On January 1, Morris Company offered a customer a 10% trade discount if the customer purchases 1,000 units of an item within the next 6 months. Each item sells for $100. Based on the customer’s previous purchase history, Morris believes there is a 60% chance that the customer will purchase more than 1,000 units. On January 10, the customer purchases 200 units on credit. Required: How much revenue should Morris recognize related to this customer? Prepare the entry to record the sale on account on January 10.

Requirement 2:

The company has just hired a new marketing manager who insists that unit sales can be dramatically increased by dropping the selling price from $8 to $7. The marketing manager would like to use the following projections in the budget:

a. What are the total expected cash collections for the year under this revised budget?

b. What is the total required production for the year under this revised budget?

c. What is the total cost of raw materials to be purchased for the year under this revised budget?

d. What are the total expected cash disbursements for raw materials for the year under this revised budget?

Mastery Problem: Activity-Based Costing

WoolCorp

WoolCorp buys sheep’s wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. You’ve just been hired as a production manager at WoolCorp.

Currently WoolCorp makes two products: (1) raw, clean wool to be used as stuffing or insulation and (2) wool yarn for use in the textile industry.

The company would like you to evaluate its costing methods for its raw wool and wool yarn.

Single Plantwide Rate

WoolCorp is currently using the single plantwide factory overhead rate method, which uses a predetermined overhead rate based on an estimated allocation base such as direct labor hours or machine hours. The rate is computed as follows:

Single Plantwide Factory Overhead Rate = (Total Budgeted Factory Overhead) ÷ (Total Budgeted Plantwide Allocation Base)

WoolCorp has been using combing machine hours as its allocation base.

The company would like to consider activity-based costing. In order to understand their current system better, you evaluate WoolCorp’s current method of costing for raw wool and wool yarn. The production staff has compiled the following information for you on the production of 450 pounds of either raw wool or wool yarn:

In the following table, use combing machine hours as the allocation base for assigning overhead costs to each product. When required, round your answers to the nearest dollar.

Single Plantwide Factory Overhead Rate: $ per combing hour

Feedback

Review the single plantwide factory overhead rate method, and allocate the costs using a single plantwide factory overhead rate and the combing hours used by each product.

Activity-Based Costing

In order to compare WoolCorp’s current method with activity-based costing, you interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn.

In the following table, compute and enter the activity rate for each of the three activities. If required, round your answers to the nearest cent.

In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product’s process. When required, round your answers to the nearest dollar.

Ryan Company purchased a new machine on January 1, 2017, at a cost of $45,000. The company estimated that the machine has a salvage value of $5,000 and a useful life of four years. The machine is expected to produce 400,000 units.

Required:

1. Calculate depreciation expense to the nearest whole dollar for each year of the machine's useful life using straight-line depreciation.

2. Calculate depreciation expense to the nearest whole dollar for each year of the machine's useful life using double declining-balance depreciation.

3. If the machine was used to produce and sell 120,000 units in 2017, what would be the depreciation expense using the units-of-production method?  

4. What is the book value of the machine after three years using the double declining-balance method?

5. What is the book value of the machinery after three years using the straight-line method?

This question comprises four parts. Each part covers the topic of revenue recognition and is independent of each other part. Answer all questions to all four parts.

PART A:

The Royal Horseshoe Yacht Club (RHYC) is an association of members that offers a number of services including community and friendship among members, sailing courses for its members, meals in its upscale restaurant, moorage for boats at its home port of Horseshoe Bay, and moorage at outstations which are port facilities outside of Horseshoe Bay. Access to the club facilities, including the club restaurant, is available to members only.

RHYC is a highly sought-after yacht club and, therefore, few members quit once accepted into membership, resulting in members remaining in the club for an average of 25 years. RHYC follows IFRS and has a December 31 year end. To fund the services it provides, the club charges several fees as follows:

1. A one-time initiation fee of $50,000. This fee is non-refundable and is valid for as long as the member continues to be a member in good standing.

2. An annual membership fee of $10,000 due on January 1 each year, which is valid for the calendar year. This annual membership fee gives each member full access to the use of all of the club’s facilities. In addition, under the annual membership fee, a member will receive a credit of $2,400 towards restaurant meals in its upscale restaurant. This credit of $2,400 is a reasonable indication of the fair value of the meals for each year for a member.

3. Fees for moorage at the home port of Horseshoe Bay is based upon market rates according to the size of the boat. Fees for moorage at outstation facilities outside of Horseshoe Bay, however, are included in the annual membership fee.

