Homework Help request: Please help, Thank you

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524 ACC201

L07

L03

C E RG ES c.feb~S194.1lD

March: S/J3,400

L04.1 CHECXRG ES a. Ma'(.$7I,ooo c. Jene: $16,760

Exen:ise 14-15 PrePRring pro forma income sttdemeJrts with different flSnlmptWru . 'orman Jelen, the contreller of Wing Corporation, is trying to prepare a sales budget for the corning year, The income statements for tbe last four quarters foUow.

First Second Third fouJtll Quarter Quarter Quarter Quarter Tatll

Sales revenue S170.0Jl 5200.000 S210.tm 5260.000 S640.000 Cost of gooos sold 102.000 120.000 126.tm ~ ~ Gross profit 68.tm 110,000 84,D00 104.000 336.000 Seling & admin. expense 17,llXl ~ 21,D00 26.000 ~ Net Income S 51.,000 560.000 S 63.tm S 18.000 S252.00D

Historically. cost of goods sold is about 60 percent of sales revenue. Selling and administra- tive expenses are about 10 percent of sales revenue.

Sam Wing. the chief executive officer. told Mr. Jelen that he expected sales next year to be 10 percent for each respective quarter above last )-ear'$ level, However; Glenda Sullivan, the vice president of sales, IOId Mr. Jelen that she believed sales grov.'tb would be only 5 percent,

1Ie~.iRd •.. Prepar-e a pro forma income statement including quarterly budgets for the coming year using

Mr. Wing's estimate. b. P~ a pro forma income statement including quarterly budgets for the coming year using

M$. Sullivan's estimate. e, £splain \>oily two exe..-uti"" officers in the same company could have different estimates of

future growth.

PRlBLEMS

AUapplicable ProbletallFlt IIvailable with McGrawMill's ComIfICt AccDllllfi",.

P 14-1& Prepgring /I sales lNuiget and 5cheda1e of ClUh receipts ~yl't!inla'S lee, txpec!510 begin operatioos onJaooary 1.2012; it willoperate as a specialty sal<s~' that sdh Wet poinI.en O\-etthe In=nK McCarty e:<p<ClS sales in January 2012 to total S2OO,ooo and 10 i!Icrea5e 10 pe1a!l'It per month in February and Man:h. All sales are on ae- count. p.1cCarty expectS 10 eoIIect 70 percent of accounts reccivabIe in the month of sate, 20 percent in the month following the and 10 peroen! in the seeond month foD.owingthe saJe.

Relllin:d

II, Prepare a sales budget for the fltSt quarter of 20 12. b. Determine the amount of sales menue )I1cCatty will repon on the first 2012 quarterly pro

rerma income statement. c. Prepare a easb receipu schedule for the first quarte •. of 2012. d. o.:termine the amount of accounts receh'3ble as of Macdt 31. 2012.

IUI inventory purclrtues budget and scluuhde of Cluh

paoy's marketing director developed the follcwing cost of and JuI)·.

Bu~geted cost of goods sold

May

S70,000

Jane July

$86.noo58lJ.noo

Spratt bad a begillJling inventory balance of accoums payable of SI4,800. The company de .

,600 on April I and a beginning balance in o maintain an ending inventory balance

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Survey or Accounting. Third Edition

PIonn.ng fry pro'£. ••nd Cast Control

equal to 10 percent of tbe next period's of 800d£ sold. Spratt makes all purchases on ac- count. The company pays 60 percent aecounts pa)'3bk in !be month of purchase and tbe re- maining 40 percern in the month fo ing purcllase.

Requinrd II- Prepare an inventory p ses booStt for April, :\iay. and June. b. Determine the amoun of ending inventory Sprat! will report on the end-of-quarter pro

forma balance sb c. Prepare a scbed of cash payments for inventory for April, May, and June. d. Determine balance in accounts payable Spratt will report on the end-of-quarter pro

forma b sheet.

