accounting problems with all solutions

$13.00

Description

Required
1. Check your worksheet by changing the average operating assets in cell B6 to $8,000,000. The ROI should now be 38% and the residual income should now be $1,000,000. If you do not get these answers, find the errors in your worksheet and correct them.
Explain why the ROI and the residual income both increase when the average operating assets decrease.

2. Revise the data in your worksheet as follows:
Data
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,200
Net operating income . . . . . . . . . . . . . . $72
Average operating assets . . . . . . . . . . . $500
Minimum required rate of return . . . . . . 15%
a. What is the ROI?
b. What is the residual income?
c. Explain the relationship between the ROI and the residual income?

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accounting problems with all solutions

$13.00

Description

uestion 4
LoBianco Company’s record of transactions for the month of April was as follows.

urchases—April 1

(balance on hand)

738

@

$6.0

4

1,845

@

6.3

8

984

@

6.6

13

1,476

@

6.9

21

861

@

7.2

29

615

@

7.4

Sales

April 3

615

@

$9

9

1,599

@

9

11

738

@

11

23

1,476

@

11

27

1,107

@

12

5,535

66,519 is the total on the purchases

6,519

Sales
April 1 (balance on hand) 738 @ $6.0 April 3 615 @ $9
4 1,845 @ 6.3 9 1,599 @ 9
8 984 @ 6.6 11 738 @ 11
13 1,476 @ 6.9 23 1,476 @ 11
21 861 @ 7.2 27 1,107 @ 12
29 615 @ 7.4 5,535
6,519

(a1)
Your answer is correct.

Calculate average cost per unit. (Round average cost per unit to 2 decimal places, e.g. $2.76.)

Average cost per unit $6.67

(a2) and (b)
(1) Assuming that periodic inventory records are kept, compute the inventory at April 30 using LIFO and average cost. (Round answer to 0 decimal places, e.g. $2,760.)

LIFO
$
Average cost
$

(2) Assuming that perpetual inventory records are kept in both units and dollars, determine the inventory at April 30 using FIFO and LIFO. (Round answer to 0 decimal places, e.g. $2,760.)

FIFO

LIFO
Inventory
$

$

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accounting problems with all solutions

$19.00

Description

Colen Corporation produces and sells a single product. In January, the company sold 2,000 units. Its total sales were $151,000, its total variable expenses were $79,700, and its total fixed expenses were $56,600.

Required:
a. Compute the company’s Net operating income for January. (Do not round intermediate calculations. Omit the “$” sign in your response.)

Net operating income $

b. Compute the company’s Net operating income assuming that the company sells 1,900 units. (Do not round intermediate calculations. Omit the “$” sign in your response.)

Net operating income $

Calderon Corporation produces and sells a single product. Data concerning that product appear below:

Per Unit Percent of Sales
Selling price $ 280 100%
Variable expenses 42 15%
________________________________________ ________________________________________ ________________________________________
Contribution margin $ 238 85%
________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________
________________________________________

Fixed expenses are $200,000 per month. The company is currently selling 1,900 units per month.

Management is considering using a new component that would increase the unit variable cost by $58. Since the new component would improve the company’s product, the marketing manager predicts that monthly sales would increase by 600 units.

Required:
What should be the overall effect on the company’s monthly net operating income of this change if fixed expenses are unaffected? (Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.)

Change in net operating income $
Note: Its negative 2200.

Cuffee Inc., which produces a single product, has provided the following data for its most recent month of operation:

Number of units produced 12,600
Variable cost per unit:
Direct materials $ 115
Direct labor $ 78
Variable manufacturing overhead $ 8
Variable selling and administrative $ 17
Fixed costs:
Fixed manufacturing overhead $ 718,200
Fixed selling and administrative expenses $ 289,800
________________________________________

The company had no beginning or ending inventories.

Required:
a. Compute the unit product cost under absorption costing.

Unit product cost
Absorption costing $
________________________________________

b. Compute the unit product cost under variable costing.

Unit product cost
Variable costing $

________________________________________

Camren Corporation has two major business segments-Apparel and Accessories. Data concerning those segments for December appear below:

Sales revenues, Apparel $ 775,000
Variable expenses, Apparel $ 304,000
Traceable fixed expenses, Apparel $ 183,000
Sales revenues, Accessories $ 821,000
Variable expenses, Accessories $ 510,000
Traceable fixed expenses, Accessories $ 195,000
________________________________________

Common fixed expenses totaled $282,000 and were allocated as follows: $96,000 to the Apparel business segment and $186,000 to the Accessories business segment.

Required:
Prepare a segmented income statement in the contribution format for the company. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Yoke Corporation has provided the following data from its activity-based costing accounting system:

Supervisory wages $ 82,100
Factory Utilities $ 284,000
________________________________________

Distribution of Resource Consumption across Activity Cost Pools:

Activity Cost Pools Batch
set-ups Unit
Processing Other Total
Supervisory wages 62 % 34 % 4 % 100 %
Factory Utilities 34 % 61 % 5 % 100 %
________________________________________

The “Other” activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.

Required:
a. Determine the total amount of supervisory wages and factory utilities costs that would be allocated to the unit Processing activity cost pool. (Omit the “$” sign in your response.)

Total amount $

b. Determine the total amount of supervisory wages and factory utilities costs that would NOT be assigned to products. (Omit the “$” sign in your response.)

Total amount $

Daba Company manufactures two products, Product F and Product G. The company expects to produce and sell 1,810 units of Product F and 2,280 units of Product G during the current year. The company uses activity-based costing to compute unit product costs for external reports. Data relating to the company’s three activity cost pools are given below for the current year:

Total Activity
Activity Cost Pool Total Cost Product F Product G Total
Machine setups $ 35,056 140 setups 173 setups 313 setups
Purchase orders $ 363,580 1,460 orders 1,970 orders 3,430 orders
General factory $ 121,210 2,850 hours 4,280 hours 7,130 hours
________________________________________

Required:
Using the activity-based costing approach, determine the overhead cost per unit for each product. (Round your final answers to 2 decimal point.)

Product F Product G
Overhead cost $ $
________________________________________
Overhead Cost
rev: 03_14_2012

Masse Corporation uses part G18 in one of its products. The company’s Accounting Department reports the following costs of producing the 17,200 units of the part that are needed every year.

Per Unit
Direct materials $4.40
Direct labor $5.10
Variable overhead $8.10
Supervisor’s salary $8.80
Depreciation of special equipment $9.40
Allocated general overhead $6.40
________________________________________

An outside supplier has offered to make the part and sell it to the company for $31.00 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $23,200 of these allocated general overhead costs would be avoided. In addition, the space used to produce part G18 could be used to make more of one of the company’s other products, generating an additional segment margin of $34,000 per year for that product.

Required:
a. Calculate the effect on the company’s total net operating income of buying part G18 from the supplier rather than continuing to make it inside the company. (Input the amount as a positive value. Omit the “$” sign in your response.)

Net operating income would be by $ .

Net operating income would be
b. Which alternative should the company choose?

Buy
Make

Holtrop Corporation has received a request for a special order of 8,800 units of product Z74 for $45.70 each. The normal selling price of this product is $50.80 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product Z74 is computed as follows:

Direct materials $16.50
Direct labor 5.80
Variable manufacturing overhead 3.00
Fixed manufacturing overhead 5.90
________________________________________
Unit product cost $31.20
________________________________________________________________________________
________________________________________

Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like some modifications made to product Z74 that would increase the variable costs by $5.40 per unit and that would require a one-time investment of $45,200 in special molds that would have no salvage value. This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order.

Required:
Calculate the incremental net operating income of accepting the special order. (Omit the “$” sign in your response.)

Incremental net operating income $

Iadanza Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $195.70 per unit.

The best estimate of the total contribution margin when 6,300 units are sold is:
$752,220
$638,190
$100,170
$177,030

Management of Modugno Corporation is considering whether to purchase a new model 370 machine costing $441,000 or a new model 240 machine costing $387,000 to replace a machine that was purchased 7 years ago for $429,000. The old machine was used to make product M25A until it broke down last week. Unfortunately, the old machine cannot be repaired.

Management has decided to buy the new model 240 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product M25A.

Management also considered, but rejected, the alternative of simply dropping product M25A. If that were done, instead of investing $387,000 in the new machine, the money could be invested in a project that would return a total of $430,000.

In making the decision to buy the model 240 machine rather than the model 370 machine, the sunk cost was:
$430,000
$429,000
$387,000
$441,000

Haar Inc. is a merchandising company. Last month the company’s cost of goods sold was $61,000. The company’s beginning merchandise inventory was $11,000 and its ending merchandise inventory was $21,000. What was the total amount of the company’s merchandise purchases for the month?
$61,000
$51,000
$71,000
$93,000

The following data pertains to activity and costs for two months:

Assuming that these activity levels are within the relevant range, the mixed cost for July was:
$10,000
$35,000
$15,000
$40,000

At an activity level of 5,300 machine-hours in a month, Clyburn Corporation’s total variable maintenance cost is $114,268 and its total fixed maintenance cost is $154,336.

What would be the total variable maintenance cost at an activity level of 5,600 machine-hours in a month? Assume that this level of activity is within the relevant range.
$163,072
$268,604
$114,268
$120,736

Evergreen Corp. has provided the following data:

The number of units needed to achieve a target net operating income of $49,500 would be:
1,238 units
2,750 units
3,200 units
2,057 units

Laro Corporation produces and sells a single product with the following characteristics:

The company is currently selling 5,000 units per month. Fixed expenses are $302,000 per month. Consider each of the following questions independently.

This question is to be considered independently of all other questions relating to Laro Corporation. Refer to the original data when answering this question.
The marketing manager would like to cut the selling price by $13 and increase the advertising budget by $17,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,200 units. What should be the overall effect on the company’s monthly net operating income of this change?
decrease of $57,400
decrease of $7,600
increase of $57,400
increase of $147,400

Budget data for the Bidwell Company are as follows:

The number of units Bidwell would have to sell to earn a net operating income of $150,000 is:
100,000 units
120,000 units
112,000 units
145,000 units

East Company has the following budgeted cost and revenue data:

A 10% increase in fixed expense would result in:
a 10% decrease in net operating income.
a $14,000 increase in total contribution margin.
an increase in the margin of safety.
an increase in the break-even point.

Acitelli Corporation, which applies manufacturing overhead on the basis of machine-hours, has provided the following data for its most recent year of operations.

The estimates of the manufacturing overhead and of machine-hours were made at the beginning of the year for the purpose of computing the company’s predetermined overhead rate for the year.

The overhead for the year was:
$1,520 underapplied
$2,520 overapplied
$1,520 overapplied
$2,520 underapplied

Carter Corporation applies manufacturing overhead on the basis of machine-hours. At the beginning of the most recent year, the company based its predetermined overhead rate on total estimated overhead of $135,850. Actual manufacturing overhead for the year amounted to $145,000 and actual machine-hours were 5,660. The company’s predetermined overhead rate for the year was $24.70 per machine-hour.

The applied manufacturing overhead for the year was closest to:
$135,850
$149,218
$143,869
$139,802

Currey Inc., which uses job-order costing, has provided the following data for August:

The unadjusted cost of goods sold (in other words, cost of goods sold before adjusting for any underapplied or overapplied overhead) for August is closest to:
$212,000
$210,000
$185,000
$182,000

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accounting problems with all solutions

$18.00

Description

Question 1

  1. Calculate the shareholders’ equity from the given information:

    Cash $2,155
    A/R $3,142
    Notes Payable $382
    Long-term Debt $8,232
    Net Fixed Assets $18,091
    A/P $2,146
    Inventory $5,096

    Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 2

  1. Based on the following information, Compute the transfer to Retained Earnings for Year 2006. Assume a tax rate of 34%.

    Year 2006

    Sales

    $4800

    Depreciation

    577

    COGS

    1582

    Other Expenses

    580

    Interest

    769

    Cash

    2107

    A/R

    2789

    Short-term Notes Payable

    407

    Long-term Debt

    7056

    Net Fixed Assets

    17669

    A/P

    2213

    Inventory

    4959

    Dividends

    612

    Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 3

  1. ABC’s EBIT is $6 million. The depreciation expense is $0.5 million and interest expense is $0.5 million. The corporate tax rate is 30%. The company has 7 million in operating current assets and $3 million operating current liabilities. It has $12 million in net plant and equipment. The after-tax cost of capital (WACC) is 12%. Assume that the only non-cash item is depreciation. The total net operating capital last year was $15 million.

    What was the company’s economic value added (EVA)?

    Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $1,200,000.345 then enter as(NNN) NNN-NNNN35 in the answer box.

1 points

Question 4

  1. ABC company had a taxable income of $195,731 from operations after all operating costs but before interest charges of $51,025, dividends received of $71,468, dividends paid of $5,000, and . What is the firm’s income tax liability?

    Hint: use the tax table to compute taxes. tax 36 %

    Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 5

  1. ABC recently reported $44,852 of sales, $13,789of operating costs other than depreciation, and $5,147 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 8% interest rate. How much was the firm’s taxable income, or earnings before taxes (EBT)?

    Hint: Interest rate = Bonds outstanding * interest rate

    Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 6

  1. ABC company had a taxable income of $510,902 from operations after all operating costs but before interest charges of $56,862, dividends received of $40,361, dividends paid of $10,000, and income taxes. What is the firm’s income tax liability?

    Hint: use the tax table to compute taxes.

    Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

1 points

Question 7

  1. The dividend payments are tax-deductible.

    True

    False

1 points

Question 8

  1. ABC company had a taxable income of $583,895 from operations after all operating costs but before interest charges of $55,955, dividends received of $45,959, dividends paid of $10,000, and income taxes. What is the firm’s after-tax income?

    Hint: first use the tax table to compute taxes before calculating the after-tax income.

    Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

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accounting problems with all solutions

$13.00

Description

Your finance text book sold 53,000 copies in its first year. The publishing company expects the sales to grow at a rate of 23.0 percent for the next three years, and by 10.0 percent in the fourth year. Calculate the total number of copies that the publisher expects to sell in year 3 and 4. (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answers to the nearest whole number.)
Number of copies sold after 3 years
Number of copies sold in the fourth year

Find the present value of $2,500 under each of the following rates and periods.

(If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)

a. 8.9 percent compounded monthly for five years.

Present value $

b. 6.6 percent compounded quarterly for eight years.

Present value $

c. 4.3 percent compounded daily for four years.

Present value $

d. 5.7 percent compounded continuously for three years.

Present value

$270,325 invested at 6 percent.

Annual cash flows $

$27,545 invested at 12 percent.

Annual cash flows $

$108,612 invested at 10 percent.

Annual cash flows $

Modern Energy Company owns several gas stations. Management is looking to open a new station in the western suburbs of Baltimore. One possibility they are evaluating is to take over a station located at a site that has been leased from the county. The lease, originally for 99 years, currently has 73 years before expiration. The gas station generated a net cash flow of $91,803 last year, and the current owners expect an annual growth rate of 6.3 percent. If Modern Energy uses a discount rate of 9.7 percent to evaluate such businesses, what is the present value of this growing annuity? (Round intermediate calculations to 6 decimal places, e.g. 1.521253 and final answer to 2 decimal places, e.g. 15.25.)
Present value $

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accounting problems with all solutions

$15.00

Description

Q1.Watters Umbrella Corp. issued 15-year bonds 2 years ago at a coupon rate of 5.6 percent. The bonds make semiannual payments. If these bonds currently sell for 90 percent of par value, what is the YTM? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

YTM %

Q2.Rhiannon Corporation has bonds on the market with 15.5 years to maturity, a YTM of 6.20 percent, and a current price of $1,039. The bonds make semiannual payments.

What must the coupon rate be on these bonds? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Coupon rate %

Q3.Treasury bills are currently paying 6 percent and the inflation rate is 3.30 percent.

What is the approximate real rate of interest? (Round your answer to 2 decimal places. (e.g., 32.16))

Approximate real rate %

What is the exact real rate? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Exact real rate %

Q4.The real rate is 4.3 percent and the inflation rate is 5.9 percent.

What rate would you expect to see on a Treasury bill? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Treasury bill rate %

Q5.You purchases a bond with a coupon rate of 8.4 percent and a clean price of $930.

If the next semiannual coupon payment is due in two months, what is the invoice price? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Invoice price $

Q6.Suppose the following bond quote for IOU Corporation appears in the financial page of today’s newspaper. Assume the bond has a face value of $1,000 and the current date is April 15, 2012.
Company (Ticker) Coupon Maturity Last Price Last Yield EST Vol (000s)
IOU (IOU) 7.0 Apr 15, 2028 104.26 ?? 1,841
________________________________________

What is the yield to maturity of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
YTM %

What is the current yield? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))
Current yield %

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accounting problems with all solutions

$11.00

Description

Use the balance sheets of Bill (shown below) to calculate the following ratios for 2002 (round to the hundredths):
a. Current ratio
b. Acid-test ratio
c. Debt ratio
d. Equity ratio

Hill Company
Balance Sheet
December 31, 2002-2001

2002 2001
Asset:
Cash $43,000 $22,000
Accounts receivable 38,000 42,000
Merchandise inventory 61,000 52,000
Prepared insurance 6,000 9,000
Long-term investments 49,000 20,000
Plant assets (net) 218,000 218,000
Total assets $415,000 $363,000

Liabilities and Equity:
Current liabilities $62,000 $75,000
Long-term liabilities 45,000 36,000
Common Stock 150,000 150,000
Retained earnings 158,000 102,000
Total liabilities and equity $415,000 363,000

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accounting problems with all solutions

$12.00

Description

1.Create an excel with a budgeted income statement for each of the first two months
2.prepare a cash flow analysis for the two month period
3. Compute what the accounts receivable and accounts payable balances will be at the end of the two month period.

