Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry

Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry. The company uses a job-order costing system with a predetermined plantwide overhead rate based on direct labor-hours. On December 16, 2008, the company's controller made a preliminary estimate of the predetermined overhead rate for the year 2009. The new rate was based on the estimated total manufacturing overhead cost of $3,402,000 and the estimated 63,000 total direct labor-hours for 2009:

Predetermined overhead rate =3,402,000
63,000 hours
= $54 per direct labor – hour

AND SO ON

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Eastern Manufacturing is involved with several situations that possibly involve contingencies

ACCOUNTING

P 13-6 Various contingencies

Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2011 financial statements are issued on March 15, 2012.

a. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2012, judgment was rendered against Eastern in the amount of $107 million plus interest, a total of $122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.

b. In November 2010, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2012, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $140 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.

c. Eastern is the plaintiff in a $200 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $100 million.

d. At March 15, 2012, the Environmental Protection Agency is in the process of investigating possible soil contamination at various locations of several companies including Eastern. The EPA has not yet proposed a penalty assessment. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of up to $33 million is reasonably possible.

Required:
1. Determine the appropriate means of reporting each situation. Explain your reasoning.
2. Prepare any necessary journal entries and disclosure notes.

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Foundations of Accounting I Project: Donna's Entertainment is a merchandising business

ACCOUNTING

Foundations of Accounting I
Accounting Project
Written by: Karen Pitsch

Comprehensive Problem

Donna’s Entertainment is a merchandising business. Their account balances as of November 30, 2012 (unless otherwise indicated), are as follows:

110 Cash $ 73,920
112 Accounts Receivable 34,250
113 Allowance for Doubtful Accounts 11,000
115 Merchandise Inventory 123,900
116 Prepaid Insurance 3,750
117 Store Supplies 2,850

AND SO ON

During December, the last month of the accounting year, the following transactions were completed:

Dec. 1. Issued check number 2632 for the December rent, $2,600.
3. Purchased three TV C units on account from Prince Co., terms 2/10, n/30, FOB shipping point, $11,100.
4. Issued check number 2633 to pay the transportation changes on purchase of December 3, $400. (NOTE: Do not include shipping and purchase discounts to the Inventory Control sheet for this project.)
6. Sold four TV A and four TV B on account to Albert Co., invoice 891, terms 2/10, n/30, FOB shipping point.
10. Sold two projector systems for cash.

AND SO ON

Check Figures for Accounting Project:
Cash Receipts Journal; Cash Column: 97,939
Unadjusted Trial Balance Total: 1,080,620
Net Income: 264,350
Post Closing Trial Balance: 347,490

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The following defined pension data of Rydell Corp. apply to the year 2010

The following defined pension data of Rydell Corp. apply to the year 2010. For 2010, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.
Projected benefit obligation, 1/1/10 (before amendment) $560,000
Plan assets, 1/1/10 546,200
Pension liability 13,800
On January 1, 2010, Rydell Corp., through plan amendment,
grants prior service benefits having a present value of 120,000

Settlement rate 9%
Service cost 58,000
Contributions (funding) 65,000
Actual (expected) return on plan assets 52,280
Benefits paid to retirees 40,000
Prior service cost amortization for 2010 17,000

Instructions:
For 2010, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.

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Q1 Which of the following is true regarding the Budgetary Comparison Schedule

ACCOUNTING

1. Which of the following is true regarding the Budgetary Comparison Schedule?

2. Assume encumbrances do not expire at year-end. $15,000 was encumbered during the prior year for a computer and the actual cost of the computer in the current year is $12,000. How does this affect unreserved fund balance?

3. Which of the following items would typically not need an encumbrance?

4. Which of the following is not considered Required Supplementary Information (RSI)?

5. Fiduciary funds are to use the:

6. Level "A" GAAP for The University of Virginia, a public institution, would be established by the:

7. Which of the following is true regarding the composition of the Comprehensive Annual Financial Report (CAFR)?

8. Under the modified accrual basis of accounting, revenues should be recognized when they are:

9. The Governmental Accounting Standards Board has been given authority to establish accounting and financial reporting standards for:

10. Which of the following is true regarding the government-wide Statement of Activities?

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2-9 The following General Fund information is available for the preparation of the financial statements for the city of Eastern Shores for the year

ACCOUNTING

2-9 The following General Fund information is available for the preparation of the financial statements for the city of Eastern Shores for the year ended September 30, 2012:

Revenues:
Property taxes $27,000,000
Sales taxes 13, 216,000
Fees and fines 1,124,000
Licenses and permits 1,921,000
Intergovernmental 868,000
Investment earnings 654,000
Expenditures:
Current:
General government 8,192,000
Public safety 24,444,000
Public works 6,211,000
Health and sanitation 1,693,000
Culture and recreation 2,154,000
Debt service – principal 652,000
Debt service – interest 821,000
Proceeds of long-term, capital-related debt 2,210,000
Transfer to special revenue fund 1,119,000
Special item – proceeds from sale of land 821,000
Fund balance, October 1, 2011

From the information given above, prepare, in good form, a General Fund Statement of Revenue, Expenditures, and Changes in Fund Balances for the City of Eastern Shores General Fund for the Year Ended September 30, 2012.

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2-8 The following information is available for the preparation of the government-wide financial statements for the city of Northern Pines for the year

ACCOUNTING

2-8. The following information is available for the preparation of the government-wide financial statements for the city of Northern Pines for the year ended June 30, 2012:

Expenses:
General government $10,300,000
Public safety 22,900,000
Public works 11,290,000
Health and sanitation 6,210,000
Culture and recreation 4,198,000
Interest on long-term debt, governmental type 621,000
Water and sewer system 11,550,000
Parking system 419,000
Revenues:
Charges for services, general government 1,110,000
Charges for services, public safety 210,000
Operation grant, public safety 698,000
Charges for services, health and sanitation 2,555,000
Operating grant, health and sanitation 1,210,000
Charges for services, culture and recreation 2,198,000
Charges for services, water and sewer 12,578,000
Charges for services, parking system 398,000
Property taxes 27,112,000
Sales taxes 20,698,000
Investment earnings, business-type 319,000
Special item – gain on sale of unused land,
Governmental type 1,250,000
Transfer from governmental activities to
Business-type activities 688,000
Net assets, July 1, 2011, governmental activities 11,222,000
Net assets, July 1, 2011, business-type activities 22,333,000

From the previous information, prepare, in good form, a Statement of Activities for the city of Northern Pines for the year ended June 30, 2012. Northern Pines has no component units.

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Traber Electronics is a small privately owned retailer of electronic equipment and household appliances

ACCOUNTING

Problem 2-37 Traber Electronics is a small privately owned retailer of electronic equipment and household appliances. Traber Electronics is required to provide audited financial statements as part of a due diligence investigation in consideration of a potential acquisition of Traber by a public company. In the interest of time, Traber appointed the audit firm of Makins & Howell, CPAs, without a formal proposal process. Makins & Howell immediately accepted the audit engagement in early October and agreed to the November 1 deadline for the auditor’s report.