Problem 14-18 PreparifIJ: pro fomtll incom« statements with diffirenllUsumptWm Top executive office.r5 of Zortoli Company, a merehandieicg firm, are preparing the nett year's budget. The controller has provided e~ne with the current )'ear's projected income statemenL

La7

CHECK FICU a.I2.75%

Current Ye.r

SSIK re'lenue CaS1 of goods sold GlllSs profc Selling & admil. expensK Net income

$2,000.000 1,400.llOO

6OO,!Dl 26ll,!Dl

~

Cost of goods sold is usually 70 percent of sales revenue, and selling and administrative a- penses are usuaUy 10 percent of sales plus a fixed cost of S6O,000.The president has announced that tbe company's goal is to increase net income by IS percent,

Requinr411 The following items are independent of each other,

II- What percentage i1lC1'e<Win saI<$'I"Ouldenable tbe company to reach its goal? Support your answer "ith a pro forma incoCIe Sl&tamttl.

b. The ma.ut may become stagnant next year, and the company does not expect an inaease in sales revenue, The productioo III3DaF be\it.'tS that an impro>'Cdproduction procedure can cut cost of goods sold by 2 peretnL \\-'hat else can !be compall} do to reach its goal? Ptepare a pro forma inCOID<stateoem illustrating >'OW proposal

Co The company decides to eiaIate its ad\~ campaign to boost consumer ~ which will increase selling and adtniJmtrative e.tpeme5 to 5340.000. Wllh the iDcn:aleci ad- vertising, the company expects sa1cs rn'Cl1llt to increase by IS peroml. Assuoe that cost or goods sold remains a constant proporllOfJ of Can the COIDJWI)' reach its goal?

Prob1m14-19 Preparilrg4u:JaedMkof J1IIFmatsf(Juel1i.KtDIIi~ La 5, 8 ~r~ltHs

Prestia is 'a rew.il company specializing in men's haIi Its ~ CirectDr prepartd the list or a- a. Sept: S2II.510 peered operating expenses that follows. All items are p;tid .-be:n the e:xpeose$_ incurred aapl sales eommissionsand utilities. which are paid in the Cl th after they are incurred. July is the fust month of operations, so there are no beginning account balances.

Salary &xpense Sales commissions i4 percent 01sales) Suppfles expense Utiities Depreciation on store e~ujpment Rent Miscell8f1eous Total S&A expenses before Interest

Jlly

518.000 1.700

36Il 1.100 3.000 6,SOO

~ ~

525

523

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526 ACC201

LOS C ECK G Feb. cash 'L'fplus bernre financing actJvine~S1.o10

L03. 4. 5

JC E RG

c. IstarR purctases for peaches: $141,120 2nd OTR purchases tor orar.ges: 5312.840

LO3. 4. 5. 6. 7

Required a, Prepare a schedule of cas nts for selling and administrative expenses. b, Oett.rmine tbe amou futilities payable as of September 30. e. Determine tbe a t of saJes commissions payable as of September 30.

Problem 14-20 Preparing tI ctlSh budget Kinman Medical Clinic bas budgeted the following cash flows.

January February March

CaSh receipts $100.000 S106.llOO Sl26,OO11 Cash pavmelllS

For inventory purchases !IO,ooo 72.llOO 85,001I For S&A expenses 31.000 32.000 27,001I

Kinnlon ~edical had a eash balance of SS,OOO on January I. The company desires to main- lain a cash cushion of SS,OOO. Funds an assumed to be borrowed, in increments of 81,000, and repaid on the last day of each month; the interest rate is 1 percent per month. Kinnion pays its vendor on the liI5t day of the month also, The company had a montWy S40,OOObeginning bal- ance in lts line of eredit liability account from this years quarterly results.

Req_iRd Prepare a cash budget. (Round all computations to the nearest whole dollar.)

