1) What is performance obligation and how is it related to revenue recognition?

2) What does cash conversion cycle measure?

SUPPLEMENTAL PROBLEM 19-1 (req. 1, 2, 3)

International Roofing Systems (IRS) Company began operations several years ago. At the end of 2017, the only existing temporary differences were the difference described in (e) and (f) below (hint: this creates balances at the end of 2017 in the deferred tax balance sheet accounts). In addition, there are four other tax differences arising in 2018 and 2019. These differences are as follows:

(a)   Interest revenue earned on an investment in tax-exempt municipal bonds is $34,000 each year.

(b)   In 2018, pretax financial income includes payments of fines for polluting of $100,000.

(c)   IRS began franchising its business at the beginning of 2018 and collected $30,000 of franchise fees for services to be rendered in the initial year and over the next several years. Franchise fees are reported when collected for tax purposes. For financial reporting purposes, franchise fees are recognized as revenue when services related to the franchise agreement are provided; these amounts are $20,000 in 2018 and $4,000 in 2019.

(d)   At July 1, 2018, IRS purchased a subsidiary that resulted in an amount of $600,000 being assigned to goodwill. For tax purposes, the goodwill is amortized and deducted over a 15-year period on a straight-line basis. For financial reporting purposes, goodwill is not amortized, but is required to be tested for impairment; at the end of 2018, IRS determined that goodwill is not impaired, but at the end of 2019, IRS determined that the goodwill has an impairment loss of $45,000.

(e)   Several years ago, IRS purchased equipment at a cost of $200,000. For financial accounting purposes, straight-line depreciation over the estimated useful life of 10 years is used. For tax purposes, the MACRS system is used and the equipment falls in the 7-year recovery class. As of the end of 2017, the accounting basis for the carrying value was $120,000 and the tax basis was $62,480. For 2018 and 2019, the MACRS rates for depreciation are 8.93% and 8.92%, respectively.

(f)    IRS has a defined benefit pension plan for its employees. For financial reporting purposes, the accrual basis is used and for tax purposes, pension costs are deducted as funding contributions to the plan are paid. As of the end of 2017, pension expense for financial reporting has been $200,000 greater than funding contributions. Pension expense for financial reporting purposes is $42,000 in 2018 and $50,000 in 2019, and the amount deducted for tax purposes is $2,000 in 2018 and $5,000 in 2019.

Additional information:

ü Pretax financial income $180,000 for 2018 and $210,000 for 2019.

ü The enacted tax rate, effective in 2018, is 25%.

ü As of the end of each year, management estimates that it is more likely than not that future deductible amounts will not be realized as follows: 2017: $10,000; 2018: $12,000; 2019: $15,000

REQUIRED:

(1)   Complete year-by-year schedules through 2019 for each temporary difference showing the book amount, tax amount, current year taxable (deductible) amount, and future taxable (deductible) amount; note that for (e) and (f), you will need to start your schedule with the future taxable (deductible) amount as of the end of 2017.

(2)   Prepare schedules to reconcile between pretax financial income and taxable income for 2018 and 2019. Classify the tax differences as permanent or temporary.

(3)   Prepare journal entries to record the current portion of income tax expense for 2018 and 2019.

41. Meyer's Grocery signed a contract to build a store in Richmond, Kentucky. Soon afterward, Meyer's breached the contract. Which of the following can sue Meyer's to enforce the contract?

A. a local home improvement store that hoped to sell building materials to the construction crew

B. neighborhood residents who were looking forward to shopping at Meyer's

C. the operator of a food truck, who intended to sell lunch to the construction crew

D. None of these are correct.

42. Harris, who owes Nathan $4,000, sells Bethany a used car for $5,000, payable in 30 days. Harris immediately tells Nathan that she doesn't have the money she owes him, but she is willing to give him her claim to Bethany's $5,000. Nathan agrees and gives up his claim against Harris for $4,000, and Harris notifies Bethany of the assignment. In this case, Bethany is best described as the

A. assignee.

B. assignor.

C. obligor.

D. obligee.

55. Al contracted to sell his house to Bev. Subsequently, they both changed their minds and decided to cancel the contract. The contract between Al and Bev is discharged by

