Horizontal Analysis of Income Statement

For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:

Required:

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate a decrease in the "Difference" columns. If required, round to one decimal place.

2. Net income has   from 20Y1 to 20Y2. Sales have  ; however, the cost of goods sold has  , causing the gross profit to  .

On 1 September the balance of the Accounts Receivable control account in the general ledger of Whelan Company was $11 960. The customer's subsidiary ledger contained account balances as follows: Jana $2 440, Kingston $2 640, Johnson $2 060, Phillips $4 820. At the end of September the various journals contained the following information.

Sales journal: Sales to Phillips $800; to Jana $1 260; to Simons $1 030; to Johnson $1 100.
Cash receipts journal: Cash received from Johnson $1 310; from Phillips $2 300; from Simons $380; from Kingston $1 800; from Jana $1 240.
General journal: An allowance is granted to Phillips $220.

Instructions

(a) Set up control and subsidiary accounts and enter the beginning balances. Do not construct the journals.
(b) Post the various journals. Post the items as individual items or as totals, whichever would be the appropriate procedure. (No sales discounts given.) Leave the cells blank if no amount is to be debited or credited.

(c) Prepare a list of customers/debtors and prove the agreement of the controlling account with the subsidiary ledger as at 30 September 2012.

This information relates to Hans Olaf Pty Ltd.

Prepare the journal entries to record the transactions listed above on the books of Hans Olaf Pty Ltd. Hans Olaf Pty Ltd uses a perpetual inventory system. (For multiple debit/credit entries, list accounts in order of magnitude.)

Hercules Hair Restorer Inc. (HHRI) makes many varieties of hair restoration products which are sold under well-known marketing labels. A single batch contains 10,000 8 oz. bottles and takes two days to make. Typically 15 batches are completed per month, for different brands. Basic cost data for the month of January appears below.

HHRI appoints a new CEO, who decides to increase production targets to 200 batches per year. She also hires a management accountant who decides to apply normal costing and does some research into cost behavior. Basic product data still applies. New information appears below.
  

Require: If HHRI uses a plant-wide rate based on a single cost pool, please calculate full cost for both machine hours and direct labor hours. (10 points)

Hint: When a single cost pool is used, the planned cost per batch is the same whichever cost driver is employed, because ultimately, all overheads have to be charged to production

At the beginning of the current season on 1 April, the ledger of Tri-State Pro Shop showed Cash $2 500; Inventory $3 500; and Graham Woods, Capital $6 000. These transactions occurred during April 2012.

The chart of accounts for the pro shop includes Cash; Accounts Receivable, Inventory; Accounts Payable; Graham Woods, Capital; Sales; Sales Returns and Allowances; Purchases; Purchase Returns and Allowances; Discount Received; and Freight-in.

Instructions

(a) Journalise the April transactions using a periodic inventory system.

(b) Using T accounts, enter the beginning balances in the ledger accounts and post the April transactions.

c) Prepare a trial balance on 30 April 2012.

(d) Prepare an income statement through gross profit, assuming inventory on hand as at 30 April is $4 524.

Inventory

a) Natasha Burke provides you with the following information in respect of one of her inventory items:

Tasks  

i. Prepare inventory ledger cards for the inventory item using both the FIFO and weighted average methods. Round unit costs to the nearest cent.

ii. Show balances for the cost of goods sold, sales and gross profit under both the FIFO and weighted average methods.

b) Explain why Natasha Burke may use both a perpetual inventory system and a periodic system in her gift store.

On September 6, 2017, East River Tug Co. purchased a new tugboat for $400,000. The estimated life of the boat was 20 years, with an estimated residual value of $40,000.

Compute the depreciation on this tugboat in 2017 and 2018 using the following methods. Apply the half-year convention. (If necessary, round to the nearest dollar.)

Show work:

18(b)

On March 1, 2018, five-year bonds are sold for $520,000 that have a face value of $500,000 and an interest rate of 10%. Interest is paid semi-annually on March 1 and September 1. Using the straight-line amortization method, prepare the borrower's journal entries on:

March 1, 2018; September 1, 2018; December 31, 2018; and March 1, 2019.

Show work:

Mastery Problem: Analyzing Transactions

KL Company Inc.

In February, Katie Long formed KL Company Inc. Transactions for the month of March have been posted to the T accounts. An intern has prepared a trial balance from the T accounts, but there seem to be some errors.

T accounts

Required:

Transactions

Descriptions of the transactions for the month of March are provided in the following table. Each of the transactions that follow has been posted to the T accounts. Referring to the T accounts, select the date on which each transaction occurred, enter the amount of the transaction, and select the account to debit and credit.

Trial Balance: Unequal Totals

The intern has prepared the following trial balance for the month of March.

Trial Balance: Correct

The Trial Balance: Unequal Totals was prepared by the intern. The intern is puzzled by the unequal totals. Prepare a corrected trial balance. If an amount box does not require an entry, leave it blank.

Errors on Trial Balance

Compare the trial balance prepared by the intern (Trial Balance: Unequal Totals) to the trial balance that you prepared (Trial Balance: Correct). In the following table, select the accounts for each type of error. Not all accounts contain errors.

Accounting Equation

The intern is puzzled and asks "Are you sure the accounting equation is still in balance?" Using the corrected trial balance you prepared, prove that the accounting equation is in balance.

Still puzzled, the intern asks "Why do none of the amounts in the accounting equation equal the totals on the trial balance?"