At the start if business operation is $10,000
On the first day of the first month of business, an insurance premium of $6,000 is due. The term of this policy is for one year.

The owner provides the following estimates for the first two months of business:

Sales:$40,000 in first month, and $60,000in second month.
Cost of sales: 35%
Cost of labor: 30%
Cost of related payroll(payroll taxes, benefits):25% of payroll
Supplies:5% of sales
Advertising: $600 monthly
Depreciation: $1,000 monthly
Rent: $3,000 monthly
All other expenses: 12% of sales

The owner provides the following statistical information bases on industry studies and personal estimates:

Sales are estimated to be 80% cash and 20% accounts receivable. The accounts receivable are collected in the month following the sales

Cost of sales represent purchases. The purchase are estimated to be 90% on accounts payable and 10 percent cash. The accounts payable are paid In the month following the sale

All other expenses are paid in the current month

A delivery truck is required for the second month of business. This vehicle will cost $25,000 and requires a $4,000 down payment. Payments on the note start the third month of business.

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accounting problems with all solutions

$13.00

Description

1. Give three examples of how management can engage in “real” earnings management to achieve the desired reporting of higher net income.

2. Profiles Corp. had the following infrequent income statement items during 2009:

$44,000 of dividends received from a stock investment
$20,000 gain on the sale of a plant asset which became outdated because of new technology
$19,000 loss due to the sale of treasury stock at a price less than its original cost
$34,000 fair value adjustment increase to market for available-for-sale investments
$50,000 interest expense for the year of which only $42,000 was actually paid

How much should Profiles report as a component of ‘income from continuing operations’?
3. On December 31, 2008, Rory Corp. acquired an 18% interest in Batson Corp. for $100,000 and appropriately applied the cost method. During 2009, Batson had net income of $200,000 and paid cash dividends of $50,000. On the last day of 2009, Rory sold one-half of its investment in Batson Corp. for $180,000. How much should Rory report on its income statement for the year ending December 31, 2009? Show your work.
4. On January 1, 2009, Parker Company leased equipment under a 3-year lease with payments of $5,000 on each December 31 of the lease term. The present value of the lease payments at a discount rate of 12% is $12,010. If the lease is considered a capital lease, depreciation expense (straight-line) and interest expense are recognized. If the lease is considered an operating lease, then rent expense is recognized. What is the difference in the total combined net incomes of 2009, 2010, and 2011, if the lease is considered a capital lease instead of an operating lease?
Additional Requirements

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accounting problems with all solutions

$13.00

Description

Preparation of journal entries and financial statement for not-for-profit
Tomorrows World is a not -for- profit organization. At the end of last year, the organization
reported the following trail balance.
Debit
$360,000
4,800,000
1,040,000
2,400,000
_
_
_
_
_

credit
$800,000
1,600,000
3,200,000
2,200,000
800,000

$8,600,000

Cash
Investments
Contribution receivable
PPE,net
Payables
Long term liabilities
Net asset-unrestricted
Net asset-temporarily
restricted
Net assets-permanently
restricted

$8,600,000

The investments are allocated as follows: 45% are unrestricted, 40% are temporarily restricted
(use of thses funds is stipulated by the donors) and 15% are permanently restricted (only the
interest income may be used to fund operating expenses if so directed by the organization’s
Board of Trustees, and no such designation was made for this year). Investment income (paid in
cash) is 5% for the current year.
During the year, the organization received $5,600,000 in unrestricted donation and $ 560,000 in
donations whose use is temporarily restricted as to use by donors. All of these donation are
account .In addition, it recognized program expenses of $ 400,000 is spent using temporarily
restricted funds for approved purposes, thus receiving the appropriate release from the donors
restrictions.
Tomorrows World collected $6,000,000of contributions receivable, paid $ 5,800,000 of payable
and purchased additional land in the amount of $ 260,000 (depreciation expense of $180,000 is
recognized related to the depreciable assets). Interest expense on the long term debt is
included in the expenses referenced above, and no repayment of the principal is recognized
during the year.
Required:
a. Prepare journal entries for the organization financial activities during the year.
b. Prepare the year end statement of activities and statement of financial position.

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accounting problems with all solutions

$15.00

Description

Kim Co. purchased goods with a list price of $186,000, subject to trade discounts of 30% and 20%, with no cash discounts allowable. How much should Kim Co. record as the cost of these goods?

Cost of goods purchased –

2. Keillor Company’s inventory of $1,128,600 at December 31, 2012, was based on a physical count of goods priced at cost and before any year-end adjustments relating to the following items.

(a) Goods shipped from a vendor f.o.b. shipping point on December 24, 2012, at an invoice cost of $70,350 to Keillor Company were received on January 4, 2013.
(b) The physical count included $30,810 of goods billed to Sakic Corp. f.o.b. shipping point on December 31, 2012. The carrier picked up these goods on January 3, 2013.

What amount should Keillor report as inventory on its balance sheet?

Inventory to be reported –

3. Zimmerman Corp. had 2,050 units of part M.O. on hand May 1, 2012, costing $23 each. Purchases of part M.O. during May were as follows.

Units

Units Cost
May 9 2,550 $25
May 17 4,050 $26
May 26 1,550 $27

A physical count on May 31, 2012, shows 2,550 units of part M.O. on hand. Using the FIFO method, what is the cost of part M.O. inventory at May 31, 2012? Using the LIFO method, what is the inventory cost? Using the average cost method, what is the inventory cost? (Round answers to 0 decimal places, e.g. 1,620.)

FIFO

LIFO

Average Cost
Inventory Cost
$

$

$

4. Ashbrook Company adopted the dollar-value LIFO method on January 1, 2012 (using internal price indexes and multiple pools). The following data are available for inventory pool A for the 2 years following adoption of LIFO.

Inventory

At Base-Year
Cost

At Current-Year
Cost
1/1/12 $207,000 $207,000
12/31/12 242,000 266,200
12/31/13 265,000 299,450

Computing an internal price index and using the dollar-value LIFO method, at what amount should the inventory be reported at December 31, 2013? (Round price index and dollar-value LIFO inventory to 0 decimal places, e.g. 162.)

December 31, 2013
Price Index
Dollar-value LIFO inventory
$

5. Donovan Inc., a retail store chain, had the following information in its general ledger for the year 2013.

Merchandise purchased for resale $911,580
Interest on notes payable to vendors 9,130
Purchase returns 16,740
Freight-in 24,080
Freight-out 17,940
Cash discounts on purchases 7,290

What is Donovan’s inventoriable cost for 2013?

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uestion 4
LoBianco Company’s record of transactions for the month of April was as follows.

urchases—April 1

(balance on hand)

738

@

$6.0

4

1,845

@

6.3

8

984

@

6.6

13

1,476

@

6.9

21

861

@

7.2

29

615

@

7.4

Sales

April 3

615

@

$9

9

1,599

@

9

11

738

@

11

23

1,476

@

11

27

1,107

@

12

5,535

66,519 is the total on the purchases

6,519

Sales
April 1 (balance on hand) 738 @ $6.0 April 3 615 @ $9
4 1,845 @ 6.3 9 1,599 @ 9
8 984 @ 6.6 11 738 @ 11
13 1,476 @ 6.9 23 1,476 @ 11
21 861 @ 7.2 27 1,107 @ 12
29 615 @ 7.4 5,535
6,519

(a1)
Your answer is correct.

Calculate average cost per unit. (Round average cost per unit to 2 decimal places, e.g. $2.76.)

Average cost per unit $6.67

(a2) and (b)
(1) Assuming that periodic inventory records are kept, compute the inventory at April 30 using LIFO and average cost. (Round answer to 0 decimal places, e.g. $2,760.)

LIFO
$
Average cost
$

(2) Assuming that perpetual inventory records are kept in both units and dollars, determine the inventory at April 30 using FIFO and LIFO. (Round answer to 0 decimal places, e.g. $2,760.)

FIFO

LIFO
Inventory
$

$

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Assume that you are using attribute sampling to rest the controls over revenue recognition of the Packet Corporation, a public company, and will use the results as part of the evidence on which to base your opinion on its internal controls and to determine what additional auditing procedures should be performed on revenue and accounts receivable. You have decided to test the following controls and have set the risk of overreliance at 5%, the tolerable deviation rate at 5%, and the expected deviation rate at 1%. A sample size of 100 is used. (Note that this sample size is just rounded up from the sample size of 93 that would have been obtained from the appropriate table.) The results of your testing are indicated below.

1. Control: All sales over $10,000 must be approved by the sales manager by initialing the customer’s order.

Results: There were only 25 sales over $10,000 in the sample. So, the auditor randomly collects an additional 75 sales transactions that were over $10,000. All were approved by the sales manager.

2. Control: Credit must be approved by the credit department prior to shipment and noted on the customer’s order.

Results: Three sales were recorded without evidence of credit approval. The sales manager said she had approved the sales. No customer order could be found for two of the other sampled items.

3. Control: Sales are recorded only when a shipping document is forwarded to the billing department.

Results: No shipping document could be found for three of the sampled items.

4. Control: The date of recording the sale must correspond to the date on the shipping document.

Results: Four sales were recorded prior to the date of shipment. Your follow-up indicates that a temporary employees worked for the last two months of the fiscal year and was unaware of this requirement.

5. Control: All prices are obtained from the current price list that is periodically updated by the sales manager.

Results: All prices agreed with the appropriate price list.

6. Control: The shipping department is not to ship products without first receiving an approved customer’s order.

Results: No customer order could be found for two sample items as indicated in step (2).

7. Control: The billing department compares the quantity billed with the customer’s order.

Results: Four billed quantities were for more than the customer order. Three of these took place near year end. In addition, there was no customer order for the two items indicated in step (2).

a. Determine the upper limit of deviation for each of the controls.

b. What impact do these results have on the type of opinion to be given on the client’s internal controls?

c. Indicate the potential misstatements that could be the result of control deviations.

d. Determine what substantive audit procedures should be performed in response to each of the control deviations identified earlier.

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a. Sold land costing $315,000 for $425,000 cash, yielding a gain of $110,000.
b. Paid $100,000 cash for a new truck.
c. Equipment with a book value of $83,000 and an original cost of $161,000 was sold at a loss of $36,000.
d. Long-term investments in stock were sold for $97,000 cash, yielding a gain of $15,500.

Use the above information to determine this company’s cash flows from investing activities. (Amounts to be deducted should be indicated with a minus sign. Omit the “$” sign in your response.)

Statement of Cash Flows
Cash flows from investing activities
$

Net cash investing activities $

Exercise 16-9 Cash flows from financing activities L.O. P3
a. Net income was $472,000.
b. Issued common stock for $77,000 cash.
c. Paid cash dividend of $13,000.
d. Paid $115,000 cash to settle a note payable at its $115,000 maturity value.
e. Paid $120,000 cash to acquire its treasury stock.
f. Purchased equipment for $94,000 cash.

Use the above information to determine this company’s cash flows from financing activities. (Amounts to be deducted should be indicated with a minus sign. Omit the “$” sign in your response.)

Statement of Cash Flows
Cash flows from financing activities
$

Net cash financing activities $

Exercise 16-10 Preparation of statement of cash flows (indirect) L.O. P1
[The following information applies to the questions displayed below.]

Use the following financial statements and additional information.

GECKO INC.
Comparative Balance Sheets
June 30, 2011 and 2010
2011 2010
Assets
Cash $ 113,900 $ 64,200
Accounts receivable, net 69,500 52,000
Inventory 66,200 96,300
Prepaid expenses 6,200 4,700
Equipment 123,300 111,000
Accum. depreciation—Equipment (28,900 ) (10,600 )

Total assets $ 350,200 $ 317,600

Liabilities and Equity
Accounts payable $ 26,900 $ 32,600
Wages payable 7,200 16,800
Income taxes payable 2,500 4,500
Notes payable (long term) 52,000 74,000
Common stock, $5 par value 237,000 182,000
Retained earnings 24,600 7,700

Total liabilities and equity $ 350,200 $ 317,600

GECKO INC.
Income Statement
For Year Ended June 30, 2011
Sales $ 676,000
Cost of goods sold 411,000

Gross profit 265,000
Operating expenses
Depreciation expense $ 57,600
Other expenses 66,700

Total operating expenses 124,300

140,700
Other gains (losses)
Gain on sale of equipment 2,600

Income before taxes 143,300
Income taxes expense 57,320

Net income $ 85,980

Additional Information

a. A $22,000 note payable is retired at its $22,000 carrying (book) value in exchange for cash.
b. The only changes affecting retained earnings are net income and cash dividends paid.
c. New equipment is acquired for $61,300 cash.
d. Received cash for the sale of equipment that had cost $49,000, yielding a $2,600 gain.
e. Prepaid Expenses and Wages Payable relate to Other Expenses on the income statement.
f. All purchases and sales of merchandise inventory are on credit.
references

3.value:
1.50 points

Exercise 16-10 Part 1
1.
Prepare a statement of cash flows for the year ended June 30, 2011, using the indirect method. (Amounts to be deducted should be indicated with a minus sign. Omit the “$” sign in your response.)

GECKO, INC.
Statement of Cash Flows
For Year Ended June 30, 2011
Cash flows from operating activities
$
Adjustments to reconcile net income to net cash
provided by operating activities

Net cash by operating activities $
Cash flows from investing activities

Net cash in investing activities
Cash flows from financing activities

Net cash in financing activities

$
Cash balance at beginning of year

Cash balance at end of year $

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1. Additional
Funds Needed

The Booth Company’s sales are forecasted to double from
$1,000 in 2012 to $2,000 in 2013. Here is the December 31, 2012, balance sheet:

Cash $ 100 Accounts payable $ 50

Accounts receivable 200 Notes payable 150

Inventories 200 Accruals 50

Net fixed assets 500 Long-term debt 400

Common stock 100

Retained earnings 250

Total assets $1000 Total liabilities and equity $1000

Booth’s fixed assets were used to only 50% of capacity
during 2012, but its current assets were at their proper levels in relation to
sales. Spontaneous liabilities and all assets except fixed assets must increase
at the same rate as sales, and fixed assets would also have to increase at the
same rate if the current excess capacity did not exist. Booth’s after-tax
profit margin is forecasted to be 7% and its payout ratio to be 70%. What is
Booth’s additional funds needed (AFN) for the coming year? Round your answer to
the nearest dollar.$

2. AFN equation

Broussard Skateboard’s sales are expected to increase by 15%
from $8 million in 2013 to $9.2 million in 2014. Its assets totaled $5 million
at the end of 2013. Broussard is already at full capacity, so its assets must
grow at the same rate as projected sales. At the end of 2013, current
liabilities were $1.4 million, consisting of $450,000 of accounts payable,
$500,000 of notes payable, and $450,000 of accruals. The after-tax profit
margin is forecasted to be 6%, and the forecasted payout ratio is 55%. What
would be the additional funds needed? Do not round intermediate calculations.
Round your answer to the nearest dollar.

$

Assume that the company’s year-end 2013 assets had been $4
million. Is the company’s “capital intensity” ratio the same or
different?

I. The capital intensity ratio is measured as A0*/S0.
Broussard’s capital intensity ratio is lower than that of the firm with $4
million year-end 2013 assets; therefore, Broussard is more capital intensive –
it would require a smaller increase in total assets to support the increase in
sales.

II. The capital intensity ratio is measured as A0*/S0.
Broussard’s capital intensity ratio is higher than that of the firm with $4
million year-end 2013 assets; therefore, Broussard is less capital intensive –
it would require a smaller increase in total assets to support the increase in
sales.

III. The capital intensity ratio is measured as A0*/S0.
Broussard’s capital intensity ratio is higher than that of the firm with $4
million year-end 2013 assets; therefore, Broussard is more capital intensive –
it would require a larger increase in total assets to support the increase in
sales.

IV. The capital intensity ratio is measured as A0*/S0.
Broussard’s capital intensity ratio is lower than that of the firm with $4
million year-end 2013 assets; therefore, Broussard is more capital intensive –
it would require a larger increase in total assets to support the increase in
sales.

3.

AFN Equation Broussard Skateboard’s sales are expected to
increase by 15% from $8 million in 2013 to $9.2 million in 2014. Its assets
totaled $4 million at the end of 2013. Baxter is already at full capacity, so
its assets must grow at the same rate as projected sales. At the end of 2013,
current liabilities were $1.4 million, consisting of $450,000 of accounts
payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax
profit margin is forecasted to be 4%. Assume that the company pays no
dividends. Under these assumptions, what would be the additional funds needed
for the coming year? Do not round intermediate calculations. Round your answer
to the nearest dollar.

$

Why is this AFN different from the one when the company pays
dividends?

I. Under this scenario the company would have a lower level
of retained earnings which would reduce the amount of additional funds needed.

II. Under this scenario the company would have a lower level
of retained earnings but this would have no effect on the amount of additional
funds needed.

III. Under this scenario the company would have a higher
level of retained earnings which would reduce the amount of additional funds
needed.

IV. Under this scenario the company would have a higher
level of retained earnings which would increase the amount of additional funds
needed.

