ACCOUNTING
4-56 (Analytical Review and Planning the Audit) The following table contains calculations of several key ratios for Indianola Pharmaceutical Company, a maker of proprietary and prescription drugs. The company is publicly held and is considered a small-to medium-size pharmaceutical company. Approximately 80% of its sales have been in prescription drugs; the remaining 20% are in medical supplies normally found in a drugstore. The primary purpose of the auditor’s calculations is to identify potential risk areas for the upcoming audit. The auditor recognizes that some of the data may signal the need to gather other industry- or company-specific data.
A number of the company’s drugs are patented. Its number-one selling drug, Anecillin, which will come off of patent in two years, has accounted for approximately 20% of the company's sales ‘during the past five years.
INDIANOLA PHARMACEUTICAL RATIO ANALYSIS
Ratio Current One Year Two Years Three Years Current
Year Previous Previous Previous Industry
Current ratio -----1.85 1.89 2.28 2.51 2.13
Quick ratio ------------------------------- 0.85 0.93 1.32 1.76 1.40
Interest coverage:
Times Interest earned------------------- 1.30 1.45 5.89 6.3 4.50
Days’ sales in receivables-------------- 109 96 100 72 69
Inventory turnover---------------------- 2.40 2.21 3.96 5.31 4.33
Days’ sales in inventory---------------- 152 165 92 69 84
Research & development as a
Percent of sales -------------------------- 1.3 1.4 1.94 2.03 4.26
Cost of goods sold as percent
Of sales------------------------------------ 38.5 40.2 41.2 43.8 44.5
Debt/equity ratio------------------------- 4.85 4.88 1.25 1.13 1.25
Earnings per share----------------------- $1.12 $2.50 $4.32 $4.26 n/a
Sales/tangible assets--------------------- 0.68 0.64 0.89 0.87 0.99
Sales/total assets------------------------- 0.33 0.35 0.89 0.87 0.78
Sales growth over past year---- 3% 15% 2% 4% 6%
Required
a. What major conclusions regarding financial reporting risk can be drawn from the information show in the table? Be specific in identifying specific account balances that have a high risk of misstatement. State how that risk analysis will be used in planning the audit. Be very specific in your answer. You should identify a minimum of four financial reporting risks that should be addressed during the audit and how they should be addressed.
b. What other critical background information might you want to obtain as part of the planning of the audit or would you gather during the conduct of the audit? Briefly indicate the probable sources of the information.
c. Based on the information, what major actions did the company take during the immediately preceding year? Explain.
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Sunday, November 13, 2011
Saturday, November 12, 2011
The cash flow statement categorizes like transactions for optimal reporting
ACCOUNTING
E14-13 Classifying items on the indirect statement of cash flows
The cash flow statement categorizes like transactions for optimal reporting.
Requirement:
1. Identify each of the following transactions as one of the following:
• Operating activity (0)
• Investing activity (I)
• Financing activity (F)
• Noncash investing and financing activity (NIF)
• Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (-) cash. The indirect method is used to report cash flows from operating activities.
___ a. Loss on sale of land.
___ b. Acquisition of equipment by issuance of note payable.
___ c. Payment of long-term debt.
___ d. Acquisition of building by issuance of common stock. J
___ e. Increase in salary payable.
___ f. Decrease in inventory.
___ g. Increase in prepaid expenses.
___ h. Decrease in accrued liabilities.
___ i. Cash sale of land.
___ j. Issuance of long-term note payable to borrow cash.
___ k. Depreciation
___ 1. Purchase of treasury stock.
___ m. Issuance of common stock.
___ n. Increase in accounts payable.
___ o. Net income.
___ p. Payment of cash dividend.
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E14-13 Classifying items on the indirect statement of cash flows
The cash flow statement categorizes like transactions for optimal reporting.
Requirement:
1. Identify each of the following transactions as one of the following:
• Operating activity (0)
• Investing activity (I)
• Financing activity (F)
• Noncash investing and financing activity (NIF)
• Transaction that is not reported on the statement of cash flows (N)
For each cash flow, indicate whether the item increases (+) or decreases (-) cash. The indirect method is used to report cash flows from operating activities.
___ a. Loss on sale of land.
___ b. Acquisition of equipment by issuance of note payable.
___ c. Payment of long-term debt.
___ d. Acquisition of building by issuance of common stock. J
___ e. Increase in salary payable.
___ f. Decrease in inventory.
___ g. Increase in prepaid expenses.
___ h. Decrease in accrued liabilities.
___ i. Cash sale of land.
___ j. Issuance of long-term note payable to borrow cash.
___ k. Depreciation
___ 1. Purchase of treasury stock.
___ m. Issuance of common stock.
___ n. Increase in accounts payable.
___ o. Net income.
___ p. Payment of cash dividend.
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Accountants for Johnson, Inc., have assembled the following data for the year ended December 31, 2012
ACCOUNTING
P14-25A Johnson Inc Preparing the statement of cash flows—indirect method
Accountants for Johnson, Inc., have assembled the following data for the year ended December 31, 2012:
December 31,
2012 2011
Current Accounts:
Current assets:
Cash and cash equivalents $ 92,100 $ 17,000
Accounts receivable 64,500 69,200
Inventories 87,000 80,000
Current liabilities:
Accounts payable 57,900 56,200
Income tax payable 14,400 17,100
Transaction Data for 2012:
Issuance of common stock for cash----------------------- $ 40,000
Depreciation expense -------------------------------------- 25,000
Purchase of equipment ------------------------------------- 75,000
Acquisition of land by issuing long-term note payable--- 122,000
Cost basis of building sold---------------------------------- 53,000
Payment of note payable----------------------------------- $48,100
Payment of cash dividends--------------------------------- 54,000
Issuance of note payable to borrow cash----------------- 67,000
Gain on sale of building------------------------------------- 5,500
Net income--------------------------------------------------- 70,500
Requirement
1.Prepare Johnson's statement of cash flows using the indirect method. Include an accompanying schedule of noncash investing and financing activities.
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P14-25A Johnson Inc Preparing the statement of cash flows—indirect method
Accountants for Johnson, Inc., have assembled the following data for the year ended December 31, 2012:
December 31,
2012 2011
Current Accounts:
Current assets:
Cash and cash equivalents $ 92,100 $ 17,000
Accounts receivable 64,500 69,200
Inventories 87,000 80,000
Current liabilities:
Accounts payable 57,900 56,200
Income tax payable 14,400 17,100
Transaction Data for 2012:
Issuance of common stock for cash----------------------- $ 40,000
Depreciation expense -------------------------------------- 25,000
Purchase of equipment ------------------------------------- 75,000
Acquisition of land by issuing long-term note payable--- 122,000
Cost basis of building sold---------------------------------- 53,000
Payment of note payable----------------------------------- $48,100
Payment of cash dividends--------------------------------- 54,000
Issuance of note payable to borrow cash----------------- 67,000
Gain on sale of building------------------------------------- 5,500
Net income--------------------------------------------------- 70,500
Requirement
1.Prepare Johnson's statement of cash flows using the indirect method. Include an accompanying schedule of noncash investing and financing activities.
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Nafari Company's sales budget has the following unit sales projection for each quarter of the calendar year 2011
ACCOUNTING
Nafari Company's sales budget has the following unit sales projection for each quarter of the calendar year 2011.
January -March 1,080,000
April-June 1,360,000
July-September 980,000
October-December 1,100,000
Total 4,520,000
Sales for the first quarter of 2012 are expected to be 1,200,000 units. Ending Inventory of finished goods for each quarter is scheduled to equal 10 percent of next quarter's budgeted sales. The company's ending inventory on December 31, 2010, is estimated at 94,500 units. Develop a quarterly production budget for 2011 and for the year in total.
Assignment Checklist:
1) Prepare the beginning inventory for the first quarter
2) Prepare the budgeted beginning inventory for the second - fourth quarters
3) Prepare the budgeted production for each quarter
4) Prepare the budgeted production for the year
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Nafari Company's sales budget has the following unit sales projection for each quarter of the calendar year 2011.
January -March 1,080,000
April-June 1,360,000
July-September 980,000
October-December 1,100,000
Total 4,520,000
Sales for the first quarter of 2012 are expected to be 1,200,000 units. Ending Inventory of finished goods for each quarter is scheduled to equal 10 percent of next quarter's budgeted sales. The company's ending inventory on December 31, 2010, is estimated at 94,500 units. Develop a quarterly production budget for 2011 and for the year in total.
Assignment Checklist:
1) Prepare the beginning inventory for the first quarter
2) Prepare the budgeted beginning inventory for the second - fourth quarters
3) Prepare the budgeted production for each quarter
4) Prepare the budgeted production for the year
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Friday, November 11, 2011
PR 20-3A Wilmington Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling
ACCOUNTING
PR 20-3A Wilmington Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling Departments, emerging as finished chemicals. The balance in the account Work in Process - Filling was as follows on December 1, 2010:
AND SO ON
INSTRUCTIONS:
1. Prepare a cost of production report for the Filling department for December.
2. Journalize the entries for costs transferred from Reaction to Filling and the cost transferred from filling to finished goods.
3. Determine the increase or decrease in the cost per equivalent unit from November to December for direct materials and conversion costs.
4. Discuss the uses of the cost of production report and the results of part (3).
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PR 20-3A Wilmington Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling Departments, emerging as finished chemicals. The balance in the account Work in Process - Filling was as follows on December 1, 2010:
AND SO ON
INSTRUCTIONS:
1. Prepare a cost of production report for the Filling department for December.
2. Journalize the entries for costs transferred from Reaction to Filling and the cost transferred from filling to finished goods.
3. Determine the increase or decrease in the cost per equivalent unit from November to December for direct materials and conversion costs.
4. Discuss the uses of the cost of production report and the results of part (3).
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PR 20-2A Venus Chocolate Company processes chocolate into candy bars
ACCOUNTING
PR 20-2A Venus Chocolate Company processes chocolate into candy bars. The process begins by placing direct materials (raw chocolate, milk, and sugar) into the Blending Department. All materials are placed into production at the beginning of the blending process. After blending, the milk chocolate is then transferred to the Molding Department, where the milk chocolate is formed into candy bars. The following is a partial work in process account of the Blending Department at January 31, 2010:
Account Work In Process--Blending Department ACCT NO.
Date Item debit credit Balance Jan. Debit Credit
1 Bal.,6,000 units, %completed 21,840
31 Direct Materials,240,000 units 768,000(debit) 789,840
31 Direct Labor 153,200(debit) 943,040
31 Factory Overhead 38,160(debit) 981,200
31 Goods transferred, 242,000units ?(credit)
31 Bal.,?units,1/5 completed ?
INSTRUCTIONS:
1. Prepare a cost of production report, and identify the missing amounts for Work in Process - Blending Department.
2. Assuming that the January 1 work in process inventory includes direct materials of $18,600, determine the increase or decrease in the cost per equivalent unit for direct materials and conversion between December and January.
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PR 20-2A Venus Chocolate Company processes chocolate into candy bars. The process begins by placing direct materials (raw chocolate, milk, and sugar) into the Blending Department. All materials are placed into production at the beginning of the blending process. After blending, the milk chocolate is then transferred to the Molding Department, where the milk chocolate is formed into candy bars. The following is a partial work in process account of the Blending Department at January 31, 2010:
Account Work In Process--Blending Department ACCT NO.
Date Item debit credit Balance Jan. Debit Credit
1 Bal.,6,000 units, %completed 21,840
31 Direct Materials,240,000 units 768,000(debit) 789,840
31 Direct Labor 153,200(debit) 943,040
31 Factory Overhead 38,160(debit) 981,200
31 Goods transferred, 242,000units ?(credit)
31 Bal.,?units,1/5 completed ?
INSTRUCTIONS:
1. Prepare a cost of production report, and identify the missing amounts for Work in Process - Blending Department.
2. Assuming that the January 1 work in process inventory includes direct materials of $18,600, determine the increase or decrease in the cost per equivalent unit for direct materials and conversion between December and January.
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PR 20-1A Cincinnati Soap Company manufactures powdered detergent. Phosphate is placed in process in the Making Department, where it is turned into
ACCOUNTING
PR 20-1A Cincinnati Soap Company manufactures powdered detergent. Phosphate is placed in process in the Making Department, where it is turned into granulars. The output of Making is transferred to the Packing Department, where packaging is added at the beginning of the process. On December 1, Cincinnati Soap Company had the following inventories:
Finished Goods $12,300
Work in Process - Making 4,780
Work in Process - Packing 6,230
Materials 2,700
Departmental accounts are maintained for factory overhead, which both have zero balances on December 1. Manufacturing operations for December are summarized as follows:
AND SO ON
INSTRUCTIONS
1. Journalize the entries to record the operations, identifying each entry by letter.
2. Compute the December 31 balances of inventory accounts.
3. Compute the December 31 balances of the factory overhead accounts.
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PR 20-1A Cincinnati Soap Company manufactures powdered detergent. Phosphate is placed in process in the Making Department, where it is turned into granulars. The output of Making is transferred to the Packing Department, where packaging is added at the beginning of the process. On December 1, Cincinnati Soap Company had the following inventories:
Finished Goods $12,300
Work in Process - Making 4,780
Work in Process - Packing 6,230
Materials 2,700
Departmental accounts are maintained for factory overhead, which both have zero balances on December 1. Manufacturing operations for December are summarized as follows:
AND SO ON
INSTRUCTIONS
1. Journalize the entries to record the operations, identifying each entry by letter.
2. Compute the December 31 balances of inventory accounts.
3. Compute the December 31 balances of the factory overhead accounts.
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PR21-4A Last year, Douthett Inc. had sales of $2,400,000, based on a unit selling price of $600
ACCOUNTING
PR21-4A Last year, Douthett Inc. had sales of $2,400,000, based on a unit selling price of $600. The variable cost per unit is $440, and fixed costs were $544,000. The maximum sales within Douthett's relevant range are 5,000 units. Douthett is considering a proposal to spend an additional $80,000 on billboard advertising during the current year in an attempt to increase sales and utilize and unused capacity.
INSTRUCTIONS:
1. Construct a cost volume profit chart indicating the break-even sales for last year. Verify your answer, using the break-even equation.
2. Using the cost volume profit chart prepared in part (1) determine (a) the income from operations for last year and (b) the maximum income from operations that could have been realized during the year. Verify your answers arithmetically.
3. Construct a cost volume profit chart indicating the break even sales for the current year, assuming that a noncancelable contract is signed price or other costs. Verify your answer, using the break-even equation.
