Accounting Problems Set

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APPLICATION PROBLEMS: (10 points each)
All work must be shown to receive any credit
Question 26: Learned Corporation recorded the following transactions for the just completed
month.
a.
b.
c.
d.

$80,000 in raw materials were purchased on account.
$71,000 in raw materials was requisitioned for use in production. Of this
amount, $62,000 was for direct materials and the remainder was for indirect
materials.
Total labor wages of $112,000 were incurred. Of this amount, $101,000 was
for direct labor and the remainder was for indirect labor.
Additional manufacturing overhead costs of $175,000 were incurred.

Required:
Record the above transactions in journal entries.
Question 27: Midwest Industrial Products Corporation makes two products, Product H and
Product L. Product H is expected to sell 50,000 units next year and Product L is
expected to sell 10,000 units. A unit of either product requires 0.2 direct labor
hours.
The companys total manufacturing overhead for the years is expected to be
$1,920,000.
Required:
1. The company currently applies manufacturing overhead to products using
direct labor-hours as the allocation base. If this is followed, how much
overhead cost would be applied to each product? Compute both the
overhead cost per unit and the total amount of overhead cost that would be
applied to each product. (In other words, how much overhead cost is applied to a unit of Product H? Product L? How much overhead cost is applied in total to all the units of Product H? Product L?)

2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would
be divided in half between the two products, with $960,000 assigned to Product H and $960,000 assigned to Product L. If this is followed, how much overhead cost per unit would be applied to each product?

3. Explain the impact on unit product costs of the switch in costing systems.

Question 28: Data concerning a recent periods activity in the Prep Department, the first processing department in a company that uses processing costs, appear below.
Material
Equivalent units of production in ending work in
process
Cost per equivalent unit

Conversion

2,000
$13.86

800
$4.43

A total of 20,100 units were completed and transferred to the next processing
department during the period.
Required:
Compute the cost of the units transferred to the next department during the period
and the cost of the ending work in process inventory.
Question 29: Harris Company manufactures and sells a single product. A partially completed
schedule of the companys total and per unit costs over the relevant range of
30,000 to 50,000 units produced and sold annually is given below:
30,000
Total Costs:
Variable costs
$180,000
Fixed costs 300,000

Units Produced and Sold
40,000
50,000
?
?

?
?

?

?

?
?

?
?

?
?

Total cost per unit ?

?

?

Total Costs
Cost per unit:
Variable cost
Fixed cost

Required:
1.Complete the schedule of the companys total and unit costs above.

2.Assume that the company produces and sells 45,000 units during the year at
a selling price of $16 per unit. Prepare a contribution format Income
Statement for the year.

Question 30: Whirly Corporations most recent Income Statement is shown below:
Total

Per Unit

Sales (10,000 units)
Variable expenses
Contribution Margin
Fixed expenses
Net Operating income
Required:
Prepare a new contribution format Income Statement under each of the following
conditions (consider each case independently):
1.The sales volume increases by 100 units.

2.The sales volume decreases by 100 units.

3.The sales volume is 9,000 units.

Question 31: Silver Company makes a product that is very popular as a Mothers Day gift.
Thus, peak sales occur in May of each year, as shown in the companys sales
budget for the second quarter given below:
April
Budgeted sales (all on account)
$300,000

May
$500,000

June
$200,000

Total
$1,000,000

From past experience, the company has learned that 20% of a months sales are
collected in the month of the sale, another 70% are collected in the month
following the sale, and the remaining 10% are collected in the second month
following the sale. Bad debts are negligible and can be ignored. February sales
totaled $230,000, and March sales totaled $260,000.
Required:
1.Prepare a schedule of expected cash collections from sales, by month and in
total for the second quarter.

2.Assume that the company will prepare a budgeted balance sheet as of June
30. Compute the accounts receivable as of that date.
657-3

Question 32: Puget Sound Divers is a company that provides diving services such as
underwater ship repairs to clients in the Puget Sound area. The companys
planning budget for May appears below:
Puget Sound Divers
Planning Budget
For the Month Ended May 31
Budgeted diving-hours (q)
Revenue ($365.00q)…

100
$36,500

Expenses
Wages and salaries ($8,000 + 125.00q)..
Supplies ($3.00q)
Equipment rental ($1,800 + $32.00q).
Insurance ($3,400)..
Miscellaneous ($630 + $1.80q)..
Total expense.