Katie Kammins, CPA, was recently promoted to in-charge auditor for Makins & Howell and was assigned to the Traber audit along with Joel Misten, the firm’s university intern. Prior to her assignment to the Traber audit, all of Katie’s audit experience was in the health-care industry. Because most of Katie’s health-care clients had June 30 year ends, Katie was available in October to work on the Traber engagement.

Katie and Joel got right to work. Katie informed Joel that there was no time to test controls, so she instructed him as to the proper procedures for proving the mathematical accuracy of the accounting journals and ledgers and tying the totals to the financial statements. No footnotes or other supplemental disclosures accompanied the financial statements, and there were no prior-year financial statements to be used as a basis of comparison, which helped expedite the audit process.

While Joel was busy with the mathematical tie-ins, Katie analyzed the company’s sales and inventories because these were the most significant revenue and asset accounts. For sales, Katie reviewed the monthly sales reports and learned that several large contracts had been accounted for on the percentage of completion method. Although she wasn’t sure about the propriety of the profits recognized, Katie held a series of discussions with Traber’s controller, who assured Katie that the profits had been recorded in accordance with generally accepted accounting principles.

For inventories, Katie observed the items in the retail store, noting the reasonableness of their descriptions and saleable condition. She was not present when Traber Electronics conducted its annual physical count of the inventory. She did not examine the inventory at the company’s warehouse because it represented less than half of the value of the asset account.

One week before the deadline, Makins & Howell provided its standard audit report, which included an unqualified opinion on Traber’s financial statements.

Required:
Refer to each of the 10 GAAS and indicate how the actions of Makins & Howell or its employees resulted in violations of these standards.

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BC Company uses a job order cost accounting system. During the month of April, the following events occurred

ACCOUNTING

BC Company uses a job order cost accounting system. During the month of April, the following events occurred:

(a) Purchased raw materials on credit, $32,000.
(b) Raw materials requisitioned: $25,800 as direct materials and $10,500 indirect materials.
(c) Paid factory payroll for the month totaling $37,700 which includes $8,200 indirect labor.
(d) Assigned the factory payroll to jobs and overhead.

Make the necessary journal entries to record the above transactions and events.

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Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters

ACCOUNTING

Problem 1-34 Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators.

Required:
For each independent situation, determine which regulating or standard-setting body you should research:
(a) The entity that sets accounting standards for the government sector.
(b) The entity that decides what is required to become a licensed CPA and conduct work as a CPA.
(c) The entity that sets standards for audits of publicly traded companies.
(d) The entity that sets financial reporting standards in the U.S.
(e) The entity that prepares and administers the Uniform CPA Exam.
(f) The entity that has ultimate authority over public company reports as well as accounting and reporting standards.

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During 2010, Jester Corporation had the following transactions and events

ACCOUNTING

E14-6 During 2010, Jester Corporation had the following transactions and events.

1.Declared a cash dividend.
2.Issued par value common stock for cash at par value.
3.Completed a 2-for-1 stock split in which $10 par value stock was changed to $5 par value stock.
4.Declared a small stock dividend when the market value was higher than par value.
5.Made a prior period adjustment for overstatement of net income.
6.Issued the shares of common stock required by the stock dividend declaration in item no. 4 above.
7.Paid the cash dividend in item no. 1 above.
8.Issued par value common stock for cash above par value.

Instructions
Indicate the effect(s) of each of the foregoing items on the subdivisions of stockholders' equity. Present your answer in tabular form with the following columns (Capital Stock, Additional, Retained earnings). Use (I) for increase, (D) for decrease, and (NE) for no effect. Item no. 1 is given as an example.

1. Capital Stock = NE, Additional = NE, Retained earnings = D.

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On October 31, the stockholders’ equity section of Huth Company consists of common stock $300,000 and retained earnings $900,000

ACCOUNTING

On October 31, the stockholders’ equity section of Huth Company consists of common stock $300,000 and retained earnings $900,000. Huth is considering the following two courses of action:

(1) Declaring a 5% stock dividend on the 30,000, $10 par value shares outstanding, or
(2) Effecting a 2-for-1 stock split that will reduce par value to $5 per share. The current market price is $14 per share.

Instructions
Prepare a tabular summary of the effects of the alternative actions on the components of stockholders’ equity, outstanding shares, and par value per share. Use the following column headings: Before Action, After Stock Dividend, and After Stock Split

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The comparative balance sheets for Redwood Corporation for 2011 and 2012 follow

ACCOUNTING

The comparative balance sheets for Redwood Corporation for 2011 and 2012 follow:

Balance Sheets
As of December 31
2011
Assets
Cash 40,600
Accounts Receivable 22,000
Merchandise Inventory 176,000
Prepaid Rent 4,800
Equipment 288,000
Accumulated Depreciation (236,000)
Land 80,000
Total Assets $375,400

2012
Assets
Cash 68,800
Accounts Receivable 30,000
Merchandise Inventory 160,000
Prepaid Rent 2,400
Equipment 256,000
Accumulated Depreciation (146,800)
Land 192,000
Total Assets $562,400

Liabilities
2011
Accts Payable (Inventory) 76,000
Salaries Payable 24,000

2012
Accts Payable (Inventory) 67,000
Salaries Payable 28,000
2011
Stockholders Equity
Common Stock, $25 par value 200,000
Retained Earnings 75,400
Total Liabilities and Stockholders Equity 375,400

2012
Stockholders Equity
Common Stock, $25 par value 250,000
Retained Earnings 217,400
Total Liabilities and Stockholders Equity 562,400

Income Statement
For the Year Ended December 31, 2012
Sales Revenue 1,500,000
Cost of Goods Sold (797,200)
Gross Profit 702,800
Operating Expense
Depreciation expense (22,800)
Rent expense (24,000)
Salaries expense (256,000)
Other operating expense (258,000)
Net Income $142,000

Other information
1. Purchased land for $112,000
2. Purchased new equipment for $100,000
3. Sold old equipment that cost $132,000 with accumulated depreciation of $112,000 for $20,000 cash.
4. Issued Common Stock for $50,000

Required
Prepare the statement of cash flows for 2012 using the indirect method.

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The stockholders' equity accounts of Hashmi Company at January 1, 2010, are as follows

ACCOUNTING

P14-2A The stockholders' equity accounts of Hashmi Company at January 1, 2010, are as follows.

Preferred Stock, 6%, $50 par : $600,000
Common Stock, $5 par: 800,000
Paid-in Capital in Excess of Par Value-Preferred Stock: 200,000
Paid-in Capital in Excess of Par Value-Common Stock: 300,000
Retained Earnings: 800,000

There were no dividends in arrears on preferred stock. During 2010, the company had the following transactions and events.

July 1 Declared a $0.50 cash dividend on common stock.
Aug. 1 Discovered $25,000 understatement of 2009 depreciation. Ignore income taxes.
Sept. 1 Paid the cash dividend declared on July 1.
Dec. 1 Declared a 10% stock dividend on common stock when the market value of the stock was $18 per share.
Dec. 15 Declared a 6% cash dividend on preferred stock payable January 15, 2011.
Dec. 31 Determined that net income for the year was $355,000.
Dec. 31 Recognized a $200,000 restriction of retained earnings for plant expansion.