A. full performance.

B. agreement.

C. accord and satisfaction.

D. novation.

67. Which of the following would be considered a merchant under the UCC?

A. A woman sells her pistol to someone responding to a classified ad.

B. A man who owns a jewelry store sells his used car to a neighbor.

C. A gun dealer sells a rifle to someone who enters his shop.

D. All of these are correct.

Preparation of a complete master budget

The management of Zigby Manufacturing prepared the following estimated balance sheet for March, 2015:

ZIGBY MANUFACTURING
Estimated Balance Sheet
March 31, 2015
ASSETS
Cash..........................................................		$ 40,000
Accounts receivable................................		342,248
Raw materials inventory.......................... Finished goods inventory........................		98,500    325,540
Total current assets.................................		806,288
Equipment................................................	$600,000
Less accumulated depreciation..............	150,000	450,000
Total assets..............................................		$1,256,288
LIABILITIES AND EQUITY
Accounts payable....................................		$    200,500
Short-term notes payable....................................		12,000
Taxes payable..........................................		0
Total current liabilities.............................		212.500
Long-term note payable........................... Common stock.........................................	$335,000	500,000
Retained earnings....................................	208,788
Total stockholders’ equity.......................		543,788
Total liabilities and equity........................		$1,256,288

To prepare a master budget for April, May, and June of 2015, management gathers the following information:

• Sales for March total 20,500 units. Forecasted sales in units are as follows: April, 20,500; May, 19,500; June, 20,000; and July, 20,500. Sales of 240,000 units are forecasted for the entire year. The product's selling price is $23.85 per unit and its total product cost is $19.85 per unit

• Company policy calls for a given month's ending raw materials inventory to equal 50% of the next month's materials requirements. The March 31 raw materials inventory is 4,925 units, which complies with the policy. The expected June 30 ending raw materials inventory is 4,000 units. Raw materials cost $20 per unit. Each finished unit requires 0.50 units of raw materials.

• Company policy calls for a given month's ending finished goods inventory to equal 80% of the next month's expected unit sales. The March 31 finished goods inventory is 16,400 units, which complies with the policy.

• Each finished unit requires 0.50 hours of direct labor at a rate of $15 per hour.

• Overhead is allocated based on direct labor hours. The predetermined variable overhead rate is $2.70 per direct labor hour. Depreciation of $20,000 per month is treated as fixed factory overhead.

• Sales representatives' commissions are 8% of sales and are paid in the month of the sales. The sales manager's monthly salary is $3,000.

• Monthly general and administrative expenses include $12,000 administrative salaries and 0.9% monthly interest on the long-term note payable.

• The company expects 30% of sales to be for cash and the remaining 70% on credit. Receivables are collected in full in the month following the sale (none is collected in the month of the sale).

• All raw materials purchases are on credit, and no payables arise from any other transactions. One month's raw materials purchases are fully paid in the next month.

• The minimum ending cash balance for all months is $40,000. If necessary, the company borrows enough cash using a short-term note to reach the minimum. Short-term notes require an interest payment of 1% at each month-end (before any repayment). If the ending cash balance exceeds the minimum, the excess will be applied to repaying the short-term notes payable balance.

• Dividends of $10,000 are to be declared and paid in May.

• No cash payments for income taxes are to be made during the second calendar quarter. Income tax will be assessed at 35% in the quarter and paid in the third calendar quarter.

• Equipment purchases of $130,000 are budgeted for the last day of June.

Required

Prepare the following budgets and other financial information as required. All budgets and other financial information should be prepared for the second calendar quarter, except as otherwise noted below. Round calculations up to the nearest whole dollar, except for the amount of cash sales, which should be rounded down to the nearest whole dollar.

1. Raw materials budget.
2. Direct labor budget.

Check  

(2) Units to produce: April, 19,700; May, 19,900

(3) Cost of raw materials purchases, April, $198,000

(5) Total overhead cost, May, $46,865

(8) Ending cash balance: April, $83,346; May, $124,295

(10) Budgeted total assets, June 30: $1,299,440

A golf ball manufacturer gives us its data for the​ year:

WIP​ Inventory, January 1

0 units

Units started

​9,400 units

Units completed and transferred out

​6,300 units

WIP​ Inventory, December 31

​3,100 units

Direct materials

​$15,178

Direct labor

​$6,600

Manufacturing Overhead

​$5,411

Units in ending WIP Inventory were​ 90% complete for materials and​ 60% complete for conversion costs.