4. Using the cost volume profit chart prepared in part (3), determine (a)the income from operations if sales total 4,00 units and (b) the maximum income from operations that could be realized during the year. Verify your answers arithmetically.
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PR21-4A Last year, Douthett Inc. had sales of $2,400,000, based on a unit selling price of $600. The variable cost per unit is $440, and fixed costs were $544,000. The maximum sales within Douthett's relevant range are 5,000 units. Douthett is considering a proposal to spend an additional $80,000 on billboard advertising during the current year in an attempt to increase sales and utilize and unused capacity.
INSTRUCTIONS:
1. Construct a cost volume profit chart indicating the break-even sales for last year. Verify your answer, using the break-even equation.
2. Using the cost volume profit chart prepared in part (1) determine (a) the income from operations for last year and (b) the maximum income from operations that could have been realized during the year. Verify your answers arithmetically.
3. Construct a cost volume profit chart indicating the break even sales for the current year, assuming that a noncancelable contract is signed price or other costs. Verify your answer, using the break-even equation.
4. Using the cost volume profit chart prepared in part (3), determine (a)the income from operations if sales total 4,00 units and (b) the maximum income from operations that could be realized during the year. Verify your answers arithmetically.
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PR21-5A Data related to the expected sales of snowboards and skis for Winter Sports Inc. for the current year, which is typical of recent years
ACCOUNTING
PR 21-5A Data related to the expected sales of snowboards and skis for Winter Sports Inc. for the current year, which is typical of recent years, are as follows:
Snowboards $250.00 $170.00 40%
Skis 340.00 160.00 60%
The estimated fixed costs for the current year are $420,000.
INSTRUCTIONS:
1. Determine the estimated units of sales of the overall product necessary to reach the break even point for the current year.
2. Based on the break even sales (units) in part (1), determine the unit sales of both snowboards and skis for the current year.
3. Assume that the sales mix was 60% snowboards and 40% skis. Compare the break even point with that in part (1). Why is it so different?
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PR 21-5A Data related to the expected sales of snowboards and skis for Winter Sports Inc. for the current year, which is typical of recent years, are as follows:
Snowboards $250.00 $170.00 40%
Skis 340.00 160.00 60%
The estimated fixed costs for the current year are $420,000.
INSTRUCTIONS:
1. Determine the estimated units of sales of the overall product necessary to reach the break even point for the current year.
2. Based on the break even sales (units) in part (1), determine the unit sales of both snowboards and skis for the current year.
3. Assume that the sales mix was 60% snowboards and 40% skis. Compare the break even point with that in part (1). Why is it so different?
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PR 22-3A The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager
ACCOUNTING
PR 22-3A The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January 2010.
a. Estimated sales for January:
Batting helmet 3,700 units at $70 per unit
Football helmet 7,200 units at $142 per unit
AND SO ON
INSTRUCTIONS:
1. Prepare a sales budget for January.
2. Prepare a production budget for January.
3. Prepare a direct materials purchases budget for January.
4. Prepare a direct labor cost budget for January.
5. Prepare a factory overhead cost budget for January.
6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $12,500, and work in process at the end of January is desired to be $13,500.
7. Prepare a selling and administrative expenses budget for January.
8. Prepare a budgeted income statement for January.
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PR 22-3A The budget director of Heads Up Athletic Co., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January 2010.
a. Estimated sales for January:
Batting helmet 3,700 units at $70 per unit
Football helmet 7,200 units at $142 per unit
AND SO ON
INSTRUCTIONS:
1. Prepare a sales budget for January.
2. Prepare a production budget for January.
3. Prepare a direct materials purchases budget for January.
4. Prepare a direct labor cost budget for January.
5. Prepare a factory overhead cost budget for January.
6. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be $12,500, and work in process at the end of January is desired to be $13,500.
7. Prepare a selling and administrative expenses budget for January.
8. Prepare a budgeted income statement for January.
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PR 22-4A The controller of Dash Shoes Inc. instructs you to preapre a monthly cash budget for the next three months
ACCOUNTING
PR 22-4A The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
June July August
Sales 120,000 150,000 200,000
Manufacturing costs 50,000 65,000 72,000
Selling & admin exp 35,000 40,000 45,000
Capital expenditures ---- --- 48,000
AND SO ON
INSTRUCTIONS:
1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2010.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
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PR 22-4A The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
June July August
Sales 120,000 150,000 200,000
Manufacturing costs 50,000 65,000 72,000
Selling & admin exp 35,000 40,000 45,000
Capital expenditures ---- --- 48,000
AND SO ON
INSTRUCTIONS:
1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2010.
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
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C:16-41 (Foreign Tax Credit Limitation) Tucson, a U.S. corporation organized in Year 1, reports the following items for a three-year period
ACCOUNTING
C:16-41 Foreign Tax Credit Limitation. Tucson, a U.S. corporation organized in Year 1, reports the following items for a three-year period.
Foreign tax accrual $ 100,000 $ 120,000 $ 180,000
Foreign source taxable income 400,000 300,000 500,000
Worldwide taxable income 1,000,000 1,000,000 1,000,000
The foreign source and worldwide taxable income items are determined under U.S. law.
a. What is Tucson’s foreign tax credit limitation for each of the three years (assume a 34% U.S. corporate tax rate and that income from all foreign activities fall into a single basket)?
b. How are Tucson’s excess foreign tax credits (if any) treated? Do any carryovers remain after Year 3?
c. How would your answers to Parts a and b change if the IRS determines that $100,000 of expenses allocable to U.S.-source income should have been allocable to foreign source income?
d. What measures should Tucson consider if it expects its current excess foreign tax credit position to persist in the long-run?
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C:16-41 Foreign Tax Credit Limitation. Tucson, a U.S. corporation organized in Year 1, reports the following items for a three-year period.
Foreign tax accrual $ 100,000 $ 120,000 $ 180,000
Foreign source taxable income 400,000 300,000 500,000
Worldwide taxable income 1,000,000 1,000,000 1,000,000
The foreign source and worldwide taxable income items are determined under U.S. law.
a. What is Tucson’s foreign tax credit limitation for each of the three years (assume a 34% U.S. corporate tax rate and that income from all foreign activities fall into a single basket)?
b. How are Tucson’s excess foreign tax credits (if any) treated? Do any carryovers remain after Year 3?
c. How would your answers to Parts a and b change if the IRS determines that $100,000 of expenses allocable to U.S.-source income should have been allocable to foreign source income?
d. What measures should Tucson consider if it expects its current excess foreign tax credit position to persist in the long-run?
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C:16-44 (Foreign-Earned Income Exclusion) Dillon, a U.S. citizen, resides in Country K for all of 2010
ACCOUNTING
C:16-44 Foreign-Earned Income Exclusion. Dillon, a U.S. citizen, resides in Country K for all of 2010. Dillon is married, files a joint return and claims two personal exemptions. The following items pertain to his 2010 activities:
Salary and allowances (other than for housing) a $175,000
Housing allowance 28,000
Employment-related expenses b 7,500
Housing costs 30,000
Other itemized deductions 4,000
Country K income taxes 12,000
a) All of Dillon’s salary and allowances are attributable to services performed in Country K.
b) Dillon claims the employment-related expenses as itemized deductions.
What is Dillon’s net U.S. tax liability for 2010 (assume that Dillon excludes his earned income and housing cost amount)?
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C:16-44 Foreign-Earned Income Exclusion. Dillon, a U.S. citizen, resides in Country K for all of 2010. Dillon is married, files a joint return and claims two personal exemptions. The following items pertain to his 2010 activities:
Salary and allowances (other than for housing) a $175,000
Housing allowance 28,000
Employment-related expenses b 7,500
Housing costs 30,000
Other itemized deductions 4,000
Country K income taxes 12,000
a) All of Dillon’s salary and allowances are attributable to services performed in Country K.
b) Dillon claims the employment-related expenses as itemized deductions.
What is Dillon’s net U.S. tax liability for 2010 (assume that Dillon excludes his earned income and housing cost amount)?
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A U.S. manufacturer wants to conduct business through a foreign subsidiary organized in a low tax jurisdiction
ACCOUNTING
A U.S. manufacturer wants to conduct business through a foreign subsidiary organized in a low tax jurisdiction. How might it do so without being currently taxed on the subsidiary’s foreign earnings?
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A U.S. manufacturer wants to conduct business through a foreign subsidiary organized in a low tax jurisdiction. How might it do so without being currently taxed on the subsidiary’s foreign earnings?
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ACC 225 Final Project: Comprehensive Problem-Perpetual (P07D and Given P07D) Denney Enterprises
ACCOUNTING
ACC 225 Week 9
Use the spreadsheet in Course Materials named Final Project to complete the problems. Use the tabs labeled P07D and Given P07D.
Inv. No. Check
Date Description Name or Date No. Terms Amount
Dec. 16 Merchandise sold (cost $4,600) Hanna Seppa 916 2/10, n/30 $7,700
17 Received credit memo on returned merch. Funk Company Dec. 15 1,040
17 Purchased office supplies KK's Supply Company Dec. 16 n/10 EOM 615
18 Received credit memo on returned merch. KK's Supply Company Dec. 17 40
20 Issued credit memo on returned merch. Bo Brown Dec. 15 500
21 Purchased store equipment KK's Supply Company Dec. 21 n/10 EOM 6,700
22 Received payment less discount Hanna Seppa Dec. 12
23 Paid invoice less discount Crossland Company Dec. 15 623
24 Sold merchandise on credit (cost $600) Shilo Jones 917 1,200
24 Paid inv. less discount and return Funk Company Dec. 15 624
25 Received payment less discount and return Bo Brown Dec. 15
26 Purchased merchandise and invoice Crossland Company Dec. 25 2/10, n/60 8,100
29 Sold office supplies for cash at cost 50
30 Issued check to owner for personal use Cadence Denney 625 2,500
31 Check issued for sales salaries Jamie Inman 626 2,020
31 Issued check for electric bill Access Electric Company 627 710
31 Cash sales for last half of month (cost $11,200) 29,600
Check figure: Trial balance totals $219,408
Click here for the SOLUTION
ACC 225 Week 9
Use the spreadsheet in Course Materials named Final Project to complete the problems. Use the tabs labeled P07D and Given P07D.
Inv. No. Check
Date Description Name or Date No. Terms Amount
Dec. 16 Merchandise sold (cost $4,600) Hanna Seppa 916 2/10, n/30 $7,700
17 Received credit memo on returned merch. Funk Company Dec. 15 1,040
17 Purchased office supplies KK's Supply Company Dec. 16 n/10 EOM 615
18 Received credit memo on returned merch. KK's Supply Company Dec. 17 40
20 Issued credit memo on returned merch. Bo Brown Dec. 15 500
21 Purchased store equipment KK's Supply Company Dec. 21 n/10 EOM 6,700
22 Received payment less discount Hanna Seppa Dec. 12
23 Paid invoice less discount Crossland Company Dec. 15 623
24 Sold merchandise on credit (cost $600) Shilo Jones 917 1,200
24 Paid inv. less discount and return Funk Company Dec. 15 624
25 Received payment less discount and return Bo Brown Dec. 15
26 Purchased merchandise and invoice Crossland Company Dec. 25 2/10, n/60 8,100
29 Sold office supplies for cash at cost 50
30 Issued check to owner for personal use Cadence Denney 625 2,500
31 Check issued for sales salaries Jamie Inman 626 2,020
31 Issued check for electric bill Access Electric Company 627 710
31 Cash sales for last half of month (cost $11,200) 29,600
Check figure: Trial balance totals $219,408
Click here for the SOLUTION
ACC 225 Week Nine (Week 9) Version 7
ACCOUNTING
ACC 225 Week Nine (Week 9) Version 7
Final Project
Comprehensive Problem-Perpetual Resources: Final Project Excel File
Complete the Comprehensive Problem-Perpetual. In this project, follow the steps of the accounting cycle to process given transactions in a business environment. Then, synthesize special journals, a trial balance, financial statements, and a post-closing trial balance.
Use the spreadsheet in Course Materials named Final Project to complete the problems. Use the tabs labeled P07D and Given P07D.
SOLUTION
ACC 225 Week Nine (Week 9) Version 7
Final Project
Comprehensive Problem-Perpetual Resources: Final Project Excel File
Complete the Comprehensive Problem-Perpetual. In this project, follow the steps of the accounting cycle to process given transactions in a business environment. Then, synthesize special journals, a trial balance, financial statements, and a post-closing trial balance.
Use the spreadsheet in Course Materials named Final Project to complete the problems. Use the tabs labeled P07D and Given P07D.
SOLUTION
Wednesday, November 9, 2011
Bluma Co. uses a perpetual inventory system and both an accounts receivable and an accounts payable subsidiary ledger
ACCOUNTING
Bluma Co. uses a perpetual inventory system and both an accounts receivable and an accounts payable subsidiary ledger. Balances related to both the general ledger and the subsidiary ledger for Bluma are indicated in the working papers. Presented below are a series of transactions for Bluma Co. for the month of January. Credit sales terms are 2/10, n/30. The cost of all merchandise sold was 60% of the sales price.
Jan. 3 Sell merchandise on account to B. Richey $3,100, invoice no. 510, and to J. Forbes $1,800, invoice no. 511.
5 Purchase merchandise from S. Vogel $5,000 and D. Lynch $2,200, terms n/30.
7 Receive checks from S. LaDew $4,000 and B. Garcia $2,000 after discount period has lapsed.
8 Pay freight on merchandise purchased $235.
9 Send checks to S. Hoyt for $9,000 less 2% cash discount, and to D. Omara for $11,000 less 1% cash discount.
9 Issue credit of $300 to J. Forbes for merchandise returned.
10 Summary daily cash sales total $15,500.
11 Sell merchandise on account to R. Dvorak $1,600, invoice no. 512, and to S. LaDew $900, invoice no. 513.
12 Pay rent of $1,000 for January.
13 Receive payment in full from B. Richey and J. Forbes less cash discounts.
15 Withdraw $800 cash by M. Bluma for personal use.
15 Post all entries to the subsidiary ledgers.
16 Purchase merchandise from D. Omara $18,000, terms 1/10, n/30; S. Hoyt $14,200, terms 2/10, n/30; and S. Vogel $1,500, terms n/30.