Instructions
(a) Journalize the transactions, events, and closing entry.
(b) Enter the beginning balances in the accounts, and post to the stockholders' equity accounts. (Note: Open additional stockholders' equity accounts as needed.)
(c) Prepare a retained earnings statement for the year.
(d) Prepare a stockholders' equity section at December 31, 2010.

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Monat Construction Company, Inc., entered into a firm fixed price contract with Hyatt Clinic on July 1, 2010 to construct a four-story office building

ACCOUNTING

Monat Construction Company, Inc., entered into a firm fixed price contract with Hyatt Clinic on July 1, 2010, to construct a four-story office building. At that time, Monat estimated that it would take between 2 and 3 years to complete the project. The total contract price for construction of the building is $4,400,000. Monat appropriately accounts for this contract under the completed-contract method in its financial statements and for income tax reporting. The building was deemed substantially completed on December 31, 2012. Estimated percentage of completion, accumulated contract costs incurred, estimated costs to complete the contract, and accumulated billings to the Hyatt Clinic under the contract are shown below.

(a) Prepare schedules to compute the amount to be shown as “Cost of uncompleted contract in excess of related billings” or “Billings on uncompleted contract in excess of related costs” at December 31, 2010, 2011, and 2012. Ignore income taxes. Show supporting computations in good form
(b) Prepare schedules to compute the profit or loss to be recognized as a result of this contract for the years ended December 31, 2010, 2011, and 2012. Ignore income taxes. Show supporting computations in good form

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F. Calvert and G. Powers have capital balances on January 1 of $50,000 and $40,000, respectively

ACCOUNTING

E12-4 F. Calvert and G. Powers have capital balances on January 1 of $50,000 and $40,000, respectively. The partnership income-sharing agreement provides for (1) annual salaries of $20,000 for Calvert and $12,000 for Powers, (2) interest at 10% on beginning capital balances, and (3) remaining income or loss to be shared 60% by Calvert and 40% by Powers.

Instructions
(a) Prepare a schedule showing the distribution of net income, assuming net income is (1) $50,000 and (2) $36,000.
(b) Journalize the allocation of net income in each of the situations above.

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Courtside Concepts Co. began business on January 2, 2011

ACCOUNTING

24th Edition
Courtside Concepts Co. began business on January 2, 2011. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the month receives half the monthly salary for that month. All required payroll tax reports were filed, and the correct amount of payroll taxes was remitted by the company for the calendar year. Early in 2012, before the Wage and Tax Statements (Form W-2) could be prepared for distribution to employees and for filing with the Social Security Administration, the employees' earnings records were inadvertently destroyed.

None of the employees resigned or were discharged during the year, and there were no changes in salary rates. The social security tax was withheld at the rate of 6.0% and Medicare tax at the rate of 1.5% on salary. Data on dates of employment, salary rates, and employees' income taxes withheld, which are summarized as follows, were obtained from personnel records and payroll records:

Instructions
1. Calculate the amounts to be reported on each employee's Wage and Tax Statement (Form W-2) for 2011 arranging the data in the following form:

Employee Gross Earnings Federal Income Tax Withheld Social Security Tax Withheld Medicare Tax Withheld

2. Calculate the following employer payroll taxes for the year: (a) social security; (b) Medicare; (c) state unemployment compensation at 4.6% on the first $10,000 of each employee's earnings; (d) federal unemployment compensation at 0.8% on the first $10,000 of each employee's earnings; (e) total.

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The current sections of Bellinham Inc.'s balance sheets at December 31, 2009 and 2010, are presented here

ACCOUNTING

The current sections of Bellinham Inc.'s balance sheets at December 31, 2009 and 2010, are presented here.

Bellinham's net income for 2010 was $153,000. Depreciation expense was $24,000.

2010 2009
Current assets
Cash $105,000 $99,000
Accounts receivable 110,000 89,000
Inventory 158,000 172,000
Prepaid expenses 27,000 22,000

Total current assets $400,000 $382,000

Current liabilities
Accrued expenses payable $15,000 $5,000
Accounts payable 85,000 92,000
Total current liabilities $100,000 $97,000

Prepare the net cash provided by operating activities section of the company's statement of cash flows for the year ended December 31, 2010, using the indirect method. (List amounts from largest positive to smallest positive followed by most negative to least negative, e.g. 15, 14, 10, -17, -5, -1. If amount decreases cash flow, use either a negative sign preceding the number eg -45 or parentheses eg (45).)

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The balance in retained earnings on January 1, 2010, for Persinger Inc, was $800,000

ACCOUNTING

The balance in retained earnings on January 1, 2010, for Persinger Inc, was $800,000. During the year, the corporation paid cash dividends of $90,000 and distributed a stock dividend of $8,000. In addition, the company determined that it had understated its depreciation expense in prior years by $50,000. Net income for 2010 was $120,000.

Prepare retained earnings statement for 2010.

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The stockholders' equity section of Jarvis Corporation at December 31 is as follows

ACCOUNTING

The stockholders' equity section of Jarvis Corporation at December 31 is as follows.
JARVIS CORPORATION
Balance Sheet (partial)

Paid-in capital
Preferred stock, cumulative, 10,000 shares authorized, 6,000 shares issued $ 300,000
and outstanding
Common stock, no par, 750,000 shares authorized, 600,000 shares issued 1,200,000

Total paid-in capital 1,500,000
Retained earnings 1,858,000

Total paid-in capital and retained earnings 3,358,000
Less: Treasury stock (10,000 common shares) (64,000)
Total stockholders' equity $3,294,000

Instructions
From a review of the stockholders’ equity section, as chief accountant, write a memo to the president of the company answering the following questions.
(a) How many shares of common stock are outstanding?
(b) Assuming there is a stated value, what is the stated value of the common stock?
(c) What is the par value of the preferred stock?
(d) If the annual dividend on preferred stock is $30,000, what is the dividend rate on preferred stock?
(e) If dividends of $60,000 were in arrears on preferred stock, what would be the balance in Retained Earnings?

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Vargas Corporation is authorized to issue 20,000 shares of $50 par value, 10% Preferred stock and 125,000 shares of $3 par value common stock

ACCOUNTING

Vargas Corporation is authorized to issue 20,000 shares of $50 par value, 10% Preferred stock and 125,000 shares of $3 par value common stock. On January 1, 2010, the ledger contained the following stockholders' equity balances.

Preferred Stock (10,000 shares) $500,000
Paid-in Capital in Excess of Par Value-Preferred 75,000
Common Stock (70,000 shares) 210,000
Paid-in Capital in Excess of Par Value-Common 700,000
Retained Earnings 300,000

During 2010, the following transactions occurred.

Feb. 1 Issued 2,000 shares of preferred stock for land having a fair market value of $125,000.
Mar. 1 Issued 1,000 shares of preferred stock for cash at $65 per share.
July 1 Issued 16,000 shares of common stock for cash at $7 per share.
Sept. 1 Issued 400 shares of preferred stock for a patent. The asking price of the patent was $30,000. Market values were preferred stock $70 and patent indeterminable.
Dec. 1 Issued 8,000 shares of common stock for cash at $7.50 per share.
Dec. 31 Net income for the year was $260,000. No dividends were declared.