On December​ 31, the total cost of the units in ending WIP would be closest to

A. $4,565

B. $7,393

C. $6,163

D. $9,739

Direct Materials Variances

Bellingham Company produces a product that requires 5 standard pounds per unit. The standard price is $6.5 per pound. If 5,900 units required 30,700 pounds, which were purchased at $6.17 per pound, what is the direct materials (a) price variance, (b) quantity variance, and (c) total direct materials cost variance? Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

a. Direct materials price variance	$	Favorable
b. Direct materials quantity variance	$	Unfavorable
c. Total direct materials cost variance	$	Favorable

1. Dr. Williams decides to open a real estate company which he names, Comfort Realty, Inc. The following transactions were made over the period:

1. On September 1, 2018, Dr. Godwin invested $17,000 cash in the business
2. On September 3, 2018, Comfort Realty purchases computer equipment for $8,000 cash.
3. On September 4, 2018, Comfort realty purchases for $1,600 from ACME supply company computer paper and other supplies exacted to last several months. ACME agrees to allow Comfort Realty to pay this bill in October
4. On September 10, 2018, Comfort realty receives $3,200 cash from customers for rental services it has provided
5. September 11, 2018, Comfort realty receives a bill for $250 from the daily News for advertising but postpones payment until a later date
6. September 12, 2018, Comfort realty provides $3,500 real estate services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account
7. September 23, 2018, Comfort realty pays its $850 Daily News bill in cash
8. September 28, Comfort realty receives $600 in cash from customers who had been billed for services (item vi)
9. September 29, 2018, Dr. Godwin withdrawals $1,600 in cash from the business for a friend.
10. On September 30, 2018, Comfort Realty pays the following expenses in cash for September: store rent $900, salaries of employees $900, and utilities $900

            As the accountant of the company, you have been asked to do the following:

1. Prepare a summary of transaction. You are to show their effects on the three components of the basic balance sheet accounting equation and specific items within each component
2. Present the income statement, owners’ equity statement, and the balance sheet for the month ended September 30, 2018

on the following question please show the formula for the steps and from were you get the numbers)

Cost-volume-profit analysis
Di & Co. has the following budgeted information for a contract: -
Fixed costs $ 270,000
Variable cost per unit $         20
Selling price per unit   $         40

Budgeted output / sales units          15,000
Required:
(a) Compute the number of units that must be sold to breakeven.                             

(b) How many units must be sold to earn $80,000 target profit?                                    

(c) What selling price would have to be charged to give a profit of $80,000?
                                                                                                                           

(d) How many additional units must be sold to cover an extra fixed cost of $12,000? (assuming selling price and variable cost per unit are constant)
                                                                               
(e) What is the profit-volume ratio?                                                                          
(f) Referring to part (e) above, if total sales revenue is $550,000, what is the total contribution and hence what is the net profit?                                                      

(g) Referring to part (a), what is the margin of safety?                                             
(h) What does the term relevant range mean?      

Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 pillowcases, using 26,800 yards of fabric costing $3.05 per yard and incurring direct labor costs of $18,639 for 3,270 hours of direct labor. The standard cost per pillowcase assumes 1.75 yards of fabric at $3.10 per yard, and 0.20 hours of direct labor at $5.95 per hour. a. Compute both the price variance and quantity variance relating to direct materials used in the manufacture of pillowcases in May. b. Compute both the rate variance and efficiency variance for direct labor costs incurred in manufacturing pillowcases in May. (For all requirements, Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round your answers to 2 decimal places.) Loading...

Nolan Mills uses a standard cost system. During May, Nolan manufactured 15,000 pillowcases, using 26,800 yards of fabric costing $3.05 per yard and incurring direct labor costs of $18,639 for 3,270 hours of direct labor. The standard cost per pillowcase assumes 1.75 yards of fabric at $3.10 per yard, and 0.20 hours of direct labor at $5.95 per hour.

a. Compute both the price variance and quantity variance relating to direct materials used in the manufacture of pillowcases in May.

b. Compute both the rate variance and efficiency variance for direct labor costs incurred in manufacturing pillowcases in May.