Bailand Company purchased a building for $210,000 that had an estimated residual value of $10,000 and an estimated service life of 10 years. Bailand purchased the building 4 years ago and has used straight-line depreciation. At the beginning of the fifth year (before it records depreciation expense for the year), the following independent situations occur:

Bailand estimates that the asset has 8 years’ life remaining (for a total of 12 years). Prepare the journal entry on December 31 to record depreciation in the fifth year after the change in estimate. Ignore income taxes.

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GENERAL JOURNAL

Prepare the journal entry on December 31 to record depreciation in the fifth year after the change in depreciation method. Round your answers to the nearest dollar.

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GENERAL JOURNAL

Prepare the journal entries on December 31 to record the prior period adjustment for the error and depreciation in the fifth year. Ignore income taxes.

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GENERAL JOURNAL

The debits to Work in Process—Roasting Department for Morning Brew Coffee Company for August, together with information concerning production, are as follows:

All direct materials are placed in process at the beginning of production.

a. Prepare a cost of production report, presenting the following computations:

1. Direct materials and conversion equivalent units of production for August
2. Direct materials and conversion costs per equivalent unit for August
3. Cost of goods finished during August
4. Cost of work in process at August 31

If an amount is zero, enter in "0". For the cost per equivalent unit, round your answer to two decimal places.

b. Compute and evaluate the change in cost per equivalent unit for direct materials and conversion from the previous month (July). If required, round your answers to the nearest cent.

Summary Problem—Four-Variance Breakdown of the Total Overhead Variance; Journal Entries ACME manufacturing is a low-cost producer of a single, commodity product: RGL-01. Standard overhead cost information for one unit of this product is presented below:

Standard number of machine hours per unit produced 0.5

Standard variable overhead rate per machine hour $30.00

Budgeted fixed overhead (for the year) $300,000

Practical capacity, in units (annual basis) 10,000

Budgeted output for the coming year, in units 8,000

Normal capacity, in units (per year) 9,000

Actual production for the year (in units) 9,200

Actual overhead costs incurred during the year:

Fixed overhead $288,000

Variable overhead $142,600

Actual number of machine hours per unit for work done this period 0.49

Required

Calculate the fixed overhead application rate per machine hour (rounded to 2 decimal places) using (a) budgeted output, (b) normal capacity, and (c) practical capacity.

What is the total overhead application rate per machine hour (rounded to 2 decimal places) for each of the three choices identified in requirement 1?

What is the total overhead variance for the year when the overhead application rate per machine hour is determined under each of the following options: (a) budgeted output, (b) normal capacity, and (c) practical capacity? [Round answers to nearest whole number, and indicate whether each variance is favorable (F) or unfavorable (U).]

What is causing the results you observe in requirement 3?

What is the Overhead Efficiency Variance (= Variable Overhead Efficiency Variance) for the year when the overhead application rate per machine hour is determined under each of the following options: (a) budgeted output, (b) normal capacity, and (c) practical capacity? [Round answers to nearest whole number, and indicate whether each variance is favorable (F) or unfavorable (U).]

Provide an interpretation of the results reported in requirement 5.

What is the total Overhead Spending Variance for the year under each of the following assumptions regarding the denominator activity level used to set the overhead application rate for the year: (a) budgeted output, (b) normal capacity, and (c) practical capacity? Round answers to nearest whole dollar, and state whether each variance is favorable (F) or unfavorable (U).

Break down the Total Overhead Spending Variance (as determined in requirement 7) into: (a) a Fixed Overhead Spending Variance, and (b) a Variable Overhead Spending Variance. Round answers to nearest whole dollar, and state whether each variance is favorable (F) or unfavorable (U).

Provide an interpretation of the results reported in requirements 7 and 8. Calculate the Production Volume Variance when the overhead application rate per machine hour is determined under each of the following options: (a) budgeted output, (b) normal capacity, and (c) practical capacity. Round answers to nearest whole dollar, and state whether each variance is favorable (F) or unfavorable (U).

Provide an interpretation of the results reported in requirement 10.

Summary analysis: Prepare a four-variance analysis of the total overhead variance for the period under each of the following options for determining the fixed overhead application rate: (a) budgeted output, (b) normal capacity, and (c) practical capacity.

Provide summary journal entries at the end of the year to (a) record all four overhead cost variances (calculated above, in requirement 12) and (b) to close the variances to Cost of Goods Sold (CGS). Assume that variances were determined using “practical capacity” as the denominator volume level for establishing the fixed overhead application rate and the total overhead application rate. Also assume that the company uses a single account, Factory Overhead, to record overhead costs.

The Cutting Department of Tangu Carpet Company provides the following data for December 2016. Assume that all materials are added at the beginning of the process.

a. Prepare a cost of production report for the Cutting Department. If an amount is zero or a blank, enter in "0". For the cost per equivalent unit computations, round your answers to two decimal places.

b. Compute and evaluate the change in cost per equivalent unit for direct materials and conversion from the previous month (November). If required, round your answers to two decimal places.

Balancing the financial position of a business can be a very tricky endeavor. Financial managers have a wide variety of options available to them as it relates to the management of income and expenditures. How these twin forces are approached operationally and reflected on a business balance sheet can be influenced by a financial manager. This week we will be discussing why certain decisions are made, and the different apparent effects seen on financial statements because of these decisions. Considering this please address the following prompts in your discussion: Can these balances be viewed as “investment” decisions? Is the placement of “investments” in these accounts an ethical practice? Could it be designed to influence reporting results?

you have two assets and must calculate their values today based on their payment streams
and required returns.
asset 1 return of 9% and will produce stream of $300 starting in 1 year and continue indefinitely. Asset 2 has a return of 7% and will produce a cadh flow of 1,400 in 1 year , $ 1300 in 2 years and $850 in 3 years.