V. Under this scenario the company would have a higher level
of retained earnings but this would have no effect on the amount of additional
funds needed.

4

.Sales Increase

Maggie’s Muffins, Inc., generated $4,000,000 in sales during
2013, and its year-end total assets were $2,400,000. Also, at year-end 2013,
current liabilities were $1,000,000, consisting of $300,000 of notes payable,
$500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2014,
the company estimates that its assets must increase at the same rate as sales,
its spontaneous liabilities will increase at the same rate as sales, its profit
margin will be 4%, and its payout ratio will be 70%. How large a sales increase
can the company achieve without having to raise funds externally; that is, what
is its self-supporting growth rate? Do not round intermediate steps. Round your
answers to the nearest whole.

Sales can increase by $, that is by %.

5.

Long-Term Financing Needed

At year-end 2013, Wallace Landscaping’s total assets were $1.8
million and its accounts payable were $415,000. Sales, which in 2013 were $2.6
million, are expected to increase by 30% in 2014. Total assets and accounts
payable are proportional to sales, and that relationship will be maintained.
Wallace typically uses no current liabilities other than accounts payable.
Common stock amounted to $470,000 in 2013, and retained earnings were $345,000.
Wallace has arranged to sell $50,000 of new common stock in 2014 to meet some
of its financing needs. The remainder of its financing needs will be met by
issuing new long-term debt at the end of 2014. (Because the debt is added at
the end of the year, there will be no additional interest expense due to the
new debt.) Its profit margin on sales is 4%, and 35% of earnings will be paid
out as dividends.

1. What was
Wallace’s total long-term debt in 2013? Round your answer to the nearest
dollar.

$

What were Wallace’s total liabilities in 2013? Round your
answer to the nearest dollar.

$

2. How much
new long-term debt financing will be needed in 2014? (Hint: AFN – New stock =
New long-term debt.) Round your answer to the nearest dollar.

$

6.Additional Funds Needed

The Booth Company’s sales are forecasted to double from
$1,000 in 2012 to $2,000 in 2013. Here is the December 31, 2012, balance sheet:

Cash $ 100 Accounts payable $ 50

Accounts receivable 200 Notes payable 150

Inventories 200 Accruals 50

Net fixed assets 500 Long-term debt 400

Common stock 100

Retained earnings 250

Total assets $1000 Total liabilities and equity $1000

Booth’s fixed assets were used to only 50% of capacity
during 2012, but its current assets were at their proper levels in relation to
sales. Spontaneous liabilities and all assets except fixed assets must increase
at the same rate as sales, and fixed assets would also have to increase at the
same rate if the current excess capacity did not exist. Booth’s after-tax
profit margin is forecasted to be 7% and its payout ratio to be 70%. What is
Booth’s additional funds needed (AFN) for the coming year? Round your answer to
the nearest dollar.

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Required: Prepare the journal entry needed to record either of the unrelated bond transactions described below.
(Note: the journal entry for only one of the two scenarios needs to be correct to earn the extra credit point. To increase your chances of success, you may submit an answer for both scenarios, but that is not required.)

a. On January 1, 2013, Bowling Corp. issued $6,000,000 3 year 9% convertible bonds for $6,157,264, resulting in a yield of 8%. The bonds call for semi-annual interest payments on June 30th and December 31st, and each bond is convertible into 4 shares of Bowling’s $20 par common stock. The effective interest method is used to amortize any bond discount or premium. On July 1, 2014, immediately after the June 30th interest payment date, all of the bonds were converted when the stock was selling at $53 per share.

July 1, 2014:

b. On April 1, 2014, Golf Corp issues $10,000,000 of 8% bonds at 99.5. To help with the sale, ten detachable stock warrants are issued with each $1,000 bond sold. Separately, the bonds are selling at 98 and each warrant is selling at $62. (note: when allocating values, do not round decimals.)

April 1, 2014:

2. (1 point)
Tennis Corp. had $600,000 net income in 2014. On January 1, 2014 there were 200,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Tennis bought 30,000 shares of treasury stock.

Tennis had the following additional securities outstanding during 2014:
? 30,000 options to buy common stock at $40 a share
? 40,000 shares of $100 par 3.5% preferred stock convertible into three shares of common stock.
? $2,000,000 8% convertible bonds which were originally sold at face value; each bond is convertible into 30
shares of common stock
The market price of the common stock averaged $50 during 2014. The tax rate is 40%
Required: Calculate basic earnings per share: _____________
Calculate fully diluted earnings per share: _____________

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Q1 The following information is available for Packard Corporation:

January 1, 2013 Shares outstanding 1,000,000
April 1, 2013 Treasury shares purchased 250,000
October 1, 2013 Shares issued in a 100% stock dividend 750,000

The weighted-average number of shares to be used in computing earnings per common share for 2013 is (Points : 7)
1,625,000
750,000
1,500,000
2,000,000

Q2 Corresponds to CLO 1(c) On January 2, 2013, Interval Co. issued at par $1,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 20 shares of common stock. No bonds were converted during 2013. Interval had 200,000 shares of common stock outstanding during 2013. Interval’s 2013 net income was $300,000 and the income tax rate was 30%. Interval’s diluted earnings per share for 2013 would be (rounded to the nearest penny): (Points : 7)
$1.74
$1.59
$1.50
$1.68

Q3

Corresponds to CLO 1(d) On January 1, 2013, Lakewood Corporation granted stock options to officers and key employees for the purchase of 50,000 shares of the company’s $10 par common stock at $25 per share as additional compensation for services to be rendered over the next three years. The market price of common stock was $31 per share at the date of grant. The options are exercisable during a five-year period beginning January 1, 2016 by grantees still employed by Lakewood. The Black-Scholes option pricing model determines total compensation expense to be $450,000. The 2013 income statement will include compensation expense related to these stock options in the amount of: (Points : 7)
$90,000
$150,000
$300,000
$450,000

Q4

Corresponds to CLO 2(a) On July 1, 2103, Atlas Corporation acquired 500, $1,000, 7% bonds at 97 plus accrued interest. The bonds were dated April 1, 2013, and mature on March 31, 2018, with interest paid each September 30 and March 31. The bonds will be added to Atlas’s available-for-sale portfolio. The journal entry to record the purchase of this investment will include (Points : 7)
a debit to Bond discount for $15,000.
a credit to Investments for $500,000.
a debit to Cash for $500,000.
a credit to Cash for $485,000.

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1. The following data concerns inventory and purchases at Davenport Company:
Inventory, January 1 90 units at $103
Purchases:
January 6 60 units at $102
January 15 45 units at $102
January 22 35 units at $96
Inventory, January 31 88 units
INSTRUCTIONS
Determine the cost of the ending inventory on January 31 under each of the following methods:
(a) average cost method; (b) first in, first out (FIFO) method; and (c) last in, first out (LIFO) method.
When using the average cost method, compute the unit cost to two decimal places.

2. The following data pertains to Smart Investment Accounting software packages in the inventory of
Computer Program Smart Outlets:
Inventory, January 1 170 units at $107
Purchases:
May 10 110 units at $105
August 18 180 units at $104
October 1 170 units at $105
Inventory, December 31 175 units
INSTRUCTIONS
1. Determine the cost of the inventory on December 31 and the cost of goods sold for the
year ending on that date under each of the following valuation methods: (a) FIFO,
(b) LIFO, and (c) average cost. When using the average cost method, compute the unit
cost to the nearest cent.
2. Assume that the replacement cost of each unit on December 31 is $105.25. Using the
lower of cost or market rule, find the inventory amount under each of the methods given in
instruction 1.

3. Printer Cartridges
Item 119 50 $ 16.00 $ 16.50
Item 120 60 17.25 17.10
Item 121 90 23.00 23.50
Fax Machines
Item 210 15 86.00 89.00
Item 211 10 192.00 186.00
Item 212 9 225.00 210.00
Determine the amount to be reported as the inventory valuation at cost or market, whichever is
lower, under each of these methods:
1. Lower of cost or market for each item separately.
2. Lower of total cost or total market.
3. Lower of total cost or total market by group.

4. Over the past several years, Haven Forrest Company has had an average gross profit of 30 percent.
At the end of 2013, the income statement of the company included the following information:
Sales $1,668,750
Cost of Goods
Inventory, January 1, 2013 $ 117,000
Purchases 1,170,000
Total Merchandise Available for Sale 1,287,000
Less Inventory, December 31, 2013 136,875
Cost of Goods Sold 1,150,125
Gross Profit on Sales $ 518,625
Investigation revealed that employees of the company had not taken an actual physical count of the
inventory on December 31. Instead, they had merely estimated the inventory

Using the gross profit method of inventory estimation, verify the reasonableness (or lack of reason-
ableness) of the ending inventory shown on the income statement.
If a physical inventory count on December 31, 2013, revealed an ending inventory of
$135,563, calculate the gross profit percentage to the nearest one-tenth of 1 percent.

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2.
The following data pertain to Mission-Vargas Enterprises for the year ended December 31, 2010:

Beginning inventory $188,200
Purchases on credit during the year 400,500
Cost of goods sold during the year 500,600
Sales (70% on credit) during the year 755,400

a. Prepare entries to record the purchase of inventory, cost of goods sold, and sales, during 2010 using the perpetual inventory system.
b. Compute the balance in the inventory account on December 31, 2010.

3.
The following information is available for Williams Door Products Corporation:

Sales revenue………………………………. $280,000
Purchases (cost)…………………………… 200,000
Sales commissions………………………… 9,000
Purchase discounts……………………….. 8,000
Sales discounts……………………………. 7,000
Purchase returns and allowances……….. 4,300
Sales returns and allowances……………. 2,500
Freight-in …………………………………… 800
Freight- out…………………………………. 700
Beginning inventory……………………….. 10,000
Ending inventory…………………………… 9,150

Calculate the following for Williams Door Products Corporation:
a. Net sales
b. Net purchases
c. Gross profit rate

4.
Last year Cramer Sales sold 190 units @ $340 each. Cash selling and administrative expenses were $15,000. The following information is also available:

Beginning inventory 30 units @ $150
Feb. 3 Purchase 60 units @ $160
June 2 Purchase 70 units @ $170
Oct. 1 Purchase 40 units @ $180

The company’s income tax rate is 30%.
Compute the following:
1. Cost of goods using the FIFO method.
2. Ending inventory using the LIFO method.
3. Gross margin using the weighted-average method.

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Problem 1-20A Effect of product versus period costs on financial statements

Hoehn Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciations, assume that all transactions are cash transactions.

1. Acquired $50,000 cash by issuing common stock.
2. Paid $8,000 for the materials used to make its products, all of which were started and completed during the year.
3. Paid salaries of $4,400 to selling and administrative employees.
4. Paid wages of $7,000 to production workers.
5. Paid $9,600 for furniture used in selling and administrative offices. The furniture was acquired on January 1. It had a $1,600 estimated salvage value and a four-year useful life.
6. Paid $13,000 for manufacturing equipment. The equipment was acquired on Jan. 1. It had a $1,000 estimated salvage value and a three – year useful life.
7. Sold inventory to customers for $25,000 that had cost $14,000 to make.

Problem 2-20A Context-sensitive nature of cost behavior classifications

Susan Hicks operates a sales booth in computer software trade shows selling an accounting software package, Dollar System. She purchases the package from a software manufacturer for $175 each. Booth space at the convention hall costs $10,000 per show.

Required

a. Sales at past trade shows have ranged between 200 and 400 software packages per show Determine the average cost of sales per unit if Ms. Hicks sell 200, 250, 300, 350, or 400 units of Dollar System at a trade show. Use the following chart to organize your answer. Is the cost of booth space fixed or variable?
Sales Volume in Units
200 250 300 350 400
Total cost of software (a X $175) $35,000
Total cost of booth rental 10,000
Total cost of sales (b) $45,000
Average cost per unit (b/a) $225.00

b. If Ms. Hicks wants to earn a $50 profit on each package of software she sells at a trade show, what price must she charge at sales volumes of 200, 250, 300, 350, or 400 units?
c. Record the total cost of booth space if Ms. Hicks attends one, two, three, four, or five trade shows. Record your answers in the following chart. Is the cost of booth space fixed or variable relative to the number of shows attended?

Number of Trade Shows Attended
1 2 3 4 5
Total cost of booth rental $10,000

d. Ms. Hicks provides decorative shopping bags to customers who purchase software packages. Some customers take the bags; others do not. Some customers stuff more than one software packages into a single bag. The number of bags varies in relation to the number of units sold, but the relationship is not proportional. Assume that Ms. Hicks uses $30 of bags for every 50 software packages sold. What is the additional cost per unit sold? Is the cost fixed or variable?

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Description

Polk Company builds custom fishing lures for sporting goods
stores. In its first year of operations, 2012, the company incurred the
following costs.

Variable Cost per Unit

Direct materials

$8.03

Direct labor

$2.62

Variable manufacturing overhead

$6.15

Variable selling and administrative expenses

$4.17

Fixed Costs per Year

Fixed manufacturing overhead

$249,744

Fixed selling and administrative expenses

$256,907

Polk Company sells the fishing lures for $26.75. During
2012, the company sold 80,100 lures and produced 94,600 lures.

Assuming the company uses variable costing, calculate Polk’s
manufacturing cost per unit for 2012. (Round answer to 2 decimal places,
e.g.10.50.)

Manufacturing cost per unit

$

Prepare a variable costing income statement for 2012

Assuming the company uses absorption costing , calculate
Polk Manufacturing cost per unit for 2012 Round to nearest 2 decimal places

Prepare an absorption costing income statement for 2012

Question 6

For the quarter ended March 31, 2012, Maris Company
accumulates the following sales data for its product, Garden-Tools: $310,400
budget; $333,800 actual.

Prepare a static budget report for the quarter.

Question 7

Gundy Company expects to produce 1,283,400 units of Product
XX in 2012. Monthly production is expected to range from 75,330 to 113,050
units. Budgeted variable manufacturing costs per unit are: direct materials $4,
direct labor $7, and overhead $9. Budgeted fixed manufacturing costs per unit for
depreciation are $4 and for supervision are $3.

Prepare a flexible manufacturing budget for the relevant
range value using 18,860 unit increments. (List variable costs before fixed
costs.)

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brief exercise  2   8  

selected transactions for joel berges company are presented in journal form below
brief exercise 2   6
federlin industries has following transactions
brief exercise 2 6
h.xiao  has following transacion
brief exercise 2 10
 the T accounts below…………………………..

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Briarcrest Condiments is a spice-making firm. Recently, it
developed a new process for producing spices. The process requires new
machinery that would cost $2,018,842. have a life of five years, and would
produce the cash flows shown in the following table.

Year Cash Flow

1 $628,269

2 -257,414

3 894,873

4 892,460

5 693,614

What is the NPV if the discount rate is 16.88 percent?

2. Archer Daniels Midland Company is considering buying a
new farm that it plans to operate for 10 years. The farm will require an
initial investment of $12.20 million. This investment will consist of $2.90
million for land and $9.30 million for trucks and other equipment. The land,
all trucks, and all other equipment is expected to be sold at the end of 10
years at a price of $5.29 million, $2.02 million above book value. The farm is
expected to produce revenue of $2.02 million each year, and annual cash flow
from operations equals $1.82 million. The marginal tax rate is 35 percent, and
the appropriate discount rate is 10 percent. Calculate the NPV of this
investment.

3. Bell Mountain Vineyards is considering updating its
current manual accounting system with a high-end electronic system. While the
new accounting system would save the company money, the cost of the system
continues to decline. The Bell Mountain’s opportunity cost of capital is 12.6
percent, and the costs and values of investments made at different times in the
future are as follows:

Year Cost Value of Future Savings

(at time of purchase)

0 $5,000 $7,000

1 4,400 7,000

2 3,800 7,000

3 3,200 7,000

4 2,600 7,000

5 2,000 7,000

Calculate the NPV of each choice. (Round answers to the
nearest whole dollar, e.g. 5,275.)

The NPV of each choice is:

NPV0 = $

NPV1 = $

NPV2 = $

NPV3 = $

NPV4 = $

NPV5 = $

Suggest when should Bell Mountain buy the new accounting
system?

Bell Mountain should purchase the system in

4. Chip’s Home Brew Whiskey management forecasts that if the
firm sells each bottle of Snake-Bite for $20, then the demand for the product
will be 15,000 bottles per year, whereas sales will be 84 percent as high if
the price is raised 7 percent. Chip’s variable cost per bottle is $10, and the
total fixed cash cost for the year is $100,000. Depreciation and amortization
charges are $20,000, and the firm has a 30 percent marginal tax rate.
Management anticipates an increased working capital need of $3,000 for the
year. What will be the effect of the price increase on the firm’s FCF for the
year? (Round answers to nearest whole dollar, e.g. 5,275.)

At $20 per bottle the Chip’s FCF is $ and at the new price
Chip’s FCF is $.

5. Capital Co. has a capital structure, based on current
market values, that consists of 33 percent debt, 12 percent preferred stock,
and 55 percent common stock. If the returns required by investors are 11
percent, 12 percent, and 15 percent for the debt, preferred stock, and common
stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’s
marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal
places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

After tax WACC = %

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Illustration 2-9

Financial ratio classifications

A single ratio by itself is not very meaningful.
Accordingly, in this and the following chapters, we will use various
comparisons to shed light on company performance:

1. Intracompany comparisons covering two
years for the same company.

2. Industry-average comparisons based on
average ratios for particular industries.

3. Intercompany comparisons based on
comparisons with a competitor in the same industry

Question 1

Using these data from the comparative balance sheet of
Rosalez Company, perform horizontal analysis. (If amount and percentage are a
decrease show the numbers as negative, e.g. -55,000, -20% or (55,000), (20%).
Round percentages to 0 decimal places, e.g. 12%.)

