Intermediate Accounting I Ethics Question (20 pts. for content; 10 pts. for communication): Thank you very much!

In January 2018, Dunder Mifflin Inc. bought property in downtown Scranton. The property contains land, a warehouse, and some limited equipment. Property values in the area have been increasing rapidly over the past decade. The price paid for the property needs to be allocated to the items purchased and the controller and financial vice president are having that discussion. Dunder Mifflen’s controller wants to allocate the largest proportion of the cost to the warehouse and equipment while the financial VP, David Wallace, argues that the allocation should recognize the steadily increasing value of the land by allocating the highest value to the land. Assume that the same depreciation methods are used for financial and tax return purposes.

1. Under generally accepted accounting principles, how should the total cost of the property be determined? (2 pts.)

2. Why is there any question about how much of the purchase cost should be allocated to each of the assets? How should the purchase cost be allocated to each of the assets? (4 pts.)

3. What are the pros and cons of a proportionally higher allocation of the purchase cost to the land and a proportionally lower allocation to building and equipment? (8 pts.)

4. Assume the equipment and warehouse have the same useful life. The company plans to sell the equipment after it has been fully depreciated and the land will be sold after the warehouse is fully depreciate Assuming no change in tax rates over the life of the warehouse, how will this allocation decision affect Retained Earnings in the long-run, after the assets have been sold? Explain in depth. (6 pts.)

Rigby Inc. produces surveillance equipment. Selected data is provided below.

Problem 2

Selling price 129.00 $/unit
Variable costs 73.40$/unit
Fixed costs 32.10 $unit
Units produced and sold 3,850

REQUIRED:
Calculate the following:

1. Contribution margin per unit

2. Contribution margin ratio

3. Breakeven point in units

4. Breakeven point in sales

5. Sales ($) to reach target profit of $55,000

1. Profit Center Responsibility Reporting for a Service Company

   Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31:

   Revenues—N Region	$1,095,000
   Revenues—S Region	1,306,900
   Revenues—W Region	2,356,700
   Operating Expenses—N Region	693,900
   Operating Expenses—S Region	777,800
   Operating Expenses—W Region	1,425,200
   Corporate Expenses—Dispatching	561,600
   Corporate Expenses—Equipment Management	254,200
   Corporate Expenses—Treasurer’s	166,500
   General Corporate Officers’ Salaries	367,800

   The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:

   	North		South		West
   Number of scheduled trains	5,900		7,000		10,500
   Number of railroad cars in inventory	1,000		1,600		1,500

   Required:

   1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.

   Thomas Railroad Company
   Divisional Income Statements
   For the Quarter Ended December 31
   	North	South	West
   Revenues	$	$	$
   Operating expenses
   Income from operations before service department charges	$	$	$
   Service department charges:
   Dispatching	$	$	$
   Equipment Management
   Total service department charges	$	$	$
   Income from operations	$	$	$

   Feedback

   2. What is the A component of the rate of return on investment, computed as the ratio of income from operations to sales.profit margin of each division? Round to one decimal place.

   Region	Profit Margin
   North Region	%
   South Region	%
   West Region	%

   Identify the most successful region according to the profit margin.
   

   • North
   • South
   • West

   3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?

   1. The method used to evaluate the performance of the divisions should be reevaluated.
   2. A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).
   3. A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).
   4. None of these choices would be included.
   5. All of these choices (a, b & c) would be included.
   • a
   • b
   • c
   • d
   • e

Monticello Company uses a perpetual inventory system and has a highly labour intensive

production process, so it assigns manufacturing overhead based on direct labour cost.

Monticello’s predetermined overhead application rate for 2017 was computed from the

following data:

Total estimated factory overhead $1,232,500

Total estimated direct labour cost $850,000

The following activities took place in the work in process inventory during June:

     Dr                                      WIP Inventory A/C                                              Cr.

June 1 Bal. 25,625                                          

Direct Materials Used 127,400

Other transactions incurred:

§ Indirect material issued to production was $19,000

§ Total manufacturing labour incurred in June was $172,500, 80% of this amount

represented direct labour.

§ Other manufacturing overhead costs incurred for June amounted to $170,375.

§ Two jobs were completed with total costs of $160,000 & $105,000 respectively. They

were sold on account at a mark-up of 75% on cost.

Required:

i) Compute Monticello’s predetermined manufacturing overhead rate for 2017.

ii) State the journal entries necessary to record the above transactions in the general

journal:

a) For direct materials used in June

b) For indirect material issued to production in June

c) For total manufacturing labour incurred in June

d) To assign manufacturing labour to the appropriate accounts

e) For other manufacturing overhead incurred

f) For manufacturing overhead applied for June

g) To move the completed jobs into finished goods inventory

h) To sell the two completed jobs on account

iii) Calculate the manufacturing overhead variance for Monticello and state the journal

entries necessary to dispose of the variance.

iv) What is balance on the Cost of Goods Sold account after the adjustment

v) Determine the balance in work in process inventory on June 30.

Please answer the matching question below to the best of your knowledge. Thank you in advance for your participation.
Matching questions   

Treasury stock

Stock split

Record date

Outstanding stock

Retained earnings

Publicly held corporation

Preferred stock

Legal capital

Cumulative dividend

Par value stock

 
1-  Net income that is retained in the business.
2- The amount per share of stock that must be retained in the business for the protection of corporate creditors.   

 Capital stock that has contractual preferences over common stock in certain areas.   

  A corporation that may have thousands of stockholders and whose stock is regularly traded on  a national securities market.      