$20,500
300
5,000
3,400
810
$30,010

Net operating income.

$ 6,490

Required:
During May, the companys activity was actually 105 diving-hours. Prepare a
flexible budget for that level of activity.
Question 33: Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the
Blue Glacier. Management has identified two cost drivers the number of cruises
and the number of passengers that it uses in its budgeting and performance
reports. The company publishes a schedule of day cruises that it may supplement
with special sailings if there is sufficient demand. Up to 80 passengers can be
accommodated on the tour boat. Data concerning the companys cost formulas
appear below:
Fixed Cost
Per Month
Vessel operating costs..
$5,200
Advertising.. 1,700
$
Administrative costs
$4,300
Insurance.$2,900

Cost per
Cruise
$480.00

Cost per
Passenger
$2.00

$ 24.00

$1.00

For example, vessel operating costs should be $5,200 per month plus $480 per
cruise plus $2 per passenger. The companys sales should average $25 per
passenger. The companys planning budget for July is based on 24 cruises and
1,400 passengers.
Required:
Prepare the companys planning budget for July.
657-4

Question 34: Provide the missing data in the following table for a distributor of martial arts
products:
Division
Alpha
Sales$?
Net operating income.$?
Average operating assets
$800,000
Margin4%
Turnover. 5
Return on investment (ROI)… ?

Bravo Charlie
$11,500,000 $?
$ 920,000
$210,000
$?
$?
?
7%
?
?
20%
14%

Question 35: Commercial Services.com Corporation provides business-to-business services on
the Internet. Data concerning the most recent year appear below:
Sales..
Net operating income
Average operating assets..
Required:
Consider each question below independently. Carry out all computations to two
decimal points.
1. Compute the companys return on investment (ROI).

2. The entrepreneur who founded the company is convinced that sales will
increase next year by 50% and that net operating income will increase by
200%, with no increase in average operating assets. What would be the
companys ROI?
 
3. The chief financial officer of the company believes a more realistic scenario
would be a $1,000,000 increase in sales, requiring a $250,000 increase in
average operating assets, with a resulting $200,000 increase in net operating
income. What would be the companys ROI?

Question 36: Delta Company produces a single product. The cost of producing and selling a
single unit of this product at the companys normal activity level of 60,000 units
per year is:
Direct materials
Direct labor…
Variable manufacturing overhead
Fixed manufacturing overhead.
Variable selling and administrative expense
Fixed selling and administrative expense.

The normal selling price is $21 per unit. The companys capacity is 75,000 units
per year. An order has been received from a mail-order house for 15,000 units at a
special price of $14.00 per unit. This order would not affect regular sales.
Required:
If the order is accepted, by how much will annual profits be increased or
decreased? (The order will not change the companys total fixed costs.)
Question 37: Bed & Bath, a retailing company has two departments, Hardware and Linens.
The companys most recent monthly contribution format Income Statement
follows:
Department
Total
Sales..
Variable expenses..

Hardware

Linens

Contribution margin..
Fixed expenses..
Net operating income (loss)..
A study indicates that $340,000 of the fixed expenses being charged to Linens are
sunk costs or allocated costs that will continue even if the Linens Department is
dropped. In addition, the elimination of the Linens Department will result in a
10% decrease in the sales of the Hardware Department.
Required:
If the Linens Department is dropped, what will be the effect on the net operating
income of the company as a whole?
Question 38: Information on four investment proposals is given below:

A
Investment required……………….
Present value of cash inflows…..

Investment Proposal
B
C
D

Net present value…………………..
Life of the project………………….
5 years

7 years

6 years

6 years

Required:
1.

Compute the project profitability index for each investment proposal.

2.  Rank the proposals in terms of preference.

Question 39: Comparative financial statement data for Carmono Company follow:
2009
Cash..
Account receivable…
Inventory.
Plant and equipment.
Less accumulated depreciation.

