ACCOUNTING 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.)
Sales
January
February
March
Cash sales
$39,000
Sales on account
118,000
Total budgeted sales
$157,000
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.)
Sales revenue
2. The budget director of Heathers Florist has prepared the following sales budget. The company had $400,000 in accounts receivable on July 1. Heathers 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.
July
August
September
Sales Budget
Cash sales
$67,000
$76,000
$87,000
Sales on account
91,000
117,000
136,600
Total budgeted sales
$158,000
$193,000
$223,600
Schedule of Cash Receipts
Current cash sales
Plus: Collections from accounts receivable
Total budgeted collections
$467,000
$167,000
$204,000
·
· Determine the amount of accounts receivable the company will report on its third quarter pro forma balance sheet.
·
Accounts receivable
3. Finch Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Finchs policy is to maintain an ending inventory balance equal to 15 percent of the following months cost of goods sold. Aprils 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.
Inventory Purchases Budget
January
February
March
Budgeted cost of goods sold
$54,000
$58,000
$64,000
Plus: Desired ending inventory
8,700
Inventory needed
62,700
Less: Beginning inventory
8,100
Required purchases (on account)
$54,600
· 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.
·
b.
Cost of goods sold
c.
Ending inventory
4. Zachary Books buys books and magazines directly from publishers and distributes them to grocery stores. The wholesaler expects to purchase the following inventory:
April
May
June
Required purchases (on account)
$
115,000
$
135,000
$
147,000
Zachary Bookss accountant prepared the following schedule of cash payments for inventory purchases. Zachary Bookss 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.
Schedule of Cash Payments for Inventory Purchases
April
May
June
Payment for current accounts payable
$103,500
Payment for previous accounts payable
12,000
Total budgeted payments for inventory
$115,500
·
Determine the amount of accounts payable the company will report on its pro forma balance sheet at the end of the second quarter.
Accounts payable
·
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.
October
November
December
Budgeted S&A Expenses
Equipment lease expense
$5,400
$5,400
$5,400
Salary expense
7,000
7,500
7,900
Cleaning supplies
2,860
2,730
3,080
Insurance expense
1,400
1,400
1,400
Depreciation on computer
2,300
2,300
2,300
Rent
2,400
2,400
2,400
Miscellaneous expenses
680
680
680
Total operating expenses
$22,040
$22,410
$23,160
Schedule of Cash Payments for S&A Expenses
Equipment lease expense
Prior months salary expense, 100%
Cleaning supplies
Insurance premium
Depreciation on computer
Rent
Miscellaneous expenses
Total disbursements for operating expenses
$19,740
$18,210
$19,060
·
· 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.
·
b.
Salaries payable
c.
Prepaid insurance
6. The accountant for Bensons Dress Shop prepared the following cash budget. Bensons 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 Bensons will report on the third quarter pro forma statement of cash flows.
c. Determine the amount of net cash flows from financing activities Bensons will report on the third quarter pro forma statement of cash flows.
Cash Budget
July
August
September
Section 1: Cash receipts
Beginning cash balance
$44,000
Add cash receipts
183,000
203,000
243,600
Total cash available
227,000
Section 2: Cash payments
For inventory purchases
167,026
141,730
175,652
For S&A expenses
56,000
62,060
62,932
For interest expense
0
Total budgeted disbursements
223,026
Section 3: Financing activities
Surplus (shortage)
3,974
Borrowing (repayments)
13,026
Ending cash balance
$17,000
$17,000
$17,000
·
· 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.)
·
b.
Net cash (operating activities)
c.
Net cash (financing activities)
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.)
a.
Amount to be borrowed
b.
Interest expense (June)
c.
Interest expense (July)
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:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Sales revenue
$
186,000
$
216,000
$
226,000
$
276,000
$
904,000
Cost of goods sold
111,600
129,600
135,600
165,600
542,400
Gross profit
74,400
86,400
90,400
110,400
361,600
Selling & administrative expenses
18,600
21,600
22,600
27,600
90,400
Net income
$
55,800
$
64,800
$
67,800
$
82,800
$
271,200
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 years 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. Arvadas estimate.
b. Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Bankss estimate.