Proble 14-21 Pre 'g budgds ••,ith tmdtipJe products Fresh Fruits Corporation '" lesales peaches and oranges. Lasbaoda King is working with the company', a:ountant to are next year's budget, Ms. King estimates that sales will in- crease S percent (or peaches an I 0 percent for oranges. The current year's saJes revenue data follow,

Rm QUlrWr Third Oaarter Fourth QarWr Tata' Peaehf!S mn,lXl(l 8300,000 SL40JlOO SUOl,lIOO Oranges 4OO,lXl(l 570.000 JIIl,ooO UOl.ooo Total S62D.ooo 5870.000 S62D,0Il0 52.10),000

Based on the company's past experience. revenue, Company policy is to keep 20 percent as th~ CUtrell! period:' ending inventory. (11int: determine the beginning inventory for the first

st of goods sold is usually 60 percent of sales the next period's estimated cost of goods sold

the cost of goods sold for the first quarter to .)

Required a, Prepare the companys sales budget for the aca )'e3r b. If the SC'Jlingand administrative expenses are

pan)"s Wdgeted annual inco= statement. c. Ms. King estimates next year's ending inventory will be S

oranges, Prepare tne company's in>-entol)' purchases bud tedy figures by produce

for peacbes and S56)lOO fOf the =year sbooo\-ingquar-

Problem 14-22 PreJHUing tI master budget fOl' tI rettW co'MpfUlJV"'lrIJ lID ~g tlCf'OlUlt bttlttncf<3

Paid Company is 3 rerail company that specializes in selling outdoor company is consjdeting opening a new store on October L 2012. The company

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s..vey or Acco.;nting. Third Edition

LOS.7 curreat ROJ of 20 petcenL The COClpany target

ROI is l~ percent. The Wade Division opportunity to ~t 55.000,000 at 18 percent but is reluctant to do so because its ROI . an to 19.2 percent, The present im=1 base for 1M division is 57,500,000.

IIlOU>'3le the Wade Division to make the investment by using the

PROBLEMS

.• connectAll appljcable Problem. are available with McGraw-Hill's Connect ACCDunting.

Problem 15-18 Determining SI1.1es and ~'{U'iIlblecost volume variances Todhunter Publications established the following standard price and costs [or a hardcover pic- rure book that the company produces.

SllIndard prtce and variable costs: Sales prtc:e Materials Labor Overhead General, seUing. and admilllstrative

Planr.ed ed eons: Maou'aclUrir.g General. seUing. and administrntive

L04

CHECX AGU ES a.NI = 581.000 b. I at2ll.1lIll units: $12.lXXl

S36.oo 9.00 4.50 6.30 7.2D

$135.000 54.000

Todbunter planned to make and sell 30,000 copies of the book.

RequiJed a. Prepare the pro forma income statement that would appear in the master budget. b. Prepare flexible budget income Stalemttlts, assuming volumes of 29.000 and 31,000 units. c. Determine the sales and variable cost volume variances, assuming volume is actually 31,000

units. d. Indicate whether the variances are favorable (F) or unfavorable (ll). c. Comment on how Todhunter could uu the ,ariance:s to evaluate performance,

Problem 15-19 Determining and interpreting flexibte budJ,<etvariances Use the standard price and coSt data supplied in Problem J5-18. Assume that Todhunter actually produced and sold 31.000 boon The actual sales price and costs incurred foDow.

Act\l1Il price and variable COilS: S.ales price Materials Labor Overhead General, seUing, and administr.ltlve

Actual fixed eo~ ManutaClUling Gensral, sellin~. and administrative

LOS

S35.oo 91.0 4.40 6.35 7.00

CHEC FIGURE Aexible bodgetvartance of NI: S2D,450 U

5120.000 60.000

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ACC201

558 a,.,~""" 15 Required a. Determine the flexible budget variances.

b. Indicate whether each variance is favorable (F) or unfavorable (L". e. Identify the management position responsible for each variance, Explain what could run'.

caused the variance.

