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.

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.

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.

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.

Income statement

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

Balance Sheet

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

Required information

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

The City of Lynnwood was recently incorporated and had the following transactions for the fiscal year ended December 31.

1. The city council adopted a General Fund budget for the fiscal year. Revenues were estimated at $2,100,000 and appropriations were $2,000,000.
2. Property taxes in the amount of $2,040,000 were levied. It is estimated that $14,000 of the taxes levied will be uncollectible.
3. A General Fund transfer of $30,000 in cash and $310,000 in equipment (with accumulated depreciation of $75,000) was made to establish a central duplicating internal service fund.
4. A citizen of Lynnwood donated marketable securities with a fair value of $900,000. The donated resources are to be maintained in perpetuity with the city using the revenue generated by the donation to finance an after school program for children, which is sponsored by the culture and recreation function. Revenue earned and received as of December 31 was $50,000.
5. The city’s utility fund billed the city’s General Fund $135,000 for water and sewage services. As of December 31, the General Fund had paid $134,000 of the amount billed.
6. The central duplicating fund purchased $9,500 in supplies.
7. Cash collections recorded by the general government function during the year were as follows:

8. During the year the internal service fund billed the city’s general government function $20,700 for duplicating services and it billed the city’s utility fund $13,100 for services.
9. The city council decided to build a city hall at an estimated cost of $5,100,000. To finance the construction, 5 percent bonds were sold at the face value of $5,100,000. A contract for $4,600,000 has been signed for the project; however no expenditures have been incurred as of December 31.
10. The general government function issued a purchase order for $37,000 for computer equipment. When the equipment was received, a voucher for $32,900 was approved for payment and payment was made.

a. For each transaction number identify all of the fund and/or government-wide activity journals in which journal entries must be made. (Select all that apply.)

Mary Tappin, an assistant Vice President at Galaxy Toys, was disturbed to find on her desk a memo from her boss, Gary Resnick, to the controller of the company. The memo appears below:

GALAXY TOYS INTERNAL MEMO

Sept 15

To: Harry Wilson, Controller

Fm: Gary Resnick, Executive Vice President

As you know, we won't start recording many sales until October when stores start accepting shipments from us for the Christmas season. Meanwhile, we are producing flat-out and are building up our finished goods inventories so that we will be ready to ship next month.

Unfortunately, we are in a bind right now since it looks like the net income for the quarter ending on Sept 30 is going to be pretty awful. This may get us in trouble with the bank since they always review the quarterly financial reports and may call in our loan if they don't like what they see. Is there any possibility that we could change the classification of some of our period costs to product costs--such as the rent on the finished goods warehouse?

Please let me know as soon as possible. The President is pushing for results.

Mary didn't know what to do about the memo. It wasn't intended for her, but its contents were alarming.

Required:

a. Why has Gary Resnick suggested reclassifying some period costs as product costs?

b. Why do you think Mary was alarmed about the memo?

(Show Work and Calculations)

On December 31, 2016, Larkspur Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Larkspur to make annual payments of $9,399 at the beginning of each year, starting December 31, 2016. The machine has an estimated useful life of 6 years and a $4,700 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Larkspur uses the straight-line method of depreciation for all of its plant assets. Larkspur’s incremental borrowing rate is 6%, and the lessor’s implicit rate is unknown.
1. What type of lease is this

2. Compute the present value of the lease payments.

What is the total raw materials budget variance. Choose 2 answers Units =60,000 Standard Cost Usage Steel $10.00/lb 7.2 oz/unit Plastic $4.00/lb 2.6 oz/unit Actual Cost Usage Steel $10.70/lb 6.9 oz/unit Plastic $3.70/lb 3.1 oz/unit (10 total points) Must get both answers correct to get 4 points

The following are the total cost for differing amounts of units of hammers. Units Total Cost 26,200 $975,000 44,100 $1,456,400 18,700 $770,600 27,600 $1,011,100 34,400 $1,197,700 What is the variable cost per unit? Using your answer in the above question, estimate the total cost for 25,000 hammers.

An auto parts Company produces various extra additions to motor cars. It has just discovered an opportunity to invest in producing air conditioners for the back seats of vans and minibuses. The investment project will cost $925,000 and will generate an estimated additional operating income of $95,500.

Without the investment, the company will have average assets for the coming year of $29.5 million and expected operating income of $4.535 million.

Required:

1. What is the ROI of the new investment project alone? Is it higher or lower than the existing ROI of the company?

2. What will be the ROI of the company after accepting the new investment?

3. Assuming that the managers are evaluated and rewarded on the basis of ROI performance, should a rational manger make the new investment? Why?

4. Suppose that the company sets a minimum required rate of return to 11%. What will be the ‘Residual Income’ of the company after accepting the new investment? Is it higher or lower than the Residual Income without the investment?

5. What will be the Economic value Added (EVA) of the company after making the new investment if corporate tax rate is 30% and the actual cost of capital of the company is 10%?

Church Company completes these transactions and events during March of the current year (terms for all its credit sales are 2/10, n/30).

Assume the following ledger account amounts Inventory (March 1 beg. bal. is $63,000), Z. Church, Capital (March 1 beg. bal. is $63,000) and Church Company uses the perpetual inventory system.