Prepare a pro forma income statement including quarterly budgets for the coming year using Mr. Arvadas estimate.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
·
c.
Prepare a pro forma income statement including quarterly budgets for the coming year using Ms. Bankss estimate.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Sales revenue
Cost of goods sold
Gross profit
Selling & administrative expenses
Net income
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:
January
February
March
Cash receipts
$
107,000
$
113,000
$
133,000
Cash payments
For inventory purchases
93,500
75,500
88,500
For S&A expenses
34,500
35,500
30,500
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 years 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 companys accountant to prepare next years budget. Ms. Jasper estimates that sales will increase 7 percent for peaches and 12 percent for oranges. The current years sales revenue data follow:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total
Peaches
$
238,000
$
258,000
$
318,000
$
258,000
$
1,072,000
Oranges
409,000
459,000
579,000
389,000
1,836,000
Total
$
647,000
$
717,000
$
897,000
$
647,000
$
2,908,000
Based on the companys past experience, cost of goods sold is usually 70 percent of sales revenue. Company policy is to keep 10 percent of the next periods estimated cost of goods sold as the current periods 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 companys 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 companys budgeted annual income statement.
c. Ms.Jasper estimates next years ending inventory will be $34,400 for peaches and $56,100 for oranges. Prepare the companys 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.
Sales price
$
8.60
per unit
Variable manufacturing cost
$
3.00
per unit
Fixed manufacturing cost
$
2,600
total
Fixed selling and administrative cost
$
700
total
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).)
Item to Classify
Standard
Actual
Type of Variance
Sales volume
40,100
units
42,100
units
F
Sales price
$3.61
per unit
$3.64
per unit
Materials cost
$3.00
per pound
$3.10
per pound
Materials usage
91,100
pounds
90,100
pounds
Labor cost
$10.10
per hour
$9.70
per hour
Labor usage
61,100
hours
61,900
hours
Fixed cost spending
$401,000
$378,900
Fixed cost per unit (volume)
$10.00
per unit
$9.00
per unit
3. Vernon Manufacturing Company established the following standard price and cost data:
Sales price
$
8.80
per unit
Variable manufacturing cost
$
3.60
per unit
Fixed manufacturing cost
$
2,100
total
Fixed selling and administrative cost
$
1,000
total
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 departments static budget and actual results for 2019 follow:
Static Budget
Actual Results
Production in units
34,000 kits
35,200 kits
Direct materials
$
224,400
$
269,820
Direct labor
190,400
191,220
Variable manufacturing overhead
51,000
55,000
Total variable costs
465,800
516,040
Fixed manufacturing overhead
217,000
212,700
Total manufacturing cost
$
682,800
$
728,740
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 Munozs 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. Tobins residual income.
8. Gibson Cough Drops operates two divisions. The following information pertains to each division for 2018:
Division A
Division B
Sales
$
210,000
$
91,000
Operating income
$
16,100
$
8,500
Average operating assets
$
57,000
$
37,000
Company’s desired rate of return
16
%
16
%
Required
a. Compute each divisions residual income.
b. Which division increased the companys profitability more?
3A. Howard Cooper, the president of Walton Computer Services, needs your help. He wonders about the potential effects on the firms net income if he changes the service rate that the firm charges its customers. The following basic data pertain to fiscal year 2019.
Standard rate and variable costs
Service rate per hour
$
88.00
Labor cost
30.00
Overhead cost
6.60
Selling, general, and administrative cost
3.40
Expected fixed costs
Facility maintenance
$
520,000
Selling, general, and administrative
142,000
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 consultants analysis, if Walton charges customers $83 per hour, the firm can achieve 45,000 hours of services. Prepare a flexible budget using the consultants 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.
Standard price and variable costs
Sales price
$
36.40
Materials cost
8.90
Labor cost
3.50
Overhead cost
5.50
Selling, general, and administrative costs
6.30
Planned fixed costs
Manufacturing overhead
$
129,000
Selling, general, and
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