accounting problem
patrick07
ACCOUNTINGQUESTION.docxACCOUNTING QUESTION:
PART 1
1. Prat Corp. started the 2018 accounting period with $31,000 of assets (all cash), $12,500 of liabilities, and $16,000 of common stock. During the year, the Retained Earnings account increased by $16,550. The bookkeeper reported that Prat paid cash expenses of $31,500 and paid a $3,100 cash dividend to the stockholders, but she could not find a record of the amount of cash that Prat received for performing services. Prat also paid $5,500 cash to reduce the liability owed to the bank, and the business acquired $6,900 of additional cash from the issue of common stock.
Required
(Hint: Determine the amount of beginning retained earnings before considering the effects of the current period events. It also might help to record all events under an accounting equation before preparing the statements.)
1. a-1. Prepare an income statement for the 2018 accounting period.
2. a-2. Prepare a statement of changes in stockholders’ equity for the 2018 accounting period.
3. a-3. Prepare a period-end balance sheet for the 2018 accounting period.
4. a-4. Prepare a statement of cash flows for the 2018 accounting period.
5. come Statement For the Year Ended December 31, 2018
6. come StatementFor the Year Ended December 31, 2018
2. Munoz Manufacturing Company was started on January 1, 2018, when it acquired $80,000 cash by issuing common stock. Munoz immediately purchased office furniture and manufacturing equipment costing $7,000 and $25,200, respectively. The office furniture had an eight-year useful life and a zero salvage value. The manufacturing equipment had a $3,900 salvage value and an expected useful life of three years. The company paid $11,300 for salaries of administrative personnel and $15,600 for wages to production personnel. Finally, the company paid $10,920 for raw materials that were used to make inventory. All inventory was started and completed during the year. Munoz completed production on 4,100 units of product and sold 3,180 units at a price of $15 each in 2018. (Assume that all transactions are cash transactions and that product costs are computed in accordance with GAAP.)
Required
a. Determine the total product cost and the average cost per unit of the inventory produced in 2018. (Round "Average cost per unit" to 2 decimal places.)
b. Determine the amount of cost of goods sold that would appear on the 2018 income statement. (Do not round intermediate calculations.)
c. Determine the amount of the ending inventory balance that would appear on the December 31, 2018, balance sheet. (Do not round intermediate calculations.)
d. Determine the amount of net income that would appear on the 2018 income statement. (Round your answer to the nearest dollar amount.)
e. Determine the amount of retained earnings that would appear on the December 31, 2018, balance sheet. (Round your answer to the nearest dollar amount.)
f. Determine the amount of total assets that would appear on the December 31, 2018, balance sheet. (Round your answer to the nearest dollar amount.)
Required information
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3. Antioch Company makes eBook readers. The company had the following amounts at the beginning of 2018: Cash, $668,000; Raw Materials Inventory, $63,000; Work in Process Inventory, $21,000; Finished Goods Inventory, $58,000; Common Stock, $593,000; and Retained Earnings, $217,000. Antioch experienced the following accounting events during 2018. Other than the adjusting entries for depreciation, assume that all transactions are cash transactions.
1. Paid $24,000 of research and development costs.
2. Paid $50,000 for raw materials that will be used to make eBook readers.
3. Placed $97,000 of the raw materials cost into the process of manufacturing eBook readers.
4. Paid $61,000 for salaries of selling and administrative employees.
5. Paid $107,000 for wages of production workers.
6. Paid $71,000 to purchase equipment used in selling and administrative offices.
7. Recognized depreciation on the office equipment. The equipment was acquired on January 1, 2018. It has a $11,000 salvage value and a six-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($71,000 – $11,000) ÷ 6 = $10,000.
8. Paid $149,000 to purchase manufacturing equipment.
9. Recognized depreciation on the manufacturing equipment. The equipment was acquired on January 1, 2018. It has a $29,000 salvage value and a eight-year life. The amount of depreciation is computed as [(Cost – salvage) ÷ useful life]. Specifically, ($149,000 – $29,000) ÷ 8 = $15,000.
