1) Which inventory method is best to use in accordance to the accounting principles? Is it FIFO or AVCO and why ? Pls give examples including numerical answers.

2) Explain the fundamental characteristics of accounting information in a lay man's terms and also the conceptual framework

50. How does a business measure the cost of property, plant and equipment?

1. List three examples of items paid to the purchaser that is part of the total cost of land?    
2. A piece of machinery equipment has a purchase price of $10,000. We also paid $1,000 commission, $1,200 for sales tax, and $300 for repair work from damaged when unloading. What is the amount to be debited to the Equipment account?
   

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50. What is depreciation and how is it computed?

1. Use the following information regarding a piece of equipment to answer the following questions:

                        Cost of machine is $20,000
                   Useful life is 4 years or 15,000 machine hours
                   Residual value is $5,000

1. What is the depreciation expense for the first year using the straight-line method?
   
   
   

Assume the equipment was used 3,000 hour the first year of operations. What is the depreciation expense for the first year based on machine hours using the units of production method?

What are the four purposes of cost allocation?

Why should budgeted cost rates, rather than actual cost rates, be used for allocating the variable costs of service departments?

Admire is a retail company that sells specialized gardening products. The company is considering opening a new store on October 1, Year1. As budget coordinator, you have been asked to prepare a master budget for the first 3 months of the company’s operation. You have gathered the following information:

October sales are estimated to be $300000 of which 45 percent will be cash and the remainder will be on credit. The company expects all sales to increase at the rate of 20 percent per month for November and December. Sales in January Year 2 are expected to be $250000.

The company expects to collect 100 percent of the accounts receivable generated by credit sales in the month following the sale.

Prepare a sales budget and a schedule of cash receipts using these facts and your excel template. Check your answers here before moving to the next part, by completing the cells requested in the chart below.

a. Sales Budget	October	November	December	Total-Qtr
Cash sales
Sales on account
Total budgeted sales

b. Schedule of Cash Receipts	October	November	December	Total-Qtr
Current cash sales
Plus collections from A/R
Total collections

The cost of goods sold is 60 percent of sales. The company desires to maintain a minimum ending inventory equal to 10 percent of the next month’s cost of goods sold. (Ending inventory for December is based on budgeted January Year2 sales.)

Assume that all inventory purchases are made on account (on credit). The company pays 80 percent of accounts payable in the month of purchase and the remaining amount in the following month.

In excel, prepare an inventory purchases budget and a cash payments budget for inventory purchases. Use the check figures below before you continue.

c. Inventory Purchases Budget	October	November	December	Total-Qtr
Budgeted cost of goods sold
Plus desired ending inventory
Inventory needed
Less beginning inventory
Required purchases (on account)

d. Cash payments for inventory	October	November	December	Total-Qtr
Payment of current month's A/P
Payment for prior month's A/P
Total budgeted payments

Budgeted selling and administrative expenses per month follow.

• Salary expense (fixed): $ 28200
• Sales commissions:  5 percent of Sales
• Supplies expense:   2 percent of Sales
• Utilities (fixed): $2600              
• Depreciation on store equipment (fixed)*:   You compute    
• Rent (fixed) $ 11000          
• Miscellaneous (fixed): $ 3500      

*The capital expenditures budget indicates that the company will spend $182400 on October 1 for store fixtures, which are expected to have a $24000 residual value and a 36 month useful life.

Utilities and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred.

In excel, prepare the selling and administrative expenses budget and the cash payments budget for selling and administrative expenses. Check the key figures below.

e. Selling and Admin.Expense Budget	October	November	December	Total-Qtr
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total S&A expenses

f. Cash payments for S&A	October	November	December	Total-Qtr
Salary expense
Sales commissions
Supplies expense
Utilities
Depreciation on store fixtures
Rent
Miscellaneous
Total payments for S&A expenses

Admire issued common stock for $50000 on October 5.

A dividend of $28000 was paid on December 15.

The company borrows and repays funds in increments of $1,000 on the last day of the month. The company also pays its vendors on the last day of the month. It pays interest of 1 percent per month in cash on the last day of the month. To be prudent, the company desires to maintain a $16000 cash cushion.   

