ACCOUNTING
P. 7-4 Governments sometimes add to, but do not delete, their capital assets.
The following totals were drawn from Independence City’s “Schedule of Changes in Capital Assets by Function and Activity,” included in the city’s financial statements for the year ending June 30, 2012:
General capital assets, July, 1, 2011 $33,276,151
Additions/transfers-in 459,430
Deletions/transfers-out (265,795)
General capital assets, June 30, 2012 $33,469,786
The complete schedule disaggregates the data by function (e.g., general government, public safety, public works, health and welfare, culture, and recreation) and subfunction (e.g., park maintenance, recreation, tourism). Another schedule, “Schedule of General Capital Assets by Source,” shows the beginning and ending balances of the specific types of assets:
Type of Asset 2012 2011
Land $ 8,209,380 $ 8,209,380
Buildings $ 9,293,847 $ 9,292,611
Improvements other $ 1,088,307 $ 1,088,307
than buildings
Office furniture and $ 4,863,535 $ 4,536,506
equipment
Mobile equipment $ 7,834,277 $ 8,073,945
Other equipment $ 2,180,440 $ 2,075,402
Total $ 33,469,786 $ 33,276,151
1. Assume that the assets, excluding land, had an average useful life of 20 years. What percentage of the total assets, excluding land, would you expect to have been retired each year?
2. What percentage of the assets (beginning of year values). Excluding land, were actually retired during 2012 (assuming that all deletions/transfers out represent retirements?
3. What was the average useful life of the assets as implied by this percentage?
4. Assume that the entire $265,795 of the deletions and transfers-out applied to the mobile equipment. What would have been the useful life of the equipment as suggested by the percentage of the equipment retired?
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Friday, January 27, 2012
4-62 (Lincoln Federal Savings and Loan)
ACCOUNTING
4-62 (Lincoln Federal Savings and Loan) The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan, a California savings and loan (S&L) that was a subsidiary of American Continental Company, a real estate development company run by Charles Keating.
Required:
a. After reading the discussion of Lincoln Federal Savings and Loan, identify the risk areas that should be identified in planning for the audit.
b. Briefly discuss the risks identified and the implication of those risks for the conduct of the audit.
c. The auditor did review a few independent appraisals indicating the market value of the real estate in folders for loans. How convincing are such appraisals? In other words, what attributes are necessary in order for the appraisals to constitute persuasive evidence?
Lincoln Federal Savings & Loan
Savings and Loan industry background-the S&L industry was developed in the early part of the century in response to a perceived need to provide low-cost financing to encourage home ownership. As such, legislation by Congress made the S&L industry the primary financial group allowed low-cost home ownership loans (mortgages).
For many years, the industry operated by accepting relatively long-term deposits from customers and making 25- to – 30-year loans at fixed rates on home mortgages. The industry was generally considered to be safe. Most of the S&Ls (also known as thrifts) were small, federally chartered institutions with deposits insured by the FSLIC. “Get your deposits in, make loans, sit back, and earn your returns. Get to work by 9 A.M. and out to the golf course by noon” Seemed to be the motto of many S&L managers.,
Changing economic environment-During the 1970s, two major economic events hit the S&L industry. First, the rate of inflation had reached an all-time high. Prime interest rates had gone as high as 19.5%. Second, deposits were being drawn away from the S&Ls by new competitors that offered short-term variable rates substantially higher than current passbook savings rates. The S&Ls responded by increasing the rates on certificates of deposit to extraordinary levels (15 or 16%) while servicing mortgages with 20-to 30-year maturities made at old rates of 7 to 8%. The S&Ls attempted to mitigate the problem by offering variable-rate mortgages or by selling off some of their mortgages (at substantial losses) to other firms.
However, following regulatory accounting principles, the S&Ls were not required to recognize market values of loans that were not sold. Thus, even if loan values were substantially less than the book value, they would continue to be carried at book value as long as the mortgage holder was not in default.
Changing regulatory environment-Congress moved to deregulate the S&L industry. During the first half of 1982, the S&L industry lost a record $3.3 billion (even without marking loans down to real value). In August 1982, President Reagan signed the Garn-St Germain Depository Institutions Act of 1982, hailing it as “the most important legislation for financial institutions in 50 years.” The bill had several key elements:
• S&Ls would be allowed to offer money market funds free from withdrawal penalties or interest rate regulation.