4. Fees for sailing courses that are periodically offered to members vary with each course.

Required: (Be specific in your answers)

1. Explain how and when RHYC should recognize and revenue from the $50,000 one-time initiation fee using IFRS standards.

2. Explain how and when RHYC should recognize revenue from the $10,000 annual membership fee using IFRS standards.

3. Explain how and when RHYC should recognize revenue from the sailing courses and the moorage services at Horseshoe Bay using IFRS standards.

Cieslinski Corporation is conducting a time-driven activity-based costing study in its Tech Support Department. The company has provided the following data to aid in that study: Cieslinski Corporation Tech Support Department Data Inputs Resource Data: Number of employees 12 Average salary per employee $ 43,200 Weeks of employment per year 50 Minutes available per week (40 hours × 60 minutes) 2,400 Practical capacity percentage 80 % Activity Data: Routing Calls Resolving Problems Preparing Change Orders Minutes per unit of the activity 20 26 46 Cost Object Data: Customer G Customer H Customer I Number of calls routed 27 23 7 Number of problems resolved 16 9 9 Number of change orders prepared 0 1 0 On the Customer Cost Analysis report in time-driven activity-based costing, the total cost assigned to Customer I would be closest to: Multiple Choice $168.30 $105.30 $63.00 $0.00

Bluegill Company sells 15,000 units at $80 per unit. Fixed costs are $60,000, and income from operations is $300,000. Determine the following: Round the contribution margin ratio to two decimal places.

1. Who audited Apple Inc.'s financial statements as of, and for the period ended September 30, 2017?
2. According to Apple Inc.'s balance sheet as of September 30, 2017, what is their largest asset?
3. According to the following website, what are the four main sections of the 10-K or 10-Q
   1. The Sections Of The 10-Q And 10-K
4. The following is adapted from Financial Management for Executives (2nd ed.): Presented below is a list of financial statement accounts. Using the letter A for assets, L for liabilities, SE for shareholders’ equity, R for revenue, E for expenses, and N/A for not applicable, identify (a) whether the listed accounts appear on the balance sheet (B/S) or the income statement (I/S), and if so, (b) the nature of the account (i.e., A, L, SE, R, E, or N/A).
   1. Cash flow for operating activities
   2. Inventory
   3. Cost of goods sold
   4. Marketable securities
   5. Accounts receivable
   6. Retained earnings
   7. Income tax expense
   8. Cash
   9. Depreciation expense
   10. Common stock
   11. Accounts payable
   12. Dividends paid
   13. Miscellaneous revenue
   14. Office supplies
   15. Salaries payable
   16. Land
5. The following is adapted from Financial Management for Executives (2nd ed.): Compute the return on assets (ROA) for La Verne Company using end-of-year assets in your calculation.
   1. Total revenue …………………………………$250,000
   2. Total expenses…………………………………$190,000
   3. Total assets …………………………………$400,000
6. The following is adapted from Financial Management for Executives (2nd ed.): Compute the missing amounts from the financial statements on pages 33-35 of your textbook. You may assume that accounts receivable relate only to credit sales and that accounts payable relate only to credit purchases of inventory. There were no sales of property and equipment during 2015 and any purchases of property and equipment were made using cash.

Pranks, Inc. is a manufacturer of joke and novelty products for perpetrators of practical jokes. The corporation has paid several cash dividends throughout Year 6, the current year. It is also declaring a stock dividend to its stockholders as the calendar year-end approaches. You’ve been brought in as a consultant to assist with this process, and also to help determine whether some missing information can be determined before the distribution of the stock dividend is made. The company has two classes of stock: common stock and cumulative preferred stock.

You’ve been able to retrieve the following information so far:

1.The accounting manager for the company prepared the schedule of cash dividends paid from Year 1 to Year 6 on the Pranks, Inc. panel. However, one of the reasons for Pranks, Inc.’s missing information is that the manager is away on vacation and is unreachable by phone, because he is backpacking on a remote island that does not have cell phone reception. Management would like you to determine some information from the data you’ve collected regarding its outstanding stock.

Fill in the following answers.

2.The company declared a 4% common stock dividend on December 1, and would like you to compute the following pieces of missing information. The market value of the common shares is $25.00 on December 1, and is $32.00 on the actual distribution date of the stock, December 31.

Fill in the missing information in the following table, using the information given and your work on the other panels. All “before” items are before the stock dividend was declared. All “after” items are after the stock dividend was declared and closing entries were recorded at the end of the year.

