QUESTION TWO
c) Evaluate the accounting standard setting process used by the International Accounting Standards Board [6 Marks]
In: Accounting
Ranking Investment Proposals: Payback Period, Accounting
Rate of Return, and Net Present Value
Presented is information pertaining to the cash flows of three
mutually exclusive investment proposals:
Proposal X | Proposal Y | Proposal Z | |
---|---|---|---|
Initial investment | $98,000 | $98,000 | $98,000 |
Cash flow from operations | |||
Year 1 | 90,000 | 49,000 | 98,000 |
Year 2 | 8,000 | 49,000 | |
Year 3 | 49,000 | 49,000 | |
Disinvestment | 0 | 0 | 0 |
Life (years) | 3 years | 3 years | 1 year |
(a) Select the best investment proposal using the payback period, the accounting rate of return on initial investment, and the net present value criteria. Assume that the organization's cost of capital is 10 percent.
Round accounting rate of return four decimal places.
Round net present value to the nearest whole number.
Use negative signs with your answers, when appropriate.
Proposal X | Proposal Y | Proposal Z | Best proposal | |
---|---|---|---|---|
Payback period (years) | Answer | Answer | Answer | AnswerXYZX,YX,ZY,Z |
Accounting rate of return | Answer | Answer | Answer | AnswerXYZX,YX,ZY,Z |
Net present value | Answer | Answer | Answer | AnswerXYZX,YX,ZY,Z |
(b) Factors explaining the differences in rankings include all of the following except:
Net present value considers the timing of cash flows while payback considers only total cash flows.
The net present value method considers the cost of capital while the payback method does not discount future cash flows.
The accounting rate of return considers profitability while payback only considers the time required to recover the investment.
While the accounting rate of return explicitly considers the cost of the asset as part of annual depreciation the net present value method considers the cost of the asset as part of the initial investment.
** JUST NEED THE ACCOUNTING RATE OF RETURN - IT IS NOT 50%
In: Accounting
Cloud Productivity Inc. uses flexible budgets that are based on the following data:
Sales commissions | 15% of sales |
Advertising expense | 18% of sales |
Miscellaneous administrative expense | $5,500 per month plus 12% of sales |
Office salaries expense | $30,000 per month |
Customer support expenses | $13,000 per month plus 20% of sales |
Research and development expense | $30,000 per month |
Prepare a flexible selling and administrative expenses budget for March for sales volumes of $400,000, $500,000, and $600,000. (Use Exhibit 5 as a model.)
Cloud Productivity Inc. | |||
Flexible Selling and Administrative Expenses Budget | |||
For the Month Ending March 31 | |||
Total sales | $400000 | $500000 | $600000 |
Variable cost: | |||
$ | $ | $ | |
Total variable cost | $ | $ | $ |
Fixed cost: | |||
$ | $ | $ | |
Total fixed cost | $ | $ | $ |
Total selling and administrative expenses | $ | $ | $ |
Please show work for each step.
In: Accounting
Schedule of Cash Receipts
Rosita Flores owns Rosita's Mexican Restaurant in Tempe, Arizona. Rosita's is an affordable restaurant near campus and several hotels. Rosita accepts cash and checks. Checks are deposited immediately. The bank charges $0.60 per check; the amount per check averages $75. “Bad” checks that Rosita cannot collect make up 4 percent of check revenue.
During a typical month, Rosita's has sales of $49,000. About 80 percent are cash sales. Estimated sales for the next three months are as follows:
April | $32,000 |
May | 49,000 |
June | 59,000 |
Required:
Prepare a schedule of cash receipts for May and June. Round your intermediate computations and final answers to the nearest whole dollar.
Rosita's Mexican Restaurant | ||
Schedule of Cash Receipts | ||
For the Months of May and June | ||
May | June | |
Cash sales: | $ | $ |
Checks | ||
Total | $ | $ |
In: Accounting
A and B are equal partners in a personal services partnership. Each partner acquired her partnership interest for cash several years ago. None of the partnership’s assets is Section 704(c) property. The partnership has the following balance sheet:
Assets Liabilities and Partners’ Capital
A.B. F.M.V. A.B.* F.M.V.