• S&Ls could invest up to 40% of their assets in nonresidential real estate lending. Commercial lending was much riskier than home lending, but the potential returns were greater. In addition, the regulators helped the deregulatory fever by removing a regulation that had required a saving and loan institution to have 400 stockholders with no one owning more than 25% to allowing a single shareholder to own a savings and loan institution.
• The bill allowed thrifts to stop requiring traditional down payments and to provide 100% financing, with the borrower not required to invest a dime of personal money in the deal.
• The bill permitted thrifts to make real estate loans anywhere. They had previously been required to make loans on property located only in their own geographic area.
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4-62 (Lincoln Federal Savings and Loan) The following is a description of various factors that affected the operations of Lincoln Federal Savings and Loan, a California savings and loan (S&L) that was a subsidiary of American Continental Company, a real estate development company run by Charles Keating.
Required:
a. After reading the discussion of Lincoln Federal Savings and Loan, identify the risk areas that should be identified in planning for the audit.
b. Briefly discuss the risks identified and the implication of those risks for the conduct of the audit.
c. The auditor did review a few independent appraisals indicating the market value of the real estate in folders for loans. How convincing are such appraisals? In other words, what attributes are necessary in order for the appraisals to constitute persuasive evidence?
Lincoln Federal Savings & Loan
Savings and Loan industry background-the S&L industry was developed in the early part of the century in response to a perceived need to provide low-cost financing to encourage home ownership. As such, legislation by Congress made the S&L industry the primary financial group allowed low-cost home ownership loans (mortgages).
For many years, the industry operated by accepting relatively long-term deposits from customers and making 25- to – 30-year loans at fixed rates on home mortgages. The industry was generally considered to be safe. Most of the S&Ls (also known as thrifts) were small, federally chartered institutions with deposits insured by the FSLIC. “Get your deposits in, make loans, sit back, and earn your returns. Get to work by 9 A.M. and out to the golf course by noon” Seemed to be the motto of many S&L managers.,
Changing economic environment-During the 1970s, two major economic events hit the S&L industry. First, the rate of inflation had reached an all-time high. Prime interest rates had gone as high as 19.5%. Second, deposits were being drawn away from the S&Ls by new competitors that offered short-term variable rates substantially higher than current passbook savings rates. The S&Ls responded by increasing the rates on certificates of deposit to extraordinary levels (15 or 16%) while servicing mortgages with 20-to 30-year maturities made at old rates of 7 to 8%. The S&Ls attempted to mitigate the problem by offering variable-rate mortgages or by selling off some of their mortgages (at substantial losses) to other firms.
However, following regulatory accounting principles, the S&Ls were not required to recognize market values of loans that were not sold. Thus, even if loan values were substantially less than the book value, they would continue to be carried at book value as long as the mortgage holder was not in default.
Changing regulatory environment-Congress moved to deregulate the S&L industry. During the first half of 1982, the S&L industry lost a record $3.3 billion (even without marking loans down to real value). In August 1982, President Reagan signed the Garn-St Germain Depository Institutions Act of 1982, hailing it as “the most important legislation for financial institutions in 50 years.” The bill had several key elements:
• S&Ls would be allowed to offer money market funds free from withdrawal penalties or interest rate regulation.
• S&Ls could invest up to 40% of their assets in nonresidential real estate lending. Commercial lending was much riskier than home lending, but the potential returns were greater. In addition, the regulators helped the deregulatory fever by removing a regulation that had required a saving and loan institution to have 400 stockholders with no one owning more than 25% to allowing a single shareholder to own a savings and loan institution.
• The bill allowed thrifts to stop requiring traditional down payments and to provide 100% financing, with the borrower not required to invest a dime of personal money in the deal.
• The bill permitted thrifts to make real estate loans anywhere. They had previously been required to make loans on property located only in their own geographic area.