Instructions
(a) Journalize the transactions and the closing entry for net income.
(b) Enter the beginning balances in the accounts, and post the journal entries to the stockholders’ equity accounts. (Use J2 for the posting reference.)
(c) Prepare a stockholders’ equity section at December 31, 2010.

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Piedmont Fasteners Corporation: The president wanted to know the break-even point for each of the company's products

ACCOUNTING

The president wanted to know the break-even point for each of the company's products. Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:

VELCRO METAL NYLON
Normal annual sales volume 100,000 200,000 400,000
Unit selling price 1.65 1.50 0.80
Variable cost per unit 1.25 0.70 0.25
*Total fixed expenses are $400,000 per year.

All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers. The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories.

Required:
1. What is the company’s over-all break-even point in total sales dollars?
2. Of the total fixed costs of $400,000, $20,000 could be avoided if the Velcro product were dropped, $80,000 if the Metal product were dropped, and $60,000 if the Nylon product were dropped. The remaining fixed costs of $240,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.
a. What is the break-even point in units for each product?
b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Explain this result.

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BYP1-7 Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year

ACCOUNTING

Ethics Case

BYP1-7 Wayne Terrago, controller for Robbin Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him—advertising. During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell whether the advertising campaign was successful. There had been much internal debate as how to report advertising cost. The vice president of finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. Terrago believed that this cost should be reported as an expense of the current period, based on the conservatism principle. Others argued that it should be reported as Prepaid Advertising and reported as a current asset.

The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community.

Instructions
1. Who are the stakeholders in this situation?
2. What are the ethical issues involved in this situation?
3. What would you do if you were Wayne Terrago?

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Delaware Bay Chemical Company produces three products: ethylene, butane, and ester

ACCOUNTING

PR 25-6A Delaware Bay Chemical Company produces three products: ethylene, butane, and ester. Each of these products has high demand in the market, and Delaware Bay Chemical is able to sell as much as it can produce of all three. The reaction operation is a bottleneck in the process and is running at 100% of capacity. Delaware Bay wants to improve chemical operation profitability. The variable conversion cost is $7 per process hour. The fixed cost is $550,000. In addition, the cost analyst was able to determine the following information about the three products:

AND SO ON

The reaction operation is part of the total process for each of these three products. Thus, for example, 1.0 of the 3 hours required to process ethylene are associated with the reactor.

Instructions
1. Determine the unit contribution margin for each product.
2. Provide an analysis to determine the relative product profitabilities, assuming that the reactor is a bottleneck.
3. Assume that management wishes to improve profitability by increasing prices on selected products. At what price would ethylene and ester need to be offered in order to produce the same relative profitability asbutane?

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Integrative Case 3: Encore International

FINANCE

Integrative Case 3: Encore International

In the world of trendsetting fashion, instinct and marketing savvy are prerequisites to success. Jordan Ellis had both. During 2012, his international casual-wear company, Encore, rocketed to $300 million in sales after 10 years in business. His fashion line covered the young woman from head to toe with hats, sweaters, dresses, blouses, skirts, pants, sweatshirts, socks, and shoes. In Manhattan, there was an Encore shop every five or six blocks, each featuring a different color. Some shops showed the entire line in mauve, and others featured it in canary yellow.

AND SO ON

Contrary to the conservative securities analysts, Jordan Ellis felt that the company could maintain a constant annual growth rate in dividends per share of 6% in the future, or possibly 8% for the next 2 years and 6% thereafter. Ellis based his estimates on an established longterm expansion plan into European and Latin American markets. Venturing into these markets
was expected to cause the risk of the firm, as measured by beta, to increase immediately from 8.8% to 10%.

AND SO ON

Data Item 2012
Earning Per Share $6.25
Price per share of common stock $40.00
Book value of common stock equity $60,000,000
Total common shares outstanding 2,500,000
Common stock dividend per share $4.00

TO DO
a. What is the firm’s current book value per share?
b. What is the firm’s current P/E ratio?
AND SO ON
f. Compare the current(2012) price of the stock and the stock values found in parts a, d, and e. Discuss why these values may differ. Which valuation method do you believe most clearly represents the true value of the Encore stock?

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Jeff Zengel is a financial consultant to Rae Properties Inc., a real estate syndicate

ACCOUNTING

SA 21-1 Jeff Zengel is a financial consultant to Rae Properties Inc., a real estate syndicate. Rae Properties Inc. finances and develops commercial real estate (office buildings). The completed projects are then sold as limited partnership interests to individual investors. The syndicate makes a profit on the sale of these partnership interests. Jeff provides financial information for the offering prospectus, which is a document that provides the financial and legal details of the limited partnership offerings. In one of the projects, the bank has financed the construction of a commercial office building at a rate of 8% for the first four years, after which time the rate jumps to 12% for the remaining 21 years of the mortgage. The interest costs are one of the major ongoing costs of a real estate project.

Jeff has reported prominently in the prospectus that the break-even occupancy for the first four years is 60%. This is the amount of office space that must be leased to cover the interest and general upkeep costs over the first four years. The 60% break-even is very low and thus communicates a low risk to potential investors. Jeff uses the 60% break-even rate as a major marketing tool in selling the limited partnership interests.

Buried in the fine print of the prospectus is additional information that would allow an astute investor to determine that the break-even occupancy will jump to 90% after the fourth year because of the contracted increase in the mortgage interest rate. Jeff believes prospective investors are adequately informed as to the risk of the investment.

Comment on the ethical considerations of this situation.

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The director of marketing for Eclipse Computer Co., Lori Keller, had the following discussion with the company controller, Deon Johnson, on July 26 of

ACCOUNTING

SA 22-1 The director of marketing for Eclipse Computer Co., Lori Keller, had the following discussion with the company controller, Deon Johnson, on July 26 of the current year:

Lori: Deon, it looks like I’m going to spend much less than indicated on my July budget.
Deon: I’m glad to hear it.
Lori: Well, I’m not so sure it’s good news. I’m concerned that the president will see that I’m under budget and reduce my budget in the future. The only reason that I look good is that we’ve delayed an advertising campaign. Once the campaign hits in September, I’m sure my actual expenditures will go up. You see, we are also having our sales convention in September. Having the advertising campaign and the convention at the same time is going to kill my September numbers.
Deon: I don’t think that’s anything to worry about. We all expect some variation in actual spending month to month. What’s really important is staying within the budgeted targets for the year. Does that look as if it’s going to be a problem?
Lori: I don’t think so, but just the same, I’d like to be on the safe side.
Deon: What do you mean?
Lori: Well, this is what I’d like to do. I want to pay the convention-related costs in advance this month. I’ll pay the hotel for room and convention space and purchase the airline tickets in advance. In this way, I can charge all these expenditures to July’s budget. This would cause my actual expenses to come close to budget for July. Moreover, when the big advertising campaign hits in September, I won’t have to worry about expenditures for the convention on my September budget as well. The convention costs will already be paid. Thus, my September expenses should be pretty close to budget.
Deon: I can’t tell you when to make your convention purchases, but I’m not too sure that it should be expensed on July’s budget.
Lori: What’s the problem? It looks like “no harm, no foul” to me. I can’t see that there’s anything wrong with this—it’s just smart management.

