobs still in process.
c. Determine the cost of jobs sold, adjusted for underapplied or oveapplied overhead.


Click here for the solution: Stockman Co. began 2010 with three jobs in process

You are provided with the following information for Kiley Enterprises, effective as of its April 30, 2010, year-end

P2-3A You are provided with the following information for Kiley Enterprises, effective as of its April 30, 2010, year-end.

Accounts payable $834
Accounts receivable 810
Building, net of accumulated depreciation 1,537
Cash 1,270
Common stock 900
Cost of goods sold 990
Current portion of long-term debt 450
Depreciation expense 335
Dividends paid during the year 325
Equipment, net of accumulated depreciation 1,220
Income tax expense 165
Income taxes payable 135
Interest expense 400
Inventories 967
Land 2,100
Long-term debt 3,500
Prepaid expenses 12
Retained earnings, beginning 1,600
Revenues 4,600
Selling expenses 210
Short-term investments 1,200
Wages expense 700
Wages payable 222

(a) Complete income statement and a retained earnings statement for Kiley Enterprises for the year ended April 30, 2010.
(b) Complete the classified balance sheet for Kiley Enterprises as of April 30, 2010.


Click here for the solution: You are provided with the following information for Kiley Enterprises, effective as of its April 30, 2010, year-end

On June 1 Eckersley Service Company was started with an investment of $26,200 cash

P1-3A On June 1 Eckersley Service Company was started with an investment of $26,200 cash. Here are the assets and liabilities of the company on June 30, and the revenues and expenses for the month of June, its first month of operations.

Cash $4,600 Notes payable $12,000
Accounts receivable 4,000 Accounts payable 500
Revenue 7,000 Supplies expense 1,000
Supplies 2,400 Gas & oil expense 600
Advertising expense 400 Utilities expense 300
Equipment 29,000 Wage expense 1,400

In June, the company issued no additional common stock, but paid dividends of $2,000.

Instructions
(a) Complete an income statement and a retained earnings statement for the month of June and a balance sheet at June 30, 2010.
(b)
(c)


Click here for the solution: On June 1 Eckersley Service Company was started with an investment of $26,200 cash

BIKE Company starts with $3,000 cash to finance its business plan to produce bike helmets with a simple assembly process

Understanding Revenue Recognition

For this assignment, turn to page 364 in your textbook (Chapter 6 of Financial Statements Analysis), and complete Case 6-1, Understanding Revenue Recognition.

BIKE Company starts with $3,000 cash to finance its business plan to produce bike helmets with a simple assembly process. During the first month of business the company signs sales contracts for 1,300 units (sales price of $9 per unit), produces 1,200 units (production cost of $7 per unit), ships 1,100 units, and collects in full for 900 units. Production costs are paid at the time of production. The company has only two other costs:

This is the entire problem. Do you think it will be completed by tonight? Sorry but i need it by then.

1. Commission of 10% of the selling price when the company collects from the customer;
2. Shipping costs of $0.20 per unit paid at time of shipment. Selling price and all costs per unit have been constant and are likely to remain the same.

A. Prepare comprehensive (side by side) balance sheets and income statements for the first month of BIKE Company for each of the following three alternatives:
1. Revenue is recognized at the time of shipment
2. Revenue is recognized at the time of collection
3. Revenue is recognized at the time of production

Note: net income for each of the three alternatives is (1) $990, (2) $810, and (3) $1080 respectively.

B. The method where revenue is recognized at the time of collection, known as the installment method, is except the bull for financial reporting in unusual and special cases. Why is BIKE Company likely to prefer this method for tax purposes? (one line simple answer)

C. Comment on the usefulness of the installment method for a credit analyst is using both the balance sheet and income statement.


Click here for the solution: BIKE Company starts with $3,000 cash to finance its business plan to produce bike helmets with a simple assembly process

Prepare a table with the following headings for a monthly bank reconciliation dated September 30

ACC 225 Week 8

Exercise 8-6

Prepare a table with the following headings for a monthly bank reconciliation dated September 30:

For each item 1 through 12, place an x in the appropriate column to indicate whether the item should be added to or deducted from the book or bank balance, or whether it should not appear on the reconciliation. If the book balance is to be adjusted, place a Dr. or Cr. in the Adjust column to indicate whether the Cash balance should be debited or credited. At the left side of your table, number the items to correspond to the following list.