Explain the differences between the Malaysian Accounting Standard Boards (MASB) and the Malaysian Institute of Accountant (MIA).

P3-6 (Algo) Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio LO3-4, 3-5, 3-6

[The following information applies to the questions displayed below.]

Following are account balances (in millions of dollars) from a recent StateEx annual report, followed by several typical transactions. Assume that the following are account balances on May 31 (end of the prior fiscal year):

These accounts are not necessarily in good order and have normal debit or credit balances. Assume the following transactions (in millions, except for par value) occurred the next fiscal year beginning June 1 (the current year):

1. Provided delivery service to customers, who paid $13,390 in cash and owed $41,504 on account.
2. Purchased new equipment costing $3,914; signed a long-term note.
3. Paid $12,664 cash to rent equipment and aircraft, with $6,736 for rent this year and the rest for rent next year.
4. Spent $1,344 cash to repair facilities and equipment during the year.
5. Collected $38,685 from customers on account.
6. Repaid $390 on a long-term note (ignore interest).
7. Issued 260 million additional shares of $0.10 par value stock for $40 (that’s $40 million).
8. Paid employees $15,276 for work during the year.
9. Purchased spare parts, supplies, and fuel for the aircraft and equipment for $13,764 cash.
10. Used $7,650 in spare parts, supplies, and fuel for the aircraft and equipment during the year.
11. Paid $1,264 on accounts payable.
12. Ordered $136 in spare parts and supplies.

P3-6 Part 2

2. Prepare T-accounts for the current year from the preceding list; enter the ending balances from May 31 as the respective beginning balances for June 1 of the current year. For each transaction, record the current year's transaction effects in the T-accounts. Label each using the letter of the transaction. (Enter your answers in millions, not in dollars.)

Earth Company manufactures a single product, Thingy. The standard cost specification sheet shows the following standards for one unit of Thingy.

The fixed overhead allocation rate is based on normal monthly capacity of 20 000 direct labour hours. Fixed overhead and production are expected to be spread evenly throughout the year.

A total of 6000 Thingy were produced during June. Actual costs incurred during June were:

20,000 kg of material Y were purchased @ $13.50 per kg 22,000 kg of material Y were used.

18,000 direct labour hours were worked at an average wage rate of $15 per hour Actual overhead incurred:

                          Fixed                          $85 000

                          Variable                      $35 000

Required:

1. Compute the following variances:   (6 marks)

1. Direct material price variance

2. Direct material quantity variance

3. Direct labour rate variance

4. Direct labour efficiency variance

5. Variable overhead spending variance

6. Fixed overhead budget variance

2. Discuss three factors that could cause an unfavourable direct material quantity variance.

On January 1, NewTune Company exchanges 17,360 shares of its common stock for all of the outstanding shares of On-the-Go, Inc. Each of NewTune’s shares has a $4 par value and a $50 fair value. The fair value of the stock exchanged in the acquisition was considered equal to On-the-Go’s fair value. NewTune also paid $44,650 in stock registration and issuance costs in connection with the merger.

Several of On-the-Go’s accounts’ fair values differ from their book values on this date (credit balances in parentheses):

Precombination book values for the two companies are as follows:

1. Assume that this combination is a statutory merger so that On-the-Go’s accounts will be transferred to the records of NewTune. On-the-Go will be dissolved and will no longer exist as a legal entity. Prepare a postcombination balance sheet for NewTune as of the acquisition date.

2. Assume that no dissolution takes place in connection with this combination. Rather, both companies retain their separate legal identities. Prepare a worksheet to consolidate the two companies as of the combination date.

1. An offer to purchase a notebook for $50 creates a power in the offeree to create a contract which is binding on the offeror

   True

   False

2. The use of force or fear is not necessary for an act of theft to be considered a robbery.

True

False

3. An offer :

4. The purpose of strict products liability liability statutes is to shift the cost of injuries from the victim to the manufacturer, who in turn can bear that burden by buying insurance funded with the proceeds of sales of the product.

True

False

5. Green Grocers, Inc., transports goods at the request of Hiway Transport Company without expressly agreeing on a price or terms. In a later dispute between these parties over the delivery, the doctrine of quasi contract can be used because

6. When a party makes a lawful offer, he creates a power in the other party to bind him to an enforceable contract by simply accepting the offer

True

False

7. The mental element of a crime is:

8. Under the general rule, and unless the offer says otherwise,

9. A unilateral contract is formed when the one receiving the offer promises to perform; the requested act or performance.

True

False

10. A "formal contract" requires a special form or method of creation or formation to be enforceable.

True

False