Cash $13,000 $12,000 Liabilities: $2,000
Capital Assets: Capital:
Collectibles 1,000 3,000 A $10,000 15,000
Other 6,000 2,000 B 10,000 15,000
Subtotal 7,000 5,000
Receivables 0 14,000
Total $20,000 $32,000 $20,000 $32,000
Consider the tax consequences to B on her sale in each of the following alternative situations:
In: Accounting
Question:
After graduation, you head out to Reno and take a job with a casino as an accountant because you’re totes swol. You expected the accounting to be easy, but you come to find out that there are a
great deal of specifics that you had never expected to encounter. What do you do with customer comps, casino chips, slot machines which are leased to the casino by outside parties, and the major jackpots that may get awarded? You’re totally lost and need to make a short report describing the details of casino accounting.
In: Accounting
Statement of cost of goods manufactured for a manufacturing company Cost data for Johnstone Manufacturing Company for the month ended March 31 are as follows: Inventories March 1 March 31 Materials $236,400 $217,370 Work in process 490,700 574,550 Finished goods 659,900 693,310 Direct labor $3,940,000 Materials purchased during March 3,001,370 Factory overhead incurred during March: Indirect labor 360,220 Machinery depreciation 236,400 Heat, light, and power 197,000 Supplies 39,280 Property taxes 33,770 Miscellaneous costs 51,450 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet Prepare a cost of goods manufactured statement for March. Round your answers to the nearest dollar. Johnstone Manufacturing Company Statement of Cost of Goods Manufactured For the Month Ended March 31 $ Direct materials: $ $ $ Factory overhead: $ Total factory overhead Total manufacturing costs incurred during March Total manufacturing costs $ Cost of goods manufactured $ Determine the cost of goods sold for March. Round your answer to the nearest dollar.
In: Accounting
At the beginning of the school year, Priscilla Wescott decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:
Cash balance, September 1 (from a summer job) | $8,260 |
Purchase season football tickets in September | 110 |
Additional entertainment for each month | 290 |
Pay fall semester tuition in September | 4,500 |
Pay rent at the beginning of each month | 400 |
Pay for food each month | 220 |
Pay apartment deposit on September 2 (to be returned December 15) | 600 |
Part-time job earnings each month (net of taxes) | 1,020 |
a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.
Priscilla Wescott | ||||
Cash Budget | ||||
For the Four Months Ending December 31 | ||||
September | October | November | December | |
Estimated cash receipts from: | ||||
$ | $ | $ | $ | |
Total cash receipts | $ | $ | $ | $ |
Less estimated cash payments for: | ||||
$ | ||||
$ | $ | $ | ||
Total cash payments | $ | $ | $ | $ |
Cash increase (decrease) | $ | $ | $ | $ |
Cash balance at end of month | $ | $ | $ | $ |
b. Are the four monthly budgets that are
presented prepared as static budgets or flexible budgets?
c. What are the budget implications for Priscilla Wescott?
Priscilla can see that her present plan (will provide/will not provide?) sufficient cash. If Priscilla did not budget but went ahead with the original plan, she would be $________? (over/short?) at the end of December, with no time left to adjust.
In: Accounting
Please prepare the following
A. An entry for the following transactions of Elirene Mosquera Automobile Shop for the month of October, 2020:
B. Prepare trial balance, income statement and balance sheet.
October 1 Elirene Mosquera invested P420,000 in the business.
4 Purchased shop supplies for cash, P3,000.
6 Purchased additional supplies, P3,000, and shop equipment, P2,500 on credit from Rio Feliciano Trading.
10 Repaired the cargo truck of Jet payapag, P5,600 and collected P3,200.
11 Paid Rio Feliciano Trading, P1,200 as partial settlement of the account due to it.
14 Repaired the stare car of Maileen Flores on credit, P12,000.
19 Paid 1/2 of the amount still due to Rio Feliciano Trading.
20 Bought additional supplies from Mahilom Trading, P10,000 in cash.
25 Rendered service to Erika Bernasol on credit amounting to P1,300.
27 Paid water bill for the month, P2,100.
29 Collected P500 from Erika Bernasol as partial settlement of the account.
30 Paid the remaining balance owed to Rio Feliciano.
31 Paid telephone bill for the month amounting to P3,000.
In: Accounting
Project L costs $35,000, its expected cash inflows are $13,000 per year for 11 years, and its WACC is 14%. What is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project L costs $65,631.23, its expected cash inflows are $13,000 per year for 11 years, and its WACC is 10%. What is the project's IRR? Round your answer to two decimal places.