10. Paid $55,000 for rent and utility costs on the manufacturing facility.
11. Paid $80,000 for inventory holding expenses for completed eBook readers (rental of warehouse space, salaries of warehouse personnel, and other general storage cost).
12. Completed and transferred eBook readers that had total cost of $260,000 from work in process inventory to finished goods.
13. Sold 920 eBook readers for $438,000.
14. It cost Antioch $202,400 to make the eBook readers sold in Event 13.
1. c-1. Prepare a schedule of cost of goods manufactured and sold for the year. (Amounts to be deducted should be indicated with a minus sign.)
1. c-2. Prepare a formal income statement for the year.
1. c-3. Prepare a balance sheet for the year.
Part 2
1. Jordan Company, which expects to start operations on January 1, 2018, will sell digital cameras in shopping malls. Jordan has budgeted sales as indicated in the following table. The company expects a 15 percent increase in sales per month for February and March. The ratio of cash sales to sales on account will remain stable from January through March.
Required
a. Complete the sales budget by filling in the missing amounts.
b. Determine the amount of sales revenue Jordan will report on its first quarter pro forma income statement.
Complete this question by entering your answers in the tabs below.
· Required A
· Required B
Complete the sales budget by filling in the missing amounts. (Round intermediate calculations and final answers to 2 decimal places.)
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Determine the amount of sales revenue Jordan will report on its first quarter pro forma income statement. (Round intermediate calculations and final answer to 2 decimal places.)
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2. The budget director of Heather’s Florist has prepared the following sales budget. The company had $400,000 in accounts receivable on July 1. Heather’s Florist normally collects 100 percent of accounts receivable in the month following the month of sale.
Required
a. Complete the schedule of cash receipts by filling in the missing amounts.
b. Determine the amount of accounts receivable the company will report on its third quarter pro forma balance sheet.
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· Determine the amount of accounts receivable the company will report on its third quarter pro forma balance sheet.
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3. Finch Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Finch’s policy is to maintain an ending inventory balance equal to 15 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $79,000.
Required
a. Complete the inventory purchases budget by filling in the missing amounts.
b. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.
c. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.
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· Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.
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4. Zachary Books buys books and magazines directly from publishers and distributes them to grocery stores. The wholesaler expects to purchase the following inventory:
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April |
May |
June |
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Required purchases (on account) |
$ |
115,000 |
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$ |
135,000 |
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$ |
147,000 |
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Zachary Books’s accountant prepared the following schedule of cash payments for inventory purchases. Zachary Books’s suppliers require that 90 percent of purchases on account be paid in the month of purchase; the remaining 10 percent are paid in the month following the month of purchase.
Required
a. Complete the schedule of cash payments for inventory purchases by filling in the missing amounts.
b. Determine the amount of accounts payable the company will report on its pro forma balance sheet at the end of the second quarter.
Complete the schedule of cash payments for inventory purchases by filling in the missing amounts.
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Determine the amount of accounts payable the company will report on its pro forma balance sheet at the end of the second quarter.
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5. The budget director for Thornton Cleaning Services prepared the following list of expected selling and administrative expenses. All expenses requiring cash payments are paid for in the month incurred except salary expense and insurance. Salary is paid in the month following the month in which it is incurred. The insurance premium for six months is paid on October 1. October is the first month of operations; accordingly, there are no beginning account balances.
Required
a. Complete the schedule of cash payments for S&A expenses by filling in the missing amounts.
b. Determine the amount of salaries payable the company will report on its pro forma balance sheet at the end of the fourth quarter.
c. Determine the amount of prepaid insurance the company will report on its pro forma balance sheet at the end of the fourth quarter.
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· Determine the amount of salaries payable and prepaid insurance the company will report on its pro forma balance sheet at the end of the fourth quarter.