2008

Total asset
Accounts payable.
Common stock.
Retained Earnings
Total Liabilities and stockholders equity
For 2009, the company reported net income as follows:
Sales..
Cost of goods sold.
Gross Margin.
Selling and administrative expenses.
Net Income
Dividends of $14 were declared and paid during 2009.
Required:
Using the indirect method, prepare a statement of cash flows for 2009.

Question 40: The financial statements for Castile Products, Inc. are given below:
Castile Products, Inc.
Balance Sheet
December 31
Assets
Current Assets:
Cash..
Accounts receivable, net..
Merchandise inventory.
Prepaid expenses…
Total current assets..
Property and equipment, net
Total assets
Liabilities and Stockholders Equity
Liabilities:
Current liabilities
Bonds payable, 10%………………………………..
Total Liabilities.
Stockholders equity:
Common stock $5 par value..
Retained Earnings..
Total stockholders equity
Total liabilities and equity
Castile Products
Income Statement
For the Year Ended December 31
Sales
Cost of goods sold..
Gross Margin..
Selling and administrative expenses.
Net operating income
Interest expense.
Net income before taxes.
Income taxes (30%)…
Net Income
Account balances at the beginning of the year were: accounts receivable $25,000,
inventory $60,000. All sales were on account.

Required:
Compute financial ratios as follows:
1. Gross margin percentage

2. Current ratio

3. Acid-test ratio

4. Debt-to-equity ratio

5. Average collection period

6. Average sale period

7. Times interest earned ratio

8. Book value per share

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Accounting Problems Set

$16.00

Description












The Marchetti soup
Company entered into the following transactions during the month of june: (1)
purchased inventory on account for $171,000 (assume Marchetti uses a
perpetual inventory system); (2) paid $48,000 in salaries to employees for
work performed during the month; (3) sold merchandise that cost $120,000 to
credit customers for $208,000; (4) collected $167,000 in cash from credit customers;
and (5) paid suppliers of inventory $140,000.



Required:



Analyze each
transaction and show the effect of each on the accounting equation for a
corporation.(Select “None”
if the category is not affected.)


Brief Exercise 2-4 Journal entries [LO2]












A company has a fiscal
year-end of December 31: (1) on October 1, $14,400 was paid for a one-year
fire insurance policy; (2) on June 30 the company lent its chief financial
officer $12,000; principal and interest at 9% are due in one year; and (3)
equipment costing $63,000 was purchased at the beginning of the year for
cash.



Required:



Prepare journal
entries for each of the above transactions.(Omit the “$” sign in your response.)













Brief Exercise 2-5 Journal entries [LO4, 5]


A company has a fiscal
year-end of December 31: (1) on October 1, $14,400 was paid for a one-year
fire insurance policy; (2) on June 30 the company lent its chief financial
officer $12,000; principal and interest at 8% are due in one year; and (3)
equipment costing $52,000 was purchased at the beginning of the year for
cash. Depreciation on the equipment is $10,400 per year.



Required:



Prepare the necessary
adjusting entries at December 31 for each of the above items.(Omit the “$” sign in your response.)


Brief Exercise 2-11 Closing entries [LO7]






The year-end adjusted
trial balance of the Timmons Tool and Die Corporation included the following
account balances: retained earnings, $226,000; sales revenue, $855,000; cost
of goods sold, $565,000; salaries expense, $178,000; rent expense, $37,000;
and interest expense, $16,000.










Required:



Prepare the necessary
closing entries.(Omit the “$”
sign in your response.)


Exercise 2-5 The accounting processing cycle [LO2, 3, 4, 5, 6,
7]






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


Exercise 2-6 Debits and credits [LO1]

Exercise 2-14 Cash versus accrual accounting; adjusting entries
[LO4, 5, 8]






The Righter Shoe Store
Company prepares monthly financial statements for its bank. The November 30
and December 31, 2011, trial balances contained the following account
information:























The following
information also is known:



a.



The December income
statement reported $1,467 in supplies expense.



b.