17 Pay $400 cash for office supplies.
18 Return $200 of merchandise to S. Hoyt and receive credit.
20 Summary daily cash sales total $20,100.
21 Issue $15,000 note, maturing in 90 days, to R. Moses in payment of balance due.
21 Receive payment in full from S. LaDew less cash discount.
22 Sell merchandise on account to B. Richey $2,700, invoice no. 514, and to R. Dvorak $1,300, invoice no. 515.
22 Post all entries to the subsidiary ledgers.
23 Send checks to D. Omara and S. Hoyt in full payment less cash discounts.
25 Sell merchandise on account to B. Garcia $3,500, invoice no. 516, and to J. Forbes $6,100, invoice no. 517.
27 Purchase merchandise from D. Omara $14,500, terms 1/10, n/30; D. Lynch $1,200, terms n/30; and S. Vogel $5,400, terms n/30.
27 Post all entries to the subsidiary ledgers.
28 Pay $200 cash for office supplies.
31 Summary daily cash sales total $21,300.
31 Pay sales salaries $4,300 and office salaries $3,800.
Instructions
(a) Record the January transactions in a sales journal, a single-column purchases journal, a cash receipts journal as shown on page 313, a cash payments journal as shown on page 318, and a two-column general journal.
(b) Post the journals to the general ledger.
(c) Prepare a trial balance at January 31, 2010, in the trial balance columns of the worksheet. Complete the worksheet using the following additional information.
1. Office supplies at January 31 total $900.
2. Insurance coverage expires on October 31, 2010.
3. Annual depreciation on the equipment is $1,500.
4. Interest of $50 has accrued on the note payable.
TB totals $202,900; Adj. T/B totals $203,075
(d) Prepare a multiple-step income statement and an owner's equity statement for January and a classified balance sheet at the end of January.
Net income $20,755; total assets $143,505
(e) Prepare and post adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
PCTB $145,130
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Bluma Co. uses a perpetual inventory system and both an accounts receivable and an accounts payable subsidiary ledger. Balances related to both the general ledger and the subsidiary ledger for Bluma are indicated in the working papers. Presented below are a series of transactions for Bluma Co. for the month of January. Credit sales terms are 2/10, n/30. The cost of all merchandise sold was 60% of the sales price.
Jan. 3 Sell merchandise on account to B. Richey $3,100, invoice no. 510, and to J. Forbes $1,800, invoice no. 511.
5 Purchase merchandise from S. Vogel $5,000 and D. Lynch $2,200, terms n/30.
7 Receive checks from S. LaDew $4,000 and B. Garcia $2,000 after discount period has lapsed.
8 Pay freight on merchandise purchased $235.
9 Send checks to S. Hoyt for $9,000 less 2% cash discount, and to D. Omara for $11,000 less 1% cash discount.
9 Issue credit of $300 to J. Forbes for merchandise returned.
10 Summary daily cash sales total $15,500.
11 Sell merchandise on account to R. Dvorak $1,600, invoice no. 512, and to S. LaDew $900, invoice no. 513.
12 Pay rent of $1,000 for January.
13 Receive payment in full from B. Richey and J. Forbes less cash discounts.
15 Withdraw $800 cash by M. Bluma for personal use.
15 Post all entries to the subsidiary ledgers.
16 Purchase merchandise from D. Omara $18,000, terms 1/10, n/30; S. Hoyt $14,200, terms 2/10, n/30; and S. Vogel $1,500, terms n/30.
17 Pay $400 cash for office supplies.
18 Return $200 of merchandise to S. Hoyt and receive credit.
20 Summary daily cash sales total $20,100.
21 Issue $15,000 note, maturing in 90 days, to R. Moses in payment of balance due.
21 Receive payment in full from S. LaDew less cash discount.
22 Sell merchandise on account to B. Richey $2,700, invoice no. 514, and to R. Dvorak $1,300, invoice no. 515.
22 Post all entries to the subsidiary ledgers.
23 Send checks to D. Omara and S. Hoyt in full payment less cash discounts.
25 Sell merchandise on account to B. Garcia $3,500, invoice no. 516, and to J. Forbes $6,100, invoice no. 517.
27 Purchase merchandise from D. Omara $14,500, terms 1/10, n/30; D. Lynch $1,200, terms n/30; and S. Vogel $5,400, terms n/30.
27 Post all entries to the subsidiary ledgers.
28 Pay $200 cash for office supplies.
31 Summary daily cash sales total $21,300.
31 Pay sales salaries $4,300 and office salaries $3,800.
Instructions
(a) Record the January transactions in a sales journal, a single-column purchases journal, a cash receipts journal as shown on page 313, a cash payments journal as shown on page 318, and a two-column general journal.
(b) Post the journals to the general ledger.
(c) Prepare a trial balance at January 31, 2010, in the trial balance columns of the worksheet. Complete the worksheet using the following additional information.
1. Office supplies at January 31 total $900.
2. Insurance coverage expires on October 31, 2010.
3. Annual depreciation on the equipment is $1,500.
4. Interest of $50 has accrued on the note payable.
TB totals $202,900; Adj. T/B totals $203,075
(d) Prepare a multiple-step income statement and an owner's equity statement for January and a classified balance sheet at the end of January.
Net income $20,755; total assets $143,505
(e) Prepare and post adjusting and closing entries.
(f) Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.
PCTB $145,130
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The Assembly Department produced 2,000 units of product during June
ACCOUNTING
The Assembly Department produced 2,000 units of product during June. Each unit required 1.5 standard direct labor hours. There were 3,200 actual hours used in the Assembly Department during June at an actual rate of $14.00 per hour. The standard direct labor rate is $15 per hour. Assuming direct labor for a month is paid on the fifth day of the following month, journalize the direct labor in the Assembly Department on June 30.
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The Assembly Department produced 2,000 units of product during June. Each unit required 1.5 standard direct labor hours. There were 3,200 actual hours used in the Assembly Department during June at an actual rate of $14.00 per hour. The standard direct labor rate is $15 per hour. Assuming direct labor for a month is paid on the fifth day of the following month, journalize the direct labor in the Assembly Department on June 30.
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P7-30 The following are examples of audit procedures
ACCOUNTING
Auditing P 7-30 The following are examples of audit procedures:
1. Review the accounts receivable with the credit manager to evaluate their collectibility.
2. Stand by the payroll time clock to determine whether any employee "punches in" more than one time.
3. Count inventory items and record the amount in the audit files.
4. Obtain a letter from the clients attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits.
5. Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate.
6. Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment.
7. Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment.
8. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.
9. Obtain information about internal control by requesting the client to fill out a questionnaire.
10. Trace the total on the cash disbursements journal to the general ledger.
11. Watch employees count inventory to determine whether company procedures are being followed.
12. Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation.
13. Calculate the ratio of sales commission expense to sales as a test of sales commissions.
14. Examine corporate minutes to determine the authorization of the issue of bonds.
15. Obtain a letter from management stating that there are no unrecorded liabilities.
16. Review the total of repairs and maintenance for each month to determine whether any months total was unusually large.
17. Compare a duplicate sales invoice with the sales journal for customer name and amount.
18. Add the sales journal entries to determine whether they were correctly totaled.
19. Make a petty cash count to make sure that the amount of the petty cash fund is intact.
20. Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note.
Required:
Classify each of the preceding items according to the eight types of audit evidence:
1. physical examination 2. confirmation 3. documentation 4. analytical procedures 5. inquiries 6. recalculation 7. reperformance 8. observation
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Auditing P 7-30 The following are examples of audit procedures:
1. Review the accounts receivable with the credit manager to evaluate their collectibility.
2. Stand by the payroll time clock to determine whether any employee "punches in" more than one time.
3. Count inventory items and record the amount in the audit files.
4. Obtain a letter from the clients attorney addressed to the CPA firm stating that the attorney is not aware of any existing lawsuits.
5. Extend the cost of inventory times the quantity on an inventory listing to test whether it is accurate.
6. Obtain a letter from an insurance company to the CPA firm stating the amount of the fire insurance coverage on buildings and equipment.
7. Examine an insurance policy stating the amount of the fire insurance coverage on buildings and equipment.
8. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.
9. Obtain information about internal control by requesting the client to fill out a questionnaire.
10. Trace the total on the cash disbursements journal to the general ledger.
11. Watch employees count inventory to determine whether company procedures are being followed.
12. Examine a piece of equipment to make sure that a major acquisition was actually received and is in operation.
13. Calculate the ratio of sales commission expense to sales as a test of sales commissions.
14. Examine corporate minutes to determine the authorization of the issue of bonds.
15. Obtain a letter from management stating that there are no unrecorded liabilities.
16. Review the total of repairs and maintenance for each month to determine whether any months total was unusually large.
17. Compare a duplicate sales invoice with the sales journal for customer name and amount.
18. Add the sales journal entries to determine whether they were correctly totaled.
19. Make a petty cash count to make sure that the amount of the petty cash fund is intact.
20. Obtain a written statement from a bank stating that the client has $15,671 on deposit and liabilities of $500,000 on a demand note.
Required:
Classify each of the preceding items according to the eight types of audit evidence:
1. physical examination 2. confirmation 3. documentation 4. analytical procedures 5. inquiries 6. recalculation 7. reperformance 8. observation
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P7-29 The following are examples of documentation typically obtained by auditors
ACCOUNTING
Auditing P 7-29 The following are examples of documentation typically obtained by auditors:
1. Vendors invoices
2. General ledgers
3. Bank statements
4. Cancelled payroll checks
5. Payroll time cards
6. Purchase requisitions
7. Receiving reports (documents prepared when merchandise is received)
8. Minutes of board of directors
9. Remittance advices
10. Signed W-4s (Employee's withholding exemption certificates)
11. Signed lease agreements
12. Duplicate copies of bills of lading
13. Subsidiary accounts receivable records
14. Cancelled notes payable
15. Duplicate sales invoices
16. Articles of incorporation
17. Title insurance policies for real estate
18. Notes receivable
Required:
a. Classify each of the preceding items according to type of documentation:(1) internal or (2) external.
b. Explain why external evidence is more reliable than internal evidence.
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Auditing P 7-29 The following are examples of documentation typically obtained by auditors:
1. Vendors invoices
2. General ledgers
3. Bank statements
4. Cancelled payroll checks
5. Payroll time cards
6. Purchase requisitions
7. Receiving reports (documents prepared when merchandise is received)
8. Minutes of board of directors
9. Remittance advices
10. Signed W-4s (Employee's withholding exemption certificates)
11. Signed lease agreements
12. Duplicate copies of bills of lading
13. Subsidiary accounts receivable records
14. Cancelled notes payable
15. Duplicate sales invoices
16. Articles of incorporation
17. Title insurance policies for real estate
18. Notes receivable
Required:
a. Classify each of the preceding items according to type of documentation:(1) internal or (2) external.
b. Explain why external evidence is more reliable than internal evidence.
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Tuesday, November 8, 2011
Case-It Co: The following selected accounts and their current balances appear in the ledger of Case-It Co. for the fiscal year ended November 30, 2010
ACCOUNTING
PR 6-1A The following selected accounts and their current balances appear in the ledger of Case-It Co. for the fiscal year ended November 30, 2010:
Cash $37,700 Sales Returns and Allowances $37,800
Accounts Receivable 111,600 Sale Discounts 19,800
Merchandise Inventory 180,000 Cost of Merchandise Sold 1,926,000
Office Supplies 5,000 Sales Salaries Expense 378,000
Prepaid Ins. 12,000 Advertising Expense 50,900
Office Equipment 115,200 Depreciation Exp - Store Equip 8,300
Accumulated Depreciation - Office Equip 49,500 Misc Selling Expense 2,000
Store Equipment 311,500 Office Salaries Expense 73,800
Accumulated Depreciation - Store Equip 87,500 Rent Expense 39,900
A/P 48,600 Insurance Expense 22,950
Salaries Payable 3,600 Depreciation Expense - Office Equip 16,200
Note Payable (final payment due 2025) 54,000 Office Supplies Expense 1,650
Gina Hennessy, Capital 454,800 Misc Admin Exp 1,900
Gina Hennessy, Drawing 45,000 Interest Expense 4,400
Sales 2,703,600
1. Prepare a multiple-step income statement.
2. Prepare a statement of owner's equity.
3. Prepare a report form of balance sheet, assuming that the current portion of the note payable is $8,000
4. Briefly explain (a) how multiple-step and single-step income statements differ and (b) how report form and account form balance sheets differ.
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PR 6-1A The following selected accounts and their current balances appear in the ledger of Case-It Co. for the fiscal year ended November 30, 2010:
Cash $37,700 Sales Returns and Allowances $37,800
Accounts Receivable 111,600 Sale Discounts 19,800
Merchandise Inventory 180,000 Cost of Merchandise Sold 1,926,000
Office Supplies 5,000 Sales Salaries Expense 378,000
Prepaid Ins. 12,000 Advertising Expense 50,900
Office Equipment 115,200 Depreciation Exp - Store Equip 8,300
Accumulated Depreciation - Office Equip 49,500 Misc Selling Expense 2,000
Store Equipment 311,500 Office Salaries Expense 73,800
Accumulated Depreciation - Store Equip 87,500 Rent Expense 39,900
A/P 48,600 Insurance Expense 22,950
Salaries Payable 3,600 Depreciation Expense - Office Equip 16,200
Note Payable (final payment due 2025) 54,000 Office Supplies Expense 1,650
Gina Hennessy, Capital 454,800 Misc Admin Exp 1,900
Gina Hennessy, Drawing 45,000 Interest Expense 4,400
Sales 2,703,600
1. Prepare a multiple-step income statement.
2. Prepare a statement of owner's equity.
3. Prepare a report form of balance sheet, assuming that the current portion of the note payable is $8,000
4. Briefly explain (a) how multiple-step and single-step income statements differ and (b) how report form and account form balance sheets differ.
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Monday, November 7, 2011
Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs
ACCOUNTING
Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 20x1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.
Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company's practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow.
Direct Materials Used $5,600,000.00
Direct Labor $4,350,000.00
Indirect Material Used $65,000.00
Indirect Labor $2,860,000.00
Factory Depreciation $1,740,000.00
Factory Insurance $59,000.00
Factory Utilities $830,000.00
Selling and Administrative Expenses $2,160,000.00
Total $17,664,000.00
Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced during 20x2 were sold with the exception of job no. 2143, which contained direct material costs of $156,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead to Cost of Goods Sold.
Directions:
1 Calculate the companies predetermined overhead application rate.
2.Calculate the additions to the work-in-process inventory account for the direct material used, direct labor and manufacturing overhead.
3.Calculate the finished goods inventory for the 12/31/x2 balance sheet.
4.Calculate the over-applied or under applied overhead at year end.
5.Explain if it is appropriate to include the selling and administrative expenses within cost of goods sold.