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6. The accountant for Benson’s Dress Shop prepared the following cash budget. Benson’s desires to maintain a cash cushion of $17,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 2 percent per month.
Required
a. Complete the cash budget by filling in the missing amounts.
b. Determine the amount of net cash flows from operating activities Benson’s will report on the third quarter pro forma statement of cash flows.
c. Determine the amount of net cash flows from financing activities Benson’s will report on the third quarter pro forma statement of cash flows.
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· Determine the amount of net cash flows from both operating and financing activities Benson's will report on the third quarter pro forma statement of cash flows. (Round intermediate calculations and final answers to the nearest whole dollar amount.)
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7. Lois Bragg owns a small restaurant in Boston. Ms. Bragg provided her accountant with the following summary information regarding expectations for the month of June. The balance in accounts receivable as of May 31 is $51,000. Budgeted cash and credit sales for June are $141,000 and $596,000, respectively. Credit sales are made through Visa and MasterCard and are collected rapidly. Sixty percent of credit sales is collected in the month of sale, and the remainder is collected in the following month. Ms. Bragg's suppliers do not extend credit. Consequently, she pays suppliers on the last day of the month. Cash payments for June are expected to be $709,000. Ms. Bragg has a line of credit that enables the restaurant to borrow funds on demand; however, they must be borrowed on the last day of the month. Interest is paid in cash also on the last day of the month. Ms. Bragg desires to maintain a $33,000 cash balance before the interest payment. Her annual interest rate is 11 percent.
Required
a. Compute the amount of funds Ms. Bragg needs to borrow for June.
b. Determine the amount of interest expense the restaurant will report on the June pro forma income statement.
c. What amount will the restaurant report as interest expense on the July pro forma income statement? (Round your answer to 2 decimal places.)
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Jacob Long, the controller of Arvada Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow:
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First Quarter |
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Second Quarter |
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Third Quarter |
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Fourth Quarter |
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Total |
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Sales revenue |
$ |
186,000 |
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$ |
216,000 |
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$ |
226,000 |
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$ |
276,000 |
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$ |
904,000 |
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Cost of goods sold |
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111,600 |
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129,600 |
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135,600 |
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165,600 |
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542,400 |
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Gross profit |
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74,400 |
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86,400 |
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90,400 |
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110,400 |
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361,600 |
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Selling & administrative expenses |
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18,600 |
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21,600 |
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22,600 |
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27,600 |
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90,400 |
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Net income |
$ |
55,800 |
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$ |
64,800 |
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$ |
67,800 |
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$ |
82,800 |
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$ |
271,200 |
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Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales revenue.
8. Fred Arvada, the chief executive officer, told Mr. Long that he expected sales next year to be 15 percent for each respective quarter above last year’s level. However, Rita Banks, the vice president of sales, told Mr. Long that she believed sales growth would be only 10 percent.
Required
a. Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate.
b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’s estimate.
Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvada’s estimate.
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c.
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Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Banks’s estimate.
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B1. Jordan Pointers Corporation expects to begin operations on January 1, 2019; it will operate as a specialty sales company that sells laser pointers over the Internet. Jordan expects sales in January 2019 to total $340,000 and to increase 15 percent per month in February and March. All sales are on account. Jordan expects to collect 68 percent of accounts receivable in the month of sale, 22 percent in the month following the sale, and 10 percent in the second month following the sale.
Required
a. Prepare a sales budget for the first quarter of 2019.
b. Determine the amount of sales revenue Jordan will report on the first 2019 quarterly pro forma income statement.
c. Prepare a cash receipts schedule for the first quarter of 2019.
d. Determine the amount of accounts receivable as of March 31, 2019.