L05

X Pro 11m 15-20 FluibJe bwlgetp/annUrg

Luke Chou, the president of Digitecb Computer Services, needs your help. He wonders about the potential clfe;:ts 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 2012.CHfCKAG ES

a. NI ~ SlSO.IJIJO c. NI ~ Sl62,5IlD

Standard (ate and vanable casts: Sef\Oice rate psr hour labor Overhad Genefal. 5elfing, and administrative

Expected fixed costs; FaciJ'lV repair General. seiling, and administrative

$80.00 40.00 UO 4.30

$5Z5,1JIJO.00 150,000.00

Req.ired •. Prepare the pro forma income statement that would appear in the master budget if the firm

expects to provide 30,000 hours of services in 2012. b, A marketing consultant SU88CS1S to Mr. Chou that the service rate may affect the number of

service hours that the firm can achieve. According to the consultant's analysis, if Digitech charges customers 575 per hour, the firm can achieve 38,000 hours of services, Prepare a !lex- ibk budget using the consultant's assumption.

e. The same consultant also suggests that if the firm raises its rate to SB5 per hour, the number of service hours will decline to 25,000. Prepare a flexible budget using (be new assumption,

d. Evaluate the three po ible outcomes ),OU determined in Requirements a, b, and C" and rec- ommend a pricing strategy.

LOS,7 Differ-em types of ruporuibiiity cesters

is a large municipal bank with several branch offices, The bank's com- all data processing for bank operations. In addition, the bank sells the

ise in systems dev-elopment and excess machine time to several them as a service bureau..

computer department as a cost center, The manager of the cost budget annually for senior bank officials to approve.

actual and budgeted expenses. Revenues from the depart- as other income by the bank and are not reflected on

The COSI.S of servicing these clients are included in

Liberty >lational puter department computer deportment '5 small busines! firms, servi

The bank currently computer department prepar Monthly operating reports com menl's service bureau activitio=oare the computer department's operating the computer department reports, ~.."..

The manager of the computer department computer department to a profit or investment

iklluired a. Describe the characteristics that differentiate a cost

center from each other.

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Survey of Ac.cowlting. Third Edition 591

LOa Lilly Painting Company is ronsidering ••.beth:r to $4,000. The machine is expected to sz>-elabor, in tive life of the machine is 15 years aceording

Required

a. Determine the uBadjusltd rate of b. What is the predominant ,

vestment opportunities'!

a!le'lli spr;!) paint machine that costs . ! net inlXllnt by S600 per year, The effec-

manW3CtU1"eI"',estir:late.

based on the average cost of the investmenr. ing of \l5ing the unadjusted rate of return to evaluate in-

Exercin 16-15 Co IiRg tlu pqbtzck period tIIId ll1JIlJijJutedraIL of ..man for imeslmeflf opportunity

urebase a van thai CO~15560,000; it bas an expected U<dUJlife of three years and Fay uses SO'aig/It-liaedepm:iation. Expected ~ is SJO.IXXlper!""".

L07, a

Fa)' Rentals no salvage

Requi

termiee the payback period. Determine the unadjusted rate of return based on the il'trage cost of tl:e im-estr:!enL

PROBLEMS

All applicable ProblellJs ani available with MeGnIW-Hilrs ConllflCt ACCDllnling. frob 16-16 UJing present Wlbu!tuluUqus to ntlbuzte tJr~ __

opportunities

Fast Delivery is a small company thaI transports business packages bet-= . 'n.' Yorlc and Chicago, Ir operates a fleet of small vans that 1DO\-"eS packages to and froc a c:mtraI depot within each 01 y and uses a common carrier to delli-er the packages ret..U>\ the depou in the noo cities. Fast receatly acquired approximatdy £6 million or cash capital from its ~ and its prcs;iOenL Don Keenon, is trying to identify the most profitabk way to imesI these funds.

Clarence Roy, the company's operations manager. believes that the money shouJd be used to expand the fleetof city vans at a COSt of 5720,000. He argues that more vans "'<llIId mabk the company to expand its services into new markets, thereby ~asinl! the reveoue base. ~ore specifically, be expects cash inflows to increase by S280,OOO pet year. The additional ans are expected 10 have ad average useful life of four)-ears and a combined saI\oage value of SIOO.OOO. Operating the vans will require additional y,,,rJcing capital of $40,000. whicb •••.iIl be I'CCO\,-emj "I the end of the fourth year.