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Finlon Upholstery, Inc. uses a job-order costing system to accumulate manufacturing costs. The company's work-in-process on December 31, 20x1, consisted of one job (no. 2077), which was carried on the year-end balance sheet at $156,800. There was no finished-goods inventory on this date.
Finlon applies manufacturing overhead to production on the basis of direct-labor cost. (The budgeted direct-labor cost is the company's practical capacity, in terms of direct-labor hours, multiplied by the budgeted direct-labor rate.) Budgeted totals for 20x2 for direct labor and manufacturing overhead are $4,200,000 and $5,460,000, respectively. Actual results for the year follow.
Direct Materials Used $5,600,000.00
Direct Labor $4,350,000.00
Indirect Material Used $65,000.00
Indirect Labor $2,860,000.00
Factory Depreciation $1,740,000.00
Factory Insurance $59,000.00
Factory Utilities $830,000.00
Selling and Administrative Expenses $2,160,000.00
Total $17,664,000.00
Job no. 2077 was completed in January 20x2; there was no work in process at year-end. All jobs produced during 20x2 were sold with the exception of job no. 2143, which contained direct material costs of $156,000 and direct-labor charges of $85,000. The company charges any under- or overapplied overhead to Cost of Goods Sold.
Directions:
1 Calculate the companies predetermined overhead application rate.
2.Calculate the additions to the work-in-process inventory account for the direct material used, direct labor and manufacturing overhead.
3.Calculate the finished goods inventory for the 12/31/x2 balance sheet.
4.Calculate the over-applied or under applied overhead at year end.
5.Explain if it is appropriate to include the selling and administrative expenses within cost of goods sold.
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At the beginning of the current season on April 1, the ledger of Wichita Pro Shop showed Cash $2,500; Merchandise Inventory $3,500; and Common Stock
ACCOUNTING
P5-9A At the beginning of the current season on April 1, the ledger of Wichita Pro Shop showed Cash $2,500; Merchandise Inventory $3,500; and Common Stock $6,000. These transactions occurred during April, 2010.
Apr. 5 Purchased golf bags, clubs and balls on account from Roland Co. $1,500, terms 3/10, n/60.
7 Paid freight on Roland Co. purchases $80.
9 Received credit from Roland Co. for merchandise returned $200.
10 Sold merchandise on account to members $910, terms n/30.
12 Purchased golf shoes, sweaters, and other accessories on account from Eagle Sportswear $830, terms 1/10, n/30.
14 Paid Roland Co. in full.
17 Received credit from Eagle Sportswear for merchandise returned $30.
20 Made sales on account to members $810, terms n/30.
21 Paid Eagle Sportswear in full.
27 Granted credit to members for clothing that did not fit $60.
30 Received payments on account from members $1,100.
Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T-accounts, enter the beginning balances in the ledger accounts and post the April transactions
(c) Prepare a trial balance on April 30, 2010.
(d) Prepare an income statement through gross profit.
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P5-9A At the beginning of the current season on April 1, the ledger of Wichita Pro Shop showed Cash $2,500; Merchandise Inventory $3,500; and Common Stock $6,000. These transactions occurred during April, 2010.
Apr. 5 Purchased golf bags, clubs and balls on account from Roland Co. $1,500, terms 3/10, n/60.
7 Paid freight on Roland Co. purchases $80.
9 Received credit from Roland Co. for merchandise returned $200.
10 Sold merchandise on account to members $910, terms n/30.
12 Purchased golf shoes, sweaters, and other accessories on account from Eagle Sportswear $830, terms 1/10, n/30.
14 Paid Roland Co. in full.
17 Received credit from Eagle Sportswear for merchandise returned $30.
20 Made sales on account to members $810, terms n/30.
21 Paid Eagle Sportswear in full.
27 Granted credit to members for clothing that did not fit $60.
30 Received payments on account from members $1,100.
Instructions
(a) Journalize the April transactions using a periodic inventory system.
(b) Using T-accounts, enter the beginning balances in the ledger accounts and post the April transactions
(c) Prepare a trial balance on April 30, 2010.
(d) Prepare an income statement through gross profit.
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Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers
ACCOUNTING
P5-2A Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June the following merchandising transactions occurred.
June 1 Purchased books on account for $960 (including freight) from Barnum Publishers, terms 2/10, n/30.
3 Sold books on account to the Flint Hills bookstore for $1,200 each. The cost of the merchandise sold was $720.
6 Received $60 credit for books returned to Barnum Publishers.
9 Paid Barnum Publishers in full.
15 Received payment in full from the Flint Hills bookstore.
17 Sold books on account to Town Crier Bookstore for $1,400. The cost of the merchandise sold was $840.
20 Purchased books on account for $720 from Good Book Publishers, terms 1/15, n/30.
24 Received payment in full from Town Crier Bookstore.
26 Paid Good Book Publishers in full.
28 Sold books on account to HomeTown Bookstore for $1,300. The cost of the merchandise sold was $780.
30 Granted HomeTown Bookstore $150 credit for books returned costing $90.
Instructions
Journalize the transactions for the month of June for Goldenrod Warehouse, using a perpetual inventory system.
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P5-2A Goldenrod Warehouse distributes hardback books to retail stores and extends credit terms of 2/10, n/30 to all of its customers. During the month of June the following merchandising transactions occurred.
June 1 Purchased books on account for $960 (including freight) from Barnum Publishers, terms 2/10, n/30.
3 Sold books on account to the Flint Hills bookstore for $1,200 each. The cost of the merchandise sold was $720.
6 Received $60 credit for books returned to Barnum Publishers.
9 Paid Barnum Publishers in full.
15 Received payment in full from the Flint Hills bookstore.
17 Sold books on account to Town Crier Bookstore for $1,400. The cost of the merchandise sold was $840.
20 Purchased books on account for $720 from Good Book Publishers, terms 1/15, n/30.
24 Received payment in full from Town Crier Bookstore.
26 Paid Good Book Publishers in full.
28 Sold books on account to HomeTown Bookstore for $1,300. The cost of the merchandise sold was $780.
30 Granted HomeTown Bookstore $150 credit for books returned costing $90.
Instructions
Journalize the transactions for the month of June for Goldenrod Warehouse, using a perpetual inventory system.
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For the past several years, Sara Keith has operated a part-time consulting business from her home
ACCOUNTING
ACC 1800 – Accounting Procedures
Fall 2011 - Comprehensive Problem
For the past several years, Sara Keith has operated a part-time consulting business from her home. As of June 1, 2011, Sara decided to move to rented quarters and to operate the business, which was to be known as S&K Consulting, on a full-time basis. S&K Consulting entered into the following transactions during June:
June 1 The following assets were received from Sara Keith: cash, $20,000; accounts receivable, $4,500; supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
June 1 Paid three month’s rent on a lease contract, $6,000.
June 2 Paid the annual premiums on property and casualty insurance policies, $2,400.
June 4 Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $2,700.
June 5 Purchased additional office equipment on account, $3,500.
June 6 Received cash from clients on account, $3,000.
June 10 Paid cash for a newspaper advertisement, $200.
June 12 Paid for part of the debt incurred on June 5, $750.
June 12 Recorded services provided on account for the period June 1-12, $5,100.
June 14 Paid part-time receptionist for two weeks’ salary, $1,100.
June 17 Recorded cash from clients for fees earned for the period June 1-16, $6,500.
June 18 Paid cash for supplies, $750.
June 20 Recorded services provided on account for the period June 13-20, $3,100.
June 24 Recorded cash from cash clients for fees earned for the period June 17-24, $5,150.
June 26 Received cash from clients on account, $6,900.
June 27 Paid part-time receptionist for two weeks’ salary, $1,100.
June 29 Paid telephone bill for June, $150.
June 29 Paid electricity bill for June, $400.
June 30 Recorded cash from cash clients for fees earned for the period June 25-30, $2,500.
June 30 Recorded services provided on account for the remainder of June, $1,100.
June 30 Sara withdrew $5,000 for personal use.
Instructions:
1. Journalize each transaction in a two-column journal, referring to the following chart of accounts in selecting the accounts to be debited and credited.
11 Cash 31 Sara Keith, Capital
12 Accounts Receivable 32 Sara Keith, Withdrawals
14 Supplies 41 Service Revenue
15 Prepaid Rent 51 Salary Expense
16 Prepaid Insurance 52 Rent Expense
18 Office Equipment 53 Supplies Expense
19 Accumulated Depreciation 54 Depreciation Expense
21 Accounts Payable 55 Insurance Expense
22 Salaries Payable 59 Miscellaneous Expense
23 Unearned Service Revenue
2. Open T-accounts and post the journal entries to the T-accounts.
3. Complete a worksheet at end of June using the following adjustment data:
a. Insurance expired during June is $200.
b. Supplies on hand on June 30 are $650.
c. Depreciation of office equipment for June is $250.
d. Accrued receptionist salary on June 30 is $220.
e. Rent expired during June is $2,000.
f. Unearned service revenue on June 30 is $1,875.
4. Prepare an income statement, a statement of owner’s equity and a balance sheet.
5. Journalize and post the adjusting entries.
6. Journalize and post the closing entries.
7. Compute final balances in each T-account.
8. Prepare the post-closing trial balance.
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ACC 1800 – Accounting Procedures
Fall 2011 - Comprehensive Problem
For the past several years, Sara Keith has operated a part-time consulting business from her home. As of June 1, 2011, Sara decided to move to rented quarters and to operate the business, which was to be known as S&K Consulting, on a full-time basis. S&K Consulting entered into the following transactions during June:
June 1 The following assets were received from Sara Keith: cash, $20,000; accounts receivable, $4,500; supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
June 1 Paid three month’s rent on a lease contract, $6,000.
June 2 Paid the annual premiums on property and casualty insurance policies, $2,400.
June 4 Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $2,700.
June 5 Purchased additional office equipment on account, $3,500.
June 6 Received cash from clients on account, $3,000.
June 10 Paid cash for a newspaper advertisement, $200.
June 12 Paid for part of the debt incurred on June 5, $750.
June 12 Recorded services provided on account for the period June 1-12, $5,100.
June 14 Paid part-time receptionist for two weeks’ salary, $1,100.
June 17 Recorded cash from clients for fees earned for the period June 1-16, $6,500.
June 18 Paid cash for supplies, $750.
June 20 Recorded services provided on account for the period June 13-20, $3,100.
June 24 Recorded cash from cash clients for fees earned for the period June 17-24, $5,150.
June 26 Received cash from clients on account, $6,900.
June 27 Paid part-time receptionist for two weeks’ salary, $1,100.
June 29 Paid telephone bill for June, $150.
June 29 Paid electricity bill for June, $400.
June 30 Recorded cash from cash clients for fees earned for the period June 25-30, $2,500.
June 30 Recorded services provided on account for the remainder of June, $1,100.
June 30 Sara withdrew $5,000 for personal use.
Instructions:
1. Journalize each transaction in a two-column journal, referring to the following chart of accounts in selecting the accounts to be debited and credited.
11 Cash 31 Sara Keith, Capital
12 Accounts Receivable 32 Sara Keith, Withdrawals
14 Supplies 41 Service Revenue
15 Prepaid Rent 51 Salary Expense
16 Prepaid Insurance 52 Rent Expense
18 Office Equipment 53 Supplies Expense
19 Accumulated Depreciation 54 Depreciation Expense
21 Accounts Payable 55 Insurance Expense
22 Salaries Payable 59 Miscellaneous Expense
23 Unearned Service Revenue
2. Open T-accounts and post the journal entries to the T-accounts.
3. Complete a worksheet at end of June using the following adjustment data:
a. Insurance expired during June is $200.
b. Supplies on hand on June 30 are $650.
c. Depreciation of office equipment for June is $250.
d. Accrued receptionist salary on June 30 is $220.
e. Rent expired during June is $2,000.
f. Unearned service revenue on June 30 is $1,875.
4. Prepare an income statement, a statement of owner’s equity and a balance sheet.
5. Journalize and post the adjusting entries.
6. Journalize and post the closing entries.
7. Compute final balances in each T-account.
8. Prepare the post-closing trial balance.
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Sunday, November 6, 2011
The Sharpe Corporation's projected sales for the first eight months of 2004 are as follows
FINANCE
4-6A (Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2004 are as follows:
January $90,000 February $120,000
March $135,000 April $240,000
May $300,000 June $270,000
July $225,000 August $150,000
Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sales, and 30 percent is collected in the second month following sales. November and December sales for 2003 were $220,000 and $175,000, respectively. Sharpe purchases its raw material two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchase for April sales are made in February and payment is made in March. In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March. The company’s cash balance at December 31, 2003, was $22,000; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cast balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if he month of April the firm expects to have a need for additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x ½ x $60,500) owed for April and paid at the beginning of May.
A. Prepare a cash budget for Sharpe covering the first seven months of 2004.
B. Sharpe has a $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?
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4-6A (Cash budget) The Sharpe Corporation’s projected sales for the first eight months of 2004 are as follows:
January $90,000 February $120,000
March $135,000 April $240,000
May $300,000 June $270,000
July $225,000 August $150,000
Of Sharpe’s sales, 10 percent is for cash, another 60 percent is collected in the month following sales, and 30 percent is collected in the second month following sales. November and December sales for 2003 were $220,000 and $175,000, respectively. Sharpe purchases its raw material two months in advance of its sales equal to 60 percent of their final sales price. The supplier is paid one month after it makes delivery. For example, purchase for April sales are made in February and payment is made in March. In addition, Sharpe pays $10,000 per month for rent and $20,000 each month for other expenditures. Tax prepayments of $22,500 are made each quarter, beginning in March. The company’s cash balance at December 31, 2003, was $22,000; a minimum balance of $15,000 must be maintained at all times. Assume that any short-term financing needed to maintain the cast balance is paid off in the month following the month of financing if sufficient funds are available. Interest on short-term loans (12 percent) is paid monthly. Borrowing to meet estimated monthly cash needs takes place at the beginning of the month. Thus, if he month of April the firm expects to have a need for additional $60,500, these funds would be borrowed at the beginning of April with interest of $605 (.12 x ½ x $60,500) owed for April and paid at the beginning of May.
A. Prepare a cash budget for Sharpe covering the first seven months of 2004.
B. Sharpe has a $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?
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The Pyramid Construction Company has used the completed-contract method of accounting for construction contracts during its first two years
ACCOUNTING
P 20-2 Change in principle; change in method of accounting for long-term construction
The Pyramid Construction Company has used the completed-contract method of accounting for construction contracts during its first two years of operation, 2009 and 2010. At the beginning of 2011, Pyramid decided to change to the percentage-of-completion method for both tax and financial reporting purposes. The following table presents information concerning the change for 2009–2011. The income tax rate for all years is 40%.