Prepare a cash budget on your excel template. Check key figure below.

g. Cash Budget	October	November	December	Total-Qtr
Beginning cash balance
Issuance of stock
Collections from customers
Cash available
Less payments
For inventory purchases
For S&A expenses
Purchase of store fixtures
Pay dividend
Interest expense
Total budgeted payments
Cash balance before borrow/repay
Financing activity
Borrowing (repayment)
Ending cash balance

Use your excel spreadsheet , completed as part of Question 1, to complete the following budgets for Admire Company.

Budget h. Income statement for the quarter ended December 21, Year1.

Budget i. Balance sheet as of December 31, Year1.

Income statement

Input expenses as negatives. Use a minus sign in front of the number.

Sales revenue
Cost of goods sold
Gross margin
S&A expenses
Operating income
Interest expense
Net income

Balance Sheet

Enter any contra-assets as negative numbers. Use a minus sign.

Assets
Cash
Accounts receivable
Inventory
Store fixtures
Accumulated depreciation
Total assets
Liabilities
Accounts payable
Utilities payable
Sales commissions payable
Line of credit liability
Total liabilities
Equity
Common stock
Retained earnings
Total equity
Total liabilities and equity

South Sea Baubles has the following (incomplete) balance sheet and income statement.

BALANCE SHEET AT END OF YEAR
(Figures in $ millions)
Assets	2015			2016			Liabilities and Shareholders' Equity	2015			2016
Current assets	$	90		$	140		Current liabilities	$	50		$	60
Net fixed assets		800			900		Long-term debt		600			750

INCOME STATEMENT, 2016
(Figures in $ millions)
Revenue	$	1,950
Cost of goods sold		1,030
Depreciation		350
Interest expense		240

a&b. What is shareholders’ equity in 2015 and 2016? (Enter your answers in millions.)

c&d. What is net working capital in 2015 and 2016? (Enter your answers in millions.)

e. What are taxes paid in 2016? Assume the firm pays taxes equal to 35% of taxable income. (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

f. What is cash provided by operations during 2016? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

g. Net fixed assets increased from $800 million to $900 million during 2016. What must have been South Sea’s grossinvestment in fixed assets during 2016? (Enter your answer in millions.)

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Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 8%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $108 to purchase these supplies.

For years, Worley believed that the 8% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits, Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown:

Activity Cost Pool (Activity Measure)	Total Cost		Total Activity
Customer deliveries (Number of deliveries)	$	249,000	3,000	deliveries
Manual order processing (Number of manual orders)		462,000	6,000	orders
Electronic order processing (Number of electronic orders)		286,000	11,000	orders
Line item picking (Number of line items picked)		516,000	430,000	line items
Other organization-sustaining costs (None)		640,000
Total selling and administrative expenses	$	2,153,000

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $36,000 to buy from manufacturers):

	Activity
Activity Measure	University	Memorial
Number of deliveries	15	27
Number of manual orders	0	48
Number of electronic orders	20	0
Number of line items picked	140	290

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool.

3. Compute the total activity costs that would be assigned to University and Memorial.

4. Compute Worley’s customer margin for University and Memorial. (Hint: Do not overlook the $36,000 cost of goods sold that Worley incurred serving each hospital.)

Describe the role of scenario analysis within the discipline of risk management. (10)

Donnie Hilfiger has two classes of stock authorized: $1 par preferred and $0.01 par value common. As of the beginning of 2021, 320 shares of preferred stock and 4,200 shares of common stock have been issued. The following transactions affect stockholders’ equity during 2021:

March		1		Issue 1,300 shares of common stock for $44 per share.
May		15		Purchase 420 shares of treasury stock for $37 per share.
July		10		Resell 220 shares of treasury stock purchased on May 15 for $42 per share.
October		15		Issue 220 shares of preferred stock for $47 per share.
December		1		Declare a cash dividend on both common and preferred stock of $0.70 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, 2021: Preferred Stock, $320; Common Stock, $42; Additional Paid-in Capital, $77,000; and Retained Earnings, $30,900. Net income for the year ended December 31, 2021, is $11,200.

Required:

1. Record each of these transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

2. Select whether each of the following transactions increases ( + ) or decreases ( − ) total assets, total liabilities, and total stockholders' equity. (If none of the categories apply for a particular item, leave the cell blank.)

On September 1, the board of directors of Colorado Outfitters, Inc., declares a stock dividend on its 27,000, $18 par, common shares. The market price of the common stock is $47 on this date.