 Capital stock that has been issued and is being held by stockholders.      

Capital stock that has been assigned a value per share in the corporate charter.    

 A corporation's own stock that has been issued,  fully paid for, and reacquired by the corporation but not retired.

The issuance of additional shares of stock to stockholders accompanied by a reduction in the par or stated value per share.  

 9.   The date when ownership of outstanding shares is determined for dividend  purposes.      

A feature of preferred stock entitling the stockholder to receive current and unpaid prior-year dividends before                                                           common stockholders receive any dividends.                  

Agee Storage issued 35 million shares of its $1 common stock at $16 a share on July 1, 2006

Agee reacquired to retire 1 million shares at $14 a share on September 12, 2006.

Agee reacquired 4 million shares as treasury stock at $11 a share on October 7, 2006

Agee issued 3 million shares of treasury stock at $8.50 a share on November 1, 2006

Record all of the applicable general journal entries and post to T-Accounts

(check figure: after all entries have been recorded - APIC account = (510,000,000) & Treasury Stock = 11,000,000)

When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $25,000 and its estimated residual value is $3,000. After 3 years of straight-line depreciation, the asset’s total estimated useful life was revised from 8 years to 5 years and there was no change in the estimated residual value. The depreciation expense in year 4 is:

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.

Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozen yogurt products under The Yogurt Place name. Mr. Swanson has assembled the following information relating to the franchise:

1. A suitable location in a large shopping mall can be rented for $4,200 per month.
2. Remodeling and necessary equipment would cost $360,000. The equipment would have a 15-year life and a $24,000 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation.
3. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $450,000 per year. Ingredients would cost 20% of sales.
4. Operating costs would include $85,000 per year for salaries, $5,000 per year for insurance, and $42,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 15.0% of sales.

Required:

1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet.

2-a. Compute the simple rate of return promised by the outlet.

2-b. If Mr. Swanson requires a simple rate of return of at least 21%, should he acquire the franchise?

3-a. Compute the payback period on the outlet.

3-b. If Mr. Swanson wants a payback of three years or less, will he acquire the franchise?

1. The issuance of convertible bonds. 2. The conversion of convertible bonds. 3. The issuance of convertible preferred stock. 4. The conversion of convertible preferred stock. 5. The issuance of bonds with detachable stock warrants. 6. The issuance of bonds with nondetachable stock warrants. 7. The grant of employee stock options. 8. The exercise of employee stock options. 9. The expiration of employee stock options. 10. The reissuance of treasury shares at a price less than the cost of the shares. 11. The reissuance of treasury shares at a price greater than the cost of the shares. 12. The redemption of bonds at a price less than their carrying value. 13. The redemption of bonds at a price greater than their carrying value. 14. The amortization of a bond discount. 15. The amortization of a bond premium.

Required—For each transaction, indicate its effect on the financial statement totals displayed below by entering one of the following codes in the table cell: INC = Increase DEC = Decrease N = None

Transaction Total Assets Total Liabilities Total Stockholders’ Equity Net Income

Sweeter Enterprises Inc. has cash flows from operating activities of $438,000. Cash flows used for investments in property, plant, and equipment totaled $92,000, of which 70% of this investment was used to replace existing capacity. a. Determine the free cash flow for Sweeter Enterprises Inc. $ b. How might a lender use free cash flow to determine whether or not to give Sweeter Enterprises Inc. a loan? Free cash flow is often used to measure the financial strength of a business. The free cash flow that a business has, the easier it will be for the company to pay the interest on the loan and repay the loan principal. Sweeter’s free cash flow is $ , which is very .

Using the Microsoft Excel, kindly prepare a cost production report under the FIFO Method.

Paper Needs Inc, has the following production data for the month of June 20xx.

In Department I, all materials are added at the start of the process, while labor and overhead are applied evenly throughout the process.

In Department II, 50% of materials are added at the start of the process and the balance is added when the process is ¾ completed. Conversion costs are applied uniformly to the process.

Auditing
Please answer with example
A) What is the limitations of external audit.
B) What is the five fundamental principles as well as threats.? You should be able to explain not just writing in points else no full marks

DEF Company incorporated on January 1, 2018 after receiving authorization to issue 5,000 shares of $100 par value preferred stock and 500,000 shares of $10 par value common, with the former having a 10% cumulative dividend feature. During fiscal 2018, the company engaged in the following equity transactions: January 1 Issued 500 shares of preferred stock for $120 each. January 1 Issued 10,000 shares of common stock for $25 each. June 30 Bought 1,000 shares of common stock for the treasury at $30 each. December 31 Declared the preferred stock dividend and a $1.00 per-share dividend on the common. DEF’s fiscal 2018 comprehensive income consisted of the following: sales revenue of $2,500,000, cost of goods sold of $1,600,000, operating expenses of $300,000, income taxes of $215,000, and $40,000 of other comprehensive income from a transaction not subject to income tax.

Required—Prepare in good form each of the following: DEF’s fiscal 2018 statement of stockholders’ equity.

Exercise 16-22 Net operating loss carryback and carryforward [LO16-7]

Wynn Sheet Metal reported an operating loss of $180,000 for financial reporting and tax purposes in 2018. The enacted tax rate is 40%. Taxable income, tax rates, and income taxes paid in Wynn’s first four years of operation were as follows:

Required:
1. Complete the following table given below and prepare the journal entry to recognize the income tax benefit of the operating loss. Wynn elects the carryback option.
2. Show the lower portion of the 2018 income statement that reports the income tax benefit of the operating loss.