Pyramid issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $10,000 cash dividends were paid in both 2010 and 2011.
Required:
1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.)
2. Prepare the 2011–2010 comparative income statements beginning with income before income taxes.
3. Prepare the 2011–2010 comparative statements of shareholders' equity. (Hint: The 2009 statements reported retained earnings of $36,000. This is $60,000 − [$60,000 × 40%].
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P 20-2 Change in principle; change in method of accounting for long-term construction
The Pyramid Construction Company has used the completed-contract method of accounting for construction contracts during its first two years of operation, 2009 and 2010. At the beginning of 2011, Pyramid decided to change to the percentage-of-completion method for both tax and financial reporting purposes. The following table presents information concerning the change for 2009–2011. The income tax rate for all years is 40%.
Pyramid issued 50,000 $1 par, common shares for $230,000 when the business began, and there have been no changes in paid-in capital since then. Dividends were not paid the first year, but $10,000 cash dividends were paid in both 2010 and 2011.
Required:
1. Prepare the journal entry to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account.)
2. Prepare the 2011–2010 comparative income statements beginning with income before income taxes.
3. Prepare the 2011–2010 comparative statements of shareholders' equity. (Hint: The 2009 statements reported retained earnings of $36,000. This is $60,000 − [$60,000 × 40%].
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C:11-37 Determination of Pass-Throughs and Stock Basis Adjustments. Mike and Nancy are equal shareholders in MN Corporation, an S corporation
ACCOUNTING
C:11-37 Determination of Pass-Throughs and Stock Basis Adjustments
Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholders have no loans to the corporation. The corporation incurred the following items in the current year:
Sales $300,000
Cost of goods sold 140,000
Dividends on corporate investments 10,000
Tax-exempt interest income 3,000
Section 1245 gain (recapture) on equipment sale 22,000
Section 1231 gain on equipment sale 12,000
Long-term capital gain on stock sale 8,000
Long-term capital loss on stock sale 7,000
Short-term capital loss on stock sale 6,000
Depreciation 18,000
Salary to Nancy 20,000
Meals and entertainment expenses 7,800
Interest expense on loans allocable to:
Business debt 32,000
Stock investments 6,400
Tax-exempt bonds 1,800
Principal payment on business loan 9,000
Charitable contributions 2,000
Distributions to shareholders ($15,000 each) 30,000
a. Compute the S corporation’s ordinary income and separately stated items.
b. Show Mike’s and Nancy’s shares of the items in Part a.
c. Compute Mike’s and Nancy’s ending stock bases assuming their beginning balances are $100,000 each. When making basis adjustments, apply the adjustments in the order outlined on pages C:11-24 and C:11-25 of the text.
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C:11-37 Determination of Pass-Throughs and Stock Basis Adjustments
Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholders have no loans to the corporation. The corporation incurred the following items in the current year:
Sales $300,000
Cost of goods sold 140,000
Dividends on corporate investments 10,000
Tax-exempt interest income 3,000
Section 1245 gain (recapture) on equipment sale 22,000
Section 1231 gain on equipment sale 12,000
Long-term capital gain on stock sale 8,000
Long-term capital loss on stock sale 7,000
Short-term capital loss on stock sale 6,000
Depreciation 18,000
Salary to Nancy 20,000
Meals and entertainment expenses 7,800
Interest expense on loans allocable to:
Business debt 32,000
Stock investments 6,400
Tax-exempt bonds 1,800
Principal payment on business loan 9,000
Charitable contributions 2,000
Distributions to shareholders ($15,000 each) 30,000
a. Compute the S corporation’s ordinary income and separately stated items.
b. Show Mike’s and Nancy’s shares of the items in Part a.
c. Compute Mike’s and Nancy’s ending stock bases assuming their beginning balances are $100,000 each. When making basis adjustments, apply the adjustments in the order outlined on pages C:11-24 and C:11-25 of the text.
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You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31
ACCOUNTING
ACC 225 P07-05A
You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31. The company’s previous accountant journalized its transactions through December 15 and posted all items that required posting as individual amounts (see the journals and ledgers in the Working Papers). The company’s transactions beginning on December 16 follow (terms for all its credit sales are 2/10, n/30):
Dec. 16 Sold merchandise on credit to Hanna Seppa, Invoice No. 916, for $7,700 (cost is $4,600).
17 Received a $1,040 credit memorandum from Funk Company for the return of merchandise received on December 15.
AND SO ON
31 Issued Check No. 626 to Jamie Inman, the company’s only sales employee, in payment of her $2,020 salary for the last half of December.
31 Issued Check No. 627 to Access Electric Company in payment of its $710 December electric bill.
31 Cash sales for the last half of the month are $29,600 (cost is $11,200). (Cash sales are recorded daily but are recorded only twice in this problem to reduce repetitive entries.)
Required
1. Record these transactions in the journals provided in the working papers.
2. Verify that amounts that should be posted as individual amounts to the general ledger accounts have been posted, including posting to the customer and creditor accounts. (Such items are immediately posted.) Foot and crossfoot the journals and make the month-end postings.
3. Prepare a December 31 trial balance and prove the accuracy of the subsidiary ledgers by preparing schedules of both accounts receivable and accounts payable.
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ACC 225 P07-05A
You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31. The company’s previous accountant journalized its transactions through December 15 and posted all items that required posting as individual amounts (see the journals and ledgers in the Working Papers). The company’s transactions beginning on December 16 follow (terms for all its credit sales are 2/10, n/30):
Dec. 16 Sold merchandise on credit to Hanna Seppa, Invoice No. 916, for $7,700 (cost is $4,600).
17 Received a $1,040 credit memorandum from Funk Company for the return of merchandise received on December 15.
AND SO ON
31 Issued Check No. 626 to Jamie Inman, the company’s only sales employee, in payment of her $2,020 salary for the last half of December.
31 Issued Check No. 627 to Access Electric Company in payment of its $710 December electric bill.
31 Cash sales for the last half of the month are $29,600 (cost is $11,200). (Cash sales are recorded daily but are recorded only twice in this problem to reduce repetitive entries.)
Required
1. Record these transactions in the journals provided in the working papers.
2. Verify that amounts that should be posted as individual amounts to the general ledger accounts have been posted, including posting to the customer and creditor accounts. (Such items are immediately posted.) Foot and crossfoot the journals and make the month-end postings.
3. Prepare a December 31 trial balance and prove the accuracy of the subsidiary ledgers by preparing schedules of both accounts receivable and accounts payable.
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You have developed the following income statement for the Hugo Boss Corporation
FINANCE
12.1 You have developed the following income statement for the Hugo Boss Corporation. It represents the most recent year's operations, which ended yesterday.
Sales. $50,439,375
Variable costs. (25,4137,000)
Revenue before fixed costs. $25,302,375
Fixed costs. (10,143,000)
EBIT $15,159,375
Interest expense. (1,488,375)
Earnings before taxes. $13,671,000
Taxes at 50%. (6,835,500)
Net income. $6,835,500
Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions:
a. What is the firm's break-even point in sales dollars?
b. If sales should increase by 30 percent, by what percent would earnings before taxes (and net income) increase?
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12.1 You have developed the following income statement for the Hugo Boss Corporation. It represents the most recent year's operations, which ended yesterday.
Sales. $50,439,375
Variable costs. (25,4137,000)
Revenue before fixed costs. $25,302,375
Fixed costs. (10,143,000)
EBIT $15,159,375
Interest expense. (1,488,375)
Earnings before taxes. $13,671,000
Taxes at 50%. (6,835,500)
Net income. $6,835,500
Your supervisor in the controller's office has just handed you a memorandum asking for written responses to the following questions:
a. What is the firm's break-even point in sales dollars?
b. If sales should increase by 30 percent, by what percent would earnings before taxes (and net income) increase?
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12.5. (Operating leverage) Rocky Mount Metals Company manufactures an assortment of wood-burning stoves
FINANCE
12.5. (Operating leverage) Rocky Mount Metals Company manufactures an assortment of wood-burning stoves. The average selling price for the various units is $500. The associated variable cost is $350 per unit. Fixed costs for the firm average $180,000 annually.
a. What is the break-even point in units for the company?
b. What is the dollar sales volume the firm must achieve to reach the break-even point?
c. What is the degree of operating leverage for a production and sales level of 5,000 units for the firm? ( Calculate to three decimals.)
d. What will be the projected effect on earnings before interest and taxes if the firm's sales level should increase by 20 percent from the volume noted in part c?
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12.5. (Operating leverage) Rocky Mount Metals Company manufactures an assortment of wood-burning stoves. The average selling price for the various units is $500. The associated variable cost is $350 per unit. Fixed costs for the firm average $180,000 annually.
a. What is the break-even point in units for the company?
b. What is the dollar sales volume the firm must achieve to reach the break-even point?
c. What is the degree of operating leverage for a production and sales level of 5,000 units for the firm? ( Calculate to three decimals.)
d. What will be the projected effect on earnings before interest and taxes if the firm's sales level should increase by 20 percent from the volume noted in part c?
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Abraham Company completed the construction of a building at a cost of $2,242,000 and first occupied it in January 1984
ACCOUNTING
Abraham Company completed the construction of a building at a cost of $2,242,000 and first occupied it in January 1984. It was estimated that the building will have a useful life of 40 years and a salvage value of $70,800 at the end of that time.
Early in 1994, an addition to the building was constructed at a cost of $554,600. At the time it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years, and a salvage value of $23,600.
In 2012, it is determined that the probable life of the building and addition will extend to the end of 2043 or 20 years beyond the original estimate.
a) Using the straight-line method, compute the annual depreciation that would have been charged from 1984 through 1993
b) Compute the annual depreciation that would have been charged from 1994 through 2011
c) Is an entry necessary to adjust the account balances because of the revision of the estimated life in 2012?
d) Compute the annual depreciation to be charged beginning with 2012.
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Abraham Company completed the construction of a building at a cost of $2,242,000 and first occupied it in January 1984. It was estimated that the building will have a useful life of 40 years and a salvage value of $70,800 at the end of that time.
Early in 1994, an addition to the building was constructed at a cost of $554,600. At the time it was estimated that the remaining life of the building would be, as originally estimated, an additional 30 years, and that the addition would have a life of 30 years, and a salvage value of $23,600.
In 2012, it is determined that the probable life of the building and addition will extend to the end of 2043 or 20 years beyond the original estimate.
a) Using the straight-line method, compute the annual depreciation that would have been charged from 1984 through 1993
b) Compute the annual depreciation that would have been charged from 1994 through 2011
c) Is an entry necessary to adjust the account balances because of the revision of the estimated life in 2012?
d) Compute the annual depreciation to be charged beginning with 2012.
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Presented below is data relative to the 12/31/10 inventory of Lance Company
ACCOUNTING
Presented below is data relative to the 12/31/10 inventory of Lance Company:
Number Units Original Cost Total Current
Item In Inventory Per Unit Original Cost Replacement Cost
A 3,000 $1.09 $3,270 $1.08
B 3,000 1.30 3,900 1.15
C 3,000 1.50 4,500 1.05
D 3,000 1.60 4,800 1.65
E 3,000 1.80 5,400 1.70
Total 15,000 $21,870
LCM
Upper Lower Inventory
Limit Limit Designated Valuation
Item ("Ceiling") ("Floor") Market (Totals)
A $1.80 $1.30 $1.09 $3270
B $1.80 $1.30 $1.30 $3900
C $1.80 $1.30 $1.50 $4500
D $1.80 $1.30 $1.65 4800
E $1.80 $1.30 $1.70 $5100
Total $21,570
Additional Data:
Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price.
Instructions
Complete the last four columns above.
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Presented below is data relative to the 12/31/10 inventory of Lance Company:
Number Units Original Cost Total Current
Item In Inventory Per Unit Original Cost Replacement Cost
A 3,000 $1.09 $3,270 $1.08
B 3,000 1.30 3,900 1.15
C 3,000 1.50 4,500 1.05
D 3,000 1.60 4,800 1.65
E 3,000 1.80 5,400 1.70
Total 15,000 $21,870
LCM
Upper Lower Inventory
Limit Limit Designated Valuation
Item ("Ceiling") ("Floor") Market (Totals)
A $1.80 $1.30 $1.09 $3270
B $1.80 $1.30 $1.30 $3900
C $1.80 $1.30 $1.50 $4500
D $1.80 $1.30 $1.65 4800
E $1.80 $1.30 $1.70 $5100
Total $21,570
Additional Data:
Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price.
Instructions
Complete the last four columns above.
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Landmark Book Store uses the conventional retail method
ACCOUNTING
Landmark Book Store uses the conventional retail method.
Instructions
Given the following data, prepare a neat, labeled schedule showing the computation of the cost of inventory on hand at 12/31/10.
Cost Retail
Inventory 1/1/10 $ 28,900 $ 40,000
Purchases 353,600 610,000
Purchases Returns 9,000 20,000
Purchase Discounts 7,000
Sales (Gross) 615,000
Sales Returns 20,000
Employee Discounts 5,000
Freight-in 23,500
Freight-out 50,000
Loss from Breakage 2,500
Markups 38,000
Markup Cancellations 18,000
Markdowns 13,500
Markdown Cancellations 8,500
B. Landmark Book Store has decided to switch to the LIFO retail method for the period beginning 1/1/11.
Instructions
Prepare a schedule showing the computation of the 12/31/11 inventory under the LIFO retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without prejudice to your answer in requirement A above, assume that the 12/31/10 inventory computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost, respectively, for purposes of this requirement. Data for 2011 follows:
Cost Retail
Purchases (net) $375,000 $485,000
Sales (net) 420,000
Markups (net) 30,000
Markdowns (net) 15,000
2010 Price Index 100
2011 Price Index 120
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Landmark Book Store uses the conventional retail method.
Instructions
Given the following data, prepare a neat, labeled schedule showing the computation of the cost of inventory on hand at 12/31/10.