In contrasr, Patricia Lipa, the company's chief accountant, believes that !be funds should be used to purchase large trucks to deliver the packages between the depots in the t•••" cities. The conversion process would produce continuing improvement in operating savings with reductions in cash outflows as the following,

comect

L03, 5, S

it. 01 tI'.e var.s irnIesonent: St 1II.B11.C2

b. m:Iex01the trucks uwestnett 1.12&

Yea.' Y_2

S32G,cm

Vea ••

$16l1.000 $400,000 S440.1lOO

The large trucks are expected to cost $800.000 and to have a four-year useful life and a 580,000 salvage value. In addition to the purchase price of the trucks, up-front training costs are expected to amount 10 S 16,000. Fast Deln-ery's management bas established a 16 percent desired rate of return.

Requi,.~

a. Determine the net present value of the two investment altemarives, b. Calculate the present value index for each alternative. e, Indicate which invcstment alternative )011 would recommend. Explain your choice.

5BS

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592 ACC201

590 et...p:.eI'16

LO •• 7. 8

CHECKAG ES a. Payback period of the yogUll

im;estmeot l.n vears Unadjusted rate of return olllle cappuccino investment 52.B6%

L03. 4. 8

CHECK AGURES a. NPV of A: S4,2ll8.!14 b. Rate 01 return ot B: 12%

L03. 6. 7

C ECX A a. NPV of 11: 551.309.36 b. Payback period of 12: less

than 2 years

Problem 16-17 U~ing tire payback period aNllUUJdjustedmt~ of return to ffllhuue u.It~r1Ulli.~inrestltJUlt oPPOr1JUfitus

Louis Gallo owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Gallo to offer frozen yogurt to customers. The machine would cost 58,100 and has an ex- pected useful life of three years with no salvage value, Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be 55,940 and 5900, respectively.

Alternatively, Mr. Gallo could purchase for S10,080 the equipment necessary to serve cap- puccino. That equipment has an expected useful life of four years and no salvage , .• lue, Addi- tional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be 58,280 and S2,430, respectively.

Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.

Required 3. Determine the payback period and unadjusted rate of return (use average investment) for

each alternative, b. Indicate which investment akernarive you would recommend. Explain your choice.

Probl8m 16-18 Uiling net pr"ileRt p<Jh« and Urterntd rate of return to ".,abud" westmeRt opportunities

Veronica Tanner, the president of Tanner Enterprises, is considering two investment opportuni- ties. Because of limited resources, she will be able to invest in ooly one of them. Project A is to purchase a machine that ••••~IIenable factory automation; the macbine is expected to have a useful life of four years and no salvage value. Project B supports a tralning program that will improve the skills of employees operating the current equipment. Initial cash expenditures for Project A are SIOO,OOOand for Project B are £40.000. The annual expected cash inflows are S31,487 for Project A and S 13, 169 for Project B. Both investments are expected to provide cash !low benefits for the next four years. Tanner Enterprise's COStof capital is 8 percent.

Req.il1ld a. Compute the cet present value of each project. Which project should be adopted based on

the net present value approach? b. Compute the approximate intemal rate of return of eacb project. Which one should be ad-

opted based on the internal rate of return approach? c. Compare the net present value approach with the internal rate of return approach. Which

method is better in the gi. en circumstances? 'Vhy?

Pro lem U~iJJgnet preleRt plllue and paybaclc period to epaJlIIlte investmeRt opportwritiu

B~ Graham S250,OOOduring the 25 years that be worked for a major corporation. 'ow be bas retired at the age SOand bas begun to draw a comfortable pension check every mouth. He wants to ensure the f1 . security of his retirement by investing his savings wisely and is cur- rently considering tWO in t opportunities. Both investments requite an initial payment of SI87,SOO_TbefoUowingtabk ts the estimated cash inflows for the two ahemaoves,

Opportunity il Opportunity i2

Vear2 Vear3 Veat4

S78.750 17.500

S101.250 15,000

Mr. Gmbam decides to use his past average re count rate; it is S percent.

Reqaired a, Compute the net present value of each opportunity. Vt'bich uld Mr. Graham adopt based

on the net present value approach?