No insurance payments
were made in December.



c.



$14,500 was paid to
employees during December for wages.



d.



On November 1, 2011, a
tenant paid Righter $2,250 in advance rent for the period November through
January. Unearned rent revenue was credited.







Requirement 1:










What was the cost of
supplies purchased during December?(Omit the “$” sign in your response.)



Requirement 2:










What was the adjusting
entry recorded at the end of December for prepaid insurance?(Leave no cells blank – be certain to enter
“0” wherever required. Omit the “$” sign in your response.)



Requirement 3:










What was the adjusting
entry recorded at the end of December for accrued wages?(Omit the “$” sign in your response.)



Requirement 4:







What was the amount of
rent revenue earned in December? What adjusting entry was recorded at the end
of December for unearned rent?(Leave no cells blank – be certain to enter “0” wherever
required. Omit the “$” sign in your response.)


Exercise 2-15 External transactions and adjusting entries [LO2,
4, 5]






The following
transactions occurred during 2011 for the Beehive Honey Corporation:




















Feb. 1



Borrowed $16,000 from
a bank and signed a note. Principal and interest at 9.5% will be paid on
January 31, 2012.



Apr. 1



Paid $3,100 to an
insurance company for a two-year fire insurance policy.



July 17



Purchased supplies
costing $2,200 on account. The company records supplies purchased in an asset
account. At the December 31, 2011, year-end, supplies costing $982 remained
on hand.



Nov. 1



A customer borrowed
$5,200 and signed a note requiring the customer to pay principal and 6%
interest on April 30, 2012.
















Requirement 1:



Record each
transaction in general journal form.(Omit the “$” sign in your response.)




Requirement 2:



Prepare any necessary
adjusting entries at the December 31, 2011, year-end. No adjusting entries
were made during the year for any item.(Round your answers to the nearest whole number. Enter adjusting
entries in the same order as above. Omit the “$” sign in your
response.)


Problem 2-3 Adjusting entries [LO 4, 5]






Pastina Company
manufactures and sells various types of pasta to grocery chains as private
label brands. The company’s fiscal year-end is December 31. The unadjusted
trial balance as of December 31, 2011, appears below.







Information necessary
to prepare the year-end adjusting entries appears below.








































1.



Depreciation on the
equipment for the year is $11,000.



2.



The company estimates
that of the $40,000 in accounts receivable outstanding at year-end, $5,200
probably will not be collected.



3.



Employee wages are
paid twice a month, on the 22nd for wages earned from the 1st through the
15th, and on the 7th of the following month for wages earned from the 16th
through the end of the month. Wages earned from December 16 through December
31, 2011, were $3,000.



4.



On October 1, 2011,
Pastina borrowed $68,000 from a local bank and signed a note. The note
requires interest to be paid annually on September 30 at 9%. The principal is
due in 10 years.



5.



On March 1, 2011, the
company lent a supplier $25,000 and a note was signed requiring principal and
interest at 11% to be paid on February 28, 2012.



6.



On April 1, 2011, the
company paid an insurance company $9,000 for a two-year fire insurance
policy. The entire $9,000 was debited to insurance expense.



7.



$900 of supplies
remained on hand at December 31, 2011.



8.



A customer paid
Pastina $1,000 in December for 1,500 pounds of spaghetti to be manufactured
and delivered in January 2012. Pastina credited sales revenue.



9.



On December 1, 2011,
$4,000 rent was paid to the owner of the building. The payment represented
rent for December and January 2012, at $2,000 per month.










Required:



Prepare the necessary
December 31, 2011, adjusting journal entries.(Round your answers to the nearest dollar
amount.
Omit the “$” sign in your response.)


Problem :






The general ledger of
the Karlin Company, a consulting company, at January 1, 2011, contained the
following account balances:


The following is a summary of the transactions for the year:































a.



Sales of services,
$100,000, of which $30,000 was on credit.



b.



Collected on accounts
receivable, $27,300.



c.



Issued shares of
common stock in exchange for $10,000 in cash.



d.



Paid salaries, $50,000
(of which $9,000 was for salaries payable).



e.