Cost Retail
Inventory 1/1/10 $ 28,900 $ 40,000
Purchases 353,600 610,000
Purchases Returns 9,000 20,000
Purchase Discounts 7,000
Sales (Gross) 615,000
Sales Returns 20,000
Employee Discounts 5,000
Freight-in 23,500
Freight-out 50,000
Loss from Breakage 2,500
Markups 38,000
Markup Cancellations 18,000
Markdowns 13,500
Markdown Cancellations 8,500
B. Landmark Book Store has decided to switch to the LIFO retail method for the period beginning 1/1/11.
Instructions
Prepare a schedule showing the computation of the 12/31/11 inventory under the LIFO retail method adjusted for price level changes (i.e., dollar-value LIFO Retail.) Without prejudice to your answer in requirement A above, assume that the 12/31/10 inventory computed under the LIFO Retail method was $40,000 and $27,500 at retail and cost, respectively, for purposes of this requirement. Data for 2011 follows:
Cost Retail
Purchases (net) $375,000 $485,000
Sales (net) 420,000
Markups (net) 30,000
Markdowns (net) 15,000
2010 Price Index 100
2011 Price Index 120
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Garber, Inc. accounts for all sales of its merchandise on the installment basis
ACCOUNTING
Garber, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/12:
Cash $ 90,200
Installment Accounts Receivable—2010 170,000
Installment Accounts Receivable—2011 400,000
Installment Accounts Receivable—2012 750,000
Inventory, 1/1/12 78,000
Repossessed Merchandise 22,000
Accounts Payable $ 136,000
Deferred Gross Profit—2010 84,000
Deferred Gross Profit—2011 195,000
Capital Stock 600,000
Retained Earnings 406,200
Installment Sales 1,000,000
Purchases 758,000
Loss on Repossession 3,000
Operating Expenses 150,000
$2,421,200 $2,421,200
Additional Data: 2010 Gross Profit Rate = 30%; Inventory 12/31/12 = $158,000;
Repossessed merchandise 12/31/12 = $15,000;
Merchandise sold in 2011 was repossessed in 2012 and the following entry was prepared (assume correctly):
Deferred Gross Profit—2011 15,000
Repossessed Merchandise 22,000
Loss on Repossession 3,000
Installment Accounts Receivable—2011 40,000
Instructions
(a) Determine collections during 2012 on Installment A/R for each of the years 2010, 2011, and 2012.
(b) Without prejudice to your answer in Part (a), assume that total collections on Installment Accounts Receivable during 2012 were $1,060,000; $220,000 from 2010, $300,000 from 2011, and $540,000 from 2012. Prepare all necessary adjusting and closing entries at 12/31/12.
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Garber, Inc. accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/12:
Cash $ 90,200
Installment Accounts Receivable—2010 170,000
Installment Accounts Receivable—2011 400,000
Installment Accounts Receivable—2012 750,000
Inventory, 1/1/12 78,000
Repossessed Merchandise 22,000
Accounts Payable $ 136,000
Deferred Gross Profit—2010 84,000
Deferred Gross Profit—2011 195,000
Capital Stock 600,000
Retained Earnings 406,200
Installment Sales 1,000,000
Purchases 758,000
Loss on Repossession 3,000
Operating Expenses 150,000
$2,421,200 $2,421,200
Additional Data: 2010 Gross Profit Rate = 30%; Inventory 12/31/12 = $158,000;
Repossessed merchandise 12/31/12 = $15,000;
Merchandise sold in 2011 was repossessed in 2012 and the following entry was prepared (assume correctly):
Deferred Gross Profit—2011 15,000
Repossessed Merchandise 22,000
Loss on Repossession 3,000
Installment Accounts Receivable—2011 40,000
Instructions
(a) Determine collections during 2012 on Installment A/R for each of the years 2010, 2011, and 2012.
(b) Without prejudice to your answer in Part (a), assume that total collections on Installment Accounts Receivable during 2012 were $1,060,000; $220,000 from 2010, $300,000 from 2011, and $540,000 from 2012. Prepare all necessary adjusting and closing entries at 12/31/12.
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Edwards Company contracted on 4/1/10 to construct a building for $2,500,000
ACCOUNTING
Edwards Company contracted on 4/1/10 to construct a building for $2,500,000. The project was completed in 2012. Additional data follow:
2010 2011 2012
Costs incurred to date $ 560,000 $1,350,000 $1,900,000
Estimated cost to complete 1,040,000 450,000 —
Billings to date 500,000 2,000,000 2,500,000
Collections to date 400,000 1,300,000 2,400,000
Instructions
(a) Calculate the income recognized by Edwards under the percentage-of-completion method of accounting in each of the years 2010, 2011, and 2012.
(b) Prepare all necessary entries for the year 2011.
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Edwards Company contracted on 4/1/10 to construct a building for $2,500,000. The project was completed in 2012. Additional data follow:
2010 2011 2012
Costs incurred to date $ 560,000 $1,350,000 $1,900,000
Estimated cost to complete 1,040,000 450,000 —
Billings to date 500,000 2,000,000 2,500,000
Collections to date 400,000 1,300,000 2,400,000
Instructions
(a) Calculate the income recognized by Edwards under the percentage-of-completion method of accounting in each of the years 2010, 2011, and 2012.
(b) Prepare all necessary entries for the year 2011.
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On December 31, 2009 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of
ACCOUNTING
On December 31, 2009 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $900,000 (interest payable annually on December 31). Berry Corporation pays 6% for its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Berry at a manufactured cost of $570,000. Assume Berry uses a perpetual inventory system.
Instructions
(a) Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2009. (Assume that the simple interest method is used.)
(b) Make all appropriate entries for 2010 on the books of Berry Corporation.
(c) Make all appropriate entries for 2011 on the books of Berry Corporation.
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On December 31, 2009 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $900,000 (interest payable annually on December 31). Berry Corporation pays 6% for its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Berry at a manufactured cost of $570,000. Assume Berry uses a perpetual inventory system.
Instructions
(a) Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2009. (Assume that the simple interest method is used.)
(b) Make all appropriate entries for 2010 on the books of Berry Corporation.
(c) Make all appropriate entries for 2011 on the books of Berry Corporation.
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Rosner Company's business year ends on December 31
ACCOUNTING
Rosner Company's business year ends on December 31. Listed below are purchase transactions which occurred during the last few days of 2004 or during the first few days of 2005. The inventory, determined by physical count, was taken after the close of business on December 31, 2004. The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books based on the physical count.
Instructions
1. On the accompanying chart, indicate the effect of each of these transactions on the ending inventory and on reported net income for 2004, by writing the words overstated, understated, or no effect in the appropriate column. Both columns must be answered for each transaction. An invoice for $8,000, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received January 2. An invoice for $300, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that merchandise was shipped December 29, and the receiving report shows the merchandise was received December 31. An invoice for $3,000, terms f.o.b. shipping point, was received and entered January 2. The invoice shows the merchandise was shipped December 30, and the receiving report indicates the merchandise was received December 31. An invoice for $500, terms f.o.b. destination, was received and entered December 30. The receiving report shows the merchandise was received January 2. An invoice for $500, terms f.o.b. destination, was received and entered December 29. The receiving report indicates that the merchandise was received December 31. An invoice for $1,500, terms f.o.b. destination, was received and entered January 2. The receiving report indicates the merchandise was received December 31. Merchandise costing $12,000 and with a selling price of $18,000 was on consignment to Maris Distributing Company and was on that company's premises on December 31. No entry has been made for the consignment.
2. Prepare all necessary correcting entries for 2004. 3. Indicate which of the correcting entries must be reversed in 2005 by preparing the necessary reversing entries.
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Rosner Company's business year ends on December 31. Listed below are purchase transactions which occurred during the last few days of 2004 or during the first few days of 2005. The inventory, determined by physical count, was taken after the close of business on December 31, 2004. The only adjusting entry recorded to date has been to enter the December 31 physical inventory on the books based on the physical count.
Instructions
1. On the accompanying chart, indicate the effect of each of these transactions on the ending inventory and on reported net income for 2004, by writing the words overstated, understated, or no effect in the appropriate column. Both columns must be answered for each transaction. An invoice for $8,000, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that the merchandise was shipped December 29, and the receiving report indicates the merchandise was received January 2. An invoice for $300, terms f.o.b. shipping point, was received and entered December 30. The invoice shows that merchandise was shipped December 29, and the receiving report shows the merchandise was received December 31. An invoice for $3,000, terms f.o.b. shipping point, was received and entered January 2. The invoice shows the merchandise was shipped December 30, and the receiving report indicates the merchandise was received December 31. An invoice for $500, terms f.o.b. destination, was received and entered December 30. The receiving report shows the merchandise was received January 2. An invoice for $500, terms f.o.b. destination, was received and entered December 29. The receiving report indicates that the merchandise was received December 31. An invoice for $1,500, terms f.o.b. destination, was received and entered January 2. The receiving report indicates the merchandise was received December 31. Merchandise costing $12,000 and with a selling price of $18,000 was on consignment to Maris Distributing Company and was on that company's premises on December 31. No entry has been made for the consignment.
2. Prepare all necessary correcting entries for 2004. 3. Indicate which of the correcting entries must be reversed in 2005 by preparing the necessary reversing entries.
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1. In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the
ACCOUNTING
1. In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the combinor's cost is to: (Points : 1)
2. Which of the following is not included in the combinor's cost of a combinee in a business combination? (Points : 1)
3. Slocum Corporation and Merton Company, both publicly owned companies, are planning a merger, with Slocum being the survivor. Which of the following is a requirement of the merger? (Points : 1)
4. On January 31, 2006, the home office of Wall Company collected a trade account receivable of Doris Branch. The accounting for this transaction by Wall Company should include a: (Points : 1)
5. Both a home office and a branch use the periodic inventory system. If at the end of an accounting period the balance of the branch's Home Office ledger account does not agree with the balance of the home office's Investment in Branch account because of a shipment of merchandise in transit from the home office to the branch: (Points : 1)
6. If both the home office and the branch of a business enterprise use the periodic inventory system, the home office's Shipments to Branch ledger account: (Points : 1)
7. The Income: Branch ledger account is maintained in the accounting records of: (Points : 1)
8. Among the journal entries (explanation omitted) in the accounting records of the home office of Price Company was the following:
Office Equipment: Lang Branch 12,500
Investment in Lang Branch 12,500
This journal entry indicates that: (Points : 1)
9. The Home Office ledger account in the accounting records of a branch is best described as: (Points : 1)
10. The following journal entry (explanation omitted) appeared in the accounting records of Marty Corporation's only branch:
Operating Expenses 600,000
Home Office 600,000
The journal entry indicates that: (Points : 1)
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1. In a business combination, the appropriate accounting for an excess of current fair values the combinee's identifiable net assets over the combinor's cost is to: (Points : 1)
2. Which of the following is not included in the combinor's cost of a combinee in a business combination? (Points : 1)
3. Slocum Corporation and Merton Company, both publicly owned companies, are planning a merger, with Slocum being the survivor. Which of the following is a requirement of the merger? (Points : 1)
4. On January 31, 2006, the home office of Wall Company collected a trade account receivable of Doris Branch. The accounting for this transaction by Wall Company should include a: (Points : 1)
5. Both a home office and a branch use the periodic inventory system. If at the end of an accounting period the balance of the branch's Home Office ledger account does not agree with the balance of the home office's Investment in Branch account because of a shipment of merchandise in transit from the home office to the branch: (Points : 1)
6. If both the home office and the branch of a business enterprise use the periodic inventory system, the home office's Shipments to Branch ledger account: (Points : 1)
7. The Income: Branch ledger account is maintained in the accounting records of: (Points : 1)
8. Among the journal entries (explanation omitted) in the accounting records of the home office of Price Company was the following:
Office Equipment: Lang Branch 12,500
Investment in Lang Branch 12,500
This journal entry indicates that: (Points : 1)
9. The Home Office ledger account in the accounting records of a branch is best described as: (Points : 1)
10. The following journal entry (explanation omitted) appeared in the accounting records of Marty Corporation's only branch:
Operating Expenses 600,000
Home Office 600,000
The journal entry indicates that: (Points : 1)
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Thursday, November 3, 2011
You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets of a product
ACCOUNTING
You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets of a product line of Midge Company, a competitor enterprises. The projected acquisition cost is expected to exceed substantially the current fair value of the identifiable net assets to be acquired, which the competitor has agreed to sell because of its substantial net losses of recent years. The board of directors of Software asks if the excess acquisition costs may appropriately be recognized as goodwill.
Prepare a memorandum to the board of directors in answer to the question
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You are the controller of Software Company, a distributor of computer software, which is planning to acquire a portion of the net assets of a product line of Midge Company, a competitor enterprises. The projected acquisition cost is expected to exceed substantially the current fair value of the identifiable net assets to be acquired, which the competitor has agreed to sell because of its substantial net losses of recent years. The board of directors of Software asks if the excess acquisition costs may appropriately be recognized as goodwill.
Prepare a memorandum to the board of directors in answer to the question
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Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and
FINANCE
Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre.
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
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Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik and Kiefer Inc. One of the firm’s clients is Michelle Dellatorre, a professional tennis player who has just come to the United States from Chile. Dellatorre is a highly ranked tennis player who would like to start a company to produce and market apparel that she designs. She also expects to invest substantial amounts of money through Balik and Kiefer. Dellatorre is also very bright, and, therefore, she would like to understand, in general terms, what will happen to her money. Your boss has developed the following set of questions which you must ask and answer to explain the U.S. financial system to Dellatorre.
a.Why is corporate finance important to all managers?
b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form.
c. How do corporations go public and continue to grow?
d.What should be the primary objective of managers?
e.What three aspects of cash flows affect the value of any investment?
f. What are free cash flows
g. What is the weighted average cost of capital?
AND SO ON
p. Briefly explain mortgage securitization and how it contributed to the global economic crisis.
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Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries of the European Union
ACCOUNTING
Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries of the European Union. Sewell intended to sell individual franchises for the major language groups of Western Europe—German, French, English, Spanish, and Italian. Naturally, investors considering buying a franchise from Sewell asked to see the financial statements of his business.
Believing the value of the franchise to be $500,000, Sewell sought to capitalize his own franchise at $500,000. The law firm of St. Charles & LaDue helped Sewell form a corporation chartered to issue 500,000 shares of common stock with par value of $1 per share. Attorneys suggested the following chain of transactions:
a. Sewell's cousin, Bob, borrows $500,000 from a bank and purchases the franchise from Sewell.
b. Sewell pays the corporation $500,000 to acquire all its stock.
c. The corporation buys the franchise from Cousin Bob.
d. Cousin Bob repays the $500,000 loan to the bank.
In the final analysis, Cousin Bob is debt-free and out of the picture. Sewell owns all the corporation's stock, and the corporation owns the franchise. The corporation's balance sheet lists a franchise acquired at a cost of $500,000. This balance sheet is Sewell's most valuable marketing tool.