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13-36 (Prepare Budgeted Financial Statements) The following information is available for year 1 for Dancer Components
ACCOUNTING
13-36 (Prepare Budgeted Financial Statements) The following information is available for year 1 for Dancer Components:
Revenues (300,000 units). . . . . . . . . . $5,700,000
Manufacturing costs
Materials . . . . . . . . . . . . . . . . . . . . . $ 336,000
Variable cash costs . . . . . . . . . . . . . 284,800
Fixed cash costs . . . . . . . . . . . . . . . 655,200
Depreciation (fixed) . . . . . . . . . . . . . 1,998,000
Marketing and administrative costs
Marketing (variable, cash) . . . . . . . . 844,800
Marketing depreciation . . . . . . . . . . 299,200
Administrative (fixed, cash) . . . . . . . 1,018,400
Administrative depreciation . . . . . . . 149,600
Total costs . . . . . . . . . . . . . . . . . . $5,586,000
Operating profits . . . . . . . . . . . . . . . . . $ 114,000
All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 18 percent, but prices are expected to fall by 5 percent. Material costs per unit are expected to decrease by 8 percent. Other unit variable manufacturing costs are expected to decrease by 2 percent per unit. Fixed manufacturing costs are expected to increase by 5 percent.
Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Dancer operates on a cash basis.
Required
Prepare a budgeted income statement for year 2.
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13-36 (Prepare Budgeted Financial Statements) The following information is available for year 1 for Dancer Components:
Revenues (300,000 units). . . . . . . . . . $5,700,000
Manufacturing costs
Materials . . . . . . . . . . . . . . . . . . . . . $ 336,000
Variable cash costs . . . . . . . . . . . . . 284,800
Fixed cash costs . . . . . . . . . . . . . . . 655,200
Depreciation (fixed) . . . . . . . . . . . . . 1,998,000
Marketing and administrative costs
Marketing (variable, cash) . . . . . . . . 844,800
Marketing depreciation . . . . . . . . . . 299,200
Administrative (fixed, cash) . . . . . . . 1,018,400
Administrative depreciation . . . . . . . 149,600
Total costs . . . . . . . . . . . . . . . . . . $5,586,000
Operating profits . . . . . . . . . . . . . . . . . $ 114,000
All depreciation charges are fixed and are expected to remain the same for year 2. Sales volume is expected to increase by 18 percent, but prices are expected to fall by 5 percent. Material costs per unit are expected to decrease by 8 percent. Other unit variable manufacturing costs are expected to decrease by 2 percent per unit. Fixed manufacturing costs are expected to increase by 5 percent.
Variable marketing costs will change with volume. Administrative cash costs are expected to increase by 10 percent. Inventories are kept at zero. Dancer operates on a cash basis.
Required
Prepare a budgeted income statement for year 2.
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5-42 (Monitoring Activities) Companies can gain efficiencies by implementing effective monitoring of their internal control processes
ACCOUNTING
5-42 (Monitoring Activities, LO 2) Companies can gain efficiencies by implementing effective monitoring of their internal control processes.
Required:
a. Explain the importance of monitoring and provide examples of monitoring.
b. Identify the important monitoring procedures that a company might use in assessing its controls over revenue recognition and costs that might be utilized in each of the following situations:
• A convenience store such as a 7-Eleven
• A chain restaurant such as Olive Garden
• A manufacturing division making rubberized containers for the consumer market
c. Can the auditor focus the assessment of internal control on testing the effectiveness of the company’s monitoring? Discuss and support your conclusion. Discuss, for example, the level of comfort the auditor can get about the effectiveness of other controls by testing the effectiveness of monitoring controls.
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5-42 (Monitoring Activities, LO 2) Companies can gain efficiencies by implementing effective monitoring of their internal control processes.
Required:
a. Explain the importance of monitoring and provide examples of monitoring.
b. Identify the important monitoring procedures that a company might use in assessing its controls over revenue recognition and costs that might be utilized in each of the following situations:
• A convenience store such as a 7-Eleven
• A chain restaurant such as Olive Garden
• A manufacturing division making rubberized containers for the consumer market
c. Can the auditor focus the assessment of internal control on testing the effectiveness of the company’s monitoring? Discuss and support your conclusion. Discuss, for example, the level of comfort the auditor can get about the effectiveness of other controls by testing the effectiveness of monitoring controls.
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Sunday, November 13, 2011
4-56 (Analytical Review and Planning the Audit) The following table contains calculations of several key ratios for Indianola Pharmaceutical Company
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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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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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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