How should Deon Johnson respond to Lori Keller’s request to expense the advanced payments for convention-related costs against July’s budget?

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In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock

ACCOUNTING

P16-2A In January 2010, the management of Noble Company concludes that it has sufficient cash to permit some short-term investments in debt and stock securities. During the year, the following transactions occurred.

Feb. 1 Purchased 600 shares of Hiens common stock for $31,800, plus brokerage fees of $600.
Mar. 1 Purchased 800 shares of Pryce common stock for $20,000, plus brokerage fees of $400.
Apr. 1 Purchased 50 $1,000, 7% Roy bonds for $50,000, plus $1,000 brokerage fees. Interest is payable semiannually on April 1 and October 1.
July 1 Received a cash dividend of $0.60 per share on the Hiens common stock.
Aug. 1 Sold 200 shares of Hiens common stock at $58 per share less brokerage fees of $200.
Sept. 1 Received a $1 per share cash dividend on the Pryce common stock.
Oct. 1 Received the semiannual interest on the Roy bonds.
Oct. 1 Sold the Roy bonds for $50,000 less $1,000 brokerage fees.

At December 31, the fair value of the Hiens common stock was $55 per share. The fair value of the Pryce common stock was $24 per share.

Hint: Journalize investment transactions, prepare adjusting entry, and show statement presentation.

Instructions
(a) Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T-account form.)
Gain on stock sale $600
(b) Prepare the adjusting entry at December 31, 2010, to report the investment securities at fair value. All securities are considered to be trading securities.
(c) Show the balance sheet presentation of investment securities at December 31, 2010.
(d) Identify the income statement accounts and give the statement classification of each account.

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You are auditing payroll for the Goodview Manufacturing company for the year ended September 30, 2009

ACCOUNTING

Auditing P 8-32 You are auditing payroll for the Goodview Manufacturing company for the year ended September 30, 2009. Included next are amounts from the clients trial balance, along with comparative audited information for the prior year.

AND SO ON

You have obtained the following information to help you perform preliminary analytical procedures for the payroll account balances.

1. There has been a significant increase in the demand for Goodview's products. The increase in sales was due to both an increase in the average selling price of 10% and an increase in units sold that resulted from the increased demand and an increased marketing effort.
2. Even though sales volume increased there was no addition of executives, factory supervisors, or office personnel.
3. All employees including executives, but excluding commission salespeople, received a 3% salary increase starting October 1, 2008. Commission salespeople receive their increased compensation through the increase in sales.
4. The increased number of factory hourly employees was accomplished by recalling employees that had been laid off. They receive the same wage rate as existing employees. Goodview does not permit overtime.
5. Commission salespeople receive a 6% commission on all sales on which a commission is given. Approximately 78% of sales earn sales commission. The other 25% are "call-ins", for which no commission is given. Commissions are paid in the month following the month they are earned.

Required:
a. Use the final balances for the prior year and the information in items 1 thru 5 to develop an expected value for each account included on the preceding page, except sales.
b. Calculate the difference between your expectation and the client's recorded amount a percentage using the formula (expected value-recorded amount)/expected value.

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Analytical procedures are an important part of the audit process and consist of the evaluation of financial information by the study of plausible

ACCOUNTING

Auditing P 8-31 Analytical procedures are an important part of the audit process and consist of the evaluation of financial information by the study of plausible relationships among financial and nonfinancial data. Analytical procedures may be done during planning, as a substantive test, or as a part of the overall review of an audit.

The following are various statements regarding the use of analytical procedures:
1. Not required during this stage.
2. Should focus on enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit date.
3. Should focus on identifying areas that may represent specific risks relevant to the audit.
4. Do not result in detection of misstatements.
5. Designed to obtain evidential matter about particular assertions related to account balances or classes of transactions.
6. Generally use data aggregated at a lower level than the other stages.
7. Should include reading the financial statements and notes to consider the adequacy of evidence gathered.
8. Involve reconciliation of confirmation replies with recorded book amounts.
9. Use the preliminary or unadjusted working trial balance as a source of data.
10. Expected to result in a reduced level of detection risk.

Required
For each of the 10 statements, select the stage of the audit for which the statement is most accurate using the following responses:
1. Planning the audit
2. Substantive testing
3. Overall review
4. Statement is not correct concerning analytical procedures.*

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Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2011

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P 19-15

Information from the financial statements of Henderson-Niles Industries included the following at December 31, 2011:

Henderson-Niles' net income for the year ended December 31, 2011, is $520 million. The income tax rate is 40%. Henderson-Niles paid dividends of $2 per share on its preferred stock during 2011.

Required:
Compute basic and diluted earnings per share for the year ended December 31, 2011.

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P19-14 Required: Compute Dow's basic and diluted earnings per share for the year ended December 31, 2011

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P 19-14

In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2011, was $2,100,000. The income tax rate is 40%.

As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows:

The market price of the common stock averaged $32 per share during 2011.

On July 12, 2009, Dow issued $800,000 of convertible 10% bonds at face value. Each $1,000 bond is convertible into 30 common shares (adjusted for the stock dividend).

Required:
Compute Dow's basic and diluted earnings per share for the year ended December 31, 2011.

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P19-13 On December 31, 2010, Dow Steel Corporation had 600,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible

ACCOUNTING

P 19-13

(Note: This is a variation of the previous problem, modified to include stock options.)

On December 31, 2010, Dow Steel Corporation had 600,000 shares of common stock and 300,000 shares of 8%, noncumulative, nonconvertible preferred stock issued and outstanding. Dow issued a 4% common stock dividend on May 15 and paid cash dividends of $400,000 and $75,000 to common and preferred shareholders, respectively, on December 15, 2011.

On February 28, 2011, Dow sold 60,000 common shares. In keeping with its long-term share repurchase plan, 2,000 shares were retired on July 1. Dow's net income for the year ended December 31, 2011, was $2,100,000. The income tax rate is 40%.

As part of an incentive compensation plan, Dow granted incentive stock options to division managers at December 31 of the current and each of the previous two years. Each option permits its holder to buy one share of common stock at an exercise price equal to market value at the date of grant and can be exercised one year from that date. Information concerning the number of options granted and common share prices follows:

The market price of the common stock averaged $32 per share during 2011.

Required:
Compute Dow's earnings per share for the year ended December 31, 2011.

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

ACCOUNTING

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

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

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McEntire Corporation began operations on January 1, 2007

ACCOUNTING

McEntire Corporation began operations on January 1, 2007. During its first 3 years of operations, McEntire reported net income and declared dividends as follows.

Year - Net Income - Dividends declared
2007 - $40,000 - $ -0
2008 -125,000 -50,000
2009 - 160,000 - 50,000

The following information relates to 2010.