1. What is unethical about this situation?
2. Who can be harmed? How can they be harmed? What role does accounting play?
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Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries of the European Union. Sewell intended to sell individual franchises for the major language groups of Western Europe—German, French, English, Spanish, and Italian. Naturally, investors considering buying a franchise from Sewell asked to see the financial statements of his business.
Believing the value of the franchise to be $500,000, Sewell sought to capitalize his own franchise at $500,000. The law firm of St. Charles & LaDue helped Sewell form a corporation chartered to issue 500,000 shares of common stock with par value of $1 per share. Attorneys suggested the following chain of transactions:
a. Sewell's cousin, Bob, borrows $500,000 from a bank and purchases the franchise from Sewell.
b. Sewell pays the corporation $500,000 to acquire all its stock.
c. The corporation buys the franchise from Cousin Bob.
d. Cousin Bob repays the $500,000 loan to the bank.
In the final analysis, Cousin Bob is debt-free and out of the picture. Sewell owns all the corporation's stock, and the corporation owns the franchise. The corporation's balance sheet lists a franchise acquired at a cost of $500,000. This balance sheet is Sewell's most valuable marketing tool.
1. What is unethical about this situation?
2. Who can be harmed? How can they be harmed? What role does accounting play?
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P6-31 Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager
ACCOUNTING
Auditing P 6-31
Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager. She named it Ritter Dairy and Fruits. Because of the excellent location and her fine management skills, Ritter Dairy and Fruits grew to three locations by 1992. By that time, she needed additional capital. She obtained financing through a local bank at 2 percent above prime, under the condition that she submit quarterly financial statements reviewed by a CPA firm approved by the bank. After interviewing several firms, she decided to use the firm of Gonzalez & Fineberg CPAs, after obtaining approval from the bank.
In 1996, the company had grown to six stores, and Rene developed a business plan to add another 10 stores in the next several years. Ritter's capital needs had also grown, so Rene decided to add two business partners who both had considerable capital and some expertise in convenience stores. After further discussions with the bank and continued conversations with the future business partners, she decided to have an annual audit and quarterly review don by Gonzalez & Fineberg, even though the additional cost was almost $15,000 annually. The bank agreed to reduce the interest rate on the $4,000,000 of loans to 1 percent above prime.
By 2001, things were going smoothly, with the two business partners heavily involved in day-to-day operations and the company adding two new stores each year. The company was growing steadily and was more profitable than they had expected. By the end of 2002, one of the business partners, Fred Worm, had taken over responsibility for accounting and finance operations, as well as some marketing. Annually, Gonzalez & Fineberg did an in-depth review of the accounting system, including internal controls, and reported their conclusions and recommendations to the board of directors. Specialists in the firm provided tax and other advice. The other partner, Ben Gold, managed most of the stores and was primarily responsible for building new stores. Rene was president and manages four stores.
In 2006, the three partners decided to go public to enable them to add more stores and modernize existing ones. The public offering was a major success, resulting in $25 million in new capital and nearly 1,000 shareholders. Ritter Dairy and Fruits added stores rapidly under the three managers, and the company remained highly profitable under the leadership of Ritter, Worm, and Gold.
Rene retired in 2009 after a highly successful career. During the retirement celebration, she thanked her business partners, employees, and customers. She also added a special thanks to the bank management for their outstanding service and to Gonzalez & Fineberg for being partners in the best and most professional sense of the word. She mentioned their integrity, commitment, high-quality service in performing their audits and reviews, and considerable tax and business advice for more than two decades.
Required:
a. Explain why the bank imposed a requirement of a quarterly review of the financial statements as a condition of obtaining the loan at 2 percent above prime. Also explain why the bank didn't require an audit and why the bank demanded the right to approve which CPA firm was engaged.
b. Explain why Ritter Dairy and Fruits agreed to have an audit performed rather than a review, considering the additional annual cost of $15,000.
c. What did Rene mean when she referred to Gonzalez & Fineberg as partners? Does the CPA firm have an independence problem?
d. What benefit does Gonzalez & Fineberg provide to stockholders, creditors, and management in performing the audit and related services?
e. What are the responsibilities of the CPA firm to stockholders, creditors, management, and other users?
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Auditing P 6-31
Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager. She named it Ritter Dairy and Fruits. Because of the excellent location and her fine management skills, Ritter Dairy and Fruits grew to three locations by 1992. By that time, she needed additional capital. She obtained financing through a local bank at 2 percent above prime, under the condition that she submit quarterly financial statements reviewed by a CPA firm approved by the bank. After interviewing several firms, she decided to use the firm of Gonzalez & Fineberg CPAs, after obtaining approval from the bank.
In 1996, the company had grown to six stores, and Rene developed a business plan to add another 10 stores in the next several years. Ritter's capital needs had also grown, so Rene decided to add two business partners who both had considerable capital and some expertise in convenience stores. After further discussions with the bank and continued conversations with the future business partners, she decided to have an annual audit and quarterly review don by Gonzalez & Fineberg, even though the additional cost was almost $15,000 annually. The bank agreed to reduce the interest rate on the $4,000,000 of loans to 1 percent above prime.
By 2001, things were going smoothly, with the two business partners heavily involved in day-to-day operations and the company adding two new stores each year. The company was growing steadily and was more profitable than they had expected. By the end of 2002, one of the business partners, Fred Worm, had taken over responsibility for accounting and finance operations, as well as some marketing. Annually, Gonzalez & Fineberg did an in-depth review of the accounting system, including internal controls, and reported their conclusions and recommendations to the board of directors. Specialists in the firm provided tax and other advice. The other partner, Ben Gold, managed most of the stores and was primarily responsible for building new stores. Rene was president and manages four stores.
In 2006, the three partners decided to go public to enable them to add more stores and modernize existing ones. The public offering was a major success, resulting in $25 million in new capital and nearly 1,000 shareholders. Ritter Dairy and Fruits added stores rapidly under the three managers, and the company remained highly profitable under the leadership of Ritter, Worm, and Gold.
Rene retired in 2009 after a highly successful career. During the retirement celebration, she thanked her business partners, employees, and customers. She also added a special thanks to the bank management for their outstanding service and to Gonzalez & Fineberg for being partners in the best and most professional sense of the word. She mentioned their integrity, commitment, high-quality service in performing their audits and reviews, and considerable tax and business advice for more than two decades.
Required:
a. Explain why the bank imposed a requirement of a quarterly review of the financial statements as a condition of obtaining the loan at 2 percent above prime. Also explain why the bank didn't require an audit and why the bank demanded the right to approve which CPA firm was engaged.
b. Explain why Ritter Dairy and Fruits agreed to have an audit performed rather than a review, considering the additional annual cost of $15,000.
c. What did Rene mean when she referred to Gonzalez & Fineberg as partners? Does the CPA firm have an independence problem?
d. What benefit does Gonzalez & Fineberg provide to stockholders, creditors, and management in performing the audit and related services?
e. What are the responsibilities of the CPA firm to stockholders, creditors, management, and other users?
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Wednesday, November 2, 2011
E19-8 SSG Cycles manufactures and distributes motorcycle parts and supplies
ACCOUNTING
E 19-8 Stock options
SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2011. The options permit holders to acquire 12 million of the company's $1 par common shares for $11 within the next six years, but not before January 1, 2014 (the vesting date). The market price of the shares on the date of grant is $13 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $3 per option.
Required:
1. Determine the total compensation cost pertaining to the incentive stock option plan.
2. Prepare the appropriate journal entries to record compensation expense on December 31, 2011, 2012, and 2013.
3. Record the exercise of the options if all of the options are exercised on May 11, 2015, when the market price is $14 per share.
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E 19-8 Stock options
SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2011. The options permit holders to acquire 12 million of the company's $1 par common shares for $11 within the next six years, but not before January 1, 2014 (the vesting date). The market price of the shares on the date of grant is $13 per share. The fair value of the 12 million options, estimated by an appropriate option pricing model, is $3 per option.
Required:
1. Determine the total compensation cost pertaining to the incentive stock option plan.
2. Prepare the appropriate journal entries to record compensation expense on December 31, 2011, 2012, and 2013.
3. Record the exercise of the options if all of the options are exercised on May 11, 2015, when the market price is $14 per share.
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E19-6 On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers
ACCOUNTING
E 19-6 Stock options; forfeiture of options
On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option.
Required:
1. Determine the total compensation cost pertaining to the options on January 1, 2011.
2. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
3. Unexpected turnover during 2012 caused the forfeiture of 6% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2012 and 2013.
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E 19-6 Stock options; forfeiture of options
On January 1, 2011, Adams-Meneke Corporation granted 25 million incentive stock options to division managers, each permitting holders to purchase one share of the company's $1 par common shares within the next six years, but not before December 31, 2013 (the vesting date). The exercise price is the market price of the shares on the date of grant, currently $10 per share. The fair value of the options, estimated by an appropriate option pricing model, is $3 per option.
Required:
1. Determine the total compensation cost pertaining to the options on January 1, 2011.
2. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
3. Unexpected turnover during 2012 caused the forfeiture of 6% of the stock options. Determine the adjusted compensation cost, and prepare the appropriate journal entry(s) on December 31, 2012 and 2013.
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P6-22 Often, questions have been raised "regarding the responsibility of the independent auditor for the auditor for the discovery of fraud (including
ACCOUNTING
Auditing P 6-22 Often, questions have been raised "regarding the responsibility of the independent auditor for the auditor for the discovery of fraud (including misappropriation of assets and fraudulent financial reporting), and concerning the proper course of conduct of the independent auditor when his or her audit discloses specific circumstances that arouse suspicion as to the existence of fraud."
Required:
a. What are (1) the function and (2) the responsibilities of the independent auditor in the audit of financial statements? Discuss fully, but in this part do not include fraud in the discussion.
b. What are the responsibilities of the independent auditor for the detection of fraud? Discuss fully.
c. What is the independent auditor's proper course of conduct when the audit discloses specific circumstances that arouse suspicion as to the existence of fraud?
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Auditing P 6-22 Often, questions have been raised "regarding the responsibility of the independent auditor for the auditor for the discovery of fraud (including misappropriation of assets and fraudulent financial reporting), and concerning the proper course of conduct of the independent auditor when his or her audit discloses specific circumstances that arouse suspicion as to the existence of fraud."
Required:
a. What are (1) the function and (2) the responsibilities of the independent auditor in the audit of financial statements? Discuss fully, but in this part do not include fraud in the discussion.
b. What are the responsibilities of the independent auditor for the detection of fraud? Discuss fully.
c. What is the independent auditor's proper course of conduct when the audit discloses specific circumstances that arouse suspicion as to the existence of fraud?
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P6-23 The following are the classes of transactions and the titles of the journals used for Phillips Equipment Rental Co
ACCOUNTING
Auditing P 6-23 The following are the classes of transactions and the titles of the journals used for Phillips Equipment Rental Co.
Classes of Transactions:
Purchases Returns
Rental revenue
Charge-off of uncollectible accounts
Acquisition of goods and services (except payroll)
Rental allowances
Adjusting entries (for payroll)
Payroll service and payments
Cash disbursements (except payroll)
Cash receipts
Title of Journals:
Cash receipts journal
Cash disbursements journal
Acquisitions journal
Revenue journal
Payroll journal
Adjustments journal
Required:
a. Identify one financial statement balance that is likely to be affected by each of the nine classes of transactions.
b. For each class of transactions, identify the journal that is likely to be used to record the transactions.
c. Identify the transaction cycle that is likely to be affected by each of the nine classes of transactions.
d. Explain how total rental revenue, as cited on the financial statements of Phillips Equipment Rental Co., is accumulated in journals and is summarized on the financial statements. Assume that there are several adjusting entries for rental revenue at the balance sheet date.
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Auditing P 6-23 The following are the classes of transactions and the titles of the journals used for Phillips Equipment Rental Co.
Classes of Transactions:
Purchases Returns
Rental revenue
Charge-off of uncollectible accounts
Acquisition of goods and services (except payroll)
Rental allowances
Adjusting entries (for payroll)
Payroll service and payments
Cash disbursements (except payroll)
Cash receipts
Title of Journals:
Cash receipts journal
Cash disbursements journal
Acquisitions journal
Revenue journal
Payroll journal
Adjustments journal
Required:
a. Identify one financial statement balance that is likely to be affected by each of the nine classes of transactions.
b. For each class of transactions, identify the journal that is likely to be used to record the transactions.
c. Identify the transaction cycle that is likely to be affected by each of the nine classes of transactions.
d. Explain how total rental revenue, as cited on the financial statements of Phillips Equipment Rental Co., is accumulated in journals and is summarized on the financial statements. Assume that there are several adjusting entries for rental revenue at the balance sheet date.
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P6-28 The following are specific presentation and disclosure-related audit objectives applied to presentation and disclosure for fixed assets
ACCOUNTING
Auditing P 6-28 The following are specific presentation and disclosure-related audit objectives applied to presentation and disclosure for fixed assets (a through d) and management assertions (1 through 4).
Specific Presentation and Disclosure-Relatd Audit Objective
a. All required disclosures regarding fixed assets have been made.
b. Footnote disclosures related to fixed assets are clear and understandable.
c. Methods and useful lives disclosed for each category of fixed asset are accurate.
d. Disclosed fixed assets dispositions have occurred.
Management Assertion about Presentation and Disclosure
1. Occurrence and rights and obligations
2. Completeness
3. Accuracy and valuation
4. Classification and understandability
Required:
For each specific presentation and disclosure-related audit objective, identify the appropriate management assertion. (Hint: See Table 6-5 on page 161.)
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Auditing P 6-28 The following are specific presentation and disclosure-related audit objectives applied to presentation and disclosure for fixed assets (a through d) and management assertions (1 through 4).
Specific Presentation and Disclosure-Relatd Audit Objective
a. All required disclosures regarding fixed assets have been made.
b. Footnote disclosures related to fixed assets are clear and understandable.
c. Methods and useful lives disclosed for each category of fixed asset are accurate.
d. Disclosed fixed assets dispositions have occurred.
Management Assertion about Presentation and Disclosure
1. Occurrence and rights and obligations
2. Completeness
3. Accuracy and valuation
4. Classification and understandability
Required:
For each specific presentation and disclosure-related audit objective, identify the appropriate management assertion. (Hint: See Table 6-5 on page 161.)
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P6-29 The following are two specific balance-related audit objectives in the audit of accounts payable
ACCOUNTING
Auditing P 6-29 The following are two specific balance-related audit objectives in the audit of accounts payable. The list referred to is the list of accounts payable taken from the accounts payable master file. The total of the list equals the accounts payable balance on the general ledger.