Project L costs $75,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 13%. What is the project's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.
Project L costs $60,000, its expected cash inflows are $15,000 per year for 9 years, and its WACC is 11%. What is the project's payback? Round your answer to two decimal places.
Project L costs $30,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 10%. What is the project's discounted payback? Round your answer to two decimal places.
In: Accounting
Dividends on Preferred and Common Stock
Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1, $48,000; Year 2, $96,000; Year 3, $216,000; Year 4, $264,000; Year 5, $348,000; and Year 6, $432,000. During the entire period ended December 31 of each year, the outstanding stock of the company was composed of 30,000 shares of cumulative preferred 4% stock, $100 par, and 100,000 shares of common stock, $5 par.
Required:
1. Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. There were no dividends in arrears at the beginning of Year 1. Summarize the data in tabular form. If required, round your answers to two decimal places. If the amount is zero, please enter "0".
Preferred Dividends | Common Dividends | ||||||||||||||||||||
Year |
Total Dividends |
Total |
Per Share |
Total |
Per Share |
||||||||||||||||
Year 1 | $ 48,000 | $ | $ | $ | $ | ||||||||||||||||
Year 2 | 96,000 | ||||||||||||||||||||
Year 3 | 216,000 | ||||||||||||||||||||
Year 4 | 264,000 | ||||||||||||||||||||
Year 5 | 348,000 | ||||||||||||||||||||
Year 6 | 432,000 | ||||||||||||||||||||
$ | $ |
2. Determine the average annual dividend per share for each class of stock for the six-year period. If required, round your answers to two decimal places.
Average annual dividend for preferred | $ per share |
Average annual dividend for common | $ per share |
3. Assuming a market price per share of $204 for the preferred stock and $9 for the common stock, determine the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share for preferred stock and for common stock.
Round your answers to two decimal places.
Preferred stock | % |
Common stock | % |
Check My Work
In: Accounting
Donnie Hilfiger has two classes of stock authorized: $1 par
preferred and $0.01 par value common. As of the beginning of 2018,
300 shares of preferred stock and 4,000 shares of common stock have
been issued. The following transactions affect stockholders’ equity
during 2018:
March 1 Issue 1,100 shares of common stock for $42 per
share.
May 15 Purchase 400 shares of treasury stock for $35 per
share.
July 10 Reissue 200 shares of treasury stock purchased on May 15
for $40 per share.
October 15 Issue 200 shares of preferred stock for $45 per
share.
December 1 Declare a cash dividend on both common and preferred
stock of $0.50 per share to all stockholders of record on December
15. (Hint: Dividends are not paid on treasury
stock.)
December 31 Pay the cash dividends declared on December 1.
Donnie Hilfiger has the following beginning balances in its stockholders’ equity accounts on January 1, 2018: Preferred Stock, $300; Common Stock, $40; Additional Paid-in Capital, $76,000; and Retained Earnings, $30,500. Net income for the year ended December 31, 2018, is $10,800.
Required:
1. Record each of these transactions.
(I need the most help on the Dividends and Dividends payable amounts from december 1st and december 30th)
In: Accounting
6a:
Midgley Corporation makes a product whose direct labor standards
are 1.9 hours per unit and $20.00 per hour. In April, the company
produced 6,000 units using 10,930 direct labor-hours. The actual
direct labor cost was $209,310.
The labor efficiency variance for April is:
$9,400 U
$9,400 F
$9,319 F
$9,428 U
6b:
Midgley Corporation makes a product whose direct labor standards
are 0.9 hours per unit and $10.00 per hour. In April, the company
produced 5,000 units using 4,260 direct labor-hours. The actual
direct labor cost was $41,110.