Income before income tax $220,000
Prior period adjustment: understatement of 2008 depreciation expense (before taxes) $ 25,000
Cumulative decrease in income from change in inventory methods (before taxes) $ 45,000
Dividends declared (of this amount, $25,000 will be paid on Jan. 15, 2011) $100,000
Effective tax rate 40%

Instructions
(a) Prepare a 2010 retained earnings statement for McEntire Corporation.
(b) Assume McEntire Corp. restricted retained earnings in the amount of $70,000 on December 31, 2010. After this action, what would McEntire report as total retained earnings in its December 31, 2010, balance sheet?

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P19-16 Alciatore Company earned a net income of $150,000 in 2011

ACCOUNTING

P 19-16 Alciatore Company earned a net income of $150,000 in 2011. The weighted-average number of common shares outstanding for 2011 was 40,000. The average stock price for 2011 was $33. Assume an income tax rate of 40%.

Required:
For each of the following independent situations, indicate whether the effect of the security is antidilutive for diluted EPS.
1. 10,000 shares of 7.7% of $100 par convertible, cumulative preferred stock. Each share may be converted into two common shares.
2. 8% convertible 10-year, $500,000 of bonds, issued at face value. The bonds are convertible to 5,000 shares of common stock.
3. Stock options exercisable at $30 per share after January 1, 2013.
4. Warrants for 1,000 common shares with an exercise price of $35 per share.
5. A contingent agreement to issue 5,000 shares of stock to the company president if net income is at least $125,000 in 2012.

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Distinguish between a strategic plan and a tactical plan. How are these two plans related?

ACCOUNTING

8-3 Distinguish between a strategic plan and a tactical plan. How are these two plans related?

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Differentiate between the operating and financial budgets that are contained in a master budget. Why are both types needed?

ACCOUNTING

8-5 Differentiate between the operating and financial budgets that are contained in a master budget. Why are both types needed?

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Why is it important for a foreign national to ascertain whether he or she is a resident of the United States?

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C:16-2 Why is it important for a foreign national to ascertain whether he or she is a resident of the United States?

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During the current year, Manuel, a nonresident alien, conducts a U.S. business

ACCOUNTING

C:16-17 During the current year, Manuel, a nonresident alien, conducts a U.S. business. He earns $100,000 in sales commissions and $25,000 of interest income. What factor(s) do U.S. taxing authorities consider to determine whether the interest is investment income not subject to U.S. taxation or business income subject to U.S. taxation?

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What advantages does a cash method taxpayer gain by electing to accrue foreign taxes for foreign tax credit purposes?

ACCOUNTING

C:16-8 What advantages does a cash method taxpayer gain by electing to accrue foreign taxes for foreign tax credit purposes?

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Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z

ACCOUNTING

C:16-39 Translation of Foreign Tax Payments.

Arnie, a U.S. citizen who uses the calendar year as his tax year and the cash method of accounting, operates a sole proprietorship in Country Z. In Year 1, he reports 500,000 doubles of pretax profits. On June 1 of Year 2, he pays Country Z income taxes of 150,000 doubles for calendar Year 1. Double-U.S. dollar exchange rates on various dates in Year 1 and Year 2 are as follows:

December 31, Year 1 4.00 doubles $1 (U.S.)
Year 1 average 3.75 doubles $1 (U.S.)
June 1, Year 2 4.25 doubles $1 (U.S.)

a. What is the U.S. dollar amount of Arnie’s foreign tax credit? In what year can Arnie claim the credit?
b. How would your answer to Part a change if Arnie elected to accrue his foreign income taxes on December 31 of Year 1, and filed his Year 1 U.S. income tax return on April 15 of Year 2?
c. What adjustment to the credit claimed in Part b would Arnie have to make when he pays his Country Z taxes on June 1 of Year 2?

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The following are various activities an auditor does during audit planning

ACCOUNTING

Auditing P 8-28
The following are various activities an auditor does during audit planning:
1. Send an engagement letter to the client.
2. Tour the client's plant and offices.
3. Compare key ratios for the company to industry competitors.
4. Review managements risk management controls and procedures.
5. Identify potential related parties that may require disclosure.
6. Identify whether any specialists are required for the engagement.
7. Review accounting principles unique to the clients industry.
8. Determine the likely users of the financial statements.

Required:
For each procedure, indicate which of the first four parts of audit planning the procedure primarily relates to:
1. accept client and perform initial audit planning;
2. understand the clients business and industry;
3. assess client business risk;
4. perform preliminary analytical procedures.

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6-7 On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds

ACCOUNTING

6-7 On July 1, a city issued, at par, $100 million in percent, twenty year general obligation bonds. It established a debt service fund to account for resources set aside to pay interest rates. In the year that it issued the debt, the city engaged in the following transactions involving the debt service fund.

1. It estimated that it would make interest payments of $3 million and have interest earnings of $30,000 from investments. It would transfer from the general fund to the debt service fund$2.97 million to pay interest and $500,000 to provide for the payment of principal when the bonds mature. Further, as required by the bond indentures, it would transfer $1 million of the bond proceeds from the capital projects fund to the debt service fund to be held in reserve until the debt matures.
2. Upon issuing the bonds, the city transferred $1 million of the bond proceeds from the capital projects fund. It invested $977,254 of the funds in twenty – year, 6 percent Treasury bonds that had a face value of $1 million. The bond discount of $22,746 reflected an effective yield rate of 6.2 percent.
3. On December 31, the city received $30,000 interest on the Treasury bonds. This payment represented interest for six months. Correspondingly, the market value of the bonds increased by $294, reflecting the amortization of the discount.
4. On the same day the city transferred $2.97 million from the general fund to pay interest on the bonds that it had issued. It also transferred $500,000 for the eventual repayment of principal.
5. Also on December 31, it made its first interest payment of $3 million to bondholders.

a. Prepare appropriate journal entries in the debt service fund, including budgetary and closing entries.
b. The bonds issued by the city pay interest at the rate of 6 percent. The bonds in which the city invested its reserve have an effective yield of 6.2 percent. What might the differences in rates create a potential liability for the city?

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List two examples of audit evidence the auditor can use in support of each of the following

ACCOUNTING

Auditing P 7-31

List two examples of audit evidence the auditor can use in support of each of the following:
a. Recorded amount of entries in the acquisitions journal
b. Physical existence of inventory
c. Accuracy of accounts receivable
d. Ownership of fixed assets
e. Liability for accounts payable
f. Obsolescence of inventory
g. Existence of petty cash

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Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial

ACCOUNTING

Auditing P 7-37

Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. They range from simple comparisons to the use of complex models involving many relationships and elements of data. They involve comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by the auditors.

a. Describe the broad purposes of analytical procedures.
b. When are analytical procedures required during an audit Explain why auditors use analytical procedures extensively in all parts of the audit.
c. Describe the factors that influence the extent to which an auditor will use the results of analytical procedures to reduce detailed tests in meeting audit objectives.