Increase
or (Decrease)

Dec.
31, 2012 Dec. 31,
2011 Amount Percentage

Accounts receivable $
545,500 $
393,400 $

%

Inventory $
820,400 $
604,600 $

%

Total assets $3,146,500 $2,742,100 $

%

Question 2

Using these data from the comparative balance sheet of
Rosalez Company, perform vertical analysis. (Round percentages to 1 decimal
place, e.g. 12.5%.)

Dec.
31, 2012 Dec. 31,
2011

Amount Percentage Amount Percentage

Accounts receivable $
543,900

% $ 417,700

%

Inventory $
821,700

% $ 617,000

%

Total assets $3,175,700

% $2,787,300

%

Question 3

Vertical analysis (common-size) percentages for Vallejo
Company’s sales, cost of goods sold, and expenses are listed here.

Vertical Analysis 2012 2011 2010

Sales 100 % 100 % 100 %

Cost of goods sold 60.8 63.8 66.4

Expenses 24.7 27.8 28.8

Did Vallejo’s net income as a percent of sales increase,
decrease, or remain unchanged over the 3-year period? Provide numerical support
for your answer.

Question 4

Horizontal analysis (trend analysis) percentages for Spartan
Company’s sales, cost of goods sold, and expenses are listed here.

Horizontal Analysis 2012 2011 2010

Sales 96.2 % 104.8 % 100.0 %

Cost of goods sold 101.0 98.0 100.0

Expenses 105.6 95.4 100.0

Explain whether Spartan’s net income increased, decreased,
or remained unchanged over the 3-year period.

Question 5

These selected condensed data are taken from recent balance
sheets of Bob Evans Farms (in thousands).

2009 2008

Cash $
13,606 $
7,669

Accounts receivable 23,045 19,951

Inventories 31,087 31,345

Other current assets 12,522 11,909

Total current assets $
80,260 $
70,874

Total current liabilities $245,805 $326,203

(a)

Compute the current ratio for each year. (Round answers to 2
decimal places, e.g. .12 : 1.)

2009 2008

Current ratio:

:1

:1

Question 6

Staples, Inc. is one of the largest suppliers of office
products in the United States. It had net income of $738.7 million and sales of
$24,275.5 million in 2009. Its total assets were $13,073.1 million at the beginning
of the year and $13,717.3 million at the end of the year. What is Staples,
Inc.’s asset turnover ratio and profit margin ratio? (Round answers to 2
decimal places, e.g. 1.25 or 2.05%.)

Asset turnover ratio

times

Profit margin ratio

%

Question 7

Selected data taken from a recent year’s financial
statements of trading card company Topps Company, Inc. are as follows (in
millions).

Net sales $326.7

Current liabilities, beginning of year 41.1

Current liabilities, end of year 62.4

Net cash provided by operating activities 10.4

Total liabilities, beginning of year 65.2

Total liabilities, end of year 73.2

Capital expenditures 3.7

Cash dividends 6.2

Compute these ratios: current cash debt coverage ratio, cash
debt coverage ratio, and free cash flow. Provide a brief interpretation of your
results. (Round answers to 2 decimal places, e.g. 0.12.)

Current cash debt coverage ratio

times

Cash debt coverage ratio

times

Free Cash Flow $

millions

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1. The target capital structure for Jowers Manufacturing is 50 percent common stock, 14 percent preferred stock, and 36 percent debt. If the cost of equity for the firm is 19.4 percent, the cost of preferred stock is 12.2 %, and the before-tax cost of debt is 9.1 percent, what is Jower?s cost of capital? The firm?s marginal tax rate is 34 percent. Jower’s WACC is % (ROUND TO THREE decimal places.)

2. (Weighted average cost of capital) The target capital structure for QM Industries is 40 percent common stock, 10 percent preferred stock, and 50 percent debt.
If the cost of equity for the firm is 18 percent, the cost of preferred stock is 10 percent, the before-tax cost of debt is 8 percent, and the firm’s tax rate is 35 percent, what is QM’s weighted average cost of capital?

3. Crypton electronics has a capital structure consisting of 44% common stock and 56% debt, a debt issue of 1000 par value, 6.5 bonds that matures in 15 years and pays an annual interest well sell for $975. Common stock of the firm is selling for 30.15 per share and the firm expects to pay a 2.31 dividend next year. Dividends have grown at the rate of 4.7% per year and expected to continue to do so for the foreseeable future. What is Cryptons cost of capital where the firms tax rate is 30% Crypton’s cost of capital is % (Round to three decimal places.)

4. As a member of the finance department of ranch manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant under the assumption that the firms present capital structure reflects the appropriate mix of capital source for the firms, you have determined the market value of the firm?s capital structure as follows Bonds $3,600,000, preferred stock $2,200,000, common stock $ 6,400,000. To finance the purchase ranch manufacturing will sell 10 year bonds paying 7.3 % per year @ a market price of 1,045 .preferred stock paying $2.09 dividend can be sold for 24.78 common stock for ranch manufacturing is currently selling for 54.14 per share and the firm paid a 2.92 dividend last year. Dividend are expected to continue growing at a rate of 5.1 per year into the indefinite future , if the firms tax rate is 30% what discount rate should you use to evaluate the equipment purchased .
Ranch manufacturing company WACC is _____________ round 3 decimal places.

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1. The following balance sheet information (in $ millions) comes
from the Annual Report to Shareholders of Marriott
International Inc. for the 2008 fiscal year. (Certain amounts
have been replaced with question marks to test your understanding
of balance sheets.) In addition, you’re provided with
the following information from an analysis of Marriott’s financial
position at the same date:
Current ratio = 1.3296486
Acid-test ratio = 0.407422
Debt-to-equity ratio = 5.4514493
Compute the missing amounts (rounded to the nearest $ in millions) in the Marriott balance sheet.
Assets
Current assets
Cash and equivalents $134
Accounts and notes receivable ?
Inventory ?
Other 355
Total current assets ?
Property and equipment, net $1,443)
Intangible assets, net ?)
Investments 346)
Notes and other receivables, net 988)
Other 1,173)
Total non-current asssets ?
Total assets ?
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $704
Accrued payroll and benefits 633
Other payables and accruals 1,196
Total current liabilities 2,533
Long-term debt ?)
Other long-term liabilities 2,015)
Total long-term liabilities ?
Total liabilities ?
Shareholders’ equity
Class A common stock 5)
Additional paid-in capital 3,590)
Retained earnings 3,565)
Treasury stock and other (5,780)
Total shareholders’ equity 1,380
Total liabilities and shareholders’ equity $8,903

2. The following information is provided in the 2011 annual report to shareholders of
paris-perfume.com:
Required: Compute the missing amount in the paris-perfume.com financial statement
information, indicated by ??? in the table above.

3. Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 $27,500
Purchases
January 10 500 units @ $60
January 20 1,000 units @ $63
Sales:
January 12 800 units
January 28 750 units
a. Compute the ending inventory and cost of goods sold assuming Denver uses FIFO.
b. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a perpetual inventory system.
c. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a periodic inventory system.
d. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a perpetual inventory system.
e. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a periodic inventory system.
December 31, 2011 December 31, 2010
Accounts receivable ??? $100 million
Inventory $70 million $30 million
Other assets ??? $170 million
Total assets ??? $300 million
Total liabilities ??? $100 million
Total stockholders’ equity ??? $200 million
For the year ended Dec. 31, 2011
Net sales ???
Cost of goods sold ???
Net income $40 million
Return on assets
Receivables turnover 8.0
Inventory turnover 12.0
Asset turnover 2.5
Return on stockholders’ equity 20%
Required: Compute the missing amount in the paris-perfume.com financial statement
information, indicated by ??? in the table above.

3. Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 $27,500
Purchases
January 10 500 units @ $60
January 20 1,000 units @ $63
Sales:
January 12 800 units
January 28 750 units
a. Compute the ending inventory and cost of goods sold assuming Denver uses FIFO.
b. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a perpetual inventory system.
c. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a periodic inventory system.
d. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a perpetual inventory system.
e. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a periodic inventory system.t margin on sales 4%
Part B: Ten questions worth 4 points each. Show all work.

1. The following information ($ in millions) comes from a recent annual report of
Amazon.com, Inc.:
Net sales $10,711)
Total assets 4,363)
End of year balance in cash 1,022)
Total stockholders’ equity 431)
Gross profit (Sales – Cost of Sales) 2,456)
Net increase in cash for the year 9)
Operating expenses 2,067)
Net operating cash flow 702)
Other income (expense), net (12)
a. Compute Amazon’s balance in cash at the beginning of the year.
b. Compute Amazon’s total liabilities at the end of the year.
c. Compute cost of goods sold for the year.
d. Compute the income before income tax for Amazon.
2. The current asset section if Seifert & Seifert, CPA`s balance sheet consists of cash, accounts receivable, investments, and prepaid expenses. The 2011 Balance sheet reported the following: cash, $110000; investments, $ 22000; prepaid expenses, $ 18000; noncurrent assets, $ 42000; and shareholders’ equity $ 350000. The current ratio at the end of the year was 1.6 and the debt to equity ratio was.8.
Required: Determine the following 2011 amounts and ratios:
a. Current liabilities.
b. Long-term liabilities.
c. Accounts receivable.
d. The acid-test ratio.
3. Canton Corporation reported the following items in its adjusted trial balance for the
year ended December 31, 2011:
Income from continuing operations before income taxes $110,000)
Extraordinary gain on property condemnsation 28,000)
Extraordinary loss on natural disaster (50,000)
Canton is subject to a 30% tax rate.
Required: Prepare the December 31, 2011, income statement for Canton Corporation,
starting with income from continuing operations before income taxes.
4. In 2011, KP building Inc. began work on a four-year construction project (called Cincy One). The contract price is $ 300 million. KP uses the percentage of completion method of accounting. At the end of 2011, the following financial statement information indicates the results to date for Cincy One:
INCOME STATEMENT
Gross Profit (before-taxes) recognized in 2011 $22 million
BALANCE SHEET
Accounts Receivable from construction billings $10 million
Construction in progress $66 million
Less: Billings on construction ($75 million)
Net billings in excess of construction in progress $9 million
Required: Compute the following, placing your answer in the spaces provided and
showing supporting computations
Items to compute:
Cash collected by KP on Cincy One during 2011
Actual costs incurred by KP on Cincy One during 2011
At 12/31/2011, the estimated remaining costs to complete Cincy One
The percentage of Cincy One that was completed during 2011

5. On June 30, 2011, Gunderson Electronics issued 8% stated rate bonds with a face
amount of $300 million. The bonds mature on June 30, 2031 (20 years). The market
rate of interest for similar bond issues was 10% (5% semiannual rate). Interest is paid
semiannually (4%) on June 30 and December 31, beginning on December 31, 2011.
Required:
a. Determine the price of the bonds on June 30, 2011.
b. Calculate the interest expense Gunderson reports in 2011 for these bonds.

6. During Burns Company`s first year of operations, credit sales totaled $ 140000 and collections on credit sales totaled $ 105000. Burns had written off $ 300 of specific accounts as uncollectible.
Required:
a. Prepare all appropriate journal entries relative to uncollectible accounts and bad
debt expense.
b. Show the year-end balance sheet presentation for accounts receivable.
7. Appleton Inc. adopted dollar-value LIFO on January 1, 2011, when the inventory value
was $1,200,000. The December 31, 2011, ending inventory at year-end costs was
$1,430,000 and the cost index for the year is 1.1.
Required: Compute the dollar-value LIFO inventory valuation for the December 31,
2011, inventory.
8. DK Super Stores Inc. uses the average cost retail method to estimate its ending
inventory. Information at June 30, 2011, is as follows:
Required: Compute the cost-to-retail percentage used by DK.
9. Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and
development costs totaled $8.2 million. Extraction activities began on July 1, 2011.
After the copper is extracted in approximately six years, Schefter is obligated to
restore the land to its original condition, including constructing a park. The company’s
controller has provided the following three cash flow possibilities for the restoration
costs:
Cash Flow Probability
1. $700,000 30%
2. $800,000 25%
3. $900,000 45%
The company’s credit-adjusted, risk-free rate of interest is 5%, and its fiscal year ends
on December 31.
Required:
a. What is the initial cost of the copper mine? (Round computations to nearest whole
dollar.)
b. How much accretion expense will Schefter report in its 2011 income statement?
c. What is the carrying value (book value) of the asset retirement obligation that
Schefter will report in its 2011 balance sheet?
d. Assume that actual restoration costs incurred in 2017 totaled $860,000. What
amount of gain or loss will Schefter recognize on retirement of the liability?
10. On March 30, 2011. Calvin Exploration purchased a drilling machine for $ 840000. The estimated useful life of the machine is 10years, and no residual value is anticipated. An important component of the machine is the drill housing component that will need to be replaced in five years. The $200000 cost of the drill housing component is included in the $ 840000 cost of the machine. Calvin uses the straight line depreciation method for all machinery. The company`s fiscal year ends on December 31.
Required:
a. Calculate depreciation on the drilling machine for 2011 and 2012 applying the
typical U.S. GAAP treatment.
b. Repeat requirement 1 applying IFRS.
1.Calloway Shoes purchased a delivery truck on September 30, 2011, for $32,000. The estimated useful life of the truck is 10 years with no residual value. After five years, the refrigeration unit will need to be replaced. The $8,000 cost of the unit is included in the cost of the truck. Calloway uses the straight-line depreciation method. Depreciation for 2011 under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is

A. Option d
B. Option a
C. Option c
D. Option b

2. Axcel Software began a new development project in 2010. The project reached technological feasibility on June 30, 2011 and was available for release to customers at the beginning of 2012. Development costs incurred prior to June 30, 2011 were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. 2012 revenues from the sale of the new software were $4,000,000 and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2012 amortization of the software development costs would be

A. $0.

B. $350,000.

C. $1,840,000.

D. $560,000.

3. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company’s only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company’s fiscal year-end is December 31.
In computing the capitalized interest for 2011, Crocus’ average accumulated expenditures are

A. $46.30 million.

B. $124.25 million.
C. $122.30 million.
D. $103.54 million.

4. Kingston Corporation has $95 million of goodwill on its books from the 2009 acquisition of Reliant Motors. At the end of its 2011 fiscal year, management has provided the following information for its annual goodwill impairment test ($ in millions):
Fair value of Reliant (approximates fair value less costs to sell) $655
Fair value of Reliant’s net assets (excluding goodwill) 600
Book value of Reliant’s net assets (including goodwill) 700
Present value of estimated future cash flows 670
Assuming that Reliant is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, the amount of goodwill impairment loss that Kingston should recognize according to U.S. GAAP and IFRS, respectively, is

A. Option c
B. Option b
C. Option a
D. Option d

5. On March 31, 2011, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2011, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2011. At January 1, 2012, Belotti estimated that 20,000 tons still remained. During 2012, Belotti loaded and sold 8,000 tons.
Belotti would record depletion in 2011 of

A. $32,800.

B. $24,600.

C. $41,000.

D. $30,750.

6. Short Corporation purchased Hathaway, Inc. for $52,000,000. The fair value of all Hathaway’s identifiable tangible and intangible assets was $48,000,000. Short will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?

A. $200,000.

B. $400,000.

C. $100,000.

D. 0.

7. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company’s only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company’s fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2011, using the specific interest method (rounded to the nearest thousand dollars)?

A. $7,248,000 (rounded)

B. $7,283,000 (rounded)

C. None of these answers is correct.
D. $8,740,000 (rounded)

8. P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively.
Chang would record equipment at and record a gain/(loss) of
?? Equipment ??Gain/Loss
a.?? $99,000 $(16,000)
b.?? $99,000 $(25,000)
c.?? $108,000 $16,000
d.?? $106,000 $(9,000)

A. Option c
B. Option a
C. Option d
D. Option b

9. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company’s only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company’s fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2010, using the specific interest method?

A. $1.95 million
B. $2.96 million
C. $1.90 million
D. $65 million

10. Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively.
Assuming that the exchange lacks commercial substance, Horton would record land-new at and record a gain/(loss) of
?? Land Gain/Loss
a.?? $105,000 $??0
b.?? $105,000 $10,000
c.?? $95,000 $??0
d.?? $95,000 $10,000

A. Option c
B. Option a
C. Option b
D. Option d

11. Fellingham Corporation purchased equipment on January 1, 2009, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2011, Fellingham reassessed the equipment’s condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2011?

A. $41,000

B. $27,333

C. $24,000

D. $36,000

12. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.