1. Bank service charge.
2. Checks written and mailed to payees on October 2.
3. Checks written by another depositor but charged against this company’s account.
4. Principal and interest on a note collected by the bank but not yet recorded by the company.
5. Special bank charge for collection of note in part 4 on this company’s behalf.
6. Check written against the company’s account and cleared by the bank; erroneously not recorded by the company’s recordkeeper.
7. Interest earned on the cash balance in the bank.
8. Night deposit made on September 30 after the bank closed.
9. Checks outstanding on August 31 that cleared the bank in September.
10. NSF check from customer returned on September 25 but not yet recorded by this company.
11. Checks written by the company and mailed to payees on September 30.
12. Deposit made on September 5 and processed by the bank on September 6.


Click here for the solution: Prepare a table with the following headings for a monthly bank reconciliation dated September 30

The following information is available to reconcile Style Co.’s book balance of cash with its bank statement cash balance as of December 31, 2005

Problems 8-4B

The following information is available to reconcile Style Co.’s book balance of cash with its bank statement cash balance as of December 31, 2005:

a. After posting is complete, the December 31 cash balance according to the accounting records is $31,743.70, and the bank statement cash balance for that date is $45,091.80.
b. Check No. 1273 for $1,084.20 and Check No. 1282 for $390.00, both written and entered in the accounting records in December, are not among the canceled checks. Two checks, No. 1231 for $2,289.00 and No. 1242 for $370.50, were outstanding on the most recent November 30 reconciliation. Check No. 1231 is listed with the December canceled checks, but Check No. 1242 is not.
c. When the December checks are compared with entries in the accounting records, it is found that Check No. 1267 had been correctly drawn for $2,435 to pay for office supplies but was erroneously entered in the accounting records as $2,453.
d. Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation. One debit memorandum is for $749.50 and dealt with an NSF check for $732 received from a customer, Titus Industries, in payment of its account. The bank assessed a $17.50 fee for processing it. The second debit memorandum is a $79.00 charge for check printing. Style did not record these transactions before receiving the statement.
e. A credit memorandum indicates that the bank collected $20,000 cash on a note receivable for the company, deducted a $20 collection fee, and credited the balance to the company’s Cash account. Style did not record this transaction before receiving the statement.
f. Style’s December 31 daily cash receipts of $7,666.10 were placed in the bank’s night depository on that date, but do not appear on the December 31 bank statement.

Required
1. Prepare the bank reconciliation for this company as of December 31, 2005.
2. Prepare the journal entries necessary to bring the company’s book balance of cash into conformity with the reconciled cash balance as of December 31, 2005.
Analysis Component
3. Explain the nature of the communications conveyed by a bank when the bank sends the depositor (a) a debit memorandum and (b) a credit memorandum.

Check (1) Reconciled balance, $50,913.20; (2) Cr. Note Receivable $20,000


Click here for the solution: The following information is available to reconcile Style Co.’s book balance of cash with its bank statement cash balance as of December 31, 2005

Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc

Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre.

a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?

AND SO ON


p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.


Click here for the solution: Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc

The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager

PR 22-3A The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January 2010.

a. Estimated sales for January:
Batting helmet 3,700 units at $70 per unit
Football helmet 7,200 units at $142 per unit

AND SO ON

INSTRUCTIONS:
1. Prepare a sales budget for January.
2. Prepare a production budget for January.
3. Prepare a direct materials purchases budget for January.
4. Prepare a direct labor cost budget for January.
5. Prepare a factory overhead cost budget for January.
6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $12,500, and work in process at the end of January is desired to be $13,500.
7. Prepare a selling and administrative expenses budget for January.
8. Prepare a budgeted income statement for January.


Click here for the solution: The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point

On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $120, terms n/30, was received by Mount on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Mount notified Hunt Company that merchandise costing $600 contained flaws that rendered it worthless. The same day Hunt Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24, paid by Hunt Company on June 7. On June 12, the company received a check for the balance due from Mount.

Instructions
(a) Prepare journal entries on Hunt Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Ann Mount did not remit payment until August 5.


Click here for the solution: On June 3, Hunt Company sold to Ann Mount merchandise having a sale price of $8,000 with terms of 2/10, n/60, f.o.b. shipping point