1. All accounts payable included on the list represent amounts due to valid vendors.
2. There are no unrecorded accounts payable.
Required:
a. Explain the difference between these two specific balance-related audit objectives.
b. Which of these two specific balance-related audit objectives applies to the general balance-related audit objective of existence, and which one applies to completeness?
c. For the audit of accounts payable, which of these two specific balance-related audit objectives is usually be more important? Explain.
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Auditing P 6-29 The following are two specific balance-related audit objectives in the audit of accounts payable. The list referred to is the list of accounts payable taken from the accounts payable master file. The total of the list equals the accounts payable balance on the general ledger.
1. All accounts payable included on the list represent amounts due to valid vendors.
2. There are no unrecorded accounts payable.
Required:
a. Explain the difference between these two specific balance-related audit objectives.
b. Which of these two specific balance-related audit objectives applies to the general balance-related audit objective of existence, and which one applies to completeness?
c. For the audit of accounts payable, which of these two specific balance-related audit objectives is usually be more important? Explain.
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Tuesday, November 1, 2011
Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4
ACCOUNTING
Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The following information pertains to Wheal Company on the date of acquisition:
Book Value Fair Value
Cash......................................................... $ 40,000 $ 40,000
Accounts receivable.................................. 60,000 55,000
Inventory................................................... 50,000 75,000
Property, plant, and equipment (net)........ 100,000 200,000
Secret formula (patent) ............................ - 30,000
Total assets .............................................. $250,000 $400,000
Accounts payable ..................................... $ 30,000 $ 30,000
Accrued employee pensions...................... 20,000 22,000
Long-term debt......................................... 40,000 38,000
Capital stock ............................................ 100,000 -
Other contributed capital ......................... 25,000 -
Retained earnings .................................... 35,000 -
Total liabilities and equity ........................ $250,000 $ 90,000
Axel Corporation issues $110,000 par value ($350,000 market value on December 31, Year 4) of its own stock to the shareholders of Wheal Company to consummate the transaction, and Wheal Company becomes a wholly owned, consolidated subsidiary of Axel Corporation.
Required:
a. Prepare journal entries for Axel Corp. to record the acquisition of Wheal Company stock assuming (1) pooling accounting and (2) purchase accounting.
b. Prepare the worksheet entries for Axel Corp. to eliminate the investment in Wheal Company stock in preparation for a consolidated balance sheet at December 31, Year 4 assuming (1) pooling accounting and (2) purchase accounting.
c. Calculate consolidated retained earnings at December 31, Year 4 (Axel's retained earnings at this date are $150,000), assuming:
(1) Axel Corp. uses the pooling method for this business combination.
(2) Axel Corp. uses the purchase method for acquisition of Wheal Company.
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Axel Corporation acquires 100% of the stock of Wheal Company on December 31, Year 4. The following information pertains to Wheal Company on the date of acquisition:
Book Value Fair Value
Cash......................................................... $ 40,000 $ 40,000
Accounts receivable.................................. 60,000 55,000
Inventory................................................... 50,000 75,000
Property, plant, and equipment (net)........ 100,000 200,000
Secret formula (patent) ............................ - 30,000
Total assets .............................................. $250,000 $400,000
Accounts payable ..................................... $ 30,000 $ 30,000
Accrued employee pensions...................... 20,000 22,000
Long-term debt......................................... 40,000 38,000
Capital stock ............................................ 100,000 -
Other contributed capital ......................... 25,000 -
Retained earnings .................................... 35,000 -
Total liabilities and equity ........................ $250,000 $ 90,000
Axel Corporation issues $110,000 par value ($350,000 market value on December 31, Year 4) of its own stock to the shareholders of Wheal Company to consummate the transaction, and Wheal Company becomes a wholly owned, consolidated subsidiary of Axel Corporation.
Required:
a. Prepare journal entries for Axel Corp. to record the acquisition of Wheal Company stock assuming (1) pooling accounting and (2) purchase accounting.
b. Prepare the worksheet entries for Axel Corp. to eliminate the investment in Wheal Company stock in preparation for a consolidated balance sheet at December 31, Year 4 assuming (1) pooling accounting and (2) purchase accounting.
c. Calculate consolidated retained earnings at December 31, Year 4 (Axel's retained earnings at this date are $150,000), assuming:
(1) Axel Corp. uses the pooling method for this business combination.
(2) Axel Corp. uses the purchase method for acquisition of Wheal Company.
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Linda Blye opened Cardinal Window Washing Inc. on July 1, 2010
ACCOUNTING
P4-8A Linda Blye opened Cardinal Window Washing Inc. on July 1, 2010. During July the following transactions were completed.
July 1 Issued 11,000 shares of common stock for $11,000 cash.
July 1 Purchased used truck for $9,000, paying $2,000 cash and the balance on account.
July 3 Purchased cleaning supplies for $900 on account.
July 5 Paid $1,800 cash on 1-year insurance policy effective July 1.
July 12 Billed customers $3,200 for cleaning services.
July 18 Paid $1,000 cash on amount owed on truck and $500 on amount owed on cleaning supplies.
July 20 Paid $2,000 cash for employee salaries.
July 21 Collected $1,400 cash from customers billed on July 12.
July 25 Billed customers $2,500 for cleaning services.
July 31 Paid $260 for gas and oil used in the truck during month.
July 31 Declared and paid a $600 cash dividend.
Instructions
(a) Journalize the July transactions.
(b) Post to the ledger accounts. (Use T accounts.)
(c) Prepare a trial balance at July 31.
(d) Journalize the following adjustments.
(1) Services provided but unbilled and uncollected at July 31 were $1,700.
(2) Depreciation on equipment for the month was $250.
(3) One-twelfth of the insurance expired.
(4) An inventory count shows $360 of cleaning supplies on hand at July 31.
(5) Accrued but unpaid employee salaries were $400.
(e) Post adjusting entries to the T accounts.
(f) Prepare an adjusted trial balance.
(g) Prepare the income statement and a retained earnings statement for July and a classified
balance sheet at July 31.
(h) Journalize and post closing entries and complete the closing process.
(i) Prepare a post-closing trial balance at July 31.
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P4-8A Linda Blye opened Cardinal Window Washing Inc. on July 1, 2010. During July the following transactions were completed.
July 1 Issued 11,000 shares of common stock for $11,000 cash.
July 1 Purchased used truck for $9,000, paying $2,000 cash and the balance on account.
July 3 Purchased cleaning supplies for $900 on account.
July 5 Paid $1,800 cash on 1-year insurance policy effective July 1.
July 12 Billed customers $3,200 for cleaning services.
July 18 Paid $1,000 cash on amount owed on truck and $500 on amount owed on cleaning supplies.
July 20 Paid $2,000 cash for employee salaries.
July 21 Collected $1,400 cash from customers billed on July 12.
July 25 Billed customers $2,500 for cleaning services.
July 31 Paid $260 for gas and oil used in the truck during month.
July 31 Declared and paid a $600 cash dividend.
Instructions
(a) Journalize the July transactions.
(b) Post to the ledger accounts. (Use T accounts.)
(c) Prepare a trial balance at July 31.
(d) Journalize the following adjustments.
(1) Services provided but unbilled and uncollected at July 31 were $1,700.
(2) Depreciation on equipment for the month was $250.
(3) One-twelfth of the insurance expired.
(4) An inventory count shows $360 of cleaning supplies on hand at July 31.
(5) Accrued but unpaid employee salaries were $400.
(e) Post adjusting entries to the T accounts.
(f) Prepare an adjusted trial balance.
(g) Prepare the income statement and a retained earnings statement for July and a classified
balance sheet at July 31.
(h) Journalize and post closing entries and complete the closing process.
(i) Prepare a post-closing trial balance at July 31.
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C1 (Beta and Required Return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent return given here
FINANCE
C1 (Beta and Required Return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent return given here
A. Calculate the expected returns on the stock market and on the Chicago Gear Stock.
B. What is Chicago Gear Beta.
C. What is Chicago Gear's required return according to the CAPM:
Realized Return
State of the Market Probability that state occurs Stock Market Chicago Gear
Stagnant .2 -10% -15%
Slow Growth .35 10% 15
Average Growth .3 15 25
Rapid Growth .15 25 35
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C1 (Beta and Required Return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent return given here
A. Calculate the expected returns on the stock market and on the Chicago Gear Stock.
B. What is Chicago Gear Beta.
C. What is Chicago Gear's required return according to the CAPM:
Realized Return
State of the Market Probability that state occurs Stock Market Chicago Gear
Stagnant .2 -10% -15%
Slow Growth .35 10% 15
Average Growth .3 15 25
Rapid Growth .15 25 35
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B20 (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock
FINANCE
B20 (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analysts for A.G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimes, one of James' colleagues at the same firm, is less optimistic. Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.
A. What value would James estimate for this firm?
B. What value would Bret assign to the Medtrans stock?
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B20 (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analysts for A.G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimes, one of James' colleagues at the same firm, is less optimistic. Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.
A. What value would James estimate for this firm?
B. What value would Bret assign to the Medtrans stock?
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B18 (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the $1,000 principal in 10 years
FINANCE
B18 (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the $1,000 principal in 10 years. You pay only $500 for the bond.
A. You receive the coupon payments for three years and the bond defaults. After liquidating the firm. The bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is the realized return on your investment?
B. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?
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B18 (Default risk) You buy a very risky bond that promises a 9.5% coupon and return of the $1,000 principal in 10 years. You pay only $500 for the bond.
A. You receive the coupon payments for three years and the bond defaults. After liquidating the firm. The bondholders receive a distribution of $150 per bond at the end of 3.5 years. What is the realized return on your investment?
B. The firm does far better than expected and bondholders receive all of the promised interest and principal payments. What is the realized return on your investment?
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Monday, October 31, 2011
B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange
FINANCE
B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose Philadelphia Electric's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.
A. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?
B. Suppose that the yield to maturity for all these bonds changed instantaneously to 7%. What is the fair price of each bond now?
C. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?
D. Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer - versus shorter maturity bonds?
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B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose Philadelphia Electric's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.
A. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?
B. Suppose that the yield to maturity for all these bonds changed instantaneously to 7%. What is the fair price of each bond now?
C. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?
D. Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer - versus shorter maturity bonds?
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A12 (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25
FINANCE
A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is non growing. What is the required return on James River preferred stock?
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A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is non growing. What is the required return on James River preferred stock?
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A14 (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required
FINANCE
A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?
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A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth?
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A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%
FINANCE
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?
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A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?
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A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate
FINANCE
A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?
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A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?
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P8-4B The following information is available to reconcile Style Co's book balance of cash with its bank statement cash balance as of December 31, 2005
ACCOUNTING
ACC 225 Week 8
Problems 8-4B
The following information is available to reconcile Style Co.’s book balance of cash with its bank statement cash balance as of December 31, 2005:
a. After posting is complete, the December 31 cash balance according to the accounting records is $31,743.70, and the bank statement cash balance for that date is $45,091.80.
b. Check No. 1273 for $1,084.20 and Check No. 1282 for $390.00, both written and entered in the accounting records in December, are not among the canceled checks. Two checks, No. 1231 for $2,289.00 and No. 1242 for $370.50, were outstanding on the most recent November 30 reconciliation. Check No. 1231 is listed with the December canceled checks, but Check No. 1242 is not.
c. When the December checks are compared with entries in the accounting records, it is found that Check No. 1267 had been correctly drawn for $2,435 to pay for office supplies but was erroneously entered in the accounting records as $2,453.
d. Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation. One debit memorandum is for $749.50 and dealt with an NSF check for $732 received from a customer, Titus Industries, in payment of its account. The bank assessed a $17.50 fee for processing it. The second debit memorandum is a $79.00 charge for check printing. Style did not record these transactions before receiving the statement.
e. A credit memorandum indicates that the bank collected $20,000 cash on a note receivable for the company, deducted a $20 collection fee, and credited the balance to the company’s Cash account. Style did not record this transaction before receiving the statement.
f. Style’s December 31 daily cash receipts of $7,666.10 were placed in the bank’s night depository on that date, but do not appear on the December 31 bank statement.
Required
1. Prepare the bank reconciliation for this company as of December 31, 2005.
2. Prepare the journal entries necessary to bring the company’s book balance of cash into conformity with the reconciled cash balance as of December 31, 2005.
Analysis Component
3. Explain the nature of the communications conveyed by a bank when the bank sends the depositor (a) a debit memorandum and (b) a credit memorandum.
Check (1) Reconciled balance, $50,913.20; (2) Cr. Note Receivable $20,000
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ACC 225 Week 8
Problems 8-4B
The following information is available to reconcile Style Co.’s book balance of cash with its bank statement cash balance as of December 31, 2005:
a. After posting is complete, the December 31 cash balance according to the accounting records is $31,743.70, and the bank statement cash balance for that date is $45,091.80.
b. Check No. 1273 for $1,084.20 and Check No. 1282 for $390.00, both written and entered in the accounting records in December, are not among the canceled checks. Two checks, No. 1231 for $2,289.00 and No. 1242 for $370.50, were outstanding on the most recent November 30 reconciliation. Check No. 1231 is listed with the December canceled checks, but Check No. 1242 is not.
c. When the December checks are compared with entries in the accounting records, it is found that Check No. 1267 had been correctly drawn for $2,435 to pay for office supplies but was erroneously entered in the accounting records as $2,453.
d. Two debit memoranda are enclosed with the statement and are unrecorded at the time of the reconciliation. One debit memorandum is for $749.50 and dealt with an NSF check for $732 received from a customer, Titus Industries, in payment of its account. The bank assessed a $17.50 fee for processing it. The second debit memorandum is a $79.00 charge for check printing. Style did not record these transactions before receiving the statement.
e. A credit memorandum indicates that the bank collected $20,000 cash on a note receivable for the company, deducted a $20 collection fee, and credited the balance to the company’s Cash account. Style did not record this transaction before receiving the statement.
f. Style’s December 31 daily cash receipts of $7,666.10 were placed in the bank’s night depository on that date, but do not appear on the December 31 bank statement.
Required
1. Prepare the bank reconciliation for this company as of December 31, 2005.
2. Prepare the journal entries necessary to bring the company’s book balance of cash into conformity with the reconciled cash balance as of December 31, 2005.
Analysis Component
3. Explain the nature of the communications conveyed by a bank when the bank sends the depositor (a) a debit memorandum and (b) a credit memorandum.
Check (1) Reconciled balance, $50,913.20; (2) Cr. Note Receivable $20,000
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