In Case A, Pensacola would record the new equipment at:

A. $80,000.

B. $68,000.

C. $63,750.

D. $67,250.

13. On January 1, 2009, Al’s Sporting Goods purchased store fixtures at a cost of $180,000. The anticipated service life was 10 years with no residual value. Al’s has been using the double-declining balance method, but in 2011 adopted the straight-line method because the company believes it provides a better measure of income. Al’s has a December 31 year-end. The journal entry to record depreciation for 2011 is
a.?Depreciation expense??????23,040
??Accumulated depreciation 23,040
b.?Depreciation expense??????14,400
??Accumulated depreciation 14,400
c.?Accumulated depreciation????28,800
??Retained earnings 28,800
d.?No entry

A. Option a
B. Option b
C. Option c
D. Option d

14. In 2010, Antle, Inc., had acquired Demski Co. and recorded goodwill of $245 million as a result. The net assets (including goodwill) from Antle’s acquisition of Demski Co. had a 2011 year-end book value of $580 million. Antle assessed the fair value of Demski at this date to be $700 million, while the fair value of all of Demski’s identifiable tangible and intangible assets (excluding goodwill) was $550 million. The amount of the impairment loss that Antle would record for goodwill at the end of 2011 is

A. $95 million.

B. $150 million.
C. $12 million.

D. $0.

15. Grab Manufacturing Co. purchased a ten-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included $200 for insurance in transit. Installation costs totaled $12,000, which included $4,000 for taking out a section of a wall and rebuilding it because the press was too large for the doorway. The capitalized cost of the ten-ton draw press is

A. $171,000.

B. $187,600.

C. $185,760.

D. $183,600

16. Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.

In Case B, Grand Forks would record a gain/(loss) of

A. $5,000.

B. $(3,000).

C. $3,000.

D. $(5,000).

17. Gulf Consulting Co. reported the following on its December 31, 2011, balance sheet:
Equipment (at cost) . . .$700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf’s equipment averages 3.5 years at December 31, 2011.
What is the book value of Gulf’s equipment at December 31, 2011?

A. $210,000

B. $490,000

C. $259,000

D. $441,000

18. Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below are data related to the plant’s assets ($ in millions):
Book value $190
Undiscounted sum of future estimated cash flows 210
Present value of future cash flows 175
Fair value less cost to sell (determined by appraisal) 180
The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is

A. Option c
B. Option d
C. Option b
D. Option a

19. Bloomington Inc. exchanged land for equipment and $3,000 in cash. The book value and the fair value of the land were $104,000 and $90,000, respectively.
Bloomington would record equipment at and record a gain/(loss) of
?? Equipment ??Gain/Loss
a. $87,000 $3,000
b. $104,000 $(5,000)
c. $87,000 $(14,000)
d. None of the above.

A. Option a
B. Option b
C. Option c
D. Option d

20. Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were
Book Value Fair Value
Current assets (net) ?$130,000 ?$125,000
Property, plant, equip. (net) 600,000 750,000
Liabilities 150,000 175,000
Lake would record goodwill of

A. $75,000.

B. $250,000.

C. $445,000.

D. $0.

21. Broadway Ltd. purchased equipment on 1/1/09 for $800,000, estimating a five-year useful life and no residual value. In 2009 and 2010, Broadway depreciated the asset using the straight-line method. In 2011, Broadway changed to sum-of-years’-digits depreciation for this equipment. What depreciation would Broadway record for the year 2011 on this equipment?

A. $160,000.

B. $240,000.

C. $200,000.

D. $120,000.

22. On June 30, 2011, Prego Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. During the six months of 2011, 24,000 units of product were produced. At the beginning of 2012, engineers estimated that the machine can realistically be used to produce only another 230,000 units. During 2012, 70,000 units were produced.
Prego would report depreciation in 2012 of

A. $126,000.

B. $108,000.

C. $105,000.

D. $135,230

23. Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What would the accumulated depreciation be at the end of year five under the sum-of-the-years’ digits method?

A. $16.5 million.
B. $12 million.

C. $8.25 million.
D. $4.5 million.

24. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.

In Case B, Pensacola would record a gain/(loss) of:

A. $(10,000).

B. $(4,000).

C. $0.

D. $4,000.

25. Nanki Corporation purchased equipment on 1/1/09 for $650,000. In 2009 and 2010, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2011, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2011 on this equipment?

A. $106,667.

B. $108,333.

C. $650,000.

D. $122,500.

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Exercise 1 9 .7
Payback a n d ARR
E a ch of the following scenario sis in dependent. All ca sh flows are after-tax ca s h flow s .
Required:
1 . Brad Blaylock has purchased a tractor for $ 9 3 ,7 5 0 . He expects to receive a n e t ca s h flow o f
$ 3 1 ,2 5 0 p e r ye a r fro m th e in ve s tme n t. W h a t is th e p a yb a ck p e rio d fo r Jim?
_________________

ye a rs

2 . Berth a Lafferty invested $ 3 6 0 ,0 0 0 in a la u n d ro ma t. Th e fa cility h a s a 1 0 -ye a r life e xp e cta n cy w ith
n o e xp e cte d s a lva g e va lu e . Th e la u n d ro ma t w ill p ro d u ce a n e t ca s h flo w o f $ 1 0 8 ,0 0 0 p e r ye a r. W h a t
is th e a cco u n tin g ra te o f re tu rn ? E n te r yo u r a n s w e r a s a w h o le p e rce n ta g e va lu e (fo r e xa mp le ,1 6 %
s h o u ld b e e n te re d a s ” 1 6 ” in th e a n s w e r b o x).
_________________

%

3 . Me la n n ie Ba yle s s h a s p u rch a s e d a b u s in e s s b u ild in g fo r $ 3 3 6 ,0 0 0 . Sh e e xp e cts to re ce ive th e
fo llo w in g ca s h flo w s o ve r a 1 0 -ye a r p e rio d :

W h a t is th e p a yb a ck p e rio d fo r Me la n n ie ? Ro u n d yo u r a n s w e r to o n e d e cima l p la ce .
_________________

ye a rs

W h a t is th e a cco u n tin g ra te o f re tu rn ? E n te r yo u r a n s w e r a s a w h o le p e rce n ta g e va lu e (fo r
e xa mp le ,1 6 % s h o u ld b e e n te re d a s ” 1 6 ” in th e a n s w e r b o x).
_________________

%

2.
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Exercise 1 9 .9
NP V a n d IRR
E a ch o f th e fo llo w in g s ce n a rio s is in d e p e n d e n t. All ca s h flo w s a re a fte r-ta x ca s h flo w s .
Th e p re s e n t va lu e ta b le s p ro vid e d in E xh ib it 1 9 B.1 a n d E xh ib it 1 9 B.2 mu s t b e u s e d to s o lve th e
fo llo w in g p ro b le ms .
Required:
1 . P a tz C o rp o ra tio n is co n s id e rin g th e p u rch a s e o f a co mp u te r-a id e d ma n u fa ctu rin g s ys te m. Th e ca s h

b e n e fits w ill b e $ 8 0 0 ,0 0 0 p e r ye a r. Th e s ys te m co s ts $ 4 ,0 0 0 ,0 0 0 a n d w ill la s t e ig h t ye a rs . C o mp u te
th e NP V a s s u min g a d is co u n t ra te o f 1 0 p e rce n t.
$

_________________

Sh o u ld th e co mp a n y b u y th e n e w s ys te m?
_________________
2 . Ste rlin g W e tz e l h a s ju s t in ve s te d $ 2 7 0 ,0 0 0 in a re s ta u ra n t s p e cia liz in g in Ge rma n fo o d . He e xp e cts
to re ce ive $ 4 3 ,4 7 0 p e r ye a r fo r th e n e xt e ig h t ye a rs . His co s t o f ca p ita l is 5 .5 p e rce n t. C o mp u te th e
in te rn a l ra te o f re tu rn . E n te r yo u r a n s w e r a s a w h o le p e rce n ta g e va lu e (fo r e xa mp le ,1 6 % s h o u ld b e
e n te re d a s ” 1 6 ” in th e a n s w e r b o x).
_________________

%

Did Ste rlin g ma ke a g o o d d e cis io n ?
_________________

3.
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eBook

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Problem 1 9 .2 9
Re p la ce me n t De cis io n , C o mp u tin g Afte r-Ta x C a s h Flo w s , Ba s ic NP V An a lys is
O kmu lg e e Ho s p ita l (a la rg e me tro p o lita n fo r-p ro fit h o s p ita l) is co n s id e rin g re p la cin g its MRI e q u ip me n t
w ith a n e w mo d e l ma n u fa ctu re d b y a d iffe re n t co mp a n y. Th e o ld MRI e q u ip me n t w a s a cq u ire d th re e
ye a rs a g o , h a s a re ma in in g life o f five ye a rs , a n d w ill h a ve a s a lva g e va lu e o f $ 1 0 0 ,0 0 0 . Th e b o o k
va lu e is $ 2 ,0 0 0 ,0 0 0 . Stra ig h t-lin e d e p re cia tio n w ith a h a lf-ye a r co n ve n tio n is b e in g u s e d fo r ta x
p u rp o s e s . Th e ca s h o p e ra tin g co s ts o f th e e xis tin g MRI e q u ip me n t to ta l $ 1 ,0 0 0 ,0 0 0 p e r ye a r.
Th e n e w MRI e q u ip me n t h a s a n in itia l co s t o f $ 5 ,0 0 0 ,0 0 0 a n d w ill h a ve ca s h o p e ra tin g co s ts o f
$ 5 0 0 ,0 0 0 p e r ye a r. Th e n e w MRI w ill h a ve a life o f five ye a rs a n d a s a lva g e va lu e o f $ 1 ,0 0 0 ,0 0 0 a t th e
e n d o f th e fifth ye a r. MAC RS d e p re cia tio n w ill b e u s e d fo r ta x p u rp o s e s . If th e n e w MRI e q u ip me n t is
p u rch a s e d , th e o ld o n e w ill b e s o ld fo r $ 5 0 0 ,0 0 0 . Th e co mp a n y n e e d s to d e cid e w h e th e r to ke e p th e
o ld MRI e q u ip me n t o r b u y th e n e w o n e . Th e co s t o f ca p ita l is 1 2 p e rce n t. Th e co mb in e d fe d e ra l a n d
s ta te ta x ra te is 4 0 p e rce n t.
Yo u mu s t u s e th e E xh ib it 1 9 B.1 a n d E xh ib it 1 9 B.2 p re s e n t va lu e ta b le s a n d E xh ib it 1 9 .5 to s o lve th e
fo llo w in g p ro b le m.
Required:
C o mp u te th e NP V o f e a ch a lte rn a tive . W h e n re q u ire d , ro u n d in te rme d ia te ca lcu la tio n s to th e n e a re s t
d o lla r. If th e NP V is n e g a tive , e n te r yo u r a n s w e r a s a n e g a tive va lu e .
O ld MRI e q u ip me n t

$

_________________

Ne w MRI

$

_________________

e q u ip me n t

Sh o u ld th e co mp a n y ke e p th e o ld MRI e q u ip me n t o r b u y th e n e w o n e ?
_________________

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Problem 1
Suppose a manufacturing company makes a certain item. The time to produce each item is
normally distributed around a mean of 27 minutes with a standard deviation of 2.5 minutes.
Thus, the population of production times is normal in shape. Find the mean and standard
deviation of the sample.

Problem 2
The average prices for a product in 12 stores in a city are shown below.
$2.99, $2.85, $3.25, $3.55, $3.00, $2.99, $2.76, $3.50, $3.20, $2.85, $3.75, $3.85
Test the hypothesis that the average price is higher than $2.87. Use level of significance ? =
0.05.

Problem 3
A store wishes to predict net profit as a function of sales for the next year. The following table
gives the years 1998 to 2005.
Year
1998
1999
2000
2001
2002
2003
2004
2005

Sales
(thousands of
dollars)
51
55
65
82
75
71
82
81

Net Profit
5
10.2
9.6
-3
2.8
3.2
-2.3
-2.6

(a) Graph the points from 1998 through 2005 on a scatter diagram using Sales as the
independent variable and Net Profit as the dependent variable.
(b) Draw the regression line on the graph you constructed in Part (a).
(c) What is the value of the coefficient of determination for this regression model? Comment on
the strength of the regression line for this model.
(d) What is the predicted net profit for 2006 if sales are expected to be 125?

Problem 4
Last week’s sales of iMac computers at an Apple Store in Oklahoma City, OK, are shown in the
following table:
Day
1
2
3
4
5
6
7

Sales (Dollars)
180
150
210
225
195
190
230

(a) Use the 3-day moving average method for forecasting days 4–7.
(b) Use the 3-day weighted moving average method for forecasting days 4–7. Use Weight 1 day
ago = 2, Weight 2 days ago = 4, and Weight 3 days ago = 3.
(c) Compare the techniques using the mean absolute deviation (MAD).

Problem 5
The following table shows six years of average annual cost-of-living index data:
Year
2008
2009
2010
2011
2012
2013

Annual Cost of Living
Index
105.8
111.4
121.9
134.3
128.6
125.2

(a) Forecast the average annual food price index for all years from 2008 to 2013. Use a 3-year
weighted moving average with weights of 0.5, 0.3, and 0.2. Use the largest weight with the
most recent data.
(b) Forecast the average annual food price index using exponential smoothing with ? = 0.7 for
all years from 2008 to 2014. Use the rate for 2008 as the starting forecast for 2008.
(c) Which of the methods in parts (a) and (b) produces better forecasts for the 3 years from 2011
to 2013? Answer on the basis of mean square error (MAD).

Problem 6
A company manufactures two products, Product A and Product B. The wholesale price and
manufacturing cost of each product are shown below.
Item
A
B

Price
$30
$45

Cost
$10
$15

Assembly Times (hr)
2
4

The company will produce a minimum of 5,000 of each item. Given the number of hours, the
company can sell no more than 8,000 of Item A and 10,000 of Item B. Suppose the company has
50,000 hours of assembly time available. How many of each item should it produce in order to
maximize profits while meeting all necessary constraints? Give the LP model and use the
graphical method to find the optimal solution.

Problem 7
A commercial real estate company is evaluating a proposed warehouse. The proposed site is near
a rail terminal, but the state government may extend the highway to the area. In addition, the
federal government is considering rebuilding the local port facilities. Below is the payoff table in
monthly profit depending upon what government actions are taken. Based on the following
criteria, what are the correct choices for terminal rental?
(a) Optimistic or maximax criterion
(b) Pessimistic or maximin criterion
(c) Equally likely or principle of insufficient reason criterion
Warehous
e size (ft2)
15000
30000
60000
100000

Rail
terminal
only
10
15
20
15

Development projects
Port
Highway
rehabilitatio
expansion
n
25
35
25
40
30
45
20
40

All
40
50
75
90

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1. Do IFRS and US GAAP differ related to determining whether an asset is impaired? If so, explain.

2. On January 1, 2006, Thompson Company purchased manufacturing equipment for $2.1 million. The equipment has a useful life of seven years and no residual value. Thompson Company plans to depreciate the equipment on a straight-line basis.
On January 1, 2010, the equipment’s fair value (net of accumulated depreciation) has increased to $2.4 million. Assuming Thompson Company follows the revaluation model, what is Thompson’s depreciation expense in 2006-2012? How would depreciation expense differ using US GAAP?

3. The information provided below is related to equipment owned by Collier
Company at December 31, 2007.
Cost $5,000,000
Accumulated Depreciation 2,000,000
Expected future net cash flows (undiscounted) 3,000,000
Expected future net cash flows (discounted) 2,700,000
Fair value 2,500,000
Remaining useful life of asset 3 Years

What is the impairment loss for Collier Company under a) IFRS and b) US GAAP?

4. An asset was purchased on January 1, 2006 for $1,000,000 with a useful life of 10 years and no salvage value. The company accounts for the asset under IFRS using the cost model. During the year, the asset is deemed impaired and written down by $400,000. Assuming the asset increases in value to $800,000, what is the carrying value of the asset on December 31, 2007? Assuming the asset increases in value to $900,000, what is the carrying value of the asset on December 31, 2007? How would the reversal of impairment be treated under US GAAP?

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E14-13 Horizontal analysis-income statement

Data for Verifine Designs, Inc. follow:
Verifine Designs INC- Comparative Income Statement -Years ended December 31, 2011 and 2010
2011 2010
Net sales revenue $428,950 $371,000

Expenses:
Cost of goods sold $203,850 $189,350
Selling and general expenses 99,350 93,000
Other expense 6,750 5,000
Total expenses 309,950 287,350
Cash and cash equivalents $119,000 $83,650

Requirements:
1. Prepare a horizontal analysis of the comparative income statement of Verifine Designs Ince. Round percentage changes to the nearest one-tenth percent (three decimal places)
2. Why did 2011 net income increase by a higher percentage than net sales revenue?

E14-15  

 Vertical analysis of a balance sheet- Eta Graphics has the following data:
Eta Graphics Inc.- Balance sheet- December 31,2010
Assets
Total currents assets $41,870
Property,plant and equipment, net 206,870
Other assets 34,870
Total assets $283,610
Liabilities
Total current liabilities $47,870
Long term debt 107,870
Total liabilities 155,740
Stockholder’s Equity
Total stockholders equity 127,870
Total liabilities and stockholders equity $283,610

Requirement:
1. Perform a vertical analysis of Eta’s balance sheet.
P14-23A Common size statements, analysis of profitability and financial position and comparison with the industry
The Russell Department s Stores, Inc. chief executive officer has asked you to compare the company’s profit performance and financial position with the average for the industry. The CEO has given you the company’s income statement and balance sheet as well as the industry average data for retailers.