B2. Franklin Medical Clinic has budgeted the following cash flows:
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January |
February |
March |
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Cash receipts |
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107,000 |
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$ |
113,000 |
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$ |
133,000 |
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Cash payments |
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For inventory purchases |
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93,500 |
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75,500 |
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88,500 |
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For S&A expenses |
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34,500 |
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35,500 |
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30,500 |
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Franklin Medical had a cash balance of $11,500 on January 1. The company desires to maintain a cash cushion of $6,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is 2 percent per month. Repayments may be made in any amount available. Franklin pays its vendors on the last day of the month also. The company had a monthly $40,000 beginning balance in its line of credit liability account from this year’s quarterly results.
Required
Prepare a cash budget. (Round intermediate and final answers to the nearest whole dollar amounts. Any repayments/shortage should be indicated with a minus sign. )
B3.) Jasper Fruits Corporation wholesales peaches and oranges. Barbara Jasper is working with the company’s accountant to prepare next year’s budget. Ms. Jasper estimates that sales will increase 7 percent for peaches and 12 percent for oranges. The current year’s sales revenue data follow:
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First Quarter |
Second Quarter |
Third Quarter |
Fourth Quarter |
Total |
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Peaches |
$ |
238,000 |
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$ |
258,000 |
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$ |
318,000 |
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$ |
258,000 |
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$ |
1,072,000 |
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Oranges |
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409,000 |
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459,000 |
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579,000 |
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389,000 |
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1,836,000 |
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Total |
$ |
647,000 |
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$ |
717,000 |
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$ |
897,000 |
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$ |
647,000 |
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$ |
2,908,000 |
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Based on the company’s past experience, cost of goods sold is usually 70 percent of sales revenue. Company policy is to keep 10 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (Hint: Use the cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)
Required
a. Prepare the company’s sales budget for the next year for each quarter by individual product.
b. If the selling and administrative expenses are estimated to be $650,000, prepare the company’s budgeted annual income statement.
c. Ms.Jasper estimates next year’s ending inventory will be $34,400 for peaches and $56,100 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.
PART 3
1. Zachary Manufacturing Company established the following standard price and cost data.
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Sales price |
$ |
8.60 |
per unit |
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Variable manufacturing cost |
$ |
3.00 |
per unit |
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Fixed manufacturing cost |
$ |
2,600 |
total |
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Fixed selling and administrative cost |
$ |
700 |
total |
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Zachary planned to produce and sell 2,700 units. Actual production and sales amounted to 2,900 units.
Required
a. Prepare the pro forma income statement in contribution format that would appear in a master budget.
b. Prepare the pro forma income statement in contribution format that would appear in a flexible budget.
Required
2. Indicate whether each of the following variances is favorable (F) or unfavorable (U). The first one has been done as an example. (Select "None" if there is no effect (i.e., zero variance).)
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3. Vernon Manufacturing Company established the following standard price and cost data:
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Sales price |
$ |
8.80 |
per unit |
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Variable manufacturing cost |
$ |
3.60 |
per unit |
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Fixed manufacturing cost |
$ |
2,100 |
total |
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Fixed selling and administrative cost |
$ |
1,000 |
total |
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Vernon planned to produce and sell 2,500 units. Actual production and sales amounted to 2,600 units.
Required
a. Determine the sales and variable cost volume variances.
b. Classify the variances as favorable (F) or unfavorable (U).
d. Determine the amount of fixed cost that will appear in the flexible budget.
e. Determine the fixed cost per unit based on planned activity and the fixed cost per unit based on actual activity.
4. Campbell Medical Equipment Company makes a blood pressure measuring kit. Jason McCoy is the production manager. The production department’s static budget and actual results for 2019 follow:
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Static Budget |
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Actual Results |
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Production in units |
34,000 kits |
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35,200 kits |
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Direct materials |
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$ |
224,400 |
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$ |
269,820 |
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Direct labor |
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190,400 |
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191,220 |
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Variable manufacturing overhead |
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51,000 |
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55,000 |
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Total variable costs |
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465,800 |
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516,040 |
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Fixed manufacturing overhead |
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217,000 |
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212,700 |
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Total manufacturing cost |
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$ |
682,800 |
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$ |
728,740 |
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Required
a. Convert the static budget into a flexible budget.
b. Calculate the variances.