Paid miscellaneous
expenses, $24,000.



f.



Purchased equipment
for $15,000 in cash.



g.



Paid $2,500 in cash
dividends to shareholders.







Requirement 1:







(Offline – not
submitted or graded in this system).
Prepare the necessary T-accounts, entering the beginning
balances from the trial balance.













Requirement 2:



Prepare a general
journal entry for each of the summary transactions listed above.(Omit the “$” sign in your response.)



Requirement 3:







Post the journal
entries to the offline T-accounts.


































Requirement 4:



Prepare an unadjusted
trial balance.(Leave no cells blank –
be certain to enter a 0 wherever required.
Omit the “$” sign
in your response.)



Requirement 5:



Prepare and post
adjusting journal entries. Post to offline T-accounts. Accrued salaries at
year-end amounted to $1,000. Depreciation for the year on the equipment is
$2,000. The allowance for uncollectible accounts is estimated to be $1,500. (Omit
the “$” sign in your response.)



Requirement 6:



Prepare an adjusted
trial balance. (Omit the “$” sign in your response.)



Requirement 7:



Prepare an income
statement for 2011 and a balance sheet as of December 31, 2011. (Amounts in
parentheses do not require a minus sign. Input all amounts as positive
values. Omit the “$” sign in your response.)



Requirement 8:



Prepare and post
closing entries. (Omit the “$” sign in your response.)







Selected balance sheet
information for the Wolf Company at November 30, and December 31, 2011, is
presented below. The company uses the perpetual inventory system and all
sales to customers are made on credit.























The following cash
flow information also is available:



a.



Cash collected from
credit customers—$55,000.



b.



Cash paid for
insurance—$8,000.



c.



Cash paid to suppliers
of inventory—$44,000 (the entire accounts payable amounts relate to inventory
purchases).



d.



Cash paid to employees
for wages—$10,000.







Requirement 1:










Determine the
following for the month of December.(Omit the “$” sign in your response.)



Requirement 2:







Prepare a summary journal
entry to record the month’s sales and cost of those sales.(Omit the “$” sign in your response.)


Problem 2-6 Accounting cycle [LO2, 3, 4, 5, 6, 7]






The general ledger of
the Karlin Company, a consulting company, at January 1, 2011, contained the
following account balances:


The following is a summary of the transactions for the year:































a.



Sales of services,
$100,000, of which $30,000 was on credit.



b.



Collected on accounts
receivable, $27,300.



c.



Issued shares of
common stock in exchange for $10,000 in cash.



d.



Paid salaries, $50,000
(of which $9,000 was for salaries payable).



e.



Paid miscellaneous
expenses, $24,000.



f.



Purchased equipment
for $15,000 in cash.



g.



Paid $2,500 in cash
dividends to shareholders.







Requirement 1:







(Offline – not
submitted or graded in this system).
Prepare the necessary T-accounts, entering the beginning
balances from the trial balance.













Requirement 2:



Prepare a general
journal entry for each of the summary transactions listed above.(Omit the “$” sign in your response.)



Requirement 3:







Post the journal
entries to the offline T-accounts.






















Requirement 4:



Prepare an unadjusted
trial balance.(Leave no cells blank –
be certain to enter a 0 wherever required.
Omit the “$”
sign in your response.)



Requirement 5:



Prepare and post
adjusting journal entries. Post to offline T-accounts. Accrued salaries at
year-end amounted to $1,000. Depreciation for the year on the equipment is
$2,000. The allowance for uncollectible accounts is estimated to be $1,500.(Omit the “$” sign in your response.)



Requirement 6:



Prepare an adjusted
trial balance.(Omit the “$”
sign in your response.)






















Requirement 7:



Prepare an income
statement for 2011 and a balance sheet as of December 31, 2011.(Amounts in parentheses do not require a minus
sign. Input all amounts as positive values. Omit the “$” sign in
your response.)



Requirement 8:



Prepare and post
closing entries. (Omit the “$” sign in your response.)



Requirement 9:



Prepare a post-closing
trial balance. (Omit the “$” sign in your response.)


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