Russell Department Stores Inc. Income Statement compared with Industry Average –Year ended December 31, 2010

Russell Industry Average
Net Sales $777,000 100.0%
Cost of goods sold 523,698 65.8
Gross Profit 253,302 34.2
Operating expenses 162,393 19.7
Operating income 90,909 14.5
Other expenses 7,770 0.4
Net Income $83,139 14.1%

Russell Department Stores Inc. Balance Sheet compared with Industry Average –December 31, 2010
Russell Industry Average
Current Assets $3330,750 70.9%
Fixed Assets, net 123,480 23.6
Intangible assets, net 9,800 0.8
Other assets 25,970 4.7
Total assets $490,000 100.0%
Current liabilities $227,360 48.1%
Long term liabilities 111,720 16.6
Stockholders equity 150,920 35.3
Total Liabilites $490,000 100.0%

Requirements:
1. Prepare a common-size income statement and balance sheet for Russell. The first column of each statement should present Russell’s common-size statement and the second column, the industry averages.
2. For the profitability analysis, compute Russell’s (a) ration of gross profit to net sales, (b0 ration of operating income to net sales, and (c) ratio of net income to net sales. Compare these figures with the industry averages. Is Russells profit performance better or worse than the industry average?
3. For the analysis of financial position, compute Russells (a) ration of current assets to total assets and (b)ratio of stockholders equity to total assets. Compare these ratios with the industry averages. Is Russells financial position better or worse than the industry averages?

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Problem 7-16A Preparing a sales budget and schedule of cash receipts

McCarty Pointers Corporation expects to begin operations on January 1,2012; it will operate as a specialty sales company that sells laser pointers over the internet. McCarty expects sales in January 2012 to total $200,000 and to increase 10 percent per month in February and March. All sales are on account. McCarty expects to collect 70 percent of accounts receivable in the month of sale, 20 percent in the month following the sale, and 10 percent in the second month following the sale.

Required

a. Prepare a sales budget for the first quarter of 2012.
b. Determine the amount of sales revenue McCarty will report on the first 2012 quarterly proforma income statement.
c. Prepare a cash receipts schedule for the first quarter 2012.
d. Determine the amount of accounts receivable as March 31, 2012.

Problem 7-21A Preparing budgets with multiple products

Hammond Fruits Corporation wholesales peaches and oranges. Lashanda King is working with the company’s accountant to prepare next year’s budget. Ms. King estimates that sales will increase 5 percent for peaches and 10 percent for oranges. The current year’s sales revenue data follow.( look on the excel spead sheet)

Based on company’s past experience, cost of goods sold is usually 60 percent of sales revenue. Company policy is to keep 10 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (hint: Use cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)

Required

a. Prepare the company ‘s sales budget for the next for each quarter by individual product.
b. If the selling and administrative expenses are estimated to be $700,000, prepare the company’s budgeted annual income statement.
c. Ms. King estimates next year’s ending inventory will be $34,000 for peaches and $56,000 for oranges. Prepare the company’s inventory purchases budgets for the next year showing quarterly figures by product.

Problem 07-16A
McCARTY POINTERS CORPORATION
a.

Sales Budget
January

February

March

Total

Sales on Account

b.

Sales revenue for Quarter

c. and d.

McCARTY POINTERS CORPORATION
Schedule of Cash Receipts
January
Receipts from January Sales
Receipts from January Sales
Receipts from January Sales
Receipts from February Sales
Receipts from February Sales
Receipts from February Sales
Receipts from March Sales
Receipts from March Sales
Receipts from March Sales
Total

Accounts receivable March 31

February

March

April

May

Given Data P07-16A:
McCARTY POINTERS CORPORATION
Expected sales in January
Growth rates for February and March
Accounts receivable collected:
Month of sale
Month following sale
Second month following sale

$200,000
0.1
0.7
0.2
0.1

Student Name:
Class:
Problem 07-21A
HAMMOND FRUITS CORPORATION
a. Sales Budget
Sales in Next Year
Peaches
Oranges
Total

b.

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

HAMMOND FRUITS CORPORATION
Budgeted Annual Income Statement
Sales Revenue
Cost of Goods Sold
Gross Profit
Selling and Admin. Expenses
Net Income

c.

HAMMOND FRUITS CORPORATION
Inventory Purchases Budget
Peaches
Sales
Cost of Goods Sold
Plus: Desired Ending Inventory
Inventory Needed
Less: Beginning Inventory
Required Purchases

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Oranges
Sales
Cost of Goods Sold
Plus: Desired Ending Inventory
Inventory Needed
Less: Beginning Inventory
Required Purchases

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Total

Given Data P07-21A:
HAMMOND FRUITS CORPORATION
Expected annual sales growth rate:
Peaches
Oranges

Sales in Current Year
Peaches
Oranges
Total
Additional Information:
Cost of goods sold – percentage
of sales revenue
Ending inventory – percentage of
next period’s cost of goods sold
Part b. – Estimated selling and
administrative expenses
Part c. – Estimate of ending
inventory for next year:
Peaches
Oranges

0.05
0.1

1st Quarter
$220,000
400,000
$620,000

0.6
0.1
$700,000

$34,000
$56,000

2nd Quarter
$240,000
450,000
$690,000

3rd Quarter
$300,000
570,000
$870,000

4th Quarter
$240,000
380,000
$620,000

Total
$1,000,000
1,800,000
$2,800,000

Student Name:
Class:
Problem 07-22A
PATEL COMPANY
a. Sales Budget
Cash Sales
Sales on Account
Total Budgeted Sales

October

November

December

Pro Forma

b. Schedule of Cash Receipts
Current Cash Sales
Plus Collections from A/R
Total Collections

October

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December

Pro Forma

October

November

December

Pro Forma
Data

October

November

December

Pro Forma
Data

October

November

December

Pro Forma
Data

October

November

December

Pro Forma
Data

October

November

December

Pro Forma
Data

c. Inventory Purchases Budget
Budgeted Cost of Goods Sold
Plus Desired Ending Inventory
Inventory Needed
Less Beginning Inventory
Required Purchases (on Acct.)

d. Schedule of Cash Payments Budget for Inventory Purchases

Payment for Current Month’s A/P
Payment for Prior Month’s A/P
Total Budgeted Payments

e. Selling and Administrative Expense Budget

Salary Expense
Sales Commissions
Supplies Expense
Utilities
Depreciation on Store Fixture
Rent
Miscellaneous
Total S&A Expenses

f. Schedule of Cash Payments of S&A Expenses

Salary Expense
Prior Month Sales Commissions
Supplies Expense
Prior Month Utilities
Depreciation on Store Equipment
Rent
Miscellaneous
Total Payments for S&A Expenses

g. Cash Budget
Beginning Cash Balance
Add Cash Receipts
Cash Available
Less Payments
For Inventory Purchases
For S&A Expenses
Purchase of Store Fixtures
Interest Expense
Total Budgeted Payments
Payment Minus Receipts
Surplus (Shortage)
Financing Activity
Borrowing (Repayment)
Ending Cash Balance

h.

PATEL COMPANY
Pro Forma Income Statement
For the Quarter Ended December 31, 2009
Sales Revenue
Cost of Goods Sold
Gross Margin
S&A Expenses
Operating Income
Interest Expense
Net Income

i.

PATEL COMPANY
Pro Forma Balance Sheet
December 31, 2009
Assets
Cash
Accounts Receivable
Inventory
Store Equipment
Accumulated Depreciation
Book Value of Equipment
Total Assets
Liabilities
Accounts Payable
Utilities Payable
Sales Commissions Payable
Line of Credit Liability
Equity
Retained Earnings
Total Liabilities and Equity

j.

PATEL COMPANY
Pro Forma Statement of Cash Flows
For the Quarter Ended December 31, 2009
Cash Flow from Operating Activities
Cash Receipts from Customers
Cash Payments for Inventory
Cash Payments for S&A Expenses
Cash Payments for Interest Expense
Net Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Payment for Store Fixtures
Cash Flow from Financing Activities
Net Inflow from Line of Credit
Net Increase in Cash
Plus Beginning Cash Balance
Ending Cash Balance

Given Data P07-22A:
PATEL COMPANY
Part a.
October sales
Sales in cash
Sales in accounts receivable
Expected sales growth per month
Part b.
Accounts receivable collected in
month following sales
Part c.
Cost of goods sold as percentage
of sales
Ending inventory – percent of next
month’s cost of goods sold
December estimated ending inventory
Part d.
Accounts payable paid in month
of purchase
Accounts payable paid in month
following purchase
Part e.
Salary expense (fixed)
Sales commissions (percent of sales)
Supplies expense (percent of sales)
Utilities (fixed)
Depreciation on store equipment (fixed)
Rent (fixed)
Miscellaneous (fixed)
Cost of store fixtures
Salvage value – store fixtures
Useful life (years) – store fixtures
Part g.
Borrowing increments
Monthly interest rate
Cash cushion

$120,000
0.4
0.6
0.25
1

0.6
0.1
$12,000
0.7
0.3

$18,000
0.05
0.02
$1,400
4,000
4,800
1,200
164,000
20,000
3
$1,000
0.01
$12,000

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accounting problems with all solutions

$13.00

Description

A company makes power tools. The Motor Division makes a motor that Small Tools Division needs for a new product. The Motor division’s variable cost of manufacturing the component is $6 per unit. The component is also available on the open market at a price of $11 per unit. The Small Tool division needs 50,000 motors per year.

a) If the Motor Division is operating at 100% capacity, explain whether a transaction will take place between the two divisions.
b) If the Motor Division has adequate capacity, should it make the motor that the Small Tools Division requires? What will the expected transfer price (be sure to include a maximum and minimum price)?
c) What principle governs the transfer of pricing between the divisions?

Question 6
Identify each of the following responsibility centers as a cost center, a revenue center, a profit center, or an investment center:

a) The Bakery Department of a Publics supermarket reports income for the current year.

b) Pace Foods is a subsidiary of Campbell Soup Company.

c) The Personnel Department of State Farm Insurance Companies prepares its budget and subsequent performance report on the basis of its expected expenses for the year.

d) The Shopping Section Burpee.com reports both revenues and expenses.

e) Burpee.com’s investor relations Web site provides operating and financial information to investors and other interested parties.

f) The manager of a BP service station is evaluated based on the station’s revenues and expenses.

g) A charter airline company.

h) The manager of the Southwest sales territory is evaluated based on a comparison of current period sales against budgeted sales.

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accounting problems with all solutions

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Description

1-Meriden Company has a unit selling price of $610, variable costs per unit of $305, and fixed costs of $218,075.

Compute the break-even point in units using the mathematical equation.

2-For Turgo Company, variable costs are 56% of sales, and fixed costs are $178,600. Management’s net income goal is $117,080.

Compute the required sales in dollars needed to achieve management’s target net income of $117,080.

3-For Kozy Company, actual sales are $1,256,000 and break-even sales are $778,720.

Compute the margin of safety in dollars and the margin of safety ratio.

Margin of safety
$

Margin of safety ratio %

4-Montana Company produces basketballs. It incurred the following costs during the year.

Direct materials $14,151
Direct labor $25,208
Fixed manufacturing overhead $9,995
Variable manufacturing overhead $31,583
Selling costs $20,838

What are the total product costs for the company under variable costing?

Total product costs
$

5-Polk Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2012, the company incurred the following costs.

Variable Cost per Unit
Direct materials $7.73
Direct labor $2.52
Variable manufacturing overhead $5.92
Variable selling and administrative expenses $4.02

Fixed Costs per Year
Fixed manufacturing overhead $240,030
Fixed selling and administrative expenses $247,303

Polk Company sells the fishing lures for $25.75. During 2012, the company sold 80,100 lures and produced 94,500 lures.
(a) Assuming the company uses variable costing, calculate Polk’s manufacturing cost per unit for 2012. (Round answer to 2 decimal places, e.g.10.50.)

Manufacturing cost per unit
$

6-For the quarter ended March 31, 2012, Maris Company accumulates the following sales data for its product, Garden-Tools: $321,800 budget; $332,200 actual.

Prepare a static budget report for the quarter.

MARIS COMPANY
Sales Budget Report
For the Quarter Ended March 31, 2012

Product Line Budget Actual
Garden-Tools $ $ $

Difference:

Favorable -Unfavorable- Neither favorable nor unfavorable

Gundy Company expects to produce 1,242,720 units of Product XX in 2012. Monthly production is expected to range from 81,610 to 129,790 units. Budgeted variable manufacturing costs per unit are: direct materials $5, direct labor $6, and overhead $9. Budgeted fixed manufacturing costs per unit for depreciation are $5 and for supervision are $2.

Prepare a flexible manufacturing budget for the relevant range value using 24,090 unit increments. (List variable costs before fixed costs.)

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accounting problems with all solutions

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Description

1. The following balance sheet information (in $ millions) comes
from the Annual Report to Shareholders of Marriott
International Inc. for the 2008 fiscal year. (Certain amounts
have been replaced with question marks to test your understanding
of balance sheets.) In addition, you’re provided with
the following information from an analysis of Marriott’s financial
position at the same date:
Current ratio = 1.3296486
Acid-test ratio = 0.407422
Debt-to-equity ratio = 5.4514493
Compute the missing amounts (rounded to the nearest $ in millions) in the Marriott balance sheet.
Assets
Current assets
Cash and equivalents $134
Accounts and notes receivable ?
Inventory ?
Other 355
Total current assets ?
Property and equipment, net $1,443)
Intangible assets, net ?)
Investments 346)
Notes and other receivables, net 988)
Other 1,173)
Total non-current asssets ?
Total assets ?
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable $704
Accrued payroll and benefits 633
Other payables and accruals 1,196
Total current liabilities 2,533
Long-term debt ?)
Other long-term liabilities 2,015)
Total long-term liabilities ?
Total liabilities ?
Shareholders’ equity
Class A common stock 5)
Additional paid-in capital 3,590)
Retained earnings 3,565)
Treasury stock and other (5,780)
Total shareholders’ equity 1,380
Total liabilities and shareholders’ equity $8,903

2. The following information is provided in the 2011 annual report to shareholders of
paris-perfume.com:
Required: Compute the missing amount in the paris-perfume.com financial statement
information, indicated by ??? in the table above.

3. Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 $27,500
Purchases
January 10 500 units @ $60
January 20 1,000 units @ $63
Sales:
January 12 800 units
January 28 750 units
a. Compute the ending inventory and cost of goods sold assuming Denver uses FIFO.
b. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a perpetual inventory system.
c. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a periodic inventory system.
d. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a perpetual inventory system.
e. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a periodic inventory system.
December 31, 2011 December 31, 2010
Accounts receivable ??? $100 million
Inventory $70 million $30 million
Other assets ??? $170 million
Total assets ??? $300 million
Total liabilities ??? $100 million
Total stockholders’ equity ??? $200 million
For the year ended Dec. 31, 2011
Net sales ???
Cost of goods sold ???
Net income $40 million
Return on assets
Receivables turnover 8.0
Inventory turnover 12.0
Asset turnover 2.5
Return on stockholders’ equity 20%
Required: Compute the missing amount in the paris-perfume.com financial statement
information, indicated by ??? in the table above.

3. Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 $27,500
Purchases
January 10 500 units @ $60
January 20 1,000 units @ $63
Sales:
January 12 800 units
January 28 750 units
a. Compute the ending inventory and cost of goods sold assuming Denver uses FIFO.
b. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a perpetual inventory system.
c. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a periodic inventory system.
d. Compute the ending inventory and cost of goods sold assuming Denver uses
average cost and a perpetual inventory system.
e. Compute the ending inventory and cost of goods sold assuming Denver uses LIFO
and a periodic inventory system.t margin on sales 4%
Part B: Ten questions worth 4 points each. Show all work.
1. The following information ($ in millions) comes from a recent annual report of
Amazon.com, Inc.:
Net sales $10,711)
Total assets 4,363)
End of year balance in cash 1,022)
Total stockholders’ equity 431)
Gross profit (Sales – Cost of Sales) 2,456)
Net increase in cash for the year 9)
Operating expenses 2,067)
Net operating cash flow 702)
Other income (expense), net (12)
a. Compute Amazon’s balance in cash at the beginning of the year.
b. Compute Amazon’s total liabilities at the end of the year.
c. Compute cost of goods sold for the year.
d. Compute the income before income tax for Amazon.
2. The current asset section if Seifert & Seifert, CPA`s balance sheet consists of cash, accounts receivable, investments, and prepaid expenses. The 2011 Balance sheet reported the following: cash, $110000; investments, $ 22000; prepaid expenses, $ 18000; noncurrent assets, $ 42000; and shareholders’ equity $ 350000. The current ratio at the end of the year was 1.6 and the debt to equity ratio was.8.
Required: Determine the following 2011 amounts and ratios:
a. Current liabilities.
b. Long-term liabilities.
c. Accounts receivable.
d. The acid-test ratio.
3. Canton Corporation reported the following items in its adjusted trial balance for the
year ended December 31, 2011:
Income from continuing operations before income taxes $110,000)
Extraordinary gain on property condemnsation 28,000)
Extraordinary loss on natural disaster (50,000)
Canton is subject to a 30% tax rate.
Required: Prepare the December 31, 2011, income statement for Canton Corporation,
starting with income from continuing operations before income taxes.
4. In 2011, KP building Inc. began work on a four-year construction project (called Cincy One). The contract price is $ 300 million. KP uses the percentage of completion method of accounting. At the end of 2011, the following financial statement information indicates the results to date for Cincy One:
INCOME STATEMENT
Gross Profit (before-taxes) recognized in 2011 $22 million
BALANCE SHEET
Accounts Receivable from construction billings $10 million
Construction in progress $66 million
Less: Billings on construction ($75 million)
Net billings in excess of construction in progress $9 million
Required: Compute the following, placing your answer in the spaces provided and
showing supporting computations
Items to compute:
Cash collected by KP on Cincy One during 2011
Actual costs incurred by KP on Cincy One during 2011
At 12/31/2011, the estimated remaining costs to complete Cincy One
The percentage of Cincy One that was completed during 2011

5. On June 30, 2011, Gunderson Electronics issued 8% stated rate bonds with a face
amount of $300 million. The bonds mature on June 30, 2031 (20 years). The market
rate of interest for similar bond issues was 10% (5% semiannual rate). Interest is paid
semiannually (4%) on June 30 and December 31, beginning on December 31, 2011.
Required:
a. Determine the price of the bonds on June 30, 2011.
b. Calculate the interest expense Gunderson reports in 2011 for these bonds.
6. During Burns Company`s first year of operations, credit sales totaled $ 140000 and collections on credit sales totaled $ 105000. Burns had written off $ 300 of specific accounts as uncollectible.
Required:
a. Prepare all appropriate journal entries relative to uncollectible accounts and bad
debt expense.
b. Show the year-end balance sheet presentation for accounts receivable.
7. Appleton Inc. adopted dollar-value LIFO on January 1, 2011, when the inventory value
was $1,200,000. The December 31, 2011, ending inventory at year-end costs was
$1,430,000 and the cost index for the year is 1.1.
Required: Compute the dollar-value LIFO inventory valuation for the December 31,
2011, inventory.
8. DK Super Stores Inc. uses the average cost retail method to estimate its ending
inventory. Information at June 30, 2011, is as follows:
Required: Compute the cost-to-retail percentage used by DK.
9. Schefter Mining operates a copper mine in Wyoming. Acquisition, exploration, and
development costs totaled $8.2 million. Extraction activities began on July 1, 2011.
After the copper is extracted in approximately six years, Schefter is obligated to
restore the land to its original condition, including constructing a park. The company’s
controller has provided the following three cash flow possibilities for the restoration
costs:
Cash Flow Probability
1. $700,000 30%
2. $800,000 25%
3. $900,000 45%
The company’s credit-adjusted, risk-free rate of interest is 5%, and its fiscal year ends
on December 31.
Required:
a. What is the initial cost of the copper mine? (Round computations to nearest whole
dollar.)
b. How much accretion expense will Schefter report in its 2011 income statement?
c. What is the carrying value (book value) of the asset retirement obligation that
Schefter will report in its 2011 balance sheet?
d. Assume that actual restoration costs incurred in 2017 totaled $860,000. What
amount of gain or loss will Schefter recognize on retirement of the liability?
10. On March 30, 2011. Calvin Exploration purchased a drilling machine for $ 840000. The estimated useful life of the machine is 10years, and no residual value is anticipated. An important component of the machine is the drill housing component that will need to be replaced in five years. The $200000 cost of the drill housing component is included in the $ 840000 cost of the machine. Calvin uses the straight line depreciation method for all machinery. The company`s fiscal year ends on December 31.
Required:
a. Calculate depreciation on the drilling machine for 2011 and 2012 applying the
typical U.S. GAAP treatment.
b. Repeat requirement 1 applying IFRS.
1.Calloway Shoes purchased a delivery truck on September 30, 2011, for $32,000. The estimated useful life of the truck is 10 years with no residual value. After five years, the refrigeration unit will need to be replaced. The $8,000 cost of the unit is included in the cost of the truck. Calloway uses the straight-line depreciation method. Depreciation for 2011 under U.S. GAAP and International Financial Reporting Standards (IFRS), respectively, is

A. Option d
B. Option a
C. Option c
D. Option b

2. Axcel Software began a new development project in 2010. The project reached technological feasibility on June 30, 2011 and was available for release to customers at the beginning of 2012. Development costs incurred prior to June 30, 2011 were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. 2012 revenues from the sale of the new software were $4,000,000 and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. 2012 amortization of the software development costs would be

A. $0.

B. $350,000.

C. $1,840,000.

D. $560,000.

3. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company’s only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company’s fiscal year-end is December 31.
In computing the capitalized interest for 2011, Crocus’ average accumulated expenditures are

A. $46.30 million.

B. $124.25 million.
C. $122.30 million.
D. $103.54 million.

4. Kingston Corporation has $95 million of goodwill on its books from the 2009 acquisition of Reliant Motors. At the end of its 2011 fiscal year, management has provided the following information for its annual goodwill impairment test ($ in millions):
Fair value of Reliant (approximates fair value less costs to sell) $655
Fair value of Reliant’s net assets (excluding goodwill) 600
Book value of Reliant’s net assets (including goodwill) 700
Present value of estimated future cash flows 670
Assuming that Reliant is considered a reporting unit for U.S. GAAP and a cash-generating unit for IFRS, the amount of goodwill impairment loss that Kingston should recognize according to U.S. GAAP and IFRS, respectively, is

A. Option c
B. Option b
C. Option a
D. Option d

5. On March 31, 2011, M. Belotti purchased the right to remove gravel from an old rock quarry. The gravel is to be sold as roadbed for highway construction. The cost of the quarry rights was $164,000, with estimated salable rock of 20,000 tons. During 2011, Belotti loaded and sold 4,000 tons of rock and estimated that 16,000 tons remained at December 31, 2011. At January 1, 2012, Belotti estimated that 20,000 tons still remained. During 2012, Belotti loaded and sold 8,000 tons.
Belotti would record depletion in 2011 of

A. $32,800.

B. $24,600.

C. $41,000.

D. $30,750.

6. Short Corporation purchased Hathaway, Inc. for $52,000,000. The fair value of all Hathaway’s identifiable tangible and intangible assets was $48,000,000. Short will amortize any goodwill over the maximum number of years allowed. What is the annual amortization of goodwill for this acquisition?

A. $200,000.

B. $400,000.

C. $100,000.

D. 0.

7. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company’s only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company’s fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2011, using the specific interest method (rounded to the nearest thousand dollars)?

A. $7,248,000 (rounded)

B. $7,283,000 (rounded)

C. None of these answers is correct.
D. $8,740,000 (rounded)

8. P. Chang & Co. exchanged land and $9,000 cash for equipment. The book value and the fair value of the land were $106,000 and $90,000, respectively.
Chang would record equipment at and record a gain/(loss) of
?? Equipment ??Gain/Loss
a.?? $99,000 $(16,000)
b.?? $99,000 $(25,000)
c.?? $108,000 $16,000
d.?? $106,000 $(9,000)

A. Option c
B. Option a
C. Option d
D. Option b

9. On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
Cash Outflow Probability
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6
July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October, 2011. The company’s only other interest-bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company’s fiscal year-end is December 31.
What is the amount of interest that Crocus should capitalize in 2010, using the specific interest method?

A. $1.95 million
B. $2.96 million
C. $1.90 million
D. $65 million

10. Horton Stores exchanged land and cash of $5,000 for similar land. The book value and the fair value of the land were $90,000 and $100,000, respectively.
Assuming that the exchange lacks commercial substance, Horton would record land-new at and record a gain/(loss) of
?? Land Gain/Loss
a.?? $105,000 $??0
b.?? $105,000 $10,000
c.?? $95,000 $??0
d.?? $95,000 $10,000

A. Option c
B. Option a
C. Option b
D. Option d

11. Fellingham Corporation purchased equipment on January 1, 2009, for $200,000. The company estimated the equipment would have a useful life of 10 years with a $20,000 residual value. Fellingham uses the straight-line depreciation method. Early in 2011, Fellingham reassessed the equipment’s condition and determined that its total useful life would be only six years in total and that it would have no salvage value. How much would Fellingham report as depreciation on this equipment for 2011?

A. $41,000

B. $27,333

C. $24,000

D. $36,000

12. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.

In Case A, Pensacola would record the new equipment at:

A. $80,000.

B. $68,000.

C. $63,750.

D. $67,250.

13. On January 1, 2009, Al’s Sporting Goods purchased store fixtures at a cost of $180,000. The anticipated service life was 10 years with no residual value. Al’s has been using the double-declining balance method, but in 2011 adopted the straight-line method because the company believes it provides a better measure of income. Al’s has a December 31 year-end. The journal entry to record depreciation for 2011 is
a.?Depreciation expense??????23,040
??Accumulated depreciation 23,040
b.?Depreciation expense??????14,400
??Accumulated depreciation 14,400
c.?Accumulated depreciation????28,800
??Retained earnings 28,800
d.?No entry

A. Option a
B. Option b
C. Option c
D. Option d

14. In 2010, Antle, Inc., had acquired Demski Co. and recorded goodwill of $245 million as a result. The net assets (including goodwill) from Antle’s acquisition of Demski Co. had a 2011 year-end book value of $580 million. Antle assessed the fair value of Demski at this date to be $700 million, while the fair value of all of Demski’s identifiable tangible and intangible assets (excluding goodwill) was $550 million. The amount of the impairment loss that Antle would record for goodwill at the end of 2011 is

A. $95 million.

B. $150 million.
C. $12 million.

D. $0.

15. Grab Manufacturing Co. purchased a ten-ton draw press at a cost of $180,000 with terms of 5/15, n/45. Payment was made within the discount period. Shipping costs were $4,600, which included $200 for insurance in transit. Installation costs totaled $12,000, which included $4,000 for taking out a section of a wall and rebuilding it because the press was too large for the doorway. The capitalized cost of the ten-ton draw press is

A. $171,000.

B. $187,600.

C. $185,760.

D. $183,600

16. Below are data relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance.

In Case B, Grand Forks would record a gain/(loss) of

A. $5,000.

B. $(3,000).

C. $3,000.

D. $(5,000).

17. Gulf Consulting Co. reported the following on its December 31, 2011, balance sheet:
Equipment (at cost) . . .$700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. Gulf’s equipment averages 3.5 years at December 31, 2011.
What is the book value of Gulf’s equipment at December 31, 2011?

A. $210,000

B. $490,000

C. $259,000

D. $441,000

18. Rice Industries owns a manufacturing plant in a foreign country. Political unrest in the country indicates that Rice should investigate for possible impairment. Below are data related to the plant’s assets ($ in millions):
Book value $190
Undiscounted sum of future estimated cash flows 210
Present value of future cash flows 175
Fair value less cost to sell (determined by appraisal) 180
The amount of impairment loss that Rice should recognize according to U.S. GAAP and IFRS, respectively, is

A. Option c
B. Option d
C. Option b
D. Option a

19. Bloomington Inc. exchanged land for equipment and $3,000 in cash. The book value and the fair value of the land were $104,000 and $90,000, respectively.
Bloomington would record equipment at and record a gain/(loss) of
?? Equipment ??Gain/Loss
a. $87,000 $3,000
b. $104,000 $(5,000)
c. $87,000 $(14,000)
d. None of the above.

A. Option a
B. Option b
C. Option c
D. Option d

20. Lake Incorporated purchased all of the outstanding stock of Huron Company paying $950,000 cash. Lake assumed all of the liabilities of Huron. Book values and fair values of acquired assets and liabilities were
Book Value Fair Value
Current assets (net) ?$130,000 ?$125,000
Property, plant, equip. (net) 600,000 750,000
Liabilities 150,000 175,000
Lake would record goodwill of

A. $75,000.

B. $250,000.

C. $445,000.

D. $0.

21. Broadway Ltd. purchased equipment on 1/1/09 for $800,000, estimating a five-year useful life and no residual value. In 2009 and 2010, Broadway depreciated the asset using the straight-line method. In 2011, Broadway changed to sum-of-years’-digits depreciation for this equipment. What depreciation would Broadway record for the year 2011 on this equipment?

A. $160,000.

B. $240,000.

C. $200,000.

D. $120,000.

22. On June 30, 2011, Prego Equipment purchased a precision laser-guided steel punch that has an expected capacity of 300,000 units and no residual value. The cost of the machine was $450,000 and is to be depreciated using the units-of-production method. During the six months of 2011, 24,000 units of product were produced. At the beginning of 2012, engineers estimated that the machine can realistically be used to produce only another 230,000 units. During 2012, 70,000 units were produced.
Prego would report depreciation in 2012 of

A. $126,000.

B. $108,000.

C. $105,000.

D. $135,230

23. Asset C3PO has a depreciable base of $16.5 million and a service life of 10 years. What would the accumulated depreciation be at the end of year five under the sum-of-the-years’ digits method?

A. $16.5 million.
B. $12 million.

C. $8.25 million.
D. $4.5 million.

24. Below are listed data relative to an exchange of equipment by Pensacola Inc. Assume the exchange has commercial substance.

In Case B, Pensacola would record a gain/(loss) of:

A. $(10,000).

B. $(4,000).

C. $0.

D. $4,000.

25. Nanki Corporation purchased equipment on 1/1/09 for $650,000. In 2009 and 2010, Nanki depreciated the asset on a straight-line basis with an estimated useful life of 8 years and a $10,000 residual value. In 2011, due to changes in technology, Nanki revised the useful life to a total of six years with no residual value. What depreciation would Nanki record for the year 2011 on this equipment?

A. $106,667.

B. $108,333.

C. $650,000.

D. $122,500.

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A comparative balance sheet for the Beneteau Corporation is presented below

BENETEAU CORPORATION
Comparative Balance Sheet
2014 2013
Assets
Cash $ 37,000 $ 31,000
Accounts receivable (net) 80,000 60,000
Prepaid insurance 22,000 17,000
Land 18,000 40,000
Equipment 70,000 60,000
Accumulated depreciation (20,000) (13,000)
Total Assets $207,000 $195,000

Liabilities and Stockholders’ Equity
Accounts payable $ 12,000 $ 6,000
Bonds payable 27,000 19,000
Common stock 140,000 115,000
Retained earnings 28,000 55,000
Total liabilities and stockholders’ equity $207,000 $195,000

Additional information:
1. Net loss for 2014 is $12,000. Net sales for 2014 are $250,000.
2. Cash dividends of $15,000 were declared and paid in 2014.
3. Land was sold for cash at a loss of $2,000. This was the only land transaction during the
year.
4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for
$5,000 cash.
5. $12,000 of bonds were retired during the year at carrying (book) value.
6. Equipment was acquired for common stock. The fair value of the stock at the time of the
exchange was $25,000.

Instructions
1. Prepare a statement of cash flows for the year ended 2014 using the indirect method.
2. Compute the following cash based ratios:
a. Current cash debt coverage
b. Cash debt coverage
FINANCIAL ACCOUNTING II – WINTER 2014 – FINAL EXAM

5

Problem 2 (20 Points)
The following items were taken from the financial statements of Kramer Manufacturing, Inc., over a three-year
period:
Item 2015 2014 2013
Net Sales $226,000 $212,000 $200,000
Cost of Goods Sold 150,000 140,000 125,000
Gross Profit $ 76,000 $ 72,000 $ 75,000

Instructions
Using horizontal analysis and 2013 as the base year, compute the trend percentages for net
sales, cost of goods sold, and gross profit. Explain whether the trends are favorable or
unfavorable for each item.
Problem 3 (20 Points)
The following items were taken from the financial statements of Mint, Inc., over a three-year
period:
Item 2015 2014 2013
Net Sales $355,000 $336,000 $300,000
Cost of Goods Sold 214,000 206,000 186,000
Gross Profit $141,000 $130,000 $114,000

Instructions
Compute the following for each of the above time periods.
a. The amount and percentage change from 2013 to 2014.
b. The amount and percentage change from 2014 to 2015.

Problem 4 (20 Points)
Using these data from the comparative balance sheet of Sunta Fe Spice Company, perform
horizontal analysis.
December 31, 2014 December 31, 2013
Accounts receivable $ 375,000 $ 300,000
Inventory 780,000 600,000
Total assets 3,220,000 2,800,000

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Perfect systems borrow $94,000 cash on May 15, 2011, by signing a 60-day, 12% notes.

1. On what date this note mature
2. Suppose the face value of note equals $94,000, the principal of the loan. Prepare the journal entries to record (a) issuance of the note and (b) payment of the note at maturity.

10-1
Note round amounts to the nearest whole dollar; assume no reversing entries are used
On January 1, 2011, Kidman Enterprise issues a bond that have a $1,700,000 Par value, mature in 20 years and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par.
1. How much interests will Kidman pay (in cash) to the bondholders every six months?
2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2011; (b) The first interest payment on June 30, 2011; and (c) the second interest payment on December 31, 2011.
3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102.

10-16

Ramirez Company is considering a project that will require a $500,000 loan. It presently has total liabilities of $200,000 and total asset of $620,000
1. Compute Ramirez’s (a) present debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $500,000 to fund the project.
2. Evaluate and discuss the level of risk involved if Ramirez borrows the funds to pursue the project.

11-2

Aloha Corporation issues 6,000 shares of its common stock for $144,000 cash on February 20. Prepare journal entries to record this event under each of the following separate situations.
1. The stock has neither par nor stated value.
2. The stock has $20 par value
3. The stock has $8 stated value

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1) Cost of Goods Sold
Redster Company is a manufacturing firm. Presented below is information concerning one of its products, Ander:
Date Transaction Quantity Price/Cost
1/1 Beginning inventory 2,900 $10
2/12 Purchase 3,300 $15
3/2 Sale 2,400 $28
4/18 Purchase 4,500 $18
5/31 Sale 3,800 $30
Compute the cost of goods sold under the following situations:
1. Periodic system, FIFO cost flow
2. Perpetual system, FIFO cost flow
3. Periodic system, LIFO cost flow
4. Perpetual system, LIFO cost flow
5. Periodic system, weighted-average cost flow
6. Perpetual system, moving-average cost flow

2) Depreciation Expense

Valley Corporation purchased a new piece of equipment on June 1, 2011. The cost of this machine was $325,000. The company estimated that the machine would have a salvage value of $25,000 at the end of its service life. Its life is estimated at four years and its working hours are estimated at 50,000 hours. Year end is December 31.

