At year-end (December 31), Chan Company estimates its bad debts as 0.40% of its annual credit sales of $879,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $440 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare the journal entries for these transactions.

Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2018. Holly Springs paid for the lathe by issuing a $310,000 note due in three years. Interest, specified at 4%, was payable annually on December 31 of each year. The cash market price of the lathe was unknown. It was determined by comparison with similar transactions for which 8% was a reasonable rate of interest. Holly Springs uses the effective interest method of amortization.

Required:
1. Prepare the journal entry on January 1, 2018, for Holly Springs’ purchase of the lathe.
2. Prepare an amortization schedule for the three-year term of the note.
3. Prepare the journal entries to record (a) interest for each of the three years and (b) payment of the note at maturity.

A project has an initial cost of $160,000 and an estimated salvage value after 15 years of $75,000. Estimated average annual receipts are $30,000. Estimated average annual disbursements are $16,000. Assuming that annual receipts and distributions will be uniform for the 15 years, compute the prospective rate of return before taxes.

Liang Company began operations on January 1, 2015. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows.

2015

1. Sold $1,348,600 of merchandise (that had cost $980,800) on credit, terms n/30.
2. Wrote off $19,500 of uncollectible accounts receivable.
3. Received $665,200 cash in payment of accounts receivable.
4. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible.

2016

5. Sold $1,502,800 of merchandise (that had cost $1,260,400) on credit, terms n/30.
6. Wrote off $32,500 of uncollectible accounts receivable.
7. Received $1,267,700 cash in payment of accounts receivable.
8. In adjusting the accounts on December 31, the company estimated that 2.20% of accounts receivable will be uncollectible.

Required:

Prepare journal entries to record Liang’s 2015 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable.) (Round your intermediate calculations to the nearest dollar amount.)

XYZ has been experiencing losses on its Widget line for several years. Here is the most recent contribution margin statement:

The general factory overhead is a common cost allocated on the basis of machine hours

The Purchasing department is a common cost allocated on the basis of sales dollars.

What is the total relevant costs in the decision to drop this line?

The budget director for Campbell 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

1. Complete the schedule of cash payments for S&A expenses by filling in the missing amounts.

2. Determine the amount of salaries payable the company will report on its pro forma balance sheet at the end of the fourth quarter.

3. Determine the amount of prepaid insurance the company will report on its pro forma balance sheet at the end of the fourth quarter.

4.

Statement of Cost of Goods Manufactured for a Manufacturing Company

Cost data for Disksan Manufacturing Company for the month ended January 31 are as follows:

a. Prepare a cost of goods manufactured statement for January.

b. Determine the cost of goods sold for January.
$

When using monetary-unit sampling, the upper misstatement limit was $11,200 and the risk of incorrect acceptance was 5%. This means that

A. Tolerable misstatement is $11,200.

B. There is a 95% chance that the actual misstatement in the account is $11,200 or more.

C. There is a 95% chance that the actual misstatement in the account is $11,200.

D. There is a 95% chance that the actual misstatement in the account is $11,200 or less.

Zion Electronics Company produces two products, Resistors and Transistors in a small manufacturing plant which had total manufacturing overhead of $21,000 in June. The factory has two departments, Design, which incurred $10,000 of manufacturing overhead, and Production which incurred $11,000 of manufacturing overhead. Design used 250 hours of direct labor and Production used 80 machine hours.

Assume that Resistors used 100 direct labor hours to make 100 units and Transistors used 150 direct labor hours to make 100 units in the Design Department. Also, assume that Resistors used 50 machine hours and Transistors used 30 machine hours in the Production Department.

The overhead costs assigned to each unit of Resistors and Transistors using department overhead rate were:

Prepare a balance sheet for Freedom Non-Profit Organization as follows:

The budget director of Heather’s Florist has prepared the following sales budget. The company had $290,000 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

1. Complete the schedule of cash receipts by filling in the missing amounts.

2. Determine the amount of accounts receivable the company will report on its third quarter pro forma balance sheet.

Question 2 – Cost Allocation: Joint Products and Byproducts

Tivoli Labs produces a drug used for the treatment of hypertension. The drug is produced in batches. Chemicals costing $60,000 are mixed and heated, creating a reaction; a unique separation process then extracts the drug from the mixture. A batch yields a total of 2,500 gallons of the chemicals. The first 2,000 gallons are sold for human use while the last 500 gallons, which contain impurities, are sold to veterinarians.

The costs of mixing, heating, and extracting the drug amount to $90,000 per batch. The output sold for human use is pasteurized at a total cost of $120,000 and is sold for $585 per gallon. The product sold to veterinarians is irradiated at a cost of $10 per gallon and is sold for $410 per gallon.

In March, Tivoli, which had no opening inventory, processed one batch of chemicals. It sold 1,700 gallons of product for human use and 300 gallons of the veterinarian product. Tivoli uses the net realizable value method for allocating joint production costs.

Required:

1.   How much in joint costs does Tivoli allocate to each product?

2.   Compute the cost of ending inventory for each of Tivoli’s products.

3.   If Tivoli were to use the constant gross-margin percentage NRV method instead, how would it allocate its joint costs?

4.   Calculate the gross margin on the sale of the product for human use in March under the constant gross-margin percentage NRV method.

5.   Suppose that the separation process also yields 300 pints of a toxic byproduct. Tivoli currently pays a hauling company $5,000 to dispose of this byproduct. Tivoli is contacted by a firm interested in purchasing a modified form of this byproduct for a total price of $6,000. Tivoli estimates that it will cost about $30 per pint to do the required modification. Should Tivoli accept the offer?