The labor rate variance for April is:
$1,625 U
$1,490 F
$1,625 F
$1,490 U
6c:
Blaster, Inc., manufactures portable radios. Each radio requires
3 units of Part XBEZ52, which has a standard cost of $1.20 per
unit. During May, the company purchased 12,400 units of the part
for a total of $15,500. Also during May, the company manufactured
3,000 radios, using 9,900 units of part XBEZ52. The direct
materials purchases variance is computed when the materials are
purchased.
During May, the materials price variance for part XBEZ52 was:
$470 U
$470 F
$620 F
$620 U
In: Accounting
Charles Maxwell is starting a cheesecake bakery, Able Baker Charlie Company, to produce and sell different flavored cheesecakes to restaurants and the general public. He has just begun his study of accounting, and is a bit confused about the many types of reports he has read about and how they will help him run his business. He asks you to help him clarify what the differences between managerial accounting and financial accounting are. He’s also wondering how to set up his inventory, how to classify the costs of his business, and how to fill in some missing information.
Managerial vs. Financial
Select whether the following characteristics are most often associated with managerial accounting or financial accounting.
Primarily used for internal decision making | Managerial Accounting |
Generally Accepted Accounting Principles (GAAP) must be used | Financial Accounting |
Prepared statements usually pertain to the company as a whole rather than individual departments or products | Financial Accounting |
Information provided will often be subjective, such as estimated future results | Managerial Accounting |
Often prepared on an as-needed basis rather than at fixed intervals | Managerial Accounting |
Charles has provided some of the costs he expects to incur as follows. Decide on the classifications that could be applied to each of these costs using the table provided. The cost object in each case is the cheesecake.
(Select "Yes" or "No" from the below dropdowns.)
Cost | Product | Period | Direct | Direct | Factory | Selling | Administrative | Direct | Indirect | Prime | Conversion |
Cost | Cost | Materials | Labor | Overhead | Expense | Expense | Cost | Cost | Cost | Cost | |
Eggs used to make cheesecakes | |||||||||||
Baker’s wages | |||||||||||
Delivery driver wages | |||||||||||
Depreciation of office computers | |||||||||||
Power to run the cheesecake ovens | |||||||||||
President’s salary | |||||||||||
Sales commissions | |||||||||||
Factory supervisor salary |
harles found some sample income statements and balance sheets on the Internet, and asked which of them might be most appropriate for a manufacturing business like his. Review income statements A and B, and balance sheets C and D. Determine which income statement and balance sheet would be most appropriate for a manufacturing business like Able Baker Charlie Company.
Income Statement A
Sample Company A Income Statement For the Year Ended December 31, 20Y8 |
||
Sales | $42,000 | |
Finished goods inventory, January 1, 20Y8 | $5,250 | |
Cost of goods manufactured | 6,400 | |
Cost of finished goods available for sale | $11,650 | |
Finished goods inventory, December 31, 20Y8 | (400) | |
Cost of goods sold | (11,250) | |
Gross profit | $30,750 | |
Operating expenses: | ||
Selling expenses | $6,400 | |
Administrative expenses | 5,250 | |
Total operating expenses | (11,650) | |
Net income | $19,100 |
Income Statement B
Sample Company B Income Statement For the Year Ended December 31, 20Y8 |
||
Sales | $42,000 | |
Beginning inventory | $5,250 | |
Net purchases | 6,400 | |
Inventory available for sale | $11,650 | |
Ending inventory | (400) | |
Cost of goods sold | (11,250) | |
Gross profit | $30,750 | |
Operating expenses: | ||
Selling expenses | $6,400 | |
Administrative expenses | 5,250 | |
Total operating expenses | (11,650) | |
Net income | $19,100 |
Balance Sheet C
Sample Company C Balance Sheet December 31, 20Y8 |
||
Assets | ||
Cash | $20,800 | |
Accounts receivable (net) | 10,000 | |
Inventory | 6,000 | |
Supplies | 2,100 | |
Land | 17,000 | |
Total assets | $55,900 | |
Liabilities | ||
Accounts payable | $17,800 | |
Stockholders’ Equity | ||
Common stock | $19,000 | |
Retained earnings | 19,100 | |
Total stockholders’ equity | 38,100 | |
Total liabilities and stockholders’ equity | $55,900 |
Balance Sheet D
Sample Company D Balance Sheet December 31, 20Y8 |
||
Assets | ||
Cash | $20,800 | |
Accounts receivable (net) | 10,000 | |
Inventory: | ||
Direct materials | $2,500 | |
Work in process | 1,500 | |
Finished goods | 2,000 | |
Total inventory | 6,000 | |
Supplies | 2,100 | |
Land | 17,000 | |
Total assets | $55,900 | |
Liabilities | ||
Accounts payable | $17,800 | |
Stockholders’ Equity | ||
Common stock | $19,000 | |
Retained earnings | 19,100 | |
Total stockholders’ equity | 38,100 | |
Total liabilities and stockholders’ equity | $55,900 |
Which income statement is most appropriate for a manufacturing business?