Compute the depreciation expense under the following methods. Each of the following should be considered unrelated.
2. Straight-line depreciation for 2011.
3. Units of production method for 2011, assuming that machine usage was 13,000 hours.
4. Sum-of-the-years’-digits for 2012.
5. Double-declining balance for 2012.

3) Remaining Life
Taylor Lewis Company has provided information on intangible assets as follows.
A patent was purchased from Craig Company for $4,000,000 on June 1, 2010. Lewis estimated the remaining useful life of the patent to be eight years. The patent was carried in Craig’s accounting records at a net book value of $3,500,000 when Craig sold it to Lewis.
During 2011, a franchise was purchased from Faragher Company for $360,000. In addition, 8% of revenue from the franchise must be paid to Faragher. Revenue from the franchise for 2011 was $1,950,000. Lewis estimates the useful life of the franchise to be 12 years and takes a full year’s amortization in the year of purchase.
Lewis incurred research and development costs in 2010 as follows
Materials and equipment $286,500
Personnel $153,700
Indirect costs $ 95,355
$535,555
Lewis estimates that these costs will be recouped by December 31, 2014. The materials and equipment purchased have no alternative uses.
On January 1, 2011, because of recent events in the field, Lewis estimates that the remaining life of the patent purchased on June 1, 2010, is only five years from January 1, 2011.
a. Prepare a schedule showing the intangible section of Lewis’s balance sheet at December 31, 2011. Show supporting computations in good form.
b. Prepare a schedule showing the income statement effect for the year ended December 31, 2011, as a result of the facts above. Show supporting computations in good form.

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Chapter Two and Three Problems

Please complete the following 7 exercises
below in either Excel or a word document (but must be single document). You
must show your work where appropriate (leaving the calculations within Excel
cells is acceptable). Save the document, and submit it in theappropriate week using the Assignment Submission button.

Chapter
2 Exercise 1

1. Issuance of stock

Prepare journal entries to record
the issuance of 100,000 shares of common stock at $20 per share for each of the
following independent cases:

a. Jackson Corporation has common stock with a par value of
$1 per share.

b. Royal Corporation has no-par common with a stated value of
$5 D share.

c. French Corporation has no-par common; no stated value has
been as signed

Chapter
2 Exercise 3

3.
Analysis of stockholders’ equity

Star Corporation issued both common
and preferred stock during 19X6. The stockholders’ equity sections of the
company’s balance sheets at the end of 19X6 and 19X5 follow.

19X6

19X5

Preferred stock, $100 par value, 10%

$580,000

$500,000

Common stock, $10 par value

2,350,000

1,750,000

Paid-in capital in excess of par value

Preferred

24,000

—

Common

4,620,000

3,600,000

Retained earnings

8,470,000

6,920,000

Total stockholders’ equity

$16,044,000

$12,770,000

a. Compute the number of preferred shares that were issued
during 19X6.

b. Calculate the average issue price of the common stock sold
in 19X6.

c. By what amount did the company’s paid-in capital increase
during 19X6?

d. Did Star’s total legal capital increase or decrease during
19X6? By what amount?

Chapter 2 Problem 1

1. Bond computations: Straight-line amortization

Southlake Corporation issued
$900,000 of 8% bonds on March 1, 19X1. The bonds pay interest on March 1 and
September 1 and mature in 10 years. Assume the independent cases that follow.

·
Case A—The bonds are issued at 100.

·
Case B—The bonds are issued at 96.

·
Case C—The bonds are issued at 105.

Southlake uses the straight-line
method of amortization.

Instructions:

Complete the following table:

Case A

Case B

Case C

  1. Cash inflow on
    the issuance date

_______

_______

_______

  1. Total cash outflow through maturity

_______

_______

_______

  1. Total borrowing cost over the life of the bond issue

_______

_______

_______

  1. Interest expense for the year ended December 31, 19X1

_______

_______

_______

  1. Amortization for the year ended December 31, 19X1

_______

_______

_______

  1. Unamortized premium as of December 31, 19X1

_______

_______

_______

  1. Unamortized discount as of December 31, 19X1

_______

_______

_______

  1. Bond carrying value as of December 31, 19X1

_______

_______

_______

Chapter 3 Exercise 1

1. Product costs and period costs

The costs that follow were extracted from the
accounting records of several different manufacturers:

1.
Weekly wages of an equipment maintenance
worker

2.
Marketing costs of a soft drink bottler

3.
Cost of sheet metal in a Honda automobile

4.
Cost of president’s subscription to Fortune
magazine

5.
Monthly operating costs of pollution control
equipment used in a steel mill

6.
Weekly wages of a seamstress employed by a
jeans maker

7.
Cost of compact discs (CDs) for newly recorded
releases of Rush, Billy Joel, and Bryan Adams

a.
Determine which of these costs are product
costs and which are period costs.

b.
For the product costs only, determine those
that are easily traced to the finished product and those that are not.

Chapter 3
Exercise 2

2.
Definitions of manufacturing concepts

Interstate Manufacturing produces brass fasteners and incurred the following
costs for the year just ended:

Materials and supplies used

Brass $75,000

Repair parts 16,000

Machine lubricants 9,000

Wages and salaries Machine operators 128,000

Production supervisors 64,000

Maintenance personnel 41,000

Other factory overhead Variable 35,000

Fixed 46,000

Sales commissions 20,000

Compute:

a. Total direct materials consumed

b. Total direct labor

c. Total prime cost

d. Total
conversion cost

Chapter 3 Exercise 5

5. Scheduleof
cost of goods manufactured, income statement

The
following information was taken from the ledger of Jefferson Industries, Inc.:

Direct labor

$85,000

Administrative expenses

$59,000

Selling expenses

34,000

Work in. process

Sales

300,000

Jan. 1

29,000

Finished goods

Dec. 31

21,000

Jan. 1

115,000

Direct material purchases

88,000

Dec. 31

131,000

Depreciation: factory

18,000

Raw (direct) materials on hand

Indirect materials used

10,000

Jan. 1

31,000

Indirect labor

24,000

Dec. 31

40,000

Factory taxes

8,000

Factory utilities

11,000

Prepare the following:

a.
A schedule of cost of goods manufactured for
the year ended December 31.

b.
An income statement for the year ended
December 31.

Chapter
3 Problem 3

3. Manufacturing statements and cost
behavior

Tampa Foundry began operations during the
current year, manufacturing various products for industrial use. One such
product is light-gauge aluminum, which the company sells for $36 per roll. Cost
information for the year just ended follows.

Per Unit

Variable Cost

Fixed Cost

Direct materials

$4.50

$ —

Direct labor

6.5

—

Factory overhead

9

50,000

Selling

—

70,000

Administrative

—

135,000

Production and sales totaled 20,000 rolls and
17,000 rolls, respectively There is no work in process. Tampa carries its
finished goods inventory at the average unit cost of production.

Instructions:

a.
Determine the cost of the finished goods
inventory of light-gauge aluminum.

b.
Prepare an income statement for the current
year ended December 31

c.
On the basis of the information presented:

1.
Does it appear that the company pays
commissions to its sales staff? Explain.

2.
What is the likely effect on the $4.50 unit
cost of direct materials if next year’s production increases? Why?

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1. (Weighted average cost of capital) Crypton electronics has a capital structure consisting of 39% common stock and 61% debt, a debt issue of 1000 par value, 6.2 bonds that matures in 15 years and pays an annual interest well sell for $978. Common stock of the firm is selling for 30.37 per share and the firm expects to pay a 2.24 dividend next year. Dividends have grown at the rate of 5.3% per year and expected to continue to do so for the foreseeable future. What is Cryptons cost of capital where the firms tax rate is 30%?

2. The target capital structure for Jowers Manufacturing is 55% common stock, 20% preferred stock, and 25% debt. If the cost of equity for the firm is 19.3%, the cost of preferred stock is 12.8% , and the before-tax cost of debt is 10.3% , what is Jower’s cost of capital? The firm’s marginal tax rate is 34 percent.

3. As a member of the finance department of ranch manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant under the assumption that the firms present capital structure reflects the appropriate mix of capital source for the firms, you have determined the market value of the firm’s capital structure as follows Bonds $3,700,000, preferred stock $1,800,000, common stock $ 6,500,000.

To finance the purchase ranch manufacturing will sell 10 year bonds paying 6.9 % per year @ a market price of 1,061 .preferred stock paying $1.99 dividend can be sold for 24.45 common stock for ranch manufacturing is currently selling for 54.27 per share and the firm paid a 3.04 dividend last year. Dividend are expected to continue growing at a rate of 5.2% per year into the indefinite future , if the firms tax rate is 30% what discount rate should you use to evaluate the equipment purchased ?

4.Abe Forrester and three Of his friends from college have interested a group of venture capitalists in backing their. The proposed operation would consist of a series of retail outlets to?Distribute and service a full line of vacuum cleaners and accessories. These stores would?Be located in Dallas, Houston, and San Antonio. To finance the new venture two plans?Have been proposed:?Plan A is an all-common-equity structure in which $2.1 million dollars would be raised?By selling 90,000 shares of common stock.?Plan B would involve issuing $1.2 million dollars in long-term bonds with an effective?Interest rate of 12.2% plus another $0.9 million would be raised by selling 45,000 shares?Of common stock. The debt funds raise funder Plan B have no fixed maturity date, in?That this amount of financial leverage is considered a permanent part of the firms?Capital structure. Abe and his partners plan to use a 34% tax rate in their analysis, and they have hired?You on a consulting basis to do the following:

a. Find the EBIT indifference level associated with the two financing plans.

b. Prepare a pro forma income statement for the EBIT level solved for in Part a. that shows that EPS will be the same regardless whether Plan A or Plan B is chosen

5. Three recent graduates of the computer science program at the University of Tennessee are forming a company that will write and distribute new application software for the iPhone. Initially, the corporation will operate in the southern region of Tennessee, Georgia, North Carolina and South Carolina. A small group of private investors in the Atlanta, Georgia are interested in financing the startup company and two financing plans have been put forth into consideration.

The first plan(A) is an all common equity capital structure $2.3 million dollars would be raised

by selling common stock at $10 per common share.

Plan B would involve the use of financial leverage. $1.2 million would be raised by selling bonds with an effective interest rate of 10.9% and the remaining 1.1 million would be raised by selling common stock at the $10 price per share. The use of financial leverage is considered to be a permanent part of the firms capitalization, so no fixed date is needed for the analysis. A 34% tax rate is deemed appropriate for the analysis.

a. Find the EBIT indifference rate associated with the two financing problems

b. A detailed financial analysis of the firms prospects suggests that the long term EBIT will be above $330,000 annually. Taking this into consideration, which plan will generate the higher EPS?

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Problem 5-13A Comparing an ABC system with a traditional costing system

Peck Electronics produces video games in three market categories, commercial, home, and miniature. Peck has traditionally allocated overhead costs to the three products using the companywide allocation base of direct labor hours. The company recently implemented an ABC system when it installed computer-controlled assembly stations that rendered the traditional costing system ineffective. In implementing the ABC System, the company identified the following activity cost pools and cost drivers.

Category Total Pooled Cost Types of Costs Cost Driver

Unit $720,000 Indirect labor wages, supplies, depreciation, machine maintenance Machines hours
Batch 388,800 Materials handling, inventory storage, labor for setups, packaging, labeling and shipping, scheduling Number of production orders
Product
211,200 Research and development Time spent by research department
Facility 600,000 Rent, utilities, maintenance, admin. Salaries, security Square footage

Commercial Home Miniature Total
Direct materials cost $36/unit $24/unit $30/unit ___
Direct labor cost $14.40/hour $14.40/hour $18/hour ___
Number of labor hours 6,000 12,000 2,000 20,000
Number of machine hours 10,000 45,000 25,000 80,000
Number of production orders 200 2,000 800 3,000
Research and development time 10% 20% 70% 100%
Number of units 15,000 45,000 14,000 74,000
Square footage 20,000 50,000 30,000 100,000

Required

a. Determine the total cost and cost per unit for each product line, assuming that overhead costs are allocated to each product line using direct labor hours as a companywide allocation base. Also determine the combined cost of all three product lines.
b. Determine the total cost and cost per unit for each product line, assuming that an ABC system is used to allocate overhead costs. Determine the combined cost of all three product lines.
c. Explain why the combined total cost computed in Requirements a and b is the same amount. Given that the combined cost is the same using either allocation method, why is an ABC system with many different allocation rates more accurate than a traditional system with a single companywide overhead rate?

Problem 6-28A Eliminating a segment

Brandt Boot Co. sells men’s, women’s, and children’s boots. For each type of boots sold, it operates a separate department that has its own manager. The manager of men’s department has a sales staff of nine employees, the manager of the women’s department has six employees, and the manager of the children’s department has three employees. All departments are housed in a single store. In recent years, the children’s department has operated at a net loss and is expected to continue to do so. Last year’s income statements follow.

Men’s Department Women’s Department Children’s Department
Sales $600,000 $420,000 $160,000
Cost of goods sold (265,500) (176,400) ( 96,875)
Gross margin 334,500 243,600 63,125
Department manager’s salary (52,000) (41,000) (21,000)
Sales commissions (106,200) (75,600) (27,900)
Rent on store lease (21,000) (21,000) (21,000)
Store Utilities (4,000) (4,000) (4,000)
Net income(loss) $151,300 $102,000 $ (10,775)

Required

a. Determine whether to eliminate the children’s department.
b. Confirm the conclusion you reached in Requirement a by preparing income statements for the company as a whole with and without the children’s department.
c. Eliminating the children’s department would increase space available to display men’s and women’s boots. Suppose manager estimates that a wider selection of adult boots would increase the store’s net earnings by $32,000. Would this information affect the decision that you made in Requirement a? Explain your answer.

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1. On Jan 1, 2011 XYZ Co purchased 12,000 shares of ABC Co for $15 a share. ABC has 100,000 shares outstanding. ABC reported net income of $60,000 and paid dividends of $5,000. On Dec 31, 2011 ABC had a market value of $17.50 a share. XYZ accounts for this investment as available for sale.

Make the appropriate journal entries for 2011.

A) Purchase

B) Receipt of dividends

C) Year end adjustments

2. On Jan 1, 2011 XYZ purchased 11,000 shares of ABC Co for $20 a share. ABC had 50,000 shares outstanding. XYZ now accounts for its investment in ABC using the equity method. ABC reported net income of $120,000 and paid dividends of 30,000.

Make all of the necessary journal entries for 2011.

a) Initial purchase

b) Receipt of dividends

c) Reporting net income

3.

Cost Fair
Value
12/31/09
2010
Purchases
2010
Sales Fair
Value
12/31/10

Available-for-sale equity securities
Security Stan 400,000 380,000 500,000

Security Lloyd
100,000
95,000
102,000

How much unrealized gain or loss should be reported on the balance sheet as of December 31, 2010?

4. Jack Company leased an asset to Jill Company on January 1, 2011. Jill Company is required to make $15,000 payments on January 1 of each year for six years, beginning January 1, 2011. The useful life of the asset is also estimated to be six years. Included in the lease payment are executor costs of $1000 to be paid annually by Jill Company. If Jack Company determined the interest payment to provide it a 10 percent, return, Jack Company would make the following entry on January 1, 2011:
FMV of leased equipment:

5. Jack Company leased an asset to Jill Company on January 1, 2011. Jill Company is required to make $15,000 payments on Dec 31 of each year for six years, beginning Dec 31, 2011. The useful life of the asset is also estimated to be six years. Jack Company would make the following entry for the receipt of cash on Dec 31, 2011:

6. Jack Company leased an asset to Jill Company on January 1, 2011. Jill Company is required to make $15,000 payments on January 1 of each year for six years, beginning January 1, 2011. The useful life of the asset is also estimated to be six years. If Jack Company determined the interest payment to provide it a 10 percent return with no residual value, Jack Company would recognize interest income for 2011 of

interest income => 15,000*( 1/1.1^1 +1/1.1^2 +1/1.1^3+1/1.1^4+1/1.1^5+1/1.1^6)
=15,000*(4.3553)
=$ 65,328.91

65,328.91 ????? IS IT OK?

7. On January 1, 2008, Fred leased equipment to Ned for $70,000 a year for 6 years, with the first payment being made on January 1, 2009. The equipment cost Fred $300,000 to make. If Fred requires an 8 percent return on this lease, how much is
a) Cost of goods sold
300,000
b) Sales revenue (PV – 323610) 323,610
c) Lease receivable 323,610
d) Interest earned in 2009: 323610*0.08 = 25888.8
25888.8 Is my answer OK?????

PLEASE HELP WITH THIS PART, TOO

a) What journal entry does Ned make on his books on January 1, 2008 in reference to the lease?
b) What adjusting entry does Ned make in reference to this lease?
c) How much is Ned’s lease obligation on Dec 31, 2010?

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