Required:
1. 2. & 3. Record the necessary journal entries assuming a small (10%) stock dividend, a large (100%) stock dividend, and a 2-for-1 stock split. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Required information [The following information applies to the questions displayed below.] Gabi Gram started The Gram Co., a new business that began operations on May 1. The Gram Co. completed the following transactions during its first month of operations. May 1 G. Gram invested $44,500 cash in the company in exchange for its common stock. 1 The company rented a furnished office and paid $2,200 cash for May’s rent. 3 The company purchased $4,590 of office equipment on credit. 5 The company paid $730 cash for this month’s cleaning services. 8 The company provided consulting services for a client and immediately collected $5,200 cash. 12 The company provided $2,500 of consulting services for a client on credit. 15 The company paid $790 cash for an assistant’s salary for the first half of this month. 20 The company received $2,500 cash payment for the services provided on May 12. 22 The company provided $3,600 of consulting services on credit. 25 The company received $3,600 cash payment for the services provided on May 22. 26 The company paid $4,590 cash for the office equipment purchased on May 3. 27 The company purchased $80 of advertising in this month’s (May) local paper on credit; cash payment is due June 1. 28 The company paid $790 cash for an assistant’s salary for the second half of this month. 30 The company paid $300 cash for this month’s telephone bill. 30 The company paid $300 cash for this month’s utilities. 31 The company paid $1,600 cash in dividends to the owner (sole shareholder). 2.1. Prepare income statement for May. 2.2. Prepare statement of retained earnings for May. 2.3. Prepare Balance Sheet for May 31. 3. Prepare statement of cash flows for May. (Cash outflows should be indicated with a minus sign.)

Major League Apparel has two classes of stock authorized: 4%, $10 par preferred, and $1 par value common. The following transactions affect stockholders’ equity during 2021, its first year of operations:

January		2		Issue 120,000 shares of common stock for $59 per share.
February		14		Issue 49,000 shares of preferred stock for $13 per share.
May		8		Purchase 12,000 shares of its own common stock for $49 per share.
May		31		Resell 6,000 shares of treasury stock for $54 per share.
December		1		Declare a cash dividend on its common stock of $0.55 per share and a $19,600 (4% of par value) cash dividend on its preferred stock payable to all stockholders of record on December 15. The dividend is payable on December 30. (Hint: Dividends are not paid on treasury stock.)
December		30		Pay the cash dividends declared on December 1.

Required:

1. Record each of these transactions. (If no entry is required for a particular transaction, select "No Journal Entry Required" in the first account field.)

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. Net income for the year was $479,000. (Amounts to be deducted should be indicated by a minus sign.)

Utes acquires 90% of Cougar on January 1st 20X1 for $810K (the underlying book value). At the time of the acquisition Cougar’s Retained Earnings was $400K and Common Stock was $500K. During the year, Ute sold $450,000 of inventory to Cougar. The inventory originally cost Ute $270,000. At the end of the year, Cougar had $90,000 of that inventory on hand. The remainder had been sold to an outside party. Including the sale of the intercompany inventory to an outside party, Cougar had net income of $250K and no dividends were paid during the year. At the date of acquisition Ute’s accumulated depreciation was $35K and Cougar’s was $25K. a- Ute accounts for Cougar under the fully adjusted equity method. Prepare all equity method adjustments that will be necessary for the entire year ending December 31, 20X1. b- Prepare all Elimination Entries at December 31, 20X1 c) What is the consolidated ending inventory at December 31st 20X1

The stockholders’ equity section of Velcro World is presented here.

VELCRO WORLD
Balance Sheet (partial)
($ and shares in thousands)
Stockholders' equity:
Preferred stock, $1 par value	$	5,300
Common stock, $1 par value		23,000
Additional paid-in capital		728,600
Total paid-in capital		756,900
Retained earnings		281,000
Treasury stock, 10,000 common shares		(250,000	)
Total stockholders' equity	$	787,900

Based on the stockholders' equity section of Velcro World, answer the following questions. Remember that all amounts are presented in thousands.

Required:

1. How many shares of preferred stock have been issued? (Enter you answer in total number of shares, not in thousands.)

2. How many shares of common stock have been issued? (Enter you answer in total number of shares, not in thousands.)

3. If the common shares were issued at $23 per share, at what average price per share were the preferred shares issued?

4. If retained earnings at the beginning of the period was $243 million and $23 million was paid in dividends during the year, what was the net income for the year? (Enter your answer in million (i.e., 5,000,000 should be entered as 5).)