Income statement A
Which balance sheet is most appropriate for a manufacturing business?
Balance sheet D
At the end of February, after the second month of operations of Able Baker Charlie Company, Charles shows you the data he’s collected, but he was unable to figure out some of the amounts. Review the following data and fill in the missing amounts on the chart for Able Baker Charlie Company. Note: It may be helpful to use T accounts to map the flow of the amounts through the manufacturing accounts and solve for the missing dollar values. It may also be helpful to review the steps for determining the cost of materials used, total manufacturing cost incurred, and cost of goods manufactured.
Data for February | |
Decrease in materials inventory | $3,600 |
Materials inventory on Feb. 28 | 50% of materials inventory on Jan. 31 |
Direct materials purchased | $12,000 |
Direct materials used | 3 times the direct labor incurred |
Total manufacturing costs incurred in period | $27,300 |
Total manufacturing costs incurred in period | 70% of Cost of Goods Manufactured |
Total manufacturing costs incurred in period | $7,000 less than Cost of Goods Sold |
Account Balances | ||||
Account | Jan. 31 | Feb. 28 | Costs Incurred | |
Materials Inventory | $ | $ | Direct Materials Used | $ |
Work in Process Inventory | 21,000 | Direct Labor Incurred | ||
Finished Goods Inventory | 16,000 | Factory Overhead Incurred | ||
Cost of Goods Sold |
In: Accounting
Cash Budget
The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following An accounting device used to plan and control resources of operational departments and divisions.budget information:
May | June | July | ||||
Sales | $86,000 | $90,000 | $95,000 | |||
Manufacturing costs | 34,000 | 39,000 | 44,000 | |||
Selling and administrative expenses | 15,000 | 16,000 | 22,000 | |||
Capital expenditures | _ | _ | 80,000 |
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $3,500 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.
Current assets as of May 1 include cash of $33,000, marketable securities of $40,000, and accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales). Sales on account for March and April were $60,000 and $72,000, respectively. Current liabilities as of May 1 include $6,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $14,000 will be made in June. Sonoma’s regular quarterly dividend of $5,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $30,000.
Required:
1. Prepare a monthly cash budget and supporting schedules for May, June, and July 2016. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.
Sonoma Housewares Inc. | |||
Cash Budget | |||
For the Three Months Ending July 31 | |||
May | June | July | |
Estimated cash receipts from: | |||
Cash sales | $ | $ | $ |
Collection of accounts receivable | |||
Total cash receipts | $ | $ | $ |
Estimated cash payments for: | |||
Manufacturing costs | $ | $ | $ |
Selling and administrative expenses | |||
Capital expenditures | |||
Other purposes: | |||
Income tax | |||
Dividends | |||
Total cash payments | $ | $ | $ |
Cash increase or (decrease) | $ | $ | $ |
Cash balance at beginning of month | |||
Cash balance at end of month | $ | $ | $ |
Minimum cash balance | |||
Excess or (deficiency) | $ | $ | $ |
In: Accounting