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Eight different types of evidence were discussed. The following questions concern the reliability of that evidence

ACCOUNTING

Auditing P 7-32

Eight different types of evidence were discussed. The following questions concern the reliability of that evidence:
a. Explain why confirmations are normally more reliable evidence than inquiries of the client.
b. Describe a situation in which confirmation will be considered highly reliable and another in which it will not be reliable.
c. Under what circumstances is the physical observation of inventory considered relatively unreliable evidence
d. Explain why recalculation tests are highly reliable but of relatively limited use.
e. Give three examples of relatively reliable documentation and three examples of less reliable documentation. What characteristics distinguish the two
f. Give several examples in which the qualifications of the respondent or the qualifications of the auditor affect the reliability of the evidence.
g. Explain why analytical procedures are important evidence even though they are relatively unreliable by themselves.

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In 2011, Bantham County incurred $80 million in costs to construct a new highway

ACCOUNTING

P7-8 If governments do not preserve their infrastructure assets, they must depreciate them.

In 2011, Bantham County incurred $80 million in costs to construct a new highway. Engineers, estimate that the useful life of the highway is 20 years.

AND SO ON

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How does a product's life cycle stage influence production cost management?

ACCOUNTING

How does a product's life cycle stage influence production cost management?

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What is the balanced scorecard? What perspectives are considered in selecting performance measures for the balanced scorecard

ACCOUNTING

What is the balanced scorecard? What perspectives are considered in selecting performance measures for the balanced scorecard, and why is each of these perspectives important?

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Mountain Mist Inc.'s cost of capital is 11 percent

ACCOUNTING

Mountain Mist Inc.’s cost of capital is 11 percent. In 2010, one of the firm’s divisions generated an EVA of $1,130,000. The fair market value of the capital investment in that division was $29,500,000. How much after-tax income was generated by the division in 2010?

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Evergreen Industries operates a chain of lumber stores

ACCOUNTING

Evergreen Industries operates a chain of lumber stores. In 2010, corporate management examined industry-level data and determined the following performance targets for lumber retail stores:

Asset turnover 1.9
Profit margin 7.0%

The actual 2010 results for the company’s lumber retail stores are as follows:

Total assets at the beginning of year $10,200,000
Total assets at end of year 12,300,000
Sales 28,250,000
Operating expenses 25,885,000

a. For 2010, how did the lumber retail stores perform relative to their industry norms?
b. Which, as indicated by the performance measures, are the most likely areas to improve performance in the retail lumber stores?
c. What are the advantages and disadvantages of setting a performance target at the start of the year compared with one that is determined at the end of the year based on actual industry performance?

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Utah Utensil has developed a new kitchen utensil

ACCOUNTING

Utah Utensil has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sales of the new product:

Year Expected Volume Expected Price per Unit
1 48,000 units $19
2 48,000 units 20
3 90,000 units 16
4 40,000 units 12

If the firm desires to net $3.50 per unit in profit over the life of the product, and selling and administrative expenses are expected to average $50,000 per year, what is the target cost to produce the new utensil?

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On October 10, 2010, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment

ACCOUNTING

On October 10, 2010, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment. Under the terms of the agreement, the equipment may be purchased now or Mason may wait until January 10, 2011, to make the purchase. The cost of the equipment is $400,000. It will be financed by a note bearing interest at the market rate. Straight-line depreciation over a 10-year life will be used for book purposes. A double-declining balance over seven years will be used for tax purposes. (One-half year of depreciation will be taken in the year of purchase regardless of the date of purchase.)

Required:
a. Discuss the financial statement impacts of postponing the purchase of the equipment. Would the market price of the firm’s common stock be affected by any or all of these impacts? Do not assume in your discussion that the postponement will affect revenues or any operating costs other than depreciation.
b. Discuss any cash flow impacts related to postponing the purchase of the equipment.
c. Efficient markets assume that stockholder wealth is affected by the amount and timing of cash flows. Which alternative is more favorable to them: purchasing before year-end or waiting until January? Explain your answer.

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Xcaliber manufactures high-end flatware

ACCOUNTING

Xcaliber manufactures high-end flatware. One of the crucial processes in flatware production is polishing. The company normally operates three polishing machines to maintain pace with the upstream and downstream production operations. However, one to the polishing machines broke yesterday, and management has been informed that the machine will not be back in operation until repairs are completed in three weeks. Two machines cannot keep the pace with the volume of products flowing to the polishing operation. You have been hired as a consultant to improve the throughput of the polishing operation. Discuss the tactics you would recommend Xcaliber to employ for handling the capacity limitation.

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Grande Stores is a large discount catalog department store chain

ACCOUNTING

Auditing P 7-41 Grande Stores is a large discount catalog department store chain. The company has recently expanded from 6 to 43 stores by borrowing from several large financial institutions and from a public offering of common stock. A recent investigation has disclosed that Grande materially overstated net income. This was accomplished by understating accounts payable and recording fictitious supplier credits that further reduced accounts payable. An SEC investigation was critical of the evidence gathered by Grandes audit firm, Montgomery & Ross, in testing accounts payable and the supplier credits.

The following is a description of some of the fictitious supplier credits and unrecorded amounts in accounts payable, as well as the audit procedures.

AND SO ON

Required:
Identify deficiencies in the sufficiency and appropriateness of the evidence gathered in the audit of accounts payable of Grande Stores.

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When would you advise a firm to use direct intervention to set transfer prices? What are the disadvantages of such a practice?

ACCOUNTING

When would you advise a firm to use direct intervention to set transfer prices? What are the disadvantages of such a practice?

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How does EVA differ from residual income?

ACCOUNTING

How does EVA differ from residual income?

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The following data reflect the current month’s activity for Sills, Inc

ACCOUNTING

Variable cost variances

The following data reflect the current month’s activity for Sills, Inc.:

Actual total direct labor …………………………………………………………. $546,000
Actual hours worked ……………………………………………………………… 26,000
Standard labor-hours allowed for actual output (flexible budget)…. 27,000
Direct labor price variance ……………………………………………………. $ 19,500 U
Actual variable overhead …………………………………………………………. $132,000
Standard variable overhead rate per standard direct labor-hour ……. $ 5.25

Variable overhead is applied based on standard direct labor-hours allowed.

Required:
Compute the labor and variable overhead price and efficiency variances.

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Information on Carney Company's fixed overhead costs follows

ACCOUNTING

Fixed Cost Variances

Information on Carney Company's fixed overhead costs follows:

Overhead applied............. $360,000
Actual overhead............... 385,500
Budgeted overhead.......... 369,000

Required:
What are the fixed overhead price and production volume variances?

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16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000

ACCOUNTING

16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.

a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?

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Farmer Frank's produces items from local farm products and distributes them to supermarkets

ACCOUNTING

Ethics and Standard Costs

Farmer Frank’s produces items from local farm products and distributes them to supermarkets. Over the years, price competition has become increasingly important, so Susan Kramer, the company’s controller, is planning to implement a standard cost system for Farmer Frank’s. She asked her cost accountant, Margaret Chang, to gather cost information on the production of blueberry preserves (Farmer Frank’s most popular product). Margaret reported that blueberries cost $.75 per quart, the price she intends to pay to her good friend who has been operating a blueberry farm that has been unprofitable for the last few years. Because of an oversupply in the market, the price for blueberries has dropped to $.60 per quart. Margaret is sure that the $.75 price will be enough to pull her friend’s farm out of the red and into the black.