Prepare the March 31 trial balance, schedule of accounts receivable and schedule of accounts payable. Post information from the journals in Part 2 to the general ledger and the accounts receivable and accounts payable subsidiary ledgers.

Prepare the March 31 trial balance.

• Trial Balance

Create a Balance Sheet using the following data:
               
Sales   $55,000           Accumulated Depreciation   19,000            
Cost of good sold   32,000           Accounts Receivable    7,300           
Depreciation Expense   3,800           Accounts Payable   6,500           
Interest Expense   2,600           Short-term notes payable   2,600           
Income taxes   5,985             Marketing, general and admin expenses   4,500  

Inventories   4,700           Gross fixed assets   64,800           
Long-term debt   36,000           Common stock   12,000           

Other assets   1,500           Retained earnings   13,850  

Cash   ?               
Include two columns Percentage of Total assets and Dollar Value.              
Also firm has paid $1,500 in common stock dividends during the year and has 1000 shares outstanding .

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $50,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement: Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 1 20Y2 20Y1 2 Sales $890,000.00 $600,000.00 3 Cost of goods sold 320,400.00 228,000.00 4 Gross profit $569,600.00 $372,000.00 5 Selling expenses $142,400.00 $84,000.00 6 Administrative expenses 62,300.00 54,000.00 7 Total operating expenses $204,700.00 $138,000.00 8 Income from operations $364,900.00 $234,000.00 9 Other income 80,100.00 54,000.00 10 Income before income tax $445,000.00 $288,000.00 11 Income tax expense 231,400.00 156,000.00 12 Net income $213,600.00 $132,000.00 1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Round your percentages to one decimal place. Enter all amounts as positive numbers. 2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

Cardio Care Inc. manufactures stationary bicycles and treadmills. The products are produced in the Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two products. These activities and their associated activity rates are as follows:

The activity-base usage quantities and units produced for each product were as follows:

Use the activity rate and usage information to compute the total activity costs and the activity costs per unit for each product. If required, round your answers to two decimal places.

Problem 8-3 Some of the transactions of Splish Company during August are listed below. Splish uses the periodic inventory method. August 10 Purchased merchandise on account, $11,900, terms 2/10, n/30. 13 Returned part of the purchase of August 10, $1,300, and received credit on account. 15 Purchased merchandise on account, $16,100, terms 1/10, n/60. 25 Purchased merchandise on account, $20,500, terms 2/10, n/30. 28 Paid invoice of August 15 in full. Assuming that purchases are recorded at gross amounts and that discounts are to be recorded when taken: Prepare general journal entries to record the transactions. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses: Prepare general journal entries to enter the transactions. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Aug. 28 SHOW LIST OF ACCOUNTS Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial expenses: Prepare the adjusting entry necessary on August 31 if financial statements are to be prepared at that time. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Aug. 31

Cherry Blossom Products Inc. produces and sells yoga-training products: how-to DVDs and a basic equipment set (blocks, strap, and small pillows). Last year, Cherry Blossom Products sold 8,900 DVDs and 4,450 equipment sets. Information on the two products is as follows:

   DVDs    Equipment Sets

Price    $7.80    $25.40

Variable cost per unit    $3.60 $15.40

Total fixed cost is $60,720.

Required:

1. What is the sales mix of DVDs and equipment sets?

2. Compute the break-even quantity of each product.

1. Two friends are considering opening a driving range for golfers. Because of the growing popularity of golf, they estimate such a range could generate rentals of 20,000 buckets at $3 a bucket the first year, and that rentals will grow at 7% a year thereafter. The price will remain a $3 per bucket.

            Equipment requirements include:

                        Incorporated fee                        $2,500

                        ball dispensing machine             $2,000

                        ball pick-up vehicle                    $8,000

                        tractor and accessories                $8,000

            All the equipment is 7-year ACRS property and is expected to have a salvage value of 10% of cost after 8 years.

2. Stocking a small shop selling tees, visors, gloves, towels, sun-block, etc., plus a checking account for the business make net working capital needs $3,000 to start. This amount is expected to grow at 5% per year.

            Annual fixed operating costs are expected as follows:

                        Land lease                                 $12,000

                        Water                                       1,500

                        Electricity                                 3,000

                        Labor                                       30,000

                        Seed & Fertilizer                       2,000

                        Gasoline                                   1,500

                        Equipment maintenance             1,000

                        Insurance                                  1,000

                        Other                                        1,000

                        Total                                         $53,000

Expenditures for balls and baskets, initially $4,000, are expected to grow at 7% per year. The relevant tax rate is 15% and the required return is also 15%. The project is to be evaluated over an 8-year life. Should the friends proceed?

1. The three categories of the accounting equation are:

2. Companies need a way to organize their accounts so they use a chart of accounts. Accounts starting

with 1 are usually Assets, 2 – Liabilities, 3 – Equity, 4 – Revenues, and 5 – Expenses. The second

and third digits in account numbers indicate:

3. A chart of accounts and a ledger are similar in that they both list the account names and account

numbers of the business. A ledger, though, provides the following:

4. With a double-entry you need to record the dual effects of each transaction. Every transaction affects

at least ____ accounts.

5. A T-account is a shortened form of each account in the ledger. The debit is on the ____ side, credit on

the _____ side, and the account name is shown on _____.