5. What was the average cost per share of the treasury stock acquired?

Green Grow Inc. (GGI) manufactures lawn fertilizer. Because of the product’s very high quality, GGI often receives special orders from agricultural research groups. For each type of fertilizer sold, each bag is carefully filled to have the precise mix of components advertised for that type of fertilizer. GGI’s operating capacity is 22,000 one-hundred-pound bags per month, and it currently is selling 20,000 bags manufactured in 20 batches of 1,000 bags each. The firm just received a request for a special order of 5,000 one-hundred-pound bags of fertilizer for $130,000 from APAC, a research organization. The production costs would be the same, but there would be no variable selling costs. Delivery and other packaging and distribution services would cause a one-time $2,500 cost for GGI. The special order would be processed in two batches of 2,500 bags each.Page 447 (No incremental batch-level costs are anticipated. Most of the batch-level costs in this case are short-term fixed costs, such as salaries and depreciation.) The following information is provided about GGI’s current operations: Sales and production cost data for 20,000 bags, per bag: Sales price $40 Variable manufacturing costs 17 Variable selling costs 3 Fixed manufacturing costs 12 Fixed marketing costs 4 No marketing costs would be associated with the special order. Because the order would be used in research and consistency is critical, APAC requires that GGI fill the entire order of 5,000 bags. Required What is the total relevant cost of filling this special sales order, rounded to nearest whole dollar? What would be the change in operating income (to nearest whole dollar) if the special order is accepted? What is the break even selling price per unit for the special sales order (i.e., what is the selling price that would result in a zero effect on operating income)? Round answer to 2 decimal places. Prepare comparative income statements, using the contribution format, for both the current situation and assuming the special order is accepted at the break even price determined in requirement 3. Suppose that after GGI accepts the special order, it finds that unexpected production delays will not allow it to supply all 5,000 units from its own plants and meet the promised delivery date. It can provide the same materials by purchasing them in bulk from a competing firm. The materials would then be packaged in GGI bags to complete the order. GGI knows the competitor’s materials are very good quality, but it cannot be sure that the quality meets its own exacting standards. There is not enough time to carefully test the competitor’s product to determine its quality. What should GGI do? Specifically, discuss ethical and strategic issues associated with the decision.

Arndt, Inc., reported the following for 2018 and 2019 ($ in millions):
PLEASE FILL IN THE BLANKS

	2018				2019
Revenues	$	995			$	1,055
Expenses		798				838
Pretax accounting income (income statement)	$	197			$	217
Taxable income (tax return)	$	185			$	255
Tax rate: 40%

1. Expenses each year include $40 million from a two-year casualty insurance policy purchased in 2018 for $80 million. The cost is tax deductible in 2018.
2. Expenses include $3 million insurance premiums each year for life insurance on key executives.
3. Arndt sells one-year subscriptions to a weekly journal. Subscription sales collected and taxable in 2018 and 2019 were $38 million and $67 million, respectively. Subscriptions included in 2018 and 2019 financial reporting revenues were $35 million ($13 million collected in 2017 but not recognized as revenue until 2018) and $43 million, respectively. Hint: View this as two temporary differences—one reversing in 2018; one originating in 2018.
4. 2018 expenses included a $29 million unrealized loss from reducing investments (classified as trading securities) to fair value. The investments were sold in 2019.
5. During 2017, accounting income included an estimated loss of $7 million from having accrued a loss contingency. The loss was paid in 2018 at which time it is tax deductible.
6. At January 1, 2018, Arndt had a deferred tax asset of $8 million and no deferred tax liability.

2. Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. Using the schedule, prepare the necessary journal entry to record income taxes for 2018.

Prepare a schedule that reconciles the difference between pretax accounting income and taxable income. (Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

($ in millions) Current Year 2018 Future Taxable Amounts [2019] Future Deductible Amounts [2019] Pretax accounting income $197 $0 $0 Permanent difference: Life insurance premiums 3 $0 0 Temporary differences: Casualty insurance expense (40) 40 0 Subscriptions—2017 (13) 0 0 Subscriptions—2018 0 Unrealized loss 29 0 (29) Loss contingency (7) 0 0 Taxable income $206 $40 $(29) Enacted tax rate (%) 40% 40% 40% Tax payable currently Deferred tax liability 0 Deferred tax asset 0 ↓ ↓ Deferred tax liability Deferred tax asset Ending balances (balances currently needed) Less: Beginning balances Changes needed to achieve desired balances $0 $0