5. An investment center of Rooney Corporation shows an operating income of $6,844 on total operating assets of $58,000.
Required
Compute the return on investment. (Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
6. Thornton Company calculated its return on investment as 10 percent. Sales are now $460,000, and the amount of total operating assets is $480,000.
Required
a. If expenses are reduced by $44,400 and sales remain unchanged, what return on investment will result? (Round your answer to 2 decimal places. (i.e., .2345 should be entered as 23.45).)
b. If both sales and expenses cannot be changed, what change in the amount of operating assets is required to achieve the same result? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
7. Munoz Corporation has a desired rate of return of 9 percent. William Tobin is in charge of one of Munoz’s three investment centers. His center controlled operating assets of $2,450,000 that were used to earn $267,000 of operating income.
Required
Compute Mr. Tobin’s residual income.
8. Gibson Cough Drops operates two divisions. The following information pertains to each division for 2018:
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Division A |
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Division B |
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Sales |
$ |
210,000 |
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$ |
91,000 |
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Operating income |
$ |
16,100 |
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$ |
8,500 |
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Average operating assets |
$ |
57,000 |
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$ |
37,000 |
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Company's desired rate of return |
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16 |
% |
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16 |
% |
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Required
a. Compute each division’s residual income.
b. Which division increased the company’s profitability more?
3A. Howard Cooper, the president of Walton Computer Services, needs your help. He wonders about the potential effects on the firm’s net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2019.
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Standard rate and variable costs |
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Service rate per hour |
$ |
88.00 |
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Labor cost |
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30.00 |
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Overhead cost |
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6.60 |
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Selling, general, and administrative cost |
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3.40 |
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Expected fixed costs |
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Facility maintenance |
$ |
520,000 |
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Selling, general, and administrative |
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142,000 |
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Required:
a. Prepare the pro forma income statement that would appear in the master budget if the firm expects to provide 37,000 hours of services in 2019.
b. A marketing consultant suggests to Mr. Cooper that the service rate may affect the number of service hours that the firm can achieve. According to the consultant’s analysis, if Walton charges customers $83 per hour, the firm can achieve 45,000 hours of services. Prepare a flexible budget using the consultant’s assumption.
c. The same consultant also suggests that if the firm raises its rate to $93 per hour, the number of service hours will decline to 30,000. Prepare a flexible budget using the new assumption
3B. Walton Publications established the following standard price and costs for a hardcover picture book that the company produces.
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Standard price and variable costs |
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Sales price |
$ |
36.40 |
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Materials cost |
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8.90 |
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Labor cost |
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3.50 |
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Overhead cost |
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5.50 |
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Selling, general, and administrative costs |
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6.30 |
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Planned fixed costs |
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Manufacturing overhead |
$ |
129,000 |
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Selling, general, and administrative |
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50,000 |
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Walton planned to make and sell 30,000 copies of the book.
Required:
a. - d. Prepare the pro forma income statement that would appear in the master budget and also flexible budget income statements, assuming production volumes of 29,000 and 31,000 units. Determine the sales and variable cost volume variances, assuming volume is actually 31,000 units. Indicate whether the variances are favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)
3C. Finch Corporation’s balance sheet indicates that the company has $560,000 invested in operating assets. During 2018, Finch earned operating income of $62,720 on $1,120,000 of sales.
Required
a. Compute Finch’s profit margin for 2018.
b. Compute Finch’s turnover for 2018.
c. Compute Finch’s return on investment for 2018.
d. Recompute Finch’s ROI under each of the following independent assumptions: (1) Sales increase from $1,120,000 to $1,344,000, thereby resulting in an increase in operating income from $62,720 to $67,200. (2) Sales remain constant, but Finch reduces expenses, resulting in an increase in operating income from $62,720 to $64,960. (3) Finch is able to reduce its invested capital from $560,000 to $448,000 without affecting operating income.