(For all requirements, Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Round your answers to 2 decimal places.)

Use the following information of Alfred Industries. Standard manufacturing overhead based on normal monthly volume: Fixed ($304,500 ÷ 20,000 units) $ 15.23 Variable ($100,000 ÷ 20,000 units) 5.00 $ 20.23 Units actually produced in current month 18,000 units Actual overhead costs incurred (including $300,000 fixed) $ 383,800 Compute the overhead spending variance and the volume variance. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).) Loading...

Use the following information of Alfred Industries.

Standard manufacturing overhead based on normal monthly volume:
Fixed ($304,500 ÷ 20,000 units)	$	15.23
Variable ($100,000 ÷ 20,000 units)		5.00		$	20.23
Units actually produced in current month					18,000	units
Actual overhead costs incurred (including $300,000 fixed)				$	383,800

Compute the overhead spending variance and the volume variance. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

G, age 68, received pension income from the following sources in the current year: Old-age security pension $7,100; Canada Pension Plan $9,000; and Pension income from former employer’s pension plan $34,000. What is the maximum elected split-pension amount that can be reported on the tax return of G’s spouse?

Required information [The following information applies to the questions displayed below.] The November production of MVP’s Minnesota Division consisted of batch P25 (3,400 professional basketballs) and batch S33 (6,000 scholastic basketballs). Each batch was started and finished during November, and there was no beginning or ending work in process. Costs incurred were as follows: Direct Material: Batch P25, $102,000, including $8,000 for packaging material; batch S33, $88,500. Conversion Costs: Preparation Department, predetermined rate of $6.50 per unit; Finishing Department, predetermined rate of $5.00 per unit; Packaging Department, predetermined rate of $0.70 per unit. (Only the professional balls are packaged.) 2. Compute the November product cost for each type of basketball. (Round your intermediate and final answers to 2 decimal places.)

The core business of Green Apple Ltd involves the sale of anti-virus software. The following took place during the financial year ended 30 June. The company earned $25 000 000 from the sale of software; $3 000 000 from update downloads; and $50 000 in interest from investing on the short-term money market. The company also received a $2000 discount arising out of the early settlement of a liability; and issued shares in exchange for $500 000 cash during the year. Page 3 of 7 HC1010 Accounting for Business Discuss whether the foregoing five financial items would meet the definition of income to the company during the year? Give reasons for your answer. Which, if any, of the items would meet the definition of revenue to the company for the year? Give reasons for your answer.

19-23 Quality improvement, relevant costs, relevant revenues. AquaPro produces water purifiers for the household. Business is good but Derek, the manager, has noticed that customers complain because they find leakages in the plastic nozzles used. AquaPro provides a warranty for each machine and charges $115 for each of them. AquaPro installed 5,000 machines last month and 20% of them have experienced this leakage problem. Each repair costs $35 for the company. Derek believes that the problem can be eliminated by adding an extra check valve (costing $2.5/ma- chine). This will reduce the number of purifiers produced every month by a 100 (in order to accommodate the price of the extra check value), but will lower the number of the machines experiencing a leakage from 20% to 5%. 1. Do you think that AquaPro should implement Derek’s idea? Answer with calculations. 2. What are the nonfinancial and qualitative factors that AquaPro may consider in deciding whether to implement the new design?

Question) On 1 July 2020, Tierny issues 5,000 convertible notes to enable construction of a facility to train security guards. The notes have a three year term and are issued at par with a FV of $10,000 per note, giving total proceeds at the date of issue of $50 million. The notes pay a coupon of 6% p.a. annually in arrears (payable 30/6). The holder of each note has the option to convert the note into 5,000 ordinary shares of Tierney Ltd at the end of 3 years.

When the notes are issued, the market interest rate for similar debt (similar term, similar credit status of issuer and similar cash flows) without conversion options is 9% p.a.

Required:

Prepare the journal entries for Tierney to record this transaction on:

1) 1 July 2020 when the convertible note is issued

2) 30 June 2021 when the first coupon is payable.