Required:

Is Margaret’s behavior regarding the cost information she provided to Susan unethical? Explain your answer.

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16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following

ACCOUNTING

16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.

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P 7-38 You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule

ACCOUNTING

Auditing P 7-38 You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule.

AND SO ON

Required:
a. List the deficiencies in the audit schedule.
b. For each deficiency, state how the audit schedule could be improved.
c. Prepare an improved audit schedule, using an electronic spreadsheet software program. Include an indication of the audit work done as well as the analysis of the client data.

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Deep Blue manufactures floatation vests in Charleston, South Carolina

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Deep Blue manufactures floatation vests in Charleston, South Carolina. Deep Blue’s contribution margin income statement for the most recent month contains the following:

Sales in units ….. 31,000
Sales revenue….. $434,000
Variable expenses:
Manufacturing…………………………. 186,000
Marketing and administrative….. 110,000
Total variable expenses……………. 296,000
Contribution margin….. ......................…...138,000
Fixed expenses:
Manufacturing….. ……….130,000
Marketing and administrative…..92,000
Total fixed expenses……………….222,000
Operating income (loss)…………...$84000

Suppose Boats-n-more wishes to buy 4,600 vest from deep blue. Acceptance of the order will not increase Deep Blue’s variable marketing and administrative expenses. The Deep Blue has enough unused capacity to manufacture the additional vest. Boats-n-more has an offer of $5 per vest, which is below the normal sale price of $14.

Requirement
1. Prepare an increment analysis to determine whether or not Deep Blue should accept the special sales order.
2. Identify long term factors Deep Blue should consider in deciding whether to accept the special sales order.

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E6-1: A government opts to set aside $10 million of general fund resources to finance a new city hall

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E. 6-1
1. A government opts to set aside $10 million of general fund resources to finance a new city hall. Construction is expected to begin in several years, when the city has been able to accumulate additional resources.

2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and should

3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should

4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue

5. Which of the following accounts is least likely to be shown on the balance sheet of a debt service fund?

6. Special assessment debt should be reported on the balance sheet of a city if the debt is to be paid from assessments on property owners and

7. In its fund statements a government should recognize revenue from special assessments

8. In the year it imposes a special assessment, a government should recognize in its government-wide statements

9. Under existing federal statutes, arbitrage as it applies to state and local governments

10. Bond refunding are most likely to result in an economic gain when

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Q1: If two service departments service the same number of departments, which service department's costs are allocated first when using the step method

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1. If two service departments service the same number of departments, which service department's costs are allocated first when using the step method?

2. Which of the following service department cost allocation methods is most widely used by manufacturing companies?

3. Which of the following statements is (are) false regarding the effective use of management control systems.
(A) In general, cost allocations should not be used in management control systems because clear control over the cost being allocated cannot be determined.
(B) The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.

4. The amount of resources used in an activity-based costing (ABC) system for a specific activity is computed by multiplying the:

5. Which of the following statements is false?

6. In general, the first budget prepared is the

7. Relative performance evaluations (RPE) are not designed to

8. Which of the following items would be classified as a batch-level cost in an activity-based cost management (ABM) system?

9. Which of the following activities is most likely to be classified as value-added for a manufacturing company?

10. The unused resource capacity is the difference between the resources supplied and the resources

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3-12 Following are transactions and events of the General Fund of the City of Springfield for the fiscal year ended December 30, 2012

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3-12 Following are transactions and events of the General Fund of the City of Springfield for the fiscal year ended December 30, 2012.

1. Estimated revenues (legally budgeted)
Property taxes $5,000,000
Sales taxes 4,000,000
Licenses and permits 1,500,000
Miscellaneous 500,000

2. Appropriations
General government 5,000,000
Culture and recreation 4,500,000
Health and welfare 1,000,000

3. Revenues received (cash)
Property taxes $4,783,541
Sales taxes 4,501,009
Licenses and permits 1,700,000
Miscellaneous 800,000

4. Encumbrances issued (includes salaries and other recurring items)
Estimated
General government 5,100,000
Culture and recreation 4,650,000
Health and welfare 905,000

5. Goods and services received (paid in cash)
Estimated Actual
General government 5,100,000 $5,035,450
Culture and recreation 4,650,000 4,610,000
Health and welfare 905,000 891,550

6. Budget revisions
Increase appropriations:
General government $100,000
Culture and recreation 150,000

7. Fund balance-Unrestricted on January 1 , 2012, was $735,000. There were no outstanding encumbrances at that date.

A. Record the transactions using the appropriate journal entries.
B. Prepare a budgetary comparison schedule for the General Fund.

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BE 5-1 On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000

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BE 5-1 On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000. The book value of the land on Apache's books was $1,200,000. Terms of the sale required a down payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due on each July 1 beginning in 2012. Apache has no significant obligations to perform services after the sale. How much gross profit will Apache recognize in both 2011 and 2012 applying the cost recovery method?

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7-13 The City of Sweetwater maintains an Employees’ Retirement Fund, a single-employer, defined benefit plan that provides annuity and disability

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7-13 The City of Sweetwater maintains an Employees’ Retirement Fund, a single-employer, defined benefit plan that provides annuity and disability benefits. The fund is financed by actuarially determined contributions from the city’s General Fund and by contributions from employees. Administration of the retirement fund is handled by General Fund employees, and the retirement fund does not bear any administrative expenses. The Statement of Net Assets for the Employees’ Retirement Fund as of July 1, 2011, is shown here:

CITY OF SWEETWATER
Employees' Retirement Fund
Statement of Net Assets
As of July 1, 2011

Assets
Cash $ 50,000
Accrued interest receivable 135,000
Investments, at fair value:
Bonds 4,500,000
Common stocks 1,300,000
Total assets 5,985,000

Liabilities
Accounts payable and accrued expenses 350,000
Net assets held in trust for preparation for benefits $5,635,000

During the year ended June 30, 2012, the following transaction occurred:

The interest receivable on investments was collected in cash.
Member contributions in the amount of $400,000 were received in cash. The city’s General Fund also contributed $600,000 in cash.
Annuity benefits of $700,000 and disability benefits of $150,000 were recorded as liabilities.
Accounts payable and accrued expenses in the amount of $900,000 were paid in cash.
Interest income of $240,000 and dividends in the amount of $40,000 were received in cash. In addition, bond interest income of $140,000 was accrued at year-end.
Refunds of $130,000 were made in cash to terminated, nonvested participants.
Common stocks, carried at a fair value of $500,000, were sold for $480,000. That $480,000, plus an additional $300,000, was invested in stocks.
At year-end, it was determined that the fair value of stocks held by the pension plan had decreased by $50,000; the fair value of bonds had increased by $30,000.
Nominal accounts for the year were closed.

a.) Record the transactions on the books of the Employees’ Retirement Fund.
b.) Prepared a Statement of Changes in Net Assets for the Employees’ Retirement Fund for the Year Ended June 30, 2012.
c.) Prepare a Statement of Net Assets for the Employees’ Retirement Fund as of June 30, 2012.

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